Liangis Investments Pty Ltd v Ipex Itg Pty Ltd [2004] ACTSC 8 (19 March 2004)

Last Updated: 3 May 2004

LIANGIS INVESTMENTS PTY LIMITED v IPEX ITG PTY LIMITED

[2004] ACTSC 8 (19 March 2004)

APPEAL - Magistrates Court.

JURISDICTION - Tenancy Tribunal - whether premises "rental premises".

LANDLORD AND TENANT - obligation to provide sufficient air-conditioning.

Leases (Commercial and Retail) Act 2001, s 144, s 155

Tenancy Tribunal Act 1994, s 3, s 5

Duties Act 1999, s 138

Commercial and Retail Leases Code of Practice, s 29

Actionco Pty Ltd v Pioneer Plasterboard Pty Ltd [2002] ACTSC 92

Collector of Customs v Chemark Services Pty Ltd [1993] FCA 291; (1993) 114 ALR 531

The Tramways Case [No 1] [1914] HCA 15; (1913) 18 CLR 54

Port of Melbourne Authority v Anshun Proprietary Limited [1981] HCA 45; (1980) 147 CLR 589

Gerlach v Clifton Bricks Pty Limited [2002] HCA 22; (2002) 209 CLR 478

State Rail Authority of New South Wales v Codelfa Constructions Proprietary Limited [1982] HCA 24; (1982) 149 CLR 337

Ramsay v Watson [1961] HCA 65; (1961) 108 CLR 642

Paric v John Holland (Constructions) Pty Ltd [1985] HCA 58; (1985) 62 ALR 85

Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613

David Securities Pty Limited v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353

No SCA 30 of 2003

Judge: Connolly J

Supreme Court of the ACT

Date: 19 March 2004

IN THE SUPREME COURT OF THE )

) No SCA 30 of 2003

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: LIANGIS INVESTMENTS PTY LIMITED (ACN 008 539 946)

Appellant

AND: IPEX ITG PTY LIMITED

(ACN 007 433 623)

Respondent

ORDER

Judge: Connolly J

Date: 19 March 2004

Place: Canberra

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay the respondent's costs of the appeal.

3. The cross-appeal be dismissed.

4. The cross-appellant pay the appellant's costs of the cross-appeal.

1. This is an appeal from a decision of the Magistrates Court exercising jurisdiction pursuant to s 144 of the Leases (Commercial and Retail) Act 2001 (the Leases (Commercial and Retail) Act). The dispute was between the present appellant, Liangis Investments Pty Limited (the landlord) and the present respondent, Ipex Information Technology Group Pty Limited (the tenant). The dispute concerned the adequacy of air-conditioning installed by the landlord in a purpose built extension to leased premises in Fyshwick in the Australian Capital Territory from which the tenant conducted a business supplying and servicing computers. The Court entered judgment for the tenant in the sum of $292,275.00. The Magistrates Court, in exercising the jurisdiction under the Act (being the jurisdiction formerly exercised by the Tenancy Tribunal) has an unlimited jurisdiction, and is not bound by the general jurisdictional limit of $50,000 for civil claims.

2. The proceedings commenced by way of dispute filed in the Tenancy Tribunal under the Tenancy Tribunal Act 1994 (the Tenancy Tribunal Act) in February 2001. An issue was raised by the landlord as to the jurisdiction of the Tribunal, apparently at a mediation conference, and was again raised by a letter to the Deputy Registrar of the Tribunal on 2 May 2001. On 3 May 2001 the President of the Tribunal directed the parties to file any material they wished to rely on for a hearing on the question of jurisdiction on 16 May 2001. On that date there was no appearance by the landlord, and the President, after submissions from the tenant, determined that he had jurisdiction to entertain the dispute. An amended notice of dispute of 22 October 2001 was filed in the Tenancy Tribunal. The landlord filed a reply to this on 26 November 2001.

3. The proceedings from the finalisation of the pleadings were described by the learned Magistrate in his reasons as being "tortuously slow" (AB 51). Apparently at the directions hearing on jurisdiction an estimate of hearing time for the substantive matter was given as one day, later revised to three to four days. The learned Magistrate observed (AB 51) -

Ultimately the matter occupied some 20 hearing days, not including interlocutory applications. Had the Tribunal been advised of the correct estimate in May 2001 it is likely that the matter could have been allocated four weeks hearing time in late 2001 or at the latest in early 2002. The progressive increase in the estimate over 2001 and 2002 made it difficult for the Tribunal, and later this Court, to allocate in a timely manner sufficient time to hear the dispute.

