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[2025] NSWCA 175
mixed. Appeal allowed in respect of Ground 4 only. The Court declared the lease validly terminated by the tenant and entered judgment for the tenant for $10. The tenant was ordered to pay the landlord's...
The tenant won on the issue of termination but not on the planning issue or its claim for substantial compensation. The Court concluded that the 2006 consent covered a gym, but only as part of the registered club operation, so the gym could not rely on that consent as an independent use after the club ceased operating. Even so, the landlord had separately promised, through the exercised lease option, to provide a registrable lease. It refused to do so unless the tenant resolved the planning issue, which was not a condition of that promise. The tenant could therefore accept the landlord's repudiation and terminate. But because the tenant did not establish that it could lawfully continue the gym or that the lost opportunity had any value, it received only $10 nominal damages. The landlord's cross-claim was dismissed.
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2,260 words · generated 06/10/2026
14 cited instruments linked from this judgment.
Interslice Pty Ltd operated a gym called Move Fitness from the lower ground floor of a building on Hector Street, Bass Hill. The site had previously been owned by the City of Bankstown R & SL Community Club. In 2006, the Club obtained development consent for a project described as “Refurbishment to Existing Bass Hill RSL Club Including Internal Alterations and Construction of Health Club, Children’s Play Area and Rear External Terrace” [68], [86].
Interslice held a registered five-year lease from 16 October 2014. It exercised an option for a further five years on 6 April 2019. The Club sold the land to CCA Investments – Bass Hill Pty Ltd on 13 September 2019. CCA did not give Interslice a new lease in registrable form. The parties nevertheless treated Interslice as occupying under an equitable lease on the terms of the new lease [60]-[62].
A dispute developed over whether the gym could lawfully continue operating after the Club closed. CCA took the position that the 2006 consent approved the gym only as part of the registered club, and that the use was no longer lawful once that club use ceased. It also refused to provide the registrable lease while the planning issue remained unresolved [145], [153]-[155].
Interslice claimed that CCA had repudiated its contractual obligations by repeatedly failing to issue the lease. It accepted the alleged repudiation on 7 April 2020 and vacated on 28 April 2020 [157]-[165]. The trial judge rejected the tenant’s termination case and accepted the landlord’s cross-claim. On appeal, the Court of Appeal rejected the tenant’s planning grounds and substantial-damages claim, but held that CCA had repudiated its obligation to provide a registrable lease. It declared the lease validly terminated by Interslice and entered judgment for $10 nominal damages [296]-[304].
The planning question was whether the 2006 consent authorised the gym as an independent use, or as an aspect of the site’s registered-club use. The Court accepted that the consent did extend to a change of use on the lower ground floor: the space changed from lounge, bar and billiards use to a health club or gym [17]-[20]. That did not decide whether the gym could operate independently after the club closed.
The judges considered the consent’s wording, the Statement of Environmental Effects and other contemporaneous material. Leeming JA read the grammar of the consent as placing the “Health Club”, “Children’s Play Area” and “Rear External Terrace” within the refurbishment of the existing club [23]-[24]. The Statement of Environmental Effects described the health club as serving “members and guests”, and described it as replacing licensed area [33]-[37]. The parking assessment also mattered. The development was assessed on the basis that gym users could use the Club’s car park, and the consent required additional parking spaces [26]-[32]. Leeming JA concluded that the gym and club uses were “inextricably bound up” [47]-[48]. McHugh JA reached the same result, finding that the consent was for a club purpose that included a gym, rather than a gym use independent of the club [86]-[99], [108]-[110].
The option and lease questions were analysed separately from planning. McHugh JA distinguished three matters: the agreement for lease contained in the Original Lease, the equitable lease arising from that agreement, and the registrable lease that CCA had not issued [193]-[195]. The option, once validly exercised, made the agreement for lease unconditional. Under it, CCA was obliged to provide a registrable lease within a reasonable time [119]-[123], [198]-[203]. McHugh JA considered that obligation distinct from whether Interslice could lawfully operate a gym under the new lease [204]-[208].
The landlord’s conduct went beyond delay. Interslice repeatedly requested the lease and expressly referred to its right under cl 2.2. CCA refused to provide it unless the planning issue was resolved, despite not claiming that planning legality was a condition of its obligation under the Original Lease [242]-[244]. The court assessed the conduct objectively. It concluded that, by 13 March 2020 at the latest, CCA’s position conveyed that it would perform the agreement only inconsistently with its obligation [244]. Interslice accepted that repudiation by its 7 April letter [245].
McHugh JA also rejected the argument that Interslice’s breach of cl 10.1(a)(ii) in the equitable lease prevented it from terminating the separate agreement for lease. There was no relevant causal connection between the alleged planning breach and CCA’s refusal to perform its unconditional obligation under the Original Lease [228]-[237]. Ward P and Leeming JA agreed with the conclusion that CCA repudiated, although their reasons describe the relationship between the registrable lease obligation and the equitable lease differently in some respects [2]-[5], [52]-[54].
The damages outcome followed a distinct analysis. Interslice was ready and willing to enter the registrable lease, and so could recover at least nominal damages [256]-[257]. But the contractual expectation was an opportunity to occupy the premises under the lease, subject to its covenants. It was not a contractual guarantee that the tenant would have a lawful or profitable business [264]-[267]. The Court found no basis to conclude that the opportunity had value because Interslice consistently maintained that the existing consent was sufficient and did not establish that it would seek or obtain new planning approval before CCA could terminate for breach [278]-[286].
The judgment applies established principles rather than announcing a new general test. For development consents, it adopts the approach that the consent and documents incorporated into it must be construed according to their terms, taking account of the consent’s enduring, public character and practical purpose [72]. The Court’s contribution is its fact-specific application of that approach to a consent that expressly covered a gym change of use, but where the documents linked that use to a registered club.
On existing uses, the Court treated the permitted use as a matter of characterisation. McHugh JA explained that the existing use here was derived from a consent that prescriptively identified the permitted use, rather than from a consent silent about use or from a use with no consent basis [102]-[109]. Because the consent authorised the registered-club use including a gym, and the club use was abandoned, the existing-use regime did not preserve an independent gym use [108]-[110]. The judgment did not resolve every question about the statutory definition. Leeming JA expressly left open whether particular limbs of the definition of “existing use” applied to the facts [50]-[51].
On repudiation, the judgment distinguishes the obligation under the original agreement for lease from obligations in the resulting equitable lease. The option, once validly exercised, created an unconditional obligation to enter a new lease. The registrable lease obligation arose under the Original Lease, and was not conditioned on the tenant’s compliance with a separate obligation under the equitable lease [198]-[208]. This distinction mattered because the planning breach could not, without more, qualify or excuse performance of that separate promise.
The damages analysis clarifies the difference between being entitled to terminate and proving substantial loss. The tenant could accept repudiation and recover nominal damages, notwithstanding its breach of the equitable lease. But substantial damages depended on proving that the contractual opportunity had some value in the counterfactual where the landlord performed [253]-[267]. The court did not treat the tenant’s existing business or past profits as sufficient, by themselves, to establish the value of the opportunity. It examined the planning position and the likely course of events after a breach notice [278]-[286].
At [48], Leeming JA concluded that the gym “did not survive independently” of the registered-club use. In plain English, the consent covered a gym, but the evidence showed it was approved as a club facility, rather than as a stand-alone business that could continue regardless of the club.
At [108], McHugh JA said that the consent “prescriptively identified the permitted use”. This means that the consent’s wording itself identified the relevant use with sufficient specificity. The Court did not treat the permission as a broad approval for any gym operation on the site.
At [203], McHugh JA described the tenant’s right to receive the registrable lease as an accrued legal right to a leasehold interest. The significance is that this right came from the agreement for lease in the Original Lease. It was not dependent on whether the tenant would later comply with every covenant in the new lease.
At [242], McHugh JA contrasted mere non-performance with an express refusal to perform unless the tenant satisfied a condition that did not qualify the landlord’s obligation. In practical terms, the court considered the context of the repeated requests, the tenant’s stated need for the document and the landlord’s response, rather than treating the failure to issue a lease as an isolated delay.
At [244]-[245], the Court identified the point by which the landlord’s conduct objectively conveyed repudiation and held that the tenant validly accepted it. The court’s reasoning focuses on what a reasonable person in the tenant’s position would infer from the landlord’s conduct as a whole.
At [286], McHugh JA held there was “no basis” to conclude that the lost opportunity had value. This did not undo the finding of repudiation. It explains why proving a contractual breach and valid termination did not automatically establish substantial financial loss.
The consent analysis is relevant where a development approval authorises a particular use within a broader operation, and the dispute is whether that use survives when the broader operation ends. The judgment makes the content of the consent and incorporated documents important. Here, the references to a health club, club members and guests, replacement of licensed space, and access to the club’s car park supported the conclusion that the uses were linked [23]-[48], [90]-[99].
The option analysis is relevant where a lease option has been validly exercised, but a landlord does not issue the promised lease in registrable form. The case emphasises that it is necessary to identify the source of the obligation: the original lease, the agreement for lease, the equitable lease, or the later registrable instrument. Here, the obligation arose under cl 2.2 of the Original Lease, as admitted in the pleadings [175], [198]-[208].
The repudiation reasoning is most closely engaged where the landlord has had repeated requests, has been told why the document is needed, and refuses to perform unless a condition is met that does not qualify the contractual obligation. A mere failure to deliver a lease within a reasonable time was not treated as automatically amounting to repudiation. The Court relied on the full context and the refusal to perform [241]-[244].
The readiness and damages analysis is relevant where a tenant terminates for anticipatory breach but claims the value of a future commercial opportunity. The judgment separates readiness to enter the lease from readiness to perform the lease covenants, and separates both from proof that the opportunity would have had value. Interslice was willing to enter the lease, but its planning position meant it did not prove the opportunity was valuable [256]-[267], [278]-[286].
The judgment was delivered on 4 August 2025. The supplied judgment contains no subsequent judicial treatment of this decision, so no later court’s application, distinction, approval or criticism can be identified from this source.
Within the judgment itself, the Court applies or discusses earlier authorities on consent construction, existing uses, repudiation and damages. In particular, it applies Bunderra Holdings to the enduring and practical construction of a development consent [32], explains Jojeni Investments on characterisation of existing use [103]-[109], and applies Upside Property Group to readiness and willingness and loss-of-bargain damages [253]-[261]. Those are relationships between this Court and earlier authorities, not evidence of how later courts have treated Interslice.
The judgment leaves open the statutory question identified by Leeming JA: how the different limbs of the definition of “existing use” applied at the transition to the 2015 LEP, including whether attention should be directed to the use immediately before the LEP commenced, the use within the following year, or both [50]. It was not argued, and the Court did not decide it.
The decision also does not establish that every gym inside a club is legally dependent on the club. Its conclusion followed from this consent’s wording, the application material, parking assessment, operational context and other evidence [23]-[48]. A different consent or factual setting could require separate analysis.
The judgments describe the source of the obligation to provide a registrable lease with some differences in emphasis. Ward P considered that the obligation could arise expressly under cl 2.2 or by implication under the binding agreement and also referred to an obligation under the equitable lease [2]-[5]. McHugh JA considered that the operative obligation arose under the Original Lease, not the equitable lease [170], [198]-[208]. Leeming JA found repudiation without needing to resolve every conceptual issue about the equitable lease [52]-[54]. The outcome was agreed, but the reasoning should be read with those distinctions in mind.
Finally, the decision does not determine the value of a lost gym opportunity where the tenant has planning approval, a realistic prospect of obtaining approval, or evidence that the landlord would not have terminated after a breach notice. Here, the Court found no basis to conclude that Interslice would have pursued a new approval or obtained one in time [281]-[286]. Its damages conclusion depends on those findings.
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Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Interslice Pty Ltd v CCA Investments – Bass Hill Pty Ltd [2025] NSWCA 175
Hearing dates: 16 December 2024
Date of orders: 4 August 2025
Decision date: 04 August 2025
Before: Ward P at [1];
Leeming JA at [7];
McHugh JA at [58]
Decision: (1) Appeal allowed in respect of Ground 4.
(2) Set aside:
(a) declaration 1 and orders 2(b) and 3 of the orders made on 8 May 2024 by Richmond J; and
(b) orders 1 and 2 of the orders made on 23 May 2024 by Richmond J.
(3) In lieu thereof:
(a) declare that the lease between the defendant as lessor and the plaintiff as lessee in respect of the premises comprised in part folio identifier 101/1053893 located at lower ground floor, 330 Hector Street, Bass Hill, New South Wales has been validly terminated by the plaintiff;
(b) order that judgment be entered for the plaintiff against the defendant on the amended statement of claim in the sum of $10;
(c) subject to any costs orders already made, order that the plaintiff pay the defendant’s costs of the proceedings on the plaintiff’s claim at first instance;
(d) subject to any costs orders already made, order that the defendant pay the plaintiff’s costs of the defendant’s cross-claim at first instance;
(e) otherwise dismiss the proceedings on the amended statement of claim;
(f) dismiss the cross-claim.
(4) The amended notice of appeal otherwise be dismissed.
(5) The notice of contention be dismissed.
(6) There be no order as to the costs of the proceedings in this Court.
Catchwords: ENVIRONMENT AND PLANNING — Construction of consent — Whether use for the purpose of a gym separate and independent from use for the purpose of a registered club
CONTRACT — Termination — Repudiation of contract — Whether failure to issue lease in registrable form was repudiation
CONTRACT — Remedies — Damages — Anticipatory breach — Whether party ready, willing and able to perform obligation to enter new lease — Loss of opportunity — Whether the commercial opportunity denied by repudiation had any value
Legislation Cited: Conveyancing Act 1919 (NSW), ss, 118, 127, 129 133E
Environmental Planning and Assessment Act 1979 (NSW), Pt 4, Div 4.11
Real Property Act 1900 (NSW), s 41
Registered Clubs Act 1976 (NSW), ss 45, 31
Bankstown Local Environmental Plan 2001 (NSW)
Bankstown Local Environmental Plan 2015 (NSW)
Smoke-Free Environment Regulation 2007 (NSW)
Cases Cited: Akins v National Australia Bank (1994) 34 NSWLR 155
AMT Planning Consultants Pty Ltd t/as Coastplan Consulting v Central Coast Council [2018] NSWCA 289
Bardsley-Smith v Penrith City Council (2013) 195 LGERA 34; [2013] NSWCA 200
Baulkham Hills Shire Council v O’Donnell (1990) 69 LGRA 404
Blacktown Workers’ Club Ltd v O’Shannessy [2011] NSWCA 265
Botany Bay City Council v Parangool Pty Ltd [2009] NSWLEC 198
Bunderra Holdings Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd (2017) 96 NSWLR 434; [2017] NSWCA 263
Chan v Cresdon Pty Ltd (1989) 168 CLR 242; [1989] HCA 63
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54
DCT Projects Pty Limited v Champion Homes Sales Pty Limited [2016] NSWCA 117
DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423
Foodbarn Pty Ltd v Solicitor-General (NSW) (1975) 32 LGRA 157
Foran v Wight (1989) 168 CLR 385; [1989] HCA 51
Hunter Industrial Rental Equipment Pty Ltd v Dungog Shire Council (2019) 101 NSWLR 1; [2019] NSWCA 147
Jojeni Investments Pty Ltd v Mosman Municipal Council (2015) 89 NSWLR 760; [2015] NSWCA 147
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23
MM & SW Enterprises Pty Ltd v Strathfield Council (2010) 172 LGERA 125; [2010] NSWLEC 8
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4
Shire of Perth v O’Keefe (1964) 110 CLR 529; [1964] HCA 37
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR(NSW) 632
Upside Property Group Pty Ltd v Tekin [2017] NSWCA 336; (2017) 19 BPR 38,137
Wesiak v D&R Constructions (Aust) Pty Ltd [2016] NSWCA 353
Young v Lamb [2001] NSWCA 225; 10 BPR 97,867
Category: Principal judgment
Parties: Interslice Pty Ltd ACN 601 103 226 (Appellant)
CCA Investments – Bass Hill Pty Ltd ACN 634 907 369 (First respondent)
Danka Bakic (Second respondent)
David Robinson (Third respondent)
Representation: Counsel:
T F Robertson SC, D J A Mackay (Appellant)
A Leopold SC, R Clark (First respondent)
Solicitors:
Integrated Legal (Appellant)
Mitry Lawyers (First respondent)
Integrated Legal (Second and third respondent)
File Number(s): 2024/202851
Publication restriction: Nil.
[This headnote is not to be read as part of the judgment]
The appellant, Interslice Pty Ltd (the Tenant), entered a five year registered lease (Original Lease) with the City of Bankstown R & SL Community Club Ltd (the Club) which was the owner of land at Bass Hill (the Land). The Tenant thereafter operated a gym from part of the lower ground floor of the Club’s building (the Premises).
The Original Lease contained an option to renew for a further five years. The Tenant exercised the option, with the new lease to commence on 16 October 2019. On 13 September 2019, the Club sold the Land to the respondent, CCA Investments – Bass Hill Pty Ltd (the Landlord). The Landlord never provided a new lease in registrable form to the Tenant. The Tenant continued to occupy the Premises until 28 April 2020. It was common ground that the Tenant’s occupation was pursuant to an equitable lease on similar terms to the Original Lease.
Clause 10.1(a)(ii) of the Original Lease provided that the Tenant must obtain, keep current and comply with all consents, approvals and licenses from all relevant authorities necessary or incidental to the use of the Premises for the permitted use of “Health and fitness centre (including crèche)”. Under the Bankstown Local Environmental Plan 2001 (LEP 2001), which was in force when the Original Lease was entered, use of the Land for the purpose of registered clubs and recreation facilities (including a gym) was prohibited except where the Bankstown City Council (the Council) granted consent. In 2006 the Council issued a development consent which permitted “Refurbishment to Existing Bass Hill RSL Club Including Internal Alterations and Construction of Health Club, Children’s Play Area and Rear External Terrace” (the Consent). After the introduction of the Bankstown Local Environmental Plan 2015, which replaced LEP 2001, it was lawful to use the Land in accordance with the Consent only if it was an “existing use” under the Environmental Planning and Assessment Act 1917 (NSW).
In 2020 the relationship between the Tenant and the Landlord broke down. The Tenant claimed that the Landlord had repudiated the lease (for reasons including the Landlord’s failure to deliver a new lease in registrable form), which repudiation the Tenant purported to accept. The Tenant commenced proceedings against the Landlord and the Landlord cross-claimed. The primary judge found that the Tenant was in breach of cl 10.1(a)(ii) of the equitable lease because the Consent only approved the operation of the gym as part of the Club, and once the Club ceased operation the existing use approved in the Consent was abandoned. His Honour found that the Tenant’s purported termination was a repudiation of the equitable lease, which the Landlord had validly terminated.
The Tenant raised three main issues on appeal: (1) whether the Consent properly construed approved a separate and independent use of the Premises as a gym that survived the cessation of the use of the rest of the building as a registered club; (2) whether the Landlord had repudiated the lease; and (3) whether the Tenant should be awarded substantial damages.
The Court held (McHugh JA, Ward P and Leeming JA agreeing) allowing the appeal in part and otherwise dismissing the appeal:
Issue 1
(1) Per Leeming JA (Ward P and McHugh JA agreeing) The Consent extended to a change in use of the Premises (i.e., part of the lower ground floor of the Club’s building) to a gym: [1] Ward P; [15]-[21], Leeming JA; [88] McHugh JA.
Foodbarn Pty Ltd v Solicitor-General (NSW) (1975) 32 LGRA 157; Bardsley-Smith v Penrith City Council (2013) 195 LGERA 34; [2013] NSWCA 200; Baulkham Hills Shire Council v O’Donnell (1990) 69 LGRA 404, cited.
(2) Per Leeming JA and McHugh JA (Ward P agreeing) The text of the Consent, the development application and other contemporaneous documents incorporated into the Consent demonstrate that the use of the Premises for the purpose of a gym was inextricably bound up with the use of the rest of the Land as a registered club. The use of the Premises as a gym did not survive independently of the use for the purpose of a registered club: [1] Ward P; [22]-[48] Leeming JA; [72]-[73]; [86]-[99], [100]-[109] McHugh JA.
Jojeni Investments Pty Ltd v Mosman Municipal Council (2015) 89 NSWLR 760; [2015] NSWCA 147; Bunderra Holdings Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd (2017) 96 NSWLR 434; [2017] NSWCA 263; Hunter Industrial Rental Equipment Pty Ltd v Dun**gog Shire Council (2019) 101 NSWLR 1; [2019] NSWCA 147, applied.
Issue 2
(3) Per Ward P Upon valid exercise of the option there came into existence a binding agreement for lease on the terms provided for in the Original Lease. That binding agreement for lease would, if specifically enforceable, be regarded in equity as an equitable lease. The Landlord was contractually obliged to issue a new lease in registrable form to the Tenant within a reasonable time. The Landlord’s failure to do so was both a repudiation of the contractual obligation under the Original Lease and of an implied obligation under the equitable lease: [2]-[4].
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23, applied.
