Sansom Nominees Pty Ltd v Meade
[2005] WASC 9
•17 FEBRUARY 2005
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: SANSOM NOMINEES PTY LTD -v- MEADE & ORS [2005] WASC 9
CORAM: EM HEENAN J
HEARD: 11-15, 18-20 & 22 AUGUST 2003
DELIVERED : 17 FEBRUARY 2005
FILE NO/S: CIV 1207 of 2001
BETWEEN: SANSOM NOMINEES PTY LTD (ACN 008 797 948)
Plaintiff
AND
MAURICE BRUCE MEADE
ROSEMARY ADELE MEADE
First DefendantsMONTELUSA PTY LTD (ACN 008 779 511)
Second Defendant
Catchwords:
Lessor and lessee - Action for recovery of rent - Alternative claims for damages, rectification and damages for misleading and deceptive conduct - Covenant for lessor to remove and reinstall air-conditioning and remove ceiling to leased premises - Covenant by lessee, at its expense, to carry out internal reconfiguration of leased premises and to fit out the realigned premises to requisite standard and in accordance with plans to be approved by lessor - Lessee allowed into possession before commencement of term for fit out to be commenced and possibly completed before commencement of term - Loan from lessor to lessee for fit out to be available on completion of fit out, and repayable with interest over balance of term - Interrelationship and mutual dependence of lessor's and lessees' covenants with respect to air-conditioning and ceiling removal and fit out - Fit out not undertaken nor detailed plan submitted to lessor - Air-conditioning and ceiling work not undertaken - Lessee remaining in possession and using demised premises for intended trade - Failure to pay rent - Refusal to allow lessor entry to undertake air-conditioning or ceiling works - Lessees' counterclaim for alleged loss of profits arising from inability to sublet portions of demised premises to related sublessees - Counterclaim for damages in equity - Claim by lessees' guarantor to set off damages against liability upon its guarantee - Claim for rectification of lease - Claim for damages for alleged misleading and deceptive conduct with respect to representations concerning future conduct - Future representations reduced to covenants in lease - Readiness and willingness of parties to perform obligations assumed by lease - Effect of waiver of obligations to carry out fit out and air-conditioning and ceiling works at times implied in lease - Claim by lessee for injunction to restrain lessor undertaking air-conditioning and ceiling work - Claim by lessor for specific performance to compel performance on prescribed terms of air‑conditioning and ceiling work and other activities
Legislation:
Fair Trading Act 1987
Property Law Act 1969
Trade Practices Act 1974 (Cth)
Result:
Judgment for plaintiff on claim for $261,990.62
Application for rectification of lease dismissed
Counterclaim dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr D M Stone
First Defendants : Mr M L Bennett & Mr M A MacLennan
Second Defendant : Mr M L Bennett & Mr M A MacLennan
Solicitors:
Plaintiff: Williams & Hughes
First Defendants : Bennett & Co
Second Defendant : Bennett & Co
Case(s) referred to in judgment(s):
Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470
Acorn Consolidated Pty Ltd & Anor v Hawkslade Investments Pty Ltd (1999) 21 WAR 425
Australian National Airlines Commission v Robinson [1977] VR 87
Beechervaise v Lewis (1872) LR 7
British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137
Burton v Palmer [1980] 2 NSWLR 878
Carbure Pty Ltd v Brile Pty Ltd [2002] ANZ Conv R 548
City of Subiaco v Heytesbury Properties Pty Ltd (2001) 24 WAR 146
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Darter Pty Ltd v Malloy [1993] 2 Qd R 615
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288
Elkhoury & Anor v Farrow Mortgage Services Pty Ltd (In Liq) (1993) 114 ALR 541
Fitzgerald v F J Leondhardt Pty Ltd (1997) 143 ALR 569
Foran v Wight (1989) 168 CLR 385
Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217
GR Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631
Green v Sommerville (1979) 141 CLR 594
Gregory & Bradshaw v MAB Pty Ltd (1989) 1 WAR 1
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640
Indrisie v General Credits Ltd [1985] VR 251
L Schuler AG v Wickman Machine Tools Sales Ltd [1974] AC 235
Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14
Mackay v Dick (1881) 6 App Cas 251
Maynard v Goode (1926) 37 CLR 529
McAuley v Bristol City Council [1992] QB 134
Meehan v Jones (1982) 149 CLR 571
Mint v Good [1951] 1 KB 517
Newcombe v Newcombe (1934) 34 SR (NSW) 446
Paltara Pty Ltd v Dempster (1991) 6 WAR 85
Posgold (Big Bell) v Placer (WA) Pty Ltd (1999) 21 WAR 350
Prenn v Simmonds [1971] 1 WLR 1381
Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (1996) 61 FCR 436
Reardon Smith Line Ltd v Hansen‑Tangen [1976] 3 All ER 570
Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 76 ALJR 436
Saner v Bilton (1878) 7 Ch D 815
Secured Income Real Estate (Australia) Ltd v St Martin's Investments Pty Ltd (1979) 144 CLR 596
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Walker v Department of Social Security (1955) 56 FCR 354
Young v National Australia Bank Ltd & Anor [2004] WASCA 298
Young v Queensland Trustees Ltd (1956) 99 CLR 560
Case(s) also cited:
Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1986) 16 NSWLR 582
Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99
Bahr v Nicolay (No 2) (1988) 164 CLR 604
BP Refinery (Western Port) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272
Carr v J A Berriman Pty Ltd (1953) 89 CLR 327
Combe v Combe [1951] 2 KB 220
Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Commonwealth v Verwayen (1990) 170 CLR 394
Dainford Ltd v Juana Pty Ltd & Ors [1986] 1 Qd R 396
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Elder v Auerbach [1950] KB 359
Henley v Reschke (1914) 18 CLR 452
J C Williamson Ltd v Lukey (1931) 45 CLR 282
Legione v Hateley (1983) 152 CLR 406
Lymarn Holdings Pty Ltd v M & W Holdings Pty Ltd & Ors, unreported; SCt of WA (Anderson J); Library No 960250; 9 May 1996
Lyndel Nominees Pty Ltd v Mobil Oil Australia Ltd (1997) 37 IPR 599
Media and Entertainment and Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379
National Engineering Pty Ltd v Chilco Enterprises Pty Ltd [2001] NSWCA 291
Osborne Park Co-Operative Society Ltd v Wilden Pty Ltd (1989) 2 WAR 77
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1
Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1953) 90 CLR 235
Poseidon Ltd & Anor v Adelaide Petroleum NL (1994) 179 CLR 332
Santa Prisca Imports Pty Ltd v Action Motor Group Pty Ltd [1997] ANZ Conv R 314
EM HEENAN J: The plaintiff is the registered proprietor of the land situated at and known as 847‑849 Hay Street, Perth, and being the whole of the land contained in Certificate of Title volume 1040, folio 636. Upon that land there is a two‑storey building constructed in or about 1911.
This land is located on the southern side of Hay Street in the Perth Central Business District to the west of King Street. The frontage to Hay Street is approximately 13 metres and the building extends south to a depth of about 60 metres. In 1997 the ground floor of this building had been let (by a previous owner) to tenants and internally divided to accommodate their occupation. The original ceiling to the ground floor of the building is at a height of approximately 4.5 metres but, at some time in about the 1960's, a lower vermiculite ceiling was suspended from the original. This suspended ceiling is approximately 3.3 metres above the ground floor. The partitions and dividing walls for the ground floor configuration of tenancies, as the premises stood in 1997, extended from the floor to the suspended ceiling but not higher.
The ground floor had been occupied by two tenants each facing Hay Street. On the eastern side were the premises of Yo‑Yo's - a hairdressing salon and on the western side was a Totalisator Agency Board shop (the "TAB"). There was a narrow central corridor running from Hay Street separating the two tenancies. Behind them both, and near where the corridor turned towards the rear of the ground floor, were several storage areas also part of the TAB tenancy. This was the general configuration of 847‑849 Hay Street at the time the property was purchased by the plaintiff in May 1997. Yo‑Yo's Hair Salon held its part of the ground floor under lease. It gave up vacant possession of that part of the premises to the plaintiff on or about 28 February 1998. The TAB had occupied the balance of the ground floor (except for the dividing corridor) under monthly tenancy and it gave up vacant possession of the areas which it had been letting in December 1997.
Following its purchase of the Hay Street building in May 1997 the plaintiff had, through an agent, been searching for a suitable tenant for the whole of the ground floor. Negotiations were commenced with the first defendants, Mr and Mrs Meade, about a proposed lease of the entire ground floor to be newly configured and fitted out by the first defendants as a women's hairdressing salon, in a style and standard comparable with other hairdressing salons which the first defendants' operating company, Montelusa Pty Ltd, the second defendant, operated and, in particular, comparable with its Claremont hairdressing salon. These negotiations led to an agreement for lease being reached between the plaintiff and the first defendants on 24 November 1997 and, eventually, to a lease of the entire ground floor by the plaintiff to the first defendants dated 20 February 1998.
The term of the lease is 10 years, commencing on 1 April 1998, but provision was made for the first defendants to go into early occupation of so much of the proposed premises as were then available, subject to the rights of the existing tenant, Yo‑Yo's. In fact, the first defendants took occupation of the area vacated by the TAB on or about 9 December 1997 (Exhibit 94). Yo‑Yo's vacated their area on the east of the ground floor at the end of February 1998. The whole of the ground floor was then available for the first defendants but they did not actually move into the area vacated by Yo‑Yo's. They remained in the former TAB area and the lease term then began on 1 April 1998. They have remained in possession since then and continue in possession of the whole of the ground floor relying on their rights of sole occupation as conferred by the lease.
The point of dispute in this case arises from the fact that, notwithstanding a passage of more than four years from the first defendants' original entry into occupation and also from the commencement of the lease term, the agreement between lessor and lessees for the re‑subdivision, fit out, air‑conditioning and removal of the suspended ceiling has not been implemented. The principal issues in this case concern the nature of the obligations upon the parties to perform these terms of their agreement and the interdependence, if any, of those obligations.
Because of the dispute which developed between the first defendants and the plaintiff during the course of the year 2000 the first defendants ceased paying rent and other moneys due under the lease but remained in possession. The plaintiff sued for unpaid rent and outgoings and threatened re‑entry for non‑payment of rent but, as a result of an application for an interlocutory injunction by the first defendants to prevent re‑entry pending trial, the plaintiff agreed not to pursue its claim for re‑entry, subject to the reinstatement of payments of rent. This regime continued from that point in the proceedings. No claim by the plaintiff that the lease term has been terminated nor any claim for possession has been advanced in the action, nor do the first defendants seek any order or declaration that the lease has been terminated or that they are entitled to terminate it. Rather, the position of the parties to the lease is that each treats the lease as remaining in full force and effect but desires to enforce what are, as they have been argued, inconsistent claims to the benefits which the lease confers.