4. Because of the progressive increase in the estimate of the hearing time, the eventual 20 hearing days was spread over a period commencing on 27 November 2001, with further hearing days allocated in March, May, July and September 2002. Oral evidence seems to have concluded on 27 September 2002, with the tenant's submissions being filed on 6 November 2002 and the landlord's submissions in reply some time later. Judgment was delivered on 9 May 2003. On 6 June 2003, within the appropriate time limit, the landlord filed a notice of appeal to this Court pursuant to s 155 of the Leases (Commercial and Retail) Act, which provides that an appeal lies to this Court on a question of law of fact. The appeal questions both the assumption of jurisdiction by the Tribunal, and the ultimate decision by the Court.

5. After the filing of the appeal the Magistrates Court, on 18 August 2003, further awarded the tenant the costs of the proceedings. By notice of motion dated 14 October 2003 the landlord sought to amend the notice of appeal to also appeal the costs order, and this was consented to and so ordered by the Master on 31 October 2003, so allowing all of the matters to be before me for the purposes of this appeal.

Jurisdiction

6. The appellant seeks to bring into question the decision of the learned Magistrate, sitting as he then was as the President of the Tenancy Tribunal, on 16 May 2001, that the Tribunal had jurisdiction to determine the dispute. The argument is that the learned Magistrate applied the wrong test in determining whether the Tribunal had jurisdiction.

7. The Tenancy Tribunal Act provided a regime for resolving disputes about certain types of leases. The Act provided by s 5(1) that it applied to the following kinds of leases, being -

(a) retail premises, or premises located in a shopping centre, other than retail premises with a lettable area greater than 1000 m² that are leased to a corporation that is not eligible to be incorporated as a proprietary limited company under the Corporations Law;

(b) small commercial premises that are not located in a shopping centre;

(c) premises , or a class of premises, prescribed by the Code.

8. The Act provides that certain of these terms are defined by the interpretation section (s 3). Relevantly, "retail premises" is defined to mean -

premises that are used, or are intended to be used, wholly or predominantly for carrying on a business involving -

(a) the sale or hire of goods by retail

(b) the provision of services by retail.

"Commercial premises" is defined to mean -

premises used, or intended to be used, wholly or predominantly for carrying on a business other than a business involving -

(a) the sale or hire of goods by retail; or

(b) the provision of services by retail.

"Small commercial premises" is defined to mean -

commercial premises with a lettable area of no more than 300 m².

9. The learned Magistrate found that the evidence established that the premises leased involved a letable area of greater than 1000 square metres, being 2,359 square metres, but that the lessee is a proprietary limited company under the Corporations law (AB 41), so he concluded that the premises could not qualify as small commercial premises, but did not fall within the exclusion provision of s 5(1)(a) due to the status of the lessee. The question for determination was thus whether the premises were retail premises.

10. The learned Magistrate (at AB 41) noted the definition of retail premises and said that he had to determine whether the subject premises are "premises that are used or are intended to be used wholly or predominantly for carrying on a business involving either the sale or hire of goods of supply or the provision of services by retail, or I would understand a combination of those uses". This is clearly a paraphrase of the statutory test. He then noted, correctly, that the legislation did not itself define retail, and he embarked on a review of the authorities.

11. It should be noted at this point that the learned Magistrate was not given the benefit of any assistance on this point by the landlord, the present appellant. The landlord's solicitors deigned to write to the Tribunal on 2 May 2001 indicating that (AB 40) -

We are instructed as a matter of courtesy to advise the Tribunal that our client does not submit to its jurisdiction and consequently will not be represented.

The landlord's solicitors were advised of the hearing date for the determination of the question of jurisdiction, but they did not choose to attend to make submissions.

12. The learned Magistrate, following a review of the authorities, concluded at AB 43 that -

I therefore accept the applicant's contention that the relevant test is whether items are sold and services are provided to ultimate consumers, and that it is this test that I must apply.

13. The decision of the Tribunal on jurisdiction occurred on 16 May 2001, and at that time the learned Magistrate did not have the benefit of the considered views of this Court on the question of the appropriate test to apply to determine whether premises were retail premises for the purposes of the Act. The relevant authority is the decision of Cripin J in Actionco Pty Ltd v Pioneer Plasterboard Pty Ltd [2002] ACTSC 92, and in that case his Honour adopted a test broadly similar to that adopted by the Tribunal in this case. He said at [17] -

Despite [counsel's] argument that the Code was obviously directed only to businesses with a predominantly retail trade, I am unable to accept that the definition contained in the Tenancy Tribunal Act and the Code should be so interpreted. As [opposing counsel] pointed out, the adverb "predominantly" relates to the use of the premises and the word "involving" is not similarly qualified. Hence, while the premises must be used predominantly for carrying on a business and the business must involve the sale or hire of goods by retail or the provision of services by retail, it is unnecessary for the business to be predominantly retail in nature. Furthermore, to return to the formulation adopted by the House of Lords in Turpin v Assessment Committee for Middlesborough Assessment Area [1933] UKHL 1; [1931] AC 470, even if the bulk of the trade consisted of sales to plasterers, the premises were clearly "premises to which the public could resort for the purposes of having particular wants supplied and services rendered therein.

