Idya Pty Ltd v Anastasiou

DECISION: Appeal and cross appeal dismissed with costs in favour of the respondents and cross respondents as the case may be.

CATCHWORDS: STRATA TITLES - Strata Schemes (Freehold Development) Act 1973 - Strata Management Statement - restrictions on use by owners of lots - whether enforceable against tenant.

Australian Capital Territory (Planning and Land Management) Act 1988 (Cth) LEGISLATION CITED: Strata Schemes Management Act 1996 Strata Schemes (Freehold Development) Act 1973

A v State of New South Wales & Ors; Floros v A; State of New South Wales v A [2005] NSWCA 292; 63 NSWLR 681 Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133 Atkin v Rose [1923] 1 Ch 522 Attorney-General (ACT) v Commonwealth of Australia (1990) 95 ALR 739; (1990) 26 FCR 82 Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99 Attorney-General for the ACT v Commonwealth (1990) 26 FCR 82,91 Barton v Reed [1932] 1 Ch 362 Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 Charbel CJ Pty Limited v Owners Corporation Strata Plan 69470 [2005] NSWCA 241 Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 Codelfa Construction Pty Limited v State Rail Authority [1982] HCA 24, 149 CLR 337 Commissioners of Taxation v Trustees of St Marks Glebe [1902] AC 416 Council of the City of Newcastle v Royal Newcastle Hospital [1957] HCA 15; (1957) 96 CLR 493 Council of the City of Newcastle v Royal Newcastle Hospital [1959] HCA 14; (1959) 100 CLR 1 CASES CITED: D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1 Federation Insurance Limited v Wasson [1987] HCA 34 Garcia v National Australia Bank Ltd [1998] HCA 48 Heimann v Commonwealth (1938) 38 SR (NSW) 691 Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 Knowles v Newcastle Corporation [1909] HCA 72; (1909) 9 CLR 534 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 MLW Technology Pty Ltd v May [2005] VSCA 29 Mitchell v Hore (1927) 27 SR (NSW) 433 Nguyen v Nguyen [1990] HCA 9; (1990) CLR 245 Randwick Corporation v Rutledge [1959] HCA 63; (1959) 102 CLR 54 Ryde Municipal Council v Macquarie University [1978] HCA 58; (1978) 139 CLR 633 TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 Wasson v Commercial & General Acceptance Ltd (1985) 2 NSWLR 206 Wilson v Twamley [1904] 2 KB 99 CA

Idya Pty Limited - Appellant John Anastasiou - First Respondent/First Cross Appellant

Savva Anastasiou - Second Respondent/Second Cross Appellant

Third Respondents/Cross Appellants Owners Strata Plan 69470 David Ronald Lever Pamela Gay Lever PARTIES: Michael James Ryan Shaen Anne Ryan David Ernest Montgomery Gillian Gweneth Montgomery Eldina Sahinovic Michael Robert Layton Anne Jacqueline Layton Amin Gamil Shamia Mona Shamia Andrew Sean Wardle

S White SC and P Bolster - Appellant COUNSEL: G Moore - First and Second Respondents C Birch SC - Third Respondent

Cumberland Frank Commercial Lawyers - Appellant SOLICITORS: L P Alidenes & Company - First and Second Respondents Roper & Steggal - Third Respondents

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 6363 of 2005

LOWER COURT MEDIUM NEUTRAL CITATION: [2007] NSWSC 634

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40573/07

MASON P BEAZLEY JA HANDLEY AJA

THURSDAY 22 MAY 2008 IDYA PTY LIMITED v ANASTASIOU & ORS.

STRATA TITLES - Strata Schemes (Freehold Development) Act 1973 - Strata Management Statement - restrictions on use by owners of lots - whether enforceable against tenant.

Clause 19(1)(a) of the registered Strata Management Statement (SMS) for a mixed residential and retail strata building at Manly, required by the Strata Schemes (Freehold Development) Act 1973, was binding by statute on the owners, mortgagees and tenants of the strata lots. The SMS contained restrictions on the use of the retail lots by providing: "The owners of the Retail Shops must not use the Retail Shops as a fast food outlet". In Owners SP 69470 v Charbel CJ Pty Ltd [2004] NSWSC 1286 Burchett AJ held that the tenants of the retail shops were using them as fast food outlets and they were bound by the restriction in the SMS. The Court of Appeal held that the restriction was not binding on the tenants and reversed the decision of Burchett AJ [2005] NSWCA 241. The relevant lease of retail lots contained covenants which bound the tenant to comply with the restriction in the SMS but the owners were permitting use by the tenant as a fast food outlet in breach of the user covenants. The Residential Owners Corporation took proceedings against the owners of the retail shop to enforce the restriction and the owners cross-claimed against the tenant to restrain breaches of the user covenants. Nicholas J granted an injunction to restrain the owners of the relevant retail lots from using them or permitting them to be used as a fast food outlet and granted the owners injunctions against the tenant restraining it from using the lots as a fast food outlet. There was no dispute that the retail lots were being used as fast food outlet. On appeal: Held dismissing the appeal: (1) by Beazley JA, Mason P concurring, the owners of the retail lots had been using them as a fast food outlet in breach of the restriction in the SMS by permitting the tenant to use them for that purpose; (2) by Handley AJA that it was necessary in order to give business efficacy to the SMS to recognise an ad hoc implied term which prohibited the owners of the retail lots from permitting others to do on their property what they were prohibited from doing themselves. ORDERS

The appeal and cross appeal should be dismissed with costs in favour of the respondents and the cross respondents as the case may be.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40573/07

MASON P BEAZLEY JA HANDLEY AJA

THURSDAY 22 MAY 2008 IDYA PTY LIMITED v ANASTASIOU & ORS.

