Pourzand v Telstra Corporation Ltd - [2014] WASCA 14

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: POURZAND -v- TELSTRA CORPORATION LTD [2014] WASCA 14

CORAM: McLURE P
PULLIN JA
MURPHY JA

HEARD: 21 MARCH & 26 JULY 2013

DELIVERED : 20 JANUARY 2014

FILE NO/S: CACV 69 of 2012

BETWEEN: HOSSEAN POURZAND
First-named Appellant
JENNY MARIA POURZAND
Second-named Appellant
AND
TELSTRA CORPORATION LTD
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :EDELMAN J
Citation  :POURZAND -v- TELSTRA CORPORATION LTD [2012] WASC 210
File No  :CIV 1714 of 2010

Catchwords:

Landlord and tenant - Entitlement to terminate lease - Whether works undertaken by appellants amount to renunciation of the lease - Whether respondent consented to works

Agency - Ostensible authority - Holding out - Reasonable reliance

Appeal - Raising new point on appeal - Whether ostensible authority pleaded/litigated

Legislation:

Property Law Act 1969 (WA), s 80(1)

Result:

Appeal allowed
Notice of contention dismissed
Orders made by trial judge set aside

Category: B

Representation:

Counsel:

First-named Appellant    :     Mr C G Colvin SC & Ms S E Russell
Second-named Appellant     :     Mr C G Colvin SC & Ms S E Russell
Respondent:     Mr S M Davies SC & Mr H H Jackson

Solicitors:

First-named Appellant    :     Lewis Blyth & Hooper
Second-named Appellant     :     Lewis Blyth & Hooper
Respondent:     Arnold Bloch Leibler

Case(s) referred to in judgment(s):

Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
Bride v Shire of Katanning [2013] WASCA 154
Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50
Halliday v Nevill [1984] HCA 80; (1984) 155 CLR 1
Hawkesbury Nominees Pty Ltd v Battik Pty Ltd [2000] FCA 185
Kenny v Preen [1963] 1 QB 499
Lysaght Bros & Co Ltd v Falk [1905] HCA 7; (1905) 2 CLR 421
Northside Developments Pty Ltd v Registrar-General [1990] HCA 32; (1990) 170 CLR 146
Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd [2011] WASCA 76; (2011) 248 FLR 193
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Plenty v Dillon [1991] HCA 5; (1991) 171 CLR 635
Pourzand v Telstra Corporation Ltd [2012] WASC 210
R v Toohey; Ex parte Meneling Station Pty Ltd [1982] HCA 69; (1982) 158 CLR 327
Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434
Secretary, Department of Health and Community Services v JWB and SMB [1992] HCA 15; (1992) 175 CLR 218
Spellson v George (1992) 26 NSWLR 666
Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405
Thomas v Sorrell (1673) Vaugh 330
Tiao v Lai [No 2] [2010] WASCA 189
Tipperary Developments Pty Ltd v The State of Western Australia [2009] WASCA 126; (2009) 38 WAR 488
Water Board v Moustakas [1988] HCA 12; (1988) 180 CLR 491

McLURE P: The lessors/appellants (the Pourzands) appeal from the decision of Edelman J dismissing their claim against the lessee/respondent (Telstra) for breaches of a lease of part of an office building at 251 St Georges Terrace, Perth (the building).
The trial judge upheld Telstra's defence that it had validly terminated the lease because the appellants had, by reason of their conduct in undertaking works in and to the leased premises in August/September 2009, renounced the lease (that is, repudiated it by evincing an unwillingness or inability to render substantial performance of the lease) and committed a serious breach of the covenant of quiet enjoyment.
The appellants claim in the appeal that the trial judge erred in failing to find that Telstra's property manager, United Group Real Estate Services (NSW) Pty Ltd (United), by its employee, Mr Ken Hutchings, approved, or consented to, or authorised the appellants' entry into the leased premises for the purpose of undertaking the works and that Mr Hutchings so acted with Telstra's ostensible authority, with the consequence that there was no renunciation of the lease or any breach, serious or otherwise, of the covenant of quiet enjoyment.
Telstra says the appellants' claim of ostensible authority was not pleaded or litigated and cannot be raised for the first time on appeal. In any event, Telstra says the claim of ostensible authority must fail because (1) Mr Hutchings did not approve, consent to or authorise the works; (2) Telstra did not hold out Mr Hutchings as having the authority to bind Telstra on that subject; (3) the appellants did not rely on any representation of authority and if they did, their reliance was unreasonable.
Unlike Murphy JA, I would uphold the appeal, dismiss the notice of contention, set aside the orders made by the trial judge and in lieu thereof enter judgment for the appellants. These are my reasons for doing so.

Background

Telstra leased the ground floor and first to fourth floors of the building (the Original Leased Premises) for a five‑year term which commenced on 1 April 1995. In June 2000 it executed a further lease of the Original Leased Premises for the period 1 April 2000 until 31 March 2007 (the Original Lease). In November 2005 the Pourzands became the owners of the Premises. In 2007 the Pourzands and Telstra executed a Deed of Extension and Variation which extended the term of the Original Lease from 1 April 2007 until 31 March 2010 (the Lease).
The Lease included express terms to the effect that Telstra could not assign the Lease or sub‑let the Leased Premises without the appellants' written consent (cl 6.1) (which consent could not be unreasonably withheld: Property Law Act 1969 (WA), s 80(1)) and that Telstra 'may occupy and use' the Leased Premises without any interruption by the appellants (cl 8.1).
In late November 2008 Telstra, on the recommendation of United, decided to relocate all its staff at the Leased Premises to its other leased premises in Stirling Street, Perth. In early December 2008 Telstra, by its agent United, engaged Knight Frank Australia Pty Ltd (Knight Frank) as its exclusive agents to negotiate a lease, sub‑lease, surrender or assignment of the Lease. Mr Ian Edwards and Mr Greg McAlpine provided the services on behalf of Knight Frank.
In mid‑December 2008 Telstra began to vacate the Original Leased Premises. They were completely vacated by around 23 May 2009.
In February 2009, Clough Engineering, which leased floors 5 ‑ 7 of the building, wanted to 'sub‑lease' several floors of Telstra's Leased Premises from May 2009, possibly extending six months beyond the term of Telstra's Lease [25(2)]. That was not acceptable to the appellants, who required a term of at least two years beyond the Lease expiry date (ts 241). There was no evidence of any claim made by, or on behalf of, Telstra to the appellants that they were in breach of any express or implied provision of the Lease in refusing their consent.
In an email dated 17 April 2009 Mr Edwards advised Telstra that the leasing market was slow but expected to pick up in the second half of 2009.
On 1 June 2009 the appellants leased the ground floor of the building to Offshore Marine Services Pty Ltd (Offshore Marine) for project space. There is no finding as to the term of the new lease but it clearly extended well beyond the expiry date of the Lease (ts 247). Telstra surrendered its Lease of the ground floor and paid to the appellants a surrender fee of $50,000. From this point, the Lease was confined to the first to fourth floors of the building (the Leased Premises). The area of the Leased Premises was 4,263 m² (ts 257).
By email dated 18 June 2009 from Mr Ian Browne of United to Telstra, United recommended that it be instructed to 'vigorously pursue negotiations' for the surrender of (inter alia) the Lease, noting 'Market soft. Owner may consider a small discount to pay out'.
Mr Hutchings was a member of a committee that met on a regular basis to review matters relating to Telstra's properties in Western Australia. A Telstra employee (Elena Zuvela) was on the committee. The minutes of the meeting of the review committee held on 29 July 2009 record that there was a potential tenant for two floors of the Leased Premises and that United was also investigating a possible payout of the remaining lease term. The minutes of the review committee meeting held on 17 August 2009 record that there was '[o]ngoing liaison with agents regarding possible sub‑lease' of the Leased Premises and that United was looking at a payout of the Lease.
Around 19 August 2009 the Pourzands caused part of levels 1 and 2 of the Leased Premises to be re‑carpeted with new carpet tiles. Some partitioning and ceiling tiles were also removed. The ceilings comprised ceiling tiles in T-bar grids supported by steel rods from the concrete floor above. The appellants caused new T‑bar ceiling grids for all levels of the Leased Premises to be delivered to level 2 around 27 August 2009 and from early September 2009 continued with the re‑carpeting and removal of partitions and commenced removing the old ceilings on levels 1 to 4 and installing new ceilings.
In August 2009 Mr Hutchings prepared a business case for submission to Telstra (the August business case) recommending that it surrender the Lease on 30 September 2009 on payment of the net present value of the gross rental ($1.34 million) and $257,953 for its release from the make good obligation. On Mr Browne's instructions, Mr Hutchings sought and obtained Mr Pourzand's agreement to this proposal before forwarding it to Mr Browne (of United) for on‑forwarding to Telstra. Mr Hutchings went on leave on 4 September 2009.
On 10 September 2009 a Telstra employee (Ms Zuvela) visited the Leased Premises, photographed them and sent the photographs to Telstra's head office in Melbourne. The photographs showed work in progress on the removal of the old, and installation of the new, ceilings, the installation of new carpet tiles and the removal of partitioning. Telstra's National Leasing Manager, Ms Emily Dean, responded 'Great find Elena!!!', noting 'I think we have an excellent case to claim they have taken possession of the premises'.
On 11 September 2009 Telstra, by its agent United, served notice of termination of the Lease on the basis that the Pourzands had re‑taken possession of the Leased Premises. Work on the Leased Premises then ceased for some time.
On 11 November 2009 the Pourzands accepted Telstra's termination as a repudiation of the Lease and on 30 November 2009 served on Telstra a notice of termination of the Lease.
In September or October 2009, AGC Industries Pty Ltd (AGC) expressed interest in leasing space in the Leased Premises. By an agreement to lease made on 4 November 2009, the appellants agreed to lease the first and second floors of the building to AGC for a term of seven years commencing on 1 February 2010.

The trial judge's findings and the grounds of appeal

There are difficulties in identifying the precise scope of the relevant findings made by the trial judge. I will avoid that exercise for the moment and start with the appellants' grounds of appeal. They claim the trial judge erred in making the following findings:
(1)that the works undertaken by the appellants on the Leased Premises had been undertaken without the knowledge of Mr Hutchings [3], [4], [55], [60], [95], [96], [97], [121], [123] (ground 1);
(2)that Mr Hutchings did not expect that work would be undertaken on the considerable scale that occurred [54], [55], [96], [97], (and in any event, the unspoken expectations of Mr Hutchings are irrelevant) (ground 2);
(3)that the appellants had acted in a manner that was opportunistic by seizing on the absence of Telstra from the Leased Premises; the works had been undertaken when Telstra did not have any inkling that such work would occur; Mr Pourzand had been repeatedly asked whether he had authority to undertake such works; the works involved tearing the Leased Premises apart and destroying Telstra's prospects of sub‑leasing (ground 9);
(4)that as at late August 2009 there was a good chance that Telstra would obtain a sub‑tenant for the balance of the term of the Lease and the prospects of sub‑leasing were, to the knowledge of Mr Pourzand, destroyed by the works carried out by the appellants thereafter [2], [24] ‑ [29], [119], [120] (ground 10);
(5)it would have been entirely reasonable for Telstra to expect that the completion of the installation and replacement of the ceilings would take the entire remaining term of the Lease [70] (ground 12);
(6)in early September 2009 Mr Pourzand knew that Telstra was seeking a sub‑tenant [119] (ground 13).
The appellants claim the trial judge should have found that as at late August 2009:
(a)there was no real prospect that Telstra would be able to sub‑lease the Premises for the balance of the term of the Lease;
(b)there was a real prospect of securing a new long term lease of part or all of the Leased Premises to a third party which new lease would commence before the expiry of the term of Telstra's Lease ('the new lease');
(c)it would assist the prospects of securing a new lease if there were new ceilings and carpets installed as soon as possible which work could be undertaken before the expiry of the term of the existing Lease;
(d)the appellants had agreed to terms upon which Telstra's Lease would be surrendered and a dispute as to the extent of Telstra's liability to meet the costs of replacing the ceilings would be compromised and those terms had been recommended by Telstra's property manager for formal approval;
(e)the appellants, by Mr Pourzand, had informed Mr Hutchings that they were going to go ahead and install new ceilings and carpets and sort out who would pay for the ceilings at a later date;
(f)Mr Hutchings, with the ostensible authority of Telstra, approved, consented to or authorised the works on the Leased Premises and the appellants relied thereon in undertaking the works;
(g)there could be no new lease without agreement between the appellants and Telstra and Telstra could secure favourable terms to compromise its obligations under the Lease as a condition of agreeing to surrender its Lease to facilitate the new lease; and
(h)in the above circumstances, Mr Pourzand was not put on inquiry as to whether Mr Hutchings had the authority to consent to the appellants entering the premises to install the new ceilings and carpets.

