Spathis v Hanave Investment Co Pty Ltd - [2002] NSWSC 304

No judgment structure available for this case.

CITATION: Spathis v Hanave Investment Co Pty Ltd & Anor [2002] NSWSC 304

CURRENT JURISDICTION: Equity

FILE NUMBER(S): SC 2486/01

HEARING DATE(S): 11/3/02-13/3/02, 2/4/02

JUDGMENT DATE: 10 May 2002

PARTIES :

Gerasimos Spathis (plaintiff; cross-defendant)
Hanave Investment Company Pty Limited (1st defendant; 1st cross-claimant)
Hanave Pty Limited (2nd defendant; 2nd cross-claimant)

JUDGMENT OF: Campbell J

COUNSEL : T D F Hughes (plaintiff; cross-defendant)
G McVay (1st & 2nd defendants; 1st & 2nd cross-claimants)

SOLICITORS: Pryor Tzannes & Wallis (plaintiff; cross-defendant)
Gilbert Mane (1st & 2nd defendants; 1st & 2nd cross-claimants)

CATCHWORDS: LANDLORD AND TENANT - COVENANTS - quiet enjoyment - relationship to derogation from grant - CONTRACTS - rectification - action for breach of contract decided by reference to contract as rectified - EQUITY - rectification - once granted, relates back - LANDLORD AND TENANT - termination of tenancy - waiver of right to terminate by acceptance of rent - can apply when rights to terminate arises from non-payment of rent - LANDLORD AND TENANT - subject matter of lease - implied right to such facilities as are needed or required for reasonable enjoyment of property granted - DAMAGES - measure and remoteness of damages in actions for breach of contract - damages recoverable under second limb of Hadley v Baxendale only for damage arising from special circumstances known, at date of formation of contract, as likely to cause damage - DAMAGES - exemplary damages - not recoverable for breach of contract - JUDGMENTS AND ORDERS - when construed by reference to extrinsic material

LEGISLATION CITED: Trade Practices Act 1974 (Cth)
Retail Leases Act 1994
Conveyancing Act 1919
Supreme Court Act 1970

CASES CITED: Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326
Central Estates (Belgravia) Ltd v Woolgar (No.2) [1972] 1 WLR 1048
Segal Securities Ltd v Thoseby [1963] 1 QB 887
Browne v Flower [1911] 1 Ch 219
Owen v Gadd [1956] 2 QB 99
Kenny v Preen [1963] 1 QB 499
Gordon v Lidcombe Development Pty Ltd [1966] 2 NSWR 9
Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 QdR 1
Southwark London Borough Council v Tanner [1999] 3 WLR 939
Hadley v Baxendale (1854) 9 Ex 341
Hungerfords v Walker (1989) 171 CLR 125
Kollman v Watts [1963] VR 396
McCall v Abelesz [1976] 1 QB 585
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723
Addis v Gramophone Company Ltd [1909] AC 488
Gray v Motor Accident Commission (1998) 196 CLR 1
Telex (Australasia) Pty Ltd v Thomas Cook and Son (Australasia) Pty Ltd [1970] 2 NSWR 257
Wilcox v Richardson (1997) 43 NSWLR 4
Fink v Fink (1946) 74 CLR 127
McCall v Abelesz [1976] 1 QB 585
Waters v Maynard (1924) 24 SR (NSW) 618
Drane v Evangelou [1978] 1 WLR 455
Cotogno v Lamb (No 3) (1986) 5 NSWLR 559
Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in Liq) (1998) 43 NSWLR 484
XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448
Malmesbury v Malmesbury (1862) 31 Beav 407; 54 ER 1196
Craddock Brothers v Hunt [1923] 2 Ch 136
Bosaid v Andry [1963] VR 465
Issa v Berisha [1981] 1 NSWLR 261
Wongala Holdings Pty Ltd v Mulinglebar Pty Ltd (1994) 6 BPR 13,527
Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374
Owendale Pty Ltd v Anthony (1967) 117 CLR 539
London and County (A&D) Ltd v Wilfred Sportsman Ltd [1971] 1 Ch 764
Endeavour Lodge Motel Ltd v Langford [1998] 2 NZLR 121

DECISION: Damages and interest awarded.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

10 MAY 2002

2486/01 GERASIMOS SPATHIS v HANAVE INVESTMENT COMPANY PTY LIMITED & ANOR

JUDGMENT

HIS HONOUR:

Nature of the Dispute

1 Mr Spathis leased premises at 355-357 Kent Street Sydney from Hanave Investment Company Pty Limited (“Hanave”), where he conducted a fast food shop. He surrendered his lease before its term expired. However, he claims that while the lease was still on foot, the landlord engaged in conduct which amounted to both a breach of covenant for quiet enjoyment contained in the lease, and a breach of an injunction. For those breaches he seeks damages, including exemplary damages, damages for mental stress, anxiety and inconvenience, and damages for aggravation of the Parkinson’s Disease from which he was suffering.

2 Mr Spathis also alleges that the landlord is in breach of covenant for having failed, or refused to consent, to an assignment of the lease. Finally, Mr Spathis alleges that his landlord made certain representations to him which induced him to stay in the premises, and failed to advise him that the landlord had applied for, and eventually obtained, a development approval for the site, which if carried into effect, would involve demolition of Mr Spathis’ premises. Mr Spathis alleges that these misrepresentations involve contraventions of section 52 of the Trade Practices Act 1974 (Cth) and also that, when the misrepresentations are taken together with the failure to disclose, the conduct of the landlord amounts to unconscionable conduct within the meaning of the Trade Practices Act 1974 (Cth). He seeks damages, including exemplary damages, for that conduct.

3 The landlord makes a cross-claim against Mr Spathis, claiming rectification of the lease to remove a clause which gave Mr Spathis a partial “rent holiday” during some early months of the term of the lease, and another clause which is inappropriate for this lease.

The Premises

4 The premises which Mr Spathis occupied, were a lock up shop in a one-storey building at 355-357 Kent Street Sydney (between King and Market Streets). On its northern side there was a commercial building called Rex House, consisting of a basement, ground floor and five upper floors, owned by the same company which owned Mr Spathis’ shop. On the southern side of Mr Spathis’ shop was another commercial building, in different ownership.

5 Mr Spathis initially occupied the shop in May of 1995, when he purchased an existing business there.

6 On 2 May 1995 solicitors then acting for Mr Spathis wrote to solicitors acting for the lessor, in connection with an assignment of the lease. They said that they required certain amendments to be made to the lease. One of those was:

“The leased premises to include the use of one car space in the basement of the building at no additional rent.”

7 Mr Burke (who is both a solicitor, and also a director of the lessor) made a file note on 3 May 1998 which (expanding abbreviations) says, “Spoke to other side’s solicitor. Told him lease stays as is.” No amendment was made to the lease to include a car space in it.

8 On 13 May 1997 a lease was entered into between Mr Spathis and Hanave Investment Company Pty Ltd. It identified the property leased by giving two title references (being the title reference of the land on which Mr Spathis’ shop was constructed and of Rex House), and then stating, “part being shop 1 355-357 Kent Street Sydney.” The lease was for a term of five years, commencing on 13 May 1997. It includes the following provisions (any italics are mine):

“1. In this lease unless the context indicates a contrary intention: …

e. ”Building” or “land concerned” means the building of which the premises form part; …

parking areas

toilets and washrooms

h. “Basic Rent” means the yearly rent specified in Item 2 of Part II hereto;

i. “Current Rent” means the Basic Rent together with the addition thereto payable from time to time pursuant to clause 6 and clause 7 respectively calculated at an annual rate; …

3. a. The following covenants as set out in the second column of Part II of the Fourth Schedule to the Conveyance Act 1919-1954 shall be deemed to be incorporated in this Lease …

(5) The said Lessor covenants with the said Lessee for quiet enjoyment. …

5. a. The Lessee shall pay to the Lessor the Current Rent in the manner set out in … Part II hereto.

b. The Basic Rent shall be reviewed in accordance with the provisions set out in clause 6 and clause 7 hereof on each of the dates specified respectively in item 4 of Part II hereto …

i. It is agreed and declared … that if the current rent hereby reserved or any part thereof … shall be in arrears or unpaid for fourteen (14) days after same shall have become due and payable (whether or not any formal demand has been made for payment) of it … THEN and in any such case it shall be lawful for the Lessor immediately or at any time thereafter and without any notice or previous demand to re-enter (forcibly if necessary) into and upon the premises or parts thereof in the name of the whole and to repossess the same as of its former estate …

6. On each anniversary of the Commencement Date except the third the Current Rent for the year shall be determined by an increase of 5 per cent above the rent paid in the preceding year of the lease. …

8. The Lessee covenants with the Lessor as follows:

a. Not to use the premises or any part thereof or permit or suffer the same to be used: …

iv. for any purpose other than as specified in item 6 Part II …

j. Not to obstruct misuse or damage the common area or any part thereof.

m. Not to obstruct misuse or damage any improvement fixture convenience or amenity which the Lessee may enjoy in common with other tenants of the Lessor and in particular not to obstruct any lavatories drains or pipes serving the building.

13. a. The Lessor covenants not to assign this lease except in accordance with the provisions contained in this clause.

b. If the Lessee desires to assign this lease:

i. The Lessee shall, before requesting the Lessor’s consent, furnish the proposed assignee with a copy of any disclosure statement given to the Lessee in respect of the Lease, together with details of any changes that have occurred in respect of the information contained in that disclosure statement since it was given to the Lessee (being changes of which the Lessee is aware or could reasonably be expected to be aware). If the Lessee cannot provide the proposed assignee with a copy of the disclosure statement, the Lessee may request the Lessor to provide a copy of that disclosure statement, and if the Lessor is unable or unwilling to provide that copy within 7 days after the request, the Lessee need not comply with this paragraph;

ii. the Lessee shall request the Lessor’s consent to the assignment of this lease in writing and shall furnish with that request:

(1) information regarding the financial resources and financial standing and the business experience and retailing skills of the proposed assignee;

(2) particulars of the use of the Leased premises intended by the proposed assignee;

(3) confirmation that the Lessee has complied with paragraph i. of this clause.

c. The Lessor:

i. agrees to deal expeditiously with the Lessee’s request for consent to assign this Lease;

ii. is entitled to require the Lessee to furnish to the Lessor:

(1) details of the Lessee’s financial resources and retailing skills at the time of the request for consent;

(2) such further information as the Lessor may reasonably require concerning the financial standing and business experience of the proposed assignee; …

f. If the Lessee has complied with the requirements of this clause, the Lessor shall indicate, within 28 days after the Lessee has made its request under paragraph b(ii) and furnished any further details required under paragraph c(ii), whether the Lessor consents or withholds consent. If the Lessor does not provide that indication within 28 days, it shall be taken to have consented to the assignment, subject to the conditions in paragraph e. …

17. The Lessor agrees that the Lessee is entitled to rent free period of six months is not required to pay rent for the first, fourth, sixth, eighth, tenth and twelfth months of the term of this Lease.”

9 Part II of the Lease identified the Basic Rent as being $43,200 per annum, payable on the 13th day of each month, at the rate of $3,600 per calendar month. It identified the review dates as being “annually on the anniversary of the Commencement Date”. Part II also identified the usage of the premises as “cake and sandwich shop”.

