United Petroleum Pty Ltd v Lakiss - [2025] NSWSC 248

Supreme Court

New South Wales

Medium Neutral Citation: United Petroleum Pty Ltd v Lakiss [2025] NSWSC 248
Hearing dates: 7 March 2025
Date of orders: 24 March 2025
Decision date: 24 March 2025
Jurisdiction: Equity - Real Property List
Before: McGrath J
Decision:
Declarations made that the plaintiff was entitled to deduct the repair costs of the potholes from the rent payable under the lease and the default notice served by the defendants was invalid (see [257])

Catchwords:
CONTRACTS – construction – interpretation – proper construction of a written commercial lease agreement for a petrol station – objective theory of contract –emergency repairs clause
CONTRACTS – breach of contract – lease agreement – where alleged breach for non-payment of rent – where no breach for non-payment of rent as lessee entitled to deduct cost of repairs
CONTRACTS – construction – correction of drafting mistakes by construction – where the literal meaning of the words used would result in an absurdity, inconsistency, palpable or obvious mistakes – where absence of a comma between “damage” and “disruption”
LEASES AND TENANCIES – covenants – covenant for quiet enjoyment – disturbance – breach of the covenant by a lessor from acts of omission – where lessor failed to repair potholes
LEASES AND TENANCIES – default and termination – non-payment of rent – invalid notice of default –where lessee entitled to deduct cost of repairs from payment of rent
LEASES AND TENANCIES – repairs, maintenance and alterations – obligation to repair and maintain – obligations under the Roads Act 1993 (NSW) – where potholes outside landlord’s property – where landlord liable to pay costs of repairing the potholes – where lessee entitled to deduct repair costs from rent payable to landlord

Legislation Cited:
Roads Act 1993 (NSW), ss 6, 142

Cases Cited:
Byrnesv Jokana Pty Ltd [2002] FCA 41
Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
Dennett v Atherton (1872) LR 7 QB 316
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Fitzgeraldv Masters (1956) 95 CLR 420; [1956] HCA 53
Hawkesbury Nominees Pty Ltd v Battik Pty Ltd [2000] FCA 185
HDI Global Specialty SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634; [2020] NSWCA 296
HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342
James AdamPty Ltd v Fobeza Pty Ltd (2020) 103 NSWLR 850; [2020] NSWCA 311
Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 276 CLR 500; [2023] HCA 6
Marley v Rawlings [2014] UKSC 2; [2015] AC 129
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
National Australia Bank Ltd v Clowes [2013] NSWCA 179
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14
Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13
Robinson v Kilvert (1889) 41 Ch D 88
Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11
Taylor v Owners — Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9
Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52
Western Australian Rugby Union v Australian Rugby Union Ltd [2017] NSWSC 1174
Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17
Wilson v Wilson (1854) 5 HL Cas 40; 10 ER 811
Zhong v Guan [2024] NSWCA 300

Texts Cited:
JD Heydon, Heydon on Contract (Thomson Reuters, 2019)
Oxford English Dictionary (online 2nd ed, March 2025)

Category: Principal judgment
Parties: United Petroleum Pty Ltd (Plaintiff)
Habib Lakiss (First Defendant)
Bassem Lakiss (Second Defendant)
Representation:
Counsel:
Z Graus (Plaintiff)
A Avery-Williams (Defendants)
Solicitors:
Johnson Winter & Slattery Lawyers (Plaintiff)
Yazbeck Law (Defendants)

File Number(s): 2025/00055028
Publication restriction: Nil

TABLE OF CONTENTS

TABLE OF CONTENTS

JUDGMENT

INTRODUCTION
RELEVANT FACTS
The Property
The Neighbouring Property
The Easements
Elizabeth Drive
The Nature Strip
The Concrete Hardstand
The Small Parapet, the Large Parapet and the Store
The Western Driveway and the Eastern Driveway
Entrance to and exit from the Property
The Lease
Inspection at the time of the Lease
Operation of the service station at the Premises
Caveat
2014 and 2020: Potholes and damage to vehicles from potholes
2021–2022: Renewal of Lease
2022: Market review of rent
2022: Communications with Penrith City Council and Ventia and customer complaints of potholes
2023: United’s communications with Mayfair about repair of the potholes
February 2024: United’s demand that the Lakiss brothers repair the potholes
May 2024: State of the potholes
June–July 2024: United repairs the potholes
September–October 2024: Deduction from rent and First Default Notice
October–December 2024: Rent paid and letter of demand
2023–2024: No record of complaints
January–February 2025: Deduction from rent and Second Default Notice
11 February 2025: Commencement of the proceedings
24 February 2025: Survey of potholes
3 March 2025: Photographs of potholes

LEGAL PRINCIPLES
Construction of written lease as a contract
Correction of drafting mistakes by construction
Principles concerning covenant of quiet enjoyment in lease
Operation of s 142 of the Roads Act

SUBMISSIONS
Submissions of United
Disruption to the Premises
Landlord’s responsibility for repairs to meet covenant of quiet enjoyment
Landlord’s responsibility for repairs to ensure compliance with Official Requirements
Whether United reasonably formed a view of immediate need of repair

Submissions of the Lakiss brothers
Disruption to the Premises
Landlord’s responsibility for repairs to meet covenant of quiet enjoyment
Landlord’s responsibility for repairs to ensure compliance with Official Requirements
Whether United reasonably formed a view of immediate need of repair

Submissions in reply by United

CONSIDERATION
Disruption to the Premises
Landlord’s responsibility for repairs to meet covenant of quiet enjoyment
Landlord’s responsibility for repairs to ensure compliance with Official Requirements
Whether United reasonably formed a view of immediate need of repair
Deduction of repair costs from the rent

ORDERS

Judgment

INTRODUCTION

This is a case about “potholes”.
The word “pothole” originates from Middle English and was first recorded in the early nineteenth century. Relative to its contemporary or popular use, “pothole” has an interesting history tied to natural rock formations such as vertical limestone caves caused by erosion (the exploring of which was termed “potholing”); man-made cylindrical holes or pits related to mining; and, later, damage to a roadway. This case concerns the latter use of “pothole”; a defect or depression in a road’s surface, commonly caused by erosion related to weather or heavy traffic. The word “pothole” was first applied to roadways in the late nineteenth century. I am grateful that all of these matters are set out in the Oxford English Dictionary (online 2^nd ed, March 2025).
A more interesting but less certain etymology of the word “pothole” lies in the story that it may have originated from the practice of pottery makers (or “potters”) in fifteenth and sixteenth century England or even as far back as the Roman Empire. In this apocryphal story, it is said that some opportunistic potters would take advantage of the deep ruts that travelling coaches and wagons had gouged into the stereotypically sodden roadways by digging further to reach clay deposits underneath and, by doing so, leaving behind a “potter’s hole” or “pott”, being Old English for a hole or pit.
The plaintiff, United Petroleum Pty Ltd, is the longstanding lessee of part of a property in Kemps Creek where it carries on a service station business. The owners and lessors of the service station are the defendants, two brothers Habib Lakiss and Bassem Lakiss (together, the Lakiss brothers). Serious and extensive potholes have plagued the entrance and exit driveways and the parking area at the service station for many years.
This dispute concerns the proper construction of the lease of the service station to determine whether United is liable for the costs it incurred in repairing the potholes or if the Lakiss brothers are liable for those costs so that United can deduct them from the rent it pays under the lease. Although the repair costs of just less than $11,000 are a very modest amount (and no doubt completely dwarfed by the legal costs incurred on both sides in these proceedings), the future of the lease is in doubt because the Lakiss brothers have threatened to terminate the lease and take possession of the service station.
United argues that on the proper construction of the lease, the obligation to repair the potholes falls on the Lakiss brothers as the lessor, while the Lakiss brothers argue that the obligation is one for United as the lessee to perform.
For the reasons set out below, I have determined that the Lakiss brothers are liable to pay the costs of repairing the potholes; United was entitled to deduct the repair costs from the rent payable to the Lakiss brothers; and the notice of default in the payment of rent that was sent by the Lakiss brothers to United was invalid. I will make appropriate declarations that accord with that decision.

RELEVANT FACTS

The Property

The Lakiss brothers are the registered proprietors of Lot 111 in Deposited Plan 1137261 known as 1465-1467 Elizabeth Drive, Kemps Creek, New South Wales (Property). Kemps Creek is located within the Penrith municipality of New South Wales in the western reaches of Sydney.
The Lakiss brothers purchased the Property in 1994.

The Neighbouring Property

The Lakiss brothers are also the registered proprietors of Lot 112 in Deposited Plan 1137261 known as 1469-1471 Elizabeth Drive, Kemps Creek, New South Wales, which directly neighbours the western boundary of the Property (Neighbouring Property).
The Lakiss brothers also purchased the Neighbouring Property in 1994.

The Easements

The Property and the Neighbouring Property are both subject to, and benefited by, an easement in the form of a right of carriageway, nine metres wide, on their southern boundary to Elizabeth Drive (Easements). The Easements cross between them on the western boundary of the Property, which is the eastern boundary of the Neighbouring Property. The Easements were registered on the title of the Property and the title of the Neighbouring Property on 18 January 2018 as DP1239026.

Elizabeth Drive

The Property and the Neighbouring Property are both located on Elizabeth Drive, which is a major thoroughfare providing access to the M7 Motorway and the Western Sydney International Airport, which is currently under construction.
Many large trucks, lorries and semi-trailers use Elizabeth Drive to drive onto and off the M7 Motorway.
Elizabeth Drive runs in an east-west direction south of the boundaries of the Property and the Neighbouring Property. Alongside both the Property and the Neighbouring Property, Elizabeth Drive accommodates traffic in both easterly and westerly directions, separated by a double line. A concrete kerb runs the length of Elizabeth Drive in front of the Property and the Neighbouring Property.

The Nature Strip

The land between the kerb and the southern boundaries of the Property and the Neighbouring Property was referred to by the parties as a “nature strip” but it has almost no nature of any description on it because it has been covered with crushed gravel and bitumen (Nature Strip). It is common ground between the parties that the Nature Strip forms part of a “public road” as defined in the Dictionary in the Roads Act 1993 (NSW).
Before 2012, the Nature Strip between the Western Driveway and the Eastern Driveway consisted of red soil, grass, a stand of palm trees and low shrubs.
The Nature Strip is not the property of the Lakiss brothers as it does not form part of the Property or the Neighbouring Property.
Unless a vehicle is parked to refuel at one of the fuel pumps on the Property (described in more detail below), there is no designated parking available on the Property (T25). As a result, vehicles (particularly trucks) often park on the Nature Strip (T23 and 25).

The Concrete Hardstand

The whole of the southern part of the Property is covered with a concrete hardstand on which two distinct sets of vehicle refuelling facilities are located (Concrete Hardstand). The whole of the part of the Easements located on the Property is covered by part of the Concrete Hardstand.