Whether ostensible authority pleaded/litigated

The legal principles relating to raising a new point on appeal are well known and uncontroversial. A point will not be relevantly 'new' if it was pleaded and/or litigated at trial; the absence of a pleading on the point will not be decisive if the issue was litigated at trial; where the case litigated at trial departs from the pleading, the proper course is to apply to amend the pleading to conform with the evidence, although the failure to amend is not fatal in deciding whether or not a point was raised at trial; no narrow or technical view should be taken: Water Board v Moustakas (1988) 180 CLR 491, 497.
If the point raised on appeal was not pleaded and/or litigated at trial, it cannot be taken on appeal if evidence could have been adduced which, by any possibility, could have prevented the point from succeeding or if the respondent might have conducted the case differently at trial. Moreover, a party does not have a right to insist that a new point be decided on appeal simply because the facts have been established beyond controversy or the point is one of law. It remains a question of whether the appellate court 'may find it expedient and in the interests of justice to entertain the point': Water Board (497).
I start with the pleadings. The appellants claimed against Telstra for rent and other outgoings under the Lease and for the cost of that part of the works relating to the ceilings. It is clear from their statement of claim that the appellants' case was that United and Mr Hutchings acted as Telstra's agent in their dealings with the appellants relating to the Leased Premises and the Lease. In particular, it is pleaded that (1) Telstra's agent (United) gave notice of termination of the Lease (par 33A); (2) at all material times United acted as Telstra's property manager in respect of the Leased Premises and Mr Hutchings was an employee of United (pars 70 ‑ 71); (3) by no later than 15 July 2009 Mr Pourzand and Mr Hutchings had had discussions to the effect that it was in the mutual interests of the appellants and Telstra that the appellants carry out works to bring the Leased Premises to a good tenantable condition so as to make them more attractive to a potential tenant (par 76) which supported the claim for the cost of the works relating to the ceilings (pars 105 ‑ 108).
Telstra admits in its defence that United acted as its agent in terminating the Lease (pars 33A, 34(c)) and, in effect, denies par 76 of the statement of claim. There is no plea in the defence that if Mr Hutchings did what was pleaded in the statement of claim, he was not acting as its agent or was acting outside the scope of his actual authority. In par 34(b) of the defence, Telstra pleads that carrying out the major works was a breach of the covenant of quiet enjoyment.
In their reply, the appellants plead that Mr Hutchings agreed on behalf of Telstra with Mr Pourzand's proposal that the appellants would arrange for the carrying out of the necessary make good works at their own cost subject to Telstra partially reimbursing the appellants to the extent of $100 per square metre (par 10(1)(b)). In the context of the appellants' pleadings as a whole, that was clearly a claim that Mr Hutchings' conduct was as agent for, and bound, Telstra. There is no rejoinder to the reply. Thus there is no plea by Telstra that Mr Hutchings' agreement or other similar conduct pleaded by the appellants was outside the scope of Mr Hutchings' authority. Nor did Telstra seek particulars of the nature and extent of Mr Hutchings' alleged agency.
During counsel's opening on behalf of the appellants, an issue arose as to whether the appellants had to plead the nature of Mr Hutchings' authority, that is, whether it be actual or ostensible (ts 35). The appellants' counsel refers to the fact that the evidence relied on was disclosed in the witness statements exchanged prior to trial and pars 70 ‑ 72 of the statement of claim and continued:
The factual position is this: these two individuals [Mr Edwards and Mr Hutchings] or these two organisations and their employees, Knight Frank and United, are put forward by Telstra as the bodies with whom the plaintiffs are to deal in relation to property management matters and leasing matters. It is put; that is, Telstra has put these two organisations between it and the plaintiffs to serve those purposes, which can hardly be surprising not only in an organisational sense but in an operational sense.
What we are saying and what the evidence will be as a matter of fact is that we communicated with those persons who had been put forward; that is, we said certain things to them. We don't in the case of the ceilings, as I have said already, contend that we received an authorisation in the sense of Telstra agreeing to pay from either Mr Hutchings or Mr Edwards. In that sense, the question of their authority might or might not arise, but that is not the issue.
The factual matter with which we are dealing is the communication of information that was provided to the parties put forward by Telstra so that we would be in a position to contend, subject to the findings of fact that your Honour makes, whether what happened in that same period constitutes a breach of the covenant of quiet enjoyment. To preface that proposition by the need for us to plead authority, with respect, doesn't arise in the way in which the case has been propounded (ts 37 ‑ 38).

The appellants' counsel expressly disavowed any reliance on estoppel, waiver or acquiescence of a breach of the Lease. Their case was that, as a result of Mr Hutchings' conduct, there was no breach of the covenant of quiet enjoyment and no renunciation of the Lease. After giving consideration to whether it was necessary to amend the pleading, counsel for the appellants advised the judge that he did not think it was (ts 39). In all the circumstances, the language used to explain the appellants' case was really only consistent with ostensible authority, whether or not the appellants' counsel understood that to be the case.
Taking into account the pleadings as a whole, the witness statements and the opening, I am satisfied that the issue of Mr Hutchings' agency and his ostensible authority to consent to the major works was litigated at trial. In written closing submissions filed and served on behalf of the appellants, it is apparent from pars 217 ‑ 220 that a claim of ostensible authority was raised.
The trial judge considered the appellants' claim based on Mr Hutchings' knowledge of and consent to them undertaking the major works and concluded that it must fail [92] ‑ [110]. He gave six reasons. First, Mr Hutchings did not have knowledge of any of the major works. Second, Mr Hutchings expected that Mr Pourzand would not do the major works until Telstra had reached a decision on the August business case. The third and fourth reasons are confined to the pleaded case of authorisation on 15 July 2009 (par 10(1)(b) of the reply). Fifth, Mr Hutchings did not have actual authority to consent to the major works. That finding is not challenged. Sixth, Mr Edwards repeatedly asked Mr Pourzand whether he had informed Telstra of the work and Mr Edwards gave evidence that it was not normal for that type of work to be done without formal or written authorisation.
The first issue is whether Mr Hutchings consented to the appellants undertaking works on the Leased Premises in the second half of 2009 and if so, what works. I start with the detail of the August business case.

The August business case

The August business case prepared by Mr Hutchings and agreed to by Mr Pourzand recommended that Telstra '[e]xit Current Premises and Satisfy Makegood obligations' effective from 30 September 2009 and identified the status as at the date of submission as 'Conditional Heads of Agreement'. The comments on the recommendation are as follows:
There is some sub‑lease interest in this space, but there is little pressure for any new tenant to commit, with new sub‑lease space being added to available stock, almost weekly. With a little over 6 months lease left to run, there is little prospect of achieving any rent set off, due to the incentives required by new tenants. The Landlord has proposed a payout of $100/m² ($434,200) for Telstra to be released from its make good responsibilities, so that he can improve presentation of the space to make it more readily leasable. A make good quotation of $207,953.16 ex GST has been provided by Bovis Lend Lease. It is considered that it would be appropriate to allow a contingency of $50,000, bringing the likely make good cost to $257,953.16. It is advantageous to avoid dispute with the Landlord over the make‑good by paying him out. It is therefore proposed that a payout offer be made to the Landlord of $1,598,061.69, to be paid on 30 September 2009. This comprises a make good allowance of $257,953 and $1,340,108.69 for the net present value of 6 months rental, parking and …
The pro‑forma business case requires information relating to 'Facility Management' and 'Alternative Options'. As to the former, the business case states 'It is considered to be preferable to payout the Landlord for the anticipated make good cost, to avoid any dispute over the scope of these works'. As to 'alternative options' the business case states:
Hold off for a further 3 months before paying out the Landlord or commissioning Bovis Lend Lease to undertake make good, with the hope that a sub‑lease may be concluded in the interim. The prospects for this occurring are not strong.

