Lessor and lessee - Action for recovery of rent - Alternative claims for damages, rectification and damages for misleading and deceptive conduct - Covenant for lessor to remove and reinstall air-conditioning and remove ceiling to leased premises - Covenant by lessee, at its expense, to carry out internal reconfiguration of leased premises and to fit out the realigned premises to requisite standard and in accordance with plans to be approved by lessor - Lessee allowed into possession before commencement of term for fit out to be commenced and possibly completed before commencement of term - Loan from lessor to lessee for fit out to be available on completion of fit out, and repayable with interest over balance of term - Interrelationship and mutual dependence of lessor's and lessees' covenants with respect to air-conditioning and ceiling removal and fit out - Fit out not undertaken nor detailed plan submitted to lessor - Air-conditioning and ceiling work not undertaken - Lessee remaining in possession and using demised premises for intended trade - Failure to pay rent - Refusal to allow lessor entry to undertake air-conditioning or ceiling works - Lessees' counterclaim for alleged loss of profits arising from inability to sublet portions of demised premises to related sublessees - Counterclaim for damages in equity - Claim by lessees' guarantor to set off damages against liability upon its guarantee - Claim for rectification of lease - Claim for damages for alleged misleading and deceptive conduct with respect to representations concerning future conduct - Future representations reduced to covenants in lease - Readiness and willingness of parties to perform obligations assumed by lease - Effect of waiver of obligations to carry out fit out and air-conditioning and ceiling works at times implied in lease - Claim by lessee for injunction to restrain lessor undertaking air-conditioning and ceiling work - Claim by lessor for specific performance to compel performance on prescribed terms of air-conditioning and ceiling work and other activities

Fair Trading Act 1987

Property Law Act 1969

Trade Practices Act 1974 (Cth)

First Defendants : Mr M L Bennett & Mr M A MacLennan

Second Defendant : Mr M L Bennett & Mr M A MacLennan

Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470

Acorn Consolidated Pty Ltd & Anor v Hawkslade Investments Pty Ltd (1999) 21 WAR 425

Australian National Airlines Commission v Robinson [1977] VicRp 8; [1977] VR 87

British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137

Burton v Palmer [1980] 2 NSWLR 878

Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272; [2002] ANZ Conv R 548

City of Subiaco v Heytesbury Properties Pty Ltd [2001] WASCA 140; (2001) 24 WAR 146

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337

Darter Pty Ltd v Malloy [1993] 2 Qd R 615

Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31

Electronic Industries Ltd v David Jones Ltd [1954] HCA 69; (1954) 91 CLR 288

Elkhoury & Anor v Farrow Mortgage Services Pty Ltd (In Liq) [1993] FCA 264; (1993) 114 ALR 541

Fitzgerald v F J Leondhardt Pty Ltd [1997] HCA 17; (1997) 143 ALR 569

Foran v Wight [1989] HCA 51; (1989) 168 CLR 385

Futuretronics International Pty Ltd v Gadzhis [1992] VicRp 63; [1992] 2 VR 217

GR Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631

Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594

Gregory & Bradshaw v MAB Pty Ltd (1989) 1 WAR 1

Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41

ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640

Indrisie v General Credits Ltd [1985] VicRp 20; [1985] VR 251

L Schuler AG v Wickman Machine Tools Sales Ltd [1973] UKHL 2; [1974] AC 235

Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14

Mackay v Dick (1881) 6 App Cas 251

Maynard v Goode [1926] HCA 4; (1926) 37 CLR 529

McAuley v Bristol City Council [1991] EWCA Civ 2; [1992] QB 134

Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571

Mint v Good [1951] 1 KB 517

Newcombe v Newcombe (1934) 34 SR (NSW) 446

Paltara Pty Ltd v Dempster (1991) 6 WAR 85

Posgold (Big Bell) v Placer (WA) Pty Ltd (1999) 21 WAR 350

Prenn v Simmonds [1971] 1 WLR 1381

Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (1996) 61 FCR 436

Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570

Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 76 ALJR 436

Saner v Bilton (1878) 7 Ch D 815

Secured Income Real Estate (Australia) Ltd v St Martin's Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107

Walker v Department of Social Security [1995] FCA 1136; (1955) 56 FCR 354

Young v National Australia Bank Ltd & Anor [2004] WASCA 298

Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560

Austotel Pty Ltd v Franklins Self-Serve Pty Ltd (1986) 16 NSWLR 582

Australian Broadcasting Commission v Australasian Performing Right Association [1973] HCA 36; (1973) 129 CLR 99

Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604

BP Refinery (Western Port) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272

Carr v J A Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327

Combe v Combe [1951] 2 KB 220

Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Dainford Ltd v Juana Pty Ltd & Ors [1986] 1 Qd R 396

Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500

Elder v Auerbach [1950] KB 359

Henley v Reschke [1914] HCA 88; (1914) 18 CLR 452

J C Williamson Ltd v Lukey [1931] HCA 15; (1931) 45 CLR 282

Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406

Lymarn Holdings Pty Ltd v M & W Holdings Pty Ltd & Ors, unreported; SCt of WA (Anderson J); Library No 960250; 9 May 1996

Lyndel Nominees Pty Ltd v Mobil Oil Australia Ltd (1997) 37 IPR 599

Media and Entertainment and Arts Alliance; Ex parte Hoyts Corporation Pty Ltd [1993] HCA 40; (1993) 178 CLR 379

National Engineering Pty Ltd v Chilco Enterprises Pty Ltd [2001] NSWCA 291

Osborne Park Co-Operative Society Ltd v Wilden Pty Ltd (1989) 2 WAR 77

Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1

Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd [1954] HCA 25; (1953) 90 CLR 235

Poseidon Ltd & Anor v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332

Santa Prisca Imports Pty Ltd v Action Motor Group Pty Ltd [1997] ANZ Conv R 314

1 EM HEENAN J: The plaintiff is the registered proprietor of the land situated at and known as 847-849 Hay Street, Perth, and being the whole of the land contained in Certificate of Title volume 1040, folio 636. Upon that land there is a two-storey building constructed in or about 1911.

2 This land is located on the southern side of Hay Street in the Perth Central Business District to the west of King Street. The frontage to Hay Street is approximately 13 metres and the building extends south to a depth of about 60 metres. In 1997 the ground floor of this building had been let (by a previous owner) to tenants and internally divided to accommodate their occupation. The original ceiling to the ground floor of the building is at a height of approximately 4.5 metres but, at some time in about the 1960's, a lower vermiculite ceiling was suspended from the original. This suspended ceiling is approximately 3.3 metres above the ground floor. The partitions and dividing walls for the ground floor configuration of tenancies, as the premises stood in 1997, extended from the floor to the suspended ceiling but not higher.

3 The ground floor had been occupied by two tenants each facing Hay Street. On the eastern side were the premises of Yo-Yo's - a hairdressing salon and on the western side was a Totalisator Agency Board shop (the "TAB"). There was a narrow central corridor running from Hay Street separating the two tenancies. Behind them both, and near where the corridor turned towards the rear of the ground floor, were several storage areas also part of the TAB tenancy. This was the general configuration of 847-849 Hay Street at the time the property was purchased by the plaintiff in May 1997. Yo-Yo's Hair Salon held its part of the ground floor under lease. It gave up vacant possession of that part of the premises to the plaintiff on or about 28 February 1998. The TAB had occupied the balance of the ground floor (except for the dividing corridor) under monthly tenancy and it gave up vacant possession of the areas which it had been letting in December 1997.

4 Following its purchase of the Hay Street building in May 1997 the plaintiff had, through an agent, been searching for a suitable tenant for the whole of the ground floor. Negotiations were commenced with the first defendants, Mr and Mrs Meade, about a proposed lease of the entire ground floor to be newly configured and fitted out by the first defendants as a women's hairdressing salon, in a style and standard comparable with other hairdressing salons which the first defendants' operating company, Montelusa Pty Ltd, the second defendant, operated and, in particular, comparable with its Claremont hairdressing salon. These negotiations led to an agreement for lease being reached between the plaintiff and the first defendants on 24 November 1997 and, eventually, to a lease of the entire ground floor by the plaintiff to the first defendants dated 20 February 1998.

5 The term of the lease is 10 years, commencing on 1 April 1998, but provision was made for the first defendants to go into early occupation of so much of the proposed premises as were then available, subject to the rights of the existing tenant, Yo-Yo's. In fact, the first defendants took occupation of the area vacated by the TAB on or about 9 December 1997 (Exhibit 94). Yo-Yo's vacated their area on the east of the ground floor at the end of February 1998. The whole of the ground floor was then available for the first defendants but they did not actually move into the area vacated by Yo-Yo's. They remained in the former TAB area and the lease term then began on 1 April 1998. They have remained in possession since then and continue in possession of the whole of the ground floor relying on their rights of sole occupation as conferred by the lease.

6 The point of dispute in this case arises from the fact that, notwithstanding a passage of more than four years from the first defendants' original entry into occupation and also from the commencement of the lease term, the agreement between lessor and lessees for the re-subdivision, fit out, air-conditioning and removal of the suspended ceiling has not been implemented. The principal issues in this case concern the nature of the obligations upon the parties to perform these terms of their agreement and the interdependence, if any, of those obligations.

7 Because of the dispute which developed between the first defendants and the plaintiff during the course of the year 2000 the first defendants ceased paying rent and other moneys due under the lease but remained in possession. The plaintiff sued for unpaid rent and outgoings and threatened re-entry for non-payment of rent but, as a result of an application for an interlocutory injunction by the first defendants to prevent re-entry pending trial, the plaintiff agreed not to pursue its claim for re-entry, subject to the reinstatement of payments of rent. This regime continued from that point in the proceedings. No claim by the plaintiff that the lease term has been terminated nor any claim for possession has been advanced in the action, nor do the first defendants seek any order or declaration that the lease has been terminated or that they are entitled to terminate it. Rather, the position of the parties to the lease is that each treats the lease as remaining in full force and effect but desires to enforce what are, as they have been argued, inconsistent claims to the benefits which the lease confers.

8 As will be described more fully, in due course, the essential nature of the dispute between parties is whether, in the events which have happened, the lessor is obliged to remove the ceiling and the existing air-conditioning and instal new air-conditioning and whether the lessees are obliged to reconfigure and fit out the premises in accordance with the proposals contained in the lease. Notwithstanding the large amount of evidence which was adduced by the parties about negotiations between them and their intermediaries, both before and after the execution of the lease, I consider that the answers to these questions depend upon the terms of the lease itself.

9 The negotiations between the plaintiff and the first defendants via their agents in late 1997 led to an agreement to lease the premises being reached. This was constituted by a series of documents, namely:

(a) facsimile transmission from First Pacific Davies, agent for the plaintiff, to Mr Graeme Sansom dated 1 November 1997 attaching an offer to lease by the first defendants to the plaintiff dated 31 October 1997;

(b) facsimile transmission from First Pacific Davies to Mr Murray Stubbs of Murray Stubbs Real Estate, agents for the first defendants, with comments about the proposed offer to lease indicating terms which were acceptable and those which were not;

(c) letter Murray Stubbs Real Estate Agents, agents for the first defendants, to First Pacific Davies, agents for the plaintiff, proposing further amendments to the terms of the offer to lease then under discussion;

(d) facsimile transmission from Murray R Stubbs, agent for the first defendants, to First Pacific Davies, agents for the plaintiff, with further proposed amendments to their offer to lease the premises;

(e) disclosure statement prepared by the plaintiff addressed to the first defendants in conformity with s 6(4) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 dated 19 November 1997;

(f) facsimile transmission from First Pacific Davies agents for the plaintiff to Murray Stubbs real estate agents for the first defendants dated 19 November 1997 outlining responses to the proposed variation in terms;

(g) letter from the first defendants to First Pacific Davies, agents for the plaintiff, accepting the latest version of terms and purporting to acknowledge that an agreement for lease had then been reached.

10 These exchanges readily identify the commercial genesis of the lease and establish the matrix of facts specifically identified by the parties during the course of negotiations allowing the objective purpose of the transaction readily to be determined: Reardon Smith Line Ltd v Hansen-Tangen [1976] 3 All ER 570 at 574 - 575; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352; Acorn Consolidated Pty Ltd & Anor v Hawkslade Investments Pty Ltd (1999) 21 WAR 425 at 432 and Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002] HCA 5; 76 ALJR 436.

11 These materials reveal that after initially offering to rent only portion of the ground floor of the Hay Street premises for a 10 year term with options to renew for further terms of five years and seeking a contribution by the lessor of $200,000 towards a fit out of the premises, the parties quickly moved to a proposal to lease the whole of the ground floor for a single term of 10 years with a lessor's contribution to a total fit out (to be amortised over the term and re-payable by the lessees) and upgrading for ceiling, lighting and air-conditioning on certain terms and subject to the lessees providing a scope of works. In the course of further negotiations the lessor's contribution to the fit out was reduced to $100,000 amortised over 10 years. A further step in the negotiations led to a proposal for a rent free period for six months, for the lessor to contribute $100,000 towards a fit out, to air-condition the whole ground floor and remove the false ceiling. The final phraseology relating to the air-conditioning and ceiling in the documents leading to the agreement for lease was contained in a facsimile transmission of 19 November 1997, which provided:

"The premises will be fitted with new air-conditioning and the existing ceilings removed at the lessor's cost, the style and type to be agreed between the parties."

12 Upon agreeing the terms of the agreement for lease the attention of the parties turned to arrangements to obtain access to the premises, or part of them, and for negotiations to proceed between the parties, their agents and solicitors over the terms of the formal lease to be prepared. The term of the lease was to be from 1 April 1998 for the 10 years. The correspondence showed that efforts were being made to allow early occupation of the premises for the first defendants from late November 1997 and, by letter of 25 November 1997, the plaintiff's agents advised:

"Whilst access for fit out works will be granted as quickly as possible the lessor cannot grant official occupation until the lease is executed by all parties and works cannot commence until plans are approved."

13 Access to the old TAB areas became possible from December, but vacant possession of the area occupied by Yo-Yo's Hair Salon was not available until 28 February 1998. Notwithstanding this the defendants were invited to submit architectural plans for the proposed fit out works and it was pointed out that these would need approval by the plaintiff and by the City of Perth (Exhibit 6). On 9 December 1997 the first defendants' agent, Mr K Cox, sent a facsimile to the plaintiff's agents which confirmed the arrangements which had been agreed about the fit out and this memorandum was, ultimately, included as part of the formal lease. It became known as "Annexure A" and its terms are set out in full later.

14 Attached to this facsimile transmission of 9 December 1997 and also later bound into the lease, was a sketch plan or diagram of the proposed layout of the leased premises showing the first defendants' hair salon occupying the full width of the ground floor of the premises at the rear with the salon on the western side but with the existing middle corridor curving at the rear, to the east, and enclosing, on the front of the eastern side, a coffee bar to be operated in conjunction with the salon. This is dated 8 December 1997.

15 The TAB areas of the Hay Street premises had been vacated by that tenant by the beginning of December 1997 and the defendants went into occupation of that part of the premises in early December and with a view to making a temporary fit out until Yo-Yo's vacated at the end of February 1998. The first defendants actually commenced trading in the old TAB area of the premises or or about 1 January 1998.

16 In broad terms, therefore, agreement upon the principal terms of the proposed lease, namely: the term, rent, fit out loan from lessor, air-conditioning and early occupation of the premises had been reached between the parties by early December 1997. The first defendants had moved into the TAB areas in December 1997 with a view to commencing a temporary fit out and took over the eastern portion of the ground floor when it was vacated by Yo-Yo's at the end of February 1998. All this was done pursuant to the agreement to lease under which the 10 year term would commence on 1 April 1998 and would include an initial six month rent free period. Correspondence had been exchanged between the agents for the parties in early December 1997 inviting the first defendants to submit architectural drawings for the proposed fit out for approval by the lessor and by the City of Perth.

17 By a deed dated 20 February 1998 the plaintiff leased to the first defendants the ground floor, comprising approximately 500 square metres, of the building upon the land known as 847-849 Hay Street, Perth, and being the whole of the land contained in Certificate of Title volume 1040, folio 636. The term of the lease was 10 years, commencing 1 April 1998 at an initial annual rent of $100,000 per annum, payable calendar monthly in advance by equal instalments of $8,333.33.

18 The lease provided for a review of the rent two years after the date of commencement of the initial term and upon the expiry of each further period of 18 months during the term upon a formula set out. The permitted use of the premises was for hairdressing, hairdressing and beauty salon, training school and coffee shop. There was no option or other right of renewal and, notwithstanding the provision for payment of rent of $100,000 per annum by equal monthly instalments in advance, there was a rent free period for six months from 1 April 1998 to 30 September 1998. In addition to rent the lessees also covenanted to pay "variable rent" comprising proportionate parts of the variable outgoings including rates and taxes, service fees, including electricity, gas, water, fire prevention services and other incidentals. The "variable rent" or other moneys accruing due during the first six months of the rent free period was payable by the lessees.

19 The second defendant, Montelusa Pty Ltd, was a party to the lease as covenantor and guarantor. By cl 12.26 the second defendant guaranteed to the lessor the due and punctual performance and observance by the lessees of all the covenants, obligations and stipulations on the part of the lessees contained or implied in the lease including, without limitation, the due and punctual payment by the lessees of the rent and all other moneys payable. The second defendant also covenanted to indemnify and keep indemnified the lessor against all losses, costs, expenses and damages sustained or incurred by the lessor arising out of or in respect of any breach or default by the lessees in duly and punctually observing and performing such covenants and obligations. Sub-clause 12.26(b)(ii) provided that the guarantee and indemnity took effect as if it were a principal obligation and could be enforced against the second defendant as if it were a lessee, without any responsibility on the part of the lessor to proceed against the lessees or any other person.

20 By cl 3.1(a) the lessees are required to pay the rent free of all deductions at the times specified and, by cl 3.2 the variable rent, as pre-estimated for the forthcoming 12 month period, becomes payable by the lessees by equal monthly instalments in advance but subject to an accounting process for adjustments, as may be necessary, at the end of the third quarter of each calendar year when, if necessary, the lessees would be credited with any excess payments made resulting from the estimates and which could be deducted from the next ensuing payment, or payments, of variable rent.