As will be described more fully, in due course, the essential nature of the dispute between parties is whether, in the events which have happened, the lessor is obliged to remove the ceiling and the existing air‑conditioning and instal new air‑conditioning and whether the lessees are obliged to reconfigure and fit out the premises in accordance with the proposals contained in the lease. Notwithstanding the large amount of evidence which was adduced by the parties about negotiations between them and their intermediaries, both before and after the execution of the lease, I consider that the answers to these questions depend upon the terms of the lease itself.
Agreement for lease
The negotiations between the plaintiff and the first defendants via their agents in late 1997 led to an agreement to lease the premises being reached. This was constituted by a series of documents, namely:
(a)facsimile transmission from First Pacific Davies, agent for the plaintiff, to Mr Graeme Sansom dated 1 November 1997 attaching an offer to lease by the first defendants to the plaintiff dated 31 October 1997;
(b)facsimile transmission from First Pacific Davies to Mr Murray Stubbs of Murray Stubbs Real Estate, agents for the first defendants, with comments about the proposed offer to lease indicating terms which were acceptable and those which were not;
(c)letter Murray Stubbs Real Estate Agents, agents for the first defendants, to First Pacific Davies, agents for the plaintiff, proposing further amendments to the terms of the offer to lease then under discussion;
(d)facsimile transmission from Murray R Stubbs, agent for the first defendants, to First Pacific Davies, agents for the plaintiff, with further proposed amendments to their offer to lease the premises;
(e)disclosure statement prepared by the plaintiff addressed to the first defendants in conformity with s 6(4) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 dated 19 November 1997;
(f)facsimile transmission from First Pacific Davies agents for the plaintiff to Murray Stubbs real estate agents for the first defendants dated 19 November 1997 outlining responses to the proposed variation in terms;
(g)letter from the first defendants to First Pacific Davies, agents for the plaintiff, accepting the latest version of terms and purporting to acknowledge that an agreement for lease had then been reached.
These exchanges readily identify the commercial genesis of the lease and establish the matrix of facts specifically identified by the parties during the course of negotiations allowing the objective purpose of the transaction readily to be determined: Reardon Smith Line Ltd v Hansen‑Tangen [1976] 3 All ER 570 at 574 ‑ 575; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352; Acorn Consolidated Pty Ltd & Anor v Hawkslade Investments Pty Ltd (1999) 21 WAR 425 at 432 and Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 76 ALJR 436.
These materials reveal that after initially offering to rent only portion of the ground floor of the Hay Street premises for a 10 year term with options to renew for further terms of five years and seeking a contribution by the lessor of $200,000 towards a fit out of the premises, the parties quickly moved to a proposal to lease the whole of the ground floor for a single term of 10 years with a lessor's contribution to a total fit out (to be amortised over the term and re‑payable by the lessees) and upgrading for ceiling, lighting and air‑conditioning on certain terms and subject to the lessees providing a scope of works. In the course of further negotiations the lessor's contribution to the fit out was reduced to $100,000 amortised over 10 years. A further step in the negotiations led to a proposal for a rent free period for six months, for the lessor to contribute $100,000 towards a fit out, to air‑condition the whole ground floor and remove the false ceiling. The final phraseology relating to the air‑conditioning and ceiling in the documents leading to the agreement for lease was contained in a facsimile transmission of 19 November 1997, which provided:
"The premises will be fitted with new air‑conditioning and the existing ceilings removed at the lessor's cost, the style and type to be agreed between the parties."
Upon agreeing the terms of the agreement for lease the attention of the parties turned to arrangements to obtain access to the premises, or part of them, and for negotiations to proceed between the parties, their agents and solicitors over the terms of the formal lease to be prepared. The term of the lease was to be from 1 April 1998 for the 10 years. The correspondence showed that efforts were being made to allow early occupation of the premises for the first defendants from late November 1997 and, by letter of 25 November 1997, the plaintiff's agents advised:
"Whilst access for fit out works will be granted as quickly as possible the lessor cannot grant official occupation until the lease is executed by all parties and works cannot commence until plans are approved."
Access to the old TAB areas became possible from December, but vacant possession of the area occupied by Yo‑Yo's Hair Salon was not available until 28 February 1998. Notwithstanding this the defendants were invited to submit architectural plans for the proposed fit out works and it was pointed out that these would need approval by the plaintiff and by the City of Perth (Exhibit 6). On 9 December 1997 the first defendants' agent, Mr K Cox, sent a facsimile to the plaintiff's agents which confirmed the arrangements which had been agreed about the fit out and this memorandum was, ultimately, included as part of the formal lease. It became known as "Annexure A" and its terms are set out in full later.
Attached to this facsimile transmission of 9 December 1997 and also later bound into the lease, was a sketch plan or diagram of the proposed layout of the leased premises showing the first defendants' hair salon occupying the full width of the ground floor of the premises at the rear with the salon on the western side but with the existing middle corridor curving at the rear, to the east, and enclosing, on the front of the eastern side, a coffee bar to be operated in conjunction with the salon. This is dated 8 December 1997.
The TAB areas of the Hay Street premises had been vacated by that tenant by the beginning of December 1997 and the defendants went into occupation of that part of the premises in early December and with a view to making a temporary fit out until Yo‑Yo's vacated at the end of February 1998. The first defendants actually commenced trading in the old TAB area of the premises or or about 1 January 1998.
In broad terms, therefore, agreement upon the principal terms of the proposed lease, namely: the term, rent, fit out loan from lessor, air‑conditioning and early occupation of the premises had been reached between the parties by early December 1997. The first defendants had moved into the TAB areas in December 1997 with a view to commencing a temporary fit out and took over the eastern portion of the ground floor when it was vacated by Yo‑Yo's at the end of February 1998. All this was done pursuant to the agreement to lease under which the 10 year term would commence on 1 April 1998 and would include an initial six month rent free period. Correspondence had been exchanged between the agents for the parties in early December 1997 inviting the first defendants to submit architectural drawings for the proposed fit out for approval by the lessor and by the City of Perth.
The Lease
By a deed dated 20 February 1998 the plaintiff leased to the first defendants the ground floor, comprising approximately 500 square metres, of the building upon the land known as 847‑849 Hay Street, Perth, and being the whole of the land contained in Certificate of Title volume 1040, folio 636. The term of the lease was 10 years, commencing 1 April 1998 at an initial annual rent of $100,000 per annum, payable calendar monthly in advance by equal instalments of $8,333.33.
The lease provided for a review of the rent two years after the date of commencement of the initial term and upon the expiry of each further period of 18 months during the term upon a formula set out. The permitted use of the premises was for hairdressing, hairdressing and beauty salon, training school and coffee shop. There was no option or other right of renewal and, notwithstanding the provision for payment of rent of $100,000 per annum by equal monthly instalments in advance, there was a rent free period for six months from 1 April 1998 to 30 September 1998. In addition to rent the lessees also covenanted to pay "variable rent" comprising proportionate parts of the variable outgoings including rates and taxes, service fees, including electricity, gas, water, fire prevention services and other incidentals. The "variable rent" or other moneys accruing due during the first six months of the rent free period was payable by the lessees.
The second defendant, Montelusa Pty Ltd, was a party to the lease as covenantor and guarantor. By cl 12.26 the second defendant guaranteed to the lessor the due and punctual performance and observance by the lessees of all the covenants, obligations and stipulations on the part of the lessees contained or implied in the lease including, without limitation, the due and punctual payment by the lessees of the rent and all other moneys payable. The second defendant also covenanted to indemnify and keep indemnified the lessor against all losses, costs, expenses and damages sustained or incurred by the lessor arising out of or in respect of any breach or default by the lessees in duly and punctually observing and performing such covenants and obligations. Sub‑clause 12.26(b)(ii) provided that the guarantee and indemnity took effect as if it were a principal obligation and could be enforced against the second defendant as if it were a lessee, without any responsibility on the part of the lessor to proceed against the lessees or any other person.
By cl 3.1(a) the lessees are required to pay the rent free of all deductions at the times specified and, by cl 3.2 the variable rent, as pre‑estimated for the forthcoming 12 month period, becomes payable by the lessees by equal monthly instalments in advance but subject to an accounting process for adjustments, as may be necessary, at the end of the third quarter of each calendar year when, if necessary, the lessees would be credited with any excess payments made resulting from the estimates and which could be deducted from the next ensuing payment, or payments, of variable rent.
In view of the controversy surrounding the lessor's obligation to remove the suspended ceiling, it is necessary to notice the definition in cl 1.1 of the leased premises. There, it is provided:
" 'Leased Premises' means the leased premises described in the First Schedule (extending vertically from the upper surface of the floor on each floor level of the Building to the under surface of the ceiling above the floor on each floor level of the Building and extending horizontally to the centre line of inter‑tenancy walls and to (but not including) the outer face of external walls and of shop fronts and to (but not including) the outer face or line of all other boundaries of the leased premises) and which leased premises are situated in the Building and includes all Lessor's fixtures and fittings from time to time therein."
Clause 3.8 provides for the payment by the lessees of interest on overdue moneys under the lease. Such interest becomes payable to the lessor on demand at the prescribed rate of interest on any moneys due but unpaid by the lessees on any account whatsoever, such interest to be computed from the due date for the payment of the moneys in respect of which interest is chargeable until payment of such moneys in full and is recoverable in like manner as rent in arrears. The prescribed rate of interest is set in cl 1.1 at 2 per cent greater than the Commonwealth Bank of Australia Loan Reference Rate from time to time.
By sub‑cl 6.1(a) the lessees are permitted only to use the leased premises for the business or uses specified in the First Schedule under the trading name or names set out in the schedule and not, without the prior written consent of the lessor to use the leased premises for any other purpose or to change such name or names.
Because the first defendants' covenant to perform a fit out of the premises in accordance with plans to be submitted to the lessor for approval, it is necessary to examine the provisions of the lease which relate to alterations to any part of the demised premises and alterations to the electrical systems and installations. Sub‑clause 6.2(a) of the lease contains a general prohibition against the lessee making, or suffering, any alteration or any structural alterations to be made to the leased premises and prohibiting cutting, maiming or injuring of any of the principal structure or walls or any part of them without the prior written consent of the lessor. Similarly, sub‑cl 6.2(b) contains a prohibition against the lessees making any alterations or additions to any plant, equipment, fixtures or fittings forming any part of the building or the leased premises (including the air‑conditioning plant, electrical fittings, plumbing and fire warning or prevention system) without the consent in writing of the lessor first being obtained. This sub‑clause also provides that where it is necessary or desirable for alterations or additions to be made the work may only be done under the supervision of the lessor's architect and any other architects or consultants approved by the lessor. Sub‑clause 6.2(c) forbids the lessees, without the prior consent in writing of the lessor, to install any electrical equipment in the leased premises which overloads the cables, switchboards or sub‑boards through which electricity is conveyed, provided that if any consent to necessary alterations is required that electrical work shall be effected by the lessor at the expense of the lessees. Similarly, there is a prohibition set out in cl 6.2(e) against the lessees making any alterations or additions to any partitions within the leased premises without the prior written consent of the lessor, which shall not be unreasonably withheld. This covenant also provides that any application for consent for the erection, alteration or additions to any partitions should be made by the lessor in writing and be accompanied by detailed plans and specifications and, if approved by the lessor, should be constructed under the supervision of the lessor's architects.
