Dr Bronte Douglass v Lawton Pty Limited & Anor [2007] NSWCA 89 (18 April 2007)

Last Updated: 24 April 2007

NEW SOUTH WALES COURT OF APPEAL

CITATION: Dr Bronte Douglass v Lawton Pty Limited & Anor [2007] NSWCA 89


FILE NUMBER(S):
40385/06

HEARING DATE(S): 7 December 2006

JUDGMENT DATE: 18 April 2007

PARTIES:
Dr Bronte Douglass (Appellant)
Lawton Pty Limited (First Respondent)
John Pickford (Second Respondent)

JUDGMENT OF: Beazley JA Hodgson JA Basten JA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 2975/04

LOWER COURT JUDICIAL OFFICER: Rolfe DCJ

LOWER COURT DATE OF DECISION: 28 April 2006


COUNSEL:
M Einfeld QC; M Sneddon (Appellant)
D Higgs SC; F Assaf (Respondents)

SOLICITORS:
Gadens (Appellant)
Jackson Smith (Respondents)

CATCHWORDS:
Estoppel – representations as to number of car spaces - whether respondent knowingly refrained from disputing rental review process
Leases – exclusive possession – whether Lessor in breach of covenant of quiet enjoyment
Leases – fit-out of premises - whether property passed in items of fit-out – construction of fit-out clause - substantial benefit obtained by lessee for payments made for fit-out – no total failure of consideration
Leases – fit-out of premises - whether items in fit-out had become fixtures – construction of fit-out clause
Leases – tenant’s fixtures – failure to remove

LEGISLATION CITED:
Trade Practices Act 1974 (Cth)

CASES CITED:
Baltic Shipping Co v Dillon (1993) 176 CLR 344; [1993] HCA 4
David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25
Peter Butt “Land Law” 5th (ed)
Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516
Rowland v Divall [1923] 2 KB 500
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35
The Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39

DECISION:
The appeal is dismissed with costs.


JUDGMENT:

- 35 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40385/06

BEAZLEY JA

HODGSON JA

BASTEN JA

18 April 2007

DR BRONTE DOUGLASS v LAWTON PTY LIMITED & ANOR

Headnote

Facts:
By lease dated 5 August 1998, Nargol Holdings Pty Limited (Nargol) entered into a lease with the first respondent of commercial premises for a term of seven years, commencing on 30 October 1997. The appellant guaranteed Nargol’s obligations under the lease. On 29 November 2002, Nargol entered into a Deed of Company Arrangement and subsequently went into liquidation. The rights asserted by the appellant are his rights as a guarantor of Nargol’s obligations under the second agreement for lease and the lease.

The leased property was contained within a shopping centre that had been owned and constructed by the first respondent. The leased property comprised four suites and had an area of approximately 1,000 square metres. Nargol was to receive under the lease 16 undercover car parking spaces at no additional rental sum. The lease also provided for a fit-out of the ground floor of the premises to be paid for by Nargol in 60 monthly instalments. The lease provided for items the subject of the fit-out to become the property of Nargol. There is an issue as to whether property has in fact passed under the terms of the lease. Subsequently, Nargol installed and paid for two further stages of the fit-out (the second and third fit-out).

Nargol defaulted in the payment of rent and in the monthly instalment payments. On 5 September 2003, in proceedings in the Equity Division of the Supreme Court, the parties agreed to a declaration that the lease had been validly terminated and an order that Nargol would deliver up possession of the premises on or before 25 September 2003. The parties also agreed that the tenant’s fixtures would be dealt with in accordance with the terms of the lease. Subsequently, the first respondent commenced proceedings in the District Court for moneys for unpaid rent, mesne profits and damages. The appellant cross-claimed, alleging, relevantly, that the first respondent had failed to give it quiet enjoyment of the leased area. The appellant also claimed that the first respondent had charged it for car parking spaces contrary to the provisions of the agreement for lease and failed to deliver up the items in the fit-out.

The proceedings were heard by his Honour Judge Rolfe DCJ. His Honour dismissed the cross-claim and ordered that there be judgment for the first respondent against the appellant and made orders as to costs. The appellant contends that his Honour erred in his determination of the issues relating to the fit-out, the leased area and the car parking.

The fit-out issue

Held per Beazley JA (Hodgson and Basten JJA agreeing):

(i) The passing of property in the items of the fit-out was not dependent upon full payment under the lease. Clause 1.05, by its terms, expressly provided for the date at which property was to pass, that is, at the end of the five year period after the date of commencement of the lease: [24]

Held per Beazley JA:

(ii) The interaction of cls 21(c) and 8 of the lease enabled the lessor effectively to prevent a lessee from removing its fixtures whilst moneys payable under the lease remained unpaid. It followed that the property in the tenant’s fixtures passed from Nargol to the first respondent: [41]-[42]

Held per Hodgson JA:

(iii) Clause 8 is a covenant by the lessee to remove its fixtures, and the transfer of property agreed to by cl 8 takes effect should the lessee “fail to remove” those fixtures. Since the lessor prevented the lessee from removing the fixtures, the lessor could not have claimed that the lessee was in breach of cl 8 to remove trade fixtures. There is no breach of cl 8 when the lessor relies on cl 21(c) so as to prevent the lessee complying with cl 8: [90]-[91], [94]

(iv) The lessee may have been able to claim damages for conversion, when the property was re-let with the fixtures; and may have been able to demand the return of the fixtures in the event that it paid all money owing to the lessor, so as to put an end to the effect of cl 21(c). However, since no such claim was made, it was too late to now do so: [96]-[97]

Held per Basten JA:

(v) Notwithstanding that the lessee made a substantial number of the payments for the items in the fit-out, the lessor’s retention of those items did not constitute a total failure of consideration. The lessee had use of those items for six of the seven years of the lease and, once removed, those items were of nominal value: [111]-[112]

The leased area issue

Held per Beazley JA (Hodgson and Basten JJA agreeing):

(vi) The first respondent did not interfere with Nargol’s possession. Nargol was given the means to control access to the leased area and it was its own actions that permitted use of the foyer area by persons not directly accessing the medical centre. There was no breach of the covenant of quiet enjoyment: [68]

Car parking spaces

Held per Beazley JA (Hodgson and Basten JJA agreeing):

(vii) The inclusion of the car parking spaces in the calculation of the gross rent was not causative of any loss. The rental figure determined on the review represented an amount that was an appropriate rental for the premises: [80]

(viii) Alternatively, the appellant was estopped from relying on the misrepresentation or has waived any right to rely on a representation that Nargol was so entitled. The appellant’s evidence sufficiently established that he had knowingly refrained from disputing the rent determined by the rental review process: [81]-[84]

The Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39 (cited)

Held per Hodgson JA:

(ix) The lessor’s offer of sixteen undercover car spaces that would not be charged for in the lease did not carry with it an undertaking that rent reviews should be conducted on the assumption, contrary to the fact, that the lessee did not have the benefit of undercover car spaces: [98]

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40385/06

BEAZLEY JA

HODGSON JA

BASTEN JA

18 April 2007

DR BRONTE DOUGLASS v LAWTON PTY LIMITED & ANOR

Judgment

1 BEAZLEY JA: By lease dated 5 August 1998, Nargol Holdings Pty Limited (Nargol) entered into a lease with the first respondent of commercial premises at Castle Hill for a term of seven years, commencing on 30 October 1997. The second respondent is a principal of the first respondent and was sued in the proceedings as aiding and abetting the first respondent in the misrepresentation case.

