Lotz v Coco Chocolates Pty Ltd (RLD) - [2013] NSWADTAP 43

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation: Lotz v Coco Chocolates Pty Ltd (RLD) [2013] NSWADTAP 43
Hearing dates: 29 July 2013
Decision date: 25 September 2013
Jurisdiction: Retail Leases Division
Before: M Chesterman, Deputy President
K Rickards, Judicial Member
P Drake, Non-judicial Member
Decision:
1. The appeal is dismissed.
2. Any application by the Respondents for the costs of these appeal proceedings must be filed and served within 28 days, along with supporting submissions and any additional submissions they may wish to make as to the costs of the proceedings at first instance. Any submissions in reply by the Appellant must be filed and served within a further 28 days. These matters of costs will then be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997, unless the Appeal Panel decides that a hearing is required.

Catchwords: Retail lease - whether lease repudiated by lessee - whether essential terms breached - operation of Conveyancing Act 1919, section 129
Legislation Cited: Administrative Decisions Tribunal Act 1997
Conveyancing Act 1919
Environment Planning and Assessment Act 1979
Environment Planning and Assessment Regulation 2000
Retail Leases Act 1994
Cases Cited: Associated Newspapers Ltd v Bancks (1951) 83 CLR 322
Coco Chocolates Pty Ltd v Lotz [2013] NSWADT 83
Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268
Shevill v Builders Licensing Board (1982) 149 CLR 620
Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361
Category: Principal judgment
Parties: Debrah Ann Lotz (Appellant)
Coco Chocolates Pty Ltd (First Respondent)
Rebecca Kerswell (Second Respondent)
Representation: P Glissan (Appellant)
N J Papallo & Co (Appellant)
Brown & Partners (Respondents)

File Number(s): 139018
Decision under appeal

Citation:

Coco Chocolates Pty Ltd v Lotz [2013] NSWADT 83

Date of Decision:

2013-04-19 00:00:00

Before:

Retail Leases Division

File Number(s):

125042, 125074

reasons for decision

Introduction

This is an appeal against a decision of the Retail Leases Division (Coco Chocolates Pty Ltd v Lotz [2013] NSWADT 83) dismissing two applications for relief under the Retail Leases Act 1994 ('the Act'). The first of these applications (file 125042) was brought by the Respondents to the appeal, Coco Chocolates Pty Ltd ('Coco') and Rebecca Kerswell, against the Appellant, Debrah Lotz. The second (file 125074) was a cross application filed by Ms Lotz against Coco and Ms Kerswell.

The Tribunal heard the matter on 13 August 2012. Mr Glissan of counsel appeared for Ms Lotz and Mr Brown, of Brown & Partners, appeared for Coco and Ms Kerswell. Pursuant to directions given by the Tribunal, the parties then filed supplementary submissions, on 29 October and 13 November 2012 respectively.

The Tribunal delivered its decision on 19 April 2013. On 17 May 2013, Ms Lotz appealed against the dismissal of her cross application.

The hearing of the appeal took place before us on 29 July 2013. Mr Glissan of counsel again appeared for Ms Lotz. Mr Noonan, of Brown & Partners, appeared for Coco and Ms Kerswell.

At this hearing, we rejected an application by Mr Glissan for leave to adduce further evidence. We acceded, however, to an application by him for leave to extend the appeal to a review of the merits of the Tribunal's decision, pursuant to section 113(2)(b) of the Administrative Decisions Tribunal Act 1997 ('the ADT Act'). In consequence, we are required by section 115(1) of this Act to 'decide what the correct and preferable decision is', having regard to the material now before us. The reasons underlying our decisions on each of these applications are outlined below.

At the hearing, we also indicated that, in our decision on the appeal, we would give directions as to the filing of submissions regarding the costs of the hearings at first instance and on appeal.

The nature and course of the dispute between the parties

Ms Kerswell is the sole director and secretary of Coco. Coco and Ms Kerswell are the lessee and guarantor, respectively, under a lease dated 28 May 2010 ('the Lease') from Ms Lotz of a retail shop at the rear of the ground floor of 565 Military Road, Mosman ('the Premises'). A second shop exists at the front of the ground floor.

The Lease is governed by the Act. It has a term of ten years, commencing on 1 June 2010, and contains an option to renew for a further five years. The initial monthly rent was $2,651.52 plus GST. The permitted use is defined as 'chocolate shop'.

In April 2010, during negotiations for the Lease, Ms Kerswell indicated that she required an internal wall of the Premises to be removed, in order to make her business more viable. The Lease accordingly contained an Additional Condition ('AC 25') dealing with this matter. AC 25.01 permitted Coco to 'remove the interior walls within the Premises' and to carry out other works by way of fit-out, so long as a number of stipulations listed in AC 25.02 were observed. The terms of AC 25, along with a number of other relevant provisions of the Lease, are reproduced below.

Various events of significance that then occurred were described as follows in paragraphs [15] to [18] and [42] of the Tribunal's decision:-

15 Kerswell states in paragraphs 10-15 of [her statutory declaration] that she undertook the following actions in relation to obtaining the approval of the proposed works and the construction of those works:

Approval of Proposed Works

10 I spoke to Mr Joe Vertel, a strategic planner working for Mosman Council, who advised me that I should contact a private certifier to sign off on the building works proposal as he did not think I needed to obtain a Development Application. He advised that he thought a Complying Development Certificate ("CDC") would suffice.

11 I engaged a structural engineer, Mr John Bagnall of John Bagnall & Associates Pty Ltd, who provided me with a report dated 1 April 2010 concerning the proposed works

12 I subsequently engaged Fitzgerald Building Certifiers ("Fitzgeralds") as a Principal Certifying Authority ("PCA") able to issue the CDC.

13 On or about 4 June 2010, Paul Lotz (as agent for the Owner) signed the Owners Declaration section of the CDC application form that had been provided to me by Fitzgeralds.

14 The CDC Application makes mention of the 'wall removal' and the plan submitted shows which wall is to be removed.

15 The Plan was lodged with Mosman Council, subsequently Mosman Council confirms having it on file.

16 Although Jeffrey Sharp, the proposed builder, was not a licensed builder, Mr Paul Lotz agreed to Mr Sharp completing the proposed works and subsequently asked Jeffrey Sharp to perform works for Lotz in the upstairs flat above the Premises concurrently with my renovation work. Fitzgerald certifiers were also fully aware of Jeffery Sharp's status as an Industrial Engineer, not a licensed builder. This was also addressed on the CDC application signed by Paul Lotz.

17 On 17 January 2011 Fitzgeralds issued a Final Occupation Certificate.

16 The Final Occupation Certificate contained a statement as follows:

"I, Paul Fitzgerald as the certifying authority am satisfied that the building will not constitute a hazard to the health or safety of the occupants of the building".

17 Subsequently, after the fit out works were completed Lotz became concerned about the state of the works and in particular the removal of the internal wall. She says in her statutory declaration at paragraph 11... '[While] I have been requesting final structural engineer sign off since August 2010, by October 2011 there were multiple issues outstanding including disputes regarding money owed as well as the structural issues".

18 Lotz sought from Coco a sign off from a structural engineer and on 11 January 2012 she wrote to the Certifier, Fitzgeralds for a final confirmation whether or not the CDC included removal of the wall or not. Fitzgeralds responded that no reference was made in the CDC to a wall removal. This then raised doubt in the mind of Lotz as to whether the Occupation Certificate upon which Coco relied, based on the CDC was in fact comprehensive enough to cover the full extent of the works undertaken by Coco in accordance with additional condition 25.02 of the Lease.

42 Lotz stated... that on 23 January 2012, Mosman Council confirmed that no private certifier plans were on record. However, in a separate email from Mr Vertel of Mosman Council on 4 April 2012... to Kerswell, Mr Vertel advised "Yes as previously advised to all parties, a plan has been lodged as part of the CDC application. This plan could best be described as a site plan"...

It is useful to add here that the Final Occupation Certificate issued by Fiztgeralds on 17 January 2011 also stated that the 'building' was 'suitable for its use under the Building Code of Australia'.

In a letter sent on 17 February 2012 to Ms Kerswell, Ms Lotz's solicitors (N J Papallo & Co) alleged that Coco had breached a number of provisions of the Lease, some of which were 'essential terms'. Many of these alleged breaches were of provisions within AC 25.02. On account of one of them, involving an alleged failure by Coco's certifier to provide 'the correct certification on the full scope of the works' carried out in the Premises, the letter claimed that Ms Lotz had been 'obliged to carry out a building code assessment report to identify any further issues of non-compliance'.

The letter then set out a number of 'demands' by Ms Lotz for rectification of these breaches within the 'reasonable time period' of forty days. It stated in conclusion that if Coco failed to meet these demands and to 'make good' on all its obligations under the Lease, Ms Lotz reserved the right to enter and take possession of the Premises, to terminate the Lease without further notice and to claim damages.

