Owners Corporation Strata Plan 69470 v CGMB Company Pty Ltd - [2007] NSWSC 634

No judgment structure available for this case.

CITATION: Owners Corporation Strata Plan 69470 & Ors v CGMB Company Pty Ltd & Ors [2007] NSWSC 634

HEARING DATE(S): 17.05.07, 18.05.07

JUDGMENT DATE :
22 June 2007

JUDGMENT OF: Nicholas J

DECISION: para 57

CATCHWORDS: PROPERTY - Strata plans - Strata Management Statement provided that "owners" of commercial lots in strata building must not use lots as fast food outlets - Lot used by lessee as fast food outlet - Proper construction of Statement - Whether owner permitted lessee to use lot in breach of Statement - Whether owner should be ordered to require lessee to stop using lot as a fast food outlet - LANDLORD AND TENANT - Construction of lease - Whether lessee's use of lot as a fast food outlet in breach of lease - Whether conduct of lessor constituted waiver or estoppel

LEGISLATION CITED: Strata Schemes (Freehold Development) Act 1973 s 28W(2)(a)

CASES CITED: Charbel CJ Pty Ltd & Anor v Owners Corporation SP 69470 [2005] NSWCA 241
Collector of Customs v Agfa-Gevaert Ltd (1995) 186 CLR 387
Life Insurance Co. of Australia Ltd v Phillips (1925) 36 CLR 60
McCann v Switzerland Insurance Australia Ltd & Ors (2000) 203 CLR 579
Owners Corporation SP 69470 v Charbel CJ Pty Ltd & Anor [2004] NSWSC 1286
Project Blue Sky Inc. & Ors v Australian Broadcasting Authority (1998) 194 CLR 355
Taylor v Dexta Corporation Limited & Ors [2006] NSWCA 310
Willkie v Gordian Runoff Ltd (2005) 221 CLR 522

PARTIES: Owners Corporation Strata Plan 694790 - first plaintiff
David Ronald Lever - second plaintiff
Pamela Gay Lever - third plaintiff
Michael James Ryan - fourth plaintiff
Shaen Anne Ryan - firth plaintiff
David Ernest Montgomery - sixth plaintiff
Gillian Gweneth Montgomery - seventh plaintiff
Eldina Sahinovic - eighth plaintiff
Michael Robert Layton - ninth plaintiff
Anne Jacqueline Layton - tenth plaintiff
Amin Gamil Shamia - eleventh plaintiff
Mona Shamia - twelfth plaintiff
Andrew Sean Wardle - thirteenth plaintiff
CGMB Company Pty Ltd - first defendant
John Anastasiou - second defendant/first cross claimant
Savva Anastasiou - third defendant/second cross claimant
Idya Pty Ltd - cross defendant

FILE NUMBER(S): SC 6363/05

COUNSEL: C Birch SC - plaintiffs
No appearance - first defendant
G A Moore - second, third defendants/first, second cross claimants
P Bolster - cross defendant

SOLICITORS: Roper & Steggall - plaintiffs
No appearance - first defendant
LP Alidenes & Company - second, third defendants/first, second cross claimants
Cumberland Frank Commercial Lawyers - cross defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Nicholas J

22 June 2007

6363/05 Owners Corporation Strata Plan 69470 & Ors v CGMB Company Pty Ltd & Ors

JUDGMENT

1 His Honour: The first plaintiff is Owners Corporation Strata Plan 69470. The strata plan consists of 11 residential lots located in the building no. 43-45 North Steyne, Manly (the building). The second to thirteenth plaintiffs are the registered proprietors, and owners, of certain of the residential lots in SP 69470.

2 Within the building are located three lots in a commercial strata plan which is SP 69948 (the commercial strata). The second and third defendants (the defendants) are the registered proprietors of lots 2 and 3 in the commercial strata which they have leased to the cross-claimant, Idya Pty Ltd (Idya) under registered lease no. 9798692J. Since late 2003 Idya has conducted at lot 2 the franchise business known as “Oporto Chicken” as a restaurant and fast food outlet.