10 In September 1997, an agent for Hanave lodged a development application with the Sydney City Council, for a development which, if carried out, would involve the demolition of the existing building in which Mr Spathis’ premises were located, demolition of Rex House, and construction of a new building. On 14 April 1998, Sydney City Council issued a development approval for a development to:

“Demolish Rex House and construct a 26 level residential building comprising 124 apartments (42 x studio, 32 x 1 bed, 46 x 2 bed, 4 x 3 bed) and basement parking for 56 cars.”

11 The consent was expressed to be one which would lapse on 14 April 2000.

12 On 7 October 1998 Hanave applied to Sydney City Council for approval, “to carry out partition work to 3rd 4th and 5th floors of Rex House, 355 Kent Street to provide accommodation for backpackers, at an estimated cost of $30,000.”

13 In January 1999, Mr Spathis listed his business for sale, at a price of $250,000 plus stock. He entered into an agency agreement. He had enquiries from a number of potential purchasers. On each occasion when a potential buyer sought information as to the lease situation, he telephoned Mr Burke. On each occasion he was unable to get through to Mr Burke, but left a message with an assistant. None of those messages was returned.

14 On 14 December 1999, the first defendant transferred to the second defendant, Hanave Pty Limited, all its right, title and interest in the properties. However, Mr Burke continued to be the person who had practical control over the leasing of Mr Spathis’ shop. Nothing turns on this change in the registered proprietor of the land. I will refer to both the first and the second defendant indiscriminately as “Hanave”.

Breach of Contract Through Failure to Consent to Assignment?

15 In February 2000 Lisa Miller made Mr Spathis an offer to purchase the business. Soon after Ms Miller made this offer, Mr Spathis received a telephone call from Elenita Nicdao who worked as Property Manageress for Hanave. Ms Nicdao said she had received a letter from Ms Miller asking about the shop, and enquired what the purchase price was. Mr Spathis told her that it was $180,000, and asked whether Ms Nicdao had told Mr Burke about Ms Miller’s letter. Ms Nicdao told him that Mr Burke had not seen it yet, but she promised that she would show it to Mr Burke.

16 The letter which Ms Miller had sent to Mr Burke, was one dated March 17 2000. It said:

“My husband and I are currently looking into purchasing the Quick Cakes Food Shop from Mr Makis Spathis located in Kent Street Sydney. I was advised by Mr Spathis to write to you with regard to the lease which is in place for another two years. We would like to know if you would be prepared to grant a new lease effective when the current lease expires for a period of five years or three years plus a three year option…

I look forward to hearing from you at your earliest convenience.”

17 At this time Mr Burke was not willing to have the landlord grant any longer lease than Mr Spathis already had. He did not reply to Ms Miller’s letter, and Ms Miller lost interest in purchasing the business.

18 This action on the part of Hanave did not involve any breach of the lease. Under clause 13 the Lessor has contractual obligations only concerning a proposed assignment of the lease, not concerning the grant of any new lease. Further, those contractual obligations of the Lessor arise only when the Lessee requests consent to assignment, and furnishes with that request the three items which are listed in clause 13.(b)(ii) of the lease. In relation to the proposed sale of the business to Ms Miller, that never happened. For both these reasons, therefore, Hanave committed no breach of the lease concerning Ms Miller losing interest in purchasing.

19 On 13 October 2000 the then solicitor for Mr Spathis wrote to Hanave:

“ RE: Sale of Business Contract
Our Client: Gerasimos Spathis
Property: Shop 1, 357 Kent Street Sydney

We act for the vendor in this matter.

We have been instructed to prepare the contract for Sale of Business in this matter. We note that the lease expires on the 12th May 2002 and we will require your consent for the future lessee as per the lease.

We look forward to hearing from you in relation to your position on the above.”

20 This letter is something of a mystery. There is no evidence to show that any particular purchaser was interested in buying the business at that stage.

21 In any event, the letter manifestly does not fulfil the requirements which clause 13 of the lease lays down for a request to assignment of the lease. Though Mr Burke appears to have ignored the letter, his doing so did not involve any breach of contract on Hanave’s part.

22 In these circumstances, the plaintiff’s contention that Hanave is in breach of contract for having refused consent to assignment of the lease, fails.

The Misleading and Deceptive Conduct Case

23 Mr Spathis gives evidence that in approximately July or August 2000 he was speaking with Ms Nicdao. He complained to her about how Mr Burke never returned his telephone calls, and said he had been trying to sell the business. He says that Ms Nicdao said to him, “Don’t sell it now because something very good is happening in that building but I cannot tell you what it is now”. Mr Spathis asked what it was, and Ms Nicdao said, “I said I cannot tell you this now, but the person who is going to benefit most of all is you.” Mr Spathis says that, though he was unhappy with the failure by Mr Burke to respond to his calls, he drew some comfort from this conversation with Ms Nicdao as he still wished to sell the business and would have done so to any of the potential purchasers, but needed Mr Burke’s consent.

24 This conversation is put as basing a claim for misleading and deceptive conduct, contrary to section 52 of the Trade Practices Act 1974 (Cth).

25 Hanave submitted that that conversation did not occur in trade or commerce, and hence section 52 could not be breached. I do not accept that submission. The relationship between Mr Spathis and Ms Nicdao was purely a commercial one, between a tenant of commercial premises and the property manager of his landlord. The conversation that they had related to the tenancy. In those circumstances, the conversations had, in my view, a trading or commercial character, and hence amounted to conduct in trade or commerce (Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, at 603-604.)

26 Even if Mr Spathis’ evidence is taken at face value, and if there were something misleading and deceptive about what Ms Nicdao said to him, Mr Spathis has still not made out a claim for relief. This is because he has not established that he did anything in reliance on what Ms Nicdao said to him, or that in any other way her conversation has caused him damage.

27 However, I do not accept Mr Spathis’ evidence in this respect. Ms Nicdao gives evidence that there was a conversation of the general type that Mr Spathis refers to. However, she says that it occurred about the end of 1998, when the application to convert the building to a backpackers hostel was being lodged. She also says that she told him she had good news for him, which was that Hanave had lodged an application to convert the building to a backpackers hostel. Having seen both Mr Spathis and Ms Nicdao, I prefer the evidence of Ms Nicdao. There was, in my view, nothing misleading and deceptive about what she said.

28 Though the claim under the Trade Practices Act 1974 (Cth) had been pleaded on a somewhat broader basis, in submissions it was only the conversation with Ms Nicdao which was relied on.

29 Mr Spathis also relied on the fact that Ms Nicdao did not tell Mr Spathis about the existence of the development approval which required demolition of the building. It does not seem to me that her conduct in this respect amounted to conduct which was misleading and deceptive. In any event no loss has flowed from it.

30 In these circumstances, the claim under the Trade Practices Act 1974 (Cth) fails.

The Claim for Breach of Covenant for Quiet Enjoyment

31 In May 2000, demolition began of the building to the south of Mr Spathis’ shop. That site was under the control of Meriton Apartments Pty Ltd (“Meriton”). On 15 May 2000 the then solicitor for Mr Spathis wrote to Meriton complaining about damage which Mr Spathis’ premises had sustained from that demolition. This consisted of: tiles being shaken loose from an adjoining wall; cracks in supporting pillars; a continuous crack running from the front to the back of the adjoining wall at a height of 60cm from the floor; shelving shaken loose from the wall with resultant damage to groceries and goods; damage to a microwave oven which was shaken loose from its shelving, and to a toaster grill which was shaken loose onto the floor. The solicitors went on to say:

“The shop is covered with dust and now constantly vibrates whilst your works are under way.

Our client has experienced an inability to conduct his business as conversation with clients is almost impossible and customers are reluctant to stay because of the noise and dust.

Further our client’s staff have refused to work after observing the cracks – believing the building is now unsafe – a view shared by our client.

Our client now demands that your actions cease. Our client demands that no works recommence until such time as you have obtained an engineer’s report that states unequivocally that the premises are safe and a method is devised whereby the noise, dust and vibration are reduced to acceptable levels.

If you are unable to provide the above, suitable compensation will need to be arranged. We advise that our client’s takings are estimated to be reduced by approximately $1,000 per day because of the damage caused. Further, the damage to takings is ongoing. A continued drop in clientele will result in permanent damage to our client’s cash flow and a consequential drop in value of his business.”

32 A copy of that letter was sent to Mr Burke, under a covering note saying that Meriton were sending their chief engineer to inspect the premises at 11.00am the next day, and asking whether Mr Burke could send his engineer to attend at the same time.

33 On 17 May 2000, the then solicitors for Mr Spathis wrote to Mr Burke again. Meriton had asserted that the foundations and footings of Mr Spathis’ building encroached on Meriton’s land, and this encroachment was the cause of the damage that Mr Spathis’ premises had suffered. Mr Spathis’ solicitors said that Mr Spathis would hold Hanave liable for any breach of the covenant of quiet enjoyment, “in so far as the encroachment of the foundations and/or the reliance for support of the southern wall abutting 361 Kent Street has caused or contributed to our client’s loss,...”

34 On 4 July 2000 Mr Spathis wrote to the Environmental and Health Department of Sydney City Council, complaining about work on the Meriton site. In that letter Mr Spathis said:

“Our business has suffered financially because of the lack of recognition that we should be kept abreast of work that will directly affect us, and so some type of stop work concession can be granted. As must the issue of our total loss of visibility to the public due to hoarding; coverage of our sign; large trucks parked directly in front of our shop entrance; and closure of the footpath regularly for heavy vehicle access to the construction site.

We recently experienced the loss of business (15 May 2000) – entirely for two days trading, with only the ability to minimally trade for the further three working days of the week.”

35 He went on to say, that during that week,

“…With the ongoing noise pollution during our peak operating time continuing (due to the jack hammering on our wall and the questionable use of pneumatic drills) the shop was nearly unworkable with many customers simply walking out not wishing to dine within such an uncomfortable environment of noise and vibrating floors. To date we have still not regained our full clientele back again, as obviously they have realised that it will be an ongoing problem for some time to come and have taken their trade elsewhere …

With the commencement of demolition (Thursday 29 June) we are requesting that negotiations should take place so that some sort of compromise may take place to allow us decent trading and at the same time not hinder the deadlines to be met at the construction site.

… The constant new noise pollution levels, vibrations and obstructed access has caused even further loss of business.”

36 On 17 October 2000, Hanave sent to Mr Spathis a Notice of Intention to Demolish. In so doing, Hanave were purporting to act under clause 11 of the Lease, which permitted the Lessor to give the Lessee six months notice of termination of the lease in certain circumstances. Hanave issued its notice on the basis that the circumstance which entitled it to give that notice was that the Lessor desired to demolish the building.

37 On 11 January 2001 the then solicitors for Mr Spathis wrote to Mr Burke, drawing his attention to clause 17 of the Lease (see paragraph 8 above), stating that Mr Spathis had paid rent during those months when clause 17 entitled him not to pay rent, and seeking a refund of the overpaid rent, namely $21,600.

38 This letter caused Mr Burke to read the lease, and he discovered clauses 6 and 7. I did not set out clause 7 earlier in this judgment, but it provided for a rent review on the third anniversary, by reference to the market rental, with a complex procedure to be followed to enable that market rent to be ascertained. That procedure had not been activated.

39 Mr Burke wrote to Mr Spathis’ solicitors on 17 January 2001 saying:

“We note that when our respective clients entered into the lease they never intended that there be a rent free period of six months.

