Tabcorp Holdings Ltd v Bowen Investments Pty Ltd

[2008] HCATrans 395

[2008] HCATrans 395

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M63 of 2008

B e t w e e n -

TABCORP HOLDINGS LTD

Appellant

and

BOWEN INVESTMENTS PTY LTD

Respondent

FRENCH CJ
GUMMOW J
HEYDON J
CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON TUESDAY, 2 DECEMBER 2008, AT 10.14 AM

Copyright in the High Court of Australia

MR N.J. YOUNG, QC:   May it please the Court, I appear with MR C.C. MACAULAY, SC and MR E.W. WOODWARD for the appellant.  (instructed by Mallesons Stephen Jaques)

MR D.M.J. BENNETT, QC:   May it please the Court, I appear with my learned friends, MR M.J. COLBRAN, QC, MR I.W.D. UPJOHN and MR T.D. BEST, for the respondent.  (instructed by Scanlan Carroll Business Lawyers)

FRENCH CJ:   Yes, Mr Young.

MR YOUNG:   The proceedings in this case were instituted on 30 September 2005 by alleged breach of the covenant in clause 2.13 of the lease.  The lease was dated 23 December 1996 and it provided for a 10‑year term, expiring on 31 January 2007.  There were two five‑year options.  Thus the proceedings were brought during the term of the original lease some 14 months before its expiry date.  There were in the proceedings at all relevant time two allegations of breach of clause 2.13.

GUMMOW J:   Now, why were they not statute barred?

MR YOUNG:   Because of the 15 year ‑ ‑ ‑

GUMMOW J:   That is accepted, is it?

MR YOUNG:   Yes, your Honour.  There is a 15‑year period of limitations applicable to the lease.

CRENNAN J:   The pleadings raise a contest but that contest no longer exists?

MR YOUNG:   That is so.  The two alleged breaches consisted of the unauthorised demolition of the existing foyer and then the reconstruction of a replacement foyer.  Damages were sought in respect of the damage occasioned by both breaches as at the date the works were undertaken.

FRENCH CJ:   There was a claim for mandatory injunctive relief and equitable compensation in the alternative but that was never pursued, is that right?

MR YOUNG:   As to equitable damages, yes, your Honour is right.  As for the mandatory injunction, it was revived in the sense that a form of mandatory injunction was put forward, but it sought an order almost by way of specific performance for reinstatement of the foyer as at 2012 or 2017, at the end of Tabcorp’s occupation.  There was never an order sought for a reinstatement, as it were, on the expiry of the original term of the lease.

GUMMOW J:   Some sort of proleptic relief, was it?

MR YOUNG:   Yes, it seems so, your Honour.  It was rejected, in any event, both by the trial judge where it was not seriously pressed and then explicitly by Justices Finkelstein and Gordon towards the end of their judgment in the Full Court.

FRENCH CJ:   Incidentally, the terms of the new lease are the same, subject to the periods and the special condition, as the terms of the pre‑existing lease so far as 2.10 and so forth are concerned.

MR YOUNG:   Your Honour’s qualification is necessary.  So far as clauses 2.10 and 2.13, yes, there were changes of some terms concerning the rental payable ‑ ‑ ‑

FRENCH CJ:   But nothing that need concern us, yes.

MR YOUNG:   ‑ ‑ ‑ the rent review dates, but nothing relevant.

CRENNAN J:   So does the August 2006 agreement operate as an agreement to vary the old lease?

MR YOUNG:   Technically it operates as a surrender of the original lease and the regrant of a new lease with effect from ‑ ‑ ‑

GUMMOW J:   You say “technically”, where is the instrument?  How do we know all this?

MR YOUNG:   It is in court book volume 2 at page 657 and following.  It is tucked away.  It is not clearly identified in the index.

GUMMOW J:   No.

MR YOUNG:   The exhibit reflects an agreement for the termination of the existing lease and the grant of the new lease to commence on 1 February 2006 and to continue for a term expiring on 31 January 2012 with one five‑year option which might take the occupancy to 2017.

CRENNAN J:   I thought this was an offer document.

MR YOUNG:   It is an offer document, but this is the counterpart that has been signed on behalf of Tabcorp, so it does evidence an agreement.

GUMMOW J:   Well, it says “Accepted”.

MR YOUNG:   Yes, at the last page, page 660, the Court will see that it has been signed and accepted on behalf of Tabcorp and the special condition appears at that page, which we will come to.  The varied terms of the lease are essentially found in this countersigned offer document relating to rents and rent reviews at page 659 opposite the notation “Lease Document”.  The document says that:

A variation and extension of the lease will be prepared reflecting the agreed terms and conditions pursuant to this offer document.  In all other respects the terms of the existing Lease shall apply -

In fact, there was no new lease prepared and that was common ground.

GUMMOW J:   At the time this is happening in 2006 the 10 years from 1 February 1997 is still running?

MR YOUNG:   Yes, your Honour.

GUMMOW J:   So the time for performance of the covenants for yielding up in 2.11 and vacating and so on has not yet arrived?

MR YOUNG:   That is so.  This agreement was made on or about 15 May 2006.  It had a retrospective operation in the sense that the parties were agreeing to a new lease commencing from an earlier date, 1 February 2006, but at the time of the agreement the parties were still in a relationship with lessor and lessee under the original lease that had some eight months to run at that point.  The trial judge noted the ‑ ‑ ‑

GUMMOW J:   This is all after the institution of the action.

MR YOUNG:   Yes, yes, it is.  That is why I made the point, your Honour, that when the action was instituted there were some 14 months to run under the original lease and that was clearly during the currency of the lease.

CRENNAN J:   How would you get a mandatory injunction to reinstate a foyer in circumstances where you agree to give up your rights of entry until 2012 or 2017?  I suppose it is a question for Mr Bennett.

MR YOUNG:   Yes, your Honour.  We say there is no proper foundation for that relief, no matter which way one looks at it.  The form of the mandatory injunction that was sought at the time of the final submissions in the trial is at pages 966 and 967 of volume 3.  The Court will see that it is a somewhat strange order.  What was sought was an order for reinstatement of the foyer “to its condition prior to 11 July 1997” but stayed under paragraph 3 until 2012.

The trial judge in two places noted the surrender and regrant of a lease, or at least pursuant to an agreement for lease - in two places in his Honour’s judgment - at appeal book page 703, firstly, in volume 3 in paragraph 54, and, secondly, at page 707 in paragraphs 67 and 68.  In paragraphs 67 and 68, while noting the point that “the original lease” had been “superseded and the new lease commenced in February 2006”, in paragraph 67, his Honour went on to say that any damage as alleged occurred when the foyer was reconstructed in 1997, and any loss as alleged was suffered in 1997.  His Honour, finally, in paragraph 68 observed that there was “an air of unreality about the” contended for measure of damages in circumstances where there was “a seamless transition from one lease to the next, with Tabcorp continuing to be the sole tenant of the building”.

MR YOUNG:   As I said, the trial judge found that clause 2.13, that is, the alteration covenant, was breached on two occasions.  His Honour refers to that at page 714 in paragraph 81.  Paragraph 81 deals with a breach of clause 2.13 constituted by the works that removed the original foyer surfaces.  His Honour then proceeded to find, as alleged, a second breach of clause 2.13 in paragraph 84 at the very foot of page 715 and the very top of page 716.  They were the only breaches of covenants alleged and his Honour awarded damages for those two breaches.