Although this letter made no mention of section 129 of the Conveyancing Act 1919, it was treated by the Tribunal, without any opposition from the parties, as constituting a notice under subsection (1) of that provision. We will refer to it, as did the Tribunal, as 'the section 129 Notice'.

The 'building code assessment report' referred to in the section 129 Notice (hereafter 'the BCA Report') was described on the front cover as a 'BCA Audit and Upgrading Report'. It was prepared by a firm of building regulation and fire safety engineering consultants called BCA Logic Pty Ltd. It was dated 5 February 2012 and was addressed to Mr Paul Lotz, the husband of Ms Lotz.

On 23 March 2012, Coco and Ms Kerswell filed their Application for Original Decision in the Tribunal. They also filed an Application for Urgent Interim Order, seeking an interlocutory order against Ms Lotz under the Act.

On 27 March 2012, the Tribunal ordered that until further order Ms Lotz should not interfere with Coco's occupation of the Premises.

The orders sought in Coco's and Ms Kerswell's Application for Original Decision were to the effect that they should be permitted to 'trade in peace', that there should be an 'end to any building dispute', that if no resolution was possible the Lease should be terminated and that they should receive compensation for loss of trade and for legal expenses.

On 23 May 2012, Lotz filed her Application for Original Decision in the Tribunal. She sought an order that Coco should vacate the premises on the date four weeks after Ms Lotz had signed a lease with a new tenant, an order that the Lease 'be terminated' on that date, an award of damages for the alleged breaches of the Lease and a costs order.

The grounds on which Ms Lotz maintained that she was entitled to possession of the Premises included an assertion that Coco by its conduct had repudiated the Lease. The damages that she claimed included compensation for partial loss of rent relating to a residential unit on the upper level of the building in which the Premises were located.

At the hearing before the Tribunal, Mr Glissan applied for leave to amend Ms Lotz's application so as to claim an order that Coco surrender possession of the premises to her four weeks after the date of the order. This amendment was not opposed.

Leave was also granted to Coco and Ms Kerswell to amend their Application so as to include a claim for relief against forfeiture of the Lease. This amendment was also not opposed.

All of the evidence adduced at the hearing was in documentary form. It comprised two statutory declarations signed by Ms Lotz and one signed by Ms Kerswell. Annexed to each of these declarations were copies of a number of documents.

At the conclusion of the hearing, the Tribunal granted leave to Ms Lotz to carry out further inspections of the Premises for the purpose of determining whether further rectification works were required. On 29 October 2012, after inspections had taken place, her solicitors filed supplementary submissions, in which they argued that a number of reports prepared following the inspections gave additional support to her claim of breaches of the Lease by Coco. Annexed to these submissions were copies of the reports.

Coco and Ms Kerswell did not seek leave to file any additional evidence in reply, even though the directions given by the Tribunal included liberty to any party to restore the matter to the list on reasonable notice. On or about 13 November 2012, they did, however, file supplementary submissions in reply.

Relevant provisions of the Lease

The following provisions of the Lease, most of which were reproduced in the Tribunal's decision, are relevant in this appeal:-

CLAUSE 6 USE

How must the property be used?

6.1 The tenant must -

6.1.4 comply with all laws... regulating how the property is used, obtain any consents or licences needed, comply with any conditions of consent...

6.3 The tenant must not -

6.3.1 do anything that might invalidate any insurance policy covering the property... or

6.3.2 use the property... for any activity that is dangerous... illegal... or that is or may become a nuisance or annoyance to the landlord...

CLAUSE 7 CONDITION AND REPAIRS

Who is to repair the property?

7.1 The landlord must -

7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling... and must fix structural defects;

7.1.2 maintain the property in a structurally sound condition; and

7.1.3 maintain essential services.

7.2 The tenant must otherwise maintain the property in its condition at the commencement date and promptly do repairs needed to keep it in that condition...

7.4 If an authority requires work to be done on the property and it is structural work or work needed to make the property safe to use then the landlord must do the work unless it is required only because of the way the tenant uses the property. But if it is any other work or is required only because of the way the tenant uses the property then the tenant must do the work.

CLAUSE 12 FORFEITURE AND END OF LEASE

When does this lease end?

12.1 This lease ends...

12.1.3 if the landlord lawfully demands possession of the property.

12.2 The landlord can enter and take possession of the property or demand possession of the property if:

12.2.1 the tenant has repudiated this lease; or

12.2.2 rent or other money due under this lease is 14 days overdue for payment; or

12.2.3 the tenant has failed to comply with a landlord's notice under section 129 of the Conveyancing Act 1919; or

12.2.4 the tenant has not complied with any term of this lease where a landlord's notice under section 129 of the Conveyancing Act 1919 and the landlord has given at least 14 days written notice of the landlord's intention to end this lease.

12.5 Essential terms of this Lease include...

12.5.3 the obligations of the tenant in clause 6.1 (dealing with use);

12.5.4 the obligations of the tenant in clause 7 (dealing with repairs)...

12.6 If there is a breach of an essential term the landlord can recover damages for losses over the entire period of this lease...

Additional Condition 23 - Additional Tenant Covenants

23.01 The Tenant covenants with the Landlord that the Tenant must...

(b) comply with all statutes, regulations, by-laws or ordinances affecting the Premises or any fixtures or fittings installed by the tenant therein...

(d) at the Tenant's expense repair and maintain the essential fire services for the Premises including fire safety equipment, emergency lighting, smoke detectors, exit signs and fire extinguishers.

Additional Condition 25 - Additional Tenant's Fitout

25.01 Provided the Tenant complies with Additional Condition 25.02, the Tenant may carry out the following works:

(a) remove the interior walls within the Premises, some of which are load-bearing walls; and

(b) other works to fit out the Premises.

25.02 The works referred to in Additional Condition 25.01 must be:

(a) undertaken in a proper and workmanlike manner and commenced only after the Tenant, at its own cost, has consulted a structural consulting engineer for advice concerning the removal of the interior walls within the Premises;

(b) carried out in a workmanlike manner by a contractor under the supervision of persons both approved by the Landlord and in accordance with the advice given by the structural consulting engineer referred to in Additional Condition 25.02(a);

(c) in accordance with all statutes, rules, regulations, proclamations, ordinances, or by-laws present or future and includes applicable Australian Standards and Codes of Practice, requirements, notices, orders, or directions received from or given by any Authorities;

(d) in accordance with and only after plans and specifications have been approved by the Landlord;

(e) in accordance with and only after obtaining the approvals of all relevant Authorities;

(f) only after providing copies to the Landlord of all approvals from relevant Authorities, including without limitation an Occupation Certificate, Construction Certificate and/or such other certificate as may be required pursuant to Additional Condition 25.02(e) hereof in relation to the works prior to carrying out the works;

(g) the Tenant must only engage a reputable and financially responsible contractor...

The Tribunal's decision

A substantial proportion of the Tribunal's decision was devoted to an investigation and determination of Ms Lotz's claim that Coco, in the course of carrying out the fit-out permitted by AC 25.01, had breached a number of the essential terms of the Lease.

The Tribunal's conclusion, based on a number of factual findings that it made, was that no such breaches had taken place.

In the course of this investigation, the Tribunal made determinations as to which provisions of the Lease were 'essential terms'. It held (at [45]) that clauses 6 and 7 fell within this category, on account of the express words of clauses 12.5.3 and 12.5.4.

At [46], it held that AC 25 was also an express term, even though it was not expressly stated to be one. In so deciding, it applied a criterion formulated by Gibbs CJ in Shevill v Builders Licensing Board (1982) 149 CLR 620. In the relevant passage (at 626 - 627), the Chief Justice identified (a) conduct amounting to repudiation and (b) fundamental breach as grounds on which the innocent party to a contract could rescind the contract and claim damages for the failure to perform the obligations imposed by the contract. He then said:-

A third situation in which a right to rescission arises is where there has been a breach of a fundamental or essential term of a contract. In Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 422, Lord Upjohn said:

"A fundamental term of a contract is a stipulation which the parties have agreed either expressly or by necessary implication or which the general law regards as a condition which goes to the root of the contract so that any breach of that term may at once and without further reference to the facts and circumstances be regarded as a fundamental breach..."

The test accepted in Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 337 is whether the term "is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor."

Applying this test (which it quoted at [34]), the Tribunal came to the opposite conclusion regarding paragraphs (b) and (d) of AC 23.01. It held at [46] that these were 'no more than general compliance obligations of the lessee with respect to maintaining the premises' and were 'not in the same category as additional provision 25 which viewed objectively is essential'.

At [26 - 28], the Tribunal considered whether any action taken by Ms Lotz amounted to a demand for forfeiture of the Lease. It pointed out that she never made a 'formal demand' for possession of the Premises. But it accepted Mr Glissan's submission that by seeking an order for possession in her Application for Original Decision and filing and serving this Application she had made a sufficient demand for forfeiture.

