Appellants FRANCINE IVY HODGINS AND ELIZABETH ANN HUXLEY:

Counsel: MR N L STRAWBRIDGE - Solicitors: MINTER ELLISON

Respondents DUKE NOMINEES PTY LTD AND DUKE WEST COFFEE PALACE PTY LTD:

Counsel: MR R D ROSS-SMITH - Solicitors: KELLY & CO

Judgment No. [2000] SASC 153

On Appeal from DISTRICT COURT (HIS HONOUR JUDGE BRIGHT)

[2000] SASC 153

1. DUGGAN J. The facts of this matter are set out in the judgment of Williams J.

2. It was pleaded in the amended defence that the plaintiffs as landlords had given approval for a sub-lease. It was further pleaded that the approval acknowledged that the business of a café could be conducted on the premises and that Mr and Mrs Kerkez, the proprietors of Marigold Gardens had been specifically approved as tenants.

3. The learned trial judge rejected the argument that Mr Angelopoulos, on behalf of the plaintiffs, had consented to a change of use to include a café. He concluded that the conversation between Ms Huxley and Mr Angelopoulos on 20 November 1996 when Mr Angelopoulos said "café okay" was no more than a preliminary discussion. It is implied in his Honour's findings that there was no intention, in making the comment, to change the terms of the lease or to bind the plaintiffs in any way. He pointed out that the identity and attributes of the sub-tenants remained an important consideration at the time of this conversation. The trial judge further concluded that the conversation between Mrs Kerkez and Mr Angelopoulos which took place on 11 December 1996 was "encouraging" but added nothing to the situation in that "it was still no more than part of a negotiation".

4. I can see no reason to interfere with this assessment by the trial judge. It is important to have regard to the circumstances of the conversation between Ms Huxley and Mr Angelopoulos. Ms Huxley signed a contract for the purchase of the new shop on 20 November before she spoke to Mr Angelopoulos. She asked her solicitor to hold the contract until she had spoken to Mr Angelopoulos. However she did not approach the landlord on the basis that she was anticipating that she would have to look for a new tenant. Instead, the suggestion she put to him was that he accept three months' rental in advance upon surrender of the lease. Mr Angelopoulos refused and said that she would have to find him a tenant of whom he would approve. He said he would not approve a restaurant and he was asked about a café. He then said "café okay".

5. Shortly after this conversation Ms Huxley gave instructions to her solicitors to forward the contract of sale for the new premises. However, she was not asked what, if any, effect the reference to "café okay" had on her decision to send the contract forward. In the absence of any further evidence no inference can be drawn that the reply of Mr Angelopoulos influenced her to a substantial or significant extent to continue with the contract for the purchase of the other premises. It was not as though she had someone in mind who might want to conduct a café business on the premises. And of course she was not aware of the interest of Mr and Mrs Kerkez until some time later when she commenced her endeavours to find a new tenant.

6. Ms Huxley had this to say about her state of mind after her conversation with Mr Angelopoulos:

"I felt that the meeting had been positive, that I felt that Mr Angelopoulos hadn't said that he would not approve anybody with a change of the nature of the business, so I discussed with Francine Hodgins my business partner, that I felt that it was positive, that we could put 'to let' signs up in the window, that we could instruct Floreani Coates to release the documents and that I went basically full speed ahead in negotiating finance and things to purchase the building that we subsequently moved to."

7. In these circumstances the only obvious effect on Ms Huxley's approach which was produced by the comment of Mr Angelopoulos was that a person intending to operate a café could be regarded as someone Mr Angelopoulos would approve as a tenant.

8. In my view more would be needed before it could be said that an estoppel had arisen. This is particularly apparent when regard is had to the injurious consequence of reliance which is claimed in this case, namely, the action of the defendants in vacating the premises. Of course it was pleaded that there was more than the conversation of 20 November. It was claimed that the defendants had also acted upon what was said by Mr Angelopoulos in his conversation with Mrs Kerkez. However the evidence of this conversation does not support any conduct or representation such as might give rise to or contribute to an estoppel. The evidence goes no further than indicating that Mr Angelopoulos did not dismiss out of hand the proposal put by Mrs Kerkez.

9. Mrs Kerkez said in evidence that when she discussed the matter with Mr Angelopoulos on 11 December she explained the nature of her present business and that the proposed business at the plaintiff's premises would primarily be a gift shop but that food would also be sold. She said that Mr Angelopoulos told her she would have to get council approval. She was asked for her understanding of the position at the end of the conversation and she replied:

"I was very happy. He had at no stage indicated to me that there was no way this could go ahead and I was very excited and that's when we started our serious planning."

The tentative nature of both conversations is apparent from the extracts quoted above and the evidence quoted by Williams J in his judgment.

10. There is no doubt that Mr Angelopoulos' initial view was that a café would be appropriate. However there was no potential tenant to take over the premises at that stage. Mr Angelopoulos was giving an indication of the type of business he might approve. The discussions up to this point could not be construed as an approval for a change in the permitted use of the premises. Nor could they form the basis of an estoppel available as a defence to the defendants' claim.

11. I have commented on the fact that the defendants' case was not put on the basis that the conversation of 20 November 1996 alone constituted a representation sufficient to found an estoppel. The pleadings which allege an estoppel are somewhat ambiguous, but the effect of them is that the defendants rely on the conversations of 20 November 1996 and 11 December 1996 as together constituting the representations on which they relied. It was argued before the trial judge and on appeal that the detrimental action taken by the defendants in reliance on these representations consisted of moving out of the premises in the expectation that a sub-lease to Mr and Mrs Kerkez would be approved. It is important to observe that the defendants relied on the cumulative effect of the representations in the two conversations as constituting the basis for an estoppel. In my view the allegation as to the second representation to Mrs Kerkez was essential to the defendants' case. The earlier conversation was, on their case, relevant but the consequence put forward as a detriment, namely, the decision of the defendants to vacate the premises, was not triggered until the conversation between Mr Angelopoulos and Mrs Kerkez on 11 December.

12. In considering the application to the present case of the principles of equitable estoppel summarised by Brennan J in Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 it is important to pay particular regard to the requirements of representation and consequent reliance.

13. I have set out the evidence of Ms Huxley as to her state of mind after her conversation with Mr Angelopoulos on 20 November. She described her feelings as positive and she thought it was appropriate to continue with her plans, but it does not appear that she viewed the "consent" of Mr Angelopoulos as anything more than an intimation of what he might be prepared to do. Ms Huxley then summarised her reaction to the information she had received about the conversation between Mr Angelopoulos and Mrs Kerkez on 11 December:

"Q When do you say Mr Angelopoulos gave consent for a sub-tenant of the premises at 144 King William Road, what day? A I took Mr Angelopoulos's consent for a food tenant or a café or any other business or the go ahead for a sub-tenant from the meeting on 20 November. He said to me 'you find me a tenant' and I proceeded on those instructions and the subsequent phone calls on 10 December and then the introduction of Marigold Garden and their subsequent phone calls the day after, every indication had been given that provided we got council approval, that they obtained council approval for the nature of their business, it was implied, although I agree it was not put in writing, but we all proceeded on the basis that with council approval they were acceptable tenants. Q I want to ask you that same question again. What do you say on what day did Mr Angelopoulos consent to the sub-tenant for the premises at 144 King William Road? A Can I refer to my notes again? If I [sic] phone call on 10 December at 4.15 when I had introduced by phone Marigold Garden to Mr Angelopoulos where I stated they were in the process of getting council approval and the type of business they ran. When Mr Angelopoulos did not immediately say no they will not be acceptable tenants, we moved ahead on the basis of that. That was, I assumed that the fact that he said he did not say he would not consent, we interpreted that he was accepting of them. Q Your case is this, if I understand you, that the consent to Marigold Gardens was given by the landlord through Mr Angelopoulos on 10 December 1996, right? A Yes. Q That consent comprised of Mr Angelopoulos not saying that Marigold Gardens was unacceptable? A Yes. Q It is no more than that? A No."

14. The defendants' pleaded case was that a series of events took place which led them to vacate the premises. The conversation between Mrs Kerkez and Mr Angelopoulos on 11 December was a necessary step in establishing that case. It is my view that no relevant representation arises from this conversation. In addition to the views I have already expressed about the difficulties involved in relying on the conversation of 20 November as support for finding that there was an estoppel, I would add that, in my view, the conduct of the case for the defendant renders it inappropriate for this court to find that an estoppel was made out on the basis of that conversation alone.

15. In my view the learned trial judge was correct in reaching the conclusion that the defendants did not establish any basis for preventing the plaintiffs from asserting their rights under the lease.

16. I agree with the views expressed by Bleby J on the issue of damages.

17. In my view the appeal should be allowed, the award of damages set aside and the matter remitted to the District Court for assessment of damages in accordance with the reasons given by Bleby J.

18. WILLIAMS J. This is an appeal by the defendants in a civil action against a final judgment of the District Court dated 2 February 1999.

19. The issue concerns the liability of the defendants to their former landlord, the plaintiffs, for rent after the defendants had moved their business from 144A King William Road Hyde Park to other premises before the term of their lease had expired. The defendants arranged their move following the landlord's intimation that he would allow a change in the permitted use of the premises if the defendants were to sublet. The only use permitted by the terms of the lease was a "Beauty Salon".