The Small Parapet, the Large Parapet and the Store

On the southwestern side of the Property is the first set of the vehicle refuelling facilities: a set of three diesel fuel pumps arranged in a single row covered by a small size parapet for rain and sun protection (Small Parapet).
On the southeastern side of the Property is the second set of the vehicle refuelling facilities: a set of five fuel pumps arranged as two pumps in one row and three pumps in a second row, covered by a large size parapet for rain and sun protection (Large Parapet). The southern part of the Large Parapet is located right to the edge of the southern boundary of the Property.
There is sufficient space on either side of a fuel pump for a vehicle to pull up in the bay beside it.
To the north of the Large Parapet is a building which contains a “Quickstop” branded store (Store) and what was formerly an operating café called Micks Coffee House.

The Western Driveway and the Eastern Driveway

It is possible for vehicles to enter and exit the Property and the Neighbouring Property from and onto Elizabeth Drive by use of a kerbed driveway that is southwest of the Property (Western Driveway). It is also possible for vehicles to enter and exit the Property by use of a kerbed driveway from and onto Elizabeth Driveway, which is southeast of the Property (Eastern Driveway). The Easements allow vehicles to drive between the Neighbouring Property and the Property on the southwestern boundary.
The Eastern Driveway runs in a north-south direction from the eastern side of the Large Parapet to the kerb with Elizabeth Drive. Where the Eastern Driveway commences at the eastern side of the Large Parapet on the southern boundary of the Property, it is 9 metres wide. Where the Eastern Driveway ends at the kerb of Elizabeth Drive, it is 19 metres wide.
The Western Driveway is the first driveway that a driver of a vehicle would encounter travelling east along Elizabeth Drive towards the Property.
The Eastern Driveway is the first driveway that a driver of a vehicle would encounter travelling west along Elizabeth Drive towards the Property. Drivers of vehicles travelling in that direction would need to execute a turn across traffic to enter the Property, whichever driveway they used. Notably, there is a right turning bay for drivers seeking to execute this turn. That turning bay is situated across from the Western Driveway and the arrows painted on the section of road which constitutes the turning bay point only to the Western Driveway. A vehicle in that turning bay will not hold up any westbound traffic behind it which wishes to proceed past the Property. On the other hand, there is no turning bay from which to execute a right turn into the Property using the Eastern Driveway and therefore a vehicle seeking to do so may hold up the traffic behind it. Elizabeth Drive has therefore been patterned in a manner to make it considerably safer for vehicles turning right into the Property to use the Western Driveway, not the Eastern Driveway.

Entrance to and exit from the Property

From 1994 until 2012, Habib Lakiss operated a service station on the Property branded “Red Spot” (Red Spot Service Station). I will refer to Habib Lakiss as Mr Lakiss.
There is photographic evidence that potholes existed on the Western Driveway, the Eastern Driveway and the Nature Strip while Mr Lakiss was operating the Red Spot Service Station on the Property and these potholes were proposed to be repaired as part of an upgrade to the Property in about late 2009 (Ex D). There is photographic evidence that there were no potholes on the Western Driveway, the Eastern Driveway or the Nature Strip in January 2010, although there were potholes evident immediately to the south of the southern boundary of the Neighbouring Property at that time (Ex B and Ex C).
Mr Lakiss gave evidence and was cross-examined at the hearing of these proceedings.
Mr Lakiss gave evidence-in-chief that it is possible for vehicles to enter the Property using the Eastern Driveway, that it was not unsafe for them to do so, there is more than sufficient space for them to turn around and safely enter the bays beside the fuel pumps and that larger general access heavy vehicles (up to 19 metres in length) might have to execute a slight 3-point turn on the northwestern side of the Property to pull into the diesel fuel pumps under the Small Parapet.
In cross-examination, however, contrary to Mr Lakiss’ evidence-in-chief, Mr Lakiss agreed that trucks going in opposite directions across the Eastern Driveway is “possibly not safe but the people sometimes are doing it” (T35–36). Mr Lakiss also readily agreed that it is easier for vehicles to enter the Property using the Western Driveway and exit the Property using the Eastern Driveway (T32). I do not accept the evidence of Mr Lakiss that it would be convenient for the drivers of other vehicles to wait while trucks executed 3-point turns (T31). Common sense dictates that customers waiting for very large trucks to execute such turns would be inconvenienced.
The ease with which vehicles may enter the Property using the Western Driveway was also emphasised in the photograph of the Property from January 2010 (Ex B, when Mr Lakiss was operating the Red Spot Service Station) which depicted an “entry” sign at the Western Driveway to indicate the manner in which vehicles should enter the Property (T21–22). Mr Lakiss was unable to recall a sign saying “entry” on the Eastern Driveway (T23) and the photograph of the Property from January 2010 (Ex C) did not demonstrate that there was any such a sign on the Eastern Driveway.
Further, Mr Lakiss gave evidence in cross-examination that the kerbed gutter was put in no more than five months before the Lease with United commenced (T39-40).
Amy Gerraty, United’s Senior Counsel Regulatory, also gave evidence at the hearing of the proceedings. In Ms Gerraty’s evidence-in-chief, she stated that she attended the Property on 3 February 2025 at which time she observed vehicles entering the Property using the Western Driveway and exiting the Property using the Eastern Driveway. Ms Gerraty confirmed this evidence in cross-examination, adding that she was at the Property for less than two hours but in that time she did not observe any vehicles enter the Property via the Eastern Driveway (T17).
Ms Gerraty also gave evidence that in her opinion it would be unsafe to allow vehicles to approach the refuelling pumps from two opposite directions (which accords with Mr Lakiss’ evidence in cross-examination) as the Eastern Driveway is too narrow to accommodate two passing lanes of traffic and there is insufficient space for vehicles to turn around on the Property to safely enter the bays beside the refuelling pumps.
From my observation of the lay out of the Property, the orientation of the pumps under each of the Small Parapet and the Large Parapet, which are from south-west to north-east, make it more natural for vehicles to enter the Property from Elizabeth Drive using the Western Driveway and exit the Property to Elizabeth Drive using the Eastern Driveway.
Further, in 2022 as part of a market review of the rent for the Property (described in more detail below), the report dated 26 August 2022 by Acumentis (Acumentis report) at [3.8] describes the Western Driveway as the place of “ingress” to the Property, the Eastern Driveway as the place of “egress” from the Property and each of the Western Driveway and the Eastern Driveway as “an unsealed gravel crossover”.

Based on these factors, while I consider that it is possible for vehicles to enter or exit the Property from and to Elizabeth Drive using either the Western Driveway or the Eastern Driveway, and that vehicles have done so, I consider that is neither safe, convenient or usual for vehicles to do so.. In my assessment, the safe, convenient, and usual flow of vehicles is to enter the Property using the Western Driveway and exit the Property using the Eastern Driveway.
In my view, it is necessary for large general access heavy vehicles (such as trucks, lorries and semi-trailers) that enter the Property using the Western Driveway to use the diesel fuel pumps under the Small Parapet to then exit the Property across the Nature Strip before reaching the Eastern Driveway to go onto Elizabeth Drive. In my opinion, there is insufficient room for such heavy vehicles that go east across the Property and under the Large Parapet to then turn towards the Eastern Driveway.

The Lease

On 23 January 2012, the Lakiss brothers as lessors and United as lessee entered a written lease of part of the Property for a term of 10 years, commencing on 17 April 2012 and terminating on 16 April 2022, with an option to renew for four further terms of five years each (Lease).
The definitions used in the Lease are contained in cl 1.2, with many such definitions utilising Items contained in the Reference Schedule which forms part of the Lease (cls 1.1, 1.2(36)).
The recitals to the Lease and Items 1 and 2 of the Reference Schedule define the Lakiss brothers as the Landlord and United as the Tenant respectively.
Clause 2.1 of the Lease states:

The Landlord leases the Premises to the Tenant for the Term.

Clause 1.2(35) of the Lease defines Premises to be as defined in Item 3 of the Reference Schedule. Clause 1.2(24) of the Lease defines Land to be as defined in Item 3 of the Reference Schedule. Land and Premises are each defined in the following way in the Reference Schedule, respectively:

Land - The whole of the land described as Lot 111 in Deposited Plan 1137261 in Folio Identifier 111/1137261 also known as 1465 – 1467 Elizabeth Drive, Kemps Creek NSW 2178
Premises - That part of the Land, including the Building, improvements thereon and the Landlord’s Property, as outlined and hatched on the attached Plan, excluding the paddock and Café areas, a copy of the Plan is annexed hereto and marked as Schedule ‘1’

The Plan which is attached to the Lease shows the complete delineation of the Premises, including the location of the Small Parapet, the Large Parapet and the Store. The Nature Strip, the Western Driveway and the Eastern Driveway are all located outside the Premises on the Plan.
The Permitted Use of the Premises is dealt with in cl 9.1(1), which relevantly states:

The Tenant may use the Premises for the Permitted Use or for any other use permitted by law.

Clause 1.2(34) of the Lease defines Permitted Use to be the use stated in Item 10 of the Reference Schedule. Item 10 of the Reference Schedule states:

Service station, convenience store, and associated services, including the sale of petroleum products, oil and ancillary retail and motor vehicle products, the sale of tobacco products, food, confectionary, car and personal accessories, cards, newsagency products and services, groceries and other products capable of being sold from a service station or convenience store.

Clause 3 of the Lease provides for the payment of Rent in monthly instalments (cl 3.1) and the market review of the Rent is to be conducted on the Market Review Dates (cl 3.3, defined in Item 9 of the Reference Schedule to be every five years). The Rent is defined in cl 1.2(37) to be the amount stated in Item 7 of the Reference Schedule, which is $195,300.00 per annum, plus GST.
Clause 6 of the Lease deals with the circumstances in which there is an abatement of the Rent on the total or partial damage or destruction of the Premises until the Lakiss brothers restore the Premises and put them in a fit condition for the occupation or use by United. The primary obligation is on the Lakiss brothers to rebuild and reinstate the Premises within six months in consultation with United, subject to a right of United to terminate the Lease if the restoration has not been started within three months (cls 6.2–6.4).
Clauses 9.2 and 9.3 are central to United’s arguments in the proceedings. These provisions concern the circumstances in which it is necessary to comply with any Official Requirement, which is defined in cl 1.2(32) of the Lease to be:

… any requirement, notice, order or direction of any authority and includes the provisions of any statute, regulation, ordinance or by-law.

Clauses 9.2 and 9.3 are in the following terms:

9.2 Official Requirements
Subject to clause 9.3, the Tenant must comply with any Official Requirement concerning the Premises, the Tenant’s Property or the Tenant’s use or occupation of the Premises. The Landlord must comply with any Official Requirement not required to be complied with by the Tenant.

9.3   Exceptions
The Tenant is not responsible for any Official Requirement where:
(1)   it requires works of a structural or capital nature; or
(2)   it arises due to any act or omission of the Landlord or the Landlord’s Employees.

Clause 10 of the Lease deals with maintenance and repair of the Premises.
Clause 10.1 and 10.2 of the Lease relevantly state:

10.1   Repair
(1)   The Tenant must:
(a)   keep and maintain the Premises, and the Tenant’s Property in good repair and condition except for fair wear and tear; and
(b)   fix any damage caused by the Tenant or the Tenant’s Employee’s [sic].

