Professor Butt referred to Batiste v Lenin [2002] 11 BPR 20, 403.
50 Senior Counsel also referred to a passage in Halsbury's Laws of Australia at para [245] - [3370] which after saying "The lessee … takes the demised premises as it is" also says:
However, a positive obligation in the lease to use premises for a particular purpose may mean that a term is implied that the lessor, insofar as it is within their power to do so, put the premises in a state that would enable that use.
51 Halsbury refers to Steel & Stuff Pty Ltd v Fallon Street Properties Pty Ltd [2005] NSWSC 1148 (Palmer J), on appeal Fallon Street Properties Pty Ltd v Steel & Stuff Pty Ltd [2006] NSWCA 296. In that case negotiations for the lease of office premises were conducted at a time when building work on the premises was far from complete and there was an oral term that the full rent was not payable until the building work on the premises was completed to the extent required in the Interim Occupation Certificate: see [20]. Palmer J upheld the contention that:
[21]. … there was a term implied in the lease that the [lessor] would complete the building work on the premises, at least to the extent required by the initial development consent and the interim occupation certificate, within a reasonable time from the commencement of the lease.
52 Palmer J made an extensive review of the facts and circumstances surrounding entry into the lease and held that the implication was necessary to give business efficacy to the lease. His Honour upheld a strong case of fact which supported the view that the premises were unusable. An important element in support of the implication was [28] "… the positive requirement in the lease that the plaintiff used the premises in the specified way …". On appeal Basten JA in the leading judgment upheld [35] the finding that the term was implied as necessary to give business efficacy, after addressing and stating at [26], [27] the general and established principle that it is the business of the tenant to satisfy himself that the premises are fit for the purpose for which he wants to use them; with citations of authority. Santow JA and Hunt AJA agreed; see [1], [61]. In my respectful opinion the basis on which that case was disposed of and the need for the implication for business efficacy was perceived was founded on the facts of that case, in which there was a very clear foundation for the implication, but they are altogether different from the present facts.
53 A significant element in Palmer J's conclusion was [at 25] "It seems to me that the positive requirement contained in the lease that the Plaintiff not only use the Premises for the stated purpose but actually keep them open for business at times usual for a business of the kind conducted by the Plaintiff, means that the premises must be in a condition to permit the Plaintiff to do just that and therefore to comply with its contractual obligations in the lease." There is no corresponding obligation in the lease and related documents in the present case.
54 Extensive provisions in cl 4.1 relate to Permitted Use but contain no positive obligation to use the premises nor any provision of the kind which led to the outcome of Steel and Stuff. The lease defines extensively the use to which the Licensed Space may be put and provides in cl 13.3(a) "The lessee must only use the Licensed Space for the use". Part 13 of the lease does not impose on the lessees a positive obligation to use the Licensed Space. Nor does the Seventh Schedule. The lease does not impose on the lessees a positive obligation to use the premises. Further the agreement for lease in the present case, unlike the lease and oral term in Steel & Stuff contains very elaborate provisions regulating in detail what was to be done, by the lessors and also to some extent by the lessees, in respect of putting the premises into appropriate order; and the lessees bore a significant part of the responsibility. Then in the variation documents, all these arrangements were abridged or altered, or perhaps thrown away, by the parties' express agreement about what the Commencement Date was to be. In these circumstances it is not in my opinion appropriate to make any implication or to treat the rights of the parts as conditional under the principle established by the authorities reviewed by Basten JA.
55 The lessees' Senior Counsel placed particular reliance on cl 4.1 Permitted Use introduced by subcl (a) as follows:
(a) The Lessee must only use each part of the Premises for the relevant Permitted Use specified in this Lease in relation to that part of the Premises. The Lessee must comply with the Tenant Use Guidelines.
56 There follow many provisions regulating the permitted use including prohibitions and positive requirements; but there is no positive contractual obligation actually to carry on business in the permitted use.
57 Clause 13.1 contains an extensive definition of Use, which is applied in other provisions including the Tenant Use Guidelines. These provisions relate only to Licence and show clear contemplation that the Licensed Space will be put to a number of different kinds of retail uses; but again creates no positive obligation to do so. I was not referred to any contractual provision of the lease under which the lessees owed a contractual obligation to the lessors actually to carry on business during the period from 16 July 2002 to 1 February 2003. From my survey of the lease there is no such provision. The only approach is in Pt 13, which it does not impose an obligation to that effect and relates only to Licensed Space.
58 In Bishop v Moy [1963] NSWLR 468 Ferguson J. dealt with an argument to the effect that a covenant by the lessee to pay an increased rent and a covenant by the lessor to repair stock fences were dependent (scil. on each other) and that the lessee was not obliged to pay the increase while the stock fences were not repaired. Ferguson J. held (at 469-470) that there was no substance in the contention that they were dependent "… as the suggested interpretation is inconsistent with the express terms of the document" by which his Honour must have referred to the express obligation to pay rent. This case is an important illustration of the primacy of the obligation to pay rent and the lack of the effect on it of the existence of any claims by the lessee against the lessor.