21 In view of the controversy surrounding the lessor's obligation to remove the suspended ceiling, it is necessary to notice the definition in cl 1.1 of the leased premises. There, it is provided:

" 'Leased Premises' means the leased premises described in the First Schedule (extending vertically from the upper surface of the floor on each floor level of the Building to the under surface of the ceiling above the floor on each floor level of the Building and extending horizontally to the centre line of inter-tenancy walls and to (but not including) the outer face of external walls and of shop fronts and to (but not including) the outer face or line of all other boundaries of the leased premises) and which leased premises are situated in the Building and includes all Lessor's fixtures and fittings from time to time therein."

22 Clause 3.8 provides for the payment by the lessees of interest on overdue moneys under the lease. Such interest becomes payable to the lessor on demand at the prescribed rate of interest on any moneys due but unpaid by the lessees on any account whatsoever, such interest to be computed from the due date for the payment of the moneys in respect of which interest is chargeable until payment of such moneys in full and is recoverable in like manner as rent in arrears. The prescribed rate of interest is set in cl 1.1 at 2 per cent greater than the Commonwealth Bank of Australia Loan Reference Rate from time to time.

23 By sub-cl 6.1(a) the lessees are permitted only to use the leased premises for the business or uses specified in the First Schedule under the trading name or names set out in the schedule and not, without the prior written consent of the lessor to use the leased premises for any other purpose or to change such name or names.

24 Because the first defendants' covenant to perform a fit out of the premises in accordance with plans to be submitted to the lessor for approval, it is necessary to examine the provisions of the lease which relate to alterations to any part of the demised premises and alterations to the electrical systems and installations. Sub-clause 6.2(a) of the lease contains a general prohibition against the lessee making, or suffering, any alteration or any structural alterations to be made to the leased premises and prohibiting cutting, maiming or injuring of any of the principal structure or walls or any part of them without the prior written consent of the lessor. Similarly, sub-cl 6.2(b) contains a prohibition against the lessees making any alterations or additions to any plant, equipment, fixtures or fittings forming any part of the building or the leased premises (including the air-conditioning plant, electrical fittings, plumbing and fire warning or prevention system) without the consent in writing of the lessor first being obtained. This sub-clause also provides that where it is necessary or desirable for alterations or additions to be made the work may only be done under the supervision of the lessor's architect and any other architects or consultants approved by the lessor. Sub-clause 6.2(c) forbids the lessees, without the prior consent in writing of the lessor, to install any electrical equipment in the leased premises which overloads the cables, switchboards or sub-boards through which electricity is conveyed, provided that if any consent to necessary alterations is required that electrical work shall be effected by the lessor at the expense of the lessees. Similarly, there is a prohibition set out in cl 6.2(e) against the lessees making any alterations or additions to any partitions within the leased premises without the prior written consent of the lessor, which shall not be unreasonably withheld. This covenant also provides that any application for consent for the erection, alteration or additions to any partitions should be made by the lessor in writing and be accompanied by detailed plans and specifications and, if approved by the lessor, should be constructed under the supervision of the lessor's architects.

25 There is no covenant in the lease requiring the lessor to upgrade the electrical wiring or supply; to put the sanitary fittings into any particular condition; to repair or restore the pressed tin ceiling affixed to the underside of the floor above the leased premises (which, as shall be described in more detail later had been extensively modified and damaged by the past installation of electrical and plumbing circuits). Nor is there any covenant in the lease requiring the lessor to put the premises into any particular state of repair or to render them fit for the purpose for which they were let.

26 Despite this, it was expressly agreed between the parties that substantial changes to the layout, configuration and amenities of the ground floor premises which were to be leased would be made and special conditions were included in the lease to deal with these. The antecedents of these special conditions were the negotiations and agreement which had been reached between the plaintiff and the first defendants at the time of the agreement to lease in November 1997, but the terms had been altered and refined by the time the lease was executed.

27 All parties accept that the first task for the court is to ascertain the meaning of these provisions, upon their proper construction, as they are contained in the lease. Only then, if the proper construction of the provisions does not accord with the submissions being advanced by the plaintiff, was it submitted that it would be necessary to consider the plaintiff's alternative claim for rectification. However, the defendants maintain that there is no basis whatever for the lease, once its construction has been determined by the court, to be rectified.

28 The First Schedule to the lease contains a series of special provisions under cl 10. The proper construction of these lies at the heart of the disputes between the parties in this litigation as they deal with the right of the first defendants to go into occupation before the commencement of the lease term, provide for the replacement of air-conditioning and the removal of the ceiling of the demised premises by the lessor, the design and completion of the proposed new fit out (in two stages) by the first defendants and for financial assistance for those modifications to be provided by the lessor. The timing and sequence of these various procedures, on which so much of the present disputes depend, must be found in the express or implied meaning of the words of the lease employed by the parties to record their agreement. These provisions are:

As from the date of execution of this Lease, the Lessee shall be entitled to occupy the Leased Premises. During the period from the date of such occupation until the date of the commencement of the Term:

(a) the Lessee's rights under this Special Clause shall in all respects be subject to the rights of the existing tenant of the existing hairdressing premises within the Leased Premises, under that tenant's lease;

(b) the Lessee shall do fitout works as detailed in Annexure A to this Lease; and

(c) save that the Lessee shall only be obliged to pay for its use and/or consumption of water, electricity, telephone and other utilities (and that Rent and other Variable Rent will not be payable in respect of that period) the terms of this Lease shall apply (with the necessary changes) during such period.

Notwithstanding anything to the contrary herein contained or implied, the Lessee shall not be obliged to pay Rent in respect of the period 1 April 1998 - 30 September 1998 (both days inclusive). Nothing in this Special Clause relieves the Lessee from its obligation to pay Variable Rent or other moneys in respect of such period.

Notwithstanding anything to the contrary herein contained or implied, the Lessee may grant any Sub Lease or Sub Leases in respect of the Leased Premises but only on the basis (as the Lessee hereby acknowledges and agrees) that no Sub Lease shall relieve the Lessee from any of its covenants or obligations under this Lease, and that the acts and omissions of any Sub Lessee or its or their employees, agents or invitees shall bind the Lessee.

(a) the date of commencement of the Term;

(b) the date on which the Lessee completes its permanent fit out of the Leased Premises to the usual 'high quality Maurice Meade Salon' as previously detailed with the Lessor similar, but improved upon, the Maurice Meade Bayview Claremont Salon; and

(c) the date on which the Lessee produces to the Lessor invoices (and evidence of payment thereof) in respect of the Lessee's fitting out of the Leased Premises;

The Lessor shall loan to the Lessee a sum of $100,000 (the 'Loan Moneys').

Interest shall accrue on the Loan Moneys (or so much as is outstanding from time to time) at the rate of 10.5% per annum, calculated with rests on the last day of each calendar month during the continuance of the loan.

During the continuance of this Lease the Lessee shall pay to the Lessor calendar monthly in arrears (with the first payment, pro rated if necessary, to be made on the last day of the month in which the Lessor loans the Loan Moneys to the Lessee). Such payments shall be made without demand, deduction or set-off and in such manner as the Lessor from time to time in writing requests and, until the Lessor directs otherwise, in the same manner as instalments of Rent are payable under this Lease.

If for any reason this Lease ends prior to 31 March 2008, within 7 days after this Lease ends the Lessee shall pay to the Lessor without demand, deduction or set off the then balance of the Loan Moneys, including all outstanding interest thereon.

The parties acknowledge that each monthly instalment payable by the Lessee in reduction of principal and interest on the Loan Moneys shall be $1349.35.

(a) as soon as is reasonably practicable after the date of this Lease, remove the existing air-conditioning and ceilings within the Leased Premises, to permit the Lessee's works to be effected; and to install new air-conditioning through the Leased Premises.

(b) If requested by the Lessee, then within a reasonable time after request, install a new shop front for the Leased Premises.

During the continuance of this Lease, the Lessor shall not lease other premises within the Building for use for hairdressing, hairdressing and beauty training school, or coffee shop."

The "Annexure A" referred to in special cl 10(1)(b) identifying the fit out works to be performed by the lessees was a reproduction of the facsimile transmission from the first defendants' agent Mr Cox to the plaintiff's agent dated 9 December 1997, together with the sketch diagram of the floor layout of the leased premises dated 8 December 1997. The annexure provides:

"Re: 847 Hay Street, Perth

In response to your fax of 9 December, 1997 and confirming our conversation of last Thursday, 4 December, 1997, as outlined to you the sequence of events shall be:

(1) Temporarily fit out old TAB premises (West side) and, as a stop gap, use as temporary salon up to time of Yo-Yo's vacating East side.

(2) Set up temporarily in Yo-Yo's until main salon (permanent fit out) is ready.

(3) When main salon is properly fitted out vacate Yo-Yo's and then occupy permanent position, plans for which will be submitted to you for your approval.

(4) Main fit out at permanent salon shall be of the usual 'High quality Maurice Meade Salon' as outlined to you, as similar, but improved upon, to Maurice Meade Bayview Claremont Salon.

For M B & R A Meade

... Keith Cox"

The sketch diagram, already described, shows the salon occupying the western side of the premises, with a central corridor running from Hay Street to the rear but, after traversing only part of the ground floor, curving to the east until it meets the eastern wall and then running south along the eastern wall to the rear. On the eastern side of the corridor, and before its curve, is an area to be fitted out as a coffee bar and run in conjunction with the hair salon.

29 The reference in special cl 10(1)(a) of the second defendant's rights of occupancy before the commencement of the term being subject to the rights of the existing tenant, is plainly a reference to the right of Yo-Yo's to continue to occupy and trade from the eastern area of the premises later to be let to the first defendants.

30 The right of Yo-Yo's to quiet enjoyment of the possession of the area which it was still leasing obviously meant that major changes to the premises, including, in particular, removal of the existing ceilings or the installation of a new air-conditioning system for the entire ground floor, could not be undertaken without Yo-Yo's consent and there is no evidence that obtaining this was ever contemplated, let alone sought. Nevertheless, there was plainly a substantial opportunity for the first defendants to contemplate and design their desired "main fit out of permanent salon" (Annexure A, cl (4)) during that period, submit suitable plans and specifications to the lessor for approval and, if approved, to arrange for the performance of the work once Yo-Yo's had vacated the eastern area.

31 Similarly, there was also an opportunity, following the agreement for lease of late November 1997, for the lessor to make preparations for the removal of the existing air-conditioning and ceilings and to install new air-conditioning throughout the leased premises (special cl 10(5)(a)).

32 While building, air-conditioning or fit out works could obviously not be commenced while Yo-Yo's remained in possession under its lease, the fit out works to be performed by the first defendants were to be performed during the period from the date of occupation until the date of the commencement of the term, that is, 1 April 1998. Special cl 10(1)(a) treats the entitlement to occupy part or all of the premises before the leased term conferred upon the lessees as originating from the date of the execution of the lease, namely from 20 February 1998. Although, under the terms of the agreement for lease reached in late November 1997, the parties recorded that possession under the lease could not be granted until the lease itself had been executed they recorded that possession under the heads of agreement (a reference to the agreement for lease) would be granted as soon as possible subject to the rights of the sitting tenant.

33 Having regard to the agreement about the sequencing of work set out in the memorandum of 9 December 1997 (later incorporated in the lease as Annexure A) I consider that the proper construction of this aspect of their agreements is that the first defendants were entitled to occupation of the TAB areas from early December 1997 onwards and were then free to fit them out, as far as possible, as an operating hair salon and that upon the eastern area occupied by Yo-Yo's becoming vacant, the first defendants would move the salon to that area while the permanent fit out in the revised configuration on the eastern side, including extensions to be derived from the changes made by the curved corridor and in accordance with plans approved by a lessor, would be completed. Implicit in this programme is the contemplation that a final fit out of the eastern area (the former Yo-Yo's as reduced by the changed alignment to the corridor) would also be undertaken during the period when the major fit out to the western side was being completed, but possibly towards the end of that period, so that when the hairdressing salon moved back to the western side the reduced Yo-Yo's area would then become the intended coffee bar in conformity with the plan which is part of Annexure A or an approved substitute.

34 The lessor's obligation to remove the existing air-conditioning and ceilings and to install new air-conditioning throughout the leased premises, as set out in special cl 10(5)(a), was to be performed as soon as reasonably practicable after 20 February 1998. Having regard to the inevitable disruption that would be caused by removal of the suspended ceiling and works necessary to remove existing air-conditioning and install new air-conditioning it would obviously not have been "practicable" for any of that work to be commenced while Yo-Yo's remained in occupation of its area on the eastern side of the ground floor. Equally, considerations of "practicability" also dictated that the proposed works for the removal of the suspended ceiling and the old air-conditioning, and the installation of new air-conditioning could only (except for very pressing reasons to the contrary if any) be undertaken by the lessor in conjunction with the first defendants' fit out. Despite some evidence adduced by the defendants to establish that, by careful staging and by carrying out construction work after hours, it would be possible to remove the existing ceiling, and air-conditioning, and install new air-conditioning while the first defendants continued to operate a hairdressing salon in the TAB area, I am satisfied that that would have been quite impractical and that what was really called for was an integrated approach which would allow the removal of the ceiling and the old air-conditioning, the installation of new air-conditioning and the construction of the main fit out of the permanent salon to be undertaken in the most expeditious and efficient manner possible.

35 Again, having regard to considerations of practicability, I have no doubt that the timing, sequencing and interaction of the various trades and skills needed to complete these several activities would be largely, if not entirely, dictated by a logical ordering of the various trades and contractors involved after proper consultation and co-operation between the lessor and the lessees. It is likely that the completion of these various activities would mean that there would be a period or periods where no, or perhaps only very little, hairdressing service could be provided by the first defendants to their customers so that no trade could be conducted by the first defendants for a period of some days or weeks during the various works. But that is no reason to reject the conclusion which I have just expressed, as there is no suggestion nor any provision in the lease or agreement for lease that the defendants should always be able to carry on business during this pre-lease period. Indeed, the implication is entirely to the contrary in that this initial period, when no rent or variable rent was payable, was the opportunity for these works, so obviously preliminary to trading as a "high quality Maurice Meade Salon" to be undertaken. Furthermore, the design and capacity of any new air-conditioning system would, as the expert evidence revealed, be dependent to a significant extent upon the internal configuration of the permanent fit out of the salon, knowledge of the apparatus (particularly heating appliances of any kind) that were to be used in conjunction with the business, and the likely number and location of personnel within the areas to be air-conditioned.

36 The financial obligations agreed between the plaintiff and the defendants are also significant when determining the proper construction of the agreement between the parties over the sequencing of these preliminary construction activities. As already noted, no rent or variable rent was payable by the first defendants for their occupation of any part of the premises before the commencement of the term, their financial obligations being limited to payment for the use and consumption of water, electricity and other utilities (special cl 10(1)(c)).

37 The lessor's loan of $100,000 was to be advanced to the lessees when the lessees produced paid invoices for the performance of the fit out works and then only after the date of the commencement of the lease term and also after the date of the completion of the permanent fit out - special cl 10(4). The formula for the repayment of that loan by monthly instalments of $1349.35 anticipated that the loan would be advanced at the commencement of the term, although the clause does make provision for the possibility of a later advance by providing that if any balance of the loan remains outstanding at the end of the term it shall then become immediately due and payable. Accordingly, the loan repayments had been structured on the assumption (notwithstanding the self-adjusting mechanism to cater for a situation arising from a departure from those assumptions) that all the fit out work would be done before the commencement of the term or by the early stages of the term. Indeed, this was the subject of express provision in special cl 10(1)(b) which required the lessees to do the fit out works detailed in Annexure A (including the main fit out of the permanent salon) during the period from the date of occupation until the date of the commencement of the term, namely 1 April 1998.

38 In the events which happened, however, the first defendants moved into the TAB areas shortly after the agreement for lease and set up hairdressing operations on the configuration of the areas as they then were and began to trade. No permanent fit out as proposed in the plan forming part of Annexure A, or on any other basis, has been undertaken. The old air-conditioning plant has not been removed, nor has any new air-conditioning been installed. The landlord has not removed the suspended ceiling, but in some areas of the ground floor the first defendants have removed large sections of the suspended ceiling revealing the original higher pressed tin ceiling which, while exhibiting some potential for attractive refurbishment, remains significantly damaged and disfigured by apertures cut in it during past years to allow the passage of electrical cabling and conduits, plumbing lines and drains from the floor above, leaving a most unsightly general appearance.

39 Despite all this the first defendants have remained in occupation, carrying on their hairdressing business continually since they first went into occupation and have every intention of continuing in possession and trading on this basis in the exercise of the rights of possession granted to them by the lease.

The nature of the disputes between the parties

40 While, on the pleadings, the plaintiff's action is for rent plus interest at the contractual rate for non-payment with additional alternative claims for rectification or for a special order under s 77(c) of the Fair Trading Act 1987, the crucial dispute is whether or not the first defendants have successful counterclaims for damages against the plaintiff for breach of the covenants in the lease, in particular the special clauses, which may be set-off against any liability found for rent, other arrears and interest.

41 The alleged breaches of contract relied upon by the defendants for their set-off and counterclaim are the alleged failures of the lessor to remove the existing air-conditioning and the suspended ceiling and to install new air-conditioning which, on the defendants' case, are antecedent and independent obligations which the plaintiff is required to perform before any permanent fit out was designed, plans for the fit out submitted or final fit out work undertaken by them. The defendants' case is that because the existing air-conditioning has not been removed and the plaintiff did not remove the suspended ceiling or install new air-conditioning, they have not become obliged to embark on the permanent fit out. Not only this, but the failure of the plaintiff to attend to the removal of the ceiling, the old air-conditioning and the installation of new air-conditioning has prevented the defendants from undertaking their major fit out. This has, they claim, also prevented them from subletting other areas of the leased premises, namely those on the eastern side and at the rear, to discharge obligations which they entered into with related corporations in the Meade group of companies to sub-lease those areas for a hairdressing and beauty training school and for a coffee shop, with consequent economic loss to the first defendants. It is these alleged losses which are the basis of the counterclaim and the set-offs already mentioned.

