A new issue is raised
47 The respondent sought to advance an argument based upon a breach by the appellants of the covenant contained in s 28W(2)(b) of the Act. The appellants objected submitting that that issue was now being raised for the first time during the hearing of the appeal. Accordingly, the respondent sought the Court's leave to raise it. That application was opposed.
48 Essentially, the respondent's contention was that even if the appellants were not bound by cl 19.1(a) of the SMS, they were each bound by the covenant contained in s 28W(1)(b). It further submitted that the appellants were in breach of that covenant because, in using their respective premises as fast food outlets, they were, in a practical sense, causing PCP as the proprietor of those premises to breach its obligation under the second sentence of cl 19.1(1) of the SMS not to permit the Retail Shops to be used for that purpose. In this way, the respondent argued, the appellants were in breach of the covenant whereby they had agreed to permit PCP to carry out its obligation under the second sentence of cl 19.1(a).
49 Whatever the merit of the argument, it must first be decided whether leave ought to be granted to the respondent to raise this issue given the manner in which the trial was conducted. The appellants objected to the granting of such leave because the respondent, so they submitted, had had numerous opportunities to raise the issue at first instance but failed to do so. Had they done so, the appellants would have sought to establish by evidence that PCP was at all times aware that the appellants were conducting their respective businesses in the Retail Shops as fast food outlets. Hence, the appellants submitted, the respondent was bound by the way it conducted its prosecution of the matter before the primary judge and should not now be permitted raise on the appeal a new issue which, whether deliberately or by inadvertence, it had failed to advance during the hearing below.
50 The relevant principles were recently summarised by me in Whitehouse v BHP Steel Ltd [2004] NSWCA 428 at [65]-[68] and in Hypec Electronics Pty Ltd v Mead [2004] NSWCA 221 at [71]-[74] where the relevant authorities are collected. Essentially, the principle governing a case such as the present is that articulated by Latham CJ, Williams and Fullager JJ in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438 where their Honours said:
"Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards."
51 Further, if prejudice is claimed, a court is likely to give effect to that claim unless the circumstances clearly point to there being in fact no prejudice.
52 Relevant to this last point, the respondent submitted that in its final address in reply before the primary judge, it made reference to s 28W(2)(b) and relied upon the same argument now sought to be raised on the appeal (see Black 230 R-W). However the effect of s 28W(2)(b) was raised by the respondent at the trial in the context of responding to the appellants' submission in address that the obligation in the second sentence of cl 19.1(a) was confined to the proprietors of the lots comprising the Retail Shops and did not extend to lessees.
53 It was thus argued by the respondent before the primary judge that because the appellants as lessees had agreed, pursuant to the covenant contained in s 28W(2)(b), to permit the proprietor to carry out its obligation under the second sentence of cl 19.1(a) and as the appellants were engaged in the use of the proprietor's property, the second sentence of cl 19.1(a) should be construed in such a way that the lessees, as well as the proprietor, were bound to ensure that that property was not used for the prohibited purpose. In other words, the argument, although founded on the covenant contained in s 28W(2)(b), was directed to the true construction of the second sentence of cl 19.1(a) and was not being advanced as an independent breach by the appellants of the covenant. Certainly, no amendment of the Statement of Claim was made to allege a breach of that covenant by the appellants as distinct from, and independently of, the pleaded breach of cl 19.1(a) of the SMS.
54 The respondent further submitted that the appellants had raised this same argument in oral submissions at the hearing of the appeal as a consequence whereof there was no unfairness to the them in their being met in reply on the appeal with the same argument they with which they were met in reply at the trial. However, as I have observed in the preceding paragraph, the respondent's reliance before the primary judge upon the covenant in s 28W(2)(b) was not on the basis that an alleged breach thereof by the appellants constituted an independent source of relief.
55 Thus the appellants, in reliance upon the principles to which I have referred, submitted that leave should not be granted for had the issue been raised below in a timely fashion and as an independent ground for relief, evidence could have been tendered which by any possibility could have prevented the point from succeeding. That evidence, the appellants submitted, could have established that PCP had given at least tacit permission to each of them to conduct fast food outlets from each of the Retail Shops. If such permission had been given, so the appellants contended, there could be no contravention by them of the covenant contained in s 28W(2)(b).
56 In my opinion, this submission of the appellants should be accepted. It is clear from the evidence that even though the leases from PCP to each of the appellants did not expressly grant permission to the lessees to use their respective premises as a fast food outlet, it is likely that, at the least, evidence of PCP's observation of the manner in which the appellants conducted their respective businesses from the Retail Shops would have conveyed to it that they were using those premises for the proscribed purpose.
57 The respondent's argument with respect to s 28W(2)(b) is based upon the proposition that the appellants, by using their respective premises for a purpose that breached the restriction in the second sentence of cl 19.1(a) of the SMS, were in a practical sense, "causing" PCP to breach its obligation under that provision. However, if it be assumed that the appellants could have called evidence to establish that PCP at all material times knew of the offending use by the appellants and did nothing to restrain it, it would not be possible for the respondent to maintain that the appellants were "causing" PCP to breach that obligation or that they were in any other way "preventing" PCP from carrying out its obligation under the second sentence of cl 19.1(a). Given that it was at all times within PCP's power to restrain the appellants' offending conduct as being in breach of cl 6.1 of the leases, the former had total control over whether or not it conducted itself so as to conform to its obligations.
58 The respondent nevertheless submitted that it did not matter what action, if any, PCP as proprietor of the lots comprising the Retail Shops may have taken to restrain its lessee's offending conduct; if the lessee was still using the premises so as to result in a breach by PCP of the subject prohibition, then it would be in breach of its agreement contained in the covenant to permit the carrying out by PCP of its obligation in the second sentence of cl 19.1(a) of the SMS.
59 However, in my opinion this submission should be rejected. In my view s 28W(2)(b) does not have the effect contended for by the respondent, namely, that where a lessee engages in conduct which amounts to a breach of a proprietor's obligations under a strata management statement, the lessee will be in breach of the covenant contained in s 28W(2)(b), even where the proprietor knew of the offending conduct and took no steps to rectify it where it was within its power to do so. It must be remembered that in the present circumstances, as I have found, the obligation in the second sentence of cl 19.1(a) not to use the Retail Shops for the conduct of a fast food outlet was imposed specifically upon a proprietor, as opposed to a lessee, because it is the proprietor who is in a position to control or limit the uses to which its own property can be put by those whom it permits to occupy them.
60 In circumstances where a lessee engages in conduct that amounts to a breach by the proprietor of its obligations and the proprietor with knowledge of that conduct does not exercise its control, then it cannot be meaningfully asserted that the proprietor was not permitted to carry out its obligations by the conduct of the lessee. Rather, the proprietor was not permitted or was prevented from doing so by its own inaction in remedying what it knew to be a breach of its own obligations and in therefore permitting the conduct which constituted that breach to continue. It is not to the point in the present case that it was the appellants who triggered the breach of the second sentence of cl 19.1(a) by commencing to use the Retail Shops for the prescribed use.
61 The position would be a fortiori if the evidence established, as it possibly may have, that PCP as proprietor was aware of, and thus permitted and condoned, that use as and from the commencement of the term of the lease.
62 For the foregoing reasons, I am of the opinion that leave should not be granted to the respondent to raise as a separate issue a breach by the appellants of the covenant contained in s 28W(2)(b). While it seems that this issue was obliquely raised by the respondent in oral submissions in reply at the trial, it was not advanced as an independent or determinative ground for relief and the respondent should not be permitted to advance it on that basis now.