POURZAND -v- TELSTRA CORPORATION LTD [2012] WASC 210 (19 June 2012)

Supreme Court of WA|2012-06-19|Before: Edelman J

1 The defendant in this trial, Telstra Corporation Ltd (Telstra), leased commercial premises in St Georges Terrace, Perth from the plaintiffs, the Pourzands. Telstra vacated its employees from the premises by June 2009, leaving behind only furniture and equipment. The lease had 10 months still to run. Telstra's estate agent was looking for a sub-tenant and Telstra was contemplating a 'business case' which would involve paying out to the Pourzands the remainder of the Lease term and the money equivalent of any 'make good' obligations.

2 In early September 2009, while Telstra was looking for a subtenant for the remaining seven months of its lease and contemplating the business case, Mr Pourzand commenced major work on the leased floors of the building. He had previously been doing work on a small scale. It is no exaggeration to say that the major work involved Mr Pourzand's contractors tearing the demised premises apart. Many walls and internal rooms were knocked down. Carpets were stripped. All the ceilings were removed. Telstra's furniture was scattered across the floors and piled in heaps. The major work took at least five months to complete. Telstra's prospects of sub-leasing the building for the remainder of its tenancy were destroyed.

3 Before Mr Pourzand started the major work he had been warned that the 'business case' might not be approved by Telstra. Mr Pourzand's leasing agent had repeatedly asked him whether he had authority from Telstra for the work he was undertaking. Mr Pourzand did not have that authority. Nevertheless, he went ahead with the major work.

4 Telstra's property manager United Group Services Pty Ltd (United), knew in August of minor work such as replacement of some carpet and, generally to facilitate that, the removal of some partitions and ceiling tiles. But neither Telstra nor United had any idea of the scale of the work which Mr Pourzand was undertaking. Nor did they have any inkling that such major work would occur without express approval from Telstra. On 10 September 2009, an employee from Telstra discovered the premises in a state of utter devastation. She took photos. Telstra terminated the lease the next day.

5 In November 2009, the Pourzands secured a new tenant. The new lease commenced on 1 February 2010 when the major renovations were nearly complete and shortly before Telstra's lease would have expired. In the new lease the Pourzands promised to provide the new tenant with some furniture belonging to Telstra. Telstra had previously written to the Pourzands saying that the furniture had not been abandoned. Telstra wanted to keep the furniture in the building to make it attractive for a prospective tenant. Other furniture belonging to Telstra was also promised to the new tenant but eventually not accepted. The only reason the other furniture was not included in the final version of the new lease was because the new tenant did not want it. The other furniture included Telstra's workstations worth $2,500 - $3,000 each.

6 This trial involved essentially two issues. First, was Telstra entitled to terminate the Lease for a renunciation of it by the Pourzands, alternatively a sufficiently serious breach by the Pourzands of Telstra's rights to quiet enjoyment?

7 Secondly, is Telstra liable to the Pourzands for the state in which Telstra left the Premises? The only claim which is made in respect of the state of the Premises is that Telstra's alleged use of excessive amounts of cabling had damaged the ceilings leased by Telstra on four floors of the building.[1]

8 The quantum of each claim was agreed. For the first issue it was $1,270,000. For the second issue it was $312,800.[2]

9 The law in relation to these two issues is relatively well established. The findings of fact which I have very broadly summarised above lead to the conclusion that Telstra had a right to terminate the Lease. Telstra is also not liable for any damage to the ceilings.

10 One legal issue of some controversy concerns the availability and assessment of damages for breach of a contract where no financial loss is proved. However, for the reasons I explain below at [186] [209] it is not necessary to reach a conclusion concerning how that legal question should be resolved in this case.

11 The discussion which follows is my finding of facts. Substantial, detailed written closing submissions were devoted to the assessment of the evidence. In the following discussion I have footnoted the passages from the evidence upon which I have placed most reliance.

The Lease and the Licence over the floors at 251 St Georges Terrace

12 On 26 June 2000, Telstra executed a lease with Trendhale Pty Ltd (the Original Lease) over part of the ground floor, as well as the 1st, 2nd, 3rd and 4th floors of a seven level building (the Building) located on land at 251 St Georges Terrace, Perth. The Original Lease was for a term from 1 April 2000 until 31 March 2007.[3]

13 At the same time as it entered the Original Lease, Telstra also entered into a licence agreement with Trendhale Pty Ltd (the Original Licence). The Original Licence gave Telstra the right to use 48 car bays located within the Building. The term of the Original Licence was the same as the Original Lease.

14 On 28 November 2005, the plaintiffs, Mr and Mrs Pourzand, became the registered proprietors of the land at 251 St Georges Terrace. In 2007, the Pourzands entered a Deed of Lease (the Lease) and a Deed of Licence (the Licence) with Telstra which extended the terms of the Original Lease and the Original Licence from 1 April 2007 until 31 March 2010.[4]

15 On 3 December 2008, Telstra engaged Knight Frank Australia Ltd (Knight Frank) as its exclusive leasing agent to 'negotiate leases, subleases, surrenders or assignment of leases for the occupation of any vacant space in the [five floors leased] in accordance with [Telstra's] instructions'.[5]

16 Telstra subsequently began to vacate its leased floors. On 13 December 2008, Telstra vacated the whole of the third floor of the Building and most of the 1st floor.[6] By 23 May 2009, all five floors had been vacated by Telstra.[7] All Telstra staff gave their MIL and FOB keys to Mr Sinclair, Telstra's Business Administrator.[8] Mr Sinclair returned those keys to the building security and Perth Management Services (the property manager for the Pourzands) in June and August.[9] However, Knight Frank and United both retained keys on behalf of Telstra, as well as relevant personnel from Telstra.[10]

17 Telstra left behind furniture and equipment including: (1) fixed partitioning; (2) workstations, office desks and chairs; and (3) office filing and storage cabinets.[11]

18 During 2009, the Pourzands and Telstra executed a Deed of Surrender of the Lease and the Licence in relation to the ground floor of the Building and six of the car bays.[12] Telstra paid a surrender fee of $50,000.

19 On 1 June 2009, after the Deed of Surrender took effect, Telstra remained the lessee from the Pourzands of the 1st, 2nd, 3rd and 4th floors of the Building. Telstra was also the licensee from the Pourzands of 42 car bays in the Building. Although the floors were vacant, Telstra was liable to the Pourzands for the rent on each of those floors and for the car bay licence fee for another 10 months.

Telstra uses a property manager and leasing agent to assist with sub-leasing

20 By late 2005, Telstra had engaged United as its property managers. This engagement was by a lengthy written contract.[13]

21 On 18 June 2009, Mr Kenneth Hutchings commenced work for United.[14] He worked for United from 18 June 2009 until 15 March 2010.[15] He was employed as a property manager.[16] He was responsible for all of Telstra's commercial property in Western Australia[17] and he was the only United person 'on the ground' in Perth who was responsible for the floors in the Building leased by Telstra.[18] His role involved lease administration; in his words, 'dealing with rents and payment of outgoings and ... lease renewals and rent reviews'.[19]

22 On 24 June 2009, Mr Hutchings conducted his first site visit to the Building. He went there with Mr McAlpine from the leasing agent, Knight Frank.[20] Mr Hutchings familiarised himself with the leased floors of the Building and Mr McAlpine showed Mr Hutchings the things that Mr McAlpine thought should be done to improve the presentation.[21]

23 In December 2008, Telstra entered into an exclusive agency agreement with Knight Frank for the purpose of Knight Frank arranging for the subleasing, assigning, or surrendering of the four remaining Telstra floors in the Building.[22] Mr Edwards, from Knight Frank, dealt with Mr Slater from United and Mr Chiodo, the head of property at Telstra, based in Melbourne.[23]

24 In July 2009, Telstra began investigating a possible payout of the Pourzands for the remainder of the Lease term.[24] Simultaneously Telstra was exploring sublease options through Knight Frank.

