• Any

CATCHWORDS

HEARING

DECISION

2. The factory premises comprised land registered under theReal Property Act1900 (N.S.W.). The memorandum of lease, which was in registrable form butwhich was not registered, was dated 4 December 1978 and purportedto create aterm of five years commencing on that date. Clause 3.1 required the lesseeduring the whole of the term to pay to thelessor the rent specified in thefirst schedule. During the relevant period this amounted to $7,750 per monthpayable monthly.Part 4 of the memorandum of lease dealt with the use of thepremises and with subletting and assignment of the lease. By cl.4.2 the lesseecovenanted, inter alia, not to do or permit to be done anything which mightrender any increased premium payable for the insuranceof the premises. Bycl.4.7 the lessee was prohibited from assigning or subletting the premiseswithout the consent of the lessor.Part 5 imposed on the lessee a number ofrequirements with regard to the maintenance and repair of the premises andalterations, the principalobligations with regard to alterations beingimposed by cl.5.1 and with regard to maintenance and repair being imposed bycl.5.2. Clause 5.3 dealt specifically with the lessee's obligation to repairand replace broken glass as well as heating, lighting and electricalequipment.

3.Part 10 of the memorandum of lease was headed "DEFAULT, TERMINATION ETC."Clause 10.1, so far as it may be relevant, provided:



"10.1 In the event that:

this lease shall remain unpaid for fourteen

(14) days next after the date appointed for

payment thereof (although no formal or legal

demand shall have been made therefor) or;

(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."

4.Part 11 dealt with a number of general matters. Clause 11.4 contained aprovision that the lease was conditional upon the approval by thelocalmunicipal council of a development application for use of the premises withinthe terms of the purpose clause. Clause 11.6provided:

"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 thepremises, the appellant actually entered into occupationprior to the date ofthe memorandum of lease. The development approval referred to in cl.11.4 wasgiven on 24 August 1978. Thereaftercertain work was done and a notice, dated20 November 1978, was given by the respondent in purported compliance withcl.11.6, tothe effect that the work specified in the second schedule had inthe opinion of the respondent's architect been completed and thattheappellant's "formal occupation" of the premises would commence fourteen daysfrom that date.

6. From the beginning the relationship of the parties was strained, as isevidenced by the correspondence between their solicitors. On 12 January 1979the solicitors for the appellant wrote to the solicitors for the respondentdetailing a number of perceived defectsin the work carried out on thepremises, requesting evidence of the approval by the council of thedevelopment application and raisinga query with regard to rent in the lightof a report stating the total area of the premises to be slightly less thanpreviously thought. The letter stated that in the circumstances the appellantdid not accept that the respondent's notice was properly given and thatpayments of rent should commence on 4 February 1979. The respondent'ssolicitors replied by letter of 22 January 1979 claiming thework required bythe memorandum of lease to have been properly carried out as evidenced by thearchitect's certification and dealingwith the other matters raised in theearlier letter. It stated that, in accordance with the notice given, theappellant was requiredto commence rent payments on 4 February 1979. Theappellant's solicitors wrote again on 6 February 1979 disputing that the workwas properly carried out and continuing:

"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 andMay 1979, notwithstanding the dispute. The appellantthen ceased to pay rentand made no payment until October 1979.

8. On 8 August 1979 the respondent commenced proceedings in the Supreme Courtof New South Wales for a declaration that the appellantwas bound to pay rentas from 4 February 1979. The appellant filed a cross claim. Subsequently, on11 October 1979, the respondentcommenced the action out of which this appealarises. By its statement of claim in this action the respondent pleaded thememorandumof lease, the appellant's entry into possession, a number of thelessee's covenants (including those in cll.3.1, 4.2 and 5.2), cl.10.1,thenon-payment of rent since 11 May 1979, that by notice dated 16 August 1979 therespondent had given the appellant notificationof breaches of the leaserequiring them to be remedied and that the appellant had neglected or refusedto do so. The respondentsought an order for possession, leave to issue awrit of possession, judgment for outstanding rent and interest pursuant tocl.10.3,mesne profits and damages and interest.

9. The appellant by its defence denied the breaches of the lease and thefailure to rectify them. The appellant pleaded that itwas a conditionprecedent of the lease coming into operation that the respondent was to carryout certain work on the premises whichhad not been carried out and deniedthat the payments made were payments of rent. It further alleged that cl.11.6of the lease wasnot complied with so that by virtue of cl.11.7 the time forthe payment of rent could not be determined and, accordingly, the appellantwas not in default under the covenant to pay rent. The appellant furtherclaimed that certain alleged breaches were consented toby the respondent.The appellant also sought relief against forfeiture of the lease.

10. The primary judge noted that, although the memorandum of lease was notregistered, both parties ultimately agreed that the mattercould be consideredon the basis that it was so registered and that the appropriate orders orconsents for that purpose would beeffected. 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 and11.7, that those clauses raised a condition precedentto the obligation of theappellant under the memorandum of lease to take occupation and thereafter topay rent. The second elementin this submission was that the notice dated 20November 1978 given by the respondent was not given by an architect but by anengineer. The consequence of this submission, if accepted, was that thenotice was deficient and that, in the absence of a valid notice, thedate ofoccupation was not fixed, so that it was not possible to determine the date ofthe first payment of rent under cl.11.7. According to the appellant, theargument led to the conclusion that no rent was payable under the lease. Itwas, however, concededthat, though rent was not payable, liability by way ofuse and occupation or mesne profits could arise.

12. The primary judge held that the appellant's argument "ignored thecircumstance that the events upon which it was based had precededthe date ofthe commencement of the lease" and that cl.11 only operated from 4 December1978 and that it was intended as a meansof fixing a period for occupationthereafter. As the appellant was already in occupation on that date, the twoclauses were inapplicable,so that the provisions of cl.3, containing thecovenant to pay rent, applied.

13. His Honour then held that the appellant was in breach of the covenant topay rent and in breach of the covenant to maintainand repair and that thebreaches had not been rectified. He rejected the appellant's case for reliefagainst forfeiture, observingthat the breach of the covenant to pay the rentwas in respect of a substantial amount and had been persisted in over a longperiod.Moreover, he found that in various respects the appellant's breachesof the covenant to maintain and repair and the covenant againstsubletting hadshown a disregard on the part of the appellant for the premises and for therespondent's interest in them.

14. His Honour, following the majority decision of the Court of Appeal inShevill v. The Builders Licensing Board, a decision whichwas later reversedin this Court[1982] HCA 47; ((1982) 149 CLR 620), concluded that, although a lessor couldnot recover rent afterforfeiture,he could recover damages forloss of thebenefit of the covenant to pay rent. Assuming that a period of six monthsapproximatelywould elapse before the respondentwould succeed in relettingthe premises, his Honour awarded $85,000 damages for breach of thecovenantsto pay rent and to pay outgoings.

15. In the Court of Appeal Hutley J.A. (with whom Reynolds J.A. agreed) sawthe issue in the appeal in these terms:

"... 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 theReal 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, whenconsidered in the evidentiary context, the findingsby the primary judgeamounted to a finding of substantial breach by the appellant of essentialobligations which bound him and entitledthe respondent to rescind theagreement and sue for damages. He found it unnecessary to determine the issueof renunciation.