There is no covenant in the lease requiring the lessor to upgrade the electrical wiring or supply; to put the sanitary fittings into any particular condition; to repair or restore the pressed tin ceiling affixed to the underside of the floor above the leased premises (which, as shall be described in more detail later had been extensively modified and damaged by the past installation of electrical and plumbing circuits). Nor is there any covenant in the lease requiring the lessor to put the premises into any particular state of repair or to render them fit for the purpose for which they were let.
Despite this, it was expressly agreed between the parties that substantial changes to the layout, configuration and amenities of the ground floor premises which were to be leased would be made and special conditions were included in the lease to deal with these. The antecedents of these special conditions were the negotiations and agreement which had been reached between the plaintiff and the first defendants at the time of the agreement to lease in November 1997, but the terms had been altered and refined by the time the lease was executed.
All parties accept that the first task for the court is to ascertain the meaning of these provisions, upon their proper construction, as they are contained in the lease. Only then, if the proper construction of the provisions does not accord with the submissions being advanced by the plaintiff, was it submitted that it would be necessary to consider the plaintiff's alternative claim for rectification. However, the defendants maintain that there is no basis whatever for the lease, once its construction has been determined by the court, to be rectified.
Special clauses
The First Schedule to the lease contains a series of special provisions under cl 10. The proper construction of these lies at the heart of the disputes between the parties in this litigation as they deal with the right of the first defendants to go into occupation before the commencement of the lease term, provide for the replacement of air‑conditioning and the removal of the ceiling of the demised premises by the lessor, the design and completion of the proposed new fit out (in two stages) by the first defendants and for financial assistance for those modifications to be provided by the lessor. The timing and sequence of these various procedures, on which so much of the present disputes depend, must be found in the express or implied meaning of the words of the lease employed by the parties to record their agreement. These provisions are:
"10SPECIAL CLAUSES
(1)Lessee's Right to Occupy
As from the date of execution of this Lease, the Lessee shall be entitled to occupy the Leased Premises. During the period from the date of such occupation until the date of the commencement of the Term:
(a)the Lessee's rights under this Special Clause shall in all respects be subject to the rights of the existing tenant of the existing hairdressing premises within the Leased Premises, under that tenant's lease;
(b)the Lessee shall do fitout works as detailed in Annexure A to this Lease; and
(c)save that the Lessee shall only be obliged to pay for its use and/or consumption of water, electricity, telephone and other utilities (and that Rent and other Variable Rent will not be payable in respect of that period) the terms of this Lease shall apply (with the necessary changes) during such period.
(2)Rent Free Period
Notwithstanding anything to the contrary herein contained or implied, the Lessee shall not be obliged to pay Rent in respect of the period 1 April 1998 ‑ 30 September 1998 (both days inclusive). Nothing in this Special Clause relieves the Lessee from its obligation to pay Variable Rent or other moneys in respect of such period.
(3)Sub Leasing
Notwithstanding anything to the contrary herein contained or implied, the Lessee may grant any Sub Lease or Sub Leases in respect of the Leased Premises but only on the basis (as the Lessee hereby acknowledges and agrees) that no Sub Lease shall relieve the Lessee from any of its covenants or obligations under this Lease, and that the acts and omissions of any Sub Lessee or its or their employees, agents or invitees shall bind the Lessee.
(4)Loan by Lessor
On the later to occur of:
(a)the date of commencement of the Term;
(b)the date on which the Lessee completes its permanent fit out of the Leased Premises to the usual 'high quality Maurice Meade Salon' as previously detailed with the Lessor similar, but improved upon, the Maurice Meade Bayview Claremont Salon; and
(c)the date on which the Lessee produces to the Lessor invoices (and evidence of payment thereof) in respect of the Lessee's fitting out of the Leased Premises;
The Lessor shall loan to the Lessee a sum of $100,000 (the 'Loan Moneys').
Interest shall accrue on the Loan Moneys (or so much as is outstanding from time to time) at the rate of 10.5% per annum, calculated with rests on the last day of each calendar month during the continuance of the loan.
During the continuance of this Lease the Lessee shall pay to the Lessor calendar monthly in arrears (with the first payment, pro rated if necessary, to be made on the last day of the month in which the Lessor loans the Loan Moneys to the Lessee). Such payments shall be made without demand, deduction or set‑off and in such manner as the Lessor from time to time in writing requests and, until the Lessor directs otherwise, in the same manner as instalments of Rent are payable under this Lease.
If for any reason this Lease ends prior to 31 March 2008, within 7 days after this Lease ends the Lessee shall pay to the Lessor without demand, deduction or set off the then balance of the Loan Moneys, including all outstanding interest thereon.
The parties acknowledge that each monthly instalment payable by the Lessee in reduction of principal and interest on the Loan Moneys shall be $1349.35.
(5)Lessor's Works
The Lessor at its cost shall:
(a)as soon as is reasonably practicable after the date of this Lease, remove the existing air‑conditioning and ceilings within the Leased Premises,
to permit the Lessee's works to be effected;and to install new air‑conditioning through the Leased Premises.(b)If requested by the Lessee, then within a reasonable time after request, install a new shop front for the Leased Premises.
(6)Exclusivity
During the continuance of this Lease, the Lessor shall not lease other premises within the Building for use for hairdressing, hairdressing and beauty training school, or coffee shop."
The "Annexure A" referred to in special cl 10(1)(b) identifying the fit out works to be performed by the lessees was a reproduction of the facsimile transmission from the first defendants' agent Mr Cox to the plaintiff's agent dated 9 December 1997, together with the sketch diagram of the floor layout of the leased premises dated 8 December 1997. The annexure provides:
"Re: 847 Hay Street, Perth
In response to your fax of 9 December, 1997 and confirming our conversation of last Thursday, 4 December, 1997, as outlined to you the sequence of events shall be:
(1)Temporarily fit out old TAB premises (West side) and, as a stop gap, use as temporary salon up to time of Yo‑Yo's vacating East side.
(2)Set up temporarily in Yo‑Yo's until main salon (permanent fit out) is ready.
(3)When main salon is properly fitted out vacate Yo‑Yo's and then occupy permanent position, plans for which will be submitted to you for your approval.
(4)Main fit out at permanent salon shall be of the usual 'High quality Maurice Meade Salon' as outlined to you, as similar, but improved upon, to Maurice Meade Bayview Claremont Salon.
For M B & R A Meade
... Keith Cox"
The sketch diagram, already described, shows the salon occupying the western side of the premises, with a central corridor running from Hay Street to the rear but, after traversing only part of the ground floor, curving to the east until it meets the eastern wall and then running south along the eastern wall to the rear. On the eastern side of the corridor, and before its curve, is an area to be fitted out as a coffee bar and run in conjunction with the hair salon.
The reference in special cl 10(1)(a) of the second defendant's rights of occupancy before the commencement of the term being subject to the rights of the existing tenant, is plainly a reference to the right of Yo‑Yo's to continue to occupy and trade from the eastern area of the premises later to be let to the first defendants.
The right of Yo‑Yo's to quiet enjoyment of the possession of the area which it was still leasing obviously meant that major changes to the premises, including, in particular, removal of the existing ceilings or the installation of a new air‑conditioning system for the entire ground floor, could not be undertaken without Yo‑Yo's consent and there is no evidence that obtaining this was ever contemplated, let alone sought. Nevertheless, there was plainly a substantial opportunity for the first defendants to contemplate and design their desired "main fit out of permanent salon" (Annexure A, cl (4)) during that period, submit suitable plans and specifications to the lessor for approval and, if approved, to arrange for the performance of the work once Yo‑Yo's had vacated the eastern area.
Similarly, there was also an opportunity, following the agreement for lease of late November 1997, for the lessor to make preparations for the removal of the existing air‑conditioning and ceilings and to install new air‑conditioning throughout the leased premises (special cl 10(5)(a)).
While building, air‑conditioning or fit out works could obviously not be commenced while Yo‑Yo's remained in possession under its lease, the fit out works to be performed by the first defendants were to be performed during the period from the date of occupation until the date of the commencement of the term, that is, 1 April 1998. Special cl 10(1)(a) treats the entitlement to occupy part or all of the premises before the leased term conferred upon the lessees as originating from the date of the execution of the lease, namely from 20 February 1998. Although, under the terms of the agreement for lease reached in late November 1997, the parties recorded that possession under the lease could not be granted until the lease itself had been executed they recorded that possession under the heads of agreement (a reference to the agreement for lease) would be granted as soon as possible subject to the rights of the sitting tenant.
Having regard to the agreement about the sequencing of work set out in the memorandum of 9 December 1997 (later incorporated in the lease as Annexure A) I consider that the proper construction of this aspect of their agreements is that the first defendants were entitled to occupation of the TAB areas from early December 1997 onwards and were then free to fit them out, as far as possible, as an operating hair salon and that upon the eastern area occupied by Yo‑Yo's becoming vacant, the first defendants would move the salon to that area while the permanent fit out in the revised configuration on the eastern side, including extensions to be derived from the changes made by the curved corridor and in accordance with plans approved by a lessor, would be completed. Implicit in this programme is the contemplation that a final fit out of the eastern area (the former Yo‑Yo's as reduced by the changed alignment to the corridor) would also be undertaken during the period when the major fit out to the western side was being completed, but possibly towards the end of that period, so that when the hairdressing salon moved back to the western side the reduced Yo‑Yo's area would then become the intended coffee bar in conformity with the plan which is part of Annexure A or an approved substitute.
The lessor's obligation to remove the existing air‑conditioning and ceilings and to install new air‑conditioning throughout the leased premises, as set out in special cl 10(5)(a), was to be performed as soon as reasonably practicable after 20 February 1998. Having regard to the inevitable disruption that would be caused by removal of the suspended ceiling and works necessary to remove existing air‑conditioning and install new air‑conditioning it would obviously not have been "practicable" for any of that work to be commenced while Yo‑Yo's remained in occupation of its area on the eastern side of the ground floor. Equally, considerations of "practicability" also dictated that the proposed works for the removal of the suspended ceiling and the old air‑conditioning, and the installation of new air‑conditioning could only (except for very pressing reasons to the contrary if any) be undertaken by the lessor in conjunction with the first defendants' fit out. Despite some evidence adduced by the defendants to establish that, by careful staging and by carrying out construction work after hours, it would be possible to remove the existing ceiling, and air‑conditioning, and install new air‑conditioning while the first defendants continued to operate a hairdressing salon in the TAB area, I am satisfied that that would have been quite impractical and that what was really called for was an integrated approach which would allow the removal of the ceiling and the old air‑conditioning, the installation of new air‑conditioning and the construction of the main fit out of the permanent salon to be undertaken in the most expeditious and efficient manner possible.
