the Court may award damages to the party injured either in addition to or in substitution for the injunction or specific performance."
13 The specific performance claim is thus maintained to the extent necessary to create the foundation for an award of damages in lieu of specific performance pursuant to s.68.
C&A's defence
14 By its further amended defence, C&A denies that its failure to remove the wharf constitutes a breach of the lease provisions. This is in part because clause 7 is, in C&A's submission, a code carrying within it its own scheme of vindication. C&A further says that it would have been unlawful for it to remove the wharf during the term (and would be unlawful for it to remove it now) and, in that connection, refers to a number of statutory provisions and statutory instruments. C&A says that, even if its failure to remove was a breach of the lease provisions, specific performance would be an inappropriate remedy, damages being an adequate remedy - but MSB has not suffered any relevantly compensable loss or damage since it has not incurred any cost in itself removing the wharf. There is also an estoppel defence.
Construing clause 7 in its context
15 MSB bases its claims squarely on clause 7. Several features of that clause must be noticed. First, the lessee's obligation to remove structures extends to structures "now erected or at any time hereafter to be erected" on the leased land (except seawalls and reclamations), with the result that it applies to the wharf which existed at the time the lease was granted. The clause is thus not concerned with tenant's fixtures as such, even though it would extend to any tenant's fixture properly described as a "structure".
16 Secondly, clause 7 specifies the time at (or within) which removal of structures is to be effected. Leaving to one side as presently irrelevant the case of termination under clause 26, structures are to be removed "prior to the expiration of the said term". Clause 7 does not contemplate removal after expiry of the term. In that respect, it is to be contrasted with clause 8 which, dealing with certain classes of termination before the end of the term, contemplates removal of structures by the lessee after the lessee's right of possession has ended and, to cater for that, creates a special right of occupation for the period during which removal is to be effected.
17 Thirdly, clause 7 deals expressly with the case where a structure is not removed as the clause stipulates ("… and should any such structure or any part thereof not be so removed…"). In that event, the lessor may, according to clause 7, do one of two things, that is, "retain the same" or "itself remove and sell or otherwise dispose of the same". Clearly enough, this involves a choice by the lessor.
18 As it relates to the wharf, clause 7 deals with a fixture forming part of the lessor's land. Removal by the lessee would thus involve removing and taking away the part of the lessor's land that is the wharf. That is something that the lessee would otherwise have no right to do, but the removal requirement imposed upon the lessee by clause 7 must, of necessity, carry with it a right to remove: see Starline Drive-In Theatre Ltd v Federal Commissioner of Taxation (1964) 112 CLR 458. The concept underlying clause 7 is thus not one of the lessee's recapturing for itself something that is, broadly speaking, its own. Rather, the concept is that the lessee will perform a service for the lessor by providing, at the end of the term, land cleared of structures other than seawalls and reclamations. The lessee's obligation is, in substance, an obligation to yield up the land in the condition it was in before structures other than seawalls and reclamations were placed upon it. The covenant is, in that sense, a covenant for the doing of certain work upon and in relation to the land before the expiration of the term.
19 The interaction between clause 7 and clause 4 should be mentioned. Clause 4 requires the lessee to place and keep structures "in good and efficient condition and in a thorough state of repair" and to deliver them up at the expiration or sooner determination of the term "in such condition and state of repair" - subject, however, to the qualification arising from the words "save as hereinafter mentioned". That qualification accommodates and affords precedence to clause 7 in such a way that the clause 4 obligation to deliver up in a thorough state of repair at the expiration of the term does not apply to structures which, having regard to clause 7, the lessee is to remove before that expiration. By definition, things that must be removed beforehand are beyond the contemplation of a provision imposing an obligation to deliver up at the term's end.
20 While clause 7 is not a covenant to repair or a covenant to yield up in repair, it shares with a covenant of the latter kind the characteristic that it is a covenant for the doing of certain work on and in relation to the land before the term's end and, to the extent necessary to ensure that the work is duly completed, for the incurring and defraying of all relevant expenditure. The effect of clause 7 is to require the lessee to yield up and deliver to the lessor, at the expiration of the term, land in a particular state, that is, devoid of "structures" other than seawalls and reclamations. It is, in that way, similar to clause 4 which requires the lessee to yield up and deliver to the lessor, at the expiration of the term, land in a particular state, that is, with seawalls and reclamations (being the structures not affected by the overriding operation of clause 7) in good repair. Each provision is a provision by which the lessee is bound to leave the leased property in a particular condition.