42 Although the defendants' counterclaim against the plaintiff for breach of the terms of the lease only alleges a lessor's failure to remove the suspended ceiling, remove the old air-conditioning and install new air-conditioning and a new shop front, in the evidence, the defendants have attempted to introduce other disputes as part of these allegations as variations or increments of the pleaded controversy. For reasons which will emerge, I do not consider that this approach can be maintained but it is necessary to identify the position of the defendants as it emerged in the evidence in order to dissect those issues which arise for determination on the pleadings and those which, however much the defendants may regard them as being associated, are essentially separate.

43 Intruding into the dispute over the mutual obligations of the parties to the lease with regard to removal of the existing ceiling, removal of old and installation of new air-conditioning, the construction of a new shop front and the completion of the permanent fit out are:

• a claim by the defendants that the lessor was obliged to restore and rehabilitate the original pressed iron ceiling which was revealed after partial removal of the suspended ceiling and, in the process, somehow, to deal with the obtrusive electrical and plumbing lines which ran in the void between the former ceiling levels;

• a dispute over the liability for the expense of undertaking repairs and improvements to the rear washroom and toilet facilities forming part of the leased premises on the ground floor;

• a dispute over the responsibility for, and the cost of making good, repairs and associated works to parts of the original ceiling through which water gained entry to the demised premises during storms;

• a dispute over the cost of rendering safe, and replacing old electrical wiring, circuits and fuses serving the leased premises following problems arising from increased electrical loads placed on the circuits from the operation of the hairdressing appliances.

44 By its statement of claim the plaintiff pleads the lease and its terms, so far as material to the action. In relation to the fit out, the plaintiff alleges that, under the terms of the lease, the defendants were obliged to carry out those fit out works detailed in Annexure A to the lease during the period between the date when they went into occupation of the premises and 1 April 1998, the commencement of the lease term. In relation to that part of the premises to be used as the main hairdressing salon, by necessary implication, the permanent fit out would be completed within a reasonable time of taking possession.

45 By their defence, the defendants contend that it was only the temporary fit out which was to be completed during the period between possession and 1 April 1998 and that there was no obligation upon the defendants to commence or to carry out the permanent fit out until after the plaintiff had removed the existing air-conditioning and ceilings and installed new air-conditioning throughout the premises.

46 The plaintiff also pleads the covenant requiring it to remove the air-conditioning and false ceilings and to install new air-conditioning, but claims that, by necessary implication, its obligation was to install new air-conditioning of a design which would accommodate the lessees' permanent fit out, or proposed permanent fit out, and which would function efficiently in the premises once that fit out had been installed. The defendants admit this allegation, in part, but plead that the air-conditioning was to be of a design capable of adjustment and modification as to airflow and air return, after the premises were fitted out, to suit the fitting out as varied from time to time.

47 The plaintiff also pleads, as an implied term in the lease, that the lessor and lessees were obliged to co-operate with each other to ensure each had the benefit of, and was able to perform, its obligations under the lease. The defendants admit the existence of this alleged implied term, but plead that it was subject to the express terms contained in Annexure A of the lease relating to the staging or sequencing of the fit out work.

48 During the trial substantial emphasis was laid by the plaintiff on the significance, in this context, of this implied obligation to co-operate. Its existence is not in doubt and all parties accept that the nature and effect of this obligation is as has been described in Mackay v Dick (1881) 6 App Cas 251 at 263; Electronic Industries Ltd v David Jones Ltd [1954] HCA 69; (1954) 91 CLR 288 at 297 - 298; Secured Income Real Estate (Australia) Ltd v St Martin's Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607; Fitzgerald v F J Leondhardt Pty Ltd [1997] HCA 17; (1997) 143 ALR 569 at 570 and 576; Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41.

49 Each of the contending parties argued that the other was in breach of the covenant requiring, on the one hand, performance of the permanent fit out and, on the other, the removal of the suspended ceiling and the old air-conditioning and the installation of new air-conditioning, with the consequence that that party was not ready, willing and able to perform the obligations under the lease required of it. This led to the further submission that the party so in breach could therefore not obtain damages or other relief against the opposing party for any breach or non-performance of the obligations which that other party was required to perform under the lease. As contested at the trial, this led to plea and counter plea that the opposing party was not ready, willing and able to perform the obligations accepted by the lease.

50 There is also a significant issue between the plaintiff and the defendants over the particular formalities required of the defendants when submitting plans for the proposed fit out. The plaintiff pleads that, by virtue of the implied duty of co-operation, the defendants were required to supply it in advance with adequate plans of the proposed fit out for their approval before any fit out work involving alterations to the walls, structures or partitions of the premises could be commenced and that its approval of the proposed plans was required. In this respect, the plaintiff relied on cl 6.2(a), (b) and (e) of the lease and par 3 of Annexure "A" as adopted by special cl 10(1)(b). The degree of detail required in plans to be submitted by the defendants for approval of the fit out, whether or not approval from the City of Perth in advance was required, emerged as a further controversy, notwithstanding that no express issues in those respects had been raised by the pleadings. The plaintiff does allege, by subpar 8A(a) of the statement of claim, that the lessees failed to provide plans or adequate plans of the proposed fit out. While this allegation was denied by the defence, no further plea was made alleging where or in what manner adequate plans had been submitted for approval, leaving the actual denial as a negative pregnant.

51 The plaintiff alleges four generic breaches by the defendants of the terms of the lease, namely:

• a failure to provide plans or adequate plans of the proposed fit out;

• unauthorised removal by the defendants of portion of the suspended ceiling;

• refusal by the defendants of access to the premises for the plaintiff to allow it to install air-conditioning.

52 In answer, the defendants plead, consistently with their earlier submission that upon its proper construction the lease only required them to undertake the temporary fit out during the period of occupation before the commencement of the lease term, that the temporary fit out was completed by 1 April 1998. They also plead that, being aware that the defendants had not commenced the permanent fit out works, the plaintiff at no time before the commencement of this litigation asserted that the defendants were obliged to carry out the permanent fit out before 1 April 1998 and, therefore (if their construction of the lease is not accepted and they are in breach of their obligations under the lease in this respect), that breach has been waived or, alternatively, the plaintiff is estopped from relying upon that breach.

53 In relation to the allegation of wrongful removal of portion of the suspended ceiling, the defendants plead that, in about October 1999, while examining the premises in order to consider the most appropriate design for the intended permanent fit out, they removed portion of the suspended ceiling and, in doing so, discovered electrical wiring in the void above the suspended ceiling which they allege was in a dangerous condition. The defendants plead that they gave notice of this defective electrical wiring to the landlord by letter dated 20 October 1999, pursuant to an obligation placed on them by sub-cl 6.3(b) of the lease to give prompt notice in writing of defects likely to be, or to cause, any danger, risk or hazard. The defendants also plead that the plaintiff has failed to remedy the dangerous wiring and that the defendants have not replaced the false ceiling whilst waiting for the dangerous wiring to be repaired or replaced and, for these reasons, that they are not in breach of the covenant prohibiting alterations to the ceiling or other structures without the plaintiff's prior approval. Alternatively, the defendants plead that if, contrary to their principal contentions, they have committed a breach of the lease by removing portion of the ceiling that breach has been waived by the plaintiff or that the plaintiff is estopped from relying upon such breach.

54 In the course of the trial counsel for the defendants also submitted that, because no prior written notice of these particular breaches of the lease, as distinct from a notice of default specifying a failure to pay rent, had been served upon the defendants before the commencement of this action, the relief being sought was not maintainable because of s 81 of the Property Law Act 1969. Although this does not appear to have been repeated in the final submissions of counsel for the defendants, it was never formally abandoned and it is therefore necessary to point out that the restrictions imposed by s 81 of the Property Law Act 1969, including the obligation to give written notice of certain alleged breaches of a lease (but not including cases of non-payment of rent - s 81(9)) apply only in relation to attempts, by action or otherwise, to enforce a right of re-entry or forfeiture under any provision in a lease. The plaintiff does not seek any order to enforce a right of re-entry, nor does it seek forfeiture of this lease in this action or otherwise. Accordingly, the submission advanced on behalf of the defendants under s 81 of the Property Law Act must be rejected.

55 In the statement of claim, the plaintiff alleges that it has suffered loss and damage due to the five generic breaches of covenant described. It particularises these losses as comprising:

• increased costs in installing new air-conditioning because of inability to co-ordinate design and installation of the air-conditioning with the permanent fit out and an increase in costs for performing this work since February 1998;

• loss of the ability to obtain a higher rent after the first, and successive, rent reviews which would have been payable in the event of the increased rental value of the premises resulting from improvements produced by new air-conditioning and a permanent fit out;

• adverse effect upon the value of the reversion because of the failure to carry out the permanent fit out.

The defendants deny the allegations of loss and damage but also plead that the matters referred to do not constitute loss and damage incurred by the plaintiff.

56 In the event, these claims for damages were not pursued by the plaintiff, nor were the further particulars which the statement of claim indicated would be provided to support them ever filed. In the course of evidence at trial it was stated that the plaintiff did not intend to attempt to establish that the rent of the premises would have been set at higher levels on the first or successive rent reviews had the fit out been performed, or that the failure to carry out the fit out had effected a reduction in the value of the reversion, at least not if the cost of the lessor undertaking the work for the removal of the ceiling and the old air-conditioning and installing new air-conditioning were, as it would need to be, brought to account.

57 The plaintiff also advances a claim for damages under s 79 of the Fair Trading Act 1987 on the basis that the defendants had engaged in misleading and deceptive conduct, during the course of negotiations for the lease, by making representations that they would fit out the premises as a high quality Maurice Meade salon similar in standard to the Maurice Meade salon at the Bayview Centre in Claremont and that the fit out would be carried out within a reasonable time of taking possession. The plaintiff alleges that those were representations made in trade and commerce with respect to a future matter and the defendants admit this. However, the defendants deny the following allegation that these representations amounted to misleading or deceptive conduct.

58 That these representations later became incorporated as covenants in the lease and non-fulfilment of them would give rise to a contractual remedy for breach of covenant does not exclude the potential availability of a claim for damages under s 79 of the Fair Trading Act if, indeed, the conduct in making those representations was misleading or deceptive. This is because, while the contractual rights subsist between the parties, their relationship is not governed simply by the general law but is also subject to the legislation which applies to conduct in trade or commerce - Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 per Gummow J at 37 and Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470. It will not be every contractual promise which constitutes a representation with respect to a future matter but, if there be an unconditional promise which forms part of the contractual obligations, then it may be proper to treat the giving of that promise as the making of a representation as to a future matter - Futuretronics International Pty Ltd v Gadzhis [1992] VicRp 63; [1992] 2 VR 217.

59 The damage which the plaintiff pleads it suffered because of this alleged misleading and deceptive conduct, was entering into a lease upon the terms which were in fact agreed. The plaintiff pleads that, in the absence of such alleged misleading and deceptive conduct it would not have let the premises at the rental agreed but would have demanded a higher rental; would not have agreed to install air-conditioning; would not have agreed to the rent-free period; and that by acting on the representation and entering into the lease it suffered actual damage. Alternatively, it pleads that having acted on the representation by entering into the lease it is likely to suffer loss and damage. Although this is not particularised and was not developed in submissions, the implication seems to be that, in the future, the plaintiff will not obtain increased rents at the periodic rent reviews, or increases as great as would otherwise have occurred and that, on the termination of the lease the reversion will be of diminished value. Again, however, these allegations of pecuniary loss and damage were not pursued at the trial and no evidence was led to attempt to prove them. It is, therefore, unnecessary to notice this part of the claim any further.

60 This leaves the claim for unpaid rent and variable rent as the sole money claim being pursued by the plaintiff. Although the plaintiff pleaded that the first defendants had withheld the payment of rent and other sums due in breach of the terms of the lease, this claim is not a claim for damages for breach of covenant but is a claim in debt for a liquidated sum due and owing: Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560 at 567 - 568 and per Gaudron J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 at 174. To qualify as an action in debt the money demanded under a contract must have become due, usually by performance of the obligation in respect of which the debt was earned. In the case of rent, the possession of the premises over the period when the rent was accruing due in agreed amounts at periodic intervals reveals the performance of the contract and hence quantifies the liquidated sum payable. The entitlement to recover is therefore not dependant upon whether the lessor is, or is not, in other respects, in breach of the lease or other contract giving rise to the established debt. In other words, in relation to the claim for arrears of rent and variable rent, the plaintiff's claim does not depend upon it successfully showing that, in all the circumstances, it was not in breach of the covenants of the lease by failing to remove the old air-conditioning and suspended ceiling or to install new air-conditioning.

61 Apart from denying that they were indebted to the plaintiff in respect of the unpaid rent and variable rent which had accrued during the period when payment was withheld, the defendants rely upon a set-off of their alleged counterclaim to meet this. The defendants, specifically in response to the claim for the unpaid rent and variable rent, allege that the plaintiff was in breach of the terms of the lease in various respects all deriving from the failure to remove the old air-conditioning and suspended ceiling and install a new air-conditioning plant, but nowhere in the pleading or in the evidence is there any attempt to demonstrate that the defendants did not remain in possession or that the lease did not remain in full force and effect during the period when the unpaid rent and variable rent were accruing due. Accordingly, as the amount of the rent, variable rent and interest accruing during this period have been agreed between the parties, it follows that the plaintiff has established a prima facie entitlement to judgment for the amount remaining unpaid, together with interest, subject only to the defence of set-off which, in turn, depends upon the defendants establishing their counterclaim.

62 The remaining two causes of action advanced by the plaintiff can conveniently be treated together. They are the claim for rectification (if necessary) of the terms of the lease and the further alternative claim for an order pursuant to s 77(3)(b) of the Fair Trading Act to vary the terms of the lease to conform (if necessary) to the representations alleged to have been made by the defendants that they would complete the permanent fit out of the demised premises by, or within a reasonable time of, the commencement of the lease term on 1 April 1998.

63 The parties recognise that such an order under s 77(3)(b) would, in practical effect, produce much the same result as a decree for rectification of the lease. By their defence, the defendants maintain that at all material times it was the common intention of the parties that the plaintiff would, as soon as practicable after the commencement of the lease, remove the air-conditioning and suspended ceilings and install new air-conditioning throughout the premises and that, thereafter, the defendants would carry out the permanent fit out to, at least, the standard of the Maurice Meade salon at Claremont. They say that this common intention is reflected in the terms of the lease as properly construed. Similarly, in relation to the plaintiff's claim for relief under s 77 of the Fair Trading Act the defendants maintain that the only representations which they made were those contained in the agreement for lease and which ultimately became incorporated in the lease itself which, on their proffered construction, only required them to undertake the permanent fit out after the plaintiff had first removed the existing air-conditioning and ceiling and installed new air-conditioning. It follows, therefore, that these claims for rectification or relief under s 77 should be deferred for consideration until the principal issue concerning the proper construction of the lease has been decided.

64 Agreement having been reached between the parties about the amount of rent and variable rent accruing due, the real issue upon which the case was fought became the defendants' counterclaim and whether or not it could support the pleaded set-off to the plaintiff's claim. In this regard, however, it is necessary to note that the alleged breaches of the lease by the plaintiff advanced by the defendants in the course of their evidence include, but go beyond, the plaintiff's failure to remove the suspended ceiling and the old air-conditioning and to install new air-conditioning throughout the premises. The breaches alleged include other complaints made by the defendants concerning disputes which arose well after the commencement of the lease term and beyond any period within which it might reasonably have been contemplated that the fit out works would have been carried on if commenced after Yo-Yo's had vacated its tenancy at the end of February 1998. But by their defence and counterclaim, the defendants only allege that the plaintiff is in breach of the covenants of the lease by:

• failing, or refusing, to remove the old air-conditioning and suspended ceiling and to install new air-conditioning in the leased premises;

• failing to install, at the plaintiff's cost, a new shop front to the leased premises;

• in failing as and from 16 April 2000 to remedy those breaches.

65 Significantly, the defendants do not plead that the alleged failure of the plaintiff to repair what the defendants asserted was the dangerous condition of electrical wiring exposed when the first defendants removed portion of the suspended ceilings themselves without authority in September 1999 constituted any breach by the plaintiff of its obligations under the lease. Nevertheless, submissions to this effect were made by counsel for the defendants at the trial although, having regard to the pleadings, and in the absence of any plea by the defendants of an alleged breach of an implied covenant by the plaintiff to repair defective electrical lines, these submissions can only be regarded as being directed to the defendants' pleas of waiver and estoppel made in answer to the plaintiff's allegation over unauthorised removal of part of that ceiling. Similarly, although the defendants attempted to maintain at trial that the plaintiff was in breach of its obligations in failing to upgrade the electrical supply to the premises to allow a larger electrical load to be drawn through the circuitry, including securing an upgrade by Western Power of the power supply to the entire premises, no allegations of breaches of the covenants of the lease are advanced by the defendants in this regard on their pleadings.

66 The counterclaim for damages and the associated set-off rely upon agreements alleged to have been made between the first and second defendants and associated companies in the Maurice Meade Group. By par 19 of the defence (repeated in the counterclaim) the defendants allege that in about April 1998 they:

(a) orally agreed to sublet portion of the leased premises to an associated company, Johnzoo Pty Ltd, for that company to operate a Maurice Meade hair salon as a sublessee and as a franchisee of the second defendant;

(b) orally agreed with another associated company, Bocroft Pty Ltd, to sublet a further portion of the leased premises for use as a training school in return for which Bocroft would pay the first defendants a rent calculated with reference to turnover.

67 The defendants' counterclaim is that, by reason of the alleged breaches by the plaintiff of the covenants in the lease, Johnzoo Pty Ltd and Bocroft Pty Ltd have respectively refused to pay rent to the first defendants under the subleases and the former has suffered an adverse affect upon its turnover, so diminishing the franchise fees payable by it to the second defendant. In addition, the defendants plead that by reason of the plaintiff's alleged breaches of the lease, Bocroft Pty Ltd has not commenced to operate the training school and has therefore not generated a turnover from which to pay rent to the first defendants, causing them to suffer loss and damage. It is these combined losses by the first defendants of rent from Johnzoo Pty Ltd and Bocroft Pty Ltd together with the second defendant's loss of franchise fees payable from Bocroft Pty Ltd that constitute, in aggregate, the damages which all defendants seek to set-off against the plaintiff's claim for rent and variable outgoings.