14. The learned Magistrate set out at AB 43 his findings of fact. He said -

The evidence before me establishes that the applicant sells computer hardware and software and provides computer related services. The evidence establishes that members of the public not only make a resort to the premises to have their computer needs met and services provided but indeed do so.

I am satisfied on the evidence that sale of goods are predominantly to government agencies and businesses and that the evidence establishes that a number of government agencies have joined together to secure goods and services from the applicant. Goods are sold to end users to meet their personal and business requirements. I am satisfied that there is no component of wholesale.

15. It seems to me that these findings are amply justified by the evidence before him, particularly the affidavits of Mr JS Dawson, the Ipex Canberra Branch Manager, of 20 April 2001 and10 May 2001 (AB 1271, 1334). Mr Dawson gave evidence at the hearing on jurisdiction on 16 May 2001, and in his oral evidence he said that the tenant supplied goods and services to members of the public in addition to government agencies and businesses, and that these personal computers would be of the kind that could be used in a domestic environment. He conceded that this did not make up a large proportion of the business that Ipex provides (AB 139).

16. This evidence was not subject to any cross-examination at the time because the appellant did not appear at the hearing on jurisdiction. However during the substantive hearing Mr Dawson was cross-examined and it was put to him that "it isn't possible just to walk off the street and expect to be able to speak to somebody or buy some equipment or whatever". He said that it would be possible (AB 622).

17. Although it is asserted in the written submissions of the appellant that "even on the Actionco construction of the definition, sale etc by retail at the premises was de minimis", it seems to me that the learned Magistrate was correct in his assessment of the evidence. He applied a test in a form substantially similar to that later adopted by Crispin J, and on that test formed the view that the premises were retail premises, and accordingly there was jurisdiction.

18. There was clear evidence that there was no element of wholesale sale. The evidence was that most sales were to a group of Commonwealth government agencies, although other businesses and members of the public also purchased goods and services. The evidence was that the client would deal with the Canberra office, and then a computer would be custom built for the client at the tenant's premises in Melbourne. The manufacturing occurred in Melbourne. The computer would be shipped to Canberra, where configuration and further fine-tuning as well as servicing when required, would occur.

19. Although the bulk of the sales were not to individual members of the public, they were all to end users (there being no wholesale). In considering whether sales to end users other than members of the public could amount to retail sales, the issue in Actionco, Crispin J cited the decision of the Full Court of the Federal Court in Collector of Customs v Chemark Services Pty Ltd [1993] FCA 291; (1993) 114 ALR 531 in which Spender, Einfield and Lee JJ said at 537 -

The weight of authority seems to us to support a conclusion that the words "retail sale" have generally acquired a specialised meaning of a sale to an ultimate consumer. We do not think that the usage of the term limits such consumers to ordinary members of the public. The fact that in the present case almost all of the goods imported by the respondent were directly sold to professional horticulturalists and not ordinary gardeners as ultimate consumers is, in our opinion, irrelevant.

Professionals can still be described as ultimate consumers. ... Likewise, although more often than not a retail sale will be both a sale to the ultimate consumer and a sale of goods in a quantity not larger than necessary to satisfy the ordinary non-professional purchaser, some sales in larger quantities will also be retail.

20. This understanding of the meaning of the term retail was well established in law at the time of the enactment of the Tenancy Tribunal Act, and it seems to me that it follows that the mere fact that sales are to other corporate entities does not mean that premises cease to be retail premises, so long as those entities are end users, rather than on sellers. A sale to an on seller would be a wholesale rather than a retail sale.

21. It seems to me that the test formulated by the learned Magistrate was in accordance with the authorities as they then stood, and was consistent with the later formulation of Crispin J in Actionco, with which I respectfully agree. The learned Magistrate was thus correct in holding that he had jurisdiction to entertain the application.

22. The tenant made appropriate submissions in support of the Magistrate's reasons for finding jurisdiction, which I have found were correct, but further argued that the landlord should not be permitted to raise the jurisdiction point at this time. Mr Tilmouth submitted that the Tribunal made it very clear that due notice was given to the landlord that there would be a hearing on the question of jurisdiction, and that a clear decision was made on this point, supported by reasons, on 16 May 2001.

23. Where a tribunal of limited jurisdiction makes a decision beyond jurisdiction, it is immediately open to challenge that assumption of jurisdiction. Mr Tilmouth submitted that as of the date of the jurisdiction decision of 16 May 2001 there was no reason why prerogative or declaratory proceedings could not have been brought in the original jurisdiction of this Court to resolve the jurisdiction question. As Barton J said in The Tramways Case [No 1] [1914] HCA 15; (1913) 18 CLR 54 at 64 -

It is elementary knowledge that the writ will issue upon the moment that jurisdiction to hear a case is shown to have been wrongly assumed, whether that is shown before or after an adjudication.