59 The conduct of both sides must have been profoundly influenced by the misunderstanding under which both sides laboured about the availability of rights under an easement relating to installing and maintaining services. Both sides were profoundly mistaken both as to the continued existence of the easement and also as to what it authorised. It is conceivable (although I have not examined the subject) that so profound a mistake may have provided some basis on which the parties' obligations may have been set aside for mistake, frustration or on some other basis; but neither party at any stage sought to do that. What the lessees sought to do was to press on vigorously with their project which involved completing the fit-out and doing all things necessary to achieve that result; and they also brought proceedings for damages against other persons involved, not only the lessors but also the developer and the lessees' own solicitors. This course was successful in the sense that the lessees recovered a payment of $1.1 million under the Settlement Deed of 3 December 2005, with releases which would preclude their now claiming damages or further damages against the lessors. In my opinion this was the limit of the remedies to which the lessors are entitled.
60 A claim such as is made by Defence para 2 for an implication of a precondition must pass the test stated in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 by Mason J at 346 and 347. The principal reason why in my opinion the implication contended for does not pass those tests and should not be made is that it is inconsistent with express terms of the sublease as varied, which states distinctly and unconditionally the date from which rent is payable. Corresponding rights to occupation otherwise in respect of the premises are conferred as from the same date. The implication contended for is directly inconsistent with these express provisions.
61 In Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 at 611-613 there was consideration by the Court of Appeal of implication of terms particularly in the context of disturbance by the lessor of the conditions or advantages existing at the commencement of the lease. Counsel also referred me to judicial consideration of related subjects in other cases at first instance. In Advanced Fitness Corporation Pty Ltd v Bondi Diggers Memorial Sporting Club Ltd [1999] NSWSC 264 at [90-101] Austin J considered extensively the impact of relatively recent authority with respect to fitness for a purpose. There was similar consideration in Carbure v Brile Pty Ltd [2002] VSC 272 at [10-29] (Balmford J). I was also referred to Edward Kazas & Associates Pty Ltd v Multiplex (Mountain Street) Pty Ltd (2002) 11 BPR 20,353, to Vasile v Perpetual Trustees (1987) 10 BPR 18,091 (Bryson J) and Gordon v Lidcombe Developments (1966) 2 NSWR 9 at 15. These decisions do not address states of facts or explicit contractual provisions similar to those before me.
62 In Wettern Electric Limited v Welsh Development Agency [1983] 2 All ER 629 the Court appears to have been of the view that an implication that premises were suitable for the stated use could more readily be made in relation to a licence than in relation to a lease. If this were so it would not assist where the implication is sought to be made for both lease and licence.
63 The contractual character of the relationship under a lease (Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17) and the application to leases (as to other contracts) of the implication of terms BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282-283, Codelfa, do not render leases, or other written contracts, open to ready implications; the primary source of rights is the express provisions in the document, and established principles on the relationship of lessor and lessee are important for understanding their documents. The implication of terms in accordance with Westernport and Codelfa is a process very sensitive to the facts of each particular case and to the circumstances and contractual provisions which give rise to the perception that the implication is necessary for the contract actually to be effective.
64 In my opinion consideration of construction of the lease raised by cl 2(a) of the Defence is dominated by the provisions of Pt 3 of the lease "Lessee's obligations - rent and other money". I set out earlier the provisions of cl 3.1(a), (b) and (c). There are further provisions to generally similar effect in cl 3.2(a) relating to payment of turnover rent, cl 3.1 relating to special charges, cl 3.5 relating to increases and outgoings; and similar provisions relating to (cl 3.7) interest and (cl 3.8) costs. These should be understood with the Reference Schedule and the provisions relating to Commencement Date in the Deed of Variation and the Variation of Lease. None of these are expressed in equivocal language and there is no indication of conditionality of the obligation to pay rent in any circumstances.
65 The claim for an implied term relating to acting in good faith and co-operating made in para (3) of the Defence was supported by reference to authorities, principally Alcatel v Scarcella (1998) 44 NSWLR 349 at 369 (Sheller JA) which show the availability of the implication of such a duty, including its availability (as in that case) in a lease. The judgment of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 256 can be regarded as the foundation of the law of New South Wales on the duty of good faith in contractual performance, but must be applied with care as Priestley JA spoke somewhat more widely than has been established by later decisions. I recently stated my understanding of the law in New South Wales in Reliance Developments (NSW) Pty Ltd v Lumley General Insurance Ltd [2008] NSWSC 172 at [51].
51 Counsel also claimed entitlement to rely on an obligation of good faith in the performance of contracts. It is established in the law of New South Wales that the duty of good faith in the performance of contractual obligation may be implied in the contract; but in terms which recognize that there is no general doctrine that such a duty will be implied in all cases. This was authoritatively established in Alcatel Australia Ltd v Scarcella & Ors [1998] 44 NSWLR 349 by Sheller JA in the leading judgment, reviewing authority relating to implied terms extensively from page 363B to the conclusion at 369B "The decisions in Renard Constructions and Hughes Brothers mean that in New South Wales a duty of good faith, both in performing obligations and exercising rights, may by implication be imposed upon parties as part of a contract." As this sentence shows, the implication is not necessarily made. A further review in the judgment of the Court of Appeal (Sheller, Beazley and Stein JJA) in Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 at paras 141-168 gives an extensive review of then Australian case law and confirms that the implication is not a matter of course and takes place within the framework of the notion of necessity of the implication. See too CGU Workers Compensation (NSW) Ltd v Garcia [2007] NSWCA 193.