25 Employees of Knight Frank, Mr Edwards and Mr McAlpine, worked to find a subtenant for Telstra. They spoke with prospective tenants and showed prospective tenants through Telstra's leased floors of the Building.[25] One type of prospective tenant which Knight Frank investigated was a tenant for short term leases of several months, ie 'project space'. There were several reasons why a sublease for project space, or even a longer lease, was a real possibility.

(1) On 1 June 2009, the same date that Telstra had surrendered the ground floor,[26] the Pourzands had released the ground floor to Offshore Marine Services Pty Ltd for project space.[27]

(2) Clough Engineering, who were another tenant of the Pourzands on different floors, had wanted to sublease several of Telstra's leased floors from May 2009, possibly extending six months beyond Telstra's lease expiry. But the Pourzands did not agree to this.[28]

(3) Mr McAlpine had been told in April 2009 that several mining companies had the Telstra space as their first or second choice for a lease if they won the Chevron 'Wheatstone' project.[29]

(4) As I will explain below, AGC Industries Pty Ltd had expressed interest in leasing Telstra's floors in September or October 2009, and had made an offer at the end of October,[30] culminating in an agreement with the Pourzands on 4 November 2009. In the agreement the Pourzands leased the first and second floor of the Building and also licensed 15 car bays to AGC. The lease and licence was for a seven year term commencing on 1 February 2010. It contained a clause allowing for early possession. As I explain below, some of Telstra's furniture and fittings were included in the lease agreement.

26 In oral evidence, Mr Edwards suggested that the market for project space was 'very difficult' and had 'died' in 2009.[31] I do not accept this conclusion. The more accurate conclusion, derived in part from in Mr Edwards' email of 17 April 2009, is that the leasing market was generally 'slow' at the start of 2009 but that, as Knight Frank expected, it would 'improve in the second half of 2009'.[32]

27 The examples above show that there was a reasonable basis for the view that the leasing market was picking up in 2009, after the global financial crisis which affected the leasing market in late 2008.[33] This was particularly so in relation to project space which was less affected, and perhaps even benefitted, from the global financial crisis.

28 I accept the evidence of Ms Dean on this issue. Ms Dean commenced work with Telstra as Telstra's national leasing manager in July 2009.[34] Her responsibilities include all of Telstra's commercial leasing in Western Australia, including Telstra's lease over the floors of the Building.[35] She is responsible for management and oversight of 2,100,000 sq m of Telstra's tenancy portfolio.[36] She explained that after the global financial crisis in late 2008, many mining and resources companies who were committed to projects faced uncertainty in the market. Those mining and resources companies were unwilling to commit to long term space, preferring instead the short term 'project space'. Telstra's tenancy in the Building was ideal for that short term project space.[37] As Ms Dean explained, after the global financial crisis there remained a healthy demand for short term, inexpensive office space that would enable companies, particularly those in the mining sector and servicing it, to meet existing obligations while minimising their exposure to long term, higher costs if the mining and resources sector collapsed.[38]

29 In summary, although from June 2009 there was a risk that Telstra might not obtain a subtenant of its floors in the Building,[39] there was still a good chance that Telstra would obtain a subtenant and Ms Dean's expectation that this chance was 'relatively high' was reasonable.[40]

Telstra remains in possession of the leased floors until 11 September 2009

30 The question of possession is a mixed question of fact and law.[41] Although there was some equivocation on this point, it does not appear that there was any real dispute that until Telstra terminated the Lease on 11 September 2009, Telstra was in possession of its leased floors of the Buildings as a matter of both fact and law. This is so for four reasons.

31 First, and fundamentally, it was common ground that although Telstra had moved its staff from the Building, the Lease remained operative until 11 September 2009. Telstra retained access to its leased floors which contained Telstra's furniture and fittings; Telstra was in possession of keys,[42] and Telstra paid rent until 11 September 2009.[43]

32 Secondly, Telstra continued to use the car bays under the Licence.[44]

33 Thirdly, Telstra's investigations concerning a sub-lease continued until 11 September 2009. For this purpose, its leasing agents retained keys and access to the leased floors of the Building.

34 Fourthly, as the Pourzands' property manager (Perth Management Services) confirmed in relation to the period up to 4 September,[45] it was 'obvious to all and sundry that Telstra was clearly still in possession of the tenancy and the carbays'.

The Pourzands engage work on the Leased floors without Telstra's knowledge

The date at which the Pourzands commenced the work

35 The critical evidence on this issue was given by Mr Hutchings and Mr Pourzand. I commence with the discussion of the evidence of Mr Hutchings. The reason for this is that although there was some confusion in his oral evidence I generally accept Mr Hutchings' evidence. Counsel for the Pourzands and senior counsel for Telstra respectively submitted that Mr Hutchings should be accepted as an honest,[46] and credible and reliable witness.[47] In contrast with the evidence of Mr Hutchings, and for reasons which I explain below, I do not accept the evidence of Mr Pourzand.

36 In his witness statement, Mr Hutchings identified the occasions he went to the Building as 24 June 2009;[48] 15 July 2009;[49] 27 July 2009;[50] 5 or 8 August 2009;[51] 19 August 2009;[52] and late August or early September 2009.[53] Mr Hutchings left for a holiday in Bali on 4 September 2009.[54]

37 Mr Hutchings also said that on his visit to the Building on 5 or 8 August 2009, he met with a representative from Bovis Lend Lease and two representatives from Swan Cabinet Works. He said that during that visit Telstra's fit out was intact and none of Mr Pourzand's workmen was present on any of the floors.[55]

38 Mr Hutchings said that on his visit on 19 August 2009 with Mr Pourzand he observed that Mr Pourzand had started recarpeting the floors on levels 1 and 2 and had moved Telstra's loose furniture into two rooms near the elevators.[56] Mr Hutchings initially said that he had observed that Telstra had removed fixed partitions, but he removed that sentence from his witness statement: he couldn't be absolutely certain that this was the case although it was his best recollection.[57]

39 Mr Hutchings said that in his visit in late August or early September he observed that Mr Pourzand had started removing Telstra's fixed partitioning. He described a conversation with Mr Pourzand on that visit to the Building when Mr Pourzand suggested to him that Telstra had made cuts in the ceiling Tbars and where Mr Pourzand suggested to him that Telstra had repainted the Tbars with cream paint.[58]

40 The effect of Mr Hutchings' witness statement is that at a time around 19 August 2009 Mr Pourzand had started to recarpet two of the floors, a quarter of the area of each floor at most.[59] Mr Pourzand had probably also started to remove a small number of Telstra's fixed partitions at that time. It is likely that these removals were to facilitate the recarpeting. However, although Mr Pourzand had told Mr Hutchings that new ceilings had been ordered, and although Mr Hutchings had observed that some fixed partitions and some ceiling tiles had been removed,[60] the ceilings had not been removed prior to Mr Hutchings' departure for holiday in Bali on 4 September 2009. Further, Mr Hutchings expected that the ceilings would not be removed without a 'deal' between Mr Pourzand and Telstra.[61] Mr Hutchings never saw the large scale removal of ceiling tiles which preceded the later removal of the whole ceilings.[62]

41 There was some inconsistency between, on the one hand, this sequence of dates and observations as explained by Mr Hutchings in his witness statement and, on the other hand, the evidence of dates and observations which Mr Hutchings gave in crossexamination. Counsel for the Pourzands submitted that Mr Hutchings' evidence in his witness statement should be rejected as an understandable mistake of memory.[63] I do not accept this submission for five reasons.

42 First, Mr Hutchings had prepared his witness statement with the benefit of an electronic diary and notes he made whilst he was employed at United.[64]

43 Secondly, a number of the dates in Mr Hutchings' witness statement correspond with the admitted approximate dates in the pleadings upon which the various works commenced. Those agreed dates are set out below at [62].