17. In the first instance it is necessary to examine the legal consequencesof the failure to register the memorandum of lease. At common law where therewas an agreement for lease but no demise, either because the agreement wasexpressed as an executory contractor consisted of an intended demise for morethan three years which was void underss.2 and3 of the Statute of Fraudsbecause itwas not under seal, the intended lessee upon entering intopossession became a tenant at willand upon payment of rent became a tenantfrom year to year. The tenancy thereby created had the followingcharacteristics:

(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. Bys.127(1) of theConveyancing Act 1919 (N.S.W.), as amended, it isprovided that no tenancy from year to year shall be implied by payment of rentand that if there is atenancy and no agreement as to its duration then itshall be deemed to be a tenancy determinable by either party by one month'snoticein writing expiring at any time.

19. In Equity, however, a written lease not under seal was regarded asevidencing an agreement for lease. As an agreement for leasewas capable ofspecific performance Equity would decree specific performance of the writtenlease by ordering the execution of alease under seal. In the meantime, inaccordance with the doctrine of Walsh v. Lonsdale (1882) 21 ChD 9, therelationship betweenthe parties in Equity was that of landlord and tenant(Carberry v. Gardiner at p 569). The landlord could, if necessary, berestrainedby injunction from acting on the footing that the other party wasmerely 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 wherethe agreement had been terminated. Then Equitywould not allow one party toallege that any tenancy, even a tenancy at common law, existed (Dimond v.Moore[1931] HCA 12; (1931)45 CLR 159).

20. An understanding of the position as it now obtains in New South Wales,following the enactment of theSupreme Court Act 1970 (N.S.W.), may be gleanedfrom the observations of Jordan C.J. in Dockrill v. Cavanagh. His Honoursaid, at p 83:

"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."

21. In National Trustees, Executors and Agency Co. of Australasia Ltd. v.Boyd[1926] HCA 44; (1926) 39 CLR 72 the High Court heldthat a leasefor a term of sevenyears which was not registered as required by s.61 of theTransfer of Land Act1915 (Vic.) was effectiveto givethe lessee an equitable lease for sevenyears and was a good defence to an action by the successorsin title of thelessorto recoverpossession of the premises. Knox C.J., Gavan Duffy and RichJJ., having said that the real argumentbefore them was thatthe instrument,for want of registration, could operate only as a contract and not as a leasebinding the remainder,continued (atp.82):

"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 thedoctrine in Walsh v. Lonsdale and the maxim that Equityconsiders as done whatought to be done, rather than by reference to the doctrine of estoppel. Thatwas the approach taken in YorkHouse Pty Ltd. v. Federal Commissioner ofTaxation[1930] HCA 7; (1930) 43 CLR 427, at pp 435-436. And it is an approach whichaccords with thecomprehensive explanation given by Jordan C.J. inCarberry v.Gardiner, Dockrill v. Cavanagh, and in AustralianProvincial AssuranceLtd. 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 bedetermined on the footing that as between them, notwithstandingthe failure toregister the memorandum of lease, it brought into existence an equitable termof the duration which it specified andsubject to the conditions which itcontained. The question which arises is the extent, if at all, to which therelevant rights,duties and liabilities of the parties to the memorandum oflease fall to be determined by reference to the ordinary principles ofcontract law.

24. In Shevill Gibbs C.J. (at p.625) assumed, without deciding, that theordinary principles of contract law, so far as they arerelevant to thequestions that arose in that case, applied to leases. He acknowledged that acontrary view had been expressed inTotal Oil v. Thompson Garages (1972) 1 QB318, where the English Court of Appeal held that the principle that acceptanceof a repudiationbrings a contract to an end had no application to a leasebecause the lease was more than a contract - it created an estate or interestin land. The consequence in that case was that the lessee's claim that thelease for a term had been terminated by the lessee'sacceptance of conduct ofthe lessor amounting to a repudiation failed. Lord Denning M.R. (with whomEdmund Davies and StephensonL.JJ. agreed) placed some reliance (at p.324) onthe opinion expressed by Lord Russell of Killowen and Lord Goddard inCricklewoodProperty and Investment Trust, Ld. v. Leighton's Investment Trust,Ld. (1945) AC 221, at pp 234 and 244, that frustration does notbring a leaseto an end. However, recently in National Carriers Ltd. v. Panalpina (Northern)Ltd.[1980] UKHL 8; (1981) AC 675,the House of Lordsheld that the doctrine of frustrationwas in principle applicable to leases. Lord Wilberforceand Lord SimonofGlaisdale pointedout (at pp.695-696 and 702-703) that both in the UnitedStates and in Canada it had been acceptedthat a leasemight be terminatedbyfrustration - see Williston on Contracts vol.18 (3rd ed. 1978) .1955; Corbinon Contracts (1962).1356; Highway Properties Ltd.v. Kelly, Douglas & Co.Ltd.(1971) 17 DLR(3d) 710, at p 721. Their Lordships quoted the followingpassagefrom the judgment ofLaskin J. in the last mentioned decision (atp.721):

"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."

25. Laskin J. drew attention to the decision of this Court in Buchanan v.Byrnes[1906] HCA 21; (1906) 3 CLR 704 where it was decidedthat uponabandonment by atenant, in breach of covenant, of a hotel property the subjectof a lease forfifteen years, the landlordwas entitledto claim damages over the unexpiredterm of the lease. In Buchanan BartonJ. said (at p.719):

"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 CLR261, at p 268, held that the doctrineof frustrationdid not apply to leases,Isaacs J. (at p.269) was of the contraryopinion. Later Williams J., inMinister of Statefor the Armyv. 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 decidedthatthe doctrinedid not apply to leases. But, as we have seen, the House ofLords has now held in Panalpinathat it does. For thesake of completenessIshould mention that Buchanan was followed in Hughes v. N.L.S. Pty. Ltd. (1966)WAR100; affd. on differentgrounds[1966] HCA 63; 120 CLR 583, and that the New South WalesCourt of Appeal has favoured the view thatthe doctrine of repudiation appliesto 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 JeromeFrank in "Landlords'Claims in Reorganizations" (1933) 42 Yale Law Journal 1003, in footnote 6,that, as the law of landlord andtenant had outgrown its origins in feudaltenure, it was more appropriate in the light of the essential elements of thebargain,the modern money economy and the modern development of contract lawthat leases should be regulated by the principles of the lawof contract.

28. Accordingly, the balance of authority here as well as overseas, and thereasons on which it is based, support the propositionthat the ordinaryprinciples of contract law, including that of termination for repudiation orfundamental breach, apply to leases. However, it has been suggested that thepresence of an express proviso for re-entry in a lease excludes any otherright of terminationof the lease by the lessor. Thus, in Rosa InvestmentsPty. Ltd. v. Spencer Shier Pty. Ltd.[1965] VicRp 13; (1965) VR 97, it was held that at commonlaw re-entry is necessary to forfeit a lease unless dispensed with bycontract. The betterview is, in my opinion, that re-entryis essential onlywhere the parties stipulate that advantage shall not be taken of a forfeitureexcept by an entry upon the land(Liddy v. Kennedy (1871) LR 5 HL 134, at p151). If it be accepted that the principles of contractlaw apply to leases,it is noteasy to see why the mere presence of an express power to terminateshould be regarded as excludingthe exercise of such common lawrights as mayotherwise be appropriate. It is, of course, open to the parties by theircontractto regulate the exercise of thecommon law right to determine forrepudiation or fundamental breach. But in this case the partieshave notattempted to do so.