Again, having regard to considerations of practicability, I have no doubt that the timing, sequencing and interaction of the various trades and skills needed to complete these several activities would be largely, if not entirely, dictated by a logical ordering of the various trades and contractors involved after proper consultation and co‑operation between the lessor and the lessees. It is likely that the completion of these various activities would mean that there would be a period or periods where no, or perhaps only very little, hairdressing service could be provided by the first defendants to their customers so that no trade could be conducted by the first defendants for a period of some days or weeks during the various works. But that is no reason to reject the conclusion which I have just expressed, as there is no suggestion nor any provision in the lease or agreement for lease that the defendants should always be able to carry on business during this pre‑lease period. Indeed, the implication is entirely to the contrary in that this initial period, when no rent or variable rent was payable, was the opportunity for these works, so obviously preliminary to trading as a "high quality Maurice Meade Salon" to be undertaken. Furthermore, the design and capacity of any new air‑conditioning system would, as the expert evidence revealed, be dependent to a significant extent upon the internal configuration of the permanent fit out of the salon, knowledge of the apparatus (particularly heating appliances of any kind) that were to be used in conjunction with the business, and the likely number and location of personnel within the areas to be air‑conditioned.
The financial obligations agreed between the plaintiff and the defendants are also significant when determining the proper construction of the agreement between the parties over the sequencing of these preliminary construction activities. As already noted, no rent or variable rent was payable by the first defendants for their occupation of any part of the premises before the commencement of the term, their financial obligations being limited to payment for the use and consumption of water, electricity and other utilities (special cl 10(1)(c)).
The lessor's loan of $100,000 was to be advanced to the lessees when the lessees produced paid invoices for the performance of the fit out works and then only after the date of the commencement of the lease term and also after the date of the completion of the permanent fit out - special cl 10(4). The formula for the repayment of that loan by monthly instalments of $1349.35 anticipated that the loan would be advanced at the commencement of the term, although the clause does make provision for the possibility of a later advance by providing that if any balance of the loan remains outstanding at the end of the term it shall then become immediately due and payable. Accordingly, the loan repayments had been structured on the assumption (notwithstanding the self‑adjusting mechanism to cater for a situation arising from a departure from those assumptions) that all the fit out work would be done before the commencement of the term or by the early stages of the term. Indeed, this was the subject of express provision in special cl 10(1)(b) which required the lessees to do the fit out works detailed in Annexure A (including the main fit out of the permanent salon) during the period from the date of occupation until the date of the commencement of the term, namely 1 April 1998.
In the events which happened, however, the first defendants moved into the TAB areas shortly after the agreement for lease and set up hairdressing operations on the configuration of the areas as they then were and began to trade. No permanent fit out as proposed in the plan forming part of Annexure A, or on any other basis, has been undertaken. The old air‑conditioning plant has not been removed, nor has any new air‑conditioning been installed. The landlord has not removed the suspended ceiling, but in some areas of the ground floor the first defendants have removed large sections of the suspended ceiling revealing the original higher pressed tin ceiling which, while exhibiting some potential for attractive refurbishment, remains significantly damaged and disfigured by apertures cut in it during past years to allow the passage of electrical cabling and conduits, plumbing lines and drains from the floor above, leaving a most unsightly general appearance.
Despite all this the first defendants have remained in occupation, carrying on their hairdressing business continually since they first went into occupation and have every intention of continuing in possession and trading on this basis in the exercise of the rights of possession granted to them by the lease.
The nature of the disputes between the parties
While, on the pleadings, the plaintiff's action is for rent plus interest at the contractual rate for non‑payment with additional alternative claims for rectification or for a special order under s 77(c) of the Fair Trading Act 1987, the crucial dispute is whether or not the first defendants have successful counterclaims for damages against the plaintiff for breach of the covenants in the lease, in particular the special clauses, which may be set‑off against any liability found for rent, other arrears and interest.
The alleged breaches of contract relied upon by the defendants for their set‑off and counterclaim are the alleged failures of the lessor to remove the existing air‑conditioning and the suspended ceiling and to install new air‑conditioning which, on the defendants' case, are antecedent and independent obligations which the plaintiff is required to perform before any permanent fit out was designed, plans for the fit out submitted or final fit out work undertaken by them. The defendants' case is that because the existing air‑conditioning has not been removed and the plaintiff did not remove the suspended ceiling or install new air‑conditioning, they have not become obliged to embark on the permanent fit out. Not only this, but the failure of the plaintiff to attend to the removal of the ceiling, the old air‑conditioning and the installation of new air‑conditioning has prevented the defendants from undertaking their major fit out. This has, they claim, also prevented them from subletting other areas of the leased premises, namely those on the eastern side and at the rear, to discharge obligations which they entered into with related corporations in the Meade group of companies to sub‑lease those areas for a hairdressing and beauty training school and for a coffee shop, with consequent economic loss to the first defendants. It is these alleged losses which are the basis of the counterclaim and the set‑offs already mentioned.
Although the defendants' counterclaim against the plaintiff for breach of the terms of the lease only alleges a lessor's failure to remove the suspended ceiling, remove the old air‑conditioning and install new air‑conditioning and a new shop front, in the evidence, the defendants have attempted to introduce other disputes as part of these allegations as variations or increments of the pleaded controversy. For reasons which will emerge, I do not consider that this approach can be maintained but it is necessary to identify the position of the defendants as it emerged in the evidence in order to dissect those issues which arise for determination on the pleadings and those which, however much the defendants may regard them as being associated, are essentially separate.
Intruding into the dispute over the mutual obligations of the parties to the lease with regard to removal of the existing ceiling, removal of old and installation of new air‑conditioning, the construction of a new shop front and the completion of the permanent fit out are:
•a claim by the defendants that the lessor was obliged to restore and rehabilitate the original pressed iron ceiling which was revealed after partial removal of the suspended ceiling and, in the process, somehow, to deal with the obtrusive electrical and plumbing lines which ran in the void between the former ceiling levels;
•a dispute over the liability for the expense of undertaking repairs and improvements to the rear washroom and toilet facilities forming part of the leased premises on the ground floor;
•a dispute over the responsibility for, and the cost of making good, repairs and associated works to parts of the original ceiling through which water gained entry to the demised premises during storms;
•a dispute over the cost of rendering safe, and replacing old electrical wiring, circuits and fuses serving the leased premises following problems arising from increased electrical loads placed on the circuits from the operation of the hairdressing appliances.
The pleadings
By its statement of claim the plaintiff pleads the lease and its terms, so far as material to the action. In relation to the fit out, the plaintiff alleges that, under the terms of the lease, the defendants were obliged to carry out those fit out works detailed in Annexure A to the lease during the period between the date when they went into occupation of the premises and 1 April 1998, the commencement of the lease term. In relation to that part of the premises to be used as the main hairdressing salon, by necessary implication, the permanent fit out would be completed within a reasonable time of taking possession.
By their defence, the defendants contend that it was only the temporary fit out which was to be completed during the period between possession and 1 April 1998 and that there was no obligation upon the defendants to commence or to carry out the permanent fit out until after the plaintiff had removed the existing air‑conditioning and ceilings and installed new air‑conditioning throughout the premises.
The plaintiff also pleads the covenant requiring it to remove the air‑conditioning and false ceilings and to install new air‑conditioning, but claims that, by necessary implication, its obligation was to install new air‑conditioning of a design which would accommodate the lessees' permanent fit out, or proposed permanent fit out, and which would function efficiently in the premises once that fit out had been installed. The defendants admit this allegation, in part, but plead that the air‑conditioning was to be of a design capable of adjustment and modification as to airflow and air return, after the premises were fitted out, to suit the fitting out as varied from time to time.
The plaintiff also pleads, as an implied term in the lease, that the lessor and lessees were obliged to co‑operate with each other to ensure each had the benefit of, and was able to perform, its obligations under the lease. The defendants admit the existence of this alleged implied term, but plead that it was subject to the express terms contained in Annexure A of the lease relating to the staging or sequencing of the fit out work.
During the trial substantial emphasis was laid by the plaintiff on the significance, in this context, of this implied obligation to co‑operate. Its existence is not in doubt and all parties accept that the nature and effect of this obligation is as has been described in Mackay v Dick (1881) 6 App Cas 251 at 263; Electronic Industries Ltd v David Jones Ltd (1954) 91 CLR 288 at 297 ‑ 298; Secured Income Real Estate (Australia) Ltd v St Martin's Investments Pty Ltd (1979) 144 CLR 596 at 607; Fitzgerald v F J Leondhardt Pty Ltd (1997) 143 ALR 569 at 570 and 576; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41.
Each of the contending parties argued that the other was in breach of the covenant requiring, on the one hand, performance of the permanent fit out and, on the other, the removal of the suspended ceiling and the old air‑conditioning and the installation of new air‑conditioning, with the consequence that that party was not ready, willing and able to perform the obligations under the lease required of it. This led to the further submission that the party so in breach could therefore not obtain damages or other relief against the opposing party for any breach or non‑performance of the obligations which that other party was required to perform under the lease. As contested at the trial, this led to plea and counter plea that the opposing party was not ready, willing and able to perform the obligations accepted by the lease.
There is also a significant issue between the plaintiff and the defendants over the particular formalities required of the defendants when submitting plans for the proposed fit out. The plaintiff pleads that, by virtue of the implied duty of co‑operation, the defendants were required to supply it in advance with adequate plans of the proposed fit out for their approval before any fit out work involving alterations to the walls, structures or partitions of the premises could be commenced and that its approval of the proposed plans was required. In this respect, the plaintiff relied on cl 6.2(a), (b) and (e) of the lease and par 3 of Annexure "A" as adopted by special cl 10(1)(b). The degree of detail required in plans to be submitted by the defendants for approval of the fit out, whether or not approval from the City of Perth in advance was required, emerged as a further controversy, notwithstanding that no express issues in those respects had been raised by the pleadings. The plaintiff does allege, by subpar 8A(a) of the statement of claim, that the lessees failed to provide plans or adequate plans of the proposed fit out. While this allegation was denied by the defence, no further plea was made alleging where or in what manner adequate plans had been submitted for approval, leaving the actual denial as a negative pregnant.
The plaintiff alleges four generic breaches by the defendants of the terms of the lease, namely:
•failure to carry out the permanent fit out;
•a failure to provide plans or adequate plans of the proposed fit out;
•unauthorised removal by the defendants of portion of the suspended ceiling;
•refusal by the defendants of access to the premises for the plaintiff to allow it to install air‑conditioning.