(6) Per Leeming JA and McHugh JA There was repudiation by the Landlord in failing to supply a registrable lease. Once the option was exercised, the Landlord had an unconditional obligation under the agreement for lease contained in the Original Lease to deliver a new lease in registrable form within reasonable time: [52]-[53] Leeming JA; [119]-[122], [170], [208] McHugh JA.
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23, applied.
(5) Per Leeming JA and McHugh JA Upon exercise of the option, to the extent equity would enforce the binding agreement for lease in the Original Lease, there came into existence a lease in equity on the same terms as the new lease that the parties were bound to enter: [52] Leeming JA; [123], [194] McHugh JA.
Chan v Cresdon Pty Ltd (1989) 168 CLR 242; [1989] HCA 63, cited.
(7) Per Leeming JA The Tenant’s reasonably arguable albeit erroneous claim that it was entitled to continue to operate a gym did not disentitle it from accepting the Landlord’s repudiation: [54].
(8) Per McHugh JA The Tenant’s breach of cl 10.1(a)(ii) of the equitable lease did not disentitle it from terminating the Original Lease and the unconditional agreement for lease contained within it. A breach of the equitable lease was distinct from a breach of the agreement for lease contained within the Original Lease: [225]-[236].
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12; Wesiak v D&R Constructions (Aust) Pty Ltd [2016] NSWCA 353, considered.
Issue 3
(9) Per McHugh JA (Ward P and Leeming JA agreeing) The Tenant was only entitled to nominal damages. There was no basis upon which to conclude that the commercial opportunity which the Landlord’s repudiation denied to the Tenant had any value: [5] Ward P; [56] Leeming JA; [253]-[267]; [278]-[286] McHugh JA.
Upside Property Group Pty Ltd v Tekin [2017] NSWCA 336; (2017) BPR 38,137, applied.
Foran v Wight (1989) 168 CLR 385; [1989] HCA 51; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4, cited.
WARD P: I have had the considerable benefit of reading in draft the respective judgments of Leeming JA and McHugh JA and therefore can be brief in what follows. I agree, for the reasons given by McHugh JA and supplemented by Leeming JA, that grounds 1, 2 and 2A (going to the planning issues raised by the appeal) are not made good.
As to the issues raised by grounds 3 and 4, concerning breach and repudiation, I would express my conclusion as follows, generally adopting the definitions used by McHugh JA. On the valid exercise (which was conceded) of the option contained in the Original Lease, there came into existence a binding agreement for lease on the terms provided for by cl 2.2(b) of the Original Lease. That binding agreement for lease (which might be referred to colloquially as the option lease) would, if specifically enforceable, be regarded in equity as an equitable lease.
Whether expressly (pursuant to the obligation in cl 2.2, which was clearly intended to have continuing operation after the cessation by effluxion of time of the Original Lease) or, as in my opinion would also be the case, pursuant to an implied obligation arising under the binding agreement to grant a lease of Torrens title land for a period of in excess of two years, CCA (the Landlord) was obliged, on the valid exercise of the option, to issue a new lease in registrable form to Interslice (the Tenant) within a reasonable time (see Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23). It failed to do so. To my mind, that was both a repudiation of the contractual obligation under the Original Lease and of the implied obligation arising under the equitable (or option) lease.
The lack of clarity in the communications between the parties (to which McHugh JA has referred) gave rise to debate as to whether the failure to issue or grant a new lease in registrable form was a repudiation of the Original Lease (cl 2.2) or the equitable lease arising from the valid exercise of the option (see, for example, the letter dated 14 April 2020 from the Landlord’s solicitors to which McHugh JA has referred at [163] below). However, both possibilities were encompassed by the pleadings, as McHugh JA has noted, and in my opinion the repudiation extended to both scenarios.
Therefore, while I have some difficulty with the proposition (see [208](3); [220]) that the obligation to issue a new lease in registrable form arose only under the Original Lease, nothing here turns on this. The Landlord clearly repudiated its obligation to issue the new lease in registrable form and I therefore agree with the conclusion reached by McHugh JA that grounds 3 and 4 are not made good. I also agree with his Honour’s conclusion as to ground 5, for the reasons his Honour gives.
Thus, I agree with the orders proposed by McHugh JA.
Although the ultimate legal issues at trial and in this Court were whether Interslice or CCA repudiated the lease, and whether substantial damages had been established, on the view I take the most important questions in this appeal concern planning law. They are whether Interslice was authorised under the 2006 consent to operate a gym from the leased premises in circumstances where the building was no longer being used as a registered club, and if not, whether the use of the leased premises as a gym was protected by the “Existing uses” provisions of Part 4 Div 4.11 of the Environmental Planning and Assessment Act 1979 (NSW). The primary judge determined both questions adversely to Interslice. They are in substance dispositive of this appeal, because if Interslice could not lawfully operate a gym within a building that no longer operated as a registered club, it was in breach of its lease and could not obtain substantial compensation for CCA’s repudiation.
Those issues are distinct but related. They are distinct, at least insofar as the focus of the former was the terms of the development consent granted in 2006, while the focus of the latter is on the activities lawfully conducted on the lower ground floor of the building. But in the circumstances of this appeal, little turns on that distinction. In any event, central to both is the legal character of the use which was authorised by the 2006 consent. The legal characterisation of that use is complicated and contestable for at least three reasons.
First, little attention was given 19 years ago to the possibility that what was originally contemplated as but one aspect of the suite of facilities provided to users of the club (principally, club members) might in the future continue to be provided after the rest of the building had ceased to be used as a registered club. Thus the question of construction whether the use is severable involves construing words which were not directed to this contingency (making it no different from many questions of contractual construction).
Secondly, it is necessary to characterise the approved use of the lower level of the building for a purpose, and that may be done at various levels of generality or particularity (for example, as a “gym” or as a “health club for RSL members”). As was observed in Jojeni Investments Pty Ltd v Mosman Municipal Council (2015) 89 NSWLR 760; [2015] NSWCA 147 (where the issue was whether the existing use was “building containing flats” as opposed to “building containing two flats”), there are no categorical rules to direct judges about the selection of appropriate levels of generality.
The third reason is a consequence of a change in the planning regime governing the use of the land between 2006 when the consent was granted and in 2019 when the club ceased to operate. Under the Bankstown Local Environmental Plan 2001, which was in force when the 2006 consent was granted, the land was zoned 2(a) “Residential A”, and the use of the premises either as a “Registered club” or as a “Recreation facility” was expressly prohibited under cl 11, notwithstanding which cl 12 permitted consent to be given in certain cases. The result is that the use of the Club premises in 2006 was authorised under (former) s 109 as an “other lawful use” rather than (former) s 107 as an existing use. However, the Bankstown Local Environmental Plan 2015 came into force with effect from 5 March 2015. It repealed the 2001 LEP, and the land became zoned R2 Low Density. Use of the land as either a club or a gym remained prohibited, but, significantly, there was no counterpart to cl 12 of the former LEP. Although it continued to be lawful to use the land in accordance with the 2006 consent, that was only because it was an “existing use” authorised by (former) s 107. I shall return towards the end of these reasons to the possible significance of this.
The point of the foregoing is to identify why the issues in this appeal are complicated and to permit attention to be focussed on the issues that matter. What matters for the purposes of this appeal is that in 2006 the Club was not merely seeking development consent for the carrying out of structural work to convert the lower ground floor into a health club (as well as making a suite of other changes including a children’s play area and a rear external terrace). The Club was seeking a change of use. As Interslice emphasised in its submissions, it is to be steadily borne in mind that “development” for the purposes of the Environmental Planning and Assessment Act extends to “the use of land” as well as “the carrying out of a work” (see former s 4 and current s 1.5). However, the primary judge is not fairly to be criticised for proceeding on the basis that the development application was merely to approve works, for the documents making it clear that a change of use was also sought were only tendered in this Court. Nonetheless, the critical question as I see it is whether there was a “separate and independent use” of the lower ground floor for a gym authorised by the 2006 development consent, which survived the cessation of the use of the rest of the site as a registered club.
The starting point is to describe how that use came to be approved. As it turns out, that is sufficient to resolve the main issues in this appeal, without the need to consider the effect of the 2015 LEP.
The “Description of development” in the Council’s consent was confined to a description of the building works, but the conditions extended to the change in use of the lower ground floor. Condition 31 reflected the need to review the ventilation, so as to comply with AS 1668.2 (which in part turns on the average metabolic rate of its occupants; more air supply is needed for an enclosed space which is used as a gym than for the same space used as a lounge and billiards room). More importantly for present purposes, condition 2 required compliance with the parking assessment, and condition 30 required six additional car parking spaces, in accordance with an assessment of the use of the gym. I shall return to this.
There is no doubt that the development application extended to a change in use. That was obvious insofar as the lower ground floor would cease to be a lounge and would become a gym. It was express on the face of the parking assessment accompanying the development application, which described itself as “for refurbishment and reorganisation of the ground floor lounge areas and a change of use in the lower ground floor from lounge/bar/billiards room to a health club (gymnasium)”. McHugh JA has described cl 12 of the 2001 LEP which permitted consent to be granted to a proposed development which was prohibited, which would include the use of part of the Club’s building for a gym.
Was the use of the lower ground floor which was approved in 2006 “separate and independent”, as Interslice contended, so that it survived the cessation of the use of the rest of the building as a club? Where use of part of the land is regarded as being wholly ancillary to the dominant use of the land as a registered club, it may be put to one side as a subject for separate assessment, in accordance with Foodbarn Pty Ltd v Solicitor-General (NSW) (1975) 32 LGRA 157 at 161; see also Bardsley-Smith v Penrith City Council (2013) 195 LGERA 34; [2013] NSWCA 200 at [90]. This appears to have been an issue at trial, and was reflected in opinions expressed by a planner called by CCA. But the Statement of Environmental Effects made it clear that there would be a separate assessment of the new use of the lower ground floor as a health club, with particular focus on its impact upon carparking. The need for a parking study was raised at a meeting on 25 May 2006 (prior to lodging a development application) where the Club’s representatives identified two “main alterations”, namely, “Refurbishment and reorganisation of ground floor lounge areas” and “Change of use of the sub-ground floor of the premises from lounge/bar area to gym area for a boutique style gym”. The result was the car parking assessment referred to above which in turn became reflected in a condition of consent. Two other documents corroborate this:
the Council officers assessing the application treated it as involving “a ‘change of use’ from a bar area to a gym” with the result that it was no longer for Building Code purposes a Class 9B place of public entertainment but became a Class 9B assembly building, and
in 2009, when a “checklist” for a construction certificate concerning the gym was being prepared, the question “Does the proposal involve a change of building use?” was answered “Yes” and there is a handwritten entry “Class 6 Part (Gym)”.
Hence, consistently with Interslice’s submissions in this Court, the new use of the lower ground floor as a gym was treated as separate, rather than subsumed within the dominant use of the land as a registered club.
But whether a use is independent is not answered merely by asking whether it is “ancillary” to the use of the land as a club, although that may be a relevant inquiry. This was Meagher JA’s point in Baulkham Hills Shire Council v O’Donnell (1990) 69 LGRA 404 at 409-410, holding that this was instead a question of fact and degree in all the circumstances of the case. A publisher opening a sales room at the publishing house was said to give rise to an independent use, although one that was ancillary to the publishing use. Meagher JA (with whom Samuels AP and Clarke JA agreed) contrasted a canteen installed in a factory for workers, or the use of land by a resident for parking a motor car at his or her home: in those cases there was no independent use of operating a restaurant or a car park.
First, there is the ordinary meaning of the words of the consent “Refurbishment to Existing Bass Hill RSL Club Including Internal Alterations and Construction of Health Club, Children’s Play Area and Rear External Terrace”. The sense of the phrase is of four particular works all of which are part of the Club. It is moderately clear that the “Rear External Terrace” was closely connected, and indeed inseparable from, the use of the land as a club. It was described by the consultant retained by the Club as “A smokers terrace is proposed at the rear of the building”, and the timing coincides with changes in the laws concerning smoke-free areas in registered clubs, including the Smoke-Free Environment Regulation 2007 (NSW) (aspects of which are mentioned in Blacktown Workers*’* Club Ltd v O*’*Shannessy [2011] NSWCA 265). Likewise, the “Children’s Play Area” was merely an enclosed room near the bistro, which was wholly dependent upon other aspects of the club premises (such as parking and bathrooms) and was evidently a minor additional facility provided to people using the club.
Considered merely as a matter of the language in the consent, the “Health Club” is treated in the same was as “Children’s Play Area” and “Rear External Terrace”. That is to say, all three are matters included within the refurbishment of the existing club. That conclusion does not turn on whether the reference to the “Existing Bass Hill RSL Club” is to the building or to its owner, nor on the words “including”, but on the simple fact that the three things whose construction was authorised (“Health Club”, “Children’s Play Area” and “Rear External Terrace”) were all treated grammatically in the same way, suggesting that the first has the same relationship to the operations of the existing club as the second and third undoubtedly do.
Thirdly, the configuration of the alterations to the lower ground floor, and in particular the connection between Health Club and carpark via the rear doors, directs attention to something that was considered extensively in 2006, namely, car parking. Most of the land owned by the Club was used for car parking. The 2006 Construction Certificate stated that the existing floor area of the building was 2349 m2, with the ground floor occupying 1516 m2 and the lower ground floor some 833 m2. But the “Health Club” did not occupy all of the lower ground floor, and according to the parking assessment (which used its area to determine likely patronage) it had a gross floor area of 559 m2. The Construction Certificate also stated that the land area was 4,537 m2. That is to say, the footprint of the Club building occupied somewhat less than 50% of the land, most of the rest of the land was devoted to carparking, and the area to be occupied by the gym was some 12% of the land. The foregoing is probably clearer from an earlier plan of the site in evidence:
The stamp on that plan indicates it was part of the approval of a development application DA-1295/2004. The parking assessment which accompanied the 2006 application, and with which condition 2 of the 2006 consent provided that the development must comply, stated:
A Development Application (DA-1295/2004) for refurbishment was submitted to Bankstown City Council and approved with Conditions on 8th March 2005. Condition 3 required 67 car spaces to be provided and made available for car parking at all times. It is not known how the number of parking spaces was calculated.
Thus, when development consent issued in 2006, most of the land was used for parking, and at all times the assessment of the effect on parking was at the forefront of the assessment of the application.
At the Development Committee Unit meeting on 25 May 2006, carparking was discussed, with a view to assessing an obvious impact of the proposed change: many gym users would travel by car, and their numbers and especially the timing of their visits would affect the adequacy of the existing parking. That led to the parking assessment prepared by Lyle Marshall & Associates accompanying the development application, which emphasised that gym users were likely to attend in the mornings, and in the early days of the week, away from peak usage of the registered club facilities at meal times, in the evening and towards the end of the week. The report concluded that it was possible easily and lawfully to mark an additional six parallel parking spaces along the exit driveway which was wider than necessary, and (by a happy coincidence):
The additional 6 spaces in our opinion will cater for the increased parking demand generated by the Health Club using the RTA Desirable Parking Provision on all days of the week.
Evidently, condition 2(a) of the consent, for six carparking spaces to be provided in accordance with the report from Lyle Marshall and Associates Pty Ltd, reflected that assessment.
This material points in two directions. On the one hand, it is, as Interslice contended, powerful evidence that the Club’s application included a change of use which was separately assessed and approved. But on the other hand, it also leads to the conclusion that the development application in 2006 was assessed, in relation to an obvious and important impact, as inextricably linked to the use of the majority of the land for parking. No consideration was given to the carparking impact of the use of part of the land as a free-standing gym (ie the gym’s impact on nearby parking if gym users were not free to park on land owned by the Club).
The development consent was to be construed having regard to its enduring nature, and as a document intended to achieve practical results: see Bunderra Holdings Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd (2017) 96 NSWLR 434; [2017] NSWCA 263 at [158(2) and (3)]. The 2006 consent authorised the use of the lower ground floor as a gym, for users most of whom would use the carparking on the Club’s land. The use of the carpark was an important aspect of the assessment, and of the conditions imposed on the landowner in order to permit the development to proceed. All this suggests that the use should not be understood as a free-standing gym, without any entitlement for users to park on the Club’s land.
87 … the parties agreed that regard could be had to the SEE in construing the Consent, on the basis that this was one of the documents submitted by Paynter Dixon Constructions Pty Ltd as part of the DA and hence is a document incorporated by reference into the Consent due to Condition 2 (see the first principle stated in Bunderra set out above). Approaching the matter on this basis, in my view, there is nothing in the SEE which is contrary to the conclusion I have reached on the basis of the first two matters set out above. The SEE serves only to confirm what is apparent from the terms of the Consent itself, read with the drawings, is the correct construction. In particular, the SEE begins with the following:
This Statement of Environmental Effects has been prepared by Andrew Martin Planning Pty Ltd at the request of Paynter Dixon on behalf of Bass Hill RSL Club (the ‘Club’) to accompany a Development Application for a rear external terrace, increase to patron numbers permitted within the existing terrace fronting Hector Street, internal kids play area, alternations and lower level health club.
In order to address current trends and legislative requirements the Club must modify the existing floor areas. The Club now must consider other more suitable uses for the existing licensed area such as the inclusion of a kids play area. The change in strategy is partly prompted by the proposed banning of smoking within licensed clubs in 2007.
The existing lower level is proposed to be converted to a health club which is to serve members and guests. There is no increase in the gross floor area (GFA) of the building and in fact the licensed area is reduced.
88 The last paragraph refers to the health club and states that it is to serve “members and guests”. Although the plaintiff submitted to the contrary, in my view it is clear that the members and guests being referred to are members of the RSL Club and their guests. There is also a reference in this paragraph to the licensed area being reduced and this is picked up in the conclusion to the SEE which states that: “There is no intensification of use given that the gross floor area does not increase, and the proposed health club replaces what was previously licensed area”. This suggests that the health club is put forward as part of the RSL Club as it replaces the licensed area of the RSL Club.
In light of the use of the distinction between members and guests of the health club and club patrons, had it been intended that the health club be only for club patrons, the kind of image which is brought up in part of my learned friend’s submissions of clubs, which have internalised gymnasiums, then the reference would have been to patrons of the club using the gym, and that’s not the case, and we submit that his Honour misconstrued the SEE at that point.
The submission was directed to the distinction in the document between “patrons” and “members and guests”. Interslice maintained that the former referred to people using the registered club, and the latter to people using the gym.
This is, at least to my mind, a very small point. But I have concluded that the primary judge was correct. The short points are that:
“members and guests” is a natural description of users of the registered club;
at least for all the time that Interslice was a tenant, all gym users were required to be club members;
even if (as such evidence as there is suggests) there was no similar requirement upon the previous tenant, it is clear that gym users would need to use, and did use, the club’s car park, just as had been assessed by the Council in 2006 and as was reflected in the conditions imposed by the Council.
Under the Registered Clubs Act 1976 (NSW) in the form it took in 2006, only members (including temporary members) and their guests could lawfully use club facilities or amenities provided on the premises of a registered club: s 45. Section 31 required (both in 2006 and today) a club to keep, for three years, a register of members and their guests. Plainly, the terminology of “members and guests” in the Statement of Environmental Effects was apt to refer to users of the registered club. In contrast, it is awkward to refer to a “guest” of a member of a gym (a suggestion in argument that a “guest” might use the café indicated on the plans is an unlikely justification). The primary judge was correct to regard the reference in the Statement of Environmental Effects to the gym being to “serve members and their guests” as indicating the relationship between the two: the gym was one of the facilities available to users of the Club.
In fact, Interslice’s 2014 lease reflected a close connection with the membership of the Club. Interslice promised (in cl 10.4) that club members would not be charged a joining fee, and would be “entitled to a 10% discount on membership fees for the Health and Fitness Centre”. Further, all management staff of the Club were entitled to free membership, with no joining fee, of the Health and Fitness Centre, and other staff were entitled to a 30% discount on membership fees, with no joining fee.
Still further, cl 10.4(b) provided that:
The Tenant must ensure that every person who becomes a member [of] the Health and Fitness Centre (who is not a member of the Landlord) must become a member of the Landlord (at the cost of the Tenant).
The lease made no express provision for the entitlement of the tenant’s users to use the Club’s carpark (there were provisions permitting Interslice and its employees and agents to use the common property, which might include the carpark, but even if it did, that did not extend to gym users). But it is evident that users of the gym – all of whom would be members of the Club – would use, and would be entitled to use, the existing carparking (plus the additional six spaces the Club would provide as the price of being permitted to change the use of the lower ground floor).
The terms of the previous lease were not in evidence, although an historical title search shows that a lease was registered on 21 May 2010. The same search shows no earlier registered lease after the completion of the refurbishment of the lower ground floor.
The contemporaneous documentary evidence enables some inferences to be drawn about what occurred prior to 2010. An occupation certificate for “Function Room & Rear External Terrace” issued on 27 July 2007. On the copy in evidence is handwriting “Final OC cannot be issued” and “This CC superseded by CC 377/08 (children’s play and terrace) & CC 380/09 (health club)”. The latter construction certificate does not appear to have been in evidence, but a “Checklist” for it was included in the tender in this Court and is dated 20 August 2009. It was tendered because one line records the change of use mentioned above, but it also confirms that the construction certificate did not issue before August 2009. That, together with the notation that an occupation certificate could not be issued, suggests that the lower ground floor was not used before late 2009.
