This contention was challenged by the lessor. The lessee was reminded that it had consented to the registration of the strata plan.
13 By mid January 1998 it was clear that the parties could not agree about rent for the long term lease they were discussing. It is equally clear that the lessee perceived that the lessor might commence proceedings for specific performance or damages (cf BB 56Q) in relation to the exercised option. In that context, the lessee confirmed its stance that registration of the strata plan had made it impossible for the lessor to implement the agreement for lease constituted by the exercise of the option. Accordingly, the lessee purported to terminate that agreement (BB 56N). As indicated, the lessee vacated the premises shortly before the expiry date of the original lease. It is unnecessary to decide the point, and I refrain from doing so, but in all likelihood this was a repudiation of the agreement if it remained on foot and if it had not been repudiated by the lessor when the strata plan was registered.
14 The lessor did not accept it as a repudiation. Instead it commenced proceedings in the Equity Division in February 1998. It sought declarations that there was an enforceable agreement to lease and that its action in obtaining registration of the strata plan did not constitute a repudiation of that agreement. The lessee filed a cross-claim seeking inter alia a declaration that it was impossible to renew the lease on the same conditions as the original lease.
15 On 23 April 1998 Young J reminded the parties that s63 of the Supreme Court Act 1970 ordinarily meant that in a vendor/purchaser suit, the Court would not merely make declarations, but would insist that the moving party seek specific performance, or damages, or both (Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286). The lessor amended its summons on 14 May 1998 to include a prayer for specific performance. The lessee countered with additional points of defence which asserted that specific performance should be refused on various grounds, including the ground that in all the circumstances damages at law were an adequate remedy for the lessor.
16 When the matter was before Young J on 23 April 1998, his Honour held that the service of the notice of exercise of option had created an agreement to lease for a further term of three years. This finding is not challenged in the appeal.
17 Young J then addressed the lessee's alternative submission that registration of the strata plan meant that it was impossible for the agreement to be performed, or that it was void for uncertainty, or that it had been repudiated by the lessor. Various issues were discussed in the judgment given on that date, but the upshot was that the proceedings were adjourned to enable the lessor to submit a lease that properly complied with its obligations under clause 20 of the original lease.
18 On 11 May 1998 the lessor tendered an executed copy of a new lease purportedly in compliance with its obligation under cl 20 of the original lease. The new lease was verbally identical to the original lease with two exceptions. First, it properly excluded the option clause itself. Secondly, it changed the description of the demised premises from "Level 7, 16 O'Connell Street, Sydney" to "Folio identifier 8/SP55932 being Level 7, 16 O'Connell Street, Sydney".
19 The lessor's principal submission before Young J at the adjourned hearing on 22 July 1998 and before this Court was that it had complied with its obligation under the option clause by tendering a lease which corresponded to the form of the original lease, save for the matters mentioned above. (The omission of the option clause was never a point of dispute.)
20 Young J delivered further reasons for judgment on 4 September 1998. He held that the lessor's duty to tender a lease whose covenants, conditions and restrictions "shall be the same as in" the original lease was not necessarily satisfied by mere repetition of identical words in the relevant parts of the original lease. He cited Mark Mayne Pty Ltd v Suburban Centres Pty Ltd [1976] 2 NSWLR 67 at 71, Noyes v Klein (1984) 3 BPR 9216 at 9232 and Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 570. These cases demonstrate that literal reproduction of the words of an earlier lease may involve a change of substance, for example because the new lease does not (in terms) speak from its inception but from the inception of the former lease.
21 The learned judge held that the proffered new lease was not in substance the same as its predecessor. Several points of difference in effect were identified. I shall refer to the detail of reasoning below. His Honour also held that the lessee's consent to registration of the strata plan did not entail consent to "radical alterations in its rights to a renewed lease".
22 Having found that there was a binding contract to enter into a new lease, but that that contract had become impossible to perform, his Honour dismissed the lessor's summons and granted the lessee a declaration that, in the events which happened, it was impossible to renew the lease pursuant to cl 20 on the same covenants, conditions and restrictions. At a later stage in the proceeding his Honour dealt with costs.