(2) The Tenant is not obliged to carry out structural repairs or make payments of a capital nature or replace any of the Landlord’s Property.

10.2   Cleaning
The Tenant must:
(1)   Keep the Premises clean and tidy; and
(2)   Keep the Tenant’s Property clean and maintained in good order and condition.

Clause 10.4 of the Lease is of central importance to United’s arguments in the proceedings. It relevantly states (all grammatical and punctuation errors left in place):

10.4   Emergency Repairs
(1)   Where works of any nature are required in order to rectify or make good any defect in, want of repair, accident, damage disruption to the Premises or any services to the Premises and such works are works which under this Lease are [sic] responsibility of the Landlord, the Tenant may undertake such works:
(a)   where the Tenant acting reasonably form the view that there is an urgency or immediate need for the same to be preformed [sic] in order to render the Premises safe, secure, operable or to restore such services; or
(b)   where the Landlord fails within a reasonable period following Notice by the Tenant to the Landlord of the occurrence or existence of the defect, want of repair, accident, damage or disruption to the services to attend to the rectification or repair thereof.

(2) Where the Tenant undertakes works in accordance with the immediately proceeding [sic] sub clause the costs reasonable [sic] incurred shall be payable on demand by the Landlord. If payment is not made within fourteen (14) days of demand the Tenant shall be entitled to deduct the cost so incurred from the next instalment or instalments of Rent payable under this Lease until such cost has been setoff [sic].

Clause 13 of the Lease details various obligations that are placed on the Lakiss brothers.
Especially significant in United’s case is the covenant of quiet enjoyment contained in cl 13.3 of the Lease, which relevantly states:

13.3 Quiet Enjoyment
The Landlord must allow the Tenant to occupy and use the Premises without undue interruption or disturbance. The Landlord covenants and warrants that the Tenant will have access to the Premises 24 hours per day, 365 days per year and will provide the Tenant with all key access codes and key cards as are necessary to obtain access to every part of the Premises.
…

Clause 13.4 deals with the obligation of the Lakiss brothers to undertake structural repairs of the Premises and is in the following terms:

13.4   Structural Repairs
(1)   The Landlord must, at its own cost and expense:
(a)   repair the structure of Premises and keep it in a watertight and tenantable condition; and
(b)   carry out any repairs to the Premises for which the Tenant is not responsible under this Lease.

(2) When the Landlord does repair, maintenance or building work to the Premises, the Building or the Land, the Landlord must cause as little disruption to the Tenant’s use of the Premises as is reasonable in the circumstances.

The Lease also contains provisions which concern the consequences of specified defaults by United. Those defaults include the non-payment of Rent for 14 days (cl 14.1(1)), which if not remedied within 30 days of the Lakiss brothers serving written notice on United specifying the default and seeking its rectification will entitle the Lakiss brothers to re-enter and take possession of the Premises and, by notice to United, terminate the Lease (cl 14.2).
The option to renew the Lease for further terms is contained in cl 17 of the Lease. It was common ground that the Lease remains in operation by reason of United having exercised the option to renew the Lease on 7 October 2021, with the further five-year term having commenced on 17 April 2022.

Inspection at the time of the Lease

Prior to the commencement of the Lease on 17 April 2012, Dion Barendse, then United’s Regional Retail Manager for New South Wales, attended the Premises to carry out an inspection. The purpose of the inspection was to record the condition of the Premises as at the commencement of the Lease and to make a record of any maintenance work to be undertaken by United or requested of the Lakiss brothers.
Mr Barendse recorded the maintenance issues he identified during the inspection in an email dated 16 April 2012 to which he attached photographs he had taken during the course of his inspection. There are no potholes recorded as being present in the vicinity of the Property and in need of repair and none of the photographs in evidence from the inspection show any potholes on the Nature Strip, the Western Driveway, the Easements or the Eastern Driveway. In my opinion, if there had been potholes in existence at that time, they would have featured in Mr Barendse’s report and been evident in the photographs.
In light of Mr Lakiss’ evidence that the kerbed gutter was installed no more than five months before the Lease commenced, this may explain why any potholes in this region previously would have been repaired.
I conclude from this evidence that there were no potholes on the Nature Strip, the Western Driveway, the Easements or the Eastern Driveway at the time that United commenced operating a service station at the Premises in April 2012. In infer that the potholes, which had been in existence while Mr Lakiss was operating the Red Spot Service Station on the Property and were proposed to be repaired as part of an upgrade to the Property in about late 2009 (Ex D), had been repaired as contemplated.
For these reasons, I reject the contention of the Lakiss brothers that there were potholes in those locations at the time the Lease commenced.

Operation of the service station at the Premises

As contemplated by the Permitted Use in cl 9.1 of the Lease (as defined in Item 10 of the Reference Schedule), United has been operating a service station and convenience store on the Property since April 2012 (together, United Service Station). United appointed an agent to run the United Service Station, which operates daily between the hours of 5am to 10pm from Monday to Saturday and between the hours of 6am to 9pm on Sunday.
As I have found above, the safe, convenient, and usual flow of vehicles is to enter the United Service Station on the Property using the Western Driveway and exit the United Service Station on the Property using the Eastern Driveway.
By reason of the location of the United Service Station on Elizabeth Drive, close to the M7 Motorway and the Western Sydney International Airport (which is presently under construction), the United Service Station tends to attract a large number of customers driving heavy commercial vehicles in the form of trucks, lorries and semi-trailers. The number of these heavy vehicles constantly entering the United Service Station via the Western Driveway, parking on the Nature Strip and exiting the United Service Station via to Eastern Driveway probably explains why there are so many potholes that have arisen in those regions over the years of operation.

Caveat

On 18 December 2012, United caused a caveat with the dealing number AH452751B to be registered on title of the Property in respect of United’s leasehold interest.

2014 and 2020: Potholes and damage to vehicles from potholes

In February and March 2014 respectively, two United customers made claims that their vehicles had suffered damage due to the presence of potholes at the “entry” and “exit” of the United Service Station.
From photographs taken in August 2020 and December 2020, there is evidence of potholes on the Western Driveway, the Eastern Driveway and the Nature Strip.

2021–2022: Renewal of Lease

As stated above, on 7 October 2021, United gave notice pursuant to cl 17.1 of the Lease to renew the Lease for a further five-year term. The further term commenced on 17 April 2022 and will expire on 16 April 2027. The renewal was not formalised in writing.

2022: Market review of rent

During the process of a market review of the rent under the Lease in 2022, a report dated 6 January 2022 was prepared by National Property Valuers NSW Pty Ltd (NPV report) for the Lakiss brothers and the Acumentis report dated 26 August 2022 was prepared by Acumentis for United.
The NPV report did not contain any references to potholes.
The Acumentis report contains photographs taken in August 2022, which depict potholes on the Western Driveway and on the Nature Strip (sections 5.10–5.11). Otherwise, the Acumentis report did not contain any references to potholes. The Acumentis report also refers to the “[e]xtensive gravel hardstand surrounding the fuel forecourt including ingress and egress points, in poor condition” (section 5.10).
On 18 November 2022, Rawlinsons issued the market rent determination (Rawlinsons determination), which referred to the Nature Strip as being “gravel and dirt covered”, the presence of “large potholes” that were “quite deep” and that “[t]hese potholes must be navigated to enter the Premises” (section 10.31). The Rawlinsons determination also referred to a “large pot hole [sic]” within the Easements on the Neighbouring Property (section 10.32). There are photographs of the inspection that occurred on 7 October 2022 for the purposes of the Rawlinsons determination that show potholes at the Western Driveway and on the Easements (section 6.19).

2022: Communications with Penrith City Council and Ventia and customer complaints of potholes

At some time immediately prior to 28 February 2022, United reported the presence of potholes near the Property and made a request for remediation to Transport for New South Wales (TfNSW), who forwarded it to Ventia, the state road maintenance provider in the area of the Property working on behalf of TfNSW.
On 28 February 2022, Ventia sent an email to United stating that they would investigate and determine what could be done in relation to the potholes.
After an exchange of correspondence between Ventia and United, on 22 March 2022, Ventia sent an email to United stating that Ventia was responsible for maintaining Elizabeth Drive up to the roadside kerb and therefore United’s request regarding the potholes was outside the scope of their contract. Ventia suggested in the email that United make a request of Penrith City Council.
On 23 March 2022, Ventia sent an email to United (following a query of the position by United) stating that the road reserve was nominally controlled by the Council, which is why Ventia suggested United contact the Council.
On 28 March 2022 at 11:47am, United sent an email to the Council reporting “pot holes in front of our property”, which it was the “[C]ouncil’s responsibility to rectify”. The email also requested that the Council take action to repair the potholes.
On 28 March 2022 at 3:02pm, the Council sent an email to United stating that because Elizabeth Drive was a state road they were forwarding the request for action to the maintenance provider for TfNSW .
On 29 April 2022 at 4:40pm, United sent an email to the Council stating:

We are suffering badly with the potholes that council need to urgently fix.

Attached to United’s email of 29 April 2022 at 4:40pm were photographs of extremely large water-filled potholes located on the Western Driveway and the Nature Strip, which demonstrate that it was almost impossible for a vehicle to access the refuelling pumps on the Property without passing over the potholes. In my opinion, the condition and location of those potholes presented a serious impediment to a vehicle seeking to access the refuelling pumps on the Property because of the danger that they might cause damage to that vehicle.
On 29 April 2022 at 4:50pm, United sent a further email to the Council following up in relation to the potholes that had been reported and stating that:

[p]otholes are worsening and needed [sic] urgent action.

On 2 May 2022 at 8:41am, the Council sent an email to Ventia following up regarding the potholes that had been reported by United.
On 2 May 2022 at 9:03am, United sent an email to Ventia and the Council, which attached details and photographs of the potholes.
On 12 May 2022 at 12:44pm, an internal email at United reported that one of the largest card customers of United (P.G. & S. Linehaul), purchasing over 100,000 litres per month from United, had complained about the potholes. The email states (correcting the obvious spelling and grammatical errors in it):

He is threatening to close as he [can’t] get his trucks into Kemps Creek due to the potholes. He has complained about [this] a while ago [and] it was fixed for a short period of time however [it] has been happening over the past few weeks. He [can’t] access the site.

On 12 May 2022 at 2:23pm, United sent an email to Ventia asking them for an urgent update and stating:

… We are losing so much business as customers don’t; [sic] want their cars damage [sic]
The pot holes are just getting worse by the day.
Please advise urgently.