68 The defendants plead that the revenue payable to them under the subleases to Johnzoo Pty Ltd and Bocroft Pty Ltd and to the second defendant by Johnzoo Pty Ltd for franchise fees would be in an amount quantified by expert evidence to be adduced at the trial but that in respect of rent payable by Bocroft Pty Ltd to the first defendants it would have been in an amount of at least $70,000 per annum. Although it was never pleaded or asserted that the first defendants were not themselves in possession of the leased premises, or that a hairdressing salon operation had not been conducted from the leased premises continuously since January 1998, no credit was given for, nor any disclosure made, of the profits derived from that operation when identifying the nature or the quantum of the defendants' counterclaim. Presumably, the reason for this is that it was the intention of the defendants for Johnzoo Pty Ltd and Bocroft Pty Ltd, or one of them, to carry on trading operations in addition to and contemporaneously with the first defendants from other parts of the demised premises after the permanent fit out had been completed. One can readily see how, in that situation, part or all of the leased premises may be occupied by authorised sub-tenants making payments of rent, franchise fees and perhaps other amounts to the original lessees. However, for this to occur, the permanent fit out would have to have been completed, at the expense of the first defendants, and that expense would have to be brought to account in quantifying any losses suffered by the first defendants as a result of loss or reduction in revenue from the sublessees. No such costs or expenses of the fit out necessary to achieve such a total operating environment from the leased premises were pleaded or particularised in the counterclaim.

69 During the second day of the trial an application was made on behalf of the defendants to amend the defence and counterclaim in a number of respects, some of which involved major reformulations of the basis for, and quantification of, the counterclaims. As that application for an amendment was contested it was necessary to scrutinise the proposed amendments in some detail while deliberating on the application and, in the course of this process, it became apparent that the defendants proposed even more extensive and fundamental amendments than first outlined. They then foreshadowed an application for further amendments in that regard. In the result, after argument, I ordered that the defendants should have leave (upon the usual conditions as to costs), to make some of the amendments to the defence and counterclaim which were being sought but that the more extensive amendments to the basis and quantification of the counterclaim would only be allowed on condition that all issues of the quantification of the first and second defendants' alleged damages, if any, sought on the counterclaim should be tried separately, if necessary, after the conclusion of this trial or at such further time as might otherwise be ordered. (See reasons for this decision at transcript 292 - 294.)

70 Accordingly, all issues of the quantification of the first and second defendants' damages on the counterclaim were adjourned and counsel for the defendants intimated that consideration would be given to proposing, if necessary, more extensive amendments than had at that time been sought.

71 In practical terms this left for determination at the trial the issues relating to the proper construction of the lease and, in particular, the covenants relating to the removal of the old air-conditioning and suspended ceiling and the installation of new air-conditioning by the lessor and the performance of the permanent fit out by the lessees; the readiness and willingness of the parties to perform the obligations resting upon them under the lease; questions of whether or not the plaintiff or the defendants were in breach of the terms of the lease as alleged; the defences of waiver and estoppel raised in respect of alleged breaches of the lease; the claims for rectification and relief under s 77 of the Fair Trading Act; and, of course, the money claim for unpaid rent and variable rent. The trial proceeded on the issues so reduced in the realisation that if the defendants failed to establish breaches of the lease by the plaintiff as they had alleged it would then be unnecessary to proceed to hear or determine the quantification of the defendants' counterclaim for damages, or for that matter the claimed set-off.

72 However, the defendants also counterclaim for a degree of specific performance and an for an injunction seeking to compel the plaintiff to carry out the removal of the remnants of the old ceiling and the old air-conditioning and to install new air-conditioning for the entire premises in fulfilment of their alleged obligation under the lease, independently of any completion by the defendants of the permanent fit out of the premises. The defendants seek an injunction to restrain the plaintiff from entering the premises in order to remove and replace the ceiling and install new air-conditioning in a manner not in conformity with the lease which, so the defendants allege, the plaintiff has threatened to do.

73 By their counterclaim, the defendants allege a further agreement between themselves and the plaintiff comprised by a letter from the plaintiff's solicitors to the defendants' solicitors dated 30 May 2001 and by a letter from the defendants' solicitors to the plaintiff's solicitors dated 18 June 2001. The defendants allege that, by this correspondence, it was agreed between them that:

• if the defendants provided fit out plans, the plaintiff would install air-conditioning throughout the premises within two months at its cost or, alternatively, if the defendants did not provide fit out plans, the plaintiff would install air-conditioning throughout the premises according to its own fit out plans;

• the plaintiff would remove the vermiculite (suspended) ceiling at its own cost;

• the plaintiff would upgrade the toilet facilities at its own cost;

• the plaintiff would upgrade the power connection and provide a new junction box at its own cost.

The defendants plead that they supplied fit out plans pursuant to this agreement to the plaintiff on or about 19 June 2001, but that in breach of this agreement the plaintiff did not commence the works agreed upon within the two month period or at all.

74 Further, the defendants again plead an obligation under the lease for the plaintiff to remove and replace the existing air-conditioning in the premises and to remove the existing false ceiling (First Schedule cl 10(5)); that the defendants' consent was required under the lease to any maintenance or repairs which the plaintiff intended to undertake in the premises (lease cl 2.1, 5.4(b) and (c) of the lease); and that the defendants were entitled to quiet enjoyment and use of the premises (cl 11.1 of the lease).

75 The defendants then allege that on 31 August 2001 the plaintiff informed them that, unless the defendants informed the plaintiff to the contrary by 7 September 2001, the plaintiff would fit out of the premises in accordance with the plaintiff's own plans delivered on that date. The defendants plead that on 7 September 2001 they notified the plaintiff that they did not consent to any such fit out works as then proposed by the plaintiff because:

• the plans appeared to be drawn to implement a proposal for the most cost effective design without regard to the quality or integration of the defendants' design proposal;

• the plaintiff's plans contemplated the replacement of the false ceiling and not its removal.

Nevertheless, the plaintiff informed the defendants of its intention to enter the premises on 22 October 2001 to commence the fit out works which the plaintiff proposed. The defendants plead that if the plaintiff enters and carries out the fit out works which it proposes that will constitute a breach of the lease because:

• It will involve a replacement of the suspended ceiling rather than its removal;

• the fit out maintenance and repair work will be undertaken without the defendants' consent.

Therefore, while seeking an order for specific performance compelling the plaintiff to carry out the work required for the removal of the old suspended ceiling and the old air-conditioning and to install new air-conditioning, the defendants are also seeking an injunction to prevent the plaintiff from carrying out the more extensive works and, in particular, the installation of a new suspended ceiling and the performance of a fit out as proposed by the plaintiff's design plans delivered in September 2001.

76 It is to be noted that the defendants do not plead that the alleged subsequent agreement of 30 May 2001 constituted any variation or discharge of the lease or any of the covenants in the lease relating the removal of the old air-conditioning system, the suspended ceiling, the installation of new air-conditioning or the obligation to perform the permanent fit out. Nor do the defendants seek damages or any other form of monetary relief in respect of that subsequent alleged agreement. Accordingly, the significance of the plea of this alleged subsequent agreement in the counterclaim seems only to be to establish a factual prelude to the events leading to the defendants' claim for an injunction to restrain the plaintiff from embarking, unilaterally, on its version of the proposed fit out.

77 By its defence to counterclaim the plaintiff denies the assertion that, in breach of the lease, it has failed or refused to carry out the air-conditioning and ceiling works and pleads that it has at all material times been ready, willing and able to carry out that work but has been prevented from doing so by the first defendants' failure or refusal to provide plans of, or to commit to, the provision of or carry out, the permanent fit out.

78 In relation to the plea that the plaintiff has refused or failed to install a new shop front the plaintiff says that on 22 May 2000 the defendants informed it that the replacement of the shop front could wait until a later date.

79 By a series of further pleas the plaintiff maintains that it was at all times ready, willing and able to perform its obligations under the lease, including the air-conditioning and ceiling works but that the defendants failed to provide any, or any adequate, plans for the fit out and also failed to commit to carrying out the fit out at any particular time so that, in the circumstances, the plaintiff's obligation to do the air-conditioning and ceiling works was waived or deferred.

80 In relation to the counterclaim for damages, the plaintiff denies that the defendants have suffered the loss or damage alleged or at all and plead further that if any such damage was suffered it was due to the first defendants failing to submit any plan, or adequate plan, for the fit out when they knew that the plaintiff was ready, willing and able to remove the existing air-conditioning and suspended ceiling and to install new air-conditioning. Further, the plaintiff denies that the defendants have any right to set-off the damages alleged or any damages against the plaintiff's claims and plead that the defendants were not ready, willing or able to perform their obligations under the lease, thereby putting in issue any entitlement by the defendants to recover damages even if some breach by the plaintiff of its covenants were to be proved.

81 In relation to the defendants' plea that agreement was reached between the parties on 30 May 2001 for the plaintiff to carry out air-conditioning, remove the remains of the suspended ceiling, and upgrade the toilet facilities and power connections, the plaintiff says that it did offer to perform that work but that the offer was dependent upon the defendants carrying out the fit out works as provided by the lease.

82 The plaintiff further pleaded that the installation of new air-conditioning was not practicable, or, alternatively, was less convenient, to perform unless and until the defendants carried out the permanent fit out. In particular, the plaintiff pleads that on or about 7 September 2001 the first defendants informed the plaintiff that it should not carry out the works proposed and refused the plaintiff access to the premises for the performance of any such work.

83 As for the fit out plans alleged by the defendants to have been supplied on 19 June 2001, the plaintiff denies that the documents delivered constituted fit out plans and says that they were no more than concept drawings and were inadequate to inform the plaintiff of the fit out work proposed to be performed.

84 In relation to the defendants' allegations in the counterclaim that the plaintiff's proposed action to enter the premises to carry out the removal of the ceiling and the old air-conditioning and the installation of new air-conditioning, or to carry out fit out work proposed by the plaintiff, would constitute a breach of the lease as alleged, the plaintiff denies that any term of the lease requires the consent of the defendants for it to enter the premises in order to carry out maintenance or repair work or to attend to any condition which requires replacement or attention to any defect which requires a remedy and pleads further that, in relation to the performance of the work for the removal of the ceiling and the air-conditioning and the installation of new air-conditioning, there is a term implied by law in the lease, deriving from the covenants in the special clauses, to allow that work to be performed efficaciously, which permits the plaintiff to enter upon the premises to carry out the work which was agreed by the terms of the lease.

85 The plaintiff admits that on 31 August 2001 it informed the defendant that, unless it heard from the defendants to the contrary by 7 September 2001, the plaintiff intended to fit out the premises in accordance with plans which the plaintiff itself provided to the defendants on that date and denies that it was ever advised to the contrary by the defendants. The plaintiff admits that on 25 September 2001 it informed the defendants that it intended to enter the premises on 22 October 2001 to carry out the proposed fit out works but denies that this, or the proposed action, constituted or threatened any breach of the terms of the lease.

86 In the light of the issues joined on the counterclaim over whether or not the plaintiff is entitled to enter the demised premises without the consent of the defendants to carry out any work, whether merely maintenance; repairs; attention to defects; the air-conditioning or ceiling works which it agreed to perform under special cl 10; or to perform fit out work in the face of the defendants' failure to perform or commit to the performance of the fit out works, further reference to the terms of the lease becomes necessary.

87 By cl 2.1(b) of the lease the plaintiff as lessor reserved to itself the right to enter the premises "with or without workmen and others at all reasonable times and with all necessary materials and appliances for the purpose of installing, inspecting, renewing, repairing, reconstructing or altering ... pipes, cables, wires and services or of adding others whether in or under or over or along or fixed to any portion of the leased premises". By cl 5.4 the lessee was required at all reasonable times to permit entry upon reasonable notice by the lessor, its agents and servants, to inspect, to view the state of repair, or to ensure compliance with the covenants and obligations on the part of the lessee, and to repair the premises by the carrying out of repairs, rennovations, maintenance, modifications, extensions, alterations or replacements to the building and all plant, machinery and other building equipment within the premises (cl 5.4(b)(ii)), or to remedy any breach by the lessee of the lessees' obligations to repair provided that in exercising this right the plaintiff should use its best endeavours not to cause any undue inconvenience to the lessee.

88 Consequently, so long as reasonable prior notice (except in the case of an emergency) was given by the lessor to the first defendants, the plaintiff had a right to enter the premises to carry out repairs, rennovations or works of this nature, including the performance of repair obligations which the lessees had failed to perform so that specific consent from the defendants on each or any such occasion was not required in the light of this standing contractual consent.

89 No express right of entry, however, was conferred upon the plaintiff for it to carry out the lessor's works (the removal of the air-conditioning and old ceiling and the installation of new air-conditioning) specified under the First Schedule cl 10(5) of the lease, yet I am satisfied that such a right of entry, at reasonable times and after prior notice, was necessarily implied from the covenant in the lease obliging the lessor to perform this work, either before or after the commencement of the lease term - Mint v Good [1951] 1 KB 517 at 521 and 528 (CA); McAuley v Bristol City Council [1991] EWCA Civ 2; [1992] QB 134 and Saner v Bilton (1878) 7 Ch D 815.

90 Accordingly, the plaintiff had at all material times a right to enter the premises upon giving reasonable prior notice to the defendant, in order to carry out necessary repairs or alterations or to rectify services in need of attention (such as the electricity supply and reticulation) and to initiate and undertake the removal of the old ceiling and air-conditioning and the installation of new air-conditioning.

91 However, because there was no agreement upon the detail of the permanent fit out of the premises and as the defendants had the initiative in designing and undertaking that fit out (subject to the approval of the lessor) and because of the cost of that fit out was to be met by the defendants, I do not consider that, in the absence of agreement about the details of the fit out, the plaintiff was entitled to enter and perform a fit out of its own design even in the face of a wrongful refusal by the lessees to perform their obligations to carry out the fit out contemplated by the lease.

92 Therefore, to the extent, if any, that the plaintiff attempted to enter the premises, or still intends to enter the premises, to carry out a fit out of its own design without the approval of the defendants, I consider that that is outside the scope of the covenants in the lease and could, if necessary, be prevented by the grant of an injunction. While the plaintiff, through Mr Sansom, indicated that it was still its intention, unless restrained, to enter the premises to carry out a fit out of its own design if the defendants continued to neglect to carry out the permanent fit out, this was a qualified position plainly depending upon the outcome of this case.

93 As a result of Mr Sansom's evidence on this point and in the light of submissions from the plaintiff's counsel, I have concluded that it is most unlikely that the plaintiff would, in the future, take any renewed steps to carry out a unilateral permanent fit out against the objections of the defendants if it were determined by this case that it was not entitled to do so. Accordingly, I do not see any realistic threat of a future breach of the lease on these grounds and therefore, in the exercise of discretion, would decline to grant an injunction prohibiting the plaintiff from making any such attempt. Of course, if such a threat were to materialise then the defendants would be entitled to have immediate recourse for injunctive relief.

94 By contrast, there is no basis upon which the plaintiff could be restrained from entering on the premises to carry out repairs, minor modifications or rectification of services such as electricity and water supply, or for the removal of the suspended ceiling, or the old air-conditioning and the installation of new air-conditioning, so long as prior reasonable notice of this proposed work were to be given to the defendants. This is so notwithstanding that such works, in particular, the removal of the ceiling and the old air-conditioning and the installation of new air-conditioning, would be likely to be very disruptive of the first defendants' trade, even possibly to the extent of causing the suspension of trading operations for several weeks.

95 The major issue between the parties is the construction of the provisions in the lease requiring the plaintiff to remove the old air-conditioning and the suspended ceiling and to install new air-conditioning and the defendants' obligation to submit plans for and carry out a permanent fit out of the premises. Although a great amount of time and evidence was devoted by the parties to recounting events and disputes which had arisen between them from late 1999 onwards, this question of construction is not resolved or clarified by scrutinising those issues.

96 Putting aside, for the moment, the plaintiff's alternative claims for rectification, or for relief under s 77 of the Fair Trading Act, none of the parties pleads or submits that there has been any variation of the terms of the lease. While pleas of waiver and estoppel have been raised by the defendants in answer to the plaintiff's claim of alleged breach by failure to carry out the permanent fit out, and waiver has been pleaded by the plaintiff in defence of the counterclaim of breach by failing to remove the old air-conditioning, the suspended ceiling and to install new air-conditioning, none of these pleas of waiver or estoppel is advanced to assert a new or different meaning of the lease, rather than to relieve (and then only temporarily) from the consequences of non-compliance with the terms as originally agreed. Consequently, in my view, this is a case where none of the limited exceptions applies to the general rule that evidence of the subsequent conduct of the parties is inadmissible upon the determination of the meaning of the words used in the contract between the parties: Maynard v Goode [1926] HCA 4; (1926) 37 CLR 529 at 538; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 348 and L Schuler AG v Wickman Machine Tools Sales Ltd [1973] UKHL 2; [1974] AC 235. The use which might be made of post-contractual conduct by the parties as an aid to construction was examined by Malcolm CJ, with whom Ipp and Wallwork JJ agreed, in Posgold (Big Bell) v Placer (WA) Pty Ltd (1999) 21 WAR 350 at 362 where Malcom CJ identified the occasional exceptions to the doctrine. None of those apply here and, consequently, an identification of the true obligations of the parties under the lease must be drawn from the terms of the lease itself, construed in the light of the known factual genesis of the transaction and its objective purpose at the time it was concluded.

97 As already noted, the essence of the dispute between the plaintiff and the defendants is over whether or not the removal of the suspended ceiling, and the old air-conditioning, and the installation of the new air-conditioning was to be performed by the plaintiff before and independently of the final fit out, or whether these were mutally dependent obligations over which the lessor and lessees were obliged to co-operate for their implementation and performance, either simultaneously or in close sequence. As well as contending for the independence of these obligations, the defendants maintain that under the First Schedule cl 10(1) and Annexure A they were only obliged to carry out the temporary fit out of the old TAB area before the commencement of the lease term and that there was, therefore, no express time prescribed for the commencement or completion of the permanent fit out.