3 The plaintiffs seek injunctive relief to restrain the defendants from using lot 2, SP 69948 as a fast food outlet. In turn, the defendants, by their cross-claim, seek injunctive relief against Idya to restrain its use of the lot as a fast food outlet.

Background

4 The relevant background is as follows.

5 The building consists of five storeys. At street level it has a central foyer which gives access by lift to a number of residential apartments on the four floors above. Situated on either side of the foyer, and fronting North Steyne, are the commercial lots 1 and 2. As the building comprised residential apartments as well as commercial/retail premises, it was subject to two strata plans. The retail or commercial part thereof was subdivided into lots and common property by SP 69948, which was registered on 10 March 2003. The residential part of the building became SP 69470, which was registered on 3 March 2003. The first plaintiff is the owners corporation for the strata scheme comprised in SP 69470 as established on the registration of that plan under s 81 Strata Schemes Management Act 1996.

6 The registered proprietor and owner of lots 2 and 3 was PCP Ensor No. 2 Pty Ltd (PCP). Lots 2 and 3 were leased by PCP to Idya for a term of five years commencing 1 October 2003 and expiring on 30 September 2008, subject to two consecutive five year options. On about 17 September 2003 the defendants acquired the interest of PCP in lots 2 and 3, including its interest as lessor under the lease to Idya.

7 On 30 June 2003 Idya entered into a franchise agreement with Oporto (Franchising) Pty Ltd pursuant to which it has conducted its business at lot 2. Idya’s business as “Oporto Chicken” is the use in respect of which Manly Council granted development consent on 7 July 2003. On 26 November 2003 the Council issued an Occupation Certificate in which the use was described as a “Restaurant”. The business commenced operating on 27 November 2003.

8 By letter of 7 November 2003 to Idya, the plaintiffs’ solicitors expressed concern that it intended to use the premises as a fast food outlet, and requested Idya to cease doing so.

9 In his judgment of 10 March 2005, Owners Corporation SP 69470 v Charbel CJ Pty Ltd & Anor [2004] NSWSC 1286, Burchett, AJ found that Idya was using lot 2 as a fast food outlet. That finding has not been challenged, and it was common ground in these proceedings that Idya has continued to do so. His Honour also granted an injunction which restrained Idya from using lot 2 as a fast food outlet on the basis that it was bound by, and in breach of, cl 19.1(a) of the applicable Strata Management Statement (SMS) which prohibited such use. Idya successfully appealed against the order in Charbel CJ Pty Ltd & Anorv Owners Corporation SP 69470 [2005] NSWCA 241 on the basis that cl 19.1(a) had no application to Idya as tenant of the retail lot. Judgment was handed down on 10 August 2005.

10 By letter of 18 August 2005 to the defendants, the plaintiffs’ solicitors requested their undertaking to restrain Idya from using the premises as a fast food outlet. They threatened proceedings for injunctive relief if Idya continued to operate a fast food outlet on the premises.

11 In their reply of 29 August 2005, the defendants’ solicitors stated that, on their instructions, the defendants were satisfied that Idya was using the premises as a restaurant in conformity with the requirements of the lease, and that they did not believe that any action against it was warranted. Nevertheless, the defendants’ solicitors wrote to Idya’s solicitors on 4 October 2005 seeking advice as to the steps taken to cease using the premises as a fast food outlet. As there was no response, the defendants’ solicitors in their letter of 27 October 2005 requested an urgent reply.

12 By letter of 4 November 2005 to Idya’s solicitors, the defendants’ solicitors requested compliance with provisions of the lease regarding the use of the premises. It included the following:

“As advised in earlier correspondence, the solicitors for the “Residential Strata” have asked for evidence that the premises are not being used as a fast food outlet as it is their view that the judgment of the Court of Appeal infers that there is a positive obligation on our client to ensure that the premises are being used inconformity with, inter alia, the Strata Management Statement …

… Would you please provide us with details of what action your client has taken in this regard in order that we can present this to (the plaintiffs’ solicitors)”.

13 By letter of 6 February 2006 to Idya’s solicitors, the defendants’ solicitors foreshadowed the cross-claim. It was filed on 21 February 2006.