24. The landlord chose not to take the jurisdiction point upon the publication of the decision and reasons, but rather allowed the trial to proceed over some 20 sitting days over the period of a year, before raising on appeal the question of jurisdiction. Mr Tilmouth submitted that this conduct was unacceptable and unreasonable, and the landlord should be bound by that conduct and prevented from raising the question of jurisdiction on appeal on the principle of Port of Melbourne Authority v Anshun Proprietary Limited [1981] HCA 45; (1980) 147 CLR 589.

25. Although it is clear that the appellant could have sought review of the jurisdictional order, there is a well-established principle that on an appeal on a final judgment, all interlocutory matters may also be reviewed. As Gaudron, McHugh and Hayne JJ said in Gerlach v Clifton Bricks Pty Limited [2002] HCA 22; (2002) 209 CLR 478 at 482 -

In the course of a trial, and even before the trial commences, interlocutory orders may be made which affect the substantive rights of the parties. Rulings that are made in the course of trial about what evidence will be admitted are an obvious example. To adopt a rule that precluded challenging any interlocutory order except by an appeal against that order would provoke unnecessary multiplication and fragmentation of proceedings.

It is not surprising then, that in at least some circumstances, a party may challenge the correctness of the final judgment entered in a matter on the ground that some interlocutory decision was wrong. Again, evidentiary rulings provide the obvious example. As was said, in a very early judgment of this Court (Crowley v Glissan [1905] HCA 13; (1905) 2 CLR 402 at 403 per Griffith CJ) -

There is only one judgment of the Court appealed from...and on the appeal all grounds that were taken by the appellant in the course of the proceedings are open to him.

26. I am of the view that the landlord cannot be prevented from raising the jurisdictional question on appeal, and I have accordingly heard and determined that point, finding that there was proper jurisdiction for the Tribunal to hear and determine the dispute. I should add that, had I been of the view that the Tribunal had erred on jurisdiction, it seems to me that the exercise of the discretion on costs would have involved a consideration of the landlord's conduct in allowing the jurisdictional question to sit for over 12 months while a long, complex and inevitably costly hearing on the merits proceeded before the Tribunal, and the Magistrates Court. But as I have determined that there was no jurisdictional error, the point does not directly arise.

The appeal on the merits

27. It is common ground that the landlord and the tenant first entered into an agreement to lease premises at 100 Barrier Street, Fyshwick in 1995 for a term of four years, but with an option to renew, and that the lease was not in fact renewed on its terms because during 1999 the tenant was in the process of tendering for major government information technology supply contracts. The learned Magistrate found that in late 1999 representatives of the tenant met with Mrs S Liangis, the Governing Director of the landlord company, about the need for the tenant to have more space if it were successful in its tender. He found that the tenant was advised that it had won the major supply tender just prior to Christmas 1999, and that negotiations commenced in early 2000 which culminated in the execution of a lease on 17 April 2000 which committed the landlord to construct, and the tenant to occupy, significantly larger premises at 100 Barrier Street, Fyshwick. The lease appears in AB 3080-3099.

28. The dispute between the tenant and the landlord concerning the adequacy of the air-conditioning in the completed premises involves a consideration of clause 9.2 of the lease, which provides -

The Lessor will at its own cost and expense within six weeks from the date of delivery to the Lessor's solicitors of this Lease duly executed by the Lessee in order to accommodate the proposed fitout evidenced by the Interior Fitout Plan -

(a) construct in a good and workmanlike manner an extension to the Building erected on Block 11 Section 19 Division of Fyshwick in accordance with the plans annexed to Development Application No 20000410 approved on 23 February 2000 and the requirements of the Building Act of the Territory;

construct and/or install in a good and workmanlike manner and in accordance with the requirements of the Building Act of the Territory:

...

* reverse cycle air conditioning with sufficient capacity and infrastructure to heat and cool the entire Premises;

* power and lighting within this extension;

...

* such additional power, lighting, air conditioning infrastructure, toilets emergency lighting external emergency exits, exit signage and fire protection as will permit the Premises together with the Lessee's fitout of the same in accordance with the Interior Fitout Plan to comply with the Building Act of the Territory.