98 The removal of the old air-conditioning system and of the suspended ceiling and the installation of the new air-conditioning were obviously covenants for the benefit of the defendants. Of necessity, the performance of that work would involve temporary disruption, quite significant for some of the period, to the use and enjoyment of the demised premises, especially if the latter were being used for the conduct of a hair salon. Furthermore, to say the very least, the design, choice of the plant and capacity, and the construction and location of the points of outlet for the new air-conditioning system, would be made more convenient and efficacious once it was known what the internal layout of the new permanent fit out would be, including the dimensions of the spaces to be ventilated and air-conditioned, the number of persons likely to be working in or occupying the premises and, especially, the nature and power of internal heat sources coming from the use of electrical heaters and other appliances commonly used in a hairdressing salon. In other words, a suitable design and construction of a new air-conditioning system would be considerably enhanced, even if it were not entirely dependant upon, the details of the proposed permanent fit out.

99 Whether the relationship of the contractual obligations is that of dependence or independence must be determined from the proper construction of the contract: Burton v Palmer [1980] 2 NSWLR 878 at 895 and where the ability of either party to perform his or its side of the obligation depends on co-operation, a duty of co-operation will be implied: Secured Income Real Estate (Aust) Ltd v St Martin's Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607; Gregory & Bradshaw v MAB Pty Ltd (1989) 1 WAR 1 and Paltara Pty Ltd v Dempster (1991) 6 WAR 85. These authorities also exemplify the proposition that if the performance of a contractual obligation is subject to the fulfilment of a condition which only the other party can achieve, the other party is obliged to exercise all reasonable endeavours to achieve the fulfilment of the condition or at least not to frustrate it - see per Mason J in Meehan v Jones [1982] HCA 52; (1982) 149 CLR 571 at 591 and Paltara Pty Ltd v Dempster (supra).

100 Not only did this duty of co-operation between the parties for the implementation of the works agreed upon in the First Schedule cl 10 of the lease require submission of detailed plans of the proposed permanent fit out to the plaintiff in order for the design configuration and implementation of the new air-conditioning system, but any final fit out involving a change in the existing partitioning and layout of the premises, as the plan attached to Annexure "A" of the lease itself did, and as was always proposed, would involve significant realignments of corridors and existing internal walls and partitions. Any such changes to existing walls, structures or partitions necessitated the written approval of the lessor and the submission of detailed plans in order to comply with cl 6.2(a), (b) and (e) of the lease. As the permanent fit out was to be embarked upon, and if possible completed in the period between taking possession under the lease on 20 February 1998 and the commencement of the term on 1 April 1998, the preparation of submission of detailed plans and specifications to obtain the plaintiff's consent to such changes was a clear obligation upon the defendants under these covenants in the lease.

101 It is convenient now to proceed with the task of construction of cl 10(1) and cl 10(5) of the special clauses in the First Schedule of the lease. These express terms themselves dispose of one aspect of the respondents' submissions. Subclause 10(1)(b) obliged the first defendants to do the fit out works detailed in Annexure A "during the period from the date of such occupation until the date of commencement of the Term" (the date of occupation being, at the latest, the date of execution of the lease, 20 February 1998, although possession under the agreement for lease had been achieved of the TAB areas in December 1997. The fit out works detailed in Appendix A included the "main fit out of permanent salon". This is consistent with the terms of subcl 10(4) dealing with the lessor's loan of $100,000 which, as is demonstrated by the events leading to the agreement for lease, was to assist the first defendants in financing the fit out. The whole of that loan was to be advanced either on the date of the commencement of the term (1 April 1998) or when the permanent fit out was completed and evidence of payment of the invoices in respect of it was produced, whichever was the later. Taken in combination with the programme for the repayment of the $100,000 over the remaining term of the lease, it is readily apparent that the parties initial working assumptions were that the fit out would be completed, the loan advanced, and the first instalment in repayment would be due by July 1998, notwithstanding that the lease contained a mechanism for adjustment in the eventuality of later completion of the permanent fit out.

102 Furthermore, having regard to the fact that the permanent fit out was to be for the entirety of the leased premises and not merely for the areas formerly occupied by the TAB, it is also clear that the utility and commercial advantage of the lease would be best enjoyed by the first defendants trading from the whole of the demised premises and that this was in fact proposed by the diagram of layout which formed part of Annexure A to the lease. In addition, the magnitude of the likely expenditure involved in completing the permanent fit out, and the disruption to trade while the fit out was in the process of construction, point unmistakably to the commercial advantage of completing the work as soon as possible after the first defendants went into occupation of the premises and well before the completion of the initial rent-free period of six months from 1 April to 30 September 1998 granted under subcl 10(2). One other obvious commercial advantage of early completion of the permanent fit out was that, assuming the hairdressing operations were profitable, that would maximise the first defendants' opportunities to make profits during the rest of the lease term.

103 While there may perhaps have been opportunities to reduce the extent and duration of disruption to trading operations for the first defendants while the permanent fit out was being completed, it is most unlikely that these could have been avoided altogether. As substantial disruptions would seem to be inevitable during the time the lessor removed the ceiling and the old air-conditioning and installed a new air-conditioning system, it was obviously of practical and commercial advantage to ensure that all this disruption was minimised and that, if possible, the construction and fit out phases should be undertaken, if not simultaneously then in one continuous but sequential operation in the most efficient manner possible. All this points to the advantage of undertaking this work as soon as possible after the lease was executed and, if it could be achieved, by the commencement of the lease term on 1 April 1998.

Consensus between experts about air-conditioning evidence

104 As the relevant factual background and the aim of the transaction are part of the admissible surrounding circumstances which may also be considered in this process of construction - Newcombe v Newcombe (1934) 34 SR (NSW) 446 at 450 - 451 and Prenn v Simmonds [1971] 1 WLR 1381, evidence was called without objection from Mr C A Lommers, a mechanical engineer with extensive experience in the design and installation of commercial air-conditioning systems for the plaintiff, and from Mr C J Williams, an architect with general experience of the integration of air-conditioning systems in commercial premises. The purpose of this evidence was to explain how any objective person contemplating the installation of new air-conditioning and the completion of a new fit out for the leased premises at the commencement of this lease would regard the most obvious or practical method of performing those distinct tasks. While there remained a difference of opinion between Mr Lommers and Mr Williams in relation to some aspects of this issue, there was a substantial degree of agreement. The agreement between them was recorded formally in a minute of 19 May 2003 which became Exhibit 126 in the proceedings.

105 These two witnesses agreed that the most expedient and realistic way for the lessor's works (the air-conditioning and removal of the ceiling) and the lessees' works (the fit out) to be completed, would be by the following process, namely:

• Preliminary fit out details indicating all partition and equipment locations. These details to include information indicating the reinstatement of any existing glazing, and the proposed window treatment to these fenestrations;

• equipment details (both fixed and moveable);

• occupancy details (ie maximum number of people and their respective location);

• lighting details (if available);

• areas requiring air-conditioning. Note that areas to the rear of the salon may also require to be provided with air-conditioning;

• preferred air-conditioning system arrangement (eg exposed or concealed ducted system, wall splits, cassettes etc).

2. Landlord to then carry out the following works:

• prepare preliminary equipment and ducting layout showing proposed equipment and ducting locations, sizes etc.

• confirm, comment and approve preliminary air-conditioning system design;

• confirm lighting layout for co-ordination purposes;

• prepare fit out details showing acceptable air-conditioning equipment enclosures etc;

• provide indicative programme for fit out (to assist landlord with mechanical documentation process).

• issue a programme for final design/documentation/pricing stage;

• finalise air-conditioning system design and documentation and discuss builder's work and include builder's work and documentation (if needed);

• submit copies of the final documentation to the tenant for final approval;

• submit the appropriate documentation to the authorities for approval (should this be required);

• appoint a suitably experienced mechanical services contractor.

• submit name of fit out contractor to landlord (to assist in liaison of mechanical works should there be an overlap between fit out and mechanical works);

• prepare a staging programme for the renovation work;

• vacate stage 1 area and commence refurbishment works. (This acknowledges that the tenant has separately completed the fit out documentation, notified the necessary local government authority of the proposed fit out works and appointed a fit out contractor.)

• ensure that contractor co-ordinates work and activities with fit out contractor;

• commission and place into service air-conditioning systems at the completion of the installation works, prior to the tenant occupying the staged area, in line with previously agreed programme.

The matters on which expert opinions of Mr Lommers and Mr Williams differed were that Mr Lommers was of the view that the lessor could not have installed an air-conditioning system in the leased premises which was of a design which would accommodate the lessees' permanent fit out or proposed fit out and which would function efficiently in the leased premises once they were fitted out, without the lessees providing to the landlord the information detailed in subpar 1, above. Whereas, Mr Williams did not agree that the information detailed in subpar 1, above, needed to be provided to the landlord in order for the landlord to perform the landlord's works.

106 For reasons explained below, after hearing these witnesses give evidence and be cross-examined, I prefer and accept the opinion of Mr Lommers upon the small area where their opinions differ. However, even if one were to adopt the position that there was a legitimate scope for a difference of opinion on that area of controversy, it is still overwhelmingly clear from the agreed opinions of both witnesses that a very large measure of co-operation and co-ordination between the lessor and the lessees would be necessary to carry out the design and implementation of both sets of works. I have no doubt that that is the true position, and would have been obvious to any objective person at the time the lease was being negotiated, when it was agreed, and that this also imported a duty to co-operate in the design and implementation of these works as submitted by the plaintiff.

107 Although the evidence of Mr Lommers ranged extensively and he was cross-examined in great detail, the burden of his evidence was simple. In his view, it was not practical and certainly not efficient to select, design or install a new air-conditioning system for the ground floor premises at 847 Hay Street until adequate plans were available showing the internal subdivision (if any), spatial arrangements and general configuration of the premises together with details of the number of persons working there and of equipment or machines which may be heat sources, such as hair dryers and the like. Without knowing these details, including the heights and dimensions of the internal spaces, it would not be possible to design or install an air-conditining system which would be adequate for the heating/cooling load required for the distribution and ventilation of areas which may be internally divided, partitioned off or be subject to heavy use by virtue of the number of persons operating in the area or the heat sources employed in the business.

108 Essentially, Mr Lommers' evidence was to the effect that, once the desired internal layout and fit out was settled, a suitable air-conditioning system could readily be designed to suit those requirements and that the installation of the air-conditioning system would be undertaken in such a way as best to facilitate the performance of the fit out. In cross-examination, it was put to Mr Lommers that, despite his preferred approach, it would be possible to design and install a basic air-conditioning system which would be adequate for the premises as an "empty shell" so that that could be installed and made operational before the fit out was designed or completed but in such a manner that it could accommodate any fit out likely to be selected. Mr Lommers did not accept that this could be done, except in the most general way, and was emphatic that this would be a most undesirable and inefficient approach to the installation of a suitable air-conditioning system when it was known that a major fit out was in prospect.

109 It was the evidence of Mr Williams that, as a result of his general knowledge and experience, it would be possible to select and design an air-conditioning system which could be installed in these premises to serve an "empty shell" with the provision of air-conditioning ducts and outlets which, at some later time, could be extended or adapted to meet the particular layout of the chosen permanent fit out. In a general way it is possible to accept Mr Williams' thesis, but I do not consider that that meets the exigencies of this case. Where the initial fit out was contemplated to be undertaken, if possible by the commencement of the lease term on 1 April 1998, or as soon afterwards as could reasonably be achieved and as at the same time the new air-conditioning system was to be installed, it was only practical sense for the air-conditioning system to be selected to serve the particular requirements of the chosen fit out. Not only for this reason, but because of the structure and timing of the obligations accepted by the parties under the First Schedule cl 10 of the lease, I am satisfied that the approach described by Mr Lommers is not only the most practical and efficient but is so obvious that it must be regarded as the objective aim or purpose of the parties at the time the lease was agreed. It is certainly consistent with all the terms of the lease and it is the view of the related character and sequence of the works required which I accept.

110 There is a further consideration which, in my view, points to the same conclusion. Subclause 10(5) of the First Schedule called for the plaintiff to remove the existing ceilings as soon as reasonably practicable after the date of the lease. The removal of the suspended ceiling would leave considerable space above which, at the time of the lease, had not been inspected by the defendants and which was later found to contain the unsightly plumbing and electrical lines from the upper floors and to reveal the old, but damaged, pressed tin ceiling above. The internal subdivisions, including the corridor walls and dividing walls between the former Yo-Yo's and TAB premises and the rear storage areas rose only to the level of the suspended ceiling. Removal of the suspended ceiling would, unavoidably, leave the existing partitions well short of the height of the original ceiling, raising further issues about the design and delivery of air-conditioning under the new system and the unsightly electrical and plumbing work and the damaged tin ceiling being left exposed.

111 There were no covenants by the plaintiff: to modify the plumbing or electrical lines; to repair or replace the old tin ceiling; to reinstall a new suspended ceiling; or to do anything about the internal subdividing partitions which stopped at the level of the suspended ceiling. It is unimaginable that a new permanent fit out would not need to address all those matters and include some suitable design to deal with the unsightly features and removal or redesign of the former internal partitioning. All that would have implications for the design of the new air-conditioning system and the configuration of the permanent fit out. In short, all the factors, not merely the express and implied terms of the lease, but the objective layout of the premises as it stood at the time when the first defendants obtained vacant possession, called for close co-operation between the plaintiff and the first defendants in removing the ceiling and installing new air-conditioning on the one hand and in designing and implementing the permanent fit out on the other. In every way these were interdependent obligations and, while with regard to the sequence of construction, it is probably the case that the removal of the suspended ceiling and of the old air-conditioning system would necessarily precede installation of the new fit out, I have no doubt that the design of the new air-conditioning system and the design and construction of the new permanent fit out were obligations which could only effectively be discharged by close co-operation and an early choice of the design and dimensions of the permanent fit out.

112 Accordingly, I conclude that under the provisions of this lease the plaintiff and the defendants were obliged to co-operate in the design and performance of the new air-conditioning system and of the permanent fit out and, in particular, this required the first defendants to submit in advance to the plaintiff suitably detailed architectural plans for their preferred fit out for the plaintiff's approval so that, once the design of the fit out was settled, the design of the new air-conditioning system could be completed and further arrangements for all the major activities, namely the removal of the suspended ceiling and of the old air-conditioning system, the installation of the new air-conditioning system and of the permanent fit out could be undertaken together, or in close sequence, in the most efficient manner possible. That was simply never done.

113 The fact that the lessor's obligations to remove the existing air-conditioning and ceilings and install new air-conditioning under subcl 10(5)(a) of the lease was to be performed "as soon as is reasonably practicable after the date of the lease", also imports a notion of dependency upon the wishes and circumstances of the lessees and their performance of the permanent fit out. This is because the removal of the old ceiling and air-conditioning and installation of new air-conditioning will be certain to be disruptive of any trading operations of the first defendants in any part of the leased premises involving intrusive trades and the dismantling of major old structures with all that that would entail. The co-ordination of this work with the trading operations or, more probably, with the suspension of trading operations of the first defendants would require their co-operation. Also, because the fit out was to be performed by the first defendants, in accordance with the sequence specified by Annexure "A", this meant that there was to be a temporary fit out and occupation of the old TAB premises which were to be used up to the time of Yo-Yo's vacating the east side. The clear implication is that, upon Yo-Yo's vacating the east side, the way would be clear for the first defendants to expand into the entire premises after a short intermediate stage in which the defendants would set up temporarily in Yo-Yo's. The implication is that the main fit out would occur while the first defendants were temporarily occupying Yo-Yo's. It follows from this that the practicability of undertaking the lessor's works would have regard to this staging in the progress towards the permanent fit out. As the lessor's works would be a substantial interuption to the business of the first defendants a proposal to follow this staging and suit the convenience of the first defendants is plainly one of the considerations which would determine the practicability of the timing for the landlord's works.

114 However, matters did not progress in this fashion as the first defendants remained in the TAB area continuously conducting their hairdressing operations without taking any steps to follow the staging contemplated by Annexure "A" which, as shown, was due to be completed before 1 April 1998 - cl 10(1)(b). The conclusion from this perspective is that, not having followed, or having offered to follow the staging contemplated by Annexure "A", the defendants have failed to extablish that it was practicable for the landlord to undertake the air-conditioning and ceiling works in accordance with cl 10(5) of the lease.

History of events from time of possession by defendants

115 The first defendants continued in occupation of the TAB areas after 20 February 1998, having been there from the preceding December. They took vacant possession of the Yo-Yo's area upon that tenant leaving at the end of February 1998. They continued to conduct the business of a hairdressing salon from the TAB area but took no steps to move into the Yo-Yo's area or to provide any plans to the plaintiff for the fit out, other than the general sketch forming part of Annexure A to the lease, until an indicative floor plan of the proposed refurbishment work was supplied on 1 November 1999.

116 That plan indicated a layout substantially different from the drawing forming part of Annexure A to the lease. The indicative plan submitted by the first defendants to the plaintiff was nevertheless approved by the lessor on 5 November 1999, subject to formal approval of completed working drawings and specifications. Negotiations and correspondence concerning the design of the proposed fit out proceeded between the representatives of the plaintiff and the first defendants from November 1999 to February 2000 without agreement being reached. During this period other issues of controversy arose between the parties over who was responsible for upgrading the electrical power system to deal with the heavier loads being drawn through the operation of the hairdressing salon, and to deal with the unsightly power lines and plumbing lines revealed by the defendants' unauthorised removal of portion of the suspended ceiling. These issues expanded into differences about who was responsible for the cost of repairing water damage to the ceilings and to refurbish the toilet facilities.

