WILCOX and ORS v RICHARDSON and ORS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MEAGHER, HANDLEY and POWELL JJA 1-3 April 1997, 31 July 1997 [1997] NSWCA 342 leases — subject matter of — Wheeldon v Burrows (1879) 12 Ch D 31 — test "reasonably necessary for the enjoyment of the land' — implied terms for exclusive possession — Codelfa Constructions Pty Ltd v State Rail Authority (1982) 149 CLR 337. FACTS The Crown granted Special Leases over two lots, 276-277 to Mr and Mrs Richardson as joint tenants. In 1991, Mr and Mrs J Richardson agreed orally to sub-lease part of lot 276 to Mr R Richardson and his "partner" Miss Smith. In 1993 a formal sub-lease was executed. In 1994, Mr R Richardson and Miss Smith executed an agreement for sale of the business they had been conducting on the sub-demised premises; an assignment of sub-lease and an option to purchase a 75% interest in both lots by | March 1995. The main question on appeal was what were the sub-demised premises and what easements of a Wheeldon v Burrows type existed. HELD 1. The fact that two businesses were conducted by two different people simultaneously on the ground floor of the premises puts paid to any suggestion that the sub-lease was a demise of the whole of Lot 276. 2. The onus to prove exclusive possession was on the appellant, who having failed to discharge that onus must abide the result that a large part of the building was used in common by the proprietors of the two shops. 3. The appellants have proved they have rights of a Wheeldon v Burrows (1879) 12 Ch D 31 kind over additional areas ie a quasi easement of a "continuous and apparent" nature which was "reasonably necessary" rather than "essential" for the enjoyment of the land granted by the sub-lease. 4. Per Handley JA: The rule in Wheeldon v Burrows illustrates the relevance of surrounding circumstances to the implication of terms and reflects the working out of the general principle "that a grantor shall not derogate from his grant". Meagher JA This is an appeal by the assignees of a sub-lease designed to clarify what the rights of those assignees were. The land which is the subject of the sub-lease is, in whole or in part, lot 276 at Kiama Harbour on the South Coast of New South Wales. On that lot a building is situated. In January 1990 the Crown granted Special Leases over that lot and a neighbouring lot (Lot 277), being Special Leases numbered 1989/1 and 1989/2 respectively. The grantees of the Special Leases were John Richardson and his wife Judith Richardson as joint tenants. In January 1991, Mr and Mrs Richardson agreed orally to sub-lease part of (or, on one contention, the whole of) Lot 276 to Mr Ray Richardson (a brother of Mr John Richardson) and his "partner" Miss Margaret Smith. In late 1992, Mr Ray Richardson's bank told him it required a written sub-lease before it would advance him any moneys, and on 31 March 1993 a formal sub-lease between the parties was executed. 2 UNREPORTED JUDGMENTS On 22 December 1994 Mr Ray Richardson and his partner executed three documents: (a) an agreement for the sale by them of the business which they had been conducting on the sub-demised premises to the four appellants, Mr and Mrs Wilcox and Mr and Mrs Spicer, (b) an assignment of the sub-lease, and (c) a deed of option to purchase a 75% interest in both lots by 1 March 1995 (an option which was never exercised). The first, and indeed the main, question posed by the case was what were the assigned and sub-demised premises? Normally, of course, this question would not arise, as the documents would make it quite clear. In the present case, the documents did not. The opening description in the sub-lease of the premises demised was "Part of the Land Identifier 276/728098 being shop 1, Kiama Wharf, Kiama". Elsewhere in the sub-lease, language is used which suggests that the sub-lease extended to the whole of Lot 276. One can, I think, reconstruct with some degree of certainty what happened. The initial draft of the sub-lease was drafted as if it were a sub-lease of the whole of Lot 276, as the opening description of the premises was simply "Folio identifier 276/728098", it then being apparent that part only was intended, the words "part of the" were added; that having presented a problem of identifying what part, the description was further amended by adding the words "being shop 1, Kiama Wharf, Kiama". However, all this was achieved at the expense of leaving unresolved two major difficulties: one was that no consequential amendments were made to the subsequent part of the sub-lease which treated the demised premises as being the whole of Lot 276; and the other was that the sub-lease did not define (or even suggest a definition of) what was meant by the words "Shop 1". True there was a map annexed to the sub-lease. That map did not indicate any "Shop 1", but did raise an additional complexity by referring to some portion of Lot 276 as "existing Fish Shop". That the sub-lease was intended to extend to part only, and not to the whole, of Lot 276 is, I think, demonstrated by the letter of Messrs Trevor Ackerman & Co (acting for the sub-lessees) to Messrs R M McKinnon (acting for the sub-lessors) of 8 December 1992, and the reply thereto dated 13 January 1993. The former, omitting formal parts, read as follows: "We have now had the opportunity of discussing the sub-Lease herein with the proposed sub-Lessees. "Our clients require the inclusion in their sub-Lease of the following conditions: "1. That the Lessors for themselves their successors or assigns will not sell or permit the sale of cooked sea food, soft dringks(sic), ice creams or take away food items from the premises comprised in Crown Lease 1989/2 Kiama. "2. That the Lessors will be responsible for all water usage charges until a separate water meter is installed for the demised premises. "We await your advice." The latter, omitting formal parts, read as follows: "We refer to your letter of the 8th December and confirm that our client agrees with the proposed alterations in paral and para2 of your letter. "However, the following alterations should be made to the lease: "1. The rental payable in Item 1 Cl(1)(i) is now to be $1,733.33. "2. The subject property is to be described as "Part of the land contained in Folio Identifier 276/728098 and being Shop 1 Kiama Wharf, Kiama". Please