29. The learned Magistrate in his reasons (AB 49-50) cogently described the nature of the dispute -

The present proceedings largely revolve around the interpretation of that term of the lease, clause 9.2, in which the [landlord] agreed to construct the extension and to provide specified infrastructure to the entire premises. Put briefly the applicant alleges that the extension as constructed was not in accordance with the respondent's obligations under clause 9.2 nor did the respondent provide the infrastructure to the entire premises that it was required to provide under that clause. In particular the applicant says that the air conditioning as installed in the premises, including the extension, does not comply with clause 9.2 and that to install an air conditioning system that does comply with clause 9.2 required an upgrade to the electricity supply infrastructure of the premises. Ipex asserts that clause 9.2 of the lease rendered the respondent liable not only to upgrade the air conditioning but also the electricity supply infrastructure to the premises. The applicant has itself installed an upgraded air conditioning system and upgraded the electricity supply infrastructure in the premises, which it says is work the respondent was obliged to undertake under the lease. The applicant cited occupational health and safety concerns and the respondents' refusal to install an appropriate system in its reasons for acting unilaterally before the conclusion of the present proceedings.

The proper interpretation of clause 9.2

30. The obligation imposed on the landlord by clause 9.2 of the lease is to construct the extension with "sufficient" air-conditioning. In his reasons the learned Magistrate said (AB 54 at [13]) -

In the present case there were a number of facts and circumstances known to the parties which assist in interpreting the parties' intention when they referred in clause 9.2 to air conditioning "sufficient" to heat and cool the premises. It was known to the parties that the applicant is a large information technology company whose business involves the use of computers and other associated electrical equipment and it was further known that the applicant intended to expand its operations in Canberra after obtaining a large government contract. It was a common ground between the parties that the works to be undertaken in the premises were for the purpose of enabling the applicant to conduct its business in the premises. Against such a background, I have no doubt that the parties intended that the air conditioning infrastructure to be supplied was to be sufficient for Ipex's actual use of the premises as known to the parties. That is, it was to be sufficient to adequately heat and cool the leased area taking into account the number of people and the quantity of equipment Ipex was to employ in the premises, and deployed in such a way as to accommodate the applicant's fit-out.

31. The landlord argues that a lease term which provides only for air-conditioning to be "sufficient" would be ambiguous, but that this lease referred to the "Interior fit-out plan", and so the question of sufficiency is to be determined solely against the criteria to be found within the fit-out plan. It argues that the Magistrate erred in taking into account extrinsic material to determine what was sufficient for "Ipex's actual use of the premises as known to the parties".

32. It seems to me on close examination of the Magistrate's reasoning, and the submissions of the parties, that the Magistrate did not err in taking into account improper extrinsic materials. He accepted that the starting point was the obligation to install sufficient air-conditioning based on the fit-out plan. He expressly made the finding that this was the plan referred to in the evidence as Plan C (AB 58, 64-65). Although Mrs Liangis disputed whether she had ever been provided with the plan, the Magistrate found that she was in error, and it was the evidence of the landlord's own witnesses that they had had access to this in preparing their plans for the installation of the air-conditioning (Mr C Huxtable, AB 1918, 1151). Mrs Liangis gave evidence (AB 893) that the tenants had told her they simply required the premises as a warehouse, but this was clearly not accepted by the Magistrate, and rightly so, and is quite inconsistent with the way Mr Huxtable said he went about designing the system from Plan C.

33. The Magistrate found (AB 65) that the landlord -

sought to meet its contractual obligation by retaining Mr Huxtable to install an appropriate air conditioning system and set out to do so based upon, apparently, only the information to be found in Plan C.

34. His evidence was that for certain areas, where the fit-out plan showed individual desks or work stations, he knew the number of people proposed to work there, but for other areas, where it said "help desk" he said that he did not know that there were going to be any people working there. The evidence from the tenant's engineer, Mr DA Rowling, was that it would be prudent engineering practice if in any doubt as to what was shown in the diagram to contact the end user. The Magistrate clearly accepted this evidence, saying in his reasons (AB 71) -

Plan C clearly provides some, very important, information about the way in which the applicant proposed using the premises. Insofar as it depicts workstations or desks it provides information about potential occupancy levels in various parts of the building. But as the evidence of Mr Rowling shows, a competent person designing and installing an air-conditioning system for these premises would not simply rely upon what is depicted in the plan. He or she would make further enquires to determine if the assumptions about actual use of the premises arising from the plan were correct.

35. It is common ground that no such enquiries were made, and Mr Huxtable gave evidence that he proceeded on the basis that an area shown as "help desk" may have had no employees and contained only compactuses. In areas where he did not know of the occupancy, he said he went to a general default level for air-conditioning, which while compliant with Building Code standards, would not, it seems to me, meet a contractual obligation to be sufficient for the tenant's use of the premises.

36. It seems to me that, to the extent that the Magistrate went beyond the terms of the contract, he was doing no more than what is appropriate in order to give business efficacy to the lease. As Mason J said in State Rail Authority of New South Wales v Codelfa Constructions Proprietary Limited [1982] HCA 24; (1982) 149 CLR 337 at 352 -

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.