117 On 26 and 28 April 2000 plans for the proposed fit out were delivered by the defendants to the plaintiff under cover of a notice requiring the plaintiff to "implement the provisions of section 10.10(5) of the Lease and to remove ceilings and air-conditioning throughout the premises and replace and install a new shop front for the premises". However, by letter dated 22 May 2000 the defendants informed the plaintiff that they were having "second thoughts" about the plans of the proposed layout and that "the replacement of the shop front can wait till a later date". In the meantime, the plaintiff obtained a quotation for the new air-conditioning work. However, in the light of the defendants' "second thoughts", the plaintiff's agent informed the defendants by letter of 30 May 2000 that the plaintiff preferred not to proceed with its works until a revised drawing and specification approved by the authorities for the fit out was submitted. Efforts were then made by the defendants to sublet portions at the front and rear of the tenancy, but this initiative dissolved when Worksafe issued notices condeming portion of the premises until remedial work was done. Those notices were issued on 4 July 2000 and the requirements were later met by the plaintiff, both to the satisfaction of the Perth City Council and Worksafe, by 18 July 2000. Notwithstanding this, the disputes flared again and a notice to the defendants to cease activities in relation to a hairdressing academy was issued by the City of Perth on 25 July 2000. The defendants stopped paying rent and a notice of default for non-payment of the rent for July 2000 and the variable rent and electricity for June 2000 was issued.

118 Following this, the plaintiff appointed a series of agents or mediators to attempt to negotiate a resolution of the disputes with the defendants and numerous meetings of these representatives were held. Details of these meetings and of the lack of success of proposals and counter-proposals advanced were all adduced in evidence, but it is enough to say that no agreement was reached and no final set of plans for the permanent fit out was ever submitted by the defendants.

119 By 30 May 2001 the plaintiff's solicitors wrote to the solicitors for the defendants indicating the readiness of the plaintiff to undertake the air-conditioning works within the next two months and in accordance with any final set of fit out plans to be provided by the defendants within a month from then.

120 By March 2001 the rent and other payments due by the first defendants to the plaintiff was $66,666.64 in arrears and the plaintiff's solicitors had written on 6 March 2001 threatening to re-enter for non-payment. The disputes continued and the outstanding rent continued to accumulate. The defendants' application for an interlocutory injunction to restrain the plaintiff from re-entering the premises for non-payment of rent was heard before Anderson J on 28 June 2001 and, upon the defendants giving the usual undertakings as to damages, resulted in an order restraining the plaintiff and an injunction restraining it from purporting to exercise the powers of re-entry under the lease until the date of trial or further order.

121 Further meetings and negotiations between the parties occurred which led to the defendants providing a layout plan of the premises on 10 July 2001. The plaintiff then informed the defendants by letter dated 17 July 2001 that this layout plan was inadequate. The plaintiff asked for further plans and information, including particulars of layout locations and heights of internal walls and a ceiling plan, to allow it to consider the proposed plan and to design the new air-conditioning system. By this letter the plaintiff advised that if adequate plans and specifications were not delivered within seven days the plaintiff would proceed with its works to its own specification. This only led to a further round of negotiations and attempts to agree upon an integrated approach but no agreement was reached.

122 It is perhaps significant to observe that, in these rounds of negotiations between the parties between June 2001 and September 2001, there is a common feature in that the proposals all advance the installation of a new false ceiling in order to cope with the problems of the unsightliness of the old pressed tin ceiling and the exposed plumbing and electrical lines. Features of this new suspended ceiling continued to be issues of controversy between the parties throughout the rest of the year 2001 and they remained issues of contention as late as August 2002.

123 In the course of this impasse between the parties the plaintiff proposed carrying out detailed works, including the removal and partial reinstallation of the false ceiling, the completion of air-conditioning and a proposed fit out by letter dated 25 September 2001 (Exhibit 77) and accompanying plans. These included a new proposed suspended ceiling to meet the cosmetic role of concealing the wiring, plumbing, unsightly tin ceiling and new air-conditioning ducting which would be located above it. This proposal also foundered, it would seem, upon the proposal to install any form of new suspended ceiling, notwithstanding the approach which had been followed in the negotiations to that point. Significantly, however, no plans or acceptable detail for the lessees' permanent fit out had been submitted to the plaintiff and no approval had been granted by the plaintiff for any permanent fit out.

124 As the plaintiff was pressing its intention to enter the premises and carry out the air-conditioning work including the installation of a new suspended ceiling, the defendants sought an injunction to prohibit this. The defendants' application for an injunction in this respect came on for hearing before Anderson J on 2 November 2001, together with an application by the plaintiffs to discharge the earlier injunction restraining it from re-entering for non-payment of rent granted on 28 June 2001. Both applications were adjourned sine die by consent upon the defendants undertaking to pay the rent reserved as and from 2 November 2001 and the plaintiff undertaking not to proceed with any of the works, except certain incidental electrical work.

125 This situation continued with no new air-conditioning being installed, the old suspended ceiling partly remaining, and with no permanent fit out plan having been accepted. There is no plea by the defendants that they ever submitted a final plan for the permanent fit out or that any plan which they desired to implement for the permanent fit out was wrongly rejected or its approval wrongly withheld by the plaintiff. Even at trial, there was no evidence from the defendants of any plan for the permanent fit out which it was ready, willing and able to implement whether submitted to the plaintiff for approval or not.

126 The defendants' position in this regard was that they retained an open option about the nature and design of the permanent fit out and when it might be proposed and implemented. Although the disputes between the defendants and the plaintiff over incidental issues and, in particular, over the carrying out of the air-conditioning work continued for many months and with many variations, the one inescapable fact is that the defendants have constantly been maintaining that the plaintiff was required to remove the existing ceiling and install new air-conditioning without regard to the design and configuration of the permanent fit out and, despite submitting several proposals for the permanent fit out, the defendants never committed to a final design nor submitted a set of plans for the implementation of the permanent fit out in a manner which the plaintiff could approve. The defendants do not suggest that any particular plan for the permanent fit out has been wrongly rejected by the plaintiff or that they have been ready, willing and able to implement a permanent fit out in conjunction with the installation of new air-conditioning. This is so whether or not the old suspended ceiling is simply removed entirely or removed and replaced with any of the substitutes being considered during the negotiations.

127 By failing to submit plans and specifications for the permanent fit out of the premises in the interval between 20 February and 1 April 1998 and also in failing to commit to or take any steps to implementing a permanent fit out during that period, I consider that the defendants were in breach of their obligations under cl 10(1)(b) of the First Schedule of the lease, that is, to do the fit out works as detailed in Annexure "A" and were also in breach of their duty to co-operate with the plaintiff to allow the plaintiff to perform the works which it had agreed to perform under cl 10(5), namely, the removal of the existing air-conditioning and suspended ceilings and to install new air-conditioning as soon as reasonably practicable after the date of the lease.

128 This conclusion has several consequences not all of which were fully addressed by the parties. Primarily, and significantly, it means that the defendants are in breach of their obligations to perform their covenants under cl 10 in the First Schedule to the lease but it also shows that the defendants have not, at any material time, been ready, willing and able to perform the obligations which rested upon them under cl 10, the promise of which were major factors in leading to the grant of the lease.

129 This is enough to result in the dismissal of the defendants' counterclaim for damages and to dispense with any necessity to consider the plaintiff's alternative claims for rectification or for an order under s 77(3)(b) of the Fair Trading Act 1987 to vary the terms of the lease in order to provide that the plaintiff's obligation to remove the ceiling and the old air-conditioning and install new air-conditioning was dependent upon the defendants submitting for approval plans for the permanent fit out and implementing the permanent fit out in conjunction with, or in immediate sequence to, the air-conditioning works. However, a question not directly addressed in the submissions by the parties, but to some extent implicit in them, is whether or not the failure of the defendants to submit plans for and to implement the permanent fit out has the result that the plaintiff is now absolved from performing any of the works which it covenanted to perform under cl 10(5), namely the removal of the old air-conditioning and suspended ceiling and the installation of new air-conditioning.

Consequences of failure to co-operate and prepare permanent fit out

130 In this respect the plaintiff's submission is that because of the interdependence of the plaintiff's obligation to carry out the lessor's works under cl 10(5) with the lessees' obligation to carry out the permanent fit out under cl 10(1) and Annexure "A", the defendants were in breach of the duty to co-operate to effect the performance of these obligations and complete the permanent fit out. The next step in the argument is that because the defendants have breached those obligations the plaintiff's performance is dispensed with. The plaintiff cites Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 396, 417 and 456; ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 and Darter Pty Ltd v Malloy [1993] 2 Qd R 615 at 621 in support of that submission. In this regard, however, the plaintiff does not suggest that the defendants have repudiated the lease, nor does it seek to have the lease terminated in any way on account of this breach. Rather the submission is to be understood as contending that because of the defendants' conduct the plaintiff is absolved from any consequences of failing to perform the lessor's works prescribed by cl 10(5).

131 The submission also needs to be considered in the light of the conduct of the plaintiff throughout 1999, 2000 and 2001 when, on repeated occasions, the plaintiff was calling for or examining plans for the permanent fit out submitted by the defendants for approval and then in September 2001, after offering the defendants an opportunity to submit detailed plans of a revised form of permanent fit out then the subject of recent negotiations, the plaintiff notified the defendants that the plaintiff itself would proceed with works to its own design if the defendants failed to submit their own plans for approval within the month. It was this information which led to the grant of the interlocutory injunction of 28 July 2001.

132 The plaintiff, on these occasions, withheld final approval for plans submitted by the defendants because of the absence of sufficient detail or specification not because the proposals were being submitted after the period contemplated by cl 10(1)(b) of the lease or because there had been, by that stage, a breach of the lessees' obligations which dispensed the plaintiff from performing the work which it had agreed to perform by cl 10(5). At least during the period September 1999 to June 2001 the position of the plaintiff was that it remained ready and willing to perform the lessor's works, notwithstanding the time which had by then elapsed, but could not do so unless and until the defendants submitted for approval plans and specifications of the proposed permanent fit out in sufficient detail to satisfy the plaintiff's architectural advisors. In these circumstances, and even at trial, the plaintiff treated the defendants' conduct as a breach of the covenants of the lease but not as a breach of a kind which would lead to a termination of the lease, whether by acceptance of repudiation of an essential term or otherwise. Side by side with these submissions by the plaintiff stand the defendants' pleaded defences that by not contending that the defendants were obliged to carry out the permanent fit out before 1 April 1998, the plaintiff has waived any such breach and is now estopped from alleging such a breach.

133 The question of whether or not, by their actions, the defendants dispensed with performance of the lessor's obligation to carry out the removal of the old air-conditioning and suspended ceiling and the installation of new air-conditioning, either at the time contemplated by cl 10 of the lease or at any time, must also be examined in conjunction with the readiness and willingness of the plaintiff to perform those obligations in accordance with the contract had the defendants acted in conformity with their own obligations. In Foran v Wight (supra) Mason CJ said at 403:

"Notwithstanding such considerations, when the defendant has dispensed with the performance by the plaintiff of a mutually dependent and concurrent obligation, it remains for the plaintiff to show, not that he was ready and willing to perform, but that he would have been ready and willing to perform had the defendant not dispensed with the performance."

In the same case Brennan J put the matter, at 417, as follows:

"Where the respective obligations of parties to a contract are mutually dependent and concurrent, the primary rule is that neither party who fails to perform his obligation when the time for performance arrives can rescind for the other party's failure at that time to perform him obligation. Each party's obligation is conditional on performance by the other; neither can complain of non-performance by the other when the condition governing the other's obligation goes unfulfilled. But if one party intimates to the other that it is useless for the other to fulfil his obligation and the other acts on the intimation, the party to whom the intimation is given is dispensed from a nugatory tender of performance."

134 But the intimation from the one party leading to dispensation of the other from performance of some contractual obligation need not necessarily constitute a breach of the contract involved. In ICT Pty Ltd v Sea Containers Ltd (supra) at 666 Clarke, Handley and Sheller JJA said:

"Dixon CJ said (in Peter Turnbull & Co Pty Ltd v Mundus Trading (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235 at 247) that the guiding principle was that stated by Lord Mansfield in Jones v Barkley (1781) 2 Dougl 684 at 694; 99 ER 434 at 440:

' ... Take it on the reason of the thing. The party must shew he was ready; but, if the other stops him on the ground of an intention not to perform his part, it is not necessary for the first to go further, and do a nugatory act.'

This principle applies to intimations involving anticipatory or actual breaches of contract but we see no reason why it should not apply to intimations which do not involve a breach. Indeed there are dicta in Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 which support such an extension. Thus Mason CJ (at 396) said:

' ... A party may be excused or absolved from performance ... by conduct on the part of the other amounting to a waiver or dispensation of performance.'

' ... But if one party intimates to the other that it is useful for the other to fulfil his obligation and the other acts on the intimation, the party to whom the intimation is given is dispensed from the nugatory tender of performance.' "

See also GR Securities v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 per McHugh JA at 637.

135 Similarly, it is well accepted that there may be intimations by a party to a contract that he is not prepared to perform, or to perform in accordance with the contractual terms, certain obligations cast upon him by the contract but that such an intimation does not constitute a repudiation of the contract as a whole nor justify its termination by the innocent party. Nevertheless, the party who gives that intimation in breach of contractual terms thereby demonstrates that he is not ready, willing and able to perform the contract in the manner which he agreed to do and, therefore, is precluded from obtaining or recovering damages or other benefits, such as the payment of wages, which would otherwise be payable to him in the event of performance of the contract in accordance with its terms - Australian National Airlines Commission v Robinson [1977] VicRp 8; [1977] VR 87 per Young CJ at 90 - 91. There are also situations where a party to a contract, while refusing to perform the contract in accordance with its terms, because of the adoption by that party of an eroneous construction of the contract, does not signify that he has thereby repudiated the performance of the contract or has indicated that he is unwilling to perform the contract according to its terms properly construed - Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594 per Barwick CJ at 601.

136 It may be taken in the present case that the defendants were unwilling to complete the permanent fit out, either in accordance with the time sequence contemplated by cl 10 of the First Schedule of the lease or at all, because of the wrongful construction which they placed on the lease by contending that the lessor was obliged first, and independently, to carry out the lessor's work stipulated by cl 10(5), but that they nevertheless always desired to retain the benefit of the lease. Indeed, so much must follow from the payment of rent (during the times when it was paid) and the steps taken by the defendants to obtain interlocutory injunctions to prevent disturbance to their possession. Nevertheless, the position remains that the defendants have constantly maintained, even throughout the course of this trial, that there is no obligation upon them to carry out the permanent fit out unless, independently of its design and implementation, the plaintiff first removed the suspended ceiling and the old air-conditioning and installed new air-conditioning to the premises as an "empty shell".

137 The persistence in this position shows that the defendants have not been ready, willing and able to perform the contract in accordance with its terms and, therefore, cannot obtain specific performance of the misconstrued obligation of the plaintiff to carry out the works contemplated by cl 10(5) of the lease or obtain damages for any part of the counterclaim. It also means that, having refused to undertake the permanent fit out in accordance with the lease and in co-operation with the lessor's works and by failing to submit an acceptable plan for the approval of the permanent fit out, the actions of the defendants have absolved the plaintiff from carrying out the works contemplated by cl 10(5) at least for the present. Whether, having regard to all the circumstances, and, in particular, any increases in the costs of the works caused by the delay and the effect, if any, of the delay upon the plaintiff's agreement to lend $100,000 to the defendants to assist in the fit out, the conduct of the defendants absolves the plaintiff from any future obligation to carry out the cl 10(5) works in conjunction with an approved permanent fit out was not raised or addressed in argument and, therefore, is best left as an open question.

138 Similarly, the consequences of the defendants continuing to refuse to carry out a permanent fit out in accordance with the lease were not the subject of any submissions at the trial and, as there is no present claim by the plaintiff for possession of the premises or for termination of the lease, it is both unnecessary and inappropriate to address those matters here.

139 The conduct of the plaintiff in continuing negotiations with the defendants and their representatives throughout the period 1999 to 2001 over whether or not the whole of the suspended ceiling should be removed and, if so, whether the lessor should replace this in whole or in part with another suspended ceiling in the light of the problems presented by the exposed plumbing, electrical lines and the damaged pressed tin ceiling above, together with the plaintiff's readiness to consider plans for a permanent fit out submitted by the defendants as late as June 2001 results, in my view, in the plaintiff having waived the obligation in the lease for the defendants to carry out the permanent fit out by 1 April 1998 or soon afterwards. However, this can only be regarded as a waiver of the contractual obligation to complete the permanent fit out by that time and not as any general waiver of the defendants' obligation to do so within a reasonable time, having regard to all the circumstances.

140 It carries with it the consequence that the time for the plaintiff to carry out the lessor's works under cl 10(5) became similarly extended but the obligation for the defendants to co-operate with the plaintiff in designing and implementing these works and in submitting a plan for the approval of the proposed permanent fit out before the plaintiff became obliged to carry out the removal of the suspended ceiling and the old air-conditioning or to install new air-conditioning remained. Only to that limited extent have the defendants established their defence of waiver so that the question of whether or not they have the right, at this stage, to complete the permanent fit out in accordance with the lease, if ready, willing and able to do so, also remains an open question.

141 Because they have not established that they have, up to this point, been ready, willing and able to perform that obligation in accordance with the lease, and because of the conclusion that they are in breach of their duty to co-operate in achieving these works in combination with, or in close sequence to, the lessor's works, the defendants have failed to establish that the plaintiff is in breach of its obligations under the lease and have failed to establish any entitlement to damages or to specific performance.

142 Having established that its obligation to remove the ceilings, the old air-conditioning system and to install new air-conditioning is dependent upon the performance of the defendants' obligation to complete the permanent fit out and requires the co-operation of the defendants in implementation which has not been forthcoming, the plaintiff has established a breach of the covenants of the lease by the defendants. This opens the way to a claim by the plaintiff against the defendants for damages for breach of covenant but, although this was advanced by the plaintiff in its pleadings, as already noted, it was not pursued at the trial and, therefore, no damages, even nominal damages, can be awarded.

