FEDERAL COURT OF AUSTRALIA Hawkesbury Nominees Pty Ltd v Battik Pty Ltd [2000] FCA 185 LEASE – breach of covenant for quiet enjoyment – obligation of lessor not to derogate from grant – whether assignee of lease entitled to sue for damages sustained by it on lessor's breach – whether damages limited to period for which tenant paid rent. LEASE – termination of lease – whether in the circumstances repudiation of lease by lessor or lessee. DAMAGES – measure of damages for breach of covenant in lease for quiet enjoyment discussed, whether damages as assessed were justified by evidence. Shevill v Builders Licensing Board (1982) 149 CLR 620 referred to Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1973) 128 CLR 199 cited O'Keefe & McKenna v Williams (1910) 11 CLR 171 cited Dennett v Atherton (1872) 7 QB 316 referred to Robinson v Kilvert (1889) 41 Ch D 88 referred to Martins Camera Corner v Hotel Mayfair Ltd [1976] 2 NSWLR 15 discussed Aussie Traveller Pty Ltd v Marklea Pty Ltd [1997] 1 Qd R 1 discussed Aldin v Latimer Clark, Muirhead & Co [1894] 2 Ch 437 discussed Telex (Australasia) Pty Ltd v Thomas Cook & Son (Australasia) Pty Ltd [1970] 2 NSWR 257 referred to Dawson v Dyer (1833) 5 B & Ad 584; 110 ER 906 cited Edge v Boileau (1885) 16 QBD 117, Halsbury, Laws of England (4th ed) cited Taylor v Webb [1937] 2 KB 283 cited Dowse v Wynyard Holdings Ltd [1962] NSWR 252 cited The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 cited Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 cited Mira v Aylmer Square Investments Ltd [1990] 1 EGLR 45 cited Robinson v Harman (1848) 1 Ex 850 referred to Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 applied Calabar Properties v Stitcher [1984] 1 WLR 287 cited Pennant Hills Restaurants Pty Ltd v Burrell Insurances Pty Ltd (1981) 145 CLR 625 cited Tramways Advertising Pty Ltd v Luna Park (NSW) Pty Ltd (1938) 38 SR (NSW) 632 referred to Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR NSW (SC) 97333 referred to Southwark London Borough Council v Mills [1999] 3 WLR 939 applied Jenkins v Levinson (1929) 29 SR (NSW) 151 cited Karaggianis v Malltown Pty Ltd (1979) 21 SASR 381 cited Setana Pty Ltd v Permanent Trustee Nominees (Canberra) Ltd (1987) NSW Conv R 55-322 cited Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 cited Wilcox v Richardson (1997) 43 NSWLR 4 cited Bradford House Pty Ltd v Leroy Fashion Group Ltd (1983) ATPR 40-387 cited HAWKESBURY NOMINEES PTY LIMITED AND OTHERS v BATTIK PTY LIMITED AND OTHERS A 47 of 1999 GALLOP, HILL AND GYLES JJ 1 MARCH 2000 CANBERRA IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY A 47 OF 1999 ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY BETWEEN: HAWKESBURY NOMINEES PTY LIMITED (ACN 008 500 178) First Appellant DEBRA NOMINEES PTY LIMITED (ACN 008 500 016) Second Appellant NECTARIA NOMINEES PTY LIMITED (ACN 008 500 007) Third Appellant AND: BATTIK PTY LIMITED (ACN 070 032 905) First Respondent PATRICIA LAURIAN LENFIELD Second Respondent IVAR LENFIELD Third Respondent SIMON BRITTON Fourth Respondent JUDGES: GALLOP, HILL AND GYLES JJ DATE OF ORDER: 1 MARCH 2000 WHERE MADE: CANBERRA THE COURT ORDERS THAT: 1. The appeal is allowed to the extent that in substitution for the sum of $130,000 there be judgment for the respondent in the sum of $93,956.12. 2. Otherwise, the appeal is dismissed. 3. The appellants are to pay three-quarters of the respondents' costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY A 47 OF 1999 BETWEEN: HAWKESBURY NOMINEES PTY LIMITED (ACN 008 500 178) First Appellant DEBRA NOMINEES PTY LIMITED (ACN 008 500 016) Second Appellant NECTARIA NOMINEES PTY LIMITED (ACN 008 500 007) Third Appellant AND: BATTIK PTY LIMITED (ACN 070 032 905) First Respondent PATRICIA LAURIAN LENFIELD Second Respondent IVAR LENFIELD Third Respondent SIMON BRITTON Fourth Respondent JUDGES: GALLOP, HILL AND GYLES JJ DATE: 1 MARCH 2000 PLACE: CANBERRA REASONS FOR JUDGMENT GALLOP J: 1 I have read the respective judgments of Hill J and Gyles J in draft form. I agree with their respective reasons and conclusions. I certify that the preceding paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Gallop. Associate: Dated: 1 March 2000 IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY A 47 OF 1999 ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY BETWEEN: HAWKESBURY NOMINEES PTY LIMITED (ACN 008 500 178) First Appellant DEBRA NOMINEES PTY LIMITED (ACN 008 500 016) Second Appellant NECTARIA NOMINEES PTY LIMITED (ACN 008 500 007) Third Appellant AND: BATTIK PTY LIMITED (ACN 070 032 905) First Respondent PATRICIA LAURIAN LENFIELD Second Respondent IVAR LENFIELD Third Respondent SIMON BRITTON Fourth Respondent JUDGES: GALLOP, HILL AND GYLES JJ DATE: 1 MARCH 2000 PLACE: CANBERRA REASONS FOR JUDGMENT HILL J: 2 The appellants, Hawkesbury Nominees Pty Ltd, Debra Nominees Pty Ltd and Nectaria Nominees Pty Ltd ("the lessors") are the proprietors of a Crown lease over a building in Hobart Place, Canberra. In the basement of that building is a restaurant. 3 By a sublease dated 22 September 1994 but stipulated to commence on 1 February 1994 ("the lease") the lessors had subleased the basement premises to a Mr Williams and a Mr Brayshaw. On 22 November 1995, Messrs Williams and Brayshaw assigned the lease to Battik Pty Ltd, the First Respondent ("Battik"). Battik claimed that the appellants breached a covenant in the lease for quiet enjoyment or breached an implied term not to interfere with an air system so as to render the premises unfit for the purposes of a restaurant, and that in consequence it was entitled to damages. The lessors cross claimed for damages for wrongful repudiation of the lease by Battik. Battik succeeded in the Supreme Court of the Australian Capital Territory in its claim and in the result was awarded damages in the sum of $130,000 plus interest. The cross-claim was dismissed. The lessors now appeal to the full Court of this Court against the judgment entered against them. The factual background to the appeal 4 The lease provided that the lessee was obliged within four months of the commencement date to upgrade the kitchen in the basement in accordance with a schedule which was attached to the lease. Notwithstanding this requirement the permitted use of the premises was stated to be : "Any use permitted by the Crown Lease" 5 Clause 25 of the lease provided as follows: "(a) That the said Lessor will at its own expense light and keep neat and clean the entrance hall adjacent to the premises, stairs, passages, lavatories, conveniences and water closets in the said building and will pay all rates and taxes which may be payable in respect of the premises during the continuance of the term hereby granted provided that nothing herein contained shall create in the Lessor any obligation to pay for outgoings that may be occasioned by reason of the business and the nature thereof carried on by the said Lessee. (b) That the said Lessee paying the rent and charges aforesaid and performing and observing the covenants provisions conditions and restrictions herein contained on the Lessee's part to be paid observed and performed shall peaceably hold and enjoy the said premises without hindrance or interruption by the said Lessor or any other corporation person or persons claiming under it until the expiration or sooner determination of the said term. (c) Subject to clause 23 that the Lessor will provide and maintain the air conditioning plant in good order and condition." 6 Messrs Williams and Brayshaw used the premises for a restaurant, serving Italian style food. When they took over the premises it was ventilated by an exhaust fan located in the basement. There was ducting from the kitchen to the fan and thence from the fan to the roof of the building. This appears to have created complaints from tenants of the building as odours from the restaurant were dissipated up the exhaust ducting slowly and were detectable to the other tenants. 