44 Thirdly, the evidence in Mr Hutchings' witness statement of what Mr Hutchings said he saw for the first time on 19 August 2009 is consistent with his silence about these matters at a meeting of the Telstra Project Committee on 17 August 2009. The minutes of that meeting, which Mr Hutchings attended, show that 'United [was] looking at payout of remaining floors' and that a make good estimate was to be provided by Bovis and a high electricity cost was to be investigated.[65] Mr Hutchings did not say anything at that meeting concerning any re-carpeting or other works which were being carried out on any of Telstra's leased floors of the Building.[66] It is likely that he did not say anything because the work which had commenced was minor.

45 Fourthly, as I explain below, the dates in Mr Hutchings' witness statement are consistent with the photographic evidence in exhibits 185 189. A small sequence of those photos is annexed to these reasons to illustrate the progression of the major work undertaken by Mr Pourzand.

46 Fifthly, the crossexamination of Mr Hutchings proceeded by counsel asking him to recall dates without the benefit of his witness statement. On occasion when Mr Hutchings was asked about dates in crossexamination his reply was to refer back to his witness statement. So, when he was asked about the date at which he saw that come re-carpeting had begun, he replied '[w]ithout looking at my notes, I can't remember the date, no'.[67] When pressed about whether the date was early, mid, or late August, he said that he 'guessed' that it was early.[68] Much of the crossexamination about dates was built on a foundation of such 'guesses' in circumstances in which Mr Hutchings acknowledged his need to refer to his witness statement to confirm the dates.

Telstra's discovery of the work which Mr Pourzand was undertaking

47 In opening submissions, counsel for the Pourzands said that the work done by Mr Pourzand was done with the knowledge of Telstra.[69] In closing submissions, that position was maintained.[70] It is necessary to set out exactly what Mr Hutchings knew about the work undertaken by Mr Pourzand.

48 As I have explained at [38] - [40] above, Mr Hutchings was aware of some small scale work being done by Mr Pourzand. Mr Hutchings gave evidence that he told Ms Millican (another employee at United) that work was being done by the Pourzands when he 'started to get a bit worried that [Mr Pourzand] was doing significant work'.[71] He said that his conversation with Ms Millican occurred after the second time that he went to look at the ceiling.[72] Mr Hutchings did not say whether the small worry that was developing in his mind concerned the possibility of significant work to parts of the base building not included in the Lease or whether it was significant work on the parts of the floors which were in Telstra's Lease.

49 Mr Hutchings said in crossexamination that the first time he went to see the ceilings was contained in his witness statement, and that he thought it was 23 August 2009.[73] But his witness statement did not refer to a meeting on 23 August 2009. I conclude that the meeting to which Mr Hutchings was referring was the meeting in late August or early September. It was at that meeting when, as I explain above, Mr Pourzand made the allegations to Mr Hutchings that Telstra had made cuts in the ceiling Tbars and had repainted the Tbars with cream paint. At this time the recarpeting would also have involved the removal of some fixed partitions. And the removal of the fixed partitions would have involved removal of some, though not many, ceiling tiles. Mr Hutchings also said in crossexamination that his reference to the 'works to the base building' which he saw on 19 August 2009 involved the removal of ceiling tiles 'to help partition removal for recarpeting purposes'.[74]

50 There was also a second occasion when Mr Hutchings went to look at the ceilings. That second occasion would also have been in very late August or early September 2009.[75] I conclude that it was after this time, but before 4 September 2009, when Mr Hutchings spoke with Ms Millican and when he had just started to develop a concern that Mr Hutchings might be doing, or about to do, significant work.

51 Mr Hutchings was not asked in crossexamination about the detail of what he had said to Ms Millican. My conclusion is that Mr Hutchings would have, in his words, informed Ms Millican that Mr Pourzand was doing some work in the Building. I do not consider that Mr Hutchings would have been any more specific than this, and neither Ms Millican nor Mr Hutchings would have raised any concerns with Telstra.

52 In summary, Mr Hutchings was only a 'bit worried'.[76] He had seen some recarpeting underway and, to facilitate that, some removal of full length fixed partitions, and some ceiling tiles removed. Some of the full length partitions were supporting the ceiling and the removal of those partitions and the ceiling tiles above them would also have enabled him to see into the ceiling void.[77] But this work was only minor. Mr Hutchings clarified in crossexamination that the only ceiling tile removal he saw was those tiles which were removed to help partition removal for recarpeting purposes.[78]

53 I note also that Mr Vodesil's evidence, which I accept on this point, was that the ceilings were removed on the first floor first, then the second floor, then the third and fourth floors.[79] The work that Mr Hutchings had seen on the second floor, which he visited in early September,[80] was not the major work which subsequently took place. That major work was primarily the removal of ceilings, but it also included work such as the removal of internal meeting rooms.

54 Mr Hutchings did not expect that work would be done on the considerable scale which occurred; in particular, he did not expect that the ceilings would be replaced without agreement from Telstra. And although he had seen a few ceiling tiles removed to facilitate recarpeting, he said (and I have accepted) that there had not been a lot of work done at the time of his final visit.[81]

55 Even on the basis that Mr Hutchings' knowledge should be attributed to Telstra (a matter on which no substantial submissions were made) Mr Hutchings had no knowledge or expectation of the significant work which would occur. And, for the reasons below, Telstra had no actual knowledge at all.

56 Ms Zuvela is a Telstra employee, with the title 'Business Operations Specialist for Western Australia, South Australia and the Northern Territory'.[82] She commenced work with Telstra in January 2009,[83] and was always based at Telstra's premises at 80 Stirling Street, Perth.[84] She only came to the Building on St Georges Terrace on an 'as required basis'.[85]

57 On 9 or 10 September 2009, a person from Swan Interiors who was doing work near the Building told Ms Zuvela that demolition works were underway at the Building.[86] On the evening of 10 September 2009, after confirming that Telstra had not subleased its tenancy or reached any arrangement with the Pourzands, Ms Zuvela went to the Building.[87] She observed, and photographed:[88]

(i) furniture and workstations had been dismantled and moved;

(ii) partitions had been removed, including fullheight partition walls;

(iii) large parts of the ceiling had been removed and new ceiling grids were being installed;

(iv) cables and air conditioning ducts were hanging out of the ceilings;

(v) new carpet tiles had been delivered and had been installed in some places; and

58 The work that Ms Zuvela observed on 10 September 2009 was on a massive scale. Annexure E to these reasons is one of the photos she took.[89] I find that the major work involving the large scale removal of all the ceiling tiles and grids commenced after the final time Mr Hutchings visited the Building before he left for holidays, although it is possible that the large scale work had commenced earlier on floors, such as the first floor, that Mr Hutchings did not see in his final visit. Mr Hutchings' final visit was probably around 2 September 2009.[90] Mr Hutchings never saw the state of the premises when this large scale or major work had commenced.

59 Later in the evening of 10 September 2009, Ms Zuvela sent an email to Mr Whitney, her manager who was based in Brisbane,[91] as well as to Ms Dean and Mr Slater.[92] Ms Zuvela attached photos she had taken. Ms Dean replied with '[g]reat find Elena!!!' and observed that 'I think we have an excellent case to claim they have taken possession of the premises'.[93]

60 I find that the first time that Telstra knew that substantial work was being undertaken by the Pourzands was on 10 September 2009.

61 On 11 September 2009, Mr Mark Slater of United wrote to the Pourzands asserting that their actions in commencing building works within the premises, including the removal of suspended ceilings and fixtures and fittings, were a repudiation of the Lease and that Telstra accepted the repudiation. He also said that Telstra did not abandon its ownership or entitlement to any of its property in the premises.[94]

62 Although, as I have explained above, there was some inconsistency in the dates and order of events given by Mr Hutchings in his oral evidence, the dates below were either admitted on the pleadings or are consistent with Mr Hutchings' witness statement which I consider to be reliable.

