Telstra Corporation Ltd v Sicard Pty Ltd

[2009] NSWSC 827

CITATION:	Telstra Corporation Ltd v Sicard Pty Ltd [2009] NSWSC 827
HEARING DATE(S):	25 June 2009
JURISDICTION:	Equity Division Duty Judge List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	26 June 2009
DECISION:	Interlocutory injunction granted
CATCHWORDS:	LANDLORD AND TENANT – Lessor’s covenants – quiet enjoyment – application for interlocutory injunction where lessor undertaking building works to façade of building – where lessor claims works are authorised by provision of lease which permits modification, reconstruction and rebuilding of the building – whether the performance of works constitutes a breach of covenant of quiet enjoyment in that interruption and disturbance occasioned are undue within the meaning of the covenant – whether lease permits the lessor to perform works as long as they are performed reasonably – where defendant would incur significant costs if an interlocutory injunction were wrongly granted – where the plaintiff would incur significant interruption to its ability to carry on its business if an interlocutory injunction were wrongly refused – where balance of convenience is relatively evenly poised – where the plaintiff’s case is significantly stronger and more likely to succeed
CATEGORY:	Procedural and other rulings
CASES CITED:	Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1 Clark v Lloyd’s Bank Ltd (1910) 79 LJ Ch 645 Famous Markers Confectionery v Sengos (No 2) Pty Ltd (1993) NSW ConvR 55-672 Glasshouse Investments Pty Ltd v MPJ Holdings Pty Ltd [2005] NSWSC 456 Gordon v Lidcombe Development Pty Ltd [1966] 2 NSWR 9 Harrison v Southwark & Vauxhall Water Company [1891] 2 Ch 409 Saner v Bilton (1878) 7 Ch D 815 Southwark London Borough Council v Tanner [2001] 1 AC 1, (1999) 3 WLR 939 Spathis v Hanave Investment Co Pty Ltd [2002] NSWSC 304 Todburn Pty Limited v Taormina International Pty Ltd (1990) 5 BPR 11,173
PARTIES:	Telstra Corporation Ltd (plaintiff) Sicard Pty Ltd (defendant)
FILE NUMBER(S):	SC 3285/09
COUNSEL:	Mr K Andronos (plaintiff) Mr M White w Mr R Gration (defendant)
SOLICITORS:	Mallesons Stephen Jaques (plaintiff) Minter Ellison (defendant)

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

BRERETON J

Friday 26 June 2009

3285/09 Telstra Corporation Ltd v Sicard Pty Ltd

JUDGMENT (ex tempore)

1 HIS HONOUR: The plaintiff Telstra Corporation Ltd is the lessee from the defendant Sicard Pty Limited of premises at levels 2-12 inclusive in a 28 storey commercial office building at 175 Liverpool Street, Sydney, of which Sicard is the proprietor. Telstra alleges that Sicard, in breach of the covenant of quiet enjoyment contained in the lease, is, and unless restrained will continue to, disrupt its quiet enjoyment and peaceful occupation of the premises, by the conduct of works on the facade of the building. Sicard contends that such works are authorised by another provision of the lease, to which the covenant for quiet enjoyment is expressed to be subject, which permits the lessor to modify, reconstruct or rebuild the building.

2 The parties had made some arrangements between themselves to endeavour to accommodate the conduct of the works, but those arrangements have broken down. On 19 June 2009, Gzell J, by consent and without admissions, granted an interim inunction restraining Sicard from carrying out “noisy works”, as defined in the order, to the building except (on all levels except level 7) only between the hours of 7am and 11am, and (on level 7) only on Saturdays. Before me is an opposed application for interlocutory injunctive relief which, as the application has developed, is in slightly wider terms than, but to substantially the same effect as, the relief granted by Gzell J.

3 On an application for interlocutory injunction, the test is whether there is a sufficiently seriously arguable case for a final injunction that, having regard to the balance of convenience, interlocutory relief is warranted. However, where, on an interlocutory application, a question of law arises, the Court will, if it can, determine that question of law, rather than simply evaluating whether the plaintiff’s proposition is or is not seriously arguable.

4 The premises are used by Telstra as general office space, and are occupied by Telstra and various subsidiaries, including Sensis Pty Limited. Four floors of the premises are used as call centres; level 7 is an inbound customer service call centre; and levels 3, 5 and 9 are outbound call centres.