66 The express terms of the agreement for lease and the lease contained many express obligations aspects of which are references to best endeavours or similar concepts. Then too, the need for cooperation between the lessee and the lessor or persons such as Bovis Lend Lease named in the specification or to do with work is plain. The situation which was actually encountered, after the course of events and skein of entitlements and obligations provided for in the agreement for sublease were departed from, was not dealt with and was not the subject of express provisions in the lease. In my interpretation of the facts, by entering into the Variation Documents dealing with the date of commencement of the lease both parties abandoned the contractual mechanism and the lessees set about making their own arrangements, producing their own plans and designs and obtaining the services of Bovis Lend Lease to carry them out; it will be remembered that under the terms of the specification, the work of Bovis Lend Lease was to be carried out at the expense of the lessees. I would not doubt that the lessors had a contractual obligation not to impede this work, but they no longer had a positive contractual obligation to carry out work different to the work which they had earlier been contractually obliged to carry out but was no longer required.
67 For the lessees to succeed on this issue what the lessees need to establish is not only a duty of good faith and cooperative action, but a positive duty imposed on the lessors to produce an outcome which was satisfactory to the lessees according to the lessees' own formulation of the provision for services which they required (and their requirements varied from time to time and they were slow to define them); and further to do so in a time conforming to be lessees' commercial interests. This is far more than an implication can do. Implications of these kinds are usually encountered in support of restraining parties to contracts from conduct which impedes or detracts from enjoyment by the other party of the benefit of a contractual promise. There is greater difficulty for making an implication which requires positive conduct supporting enjoyment of that benefit.
68 In my opinion the implication of a contractual duty of good faith in the performance of contractual obligations should be made when the tests for implied terms in Westernport and Codelfa are satisfied; including the test of necessity. In my opinion the test for necessity cannot be met so as to justify implication of the term alleged in Defence para 3 if the alleged term is read so extensively as to require conduct on the part of the lessors which would bring about results in which entering into the lease produced results which were satisfactory to the lessees and economically successful. It is a commonplace and parties to contracts should contemplate that there may be unforeseen circumstances in which the contractual relationship may turn out to be diseconomic or disastrous for one party or the other, or for both.
69 I see no indication in the evidence of any breach by the lessors of an obligation of good faith. The concept of bad faith, or want of good faith, in non-performance of an implied obligation is a difficult one, although not I suppose beyond all possibility of realisation. Nothing which could reasonably be supposed to demonstrate bad faith, or want of good faith in the lessors' relevant conduct towards the lessees and their rights was referred to. Relations between the parties were combative to a considerable degree and each had its own position to maintain and did so with some force; but nothing was put forward in evidence which to my mind tended to show that the lessors acted with bad faith towards the lessees or withheld cooperation towards the achievement of the outcome which the lessees desired. Both sides were in an acutely difficult commercial and practical situation, and both had got into that situation, at least in part, because of an entire misunderstanding of entitlements relating to the easement. Both were presented with a need to come to terms with the Owners Corporation and to find a way to use the common property to make penetrations and instal service pipes; and thereafter maintain the service pipes. The lessors were faced with combative lessees who altogether refused to pay rent for reasons which, whether or not they were legally justified, were humanly understandable as they could not get the commercial benefit of occupation of all the premises. The lessors were the owners of a long term leasehold, with many decades to run, and the problem would remain theirs long after the 20 years of the lessees' possible entitlement expired. The lessors did ask that they and not the lessees should deal with the Owners Corporation, and the lessees fell in with this; this was a sensible arrangement, not a piece of obstruction, as the lessors were in a far better position to deal for the long term with the Owners Corporation than a person with a leasehold interest of five or conceivably 20 years. The Owners Corporation did not prove easy or expeditious to deal with; Mr Lyons' evidence shows that he has had experience of the difficulty in dealing with such relatively unwieldy bodies. Although it took many months, the lessors did overcome these difficulties and late in 2002 were able to achieve the result that the slab penetrations were made and the lessees were in a position to complete their fit-out. There is no basis in my judgment on which it could be found that the lessors were in breach of any such term as is alleged in Defence para 3. There could well be some such term, although I did not regard the pleaded formulation as satisfactory; but there is no room for a finding that there was a breach. But further, if such a term existed or was breached, that would not be a ground for finding that the obligation to pay rent abated, or was conditional, or was suspended in any other way; what would follow would be an entitlement to damages, and not a defence to the claim for payment of rent.
70 Senior Counsel for the lessees submitted that the lessors, by breaching an obligation to provide suitable premises but claiming rent, are seeking to take advantage of their own wrong, and that they cannot do that. However Senior Counsel also told me that he accepted that the decision in Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] 12 BPR 23,923 precludes this argument being accepted at first instance, because the wrong relied upon did not give rise to the obligation to pay rent. The submission was made to protect the lessees' position in the possible event of appeal, and to complete the protection of their position I reject it. I reject it on two grounds; that Ruthol precludes acceptance of the argument, and also on the ground that in my opinion there has been no breach by the lessors of an obligation to provide suitable premises.
71 In relation to Defence para 3 it was contended that the breach of an obligation to provide suitable premises gave rise to a damages claim at least equivalent to the accruing rent, and that pro tanto the rent was reduced by virtue of an equitable set-off. Counsel referred to a number of authorities which bear on the elimination of circularity where a claim which would otherwise be enforceable is subject to a set-off.