(1) At around 19 August 2009 some recarpeting of levels 1 and 2 of the Building had commenced and some partitioning had been removed;[95]

(2) On a date after 27 August 2009, but probably Friday 28 August 2009,[96] steel ceiling grids were delivered to level 2 for installation on levels 1 4 of the Building;[97]

(3) In late August or early September 2009, ceilings began to be removed and new ceilings began to be installed.[98]

63 I have explained above my conclusion that Mr Hutchings never saw Telstra's leased floors of the Building with the major work underway, including primarily the removal of the ceilings, but also the removal of numerous walls and internal rooms. I consider that the most likely time when that major work commenced was very shortly after 2 September 2009 with the ceiling removal starting on the first floor.

64 Mr Pourzand conceded in crossexamination that the premises were in 'complete disarray' during the works.[99] This is an understatement. The premises were utterly devastated while the major work was going on. I have attached to these reasons several photographs which demonstrate the nature and progression of the work.

65 The first two photographs, Annexures A and B,[100] were taken around 21 August 2009. There was a little work going on then such as some recarpeting and removal of partitions to facilitate that, but nothing of great significance.

66 The third photograph, Annexure C,[101] was probably taken around 4 September[102] and probably of level 2[103] (the second level to have the ceiling removed).[104] It shows that major work had commenced but the ceiling had not yet been removed.

67 The fourth photograph, Annexure D, was probably taken several days after Mr Hutchings' final visit, and probably around 5 September 2009.[105] The work had begun in earnest and the devastation of level 2 can be seen in that photo. I accept Mr Pourzand's evidence that the mere removal of the ceiling tiles was easy and was not a big job.[106] The removal of the ceiling tiles and grids occurred rapidly. The replacement took much longer.

68 The fifth photograph is Annexure E. It was taken on 10 September 2009.[107] It shows that Telstra's leased floors are still in a state of utter disrepair at that date.

69 The sixth photograph, Annexure F, shows the premises on 16 December 2009.[108] There is still work underway and ceilings are still incomplete.

70 One matter which is clear from these photographs is that the sheer size and scale of the work took months to complete. The major work commenced shortly after 2 September 2009. Much of it occurred simultaneously[109] and, as Mr Vodesil said, the installation and replacement of the new ceiling grids and tiles took about five months.[110] The sheer scale of the work undertaken, and the devastation of the premises by 10 September 2009, is such that it would have been entirely reasonable for Telstra to expect that the completion of the work would take the entire remaining time of its lease. As it turned out, when Telstra terminated the Lease on 11 September 2009, the work had at least five months until completion.

71 The five month time period for the major work is also consistent with the delivery dates of the new ceiling tiles. Those dates were from 6 October 2009 until 25 January 2010.[111] Photos taken on 16 December 2009 also show work remaining to replace ceiling tiles.[112] The new carpets arrived on 2 November 2009.[113] The remaining partitioning was removed around 10 November 2009. The cost of removing the partitioning at around that date, $308,000, suggests that this was not a small task.[114] The lighting and power cabling was removed on 18 November 2009.[115]

72 Mr Vodesil gave evidence that the work stopped for a period after 11 September 2009, when the Pourzands received Telstra's termination letter. He thought it was a few weeks, but he was not entirely clear about that.[116] I accept that the work stopped for a brief period but this period was unlikely to be more than a couple of weeks. The photographic evidence which showed the progression of the work, and the stream of invoices and the sheer scale of the work which needed to be completed in five months meant that any cessation of work would have only been very brief.

73 For completeness, I should add that I do not accept the accuracy of Mr Vodesil's recollection in relation to the time when the removal of the ceilings occurred. Mr Vodesil initially suggested that it took two months to remove the ceilings on Telstra's leased floors and that the work had been completed when the ceiling grids arrived on 28 August 2009.[117] This is contrary to the photographic evidence around 21 August 2009 (which showed that the ceilings were intact). It is also contrary to Mr Hutchings' evidence.

The Pourzands release several floors of the Building and offer Telstra's furniture to a new tenant

74 On 4 November 2009, the Pourzands entered into an agreement with AGC Industries Pty Ltd by which the Pourzands would lease the first and second floor of the Building and also licence 15 car bays to AGC for a seven year term. The term would commence on 1 February 2010.[118] An early possession clause permitted AGC to enter early occupation any time after execution of the formal lease.[119]

75 One of the conditions of the lease offer from AGC was that the Pourzands would [120]

2.5 Remove all solid Gyprock and glass partition walls all workstation desks and screens and chairs and all electrical and data cabling, the UPS and batteries currently insitu in the Premises prior to possession being granted to the Lessee. The Lessor is to supply 187 existing mobile pedestals and 90 existing storage units.

76 The lease and licence to AGC were executed shortly after the offer. Mr Pourzand accepted that the reference to the mobile pedestals and storage units which he had promised to provide to AGC was part of Telstra's existing fit-out. Mr Pourzand claimed in evidence that he thought that Telstra had abandoned these.[121] Mr Pourzand conceded that it had initially been contemplated that Mr Pourzand would also provide AGC with Telstra's workstation desks (which were worth $2,500 $3,000 each)[122] and Telstra's screens and chairs. But Mr Pourzand said that this 'didn't work' for AGC.[123] The underlying assertion by Mr Pourzand was that Telstra had abandoned these too. This was false.

77 Mr Pourzand had never given Telstra a formal notice to remove any of its furniture.[124] And as explained above at [61], Telstra had written to Mr Pourzand just over a month earlier explaining that it did not abandon its ownership or entitlement to any of its property in the premises. As Ms Dean and Ms Zuvela both explained, Telstra's existing furniture and fitout had been left in the Building to make it more attractive for project space; otherwise Telstra would have sold its furniture.[125]

78 Some time after April 2010, the Pourzands also leased another of Telstra's former floors to a company called Compass for a short term lease, five or six months.[126] Space was also leased to RCR Tomlinson.[127]

79 In the discussion above, I have not relied upon Mr Pourzand's evidence in any significant respect. I do not consider that his evidence was reliable. This assessment is based only in part upon my consideration of his demeanour and manner of giving evidence. There are four supporting reasons why I do not accept his evidence as reliable.

80 The first reason was the selectivity of his memory in giving evidence. Mr Pourzand had some limitations with his English expression but he could clearly understand the crossexamination and he had a very strong command for business matters. His recall of commercial events and deals he had engaged in on previous occasions was remarkable and impressive. For instance, he had a near-perfect recall of the many companies in which he had been a director, the dates of his directorships, controlling interests in the companies, relevant shareholdings, the nature of the ventures involved, and prices paid in commercial transactions. This recall stretched back over a period of fifteen years.

81 In striking contrast with this remarkable memory and his crisp answers to these questions, Mr Pourzand's evidence on important matters relating to the issues in the trial, even involving much more recent events, was confused, contradictory, and sometimes contrary to clear documentary evidence.

82 Secondly, in relation to matters concerning dates and sequence of events, Mr Pourzand did not keep a diary.[128] His recollection was shaky on dates, even in instances in which he had initially asserted them with confidence.

83 An example is that Mr Pourzand referred in his witness statement to a meeting with Mr Hutchings on 7 September 2009.[129] This was an important part of Mr Pourzand's evidence because this was a meeting at which Mr Pourzand said that Mr Hutchings had approved the removal of meeting rooms and walls and when Mr Hutchings was alleged to have said that the ceilings had to be removed. Mr Pourzand had initially said in his witness statement that he knew that 7 September 2009 was the correct date because he had lunch with Mr Hutchings at Bar One on that day and he had paid by visa and obtained a visa statement. He had said this was the only occasion he had lunch with Mr Hutchings at Bar One. But Mr Hutchings went on holiday to Bali on 4 September 2009.