5 Sicard commenced refurbishment works to the building in late January/early February 2009. These works include refurbishment of the entrance, the foyer and lift lobby on the ground floor, and works to the facade of the building. The facade works involve the removal of masonry, which generates significant noise, vibration and dust; this in turn has a significant impact on the amenity of the premises for occupants. The level of noise and vibration makes it difficult, if not impossible, for Telstra staff to carry on a conversation, to hear and respond to telephone calls, and to perform any useful work proximate to where the facade works are being performed. Some of Telstra’s employees have complained of stress, headaches, earaches and eye irritation. There is a particular impact on the call centres on levels 3, 5, 7 and 9, the staff of which are required to converse by telephone with members of the public. It is very difficult, if not impossible, to perform this task while noisy works are taking place on the facade in the proximity of those levels. According to the current programme of works, these works – and thus the disruption they occasion – will continue until about September 2009, that is to say for a further three months.

6 At the heart of the present dispute are two provisions of the lease. Clause 11.2 is as follows:

Common Parts and further works

(a) Subject to the Lessor’s rights to vary, restrict the use of, or add to the Common Parts, or designate an area no longer to be a Common Part, the Lessor covenants and agrees with the Lessee that:
(i) subject to the limitations and restrictions expressed in this Lease, the Lessor will provide the Common Parts and the Lessee and the Lessee’s Agents will be entitled (in common with other tenants or persons authorised by the Lessor) to use Common Parts for the purposes for which they were designed or intended to be used;
(ii) the Lessor will keep the Common Parts clean, free of debris and rubbish, maintained and in good repair and condition commensurate to the standard of the Building; and
(iii) the Lessor will use its reasonable endeavours to maintain the Building (other than any part of it for which the Lessee or any other tenant is liable) in good repair and condition provided that the Lessor’s obligations under this clause 11.2(a)(iii) are subject to delays or stoppages due to strikes, accidents, unavailability of parts or materials or unforseen or unavoidable causes and the Lessor’s right to carry out repair and maintenance or to refurbish or renovate such areas from time to time,

(b) The Lessor reserves the right from time to time to add, vary, modify, alter, re-design, reconstruct or rebuild the Building or any part thereof and to construct buildings or improvements upon the Common Parts and to move or change the directions , areas, levers or locations of the Common Parts or the type of finish of or facilities in any of the Common Parts in any way or manner. In exercising its rights under this clause 11.2(b), the Lessor must not substantially and permanently derogate from the Lessee’s rights under the Lease.

7 Clause 11.4 is as follows:

Quiet enjoyment

Subject to the covenants terms and conditions of this Lease, upon paying the Minimum Rent, additional rent and other moneys payable to the Lessor and performing the Lessee’s obligations under this Lease the Lessee is entitled to peaceably possess and enjoy the Premises during the Term without undue interruption or disturbance from the Lessor or the servants and agents of the Lessor.

8 The essential issues on the case for final relief are, first, whether clause 11.2(b) permits the lessor to perform works so long as they are performed reasonably, and to that extent qualifies and limits the operation of the covenant for quiet enjoyment which, therefore, must be read down; and, secondly, if not, whether the performance of works in fact is in breach of the covenant for quiet enjoyment, in that the interruption and disturbance they occasion are “undue” within the meaning of that covenant.

9 As to the first of those issues, where a provision of a lease gives a right to the lessor inconsistent with a covenant for quiet enjoyment – such as one permitting access for the purpose of inspection or repairs – it operates as an exception to the right of quiet enjoyment, which is to that extent to be read down [Saner v Bilton (1878) 7 Ch D 815, 824; Famous Markers Confectionery v Sengos (No 2) Pty Ltd (1993) NSW ConvR ¶55-672, Glasshouse Investments Pty Ltd v MPJ Holdings Pty Ltd [2005] NSWSC 456]. However, at least in the context of a commercial lease, it is implicit that the lessor must exercise any special right given to it in that way reasonably [Famous Markers Confectionery, 59,838; compare (in the context of nuisance) Clark v Lloyd’s Bank Ltd (1910) 79 LJ Ch 645 and Harrison v Southwark & Vauxhall Water Company [1891] 2 Ch 409].

10 The question is whether clause 11.2, properly construed, is such a provision and has that effect. To answer this, reference must be made, first of all, to some other provisions of the lease. In clause 1.1 (Definitions), “Building” is defined as follows:

Building means the building described on the cover page of this Lease and erected on the Land together with any modifications, extensions or alterations from time to time and including plant, equipment, fittings, fixtures, chattels and other improvements and conveniences, amenities and appurtenances from time to time (not being a tenant’s fixture, fitting or chattel) and including without limit, the Common Parts.

11 “Common Parts” is defined as follows:

Common Parts means those parts of the Land and Building provided by the Lessor from time to time for common use by the occupants of the Building (including the Lessee’s Agents and any persons authorised by the Lessor) including, without limit, entrances, exists, lobbies, corridors, lavatories, tea rooms, stairways, elevators, vestibules and other common amenities and conveniences.