72 The sublease provides at cl 3.1(e) "All money payable by the lessee must be paid free of exchange, without deduction or set-off." This is stronger against the lessees than the provisions on which I expressed an adverse view in Batiste v Lenin [2002] 10 BPR 19,441 at [102-105]. The question whether rent should be treated as paid by recoupment so that tenants are entitled to recoup themselves out of rent and defend any action for payment of rent where they pay for repairs which the landlord was obliged to carry out by an express or implied covenant but had failed to carry out was considered extensively in Batiste v Lenin [2002] NSWCA 316, 11BPR 20403. In the leading judgment Sheller JA at 20,412-413 set out paras [102]-[105] of my judgment at first instance where I considered the authorities and stated my views. At 20,416-417 paras [47] and [48] Sheller JA referred to the subject; as appears in para 48 it was his Honour's view that there was no factual basis for recoupment. At para [49] observations of Sheller JA show that he did not endorse my view at para [105] on the effect of a "without deduction" provision in a covenant to pay rent; Sheller JA did not express disapproval or dispose of the subject.
73 I remain of the view which I expressed in that case. In the present case the lessees made no expenditure which could be treated as recoupment or equitable set-off against rent. Even if they had done so, the "without deduction" provision in the present lease would bar a claim of recoupment.
74 Indeed in my understanding the final position of the lessees' counsel was only to press reliance on the precondition asserted in Defence para 2. In the place of the positive obligation which was important to the decision in Steel and Stuff Senior Counsel contended that in the present case the lessees had an obligation to complete the fit-out works; that obligation itself was, as I understood the contention, an implied obligation, which I would not uphold.
75 Among the many contentions made on behalf of the lessors it was contended to the effect that the lessees are disentitled to rely on the matter pleaded in Defence paras 2 and 3 by the terms of the release of claims which they gave in the Settlement Deed of 3 December 2005. It is not necessary to found my decision on this contention but I will state my opinion that reliance on the alleged condition for payability of rent in Defence para 2 is not a claim within the meaning of the Settlement Deed; but on the other hand the allegation in para 3 to the effect that there was a breach of a contractual term leading to an obligation, which must be an obligation to pay damages which in some way should be set off against or go to negate the obligation to pay rent is a claim which was barred by the Settlement Deed.
76 Although the subject of Defence para 2 was sometimes spoken of as abatement I would think that it is wrongly classified as a proposition about abatement of rent, which arises only where expressly provided for contractually or by statute when the enjoyment of possession is lost through some cause such as fire, destruction or damage; in the absence of a contractual provision, destruction and unavailability of premises for occupation leaves the obligation to pay rent untouched. A better formulation than "abatement" was made when the lessees' counsel said that the implied term related to non-fulfilment of a precondition to the obligation to pay rent.
77 The Kiosk Issue relates to the operation under cl 13.2(j) of a fax message of 6 June 2002 which the lessees contend was an election under cl 13.2(j)(D). Clause 13.2 (j) set out earlier was introduced into the lease by the Variation Documents of 24 July 2001. There was no earlier provision dealing with the same subject.
78 The fax message of 6 June 2002 is a message from Mr Lyons to Mr Roger Parker of Commonwealth Property Investment Trust with a copy to Mr Keith Woodward. The fax message was signed by Mr Lyons, and was hand-written by him on a printed message form with a letterhead referring to Lyons Brothers Ltd (with address and contact details) and a list of company names at the foot under the heading "Lyons Brothers Group of Companies (Q8890848) and Associated and Affiliated Entities." There are also references at the head and foot to Lyons Brothers UK Ltd Established 1929. However there is no reference in the letterhead or elsewhere to the names of either of the lessees. The substance of the communication is in the paragraph headed "Comments":
RE SAVOY/AURORA
WE HAVE RECEIVED APPROVAL FOR THE COFFEE KIOSK. WE SHOULD COMMENCE TO PAY RENT FOR SUCH KIOSK (CONTIGUOUS TO ZÜRICH WALL CALLED NO. 1 KIOSK) FROM ABOUT 3/ 9/2002 - THREE MONTHS FROM DA. WE ARE SEEKING A CONSTRUCTION CERTIFICATE. - HOWEVER WE ARE STILL NOT ABLE TO PENETRATE THE SLAB FOR THE SERVICES AND ACCORDINGLY REQUEST THAT THE $32,500 P.A. LICENCE FEE BECOMES PAYABLE 3 MONTHS FROM THE TIME THAT WE ARE ABLE TO DRILL THE SLAB.
79 In para 4 of their Defence to the Second Further Amended Cross-claim the lessees dispute that the rent was $595,000 per annum as the lessors claim, and contend that pursuant to cl 13.2(j) the rent payable was at the rate of $465,000 per annum together with $32,500 for one Lessee's kiosk. The allegation showing how this result was produced was Defence para 4(b).
In accordance with the provisions of sub-clause 13.2(j)D of the Sub-Lease, the Lyons parties on 6 June 2002 gave notice in writing that they were to pay to the Cross-claimants rent at the rate of $465,000 per annum together with the sum of $32,500 per annum for the use of one Lessee's kiosk;
80 In their Reply the lessors (para 13) rely on the terms of cl 13.2(j)(D), (para 14) deny that the communication was a tenant's notice within the meaning of cl 13.2(j)(D), and deny that it was effective and (para 15) say that the rent payable was at the rate of $595,000 per annum because no notice was given.
81 I have omitted references to CPI reviews and escalation of rent, which are also involved. None of the pleaded issues or argument was directed to the operation of para (C) which establishes the rent payable up to 15 July 2002.