The relevant provisions of the statute, SMS, by-laws and lease

14 The relevant provisions of the Strata Schemes (Freehold Development) Act 1973 (the Act) and the effect of the SMS, were set out in Charbel by Tobias, JA as follows:

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

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

15 The relevant provisions of the SMS are:

16 Ownership of Lot 2 attracts the application of the by-laws for SP 69948. Relevantly, by-law 15 provides:

17 The lease to Idya includes cl 6 under the heading “Use of the Premises”. Relevantly, it provides:

The Tenant must only use the Premises for the Permitted Use.

The Tenant must not:

18 The term “Permitted Use” is defined in the lease in Item 8 to be:

“Restaurant in compliance with by-laws of the Building and the Strata Management statement and in relation to Lot 3 as a storage area.”

“Official Requirement means any requirement, notice, order or direction of any authority and includes the provisions of any statute, ordinance or by-law and the requirements of the Owners Corporation.”

The submissions

19 The plaintiffs submitted that as the defendants were the owners of lot 2 they were bound by cl 19.1(a) not to use it as a fast food outlet. It was put that their obligation in the second sentence of cl 19.1(a) as owners prohibited them from either using the shop for the prohibited purpose themselves, or permitting an occupier or lessee to use the shop for that purpose. They put that the critical question is whether the defendants are in breach of the prohibition in circumstances where they have leased the shop, and permit the lessee, Idya, to operate a fast food outlet from the premises.

20 The plaintiffs’ submission was based upon the reasoning and decision of the Court of Appeal in Charbel in which it was held that, on its proper construction, cl 19.1(a) does not apply directly to a lessee but to the owner, whether or not the owner has parted with possession. It was put that the reasoning is authority for the proposition that the owner of the lot is able to control the use to which it is put by, for example, prohibiting use as a fast food outlet in a lease and enforcing that prohibition. It was put that in order to give effect to the purpose of prohibition of use as a fast food outlet, upon the proper construction of cl 19.1(a) the owner is prohibited from permitting the premises to be so used, albeit in breach of a lease.

21 In particular, reliance was placed on the following passages from the judgment of Tobias, JA:

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

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

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

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

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

22 The plaintiffs argued that para 38, in context, conveys the finding that the effect of cl 19.1(a) is to prohibit the lot owner from permitting the premises to be used as a fast food outlet, which prohibition extends to an owner who has leased them under a lease which, in terms, does not permit them to be used as a fast food outlet, but is operated by the lessee in breach of those terms. It follows, so it was put, that the Court of Appeal held that upon its proper construction the word “use” in the second sentence of cl 19.1(a) should not be understood to be confined to personal, direct use by the owner but extends to use by those permitted by it to occupy the premises.

23 The plaintiffs submitted that the Court of Appeal’s determination of the effect and construction of cl 19.1(a) is binding on this Court as a matter of law upon the application of the principles in Life Insurance Co. of Australia Ltd v Phillips (1925) 36 CLR 60, p 79; Collector of Customs v Agfa-Gevaert Ltd (1995) 186 CLR 387, p 395.

24 Alternatively, it was submitted that, independently of the Court of Appeal’s decision, this Court should adopt a construction of the provision with regard to the wide sense in which the word “use” is ordinarily understood so as to give effect to its underlying purpose. Accordingly, it was put that the court should hold that leasing the premises to a tenant which uses them as a fast food outlet is a use by the owners within the meaning of the second sentence of cl 19.1(a).

25 The plaintiffs next submitted that by using lot 2 as a fast food outlet, Idya was in breach of cll 6.1 and 6.2(a) of the lease which prohibit the use of the premises for any purpose other than that stated in Item 8. It was put that Item 8 simply describes the use for which the premises must be used, that is, a restaurant which complies with, relevantly, cl 19.1(a) which, in terms, excludes use as a fast food outlet. It follows, so it was put, that the use of the premises as a fast food outlet is a use which does not comply with cl 19.1(a) and therefore puts Idya in breach of cll 6.1 and 6.2(a) of the lease.

26 Further, the plaintiffs submitted that Idya was also in breach of cl 6.7(a) which requires compliance with any official requirements, as defined, including by-laws, where failure to do so may prejudice the defendants. It was put that the effect of cl 6.7(a) is to preclude Idya from engaging in conduct in its use of the premises which may put the defendants in breach of, for example, by-law cl 15(d) which, in turn, requires them to comply with the terms of the SMS including, relevantly, cl 19.1(a).