12 “Premises” is defined as follows:

Premises means the premises described in Item 10 including the Lessor’s Plant, and including any part of the Premises. The boundary of the Premises will be (with the exception of the use of the term Premises in the context of measuring the Net Lettable Area):

(a) the interior surfaces of the floor, the suspended ceilings and the perimeter walls of the Building;

(b) the exterior surface of any structural columns within the Premises;

(c) where the Premises or any part of the Premises is bounded by a wall forming part of the core of the Building, the surface of the wall facing the Premises;

(d) where the Premises or any part of the Premises is bounded by a wall or partition constructed by the Lessee as part of its fit out of the Premises:

(i) where the wall or partition adjoins another tenancy or a part of a floor which is not Common Parts of a floor, the surface of that wall facing into the Premises;
(ii) where the wall or partition separates the Premises from Common Parts of that floor, the surface of that partition or wall which faces the Common Parts.

13 Item 10 in the Schedule, referred to in that definition, specifies “levels 2-12 inclusive of the building”.

14 Clause 10 (Damage or Destruction) provides for the abatement of rent “if the building or any part of it is at any time during the term damaged by fire, lightning, storm ... or other disabling cause so as to render the premises or any substantial part of the premises substantially unfit for the occupation and use by the lessee or (having regard to the normal means of access to the premises) substantially inaccessible.”

15 Clause 12 of the lease (Rights reserved by lessor) includes a right on the part of the lessor to install, remove, maintain, use etc pipes, ducts, conduits or wires passing or leading through the premises (12.1); rights of entry to inspect the premises to carry out repairs, and to execute works to remedy a defect which is the lessee’s duty to repair, if the lessee has not done so (12.2); rights to vary or amend the building rules and regulations (12.3), rights to require the lessee to perform fire and emergency drills (12.4), and rights to show the premises to prospective purchasers or tenants (12.5). Because clause 12.2 is of particular relevance, it is set out in full:

Rights of entry

The Lessor has the right to enter upon the Premises with all necessary materials and equipment at all reasonable times and on reasonable notice with an officer of the Lessee (but at any time and without notice and not with an office of the Lessee in the case of an emergency):

(a) to enter and view the state of repair of Premises and to ascertain whether or not there has been any breach of the terms of this Lease;

(b) to carry out repairs or other works to the Premises or to the Building or to any adjacent building;

(c) to execute any work required to remedy a defect which is the Lessee’s duty to repair if the Lessee has not with twenty one (21) days (or such lesser time as is reasonable according to the nature of the defect) of the date of receipt by the Lessee of the Lessor’s written notice requiring the defect to be repaired or remedied. Without prejudice to other remedies the Lessor may recover the costs of the repairs from the Lessee on demand;

(d) for the purpose of complying with the terms of any present or future legislation affecting the Premises of the Building or of any notice served on the Lessor or Lessee by any competent Authority for which the Lessee is either not responsible or has within a reasonable time failed to comply. Without prejudice to other remedies, where the Lessee has failed to comply, the Lessor may recover the costs of compliance with the notice from the Lessee on demand;

(e) in the event the Premises or the Building are either destroyed or damaged for the purposes of rebuilding or restoration; and

(f) for the purpose of carrying out any repairs, alterations, additions, cleaning, examining, maintaining, testing, servicing or other works to the utility or other services provided to the Lessee and/or other tenants of the Building,

provided that the Lessor must use its reasonable endeavours to effect any works during hours in Item 7 and must use reasonable endeavours (having regard to the nature and extent of the works) to carry out the works without causing undue inconvenience to the Lessee.

16 It is next necessary to consider the context in which clause 11.2 appears. First, it appears in clause 11, which is entitled “Covenants by Lessor”; secondly, it appears as clause 11.2, under the subheading “Common Parts and further works”. Thirdly, clause 11.2(a) anticipates the reservation of rights on the part of the lessor to vary, restrict the use of or add to the Common Parts, or designate an area no longer to be a Common Part. Subject to that reservation, clause 11.2(a) imposes obligations on the lessor to make available for the use of the lessee and the lessee’s agent the “common parts”, to keep them clean and in good repair and condition, and to use reasonable endeavours to maintain the building (other than any part for which the lessee or any other tenant is liable) in good repair and condition – subject to delays or stoppages due to strikes, accidents, unavailability of parts or materials or unforeseen or unavoidable causes, “and the lessor’s right to carry out repairs and maintenance or to refurbish or renovate such areas from time to time”. It is notable that sub-clauses 11.2(a)(iii) and 11.2(b) refer mainly to the “Common Parts”, and incidentally to the “Building”, but not at all to the “Premises”. The context in which clause 11.2(b) appears, therefore, is that of a provision which is addressed primarily to the provision of the benefit of the common parts to the lessee, and ensuring that the common parts are accessible to and usable by the lessee.