Judgment 1 MASON P: I agree with Beazley JA. 2 BEAZLEY JA: I have had the advantage of reading in draft the judgment of Handley AJA. I agree with the orders that his Honour proposes, but I have reached that position through a different route. Accordingly, I express my separate reasons below. In doing so, I will rely on the factual and statutory references in his Honour's judgment and only repeat them to the extent necessary to explain my reasons. 3 The appellant is the lessee of shop premises on the ground floor of a strata building in Manly (the premises), from which it conducts a fast food outlet, being an "Oporto chicken restaurant". I will refer to the lease of those premises as "the lease". The premises comprise both residential and retail strata units and there is a separate Owners Corporation for each. The first and second respondents are the owners of the retail lots, and the lessor of the shop premises in which the appellant conducts the Oporto chicken restaurant. I will refer to these parties as the respondents. The third respondent is the Owners Corporation of the residential lots and the individual owners of the lots. I will refer to these respondents as the Owners Corporation. 4 The 'Permitted Use' of the premises under the lease was a restaurant in compliance, relevantly within the terms of the Strata Management Statement (SMS): see lease item 8. Clause 6.1 of the lease provided that the lessee was "only [to] use the Premises for the Permitted Use." Pursuant to the terms of the SMS, there is a prohibition on the use of the Retail Shops as a fast food outlet. Use as a restaurant is permitted: see cl 19.1(a) of the SMS. The meaning and operation of cl 19.1(a) is central to the issues raised on the appeal and I will refer to its terms shortly. 5 In proceedings determined by Burchett AJ on 10 March 2005: Owners Corporation Strata Plan 69470 v Charbel CJ Pty Ltd [2004] NSWSC 1286, his Honour held that the appellant was using Lot 2 of the retail lots as a fast food outlet. There was an appeal from his Honour's decision: see Charbel CJ Pty Ltd v Owners Corporation Strata Plan 69470 [2005] NSWCA 241 (Charbel). The finding that the premises were being used as a fast food outlet was not challenged on that appeal and it is accepted that it is binding on the parties to this appeal However, the Court's decision is relevant for other reasons, as I discuss below. 6 Following the Court of Appeal's decision in Charbel, the Owners Corporation brought proceedings to restrain the respondents from using Lot 2, or permitting Lot 2 to be used, for the conduct of a fast food outlet. The Owners Corporation also sought an injunction requiring the respondents to take all steps necessary to ensure that a fast food outlet ceased to operate from Lot 2. The respondents cross-claimed against the appellant to enforce the covenant relating to permitted use under the lease. 7 The trial judge, Nicholas J, made orders restraining the respondents from using Lot 2 as a fast food outlet and requiring them to take all steps necessary to ensure that a fast food outlet ceased to operate from Lot 2. His Honour also granted an injunction on the cross-claim, the effect of which was to restrain the appellant from using the premises as a fast food outlet. 8 The principal issue on the appeal is whether an injunction lay at the suit of the Owners Corporation against the respondents to compel them to enforce the covenant relating to permitted use of the retail lots. This issue involves the construction of certain provisions of the Strata Schemes (Freehold Development) Act 1973 (the Act), the SMS and in particular, cl 19.1(a). The terms of the lease are also relevant.

The Act 9 Handley AJA has explained the requirements of the Act relating to the registration of an SMS and the terms of s 28R(1), s 28SS and Sch 1C of the Act. It is not necessary to repeat those matters, save to note that the SMS may include provisions that regulate the activities that may be carried out on the Strata premises: see Sch 1C, cl 3(2)(d). Clause 19.1(a) regulates the use of the Retail Shops. 10 Section 28W of the Act provides, relevantly: " 28W Effect of strata management statement

(1) A registered strata management statement, as in force for the time being, relating to the management of a building has effect as an agreement under seal containing the covenants referred to in subsection (2) entered into by each person who for the time being is: (a) a body corporate of a strata scheme for part of the building, or (b) a proprietor, mortgagee in possession or lessee for the time being of any of the lots in such a strata scheme, and (c) …

(2) The covenants referred to in this section are: (a) a covenant by which those persons jointly and severally agree to carry out their obligations under the registered strata management statement as from time to time in force, and (b) a covenant by which those persons jointly and severally agree to permit the carrying out of those obligations." (Emphasis added) 11 Section 28W has the effect of making an SMS an agreement amongst the parties specified, relevantly, in this case, the Owners Corporation, the proprietor of a lot (here the respondents) and a lessee of a lot (in this case the appellant). The section thus overcomes any problems of privity that otherwise might have existed at least as between the Owners Corporation and, relevantly, persons such as the appellant, whose only non-statutory contractual relationship is with the respondents pursuant to the lease.

The Strata Plan and the SMS 12 Clause 15 of the Strata Plan for the commercial lots made provision for the SMS in the following terms: "15 Strata management statement

(a) The strata management statement contains by-laws which affect the strata scheme.

(b) The owner and the Owners Corporation must comply with the strata management statement.

(c) If there is any inconsistency between the terms of the strata management statement and these by-laws, the strata management statement will prevail.