7 Between 14 and 16 August 1995 the appellants moved the exhaust fan from the basement area to the roof, apparently to obviate the annoyance to other tenants. According to Mr Williams this caused an increase in smoke in the kitchen and an increase in heat. Mr Williams requested that something be done. He believed that the problem may have been the existence of holes in the vertical ducting. Mr Williams recalled receiving a complaint from customers siting close to the staff entrance to the kitchen. He did not recall any complaints from customers sitting further away. He used a free standing fan in the kitchen to help cope with the heat 8 Messrs Williams and Brayshaw put the restaurant on the market. Negotiations took place between Mr Williams and Mrs Lenfield for Battik. At the time Mrs Lenfield noticed a number of freestanding fans. She enquired why they were there and was told that the exhaust system was not working. Mr Williams told her that the extractor fan had been relocated by the lessor who was in the course of fixing the problem. 9 Ultimately the negotiations led to an agreement under which Battik agreed to purchase the restaurant business from Messrs Williams and Brayshaw for $30,000. Of this, $20,000 was borrowed privately and the balance was borrowed from a credit union. The total purchase costs were $37,365. Subsequent costs for improvements which Battik undertook to the restaurant amounted to $69,586.12. The assignment of the lease was consented to by the lessors. 10 It was not intended that Battik, although the lessee under the lease, actually run the restaurant which was to be established. Battik was owned by Mr and Mrs Lenfield and a Mr Britton who was engaged to the Lenfield's daughter, Keli. Mr Britton had a business involvement with a restaurant in Manuka with a chef, Mr Lignieres, and the idea was that the new restaurant would be managed by a company Weagle Pty Ltd ("Weagle") owned by Messrs Britton and Lignieres under an agreement which dealt rather inadequately with the distribution of profits and not at all with the distribution of losses. Under the agreement Weagle undertook to: "on the first day of every month pay to the lessee [Battik] a sum equal to all the monthly expenses due that month and incurred by the lessee in respect of the restaurant including, but not limited to, the monthly rent payable on the restaurant premises; loan repayment on moneys borrowed to finance the purchase and refurbishment of the restaurant, and costs incidental to the operation of the restaurant - with any remaining profits disbursed by agreement reviewed monthly between the operator [Weagle] and the lessee." 11 The restaurant opened on 14 December 1995 under the name "Cascades", with Mr Lignieres as chef and manager. It was contemplated that the official launch of the restaurant would take place early in the new year after an initial settling in period. 12 The exhaust system was insufficient to cope with smoke and heat, particularly when meat was grilled or barbecued. At times the smoke would blow out into the bar area. The kitchen had twelve burners, but only four could be used as once because of the inadequate ventilation. Mrs Lenfield complained to the lessors' agent, a Mr Sarris. Mr Sarris and his family were also the owners of the lessor companies. He told her that an engineering company had been engaged to fix the problem. The company did in fact do some work between December 1995 and 1996 on the exhaust system but without success. 13 The problem was so great, according to Mrs Lenfield's evidence, which the learned primary judge apparently accepted that, although the restaurant had a capacity of 137 with seating for 80, customers were turned away and the numbers kept down to 20 or 30, that being the number which could be catered for as a result of the inefficiency of the exhaust system. The menu had to be modified to reduce, so far as that was possible, smoke. 14 Mrs Lenfield complained again in early 1996 to Mr Sarris. He told her that there was a need for an "in-line fan" which would cost $3,500 and asked her to contribute $900. The offer to contribute was declined. The response was that, in that case, the lessor would do nothing. Mrs Lenfield continued to complain. She did so by a letter of 7 February 1996 which demanded that the lessors rectify the problem within seven days. To this, the reply was that the responsibility was not the lessors, it was the tenant's responsibility. An offer was made by the lessors to rectify the situation but only if Battik accepted an obligation to pay additional rent of not less than $500 and thereafter maintain the ducting. The position was taken that the exhaust fan was a tenant's fixture. 15 It is unnecessary to chronicle the correspondence which passed between the parties. The restaurant operated at what the primary judge referred to as "minimal capacity"; the chef fainted at work and complained to the Occupational Health and Safety authorities. The agreement with Weagle was terminated because of the intolerable working conditions as a result of a notice given on 15 March 1996, but stated to be effective as and from 1 April 1996. Rent was unpaid as a result of the dispute, although because of a bank guarantee was in fact paid when the guarantee was called upon. Attempts on behalf of Battik to have the lessors remedy the situation were not responded to. On 22 March 1996 Battik commenced proceedings in the Supreme Court of the Australian Capital Territory for damages. In due course the lessors filed a defence to these proceedings denying responsibility for the exhaust fan on the basis that it was a tenant's fixture. Trading stopped on 1 April, although on a temporary basis. A letter written by the solicitors for Battik on 25 March 1996 sought access to the building to enable Battik to relocate the fan to the basement in the hope of solving the problem went unanswered. 16 Nevertheless it does seem that the lessors continued to attempt to improve the situation. So, around May 1996 the lessors discovered that part of the problem lay in a closed fresh air duct which was part of the air conditioning system. Conditions improved when it was opened, but this did not improve the situation in the kitchen. The lessors obtained a report from a Mr Moon. The report indicated that the airflow was well below standard. An occupational health and safety inspector recommended that a partial closing down of the range hoods would increase airflow and would be acceptable to him, although this would restrict the use of the kitchen. This solution was not acceptable to Battik. 17 Mrs Lenfield consulted an engineering company who reported on 10 June 1996 to the effect that the exhaust system was inadequate. He recommended improvement to the air conditioning system to provide an adequate supply of fresh air. By this time Mrs Lenfield formed the view that Battik should relinquish its occupation of the premises. She arranged for an auction to be conducted at the site on 24 June 1996. Bids to the value of $15,292 were received. Some goods were taken away by purchasers; others were left on the premises. The lessors interrupted the auction process and halted the removal of items by both purchasers and Battik, particularly fixtures. As a result, the net proceeds of sale were, after commission etc, $12,995. The auction was in breach of the terms of the lease, a matter which was pointed out to Battik by letter. The lessors wrote that Battik had repudiated the lease and that the repudiation was accepted and the lease terminated on 26 June 1996. When the solicitors of Battik attempted to gain access to the premises to retrieve the fixtures that access was denied, on the grounds that access would only be given if Battik complied "with its obligations under the lease". 