21 There is, however, a conceptual difference between the two. A property on which there are structures in good repair is, in the absence of exceptional circumstances, more desirable and therefore more valuable than the same property on which there are structures in a state of disrepair. But the same cannot be said of a parcel of land that is devoid of structures, compared with the same parcel on which there are structures. Land in a commercial centre on which there stands an office building in good repair and fully let at market rentals is more valuable than if it were devoid of structures. But the vacant land will have the greater value if the office building is untenanted, useless and condemned.
22 The two types of covenant - a covenant to leave in good repair and a covenant to leave devoid of structures - are also distinguishable because the former, but not the latter, attracts the operation of s.133A of the Conveyancing Act 1919. That section applies to a "covenant to leave or put premises in repair at the termination of a lease". Its effect is to limit damages for breach of covenant to, in effect, the reduction in value of the reversion occasioned by the breach of covenant. The covenant in clause 7 - a covenant to leave or put the leased property, at the termination of the lease, in a state where it is devoid of "structures" is, of its nature, not a covenant to "leave or put premises in repair", with the result that the statutory limitation upon damages is not attracted.
23 Where a covenant by a lessee to leave the leased property in a particular condition is not performed by the lessee, there accrues to the lessor a right to sue for damages at common law. The way in which damages are to be assessed in case of breach of a tenant's covenant to leave premises in good and tenantable repair was explained by Fullagar J in Telecom & CPS Community Credit Cooperative Ltd v Heberg Pty Ltd [1993] ANZ ConvR 312 (there being, in Victoria, no equivalent of s.133A of the Conveyancing Act). His Honour said (at pp. 65,273-65,274):
"Cases in England decided at the end of the nineteenth century establish clearly that at common law the measure of damages for breach of a covenant to repair in the circumstances of the present case is not the diminution in the value of the reversion. For the purposes of the present case the most succinct affirmative statement of the applicable measure of damages that I have found is contained in the small Victorian text book, Brooking and Chernov: Tenancy Law and Practice in Victoria (1st Ed 1972) at 121, in the following passage: 'At common law the measure of damages, where an action is brought upon the covenant to repair at the end of the term, is such a sum as will put the premises into the state of repair in which the tenant was bound to leave them.' To apply this measure of damages, the Court looks at the state of the premises at the end of the term. It then has to consider what it is that a landlord - a hypothetical and reasonable landlord wishing to put the premises into the state of repair in which the tenant was bound to leave them - would have to expend in money in order to put the premises into the latter state of repair. I shall call this sum of money the "essential expenditure". I have called the person concerned a hypothetical landlord because it is immaterial whether the actual landlord wishes to repair the premises or not, and immaterial whether they ever will be repaired by anybody. Save in one respect, it is immaterial to know that the actual landlord has repaired the premises. In a case where the actual landlord has done the breach - necessitated repairs or some of them by the time of the trial, all the repairs he has actually done and the cost of them are material only because they may afford reliable (or unreliable) evidence of what the relevant repairs would have cost a reasonable landlord to do. I have called the person concerned a reasonable landlord, because when the Court is seeking to determine what is the essential expenditure, breach necessitated, it must bear in mind that the hypothetical landlord would be bound to mitigate his loss, in that he would be bound to do the repairs in a reasonable way for a reasonable price and within a reasonable time.
It might or might not be a reasonable course, if breach unrelated operations are also in fact to be done, to do the breach necessitated repairs along with or before or after the unrelated operations; but the enquiry is and remains, in the sense which I have endeavoured to spell out, what is, at the termination, the sum which 'will put the premises into the state of repair in which the tenant was bound to leave them'. For the word 'will' one could as well substitute 'would', because the substituted word emphasizes what should be apparent from the text book version, namely that the essential expenditure is a sum that remains constant irrespective of what the actual landlord does or does not do, and irrespective of what the actual landlord intends at any particular time to do or not do.
The measure of damages at common law is the expenditure to be necessarily encountered by a reasonable landlord who put the premises into the state of repair contracted for, whether the actual landlord does those repairs or not."
24 This measure of common damages is sometimes described as the measure in Joyner v Weeks [1891] 2 QB 31. Lord Esher MR said in that case, at p.43:
"That rule is that, when there is a lease with a covenant to leave the premises in repair at the end of the term, and such covenant is broken, the lessee must pay what the lessor proves to be a reasonable and proper amount for putting the premises into the state of repair in which they ought to have been left."
25 The correctness of this approach, in an appropriate case, was recognised by the High Court in Graham v Market Hotels Ltd (1943) 67 CLR 567.