Mr Hutchings' evidence

In late 2005 Telstra engaged United as its property manager, which included managing Telstra's interests as tenant of various buildings throughout Australia.
The trial judge generally accepted Mr Hutchings' evidence [35]. As the trial judge did not accept Mr Pourzand's evidence as to his dealings with Mr Hutchings, the appellants' case in the appeal focussed on the evidence of Mr Hutchings. Because of its importance I propose to refer to his evidence‑in‑chief, cross‑examination and re‑examination.
On 18 June 2009 Mr Hutchings commenced work for United as a property manager. He had long experience in managing commercial properties in and around the Perth CBD. His responsibilities included administering Telstra's commercial property leases initially in Western Australia and later were widened to include South Australia and the Northern Territory. Mr Hutchings managed the Leased Premises for Telstra.
As part of his role, Mr Hutchings was responsible for investigating and preparing business cases concerning the management of commercial properties leased by Telstra. The purpose of a business case was to make a recommendation for pursuing a particular course of action based on a full analysis of relevant financial and commercial implications of the courses of action.
Mr Hutchings' primary contacts in United included Ian Browne, the National Real Estate Manager of the Telstra account, Mark Slater, who was involved in significant deals on Telstra's behalf, and Mr Hutchings' immediate manager, Annette Millican.
When Mr Hutchings joined United, Telstra had already relocated its staff to its leased property at 80 Stirling Street, Perth. Most of Telstra's furniture and equipment remained in the Leased Premises, including fixed partitioning, work stations, office desks and chairs, office filing and storage cabinets.
At the time Mr Hutchings joined United, Knight Frank had already secured Offshore Marine to take a lease of the ground floor, which included the existing Telstra fit out and furnishings.
On 14 July 2009, Mr Hutchings received an email from Mark Kendle of Perth Management Services (PMS) who managed the building on behalf of the appellants. The email said:
Apparently there is a prospective tenant for approx 2,000 sqm of the Telstra space that requires upgrades to the level 3 and 4 bathrooms and installation of ladies and gents showers. The owner has expressed their willingness to assist in this project if this helps Telstra secure a tenant. The owner is of the view that the existing Telstra tenancies require 'make good' now to assist you in attracting tenants and he would like to meet with you over coffee next week to discuss the 'make good' arrangements.
Mr Hutchings responded by email on the same date stating 'I agree that it would be in both of our interests for Mr Porzand [sic] to make improvements to the base building before the Telstra Lease expires'. The word 'our' in that sentence is a reference to Telstra.
Mr Hutchings met Mr Pourzand at the Leased Premises on 15 July 2009. At that meeting Mr Pourzand said words to the effect that he saw an opportunity for both parties to benefit if he could immediately start work on the Leased Premises. Mr Pourzand wanted to renovate the toilets and install showers on each of the floors, remove Telstra's perimeter vertical blinds on each floor and its excess furniture and equipment, clean the balconies at Telstra's cost, repaint the balconies at his cost and re‑lamp the Telstra tenancies at Telstra's cost (referred to by Mr Pourzand and in these reasons as the 'cosmetic works').
Mr Pourzand also said to Mr Hutchings at this meeting that Telstra had significant make good obligations under the Lease which he believed were in the order of $200 per square metre and that he was prepared to take over that commitment as soon as possible and release Telstra from its obligations at a cost of $100 per square metre so he could present the premises to their best advantage while there was likely to be leasing activity arising from the Gorgon gas project.
Mr Hutchings agreed at that meeting that the appellants could undertake the cosmetic works but re‑lamping the tenancies would not be at Telstra's cost. As to Mr Pourzand's proposal about taking over Telstra's make good commitment, Mr Hutchings said the proposal had merit but he had no authority to approve it. He told Mr Pourzand that he would need to obtain an independent quote from Telstra's preferred contractor to verify Telstra's make good cost exposure and then submit a business case to Telstra for Telstra to make a decision.
After this meeting Mr Hutchings considered the make good provision of the Lease and formed the view that Telstra's make good obligations were less extensive than Mr Pourzand had suggested. Clause 4.5 of the Lease relevantly provided that Telstra 'must make good any damage due to the removal of the Tenant's Fixtures' within 28 days after the end of the term.
Mr Hutchings and Mr Pourzand met again at the Leased Premises on 27 July 2009. Mr Hutchings inspected the bathroom renovations and observed that the other cosmetic works he had approved were being carried out. No other works were being undertaken at this time.
Mr Hutchings again attended at the premises on 19 August 2009 to view the progress of the cosmetic works and 'the works to the base building'. The evidence was that the 'base building' includes common areas outside the Leased Premises to which the lessee is entitled to access and areas within the Leased Premises for which the lessor was responsible, in this case the carpets and ceilings of the Leased Premises (ts 259, 405). Mr Hutchings noticed that the appellants had started re‑carpeting levels 1 and 2 and said words to the following effect to Mr Pourzand:
Telstra has not approved this work. I haven't even put a business case in. You are taking a risk going ahead with this work without Telstra's approval.
Mr Hutchings also said in his evidence‑in‑chief that some time in late August or early September 2009 he went to the Leased Premises again, at Mr Pourzand's invitation, and noted that the appellants had started removing Telstra's fixed partitioning. Mr Pourzand showed him some cuts to the ceiling T‑bars on level 2 which had been revealed by the removal of fixed partitioning. On level 2 there were around 30 cuts to the T‑bars as a result of which there was bowing to the ceiling in the area of the cuts. He said Mr Pourzand was adamant that the ceilings had to be replaced at Telstra's expense and that he had already ordered new ceilings.
Mr Hutchings' evidence in cross‑examination both amplifies and subtly qualifies some aspects of his evidence‑in‑chief. He said he first saw the re‑carpeting of the Leased Premises in early August or perhaps late July (ts 415, 418, 426). He estimated that he had seen 25% of two of Telstra's floors re‑carpeted (ts 433). Mr Hutchings did not advise anyone in Telstra of the re‑carpeting and did not suggest to the appellants that they should not be undertaking the work. Mr Hutchings accepted that he may have told Mr Pourzand that replacement of the carpets 'was a marvellous idea' (as Mr Pourzand said in his evidence) because he thought what Mr Pourzand was doing was going to 'improve the presentation of the property a lot' (ts 425).
Mr Hutchings said he discussed with Mr Pourzand the subject of the removal and replacement of the ceilings on at least two separate visits to the Leased Premises. The first occasion on which Mr Pourzand asked him to look at the ceilings was after the appellants had removed some partitioning and some ceiling tiles (ts 418). He could not recall whether this was in early August or late August. However, Mr Hutchings' best recollection was that some fixed partitions had been removed when he attended the premises on 19 August 2009 (ts 430).
The ceiling problems identified by Mr Pourzand were cuts in the T-bars, bowing of the ceilings in areas where partitions had been removed (the bowing being associated with surprisingly large amounts of cabling in the ceiling space) and the presence of different coloured ceiling tiles. On the first occasion Mr Pourzand was wanting to make it clear to Mr Hutchings that the problems with the ceiling had to be factored into Telstra's make good obligation (ts 418).
Mr Hutchings repeated his view that the works were to Telstra's benefit:
By 25 August 2009, you had reached the point where you had prepared a draft business case recommending that Mr Pourzand be paid out the balance of the lease and be paid an amount in respect to make good?---Correct.
So it was not a matter of any particular interest to you at that stage what Mr Pourzand at his cost was doing to the premises? Wasn't it?---I saw the risk being his. If Telstra had not approved the business case he was helping them and doing some of the things that [Telstra] might have later had to do (ts 417). (emphasis added)
After confirming that the work being carried out by Mr Pourzand was not referred to by Mr Hutchings in the draft business case or in any communication from him to Mr Pourzand (or his agent) the cross‑examination continued:
You don't send an email or correspondence to anybody else within United about the works that Mr Pourzand is doing, do you?---I'm not certain whether ‑ I certainly told Annette Millican. Whether it was by email or phone, I can't be certain.
When did you tell her ‑ first of all, let's get the date. When do you say you told her something about what Mr Pourzand was doing?---When I started to get a bit worried that he was doing significant work.
That would have been - - -?---That was at the second time when I was asked to go up to have a look at the ceiling.
Can I put it to you that was before 25 August 2009, wasn't it?---Yes, it was (ts 417).
However, the second occasion on which he was asked to look at the ceilings may have been after 25 August 2009. The cross‑examination continued:
Do you say that you had any further meetings or discussions with Mr Pourzand about 251 St Georges Terrace after 25 August 2009 when you had sent the business case through?---Yes, we did because at some point before I went on leave, Mr Pourzand did tell me that he was going to go ahead and replace the ceilings and sort out how to fund it after.
What did he say?---And sort out the funding implications later.
I see. Did you write to him about that?---No.
Or Mr Kendle?---No.
On the basis that if Mr Pourzand was going to carry out work to the ceiling being part of the base building, it's a matter for him like the bathrooms and it wouldn't be an issue for Telstra. Is that right?---No. Because if the business case had been approved, he was going to be paid out and what he did after that was for him to - his own business.
Equally, as far as you were concerned because you prepared the business case, it really didn't matter what he was doing with the premises. Is that right? As long as he wasn't asking Telstra to pay?---That was my take on it, yes. Yes. I thought he was taking risks in doing so but the ‑ it wasn't going to change the business case.
All right. That's as a result why didn't you write to him on this topic?---Yes.
It's why you didn't bring it up at the project meetings involving Ms Zuvela?---Yes (ts 418 ‑ 419).
Mr Hutchings understood that there was a deal with the appellants on the terms in the business case, subject to the formal approval process. Further, he did not object to the appellants' works and proposed works because he saw no downside for Telstra:
Now, if the position was that as at 25 August 2009 you had spoken to Mr Brown[e] and you had got his input as to what should be put to Mr Pourzand, and then shortly afterwards you're told by Mr Pourzand that he is going to accept it, if put, as far as you were concerned at that point you had a deal subject to the formal approval process going through?‑‑‑Yes.
And as a result you weren't fussed really what was going on in the premises because it had all been sorted out as far as you were concerned. Is that right?---No, I was worried about it, but I didn't think there was any downside for Telstra in Mr Pourzand making improvements and doing ‑ make good work.
That included the replacement of the ceilings, didn't it?---Yes.
In other words, whatever you thought about the condition of the ceilings, if he wanted to go and replace them, you didn't see any downside from Telstra's point of view?---No.
And you understood that that's what he was going to do; that is, he was going to go ahead and replace the ceilings?---Yes (ts 423). (emphasis added)
Although Mr Hutchings did not say to the appellants that they should not carry out the work, he told Mr Pourzand several times 'that there's no assurance that Telstra will approve this business case' (ts 423).
The following exchange occurred in re‑examination:
Before you went on leave did Mr Pourzand tell you that he was going to do a wholesale removal of the ceilings while you were on leave?---He didn't tell me timing but he did ‑ he had told me that he was intending to go ‑ yes, to order - well, that he had ordered the new ceilings.
He told you he had ordered the ceilings?---Yes.
Did he tell you anything else or is that what he told you?---That's what he told me.
Before you went on leave was it your expectation that he was about to do a wholesale removal of the ceilings?---No.
Was it your expectation that would be subject to the business case being approved?---Yes, I would have expected that he would wait until it was a deal (ts 434).

Did Mr Hutchings consent to the relevant works?

For present purposes, there is no relevant difference between the concepts of approval, consent and authorisation. I will focus on consent. The High Court in Byrnes v Kendle (2011) 243 CLR 253, approved the definition of consent formulated by Handley JA in Spellson v George (1992) 26 NSWLR 666, 669 ‑ 670 as follows:
Consent may take various forms. These include active encouragement or inducement, participation with or without direct financial benefit, and express consent. Consent may also be inferred from silence and lack of activity with knowledge. However consent means something more than a state of mind.
That is, consent must be communicated, expressly or impliedly, to the appellants. In Owston Nominees No 2 Pty Ltd v Clambake Pty Ltd (2011) 248 FLR 193 [64] ‑ [66] the role of silence in the context of the making of a (positive) representation is discussed. Whether or not a person has communicated a representation to another (and if so, its content) must be assessed having regard to all relevant, objectively determined surrounding circumstances. Reasonable inferences, reasonable assumptions and reasonable expectations arising from the objectively determined circumstances will be taken into account. However, subjective matters not known to the parties are not to be taken into account.
Although the High Court approved the Spellson approach to consent in the context of whether there was an equitable defence to a breach of fiduciary duty, it is not confined to that context. The trial judge appears to have taken a contrary view ([107]).
The trial judge does not expressly explain how and why he found that Mr Hutchings did not know of or consent to the major works. On my understanding of the trial judge's approach to this subject, he grouped the relevant works undertaken by the appellants at the Leased Premises into two categories, 'minor works' and 'major works', neither of which category included the cosmetic works Mr Hutchings approved in July 2009. The categorisation was not made by reference to the type of works undertaken but by reference to the extent of the works actually undertaken at the time they were last inspected by Mr Hutchings (the minor works) and the extent of the works actually undertaken at the time Telstra terminated the Lease (the major works). That is, the extent of the re‑carpeting and partition and ceiling tile removal at the time of Mr Hutchings' last inspection of the Leased Premises before going on leave on 4 September 2009 were the minor works and the extent of the re‑carpeting, partition removal and ceiling works shown in the photographs taken on 10 September 2009 were the 'major works'.