His Honour’s findings of fact as to loss of damage appear at pages 719 and 720.  The findings of fact are self‑evidently very important.  They are not challenged and they were not challenged before the Full Court.  We refer in particular to paragraph 93 at page 719.

CRENNAN J:   Was that evidence contested about the final sentence of 93?

MR YOUNG:   At trial, yes, your Honour.  I will come to that in a moment.

CRENNAN J:   Yes, I see.

MR YOUNG:   At page 722, paragraph 102 his Honour makes his findings.  Can we point out three aspects of those findings without reading the whole passage.  First, his Honour found that the nature of the lease was one “for commercial purposes” relating to “an investment property”, at about line 15.  Secondly, that aside from the small “loss of lettable space” there was “no diminution in the lettable value of the building by reason of the works undertaken by Tabcorp”, and his Honour assessed damages for that loss of lettable space.

Thirdly, there was no “adverse effect on the lettable value” of the building while it was “being leased by Tabcorp” under the arrangements that were to continue until 2012 or 2017.  Finally, this was a finding in any event “refurbishment of the foyer will be necessary” as it would have been if the original foyer remained.

CRENNAN J:   So had there been no breach of 2.13?

MR YOUNG:   No, your Honour.  This is a finding to the effect that there were breaches of 2.13, but the changed foyer was going to have to be refurbished in any event at the end of Tabcorp’s occupancy because the detail of the evidence is that foyers have a limited life and ‑ ‑ ‑

CRENNAN J:   That is what I was getting at.  Even if there had been no breach of the covenant, approval sought, consent given, does this evidence go to that point, that you would need in any event to have an expense in relation to refurbishment?

MR YOUNG:   Yes.

CRENNAN J:   No breach of covenant, but after the effluxion of 15 to 20 years or whatever?

MR YOUNG:   It is evidence, your Honour, that there was no loss, not that there was no breach.

CRENNAN J:   No, the point I am trying to get at is that whether the approval was given and they retained the foyer – sorry, approval not given so they retained the foyer, or approval given and there is a new foyer, either way, but if you have no breach of the covenant because no approval is given and there is no tearing down of the original foyer, it would have to be refurbished after ‑ ‑ ‑

MR YOUNG:   Yes, your Honour, that is so.

CRENNAN J:   That is the point I was trying to get to.

MR YOUNG:   That is the finding, and that went unchallenged on appeal to the Full Court.

GUMMOW J:   Why does the judge then say he gives nominal damages only for breach of clause 2.13?

MR YOUNG:   Well, he did not give only nominal damages, your Honour.  He awarded damages of some 33,000 in respect of damage constituted by the loss of some lettable area because the foyer was enlarged in dimension.

GUMMOW J:   What I am trying to find out is what cause of action was being indicated by this award of damages?

MR YOUNG:   The breach of clause 2.13, the two breaches that his Honour earlier found, and only those causes of action.

KIEFEL J:   No, but in paragraph 102 where his Honour is dealing substantially with damages, one infers that is not pursuant to any breach of clause 2.13.  It must be pursuant to either 2.10 or 2.11.

MR YOUNG:   No, your Honour, the only breach alleged was 2.13, the only breach his Honour found was 2.13.  The assessment of damages related to the loss flowing from the breaches of 2.13 and only that.

CRENNAN J:   So that was related to the diminution in the value of the reversion?

MR YOUNG:   Yes, your Honour, to the extent ‑ ‑ ‑

CRENNAN J:   Plus a thousand dollars?

MR YOUNG:   Yes, your Honour.  It is unclear why his Honour felt it necessary to add the thousand dollars because he had found some loss and damage constituted by the fact that the foyer had been enlarged in breach in a way that had diminished the lettable area, but that is not a point that we take, your Honour, that there is no proper explanation for the thousand dollars.  In other words, that was perhaps unnecessary, but it is not an issue.  His Honour went beyond awarding nominal damages and awarded $33,000 for the loss constituted by the loss of lettable area, being the loss naturally flowing from the two identified breaches of clause 2.13.  To answer your Honour Justice Kiefel’s question, his Honour found every other cause of action failed other than the alleged breaches of 2.13. 

To come back to your Honour Justice Crennan’s question, the case presented by Bowen for damages measured by reinstatement costs was an economic case.  Their case was, in substance, this.  The original foyer was a more attractive foyer which would command a higher rental, particularly once Tabcorp vacated, because then there was a prospect of having multiple tenancies in the building.  Their case based on expert evidence was that in those circumstances at the end of Tabcorp’s occupancy the original foyer would have commanded better and higher rentals.  So they ran an economic case.

CRENNAN J:   It is like a loss of special amenity related to this foyer being more aesthetically pleasing or something.

MR YOUNG:   Well, it is a bit more than an amenity.  It is not a personal thing they were contending for.  They were contending for a loss of economic value, being the tenant attracting ability of the original foyer when compared the new foyer, but it was an economic case is the point we make. 

CRENNAN J:   You mean as distinct from a personal case where a person is attached to their particular home that has been destroyed or whatever?

MR YOUNG:   Yes.  This becomes important later on, your Honour, but it was not a case that was ever put on the basis there was some loss to be addressed by damages, constituted by the loss of an aesthetic personal preference, like an individual who had a preference for yellow bricks and so on.  Now, his Honour addressed the case that was made at paragraphs 94 and following, and obviously I will not endeavour to read it, but can I point out a few things.  His Honour recites all of the expert evidence that was mounted by the lessor in support of their economic case.  Paragraph 94 deals with the applicant’s first expert witness.  Four lines from the bottom of the page, the nub of the evidence was that the original foyer would command a higher rental.  The next expert is dealt with in paragraph 95.  The evidence was the original foyer was:

a more effective “leasing tool” than the present foyer.

It goes on to refer to the attraction in a multiple tenancy context.  Now, that was the case, the only case, presented by the lessor.  His Honour then addressed the evidence called by Tabcorp from experts in the rental field which was to the opposite effect.  The next three paragraphs identify the three witnesses.  The first witness:

the current foyer “does not disadvantage the building –

and would –

require upgrading in about five years –

anyway.  Forsyth:

the market rental value of the premises had not changed . . . Either foyer was, in his opinion, “acceptable . . . refurbishment of they foyer would, in any event, be necessary –

whichever foyer at the end of the lease.  Perillo to the same effect, although Perillo conceded that there was some diminishment in value of the reversion because of the loss of lettable area.

So that was the contest, and Norbury addressed cost but also said “refurbishment of the foyer would be necessary at the end of the tenancy” in any event.  So it was an economic case that was presented and rejected by his Honour.  His Honour made findings of fact rejecting the lessor’s case and accepting the evidence led by Tabcorp.  There was no suggestion that any losses were to be attributed to the loss of Mrs Bergamin’s aesthetic preference, unsurprisingly because this was a case about an investment property and a commercial lease.

CRENNAN J:   His Honour deals with the applicant’s argument, I suppose, at paragraph 92 where he recognises that there may be some cases in which it is “appropriate to award damages on the basis contended for by the applicant”, that is to say, I expect, the higher rental and more effective leasing tool points.  He refers to a “special interest in reinstatement”.

MR YOUNG:   Yes.  His Honour deals with the aesthetic preference briefly at the outset of paragraph 102 as well, but goes on to say that this is a lease for “commercial purposes” and “an investment property”.  We will come to the fact that that kind of approach is exactly that endorsed in the cases, including by the House of Lords in Ruxley.

KIEFEL J:   Did your client at all times concede that damages were recoverable under clause 2.13?