29. The respondent seems to have asserted at first instance and in the Courtof Appeal that the lease was brought to an end by commencementof the action,this step amounting to a re-entry under cl.10.1. There is no suggestion inthe judgments that the respondent assertedat any time that it was determiningthe lease otherwise than under this provision. Although it is now conceded bythe appellantthat the lease was terminated under cl.10.1, the issue ofrepudiation arises because, as will appear later, the respondent cannotrecover damages for loss of the benefit of the lease unless it establishesrepudiation 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 breachof an essential term ofthe contract; and (b) that the evidence did not justify a finding that therewas a fundamental breach ofcontract which would have entitled the lessor torescind under the general law and sue for damages. The Court was not calleduponto decide whether a lessor can sue to recover damages for loss of bargainwhen he re-enters under a proviso for re-entry in consequenceof the lessee'srepudiation or fundamental breach. Gibbs C.J., with whom Murphy and BrennanJJ. agreed, in passing observed (atp.629) "It may be that cl.9(a) excludesthe rights that would ordinarily flow from an accepted repudiation of thecontract." Thisobservation looks back to the construction of the clause whichhis Honour had already examined in some detail. It should not betaken as anindication that a proviso for re-entry necessarily excludes damages for lossof bargain whenever the lessor forfeitsthe lease pursuant to the proviso.And the Chief Justice's earlier comment (at p.628) on the need for very clearwords to bring aboutthe result that whenever a lessor could exercise theright to re-enter he could recover damages for loss of bargain is not directedto damages for repudiation by the lessee; it is aimed at the suggestion thatthe proviso should be so construed as to provide forsuch damages whenre-entry takes place on the occurrence of a breach which is non-fundamental orminor.

31. It is often said that repudiation or fundamental breach - in the sense ofbreach of a condition or breach of another term orterms which is so seriousthat it goes to the root of the contract, and thus deprives the other party ofsubstantially the wholebenefit of the contract (Federal Commerce & NavigationCo. Ltd. v. Molena (1979) AC 757, at p 779) - entitles the innocent partytorescind the contract and sue for damages for loss of the bargain (see, forexample, Ogle v. Comboyuro Investments Pty. Ltd.[1976]HCA 21; (1976)136 CLR 444, at p458). But this does not mean that such damages are recoverable only in theevent of discharge forbreachthoughit is essential to an award of damagesfor loss of bargain that the defendant can no longer be required to performhis contractualobligations in specie. This essential foundation may beestablished by a common law rescission of the contract bythe innocent partyor by a termination of the contract in the exercise of a contractual power soto do. In either event, assumingrepudiation or fundamentalbreach by thedefendant, he could no longer be required to perform the contract and isliable for damagesfor loss of bargain. Thewell recognized distinctionbetween common law rescission and termination pursuant to a contractual powersupplies no reason in principlewhy such damages are recoverable by theinnocent party in one case and not in the other, providedof course that theexercise ofthe power is consequent upon a breach or default by the defendantwhich would attract an award forsuch damages.

32. Termination in the exercise of a contractual power is not an affirmationof the contract which debars the innocent party fromsuing for damages forbreach on the ground of repudiation or fundamental breach. This is becausethe termination, so far from insistingon 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, thatloss of the bargain is attributable to the innocentparty's exercise of hiscontractual power to terminate. It is different in the case of terminationfor non-essential breach, asShevill demonstrates, because, by terminatingpursuant to the contract at that stage, the innocent party puts it beyond hispowerto insist on performance, thereby bringing to an end any possibility ofrepudiation or fundamental breach with consequential damagesfor loss ofbargain.

34. If the lessor has a common law right to recover damages for loss ofbargain consequent upon repudiation or fundamental breach,in the event thatthe lease is determined, either by acceptance of that repudiation orfundamental breach or by forfeiture as a resultof re-entry, there is adifficulty in asserting that the lessor's right to recover after re-entry issubject to an acknowledgmentof that right by the terms of the lease. Itwould be consistent with the principle to say that the right continues unlessit isexcluded by the lease.

35. The appellant's first submission in this Court is that on the exercise bythe respondent of its right of re-entry for breachof covenant, its right torecover damages was limited to damages for breaches which had already occurredand that they did not extendto damages for loss of the benefit of thecovenant to pay future rent and outgoings, that is, rent and outgoingsaccruing due afterthe re-entry. The appellant contends that this resultfollows from the terms of cl.10.1 which confer the right of re-entry forbreachof covenant. On its true construction, so the argument runs, theclause restricts the lessor's right to sue for damages to thosebreaches whichhave taken place before re-entry. The weakness in this argument is that theclause does not exclude liability fornon-performance of obligation accruingafter the date of re-entry. The clause explicitly preserves "any claim whichthe Lessor mayhave against the Lessee in respect of any breach of thecovenants and provisions ... to be observed or performed ...". A claim basedon a repudiation or a fundamental breach occurring before re-entry,necessarily answers this description. The comments of GibbsC.J. in Shevill(at pp.627-629) give no support to the appellant's submission because hisHonour was rejecting an argument that cl.9(a)in the lease in that caseconferred on the lessor who re-entered the same rights as would have beenavailable to him if he had accepteda repudiation of the contract or hadrescinded it on the ground that the lessee had committed a breach of anessential term.

36. The appellant's next submission is that the evidence does not justify theconclusion that the appellant had demonstrated thatit would or could nolonger perform its obligations under the memorandum of lease or that there hadoccurred a fundamental breachentitling the respondent to rescind and recoverdamages for loss of bargain. In support of this submission the appellantpointsout, correctly, that repudiation of a contract is a serious matter andis not to be lightly inferred and that neither a breach ofa covenant to payrent nor a breach of a covenant to repair, without more, constitutes a breachof a fundamental term, nor amountsto a repudiation of a lease.

37. Our consideration of the issue of repudiation and fundamental breach iscomplicated by the circumstance that the primary judgemade no finding on theissue of repudiation because he thought, in the light of the Court of Appealdecision in Shevill, that itwas unnecessary to do so and because Hutley J.A.,with whom Reynolds J.A. agreed, instead of examining the evidence relevant totheissue of repudiation, merely concluded that the appellant's conduct wasrepudiatory on the ground that it would have justified forfeiture"undercircumstances in which the Court would refuse relief". The primary judge'sreasons for refusing relief against forfeiturewere expressed in the followingpassage:

"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, stopsshort of it. What needs to be established in order toconstitute arepudiation is that the party evinces an intention no longer to be bound bythe contract or that he intends to fulfilthe contract only in a mannersubstantially inconsistent with his obligations and not in any other way(Shevill, at pp.625-627). Likewise, the primary judge's finding does notamount to a finding that there was a fundamental breach of contract in thesensethat the party at fault, though wishing to perform the contract, wasguilty of such default in performance that the breach went somuch to the rootof the contract that it made commercial performance of it impossible. Whetherfundamental breach is but anotherillustration of repudiation, as Mahoney J.A.thought in Honner v. Ashton (1979) 1 Butterworths Property Reports 9478, at p9490,or is a separate category, is a question which may be put to one side.

39. Repudiation or fundamental breach of a lease involves considerationswhich are not present in the case of an ordinary contract. First, the leasevests an estate or interest in land in the lessee and a complex relationshipbetween the parties centres upon thatinterest in property. Secondly, thisrelationship has been shaped historically in very large measure by the law ofproperty, thoughin recent times the relationship has been refined anddeveloped by means of contractual arrangements. Thus, traditionally at commonlaw a breach of a covenant by a lessee, even breach of the covenant to payrent, conferred no right on the lessor to re-enter unlessthe lease reserved aright 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 wastreated as a security for the payment of the rent (Howardv. Fanshawe (1895) 2Ch 581,at p 588; Ezekiel v. Orakpo (1977) QB 260, at pp 268-269), so that onpayment of the rent Equity wouldrelieve against the forfeiture(Dendy v.Evans (1910) 1 KB 263). The object and effect ofs.129 of theConveyancing Actwas to give further protection to the lesseeand to preclude forfeiture of hisinterest in property within the sphere of the section'soperation, except inaccordance with itsterms.

