Fasako Pty Ltd v TianyD Beauty & Hairdressing Australia Pty Ltd - [2022] NSWSC 49 - NSWSC 2021 case summary — Zoe

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Fasako Pty Ltd v TianyD Beauty & Hairdressing Australia Pty Ltd

[2022] NSWSC 49

Supreme Court of NSW|2021-04-08

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Source facts

Court

Supreme Court of NSW

Decision date

2021-04-08

Source

Original judgment source is linked above.

Judgment (48 paragraphs)

[1]

Hunt & Hunt Lawyers (Plaintiff) TPS&Co Lawyers (First & Second Defendants) File Number(s): 2020/285379 Publication restriction: Nil

[2]

HEADNOTE Judgment Background Leave to appeal to this Court Appeal Grounds 1 and 2 Appeal ground (3) - Appeal Panel erred in construction and breach of clause 9.3 of the Lease Appeal ground 4 - findings made in the absence of evidence Appeal ground 5 - Repudiation and termination Result Costs Orders

[3]

HEADNOTE [This is not to be read as part of the judgment] This matter is an appeal from the decision of the Appeal Panel of the NSW Civil and Administrative Appeal Tribunal ("NCAT"). The plaintiff is Fasako Pty Ltd. The first defendant is TianyD Beauty & Hairdressing Australia Pty Ltd and the second defendant is Yao Zhu, the director and guarantor of TianyD. The proceedings concern a retail lease between Fasako, as lessor, and TianyD, as lessee, of a commercial premises ("the premises") in a building in Sydney ('the building"). Before commencement of the lease the premises had not been occupied. The lessee wanted to fit out the premises to include a number of partitioned beauty treatment rooms. This required modification to the fire sprinkler system so as to ensure it met Australian fire safety standards. On 18 May 2017, a hydraulic consultant retained by the lessee informed the lessee that it appeared that the pipe work in the building was not big enough to supply the correct amount of water to the premises to comply with the fire safety standards. On 27 June 2017, the lessee was presented with two options to comply with Australian fire safety standards: 1. to install new pumps in the building to comply with AS2118.1-1999; or 2. to pursue a "performance engineered solution" which would enable the certification of the current system in accordance with AS21118.1-2017. Either of these methods would have enabled the fit out to occur lawfully. The lessee contended it was the lessor's obligation to upgrade the pumps in the building, the lessor contended that any modifications to enable the lessee's fit out was its own responsibility. On 13 September 2017, the lessee issued a termination notice. The lessor nevertheless pursued a performance based solution and obtained a report in that regard. On 9 May 2018, the lessor commenced proceedings in NCAT seeking to enforce the lease. On 14 September 2018, the lessee filed a cross claim seeking damages and compensation. On 17 October 2019, the Tribunal Member determined that the lessee's termination notice was ineffective, the lessor had not breached any obligation under the lease, there was an implied term in the lease that each party would maintain loyalty to it and the lessee breached that term by failing to pursue a performance engineered solution, and service of the termination notice constituted repudiatory conduct by the lessee. On 14 November 2019, the lessee filed an appeal to the Appeal Panel raising 12 grounds of appeal. The lessee sought orders that the lessor breached cl 9.3 of the lease and an implied term that they would not derogate from the grant of the premises, that the lessee had validly terminated the lease on 13 September 2017, and that the proceedings be remitted to the Tribunal for determination of damages and compensation. On 7 September 2020, the Appeal Panel provided written reasons for its decision. Leave to appeal was granted, and the lessee was permitted to pursue the breach of cl 9.3 on appeal, the matter having been found to have been raised at first instance and not abandoned. The panel did not accept there could be an implied term of non-derogation and therefore did not address whether the lessee should be prevented from raising that argument on appeal. Ultimately the Appeal Panel found that the lessor had breached cl 9.3 and made a declaration that on 13 September 2017 the lessee validly terminated the lease. The application was remitted to NCAT to determine the lessee's entitlement to damages or compensation. By summons filed 2 October 2020, the lessor seeks leave to appeal from the whole of the Appeal Panel's decision, that the judgment and orders of the Appeal Panel to be set aside or in the alternative that the decision of the Appeal Panel to be quashed, or in lieu thereof that the matter is dismissed to the Appeal Panel with costs. The grounds of appeal are that: 1. The Appeal Panel erred in allowing the lessee to rely on cl 9.3 on appeal; 2. in the alternative to the extent that the Appeal Panel had a discretion to permit a new matter to be raised on appeal, it erred by taking into account the wrong principle and or by failing to take into account the actual conduct of the trial; 3. the Appeal Panel erred in its construction of cl 9.3; 4. the Appeal Panel erred by making four findings in the absence of evidence; and 5. the Appeal Panel erred in finding that the lessor's conduct was a significant serious breach of an innominate term which entitled the lessee to terminate. The lessor sought leave to appeal pursuant to s 83 of the Civil and Administrative Tribunal Act 2013 (NSW). While the lessor made submissions that the grounds of appeal raised questions of law, it did not address the question of why this Court should grant leave to appeal other than saying "these questions of law give rise to an injustice that is more than merely arguable." On this basis alone I was minded to refuse leave to appeal, but in order to afford fairness to the lessor I went on to address the lengthy submissions made on each ground. None of the grounds of appeal raised revealed errors made by the Appeal Panel that were more than reasonably arguable. For this reason leave to appeal was refused. The summons filed 2 October 2020 was dismissed. The lessor was ordered to pay the lessee's costs.

[5]

Background

The proceedings concern a retail lease between Fasako, as lessor, and TianyD, as lessee, over a two-storey shop ("shop x" or "the Premises") in the building at XXX-XXX Sussex Street, Sydney ("the Building"). This lease was entered into on 24 March 2017, for a term of 5 years with an option for 5 years commencing 27 March 2017 ("the Lease").
Central to this dispute is the fire sprinkler system servicing shop x in the building. Shop x spanned two floors being the lower ground floor and the ground floor of the building. At the time of the commencement of the Lease, shop x was in a 'base build' state. It had not previously been occupied by any tenant.
The Lease provided for permitted use of shop x which included the conduct of beauty services. TianyD wanted to fit out shop x to include full-height partitioned beauty treatment rooms. The Lease contained a three-month rent-free period to allow TianyD to carry out its proposed fit out.
Part of the proposal included modifications to the lower ground floor by the installation of various partitions to create 18 enclosed rooms. This work required alterations to the existing fire sprinkler system to meet fire safety requirements. These requirements had to be adhered to in order to obtain local Council development approval for the fit out and to comply with the requirements in the Building Code of Australia and relevant Australian Standards.
There are two relevant Australian Standards. The first is AS2118.1-1999 ("AS 1999" or "the 1999 standard"), and the second is AS21118.1-2017 ("AS 2017" or "the 2017 standard"). It is uncontested that at the commencement of the tenancy, the premises did not comply with the 1999 standard; however whether this non-compliance rendered the premises lawfully unusable is in dispute. The reason for this dispute is that notwithstanding the failure of the system to comply with the 1999 standard, the system could be deemed compliant if certified in accordance with the 2017 standard by the implementation of a 'performance engineered solution'.
On 18 May 2017, a hydraulic consultant retained by TianyD, Mr Gary Hajek of Austratronics ("Mr Hajek"), informed TianyD's project manager, that there had been a hold up with required alterations due to the fact that "with the amount of new sprinklers required to suit the basement area fit out, it appears that the pipe work may not be big enough to supply the correct amount of water".
On 27 June 2017, TianyD was presented with a fire sprinkler design for its proposed fit out and confronted with two options to service the increased number of sprinkler heads proposed. The first was installation of new pumps in the Building so as to comply with the 1999 standard, and the second was to pursue a performance engineered solution which would enable the certification of the current system in accordance with the 2017 standard.
TianyD contended it was Fasako's obligation, as the lessor, to upgrade the existing pumps in the Building, and that its failure to do so prevented it from completing its fit-out and opening its business. Fasako contended that any modifications to the existing system to enable TianyD to fit out and occupy shop x were the responsibility of TianyD as the tenant.
On 13 September 2017, TianyD issued a "Notice of Termination and to Quit" ("Termination Notice") on the basis that: (1) Fasako had made representations as to the renovations that could be carried out to meet TianyD intended use of shop x, which could not be performed due to the allegedly inadequate fire services the premises; (2) that Fasako had refused to comply with its obligations to upgrade the building water pressure system; and (3) that there had been non-disclosure by Fasako of material facts relating to the base building fire services in the building (CB Vol 1, p 59).
After the Termination Notice was served, Fasako nevertheless pursued the possibility of obtaining a performance engineered solution to the safety problem from iFire, a consultant, who proposed a report in that regard ("iFire Report"). However, further negotiations between the parties were unsuccessful.

[11]

Leave to appeal to this Court

The first issue to be determined in these proceedings is whether Fasako should be granted leave to appeal.
Fasako seeks leave to appeal from the whole decision below pursuant to s 83 of the Civil and Administrative Tribunal Act 2013 (NSW) ("NCAT Act"). It relevantly reads: "83 Appeals against appealable decisions (1) A party to an external or internal appeal may, with the leave of the Supreme Court, appeal on a question of law to the Court against any decision made by the Tribunal in the proceedings. … (3) The court hearing the appeal may make such orders as it considers appropriate in light of its decision on the appeal, including (but not limited to) the following - (a) an order affirming, varying or setting aside the decision of the Tribunal, (b) an order remitting the case to be heard and decided again by the Tribunal (either with or without the hearing of further evidence) in accordance with the directions of the court."
While in the summons Fasako sought judicial review of the whole of the decision of the Appeal Panel, pursuant to s 69 of the Supreme Court Act 1970 (NSW), this ground was not pressed at the hearing of the appeal (CB Vol 6, p2090).
Three cases which deal with the principles governing leave to appeal are Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 ("Das"), Lee v New South Wales Crime Commission (2012) 224 A Crim R 94; [2012] NSWCA 262 ("Lee") and Coulter v R [1988] HCA 3; 164 CLR 350 ("Coulter").
In Das, the Court of Appeal set out the principles to be considered in deciding whether leave to appeal should be granted. At [32], [33] and [35], Basten JA stated: "[32] The principles governing cases such as these have recently been restated in Zelden v Sewell; Henamast Pty Ltd v Sewell [2011] NSWCA 56. As Campbell JA noted (with the agreement of Young JA) at [22]: 'It is of some importance to reiterate the principles that were stated in Carolan v AMF Bowling Pty Limited [1995] NSWCA 69, where Sheller JA said that an applicant for leave must demonstrate something more than that the trial judge was arguably wrong in the conclusion arrived at. Cole JA relied on a principle that where small claims are involved, it is important that there be early finality in determination of litigation, otherwise the costs that will be involved are likely to swamp the money sum involved in the dispute.' [33] In Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 Campbell JA, with the agreement of Young and Meagher JJA, expanded on his summary of Carolan, noting that Kirby P had recognised 'that ordinarily it was appropriate to grant leave to appeal only concerning matters that involve issues of principle, questions of general public importance or an injustice which is reasonably clear, in the sense of going beyond [what is] merely arguable': at [46]. … [35] In Coulter v The Queen [1988] HCA 3; 164 CLR 350, dealing with a challenge to a refusal of the South Australian Full Court to grant leave to appeal in a criminal matter, the majority noted that a leave requirement was a preliminary procedure 'recognised by the legislature as a means of enabling the court to control in some measure the volume of appellate work requiring its attention': at 356 (Mason CJ, Wilson and Brennan JJ). That statement is clearly applicable to civil, as well as criminal, appellate jurisdiction."
Similarly, in Lee, Bathurst CJ outlined the principles relevant to the granting of leave at [12]: "[12] The principles upon which leave to appeal is granted are well established. Ordinarily it is only appropriate to grant leave concerning matters that involve issues of principle, questions of general public importance or where it is reasonably clear there has been an injustice in the sense of going beyond it being reasonably arguable that the primary judge was in error: Carolan v AMF Bowling Pty Ltd [1995] NSWCA 69; Zelden v Sewell [2011] NSWCA 56 at [22]; Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; GKD v Director of Department of Family & Community Service [2012] NSWCA 219 at [10]; Be Financial Pty Ltd v Das [2012] NSWCA 164 at [32]-[34]."
The authorities referred to above are equally applicable in these proceedings. In determining whether or not I should grant leave to appeal, I shall consider whether the matters raised on appeal to this court involve issues of public importance, and whether it is reasonably clear that there has been an injustice engendered by the decision going beyond what is reasonably arguable.
The Summons states at [5]-[6] (CB Vol 6, p 2089): "[5] Leave is sought on the basis of errors of law that concern two issues: a. The proper test to be applied in allowing a party to raise a matter on appeal which has not been argued at first instance, in circumstances where the Appeal Panel allowed the Defendants to argue, on appeal, a ground that was not argued before the tribunal at first instance and determine the matter in the Defendant's favour on that ground; b. a finding of breach of the lease by the Plaintiff which involved errors of law concerning: i. the mis-construction of clause 9.3 of the Lease; and ii. findings of fact made in the absence of evidence. [6] These questions of law give rise to an injustice which is more than merely arguable."
There are no reasons given in relation to Appeal Ground (5) that also necessitate the granting of leave.
While Fasako made submissions that the grounds of appeal raised questions of law, it did not go further and address the issue as to why this Court should grant leave to appeal, other than stating at [6] that "these questions of law give rise to an injustice that is more than merely arguable." Fasako bears the onus of satisfying this court that leave should be granted. In my view, most of Fasako's submissions seek to reargue the case presented to the Appeal Panel in this Court.
Insofar as Appeal Grounds 1 and 2 are concerned, Fasako submitted that if the Appeal Panel should not have allowed TianyD to run the argument in relation to cl 9.3 on appeal, then this Court does not need to consider Appeal Grounds 3 to 5 (T3.28-34). However, in the alternative, if the Appeal Panel correctly allowed TianyD to run the cl 9.3 issue before it, Fasako argued that the way the Appeal Panel construed cl 9.3 was wrong (Appeal Ground 3) and it was incorrect to find that Fasako repudiated the Lease and TianyD was justified in terminating the Lease (T3.38-42).

[12]

TianyD's submissions on leave

TianyD submitted that the key findings of fact made by the Appeal Panel are unimpeachable as they were at least open on the evidence and, as such, do not give rise to "questions of law".
In oral submissions in this Court, counsel for TianyD submitted that cl 9.3 was pleaded before the Tribunal Member, having been addressed in oral and written submissions, so cl 9.3 being permitted to be run before the Appeal Panel did not give rise to any injustice or a denial of procedural fairness (T13.32-37).
TianyD argued that issue of whether or not a repudiatory breach of cl 9.3 should have been permitted to be raised before the Appeal Panel was question of practice and procedure involving an exercise of discretion by the Appeal Panel rather than a question of law, and therefore, it falls outside the scope of any appeal which may be brought from the decision of the Appeal Panel. It submitted that in any event, the Appeal Panel rightly permitted cl 9.3 to be raised on appeal, as it was pleaded, raised in submissions, and never abandoned at first instance and there was no material prejudice.
In relation to Appeal Ground 3, namely the proper construction of cl 9.3, TianyD neither consented to or opposed the granting of leave to appeal on a question of law.
In relation to Appeal Ground 4, TianyD submitted that the four non-key findings made by the Appeal Panel challenged by Fasako in their submissions ("LS") at [83]-[103], all had an evidentiary foundation.
It submitted that the Appeal Panel found that the flow rate of the Sprinkler Pumps was inadequate to meet the requirements of the 1999 standard even for the "base building" of the Premises, i.e., absent any fit-out; and that there was no performance solution that had, at any material time, been implemented so as to enliven the 2017 standard to deal with that non-compliance. TianyD submitted that those findings of fact make it very clear that, on the proper construction of cl 9.3, there was a breach of that obligation by Fasako.
TianyD also submitted that the Appeal Panel's finding at APD [146]-[148], and [150] that Fasako repudiated the Lease, which was an evaluative factual finding not a question of law, and, accordingly, the effect of s 83 of the NCAT Act is that Fasako has no right to seek leave to appeal in respect of that question.

[17]

Clauses 9.3 and 11 of the Lease

In order to understand the parties' submissions, it is necessary that I now set out cls 9.3 and 11 of the Lease.
Clause 9.3 of the Lease provides: "9.3 Structural Repair The Lessor must keep the Building in sound structural condition except for structural damage caused by: a) The Lessee; or b) fire, storm, tempest or similar act of nature, riot or similar event following which the Lessor must, subject to its rights under cl 11, promptly repair."
Cl 11 of the Lease relevantly provides "11. Damage to Premises 11.1 Rent abatement if Premises unusable If the Premises are damaged so that they cannot be used, the Lessee is not liable to pay rent or other money to the Lessor for the period that the Premises cannot be used. This does not affect the Lessee's obligation to pay arrears or other debts owing before the damage. … 11.3 Lessor's right to terminate If the Lessor gives the Lessee a notice that the Lessor considers that repairing the damage is impracticable or undesirable, then either the Lessor or the Lessee may terminate this lease by giving at least 7 days' notice to the other, and no compensation is payable for that termination. 11.4 Lessee's right to terminate If the Lessor does not repair the damage within a reasonable time after the Lessee gives the Lessor a notice asking it to do so, the Lessee may terminate this lease by giving 7 days' notice to the Lessor."
It is cl 11.4 that is relevant here. The term 'Building' is defined as the building known as Chinatown Centre, XXX Sussex Street, Sydney of which the Premises is part and which is constructed on the land. The term 'Premises' is defined as that part of the Building contemplated by the Lease i.e. shop x. The boundaries of the Premises are: the internal face of external walls and any internal structural walls of the building; the false ceiling below the internal face of the concrete ceiling, the internal face of the concrete floor; the centre line of any partitions which separate the Premises from other parts of the Building; and the shop line. The word 'Structural' is not defined by the Lease.