Applying that categorisation, the trial judge found that neither United nor Telstra had any knowledge of the major works and thus did not consent to them. See [2], [4], [54] ‑ [55], [96] ‑ [97], [121], [123]. An associated finding, based on Mr Hutchings' re‑examination evidence in isolation, was that he did not expect that the major work would be undertaken before approval of the August business case [54] ‑ [55], [96] ‑ [97].
The trial judge's approach to the fact‑finding exercise on knowledge and consent is flawed and has led to an erroneous outcome. The correct approach is to identify the time by which consent was allegedly given and identify any limitations in the scope or reality of the consent. So for example, if the appellants had not provided relevant information that was solely within their knowledge, any purported consent given by Mr Hutchings would be illusory and of no effect.
The trial judge's findings on knowledge and consent are against the weight of the evidence. Mr Hutchings' uncommunicated expectation as to the timing of the major works is irrelevant to the issue of consent. In any event, the meaning of Mr Hutchings' evidence in re‑examination is informed by his evidence in cross‑examination.
It is unequivocally clear from his cross‑examination that Mr Hutchings knew that the appellants intended to re‑carpet all of the Leased Premises, remove the old ceilings and re‑install new ceilings in the Leased Premises and undertake works reasonably incidental to those works. That knowledge was gained in circumstances in which it was reasonable to expect that Mr Hutchings would communicate to Mr Pourzand any objection or opposition to the appellants carrying out the proposed works. His only warning to Mr Pourzand was that he might not be paid by Telstra for the make good works, implying that was the sole extent of his concerns. That is, his concern was confined to the possibility of the appellants acting to their financial disadvantage before reaching agreement with Telstra. After all, Mr Hutchings' assessment was that all of the proposed works would be to Telstra's advantage. It is clear from the terms of his warning that Mr Hutchings understood that Mr Pourzand was proposing to continue with the works he had started and commence the ceiling works prior to Telstra's decision on the August business case.
Mr Hutchings' answer in re‑examination about his expectations relate to his warning that if the appellants acted before approval of the August business case they may be left carrying all of the costs associated with the ceiling works. That is, his uncommunicated expectation was based on his view that the appellants may heed his warning.
The broad factual context supports the conclusion that Mr Hutchings consented to the appellants undertaking the major works. The cosmetic works were discussed and agreed to with the stated purpose of improving the prospects of securing a new tenant for the Leased Premises before the end of the Lease term. That was commonly accepted by Mr Pourzand and Mr Hutchings to be the intended purpose and effect of both the minor and major works. Mr Hutchings' only warning to the appellants was that if the business case was not approved by Telstra the appellants might not be able to recover the cost of the ceiling works. Implicit in that narrow warning is that there was no other objection to the works being carried out.
In objectively determining whether Mr Hutchings consented to the appellants undertaking the major works when they did, there is no scope in the evidence for attributing to Mr Pourzand or Mr Hutchings any knowledge, actual or constructive, that the major works would or could take the entire balance of the term of the Lease. That possibility is positively excluded by the parties' common intention and purpose which was to increase Telstra's prospects of getting a replacement tenant before the expiry of the term of the Lease.
Moreover, there is no sufficient evidentiary foundation for the trial judge's finding that it was reasonable for Telstra (and Mr Pourzand [119]) to expect that the ceiling work would take the entire remaining term of the Lease. It seems that the trial judge's inference is based on the Telstra photographs. He dramatically describes the appellants as 'tearing the demised premises apart' [2]. The implication in that statement is also to the effect that it was not reasonable to conclude that the appellants intended to further Telstra's interest. However, the unchallenged evidence of Mr Edwards of Knight Frank was that, in response to Mr Pourzand's request in July 2009 for advice as to how to make Telstra's space more presentable and more tenantable, he advised that the ceilings should be replaced, the vertical blinds removed, the carpet replaced and extraneous internal walls and partitions be removed. Mr Edwards said that work on the ceilings, the partitions and the carpets were undertaken simultaneously because the appellants were trying to preserve 80% of Telstra's fit out, in particular its work station environment (ts 253). Mr Pourzand's evidence was to the same effect.
As to a reasonable estimate of the time to complete the major works, the evidence established that the major works were halted for an approximately two‑week period after Telstra's termination of the Lease and were almost completed by the commencement of the AGC lease on 1 February. Further, Knight Frank advised United on 24 September 2009 that AGC was offered a new seven‑year lease from 1 December 2009, with early access for fit out purposes of levels 1 and 2 (SG/64). In context, the actual time to completion shows no more than that the major works were undertaken in the time available.
Further, in objectively determining whether Mr Hutchings consented to the appellants undertaking the major works, there is no scope for attributing to the appellants or Mr Hutchings knowledge, actual or constructive, that Telstra's ability to sub‑lease (in the technical sense) the Leased Premises for project space was relatively high.
First, some issues of terminology. The parties in their communications frequently used the term 'sub‑lease' in a non‑technical sense to mean a lease for a term that commenced before and extended beyond the expiry of the term of the Lease (31 March 2010). A lease of that kind is a new lease which requires the appellants' agreement and to which cl 6.1 of the Lease does not apply. A sub‑lease in the technical sense (to which cl 6.1 of the Lease applies) must be for a period less than the balance of the term of the Lease.
The August business case is referring to 'sub‑lease' in its non‑technical sense. That is evident from the reference to a 'rent set off' and the payment of incentives for new tenants. The term sub‑lease in its non‑technical sense was also used in the communications relating to the Clough Engineering proposal. Further, when rejecting Clough's proposal, Telstra was informed that the appellants required a term of at least two years beyond the Lease expiry date.
The trial judge's finding that in June 2009 there was 'still a good chance' that Telstra would be able to sub‑lease the Leased Premises for project space is against the weight of the evidence. Mr Edwards of Knight Frank described what is meant by 'project space'. He said:
Project space is office space that's generally leased by an engineering firm or a mining company that have won a particular project. It might be to build a mine site or to design a windmill or whatever. They'll employ 200 people, they'll need space for two years and they only want short term and because they generally want it on a competitive tender, they don't want to spend any money on fit‑outs; so if they can find a work station environment that's cabled up and ready to go, that obviously helps them (ts 263).
In that answer, two years is characterised as short term. In response to the question 'What was the market for project space as we move through 2009' for the Leased Premises, Mr Edwards said 'It died' (ts 262). He elaborated:
2009 was post‑[gfc], which occurred really, from Perth's point of view, in late 2008 and the mining companies you may recall were also [fighting] a taxation regime that the Rudd Government wanted to put on them and those two things together had the effect of stopping projects and making it very difficult to lease to those sorts of companies. In fact at the same time Rio Tinto threw 12,000 metres of their space onto the market ‑ which was, you know, magnificent project space; it was all done for a mining company ‑ and we found difficulty in leasing that as well (ts 263 ‑ 264).
The trial judge rejected Mr Edwards' evidence that the market for project space had died. He accepted the evidence of Telstra's National Leasing Manager, Emily Dean, that:
As a result of [post GFC] uncertainty, many companies were unwilling to commit to long term leases of office space … Companies in the resources sector and servicing the resources sector were instead looking for cheaper alternatives and short term space.
Telstra's tenancy at 251 St Georges Terrace was ideal for these types of tenants. It was short term project space ‑ and that was exactly what the market in Perth was looking for.
In my opinion, at all relevant times in 2009, Telstra's ability to sub‑lease that space ought to have been relatively high (WS [30] ‑ [32]).
I will assume Ms Dean was using the term sub‑lease in its technical sense. The trial judge preferred Ms Dean's evidence on the prospect of sub‑leasing the Leased Premises. Ms Dean joined Telstra in July 2009, had not seen the Leased Premises and had had no discussions with Knight Frank or Mr Hutchings about local market conditions. Mr Hutchings' assessment of the strength of the leasing market in Perth in August 2009, formed independently of Knight Frank, was consistent with that of Mr Edwards.
Notwithstanding that the Leased Premises had been on the market for many months, as at mid‑September 2009 no sub‑lease (in its technical sense) had been entered into. The lease to Offshore Marine for project space was a new lease not a sub‑lease. There was no evidence of any actual expression of interest in a sub‑lease of the Leased Premises. There is no finding that Clough Engineering would have agreed to a sub‑lease.
By the end of August there was no evidence to suggest that the leasing market in the second half of 2009 for a sub‑lease was an improvement on the first half. That conclusion is not affected by the fact that in late 2009 the third floor of the building was leased to the Compass Group on a short term basis because its West Perth premises had been flooded. Further, and in any event, the appellants had made it clear to Telstra that they would not agree to a sub‑lease and Telstra did not challenge their position at least in relation to Clough Engineering. It is not uncommon for practical commercial considerations to trump theoretical legal (or leasing) options.
The reality was that in August 2009 all parties on the ground in Perth understood that there was no real prospect that Telstra would be able to sub‑lease (in the technical sense) the Leased Premises.

Ostensible authority - legal principles

The relevant legal principles are not in dispute. In order for the appellants to succeed on the claim of ostensible authority it is necessary to establish that: (1) Telstra held out United/Mr Hutchings as having authority to consent to the appellants entering the Leased Premises for the purpose of carrying out the major works; (2) the appellants relied on that holding out; (3) such reliance was reasonable.
There can be no reasonable reliance when the circumstances are such as to put a person on inquiry as to whether the agent has the relevant authority. See Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 [36] ‑ [38], Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146, 155, 180, 205 - 206, 208, 212 and Tipperary Developments Pty Ltd v The State of Western Australia (2009) 38 WAR 488 [110].

Holding out

The unchallenged findings and evidence establish the following. At all material times Mr Hutchings, in his capacity as an employee of United, was in fact Telstra's agent for managing the Leased Premises and the Lease. Telstra held out Mr Hutchings to the appellants as the person on the ground to manage its interests in connection with the Leased Premises. There were never any direct dealings between the appellants and Telstra, whether in person or by correspondence. The scope of Mr Hutchings' actual authority extended to matters of the same character, namely giving the appellants permission to enter upon the Leased Premises and authorising them to undertake works thereon, such as the cosmetic works. The nature and scope of the duties conferred by Telstra on, and undertaken by, Mr Hutchings for and on behalf of Telstra were such that it was objectively reasonable to infer that he could authorise the appellants to enter and undertake works on the Leased Premises, including the major works, at their expense.

Reasonable reliance

It is necessary to establish that the appellants relied on Telstra's representation of authority and that to do so was reasonable in the circumstances. The first limb is subjective. The second limb imports an objective standard; that is, whether a reasonable person in the position of Mr Pourzand would have acted on the representation of authority. However, there is a close relationship between the subjective question of whether in fact Mr Pourzand (and thus the appellants) relied on the representation of authority and the reasonableness of that reliance: Rosenberg v Percival (2001) 205 CLR 434 [24] ‑ [25]. The objective circumstances will inform an assessment of whether in fact the appellants relied on Telstra's representation as to Mr Hutchings' authority.
The trial judge found that Mr Pourzand knew that he required the consent of Telstra to enter upon the Leased Premises for the purpose of undertaking work on the Leased Premises, including the major works. Mr Pourzand's evidence was that he did have consent. That was confirmed by Mr Edwards who gave evidence that he repeatedly asked Mr Pourzand if Telstra had been informed of the things that he was planning to do or was doing in the Leased Premises and he said, 'Yes' on multiple occasions (ts 246).
Mr Hutchings confirmed the evidence of Mr Pourzand that the latter initiated inspections of the Leased Premises by Mr Hutchings on a regular basis to show him what was proposed from time to time and so he (Mr Hutchings) could inspect the works as they proceeded. Mr Pourzand did not act unilaterally and did not undertake any of the works in a clandestine way. The fact that Mr Pourzand ordered the T-bar ceiling grids in advance of discussing with Mr Hutchings the proposed ceiling works is not determinative. Mr Hutchings had, up to that time, invariably consented to the appellants undertaking works at their cost that would increase the attractiveness of the Leased Premises to prospective tenants. Further, Mr Pourzand initiated a further meeting about the ceilings after ordering the T‑bars.
Moreover, the evidence established a number of understandings and assumptions common to Mr Hutchings, Mr Pourzand and Mr Edwards. First, that the major works were regarded as being for the common benefit of the appellants and Telstra. Second, the only realistic alternative for the Leased Premises was a new lease for a term that commenced before the expiry of, but extended beyond, the term of the Lease. Third, (and related to the second common assumption), the major works would be completed within a timeframe that would be to Telstra's financial advantage; that is, well before the expiry of the Lease on 31 March 2010. If Telstra rejected United's recommendation in the August business case, it could negotiate a compromise of its obligations under the Lease as a condition of its surrender to enable the commencement of any new lease.
There was nothing in the conduct of Mr Hutchings or the surrounding circumstances that could or should have put Mr Pourzand on inquiry as to the existence of his actual authority to consent to the appellants undertaking the major works. The evidence establishes that the appellants relied on Telstra's representation that Mr Hutchings had authority to consent to them undertaking the major works on the Leased Premises and that reliance was reasonable.

Conclusion

The appeal was conducted on the basis that if Mr Hutchings had Telstra's ostensible authority to consent to the appellants undertaking the major works, in particular the ceiling works, and did so consent, the appellants did not renounce the Lease and did not breach the covenant of quiet enjoyment. That must be correct.
Telstra's purported termination of the Lease was treated by the Pourzands as a repudiation of the Lease and they served notice of termination. The appellants claimed damages for breach of the Lease and the quantum of the claim was agreed at $1.27 million. The cost of the ceiling works was agreed at $312,800. However, there was no appeal from the trial judge's decision that the ceilings were repairable and that Telstra was not liable for their replacement. It is unclear whether or not the agreed figure of $1.27 million includes the cost of replacing the ceilings. I would hear from the parties on that subject.
Accordingly, I would order that the appeal be allowed and the orders made by the trial judge be set aside. I would also order that judgment be entered for the appellants against the respondent in the agreed amount and that the respondent do pay the appellants' costs of the action to be taxed and the appellants' costs of the appeal to be taxed. I would hear from the parties on the appellants' interest claim.
PULLIN JA: Although there were 13 grounds of appeal and a notice of contention there were three main issues to be decided on the appeal. The issues were:
(a)whether Mr Hutchings, an employee of Telstra Corporation Ltd's (Telstra) property manager, United Group Real Estate Services (NSW) Pty Ltd (United), consented to the appellants entering premises at 251 St Georges Terrace, Perth (the leased premises) to carry out certain works, in particular to remove ceilings and to recarpet the leased premises;
(b)if so, whether Mr Hutchings acted with the ostensible authority of Telstra; and
(c)whether the above issues were issues litigated at trial.
If the first two issues were litigated at trial and if Mr Hutchings did consent and did so with the authority of Telstra, then the trial judge erred

by finding that the appellants repudiated the lease and the appeal must succeed.

It is appropriate to first deal with the third of those issues.

Were the issues litigated at trial?