40. These incidents of the law of landlord and tenant indicate that merebreaches of covenant on the part of the lessee do not amountto a repudiationor fundamental breach. Indeed, it is of some significance that the instancesin which courts have held that a lesseehas repudiated his lease are cases inwhich the lessee has abandoned possession of the leased property. But toomuch should notbe made of this as very few cases of repudiation by lesseeshave come before the courts. I would therefore specifically reject theappellant's submission that abandonment of possession is necessary toconstitute a case of repudiation by a lessee. On the otherhand, it should beacknowledged that it would be rare indeed that facts which fell short ofabandonment would properly be seen asconstituting repudiation by the lesseein the case of a long lease at a rental which was either nominal or but afraction of theamount which could be obtained in the market place.

41. It is evident that the appellant was responsible for physical damage tothe premises which it failed to rectify in accordancewith the requirements ofthe respondent's notice dated 16 August 1979 unders.129 of theConveyancingAct. The primary judge foundthat the appellant caused damage to the roofstructure by stacking pallets on or against the roof trussescausing damage tothem,producing cracks in the roof which resulted in leaks. His Honour foundthat in failing to rectify thesedefects the respondent committedbreaches ofcll.5.1, 5.2 and 5.3 of the lease. However, it seems that the nature of theconstructionwas such as to make the roofsusceptible to damage and his Honourthought that the leaks were, in some respects at least, minor. There is nosuggestion thatthe damage to the roof trusses was deliberate.

42. By May 1979 damage was done by the appellant to the electrical system onthe premises. This included smashed light fittings,illegal joints in cables,exposed wiring, smashed power outlets and damaged wiring. In that month therespondent rectified earlierbreaches, but it then caused further damage sothat in August 1979 the condition of the electrical system was much as it hadbeenbefore the repairs undertaken in May. The damage was such as to create apossibility of electrical shock to individuals and of fire.The damage was notdeliberate and seems to have been due to carelessness.

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

44. The lease permitted subletting with the previous written consent by thelessor and upon certain conditions as to the characterof the tenant. Theappellant sublet part of the premises, being approximately one tenth of thearea, without having sought consentto do so.

45. The appellant was also in breach of cl.5.8 of the lease. This clauserequired the lessee to comply with all laws governing theuse of the premises.Clause 77 of the Willoughby Planning Scheme Ordinance provided that any personwho contravened or failed tocomply with the terms and conditions of anyconsent given under the Ordinance should be deemed to have committed anoffence. TheSchedule to the Development Consent which regulated the lessee'suse of the premises required that (a) the proposed vehicular drive-througharea be permanently marked out and be kept solely free for that purpose; and(b) all parking and loading areas be kept free fromobstruction at all timesand be used for off street parking and loading purposes respectively. Theappellant caused the vehiculardrive-through area to be obstructed by steelshelving used for storage of commodities and caused the parking and loadingarea tobe blocked and obstructed by crates and rubbish. The appellant'sexcuse for this breach was merely that there was no other usablespaceavailable.

46. Other alleged breaches of covenant have been debated by the parties.With the exception of the breach of the covenant to payrent, I do not find itnecessary to discuss them because they seem to be insignificant or becausethey throw insufficient light onthe issue of repudiation or fundamentalbreach.

47. It is not suggested that the breaches so far discussed, viewed inisolation, amounted to a repudiation or fundamental breachof the lease. Itis the breach of the covenant to pay rent, in association with the otherbreaches, which is the central featureof the respondent's case on this issue.As we have seen, rent was not paid for the first two months of the lease andfrom May 1979to 19 October 1979, notwithstanding the assertion by therespondent's solicitors in a letter dated 9 August to the appellant'ssolicitorsthat the appellant was bound to pay the rent. On 19 October 1979after the issue of the statement of claim the appellant's solicitorspaid$20,750 representing "an occupation fee" in respect of the months June toOctober 1979 less a sum of $18,000 retained to covera claim which theappellant made for certain work, a claim which seems to have had no basis inlaw or fact. The sum of $18,000 hasnever been paid by way of rent oroccupation fee.

48. The appellant's refusal to pay rent was associated with its claim thatthe certificate required by cll.11.6 and 11.7 had notbeen properly given.The certificate was not given by an architect as those provisions contemplatedand the appellant claimed thatthe respondent had not carried out the worksspecified in the second schedule. The appellant consistently maintained anattitudethat the completion of those works was a condition precedent to itsliability to pay rent.

49. The object of cl.11.6 was to fix a date on which the appellant becamebound to take possession of the premises. Clause 11.7then provided that rentshould be payable at the expiration of two months from the expiration of thefourteen day period specifiedin the notice for which cl.11.6 provided. Theappellant was permitted to occupy the premises in October 1978 and then beganto usethe premises for the warehousing, packaging and distribution of goods.The primary judge's finding that the lease commenced on 4December 1978 hasnot been challenged, though the appellant does challenge the conclusion thatrent became payable at that date. Although the evidence does not disclose thecircumstances under which the appellant entered into occupation, it is not inquestionthat the appellant was in possession under the lease. Indeed, as theappellant claimed to have been in possession under the unregisteredlease, itwas liable to pay the rent fixed by the lease, the only question being whetherthe 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 wasto be equated to thedate of expiration of a notice provided for by cl.11.6.It is unnecessary to resolve this question because on any view the appellantwas in breach of the covenant to pay rent and the respondent has not pressedfor the payment of the first two months' rent at anystage of theseproceedings. The two months "rent free holiday" contemplated by cl.11.7 wasapparently taken into account by theprimary judge when he fixed 4 Decemberrather than October 1978 as the date of commencement of the lease. His Honourseems to havethought that the appellant was allowed this period in which tosettle into the premises and establish its business there. He evidentlycameto the conclusion that the appellant had established its business there by 4December.

50. The appellant's excuse for not paying the rent was that the workspecified in the second schedule had not been carried out satisfactorily.Even assuming that this claim was well founded it did not entitle theappellant to refuse to pay the rent. The appellant persistedin maintaining aclaim which was without any foundation, namely that it was under no liabilityto pay the rent until the work inquestion was carried out satisfactorily.This was a refusal to carry out its obligations according to the terms of theunregisteredlease and a persistence in carrying them out in a waysubstantially inconsistent with these terms.

51. It is not to the point that the appellant acted in accordance withcounsel's advice. This is not a case like D.T.R. NomineesPty. Ltd. v. MonaHomes Pty. Ltd.[1978] HCA 12; (1978) 138 CLR 423, at pp 431-433, in which there was a bonafide dispute as tothe true constructionof a contract expressed inunclearterms. Here there was simply no basis in the provisions of the lease tosupport the appellant'srefusal to pay rent. Therent did not represent but anominal amount or but part of the valuable considerationwhich the appellanthad agreed to provide inreturn for the right of use and occupancy which itargued under the memorandum of lease. It representedthe whole of what therespondentwas entitled to receive in the ordinary course in respect of thedemised land duringthe term ofthe lease in a context where itwould continueto be liable for some of the outgoings in respect of the premises.