A further determination by the Tribunal, based principally on its conclusion that no breaches of the Lease by Coco had been established, was that Coco had not engaged in conduct constituting repudiation of the Lease. It set out its reasoning on this question at [67 - 69]:-

67 In Shevill v Builders Licensing Board (1982) 149 CLR 620 at 625-626, Gibbs CJ held that, to establish repudiation, it must be shown that the tenant "evinced an intention no longer to be bound by the contract; or to fulfil it only in a manner substantially inconsistent with his obligations"... The test to be applied 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.

68 The Tribunal has already determined that Coco was not in breach of essential terms of the Lease or any other breaches as alleged under the section 129 notice or other building breaches alleged in the later submissions. As the Tribunal has found there were no breaches of the Lease as alleged in the section 129 notice and the conduct of Coco in not acting upon the notice therefore cannot be viewed as repudiatory conduct by Coco.

69 If in any event a breach was established, Mr Brown on behalf of Coco submitted such breach was not of a nature that shows "an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with his obligations". On the contrary, it is submitted that Coco's evidence shows that Coco went to great lengths both to ascertain the correct procedure to follow in relation to the proposed fit out works and to obtain Lotz's consent to the works being performed. The Tribunal accepts this submission. The Tribunal is not to judge a party's conduct in undertaking performance of essential terms of the Lease on the basis of an efficiency test. Consequently, the Tribunal finds no evidence of any conduct by Coco in performing its obligations under the Lease that could on the test to be applied be viewed as Coco repudiating its obligations under the Lease entitling Lotz to accept such conduct and forfeit the Lease...

The Tribunal then stated succinctly (at [69]) why on account of its findings and determinations it was bound to dismiss both of the Applications for Original Decision that were before it:-

69... As there was no breach of Lease nor any repudiatory conduct by Coco the Lease cannot be forfeited by Lotz and the question of any rights that Coco might have for relief against forfeiture does not arise to be considered by the Tribunal.

The questions to be resolved in the appeal

Many of the grounds of appeal urged on us by Mr Glissan involved challenges to the Tribunal's rejection of Ms Lotz's claim that Coco had breached a number of provisions of the Lease. He argued also that the Tribunal had erred in rejecting his submission that paragraphs (b) and (d) of AC 23.01 were essential terms of the Lease, and in concluding that Coco's conduct had not been such as to amount to repudiation of the Lease.

A small number of allegations of breach of the Lease on which Ms Lotz based her case before the Tribunal were not pressed in her appeal. We therefore do not need to deal with them.

In discussing the grounds of appeal, it is convenient to deal individually with the allegations of breach that are still pressed. With respect to each of them, we will set out the following: the content of the allegation; the provision(s) of the Lease claimed to have been breached; relevant parts of the evidence; the Tribunal's ruling, together with the reasons given by it; the submissions advanced in the appeal; and our conclusions.

We will then deal with the parties' arguments relating to the characterisation of AC 23.01(b) and (d) and to the claim that Coco repudiated the Lease.

In summary, the allegations of breach of the Lease that are still pressed by Ms Lotz involved the following conduct by Coco in the course of carrying out its fit-out operations: (a) failing to obtain valid approvals and to lodge plans relating to removal of the internal wall; (b) failing to submit the plans for the works to Ms Lotz for her approval; (c) failing to ensure that they were carried out under the supervision of one or more persons approved by her; (d) employing an unlicensed builder; (e) failing to obtain certification in relation to certain plumbing operations and permitting the installation of non-compliant plumbing; (f) creating and failing to remedy defects in the ceiling of the Premises, thereby giving rise to a fire hazard; and (g) failing to lower the height of a step at the rear of the Premises in order to comply with applicable building regulations.

Failure to obtain valid approvals and to lodge plans relating to removal of the internal wall

The parties' contentions and the Tribunal's rulings. The allegation of prime importance made by Ms Lotz in this context was that the CDC that Coco obtained did not authorise the removal of an internal wall. It followed, she claimed, that the CDC and the Final Occupation Certificate were 'illusory'. She alleged also that Coco breached a statutory obligation to lodge relevant plans with Mosman Council ('the Council') within two days after the CDC was granted.

For these reasons, she maintained, Coco had contravened the following obligations imposed by AC 23.01(b) and AC 25.02(c), (e) and (f): to have the fit-out operations carried out in accordance with all relevant laws etc, to obtain the requisite approvals and to provide copies of all these approvals to her. The section 129 Notice contained allegations to this effect.

A further consequence described by Ms Lotz was that she became concerned about the structural integrity of the building. She expressed her concerns to her insurers, who declined on this account to renew her insurance policy. This was a further item of complaint in the section 129 Notice. But the insurers subsequently renewed the policy, in response to a further communication from her and her husband advising that a structural engineer engaged by them had confirmed the soundness of the building.

The five paragraphs ([15 -18] and [42]) of the Tribunal's decision that we reproduced above at [10] show that the evidence on these matters contained a number of contradictions.

In a letter written to Mr Lotz on 16 January 2012 and mentioned by the Tribunal at [18], Mr Fitzgerald stated that the CDC was 'issued for "Shop Fitout" only with no reference to the internal wall'. An enclosed copy of the CDC also did not refer to removal of a wall. In a letter to Ms Lotz dated 23 January 2012, the Council stated that no private certifier plans had been lodged (see [42]). However, she later obtained a copy (which was annexed to her first statutory declaration) of a plan of the Premises that the Council claimed to have received at some stage. This plan did not indicate that a wall was to be removed.

Ms Kerswell's evidence on these matters was quite different. She maintained (see again the Tribunal's decision at [42], and paragraphs 14 and 15 of her statutory declaration, quoted at [15]) that the CDC application mentioned the wall removal, that the plan lodged with the Council showed which wall was to be removed and that the Council confirmed having received such a plan.

It is not surprising that at [44] the Tribunal made the following observation: 'The resolution of the dispute between the parties has not been assisted by the inconsistent advice received by the parties from Mosman Council...' It could be added that the advice conveyed by Fitzgeralds was similarly unhelpful.

At [48] and [49], the Tribunal determined in the following manner Ms Lotz's claims that Coco had breached paragraphs (c), (e) and, by implication, (f) of AC 25.02:-

48... After many emails and discussion between the parties, Mosman Council and the certifier eventually agreed that a CDC had been issued. Accordingly, additional condition 25.02(c) has been complied with.

49... A CDC application was made and approval granted by Mosman Council and therefore additional condition 25.02(e) has been complied with. Lotz now has the relevant approval, together with confirmation from the structural engineer, Mr Bagnall, that the wall removed was not load bearing...

In the appeal, Mr Glissan repeated these allegations of breach of the Lease by Coco. He applied also for leave to adduce further evidence relating to them.

The main component of this evidence was a copy of an adverse disciplinary determination made by the Building Professionals Board on 15 March 2013 against Mr Fitzgerald. The complaints with which it dealt included a complaint by Ms Lotz. All of the six allegations in this complaint related to Mr Fitzgerald's discharge of his duties as an accredited certifier for Coco's fit-out operations.

As indicated earlier in this decision, we rejected Mr Glissan's application for leave to adduce this evidence. We did so on the ground that, although the Board's determination was based in part on its view of Mr Fitzgerald's professional conduct with regard to Coco's fit-out operations, the questions that it addressed differed materially from those which arise in this appeal.

The remaining item of evidence that Mr Glissan sought to tender by leave was a copy of a letter dated 13 June 2013 from the Council to Ms Lotz. This letter outlined the steps that needed to be taken if work on a property had been carried out without development consent. We did not consider this evidence to be of sufficient weight to warrant being admitted in appeal proceedings.

In his submissions, Mr Noonan drew our attention to Ms Kerswell's statements in her statutory declaration (see [10] above) that on or about 4 June 2010 Mr Lotz signed the application for a CDC on behalf of the owners of the Premises and that this application expressly indicated that an internal wall was to be removed. He argued that since the application was signed on behalf of Mr and Ms Lotz it was wrong to characterise Fitzgeralds, the certifier, as an agent of Coco. Ensuring the validity of the CDC and the Final Occupation Certificate was, he said, a matter for Fitzgeralds and/or the Council, not a responsibility borne by Coco.

In relation to the lodgement of appropriate plans with the Council following the issue of the CDC, Mr Noonan relied on the Council's statement to Ms Kerswell that this had been attended to. He pointed out also that the duty of lodgement was imposed by relevant legislation on Fitzgeralds, the certifier, not on Coco or on the owners of the building.

Our conclusions. In our judgment, three aspects of the evidence and the governing law on these matters are crucial to the determination of these claims by Ms Lotz that Coco breached the Lease.

First, Mr Lotz, in signing the application for a CDC, participated in the appointment of Fitzgeralds as the certifier. Because he signed on behalf of his wife as well as himself, she must also be taken to have participated in this appointment.

