167 Prospect Highway Pty Ltd v Polyaire Pty Ltd

[2025] NSWSC 1144

Supreme Court

New South Wales

Medium Neutral Citation:

167 Prospect Highway Pty Ltd v Polyaire Pty Ltd [2025] NSWSC 1144

Hearing dates:

18 and 19 August 2025

Date of orders:

2 October 2025

Decision date:

02 October 2025

Jurisdiction:

Equity

Before:

Ward P

Decision:

1.   Enter judgment against the defendant in the amount of $15,180,146.68.

2.   Order the defendant to pay the plaintiff interest on the judgment sum at the rate provided for under cl 12.1(e) of the Lease.

3.   Order the defendant to pay the plaintiff’s costs.

4.   Liberty to apply if there has been an arithmetical error in my adoption of the calculations as to damages.

Catchwords:

CONTRACTS – Construction – Commercial lease – Where fire originating on leased premises destroyed structures on leased and adjacent premises – Whether obligation to keep and maintain premises in same condition and state of repair encompassed obligation to rebuild destroyed structures – Whether indemnity clause satisfied – Whether lessee caused or contributed to damage by storing pallets as packaged in open area and use of premises in that way – Meaning of “as a result of”, “caused”, “contributed to”, “substantially contributed to” – Whether implied covenant under s 84 of the Conveyancing Act 1919 (NSW) negatived lease provisions imposing liability for accident such as fire – Inconsistency between implied covenant and terms of lease – Quantum of damages – Whether to infer that option to renew lease would have been exercised but for the fire

Legislation Cited:

Conveyancing Act 1919 (NSW), ss 7, 74, 84

Hire-Purchase Act 1960 (NSW), s 5(3)

Real Property Act 1900 (NSW), s 3

Cases Cited:

AFC Holdings Pty Ltd v Shiprock Holdings Pty Ltd [2010] NSWSC 985; (2010) 15 BPR 28,199

Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWCA 224

p

B M & J A Holdings Pty Ltd v Clarence Street Developments Pty Ltd [2012] NSWSC 1236

Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266

Big River Timbers Pty Ltd v Stewart [1999] NSWCA 34; (1999) 9 BPR 16,605

Blatch v Archer (1774) 1 Cowp 63; 98 ER 969

Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44

Bowen Investments Pty Ltd v Tabcorp Holdings Pty Ltd (2008) 166 FCR 494; [2008] FCAFC 38

Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1

Bucknell v Reid (1876) 10 SALR 188

Credit Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76

Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476; [2000] FCA 1902

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Elite Investments 10 Ltd v TI Bainbridge Silencers Ltd [1986] 2 EGLR 43

Esanda Ltd v Clark (1985) 159 CLR 543; [1985] HCA 74

Fausett v Keleher [1924] NZLR 1

Fisher v Nonconformist Pty Ltd (2024) 114 NSWLR 1; [2024] NSWCA 32

Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53

Gould v Vaggelas (1984) 157 CLR 215; [1984] HCA 68

Graham v Markets Hotel Pty Ltd (1943) 67 CLR 567; [1943] HCA 8

Greer v Pickering [2015] NSWSC 1131

Hams v CGV Insurance Limited [2002] NSWSC 273

HIH Casualty & General Insurance Limited v Waterwell Shipping (1998) 43 NSWLR 601

Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10

Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited [2005] NSWCA 66

Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350

Lowe v Dorling & son [1906] 2 KB 772

Lurcott v Wakeley and Wheeler [1911] 1 KB 905

Mount Bruce Mining Pty Ltd v Wright Prospecting [2015] 256 CLR 104

Norwich Union Life Insurance Society v British Railways Board [1987] 2 EGLR 137; (1987) 283 EG 846