The adequacy of the air-conditioning

37. Having determined, correctly in my view, that the lease required the landlord to construct the premises with air-conditioning and electrical systems sufficient to meet the needs of the tenant as identified by Plan C, and as otherwise known to the landlord or to a reasonable person in the position of the landlord, the Magistrate turned to the question of whether the systems as installed were sufficient. He made the observation at AB 72, again it seems to me correctly, that -

if the system as installed did not have sufficient capacity to heat and cool the premises the respondent cannot avoid liability by claiming ignorance of matters pertaining to the applicant's use of the premises that were either ascertainable from the plans or from the applicant itself.

38. It is common ground that from the original occupancy of the premises the tenant has complained about the air-conditioning. The position is well summarised in the landlord's submissions at [58]-[59] -

After Ipex occupied the premises it was found that in parts of the premises the system was not able to provide comfortable conditions. It was common ground that there were in the premises more sources of heat generation - people and equipment - than the system had been designed to accommodate.

One of the essential issues in the case was whether this mismatch was the result of Liangis' failure to install a system in compliance with the contract, or because Ipex was using the premises in a way not contemplated by the contract.

39. This question was squarely answered by the Magistrate in his finding of fact at AB 77 that -

I am satisfied that there has been no significant deviation by the applicant in its actual use of the premises from that which was intended by it when it entered into the lease and which was advised to the respondent or which was ascertainable by the respondent had it chosen to make appropriate enquiries.

40. The landlord challenges the basis on which the finding was made as being flawed, but as I have set out above, I am satisfied that the Magistrate was not in error in the test he applied in determining whether the sufficiency requirement in clause 9.2 was satisfied.

41. The tenant submits that, apart from the challenge to the method, the landlord has not pointed to appellable error on the finding of fact, and this seems to be the case. Nonetheless, on an appeal of this nature I must look at all of the evidence to determine whether the finding of fact was appropriate.

42. It seems to me that this is an appropriate finding on the balance of probabilities, as there was ample unchallenged evidence to enable the Magistrate to so find. This is to be found at AB pages 1421,1424, 1442, 1594, 641, 642 and 670. Although Mrs Liangis gave evidence that she thought the building was to be for a warehouse, the evidence shows that Ipex had been a tenant of the landlord for five years, and the nature of the tenant's business, and the need for larger premises to enable it to meet the needs of the new contract had been discussed with the landlord, and was the basis for the lease, the subject of this dispute.

43. Having determined that there was a deficiency in the air-conditioning, which was common ground, and that the deficiency was not due to any change by the tenant in the use to which the premises were put, the Magistrate then had to determine the extent of the deficiency, and on this question there was a conflict between the experts.

44. During the course of the extended hearing the Tribunal, in a proper effort to encourage some compromise, directed that there be a meeting between experts. The minutes of the meeting between Mr Rowling and Mr A Nathwani, consultant engineer for the tenant, appear at AB 2582 and show that it was agreed that there was insufficient capacity in six of the ten areas to be air-conditioned, although the extent of the inadequacy varies between the experts.

45. The learned Magistrate identified clearly in his reasons his approach to the expert evidence. He noted there was agreement that there was an inadequacy but a dispute as to its extent, and said (AB 77) -

I will not repeat here in any detail the evidence given by the expert witnesses because there was nothing in that evidence that enabled me to determine that the opinion of one was to be preferred over the opinion of the other. A simple comparison of their evidence affords no reason to prefer either opinion. Similarly I am unable to prefer the opinion of either witness on the basis of superior qualifications or experience. I must therefore look to the other evidence in the case to see whether it contains some corroboration of either of the opinions expressed by the expert witnesses that would allow me to rationally prefer one witness' opinion over the other. Of course the onus rests upon the applicant to establish on the balance of probabilities any relevant facts.

To the extent that reliable evidence of occupants of the premises either supports or is inconsistent with the opinion of one or the other of the expert witnesses, such evidence may provide a rational foundation for preferring one expert opinion over another.

46. This is an entirely appropriate approach to take, and consistent with authority that for an expert's opinion to be of value, the facts upon which the opinion is based must be established by other admissible evidence (Ramsay v Watson [1961] HCA 65; (1961) 108 CLR 642, Paric v John Holland (Constructions) Pty Ltd [1985] HCA 58; (1985) 62 ALR 85 at 87).

47. Mr Rowling had asserted that the air-conditioning system in what was described as the South East Zone of the building as being marginally below that required, and he said that in the South West Zone there was an excess of cooling capacity. The learned Magistrate compared this evidence with some uncontradicted evidence of employees of the tenant in relation to their experiences of the cooling in those areas. He concluded (AB 92) -

It appears to me that the evidence of the employees of the applicant of their experiences with the operation of the air conditioning system installed in the premises by the respondent is more consistent with the opinions expressed by Mr Nathwani, the applicant's expert, than those expressed by Mr Rowlings or Mr Huxtable. For that reason I prefer the evidence of Mr Nathwani on the question of the extent of the deficiency in the installed system to that of Mr Rowlings or Mr Huxtable.