On 16 May 2022 at 8:54am, an internal email at United attached photographs which a customer had sent to United over the previous weekend. Those photographs demonstrate large water-filled potholes on the Western Driveway and the Nature Strip.
On 16 May 2022 at 9:05am, an internal email at United asked for an update on the potholes and stated “[w]e are losing volume on site”.
On 17 May 2022 at 11:51am, Ventia sent an email to United reiterating that Ventia is responsible for maintaining Elizabeth Drive up to the roadside kerb and therefore the request to repair the potholes was outside the scope of their contract.
On 17 May 2022 at 2:41pm, an internal email at United reported that the Council expected to take no longer than two weeks to fill the potholes “they are responsible for” and any potholes on the Property will be for United to fix.
On 17 May 2022 at 2:58pm, United sent an email to the Council asking them to escalate the issue of the potholes as a priority as they had been trying to resolve the issue since March 2022. The email also asserted that “[w]e are losing business daily”.
On 23 May 2022, United sent an email to the Council asking for any further update and stating that “[t]his is becoming critical to our business”.
On 30 May 2022, an internal email at United concerning the potholes referred to “losing sales at the site”.
On 31 May 2022, United sent an email to the Council again asking for an urgent update because they had been asking for months and requiring the indication of a date when the potholes will be fixed. The email also stated:

It’s not right that we are suffering for so long with our business.

On 1 June 2022 at 9:54am, an internal email at United referred again to Linehaul having called United again regarding the potholes and stating:

… he is furious that they have not been fixed, he is threatening to drive into one so he can sue.

On 2 June 2022 at 9:55am, an internal email at United referred to the repair of potholes by the Council that morning, although noting that there were further potholes to be repaired.
On 2 June 2022 at 10:47am, an internal email at United stated that the potholes had not been filled properly and the same situation would occur if it rained again.
On 7 June 2022 at 9:32am, an internal email at United referred again to a complaint made by Linehaul. The email stated (correcting the obvious spelling and grammatical errors in it):

I have just received a call from Nick who owns the VIP fuel account Linehaul with us who lodged the initial complaint with me. He is furious he has been back to the site and said basically what has been done is nothing just a ‘Band-Aid over a bullet hole’.
He said one hole has been partly fixed but there are still 2 others near the driveway [that] are there, he has 40 trucks that [can’t] use the site.
He doesn’t understand why the council [won’t] fix this as a priority. Again he has threatened to take his business elsewhere.
This is now getting worse and know if this is not fixed urgently we will [lose] his account. I have asked him to see if he can provide photos which I will send through later if he sends them to me.

On 7 June 2022 at 2:18pm, an internal email at United recorded that they needed to get urgent quotes to fix the potholes and that they needed to be proactive as “[w]e don’t want to lose this account”.
Ms Gerraty gave evidence in cross-examination that her review of United’s files did not reveal that Linehaul took their business elsewhere (T18).
On 17 June 2022, Levitt Robinson (who were acting as solicitors for the Lakiss brothers at the time) sent a letter to the Council, which stated that (amongst other things):

the Neighbouring Property contains a concrete driveway that United’s customers use to enter the Property;

the Nature Strip “remains plagued with potholes that are deep and full of water” and pose “a significant risk of harm to health, safety and property”;

the “Council is obliged to properly undertake the works including relaying bitumen” over the Nature Strip;

the potholes were interfering with the Lakiss brothers’ rights as owners of the Property and causing “nuisance and … damage” to the Lakiss brothers;

the Council had knowledge of the nuisance and the damage being caused to the Lakiss brothers; and

the Council will be held liable for failing to take relevant steps to prevent or end the nuisance.

On 18 October 2022, the Council sent a letter to Levitt Robinson advising that there is a hard surface access to the Nature Strip that is being used for heavy vehicle parking that does not meet the Council’s specifications, there has been no prior approval from the Council to use the Nature Strip as a dedicated heavy vehicle parking area and both the Western Driveway and the Eastern Driveway do not meet the Council’s specifications for a heavy duty driveway. The letter also stated that the Council had repaired the potholes previously out of goodwill to the Lakiss brothers and would not repair the potholes on the driveways or the Nature Strip but would install sandstone blocks to prevent heavy trucks parking on the Nature Strip.
The letter also referred to s 142 of the Roads Act as giving rise to the responsibility on the Lakiss brothers as the beneficiary of the structures on the nature strip to maintain them in a satisfactory condition.
Attached to the letter from the Council were photographs of the Property taken in May 2012, May 2022 and June 2022, providing clear evidence of potholes on the Nature Strip in the vicinity of heavy vehicles parking on it.

2023: United’s communications with Mayfair about repair of the potholes

On 3 February 2023, Johnson Winter Slattery (JWS, the solicitors acting for United) sent a letter by email to Mayfair Real Estate (the agent for the Lakiss brothers), which referred to cls 10.1(2) and 13.4(1) of the Lease and stated (emphasis in original):

United has received multiple complaints from its customers about the existence of potholes on the premises, which is impeding their access to the service station. Having regard to the above conditions of the lease, it is clear that the Landlord is obliged to attend to the repair of the potholes as structural repairs. The existence of the potholes also constitutes a failure by the Landlord to keep the premises in a watertight and tenantable condition.
United requires the Landlord to have the potholes repaired within the next 14 days, that is, by no later than 17 February 2023.

On 8 February 2023, JWS received an email from Mayfair that indicated that the Lakiss brothers would not undertake repairs of the potholes as “[t]he driveway does not form part of the structure of the building” and stated that the “reason for the driveway being in the condition it is today, is due to the heavy vehicles coming in and out and the surrounding area has not been maintained over the years”.

February 2024: United’s demand that the Lakiss brothers repair the potholes

On 20 February 2024, JWS sent a letter by email to Mr Lakiss regarding the repair of the potholes. The letter referred to the development of the potholes on the “driveway and pathway”, which had deteriorated and caused United loss due to customers avoiding entering the Premises because of potential risks associated with the potholes. The letter also mentioned the repair of the potholes by the Council in early June 2022, the refusal of the Council to carry out further work on the potholes, and that United “had itself also taken interim measures on four separate occasions over the past 6 months to address the potholes using compacted bitumen”.
Specifically, the letter stated that the state of the driveway was infringing on United’s use of the Premises and that, if their customers were unable to safely enter the Premises, United was being prevented from using the Premises as was contemplated by the Lease. The letter asserted that the Lakiss brothers were obligated to undertake the repairs of the potholes pursuant to cls 10.1(2) and 13.4(1)(a) of the Lease because the works to repair them were structural in nature. The letter concluded by demanding that the Lakiss brothers repair the potholes by no later than 5 March 2024.

May 2024: State of the potholes

Photographs taken in May 2024 by United clearly show large potholes on the Western Driveway, the Easements and the Nature Strip. Those photographs also evidence that those areas were covered in a mixture of bitumen, gravel and dirt abutting the Concrete Hardstand.

June–July 2024: United repairs the potholes

On 28 June 2024, JWS sent a letter by email to Mr Lakiss informing him that the driveway had deteriorated to such an extent that United’s customers were being prevented from accessing the Premises. JWS informed Mr Lakiss that United would undertake interim repairs of the potholes and United would deduct the cost of those repairs from rental payments in accordance with cl 10.4(2) of the Lease.
On 15 July 2024, Abela Building Maintenance sent an email to United which stated:

We have inspected the site. The potholes are more like large craters than potholes. The potholes are mostly in the entry area but there are some smaller potholes on the exit that we would also do.

The email also contained two quotes – one for the material and the other for the labour, totalling $10,937.30 inclusive of GST. The email also attached photographs of the Western Driveway, the Easements and the Nature Strip, which show significant potholes across them and the gravel and dirt surface of those sites.
On 24 July 2024, United issued work order NSW-41977 to Abela (Work Order) to repair the potholes in accordance with the quote from Abela of $10,937.30 inclusive of GST. The Work Order states:

Abela quote 9006
Level off assorted high spots in driveway
Supply road base and compact to finish
Apply bitumen and compact to finish

On 29 July 2024, Abela issued invoice number 10792 to United for $10,937.30 for the repairs performed on the potholes (Invoice). The work performed by Abela as stated on the Invoice was as follows:

Level off assorted high spots in driveway
Supply road base and compact to finish
Apply bitumen and compact to finish
Repair all of entry
Repair approx 24 further potholes

September–October 2024: Deduction from rent and First Default Notice

On 30 September 2024, United paid rent under the Lease to the Lakiss brothers of $21,919.98, which it had calculated after deducting $10,937.30 as the costs to repair the potholes.
On 17 October 2024, Yazbeck Law (the solicitors acting for the Lakiss brothers) sent a letter by email to United in which they asserted that United was in default under the Lease by failing to pay the full amount of the rent of $32,857.28 for October 2024 that was due on 1 October 2024. The letter stated that it constituted a default notice to United in accordance with cl 14 of the Lease (First Default Notice). The First Default Notice sought a response from United within 30 days that stated the basis on which United formed the view that it was entitled to make the deduction.
On 31 October 2024, Yazbeck Law sent a letter by email to JWS enclosing the First Default Notice.

October–December 2024: Rent paid and letter of demand

On 31 October 2024, United paid $43,794.58 in rent under the Lease to the Lakiss brothers, which included the amount of $10,937.30 that it had deducted in the rent paid to the Lakiss brothers on 30 September 2024.
On 4 November 2024, JWS sent a letter to Yazbeck Law notifying them of the rent paid on 31 October 2024, which included the amount of $10,937.30 as rent for October 2024.
On 21 November 2024, United sent a letter of demand by email to the Lakiss brothers (Letter of Demand) for payment of $10,937.30 for the costs of the repair of the potholes. The Letter of Demand required to Lakiss brothers to pay the amount of $10,937.30 pursuant to cl 10.4(2) of the Lease by 6 December 2024, failing which it would be deducted by United from the next rent payment due on 1 January 2024. Attached to the Letter of Demand was an invoice from United and the Invoice.
On 22 November 2024, Yazbeck Law sent an email to JWS requesting certain documents and information in respect of the Letter of Demand and concluded by stating:

No amounts should be deducted from the rent until our clients have had a sufficient opportunity to review the claim and respond. Any short payment of rent prior to this will be considered a further breach of the lease.

On 2 December 2024, JWS sent a letter by email to Yazbeck Law enclosing the Work Order and the Invoice. The letter repeated that it was the intention of United to deduct $10,937.30 from the next rental payment on 1 January 2025 if the Lakiss brothers did not pay that amount to United by 6 December 2024.
On 3 December 2024, Yazbeck Law sent a letter by email to JWS stating that the Lakiss brothers are not responsible for areas outside the Premises, the repair obligation in cl 10.4 of the Lease expressly applied to the Premises only and United was therefore not permitted to deduct any payment of the costs to repair the potholes from the rent under the Lease.

2023–2024: No record of complaints

Ms Gerraty gave evidence in cross-examination that her search of United’s files did not reveal any complaints received by United in 2023 or 2024 about potholes in the vicinity of the Premises (T18).

