Progressive Mailing House Pty Ltd v Tabali Pty Ltd [1985] HCA 14; (1985) 157 CLR 17 (12 March 1985)

HIGH COURT OF AUSTRALIA

PROGRESSIVE MAILING HOUSE PTY. LTD v. TABALI PTY. LTD [1985] HCA 14; (1985) 157 CLR 17

Landlord and Tenant

CATCHWORDS

HEARING

APPEAL from the Supreme Court of New South Wales.

DECISION

2. The factory premises comprised land registered under the Real Property Act 1900 (N.S.W.). The memorandum of lease, which was in registrable form but which was not registered, was dated 4 December 1978 and purported to create a term of five years commencing on that date. Clause 3.1 required the lessee during the whole of the term to pay to the lessor the rent specified in the first schedule. During the relevant period this amounted to $7,750 per month payable monthly. Part 4 of the memorandum of lease dealt with the use of the premises and with subletting and assignment of the lease. By cl.4.2 the lessee covenanted, inter alia, not to do or permit to be done anything which might render any increased premium payable for the insurance of the premises. By cl.4.7 the lessee was prohibited from assigning or subletting the premises without the consent of the lessor. Part 5 imposed on the lessee a number of requirements with regard to the maintenance and repair of the premises and alterations, the principal obligations with regard to alterations being imposed by cl.5.1 and with regard to maintenance and repair being imposed by cl.5.2. Clause 5.3 dealt specifically with the lessee's obligation to repair and replace broken glass as well as heating, lighting and electrical equipment.

(b) the Lessee being a company, an order is made

or a resolution is effectively passed for the

winding up of the Lessee (other than for the

purposes of reconstruction or amalgamation)

or ceases or threatens to cease to carry on

business; or

(c) the Lessee fails to perform or observe any

one or more of the covenants or provisions on

the part of the Lessee expressed or implied

in this lease and the Lessee fails to remedy

same after thirty (30) days' notice to

rectify from the Lessor unless the

non-performance or non-observance has been

waived or excused by the Lessor in writing;

THEN the Lessor may at any time thereafter but

without prejudice to any claim which the Lessor may

have against the Lessee in respect of any breach of

the covenants and provisions in this Lease on the

part of the Lessee to be observed or performed

either re-enter into and repossess and enjoy the

Demised Premises as of its former estate (anything

herein contained to the contrary notwithstanding)

and thereupon this Lease shall absolutely

determine, or call for an immediate surrender of

the Lessee's estate and interest under this lease

and for the more effectual enforcement of this

right the Lessee hereby irrevocably appoints the

Lessor its true and lawful attorney to surrender or

cause to be surrendered this Lease and to sign all

notices deeds and documents for the purpose of such

surrender in the name of the Lessee, and upon such

surrender the Lessor shall be freed and discharged

from any action suit claim or demand by or

obligation to the Lessee under or by virtue of this

lease."

"11.6 The Lessor shall within twelve (12) weeks

from the date of such development approval in

accordance with the requirements of the

requisite authorities carry out the work

specified in the Second Schedule hereto. The

Lessee shall take occupation of the Demised

Premises fourteen (14) days after receipt of

notice in writing from the Lessor or its

Solicitors that the said work has, in the

opinion of the Lessor's architect been

completed."

"11.7 Notwithstanding the provisions of the First

Schedule hereto the first payment of rent as

therein referred to shall be payable at the

expiration of two (2) months from expiration

of the fourteen-day period referred to in

Clause 11.6 hereof."

5. Notwithstanding the provisions of cl.11.6 as regards the occupation of the premises, the appellant actually entered into occupation prior to the date of the memorandum of lease. The development approval referred to in cl.11.4 was given on 24 August 1978. Thereafter certain work was done and a notice, dated 20 November 1978, was given by the respondent in purported compliance with cl.11.6, to the effect that the work specified in the second schedule had in the opinion of the respondent's architect been completed and that the appellant's "formal occupation" of the premises would commence fourteen days from that date.

"In view of the above, the lessee is not prepared

to accept that the architect has properly certified

and accordingly no obligation arises for the

payment of rent to be made to which you refer.

However, as a sign of goodwill, and in the hope

that your client will complete its obligations in

relation to the work to be carried out on the

premises, our client is prepared, without

prejudice, to release the funds invested in the New

South Wales Permanent Building Society on account

of the first month's rent when that payment

ultimately becomes due."

7. The appellant paid the rent in the months of February, March, April and May 1979, notwithstanding the dispute. The appellant then ceased to pay rent and made no payment until October 1979.

8. On 8 August 1979 the respondent commenced proceedings in the Supreme Court of New South Wales for a declaration that the appellant was bound to pay rent as from 4 February 1979. The appellant filed a cross claim. Subsequently, on 11 October 1979, the respondent commenced the action out of which this appeal arises. By its statement of claim in this action the respondent pleaded the memorandum of lease, the appellant's entry into possession, a number of the lessee's covenants (including those in cll.3.1, 4.2 and 5.2), cl.10.1, the non-payment of rent since 11 May 1979, that by notice dated 16 August 1979 the respondent had given the appellant notification of breaches of the lease requiring them to be remedied and that the appellant had neglected or refused to do so. The respondent sought an order for possession, leave to issue a writ of possession, judgment for outstanding rent and interest pursuant to cl.10.3, mesne profits and damages and interest.

9. The appellant by its defence denied the breaches of the lease and the failure to rectify them. The appellant pleaded that it was a condition precedent of the lease coming into operation that the respondent was to carry out certain work on the premises which had not been carried out and denied that the payments made were payments of rent. It further alleged that cl.11.6 of the lease was not complied with so that by virtue of cl.11.7 the time for the payment of rent could not be determined and, accordingly, the appellant was not in default under the covenant to pay rent. The appellant further claimed that certain alleged breaches were consented to by the respondent. The appellant also sought relief against forfeiture of the lease.

10. The primary judge noted that, although the memorandum of lease was not registered, both parties ultimately agreed that the matter could be considered on the basis that it was so registered and that the appropriate orders or consents for that purpose would be effected. He observed that the document "plainly contains the agreement between the parties".

11. His Honour rejected the appellant's submission, centred on cll.11.6 and 11.7, that those clauses raised a condition precedent to the obligation of the appellant under the memorandum of lease to take occupation and thereafter to pay rent. The second element in this submission was that the notice dated 20 November 1978 given by the respondent was not given by an architect but by an engineer. The consequence of this submission, if accepted, was that the notice was deficient and that, in the absence of a valid notice, the date of occupation was not fixed, so that it was not possible to determine the date of the first payment of rent under cl.11.7. According to the appellant, the argument led to the conclusion that no rent was payable under the lease. It was, however, conceded that, though rent was not payable, liability by way of use and occupation or mesne profits could arise.

12. The primary judge held that the appellant's argument "ignored the circumstance that the events upon which it was based had preceded the date of the commencement of the lease" and that cl.11 only operated from 4 December 1978 and that it was intended as a means of fixing a period for occupation thereafter. As the appellant was already in occupation on that date, the two clauses were inapplicable, so that the provisions of cl.3, containing the covenant to pay rent, applied.

13. His Honour then held that the appellant was in breach of the covenant to pay rent and in breach of the covenant to maintain and repair and that the breaches had not been rectified. He rejected the appellant's case for relief against forfeiture, observing that the breach of the covenant to pay the rent was in respect of a substantial amount and had been persisted in over a long period. Moreover, he found that in various respects the appellant's breaches of the covenant to maintain and repair and the covenant against subletting had shown a disregard on the part of the appellant for the premises and for the respondent's interest in them.