17 Next, one looks at the content of clause 11.2(b). Unlike clause 11.2(a)(iii), which specifically refers to “the Lessor’s right to carry out repair and maintenance or to refurbish or renovate such areas from time to time”, clause 11.2(b) while giving the lessor the right to “add, vary, modify, alter, redesign, reconstruct or rebuild the Building or any part thereof”, contains no provision concerned with repairs, maintenance, refurbishment, or renovation. Although it initially refers to the Building, clause 11.2(b) read as a whole focuses on the Common Parts, and is primarily concerned with additions, variations and constructions which will impact on the Common Parts and their directions, areas, levels, locations, finishes or facilities.

18 In my view, having regard to the context and contents of clause 11.2(b), its purpose is to operate as an exception to the obligation imposed on the lessor by clause 11.2(a). It qualifies the lessor’s obligations in respect of the provision and maintenance of the Common Parts by permitting the lessor to rearrange the layout of the Building and thus the layout of the Common Parts. In the terms in which Mr Andronos, for the plaintiff, put it, the clause is concerned with the result, and not with the process of reconstruction or rebuilding. This conclusion is reinforced by two additional matters. The first is the location of clause 11.2(b), in clause 11 of the lease and in particular in clause 11.2, where it appears as the lessor’s right to “vary, restrict the use of, or add to the common parts” anticipated by clause 11.2(a). If it were intended to be a general right to repair, refurbish or renovate, then one would have expected to find it in clause 12, under the heading “Rights Reserved by Lessor”. The second is that, if clause 11.2(b) were to have the effect for which the lessor contends, then such right to reconstruct or rebuild the Building would implicitly involve a right to demolish the whole building and rebuild it during the term, at least so long as it did not “substantially and permanently derogate from the lessor’s right under this lease”. The lease being one for a term of six years, a demolition and rebuilding process which occupied perhaps three years of that term, but still left a year at the end of it, would not be a permanent derogation; yet the clause would, on the construction for which the lessor contends, authorise such a course. Moreover, it would do so without providing for any abatement of rent whereas clause 10.1 provides for an abatement if the premises are damaged and made substantially unfit for occupation and use by the lessee, other than by the lessee’s act or omission. It seems to me improbable in the extreme that the parties could have intended that if there were damage to the premises resulting in their becoming unfit for occupation by the lessee, there would be an abatement; yet at the same time the lessor could demolish and reconstruct the building during the lease without abatement.

19 It follows that, in my opinion, clause 11.2(b) does not operate as an exception to the covenant for quiet enjoyment, save to the extent that it has the effect that a rearrangement of the building – and, in particular, the common parts – will not be a breach of the obligation under clause 11.2(a). The facade is not a part of the common parts, although no doubt it is part of the building. The facade works are not a rearrangement of the building impacting on the common parts. The lessor is, as clause 11.2(a)(iii) recognises, entitled to repair, maintain, refurbish or renovate areas such as the façade, and (as they are not part of the demised premises) does not need any permission in or under the lease to do so, but its “entitlement” to do so does not excuse it from compliance with the covenant for quiet enjoyment.

20 The next issue, then, is whether performance of the façade works is in breach of the covenant of quiet enjoyment. In Todburn Pty Limited v Taormina International Pty Ltd (1990) 5 BPR 11,173 Powell J said at 11,177:

The covenant for quiet enjoyment operates to secure the tenant, not merely in the possession, but in the enjoyment, of the subject premises and any rights appurtenant thereto, for all usual purposes; and where the ordinary and lawful enjoyment of the premises (see for example, Owen v Gadd (supra); Kenny v Preen (supra)) or of the rights appurtenant thereto (see Dikstein v Kanevsky (supra); Dowse v Wynyard Holdings Limited (supra); Arndale (Kilkenny) Pty Limited v Gatejins (supra); Karaggianis v Malltown Pty Limited (supra)) is substantially interfered with by the acts or omissions of the landlord or those lawfully claiming under him, the covenant is broken, even if neither title to, nor the possession of, the demised premises, or of those rights, is otherwise affected. Whether or not any interference is substantial is a question of fact.

See also Glasshouse Investments Pty Ltd v MPJ Holdings Pty Ltd, [14].