2 The appellant guaranteed Nargol’s obligations under the lease. On 29 November 2002, Nargol entered into a Deed of Company Arrangement and subsequently went into liquidation. The rights asserted by the appellant are his rights as a guarantor of Nargol’s obligations under the second agreement for lease and the lease.

3 The leased property was contained within a shopping centre that had been owned and constructed by the first respondent. Prior to entering into the formal lease agreement, the parties had entered into two deeds of agreement, referred to respectively as the first agreement to lease and the second agreement to lease. It is only the second agreement to lease, entered into on 28 May 1997, that is relevant to the issues on the appeal.

4 The leased property comprised four suites, being suites 16, 18, 19 and 20 within the shopping centre, and had an area of approximately 1,000 square metres. The total area leased is one of the issues on the appeal. Nargol used suites 16 and 20 as a medical centre. Suites 18 and 19 were a chemist shop and coffee shop respectively and, with the consent of the first respondent, were subleased by Nargol. Nargol was also to receive under the lease 16 undercover car parking spaces at no additional rental sum.

5 The lease also provided for a fit-out of the ground floor of the premises. It was the agreement between the parties that the first respondent would attend to the fit-out, the costs for which were to be paid for by Nargol over the terms of the lease. A provision of the lease was that the items the subject of the fit-out would become the property of Nargol. This fit-out is referred to as the first fit-out. Subsequently, Nargol installed and paid for two further stages of the fit-out (the second and third fit-out).

6 Nargol experienced difficulty in the payment of rental and on 5 September 2003, in proceedings in the Equity Division of the Supreme Court, the parties agreed to a declaration that the lease had been validly terminated and an order for possession of the premises. The parties agreed that Nargol would deliver up possession of the property on or before 25 September 2003 and that tenant’s fixtures would be dealt with in accordance with the lease.

7 Subsequently, the first respondent commenced proceedings in the District Court for moneys for unpaid rent, mesne profits and damages.

8 The appellant cross-claimed, alleging, relevantly, that the first respondent had failed to lease to it an area of approximately 1,000 square metres in accordance with the terms of the lease, but had leased a significantly smaller area. They also claimed that it had failed to provide it with the use of 16 undercover car parking spaces and had failed to deliver the items in the fit-out.

9 The proceedings were heard by his Honour Judge Rolfe DCJ. His Honour ordered that there be judgment for the first respondent against the appellant and made orders as to costs. The cross-claim was dismissed.

10 The appellant contends that his Honour erred in his determination of the three issues referred to in [8] above, which I will refer to as the fit-out issue, the leased area issue, and the car parking issue.

The fit-out issue

11 The first schedule to the lease made provision for the calculation and payment of rent. Clause 1.05 then made additional provision in relation to the fit-out of the premises. It provided:

“1.05 In addition to the rental set out herein the Lessee shall pay to the Lessor the sum of Four thousand two hundred and thirty seven dollars and eighty nine cents ($4,237.89) per month in consideration of the fit out of the ground floor provided in the demised premises by the Lessor. This clause shall apply only to the first five (5) years of this Lease and not to any option period. The items the subject of the fit out shall become the property of the lessee at the end of the five (5) year period and the value of them shall not be taken into account in the determination of a fair annual rental for the demised premises.”

12 Clauses 7 and 8 of the lease then made provision in respect of fixtures and fittings and in particular, cl 8 governed the removal of tenants’ fixtures. Those clauses provided as follows:

“7. All fixtures, fittings, plant machinery, utensils, shelving, counters, safes and other material or articles brought onto the demised premises by the Lessee shall be trade or tenant’s fixtures and subject to tenant rights and the Lessee may at or prior to expiration of the Lease take remove and carry away the same from the demised premises but the Lessee shall in such removal do no damage to the demised premises or shall forthwith make good any damage which he may occasion thereto. If the Lessee shall fail to make good any such damage within a reasonable time then the Lessor may do so and all of the Lessor’s reasonable costs and expenses whatsoever of so doing shall be paid by the Lessee to the Lessor on demand.

8. The Lessee covenants that the Lessee shall at the expiration or sooner determination of the term of this Lease remove all trade fixtures, fittings, plant equipment or other articles in the nature of trade or tenant’s fixtures brought upon the premises by the Lessee and shall make good all damage done to the premises by reason of such removal. Should the Lessee fail to remove such trade fixtures, fittings, plant equipment or other articles in the nature of trade or tenant’s fixtures within fourteen (14) days of such expiration or such determination then such of those items as are not removed shall become the property of the Lessor ...”

13 The proviso to cl 8 permitted the first respondent to carry out any work that was required to be carried out under cl 8 by Nargol and entitled it to recover the costs of doing such work from Nargol.

14 Clause 21(c) was also relevant to the removal of fixtures. It provided:

“21(c) Notwithstanding anything elsewhere herein contained in the event that rental or other moneys are due by the Lessee to the Lessor and whether the Lessee is still in the possession or not the Lessee shall not remove any of its fixtures fittings or plant from the premises and shall not be entitled by itself or its agents to enter thereon for the purpose of removing any of the said items.”

15 As I have already stated, Nargol’s intention in relation to the lease premises was for two of the suites to be used as a medical practice. Accordingly, those suites needed to be appropriately fitted out as a medical centre. It was agreed between the parties that, rather than Nargol separately undertake the fit-out work, the first respondent’s contractors would do so at the time of construction. The parties entered into an agreement to that effect under the terms of the first agreement to lease. This was replicated in cl 10 of the second agreement, which provided:

“The Lessor will prior to practical completion provide the items set out on the annexure to be headed “Lessor’s Works”.

The Lessee will provide all other items of fittings and fitout.”

16 The Schedule of Lessor’s Works provided for the fit-out of both the first floor and the ground floor. It included the installation of air-conditioning, ceiling grid and tiles, commercial quality carpet, drainage, phone lines, lighting and electrical work. Item 8 of the Schedule of Lessor’s Works for the ground floor was headed “all work known as ‘Medical Centre Fitout’ as specified in attached document”. The attached document provided a description of the site, a description of the works, a method of measurement, a budget estimate, together with what might be described in very general terms as a specification, which included items relating to carpet, partitions, the installation of services such as hydraulic and electrical services, the specification as to paintwork, carpentry, joinery and the like. The cost of the first fit-out was $254,273.40, which, in accordance with cl 1.05, was to be paid for by 60 monthly instalments of $4,237.89. It is apparent from the above abbreviated description of the works to be undertaken in relation to the first fit-out, that the cost was not only for the items actually installed, but also for the cost of installation.