18 Just prior to the auction, on June 12 the lessors installed, so Mr Sarris said, a new fan. The primary judge referred to this as an assertion, rather than a fact. Whether or not a fan was installed, a test carried out on 1 July indicated that the air flow extraction was still deficient, despite the new fan, if one were installed. It was operating at only 64% of capacity, considerably below the Australian standard then in force. A report dated 31 July 1996 of Rynard Mechanical Building Services stated that satisfactory airflow could be achieved only if the ductwork was significantly straightened. Remedial work was still being attempted in August 1996. 19 It was the case for Battik, as pleaded, that the lessors were in breach of the covenant in the lease for quiet enjoyment by virtue of the defective exhaust ventilation system, and that this had led to financial loss to Battik. Battik further claimed to have been entitled to terminate the lease as and from 26 June 1996. By way of defence the lessors claimed that the exhaust system, inclusive of the fan and the ducts were tenants fixtures and thus the lessors had no responsibility. Alternatively any right to claim damages was denied. By way of cross claim the lessors claimed rent unpaid to 25 June when they had resumed possession of the premises. They claimed that there had been repudiation by Battik which had been accepted by the lessors resuming possession and claimed damages. The decision appealed from 20 The learned primary judge took as the first issue in the case the question whether the lessors had breached the covenant for quiet enjoyment by the relocation of the exhaust fan and the consequential reduction in efficiency of the kitchen of the restaurant. His Honour was of the view that they did. He said: "I have found it likely that it was compounded by a gradual deterioration in the capacity of the joints in the ducting to prevent fumes leaking out. There was, therefore, a combination of a failure to repair the exhaust ducting system, a failure to operate the air-conditioning and fresh air ventilation systems satisfactorily, and the effects of the decision to relocate the exhaust fan in an attempt to minimise the leaks of odours from the ducting thereby exacerbating the inefficiency of the system at the range hood level." 21 In so finding, his Honour rejected the contention that the exhaust system or part of it was a tenant's fixture. That matter is no longer in contention between the parties. His Honour also rejected a submission that Battik should be required to take the premises as it found them at the time of assignment, a submission closely connected to an argument that there was no cause of action in Battik because the breach, if there was one, arose before Battik became lessee by assignment. On this latter matter his Honour said: "It is no answer that the breach was initiated when Battik's predecessor in title was the lessee. It continued up until the time Battik repudiated the lease. It was a continuing breach of an express covenant. Battik is therefore entitled to damages for any loss caused by that breach." 22 His Honour also rejected a submission that the covenant for quiet enjoyment did not extend to an obligation to keep the premises fit for use as a restaurant. 23 His Honour then turned to look at the position of the lessors. He noted that the right of the lessor continued until the lease was terminated and stated the question to be determined to be whether the circumstances surrounding the termination of the lease gave rise to an action for damages by the lessors or afforded Battik a defence to the cross-claim. In his Honour's view ordinary contractual principles were applicable to a lease, notwithstanding that a lease operated to confer an interest in land, save that for conduct to be "repudiatory conduct" it had to evince an intention no longer to be bound. His Honour then said (paragraph 166 of the judgment): "It is also clear that, by holding the auction on the premises, Battik was then indicating an intention to abandon possession. That repudiation was accepted by the lessor physically taking possession of the premises and excluding Battik from them. The holding of the auction was itself a breach of cl 5 (c)(6) of the lease. It did afford evidence of Battik's intention to terminate the lease and abandon possession. Clearly the lessor was entitled to accept that repudiation. Thus, as from 26 June 1996, Battik's obligation to pay rent was terminated." 24 His Honour noted that the lessors were claiming damages for making good the premises after attempts at removal of tenant's fixtures as well as loss of the benefits of the rental covenant. After referring to Shevill v Builders Licensing Board (1982) 149 CLR 620, which had held that where a lessor had terminated a lease for inadequate cause the lessee was only obliged to pay rent to the date of termination and the lessor was not entitled to damages for breach of the covenant to pay rent, his Honour continued (paragraph 169 of the judgment): "In the present case, it was the lessor who was in breach of its obligation to Battik. They had insisted, without any apparent justification, on a construction of the lease that it did not reasonably bear. That insistence led to Battik's business becoming uneconomic. It seems to me that, in those circumstances, closing the business down and, as part of that process, handing possession back to the lessor was a reasonable response mitigating its loss. It seems to me, therefore, that the lessor had, as at the date when it accepted the offer of termination constituted by Battik's conduct, shown that they were unable or unwilling to give the quiet enjoyment to which Battik was entitled." 25 The apparent conflict between paragraphs 166 and 169 of the judgment were the subject of considerable comment in the appeal. 26 Immediately after paragraph 169 his Honour concluded: "It follows that Battik is entitled to damages for the losses caused by the lessor's failure to remedy the defective exhaust system. The lessor is entitled to rent until termination of the lease, but not to damages for loss of the benefit of the covenant for rent." 27 His Honour then turned to the question of the damages which Battik claimed to have suffered. It had been contended by the lessors that the business was, in any case, a doomed business and would have failed with or without the defective exhaust system. In part the submission relied upon the vague and indeterminate nature of the agreement between Battik and Weagle. Expert reports were submitted for both sides. Both were rejected by his Honour as "based on fanciful premises" and of no assistance. However his Honour determined that but for the problem with the exhaust fan the business would probably have been successful and have returned a small profit on the investment and that in the event of sale Battik would have, at least, received its money back including the "value of the refurbishment". On this basis his Honour found the loss to Battik to be $130,000 There is no discussion in the reasons of how this amount was calculated, save that it did not include, for his Honour thought it to be inappropriate, any amount for loss of earnings upon the capital invested but did take account of the proceeds of the auction, mitigating, so his Honour said, in part, the capital loss. 28 His Honour found that the value of the fixtures retained approximated the cost of Battik's obligation to make good damage to the premises in removing tenant's fixtures, producing a net zero position, requiring neither addition nor deduction from the sum assessed. 