Percy E Cadle & Co Ltd v Jacmarch Properties Ltd [1957] 2 WLR 80

Rava v Logan Wines Pty Ltd [2007] NSWCA 62

Richard Evans & Co Ltd v Astley [1911] AC 674

Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5

Saviane v Stauffer Chemical Co [1974] 1 NSWLR 665

Simic v New South Wales Land and Housing Corp (2016) 260 CLR 85; [2016] HCA 47

Simpson Design Associates Pty Ltd v Industrial Court of New South Wales [2011] NSWCA 316; (2011) 214 IR 373

Waterhouse v Waugh [2003] NSWCA 139

Weatherhead v Deka NZ Ltd (No 2) [1999] 1 NZLR 453; (1999) ANZ Conv R 239

Texts Cited:

C Croft, R Hay and L Virgona, Commercial Tenancy Law (5th ed, 2023, Lexis Nexis)

B Edgworth, Butt’s Land Law, (7th ed, 2017, Law Book Co)

PR Watts, “Implied Covenants in Leases” (1937) 10 ALJ 357-9

Category:

Principal judgment

Parties:

167 Prospect Highway Pty Ltd (Plaintiff)
Polyaire Pty Ltd (Defendant)

Representation:

Counsel:
M Ashhurst SC with N Simone (Plaintiff)
N Hutley SC with DS Weinberger (Defendant)

Solicitors:
Sparke Helmore Lawyers (Plaintiff)
McCabes (Defendant)

File Number(s):

2022/00053496

Publication restriction:

Nil

HEADNOTE

[This headnote is not to be read as part of the judgment]

Pursuant to a lease commencing on 1 August 2014 (Lease), the plaintiff leased to the defendant Unit 2 (the Premises) on land located at 167 Prospect Highway in Seven Hills, NSW (the Land) for a term of six years, ending on 31 July 2020, with an option to renew for a further six years. Relevantly, the Premises included an open area between a warehouse located on Unit 2 and a warehouse on adjacent premises on the Land (Unit 17). Unit 17 was leased to an unrelated company (Blessington Pty Ltd) for a term ending on 20 December 2019, with an option to renew for a further 5 years.

On 3 November 2018, there was a fire on the Land which destroyed the warehouses located on both Unit 2 and Unit 17. The cause of the fire was not ultimately in dispute. It originated in the open yard where the defendant had placed Y-fitting air splitters which were covered in a transparent plastic wrap with corrugated cardboard layers placed between each row of air splitters. Rainwater pooled on top of the wrap causing the formation of an “aqua lens” which concentrated sunlight (heat) onto the corrugated cardboard (the fuel). This, in combination with a wind that blew through gaps in the plastic wrap (providing oxygen), resulted in the fire.

After the fire, while reinstatement work occurred, the defendant relocated its operations to another property in Seven Hills, entering into a lease of that site at an equivalent rental but for smaller premises. The defendant did not exercise its option for renewal of the Lease. On 1 February 2022, the plaintiff entered into a lease of the Premises to a third party. Blessington did not exercise its option to renew but, upon completion of the reinstatement work, entered into a new lease with the plaintiff in similar terms to its original lease.

The Lease contained the following terms.

Clause 7.1 (the repair/maintenance obligation) provided that the Lessee would keep the Premises in the same condition and state of repair as they were at the commencement of the Lease, fair wear and tear excepted. Clause 7.2(a) provided that “[d]espite cl 7.1”, the Lessee need not make structural repairs or replace items of a capital nature unless they arose because of any act, omission or breach of the Lease by the Lessee or unless they were required because of the Lessee’s use of the Premises. Clause 7.2(b) provided that the Lessee was not responsible for repairs required as a result of natural disasters, accident or fire, which were beyond the Lessee’s responsibility or control unless the damage occurred as a result of or was substantially contributed to by the Lessee’s act or omission.

Clause 10.3 (the indemnity provision) provided that the Lessee indemnified the Lessor against any loss, damage, expense or costs suffered or incurred “whether by act, omission or neglect” of the Lessee, arising from various circumstances listed in sub-cll 10.3(a)-(h).