(d) A breach of the terms contained in the strata management statement amounts to a breach of these by-laws." 13 Clause 19.1(a) of the SMS is the principal clause in contention. It provides: "The Residential Owners and the Retails Owners acknowledge that the Retail Shops may be used and open for trade as restaurants or other commercial use in accordance [with] current trading hours approved by Manly Council. The owners of the Retail Shops must not use the Retail Shops as a fast food outlet ." (Emphasis added) 14 Certain terms used in cl 19.1(a) are defined in Pt 2 of the SMS. In addition, the "effect" of the SMS is specified in Pt 1. So far as is relevant, those clauses provide as follows. " PART 1

This statement has effect as an agreement under seal binding;

(b) a proprietor, mortgagee in possession or lessee for the time being of any of the lots either in the Residential Flat Building or the Retail Shops ; and

(c) any other person in whom the fee simple of any part of the Building or its site (being a part affected by this Statement) is vested for the time being, or the mortgagee in possession or lessee of any such part." (Emphasis added) 15 Part 1 replicates s 28W of the Act. The appellant acknowledges that it is bound by any clause in the SMS which makes express reference to it, for example, as occupier. 16 As I have indicated, Pt 2 of the SMS is the definition provision. "Owners" is defined to mean: "… the Residential Owner and the Retail Owner and "Owner" means any of those persons." 17 "Residential Owner" is defined to mean: "… the owner of the Residential Lot or (after registration of the Residential Strata Scheme) the owners corporation of the Residential Flat Building." 18 "Retail Owner" is defined to mean: "… the owner of the Retail Lot of (after registration of the retail strata scheme) the owners corporation of the Retail Shops." 19 "Retail Shops" is defined to mean: "… the two (2) commercial lots fronting 43-45 North Steyne, Manly and the utility lot being Lots 1, 2 and 3 in the strata plan constituted on registration of the retail strata plan."

(These are the premises occupied by Oporto pursuant to its lease.) 20 The central question that arises for consideration on the appeal is whether cl 19.1(a) is a prohibition affecting only the owners of the Retail Shops directly from using the Retail Shops as a fast food outlet, or whether the prohibition extends to restrain the owner of the Retail Shops from authorising or permitted the Retail Shops to be used as a fast food outlet. 21 The respondents contend that cl 19.1(a) should be read literally, so that it is confined to a prohibition on the direct use by the owner of the Retail Shops. The underlying basis for this argument was that where the SMS intended for a particular clause to extend to occupiers, it expressly so stated. As cl 19.1(a) did not include a reference to the occupier, it did not prohibit the use of the Retail Shops as a fast food outlet by a lessee of the owners.