A copy of two pages of the form that he signed was annexed to Ms Kerswell's statutory declaration. Relevantly, the first page, headed 'Section 1', indicated that the form was an application for a CDC, that the applicant 'must be the owner', that the owner was Ms Lotz and, as already mentioned, that the proposed development would include 'wall removal'. The second page was headed 'Owners Declaration'. This declaration contained a clause indemnifying Fitzgeralds against 'any damages, losses or suffering as a result of incorrect information' provided in Section 1. Its concluding clause, appearing immediately above Mr Lotz's signature, was in these terms: 'As owners of the above mentioned property I/we wish to appoint Paul Fitzgerald as PCA.' ('PCA' evidently means 'principal certifying authority'.) Mr Lotz's signature appeared alongside the words 'Owners Signature'. On the line immediately below, the handwritten phrase 'Paul and Deb Lotz' appeared beside the word 'Name/s'. The date of signature was stated to be 2 June 2010.

Secondly, the function which Fitzgeralds, an accredited certifier, was thereby authorised to perform was that of a certifier appointed under section 85A of the Environment Planning and Assessment Act 1979 ('the EPA Act'). Its duty was to act as an independent body in issuing a CDC. It was similarly obliged to act as an independent body when issuing the Final Occupation Certificate under section 109D of this Act. Within limits imposed by the Act, its tasks were the same as those regularly performed by local authorities.

Thirdly, as Mr Noonan pointed out, the duty to lodge relevant plans with the Council within two days after issuing the CDC was a duty imposed by the Environment Planning and Assessment Regulation 2000 on Fitzgeralds, the certifier. The provision imposing this duty is clause 130(4).

Taking these three considerations are taken into account, we conclude that Ms Lotz's claims of breaches by Coco of AC 25.02(c), (e) and (f) are not made out. Our reasons are as follows.

Fitzgeralds, in its role as an accredited certifier, was an independent authority exercising functions conferred upon it by the EPA Act. Accordingly, it could not be regarded merely as an agent of either or both of the parties. The fact that Mr Lotz signed the 'Owners Declaration' section of the application for a CDC on behalf of Ms Lotz (as well as on his own behalf) constitutes a further reason for rejecting her claim that Fitzgeralds was an agent of Coco. In its role as an accredited certifier, Fitzgeralds - not, as both the Tribunal (at [49]) and some of Ms Lotz's submissions appeared to assume, the Council - issued the CDC. The application for the CDC referred expressly to removal of the internal wall. We cannot understand why Mr Fitzgerald should have stated the opposite in his letter dated 16 January 2012 to Mr Lotz. We can only assume that he failed to check the contents of the application before writing this letter.

In these circumstances, it cannot be maintained - or at least, cannot be maintained against Coco - that the CDC was invalid or 'illusory' on the ground that it did not cover this aspect of the fit-out operations. On the face of it, Ms Lotz, as owner, and Coco, as potential tenant, applied for and were granted a CDC which authorised, among other things, the removal of the internal wall.

The evidence suggests that in issuing the CDC and/or the Final Occupation Certificate Fitzgeralds may well have contravened provisions of the EPA Act and/or the regulations made under that Act. It appears likely, in particular, that the plans which it lodged with the Council following issue of the CDC did not indicate that an internal wall was to be removed. But because Fitzgeralds was an independent authority appointed by Mr and Ms Lotz as well as by Coco, these contraventions are not contraventions for which Coco could be held responsible under AC 25.02(c) or AC 23.01(b).

Furthermore, no argument was put to us to establish that any such contraventions committed by Fitzgeralds would invalidate either the CDC or the Final Occupation Certificate that it issued. We do not see why this result would necessarily follow. Accordingly, these two certificates must be regarded as valid 'approvals' by a 'relevant Authority' that Coco was required by AC 25.02(e) to obtain and did in fact obtain.

As we understand Ms Lotz's argument relating to AC 25.02(f), it was based on the proposition that the 'approvals' of which she received copies from Coco were invalid or 'illusory'. Since we have held this not to be the case, her argument fails.

For the foregoing reasons, Ms Lotz claims of breach of AC 23.01(b) and AC 25.02(c), (e) and (f), stemming from various aspects of the evidence regarding the conduct of Fitzgeralds, must be rejected.

Failure to submit plans to Ms Lotz for her approval

The parties' contentions and the Tribunal's rulings. The relevant allegation by Ms Lotz was that Coco breached AC 25.02(d) by not submitting the plans and specifications relating to its fit-out operations to her for her approval before these operations commenced.

As the Tribunal stated at [49], there was 'no direct evidence to say that Coco provided the plan and [Ms] Lotz approved it'. Coco and Ms Kerswell maintained before the Tribunal, however, that there were two reasons why Ms Lotz could not complain about any failure on its part to comply with AC 25.02(d).

We have already mentioned the first of these reasons. It was that on 2 June 2010 Mr Lotz, purportedly on behalf of the owners of the Premises (whom he indicated to be himself and Ms Lotz) signed the application for a CDC and that in this application the most important feature of the fit-out operations - namely, that an internal wall was to be removed - was expressly mentioned. Coco and Ms Kerswell did not allege, however, that Mr Lotz viewed any plans accompanying the application, even though it was their case that an appropriate plan was lodged with the Council as part of the application.

The second reason was that Ms Lotz should be held to have waived the requirements of AC 25.02(d). The grounds for this contention were that neither she nor her husband had asked at the time to see any plans for the fit-out and that in an email sent to Ms Kerswell on 10 January 2011, when the fit-out was substantially complete, they said that subject to a couple of minor considerations 'everything' was 'fine' in relation to the fit-out.

In response to these contentions (and also in the context of Ms Lotz's allegation that Coco breached its obligation in AC 25.02(b) to ensure that the fit-out operations were supervised by a person or persons approved by her), Mr Glissan argued that there was no evidentiary basis for a finding that Mr Lotz had acted as an agent for Ms Lotz. He argued also that there were no grounds for a ruling that she had waived compliance with the obligation to submit plans to her.

At [49], the Tribunal dealt as follows with this matter:-

49 The question whether Lotz [i.e., Ms Lotz] approved the plan is vexed. There is no direct evidence to say that Coco provided the plan and Lotz approved it. The plan annexed to the application for a CDC held at Mosman Council was a copy of the plan out of the Lease. Nevertheless Lotz signed the application for a CDC and also Lotz had the work supervised by her agent Mr Paul Lotz. No complaint was made at the time of lodging the CDC application nor at the time of the work being undertaken that a plan had not been provided to Lotz and had not been approved. In these circumstances whatever breach had been made by Coco in not supplying a plan had been subsequently waived by Lotz by the conduct of her agent in the supervision of the work...

In his written submissions in the appeal, Mr Glissan argued again that there was 'no evidence before the Tribunal' to support its finding that Mr Lotz had supervised the fit-out operations as the agent of Ms Lotz and that since he was not her agent, he had no authority to waive on her behalf Coco's failure, in contravention of AC 25.02(d), to supply the plans for these operations to her for her approval.

In his oral submissions, Mr Glissan acknowledged that Mr Lotz had acted as agent for his wife in signing the CDC application. But he still maintained that no authority, actual or ostensible, had been conferred on Mr Lotz to act as her agent in any other context.

On the question of agency, Mr Noonan submitted that there was ample evidence to show that Mr Lotz purported to act as agent for his wife in a number of relevant contexts. In addition to his signing the CDC application, this included unchallenged testimony by Ms Kerswell to the following effect: (a) during negotiations for the Lease, she asked him whether she might be permitted to remove the internal wall of the Premises, and he was 'generally agreeable' to this proposition; (b) he agreed to the engagement of Mr Sharp to complete the fit-out; (c) he was present at the fit-out operations 'almost every day' (including particularly when doors to the Premises were replaced and the rear step was widened); and (d) the email message of 10 January 2011 expressing approval of the fit-out came jointly from him and Ms Lotz.

Our conclusions. An important premise underlying the Tribunal's determination of this question in favour of Coco and Ms Kerswell was, as we have indicated, its finding that to the relevant extent Mr Lotz was an agent of Ms Lotz.

We agree with this proposition, though in our judgment the Tribunal erred through not giving adequate reasons for adopting it. The Tribunal merely stated it at various points (specifically in [41], [47], [48] and twice in [49]) without referring to any evidence in support. By virtue of the evidence on which Mr Noonan relied, we are satisfied that Ms Kerswell was entitled to treat Mr Lotz as his wife's agent in all dealings relating to the Lease. There is no evidence that Ms Lotz conferred actual authority on him, but he did have ostensible authority.

On the footing that Mr Lotz was his wife's agent, we agree with the Tribunal that his conduct, along with her co-operation with him in sending the email of 10 January 2011, could legitimately be construed by Ms Kerswell as waiving the requirement in AC 25.02(d) for the fit-out plans to be submitted to her for her approval. It follows that Ms Lotz's claim of contravention of this requirement must be rejected.

Failing to ensure supervision by one or more approved persons

The parties' contentions and the Tribunal's rulings. The relevant allegation by Ms Lotz was that Coco breached AC 25.02(b) by not ensuring that the fit-out operations were carried out under the supervision of a person or persons approved by her.

The Tribunal's brief ruling on this matter, at [48], was as follows:-

48... Mr Sharp undertook the work and Mr Paul Lotz, as agent for Lotz supervised the work and the builder. Thus additional condition 25.02(b) has been complied with.