Clause 12.1(a)(i) (the yield up obligation) provided that the Lessee would yield up the Premises in a clean and tidy condition and in the same condition and state of repair as existed at the commencement of the term, fair wear and tear excepted. Clause 12.1(a)(ii) (the reinstatement obligation) provided that where all or part of the Premises comprise a warehouse, then the Lessee would reinstate that part of the Premises to its original state at commencement of the Lease. The Lessee indemnified the Lessor in respect of the costs of complying with cl 12.1 (cl 12.5).

The plaintiff alleged that the defendant breached cll 7.1, 10.3 and 12.1 of the Lease and claimed the cost of make safe and demolition and rebuilding works (the last on a like for like basis with the then warehouses), lost rent and outgoings, and associated costs. The dispute as to quantum was confined to lost rent and outgoings and whether, but for the fire, the Lessee and Blessington would have exercised their options to renew.

The Court held, ordering judgment against the defendant with costs:

As to the alleged breach of cl 7.1:

1. The fact that the obligation to keep in repair and to maintain the Premises under cl 7.1 is an ongoing obligation during the term of the Lease points against the clause extending to complete reconstruction of the destroyed structure on the Premises. While the text of cl 7.2 weighs somewhat against this interpretation, the plaintiff did not establish that clause 7.2(a) could not have a meaningful operation if cl 7.1 did not encompass wholesale reconstruction. The obligation in cl 7.1 does not extend to works of the kind here required for the complete reconstruction of the warehouse: [72]-[76].

   Lurcott v Wakeley and Wheeler [1911] 1 KB 905; Percy E Cadle & Co Ltd v Jacmarch Properties Ltd [1957] 2 WLR 80; Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716; Weatherhead v Deka NZ Ltd (No 2) [1999] 1 NZLR 453; (1999) ANZ Conv R 239; Elite Investments 10 Ltd v TI Bainbridge Silencers Ltd [1986] 2 EGLR 43; Norwich Union Life Insurance Society v British Railways Board [1987] 2 EGLR 137; (1987) 283 EG 846; Credit Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76 considered.

2. If, contrary to the above conclusion, cl 7.1 did impose an obligation completely to rebuild the destroyed warehouse, then, the exception to cl 7.1 contained in cl 7.2(a) would not apply as the fire, viewed in a common sense way, arose because of an act of the Lessee (storing the pallets, packaged as they were, in the open area), and as the repairs were required because of the Lessee’s use of the Premises (storage of the pallets). Further, the exception in cl 7.2(b) would not apply as the storage of the pallets (packaged as they were) in the outdoor location played a substantial part in causing the fire, meaning that the fire was substantially contributed to by the Lessee’s act: [87]-[92].

As to the alleged breach of cl 12.1(a)(i)-(ii):

1. The above conclusion as to the meaning of “repairs” in cl 7.2 is sufficient to dispose of the claim under cl 12.1(a)(i). As to cl 12.1(a)(ii), insofar as the Lease makes express provision for the reinstatement of the warehouse at the end of the Lease to its original form, “reinstatement” goes beyond repair and does encompass reconstruction of the warehouse. Clause 12.1(a)(ii), by requiring reinstatement, operates to vary or negative the s 84(1)(b) implied covenant. The claim for breach of cl 12.1(a)(ii) is made good: [109]-[112].

As to the alleged breach of cl 10.3:

1. There is a clear inconsistency between cl 10.3 and the implied covenant in s 84(1)(b) such that the implied covenant is excluded. They cover the same ground in terms of liability for damage occasioned by reason of accident caused by an act or omission of the Lessee: [137], [138].

2. While cl 10.3 involves surplusage (particularly in relation to sub-cl 10.3(a)), this does not render the balance of cl 10.3 void for uncertainty (an argument which would need to have been pleaded, but was not) nor does the surplusage require some alternative construction more favourable to the defendant (not identified in its submissions) to be adopted. As the defendant caused or contributed to the fire, various of the circumstances set out in sub-cll 10.3(a)-(h) are satisfied in this case, meaning the claim under cl 10.3 is made good: [135]-[136].