Clause 19.1(a) 22 The meaning of the second sentence in cl 19.1(a) was considered by this Court in Charbel. Tobias JA (Mason P and Brownie AJA agreeing) rejected the Owners Corporation's construction that the phrase "owners of the Retail Shops" included, by implication, lessees and occupiers. His Honour observed that to give the clause that construction was not only inconsistent with the drafting of other clauses, but would involve a re-drafting of the clause so that it would read, "The Retail Shops must not be used as a fast food outlet": see [39]-[40]. Rather, as his Honour observed at [41], the drafter of the SMS was "… using the expression 'owner' as referring to a proprietor of a lot in the Retail Shops and, as such, a proprietor is bound by the SMS as Pt 1(b) provides." (Emphasis added) 23 His Honour observed, at [42], that the first sentence of cl 19.1(a) was an acknowledgement, expressed in passive terms, by each of the residential and retail Owners Corporations that the Retail Shops may be used as restaurants, or for other commercial uses as approved by Manly Council. By contrast, the second sentence of cl 19.1(a) was expressed in the active voice and contained a prohibition directed to specified persons, namely, "the owners of the Retail Shops", from using the premises in a particular way, that is, as a fast food outlet. His Honour continued, at [43], that the drafter of the clause had adopted this particular approach to the second sentence because "it is the owners or proprietors of the relevant lots who have direct control over their use". His Honour continued that it was logical for the obligation not to use the Retail Shops for the proscribed use to be imposed only upon those persons who were in the sole position to exercise control by limiting the use to which the lots could be put. Those persons were, of course, the owners or proprietors of the Retail Shops. 24 It was not submitted that this construction was erroneous or that this Court should revisit the construction of that phrase. Rather, what was in issue in this case was whether, in circumstances where the lessee was using the premises as a fast food outlet, the Owners Corporation was entitled to injunctive relief against the respondents, requiring them to cause the appellant to cease carrying on that use. This question was discussed in Charbel. In order to understand the discussion, it needs to be noted that Charbel was a lessee of one of the shop premises from the original owner of the Retail Shops from which it conducted a fish and chip shop. The appellant here (Idya Pty Ltd) was a lessee of the shop premises within the Retail Shops and was a party to the Charbel proceedings. The then owner of the Retail Shop was the developer. (It is convenient to equate that party with the respondents on this appeal for the purposes of the discussion.) 25 Tobias JA referred to a submission made by Charbel that the owners of the Retail Shops (the respondents), by failing to require the lessee to remedy the breaches of the lease, were thereby in breach of cl 19.1(a) and the Owners Corporation could institute proceedings for an injunction restraining the owners from continuing to permit the Retail Shops to be used by the lessee as a fast food outlet. Charbel had submitted that the prohibition in the second sentence of cl 19.1(a) was one that not only prevented the owners from directly using the Retail Shops themselves for the prohibited purpose, but also prohibited them from "permitting an occupier or lessee" from using the premises for that purpose. 26 The Owners Corporation expressed doubt as to the availability of that approach as the owners of the Retail Shops (the respondents) may well argue that pursuant to the terms of its lease, it had leased the premises only for a use which did not contravene cl 19.1(a). On that argument, it would not have 'permitted' the leased shop to be used as a fast food outlet. Tobias JA commented, at [38], that the Owners Corporation concern overlooked that on the construction he favoured on the meaning of "owners of the Retail Shops" in cl 19.1(a), those owners were "prohibited from permitting those premises to be used as fast food outlets albeit in breach of the leases". 27 In their submissions in these proceedings, the Owners Corporation submitted that the statements of Tobias JA, to which I have just referred and particularly that at [38], constituted part of the ratio decidendi of the decision and accordingly, this Court should apply it. 28 The ratio in a case identifies the reason for decision in that particular case. Its purpose is part of and, indeed, is the fundamental aspect of the system of precedent upon which our judicial system is based. Strictly, the Court of Appeal is not bound by its own decisions: A v State of New South Wales; Floros v A; State of New South Wales v A [2005] NSWCA 292; 63 NSWLR 681. See also Nguyen v Nguyen [1990] HCA 9; (1990) CLR 245 at 269. However, the Court will only depart from principles stated in earlier cases where the earlier decision is wrong: see A v State of New South Wales at [13]. Nor is the Court bound by obiter dicta in earlier decisions, although obiter comments are often treated as persuasive. 29 It is not always easy, however, to determine the ratio decidendi of a case. In Federation Insurance Limited v Wasson [1987] HCA 34; (1987) 163 CLR 303, the High Court affirmed the decision of this Court: Wasson v Commercial & General Acceptance Ltd (1985) 2 NSWLR 206, where McHugh J, at 228, pointed out that "only the reasons for the decision in a case are binding" (original emphasis). 30 In Garcia v National Australia Bank Ltd [1998] HCA 48; 194 CLR 395, Kirby J stated at [56] that "It is fundamental to the ascertainment of the binding rule of a judicial decision that it should be derived from (1) the reasons of the judges agreeing in the order disposing of the proceedings; (2) upon a matter in issue in the proceedings; (3) upon which a decision is necessary to arrive at that order." 