23 The lessor promptly filed a notice of appeal. In it, the lessor sought to set aside the orders made by Young J and claimed damages in lieu of specific performance. The change from specific performance to damages was doubtless prompted by the inevitable delay during the pendency of an appeal and it was related to the lessor's intention to sell its interest in the demised premises. Lot 8 was sold in early 1999.
24 The lessee took a preliminary point, arguing that it was not open to the lessor to change its tack in the Court of Appeal and now to seek damages at common law. There is no substance in this point. If performance of the contract was not rendered impossible by the registration of the strata plan, then there was undoubtedly a breach by the lessee prior to institution of the proceedings in the Court below. The nature and extent of that breach, whether there was any failure to mitigate, and the extent of damages flowing from it are all matters which the parties will be free to litigate if this Court overturns the orders made by Young J and remits the proceedings to the Equity Division for assessment of damages.
25 The lessor's conduct of the proceedings below was not inconsistent with its right to claim damages at common law (see Bosaid v Andry [1963] VR 465 at 486-7 and Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 461-2). The possibility of the lessor abandoning its claim for specific performance in favour of damages at common law was always on the cards (cf pars 13 and 15 above).
26 The fact that the lessor has now elected to seek damages as on a repudiation after the dismissal of its proceedings by Young J provides no barrier if his Honour was in error, given that such election at its highest affects only the quantum of damages. If the lessee was in breach, then the breach occurred before the proceedings were commenced, not that that would have mattered in the final analysis (cf Pt 20 r1(3A)). If Young J had found in the lessor's favour, specific performance would have been granted. In those circumstances, "one of the first and highest duties of all Courts is to take care that the act of the Court does no injury to any of the Suitors" (Commonwealth v McCormack (1984) 155 CLR 273 at 276, citing Rodger v The Comptoir D'Escompte de Paris (1871) LR 3 PC 465 at 475).
27 The lessee's principal submissions are that by virtue of the registration of the strata plan the "demised premises" have altered and performance of the lessor's obligations has become impossible; and that the lessee's consent to such registration does not estop it from taking this stance. In essence, the lessee supports the reasoning of Young J.
28 It is convenient at the outset to refer to a decision relied upon by the lessee which was cited and applied by Young J. In Hollies Stores Ltd v Timmis [1921] 2 Ch 202, there was a lease to a company with three named persons guaranteeing its obligation to pay rent. An option to renew on the same terms was exercised. One of the guarantors had died and the lessee offered another guarantor in his place. Alternatively, the lessee offered to pay the entire rent for the new term in advance. The lessor refused to grant the lease on the ground that the conditions on which it was to be granted had become incapable of performance. This contention was upheld by Russell J who held that the lessor could not be compelled to grant a different lease even though the rent was equally well secured. One infers that the decision would have been different if, for example, one of the guarantors had merely fallen on hard times. The practical effect of the guarantee would have been different, but this would not have meant that the proffered lease did not conform. If the inference is correct, it demonstrates that the proposition that a difference in practical enjoyment of terms would not be pushed too far.
29 Whether or not the decision in Hollies is good law in the light of cases such as Mark Mayne, Noyes and Showa Shoji can be determined when it is necessary to do so. The matter is not precluded by the passing reference to Hollies in Verdi La Fortuna Pty Ltd v Mabrouk Pty Ltd [1992] NSW Conv R ¶55-632.
30 In my view, the proper approach to the issues presented in this appeal is to view the matter as the parties did in late 1997. They were concerned only with the demised premises. The lessee had exercised the option and both sides knew that this represented the fall back position if the negotiations for a different lease came to nothing. The parties also knew that the building was being refurbished and that a strata scheme was in preparation, being a scheme which used as its basis the strata plan approved by Sydney City Council. The lessee obviously perceived it to be in its interests to facilitate this process and accordingly it consented to the registration of the strata plan.