make the necessary alterations to para(a) at the beginning of the lease. "Could you please let us have the signed lease at your earliest convenience. URJ WILCOX and ORS v RICHARDSON and ORS (Meagher JA) 3 "Could you please increase the cheque for the payment of our costs and stamp duty to $1,446.55, which reflects the increased amount of stamp duty which will be payable on the lease." Fortunately, there was evidence available as to what part of Lot 276 was in the exclusive possession of the sub-lessees. The Sub-lessees conducted a shop on, to put it in general terms, the southern portion of Lot 276. It was a shop for the sale of fish and other food to be taken from, or consumed on, the premises. This was the evidence of many of the witnesses, but since his Honour doubted the credibility of all the plaintiffs and the defendants, that does not amount to much. However, two women who worked in this shop from 1991 onwards, Mrs Humphries and Mrs Clarke, swore affidavits as to exactly what area this southern shop occupies, ie what area was occupied exclusively by the shop. Their evidence did not correspond. However, his Honour managed to believe them both. In the end, his Honour made a declaration that a precise area of about 4060 square feet was exclusively occupied by the sub-lessees and their assignees, and was therefore the land demised. To this area must be added a public lavatory called by his Honour a "public toilet". Henceforth in this judgment where the area of 4060 square feet is mentioned, it includes the public lavatory. Subject to minor amendments, both the appellants and the respondents accepted this finding, although they were astute enough not to let the Court into the secret until half-way through the second day of the hearing. What of the balance of Lot 276? The building is two storeys in height. The 4060 square feet (or southern shop) constituted part of the ground floor. The rest of the ground floor was somewhat larger. On the first floor there was a marine museum, together with more open space. On the ground floor there was another shop (which might be called the northern shop). On this space Mr and Mrs John Richardson at all material times operated a "wet fish shop", ie a shop where uncooked fish was sold. As a result one had the situation where two businesses were conducted simultaneously by different people on the ground floor of Lot 276. The fact that this was done for a long time without any protest from the appellants or their predecessors-in-title by itself puts paid to any suggestion that the sub-lease was a demise of the whole of Lot 276, as was earnestly submitted by Mr Downes QC, learned senior counsel for the appellants. Two things should be noted about the distinction between the northern (ie wet fish) shop and the southern (ie take away) shop. The first is that there is comparatively little of the space in Lot 276 which can be said to have been in the exclusive possession of the former. The second is that the sub-lessees of the southern shop did have the use of considerably more space than the 4060 square feet delineated by his Honour. It is clear enough on the evidence that the sub-lessees had the use of a staff lavatory, a store room at the northern end of the building, an ice box adjacent to the eastern boundary of the southern shop, a filleting bay, large portions of the first floor, and access to all such areas. There was some evidence that the use was exclusive. His Honour did not so find, and there is no reason why we should do so. The onus was on the appellants to prove exclusive possession of any parts of the building other than those found by his Honour. They failed to discharge that onus. The result must be a finding that a large part (perhaps the bulk) of the building was used in common by the proprietors of the two shops. It is at this point that his Honour's judgment seems, with respect, deficient. His Honour seems to have held that because (a) there was no exclusive use of Lot 276 outside the area found by him, and 4 UNREPORTED JUDGMENTS (b) it was not absolutely essential to the operations of the southern shop that any other area be used, the rights of the sub-lessees did not extend beyond that 4060 square feet area. This, in my view, cannot be sustained; the appellants have proved that they had rights of a Wheeldon v Burrows (1879) 12 Ch D 31 kind over additional areas, ie a quasi-easement of a "continuous and apparent" nature which was "reasonably necessary for the enjoyment of that the land granted" by the sub-lease. These "additional areas" are the areas which it was proved were used in common with the proprietors of the northern shop. Mr Biscoe QC learned senior counsel for the respondents, resisted this proposition because of his Honour's finding that these areas were not essential for the conduct of the southern shop. In my view this is to apply too stringent a test. The additional areas were "reasonably necessary" within the rule. To take an example: if you are going to fillet fish, it is "reasonably necessary" to have a filleting bay; and this "reasonable necessity" does not disappear because it would be possible to fillet the fish in one's kitchen at home. The next issue between the parties concerned the covenant in restraint of trade as it affected Lot 276. I have already set out its terms: they emerge from the solicitors' letters which I have quoted. What has happened is that Mr and Mrs Richardson, the sub-lessors, have changed the nature of the northern shop: it no longer confines itself to the sale of wet fish, it also sells cooked fish and other "take away" items. It is thus in direct competition with the southern shop. This, according to the appellants, is in breach of the covenant. In my view, it is not. The words of the covenant are crystal clear. They were decided on after discussions between the parties' solicitors. These words in terms forbid competition from Lot 277 with Lot 276. There is no reason to extend that prohibition to the area occupied by the northern shop of Lot 276. It is true that the commercial utility of the covenant is eviscerated if competition takes place from the northern shop. That, however, is no reason to mangle the words of the covenant. The next issue was rectification. In essence, Mr Downes QC's argument was that if he could not prevent competition on Lot 276 by means