84 In Mr Hutchings' witness statement, Mr Hutchings contradicted the account of Mr Pourzand, saying that the date when he had lunch with Mr Pourzand was 27 July 2009. So, in oral evidence, Mr Pourzand amended his witness statement from 7 September 2009 to 27 July 2009.[130] Mr Pourzand was asked six times in crossexamination whether in the lead up to trial he had been told that Mr Hutchings was on holidays on 7 September 2009. When he eventually answered the question he said that he could not recall being told.[131]

85 Thirdly, there were important aspects of Mr Pourzand's evidence which were false. Several examples can be given.

(1) Mr Pourzand repeated, over and over, in crossexamination that he had obtained approval from Mr Hutchings for every step he took in the works performed on the Building.[132] This was never pleaded. No claim for estoppel, acquiescence or waiver was ever raised. These assertions were never put to Mr Hutchings in crossexamination. And this evidence was contrary to the evidence of Mr Hutchings which all parties accepted was honestly given, and which was also reliable and credible.

(2) Important statements which Mr Pourzand alleged had been made to him by Mr Hutchings were also denied by Mr Hutchings whose evidence on these points was firm and cogent. For instance, in relation to Telstra's cabling in the ceiling void, Mr Hutchings denied having told Mr Pourzand statements such as '[h]ow could they have left all that behind?'.[133] Mr Hutchings denied having said that the cabling 'could have fallen any day'.[134] Mr Hutchings denied having said 'I know the ceilings have to be done'.[135] Mr Hutchings denied having been shown carpet samples by Mr Pourzand.[136]

(3) Mr Pourzand said in crossexamination that Clough Engineering were not looking for project space in 2009 but were trying to lease their own space.[137] Mr Pourzand was then confronted with emails from Mr Edwards explaining that Mr Pourzand had refused to agree to sublease Telstra's floors for project space to Clough Engineering in January 2009.[138] He still denied knowing about this.[139] He was taken to another email where Mr Edwards said that he had had 'a long discussion with [Mr Pourzand] regarding the Clough offer'.[140] He then said that he could not recall but doubted that this was the advice Mr Edwards would give him.[141]

(4) In an attempt to suggest that Mr Hutchings had seen extensive renovation work to Telstra's leased floors in the Building, Mr Pourzand said that Mr Hutchings came to visit the Building on five or six occasions between the end of August and 4 September 2009.[142] As I have explained, Mr Hutchings' evidence, which was not contested in cross-examination, was that he only went to the Building a handful of times in the months between June and September 2009. It is not credible that he visited five or six times in a single week.

(5) Mr Pourzand gave evidence that Telstra's blue cable needed to be kept in cable trays. But when Mr Pourzand fixed the ceiling himself he did not put the blue cable in cable trays. He said it was sufficient to tie it up.[143]

86 Fourthly, important aspects of Mr Pourzand's claims were said to have been omitted by mistake from his witness statement. For instance, he said that shortly after 20 August 2009 he removed internal meeting rooms and some walls which he thought was blocking light and that prior to that Mr Hutchings had said '[t]hey've got to be removed. Go ahead'.[144] In his oral evidence Mr Pourzand said that Mr Hutchings had also authorised the removal of the level 2 wall, the meeting room, and the server room. Mr Pourzand said that he had forgotten to include these crucial issues in his witness statement.[145] The omission of these significant allegations (which allegations I do not accept) from Mr Pourzand's witness statement and his claims of them for the first time in oral evidence, cast further doubt upon the reliability of Mr Pourzand's evidence.

87 For these reasons, I do not accept Mr Pourzand's evidence in any significant respect.

Matters not in issue in the case: estoppel, acquiescence, waiver, or forbearance

88 Telstra's defence to the Pourzands' claims for debts due under the Lease and Licence, and damages for breach of each, was based on the submission that the Lease and Licence were properly terminated on 11 September 2009.

89 Telstra's defence of termination was based upon a submission that the Lease had been renounced or that there had been a sufficiently serious breach of an intermediate term entitling termination. The Pourzands' primary response was that no breach had occurred. Alternatively, their case was that any breach was of an intermediate term which did not permit Telstra to terminate the Lease.[146]

90 In opening, I raised with counsel the fact that no case of waiver was pleaded by the Pourzands.[147] The same is true of estoppel, acquiescence, forbearance or affirmation although, in a case like this, these concepts might all have described a similar argument. The argument might have been that Telstra's conduct manifested an intention not to object to the major work undertaken upon which the Pourzands had reasonably relied.

91 With the possible exception of authorisation, such an argument was never pleaded or expressly advanced. My conclusions on the evidence are that such an argument could not have succeeded.

Any claim based on authorisation or knowledge must fail

92 A claim based on authorisation was never clearly pleaded. Although there was oblique mention of it by counsel in opening, by closing submissions, counsel for the Pourzands had apparently retreated from any firm reliance upon authorisation.[148] However, for the reasons below, it is necessary to deal with this issue.

93 It is possible, as senior counsel for Telstra submitted in closing, that par 10(1)(b) of the Pourzands' reply pleading might be understood as a plea that Mr Hutchings had authorised the Pourzands to do the work. That paragraph was a limited pleading. It was a pleading that Mr Hutchings had agreed on behalf of Telstra that the Pourzands would carry out the 'make good' works at their own cost, subject to Telstra reimbursing the Pourzands to the extent of $100 per square metre.

94 In written closing submissions, the Pourzands submitted that even if the work by Mr Hutchings would otherwise have been a breach of the covenant of quiet enjoyment, 'those works were done with the consent of Mr Hutchings and thereby the consent/authorisation of Telstra'.[149] Such a case of authorisation goes well beyond the specific pleading. But, in any event, it is contrary to the oral evidence and my findings of fact; it is contrary to the documentary evidence; it is contrary to admissions made by Mr Pourzand; and it is contrary to the legal authority conferred upon Mr Hutchings.

95 First, as I have explained above, Mr Hutchings' knowledge of the works being undertaken by Mr Pourzand was limited to some recarpeting and removal of partitions (and associated ceiling tiles). He was not aware of any of the major work commenced by Mr Pourzand shortly after 2 September 2009.

96 Secondly, Mr Hutchings' evidence, which I accept, was that some time after 25 August 2009, Mr Pourzand told him (Mr Hutchings) that Mr Pourzand was 'going to go ahead and replace the ceilings and sort out how to fund it after'.[150] Mr Hutchings accepted that the question of Telstra approving or not approving the work to replace the ceilings just did not come up.[151] Mr Hutchings expected that Mr Pourzand would wait until Telstra had reached a decision on the business case.

97 Mr Hutchings said that he warned Mr Pourzand several times that the business case which Mr Hutchings was going to put to Telstra might not be approved by Telstra.[152] The business case was to propose that Telstra pay out Mr Pourzand for the remainder of the lease in addition to a makegood amount. Mr Hutchings also told Mr Pourzand that if the business case were not approved then Mr Pourzand could be funding work for which he would not be reimbursed.[153] Although Mr Pourzand told Mr Hutchings that Mr Pourzand had ordered new ceilings,[154] Mr Hutchings reasonably expected that Mr Pourzand would wait until a business case was approved before installing the new ceilings.[155]

98 Thirdly, a further reason why any pleaded case based on authorisation cannot succeed is that the pleading that Mr Hutchings had agreed on behalf of Telstra for the 'make good' works to be done subject to reimbursement was 'part and parcel' of discussions which took place 'no later than 15 July 2009'.[156] But the emails relied upon by the Pourzands as part of the particulars of the alleged discussions are directly contrary to this pleading. Mr Pourzand's email on 16 July 2009 to Mr Hutchings, as part of this exchange, only described the following agreement for minor cosmetic work to Telstra's leased floors:[157]

Clean balcony
Painting of balconies
Remove blinds from all floors
Remove and dispose of excess furniture as required
Lift lobbies to be repainted
Lighting will be addressed as required

These are small cosmetic issues which will enhance Telstra's chance of leasing the space in a speedier time frame and as agreed by you, you will be invoiced for these small jobs until Telstra decide what they would like to do with their 'make good' obligations.