In answer, the defendants plead, consistently with their earlier submission that upon its proper construction the lease only required them to undertake the temporary fit out during the period of occupation before the commencement of the lease term, that the temporary fit out was completed by 1 April 1998. They also plead that, being aware that the defendants had not commenced the permanent fit out works, the plaintiff at no time before the commencement of this litigation asserted that the defendants were obliged to carry out the permanent fit out before 1 April 1998 and, therefore (if their construction of the lease is not accepted and they are in breach of their obligations under the lease in this respect), that breach has been waived or, alternatively, the plaintiff is estopped from relying upon that breach.
In relation to the allegation of wrongful removal of portion of the suspended ceiling, the defendants plead that, in about October 1999, while examining the premises in order to consider the most appropriate design for the intended permanent fit out, they removed portion of the suspended ceiling and, in doing so, discovered electrical wiring in the void above the suspended ceiling which they allege was in a dangerous condition. The defendants plead that they gave notice of this defective electrical wiring to the landlord by letter dated 20 October 1999, pursuant to an obligation placed on them by sub‑cl 6.3(b) of the lease to give prompt notice in writing of defects likely to be, or to cause, any danger, risk or hazard. The defendants also plead that the plaintiff has failed to remedy the dangerous wiring and that the defendants have not replaced the false ceiling whilst waiting for the dangerous wiring to be repaired or replaced and, for these reasons, that they are not in breach of the covenant prohibiting alterations to the ceiling or other structures without the plaintiff's prior approval. Alternatively, the defendants plead that if, contrary to their principal contentions, they have committed a breach of the lease by removing portion of the ceiling that breach has been waived by the plaintiff or that the plaintiff is estopped from relying upon such breach.
In the course of the trial counsel for the defendants also submitted that, because no prior written notice of these particular breaches of the lease, as distinct from a notice of default specifying a failure to pay rent, had been served upon the defendants before the commencement of this action, the relief being sought was not maintainable because of s 81 of the Property Law Act 1969. Although this does not appear to have been repeated in the final submissions of counsel for the defendants, it was never formally abandoned and it is therefore necessary to point out that the restrictions imposed by s 81 of the Property Law Act 1969, including the obligation to give written notice of certain alleged breaches of a lease (but not including cases of non‑payment of rent - s 81(9)) apply only in relation to attempts, by action or otherwise, to enforce a right of re‑entry or forfeiture under any provision in a lease. The plaintiff does not seek any order to enforce a right of re‑entry, nor does it seek forfeiture of this lease in this action or otherwise. Accordingly, the submission advanced on behalf of the defendants under s 81 of the Property Law Act must be rejected.
In the statement of claim, the plaintiff alleges that it has suffered loss and damage due to the five generic breaches of covenant described. It particularises these losses as comprising:
•the cost to fit out the premises;
•the cost to effect repairs to the ceiling;
•increased costs in installing new air‑conditioning because of inability to co‑ordinate design and installation of the air‑conditioning with the permanent fit out and an increase in costs for performing this work since February 1998;
•loss of the ability to obtain a higher rent after the first, and successive, rent reviews which would have been payable in the event of the increased rental value of the premises resulting from improvements produced by new air‑conditioning and a permanent fit out;
•adverse effect upon the value of the reversion because of the failure to carry out the permanent fit out.
The defendants deny the allegations of loss and damage but also plead that the matters referred to do not constitute loss and damage incurred by the plaintiff.
In the event, these claims for damages were not pursued by the plaintiff, nor were the further particulars which the statement of claim indicated would be provided to support them ever filed. In the course of evidence at trial it was stated that the plaintiff did not intend to attempt to establish that the rent of the premises would have been set at higher levels on the first or successive rent reviews had the fit out been performed, or that the failure to carry out the fit out had effected a reduction in the value of the reversion, at least not if the cost of the lessor undertaking the work for the removal of the ceiling and the old air‑conditioning and installing new air‑conditioning were, as it would need to be, brought to account.
The plaintiff also advances a claim for damages under s 79 of the Fair Trading Act 1987 on the basis that the defendants had engaged in misleading and deceptive conduct, during the course of negotiations for the lease, by making representations that they would fit out the premises as a high quality Maurice Meade salon similar in standard to the Maurice Meade salon at the Bayview Centre in Claremont and that the fit out would be carried out within a reasonable time of taking possession. The plaintiff alleges that those were representations made in trade and commerce with respect to a future matter and the defendants admit this. However, the defendants deny the following allegation that these representations amounted to misleading or deceptive conduct.
That these representations later became incorporated as covenants in the lease and non‑fulfilment of them would give rise to a contractual remedy for breach of covenant does not exclude the potential availability of a claim for damages under s 79 of the Fair Trading Act if, indeed, the conduct in making those representations was misleading or deceptive. This is because, while the contractual rights subsist between the parties, their relationship is not governed simply by the general law but is also subject to the legislation which applies to conduct in trade or commerce - Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 per Gummow J at 37 and Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470. It will not be every contractual promise which constitutes a representation with respect to a future matter but, if there be an unconditional promise which forms part of the contractual obligations, then it may be proper to treat the giving of that promise as the making of a representation as to a future matter - Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217.
The damage which the plaintiff pleads it suffered because of this alleged misleading and deceptive conduct, was entering into a lease upon the terms which were in fact agreed. The plaintiff pleads that, in the absence of such alleged misleading and deceptive conduct it would not have let the premises at the rental agreed but would have demanded a higher rental; would not have agreed to install air‑conditioning; would not have agreed to the rent‑free period; and that by acting on the representation and entering into the lease it suffered actual damage. Alternatively, it pleads that having acted on the representation by entering into the lease it is likely to suffer loss and damage. Although this is not particularised and was not developed in submissions, the implication seems to be that, in the future, the plaintiff will not obtain increased rents at the periodic rent reviews, or increases as great as would otherwise have occurred and that, on the termination of the lease the reversion will be of diminished value. Again, however, these allegations of pecuniary loss and damage were not pursued at the trial and no evidence was led to attempt to prove them. It is, therefore, unnecessary to notice this part of the claim any further.
This leaves the claim for unpaid rent and variable rent as the sole money claim being pursued by the plaintiff. Although the plaintiff pleaded that the first defendants had withheld the payment of rent and other sums due in breach of the terms of the lease, this claim is not a claim for damages for breach of covenant but is a claim in debt for a liquidated sum due and owing: Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567 ‑ 568 and per Gaudron J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 174. To qualify as an action in debt the money demanded under a contract must have become due, usually by performance of the obligation in respect of which the debt was earned. In the case of rent, the possession of the premises over the period when the rent was accruing due in agreed amounts at periodic intervals reveals the performance of the contract and hence quantifies the liquidated sum payable. The entitlement to recover is therefore not dependant upon whether the lessor is, or is not, in other respects, in breach of the lease or other contract giving rise to the established debt. In other words, in relation to the claim for arrears of rent and variable rent, the plaintiff's claim does not depend upon it successfully showing that, in all the circumstances, it was not in breach of the covenants of the lease by failing to remove the old air‑conditioning and suspended ceiling or to install new air‑conditioning.
Apart from denying that they were indebted to the plaintiff in respect of the unpaid rent and variable rent which had accrued during the period when payment was withheld, the defendants rely upon a set‑off of their alleged counterclaim to meet this. The defendants, specifically in response to the claim for the unpaid rent and variable rent, allege that the plaintiff was in breach of the terms of the lease in various respects all deriving from the failure to remove the old air‑conditioning and suspended ceiling and install a new air‑conditioning plant, but nowhere in the pleading or in the evidence is there any attempt to demonstrate that the defendants did not remain in possession or that the lease did not remain in full force and effect during the period when the unpaid rent and variable rent were accruing due. Accordingly, as the amount of the rent, variable rent and interest accruing during this period have been agreed between the parties, it follows that the plaintiff has established a prima facie entitlement to judgment for the amount remaining unpaid, together with interest, subject only to the defence of set‑off which, in turn, depends upon the defendants establishing their counterclaim.
The remaining two causes of action advanced by the plaintiff can conveniently be treated together. They are the claim for rectification (if necessary) of the terms of the lease and the further alternative claim for an order pursuant to s 77(3)(b) of the Fair Trading Act to vary the terms of the lease to conform (if necessary) to the representations alleged to have been made by the defendants that they would complete the permanent fit out of the demised premises by, or within a reasonable time of, the commencement of the lease term on 1 April 1998.
The parties recognise that such an order under s 77(3)(b) would, in practical effect, produce much the same result as a decree for rectification of the lease. By their defence, the defendants maintain that at all material times it was the common intention of the parties that the plaintiff would, as soon as practicable after the commencement of the lease, remove the air‑conditioning and suspended ceilings and install new air‑conditioning throughout the premises and that, thereafter, the defendants would carry out the permanent fit out to, at least, the standard of the Maurice Meade salon at Claremont. They say that this common intention is reflected in the terms of the lease as properly construed. Similarly, in relation to the plaintiff's claim for relief under s 77 of the Fair Trading Act the defendants maintain that the only representations which they made were those contained in the agreement for lease and which ultimately became incorporated in the lease itself which, on their proffered construction, only required them to undertake the permanent fit out after the plaintiff had first removed the existing air‑conditioning and ceiling and installed new air‑conditioning. It follows, therefore, that these claims for rectification or relief under s 77 should be deferred for consideration until the principal issue concerning the proper construction of the lease has been decided.
The counterclaim and set‑off
Agreement having been reached between the parties about the amount of rent and variable rent accruing due, the real issue upon which the case was fought became the defendants' counterclaim and whether or not it could support the pleaded set‑off to the plaintiff's claim. In this regard, however, it is necessary to note that the alleged breaches of the lease by the plaintiff advanced by the defendants in the course of their evidence include, but go beyond, the plaintiff's failure to remove the suspended ceiling and the old air‑conditioning and to install new air‑conditioning throughout the premises. The breaches alleged include other complaints made by the defendants concerning disputes which arose well after the commencement of the lease term and beyond any period within which it might reasonably have been contemplated that the fit out works would have been carried on if commenced after Yo‑Yo's had vacated its tenancy at the end of February 1998. But by their defence and counterclaim, the defendants only allege that the plaintiff is in breach of the covenants of the lease by:
•failing, or refusing, to remove the old air‑conditioning and suspended ceiling and to install new air‑conditioning in the leased premises;
•failing to install, at the plaintiff's cost, a new shop front to the leased premises;
•in failing as and from 16 April 2000 to remedy those breaches.