of misconstruing the covenant, he could do so by "rectifying" it, ie changing its words to mean what they do not say. There is a short answer to this contention: there is no evidence to suggest that the words used in the covenant were not the words which the parties intended, and much evidence to suggest that they were precisely the words intended. The next question concerns certain misrepresentations relied on by the appellants. At trial the plaintiff/appellants relied on eight misrepresentations. They were relied upon in a twofold way. They were initially relied on as constituting an estoppel which would have the net effect of preventing competition; they were also relied on as constituting a cause of action under the Fair Trading Act. In order to have either potency his Honour would have to decide, at least, that each of them was made and relied upon. His Honour decided that the first two alleged misrepresentations were never made. He held that the other misrepresentations alleged were made but none of them were relied upon. These conclusions were not challenged by Mr Downes QC, except as to the third and fourth representations. The third representation was to the effect that the covenant against competition burdened all the land in Lots 276 and 277 other than the land covered by the sublease. His Honour found that this representation was made by Mr and Mrs Richardson and also by "Ms" (sic) Smith to Mr and Mrs Wilcox. The fourth representation was to the effect that the appellants would have "sole catering URJ WILCOX and ORS v RICHARDSON and ORS (Handley JA) 5 rights" (whatever that may be) over both Lots 276 and 277. The representators and representees were the same as in the previous representation. Of the falsity of the representations there can be no doubt. Broadly they are representations that the covenant in restraint of trade did have the meaning which Mr Downes QC alleged it had as a matter of construction. Whether reliance was placed on them is a question of fact on which his Honour heard evidence and decided adversely to Mr Downes QC. That evidence consisted in considerable part of admissions made by the appellants themselves. They (and, it is important to remember they are not illiterate rustics, but intelligent laymen, and that they were advised by solicitors, financiers and accountants) gave evidence that they read the covenant carefully and understood what it said, and that it amounted to an embargo on competition from Lot 277 (and only from Lot 277). In these circumstances, it was not difficult for his Honour to conclude that they placed no reliance on a representation to the opposite of their beliefs. I agree with the orders proposed by Handley JA. Handley JA In this appeal I have had the benefit of reading the reasons for judgment of Meagher JA in draft form. l agree that the sub lease, on its true construction, covered only part of lot 276. I also agree that the restrictive covenant in special condition 1 of the sub lease does not apply to that part of lot 276 which was retained by the sub lessors, and that the appellants' claim for rectification of that covenant must fail. I further agree that the appellants' case based on representations 3 and 4, which the trial judge found had been made, fails because reliance was not established. Reliance is a question of fact on which the appellants bore the legal onus, and the judge having seen and heard them giving evidence was not satisfied that this onus had been discharged. There was force in the submission by Mr Biscoe QC, for the first respondents, based on the option to purchase a majority interest in the head leases which the appellants acquired at the same time. If that option had been exercised and the purchase completed, the appellants would have been able to prevent any competition from the rest of lot 276. An inference was therefore available that although the appellants knew that the representations were false they elected to proceed because they expected to acquire control of the head leases. The judge defined by declaration the area in lot 276 comprised in the sub lease over which the appellants had exclusive rights (the servery) where they conducted what was described as the takeaway business. He also upheld their claim to ancillary rights to the use of a toilet, and to access to the hot water heater, coolroom motor and cooker exhaust fan on the southern side of the first floor, and to the power board in the northern storeroom on the ground floor. Mr Downes QC for the appellants contended that they also had ancillary rights over other areas outside the servery, and this and related questions became the principal issues in the appeal. Mr Downes submitted that these additional ancillary rights arose either on the true construction of the sub lease, under implied terms required for business efficacy, or under the doctrine in Wheeldon v Burrows (1879) 12 Ch D 31. The appellants acquired the sub lease and takeaway business on 22 December 1994 but it had been granted on 31 March 1993, and the surrounding circumstances relevant to its construction and to the implication of terms were those in the contemplation of the original parties at the time of the grant. The formal grant followed an informal sub lease to Mr Ray Richardson and Miss Smith in January 1991. 6 UNREPORTED JUDGMENTS The judge found that the appellants had made extensive use of areas in the building on lot 276 outside the servery for their takeaway business. Use of some of these areas was shared with another business described as the wet fish business. On this issue he accepted the evidence of the plaintiffs, and that given by two of their employees, Lisa Clarke and Elizabeth Humphries. He said (677): "This usage included use of the staff toilet situate near the north western corner of the building, a sizeable storeroom situate at the northern end, an ice box situate just outside the servery, a filleting bay nearby, much of the mezzanine floor, and virtually the balance of the building for access to these areas". He also accepted evidence from Mrs Wilcox that it was not practicable to run the takeaway business from the servery alone. The judge thought that this had been the situation before the assignment to the plaintiffs. He correctly directed himself that the relevant use was that which predated the grant and referred to