27 In summary, it was submitted that Idya’s use of lot 2 as a fast food outlet was in breach of the lease, and the defendants were in breach of cl 19.1(a) in permitting such use to continue. In the circumstances it was submitted that the defendants should be restrained from using lot 2 for a fast food outlet, or permitting lot 2 to be so used, and that they should be ordered to take all steps necessary to ensure the cessation of a fast food outlet from lot 2.

28 The defendants’ primary submission was that they were not liable to the plaintiffs, and no relief should be granted against them. It was put that the “owners” referred to in the second sentence of cl 19.1(a) referred only to the “Retail Owners” as defined in the SMS, which did not include them. Alternatively, it was submitted that, on its proper construction, cl 19.1(a) operates to prohibit only the use by the owners themselves of the premises as a fast food outlet, and has no application to such use by a lessee. Thus it was put that the defendants are not in breach of the provision in circumstances where it is Idya which uses the premises as a fast food outlet.

29 In the further alternative, the defendants contended that they have not permitted Idya to use the premises as a fast food outlet. They submitted that this is evidenced by cll 6.1 and 6.2(a), and Item 8 of the lease. They adopted the plaintiffs’ submissions as to the effect of these provisions. They referred to the relevant correspondence, and to their cross-claim, in support of this contention.

30 Finally, the defendants submitted that if the plaintiffs obtained the relief sought against them, they were entitled to an order which restrained Idya from using lot 2 as a fast food outlet.

31 Idya adopted the defendants’ submissions that, upon the proper construction of cl 19.1(a), its use of the premises as a fast food outlet did not put the defendants in breach of that provision. It argued that the defendants’ use is simply that of a landlord deriving rental income from the premises. So understood, it was put that such use is not prohibited and, in any event, is different from the nature of the use made of the premises by Idya.

32 As I understood it, Idya’s principal submission was that its use of lot 2 as a fast food outlet was not in breach of the lease. It argued that cl 6.1 and Item 8 do not operate to prevent such use. It was put that, upon the proper construction of Item 8, Idya was permitted to operate as a restaurant so long as it complied with the various obligations imposed upon lessees under the by-laws and the SMS. It followed, so it was put, that Idya was not required to comply with obligations imposed on others, for example, the defendants as its landlord and owner of the premises. Support for the submission was taken from the statements of Tobias, JA in Charbel (paras 41-46) which refer to the distinction clearly made in the by-laws and SMS between the obligations imposed upon an owner and those imposed upon an occupier, including a mortgagee in possession as well as a lessee. It was argued that as the Court of Appeal has decided that cl 19.1(a) does not bind a lessee, it has no relevant application to the use by Idya of the premises under the lease. As Idya was not prohibited from using the premises as a fast food outlet under the SMS, it was put that there was no breach of the lease, and thus the claims of the plaintiffs, and of the defendants as cross-claimants, must fail.

33 Further, Idya submitted that the cross-claim contains no pleaded allegation of breach of the lease as it alleges only (para 3) breach of cl 19.1(a). As Idya contended it is not bound by cl 19.1(a), it argued that the claim must fail.

34 Alternatively, Idya submitted that, in the circumstances the defendants had acquiesced in its use of the premises, had no wish to act against it or to allege that it was in breach of the lease. It was put that this stance is evidenced by the letter of 29 August 2005 to the plaintiffs’ solicitors which said that the defendants were satisfied that Idya was using the premises as a restaurant in conformity with the lease, and did not believe any action regarding use was warranted. It was put that this was consistent with the defendants’ continued acceptance, without further enquiry, since about November 2003 that the premises were being used as a restaurant. It was also put that it was not until the cross-claim was filed on 21 February 2006 that the issue was raised. It was submitted that the inaction of the defendants amounted to acquiescence in, or waiver of, breach, or resulted in an estoppel by conduct which precluded them from proceeding on the cross-claim.