21 It is now established that there can be a breach of the covenant for quiet enjoyment without a direct and physical interference with the tenant’s use and enjoyment of land. As Lord Millett explained in Southwark London Borough Council v Tanner (1999) 3 WLR 939, (at 957), the mistaken belief that there had to have been 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 “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”. The covenant will be breached if the premises are rendered unfit from a reasonable point of view for the purpose for which they are granted [Gordon v Lidcombe Development Pty Ltd [1966] 2 NSWLR 9; Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1; Spathis v Hanave Investment Co Pty Ltd [2002] NSWSC 304, [124]-[125], (where Campbell J, as his Honour then was, reviews many of the authorities)].

22 Although the activities of the lessor in the present case do not interfere with the lessee’s title or possession, they do impact, and in a very significant way, on the use and enjoyment of the premises, by rendering it practically impossible for them to be used during a significant part of the business day when they are ordinarily used. The works have already proceeded for some three months or more, and will continue for another three months. That is hardly an insubstantial interruption or disturbance. While there is some evidence that it is desirable to renovate the facade, there is no evidence that there is any short term necessity for such renovations to be conducted now: those defects that required short term attention, from the perspective of safety, had previously been remediated.

23 I am unable to see why it is reasonable for a lessor, in the context of a six year commercial lease, to interrupt the use of the premises by the lessee over a period of six months by refurbishment works which render substantial parts of premises unfit for use for the purposes for which they were demised, and with no abatement of rent in the meantime. In my view, the interruption and disturbance so occasioned is “undue” within the meaning of clause 11.4.

24 A covenant for quiet enjoyment, though positively expressed, is in substance a negative stipulation, it is the type of covenant specifically enforced as a matter of course by courts of equity by injunction. It cannot be said that a final injunction would be refused on the basis that damages are an adequate remedy.

25 I turn then to the balance of convenience. If an interlocutory injunction were wrongly granted, then the lessor’s ability to complete the works under way will be delayed, and it would no doubt incur significant additional costs in completing them. It might also be put in breach of obligations which it owes to third parties to complete the works which it currently has under way; but in this respect it must be borne in mind that the lessor has voluntarily assumed those liabilities to third parties, and they require it to breach its covenant for quiet enjoyment, that is a self-inflicted difficulty. If, on the other hand, an interlocutory injunction were wrongly refused, there will be a serious interruption to Telstra’s ability to carry on business from the premises, and – given that the premises are used as a call centre, in particular for inbound customer service calls – damage to its business reputation. Telstra would be left to a remedy in damages.

26 The form of injunction which Telstra seeks is limited. It does not seek entirely to prevent the works being carried out, but to limit the hours during which they may be performed to those when interference with Telstra’s quiet enjoyment will be minimised. The proposed injunction would not prohibit performance of works during business hours, but restrict certain types of works during certain windows of ordinary business hours.

27 To the extent that an injunction would occasion any delay in the completion of the works, and additional costs, and incurring of liabilities to third parties, those risks are met by Telstra’s undertaking as to damages. The lessor has, sensibly enough, not suggested that Telstra’s undertaking would be in any way inadequate.

28 Thus the balance of convenience is relatively evenly poised. The consequence of granting or refusing an injunction will be that the unsuccessful party on the interlocutory application will be left to a remedy in damages – either in lieu of an injunction if relief is wrongly declined, or upon the undertaking as to damages if an injunction is wrongly granted. In such a situation, the prima facie strength of the respective cases is, in my view, an important determinant of where the balance of convenience and justice lies. In a case where the question boils down to which party should be left to a remedy in damages, a conclusion that one party is substantially more likely to succeed at the final hearing than the other is a powerful factor.

29 The conclusions I have expressed on the issues relevant to whether there is a serious question to be tried – bearing in mind that on this interlocutory application I have, as authority indicates, taken the opportunity to decide the legal questions that arise – show that Telstra’s case is the significantly stronger one and that, therefore, the risk of injustice involved in refusing an injunction is greater than the risk incurred by granting one.

30 I am therefore satisfied that the plaintiff is entitled to the interlocutory relief specified in the short minutes which have been handed up, and which modify and restrict to that extent what was sought in its Notice of Motion. Upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages, I make an order in terms of paragraph 1 of the document entitled Order initialled by me, dated this day and placed with the papers. Costs of the interlocutory application will be plaintiff’s costs in the proceedings. Such order is to take effect from Tuesday 30 June 2009. I order that the orders made on 19 June 2009 as extended on 25 June 2009 to today, continue until and including 29 June 2009. I adjourn the proceedings to 9.15am on 3 July 2009 before the Registrar for directions.

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