the evidence from Lisa Clarke and Elizabeth Humphries, who had worked in the takeaway business since September 1989 and November 1991 respectively, that there had been no material change in the use of areas outside the servery by the takeaway business. He then said (678-9): "However, given the relationship between the parties at that stage, if any weight is to be given to usage of the areas outside the servery, it must be usage reasonably necessary to the operation of the takeaway - not merely to usage simpliciter. In the result the conclusion which I have arrived is that, subject to a qualification not presently relevant... the evidence just does not permit me to say that, at the time the lease was entered into, the use of space outside the servery was necessary to the operation of the takeaway". (emphasis supplied) Later, when dealing with the plaintiffs' argument that the description "Shop 1" in the sub lease included the areas outside the servery used in connection with the takeaway business, the judge said (685): "The use prior to, and at the time of, the sub lease being entered into, of other parts of the building in connection with the takeaway business argues in favour of the term being given an operation so as to encompass them but most of those parts were, according to the evidence, also being used in connection with the wet fish business. One cannot therefore, by reason only of that prior use in connection with the takeaway business, infer any intention to confer in respect of those areas the exclusive possession which a lease gives. Accordingly, on this ground, I conclude that the expression does not encompass areas shared at the time of the sub lease". (emphasis supplied) He continued (685-6): "There remains a number of areas physically separated from the servery but which, the evidence indicates, were used exclusively in connection with the takeaway... An example is the area marked on a number of sketches 'public toilet'... there is something to be said for the view that, in light of the tables and chairs provided for takeaway patrons, rights to the toilet or an equivalent facility are to be implied in the sub lease. However the matter was not debated so I think it is preferable that I express no concluded view. There remains for consideration the oil drum storage area and three bays of the mezzanine floor in respect of which there is evidence... that they were used exclusively in connection with the takeaway. In light of their physical separation... | do not regard these areas as falling within the description 'Shop 1'." (emphasis supplied) His Honour then dealt with the plaintiffs' claim that the sub lease contained implied terms which gave them rights of access to and use over the areas outside the servery. The implications were pleaded as arising from necessity and "from URJ WILCOX and ORS v RICHARDSON and ORS (Handley JA) 7 evidence prior to and subsequent to the making of the lease as to how the land was used". His Honour disposed of this claim as follows (687-8): "The conclusion... that the evidence... does not permit me to say that, at the time the lease was entered into the use of space outside the servery was necessary to the operation of the takeaway largely disposes of (these) claims... There is no toilet in the servery. There is... in addition to the one toilet described as a public toilet one apparently which is a staff toilet... I would regard use of and access to staff toilet(s) as something reasonably necessary and to be implied under the rules for the implication of a term in the lease... there was no debate concerning any other particular matter which might come under this heading... One might readily infer, for example, an entitlement to services such as the discharge of waste and the use of an area for the 'gas tank'... but in terms of the matters debated the plaintiffs are entitled to no wider relief under this heading...". (emphasis supplied) Later in his reasons, when dealing with the plaintiffs' representation case, the judge referred again to the evidence by Mrs Wilcox, which he had accepted, that it was not practicable to run the takeaway business from the servery alone, and said (691): "T have, as I have indicated, accepted evidence to the effect that there was significant use associated with the conduct of the takeaway business in substantial portions of the building on lot 276 outside the servery and that such use is necessary to the operation of the takeaway business, at least in anything like its current form'. (emphasis supplied) The sub lease contains a reference schedule cl1(i) of which provided for an increase in the rent following completion of alterations to the building "in accordance with plans" lodged with the council under Development Application 116/92. These plans, although not annexed, were therefore incorporated by reference. In this connection, when dealing with another aspect of the plaintiffs' representation case, the judge said (693): "To the extent that the plan which formed part of Development Application 116/92 throws... any light on the matter it also argues against the leased area being understood as only that between the southern wall of the building and the existing dividing wall and coolroom. By reference to it the sub lease clearly envisaged that the sub lessee (and its customers) would have the use of at least all or substantially all of the ground floor of the building on lot 276". The judge had not previously made such a finding. The area between the southern wall and the existing dividing wall and coolroom defined the servery. One would have thought, with respect, that this finding would also be relevant when considering whether evidence of the use of areas outside the servery supported a construction of the expression "Shop 1", which included those areas, or conferred ancillary rights over them. The facts relating to the use of areas outside the servery at the time of the grant were peculiarly within the knowledge of the first and third defendants who were the original parties. The plaintiffs' knowledge of such use dated from shortly before the assignment some 21 months later. However they relied on evidence of earlier use given by Lisa Clarke and Elizabeth Humphries. The evidence of Mrs Wilcox as to the use at the time of the assignment, also accepted by the judge, attracts the presumption that this use existed at earlier dates. See Cloverdell Lumber Co Pty Ltd v Abbott (1924) 34 CLR 122 at 137-8. 