MR YOUNG:   At trial my client contested the case on the basis that consent had been given for the alterations.  They lost that case.  His Honour found that the alterations proceeded without consent and on appeal we did not contest the finding that there was no consent and therefore breach.  The case on appeal was about the measure of damages.

CRENNAN J:   Ruxley’s Case, of course, is a loss of amenity case and you virtually said a few minutes ago that is not this case.

MR YOUNG:   Yes, but Ruxley does contrast the commercial case and the loss of personal preference or amenity case.

CRENNAN J:   If you transpose Ruxley, I suppose, to a commercial context, you might get into a position where the measure of damages is the diminution in the value of the reversion but taking into account special interest matters like the Ruxley loss of amenity matter which are related to the higher rental and more effective leasing tool type considerations.

MR YOUNG:   Yes, your Honour, but that is looking at the pulling power.

CRENNAN J:   Yes.  I mean, it involves accepting the evidence.  I am not trying to brush over that point, but I am saying transposing Ruxley to the commercial context – maybe the true measure of damages is diminution in value in relation to reversion, but with the qualification that there may be some special aspect.

MR YOUNG:   We would only say, your Honour, it is not really a qualification.  Part of the assessment of the diminution of the reversion is assessing the value and the attraction to tenants.  Although that is part and parcel of the same investigation of value, it is not a qualification to it.

CRENNAN J:   Yes.  Well, the complaint I suppose – his Honour did not do that with the nettable area.  He, in other words, rejected the evidence that would have allowed him to go beyond the net area to that next step in the diminution in value of the reversion.

MR YOUNG:   His Honour rejected the evidence and therefore did not make any adjustment of the estimate of value because he rejected the evidence about the special pulling power of the foyer, and that is a factual matter which was not challenged.  The challenge was not pursued before the Full Court.

CRENNAN J:   So it was all about Joyner v Weeks versus diminution in value of the reversion?

MR YOUNG:   Yes, your Honour, it was about Joyner v Weeks versus Bellgrove and other cases such as James v Hutton.

CRENNAN J:   Yes.

KIEFEL J:   Could I just take you back to that question just before?

MR YOUNG:   Yes, your Honour.

KIEFEL J:   What I was trying to ask you was whether or not there was any legal argument raised against clause 2.13 as giving rise to common law damages?

MR YOUNG:   No, both parties at trial contended that ‑ ‑ ‑

KIEFEL J:   It was a question of quantum – if the question of consent was found against you, it was a question of how it was to be assessed?

MR YOUNG:   Yes, your Honour, and at trial both parties had a common footing, that is, if breach and alterations without consent, damages were to be assessed by applying the Bellgrove v Eldridge measure of damages.  That was the common position put at trial and on appeal by both parties.  I can demonstrate that, your Honour, in relation to both parties advocating that Bellgrove was the measure.  Can I take the Court to the trial transcript volume 3 at page 673 and 674.  These are the submissions at trial by senior counsel for Bowen.  At 673 at about lines 7 and 8, the damages case is put on the basis of Bellgrove v Eldridge being the applicable principle. 

At line 35 Bowen’s counsel accepts that rectification must be reasonable and the lessor did not shrink from that.  That appears to be, quite correctly we say, the assumption by Bowen of the onus of proving that reinstatement would be a reasonable measure of the true loss.  That position is confirmed by Bowen’s appeal submissions in writing at page 755 of the same volume at paragraph 28.  The alleged error was that his Honour ought to have applied Bellgrove v Eldridge.  We submit his Honour did exactly that. 

Tabcorp’s appeal submissions were to much the same effect.  They are at page 767, paragraphs 12 and following and at page 768 Bellgrove is relied upon in paragraph 15.

FRENCH CJ:   The debate before the Full Court, of course, did get into Joyner v Weeks, did it not?

MR YOUNG:   That is so.  This is all before Joyner v Weeks was raised.

FRENCH CJ:   Yes, at 33.

MR YOUNG:   This is how the case was conducted at trial though, your Honour, which is important.

GUMMOW J:   The primary judge did refer to Joyner v Weeks, did he not?

MR YOUNG:   He did, but it was not cited to him, your Honour.  Neither parties cited Joyner v Weeks, but his Honour Justice Tracey did refer to it at paragraph 92 saying it was addressing the case where the premises were left out of repair at the end of the lease.

Can I make a couple of other observations about how the case was conducted at trial.  This is both how it was pleaded and argued.  Bowen alleged, and only alleged, breaches of clause 2.13.  It did not allege any other breach of covenant and there was no mention of clause 2.10, 2.11 or 2.12.  Bowen sought to and did in fact amend its pleading to include a rectification claim.  Leaving aside rectification, it accepted that there was no make good or reinstatement obligation relevantly in the lease.  It also accepted that Tabcorp had remained and would remain in continuous occupation of the premises until 2012 or 2017 depending on the option.

Further, it was common ground that there would be in fact no reinstatement works in relation to the foyer before the conclusion of Tabcorp’s tenancy.  Justice Tracey noted that common ground at paragraph 91 at page 719.  He starts off by saying:

It is common ground that reinstatement of the foyer will not occur prior to the conclusion of Tabcorp’s tenancy. 

Which is, at the earliest, 2012 or possibly 2017.  Further, at trial ‑ ‑ ‑

GUMMOW J:   Just before you leave the primary judge, did he refer at any time to this minute you took us to at 966 of the proposed mandatory injunction?

MR YOUNG:   No, your Honour, no.  That is because it was not seriously pressed as the form of relief, as I would understand how the trial proceeded.  I am told that is disputed, but the answer to your Honour’s question is, no, we did not refer to it.

FRENCH CJ:   There was an 87 order pursued at one stage, was there not?

MR YOUNG:   Yes, your Honour.  There were a lot of causes of action pursued that are dead.

FRENCH CJ:   Indeed.  But that was the closest alternative to a mandatory injunction?

MR YOUNG:   Yes.  I was about to observe that at trial it was also, in the way it was conducted, common ground that the plaintiff Bowen carried the onus of proof of all elements of its damages claim, that is, breach, that loss flowed and the true amount of that loss.  To the extent that included an inquiry as to whether the loss, or the measure of the loss, was necessary or reasonable in terms of Bellgrove, the plaintiff assumed that onus too.  There was no dispute but that it was to be regarded as an ordinary case, a proof of loss for breach of clause 2.13 where the plaintiff had to prove all elements of loss.

Finally, Joyner was not cited at trial, nor was clause 2.10, and both parties did not consider it to be relevant.  Justice Rares wrongly assumes, probably from his Honour Justice Tracey’s mention of it, that Bowen based its claim on Joyner at trial.  That is at page 1017 in the judgment of Justice Rares at paragraph 36.  I might have the wrong page, I am sorry.  It is paragraph 36 at page 1007.  His Honour opens paragraph 36 by saying:

However, his Honour rejected Bowen Investments’ claim based upon the principle in Joyner v Weeks.

His Honour is mistaken in thinking that any claim was advanced by Bowen based upon the principle in Joyner v Weeks.  None was.  The other observation to make is that the special condition of the 2006 agreement was not the subject of any pleadings or any allegations or contention at trial.  There was no argument about it.  There was no discovery in relation to that agreement as to its genesis or surrounding circumstances.

GUMMOW J:   If you are right about that, how then did the Full Court manage to have the evidentiary materials which could provide the basis of Joyner v Weeks award of damages?