There was also testimonial evidence that (a) the refurbishment was complete in 2009, (b) in 2010 the Club entered into a commercial lease of the lower ground floor to “Definition Fitness”, (c) also in 2010 the Club applied to exclude the lower ground floor area from its licensed area, (d) the lease to Definition Fitness contained a term that the health and fitness centre members did not need to be members of the Club, (e) Harrycorp Pty Ltd trading as Move Fitness entered into a lease in 2013 as a commercial tenant, and (f) cl 10.4 was added to the lease in 2014.
It is not clear whether the gym was ever operated directly by employees or agents of the Club after an occupation certificate issued (at some time late in 2009) prior to the lease which was registered in May 2010. Certainly, the 2006 consent permitted the Club itself to operate the gym, for the benefit of its members.
Interslice adduced some evidence at trial tending to diminish the relationship between the operations of the Club and of the gym. In particular, the Club’s Chief Executive Officer sought to give evidence that the purpose of cl 10.4 of the 2014 lease to Interslice “was not to create an intermingling or an interconnection between the two businesses (the Club and the Gym)”, but that evidence was (rightly) admitted only as a submission.
Use of the Premises as a retail pharmacy, limited in this way, is therefore essential if the Premises are to be used as an ePharmacy. In other words, it is impossible to conduct an ePharmacy lawfully unless there is also a retail pharmacy on the Premises supplying members of the public with PBS items. This is a very clear case of purposes being “inextricably bound up” with each other and incapable of severance: Macquarie International Health Clinic v University of Sydney at 223 per Stein JA (with whom Mason P and Meagher JA agreed).
The various considerations summarised above lead to the conclusion that the use of the lower ground floor for the purpose of a gym was also “inextricably bound up” with the use of the rest of the land as a registered club. The latter use is inseverable from the former. To summarise, the text of the consent reflects the refurbishment of the lower ground floor being included within the club. Other contemporaneous documents bearing upon what was authorised, notably the statement of environmental effects and the parking study which was incorporated into the consent, demonstrate that the authorised use would involve most users of the gym using the Club’s car park. While I would accept Interslice’s submission that the approved construction was designed to permit direct access between the lower ground floor and the car park without going through the licensed area of the registered club, the same evidence compels the conclusion that the gym was authorised to operate in conjunction with the Club’s car park. Far from the two uses being separate and independent, they were inseparable. The use of the lower ground floor as a gym did not survive independently of the use of the rest of the land for the purposes of a registered club.
For those reasons, which supplement those given by McHugh JA, I agree that grounds 1, 2 and 2A fail.
The foregoing makes it unnecessary for me to express a view on a point which in any event was not argued in this Court. The point concerns whether regard may be had to the 2014 lease, and in particular the covenant requiring all gym users to be members of the club, for the purpose of characterising the use which was preserved by s 107 after 5 March 2015. The definition of “existing use” in s 106 is far from free from difficulty (see AMT Planning Consultants Pty Ltd t/as Coastplan Consulting v Central Coast Council [2018] NSWCA 289 at [23]-[29]) and in its application to the present facts, it is not even completely clear whether one has regard to the use of the lower ground floor “for a lawful purpose immediately before the coming into force” of the 2015 LEP within paragraph (a), or the use which was carried out “within one year after the date on which [the 2015 LEP] commenced” within paragraphs (b)(ii) of the definition, or both limbs (a point left open in AMT at [26]). But all limbs of the definition direct attention to the use in March 2015, at which point all gym users were required to be members of the Club. That tends to confirm the conclusion reached on other grounds, that the use of the lower ground floor as a gym cannot be severed from the use of the rest of the land as a registered club.
That said, none of this was argued. Had it been dispositive, I would have invited further submissions from the parties. There is no point in taking that course in circumstances where nothing turns on it. It is sufficient to note that Interslice’s position concerning its entitlement to operate a gym is not improved if regard may be had to the terms of its lease.
Grounds 3 and 4 challenge some of the findings of the primary judge concerning breach and repudiation of “the equitable lease”. Interslice validly exercised its right to an option but never received a registrable lease from CCA, and the parties proceeded on the basis that there was an “equitable lease”. There are, as McHugh JA points out, some conceptual difficulties in concluding that the obligation to provide a registrable lease was an incident of that equitable lease, as opposed to the legal lease whose term expired in 2014. The valid exercise of the option brought into existence an agreement to grant a new lease which was repudiated by CCA’s failure to supply a registrable lease. A party may repudiate an agreement to grant a new lease; see for example Young v Lamb [2001] NSWCA 225; 10 BPR 97,867 at [62]. However, prior to the acceptance of such repudiation, equity would regard the parties as between themselves as being subject to the same incidents as would have obtained had CCA issued a legal lease, and in an appropriate case a backdated order for specific performance could issue (as discussed in Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 252-256; [1989] HCA 63) so as to entitle Interslice to remedies at law. But it is unnecessary to analyse the complexities which attend to asking whether there is a repudiation of the “equitable lease” (which is really a shorthand for the proposition that equity would, by a decree for specific performance, treat the parties as if the promised legal lease had been granted) because on the view I take this appeal can be resolved on a more straightforward basis.
The appellant in these proceedings (Interslice or the Tenant) operated a gym under the name Move Fitness Leisure Centre, which was located on the lower ground floor of a building on Hector Street, Bass Hill (the Premises). That building was situated on the land comprised in folio identifier 101/1053893 (the Land).
The Tenant had occupied the Premises pursuant to a registered lease for a term of five years commencing on 16 October 2014 (the Original Lease), which contained an option for a new lease for a further term of five years. It was not in dispute that the Tenant exercised this option on 6 April 2019 and that the new lease was to commence on 16 October 2019.
When the Original Lease was entered, the Land was owned by the City of Bankstown R & SL Community Club Ltd (the RSL Club). On 13 September 2019, the RSL Club sold the Land to the respondent, CCA Investments – Bass Hill Pty Ltd (the Landlord). It is not disputed that the Landlord never provided a new lease in registrable form to the Tenant. Nevertheless, the Tenant continued in occupation of the Premises until 28 April 2020, pursuant to what the parties agreed was an equitable lease (the terms of which are addressed below).
By early 2020, the relationship between the Tenant and its new landlord had broken down. The Landlord claimed that the Tenant lacked planning consent to operate a gym, and eventually asserted that the Tenant was for that reason in breach of an express term of the equitable lease (cl 10.1(a)(ii)). Ultimately, each claimed that the other had repudiated either or both of the Original Lease and the equitable lease, and that the innocent party had accepted the repudiation and terminated.
The Tenant commenced proceedings against the Landlord, seeking the return of a bond of $30,000 and damages. The Landlord cross-claimed, seeking arrears of rent, outgoings and other monies and damages. The second cross-defendant, Ms Danka Bakic, was the sole director of the Tenant. The third cross-defendant, Mr David Robinson, ran the day-to-day operations of the Tenant. The second and third cross-defendants were guarantors under the Original Lease.
The primary judge determined that the Tenant was in breach of cl 10.1(a)(ii); that the Tenant had repudiated the equitable lease; that the Landlord had validly terminated it; that the Tenant was entitled to the return of the bond with interest; and that the Landlord was entitled to judgment against the Tenant on the cross-claim for nominal damages of $10.
It was not in dispute that cl 10.1(a)(ii) of the Original Lease (and also of the equitable lease) imposed an obligation on the Tenant to obtain, keep current and comply with all consents, approvals and licences from all relevant authorities necessary or incidental to the use of the Premises for the Permitted Use. The Permitted Use was defined in Item 6 of Annexure A to the Original Lease as “Health and fitness centre (including crèche)”.
It was common ground that at all relevant times under the zoning of the Land, the use of the Land as a gym (or, for that matter, as a registered club) was not permitted without planning consent or pursuant to provisions of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act) concerning the continuance of uses. It was also not disputed that if the Tenant was operating the gym in breach of planning legislation following closure of the RSL Club, the Tenant would be in breach of cl 10.1(a)(ii).
The primary judge found as follows at J[8]-[12], which findings are not contested.
“The original proprietor of the Land was the RSL Club. In or around 2006, the RSL Club sought to refurbish the building on the Land, and in July 2006, submitted to Bankstown City Council (the Council) a development application, which was given the reference 755/2006 (DA), along with a statement of environmental effects (SEE).
On 10 November 2006, the Council issued a development consent in respect of the DA (Consent), which permitted the development of the Land for the following purpose (subject to the conditions and requirements set out therein):
Refurbishment to Existing Bass Hill RSL Club Including Internal Alterations and Construction of Health Club, Children’s Play Area and Rear External Terrace.
Condition 2 in the Consent was that ‘the development shall take place in accordance with [the DA], submitted by Paynter Dixon Constructions Pty Ltd, accompanied by Drawing No. A01 and CC02 (Issue B) prepared by Paynter Dixon, dated 10 July 2006 and Drawing No. 1175-06 prepared by Lyle Marshall and Associates Pty Ltd dated September 2006 and affixed with Council’s approval stamp dated 10 November 2006, except where otherwise altered by the specific amendments listed here and/or except where amended by the conditions contained in this approval’.
At the time of the Consent, the Land was zoned as ‘2(a) — Residential A’ under the Bankstown Local Environmental Plan 2001 (NSW) (LEP 2001). It is not in dispute that cl 11(1) of LEP 2001 prohibited the operation of a registered club or health club/gym on the Land. However, as the RSL Club had been operating as a registered club for a period commencing prior to the introduction of LEP 2001, it was permitted to continue its operation as a registered club under the existing use provisions of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act) (then s 109).
Once the work under the Consent was completed, a series of gyms operated from the Premises prior to the grant of the Lease, including the Move Fitness Leisure Centre Business conducted on the Premises by Harry Cory Pty Ltd which [the Tenant] purchased from that company on 19 September 2014.”
4.65 Definition of “existing use”
In this Division, existing use means—
(a) the use of a building, work or land for a lawful purpose immediately before the coming into force of an environmental planning instrument which would, but for this Division, have the effect of prohibiting that use, and
(b) the use of a building, work or land—
(i) for which development consent was granted before the commencement of a provision of an environmental planning instrument having the effect of prohibiting the use, and
(ii) that has been carried out, within one year after the date on which that provision commenced, in accordance with the terms of the consent and to such an extent as to ensure (apart from that provision) that the development consent would not lapse.
4.66 Continuance of and limitations on existing use
(1) Except where expressly provided in this Act, nothing in this Act or an environmental planning instrument prevents the continuance of an existing use.
…
The Tenant submitted to the primary judge that the use of the Premises as a gym was consented to by the Council pursuant to the Consent, and therefore constituted a lawful existing use within the scope of the EPA Act. The Landlord disputed that proposition.
The primary judge said that the nature of the use of the Land approved by the Consent turned on the proper construction of the Consent. His Honour framed the issue as follows: “The question that arises is whether, on the proper construction of the Consent, the development which was approved was for a use of the Land for a health club as part of the operation of the RSL Club, or rather what was approved was a refurbishment of the RSL Club and a separate and independent use of the Premises for a health club”: J[82], emphasis supplied.
His Honour quoted the summary of principles relating to the construction of development consents given by Payne JA in Bunderra Holdings Pty Ltd v Pasminco Cockle Creek Smelter Pty Ltd (2017) 96 NSWLR 434; [2017] NSWCA 263 at [158], which was not disputed in this Court.
“(1) The nature and extent of the approved development must be determined by construing the document of approval, including any plans or other documents which it incorporates, aided only by that evidence admissible in relation to construction which establishes, or helps to establish, the true meaning of the document as the unilateral act of the relevant authority, not the result of a bilateral transaction between the applicant and the Council. Thus evidence of the nature of the site would always be admissible for this purpose, as would be, in appropriate cases, evidence as to the meaning of the marks on plans, or indeed, the meaning of the absence of particular marks: Parramatta City Council v Shell Co of Australia Ltd [1972] 2 NSWLR 632 at 637 (Hope JA).
(2) A development consent is to be construed according to its terms, having regard to its enduring nature. A development consent has an enduring nature because it is not personal to the applicant but is a public document operating in rem for the benefit of third parties such as subsequent owners, occupiers and security holders, and in some respects is equivalent to a document of title: House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498; [2000] NSWCA 44 at [23]; Winn v Director-General of National Parks and Wildlife (2001) 130 LGERA 508; [2001] NSWCA 17 at [4]: The enduring nature of a development consent encourages a fair but liberal reading of the rights it confers upon a landowner who may spend considerable money acting upon it and who is likely to wish to sell the land sooner or later: House of Peace at [41].
(3) A development consent is to be construed not as a document drafted with legal expertise, but to achieve practical results: Westfield Management Ltd v Perpetual Trustee Company L**td [2006] NSWCA 245 at [36]; Baulkham Hills Shire Council v Ko-veda Holiday Park Estate Ltd (2009) 167 LGERA 395; [2009] NSWCA 160 at [105].
(4) As a general rule, a development consent, being a public document operating in rem for the benefit of third parties, should be construed without reference to extrinsic evidence other than to identify a thing or place referred to in it. That extrinsic evidence is not led to vary the consent but to identify a thing or place referred to in it. Evidence as to the nature or physical features of the land may also be admissible for that purpose, at least those features observable by a third party at the time of the consent: Allandale Blue Metal Pty Ltd v Roads and Maritime Services (2013) 195 LGERA 182; [2013] NSWCA 103 at [44]; Shell Co of Australia at 637.”
As to “extrinsic evidence”, that summary may require some refinement in light of the analysis of Basten JA (Gleeson JA agreeing, see also per Preston CJ of LEC at [265]) in Hunter Industrial Rental Equipment Pty Ltd v Dungog Shire Council (2019) 101 NSWLR 1; [2019] NSWCA 147 at [46]-[80]. However, Basten JA’s reasons and the conclusion stated at [80] are consistent with the common ground in this Court that it was appropriate to construe the Consent having regard to the development application and the Statement of Environmental Effects (SEE).
The Tenant argued that on its proper construction, when considered in light of the development application and the SEE, the Consent contained separate consents for the refurbishment of the RSL Club and the construction and operation of the gym. The primary judge rejected that argument.
The primary judge considered the terms of the Consent itself, the development application and drawings submitted with it, the SEE and the terms of the Bankstown Local Environmental Plan 2015 (NSW) (LEP 2015) which was in place at the end of September 2019 and under which the Land was zoned Residential, Low Density R2. The Land Use Table in the LEP 2015 prohibited “Recreation facilities (indoor)” (which was defined to include a gymnasium) and “Registered club[s]” (defined as a club that holds a club licence under the Liquor Act 2007 (NSW)). His Honour then turned to the provisions of the EPA Act applicable when the LEP 2015 was gazetted on 5 March 2015 (including ss 106, 107 and 109), before concluding at J[93] and [94]:
“Sections 107 and 109 of the EPA Act did not apply in the present case because, by early 2019, the Land had ceased to be used as an RSL Club, and certainly that use was abandoned when [the Landlord] purchased the Land. Thus, the existing use (being the use for which approval was given under the Consent) had by then been abandoned as the RSL Club had closed. As Mr Turrisi [the town planning expert called by the Landlord] confirmed, the fact that the gym had been operating prior to the LEP 2015 does not mean it could continue to do so afterwards as an existing use. The only lawful use prior to the LEP 2015 was to operate the gym as part of the RSL Club. Consequently, from at the latest, 13 September 2019, the use of the Premises for a gym was not permitted, and in breach of s 76B of the EPA Act (now s 4.3 of the EPA Act).
For these reasons [the Tenant] was in breach of cl 10.1(a)(ii) of the Equitable Lease from the time of its commencement.”
On appeal, the Tenant was granted leave to adduce documentary material that had not been before the primary judge, which was (belatedly) produced by the Council pursuant to a subpoena, after the hearing at first instance.
The planning consent issues arise as follows on the amended notice of appeal.
First, by Ground 1:
“The trial judge erred in his construction of the development consent by finding that the use of the premises was a conjunctive use dependent on the club use such that once the club closed the gym could no longer operate (Judgment at [85]-[89]). Rather he ought to have found that the use of part of the premises as a gym was a separate and independent use.”
“The trial judge erred in finding that the use of the gym was not an existing use protected by ss 4.65-4.70 of the Environmental Planning and Assessment Act 1979 (NSW) (EPA Act) (Judgment at [91]-[93]).”
“The trial judge erred in his finding that the existing use was abandoned when the [Landlord] purchased the land and the RSL closed (Judgment at [93]).”
As to Ground 1, which was the parties’ focus on the appeal, the central question remains, as the primary judge identified, whether the approval granted in 2006 was relevantly for “use of the Land for a health club as part of the operation of the RSL Club, or rather … was a refurbishment of the RSL Club and a separate and independent use of the Premises for a health club”.
The context in which the Consent was granted is significant. As the Consent stated, under LEP 2001, the Land was zoned “2(a) – Residential A”. It was common ground before the primary judge that pursuant to cl 11 of the LEP 2001, in land zoned 2(a) development for the purpose of “Registered clubs” and “Recreation facilities” (which included a gym) was expressly “prohibited”. However, the “prohibition” in cl 11(2) was relevantly subject to two qualifications.
First, cl 11(2) was expressly made subject to cl 12, which conferred a discretion on the Council to grant consent for development that was “prohibited” under cl 11 where it was satisfied that the proposed development met the requirements in cl 12(2). Clause 12(2) provided as follows.
“(2) The consent authority may grant consent pursuant to this clause only where it is satisfied that the proposed development:
(a) is of a nature (whether by reason of its design, scale, manner of operation or otherwise) that would, in the absence of this clause, justify an amendment to this plan in order to permit the particular development, and
(b) is not inconsistent with the objectives of the zone in which the development site is situated, and
(c) is not inconsistent with the provisions of any other environmental planning instrument, and
(d) will not have an adverse effect on other land in the vicinity.”
The Tenant submits, it appears correctly, that cl 12 was the source of the power the Council exercised to consent to the development in 2006.
The second relevant qualification to the “prohibition” in cl 11(2) is that, since the RSL Club had been lawfully operating a club registered under the Registered Clubs Act 1976 (NSW) on the Land for many years, it was entitled under the EPA Act to continue that use. The Tenant submitted that, as the relevant use was permissible with consent (i.e., pursuant to cl 12), any rights to continue operation of the club arose under the former s 109 of the EPA Act. The primary judge stated the same conclusion at J[11]. Thus, at the time the Consent was granted in 2006, the RSL Club was entitled (notwithstanding the “prohibition” in cl 11(2)) to use the Land for the purpose of a registered club.
That circumstance is significant in construing the Consent, which relevantly stated:
“Bankstown City Council hereby Consents to the above described land being developed for the following purpose, …
Description of Development: Refurbishment to Existing Bass Hill RSL Club Including Internal Alterations and Construction of Health Club, Children’s Play Area and Rear External Terrace.”
(Emphasis supplied.)
Contrary to the Tenant’s submission, the words “to Existing Bass Hill RSL Club” should not be understood as merely referring to a physical building which was to be refurbished. Given that the Land was identified by reference to its street address and a Lot in a deposited plan, and given that the refurbishment was identified in drawings submitted with the development application, mere reference to the physical building would have been superfluous. Instead, the reference to the Existing Bass Hill RSL Club makes clear that the Consent was to the development of the Land for a “purpose”, namely, the (continued) use of the Land, once refurbished, as a registered club, “[i]ncluding” various matters. One contextual reason for construing the Consent, made in the exercise of the power in cl 12, at that level of specificity is that cl 11 itself identified the uses which it “prohibited” at that level – in particular, “Registered clubs” were expressly prohibited.
As Leeming JA explains, the development consent extended to a change in use of the lower ground floor to a gym. But that fact does not, without more, answer the question whether the Consent to the gym use was only as part of, or dependent on, the use as a registered club, as opposed to a separate and independent use of the Premises. It is entirely plausible that the Council would not have exercised its discretionary cl 12 power to consent to the construction of a gym in an area zoned 2(a) – Residential A, except as part of the amenity to be provided to members and guests of the “existing” registered club to which the Consent referred. In circumstances where (despite the express “prohibition” on “Registered clubs” in cl 11) a registered club was already operating lawfully pursuant to rights conferred by the EPA Act, and serving the purpose of providing amenity to its members and guests, it is understandable that the Council would take the view that it was appropriate to extend the amenity (in the form of a gym) provided to the registered club’s members and guests, particularly if the Council was satisfied that that would not have significant additional adverse impacts on the surrounding area (as to which, see the SEE below). That would be very different from consenting to the use of the Land as a gym as a separate and independent use from that as a registered club. Yet that would be the effect of the Tenant’s construction — to interpret the Consent as permitting the use of the Land as a gym even on the basis that the registered club packed up and left.
The word “[i]ncluding” in the Consent should be understood against that background. Bearing in mind that a development consent is to be construed not as a document drafted with legal expertise, but to achieve practical results, as a matter of ordinary language the word “including” conveys that consent for the use of the Land for the purpose of a health club was granted only as part of the use of the Land as a registered club. The same is true of the consent to use the Land for the purposes of a “Children’s Play Area and Rear External Terrace”, both of which also follow the word “[i]ncluding”. Those areas were undoubtedly approved for use only as part of a registered club. It would be highly surprising if the Consent were to be interpreted as approving a separate and independent use of the Land as a children’s play area, such that that use could continue after any use of the Land as a registered club was abandoned. There is no reason to construe the Consent as putting the gym in a different category.