Decision

35 The relevant construction issue in Charbel was whether the expression “The owners” at the commencement of the second sentence of cl 19.1(a) was confined to the proprietor of the Retail Shops or whether it included the lessees of those shops. In my opinion, the Court of Appeal has determined that, upon the proper construction of cl 19.1(a), the owner of a retail shop is prohibited from either using it as a fast food outlet itself, or from permitting an occupier or lessee to use it for that purpose (paras 36, 38). Relevantly, Tobias, JA said:

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

…

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

…

59. … It must be remembered that in the present circumstances, as I have found, the obligation in the second sentence of cl 19.1(a) not to use the Retail Shops for the conduct of a fast food outlet was imposed specifically upon a proprietor, as opposed to a lessee, because it is the proprietor who is in a position to control or limit the uses to which its own property can be put by those whom it permits to occupy them.”

36 Thus, upon this construction, an owner is to be understood as using a shop as a fast food outlet where, although not itself in possession, as a landlord it permits its tenant to do so albeit in breach of the lease.

37 As the plaintiffs submitted, the Court of Appeal’s determination of the effect and construction of cl 19.1(a) is binding on this Court as a matter of law (Life Insurance Co. of Australia Ltd; Collector of Customs).

38 Independently, with respect, having regard to the usual principles of construction, I would come to the same conclusion. The proper approach to the construction of the SMS accepts that as it is a commercial contract it should be given a business-like interpretation. Its interpretation requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure. McCann v Switzerland Insurance Australia Ltd & Ors (2000) 203 CLR 579, p 589. As with other instruments, preference is given to a construction supplying a congruent operation to the various components of the whole. Project Blue Sky Inc. & Ors v Australian Broadcasting Authority (1998) 194 CLR 355, pp 381-382; Willkie v Gordian Runoff Ltd (2005) 221 CLR 522, pp 528-529

39 In Taylor v Dexta Corporation Limited & Ors [2006] NSWCA 310 Santow, JA pointed out (para 30) that “… A necessary corollary of that requirement for a commercial contract to be given a business-like interpretation is the frequent emphasis upon the need to arrive at an interpretation which is commercially sensible, and in accord with commercial reality”. He also said:

Maggbury Pty Limited v Hafele Australia Pty Ltd

Investors Compensation Scheme Ltd v West Bromwich Building Society

Prenn v Simmonds

Royal Botanic Gardens and Domain Trust v South Sydney Council

40 The underlying purpose of cl 19.1(a) is to protect the proprietors of the residential and the commercial lots against the risk of the retail shops being used as a fast food outlet. This protection is achieved by imposing on the retail shop owners the obligation not to use them, and not to permit others to use them, in this way. It is an interpretation which gives effect to the ordinary language of the clause, and is also commercially sensible and realistic.

41 I accept the plaintiffs’ submission to the effect that if the narrow construction for which the defendants and Idya contended was correct it would be simple indeed for an owner to arrange the conduct of its operations so as to avoid its application. This result could be achieved, for example, by leasing or licensing the shop for use by another party. Because such a construction would negate the purpose of the SMS, it should be rejected.

42 Accordingly, the defendants’ and Idya’s submissions on the construction issue of cl 19.1(a) should not be accepted.

43 In my opinion the defendants are bound by the statutory covenants under s 28W(2)(a) of the Act and cl 13.2(a) of the SMS to ensure compliance with the prohibition in cl 19.1(a). It follows that if the defendants have permitted Idya to operate a fast food outlet from lot 2, they are in breach of the prohibition. In these circumstances the plaintiffs would be entitled to enforce the covenant by requiring the defendants not to permit Idya to continue using lot 2 as a fast food outlet.

44 I turn now to the use of lot 2 by Idya under the lease. The permitted use of lot 2 is governed by cll 6.1, 6.2(a), and Item 8 of the lease. In my opinion, the meaning of these provisions is clear and unambiguous. Clause 6.1 requires the tenant to only use the premises for the permitted use as defined in Item 8. Clause 6.2(a) prohibits the tenant against use of the premises for any purpose other than that stated in Item 8.