MR YOUNG:   For this reason, your Honour.  The 2006 agreement was an annexure to one of the experts’ reports and counsel in the course of the trial told the trial judge that the lease had been extended in 2006.  When one looks at the lease, it has got an expiry date in 1997.  So his Honour was told that there was an agreement to extend the lease.  So he was told the substance of the 2006 agreement insofar as it worked an extension of the original lease.

CRENNAN J:   I think you find this at appeal book 665 at around lines 14 and 15.  Mr Colbran is explaining and then he says:

I merely draw your attention to the paragraph under special conditions on the last page.

MR YOUNG:   Yes, your Honour is right, and at the top of the next page, 666 ‑ ‑ ‑

CRENNAN J:   Yes, page 666, line 3:

we accept that the lease has been renewed and extended in the terms of the document –

MR YOUNG:   Yes, and that was the only way in which it was mentioned and that is how his Honour deals with it in his judgment.  But that passage goes on to say that both parties were content with that to be put on the record and there was no separate tender for the agreement.  I should say, we do not take any point about the Full Court’s marking of the 2006 agreement as an exhibit.  That is to misunderstand the point we put.  We are concerned with the substance of the way in which it was used by the Full Court.

CRENNAN J:   In the absence of submissions.

MR YOUNG:   Yes, your Honour.  I will come, obviously, in more detail to the 2006 agreement and clause 2.10 as it was raised in the course of the trial.

GUMMOW J:   How did the Full Court have the materials before it which enabled it to arrive at $1.38 million?

MR YOUNG:   That was Bowen’s damages claim.  It was founded on one of the expert witnesses who calculated the costs of reinstatement, and part of it represented an amount of money claimed in respect of loss of rent notionally during the period ‑ ‑ ‑

FRENCH CJ:   During the period of reconstruction.

MR YOUNG:   During a period of notional reconstruction.

CRENNAN J:   Was there cross-examination on that aspect of the evidence?

MR YOUNG:   I think substantively probably not, your Honour, I think is the answer.  I think there was not much dispute about the quantum of the assessment or what it would cost to reinstate.

GUMMOW J:   But why was that relevant to the issues?

MR YOUNG:   It was not relevant to the issues in the Full Court because there was no issue about the ‑ ‑ ‑

GUMMOW J:   No, relevant to the issues at trial.

MR YOUNG:   The plaintiff had to prove not only what was the right measure of loss; it had to prove the quantum of the loss.  It led evidence from two sources, an expert who said that the costs of reconstructing the foyer would be a figure – I am struggling to recall the precise figure; I think it was $600,000‑something.  The balance, forgone rent during a notional period of reconstruction, was simply based on an invoice showing the rental paid by Tabcorp to Bowen under the new lease.

GUMMOW J:   What I have at the back of my mind is that this evidence would have been very material to back up the position that we cannot get a mandatory injunction but we can get a value of reinstatement and this is evidence that assists in that conclusion.

MR YOUNG:   On any injunction ‑ ‑ ‑

GUMMOW J:   If you are running that sort of case that is what you would want to have there.

MR YOUNG:   Your Honour, on any injunction case issues might arise as to whether damages are adequate, but the way in which it arose here ‑ ‑ ‑

GUMMOW J:   No, in substitution for this mandatory injunction which is not going to be awarded because of so much delay.

MR YOUNG:   Your Honour, the primary basis on which the evidence was advanced was the claim for damages for breach.

GUMMOW J:   I am not going to use primary or secondary; it is a question of whether it was a basis.  That is what I want to know.

MR YOUNG:   I will have to check that, your Honour.

GUMMOW J:   “We do not know” is the answer, it seems to me.

MR YOUNG:   We will have to check that, your Honour, but the way in which we understand it to stand at trial is that this was the evidence of the loss naturally flowing from the breach of covenant, damages – common law damages for breach.

KIEFEL J:   Equitable compensation was sought in the application in lieu of compensation under the Trade Practices Act, and presumably in lieu of the mandatory injunction there sought.

GUMMOW J:   You would also need this material if you were running a section 87 case, would you not, under the Trade Practices Act, which is a very flexible procedural structure?

MR YOUNG:   Yes, your Honour, but the section 87 case was rejected by his Honour.

GUMMOW J:   I know that.  The question is that the Full Court does not seem to have been conjuring this result from nowhere.

CRENNAN J:   The other relevant ‑ ‑ ‑

MR YOUNG:   The evidence was there, your Honour, but what I am observing is that, as the case was argued before the Full Court, questions of equitable damages and section 87 were dead.  They were not the subject of the appeal.

CRENNAN J:   The other relevance originally might have been to the rectification case; this is the make good costs.

MR YOUNG:   It is the make good costs.

CRENNAN J:   That may well have been why it was in evidence as relevant at trial, or one of the reasons.

MR YOUNG:   Yes.

CRENNAN J:   Particularly if you are right about the mandatory injunction case was not being pursued.

MR YOUNG:   We are not disputing that this evidence could have been put to several uses in support of several different causes of action.  That does not gainsay the fact that it was directly relevant to the breach of contract case, the breach of covenant case, which is governed by contractual principles.

GUMMOW J:   It is not a breach of contract case.  If it was a breach of contract case, it would be statute barred.

MR YOUNG:   Breach of covenant or lease, but contractual principles apply is what I meant, your Honour.

CRENNAN J:   Breach of covenant in a deed is the accurate description, I suppose, is it not?

MR YOUNG:   Yes, it is.

CRENNAN J:   With the 15‑year period.

MR YOUNG:   Yes.  There is one other point I should make about the conduct of the case.  On appeal it was conceded that there was no evidence of substantive rental loss and that the diminution in value was small.  That is effectively to accept his Honour’s findings in that regard.

CRENNAN J:   Where do we find that?

MR YOUNG:   Two places; in the reply written submissions at page 783 of volume 3, paragraph 4 of Bowen’s written submissions.  The other place is in the Full Court transcript, same volume at page 823, lines 6 to 10 and again at page 846, line 40 in Mr Colbran’s submissions.  The notice of appeal by Bowen to the Full Court had challenged his Honour’s rejection of the valuation evidence led by Bowen’s experts – that is page 740, paragraph (b) in the first part of the page – but that was not pursued during the conduct of the appeal, as those passages I have gone to indicate.

Can I next go to the findings made by the members of the Full Court as to breach of covenant.  I will need to deal separately with the joint judgment and then the judgment of Justice Rares.  Can I go firstly to the joint judgment at page 996.  Their Honours Justices Finkelstein and Gordon identified the issue on appeal in paragraph 8 whether damages for breach of clause 2.13 had been assessed on an erroneous principle.  Their Honours then in paragraphs 9 and 10 identified a line of cases concerned with repair covenants where the rule differs according to whether the proceedings are brought while the tenancy continues.

CRENNAN J:   Do you take any point about 2.13 not being a repair covenant?

MR YOUNG:   We do, yes.  I will come to that, your Honour.  The two limbs of the repair covenant principles their Honours identify is that diminution in value is the measure if the proceedings are brought, as here, while the tenancy continues and, conversely, if the action is brought out near the termination of the lease the other limb in Joyner v Weeks is that it is the cost of effecting the repairs. Their Honours contrasted the repair covenant cases with the reinstatement line of cases at paragraph 15 saying that damages are “assessed on a different basis if the breach is of a covenant to reinstate”. The measure there described is much akin to the general contractual principle identified in Bellgrove and Ruxley.  It is the true loss with the qualification that reinstatement costs must be reasonable.

GUMMOW J:   This was not a reinstatement covenant either.