“In order to address current trends and legislative requirements the Club must modify the existing floor areas. The Club now must consider other more suitable uses for the existing licensed area such as the inclusion of a kids play area. The change in strategy is partly prompted by the proposed banning of smoking within licensed clubs in 2007.
The existing lower level is proposed to be converted to a health club which is to serve members and guests. There is no increase in the gross floor area (GFA) of the building and in fact the licensed area is reduced.
The existing use is defined as a registered club under the Registered Clubs Act 1976. The terrace areas will be licensed and smokers or non[-]smokers will be able to access the external areas in the same way existing external areas are used by patrons. There are no bars proposed within these areas and alcohol can be consumed in all licensed areas with or without food.
…
The subject site is zoned residential 2(a) and as such a registered club is not permissible in the zone. The application is made pursuant to the discretion power afforded by Cl. 12 of the Bankstown Local Environmental Plan 2001 (BLEP 2001). The assessment of BLEP 2001 is prescribed by Section 79C of the Environmental Planning and Assessment Act 1979 (the “Act”).
…
Plates 4 and 5 show the existing car park located to the rear of the Club which provides a visual and acoustic buffer to the surrounding residential developments to the north, west and south. The existing floor area does not increase and there are no impacts on the current parking demands. Part of the licensed area is reduced (due to inclusion of kids play area). No spaces are lost or nor are there any changes to the parking or access arrangements. The health club simply replaces [the] licensed area.
…
The proposed internal works, health club and external terraces preserve the existing amenity and character of the area and are acceptable in the circumstances of the site. The modifications will allow the Club to continu**e its employment levels and grow in the future to achieve the objectives of the BLEP 2001.
…
The scale and manner of the Club operation is such that the adjoining residential amenity is preserved to reasonable levels. The site provides the required car parking and in effect the licensed area is reduced with the inclusion of a kids play area. The existing Club use is not antipathetic to the residential objectives and appears to have operated with little impact on the adjoining properties in the past.
…
Objective 1(e) [“to allow for some non-residential use that would not adversely affect the living environment or amenity of the area”] is the most relevant to the assessment and the application of clause 12. The objectives clearly acknowledge that some non residential uses may co-exist with residential development. It is our submission that the Club will continue to operate in an orderly manner and the proposed alterations will not cause adverse impacts.
…
The additional 10 patrons to the front terrace is not a significant issue given that the Club have demonstrated an ability to manage noise and patrons in this area. Club staff will manage patrons in the same current manner and will control unruly behaviour. The Club have strict sign in controls and rules of conduct which are generally more stringent than other licensed premises such as nightclubs and pubs. Historically Club patrons are better behaved than patrons of other licensed premises.
…
The relevant issues have been addressed with regard to the public interest as reflected in the relevant planning policies and codes. The development is unlikely to result in any adverse impact to the public interest in the circumstance[s] of the case, particularly noting the minimal impact of the works.”
(Emphasis added.)
Nothing in the SEE suggests that approval was sought or granted for the use of a gym as a separate and independent use from that of a registered club. To the contrary, all aspects of the development were put forward in the SEE as being part of, and for the purpose of, the registered club use. In particular, it was said of the proposed “health club” that it “is to serve members and guests”. Plainly, that was a reference to members and guests of the existing registered club, that is, “patrons”. The statement that the “health club simply replaces [the] licensed area” again shows that the gym use, like the licensed area that it replaced, was to be part of the registered club use.
The Tenant submits that no condition of consent required that the gym be used only by the members of the club, or during the hours of the club’s operation, or that it be in any other way physically or operationally dependent on the club. So much may be accepted. But those matters do not compel the conclusion that, contrary to the ordinary meaning of the language used, the Consent permitted the use of part of the Land as a gym separately and independently from the use as a registered club.
The Tenant submits that it is “evident that the description of the development, liberally construed, together with the plans, authorised the ‘new gym’ not as a use for a club but a separate self-contained use within the RSL Club building.” The various matters to which the Tenant points, largely by reference to the plans, the construction certificate and related documents, may not be inconsistent with that conclusion, but they do not compel it as a matter of construction of the Consent. On the whole, they are equally consistent with the conclusion that the gym use was to be as an integral part of the registered club use.
The Tenant submits that the gym was not licensed premises. By reference to the plans, the Tenant submits that the gym had a separate entrance from the rest of the club; that the gym was constructed on a separate floor (although the Tenant acknowledges that back office facilities for the registered club including a cellar and a cool room were also located on the same floor); that the “new gym” comprised various areas for particular types of exercise, an entry from the existing car park, an office, reception, café, change areas and toilets: “a fully self-contained gym”. Those matters are not inconsistent with a construction of the Consent whereby the gym use was approved only as part of, or dependent on, the registered club use.
Moreover, the plans on which the Tenant relies show that there was not a complete separation between the gym and the rest of the registered club. The Tenant acknowledged that the plans included internal stairs between the weights room of the gym and the reception area of the registered club on the floor above. The Tenant submitted that the stairs were “presumably … for gym users who either wish to use the facilities of the club after using the gym, or simply to exit via Hector Street, where the club reception is located.” The Tenant’s submission that the stairway “is consistent with the gym as a use for a separate and independent purpose” is not a strong one. The existence of stairs connecting the gym to the rest of the club premises above is more readily explained on the basis that the gym was part of the registered club, and that the Consent to the gym use was only as part of the registered club use.
These two grounds of appeal travel together. The question whether the existing use was abandoned (Ground 2A) depends on what the existing use was (Ground 2).
The Tenant submitted that it was entitled to continue the use as a gym as an existing use within the meaning of s 4.66 (the terms of which are set out above). The Tenant also submitted that if the Consent was only for a “club” use, the “gym use would be characterised as a club, which use was not abandoned”.
As the Tenant recognises, the question is one of characterisation. It turns on the construction of the definition of “existing use” in s 4.65. The Tenant does not suggest that the use of the Land as a gym was lawful independently of the 2006 Consent; instead, the argument is said to be “founded on the consent”. Accordingly, it is par (b) of the definition of existing use that is relevant: “(b) the use of a building, work or land … for which development consent was granted before the commencement of a provision of an environmental planning instrument having the effect of prohibiting the use …”. That raises a question of the level of generality at which the existing “use … for which development consent was granted” is to be characterised.
The Tenant submitted that the primary judge’s conclusion that the registered club use had ceased when the RSL Club closed “required construing the purpose of the existing use at the level of particularity that construction principles have long eschewed.” The Tenant cited Jojeni Investments Pty Ltd v Mosman Municipal Council (2015) 89 NSWLR 760; [2015] NSWCA 147 at [75]-[76] for that proposition. Referring to Jojeni at [59]-[60], the Tenant submitted that unless the Consent is “construed as containing limiting words constraining the uses which were permitted the existing use of ‘club’ is sufficient to describe the activities which may be continued under s 4.66 as an existing use founded on the consent” (emphasis supplied).
In Jojeni, Leeming JA (Macfarlan and Gleeson JJA agreeing) distinguished two situations. One was where a development consent expressly authorised a use. At [58]-[59], his Honour referred to two examples of decided cases of that kind. In Botany Bay City Council v Parangool Pty Ltd [2009] NSWLEC 198, the development consent was: “Use of existing warehouse building for the warehousing/storage and distribution of alcoholic goods”. Those words were held to be “express and limiting terms” of the development consent, which delineated the existing use. It followed that the existing use could not be characterised as a use “for warehousing generally”. In MM & SW Enterprises Pty Ltd v Strathfield Council (2010) 172 LGERA 125; [2010] NSWLEC 8 the consent was again expressed in terms of a use: “use of the property described above for commercial offices”. It was concluded “as a matter of construction” that the use of the premises as a brothel fell outside that which was permitted by the consent.
“… what, according to ordinary terminology, is the appropriate designation of the purpose being served by the use of the premises at the material date. … If premises were being used as professional offices at the commencement of the by-laws, no greater degree of particularity in defining the purpose is likely to appeal to practical minds as appropriate in the application of town-planning legislation than is involved in saying that the purpose is that of professional offices: the particular profession of the occupant would not ordinarily be adverted to by a person speaking in a town-planning context.”
At [72], Leeming JA put into a similar category the situation “where a development consent is silent as to use and purpose. In such a case, it is not foreign to the task required by the legislation to apply the principles of characterisation directed to identifying the appropriate level of particularity or generality.”
The Tenant’s reliance on Jojeni as eschewing “particularity” in characterising the purpose of an existing use is misplaced. The present is not a case in which the existing use was not derived from any consent or approval; to the contrary, it is par (b) of the definition which applies. And the present is not a case in which the Consent was silent as to use or purpose. Rather, as noted above, the Consent was to the development of the Land for a “purpose”, namely, the (continued) use of the Land, once refurbished, as a registered club, including a gym. This was, thus, a case in which, as a matter of construction, the 2006 Consent “prescriptively identifie[d] the permitted use”: at [71].
For the purposes of ss 4.65 and 4.66, that was the existing “use … for which development consent was granted”. That use was abandoned no later than the time at which the RSL Club sold the Land to the Landlord. The existing use regime does not avail the Tenant.
Grounds 2 and 2A are not made out.
“The trial judge erred in finding that the appellant was in breach of clause 10.1(a)(ii) of the equitable lease between the appellant and first respondent (Judgment at [94]).”
As noted above, it was not disputed that if the Tenant was operating the gym in breach of planning legislation following closure of the RSL Club, the Tenant would be in breach of cl 10.1(a)(ii).
In light of the conclusions reached above as to Grounds 1, 2 and 2A, Ground 3 is not made out.
Before turning to the grounds of appeal concerning repudiation, it is necessary to say something of the nature of the option for a new lease which it is common ground the Tenant exercised.
Clause 2.2(a) of the Original Lease granted the Tenant an option. The clause provided that the “Landlord must grant a new lease of the Premises to the Tenant under this clause 2.2 on the Expiry Date to commence on the next day only if” three conditions were met. The first two conditions concerned the giving of notice. The third condition was that from the time the Tenant gave notice until the Expiry Date, “the Tenant is not in breach of this lease, or if in breach, that breach has been waived by the Landlord.”
The third condition would appear to have been subject to s 133E(2) of the Conveyancing Act 1919 (NSW), which provides that “no breach by the lessee of any relevant obligation precludes the lessee’s entitlement to the option unless” a prescribed notice has been served, and the lessee’s rights to seek an order for relief against the effect of the breach are extinguished in relation to the notice. No such notice was given.
The Expiry Date was defined as 15 October 2019 (Item 5 of Annexure A of the Lease). That was the last day of the five year “Term” for which the lease was granted (cll 1.1(jj), 2.1 and Item 3), calculated from the Commencement Date of 16 October 2014 (cl 1.1(f) and Item 4).
Clause 2.2(b) provided that the “new lease is to be on terms similar to this lease except that: …” various changes were to be made including as to the new rent, the dates of the new term, and the fact that there was to be no further option. In particular, cl 2.2 itself was to be deleted from the terms of the new lease.
The effect of cl 2.2 was that the Original Lease contained a conditional agreement for a new lease. If the conditions in cl 2.2(a) were satisfied — that is, if the Tenant gave notice of exercise of the option, and the term of the Original Lease expired without both breach and a s 133E notice (or with a waiver of any breach) — the agreement for lease contained within the Original Lease would unconditionally bind the parties.
As has been noted, it was not disputed that the Tenant validly exercised the option and that the conditions in cl 2.2(a) were satisfied at the Expiry Date. At that point, both parties had obligations to perform under the binding unconditional agreement for lease contained within the Original Lease. In particular, as will be seen it was not disputed that pursuant to cl 2.2 of the Original Lease, the Landlord had an obligation to deliver a new lease in registrable form within a reasonable time. For the Tenant’s part, having validly exercised the option (thereby making the agreement for lease contained within the Original Lease unconditional), the Tenant was subject to a corresponding obligation to enter the new lease.
Against that background, it was not disputed that the Landlord never delivered a new lease in registrable form to the Tenant.
The communications between the parties relating to the Landlord’s refusal to deliver a new lease in registrable form occurred in the following context summarised by the primary judge at J[26]:
“Between October 2019 and April 2020, [the Tenant], through Mr Robinson, contacted Mr [Charles] Assaf [the director of the Landlord] repeatedly requesting that a ‘new lease’ be issued. Exactly what Mr Robinson meant by that communication, and what Mr Assaf understood to be the request, was in dispute between the parties. Mr Robinson, and the plaintiff, contend that this was a call for a lease in registrable form to be prepared, executed and registered. Mr Assaf gave evidence that he initially understood this to be a request for a new lease on different terms, notably with a term beyond the expiry of the Option Period. I accept that Mr Assaf may have been at cross purposes with Mr Robinson about the nature of the lease being called for initially, but that ceased to be the case by, at the latest, 20 November 2019 when a further request was sent by Mr Robinson (see below). Mr Assaf was reluctant to issue a registrable lease until the planning issue regarding [the Tenant’s] use of the Premises as a gym had been resolved because there was a risk the Council would stop [the Tenant] from operating the gym without development approval, but [the Tenant] could in the meantime occupy the Premises under the Equitable Lease (Tcpt 299).”
In order to maintain focus on the communications about the Landlord’s refusal to issue a new lease, what follows omits reference to much of the correspondence between the parties about various disputed matters: charges the Landlord sought to levy on the Tenant for the first time under the equitable lease; the Landlord’s demands for payment of those changes and the Tenant’s refusal to pay; the circumstances in which the electricity was cut off to the Tenant’s Premises, including to the exhaust fans in the gym’s toilets and the sewer pumps; and that by 26 February 2020 the toilets were overflowing with sewage. But those matters give some context for the deteriorating tone of the communications.
On 25 October 2019, Mr Robinson sent an email to Mr Assaf stating: “We need to update our insurance company and provide a copy of the rental agreement with the new owner[’]s details. Can you please provide us with an updated lease to reflect the new ownership.”
On 4 November 2019, Mr Robinson sent Mr Assaf a follow-up email with questions regarding the Landlord’s development application in respect of the Land. The email asked, “can you please provide us with the updated lease.”
On 19 November 2019, Mr Robinson sent another follow-up email asking for a reply to his 4 November email. Mr Assaf (who, as the primary judge had indicated at J[26], may have been under a misapprehension as to what was meant by an “updated lease”) replied later on the 19th, saying:
“We would not be updating the lease. Once we confirm the permitted use of the site, we can novate the current lease.
We are not applying for a DA for Gym in our DA application.
We will be requesting an addition [sic] use for a Gym in the current zoning of the site as a separate request.
Can you please stick to what trading hours you have on your lease.”
“In accordance with the lease, we had an option to renew the lease by a further 5 years which we exercised in April 2019. The landlord confirmed the exercise and accepted our exercise to renew for a further 5-year term.
In September 2019, we were notified that the premises had been sold to CCA Investments - Camperdown Pty Ltd (new owner) and that the lease was assigned to the new owner (replacing the old landlord to become the new landlord). We were also told that rental payments had to be made to the new landlord.
According to the terms of the lease, a new lease was supposed to be issued to us, by the landlord, on the 15th October 2019.
This has not been done by 15th October 2019.
We need to provide our insurance company the current lease.
We have been contacting you regarding, amongst other things, the lease since October 2019. Please issue a new lease in accordance with clause 2.2 of the lease, by Friday 22 November 2019.”
That was an express assertion that consequent upon exercise of the option, the Tenant had an unconditional right under cl 2.2 of the Original Lease to be issued a new lease. To the extent that the Landlord’s obligation was to do so within a reasonable time, the Tenant’s eminently plausible explanation that the new lease was needed for insurance reasons would have a bearing on what was reasonable on the Landlord’s part.
On 26 November 2019, Mr Assaf replied to that email, without engaging with the Tenant’s assertion of its contractual rights, as follows:
“David
Can you send me a copy of your DA approval?
Thanks”
“Hi Charles
I think you may have intended this email for someone else. But while I’ve got you can you please respond to my email below [i.e., the 20 November email].
Thanks
David”
“David
I need a copy of your DA for the gym.
Can you send me a copy please
Thanks”
“Charles
I don’t understand what this has to do with my email that you’re yet to respond too [sic].
Regards
David”
“David
To Respond to your email, I need a copy of your DA for the Gym.
Thanks”
“Hi Charles,
We have fulfilled the requirements of the lease insofar as the exercise of the option to renew is concerned. According to the lease, following our notice electing to exercise our option to renew the lease, a new lease was supposed to be issued to us, by the landlord, on 15th October 2019. This wasn’t done. We have written to you[] requesting a new lease. You still have not issued a new lease. Given we have validly exercised the option for a further period of 5 years, you (the landlord) are contractually obliged to grant a new lease to us.
Please stop delaying issuing us a new lease.
Thanks
David”
“David
I don’t like your tone
Do you have a legal DA so I can help you”
“1. Does the gymnasium/Health and Fitness Centre have existing use rights such as would survive the closure of the registered club on site, assuming those rights were acquired as an ancillary use to the Club which itself was, in recent times, a prohibited use?
In my opinion NO. From the limited documents provided it appears that the gym was approved as ancillary to the Club not as a separate and independent use, therefore the existing use rights (assuming they have not been abandoned) would be for the purposes of a Club.”
As the primary judge noted at J[32], the correctness of that advice was a matter in dispute between the parties.
On 13 December 2019, Mr Robinson met with Ms Kaitlin McCaffery, a town planner at the Council. He was provided with a copy of the Consent. On 14 December, in response to Mr Assaf’s email of 28 November, Mr Robinson sent Mr Assaf a copy of the Consent attached to an email that included the following:
“Hi Charles
There was no intent to cause offence with my email, I apologies [sic] for doing so.
… Attached is the DA you were after.
We’d appreciate having this matter resolved prior to Christmas. I’d be happy to come and pick up the lease from you if that makes things easier. Just let me know a time that suits.
Thanks
David”
“Hi Charles
Can you please confirm receipt of this email. As stated in the email I’m happy to collect the lease, please advise.
Cheers
David”
On 7 January 2020, Mr Robinson again forwarded his 14 December 2019 email to Mr Assaf, stating: “I’m following up on our lease. Can you please advise if it[’]s on its way or if you would like us to come and collect a copy.”
On 13 January 2020, Mr Robinson forwarded his 7 January email to Mr Assaf, asking, “Can you please confirm receipt of my email below.”
On 14 January 2020 Mr Assaf emailed Mr Robinson. The email included the text of Mr Stanton’s 5 December 2019 legal advice, and said:
“David,
I have received your email.
Unfortunately, I can not issue you a new lease as your current DA is no longer valid when the Club closed.
I have received our Barrister’s advice and happy to share a few points below.
[E**xtract of Mr Staunton’s advice]
David. As you can see from above, the situation is complex.
I have paid for the above advice and our Planners advise. I will have to invoice you for these costs as per the lease (sect 4). We can help resolve this with a planning proposal as added permitted use. Again you will need to pay for these costs.
Also with the aircon and any equipment used in/on your premises, the lease under section 11:3 notes that it is the lessee’s responsibility and cost. Could you please attend to fixing this.
Also, as you are the only tenant in the building, I will move the power and waters [sic] services to meter your usage. Again this is reflected in the lease. So I will be invoicing you from January for any utility used by your tenancy.
Thanks
Charles Assaf”
There followed a series of communications of escalating seriousness about the electricity connection and certain charges (in particular, for electricity) for which the Landlord invoiced the Tenant on 31 January 2020, discussed at J[40]-[44]. On 20 February, Mr Adithya Ganesh, an employee of the Landlord, sent Mr Robinson an email stating: “If the invoices we’ve sent you are not paid within 7 days from today, we will be disconnecting our electricity connection.” Mr Robinson responded on 21 February disputing that the Tenant was obliged to pay for electricity and saying, among other things, “Please stop threatening to disconnect the electricity …” and “Please also note that if electricity is disconnected, our gym will be inoperable.” On 26 February, Mr Robinson emailed Mr Assaf and others, describing “an urgent issue at the gym”, namely that the toilets, sinks and drains were overflowing because of a lack of power to the sewer pumps. He sent another email with further details the following day.
On 2 March 2020, the Tenant’s solicitors sent a letter by email to the Landlord which included the following:
“We refer to the lease between City of Bankstown R. & S. L. (RSL) and Interslice Pty Ltd dated 16 October 2014 (Lease) in respect of Ground Floor of 330 Hector Street, Bass Hill, NSW 2197 (Premises).