17 Nargol paid 49 of the 60 instalments due under cl 1.05 in respect of the first fit-out.

18 The trial judge held that, upon the proper construction of cl 1.05 of the Rent Schedule, property passed from the first respondent to Nargol on 29 October 2002 at the expiration of the fifth year of the lease. His Honour held that full payment of the 60 monthly instalments was not a condition precedent to title in the fit-out passing to Nargol. His Honour considered that his construction was supported by the fact that the value of the fit-out was not to be taken into account in the rent review which was to occur during the fifth year of the term of the lease. His Honour considered that cls 7, 8 and 21(c) also supported that construction.

19 His Honour concluded that it was the intention of the parties under cl 7 that the items installed as part of the first fit-out became tenant fixtures upon property passing. His Honour was further of the opinion that, pursuant to cl 21(c), Nargol was not entitled to remove its fixtures at the end of the agreed term if rent and other moneys were due and owing, as was the case here. It followed, on his Honour’s reasoning, that when Nargol failed to pay the amount of rent outstanding, or the balance of the instalments due for the first fit-out, it was not entitled to remove its fixtures because of the operation of cl 21(c). His Honour considered that the parties also intended that if Nargol could not remove its fixtures under cl 21(c) because it had failed to pay moneys owing under the lease, then it could not remove its fixtures under cl 8. As I understand his Honour’s reasoning, the operation of cl 21(c), in preventing the removal of the fixtures, amounted, in effect, to a constructive failure by Nargol to remove the fixtures within 14 days of the determination of the lease. Clause 8 then operated so as to make the items in the first fit-out the first respondent’s property.

20 The appellant contends that his Honour erred in finding that property in the items in the first fit-out had passed to Nargol at the end of the five year period. It was submitted that property in the first fit-out only passed to Nargol upon full payment. The appellant submitted that when part of a purchase price has been paid for goods and the contract comes to an end prior to final payment, the vendor holds the money advanced to the use of the purchaser: see McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 per Dixon J at 477-8; [1933] HCA 25. On that basis, Nargol would be entitled to a refund of the instalments paid by way of restitution.

21 The appellant further contended that his Honour erred in failing to recognise that there had been a total failure of consideration, such as also to entitle the appellant to restitution, either of the value of the property, or of the instalments that had been paid: see McDonald v Dennys Lascelles Ltd; Baltic Shipping Co v Dillon (1993) 176 CLR 344; [1993] HCA 4.

22 The appellant accepted that if property in the items in the first fit-out passed at the end of the five year period, as found by his Honour, then his submissions that the first respondent held the instalments to Nargol’s use, or that there had been a total failure of consideration, failed. The first question for determination, therefore, is whether property in the items in the first fit-out passed on 29 October 2002 at the expiration of the fifth year of the lease.

Did property pass?

23 The question whether the appellant is entitled to relief in respect of the first fit-out is dependent upon whether or not property in the fit-out items passed to Nargol, as found by his Honour. If property did pass, then the appellant recognises that there is no entitlement to relief under the principles discussed in McDonald v Dennys Lascelles and Baltic Shipping Co v Dillon. The first question for determination, therefore, is whether property passed in the items in the first fit-out as found by his Honour.

24 In my opinion, cl 1.05 of the first schedule is clear. Clause 1.05 has two operational parts. First, it provides for the monthly payment of the consideration for the fit-out of the ground floor. The monthly payments relate not only to the cost of items subject of the fit-out, but for the entire cost of the fit-out, including the provision of services, the cost of installation and the like. The second part of cl 1.05 then deals specifically with the items the subject of the fit-out. That is a different aspect of the clause, the earlier part of the clause relating to the cost of the fit-out, not the cost of the items of the fit-out. In relation to the items the subject of the fit-out, the clause provides that they are to become the property of the lessee at the end of the five year period. In my opinion, the clause, by its terms, expressly provides for the date at which property is to pass, that is, at the end of the five year period after the date of commencement of the lease. In other words, it is a distinct provision, unrelated to the terms of payment. It is not dependent upon any other requirement under the lease. In particular, the passing of property is not dependent upon full payment.

25 Senior counsel for the appellant submitted that there were a number of factors that indicated that the construction which I prefer is wrong. It was submitted that if the intention was that the consideration was for the fit-out, and therefore for the use of the fit-out rather than payment for the items in the fit-outs, it was odd that the property in the items passed at the end of five year, when the lease was for a period of seven. In short, it was submitted that if the construction which I preferred was correct, it might be expected that the payment would extend over the seven year period.

26 I do not think that this argument advances the matter. The payment for the fit-out arose out of an arrangement, which undoubtedly suited both parties, for the fit-out, including installation and the purchase of the items that were part of the fit-out, to be undertaken by the first respondent. The fit-out had to be paid for. There is no evidence before the Court, and I do not believe it would be relevant in any event, as to why the parties agreed that payment for the fit-out would be staged over 60 monthly instalments. The only clue provided by the contract was that it was coincident in time with the rent review and it was an express provision of cl 1.05 that the rent review was not to include the value of the items in the fit-out. However, that coincidence does not aid the construction of the clause, because the items of the fit-out became trade fixtures at the end of the five year period.

27 Nor, in my opinion, does the focus on the use of the fit-out advance the argument. Clearly, the fit-out was going to be used. That is not, however, what Nargol paid for. It paid for the fit-out, that is, the items to be installed and the installation, as well as for a number of services. As a consequence of the property being fitted out, it was able to conduct its business there as a medical centre. Nargol did not separately pay for the use of the fit-out. Rather, it had the use of the fit-out for which it was required to pay over the five years of the lease and thereafter, for howsoever long it lawfully remained in possession.

Right to remove the items in the first fit-out

28 If I am correct, and property in the goods passed at the end of the five year period, the next question for consideration is whether Nargol was entitled to remove the items subject of the first fit-out at the end of its period of lawful possession. As I have already said, this right was governed by cl 8 and possibly cl 21(c). Clause 7 may also be relevant, as is discussed below. Before turning to the manner in which those clauses operated in the circumstances, it is necessary to first consider the terms of the consent order made by the Supreme Court in its Equity Division on 5 September 2003.

29 By the consent orders, the Court declared that the lease had been validly terminated. The Court made an order for possession in favour of the first respondent and gave leave to issue a writ of possession. The order for possession and for leave to issue a writ of possession was stayed until 25 September 2003. That order further stated “the intention being, that Nargol’s occupation ... not to be disturbed until that date”.

30 The Court also noted the terms of an agreement between the parties in relation to the vacation of the premises and Nargol’s occupation until 25 September 2003. The agreement provided that vacant possession would be delivered up to the first respondent on or before 25 September 2003 and that the first respondent would not take any step before 26 September 2003 to deny Nargol access to the premises or disturb its quiet enjoyment of the premises prior to that time.