31 His Honour reiterated this approach in D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1, emphasising that the ratio requires "identification of the 'matter which it was necessary to decide and which was actually decided'": see Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 at 532 per Dixon J. 32 I do not understand the statement by Tobias JA in Charbel at [38] that the owners of the Retail Shops were prohibited from permitting those premises to be used as fast food outlets to be part of the ratio decidendi of that case. Rather, it reflected Tobias JA's response to matters that had been raised in argument. From his Honour's viewpoint, the right in the Owners Corporation to require the appellant to cease using the premises as a fast food outlet was a consequence that flowed from the construction he had given to the phrase "owners of the Retail Shops" in the second sentence of cl 19.1(a). That statement was not an essential part of his reasoning as to the meaning of the phrase "owners of the Retail Shops" in the second sentence of cl 19.1(a), nor was it necessary for the disposition of the matter before this Court. 33 Accordingly, it is for this Court to determine the question whether the second sentence of cl 19.1(a) prohibits the owners of the Retail Shops from permitting those premises to be used by any person as a fast food outlet. Having stated this as being the matter that calls for determination, the real question in this case is whether, by permitting the lessees from using the Shops as an Oporto restaurant in contravention of the terms of the lease, the owners are thereby in contravention of cl 19.1(a) so as to be susceptible to injunctive relief at the suit of the Owners Corporation. 34 The word "use" bears various shades of meaning. The meaning of the word in the context of various taxing or rating statutes has been the subject of frequent judicial consideration. In Council of the City of Newcastle v Royal Newcastle Hospital [1957] HCA 15; (1957) 96 CLR 493, Taylor J, in a passage that is often repeated, stated, at 515, "The word 'used' is, of course, a word of wide import and its meaning in any particular case will depend to a great extent upon the context in which it is employed."

There was an appeal to the Privy Council. Lord Denning delivered the judgment of their Lordships: Council of the City of Newcastle v Royal Newcastle Hospital [1959] HCA 14; (1959) 100 CLR 1. Whilst not expressly endorsing the statement of Taylor J, it is apparent from his Lordship's judgment that the word " use " had a wide meaning and its actual meaning depended upon the particular context. 35 In a statement which underscores the width of the meaning of the expression, their Lordships rejected a submission that an owner could not be said to "use land" in circumstances where the land was left unoccupied, as Royal Newcastle Hospital had done with the land which had been taxed by the Council under its land rating legislation. Their Lordships were of the view that an owner could "use land" by keeping it in its virgin state for its own special purposes. A large tract of land had been purchased around the hospital so as to provide a "barrier" against the approach of factories and houses so as to provide quiet and serene surroundings for patients as well as to provide land for future expansion. Their Lordships noted that the same advantages could be obtained if the land were owned by the Crown or a trust. Their Lordships commented at 4, however, that the advantages in that case "would be fortuitous or at any rate outside the control of the hospital" (emphasis added). 36 In Ryde Municipal Council v Macquarie University [1978] HCA 58; (1978) 139 CLR 633, the High Court was again concerned with the same rating legislation that had been under consideration in Council of the City of Newcastle v Royal Newcastle Hospital. The matter in issue was whether Macquarie University "used" certain land "solely for the purposes" of the University. The land in question was within the grounds of the University and was devoted to commercial and shopping facilities, including a travel centre and a bank. Those businesses were conducted on land leased from the University. Gibbs ACJ, after reviewing a number of cases in which the word "use" had been considered, mostly in the context of taxing statutes stated, at 639, "… land may be 'used' by a university, in the ordinary and natural meaning of that word, if the university grants a lease of the land for the purposes of the university." 37 His Honour considered that the provision of small commercial establishments providing for the needs of students and staff on campus was such a purpose. In coming to that conclusion, his Honour had earlier stated, at 639, that "Where use, and not occupation, is in question, I can see no reason to disregard the indirect us e which an employer makes of a house by providing it as a residence for the use of his employees." (Emphasis added) 38 This comment followed his Honour's consideration of Knowles v Newcastle Corporation [1909] HCA 72; (1909) 9 CLR 534, where O'Connor J had stated his view, in obiter at 543, that where a house was vested in the Chief Commissioner for Railways and occupied rent-free by a stationmaster, who was required as a condition of employment to reside in the house, then it was "…difficult to see how it can be said that it is the station-master and not the Commissioner who uses the house." 39 There are many instances of cases which point in the opposite direction, that is, where it has been held that where premises were let by the owner of the land, such land was not "used" by the owner for the particular purposes which would earn exemption from rates or land taxes. Stephen J referred to this category of this case in Ryde Municipal Council v Macquarie University at 651 ff. His Honour accepted that in such cases there was a collateral or independent use of land of the kind referred to by Windeyer J in Randwick Corporation v Rutledge [1959] HCA 63; (1959) 102 CLR 54 at 94. It was different, however, where the "rental" or the lease of property was for purposes that were "concomitant or ancillary or incidental" to the purposes specified in the taxing statute. 40 The question of "use" arose for consideration in Attorney-General (ACT) v Commonwealth of Australia (1990) 95 ALR 739; (1990) 26 FCR 82. The question again rose in a statutory context, namely, whether certain land on Northbourne Avenue, Canberra City, was "national land" for the purposes of the Australian Capital Territory (Planning and Land Management) Act 1988 (Cth), which was part of the package of legislation enacted to provide a measure of self-government for the Australian Capital Territory. The relevant statutory provision was s 27(2) which provided:

"The Minister shall not declare an area to be National Land unless the land is … used by or on behalf of the Commonwealth." (Emphasis added) 41 The Gowrie Private Hotel was operated on the land in question by a Commonwealth corporation. That Hotel had for many years been used as accommodation for Commonwealth public servants, but accommodation was also available to members of the public. The Hotel was managed on the corporation's behalf by a private company, who paid rent to the Commonwealth. The competing arguments were whether "use" within the meaning of the statute meant direct use, that is, actual use by the Commonwealth, or whether it was sufficient if there was indirect use by the Commonwealth, namely, for the purposes of providing accommodation for public servants, members of the public, and for obtaining a return on the capital invested by the Commonwealth in the premises. 42 The Court (Gallop, Lockhart and Neaves JJ) acknowledged that the word "use" was of wide import (citing, inter alia, the authorities to which I have referred above). The Court further noted, at 748, that the word was not only one of "wide signification", but was a word which did not have a precise meaning. Their Honours pointed out, at 750: "The situation was that the Commonwealth at all times retained the right to dictate who should be accommodated in the premises and it was in a position to determine the tariffs that might be charged. By the requirement that the company pay an annual amount for its use of the premises the Commonwealth obtained a return on the capital it had invested. The company had no right to use the guest houses for any other purpose than the provision of accommodation of those whom it was required or permitted by the Commonwealth to accommodate." (Emphasis added) 43 The focus in this passage is on control. The relevance of "control" in respect of the question of use was again referred to at 751, where their Honours stated: "The company continued to be obliged to operate the premises only as a guest house or private hotel. Thus the Commonwealth continued to have power to ensure that the premises were used to accommodate those persons whom it wished to have accommodated there, whether they be public servants, tourists or other members of the public. The circumstance that the company operated its own business on the site for the purpose of earning profit does not … deny the fact that the land was … used by the Commonwealth in the relevant sense." (Emphasis added) 44 As I have already stated, the SMS comprises a contract between the persons specified in cl 1. The provisions of s 28W of the Strata Schemes (Freehold Development) Act to which I have also referred, thus overcomes problems of privity by statutorily imposing a contractual relationship on certain entities who would otherwise not be bound by the terms of the SMS. Relevantly for present purposes, that includes the appellant, being the lessee of the Retail Shops. 45 The SMS is properly to be construed as a commercial document, thus attracting the principles of construction that apply to commercial contracts. In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 771; [1997] 3 All ER 352, Lord Steyn said: "In determining the meaning of the language of a commercial contract … the law therefore generally favours a commercially sensible construction. The reason for this approach is that a commercial construction is more likely to give effect to the intention of the parties. Words are therefore interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language."

See also MLW Technology Pty Ltd v May [2005] VSCA 29 at [81]. 46 There are many statements to like effect. It is sufficient to refer to the comment of Kirby P (as his Honour then was) in Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-314. His Honour, after observing that the contract under consideration was between two substantial business entities, stated: "… there are sound reasons of principle and policy for determining their respective rights and duties, if at all possible, by reference to the written terms by which they expressed those rights and duties … But language, including that used in commercial agreements, is often ambiguous …

Whoever may be the parties to the agreement, it is the fundamental rule, that a court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way." 47 In Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, Gibbs J, at 109, expressed a similar principle. His Honour stated: "The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust …"