As to whether the defendant would have exercised the option under the Unit 2 lease:

1. As to Unit 17, there is an irresistible inference (from the fact that Blessington chose to enter into a new lease of Unit 17 as soon as the reinstatement works were complete) that, but for the fire, it would have exercised the option to renew.

2. The defendant adduced no evidence as to its intentions relating to the option to renew, nor to contradict the evidence of the plaintiff’s director (Mr Ford) that there were cordial relations between landlord and tenant before the fire and no reason for him to believe the defendant was intending to move. The fact that the defendant chose to relocate to other premises in the same area as Unit 2, coupled with Mr Ford’s evidence, gives rise to the “reasonable and definite” inference that, but for the fire, the defendant would have exercised its option.

   Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 applied. Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1; Richard Evans & Co Ltd v Astley [1911] AC 674 cited.

3. Damages should be calculated for lost rent and outgoings on the basis of the finding that both the defendant and Blessington would have exercised the respective options for renewal of their leases but for the intervention of the fire: [148].

JUDGMENT

1. WARD P: In this matter, the plaintiff (167 Prospect Highway Pty Ltd) sues the defendant (Polyaire Pty Ltd) for damages in the sum of $13,134,974.25, plus interest and costs, for breaches of a lease (including indemnity obligations under the lease) granted by the plaintiff as lessor to the defendant as lessee. The lease was of warehouse premises in Seven Hills. The claim for damages is consequent upon a fire at the premises occupied by the defendant (Unit 2), which destroyed two warehouses owned by the plaintiff.

2. Although set down for hearing in the Commercial List for five days, by the time of the hearing a number of issues in dispute between the parties (including causation and the quantum of some of the heads of damage claimed by the plaintiff) had been resolved such that the issues left to be determined were in narrow compass and the hearing occupied less than one day of overall Court time.

3. The two issues remaining for determination by the time of the hearing were: first, the proper construction of various of the Lease terms and, second, the quantum of lost rent and outgoings (on the assumption that the defendant is liable for those by way of damages for breach(es) of the Lease).

4. For the reasons that follow, I have concluded that the defendant is liable to indemnify the plaintiff pursuant to cl 10.3 of the Lease for the damage suffered or incurred by the plaintiff as a result of the fire which occurred on the premises and which escaped onto the adjacent Lot 17 premises (and, but only in relation to the Unit 2 premises, pursuant to the obligation to reinstate the warehouse pursuant to cl 12(a)(ii) of the Lease), and that judgment should be entered in favour of the plaintiff for damages in the sum of $15,180,146.68, plus interest calculated in accordance with cl 12.1(e) of the Lease and costs.

Background

5. The background to the present claim is largely not in dispute.

6. Pursuant to a lease commencing on 1 August 2014 (Lease), the plaintiff leased to the defendant Unit 2 (the Premises) on land located at 167 Prospect Highway in Seven Hills, NSW (the Land) for a term of six years, ending on 31 July 2020, with an option to renew for a further six years (cl 19). The defendant had been a long-term tenant of the plaintiff from 2002, initially occupying two units and ultimately consolidating its operations into a larger combined space (Unit 2) in 2014 (see the affidavit sworn 13 October 2023 by the plaintiff’s director, Mr George Ford, at [99]-[104]). Relevantly, the Leased Premises included an open area between the warehouse located on Unit 2 and a warehouse on adjacent premises on the Land (known as Unit 17). Unit 17 was leased to an unrelated company (Blessington Pty Ltd) for a term ending on 20 December 2019, with an option to renew for a further 5 years.

7. The permitted use under the Lease expressly included “storage of air-conditioning components and other products that the Lessee may own or have an interest in” (cl 6.1 and item 5 of the Reference Schedule). Consistent with that use, the defendant used the Premises for the storage of Y-fitting air splitters, and other air conditioning components and parts (see Mr Ford’s affidavit at [6]).