31 Clause 8.5 of this agreement then provided:

“The parties agree that any tenant’s fixtures shall be [dealt with] in accordance with the terms of [the lease].”

32 That then forces one back to a consideration of cls 7, 8 and 21(c). The question in issue is whether the items subject of the first fit-out had become fixtures.

33 The appellant contends that cl 7 is a “definition” provision. It was submitted that, on its proper construction, the phrase “brought onto the demised premises by the Lessee” qualified everything that preceded it, including fixtures and fittings. As such, it was only those things that had been brought onto the demised premises by the lessee that were trade or tenant’s fixtures and thereby subject to tenant’s rights under the terms of the lease.

34 In my opinion, this construction of cl 7 is correct. It can be tested simply. If the phrase only qualified the words “other material or articles” which immediately precede the phrase “brought onto the demised premises by the Lessee”, the effect of the clause would be that landlord’s fixtures could thereby be defined by the terms of the lease to be trade or tenant’s fixtures. This would be a most unusual outcome, and would need clear and express words for that to result. Rather, it is apparent that cls 7 and 8 are intended to provide for the regime that is to apply to tenant’s fixtures.

35 This construction is supported by the balance of cl 7 which provides that the lessee may, even prior to the expiration of the lease, remove such trade or tenant’s fixtures from the premises. That would be an extraordinary provision if it was to include matters which as a matter of law were fixtures belonging to the landlord.

36 Clause 8 then governs the removal of “all trade fixtures, fittings, plant equipment or other articles in the nature of trade or tenant’s fixtures brought upon the premises by the Lessee”. The cover of cl 8 is therefore not expressed in the same terms as cl 7. In particular, there is a difference in the reference to fixtures. In cl 7, the reference is to “fixtures”. In cl 8, the reference is to “trade fixtures”. It cannot be assumed that the difference in language is a slip.

37 In my opinion, what is made clear by cl 7 is that certain items are trade or tenant’s fixtures. Those items are such fixtures, fittings, or other material or articles brought onto the demised premises by the lessee. Being defined as trade fixtures, the consequence is that they are thereby dealt with upon expiration of the lease under cl 8. Thus, under cl 8, all trade fixtures, including items that are so defined under cl 7, as well as any other items that are properly defined as trade fixtures, are to be removed within 14 days of the expiration or determination of the lease.

38 My comments so far have been based upon the wording of cl 8. In this case, the Court declared on 5 September 2003 that the lease had been validly terminated. Presumably that was the date of termination of the lease. At the same time, the parties agreed that possession was to be delivered up to the first respondent by 25 September 2003 and Nargol could have continued occupation and quiet enjoyment until that time. That was more than the 14 day period allowed under cl 8 for the removal of tenant’s fixtures. The parties also agreed that tenant’s fixtures were to be dealt with in accordance with the terms of the lease.

39 It was not argued that if Nargol did not remove its fixtures within 14 days of 5 September that cl 8 would at that point come into operation. Rather, both parties seemed to assume that upon whatever construction was given to cl 8 of the lease, Nargol had until 25 September to remove its fixtures, subject to the operation of cl 21(c). That was the thrust of the letter of 18 September. It would appear, therefore, that the effect of the agreement noted by the Court in the consent orders of 5 September was to give Nargol 20 days from the termination of the lease to remove its fixtures. The parties did not give any attention to this particular matter either in the Court below or on appeal. However, it does not relevantly impinge upon the construction I have given to clauses 7, 8 and 21(c) of the lease.

40 Accordingly, unless Nargol removed the items contained in the first fit-out by 25 September 2003, then, pursuant to the provisions of cl 8, property in those items reverted to the first respondent.

41 It was next submitted that the first respondent had relied upon the provisions of cl 21(c) which counsel for the appellant described as a moratorium provision. The circumstances in which cl 21(c) became relevant were as follows. On 18 September 2003, being the period during which Nargol was entitled to remove tenant’s fixtures, (for the reasons I have given above) the solicitors for the first respondent wrote to Nargol’s solicitors in the following terms:

“Our client has instructed us that your client has removalist trucks at the premises.

We take this opportunity to remind your client that the court ordered all tenants fixtures should be dealt with in accordance with the terms of the lease.

Clause 21(c) of the Lease provides that in the event that rental or other moneys are due by the lessee to the lessor the lessee shall not remove any of its fixtures fittings or plant from the premises.”

42 The first respondent’s solicitors then forwarded a further letter on the same date, by facsimile transmission, stating they had been informed that tenant’s fixtures had been removed in breach of the agreement noted by the Court on 5 September 2003. Nargol’s solicitors responded, stating that no fixtures had been removed.

43 The appellant contends that once cl 21(c) came into operation, it overrode cl 8, so that the reversion of title contemplated under that clause could not take effect.

44 The trial judge dealt with the operation of cl 21(c) at p 14 of his judgment. On his interpretation, cl 21(c) could operate in circumstances, where moneys being owed under the lease, the lessee could not exercise its rights to remove “its” fixtures, in accordance with cl 8, if rent and other moneys were due and owing. His Honour found that as Nargol had failed to pay the amounts due and owing, then, at the date at which cl 8 became operative, namely, 25 September 2003, it had also failed to remove its tenant’s fixtures. His Honour held that, in that case, the items subject of the first fit-out, once again became the first respondent’s property.

45 The construction, and thus effect, of cl 21(c) is not particularly easy. It is the third clause of cl 21. Clause 21(a) provides that should rent be in arrears and unpaid for 28 days, or if some other covenant of the lease had not been properly observed, then, upon the lessor’s election, the lease wholly ceases and is void and the lessor is at liberty at any time thereafter to re-enter the premises. Clause 21(b) makes provision for the payment of interest. Then cl 21(c) is in the terms referred to above. The first question of construction which arises is whether cl 21(c) should only be read in the context of cl 21(a), that is, whether it only operates in circumstances where an election is made under cl 21(a).

46 In my opinion, the clause, according to its terms, operates independently of cl 21(a). Its opening words are: “Notwithstanding anything elsewhere herein contained”. Those words are wider than would be appropriate to confine its operation to the operation of cl 21 itself. Their width is such that, as a matter of ordinary language, they refer to the provisions of the lease as a whole. Having come to that conclusion, it is not necessary to separately consider the operation of cl 21(a), the extent of which is not clear, although if it was an issue I would conclude that an election made under cl 21(a) would result in the lease being determined as from the time of the election. If the effect of cl 21(a) was to make a lease void ab initio, then the parties would have to be able to be put back in the position, as far as possible, as they were at the commencement of the lease. That would involve, inter alia, the repayment to the lessee of any rental payments made under the lease. The clause does not make provision for that and, in my opinion, it would not make sense if it did.