14. His Honour, following the majority decision of the Court of Appeal in Shevill v. The Builders Licensing Board, a decision which was later reversed in this Court [1982] HCA 47; ((1982) 149 CLR 620), concluded that, although a lessor could not recover rent after forfeiture, he could recover damages for loss of the benefit of the covenant to pay rent. Assuming that a period of six months approximately would elapse before the respondent would succeed in reletting the premises, his Honour awarded $85,000 damages for breach of the covenants to pay rent and to pay outgoings.

"... what is the proper way to assess the damages

of the plaintiff who has a contract to grant a

lease for a term which is required to be registered

under the Real Property Act for the term to be

constituted and who terminates the contract because

of acts which, if the term existed, would justify

the forfeiture of the term under circumstances

against which equity would not relieve. ... The

appellant, by its conduct, has caused the

respondent to re-enter under circumstances that it

is exempted from granting the term which it has

contracted to grant and is compelled to re-let the

premises in order to mitigate the damages."

16. Glass J.A. was of the same opinion, though he preferred to say that, when considered in the evidentiary context, the findings by the primary judge amounted to a finding of substantial breach by the appellant of essential obligations which bound him and entitled the respondent to rescind the agreement and sue for damages. He found it unnecessary to determine the issue of renunciation.

(1) the terms and conditions of the agreement, save in

so far as they were inconsistent with a tenancy

from year to year, applied to it; and

(2) the tenancy from year to year continued only during

the term contracted for, and expired at the end of

that term by effluxion of time without notice to

quit, being in the meantime liable to a sooner

determination by notice to quit.

18. By s.127(1) of the Conveyancing Act 1919 (N.S.W.), as amended, it is provided that no tenancy from year to year shall be implied by payment of rent and that if there is a tenancy and no agreement as to its duration then it shall be deemed to be a tenancy determinable by either party by one month's notice in writing expiring at any time.

19. In Equity, however, a written lease not under seal was regarded as evidencing an agreement for lease. As an agreement for lease was capable of specific performance Equity would decree specific performance of the written lease by ordering the execution of a lease under seal. In the meantime, in accordance with the doctrine of Walsh v. Lonsdale (1882) 21 ChD 9, the relationship between the parties in Equity was that of landlord and tenant (Carberry v. Gardiner at p 569). The landlord could, if necessary, be restrained by injunction from acting on the footing that the other party was merely a tenant at will or a tenant from year to year (Walsh v. Lonsdale; Dockrill v. Cavanagh (1944) 45 SR (NSW) 78 at p 83). It was otherwise where the agreement had been terminated. Then Equity would not allow one party to allege that any tenancy, even a tenancy at common law, existed (Dimond v. Moore [1931] HCA 12; (1931) 45 CLR 159).

"After the passing in England of the Judicature

Acts, which invested the superior courts with

jurisdiction in both equity and common law, it was

held that in a court which possessed the combined

jurisdictions (although not in a court which had

only a common law jurisdiction: Foster v. Reeves

(1892) 2 QB 255), a party to an agreement for a

lease, if the lease was specifically enforceable

(but not if it was not; Coatsworth v. Johnson

(1886) 54 LT 520; Inland Revenue Commissioners

v. Derby (1914) 3 KB 1186), could obtain against

the other all the remedies which would be available

to him if a proper lease had actually been

executed: Walsh v. Lonsdale (1882) 21 ChD 9,

although the agreement was not thereby converted

into an actual lease: Borman v. Griffith (1930) 1

Ch 493, at pp 497-498."

"The simple answer is that it operates, not merely

to create contractual rights and duties, but to

create an equitable term of years and a tenure by

estoppel between the lessor and her privies and the

lessee."

22. I should prefer to say that the equitable term arises by virtue of the doctrine in Walsh v. Lonsdale and the maxim that Equity considers as done what ought to be done, rather than by reference to the doctrine of estoppel. That was the approach taken in York House Pty Ltd. v. Federal Commissioner of Taxation [1930] HCA 7; (1930) 43 CLR 427, at pp 435-436. And it is an approach which accords with the comprehensive explanation given by Jordan C.J. in Carberry v. Gardiner, Dockrill v. Cavanagh, and in Australian Provincial Assurance Ltd. v. Rogers (1943) 43 SR(NSW) 202, at pp 205-206.

23. It follows that the rights of the parties in the present case are to be determined on the footing that as between them, notwithstanding the failure to register the memorandum of lease, it brought into existence an equitable term of the duration which it specified and subject to the conditions which it contained. The question which arises is the extent, if at all, to which the relevant rights, duties and liabilities of the parties to the memorandum of lease fall to be determined by reference to the ordinary principles of contract law.

"It is no longer sensible to pretend that a

commercial lease, such as the one before this

Court, is simply a conveyance and not also a

contract. It is equally untenable to persist in

denying resort to the full armoury of remedies

ordinarily available to redress repudiation of

covenants, merely because the covenants may be

associated with an estate in land."

"There was at that time a renuciation which, at the

plaintiff's option, amounted to a breach of the

covenants that throughout the term he would carry

on a licensed victualler's business upon the

premises and keep them open and in use as an inn,

&c., and of the covenant not to do anything which

might entail forfeiture of the licence (Licensing

Act 1885, sec. 101), as well as of the subsidiary

covenants. The plaintiff was then entitled to

claim in an immediate action, prospectively, such

damages as would be caused by a breach at the

appointed time, subject to any circumstances which

might operate in mitigation of damages ... ".

26. Although Knox C.J. and Gavan Duffy J. in Firth v. Halloran [1926] HCA 24; (1926) 38 CLR 261, at p 268, held that the doctrine of frustration did not apply to leases, Isaacs J. (at p.269) was of the contrary opinion. Later Williams J., in Minister of State for the Army v. Dalziel [1944] HCA 4; (1944) 68 CLR 261, stated (at p 302) that the House of Lords, in Matthey v. Curling (1922) 2 AC 180, had decided that the doctrine did not apply to leases. But, as we have seen, the House of Lords has now held in Panalpina that it does. For the sake of completeness I should mention that Buchanan was followed in Hughes v. N.L.S. Pty. Ltd. (1966) WAR 100; affd. on different grounds [1966] HCA 63; 120 CLR 583, and that the New South Wales Court of Appeal has favoured the view that the doctrine of repudiation applies to a lease (Leitz Leeholme Stud Pty. Ltd. v. Robinson (1977) 2 NSWLR 544).

27. The decisions in Australia and Canada, and the speeches in Panalpina, reflect the point made by William O. Douglas and Jerome Frank in "Landlords' Claims in Reorganizations" (1933) 42 Yale Law Journal 1003, in footnote 6, that, as the law of landlord and tenant had outgrown its origins in feudal tenure, it was more appropriate in the light of the essential elements of the bargain, the modern money economy and the modern development of contract law that leases should be regulated by the principles of the law of contract.

28. Accordingly, the balance of authority here as well as overseas, and the reasons on which it is based, support the proposition that the ordinary principles of contract law, including that of termination for repudiation or fundamental breach, apply to leases. However, it has been suggested that the presence of an express proviso for re-entry in a lease excludes any other right of termination of the lease by the lessor. Thus, in Rosa Investments Pty. Ltd. v. Spencer Shier Pty. Ltd. [1965] VicRp 13; (1965) VR 97, it was held that at common law re-entry is necessary to forfeit a lease unless dispensed with by contract. The better view is, in my opinion, that re-entry is essential only where the parties stipulate that advantage shall not be taken of a forfeiture except by an entry upon the land (Liddy v. Kennedy (1871) LR 5 HL 134, at p 151). If it be accepted that the principles of contract law apply to leases, it is not easy to see why the mere presence of an express power to terminate should be regarded as excluding the exercise of such common law rights as may otherwise be appropriate. It is, of course, open to the parties by their contract to regulate the exercise of the common law right to determine for repudiation or fundamental breach. But in this case the parties have not attempted to do so.