Significantly, the defendants do not plead that the alleged failure of the plaintiff to repair what the defendants asserted was the dangerous condition of electrical wiring exposed when the first defendants removed portion of the suspended ceilings themselves without authority in September 1999 constituted any breach by the plaintiff of its obligations under the lease. Nevertheless, submissions to this effect were made by counsel for the defendants at the trial although, having regard to the pleadings, and in the absence of any plea by the defendants of an alleged breach of an implied covenant by the plaintiff to repair defective electrical lines, these submissions can only be regarded as being directed to the defendants' pleas of waiver and estoppel made in answer to the plaintiff's allegation over unauthorised removal of part of that ceiling. Similarly, although the defendants attempted to maintain at trial that the plaintiff was in breach of its obligations in failing to upgrade the electrical supply to the premises to allow a larger electrical load to be drawn through the circuitry, including securing an upgrade by Western Power of the power supply to the entire premises, no allegations of breaches of the covenants of the lease are advanced by the defendants in this regard on their pleadings.
The counterclaim for damages and the associated set‑off rely upon agreements alleged to have been made between the first and second defendants and associated companies in the Maurice Meade Group. By par 19 of the defence (repeated in the counterclaim) the defendants allege that in about April 1998 they:
(a)orally agreed to sublet portion of the leased premises to an associated company, Johnzoo Pty Ltd, for that company to operate a Maurice Meade hair salon as a sublessee and as a franchisee of the second defendant;
(b)orally agreed with another associated company, Bocroft Pty Ltd, to sublet a further portion of the leased premises for use as a training school in return for which Bocroft would pay the first defendants a rent calculated with reference to turnover.
The defendants' counterclaim is that, by reason of the alleged breaches by the plaintiff of the covenants in the lease, Johnzoo Pty Ltd and Bocroft Pty Ltd have respectively refused to pay rent to the first defendants under the subleases and the former has suffered an adverse affect upon its turnover, so diminishing the franchise fees payable by it to the second defendant. In addition, the defendants plead that by reason of the plaintiff's alleged breaches of the lease, Bocroft Pty Ltd has not commenced to operate the training school and has therefore not generated a turnover from which to pay rent to the first defendants, causing them to suffer loss and damage. It is these combined losses by the first defendants of rent from Johnzoo Pty Ltd and Bocroft Pty Ltd together with the second defendant's loss of franchise fees payable from Bocroft Pty Ltd that constitute, in aggregate, the damages which all defendants seek to set‑off against the plaintiff's claim for rent and variable outgoings.
The defendants plead that the revenue payable to them under the subleases to Johnzoo Pty Ltd and Bocroft Pty Ltd and to the second defendant by Johnzoo Pty Ltd for franchise fees would be in an amount quantified by expert evidence to be adduced at the trial but that in respect of rent payable by Bocroft Pty Ltd to the first defendants it would have been in an amount of at least $70,000 per annum. Although it was never pleaded or asserted that the first defendants were not themselves in possession of the leased premises, or that a hairdressing salon operation had not been conducted from the leased premises continuously since January 1998, no credit was given for, nor any disclosure made, of the profits derived from that operation when identifying the nature or the quantum of the defendants' counterclaim. Presumably, the reason for this is that it was the intention of the defendants for Johnzoo Pty Ltd and Bocroft Pty Ltd, or one of them, to carry on trading operations in addition to and contemporaneously with the first defendants from other parts of the demised premises after the permanent fit out had been completed. One can readily see how, in that situation, part or all of the leased premises may be occupied by authorised sub‑tenants making payments of rent, franchise fees and perhaps other amounts to the original lessees. However, for this to occur, the permanent fit out would have to have been completed, at the expense of the first defendants, and that expense would have to be brought to account in quantifying any losses suffered by the first defendants as a result of loss or reduction in revenue from the sublessees. No such costs or expenses of the fit out necessary to achieve such a total operating environment from the leased premises were pleaded or particularised in the counterclaim.
During the second day of the trial an application was made on behalf of the defendants to amend the defence and counterclaim in a number of respects, some of which involved major reformulations of the basis for, and quantification of, the counterclaims. As that application for an amendment was contested it was necessary to scrutinise the proposed amendments in some detail while deliberating on the application and, in the course of this process, it became apparent that the defendants proposed even more extensive and fundamental amendments than first outlined. They then foreshadowed an application for further amendments in that regard. In the result, after argument, I ordered that the defendants should have leave (upon the usual conditions as to costs), to make some of the amendments to the defence and counterclaim which were being sought but that the more extensive amendments to the basis and quantification of the counterclaim would only be allowed on condition that all issues of the quantification of the first and second defendants' alleged damages, if any, sought on the counterclaim should be tried separately, if necessary, after the conclusion of this trial or at such further time as might otherwise be ordered. (See reasons for this decision at transcript 292 ‑ 294.)
Accordingly, all issues of the quantification of the first and second defendants' damages on the counterclaim were adjourned and counsel for the defendants intimated that consideration would be given to proposing, if necessary, more extensive amendments than had at that time been sought.
In practical terms this left for determination at the trial the issues relating to the proper construction of the lease and, in particular, the covenants relating to the removal of the old air‑conditioning and suspended ceiling and the installation of new air‑conditioning by the lessor and the performance of the permanent fit out by the lessees; the readiness and willingness of the parties to perform the obligations resting upon them under the lease; questions of whether or not the plaintiff or the defendants were in breach of the terms of the lease as alleged; the defences of waiver and estoppel raised in respect of alleged breaches of the lease; the claims for rectification and relief under s 77 of the Fair Trading Act; and, of course, the money claim for unpaid rent and variable rent. The trial proceeded on the issues so reduced in the realisation that if the defendants failed to establish breaches of the lease by the plaintiff as they had alleged it would then be unnecessary to proceed to hear or determine the quantification of the defendants' counterclaim for damages, or for that matter the claimed set‑off.
However, the defendants also counterclaim for a degree of specific performance and an for an injunction seeking to compel the plaintiff to carry out the removal of the remnants of the old ceiling and the old air‑conditioning and to install new air‑conditioning for the entire premises in fulfilment of their alleged obligation under the lease, independently of any completion by the defendants of the permanent fit out of the premises. The defendants seek an injunction to restrain the plaintiff from entering the premises in order to remove and replace the ceiling and install new air‑conditioning in a manner not in conformity with the lease which, so the defendants allege, the plaintiff has threatened to do.
By their counterclaim, the defendants allege a further agreement between themselves and the plaintiff comprised by a letter from the plaintiff's solicitors to the defendants' solicitors dated 30 May 2001 and by a letter from the defendants' solicitors to the plaintiff's solicitors dated 18 June 2001. The defendants allege that, by this correspondence, it was agreed between them that:
•if the defendants provided fit out plans, the plaintiff would install air‑conditioning throughout the premises within two months at its cost or, alternatively, if the defendants did not provide fit out plans, the plaintiff would install air‑conditioning throughout the premises according to its own fit out plans;
•the plaintiff would remove the vermiculite (suspended) ceiling at its own cost;
•the plaintiff would upgrade the toilet facilities at its own cost;
•the plaintiff would upgrade the power connection and provide a new junction box at its own cost.
The defendants plead that they supplied fit out plans pursuant to this agreement to the plaintiff on or about 19 June 2001, but that in breach of this agreement the plaintiff did not commence the works agreed upon within the two month period or at all.
Further, the defendants again plead an obligation under the lease for the plaintiff to remove and replace the existing air‑conditioning in the premises and to remove the existing false ceiling (First Schedule cl 10(5)); that the defendants' consent was required under the lease to any maintenance or repairs which the plaintiff intended to undertake in the premises (lease cl 2.1, 5.4(b) and (c) of the lease); and that the defendants were entitled to quiet enjoyment and use of the premises (cl 11.1 of the lease).
The defendants then allege that on 31 August 2001 the plaintiff informed them that, unless the defendants informed the plaintiff to the contrary by 7 September 2001, the plaintiff would fit out of the premises in accordance with the plaintiff's own plans delivered on that date. The defendants plead that on 7 September 2001 they notified the plaintiff that they did not consent to any such fit out works as then proposed by the plaintiff because:
•the fit out plans were in insufficient detail;
•the plans appeared to be drawn to implement a proposal for the most cost effective design without regard to the quality or integration of the defendants' design proposal;
•the plaintiff's plans contemplated the replacement of the false ceiling and not its removal.
Nevertheless, the plaintiff informed the defendants of its intention to enter the premises on 22 October 2001 to commence the fit out works which the plaintiff proposed. The defendants plead that if the plaintiff enters and carries out the fit out works which it proposes that will constitute a breach of the lease because:
•It will involve a replacement of the suspended ceiling rather than its removal;
•the fit out maintenance and repair work will be undertaken without the defendants' consent.
Therefore, while seeking an order for specific performance compelling the plaintiff to carry out the work required for the removal of the old suspended ceiling and the old air‑conditioning and to install new air‑conditioning, the defendants are also seeking an injunction to prevent the plaintiff from carrying out the more extensive works and, in particular, the installation of a new suspended ceiling and the performance of a fit out as proposed by the plaintiff's design plans delivered in September 2001.
The evidence satisfies me that these claims made by the defendants in and after September 2001 about their prior stance on this issue are wrong, but as the controversy (in the defendants' submission) has some bearing on the willingness and readiness of the plaintiff to perform its obligations under the lease, the details must be examined more closely. Before doing that, however, it is clearly the case that the proposal to install a new suspended ceiling, was a response to the problems presented by the discovery of the unsightly condition of the original pressed tin ceiling, penetrated as that was by the plumbing and electrical lines which obtruded into the space below which had been out of sight until the original suspended ceiling was partially removed by the defendants in September 1999.
Controversy over the alleged obligation by the defendants to supply architectural plans and drawings for the plaintiff's approval for the permanent fit out and whether or not the defendants satisfied any obligations resting upon them in this respect is also relevant to the issue of whether the plaintiff was ready, willing and able to perform the obligations resting upon it to carry out the lessor's works under cl 10(5) of the First Schedule, but it is also relevant to the question of whether or not the defendants were ready, willing and able to carry out their obligations, under cl 10(1), to design and complete the permanent fit out. Because the controversies over the suspended ceiling and the supply of plans for approval of the proposed permanent fit out are, in certain respects, interrelated, it is convenient to examine them together.