47 Accordingly, it is necessary to return to the interaction of cls 21(c) and 8. Under cl 8, the lessee has a right to remove tenant’s fixtures within 14 days of the expiration or sooner determination of the term of the lease. However, if at that time, the lessee owes rent or other moneys under the lease, the lessee is prevented by the operation of cl 21(c) from entering the premises and removing those fixtures. If the rent or other moneys is paid within that 14 day period, cl 21(c) will cease to have any relevant operative effect. If the moneys are not paid, then those fixtures will become the property of the lessor by operation of under cl 8.

48 It follows that under the terms of this lease, there will be circumstances, as occurred here, where the lessor can effectively prevent a lessee from removing its fixtures whilst moneys payable under the lease remain unpaid and thereby, take advantage of the operation of cl 8, whereby such fixtures forfeit to the lessor upon the expiry of the 14 day period after the expiration or determination of the term of the lease.

49 It follows that the property in the tenant’s fixtures has passed to the first respondent.

The leased area issue

50 In the second agreement for lease made 28 May 1997, the “Demised Premises” was defined in cl 1 to mean premises located on the ground and first floors of the building “having an area of approximately 1000m2 on the Ground Floor and 149.64m2 on the First Floor, together with Sixteen (16) undercover parking spaces”.

51 Clause 8 of the second agreement for lease provided that the rental for the first year would be $361,430 “based on an area of approximately 1150m2”.

52 The lease itself did not specify the dimensions of the area leased.

53 On 14 March 2002, Peter Byron of Knight Frank Valuations provided his report of the annual rental of the premises, in accordance with the terms and conditions of the rent review clause as at 30 October 2001. In cl 8 of the valuation, Mr Byron dealt with the actual area of the leased premises. He recorded that the lessor’s valuer had nominated an area of 1,025.50m2, but had advised Mr Byron that he had not been provided with a survey of the premises. The appellant had provided Mr Byron with a plan of the premises and Mr Byron undertook some external measurements on site and calculated an area of approximately 975m2. Mr Pickford, on behalf of the lessor, then obtained a computer generated plan of the premises, which indicated a net lettable area calculated in accordance with the Property Council of Australia method of measurement, of 928.4m2. The appellant on behalf of the lessee indicated that he would accept that as being the correct actual area of the leased premises.

54 The trial judge found that the acceptance of a lettable area of 928.4m2 as the basis of the rent review was as a result of a compromise between the parties. His Honour also observed that there was survey evidence which indicated that the lettable area was greater than 928.4m2. In particular, the surveyor engaged by the appellant for the purposes of the proceedings, Mr Craig Turner, undertook a survey on 14 January 2005 of the ground floor and determined the gross lettable area to be 991m2, depicting an entry area of 75m2, representing the northern foyer. Mr Turner had available to him, as part of his instructions from the appellant, a survey of Mepstead & Associates Pty Limited which recorded the leased area at 1,000m2. His Honour found that part of the reception area was located in the foyer.

55 His Honour concluded that the survey evidence established that the area let on the ground floor, including the northern foyer, was approximately 1,000m2, as specified in the second agreement to lease. His Honour, therefore, dismissed the appellant’s case based upon there being no misrepresentation as to the area let.

56 On the appeal, the appellant submitted that his complaint was that Nargol did not receive exclusive possession of the foyer, such that the first respondent was in breach of the covenant of quiet enjoyment in the lease, or, alternatively, that Nargol was entitled to restitution, or the deduction of moneys otherwise payable by Nargol under the lease, which was referable to the amount overpaid. Alternatively, the appellant submitted that it had paid moneys under a mistake, the mistake being that Nargol believed that it was to have exclusive possession of the foyer, when in fact it did not.

57 The appellant also submitted that it was entitled to damages for a misrepresentation.

58 No case was pleaded based on a breach of the covenant of quiet enjoyment. His Honour noted as much in his judgment. There was cross-examination in relation to this which his Honour set out. In that cross-examination, the appellant conceded that the fact that people were utilising the foyer would not have been a basis for the alteration of the rent.

59 Senior counsel for the appellant did not further elaborate the basis upon which it was submitted that there should be some restitution or damages for either a failure to be given exclusive possession or, alternatively, damages for breach of the covenant of quiet enjoyment. Both matters would require evidence, including the basis upon which the quantum of restitution would be properly determined, assuming such a basis of recovery was available, or alternatively, what amount would be payable by way of damages for breach of the covenant of quiet enjoyment. Neither case was pleaded and the appellant should not be permitted to raise the matter now: Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35. Senior counsel for the first respondent contended, however, that Nargol at all times had control of the northern foyer.

60 As it had control, exclusive possession had in fact been afforded to Nargol so that there was no breach of the covenant of quiet enjoyment, although he conceded that there was evidence that persons used the foyer for the purpose of gaining access to the pharmacy which was located adjacent to the medical centre.

61 The appellant agreed that Nargol had a key to control the sliding doors to the entrance of the northern foyer from the car park. The first respondent contended, therefore, that the right to control access to the foyer was sufficient to constitute exclusive possession and it also followed that there was no breach by the landlord of the covenant of quiet enjoyment.

62 The appellant attempted to counter this evidence by saying that the pharmacy also had a key. However, the pharmacy was a sub-tenant of Nargol. Any arrangement it made with the pharmacy was not a matter that could be laid at the feet of the first respondent.

63 In addition, the evidence established that Nargol also alarmed the foyer. The appellant denied this in cross-examination, saying that the alarm excluded the northern foyer. However, evidence was given by Nargol’s previous office manager that the northern area was also subject to Nargol’s alarm. The appellant conceded in cross-examination that he was present when that evidence was given and he did not give any instructions to his counsel to have the position clarified. Nor did he give any evidence of that matter in chief. He sought to explain his silence on this issue by contending that he did not think that the fact of the northern foyer being controlled by an alarm was significant for the purposes of the proceedings.

64 However, the appellant conceded that having a key to the front door went to the issue of control of the northern foyer, as did Nargol having an alarm system in respect of the northern foyer. The appellant also agreed that he could have blocked off the entrance between the pharmacy and the foyer. He said he would have to refer to the sublease to see whether Nargol was able to do that. He also agreed that the entrance had neve been blocked off, except when the medical centre was closed but the pharmacy was operating. However, it again needs to be stressed that Nargol’s relationship with its sublessee is not a matter for which the first respondent bears any responsibility.

65 The appellant, in cross-examination, agreed that he saw it as an advantage to have a direct connection between the pharmacy, which was a sub-tenant of Nargol, and the medical centre. The appellant also conceded that there was a financial interest for Nargol in having the connection between the two premises because the support that the pharmacy would receive from having patients of the medical centre being able to directly access it would promote the business of the pharmacy, which was important “in view of the rental that [Nargol] received from the pharmacy”.

66 The appellant also agreed that he had never complained to anyone about the lift problem with the northern foyer, until approximately one month before the commencement of the proceedings. Later in his cross-examination, the appellant conceded that Nargol was in control of the northern foyer, but his assertion was that that it did not have quiet enjoyment of that area.