29. The respondent seems to have asserted at first instance and in the Court of Appeal that the lease was brought to an end by commencement of the action, this step amounting to a re-entry under cl.10.1. There is no suggestion in the judgments that the respondent asserted at any time that it was determining the lease otherwise than under this provision. Although it is now conceded by the appellant that the lease was terminated under cl.10.1, the issue of repudiation arises because, as will appear later, the respondent cannot recover damages for loss of the benefit of the lease unless it establishes repudiation or fundamental breach by the appellant.

30. Shevill decided (a) that the proviso for re-entry in that case, cl.9(a), did not make breach of the covenant to pay rent breach of an essential term of the contract; and (b) that the evidence did not justify a finding that there was a fundamental breach of contract which would have entitled the lessor to rescind under the general law and sue for damages. The Court was not called upon to decide whether a lessor can sue to recover damages for loss of bargain when he re-enters under a proviso for re-entry in consequence of the lessee's repudiation or fundamental breach. Gibbs C.J., with whom Murphy and Brennan JJ. agreed, in passing observed (at p.629) "It may be that cl.9(a) excludes the rights that would ordinarily flow from an accepted repudiation of the contract." This observation looks back to the construction of the clause which his Honour had already examined in some detail. It should not be taken as an indication that a proviso for re-entry necessarily excludes damages for loss of bargain whenever the lessor forfeits the lease pursuant to the proviso. And the Chief Justice's earlier comment (at p.628) on the need for very clear words to bring about the result that whenever a lessor could exercise the right to re-enter he could recover damages for loss of bargain is not directed to damages for repudiation by the lessee; it is aimed at the suggestion that the proviso should be so construed as to provide for such damages when re-entry takes place on the occurrence of a breach which is non-fundamental or minor.

31. It is often said that repudiation or fundamental breach - in the sense of breach of a condition or breach of another term or terms which is so serious that it goes to the root of the contract, and thus deprives the other party of substantially the whole benefit of the contract (Federal Commerce & Navigation Co. Ltd. v. Molena (1979) AC 757, at p 779) - entitles the innocent party to rescind the contract and sue for damages for loss of the bargain (see, for example, Ogle v. Comboyuro Investments Pty. Ltd. [1976] HCA 21; (1976) 136 CLR 444, at p 458). But this does not mean that such damages are recoverable only in the event of discharge for breach though it is essential to an award of damages for loss of bargain that the defendant can no longer be required to perform his contractual obligations in specie. This essential foundation may be established by a common law rescission of the contract by the innocent party or by a termination of the contract in the exercise of a contractual power so to do. In either event, assuming repudiation or fundamental breach by the defendant, he could no longer be required to perform the contract and is liable for damages for loss of bargain. The well recognized distinction between common law rescission and termination pursuant to a contractual power supplies no reason in principle why such damages are recoverable by the innocent party in one case and not in the other, provided of course that the exercise of the power is consequent upon a breach or default by the defendant which would attract an award for such damages.

32. Termination in the exercise of a contractual power is not an affirmation of the contract which debars the innocent party from suing for damages for breach on the ground of repudiation or fundamental breach. This is because the termination, so far from insisting on performance by the party at fault, brings to an end his obligation to perform his promise in specie.

33. Nor can it be said in the case of repudiation or fundamental breach, that loss of the bargain is attributable to the innocent party's exercise of his contractual power to terminate. It is different in the case of termination for non-essential breach, as Shevill demonstrates, because, by terminating pursuant to the contract at that stage, the innocent party puts it beyond his power to insist on performance, thereby bringing to an end any possibility of repudiation or fundamental breach with consequential damages for loss of bargain.

34. If the lessor has a common law right to recover damages for loss of bargain consequent upon repudiation or fundamental breach, in the event that the lease is determined, either by acceptance of that repudiation or fundamental breach or by forfeiture as a result of re-entry, there is a difficulty in asserting that the lessor's right to recover after re-entry is subject to an acknowledgment of that right by the terms of the lease. It would be consistent with the principle to say that the right continues unless it is excluded by the lease.

35. The appellant's first submission in this Court is that on the exercise by the respondent of its right of re-entry for breach of covenant, its right to recover damages was limited to damages for breaches which had already occurred and that they did not extend to damages for loss of the benefit of the covenant to pay future rent and outgoings, that is, rent and outgoings accruing due after the re-entry. The appellant contends that this result follows from the terms of cl.10.1 which confer the right of re-entry for breach of covenant. On its true construction, so the argument runs, the clause restricts the lessor's right to sue for damages to those breaches which have taken place before re-entry. The weakness in this argument is that the clause does not exclude liability for non-performance of obligation accruing after the date of re-entry. The clause explicitly preserves "any claim which the Lessor may have against the Lessee in respect of any breach of the covenants and provisions ... to be observed or performed ...". A claim based on a repudiation or a fundamental breach occurring before re-entry, necessarily answers this description. The comments of Gibbs C.J. in Shevill (at pp.627-629) give no support to the appellant's submission because his Honour was rejecting an argument that cl.9(a) in the lease in that case conferred on the lessor who re-entered the same rights as would have been available to him if he had accepted a repudiation of the contract or had rescinded it on the ground that the lessee had committed a breach of an essential term.

36. The appellant's next submission is that the evidence does not justify the conclusion that the appellant had demonstrated that it would or could no longer perform its obligations under the memorandum of lease or that there had occurred a fundamental breach entitling the respondent to rescind and recover damages for loss of bargain. In support of this submission the appellant points out, correctly, that repudiation of a contract is a serious matter and is not to be lightly inferred and that neither a breach of a covenant to pay rent nor a breach of a covenant to repair, without more, constitutes a breach of a fundamental term, nor amounts to a repudiation of a lease.

"The breach of the covenant to pay rent was in

respect of a substantial amount and has been

continued and persisted in over a long period. The

matters of the roof and electrical fittings, apart

from the breaches involving an unnecessary misuse

of the premises and their continuance has shown a

disregard for the premises and the plaintiff's

interest in them. The defendant's attitude is

further illustrated by its disregard of the

requirements concerning the important restrictions

on the use of the drive and parking areas and its

conduct in relation to the fire doors and

staircases. It is further shown by the sub-letting

of the premises. ... I find that on all the

circumstances it would be inequitable that relief

should be granted."

38. This finding, though it comes close to a finding of repudiation, stops short of it. What needs to be established in order to constitute a repudiation is that the party evinces an intention no longer to be bound by the contract or that he intends to fulfil the contract only in a manner substantially inconsistent with his obligations and not in any other way (Shevill, at pp.625-627). Likewise, the primary judge's finding does not amount to a finding that there was a fundamental breach of contract in the sense that the party at fault, though wishing to perform the contract, was guilty of such default in performance that the breach went so much to the root of the contract that it made commercial performance of it impossible. Whether fundamental breach is but another illustration of repudiation, as Mahoney J.A. thought in Honner v. Ashton (1979) 1 Butterworths Property Reports 9478, at p 9490, or is a separate category, is a question which may be put to one side.