8 UNREPORTED JUDGMENTS In my opinion the judge's findings and the underlying evidence provided the necessary factual sub stratum for the appellants' arguments that they had rights over the relevant areas outside the servery. The three bases on which the appellants sought to establish their claim to ancillary rights are related. Their claim that such rights arose on the true construction of the words "Shop 1" in the sub lease depended on extrinsic evidence. The principle is stated in Halsbury, 4th Ed, Vol 27, "Landlord and Tenant", paral32: "The question whether any particular property is included in the lease depends on the wording of the lease as applied to the circumstances of the property, evidence being admissible to show the state and condition of the property at the time the lease was granted". This is merely an illustration of the principles stated in Codelfa Construction Pty Ltd v State Rail Authority (1982) 149 CLR 337 at 347-353, illustrated by the decisions in Prenn v Simmonds [1971] 1 WLR 1381 (HL) on the meaning of "profits", and in Macdonald v Longbottom [1859] E & E 977 (120 ER 1177) on the meaning of "your wool". The most apposite statement of principle is that in DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 429 in the joint judgment: "A court may admit evidence of surrounding circumstances in the form of 'mutually known facts' 'to identify the meaning of a descriptive term' and it may admit evidence of the 'genesis' and objectively the 'aim' of a transaction to show that the attribution of a strict legal meaning would 'make the transaction futile'...". In the present case one does not need extrinsic evidence of the genesis and aim of the transaction. Cl4(b) of the incorporated memorandum contains a covenant by the sub lessees: "To use the leased premises solely for the carrying on of the purpose referred to in ITEM 2 of the reference schedule and to keep the demised premises open for business during ordinary business hours unless prevented by any circumstances beyond his control". Item 2 in the reference schedule stated: "A cafe for the sale of seafood and soft drink". The uses of areas outside the servery by the takeaway business prior to the grant were surrounding circumstances relevant to the construction of the sub lease. The claim for Codelfa implied terms relied on the same surrounding circumstances, and the ascertainment of implied terms is also a question of construction. In Codelfa, Mason J said, at 353: "... in making the enquiry whether a term is to be implied the court is no more confined than it is when it construes the contract. For the implication of a term is an illustration of the process of construction, though differing from the more orthodox ascertainment of the meaning of a contractual provision". Earlier, Dixon J had said in Gullett v Gardiner (1948) 22 ALJ 151 at 155 that in deciding whether a contract contained an implied term: "The question was one of interpretation in the sense of ascertaining the full scope and bearing of (the) contractual intent. In such a question it is not only permissible, it was requisite, to consider the circumstances in which the parties contracted". URJ WILCOX and ORS v RICHARDSON and ORS (Handley JA) 9 The application of such principles to the implication of terms in a lease, in the context of easements and ancillary rights, was considered in Pwllbach Colliery Co Ltd v Woodman [1915] AC 634. At 646-7 Lord Parker said: "\.. apart from implied grants of ways of necessity, or of what are called continuous and apparent easements, the cases in which an easement can be granted by implication may be classified under two heads. The first is where the implication arises because the right in question is necessary for the enjoyment of some other right expressly granted... the second class... depends not upon the terms of the grant itself, but upon the circumstances under which the grant was made. The law will readily imply the grant... of such easements as may be necessary to give effect to the common intention of the parties to a grant of real property, with reference to the manner or purposes in and for which the land granted... is to be used...but it is essential for this purpose that the parties should intend that the subject of the grant... should be used in some definite and particular manner". The third basis relied on was the principle in Wheeldon v Burrows (1879) 12 Ch D 31 stated by Thesiger LJ at 49 as follows: "... on the grant by the owner of a tenement of part of that tenement as it is then used and enjoyed, there will pass to the grantee all those continuous and apparent easements (by which, of course, I mean quasi-easements) or, in other words, all those easements which are necessary for the reasonable enjoyment of the property granted, and which have been and are at the time of the grant used by the owners of the entirety for the benefit of the part granted". Mr & Mrs Richardson, the lessees from the Crown, originally conducted both businesses in the building on lot 276. In January 1991 they sold the takeaway business to Mr Ray Richardson and Miss Smith for $150,000 and granted them an informal sub lease of "Shop 1" at a rent of $350 per week. This effected a subdivision of lot 276 which was formalised by the sub lease granted in March 1993. The existence of implied easements under the rule in Wheeldon v Burrows must first be determined as at January 1991, but any easements then implied will also be implied in the formal grant. Little turns on this distinction because the evidence of Lisa Clarke and Elizabeth Humphries established that there had been no material change in the meantime. The rule in Wheeldon v Burrows illustrates the relevance of surrounding circumstances to the implication of terms and reflects the working out of the general principle "that a grantor shall not derogate from his grant" (12 Ch D at 49). As Lord Wilberforce said in Sovmots Ltd v Environment Secretary [1979] AC 144 at 168: "The rule is a rule of intention, based on the proposition that a man may not derogate from his grant". Ad hoc implied terms, as explained in Codelfa at 353, give effect to the presumed intention of the parties, but the leading cases referred to in Codelfa, and