67 The covenant for quiet enjoyment is implied in a covenant described by Peter Butt in “Land Law”, 5th ed, at [1560] as:

“... a covenant that neither the landlord nor those lawfully claiming through the landlord will substantially interfere with the tenants ‘quiet enjoyment’ of the premises. The word ‘quiet’ is used in the sense of ‘free from interruption’ or ‘peaceful’.”

68 In this case, the first respondent did not interfere with Nargol’s possession. It gave Nargol the means to control access to the leased area. It was Nargol’s own actions in permitting use of the foyer area that permitted its use by persons not directly accessing the medical centre. The appellant’s assertion that persons used that entry to gain access to other shops in the centre, for example, the video store, was satisfactorily shown not to be correct.

Car parking spaces

69 The appellant contends that under the terms of the lease Nargol was entitled to 16 car parking spaces. He makes two complaints about this. First, he contends that Nargol was only provided with 14 car parking spaces. Secondly, he contends that the car parking spaces were to be rent-free, that is, there was to be no rental charged in respect of them, but that from 2002, after the rent review, an amount for car parking was included in the rental income.

70 Senior counsel for the appellant conceded that there was no evidence of damage having been sustained in respect of the failure to be provided with 16 car parking spaces rather than 14 and, accordingly, did not make any further submission on that aspect.

71 In respect of the claim that Nargol was wrongly charged for car parking after the rent review, the appellant relies upon the following documents. First, by letter dated 22 September 1995, the first respondent wrote to the appellant in respect of the “proposed lease of premises”. The letter noted that the building was expected to be completed by November 1996, and continued:

“We are prepared to offer the following:

1. The use of 16 undercover car spaces for doctors only in the secured area beneath your premises. This area has a commercial worth of $160,000 in [Baulkam Hills] Council terms and will not be charged for in your lease. The balance of car spaces would be shared between all tenants, the majority for public use.”

72 In the second agreement for lease dated 28 May 1997, the premises were defined in the manner as I have already described and the rental was as provided for in cl 8 referred to at [51] above. There was no reference in cl 8 to the rental including the area of the car parking spaces.

73 There was nothing in the provisions of the lease that specifically referred to car parking. Rather, the leased premises are identified as being known as suites 16, 18, 19 and 20 (suite 20 being the suite on the first floor, which was subsequently surrendered).

74 In the rent review conducted by Knight Frank, the net annual rental was calculated on the basis of $385/m2 per annum for an area of 928.4m2 as explained earlier plus 14 car parking spaces at $1,200 per annum each, making a total rental of $411,657 per annum inclusive of GST. Mr Byron expressed his valuation in terms that the combined amounts plus GST represented “the fair annual rental of the subject premises”.

75 The appellant pleaded that, prior to entry into the lease, the first respondent had represented that 16 car parking spaces would be provided and that Nargol would not be charged for those car spaces. The appellant contended that the inclusion of a rental cost for the car parking spaces rendered the original representation a misrepresentation. The pleading alleged misrepresentation and also claimed contravention of the Trade Practices Act 1974 (Cth). In its argument before this Court, the appellant submitted that there was no pleading by the first respondent to the effect that there had been a variation of the lease, or estoppel or acquiescence.

76 The trial judge found that, as originally agreed, the 14 car spaces were not to be charged for and accepted that Mr Byron took them into account when undertaking the rent review process. His Honour found, however, that both the appellant on behalf of Nargol and Mr Pickford on behalf of the first respondent, accepted the determination as representing “a fair figure” for the rent. His Honour relied upon the evidence of Dr Douglass to the effect:

“Q: So you weren’t so much concerned about the way that Mr Byron had arrived at the figure that he came up with, but rather, you were concentrating more on the figure?

A: That’s correct.”

77 His Honour considered that the appellant clearly understood that Mr Byron had included the car park in his determination. His Honour concluded:

“Accordingly, to the extent that Dr Douglass sought to rely on any issue concerning the car park as part of his misrepresentation case, I reject his contentions in support thereof.”

78 The appellant challenges this finding. The first respondent contends, however, that his Honour’s finding reflects the way in which the matter was addressed at trial, namely, that on a rent review it was permissible for the valuer to include the rental value of the car parking spaces in the overall valuation of the premises. Alternatively, it had been submitted at trial that the “rent” determined on the rent review was the result of a compromise between the parties on a number of issues, including the area of the premises used to calculate the gross rental amount. This submission, in my opinion, if accepted, would lead to a finding that the appellant waived any right to have, or is estopped in his right to have 14 free car parking spaces.

79 His Honour appears to have determined this question on the basis of reliance. However, “reliance” as an element of a misrepresentation claim relates to a point prior to, or at least contemporaneous with, the entry into the contract. Here, the lease had already been entered into.

80 The better view, it seems to me, is that the inclusion of the car parking spaces in the calculation of the gross rent was not causative of any loss. The rental figure determined on the review represented an amount that was an appropriate rental for the premises.

81 Alternatively, the appellant is, in my opinion, estopped from relying on the alleged misrepresentation or has waived any right to rely on a representation that Nargol was so entitled. In The Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39, Mason CJ pointed out at 406-407:

“According to its strict legal connotation, waiver is an intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right ... However, the better view is that, apart from estoppel and new agreement, abandonment of a right occurs only where the person waiving the right is entitled to alternative rights inconsistent with one another, such as the right to insist on performance of a contract and the right to rescind for essential breach ... This category of waiver is an example of the doctrine of election.”

82 His Honour added at 409:

“That brings me to estoppel, a label which covers a complex array of rules spanning various categories ... Yet all of these categories and distinctions are intended to serve the same fundamental purpose, namely ‘protection against the detriment which would flow from a party's change of position if the assumption (or expectation) that led to it were deserted’: Waltons Stores (1988) 164 CLR, at p 419.”

83 In dealing with estoppel, his Honour stated at 413:

“... it should be accepted that there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid.”

84 It is not necessary for the purposes of this judgment to engage in an extensive review of these principles. The appellant’s evidence sufficiently established that he had knowingly refrained from disputing the rent determined by the rental review process. In my opinion, his Honour correctly dismissed this claim.

85 It follows that the appeal should be dismissed with costs.

86 HODGSON JA: I agree with the orders proposed by Beazley JA and, except as indicated below, substantially with her reasons.

87 On the fit-out issue, I agree with Beazley JA that, for the reasons she gives, property in the items that were the subject of the first fit-out passed to the lessee at the end of five years. This makes it necessary to consider the effect of cl.8 of the lease which, including its proviso, is as follows:

8. The Lessee covenants that the Lessee shall at the expiration or sooner determination of the term of this Lease remove all trade fixtures, fittings, plant equipment or other articles in the nature of trade or tenant's fixtures brought upon the premises by the Lessee and shall make good all damage done to the premises by reason of such removal. Should the Lessee fail to remove such trade fixtures, fittings, plant equipment or other articles in the nature of trade or tenant's fixtures within fourteen (14) days of such expiration or such determination then such of those items as are not removed shall become the property of the Lessor.
PROVIDED ALWAYS that should the Lessee fail to comply with this clause then the Lessor may carry out all such work as should have been carried out by the Lessee and may recover from the Lessee the cost of such work together with such rents and other amounts which the Lessor would have been entitled to receive from the Lessee had the period within which such work is effected by the Lessor been added to the term of this Lease. The Lessee shall pay such costs rents and other amounts to the Lessor within fourteen (14) days of the Lessor notifying the Lessee of the amount thereof.