Defendants removal of part of the suspended ceiling

143 The plaintiff also alleges a distinct breach of the covenants of the lease by the defendants in removing part of the suspended ceiling. It has been established that large parts of the suspended ceiling were removed by the defendants' workmen without prior notice to, or approval by, the plaintiff during the period 2 - 8 September 1999 (Exhibits 11 and 150). The situation left by the removal of this ceiling is shown in some of the photographs in Exhibit 181. As well as exposing the damaged original pressed tin ceiling higher above and the unsightly plumbing and electrical lines, this left the internal walls and partitions standing with a large space above them. This has adverse consequences for the transmission of noise and other sounds, privacy, and airflow which, in turn, all impact on any proposed air-conditioning design. The plaintiff alleges that this conduct constituted a breach of the covenant in cl 6.2(a) of the lease which provides that the defendants must not make or suffer to be made to the premises any alteration to, or cut, maim, injure or suffer to be cut, maimed or injured any principal structure or walls or any part thereof without the prior written consent of the plaintiff and that it also constituted a breach of an implied covenant that the defendants would use and occupy the premises in a tenant-like manner. To this the defendants plead that the suspended ceiling was not a "principal structure" and, therefore, there was no breach of covenant 6.2(a). They also deny that there was any implied covenant to use the premises in a tenant-like manner.

144 Although the suspended ceiling was obviously not part of the original building as constructed, it had been in place for many years and the entire configuration of the ground floor, the dividing walls between the tenancies and the corridors and internal walls ran from the floor to the suspended ceiling and not beyond. The pre-existing electrical fittings and lights were also located on or with reference to this ceiling and, despite the fact that it would be possible to move the ceiling and completely re-design the walls and partitioning on the ground floor, I am satisfied that within the meaning of cl 6.2 the suspended ceiling should be regarded as a principal structure. It is therefore quite unnecessary to consider whether or not the unauthorised removal of part of that ceiling by the defendants constituted a breach of an implied covenant to use the premises in a tenant-like manner.

145 However, the plaintiff has not sought to show, nor has it produced any evidence to establish, that the unauthorised removal of part of the suspended ceiling has caused it any loss or damage. In the circumstances, therefore, although I conclude that the plaintiff has demonstrated a breach of covenant by the lessees in this respect, it does not entitle the plaintiff to any damages or other relief which it seeks in this action.

146 The second defendant ceased paying rent due to the plaintiff under the lease in July 2000. They also ceased paying electricity and management fees from June 2000 and from then on failed to pay other variable rent due to the plaintiff under the lease. The payments of rent and other moneys due under the lease were recommenced in November 2001 in the course of these proceedings at a time when the first defendants were seeking an injunction to restrain the plaintiff from entering to perform air-conditioning and other work.

147 It is agreed between the parties that the total of the arrears for rent, water rates, shire rates, land tax, insurance, management fees, rent adjustment and GST for that period is $188,135.14. Under the terms of the lease the lessees are obliged to pay interest on all overdue moneys at a rate of 2 per cent per annum greater than the Commonwealth Bank of Australia loan reference rate from time to time. It is also agreed that the aggregate amount of interest accrued at the prescribed rate over the period 1 July 2002 to 14 August 2003 is $45,931.79 making the total due by the second defendant for unpaid rent, other variable outgoings and fees:

Arrears $188,135.14

Interest to 14 August 2003 $ 45,931.79

$234,065.93

148 Interest has continued to accrue on those outstanding moneys since 14 July 2003 so that now, on 17 February 2005, a further one year and 187 days of interest has accrued. On the principal sum of $188,135 this calculates to $27,923.69 on the assumption that the Commonwealth Bank of Australia loan reference rate has not changed during that time. I shall give the parties liberty to make further submissions and adduce evidence on this interest calculation, if necessary, to make any allowances for a change in such interest rate but, subject to that liberty to apply, I find the arrears of rent and interest to be:

149 The first defendants and the second defendant do not deny that rent and variable rent due to be paid under the lease were not paid by the first defendants during the June 2000 to November 2001 period or that the aggregate of the money accruing due under the lease during that period is $188,135.14. Nor do the defendants dispute that, under the terms of the lease, interest in the manner described accrued due on all overdue payments or that the aggregate of the interest calculated in accordance with this formula on the overdue moneys to 14 August 2003 is $45,931.79. Rather, the position of the first defendants and the second defendant is that each asserts a counterclaim for damages against the plaintiff for alleged breaches of the lease and also each asserts that its counterclaim can be set-off against the liability for rent and interest, further submitting, that in that eventuality there will be a balance due by the plaintiff to each defendant after effect has been given to the respective set-offs. The issues between the parties as to whether either the first defendants or the second defendant has made out the counterclaims alleged and, if so, whether, in all the circumstances, either can be set-off against the plaintiff's claim for unpaid rent, other outgoings and interest due under the lease can be left at this stage for later consideration.

The plaintiff's claim for rectification of the lease

150 In the light of the conclusion which I have reached about the proper construction of the lease, the alternative claim by the plaintiff for rectification of that document falls away. Nevertheless, it is, perhaps, advisable for me to record the conclusions which I would have reached had my decision on the construction issue favoured the meaning of the lease advanced by the defendants. Having regard to the anterior agreement to lease reached between the parties at the end of November 1997, the dispatch of the memorandum of 9 December 1997 which later became Annexure "A" to the lease and the grant of occupancy of the TAB areas to the lessees in December 1997, I conclude that it was the mutual intention of the contracting parties for the removal of the suspended ceiling and the old air-conditioning and for the installation of new air-conditioning to be performed as early as possible but consistently and in co-operation with, the first defendants as they designed and constructed the approved permanent fit out of the entire leased premises, if possible before, but in any event as soon as could be reasonably achieved after, the commencement of the lease term on 1 April 1998.

151 Again, in that regard, I consider that it was the common mutual intention of the plaintiff and the first defendants, as well as being the commercial objective purpose of the lease that the ceiling and air-conditioning works would be performed simultaneously with or in close sequence with the completion of the permanent fit out and as a result of co-operation between the lessor and the lessees involving, among other things, prior submission by the first defendants to the plaintiff for the latter's approval, of architectural plans and specifications for the permanent fit out to which the design of the new air-conditioning system could be tailored.

152 Therefore, while a conclusion on the construction issues which I have reached renders the claim for rectification superfluous, had I reached a contrary conclusion I would then have been disposed rectify the lease by adding an additional subcl 10(5A) to the first schedule of the lease as follows:

"10(5A) The Lessee shall carry out the fit out works referred to in subcl 10(1)(b) above at the same time as, or as soon as practically possible after, the Lessor carries out the Lessor's works as provided in subcl 10(5) above. In the implementation of those works the Lessor and the Lessee and their respective agents and employees will co-operate fully with each other to ensure the installation and completion of those works in a timely and efficient manner and with a view to ensuring as little interuption to the Lessees' opportunity to carry on business in the demised premises as is consistent with the proper performance of those works and with a view to ensuring that, so far as possible, all works are completed by 1 April 1998 or as soon as reasonably possible thereafter."

The plaintiff's claim under s 77(2)(b) of the Fair Trading Act 1987

153 Again, in view of the decision which I have reached upon the construction of the lease, this alternative claim by the plaintiff does not arise for decision. Once more, however, I consider that I should record the conclusion on this issue which I would have reached had my decision on the construction of the lease been to the contrary and, further, had I also reached a decision in favour of the defendants to dismiss the plaintiff's alternative claim for rectification. That eventuality postulates that there was no term in the lease, nor any anterior agreement or mutual understanding that what I will now call the "lessor's works" and the "lessees' permanent fit out" were mutually dependent obligations requiring the co-operation of the lessor and the lessees in their design and implementation to be undertaken and completed simultaneously or in the closest sequence reasonably possible.

154 Such a position of postulated obligations independent of each other still leaves the situation where, by the negotiations leading to the agreement for the lease, the agreement for the lease itself and the entry into the lease, the defendants represented that they would design, submit to the plaintiff for approval, and if approved, undertake a permanent fit out of the premises along the lines of the diagram forming part of Annexure "A" to the lease, although they would have no obligation to do so until the plaintiff had first removed the suspended ceiling and the old air-conditioning system and installed a completely new and fully functioning air-conditioning system. The obvious practical artificialities in this hypothesis are, of course, factors which have already been discussed and which led me to rejecting this construction of the lease. Nevertheless, assuming the decisions on the issues of construction and rectification had been to the contrary, a question would remain as to whether or not the representations made and admitted by the first defendants in trade and commerce about their future intentions to complete a permanent fit out were misleading and deceptive.

155 In these particulars circumstances this involves a consideration of whether or not the first defendants have established, the onus being on them, that they had reasonable grounds at the time for making those representations. I have no doubt that during the negotiations leading to both the agreement for the lease and the lease itself, the defendants did honestly believe and intend that they would carry out both a temporary and permanent fit out of the premises as soon as possible after obtaining vacant possession and in accordance with the sequence described in the memorandum of 9 December 1997 which eventually became Annexure "A". I also conclude that the plan or diagram of the proposed layout which formed part of Annexure "A" was genuinely advanced as an indicative plan of a permanent layout which may be subject to revision in the detailed plans which were eventually to be submitted to the plaintiff for its approval. Furthermore, I am also satisfied that as a result of their own financial resources and with the assistance of the $100,000 loan from the plaintiff which was to be advanced on the terms set out in the lease to assist in the fit out, the defendants had the means and resources of initiating and completing a fit out such as was then envisaged. I am also satisfied that, at the time the representations were made, it was the intention of the defendants to design and install the permanent fit out before 1 April 1998, if possible, or if not as soon afterwards as was reasonably possible. The arrangements for the advance and repayment of the $100,000 loan from the plaintiff are, perhaps, the plainest indication of this.

156 What then happened is that, after the lease was executed and the first defendants went into occupation, the design and implementation of the permanent fit out, for reasons which never satisfacorilly appeared, was deferred by the defendants. After this deferral and, probably in about September 1999, when the defendants discovered the unsightly electrical and plumbing lines in the void above the suspended ceiling and the damaged state of the pressed tin ceiling above, the situation was clouded by other controversies. These included the disputes which then arose over the defendants' contention that the plaintiff was obliged to repair the original tin ceiling, deal with the electrical and plumbing lines rendered visible, upgrade the electrical wiring and power supply system, attend to water damage and improve the toilet facilities.

157 Up until that point there had been no controversy between the lessor and the lessees over the performance or the order of performance of the lessor's works and the lessees' permanent fit out, but from then on these became enmeshed in other disputes and attempts by the defendants to renegotiate the entire lease.

158 While the defendants' refused to propose or implement a complete fit out in this situation, in circumstances where they were maintaining that the design of the fit out was independent of the design of the air-conditioning system, there was still much scope for allegations that the defendants were in breach of the covenants contained in the first schedule cl 10(1) of the lease, even upon the constructions for which they contended. However, even if they were to be regarded to have been in breach of the terms of the lease, that does not mean that the representations which they made before 20 February 1998 about future matters of the design and completion of the permanent fit out, constituted misleading or deceptive conduct.

159 In this situation my finding would have been that, by virtue of events which occurred after 20 February 1998, the defendants changed their minds about the immediate design and implementation of the permanent fit out and, after initially simply deferring this without complaining that the lessor had not performed his works, their attitude was further changed by the problems experienced with the discovery of the conditions in the premises above the suspended ceiling in September 1999. Whether this change of mind was justified or not and regardless of whether or not it may have constituted a breach of the covenants in the lease on the hypothesis presently adopted, I am satisfied that it could not have had the effect of converting an honest and reasonable representation about the intention to carry out the permanent fit out made in the negotiations leading up to the lease of 20 February 1998 into misleading or deceptive conduct. On any view, therefore, it follows that the plaintiff's claim for the relief under the Fair Trading Act 1987 would have failed.

160 The lessor's works to be performed under cl 10(5)(a) of the First Schedule of the lease required the lessor to "remove the existing air-conditioning and ceilings within the leased premises and to install new air-conditioning throughout the leased premises". Plainly, this only required the removal of the suspended ceiling which was in place at the date of the lease and not its replacement. Among the objections by the defendants to the plaintiff undertaking the air-conditioning and ceiling works proposed in July 2001 was the lessor's stated intention of installing a new suspended ceiling (at a higher level) after the remnants of the original suspended ceiling had been removed. This led to the defendants applying for a second interlocutory injunction to prevent the plaintiff entering upon the premises to undertake this work and resulted in an undertaking being given on 2 November 2001 not to proceed with that work (and a cross-undertaking by the defendants to resume payment of rent and other moneys due under the lease as and from 2 November 2001) with all parties reserving their rights.

161 The plaintiff's proposal to install a new suspended ceiling followed a long course of negotiations between the parties and their representatives, during which the defendants were demanding replacement of the ceiling which was to be removed. That stance by the defendants was maintained in the correspondence and discussions between the parties from April 2000 (at the latest) (Exhibit 22) to 19 September 2001 (Exhibit 62). Although from this latter date the defendants were maintaining that their position had always been that no replacement for the suspended ceiling after its removal was contemplated by the lease and that they had always maintained that it should be removed and not replaced.

162 The evidence satisfies me that these claims made by the defendants in and after September 2001 about their prior stance on this issue are wrong, but as the controversy (in the defendants' submission) has some bearing on the willingness and readiness of the plaintiff to perform its obligations under the lease, the details must be examined more closely. Before doing that, however, it is clearly the case that the proposal to install a new suspended ceiling, was a response to the problems presented by the discovery of the unsightly condition of the original pressed tin ceiling, penetrated as that was by the plumbing and electrical lines which obtruded into the space below which had been out of sight until the original suspended ceiling was partially removed by the defendants in September 1999.

163 Controversy over the alleged obligation by the defendants to supply architectural plans and drawings for the plaintiff's approval for the permanent fit out and whether or not the defendants satisfied any obligations resting upon them in this respect is also relevant to the issue of whether the plaintiff was ready, willing and able to perform the obligations resting upon it to carry out the lessor's works under cl 10(5) of the First Schedule, but it is also relevant to the question of whether or not the defendants were ready, willing and able to carry out their obligations, under cl 10(1), to design and complete the permanent fit out. Because the controversies over the suspended ceiling and the supply of plans for approval of the proposed permanent fit out are, in certain respects, interrelated, it is convenient to examine them together.

164 While the covenants for the lessor's works as set out in the First Schedule cl 10(5)(a) made no mention of a replacement for the existing ceilings which were to be removed, there had been conflicting proposals about this obligation in the negotiations and correspondence which led to the agreement for lease in November 1997 and in the further negotiations leading up to the execution of the lease itself. The defendants' first offer to lease the premises (Exhibit 86) of 1 November 1997 made no mention at all of the lessor's works but sought a contribution by the lessor of $200,000 to the lessees' fit out. The response from the plaintiff's agent of 5 November 1997 (Exhibit 87) offered an unspecified contribution to the total fit out and an upgrading of ceiling, lighting and air-conditioning but without detail. A facsimile from the defendants' agents of 17 November 1997 (Exhibit 89) for the first time sought a provision requiring the lessor to air-condition the ground floor and to remove the false ceiling, but for the lessees to be responsible for the installation of a shop front at their cost. The disclosure statement required under s 6(4) of the Commercial Tenancy (Retail Shops) Agreements Act 1985, delivered by the plaintiff (Exhibit 90) and dated 19 November 1997, originally provided for "air-conditioning & suspended ceilings to be fitted by landlord together with new shop front". But this was altered by manuscript to provide "air-conditioning to be fitted by landlord", while including a provision that the landlord was to provide, at its cost, a suspended ceiling. This same document had originally proposed that the fit out to be provided by the lessees would include new ceilings but that detail was also removed by manuscript alteration. The plaintiff's agent, by facsimile dated 19 November 1997 (Exhibit 4), in the course of dealing with proposed terms, point by point, noted that the premises will be fitted with new air-conditioning and the existing ceilings removed at the lessor's cost, the style and type to be agreed between the parties. There is no further contemporary correspondence between the parties or their agents on this issue in evidence before the date of the execution of the lease which, as seen, itself specified the obligation as being the removal of the existing ceilings.

165 It was during the period from 2 to 8 September 1999 (Exhibit 150) that the defendants, without authority, unilaterally removed part of the existing suspended ceiling. The reason for this action is not of importance but it seems to have been prompted by a desire by the defendants to investigate the potential for the proposed fit out before any firm plans or proposals in that regard had been formulated. It led to the discovery of the unsightly condition of the higher tin ceiling, and plumbing and electrical lines in the void, which in turn prompted demands by the defendants that those matters should be dealt with at the plaintiff's expense. There was no express provision in the lease requiring the plaintiff to do this, nor any implied covenant to put the premises into repair or to render them fit for the purpose for which they had been leased: City of Subiaco v Heytesbury Properties Pty Ltd [2001] WASCA 140; (2001) 24 WAR 146 at 156; and Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272; [2002] ANZ Conv R 548.

166 On 26 April 2000 the first defendants gave the plaintiff notice demanding that it implement the provisions of cl 10(5) of the First Schedule of the lease which, so it was said, required the plaintiff:

"(a) To remove the ceilings and air-conditioning throughout the premises and to replace."

That notice was partially withdrawn by a second notice dated 22 May 2000 (Exhibit 26) which announced that the defendants were having second thoughts about the plan of the proposed permanent fit out previously delivered and asked for that to be disregarded. Nevertheless, by Exhibit 26, the defendants demanded that the ceiling and air-conditioning works should continue in a context where the ceiling work mentioned included replacement of the ceiling which was to be removed. By correspondence to the Commissioner of Worksafe (who had issued orders in respect of the premises), the defendants advised on 24 July 2000 (Exhibit 31) that under the terms of the lease it was the responsibility of the owner to remove and replace the ceiling. Again, by letter dated 4 August 2000 (Exhibit 33) the defendants notified the plaintiff:

"The only reason that rent remains unpaid is your refusal or neglect to proceed with the obligations incumbent upon you to remove and replace the ceiling and install air-conditioning in accordance with the provisions of the lease ... ". (Exhibit 33)

This was also the defendants' position in their letters of 24 August 2000 (Exhibit 34) and 27 November 2000 (Exhibit 40). In July and August 2001 the defendants were again writing to the plaintiff (Exhibits 56 and 57) in reference to negotiations proposing that "ceiling details would be developed" in a context which suggested that this was part of the plaintiff's responsibilities.