See also TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 146 per Hope JA, Meagher JA agreeing. 48 In TCN Channel 9, Priestley JA considered that it was not necessary to have resort to the line of authority relied upon by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd. Rather, his Honour considered, at 161 of TCN Channel 9, that in that case, the construction of the contract emerged "… simply from a consideration of the meaning of the words in the light of their full context in the contractual documents and in the circumstances surrounding the making of the contracts as known to all the parties". 49 His Honour also referred, by way of an aid to construction, to the principle described by, amongst others, Lord Diplock in Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180 at 189, namely, that "a man cannot be permitted to take advantage of his own wrong". That principle has no application here. However, it is my view that in this case, the construction of cl 19.1(a) is a contextual one, rather than one that involves the resolution of an ambiguity. Nonetheless, the principle that commercial contracts have to be interpreted in a commercially sensible way requires recognition. 50 In my opinion, having regard to the wide meaning that the word "use" bears, depending upon its context, the proper construction of cl 19.1(a) is that it is a prohibition upon the owners of the Retail Shops on using, including permitting to be used, the premises as a fast food outlet. Any other construction would be commercially nonsensical. If the construction for which the appellants contend was the correct one, it would mean that an individual could be the proprietor of the Retail Shops and by the mere device of entering into a lease or licence with a company of which the proprietor was the sole shareholder, thereby avoid the prohibition on use. The reverse, of course, would also operate, that is, a company could be the owner of the Retail Shops and lease or licence the premises to its sole shareholder. Reasonable commercial persons would readily reject that as being available under a clause in the terms of cl 19.1(a). 51 Accordingly, I am of the opinion that cl 19.1(a), properly construed, means that the owner of the Retail Shops is precluded from using or permitting, by way of lease, licence or otherwise, the Retail Shops to be used as a fast food outlet. 52 The permitted use of the premises pursuant to the lease is as a "restaurant in compliance with, inter alia, the SMS". A restaurant which in fact is a fast food outlet is not a restaurant in compliance with the SMS. This was not in dispute, nor, as I understand it, is it in dispute that the appellant lessee is in breach of its contract. It is no answer, in my opinion, to the injunction sought against them, for the owners to state that they had leased the premises in terms which, on their face, require compliance with the SMS. The reality is that the owners have permitted the lessees to operate in breach of the terms of their lease. In those circumstances, they have permitted a use which is prohibited. That is as much 'permission' as it would be if there was no restriction in the lease as to the permitted use. In circumstances where the respondents have indicated that they will only take steps to require the lessees to cease that use if obliged to do so, I have concluded that they are amenable to an injunction to that effect, at the suit of the Owners Corporation. 53 It follows, in my opinion, that both the appeal and the cross-appeal should be dismissed. 54 HANDLEY AJA: This appeal concerns the use of a retail shop on the ground floor at 43-45 North Steyne Manly as a fast food outlet. A body corporate representing the owners of residential lots on the upper floors and those owners are attempting to prevent that use in breach of the Strata Management Statement (SMS) and By-Laws of the building. They secured an injunction from Nicholas J which compelled the owners of the retail lot to enforce covenants in their lease which prohibited that use and those owners secured a corresponding injunction against their tenant. The tenant has appealed and the owners of the retail lot have cross appealed. 55 The building is the subject of two strata plans, the first of which, SP 69470, was registered on 3 March 2003. The ground floor in the plan comprised common property in the form of an entrance lobby, lifts, stairwells, and a ramp leading to the underground car park and lot 101 DP 1047991 (blue 2/133,189-90). This was a current plan as defined by s 5(1) of the Strata Schemes (Freehold Development) Act 1973 (the Act), and lot 101 was a current plan lot. The first strata plan divided the upper floors into residential lots and common property. 56 On 10 March 2003 the second strata plan, SP 69948, was registered in respect of basement level 1 and the ground floor lot 101. It subdivided lot 101 into two lots (2/175). It is evident from the SMS (2/188 & foll) that the ground floor lots were intended for use as retail shops (2/190). 57 Registration of the second plan was permitted by s 7(2A)(a) which enables a current plan lot to be subdivided into lots or lots and common property by the registration of a Strata Plan. Lots and common property so created are defined as stratum parcels (s 5(1)). Its registration created a new body corporate although another body corporate already existed for the rest of the building. 58 The existence of two bodies corporate which have to manage different parts of the same building would create problems unless the rights and responsibilities of the two bodies are clearly defined. Accordingly s 28R(1) provides: "The Registrar-General must not register a plan as a Strata Plan creating a stratum parcel unless the Registrar-General also registers a Strata Management Statement for the building and site concerned". 59 An SMS was registered in respect of both strata plans. Section 28S defines the formal requirements which include compliance with Schedule 1C. The clause in that Schedule which is presently relevant is clause 3(2)(d) which provides: "(2) A strata management statement may include particulars relating to any one or more of the following: (a) … (b)… (c) … and (d) prohibiting or regulating trading activities … " 60 The SMS did prohibit trading activities and it will be necessary to refer to the relevant provisions. Section 28W defines the legal effect of an SMS: "(1) A registered strata management statement … relating to the management of a building has effect as an agreement under seal containing the covenants referred to in subsection (2) entered into by each person who for the time being is: (a) A body corporate of a strata scheme for part of the building, or (b) A proprietor, mortgagee in possession or lessee for the time being of any of the lots in such a strata scheme, and (c) … (2) The covenants referred to in this section are: (a) A covenant by which those persons jointly and severally agree to carry out their obligations under the registered strata management statement as from time to time in force, and (b) A covenant by which those persons jointly and severally agree to permit the carrying out of those obligations." 61 Clause 19.1(a) of the SMS provides (2/201): "The Residential Owners and the Retail Owners acknowledge that the Retail Shops may be used and open for trade as restaurants or other commercial use in accordance [with] current trading hours approved by Manly Council. The owners of the Retail Shops must not use the Retail Shops as a fast food outlet". 62 The term "Residential Owner" is defined by cl 2.1 as meaning the owners corporation of the Residential Flat Building which is defined as the residential lots and car spaces in the Residential Strata Scheme. In other words the reference is to the body corporate created by the first strata plan. The term "Retail Owner" is defined as the owners corporation of the Retail Shops, which is defined as the two commercial lots and the utility lot in the retail strata plan. In other words the "Retail Owner" is the body corporate created by the registration of the second strata plan. "Residential Owners" and "Retail Owners" in the plural are not defined but in the context of cl 19 these terms refer to the individual owners of the residential and commercial lots. 63 On 12 March 2003 PCP Ensor No 2 Pty Limited (the developer) entered into a lease of shop 2 and associated storage space in favour of the appellant for a term of 5 years commencing on 1 October 2003 with two options to renew for further terms of 5 years. Item 8 of the Information Table (2/241) provided: "Permitted Use (Clause 6.1) Restaurant in compliance with by-laws of the Building and the Strata Management Statement …" 64 The Strata By-laws and the SMS were attached to the lease. Clause 6 of the lease relevantly provided: "6.1 Permitted Use The tenant must only use the Premises for the Permitted Use. 6.2 Restrictions on Use The Tenant must not:: (a) use the Premises for any purpose other than that stated in item 8 …" 65 Clause 6.7 of the lease obliged the tenant to comply with the By-laws. Clause 15 of the latter relevantly provided: "(a) … (b) The owner and the Owners Corporation must comply with the strata management statement. (c) … (d) A breach of the terms contained in the strata management statement amounts to a breach of these by-laws."