88 I agree with Beazley JA that the items the subject of the first fit-out were “trade fixtures” within cl.8, since those words in that clause are not limited by the words “brought upon the premises of the Lessee”. Accordingly, items the subject of the first fit-out, as well as items the subject of the second and third fit-outs carried out by the lessee, are potentially affected by cl.8.

89 After termination of the lease, the lessor relied on cl.21(c) of the lease so as to prevent the lessee removing its fixtures; and it is the lessor’s contention that, since the lessee did not remove its fixtures within fourteen days of the termination of the lease, cl.8 has the effect that they all became the property of the lessor.

90 However, cl.8 is a covenant by the lessee to remove its fixtures, and the transfer of property agreed to by cl.8 takes effect should the lessee “fail to remove” those fixtures.

91 Since the lessor prevented the lessee removing the fixtures, the lessor could not in my opinion have claimed that the lessee was in breach of the covenant in cl.8 to remove trade fixtures. The question then is, did the lessee “fail to remove” the fixtures, within the meaning of cl.8; or are those words limited to cases where the lessee is in breach of the covenant in cl.8?

92 One indication that the words are limited to cases where the lessee is in breach of this covenant is given by the proviso to cl.8: in my opinion, the lessee would not “fail to comply with this clause”, so as to become liable to the costs of carrying out work and to rent for the period within which the work was affected, if the “failure” is due to the lessor relying on cl.21(c) so as to prevent the lessee from removing fixtures. It would seem reasonable to similarly limit the words “fail to remove such trade fixtures” in cl.8. Otherwise, the combination of cl.8 and cl.21(c) would empower the lessee to expropriate assets of the lessee whenever the lessee owed any money under the lease for the fourteen days immediately following its termination.

93 Against this, that view would mean that reliance on cl.21(c) for this fourteen-day period would forever deprive the lessor of the benefit of the second sentence of cl.8. The obligation of the lessee under cl.8 to remove trade fixtures could revive once the lessor ceased to rely on cl.21(c); but the wording of the second sentence of cl.8 could not be understood in such a way that another fourteen-day period would begin when the lessor ceased to rely on cl.21(c).

94 On balance, I think that the better view is that the forfeiture provided by cl.8 operates only when the lessee fails to remove fixtures in breach of its obligation under cl.8; and there is no such breach when the lessor relies on cl.21(c) so as to prevent the lessee complying with cl.8.

95 The only claim made in the proceedings based on the lessee’s ownership of trade fixtures was a claim to entitlement to set off the value of such fixtures against rent. In my opinion, there is no such entitlement.

96 The lessee may have been able to claim damages for conversion, when the property was re-let with the fixtures; and may have been able to demand the return of the fixtures in the event that it paid all money owing to the lessor, so as to put an end to the effect of cl.21(c). However, no such claim was made. If such a claim had been made for conversion, that would have raised questions as to the measure of damages and (more importantly) questions as to the reduction of the lessee’s liability due to the successful early re-letting of the property. Since the lessee’s failure to claim conversion meant that those questions were not litigated, it would be too late now to make a claim in conversion.

97 In the result therefore, my different view as to the effect of cl.8 does not lead to any different conclusion.

98 On the other two issues, I agree with Beazley JA’s conclusions for the reasons she gives. On the car-space issue, I would add that, in any event, the lessor’s offer of sixteen undercover car spaces that would not be charged for in the lease did not, in my opinion, carry with it an undertaking that rent reviews should be conducted on the assumption, contrary to the fact, that the lessee did not have the benefit of undercover car spaces.

99 BASTEN JA: I agree with the conclusion reached by Beazley JA that appeal should be dismissed with costs. I also agree with her Honour’s reasons for rejecting the second ground (relating to the area of the demised premises) and the third ground (relating to the free parking spaces). However, in relation to the first ground (the payment for the fit-out) I have set out below my own reasons for concluding that the ground must fail.

100 Some part of the fit-out of the premises (largely unidentified in argument) was undertaken by Nargol Holdings Pty Ltd (“the lessee”). However, a major part of the fit-out was undertaken by the Respondent (“the lessor”) prior to the lessee entering into possession. Provision to that effect was made in cl 10 of both the first agreement between the parties (dated 28 October 1996) and the second agreement, dated 28 May 1997. Although the specified fit-out work was to be undertaken by the Respondent as lessor, the lease provided that the fit-out work would be paid for by the lessee, pursuant to Schedule 1, cl 1.05, set out at [11] above.

101 The primary argument put on behalf of the Appellant was that he, as guarantor of the lessee, was entitled to set-off against any moneys owing to the lessor under the lease the amount of the payments made by the lessee for the fit-out undertaken by the lessor. That involved an amount of $207,656, being the 49 instalments paid under cl 1.05 of the lease. The basis upon which an entitlement to the set-off arose was said to be a total failure of consideration for the payments made, the lease being terminated without property in the items of the fit-out passing to the lessee, with the result that the lessor kept both the property and the payment instalments. It followed, the Appellant contended, that the lessee was entitled to recover the full amount of the instalments which had been paid and although he accepted that he had an obligation to pay the outstanding instalments (totalling $46,617), an amount which was included in the damages awarded against the Appellant in the District Court, it would seem to follow that he could also recover that amount.

102 Thereafter, there was some lack of clarity as to what further argument, if any, arose in the event that the Appellant failed with respect to the first argument. The Appellant’s concern, somewhat ironically, was that if the lessee obtained property in the items of the fit-out, they would become “tenant’s fixtures”, with the result that, upon default, pursuant to cl 21(c), it was not entitled to remove such fixtures, fittings or plant from the premises. On the other hand, that argument did not seem to assist the Appellant, because the lessee clearly had no entitlement to remove the lessor’s property.

103 The Appellant did not argue that, if it did own the items of fit-out, the fact that it was unable to recover them due to default in payment of rent and other moneys, meant that they were forfeit to the lessor and that their value should be taken into account by way of set-off against the amount owing under the lease. Rather, the Appellant sought to portray cl 21(c) as a kind of lien operating for so long as money was owing under the lease. However, although an offer of payment was made by the Appellant following the termination of the lease, it was not for the full amount then outstanding. On the other hand, the lessor re-let the premises (or the major part of them) shortly after the termination of the lease, thereby effectively removing the lessee’s right of re-entry and opportunity for removal of any items of tenant’s fixtures. In those circumstances, a case might have been pleaded in conversion, but was not. The reason for that was, probably, that the items of fit-out had little more than a nominal value once removed, no doubt taking into account the cost of making good the premises.