52. In the result the evidence supports the conclusion that the appellant'sconduct amounted to a repudiation of the lease or afundamental breach of itsobligations under the lease. The fact that the appellant lodged a caveat on11 July 1979 to protect itsinterest as lessee under the unregistered lease isnot at all inconsistent with this conclusion. Though maintaining a claim tothebenefit of a contract, a party may repudiate it or commit a fundamentalbreach of it by refusing to perform his obligations accordingto its terms.

53. I would dismiss the appeal.

WILSON J. I have had the advantage of reading the reasons for judgmentprepared by Mason J. I agree substantially with those reasonsand with theconclusion to which they lead. I wish merely to add some brief observationson one aspect of the matter.

2. The nub of the case for the appellant is that its conduct in withholdingthe payment of rent from May 1979 until October 1979should not be taken as arepudiation or fundamental breach of its obligations under the contract as itbelieved bona fide that untilsuch time as the respondent carried out in asatisfactory manner the works specified in the second schedule there was noobligationto pay any rent. In support of that case it is submitted that thecompletion of those works was a condition precedent to such anobligationarising. But the submission cannot be accepted. Clause 11.6 obliges therespondent to carry out the work specified inthe schedule. It also makes theopinion of the Lessor's architect that the work has been completed a conditionprecedent to theappellant coming under an obligation to enter into occupationof the premises. If entry is effected pursuant to that clause thencl. 11.7secures to the appellant a rent-free holiday for two months. However, thecritical fact is that the appellant did not takepossession of the premisespursuant to cl. 11.6. It was already in possession before that time wasreached. That being so, therewas no obstacle to the operation of the covenantundertaken by the appellant in cl. 3 to pay rent. Had the appellant chosen nottoenter into possession prior to the completion of the works, it would havebeen on firm ground in insisting on meticulous complianceby the respondentwith the requirements of cl. 11.6 before it came under any obligation to doso. On the other hand, once it wasin possession under the agreement, it wasobliged to observe the covenant contained in cl. 3 to pay the rent. It thenhad to seekthe enforcement of the respondent's obligations by other means.It was not entitled to take the law into its own hands by withholdingtherent. As it happened, of course, the learned trial judge rejected theappellant's allegations against the respondent.

3. The appellant's action in withholding the rent was persisted in over aperiod of several months and continued even after itsreceipt of the letter of9 August 1979 from the respondent's solicitors which bluntly warned it of theconsequences of continuingin the course it had adopted. This history of thematter, coupled with the circumstances relating to other breaches of covenantasfound by the trial judge, leads irresistibly to the conclusion that theappellant was in fundamental breach of its obligations underthe contract andis therefore liable in damages.

4. I would dismiss the appeal.

BRENNAN J. The respondent was the lessor and the appellant was the lessee inpossession of land at Artarmon under an unregisteredthough registrablememorandum of lease for a term of five years. In an action brought by thelessor in the Supreme Court of NewSouth Wales, Lusher J. found that thelessee had committed breaches of certain covenants including the covenant forthe payment ofrent. The memorandum of lease contained a proviso for re-entryin the events, inter alia, of non-payment of rent for 14 days afterthe duedate or of failure to observe or perform a lessee's covenant after service ofa thirty-day notice to do so. It was notdisputed that, given the occurrenceof breaches of covenant, service of the statement of claim (which sought leaveto issue a writof possession) "amounted to a forfeiture of the lease".Relief against forfeiture was refused. His Honour gave leave to issue awritof possession and ordered an inquiry before a Master to ascertain the amountsdue to the lessor under the lease and as mesneprofits. In addition, LusherJ. awarded the lessor $85,000 damages for breach of contract. The lessor hadclaimed damages "in respectof the cost of reletting and delay in relettingpremises that would follow the plaintiff obtaining possession". Lusher J.held that,although rent cannot be recovered after forfeiture, "a lessor mayrecover damages for breach of a covenant to pay rent into the future,in otherwords, for the loss of the benefit of the covenant". His Honour assesseddamages accordingly. The Court of Appeal dismissedan appeal against thejudgment. The sole question on this appeal is whether the lessor was entitledto damages for the loss of thebenefit of the covenant or, more precisely, forthe loss of the benefit of the lease.

2. When a lease is determined prior to the expiry of the term, the covenantto pay rent for the unexpired portion of the term ceasesto bind the lessee.Once the lease is determined, the lessee commits no breach of covenant byreason of his non-payment of rent forthat 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 aprovisoforre-entry, serves the lessee with process for recovery ofpossessionis entitled to mesne profits for the period during whichthelesseeremains in possession after service (Canas Property Co.Ltd. v.K.L.TelevisionServices Ltd. (1970) 2 QB 433). The lessormay thereby recover an amountequal to the rent in respect of that period. But mesne profits are damagesfor trespass; mesne profitsare not rent, nor are they damages for breach of acovenant to pay rent.

3. A lessor can recover damages for loss of the benefit of a lease only wherethe lessee has repudiated the lease before determinationof the term. Such arepudiation is not necessarily established by proving a default in the paymentof rent. In Shevill v. BuildersLicensing Board[1982] HCA 47; (1982) 149 CLR 620, at p 627,Gibbs C.J. said with the concurrence of Murphy J. and me:

" 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 anintention to act, and to act only, in a manner substantiallyinconsistent withhis obligations under the lease. For the reasons stated by Mason J., I thinkthat the lessee did show such anintention and that the lessee repudiated thecontract embodied in the lease. That conclusion makes it necessary to decidein thiscase what was assumed but not decided in Shevill v. Builders LicensingBoard, namely, whether the general contractual principlesrelating torescission for anticipatory breach and damages for the loss of benefit of acontract apply when a lessee, by words orconduct, repudiates his obligationsunder the lease. It is the character of a lease as a demise which may bethought to exclude theoperation of those principles. For reasons that Ishall state presently I would hold that ordinary contractual principles doapplyto a lease, but that the character of a lease as a demise distinguishesthe consequences of their application from their applicationto a contractthat is not also a demise. If ordinary contractual principles apply to alease, a fortiori they apply to an agreementto grant a lease or to anunregistered memorandum of lease which is not effective to convey a legalleasehold interest (cf. LeitzLeeholme Stud Pty.Ltd. v. Robinson (1977) 2NSWLR 544). It is therefore appropriate to consider the question on thefooting thatthe memorandum of lease was effective to convey such an interest.The parties agreed that Lusher J. should decide the matter on thefooting thatthe memorandum had been registered and that agreement requires the question tobe considered on the footing that a legalinterest was conveyed to the lessee.