39. Repudiation or fundamental breach of a lease involves considerations which are not present in the case of an ordinary contract. First, the lease vests an estate or interest in land in the lessee and a complex relationship between the parties centres upon that interest in property. Secondly, this relationship has been shaped historically in very large measure by the law of property, though in recent times the relationship has been refined and developed by means of contractual arrangements. Thus, traditionally at common law a breach of a covenant by a lessee, even breach of the covenant to pay rent, conferred no right on the lessor to re-enter unless the lease reserved a right of re-entry (Lane v. Dixon [1847] EngR 102; (1847) 3 CB 776 (136 ER 311); Doe d. Dixon v. Roe [1849] EngR 231; (1849) 7 CB 134 (137 ER 55)). And in Equity the proviso for re-entry was treated as a security for the payment of the rent (Howard v. Fanshawe (1895) 2 Ch 581, at p 588; Ezekiel v. Orakpo (1977) QB 260, at pp 268-269), so that on payment of the rent Equity would relieve against the forfeiture (Dendy v. Evans (1910) 1 KB 263). The object and effect of s.129 of the Conveyancing Act was to give further protection to the lessee and to preclude forfeiture of his interest in property within the sphere of the section's operation, except in accordance with its terms.

40. These incidents of the law of landlord and tenant indicate that mere breaches of covenant on the part of the lessee do not amount to a repudiation or fundamental breach. Indeed, it is of some significance that the instances in which courts have held that a lessee has repudiated his lease are cases in which the lessee has abandoned possession of the leased property. But too much should not be made of this as very few cases of repudiation by lessees have come before the courts. I would therefore specifically reject the appellant's submission that abandonment of possession is necessary to constitute a case of repudiation by a lessee. On the other hand, it should be acknowledged that it would be rare indeed that facts which fell short of abandonment would properly be seen as constituting repudiation by the lessee in the case of a long lease at a rental which was either nominal or but a fraction of the amount which could be obtained in the market place.

41. It is evident that the appellant was responsible for physical damage to the premises which it failed to rectify in accordance with the requirements of the respondent's notice dated 16 August 1979 under s.129 of the Conveyancing Act. The primary judge found that the appellant caused damage to the roof structure by stacking pallets on or against the roof trusses causing damage to them, producing cracks in the roof which resulted in leaks. His Honour found that in failing to rectify these defects the respondent committed breaches of cll.5.1, 5.2 and 5.3 of the lease. However, it seems that the nature of the construction was such as to make the roof susceptible to damage and his Honour thought that the leaks were, in some respects at least, minor. There is no suggestion that the damage to the roof trusses was deliberate.

42. By May 1979 damage was done by the appellant to the electrical system on the premises. This included smashed light fittings, illegal joints in cables, exposed wiring, smashed power outlets and damaged wiring. In that month the respondent rectified earlier breaches, but it then caused further damage so that in August 1979 the condition of the electrical system was much as it had been before the repairs undertaken in May. The damage was such as to create a possibility of electrical shock to individuals and of fire. The damage was not deliberate and seems to have been due to carelessness.

43. Damage was also done to down pipes leading to leaks, but it seems that no effort was made to repair down pipes until June 1981. However, the primary judge made no finding on this matter or in relation to windows which, it is admitted, were broken.

44. The lease permitted subletting with the previous written consent by the lessor and upon certain conditions as to the character of the tenant. The appellant sublet part of the premises, being approximately one tenth of the area, without having sought consent to do so.

45. The appellant was also in breach of cl.5.8 of the lease. This clause required the lessee to comply with all laws governing the use of the premises. Clause 77 of the Willoughby Planning Scheme Ordinance provided that any person who contravened or failed to comply with the terms and conditions of any consent given under the Ordinance should be deemed to have committed an offence. The Schedule to the Development Consent which regulated the lessee's use of the premises required that (a) the proposed vehicular drive-through area be permanently marked out and be kept solely free for that purpose; and (b) all parking and loading areas be kept free from obstruction at all times and be used for off street parking and loading purposes respectively. The appellant caused the vehicular drive-through area to be obstructed by steel shelving used for storage of commodities and caused the parking and loading area to be blocked and obstructed by crates and rubbish. The appellant's excuse for this breach was merely that there was no other usable space available.

46. Other alleged breaches of covenant have been debated by the parties. With the exception of the breach of the covenant to pay rent, I do not find it necessary to discuss them because they seem to be insignificant or because they throw insufficient light on the issue of repudiation or fundamental breach.

47. It is not suggested that the breaches so far discussed, viewed in isolation, amounted to a repudiation or fundamental breach of the lease. It is the breach of the covenant to pay rent, in association with the other breaches, which is the central feature of the respondent's case on this issue. As we have seen, rent was not paid for the first two months of the lease and from May 1979 to 19 October 1979, notwithstanding the assertion by the respondent's solicitors in a letter dated 9 August to the appellant's solicitors that the appellant was bound to pay the rent. On 19 October 1979 after the issue of the statement of claim the appellant's solicitors paid $20,750 representing "an occupation fee" in respect of the months June to October 1979 less a sum of $18,000 retained to cover a claim which the appellant made for certain work, a claim which seems to have had no basis in law or fact. The sum of $18,000 has never been paid by way of rent or occupation fee.

48. The appellant's refusal to pay rent was associated with its claim that the certificate required by cll.11.6 and 11.7 had not been properly given. The certificate was not given by an architect as those provisions contemplated and the appellant claimed that the respondent had not carried out the works specified in the second schedule. The appellant consistently maintained an attitude that the completion of those works was a condition precedent to its liability to pay rent.

49. The object of cl.11.6 was to fix a date on which the appellant became bound to take possession of the premises. Clause 11.7 then provided that rent should be payable at the expiration of two months from the expiration of the fourteen day period specified in the notice for which cl.11.6 provided. The appellant was permitted to occupy the premises in October 1978 and then began to use the premises for the warehousing, packaging and distribution of goods. The primary judge's finding that the lease commenced on 4 December 1978 has not been challenged, though the appellant does challenge the conclusion that rent became payable at that date. Although the evidence does not disclose the circumstances under which the appellant entered into occupation, it is not in question that the appellant was in possession under the lease. Indeed, as the appellant claimed to have been in possession under the unregistered lease, it was liable to pay the rent fixed by the lease, the only question being whether the liability to pay rent arose on 4 December, as the primary judge thought, or two months later on the footing that the date of entry into occupation was to be equated to the date of expiration of a notice provided for by cl.11.6. It is unnecessary to resolve this question because on any view the appellant was in breach of the covenant to pay rent and the respondent has not pressed for the payment of the first two months' rent at any stage of these proceedings. The two months "rent free holiday" contemplated by cl.11.7 was apparently taken into account by the primary judge when he fixed 4 December rather than October 1978 as the date of commencement of the lease. His Honour seems to have thought that the appellant was allowed this period in which to settle into the premises and establish its business there. He evidently came to the conclusion that the appellant had established its business there by 4 December.

50. The appellant's excuse for not paying the rent was that the work specified in the second schedule had not been carried out satisfactorily. Even assuming that this claim was well founded it did not entitle the appellant to refuse to pay the rent. The appellant persisted in maintaining a claim which was without any foundation, namely that it was under no liability to pay the rent until the work in question was carried out satisfactorily. This was a refusal to carry out its obligations according to the terms of the unregistered lease and a persistence in carrying them out in a way substantially inconsistent with these terms.

51. It is not to the point that the appellant acted in accordance with counsel's advice. This is not a case like D.T.R. Nominees Pty. Ltd. v. Mona Homes Pty. Ltd. [1978] HCA 12; (1978) 138 CLR 423, at pp 431-433, in which there was a bona fide dispute as to the true construction of a contract expressed in unclear terms. Here there was simply no basis in the provisions of the lease to support the appellant's refusal to pay rent. The rent did not represent but a nominal amount or but part of the valuable consideration which the appellant had agreed to provide in return for the right of use and occupancy which it argued under the memorandum of lease. It represented the whole of what the respondent was entitled to receive in the ordinary course in respect of the demised land during the term of the lease in a context where it would continue to be liable for some of the outgoings in respect of the premises.