It is quite clear that there has been a common mistake in the drafting of the lease. Clause 17 and 18 relate to another lease our client was entering into with a video store and the time of drafting the lease for your client’s tenancy and were inadvertently and erroneously included in your client’s lease.

Your client paid rent from the commencement date of the lease.

We advise that in the event you commence proceedings against our client we will seek a rectification by the court of the lease by the deletion of clauses 17 and 18.

We note that clause 6 of the lease requires your client to pay a 5% increase on the anniversary of the commencement date and that clause 7 requires that there be a market review on the third anniversary of the commencement date. Assuming a conservative market rent review of 5% we note your client is in arrears for the following amounts:

[There followed a calculation which showed that the rent had been underpaid by $2,160 for the year ended 12 May 1999 (the second lease year), by $4,428 for the year ended 12 May 2000 (the third lease year), and by $4539 for the period from 13 May 2000 to 12 January 2001]

Our client reserves its rights in relation to the arrears of rent and interest on the arrears.”

40 On 2 February 2001 Mr Spathis’ solicitors wrote to Mr Burke, saying that a notice dated 2 October 2000, indicating that the lessor intended to demolish the building, and invoking clause 11(d) of the lease, did not provide all the details which section 35 of the Retail Leases Act1994 required to be provided.

41 The evidence did not include any such notice dated 2 October 2000. It may be that the date included in the letter was a typographical error for 17 October 2000.

42 In response to that letter, on 7 February 2001 Mr Burke replied enclosing a copy of the Development Approval dated 14 April 1998, and also enclosing a letter from the Council dated 5 May 2000, granting a one year extension of the development consent. The letter continued:

“You will note the extension lapses 5 May 2001, prior to which our client is required to have commenced work.

Please ensure your client has vacated the premises by 2 April 2001.”

43 On 20 March 2001 Mr Spathis’ solicitors wrote to Mr Burke saying that the notice under clause 11(d) of the lease was invalid, because clause 11, on its correct construction, entitled the lessor to issue such a notice only if (as well as the lessor wishing to demolish the building), the building was destroyed or damaged by fire, lightning, or other damaging or disabling cause. That letter also required Hanave to repay to Mr Spathis the rent which, by reason of clause 17 of the lease, had been overpaid.

44 On 22 March 2001 Mr Spathis commenced proceedings in the Equity Division of this Court seeking: a declaration of the validity of his lease; a declaration that there were no circumstances which entitled the defendant to terminate the lease under clause 11(d); a declaration that the notice of 17 October 2000 did not operate as a valid termination of the lease under clause 11(d); and,

“an order that subject to any other or further order of the Court, the defendant by its servants or agents be restrained from interfering with the use and occupation of the premises by the plaintiff.”

45 On 27 March 2001, the Equity Division Duty Judge, Bryson J, made an interlocutory injunction, up to and including 5 April 2001, in the terms of the paragraph of the summons which I have just quoted. His Honour also noted:

“The summons is adjourned to 5/4/01 at 10.00am before me upon the undertaking of the defendant that it will not conduct any building work on the premises 355-357 Kent Street Sydney on or before 5/4/01 but this undertaking is not to preclude erecting of a hoarding on the outside of the building which will not interfere with access to shop 1.”

Erection of the Hoarding

46 On 30 March 2001 Sydney City Council issued a permit allowing construction of a hoarding at 355-359 Kent Street Sydney. A hoarding was constructed pursuant to that permit on 31 March and 1 April 2001. There had been a hoarding erected outside the Meriton site since the middle of the previous year. The hoarding constructed on 31 March and 1 April 2001 acted as an extension in a northerly direction of the Meriton hoarding. The new hoarding ran along both the frontage of Mr Spathis’ shop, and the frontage of Rex House.

47 The frontage of Mr Spathis’ shop to Kent Street is all glass. There is a pane of fixed glass, of a width approximately equal to that of the doorway, at the northernmost end. Moving south, one then comes to the doorway. Moving further south, there is a further pane of fixed glass, two and one half or three times the width of the doorway.

48 The hoarding which was erected, was one which occupied the full width of the footpath outside Mr Spathis’ shop from kerb to shop frontage. It was the type of hoarding which was designed to allow pedestrians to continue to walk along the footpath at street level, but to provide enclosed space (suitable for storage, or for site offices) above the footpath. Two rectangular concrete columns, located just in from the edge of the footpath, supported the north-eastern corner of the hoarding. A concrete slab erected vertically, and immediately outside Mr Spathis’ shop, supported its south-western corner. Large sheets of what look like plywood, painted green, covered parts of the fixed glass on either side of Mr Spathis’ doorway. These slabs of plywood stood some distance out from the glass frontage of Mr Spathis’ shop. The effect was that, while there was no physical obstruction of the doorway, the premises were made much less easy for a passer-by in the street to see, and were made much darker inside. It would have been easy for a passer-by to not have noticed that Mr Spathis’ shop was there.

49 The concrete slab immediately outside Mr Spathis’ shop, supporting the south-western corner of the hoarding, was removed after about a fortnight. Even so, the hoarding still darkened the shop considerably, and continued to make it difficult for a passer-by to see. It was on 17 July 2001 that Mr and Mrs Spathis vacated the premises. Thus, Mr Spathis’ use of the premises was affected by the hoarding for a period of about three and one half months.

50 In April 2001 demolition commenced in Rex House. The demolition was substantial, not just a token effort. It was enough to satisfy the requirement of the development approval that the work approved have commenced by 5 May 2001.

Access to Toilets

51 The area which Mr Spathis used as a shop did not itself contain any toilets. However, if one went out the back door of the shop there was a short corridor which ran behind the rear wall of the shop. At the northern end of this corridor there was a door, which opened into the ground floor of Rex House. On the ground floor of Rex House there was a set of toilets. As well, from the ground floor of Rex House one could get access to a stairway, which led to higher levels of Rex House, on which toilets were located.

52 The toilets on the ground floor of Rex House were located in an area which had at one time been leased to Westpac. However, in June 1993, well before Mr Spathis first came into his shop, Westpac vacated. The space that Westpac had formerly occupied remained vacant continually thereafter. At the time Mr Spathis took over occupancy of his shop, and at all times until April 2001, there was no physical impediment to Mr Spathis and his staff using those toilets. No one ever told them they were not supposed to use them. In fact they did use them.

53 On 6 April 2001 the lights in the toilets were disconnected.

54 On Monday 16 April 2001, Mr Spathis found that the toilets had been completely nailed up. This was done because Rex House was being demolished, and it was unsafe to have people, unconnected with the demolition work, moving about it.

55 On 17 April 2001, Mr Spathis’ solicitors wrote to Mr Bourke, “expressing alarm” that Mr Spathis had arrived at his premises the previous day to find the garage was inaccessible, and the toilets were inaccessible. That letter drew attention to the order which Bryson J had made on 11 April 2001.

56 Mr Spathis arranged for an officer of Sydney City Council to attend the premises on 18 April 2001 to see how there were no toilet facilities, but this did not result in any toilets being provided for Mr Spathis. In the first half of May he contacted WorkCover to complain about the situation. By letter 14 May 2001 WorkCover in effect told him that they could not help him, because they could only enforce obligations imposed on employers. Indeed, they said that if Mr Spathis were to involve WorkCover in the problem, they would have no choice but to require him to provide suitable amenities for all his employees, including toilet facilities. I am not satisfied, however, that by this stage Mr Spathis had any employees, other than his wife. His tax return for the year ended 30 June 2001 shows the only salary expense for the year as being an amount of $3,900, which is recorded against the narration, “salaries, wages – associates”.

57 On 18 May Mr Spathis wrote to Mr Burke saying:

“Please note that WorkCover have informed us that we cannot employ staff without the supply of amenities to them which should include toilet facilities.

As we are not able to do so ourselves, we would like to request that your client do so as a part of our retail lease.”

58 Mr Burke did not reply to that letter. From 16 April 2001, for the remainder of the period that they occupied the premises, Mr and Mrs Spathis used the toilets at a nearby hotel. Thus, they were a period of three months without the use of toilets provided by their landlord.

Mr Spathis’ Parking Space

59 From the time he started occupying the premises, Mr Spathis used to park in the basement of Rex House. He did this notwithstanding that the request his solicitor had made in 1995 for the lease to be amended to include the use of one car space in the basement of the building, had been refused. There was a roller shutter which could close off the access to the basement of the building, but there was no lock on that roller shutter, or any other physical impediment to Mr Spathis opening it as he pleased. On 16 April 2001 he found that access to the basement was barred by hoardings. It was his usual practice to arrive at the premises around 5.00am to start work. Not being able to park on-site was a significant problem for him, as he lived at Earlwood, and prior to 6.00am there was no public transport which could get him from home to the premises.

Disturbance by Jack Hammering

60 On 11 April 2001, Mr Spathis was disturbed by jack hammering noises and vibrations, coming from the garage directly below his shop. On 23 April 2001 there were extremely loud jack hammering noises coming from the basement. A man from the Council attended, took a noise meter reading, and said that the reading was, “above 10 decibels which is very high, it is certainly coming from a jack hammer”. There was further jack hammering noises on 24 April.

61 On 24 April 2001, Mr Spathis’ solicitors wrote to Mr Burke complaining that there was a “noise level created in the subject premises, by actions of your client’s servants or agents, far in excess of the permissible level to council requirements and the provisions of the Occupational Health and Safety Act”. Mr Burke wrote back on 26 April, noting those assertions, and asking to be provided with expert acoustic evidence to support the assertions. No such evidence was forthcoming.

The Judgment of Bryson J

62 The Court expedited the final hearing of the proceedings which Mr Spathis had begun (see paragraph 44 above). Bryson J heard the case on 5 April 2001, and reserved his decision. On 11 April 2001 his Honour delivered his judgment. The substance of it was that the construction of clause 11 of the Lease on which Mr Burke had relied in serving notice to vacate the premises on 17 October 2000 was not the correct construction. Rather, the contractual power to terminate the lease when the landlord wished to demolish the premises arose only in circumstances where the premises had themselves been destroyed by fire, lightning, storm, tempest or other damaging or disabling cause. His Honour made the declarations asked for in the summons, and made the order asked for in the summons.

Trucks Outside the Shop

63 Soon after demolition began in Rex House, the City Council changed the parking controls at the kerbside of the street immediately outside Mr Spathis’ shop. It was redesignated as a construction zone. Trucks began parking there. There is evidence of some specific incidents of trucks parking there. On Thursday 26 April 2001 a building contractor’s truck was parked outside the shop continually all day. There were other incidents of a truck being parked outside the shop all day on 27 April, and 30 April. On 1 May 2001 two small trucks were parked all day outside the shop. The effect of these trucks being parked there, was to completely block any visibility of Mr Spathis’ shop that there might have been from the opposite side of Kent Street.

64 As well, there is some more general evidence from Mr Dunlop. He says that:

“… From the commencement of the demolition of the building next door at 359 Kent Street Sydney, trucks began to park at the front of the Building. These trucks were huge in size (larger than semi trailers) and were constantly carrying materials to and from the neighbouring site. The visibility of the Business was reduced to zero as a result of the hoardings and trucks.”

Payment of Rent, and the Lock Out

65 I have earlier set out the terms of the letter dated 17 January 2001 which Mr Burke wrote concerning the amount of rent payable. (See paragraph 39 above).