The by-laws are binding on the owners and occupiers of lots in accordance with s 44 of the Strata Schemes Management Act 1996, and by ss (2)(b) the parties bound impliedly covenant "to observe and perform all the provisions of the by-laws". 66 The cross appellants purchased lot 2 from the developer on 29 May 2003 and completed, subject to the registered lease, on 17 September. The tenant entered into a franchise agreement with Oporto (Franchising) Pty Limited on 30 June and commenced business as an Oporto "Restaurant" on 27 November. On 7 and 21 November the solicitors for the Residential Owners Corporation threatened the owners of shop 2 with proceedings to restrain its use as a fast food outlet. The use continued and the corporation commenced proceedings in the Equity Division against the tenant to enforce the prohibition in the SMS. 67 The proceedings were heard by Burchett AJ who held on 10 March 2005 that the tenant was bound by cl 19.1(a) of the SMS and he granted an injunction to restrain the use of shop 2 as a fast food outlet. The tenant's appeal to this Court was allowed on 10 August 2005 and the injunction was discharged: Charbel CJ Pty Limited v Owners Corporation Strata Plan 69470 [2005] NSWCA 241. The fact that shop 2 was being used as a fast food outlet was no longer in dispute but the appeal succeeded because the tenant was not bound by cl 19.1(a) of the SMS which only imposed an obligation on the owners. 68 The residential owners corporation and the residential owners commenced fresh proceedings against the owners of shop 2 to enforce the prohibition against its use as a fast food outlet and the latter cross claimed against the tenant to enforce the user covenants in the lease. The proceedings were heard by Nicholas J who granted the plaintiffs an injunction against the owners of shop 2, and granted the latter a corresponding injunction against the tenant. 69 The appeal turns on the construction of cl 19.1(a) of the SMS. It was common ground that shop 2 was being used as a fast food outlet, and, subject to questions of estoppel and waiver the tenant did not challenge the finding that this was a breach of its covenants. Counsel for the cross appellants, the owners of shop 2, made it clear that his clients only wished to enforce the tenant's covenants if they were compelled to do so by order of the Court. 70 Clause 19.1(a) relevantly provides: "The owners of the Retail Shops must not use the Retail Shops as a fast food outlet" 71 Part 1 of the SMS provides, in accordance with s 28W, that it has effect as an agreement under seal binding the two bodies corporate and: "(b) a proprietor, mortgagee in possession or lessee for the time being of any of the lots either in the Residential Flat Building or the Retail Shops." 72 The overriding purpose of Part 1 and the SMS was to make the SMS binding on the bodies corporate and every person in occupation, as of right, of any lot in the building. This being so it might have been thought that cl 19.1(a) should be construed to give effect to that purpose. This could have been done by reading "owners" in that clause in accordance with the definition of the persons bound in Part 1, treating the latter as a dictionary: compare Adamastos Shipping Co Ltd v Anglo-Saxon Petroleum Co Ltd [1959] AC 133 ("this bill of lading" read as "this charterparty"). That construction is foreclosed by the earlier decision of this Court. The construction of cl 19.1(a) was not res judicata because the owners were not parties to the earlier proceedings and were not privies of the residential owners corporation. The Court is nevertheless bound by reasons of comity fairness and consistency to follow that decision despite any misgivings it might have. 73 The question therefore is whether the owners are using the shop as a fast food outlet. A court would normally find that the owners were not using the shop and that any physical use was by the tenants. The owners are of course using the premises to derive income from the letting: compare Commissioners of Taxation v Trustees of St Marks Glebe [1902] AC 416, 420-1; Randwick Corporation v Rutledge [1959] HCA 63, 102 CLR 54, 88. 74 The Court is not here concerned with the construction of an exemption in a taxation or rating statute or with the construction of covenants in a lease which are construed against the landlord. A covenant by a tenant against use for a particular purpose would ordinarily be construed as limited to use by him personally. A well drawn covenant will also bind the tenant not to permit or suffer the use of the premises by others for the forbidden purpose: compare Atkin v Rose [1923] 1 Ch 522; Mitchell v Hore (1927) 27 SR (NSW) 433; Barton v Reed [1932] 1 Ch 362. Even a covenant in this form may not extend to the acts of a subtenant or others for whom the tenant is not responsible: Wilson v Twamley [1904] 2 KB 99 CA. 75 However the word "used" is susceptible of wider meanings in an appropriate context, particularly where this is required to make an instrument operate in accordance with its clear overriding purpose. In Council of the City of Newcastle v Royal Newcastle Hospital [1957] HCA 15, 96 CLR 493, 515 Taylor J said: "The word "used" is, of course, a word of wide import and its meaning in any particular case will depend to a great extent upon the context in which it is employed." 76 The issue in that case was very different but the principle remains relevant. The meaning of used was also considered, again in a very different context, in Ryde Municipal Council v Macquarie University [1978] HCA 58, 139 CLR 633 where Gibbs ACJ, who was part of the majority, said (637, 638, 643): "No-one can doubt that "used" is a word of wide import, and that its meaning in any particular case depends to a great extent on the context in which it is employed … One thing that the context provided by s 132(1) of the Act does make clear is that "used" is not meant to be synonymous with "occupied". … It is quite apparent that where the expression "used or occupied" appears, "used" refers to some form of use other than actual occupancy … The context of s 132 shows that use other than by an occupier is relevant. A person who owns land may be said to use it for his own purposes notwithstanding that he permits someone else to occupy it, even under a lease. That is almost beyond argument when the owner's purpose is to acquire income … I do not understand any of the learned judges whose words I have cited to have been purporting to lay down an inflexible rule of construction that land can never be "used" … by an owner who has leased it". 77 See also per Stephen J at 651. 78 In Attorney-General for the ACT v Commonwealth (1990) 26 FCR 82,91 the full Federal Court said: "Land may be said to be "used" within the meaning of s 27(2) if it is held or possessed so as to derive revenue, profit or other benefit from it … Not only is "use "a word of wide signification, it is also a word which does not have a precise meaning: Arbuckle Smith & Co Ltd v Greenock Corporation [1960] AC 813, per Lord Radcliffe at 828. His Lordship added that 'in general it conveys the idea of enjoyment derived by the user from the corpus of the object enjoyed.'" 79 The owners are deriving "benefits" from the use of shop 2 as a fast food outlet. That use is prohibited by the lease, the breach of covenant is not disputed, and the owners would prefer that use to continue. On any view the owners are permitting, allowing or suffering its use as a fast food outlet. 80 There are substantial linguistic difficulties in holding that the owners are using shop 2 as a fast food outlet. Other clauses of the SMS are expressed to be binding on "the owners and occupiers of the Retail Shops" compare cll 19.2(a) and (b),19.3(b). However a construction of the SMS and By-laws which allowed the use of shop 2 as a fast food outlet to continue without the residential owners and their body corporate having any legal remedy would lead to an absurd result. 81 The internal planning scheme for the building was quite clear, and the owners, as occupiers of shop 2, would be in breach of cl 19.1(a) if they operated a fast food outlet in their shop. Yet it is argued that they can, with impunity, permit their tenants to do what they themselves are prohibited from doing. The evident drafting deficiencies in the SMS provide a foothold for the argument but it is one which the court should reject if an alternative construction is open. 82 The general rule for the construction of written instruments, sometimes referred to as Lord Wensleydale's Golden Rule is that the grammatical and ordinary sense of the words is to be adhered to unless this would lead to some absurdity or inconsistency with the rest of the instrument in which case the grammatical and ordinary sense of the words may be modified so as to avoid that absurdity or inconsistency: Halsbury's Laws of England (4th ed) vol 12 "Deeds and Other Instruments" page 595 para 1463. 83 The recognition of an ad hoc implied term involves the construction of the contract: Codelfa Construction Pty Limited v State Rail Authority [1982] HCA 24, 149 CLR 337, 345 and raises a question of law: Heimann v Commonwealth (1938) 38 SR (NSW) 691, 695 The courts will imply a term where it is necessary to give business efficacy to the contract: Codelfa (above) at 346-7. 84 Faced with the choice of giving the word "use" in cl 19.1(a) of the SMS a wider and unnatural meaning to avoid an absurdity, or implying a term which would prevent the owners permitting the tenant to do what they could not do themselves, I prefer to adopt the latter course. The internal planning scheme is enforceable, in accordance with its obvious intention, if the owners occupy shop 2. It is argued that that planning scheme becomes unenforceable if the owners lease it to a third party taking appropriate covenants but ignoring clear and continuing breaches of covenant. A tenant need not be at arm's length, it could be a company controlled by the owner, or a close relative. 85 In my judgment an implied term which would add the words "or permit them to be so used" at the end of clause 19.1(a) should be recognised. Such a term satisfies all the tests referred to in Codelfa. 86 The appellant argued that the owners as landlords have waived any breach of the user covenant, or were estopped from enforcing it. The owners had accepted rent with full knowledge of the breach and have clearly elected against or waived any right of forfeiture. However they are not attempting to forfeit the lease but to enforce its terms. Their acceptance of rent under the lease is not inconsistent with the enforcement of other covenants and there has been no relevant waiver. 87 There could be an estoppel against enforcement of a user covenant in a lease but the tenant did not establish that the owners or their predecessor in title had made any relevant representation on which it relied to its detriment. If any relevant representation was made it was by the tenant to the owners' predecessor in title that its proposed use would be as a restaurant and not as a fast food outlet. 88 The appeal and cross appeal should be dismissed with costs in favour of the respondents and the cross respondents as the case may be.

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