26 There may, however, be circumstances in which the cost of putting the premises into the contracted state does not represent the applicable measure of damages. That will be so where, for example, the lessor does not, in reality, want or require premises in the contracted state and is well content to have and enjoy the premises in the state in which they actually exist at the end of the term. As is recognised in cases such as James v Hutton and J Cook and Sons Ltd [1950] 1 KB 9 and Re Zis; O'Donnell v Keogh [1961] WAR 120, such a lessor does not suffer through the breach damages commensurate with the cost of causing the premises to be in the contracted state, although that lessor may suffer damage to the extent of any reduction in the value of the reversion and, if there is no basis on which the court can come to that conclusion, damages will be nominal only.
Is clause 7 a code?
27 In the present case, the covenant to yield up land in a particular state (that is, with all structures other than seawalls and reclamations removed) goes on to deal expressly with the possibility that the lessee may, in fact, yield up land which is not in that state (being land upon which structures in addition to seawalls and reclamations remain). If that happens, the lessee may, in accordance with the contract, "retain" the structures in question or itself remove them. In the latter event, the lessor is entitled, as a matter of contract, to recover from the lessee the cost of removal less the net proceeds of any sale of the removed items. The existence of these contractual rights of the lessee raises the question whether the right of MSB to sue for damages or specific performance is, by the parties' contract, displaced. C&A maintains that it is. This is the basis on which C&A argues that clause 7 is in the nature of a self-contained code.
28 Clause 7 bears some resemblance to a lease provision considered by Smith J in Gimtak Pty Ltd v Cathie [2001] V ConvR 54-645. His Honour decided that the particular clause did not have the effect of causing the ordinary right to sue for damages to be overtaken by the contractual right to recover, as a liquidated sum, the net cost incurred by the lessor in effecting the work not done by the lessee. The provision before me differs in an important respect from the provision that was before Smith J.
29 The relevant provision of the lease under consideration in Gimtak was clause 8.2(b). Its effect will be better understood if clause 8.2 as a whole is quoted:
" 8.2(a) The Lessee shall at the expiration or sooner determination of this lease peaceably surrender and yield up unto the Lessor the whole of the demised premises and every part thereof clean and free from rubbish and in a state of repair order and condition which is in all respects consistent with the covenants on the part of the Lessee herein contained;
(b) If the Lessee shall not have done so as of right under any provision hereof the Lessee shall if required so to do by the Lessor remove from the demised premises within fourteen days from the expiration or sooner determination of the term hereof any fixtures, fittings and floor coverings (to which such requirement shall relate) erected or installed by the Lessee during or prior to the term hereof and shall make good any damage whatsoever caused to the demised premises by such removal and if required by the Lessor shall re-alter any alterations made by the Lessee so that the demised premises shall be converted back to their original condition provided always that the Lessor may at its option itself cause any such fixtures or fittings to be removed and any such damage to be made good and any such alterations to be so re-altered and may recover the costs thereof from the Lessee as a liquidated debt payable on demand."
30 The respective submissions concerning the meaning and effect of the relevant aspect of clause 8.2(b), as well as his Honour's decision on the matter, emerge from the following passage in the judgment (at p.62,335):
" Construction of cl 8.2(b) - pre-conditions to lessor's entitlement to Compensation
The defendants submit that the parties agreed upon a regime to deal with the consequences of the failure of the lessee to remove fixtures and fittings or to realter alterations when requested to do so under clause 8.2(b). They argue that the plaintiff could require the lessee to undertake such works and that, if it did not, the plaintiff could undertake the works itself and recover the cost as a liquidated debt from the lessees. The defendants submit that as a matter of construction the plaintiff was obliged to incur the cost before it was entitled to recover any compensation from them.
It seems to me that the plaintiff's response to this argument is correct. Clause 8.2(b) gives the lessor an option, which the lessor may or may not exercise, to remove the fixtures, fittings and floor coverings and realter the alterations. The lessor does not have to do so. If the lessor chooses to do so then the consequences are set out in the words that follow - the plaintiff may recover the costs incurred as a liquidated debt payable on demand. If the plaintiff chooses not to exercise that option the plaintiff is left with its rights under clause 8.2(b) to seek damages for breach of the obligations set out in that clause."
31 In the present case, clause 7, dealing with the situation where the lessee does not remove the structures as the clause requires, not only allows the lessor to remove them itself and recover, as a liquidated sum, the net cost of doing so but also creates an alternative. The alternative allows the lessor to "retain the same". There was no equivalent provision in Gimtak. A supposed right of a landowner, as against a lessee, to "retain" fixtures forming part of the landowner's land is, in reality, not a right at all. Even if the fixtures are tenant's fixtures, they are the property of the landlord, although subject to a limited right of the tenant to convert them again into chattels, being a right exercisable during the term or during subsequent holding of possession: see Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue (2004) 55 ATR 1.