By paragraphs 34 ‑ 35 of the statement of claim the appellants pleaded repudiation of the lease by Telstra. This was answered by Telstra in par 34(c) of their defence. Telstra pleaded that the appellants, in breach of the covenant to allow Telstra quiet enjoyment of the leased premises, took 'possession' by going onto the leased premises. Thus Telstra contended that it was the appellants, not Telstra, who repudiated the lease. Senior counsel for Telstra agreed that it was implicit in the allegation that the appellants retook possession that possession was retaken 'without consent'. See appeal ts 90 where the following exchange occurred:
PULLIN JA: But implicit must be that it 'retook possession without consent'. It has to be, because if they went into possession with consent then that's not a breach of the covenant.
DAVIES, MR: Perhaps that's implicit yes.
See also appeal ts 102 ‑ 103.
The appellants, in their reply, denied Telstra's plea that the appellants retook 'possession' without consent. See par 4, BAB page 107. Thus, it was an issue on the pleadings that possession of the leased premises was taken by the appellants without consent.

Counsel for Telstra submitted that the only issue at trial about consent or 'authorisation' (as it was called at trial) was that which arose in par 10 of the appellants' reply, which referred to an 'agreement' in July 2009. However, if that were so, what was said by Mr Hutchings and Mr Pourzand (who dealt with Mr Hutchings on behalf of the appellants) after July 2009 would not have had to have been examined at trial. As appears below, Mr Hutchings was cross‑examined about the events from July 2009 until he went on holiday on 4 September 2009. There was no objection by Telstra.
At trial ts 418:
McGOWAN, MR: The discussion about the ceilings you say had occurred before you sent this business case to Mr Kendle to be passed onto Mr Pourzand. Do you say that you had any further meetings or discussions with Mr Pourzand about 251 St Georges Terrace after 25 August 2009 when you had sent the business case through?---Yes, we did because at some point before I went on leave Mr Pourzand did tell me that he was going to go ahead and replace the ceilings and sort out how to fund it after.
What did he say?---And sort out the funding implications later.
I see. Did you write to him about that?---No.
Or Mr Kendle?---No.
On the basis that if Mr Pourzand was going to carry out work to the ceiling being part of the base building, it's a matter for him like the bathrooms and it wouldn't be an issue for Telstra. Is that right?---No. Because if the business case had been approved, he was going to be paid out and what he did after that was for him to - his own business.
Equally, as far as you were concerned because you prepared the business case, it really didn't matter what he was doing with the premises. Is that right? As long as he wasn't asking Telstra to pay?---That was my take on it, yes. Yes. I thought he was taking risks in doing so but the - it wasn't going to change the business case.
Alright. That's, as a result, why didn't you [sic] write to him on this topic?---Yes.
It's why you didn't bring it up at the project meetings involving Ms Zuvela?---Yes.
At ts 423:
MR McGOWAN: And as a result you weren't fussed really what was going on in the premises because it had all been sorted out as far as you were concerned. Is that right?---No, I was worried about it, but I didn't think there was any downside for Telstra in Mr Pourzand making improvements and doing - make good work.
That included the replacement of the ceilings, didn't it?---Yes.
In other words, whatever you thought about the condition of the ceilings, if he wanted to go and replace them, you didn't see any downside from Telstra's point of view?---No.
And you understood that that's what he was going to do; that is, he was going to go ahead and replace the ceilings?---Yes.
…
Did you have discussion with him before you went on leave - I withdraw that. So your recollection is that he was going to go ahead with the ceiling works, that is, replace the ceiling, and he would look at a question of who would pay at a later date. Is that what you understood?---Yes.
At ts 428:
MR McGOWAN: It's not the case that you gave him any warning about going ahead, is it? You didn't give him any warning?---Yes, I did warn him that the business case may not be approved, in which case he could be funding the work that he never got paid for.
At ts 429:
MR McGOWAN: So you agree, don't you, as a result, if that's the position, that by 19 August 2009, parts of the old ceiling had been removed?---Yes.
Not for the purpose of having a look, but for the purpose of being replaced?---No. They were being removed to help partition removal for recarpeting purposes.
At ts 432:
MR McGOWAN: The discussion about the ceilings took place, do you agree, before the removal of the ceiling started?---I'll say on removal, but yes.
In his witness statement, which became his evidence in chief, Mr Hutchings said, at pars 50 and 51, that on 19 August 2009 he observed that Mr Pourzand had started recarpeting levels 1 and 2 of the leased premises. In par 52 of his statement he said that he said words to Mr Pourzand to the effect that 'Telstra has not approved this work. I haven't even put a business case in. You are taking a risk going ahead with this work without Telstra's approval'. However, this evidence changed in cross‑examination. In the cross‑examination set out above, Mr Hutchings agreed that what Mr Pourzand was doing was going to improve the presentation of the property a lot and that he 'may well have said' to Mr Pourzand that 'replacement of the carpets was a marvellous idea' (ts 425 ‑ 426). When cross‑examined about the warning he gave to Mr Pourzand, Mr Hutchings explained that the warning was 'that the business case may not be approved, in which case he could be funding the work that he never got paid for' (ts 428). In re‑examination there was no attempt to ask Mr Hutchings whether his warning constituted more than that Mr Pourzand may not be paid for the work. The only evidence elicited in re‑examination about the carpets was that 25% of levels 1 and 2 had been recarpeted when Mr Hutchings saw them on 19 August (ts 433).
As to the issue about Mr Hutchings' authority, Mr Hutchings' witness statement, at pars 22 ‑ 35, described conversations he had with Mr Pourzand about work which Mr Hutchings agreed could be carried out and the fact that Mr Hutchings authorised Mr Pourzand in effect to re‑enter the premises to remove furniture, rubbish and vertical blinds and to clean and repaint the balconies. He added in par 35:
I did not authorise Mr Pourzand to carry out any work other than the work on the bathrooms (which was base building work and a landlord's cost) and the works paid for by Telstra as set out above.
The works paid for by Telstra 'as set out above' included removing the furniture, rubbish and vertical blinds, and cleaning the balconies.
The inclusion of par 35 in Mr Hutchings' statement implied that Telstra set out to prove that the entry onto the premises to carry out the work to the ceilings and the carpets was entry without the consent of Mr Hutchings. The preparation of such a statement implied that Telstra considered that Mr Hutchings was the person who could give evidence about giving consent or withholding consent on Telstra's behalf in relation to allowing entry to carry out work of any kind.
In my view, the two issues of consent by Mr Hutchings and his authority to give consent were litigated. The trial judge erred in holding to the contrary at [92] ‑ [94]. I would therefore uphold ground 8 of the appeal.

Did Mr Hutchings consent?

Moving then to the two substantive issues, the first being whether Mr Hutchings did consent to Mr Pourzand going onto the leased premises to carry out the removal of the ceilings and the recarpeting work. The evidence of Mr Hutchings which is of particular relevance, is set out in the paragraphs above. Telstra referred to the evidence of Mr Hutchings in re‑examination at trial ts 434, where Mr Hutchings says that his 'expectation' was that despite Mr Pourzand saying he had ordered new ceilings (thereby implying that he was going ahead with removing the ceilings), he would not carry out a 'wholesale removal of the ceilings'. This evidence of an unspoken expectation in the mind of Mr Hutchings is irrelevant. The trial judge erred at [96] and [97] in placing any reliance on Mr Hutchings' 'expectations' when considering the question of whether Telstra, through Mr Hutchings, consented to or (to use the trial judge's expression) authorised the appellants to enter the leased premises to carry out any work. See the trial judge's reasons at [92] ‑ [110] . What is relevant is what was testified to by Mr Hutchings in the passages referred to above. Mr Hutchings knew that Mr Pourzand had said that he was going onto the leased premises to carry out work to the ceilings and carpets and this knowledge, the lack of objection by him and the expression of approval ('marvellous idea') amounted to consent to the appellants going onto the leased premises to carry out the work to the ceilings and the recarpeting: see Spellson v George (1992) 26 NSWLR 666, 669 ‑ 670; Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 [25]. Thus Mr Hutchings did consent to Mr Pourzand going onto the leased premises to carry out the ceiling work and recarpeting work while the lease was still on foot.
As a result, the second part of ground 2 and ground 3, which deal with this point, should be upheld.

Ostensible authority

The final issue then is whether or not the consent given by Mr Hutchings was the consent of Telstra. No express authority was given to Mr Hutchings by Telstra, but the question is whether there was ostensible authority. The trial judge's finding at [101] that Mr Hutchings had no authority to approve the ceiling work and the recarpeting work only dealt with the question of express authority. That finding did not deal with the issue about whether or not there was ostensible authority. That was an issue dealt with in the appeal. The issue was directly raised in the appeal by Telstra, who filed a notice of contention which read:
[E]ven if conduct that could amount to an implied authorisation is established, the appellants did not establish that:
(a)[Telstra] held out Mr Hutchings as having authority to approve the works; and
(b)they relied on any ostensible authority Mr Hutchings is found to have had.
There is no doubt that Mr Pourzand understood that he required the consent of Telstra to enter upon the leased premises to undertake the ceiling work and the recarpeting work, and that he believed that he had such consent from Mr Hutchings, and that such consent was Telstra's consent. However, the critical question is whether Mr Hutchings had ostensible authority to consent. It is necessary, in order to decide whether Mr Hutchings had ostensible authority, to decide whether there had been a holding out to the appellants by Telstra that he had such authority. That involves considering Telstra's conduct as a whole. It is not enough that the representation about authority came from Mr Hutchings alone. Whether a representation about authority is general or related specifically to the particular transaction, it must come from the principal. That does not mean that the conduct of the person alleged to have ostensible authority is irrelevant to the representation, but the principal's conduct must be the source of the representation. In many cases the representation or conduct commonly takes the form of the establishment of an organisational structure. That structure presents to outsiders a complex of appearances as to authority: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [36] (Gleeson CJ, Gummow, Hayne, Callinan & Heydon JJ).
It was not in dispute that United was authorised to deal with the appellants generally in connection with the leased premises. Mr Hutchings was an employee of United. There were never any dealings between the appellants and any officer of Telstra in writing or in person. Thus Telstra in effect required the appellants to deal with United and United employees. There was no dispute that Mr Hutchings had authority to give the appellants permission to enter upon the leased premises to carry out certain works described by the trial judge as cosmetic works. Mr Hutchings was therefore held out by Telstra as being the person with the authority to consent to the appellants entering the leased premises to undertake works generally.
Finally, it is necessary to consider whether the appellants were put on inquiry as to whether Mr Hutchings had authority or not. There can be no reasonable reliance on representations about authority where the circumstances put the third party on inquiry as to whether the purported agent has the requisite authority: Tipperary Developments Pty Ltd v The State of Western Australia [2009] WASCA 126; (2009) 38 WAR 488 [110]. The question then is whether Mr Hutchings' references to a business case being submitted to Telstra, and the question about whether Telstra would agree with Mr Pourzand's view about Telstra's responsibility for making good, put the appellants on inquiry as to whether Mr Hutchings had authority to consent to the appellants entering the leased premises to carry out the ceiling work and the recarpeting work. Those references and that question did not put the appellants on inquiry. The comments by Mr Hutchings did indicate that Mr Hutchings had no authority as to the financial aspects of the dealings between the parties. However, the appellants were not put on inquiry about Mr Hutchings' authority to consent to the appellants going onto the leased premises to carry out work. The organisational structural established by Telstra,

which required the appellants to deal not with Telstra, but with Telstra's agents including Mr Hutchings as a representative of United, amounted to a holding out that Mr Hutchings had authority to consent to the appellants entering the leased premises to carry out work on the ceilings and to recarpet. The notice of contention should therefore be dismissed.

The result is that the trial judge erred in finding that the appellants repudiated the lease and the appeal must succeed. Save where the reasons above differ from the reasons of McLure P, I agree with the President's reasons and proposed orders.
MURPHY JA:

Introduction

This appeal concerns a landlord and tenant dispute. It arises from a decision of Edelman J, in which his Honour found that the landlords, by entering onto the leased premises and carrying out certain works on the premises, had repudiated or disavowed their fundamental obligations under the lease, entitling the lessee to terminate. In my view, the appeal should be dismissed.
The overarching, substantive question in the appeal was whether the respondent lessee (Telstra) had given implied permission or consent to the appellants ('Pourzands' or 'landlords') to enter the premises to carry out such works. This involved subsidiary questions of whether an employee of Telstra's property manager had in fact impliedly given his consent or permission and if so, whether he did so with the ostensible authority of Telstra so as to bind Telstra. There was also a procedural question as to whether the landlords should be permitted to raise these points on appeal. The learned primary judge did not deal, at least, with the question of ostensible authority and Telstra contended that these points had not been pleaded or run in the court below.