[18]

The Appeal Panel's decision - Leave to raise 'new' grounds of appeal

The Appeal Panel acknowledged that there were two preliminary issues to be dealt with. The first was whether the existence of an implied non-derogation clause was a new argument. The Appeal Panel decided that it was a new argument: APD [73]. The second preliminary issue was whether the argument made in relation to cl 9.3 of the Lease was a new argument. The Appeal Panel stated that cl 9.3 of the Lease "raised a more difficult issue": APD [74]
Under the heading "New matters not available on appeal" the Appeal Panel stated at APD [68], [70]-[77] (CB Vol 6, p2068-70: "[68] There is a preliminary issue to be dealt with in connection with the appellants' challenge based on the non-derogation term and cl 9.3. … [70] In response, the appellants rely on the decision of the High Court in Suttor v Gundowda Proprietary Limited [1950] HCA 35; (1950) 81 CLR 418. In referring to the decision of the Privy Council in Connecticut Fire Insurance Co v Kavanagh (1892) AC 473, the Court said at 438: … The circumstances in which an appellate court will entertain a point not raised in the court below are well established. 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. In Connecticut Fire Insurance Co. v. Kavanagh (1892) AC 473 , Lord Watson, delivering the judgment of the Privy Council, said, "When a question of law is raised for the first time in a court of last resort, upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is not only competent but expedient in the interests of justice, to entertain the plea. The expediency of adopting that course may be doubted, when the plea cannot be disposed of without deciding nice questions of fact, in considering which the court of ultimate review is placed in a much less advantageous position than the courts below." (1892) AC, at p 480. [71] In the proceedings at first instance, the Tribunal recorded that the implied term asserted by the appellants was that the tenant "would be able to use the premises to conduct a retail business and this was an essential term of the lease": see Reasons at [99]. The "Grounds of Cross claim" attached to the appellants' retail lease application recorded the same implied term at paragraph 13, AB Tab 2 (cross claim). [72] On appeal, the non-derogation term was variously expressed as: (1) the landlord must ensure the premises (which includes its fixtures, fittings, plant and equipment) are "fit and/or... safe for occupation and/or use as retail premises", or (2) "that a landlord must not do or allow either on the leased premises or land under the landlord's control, anything inconsistent with the purposes for which the premises are leased" and that such a term would be breached where "the lease is made for a particular purpose, and the landlord's activity or non-activity renders the leased premises 'unfit or materially less fit' for the particular purpose". [73] The term in the alternative forms asserted in this appeal and the breach are new points not raised in the original proceedings. Accordingly, they can only be raised in this appeal if it arises from "the construction of a document, or upon facts either admitted or proved beyond controversy": per Suttor at 438. [74] In relation to the cl 9.3 argument, this raises a more difficult issue. A breach of this clause was asserted in the application. Also, at first instance, Counsel for the tenant opened the appellants' case concerning termination of the lease relying on a breach of clause 9.3. However, in written submissions filed after the conclusion of the hearing the entitlement to terminate was said to arise under s 11(2) of the RL Act (termination because disclosure statement given to the lessee was incomplete or contained information that at the time it was given was a materially false or misleading nondisclosure) and by reason of the breach of the then asserted implied term. While cl 9.3 was referenced in the submissions as a term that had been breached, no express submissions were otherwise made that breach of this clause constituted grounds for termination. On the other hand, the appellants made clear in their reply submissions at first instance that in respect of a breach of cl 9.2(a) the tenant is seeking compensation but did not make a similar statement in respect of cl 9.3. Otherwise, the appellants appear to have relied on a breach of cl 9.3 as supporting both "validation of its termination of the lease by notice dated 13 September 2017" and for "compensation and/damages" [75] On balance, we are satisfied that cl 9.3 was relied upon by the appellants in the proceedings at first instance and was not a new matter. It was one of the terms relied upon in support of the claims in the termination notice that: (1) The tenant was "unable to proceed with renovation works due to the building's inadequate fire services to meet the [tenant's] intended use of the premise; (2) The landlord had "refused to comply with the lease in fulfilling its obligations in upgrading the building water pressure system so as to allow the [tenant to proceed with the renovation works". [76] Further, having regard to the manner in which the Tribunal expressed the issue for determination at [153] and dealt with that issue at [172], it seems clear the Tribunal did not deal with the effect of this term and its breach either on the issue of termination or damages for breach. In part, this appears to have arisen because of the submissions of the parties and the focus of the parties upon whether or not a fire engineered solution was an available approach in carrying out the fit out as an alternative to upgrading the fire sprinkler system. Be that as it may, reliance on cl 9.3 was not abandoned by the appellants in the proceedings at first instance. [77] In these circumstances, in our view this ground can be pursued in this appeal." [References of submissions omitted]

[19]

Fasako's submissions

Fasako noted that the Appeal Panel gave consideration to whether TianyD had relied on cl 9.3 of the Lease at first instance at APD [74]-[77] and concluded that, as cl 9.3 had been referenced in TianyD's application (statement of cross claim), it was not a 'new' matter: APD [75]. However by confining enquiry to the pleading in Fasako's submission the Appeal Panel erred, having failed to consider the conduct of the case at first instance and, in doing so, applied the wrong test in determining whether TianyD ought be permitted to rely on cl 9.3 on appeal.
Fasako argued that while it accepts that a breach of cl 9.3 was referred to in TianyD's application filed with NCAT the Appeal Panel failed to have regard to how cl 9.3 was referred to. Faskao pointed out that in their cross claim, TianyD sought an order for compensation for breach of the covenant to keep the building in sound structural condition under cl 9.3 of the Lease, however cl 9.3 was not relied on as a basis said to justify the termination of the Lease. Fasako submitted that this distinction appears to have been overlooked by the Appeal Panel.
Fasako submitted that although the Appeal Panel stated that cl 9.3 was one of the terms relied upon by TianyD in support of the claims in the Termination Notice, to the extent that they meant that cl 9.3 was literally invoked in the Termination Notice, it was not: the Termination Notice did not make any reference to cl 9.3 of the Lease. Fasako further submitted that even if cl 9.3 had been referenced in the Termination Notice it does not follow that the clause was advanced at first instance.
Fasako noted that the Appeal Panel identified that, at first instance, "Counsel for the tenant opened the [defendants'] case concerning termination of the Lease relying on a breach of clause 9.3": APD [74]. In support, Fasako pointed to the following reference made by Counsel for TianyD during opening submissions before the Tribunal at first instance (T11.45-12.18) (CB Vol 5, p1388-9): "Now, our particular case, Member, in its various causes of action that have been put, is simply that the termination by TianyD was an effective one. What we are seeking is a declaration or a validation as to the validity of our particular termination, and we are also seeking costs, compensation, damages, however it may be determined under the various causes of action. By way of summary of how our claim is structured we seek our two remedies, ie, that the termination be valid as well as attendant costs via the Retail Leases Act. There is legislative provisions. I intend to, depending on how the evidence falls out, aver to sections 10(1), 11(2), 11(2A), section 12 and section 62E of the Retail Leases Act. That's effectively in the area of non-disclosure. And then in terms of other causes of action, we have contractual breach causes of action under the lease, in particular, clause 9.1, which is the covenant as to quiet enjoyment. Also clause 9.2(a) which is the breach to maintain the building, clause 9.3, which is a covenant to keep the building in sound structural condition. We also impute an implied business term under the criteria required for that, and the implied business term is to the effect that the business of TianyD would be able to use the premises to conduct business. That's set out in the actual claim for relief. We also rely upon two common law claims. One is common law mistake, as was frustration. That's all I intend to say by way of opening, Member."
Faskao submitted that while cl 9.3 was identified in this opening as one of the various "causes of action" upon which TianyD relied, it was not relied on to support termination of the lease. Rather, it was relied on in the damages claim consistent with the reference to cl 9.3 in the cross claim. Fasako submitted that therefore in considering whether cl 9.3 was a new matter the Appeal Panel failed to give regard to the actual conduct of the trial: Water Board v Moustakas (1988) 180 CLR 491 at 497 ("Moustakas"); Whisprun v Dixon (2003) 200 ALR 447 at [52] ("Whisprun"); Park v Brothers [2005] HCA 73 at [34].
Fasako submitted that during the case conducted over two days before the Tribunal: 1. no evidence was adduced concerning any interconnection between the structure of the Building and pumps, or the structure of the Building and the issue of water flow rate raised by Mr Moon; 2. no evidence was adduced as to what replacing or upgrading the pumps might involve; 3. no examination in chief or cross-examination addressed that issue; and 4. [as the Appeal Panel noted] in written submissions filed after the conclusion of the hearing, "no express submissions were otherwise made that breach of [cl 9.3] constituted grounds for termination": APD [74]. Indeed, while TianyD filed 112 pages of submissions in support of their claim, there was not one argument about cl 9.3 of the Lease: either in support of a claim for damages, or as a basis for termination of the Lease.
In Fasako's submission it was therefore artificial for the Appeal Panel to find, at APD [76], that reliance on cl 9.3 of the Lease was not abandoned at first instance. Fasako submitted that the Appeal Panel effectively held that abandonment of an issue is decoupled from the conduct of a trial and that, so long as the claim was raised in the pleading, that is sufficient, however the correct question was whether the issue was advanced during the conduct of the trial and remained in play at the conclusion of the proceedings.
Fasako continued, opining that whether cl 9.3 was pleaded was not the correct test, but rather it was necessary to consider whether or not the point sought to be argued on appeal was advanced during the conduct of the case before the Tribunal. Fasako proffered that if this was not so, parties could effectively abandon a pleaded claim during their conduct of a hearing and then seek to re-agitate the matter on appeal in a way never raised or argued at first instance, and that was precisely what occurred in this instance. In Fasako's submission the Appeal Panel was in error in failing to have regard to the 'actual conduct' of the trial and had it done so, it would have been driven to conclude that cl 9.3 was not engaged, at all, in the conduct of the hearing beyond a singular reference in opening submissions.
Fasako placed reliance on the principle that parties to litigation, especially those who are well resourced and represented by competent counsel, are ordinarily bound by their forensic choices at trial: TAL Life Ltd v Shuetrim (2016) 91 NSWLR 429 at [166] per Leeming JA (Beazley P and Emmett AJA Agreeing). Fasako also referred to University of Wollongong v Metwally (No 2) (1958) 158 CLR 447 ("Metwally") in which the High Court said: "It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so."
Fasako submitted that in accordance with this principle a new ground will not be permitted to be raised for the first time on appeal where the new ground could possibly have been met by calling evidence at the hearing, or, if the ground had been raised below, the other party might have conducted its case differently: Suttor v Gundowa Pty Ltd (1950) 81 CLR 418 at 438 ("Suttor"). On this point, Fasako noted the comments of Gleeson CJ, McHugh and Gummow JJ in Whisprun as being directly relevant: "It would be inimical to the due administration of justice if, on appeal, a party could raise a point that was not taken at the trial unless it could not possibly have been met by further evidence at the trial."
Fasako further submitted that having concluded that the matter was not 'new' the Appeal Panel did not consider whether there was any prejudice to Fasako if the argument was advanced on appeal. Fasako argued it could have met the claim that a breach of cl 9.3 gave rise to a right to terminate by adducing evidence of, for example, the manner in which the pump/s were connected to the building, or what upgrading or replacing them might involve, however there was a lacuna in the evidence as to whether replacement of the pumps could be said to be part of the "structural condition" of the building.
By way of example, Fasako referred to a number of cases which it opined were analogous. The first of these was Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2004] NSWSC 487 ("Alamdo SC"), in which the Court was considering whether repairs to bitumen paving were 'structural' in nature. The matter was determined on evidence before the referee, who had received expert evidence during the thirteen days that the reference was carried out, including the experts' opinion that the repairs needed to the bitumen paving were 'structural repairs': [55], [58]; and see Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWCA 224 at [32] and [40] ("Alamdo CA").
Fasako also referred to J F Hillam Pty Ltd v Mooney (1988) 48 SASR 381 (at 387), in which the Court was tasked to decide who was responsible for repairs to the marblesheen surface of the swimming pools in an indoor swimming centre. The Court at first instance had received evidence from an engineer as to what would be required to replace the marblesheen or tiling of both pools, including the costs to do so.
Fasako also referred to Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272 (at [9], [44]-[47]), in which the question before the Court was whether a term should be implied into a lease requiring the landlord to undertake structural repair. In respect of whether the implied term was capable of clear expression, the Court received evidence from two building consultants on what might constitute a structural repair
Fasako noted that in these proceedings at first instance, it decided to not advance any such evidence or cross-examine in respect of similar evidence and it made this decision based on: 1. the absence of any structural evidence from TianyD; and 2. the absence of any cl 9.3 case advanced at the hearing (evidentially, in submissions and by the absence of relevant cross-examination by TianyD's Counsel)
Fasako concluded by submitting that the argument that termination of the Lease was justified by a breach of cl 9.3 was raised for the first time in the appeal, and that applying the wrong legal test the Appeal Panel arrived at the wrong decision by allowing that ground of appeal.

[20]

TianyD' submissions

In relation to these grounds of appeal TianyD submitted that the Appeal Panel correctly held at APD [74]-[75] that the cl 9.3 argument was not "new", and that conclusion was open to the Appeal Panel, on the basis of the reasons set out in those paragraphs.
TianyD more precisely defined the position of the Appeal Panel as follows: 1. TianyD relied upon cl 9.3 in paragraph 16(g) of its Cross-Claim (CB Vol 1, p78); 2. It was referred to (and without any complaint) in oral opening before the Senior Member at T12.10-11 (CB Vol 5, 1389). That was done long after all affidavits had been filed and served; 3. It was referred to (and again without any complaint) in written closing submissions of 21 December 2018 in paragraphs 2b, 173 and 217 (CB Vol 5, pp1641, 1687, and 1698 respectively).
TianyD also noted that its written submissions of 15 February 2019, Fasako in expressly acknowledged the cl 9.3 argument at [29b] (CB Vol 5, p1709) and did so without any complaint whatsoever.
Tiany D further submitted even if the Appeal Panel was wrong in concluding that the cl 9.3 argument was "not abandoned", the issue having been "pleaded" and evidence having been directed to the issue in the affidavits filed by TianyD, there cannot have been any abandonment prior to final addresses and any implied abandonment at that late stage was long after all affidavits had been served and well after the conclusion of cross-examination and the closure by both sides of their evidentiary cases, and there could not, therefore, have been any conceivable prejudice from any such abandonment. In TianyD's submission it cannot have influenced the scope of the evidence adduced or of cross-examination and Fasako was well and truly on notice as to the need to put on evidence relating to cl 9.3 and its proper construction. The argument based on cl 9.3 before the Appeal Panel was, in TianyD's submission, at worst a different legal characterisation of the pre-existing factual matrix.
TianyD further submitted that the considerations referred to at LS [38(a)-(c)], [43] and [47] (and at [63] and [72] of this judgment) are irrelevant on the proper construction of cl 9.3, i.e., the construction accepted by the Appeal Panel at APD [103]-[104].
In TianyD's submission Fasako's submissions contrived a construction of cl 9.3 which focused only on the word "structural" without regard to the context of the words "keep", "condition" and "sound" or to other textual and contextual indicia or to the need for a businesslike construction, and has accordingly propounded an artificial and unduly narrow meaning of the contractual obligation imposed on it by cl 9.3 to "keep" the Building in which shop x was situated in "sound structural condition". In TianyD's submission, Fasako's construction of the clause narrows its operation so that it would apply only to the soundness of an element or elements of the Building which are a significant part of the "overall construction" of the Building (see, e.g., LS [59]) or which support "the loads" within the Building and/or which stop the Building "falling down" (LS [63]).
Correspondingly, TianyD submitted that Fasako's 'narrow construction' should be rejected, and that the construction accepted by the Appeal Panel at ADR [103]-[119] was correct, essentially for the reasons given by the Appeal Panel.
Finally, TianyD submitted that there is nothing in the contention by Fasako that it suffered prejudice by being deprived of the opportunity to adduce evidence about the extent to which the sprinkler pumps forming part of the fire safety system were a significant element in the "construction" of the building or which added to "the form of the fabric" of the building or which threatened its "load bearing integrity" and so on (see, e.g., LS [66]). Those matters would also only be relevant on the artificial construction of cl 9.3 propounded by Fasako.

[21]

Fasako's submissions in reply

In reply, Fasako submitted that if TianyD's attempt to diminish the Appeal Panel's decision to allow argument about cl 9.3 as merely one of 'practice and procedure' was seriously advanced, it would not have filed its Notice of Contention. Fasako argued that applying TianyD's own logic the decision to reject TianyD's argument that Fasako breached an implied term of non-derrogration of grant would also be a decision as to 'practice and procedure' such that TianyD should have, consistent with its own argument, not have filed its Notice of Contention. In Fasako's submission, neither the decision to allow a cl 9.3 argument or to reject a non-derogation of grant argument, were matters of 'practice and procedure', but rather were substantive decisions.
Fasako referred to TianyD's submissions ("DS") at [4], where TianyD conceded that evidence could have been adduced going to the connection (if any) between the fire sprinkler system and the "structural condition" of the Building, but submitted there was no prejudice to Fasako as such evidence would 'only' be relevant on the construction of cl 9.3 propounded by Fasako. Fasako submitted that by that submission TianyD implicitly accepted that Fasako was prevented from adducing evidence relevant to the construction of cl 9.3 it propounds. Fasako submitted that the authorities make clear that a new point cannot be taken on appeal where, had the issue been raised in the court below, evidence could have been given which, by any possibility, could have prevented the point from succeeding: Coulton v Holcombe (1986) 162 CLR 1 at 7-8; Musa v Alzreaiawi [2021] NSWCA 12 at [82].
Fasako further submitted that TianyD did not satisfy that burden before the Appeal Panel and now by its submissions it demonstrates why. Moreover Fasako proffered that to the extent the Appeal Panel did not require TianyD to satisfy that burden highlights their error: it was legally wrong and, also (and because of that) unfair.
Fasako submitted that at DS [10] and [81], TianyD asserted that reliance on cl 9.3 was pleaded and 'raised' in submissions. However, that submission was rhetoric as TianyD has failed to engage with the content of the pleading. Fasako again pointed to its submissions on the summons in their cross claim filed with NCAT, and submitted that TianyD only sought an order for compensation for breach of the covenant to keep the building in sound structural condition under cl 9.3 of the Lease, and the clause was not relied on as a basis said to justify the termination of the Lease.
Finally, Fasako noted that TianyD did not engage with, or identify, any argument made about cl 9.3 in its closing submissions, and submitted that that was unsurprising because no such argument was raised.