January–February 2025: Deduction from rent and Second Default Notice

United proceeded to deduct the amount of $10,937.30 from the rent otherwise due on 1 January 2025.
On 15 January 2025, Yazbeck Law sent a letter by email to United in which they stated that United was in default of the Lease by failing to pay the full amount of the rent of $32,857.28, which was due on 1 January 2025. The letter stated that it constituted a default notice to United in accordance with cl 14 of the Lease (Second Default Notice). The Second Default Notice demanded that United remedy the default by paying the balance of $10,937.30 within 30 days, failing which the Lakiss brothers may take further action, including but not limited to termination of the Lease and legal proceedings to recover any outstanding amounts and damages.
On 15 January 2025, Yazbeck Law sent a letter by email to JWS (to which the Second Default Notice was also attached) asserting that United was not entitled to deduct the amount of the repair costs from the rent and requiring the breach of the Lease to be remedied immediately.
On 22 January 2025, JWS sent a letter by email to Yazbeck Law referring to the Letter of Demand and the Second Default Notice. The letter asserted that United was entitled to deduct the amount of the repair costs pursuant to cl 10.4(1) of the Lease, there was no default by United under the terms of the Lease and the Lakiss brothers were not entitled to issue the Second Default Notice. The letter invited the Lakiss brothers to withdraw the Second Default Notice by 5pm on 24 January 2025.
On 30 January 2025, JWS sent an email to Yazbeck Law referring to a discussion between them regarding the Lease and the entry to and exit from the Premises. The email concluded by requesting confirmation that the Lakiss brothers would withdraw the Second Default Notice by 4:00pm on 31 January 2025, failing which United would proceed to file an application to have the Second Default Notice set aside.
On 31 January 2025, Yazbeck Law sent an email to JWS that stated, amongst other things, the Lakiss brothers were not obliged to maintain or repair the Nature Strip and would not withdraw the Second Default Notice.
On 7 February 2025, JWS sent a letter by email to Yazbeck Law stating that even if the Nature Strip was land owned by the Council, under s 142 of the Roads Act, the Lakiss brothers were responsible for the repair of it. The letter also provided notice that United intended to file proceedings seeking urgent injunctive and final relief in relation to the dispute; and sought that the Lakiss brothers either withdraw the Second Default Notice or provide an undertaking that they would not re-enter and take possession of the Premises or terminate the Lease until the dispute was resolved on a final basis.
On 7 February 2025, Yazbeck Law sent an email to JWS recording that the Lakiss brothers would not withdraw the Second Default Notice and would not provide the requested undertaking.

11 February 2025: Commencement of the proceedings

On 11 February 2025, United commenced these proceedings by summons seeking an interlocutory injunction and final relief in the form of the following declarations, as well as their costs:

A declaration that upon a proper construction of clause 10.4 of the lease agreement dated 23 January 2012 (Lease), the Plaintiff was entitled to deduct the amount of $10,937.30 from the rent otherwise due under the Lease on 1 January 2025.

A declaration that upon a proper construction of the Lease, the default notice served by the Defendant on 15 January 2025 was invalid and is of no legal effect.

24 February 2025: Survey of potholes

Evidence in the form of an expert report dated 25 February 2025 by Christopher Reed (Reed Report) was provided at the hearing. Mr Reed is an experienced surveyor who conducted a survey at the Property (including the Easement, the Concrete Hardstand, the Small Parapet, the Large Parapet and the Store), the Western Driveway, the Eastern Driveway and the Nature Strip on 24 February 2025 (Survey).
In annexure C to the Report, Mr Reed depicted the 15 potholes he located during the course of the Survey. None of the 15 potholes are located on the Property but are immediately next to the Property. Three of those potholes were located on the part of Easements (which is on the Neighbouring Property), six of those potholes were located immediately between the Western Driveway and the Property in the area comprising the Easements and six of those potholes were located on the Nature Strip (four of which were between the Property and the Eastern Driveway).

3 March 2025: Photographs of potholes

On 3 March 2025, Mr Lakiss attended at the Property and took photographs of it, the Neighbouring Property, the Western Driveway, the Nature Strip and the Eastern Driveway.
I am satisfied from looking at those photographs that they show large potholes across all of these areas. I am also satisfied that the Nature Strip is a mixture of sections of bitumen, gravel and dirt.

LEGAL PRINCIPLES

Construction of written lease as a contract

At the heart of this dispute is the proper construction of the Lease. Ordinary principles of contract law apply to leases: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14, Mason J (with whom Wilson and Deane JJ agreed) at 29.
The Lease is a written commercial contract and is therefore subject to the principles regarding the construction of written contracts generally as well as those principles particularly applicable to the construction of written commercial contracts.
The principles that govern the construction of written contracts are well established. The meaning of the words used in the contract are to be determined objectively, applying the standard of what a reasonable person in the position of the parties would have understood them to mean. This approach is commonly known as the objective theory of contract: Western Australian Rugby Union v Australian Rugby Union Ltd [2017] NSWSC 1174, Hammerschlag J at [36].
Perhaps most notably, the objective theory of contract was summarised in the unanimous decision of the High Court of Australia in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52, Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ at [40] stating:

This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.

The relevant principles of construction were also summarised by Bathurst CJ (with whom Macfarlan and Meagher JJA agreed) in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184, at [52]:

A contract is to be construed by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement having regard to the context in which the words appear and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Limited v Alphafarm [sic] Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [53]. At least in the case of ambiguity, resort can be had to the surrounding circumstances known to the parties in interpreting the particular provision: Codelfa Construction Pty Limited v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352; Western Export Services Inc v Jireh International Pty Limited [2011] HCA 45; (2011) 282 ALR 604.

This approach was more recently restated in Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13, with Kiefel CJ, Gageler, Nettle and Gordon JJ at [44] confirming the relevance of the “language used by the parties, the surrounding circumstances, and the purposes and objects to be secured by the contract.”
In this regard, in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24, Mason J at 352 stated that any extrinsic facts:

… will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.

The legal principles applicable to the construction of a written commercial contract were not in dispute between the parties in these proceedings. They are also well established and uncontroversial.
In Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7, French CJ, Hayne, Crennan and Kiefel JJ stated at [35] (citations omitted):

…The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result.” A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

The task of construction to be undertaken in cases such as this was elucidated in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, with French CJ, Nettle and Gordon JJ stating at [46]–[51] (citations omitted):

[46]   The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.
[47]   In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
[48]   Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.
[49]   However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.
[50]   Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
[51]   Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

These principles of contractual construction were recently confirmed by the High Court in Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 276 CLR 500; [2023] HCA 6, Kiefel CJ, Gageler, Gordon, Gleeson and Jagot JJ at [27], quoting Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12, Kiefel, Bell and Gordon JJ at [16]:

It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.

Where the contract to be construed is made up of different components, preference is given to a construction that provides a congruent operation of the various components as a whole: Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17, Gleeson CJ, McHugh, Gummow and Kirby JJ at [16].
While the court should endeavour to reach an interpretation that reads all terms of the contract harmoniously, if that is not possible, then the court should prefer the construction that produces the least disharmony: HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342, Leeming JA at [182] (with whom Bathurst CJ and Payne JA agreed).

Correction of drafting mistakes by construction

There are errors in the drafting of provisions of the Lease which are at issue in these proceedings.
If there is clearly an error on the face of an instrument, and it is clear what a reasonable person would have understood the parties to have meant, then the error may be “corrected” as a matter of ordinary contractual construction. So much was stated in Wilson v Wilson (1854) 5 HL Cas 40; 10 ER 811, by Lord St Leonards at 822:

It is a great mistake if it is supposed that even a Court of Law cannot correct a mistake, or error, on the face of an instrument: there is no magic in words. If you find a clear mistake, and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about correcting those things which can only be shown by parol evidence to be mistakes — without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the face of an instrument without the slightest difficulty.

In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11, Leeming JA at [7] provided useful examples of common linguistic errors which may be overcome in this way, such as “inconsistent” being read as “consistent”, or conceptual errors which might require “lessor” to be read as “lessee.” His Honour observed that contractual language “is not read like a computer program, such that any slip is fatal.”
The relevant principles of contractual construction as they concern the “correction” of absurdity, inconsistency, as well as “palpable” or “obvious” mistakes within a contract were recently restated in Zhong v Guan [2024] NSWCA 300, by Kirk JA (with whom Payne JA and Price AJA agreed) at [23]–[38]. The following is a summary of the principles stated in Zhong:

Where the literal meaning of the contractual words is an absurdity and it is self-evident what the objective intention is to be taken to have been, then ordinary processes of contractual construction displace an absurd literal meaning with a meaningful legal meaning: Zhong, at [23], citing National Australia Bank Ltd v Clowes [2013] NSWCA 179, Leeming JA at [34], as cited in Seymour Whyte, Leeming JA at [8].

The correction of mistakes by construction is not a separate branch of the law or a summary version of an action for rectification: Zhong, at [24], citing Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101, Lord Hoffman (with whom Hope, Rodger, Walker and Hale JJSC agreed on this issue) at [23]; Marley v Rawlings [2014] UKSC 2; [2015] AC 129, Lord Neuberger (with whom Clarke, Sumption and Carnwath JJSC agreed) at [40].

Decisions such as Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 are well understood as permitting a contract to be construed in very limited circumstances in a way that involves a recognition that the drafting of the contract has miscarried. The principles of contractual construction most closely associated in Australia with Fitzgerald do not need to be elevated to the status of a “doctrine” or fixed with a label which might be thought to undermine the importance of courts adhering to the language parties have chosen to employ in setting out the nature and scope of their contractual relations: Zhong, at [24], quoting James Adam Pty Ltd v Fobeza Pty Ltd (2020) 103 NSWLR 850; [2020] NSWCA 311, Bell P (with whom Macfarlan JA agreed) at [2].

The label “rectification by construction” should be avoided as it is apt to mislead and distracts “from the fact that what is involved is simply an exercise in construction” according to established common law principles. The principles relating to the equitable doctrine of rectification are not applicable and there is no common law doctrine of rectification as distinct from general principles of construction: Zhong, at [23]–[26].

In truth, there is no “rectification” at all. By way of example, the process of statutory construction may also involve effectively reading in or ignoring words, but there could be no suggestion that by so doing a court is “rectifying” a statute: Zhong, at [26], citing Taylor v Owners — Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9, French CJ, Crennan and Bell JJ at [35]–[40], Gageler and Keane JJ [65]–[66].

The issue does not arise only in cases where the literal meaning of the words used would result in an absurdity or inconsistency, and earlier authorities referred only to the presence of a “palpable” or “obvious” mistake: Zhong, at [27], citing HDI Global Specialty SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634; [2020] NSWCA 296, Meagher JA and Ball J (with whom Bathurst CJ and Bell P agreed) at [51]; James Adam, Leeming JA at [55]–[56] (with whom Bell P and Macfarlan JA agreed on this issue).

There may be issues of degree involved in terms of the extent to which words are read in, ignored, or otherwise corrected. The greater the departure from the language employed, the greater the degree of persuasion needed to establish that such a departure is warranted: Zhong, at [29].

The notion of “correcting” contractual language does not require the court to make an order altering or correcting the language of the contract; the court is simply construing what has been agreed. It is a purposive and contextual exercise reflecting “trite law that an instrument must be construed as a whole”: Zhong, at [30], citing Fitzgerald, McTiernan, Webb and Taylor JJ at 437.