66 From the time that Mr Spathis’ term under his own lease began, 14 May 1997, he had paid rent at the rate of $3,600 per month. On one occasion in July 2000, he did not pay on time. The rent was due on the 13th of each month. On 28 July 2000 Ms Nicdao wrote him a letter saying:

“Our record shows that we have not received the rent for this month.

Under the terms and conditions of your lease you are required to pay on the 13th of each month. Please be informed that if you are 14 days in arrears you have breached the lease conditions and we can terminate your lease. Under the terms of the lease you can be evicted from the premises.

$3,600

67 Mr Spathis gives evidence, which I accept, that he did not read the lease before he signed it, and was not aware of clause 6 of the Lease before he signed it. He says that it was his understanding that the lease term was five years, and the rent was $3,600 per month. He regularly spoke with Ms Nicdao in the period up to June 2000, and had never been told that he was required to pay more rent than $3,600. (I note, however, that no claim is made by Mr Spathis to rectify any provisions of the lease concerning payment of rent.)

68 After receiving this letter of July 2000 from Ms Nicdao, he continued to pay rent at the rate of $3,600. He was aware that his solicitors had written in January 2001 asserting that he had no obligation to pay rent for various of the months in the first year of his term, but he nonetheless continued to pay his normal monthly rent of $3,600. He took the view that, although there was a dispute about whether he had overpaid rent in the first year, he would continue to pay the rent which he understood was due, namely $3,600 per month, until that dispute had been resolved. In 2001, he drew rental cheques, each in the sum of $3,600, in January, February, March and April. These cheques were all accepted by Hanave, banked, and met upon presentation.

69 The reader will recall that, when Mr Burke wrote his letter of 17 January 2001, he claimed rental for the fourth year as though the appropriate rental increase to apply for that year was 5%. That claim was not justified by clause 7 of the Lease, because the procedure for ascertaining the market rent at the commencement of the third year of the lease had not even been begun, let alone completed. By 6 April 2001 Mr Burke realised that this was so, and set about remedying that deficiency. He wrote a letter to the then solicitors for Mr Spathis saying:

“We refer to our letter of 17 January 2001 to your client’s previous solicitors – a copy of which is enclosed – in which we foreshadowed our client’s rights in respect of unpaid rent.

Pursuant to clause 6 our client requires your client to immediately pay the arrears of rent for the years 98-99, 99-00 in the amount of $6,588.00 as calculated in the aforementioned letter.

Pursuant to clause 7 of the lease, the lessor’s assessment of current market as at 13 May 2000 is $50,009.40 per annum (being $4,167.45 per calendar month) plus GST from 1 July 2000.

Please advise if your client accepts the lessor’s assessment.”

70 Mr Spathis never advised that he accepted the assessment. It is common ground that, by the time Mr Spathis’ lease came to an end, the rent review procedures in clause 7 of the Lease had not been gone through, so as to ascertain what the market rent was for the fourth year. Until those procedures had been gone through, the rent continued to be payable (under clause 7.(l) of the lease) at the rate appropriate to the third year of the lease.

71 On 10 April 2001 Mr Spathis’ solicitors wrote to Mr Burke, replying to his letters of 6 April 2001 and 17 January 2001. They said that Mr Spathis pressed his claim to be repaid the rent he had overpaid during the first year of the lease term. So far as Mr Burke’s claim for back rent was concerned, they said that, “in respect of the third anniversary and beyond, … no notice as prescribed in clause 7(b) of the lease has been received by the lessee.”

72 On 11 April, Mr Spathis’ solicitors wrote to Mr Burke, referring to the judgment of the Supreme Court that day, and saying,

“In light of that decision, our client intends to re-paint the premises and purchase new outdoor furniture for the coming year of trading.

We now seek from your client the removal of the hoardings immediately in front and to both sides of the shop.

We further seek your client’s permission to attach a hanging sign (to be supplied by Coca Cola Bottlers) in a position immediately outside the shop, so that passing traffic may see it and know that the shop is still in operation.”

73 On 17 April 2001 Mr Burke replied to the letters of 10 and 11 April 2001 saying:

“1 …We note your client’s outstanding rent of $6,588 and our client’s rights pursuant to cl. 5.i.

2 We note that there is nothing in His Honour’s decision of 11 April 2001 which requires the lessor to remove hoardings …”

74 It is to be noted that the arrears which Mr Burke was claiming in this letter, were $6,588 – this is, the arrears of rental for the second and third years of the tenancy, as calculated in Mr Burke’s letter of 17 January 2001, but not any arrears in relation to the then current (fourth) year of the tenancy. As Mr Spathis was paying rent at the rate of $3,600 per month, and as the rent properly payable under the lease was (at least pending any completion of a rent review) the same rent as had been paid during the third year of the tenancy, and the rent payable during the third year was, under clause 6, calculated by adding 5%, then another 5%, to the first year’s rental of $3,600 per month, there must inevitably have been arrears relating to the fourth year of the tenancy as well, which Mr Burke was not claiming.

75 On 23 April 2001 Mr Burke wrote to Mr Spathis’ solicitors saying:

“To date we have not received, nor has our client received, your client’s cheque $6,588 being the outstanding rent. Please note our client is entitled without further notice to you to exercise its powers under clause 5.i.

We also note your client has failed to provide the Certificates of Currency and insurance policies referred to in our letter of 17 April 2001. We note our client has immediate rights under clause 5.i of the lease.

Unless your client makes the payment of rent that is outstanding and complies with our client’s demands for the Certificates of Currency and insurances policies our client will forthwith exercise its rights under clause 5.i of the lease.”

76 On 24 April 2001 Mr Spathis’ solicitors wrote back saying:

“With respect to rent, we are instructed that the “rent” pursuant to the accounting/payment methodology being utilised is in fact paid up until 13 May 2001.”

77 The basis for this latter assertion was that on 19 April 2001 Mr Spathis had written to Mr Burke enclosing a cheque for $3,600, and stating it was the “total sum due”. That cheque had been banked on behalf of Hanave on 24 April 2001.

78 On 26 April 2001 Mr Burke wrote to Mr Spathis’ solicitors saying:

“We wrote to you on 6 April 2001 requiring your client to pay the rent in arrears due under the lease. We wrote again on 17 and 23 April 2001 noting that rent was still outstanding and that our client had rights it intended to press under clause 5.i.

Despite this, today we received your letter, dated 24 April 2001, stating that “in fact rent is paid to 13 May 2001”. Further, our client received a letter dated 19 April 2001 from your client enclosing a cheque for $3,600 stating that it was “the total sum due”. Our client accepts the cheque on account of arrears of rent …

Our client will henceforth enforce the provisions of clause 12.d for interest on arrears of rent.”

79 On 30 April 2001 Mr Spathis’ solicitors wrote to Mr Burke saying:

“With respect to the payment of $3,600, we are instructed that this amount was paid with a specific direction.

We are instructed that the cheque was accompanied by a letter, wherein it was stated:

“Please find enclosed a cheque for the sum of $3,600 being the total sum due for the rental of the premises at 357 Kent Street, Sydney for the period of 13th April, 2001 to 13th May, 2001 inclusive.”

You would be aware, that it is not a matter for your client to determine on what basis it will accept the cheque. You confirmed it has accepted the cheque.

Our client has given a clear unequivocal direction as was what the payment made (and accepted) was for.” [sic]

80 While the letter which accompanied the cheque which Mr Spathis sent in April 2001 was not tendered in evidence, Mr Burke did not dispute the assertion, made in Mr Spathis’ solicitor’s letter of 30 April 2001, that the letter which accompanied the cheque was in the terms which are set out in that letter of 30 April 2001. In these circumstances, I find that the letter which accompanied the cheque, was in the terms so quoted.

81 On 1 May 2001, Mr Burke wrote to Mr Spathis’ solicitors saying:

“We note the contents of your letter of 30 April 2001 regarding acceptance of your client’s rent cheque.

With respect, payment by your client of a lesser amount than that reserved under the lease is not compliance with the lease. We refer you to clause 15.a.ii of the lease.

Your client remains in breach of his covenant to pay rent under the lease.

Unless your client remedies the above breach by 4.00 pm 3 May 2001 our client will forthwith exercise its rights under clause 5.i of the lease.”

82 Clause 15.a.ii of the lease said:

“In respect of the Lessee’s obligation to pay rent, the acceptance by the Lessor of arrears or of any late payment of rent shall not constitute a waiver of the essentiality of the Lessee’s obligation to pay rent in respect of the Lessee’s continuing obligation to pay rent during the lease term.”

83 There had, through this correspondence which I have been quoting, been numerous other topics. Mr Spathis’ solicitors were maintaining that the existence of the hoarding, and denial of access to toilets and car parking, were not only a breach of the lease, but also of Bryson J’s order. Mr Burke had also gone through the lease meticulously, seeking to find every respect he could in which Mr Spathis might be in breach, so as to found the service of a notice under section 129 of the Conveyancing Act 1919 for termination of the lease. Mr Burke made complaint, in his letters, about various alleged breaches of Mr Spathis.

84 On 1 May 2000 Mr Spathis’ solicitors wrote to Mr Burke saying:

“With respect to

· Insurance, our client has complied with his obligations pursuant to the lease

· Rent, our client has complied with his obligations pursuant to the lease

Our client instructs us, that your contentions to the contrary, are not reflective of fact.

This is in circumstances where your client is already in contempt of current Supreme Court orders.

Our client considers your statements to be nothing short of a transparent and spurious attempt to seek a basis to further harass our client.

Any further steps taken in this regard will also be vigorously defended.”

85 On 3 May 2001, shortly after 6.00pm, Mr Burke sent a facsimile to Mr Spathis’ solicitors. It referred to earlier correspondence from Mr Burke of 6, 17, 23 and 26 April 2001, and 1 May 2001. It continued:

“We note that your client is in breach of the lease:

Our client pursuant to clause 5.i has re-entered the premises and re-possessed them and terminated the lease.”

86 On the morning of Friday 4 May 2001, Mr Spathis arrived at the premises to find them padlocked. A large sign was attached to the front door saying: “These premises have been repossessed due to breach of lease terms.”

87 On Monday 7 May 2001, Mr Spathis approached the Equity Duty Judge ex parte. The proceedings I am now hearing were instituted, and an ex parte injunction made, the terms of which were:

“order that the defendant pending the determination of the proceedings be restrained from interfering with the plaintiff’s use and enjoyment of the premises known as Shop 1 355-357 Kent Street Sydney.”

88 At 3.05 pm on 7 May 2001, a copy of the summons and affidavit of Mr Spathis, and of the order of the Court, were served personally at the registered office of Hanave Investment Company Pty Ltd. That office was a firm of chartered accountants in the Sydney CBD. Someone at the registered office sent those documents to Mr Burke, either through the DX or by mail. He did not receive them until around 4.00pm on the afternoon of 8 May 2001.

89 At about 4.00pm on 7 May, Mr Spathis rang Mr Burke’s office. He spoke to Ms Nicdao. Ms Nicdao passed on to Mr Burke a message from Mr Spathis, that Mr Burke had to take off the padlock, because Mr Spathis had a court order. Mr Burke says he was not prepared to act until he had seen the order.

90 Once Mr Burke received the order on 8 May, he contacted Mr Robinson, who was Project Manager for the building project. Mr Robinson in turn rang an on-site project manager called Frank, and told him to take the lock off.