[22]

Resolution

Fasako, in its submissions concerning leave to argue cl 9.3 before the Appeal Panel, merely stated that TianyD did not rely on cl 9.3 of the Lease and it opposes it being relied upon for the first time in Appeal, before going on to make submissions on the availability of a performance based solution. It did not raise in those submissions that had it been relied upon it would have conducted its case differently and/or that it made a forensic decision not to rely upon evidence.
In considering whether the Appeal Panel was entitled to grant leave for TianyD to make arguments regarding cl 9.3 of the Lease, the Termination Notice is pertinent. It reads: "TAKE NOTICE that the Lessee is unable to proceed with renovation works due to the building's inadequate fire services to meet the Lessee's intended use of the premise [SIC]. TAKE NOTICE that the Landlord has refused to comply with the Lease in fulfilling its obligations in upgrading the building water pressure system so as to allow the Lessee to proceed with the renovation works. TAKE NOTICE that since the matter was raised to the Landlord, the Landlord has not provided a solution despite numerous requests by the Lessee that time was of the essence and a major concern for the Lessee, that there was substantial losses incurred by the Lessee for the delay. TAKE NOTICE that as you have failed to comply with the Lessee's request to rectify the base building fire service's issued, the Lessee hereby terminates the Lease pursuant to its terms, non-disclosure of facts, and provisions under the Retail Leases Act 1994 and Competition and Consumer Act 2010."
While I agree that the Termination Notice does not specifically refer to cl 9.3 of the Lease, it does refer to upgrading the buildings water system and that Fasako has not rectified the base building fire services after being notified of the problem. The matters raised in the Termination Notice were the very matters that were central to cl 9.3 and the proceedings in NCAT.
As set out earlier in this judgment, the Appeal Panel made factual findings as to whether TianyD did refer to cl 9.3 of the Lease which cannot be overturned here. Fasako's Grounds of Appeal rely on a mixed question of fact and law. Before the Tribunal Member, Counsel for TianyD made an opening statement that it was entitled to terminate the Lease for breach of cl 9.3 the terms of the Termination Notice and set out what its obligations were as Lessee and the obligations of Fasako as the lessor pursuant to cl 9.3.
While Fasako in its submissions to this Court relied heavily upon what was said in Moustakas and Windsrun in that the Appeal Panel failed to give regard to the actual conduct of the matter before the Tribunal Member, and Metwally because it says that legal argument as to the construction of cl 9.3 would have required Fasako to have called evidence or conducted its case differently, this was not raised before the Appeal Panel. All that Fasako submitted to the Appeal Panel leave in relation to cl 9.3 was "the Appellants below did not rely on the breach of cl 9.3 of the Lease. The Respondent opposes it being relied on for the first time on Appeal."
Fasako did not submit to the Appeal Panel that the argument in relation to cl 9.3 of the Lease would have required it to call evidence or that it would have run its case differently as a result of such an argument. Therefore the argument for leave to appeal before the Appeal Panel was essentially a legal argument in relation to the proper construction of cl 9.3.
It is my view that the Appeal Panel's decision to allow cl 9.3 to be argued was based on both factual and legal findings. In these circumstances the exercise of the Appeal Panel's discretion did not miscarry. In my view, Fasako's arguments in relation to whether the Appeal Panel was entitled to permit TianyD to raise a new argument in relation to cl 9.3 of the Lease are not more than reasonably arguable. Leave to appeal in relation to Appeal Grounds (1) and (2) is therefore refused.

[23]

Appeal ground (3) - Appeal Panel erred in construction and breach of clause 9.3 of the Lease

This ground of appeal is that the Appeal Panel erred in construing cl 9.3 of the Lease by: 1. misinterpreting, or failing to properly interpret, Fasako's obligations under cl 9.3; 2. incorrectly identifying the nature and extent of Fasako's obligations under cl 9.3; 3. failing to interpret cl 9.3 in a manner which would give effect to cl 9.3(b); 4. imposing obligations on Fasako, falling beyond the terms of cl 9.3; and 5. finding, based on its incorrect construction of cl 9.3, that cl 9.3 was breached in 2017.
As stated earlier, TianyD neither consented nor opposed leave being granted in relation to Appeal Ground 3.
Before I set out the submissions of the parties both before the Appeal Panel and in these current proceedings, I should briefly set out the evidence of Mr Steven Moon ("Mr Moon"), a director of GN Consulting Pty Ltd who specialises in the safety and engineering and design of fire systems. He prepared a report dated 5 October 2018 ("the Moon report") and gave evidence before the Tribunal Member who, in his written reasons for his decision, noted that Mr Moon was strenuously cross examined.
The focus of the Moon Report is titled 'Executive Summary' and is found at paragraphs 1.1 - 1.6 which relevantly read (CB Vol 1, p185): "1.1 I was engaged to give an opinion on aspects of the fire sprinkler system design of the building at XXX Sussex Street, Haymarket ("Building"). The scope of my report is based on Shop X of the Building ("Shop X"), being a tenancy space on the Ground and Lower Ground floors of the Building. … 1.4 I conclude that the existing water supply infrastructure of the fire sprinkler system in the Building is inadequate for Shop X. The fire sprinkler system is therefore non-compliant with the Standard. 1.5 My opinion is based on my conclusion that both the diesel and electric pumps (and their associated water supplies) cannot provide the required flow rates to satisfy the minimum requirements for Shop X, whether it be in an open plan layout, or, in any partitioned configuration, including the configuration proposed by my instructors' client in or about March 2017."
At 5.16-18 of the Moon Report, Mr Moon wrote (CB Vol 1, p191): "5.16 Question 7. Is Shop X (Lower Ground and Ground floor) capable of being serviced by the current pumps in its current state (that is, open plan)? Explain why; 5.17 In response to Question 7, no, Shop X is not capable of being serviced by the Pumps. The flow rate of the Pumps is not adequate. Neither of the Pumps is able to provide the required flow rate of 36.7 L/s (required for an open plan layout of Shop X). The Pumps cannot provide the required flow rates for the existing fire sprinkler system demand in the context of Shop X. This applies in the context of there being no alterations (e.g. partitions) being made to Shop X. 5.18 There is a system shortfall of approximately 4.62 L/s in respect of Shop X. This is based on the result of the Flow Test Result (being a maximum of 32.08 L/s) and the system demand (of 36.70 L/s @ 579.79 kPa)."
In cross examination, Mr Moon agreed that both pumps in the building were inadequate in respect of the flow rate and that the 1999 standard was not complied with in respect of the building. He gave the following evidence (T88.13-20) (CB Vol 5, p1465): "We knew about the prospect of a fire engineered solution. I think that was something that we actually suggested as part of our design, when we did the original design of the - of the TianyD fit-out, we indicated that the - the pump was insufficient. The option is to place or to get a performance solution. We were requested to prepare a performance solution , but we just didn't have the time and resources at the time. So we passed it on back to the client to say, "You need to find someone else for the timeframe." And I only knew about the performance solution probably at the end of 2017. Yes."
In oral examination, Mr Moon was asked a series of questions about the Annual Fire Safety Statement. He gave the following evidence: "Moon The flow rate, based on the performance of the pumps, its undersized or the duty points which was mentioned previously that's noted on the block plan and this is what the annual fire safely statements would be based on or the annual fire safety fire flow tests. So in that respect, they would have been testing the system on incorrect data. Fishburn: So, the certificates, they are the ones which I've referred you to. you're saying that they are referring to incorrect data? Moon: Correct."
Under cross examination, similar evidence was adduced: "Avery Williams: Now you have refined in your report to the flow rate of the building as recorded on the fire sprinkler block plan and pump plaque. That's at paragraph 5.8 of your report. Moon: Yes. Avery Williams: And you were asked whether that flow rate as recorded there is erroneous. Moon: Yes. Avery Williams: You say there in paragraph 5.8 that for the designed system demand that the recorded flow rate is something like 21.85 litres per second. Do you see that? Moon: Yes. Avery Williams: But the flow rate test that was conducted in September of 2018 didn't consider the system demand points did it? Moon: No, we specifically didn't give that information to the contractors. Avery Williams: It was only a maximum flow rate test? Moon: Yes. Avery Williams: And that is recorded at 5.9 as being 32.08 litres per second. Moon: Correct, yes. Avery Williams: And that exceeds the 21.85 litres per second recorded by you at paragraph 5.8. Moon: Yes, the 21.85 litres per second indicating the system demand of what it was originally designed to. Avery Williams: Yes and the maximum flow rate of 32.08 exceeds that doesn't 't it? It's more. Moon: Yes, it does. It exceeds what is basically an error. The system demand being 21.85 is inadequate. Avery Williams: Is inadequate for what? Moon: For the proposed tenancy for shop x. Avery Williams: Well but that's based on the system demand for the whole building isn't it? Moon: Yes, the system demand of the whole building is supposed to be based on the worst-case scenario. So when you're actually siting a pump you do it based on the worst-case scenario of any part of the building. So that's the original designer's scope of worst and that's what they've signed their design certificate on. We've basically come in and audited only shop x and realised that that system demand fitted in the block plan is insufficient."
Here Mr Moon explains that the siting of the pumps, on a worst-case scenario, effects the system demand of the whole building.
While the Tribunal Member examined on the flow rate and whether a fire engineered performance solution was an acceptable alternative, at [69]-[70] he recorded (CB Vol 6, p1791): "Mr Moon was cross-examined by Ms Avery-Williams whether the ambit of his report was properly focused on the premises rather than the whole building. Mr Moon clarified that if one aspect of the building is defective from a fire safety perspective, it renders the entire building itself defective.' The following cross examination then took place. Avery-Williams: In relation to question 12 of your report - here at paragraphs 5.35 and 5.36 you are asked whether or not the building complies but you made it clear that you were only looking at Shop X so you didn't conduct any calculations of the whole of the building, did you now? Moon: No, I didn't. Avery-Williams: So when you said the building does not conform with the standard you base that solely on the fact that on your present calculation Shop X doesn't comply with the standard? Moon: Well because the sprinkler pumps serve the entire building, if the sprinkler pumps are unable to provide sufficient flow rate or pressures for any part of the building then the building doesn't comply. Avery-Williams: Right, so again that compliance might be achieved via the implementation of a fire engineering solution. Moon: Correct Avery-Williams: And your calculations about compliance might also be affected if you consider for example the whole number of the sprinklers on the ground floor and lower ground floor? Moon: Again, we are talking about the most remote areas of operation. So, the way that it's calculated is based on either the boundary of the tenancy or the boundary of what's known as a 'fire compartment'. So, for instance, if it was a car park you'd go to the most demanding portion of the car park and calculate the group of sprinklers there depending on the hazard. Avery-Williams: Yes? Moon: So, it has to be done in segmented ways and that's how the design is done. Moon: What we requested Mr Jennings to do is to see the full capacity of the pump. Because the pump duties that were on the plaque it was just one point based on a pressure and flow. But the pump itself can actually be run to flow more water if you actually run the pump in that extent. And because its' never been done as part of the annual fire safety statement or annual test we need to know what the full capacity of the pump was. Avery-Williams: Yes and that's why the full capacity of the pump exceeds the amount recorded on the pump block? Moon: Yes and which was again erroneous anyway. At that point in time we weren't even looking at the system demands on the block plan. We were only considering what we calculated for the existing base built as well as the proposed plan which both exceeded the existing block plan system demand. … Avery-Williams: And any of those changes in assumption may result in the fact that this is in fact compliant, that's right isn't it? Moon: No, I don't think so."
Before the Appeal Panel, Fasako in its written submissions at [53]-[57] addressed cl 9.3 and the meaning of "Sound Structural condition". "[53] The allegation now made that the building was not in sound structural condition can be shortly disposed of. The submissions made by the Appellants entirely ignore the existence of a performance solution. As Mr Moon accepted in his evidence, compliance with the BCA can be achieved by the adoption of a fire engineered solution. The Tribunal did not err as contended at AS [53]. [54] Indeed, from June 2017 the Appellants were aware that an accepted performance solution would enable their fit out to be carried out in Shop X in a manner compliant with the BCA. The Tribunal found at Decision [153] that, notwithstanding the report of Mr Moon, the Appellants would have been able to undertake a fit out by use of a fire engineered solution. This is consistent with Mr Moon's evidence. That finding is not challenged on appeal. [55] The existence of a performance solution meant that the premises could be fitted out: Decision [150], [151], [153], [158], [172], [177]. It cannot be said, in light of these findings, which were open on the evidence before the Tribunal, that the building was not in a sound structural condition. [56] Further, as set out above, there was, at all material times, a fire engineered solution in place in the building (the 2010 Defire solution: see Decision [28], [29]). Mr Moon did not consider whether that solution made the building (or Shop X) compliant with the BCA. The Tribunal also had before it the Annual Fire Safety Certificates, which also certified that the building met the relevant standards. [57] Finally, the Tribunal also had before it a performance solution obtained in October 2017 (the i-Fire solution), which had been peer reviewed (by Red Fire) and accepted by the Appellants' certifiers. That is, a number of qualified persons from three different organisations accepted a performance solution satisfied the requirements of the BCA. In light of that evidence, it would not be open to the Tribunal to have found the premises were not in sound structural condition."
Before the Appeal Panel, TianyD referred to breach of cl 9.3 in its written submissions at [44]-[54]. They are as follows: "[44] By clause 9.3 of the Lease, the Respondent was required to keep the Building in "sound structural condition" (except for any structural damage caused by the First Appellant or an act of nature). [45] The pumps, and the fire sprinkler system of which they were a component, (Moon Report at 5.2, TB 188) formed part of the "structure" of the Building. [46] In such a clause, the classical distinction is between a defect which is "structural' and one which is "decorative" (see for example Granada Theatres Ltd v Freehold Investments (Leystonstone) Ltd [1959] 1 Ch 592 at 603, referred to in Di Francesco and Ors v Blantrix Pty Limited and Ors [2004] NSWLEC 669 at [42]). [47] In the context of works relating to the fire safety for Shop X, such works are of a structural nature because without them, the structure of the Building cannot be lawfully used for the purpose for which it was designed, built and let (see Holus Bolus Pty Ltd v The Wicko Pty Ltd [2012] NSWSC 497 at [34] per Nicholas J). [48] There the defect was such that the building fell "short of the required fire safety standards" (see [34]) and, that being so, the performance of works rectifying that defect would "change the condition of the building from unsafe to safe", which was sufficient to justify the conclusion that the defect was "of a structural nature" within the meaning of the lease there under consideration (see [35]). [49] Holus Bolus is decisive of the present case. Here, as there, the Building fell short of the required fire safety standards. The evidence of Mr Moon established that the pumps for the fire sprinkler system was inadequate. That gave rise to a clear safety issue. That is sufficient here to found the conclusion that that defect constituted the difference between the Building, and in particular Shop X, being unsafe or safe. The defect in the fire sprinkler system was accordingly a defect which impacted on the "structural condition" of the Building which contained Shop X. The very purpose of a fire sprinkler system is to ensure the sound structural condition of a building. The physical manifestation of a fire sprinkler system wends its way throughout the physical structure of a building. Certainly the defect in the fire sprinkler system was not a merely "decorative" issue and was structural. [50] As such, on the proper construction of clause 9.3 of the Lease, the Respondent was obliged to keep in a sound condition the pumps and fire sprinkler system within the Building, servicing Shop X. [51] The proviso to clause 9.3 of the Lease - that the need for repairs was caused by the Tenant - was not enlivened here. The inadequacy of the pumps for the fire sprinkler system had nothing to do with, and did not result from, the First Appellant's proposed fit-out. No fit-out ever occurred - Shop X remained, up to the time of termination of the Lease, in its "base build' state. ... [52] What follows from this conclusion is that the Respondent breached clause 9.3 of the Lease. On the basis of ordinary principles of contract law it fell to the Respondent to cure or remedy that breach. It was not for the Respondent to seek to throw onto the Appellants the obligation to remedy the defect, but that is exactly what the Respondent did... The Respondent never cured/remedied the breach - it did not remedy the inadequate pumps for the fire sprinkler system. [53] With respect, the Tribunal, in failing to make findings to that effect, misconceived these basic contractual provisions, which was aggravated by taking account of post-termination discussion by the Respondent of a possible "fire engineered solution" … [54] Further, the Tribunal erred in impliedly finding at [167] of its reasons that it was the First Appellant who bore responsibility with respect to the "fire sprinkler issues" - it stated, that the First Appellant "took over three months to grapple" with the "fire sprinkler issues". It was the Respondent, being the party in breach, who ought to have "grappled" with the fire sprinkler system."