48. It seems to me that this approach was correct, and I would add only that there is a further difficulty with preferring the evidence of Mr Rowling, in that in his report of 2 August 2001 (AB 2678) he asserts that the cooling levels determined by the expert for the tenant were based on present occupancy and equipment levels "and does not represent that which occurred at the time of the proposed extension". Such an assertion is contrary to the finding by the Magistrate, which I am satisfied on all of the evidence to be correct, that there was no material deviation by the tenant in the actual use of the premises.

49. It follows that on all the evidence I am satisfied that the learned Magistrate did not err in determining that the air-conditioning was defective, and that the experts for the tenant best described the extent of the deficiency, which on that view required a substantial upgrade of the air-conditioning plant. There was also a claim that the electricity infrastructure as supplied was inadequate to cope with the appropriate level of air-conditioning. The learned Magistrate dealt with this aspect of the claim shortly, but, in my view, entirely properly, by saying (AB 96) -

It appears to be common ground between the parties that if this court finds that the "full upgrade" of the air conditioning system as undertaken by Ipex was warranted under the lease then the existing power infrastructure was inadequate. As I am satisfied for the reasons I have given that the full upgrade was contractually warranted I am therefore satisfied that the existing electrical infrastructure was inadequate and that the respondent had an obligation to upgrade it in the way that the applicant has done.

Damages for inadequate air-conditioning

50. This matter proceeded very slowly to determination in the Court below, primarily it seems to me because the parties were unable to provide a realistic assessment of the time the matter would take and the Magistrate made appropriate comment on this. There were ongoing discussions between the parties in order to seek to rectify the problems in the air-conditioning system, but the end result was that the tenant decided to proceed itself to undertake rectification works. There was evidence about this before the Magistrate by way of an affidavit from Mr Nathwani (AB 1743). He set out in his affidavit of 31 May 2002 a process which began in October 2001 with design drawings resulting in tenders being received in November 2001 and which resulted in a successful contractor. Mr Nathwani gave evidence that in December 2001 the contractor was denied access to the roof cavity by the landlord to begin undertaking the works, and this resulted in an interlocutory application to obtain an order to allow the work to be done. By May 2002 the works were completed, on Mr Nathwani's evidence, at a total cost of $245,811.50 for the electrical upgrade and air-conditioning upgrade.

51. The Magistrate, having determined that he preferred the expert evidence of Mr Nathwani, accepted this as an appropriate figure for the rectification costs of the inadequate air-conditioning and electrical works. He referred to evidence by Mr Rowling to the effect that the problems could have been resolved by minor works only, saying (AB 93) -

I find that little weight can be given to the evidence of Mr Rowlings on the issue whether the proposed minor works would have alleviated the deficiencies in the system as the minor works proposal remained, at best, hypothetical and never moved to the stage of specification and design.

52. As the Magistrate had found that Mr Rowling's reports were based on assumptions of adequacy of the existing system that he found to be inconsistent with other evidence, it seems to me that this was an entirely appropriate finding.

53. The evidence established that the system as installed and claimed for complied with the requirements of Plan C. This was the evidence of Mr Nathwani both in his affidavit (AB 1744) and in his oral evidence. Mr Rowling gave evidence that the system installed in May 2002 met the present needs of the tenant but were not referable to Plan C. Mr Nathwani rejected this, stating that "it is designed for what should have gone in, in the first place" (AB 511). The Magistrate, it seems to me, was quite entitled to accept this evidence.

54. It is well-established that a party is entitled to recover the cost of rectifying defective works, particularly when, as here, the landlord was given adequate opportunity to perform the works themselves, but declined to do so. It is well-established that the measure of damages in the case of defective building work is that the successful plaintiff is "entitled to the reasonable cost of rectifying the departure or defect so far as that is possible" (Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613 per Dixon CJ, Webb and Taylor JJ at 617).

55. It seems to me that there was ample evidence before the Magistrate for him to conclude, as he did, that the cost as outlined by Mr Nathwani was reasonable. Indeed, in cross-examination Mr Nathwani pointed out how careful attention was paid to re-using existing infrastructure in order to achieve the required capacity but to minimise costs (AB 588). I am satisfied from the evidence that the rectification works were undertaken carefully and reasonably, and that the cost was appropriate. It is properly the basis of the award of damages. The air-conditioning system as now installed, of course remains the property of the landlord, and the capital value of the landlord's premises would now reflect the fact that the building is adequately air-conditioned.