29 Dealing with the cross-claim, his Honour said: "On the cross-claim the lessor is entitled to a set-off for unpaid rent. However the $130,000 is calculated as a net loss after expenses, including the assumed payment of rent. Thus no adjustment is required. I appreciate that there is also the loss of the bank guarantee and, no doubt, an interest liability as a result. However, I consider that the sum of $130,000 includes compensation for this consideration, when considered with the award of interest made. It also follows that, as there is a net sum owing to Battik by the lessor, there is no claim by the lessor against the guarantors. That claim is dismissed." The submissions for the lessors 30 For the lessors it was submitted: 31 Failure to repair or maintain the exhaust system was not a breach of the covenant for quiet enjoyment having regard to the express covenants to repair contained in the lease. Alternatively because the relocation of the exhaust fan occurred before Battik became the lessee and had not interfered with the quiet enjoyment of the original tenant (the assignor to Battik) that relocation could not be a breach of the covenant for quiet enjoyment. 32 Any liability of the lessors to Battik was limited to the loss in the period for which Battik paid rent. That was only for the first month and there was no loss in that period. 33 Even if there were a breach of the covenant for quiet enjoyment there was no evidence that Battik suffered loss. Alternatively his Honour erred in the calculation of the loss, either by applying a measure of damages in tort, rather than in contract, or by arriving at a figure inconsistent with the evidence his Honour himself found. 34 Rather than finding that the lessors were liable to Battik in damages his Honour, consistent with finding that Battik had repudiated the lease in circumstances where the lessors had accepted that repudiation, should have found that Battik was liable in damages to the lessors. Was there a breach of the covenant for quiet enjoyment 35 It is of the essence of a covenant for quiet enjoyment that the tenant be permitted to "peaceably hold and enjoy the demised premises without interruption by the lessor or persons claiming through or under him": Goldsworthy Mining Ltd v Federal Commissioner of Taxation (1973) 128 CLR 199 at 214 per Mason J. The possession of the tenant is not to be disturbed and the covenant operates to ensure this. 36 It is trite law that even if not express, (and the lease in the present case contains an express covenant) a covenant for quiet enjoyment is to be implied in a lease. Common sense requires that a landlord not be permitted to "annul his own deed" by interfering with the possession of the tenant: Goldsworthy Mining Ltd v Federal Commissioner of Taxation; O'Keefe & McKenna v Williams (1910) 11 CLR 171 at 192, 200-201 and 211. So put, the covenant for quiet enjoyment intersects with the covenant which is also to be implied in every lease that the lessor not do anything which would derogate from the grant. The covenant for quiet enjoyment and the implied covenant not to derogate from the grant are, to the extent that they differ, both instances of the general rule in any contract, implied if not expressed that: "neither party shall do anything to destroy the efficiency of the bargain which he has made." (per Griffiths CJ in O'Keefe v Williams at 191). 37 The covenant for quiet enjoyment may be breached by the landlord (or those claiming under him) interfering with the physical occupation of the land by the tenant: Hill & Redman's Law of Landlord and Tenant (18th ed) paragraph 936, note 1. The principal, as the cases discussed below indicate, may be expressed in the following way: there will be a breach of the covenant for quiet enjoyment where the ordinary and lawful enjoyment of the demised premises is substantially interfered with by the acts of the lessor or those lawfully claiming under him, whether or not the title to the land or the possession of the land is otherwise affected. Whether what is complained of amounts to a substantial interference will be a question of fact. A breach may result either from acts of commission or omission by the landlord: see generally, Dennett v Atherton (1872) 7 QB 316, 326-7, Robinson v Kilvert (1889) 41 Ch D 88 at 97. 38 An example of a case where the breach arose by virtue of a failure on the part of the landlord to clear drains and pipes is Martins Camera Corner v Hotel Mayfair Ltd [1976] 2 NSWLR 15 on which the learned primary judge relied. In that case Yeldham J of the Supreme Court of New South Wales held that the breach arose where there was a substantial interference with the lessor's ordinary and lawful enjoyment of the premises. The case was one where the interference with enjoyment arose from the negligent omission of the lessor and in the circumstances of the case the tenant had a claim in negligence as well as for breach of the covenant. 39 The Queensland Court of Appeal in Aussie Traveller Pty Ltd v Marklea Pty Ltd [1997] 1 Qd R 1 upheld a decision at first instance where a breach of the covenant was found to exist by virtue of the activities of another tenant causing dust and noise which substantially interfered with the plaintiff's business. In so doing it rejected a suggestion to be found in some cases that the interference be such as to amount to a "practical frustration" of the purposes of the lease. It held also that there was no need for there to be authorisation or active participation on the part of the lessor. The case failed to distinguish between breach of the covenant for quiet enjoyment and breach of the implied term not to derogate from the grant, if there be any real distinction between the two. However, it may be noted that Halsbury's Laws of England (4th ed) gives by way of example of breach of the implied covenant not to derogate from the grant the example of a lessor rendering "the demised premises materially less fit for the purpose" of the leaseand, inter alia, cites Aldin v Latimer Clark, Muirhead & Co [1894] 2 Ch 437. 40 In Aldin a lease had been granted to the lessee for the purpose of carrying on the business of a timber merchant. The assigns of the lessor built upon adjoining property acquired from the lessor in a way which interrupted the access to air to sheds upon the demised premised used for drying timber and interfered with the plaintiff's business. It was held there was a derogation from the grant or alternatively a breach of the covenant for quiet enjoyment. 41 There will be a breach of the covenant for quiet enjoyment or alternatively the implied covenant not to derogate from the grant where the acts or omissions of the lessor are such as to render the demised premises unfit for the purpose for which the leased premises are intended to be used: cf Telex (Australasia) Pty Ltd v Thomas Cook & Son (Australasia) Pty Ltd [1970] 2 NSWR 257. In that case the premises were, to the knowledge of the landlord, (it was expressly made know to the landlord) to be used by the lessee for dealing with hearing aids and audiometric equipment, although the permitted user clause referred to the premises to be used as an office or showroom for the display and sale of surgical, dental and optical equipment. 42 Although in the present case there is no express limitation of use of the demised premises to use as a restaurant, the covenant in the lease requiring the lessee to expend monies in renovating the kitchen for the restaurant makes it abundantly clear that the demised premises were intended for use by the lessees as a restaurant, with the consequence that there would be a breach of the covenant for quiet enjoyment, or non derogation from the grant, if the acts of the lessor rendered the premises unsuitable for this purpose. 43 There is really little dispute between the parties to this point. The area of dispute lies rather, in whether the learned primary judge had found or was entitled to find that there had been a substantial interference with the enjoyment of the lessee in the circumstances of this case, so as to amount to a breach of the covenant, particularly as Messrs Williams and Brayshaw had continued, without apparent difficulty, it was said, to operate the demised premises as a restaurant before the assignment of the lease to Battik. There is a subsidiary argument which can be shortly dealt with based upon the express covenants in clause 25 of the lease imposing obligations upon the lessor to repair or maintain. 