The grounds of appeal

The grounds of appeal raised, in effect, three issues:
(a)whether Mr Hutchings, an employee of Telstra's property manager, impliedly granted the landlords permission to enter the leased premises in order to carry out what the judge described as the 'major work';

(b)if so, whether Mr Hutchings acted with the ostensible authority of Telstra so as to bind Telstra; and
(c)whether the landlords are able to run these points on appeal.

Principles

Possession and licence

The lessee has a right of exclusive possession which the law protects by remedies such as ejectment and trespass, including against the landlord: Bride v Shire of Katanning [2013] WASCA 154 [15], [83] and the cases therein cited.
Under the common law, the tenant's possession is subject to the landlord's right of re‑entry for matters such as repairs where the lease so provides: Harpum C, Bridge S and Dixon M, Megarry and Wade: The Law of Real Property (8th ed, 2012) [17‑017].
In general terms, the landlord's covenant for quiet enjoyment imposes an obligation on the landlord to put the tenant into possession and allow the tenant to exercise its right of possession without substantial interference: Kenny v Preen [1963] 1 QB 499, 511; Hawkesbury Nominees Pty Ltd v Battik Pty Ltd [2000] FCA 185 [37].
Whether an occupier of land has granted a licence to another to enter upon it is essentially a question of fact, although, in certain circumstances, a licence may be implied as a matter of law: Halliday v Nevill [1984] HCA 80; (1984) 155 CLR 1, 6 ‑ 7.
Generally speaking, a licence passes no interest in the land, but only makes an action lawful that would otherwise have been unlawful, such as trespass: Thomas v Sorrell (1673) Vaugh 330, 351; R v Toohey;Ex parte Meneling Station Pty Ltd [1982] HCA 69; (1982) 158 CLR 327, 332, 352; see also generally Harpum C, Bridge S and Dixon M, Megarry and Wade: The Law of Real Property (8th ed, 2012) [34‑001]. A 'dispensation or licence may destroy and alter property': Thomas v Sorrell (351).
Where the dispensation or permission is not express but is said to be implied or inferred in fact, in my view, it is relevant to ask whether, in all the circumstances mutually known to the parties, the alleged licensor has, by its words and/or conduct, objectively manifested an intention to grant the licence such that a reasonable person in the position of the alleged licensee would think that the licence has been granted: cf Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 [81]. The subjective intent of the alleged licensor is irrelevant: cf Halliday (7).
Intentional invasions of land, whether resulting in harm or not, without the consent, leave or licence of the person in possession or entitled to possession, are actionable in trespass: Plenty v Dillon [1991] HCA 5; (1991) 171 CLR 635, 639. The policy of the law is to protect the possession of property: Plenty v Dillon (647).
The onus is on the party who claims to have the consent, leave or licence of the person in possession or entitled to possession to plead and prove that fact: Plenty v Dillon (647); Secretary, Department of Health and Community Services v JWB and SMB [1992] HCA 15; (1992) 175 CLR 218, 311.

Authority

The following observations of Griffith CJ in Lysaght Bros & Co Ltd v Falk [1905] HCA 7; (1905) 2 CLR 421, apply equally, in my view, to the grant of a licence by an agent as to the making of a contract by an agent. His Honour said:
The contract in question was entered into, not by the appellants themselves, under their seal, but by a person alleged to be their agent. Now, when an action is brought by a plaintiff against a defendant on a contract, he must prove that the contract was made, and, if the contract was made by an agent, he must prove the authority of the agent to make it. That proof may be given in various ways, but the onus is upon the plaintiff to prove the agent's authority to make the specific contract sued upon. It may be done by showing that the agent had express authority to make that contract, or it may be done by giving evidence to show that prima facie he had authority to make contracts of that kind. But in every case the question is: Had he authority in fact to make that contract? The most common case is, I think, that though the agent had not express authority to make the particular contract in question, he had been held out by his principal as having authority to make contracts of that kind. In that case the principal cannot say to a person who dealt with the agent on the faith of the holding out - 'Oh, I gave secret instructions to my agent.' The principal is not allowed to set that up by reason of estoppel. Having held out the agent as his agent to make contracts of that kind, he cannot set up, against a person dealing innocently with the agent on the faith of the holding out, that the agent has in fact gone beyond the limits of his authority (427‑ 428).
His Honour's reference to holding out is a reference to 'ostensible' or 'apparent' authority. Ostensible or apparent authority is to be contrasted with 'actual' authority. Actual authority is a consensual arrangement between principal and agent whereby the principal grants to the agent, and the agent accepts, the principal's authority to act on the principal's behalf to undertake certain matters or tasks. Actual authority may itself be either express authority or implied authority. The most obvious examples of implied authority are incidental authority (implied authority to do whatever is necessary for, or incidental to, the effective execution of the express authority), usual authority (implied authority to do whatever an agent of the type concerned would usually have authority to do) and customary authority (implied authority to act in accordance with such applicable business customs as are reasonable). Implied authority (or perhaps more accurately inferred authority) may also be inferred from a course of dealing between the parties and the circumstances of the case. See Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405, 416 ‑ 418; Tiao v Lai [No 2] [2010] WASCA 189 [104] ‑ [105]; Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50, 132.

It may be noted that unlike the surrender of the ground floor, where Telstra had paid a 'surrender fee' to escape its rental obligations for the unexpired period of the term, the proposal recommended payment in full of the net present value of six months rental from 30 September 2009. There was no proposed deduction from that payment in the event that, upon surrender, the landlords were to relet the premises prior to the end of the lease term on 31 March 2010. The only proposed advantage was that any dispute over the 'make good' obligation would be avoided, and thereby raised for Telstra's consideration in due course the real scope and likely outcome of any such dispute.
It also appears that under the heading 'Alternative Options' in the draft business case, the reference to the prospects of Telstra obtaining a 'sublease' being 'not strong' was intended to refer both to Telstra finding a sublessee (in the ordinary sense of that term) for 'project space', as well as to Telstra finding a long‑term lessee who could, in effect, replace Telstra for the remainder of its term and beyond, and thereby reduce Telstra's rental exposure for the balance of the term. Unless otherwise stated in these reasons, I will refer to 'sublease' and cognate terms in both senses also.
Mr Browne requested Mr Hutchings to give the draft business case to the landlords before it was sent to Telstra, to ensure that it would be acceptable to the landlords if approved by Telstra (ts 421 ‑ 422).
Accordingly, by email dated 25 August 2009, Mr Hutchings sent a draft of the business case he had prepared for Telstra to PMS for the landlords' review. He said:
You will see that I have reduced my contingency allowance from the $100k that I mentioned to [Mr Pourzand], to $50k, because I don't think that a contingency of just under 50% of the contract sum has any credibility. I didn't plus it up for re‑instatement of any previous fitout items which were removed, because the lease doesn't provide for that (GB 94).
Around 28 August 2009, steel ceiling grids were delivered to level 2 for installation on levels 1 ‑ 4 [62(2)].
In late August or early September 2009, Mr Hutchings went to the leased premises and had a meeting with Mr Pourzand. At this meeting:
(a)Mr Pourzand:
(i)showed Mr Hutchings cuts that had been made to the ceiling T‑bars in the leased premises which, Mr Pourzand said, Telstra had repainted with cream paint;
(ii)was adamant that the ceilings should be replaced at Telstra's expense;
(iii)said that it would be cheaper for Telstra to replace the ceilings than to replace and repaint the T‑bars; and
(iv)said that he had already ordered new ceilings;
(b)Mr Hutchings:
(i)observed that the partitions in the Telstra tenancy went only as high as the ceiling and did not extend all the way to the underside of the concrete slab, and that on level 2, there were no more than 30 cuts to the T‑bars;
(ii)queried Mr Pourzand's suggestion that Telstra had repainted T‑bars because it seemed so unlikely. Mr Hutchings asked Mr Pourzand to take a look at the sixth floor, which was tenanted by Clough Engineering, where Mr Hutchings observed that the T‑bars on that floor were the same colour as that in the Telstra tenancy; and
(iii)told Mr Pourzand that Telstra was not obliged to replace the ceilings and that, at most, Telstra would repair the ceilings and that he had included a contingency in the business case for that sort of thing ([97], [182]; Mr Hutchings' witness statement, GB 32, pars 56 ‑ 57, 59, 62 ‑ 63).
Sometime after 25 August 2009 (and I would infer after the meeting referred to above), Mr Pourzand, on behalf of the landlords, told Mr Hutchings that the landlords were 'going to go ahead and replace the ceilings and sort out how to fund it after' [96].
By late August/early September 2009, Mr Hutchings was led to understand by Mr Pourzand that the landlords were not 'happy' with the figure in the draft business case but would not seek to recover the costs of the ceilings from Telstra. Mr Hutchings was told by Mr Pourzand, in effect, that the landlords were prepared to accept the figure in the business case and 'move on' (ts 420, 423).
Mr Hutchings warned Mr Pourzand several times, on unspecified occasions, that the business case which Mr Hutchings was going to put to Telstra might not be approved by Telstra. He also told Mr Pourzand that if the business case was not approved, then the landlords could be funding work for which they would not be reimbursed by Telstra [97].
Around 2 September 2009, Mr Hutchings went back to the leased premises to look at the ceilings [50], [53], [58]. He saw work being undertaken by the landlords on the second floor [53]. Mr Hutchings was concerned that the landlords might be doing, or about to do, significant work and he spoke to his immediate superior, Ms Millican, about this [50]. There is no finding that this subjective concern was relayed to Mr Pourzand.