52. In the result the evidence supports the conclusion that the appellant's conduct amounted to a repudiation of the lease or a fundamental breach of its obligations under the lease. The fact that the appellant lodged a caveat on 11 July 1979 to protect its interest as lessee under the unregistered lease is not at all inconsistent with this conclusion. Though maintaining a claim to the benefit of a contract, a party may repudiate it or commit a fundamental breach of it by refusing to perform his obligations according to its terms.

53. I would dismiss the appeal.

WILSON J. I have had the advantage of reading the reasons for judgment prepared by Mason J. I agree substantially with those reasons and with the conclusion to which they lead. I wish merely to add some brief observations on one aspect of the matter.

2. The nub of the case for the appellant is that its conduct in withholding the payment of rent from May 1979 until October 1979 should not be taken as a repudiation or fundamental breach of its obligations under the contract as it believed bona fide that until such time as the respondent carried out in a satisfactory manner the works specified in the second schedule there was no obligation to pay any rent. In support of that case it is submitted that the completion of those works was a condition precedent to such an obligation arising. But the submission cannot be accepted. Clause 11.6 obliges the respondent to carry out the work specified in the schedule. It also makes the opinion of the Lessor's architect that the work has been completed a condition precedent to the appellant coming under an obligation to enter into occupation of the premises. If entry is effected pursuant to that clause then cl. 11.7 secures to the appellant a rent-free holiday for two months. However, the critical fact is that the appellant did not take possession of the premises pursuant to cl. 11.6. It was already in possession before that time was reached. That being so, there was no obstacle to the operation of the covenant undertaken by the appellant in cl. 3 to pay rent. Had the appellant chosen not to enter into possession prior to the completion of the works, it would have been on firm ground in insisting on meticulous compliance by the respondent with the requirements of cl. 11.6 before it came under any obligation to do so. On the other hand, once it was in possession under the agreement, it was obliged to observe the covenant contained in cl. 3 to pay the rent. It then had to seek the enforcement of the respondent's obligations by other means. It was not entitled to take the law into its own hands by withholding the rent. As it happened, of course, the learned trial judge rejected the appellant's allegations against the respondent.

3. The appellant's action in withholding the rent was persisted in over a period of several months and continued even after its receipt of the letter of 9 August 1979 from the respondent's solicitors which bluntly warned it of the consequences of continuing in the course it had adopted. This history of the matter, coupled with the circumstances relating to other breaches of covenant as found by the trial judge, leads irresistibly to the conclusion that the appellant was in fundamental breach of its obligations under the contract and is therefore liable in damages.

4. I would dismiss the appeal.

BRENNAN J. The respondent was the lessor and the appellant was the lessee in possession of land at Artarmon under an unregistered though registrable memorandum of lease for a term of five years. In an action brought by the lessor in the Supreme Court of New South Wales, Lusher J. found that the lessee had committed breaches of certain covenants including the covenant for the payment of rent. The memorandum of lease contained a proviso for re-entry in the events, inter alia, of non-payment of rent for 14 days after the due date or of failure to observe or perform a lessee's covenant after service of a thirty-day notice to do so. It was not disputed that, given the occurrence of breaches of covenant, service of the statement of claim (which sought leave to issue a writ of possession) "amounted to a forfeiture of the lease". Relief against forfeiture was refused. His Honour gave leave to issue a writ of possession and ordered an inquiry before a Master to ascertain the amounts due to the lessor under the lease and as mesne profits. In addition, Lusher J. awarded the lessor $85,000 damages for breach of contract. The lessor had claimed damages "in respect of the cost of reletting and delay in reletting premises that would follow the plaintiff obtaining possession". Lusher J. held that, although rent cannot be recovered after forfeiture, "a lessor may recover damages for breach of a covenant to pay rent into the future, in other words, for the loss of the benefit of the covenant". His Honour assessed damages accordingly. The Court of Appeal dismissed an appeal against the judgment. The sole question on this appeal is whether the lessor was entitled to damages for the loss of the benefit of the covenant or, more precisely, for the loss of the benefit of the lease.

2. When a lease is determined prior to the expiry of the term, the covenant to pay rent for the unexpired portion of the term ceases to bind the lessee. Once the lease is determined, the lessee commits no breach of covenant by reason of his non-payment of rent for that unexpired portion: Jones v. Carter (1846) 15 M & W 718, at p 726 [1846] EngR 856; (153 ER 1040, at p 1043). A lessor who, under a proviso for re-entry, serves the lessee with process for recovery of possession is entitled to mesne profits for the period during which the lessee remains in possession after service (Canas Property Co.Ltd. v. K.L.Television Services Ltd. (1970) 2 QB 433). The lessor may thereby recover an amount equal to the rent in respect of that period. But mesne profits are damages for trespass; mesne profits are not rent, nor are they damages for breach of a covenant to pay rent.

" It is clear that a covenant to pay rent in

advance at specified times would not, without

more, be a fundamental or essential term having

the effect that any failure, however slight, to

make payment at the specified times would entitle

the lessor to terminate the lease."

" ... if one party renounces his liabilities under

it - if he evinces an intention no longer to be

bound by the contract (Freeth v. Burr ((1874)

LR 9 CP 208, at p 213)) or shows that he

intends to fulfil the contract only in a manner

substantially inconsistent with his obligations

and not in any other way (Ross T. Smyth & Co.Ltd.

v. T.D. Bailey, Son & Co. ((1940) 3 All ER 60,

at p 72); Carr v. J.A. Berriman Pty.Ltd. ((1953)

[1953] HCA 31; 89 CLR 327, at p 351)). In such a case the

innocent party is entitled to accept the

repudiation, thereby discharging himself from

further performance, and sue for damages: Heyman

v. Darwins Ltd. ((1942) AC 356, at p 399). It

is convenient to say that the injured party in

these circumstances rescinds the contract,

although there is, of course, no rescission ab

initio: Johnson v. Agnew ((1980) AC 367, at

pp 392-393)."

4. In the present case, the lessee's breaches of covenant are said to show an intention to act, and to act only, in a manner substantially inconsistent with his obligations under the lease. For the reasons stated by Mason J., I think that the lessee did show such an intention and that the lessee repudiated the contract embodied in the lease. That conclusion makes it necessary to decide in this case what was assumed but not decided in Shevill v. Builders Licensing Board, namely, whether the general contractual principles relating to rescission for anticipatory breach and damages for the loss of benefit of a contract apply when a lessee, by words or conduct, repudiates his obligations under the lease. It is the character of a lease as a demise which may be thought to exclude the operation of those principles. For reasons that I shall state presently I would hold that ordinary contractual principles do apply to a lease, but that the character of a lease as a demise distinguishes the consequences of their application from their application to a contract that is not also a demise. If ordinary contractual principles apply to a lease, a fortiori they apply to an agreement to grant a lease or to an unregistered memorandum of lease which is not effective to convey a legal leasehold interest (cf. Leitz Leeholme Stud Pty.Ltd. v. Robinson (1977) 2 NSWLR 544). It is therefore appropriate to consider the question on the footing that the memorandum of lease was effective to convey such an interest. The parties agreed that Lusher J. should decide the matter on the footing that the memorandum had been registered and that agreement requires the question to be considered on the footing that a legal interest was conveyed to the lessee.

" A lease may be determined by entry or

ejectment for a forfeiture incurred either by (1)

breach of a condition in the lease; or (2) for a

breach of any covenant, in case (and in case

only) the lease contain a condition or proviso

for re-entry for a breach of such covenant."