While the covenants for the lessor's works as set out in the First Schedule cl 10(5)(a) made no mention of a replacement for the existing ceilings which were to be removed, there had been conflicting proposals about this obligation in the negotiations and correspondence which led to the agreement for lease in November 1997 and in the further negotiations leading up to the execution of the lease itself. The defendants' first offer to lease the premises (Exhibit 86) of 1 November 1997 made no mention at all of the lessor's works but sought a contribution by the lessor of $200,000 to the lessees' fit out. The response from the plaintiff's agent of 5 November 1997 (Exhibit 87) offered an unspecified contribution to the total fit out and an upgrading of ceiling, lighting and air‑conditioning but without detail. A facsimile from the defendants' agents of 17 November 1997 (Exhibit 89) for the first time sought a provision requiring the lessor to air‑condition the ground floor and to remove the false ceiling, but for the lessees to be responsible for the installation of a shop front at their cost. The disclosure statement required under s 6(4) of the Commercial Tenancy (Retail Shops) Agreements Act 1985, delivered by the plaintiff (Exhibit 90) and dated 19 November 1997, originally provided for "air‑conditioning & suspended ceilings to be fitted by landlord together with new shop front". But this was altered by manuscript to provide "air‑conditioning to be fitted by landlord", while including a provision that the landlord was to provide, at its cost, a suspended ceiling. This same document had originally proposed that the fit out to be provided by the lessees would include new ceilings but that detail was also removed by manuscript alteration. The plaintiff's agent, by facsimile dated 19 November 1997 (Exhibit 4), in the course of dealing with proposed terms, point by point, noted that the premises will be fitted with new air‑conditioning and the existing ceilings removed at the lessor's cost, the style and type to be agreed between the parties. There is no further contemporary correspondence between the parties or their agents on this issue in evidence before the date of the execution of the lease which, as seen, itself specified the obligation as being the removal of the existing ceilings.
It was during the period from 2 to 8 September 1999 (Exhibit 150) that the defendants, without authority, unilaterally removed part of the existing suspended ceiling. The reason for this action is not of importance but it seems to have been prompted by a desire by the defendants to investigate the potential for the proposed fit out before any firm plans or proposals in that regard had been formulated. It led to the discovery of the unsightly condition of the higher tin ceiling, and plumbing and electrical lines in the void, which in turn prompted demands by the defendants that those matters should be dealt with at the plaintiff's expense. There was no express provision in the lease requiring the plaintiff to do this, nor any implied covenant to put the premises into repair or to render them fit for the purpose for which they had been leased: City of Subiaco v Heytesbury Properties Pty Ltd (2001) 24 WAR 146 at 156; and Carbure Pty Ltd v Brile Pty Ltd [2002] ANZ Conv R 548.
On 26 April 2000 the first defendants gave the plaintiff notice demanding that it implement the provisions of cl 10(5) of the First Schedule of the lease which, so it was said, required the plaintiff:
"(a)To remove the ceilings and air‑conditioning throughout the premises and to replace."
That notice was partially withdrawn by a second notice dated 22 May 2000 (Exhibit 26) which announced that the defendants were having second thoughts about the plan of the proposed permanent fit out previously delivered and asked for that to be disregarded. Nevertheless, by Exhibit 26, the defendants demanded that the ceiling and air‑conditioning works should continue in a context where the ceiling work mentioned included replacement of the ceiling which was to be removed. By correspondence to the Commissioner of Worksafe (who had issued orders in respect of the premises), the defendants advised on 24 July 2000 (Exhibit 31) that under the terms of the lease it was the responsibility of the owner to remove and replace the ceiling. Again, by letter dated 4 August 2000 (Exhibit 33) the defendants notified the plaintiff:
"The only reason that rent remains unpaid is your refusal or neglect to proceed with the obligations incumbent upon you to remove and replace the ceiling and install air‑conditioning in accordance with the provisions of the lease ... ". (Exhibit 33)
This was also the defendants' position in their letters of 24 August 2000 (Exhibit 34) and 27 November 2000 (Exhibit 40). In July and August 2001 the defendants were again writing to the plaintiff (Exhibits 56 and 57) in reference to negotiations proposing that "ceiling details would be developed" in a context which suggested that this was part of the plaintiff's responsibilities.
It was during the period July to October 2001 when negotiations between the parties over possible solutions to several disputes, including the removal of the suspended ceiling, the installation of new air‑conditioning and the design and completion of the permanent fit out were being addressed. This occurred on the basis that there would be a joint and co‑operative approach to dealing with these matters so that the plaintiff submitted proposals, including detailed plans, for the installation of new air‑conditioning which included a newer, and higher, suspended ceiling which it was willing to install. This proposal would address the problems of the unsightly wires, pipes and damaged tin ceiling. This new suspended ceiling for that purpose was a feature of proposals which had, up until that time, been discussed in the negotiations between the parties without objection. When the defendants failed to submit for approval detailed plans for a permanent fit out, or to commit themselves to a permanent fit out, the plaintiff advised that, in the absence of the provision of such plans from the defendants within a month, it would proceed to undertake the work in connection with the removal of the existing suspended ceiling, the installation of new air‑conditioning and the installation of a new suspended ceiling.
This prompted objection by the defendants' solicitors to the proposed suspended ceiling by letter dated 19 September 2001 (Exhibit 62) which, if not the first, was one of the earliest objections by the defendants to the installation of such a feature. That objection was then maintained by the defendants in subsequent correspondence throughout September and October 2001 (Exhibits 78, 63, 79 and 143), leading ultimately to the defendants' application for an interlocutory injunction to prevent entry on the premises by the plaintiff to undertake that work.
From this history it is clear that the plaintiff's proposal to carry out work involving the installation of a new suspended ceiling was far from being an initiative of its own, or a decision taken in disregard of the defendants' rights or wishes. Although such a new suspended ceiling was not contemplated by the lease, it had been the subject of detailed negotiations between the parties and their agents over the preceding months. Furthermore, a demand for the replacement of the suspended ceiling had been a feature of the defendants' correspondence to the plaintiff dating back to April 2000.
If no new suspended ceiling or other feature to conceal the unsightly problems presented by the plumbing and electrical lines and the dilapidated condition of the tin ceiling is installed, then those are problems which will, no doubt, have to be addressed by the defendants in another way in the eventual permanent fit out. That situation serves to place in context the view advanced by the plaintiff, and maintained by Mr Sansom when giving evidence at trial, that it was still his intention to install a new suspended ceiling as part of the lessor's works. The practical reasons for doing so are obvious enough and I do not consider that this statement by Mr Sansom should be regarded as any indication of an intention to override or disregard the defendants' rights in this respect once they have been determined by these proceedings.
I would not, therefore, regard the history of events in relation to the proposal to install a new suspended ceiling or Mr Sansom's evidence as giving rise to any significant risk of a threatened intrusion upon the defendants' rights which would warrant a continuation of the undertaking given by the plaintiff on the defendants' application for the interlocutory injunction heard on 2 November 2001, nor the grant of a permanent injunction as sought.
Plans for permanent fit out
Putting aside drawings which do no more than show former floor layouts of the demised premises, there are six sets of plans which require attention when determining whether or not the defendants took steps to submit to the plaintiff for approval a plan of the proposed permanent fit out to be constructed in accordance with cl 10(1)(b) of the First Schedule of the lease. They are:
•Exhibit 3 - Drawing II - Meades' December 1997 proposal.
•Exhibit 15 - Drawing III - Meades' October 1999 proposal.
•Exhibit 23 - Drawing IV - Meades' April 2000 proposal.
•Exhibit 52 - Drawing V - Meades' July 2001 proposal.
•Exhibits 183A, B & C - Drawing VI - plaintiff's 2001 proposal.
•Exhibit 147A - Drawing VII - plaintiff's 2002 proposal
The first of these (Exhibit 3) is the sketch layout plan accompanying the memorandum of 9 December 1997 (Exhibit 91) which later became part of Annexure A to the lease itself. This is a general indicative plan only and was never intended or treated as an outline of the permanent fit out which the lease expressly provided would come later.
The second (Exhibit 15) was treated by the defendants as being only an "indicative floor plan" and was submitted to the plaintiff under cover of a letter indicating that working drawings and specifications would be submitted for approval "in due course" (letter 1 November 1999, Exhibit 13). Immediately afterwards the plaintiff, through his agent, gave approval to that indicative plan, subject to formal approval of the completed working drawings and specifications which were expected in due course (letter 5 November 1999, Exhibit 14). Those further detailed working drawings were requested by the plaintiff's agent again on 18 November 1999 (Exhibit 16). When dealing with an associated dispute concerning electrical and plumbing matters, the defendants' agent replied on 2 December 1999 (Exhibit 17) and advised the plaintiff that the lessees' representative was then considering plans for the fit out of the premises. No such plan was submitted and on 14 February 2000 (Exhibit 20) the plaintiff's agent wrote to the defendants' representative asking for a formal schedule of the lessees' works together with a final approved plan which might be considered at a meeting then imminent.
By March 2000 there were other matters in issue between the parties, including claims about whose responsibility it was to make good electrical wiring, to make good the pressed tin ceiling and a demand by the defendants for new toilets to be constructed. In addressing those matters the defendants' agent wrote to the plaintiff's agent on 13 March 2000 (Exhibit 136) advising that, upon confirmation of the plaintiff's acceptance of the lessees' demands in regard to those other matters and upon agreement to extend the lease term to 20 years, the defendants would proceed immediately with working drawings for Council approval. The plaintiff did not accept these demands and no plans were submitted by the defendants.
On 23 March 2000 the defendants' architect notified Mrs R Meade, one of the first defendants, that he had prepared a brief outline of the works to permit the fit out (Exhibit 135). Still no further plans or specifications were submitted on behalf of the defendants.
On 26 April 2000 the first defendants delivered the notice demanding that the plaintiff implement the work specified in cl 10(5) of the First Schedule which, so they asserted, required the plaintiff to remove the ceilings and air‑conditioning throughout the premises and replace and to install a new shop front for the premises. With that notice there was a plan for the proposed fit out (Exhibit 23) which, while in a number of respects similar to, was a clear advance upon the earlier indicative floor plan of October 1999 (Exhibit 15), but still there were no specifications, dimensions or elevations.
The plaintiff acknowledged the notice (Exhibit 22 and accompanying plans) by letter of 2 May 2000 (Exhibit 24) but advised that it was still awaiting Council approved plans and a list of lessees' works. That letter also notified the first defendants that the lessor, before commencing work, was anxious to resolve the matter of an outstanding rent review then due on 1 April 2000 - another issue between the parties.
In his submissions, counsel for the defendants has contended that the plaintiff was not entitled to defer giving attention to the request for the approval of these plans pending the rent review and that the plaintiff also unjustifiably demanded that the plan submitted should have first been approved by the Perth City Council. By this point in May 2000 the time originally contemplated for the permanent fit out (February to April 1998) had long passed and it therefore cannot be accepted that the plaintiff was in breach of any express or implied obligation in proposing deferral of attention to this request for a short time. However, while it was always anticipated by the plaintiff that Perth City Council ("PCC") approval of the plans for the proposed fit out would be necessary, an assumption vindicated by subsequent events (Exhibits 51 and 132), it does not seem to have been essential that PCC approval be obtained before, rather than after, the submission of the permanent fit out plans to the lessee for its approval. Obviously, there would be little utility in the lessor giving approval to a proposed set of permanent fit out plans if they could not receive approval from the PCC, so one can appreciate why the plaintiff and its advisors were making this stipulation. In this respect it is to be noted that the defendants' agent, Mr M R Stubbs, strongly recommended the defendants to proceed to obtain PCC approval for the fit out plans by letter of 9 May 2000 (Exhibit 173). However, in the end, the issue is of no practical significance because, soon afterwards, the defendants withdrew their request for approval of the April 2000 plans (Exhibit 23).