The major work and Mr Pourzand's knowledge

Major work at the leased premises, including the removal of ceilings and the installation of new ones, commenced shortly after 2 September 2009 [62] ‑ [63], [70], [95].
Around 4 September 2009, major works had been commenced on level 2, but the ceiling had not then been removed [66].
On 4 September 2009, Mr Hutchings went to Bali for a holiday [36]. Mr Hutchings did not see the large scale removal of ceiling tiles which preceded the later removal of the ceilings [40].
Mr Pourzand accepted in cross‑examination that the leased premises were in 'complete disarray' during the work [64]. Around 5 September 2009, 'devastation' to level 2 was obvious [67].
On 8 September 2009, Telstra paid the PMS invoice for the removal of the blinds and related work (re‑amended statement of claim, BB 76, par 87, admitted by Telstra).
By 10 September 2009, Telstra's floors were in a state of utter disrepair [68]. Ms Zuvela of Telstra attended the leased premises on 10 September 2009 and observed that:
(i)furniture and workstations had been dismantled and moved;
(ii)partitions had been removed, including full-height partition walls;
(iii)large parts of the ceiling had been removed and new ceiling grids were being installed;
(iv)cables and air conditioning ducts were hanging out of the ceilings;
(v)new carpet tiles had been delivered and had been installed in some places; and
(vi)there were a number of tradesmen working [57].
This work was on a 'massive scale' [58]. The judge described the removal of the ceilings and the removal of numerous walls and internal rooms (which I take to be a reference to at least points (ii) ‑ (iv) above) as the 'major work', and I will do likewise in these reasons [63].
By the time that the new lease to AGC Industries Pty Ltd (AGC) commenced on 1 February 2010 (see [204] below), the major work undertaken by the landlords was 'nearly complete' [5]. Although there was a delay of a couple of weeks, the major work took the best part of five months to complete [5], [70].
When Mr Pourzand undertook the major work to Telstra's leased floors in early September:
(a)he knew that Telstra was seeking a subtenant to defray its financial commitments under the lease;
(b)he knew that that the leased floors would be unusable during the renovations;
(c)he must have known that the work would take months, perhaps the entirety of Telstra's remaining tenancy; and
(d)it is to be inferred that he knew that Telstra's floors would be unusable, and that a sublease would be impossible, for most, if not all, of Telstra's remaining tenancy [119].
The finding in (a) of [196] above is the subject of challenge in supplementary ground of appeal 13. The landlords contended that the judge erred in this finding and that he 'should have found that as at that time Mr Pourzand's knowledge was to the effect that [Telstra] was intending to enter into an agreement to surrender its lease and compromise its make good and maintenance obligations under the lease'.
However, Mr Pourzand accepted in cross‑examination the matter in (a) of [196] above (ts 162). He also knew, from the draft business case, that subleasing was proposed by United as an alternative, but not preferred, option for Telstra's consideration. He also, in effect, accepted the matter in (b) of [196] above in cross‑examination (ts 162). Further, it was prima facie open to the judge to infer each of the matters in (b), (c) and (d) of [196] above from the scale of the works in fact undertaken; the time in fact undertaken to do the works; the fact that, with the AGC tenancy commencing on 1 February 2010, the premises were still only 'nearly complete'; and that a person in Mr Pourzand's position and with his experience would have understood the scope and likely timeframe for the works before he embarked upon them.
The landlords nevertheless contended that the works were completed to allow the commencement of the AGC tenancy on 1 February 2010, and, 'in that sense', the actual time taken 'shows no more than' that the works were undertaken in the time available, having regard to the new lease that was actually agreed (supp WB 12, par 24). As to that contention, we were not pointed to any direct evidence by the landlords that the works were such that they could have been completed well prior to 1 February 2010, and that the only reason that they were not was that it was thought unnecessary to do so, having regard to the commencement date of the AGC tenancy. Moreover, the fact that the premises were only 'nearly complete' by 1 February 2010 suggests that the nature and scope of the works were such that they could not even be properly completed within that time frame, or at least that it was very difficult to do so, even allowing for the two weeks downtime referred to by the judge.
On balance, it seems to me that the landlords' contention really invites conjecture. As a potential inference, it is no more persuasive, and to my mind somewhat less compelling, than the inferences drawn by the judge. I see no proper reason to disturb the findings of fact in [119].
Further, insofar as the landlords contended that the judge should have found that Mr Pourzand's knowledge was to the effect that Telstra 'was intending to enter into an agreement to surrender its lease and compromise its make good and maintenance obligations under the lease', that contention cannot be justified on the evidence. The evidence was, plainly, that Telstra had made no decision on the draft business case and, by the time that the major work commenced, had formed no positive intention to surrender its lease and compromise the dispute at the figure or on the terms propounded by Mr Hutchings in the draft business case.

Termination of the lease

On 10 September 2009, Telstra, through Ms Zuvela, became aware, for the first time, that the landlords were undertaking substantial work on the floors [60]. Ms Dean observed that Ms Zuvela had made a 'great find' and that Telstra would have an excellent case to claim that the landlords had taken possession of the premises [59].
On 11 September 2009, United, on behalf of Telstra, wrote to the landlords and said that the works constituted a repudiation of the lease which Telstra accepted. The letter also said that Telstra did not abandon ownership of its property on the premises [61].

Re‑letting by the landlords

On 4 November 2009, the landlords secured a new tenant, AGC, who agreed to lease the first and second floors. The landlords had agreed to provide AGC with 187 mobile pedestals and 90 storage units which formed part of Telstra's fit‑out. This new tenancy commenced on 1 February 2010, with provision for earlier occupation [5], [74] ‑ [77].
After April 2010, the landlords leased another floor, this time for a short‑term tenancy of five to six months [78].
The landlords also leased other space previously occupied by Telstra [78].

Mr Hutchings' subjective expectations

I have referred to the question of Mr Hutchings' subjective beliefs in general terms earlier in these reasons and said that they were irrelevant. The point was raised for particular consideration in relation to the following finding.
His Honour found that Mr Hutchings subjectively expected that Mr Pourzand would wait until the business case was approved and there was a 'deal' with Telstra before the landlords installed the new ceilings. His Honour found that this expectation was 'reasonable' [40], [97]. This finding was the subject of considerable agitation in the appeal. The finding was, perhaps unusually, based on a leading question in re‑examination (ts 434) and appeared to be contrary to admissions made by Mr Hutchings in cross‑examination (ts 423). As part of their attack, the landlords contended that the judge incorrectly placed Mr Hutchings' conversation with Ms Millican about his concern that the landlords might be doing, or about to do, significant work after 25 August 2009, when he should have found that Mr Hutchings expressed his concern prior to 25 August 2009.
The finding of Mr Hutchings' subjective expectation is of a character not materially different from other findings and evidence as to Mr Hutchings' subjective beliefs. Even if these alleged errors were established, Mr Hutchings' subjective belief, and his Honour's finding that it was a belief reasonably held, have no material bearing on the resolution of the substantive issues in the appeal.

Other disputed findings

By supplementary grounds of appeal 10 ‑ 12, the landlords also contended, in effect, that:
(1)the judge erred when he found that as at late August/early September 2009, there was a 'good chance' that Telstra could sublease its premises, when the judge should have found that there was 'no real prospect' of subletting at that point in time;
(2)the judge should have found that there was a 'real prospect' that a new long‑term lease could be entered into prior to the expiry of Telstra's term;
(3)the judge should have found that recarpeting and the removal and replacement of the ceilings would assist in any such long‑term letting;
(4)the judge erred in finding that it was reasonable to expect that the major work would take the entire remaining time of the lease when he should have been found that it was reasonable to expect that the works would be completed well before the end of the lease term; and
(5)the judge erred in finding that the major work destroyed Telstra's chance of subletting its premises.
The first of those challenges raises issues of fact that essentially involve questions of degree as to the prospects of subleasing in late August/early September 2009. Whether the judge's finding of a 'good chance' of subleasing should be read as a finding that the prospects of subleasing were 51% or more is not clear, but it is at least a finding to the effect that the chances of subleasing were far from hopeless or purely hypothetical. The landlords contended that the finding should have been that there was 'no real prospect' of subleasing, by which I understood them to mean that the prospects were hopeless or purely hypothetical. The draft business case recommendation expressed the prospect of subleasing as 'not strong', which, in its terminology, suggests somewhere between 'a good chance' and a hopeless or purely hypothetical prospect.
However, the point of the inquiry is not whether, and to what extent, Telstra, in fact, lost the chance of subleasing its premises in the (approximately) seven months remaining in the lease term. The question is whether Mr Hutchings, by his words or conduct, impliedly granted permission to the landlords to undertake the major work, and if so, whether the landlords can establish ostensible authority so as to bind Telstra. The real focus of the inquiry is on what a reasonable person in Mr Pourzand's position would have understood and how a reasonable person in his position would have acted. The question of fact as to whether Telstra's prospects of obtaining a sublease were zero or 51% or somewhere in between is ultimately not to the point.
For the purposes of considering what a reasonable person in Mr Pourzand's position would be taken to have known as at late August/early September 2009, the salient fact, to my mind, is that he knew from the draft business case that the recommendation going to Telstra would likely include the opinion that subleasing was an alternative option, but that the prospects of subleasing were 'not strong'. It is unnecessary to make any finding as to the actual prospects of subleasing. Accordingly, I would reject the first challenge referred to in [210] above.
If I am wrong in thinking that it is unnecessary to find the actual prospects of subleasing as at late August/early September 2009 for the disposition of this appeal, I would also, in any event, accept the draft business case as accurately pitching the level of prospects of success as 'not strong' rather than hopeless or illusory. I would do so on the basis that the draft business case, and Knight Frank's email of 15 April 2009 referred to above at [139], provide the best contemporaneous evidence of experienced views of the market at the relevant time. The landlords' subsequent history in leasing parts of Telstra's premises, including to AGC who used part of Telstra's fit‑out, also tends to confirm that Telstra's prospects of subleasing were not hopeless. For my part, I would prefer this objective, generally contemporaneous, evidence over the oral evidence of Ms Dean of Telstra and Mr Edwards of Knight Frank given at trial some years after the events in question.
As to the second challenge in [210] above, the judge did find that there was a 'real possibility' of a longer lease being entered into prior to the expiry of Telstra's term [25]. The judge found, in effect, that the AGC tenancy was such a lease [75] ‑ [76]. Accordingly, insofar as the landlords contended that the judge erred by not finding that a long‑term lease was a 'real prospect' in late August/early September 2009, the contention is without merit.
As to the third challenge, the landlords contended that the judge should have found that a reasonable person in Mr Pourzand's position would have understood that recarpeting and removing and replacing the ceilings would assist in finding a new long‑term tenant prior to the expiry of Telstra's term. It may be inferred that Mr Pourzand did understand that recarpeting and removing and replacing the ceilings would assist the landlords in finding a new long‑term tenant, otherwise he would not have undertaken the works. The real question is not whether Mr Pourzand reasonably expected that recarpeting and removing and replacing the ceilings would assist in finding a long‑term tenant, but whether that understanding would involve or materially contribute to a reasonable person in Mr Pourzand's position concluding that implied consent had been given to undertake the major work prior to surrender with the ostensible authority of Telstra. For the reasons given later in [223] to [227] below, any belief by Mr Pourzand that recarpeting and removing and replacing the ceilings would assist in attracting a long‑term tenant does not advance the landlords' case in this appeal.
As to the fourth challenge in [210] above, essentially for the reasons given in relation to the challenge to the judge's finding at [119], I would not uphold the contention that the judge should have found that it was reasonable to expect, at the relevant time, that the work would have been completed well before the end of Telstra's lease.
In relation to the fifth challenge in [210] above, on the basis of the findings at [119] of the judge's reasons, it was open to infer that the major work, in effect, destroyed any chance (albeit only a 'not strong' chance) of Telstra subleasing its premises. I would not uphold this allegation of error.