" It is of importance that a lease for years should

contain a proviso for re-entry for non-payment of

rent at any rate, as otherwise the lessor may

find himself saddled with an impecunious tenant,

and not be able to get rid of him."

6. A lessor's inability to determine a lessee's interest except where it is liable to forfeiture precludes the lessor from rescinding the lease for anticipatory breach, but it does not follow that the ordinary contractual principles relating to anticipatory breach do not apply to a lease where the lessee's interest is liable to forfeiture.

" ... it is surely much more rational, and more for

the benefit of both parties, that, after the

renunciation of the agreement by the defendant,

the plaintiff should be at liberty to consider

himself absolved from any future performance of

it, retaining his right to sue for any damage he

has suffered from the breach of it."

" The rule of law, as I always understood it, is

that where there is a contract in which there are

two parties, each side having to do something (it

is so laid down in the notes to Pordage v. Cole

(1 Wms Saund 548 (ed.1871))), if you see that the

failure to perform one part of it goes to the

root of the contract, goes to the foundation of

the whole, it is a good defence to say, 'I am not

going on to perform my part of it when that which

is the root of the whole and the substantial

consideration for my performance is defeated by

your misconduct.'" (Emphasis added).

" There must be some dependency of performances in

order to make anticipatory breach possible."

" The doctrine of anticipatory breach has not

generally been applied to all types of contracts,

its application being limited ordinarily to

bilateral contracts embodying some mutual and

interdependent conditions and obligations.

Moreover, limitations on the doctrine exist even

in the instance of 'a contract originally

bilateral that has become unilateral and

similarly unconditional by full performance by

one party' ... For the doctrine to apply there

must be 'some dependency of performances'

(Restatement, Contracts, 318, Comment e). For

this reason, a party who has fully performed

cannot invoke the doctrine even though the other

party has repudiated".

10. The circumstance that obligations which have been performed are not affected by rescission for anticipatory breach does not necessarily mean that damages for anticipatory breach are denied to a party who has performed his obligations. The principles relating to anticipatory breach put both a shield and a sword in the hands of an innocent party who accepts the other party's repudiation. His shield is the ending of his executory obligations; his sword is an immediate right to damages. Where the contract has been fully performed by one party, no question of repudiation by him arises and he is under no executory obligation from which he might wish to be discharged in the event of repudiation by the other party. He has no need of a shield. But he may wish to brandish a sword. Although the paradigm case in which the principles are applied involves interdependent executory obligations, anomalies would occur if there were an unqualified rule that damages for repudiation by anticipatory breach should be refused where the innocent party has fully performed his obligations, but granted where he has not. Whether the contract be executed or executory, it can be said that repudiation causes the innocent party loss of the benefit of the contract. Indeed, where the innocent party has fully performed his obligations, a repudiation by the other party deprives him not only of the profit to which his bargain entitled him but also of compensation for the cost incurred in performing his obligations.

" The law can properly excuse a promisor from

performing whenever justice requires, but it does

not have the same liberty of enlarging a

promisor's contractual obligations."

" ... a party to a contract who has no longer any

obligation of performance on his side but is in

the position of an annuitant or a creditor

exacting payment from a debtor, may be compelled

to wait for the instalments as they severally

mature, just as a landlord may not accelerate the

rent for the residue of the term because the rent

is in default for a month or for a year."

12. Where an innocent party has done no more than perform all his obligations under a contract in accordance with its terms, there is something to be said for a rule that gives him no more than he bargained for, that is to say, damages against the repudiating party for failure to discharge that party's obligations as and when they fall due. A strong case can be made for such a rule when the innocent party's performance of the contract results in the conferring of an irrevocable benefit on the other party and the only executory obligation of the repudiating party is to pay money at a future time: see Williston on Contracts 3rd ed. (1968), vol.11, 1326. Why should repudiation entitle the innocent party to accelerated payment when the contract stipulates that, in the circumstances that have occurred, that party should receive payment at a later time? But compare the views of Corbin on Contracts (1951), vol.4, 963.

13. However, there is no warrant for such a rule when the innocent party can and does revoke the benefit which the innocent party's performance of his obligations conferred on the repudiating party. Revocation of the benefit places the parties in a position similar to the position they would have been in if the contract had remained executory. Unless the innocent party has a right to damages in these circumstances, he cannot recover the benefit of his bargain. If he revokes the benefit that was conferred on the repudiating party, he cannot insist on the performance by that party of the interdependent obligations that fall due thereafter. Unless he is entitled to damages, he can obtain the benefit of the bargain only by foregoing the right to revoke the benefit, trusting that the other party will repent and perform the obligations he repudiated. The principles relating to anticipatory breach are intended to avoid the necessity for useless performance and to mitigate the damages for which the repudiating party is liable by permitting the innocent party to dispose of any property, services or other benefits to which the repudiating party would have been entitled under the contract. It accords with principle to permit a lessor to recover damages for anticipatory breach by a lessee when the benefit which has passed to the lessee - the interest in the land demised - is revoked by enforcing a forfeiture or by some other means of determining the lease. It accords too with authority.

" It must not be forgotten that a right of action

had arisen on the termination of the

correspondence on the 28th June, as the defendant

had given distinct notice of his intention not to

perform his covenant. There was at that time a

renunciation which, at the plaintiff's option,

amounted to a breach of the covenants that

throughout the term he would carry on a licensed

victualler's business upon the premises and keep

them open and in use as an inn, &c., and of the

covenant not to do anything which might entail

forfeiture of the licence ... as well as of the

subsidiary covenants. The plaintiff was then

entitled to claim in an immediate action,

prospectively, such damages as would be caused by

a breach at the appointed time, subject to any

circumstances which might operate in mitigation

of damages: Leake on Contracts, 4th ed., 617-618,

and cases there cited, especially Hochster v.

Delatour ..., and Johnstone v. Milling ..."

" In the ordinary case of a demise for a term of

years with an express covenant to pay the rent,

if the lessee unequivocally repudiates the lease

and abandons the land, the lessor may at his

option bring an immediate action for breach of

covenant, in which he will be entitled to recover

the full amount of the agreed rent for the whole

term, less such sum as a jury may think he is

likely to derive as profits from the use of the

land during the residue of the term: Buchanan v.

Byrnes ... This is the ordinary rule of

damages."

" Until surrender, (the lessor) can sue for rent as

such; after surrender, he is limited to damages

for loss of rent flowing from the lessee's breach

of contract."

" Although it is correct to say that repudiation by

the tenant gives the landlord at that time a

choice between holding the tenant to the lease or

terminating it, yet at the same time a right of

action for damages then arises; and the election

to insist on the lease or to refuse further

performance (and thus bring it to an end) goes

simply to the measure and range of damages. I

see no logic in a conclusion that, by electing to

terminate, the landlord has limited the damages

that he may then claim to the same scale that

would result if he had elected to keep the lease

alive."

" It would seem on principle that the declaration

of such intention by the promisor is not in

itself and unless acted on by the promisee a

breach of the contract; and that it only becomes

a breach when it is converted by force of what

follows it into a wrongful renunciation of the

contract."

" Generally speaking, the rescission of the

contract puts an end to the primary obligations

of the party not in default to perform any of his

contractual promises which he has not already

performed by the time of the rescission. It

deprives him of any right as against the other

party to continue to perform them. It does not

give rise to any secondary obligation in

substitution for a primary obligation which has

come to an end. The primary obligations of the

party in default to perform any of the promises

made by him and remaining unperformed likewise

come to an end as does his right to continue to

perform them. But for his primary obligations

there is substituted by operation of law a

secondary obligation to pay to the other party a

sum of money to compensate him for the loss he

has sustained as a result of the failure to

perform the primary obligations. This secondary

obligation is just as much an obligation arising

from the contract as are the primary obligations

that it replaces ..."