44 It will be recalled that Battik had pleaded its case, inter alia, upon the existence of an implied term. The pleading referred to there being an implied term that the lessor not fail to maintain the air system so as to render the Premises unfit for the purpose of a restaurant or that the lessor not do anything on the premises inconsistent with the purposes for which the premises were leased. The latter implied term appears rather to be intended to raise the implied covenant not to derogate from the grant. 45 It was submitted that because there were express provisions in the lease imposing in limited circumstances obligations upon the lessor to repair or maintain, for example, the entrance hall, stairs, passages, lavatories etc, upon ordinary expressio unius principles no term could be implied that the lessor had an obligation to maintain the air ventilation system. The principle of interpretation that because some matters are expressly provided for in a contract it must be concluded that the parties intended the express terms to be exhaustive is far from a secure one. Whether the maxim will apply will depend upon the context. But on no view of the matter did these express terms exclude the express covenant for quiet enjoyment, nor, if there be a difference in a case such as the present, would these express terms prevent the implication of an implied term that the lessor would not do anything which would derogate from the grant. The real issue between the parties was whether on the facts of the present case there was a breach of the express covenant for quiet enjoyment, including within those words the implied covenant that there be no derogation from the grant. 46 It was submitted that, what was not a breach of the covenant for quiet enjoyment at the time the alleged breach was committed, could not become a breach merely because Battik had become the tenant by assignment. If one put aside the possibility that the covenant for quiet enjoyment may be breached in a particular case by the failure of the landlord to repair some defect like the faulty drain in Martins Camera Store the proposition may, no doubt, be accepted. Its relevance to the facts of the present case requires that there be identified what constituted the breach of the covenant for quiet enjoyment. 47 It seems that his Honour found the breach to be both the relocation of the exhaust fan and the failure to repair the exhaust ducting system. On this basis there was a continuing breach which spanned both the initial tenancy of Mr Williams and Mr Brayshaw and the tenancy of Battik. In one sense there was really only one breach (albeit a continuing breach), that is to say the relocation. The failure to then rectify the problem need not be seen as a separate breach which gives rise separately to an action for damages. But nothing turns upon that. 48 Two questions arise, and they are questions of fact. The first is whether the relocation did amount to a substantial interference with the occupation of the premises by the lessors at the time the relocation was effected. If the answer to that question is in the affirmative the lessors are in breach of the covenant. If the answer to that question is in the negative the lessors would only be in breach of the covenant if the situation deteriorated so that the effects of the action only became obvious over time. As already suggested, the mere fact that Battik became a tenant could not turn what was not a breach of the covenant into a breach. 49 The learned primary judge found that the covenant had been breached by the relocation of the exhaust fan with the consequential reduction in efficiency of the kitchen of the restaurant. In so finding his Honour accepted the evidence of Mrs Lenfield that before Battik took an assignment of the lease the exhaust system was not working and that this affected the use of the demised premises as a restaurant. Although there was evidence from Mr Williams that he had been able to continue using the premises as a restaurant, his Honour accepted that in the period after the assignment the situation became worse and that in part, at least, this was explicable by the fact that it was, by the time of the assignment almost summer. His Honour appears to have thought that another reason may have been that gaps in the joints of the ducting were likely to have grown. There was, it must be said, no evidence to support this hypothesis. But what is important is that his Honour did find a breach of the covenant which substantially interfered with the use of the demised premises arising by virtue of the relocation at the time of relocation. His Honour did not find that interference with use of the premises as a restaurant arose only after the assignment, or that it was the very nature of the restaurant operated by Weagle which was the problem. The submission, which was at the forefront of the case for the lessors that "the landlord's non-breach could not be converted into a breach of covenant by reason of the assignment of the Lease" is inconsistent with the facts as found by his Honour and facts which it was open to his Honour to find. Whether the obligation of quiet enjoyment was dependant upon payment of rent 50 The submission that the obligation of the lessors to give quiet enjoyment depended upon due payment of rent on the part of Battik can be shortly disposed of. While it is true that Battik did not pay rent for the whole of the period before it went out of possession (although the period for which it did pay rent was longer than the period to January 1996 as rent unpaid was in fact reimbursed to the lessors under the guarantee which had been provided) it is incorrect as a matter of law to say that the obligation to give quiet enjoyment is dependent upon payment of rent and outgoings so that non-payment relieves the landlord thereafter from the obligation, even where the obligation is expressed to be subject to the lessee complying with the provisions of the lease. Reference may be made to Dawson v Dyer (1833) 5 B & Ad 584; 110 ER 906, Edge v Boileau (1885) 16 QBD 117 at 119, Halsbury, Laws of England (4th ed) at 245-3305, Taylor v Webb [1937] 2 KB 283, per DuParcq J at 292 and Dowse v Wynyard Holdings Ltd [1962] NSWR 252 at 263. The two covenants are independent covenants. Damages 51 Although a lease creates an interest in land and covenants in the lease run with the land, a lease is a contract (cf The Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 at 27-9) and in the event of a breach of the lease the party not in breach is entitled to damages for the breach. The measure of damages will be that applicable to contract, not, to the extent that there is divergence, that applicable, for example, in tort. 52 In general terms it may be said that where damages are awarded in tort the object is to place the plaintiff in the same position in which the plaintiff would have been had the tort not been committed. By contrast, where damages are to be assessed for breach of contract the damages are the means of placing the plaintiff in the position the plaintiff would have been in had the contract been performed, including expectation loss: Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 11-13. 