It is not only the language used in the contract, but also the punctuation, that may be corrected: Zhong, at [28], noting JD Heydon, Heydon on Contract (Thomson Reuters, 2019), at [8.660] and generally at [8.640]–[8.680].

In Zhong, Kirk JA summarised these principles at [38] in the following way:

In sum, it is possible to construe a written contract in a manner which departs from some particular words or punctuation employed. This is an exercise in objective, purposive, contextual construction, giving effect to the court’s assessment of what the parties have actually agreed consistently with basic principles of construction. … This constructional step will only be taken if it is clear, first, that the terms lead to absurd results or are inconsistent or manifest some obvious mistake as established by permissible evidence and, second, if the position intended to be agreed is clear. These matters may overlap. The greater the departure from the language employed then in general the more difficult it will be for the argument to be made out.

Principles concerning covenant of quiet enjoyment in lease

The parties agreed that the relevant principles in respect of a covenant of quiet enjoyment in a lease (such as expressed in cl 13.3 of the Lease) are conveniently summarised in Byrnes v Jokana Pty Ltd [2002] FCA 41 by Allsop J at [60]–[69] as follows (emphasis in original):

[60] The function of the covenant is twofold: (a) it is a limited undertaking as to title; and (b) it is a covenant that the tenant should peaceably hold and enjoy the demised premises without interruption by the lessor or those claiming through the lessor: Goldsworthy Mining Ltd v FC of T (1973) 128 CLR 199 at 214. The purpose of the covenant is to prevent the landlord annulling its own deed by interfering with the possession of the tenant: Goldsworthy Mining Ltd v FC of T, supra; and O’Keefe v Williams (1910) 11 CLR 171, 191, 192, 200-201 and 211.
[61]   Where the demise has been granted for the carrying on by the tenant of a particular business known to both parties, it is that business which forms the framework of the analysis as to whether there has been interference with the possession of the tenant. It is the ordinary and lawful enjoyment of the demised premises for the known purpose which is to be protected from interference which is substantial.
[62] It is a question of fact whether the lessee’s ordinary use of the premises has been substantially interfered with: Southwark LBC v Tanner [2001] 1 AC 1, 9-11. The tenant is entitled to the full benefit of the demise, of the possession, for the known or nominated purpose: Kenny v Preen [1963] 1 QB 499, 511. This is not by any means to elevate matters to a covenant for the fitness of the premises for the nominated purpose: Southwark LBC v Tanner, supra; and cf Sarson v Roberts [1895] 2 QB 395; Brilee Consultants Pty Ltd v Tibal Holdings Pty Ltd (1984) 3 BPR 9272 at p9274; and Bradford House Pty Ltd v Leroy Fashion Group Ltd (1983) 46 ALR 305.
[63] A consequence of the proposition that it is a question of fact as to whether interference with possession for the known or nominated use is substantial is that one should be careful not to elevate factual decisions in other cases to statements of principle: Teubner v Humble (1963) 108 CLR 491, 503 per Windeyer J and Bus v Sydney County Council (1989) 167 CLR 78 at 89 per Mason CJ, Deane, Dawson and Toohey JJ. For instance, it has been sometimes said that mere noise or invasion of privacy is insufficient, that there must be “some physical interference with the enjoyment of the demised premises”: Browne v Flower [1911] 1 Ch 219, 228 and Phelps v City of London Corp [1916] 2 Ch 255, 267. Such distinctions are factual and not founded in application of principle: cf Southwark LBC v Tanner, supra at 11. For instance, there is no reason why noise alone could not amount to a breach of the covenant in respect of a demise for the purpose of conducting a hospital for persons suffering from nervous shock or nervous breakdown.
[64] The real question is, what is the best way to express the degree of interference with possession required (bearing in mind the known or designated purpose of the demise). One needs to be careful with the adverb “substantially” in the phrase “substantially interfered with.” It does not elevate the requirement to one of “practical frustration” of the lease: Aussie Traveller Pty Ltd v Marklea Pty Ltd [1997] 1 Qd R 1 at 8-10 (per McPherson JA, Thomas J agreeing at p19) and Hill J in Hawkesbury Nominees Pty Ltd v Battik Pty Ltd, supra at para[39]. If full enjoyment is the entitlement: Kenny v Preen, supra at 511, then a material reduction in that fitness suffices to create a breach. Whilst bearing in mind the cautionary injunction of Windeyer J in Teubner v Humble, supra, the importance of not over-emphasising the word “substantially” is reflected in the decisions of Owen v Gadd [1956] 2 QB 99; JC Berndt Pty Ltd v Walsh [1969] SASR 34; and Martins Camera Corner Pty Ltd v Hotel Mayfair [1976] 2 NSWLR 15, 27. I agree with McPherson JA in Aussie Traveller Pty Ltd v Marklea Pty Ltd supra, at 8-12, that it is not necessary for there to be practical frustration of the lease, or that the interference render it impracticable or uneconomic to carry on the lessee’s business for there to be a breach of the covenant. However, as is discussed below, the degree of seriousness of the breach is central to the assessment of the legal consequences of breach, in particular whether the tenant is entitled to terminate the lease.
[65]   In assessing whether there has been a material reduction in the fitness of the premises for the business, the accepted state of the premises at the time of grant is relevant. The covenant does not apply to things done before, or the state of affairs at, the grant. The tenant takes the property not only in the physical condition in which he, she or it finds it, but also subject to the uses which the parties must have contemplated would be made of the parts retained by the landlord: Southwark LBC v Tanner, supra at 11-12. One should be careful about finding a breach of the covenant where the matters complained of worsen the position little from the state of affairs at the date of the grant.
[66]   Where the acts are not those of the lessor, the lessor is nevertheless liable for them if it fails to take steps to eliminate or prevent them. Older authorities suggest authorisation is required, or at least that the acts were reasonably foreseeable. See generally the discussion by McPherson JA in Aussie Traveller v Marklea Pty Ltd, supra at p12. I do not think any differences between these formulations matter here. The respondent had control over and could be said to have authorised most of the matters complained of.
[67] Further, the enjoyment to which the tenant is entitled is possession of the demised premises, in the manner that I have identified, and also of the rights appurtenant thereto: Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR 11,173 at p11,177 (per Powell J, as his Honour then was) and the cases there cited.
[68]   Finally, the assessment of the interference concerns the possession of the premises for the purpose known. This may be demonstrated by the business purpose being shown to be tangibly interfered with. It is unnecessary in this process to show that the business was or would have been otherwise a success. If a demise is made for a business purpose and interference is caused such that the possession for that purpose is materially affected in the way I have described, it is no answer to say that the business as run by these tenants was otherwise hopeless and their business, in the sense of their profitability, was harmed only marginally. If the ordinary lawful use of the premises, the possession of the premises, for that known purpose, has been the subject of material derogation or interference, a breach has occurred. The question of whether there was any affectation of profitability, and if so, to what degree, is a question for the assessment of damages. This reflects something objective about the quality of the interference with possession or use by reference to a particular purpose - not something judged merely by the effects on the particular business carried on. Though guided or informed by the (business) purpose of the use of the demised premises, it is an interference with a property right (possession or the grant) and not interference with the business activity that is the legal foundation of the right to complain about the breach of the covenant.

Whether United reasonably formed a view of immediate need of repair

The Lakiss brothers submitted that when determining whether the Premises are “operable” for the purposes of cl 10.4(1)(a) of the Lease, it is limited to physical defects in the building, such as the roof collapsing. They argued that on the proper construction, if the Premises are operating, then the Premises should be considered to be “operable”.

Submissions in reply by United

In reply to the submission regarding “damage disruption” being a single expression, United submitted that this is simply a typographical error as the expression is missing a comma or use of the disjunctive “or” and therefore “disruption” should not be limited to those occurring physically on the Premises. United argued that the phrase “damage or disruption to the services” in cl 10.4(1)(b) of the Lease is incredibly broad, and the site of the emergency repair may not necessarily be physically on the Premises.
In reply to the submission regarding the lack of evidence of complaints and disruption within the meaning of cl 10.4 of the Lease, United invited me once again to draw an inference from the evidence of the potholes in 2022 and the solicitor correspondence in 2024.
In reply to the submission that large trucks could pass under the Large Parapet while remaining within the Premises and that the closure of the Western Driveway would not cause significant disruption, United argued that it would be required to close the fuel pumps closest to the southern border of the Premises to facilitate the one-way rotation around the petrol station, which would amount to a substantial disruption to the business operating on the Premises.
United submitted that in cl 10.4, the required works are to rectify or make good the disruption, not merely the possibility of, or potential for, disruption, but the actual disruption itself. United argued that the existence of a pothole and its location constitute the disruption.
In reply to argument that the Premises are “operable”, United submitted that it would be an uncommercial and absurd construction if cl 10.4 required the Premises to become wholly inoperable before United could be entitled to carry out repairs, particularly if the Lakiss brothers refused to do so.
In reply to the submission on quiet enjoyment and its application to the uses contemplated at the time of entering into the Lease, and the way the Premises were operating and set up, United contended that the parties anticipated the Western Driveway as the point of entrance. United referenced Mr Lakiss’ evidence that he constructed the Western Driveway five months prior to the commencement of the Lease. Additionally, it was said that the Western Driveway was explicitly marked as the entrance until an unknown time, and a reasonable prospective tenant inspecting the Property would have been able to observe the spaces available for large vehicles to pass over the Nature Strip and the parking areas on the Nature Strip.
United also submitted that there is no evidence to suggest that the potholes in the immediate period before 2012 were not fixed and repaired by the time the Lease came into operation. United argued that I should not infer that United took a lease of the Premises with driveways in a condition that included potholes, as the Western Driveway had been constructed five months earlier. Therefore, there is no obvious inference that the Western Driveway was likely to immediately give way to potholes. United contended that the potholes occurred as a result of reasonable wear and tear, without any improper use or reckless behaviour.
United submitted that the evidence does not demonstrate that United entered into the Lease and renewed the Lease at a time when there were significant potholes present, such that they would have assumed responsibility for them contrary to the terms of the Lease.
In reply to the submission that the landlord must have authorised the acts that could cause the disturbance, United submitted that omissions can lead to disruption or a breach of the quiet enjoyment clause. United accepted that, in relation to omissions, it must be something that is within the Lakiss brothers’ control but need not be authorised by the Lakiss brothers.
In relation to the breach of the covenant of quiet enjoyment, United submitted that if there is a breach of the covenant due to the failure to repair, and the covenant imposes a positive obligation to carry out those repairs.
In reply to the submissions on the operation of s 142 of the Roads Act, United argued that the bitumen which extends over the Western Driveway and the Nature Strip and constitutes a structure.
In reply to the submission on the exception in s 142(3) of the Roads Act, United submitted that this subsection must be read carefully and does not apply to a person whose right to control, use, or benefit consists solely of a right of access that the person has as the owner of adjoining land. United relied on s 6 of the Roads Act, which grants the right of access to public roads for owners of adjoining land, to argue that the owner of land adjoining a public road is entitled, as of right, to access across the boundary between the land and the public road. United contended that this is not the only type of use or enjoyment that the Lakiss brothers have, and therefore, both United and the Lakiss brothers are in the same position under s 142 of the Roads Act.
United raised the issue of whether an alternative form of declaration could be granted in the proceeding if the court found that certain potholes were eligible for repair and deduction under cl 10.4, while others were not. United submitted that the granting of declaratory relief is within the discretion of the court. United emphasised that the parties seek certainty regarding how to address the issue of the obligation to repair the potholes, and meet the cost of those repairs, in the future.