45 Item 8 permits use for a restaurant in compliance with the by-laws of the building and the SMS. In its natural and ordinary meaning, Item 8 is to be understood to limit the use to that of a restaurant which is operated in keeping with cl 19.1(a) which, of course, excludes operation as a fast food outlet. As a matter of ordinary English, it is plain that the purpose of cll 6.1, 6.2(a) and Item 8 is to confine the tenant to the use of the premises for a restaurant which complies with the prohibition under the SMS against the use by the landlord of the premises as a fast food outlet. In the circumstances, this purpose is consistent with commercial reality and common sense. In my opinion, the use of the premises for a fast food outlet is not a use as a restaurant in compliance with the by-laws of the building and the SMS and, accordingly, is not a use for the permitted use within the meaning of cll 6.1 and 6.2(a) of the lease.

46 Furthermore, in my opinion Idya’s submission that the constraint upon its use of the premises is only to be found in those provisions of the by-laws and SMS which are directly binding upon it as a lessee is misconceived. If correct, Idya would be free to continue using the premises as a fast food outlet although the defendants themselves are prohibited from doing so.

47 The short answer is that Item 8 is directed to the use of the premises for a restaurant which complies with the by-laws and SMS. It is not directed to ensure compliance with such provisions of these instruments as are applicable to Idya. In contrast, obligations of this kind are specifically provided for under cl 6.7(a) of the lease, which requires the tenant’s compliance with Official Requirements, as defined, including the by-laws, where failure to do so may prejudice the landlord.

48 I generally accept the submissions of the plaintiffs and of the defendants as to the proper construction of these provisions of the lease. In the circumstances, I find that Idya’s use of lot 2 as a fast food outlet is in breach of cll 6.1 and 6.2(a) of the lease. I also accept the plaintiffs’ submission that such use constitutes a breach of cl 6.7(a) of the lease in that it puts the defendants in breach of cl 19.1(a) and hence in breach of by-law 15(d).

49 I have not overlooked the defendants’ submission that the terms of the lease as to permitted use are sufficient to demonstrate that they have not permitted Idya to use lot 2 as a fast food outlet. These submissions should not be accepted. The defendants’ obligation under cl 19.1(a) requires them to enforce the lease and thereby ensure that Idya ceases use for a purpose which is not permitted under it (Charbel paras 38, 43). Inaction is no answer. In the circumstances I find that the defendants are in breach of cl 19.1(a) in that to date they have failed to enforce the lease to ensure that Idya ceases use of lot 2 as a fast food outlet.

50 As to Idya’s contention that the defendants conduct established waiver of, or acquiescence in, the breaches, or an election not to proceed, or gave rise to an estoppel, I find they are without any support on the evidence and should be rejected.

51 A summary of the evidence is that shortly before the restaurant opened on 27 November 2003 Idya’s managing director, Mr Arshad Iqubal, assured the third defendant that he was operating within the lease, and there was nothing else he could do. Under cross-examination, Mr Iqubal said that whenever the third defendant raised any question about Idya’s operations, he responded by saying it was operating lawfully as a restaurant. After the Court of Appeal delivered judgment on 10 August 2005, the third defendant asked Mr Iqubal about compliance with the by-laws, and accepted the answer that everything had been done to comply with them. From the third defendant’s own observations he was satisfied that the premises were being used as a restaurant in conformity with the lease. The only conclusion I draw from this evidence is that the defendants accepted Idya’s assertions that the premises were not used in breach of the lease.

52 The correspondence between the solicitors between 18 August 2005 until the cross-claim was served in February 2006 indicates the defendants’ developing concern about Idya’s use in light of the plaintiffs’ proposal to take proceedings to require them to enforce the lease. Neither this nor the other evidence supports findings which Idya sought in opposition to the relief claimed under the cross-claim.

53 The point taken in respect of the allegations as pleaded in the cross-claim is, in my opinion, without substance and is rejected.

54 It should also be noted that there was no evidence that Idya would suffer hardship or inconvenience if restrained from operating as a fast food outlet, and it was not suggested that its franchise would be lost if so restrained.

Conclusion

55 For the above reasons I find that the plaintiffs have established entitlement to the injunctive relief sought against the defendants, and that the defendants, as cross-claimants, have established entitlement to the injunctive relief sought against Idya.