20. The plaintiffs' representative was Mr Angelopoulos. In the course of planning their move, the defendants sought information from Mr Angelopoulos regarding their proposal to sublet. In answer to their preliminary enquiry as to a change in the type of permitted use, Mr Angelopoulos replied "Café okay".

21. Although the defendants put forward new tenants who wished to open a café type business, Mr Angelopoulos changed his mind before receiving a formal application for consent to sub-lease to particular persons. At this point Mr Angelopoulos adopted a new policy of "no food" in respect of any sub-tenant's business. The defendants in the meantime had committed themselves to new premises and they vacated 144A. The plaintiffs eventually re-entered and found a new tenant but at a lower rent. In the present proceedings the plaintiffs seek compensation for this loss of rent. They also seek unpaid rent for a period before re-entry when the parties were in dispute.

(a) whether an estoppel by conduct arises from the intimation given by Mr Angelopoulos on behalf of the plaintiffs

(b) the extent of the plaintiffs' right to compensation after exercising a right of re-entry.

The defendants contend that due to Mr Angelopoulos' conduct, they are relieved from responsibility in respect of the claim. Alternatively, they make a number of complaints as to the manner in which the trial Judge calculated compensation.

2. The trial Judge's assessment of loss and the facts justifying the award

By lease dated 21 September 1995 the defendants rented the shop at 144A King William Road Hyde Park for 5 years. The lease began on 4 September 1995 at a rent of $39860.04 per annum payable monthly in advance on the first day of the month. There was a ten per cent discount for prompt payment (ie within two days of the due date). The only use of the premises permitted by the lease was as a "Beauty Salon" (see cl 2.3.1). The lease was subject to the Retail Shop Leases Act 1995 ("the Act").

The defendants moved their business in January 1997 to 116 King William Road Goodwood. They paid rent to 3 March 1997 but declined to pay after that on the footing that a suitable sub-tenant was available. On 21 May 1997 the plaintiffs formally re-entered and eventually re-leased the premises for use by a furniture vendor, Casa di Toscana Pty Ltd, at the reduced rent of $31200 per annum. The landlord undertook some refurbishment and spent $6705.89 as an inducement to the furniture vendor to accept the new tenancy.

The trial Judge allowed a claim for unpaid rent of $23025.99 from 4 March 1997 until the new tenant commenced paying rent on 1 October 1997, together with interest of $2003.26 in terms of the lease. His Honour also allowed a claim for the difference in the rent payable by the defendants and the furniture vendor for the period from 1 October 1997 to 3 February 2000, in all $35881.70. In making this calculation the trial Judge did not allow the prompt payment discount of ten per cent to which the defendants were entitled had they continued to discharge their rent obligation promptly.

The plaintiffs' claim was expressed to be for rent from 4 March 1997 until the lease expired, interest on the unpaid rent up to 1 October 1997 and $6705.89 miscellaneous expenses. In his reasons the trial Judge noted that "unless the defendants can avoid the provisions of the lease, they are liable for substantial damages." Although it is not entirely clear, it seems that the Judge has adopted the approach taken in the plaintiffs' claim and has treated them as being entitled to recover rent from the defendants subject to an offset of the rent payable by the furniture vendor.

At the core of this dispute is a question as to the legal effect of an intimation given by Mr Angelopoulos to the defendants on 20 November 1996.

By appointment the defendant, Ms Huxley, met Mr Angelopoulos and put him on notice of the defendants' wish to move out of the leased premises for the purpose of pursuing another business opportunity. They discussed the basis on which the defendants might sublet and the procedure for securing the plaintiffs' approval. Mr Angelopoulos required the defendants "to find a suitable tenant in accordance with the provisions of the existing lease".

The following is Ms Huxley's evidence at trial describing the critical part of this conversation.

"A. ...I said to Mr Angelopoulos that we had another opportunity for our business and it would mean moving out of 144 King William Road, and that would he accept three months rental in advance in surrender of the lease. He said 'No', that there were subletting provisions within the lease and that if we wanted to vacate the premises that we could find a tenant and he said basically 'You find me a tenant.'

Q. Was there any discussion of what type of tenant might or might or might (sic) not be acceptable.

A. Yes, there was. He went on to say 'You find me a tenant but I must approve' and following that comment I then pursued it and said 'Well what would you not approve of, so that we don't waste people's time?' and he said 'Well I would not approve a restaurant' He said 'Council would not approve a restaurant,' and I said to him, 'Well what about a café?' and he said 'Café okay,' and I repeated it and said 'A café is okay?' and he repeated it back to me and said 'Yes, café okay.'

Q. Was there any discussion about the adjacent tenancies, that is on either side of 144A.

A. That either tenant adjoining our shop, that was our shop at that stage, could expand, that that would be acceptable, but he would not approve of someone in direct opposition to a neighbouring tenant. Say he (sic) said a dress shop or a shoe shop could not - he would not approve of them."

Q. On one side of you was the - that is one side of 144A was the shoe business Shouz.

Q. Who was to take steps to find a suitable tenant, was it you or was Mr. Angelopoulos going to deal with that issue.

A. No, he did make it clear that he wanted us to find him a tenant under the subletting provisions of the lease."

The defendants' evidence was uncontradicted and generally accepted by the trial Judge.

Mr Angelopoulos did not give evidence at trial although in a letter dated 21 February 1997 the plaintiffs' solicitors joined issue with the defendants' version of the facts. In particular the plaintiffs denied that Mr Angelopoulos had stated that he had no objection to a sublease for the purposes of a café. An extract from this letter is set out below.

The trial Judge found that a conversation did occur as recited by Ms Huxley.

In the course of this meeting Ms Huxley also gave verbal notice to Mr Angelopoulos of the termination of an informal tenancy of a room at 124 King William Road which the defendants rented for a purpose associated with their business. The defendants vacated in accordance with that notice and no question arises in that respect.

On 20 November 1996, prior to the meeting with Mr Angelopoulos but on the same day, Ms Huxley went to her solicitor's office and signed a contract to purchase premises at 116 King William Road. She instructed her solicitor not to hand the document over to the vendor for the time being. Following the meeting with Mr Angelopoulos she informed her solicitor to proceed with the purchase and pay the deposit. The contract was settled on 20 December 1996. The defendants moved into these premises in January 1997 and the premises at No.144A remained unoccupied until 1 October 1997.

In late November 1996 Ms Huxley informed Mr Angelopoulos of the progress of her search for an alternative tenant after she had erected a sign "To let" on the leased premises. Ms Huxley's evidence is:

"I informed Mr Angelopoulos that Marigold Garden were very interested in the shop. I discussed with him that they'd been in business for more than 20 years and were currently operating in Rundle Street, that they were in the process of contacting council to seek approval to see if the council would approve their business operations in that particular shop. I asked Mr Angelopoulos again if he needed any confirmation from me in writing. He said 'No. If they want to set up an appointment to meet me ring and arrange it.' I just ended the conversation by saying 'It's a courtesy call to keep informed as per our previous discussions.' I agreed to keep him informed on any further interest in letting the shop."

On 11 December Ms Kerkez of Marigold Garden spoke to Mr Angelopoulos. Subject to council approval of the new business he offered no objection. Mr and Ms Kerkez then made arrangements to vacate their existing business premises. At their request Ms Huxley took down the "To let" sign.

The defendants vacated No.144A on about 12 January 1997 and on 15 January 1997 telephoned Mr Angelopoulos to report on progress. Ms Huxley's evidence was as follows:

"A. I'm referring to my notes. It was Wednesday 15 January 1997, phone Mr Angelopoulos. Informed him Gaye and Tom Kerkez from Marigold Garden had verbal approval from council and would like to meet with him re sub-letting 144A King William Road.

Q. What was Mr Angelopoulos' response, if any, to that.

A. My notes say Mr Angelopoulos was in an aggressive mood. He said he was not interested in meeting with them until they had written council approval. I asked him if I could get Gaye and Tom to ring him to set up a meeting. He denied memory of speaking to them before Christmas, said he had spoken to several people about the shop, couldn't remember who was who. I reminded him that they had Marigold Garden in Rundle Street, it had been in business for more than 20 years. He became agitated when I said they did vegetarian take-away food and giftware and didn't want to continue the discussion until we had written council approval."

According to the trial Judge it was probably on this same day that Ms Kerkez, a potential sub-tenant, had a conversation with Mr Angelopoulos when he became agitated. On 20 January 1997 or thereabouts Mr Kerkez reported to Mr Angelopoulos that council approval had been obtained. Mr Angelopoulos responded by saying "No food - no food" and was unmovable in his attitude.

After that Mr and Ms Kerkez recognised the impossibility of dealing with Mr Angelopoulos. They withdrew from negotiations and set about salvaging their position at an alternative site on Unley Road. The defendants then sought to introduce other potential sub-tenants who were also treated as unsuitable by Mr Angelopoulos on the grounds that they sold food. By letter dated 13 February 1997 the defendants' solicitors reminded the plaintiffs that "Mr Angelopoulos Snr has indicated that he has no objection to a café business as a prospective sub-tenant." The letter then alleged that the plaintiffs were acting unreasonably in withholding consent to a sub-lease to Mr and Ms Kerkez. However, in this letter the defendants sought approval to sub-lease to Mr Stain and Mr Martin, trading as "The Gourmet Bakehouse", whose credentials were particularised together with an offer to supply further details if required. Nothing to the discredit of proposed sub-leases has been put forward by the plaintiffs. The letter also noted that the defendants were having discussions with other interested parties, the inference being that the defendants were foreshadowing putting forward further nominations for a subtenancy.