32 Since, on this basis, a provision allowing a landowner to retain fixtures after the expiration of a lease cannot be said to create in the landowner any right or interest the landowner does not already have, the creation of that permission by clause 7 must be seen to have some other significance. I have already said that a contractual requirement that a lessee remove fixtures must, of necessity, carry with it a right to remove. I have referred in that connection to Starline Drive-In Theatre Ltd v Federal Commissioner of Taxation. The lease in that case required the lessee to remove certain erections and works before the end of the term. The following observation of Kitto J, at p.460, seems to me to be equally relevant to the circumstances of the case before me:
"Bearing in mind that at the time when the leases were executed no one could tell whether removal of the improvements immediately prior to the determination of the term would be more advantageous to the lessors or to the lessee, the sense of the covenants, as I read them, is that the lessee is entitled as against the lessors as well as bound in their favour to remove the improvements, so that the lessors may not prevent the lessee from removing them if he desires to do so. In other words the manifested intention of the parties in each instrument appears to me to be that the implied licence to the lessee to remove the improvements at the stipulated time is not to be revocable at the will of the lessor."
33 In the present case, the lessee is given an implied licence to remove structures (being a concomitant of the lessee's contractual duty to remove them) and the lessor is given an express right to revoke that licence. The lessor would invoke that right by electing to "retain the same". If that election were made, the lessee would no longer have either the duty to remove or the right to remove. And if such a situation arose, there would be no default by the lessee capable of being regarded as a breach of covenant in respect of which an action for damages lay. It is in this respect that the provision before me differs from the provision considered in Gimtak.
34 The true effect of clause 7, it seems to me, is to preclude any right of the lessor to sue for damages if one of two things happens: the lessor elects to retain the structures or the lessor elects to remove the structures. In the first situation, for reasons I have stated, there is a revocation by the lessor of the lessee's right to remove and therefore a relaxation or forgiving of the lessee's duty to remove. In the second situation, it simply cannot be the case that the lessor's contractual right to be paid by the lessee the net cost of removal by the lessor co-exists with a right to sue for damages for breach by the lessee of the covenant to remove. It is inconceivable that the lessor could both recover as against the lessee damages for breach of covenant and, having itself removed the structures, recover from the lessee under clause 7 the net cost of doing so.
35 I have said that the ordinary right to sue for damages is precluded if the lessor resorts to either of the alternatives expressly made available by clause 7. This means that, upon the proper construction of clause 7, there is no breach of contract by the lessee if the lessor acts in either of those ways. But there will be a breach of contract, actionable as such, if the lessor resorts to neither of the alternatives expressly made available by clause 7 - that is, if it does not itself remove the structures and does not take advantage of the part of the clause expressed by the words "may if it so desires retain the same".
36 It follows that, in my opinion, clause 7 is not a "code", in the sense for which C&A contends. I do not accept the contention of C&A that there can never be a complaint of breach of contract in relation to failure by C&A to remove structures and that the only remedy available to MSB in that eventuality is the self-help remedy made available by clause 7 itself. The correct characterisation, as I see it, is that a breach of contract will be seen to have been committed by C&A (and to be actionable accordingly) if two conditions are satisfied after the end of the term (C&A having failed to remove structures during the term): first, MSB did not act in accordance with the part of clause 7 contemplating removal of structures by it; and, second, MSB did not act in accordance with the part of the clause expressed by the words "may if it so desires retain the same".
Has MSB elected to retain the wharf?
37 It is clear on the facts that the wharf is in place. A factual finding that MSB has not removed it and, to that extent, has not resorted to the alternatives made available by clause 7 necessarily follows. But does it also follow that MSB has taken advantage of the part of the clause expressed by the words "may if it so desires retain the same"?
38 In my opinion, the mere fact that the wharf continues to exist upon and as part of the MSB's land does not mean that MSB has elected to retain it. Such an election would be seen to have been made only if some relevant conduct of MSB were established. The conduct would have to be conduct evidencing the formation and implementation of MSB's "desire" to "retain the same".
39 Both during the term and after its expiration, MSB demanded that C&A remove the wharf. A letter from Mr Lonie of MSB to Mr MacLeod of C&A dated 10 November 1992 said, "All structures and equipment should be removed and the land returned to its pre-existing condition …. All costs in respect of the removal of the structures and the undertaking of the survey shall be borne by Coal and Allied". A letter from Mr Booth of MSB to Mr Mackrill of C&A dated 13 June 1995 said that MSB held C&A "responsible for the removal and reinstatement in accordance with the lease, and for any liability which may arise from the continuing presence of the structure on MSB lands". MSB also provided its consent, as owner, to C&A's lodging a development application with the North Sydney Council in connection with demolition of the wharf in a letter from Mr Lonie to the Council dated 7 September 1993:
"[T]he Board as owner consents to the application being lodged."