In his written submissions in the appeal, Mr Glissan argued that, in addition to there being no relationship of principal and agent between Ms and Mr Lotz, Mr Lotz was 'not qualified to carry out or supervise building work' and was 'a mere observer'. He did not elaborate on this contention in his oral submissions.

While acknowledging that Mr Lotz did not supervise this work in any technical capacity, Mr Noonan submitted that his conduct in observing what was done operated in 'substitution' for Ms Lotz's supervision for the purpose of ensuring that all visible aspects of the fit-out was sufficiently to her liking.

Our conclusions. Being satisfied, for reasons already explained, that Mr Lotz had ostensible authority to represent his wife, we are satisfied also that his continuing observation of the fit-out operations (as described by Ms Kerswell) either constituted 'supervision' of them in accordance with AC 25.02(b) or gave legitimate grounds for Ms Kerswell to believe that Ms Lotz did not insist on any closer or more 'technical' supervision taking place on her behalf.

On these grounds, we agree with the Tribunal that this complaint of contravention of AC 25.02(b) is not made out.

Employment of an unlicensed builder

The parties' contentions and the Tribunal's ruling. Ms Lotz maintained that Coco, through employing a contractor (Mr Sharp) who was not a licensed builder, contravened its obligation under AC 25.02(a) (see also AC 25.02(b)) to ensure that the fit-out works permitted by AC 25.01 were 'undertaken in a proper and workmanlike manner'. Although at the Tribunal hearing it was claimed that the employment of Mr Sharp also contravened clauses 6.3.2 and 7.4, this claim was not repeated in the appeal.

It was not disputed that Mr Sharp was not a licensed builder. As the Tribunal pointed out at [40], however, Ms Kerswell testified that Mr Lotz agreed to his being employed and indeed engaged him subsequently to carry out work in the residential unit above the Premises. Ms Kerswell also stated that Mr Sharp was a licensed engineer.

At [47], the Tribunal ruled as follows on this matter:-

47... There appears to have been no complaint from Lotz about the nature of the work undertaken by the builder, Mr Sharp. Only now is Lotz asserting that Mr Sharp was not a licensed builder and that this constitutes a default by Coco. Further, there was no evidence presented to the Tribunal that a builder of commercial premises is required to be licensed. The Tribunal is asked to make an assumption that because Mr Sharp was not licensed, then the work carried out by him may not have been in a proper and workmanlike manner. There was no evidence to support that assumption...

In his submissions in the appeal, Mr Glissan argued that the statement made in the first sentence of this passage constituted an error of law. Referring to the alleged defects in the plumbing and the ceiling caused by the fit-out works and to the failure to lower the height of the rear step so as to comply with building regulations, he contended that in fact there was indisputable evidence of 'complaint from Lotz about the nature of the work undertaken by the builder, Mr Sharp'.

In responding on this specific point, Mr Noonan relied on an email message dated 10 January 2011 to which we have already referred (at [69]). In reply to a message from Ms Kerswell describing the completion of certain aspects of the fit-out and asking them to 'confirm agreement all finalised', Mr and Ms Lotz said that 'everything' was 'fine', except for three matters which had no bearing on the quality of Mr Sharp's workmanship. Mr Noonan pointed out that this correspondence took place after Mr Sharp had finished working in the Premises.

With reference to the above-quoted extract from paragraph [47] of the Tribunal's decision, Mr Glissan further argued that since some of the defects in workmanship had been identified in an expert report on the state of the Premises - i.e. the BCA Report - the Tribunal erred in stating that there was 'no evidence' to support 'an assumption that because Mr Sharp was not licensed, then the work carried out by him may not have been in a proper and workmanlike manner'.

Mr Noonan's response was that on the specific question posed by the Tribunal - whether or not it should be assumed that because Mr Sharp was not licensed, the work carried out by him might not have been completed in a proper and workmanlike manner - there was indeed no evidence before the Tribunal. The expert evidence to which Mr Glissan adverted did not address this question.

Our conclusions. We agree with Mr Glissan that it was incorrect to say that there appeared to have been no complaint by Ms Lotz regarding Mr Sharp's work in the Premises. As at the date of the email correspondence on which Mr Noonan relied, she did appear to be satisfied with what he had done. But she subsequently conveyed to Coco a number of complaints on the matters identified by Mr Glissan. The Tribunal's misdescription of the evidence on this point was, in our opinion, an error of law.

Mr Noonan's submission on the question whether there was evidence supporting any 'assumption' flowing from Mr Sharp's not being licensed is correct as far as it goes. But the Tribunal's ruling on this question did not address the primary matter that required determination in this context: namely, whether or not the fit-out work for which he was responsible had indeed been carried out 'in a proper and workmanlike manner'.

It would appear that the Tribunal, having mistakenly said that Ms Lotz had made no complaint about the quality of this work, overlooked the necessity to record its own finding on this matter. It is in fact a matter whose resolution calls for an assessment of the merits of the next three allegations of breach of the Lease set out in the above list, relating respectively to plumbing operations, fire safety and the height of the rear step.

These errors by the Tribunal, along with two further errors identified below, constituted the grounds on which we ruled during the hearing that the appeal should be extended to a review of the merits under section 113(2)(b) of the ADT Act. None of them was an error of major import. But when considered in conjunction, they constitute sufficient grounds for revisiting the evidence on significant matters of dispute in these proceedings.

Our ultimate conclusion on Ms Lotz's claim that the fit-out operations were not carried out in a 'proper and workmanlike manner' is that, subject to one exception relating to fire safety, it was not established by the evidence. This follows from our rulings, on grounds that we will now explain, relating to her allegations of non-compliance with requirements relating to the plumbing, the ceiling and the rear step.

Defective plumbing

The parties' contentions and the Tribunal's rulings. Ms Lotz put forward two allegations in relation to the plumbing works carried out by Coco in the Premises.

Her first allegation was that Coco, in breach of AC 25.02(c), failed to obtain proper certification with regard to plumbing operations carried out during the fit-out of the Premises. These related to the installation of a new sink and the modification of an existing washbasin and toilet.

This claim was advanced in the section 129 Notice, but no particulars were given as to the nature of the certification required. On this matter, the Notice simply said: 'As a result of the BCA, the Lessor demands that you... provide certification in relation to plumbing such that the required building standards are met'.

Ms Lotz's second allegation was that the inspection of the Premises carried out after the Tribunal hearing had finished revealed a number of defects in the plumbing. It followed, she maintained, that Coco had breached its obligation under AC 25.02(a) and (b) to ensure that the fit-out operations were carried out in a 'proper and workmanlike manner'.

The evidence that Ms Lotz adduced in support of this allegation was a report prepared by Longlife Plumbing Pty Ltd ('Longlife'). This company described itself on its letterhead as 'plumbers, drainers, gasfitters'. Its report, which was dated 2 September 2012, included the following findings:-

On a plumbing inspection of the property the following non compliant plumbing works were found.

Water pipes

- The water pipe work was under sized...

- No isolating tap under the kitchen sink for the sink mixer...

Waste pipe

- Junction under vanity in toilet was upside down.

- The pipe work to kitchen sink and basin are connected as a stack. It is not vented.

Coco and Ms Kerswell did not adduce any evidence in response to this report.

The Tribunal held at [62] that the report by Longlife was 'inconclusive and too vague to constitute evidence regarding any breaches'. It agreed with the arguments put in their supplementary submissions by Coco and Ms Kerswell, which it summarised briefly at [59]. They included the observation that the report contained 'no reference to the Building Code of Australia or other standard to measure the alleged breaches against'.

At the appeal hearing, Mr Glissan mentioned, but did not press strongly, the claim in the section 129 Notice that 'certification' as to the plumbing should have been furnished. His arguments with regard to the alleged defects in the plumbing were as follows: (i) they were clearly established, since no evidence had been adduced to rebut the conclusions reached by Longlife; (ii) they were sufficient in themselves to demonstrate that the fit-out works had not been carried out in a 'proper and workmanlike manner' as required by AC 25.01(a) and (b), or in accordance with all applicable standards as required by AC 25.01(c); and (iii) at the time of the Tribunal hearing, they had not been rectified.

Mr Noonan did not address these questions arising from the plumbing operations, except to point out that the plumbing had been done by a licensed plumber engaged by Mr Sharp, not by Mr Sharp himself.

Our conclusions. In our opinion, the 'demand' for certification made by Ms Lotz in the section 129 Notice was inadequate for the purposes of a notice of this nature, for two reasons. First, it did not stipulate what form of 'certification' was required. Secondly, in referring to the BCA Report, it conveyed the misleading impression that this Report contained some form of critical comment on the absence of certification. In fact, the only statement relating to plumbing made in the Report was as follows: 'This report does not include, or imply compliance with: (a) the National Construction Code - Plumbing Code of Australia Volume 3...'

In order to explain this ruling, we will reproduce the relevant provisions (subsections (1) and (8)) of section 129 of the Conveyancing Act 1919, then quote a short passage from a leading authority on the operation of subsection (1).