31 Some of the matters referred to in the preceding paragraph occurred after the option had been duly exercised. Nevertheless, the time for performance of the contract to grant the new lease in accordance with cl 20 lay in the future, in the sense that the occasion for executing the new lease would arise towards the end of the original term if the pending negotiations for a radically different lease came to nothing. Neither party intended to proceed to execute the new lease on the "same" terms as the original lease so long as they were negotiating with a view to a completely different lease. By the stage that those negotiations broke down in January 1998, the strata plan had been registered, bringing about changes in the "congeries of rights" of the lessor and lessee (the phrase is Young J's).
32 Young J regarded the changes as significant in practical effect and the lessee's submissions sought to emphasise their significance.
33 I shall indicate below why I consider it unnecessary to detail the extent of those changes. I content myself with the following observations as to the materiality of the changes:
¨ I am not persuaded that the physical area of the demised premises has changed. The alterations to the lessor's rights over the building as a whole were not relevant to the position as between lessor and lessee. It is true that the strata scheme clearly excludes from lot 8 the space occupied by boundary walls and the slab of the ceiling above and the floor below level 7. But this involved no reduction in the area of exclusive occupation previously enjoyed by the lessee. It is not self evident that the original lease gave rights to occupy any of the solid spaces forming the physical boundaries to the interior of level 7, even the exterior walls and windows (cf cl 10.1(1), (n) and (o)).
¨ The original lease itself apparently excluded "the common areas" (cf cl 10.1(j)).
¨ The lessor's covenants with respect to use of lifts and air conditioning and the cleaning of the premises were always expressed in terms of its (best) endeavours. Those obligations remained in identical terms in the new lease proffered by the lessor. The fact that the lessor could be put into breach through the conduct of the owners corporation did not alter the substantive or formal operation of the covenants any more than would be the position if the lessor had subcontracted its obligations to cleaning and maintenance firms. The same point can be made about the changed operation of provisions like cl 10.1(n) and 17 which, when read with s133B(2) of the Conveyancing Act 1919, preclude the lessor from unreasonably withholding consent to alterations and improvements of the demised premises (cf Telstra Corp Ltd v Capetan Pty Ltd (1996) 7 BPR 97,593).
¨ The commencement of the strata scheme undoubtedly altered the quantum of the lessor's outgoings referable to level 7, if only because lot 8 became separately rateable (the 1973 Act, s92). Furthermore, the amount payable by the lessee would have changed because the unit entitlement of lot 8 under the strata scheme is 7.2% compared with 8.09% being the lessee's share of total incorrect outgoings for the building under the original lease. It was submitted that there was uncertainty as to whether the lessor's new obligation to pay levies by the owners corporate was an "outgoing of the building", although I would think it strongly arguable that it was. (See Leisure Resort Holdings Pty Ltd v Leisure Resort Group Pty Ltd (1994) NSW Titles Cases ¶80-030. Lang v Asemo Pty Ltd [1989] VR 773 is distinguishable having regard to the limited terms of the relevant covenant (see at 779).
The lessee, adopting the reasoning of Young J, submits that these matters gave substantially different effect to cl 23 (which obliged the lessee to pay a share of the outgoings). Again, I would doubt this. After all, cl 23 was never intended to deal with a position fixed in concrete in 1992. Outgoings necessarily vary with needs and with obligations as they apply from time to time. A new tax may be a proper outgoing. Care should be taken not to confuse the constant substantive effect of the relevant covenant and its varying impact from time to time.
34 It may well be that the shift to a strata scheme threw up questions of interpretation and application of cl 23. Indeed, it may even be that the lessor became unable to treat some of its outgoings referable to lot 8 as "outgoings of the building" for the purpose of clause 23 (I am speaking hypothetically and am not to be taken to be expressing a view either way). If that was the case, then it was the lessor's problem because the value of cl 23 to the lessor was diminished. But it was not a problem in relation to the lessor's strict, literal and substantial compliance with its duty under cl 20 to tender a new lease containing the same covenants, conditions and restrictions as the original lease.