Codelfa itself, concerned contracts where the principle of non-derogation was not relevant. Horsfall v Braye (1908) 7 CLR 629 at 638, 645-8, cited in Codelfa, involved a grant of land, and the two lines of authority were there brought together. Wheeldon v Burrows was neither cited to the trial judge nor relied on in the appellants' written submissions lodged prior to the hearing. Mr Biscoe submitted that in these circumstances this Court should not entertain this line of argument. I would reject this submission because, as I have attempted to demonstrate, the rule in Wheeldon v Burrows is not a special rule of the law of conveyancing, but 10 UNREPORTED JUDGMENTS is only an illustration, in particular circumstances, of the operation of the ordinary rules governing implications in contracts. See Nelson v Walker (1910) 10 CLR 569 at 586- 7; Sovmots Ltd v Environment Secretary [1977] QB 411 at 441-2, (1979) AC at 175. Easements and other ancillary rights, sometimes described as apparent accommodations (see Halsbury's Laws of England, 4th Ed, Vol 14 "Easements", para69; Dowse v Wynyard Holdings Ltd (1961) 79 WN (NSW) 122 and Auerbach v Beck (1985) 6 NSWLR 424), are implied in accordance with the rule in Wheeldon v Burrows, where they are necessary for the reasonable enjoyment of the property expressly granted. The judge sometimes appeared to apply the more stringent test of what was "necessary" (679, 687, 691), but at other times he referred to what was "reasonably necessary" (678, 688) in either case for "the operation of the takeaway". The test, expressed in those terms, invited a negative answer if it was possible to operate the takeaway without the use of the additional areas. The true test, implicit in the general authorities, and explicit in Wheeldon v Burrows, is the more liberal test of whether the implied rights were "necessary for the reasonable enjoyment of the property granted". The difference is significant, because rights which are not necessary for the operation of a business may be necessary for its reasonable operation and hence for the reasonable enjoyment of land leased for that business. Expressed in other words, such rights may be needed "to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men". (The Moorcock (1889) 14 PD 64 at 68.) It is clear from the judgment of Thesiger LJ that the test of what is necessary for the purpose of the rule in Wheeldon v Burrows is not the strict test relevant for the implication of an easement of necessity. See also Wheeler v J J Saunders Ltd [1996] Ch 19 at 31 per Peter Gibson LJ. What is necessary for this rule is what "conduces to the reasonable enjoyment of property" (ibid). Moreover in Schwann v Cotton [1916] 2 Ch 459 at 469, Lord Cozens-Hardy MR said: "The word necessary must not be taken in a rigid sense. The better phrase is that which is used by Lord Campbell... 'convenient and comfortable enjoyment of the property'...". Thus the expression means needed or required for the reasonable enjoyment of the property granted. Since the judge applied the wrong test, this Court must determine, as on a rehearing, whether the appellants have the implied rights they claimed. On the evidence of use accepted by the judge, I have no hesitation in holding that the appellants are entitled to implied easements and ancillary rights in addition to those he found. I am reinforced in this conclusion by his finding (691), previously referred to, that the use of "significant" portions of the building outside the servery was necessary to the operation of the takeaway business at least in anything like its current form. The judge also rejected some of the ancillary rights claimed because they related to areas, such as the filleting bay, where use was shared with the wet fish business. He appeared to hold that because the appellants could have no right to exclusive possession of such areas, they could have no rights at all. With respect this does not follow. It is commonplace for leases of flats, for example, to confer expressly or by implication, ancillary rights of access over passageways, stairs, lifts, and entrance halls, where use is shared with the landlord and other tenants. See Liverpool City Council v Irwin URJ WILCOX and ORS v RICHARDSON and ORS (Handley JA) 11 [1977] AC 239. These may be rights-of-way appurtenant to the leased premises or licences coupled with a grant. This objection is therefore no answer. The judge rejected other claims to ancillary rights because the areas in question were physically separated from the servery. With respect this too was an error. Physical separation of parcels is commonly found in leases and presents no difficulties where the tenant has express or implied rights of access. Common examples are parking and storage areas which may be separate parts of the demised premises, or the subject of easements. A right of storage for coal or trade goods may be an easement (Attorney General for S Nigeria v Holt [1915] AC 599 at 617; Wright v Macadam [1949] 2 KB 744 at 752), which may carry with it, by implication, the necessary means of access (Wright v Macadam at 753), and so may a right of parking (London and Blenheim Estates Ltd v Ladbroke Retail Parks Ltd [1992] 1 WLR 1278) which is only a form of storage. The fact that the use of the relevant space by the dominant owner amounts in practice to exclusive possession is no objection because the servient owners' other rights are not affected. There may be other easements which involve the shared use of some facility. The most common example is a right-of-way, but other examples relevant in this case include the right to use a neighbour's kitchen (Heywood v Mallalieu (1883) 25 Ch D 357), and the right to use a lavatory (Miller v Emcer Products Ltd (1956) Ch 304 at 316). The existence of rights of use shared between landlord and tenant has also received judicial consideration in the context of rent restriction legislation. Baker v Turner [1950] AC 401 considered the position where a tenant sublet part of the house on terms that both parties had the right in common to use the kitchen (415-6, 420-1, 422, 432-3, 437, 438). There was no dispute that such rights were enforceable but Lord Reid considered that they were licences coupled with a grant (437, 438). His views were followed by the Court of Appeal in Rogers v Hyde [1951] 2 KB 923 at 933- 