Stamp duty

56. There was also a claim in relation to the cost of stamp duty. The lease provided that the tenant should pay the stamp duty on the lease, being an amount assessed and paid by it of $11,512. This provision in the lease was contrary to the provisions of s 138 of the Duties Act 1999 and s 29 of the Commercial and Retail Leases Code of Practice, which both provide that this cost should be borne by the landlord and not the tenant. The Magistrate found, correctly it seems to me, that this money was recoverable by the tenant from the landlord on the principle in David Securities Pty Limited v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353.

57. The Magistrate noted in his reasons that the landlord at the hearing did not dispute the effect of the statutory provisions, particularly the Code, but sought the use of a discretion to not grant the award, which would not, it seems to me, have been appropriate. On the appeal the landlord conceded that, if I decided that the Tribunal had jurisdiction to enter into this dispute, it would follow that this lease was a lease to which the Code applied, and it would follow that the duty should have been paid by the landlord. I have so decided, and it follows that the Magistrate was correct in awarding this sum.

58. There was also a finding in relation to certain minor incidental costs, which was not challenged on the appeal, and which it seems to me were correctly awarded.

The cross-appeal on rental expenditure

59. The tenant also made a claim for what was described as "wasted expenditure", being the difference between the rental value of the premises as they should have been, that is the rent payable under the lease, and the rental value of the premises as they were. In support of this claim the tenant lead evidence from a valuer, Mr Broderick, to the effect that the premises with the defective air-conditioning should be valued, for notional lease purposes, as if they were non air-conditioned premises, and he then surveyed the market rent for such premises. This resulted is a claim for some $243,022.

60. The Magistrate accepted this claim in part only, preferring on this point the evidence of a valuer for the landlord, Mr Roberts, who said that if it were the case that the air-conditioning was faulty, this would result in a lower rental value, in the order of 15 per cent, but that it could not be equated with the market rent for non air-conditioned premises, which in that area of Fyshwick tend to be large warehouse type buildings. The Magistrate on this point concluded (AB 101) -

Whilst it is true that the air conditioning system installed by the respondent was deficient in significant ways, as set out in the reports from Norman Disney Young, I do not accept that one can compare the premises with that air-conditioning system to premises with no air conditioning at all. In parts of the premises the air-conditioning was adequate and in other parts it was inadequate only some of the time . Doubtless a prospective lessee would use the fact of the inadequacy of the air conditioning to negotiate a lower overall rental for the premises but the proposition that such a rental would be the equivalent of that applicable to un air conditioned space, such as a showroom, is an improbable one. Of the two expert opinions concerning this issue I prefer that of Mr Roberts as being the more probable.

61. It seems to me that this approach was entirely proper on the evidence before him. He then set about assessing an appropriate sum for the difference in rental rates, taking into account that the air-conditioning was not deficient for all areas at all times. Mr Robert's assessment was that the difference between air-conditioned and deficient air-conditioned premises of this standard would be $29,500 per annum gross rental, and taking into account that the deficiency in the air-conditioning was to about 60 per cent of the area of the premises, but not all the time, the Magistrate settled on half this sum, and awarded the tenant the sum of $1241.45 per month for 26 months, being an award of $32,277.70. It seems to me that this was an appropriate approach, and one that I would adopt. I reject the cross-appeal by the tenant on this point.

The appeal on costs

62. The landlord, the appellant, sought leave six weeks before the hearing of this appeal to expressly amend its notice of appeal to also bring into dispute the costs award made below, and this was ordered by consent. The Magistrate ordered the landlord to pay the tenant's costs of the proceedings, including reserved costs and costs of interlocutory applications on a party party basis, taxed at two-thirds of the Supreme Court scale, with disbursements in full.

63. It seems to me that this was an entirely appropriate exercise of the discretion to award costs, and as I have wholly dismissed the appeal against the substance of the Magistrate's orders, it seems to me that the costs order that he made below should stand.

The disposition of the matter

64. It follows from my reasons set out above that I dismiss the appeal with costs and that I also dismiss the cross-appeal. It would follow that the tenant, the cross-appellant, should pay the landlord's, the appellant's, costs of the cross-appeal, all costs to be taxed or agreed.

Order

65. The appeal be dismissed. The appellant pay the respondent's costs of the appeal. The cross-appeal be dismissed. The cross-appellant pay the appellant's costs of the cross-appeal.

I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Connolly.

Associate:

Date: 19 March 2004

Counsel for the appellant: Mr J Sexton SC with Mr R Arthur

Solicitor for the appellant: Macphillamy's Lawyers

Counsel for the respondent: Mr S Tilmouth QC with Mr N Adams

Solicitor for the respondent: Bradley Allen

Dates of hearing: 8, 9, 10 and 11 December 2003

Date of judgment: 19 March 2004