35 It is however quite unnecessary to consider whether any of these changes due to the registration of the strata scheme represented departures of substance from the obligations under the new lease proffered for the lessee's execution. That is because all of these changes were the direct consequence of the situation brought about and intended to be brought about by the joint action of the parties when the lessor (with the lessee's cooperation) proceeded to obtain registration of the new strata plan.
36 The strata scheme was registered during the currency of the original lease. To the extent that it had a practical impact upon the enjoyment by lessor and lessee of their rights under the then current lease, the parties must be taken to have intended this and to have intended it as and from commencement of the scheme. By the time negotiations for a new lease had fallen through and the parties had reverted to their rights under the exercised option, the strata scheme had become an established part of their mutual relations. It is irrelevant that third party rights and obligations were also involved, with the intrusion of the owners corporation. This was a classic situation of estoppel by convention (cf Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 244-5) because the parties conducted their relations on the basis of an agreed state of facts, namely that the landlord's title to the demised premises was its title to lot 8 in the new strata plan. The lessee's consent was to the registration of the strata plan and everything that necessarily flowed from it, and this is sufficient to dispose of the lessee's arguments. It was not open to the lessee to rely upon the direct and intended consequences of its consent as constituting a repudiation by the lessor or as the basis for contending that performance of the option agreement had been frustrated or otherwise rendered impossible.
37 The lessee sought to advance a separate argument based upon s44 of the Strata Schemes Management Act 1996. That section provides that the by-laws for a strata scheme bind the owners corporation, the owners and other persons including the lessee of a lot, to the same extent as if the by-laws had been signed and sealed by each such party. Section 44(2) provides that there is an implied covenant by the lessee in a lease of a lot to comply with the by-laws for the strata scheme.
38 By operation of law, s44 brought about the situation whereby the by-laws acquired inter alia the status of implied covenants in the lease between the parties. The lessee submitted that this was a radical departure from the arrangement embodied in the original lease. Let that be conceded. It does not follow that the form of the new lease required to be executed by the lessee differed in any respect. To the extent that there was a relevant departure, it came about at the inception of the strata scheme on 20 November 1997 through the conduct of the lessor in procuring registration of that scheme, being conduct to which the lessee consented for its own purposes.
39 The appeal should be upheld and the proceedings remitted to the Equity Division for assessment of damages.
40 I propose the following orders:
(1) Appeal upheld.
(2) Set aside the orders made by Young J, including the order as to costs.
(3) Declare that in the events which happened, the registration of Strata Plan 55932 did not constitute a repudiation of the agreement formed upon the exercise of the option to renew Lease E907098.
(4) Remit the proceedings to the Equity Division to assess the damages payable by the respondent to the appellant.
(5) Order that the respondent pay the appellant's costs of the proceedings to date in the Court below and in this Court, and to have (if qualified) a certificate under the Suitors' Fund Act 1951 .
41 HANDLEY JA: I agree with Mason P.
42 FITZGERALD JA: The circumstances giving rise to this appeal are substantially referred to in the reasons for judgment of the President, with which Handley JA has agreed. However, it is desirable for me to record some matters to explain my conclusion.
43 The appellant was the owner of premises at 16 O'Connell Street, Sydney, and the respondent was the lessee. In addition to rent, the lease required the respondent to pay the appellant 8.09% of the "additional outgoings", as defined in cl 23 of the lease.
44 On 27 October 1997, the respondent exercised an option to renew its lease for a further term of three years commencing on 1 March 1998. So far as presently material, the option to renew provided for the "covenants, conditions and restrictions" of the lease granted after the option was exercised to "be the same as in" the lease containing the option "with the exception that this option to renew shall be excluded …". Provision was made for the rent, which was not to be less than the rent "payable immediately prior to the expiration of" the original term, to be the "current market rent", and to be determined by valuation if the parties were unable to agree.