91 There were building workers present on the Kent Street site normally until 6.30 or 6.45 at night. As well, Mr Robinson had an after hours telephone number for people with responsibility for the site. Notwithstanding these matters, the padlock was not removed until about 10.30am on Wednesday 9 May 2001.

92 On 10 May 2001, Mr Spathis spent the day trying to clean up lost stock that had gone off. He was virtually unable to trade, as he had no fresh stock available.

Cutting Off the Water Supply

93 On 25 May 2001, the water supply to Mr Spathis’ shop was cut off for a period of about 50 minutes, from about 3.50pm to 4.40pm. This delayed Mr and Mrs Spathis in completing the end of day cleaning and washing up. The cause of the water being cut off was a builder’s accident, arising from work on the Rex House site.

Denial of Access to an Electricity Board

94 Mr Spathis makes complaint about being denied access to a main electricity board which was located in the Rex House premises. Before demolition of Rex House started, Mr Spathis’ electricity was supplied via a distribution board which was in the basement of Rex House. That board was demolished as part of the demolition of Rex House. However, a temporary board was provided so that Mr Spathis could have power. There was no time when he did not have access to electrical power. Further, that distribution board allowed him to turn the power to his shop off, if ever he needed to do so.

Ingress of Rainwater

95 On 29 May 2001, Mr Spathis suffered two problems concerning rainwater. The first is that rainwater collected on the roof of the hoarding, flowed in a direction from the kerb back towards Mr Spathis’ shop, and fell in the small gap between the back of the hoarding, and Mr Spathis’ shop. This created a particular difficulty for customers who wanted to get into the shop, as they had to pass through an intermittent curtain of water. The second problem was that water slowly flooded into the kitchen area from the joint between the back wall and the floor. This had never happened before, and presumably arose because demolition at the rear of Mr Spathis’ shop had exposed to the elements, areas which had not previously been exposed.

Evidence from Independent Witnesses about Trading Conditions at the Shop

96 On 18 May 2001, an agent for the sale of business, Fivos Yiasemides inspected Mr Spathis’ shop. He expressed an opinion:

“Based on the information regarding the performance of the business and the terms and conditions of the remaining lease given to me, and also taking into consideration the construction hoarding which is affecting the visibility of the abovementioned business it is my opinion that the business will not attract any goodwill and it will not even achieve the price of the equipment written value as such equipment are not suitable to anyone else’s premises.”

97 At the end of May or early June Mr Fabian Marsden inspected the shop. He has practiced as a retail pharmacist in the city for more than 20 years. He gives evidence:

“I formed the opinion that the business was virtually unsustainable because:-

I consider it would have been extremely difficult for any retailer to have survived in the circumstances and conditions under which the Kent Street Deli was trading.”

98 I accept Mr Marsden’s opinion.

99 Mr Robert Dunlop is a surveyor. He had an office in Rex House since 1984. It was his practice to purchase items from the business which Mr Spathis came to run, virtually every day, and sometimes more than once a day. When Mr Spathis started operating the business in 1995, Mr Dunlop said that there would often be more than six people in the shop being served, and at lunchtime there were often more than ten customers being served. This trading pattern continued until demolition and construction began at the Meriton site. Mr Dunlop says that when demolition took place at the Meriton site, Mr Spathis’ shop was extremely noisy, and the interior of the shop was very dusty. He noticed fewer people entering the shop, and that there were fewer customers than previously.

100 Mr Dunlop also described the occasion when hoardings were erected at the front and rear of the building. He says that the hoardings at the front prevented visibility of the shop front of the business. He also says that from the time the hoardings were erected, he spoke with Mr Spathis almost every day. He continues:

“On the day the hoardings were erected I attended the Business and saw the following:-

(a) the shop was dimly lit with no natural light

(b) there was no outlook from the interior of the shop – all we could see were hoardings, together with large timber and concrete supports

(c) walking along the footpath outside the shop, the shop was totally invisible except for the doorway. Anyone walking past who did not know of its existence would not have entered the shop

(d) the few tables which had previously been outside the business and available for patrons to sit at for coffee and lunch were rendered useless because there was scaffolding being erected above the hoarding and there was no longer any amenity outside.

As a result the shop then became gradually more and more deserted. When I attended in the mornings and at lunch time the business was invariably empty.”

101 Mr Dunlop remained a tenant at Rex House until 18 May 2001. He says that by that date he rarely saw any customers attend Mr Spathis’ business.

Mr Spathis Leaves the Shop

102 On 9 July 2001, yet another set of proceedings were begun between Hanave and Mr Spathis. This time Hanave was the plaintiff, seeking a declaration that it was entitled to re-enter the shop, and a vacating of the injunction which had been made on 7 May 2001. By that time, a notice under section 129 of the Conveyancing Act 1919 had been served on Mr Spathis, on 19 June 2001, alleging breaches of various covenants in the lease concerning insurance.

103 On 16 July 2001 Justice Palmer made orders by consent, that those proceedings be discontinued, and noting an agreement that:

“Without prejudice to all and any rights of the defendant herein in respect of proceedings 2486 of 2001 the first and second plaintiffs herein pay to the defendant the sum of one hundred and fifty five thousand dollar ($155,000) in consideration of which the defendant herein shall vacate the premises the subject of these proceedings on 17th July 2001 or upon provision by the plaintiffs to the defendant of the sum of one hundred and fifty five thousand dollars ($155,000) which ever is the later and in addition the first and second plaintiffs herein shall abandon that part of their claim relating to unpaid rent or any monies owing by the defendant to the first and second plaintiff pursuant to the lease the subject of proceedings 2486 of 2001.

Upon receipt of the payment … the defendant shall provide the plaintiffs with a surrender of lease duly signed.”

104 On 17 July 2001, in accordance with that agreement, Mr Spathis vacated the shop.

Rectification of the Lease

105 Hanave sought rectification of the lease to remove clauses 17 and 18 from it. Mr Burke gave evidence that he had prepared the lease. Hanave was, at the time the lease of Mr Spathis’ shop was being negotiated, also preparing to lease some premises at Leichhardt to a video shop. The partial rent holiday which clause 17 provided, had been agreed with the lessee of the video shop. Mr Burke used the video shop lease as a precedent for Mr Spathis’ lease, and in adapting the lease he inadvertently included clauses 17 and 18 of the video shop lease. (I also mention that clause 13c.iii.(2) includes traces, inappropriate to Mr Spathis’ lease, of the lease of the video shop.) The lease of the video shop was tendered, and fully bears out Mr Burke’s evidence in this respect. At no time during the negotiations between Hanave and Mr Spathis, was there any suggestion that there would be a rent holiday of any kind during the first twelve months of the lease. Given that by the time this lease commenced, Mr Spathis had been in occupancy of the premises for about a year and a half, and paying rental every month, it would be commercially most unusual to have a partial rent holiday in the lease. Mr Spathis himself says that he did not read the lease before he signed it, and was not aware of clauses 17 or 18 of the lease before he signed it. Mr Spathis paid rent of $3,600 per month every month during the first year of the lease.

106 I am satisfied that there was a continuing common intention of Mr Spathis and Hanave that the lease not include clauses 17 and 18, and that by mistake clauses 17 and 18 were included in the lease. There will, therefore, be an order granting rectification of the lease by excluding clauses 17 and 18 from it. By the conclusion of the hearing, this relief was not opposed by Mr Spathis’ counsel.

Effect of Rectification of Whether Mr Spathis was in Breach of Covenant to Pay Rent

107 When Mr Spathis was excluded from the premises on 3 May 2001, it was on the basis that he was in arrears in paying rent. If clause 17 was part of the contract, that would have a bearing on the calculation to be carried out in deciding whether or not, as at 3 May 2001, Mr Spathis was in breach of his obligation to pay rent. It is only today that the order is made for rectification of the lease, to exclude clause 17.

108 The question of whether there was a breach of the contractual obligation to pay rent, which entitled the lessor to re-enter, needs to be decided by reference to the lease as rectified. (Malmesbury v Malmesbury (1862) 31 Beav 407 at 418; 54 ER 1196 at 1120; Craddock Brothers v Hunt [1923] 2 Ch 136 at 151; Bosaid v Andry [1963] VR 465 at 468; Issa v Berisha [1981] 1 NSWLR 261 at 265; Wongala Holdings Pty Ltd v Mulinglebar Pty Ltd (1994) 6 BPR 13,527 at 13,533-13,534; Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 at 387-388). In Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 at 346 Samuels JA said:

“In my view there is much substance in Mr Sullivan’s argument … that the question of which of the parties repudiated its obligations under the contract cannot be determined until it is established whether or not the document they executed accurately contains the agreement they made; so that until the correct form of the agreement is established, the question of repudiation cannot be decided.”

109 Meagher Gummow & Lehane in Equity Doctrines & Remedies, 3rd edition, paragraph 2616 say:

“The effect of rectification when granted, is to relate back to the time of execution of the document and after rectification the document is to be read as if it had originally been executed in its rectified form.”

110 Similarly, at paragraph 2619, the same learned authors say:

so that the innocent party may sue for damages for breaches which have occurred before repudiation of the contract as so rectified.”

, Equitable Remedies,

111 This result might be seen as an application of the maxim that equity regards as done that which ought to be done. Alternatively, it may be that precisely the same considerations of equity as lead to the contract being rectified also lead to the parties to the contract being disentitled to assert that their rights are anything other than those which would exist once the contract was rectified.

Was Mr Spathis in Arrears of Rent on 3 May 2001?

112 It is quite clear that Mr Spathis was in arrears of rent on 3 May 2001. He had been paying rent continually at the rate of $3,600 per month, while the contract he had entered required him to pay 5% more than that rate during the second year of the lease, and a further 5% increase during the third, and (in circumstances where the rent review clause had not run its course) also during the fourth year of the lease. Any question of whether Hanave was not entitled to re-enter, on 3 May 2001, will therefore depend on whether there is an estoppel which prevents Hanave from relying on its strict legal rights in this respect, or on whether there has been a waiver of Hanave’s rights to take enforcement action based on non-compliance with the covenant to pay rent.

Estoppel Re Rent Arrears?

113 Up to January 2001 it appears to have been the mutual assumption of the parties that the correct rent payable under the lease was $3,600 per month. While Mr Spathis had been under the misapprehension, from the outset, that the rent payable under the lease was $3,600 per month, Hanave had contributed to his continuing in that misapprehension, by regularly accepting rental of $3,600 per month during the second and third lease years, and by having made a demand in July 2000, when Mr Spathis was in arrears, for payment of $3,600 (see paragraph 66 above). However, by his letter of January 2001, Mr Burke claimed the arrears relating to the second and third lease years. Having contributed to Mr Spathis’ belief that the correct rental to have paid was $3,600, Hanave would be entitled to resile from that position only upon giving reasonable notice, and only if, once such notice was given, it would not be unconscionable in all the circumstances to expect Mr Spathis to pay the arrears. In my view, giving more than three months notice before seeking to enforce the contract according to its terms, is giving reasonable notice. There is no evidence put forward by Mr Spathis to suggest that he has done anything in reliance on the rent being $3,600 rather than the amount which the contract provided for during the second and third years of the lease term. There is no evidence that he would have had any financial difficulty in paying the arrears relating to the second and third lease years, once they were claimed. In these circumstances, he has not established that Hanave was estopped, as at 3 May 2001, from reverting to its strict legal rights so far as the payment of the arrears of rent arising from the second and third lease years are concerned.