[24]

The Appeal Panel's decision - Clause 9.3 of the Lease

In relation to the construction of cl 9.3 of the Lease, the Appeal Panel stated at APD [90]-[133]: "[90] In relation to this ground, [TianyD] rel[ies] on the decision in Holus Bolus and say that the deficiency in the fire safety system meant that the building was not structurally sound in breach of cl 9.3. … [95] In Holus Bolus Nicholas J considered what was meant by the expression "structural nature". In that case, cl 12.2 of the lease in question imposed an obligation on the landlord in the following terms: The Lessor COVENANTS with the Lessee: … 12.2 To make all amendments alterations reparations and additions of a structural nature which by virtue of any statute or by-law now or hereafter in force may be required to be done or executed in or upon the demised premises including compliance with any fire notice or order by the Council or relevant authority at any time during the term of the Lease or any holding over thereof. [96] At [31]-[35] his Honour said: [31] The phrase "of a structural nature" is of wide generality. It concentrates the mind upon the condition, state, or quality of the building. It suggests something which is associated with, relates to, or affects the structure considered as a whole. I would respectfully agree with the following statement of Paine J in Di Francesco & Ors v Blantrix Pty Ltd & Ors [2004] NSWLEC 669: "[53] Adopting a practical approach to the provisions of cl 4 of Sch 3 of SEPP 60 ... and mindful of observations in cases such as Bondi Diggers and Alamdo, I consider that the phrase 'structural alterations' refers to work which is substantial, meaning not de minimis or minor and which changes or adds to the form of the fabric of the building in a manner which cannot be regarded as merely decorative. Works that fall within this description cannot be 'non-structural alterations'..." [32] The cases establish that the determination of the question whether or not, for example, amendments or alterations are of a structural nature, is largely a matter of fact and degree. The court should apply a practical, "common-sense man-of-the-world view". (Wates v Rowland [1952] 2 QB 12, p 23; Brew Bros. Ltd v Snax (Ross) Ltd [1970] 1 QB 612, pp 640, 641.) [33] In my opinion, the question in this case must be determined with regard to the whole of the works to be done rather than to the component parts of the works individually [Brew Bros p 641, 646). This is because necessary compliance with the fire safety standards under the code depends upon the combined effect of completion of the various items required. The defendant's denial of liability turned on a narrow interpretation of the scope of the term "of a structural nature" which, in the circumstances, I find to be wrong. On this issue I reject the defendant's submissions, and accept generally those for the plaintiff. [34] The inescapable conclusion on the evidence is that the works affect, and are directly related to, the fire safe and fire resistant condition of the hotel building. The evidence shows, and I find, that because the building falls short of the required fire safety standards its utility as a place for public access and accommodation as a hotel is compromised. In my assessment, the works, taken as a whole, involve the installation of a system for the compartmentation and containment of fire in the hotel building. By carrying out the works the condition of the building will be amended or changed to a standard which is regarded as essential for the ordinary use and enjoyment of the amenities of a hotel (cf: R v Lowe (1954) 19 LGR (NSW) 345, p 351). Put another way, without completion of these works the structure could not be lawfully used for the purpose for which it was designed, built, and let to the plaintiff. It is relevant, of course, that under the lease the plaintiff is required to use the premises as a hotel, and to keep it open for the provision of liquor and accommodation to members of the public at all reasonable times. [35] In short, performance of the works will change the condition of the building from unsafe to safe. Accordingly, in my opinion, the works the subject of the council's letter of 16 June 2011 require the making of amendments and alterations of a structural nature within the meaning of cl 12.2 of the lease. [97] [Fasako] submitted that the fire sprinkler system was not structural. Reliance was placed on the decision of Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2004] NSWSC 487 (Alamdo) at [40]. That case involved the question of whether an asphalt surface was structural. There Barrett J said: "[40] Applying the same concepts, maintenance, replacement or repair is "structural" when its purpose and effect are to remedy some "failure on the part of the structure to remain satisfactorily put together". This is, I think, consistent with the approach taken to the meaning of "structural repairs" in relation to buildings as such in cases such as Granada Theatres Ltd v Freehold Investment (Leytonstone) Ltd [1959] 1 Ch 592 and Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd [1999] NSWSC 264 to which counsel for both parties referred. Reference may also be made to what was said by Balmford J - again in relation to a building -in Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272: "'the structure' is that part of the total building that supports the loads and stops the building falling down. It should be emphasised that a building may be structurally sound notwithstanding that it shows signs of movement; as by the opening of cracks. Unless such cracks indicate a real and present threat to load bearing integrity, of building failure or collapse, they may be treated as simply cosmetic defect - susceptible of patching, painting or other straight-forward repair."" [98] In our view, the reliance by the landlord on the passage in Alamdo is to take too narrow a view of what the Court was saying constituted "structural". This is clear from the decision of Barrett J at [40]-[42]. It is also clear from the decision on appeal of the Court of Appeal: Alamdo Holdings Pty. Limited v. Australian Window Furnishings (NSW) Pty. Ltd. & Anor. [2006] NSWCA 224 (Alamdo on Appeal) per Hodgson JA at [39]-[40] (Basten JA agreeing at [117] and McClellan CJ agreeing at CL at [142]) Hodgson JA concluding that structure is not limited to load bearing parts of the building or inter-connectedness of parts. [99] At [41] of Alamdo, Barrett J referred to the decision of the full Court of the Supreme Court of South Australia in J F Hillam Pty Ltd v Mooney (1988) 48 SASR 381 (JF Hillam). There, when considering whether the restoration of the marblesheen swimming pool surface finish was a "major repair of a structural nature", King CJ (with whom Jacobs and von Doussa JJ said at 387: "The swimming pools were undoubtedly part of the structure of the premises. The marblesheen which rendered them usable as swimming pools by providing an appropriate surface must be regarded, to my mind, as part of the structure. The repair or replacement of that marblesheen is therefore a repair of a structural nature." [100] That is, a surface finish that had deteriorated and rendered the pool unusable (although apparently not liable to collapse) was a repair "of a structural nature". [101] In Advanced Fitness v Bondi Diggers [1999] NSWSC 264, Austin J had to consider obligations under a sub-lease to carry out repairs of a "structural nature". There, in connection with the need to do work in compliance with a fire safety notice issued by the local Council, his Honour said at [108]: "... The distinction between structural and non-structural repairs requires the Court to make a practical judgment as to whether the work, having regard to its nature and extent, interferes with or alters the framework or structure of the building. Older case law, referred to by Jenkins LJ in [Grenada Theatres Ltd v Freehold Investments (Leytonstone) Ltd [1959] 2 All ER 176] at page 181, tended to describe all non-structural work as 'decorative', but the modern connotation of that word may be too limited to allow it any continuing utility. Having particular regard to their extent, my opinion is that works in the Howse Report include a structural element, particularly as they involve construction of walls and similar sealing structures, and fire doors ...." [102] In the present case, the obligation on the landlord is to "keep the building in sound structural condition". [103] Consistent with the view expressed in Holus Bolus and the authorities to which we have referred to above, in our view this obligation would require the landlord to undertake all work necessary to avoid adverse impact by fire in the building on its structural integrity. This obligation would extend to rectifying defects in the fire safety systems of the building which prevented its lawful use or, to adopt the language in JF Hillam, to carry out works necessary to render the building "usable". In this regard, "sound" connotes the concept of being substantially free from flaw, defect, decay or deterioration to the extent that the building or structure is capable of adequately or safely accomplishing the purpose for which it was intended or designed. [104] Seen in this way, the sprinkler system complying with the relevant Australian Standards, which itself suppresses a fire, protects the structure from the impact of fire, and permits the lawful use of the building is properly work necessary to keep the building in a sound structural condition. Certainly, it is not work that could properly be described as decorative. [105] Similarly, the provision of baffling and other physical barriers and carrying out of work alternative to the provision of a complying sprinkler system, as might be required by an alternative fire engineered solution in order to prevents the spread of fire, protect building (and the premises) and permit its lawful use would likewise be work necessary to keep the building in a sound structural condition. [106] A different interpretation of cl 9.3 would mean that if the building could not be lawfully occupied because of inadequate fire safety systems and was susceptible to structural failure in the event of fire due to non-compliance with fire safety requirements, the landlord would have no obligation to provide or repair such systems and the tenant (which itself has no obligation keep the building in a sound structural condition) would have no recourse. [107] A consideration of the landlord's other obligations under cl 9 of the lease does not lead to a different conclusion. … [110] Each of cl 9.2 and 9.3 relate the Building, which includes the Premises. Each of these clauses contemplates an obligation on the landlord to maintain the building. [111] The obligations under each clause are continuing, existing at commencement of the lease and continuing until its end. As stated by Dixon J (as he then was) in In Larking v Great Western (Nepean) Gravel Ltd (in Liq) [1940] HCA 37; (1940) 64 CLR 22,at 236: "If a covenantor undertakes that he will do a definite act and omits to do it within the time allowed for the purpose, he has broken his covenant finally and his continued failure to do the act is nothing but a failure to remedy his past breach and not the commission of any further breach of his covenant. His duty is not considered as persisting and, so to speak, being for ever renewed until he actually does that which he promised. On the other hand, if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided." [112] However the obligations are different, with different consequences. One requires maintenance of the building "in good order and condition". One requires maintaining the building in "sound structural condition". ... [114] As to the second, under cl 9.3, the landlord must maintain the building in structurally sound condition, there is no similar exclusion of liability for breach of a temporary nature, nor is there an express term preventing termination. Further, under cl 9.3(b), even if the building is rendered structurally unsound because of events for which the landlord is not responsible, such as a fire, the landlord is required to repair the premises promptly unless notice is given under cl 11 that the landlord considers repair is impractical or undesirable. Where notice is given, either party may terminate the lease. [115] The reference to "temporary breakdowns or for interruptions to services" in cl 9.2(b) and the embargo on termination suggests that this obligation under this clause is in relation to maintenance of features of the building that do not affect its structure in a manner to render the building unsound or unable to be lawfully used. This might include repairs required for common toilets and other building services for which the tenant is not otherwise liable under cl 7.10 (tenant's obligation to maintain the Premises). It would extend to obligations to repair what might be described as decorative features of the building and/or to keep in good condition common areas of the building, including floor coverings and painting. [116] This is to be compared with cl 9.3 that has no such embargo and requires the landlord to make the building structurally sound even where that the cause of any defect arises from outside events for which the landlord is not responsible. [117] Seen in this way, our interpretation of these clauses and their operation is consistent with the approach taken by the Court in the cases to which we have referred. [118] Clause 7.8 does not affect this conclusion. This clause provides: 7.8 Not to interfere with services a) The Lessee must not interfere with or overload any of the services that pass through, under or over the Premises and must pay the cost of rectifying any damage which it cause to those services. b) If, as a result of the installation of the Lessee's partitioning or fit out, any change is required to the: 1) sprinkler system; 2) air-conditioning ducting; or 3) any other Building service; the Lessee must pay the cost of those changes. [119] While the tenant has no right to interfere with any services in the building, including the sprinkler system, the tenant is only liable for changes made necessary as a result of the tenant's fit out. However, the clause does not suggest the sprinkler system or fire services fall outside the expression "structural" found in cl 9.3 if a failure or defect in that system would render the building structurally unsound." Was cl 9.3 breached? [120] Having determined that the landlord's obligations under cl 9.3 to maintain the building in "structural sound condition" required the landlord to maintain the fire safety system including sprinklers in that state, the next question is whether the landlord breached that obligation and, if so, whether there was an entitlement to terminate. [121] It seems clear to us from the evidence set out by the Tribunal and from the Defire Report referred to in the Reasons that the adequacy of the sprinkler system as existed at commencement of the lease, prior to the tenant carrying out anyfit out (and therefore the fire safety system of the building) depended upon the pumps supplying the existing sprinkler array in the premises of 36 sprinklers with sufficient water to comply with the requirements of AS 2118.1-1999. In this regard the Defire Report states at para 5.7 (AB Vol 2 p 822): A sprinkler system in accordance with the requirements of specification E1.5 of the BCA and AS2118.1-1999 must be provided throughout the building. [122] It was on this basis that the fire certificates had been issued. [123] It is also clear from the Tribunal's findings and the evidence of Mr Moon to which the Tribunal refers that the pumps supplying the system did not have sufficient flow rate to meet the requirements of AS 2118.1-1999. [124] In any event, during the hearing of the appeal the landlord accepted in submissions that the pumps supplying water to the sprinkler system in the premises had an inadequate flow rate. [125] There is no suggestion in the evidence or any submissions from either party during the appeal that that the premises and the building met fire safety requirements in the absence of a complying sprinkler system. To the contrary, the report of Warren Smith dated 3 November 2017 (AB Tab 109 p 1077-9) makes clear that: (1) the "the current design", housing 36 sprinklers makes "the existing town's main supply and the pumps unsuitable"; and (2) a performance solution could be employed using AS 2118.1-2017 in lieu of AS 2118.1-1999, without upgrading the existing pumps in the base building. That is such a solution could prospectively be implemented. [126] The fact fire certificates had been issued over the years does not displace this conclusion, the only evidence being that the certificates relied on incorrect information on the "block plan and pump plaque" and that the pumps, having been tested by Mr Moon, have an inadequate flow rate to supply the existing sprinkler array. [127] It follows from the above that we are satisfied the fire safety system was defective at the commencement of the tenancy and that this deficiency meant that the premises could not lawfully be occupied and the building was therefore structurally unsound. [128] The landlord submitted that there was available a fire engineered solution which did not require an upgrade to the existing pumps. Rather, the premises could be rendered fire safe by means of carrying out works reducing the need to rely on as many sprinkler heads for fire suppression purposes. That is, the premises could be reconfigured such that the required number of sprinkler heads could be reduced to approximately 18, therefore reducing the required water supply. In this case the landlord said the existing pump system would be adequate for that purpose. This, the landlord submitted, was work to be undertaken by the tenant carrying out its fit out. [129] There was a debate concerning if and when a fire engineered solution became available... However, what is clear from the above and the documents containing a fire engineered solution to which we have been referred is that such a solution, as an alternative to upgrading the pumping system, would at least require the installation in the premises of "Imperforate baffles of non-combustible and non-shareable construction extending from the underside of the Ground Floor slab to minimum 500 mm below the Lower Ground ceiling ... to separate the internal tenancy stair void from the Lower Ground Floor": see eg AB Tab 75 p 1050, Works required- Item 2. That is, the structure of the building would need to be altered. [130] While it can be accepted that this would have been needed for the purpose of carrying out any fit out by the tenant as an alternative to upgrading the water supply, it must also have been a requirement of the building existing at and prior to the commencement of the lease. This is because the existing pumps were unable to provide sufficient water flow to supply the 36 head sprinkler array originally existing in the premises upon which the fire safety system had been designed as recorded in the Defire Report of 2010." [131] It follows that there was an obligation on the landlord to carry out work in order to render the building structurally sound that existed at the commencement of the lease, either by upgrading the existing pumps or by carrying out work in accordance with an alternative fire engineered solution so as to bring the premises into compliance with the relevant fire safety requirements and render the building structurally sound. Its failure to do so constituted a breach of cl 9.3 of the lease."

[25]