53 In the United Kingdom the Court of Appeal recently discussed the basis of the computation of damages for breach of a covenant for quiet enjoyment in Mira v Aylmer Square Investments Ltd [1990] 1 EGLR 45. The fundamental principle is that so far as possible by a monetary award the plaintiff is to be placed in the position he or she would have occupied if the contract had been fulfilled: cf Robinson v Harman (1848) 1 Ex 850, Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80. In the normal case of damages for breach of covenant the plaintiff will ordinarily be entitled to recover the profit he or she could be expected to make if the contract had been performed. But there will be cases where loss of profits cannot be proved, because, for example, it is impossible to assess what would have been the outcome had the contract been performed. In such a case a plaintiff may be entitled to recover expenditure which he or she has thrown away: see Amann at 84-5. So, as Mason CJ and Dawson J in that case observed at 85-6: "An award of damages for expenditure reasonably incurred under a contract in which no net profit would have been realized, while placing the plaintiff in the position he or she would have been in had the contract been fully performed, also restores the plaintiff to the position he or she would have been in had the contract not been entered into. In this particular situation it will be noted that there is a coincidence, but no more than a coincidence, between the measure of damages recoverable both in contract and in tort." 54 Obviously each case will depend upon its own facts. However, where, for example, the tenant is driven out of occupation by the breach and forced to sell, damages may be assessed by reference to the difference between the selling price and the price which would have been obtained had the covenant been observed: Calabar Properties v Stitcher [1984] 1 WLR 287 at 299D per Griffiths LJ. The fact that, both in tort and in contract, the fundamental basis for damages is compensation for the loss which directly and naturally flows from the breach tends to lead, in many cases, to a convergence between the principles applicable in the one and those applicable in the other, albeit as was observed in Amann by coincidence. 55 At the hearing below the dispute between the parties is reflected in the submission made by the lessor that the business was a doomed business, so that even without the defective exhaust system the business would have failed. Battik's predecessors had traded at a loss for the year ending March 1996 and had sold the business because of poor returns. However, his Honour was of the view that Battik would have returned a small profit, notwithstanding that the financial side of the management agreement with Weagle had not been finalised. 56 His Honour rejected expert reports prepared on behalf of each side for reasons which are presently immaterial. He concluded that there would have been a small profit on the investment, but more importantly that Battik would, in the event of sale of the lease, have done better than receive its money back, including the value of the refurbishment it undertook. It was for that reason that his Honour said (paras 180-182): "I propose, therefore, to assess the gross loss to Battik including loss of invested capital at $130,000. The loss of earnings upon the capital invested in compensated for by pre-judgment interest which I award as from 26 June 1996. Before that, I consider no return or minimal return over expenses would have been received. Those expenses, I have assumed, include rent as claimed against and as paid by Battik out of the bank guarantee. I appreciate that Mr Lignieres and the two Lenfield children forewent wages or management fees as the case may be. However, I have no evidence as to the extent of their forbearance. Nor is it a direct loss incurred by Battik. I leave it to those parties to readjust their positions as between themselves if they wish to do so The damages thus assessed take account of the proceeds of the auction. That mitigates, in part, the capital loss. However, against that is the value of tenant fixtures retained by the lessor. There is the damage done to the premises. The lessor was entitled to have that made good. They did not, however, permit Battik access to the premises to do so. The cost of the lessor making good is not, therefore, an accurate measure of their loss. Nevertheless, some expense would have been incurred by Battik in making good. In the absence of any reliable evidence of the net position, taking account of rent and other expenses, I am inclined to believe that the net position would have been close to zero as between goods retained and the cost to Battik of making good the premises. Thus it seems to me neither addition nor deduction from the sum assessed is warranted. There will be judgment for the plaintiff against the defendants in the sum of $130,000 plus interest in the sum of $38,400." 57 For the lessors it was submitted that his Honour had assessed damages by reference to the measure of damages applicable in tort, rather than in contract; that having regard to his Honour's findings concerning repudiation of the lease by Battik the only damages Battik could claim were for loss of profits, and none had been proved; and that, on the evidence in any event the only expenditure proved to be incurred by Battik amounted to $106,952.12, which after allowing for the amount received on the sale of fittings (a net return of $12,995) should have produced a loss of $93,956.12 and not $130,000, a figure nowhere appearing in the evidence. 58 The criticism that damages had been assessed upon the wrong basis fails to take account of the coincidence which may arise between the measure of damages in contract and those in tort in cases such as the present. A good example is to be found in Telex to which reference has earlier been made. In that case the tenant succeeded in recovering damages against the landlord for the diminution in the value of the leasehold interest as a result of the breach. Jacobs, Manning and Moffitt JJA said at 267: "..the primary measure of damages apart from actual loss suffered while occupying the premises is the diminution in the value of the leasehold interest with the consequent loss in the value of the premium which has been paid." 59 This appears to be the principle upon which his Honour proceeded. His Honour was of the view that on a sale of the leasehold interest Battik would have recovered the money it had expended. The breach of covenant rendered the leasehold worthless as a restaurant. The diminution in value of the leasehold interest was recoverable. 60 The question of repudiation may, for the present be put to one side. I will deal with that in considering the lessors' cross-claim. The most difficult question lies in seeking to understand how the figure of $130,000 is, in fact, to be gleaned from the evidence. It may be accepted that the assessment of damages will often involve the making of a pragmatic assessment or approximation lacking in mathematical accuracy: Pennant Hills Restaurants Pty Ltd v Burrell Insurances Pty Ltd (1981) 145 CLR 625 at 636 per Barwick CJ. But this does not mean that an assessment of damages can be made which finds no support at all in the evidence. 61 It is clear from his Honour's own findings that the loss of investment after taking into account what was recovered on the sale of fixtures and fittings was $93,956.12. There is no explanation for the difference between that figure and the figure of $130,000 arrived at by his Honour unless his Honour accepted that the business would have, during the occupancy of Battik, derived a profit of $40,000. But his Honour made no finding to this effect, and such a finding would sit uneasily with the finding by his Honour that the restaurant would probably only have returned a small profit on the investment and that loss of earnings upon the capital invested was compensated for by an award of pre-judgment interest. In our view it was, in any event, not open on the evidence to find that Battik would have derived profits of the magnitude involved from a restaurant on the demised premises in the event that the lessor had not breached the covenant for quiet enjoyment. I would, accordingly, allow the appeal to the extent of substituting for the figure of $130,000, the figure of $93,956.12. The cross-claim 62 In dealing with the lessors' submissions on the cross-claim it is necessary to consider more closely that part of the judgment in which the learned primary Judge discussed the question of repudiation and, in particular, the passages which are repeated in paragraphs 22 and 23 of these reasons, a matter which attracted considerable attention during the appeal. 