These two subsections state as follows:-

129 Restrictions on and relief against forfeiture of lease

(1) A right of re-entry or forfeiture under any proviso or stipulation in a lease, for a breach of any covenant, condition, or agreement (express or implied) in the lease, shall not be enforceable by action or otherwise unless and until the lessor serves on the lessee a notice:

(a) specifying the particular breach complained of, and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach, and

(c) in case the lessor claims compensation in money for the breach, requiring the lessee to pay the same,

and the lessee fails within a reasonable time thereafter to remedy the breach, if it is capable of remedy, and where compensation in money is required to pay reasonable compensation to the satisfaction of the lessor for the breach.

(8) This section shall not affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.

The passage in the case law on which we rely comes at the end of a lengthy discussion of section 129(1) in the judgment of Hodgson JA in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [307 - 324]. At [323 - 324], having reviewed relevant authorities, his Honour said:-

323 In my opinion, the above authorities clearly indicate that a notice under s 129 must not only allege breach, but must also describe the particular acts or omissions constituting the alleged breach; and the notice must indicate the acts of the tenant which the landlord would consider sufficient for the lease to continue, and upon completion of which the landlord would abandon its claim to forfeit. The standard of particulars or degree of specificity depends upon the circumstances, including the nature of the covenant alleged to be breached, the tenant's actual or constructive knowledge, and whether the landlord claims reasonable compensation. To use the example of Lord Buckmaster LC, where there are several options open to a tenant to waterproof a leaking ceiling, then that choice is at the tenant's discretion. Thus s 129 is, in my opinion, directed at allowing the tenant to bring about (within a reasonable time) a state of affairs under which the landlord would not pursue forfeiture.

324 In particular, the lessee should not be left to speculate as to whether, if it took whatever action it could to remedy the specified breaches, the lessor might nevertheless proceed to terminate the lease on the basis that the breaches were not capable of remedy or that, because what the lessee did was insufficient to eliminate loss caused to the lessor by the late performance of the lessee's obligations, the lessee was still in breach.

It clearly cannot be said that the 'demand' in the Notice to 'provide certification in relation to plumbing such that the required building standards are met' satisfies the criteria laid down by Hodgson JA, This is particularly the case because the BCA Report, on which this demand was explicitly based, stated at the outset that it did not deal at all with the question of plumbing.

It is relevant also to recall that the Final Occupation Certificate issued by Fitzgeralds on 17 January 2011 included a statement that the 'building' was 'suitable for its use under the Building Code of Australia'.

It follows that any claim by Ms Lotz to terminate the Lease by virtue of these alleged defects must be rejected. The defects were not properly identified in the section 129 Notice or in any later notice served under this section.

As to the significance of the defects in the plumbing outlined in Longlife's report, we agree with the position taken by the Tribunal. In reaching this conclusion, we derive assistance from aspects of Coco's and Ms Kerswell's supplementary submissions that the Tribunal did not mention. In addition to relying on the Final Occupation Certificate as evidence that applicable standards had been complied with, these submissions made the following specific points with regard to Longlife's report: (a) it did not indicate the actual size or the 'alleged necessary size' of the water pipe claimed to have been 'under sized'; (b) it did not state 'in what respect' the absence of an isolating tap under the kitchen sink was non-compliant; (c) it did not indicate whether an upside down joint was non-compliant or merely reflected a 'non-critical error' on the part of the plumber; and (d) it did not set out in sufficient detail why the connection of the 'pipe work to kitchen sink and basin' was non-compliant.

Ms Lotz's claim for damages on the ground of defects in the plumbing depends on whether it can be held that the plumbing operations were not carried out in a 'proper and workmanlike manner' and/or that applicable standards were not met. On these questions, the onus of proof lay on her.

In our opinion, more precise and compelling evidence of the nature of the claimed defects was required than the distinctly brief report prepared by Longlife. In these circumstances, the contravention of a clause requiring adherence to a 'workmanlike' standard is not proved merely by showing that the work performed was not entirely perfect. Furthermore, the specific standards claimed to have been contravened were not identified.

For these reasons, we reject Ms Lotz's claim for damages in so far as it was based on alleged defects in the plumbing works carried out in the Premises by Coco.

Creating and failing to remedy a fire hazard in the ceiling

The parties' contentions and the Tribunal's rulings. In the section 129 Notice, one of the 'demands' made by Ms Lotz 'as a result of' the BCA report was that Coco 'correct the ceiling of the Property to meet the fire regulation standards'. She indicated in the notice that she was willing to allow Coco to 'use' the BCA Report to assist in identification of the works that were 'in breach of the building standard's codes for fire and safety'.

At the appeal hearing, Mr Glissan indicated that his client still pressed her allegation of the defects described in the following passage in this Report. It appeared under the heading 'Fire Resistance':-

Any penetration through [the] ceiling [of the Premises] will need to be treated in a manner that maintains the fire protective covering. Given the disruption and cost associated with this work it is recommended that Council apply its discretion and consider the alternative of providing a system of mains powered fire alarms suitably interconnected to an alarm within the residential unit. Activation of one of these alarms on the ground floor would suitably notify those occupants on the top floor providing them sufficient notification to safely evacuate.

A number of door and window openings exist within the external walls of the building and are located within 3m of the property boundaries. These openings are not treated or protected in a way which would maintain the fire resistance of the walls as would be required by C3.2 and C3.4 of BCA 2011.

In addition, a section of the Report headed 'Deemed to Satisfy Clause Assessment Summary' contained the following entry:-

C3.12: Openings in Floors and Ceilings for Services - Any openings or service penetrations penetrating the fire protective covering must be done and protected so that the fire performance of the covering is maintained - CRA

An accompanying note gave the following explanation for the letters 'CRA':-

'COMPLIANCE READILY ACHIEVABLE'. It is considered that there was not enough information included in the documentation to accurately determine strict compliance with the individual clause requirements. However, subject to noting the requirements of each clause, compliance can be readily achieved.

Ms Lotz relied also on a 'budget estimate' (hereafter 'the consultant's report') that a firm called 'i.d. Projects' sent to Mr Lotz on 30 August 2012. This was one of the documents annexed to her supplementary submissions to the Tribunal filed on 29 October 2012. It commenced as follows:-

From our brief visual inspection we would concur with the report you've received from BCA access (sic) and do not believe that an adequate fire separation has been achieve (sic) between the café and the residence above.

Due to the limited time we were able to spend on site and our inability to return to the site with specialist contractors and undertake any physical inspections, we have provided quotations based on two scenarios.

The two quotations then provided related respectively to the relining and the 'reusing' of the existing ceiling. Each of them included the supply and installation of '8 off new fire protection downlight covers'.

Also attached to these supplementary submissions were photographs demonstrating that the fit-out works conducted by Coco included the demolition of the existing ceiling and the installation of a new ceiling and cornice.

In his arguments to the Tribunal, Mr Glissan maintained that the continuing failure by Coco to address these concerns properly amounted to contravention of clause 7.4, AC 23.01(d) and AC 25.02(b)-(g) of the Lease.

Mr Glissan argued also that on account of this failure Ms Lotz had been unable to place a tenant in the residential unit above the Premises. This followed from the fact that she was under a duty to 'ensure that all OH&S matters are compliant' and that 'failure to do so could result in criminal liability'.

In Ms Lotz's Application for Original Decision, her claim for damages, based on this argument, included a component described as 'a partial amount of lost rent in relation to the upper level of the Property'. The amount that she claimed under this head was $9,750, representing a weekly rent of $750 for the period of thirteen weeks after 21 March 2012 (this being the date of expiration of 40 days from the date of the section 129 Notice). In her supplementary submissions, this claim was enlarged to an amount of $24,000 and described as 'ongoing'.

In its decision at [53 - 54], following a summary of the statements about fire safety contained in the BCA Report, the Tribunal both outlined the submissions advanced by Mr Brown and set out some conclusions:-

53 Mr Brown submitted that the evidence adduced by Lotz in support of her claim that Coco's fit out works do not conform with fire safety regulations is insufficient. The BCA report simply raised concerns but did not state either that there is a problem or that Coco's fit out works have caused a problem. The Final Occupation Certificate notes the fire safety measures as attachments and makes the declaration as to safety as noted in paragraph 16 of these Reasons.

54 In relation to the alleged piercing of the ceiling as a major fire safety concern and a breach of the Lease the Tribunal finds that the evidence from the BCA Report is inclusive (sic) and uncertain. Interestingly, in Part 1 of the BCA Report under Audit Objectives, the following statement is found "This report is to accompany a development application for the proposed strata subdivision of the property". Further, the Tribunal notes that additional condition 31 of the Lease states that Lotz "may lodge a strata plan" and Coco is not to object. As Mr Brown submits the BCA report is a report on what has to be done by the owner Lotz to prepare the building to be separated into two separate premises pursuant to a strata plan. The Tribunal agrees with the submission by Mr Brown that the BCA Report should not be relied upon in assessing whether the fit out works by Coco created fire safety issues and instead rely on the Final Occupation Certificate which is conclusive on this matter, given the statement by the certifier that there are no hazards to health and safety...