82 Generally the operation of cl 13.2(j)(D) to the period from 16 July 2002 is that when the Lessee obtains the approval of the Council to fewer than 4 kiosks the Lessee can elect either (subpara (1)) to pay the full rent (the first option) or (sub-para (2)) to pay $465,000 plus $32,500 for each Lessee's kiosk (the second option). If the Lessee elects the second option the Lessor is to have the right stated in subpara (2)(B) to seek Council approval for the remaining kiosks up to 4 and place whatever kiosks the Lessor obtains approval for in the Licensed Space (with a restriction on use). The full rent is payable if there is no election.
83 Subparagraph (C) contains a definition of "Lessee's kiosk" which is the term used in subpara (D)(2)(A) to establish how many sums of $32,500 are to go into the calculation. This term is also used in subpara (D)(2)(B) for the number of Lessee's Kiosks to be deducted from 4 to produce the number of Lessor's Kiosks. Mr Lyons' evidence shows that the lessees obtained consent from the Sydney City Council for two kiosks (t.119).
84 An election under subpara (D) not only establishes whether the lessees will pay full rent in accordance with the first option or pay rent for fewer than 4 kiosks in accordance with the second option; it also confers rights on the lessors by establishing that the lessors have the right to seek consent for other kiosks, and if successful to place those other kiosks in any area of the building including Licensed Space. The election provided for is a true election, in that the rights of both sides arising under the election under one option are inconsistent with those arising under the other option. For an effectual outcome there must be an election by the lessees, and the election must be given by notice in writing to the lessors. The election is in the notice, not in the minds of the lessees.
85 Senior Counsel for the lessees contended that there were three essential elements or preconditions for an election, and that they had been established; these were obtaining approval for fewer than four kiosks by 16 July 2002, an election made by the lessees, and written notice no later than 31 July 2002.
86 It was contended that the fax message constituted the necessary election and that its references to "$32,500 pa licence fee" and to the time to commence to pay rent for the kiosk would be meaningless other than as references to obligations following making the election. It was contended that if the facsimile was not intended to amount to an election there would be no point in making reference to $32,500 pa and to "the kiosk" because that sum is payable only when the necessary election has been made. It was contended that the fax message comprised the substance of what is required for a tenant's notice.
87 Counsel referred me to Hide & Skin Trading Pty Ltd v Asiatic Meat Traders Ltd (1990) 20 NSWLR 310 at 313-314 (Kirby P) where his Honour, speaking of the construction of commercial agreements but in terms which I regard as presently relevant said:
Whoever may be the parties to the agreement, it is the fundamental rule, that a court should give the words of a written agreement the natural meaning that they bear. Subject to that rule, in giving meaning to the words of an agreement between commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way.
88 When I attempt to apply these observations I find it impossible to see in the words of the message a natural meaning which would fulfil the requirements for exercise of the election. The most that can be said is that the terms of the message are consistent with the lessees' having decided to exercise an election, or with their considering that they may do so, but there is nothing in the message which adheres to such a decision or notifies it to the lessors.
89 I also have in view Mannai Investment Co. Ltd v Eagle Star Assurance Co. Ltd [1997] AC 749 and the observations of Lord Hoffmann at 773 to 780 including his Lordship's adoption at 780D of this test for the validity of a contractual notice: "In the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?" In this test the notice is tested on the basis that the parties must be taken to know the terms of their contract. Lord Hoffmann's views were expressed with characteristic vigour and colour, but not with specificity, and there is always a decision of fact on the meaning of the notice in dispute. The difficulties of decision are shown by the narrow balance of opinion in the House of Lords. The tenant was entitled to break the lease by a six-months notice to expire on the third anniversary of the term: the notice said "Pursuant to cl 7(13) of the lease we as tenant hereby give notice to you to determine the lease on 12 January 1995" but the third anniversary was 13 January 1995. A narrow majority upheld the notice: a minority including Lord Goff of Chieveley saw it as ineffective. The notice in that case required considerably less judicial sustentation than the notice before me if it was to be valid. Compare FGCT Pty Ltd v Alphafarm Pty Ltd (2004) 219 CLR 165 at 179 [40]. See also Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22] and authorities there referred to.
90 A knowledge of the terms of cl 13.2(j) or indeed any detailed study of those terms particularly for the purpose of understanding the message of 6 June 2002 would not necessarily assist the reader to understand what the message was intended to convey. Indeed on the whole I feel that they would tend to increase the reader's difficulties; the message does not refer to subpara (D), or to the concept of an election, it does not refer to the rights of both parties or of either party in the presence or absence of an election, it gives no indication of any perceived effect on the lessors' rights; and what it says about future events relating to payment of rent, as to times or otherwise, and as to what the lessees are to do in the future, is not consistent with the rights of the lessors either on the view that the election had been made or on the view that it had not been made. If the document is approached with all the generosity indicated by Lord Hoffmann's observations it remains unyielding.
91 The contents of the fax message do not, in my opinion, relate to the provisions of cl 13.2(j)(D) about making an election, and do not clearly relate to the provisions of subpara 13.2(j)(D) in any other way. No concept of an election or choice is referred to at all. There is no indication in its language that there is a decision against any other entitlement or course of action available to the lessees, or that there is a decision to concede to the lessors some right to place kiosks. The statement "We should commence to pay rent for such kiosk … from about 3/9/2002 - 3 months from DA" does not have any discernible reference to provisions of subpara 13.2(j)(D) but is inconsistent with those provisions in the respect that under the second option the rent on a basis which includes $32,500 is payable on and from 16 July 2002; the message indicates that that is not to happen and, whatever is meant by "We should commence to pay rent …" it is altogether inconsistent with indicating an intention to act on the second option. The word "should" is capable of several meanings; it could be an assertion of an obligation to commence to pay rent at the future time referred to but it could mean, and in the style of language used in the message more probably does mean that it is likely that "We" would commence to pay rent at the time indicated.