MR YOUNG:   No, it was neither.  We accept that.  There is a line of cases –

GUMMOW J:   It was a negative covenant.

MR YOUNG:   Yes, it was a covenant not ‑ ‑ ‑

GUMMOW J:   Framed as a negative covenant so as to attract an injunction.  That is why you draft these this way.

MR YOUNG:   There is a line of cases dealing with damages for breach of a covenant not to alter without consent which their Honours did not precisely refer to.

CRENNAN J:   Which you will tell us about.

MR YOUNG:   Yes, I will, your Honour.  Their Honours went on to say that – and this seems to be by way of analogy – the repair covenant measure for damages applies.  That is at paragraph 13.  In paragraph 13 their Honours say that the obligation in a covenant such as 2.10 is relevantly the same obligation as in 2.13, non constat what your Honour Justice Gummow just put to me, and therefore damages are to be assessed on the same basis as for breach of a repair covenant.

Their Honours then proceeded to paragraphs 19 to 20 to say that James v Hutton was a different kind of claim based on a different covenant and that the judge had erred in his approach to the measure of damages.  That is the measure of damages for breach of covenant, being relevantly only 2.13.  In our submission, that process of reasoning involves several errors.  They can be categorised in the following way, and then I will go on to deal with each of the categories. 

First, their Honours treated that limb of the Joyner rule that applies to actions brought at or near termination as good law and as the applicable principle to apply in assessing damages for breach of clause 2.13, and they did so to the exclusion of general contractual principles as discussed in Bellgrove and Ruxley and like cases.  Secondly, assuming that rule in Joyner is good law, we submit that their Honours erred in holding that the second limb of Joyner, that is, the at or near termination rule, applies in the circumstances of this case, those circumstances including the fact that what was alleged and found was only a breach of 2.13, a different sort of covenant, and, secondly, that Tabcorp remained throughout in continuing occupation of the premises. 

The application of the second limb of Joyner to that set of circumstances involves giving Joyner a novel and extended application beyond repair covenants and, we submit, that was an error, even if Joyner is good law.  Thirdly, assuming Joyner is good law and that the second limb was capable of applying to this case, their Honours misunderstood and misapplied Joyner and its proviso to the facts of this case.  Now, beyond that, and we will come to it, their Honours made other errors, as we have alleged, in their use of the 2006 agreement in the way they assessed the question whether reinstatement costs were reasonable and in their conduct of the appeal and a denial of procedural fairness.  That is essentially the order in which we will address matters.  Can I come then to a more detailed critique of the reasons given in the joint judgment.

Their Honours were conscious that different rules applied to reinstatement covenants – that is paragraph 15 – and that general contractual principles would apply a different measure of damages – that is paragraph 29, where Ruxley is cited.  Their Honours were obviously conscious as well that for reinstatement covenants or analogous contracts the onus of proof in all respects fell on the plaintiff to prove the loss. 

Now, notwithstanding those observations, their Honours were not persuaded from giving Joyner an extended application.  First, by way of detailed submission, we submit that their Honours in the joint judgment wrongly assimilated repair covenants with clause 2.13 and, in doing so, they misunderstood the authorities.  Their Honours refer to several authorities as supporting their extension of Joyner to this kind of distinct covenant.

In paragraph 13 they refer to two cases – Whitlam v Kershaw [1885] 16 QB 613 and Eyre v Rea.  I want to go to Whitlam first, if I may.  Whitlam is tab 11 in the bundle I think that has been provided to the Court and the passages are at 616 to 617. This was a case between landlord and tenant to enforce, alleging a breach of an implied covenant in the lease not to commit waste and the issue in the case was the right measure of damages. That appears at page 616. The issue is identified at about point two, “The question is”. The nature of the action is identified some five lines down – an implied covenant in the lease not to commit waste.

Lord Esher, who gave the leading judgment in Joyner, said that the implied covenant not to commit waste was not to be equated with a repair covenant or a restoration covenant.  He said that the judge below had made a mistake in treating an implied covenant not to commit waste as equivalent to and producing the same result as a covenant to deliver up the premises at the end of the term in the same condition as that in which the tenant received it.  A covenant not to commit waste is a covenant not to damage the premises in a substantive way that affects the value of the property or the reversion.  That is akin to the first breach found here:  destroying the foyer to reconstruct another one in breach of covenant.

His Lordship goes on to contrast different measures applying to the two distinctly different covenants.  The first limb of the example is of a house, a favourite house, allowed to go into ruin and his Lordship says that the issue where it is a covenant not to damage is a breach governed by a measure that inquires into the diminution in value of the reversion.  His Honour then, in the last two lines, contrasts the case of a covenant to leave the premises in the same condition as when taken, which his Honour goes on to say could only be brought after the termination of the lease and the measure would be the cost of replacing the house by a house of equal value. 

In the joint judgment, their Honours quote the second limb of those two contrasting positions.  Their Honours refer to what Lord Esher said about a covenant to leave the premises in the same condition as when taken, attracting a measure of damages equal to restoration costs.  But that was simply the contrasting position his Lordship identified.  The actual measure applied to a covenant not to damage the premises was diminution in value, which is much more akin to the covenant in clause 2.13 than a covenant to deliver up the premises in the same condition as when taken.

So their Honours quote the wrong part of Whitham v Kershaw.  Their Honours do not appear to direct themselves to the actual decision in Whitham v Kershaw, which is that the proper measure of damages for breach of a covenant not to inflict damage to premises is diminution in value.  The effect of the decision ‑ ‑ ‑

CRENNAN J:   To be measured by how much the value falls short of what the landlord would have had if the covenant had been observed.

MR YOUNG:   Yes, your Honour, which is exactly what the trial judge addressed in this case and made findings about.  Whitham v Kershaw was followed and applied in the case of Espir v Basil Street Hotel [1936] 3 All ER 91, which Justices Finkelstein and Gordon refer to at page 999 at line 16. Again, their Honours misapprehend the effect of the decision in the reference they give to it. Espir is behind tab 3.  Espir is a covenant that, in all respects, is identical to the covenants that we are concerned with, that is to say, a covenant not to make alterations without consent. The covenant in question is extracted by Lord Justice Slesser in the middle of page 92. His Lordship identifies the breach of covenant at page 93 at about point 3. His Lordship says:

no such consent was ever given, and that consequently the defendants, proceeding as they did to make substantial alterations in the premises, did so in breach of clause 16 of their lease with the plaintiffs. 

The issue in the case was the measure of damages.  At page 94, his Lordship said the correct principle to apply is that enunciated in the case of Whitham v Kershaw.  His Lordship extracts some passages that I have taken the Court to, and then concludes therefore, Whitham did:

not take the view that the test is the measure as to how much would have to be spent to restore the property to the same condition as that in which the tenant originally received it, but he says that the right measure is to ask how much the property, that is the value of the reversion, has been diminished in value.

On the facts, each of the judges finds that reinstatement cost was not the correct measure.  The application of the principle by Lord Justice Slesser commences at the last line of page 95.  He awards nominal damages.  Lord Justice Scott agreed and did likewise.  As to the measure, Lord Justice Scott said in the middle of page 96:

The cost of repairing has no relevance in itself to the question of the diminution in value of the reversion.  It is a matter which no doubt a valuer might take into account when arriving at his final conclusion as to the market diminution in value, but it is not in itself any part of the measure of damages.  That being so, I think it is quite clear that there is a fundamental error of law in the judgment . . . 