45 After the respondent exercised its option, the appellant caused the registration of a strata plan, No. 55932, under the Strata Schemes (Freehold Development) Act 1973. On 20 November 1997, when the strata plan was registered, Level 7 of the building, except for two areas of common property containing lifts and stairs, became Lot 8. According to the "schedule of unit entitlement" included in the strata plan which was registered, the "unit entitlement" of Lot 8 is 7.2% of the aggregate unit entitlement of the property. See the definitions of "schedule of unit entitlement" and "unit entitlement" in subs 5(1) and subss 8(1)(c) & (4) of the Strata Schemes (Freehold Development) Act 1973. Lot 8's "unit entitlement" is not material to the outcome of this appeal. Although subs 8(4A) does not appear to be applicable, it seems that unit entitlements would have been allocated to the lots in the strata plan in proportion to their respective values when the strata plan was registered. See also s 183 of the Strata Schemes Management Act 1996.
46 During the period between its exercise of its option to renew the lease and the registration of the strata plan, the respondent consented in writing to the registration of the strata plan. See subs 16(2) of the Strata Schemes (Freehold Development) Act 1973.
47 I agree with the President that the respondent's consent to the registration of the strata plan gave rise to an estoppel which precludes the respondent from relying on the mere fact of registration of the strata plan to escape its contractual obligation to accept a further lease. Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146.
48 After the option was exercised and the strata plan was registered, the parties continued with negotiations concerning a long-term lease of Lot 8 by the respondent. It was not argued that those negotiations abrogated any contract then existing pursuant to the respondent's exercise of the option. Cf British Guiana Corporation v da Silva (1965) 1 WLR 248. The negotiations broke down, and the respondent vacated the building shortly before 28 February 1998, when its then current term expired. It has not paid rent since.
49 On 10 February 1998, prior to the expiration of the respondent's original lease or the respondent vacating the premises, the appellant commenced a proceeding against the respondent by summons in the Equity Division. The summons was later amended, twice. In its final form, the amended summons sought a declaration that there was an "enforceable agreement to lease" between the parties and an order for the specific performance of that agreement. Damages were not claimed at any time.
50 On 11 May 1998, while the proceeding was part-heard, the appellant tendered to the respondent for execution a document in the form of a lease, already executed by the appellant, which was literally in the "same" terms as the original lease. Details of presently immaterial differences are set out in para 18 of the President's judgment.
51 The appellant's claim for specific performance in the Equity Division and its case on this appeal were conducted on the footing that the lease which the appellant was willing to grant, and which the respondent was contractually obliged to accept, was a lease in the terms of the executed lease document which the appellant tendered for the respondent's execution.
52 The rent for which the tendered document provided was the same as that "payable immediately prior to the expiration of" the initial term, which was the minimum payable during "the further term" in accordance with subcl 20(b) of the original lease. The tendered document also provided that there would be no rent reviews.
53 As in the original lease, clause 23 of the tendered document provided:
"CONTRIBUTIONS TO INCREASES IN OUTGOINGS
23.1 the term "the outgoings of the Building" where used herein shall mean the total sum of all outgoings, costs and expenses of the Lessor properly or reasonably assessed or assessable charged or chargeable paid or payable or otherwise incurred in respect of the Building (including in such term, for the purposes of this sub-clause, the curtilage of the Building and all levels thereof including, but without limiting the generality of the foregoing, those levels below ground level, whether used for the parking of motor vehicles or otherwise) and in the control, management and maintenance of the Building and in particular but without limiting the generality of the foregoing shall include:
(a) all rates taxes charges and assessments duties impositions and fees at any time or from time to time payable to any government, local government, semi-government or other competent authority in respect of the land or the Building; provided that State Land Tax shall be payable at Lessor's rate.
(b) all charges for and costs in relation to the supply of water sewerage and the removal of all waste and other garbage from the building and the land;
(c) all amounts payable in respect of insurances effected from time to time by the Lessor and relating to the Building and the use and occupancy thereof and the equipment and appliances therein including without limiting the generality of the foregoing plate glass insurance, public risk insurance; insurance for fire and loss of rental and insurance for machinery breakdowns and pressure vessel collapse or explosion.