8. On 3 November 2018, there was a fire on the Land which, as noted above, destroyed both the warehouse located on the Premises and the warehouse located on the adjacent Unit 17 premises. The fire originated in the open yard area located on the Premises where the defendant was storing packaged Y-fitting air splitters on pallets. The defendant was not responsible for packaging the air splitters (which had been packaged in, and imported from, Malaysia). The air splitters were covered in a transparent plastic wrap, with corrugated cardboard layers placed between each row of air splitters. The defendant accepts that it placed the pallets in the open yard area (where they were exposed to the elements) (the “act” relied upon by the plaintiff – see below) and that it did not move them (the “omission” relied on) (see 18/08/25; T 3.12; 4.15).

9. To the extent that it is relevant, I note that the expert forensic fire examiner retained by the plaintiff, Mr Nick Sutarov, referred in his report dated 30 September 2022 (Exhibit E) (Mr Sutarov’s Report at [17.1]), to which Senior Counsel for the defendant referred in submissions) to information he had received from a fire investigator, Ms Tara Burton, at a meeting on 22 November 2018 with, among others, Mr Amal Nordin (the managing director of Polyaire), to the effect that the pallets (“newly received stock”) had been stored in the outdoor storage yard because the warehouse was mostly full (see Mr Sutarov’s Report at [17.1]). As I explain in due course, the only relevance I see in this information goes to whether it should be inferred that, but for the fire, the defendant would have exercised its option to renew the Lease.

10. There was ultimately no dispute as to the mechanism by which the fire originated (i.e., the physical cause of the fire). As adverted to above, Mr Sutarov gave expert evidence. Some portions of his report were not read following objection by the defendant as to relevance. Mr Sutarov was briefly cross-examined by Senior Counsel for the defendant but no doubt was cast on Mr Sutarov’s conclusions – the nub of the cross-examination being to highlight the extraordinary chain of events that combined to cause the conflagration.

11. In essence, Mr Sutarov’s opinion was that water from recent rainfall, which had collected or pooled at the top of the plastic wrap covering the pallets, created a lens (referred to as an “aqua lens”), which focused and magnified the sun’s rays onto flammable elements of the products on the pallets, causing the top layer of the corrugated cardboard between the top rows of the air splitters to ignite (see his 30 September 2022 report at [1.8]; [1.10]; [19.6]). Mr Sutarov tested (and confirmed) his hypothesis as to the cause of the fire by pouring water on various areas at the top of the pallet wrapping, which created depressions in the plastic (the extent of the depressions being affected by the tightness of the plastic at the particular locations and the volume of water applied), and then applying an artificial breeze (to supply oxygen) to the pallets (see 18/8/25; T 17-19).

12. Senior Counsel for the defendant described this more than once as an extraordinary collocation of events or circumstances (see for example at 19/8/25; T 32; 33). However, in circumstances where the plaintiff disavows any claim in negligence (whether relating to the way the pallets were wrapped or manufactured or otherwise), the plaintiff simply relying upon the act of the defendant in storing the pallets in the open yard location where the lens effect could initiate a fire, the extraordinary nature or combination of events that led to the fire has little apparent relevance. While Senior Counsel for the defendant appeared to accept in the course of oral submissions my observation to that effect, he nevertheless argued that the extraordinary nature of events was relevant when considering whether, for the purposes of various of the Lease provisions, the plaintiff’s loss was “caused” or “contributed” to by an act or omission of the defendant. Understood in that way, the submission seems to be addressed to the issue as to whether the defendant’s act or omission was a proximate or material cause of the plaintiff’s loss, which I address in due course, or the loss was one which as a matter of risk allocation the defendant should be taken to have borne.

5. The plaintiff also adduced evidence (admitted subject to relevance) comprising a Fire Investigation Report dated 4 January 2019 issued by NSW Fire + Rescue, as supporting the opinion of Mr Sutarov (referring to what was said at p 20 of the Fire Investigation Report).