114 Arrears of rental arising during the fourth lease year need to be separately considered. By his letter of 17 January 2001, Mr Burke had made a claim for lease arrears which had accrued during the fourth lease year (ie, the period beginning 13 May 2000). However, that claim was made on the false basis of “assuming a conservative market rent review of 5%” for the fourth lease year. In the months of February, March and April, Hanave actually accepted rent at the rate of $3,600. By its letter of 6 April 2001, demand was made for the arrears relating to the second and third lease years, but no demand was made for any arrears relating to the fourth lease year. Again on 17 April 2001, and 23 April 2001, the only arrears demanded were those relating to the second and third lease years. Mr Burke’s letter of 26 April 2001 incorporates those demands by reference. It was only by his letter of 1 May 2001 that Mr Burke clearly made the point that the payment which Mr Spathis had made in April, was “of a lesser amount than that reserved under the lease.”

115 However, by the same token, there had been no express representation on Hanave’s part that $3,600 was the correct amount of rent to pay under the lease during the fourth lease year. All that had happened was that no demand had been made for those arrears, which were accruing during the fourth lease year, and Hanave had not pointed out that such arrears were continuing to accrue. Mr Spathis’ solicitors were continuing vigorously to assert that Mr Spathis was entitled to a refund of overpaid rent, arising from clause 17 of the lease. The parties were in frequent correspondence, with Mr Spathis dealing through a solicitor, and Mr Burke being a solicitor. In all these circumstances I do not think it could be said that Hanave had made any representation to Mr Spathis that (contrary to the clear wording of the lease) the only rent which need be paid was $3,600 per month. In these circumstances, Hanave was not estopped, as at 3 May 2001, from reverting to its strict legal rights so far as the arrears of rent which were accruing during the fourth lease year was concerned.

How the April Rent Payment should be Treated

116 I accept that, in a situation where Mr Spathis owed both arrears of rent, and rent for the current month, he was entitled to appropriate the payment he made on 24 April 2001 to the current month’s rental. He was entitled to appropriate that payment to the current month’s rental, even though, being in the sum of $3,600, it was not a complete payment of that month’s rental. When he had offered the payment on the basis that it was a payment appropriated to the current month’s rental, it was not open to Hanave to accept it on any other basis. When Mr Spathis said, in the letter which accompanied the cheque, that the cheque was “the total sum due for rental”, his statement was wrong, and acceptance of the cheque did not bind Hanave to treating that particular statement as correct. Thus the payment which was made on 24 April 2001, counted as a part payment of the rent which fell due on 14 April 2001. When the payment is treated in that way, Mr Spathis was still in arrears on 3 May 2001.

Waiver Re Rent Arrears?

117 Mr Spathis puts an alternative argument that there has been a waiver of the right to terminate by reason of his breach. This was raised by Mr Spathis’ counsel in the course of final address. That course was not objected to by counsel for Hanave. Counsel for Hanave was correct in taking this course, because the argument was one which depended solely on the application of legal standards to facts which, by then, had been thoroughly explored.

118 It is well enough established that, if a landlord is entitled to terminate a lease for breach of covenant, and he or she knows of that breach but subsequently accepts rent, that is a waiver of the landlord’s rights to terminate the lease on the basis of that breach. The principles are succinctly summarised by Windeyer J in Owendale Pty Ltd v Anthony (1967) 117 CLR 539, at 556.

A waiver in this sense is more properly understood as an election. The essence of the doctrine, in cases between landlord and tenant, is that where a lease contains a provision for forfeiture and a right of re-entry upon breach of a covenant by the lessee, then, upon a breach occurring, the lessor can either take advantage of his right of forfeiture and re-entry or waive this and treat the lease as still subsisting. If, with knowledge of a breach, giving him a right of re-entry, he does an act inconsistent with his avoiding the lease, he is deemed to have elected not to avoid it. Anything which a landlord does or says which is an unequivocal recognition of the continued existence of the lease when he is aware of facts which would have given him a right of re-entry will amount to a waiver of that right. One act which, by the common law, is always regarded as unequivocal, and therefore necessarily a waiver of a right of re-entry on account of a breach of covenant by the lessee, is the lessor’s acceptance, with knowledge of the fact of the breach, of rent accrued due after the breach. Apart from any special term in the lease … or any statutory modification of the common law, acceptance of rent due in respect of a current period is an obvious recognition of a tenancy then subsisting.”

Central Estates (Belgravia) Ltd v Woolgar (No.2)

“without prejudice”

Segal Securities Ltd v Thoseby

“As both demand and acceptance respectively are in law merely different forms of a notification by a landlord of election not to avoid or forfeit the lease, to my mind no distinction can nowadays be drawn between them in relation to a question whether the label “Without Prejudice” affects their quality as an election.

119 There is no reason of principle why a right of forfeiture arising from a failure to pay rent, cannot be waived in exactly the same way as a right of forfeiture arising from a breach of any other covenant in the lease. In London and County (A&D) Ltd v Wilfred Sportsman Ltd [1971] 1 Ch 764, at 786 Russell LJ (with whom Lord Donovan and Megaw LJ agreed) said:

Shepherd v Berger

120 That a right to forfeit for non payment of rent can be waived in precisely the same way as a right to forfeit for breach of any other covenant was accepted in Endeavour Lodge Motel Ltd v Langford [1998] 2 NZLR 121.

121 By the time Mr Burke wrote his letter of 17 January 2001, Hanave was aware that Mr Spathis had underpaid the rent during the second and third lease year. By accepting payments of rent in February, March and April 2001, with knowledge of the right to forfeit the lease by reason of underpayments of rent during the second and third lease years, Hanave has waived its right to rely on that breach as a ground for forfeiture.

122 In my view, clause 15.a.ii of the lease does not affect that conclusion. What clause 15.a.ii is concerned with is the possibility that, if the lessor were to on one occasion accept arrears of rent or late payment of rent, it would not thenceforth be able to insist on strict and punctual payment of the rent. Clause 15.a.ii says that the lessor will not be faced with that situation. It says nothing to alter the consequences which arise at common law if the lessor accepts payment of rent at a time when it knows that there has been some past breach of a provision of the lease.

123 Further, by accepting rent on 24 April, which was effectively appropriated by Mr Spathis to the rent which was due on 13 April 2001, Hanave has waived any right to terminate the lease by reason of any breach occurring prior to 24 April 2001. It is true that, on 13 April 2001, there was a breach of the lease, in that the contractual amount of the rental was not then paid. However, on 24 April 2001 Hanave accepted an amount of rental, which was effectively appropriated to the rental due on 13 April. By so doing, on 24 April, Hanave waived any right to terminate the lease on the basis of any breach which had earlier occurred. There was no fresh breach of the lease in between 24 April 2001, and 3 May 2001. It follows that, when Hanave re-entered the premises on 3 May 2001, it was not entitled to do so.

Breach of Covenant of Quiet Enjoyment – the Law

124 The reader will recall that the lease incorporated the short form covenant for quiet enjoyment contained in Schedule 4 of the Conveyancing Act 1919. The full form of that covenant, derived from column 2 of Schedule 4 of the Conveyancing Act 1919, is:

“And the Lessor does hereby covenant with the Lessee that he or she paying the rent hereby reserved, and performing the covenants herein before on his or her part contained, shall and may peaceably possess and enjoy the demised premises for the term hereby granted, without any interruption or disturbance from the Lessor or from any other person or persons lawfully claiming by, from or under him or her.”

125 These are ordinary English words, and it is a question of fact whether they have been broken in any case. The only constraint which arises as a matter of law, in deciding whether there has been a breach of the covenant, is that because the covenant is a standard form covenant contained in legislation, a construction ought be adopted of it which is conformable with other cases construing the same words.

126 In Browne v Flower [1911] 1 Ch 219, at 228 Parker J said:

“It appears to me that to constitute a breach of such a covenant there must be some physical interference with the enjoyment of the demised premises, and that a mere interference with the comfort of persons using the demised premises by the creation of a personal annoyance such as might arise from noise, invasion of privacy, or otherwise is not enough.”

127 That was a case where a landlord had constructed a staircase on the outside of leased premises, in such a position that the tenants had a choice between loosing the privacy of their bedrooms, and installing curtains of sufficient thickness to prevent users of the staircase from seeing into the bedrooms, with consequent darkening of the bedrooms. Constructing the staircase was held not to constitute a breach of the covenant of quiet enjoyment.

128 In Owen v Gadd [1956] 2 QB 99 the English Court of Appeal was concerned with a lease of a shop for ten years, and a situation where the landlord erected scaffolding on the footpath outside for a period of 11 days, at a time when trade was particularly brisk because it was feared that the Government would increase purchase tax on goods. The lease contained a covenant for quiet enjoyment in terms no different in substance to the term in Schedule 4 of the Conveyancing Act 1919. Lord Evershed MR, at 105-6, quoted the following proposition from Foa on the Law of Landlord and Tennant:

152 In Southwark London Borough Council v Tanner [1999] 3 WLR 939 the House of Lords has confirmed that breach of a covenant of quiet enjoyment is not limited to direct and physical injury to land (per Lord Slynn of Hadley at 942 B, per Lord Hoffman at 945-6, per Lord Millett at 957. Lord Steyn and Lord Clyde each agreed with both Lord Hoffman and Lord Millett.) Further, that case has reiterated the close connection there is between the covenant for quiet enjoyment, and a lessor’s obligation not to derogate from his grant. Lord Millet at 957 explained how the mistaken belief that there had to be a direct and physical interference with the tenant’s use and enjoyment of the land, before the covenant for quiet enjoyment was breached, had on occasions led courts to incorrectly dismiss (at 957),

“… complaints of the making of noise or the emanation of fumes, of interference with privacy or amenity, and other complaints of a kind commonly forming the subject matter of actions for nuisance. Little harm seems to have been done, since in cases where a remedy was appropriate the tenant has been able to have recourse to the landlord’s implied obligation not to derogate from his grant. …

Once these artificial restrictions on the operation of the covenant for quiet enjoyment are removed, there seems to be little if any difference between the scope of the covenant and that of the obligation which lies upon any grantor not to derogate from his grant. The principle is the same in each case: a man may not give with one hand and take away with the other.”

Were There Breaches of the Covenant for Quiet Enjoyment?

153 In my view, the construction of the hoarding outside the shop, and its retention, amounted to a breach of the covenant of quiet enjoyment. The lack of visibility of the shop to passers by, the dim light inside the shop, and the view from the shop consisting of hoardings together with timber and concrete supports, made it unfit from a reasonable point of view for using as a cake and sandwich shop. This is confirmed by the lack of custom in the shop, and the fact that the shop traded at a loss.

154 Even though clause 1.g of the lease included, in the definition of “Common Areas”, a reference to parking areas, and toilets and washrooms, the lease did not confer any right on Mr Spathis to the use of Common Areas. However, it is not only the express terms of the lease which decide Mr Spathis’ right to access to parking, and to toilets and washrooms. As well, a tenant has an implied right to such facilities as were needed or required for the reasonable enjoyment of the property granted; such rights are implied even if they are not “essential” for the enjoyment of the property (Wilcox v Richardson (1997) 43 NSWLR 4). Applying that test to this lease, it seems to me that access to toilets is needed or required for the reasonable enjoyment of the property granted, but access to car parking is not. The toilets which Mr Spathis and his staff had used prior to 16 April 2001, were within the boundaries of the land titles identified on Mr Spathis’ lease as being the land in relation to which he was granted a part. In my view, denying access to the toilets was a breach of the lease, which lasted for the period 16 April 2001 to 17 July 2001.