99 Mr Hutchings had agreed that work could be done to upgrade the bathrooms, and install showers, on the third and fourth floors. He explained that he agreed to this because it would improve the prospects of the floors being sub-let, and also because the toilets were not part of Telstra's Lease.[158]

100 Fourthly, if there were any doubt about the question, another reason why any authority argument cannot succeed is because Mr Pourzand admitted in crossexamination that the terms of the email exchange show that there was no authorisation given on 15 July 2009 beyond at the most small cosmetic issues.[159]

101 Fifthly, as a matter of law, and in any event, Mr Hutchings had no authority to approve the major works which were undertaken by Mr Pourzand.

102 A copy of the agreement between Telstra and United was tendered during trial.[160] The Pourzands did not refer to that agreement in any detail during trial or in submissions. The agreement imposed significant restrictions on any work which Mr Hutchings could approve. For instance, cl 4.2.1(e) and cl 5.2.1(n) provided that for all 'Property decisions above a monetary level determined by Telstra' or 'all Property decisions determined by Telstra', United was required to prepare a Business Case for Telstra's consideration.

103 Further, sch 8, cl 25.2 of the agreement also imposed a cascading level of checks in relation to 'ad hoc services' of increasing financial value. Services of less than $500 required United to notify the relevant Telstra property manager of the estimated value. Services of more than $1,000 but less than $2,000 required United to provide Telstra with at least two written quotes, and so on. Consistently with this, Mr Hutchings said that he had authority to approve work to be done by Mr Pourzand at Telstra's expense in relation to 'small items'.[161]

104 Sixthly, Mr Edwards said, and I accept, that he repeatedly asked Mr Pourzand whether Mr Pourzand had informed Telstra of the work which Mr Pourzand was undertaking or planning.[162] Mr Edwards accepted that it was not at all normal for work of the type done by Mr Pourzand to occur without some formal or written authorisation from the tenant.[163] It is telling that Mr Edwards repeatedly kept asking Mr Pourzand whether he had authorisation. In any event, it was not true that Mr Pourzand had any authorisation whether from Mr Hutchings or anyone else.

105 For these six reasons, any authorisation case advanced by the Pourzands has no foundation in any evidence, facts or law.

106 For completeness, it is necessary also to address some related matters raised in written closing submissions by the Pourzands in a section entitled 'Works done with Telstra consent/authority'.[164]

107 The Pourzands said that Telstra's consent might be inferred from silence and a lack of activity with knowledge. The passages from the authority cited, Byrnes v Kendle,[165] focus upon defences including laches, acquiescence, and consent. None of these defences is pleaded. None is consistent with my findings of fact concerning Telstra's lack of knowledge of the major works. And even if Telstra had full knowledge of the commencement of the major works in early September 2009, any delay before termination was barely a week. This could not be sufficient for any of these defences to arise.

108 There were also passing references made in the Pourzands' closing written submissions to communications between Mr Pourzand and Mr Edwards.[166] As to these, no issue can arise concerning any knowledge which Mr Edwards might or might not have had concerning the works undertaken by Mr Pourzand. The Pourzands only pleaded that Mr Edwards, or Knight Frank, was engaged as a leasing agent.[167] As senior counsel for Telstra emphasised at the start of trial,[168] and counsel for the Pourzands apparently accepted,[169] there was no pleading of any knowledge of Mr Edwards of the works undertaken by Mr Pourzand. Nor was there a pleading or submission that any knowledge of Mr Edwards could be attributed to Telstra; there was no factual basis for any such attribution. These concepts are sometimes encapsulated in the unfortunate description 'agent to know'.

109 Even if Mr Edwards' knowledge had been pleaded as a relevant matter, such attribution of knowledge would have been very doubtful as a matter of law.[170] Further, and as a matter of fact, Mr Edwards gave clear evidence that, acting as Telstra's leasing agent, he had never authorised Mr Pourzand to do any work.[171] He said that neither he nor Knight Frank had ever acquiesced on behalf of Telstra in anything that Mr Pourzand was proposing to do.[172] He explained that both Mr Pourzand and Telstra were his clients and that he was also advising Mr Pourzand in relation to the Building.[173]

110 Finally, even if Mr Edwards' knowledge had been an issue in this trial, my conclusion is that Mr Edwards did not see any major work being undertaken prior to 9 September 2009 (when there was a possibility that he saw the works being done)[174] and, in any event, he did not say anything to Telstra about any of the works which Telstra discovered the next day, nor was he obliged to do so.

The first claim: Was Telstra entitled to terminate the Lease and Licence on 11 September 2009? The Licence was co-terminous with the Lease

111 The trial was conducted on the assumption that the Licence was coterminous with the Lease. This assumption is correct. Item 5 of the Schedule to the Original Licence provided:

Commencing from and including 1 April 2000 for the Term of the Lease and the Further Term (if any) granted by the Licensor pursuant to the Lease and expiring on the earlier of the date of expiration of the Term of the Lease and any Further Term or the termination of those terms howsoever occurring.

112 The Licence provided for a Further Term. Clause 2.1 of the Licence provided that Telstra 'has exercised the option to renew the grant of the [Original Licence]' and the renewed term was subject to 'the observance and performance of the covenants and agreements exceptions and reservations specified in the [Original Licence]'. The Licence therefore incorporated the provision that it would terminate upon the termination of the Lease term, howsoever occurring.

113 There are two, overlapping ways in this case in which Mr Pourzand's conduct might have given Telstra the power to terminate. These two ways are well settled in contract law as well as in relation to leases.

114 First, a power to terminate arises if conduct involves a renunciation of a contract; an unwillingness to render substantial performance of the contract. As the joint judgment in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited[175] explained, this is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations.[176]

115 Secondly, a contract can be terminated by one party if the conduct of the other party involves a sufficiently serious breach of a nonessential, intermediate, term. The nature of the term is primarily a matter of construction of the contract, at the time the parties entered into it, to determine if its breach could be such as to deprive the injured party of a substantial part of the benefit to which he is entitled under the contract.[177] It is only after the determination of the nature of the term is made that it can be considered whether the seriousness of the breach, including the kind and degree of breach and its consequences, gives rise to a power to terminate.[178] In this assessment it may be relevant to consider the adequacy of damages as a remedy.[179]

116 In both of these situations involving the power of termination the reasoning in relation to contracts generally applies equally to leases.[180] This is because the ordinary common law principles in relation to contract generally apply to leases.[181]

117 There was no dispute in this case that the conduct of the contractors in performing work upon the instructions of Mr Pourzand was an interruption by Mr Pourzand, or by the contractors as persons claiming a right of entry under Mr Pourzand, within the meaning of cl 8.1 of the Original Lease.[182]

118 The contractual test for renunciation is whether the conduct of one party conveys to a reasonable person in the situation of the other party either renunciation of the contract as a whole or renunciation of a fundamental obligation under it.[183] The test is an objective one. It does not matter whether 'the lessor was unlikely to have subjectively desired to repudiate its agreement to grant a lease ... It suffices that, viewed objectively, the conduct of the relevant party has been such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it'.[184]

119 When Mr Pourzand undertook major work to Telstra's leased floors in early September, he knew that Telstra was seeking a sub-tenant to defray the costs under the Lease.[185] He knew that the leased floors would be unusable during the renovations.[186] He knew that once the major work had commenced, the floors could not simply be 'put back together'.[187] And he must have known that the work would take months, perhaps the entirety of Telstra's remaining tenancy. The effect of this was that once the major work commenced in early September, Mr Pourzand knew (as was the case) that Telstra's floors would be unusable, and a sublease would be impossible for most, if not all, of Telstra's remaining tenancy.