CONSIDERATION

The principal issue in dispute in these proceedings concerns the proper construction of cls 10.4 and 13.3 of the Lease.
Applying the relevant principles enunciated in Toll, Woodside, Mount Bruce Mining and Laundy Hotels, as the Lease is a commercial document I need to determine what a reasonable businessperson would have understood those terms to mean, considering the language used, the surrounding circumstances known to the parties and the commercial purpose or object to be secured by the Lease, with the latter to be facilitated by understanding the genesis of the transaction, the background, the context and the market in which the parties are operating.
A key consideration in this exercise is that the Permitted Use of the Premises by United under cl 9.1(1) of the Lease was as a service station and convenience store. The commercial purpose of the Lease for the Lakiss brothers was for them to make a return on their ownership of the Property through the receipt of rent. The commercial purpose of the Lease for United was so that it could operate the United Service Station, which would generate sufficient revenue to enable it to pay the rent and the other costs of operating the United Service Station and earn a profit. This means that it was expressly contemplated that it would be necessary for customers in vehicles to enter and exit the Property so that they could use the refuelling facilities on the Property and purchase items from the United Service Station.
The location of the Premises on Elizabeth Drive next to the M7 Motorway also provides a key context in which the provisions of the Lease are to be interpreted because it meant that large size trucks, lorries and semi-trailers were amongst the prospective customers of United likely to use the United Service Station and likely to cause damage to the surfaces surrounding the Premises by driving on them.

Disruption to the Premises

Turning to the words of cl 10.4 of the Lease, the first element in that provision that I need to determine is whether “works of any nature are required in order to rectify or make good any defect in, want of repair, accident, damage disruption to the Premises” (cl 10.4(1)).
In construing these words, I consider that by applying the principles set out in Zhong it is necessary to correct an obvious mistake in those words because they are missing an “or” between “damage” and “disruption”. I reject the submissions of the Lakiss brothers that those words should be construed as a single expression “damage disruption” for two reasons.
First, in cl 10.4(1)(b) the matching expression “defect, want of repair, accident, damage or disruption” is used, which indicates that the notions of “damage” and “disruption” are separate from each other and lends support to the argument that the failure to separate “damage” and “disruption” earlier in cl 10.4(1) was a mistake. Applying the principle in Wilkie, it is also a construction that provides a congruent operation of these various components as a whole.
Secondly, there are multiple obvious grammatical errors across the whole of cl 10.4, being:

“the” is missing from the expression “works under this Lease are [the] responsibility of the Landlord”;

“preformed” should be “performed”;

“proceeding” should be “preceding”; and

“reasonable” should be “reasonably”.

Clearly, cl 10.4 of the Lease is a provision replete with drafting mistakes.
For these reasons, I intend to construe cl 10.4(1) by reading in “or” so that it is read as “damage or disruption”.
I consider that the ordinary meaning should be given to the word “disruption” such that it is an occurrence that prevents something from continuing in its normal, traditional or usual way.
While I agree with the submissions made by the Lakiss brothers that “damage to the Premises” must mean physical damage to the Premises, I consider that the meaning of “disruption to the Premises” is different and wider than just the physical condition of the Premises. Reading those words in the commercial context of the Lease involving the operation of the United Service Station with customers of United needing to enter and exit the Premises in their vehicles to use the refuelling pumps and make purchases from the United Service Station, I consider that on its proper construction, a “disruption to the Premises” can arise by reason of something inside or outside the Premises and is not simply limited to the physical condition of the Premises. Whether something is a “disruption to the Premises” will always involve a question of degree, but that word is not conditioned by requiring it to be a “serious disruption” or “significant disruption”. In my view, taking account of the permitted use of the Premises as a service station and convenience store as an underlying commercial purpose and object of the Lease, any occurrence that prevents the United Service Station from operating in its normal or usual way will constitute a “disruption to the Premises” pursuant to cl 10.4(1) of the Lease.
In my view, a physical barrier to the entry and exit of vehicles to and from the Premises, even if that barrier is not on the Premises, would fall within the first element of cl 10.4(1) because it would constitute a “disruption to the Premises”.
In arriving at this construction of cl 10.4(1), I have been cognisant that cl 13.4(2) uses the expression “disruption to the Tenant’s use of the Premises”. In my opinion, that expression is a subset of those matters that would fall within the wider concept of “disruption to the Premises” and in most instances the “disruption” would fall within both expressions, but not always. This can be best illustrated by examples, such as jack hammering occurring outside the Premises which generates significant noise or a sewer malfunction beside the Premises causing very unpleasant odours, both of which disrupt the Premises by making it an unpleasant place to be but would not disrupt United’s use of the Premises because customers could still come and go as they wish and make their acquisitions of fuel and convenience store items. Similarly, a road closure in the vicinity of the Premises would be a “disruption of the Premises” within cl 10.4(1) but still enable United to use the Premises by serving fuel and convenience store items at the United Service Station.
Similarly, I am also minded to observe that, in using that phrase, cl 13.4(2) contemplates that if a pothole were located on the Land – defined as meaning “the whole of the land described as Lot 111” – as opposed to on the Premises, it would be the obligation of the landlord to conduct repair, maintenance or building work to the same. However, on the evidence before me, none of the potholes which are the subject of this dispute fall within the boundaries of the Property.
In the present case, I am satisfied that the evidence establishes that the presence of the potholes on the Western Driveway, the Easements and the Nature Strip are a “disruption to the Premises” within the meaning of the first element of cl 10.4(1). The placement and nature of those potholes are such that they provide a significant barrier to a customer wishing to enter the Premises in a vehicle using the Western Driveway to access the fuel pumps located under the Small Parapet and the Large Parapet and park on the Nature Strip to use the Store within the United Service Station. The potholes are large in size, deep and fill with water in the rain. They present an obvious hazard to a driver of a vehicle who seeks to enter the Premises to use the United Service Station, both in terms of the possible damage that might be caused to the vehicle if it goes through any part of one of the potholes and the inconvenience caused by the driver having to avoid or navigate the potholes. These are all matters that arise from common experience and common sense for a driver of a vehicle. The photographs of the potholes across the years of the Lease, including of the potholes that were repaired, amply demonstrate to me the obvious danger they posed. The potholes represent a deterrence to customers and are a “disruption to the Premises” within the meaning of cl 10.4(1) of the Lease.
In my view, it is not necessary for United to provide evidence that during 2023 and 2024 there were complaints from customers about the potholes, threats from customers to terminate their accounts with United or the actual termination of such accounts to prove that the potholes are to be regarded as a “disruption to the Premises”. While any such complaints, threats and terminations are relevant evidence, they are not essential. The facts that in 2014 there had been previous customer complaints of damage to vehicles from the potholes and in 2022 there were threats by a significant customer of United to terminate their acquisition of fuel at the United Service Station, are both relevant by showing the potential consequences to United if the potholes were not repaired.
The correspondence in 2022 contains multiple references to United “suffering badly with the potholes”, the potholes worsening and United losing business, volume and sales. It was not necessary for United to wait until it could evidence one or more of these consequences of the potholes in 2024 before they constituted a “disruption to the Premises”. The potential for one or more of those matters from 2022 to naturally flow from the presence of the potholes in 2024 highlight the serious ongoing “disruption to the Premises” that the potholes represented.
In my opinion, the obvious deterrence to entry to the Premises that is represented by the nature of the potholes is such that United might never know the full extent of the number of potential customers of the United Service Station who chose not to enter the Premises because they are not prepared to risk damage to their vehicles or engage in the inconvenience of navigating around the potholes. I consider that the potholes were in such poor condition that they clearly would have deterred potential customers and constituted a “disruption to the Premises”.
The repairs of the potholes undertaken by United in 2024 were clearly “works in order to rectify or make good any … disruption to the Premises” within the meaning of cl 10.4(1). Those works removed the potholes and therefore eliminated the associated danger, disruption and deterrence to the normal or usual way of entering the Premises and parking on the Nature Strip.

Landlord’s responsibility for repairs to meet covenant of quiet enjoyment

The second element of cl 10.4(1) of the Lease is that the works undertaken by United are “works which under this Lease are [the] responsibility of” the Lakiss brothers. Once again, applying the principles in Zhang, I have read in the word “the” into this expression to rectify an obvious error in the drafting of this part of cl 10.4.
United rely on the covenant of quiet enjoyment in cl 13.3 of the Lease to provide the basis on which such repairs of the potholes are said to be the responsibility of the Lakiss brothers. Clause 13.3 requires that the Lakiss brothers “must allow [United] to occupy and use the Premises without undue interruption or disturbance”.
The common law is reflected in the first sentence of cl 13.3 of the Lease and both parties made submissions which equated the requirements in cl 13.3 with those of the common law in relation to the covenant of quiet enjoyment owed by a landlord to a tenant under a lease. I have proceeded on that basis.
Applying the principle in Hawkesbury Nominees, as repeated in Byrnes, I agree with United that the actions and omissions of the Lakiss brothers may fall within cl 13.3 of the Lease. This means that an omission by the Lakiss brothers to repair the potholes might be caught by the provision if the other elements of it are satisfied. Contrary to the argument put by the Lakiss brothers, the fact that the Lakiss brothers did not cause or authorise the potholes is not relevant to an inquiry based on their omission to eliminate the disruption caused by the potholes. The same reasoning goes for the potholes being caused by the customers of United from driving across the Western Driveway, the potholes on the Easements and the potholes on the Nature Strip. The inquiry in this case is not on who caused these potholes but who had the responsibility to repair them.
Clause 13.3 must be read in light of the other principles recited in Byrnes. I have addressed the application of those principles below.
An essential focus of the principles in Byrnes is the purpose for which the Premises were let, which was for United to carry on the Permitted Use of operating a service station and convenience store. In the present case, on the evidence before me, there has been a substantial interference with the use of the Premises for that purpose by reason of the potholes. As I have already stated above, the evidence establishes that the potholes were an obvious hazard, danger and deterrence to customers using the United Service Station to purchase fuel and convenience items. Absent the repair of the potholes, United did not have the full benefit of the Premises for the known purpose of operating the United Service Station.
I reject the argument raised by the Lakiss brothers that the Eastern Driveway does not have potholes and so can be used to both enter and exit the United Service Station. As I have found above, the safe, convenient and usual flow of vehicles is to enter the United Service Station using the Western Driveway and exit the United Service Station using the Eastern Driveway. The Eastern Driveway is not a safe and convenient way for vehicles to enter the United Service Station. The lack of potholes on the Eastern Driveway does not detract from the substantial interference caused by the potholes located on the Western Driveway, the Easements and the Nature Strip.
It is not necessary for United to demonstrate that the substantial interference with the use of the Premises as a service station due to the potholes has caused the practical frustration of the Lease, or that the interference has rendered it impractical or uneconomic to carry on United’s business of the United Service Station. In my view, objectively assessed, the potholes caused a material and substantial interference with United’s possession of the Premises and the obligation was on the Lakiss brothers under cl 13.3 to prevent or eliminate the disruption caused by those potholes.