Fasako's submissions

Fasako submitted that the Appeal Panel's construction of cl 9.3 at APD [103]-[104] (reproduced at [106] of this judgment) was in error for a number of reasons.
Fasako's first submission was that if cl 9.3 imposed an obligation on it to protect the structure from the impact of fire, Fasako's obligations under that clause would extend to every fire-safety measure which might have a protective effect, including maintenance of smoke alarms, fire hose reels, or portable fire extinguishers, despite not every such component falling within maintenance of the structural condition of the Building.
Fasako submitted that the Appeal Panel's construction of the clause elevated its obligations to an unwarranted level, and in so doing the Appeal Panel failed to have regard to cl 9.3(b) of the Lease. Fasako noted that under cl 9.3(b) there is no requirement for it to keep the building in sound structural condition for damage caused by fire. Indeed, in the event of such damage, Fasako noted that its express entitlement to terminate the Lease under cl 11, without penalty. Fasako submitted that as it is entitled to terminate the Lease in the event of structural damage caused by fire, it can have no prophylactic obligation in advance of a fire to "protect the structure from the impact of fire" (APD [104]).
Fasako further submitted that while the Appeal Panel referred to cl 9.3(b) at APD [114] it gave cl 9.3(b) no work to do. Fasako opined that this is evident from the conclusion reached by the Appeal Panel at APD [116], where it stated that cl 9.3 "requires the landlord to make the building structurally sound even where the cause of any defect arises from outside events for which the landlord is not responsible". In fact, the landlord is not required to make the Building structurally sound in the event of damage arising from matters listed in cl 9.3(b), instead the landlord can terminate the Lease under cl 11.
Fasako's second submission on this ground was that the Appeal Panel's construction of cl 9.3 of the Lease was not consistent with authority, as it failed to consider the connection between the pumps and the structure or building. Shortly stated, in Fasako's submission, the Appeal Panel conflated anything that may have an effect on the building's structure (e.g. a fire, a lightning strike) with its existing structural integrity.
In support Faskao made a number of reference of cases in which the terms 'structure', 'structural alterations', 'structural integrity', and 'structural maintenance, replacement or repair' were discussed. reference to the meaning of the word "structure" The first of these was Irvine v Moran [1991] 1 EGLR 261 ("Irvine") in which Thayne Forbes QC said at 262: "the structure of the dwelling house consists of those elements of the overall dwelling house which give it its essential appearance, stability and shape. The expression does not extend to the many and various ways in which the dwelling house will be fitted out, equipped, decorated and generally made to be habitable… I am not persuaded…that one should limit the expression … to those aspects of the dwelling house which are load-bearing in the sense that that sort of expression is used by professional consulting engineers and the like; but what I do feel is, as with regard to the words 'structure of the dwelling house', that in order to be part of the structure of the dwelling house a particular element must be a material or significant element in the overall construction."
Fasako also referred to Di Francesco & Ors v Blantric Pty Ltd [2004] NSWLEC 669 ("Blantric"), in which Paine J said at [53]: "…I consider that the phrase 'structural alterations' refers to work which is substantial, meaning not de minimis or minor and which changes or adds to the form of the fabric of the building in a manner which cannot be regarded as merely decorative."
Fasako further referred to Koundouris v The Owners - Unit Plan 1917 [2017] ACTA 36 ("Koundouris") in which the Court of Appeal considered that work dealing with water ingress was work of a structural nature. The relevant question in that case was whether the work that was required affected the structural integrity of the building. The Court considered (at [129]) that the lack of movement joints and the absence or failure of waterproofing affected the overall structural integrity of the building which manifested in cracking, corrosion and debonding of render, allowing water ingress to internal areas.
Fasako also made reference to Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWCA 224 ("Alamdo CA"), where the Court of Appeal considered whether repairs to bitumen areas on a property would amount to 'structural maintenance, replacement or repair'. Hodgson JA set out the findings of the primary judge, which were upheld. The primary judge had found in Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2004] NSWSC 487 at [40] ("Alamdo SC"), that maintenance, replacement or repair is "structural" when its purpose and effect are to remedy some "failure on the part of the structure to remain satisfactorily put together". Barrett J concluded that the pavements should properly be regarded as "structures" at [42]: "They were put upon the land by a process of construction. Their character, as consisting of a skin or coating of asphalt placed upon a prepared land surface to which a basecourse of aggregate or blue metal had first been added, makes them similar to, although lesser in degree than, the "low attractive brick fence" considered in Durkin v Commonwealth Savings Bank of Australia (unreported, Full Court of the Supreme Court of South Australia, 30 November 1990) where a fence "in which the bricks are cemented to a cement base and to one another by mortar" was held to be a "permanent domestic improvement of a structural nature". In the same way pavements constructed in the way I have described should be characterised as being improvements "of a structural nature". Furthermore, the replacement of the asphalt skin and any missing basecourse that, to adapt the words in the JF Hillam case, made them usable as pavements by providing the necessary hard surface and its support, and, as stated in Hampson v Clyne, was necessary for them to "remain satisfactorily put together", must, in my judgment, amount to maintenance, replacement or repair that is "structural"."
Fasako referred to Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272 ("Carbure"), in which Balmford J set out the evidence of a building consultant as to the meaning of the term 'the structure' in light of the Glossary of Building Terms, and accepted that definition at [44] and [47] as follows: "'the structure' is that part of the total building that supports the loads and stops the building falling down. It should be emphasised that a building may be structurally sound notwithstanding that it shows signs of movement; as by the opening of cracks. Unless such cracks indicate a real and present threat to load bearing integrity, of building failure or collapse, they may be treated as simply cosmetic defect - susceptible of patching, painting or other straight-forward repair."
Fasako correspondingly submitted that the distinction between structural and non-structural repairs requires the court to make a practical judgment as to whether the work, having regard to its nature and extent, interferes with or alters the framework or structure of the building: Advance Fitness Corp Pty Limited v Bondi Diggers Memorial and Sporting Club Ltd [1999] NSWSC 264 at [108] ("Advance Fitness").
Fasako then noted that the Appeal Panel made the distinction between structural and decorative repairs, seemingly finding that if the pumps were not 'decorative' then they must be structural (APD [104]) and submitted that this binary distinction between 'structural' and 'decorative' can no longer be considered good law: see Carbure and Advance Fitness.
In Fasako's submission, the Appeal Panel failed to consider whether: 1. the pumps were a material or significant element in the construction of the Building; 2. replacing the pumps changed or added to the form of the fabric of the Building; 3. replacing the pumps affected the structural integrity of the Building; 4. there was a threat to load bearing integrity, of building failure or collapse; 5. how the Building had been put together, including the installation of the pumps; 6. the process of installation of the pumps, or construction of the pumps, in the Building.
In Fasako's submission if the Appeal Pannel turned to consider the nature and extent of the work, it would have been unable to conclude that the replacement of the pumps fell within cl 9.3 because there was no evidence on this point: there was no evidence about how the pumps were connected to the physical structure, or as to what steps might be involved in replacing or upgrading the pumps such as what work might be required and what impact, if any, that task would have on the elements which comprise the Building. Fasako noted that it raised the absence of such evidence before the Appeal Panel, and TianyD, who bore the onus of proof in establishing that the pumps formed part of the structural condition of the Building, did not call evidence from any structural engineer or building surveyor, because it ran dead on any cl 9.3 case.
Fasako also submitted that the Appeal Panel's construction of cl 9.3 was also at odds with the definition of structure used in similar contexts in NSW legislation. For example, the terms "structural element of a building" and 'major structural defect' were defined in the regulations to the Home Building Act 1989 (NSW), as follows: "(2) structural element of a building means: (a) any internal or external load-bearing component of the building that is essential to the stability of the building or any part of it, including things such as foundations, floors, walls, roofs, columns and beams, and (b) any component (including weatherproofing) that forms part of the external walls or roof of the building. 7. The term "major structural defect" was defined in cl 31 of the Building Services Corporation Regulation 1990 to mean an inherent or damage-induced defect: (a) in an element that provides essential supporting structure to the whole or any part of a dwelling (for example, a footing, beam, column or a suspended slab) which renders the element inadequate for its structural purpose; or (b) in a substantial functional element essential to the habitability of a dwelling (for example, a panel wall, masonry veneer wall or slab on ground) which is of such a kind that the element itself does not have adequate structure for its purposes."
In Fasako's submission, the interpretation given to cl 9.3 by the Appeal Panel went beyond any ordinary understanding of 'structural condition' to impose a greater, more onerous obligation to prevent the risk of damage being caused to the Building's structure potentially occurring by way of fire.
Fasako's third submission on this ground was that the Appeal Panel focused on the "lawful use" of the Building, however, the question of lawful use was entirely hypothetical and there was no evidence at all about the "lawful use" of the Building. In Fasako's submission, the Appeal Panel erred in focusing on lawful use rather than structural condition or integrity.
Fasako noted that the Appeal Panel's only reference to the structural condition of the Building was with regard to a hypothetical future fire event, which in Fasako's submission could be contrasted with the decision in Holus Bolus Pty Ltd v The Wicko Pty Ltd [2012] NSWSC 497 ("Holus Bolus"), to which the Appeal Panel referred. Fasako recounted the facts of Holus Bolus as follows. The matter concerned a hotel lease and the Court was considering whether certain works were "of a structural nature". In respect of the hotel, the Local Council required fire safety work to be carried out. Initially, the Council specified works which included the installation of a fire sprinkler system in the building, ultimately, however, the fire safety order which Council gave notice it intended to issue did not include the installation of a fire sprinkler system. The works the subject of the order included applying intumescent coating to walls, ceilings, floors and stairs, providing self-closers to all bedroom doors, replacing certain doors, sealing vents and transoms; and providing fire rated mastic to all penetrations through floors. Nicholas J considered the term "of a structural nature", a phrase held to be "of wide generality" which "concentrates the mind upon the condition, state or quality of the building": [31]. Nicholas J in Holus Bolus concluded at [34] and [35] that the works, taken as a whole, would change the condition of the building "to a standard which is regarded as essential for the ordinary use and enjoyment of the amenities of a hotel". Put another way, "without completion of these works the structure could not be lawfully used for the purpose for which it was designed, built, and let to the Plaintiff". On that basis the works were said to be of a "structural nature".
Fasako opined that two things can be said about Holus Bolus. First, cl 9.3 under consideration here by the Appeal Panel was not as broad as the term under consideration in Holus Bolus, which was wider in import, and second, in Holus Bolus the question of lawful use of the premises was not hypothetical as the hotel the subject of the proceedings had closed, and was unable to be used because of Council requirements. The effect of the work required would be to change the fire resistant condition of the structure, satisfying Council's requirements, so that the building could be used.
Correspondingly Fasako submitted that in order to consider lawful use in this case, attention would need to be given to whether the premises leased by TianyD could in fact be used even with a sprinkler system that did not comply with the Australian Standard. As the point was not run at trial, no evidence was advanced on the question by TianyD. It would seem, however, from the evidence recorded at APD [125] that lawful use of the Premises was not affected because a performance solution could be implemented.
Bolstering this argument, Fasako referred to other factors that might affect the lawful use of a building but that have no impact on the structural condition or integrity of the structure (for example the kind of business being conducted in the shop or the hours of business) and submitted that while it may be that where a building is not in sound structural condition it cannot be lawfully used, it does not follow that in every case where there is no permission for lawful use of a premises it is not in sound structural condition.
Fasako's fourth submission on this ground was that the Appeal Panel erred in finding that an upgrade to the pumps would fall within the obligation to "keep" the building in 'sound structural condition'. Fasako noted that cl 9.3 requires the landlord to "keep" the premises in a certain condition, and offered that the starting point in understanding the obligation to "keep" is the decision in Lurcott v Wakely and Wheeler [1911] 1 KB 905 at 917 as follows: "Supposing there is a house on a plot of land which is let on a Lease for 80 years, and the person who takes the Lease undertakes to keep that house in good condition for the 80 years, he cannot assert that it is a house which from the nature of the case would under ordinary circumstances last out 20 years and therefore that he may let it die at the end of 20 years. He must do all that is necessary to keep that house in good condition for the period for which he has covenanted.''
Fasako also referred to Cooper v Westpac General Insurance Ltd [2007] ACTCA 20 in which the lease obliged the lessor to "maintain the premises in a reasonable state of repair having regard to their condition at the commencement of the Tenancy Agreement". The Court found there was no limitation on the scope of works that might be required to ensure the premises remain in that state.
Fasako submitted that what constitutes 'repair' is a question of degree that depends in part on the state of the building at the date of the lease. Repair does not require reconstruction of the whole, or substantially the whole, of the building, and it includes restoration by renewal or replacement of parts.
Fasako further submitted that a covenant to repair does not ordinarily carry with it an obligation to fix design defects and in the absence of an express provision of the lease, a landlord has no obligation to put the leased property into proper repair at the commencement of the lease: Chappell v Gregory (1864) 55 ER 361; Western Electric Ltd v Walsh Development Agency [1983] QB 796.
Fasako concluded that the Appeal Panel's determination that Fasako breached cl 9.3, conflated the need to upgrade the system requirements to meet the new requirements of the incoming tenant, with a defect rendering the Building unable to be lawfully used.
Finally Fasako submitted that the alleged deficiency in the water pumps was unknown to Fasako, as lessor, until they received the report of Mr Moon more than a year after the issue of the Termination Notice. Prior to that time, the situation as known to both parties was that the pumps were not sufficient to meet the requirements of TianyD's fit out. The Appeal Panel therefore held that Fasako was in breach of the Lease in 2017 in failing to uncover a latent, undiscovered defect. Fasako opined that the authorities do not impose such a high standard in respect of a covenant to repair.

[26]

The proper construction of clause 9.3

TianyD submitted that the principles applicable to contractual construction have been authoritatively laid down on many occasions by the NSW Court of Appeal and the High Court and it is quite clear that the key to construction in a matter such as this is to have regard, not only to the text, but to context and purpose, and to ensure that the construction is businesslike: See Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35].
TianyD noted that the obligation imposed on Fasako by cl 9.3, viewed as a whole, was "to keep the Building in sound structural condition". In TianyD's submission the submissions by Fasako erroneously treat cl 9.3 as if it imposed an obligation on Fasako only to keep the "structure" of the Building sound, fail to focus on the whole text and ignore the contextual importance of the fact that the clause went further and required Fasako to "keep" the "structural condition" of "the Building" "sound".
The sprinkler system was installed to suppress fire; and fire, if it occurs, is, more than any other hazard, likely to present a risk to the "sound[ness]" of the "structural condition" of the Building. To "keep" the "structural condition" of the Building "sound" then, in TianyD's submission it is necessary to have a compliant and effective fire sprinkler system, and the absence of compliant sprinkler pumps meant that the structural condition of the Building was not being kept "sound".
TianyD made reference to the Macquarie Dictionary definition of the adjective "sound", the primary meaning of which is: "free from injury, damage, decay, defect, disease, etc.; in good condition; healthy; robust". In TianyD's submission the concept of "keep[ing]" the "structural condition" of "the Building" "free from" defect and in good condition reinforces the conclusion that cl 9.3 was, objectively, intended by the parties to impose an obligation on Fasako to ensure that the fire safety system was at all times effective and compliant so as to protect the integrity of the structural condition of the Building from fire hazard.
TianyD continued, stating that the obligation to "keep" the structural condition of the Building "sound" is a broad concept, extending well beyond defects in the physical construction, or defects in the physical structure, of the Building. The contractual text "keep… sound", in TianyD's submission demonstrates that the objective intention of the parties was to impose an obligation on Fasako to take all necessary steps to prevent the materialisation of a risk or hazard bearing upon the soundness of the structural condition of the Building. TianyD opined that the very point of the fire safety system must have been to protect the retail tenants of the Building against risks to the integrity of the structural condition of the Building and against hazards that may have the capacity to undermine the integrity of the structural condition. In that sense, cl 9.3 was effectively intended by the parties to have a prophylactic effect on the integrity of the structural condition of the Building. Clause 9.3 obliged Fasako to minimise the risk of fire hazard damaging the physical integrity of the structural condition of the Building and, as such, to ensure that the fire safety system (including the sprinkler pumps) was at all times effective and compliant.
In TianyD's submission, this argument was correctly accepted by the Appeal Panel at APD [103]-[104] where it suggested cl 9.3 required Fasako "to undertake all work necessary to avoid adverse impact by fire in the building on its structural integrity" so as to ensure "that the building or structure is capable of adequately or safely accomplishing the purpose for which it was intended or designed" and that a compliant safety system "protects the structure from the impact of fire, and permits the lawful use of the building" and thereby keeps the Building in sound structural condition. The attempt by Fasako at LS [65] to characterise the reasoning of the Appeal Panel as having turned on a simplistic distinction between "structural" and "decorative" was in TinayD's opinion simply wrong. After a detailed analysis at APD [103]-[104] the Appeal Panel merely stated: "In conclusion that "Certainly" it was not right to characterise the work as "decorative". That was not part of the central reasoning quoted above."
TianyD noted that Fasako's criticism of the last sentence of APD [104], containing the word "decorative", was that the "binary" distinction between "structural" and "decorative" can no longer be regarded as good law (LS 65). Whilst TianyD accepted that the contractual text cannot be satisfactorily applied simply by giving a negative answer to the question whether the upgrade of the sprinkler pumps was "decorative" work, it did not accept that is what the Appeal Panel did in the last sentence of APD [104]. TianyD also noted the ACT Court of Appeal in Koundouris which at [128] regarded the distinction between structural repairs and decorative repairs as significant and submitted the utility of the distinction should therefore be accepted by this Court unless that intermediate appellate court decision is to be regarded as plainly wrong (which it is not).

[28]

Need for businesslike construction / matters of context

TianyD's next submission in relation to this ground of appeal was that separate from any textual considerations, there are a number of matters of context supporting the Appeal Panel's decision, along with other matters that reveal the 'unbusinesslike' nature of the construction for which Fasako contends.
TianyD submitted that the focus of cl 9.3 is on "the Building", whereas the Lease was a lease of the Premises, being contained within (and just part of) the Building. TianyD, as the lessee of the Premises, but not of the Building as a whole, could have had no responsibility for an inadequacy in the soundness of the physical integrity of the structural condition of the Building, especially in respect of machinery that was physically outside the Premises. The sprinkler pumps with their inadequate flow rate, were situated in the Building but outside the Premises. Accordingly, in TianyD's submission the parties must have intended that the obligation to deal with that inadequacy was that of Fasako with the cost to form part of the outgoings payable by all tenants in the Building, including TianyD. There is no appeal from the conclusion of the Appeal Panel at APD [106] that TianyD had no such obligation. The Appeal Panel also correctly recognised at APD [106] the contextual importance of that conclusion.
TianyD noted that on Fasako's construction of cl 9.3, despite the inadequate flow rate of the sprinkler pumps which were there to suppress fire within the Building, no one had any obligation to address that hazardous situation so as to make the fire safety system compliant. TianyD submitted that is not only extremely unattractive, but also quite unbusinesslike, and construing clause in the manner upheld by the Appeal Panel avoids that absurdity.
TianyD further submitted that the only other clause, which might be thought to oblige Fasako to rectify the inadequate flow rate of the sprinkler pumps was cl 9.2. However, TianyD noted that the Appeal Panel held that cl 9.2 did not impose any obligation on Fasako in respect of the fire safety system. Accordingly, in TianyD's submission the appeal to this Court falls to be decided on the basis that, unless Fasako had an obligation under cl 9.3 to do what was necessary to ensure that the fire safety system was compliant, no one had any obligation to do so. TinayD construed that as an absurd outcome giving rise to an unbusinesslike construction of the Lease, which points strongly towards the correctness of the decision of the Appeal Panel as to the proper construction of cl 9.3.
Further, TianyD submitted that the submissions by Fasako fail to have regard to the context of cl 7.8(b) of the Lease. TianyD had an obligation under that clause to meet the costs of any changes to the sprinkler system "as a result of … the lessee's … fit out". TianyD opined that the objective intention of the parties was clearly that that was the full extent of the obligation imposed on TianyD in respect of the costs of changes to the sprinkler system. The Appeal Panel held that cl 7.8(b) did not extend to the deficiency in the fire safety system because it existed from the start of the Lease: see APD at [118]-[119], from which there is no appeal. That reinforces the conclusion that the parties objectively intended that the sprinkler system issue fell within the scope of the obligations imposed on Fasako; and it must have been cl 9.3 that was intended to impose that obligation (given the inapplicability of cls 7.8(b) and 9.2).