Briefly, the facts are as follows:
- Interslice entered into a lease with RSL and commenced renting the Premises on 16 October 2014;
- The initial term of the Lease was 5 years which expired on 15 October 2019;
- Pursuant to clause 2.2 of the Lease, Interslice had an option to renew the Lease for a further 5 year term (until 15 October 2024) (Option);
- the Option was exercise[d] by Interslice;
…
- Clause 2.2(a) of the Lease states “The Landlord must grant a new lease of the Premises to the Tenant under this clause 2.2 on the Expiry Date to commence on the next day …”;
- Clause 2.2(b) of the Lease states “The new lease is to be on the terms similar to this lease …”;
- A new lease, in accordance with clause 2.2(b) of the Lease should have been issued on 15 October 2019 by CCA. It was not;
- Since late 2019, Interslice has made numerous requests to CCA requesting a new lease in accordance with clause 2.2 (b) of the Lease. These requests have been ignored by CCA.
…
Our client requests that a new lease be issued, pursuant to clause 2.2(b) of the Lease, by 5pm, 13 March 2020. In the event that a new lease is not issued by CCA, our client will contemplate legal action against CCA for breach of the Lease.”
(Italics in original.)
That was another express assertion that consequent upon exercise of the option, the Tenant had an unconditional right under cl 2.2 of the Original Lease to be issued a new lease. This time the assertion was made by the Tenant’s solicitors. Short of commencing proceedings for a declaration or specific performance, it is not obvious what more formal step the Tenant could take in asserting its legal rights.
Within an hour, Mr Assaf responded to the email by which the Tenant’s solicitors had sent their 2 March letter. Far from acknowledging the Tenant’s legal rights, or proffering some interpretation of the Original Lease which might bear on the existence or enforceability of those rights, Mr Assaf’s response was contemptuous. His email to the Tenant’s solicitors said only:
“LOL”.
“LOL. If this is the way you want to represent yourself. That is fine.”
On 5 March 2020, the Landlord’s solicitors responded by email attaching a letter to the Tenant’s solicitors, noting the contents of the 2 March 2020 letter but not engaging in any way with its contents. There was no denial of the Tenant’s legal right to be issued a new lease. Instead, the Landlord’s solicitors took up a different question: the payment of electricity charges to the Premises. Towards the end of their letter they said: “The landlord intends to cancel the electricity supply to the premises tomorrow.”
There was then a meeting on 9 March 2020 between Mr Robinson, Mr Assaf, and the employee of the Landlord, Mr Ganesh. Mr Assaf made a recording of the meeting. His Honour found at J[52]:
“… the discussion centred on two matters. The first was Mr Assaf’s request that Mr Robinson ‘sort out’ his ‘DA issue’ by which Mr Assaf meant that Mr Robinson needed to obtain a development approval for his use of the Premises as a gym. The second was Mr Assaf’s view that [the Tenant] needed to pay the cost of the electricity it used in the Premises and if agreement on that topic could not be reached he would disconnect the electricity supply to the Land and [the Tenant] would then need to ‘connect a separate meter’ to maintain its electricity supply. Mr Robinson did not engage on these topics, and said he needed to speak to his wife, Ms Bakic, and would then get back to Mr Assaf.”
“With reference to:
(a) the lease of the Leased Premises commencing 16 October 2019 and terminating 15 October 2024 from CCA Investments - Camperdown Pty Ltd ACN 634 907 369 (Lessor) to the Lessee … (Lease) and
(b) the covenant in clause 10.1(a)(ii) of the Lease that the Lessee must ‘obtain, keep current and comply with all consents, approvals and licences from all relevant Authorities or other persons necessary or incidental to the use of the Premises for the Permitted Use and the provisions of this Lease’
the Lessor gives you notice as follows: …”
“1. The Permitted Use under the Lease is ‘health and fitness centre (including crèche)’.
2. The land on which the Leased Premises are located is by virtue of Bankstown Local Environmental Plan 2015 (LEP) zoned R2 Low Density Residential.
3. The LEP prohibits the use of land zoned R2 Low Density Residential as a health and fitness centre (including crèche).
4. The Lessor’s position concerning the use of the Leased Premises by the Lessee is as follows:
(a) The former landlord and occupant of the building Bankstown RSL Club Ltd ACN 001 084 591 (Club) had existing use rights to use the land as a club;
(b) The Lessee’s use of the Leased Premises as a health and fitness centre (including crèche) was an ancillary use to the Club and not a separate and independent use;
(c) The Club has by virtue of its vacation and sale to the Lessor of the land of which the Leased Premises forms part abandoned its use of the land and, as a result of the abandonment, the Lessee’s use of the Leased Premises is no longer lawful;
(d) As the zoning of the Leased Premises under the LEP does not permit the use of the land as a health and fitness centre (including crèche), it is the opinion of the Lessor that it is not possible for the Lessee to remedy the breach of clause 10.1(a)(ii).
5. The Lessor will allow the Lessee until 13 April 2020 to demonstrate to the Lessor’s reasonable satisfaction that the breach of clause 10.1(a)(ii) of the Lease can be rectified.
6. If the Lessee can demonstrate to the Lessor’s reasonable satisfaction rectification is possible, the Lessor will allow a further reasonable period for the Lessee to rectify the breach.
7. If the Lessee is unable to demonstrate to the Lessor’s reasonable satisfaction that rectification is possible the Lessor will terminate the Lease.”
Again, it might be noted that the Landlord’s notice did not engage with the Tenant’s assertion of a legal right to be issued a new lease.
On 12 March 2020, the Tenant’s solicitors responded to the Landlord’s solicitors’ 5 March letter about the electricity charges. The Tenant’s solicitors disputed any liability for electricity charges.
On 7 April 2020, the Tenant’s solicitors sent two letters of termination to the Landlord’s solicitors. The body of the first letter was as follows:
“RE: Interslice Pty Ltd (Lessee) — Lease from CCA Investments - Camperdown Pty Ltd/Bass Hill Pty Ltd (Lessor) — Lease of Lower Ground Floor 330 Hector St Bass Hill 2197 (Lease)
As you are aware, we act for Interslice Pty Ltd.
Clause 2.2 of the Lease requires your client, the Lessor, to issue a new Lease to the Lessee once the Option has been exercised. Our client exercised the Option and therefore a new lease commenced on 16 October 2019 until 15 October 2024. Further your purported notice of breach dated 11 March 2020 even acknowledges in paragraph (a) that the Option has been exercised and that there is a new Lease from 16 October 2019 until 15 October 2024 at the above premises.
Despite clause 2.2 being a fundamental term of the Lease, your client, Camperdown Pty Ltd, has repeatedly failed to issue a new Lease to our client, Interslice Pty Ltd, in breach of the clause 2.2 of the Lease. Our client has requested a new Lease on the following dates:
- 25 October 2019;
- 4 November 2019;
- 19 November 2019;
- 20 November 2019;
- 26 November 2019;
- 28 November 2019;
- 14 December 2019;
- 7 January 2020.
Further on 2 March 2020, on behalf of our client, the Lessee, we wrote to the Lessor and made a further request for your client to issue a new Lease to your [sic] client by 13 March 2020. The Lessor’s response to our client’s letter was ‘LOL’.
The Lessor’s repeated failure to issue a new Lease to the Lessee set out above amounts to a repudiation of the Lease. The Lessor’s conduct also amounts to a derogation of the grant of the new Lease.
Our client, the Lessee, gives notice that it accepts your client’s repudiation of the Lease and hereby terminates the Lease.
Should you have any questions, please contact me on the number below.”
That letter expressly identified the Landlord’s obligation “to issue a new Lease to the Lessee once the Option has been exercised” as that in “Clause 2.2 of the Lease”, that is, in cl 2.2 of the Original Lease. (There was no cl 2.2 in the “new Lease” that the Landlord was bound to issue, and therefore none in the equitable lease.) The letter expressly identified the Landlord’s failure to issue a new lease as a “breach of the clause 2.2 of the Lease”, that is, cl 2.2 of the Original Lease. The letter stated that the Landlord’s “repeated failure to issue a new Lease to the Lessee set out above amounts to a repudiation of the Lease”, that is, a repudiation of the Original Lease. The distinction between the “Lease” (i.e., the Original Lease) and the “new Lease” (i.e., the lease that the Landlord was obliged to issue pursuant to cl 2.2 of the Original Lease) was emphasised by the following sentence: “The Lessor’s conduct also amounts to a derogation of the grant of the new Lease.” (Given the Tenant’s complaint that the “new Lease” had not yet been issued, it may be that this should be understood as a reference to the equitable lease (on the same terms as the “new Lease”) that came into existence by reason of the specific enforceability of the agreement for lease contained within cl 2.2 of the Original Lease; if so, that was not made express. But on any view, the Tenant’s solicitors were distinguishing this “new Lease” from the Original Lease.)
The operative sentence giving notice of termination was then as follows: “Our client, the Lessee, gives notice that it accepts your client’s repudiation of the Lease and hereby terminates the Lease.” That was clearly a reference to termination of the Original Lease: it was the Original Lease that contained the Landlord’s obligation in cl 2.2, the repeated breach of which the Tenant relied on as repudiatory.
It should be noted that if that notice was effective to terminate the Original Lease, the Landlord would have no further obligation to perform pursuant to the agreement for lease contained within cl 2.2 of the Original Lease. That being so, the termination of the Original Lease would also necessarily bring to an end the equitable lease that had arisen by reason of the specific enforceability of the agreement for lease contained within cl 2.2 of the Original Lease.
The Tenant’s solicitors’ second letter referred to the Landlord’s 11 March 2020 notice of breach. The Tenant’s solicitors denied any breach of cl 10(a)(ii) and stated that the notice of breach “amounts to a further repudiation of the Lease by your client the Lessor which our client hereby accepts and terminates the Lease.”
On 14 April 2020, the Landlord’s solicitors wrote to the Tenant’s solicitors referring to the two letters dated 7 April 2020. As to the first of the 7 April letters, the Landlord’s solicitors said:
“This letter purports to terminate the lease asserting a failure by our client to issue a new lease following your client exercising its option. It is not clear to us whether you are terminating the lease ending 15 October 2019 or the renewed lease which came into existence by virtue of the exercise of the option by your client (New Lease). We do not think the issue is material for the purposes of this letter.
We note the following:
- Your letter of 2 March 2020 raised the issue of the New Lease and in the second last paragraph stated that if the new lease was not issued ‘our client will contemplate legal action against CCA for breach of the Lease’. It said nothing about termination.
2. Our response of 5 March 2020 did not refute your client’s claim for the issue of the New Lease, and our notice of 11 March 2020 was a notice given expressly in respect of the New Lease.
- In the circumstances our client rejects the assertion that its conduct in failing to issue the New Lease is repudiatory and/or it derogates from the grant following your client’s exercise of its option.
Our client considers your letter is repudiatory by the act of your client electing to terminate evinces an intention by your client not to be bound by the New Lease.
Our client treats this letter and your client’s conduct as repudiatory of your client’s obligations under the New Lease and our client terminates the New Lease because of that repudiatory conduct.”
This letter also betrays a measure of confusion about what it meant by the “New Lease”. On the one hand, the letter acknowledged that a “renewed lease … came into existence by virtue of the exercise of the option by your client (New Lease)”. That could only mean an equitable lease. But paragraph 3 appears to acknowledge that the Landlord had “fail[ed] to issue the New Lease”, which must mean the lease in registrable form. Since no such lease in registrable form had been issued, still less registered, the words, “our client terminates the New Lease because of that repudiatory conduct” must be understood as directed to the equitable lease, rather than the Original Lease.
As to the second of the 7 April letters, the Landlord’s solicitors asserted that the Landlord’s 11 March 2020 notice of breach was, if anything, “an affirmation of the agreement to which it relates” (which begs the question of which agreement that was). The Landlord’s solicitors stated: “Our client treats the further purported termination of the ‘lease’ in this second letter as a repudiation of the New Lease and our client hereby terminates the New Lease because of that repudiatory conduct.”
The Tenant vacated the Premises on 28 April 2020.
The Tenant alleged that its notice of termination for repudiation was valid. The Tenant claimed loss of bargain damages. That is a claim for a legal remedy arising out of the infringement of a legal right. It invites attention to precisely what is alleged to have been repudiated. As will be seen, the Tenant’s case at trial involved two conceptually distinct repudiations.
The first was repudiation of the Original Lease. As will be seen, the Landlord admitted on the pleadings that it had an obligation under cl 2.2 of the Original Lease to deliver a new lease in registrable form within a reasonable time. The Tenant alleged (but the Landlord denied) that the Landlord’s refusal to perform that obligation despite repeated requests repudiated the Original Lease (that is, by refusal to perform the agreement for lease contained within in the Original Lease).
The Tenant’s second case was repudiation of the equitable lease which (the Landlord admitted) arose by reason of the Tenant’s having validly exercised the option under cl 2.2 of the Original Lease (thereby making the agreement for lease contained within the Original Lease unconditional). The Tenant alleged that the Landlord repudiated this equitable lease by reason of two matters which operated to some extent together.
The Tenant alleged (but the Landlord denied) that the Landlord had an obligation under the equitable lease to deliver a new lease in registrable form within a reasonable time. The Tenant alleged (but again the Landlord denied) that the Landlord’s refusal to perform that obligation despite repeated requests repudiated the equitable lease.
The Tenant alleged (but the Landlord denied) that by reason of various breaches of the equitable lease, such as cutting off the power to the Premises, the Landlord repudiated the equitable lease.
The first repudiation case (directed to the Original Lease) was legally coherent. It raised a relatively straightforward question for determination on the facts. However, as will be seen, the primary judge did not separately address it. Instead, his Honour focused on the second repudiation case.
The second repudiation case suffered from a number of difficulties.
The Tenant’s right to receive a new lease in registrable form arose under cl 2.2 of the Original Lease. That right was the foundation on which any equitable lease came into existence; it was not a term of the equitable lease (which was on the same terms as the new lease). That was made express in cl 2.2(b)(iii), which provided that cl 2.2 was to be deleted from the new lease. The Landlord’s obligation to deliver a new lease in registrable form therefore could not be a term of any equitable lease.
The Tenant’s claim for damages for breach of the equitable lease was not conceptually straightforward. To the extent that the Tenant was claiming loss of bargain damages at law consequent upon its termination for repudiation of an equitable lease, that was possible in theory. As was said in (1989) 168 CLR 242 at 254; [1989] HCA 63 per Mason CJ, Brennan, Deane and McHugh JJ:
“The operation thus attributed to the Judicature Acts had the effect of enabling a party to an agreement to enforce, against another party to the agreement, legal remedies in respect of equitable rights and interests. In this respect the English cases … proceed on the footing that the Judicature Acts have a procedural operation.”
But that is not to say that an equitable right was for all purposes equivalent to the legal right: see at 253-256.
“No, because that's not the way the case was pleaded. Ultimately one has to, even in this day and age, confine oneself to the substance of the way the case was pleaded, and that's well outside the way the case was pleaded. Nobody was relying upon rights under that. Both parties accepted that there were only rights in equity under the equitable lease. That provision, cl 2.2, wasn't embraced at all by the parties in the pleadings or informally or in any other way.”
(Tcpt, 16 December 2024, 53.13-19)
As will be seen, that answer was, no doubt inadvertently, mistaken. In circumstances where Senior Counsel for the appellant also did not appear at trial, the mistake was unfortunately not corrected.
It becomes necessary to consider closely how the repudiation case was pleaded and advanced at trial.
The Tenant pleaded in the amended statement of claim, and the Landlord admitted:
the terms of cl 2.2 of the Original Lease: at [5];
that “[o]n or about 6 April 2019, the plaintiff exercised the option to renew the Original Lease for a further term of 5 years”: at [12];
that on or about 13 September 2019, the Landlord purchased the Property and the Community Club transferred ownership to the Landlord: at [13]; and
that “[b]y reason of section 118 of the Conveyancing Act 1919 (NSW), the defendant was bound by the terms of the Original Lease in paragraphs 3 to 12 above”: at [14].
The Landlord then admitted the following three allegations:
“15. Pursuant to clause 2.2 of the Original Lease, the defendant was required to grant a new lease to the plaintiff pursuant to the exercise of the option.
Particulars
Clause 2.2 of the Original Lease
Section 118 of the Conveyancing Act (NSW)
15A. The requirement to grant a new lease pursuant to clause 2.2 of the Original Lease included a requirement for the defendant to deliver a new lease in registrable form to the plaintiff.
15B. The defendant was also required pursuant to clause 2.2 of the Original Lease to deliver a new lease in registrable form to the plaintiff within a reasonable time after the commencement date of the new lease on 16 October 2019.”
The Landlord admitted that on 19 December 2019, the Landlord: (a) sent a notice of attornment; (b) advised that all future payments of rent be directed to the Landlord’s nominated bank account; and (c) confirmed receipt of $30,000 (although the Landlord did not admit that this sum was on account of the security bond amount under the Original Lease): at [16].
The Landlord admitted that “[o]n 15 October 2019, the plaintiff entered into a 5 year equitable lease with the defendant on the same terms as the Original Lease (New Lease)”: at [17]. The Landlord further said that the terms that applied to the tenancy were the same terms as those set out in the Original Lease, varied to the extent set out in cl 2.2(b). The Landlord defined these as the “New Terms”. Thus, the “New Lease” and the “New Terms” as defined in the defence referred to an equitable lease.
At [18], [18A] and [18B], the Tenant pleaded, but the Landlord denied, that the equitable “New Lease” contained implied terms which corresponded with the obligations under cl 2.2 of the Original Lease which the Landlord had admitted at [15], [15A], and [15B].
The Landlord admitted that in the period from October 2019 to 30 April 2020 each month the Tenant paid rent to the Landlord and the Landlord accepted the rent: at [25].
At [27] to [37] of the statement of claim, the Tenant pleaded a series of communications in the period 25 October 2019 to 14 January 2020 in which, it alleged, the Tenant requested a lease and, ultimately, the Landlord refused the request. The detail of the communications in that period has been addressed above. The Landlord made some admissions in respect of those communications but otherwise denied or did not admit various aspects of their characterisation. Importantly, at [37], the Landlord said:
“The Defendant admits that on 14 January 2020 it refused to issue the Plaintiff a new written lease but says that it did so on the basis that it had received legal advice that the Plaintiff could not lawfully operate under the terms of the development consent DA 755/2006 issued by Bankstown City Council that applied to the Plaintiff and the Community Club during the term of the Original Lease.”
The Tenant alleged at [50] that on 2 March 2020 it made “a final request for a lease from the defendant within 14 days.” The Landlord admitted that it received a request from the Tenant for a new lease to be provided by 13 March 2020 but denied or did not admit the balance of [50].
The Tenant alleged at [54] that on 11 March 2020, the Landlord sent a letter to the Tenant which attached a notice alleging that the Tenant was in breach of the New Lease. The Landlord substantially admitted the allegation, saying that on that date it served a Notice of Breach of Covenant (defined as the “Breach Notice”) on the Tenant concerning the Tenant’s contravention of cl 10.1(a)(ii) of the New Terms. As noted above, the New Terms were the terms of the New Lease, being the equitable lease.
The Tenant alleged at [56] that on 16 March 2020, the Landlord failed to grant a lease to the Tenant (misdescribed as “the defendant”). The Landlord admitted that it did not grant a new written lease on or before 16 March 2020 and otherwise denied the allegation.
The Tenant alleged at [57] that on 7 April 2020 it accepted the repudiation of the Original Lease and/or New Lease by the Landlord and terminated the Original Lease and/or New Lease. The Landlord denied that its conduct amounted to a repudiation of the Original Lease, the New Terms and/or any tenancy between the Tenant and the Landlord; alleged that by issuing the Breach Notice the Landlord had affirmed the New Lease and/or the New Terms; and alleged that the Tenant’s purported termination was itself repudiatory. The Landlord alleged at [59] that it accepted the Tenant’s repudiation on 14 April 2020.
The Tenant pleaded at [62] and [63], and the Landlord denied, that by reason of the Landlord’s breaches of terms of the Original Lease, including those alleged at [15A] and [15B] (i.e., the Landlord’s admitted obligations to deliver a new lease in registrable form within a reasonable time), the Landlord repudiated the Original Lease, which repudiation the Tenant accepted on 7 April 2020.
The Tenant made corresponding allegations at [62A] and [63] that the Landlord had repudiated the New Lease (i.e., the equitable lease), which the Landlord denied.
The Tenant at [67] alleged, and the Landlord denied, that by reason of the repudiation and termination of the Original Lease and/or the New Lease, the Tenant had suffered loss and damage (particularised as a loss of five years of profit).
In further answer to the whole of the Tenant’s claim, the Landlord pleaded at [75] and [76] that by reason of the Tenant’s contravention of cl 10.1(a)(ii) of the “New Terms” (that is, of the equitable lease), the Tenant’s use of the Premises was, at least on or after 13 September 2019, unlawful; and that by reason of that matter the Tenant was not entitled to the relief sought in the statement of claim.
The parties maintained their pleaded cases with respect to repudiation in final submissions.
In written submissions provided to the primary judge at the commencement of addresses, Counsel for the Tenant submitted that “the term in clause 2.2 of the Original Lease required the [Landlord] to deliver a lease in registrable form”, and that “the continual failure to grant a lease and other conduct by the defendant amount[ed] to a repudiation of the Original Lease and/or New Lease”.