4. However, in Liverpool City Council v Irwin (1977) AC 239, the implied rights of the tenants to access and use of the common areas in a 15 storey tower block were held to be easements. The exact nature of a tenant's right to "shared" use of common areas, such as the filleting bay in the present case, may not be important, because such rights can be protected by injunction in any event. See Dowse v Wynyard Holdings Ltd (1961) 79 WN (NSW) 122 and Arndale (Kilkenny) Pty Ltd v Gaetjens (1970) 44 ALJR 434. Were the uses of the shared and exclusive areas outside the servery continuous and apparent for the purposes of the rule in Wheeldon v Burrows? The use of areas on the ground and mezzanine floors for the storage of stock and other goods for the takeaway business would certainly have been obvious on an inspection, as shown by the photographs in evidence, as would the storage of the ice box and gas bottles on the ground floor and the freezers on the upper floor. So would the pipes for refrigerant gas from the cool room motors, the common use of the electrical power board, and the electrical wiring, gas, water and waste pipes, leading to and from the servery and to and from the hot water heater, exhaust fan, cool room motors and freezers on the mezzanine floor. An exhaust fan located on the mezzanine floor was connected by a conduit to a hood above the cookers in the servery. Such facilities may be the subject of an easement. Auerbach v Beck (1985) 5 NSWLR 424. 12 UNREPORTED JUDGMENTS The shared use of the filleting bay, and the right to bring goods into the servery through the main door in the wet fish business area, would not be identified by physical features apparent on inspection. However "the grantor, on the severance, ex hypothesi knows the facts" (Schwann v Cotton [1916] 2 Ch 120 at 121), and the original sub tenants must have discovered the facts in their inspections prior to acquiring the business. It is sufficient if there are "indicia to show that a strip of land was intended to be used as a way" (Hansford v Jago [1921] 1 Ch 322 at 342), or as Lord Wilberforce said in Sovmots Ltd v Environment Secretary at 169 if there was: "\.. actual and apparent use and enjoyment at the time of the grant". Lisa Clarke had been employed in the takeaway business by its successive owners since September 1989. Plans of the two floors of the building were attached to her affidavit of 1 July 1996 and also to Elizabeth Humphries' affidavit of the same date. They agree as to the areas on the ground floor used exclusively by the wet fish business, except for the broom cupboard. Lisa Clarke says that this was used exclusively by the wet fish business, but Elizabeth Humphries says it was used exclusively by the takeaway business. The appellants having the onus of proof fail on this issue. The witnesses agree as to the areas used exclusively by the takeaway business on the ground floor, except the area occupied by the ice box. Lisa Clarke thought that this was jointly used, but Elizabeth Humphries said that it was used exclusively by the takeaway. The ice box was the property of the appellants, it being one of the items of plant sold to them with the business. It had been purchased with the business by Mr Ray Richardson and Miss Smith in January 1991. An accommodation in favour of the appellants to leave the ice box where it was must be implied, and in my opinion the owners of the ice box must be entitled to its exclusive use. Any use by the owners of the wet fish business would only be as of grace. Both witnesses agree that the rest of the ground floor outside the servery was used by both businesses including that part of the coolroom accessible from the wet fish business area. The staff toilet and restroom facilities were shared by staff from both businesses, and the appellants are entitled to have those areas maintained in their condition in March 1993. The appellants are also entitled to use the storeroom on the northern side of the building for that purpose, and to continue using part of this area as a workroom for the cutting of lemons, the buttering of bread rolls, and the preparation of batters. They are also entitled to continue using the sink, filleting boards and filleting bay shown in the plans for the filleting and preparation of fish. These rights of use, shared or exclusive, attract implied rights of access to and from the internal door to the servery. The appellants are also entitled to access to the stairs and the mezzanine floor, and to access to and from the external door on the western side of the building for the movement of persons and goods. However they are only entitled to reasonable passages for such access, and subject thereto the sub lessors will be entitled to install and make exclusive use of fixtures and fittings in the open areas shown in the plans. The witnesses agreed that bays | and 2 on the mezzanine floor were used exclusively by the takeaway business. Lisa Clarke thought that an area at the northern end of that floor was used exclusively by the wet fish business, but Elizabeth Humphries thought that this was shared. The appellants having the onus must fail as to this area. Lisa Clarke thought that bay 3 was shared, but Elizabeth Humphries thought that the takeaway business had exclusive use. The use of this area must therefore be shared. The witnesses were agreed on the URJ WILCOX and ORS v RICHARDSON and ORS (Handley JA) 13 shared use of the stairs and the catwalk, and it is evident that the southern bay which contained the hot water heater, cool room motor, exhaust fan and other facilities must also be shared. In my judgment the appellants are entitled to appropriate declaratory and injunctive relief in respect of their rights to shared and exclusive use, and their ancillary rights to access and for the maintenance of services. They may also be entitled to orders requiring the premises on lot 276 outside the servery to be restored to a condition consistent with their rights, and if they so elect, they are entitled to an enquiry as to any damages suffered by them as a result of the infringement of such rights. Such damages may be assessed down to the date of the enquiry. SCR Pt35, 13. Mr Biscoe submitted that the appellants were only entitled to what he described as "floating quasi-easements", where the precise parts of the building to which