" The defendants were admitted to the premises

solely upon the terms of the lease containing

several components which are unseverable, in my

judgment. They stand or fall together. Despite

the repudiation by the plaintiffs of part of the

lease and the defendants' acceptance thereof, I

cannot accept that, as to the latter's occupancy

during the remainder of the 14-year term, they

would be able to say, 'We are entitled to remain

in possession without regard being paid to where

we obtain our petrol supplies.'"

17. Where the lease is liable to forfeiture, as it was in the present case, enforcing the forfeiture both determines the lessee's interest in the land and constitutes the lessor's election to accept the repudiation. Conversely, a waiver of the forfeiture constitutes the lessor's election to keep the lease on foot. It is not necessary to consider the possible effects of statutory restrictions on the enforcing of a forfeiture or of the granting of relief against forfeiture, except to bear in mind that the condition on which the lessee's liability in damages for repudiation arises is that he ceases to be liable to perform the executory obligations resting on him under the lease.

" He did not renounce the lease or give up the

premises. He did not do any act which affected

the existence of the contract. He made no

declaration of intention to treat it as rescinded

except for the purpose of bringing his action

upon it. On the contrary, at the time fixed by

the contract he gave the requisite notice to

determine the lease."

19. In the present case it was conceded that the service of the statement of claim determined the lessee's interest in the land. The statement of claim clearly accepted the lessee's repudiation and sought damages accordingly. Thus the elements of the lessor's cause of action were established. The assessment of damages by Lusher J. conformed to principle.

20. It was submitted that cl.10.1 of the lease limits the damages recoverable by the lessor to damages for past breaches of covenant. The submission is not borne out by the language of the clause. The clause specifies the events on the occurrence of which the right to re-enter arises and preserves "any claim which the Lessor may have against the Lessee in respect of any breach of the covenants ... to be observed or performed". A claim for damages for anticipatory breach answers precisely that description (see per Lord Diplock in Lep Air Services v. Rolloswin Ltd., supra).

21. Perhaps there is a procedural difficulty in joining a claim for damages for anticipatory breach with a claim for possession where the service of the writ or other originating process is the means by which the forfeiture of the lease is enforced. In such a case, it may be objected that the cause of action for damages accrues contemporaneously with the service but after issue of the writ or other originating process (see Wigan v. Edwards (1973) 47 ALJR 586 (1 ALR 497)). No objection of this kind was taken to the award in the present case, and it is not necessary to consider it.

22. I would dismiss the appeal.

DEANE J. The facts and issues involved in this appeal are set out in the judgment of Mason J. Since I agree with Mason J's conclusions and am in general agreement with his reasoning and with the observations made by Wilson J. in his judgment, I can confine myself to a statement of my views on what I see as the main general questions of law involved. It is convenient to refer to the appellant as "the tenant" and to the respondent as "the landlord".

2. A lease for a term of years ordinarily possesses a duality of character which can give rise to conceptual difficulties. It is both an executory contract and an executed demise. Its origins lie in contract rather than in real property in that the lessee's remedies were originally restricted to a personal action against the lessor on his covenant to give enjoyment of the land (see Pollock and Maitland, The History of English Law Before the Time of Edward I, 2nd ed. (1898: Cambridge University Press reprint, 1952), vol. 2, pp.106-107; Holdsworth, A History of English Law, 5th ed. (1942), vol.3, pp.213-214). In time however, it became accepted that a lessee for a term, although denied "seisin" in the strict sense, had a right to "possession" which was an interest in the land that he was entitled to protect against third parties; initially by a limited writ in ejectment (quare eiecit infra terminum) framed in terms which restricted it to an action against a purchaser from the lessor and subsequently by the remedies afforded under the Statute of Gloucester and by a specialised action of trespass (de eiectione firmae) which, by the end of the middle ages, gave recovery, not merely of damages, but of possession of the land (cf. Litt. Ten., s.324; Co. Litt., 200b; Pollock and Maitland, op.cit., vol.2, pp.107ff., particularly p.110; Holdsworth, op.cit., vol.3, pp.214ff.; Challis' Law of Real Property, 3rd ed. (1911), pp.63ff., 80, 98ff., Appendix I). Notwithstanding this legal protection of the lessee's interest in the land, chattels real were never incorporated into the strict system of feudal tenements. The interest of the lessee in the land was however accepted as analogous to a form of feudal tenure to the extent that some authorities expressed the view that the lessee was required to do fealty (see, e.g., Bracton, 27, 80; Challis, pp.63-66, Appendix I).

3. As they developed, the contractual doctrines of frustration and termination for fundamental breach (or for repudiation) were not seen as applicable to an executed demise under which an interest or estate in land had actually passed to the tenant (see, e.g., Halloran v. Firth (1926) 26 SR (NSW) 183, at p 187 and, on appeal, [1926] HCA 24; (1926) 38 CLR 261, at p 268, but cf. at p 269; London & Northern Estates Co. v. Schlesinger (1916) 1 KB 20, at p 24; Total Oil Great Britain Ltd. v. Thompson Garages (Biggin Hill) Ltd. (1972) 1 QB 318; Leightons Investment Trust Ltd. v. Cricklewood Property and Investment Trust Ltd. (1943) KB 493 and, on appeal, (1945) AC 221, at pp 233-235 and 244-245 but cf. at pp 228ff. and 236ff.). The rationale of that approach was the perceived inappropriateness of those contractual doctrines to a leasehold estate viewed as analogous to a form of feudal tenure. On the other hand, the general trend in this century, particularly in relation to leases of urban premises, has been away from the type of lease which can realistically be so viewed. It has been towards the lease, at a commercial rental and for a shorter term, framed in the language of executory promises of widening content and diminishing relevance to the actual demise. It is apparent that the special rules of property law regarding chattels real are inadequate as the exclusive determinant of rights and liabilities under such modern leases. That being so, it has become necessary for courts to look somewhat more critically at the rational basis and justification of the traditional assumption that leases generally were beyond the reach of fundamental doctrines of the law of contract.

4. The actual application to leasehold interests of the common law doctrines of frustration and termination for fundamental breach involves some unresolved questions which are best left to be considered on a case by case basis whereby adequate attention can be focussed on particular problems which might be overlooked in any effort at judicial codification. One cannot however ignore the fact that the clear trend of common law authority is to deny any general immunity of contractual leases from the operation of those doctrines of contract law (see, e.g., National Carriers Ltd. v. Panalpina (Northern) Ltd. [1980] UKHL 8[1980] UKHL 8; ; (1981) AC 675; Highway Properties Ltd. v. Kelly, Douglas & Co. Ltd. (1971) 17 DLR (3d) 710; Corbin, Contracts, vol.6 (1962), s.1356; and see the cases cited in Brooking and Chernov, Tenancy Law and Practice in Victoria, 2nd ed. (1980), par.211; D.M. McRae, "Repudiation of Contracts in Canadian Law", Canadian Bar Review, vol. 56 (1978), 233 and J.T. Robertson, "Frustrated Leases: 'No to Never-But Rarely if Ever'", Canadian Bar Review, vol.60 (1982), 619). At first impression, that trend may appear to represent a step back towards the medieval days when the lessee's interest under a term of years was seen as a mere right in personam to sue the lessor for breach of covenant. Upon analysis however, it involves no more than recognition of the fact that the analogy between a leasehold and a freehold estate is an imperfect one and of the related fact that, except perhaps in the quite exceptional case of a completely unconditional demise for a long term with no rent reserved (cf. Knight's Case (1588) 5 Co.Rep.54b), the leasehold estate cannot be divorced from its origins and basis in the law of contract (cf. per Atkin L.J., Matthey v. Curling (1922) 2 AC 180, at pp 199-200): the lease should be seen as "resting on covenant" (or contractual promise) and it is "the contract ... and not the estate ... which is the determining factor" (see per Isaacs J., Firth v. Halloran, 38 CLR, at p 269 quoting from Hallen v. Spaeth (1923) AC 684, at p 690). That trend should be followed in this Court and it should be accepted that, as a general matter and subject to one qualification, the ordinary principles of contract law are applicable to contractual leases. The qualification is that the further one moves away from the case where the rights of the parties are, as a matter of substance, essentially defined by executory covenant or contractual promise to the case where the tenant's rights are, as a matter of substance, more properly to be viewed by reference to their character as an estate (albeit a chattel one) in land with a root of title in the executed demise, the more difficult it will be to establish that the lease has been avoided or terminated pursuant to the operation of the ordinary principles of frustration or fundamental breach. Indeed, one may reach the case where it would be quite artificial to regard the tenant's rights as anything other than an estate or interest in land (e.g., a 99 year lease of unimproved land on payment of a premium and with no rent, or only a nominal rent, reserved). In such a case, it may be difficult to envisage circumstances in which conduct of the tenant short of actual abandonment would properly be held to constitute repudiation or fundamental breach or in which anything less than a cataclysmic event such as the "vast convulsion" referred to by Viscount Simon L.C. in Cricklewood Property and Investment Trust Ltd. v. Leighton's Investment Trust Ltd. (1945) AC, at p 229 would warrant a finding of frustration.