Counsel for the Landlord also provided written submissions at the commencement of his address. These acknowledged that the Tenant “successfully exercised the option to renew” “pursuant to cl 2.2(a) of the Original Lease”, and that on 15 October 2019 the parties entered into the new equitable lease. The Landlord submitted that the “primary issue in the proceedings is whether [the Tenant], by way of the 7 April letters, was entitled to terminate either of the Original Lease, or the Equitable Lease, on the basis of [the Landlord’s] repudiation.”
The Landlord maintained that there was no implied term in the equitable lease obliging the Landlord to provide a written lease in registrable form. But with respect to the Original Lease, the Landlord expressly accepted:
“that implicit in clause 2.2 of the Original Lease was an obligation for [the Landlord] to provide a written lease in registrable form within a reasonable period of time. However, as discussed in more detail below, [the Landlord’s] position was that this obligation was never breached, or alternatively, any breach never rose to a level at which a repudiation of the Original Lease arose.”
Several points follow from the terms of the Original Lease and the way in which the case was pleaded and advanced at trial.
It is necessary to distinguish three distinct things: the agreement for lease contained within the Original Lease; the equitable lease; and the as yet unregistered lease in registrable form. The agreement for lease contained within the Original Lease was the “antecedent agreement … effective, in accordance with the principles of equity, to bring into existence an equitable estate or interest in the land”: Chan v Cresdon per Mason CJ, Brennan, Deane and McHugh JJ. As their Honours said at 257-256:
“If we assume that the agreement for lease would have been specifically enforced in equity and that, as a result, an equitable lease for a term of five years came into existence between the [parties], that equitable lease is a thing different from the unregistered form of lease executed by the parties. Although such an equitable lease would incorporate the terms of the unregistered lease, by virtue of s. 43 it necessarily arises not from the instrument but from the agreement which lies behind it.”
Section 43 of the Real Property Act 1861 (Qld), to which their Honours referred, was described as the “counterpart” of s 41 of the Real Property Act 1900 (NSW): at 257.
(There might also have been a fourth thing to distinguish: an implied tenancy at will, terminable at a month’s notice, created by occupation and the payment of rent and affected by s 127(1) of the Conveyancing Act 1919 (NSW): see Chan v Cresdon at 248-249. But understandably, any such tenancy at will did not feature in the present case, which is concerned with loss of bargain damages arising out of the repudiation of an agreement to grant a new five year term.)
Putting to one side the effect of s 133E, in the scheme of the Original Lease, the question of breach by the Tenant had an important but time-limited role to play in relation to the Tenant’s option to be granted a new lease. By reason of cl 2.2, a condition of the valid exercise of the option was that the Tenant not be in breach up until expiry of the term of the Original Lease (or that any breach be waived). That is to say, the absence of breach of the Original Lease was one of the conditions of the agreement for lease contained within the Original Lease. Subject to the effect of s 133E, the question whether the Tenant was in breach of the Original Lease would thus be determinative until the term of the Original Lease expired on 15 October 2019. However, in the event that the option was validly exercised, the parties’ obligations under the agreement for lease contained in the Original Lease would become unconditional. The position would thus be different after 15 October 2019.
On the pleadings, the defendant admitted that the plaintiff had validly exercised the option. Whether that was on the basis that the Tenant had not been in breach up until 15 October 2019, or on the basis that any breach had been waived (as cl 2.2(a)(iii) permitted), or on the basis that there had been no s 133E notice, is not material. The important point is that the Landlord accepted on the pleadings, and in submissions, that by reason of the exercise of the option, the Landlord was subject to the obligations pleaded at [15], [15A] and [15B] as arising under cl 2.2 of the Original Lease. Accordingly, it was not disputed before the primary judge that the Landlord had been required to perform obligations under the Original Lease to deliver a new lease in registrable form within a reasonable time after 15 October 2019.
As alleged in the statement of claim and admitted by the Landlord, the Landlord’s obligations to do so under the Original Lease were not subject to any further condition. Nor did the Landlord plead any such further condition.
Those matters are significant, given the Landlord's asserted reason, pleaded at [37] of its defence, for refusing to issue the Tenant with a lease in registrable form: "The Defendant … says that it did so on the basis that it had received DA 755/2006" (emphasis supplied). That in turn was said to involve a breach of cl 10.1(a)(ii) (the obligation to comply with approvals necessary to the use of the Premises for the Permitted Use) of the .
(a) the question whether the Tenant was in breach of the equitable lease which commenced on 16 October 2019; (b) the question whether the Tenant would be in breach of the new lease once registered; (c) the question whether the Tenant could lawfully use the Premises as a gym under the terms of any development consent.
“[39] For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown that the party is either unwilling or unable to perform its contractual obligations, that is, it has evinced an intention to no longer be bound by the contract, or stated that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way: Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620 (Shevill) at 625-626 (Gibbs CJ); Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623 at 634, 647-648, 658; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 (Koompahtoo) at [44]. Repudiation is a serious matter and is not to be lightly found or inferred: Shevill at 633 (Wilson J).
…
[41] A renunciation can be made either by words or conduct, provided it is clearly made: Universal Cargo Carriers Corporation v Citati at 436. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it: Koompahtoo at [44]; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 659 (Deane and Dawson JJ) and 647 (Brennan J).”
The primary judge also correctly recorded that “[w]hile [the Landlord] accepted that it was an implied term of the [Original] Lease that a lease in registrable form be delivered to [the Tenant] within a reasonable time from the commencement of the Option Period, [the Landlord] denied that such a term was implied into the Equitable Lease”: J[99]. However, his Honour rejected the Landlord’s submission, finding that “it was an implied term of both the [Original] Lease and the Equitable Lease that a registrable lease be provided within a reasonable time”: J[99]. That appears to have followed from his Honour’s statement at J[25], rejecting the proposition that “the Equitable Lease and the entitlement to a legal lease are distinct obligations. The correct approach is that there was one agreement to convey a leasehold interest for the Option Period as a consequence of cl 2.2 of the Lease.”
For the reasons given earlier, it should not be accepted that the obligation to deliver a lease in registrable form arose under the equitable lease. In the view I take of this aspect of the case, the central issue was the Landlord’s legal obligation to perform the agreement for lease contained within cl 2.2 of the Original Lease.
At the start of the dispositive section of his reasons, his Honour again correctly recorded the Tenant’s submission “that the delay in issuing a registrable lease amounted to a repudiation of the [Original] Lease and/or Equitable Lease”: J[106]. His Honour’s conclusion at J[143] also referred to the Tenant’s claim (which his Honour rejected) as one “for damages for repudiation and termination of the [Original] Lease or the Equitable Lease.”
However, his Honour addressed the Tenant’s case for repudiation exclusively on the basis that the obligation to deliver a lease in registrable form arose under the equitable lease: see at J[108]-[112]. I respectfully consider that that was an error which led his Honour to address the wrong questions, as discussed below.
Ground 4 is:
“The trial judge erred in finding that the first respondent did not repudiate the equitable lease (Judgment at [105]-[112]). Rather he ought to have found that the first respondent’s failure to provide a lease to the appellant upon request was a repudiatory act.”
Adapting the language of DCT Projects, his Honour approached the question in terms of whether the Landlord’s words and conduct would convey to a reasonable person in the Tenant’s position that the Landlord renounced “either the Equitable Lease as a whole or a fundamental obligation under it”: J[110] (emphasis supplied). But to the extent that the Tenant’s case was for repudiation of the Original Lease, whether the Landlord renounced a fundamental obligation under the equitable lease was the wrong question. It led the primary judge to give the wrong answer, by reference to the Landlord’s consistent assertions that the Tenant was in breach of cl 10.1(a)(ii) of the equitable lease: J[107]-[108].
Distinguishing Laurinda, his Honour said that the Landlord’s delay in executing the new lease was not unexplained, because of the cl 10.1(a)(ii) breach: at J[107].
His Honour then said at J[108], “the words and conduct of [the Landlord] did not indicate an intention to perform the Equitable Lease in a manner substantially inconsistent with its obligations under it; rather, [the Landlord] indicated that it intended to perform its obligations under the Equitable Lease, but could only do so if [the Tenant] ‘resolved’ the planning issue and the consequential breach of cl 10(a)(ii) of the Lease” (emphasis supplied).
At J[109], his Honour said: “The notice issued by [the Landlord] to [the Tenant] on 11 March 2020 indicated a willingness to perform the Equitable Lease, provided that [the Tenant] demonstrated to [the Landlord]’s reasonable satisfaction, within one month of the letter being sent, that the breach of cl 10.1(a)(ii) of the Lease could be rectified” (emphasis supplied).
(His Honour had defined “Lease” as the Original Lease at J[2]. But in this context, where the term of the Original Lease had expired, the Tenant no longer had any obligation to perform cl 10.1(a)(ii) of the Original Lease. It follows that the word “Lease” when used at J[108] and [109] was shorthand for the “Equitable Lease” which was on foot, and referred to earlier in each of those sentences. That is borne out by his Honour’s reference to the Landlord’s 11 March 2022 notice of breach, quoted at J[53]. The alleged breach of which the Landlord was giving notice was an ongoing breach of a lease that was on foot: the notice gave the Tenant “until 13 April 2020 to demonstrate to the Lessor’s reasonable satisfaction that the breach of clause 10.1(a)(ii) of the Lease can be rectified”, followed by “a further reasonable period for the Lessee to rectify the breach” (emphasis supplied). The Landlord’s reference to “the Lease” could only be understood as meaning the equitable lease, as it was the only lease on foot.)
The primary judge’s focus on the equitable lease led to the reasoning at J[111]-[112] concerning the availability of specific performance. At J[94], [104], [111] and [112] his Honour reasoned that the existence of the equitable lease rested upon its specific enforceability; that specific performance would not be available if the Tenant was not ready and willing to perform the essential terms of the agreement; that cl 10.1(a)(ii) was an essential term of the equitable lease; and that the Tenant was not ready and willing perform that term. This appears to have been directed to the proposition that it followed that there was no equitable lease and, implicitly, that there could therefore be no obligation to deliver a new lease arising under it.
For the reasons given above, I consider that these were the wrong questions. The obligation to deliver a new lease in registrable form arose under the Original Lease.
The reasoning summarised above as to subsistence of the equitable lease was in any event contestable.
The proposition that there was no equitable lease is in tension with the Landlord’s admission at [17] of the defence that the Tenant entered into a five year equitable lease with the Landlord on 15 October 2019. That admission was made notwithstanding the Landlord’s denial at [26] that the Tenant complied with its obligations under the equitable lease from October 2019 to April 2020, and the Landlord’s allegation at [75] of the defence that the Tenant had been in breach of cl 10.1(a)(ii) since at least 13 September 2019.
To the extent that the existence of the equitable lease turned on the specific enforceability of an agreement, it was the agreement for lease contained in cl 2.2 of the Original Lease, not the equitable lease. On the other hand, the Tenant’s breach of cl 10.1(a)(ii) of the equitable lease may well have been relevant to the court’s discretion whether to grant specific performance of the agreement for lease in the Original Lease.
The proposition that cl 10.1(a)(ii) was an essential term is doubtful. Clause 17.1 expressly identified some, but not all, obligations of the Tenant as essential terms. These did not include cl 10.1(a)(ii). Clause 17.2(c) gave the Landlord a right to terminate where the Tenant failed to remedy a breach within a reasonable time after the Landlord gave the Tenant notice to remedy it. The obligations in cl 10.1(a)(ii) were remediable in nature. Particularly in light of the protection given to the Landlord by cl 17.2(c), nothing in the text of the equitable lease, understood in the context of the relationship of lessor and lessee and the commercial purposes it served (on the Tenant’s side, to provide the Premises from which to conduct its business, and on the Landlord’s, to derive rental income from the Premises), suggests that compliance with cl 10.1(a)(ii) was of such importance that any breach at all would justify termination: see Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR(NSW) 632 at 641-2 per Jordan CJ, as explained in (2007) 233 CLR 115; [2007] HCA 61 at [48] per Gleeson CJ, Gummow, Heydon and Crennan JJ.
“Another way of putting what is essentially the same point is that, as submitted by [the Landlord], it was not open to [the Tenant] to rescind for anticipatory breach when it was not itself willing to perform the Equitable Lease on its proper interpretation: DTR Nominees at 433.”
(Emphasis supplied.)
“A party in order to be entitled to rescind for anticipatory breach must at the time of rescission himself be willing to perform the contract on its proper interpretation. Otherwise he is not an innocent party, the common description of a party entitled to rescind for anticipatory breach, and indeed could profit from his misinterpretation of the contract, as the appellant seeks to do in this case when it claims forfeiture of the deposit and damages.”
As will be seen, that passage needs to be unpacked. But the same issue arises as above: the Tenant’s performance of the equitable lease was not the question.
The Tenant claimed to have terminated the binding unconditional agreement for lease contained in the Original Lease, on the ground that the Landlord had repudiated its legal obligation under the Original Lease to deliver a new lease in registrable form within a reasonable time. The Tenant had undoubtedly been willing to perform its obligation under the Original Lease on its proper interpretation by entering into the new lease in registrable form. It was not suggested that the Tenant had any other obligation to perform under the agreement for lease contained in the Original Lease; and if the Landlord wished to rely on the Tenant’s lack of readiness, willingness or ability to perform any such obligation, it would have been incumbent on the Landlord to plead it so as to avoid surprise.
Whether or not the Tenant had been “willing to perform the Equitable Lease” was a different question (one that would be highly relevant to damages for loss of bargain, as will be seen, but not to the Tenant’s entitlement to terminate the Original Lease for repudiation). Thus, even assuming the legal correctness of the unqualified statement in DTR Nominees quoted above, and assuming (as has been found above) that the Tenant was in breach of cl 10.1(a)(ii) of the equitable lease, any lack of “willing[ness] to perform the Equitable Lease” would not disentitle the Tenant from terminating the Original Lease (and in particular the unconditional agreement for lease contained within it).
In any event the passage in DTR Nominees was explained by McDougall J in Wesiak v D&R Constructions (Aust) Pty Ltd [2016] NSWCA 353 at [136]-[151] (Beazley P and Simpson JA agreeing). In DTR Nominees, A breached a non-essential term of the contract on the basis of a genuine but mistaken interpretation. B mistakenly treated A’s breach of contract as amounting to a repudiation, and wrongfully purported to accept A’s supposed repudiation. A then treated B’s purported termination as a repudiation, and itself purported to terminate. As McDougall J pointed out at [141], referring to what was said in DTR Nominees at 433, the reasoning in the High Court was:
“that [B]’s conduct ‘did no more than evince an intention not to proceed with the contract on the basis of the incorrect interpretation then being advanced by [A].’ In those circumstances, their Honours said, there was no ‘repudiation which would entitle [A] to rescind when it was itself the party in error’”.
“The basis for their Honours’ rejection of [A]’s claim that [B] themselves had repudiated the contract was that [B]’s conduct did not evince an intention to renounce the contract. Thus, there was no repudiation capable of acceptance. It is clear, in addition, that their Honours regarded [B]’s stance as having been provoked by [A]’s erroneous insistence on performance on the basis of its incorrect interpretation of the contract.”
“[145] At a level of some generality, it may be said that a promisee that is itself in breach of an obligation under a contract is not, merely because of that breach, prevented from relying on the promisor’s repudiation to terminate the contract. There are of course exceptions: for example, where the parties’ obligations are interdependent, and where it is one party’s own breach of obligation that has put the other into the situation that is claimed to evince a repudiatory intention. …
…
[146] In the present case, the builder was not calling on the owners to perform. Had the builder sought to do so, its own readiness and willingness to perform, on the basis of its contractual obligations properly construed, might have been a relevant consideration. The builder treated the owners’ conduct as repudiatory, and purported to terminate based on it. It was seeking to be discharged from the further performance of its obligations under the contract. If it were successful in doing this, it would remain liable for whatever damages might be proved as following from its earlier breach.
[147] Thus, if (contrary to my view) the builder had breached the contract, but not in a way that amounted to repudiation, that breach would not have prevented the builder from relying on any repudiatory conduct on the part of the owners and treating the contract as discharged thereby, unless it was the builder’s own breach that provoked or led to the owners’ repudiatory conduct. And if, as I think is the case, the builder’s conduct was repudiatory, it was open to the owners to accept it as bringing the contract to an end, and discharging them from further performance.
[148] There are numerous cases where a promisee in breach has been held entitled to treat itself as discharged, notwithstanding its breach, by repudiatory conduct on the part of the promisor: the oft-cited case of Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 is perhaps the best known of them, although only one of many.
[149] In my view, the correct position is revealed by the reasons of Deane J in [Foran v Wight (1989) 168 CLR 385; [1989] HCA 51] at 437-438. His Honour said:
‘Indeed, it is difficult to see why, as a matter of principle or common sense, actual breach or even repudiation by one party to a contract should prevent that party from rescinding the contract by accepting a repudiation of the contract by the other party. Put differently, it is difficult to see why the law should insist that, even though both parties to a contract have repudiated it, the contract must hang like an albatross around their necks unless and until they can reach a new agreement about its termination.’
[150] The true explanation of the passage in the joint reasons in DTR Nominees on which Mr Davie relied is, I think, that the appellant’s breach disentitled it from relying on the respondents’ purported rescission as repudiatory because it was the appellant’s genuinely held misinterpretation of the contract (and insistence upon that misinterpretation) that provoked the respondents’ action. It was a case where both parties were wrong in the course that they took, and in those circumstances the appellant would not have been entitled to rely on the consequences of its own wrong.”
The notion of disentitling provocation to which his Honour referred at [143], [147] and [150] involves some logical causal connection between the conduct of the party seeking to terminate and the repudiatory conduct of the other party. That may be satisfied where, as in DTR Nominees, the very repudiation upon which A wishes to rely in order to terminate is B’s own purported termination, which was provoked by A’s (undoubted but not fundamental) breach. In that situation one may readily conclude that A’s breach caused B’s repudiation.
However, the position may be different where, as here, on the Tenant’s case the Landlord’s repudiation did not consist of mistakenly purporting to terminate. Instead, the Landlord consistently refused to perform its undisputed obligation under the agreement for lease contained within the Original Lease: to deliver a lease in registrable form. That was conduct which, on the Tenant’s case, would “convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it”.
On the assumption that the Landlord’s conduct thus amounted to a repudiation, it would come within the provocation principle only if the conduct was caused by some breach on the Tenant’s part of the agreement for lease contained within the Original Lease. Accepting that the Tenant was in breach of cl 10.1(a)(ii) of the equitable lease, that breach would not avail the Landlord for two reasons.
First, a breach of the equitable lease is distinct from a breach of the agreement for lease contained within the Original Lease.
Secondly, the Landlord’s contractual obligation to deliver a lease in registrable form was not subject to the Tenant’s not being in breach of the equitable lease, and the Landlord did not assert to the contrary. This is not a case where the Landlord asserted a genuine but mistaken interpretation of any agreement. It follows that it cannot be said that the Tenant’s conduct, even accepting that it breached the equitable lease, in some way caused the Landlord to misinterpret the agreement for lease contained within the Original Lease. There is no logical causal connection between the repudiation of the Original Lease (i.e. the Landlord’s flat refusal to perform its unconditional obligation to deliver a lease in registrable form within a reasonable time) and the alleged breach of the equitable lease.
It follows that I respectfully disagree with the reasoning by which the primary judge determined the repudiation issues.
As noted above:
the Landlord had an unconditional obligation at law under the Original Lease to deliver a new lease in registrable form within a reasonable time after 15 October 2019;
that obligation was not subject to any of:
(a) the question whether the Tenant was in breach of the equitable lease which commenced on 16 October 2019; (b) the question whether the Tenant would be in breach of the new lease once registered; (c) the question whether the Tenant could lawfully use the Premises as a gym under the terms of any development consent.
What constituted a reasonable time for the Landlord to perform must be determined having regard to each party’s interests under the agreement for lease contained within the Original Lease. It would include at least such time as was reasonably necessary to carry out the formalities of preparing the new lease in registrable form. But that exercise would take at most a matter of weeks, not months. In circumstances where the Tenant was pressing the Landlord to perform and giving reasons why the Tenant needed the new lease, delay beyond that would be reasonable only if justified by some particular reason. It was not suggested that there was any other factor bearing on the reasonableness of the time, beyond the Landlord’s concerns about breach of cl 10.1(a)(ii). It follows that, whatever else might be said about the Landlord’s delay in this case, a reasonable time expired months before April 2020.
The Landlord’s failure to deliver a lease in registrable form thus put it in breach of its admitted obligation pursuant to the agreement for lease contained within the Original Lease. But mere breach of an obligation of that kind is not repudiation. It is often said that the inference of repudiation is not lightly to be drawn. As Gaudron J said in Laurinda at 667:
“Mere failure to deliver a registrable lease within a reasonable time of the agreed commencement date could not itself amount to the manifestation by the lessor of an intention to render performance only in a manner inconsistent with its obligation. But in the present case the relevant considerations extend far beyond the mere breach.”