There was no evidence that I can see of any actual diminution in value of the reversion.

Justice Eve agreed, describing the principle applied as “well settled”.  Espir has been referred to with approval on several occasions, but none of those cases contain any particularly helpful analysis. Can I go back to the other case that Justices Finkelstein and Gordon refer to at paragraph 13 – Eyre v Rea [1947] KB 567. That should be the last case ‑ ‑ ‑

CRENNAN J:   Tab 14.

MR YOUNG:   Tab 14, yes.  Their Honours appear to cite this case as authority for the proposition that the Joyner measure for damages for breach of a repair covenant can be properly applied to a covenant such as clause 2.13.  Far from supporting the proposition, the case of Eyre is to the contrary.  There were three covenants in issue in Eyre.  They are conveniently identified in the headnote:

a covenant not to alter the internal planning of the premises, not to permit the premises to be used otherwise than as a private dwelling‑house in one occupation –

and a covenant not to sublet.  This was a case after the enactment of section 18 of the Landlord and Tenant Act 1927 in England which abrogated, or modified, I should say, the rule in Joyner to prevent its unjust operation.

FRENCH CJ:   By placing a cap on the ‑ ‑ ‑

MR YOUNG:   Yes.  It placed a cap, but it also dealt with a demolition situation, where you could not get reinstatement costs as well.  So one of the issues in the case was whether it was a repair covenant to which section 18 applied.  In other words, could you draw an analogy with these covenants that were allegedly breached and a repair covenant?  The Court rejected that proposition.  That appears at the foot of page 569.

CRENNAN J:   Their Honours might have had in mind that it is a different route to the same result as Joyner v Weeks.

MR YOUNG:   It is difficult to see how, your Honour, because not only did the court in Eyre say that this was not a repair covenant attracting section 18; they also went on to say the proper measure was the cost of restoration, but ‑ ‑ ‑

CRENNAN J:    That is what I mean.  That is what I mean in the sense that ‑ ‑ ‑

MR YOUNG:   Yes, they did that.

CRENNAN J:   In the joint judgment, they are just, I suppose, eliding over the fact that this case specifically says that a covenant in relation to reinstating alterations is not to be treated the same as a repair covenant.  So Joyner v Weeks to one side, and then their Honours seem to be saying that in a sense you get to the same result.

MR YOUNG:   But you can get to the same result under Bellgrove.  Bellgrove awarded restoration costs as the proper measure of damages, not by applying the Joyner principle with its reversal of onus or anything like that, but by saying the true measure of loss in the Bellgrove Case, even applying a principle of necessity and reasonableness, was the restoration costs. 

CRENNAN J:   So it is the diminution in value which can take into account restoration costs.  That is your point, I suppose.

MR YOUNG:   Yes, your Honour.  There is nothing in the principle for which we contend, that is to say, Bellgrove, that excludes restoration costs as a relevant consideration in assessing the true loss.

CRENNAN J:   Then you get back to the evidentiary aspects of the case, I suppose.

MR YOUNG:   Yes.  Their Honours looked at the result, but they have used the case as authority for the proposition that the Joyner principle can be applied to clause 2.13.  The case does not stand for that proposition.  If anything, it is to the opposite effect because it rejects this as a repair covenant kind of case attracting a repair covenant measure.  The case there has been explained in the way I have just described in all of the relevant texts and in subsequent authorities.  Can I go to one of those, which was Westminster v Swinton ‑ ‑ ‑

FRENCH CJ:   Sorry.  Their Honours’ position depends critically upon the proposition that, at 13, there can be no meaningful distinction between a full repair covenant and 2.13.  So in a sense, it is almost a constructional proposition, is it not?

MR YOUNG:   Possibly so, your Honour, but ‑ ‑ ‑

FRENCH CJ:   This is because relevantly the obligations are the same.

MR YOUNG:   Yes, your Honour, but that seems to be on the footing that – it is difficult to see how relevantly the obligations are the same because ‑ ‑ ‑

FRENCH CJ:   Yes, I know, but that is the premise upon which Joyner v Weeks is brought in.

MR YOUNG:   It is, your Honour.  Yes, but one cannot reach that conclusion simply by looking at the covenants or construing them.

FRENCH CJ:   No.  I understand that.  I am just looking at the logic of the ‑ ‑ ‑

MR YOUNG:   Yes, and it seems that their Honours say that the analogy is justified not by the content of the covenant, but by some cases.  The point I am making is that the cases do not support the analogy.  They contradict the analogy. 

Westminster v Swinton is tab 10 in the Court’s folder.  It is a case of the covenant again not to alter the structure and not to sublet, and the issue in the case before Justice Denning, as he then was, was the proper measure of damages.  His Honour considered Eyre v Rea at 533, the last paragraph across to the top of 534. As to Eyre, his Honour said that Justice Atkinson must not be taken as having made a decision that:

in every breach of this kind the cost of reinstating the premises is the measure of damages.

His Honour refers to Conquest v Ebbetts.  At the top of 534, his Honour says, or draws attention to section 18 and its modification of Joyner.  His Honour then proceeds:

In Eyre and Another v. Rea no doubt the cost was the proper measure, because the house was in St. John’s Wood, and the right course was to reinstate it at once.  That is what the landlords intended to do.  The real question in each case is:  What damage has the plaintiff really suffered from the breach?

But that is applying the general principle applied in Conquest v Ebbetts and in Eldridge and Ruxley.  It is not applying the inflexible Joyner rule.  Their Honours also refer to James v Hutton.  Their Honours summarise James v Hutton in paragraph 16.  Paragraph 16 contains simply a summary of the decision which is unexceptional.  I have dealt with their observation that Espir was to like effect as James v Hutton.  

Their Honours do not, at paragraph 16, explain how they deal with James v Hutton, but later, at paragraph 19, their Honours distinguish it, rejecting the trial judge’s view that the instant case closely resembled James v Hutton.  Their Honours say that was a different kind of claim based on a different covenant that warranted a different approach.  James v Hutton is under tab 5.  Our submission is that it is much closer to the covenant in 2.13 than a repair covenant, and the principles it states are applicable.  James v Hutton concerned a covenant in a licence to restore the building.  There was a prohibition in the lease on alterations and consent was obtained by means of a licence agreement and this covenant was part of the agreement to give consent to the alterations.  That appears ‑ ‑ ‑

CRENNAN J:   Page 11 of tab ‑ ‑ ‑

MR YOUNG:   It certainly appears in the headnote.  I was looking in the judgment for ‑ ‑ ‑

CRENNAN J:   It appears in the statement of the facts at page 11 about point 3.

MR YOUNG:   Yes, your Honour is right.  That is where I was looking for it.  It is page 11, the second last paragraph, “On August 14, 1936”.  That was the covenant which was allegedly breached and there was a suit for damages in respect of the breach of that covenant and the licence agreement.  The relevant discussion is at pages 16 and 17.  Lord Goddard said at the top of page 16 that:

the general rule as to damages for breach of contract ought to be applied . . . A covenant is only a special form of contract and the same rules apply to a breach of covenant as apply to a breach of a simple contract so far as damages are concerned.

His Honour then addresses the question whether this covenant could be analogised with a repair covenant, and his Honour rejects that notion saying, “there is no true analogy between the two cases”.  His Honour observes that:

If a tenant fails to deliver up a house in repair, the landlord must suffer some damage, at least so long as the house remains in existence.  Instead of getting a house in a perfect state of repair he gets one which is dilapidated.