[29]

Other contextual matters

TianyD noted that the possible availability of a performance solution was a matter on which Fasako placed enormous reliance at first instance (where it found favour with the Tribunal Member) and in the appeal to the Appeal Panel (where it did not find favour), and that Fasako still places significant reliance on the point in its it submissions in this Court.
In responding to this argument, TianyD made reference to Kallinosis v Woollahra Municipal Council [2017] NSWLEC 1673 in which the status of a performance based solution was discussed at [42]: "[42] The BCA is a performance based code that establishes performance requirements that can be met either by a performance solution (also called an alternative solution) or by using a deemed- to-satisfy solution. A performance solution is any measure that results in the achievement of the performance requirements. The deemed-to-satisfy solutions are measures prescribed by the BCA and deemed by the BCA to be measures that meet the performance requirements. That is, if the deemed-to- satisfy solutions are carried out, then the performance standards are deemed to be achieved."
TianyD submitted that it follows that the only "performance solution" which could have been relevant in this matter would have been one which could clearly be shown to achieve the same "performance requirements" as the 1999 Standard.
TianyD further submitted that even if the parties contemplated that an alternative to an upgrade to the sprinkler system was to implement a performance based fire engineered solution that is ultimately a distraction in the context of the issues in the current appeal. If the sprinkler pumps had an inadequate flow rate, as they did, Fasako had an obligation under cl 9.3 to take steps to achieve an effective and compliant fire safety system so as to avoid the risk/hazard to the integrity of the structural condition of the building which the inadequate sprinkler pumps presented. On the face of it, that involved changing or modifying the sprinkler pumps.
TianyD submitted that if the risk/hazard could be avoided in an alternative way, by a performance solution which achieved certification that made the sprinkler system compliant, then that may have avoided the need for any change to or modification of the sprinkler pumps. However the obligation to achieve the performance solution, in substitution for upgrading or changing the sprinkler pumps, clearly remained with Fasako; and it simply did not cause this to happen prior to termination of the Lease.
TianyD submitted that what is important is that the inadequacy of the sprinkler pumps caused a risk or hazard to the structural condition of the Building as things stood from the time of commencement of the Lease, through to the termination of the Lease nearly six months later.
In TianyD's submission, in any event, the Appeal Panel was correct at APD [105] to conclude that the work to be carried out, pursuant to an alternative fire engineered solution, so as to achieve a compliant sprinkler system, would be work necessary "to keep the building in a sound structural condition". That was a finding of fact by the Appeal Panel which was unchallenged; and as such TianyD submitted it is not open to Fasako to contest it in this Court, being a finding not involving any question of law.
Indeed TianyD noted that the Appeal Panel recognised the irrelevance of the possibility of a performance solution at APD [131] noting that even if there was an available performance solution, the fact is that it was not implemented at any material time. Accordingly, whether or not the reference by the Appeal Panel at APD [105] to "baffles" was relevant, that did not undermine the thrust of what it said at APD [105], and particularly at APD [130]-[131], about an "alternative fire engineered solution".

[31]

The exception to clause 9.3

As to LS [56]-[57] and Fasako's submissions on cl 9.3(b), TianyD submitted that the exception in cl 9.3 for "structural damage" is of no significance in construing the primary text in cl 9.3, as it is merely a small subset of the larger concept expressed in the text preceding the exception. The subset contemplates a situation in which actual damage has already occurred. That is not this case. Nor does it bear in any meaningful way on the construction of the primary part of the clause.
In support TianyD referred to Nicholas J's comments in Holus Bolus at [30]: "There are many cases which discuss the meaning of 'structure', 'structural alteration', and 'structural repairs', but all are with regard to the legislation, lease, or agreement in the particular case. Sometimes they afford helpful, but not determinative, guidance for the approach to be taken. In the end, the question is one of interpretation to ascertain the obligation of the party with regard to the words used in the clause in context, and to the surrounding circumstances."
TianyD submitted that the authorities cited by Fasako are of little or no assistance because they deal with contractual and statutory provisions containing substantially different text. Irvine and Carbure cited by Fasako at LS [59] and [63] concerned "structure"; Blantric cited at LS [60] concerned "structural alterations"; and Alamdo CA, and Alamdo SC cited at [62] concerned, relevantly, "structural maintenance, replacement or repair". In TinayD's submission some of that language may have made relevant the artificially narrow and strict tests referred to at LS [66] (and reproduced at [120] of this judgment), but the contractual text used in cl 9.3 of the Lease was vastly different from the text which was considered in those authorities and those tests are of no relevance to cl 9.3.
TianyD referring to the passage in Koundouris (cited at LS [61]) which concerned the phrase "structural element" in the ACT Building Regulations, noted that the language used lacked the breadth of the text of cl 9.3. TianyD noted that even then it was held by the ACT Court of Appeal at [129] that it was sufficient to satisfy the regulatory language that the lack of movement joints and the absence or failure of the waterproofing "affected" the overall structural integrity of the building which manifested itself in cracking, corrosion, and debonding of render, allowing water ingress to internal areas.
In TianyD's submission the attempt by Fasako at LS [68]-[69] to draw some parallel between the sophisticated text of cl 9.3, contained as it is in a retail lease, with the very different text "structural element of a building" and "major structural defect" contained in a NSW statute and a NSW regulation (reproduced at [122] of this judgment) should be disregarded.
TianyD further submitted that Fasako's attempt at LS [72]-[73] to distinguish Holus Bolus is strained and should not be accepted. TianyD submitted that Holus Bolus was concerned with an obligation imposed on the landlord of a hotel to "make all amendments alterations reparations and additions of a structural nature". Like the text of cl 9.3 here, the composite phrase "structural nature" is, as Nicholas J held at [31], "of wide generality". Nicholas J said, also at [31], that the phrase "suggests something which is associated with, relates to or affects the structure considered as a whole". What his Honour there said reflects the conclusion by the Appeal Panel in the present case at [103]-[104] in the sense that here the fire safety system is "associated with" or "affects" the soundness of the structural condition of the Building because, by suppressing fire, it protects the condition or integrity of the structure from a risk or hazard.
TianyD continued noting that [31] in Holus Bolus Nicholas J had regard to whether the works in question were "merely decorative", a test which in TianyD's submission is not to be jettisoned as Fasako suggests at LS [65], but rather has the imprimatur of an intermediate appellate court in Koundouris. It was TianyD's contention that Fasako's submission at LS [65] that it is irrelevant to have regard to whether the issue in question is other than merely decorative should be rejected, as the present case does not concern a merely decorative issue and that is relevant.
TianyD also noted that Nicholas J in Holus Bolus concluded at [35] that the works in that case would "change the condition of the building from unsafe to safe". This closely reflects the construction of cl 9.3 accepted by the Appeal Panel at APD [104]. Indeed in TianyD's submission, contrary to Fasako's submission at LS [73] which concerns the same passage at [35] of Holus Bolus, the phrase "keep the Building in sound structural condition" in the present case is broader than the contractual language in Holus Bolus, not narrower as Fasako would have it.
TianyD submitted that the Appeal Panel was correct to conclude that, on the proper construction of cl 9.3 of the Lease, Fasako had an obligation to keep the structural condition of the Building sound by, in the context of the fire safety system, ensuring that the flow rates of the sprinkler pumps were adequate and that the fire sprinkler system was otherwise compliant. As the Appeal Panel correctly put it at APD [120], cl 9.3 "required the [Lessor] to maintain the fire safety system including sprinklers" in sound structural condition. This had the effect of "protect[ing]" the Building "structure" from the impact of fire: APD [104].

[33]

Fasako's submissions in reply

In reply Fasako submitted that while TianyD suggests that the construction of cl 9.3 of the Lease accepted by the Appeal Panel was correct, that construction goes beyond the text of cl 9.3 and has no regard to the interpretation of similar clauses in analogous statutory and contractual contexts. Fasako noted that TianyD also propounded an "alternate construction" and while in the absence of a Notice of Contention, TianyD's submission cannot be entertained, it points to TianyD's own lack of confidence in the correctness of the Appeal Panel's decision.
Fasako further submitted that the submission made by TianyD that the objective of the parties was to impose an obligation on Fasako to "minimise the risk of fire hazard damaging the physical integrity of the structural condition of the Building" ignores all of the words in the balance of cl 9.3 after the word "condition". In Fasako's submission, cl 9.3 must be read, and construed, in its entirety: "Fasako must keep the Building in sound structural condition except for structural damage caused by… fire". The exception is not merely a "small subset of the larger concept". That clear exclusion reveals the parties' objective intention to omit from the covenant to keep the premises in sound structural condition any structural damage caused by fire. Imposing a prophylactic obligation to avoid structural damage caused by fire, when that is the very subject of an express exclusion, is an artificial construct which denudes the express words of cl 9.3(b) of any meaning.
Fasako further submitted that it is the Appeal Panel's construction of cl 9.3 which is unbusinesslike, as it requires Fasako to undertake "all work necessary to avoid adverse impact by fire in the building on its structural integrity" (APD [103]). That work might not involve any element of the structure of the Building, imposing what TianyD describes as a 'prophylactic' requirement to prevent damage to the soundness of the structural condition of the Building caused by fire despite the exception in cl 9.3(b) for any "structural damage caused by … fire". In Fasako's submission the Appeal Panel failed to explain how and why such an all-encompassing, prospective and ongoing obligation could be reconciled with the express carve out within cl 9.3 in relation to structural damage caused by fire.
In Fasako's submission, even if the obligation imposed in cl 9.3 was to "minimise the risk of fire hazard damaging the physical integrity of the structural condition of the Building", at least some evidence was required before the Appeal Panel could conclude the clause had been breached. For example, there was no evidence about what other steps Fasako had taken, or was taking, to "minimise the risk of fire hazard damaging the physical integrity of the structural condition of the Building". No evidence was adduced or directed to those questions because the point was not taken at first instance.
As to TianyD's discussion of Koundouris, Fasako submitted that on the one hand, TianyD relied at DS [38] on Koundouris, while, on the other, discounting Koundouris and a number of other authorities as offering little or no assistance because they deal with different statutory and contractual contexts and different texts. Fasako recounted Koundouris as concerning claims for breach of statutory warranty and breach of contract under the Building Act 1972 (ACT) and the Building Act 2004 (ACT). The relevant phrase under consideration was "work in connection with repairs of a structural nature": [128]. The ACT Court of Appeal accepted a submission, at [128], that all work dealing with water ingress "must be taken to include all repairs to the structure, in contrast to decorative repairs". It does not appear that the Court of Appeal was referred to the decision in Carbure or Advance Fitness. In any event, the Court of Appeal gave greater consideration to the question of whether the work was structural than simply describing it as "not decorative", the latter descriptor being an error that the Appeal Panel made in this case at APD [104]. In Koundouris, the ACT Court of Appeal went on to note that "that the lack of movement joints and the absence or failure of the waterproofing affected the overall structural integrity of the building which manifested itself in cracking, corrosion, and debonding of render, allowing water ingress to internal areas": [129].
In contrast in this case there was no evidence of any actual, or forecast, affect to the structural soundness of the Building by reason of the fire sprinkler system: nor was there any evidence of manifestation of the Building not being structurally sound, and further, the submission that the fire safety system was "itself part of the "structural condition" of the Building" is the very matter about which witnesses were not cross-examined and no evidence was lead at first instance.

[35]

Resolution

Returning to the text of cl 9.3 of the Lease, it states that the Lessor must keep the Building in sound structural condition except for structural damage caused (a) by the Lessee; or (b) fire, storm, tempest or similar act of nature, riot or similar event following which the Lessor must, subject to its rights under cl 11, promptly repair. As such, Fasako must keep the building in sound structural condition. Neither of the exceptions in cl 9.3(a)-(b) arise here.
In construing cl 9.3, the Appeal Panel applied Holus Bolos, in which the impugned cl 12.2 has some textual similarity with cl 9.3 of this lease. Summarising Holus Bolos; Nicholas J at [31] stated that the phrase "of structural nature" is of wide generality. It concentrates the mind upon the condition, state or quality of the building. It suggests something which is associated with, related to, or affects the structure considered as a whole. I agree with the Appeal Panel that the reasoning in Holus Bolus is the most relevant authority in relation to cl 9.3 in these proceedings. In this regard, one must consider the words of Nicholas J in Holus Bolus at [30]: "There are many cases which discuss the meaning of "structure", "structural alteration", and "structural repairs", but all are with regard to the legislation, lease, or agreement in the particular case. Sometimes they afford helpful, but not determinative, guidance for the approach to be taken."
In Blantic where Paine J adopted the decisions of Advance Fitness and Alamdo SC, the phrase "structural alterations" was said to refer to work which is substantial, meaning not de minimis or minor. At [32] in Holus Bolus, Nicholas J was of the opinion that these cases establish that the determination of the question whether or not, for example, amendments or alterations are of a structural nature, is largely a matter of fact and degree. In particular, the court should apply a practical, "common-sense [person]-of-the-world view". His Honour further stated at [33] that the questions must be determined with regard to the whole of the works to be done rather than to the component parts of the works individually. It is my view that that here under cl 9.3 Fasako must keep this building in sound structural condition. It seems that under Fasako's interpretation of cl 9.3, no one is responsible for the problem with the fire sprinklers and it is only if there is a fire that cl 9.3 comes into play.
The Appeal Panel regarded Fasako referring to what Barrett J said in Alamdo SC as taking a too narrow a view of how the Court constructed the term 'structural' and in support applied Alamdo SC at APD [39]-[40] and [117] "[39] This conclusion as to the scope of clause 5.1, construed in light of the definition of "Demised Premises", makes unnecessary to the resolution of the proceedings consideration of the question whether restoration of cracked and holed pavements in Areas 1 to 3 would be within the words "structural maintenance replacement or repair". I proceed nevertheless to address that question as if those pavements did form part of the "Demised Premises". The first thing to be said is that, as I view matters, maintenance, replacement or repair that is "structural" can be undertaken only in relation to something that is a "structure" although, of course, not everything done by way of maintenance, replacement or repair in relation to a "structure" is properly classified as "structural". I regard as apposite, in this connection, a passage in the judgment of Brereton J in Hampson v Clyne (1967) 86 WN (NSW) 321: " 'Structure' of course is a word of which the meaning varies considerably according to the context, and the phrase 'structural character' or 'defect of a structural character' varies correspondingly. Literally 'structure' means something which has been constructed and 'defect of a structural character' means either a fault in putting the structure together or some subsequent failure on the part of the structure to remain satisfactorily put together. With particular reference to buildings in common parlance we refer to the bare building as the structure. We refer to fixtures and fittings attached to the structure although these may themselves as individual units be technically 'structures'. We refer also to installations, such as gas and water piping and electrical circuits. Each of these may, however, independently be in certain contexts regarded as a 'structure' in that it is something which has been constructed within another structure." [40] Applying the same concepts, maintenance, replacement or repair is "structural" when its purpose and effect are to remedy some "failure on the part of the structure to remain satisfactorily put together". This is, I think, consistent with the approach taken to the meaning of "structural repairs" in relation to buildings as such in cases such as Granada Theatres Ltd v Freehold Investment (Leytonstone) Ltd [1959] 1 Ch 592 and Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd [1999] NSWSC 264 to which counsel for both parties referred. Reference may also be made to what was said by Balmford J - again in relation to a building - in Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272: "'the structure' is that part of the total building that supports the loads and stops the building falling down. It should be emphasised that a building may be structurally sound notwithstanding that it shows signs of movement; as by the opening of cracks. Unless such cracks indicate a real and present threat to load bearing integrity, of building failure or collapse, they may be treated as simply cosmetic defect - susceptible of patching, painting or other straight-forward repair." … [117] I do not accept that any part of the interim report should be rejected because of the matters canvassed under this heading."
It is my view that this approach is the correct one. The Appeal Panel relevantly stated at APD [103]-[107]: "[103] consistent with the view expressed in Holus Bolus and the authorities to which we have referred to above, in our view this obligation would require the landlord to undertake all work necessary to avoid adverse impact by fire in the building on its structural integrity. This obligation would extend to rectifying defects in the fire safety systems of the building which prevented its lawful use or, to adopt the language in JF Hillam, to carry out works necessary to render the building "usable". In this regard, "sound" connotes the concept of being substantially free from flaw, defect, decay or deterioration to the extent that the building or structure is capable of adequately or safely accomplishing the purpose for which it was intended or designed. [104] Seen in this way, the sprinkler system complying with the relevant Australian Standards, which itself suppresses a fire, protects the structure from the impact of fire, and permits the lawful use of the building is properly work necessary to keep the building in a sound structural condition. Certainly, it is not work that could properly be described as decorative. [105] Similarly, the provision of baffling and other physical barriers and carrying out of work alternative to the provision of a complying sprinkler system, as might be required by an alternative fire engineered solution in order to prevents the spread of fire, protect building (and the premises) and permit its lawful use would likewise be work necessary to keep the building in a sound structural condition. [106] A different interpretation of cl 9.3 would mean that if the building could not be lawfully occupied because of inadequate fire safety systems and was susceptible to structural failure in the event of fire due to non-compliance with fire safety requirements, the landlord would have no obligation to provide or repair such systems and the tenant (which itself has no obligation keep the building in a sound structural condition) would have no recourse. [107] A consideration of the landlord's other obligations under cl 9 of the lease does not lead to a different conclusion."
Turning to whether there was a breach of Cl 9.3 the Appeal Panel gave reasons at APD [120]-[130] which were reproduced earlier in this judgment at [107].
The Appeal Panel stated that the adequacy of the sprinkler system as it existed at the commencement of the Lease, prior to the tenant carrying out any fit out, depended upon the pumps supplying the existing sprinkler array in the premises of 36 sprinklers with sufficient water to comply with the requisite Australian standards. In the Moon report, Mr Moon expressed his opinion that the sprinkler systems were required to serve the whole of the building. The fire engineered solution prepared by DeFire and adopted in 2010 in respect of the Building ("DeFire Report") also stated that the sprinkler system must service the whole building (APD [121]). Indeed the Defire Report states at para 5.7 (CB Vol 3, p822) "A sprinkler system in accordance with the requirements of specification E1.5 of the BCA and AS2118.1-1999 must be provided throughout the building." At the hearing before the Appeal Panel, Fasako accepted that the pumps supplying water to the sprinkler system were inadequate to do this (APD [124]).
It is a matter of common sense that if the pumps that supply water to the sprinkler system are inadequate, this means that there is an issue with the building's structural condition. Fasako was required to keep the building in a state of sound structural repair. It did not do so. At APD [127] the Appeal Panel stated that it was satisfied the fire safety system was defective at the commencement of the tenancy and that this deficiency meant that the premises could not lawfully be occupied and the building was therefore structurally unsound.
The Appeal Panel concluded that there was an obligation on Fasako to carry out work in order to render the building structurally sound that existed at the commencement of the Lease, either by upgrading the existing pumps or by carrying out work in accordance with an alternative fire engineered solution so as to bring the premises into compliance with the relevant fire safety requirements and render the building structurally sound. Its failure to do so constituted a breach of cl 9.3 of the Lease.
For the reasons given above, it is my view that Fasako's arguments in relation to the proper construction of cl 9.3 and its breach are not more than merely arguable. Leave to appeal is consequently refused in relation to Appeal Ground (3).