104 Of course, if the items of fit-out, once removed, were of only nominal value to the lessee, it is difficult to understand in a practical sense why it could be said there was a total failure of consideration if it failed to obtain property in those items, but that, if it did obtain property, it lost nothing of consequence. This counter-intuitive result was said to flow, however, from the application of well-established principle, as explained in the authorities.

105 The first case relied on was Baltic Shipping Co v Dillon [1993] HCA 4; (1993) 176 CLR 344. In that case, the respondent sought to recover the fare paid by her for a 14-day cruise in the South Pacific, when the ship struck a rock and sank on the tenth day. She contended that there had been a total failure of consideration in those circumstances, because the contract was an entire contract and was not performed in full. In particular, the Appellant relied upon the following passage in the judgment of Mason CJ at p 350:

“When, however, an innocent party seeks to recover money paid in advance under a contract in expectation of the entire performance by the contract-breaker of its obligations under the contract and the contract-breaker renders an incomplete performance, in general, the innocent party cannot recover unless there has been a total failure of consideration. If the incomplete performance results in the innocent party receiving and retaining any substantial part of the benefit expected under the contract, there will not be a total failure of consideration.”

106 This passage does not assist the Appellant: in the present case the party which failed to perform was the lessee, and it was the lessee which arguably failed to obtain property in the items of fit-out, because of its own failure to make the relevant payments.

107 The Appellant also placed reliance upon a passage in the joint judgment of five members of the Court in David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR 353 at 382 where their Honours stated:

“On the other hand, there has been an insistence that the failure of consideration be total. The law has traditionally not allowed recovery of money if the person who made the payment has received any part of the ‘benefit’ provided for in the contract. However, ... the notion of total failure of consideration now looks to the benefit bargained for by the plaintiff rather than any benefit which might have been received in fact. Thus, in Rowland v Divall [1923] 2 KB 500, the plaintiff succeeded in an action for repayment of the purchase price of a car he had bought from the defendant, unaware that the car had been stolen before it came into the defendant’s possession. The defendant resisted the claim with the argument that the plaintiff could not prove total failure of consideration because he had used the car for several months. The Court of Appeal, however, dismissed this argument on the ground that the plaintiff had not received ‘any part of that which he contracted to receive – namely, the property and right to possession’. [1923] 2 KB, at p 507.”

108 Rowland v Divall was not a hire purchase contract, but a straightforward sale and purchase of the motor vehicle. However, the passage set out above focuses attention on the need to identify that for which the party making the payments contracted.

109 The Appellant also called in aid the principle stated by Dixon J in McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at 477-478, where his Honour considered the situation of a vendor who has received part payment for property, but does not transfer the property to the buyer. His Honour stated at p 478:

“It is now beyond question that instalments already paid may be recovered by a defaulting purchaser when the vendor elects to discharge the contract ... . Although the parties might by express agreement give the vendor an absolute right at law to retain the instalments in the event of the contract going off, yet in equity such a contract is considered to involve a forfeiture from which the purchaser is entitled to be relieved... .”

110 Other authorities were referred to, including Roxborough v Rothmans of Pall Mall Australia Ltd [2001] HCA 68; (2001) 208 CLR 516 at [20], being a passage in the joint judgment of Gleeson CJ, Gaudron and Hayne JJ. However, the principles relied upon are clear enough: the question is how they operate in the present case.

111 The first matter to identify is the relevant goods or services for which the lessee agreed to pay an amount of $254,273 over five years. Because cl 1.05 provided that “the items the subject of the fit-out” should become the property of the lessee at the end of the five year period, the Appellant contended that the amount was payable for the items in which the lessee sought to obtain property. However, that is not what cl 1.05 provided: rather, it stated that the payments were to be “in consideration of the fit-out” of the ground floor. Clause 10 of the second agreement stated:

“10. The Lessor will prior to practical completion provide the items set out on the annexure to be headed ‘Lessor’s Works’.

The Lessee will provide all other items of fittings and fitout.”

112 The schedule of lessor’s works was extensive and included air conditioning, ceiling grid and tiles, carpet, drainage to floor level, telephone lines, light fittings, electrical mains, together with the installation and completion, including painting, of partitions, timber doors, joinery units, a kitchenette and additional plumbing and electrical fittings. The “fit-out” so identified expressly included not only specific items, but their supply, installation and appropriate treatment. It is thus clear that what the lessee bargained for was use of premises fitted out for its purposes. It had the benefit of the fit-out for some six years of the seven year lease. This is a case far removed from one in which a purchaser pays for an item of property, which is not delivered. All that can be said in the present case is that the contract provided that property in the “items” (largely unspecified) of the fit-out would pass at a particular point in time. It would not be commercially realistic to treat the acquisition of legal property in such items as the sole purpose of the contract or the sole benefit for which the lessee contracted. Indeed, it is doubtful that the parties intended that the items of the fit-out would have any value as severable from the premises. As in Baltic Shipping, there was a substantial benefit obtained by the lessee for the payments made (and indeed those not made). It could not be said that there was a total failure of consideration.

113 This conclusion renders it unnecessary to consider the construction issue raised by the Appellant, namely that property in the items of the fit-out failed to pass to the lessee. It is also unnecessary to consider whether, if property did pass, the items became “trade fixtures” or “trade or tenant’s fixtures” for the purposes of cls 7 and 8 of the lease.

114 However, the question as to whether property passed may be dealt with shortly as it depended upon whether cl 1.05 provided that property should pass at the expiration of five years from the commencement of the lease, or, implicitly, only upon payment of the 60 monthly instalments, due and payable over the same period.

115 The last sentence of cl 1.05 stated that property passed at the end of the five year period, making no reference to the due and punctual payment, or non-payment, of instalments. The purpose underlying that approach was complementary to the second purpose to be found in the same sentence, namely to exclude the value of the items from the calculation of the revised rental, which was to occur at that time.

116 It was suggested that this conclusion was not commercially realistic and that, properly understood, the lessor cannot have intended to pass property in the items before the full cost of the fit-out had been paid. However, in the particular circumstances of the present lease, that does not follow. First, it assumes that the sole, or at least principal, purpose of the payment was to obtain property in the items: the reasoning is therefore circular. Secondly, the lessor was otherwise well-protected. Virtually all the items were fixtures or at least not readily removable from the premises. If there had been a failure to pay any instalment payable under cl 1.05, the lessor was protected by cl 21(c), which prohibited the lessee from removing any of its fixtures, fittings or plant from the premises, whether they were part of the fit-out or not. Accordingly, the last sentence of cl 1.05 should be understood to operate according to its terms, with the result that property in the relevant items did pass to the lessee at the end of the five year period, despite the fact that 11 instalments were still outstanding. This conclusion provides a second and independent reason for rejecting the contention that there was a total failure of consideration.

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LAST UPDATED: 23 April 2007