5. The memorandum of lease in the present case was for five years at a commercial rental without a premium. The consideration which the tenant gave for the demise was in the form of executory covenants. As a matter of substance, the rights of the tenant can also readily be seen as "resting on covenant" since, the memorandum of lease being unregistered, any equitable term which it created was founded upon what equity saw as an agreement to grant a lease in terms of the unregistered memorandum (see, generally, Walsh v. Lonsdale (1882) 21 ChD 9; Australian Provincial Assurance Ltd. v. Rogers (1943) 43 SR (NSW) 202, at pp 205-206; National Trustees, Executors and Agency Co. of Australasia Ltd. v. Boyd [1926] HCA 44; (1926) 39 CLR 72, at pp 81-82; National Carriers Ltd. v. Panalpina (Northern) Ltd., at pp 690,704; Hewett v. Court [1983] HCA 7; (1983) 149 CLR 639, at p 666). In that regard, one needs to be mindful of the danger of over-emphasising the equivalence of the equitable estate under an agreement for lease or an unregistered memorandum of lease followed by entry into possession and of a common law leasehold estate for the like term in that one can point to statements of authority which support the approach that the ordinary contractual doctrines of frustration and termination for fundamental breach would, in an appropriate case, operate to destroy the contractual foundation of such an equitable estate even if the view that they were not applicable at all to a common law lease had continued to prevail (see Coatsworth v. Johnson (1886) 55 LJQB (NS) 220, at p 223 (per Lindley L.J.); Swain v. Ayres (1888) 21 QBD 289, at p 294 (per Lord Esher M.R.), at p 295 (per Lindley L.J.) and at pp 296-297 (per Lopes L.J.), and Dimond v. Moore [1931] HCA 12; (1931) 45 CLR 159, esp. at pp 186-187). Be that as it may however, once it is accepted that the principles of the law of contract governing termination for fundamental breach are, as a matter of theory, applicable to leases generally, there is no difficulty in applying them in the present case in much the same fashion as to an ordinary executory contract: "(i)f the contract is avoided or dissolved ... the estate in land falls with it" (per Lord Wright, Cricklewood Property and Investment Trust Ltd. v. Leighton's Investment Trust Ltd. (1945) AC, at p 240).

6. While the question is not without difficulty, I agree with other members of the Court that the tenant's breaches of the memorandum of lease amounted, in the circumstances of the present case, to fundamental breach of contract. It is not now suggested that the tenant is entitled to rely upon any special statutory provision precluding or controlling re-entry or providing for relief against forfeiture. It follows that the landlord was entitled to terminate the lease and, in accordance with ordinary contractual principles, sue the tenant for damages for loss of the benefit of the tenant's covenant to pay future rent and outgoings. The question arises whether that right to sue for general damages for loss of bargain survived the landlord's action in exercising the contractual right of re-entry contained in cl.10.1 of the memorandum of lease.

7. In Shevill v. Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620, it was held by the Court that the lessor in that case was entitled only to unpaid past rent upon termination of the lease pursuant to the exercise of a contractual right of re-entry for breach of the covenant to pay rent promptly. The basis of the decision was not, however, a rejection of the proposition that the ordinary principles of contract law were applicable to the lease. The decision turned upon the conclusion that the breaches of the covenant to pay rent in that case did not constitute repudiation or fundamental breach (see pp.626ff.). While the distinction between termination for fundamental breach and termination for a breach which the parties have agreed in advance would be such as to give rise to a right to terminate is not without difficulty (cf. Larratt v. Bankers and Traders' Insurance Co. Ltd. (1941) 41 SR (NSW) 215, at pp 225-226; Sotiros Shipping Inc. v. Sameiet Solholt (The "Solholt") (1983) 1 Lloyd's Rep 605), the majority's reasoning in Shevill proceeded on an assumption (see at p 625) that general damages for loss of the lease would have been recoverable if the lessee's failure to pay rent had, in the circumstances of that case, constituted repudiation or fundamental breach. The present case is in contrast to Shevill in that, as has been said, the tenant's breach of covenant constituted a fundamental breach of the memorandum of lease.

8. It follows from the foregoing that, in the circumstances which had arisen, the landlord had both a contractual right to terminate the lease by re-entry under cl.10.1 for breach of covenant and, on the application of the ordinary principles of contract law, a common law right to terminate for fundamental breach. The landlord was not obliged to elect between the two grounds for terminating the lease: it was entitled to rely upon them both. A party entitled to terminate a contract for repudiation or fundamental breach may rely upon both a specific contractual right to terminate the contract and the common law right to terminate unless, as a matter of construction, the former excludes the latter (see, e.g., Rawson v. Hobbs [1961] HCA 72; (1961) 107 CLR 466, at p 480; Shepherd v. Felt and Textiles of Australia Ltd. [1931] HCA 21; (1931) 45 CLR 359, at pp 377-378 and, generally, the cases referred to in Carter, Breach of Contract (1984), pars.914,1006). More specifically, where a contractual right to terminate for past breach and the common law right to terminate for repudiation or fundamental breach exist concurrently, the reliance upon the contract involved in the exercise of the contractual right to terminate will not preclude the recovery of damages for loss of the future benefit of the contract by reason of repudiation or fundamental breach unless the contract expressly or impliedly so provides (cf. Yeoman Credit Ltd. v. Waragowski (1961) 1 WLR 1124).

9. Clause 10.1 of the memorandum of lease in the present case did not preclude the common law right to sue for fundamental breach. To the contrary, it expressly provided that the landlord's exercise of the right of re-entry thereunder would be "without prejudice to any claim which the Lessor may have against the Lessee in respect of any breach of the covenants and provisions in this Lease on the part of the Lessee to be observed or performed". That being so, the exercise by the landlord of the right of re-entry under cl.10.1 did not deprive it of the right to claim damages for the loss of the future benefit of the tenant's covenant to pay rent which it sustained by reason of the tenant's fundamental breach of the provisions of the lease.

10. The appeal should be dismissed.

DAWSON J. I agree with the reasons for judgment of Mason J. and with the additional observations made by Wilson and Deane JJ. There is nothing which I wish to add.

ORDER