On 21 February 1997 the plaintiffs' solicitors wrote to the defendants' solicitors. Relevant extracts from the letter are as follows:

"Our client instructs us that at no time did he state to your client that he has no objection to a cafe business subleasing the abovementioned premises.

On the contrary, Mr Angelopoulos objects to any type of food business subleasing this premises as he is the landlord of a number of food businesses on King William Road...

Mr Angelopoulos has given an undertaking to those tenants that he will not further lease any of his other premises as food businesses.

In relation to Mr and Mrs Kerkel(sic), during the initial discussions Mr Angelopoulos was not aware that Mr and Mrs Kerkel(sic) intended to establish a food business. We do not feel that our client acted unreasonably in withholding his consent. Furthermore, clause 43(1)(a) of the lease states that:

"The lessor is entitled to withhold consent to the assignment of a retail shop lease in any of the following circumstances (and is not entitled to withhold that consent in any other circumstances)"

(a) if the proposed assignee proposes to change the use to which the shop is put:".

In relation to your current proposed subtenant, "The Gourmet Bakehouse", our client again does not consent to subleasing the premises to these tenants for the abovementioned reasons."

The reference in this letter to "clause 43(1)(a) of the lease" is a reference to s 43(1)(a) of the Act which, in the form of a schedule, is expressly incorporated into the lease but which would apply in any event by operation of law.

In my view the outcome of the appeal turns on the effect of this letter together with a further letter in a similar vein written by the plaintiff's solicitors on 20 May 1997.

By letter dated 6 March 1997 the defendants nominated Mr P Richichi as a proposed subtenant to operate a café, coffee bar and licensed restaurant.

By letter dated 22 April 1997 the defendants nominated Mr V Larosa as a proposed subtenant to operate a business of selling take away fine foods such as pastries, breads, coffee beans and tea leaves. These nominations were rejected by the plaintiffs on the ground that Mr Angelopoulos had "repeatedly indicated that [he] objects to the subleasing of the premises for the operation of any food business" (see letter dated 24 April 1997).

On 14 May 1997 the defendants' solicitor wrote as follows:

"...our clients have always relied upon the statement made by Mr Anglopoulos(sic) Senior that he had no objection to the premises being sub let for the purposes of a café.

Should your client wish to re-enter the premises today, our client has no objection to making proper arrangements for the keys to be handed over."

On 20 May 1997 the plaintiffs' solicitors wrote:

"We again state that no representations were ever made to your clients or to anyone else in relation to our client consenting to the establishment of a food business.

Our client therefore intends to re-enter the premises and commence action against your clients for arrears in rent, breach of covenant and damages."

Notice of re-entry based on the alleged default in rent payment was given on 21 May 1997. The respective positions of the parties is as set out in the correspondence of 14 and 20 May 1997. In essence the defendants were continuing to assert a right to sublease for the purposes of a café and the plaintiffs denied that right. The delivery of the keys to the premises was not an issue.

The finding of the trial Judge is that Mr Angelopoulos changed his mind after his intimation to Ms Huxley on 20 November 1996 that "café okay". The trial Judge expressed himself as follows:

"The defendants' case is based on Ms Huxley's conversation with Mr Angelopoulos at his deli on 20 November 1996, in which he said "Café okay". I cannot think that Mr Angelopoulos thought that he was having more than a preliminary discussion. However encouraging he may have been, it was not a blanket approval of any tenant whose business included a café. Obviously both Mr Angelopoulos and Ms Huxley must have anticipated that consideration to other attributes of a sub tenant, such as financial and business background would be necessary. Insofar as the defendant's case depends on the pleading that approval was actually given at that meeting, I find that it was not.

I have no reason to doubt that Mr and Mrs Kerkez have impeccable backgrounds and references - but they were never put to Mr Angelopoulos. The defendants and Mr and Mrs Kerkez all operated in expectation that approval would be given, but it never was and was never in any formal way sought. Such a proposal would have involved not only approval of Mr and Mrs Kerkez as sub tenants, but also consent to a change of use from beauty salon to one appropriate to the Kerkez's intention. No such consent was sought or given.

In my opinion, the conversation on 20 November between Ms Huxley and Mr Angelopoulos amounted to no more than a preliminary negotiation, not intended by either to give rise to any binding arrangement. Insofar as, though not pleaded, the later encouraging conversation between Mrs Kerkez and Mr Angelopoulos added to the situation, it was still no more than part of a negotiation. No deal was ever concluded. The defendants moved out in breach of the terms of their lease."

"In these circumstances, I can see no basis, whether by estoppel, by misleading conduct, or by misrepresentation which would prevent the plaintiff from asserting its rights strictly in accordance with the terms of the lease. I repeat that I do not think that the conversation on 20 November was intended or thought by either Ms Huxley or by Mr Angelopoulos to give rise to any legal obligation. I do not think it was reasonable for her to expect to rely on that as a basis for moving out. She knew she would remain liable for the rent and simply took the risk that she might not, though she hoped she would, find a suitable sub tenant. The lease provides for a number of formal steps to be taken to obtain approval for a sub tenant. Those steps were not taken."

The conclusion of the trial Judge does not bring to account one important fact. Although the lease contains a detailed procedure relating to subletting, the lease makes no provision for any alteration to the permitted use or to the negative covenant which prohibits any use other than the permitted use. The lessor was obliged by law to deal promptly and reasonably with an application to sublet when the procedure provided in the lease and in the Act was followed. The lessor has no obligation under the lease to consider or to consent to a change of use. Nevertheless on 20 November 1996 Mr Angelopoulos gave an assurance which, if it is enforceable, was intended to extend the permitted use in the event of a sublease without further recourse to the landlords. Contrary to the view expressed by the trial Judge I am of the opinion that a consent to a change of use, in limited circumstances, was given and that the terms of the lease were effectively modified in the event of a subtenant being approved by operation of the principles of estoppel.

For the purposes of this case the plaintiffs' contractual right under cl 2.7 of the lease to regulate the selection of subtenants is to be distinguished from the plaintiffs' right under cl 2.3 to insist that the premises be used only as a beauty parlour.

Clause 2.7 of the lease provides a procedure for seeking the landlord's approval to a sublease or assignment of the lease but the landlord is not entitled unreasonably to withhold consent.

By cl 2.3 the lease also provides that the lessee will not use the premises except for the permitted use, namely as a beauty salon. This provision, together with some other covenants regarding the payment of rent and assignment and subletting, are expressly declared to be "essential terms of this lease" (see cl 6.1). The way in which the parties have chosen to treat the topic of the permitted use is crucial to this case.

On its face the lease contemplates that the lessees will be entitled to sublease but only for the purposes of a beauty parlour. The lease contains no machinery for altering the permitted use. Mr Angelopoulos' intimation to Ms Huxley meant that the defendants were still required to submit a proposed subtenant for approval in the ordinary way. However, Mr Angelopoulos gave an assurance that, in the event of a subtenancy coming into being, he would allow the permitted use to be extended to include the business of a café.

If Mr Angelopoulos' intimation is treated as binding on the plaintiffs then the position of the parties may be summarised as follows:

(1) In the event of an application to sublease in accordance with the procedure contained in the lease, the plaintiffs would consider the application on its merits with respect to the personal suitability of the proposed sublessee;

(2) Any sublessee, if approved, would be entitled to use the premises for café purposes without the need for any further application;

(3) In the meantime the defendants themselves remained bound only to use the premises as a beauty parlour.

Mr Angelopoulos consented to a change in the way in which an essential condition of the lease should be applied with respect to use of the premises by a subtenant. There was no consideration for that promise. However, in my opinion, for reasons given below, (in pt 5 of this judgment) it was not open to the plaintiffs to renege after the defendants had acted, to their detriment, in reliance on the intimation. After that, the plaintiffs could not call into question the suitability of proposed subtenants by reference to an intended use of the premises for café purposes but the plaintiffs could still otherwise satisfy themselves as to the suitability of proposed subtenants. The lease remained unchanged but the manner of its operation was altered. For the plaintiffs in February and May 1997 to deny the right for subtenants to use the premises for a café amounted to a refusal to apply an essential term of the lease in a way in which they had earlier acknowledged that it should operate.

The instrument of lease remained unaltered but as relevant to a sublease the "permitted use" is to be treated as having been extended for the purposes of dealings between the present parties. The plaintiffs are estopped by conduct from denying that for a limited purpose a cafe business is a permitted use.

The business of Marigold Garden as it operated in Rundle Street appears to have been more than a café as described in Ms Huxley's evidence. It did vegetarian takeaway food and giftware. Therefore, if the point had arisen the plaintiffs could have argued successfully that the business did not fall within the extended ambit of the permitted use. Whether the Kerkez's could have modified their operation to bring it strictly within the notion of a "café" was never considered. The parties never approached the matter in this way. After reconsidering his position Mr Angelopoulos decided that he was not prepared to allow any "food business" on the premises. He justified this policy by reference to the interests of the other shops in the area of which he was landlord. Therefore the broad issue for Mr Angelopoulos was whether the sale of food would be allowed.