Here the circumstances went still further beyond those in Laurinda. The Landlord’s obligation to deliver a lease in registrable form within a reasonable time arose in mid-October 2019. Over the ensuing six months, the Tenant repeatedly requested performance by the Landlord. The Tenant expressly asserted its rights under cl 2.2 of the Original Lease. The Landlord did not merely fail to perform; it refused to perform. The Landlord’s response to the Tenant’s solicitors’ assertion of the Tenant’s rights was “LOL”; cf. per Deane and Dawson JJ in Laurinda at 657: “[t]hat response bordered on the contemptuous”. The Landlord did not advance any argument denying the existence of its obligation under cl 2.2, nor as to why its obligation to perform was conditional. This is thus not a case where a party adopts a mistaken interpretation of the contract but nevertheless manifests an intention to perform the contract on its proper interpretation, whatever that may be. Instead, the Landlord refused to perform unless the Tenant satisfied the Landlord of something irrelevant to (and not claimed to be relevant to) the Landlord’s obligation to deliver a new lease in registrable form under cl 2.2: whether the Tenant could lawfully use the Premises as a gym under the terms of the Consent. All this occurred in circumstances in which the Tenant explained that it needed the registered lease for insurance purposes (there being other obvious reasons why a tenant may need to satisfy third parties of the existence of a registered lease, such as obtaining finance or selling a business: see, e.g., Laurinda at 655-656 per Deane and Dawson JJ;).
By their letter of 2 March 2020, the Tenant’s solicitors requested that a new lease be issued pursuant to cl 2.2 of the Original Lease by 5:00 pm on 13 March 2020. Indicating the seriousness of the matter, they said that the Tenant would contemplate legal action against the Landlord for breach of the lease if that did not occur. Between the sending of that letter on 2 March and the expiry of the period on 13 March, the Landlord’s response consisted of Mr Assaf’s two “LOL” emails of 2 March; the Landlord’s solicitors’ letter of 5 March, which did not engage with the Tenant’s assertion of right; the meeting on 9 March in which Mr Assaf insisted that the Tenant needed to obtain development approval; and the Landlord’s notice of breach of 11 March. In none of those communications did the Landlord acknowledge the Tenant’s legal rights or indicate any intention to perform its obligation to deliver a lease in registrable form as required by the Original Lease.
By 13 March 2020 at the latest, the only inference reasonably available to the lessee was that the lessor intended to perform the agreement for lease contained within the Original Lease only in a manner inconsistent with its obligation, or, put another way, that the Landlord disavowed either the contract as a whole or a fundamental obligation under it: see Laurinda at 636-637 per Mason CJ, 647 per Brennan J, 658-659 per Deane and Dawson JJ, 667 per Gaudron J.
“The trial judge erred in finding that the appellant did not suffer any loss from the termination of the equitable lease (Judgment at [121]-[123]). Rather he ought to have found that the turnover, membership numbers and profit pre-COVID demonstrated that it was a viable business and, accordingly, he should have found that the plaintiff suffered damages in the sum of $1,176,803.00 or such lesser sum as the Court determines.”
Again, the reference to termination of the equitable lease should be understood as extending to the termination of the Original Lease.
As will shortly be seen, the Tenant claimed damages for loss of opportunity consequent on the Landlord’s repudiation.
“Generally speaking, the doctrine of anticipatory breach enables a party to an executory contract to elect to terminate it and bring an action in damages upon a counterparty's renunciation of, or disablement from performing, the contract, notwithstanding that the time for performance had not expired at the time of termination: see Hochster v De la Tour (1853) 3 El & Bl 678 at 687-8; 118 ER 922 and 925. In delineating that doctrine, reference to the innocent party’s readiness and willingness (in some relevant sense) may occur in relation to three entitlements (Sharjade Pty Ltd v The Commonwealth [2009] NSWCA 373; (2009) 15 BPR 28,443 at [64] (Hodgson JA)):
(1) the entitlement to terminate, in order to be discharged from future performance and recover any deposit;
(2) the entitlement to bring a cause of action in damages for anticipatory breach; and
(3) the entitlement to recover substantial damages for loss of bargain in such an action.”
The first entitlement, which Meagher JA described at [15] as “attended by some controversy”, is the one addressed above in connection with DTR Nominees and Wesiak. No more need be said about it.
Meagher JA explained the second entitlement, to bring a cause of action in damages for anticipatory breach, at [16]-[21]. For present purposes, two points emerge. First, that the question is to be answered at the time of termination, rather than the time at which performance would have been due. Secondly, that “this element in the cause of action … may not be onerous”: at [17]. Meagher JA concluded at [21] (in the context of a contract for sale of land): “In summary, the second entitlement depends on proof that the plaintiff was sufficiently on track to perform that there was a reasonable prospect of its being able to complete in the future”.
The second entitlement is established in this case. At the time of termination, the Tenant was well “on track” to perform the one substantial obligation it had under the agreement for lease contained within the Original Lease: entering into the new lease. Performance of that obligation was much less onerous than the performance required of a purchaser under a contract for the sale of land (payment of the purchase price). The Tenant was not only capable of entering the new lease at the time it accepted the repudiation and terminated the Original Lease; it was clamouring for a lease in registrable form so that it could do so. It is true that by entering the new lease the Tenant would become subject to the covenants it contained. But the Tenant’s readiness, willingness or ability to perform the lease covenants is a different question from the anterior one whether the Tenant was ready, willing and able to perform its obligation to enter the new lease.
It follows that the Tenant is entitled to, at least, nominal damages.
Meagher JA explained the relevance of readiness and willingness to the third entitlement (to recover substantial damages for loss of bargain) at [19]-[20]. His Honour said that the question arose “from general principles governing the assessment of loss in a claim for substantial damages for loss of bargain”, citing Foran v Wight at 403 per Mason CJ, 430-431 per Brennan J, 454 per Dawson J. His Honour continued:
“Those general principles were explained as follows in Commonwealth v Amann Aviation (1991) 174 CLR 64 at 80 by Mason CJ and Dawson J:
The award of damages for breach of contract protects a plaintiff's expectation of receiving the defendant's performance. That expectation arises out of or is created by the contract. Hence, damages for breach of contract are often described as “expectation damages”. The onus of proving damages sustained lies on a plaintiff and the amount of damages awarded will be commensurate with the plaintiff's expectation, objectively determined, rather than subjectively ascertained. That is to say, a plaintiff must prove, on the balance of probabilities, that his or her expectation of a certain outcome, as a result of performance of the contract, had a likelihood of attainment rather than being mere expectation.”
Accordingly, where the claim is for substantial damages for loss of bargain consequent upon termination for anticipatory breach, in order for the plaintiff to establish its “expectation” the plaintiff must prove on the balance of probabilities that it would have been ready and willing to perform at the time when its performance would have been required, but for the termination. Otherwise the plaintiff is entitled to nominal damages only.
In the case of a contract for sale of land, that requires “proof that more probably than not completion would have occurred in the events which happened, other than the repudiation and its consequences”, i.e., that the plaintiff would have been ready and willing to pay the purchase price: Upside Property at [21]; Foran v Wight at 431 per Brennan J, 454-455 per Dawson J; see also at 437 per Deane J.
Similarly, where a plaintiff claims substantial damages for anticipatory breach of an agreement for lease, the plaintiff must prove on the balance of probabilities that it would have been ready and willing to perform its obligations under the agreement for lease when its performance would have been required. As already explained, in this case, performance of the Tenant’s obligation under the agreement for lease contained within the Original Lease to enter the new lease would have been much less onerous than the performance required of the purchaser under a contract for the sale of land. It should be inferred that the Tenant would have been ready and willing to perform its obligation at the time required. The Tenant has satisfied that element of its claim for substantial damages.
However, the Tenant’s claim for substantial loss of bargain damages must fail for other reasons.
In the amended statement of claim, the Tenant particularised its claim for damages “[b]y reason of the repudiation and termination of the Original Lease and/or New Lease” as “Loss of 5 years of profit (income less expenses)”. In its closing written submissions, the Tenant framed the claim as one for “damages for the loss of the opportunity or bargain to have a registered lease and continue to operate a gym at the Premises for 5 years”. For the reasons that follow, the latter characterisation, which is substantially the way his Honour approached the issue at J[119], is largely correct. But it is important to bear in mind the limited nature of the benefit which the agreement for lease directly conferred on the Tenant.
The object of any award of damages consequent upon termination of the agreement for lease contained within the Original Lease must be to put the Tenant in the same situation as if the agreement had been performed: Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80; [1991] HCA 54 per Mason CJ and Dawson J; Foran v Wight at 430 per Brennan J (referring to “an estimate of the benefit to which [the plaintiff] would have been entitled”). If the Landlord had performed its obligation, the Tenant would have had a registered lease with a term of five years. The Tenant would also have been subject to the burden of the covenants contained in the new lease, including the covenants as to payment of rent and carrying out only the Permitted Use. That was the “expectation … created by the contract”, i.e., the agreement for lease contained within the Original Lease.
Although the registered lease would have given the Tenant the legal right to occupy the Premises and (as between Landlord and Tenant) to carry out the Permitted Use there, that was as far as the legal expectation created by the agreement for lease itself went. Neither the agreement for lease, nor the new lease itself, created an expectation that the Tenant would have a business, or that any business would be lawful, or that it would be a profitable business.
The legal expectation to which the Tenant would have been entitled had the Landlord performed its contractual obligation was no more than that the Tenant would have the opportunity to continue to occupy the Premises for the purpose of carrying out the Permitted Use, subject to the terms of the new registered lease. That legal expectation might nevertheless have amounted to a valuable commercial opportunity, particularly given that the Tenant was already in occupation and conducting its business from the Premises.
The commercial opportunity was to be valued, and any damages for breach of contract assessed, in accordance with the principles as to causation and damage discussed in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355; [1994] HCA 4 per Mason CJ, Dawson, Toohey and Gaudron JJ:
“… damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s. 52(1) [of the Trade Practices Act 1974 (Cth)], should be ascertained by reference to the court’s assessment of the prospects of success of that opportunity had it been pursued. …
On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.”
(Emphasis in original.)
Under the heading, “Issue 4: What is the amount of [the Tenant’s] damages”, the primary judge said at J[118]: “In light of my conclusions on the first two issues, this issue does not arise. However, in case the matter goes further, I will deal with it.” The reference to “the first two issues” appears to be to J[60], where his Honour set out a list of issues starting with (1) “Whether [the Tenant] was in breach of cl 10.1(a)(ii) of the Equitable Lease”; and (2) “Did [the Landlord] repudiate the Equitable Lease by repeatedly refusing to issue a lease in registrable form to [the Tenant] from 15 October 2019?”
The primary judge had determined both of those issues adversely to the Tenant. The alternative hypothesis upon which his Honour proceeded when considering damages at J[119]ff appears to have been that his Honour was wrong on both counts.
It might be noted, however, that the conclusions reached above are that his Honour was (1) correct that the Tenant was in breach of cl 10.1(a)(ii), but (2) in error in concluding that the Landlord had not repudiated. What his Honour said about causation and damages should be approached with that in mind.
“failure to provide a registrable lease was not the cause of [the Tenant’s] business ceasing to operate from the Premises. Both Mr Assaf’s evidence (eg. T 314.13–314.14) and contemporaneous documents (eg. Mr Assaf’s email of 14 January 2020) indicate that [the Landlord] wanted [the Tenant] to continue in occupation as tenant. The cause of the loss was the inability of CCA to seek or obtain the necessary planning consent for its continued occupation of the Premises as a gym.”
(The word “CCA” in the last sentence should be read as a reference to the Tenant.)
The Landlord also relied on Ground 1 in its notice of contention, which is to the effect that the primary judge’s finding that causation was not made out should be upheld on the additional basis “that the Appellant did not establish that the First Respondent’s failure to issue a lease in registrable form was a cause of any loss to the Appellant, given that the Appellant was entitled to occupy the Premises pursuant to an Equitable Lease which was on the same terms as the terms which a lease in registrable form would have had.”
The proposition that the failure to provide a registrable lease was not the cause of the Tenant’s ceasing to operate from the Premises should be rejected. For the purposes of the law of contract, it is the defendant’s act of repudiation that is taken to cause the loss of the bargain, not the plaintiff’s act of termination upon acceptance of the repudiation. Once the Tenant terminated the agreement for lease contained within the Original Lease, as it was entitled to do, there could be no equitable lease, and the Tenant was no longer entitled to operate from the Premises.
As already noted, in early April 2020 the Tenant was in occupation and conducting its business. If the Tenant had established that the opportunity to continue to do so had “some value” (a proposition rejected below), the Tenant would have established that the Landlord’s repudiation, which deprived the Tenant of the opportunity to operate, caused the Tenant’s loss. To that extent, I disagree with his Honour’s conclusion as to causation at J[120].
It might be noted that the proposition in the last sentence of J[120] quoted above (as to the lack of planning consent) is in tension with the alternative hypothesis on which the analysis commencing at J[118] was otherwise to proceed, namely, that his Honour was wrong on that issue. However, as will next be seen, the fact that the Tenant lacked planning consent to operate a gym is highly material to valuing the Tenant’s lost opportunity to occupy the Premises and carry out the Permitted Use.
His Honour found that the Tenant had not established an entitlement to damages (J[120]), for two reasons. First, the issue of causation referred to above. Secondly, his Honour rejected the evidence of the accounting expert called by the Tenant, Mr Calvetti, that the Tenant’s loss of pre-tax profits over the period 1 April 2020 to 30 September 2024 was $1,176,803: J[121]. Instead, his Honour preferred the evidence of Mr Ferrier, the accounting expert called by the Landlord, that the loss of profits over that period was $110,749, which would be reduced to zero if, as his Honour found was likely, the Tenant was charged for its electricity supply: J[122]. Although not the subject of a separate ground of appeal, this latter finding was strongly contested in submissions.
These reasons will return to the accounting evidence shortly.
However, the fact that the Tenant was in breach of cl 10.1(a)(ii) is fatal to the Tenant’s claim for substantial damages. The counterfactual hypothesis on which the lost commercial opportunity is to be valued is that the Landlord had performed its contractual obligation by delivering a new lease in registrable form, which had been registered. The facts would not otherwise have been relevantly different as a result of the Landlord’s performing its contractual obligation. In particular, the new lease would have contained a cl 10.1(a)(ii) in the same terms as that in the equitable lease; the Tenant would have continued to lack planning consent to operate a gym; and accordingly the Tenant would have been in breach of the new lease.
In that counterfactual situation, there is no reason to doubt that the Landlord would have issued substantially the same notice which it in fact issued on 11 March 2020 pursuant to s 129 of the Conveyancing Act. That notice gave the Tenant until 13 April 2020 to demonstrate to the Landlord’s reasonable satisfaction that the breach of cl 10.1(a)(ii) could be rectified, and, if so, a further reasonable period for the Tenant to rectify. The notice stated that the Landlord would otherwise terminate the lease. There is no substantial reason to doubt that by mid-April Mr Assaf would have caused the Landlord to terminate the lease if the Tenant failed to remedy its breach of cl 10.1(a)(ii). After all, that was exactly what the Landlord sought to do (although on a different ground) when it sent its notice dated 14 April 2020 purporting to accept what it alleged was a repudiation on the part of the Tenant (being the Tenant’s notice of termination dated 7 April 2020).
I would disagree with the primary judge’s statement at J[120] that “[the Landlord] wanted [the Tenant] to continue in occupation as tenant” if it is understood as referring to the position as at April 2020. His Honour referred to “Mr Assaf’s evidence (eg. T 314.13–314.14)”. This appears to be a reference to lines 9-10 on that page, where Mr Assaf said, “I had a lease in place and I was going to get rent off the club - off the gym, and I was happy.” That evidence was not anchored as to time, but was given in the context of discussion of an email sent by Mr Frank Sartor (who was a consultant to the Landlord) to Mr Assaf on 10 October 2019: Tcpt, 10 August 2023, 312.17. The primary judge also referred at J[120] to Mr Assaf’s email of 14 January 2020. That was an email in which Mr Assaf said, “We can help resolve this with a planning proposal as added permitted use.” But reading the email as a whole, Mr Assaf was far from encouraging that outcome. He said that he had paid for the barrister Mr Staunton’s advice (which was extracted in the email) and advice from a planner; that Mr Assaf would have to invoice the Tenant for those costs; and that “Again you will need to pay for these costs” (i.e. of any new planning proposal). In any event, much happened between 14 January and mid-April.
“As per the NSW Government’s instructions Move Fitness will be temporarily closing from Wednesday 25th March. During this closure your Membership will be suspended and you will not be charged.”
(Bold in original.)
As the primary judge found at J[121(3)], on the following day (23 March 2020) a public health order required the closure of gyms and fitness centres in New South Wales.
There is also no basis upon which to conclude that, even if the Tenant had attempted to obtain planning approval, the Tenant would have been able to do so either at all, or within time so as to comply with the Landlord’s notice. It might be noted that the effect of the Land Use Table in the LEP 2015 was that in the R2 zone (subject to any existing use rights) use of the Land for a gymnasium was prohibited, rather than permitted only with consent.
In the result, there is no basis upon which to conclude that the commercial opportunity which the Landlord’s repudiation denied to the Tenant had any value. Early April 2020 was the start of the Covid-19 pandemic, and the Move Fitness gym business was not charging its members. Although that position would have been temporary, there is no basis on which to conclude that there was any real prospect that the Tenant would have persuaded the Landlord that it would obtain a new planning consent (or that no further planning consent was required) before the expiry of the time stated in the Landlord’s notice dated 11 March 2020. And there is every reason to think that the Landlord would then have exercised its right to terminate any new registered lease.
That being so, it is unnecessary to determine the issues about the accounting experts. However, as that evidence was the subject of detailed submissions, the following should be noted.
There is considerable force in the five criticisms the primary judge made of Mr Calvetti’s evidence at J[121], which the Tenant does not fully answer in this Court.
First, the Tenant appears to accept the correctness of the primary judge’s criticism that Mr Calvetti’s estimate of revenue for FY 2020 was inconsistent with the BAS statements for that year. Nevertheless, as the Tenant points out, the BAS statements showed substantial revenue as at April 2020. And, to the extent that the Tenant relies, by way of explanation for the figures, on breaches by the Landlord of its covenant for quiet enjoyment, the submission gains some support in findings of the primary judge at J[117] that there had been disruptions to the Tenant’s business.
Secondly, the Tenant attempts to explain the declining revenue in FY 2020, to which the primary judge referred, on the basis that the decline was due in part to a reorganisation of the business, and would be recouped in future years. The Tenant complains that this reason was not considered by the trial judge. This Court is not in a position to assess the probability that the recoupment would occur.
Thirdly, the primary judge pointed out that the expert’s estimates for the revenue for the last quarter of FY 2020 and for FY 2021 and FY 2022 (for each of which the expert predicted increases in revenue) did not take into account the impact of the Covid-19 lockdown. As his Honour said, on 23 March 2020 a public health order required the closure of gyms and fitness centres in New South Wales. The Tenant complains that the primary judge did not consider evidence given by the gym manager of the steps that the Tenant would have taken to “pivot” to earn more revenue after the Premises were closed. Although his Honour did not expressly refer to the manager’s evidence, it is not clear that he failed to take it into account when stating that Mr Calvetti’s evidence “was not adequately explained or supported”. But on the assumption that the Tenant’s criticism was well founded, again this Court would not be in a position to address the evidence.
Fourthly, the primary judge was critical of Mr Calvetti’s assumption that the wages cost of the business would drop on the basis that Mr Robinson and Ms Bakic would continue to work for the business but not draw a salary, contrary to the practice in previous years. The Tenant submits that there was evidence from one of the proprietors that that was what he would do and that there was no finding rejecting that evidence. Again, it is not clear that his Honour did not reject that evidence when finding that the assumption was “not plausible”. But, again, this Court is not in a position to assess the particular evidence.
Fifthly, the primary judge criticised Mr Calvetti for failing to apply a discount for uncertainty and risk, particularly in light of the Covid-19 lockdown. To some extent this point overlaps with the third one. The Tenant’s answer, that the expert did so by reducing the assumed rate of the business, does not engage with the substance of the point.
In the result, as to the notice of appeal, Grounds 1, 2, 2A and 3 (which concern the planning consent issue) are not made out. Ground 4 (repudiation) succeeds. Ground 5 (substantial damages) is not made out.
It follows that (although none was sought by the Tenant) there should be a declaration that the Original Lease has been validly terminated by the Tenant. The Tenant is entitled to nominal damages of $10 on account of the Landlord’s repudiation of the Original Lease. The Tenant is also (as the primary judge found at J[142]) entitled to return of the bond plus interest. The order in that respect should not be disturbed. The Tenant’s amended statement of claim should otherwise be dismissed.
As earlier noted, it follows from the success of Ground 4 in the notice of appeal that the Landlord’s cross-claim must be dismissed.
As to the notice of contention, Ground 1 (causation) substantially fails. Ground 2 (rejection of Mr Calvetti’s evidence) has proven unnecessary to determine.
As to costs, in a separate judgment the primary judge proceeded on the footing that the Tenant’s claim and the Landlord’s cross-claim were opposite sides of the same coin. The primary judge awarded the costs of the proceedings (on both the claim and the cross-claim) against the Tenant on the ground that the real issue in dispute was the question whether the Tenant’s termination of the lease was valid, and the Tenant failed on that issue. The premise of that order has been upset on appeal, and the discretion must be re-exercised.