155 While there were some occasions when Mr Spathis was disturbed by jack hammering, I am not satisfied that it happened sufficiently often, or was sufficiently severe, to amount to a breach of the covenant of quiet enjoyment.

156 The presence of trucks outside the shop arose from the building work on Rex House. While the occasion for the trucks parking there was the City Council changing the parking controls at the kerbside, the effective cause was Hanave proceeding with the building work at Rex House. The presence of these trucks also counts as a breach of the covenant of quiet enjoyment.

157 Mr Spathis was wrongly locked out of his shop for five whole days, from Friday 4 May 2001 to Tuesday 8 May 2001 inclusive, and for the part of the day until 10.30am on Wednesday 9 May 2001. His occupation of the shop from 10.30am on 9 May 2001, and on 10 May 2001, was of little practical use to him, in consequence of his having been wrongly locked out.

158 The occasion when the water supply was cut off, being a single incident, of comparatively short duration, and in any event an accident, does not amount to a breach of the covenant of quiet enjoyment.

159 The circumstances in which Mr Spathis came not to be able to use the electricity distribution board in Rex House do not amount to a breach of the covenant of quiet enjoyment, when he was provided with completely adequate alternative facilities.

160 The problem concerning ingress of rainwater on 29 May 2001 is too isolated an incident to amount, in my view, to a breach of the covenant of quiet enjoyment.

Compensatory Damages for the Breaches

161 For the year ended 30 June 1999 Mr Spathis’ net profit was $15,390. For the year ended 30 June 2000 it was $15,663. For the year ending 30 June 2001 he made a loss of $36,253.

162 While the profits for the year ended 30 June 1999 and the year ended 30 June 2000 were much the same, there was a substantial drop in gross sales between those two years – gross sales were of the order of $247,000 in the year ended 30 June 1999, and of the order of $198,000 in the year ended 30 June 2000. Gross sales dropped to of the order of $59,000 in the year ended 30 June 2001. Mr Spathis was able to mitigate, to some extent, the effect on profitability of this decline in gross sales by reducing the wages cost. Gross wages in the year ended 30 June 1999 were $21,333, fell to $7,900 in the year ended 30 June 2000, and fell further to $3,900 in the year ended 30 June 2001.

163 This decline in profitability of the business is attributable partly to the activities on the Meriton site, which began in mid May 2000. However, from the time of the construction of the hoarding outside his own shop, Mr Spathis’ business suffered a serious decline. He had one week of trading effectively denied to him by the lock out. The overall effect on his trading arising from the breaches of covenant on the part of Hanave were, it seems to me, ones which would be likely to cause a significantly greater effect on the profitability of his business than from the effect arising from the Meriton building site next door. However, the effect of Hanave’s breaches was incurred over approximately three and one half months, while the detrimental effect of the Meriton site continued from mid May 2000. The detrimental effect arising from the Meriton site did not continue, however, at the same high degree of intrusiveness as Mr Spathis initially suffered, in May 2000, when demolition work began on the Meriton site. But even so, the detrimental effect of the Meriton site works must have been substantial on an ongoing basis – if that were not so, Mr Spathis’ gross sales, for the year ended 30 June 2001, would have been much higher than $59,000.

164 The financial information which Mr Spathis has provided to the court, relates to whole financial years. It is not possible to identify with precision the manner in which his gross sales, and profitability, differed during the weeks when Hanave was in breach of covenant, by comparison with those weeks when Hanave was not in breach of covenant. However, in Fink v Fink (1946) 74 CLR 127, at 143 Dixon and McTeirnan JJ said:

“Where there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat the only remedy it provided for breach of contract, an award of damages.”

165 Bearing in mind the various factors which I have just mentioned, I would assess the loss, insofar as it is reflected in the profitability of the business, at $25,000.

166 Denying access to the toilets is not the type of loss which is reflected in the trading accounts of the business. The fundamental principle in assessing damages is to place a plaintiff, so far as money can do it, in the same situation he would have been in if the contract had been performed. Over the period of the three months when Mr Spathis was denied use of the toilets, rental of the order of $11,900 would have accrued due. I would assess around 5% of this sum as attributable to use of the toilets. I assess the damages for this breach at $600.

167 Thus, the total compensatory damages are $25,600.

Damages for Aggravation of Parkinson’s Disease?

168 Since 1993 Mr Spathis has had Parkinson’s Disease. His treating doctor, Dr Kremer, gave evidence, which I accept. Dr Kremer says:

“I have been looking after him in consultation with a specialist urologist. Mr Spathis’ condition was very, very well controlled on oral medication until June of 2000.

He was working full-time running a business in the city which was a retail food outlet. He was able to perform light and heavy physical activity and worked extensive hours on a regular basis. He required minimal medication until June of 2000. At that time he became involved in an acrimonious dispute with his landlord and was subjected to very great emotional and mental stress as a consequence of this disagreement.

His Parkinson’s Disease worsened and it was with great difficulty that we were able to control the deterioration. He was so severely affected that his tremor became continuous and it became difficult for him to verbalise because of the effect on his general motor activity. He became unable to work at the same level and intensity that he was working previously, and he required considerable assistance from his wife.

In March of 2001 he was locked out of his premises by his landlord and his condition completely crumbled. It took large doses of medication to restore movement to Mr Spathis and he developed a reactive depression as a consequence of this disablement. This persisted from March of 2001 until July of 2001 when Mr Spathis was forced to close down his business.

His general condition has deteriorated dramatically and he has suffered severely as a consequence. His medical regime is now much higher than it was previously. The extent of his illness is now permanent and it is extremely unlikely that his disease course will lessen or remit. I have been treating patients with Parkinson’s Disease for many, many years and it is a well known phenomenon that when these patients are stressed significantly the Parkinson’s Disease worsens markedly. It is my opinion that the aggravation of Mr Spathis’ Parkinson’s Disease was a direct result of the acrimonious altercation and difficulties that had arisen with his landlord and there is no question of this in my mind whatever.

There is myriad clinical evidence to this phenomenon although no one is able to explain exactly the cause.”

169 In oral evidence, Dr Kremer explained that when, in his report he said, “this persisted from March of 2001 until July of 2001” he was referring to the reactive depression. That depression peaked at July 2001, after which time Mr Spathis started to get better because, once he was out of the business, the main stressor had gone.

170 At some stage after he moved into the premises, at a time which I cannot fix, Mr Spathis told Ms Nicdao that he had Parkinson’s Disease. Ms Nicdao does not recall telling Mr Burke or anyone else about his disease. On 30 April 2001 Mr Spathis’ solicitors wrote to Mr Burke making complaint about numerous matters, and also saying:

“We are instructed in circumstances where your client, through its representative, was aware of our client’s Parkinson’s Disease, and yet still took the actions it did, which exacerbated this condition, our client does not accept the denial of attempts by your client, its agents or servants, to drive him out.”

171 Though Mr Burke had previously been aware that Mr Spathis was not well, it was not until he received this letter of 30 April 2001 that he was aware that Mr Spathis had Parkinson’s Disease.

172 Mr Spathis seeks damages for the exacerbation of his Parkinson’s Disease, caused by Hanave’s breach of contract.

173 There are difficult factual problems involved in disentangling what would have been the extent of disability which Mr Spathis would have suffered if he had been completely unstressed, the exacerbation caused by events in 2000 for which Hanave is not sued or has no legal liability, the exacerbation caused by events in 2001 for which Hanave is not sued or has no liability, and the exacerbation caused by those events in 2001 for which Hanave has a liability. There is also a dearth of evidence to enable me to form any view about what the exacerbation of the Parkinson’s Disease is likely to mean, so far as Mr Spathis’ future conditions of life are concerned.

174 These factual difficulties can, however, be put to one side, because there is a fundamental legal problem in Mr Spathis being able to recover damages for the exacerbation of his Parkinson’s Disease. As the present action is an action for a breach of contract, the recoverable damages are limited by the rule in Hadley v Baxendale (1854) 9 Ex 341.

“We think the proper rule in such a case as the present is this: where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered as either arising naturally, ie according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants and thus known to both parties, the damages resulting from the breach of such contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on the other hand, if these special circumstances were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in his contemplation the amount of injury which would arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach of contract by special terms as to damages in that case; and of this advantage it would be very unjust to deprive them.” (at 354-355)

175 If authority be needed as to the continued application of that principle in Australian law, it is to be found in Hungerfords v Walker (1989) 171 CLR 125.

176 Here, it could not be said that exacerbation of Parkinson’s Disease was the sort of thing which might fairly and reasonably be considered as arising according to the usual course of things from a breach of a covenant of quiet enjoyment in a lease. Nor did Hanave have any knowledge at the time of entering the lease, that Mr Spathis had Parkinson’s Disease, or that Parkinson’s Disease was the sort of medical condition which was exacerbated by stress.

177 McGregor on Damages, 14th edition, Para 198 says:

Gee v Lancashire and Yorkshire Railway

178 In Kollman v Watts [1963] VR 396, at 400 the Full Court of the Victorian Supreme Court (Lowe, Dean and Pape JJ) said:

Hadley v Baxendale

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd

Monarch SS Co Ltd v Karlshamns Oljefabriker

Trans Trust SPRL v Danubian Trading Co Ltd

179 In connection with this question I was referred to McCall v Abelesz [1976] 1 QB 585. At 594 there is an obiter dictum of Lord Denning MR:

Perera v Vandiyar

Jarvis v Swans Tours Ltd

Jackson v Horizon Holidays Ltd

Perera v Vandiyar

180 Whatever might be the situation so far as the covenant for quiet enjoyment in a lease of residential premises is concerned (which is the subject matter which Perera v Vandiyar was concerned with), that dictum does not apply to a lease of commercial premises. In Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723, at 752 Santow J considered a claim for damages for mental distress arising from a breach of covenant in a lease of commercial premises. His Honour rejected that claim saying:

Baltic Shipping Co v Dillon

181 Further, it seems to me that a claim for exacerbation of Mr Spathis’ Parkinson’s Disease is not really a claim for “mental distress”, or for loss of a pleasurable, contracted for outcome. Rather, it is a claim which should be approached as a matter of principle by direct application of the rule in Hadley v Baxendale. Damages are not recoverable for any exacerbation of Mr Spathis’ Parkinson’s Disease resulting from any of the breaches of covenant.

Are Exemplary Damages Recoverable?

182 It is well established that exemplary damages are not recoverable when there is a breach of contract, unless the conduct which amounts to a breach of contract also amounts to a tort, or some other type of legal wrong for which exemplary damages are recoverable (Kenny v Preen [1963] 1 QB 499, at 513, 515; Addis v Gramophone Company Ltd [1909] AC 488; Gray v Motor Accident Commission (1998) 196 CLR 1, at 6). In the present case, counsel for Mr Spathis sought to circumvent this principle by arguing that the circumstances of the lock out amounted to not only a breach of the covenant of quiet enjoyment, but also to a trespass. When the padlock was applied to the door of the shop, so it was argued, that was a sufficient interference with the premises themselves to constitute a trespass. So also, the wrongful exclusion of Mr Spathis from the premises is in itself said to be a trespass.