The nomination of The Gourmet Bakehouse, strictly speaking, could also be subject to the criticism that its intended business was not a "café".

However, it was not on this basis that the written proposal of 13 February 1997 was rejected. Acting on instructions, the plaintiffs' solicitors refused to recognise the earlier approval given to sublease for the purposes of a café business. The same point may be made with regard to other nominations which were made by the defendants during March and April 1997.

For reasons set out below it seems to me that the terms of the letter of 21 February 1997 should be treated as a breach of an essential term of the lease when one reads and applies the lease in light of the estoppel. Mr Angelopoulos had made it clear from mid January that he had resiled from his earlier position. On behalf of the plaintiff Mr Angelopoulos was only prepared to fulfil his part of the bargain in a manner which was substantially inconsistent with his intimation.

That representation, by virtue of estoppel, now prevents the plaintiffs from literally insisting on the restrictive meaning of "permitted use" in the documents in case of a subtenancy for cafe purposes.

The actions of Mr Angelopoulos and the plaintiffs' solicitors show that from January to May 1997 the plaintiffs' continued to repudiate any obligation to allow a café style business to operate even by a suitable subtenant. As the trial Judge found the defendants put forward as proposed subtenants people who were obviously personally satisfactory. However, the plaintiffs response in each case was to refuse to assess the nominations by reference to personal merit. Indeed the letter of 21 February 1997 relies on the proposed change in use as the basis of refusal. That letter provides evidence of two matters:

(1) that the plaintiffs were asserting, with respect to an essential term of the lease, a claim which was at variance with the approval given on 20 November 1996

(2) that the plaintiffs were unreasonably withholding consent to a sublease.

This last mentioned point is irrelevant to the question now at issue although there was debate as to whether the plaintiffs were entitled to withhold consent in the circumstances.

The unreasonable refusal of consent to sublease does not itself amount to a repudiation of the terms of the lease but the defendants did have available remedies. They were entitled to a declaration to assign without consent. The landlord's affirmative covenant, not unreasonably, to withhold consent probably makes the lessor liable in damages for breach of covenant (cf Moat v Martin & Anor [1950] 1 KB 175).

A refusal to recognise the alteration in the manner of application of an essential term is a different matter. That refusal may constitute a breach of a fundamental term of the lease. In Laurinda Pty Ltd & Ors v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; (1989) 166 CLR 623 at 641-3 Brennan J observed that the outright repudiation by one party of only one term of a lease which assumes sufficient importance may entitle the other party to put an end to the whole arrangement. The Court will not lightly infer that such a situation has arisen as demonstrated by Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 634 per Wilson J. In the present case the extent of the permitted use on sublease was a topic which went to the heart of the arrangement so as to allow the principles of Heyman & Anor v Darwins Ltd [1942] AC 356 to be applied.

On its face, the letter dated 21 February 1997 on behalf of the plaintiffs unequivocally repudiated the allegation that Mr Angelopoulos had no objection to a café business being operated by a subtenant. However, the plaintiffs' representation was clear and made between parties who were in a pre-existing contractual relationship. Promissory estoppel undoubtedly extends in such circumstances to representations as to future conduct regarding contractual rights (see Waltons Stores (Interstate) Ltd v Maher & Anor [1988] HCA 7; (1988) 164 CLR 387 at 399)

Whether the case should be treated as common law estoppel by representation or as an example of equitable promissory estoppel may be debatable. The defendants based their argument on the principle of Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 as explained by Mason and Deane JJ in Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406. In Thompson v Palmer Dixon J said at 547:

"The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct, as in Yorkshire Insurance Co. v Craine; cp Cave v Mills; Smith v Baker; Verschures Creameries Ltd v Hull and Netherlands Steamship Co and Ambu Nair v Kelu Nair; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption. But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted."

In Legione v Hateley Mason and Deane JJ explained Thompson v Palmer at 432 as follows:

"And it may be that [Dixon J] took a broad view of what was a representation of fact or a representation of existing fact. After all, much judicial ingenuity had been employed in seeking to demonstrate that a statement of intention with respect to a future occurrence could amount to a statement of present fact.

Be this as it may, there is strong authority in equity for a limited doctrine of promissory estoppel - representations (or promises) as to future conduct -restricted to precluding departure from a representation by a person in a pre-existing contractual relationship that he will not enforce his strict contractual rights."

It seems that the case comes within the doctrine of equitable estoppel as discussed by Brennan J in Waltons Stores at 416:

"Equitable estoppel, on the other hand, does not operate by establishing an assumed state of affairs. Unlike an estoppel in pais, an equitable estoppel is a source of legal obligation. It is not enforceable against the party estopped because a cause of action or ground of defence would arise on an assumed state of affairs; it is the source of a legal obligation arising on an actual state of affairs. An equitable estoppel is binding in conscience on the party estopped, and it is to be satisfied by that party doing or abstaining from doing something in order to prevent detriment to the party raising the estoppel which that party would otherwise suffer by having acted or abstained from acting in reliance on the assumption or expectation which he has been induced to adopt. Perhaps equitable estoppel is more accurately described as an equity created by estoppel."

"In all cases where an equity created by estoppel is raised, the party raising the equity has acted or abstained from acting on an assumption or expectation as to the legal relationship between himself and the party who induced him to adopt the assumption or expectation. The assumption or expectation does not relate to mere facts, whether existing or future. (An assumption as to a legal relationship may be an assumption that there is no legal relationship, as in the cases where A builds on B's land assuming it to be his own.) Though the party raising the estoppel may be under no mistake as to the facts, he assumes that a particular legal relationship exists or expects that a particular legal relationship will exist between himself and the party who induced the assumption or expectation. The assumption or expectation may involve an error of law. Thus a promissory or a proprietary estoppel may arise when a party, not mistaking any facts, erroneously attributes a binding legal effect to a promise made without consideration. But, if the party raising the estoppel is induced by the other party's promise to adopt an assumption or expectation, the promise must be intended by the promisor and understood by the promisee to affect their legal relations."

"In my opinion, to establish an equitable estoppel, it is necessary for the plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs."

It seems to me that as a consequence of Mr Angelopoulos' conduct the plaintiffs, as lessor, are to be treated as being in breach of the lease or guilty of an anticipatory breach. Having effectively consented to the expansion of the permitted use for the purposes of a sub lease, the plaintiffs could not then withdraw from that position after the defendants had acted on the assurance, to their detriment, by rearranging their affairs. The legal effect of the written lease was varied by the oral intimation after it had been acted on (cf Je Maintiendrai Pty Ltd v Quaglia & Anor (1980) 26 SASR 101). If an estoppel operated against the plaintiffs their denial of the right for any subtenant to use the premises as a café was a matter going to the heart of the arrangement between the parties. Clause 2.3.1 as to the permitted use of the premises was an essential term. After the defendants had committed themselves to arrangements on the assumption that a café would be approved it was then too late for the plaintiffs to withdraw their concurrence. Bearing in mind the way in which the permitted use clause of the lease was to operate in accordance with the estoppel, the defendants were entitled to sublease to fit and proper persons for the purposes of a café. The defendants were entitled to treat the plaintiffs, based on that estoppel by conduct, as being in breach of the lease. The solicitor's letters of 21 February and 20 May 1997 provide the evidence.

From January until mid February 1997 the defendants continued to assert a right based on the assurance given to them on 20 November 1996. Nevertheless, they remained liable for rent until early March 1997 when they treated themselves as relieved of any further obligation by reason of the plaintiffs' wrongful conduct. In my view the defendants were entitled to take this course by reason of the letter dated 21 February 1997 written by the plaintiffs' solicitors and confirmed on 20 May 1997.

In Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 the High Court made it clear that in Australia the doctrines of repudiation and anticipatory breach apply to the lease itself. This decision reverses the effect of Total Oil Great Britain Ltd v Thompson Garages (Biggin Hill) Ltd [1972] 1 QB 318. This authority may be applied in conjunction with Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 421-2 where Brennan J said:

"I would hold, in accordance with Peter Turnbull and Mahoney v Lindsay, that an intimation of non-performance of an essential term of a contract amounts to repudiation and dispenses a party who acts upon it from performance of his dependent obligation though he does not rescind the contract. Therefore, I am unable, with respect, to agree with Lord Ackner's rejection of what his Lordship described as a "third choice" in Fercometal S.A.R.L. v Mediterranean Shipping Co. S.A.:

"When A wrongfully repudiates his contractual obligations in anticipation of the time for their performance, he presents the innocent party B with two choices. He may either affirm the contract by treating it as still in force or he may treat it as finally and conclusively discharged. There is no third choice, as a sort of via media, to affirm the contract and yet to be absolved from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform. Such a choice would negate the contract being kept alive for the benefit of both parties and would deny the party who unsuccessfully sought to rescind, the right to take advantage of any supervening circumstance which would justify him in declining to complete."