Disposition of the substantive issues

Relevantly, the substantive questions are:
(a)whether United, by its employee Mr Hutchings, gave permission to the landlords in late August/early September 2009, to enter the leased premises in order to undertake the major work (the removal and replacement of the ceilings in the premises and the removal of numerous walls and internal rooms); and
(b)if so, whether he had the ostensible authority of Telstra in that regard so as to bind Telstra.
The onus is on the landlords to prove these matters.
The second question raises sub‑questions of holding out by Telstra and reasonable reliance by the landlords.
There is no contention that United had actual authority, express or implied, to grant the licence in effect contended for by the landlords.
The following observations may be made:
(1)It was common ground on the pleadings that Mr Hutchings was an employee of United, and that United was Telstra's property manager in respect of the leased premises (re‑amended statement of claim, BB 74, pars 70 ‑ 71, admitted by Telstra).
(2)It is also evident from the evidence as a whole that Mr Hutchings was held out by Telstra as the person to whom the landlords should speak to about matters concerning the operation of the lease in the period remaining after Telstra had vacated the leased premises. There was no other representative of Telstra who was the point of contact for that purpose.
(3)It is to be inferred that the parties understood that United (and Mr Hutchings) was appointed to protect and advance the interests of Telstra in this period, and was not concerned with, or on the look out for, the interests of the landlords.
(4)In July/August 2009, Mr Hutchings was held out by Telstra as having authority to negotiate, but not to conclude, the terms of an agreement providing for the surrender of the leased premises by Telstra. That is to be inferred from:
(a)the matters in (1) ‑ (3); and
(b)the fact that Mr Hutchings, to Telstra's knowledge, was negotiating a surrender in this period. Telstra's knowledge is to be inferred from Mr Browne's email to Mr Chiodo of Telstra on 18 June 2009, and the minutes of the Project Committee Meetings in which Mr Hutchings and Ms Zuvela of Telstra participated on 29 July and 17 August 2009.
(5)The landlords expressly requested, and obtained, Mr Hutchings' agreement to have access to the leased premises to upgrade the bathrooms on the third and fourth floors and to undertake what Mr Pourzand described as 'small cosmetic issues', pending Telstra deciding what to do with respect to the 'make good' issues. It was understood by Mr Hutchings and Mr Pourzand that the cosmetic works would be done in order to improve the presentation of the premises for the mutual benefit of the landlords and Telstra.
(6)Whilst surrender negotiations were continuing and surrender remained in prospect, United, through Mr Hutchings, was held out as having authority to allow the landlords access to the leased premises to carry out the cosmetic works. That is to be inferred from:
(a)the matters in (1) ‑ (5) above; and
(b)Telstra's knowledge that the landlords had been given access to the leased premises for those purposes. Telstra's knowledge is to be inferred from the landlords' invoices for such works, sent to Telstra on 3 and 6 August 2009, and its knowledge is confirmed, if that be necessary, by Telstra's subsequent payment.
(7)By holding out Mr Hutchings as having authority to grant permission to the landlords to enter the leased premises to carry out the cosmetic works, it is to be inferred that Telstra held out Mr Hutchings as having authority to grant the landlords permission to have access to Telstra's premises for the purpose of undertaking other work which would improve the presentation of the premises for the benefit of Telstra, whether or not there was an eventual surrender to the landlords, pending the completion of negotiations between the parties.
(8)It is to be inferred that the landlords relied on Mr Hutchings' agreement to enter the leased premises to do the small cosmetic works. The same cannot be said about the upgrade of the bathrooms, as Mr Pourzand, in effect, regarded Telstra's permission as irrelevant as he thought that the bathrooms had nothing to do with Telstra.
(9)As to recarpeting:
(a)a reasonable person in Mr Pourzand's position would not have understood Mr Hutchings' permission to do the cosmetics works (or if it be relevant, the bathroom upgrade) as extending to an implied permission to recarpet the leased premises or undertake other work on the leased premises. If a reasonable person in Mr Pourzand's position felt it necessary to seek permission to undertake the small cosmetic works, he could not reasonably have regarded it as unnecessary to seek Mr Hutchings' permission before undertaking larger works such as recarpeting;
(b)Mr Pourzand did not request Mr Hutchings' permission to recarpet before commencing the recarpeting of the leased premises in August 2009, and I would reject the landlords' faint contention in this appeal that the work was done in accordance with cl 8.3(d) of the lease;
(c)a reasonable person in Mr Pourzand's position would have understood that without Telstra's permission, the landlords would be trespassing by recarpeting. However, it is to be inferred that Mr Pourzand thought the risk was worth taking because Telstra would be unlikely to complain about work which would improve the presentation of the leased premises from the tenant's point of view with over seven months still to run on the lease; and
(d)insofar as Mr Hutchings said to Mr Pourzand around 19 August 2009, upon seeing the recarpeting taking place, that the recarpeting was a 'marvellous idea', it is to be inferred that:
(i)Mr Hutchings thereby impliedly invited the landlords to continue with and complete the recarpeting;
(ii)a reasonable person in Mr Pourzand's position would have understood Mr Hutchings as meaning that the recarpeting was 'marvellous' in the sense that it may be of real benefit to Telstra (Mr Hutchings could not be taken to be addressing any perceived benefit to the landlords) in the event that the surrender negotiations did not come to fruition and Telstra did not eventually agree to a surrender. It would have been evident to Mr Pourzand that if the proposed surrender was agreed to by Telstra, Telstra would not obtain any benefit from the landlords' recarpeting of the leased premises; and
(iii)Mr Hutchings reasonably regarded the recarpeting to be in Telstra's interest, even if Telstra decided not to surrender the lease in accordance with the draft business case.
(10)In the circumstances in (1) to (9) above, Telstra held out Mr Hutchings as having authority to grant permission to the landlords to continue the (originally unauthorised) recarpeting of the premises.
(11)As to the undertaking of the major work in early September 2009:
(a)it was not part of the landlords' case that Mr Pourzand said anything to Mr Hutchings about removing numerous walls and internal rooms before undertaking the major work;
(b)a reasonable person in Mr Pourzand's position would not have understood Mr Hutchings' permission to do the recarpeting as extending to an implied permission to remove and replace the ceilings, or to remove numerous walls and internal rooms, and a reasonable person in the landlords' position would have known that without Telstra's permission, they would be trespassing by doing that major work;
(c)Mr Pourzand's statement to the effect that he would go ahead and remove and replace the ceilings in the leased premises does not implicitly contain a request by Mr Pourzand that he was seeking Mr Hutchings' consent before carrying out such works. If such a request was intended, there was no reason not to state it in plain terms, and a reasonable person in Mr Hutchings' position would not have discerned an implied request in the absence of an express one. It shows that Mr Pourzand had no interest in seeking Telstra's permission at that point. He probably thought that Telstra would not complain in due course because it was likely to accept the deal proposed in the draft business case;
(d)Mr Hutchings did not volunteer to Mr Pourzand, in response to Mr Pourzand's statement to the effect that he was going to remove and replace the ceilings in any event, that the removal of the ceilings would be a 'marvellous' idea or would otherwise be of any real benefit to Telstra; and
(e)Mr Hutchings, in effect, told Mr Pourzand that:
(i)if a deal in the form of the draft business case was agreed to by Telstra, then the cost of repairs for which Telstra may otherwise have been liable would be reflected in the $50,000 contingency payment; and
(ii)if a surrender deal was not agreed, Telstra would, at most, repair the ceilings in due course, but would not replace them.
(12)Mr Hutchings' statement to the effect that if the business case was not approved the landlords could be funding work for which they would not be reimbursed by Telstra would not reasonably be taken as permission to remove and replace the ceilings and remove numerous walls and internal rooms. If Mr Pourzand himself had not expressly, or impliedly, sought permission, which he had not, there was no reason for him to assume that Mr Hutchings was volunteering permission when he said that the landlords could end up funding work for which they would not be reimbursed. A reasonable person in Mr Pourzand's position would have understood that Mr Hutchings was doing no more than prudently emphasising on behalf of himself, United and Telstra that if the proposed surrender did not materialise, there could be no basis for the landlords later to assert that they were entitled to recover the costs of such work from Telstra. A reasonable person in Mr Pourzand's position would not have understood that, by Mr Hutchings emphasising the funding risk, he was impliedly negativing any other risk to the landlords if they proceeded with the major work prior to the adoption of the business plan by Telstra. Mr Hutchings' statement was and would reasonably have been understood by Mr Pourzand to be a 'back covering' exercise.
(13)Accordingly, a reasonable person in Mr Pourzand's position, in these circumstances, would not have understood Mr Hutchings as having conveyed an implicit invitation, or giving an implicit permission, for the landlords to proceed with the removal and replacement of the ceilings and the removal of numerous walls and internal rooms in late August/early September 2009. That conclusion is reinforced by the considerations in (14) below.
(14)The question of whether, on the one hand, consent was impliedly given by Mr Hutchings, and questions of holding out and reasonable reliance (relevant to ostensible authority), on the other, are not entirely discrete and separable at a factual level. There is some overlap in practical terms because whether a reasonable person in Mr Pourzand's position would have inferred consent or permission in fact from what Mr Hutchings said and/or did depends, to some not inconsiderable extent, upon whether a reasonable person in his position would have understood Mr Hutchings' words and conduct to be conveying Telstra's consent or permission. The landlords' fundamental position in this appeal is to the effect that Mr Hutchings' statement referred to in (12) of [223] above, in all the circumstances, showed that Mr Hutchings was impliedly granting consent to the landlords in late August/early September 2009 to enter the leased premises to remove and replace the ceilings. That position also contains the implicit contention that the alleged implied permission to remove and replace the ceilings also extended to an implied permission to undertake the removal of numerous walls and internal rooms. In light of the findings as to the nature and scope of all that work, the landlords' contention is, in substance, that there was an implied grant to occupy the premises to an extent broadly consistent with the surrender of the premises, before any decision by Telstra was made on surrender. In other words, Mr Hutchings, it is alleged, impliedly gave Mr Pourzand permission to take, in effect, full possession of the leased premises, including Telstra's fit‑out, for most if not all of the remaining term of the lease. This is tantamount to a submission by the landlords that, for all intents and purposes, Mr Hutchings effectively agreed to Telstra surrendering the premises to the landlords as from late August/early September 2009. In my view, a reasonable person in Mr Pourzand's position could not reasonably have understood that to be the effect of Mr Hutchings's statement in the circumstances, as he knew that, at that time, Telstra had not approved the draft business case.
For these reasons, the landlords do not succeed on the question of whether Mr Hutchings impliedly granted the landlords permission to enter the premises in order to undertake the major work.
Furthermore, in my view, the landlords have not established ostensible authority. The question of ostensible authority is to be assessed against the background that:
(a)Telstra had no immediate interest in the ceilings being removed and replaced, and in the removal of numerous walls and internal rooms. It certainly had no interest in that happening prior to making its decision on the draft business plan, which, even if approved, was to take effect from 30 September 2009;
(b)the landlords' desired outcome was evidently to have Telstra surrender the lease in order that the landlords could relet the premises on a long‑term basis as soon as possible. Although Mr Pourzand was not 'happy' with the payout under the draft business case, he was prepared to accept it in order to obtain early possession of the leased premises. Mr Pourzand knew, however, that in late August/early September 2009, Telstra had not written off the prospect of seeking a subleasing of the leased premises in favour of a surrender to the landlords. The fact that Telstra would need the landlords' consent to a subleasing (albeit that consent could not be unreasonably withheld), and that Mr Pourzand knew that Mr Hutchings would be recommending a surrender, would have given the landlords some optimism that their desired outcome would be achieved. In any event, in late August/early September 2009, the landlords had no basis for thinking that Telstra had already made a final, or indeed any, decision foreclosing the subleasing option;
(c)a reasonable person in Mr Pourzand's position would have known that the removal and replacement of the ceilings throughout the leased premises and the removal of numerous walls and internal rooms, would involve a substantial undertaking and be of a different magnitude and order from the bathroom upgrade, the cosmetic works and the recarpeting previously agreed; and
(d)Mr Pourzand was an experienced landlord of a building in the central business district. It is to be inferred, as the judge, in effect, found at [119], that the landlords would have understood that the removal and replacement of ceilings throughout the leased premises and the removal of numerous walls and internal rooms:
(i)had the potential to make the leased premises unoccupiable for the period of the works; and
(ii)would not materially improve the presentation of the leased premises, from Telstra's point of view, in the event that it wished to pursue the subleasing option, rather than to surrender the lease with effect from 30 September 2009.
Having regard to the matters in (14) of [223] above, even if Mr Pourzand subjectively believed that Mr Hutchings had impliedly granted the landlords, in late August/early September 2009, permission to occupy the leased premises to undertake the major work, he could not reasonably have relied upon that belief for the purposes of the application of the doctrine of ostensible authority. Alternatively, at the very least, the landlords must have suspected that the removal and replacement of the ceilings and the removal of numerous walls and internal rooms before the draft business case was approved by Telstra, were not necessarily in the interests of Telstra, and the landlords were thereby put on enquiry as to whether Mr Hutchings had the requisite authority to grant permission for the landlords to enter the leased premises to undertake the major work.
Further, none of the matters in (1) ‑ (12) at [223] above, in isolation or in combination, can be viewed as conveying a representation by Telstra that Mr Hutchings had its authority to grant a licence of 'that kind' (Lysaght Bros v Falk (427)), ie to grant a licence to occupy the leased premises for major work of that kind.
For these reasons, the landlords also fail, in my view, on the second of the two substantive issues in the appeal.

Disposition of the procedural issue

It is unnecessary to deal with the procedural issue in light of the conclusions referred to above. Nevertheless, I will briefly express my opinion on the issue.
At no particular point at trial did the landlords expressly contend, using conventional legal language, that Telstra could not terminate because, through the ostensible authority of Mr Hutchings, Telstra had impliedly granted a licence to the landlords to enter the leased premises to carry out the major work.
However, at least with the benefit of hindsight, it appears to me that the landlords' conduct at trial showed that, in substance, these contentions were relied on by the landlords (see especially landlords' oral opening submissions ts 37 ‑ 38; Mr Pourzand's witness statement, GB 13 ‑ 16, pars 77 ‑ 92; landlords' closing written submission, BB 115 ‑ 116, pars 217(6) ‑ (9), 218 and 219; and the landlords' closing oral submissions to the effect that their case remained as stated in opening at ts 462).
Telstra, in substance, contested such a case through Mr Hutchings' witness statement, its cross‑examination of Mr Pourzand and its response to an authorisation plea in par 10(b) of the landlords' reply. Telstra, in this appeal, also had a notice of contention to the effect that even if implied consent had been granted by Mr Hutchings, the appellants had not established his ostensible authority - which also suggests that such a case had been litigated. I would conclude, in all the circumstances, that the case run on appeal had, in substance, been litigated below.

Conclusion

In my view, the appeal should be dismissed.