183 I accept that these acts amount to a trespass: Waters v Maynard (1924) 24 SR (NSW) 618; Drane v Evangelou [1978] 1 WLR 455.

184 In Cotogno v Lamb (No 3) (1986) 5 NSWLR 559, at 585 McHugh JA said:

“A claim for exemplary damages must be considered by reference to the means and conduct of the defendant. All that the plaintiff must prove to entitle him to an award of exemplary damages is that in the commission of a personal wrong the defendant was guilty of conduct which involved a conscious and contumelious disregard of the plaintiff’s rights.”

185 I am not satisfied that the lock out occurred in such circumstances. At the time of the lock out, Mr Spathis was behind in his rent, and had been behind in his rent for more than 14 days. It has only been by the application of the law of waiver that I have come to the conclusion that, notwithstanding that Mr Spathis was behind in his rent on 3 May, and had been behind in his rent for more than 14 days, there was no entitlement to re-enter. The law of waiver was raised in the case by Mr Spathis’ counsel, for the first time, in the course of address. I am not satisfied that, when Hanave re-entered the premises, it either knew, or suspected, that it was not entitled to do so, so far as its contractual rights under the lease were concerned.

186 Mr Spathis’ counsel submits, however, that independently of whether Hanave had a contractual right to re-enter the premises, it had no right to enter because the order of Bryson J of 11 April 2001 prevented it from doing so. I turn to that matter.

Should the Order of Bryson J be Read Down?

187 On 11 April 2001 Bryson J gave the judgment to which I have earlier referred (see paragraph 62 above). His Honour made an order in the form asked for in the summons. The text of the relevant part of the summons is set out at paragraph 44 above.

188 Hanave submits that this order of Bryson J, though expressed in general language, should be construed by reference to the circumstances which led to it being made. Those circumstances were the dispute about whether Hanave had served a valid notice under clause 11 of the Lease. Hanave says that the order made is one not restricted as to time, not specific about what activities are being restrained, and not specific about whether the defendant must endure, without retaking possession of the premises, any breach of the lease which might thereafter occur. Hanave says that the order should be read down, so as to apply only to prevent Hanave interfering with the possession of Mr Spathis on the ground of having served, on 17 October 2000, a valid notice terminating the lease under clause 11.

189 I should say at the outset that these submissions sit very poorly in the mouth of Hanave, given that the judgment of Bryson J shows no trace of any argument having been put to his Honour that, in the event that the construction of clause 11 was found to be other than that which Hanave contended for, any order other than that which Mr Spathis sought should be made. However, the submissions having now been made, I must deal with them.

190 In Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in Liq) (1998) 43 NSWLR 484, at 491-2 Santow J said:

“To the extent that there is ambiguity in the orders, the authorities on construing court orders are usefully reviewed in a note by Justice Young (1998) 72 ALR 117-118.

Gordon v Gonda

Australian Energy v Leonard Oil NL (No2)

Repatriation Commission v Nation

191 I do not see any ambiguity in Bryson J’s order. Hence, there is no occasion to read it down by reference to any extrinsic material. If, after the date of that order, Mr Spathis were to commit some fresh breach of covenant, which entitled Hanave to re-enter, Hanave would need to approach the court to have the order modified before it was free to re-enter. It was precisely this course which Hanave itself adopted when it started proceedings on 9 July 2001, and sought the vacating of an injunction which had been made on 7 May 2001 in the same terms as Bryson J’s order (see paragraphs 87 and 102 above). In the present case, however, as at 3 May 2001 Hanave did not have (apart from any restriction imposed upon it by the order) any right to re-enter the premises. Thus, when Hanave re-entered the premises, it did so in contravention of the order of Bryson J.

192 That is not enough by itself, however, to lead to a conclusion that exemplary damages should be awarded. Mr Burke gave evidence that it was his understanding that the injunction did not prevent him from relying upon the lease, if there were subsequent breaches. I accept that evidence from Mr Burke. In that situation, his causing Hanave to re-enter the premises was not something done in conscious and contumelious disregard of the plaintiff’s rights.

193 Thus, I decline to award any exemplary damages concerning the circumstances in which the lock out first occurred.

194 Mr Burke’s response to the granting of the further injunction on 7 May 2001 is, however, in a different category. By this time, Mr Spathis and Mr Dunlop were the only tenants remaining in the Rex House development site. Mr Burke wanted Mr Spathis out. While demolition work was going on around Mr Spathis’ shop, and had been going on since April 2001, Mr Burke knew that with Mr Spathis out of the shop it would have been much easier. He knew of the granting of the injunction from the afternoon of 7 May 2001, when Mr Spathis rang to tell him about the granting of it. Once Mr Burke knew of the granting of the new injunction on 7 May, even though he had not been served with it, Mr Burke’s own views about the effect of the injunction granted by Bryson J ceased to have any significance. As a solicitor, he could not but have been aware that it was likely that service of the order would be effected at the registered office of the company (even if a copy might also be sent to him directly). He took no step to contact the registered office, to ascertain whether an order had been served, or make arrangements for any order to be sent to him when and if it was served. When the order finally came to his attention, on 8 May, his response to implementing it was, to say the least, measured. All this amounted, in my view, to a deliberate dragging of the feet. It occurred in a context where Hanave was attempting, by all means possible, to get Mr Spathis out of the building, so that a very substantial building project could go ahead. Hanave’s response to the granting of the injunction on 7 May amounts, in my view, to a conscious and contumelious disregard of the rights of Mr Spathis, justifying the award of exemplary damages: Drane v Evangelou [1978] 1 WLR 455.

195 The effect of Hanave taking the approach it did to acting once it had reason to believe an injunction had been issued was to keep Mr Spathis out of his shop on 8 and 9 May. As well, it is a reasonable inference that Mr Spathis’ task of cleaning up lost stock that had gone off would have been less, if he had been allowed back in the shop on the evening of Monday 7 May, than in fact it was when he was allowed back in mid morning on Wednesday 9 May.

196 “Exemplary damages are not awarded to compensate the plaintiff but to punish and deter the wrongdoer”: (XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448, at 470 per Brennan J. The means of a defendant are relevant in determining the amount of exemplary damages (XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448, at 461; Cotogno v Lamb (No 3) (1986) 5 NSWLR 559 at 585. The means of Hanave are proved with no precision, but they are substantial. Besides the Kent Street site, Hanave owns another CBD property, and about 15 properties in the suburbs.

197 In all these circumstances I would assess exemplary damages as $5,000.

Result

198 There will be an order for rectification of the lease, by deleting clauses 17 and 18 from it. The plaintiff is entitled to judgment against the defendant in the sum of $30,600. In addition, the plaintiff claims interest under section 94 Supreme Court Act 1970. The plaintiff is entitled to receive that interest. The compensatory damages of $25,600 I have awarded are ones which were accruing from time to time during the period 1 April 2001 to 17 July 2001. Apart from the damages arising from the lock out, there is no reason to believe that they were not accruing at an approximately even rate throughout that period. An appropriate method of calculating the section 94 interest would be for interest to run on the total amount of the judgment from 1 June 2001. The exemplary damages are assessed as at today. Section 94 interest will not run on those damages.

199 I direct the parties to bring in short minutes of order to give effect to these reasons for judgment.

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Last Modified: 05/13/2002

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Spathis v Hanave Investment Co Pty Ltd [2002] NSWSC 304

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CITATION:	Spathis v Hanave Investment Co Pty Ltd & Anor [2002] NSWSC 304
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2486/01
HEARING DATE(S):	11/3/02-13/3/02, 2/4/02
JUDGMENT DATE:	10 May 2002
PARTIES :	Gerasimos Spathis (plaintiff; cross-defendant) Hanave Investment Company Pty Limited (1st defendant; 1st cross-claimant) Hanave Pty Limited (2nd defendant; 2nd cross-claimant)
JUDGMENT OF:	Campbell J

COUNSEL :	T D F Hughes (plaintiff; cross-defendant) G McVay (1st & 2nd defendants; 1st & 2nd cross-claimants)
SOLICITORS:	Pryor Tzannes & Wallis (plaintiff; cross-defendant) Gilbert Mane (1st & 2nd defendants; 1st & 2nd cross-claimants)
CATCHWORDS:	LANDLORD AND TENANT - COVENANTS - quiet enjoyment - relationship to derogation from grant - CONTRACTS - rectification - action for breach of contract decided by reference to contract as rectified - EQUITY - rectification - once granted, relates back - LANDLORD AND TENANT - termination of tenancy - waiver of right to terminate by acceptance of rent - can apply when rights to terminate arises from non-payment of rent - LANDLORD AND TENANT - subject matter of lease - implied right to such facilities as are needed or required for reasonable enjoyment of property granted - DAMAGES - measure and remoteness of damages in actions for breach of contract - damages recoverable under second limb of Hadley v Baxendale only for damage arising from special circumstances known, at date of formation of contract, as likely to cause damage - DAMAGES - exemplary damages - not recoverable for breach of contract - JUDGMENTS AND ORDERS - when construed by reference to extrinsic material
LEGISLATION CITED:	Trade Practices Act 1974 (Cth) Retail Leases Act 1994 Conveyancing Act 1919 Supreme Court Act 1970
CASES CITED:	Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326 Central Estates (Belgravia) Ltd v Woolgar (No.2) [1972] 1 WLR 1048 Segal Securities Ltd v Thoseby [1963] 1 QB 887 Browne v Flower [1911] 1 Ch 219 Owen v Gadd [1956] 2 QB 99 Kenny v Preen [1963] 1 QB 499 Gordon v Lidcombe Development Pty Ltd [1966] 2 NSWR 9 Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 QdR 1 Southwark London Borough Council v Tanner [1999] 3 WLR 939 Hadley v Baxendale (1854) 9 Ex 341 Hungerfords v Walker (1989) 171 CLR 125 Kollman v Watts [1963] VR 396 McCall v Abelesz [1976] 1 QB 585 Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723 Addis v Gramophone Company Ltd [1909] AC 488 Gray v Motor Accident Commission (1998) 196 CLR 1 Telex (Australasia) Pty Ltd v Thomas Cook and Son (Australasia) Pty Ltd [1970] 2 NSWR 257 Wilcox v Richardson (1997) 43 NSWLR 4 Fink v Fink (1946) 74 CLR 127 McCall v Abelesz [1976] 1 QB 585 Waters v Maynard (1924) 24 SR (NSW) 618 Drane v Evangelou [1978] 1 WLR 455 Cotogno v Lamb (No 3) (1986) 5 NSWLR 559 Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in Liq) (1998) 43 NSWLR 484 XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 Malmesbury v Malmesbury (1862) 31 Beav 407; 54 ER 1196 Craddock Brothers v Hunt [1923] 2 Ch 136 Bosaid v Andry [1963] VR 465 Issa v Berisha [1981] 1 NSWLR 261 Wongala Holdings Pty Ltd v Mulinglebar Pty Ltd (1994) 6 BPR 13,527 Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 Owendale Pty Ltd v Anthony (1967) 117 CLR 539 London and County (A&D) Ltd v Wilfred Sportsman Ltd [1971] 1 Ch 764 Endeavour Lodge Motel Ltd v Langford [1998] 2 NZLR 121
DECISION:	Damages and interest awarded.