The proposition that, if repudiation by anticipatory breach is not accepted, the contract subsists is undoubted; but it does not follow that an intimation by one party that tender of performance by the other will be nugatory cannot, if acted on, dispense the other from his obligation of performance under the contract by raising an equitable estoppel. It may be that Lord Ackner acknowledges some role for estoppel in this context for he said:

"it is always open to [B], who has refused to accept [A's] repudiation of the contract, and thereby kept the contract alive, to contend that in relation to a particular right or obligation under the contract, [A] is estopped from contending that he, [A], is entitled to exercise that right or that he, [B], has remained bound by that obligation. If [A] represents to [B] that he no longer intends to exercise that right or requires that obligation to be fulfilled by [B] and [B] acts upon that representation, then clearly [A] cannot be heard thereafter to say that he is entitled to exercise that right or that [B] is in breach of contract by not fulfilling that obligation."

In my view, an equity created by estoppel arising from an intimation by A that he does not intend to perform which conveys to B that performance by him would be nugatory absolves B "from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform."

Based on this authority it does not matter whether the defendants strictly complied with the terms of the lease in submitting their nominees for approval as subtenants. Mr Angelopoulos continued to maintain the position that a café would not be permitted on the introduction of a sub-tenant. The Court is entitled to assess the conduct of Mr Angelopoulos by reference to his actions from December 1996 onwards.

For the purposes of any proposed sub-lease the plaintiffs were estopped from denying that the permitted use extended to the business of a café. The defendants were entitled to rely on the breaches and anticipatory breaches of an essential term as a defence to any claim for rent or damages. In the circumstances the plaintiffs could not enforce the lease after about 1 March 1997. The lease came to an end when the defendants allowed the plaintiffs' re-entry on 21 May 1997. By letter dated 14 May 1997 the defendants' solicitors offered to hand over the keys to the premises. The defendants were entitled to refuse to pay the rent on 1 March 1997 when rent fell due in the ordinary course. They rely on the plaintiffs' breaches as a justification for their own actions in refusing to continue to pay rent. The defence is made out.

The plaintiffs were guilty of an anticipatory breach of the agreement in refusing to recognise a café as a permitted use even in the case of a fit and proper sub tenant. The plaintiffs were willing to perform the contract regarding subleasing only on the basis of a term on which they were estopped from relying. The plaintiffs were not ready and willing to perform the contract to allow for a café type operation on sublease. The defendants did not immediately put an end to the lease when they became aware that Mr Angelopoulos had changed his mind. They continued into May 1997 to assert their right to sublease for café purposes. The defendants stopped paying rent in March 1997 and stood ready to hand over the keys on 14 May 1997. This is not a case where the defendants made an election to affirm the contract notwithstanding the plaintiffs' anticipatory breach. There came a point where the further obligation of the defendants for rent was conditional on the plaintiffs discharging the reciprocal obligation of accepting a fit and proper sublessee "for café purposes".

The situation where both parties are concurrently in breach of essential terms is discussed in Chitty on Contracts (Volume One General Principles) 28th ed at pars25-014 and 25-015. Chitty's discussion at par25-024 of Fercometal S.A.R.L. v Mediterranean Shipping Co SA [1989] AC 788 must be read in the light of Foran v Wight.

There are different views as to whether a fundamental breach and repudiation of contract should be treated as separate grounds for determining a contract. In Wood Factory Pty Ltd & Ors v Kiritas Pty Ltd (1985) 2 NSW LR 105 at 144-5 McHugh JA said:

"A contract may be determined, apart from effluxion of time or by agreement, on one of three grounds. First, it may be determined for any breach of a fundamental or essential term: Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 at 422; Associated Newspapers Ltd v Bancks [1951] HCA 24; (1951) 83 CLR 322 at 337; DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 430-431. The test whether the term is fundamental is whether it is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise and that ought to have been apparent to the promisor: Associated Newspapers Ltd v Bancks (at 337). Secondly, a contract may be determined on the ground that the defendant has evinced an intention no longer to be bound by the contract: Freeth v Burr (1874) LR 9 CP 208 at 213. This is the doctrine of repudiation. Thirdly, a contract may be determined on the ground of fundamental breach by the defendant. If the promisor, although wishing to comply with the contract, is nevertheless in breach to such an extent that the promisee's bargain is substantially destroyed, the promisee can put an end to the contract. Some judges have treated fundamental breach as constituting an implied repudiation of the contract: see Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale (at 421-422) per Lord Upjohn and Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1979] AC 757 at 778-779 per Lord Wilberforce. But the better view would seem to be that they are separate categories. Repudiation depends upon the promisor's refusal to carry out the contract. Fundamental breach turns on the objective nature of the breaches whatever the state of mind of the promisor is. It may be, of course, that the objective facts which will constitute a fundamental breach of the contract are also evidence of an intention to repudiate the contract. In many cases the same facts will lead to a conclusion that there is both a fundamental breach and a repudiation. In other cases the objective facts may demonstrate only a fundamental breach. In Progressive Mailing House Pty Ltd v Tabali Pty Ltd, for example, Mason J (at 382; 624) held that the appellant's conduct amounted "to a repudiation of the lease or a fundamental breach of its obligations". Wilson J thought there was a "fundamental breach". So did Deane and Dawson JJ. Brennan J thought that the lessee had repudiated the contract embodied in the lease: see generally the discussion on repudiation and fundamental breach by Gibbs CJ in Shevill v Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 626 and by Mahoney JA in Honner v Ashton (1979) 1 BPR 9478 at 9490."

This may be compared with the more recent statement of Brennan J in Foran v Wight at 421-2.

Parties to a lease may stipulate that a term is to be treated as having a fundamental or essential character (see Shevill v Builders Licensing Board at 627). General principles with regard to the discharge of contracts also apply to leases (see Progressive Mailing House Pty Ltd v Tabaldi Pty Ltd per Mason J at 29).

In the present case the plaintiffs have evinced an intention to fulfil the contract in a manner which is substantially inconsistent with their obligations. There has been a serious and continuing anticipatory breach of the contract leading to the defendants taking a stance in terms of the letter of 14 May 1997.

In my opinion, based on the exchange of solicitors' correspondence in February and May 1997, the serious and sustained nature of the plaintiffs' anticipatory breach justified the defendants refusal to pay rent in March and April 1997 and offering up the keys to the premises on 14 May 1997 based on the plaintiffs' fundamental breach.

The lease came to an end either as a result of agreement between the parties or by the defendants' acceptance of the plaintiffs' repudiation of their obligation in respect of an essential term (when applied in accordance with the estoppel).

6. Effect of some miscellaneous clauses in the lease

Argument was addressed as to the effect of two clauses of the lease. Clause 5.6, inter alia, deals with the obligation of a lessee to pay rent on vacating the premises until the lessor notifies the lessee that the lessee's breach is being treated as a repudiation of the lease. Clause 7.5 deals with damages on repudiation or breach by the lessee of an essential term of the lease.

In my opinion these clauses do not operate when the lessor themself is in continuing breach of an essential term. The plaintiffs' breach enabled the defendants to relieve themselves from further obligations.

At trial the defendants' case, based on the pleadings, was that on 20 November 1996 they had received assurances from Mr Angelopoulos in two respects: (i) that the premises could be used as a café in the event of a sublease and (ii) that the formality of a written application for approval of a subtenant would be unnecessary. They also alleged that after obtaining Mr Angelopoulos' verbal approval to Mr and Ms Kerkez as subtenants on 10 December 1996 they then moved out. They base their defence on the plaintiffs' refusal to sublease to Mr and Ms Kerkez or the alternative nominees who were later proposed as subleases. The significance of the defendants' plea, and supporting evidence with respect to these alternative nominees, is at the heart of the problem.

Although the trial Judge found in favour of the conversation to the effect "café OK", His Honour was not prepared to find that the parties intended the conversation of 20 November 1996 to be anything more than part of a preliminary discussion without intended legal consequences.

I have decided, in pt 4 of these reasons, that on 20 November 1996 Mr Angelopoulos did express his consent to a change in use of the premises and that in reliance on that the defendants committed themselves to new premises immediately after receiving Mr Angelopoulos' assurance. Ms Huxley said that she obtained approval on 20 November 1996 to the change of use. I have quoted her cross-examination below. No contrary evidence was given.

I am prepared to act on the events of 20 November 1996 and the facts set out in the correspondence of 21 February and 20 May 1997 as providing the defence. Indeed, I consider that the case can be decided on a very narrow factual basis if one accepts the evidence as to Ms Huxley's stated belief that she had obtained approval on 20 November 1996 to the change of use.

At trial counsel for the plaintiff was alert to the fact that there were two consents relevant to the case as shown by the cross-examination of Ms Huxley:

"Q. You understood, didn't you, that what was proposed by the Kerkezes was not within the permitted use of the lease.

A. In the letter of the lease, where it is stated that if you change the nature of the business it had to be with the landlord's approval, I understood that providing I had the landlord's approval I could change the nature of the business.

Q. This was not your approach to Mr Angelopoulos merely for the approval of the subtenant, it was two approaches, wasn't it, one for approval of the subtenant and the other to change the permitted use.

A. I already had approval to change the permitted use, on 20 November."

This lastmentioned answer discloses Ms Huxley's assumption which I consider to have been justified by Mr Angelopoulos' intimation on that day. She acted on that assumption later that day when she instructed her solicitor to proceed with the purchase of new premises. Her actions were prudent. The landlords were not obliged to extend the permitted use. The tenants were at risk if they developed their own plans without the landlords' concurrence in circumstances where the permitted use was very restrictive. However, the tenants were protected by the terms of the lease against arbitrary disapproval of suitable subtenants.