[37]

Fasako's submissions

Fasako submitted that the Appeal Panel erred in law in making a number of findings in their decision in the absence of any evidence. Each of those findings was relied on by the Appeal Panel in concluding that Fasako had breached cl 9.3 of the Lease.
Fasako submitted that the first of these findings is at APD [127] where the Appeal Panel concluded that the fire safety system was defective at the commencement of the tenancy and that deficiency meant that the Premises could not lawfully be occupied.
Fasako suggested that the starting point for this finding can be found at APD [121] where the Appeal Panel states that "the adequacy of the sprinkler system as existed at commencement of the Lease, prior to the tenant carrying out any fit out (and therefore the fire safety system of the building) depended upon the pumps supplying the existing sprinkler array in the premises of 36 sprinklers with sufficient water to comply with the requirements of AS 2118.1-1999." That finding, Fasako submitted, was in significant error.
Fasako noted that the evidence given by TianyD's expert Mr Moon was that the Building could comply with the Building Code of Australia, and thus be lawfully occupied, in one of two ways: by complying with the Australian Standard, or otherwise by meeting 'deemed to satisfy standards' through a performance solution.
Fasako submitted that TianyD's evidence only addressed half the question which was the compliance with the Australian Standard. The second part of the equation was ignored. Mr Moon was not asked to consider the DeFire Report, nor was he asked to consider the fire engineered solution obtained by Fasako in 2017 i.e. the iFire Report. In Fasako's submission, it appears that the second half of the compliance question was deliberately ignored, as Mr Moon in cross-examination at first instance conceded that it was completely possible not to comply with the Australian Standard, but to have a fire engineered solution with the result that shop x would comply with Australian legal requirements.
Fasako noted that Mr Moon is a director of GN Consulting Pty Ltd and that in June 2017, during the planning for the tenant's proposed fit out, TianyD had engaged GN Consulting to provide the fire sprinkler design. That design was sent to TianyD under cover of email dated 27 June 2017 in which TianyD was advised that in order to fit-out shop x in accordance with the construction plans it had prepared, the hydraulic calculations (based on 216m2) required 36 sprinkler heads, which could not be serviced by the existing pumps. It was that email in which the hydraulic consultant from Austratronics Pty Ltd advised TianyD that there were two options: upgrade the pumps, or obtain a fire engineered solution. Neither GN Consulting Pty Ltd nor the hydraulic consultant suggested that the adequacy of the sprinkler system of the Building, in base build state as it was at the commencement of the Lease, depended on compliance with the 1999 standard; nor that the adequacy of the sprinkler system depended on there being 36 sprinkler heads installed; nor that the fire sprinkler system of the Building did not comply with the Building Code of Australia; nor that the Building (nor shop x) were unable to be lawfully used in their current state. In fact, GN Consulting offered to prepare a fire engineered solution to justify the sprinkler design for TianyD's desired fit out as compliant with the relevant Australian Standard. That offer was never accepted by TianyD.
Fasako further submitted that the reference to 36 sprinkler heads was also incorrect. Mr Moon's evidence was that the 1999 Standard required the "most unfavourable" area of operation to be assessed. For shop x the "most unfavourable" open plan configuration was an area of 216m2, which incorporated 28 sprinkler heads (not 36).
Fasako continued by citing that Mr Moon had noted that an 'idealised design scenario' in the 216m2 would require a minimum of 18 sprinklers in shop x, and the existing pumps were capable of providing the required flow in such a design. The iFire Report provided a performance solution based on 18 sprinklers: that is, the iFire engineered solution did not require additional sprinkler heads to be installed, and thus the pumps did not require upgrading.
Fasako further submitted that there was evidence before the Appeal Panel that Warren Smith & Partners, advised in November 2017 that the fire sprinkler system would comply if it could be certified in accordance with the 2017 Standard, which would require the system to provide density of discharge over the most unfavourable array of 18 sprinklers in the iFire Report. Mr Moon did not consider whether the original design of shop x complied with the 2017 Standard.
Fasasko submitted that as a result, while there was evidence that the fire safety system did not comply with the 1999 Standard at the commencement of the tenancy, there was no evidence that non-compliance with the 1999 Standard meant that the premises could not lawfully be occupied, as there was no evidence to address compliance of shop x in base build state with the 2017 Standard, or the second half of the Building Code of Australia equation, being a performance standard.
Fasako also noted that Mr Moon was very careful in his report not to conclude that the Building (or shop x) did not comply with the Building Code of Australia, or that it could not lawfully be occupied. He confined his conclusion to compliance with the 1999 Standard. Fasako contrasted this with Holus Bolus, in which evidence was given by two building surveyors. The second, who had expertise in fire upgrading programmes for hotels, was questioned about the effect of the defects identified by council and gave evidence that the building should not be used until the defect had been remedied: [22].
Fasako also referred to Advance Fitness, in which there was a dispute about whether a landlord was obliged to permit repairs to be carried out. As part of the dispute, the Court considered whether the repairs were structural. It had evidence in the form of several fire safety assessment reports, including one from the New South Wales Fire Brigade, which described the non-compliances of the building with relevant regulatory requirements or otherwise opined on parts of the building that were, or were not, capable of functioning to a level of fire safety: see [20], [26], [28], [39]-[40], [46], [49], and [50]-[51]. The Court evaluated these reports at [52], although no oral evidence was given from the authors. Such evidence was missing in this present matter.
The second finding Fasako sought to impugn was the Appeal Panel's conclusion at APD [127] that the Building was structurally unsound by reason of it having a defective fire safety system at the commencement of the tenancy. Fasako submitted that the Appeal Panel concluded the Building was structurally unsound because the fire safety system was defective and thus the structure might be impacted in the event of a fire, however it did not consider the present structural integrity of the Building: nor could it, as there was no evidence about structural integrity, nor was there any evidence (for example modelling) about how a hypothetical fire might impact the Building structure at all.
Fasako noted that the Appeal Panel referred at APD [129] to the need for the installation of "Imperforate baffles" in a fire engineered solution as an alternative to upgrading the pumps. In Fasako's submission this reveals confusion by the Appeal Panel between two different fire engineered solutions obtained in respect of the Building. The first was the DeFire Report, obtained and implemented in 2010, covering the whole of the Building. The second was the iFire Report, being the proposed fire engineered solution obtained by Fasako in 2017, after the purported termination of the Lease, to show that TianyD's fit out could in fact be conducted. The iFire Report was obtained to set out what would need to be done to enable TianyD to fit out the shop without upgrading the pumps. The reference to baffles at APD [129] appears to be a reference to the 2017 iFire Report.
Fasako submitted that the conclusion at APD [130], that imperforate baffles "must also have been a requirement of the building existing at and prior to the commencement of the Lease" was unsupported by any evidence and was unwarranted. Fasako noted that the iFire Report was prepared specifically in contemplation of TianyD's proposed fit-out, a central feature of which was full-height partitions creating compartments that each needed to have fire safety measures. The baffles were proposed in this context. In Fasako's submission the Appeal Panel conflated a fire engineered solution for a very specific tenant fit out with a fire engineered solution in relation to shop x in its base build state, prior to commencement of the Lease.
Fasako submitted that as can be seen from the iFire Report, the performance solution (including inserting baffles), allows the sprinkler system to be designed based on 18 sprinkler heads operating simultaneously. There was no evidence before the Appeal Panel addressing whether, in a base-build state, at the time of commencement of the Lease, a performance solution was available based on 18 sprinkler heads. There is no evidence as to whether such a performance solution would have required baffles. There was no evidence as to whether a performance solution for more than 18, but less than 36 sprinkler heads, was available, nor whether such a solution would have required baffles. Fasako submitted that as the iFire Report was fit-out specific, the question of whether baffles might be required at or prior to commencement of the Lease was never addressed. Accordingly, it was not open on the evidence for the Appeal Panel to make that finding at APD [130].
Fasako submitted that the Appeal Panel finding that they were required to carry out work in order to render the building structurally sound at the commencement of the Lease was not supported by any evidence as to the structural integrity of the Building. In Fasako's submission the finding at APD [131] is directly contrary to the evidence that a performance solution may have been available in respect of shop x, and, if such a performance solution was based on 18 sprinkler heads (as the iFire Report was), Mr Moon's evidence was that the pumps could supply the required flow and would not need to be upgraded.

[38]

TianyD's Submissions

TianyD's submissions on this ground commenced by reference to a number of the Appeal Panel's findings. First that the Appeal Panel acknowledged that there was uncertainty about the precise factual findings made by the Senior Member at first instance and that it was difficult to identify any findings from the Senior Member's reasons, before proceeding to find that the Senior Member had erred by failing to conclude that the fire safety system was non-compliant at the time the Lease commenced: APD [67].
TianyD also noted that the Appeal Panel stated at APD [121] that it seemed "clear" from the evidence set out by the Senior Member and from the DeFire Report referred to in the Senior Member's reasons, "that the adequacy of the sprinkler system as existed at commencement of the Lease, prior to the tenant carrying out any fit out (and therefore the fire safety system of the building) depended upon the pumps supplying the existing sprinkler array in the premises of 36 sprinklers with sufficient water to comply with the requirements of AS 2118.1-1999". Then at [122] the Appeal Panel found that "It was on this basis that the fire certificates have been issued".
TianyD further noted that critically, the Appeal Panel stated at APD [123] that it was also "clear … that the pumps supplying the system did not have sufficient flow rate to meet the requirements of AS 2118.1-1999". The finding that this was "clear" was based on "the evidence of Mr Moon to which the" Senior Member had referred, as to the insufficiency of the flow rate of the sprinkler pumps to meet the requirements of the 1999 Standard. That was clearly a reference to the reasons of the Senior Member at (at least) [66] (especially the reference to [1.4] and [6.2] to Mr Moon's report), [72]-[75] [145] and [150].
TianyD noted that at APD [124] the Appeal Panel accepted that "during the hearing of the appeal the landlord accepted in submissions that the pumps supplying water to the sprinkler system in the premises had an inadequate flow rate". That concession was rightly made.
TianyD also noted that at APD [125] the Appeal Panel found that the Premises and the Building did not meet fire safety requirements in the absence of a complying sprinkler system and that the iFire Report made "clear" that, first, the "current design", housing 36 sprinklers, made "the existing town's main supply and the pumps unsuitable"; and, secondly, "a performance solution could be employed using AS 2118.1-2017 in lieu of AS 2118.1-1999, without upgrading the existing pumps in the base building. That is, such a solution could prospectively be implemented". In other words, absent such a performance solution in accordance with the 2017 Standard, as things stood throughout the term of the Lease prior to termination, the sprinkler pumps were inadequate and non-compliant.
TianyD submitted that the Appeal Panel accepted that Fasako could comply with its obligations under cl 9.3 by adopting either route, however it is common ground that neither route was effected by Fasako prior to termination of the Lease, the Appeal Panel finding at APD [146] that "prior to the termination notice being issued there was a persistent failure of the [Lessor] to comply with its obligations under cl 9.3". On 26 October 2017, more than a month after termination of the Lease, iFire referred to what was only a "proposed" performance solution: APD [47(4)]. Even the iFire Report referred to a "proposed Performance Solution to comply with…BCA Performance Requirements".
TianyD also noted that the Appeal Panel found at APD [126] that "The fact fire certificates had been issued over the years does not displace" the conclusion recorded at APD [125], that "the only evidence being that the certificates relied on incorrect information on the 'block plan and pump plaque' and that the pumps, having been tested by Mr Moon, have an inadequate flow rate to supply the existing sprinkler array". The iFire report contained the incorrect block plan data about which Mr Moon gave evidence, being the subject of the unchallenged finding by the Appeal Panel at APD [126]. TianyD submitted that the performance solution proposed by iFire was therefore fundamentally flawed because its underlying assumptions were based on incorrect data.
TianyD further noted that at APD [127] the Appeal Panel found that "the fire safety system was defective at the commencement of the tenancy …" and at APD [130] the Appeal Panel found that "the existing pumps were unable to provide sufficient water flow to supply the 36 head sprinkler array originally existing in the premises upon which the fire safety system had been designed…". The Appeal Panel, relatedly, accepted at APD [142(2)] and [147], that the fire safety system was non-compliant even in respect of the base building.
TianyD made note that at APD [142] the Appeal Panel made extensive (unchallenged) findings as to the persistence by Fasako in the stance that it would not "ensure the base building standard for the [sprinkler system was] sufficient, supportive and able to [sustain use] by a tenancy and any respective general renovations undertaken"; the fact that negotiations on the subject matter continued for at least four months prior to the Termination Notice being served, even though Mr Hajek had identified as early as May/June 2017 that "the existing sprinkler pump can't supply enough water"; and (at APD [142(5)]) the fact that Fasako continued to maintain its position "that it would not upgrade the water pumps and that any shortcomings relating to the base building arose from the tenant's fit out requirements for which the [Lessor] was not responsible by reason of cl 7.8".
TianyD directed attention to the fact that only four findings by the Appeal Panel were challenged by Fasako, effectively on the basis that the alleged complete absence of any evidence for those findings gave rise to a question of law, permitting an appeal with leave. However, TianyD submitted for the following reasons these challenges should be rejected.
TianyD noted that Fasako submitted that there was no evidence to support the finding at APD [127] that "the fire safety system was defective at the commencement of the tenancy and that this deficiency meant that the Premises could not lawfully be occupied and the building was therefore structurally unsound". TianyD conceded that the latter part of the finding (that the Premises could not lawfully be occupied) was correct in substance because the inadequacy of the sprinkler pumps meant that TianyD could not carry out its fit-out, given that the development consent referred to in cl 7.2(a) of the Lease could not be obtained until the fire safety issue was rectified. However, it submitted that this latter part of the finding can be left to one side because it does not go directly to whether the structural condition of the Building was kept "sound" and, is irrelevant to cl 9.3.
All that matters in TianyD's submission is the first part of the finding - that the fire sprinkler system was deficient from the commencement of the Lease. That is the subject of an unchallenged finding by the Appeal Panel at APD [67], [121], [127], [131]. TianyD submitted that not only was that finding unchallenged, but it had a clear basis in the evidence of Mr Moon (which had the imprimatur of the Appeal Panel at APD [123]); and see also the concession by Fasako recorded at APD [124]. Furthermore the evidence referred to at [72] and [75] of the reasons of the Senior Member, which explicitly supported the finding at APD [67], [121], [127], and [131] that "the fire safety system was defective at the commencement of the tenancy".
TianyD characterised the core of the submissions by Fasako on this finding as being aimed at addressing the 'irrelevant question of a performance solution'. In TianyD's submission the fact that there was the possibility of (1) developing and (2) having approval granted for and (3) implementing a performance solution which would render the fire safety system compliant does not in the slightest undermine the finding by the Appeal Panel at APD [127].
Further, TianyD submitted that there are aspects of Fasako's submissions on this point which go beyond the "no evidentiary basis" submission and impermissibly quibble with the accuracy of the evidence given by Mr Moon (see for example LS [90]-[91] where the difference between the iFire Report and the Moon Report is discussed).
TianyD further submitted that Fasako misunderstands the construction of cl 9.3 accepted by the Appeal Panel at APD [103]-[104]. In TianyD's submission Fasako fails to appreciate that the central point in the reasoning, at APD [104], is that an adequate, compliant fire sprinkler system "protects" the structure of a building "from the impact of fire" and in that sense protects the "sound[ness]" of the building. It was quite irrelevant for the Appeal Panel to consider "the present structural integrity of the Building".
TianyD noted Fasako's submission that in discussing "imperforate baffles", the Appeal Panel confused two different possible performance solutions which had been put forward, however TianyD submitted that it is unnecessary to consider that submission because the possibility of future implementation of a performance solution (which had certainly not occurred by the time of termination of the Lease) is an irrelevant distraction.
TianyD finally submitted that there were three matters decided by the Appeal Panel which are unchallenged in this Court, which the Court ought to have regard to.
The first of these is at APD [106] where the Appeal Panel held that TianyD as the tenant of the Premises "itself [had] no obligation [to] keep the building in a sound structural condition". There is no appeal by Fasako from that aspect of the decision of the Appeal Panel.
The second is the Appeal Panel holding at APD [110]-[115] that clause 9.2 of the Lease was concerned with features of the Building that did not affect its structure in a manner to render the Building unsound or unable to be lawfully used. In other words, the Appeal Panel effectively held that there was no breach of cl 9.2 by Fasako.
The last is that the Appeal Panel held at APD [119] that cl 7.8 was only capable of making TianyD liable "for changes made necessary as a result of [its] fit out", whereas the inadequacy in the fire sprinkler system existed at the time of commencement of the Lease, prior to TianyD carrying out any fit-out. Fasako does not appeal from that part of the decision.