such rights attach may change from time to time as determined by the sub lessors. However quasi-easements on land retained by the grantor which are the subject of implied grant on severance become full easements. A grantor may reserve an express power of variation, but no such power can be implied. In the present case all the implied easements, other than rights of access, are defined and fixed by the usage in existence at the time the sub lease was granted in March 1993. Morris Toltz Pty Ltd v Macy's Emporium Pty Ltd (1969) 91 WN (NSW) 591 establishes that the position is otherwise in the case of areas subject to undefined rights of access, and in such a case, as Hope J explained at 598, the sub lessors have the right to confine the access way "to a reasonable route and a reasonable area". The sub lessors may from time to time confine the rights of access to which the appellants are entitled either by fixtures, or as held by Hope J in that case at 598 by moveable objects, provided sufficient space is always left for convenient access by the sub lessees, and those authorised by them. The principle of non derogation from the grant, although relied upon by the appellants for this purpose, does not entitle them to restrain use of the rest of lot 276 for a competing business. As explained by Elias J in Nordern v Blue Port Enterprises Ltd [1996] 3 NZLR 450 at 454-6, the principle may be invoked where premises let for a purpose would be rendered unfit by a particular use of adjoining premises retained by the landlord or let to another tenant. However such a claim has rarely succeeded and only in extreme circumstances. It succeeded in Nordern v Blue Port Enterprises Ltd, where the landlord of premises let for commercial purposes on the third floor of a city building let the fourth floor for use as a brothel. Elias J said, at 455: "Tn Clark's-Gamble Ltd of Canada Ltd v Grant Park Plaza Ltd (1967) 64 DLR (2d) 570, the Supreme Court of Canada decided there was no derogation from the grant of a lease of shop premises to one tenant by a subsequent lease to a competing firm. In that case as in Browne v Flower ([1911] 1 Ch 219) the Court was influenced by the consideration that the lessee could have bargained for a covenant to protect rights it considered to be indispensable. In the absence of such contractual protection there was no derogation from the grant because the introduction of a competitor did not render the premises unfit for the purposes of the lease". The proceedings before the trial judge comprised a multitude of claims, cross-claims and parties with a mass of affidavit and oral evidence. The trial was both lengthy and complex. Although we are reversing the trial judge, we are doing so on only one ground which was not fully argued before him. 14 UNREPORTED JUDGMENTS In my opinion, the following orders should be made: (1) Appeal allowed with costs. (2) Declarations 2 and 3 made in the Equity Division set aside. (3) Judgment for possession in favour of the first defendants against the plaintiffs and consequential orders, 5, 6, 13, 14, 15, 16 and 17 set aside. (4) Costs 07, 08 and 09 set aside and all questions relating to the costs of the trial remitted for reconsideration by the trial judge in the light of the judgment of this Court. (5) Declare that the appellants are entitled to easements and ancillary rights over parts of the building outside the area defined in declaration 1, as outlined generally in the reasons for judgment of this Court. (6) The appellants to prepare short minutes defining the declaratory and other relief to which they claim to be entitled in accordance with the reasons for judgment of this Court and serve such draft on the other parties on or before the 8th day of August 1997. (7)The parties to speak to the short minutes before Handley JA at 9.30 am on 15 August 1997. (8) Liberty to apply. (9) The respondents to have certificates under the Suitors' Fund Act. Powell JA I have read, in draft, the separate Judgments which have been prepared by Meagher JA and Handley JA. I agree with their Honours' conclusions: - 1. that the sub-lease, on its proper construction, was limited to part only of Lot 276; 2. that, this notwithstanding, the rights which the Appellants, as the assignees of the sub-lease, were entitled to exercise were more extensive than had been held by Hulme J; 3. that the restrictive covenant contained in Special Condition 1 in the sub-lease, on its proper construction, was limited to Lot 277, and did not extend to that part of Lot 276 which was retained by the sub-lessors; 4. that the appellants' claim for rectification of the restrictive covenant failed; 5. that the Appellants' claim for relief based upon representations 3 and 4 failed for want of proof of reliance upon them. I agree with the Orders which have been proposed by Handley JA. (1) Appeal allowed with costs. (2) Declarations 2 and 3 made in the Equity Division set aside. (3) Judgment for possession in favour of the first defendants against the plaintiffs and consequential orders, 5, 6, 13, 14, 15, 16 and 17 set aside. (4) Costs orders 7, 8 and 9 set aside and all questions relating to the costs of the trial remitted for reconsideration by the trial judge in the light of the judgment of this Court. (5) Declare that the appellants are entitled to easements and ancillary rights over parts of the building outside the area defined in declaration 1, as outlined generally in the reasons for judgment of this Court. (6) The appellants to prepare short minutes defining the declaratory and other relief to which they claim to be entitled in accordance with the reasons for judgment of this Court and serve such draft on the other parties on or before the 8th day of August 1997. URJ WILCOX and ORS v RICHARDSON and ORS (Powell JA) 15 (7) The parties to speak to the short minutes before Handley JA at 9.30 am on 15 August 1997. (8) Liberty to apply. (9) The respondents to have certificates under the Suitors' Fund Act. Counsel for Appellant: G Downes QC/G R Waugh Solicitors for Appellant: Martins Counsel for First respondent: P Biscoe QC/R LancasterSolicitors for First respondent: McCrohon Bergseng Counsel for Second respondent: J French 15 Solicitors for Second respondent: In person Counsel for Third respondent: G F Hodgson Solicitors for Third respondent: Greg Tyler & Assoc253545