Joyner v Weeks is noticed halfway down that passage as the measure applicable to repair covenants.  His Honour then explains Joyner.  At the last two lines on the page, Joyner:

must be regarded as proceeding on the footing that the plaintiff must have suffered damage by the tenant yielding up the house out of repair.  We see no ground here for assuming that the plaintiff in this case has suffered any damage at all.  She has got back a shop, or would have done, if the premises had not been requisitioned, provided with a modern and convenient front, and there was no suggestion that the work had not been carried out properly.  We do not for one moment suggest that it might not be possible for a lessor in circumstances such as these to give evidence that she or her superior landlords at the end of the term desired to carry on or to let the premises for the purpose of carrying on a business for which the altered shop front would be inappropriate and the old one suitable.  In that case she might well say that it is of value to her to have her shop back in its former condition and she would suffer damage, if the lessee’s covenant to restore was not carried out, but if it is a mere matter of getting back a shop which has been altered and there is no suggestion that any damage whatever has been caused to the plaintiff thereby, it appears to us that she has suffered no damage –

Can I make two observations.  First, the court rejects the analogy with repair covenants and, secondly, the court says applying general contractual principles you can, of course, lead evidence that the renovated or altered premises are not suitable and might cause loss and if you can prove that case, that might attract a measure of damages, but if you attempt to lead evidence as to lack of suitability and it is rejected, then you are left with a general contractual measure of damages.  That is the sort of thing that happened here.  There was an attempt to prove that the altered foyer would be less attractive to tenants in the future and loss would thereby be suffered, but on the facts that case was rejected and there was no other attempt to prove any loss capable of sounding in damages. 

So, in our submission, James v Hutton is a very relevant authority.  It does not support the extension of Joyner to the circumstances of a breach of clause 2.13.  James v Hutton is, compared relatively to repair covenants, a much closer kind of claim and a much closer kind of covenant to the one in issue here than a repair covenant; the opposite, in effect, of what their Honours said about the case. 

GUMMOW J:   Just looking at paragraph 13 of the majority judgment at page 998, the sentence beginning “It will be noticed” and then the next couple of sentences, may be enough for your purposes to say that that was an unjustified jump.

MR YOUNG:   It is certainly a jump, yes, your Honour, and unjustified. 

FRENCH CJ:   That is the jump from characterisation of 2.10 to 2.13 and their equation?

MR YOUNG:   Yes. 

FRENCH CJ:   That is why I put to you before it is a constructional question really.

MR YOUNG:   Yes, but this may be perhaps overly simplistic.

HEYDON J:   But it is not central to your case to attack Joyner.

MR YOUNG:   No.  

HEYDON J:   It is a second order sort of question.

MR YOUNG:   We can certainly succeed in this appeal without having this Court declare that Joyner is no longer good law simply because it did not apply and ought not to have been applied. We accept that, your Honour. This is a little bit out of order, but can I – I am sorry, I was going to say it is too simplistic, but one way of characterising what the joint judgment does is to say they have approached the breach of 2.13 as if it were a breach of clause 2.10, and the earlier passages at paragraphs 7 and 8 might lend some support to that simple view of things.

A little out of order, because I am going to come to Justice Rares which was a judgment to similar effect, but Justice Rares does deal with James v Hutton and, whilst the case is fresh in the Court’s recollection, can I go to what his Honour Justice Rares said about it at pages 1008 to 1009.  His Honour discussed James v Hutton at paragraphs 39 and 40 in the context of discussing Joyner and Graham v The Markets Hotel and Maori Trustee, all of which were about repair covenants.  His Honour Justice Rares describes James v Hutton at about line 37 as “not convincing” and at line 43 as not persuasive and then continues, “the Court is bound to follow the decision in Joyner”.  In the course of that discussion, at about line 27, Justice Rares says that the Court of Appeal in James v Hutton said that:

the rule in Joyner [1891] 2 QB 31 would be displaced because the landlord had granted a licence –

There was no displacement of Joyner for that reason that was the subject of discussion in James v Hutton.  James v Hutton simply said that it was a different case and Joyner was inapplicable.  It may be that that is what his Honour meant, but displacement conjures up the proviso or the qualification to Joyner and certainly James v Hutton was a case that was applying Joyner or its proviso.

Further, we would say there is nothing unconvincing or unpersuasive about the reasoning in James v Hutton.  It has never previously been criticised.  It is a straightforward application of general contractual principles.  In short, therefore, none of the cases that their Honours rely upon for the analogy that Joyner applies to clause 2.13, when properly understood, supports that extension. Next, we submit that the joint judgment is in error because it gives an overly broad reach to a clause 2.10 repair covenant. This is a simple point. Their Honours say at paragraph 9 at page 996 that:

A repair covenant is breached . . . if the tenant destroys or alters the premises –

citing three cases, Gange v Lockwood, Barton v Reilly and Graham v Markets Hotel.  Every one of those cases was a case in which there was some destruction but the premises were left in disrepair.  They were left out of repair at the end of the lease.  The toilet was removed from the hotel in Graham v Markets Hotel and not replaced, so that the premises could not be used as a hotel at the end of the lease.  In Gange v Lockwood a fence was destroyed, or a brick wall, and never replaced.

They do not stand for the proposition that any alteration of premises is a breach of a repair covenant.  A repair covenant needs to address what is done thereafter to effect remedy or repair and a breach of a repair covenant at or near termination only arises if the premises are left in disrepair.  We have cited Woodfall for that proposition.  I will not go to the passage but the Court has the reference.  It is sections 13.029 and 13.063.  We have undertaken some fairly exhaustive searches and we have not unearthed any cases that extends Joyner to the breach of a covenant not to make alterations.  The three decided cases that are closest, Whitham, Espir and James refused to make that extension. 

Can I turn then to Justice Rares’ judgment.  Justice Rares arrived at the same result, that Joyner should be applied but by a different route.  His Honour discerned a “make good” obligation in clauses 2.10, 2.11, 2.12 and possibly 2.13, but principally the earlier clauses.  Further, notwithstanding that the only breach in issue was a breach of 2.13, his Honour appears to have assessed damages for breach of the make good obligation found in clauses 2.10 to 2.13.

His Honour does not use the same language of analogy that the joint judgment does to say, “We are going to apply the Joyner measure across to a breach of clause 2.13”. I support that submission by going to several paragraphs in Justice Rares’ judgment commencing at paragraph 67 at page 1021. Having set out the lease at some length, his Honour said:

making good the damage under cll 2.10, 2.11 and 2.12 must involve replacing the part of the structure which Tabcorp destroyed with its substantive equivalent –

et cetera. 

CRENNAN J:   Clauses 10 and 11 seem to focus on tenantable repair.

MR YOUNG:   Yes, they do, your Honour.  This goes back to not delivering up in disrepair on the last point I made.

CRENNAN J:   Yes, somewhat different from a “make good” clause.

MR YOUNG:   Yes, your Honour.  So, there are really two points.

CRENNAN J:   One is:

good and substantial repair working order and condition –

That is 2.10, and 2.11 is yielding up:

in good and tenantable repair order and condition . . . and clean and free from rubbish –

and so on.

MR YOUNG:   Yes, your Honour.  So there are probably two criticisms.  I have leapt to the second.  The first is his Honour is probably giving an overly generous construction to clauses 2.10, 11 and 12 by speaking of a “make good” obligation.

GUMMOW J:   Yes.  On the evidence of this case in 2012, or whatever the date is going to be, there may not be any breach of 2.10 and 2.11.