120 The effect of Mr Pourzand's conduct was to deprive Telstra of the primary, almost exclusive, purpose of Telstra's tenancy. No subtenant would be obtained. As I have explained above at [25] [29], there was a good chance that Telstra could have found a subtenant for the remainder of its tenancy. But not after the major work commenced.

121 There is a further reason why the conduct of Mr Pourzand reasonably conveyed to Telstra that he had renounced the Lease as a whole, or his fundamental obligation under it to allow possession. This reason was the failure by Mr Pourzand to seek any consent or approval from Telstra for any of the major works in which he engaged. This failure to seek consent, and the absence of any knowledge of the major works by Telstra or United, contrasts starkly with the agreement which Mr Pourzand sought, and which he subsequently documented by email, in relation to minor cosmetic matters in July 2009: see above at [98] [99].

122 In written submissions, Telstra also characterised the conduct of Mr Pourzand as a retaking of possession. It is accurate to say that the major work undertaken by Mr Pourzand deprived Telstra of any effective right to possession under the Lease, including Telstra's prospect of a sub-lease. This deprivation of any meaningful exercise of possession by Telstra demonstrated both unwillingness, and subsequently an inability, for the Pourzands to comply with their fundamental obligation under the Lease. The conduct amounted to a renunciation of the Lease.

123 The Pourzands also submitted that Telstra's knowledge and acquiescence in Mr Pourzand's work was relevant to the question of repudiation.[188] I have explained above, at [47] [60] why Telstra had no knowledge of, and had not acquiesced or consented to, the major work by Mr Pourzand.

124 In any event, the test for renunciation focuses upon the conduct of the Pourzands, not upon the knowledge of Telstra. The submission to the contrary by counsel for the Pourzands,[189] is inconsistent with the approach taken by the High Court on appeal that the issue of renunciation is a separate issue from construction of the contract (which involves the parties' common contemplation as to future performance). In relation to renunciation the question is 'the intention evinced by one of the parties [ie the renouncing party] at the time of breach'[190] (emphasis added).

125 The renunciation of the Lease by the Pourzands means that the Lease came to an end on 11 September 2009 when the renunciation was accepted by Telstra. The Pourzands are not entitled to a claim for debt or damages for failure by Telstra to pay rent or outgoings after that date.

A sufficiently serious breach of an intermediate term by the Pourzands

126 There is a second reason why Telstra was entitled to terminate the Lease and Licence. This is for a sufficiently serious breach by Mr Pourzand of an intermediate term of the Lease.

127 Clause 8.1 of the Original Lease, as incorporated by cl 3.2 of the Lease provided as follows:

As long as the Tenant performs its obligations under this Lease, the Tenant may occupy and use the Premises without any interruption by the Landlord or any person lawfully claiming under the Landlord.

128 It was common ground that the proper construction of this clause was a promise by the Pourzands that so long as Telstra performed its obligations under the Original Lease then Telstra may occupy and use the Premises without any interruption by the Pourzands or any person lawfully claiming under the Pourzands.[191]

129 The covenant of quiet enjoyment, sometimes expressed as a requirement that there be no 'substantial interference' with quiet enjoyment, has been expressed or implied into leases and conveyances for centuries. But, in determining whether the covenant has been breached, care must be taken in two ways with the language used in this area.

130 First, although it is clear that it is a question of fact whether there has been a substantial interference with quiet enjoyment,[192] including any inferences to be drawn from the evidence,[193] caution should be taken with the adjective 'substantial' in the phrase 'substantial interference'.[194] It does not require 'practical frustration' of the lease.[195]

131 Secondly, caution also must be exercised with the expression 'quiet enjoyment'. The word 'quiet' does not mean 'undisturbed by noise'. It means 'without interruption of possession'.[196] Further, 'enjoyment' is not a reference to derivation of pleasure. The phrase has Roman roots and is probably a rough translation of the Latin fruor, which is better understood as meaning the benefits and exercise of the right to possession.[197]

132 In summary, an assessment of whether there has been a substantial interference with quiet enjoyment requires a determination of whether there has been an interference with the tenant's right to possession of the demised premises, and the extent of that interference.

133 The covenant of quiet enjoyment in the Lease is an intermediate term. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited,[198] Gleeson CJ, Gummow, Heydon and Crennan JJ explained that intermediate terms are those in which the existence of a power to terminate will depend upon 'the nature of the contract and the relationship it creates, the nature of the term, the kind and degree of the breach, and the consequences of the breach for the other party'.[199]

134 The breach of the cl 8.1 quiet enjoyment obligation could range from a minor to a major disturbance. Its breach is properly classified as a breach of an intermediate term which will not always entitle termination.[200]

135 A court will not readily construe an intermediate term as one which gives rise to a right to terminate. There is a preference for a construction that will encourage performance rather than the termination of contractual obligations.[201] In addition, as the plurality judgment explained in Koompahtoo, quoting from Professors Treitel and Peel, 'the policy of leaning in favour of classifying stipulations as intermediate terms can be said to promote the interests of justice by preventing the injured party from rescinding on grounds that are technical or unmeritorious'.[202]

136 An assessment of whether there has been an interference with quiet enjoyment, and the extent of the interference, depends upon the known purpose for which the premises were possessed by the tenant.[203]

137 The assumption common to the parties in this case was that the known purpose for Telstra's possession of the premises at the relevant time was its desire to release the premises.[204] It was plain from the evidence of Mr Pourzand, Ms Dean, and Ms Zuvela that both Telstra and the Pourzands were aware that the central purpose of Telstra's possession, from June 2009 at the latest, was to find a sub-tenant to sub-lease Telstra's floors so that Telstra could recoup the cost of its rental payments and outgoings.

138 As I have explained above, Telstra had a reasonable expectation that one way in which such a sublease might be achieved was by Telstra subleasing its floors for 'project space'; a short sublease for the term of a project. But, as Ms Dean said, the actions of Mr Pourzand ruined Telstra's chances of subleasing its floors in the Building.[205]

139 In these circumstances, there can be little doubt that a breach of the covenant of quiet enjoyment occurred and that the breach was sufficiently serious as to permit Telstra to terminate the Lease. The very essence of the Lease was for possession by Telstra. And when Mr Pourzand undertook the major works, the benefit of Telstra's right to possession - the opportunity to sublease - was almost completely destroyed.

140 There was, understandably, very little focus in submissions in this case upon the question of the adequacy of damages. In many cases the question of adequacy of damages may be a conclusion which is dependent upon the nature of the breach which goes to the root of the contract. The plurality decision of the High Court in Koompahtoo said only that this may be a factor in assessing whether the breach goes to the root of the contract.[206]

141 Even if it were necessary to consider the adequacy of damages to determine whether the breach by the Pourzands was sufficiently serious to entitle termination it can readily be seen that damages would be inadequate. Mr Pourzand's acts deprived Telstra of almost the entirety of the benefit of its rights to possession. Just as Telstra could have insisted upon specific performance or an injunction if Mr Pourzand had demanded possession for the purpose of performing the major works, so too it is not adequate to confine Telstra to damages, rather than a power of termination, for Mr Pourzand's acts in taking possession and performing the major works.

142 There was also a heavy focus in the Pourzands' submissions on the issue of Mr Hutchings' and Telstra's knowledge. I have dealt with that issue, and Telstra's lack of knowledge, above at [47] [60]. However, even if Telstra had known in early September of the major work which had been planned and commenced by Mr Pourzand (which it did not), the speed with which the major works (especially the removal of the ceilings) were commenced by Mr Pourzand, and the very short period subsequently until 10 September 2009, could not prevent Mr Pourzand's breach from being one which was so serious as to entitle Telstra to terminate.

143 It is strictly not necessary for me to address Telstra's other arguments concerning the termination of the Lease and Licence. This is because of the conclusion I have reached that Mr Pourzand's conduct was a renunciation of the Lease and a serious breach of an intermediate term, both of which entitled Telstra to terminate.