5. In Total Oil v. Thompson Garages (1972) 1 QB 318, at p 324, Lord DenningM.R. thought that a lease, being a demise as well asa contract, does not cometo an end on repudiation and acceptance. His Lordship thought that viewsexpressed by Lord Russell ofKillowen and Lord Goddard in Cricklewood Propertyand Investment Trust,Ld. v. Leighton's Investment Trust,Ld. (1945) AC 221 thatfrustration does not bring a lease to an end supported the view thatrepudiation and acceptance does not do so. Holding that thelease continued,his Lordship rejected an argument that a breach by the lessor gave the lesseean option to be relieved of its contractualobligations. Subsequently inNational Carriers v. Panalpina Ltd.[1980] UKHL 8; (1981) AC 675 the House of Lords held thatthedoctrine of frustrationcan, in principle, apply to leases. LordWilberforce said(at p.694) that "there is nothing illogical inimplying aterm that (thelease) should be determined on the happening of ... events...which in an ordinary contract work a frustration". The speech ofLord Simonof Glaisdale contains a passage to the same effect(at p.705). The questionwhether the doctrine of frustrationis excludedwhen the contractualobligation relied on is created byan instrument of lease was considered bythis Court in Firthv. Halloran[1926] HCA 24; (1926) 38 CLR 261. Opinions were divided. Ido not stay to consider that question, for we are not nowconcerned with asuggesteddetermination of a lease by frustration. Discharge of contract byfrustration and discharge by repudiationand acceptance are distinctmodes oftermination of contract to which different consequences attach. There is novalid analogy betweenthe implication of aterm that determines a lessee'sinterest on the happening of a frustrating event and the implication of a termempowering a lessorto elect to determine a lease before the expiry of theterm granted in the event of repudiation by the lessee,especially if thetermis to be implied in a lease which contains an express power to determine thelease in the event of a breachof covenant. Animplied term that a leaseshould determine on the happening of a frustrating event is in the nature of alimitation. An impliedterm that a lessor should have an election todetermine if the lessee should repudiate is in the nature of a condition.Where, asin the present case, a lease contains a proviso for re-entry incertain events including the commission of specified breachesofcovenant, itis not possible to imply a term which entitles the lessor to determine thelease in the event of anticipatory breachesof covenant that do not constitutea specified breach of covenant. The lessee's interest in the land, oncevested in him by thedemise, may be divested by breach of a condition ofdefeasance (as described in Bashir v. Commissioner of Lands (1960) AC 44) orby exercise of a power of re-entry for breach of covenant expressly reservedby the lease. A lessee's contravention of the provisionsof a lease does nototherwise empower a lessor to determine the lease (Doe d. Dixon v. Roe[1849] EngR 231; (1849)7 CB 134 (137 ER 55)). Thus Woodfall'sLaw of Landlord and Tenant 28th ed.(1978) says, at p 836:

" 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 isliable to forfeiture precludes the lessor from rescindingthe lease foranticipatory breach, but it does not follow that the ordinary contractualprinciples relating to anticipatory breachdo not apply to a lease where thelessee's interest is liable to forfeiture.

7. An objection taken in some jurisdictions to the application of thoseprinciples to leases is that a lease is a contract thathas been executed orsubstantially executed by the lessor and that the principles relating toanticipatory breach apply only wherethe innocent party puts an end toexecutory obligations resting on him. It is true that, under an ordinarylease, the lessor's grantingof the term discharges by performance his chiefobligation, and the executory obligations under the lease rest chiefly on thelessee. If the lessor be under no executory obligations (or if his executoryobligations be insubstantial), rescission for anticipatorybreach by thelessee makes no difference (or no substantial difference) to the position ofthe lessor: he has parted with the leaseholdinterest and that interest is notliable to be revoked by mere rescission. In the leading case of Hochster v.De la Tour (1853)2 E & B 678 (118 ER 922), Lord Campbell C.J. advanced (at p690 (p.926)) as a reason for the rule relating to anticipatory breachthedesirability of absolving the promisee from performance of his executoryobligations:

" ... 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."

8. In Mersey Steel and Iron Co. v. Naylor, Benzon & Co. (1884) 9 AppCas 434,at pp 443-444, Lord Blackburn said:

" 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).

9. In Mackenzie v. Rees[1941] HCA 21; (1941) 65 CLR 1, at pp 15-16, Dixon J. noted thatthere was then no English decision whichapplied the doctrineof anticipatorybreach to contracts completely executed on one side and that that was the viewof Anson in hisfirst edition of theLaw of Contracts(1879). His Honourquoted from the American Restatement of the Law of Contracts, Art.318 e,p.477:

" 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 notaffected by rescission for anticipatory breach does notnecessarily mean thatdamages for anticipatory breach are denied to a party who has performed hisobligations. The principles relatingto anticipatory breach put both a shieldand a sword in the hands of an innocent party who accepts the other party'srepudiation.His shield is the ending of his executory obligations; his swordis an immediate right to damages. Where the contract has been fullyperformedby one party, no question of repudiation by him arises and he is under noexecutory obligation from which he might wishto be discharged in the event ofrepudiation by the other party. He has no need of a shield. But he may wishto brandish a sword. Although the paradigm case in which the principles areapplied involves interdependent executory obligations, anomalies would occurif there were an unqualified rule that damages for repudiation by anticipatorybreach should be refused where the innocent partyhas fully performed hisobligations, but granted where he has not. Whether the contract be executedor executory, it can be saidthat repudiation causes the innocent party lossof the benefit of the contract. Indeed, where the innocent party has fullyperformedhis obligations, a repudiation by the other party deprives him notonly of the profit to which his bargain entitled him but alsoof compensationfor the cost incurred in performing his obligations.

11. On the other hand, it can be said that a party who has performed hisobligations under a contract is entitled to no more andno less than the fulland timeous performance of the obligations resting on the other party, andthat an immediate award of damagesfor anticipatory breach of thoseobligations gives him more than the benefit of his bargain. There is substancein the observationby Williston on Contracts 3rd ed. (1968), vol.11, 1313 that-

" 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 obligationsunder a contract in accordance with its terms, thereis something to be saidfor a rule that gives him no more than he bargained for, that is to say,damages against the repudiatingparty for failure to discharge that party'sobligations as and when they fall due. A strong case can be made for such arule whenthe innocent party's performance of the contract results in theconferring of an irrevocable benefit on the other party and the onlyexecutoryobligation of the repudiating party is to pay money at a future time: seeWilliston on Contracts 3rd ed. (1968), vol.11,1326. Why should repudiationentitle the innocent party to accelerated payment when the contract stipulatesthat, in the circumstancesthat have occurred, that party should receivepayment 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 canand does revoke the benefit which the innocent party'sperformance of hisobligations conferred on the repudiating party. Revocation of the benefitplaces the parties in a position similarto the position they would have beenin if the contract had remained executory. Unless the innocent party has aright to damagesin these circumstances, he cannot recover the benefit of hisbargain. If he revokes the benefit that was conferred on the repudiatingparty, he cannot insist on the performance by that party of the interdependentobligations that fall due thereafter. Unless he isentitled to damages, hecan obtain the benefit of the bargain only by foregoing the right to revokethe benefit, trusting that theother party will repent and perform theobligations he repudiated. The principles relating to anticipatory breach areintended toavoid the necessity for useless performance and to mitigate thedamages for which the repudiating party is liable by permitting theinnocentparty to dispose of any property, services or other benefits to which therepudiating party would have been entitled underthe contract. It accordswith principle to permit a lessor to recover damages for anticipatory breachby a lessee when the benefitwhich has passed to the lessee - the interest inthe land demised - is revoked by enforcing a forfeiture or by some other meansofdetermining the lease. It accords too with authority.

14. Buchanan v. Byrnes[1906] HCA 21; (1906) 3 CLR 704 was a case where the lessor oflicensed premises claimed damages againsta lessee who hadabandoned thepremises. The lease was surrendered. Barton J. held that the lessor wasentitled to damages on acceptingthe lessee'srepudiation. He said,atp.719:

" 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."

15. Buchanan v. Byrnes was followed by the Supreme Court of Canada in HighwayProperties Ltd. v. Kelly, Douglas & Co. Ltd.(1971)17 DLR (3d) 710. LaskinJ. (as he then was) delivering the judgment of the Supreme Court, thought thatthis Court's approach hadcut through artificialbarriers to relief, but hewent on to say (at p.721):

" 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 ..."