[39]

Fasako's submissions in reply

In reply Fasako noted that at APD [127], the Appeal Panel found that "the fire safety system was defective at the commencement of the tenancy and that this deficiency meant that the Premises could not lawfully be occupied and the building was therefore structurally unsound". Fasako further noted that TianyD conceded that the latter part of the finding was "correct in substance because the inadequacy of the sprinkler pumps meant that TianyD could not carry out its fit-out". However, in Fasako's submission, TianyD's submission conflates the carrying out of a fit-out with "lawful occupation". There was no evidence that the Premises could not be occupied in the absence of a fit-out, nor was there any expert evidence on lawful occupation, including from Mr Moon.
In Fasako's submission the Appeal Panel's finding at APD [127] as to lawful occupation went directly to the Appeal Panel's finding of whether the Building was kept sound: evident from the words "and the building was therefore structurally unsound" in APD [127]. However Fasako submitted the finding was hardly irrelevant to cl 9.3, but rather to the contrary it was directly material, particularly in light of the Appeal Panel's construction of cl 9.3 at APD [104] that the sprinkler system complying with the Australian Standards, which "permits lawful use of the building", is work necessary to keep the building in sound structural condition.
Fasako submitted that it is not correct to say, as TianyD submitted, that the finding that the fire sprinkler system was deficient from the commencement of the Lease is unchallenged. That finding is the subject of challenge articulated at LS [84]-[94].
Fasako made clear that it had took no issue with Mr Moon's view, but rather the point that is taken is that the Appeal Panel's findings are incorrect in light of Mr Moon's evidence.
Fasako further submitted that TianyD's submission advanced at DS [25] that it was "quite irrelevant" for the Appeal Panel to consider the present structural integrity of the Building cannot be seriously maintained. Fasako submitted that the present structural condition of the Building is patently material to any claim that Fasako had breached its covenant to keep the Building in a sound structural condition.
Further, in Fasako's submission there is no evidence which would support TianyD's submission at DS [25] that there is 'nothing' within a fire safety system which serves to protect a building from the impact of fire more than the adequacy of the flow rate to sprinkler pumps.
Fasako further submitted that TianyD conflated the DeFire Report and the iFire Report. The DeFire Report is plainly material to the finding, made in error, that the fire safety system was defective at the commencement of the tenancy. TianyD do not engage with that submission at all.
Finally, Fasako submitted that evidence given by Mr Moon is not misstated for two reasons. First, Mr Moon's evidence was that an 'idealised design scenario' for 216m2 (the area required to be assessed under AS 2118.1-1999) would require a minimum of 18 sprinklers, and that the existing pumps were capable of providing the required flow in such a design: see LS [90]-[91]. The iFire Report provided a performance solution based on 18 sprinklers. That is: the existing pumps were capable of providing the required flow for the performance solution proposed in the iFire Report; and second, the Tribunal at first instance found "Mr Moon accepted that a performance engineered solution either arranged by Fasako's consultants Warren Smith & Partners or any hypothetical performance solution could be a satisfactory solution". That finding was not disturbed by the Appeal Panel.

[41]

Appeal ground 5 - Repudiation and termination

The final ground of appeal is that the Appeal Panel erred in finding that Fasako's conduct in not upgrading the water pump was a significantly serious breach of an innominate term so as to entitle TianyD to terminate the Lease.
The Appeal Panel's decision at APD [132]-[151] is relevant and reads: "Was the tenant entitled to terminate the lease? [132] As recognised in the authorities to which we have referred, the obligation to maintain and the work required can vary significantly depending on the nature of the problem requiring rectification or repair. For example, in the context of a fire door with insufficient fire rating, its replacement may be a matter of significance to ensure fire safety, however the work required and cost associated may be relatively small. As such, in the absence of an express right of termination, the circumstances in which the tenant may be entitled terminate the lease for repudiation by reason of the landlord's non-compliance with cl 9.3 will depend on what has occurred. [133] The appellants relied on the decision in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115. At [44] the plurality said (citations omitted): The term repudiation is used in different senses. First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations. It may be termed renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it. (In this case, we are not concerned with the issues that arise where the alleged repudiation takes the form of asserting an erroneous interpretation of the contract. Nor are we concerned with questions of inability as distinct from unwillingness.) Secondly, it may refer to any breach of contract which justifies termination by the other party. It will be necessary to return to the matter of classifying such breaches. Campbell J said this was the sense in which he would use the word "repudiation" in his reasons. There may be cases where a failure to perform, even if not a breach of an essential term (as to which more will be said), manifests unwillingness or inability to perform in such circumstances that the other party is entitled to conclude that the contract will not be performed substantially according to its requirements. This overlapping between renunciation and failure of performance may appear conceptually untidy, but unwillingness or inability to perform a contract often is manifested most clearly by the conduct of a party when the time for performance arrives. In contractual renunciation, actions may speak louder than words. [134] The appellants say that the conduct of the parties to be evaluated in determining whether there had been repudiation by the landlord is at and prior to the issue of the termination notice. Consequently, the appellants submit that any post termination offers by the landlord are irrelevant. [135] We agree. A party who has repudiated a contract which is then terminated cannot avoid the termination by subsequently offering performance. [136] However, the issue remains whether the conduct of the landlord entitled the tenant to terminate in the present case. [137] The appellants submit that, up until service of the termination notice, the landlord persistently failed to meet its obligations to upgrade the pumps so as to bring in to compliance the existing sprinkler system. Further, at no time prior to service of the termination notice did the landlord offer to implement any fire engineered solution to overcome the existing deficiencies in the premises. This persistent failure was circumstances of the type referred to by the High Court in Koompahtoo which constituted repudiation by the landlord entitling the tenant to terminate the lease. [138] The appellants relied on the grounds in the termination notice, namely that the landlord refused to fulfil its obligations by "upgrading the building water pressure system" or by providing "a solution". The appellants said that the breach was sufficiently serious to justify termination having regard to the length of time over which requests were made and that the tenant would suffer substantial losses due to the delay of the landlord. [139] Relying on the possibility of a fire engineered solution and a finding of the Tribunal that the tenant was able to fit out the premises without an upgrade to the existing pumps, the landlord submitted: (1) that it could not be said the building was not in a structurally sound condition; and (2) any maintenance by the landlord of a position that the tenant was responsible for obtaining a performance solution and paying the costs of that solution was not repudiatory, Mr Moon accepting in evidence that any fit out of the premises would have required a performance solution. [140] Consequently, it was incumbent upon the tenant to carry out its fit out, an obligation acknowledged by Mr Zhu. [141] For the reasons above, we do not agree the building was structurally sound within the meaning of cl 9.3 of the lease. [142] Further, prior to the termination notice being served, there is evidence that: (1) the tenant requested the pumps to be upgraded and that the tenant was not prepared to incur the additional costs of a fire engineered solution as part of its fit out, estimated at $10,000; (2) the tenant required the landlord to meet its obligation "to ensure the base building standard for the [sprinkler system] is sufficient, supportive and able to [sustain] used by a tenancy and any respective general renovations undertaken" (3) the landlord made clear it would not upgrade the pumps; and (4) while the landlord's consultant, Mr Hajek, had offered to provide for consultancy services to the tenant to develop a fire engineered solution, there was no "guarantee that any proposed fire safety strategies would be accepted by the consent authority or the nominated PCA for peer review" on the basis that the costs of that work would be borne by the tenant. (5) negotiations on the subject matter had continued for at least 4 months prior to the termination notice being served, Mr Hajek having identified in May/June 2017 than "the existing sprinkler pump can't supply enough water", the landlord maintaining its position that it would not upgrade the water pumps and that any shortcomings relating to the base building arose from the tenant's fit out requirements for which the landlord was not responsible by reason of cl 7.8. [143] In Koompahtoo at [54] the plurality said: We add that recognition that, at the time a contract is entered into, it may not be possible to say that any breach of a particular term will entitle the other party to terminate, but that some breaches of the term may be serious enough to have that consequence, was taken up in Ankar. Breaches of this kind are sometimes described as "going to the root of the contract", a conclusory description that takes account of the nature of the contract and the relationship it creates, the nature of the term, the kind and degree of the breach, and the consequences of the breach for the other party. Since the corollary of a conclusion that there is no right of termination is likely to be that the party not in default is left to rely upon a right to damages, the adequacy of damages as a remedy may be a material factor in deciding whether the breach goes to the root of the contract. [144] As we said above, not all breaches of cl 9.3 would constitute conduct entitling a tenant to terminate the contract. However in this case they do. [145] Our reasons are as follows. [146] First, in our view, the facts prove that prior to the termination notice being issued there was a persistent failure of the landlord to comply with its obligations under cl 9.3. [147] Secondly, the cost to rectify the problems in the premises at the start of the lease may not have been significant, it being unclear what was the cost to replace the pumps and/or what was the extent of work required and its cost if a fire engineered solution was adopted for the existing premises. However, as part of carrying out its fit out, the tenant was not obliged to make good defects for which the landlord was responsible. Rather, it was entitled to have the landlord comply with its obligation to keep the building in sound structural condition and provide a base building complying with relevant fire standards. [148] Thirdly, the breach of cl 9.3, particularly in the context of fire safety, is significant. [149] Fourthly, as any works carried out to make the building comply may have an impact on the premises as a whole and other occupants of the building, even if reduced demand is placed on the existing pumps in any reconfigured fire sprinkler situation arising from the fit out. The requirement for the tenant to disclose any existing non-compliance issues in respect of the building to the local approval authority and the potential for a tenant to be responsible for any works arising therefrom make the availability of damages for breach an inadequate remedy in the present circumstances. [150] It follows that while we accept cl 9.3 is an intermediate or innominate term, in our view the breach was sufficiently serious to justify the termination notice. The termination notice was validly issued. The lease was therefore terminated on 13 September 2017. [151] Consequently, the Tribunal was in error in determining the lease had not been validly terminated in September 2017 and the orders made 17 October 2019 should be set aside."

[42]

Fasako's Submissions

In written submissions Fasako noted that before the Appeal Panel, TianyD contended that Fasako's breach of cl 9.3 of the Lease had become repudiatory by the date of the Termination Notice, giving TianyD the right to accept the repudiation and terminate the Lease. However, Fasako submitted that this was not a matter argued before the Tribunal at first instance, and that rather it arose for the first time before the Appeal Panel, in Grounds 4 and 5 of TianyD's appeal.
Fasako further submitted that the Appeal Panel erred in concluding that Fasako's breach of cl 9.3 was a sufficiently serious breach of an innominate term to justify termination for 5 reasons.
The first reason for the Appeal Panel's error in Fasako's submission was its conclusion that Fasako had persistently failed to comply with its obligations under cl 9.3 of the Lease: APD [146]. As the Appeal Panel erred at law in its construction of cl 9.3 of the Lease, the finding at APD [146] was consequently in error.
The second reason was that at APD [147], the Appeal Panel overlooked the evidence as to the approximate costs of upgrading the pumps or costs of obtaining a fire engineered solution. Fasako noted the following. In July 2017, the Building manager estimated the costs of upgrading the pumps to be in the order of $100,000. In August 2017, TianyD's project manager estimated the costs of obtaining a fire engineered solution to be $10,000. There was evidence as to what the iFire Report had in fact cost: invoices from iFire, and for the peer reviews undertaken by DeFire and Red Fire were in evidence before the Appeal Panel. Where there is more than one way of properly satisfying an obligation, the least expensive option can be taken if it satisfies the obligation: George Fischer v Multi Design [1998] 61 Con LR 85.
Third, there was no evidence to support the Appeal Panel's conclusion at APD [148] that the breach of cl 9.3 in the context of fire safety was significant. Insofar as that finding relied on the erroneous conclusion that shop x was unable to be 'lawfully used', that conclusion has been addressed. In Fasako's submission in respect of the fire safety context, there was no evidence of the actual status of the structural integrity of the Building, or the likelihood of impact of fire in light of the suite of fire safety measures in place in the Building. The Appeal Panel also failed to give due regard to the terms of the Lease. Clause 9.3 of the Lease was not an essential term.
Fourth, the Appeal Panel concluded that damages were an inadequate remedy based on the hypothesis that any works carried out may impact on the premises as a whole and on other occupants of the Building: APD [149]. In Fasako's submission there was no evidence for this finding. Indeed there was evidence to the contrary: the iFire Report prepared specifically for TianyD's proposed fit out had been peer reviewed by DeFire. DeFire concluded that the proposed works would have no impact on the DeFire Report.
Finally, the Appeal Panel failed to have regard to the fact that TianyD could have obtained a fire engineered solution and sought to recover the costs of doing so from Fasako, as landlord, by a claim in damages.
In Fasako's submission, on the basis of those 5 reasons, the Appeal Panel constructed a scenario and arrived at a range of unsupported conclusions that lead to findings never contended for by TianyD before the Tribunal. Accordingly, Fasako submitted that if its failure to upgrade the pumps was a breach of cl 9.3, it was not a sufficiently serious breach to justify termination of the Lease.

[43]

TianyD's submissions

TianyD noted that the Appeal Panel dealt with the repudiation issue at APD [132]-[153]. In TianyD's submission the Appeal Panel was correct in finding at APD [146]-[148], [150] that Fasako had, particularly given the unchallenged findings in APD [142], repudiated its obligations under the Lease. As to [149], the availability and adequacy of damages as a remedy has never been regarded as relevant to whether a party in breach of contract is to be regarded as having repudiated the contract.
TianyD submitted that this was an evaluative finding of fact, which was open on the evidence and on the proper construction of the Lease. As such, it does not give rise to any "question of law" within the meaning of s 83 of the NCAT Act and it is therefore not open to Fasako to appeal to this Court in respect of that issue.
In TianyD's submission it was well open on the evidence for the Appeal Panel to find that Fasako was guilty of repudiation having regard to APD [142], and to the evidence referred to by the Senior Member at [87].
TianyD further submitted that in any event, although, absent any right of appeal, the Court need not deal with Fasako's submissions as the finding of repudiation was right: 1. as the Appeal Panel found, the Premises were not compliant with fire safety standards right from the outset of the Lease. APD [67], [121], [127], [131]; 2. the issue was explicitly identified by Mr Hajek by, at latest, 18 May 2017. That was four months prior to termination; 3. by the date of termination, 13 September 2017, Fasako had done nothing of substance to comply with cl 9.3 by curing the deficiency; 4. the practical reality was that, as at 13 September 2017, TianyD inevitably faced a period of many more months before the problem was dealt with, during which period it would not have been able to engage in any trading at the newly leased premises. 5. even by 20 November 2017 (well after termination) all Fasako had done was to come up with a possible solution in the iFire report which, in fact, was fundamentally flawed; 6. even apart from that fundamental flaw, much remained to happen. There was a "high-level" review by Defire on 4 December 2017; and a "review" by Red Fire on 6 December 2017; 7. that very lengthy period constituted a huge delay by comparison, the fit-out of TianyD's Chatswood outlet took only about three months to complete; 8. this must be viewed in the context of the fact that TianyD had publicly announced its Sydney opening in mid 2017; reasons of Senior Member at [18]); 9. TianyD continued to press for action: see the correspondence quoted in the reasons of the Senior Member at [36]-[37]; 10. perhaps most significantly, Fasako persistently contended, that it fell to TianyD to fix and pay for the problem, i.e., it was asserting that it would only fulfil the Lease in a manner which was quite inconsistent with its contractual obligations. See, e.g.: 1. Zhu Affidavit (30 June 2017) at [66]: TianyD is told by Fasako "It is not our problem"; 2. Hasham Affidavit (30 June 2017) at [15]: TianyD is told by Fasako "Any shortcomings you are experiencing will need to be resolved by you. There is no way the Landlord is going to change the pump - this would cost over $100,000"; 3. email from a representative of Fasako to TianyD on 10 July 2017: "Any shortcomings relating to any base building system(s) due to the specific tenant fit out requirements is not the responsibility of the Owner to rectify. This is a tenant specific issue relating to their specific fit out requirements"; 4. letter of 27 July 2017 from Hunt & Hunt the solicitors for Fasako at [1], responding to a letter of 29 June 2017 from the solicitors for TianyD: "The base building standard for fire services for the building is compliant as is evident from the issue of an occupation certificate for the building". That reply was sent after nearly a month and it is obvious that it was sent without Fasako having not carried out any testing to ensure that this was the correct position (the Appeal Panel in effect found that it was not the correct position); 5. Zhu Affidavit (7 August 2017) at [76] - TianyD was told by a representative of Fasako that it should modify its design; 6. email from a representative of Fasako to TianyD on 21 August 2017 - the representative told TianyD that Fasako recommended that TianyD explore the option of a fire engineered solution; 1. Mr Chan, the COO of Fasako, agreed in cross-examination (T46.33-47.6) that the response given by Fasako to TianyD in respect of the issue concerning the Sprinkler Pumps was that "if it were to be replaced, [it] was to be funded by TianyD" and that that position was maintained by Fasako "throughout", with Fasako never offering to pay for the replacement Sprinkler Pumps and never offering to contribute towards the costs of replacement (and see the characterisation by the Senior Member of these communications between the parties in his reasons at [87].
TianyD submitted that it is no answer, by a party in breach of contract, to a claim that that party has repudiated the contract to say that the innocent party should have in effect performed the obligation itself and then claimed damages. There was either a repudiation or there was not.
In TianyD's, submission this conduct fell squarely within the scope of the first proposition described in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [44] ("Koompahtoo"). It was plainly repudiatory.

[44]

Resolution

Once again, Fasako submitted that the Appeal Panel erred in law in its construction of cl 9.3 of the Lease. Both parties' submissions are repetitive and I have already addressed most of them under the earlier grounds of appeal. I need not repeat them here. Fasako submitted that the Appeal Panel was in error when it stated "in our view, the facts prove that prior to the Termination Notice being issued there was a persistent failure of the landlord to comply with its obligations under cl 9.3" [APD 146]. In my view, there was factual evidence referred to by the Appeal Panel to support the findings that prior to the Termination Notice being issued there was a persistent failure of Fasako to comply with its obligations under cl 9.3. Particularly as at the commencement of the Lease, the sprinklers and water pumps were non-compliant.
TianyD was not obliged to make good defects for which Fasako was responsible The breach of cl 9.3 particularly in the context of fire safety is significant and as any works carried out to make the building comply may have an impact on the premises as a whole and other occupants of the building even if reduced demand is placed on the existing pumps in any reconfigured fire sprinkler situation arising from the fit out. The Appeal Panel stated 'may have an impact' which is perhaps an understatement but I have to view the appeal on the Appeal Panel's reasons. The requirement for the tenant to disclose any existing non-compliance issues in respect of the building to the local approval authority and the potential for a tenant to be responsible for any works arising therefrom make the availability of damages for breach an inadequate remedy in the present circumstances.
After making these findings, the Appeal Panel applied the principles set out in Koompahtoo and took the view that damages was an inadequate remedy and the breach of cl 9.3 was sufficiently serious to justify the Termination Notice.
In my view it cannot be said that Fasako's arguments in relation to Appeal Ground (5) are more than reasonably arguable. Hence leave to appeal is refused in relation to this ground.
As leave to appeal is refused on each ground, it is not necessary to deal with TianyD's Notice of Contention.

Fasako Pty Ltd v TianyD Beauty & Hairdressing Australia Pty Ltd

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Judgment (48 paragraphs)

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Legislation Cited (6)

Cases Cited (31)

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