92 It is a significant part of the factual context that at this time and at all times since 1 February 2002 the lessees refused to pay any rent at all (and continued to do so). The words "We are seeking a Construction Certificate" seem to indicate that whether "We" would commence to pay rent depended on or related to the outcome of the attempt to obtain a Construction Certificate. The last sentence of the message indicates that there is not a firm intention to pay rent from 3 September 2002 and seeks deferral to "3 months from the time that we are able to drill the slab". That is to say, the statement about intention to pay rent is inconsistent with statement of an intention to act under the second option, and does not indicate an unconditional intention, in that it is accompanied by a request for further deferral of payability for reasons that are not related to anything in cl 13.2(j) and if granted would not involve compliance with the provisions of cl 13.2(j). The date 16 July 2002 is not referred to, and everything which the message says is to happen relates to a different date or period of time. The fax message slips from referring to rent (the word used in cl 13.2(j)) to "licence fee" which is not used in cl 13.2(j) but is more appropriate to a kiosk in Exclusive Use Licensed Space.
93 It is important to keep in view that an effective election confers rights on the lessors; an effective election must be sufficiently clear that the lessors could rely on it to justify their own conduct and entitlement if they sought consent of Council for further kiosks and placed them in the Licensed Area. If they sought to use the document in that way they would be on extremely uncertain grounds as the lessees could point to the terms of the document to say that it makes no reference to election and does not indicate an intention to act in accordance with the second option but indicates an intention to act in a different way with respect to payment of rent, not in unconditional terms and accompanied by a request for variance.
94 Senior Counsel for the lessors contended to the effect that the notice was not shown to have been given by Mr Lyons in the exercise of authority conferred by the lessees. I do not uphold this contention. Although the agreement for sublease and the lease contain provisions referring to Savoy as agent to act on behalf of the lessees, Mr Lyons in person and by letters and messages was by 6 June 2002 a very usual channel for the lessees to communicate with the lessors; he had often done so. In making these communications Mr Lyons used various forms; I do not regard the letterheads he used as significant as the communications always came from Mr Lyons. Although the fax message does not refer to the lessors by name, bears the letterhead of a different company and refers to many others, the heading "Re Savoy/Aurora" its origination from Mr Lyons and the subject matter with which it deals could only be understood by the recipients as yet another message, following many others, from Mr Lyons on behalf of the lessees about affairs under the lease, about kiosks and rent with which the lease deals. In my opinion what they could not reasonably have understood from its terms, and indeed cannot be understood now by myself with the assistance of argument by counsel and lengthy consideration, is whether the lessees stated that they had opted for one side or the other of the binary, inconsistent alternatives for which cl 13.2(j)(D) provides about what the rights of the parties were to be on or after 16 July 2002.
95 Lease cl 1.15 contains provisions which establish the circumstances in which a notice is sufficiently given by some person on behalf of the lessor, and in which it is sufficiently served, but these requirements are not prescriptive and do nothing to exclude a notice given under agency of some other kind.
96 Mr Parker and Mr Woodward to whom the message was directed must have clearly understood that Mr Lyons was communicating with them on behalf of the lessees and on the subject of the lease, the rent and the kiosks with which the lease dealt. Understanding these things would not dispose of the difficulty for them, taking an objective view, of knowing what it was that Mr Lyons was trying to communicate; and in my opinion they would have been quite wrong to see the message as objectively conveying the meaning that the lessees gave notice of an election under cl 13.2(j)(D).
97 To my mind the reasonable reader, in the position of the lessors and receiving this message on 6 June 2002 would understand from it that the lessees left themselves more time and wide room for action on what if anything they might do not later than 31 July 2002 about making the election provided for. As the lessors' Senior Counsel said (t.239) "… What it does not do is to inform the lessor that the tenant intends to take one only kiosk and to give up its right to take others …".
98 It was contended that the results of upholding the lessors' case would be manifestly unfair and arguably absurd in that the lessees would have to pay rent for four kiosks even though only one had been approved and could be used. Quite otherwise, in my opinion it is a completely rational arrangement over all that if the lessees obtain approval for four kiosks they have to pay full rent (whether or not they decide to use all the kiosks) but if the lessees obtain approval for fewer than four kiosks they have an election whether to pay full rent and exclude the lessors from conducting kiosks, or pay only rent for those they obtained approval for and leave the field open to the lessors to seek approval and conduct one or more others.
99 Submissions dealt with whether it was open to the lessees to elect in respect of one or more kiosks and later in respect of others; this related to whether after sending the communication of 6 June 2002 relating to one kiosk it was open to make a further election for another kiosk. This did not happen and does not require disposition. My impression is that there can only be one election; the bee stings and dies; but decision does not turn on this.
100 Senior Counsel for the lessors contended that an effective notice could only be given on or after 16 July 2002. In my opinion there is no warrant in the terms of cl 13.2(j) for this contention.
101 I am unable to see an authorisation to make an election for fewer kiosks than Council approved: but this was not argued.