(d) the cost of operating and supplying all services from time to time provided by the Lessor for tenants and occupiers of the Building including lifts and air-conditioning and the cost of regular maintenance and for the repair of all lifts, air-conditioning and other plant and equipment required in connection with any of such services;
(e) all charges for all services supplied to the Building including but not limited to lighting, power, heating, air-conditioning and ventilation incurred in connection with the building, and in particular, but without limiting the generality of the foregoing, in connection with the forecourt, entrances, vestibules, corridors, passages, stairways landings, lifts, water-closets, wash-rooms and lavatories in the Building;
(f) all proper and reasonable costs (including wages and other employment overheads) of the operation maintenance and supply of any services normally provided in buildings of a similar nature from time to time provided by the Lessor for the tenants and other occupiers of the Building including caretaking supervision, security, lifts, air-conditioning, ventilation and other plant and machinery in the Building, the provision of hot and cold water and supplies for the wash-rooms and lavatories of the Building and cleansing, maintaining, decorating and shrub and plant hire and landscaping the land and any amenities and services thereon;
(g) the proper and reasonable cost of the maintenance repair and renovation of all carpets, window coverings, plant and equipment in the Building including amounts paid under proper and reasonable service and maintenance contracts in connection therewith;
(h) The cost of repairs, redecoration and maintenance of the Building but not including repairs and maintenance of a structural nature except such as are recovered from any lessee or other occupier of the Building;
(i) a management fee to cover the Lessor's cost of managing the Building not exceeding the minimum rate for management service such as determined or recommended from time to time by the Real Estate Institute of New South Wales or an amount equivalent to that which would be charged by members of that Institute experienced in such work as to which amount the decision of the Lessor shall be final and binding upon the Lessee which fee shall be charged upon the gross collections of rent fees Operating Expenses any other monies paid or payable by all lessees and other occupiers of the Building to the Lessor in respect of any part or parts of the Building.
23.2 The term "lease year" where used herein shall mean any period of twelve (12) months ending 31 December 1991.
23.3 The term "the additional outgoings" in relation to any lease year shall mean the amount (if any) by which the outgoings of the Building computed in respect of that lease year exceed the aggregate of the following sums:
(a) rates, taxes, charges and assessment payable to the Council of the City of Sydney or other Local Government authority in respect of the year 31 December, 1991;
(b) land tax payable to the State of New South Wales in respect of the year ended 31 December, 1991;
(c) rates, taxes, charges and assessments payable to the Water Board for the year ended 31 December, 1991;
(d) all the remainder of the outgoings of the Building in respect of the year ended 31 December, 1991.
23.4 The additional outgoings shall be computed in respect of each lease year subsequent to the lease year ending 31 December, 1991.
23.5 The Lessee covenants that the Lessee will pay to the Lessor or the Lessor's agent as rent (in addition to the rent) an amount equal to the percentage stated in Item 9 of the Reference Schedule of the amount of additional outgoings.
23.6 Any statement by the Lessor or any of its officers or those of any company which shall be managing the property certifying the base outgoings in respect of any lease year and giving reasonable details of the outgoings of the Building which the lessor or its agents serves upon the Lessee shall be prima facie evidence of the matters therein contained.
23.7 Prior to the commencement of and from time to time during each lease year the Lessor may estimate or re-estimate the amount of additional outgoings for that lease year and advise the Lessee of the amount of the Lessee's proportion of such estimated increases payable by the Lessee and the Lessee shall pay such amount by monthly instalments in advance on the first day of each and every month during the remainder of the lease year together with the rent hereby reserved. As soon after the expiration of each lease year as the necessary information is available to calculate the actual amount of the additional outgoings in respect of that lease year the Lessor shall calculate such increases and the amount of the Lessee's proportion thereof payable by the Lessee in pursuance of this clause and the difference between the amount so payable by the Lessee and the amount paid by the Lessee in respect of such lease year shall be paid by the Lessee to the Lessor or by the Lessor to the Lessee as the case may be to the intent that the Lessee shall have paid the correct proportion of the amount of the additional outgoings for the lease year in question. Such payments by the Lessor and Lessee shall be payable notwithstanding the fact that this Lease has in the meantime expired or been determined prior to such payment having been demanded or made"