The defendants' estoppel plea, as it has been regarded by counsel, is not expressed in customary terms. It arises out of a plea in cl 9 of the defence that any damage is attributable to the plaintiffs' own conduct. The plea relies on a representation by the plaintiffs' agent as to a "particular legal relationship" and identifies a meeting on 20 November 1996 at which "the plaintiffs gave approval to sublease" on terms that a cafe would be approved. The approval for sublease is alleged to have been given by Mr Angelopoulos verbally at that meeting. The particulars assert that "when the plaintiffs made it clear through Chris Angelopoulos that Marigold Gardens would not be allowed to take up the premises, further prospective tenants were sourced by the defendants...". In accordance with its particulars the defendants relied on the succession of subtenants who were proposed by the defendants and rejected by the plaintiffs between February and May 1997. Insofar as the defendants were relying upon Mr Angelopoulos' conduct as pleaded, this must be related to 20 November 1996 as the matters pleaded with respect to December 1996 only concerned Mr and Ms Kerkez.

From February 1997 to May 1997 the plaintiffs, in terms of their correspondence, purported to withhold consent to sublease to a number of persons on the ground of the restricted permitted use in accordance with cl 43 of the Third Schedule to the lease to which I have previously referred. This clause, which required the landlord to give reasons for refusal of consent and regulated the grounds for such refusal, was expressly pleaded by the plaintiffs in their defence to counterclaim.

I draw out of all this an issue in which the plaintiffs assert a reliance on the restricted nature of the "permitted use" clause to justify rejection of the proposed subtenants whereas the defendants' riposte is a conversation of 20 November 1996, operating as an estoppel. In circumstances where the legal position has not been properly articulated in the pleadings, I can see no relevance to the references, in pleading and evidence, to the succession of nominated subtenants unless this be related to an estoppel on 20 November 1996. It is my view that the justice of the case requires that the case be dealt with on this basis.

The defence (cl 9) includes an assertion that the plaintiffs "...have acted in such a way so as not to avoid detriment to the defendants in that they seek to rely on the lease". For the purposes of an estoppel plea one would expect a particularised plea of detriment arising from the defendant's reliance on the plaintiff's representation. The defendants did not plead the signing of the contract in escrow on 20 November 1996 nor the subsequent instructions to solicitors on the same day to release the documents after speaking with Mr Angelopoulos. However, this evidence was received. The defendants' actions demonstrate reliance and detriment. They purchased their new property after relying on an assumption that they had an avenue for quitting their existing lease otherwise than as a beat parlour. No doubt the extended use as a cafe gave the defendants an opportunity to dispose of the premises at No 144A in a way which was not in competition with their own continuing business at No 116, but for purposes appropriate to the precinct. The approach of the Courts to drawing an inference of reliance was reviewed by King CJ in Grantwell Pty Ltd v Franks & Ors (1993) 61 SASR 390 at 400-401. King CJ also noted how difficult it may be "...for witnesses to recall and analyse their states of mind at relevant times and to determine precisely what operated upon their minds." Common sense here has a part to play. In my view the actions of the defendants on 20 November 1999 speak for themselves.

In view of the way in which the case was conducted, the question now arises as to whether the appellants should succeed based on an anticipatory breach in accordance with Foran v Wight. To what extent is an Appeal Court entitled to give judgment on its own views of the facts which departs from the case as pleaded?

The appellant's case on estoppel has always been that they acted in reliance on the plaintiffs' intimation which was later withdrawn (see letter 14 May 1997). As pleaded the appellants' case depends on the conversations of 20 November and 10 (or 11) December 1996 and the subsequent change of position which is not in dispute.

The defendants' evidence of the events of 20 November 1996 leading to the purchase of new premises and the correspondence between solicitors is really all that is necessary to establish the defendants' case. Unfortunately at trial the issue as to consent to a change of use has become blended with an unsuccessful argument as to whether the plaintiffs wrongly withheld consent under the lease to a suitable subtenant. The facts on which I am prepared to act have been proved beyond controversy before the trial Judge but I attach legal significance to Mr Angelopoulos' intimation.

The fact of the defendants' reliance on this intimation appears from this passage in Ms Huxley's evidence:

"Q. Looking at the document is that a copy of the contract that you signed on 20 November.

Q. Having signed that contract did you give any particular instruction to your solicitors in relation to what was to be done with it.

A. Yes, I asked a solicitor to hold it until I'd met with Mr Angelopoulos, that I was meeting with Mr Angelopoulos that day and just to clarify issues regarding our leaving the other premises and that this was not(sic) be sent anywhere or nothing was to be done with it even though we'd signed it until after I'd spoken with Mr Angelopoulos."

After meeting with Mr Angelopoulos and discussing the matter with her business partner Ms Huxley then instructed her solicitor to "release the documents". This evidence supports the assertion in the solicitor's letter of 14 May 1997 that the defendants always relied on the statement that Mr Angelopoulos had no objection to the premises being sub-let for the purposes of a cafe.

In my opinion the Court should now give judgment in accordance with the evidence (see SCR 46.04(4) which is also applicable to the District Court). The facts relating to 20 November 1996 have been fully investigated by the trial Judge. From that point onward the correspondence speaks for itself. In reaching this conclusion I see some similarity between the present case and the situation discussed by Mason J in Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594 at 607-608:

"The case pleaded by the respondent in her reply directly challenged the validity of the rescission set up by the appellants, though the case pleaded was that the promise to pay the balance of the purchase price on 10 November 1976 was varied by the oral agreement by which the respondent was let into possession. The trial was fought on the footing that the rescission was in issue. The ground on which I have held the rescission to be ineffective was not specifically pleaded. However, as the rescission was in issue and as the ground which I have taken does not depend for its validity on findings of fact not litigated at the trial, I consider that the matter comes within the rule that the judgment appealed from may be supported on a ground not previously argued. When a question of law is raised for the first time, even in a court of last resort, "upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is...expedient, in the interests of justice," to decide it (Connecticut Fire Insurance Co. v. Kavanagh, per Lord Watson; Suttor v. Gundowda Pty Ltd. In this instance the conclusion that cl. 16 (2) did not bring about a rescission emerges from an examination of the notice dated 13th May 1977 read in the light of cl. 16, and from the respondent's tender of the balance of the purchase price on 30th May, this fact being common ground between the parties."

In that case the decision turned on the resolution of a factual dispute at first instance but the significance of a notice to complete was recognised for the first time by Mason J when the matter was before the High Court. A question of the vendor's right to rescind was already in issue but it was not the same point as identified by Mason J in the passage quoted above.

It was contended that if tested as an issue the evidence may have thrown new light on the new question but this was rejected by Mason J.

The principles on which an Appeal Court acts in such circumstances were reviewed by the New South Wales Court of Appeal in Chilcotin Pty Ltd & Anor v Cenelage Pty Ltd & Ors [1999] NSW CA (8 April 1999) pars 12-14:

"The appeal is by way of rehearing (Supreme Court Act 1970, s 75A(5)). Errors of findings of fact may be corrected, and subject to well known constraints (see Jones v Hyde [1989] HCA 20; (1989) 63 ALJR 349; Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167; Devries v Australian National Railways Commission (1993) 177 CLR 472) this Court may substitute its findings of fact for those of the trial Judge. There is power to recognise and correct errors of the kind asserted in this appeal, if they are errors. Subject to what follows, in the exercise of its function as an appellate court conducting a rehearing this Court should correct errors so as to make the findings of fact which the trial Judge should have made.

But the existence of the power does not mean that the appellants are entitled to have it exercised. Two principles, in addition to the constraints earlier mentioned, come into play.

First, 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 can not be taken afterwards (Suttor v Gundowda Pty Limited [1950] HCA 35; (1950) 81 CLR 418 at 438; see also Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7-8 and Water Board v Moustakas (1988) 180 CLR 491 at 497). Similarly, the point can not afterwards be taken where, if the point had been raised, the respondent might have conducted the case differently at trial (Multicon Engineering Pty Limited v Federal Airports Corporation (NSWCA, 15 October 1997, unreported)...."

The principle, originating from Connecticut Fire Insurance v Kavanagh [1892] AC 473 at 480 cited above by Mason J, was reviewed in Goodwin v Ron Heath Tyre Service [1999] SASC 222. In applying Green v Sommerville, Lander J on behalf of the Full Court said at par 102:

"This court ought not to permit an injustice to occur if, subject to whatever terms are necessary in relation to costs, it can arrive at a just result: National Australia Bank Ltd v KDS Construction Services Pty Ltd [1987] HCA 65; (1987) 163 CLR 668; Centronics Systems Pty Ltd v Nintendo Co Ltd [1992] FCA 584; (1992) 111 ALR 13."

In my opinion the facts are beyond controversy. I consider that it is expedient in the interests of justice that Foran v Wight should be applied to the facts as I have found them with respect to the legal status of the events of 20 November 1996. There will be consequential questions of costs to be considered.