102 For these reasons I reject the Defences in paras 2, 3 and 4 and I will proceed to assess and give judgment for the total amount of unpaid rent, parking fees, increased outgoings, interest and other charges under the lease. The assessment involves consideration of the effects of Rent Reviews. I was given a body of evidence during the hearing in September 2007, and later written submissions up to December 2007. The time taken to submit this material to me has contributed significantly to the delay in giving this judgment. In March 2008 I was told during an interlocutory application that the lessors wish to re-open their case and to give evidence of further defaults. There are many contingencies and I cannot apply the information I have been given and the rulings I have made without a further assessment.
103 I turn to the third controversy, the $75,000 issue.
104 In para 7(a) of 2 FACC the lessors cross-claim $75,000 which they paid to the Owners Corporation SP 62658 in or about July 2002 and also legal and other costs, to obtain an easement for services and permission to work on the slab to make penetrations and corings for the use of the lessees. They allege that the lessees accepted the benefit but failed to pay or indemnify the lessors for the work done and money paid. In their Defence para 5 the lessees say that the payment was a voluntary payment made by the lessors in order to discharge and as part of the cost of discharging their obligation under the lease agreement to carry out fit-out works, and that the lessees came under no obligation to pay the sums claimed.
105 Particulars show that the lessors do not allege that there was an express request to make the payment, but that the request was implied from facts and circumstances being the course of events in which the lessees sought and asked the lessors to facilitate penetrations and corings in communications with the Owners Corporation, the lessees demanded that the lessors take steps to allow penetration of the slab, the lessors asked for and were given details about the works the lessees proposed, and were told in advance that the Owners Corporation demanded payment of $75,000 to secure consents.
106 I will review the events and communications particularised.
107 On 24 October 2001 Mr Lyons writing as a director of Savoy to Mr E.L. Taylor, the chief solicitor and general counsel of the Commonwealth Bank Group, which was then representing the lessors, stated that the lessees were experiencing difficulties in going forward with the fit-out to the lower ground floor due to lack of ability to provide necessary penetrations to the slab which would protrude down from the ceiling of the car park. Mr Lyons said that easements were in place and copies had never been forthcoming and asked for the documentation as a matter of extreme urgency. He said "… any delays that occur should be to your client's account". The lessees approached the Owners Corporation for consent to penetrate the slab.
108 On 4 December 2001 Mr Woodward of East Asia Property Group on behalf of the lessors wrote to Mr Lyons and said that he had met representatives of the Owners Corporation to discuss the problems associated with installation of sewerage and trade waste pipes and suggested that it should be the owners who approached the body corporate to seek their assistance in allowing access as well as approaching the developers and Bovis Lend Lease, and asked for a meeting with representatives of the lessees to discuss what was required and locations of services.
109 On 19 December 2001 Mr Lyons for Savoy wrote to Mr Roger Parker of Colonial First State Property and on 24 December 2001 he wrote to the lessors and referred to the history of the controversy and in vehement terms expressed dissatisfaction with the shortcomings of the s 88B Instrument. He claimed that there had been misrepresentations to him relating to the s 88B Instrument and entitlement to penetrate the slab, and called for appointment of an arbitrator to deal with remediation and damages.
110 On 8 January 2002 Mr Woodward again wrote to Mr Lyons, referred to two requests and attempts to obtain details of the lessees' requirements, pressed for information and asked that the lessees' requirements be rationalised to secure the Owners Corporation's approval.
111 Representatives of the lessors and of the lessees approached the Owners Corporation and opened discussions about the proposed penetrations and corings.
112 On 18 February 2002 members of the Owners Corporation Executive Committee wrote to Mr Lyons referring to discussions and proposals to formulate an agreement and oversee the works, and requiring a consideration of $75,000. They pointed out the need for negotiations involving individual owners of garage spaces. There were other communications and matters which were not in the particulars but which I should refer to. Mr Taylor, solicitor, wrote to Mr Lyons on 18 February contending that the problem was caused by the lessees' delay in furnishing plans and specifications in good time to have enabled the developer and builders to put them in situ prior to the registration of the Strata Plan, denying responsibility for costs or damages and reporting "in the spirit of cooperation" progress in negotiations with the owners. (Reliance on delay and on not carrying out the work prior to registration of the Strata Plan is lacking in substance because the Strata Plan was registered before the agreement for the sublease was entered into).
113 Communications continued during the early months of 2002. The lessees were requested to leave communications with the Owners Corporation to the lessors and their representatives, and did so. The lessors proceeded to make arrangements with the Owners Corporation, to an accompaniment of protests and representations from the lessees about delay. In May 2002 the Owners Corporation executed or purportedly executed a deed granting access for $75,000; the rights to be conferred were conferred on the lessors. There were some difficulty and delay about execution of the Deed. Then there were further delays about arrangements with the owners of parking spaces and practical arrangements for carrying out the work. These arrangements were completed in September and the work was carried out late in 2002.
114 My Lyons' evidence was that he never contemplated that payment was the lessees' responsibility. There is no sign in the evidence of any commitment on the lessees' behalf to make any such payment.
115 Intercurrent with these events were dispute and litigation in the Equity Division about whether the lessors could call up guarantees for unpaid rent and whether they could effect re-entry. This was disposed of by the Deed of Release on 24 December 2002, which among other things provided for actual payment of rent to commence on 1 February 2003.