63 It was submitted for the lessors that since his Honour had found that Battik had breached the lease, and repudiated it, the conclusion should follow that rather than damages being awarded to Battik his Honour should have awarded damages to the lessors. The submissions of Battik, on the other hand, rather suggest that what his Honour meant, at least when the reasons are considered as a whole, was that Battik was entitled to bring the lease to an end, did so, and in circumstances where the lessors accepted that the lease was at an end, with the consequence that the lessors were not entitled to damages for loss of rent. 64 There is, it must be said, a difficulty in reconciling what the learned primary judge said in the two passages to which reference has been made. The first passage to which reference is made appears to constitute a finding that Battik had, both by its breach in holding an auction and in vacating the premises, repudiated the lease, which repudiation was accepted by the lessors in re-entering. This finding would clearly give rise to the prima facie situation that the lessors were entitled to sue for damages, those damages being the rent and damages for making good the premises after attempts at removal of the tenants fixtures. 65 But it is also true that, while his Honour did hold that the lessors were entitled to recover rent until the date of termination and did allow (as an offset in calculating the damages due to Battik) an amount to the lessors to compensate for damage to the premises in removing fixtures, his Honour did not find that the lessors were entitled to recover rent from the date of termination until the premises were relet. Indeed, his Honour found the lessors liable to pay damages to Battik and awarded to the lessors no damages for the breach of the lease by Battik. 66 It is clear law that repudiation for fundamental breach, entitles the innocent party to terminate the contract and sue for damages. So much was decided by the High Court in Progressive Mailing House to which reference has already been made. However that assumes in a case such as the present that the abandonment of possession by the lessee is a fundamental breach of the lease. Although it is, perhaps, not as clear as it could be, it seems to me that what his Honour ultimately decided was that where a lessor breaches the covenant for quiet enjoyment in circumstances where the lessee suffers loss, the lessee is entitled to abandon possession in order to mitigate the damages of the lessor. In such a case what would otherwise be a termination of the lease by way of acceptance by the lessor of a fundamental breach of the lessee, remains a termination of the lease, but not as a result of a breach by the lessee or repudiation by the lessee, for the lessee's conduct by way of mitigation is not wrongful, or in other words cannot be treated as a fundamental breach by the lessor. I might add, although I do not think it arises in the present case, that breach of a covenant for quiet enjoyment does not necessarily entitle a tenant to terminate a lease (see Tramways Advertising Pty Ltd v Luna Park (NSW) Pty Ltd (1938) 38 SR (NSW) 632 at 642) but may do so (see Todburn Pty Ltd v Taormina International Pty Ltd (1990) 5 BPR NSW (SC) 97333 per Powell J). 67 That this is the way the matter was treated by the learned primary judge is made clearer by his Honour's reference to Shevill v Builders Licensing Board as the introduction to paragraph 169 of the reasons. Shevill, as I have already noted, was a case which held that wrongful termination of a lease by a lessor did not entitle the lessor to damages for breach of the covenant to pay rent. After referring to Shevill, the learned primary judge then commented in paragraph 169 that in the present case the lessor was the one in breach of the lease, with the consequence that the act of the lessee in abandoning possession (or as his Honour put it "handing possession back to the lessor") was "a reasonable response mitigating its loss". Hence it could not be seen to be a fundamental breach entitling the lessor to accept a repudiation and to sue for damages. 68 Whether or not my analysis reflects the way in which the learned primary judge did decide the case, I am of the view that on the facts of the present case Battik was entitled to hand possession of the premises back to the lessors. In those circumstances the lease came to an end when possession was accepted by the lessors, and in the result the lessors were not entitled to succeed on the cross-claim except, as his Honour held, to the extent of an award to compensate the lessors for damages to the premises occasioned by the removal of the tenant's fixtures. 69 The orders I would propose to make are: 1. The appeal is allowed to the extent that in substitution for the sum of $130,000 there be judgment for the respondent in the sum of $93,956.12. 2. Otherwise, the appeal is dismissed. 3. The appellants are to pay three-quarters of the respondents' costs of the appeal. 70 The last order reflects the appellants' partial success on the appeal. In my view the cost order at first instance should not be varied. I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill. Associate: Dated: 1 March 2000 IN THE FEDERAL COURT OF AUSTRALIA AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY A 47 OF 1999 ON APPEAL FROM A JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY BETWEEN: HAWKESBURY NOMINEES PTY LIMITED (ACN 008 500 178) First Appellant DEBRA NOMINEES PTY LIMITED (ACN 008 500 016) Second Appellant NECTARIA NOMINEES PTY LIMITED (ACN 008 500 017) Third Appellant AND: BATTIK PTY LIMITED (ACN 070 032 905) First Respondent PATRICIA LAURIAN LENFIELD Second Respondent IVAR LENFIELD Third Respondent SIMON BRITTON Fourth Respondent JUDGE: GALLOP, HILL AND GYLES JJ DATE: 1 MARCH 2000 PLACE: CANBERRA REASONS FOR JUDGMENT GYLES J: 71 I have had the advantage of reading the judgment of Hill J in draft, and the analysis of the case by his Honour relieves me of the necessity to set out the issues in the appeal. Liability 72 I agree with his Honour's conclusion that the appeal against the finding of liability ought to be dismissed. As the case involves an important aspect of the common law of landlord and tenant, I will briefly explain my own reasons for coming to this conclusion. 73 The salient facts are as follows: 1. At the commencement of the lease the kitchen exhaust hoods over the stoves operated by means of a fan that was situated outside the demised premises at basement level, in an area retained by the appellant lessor ("the lessor") under the lessor's control. The fumes were exhausted into a ducting system passing through the upper floors of the multi-storey building. 2. At the commencement of the lease, it was contemplated by lessor and the original lessee ("the lessee") that the lessee would utilise the stoves for the purposes of a restaurant, although it was not bound to do so. 3. The exhaust hoods operated satisfactorily during ordinary usage of the stoves for the purposes of the restaurant. 4. During the currency of the lease, the lessor altered the exhaust system by relocating the position of the fan. 5. After this relocation the exhaust hoods were significantly less efficient than hitherto, and this interfered with and adversely affected the conduct by the lessee of the premises as a restaurant, although the lessee continued to operate the restaurant taking measures to minimise the disturbance. 