The claim and counterclaim must be assessed in light of the estoppel which operates against the plaintiffs. The result is as follows:

1. The plaintiffs were entitled to rent until 1 March 1997 and the defendants made payment to that date.

2. Following the early rejection of Mr and Ms Kerkez as subtenants, the defendants made a formal submission of Mr Stain and Mr Martin on 13 February 1997 as proposed subtenants.

On 21 February 1997 the plaintiffs' solicitors rejected those proposed subtenants relying only on the fact that a change of use would not be allowed. There was no issue at trial as to the personal fitness of the proposed subtenants. The plaintiffs are estopped by conduct from denying that they committed a breach of an essential term of the lease on 21 February 1997 and that such breach continued until the lease came to an end. The parties reaffirmed their respective positions by their assertions in the exchange of letters on 14 and 20 May 1997.

3. The plaintiffs were unable to enforce rent payment as from 1 March 1997 by reason of their own breach. However the formal obligations of the parties came to an end on 21 May 1997 on the plaintiffs' re-entry.

4. Although I consider that the obligations of the parties came to an end on 21 May 1997 I will comment on the trial Judge's assessment of damages in case I am wrong on the estoppel question.

The defendants had an obligation to pay rent and interest on that until 21 May 1997 unless relieved from that obligation by the plaintiffs' conduct.

The defendants' obligation to pay rent in any event came to an end when the plaintiffs re-entered. From the date of re-entry until 3 September 2000 the plaintiffs were entitled to damages, assuming of course, that no estoppel by conduct operates. Contrary to the approach of the trial Judge this loss should be assessed having regard to the following:

(a) Insofar as the Court is assessing an immediate payment to compensate for future loss, the sum awarded must be discounted to provide for this acceleration in the date of receipt of the plaintiffs' entitlement. There is no evidence before the Court to enable this adjustment to be calculated.

(b) Although the terms of the defendants' and furniture vendor's leases are not precisely the same in detail I consider that the rent, if paid on the due date, in each case provides a fair basis for comparison. The furniture vendor's lease did not contain a discount for prompt payment. Having regard to the defendants' excellent history in making prompt payment, a fair result would be achieved if a comparison is made as at the due date in each case rather than by comparing the situation some three or four days later as the trial Judge in effect has done. I would therefore recognise the ten per cent discount for prompt payment in the defendants' rent. On this appeal the defendants argue that the loss of bargain is represented by the difference between the rent reserved by the lease and that which is reserved on a reletting (Lamson Store Service Co Ltd v Russell Wilkins & Sons Ltd [1906] HCA 87; (1906) 4 CLR 672.) This principle would be recognised by treating the rent payable on the due date as the rent reserved.

As justification for this approach I note that on the evidence, the defendants always paid their rent within two days of the first day of the month when it fell due. Were it not for the present dispute it seems likely that the defendants would have continued to make prompt payment. But for the intervention of the dispute the defendants' history suggests that it is likely that the discounted rent would have continued to be the norm. The plaintiffs' loss should be assessed accordingly.

(c) There is no basis for imposing a liability on the defendants in respect of the plaintiff's refurbishment of the premises. This was capital expenditure undertaken by the landlord in terms of clause 12 of the furniture vendor's lease to enhance the premises. It was not in discharge of any obligation of the outgoing tenants to repair. However, the fact that the furniture vendor's lease contains this clause is a point of difference when a comparison is being made with the terms of the defendants' lease. There is no evidence as to nett benefit of this refurbishment to the landlord.

There is no evidence that the plaintiffs had to spend this money to attract a suitable tenant. There was no evidence as to the rent which could have been obtained in the absence of the refurbishment. The plaintiffs did not give evidence and did not establish that the expenditure was reasonably necessary. It was not in dispute that the actual costs of refurbishment were reasonable but that is not the issue. The plaintiffs have not demonstrated any loss. I would disallow this item in the claim.

As I have already said, my examination in section 4 above of the manner in which the trial Judge calculated the plaintiffs' damage is strictly unnecessary. I have only dealt with that aspect in view of the fact that it had been fully argued.

In my opinion the appeal should be allowed and judgment should be entered for the respondents as defendants in the action.

BLEBY J. The facts giving rise to this litigation are adequately stated in the judgment of Williams J. I will not repeat them. However, I have the misfortune to disagree with the conclusion reached by Williams J.

The defendants (appellants) were bound by the terms of their lease from 4 December 1995 for a period of five years. The combined effect of clause 2.3.1 of the lease and item 3 of the first schedule was that the defendants would not, nor would they allow anyone else to, use the premises except as a "beauty salon". By clause 6.1.3 of the lease this covenant was described as being an essential term of the lease.

By clause 2.7.1, the defendants were not able to transfer the lease or sub-let the premises without the plaintiffs' written consent, but that consent was not to be unreasonably withheld (clause 2.7.2). That obligation not to withhold consent unreasonably applied only to a new tenant or sub-tenant. It did not apply to the consent to a change of use of the premises. There are other formalities which had to be complied with in order to obtain the lessor's consent to an assignment or sub-letting of the lease (clause 2.7.3).

In answer to the claim for rent by the plaintiffs, the defendants pleaded an estoppel. It is important to understand how that was pleaded and how the case was conducted.

The defendants relied on two representations by the plaintiffs. The first was that contained in the conversation between Ms Huxley and Mr Angelopolous on 20 November 1996. I will return to the effect of that representation in due course. For present purposes it is sufficient to state that the defendants pleaded that the plaintiffs represented, so far as use of the premises was concerned, that a tenant from an adjacent tenancy would be approved, as would be a café, and that the plaintiffs did not require anything in writing regarding the approval of a potential sub-tenant.

The second alleged representation was that Mr Angelopolous, on behalf of the plaintiffs, gave verbal approval to Mr and Mrs Kerkez as sub-lessees on or about 11 December 1996. The defendants pleaded that they were induced to adopt the assumptions contained in the representations, that the plaintiffs knew that they relied on the representations, and that in reliance on the representations they vacated the premises to make way for Mr and Mrs Kerkez. The pleading that follows is a little confusing in that it alleges that the plaintiffs also unreasonably refused to accept other tenants found by the defendants, but the essence of this plea appears to be related to the plaintiffs' failure to mitigate its loss.

The trial appears to have been conducted in accordance with the pleadings as I have summarised them. The defendants succeeded on the first representation but failed on the second. The finding of the trial Judge was that no approval had been given to Mr and Mrs Kerkez as sub-lessees.

There appears to have been no doubt in the trial Judge's mind that it was the dual representation that was relied on by the defendants. He concluded that the defendants' entry into the contract to purchase the other shop on 20 November 1996 "must have been on the basis that they expected to find a suitable sub-tenant for 144A, but not on the basis of approval to anyone in particular. The cooling-off period expired before any potential tenant appeared. Thus, taking on the liability for 116 was not dependent on any approval having been given by Mr Angelopolous". The approval there being referred to was approval to sub-let to the particular tenants. The trial Judge then dealt with the lack of proof of any detriment based on the belief that approval would be or had been given to Mr and Mrs Kerkez. He then concluded that the claim based on estoppel should be rejected.

At no stage did the defendants plead or argue that they altered their position to their detriment by committing themselves to the purchase of other premises in reliance solely upon the promise made by Mr Angelopolous on 20 November 1996. The case was certainly not decided on that basis.

It is important to understand the true nature of the representation made by Mr Angelopolous on 20 November 1996. The undisputed evidence as set out in the reasons of Williams J amounted to this:

1. The plaintiffs would no longer insist on the continued use of the premises as a beauty salon.

2. The plaintiffs would approve a change of use of the premises if it involved the extension of the business of a neighbouring tenant to the premises. The evidence showed that the nature of those businesses was known by the defendants to be the business of women's fashion on the one hand and a shoe shop on the other.

3. The plaintiffs were prepared to approve other uses by a sub-lessee, provided that such use did not include a restaurant or a use in direct opposition to the business of a neighbouring tenant.

4. Use of the premises as a café would be approved.

5. Use of the premises other than for a café or other than for the purpose of the business of an adjoining tenant would still require approval by the landlord.