116 In argument Senior Counsel for the lessors put the claim forward as an instance where the lessors had accepted the role of surety for an obligation to pay whatever was necessary to overcome the difficulties confronting the lessees' needs and wish to make penetrations in the slab and obtain supporting rights; so that the lessors were in the position of a surety and entitled to the remedies of a surety described in a clear way in Israel v Foreshore Properties Pty Ltd (in Liq) (1980) 54 ALJR 421 at 423/2G to 424/1A by Aicken J. Underlying this contention must be a perception of the problems and need for payment as wholly problems of the lessees, not problems of the lessors, so that the lessors' concerns were as facilitator so as to give the lessees the advantages of the lessors' position as proprietor of a long-term lease and neighbour of the Owners Corporation.
117 I do not think that this is a correct perception of the situations in which the parties stood in fact. Both were in situations of acute difficulty which needed to be resolved by obtaining the cooperation of the Owners Corporation, by purchasing that cooperation if need be. The lessees were liable to pay large rents but could not get the practical benefit of the lower ground floor (though they could use other leased areas) because they could not instal plumbing and like services, and could not complete their fit-out and open for business. They had a contractual obligation to pay rent, but were not earning the wherewithal to pay and were in a situation of confrontation with the lessors. The lessors had corresponding difficulties viewed from their side of the relationship; time passing, money not coming in, large entitlements accruing but unpaid and combative tenants. Both were in the difficulty of having blundered into the lease on a wrong view of the rights available to support completion and the fit-out which the lease contemplated. The problem, and the need to buy the goodwill and co-operation of the Owners Corporation, were not exclusively the problem of either; the lessees should not be seen as having acted solely to meet an obligation or a need of the lessees. Far from requesting the lessors to make the payment or take any equivalent step, the lessees had a standing demand for damages and were articulating bases for those claims; which later became claims in the present litigation. In the circumstances it would not be correct to attribute an implied request for payment to the lessees, or to treat the lessees as if they made such a request.
118 Even if money is paid to meet an obligation of another without an express request by that other for the payment to be made, the payer may be entitled to recover against the party benefited on the basis of a request which is implied from the circumstances on the basis of an obligation which the law imposes, as if a request had been made and notwithstanding that it plainly was not. It is difficult to suppose that the law in this area has a satisfactory basis in principle; or a satisfactory basis in principle which has been articulated in case law. The underlying principle is no longer explained in terms of implied contract or quasi contract; Pavey Matthews Pty Ltd v Paull (1987) 162 CLR 221 at 252 (Deane J); David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; but expositions such as the High Court of Australia has made on several occasions in terms of unjust enrichment and restitution do little to reveal the principle involved except in extremely broad terms which are difficult to carry to detailed implementation when adjudicating cases. Dissatisfaction with classic accounts of the basis of the law, founded in court procedures which have long disappeared in which fictional allegations were commonplace, has long been exposed; see United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 29 (Lord Atkin) and at 43-45 (Lord Porter) commenting on an earlier formulation of the general principle in Sinclair v Brougham [1914] AC 398 at 452, where Lord Sumner spoke in terms of "A notional or imputed promise to repay". The passage in Lord Porter's judgment which I have in view is at 45:
The general principle is set out by Lord Sumner in Sinclair v Brougham ([1914] A.C. 398, 452) in the words: "All these causes of action are common species of the genus assumpsit. All now rest, and long have rested, upon a notional or imputed promise to repay."
Whether or not this statement is true in all cases, it still has to be remembered that no such promise was ever in fact made. It is notional or imputed and before one is obliged to hold that an action upon such a fictional promise makes the wrongdoer the plaintiff's agent so as to bind him by his acts and precludes any reliance upon the wrong, one has to determine whether the fictional promise has the same effect as if it had actually been made.
119 In my opinion the emergence of new expositions of the underlying principle does not deprive earlier judicial opinion of all utility. The formulation which I adopt for as a working rule for the purpose of addressing the present case, mindful of the history of the law, particularly as referred to in United Australia v Barclays Bank and of what Lord Porter said at p45, is whether the payment of $75,000 was made in circumstances where it was obvious or ought reasonably to have been obvious to all parties to the lease that it was paid for the benefit of the lessees and the lessees would have to restore the amount to the lessors.
120 In my opinion this test should not be answered favourably to the lessors and their claims. In the situation which confronted them, the lessors had a large problem and a strong need to find their own way out of it, or to mitigate it. I do not see grounds upon which the law should impute to the lessees a promise to make a repayment; no less so because the lessees also benefited.
121 I hold against the lessors on the $75,000 claim.
122 I turn to the Indemnity Costs Claim, the fourth controversy. In paras 9 to 12 of 2 FACS the lessors' cross-claim damages for breach of terms of the Settlement Deed dated 3 December 2005; and rely on paras 2.3(c) and (d) of that Deed. The breach alleged is that the lessees sought to maintain a claim which had been released, by maintaining paras 2(a)(i) and (ii) of the Defence to Cross-claim as it then stood. The lessors applied by Notice of Motion for an order striking out parass (a)(i) and (ii) and obtained orders striking out paras 2(a)(i) made by Windeyer J on 22 June 2006 [2006] NSWSC 625, affirmed by the Court of Appeal (Mason P, Hodgson and Tobias JJA) on 29 June 2006 [2006] NSWCA 177. They claimed that cl 2.3(d) of the Settlement Deed entitled them to an indemnity including their legal costs on an indemnity basis.
123 In the Cross-claim paras 23 and 24 later renumbered 35 and 36 were as follows:
35. Pursuant to the Lease Agreements, the first and second cross-defendants were liable to pay rent to the first and second cross-claimants on 1 February 2002 with a base rental of $465,000, such payments to be made in equal monthly payments together with a proportion of outgoings specified to be 1.784%.