At [56 - 57], the Tribunal summarised the evidence on fire safety matters that accompanied Ms Lotz's supplementary submissions and outlined her claim that on account of uncertainty about fire safety and concern for occupational health and safety issues she had not been able to place a tenant in the residential unit.

At [58] and [60], the Tribunal outlined the response on these matters that Coco and Ms Kerswell conveyed in their supplementary submissions:-

58 Mr Brown in his submissions in reply on behalf of Coco pointed out that the consultant report on fire safety matters noted that no specialist contractors were able to undertake any physical inspection and stated "from brief visual inspection we would concur with the (BCA Report) you have received and do not believe that an adequate fire separation has been achieved between the café and the residence above". Mr Brown submits that this consultant's report is inadequate in dealing with any alleged breach of fire safety to the premises in the building by Coco as it merely reinforces the original comments made in the BCA Report regarding separation of premises for strata plan purposes.

60... Mr Brown points out in the evidence from Coco... is an email from Mr Rod Marr, real estate agent dated 12 April 2012 confirming that in August 2011, he submitted to Lotz a tenancy proposal for the upstairs apartment and "the owner declined this proposal and advised us that he did not wish to let the premises".

At [61 - 62], the Tribunal set out its conclusions on these matters:-

61 The Tribunal finds that the BCA Report and the consultants' report focus on the necessary requirements to separate the premises from the upstairs flat for the purposes of lodging a strata plan for the building. The only feature of the fit out by Coco that appears to be non-compliant is new light covers - called fire protection down light covers. The Tribunal is of the opinion that it is not an obligation on a lessee of one part of premises in a building to ensure that the separation of it from other premises in the building is fire safety complaint. This is the responsibility of the Lessor. However, in relation to the premises the Tribunal notes the concession by Mr Brown on behalf of Coco that Coco would comply with any necessary fire safety recommendations and consequently the Tribunal notes that fire protection down light covers should be installed at the cost of Coco.

62... With respect to the claim for lost rent the Tribunal takes note of the underlying reason for Lotz obtaining the BCA report in the first place, for the purposes of lodging a strata plan, as mentioned in the Lease and from the evidence from Coco that Lotz rejected the offer of a tenant and finds that vacancy in the upstairs flat is as a result of the commercial decisions made by Lotz and has nothing to do with any concern by Lotz regarding fire safety and compliance with Occupational Health & Safety issues.

In his submissions to us, Mr Glissan focused particularly on the requirement to install fire protection downlight covers and fire alarms described in the BCA Report and the consultant's report. He pointed out that at the Tribunal hearing Mr Brown conceded that covers should be installed. He also argued that, on grounds outlined above, the Final Occupation Certificate could not be treated as conclusive on fire safety issues.

The submissions by Mr Noonan were along the same lines as those put before the Tribunal by Mr Brown. They included a statement, to which Mr Glissan raised no objection, that downlight covers had in fact been installed.

Our conclusions. As we understood Mr Glissan's submissions, Ms Lotz still pressed her claim for damages on the ground that Coco's fit-out works created fire safety hazards for the reasons stated in each of the two paragraphs in the BCA Report that we quoted above at [117].

We do not see how the contents of the second paragraph could be relevant. They relate to 'door and window openings within the external walls of the building', not to any part of the building for which Coco, as lessee, might be responsible.

The matters raised in the first paragraph do, however, require careful consideration. Although the Final Occupation Certificate stated that there was no fire hazard in the Premises, and although the BCA Report was concerned with Ms Lotz's plans for strata subdivision rather than the fit-out works conducted by Coco, this paragraph did sufficiently indicate that remedial work of some sort was required in the interests of fire safety. Since there was unchallenged evidence that Coco had installed a new ceiling as opposed to repairing or modifying an existing one, this was in our judgment a matter on which it bore responsibility. The concession by Mr Brown (in his supplementary submissions filed on 13 November 2012) that Coco should undertake at its own cost the specific remedial measures recommended in the consultant's report, involving the installation of fire protection downlight covers, is in line with this opinion.

On this specific point, we respectfully disagree with the conclusion stated in paragraph [61] of the Tribunal's decision. The Tribunal, in our opinion, erred in law through not taking due account of the unchallenged evidence that Coco installed a new ceiling, as opposed to modifying an existing one.

Coco cannot, however, be held answerable for failure to undertake immediate remedial action in response to the section 129 Notice and the relevant passages in the BCA Report. Our reasons for taking this view are as follows.

In the passage quoted above at [117], the Report set out two alternative ways of dealing with the problem that it had identified. One involved treatment of any 'service penetration... in a manner that maintains the fire protective covering'. The other was the installation of a 'system of mains powered fire alarms suitably connected to an alarm within the residential unit'. The Report added that the question whether this latter approach was permissible was a matter within the discretion of the Council. Since, as noted near the beginning of this decision, both the Premises (at the rear) and a second shop (at the front) constituted the ground floor of the building, Coco could reasonably have assumed that any such system would include one or more fire alarms within the shop at the front, as well as the alarm in the residential unit upstairs. Patently, this solution was not a measure that Coco could adopt on its own. The choice between the two alternatives was one to be made by Ms Lotz, as owner of the building, not by Coco.

The grounds for so concluding are strengthened by the fact that, as the Tribunal noted, the Report was prepared in the context of plans for a future project (strata subdivision) being contemplated by Ms Lotz.

In the section 129 Notice, Ms Lotz gave no indication to Coco as to how she expected this matter to be approached. She simply required that the ceiling be 'corrected' to 'meet the fire regulation standards'. In our judgment, this broadly formulated 'demand' did not satisfy the criteria relating to such notices that we have quoted from the judgment of Hodgson JA in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 at [323 - 324] (see [108] above). It was accordingly not open to Ms Lotz to claim that in consequence of non-compliance with her 'demand', she was entitled to terminate the Lease.

Equally, we do not think that Ms Lotz, having made no attempt to clarify for Coco what she wished to be done, could not rely on Coco's inaction at that stage as a ground for claiming damages.

The situation changed, however, when the consultant's report was sent to Coco on or about 29 October 2012. In this report, a specific remedial measure was identified. Any failure to implement it would amount to a breach of AC 25.02(b). A contractor operating in a 'workmanlike' manner would respond to the report by adopting the measure recommended in it: namely, installing downlight protection covers. If Mr Brown had not conceded that this was a task that Coco should attend to at its own cost, we would have been inclined to uphold Ms Lotz's claim for damages to the extent of ordering Coco and Ms Kerswell to pay her any amount outlaid by her in having the task carried out.

We do not think, however, that any breach of AC 23.01(d) would be involved. Our reason is that this provision refers to the repair and maintenance of 'essential fire services', not to their installation. Equally, we do not see how the other provisions of the Lease that Mr Glissan claimed to have been breached - i.e., clause 7.4 and AC 25.02(c)-(g) of the Lease - could be said to be applicable.

As already indicated, a head of damages included in Ms Lotz's Application for Original Decision was one of 'lost rent'. Both in her Application for Original Decision (filed on 23 May 2012) and in the earlier of her statutory declarations (signed on 6 June 2012), she alleged that on account of breaches of the Lease by Coco she could not seek a tenant for the residential unit above the Premises. In the declaration, she expressly attributed this to 'fire safety issues with the ceiling between the shop and the flat', adding that she would be 'an irresponsible landlord to rent out a property' if she 'did not have certainty' that it complied with fire safety standards.

As the Tribunal noted at [60], the principal evidence adduced in response by Coco and Ms Kerswell was that during August 2011 Ms Lotz rejected a tenancy proposal for the unit, saying that she 'did not wish to let the premises'.

A further significant aspect of the evidence is that it contains nothing to suggest that Ms Lotz, having received advice in the BCA Report that the ceiling required rectification, notified Coco forthwith that one of the reasons why this needed immediate attention was her desire to find a tenant. According to Ms Lotz's supplementary submissions to the Tribunal, the section 129 Notice included an allegation that fire safety concerns prohibited her from letting the unit. But this is incorrect. No such allegation is to be found in the Notice.

When Ms Lotz filed her Application for Original Decision, about three months after she received the BCA Report, she communicated to Coco her desire to find a tenant for the unit above the Premises. It may be that she made this known to Coco at some earlier point of time within this period. But the evidence on this matter is not decisive.

Until she did make it known, Coco was not on notice of any such desire on her part. Indeed, the reference in the BCA Report to strata subdivision gave it positive grounds for believing that Ms Lotz remained reluctant to let the unit, as she had been during August 2011.