16. Acceptance of a surrender by a lessee who has repudiated a lease is atonce an acceptance of the repudiation and a determinationof the lessee'sinterest in the land. Where the lessee repudiates but does not give uppossession, a lessor's acceptance must takesome other form. Unless thelessee's interest in the land is determined in some way, there can be norescission of the contract,for the lessee continues to enjoy the benefit ofthe demise and to be liable to perform at least those covenants which touchandconcern the land. So long as the lessee retains the interest which hetook under the demise, neither party can put an end unilaterallyto theexecutory obligations under the lease. Total Oil v. Thompson Garages was aninstance of a lessor, an oil company, failingto observe the credit terms forthe supply of petrol contained in a lease of a tied service station. It washeld that the servicestation operator, remaining in possession of the site,was not entitled to put an end to the tie, though it was not enforceable bythe oil company until the company mended its ways. Edmund Davies L.J. said(at p.325):

" 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'sinterest in the land andconstitutes the lessor's election to accept the repudiation. Conversely, awaiver of the forfeiture constitutesthe lessor's election to keep the leaseon foot. It is not necessary to consider the possible effects of statutoryrestrictionson the enforcing of a forfeiture or of the granting of reliefagainst forfeiture, except to bear in mind that the condition on whichthelessee's liability in damages for repudiation arises is that he ceases to beliable to perform the executory obligations restingon him under the lease.

18. Once the lessee's interest is determined, there is no reason why damagesshould not then be recoverable, provided the lessorhas not previously made anelection to keep the lease on foot. Where it is necessary for a lessor todetermine a lease by re-entryunder a proviso for re-entry contained therein,does his reliance on the proviso evidence an election to keep the lease onfoot?In Johnstone v. Milling where the lease conferred a power on the lesseeto give a notice putting an end to the term at the expirationof the firstfour years and the lease was determined accordingly, Lord Esher M.R. regardedthe giving of the notice as indicativeof an affirmation of the contract. Hesaid (at pp.468-469):

" 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 ofclaim determined the lessee's interest in the land. The statement of claimclearly accepted the lessee's repudiation and sought damages accordingly.Thus the elements of the lessor'scause of action were established. Theassessment of damages by Lusher J. conformed to principle.

20. It was submitted that cl.10.1 of the lease limits the damages recoverableby the lessor to damages for past breaches of covenant. The submission is notborne out by the language of the clause. The clause specifies the events onthe occurrence of which the rightto re-enter arises and preserves "any claimwhich the Lessor may have against the Lessee in respect of any breach of thecovenants... to be observed or performed". A claim for damages foranticipatory breach answers precisely that description (see per Lord Diplockin Lep Air Services v. Rolloswin Ltd., supra).

21. Perhaps there is a procedural difficulty in joining a claim for damagesfor anticipatory breach with a claim for possessionwhere the service of thewrit or other originating process is the means by which the forfeiture of thelease is enforced. In sucha case, it may be objected that the cause ofaction for damages accrues contemporaneously with the service but after issueof thewrit or other originating process (see Wigan v. Edwards (1973) 47 ALJR586 (1 ALR 497)). No objection of this kind was taken tothe award in thepresent 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 thejudgment of Mason J. Since I agree with Mason J's conclusionsand am ingeneral agreement with his reasoning and with the observations made by WilsonJ. in his judgment, I can confine myselfto a statement of my views on what Isee as the main general questions of law involved. It is convenient to referto the appellantas "the tenant" and to the respondent as "the landlord".

2. A lease for a term of years ordinarily possesses a duality of characterwhich can give rise to conceptual difficulties. It isboth an executorycontract and an executed demise. Its origins lie in contract rather than inreal property in that the lessee'sremedies were originally restricted to apersonal action against the lessor on his covenant to give enjoyment of theland (see Pollockand Maitland, The History of English Law Before the Time ofEdward 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 thata lessee for a term,although denied "seisin" in the strict sense, had a right to "possession"which was an interest in the landthat he was entitled to protect againstthird parties; initially by a limited writ in ejectment (quare eiecit infraterminum) framedin terms which restricted it to an action against a purchaserfrom the lessor and subsequently by the remedies afforded under theStatute ofGloucester 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 legalprotection of the lessee's interest in the land, chattels real were neverincorporatedinto the strict system of feudal tenements. The interest of thelessee in the land was however accepted as analogous to a form offeudaltenure to the extent that some authorities expressed the view that the lesseewas 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 andtermination for fundamental breach (or for repudiation) werenot seen asapplicable to an executed demise under which an interest or estate in land hadactually 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 & NorthernEstates Co. v. Schlesinger (1916) 1 KB 20, at p 24; TotalOil Great Britain Ltd. v. Thompson Garages (BigginHill) Ltd. (1972) 1QB 318;Leightons Investment Trust Ltd. v. Cricklewood Propertyand Investment TrustLtd. (1943) KB 493 and,on appeal, (1945) AC221, at pp 233-235 and 244-245but cf. at pp 228ff. and 236ff.).The rationale of that approach was theperceivedinappropriatenessof those contractual doctrines to a leaseholdestate viewed asanalogous to a form of feudal tenure. On the otherhand, thegeneraltrend in this century, particularly in relation to leases ofurbanpremises, has been away from the type of leasewhich can realisticallybe soviewed. It has been towards the lease, at a commercialrental and for ashorter term, framed in thelanguage of executorypromises of widening contentand diminishing relevance to theactual demise. It is apparent that thespecialrules of property lawregarding chattels real are inadequate as theexclusive determinantof rights and liabilities under such modernleases.That beingso, it has become necessary for courts to look somewhat morecriticallyat the rational basis and justificationof the traditionalassumption that leases generally were beyond the reach of fundamentaldoctrines of the law of contract.

4. The actual application to leasehold interests of the common law doctrinesof frustration and termination for fundamental breachinvolves some unresolvedquestions which are best left to be considered on a case by case basis wherebyadequate attention can befocussed on particular problems which might beoverlooked in any effort at judicial codification. One cannot however ignorethefact that the clear trend of common law authority is to deny any generalimmunity of contractual leases from the operation of thosedoctrines ofcontract law (see, e.g., National Carriers Ltd. v. Panalpina (Northern) Ltd.[1980] UKHL 8[1980] UKHL 8; ; (1981) AC 675; HighwayProperties Ltd.v. Kelly, Douglas & Co. Ltd.(1971) 17DLR (3d) 710; Corbin, Contracts, vol.6 (1962), s.1356; and see the casescitedin Brookingand Chernov, Tenancy Law and Practice in Victoria,2nd ed. (1980),par.211; D.M. McRae, "Repudiation of Contractsin Canadian Law",Canadian BarReview, vol. 56 (1978), 233 and J.T.Robertson, "Frustrated Leases: 'No toNever-But Rarely if Ever'",Canadian BarReview, vol.60 (1982), 619). Atfirst impression,that trend may appear to represent a step back towards themedievaldays whenthe lessee's interest under a term of years was seenas amere right in personam to sue the lessor for breach of covenant. Uponanalysis however, it involves no more than recognitionof the fact that theanalogy between a leasehold and a freehold estateisan imperfect one and ofthe related fact that, except perhapsin the quite exceptional case of acompletely unconditional demisefor a long term with no rent reserved (cf.Knight's Case (1588)5 Co.Rep.54b), the leasehold estate cannot be divorcedfrom its originsand basis in the law of contract (cf. per Atkin L.J., Mattheyv. Curling (1922) 2 AC 180, at pp 199-200): the lease should be seenas"resting on covenant" (or contractual promise) and it is"the contract ... andnot the estate ... which is the determining factor"(see per Isaacs J., Firthv. Halloran, 38 CLR, at p 269quoting from Hallen v. Spaeth (1923) AC 684, atp 690). That trend shouldbe followed in this Court and it should be acceptedthat,as a general matter and subject to one qualification, the ordinaryprinciplesof contract law are applicable to contractual leases. Thequalification is that the further one moves away from the case where therights of the parties are, as a matter of substance,essentially defined byexecutory covenant or contractual promise to the casewhere the tenant'srights are, as a matter of substance,more properly to be viewed by referenceto their character as an estate(albeit a chattel one) in land with a root oftitle in theexecuted demise, the more difficult it will be to establish thatthe leasehas been avoided or terminated pursuant to the operationof theordinary principles of frustration or fundamental breach. Indeed,one mayreach the case where it would be quite artificialto regard the tenant'srights as anything other than an estate or interestin land (e.g., a 99 yearlease of unimproved land on paymentof a premium and with no rent, or only anominal rent, reserved). Insuch a case, it may be difficult to envisagecircumstancesin which conduct of the tenant short of actual abandonment wouldproperlybe held to constitute repudiation or fundamental breachor in whichanything less than a cataclysmic event such as the "vast convulsion"referredto by Viscount Simon L.C. in CricklewoodProperty and Investment Trust Ltd. v.Leighton's Investment Trust Ltd. (1945) AC,at p 229 would warrant a findingof frustration.