56 Accordingly, I propose to make orders restraining the defendants from using lot 2, or permitting lot 2 to be used, for the conduct of a fast food outlet, and requiring them to take all steps necessary to ensure that a fast food outlet ceases to operate from lot 2. Further, I propose to make orders under the cross-claim restraining Idya from using lot 2, or permitting lot 2 to be used, for the conduct of a fast food outlet, and requiring Idya to take all steps necessary to ensure that a fast food outlet ceases to operate from lot 2.

57 The parties should have the opportunity to bring in agreed short minutes of orders which are appropriate to give effect to these conclusions. Furthermore, failing agreement, the parties should have the opportunity to address me in relation to costs. Arrangements should be made with my associate by 29 June 2007 for the re-listing of this matter.

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Citations

Owners Corporation Strata Plan 69470 v CGMB Company Pty Ltd [2007] NSWSC 634

Cases Citing This Decision

0

Cases Cited

10

Statutory Material Cited

1

Owners Corp Strata Plan v Charbel CJ Pty Ltd [2004] NSWSC 1286

Charbel CJ Pty Limited v Owners Corporation Strata Plan 69470 [2005] NSWCA 241

Thompson v Faraonio [1917] HCA 36

CITATION:	Owners Corporation Strata Plan 69470 & Ors v CGMB Company Pty Ltd & Ors [2007] NSWSC 634
HEARING DATE(S):	17.05.07, 18.05.07
JUDGMENT DATE :	22 June 2007
JUDGMENT OF:	Nicholas J
DECISION:	para 57
CATCHWORDS:	PROPERTY - Strata plans - Strata Management Statement provided that "owners" of commercial lots in strata building must not use lots as fast food outlets - Lot used by lessee as fast food outlet - Proper construction of Statement - Whether owner permitted lessee to use lot in breach of Statement - Whether owner should be ordered to require lessee to stop using lot as a fast food outlet - LANDLORD AND TENANT - Construction of lease - Whether lessee's use of lot as a fast food outlet in breach of lease - Whether conduct of lessor constituted waiver or estoppel
LEGISLATION CITED:	Strata Schemes (Freehold Development) Act 1973 s 28W(2)(a)
CASES CITED:	Charbel CJ Pty Ltd & Anor v Owners Corporation SP 69470 [2005] NSWCA 241 Collector of Customs v Agfa-Gevaert Ltd (1995) 186 CLR 387 Life Insurance Co. of Australia Ltd v Phillips (1925) 36 CLR 60 McCann v Switzerland Insurance Australia Ltd & Ors (2000) 203 CLR 579 Owners Corporation SP 69470 v Charbel CJ Pty Ltd & Anor [2004] NSWSC 1286 Project Blue Sky Inc. & Ors v Australian Broadcasting Authority (1998) 194 CLR 355 Taylor v Dexta Corporation Limited & Ors [2006] NSWCA 310 Willkie v Gordian Runoff Ltd (2005) 221 CLR 522
PARTIES:	Owners Corporation Strata Plan 694790 - first plaintiff David Ronald Lever - second plaintiff Pamela Gay Lever - third plaintiff Michael James Ryan - fourth plaintiff Shaen Anne Ryan - firth plaintiff David Ernest Montgomery - sixth plaintiff Gillian Gweneth Montgomery - seventh plaintiff Eldina Sahinovic - eighth plaintiff Michael Robert Layton - ninth plaintiff Anne Jacqueline Layton - tenth plaintiff Amin Gamil Shamia - eleventh plaintiff Mona Shamia - twelfth plaintiff Andrew Sean Wardle - thirteenth plaintiff CGMB Company Pty Ltd - first defendant John Anastasiou - second defendant/first cross claimant Savva Anastasiou - third defendant/second cross claimant Idya Pty Ltd - cross defendant
FILE NUMBER(S):	SC 6363/05
COUNSEL:	C Birch SC - plaintiffs No appearance - first defendant G A Moore - second, third defendants/first, second cross claimants P Bolster - cross defendant
SOLICITORS:	Roper & Steggall - plaintiffs No appearance - first defendant LP Alidenes & Company - second, third defendants/first, second cross claimants Cumberland Frank Commercial Lawyers - cross defendant