The Tenant failed both at first instance and in this Court on two issues which occupied much time and evidence: the planning consent issue and proof of substantial damages. However, the Tenant has succeeded on appeal on a third substantial issue, repudiation, and the appeal should be allowed to that extent. It is appropriate in the circumstances that each party bear its own costs in this Court.
As to the costs at first instance, in the result the Tenant’s claim has succeeded (but only to the extent of nominal damages and return of its bond), and the Landlord’s cross-claim has wholly failed. The practical effect is that the Tenant has failed in the main object of its claim, obtaining substantial damages. That is in substance the “event” for present purposes. On the other hand, it is difficult to see why the Landlord should not pay the Tenant’s costs of the cross-claim, to the extent that they are separately identifiable.
In the circumstances (1) each party should pay its own costs in this Court; (2) the Tenant should pay the Landlord’s costs of the proceedings on the statement of claim at first instance; and (3) the Landlord should pay the Tenant’s costs of the cross-claim at first instance. There is no occasion to make costs orders with respect to the second or third cross-defendants, who submitted in this Court.
The Court should order:
Appeal allowed in respect of Ground 4.
Set aside:
(a) declaration 1 and orders 2(b) and 3 of the orders made on 8 May 2024 by Richmond J; and (b) orders 1 and 2 of the orders made on 23 May 2024 by Richmond J.
(a) declare that the lease between the defendant as lessor and the plaintiff as lessee in respect of the premises comprised in part folio identifier 101/1053893 located at lower ground floor, 330 Hector Street, Bass Hill, New South Wales has been validly terminated by the plaintiff; (b) order that judgment be entered for the plaintiff against the defendant on the amended statement of claim in the sum of $10; (c) subject to any costs orders already made, order that the plaintiff pay the defendant’s costs of the proceedings on the plaintiff’s claim at first instance; (d) subject to any costs orders already made, order that the defendant pay the plaintiff’s costs of the defendant’s cross-claim at first instance; (e) otherwise dismiss the proceedings on the amended statement of claim; (f) dismiss the cross-claim.
**********
Interslice Pty Ltd
CCA Investments �e" Bass Hill Pty Ltd [2025] NSWCA 175
(1994) 34 NSWLR 155
(2013) 195 LGERA 34
(2017) 96 NSWLR 434
(1989) 168 CLR 242
(1991) 174 CLR 64
(1978) 138 CLR 423
(1989) 168 CLR 385
(2019) 101 NSWLR 1
(2015) 89 NSWLR 760
(1989) 166 CLR 623
(2010) 172 LGERA 125
(1994) 179 CLR 332
(1964) 110 CLR 529
(2000) 48 NSWLR 498
(2001) 130 LGERA 508
(2009) 167 LGERA 395
(2013) 195 LGERA 182
(2007) 233 CLR 115
Appeal allowed in respect of Ground 4 only. The Court declared the lease validly terminated by the tenant and entered judgment for the tenant for $10. The tenant was ordered to pay the landlord's first-instance costs on the tenant's claim, and the landlord was ordered to pay the tenant's first-instance costs of the cross-claim. The remaining claim was dismissed, the cross-claim was dismissed, the remaining appeal grounds and notice of contention were dismissed, and there was no order as to costs in the Court of Appeal.
LEEMING JA: I agree with the orders proposed by McHugh JA. What follows presupposes familiarity with his Honour’s reasons.
As McHugh JA has explained in more detail, in October 2014 the appellant Interslice took a registered five year lease with a five year option from the City of Bankstown R & SL Community Club Ltd (“Club”), the then owner of the land at Bass Hill. It thereafter operated a gym occupying much of the lower ground floor of the Club’s building. That part of the building had been refurbished for the purpose of a “Health Club” pursuant to development consent granted in 2006. Interslice obtained its lease at around the same time that it acquired a gym business from a previous corporate tenant of the lower ground floor.
The Club sold the land to the respondent CCA on 13 September 2019, shortly before the expiry of the lease. It has been at all times accepted that Interslice validly exercised its option for a further lease. After CCA acquired the land, a registered club ceased to operate.
Applying those principles, I have concluded that the primary judge was correct to conclude that the use of the lower ground floor for the purpose of a gym was not severable from the use of the rest of the land for the purpose of a registered club.
It is not necessary to make any findings on the exiguous evidence as to the terms governing any occupancy of the lower ground floor prior to 2014. Irrespective of the evidence referred to above, I would conclude that at all times most gym users were parking on the Club’s property. Most gym users at this site, which is in a residential area, not well served by public transport, would arrive by car. Where would they park if they were not members of the registered club and thereby entitled to use the 67 parking spaces on the club’s land to which an additional 6 were added as a condition of the consent to operate a gym? It would be impracticable to conduct a gym of the scale contemplated by the consent on the lower ground floor of the premises unless users of that gym also had access to the carparking on other land owned by the Club. There is no suggestion in the dealings between the Club and the Council, or in the assessment of the development application, that anyone took any other view, and that was the reason for the conditions concerning car parking in the consent which ultimately issued, in accordance with the assessment of the incremental effect of the gym upon the Club’s carpark in the Lyle Marshall report. And indeed, one of the attractions of the premises to Mr Robinson, who at the time was one of Interslice’s directors, was the free parking.
I agree with McHugh JA that there was repudiation by CCA in failing to supply a registrable lease (which was the only part of Interslice’s case challenging the failure to find repudiation advanced on appeal).
The primary judge reasoned at [111] that even if CCA did repudiate the equitable lease, Interslice was not entitled to terminate for repudiation, in circumstances where the use of the gym was not permitted under planning law and was therefore not ready and willing to perform the essential terms of the contract. I respectfully disagree with this. There was in 2019 and 2020 (just as there has been for the ensuing five years) a dispute between the parties as to whether the use of the lower ground floor as a gym survived the cessation of the use of the rest of the land as a registered club. At all times, Interslice maintained that it did, and while I have concluded that that is not the position in law, Interslice’s position is reasonably arguable. And what is more Interslice in fact continued to seek to operate the gym. I do not consider that Interslice’s reasonably arguable albeit erroneous claim that it was entitled to continue to operate a gym disentitled it from accepting CCA’s repudiation manifested by its failure to provide a registrable lease.
There was a suggestion in CCA’s written submissions that Interslice’s continued operation of the gym after the Club had ceased to operate amounted, over time, to the breach of an intermediate term. This submission was made in the alternative to its primary position that the obligation to conduct a gym was a condition. This requires a notice of contention, and although one was belatedly supplied by CCA, it did not extend to that point. But in any event, the reasoning in the previous two paragraphs demonstrates that that submission does not disentitle Interslice from accepting CCA’s repudiation.
But it is one thing to accept a repudiation, and another thing to establish compensable loss. I agree with McHugh JA’s reasons in relation to ground 5: in substance that in light of CCA’s intention to terminate the lease for Interslice’s failure to have planning approval and in the absence of a case that Interslice would have sought planning approval, no claim for substantial damages is available. Ground 6 was abandoned.
Finally, I agree with the order proposed by McHugh JA that there be no order as to the costs of the appeal. Rather more than half of the hearing time was occupied by a motion to adduce further evidence, to which CCA’s opposition was unsuccessful. It was quite plain that much of the additional evidence should have been supplied at trial in answer to Interslice’s subpoena and repeated requests, as well as being credible and probative; cf Akins v National Australia Bank (1994) 34 NSWLR 155 at 160. And as McHugh JA explains, CCA repudiated its obligations to Interslice. This is an appropriate case to depart from the usual order that costs follow the event. Taking a broadbrush approach, the points on which CCA failed warrant an order that there be no order as to the costs of the appeal, with the intent that the parties bear their own costs.
McHUGH JA: At the risk of some oversimplification, the main issues in this appeal are whether the primary judge erred (1) in construing a development consent, (2) in failing to find that the respondent repudiated a lease, and (3) in failing to award the appellant substantial damages. The second error is made out; the first and third are not. The appellant’s success on the second issue has no substantial effect on the economic outcome for the parties, save with respect to costs.
That the Consent should be construed in the way in which the primary judge did is consistent with the SEE. The SEE included the following statements.
The fact that the construction certificate plans indicate that the door to access the stairs from the weights room was to be fitted with “panic bars” means only that the door could not be locked so as to prevent exit. The fact that the door could not be locked from below did not mean that it had to be locked so as to prevent access to the gym from (what were on any view) the registered club premises above. The inference to be drawn from the reference to panic bars on the plans is that this was a building code fire safety issue. (It is doubtful whether the correspondence to which the Landlord pointed is available to establish that matter; although it might be considered evidence as to the meaning of marks on the plan. In any event, to the extent that the material may be used, it is consistent with the inference referred to above. See the Council’s letter dated 26 October 2006, the RSL Club’s response dated 2 November 2006, and the letter from GN Consulting dated 3 November 2006). Similarly, the fact that the plans indicate that the door to the staircase was to be identified by an “EXIT” sign does not mean that the staircase could not be used for entry to the gym from the rest of the registered club. The same plans show that what was identified as the entrance to the gym area from the carpark was also to be identified by an “EXIT” sign.
To the extent that the Tenant relies on the Parking Assessment stamped 15 September 2006, that document does not support the conclusion the Tenant seeks to draw, namely, that the development approval was “for a change of use from club to gym” (emphasis supplied). Instead, the Parking Assessment refers to “a change of use in the lower ground floor from lounge/bar/billiards room to a health club (gymnasium)”. That is, from one use as part of a registered club to another use as part of a registered club. The change from a lounge to a gym does not answer the question whether the consent to that change in use was only as part of, or dependent upon, the use as a registered club, as opposed to a separate and independent use of the Premises.
Leeming JA provides additional reasons, including, in particular, his Honour’s analysis of the parking issues, with which I agree, for concluding that the use of the lower ground floor for the purpose of a gym was inextricably bound up with and inseverable from the use of the rest of the land as a registered club.
In the result, Ground 1 is not made out. There was no error in the primary judge’s construction of the Consent.
At [60], Leeming JA emphasised that in those cases the consents “contained limiting words constraining the uses which were permitted, without which the use would have been prohibited.” But it is important to note that the “limiting words constraining the uses which were permitted” to which his Honour referred were the very words which authorised the particular use (and by implication no other use).
The other situation to which Leeming JA referred was where, as in Jojeni itself, the lawful use was not derived from any consent or approval: at [71]. In that case, his Honour held that the principles as to characterisation articulated by Kitto J in Shire of Perth v O’Keefe (1964) 110 CLR 529; [1964] HCA 37 apply. Those principles include that the question is the appropriate characterisation of the purpose of the use, and that that question is not answered through a meticulous examination of the details of the activities undertaken on the land: at [75]. Instead, it is necessary to have regard to the purpose served by those activities, and the existing use is to be characterised liberally. The proper approach is to ask (at [80], quoting O’Keefe):
It is worth pausing to note that if the Tenant had refused on 16 October 2019 to enter the new lease, the Landlord could have sued the Tenant for breach of the Tenant’s obligation under cl 2.2 of the Original Lease to do so. The Landlord’s right to insist on performance of that obligation, which arose under the Original Lease, was a potentially valuable right. For example, the market for rental premises, and in particular for those suitable for use as a gym, might collapse. That might happen if there was a pandemic (as there was in 2020). If that were to occur, a rational lessor might well insist on the lessee’s obligation to enter the new lease and to pay the agreed level of rent fixed under it.
Once the option was validly exercised and the term of the Original Lease expired, “the primary object of the contract” insofar as the Original Lease remained to be performed “was the grant by the lessor to the lessee of a legal lease of the subject premises”: cf. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 650; [1989] HCA 23 per Deane and Dawson JJ.
One other point should be noted at the outset. Upon exercise of the option, to the extent that equity would specifically enforce the binding unconditional agreement for lease contained within cl 2.2 of the Original Lease, there would come into an existence a lease in equity on the same terms as the new lease which the parties were bound to enter.
It was not asserted in the defence that the Landlord’s obligation under the Original Lease to deliver a lease in registrable form was subject to either of the matters alleged in [37] of the defence. In particular, the Landlord did not allege that the obligation which it admitted it was required to perform under the Original Lease (to deliver a new lease in registrable form within a reasonable time) was conditioned by any of:
the question whether the Tenant was in breach of the equitable lease which commenced on 16 October 2019;
the question whether the Tenant would be in breach of the new lease once registered;
the question whether the Tenant could lawfully use the Premises as a gym under the terms of any development consent.
The Landlord did plead at [75] that by reason of the Tenant’s contravention of cl 10.1(a)(ii) of the New Terms (that is, the equitable lease), the Tenant’s use of the Premises was unlawful after 13 September 2019. The New Terms could have no relevance before 16 October 2019. In any event, [75] was not a pleading that the Landlord’s admitted obligation under the Original Lease to deliver a lease in registrable form was subject to the Tenant’s not being in breach of the equitable lease. Nor was it a pleading that the Landlord’s obligation under the Original Lease to deliver a lease in registrable form was conditioned by the legality of carrying out the Permitted Use.
Putting the pleadings to one side, once the option was validly exercised, the Landlord’s obligation under the Original Lease to deliver a new lease in registrable form was not subject to any express condition. And there is no reason to imply such a condition. The legal effect of validly exercising the option was that the parties became unconditionally bound to each other under the Original Lease to enter a new lease. A legal right accrued to the Tenant to receive a new lease in registrable form within a reasonable time after 15 October 2019 (“The Landlord must grant a new lease … on the Expiry Date to commence on the next day”: cl 2.2(a)). That was a right to receive a valuable legal interest in property: a leasehold. The Tenant’s right under the Original Lease to receive that interest was not relevantly different from the right to receive a transfer of the estate in fee simple under a contract for the sale of land.
The fact that the Tenant would have obligations to perform under the new lease, once granted, does not change that analysis. The question whether the use of the Premises under the new lease as a “Health and fitness centre (including crèche)” would be lawful, and the related question whether the Tenant would be in breach of cl 10.1(a)(ii) of the new lease, were distinct from the anterior question whether the Landlord had an obligation under the Original Lease to deliver a new lease in registrable form. The questions that might arise under the new lease bore no necessary relation to the Tenant’s unconditional right under the Original Lease to receive a new lease in registrable form.
The Landlord submitted at trial that if it had delivered a lease in registrable form “knowing about [the Tenant’s] breach of the terms of that written lease … due to the absence of consent for the gym to operate, there was a very real risk [the Landlord] would be found to have waived the right to enforce” terms of the new lease, including cl 10.1. This was not said to be relevant to the existence of the obligation to deliver a lease in registrable form, but instead to what was a reasonable time within which to do so. It has no substance. The obligation to deliver a lease in registrable form arose pursuant to the agreement for lease contained within cl 2.2 of the Original Lease. Performance of an obligation under one agreement (the Original Lease) could not operate as a “waiver” of rights to enforce another agreement (the new lease once registered).
The submission also involves circular reasoning. Delivery of a new lease in registrable form in performance of an obligation under the Original Lease could only be seen as a waiver of rights to enforce the new lease on the assumed premise that the obligation under the Original Lease was in some way subject to a condition that the Tenant would not be in breach of the new lease. But that premise is the proposition which this argument must ultimately seek to establish.
In any event, it would have been open to the Landlord to make clear that in delivering a new lease in registrable form it was merely performing its obligation under the Original Lease without prejudice to any rights it might have under the new registered lease.
It follows from the matters discussed above that on the pleadings and in light of the way in which the case was advanced at trial, the alleged repudiation by the Landlord fell to be determined on the footing that:
the Tenant validly exercised the option under the Original Lease;
the Landlord’s obligation to deliver a new lease in registrable form within a reasonable time accrued at the end of 15 October 2019;
the obligation arose under the Original Lease, not the equitable lease; and
the obligation was not subject to any of:
That was repudiation, which the Tenant validly accepted by the first of its solicitors’ letters of 7 April 2020, thereby terminating the Original Lease including the agreement for lease contained within it and discharging the parties from further performance.
Ground 4 is made out.
The termination of the Original Lease also had the effect of bringing the equitable lease to an end, which meant there was no “New Lease” on foot as at 14 April 2020 when the Landlord purported to terminate it. That being so, it is not necessary to consider whether, if the first of the Tenant’s letters of 7 April 2020 had been ineffective to terminate the Original Lease, either or both of the Tenant’s letters of 7 April would have constituted a repudiation capable of acceptance by the Landlord.
It is also not necessary to consider whether the second of the Tenant’s solicitors’ letters of 7 April would have been effective to terminate the Original Lease. It suffices to note that in the absence of other circumstances the inference to be drawn from the mere sending by the Landlord of a notice of breach is likely to be one of affirmation rather than repudiation.
The conclusion with respect to termination by the Tenant has the consequence that the Landlord’s cross-claim (which was predicated on repudiation by the Tenant) must be dismissed.
The question is then whether upon receipt of the Landlord’s notice, the Tenant would have attempted to remedy its breach of cl 10.1(a)(ii) and, if so, what its prospects of success would have been.
There is no basis upon which to conclude that the Tenant would have attempted to obtain new planning consent, and the Tenant did not suggest otherwise. The Tenant’s consistent position, from 2020 up until and including the present appeal, has been that the Consent was sufficient to confer planning approval for the Tenant to conduct its gym business. Mr Robinson gave evidence that he had obtained advice about the scope of the Consent from Ms McCaffery, a town planner at the Council, on or around 13 December 2019. He gave evidence that two years later Ms McCaffery confirmed her advice (by telephone) on 11 February 2022. The effect of that evidence was that Ms McCaffery advised in December 2019 that the gym could keep operating without the need to apply for a new development consent. Under cross-examination, Mr Robinson gave evidence that he was “pretty sure” he had asked Ms McCaffery the specific relevant question namely, “Does the consent in 2006 allow us to operate a gym on the site, despite the fact that the RSL has closed?” (Tcpt, 8 August 2023, 140.28-31) Mr Robinson also gave evidence that it was most likely that he had sought legal advice about the issue. (Tcpt, 8 August 2023, 138.37)
Given that that was the Tenant’s consistent position, in light of what in fact occurred it is improbable that in April 2020, the Tenant would have spent money to pursue obtaining a separate planning consent to permit it to conduct its business. It was not the Tenant’s case that it would have sought to do so. Its case was that it did not need to. And the probabilities are strongly against that possibility. On 22 March 2020, Mr Robinson of the Tenant sent an email to members of the Move Fitness gym, which included the following statement after referring to Covid-19:
The Landlord also made a number of detailed submissions about those five points and advanced further discrete criticisms of Mr Calvetti’s evidence in accordance with Ground 2 of its notice of contention, to which the Tenant responded. This Court would not be in a position to resolve those disputes which depend, to some extent, on unresolved questions of primary fact.
The Tenant is nevertheless correct in submitting that it does not necessarily follow from the primary judge’s criticisms of Mr Calvetti’s evidence (even before taking into account the Tenant’s partial answers to them) that that evidence should have been rejected in its entirety. The primary judge treated those matters as going to Mr Calvetti’s reliability generally, rather than giving rise to a need to make adjustments to his figures. It is not self-evident from the five matters to which his Honour referred that Mr Calvetti’s evidence was wholly unreliable.
There is also force in the Tenant’s complaint that apart from describing Mr Ferrier’s approach as “more realistic”, his Honour gave no reasons for preferring his evidence, and that his Honour failed to resolve various disputes between the experts. The Tenant also made other submissions critical of the approach adopted by Mr Ferrier. The Landlord’s submission that J[122] “made it clear that the trial judge preferred Mr Ferrier’s evidence on all points of difference between the two accounting experts” is no answer to the Tenant’s complaint that the reasoning supporting that conclusion was not exposed.
In the result, I consider that if it had been necessary to determine the issue, the basis upon which his Honour assessed the damages at zero (wholly rejecting Mr Calvetti’s evidence and wholly accepting that of Mr Ferrier, without resolving the specific differences between them or deciding disputed questions of primary facts), discloses error.
However, even if the planning consent issue had been resolved in favour of the Tenant such that the lost opportunity might have had some value, this Court would not have been in a position to assess the damages itself. The Tenant submitted (by way of fall-back to its primary position discussed below) that it would be open to this Court to assess damages, “using FY 2019 (a non-COVID year) as a base year but applying a low revenue growth rate of 0.5% (to take into account the effects of COVID in 2020 and 2021)”. The Landlord submitted that this Court would not have a proper basis to assess the damages itself by picking and choosing parts of Mr Calvetti’s report. The Landlord’s submission should be accepted. In particular, there would not be a proper basis for the Court to engage in the exercise suggested by the Tenant.
The Tenant’s primary position was that if it succeeded on the repudiation issue, the matter should be remitted for the assessment of damages. The Landlord submitted that there is no basis to remit the matter for a further assessment of damages; but that submission proceeded on the assumption that Mr Calvetti’s evidence was correctly rejected (i.e., in toto).
In the result, were it not for the conclusion reached above that the Tenant failed to establish that the opportunity it lost had any value in circumstances where it lacked planning consent to carry out the Permitted Use, it would have been necessary to remit the question of damages to the primary judge. That is not to say that the outcome of that exercise would necessarily have been different. The assessment would have been on the basis of the evidence already led. The Landlord was right to submit that the Tenant should not be “entitled to have another go at preparing evidence as to loss because the evidence it did lead was flawed.”