For the foregoing reasons, our conclusions in relation to Ms Lotz's claim for damages for lost rent on account of the defects in the ceiling are as follows: (a) because she failed to specify in the section 129 Notice what should be done in consequence of the findings in the BCA Report, Coco cannot be liable for damages during the period between its becoming aware of those findings and its receiving a copy of the consultant's report on or about 29 October 2012; (b) until some uncertain date following the section 129 Notice and possibility as late as the date of filing of Ms Lotz's Application, Coco was not only unaware of any desire by Ms Lotz to let the unit, but could in fact believe, on reasonable grounds, that she was opposed to letting it; and (c) Coco's offer, made shortly after it received a copy of the consultant's report, to install downlight protection covers at its own cost, provided to Ms Lotz the opportunity to have this operation completed and to proceed, if she so wished, to find a tenant for the unit.

On these grounds, we reject Ms Lotz's claims for entitlement to terminate the Lease and for damages, based on a fire safety risk identified in the ceiling that Coco installed in the course of its fit-out operations.

Failure to lower the height of the rear step

The parties' contentions and the Tribunal's rulings. The section 129 Notice dealt with this matter in the following terms:-

As a result of the BCA the lessor demands that you... (b) correct the entrance step such that it meets the required safety standards.

In the BCA Report, the relevant passage stated:-

The rear retail discharges direct to open space however the difference to ground level is greater than 190mm at the door threshold. It is permitted to have a step in the vicinity of the threshold on the external side only if the difference between levels does not exceed 190mm. To ensure occupants can safely enter and exit this part of the building it is recommended that this entry level be reconfigured to comply with the requirements of Clause D2.15 of BCA2011 and reduce the step to less than 190mm.

Attached to Ms Lotz's supplementary submissions to the Tribunal was a quotation for rebuilding the step for a total cost of $1,100, including GST.

The following extracts from the Tribunal's decision contain a summary of the principal argument put in response by Coco and Ms Kerswell and of the Tribunal's own conclusion on the matter:-

55 In the section 129 notice Lotz asserted that in breach of building regulations the rear step height exceeded 190mm. Lotz asserted that Coco was in breach of clauses 6.3.2, 7.4 additional condition 23.01(d) and 25.02(b)-(g) of the Lease. Mr Brown submitted that insufficient evidence has been adduced by Lotz concerning the dimensions of the step and the relevant regulatory requirements to support her claim. Mr Brown also submitted that the height of the step was unchanged by Coco... and that any problem with the height was not caused by Coco but existed prior to the Lease being entered into. As there was no evidence presented to the Tribunal to show the height of the step prior to Coco's fit out works the Tribunal agrees with the submissions by Mr Brown that there was no breach of Lease by Coco.

60 In relation to the front step Mr Brown submitted that the dimensions were unchanged from the original dimensions and there is no evidence to suggest that Coco altered the dimensions during its fit out works...

62... there is no evidence that if the front step does not comply with such non-compliance is as a result of the activities of Coco...

As these extracts illustrate, the step was variously described during the proceedings as 'the rear step' and 'the front step'. We are satisfied that only one step was involved. It was the step at the entrance (and in this sense a 'front step') to the Premises, which were at the rear of the building.

Both Mr Glissan and Mr Noonan drew our attention to two photographs annexed to Ms Kerswell's declaration. By depicting the step before and after Coco's fit-out operations, these photographs showed that it was widened but seemingly not increased in height. Accompanying testimony by Ms Kerswell was to the effect that its height was not 'materially' changed during the fit-out. She stated also that Mr Lotz was present while Mr Sharp worked on the step. These statements were not challenged in Ms Lotz's evidence.

Mr Glissan argued that Coco was at fault for not bringing the height of the step into conformity with the standard quoted in the BCA Report. Mr Noonan argued that Coco should not be held responsible for any pre-existing non-compliance.

Our conclusions. We agree with the Tribunal that Coco cannot be held liable for this failure to comply with the relevant standard. Our grounds differ, however, from those of the Tribunal.

In our opinion, the photographs and accompanying testimony sufficiently establish the following: (a) the height of the step contravened the standard before the fit-out operations commenced; and (b) Mr Lotz knew that the height would remain the same after these operations were completed. In these circumstances, Ms Lotz cannot be permitted to claim forfeiture of the Lease, or an award of damages, solely on the ground of the continuation by Coco of her own pre-existing breach of the building standard. Coco was entitled to assume, at the time of the fit-out, that this was not a matter of concern to her.

Remaining matters

We have concluded that Ms Lotz has failed to establish any breach of the Lease by Coco, except for a breach, relating to fire safety, which Coco acknowledged and has remedied. Our decision on her appeal is therefore that it must be dismissed.

In these circumstances, it is strictly not necessary for us to rule on two further questions that were argued before us, relating respectively to the characterisation of two provisions in the Lease (AC 23.01(b) and (d)) and to Ms Lotz's claim that Coco had repudiated the Lease. But we will record some brief comments on each of them.

In our opinion, Mr Glissan's submission that the Tribunal should have held AC 23.01(d) to be an 'essential term' of the Lease was well founded. This provision was a covenant by the Tenant that it must 'at the Tenant's expense repair and maintain the essential fire services for the Premises including fire safety equipment, emergency lighting, smoke detectors, exit signs and fire extinguishers'. We agree with him that a covenant to this effect would fall within the test that we have quoted above from Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 at 337 It is 'of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor'.

We do not, however, consider that the covenant in AC 23.01(b) satisfies this test. This was to the effect that the Tenant would 'comply with all statutes, regulations, by-laws or ordinances affecting the Premises or any fixtures or fittings installed by the tenant therein...' We view this as a very broad covenant covering a wide range of matters. Because conduct having manifestly trivial consequences could amount to contravention, we would be reluctant to characterise it as an essential term.

We were not asked to rule on the Tribunal's decision that a covenant to similar effect in AC 25.02(c) was an essential term. That decision may well have been justifiable because the covenant was limited in scope to the conduct of the fit-out operations.

We observe in passing that, in contrast to many other forms of lease that are discussed in the case law, the Lease in these proceedings did not expressly stipulate that breach by the Tenant of an essential term would give grounds for the Landlord to enter and take possession of the Premises. No such statement appears in the relevant provision (clause 12.2). We do not have to determine, however, whether the absence of any such statement would in itself constitute a bar to Ms Lotz's claim to possession. In view of the dicta quoted above (at [30]) from Shevill v Builders Licensing Board (1982) 149 CLR 620, this would probably not be the case.

The argument that Coco by its conduct repudiated the Lease cannot be sustained in the light of our conclusion that, except in one respect, it did not breach any term of the Lease. We agree generally with what the Tribunal said on this matter in the extracts from paragraphs [67] to [69] that we have already quoted.

As we indicated near the beginning of this decision, questions as to the costs of the proceedings at first instance and on appeal must still be determined. Submissions have already been filed relating to the costs of the former proceedings.

Having regard to the fact that the Respondents to the appeal (Coco and Ms Kerswell) have been successful in both sets of proceedings, we give the following directions regarding costs:-

Any application by the Respondents for the costs of these appeal proceedings must be filed and served within 28 days, along with supporting submissions and any additional submissions they may wish to make as to the costs of the proceedings at first instance. Any submissions in reply by the Appellant must be filed and served within a further 28 days. These matters of costs will then be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997, unless the Appeal Panel decides that a hearing is required.

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Decision last updated: 25 September 2013

Medium Neutral Citation:	Lotz v Coco Chocolates Pty Ltd (RLD) [2013] NSWADTAP 43
Hearing dates:	29 July 2013
Decision date:	25 September 2013
Jurisdiction:	Retail Leases Division
Before:	M Chesterman, Deputy President K Rickards, Judicial Member P Drake, Non-judicial Member
Decision:	1. The appeal is dismissed. 2. Any application by the Respondents for the costs of these appeal proceedings must be filed and served within 28 days, along with supporting submissions and any additional submissions they may wish to make as to the costs of the proceedings at first instance. Any submissions in reply by the Appellant must be filed and served within a further 28 days. These matters of costs will then be determined 'on the papers', pursuant to section 76 of the Administrative Decisions Tribunal Act 1997, unless the Appeal Panel decides that a hearing is required.
Catchwords:	Retail lease - whether lease repudiated by lessee - whether essential terms breached - operation of Conveyancing Act 1919, section 129
Legislation Cited:	Administrative Decisions Tribunal Act 1997 Conveyancing Act 1919 Environment Planning and Assessment Act 1979 Environment Planning and Assessment Regulation 2000 Retail Leases Act 1994
Cases Cited:	Associated Newspapers Ltd v Bancks (1951) 83 CLR 322 Coco Chocolates Pty Ltd v Lotz [2013] NSWADT 83 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 Shevill v Builders Licensing Board (1982) 149 CLR 620 Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361
Category:	Principal judgment
Parties:	Debrah Ann Lotz (Appellant) Coco Chocolates Pty Ltd (First Respondent) Rebecca Kerswell (Second Respondent)
Representation:	P Glissan (Appellant) N J Papallo & Co (Appellant) Brown & Partners (Respondents)
File Number(s):	139018
Decision under appeal	Citation: Coco Chocolates Pty Ltd v Lotz [2013] NSWADT 83 Date of Decision: 2013-04-19 00:00:00 Before: Retail Leases Division File Number(s): 125042, 125074