The Lakiss brothers argue that while there would only be some disturbance to the use of the Premises from the potholes, there is no evidence that their refusal to repair the potholes caused undue interruption or disturbance to United. Yet the solicitors acting for the Lakiss brothers wrote to the Council on 17 June 2022 asserting that the potholes on the Nature Strip at that time posed a significant risk of harm to health, safety and property, and were interfering with the Lakiss brothers’ rights as owners of the Property in a “substantial and unreasonable” manner. That letter also contained the assertion that the Council’s ongoing failure to repair the potholes was causing damage to the Lakiss brothers and amounted to a tortious nuisance “with mud or dust being spread or dispersed from those defects throughout the Property”. This contradictory position makes the arguments now raised by the Lakiss brothers that there is no evidence of undue interruption or disturbance from the potholes particularly hollow.
To the extent that the potholes are located on the part of the Easements which exist on the Neighbouring Property, the Lakiss brothers as owners of the Neighbouring Property clearly have it within their power to repair those potholes.
I also disagree with the submission made by the Lakiss brothers that the Lease was entered into in 2012 and then renewed in October 2021 in the condition of having potholes outside the Premises. As I have found above, I am not satisfied that the Lease commenced in April 2012 with potholes in existence outside the Premises. There is also no evidence that there were potholes outside the Premises in October 2021 when the option to renew the Lease was exercised. Further, the key consideration with respect to the commencement of the Lease in 2012 and the exercise of the option to renew it in October 2021 is the determination of who is responsible to repair the potholes under the terms of the Lease, not whether potholes were in existence at each of those times.
Section 142 of the Roads Act does not resolve the issue of the responsibility for the repair of the potholes on the Western Driveway and the Nature Strip as between the Lakiss brothers and United. There is no definition of “structure” in the Roads Act but I consider that it will have its ordinary meaning of comprising any built or constructed surface such that the combination of constructed concrete, bitumen, gravel and dirt across these areas would comprise a “structure” for the purposes of s 142. I consider that both United (as lessee of the Premises) and the Lakiss brothers (as owners of the Property and lessors of the Premises) have the use and benefit of that structure and therefore each of them must maintain it under s 142(1) of the Roads Act.
I also consider that the Lakiss brothers are not exempted from this maintenance responsibility by operation of s 142(3) of the Roads Act because the Lakiss brothers do not have the right to the use and benefit of the structure merely by their right of access as owners of the Neighbouring Property and the Property. The right of access to Elizabeth Drive for the Lakiss brothers as owners of the Neighbouring Property and the Property is contained in s 6 of the Roads Act. The structure on the Western Driveway and the Eastern Driveway is used to provide access and egress for the vehicles of the customers wishing to use the United Service Station. The Nature Strip is also used for the purposes of providing parking to vehicles of customers using the United Service Station. Those structures benefit United in the operation of the United Service Station, but also benefit the Lakiss brothers who have leased the Premises to United contemplating that the Nature Strip will be used as a parking area.
As the Lakiss brothers have a responsibility to maintain the “structure”, in the form of the Western Driveway, the Nature Strip and the Eastern Driveway, by operation of s 142 of the Roads Act; requiring them to repair any potholes in those areas arising from the covenant of quiet enjoyment they owe to United under cl 13.3 of the Lease gives cl 13.3 a congruent operation with s 142. In other words, it obliges them to take the same steps under the Lease that they are obliged to take under the statute.
The consequence of the operation of cl 13.3 is that the repair of the potholes is the responsibility of the Lakiss brothers so as to meet their obligations under the covenant of quiet enjoyment. They also have the responsibility to make the pothole repairs because of the operation of s 142 of the Roads Act. As a result, the second element of cl 10.4(1) is also satisfied.

Landlord’s responsibility for repairs to ensure compliance with Official Requirements

United argued that s 142 of the Roads Act placed the responsibility for the repair of the potholes on the Lakiss brothers and that it constituted an Official Requirement for which cl 9.2 of the Lease imposed an obligation on the Lakiss brothers. Although, in light of the findings I have made above it is not necessary to decide this issue, I have set out my opinion on it below.
I do not agree with United’s argument. Clause 9.2 is directed at “any Official Requirement concerning the Premises, the Tenant’s Property or the Tenant’s use or occupation of the Premises”. In my view, on its plain words, s 142 of the Roads Act cannot be characterised as any of those things. Section 142 is directed to the responsibility of a party to maintain a structure on or over a public road. The Premises are not such a structure and the statutory provision does not address United’s use or occupation of the Premises.
I do not think that s 142 of the Roads Act operates to impose any obligation or responsibility on the Lakiss brothers to repair the potholes under cl 9.2 of the Lease. As a result, in my view there is no responsibility on the Lakiss brothers to repair the potholes arising under cl 9.2 of the Lease and the second element in cl 10.4(1) is not satisfied by operation of cl 9.2.

Whether United reasonably formed a view of immediate need of repair

In light of the state of the potholes in 2024, which posed an obvious hazard, danger and deterrence to customers, I have little difficulty concluding that United acted reasonably in forming a view that there was urgency of an immediate need to repair the potholes to render the Premises safe, secure or operable within the meaning of cl 10.4(1)(a). To the extent that the potholes constituted a disruption to the Premises, the Premises were not operable and the repair of them caused the Premises to be operable. As a result, the element in cl 10.4(1)(a) of the Lease is satisfied.
United also made repeated demands of the Lakiss brothers to repair the potholes (on 3 February 2023 and 20 February 2024) and gave notice on 28 June 2024 to the Lakiss brothers of United’s intention to repair the potholes and deduct the costs from the rent under cl 10.4(2) before United undertook the repairs.

Deduction of repair costs from the rent

United obtained a quote from Abela of $10,937.30 before requesting it to undertake the repair of the potholes. There were approximately 24 potholes that were repaired by Abela. The Invoice amount of $10,937.30 rendered by Abela was in accordance with its quote.
United sent the Letter of Demand on 21 November 2024 to the Lakiss brothers requiring them to pay the repair costs of the potholes of $10,937.30 by 6 December 2024. The Lakiss brothers did not allege that the repair costs were unreasonable. The Lakiss brothers failed to pay the repair costs within 14 days of the Letter of Demand. I conclude that the element in cl 10.4(1)(b) of the Lease is also satisfied.
United was therefore entitled to exercise its rights in cl 10.4(2) by deducting the amount of $10,937.30 as the costs reasonably incurred by United from the rent payable.
It follows that the Lakiss brothers were not entitled to send the Second Default Notice to United. The Second Default Notice was therefore invalid.

ORDERS

For the reasons set out above, I will make the following orders:

A declaration that upon a proper construction of cl 10.4 of the lease agreement dated 23 January 2012 between the plaintiff and the defendants (Lease), the plaintiff was entitled to deduct the amount of $10,937.30 from the rent otherwise due to be paid to the defendants under the Lease on 1 January 2025.

A declaration that upon a proper construction of the Lease, the default notice served on 15 January 2025 by the defendants on the plaintiff was invalid and is of no legal effect.

The defendants are to pay the costs of the plaintiff of the proceedings.

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Decision last updated: 24 March 2025

Medium Neutral Citation:	United Petroleum Pty Ltd v Lakiss [2025] NSWSC 248
Hearing dates:	7 March 2025
Date of orders:	24 March 2025
Decision date:	24 March 2025
Jurisdiction:	Equity - Real Property List
Before:	McGrath J
Decision:	Declarations made that the plaintiff was entitled to deduct the repair costs of the potholes from the rent payable under the lease and the default notice served by the defendants was invalid (see [257])
Catchwords:	CONTRACTS – construction – interpretation – proper construction of a written commercial lease agreement for a petrol station – objective theory of contract –emergency repairs clause CONTRACTS – breach of contract – lease agreement – where alleged breach for non-payment of rent – where no breach for non-payment of rent as lessee entitled to deduct cost of repairs CONTRACTS – construction – correction of drafting mistakes by construction – where the literal meaning of the words used would result in an absurdity, inconsistency, palpable or obvious mistakes – where absence of a comma between “damage” and “disruption” LEASES AND TENANCIES – covenants – covenant for quiet enjoyment – disturbance – breach of the covenant by a lessor from acts of omission – where lessor failed to repair potholes LEASES AND TENANCIES – default and termination – non-payment of rent – invalid notice of default –where lessee entitled to deduct cost of repairs from payment of rent LEASES AND TENANCIES – repairs, maintenance and alterations – obligation to repair and maintain – obligations under the Roads Act 1993 (NSW) – where potholes outside landlord’s property – where landlord liable to pay costs of repairing the potholes – where lessee entitled to deduct repair costs from rent payable to landlord
Legislation Cited:	Roads Act 1993 (NSW), ss 6, 142
Cases Cited:	Byrnesv Jokana Pty Ltd [2002] FCA 41 Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24 Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 Dennett v Atherton (1872) LR 7 QB 316 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 Fitzgeraldv Masters (1956) 95 CLR 420; [1956] HCA 53 Hawkesbury Nominees Pty Ltd v Battik Pty Ltd [2000] FCA 185 HDI Global Specialty SE v Wonkana No 3 Pty Ltd (2020) 104 NSWLR 634; [2020] NSWCA 296 HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 James AdamPty Ltd v Fobeza Pty Ltd (2020) 103 NSWLR 850; [2020] NSWCA 311 Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 276 CLR 500; [2023] HCA 6 Marley v Rawlings [2014] UKSC 2; [2015] AC 129 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 National Australia Bank Ltd v Clowes [2013] NSWCA 179 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14 Rinehart v Hancock Prospecting Pty Ltd (2019) 267 CLR 514; [2019] HCA 13 Robinson v Kilvert (1889) 41 Ch D 88 Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11 Taylor v Owners — Strata Plan No 11564 (2014) 253 CLR 531; [2014] HCA 9 Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 Western Australian Rugby Union v Australian Rugby Union Ltd [2017] NSWSC 1174 Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 Wilson v Wilson (1854) 5 HL Cas 40; 10 ER 811 Zhong v Guan [2024] NSWCA 300
Texts Cited:	JD Heydon, Heydon on Contract (Thomson Reuters, 2019) Oxford English Dictionary (online 2nd ed, March 2025)
Category:	Principal judgment
Parties:	United Petroleum Pty Ltd (Plaintiff) Habib Lakiss (First Defendant) Bassem Lakiss (Second Defendant)
Representation:	Counsel: Z Graus (Plaintiff) A Avery-Williams (Defendants) Solicitors: Johnson Winter & Slattery Lawyers (Plaintiff) Yazbeck Law (Defendants)
File Number(s):	2025/00055028
Publication restriction:	Nil