That was not so much a representation as to an existing fact but representation as to the plaintiffs' future conduct. I doubt whether it could properly be the subject of an estoppel in pais which relies on an assumption as to an existing state of facts: Thompson v Palmer [1933] HCA 61; (1933) 49 CLR 507 at 547. However, there can be little doubt, with the recent developments in the equitable doctrine of promissory estoppel, that the representation could properly be the subject of such an estoppel. Cases such as Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 and The Commonwealth v Verwayen (1990) 170 CLR 394 suggest that equitable doctrines of promissory estoppel and proprietary estoppel are subsumed into an over-arching principle of equitable estoppel. As Dawson J explained in Verwayen at 453 - 454:

"The 'unjust departure ... from an assumption' of which Dixon J speaks is equally applicable to an assumption with respect to future conduct as an assumption with respect to an existing state of affairs and the requirement that the departure must be unjust may be taken as a reference to the unconscionable conduct required to found an equitable or promissory estoppel. It is the requirement of unconscionable conduct which is now seen as the protection against undue intrusion upon the law of contract, for a voluntary promise of itself will not give rise to an estoppel. An estoppel will occur only where unconscionable conduct on the part of one gives rise to an equity on the part of another. The estoppel will then operate to take account of that equity. How exactly the estoppel will operate to take account of that equity is another question. The result of an estoppel at common law was, viewed as a separate and distinct doctrine from equitable estoppel, to preclude the party estopped from denying the assumption upon which the other party acted to his detriment. It followed that the party who acted to his detriment was, in effect, given the benefit of the assumption. It was all or nothing. By contrast, the view is expressed by Mason CJ and Wilson J and by Brennan J in Waltons Stores (Interstate) Ltd v Maher respectively, that an estoppel in equity may not entitle the party raising it to the full benefit of the assumption upon which he relied. The equity is said 'not to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who has been induced to act or to abstain from acting thereon' [at 423] per Brennan J. To avoid the detriment may, however, require that the party estopped make good the assumption: see Crabb v Arun District Council [1976] Ch 179, at pp. 190, 192, 199; Ramsden v Dyson (1866) LR 1 HL 129 at p.170 per Lord Kingsdown; Jones (A.E.) v Jones (F.W.) [1977] 1 WLR 438, at p.443; Riches v Hogben [1985] 2 Qd R 292, at p.302]. But, depending upon the circumstances of the case, the relief required may be considerably less. If this view is right, estoppel at common law and in equity may have had common origins, but there the similarity stops. While the role of estoppel at common law was largely as a rule of evidence, its role has been vastly expanded in equity to raise questions of substance. At the same time, the discretionary nature of the relief in equity marks a further reason why the fear of the common law that promissory estoppel would undermine the doctrine of consideration is unwarranted."

The principles of equitable estoppel were summarised by Brennan J in Waltons Stores at 428 - 429 as follows:

"[I]t is necessary for the plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs."

I have already pointed out that the defendants at trial did not argue the case solely on the representation of Mr Angelopolous made on 20 November 1996. Indeed, there was no evidence that the defendants acted in reliance on that representation alone. True it was that Ms Huxley said that it was after the conversation with Mr Angelopolous that she instructed her solicitors to release the contract that she had signed relating to the purchase of the new premises, but that was only mentioned in evidence as being sequential to the conversation. There was no evidence of reliance on the representation in taking that action. That is perhaps not surprising, as no such reliance had been pleaded. Had that been an issue, I am sure that it would have attracted much more attention in the evidence. If the defendants did intend to rely on that representation alone and to argue that they did so to their detriment, the evidence would have been led in a very different way. It might well have formed the basis of a successful plea of estoppel, but the case did not proceed on that basis. It is not for this Court now to speculate as to what the result might have been if it had proceeded on that basis.

Even if the case had proceeded on that basis, there is no evidence that the proposed sub-lessees (Mr and Mrs Kerkez) came within the terms of the representation. The use of the premises proposed by Mr and Mrs Kerkez could not be described as a café. According to Ms Huxley their business comprised the sale of clothing, giftware, books and a tearoom serving herbal teas and vegetarian food. Mrs Kerkez's evidence is to the same effect. Not being a use which Mr Angelopolous had said would be approved, it required the plaintiffs' approval to the proposed change of use. There is nothing in the conversation of 20 November from which it might be implied that the approval for such a change of use could not be unreasonably withheld. The right to refuse remained unconditional. The plaintiffs were therefore entitled to withhold approval to the use of the premises proposed by Mr and Mrs Kerkez. In fact they were entitled to withhold approval to any use which did not fall within the representation made on 20 November. There was therefore ample justification within the terms of the lease for refusing to entertain the use proposed by Mr and Mrs Kerkez.

Furthermore, the fact that the defendants then proceeded to seek approval for a number of tenants who did not come within the ambit of the 20 November representation suggests that they had no intention of relying on the representation. If they had, they would have presented only an adjoining tenant or a café proprietor.

That is not to say that a case might not have been able to be promoted based solely on the representation made on 20 November and the defendants' reliance upon it (assuming that there was evidence of such reliance). One of the proposed sub-tenants submitted to the plaintiffs comprised Messrs Stain and Martin, trading as "The Gourmet Bakehouse". Consent to that use was refused. However, on 6 March 1997 the defendants, through their solicitors, submitted a proposal to sub-lease to Messrs Richichi and Tossotti for conduct of a business described as "café, coffee bar and licensed restaurant". The description of product to be sold was "coffee, light foods, both hot and cold, gelati and sweets". That application was also refused by the plaintiffs. However, it appears that it could well have fallen within the representation made by Mr Angelopolous on 20 November 1996 as being a café. It was not pursued as coming within that representation, and the evidence seems to have been used by the defendants for no purpose other than to attempt to show a failure to mitigate on the part of the plaintiffs.

All these factors merely confirm, in my view, that the defendants' case at trial was not based merely on the representation of Mr Angelopolous on 20 November 1996 and any detriment suffered as a result of that representation, but on a much broader basis and a quite different alleged detriment.

As to the basis on which the case was presented at trial, it was open to the trial Judge to conclude that no approval had been given to Mr and Mrs Kerkez by the plaintiffs, and it must follow that, on the basis on which the claim was pursued at trial, the defendants failed in their primary contention, and there is no basis on which this Court should interfere.

I cannot agree that the letters of 21 February 1997 and 20 May 1997 from the plaintiffs' solicitors to the defendants' solicitors amounted to a repudiation or anticipatory breach of the lease by the plaintiffs. To the extent that the correspondence revoked the concession made by Mr Angelopolous that the premises could be used for the purposes of a café, it may have amounted to a repudiation of a promise the subject of an estoppel against the plaintiffs in respect of a person who could claim the benefit of that estoppel. Repudiation of the promise merely had the potential to give rise to an estoppel. However, for reasons I have mentioned, that is not how the case proceeded. On the way the matter was presented and argued at trial, repudiation or anticipatory breach of the lease does not arise.

I turn then to the question of the plaintiffs' damages. The defendants paid rent to 3 March 1997. At that time they were still bound by the terms of the lease. On 21 May the plaintiffs re-entered and cancelled the lease. The plaintiffs were entitled to recover rent up to 21 May in accordance with the terms of the lease. They were also entitled to interest on that unpaid rent in accordance with the provisions of clause 5.2 of the lease.

The lease was lawfully terminated by the plaintiffs by re-entry on 21 May 1997. As the lease was for a period of five years ending on 3 September 2000, the plaintiffs were also entitled to damages for the defendants' breach of the lease. The measure of the plaintiffs' damages will be such as to place the plaintiffs in the same position, so far as money can do it, as if the contract had been performed: Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80, 98, 117, 134, 148 and 161. That will be based, in part, on the difference between the amount of rent which the plaintiffs would reasonably have expected to receive, but for the defendants' breach, less the amount of rent actually received or which ought to have been received by the plaintiffs after taking reasonable steps to re-let the premises. This calculation really has two components: past losses to the date of trial and an estimate of future losses to the date of expiry of the original lease.

As to the amount of rent which the plaintiffs reasonably would have received, the defendants' lease provided for a discount of 10 per cent for prompt payment of rent. Throughout the lease, until the defendants ceased paying rent, they had paid the rent on time and had obtained the benefit of the discount. In assessing damages for breach of the lease, one must make certain assumptions as to what, on the balance of probabilities, would have occurred if the defendants had not been in breach of the lease. Had they continued in occupation and had they continued to pay rent, it is reasonable to assume that their good record as tenants would have continued, and that the rent would have been paid on time and would have been subject to the discount. In his calculation of the plaintiffs' loss, the trial Judge declined to make allowance for this discount. In so doing I consider that he erred, and that he should have taken the discounted rent as the starting point for the calculation of the plaintiffs' loss.

The new tenant commenced paying rent from 1 October 1997. It was a lower rent than that provided for in the defendants' lease. There was no evidence to suggest that after re-entry there was any undue delay on the part of the plaintiffs in re-letting the premises and in finding an acceptable tenant. The defendants must therefore bear the loss of the rent that the plaintiffs would have received from 21 May until 1 October 1997. Thereafter the loss is calculated at the difference between the discounted rent that the defendants would have paid and the rent actually paid or payable by the new tenants.

It is a relatively straightforward calculation of past losses of the plaintiffs up to the date of trial. In calculating future losses the trial Judge undertook the mathematical calculation of the difference in rent until 3 September 2000, but he did not make any allowance by way of discount for the acceleration in the date of receipt of the difference so calculated. There is no evidence before the Court to enable this adjustment to be calculated, but in my opinion it should be.

The trial Judge also awarded an amount of $6,705.89 being the amount spent by the plaintiffs in refurbishment of the premises before they were let to the new tenant. At the trial it was agreed that that amount had been spent by the plaintiffs, and that that was a reasonable charge for the work performed. However, the defendants did not concede that the expenditure was reasonably necessary in order to obtain a new tenant, and the defendants did not concede their liability for that amount under the terms of the lease.

The plaintiffs did not lead oral evidence at the trial. Their case was based on documentary evidence and formal admissions. There was no evidence that the expenditure was necessary in order to enable the premises to be re-let at the rental obtained. Whether it was reasonably incurred was therefore never proved, and in my opinion the trial Judge erred in including this amount in the award of damages.

In my opinion the appeal should be allowed and the award of damages set aside. I would remit the matter to the District Court for assessment of the plaintiffs' damages in accordance with these reasons. I would hope that the correct amount could now be agreed between the parties.