5. The memorandum of lease in the present case was for five years at acommercial rental without a premium. The consideration whichthe tenant gavefor the demise was in the form of executory covenants. As a matter ofsubstance, the rights of the tenant can alsoreadily be seen as "resting oncovenant" since, the memorandum of lease being unregistered, any equitableterm which it created wasfounded upon what equity saw as an agreement togrant a lease in terms of the unregistered memorandum (see, generally, Walshv. Lonsdale(1882) 21 ChD 9; Australian Provincial Assurance Ltd. v. Rogers(1943) 43 SR (NSW) 202, at pp 205-206; National Trustees, Executorsand AgencyCo. of Australasia Ltd. v. Boyd[1926] HCA 44; (1926) 39 CLR 72, at pp 81-82; NationalCarriers Ltd. v. Panalpina (Northern)Ltd., atpp 690,704; Hewett v. Court[1983] HCA 7; (1983) 149 CLR 639, at p 666). In that regard, one needs to be mindful of thedanger of over-emphasisingthe equivalence of theequitable estate under anagreement for lease or an unregistered memorandum oflease followed by entryintopossession and of a commonlaw leasehold estate for the like term in thatone can point to statementsof authority which supportthe approach that theordinarycontractual doctrines of frustration and termination for fundamentalbreachwould, in an appropriatecase, operate to destroy thecontractualfoundation of such an equitable estate even if the view that theywere notapplicable atall to a common law lease hadcontinued to prevail (seeCoatsworth v. Johnson (1886) 55 LJQB (NS) 220, atp 223 (per Lindley L.J.);Swain v. Ayres (1888) 21 QBD289, at p 294 (per Lord Esher M.R.), at p 295(per Lindley L.J.) and at pp296-297 (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 isaccepted that the principles ofthe law of contractgoverning termination forfundamental breach are, as a matter of theory,applicable to leases generally,thereis no difficulty inapplying them in the present case in much the samefashion as to an ordinaryexecutory contract: "(i)f the contractis avoidedordissolved ... the estate in land falls with it" (per Lord Wright,CricklewoodProperty and Investment Trust Ltd. v.Leighton's InvestmentTrustLtd. (1945) AC, at p 240).

6. While the question is not without difficulty, I agree with other membersof the Court that the tenant's breaches of the memorandumof lease amounted,in the circumstances of the present case, to fundamental breach of contract.It is not now suggested that thetenant is entitled to rely upon any specialstatutory provision precluding or controlling re-entry or providing for reliefagainstforfeiture. It follows that the landlord was entitled to terminatethe lease and, in accordance with ordinary contractual principles,sue thetenant for damages for loss of the benefit of the tenant's covenant to payfuture rent and outgoings. The question ariseswhether that right to sue forgeneral damages for loss of bargain survived the landlord's action inexercising the contractual rightof re-entry contained in cl.10.1 of thememorandum of lease.

7. In Shevill v. Builders Licensing Board[1982] HCA 47; (1982) 149 CLR 620, it was held bythe Court that the lessor in that casewas entitledonly to unpaid past rentupon terminationof the lease pursuant to the exercise of a contractual rightof re-entry forbreach ofthe covenant to pay rent promptly. The basisof thedecision was not, however, a rejection of the proposition that theordinaryprinciplesof contract law were applicable tothe lease. The decision turnedupon the conclusion that the breaches of thecovenant to pay rentin that casedid not constituterepudiation or fundamental breach (see pp.626ff.). Whilethe distinction betweentermination forfundamental breach and terminationfora breach which the parties have agreed in advance would be such as to giverise to a rightto terminate is not without difficulty(cf. Larratt v. Bankersand Traders' Insurance Co. Ltd. (1941) 41 SR (NSW)215, at pp 225-226;SotirosShipping Inc. v. Sameiet Solholt(The "Solholt") (1983) 1 Lloyd's Rep 605),the majority's reasoningin Shevill proceededon an assumption (see at p 625)that generaldamages for loss of the lease would have been recoverable if thelessee's failure topay rent had, in the circumstances of that case,constituted repudiation or fundamental breach. The presentcase is incontrastto Shevill in that, as has been said, the tenant'sbreach of covenantconstituted a fundamental breach of thememorandum of lease.

8. It follows from the foregoing that, in the circumstances which had arisen,the landlord had both a contractual right to terminatethe lease by re-entryunder cl.10.1 for breach of covenant and, on the application of the ordinaryprinciples of contract law, acommon law right to terminate for fundamentalbreach. The landlord was not obliged to elect between the two grounds forterminatingthe lease: it was entitled to rely upon them both. A partyentitled to terminate a contract for repudiation or fundamental breachmayrely upon both a specific contractual right to terminate the contract and thecommon law right to terminate unless, as a matterof construction, the formerexcludes the latter (see, e.g., Rawson v. Hobbs[1961] HCA 72; (1961) 107 CLR 466, at p 480;Shepherdv. Felt and Textilesof Australia Ltd.[1931] HCA 21; (1931) 45 CLR 359, at pp377-378 and, generally, the cases referred to inCarter, Breach of Contract(1984), pars.914,1006).Morespecifically, where a contractual right toterminate for past breach andthe common law right to terminate forrepudiation orfundamentalbreach exist concurrently, the reliance upon thecontract involvedin the exercise of the contractual right to terminatewillnotpreclude the recovery of damages for loss of the future benefit ofthecontract by reason of repudiation or fundamentalbreach unlessthe contractexpressly or impliedly so provides (cf. Yeoman CreditLtd. v. Waragowski(1961) 1 WLR 1124).

9. Clause 10.1 of the memorandum of lease in the present case did notpreclude 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-entrythereunder would be "without prejudiceto any claim which the Lessor may haveagainst the Lessee in respect of any breach of the covenants and provisions inthis Leaseon the part of the Lessee to be observed or performed". That beingso, the exercise by the landlord of the right of re-entry undercl.10.1 didnot deprive it of the right to claim damages for the loss of the futurebenefit of the tenant's covenant to pay rentwhich it sustained by reason ofthe 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 theadditional observations made by Wilson and Deane JJ. Thereis nothing which Iwish to add.

ORDER