167 It was during the period July to October 2001 when negotiations between the parties over possible solutions to several disputes, including the removal of the suspended ceiling, the installation of new air-conditioning and the design and completion of the permanent fit out were being addressed. This occurred on the basis that there would be a joint and co-operative approach to dealing with these matters so that the plaintiff submitted proposals, including detailed plans, for the installation of new air-conditioning which included a newer, and higher, suspended ceiling which it was willing to install. This proposal would address the problems of the unsightly wires, pipes and damaged tin ceiling. This new suspended ceiling for that purpose was a feature of proposals which had, up until that time, been discussed in the negotiations between the parties without objection. When the defendants failed to submit for approval detailed plans for a permanent fit out, or to commit themselves to a permanent fit out, the plaintiff advised that, in the absence of the provision of such plans from the defendants within a month, it would proceed to undertake the work in connection with the removal of the existing suspended ceiling, the installation of new air-conditioning and the installation of a new suspended ceiling.

168 This prompted objection by the defendants' solicitors to the proposed suspended ceiling by letter dated 19 September 2001 (Exhibit 62) which, if not the first, was one of the earliest objections by the defendants to the installation of such a feature. That objection was then maintained by the defendants in subsequent correspondence throughout September and October 2001 (Exhibits 78, 63, 79 and 143), leading ultimately to the defendants' application for an interlocutory injunction to prevent entry on the premises by the plaintiff to undertake that work.

169 From this history it is clear that the plaintiff's proposal to carry out work involving the installation of a new suspended ceiling was far from being an initiative of its own, or a decision taken in disregard of the defendants' rights or wishes. Although such a new suspended ceiling was not contemplated by the lease, it had been the subject of detailed negotiations between the parties and their agents over the preceding months. Furthermore, a demand for the replacement of the suspended ceiling had been a feature of the defendants' correspondence to the plaintiff dating back to April 2000.

170 If no new suspended ceiling or other feature to conceal the unsightly problems presented by the plumbing and electrical lines and the dilapidated condition of the tin ceiling is installed, then those are problems which will, no doubt, have to be addressed by the defendants in another way in the eventual permanent fit out. That situation serves to place in context the view advanced by the plaintiff, and maintained by Mr Sansom when giving evidence at trial, that it was still his intention to install a new suspended ceiling as part of the lessor's works. The practical reasons for doing so are obvious enough and I do not consider that this statement by Mr Sansom should be regarded as any indication of an intention to override or disregard the defendants' rights in this respect once they have been determined by these proceedings.

171 I would not, therefore, regard the history of events in relation to the proposal to install a new suspended ceiling or Mr Sansom's evidence as giving rise to any significant risk of a threatened intrusion upon the defendants' rights which would warrant a continuation of the undertaking given by the plaintiff on the defendants' application for the interlocutory injunction heard on 2 November 2001, nor the grant of a permanent injunction as sought.

172 Putting aside drawings which do no more than show former floor layouts of the demised premises, there are six sets of plans which require attention when determining whether or not the defendants took steps to submit to the plaintiff for approval a plan of the proposed permanent fit out to be constructed in accordance with cl 10(1)(b) of the First Schedule of the lease. They are:

• Exhibit 3 - Drawing II - Meades' December 1997 proposal.

• Exhibit 15 - Drawing III - Meades' October 1999 proposal.

• Exhibit 23 - Drawing IV - Meades' April 2000 proposal.

• Exhibit 52 - Drawing V - Meades' July 2001 proposal.

• Exhibits 183A, B & C - Drawing VI - plaintiff's 2001 proposal.

• Exhibit 147A - Drawing VII - plaintiff's 2002 proposal

The first of these (Exhibit 3) is the sketch layout plan accompanying the memorandum of 9 December 1997 (Exhibit 91) which later became part of Annexure A to the lease itself. This is a general indicative plan only and was never intended or treated as an outline of the permanent fit out which the lease expressly provided would come later.

173 The second (Exhibit 15) was treated by the defendants as being only an "indicative floor plan" and was submitted to the plaintiff under cover of a letter indicating that working drawings and specifications would be submitted for approval "in due course" (letter 1 November 1999, Exhibit 13). Immediately afterwards the plaintiff, through his agent, gave approval to that indicative plan, subject to formal approval of the completed working drawings and specifications which were expected in due course (letter 5 November 1999, Exhibit 14). Those further detailed working drawings were requested by the plaintiff's agent again on 18 November 1999 (Exhibit 16). When dealing with an associated dispute concerning electrical and plumbing matters, the defendants' agent replied on 2 December 1999 (Exhibit 17) and advised the plaintiff that the lessees' representative was then considering plans for the fit out of the premises. No such plan was submitted and on 14 February 2000 (Exhibit 20) the plaintiff's agent wrote to the defendants' representative asking for a formal schedule of the lessees' works together with a final approved plan which might be considered at a meeting then imminent.

174 By March 2000 there were other matters in issue between the parties, including claims about whose responsibility it was to make good electrical wiring, to make good the pressed tin ceiling and a demand by the defendants for new toilets to be constructed. In addressing those matters the defendants' agent wrote to the plaintiff's agent on 13 March 2000 (Exhibit 136) advising that, upon confirmation of the plaintiff's acceptance of the lessees' demands in regard to those other matters and upon agreement to extend the lease term to 20 years, the defendants would proceed immediately with working drawings for Council approval. The plaintiff did not accept these demands and no plans were submitted by the defendants.

175 On 23 March 2000 the defendants' architect notified Mrs R Meade, one of the first defendants, that he had prepared a brief outline of the works to permit the fit out (Exhibit 135). Still no further plans or specifications were submitted on behalf of the defendants.

176 On 26 April 2000 the first defendants delivered the notice demanding that the plaintiff implement the work specified in cl 10(5) of the First Schedule which, so they asserted, required the plaintiff to remove the ceilings and air-conditioning throughout the premises and replace and to install a new shop front for the premises. With that notice there was a plan for the proposed fit out (Exhibit 23) which, while in a number of respects similar to, was a clear advance upon the earlier indicative floor plan of October 1999 (Exhibit 15), but still there were no specifications, dimensions or elevations.

177 The plaintiff acknowledged the notice (Exhibit 22 and accompanying plans) by letter of 2 May 2000 (Exhibit 24) but advised that it was still awaiting Council approved plans and a list of lessees' works. That letter also notified the first defendants that the lessor, before commencing work, was anxious to resolve the matter of an outstanding rent review then due on 1 April 2000 - another issue between the parties.

178 In his submissions, counsel for the defendants has contended that the plaintiff was not entitled to defer giving attention to the request for the approval of these plans pending the rent review and that the plaintiff also unjustifiably demanded that the plan submitted should have first been approved by the Perth City Council. By this point in May 2000 the time originally contemplated for the permanent fit out (February to April 1998) had long passed and it therefore cannot be accepted that the plaintiff was in breach of any express or implied obligation in proposing deferral of attention to this request for a short time. However, while it was always anticipated by the plaintiff that Perth City Council ("PCC") approval of the plans for the proposed fit out would be necessary, an assumption vindicated by subsequent events (Exhibits 51 and 132), it does not seem to have been essential that PCC approval be obtained before, rather than after, the submission of the permanent fit out plans to the lessee for its approval. Obviously, there would be little utility in the lessor giving approval to a proposed set of permanent fit out plans if they could not receive approval from the PCC, so one can appreciate why the plaintiff and its advisors were making this stipulation. In this respect it is to be noted that the defendants' agent, Mr M R Stubbs, strongly recommended the defendants to proceed to obtain PCC approval for the fit out plans by letter of 9 May 2000 (Exhibit 173). However, in the end, the issue is of no practical significance because, soon afterwards, the defendants withdrew their request for approval of the April 2000 plans (Exhibit 23).

179 This occurred by the delivery of a further notice from the defendants to the plaintiff dated 22 May 2000 (Exhibit 26) which specifically referred to the notice of 26 April 2000 and to the accompanying plans. This notice included a passage:

"We are now having second thoughts about the plan and are considering keeping the two original shops separate and retaining the common walk way or gallery leading to the rear of the premises our intention being to sublet (subject to your approval) the smaller shop.

Please therefor[e] disregard that plan but at the same time the ceiling and air-conditioning work can continue after due consultation between our Architects. The replacement of the shop front can wait till a later date."

180 The plaintiff's agent acknowledged that notice by letter of 30 May 2000 (Exhibit 69), together with the request that the defendants' fit out drawings should be disregarded pending a possible change to the current proposal, going on to say:

"In the circumstances, the lessor prefers not to proceed with the lessor's works contained in the lease until your revised drawing and specification, duly approved by the relevant statutory Authorities, is submitted to the lessor for Approval pursuant to the terms of the Lease.

Please provide the required documentation at your earliest opportunity in order to progress this matter."

181 By 19 July 2000 the defendants had decided not to proceed with the proposed hairdressing school which had, until then, been intended for part of the demised premises and for which the plans for the permanent fit out prepared before then had provided. They notified the City of Perth to this effect by letter of that date (Exhibit 30). This necessarily involved a relinquishment of the permanent fit out proposal outlined in the April 2000 plan (Exhibit 23). The defendants notified the plaintiff of this by letters of 4 August 2000 (Exhibit 33), 24 August 2000 (Exhibit 34) and 18 September 2000 (Exhibit 73). Notwithstanding this, the defendants asserted (contrary to what I have decided is the proper construction of the lease) that the plaintiff was obliged to proceed independently with the works for the removal of the suspended ceiling and the air-conditioning and for the installation of new air-conditioning. At this time, as set out earlier, the defendants were asserting that the plaintiff was bound under the terms of the lease to replace the ceiling which was to be removed.

182 In addition, the defendants failed to pay the rent due at the beginning of July and also failed to pay the variable rent which had accrued for the month of June. They maintained that they were withholding the payment of rent and variable rent from July 2000 onwards because of the plaintiff's alleged failure to perform its obligations under cl 10(5) of Sch 1 of the lease. They continued to withhold payment of rent in this respect until required to give an undertaking to resume payment of rent from 2 November 2001 in return for an undertaking by the plaintiff not to enter upon the premises to carry out the works proposed, at the application for interlocutory injunctions heard by Anderson J on that date.

183 On any view, therefore, there had been no failure by the plaintiff to consider or to approve a permanent fit out plan submitted by the defendants for the works which they were to perform under cl 10(1)(b) of the First Schedule of the lease up to and including 30 May 2001 (see letter from plaintiff's solicitors of 30 May 2001 - Exhibit 47), when an opportunity was given to the defendants to provide permanent fit out plans within a month. This was met by a response from the defendants' solicitors that such fit out plans could be produced by 30 June 2001 and would be supplied (letter 19 June 2001 - Exhibit 49). At a meeting of the defendants' representatives on 8 July 2001 it was acknowledged that Perth City Council approval for the proposed works would be required (Exhibit 51).

184 It was in these circumstances that Exhibit 52 (the defendants' drawing V - Meade July 2001 proposal) was prepared. However, this was no more than a layout plan and was insufficient to proceed with building works, not containing elevations, ceiling plans, service requirements or other specifications (see File Note 11 July 2001 - Exhibit 53). Receipt of those plans was acknowledged by the plaintiff on 16 July 2001 (Exhibit 106) but, not surprisingly in view of the delays, the plaintiff gave instructions for the preparation of a list of the deficiencies in the plan so that formal notice could be given to the defendants to provide full plans. Such a demand for full plans specifying the documentation and information required in them was given to the first defendants by the plaintiff on 17 July 2001 (Exhibit 54).

185 No further plans were submitted by the defendants and on 24 July 2001 the plaintiff gave notice that it would prepare its own plans in order to install the air-conditioning, shop front, ceiling, junction box and toilet renovations (Exhibit 109). No further plans had been submitted by the defendants by 2 August 2001 (Exhibit 111) so the plaintiff proceeded to prepare its own plans (Exhibit 183A, B and C - Drawings VI, the plaintiff's 2001 proposal) which were submitted by the defendants for their own advisors' comment on 4 September 2001 (Exhibit 60), after having been received on 31 August 2001. By letter of 6 September 2001 the defendants objected to these plans advising that they were still under consideration by their architect (Exhibit 75). Further objection from the defendants' solicitors by letter of 19 September 2001 was made on, among other, grounds that they proposed the installation of a new and suspended ceiling. When this could not be resolved by further negotiations the defendants applied for an interlocutory injunction to restrain the plaintiff from entering upon the premises to undertake that work. It was that application which led to the undertakings of 2 November 2001 already described.

186 Throughout that controversy, however, there was no submission of any further set of plans by the defendants to the plaintiff for the permanent fit out contemplated by cl 10(1)(b) of the First Schedule. The only further plans for any such works were the plaintiff's drawings VII - plaintiff's 2002 proposal (Exhibit 147A and 147B) which were intended to meet the defendants' latest requirements but which include a replacement suspended ceiling to deal with the problems associated with the old tin ceiling and the plumbing and electrical lines for which no other solution had been proposed. Objections to this proposed work were again made by the defendants at the trial, on the basis that it provided for a replacement of the suspended ceiling.

187 The result of this examination of the history of proposals for a permanent fit out of the leased premises demonstrates that, apart from the defendants' April 2000 proposal (Exhibit 23), which was not accompanied by any detailed specifications and which was withdrawn by 25 May 2000, the defendants have not submitted any plan for a permanent fit out which they have been ready, willing and able to implement. Their position at trial was that no such proposal for a permanent fit out had been prepared and that they were under no obligation to submit any such plan or to commit to any permanent fit out unless and until the plaintiff first completed the removal of the suspended ceiling and the air-conditioning and the installation of new air-conditioning throughout the premises. No matter what factors or beliefs about the proper construction of the lease may have prompted such a position, there is no avoiding the conclusion that it reveals the defendants as being in breach of their obligations to propose and implement a permanent fit out. They are shown to be unwilling and unready to perform the obligations cast upon them by their agreement to cl 10 of the First Schedule of the lease.

188 In the light of the conclusions reached, the defendants' counterclaim for damages and their claim for specific performance must be dismissed. With those the defendants' set-off against the plaintiff's claim for rent, variable rent and interest also disappears. This also means that it is unnecessary to consider whether or not the defendants' counterclaim for damages, as pleaded, (but the quantification of which was adjourned pending a possible application to reamend the counterclaim to reformulate that claim for damages) gives rise to a claim of a character which could be set-off, as sought, against the plaintiff's liquidated claim for rent, variable rent and interest.

189 Associated with this question is the related issue of whether or not the second defendant, as guarantor of the first defendants' obligations under the lease, can set-off against the plaintiff's liquidated claim, the first defendants' counterclaim for damages. As it is unnecessary to decide these issues I note only that, in support of their claim to set-off the damages alleged to be due against the plaintiff's liquidated claim the defendants rely upon British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137, Walker v Department of Social Security [1995] FCA 1136; (1955) 56 FCR 354 and Beechervaise v Lewis (1872) LR 7 CP 372 in support of their contentions that a set-off may be claimed in these circumstances and that this particular counterclaim was of a character which could, in equity, be set-off against the plaintiff's liquidated claim. There is support for the proposition that a guarantor can assert such a set-off in equity which may be possessed by the principal debtor but only where the principal debtor is also a party to the action as the first defendants are here: Elkhoury & Anor v Farrow Mortgage Services Pty Ltd (In Liq) [1993] FCA 264; (1993) 114 ALR 541; Indrisie v General Credits Ltd [1985] VicRp 20; [1985] VR 251; Langford Concrete Pty Ltd v Finlay [1978] 1 NSWLR 14 and Re Kleiss; Ex parte Kleiss v Capt'n Snooze Pty Ltd (1996) 61 FCR 436 - discussed by Murray and Barker JJ in Young v National Australia Bank Ltd & Anor [2004] WASCA 298.

190 It is also necessary to recognise, as noted earlier, that under the provisions of cl 12.26(b)(ii) of the lease the second defendants' obligation is not merely that of a gurantor or an indemnifier but is also that of a co-principal with the lessor. The final factor to be noted in this respect is that the damages sought by the counterclaim, and the subject of the set-off pleaded by the defendants, were not damages incurred by the defendants in remedying the alleged breaches of covenant by the lessor but, rather, were damages alleged to have arisen from the loss of the opportunity of the defendants, severally, to sublease portions of the demised premises at a profit. Any issues arising from this submission formed part of the cause which was adjourned, for a separate and future hearing, should that ever have become necessary.

191 That leaves the defendants' counterclaim for a permanent injunction to restrain the plaintiff from proceeding to enter the premises to remove the remains of the existing suspended ceiling, and the old air-conditioning system, to install new air-conditioning and a new suspended ceiling as proposed in the plaintiff's plans provided to the defendants on 31 August 2001 and as explained to the defendants' solicitors by letters dated 31 August and 25 September 2001.

192 Earlier in these reasons I have explained the basis for my conclusion that it is only the intimation of the plaintiff that it intended, in the course of the works proposed, to install a replacement suspended ceiling, which constituted any threat of a breach of the provisions of the lease. While in the course of giving evidence Mr Sansom acknowledged that it was then still his intention to carry out this work if not restrained, I consider that it is most improbable that the plaintiff would in fact do so, or threaten to do so, now that the respective rights of the parties have been determined by this Court. For that reason, therefore, because I am not satisfied that there is any significant risk that the plaintiff will now unilaterally attempt to install a replacement suspended ceiling without the consent of the defendants, I have reached the decision that there is no need for an injunction as sought by the defendants. Of course, if circumstances should change, the defendants would have every opportunity to apply to the court in further proceedings for such injunctive or other relief as the facts may then warrant. This also leaves open the question of whether a further refusal or neglect by the defendants to carry out a permanent fit out would constitute a breach of the covenants of the lease justifying the plaintiff taking action in default under cl 10 of the lease or otherwise seeking to terminate the lease or to obtain possession.

193 For these reasons, I consider that the judgment and orders which should be made in the light of these conclusions should be to the following effect:

(a) there be judgment for the plaintiff against each of the defendants jointly and severally for the sum of $188,135.14 for unpaid rent, variable outgoings together with interest accrued on those outstanding moneys in the total amount of $261,990.62 (inclusive of interest) subject to liberty to apply to the parties to re-calculate so much of the component of interest as has accrued since the date of the trial;

(b) the plaintiff's claims for damages, for rectification of the lease and for an order under s 77 of the Fair Trading Act (1987) be dismissed;

(c) the defendants' counterclaims for specific performance, for an injunction and for damages at law or in equity be dismissed.