This occurred by the delivery of a further notice from the defendants to the plaintiff dated 22 May 2000 (Exhibit 26) which specifically referred to the notice of 26 April 2000 and to the accompanying plans. This notice included a passage:
"We are now having second thoughts about the plan and are considering keeping the two original shops separate and retaining the common walk way or gallery leading to the rear of the premises our intention being to sublet (subject to your approval) the smaller shop.
Please therefor[e] disregard that plan but at the same time the ceiling and air‑conditioning work can continue after due consultation between our Architects. The replacement of the shop front can wait till a later date."
The plaintiff's agent acknowledged that notice by letter of 30 May 2000 (Exhibit 69), together with the request that the defendants' fit out drawings should be disregarded pending a possible change to the current proposal, going on to say:
"In the circumstances, the lessor prefers not to proceed with the lessor's works contained in the lease until your revised drawing and specification, duly approved by the relevant statutory Authorities, is submitted to the lessor for Approval pursuant to the terms of the Lease.
Please provide the required documentation at your earliest opportunity in order to progress this matter."
By 19 July 2000 the defendants had decided not to proceed with the proposed hairdressing school which had, until then, been intended for part of the demised premises and for which the plans for the permanent fit out prepared before then had provided. They notified the City of Perth to this effect by letter of that date (Exhibit 30). This necessarily involved a relinquishment of the permanent fit out proposal outlined in the April 2000 plan (Exhibit 23). The defendants notified the plaintiff of this by letters of 4 August 2000 (Exhibit 33), 24 August 2000 (Exhibit 34) and 18 September 2000 (Exhibit 73). Notwithstanding this, the defendants asserted (contrary to what I have decided is the proper construction of the lease) that the plaintiff was obliged to proceed independently with the works for the removal of the suspended ceiling and the air‑conditioning and for the installation of new air‑conditioning. At this time, as set out earlier, the defendants were asserting that the plaintiff was bound under the terms of the lease to replace the ceiling which was to be removed.
In addition, the defendants failed to pay the rent due at the beginning of July and also failed to pay the variable rent which had accrued for the month of June. They maintained that they were withholding the payment of rent and variable rent from July 2000 onwards because of the plaintiff's alleged failure to perform its obligations under cl 10(5) of Sch 1 of the lease. They continued to withhold payment of rent in this respect until required to give an undertaking to resume payment of rent from 2 November 2001 in return for an undertaking by the plaintiff not to enter upon the premises to carry out the works proposed, at the application for interlocutory injunctions heard by Anderson J on that date.
On any view, therefore, there had been no failure by the plaintiff to consider or to approve a permanent fit out plan submitted by the defendants for the works which they were to perform under cl 10(1)(b) of the First Schedule of the lease up to and including 30 May 2001 (see letter from plaintiff's solicitors of 30 May 2001 - Exhibit 47), when an opportunity was given to the defendants to provide permanent fit out plans within a month. This was met by a response from the defendants' solicitors that such fit out plans could be produced by 30 June 2001 and would be supplied (letter 19 June 2001 - Exhibit 49). At a meeting of the defendants' representatives on 8 July 2001 it was acknowledged that Perth City Council approval for the proposed works would be required (Exhibit 51).
It was in these circumstances that Exhibit 52 (the defendants' drawing V - Meade July 2001 proposal) was prepared. However, this was no more than a layout plan and was insufficient to proceed with building works, not containing elevations, ceiling plans, service requirements or other specifications (see File Note 11 July 2001 - Exhibit 53). Receipt of those plans was acknowledged by the plaintiff on 16 July 2001 (Exhibit 106) but, not surprisingly in view of the delays, the plaintiff gave instructions for the preparation of a list of the deficiencies in the plan so that formal notice could be given to the defendants to provide full plans. Such a demand for full plans specifying the documentation and information required in them was given to the first defendants by the plaintiff on 17 July 2001 (Exhibit 54).
No further plans were submitted by the defendants and on 24 July 2001 the plaintiff gave notice that it would prepare its own plans in order to install the air‑conditioning, shop front, ceiling, junction box and toilet renovations (Exhibit 109). No further plans had been submitted by the defendants by 2 August 2001 (Exhibit 111) so the plaintiff proceeded to prepare its own plans (Exhibit 183A, B and C - Drawings VI, the plaintiff's 2001 proposal) which were submitted by the defendants for their own advisors' comment on 4 September 2001 (Exhibit 60), after having been received on 31 August 2001. By letter of 6 September 2001 the defendants objected to these plans advising that they were still under consideration by their architect (Exhibit 75). Further objection from the defendants' solicitors by letter of 19 September 2001 was made on, among other, grounds that they proposed the installation of a new and suspended ceiling. When this could not be resolved by further negotiations the defendants applied for an interlocutory injunction to restrain the plaintiff from entering upon the premises to undertake that work. It was that application which led to the undertakings of 2 November 2001 already described.
Throughout that controversy, however, there was no submission of any further set of plans by the defendants to the plaintiff for the permanent fit out contemplated by cl 10(1)(b) of the First Schedule. The only further plans for any such works were the plaintiff's drawings VII - plaintiff's 2002 proposal (Exhibit 147A and 147B) which were intended to meet the defendants' latest requirements but which include a replacement suspended ceiling to deal with the problems associated with the old tin ceiling and the plumbing and electrical lines for which no other solution had been proposed. Objections to this proposed work were again made by the defendants at the trial, on the basis that it provided for a replacement of the suspended ceiling.
The result of this examination of the history of proposals for a permanent fit out of the leased premises demonstrates that, apart from the defendants' April 2000 proposal (Exhibit 23), which was not accompanied by any detailed specifications and which was withdrawn by 25 May 2000, the defendants have not submitted any plan for a permanent fit out which they have been ready, willing and able to implement. Their position at trial was that no such proposal for a permanent fit out had been prepared and that they were under no obligation to submit any such plan or to commit to any permanent fit out unless and until the plaintiff first completed the removal of the suspended ceiling and the air‑conditioning and the installation of new air‑conditioning throughout the premises. No matter what factors or beliefs about the proper construction of the lease may have prompted such a position, there is no avoiding the conclusion that it reveals the defendants as being in breach of their obligations to propose and implement a permanent fit out. They are shown to be unwilling and unready to perform the obligations cast upon them by their agreement to cl 10 of the First Schedule of the lease.
Counterclaims
In the light of the conclusions reached, the defendants' counterclaim for damages and their claim for specific performance must be dismissed. With those the defendants' set‑off against the plaintiff's claim for rent, variable rent and interest also disappears. This also means that it is unnecessary to consider whether or not the defendants' counterclaim for damages, as pleaded, (but the quantification of which was adjourned pending a possible application to reamend the counterclaim to reformulate that claim for damages) gives rise to a claim of a character which could be set‑off, as sought, against the plaintiff's liquidated claim for rent, variable rent and interest.
Associated with this question is the related issue of whether or not the second defendant, as guarantor of the first defendants' obligations under the lease, can set‑off against the plaintiff's liquidated claim, the first defendants' counterclaim for damages. As it is unnecessary to decide these issues I note only that, in support of their claim to set‑off the damages alleged to be due against the plaintiff's liquidated claim the defendants rely upon British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137, Walker v Department of Social Security (1955) 56 FCR 354 and Beechervaise v Lewis (1872) LR 7 CP 372 in support of their contentions that a set‑off may be claimed in these circumstances and that this particular counterclaim was of a character which could, in equity, be set‑off against the plaintiff's liquidated claim. There is support for the proposition that a guarantor can assert such a set‑off in equity which may be possessed by the principal debtor but only where the principal debtor is also a party to the action as the first defendants are here: Elkhoury & Anor v Farrow Mortgage Services Pty Ltd (In Liq) (1993) 114 ALR 541; Indrisie v General Credits Ltd [1985] VR 251; Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14 and Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (1996) 61 FCR 436 - discussed by Murray and Barker JJ in Young v National Australia Bank Ltd & Anor [2004] WASCA 298.
It is also necessary to recognise, as noted earlier, that under the provisions of cl 12.26(b)(ii) of the lease the second defendants' obligation is not merely that of a gurantor or an indemnifier but is also that of a co‑principal with the lessor. The final factor to be noted in this respect is that the damages sought by the counterclaim, and the subject of the set‑off pleaded by the defendants, were not damages incurred by the defendants in remedying the alleged breaches of covenant by the lessor but, rather, were damages alleged to have arisen from the loss of the opportunity of the defendants, severally, to sublease portions of the demised premises at a profit. Any issues arising from this submission formed part of the cause which was adjourned, for a separate and future hearing, should that ever have become necessary.
That leaves the defendants' counterclaim for a permanent injunction to restrain the plaintiff from proceeding to enter the premises to remove the remains of the existing suspended ceiling, and the old air‑conditioning system, to install new air‑conditioning and a new suspended ceiling as proposed in the plaintiff's plans provided to the defendants on 31 August 2001 and as explained to the defendants' solicitors by letters dated 31 August and 25 September 2001.
Earlier in these reasons I have explained the basis for my conclusion that it is only the intimation of the plaintiff that it intended, in the course of the works proposed, to install a replacement suspended ceiling, which constituted any threat of a breach of the provisions of the lease. While in the course of giving evidence Mr Sansom acknowledged that it was then still his intention to carry out this work if not restrained, I consider that it is most improbable that the plaintiff would in fact do so, or threaten to do so, now that the respective rights of the parties have been determined by this Court. For that reason, therefore, because I am not satisfied that there is any significant risk that the plaintiff will now unilaterally attempt to install a replacement suspended ceiling without the consent of the defendants, I have reached the decision that there is no need for an injunction as sought by the defendants. Of course, if circumstances should change, the defendants would have every opportunity to apply to the court in further proceedings for such injunctive or other relief as the facts may then warrant. This also leaves open the question of whether a further refusal or neglect by the defendants to carry out a permanent fit out would constitute a breach of the covenants of the lease justifying the plaintiff taking action in default under cl 10 of the lease or otherwise seeking to terminate the lease or to obtain possession.
Summary of conclusions
For these reasons, I consider that the judgment and orders which should be made in the light of these conclusions should be to the following effect:
(a)there be judgment for the plaintiff against each of the defendants jointly and severally for the sum of $188,135.14 for unpaid rent, variable outgoings together with interest accrued on those outstanding moneys in the total amount of $261,990.62 (inclusive of interest) subject to liberty to apply to the parties to re‑calculate so much of the component of interest as has accrued since the date of the trial;
(b)the plaintiff's claims for damages, for rectification of the lease and for an order under s 77 of the Fair Trading Act (1987) be dismissed;
(c)the defendants' counterclaims for specific performance, for an injunction and for damages at law or in equity be dismissed.
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