MR YOUNG:   Exactly, your Honour, and nor was there, we would say, if one takes the surrender and regrant in 2006 and makes a rather artificial inquiry as to the state of the premises then as if it were yielded up at the end of a lease, there was a perfectly good foyer in place.

MR BENNETT:   It has never been on the table and still is not, as I understand it.  Your Honours, I see it is almost a quarter past and I was going into a different area of dealing with the other cases.

FRENCH CJ:   Maybe just keep going for a little longer.

HEYDON J:   Eight minutes is a long time in this Court.

FRENCH CJ:   It sometimes seems like an eternity.

MR BENNETT:   If your Honour pleases.  The only question is whether my submissions in the morning are shortened by eight minutes by not proceeding now. 

I should say a few words about my friend’s complaint about unfairness.  He seems to complain about two things.  The first is the fact that the trial was conducted on a basis of 2.13 and the appeal was decided on a wider basis by different members of the court.  Our answer to that is…..have now, by notice of contention, sought perhaps a wider basis still.  The answer to that simply is Connecticut Fire, and it is a principle which has been applied by this Court in Suttor v Gundowda and in many other cases. 

The point is that, leaving aside discretionary considerations on special leave applications which may be different, if a point is raised which would not have affected the evidence and which is just a question of law on the facts as found, and if the other party can say, “Oh, but then I would have acted differently.  I would have cross‑examined differently.  I would have called different evidence”, then one cannot do it.  But if that is not the case, one can.

Here, once it is appreciated that the trial was conducted, as I have repeatedly submitted, on the basis that there were the two basic measures and we had to choose between them – the amounts of both were proved and there was extensive argument of law as to which was the appropriate measure in this case and there were differences as to the formulation of the test of reasonableness depending on which route one goes – that is a case where one can say with some confidence there would have been no difference at the trial. 

HEYDON J:   What do you say about 2006 agreement?  The appellant does assert in paragraph 82 of the written submissions that it might well have called background material relevant to the construction of the special condition.

MR BENNETT:   Well, your Honour, it cannot effect on its own the construction of a special condition unless it modifies it in some way.

HEYDON J:   Well, there are two possible meanings, at least.

MR BENNETT:   Yes.  But, your Honour, it has been open to my learned friend before the Full Court and here to argue that.  If your Honours go to the transcript of the Full Court argument, parts of this passage was read by my learned friend.  He put it as the high point of the argument.  We would submit it is precisely argument on the very point which he says he was prevented from arguing, and it is very clearly directed to that issue and it is squarely put.

If having been taken by surprise he needed more time, he could easily have asked for it and, of course, all the arguments on construction are open to him here, although he has not advanced them in his oral argument.  At the trial it is dealt with at page 665 where there is a reference to the offer which gave rise to the new lease, and his Honour says at 665 point 5:

I understand that the current arrangements are subject to any legal rights that your client asserts in these proceedings.

Mr Colbran says, yes:

we thought that that should be tendered also as part of the body of evidence –

and it is discussed.

GUMMOW J:   Well, this is significant, Mr Solicitor, because of the question it throws up of discount, does it not?

MR BENNETT:   I am sorry, your Honour?

GUMMOW J:   What happened in the April 2006 agreement is significant, is it not, because of its impact on the need to – or it concentrates the mind on a need to discount the 1.3 because we are looking at either 2012 or 2017 to expend the money but it is in hand now.

MR BENNETT:   Well, that is the betterment issue, your Honour, which ‑ ‑ ‑

GUMMOW J:   It is not just that, is it?  I do not know.

MR BENNETT:   I suppose it is a different form of the betterment issue, the discounted value of money being ‑ ‑ ‑

FRENCH CJ:   It is quite distinct, is it not?

MR BENNETT:   It is distinct, yes.

CRENNAN J:   So two discounts really – betterment in relation to the evidence that every 15 or 20 years the old foyer, had it been used for 15 or 20 years, would have had to be refurbished and then a discount in relation to the value of the money when you are not using it.

MR BENNETT:   The discount in relation to the value of money might depend on the time when we were entitled to the damages, but if it was 2012 it might well have been different.

CRENNAN J:   You do not want forfeiture or entry before 2012.

MR BENNETT:   No.

CRENNAN J:   Because of 2006.

MR BENNETT:   Yes.  But, your Honour, what the parties were saying was - it is, we would submit, very clear.  We are going to give you a fresh lease on slightly different terms as to money and term and so on, but we have litigation on foot against you in which we have certain rights.  It is not to be said against us in that litigation that those rights are affected in any way by the fact that we have given you a new lease or allowed the option to be exercised, if it is treated as an exercise of option, or whatever.  We simply ignore it for the purpose of that litigation.  But my friend describes that as putting it on a totally artificial and unreal basis and so on, but really it is just parties to litigation saying, “We want to do something but we don’t want the fact that we are doing it to affect the litigation”.

CRENNAN J:   But that is in relation to you – what damages in lieu of mandatory injunction, and you want them now, so proleptically having regard to the 2006 agreement, but then you might have a discount for betterment and a discount in relation to the fact that the $1.3 million can be invested by you at some sort of interest rate between now and 2012, which is the earliest point at which you can exercise a right of entry and spend this money to reinstitute the old foyer.

MR BENNETT:   It may not be quite so clear that we have to wait till then to do it but that would depend on ‑ ‑ ‑

CRENNAN J:   I had not assumed you had argued it on any basis below other than that the relevant date would be 2012 or 2017 if the option were exercised.

MR BENNETT:   The costs were assessed in today’s terms, of course.  If there were the deductions your Honour has referred to there might also be an increment for the increased costs that would be likely of doing the work at the time it was done.

CRENNAN J:   But that would involve expert evidence in futuro in a sense.  I mean, it all gets very difficult, does it not?

MR BENNETT:   It does become very difficult, your Honour.  So what the parties said was, “Let’s ignore all of that.  We’ve got litigation on foot.  The lease would otherwise have come to an end now”.

CRENNAN J:   So we want the present costs now in relation to damages in lieu which would be operating as at 2012?

MR BENNETT:   Your Honour, if the case had been argued on the basis that there should be a discount of that sort, no doubt it would have been looked at and considered and evidence might have been called and so on, but the parties agreed that would not be so.  They said, “Look, we’re going to do something.  We’re going to have this fresh lease.  It suits both of us to have a lease for a further six years plus a five year option of renewal taking effect from a different date, but that is not to affect this little fight we are having about something different”.  The words could not, in my submission, be clearer.

My learned friend was entitled to argue before the Full Court that that was not the meaning of the word.  It is the full passage that my learned friend read around – I will not read it to your Honours again, but my learned friend does argue the meaning of the clause at pages 913 to 918 of the appeal book and he was free to argue it further or, if it was taken by surprise, to seek more time for that purpose, but he is not prejudiced in any relevant sense by the matter being raised at that stage.  At the trial, as I have shown, the matter was referred to.  His Honour was told, in effect, how it means you ignore the new lease and the parties continue as if it was not there and on that basis everyone was content and the matter proceeded and your Honours recall the passage where my learned friend says, “I don’t require it to be tendered”.

FRENCH CJ:   Mr Bennett, can you give us an indication, please, of how much longer you propose to be?

MR BENNETT:   I think about an hour, your Honour.

FRENCH CJ:   I think perhaps if you just reflect upon whether an hour is in fact necessary.  Anyway, it is a matter for you.  We will adjourn until 10 o’clock tomorrow morning.

AT 4.19 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 3 DECEMBER 2008