144 However, I express my views on those arguments briefly for completeness. The first argument was made by Telstra in the alternative to its submissions concerning its power terminate on 11 September 2009 for renunciation or serious breach of an intermediate term. As an alternative, Telstra relied on the law of surrender. Telstra pleaded that the retaking of possession by the Pourzands, accepted by Telstra on 11 September 2009, was a surrender of the Lease so that all obligations were terminated from that date.

145 I do not accept this argument. If, as I have concluded, Mr Pourzand's conduct amounted to a renunciation, or was a serious breach of an intermediate term, then Telstra had a power to terminate and no question of mutual surrender would arise. Alternatively, if (for some reason) Mr Pourzand's conduct were somehow a retaking of possession which did not amount to renunciation or breach then Telstra's unilateral termination could not operate as a surrender at law unless Telstra could show an objective concurrence of both parties to bring the Lease to an end by surrender.[207] But apart from the circumstances which amount to renunciation or breach, there was no separate basis for a finding of mutual surrender.

146 Telstra also pleaded, and submitted, that Mr Pourzand's continuation of the major work after 11 September 2009 was a continued renunciation of the Lease and continued breach of an intermediate term.[208] Telstra pointed out that the premises were in complete disarray and Mr Pourzand did not offer to stop the major works.

147 It may be that this plea was included for an abundance of caution. But, in light of my findings of fact and conclusions of law, is difficult to see what this alternative plea adds to the submission of renunciation, or termination for breach, on 11 September 2009. If the Lease were properly terminated on that date then it came to an end then. Any continued renunciation or continued breach is beside the point. If the major work did not amount to a breach which entitled Telstra to terminate on 11 September 2009, then it is hard to see how it could amount to a breach subsequently. The 11 September 2009 letter from Telstra simply sets out the matters which I have accepted: without any prior notice to or permission from Telstra the Pourzands commenced major building works within the demised premises, and that those actions were a repudiation of the Lease which Telstra accepted.

148 A further submission, briefly raised in the alternative,[209] was that if the Lease were still on foot on 30 October 2009 then the conduct of the Pourzands in entering into a lease with AGC was a renunciation of the Lease. This is not necessarily the case. If the Lease were still on foot then the Pourzands' conduct in entering into the AGC lease might place them in breach of their obligations to AGC or to Telstra but that would not necessarily mean that the lease with Telstra was renounced.[210]

149 The assessment of renunciation would depend upon a conclusion based on all the circumstances at that date, including any factual basis (contrary to these reasons) for why the Lease was still on foot at that date. Another related question which would arise if Telstra had no right to terminate on 11 September 2009, would be whether its letter to the Pourzands on that date, based on an honest assessment of its rights, could have amounted to a renunciation of the Lease, which permitted the Pourzands to terminate on 30 October 2009.

150 The focus of the case was in relation to the pre11 September 2009 conduct. Understandably, no attention was given by the parties to the detail of post11 September issues such as this, and it is not necessary to reach a conclusion on them.

The second claim: Alleged damage to the ceilings in the floors leased by Telstra

151 The second claim brought by the Pourzands was for works which had to be carried out on Telstra's leased floors 'to bring them to a good tenantable condition'.[211] The only claim made by the Pourzands in respect of the condition of the premises concerned the cost of replacing the ceilings.[212] The Pourzands alleged that Telstra's use of excessive amounts of cabling damaged the ceilings on the four floors which Telstra leased.[213]

152 There are three reasons why this second claim fails. Each is addressed below. A fourth reason which causes some difficulty is that the Pourzands suffered no financial loss from the damage. The consequence of this issue is that is not necessary, or possible, to reach any conclusion on quantum other than to set out the amount which was agreed between the parties as the cost which would have been required for the repair to the ceilings if that cost had been incurred.

(1) The claim is not within the 'make good' obligation

153 The relevant 'make good' provision of the Lease relied upon by the Pourzands was cl 4.5. That clause provided as follows:

4.5 Condition of Premises at end of Term and removal of Tenant's Fixtures

(a) At the end of the Term or any overholding, the Tenant must give up the Premises in the condition consistent with the Tenant's obligations contained in this Lease.

(b) Within 28 days after the end of the Term or any overholding period the Tenant must remove such of the Tenant's Fixtures and other property of the Tenant as the Landlord, by written notice given not less than 1 month earlier, has required the Tenant to remove.

(c) The Tenant must make good any damage due to the removal of the Tenant's fixtures or other property of the Tenant within the period mentioned in paragraph (b) of this clause.

(d) The Tenant is not under any 'make good' obligations when the Term or overholding ends except as set out in this clause.

(e) If the Tenant fails to remove the Tenant's fixtures and other property of the Tenant and make good any damage caused by doing so within the period mentioned in paragraph (b) of this clause the Tenant shall pay to the Landlord by way of damages an amount equal to the Rent and Occupancy Costs which would have been payable by the Tenant if it were over holding for that period.

154 Clause 4.5 does not apply to a situation in which a tenant terminates the Lease for renunciation or breach by the landlord. This is so because:

(i) On the plain expression of cl 4.5(a), the clause applies only at the expiry of the term of the Lease or any overholding.

(ii) A construction of the cl 4.5 obligation that required Telstra to perform make good duties at an earlier time would be inconsistent with the requirements of cl 4.5(b) and cl 4.5(c). Those clauses require that Telstra must make good any damage due to the removal of its fixtures or property which the Pourzands required Telstra to remove with 28 days' notice given not less than one month earlier. The immediate termination of the Lease for breach by the Pourzands, or renunciation, would not, and did not, permit this notice to be given.

(iii) The cl 4.5 obligation was part of the package of rights and duties in the Lease which assumed that obligations would run for the term of the Lease. The wrongful deprivation by the Pourzands of Telstra's right to the entire lease term could not consistently with the Lease, operate to accelerate the cl 4.5 obligations.

155 It is not necessary to address the situation which would exist if a landlord terminated a lease of this type for breach or renunciation by the tenant. It suffices to say that there is a reasonable argument that, in that wholly different situation, damages might be recoverable for any make good costs incurred by the landlord after termination where those costs would otherwise have been incurred by the tenant upon expiry of the lease.

156 Each of these reasons presents an insurmountable obstacle for the Pourzands to recover in any claim based upon cl 4.5. Perhaps for this reason, in closing written submissions the Pourzands raised for the first time a wholly new, and unpleaded claim of trespass.

157 In closing written submissions the Pourzands submitted that the ceiling cavity (the space between the ceiling and the concrete floor above) was not part of the leased premises. The Pourzands argued that the 'conclusion that the ceiling cavity is part of the "base building" is inescapable'.[214] On this argument, the ceiling that was damaged by Telstra was not encompassed within the leased premises. Telstra's liability for damage to the ceiling was then said to be based on the tort of trespass.

158 This claim for trespass was never pleaded. No application to amend was ever made. If this claim for trespass had been pleaded the case might well have been run differently.

159 The first manner in which the case might have been run differently is that there might have been considerably more emphasis upon the nature of the ceilings and which part of the ceiling formed part of the demised premises and which part was part of the 'base building' alleged to fall outside the Lease. This would then have required further attention to the nature of the damage to the ceiling, and possibly expert evidence on behalf of Telstra.

160 I also had no substantial submissions from Telstra concerning the extent to which the ceilings fell within the leased premises. This is understandable since the issue of trespass was raised only in closing reply submissions by the Pourzands. However, the definition of 'Premises' in the Original Lease suggests that any bowing or distortion to the ceilings was damage to the leased premises.

At a glance

Court

Decision date

Before

Source

Judgment (420 paragraphs)

The date at which the Pourzands commenced the work

Telstra's discovery of the work which Mr Pourzand was undertaking

Telstra was deprived of the opportunity to 'make good' any damage to the ceilings

Legislation Cited (3)

Cases Cited (17)