6. There were no relevant dealings between the respondent assignee of the lease ("the assignee") and the lessor concerning the operation of the exhaust hoods prior to the assignment. 7. The performance of the exhaust hoods was worse when the restaurant was operated by the assignee than had been the case previously, and the adverse effect upon the operation of the restaurant was greater than it had been whilst the business was conducted by the lessee. 8. Whilst the lessor did make some efforts to improve the operation of the exhaust hoods, it consistently maintained the position that it was not bound to do so and would not do so without renegotiation of the terms of the lease. It did not take any steps which restored the efficiency of operation of the exhaust hoods to the standard existing at the time of the relocation of the fan. In particular, the lessor did not restore the fan to its original position. 9. The effect of the inefficient operation of the exhaust hoods was sufficient to justify the decision of the assignee to close the business and leave the premises. 74 Thus, the case concerns a positive act of the lessor in physically altering the exhaust system to the detriment of its efficient operation. The detrimental effects of the change were never remedied. 75 Mr Einfeld QC, for the lessor, made a valiant attempt to persuade us that the adverse effects upon the lessee prior to assignment were not sufficient to constitute a breach of the express covenant for quiet enjoyment or the implied covenant not to derogate from the grant. I do not accept this submission. It is a question of fact and degree whether the lessee's ordinary use of the premises has been substantially interfered with (Southwark London Borough Council v Mills [1999] 3 WLR 939, per Lord Hoffman at 945E). The trial judge's finding was well open to him. That the lessee soldiered on under some difficulties, and took some steps to alleviate the problem, does not require the contrary conclusion. It was not submitted by the lessor that his Honour was in error in directing himself as to the relevant principles by reference to Aussie Traveller Pty Ltd v Marklea Pty Ltd [1998] 1 Qd R 1. 76 His Honour's conclusion is consistent with a number of cases involving similar factual situations, although the reasoning differs somewhat from case to case – see Jenkins v Levinson (1929) 29 SR (NSW) 151; Karaggianis v Malltown Pty Ltd (1979) 21 SASR 381; Setana Pty Ltd v Permanent Trustee Nominees (Canberra) Ltd (1987) NSW Conv R 55-322; Homebush Abattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605; and Wilcox v Richardson (1997) 43 NSWLR 4. 77 There is some attraction in the proposition, put to both the trial judge and on appeal, that the assignee should, as with an initial tenant of commercial premises, take the premises as it finds them, with no warranty as to fitness for any purpose, particularly where, as here, the fault was drawn to the attention of the assignee by the lessee, but the assignee took no steps to obtain any enforceable promise from the lessor to rectify the problem (Southwark London Borough Council v Mills (supra); Bradford House Pty Ltd v Leroy Fashion Group Ltd (1983) ATPR 40-387). However, the assignee is not a new tenant, but rather stands in the shoes of the lessee and is entitled to exercise the rights of the lessee. If there is a continuing breach of a covenant (express or implied) of the lease, the assignee is entitled to sue for damages it sustains by reason of that breach. The fact that it may not sue for damages incurred by the lessee prior to assignment is not to the point. 78 Analysed in this fashion, the finding in favour of the assignee does not utilise the relevant express and implied covenants to indirectly impose any positive duty upon the lessor or impose any warranty of fitness for purpose or warranty as to the absolute performance standards of the exhaust hoods in question. The lessee (and so the assignee) could not ask the lessor to improve the system which existed at the commencement of the lease. It is unnecessary to decide whether there was an obligation upon the lessor to repair and maintain the system, as held by his Honour. In my opinion, it is clear that the lessor was not entitled to physically alter the system to the substantial detriment of the ordinary use of the premises as a restaurant. The lessors' argument based upon the provisions of clauses 23, 25(a) and 25(c) of the lease would be relevant to the possible implication of a term as to repair and maintenance, but not to the breach based upon relocation of the fan. Damages 79 I agree with the conclusion of Hill J that the award of $130,000 cannot be supported, notwithstanding the considerable leeway which is given to trial judges in assessing the outcome of business activities when considering claims for loss of profit (Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83, 102-3, 125, and 138). The amount appears to be arbitrary. As Hill J points out, there is no evidence which expressly or impliedly points to that figure. Furthermore, the method of arriving at it is flawed. It was apparently calculated by taking an adjusted figure for expenditure and adding to it an amount for loss of profit. In my opinion, this is an unwarranted combination of reliance and expectation damages. Revenue losses during the period of occupation might have been added to expenditure, but the matter does not appear to have been approached in that manner. 80 In my view, this is an appropriate case to allow reliance damages in the amount nominated by Hill J. Expenses were undoubtedly incurred by the assignee on the basis that the lessor would carry out its obligations under the lease. The trial judge was not persuaded that the business would have run at a loss even if the exhaust system had been restored by the lessor. That being the case, whether by operation of the onus of proof or otherwise, the groundwork for reliance damages is established (Commonwealth v Amann Aviation Pty Ltd (supra) at 80-90, 104-108, 126-8, 142-4, 153-7, and 166). I note that an endeavour to forecast the results of this type of restaurant in this location without the exhaust problem is extraordinarily difficult, as there was no trouble-free operation which could be taken as the base, bearing in mind that different styles of restaurant were operated before and after occupation by the assignee. 81 The appellant's argument based upon the arrangements between the first respondent and Weagle might have had force prior to the decision of the High Court in Amann Aviation (supra). That decision permits questions of damages to take into account likely practical realities (see Mason CJ and Dawson J at 93-8; Deane J at 131-3; Toohey J at 143-7; Gaudron J at 149-150). In my view, that was a question of fact for the trial judge. As with Hill J, I find no appellable error in the manner it was dealt with by the trial judge. 82 It is implicit in the foregoing that the trial judge found breach by the lessor, and a failure to remedy that breach based upon a wrong construction of the contract which amounted to repudiation by the lessor which was accepted by the assignee – the substance of the matter being that the assignee terminated for continuing breach. Cross-claim 83 I agree with the conclusion of Hill J upon this point and with the substance of his reasons for it. Conclusion 84 I agree with the orders proposed by Hill J. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles. Associate: Dated: 1 March 2000 Counsel for the Applicant: Mr M Einfeld QC with Mr S Habib Solicitor for the Applicant: Phelps Reid Counsel for the Respondent: Mr DF Jackson QC with Mr G Stretton Solicitor for the Respondent: Colquhoun Murphy Date of Hearing: 15 November 1999 Date of Judgment: 1 March 2000