6. The plaintiff has claimed the costs of make-safe works, followed by demolition works and removal of debris from the destroyed warehouse structures, as well as rebuilding costs (the last being restricted to the notional cost of rebuilding the warehouse structures which existed prior to the fire on a like-for-like basis since the plaintiff elected to reconstruct at each lot a larger and more enhanced warehouse structure than that which existed prior to the fire). There is no dispute as to the quantum of those costs (as set out in the “Quantum Joint Letter” dated 11 August 2025 signed by the respective expert quantity surveyors, which was admitted as Exhibit A).

7. The dispute as to quantum goes only to the claim for lost rent and outgoings (as itemised in the schedule of damages prepared by the plaintiff and marked MFI 1 (Schedule of Damages)). The plaintiff has claimed those amounts for the period up to expiration of the term of the leases existing at the time of the fire and then for the amounts which would have been payable had the options been exercised or, alternatively, for the difference between the amount of rent and outgoings actually received under the new leases for those respective premises and the amount that would have been achieved in the market from the expiry of the old leases. The dispute between the parties is as to whether the plaintiff has established on the balance of probabilities that the options contained in the respective leases would have been exercised. Otherwise, as I understand it, the arithmetical calculations on the various hypotheses as to exercise of the options are not in dispute (see 19/08/25; T 30).

8. After the fire, while reinstatement work occurred, the defendant relocated its operations to another property in Seven Hills, entering into a lease of that site on 21 January 2019 (at an equivalent rental but for smaller premises). Unsurprisingly, the defendant (having taken a lease of other premises) did not then exercise its option for renewal of the Lease, the term of which expired on 31 July 2020. On 1 February 2022, the plaintiff entered into a lease of the Premises to a third party.

9. As to Unit 17, the plaintiff was obliged to abate the rent for the period between 3 November 2018 and 20 December 2019, during which time the property at Unit 17 was unable to be occupied. On 20 December 2019, the term of the Unit 17 Lease came to an end. The tenant (Blessington) did not exercise its option under the Unit 17 Lease. Rather, when reinstatement work was close to completion, the plaintiff approached Blessington for the purpose of negotiating a new lease for Unit 17, as reinstated; and, on 19 May 2020, the plaintiff and Blessington entered into a heads of agreement with respect to a tenancy at Unit 17. On 15 July 2020, the plaintiff and Blessington entered into a new lease for Unit 17, the term of which commenced on 1 August 2020.

10. The plaintiff contends that, but for the fire which destroyed the warehouse and necessitated the reinstatement work, either the defendant would have exercised its option under the Unit 2 Lease (which would have extended the operation of the Unit 2 Lease to 31 July 2026) or the plaintiff would have leased the Premises to a third party for similar rent. Of those two outcomes, the plaintiff argues that the former is the more likely. The plaintiff contends for a finding on the balance of probabilities that, but for the fire, the defendant would have exercised its option for renewal of the Lease.

11. Similarly, the plaintiff contends that, but for the fire, Blessington would have exercised its option under the Unit 17 lease, which would have extended the operation of the Unit 17 lease to 20 December 2024; or the plaintiff would have leased Unit 17 to a third party for similar rent. The plaintiff points out that Blessington was a long-term tenant of Unit 17, arguing that Blessington was eager to remain a tenant at the Land and noting that Blessington entered into a new lease of Unit 17 shortly after the reinstatement works were complete.

12. Mr Ford has deposed that, as at the date of or prior to the incident (i.e., the fire) he had no reason to believe that either the defendant or Blessington would not have exercised its option for renewal (see [105], [134] of Mr Ford’s affidavit).

Lease provisions

21. Relevantly, the Lease contains the following terms.

22. Clause 1 of the Lease (headed “Exclusion of Statutory Provisions”) provides:

The Lessee shall take the Premises subject to such of the covenants conditions and restrictions implied by Sections 84 and 85 of the Conveyancing Act 1919 as are not expressly negatived or modified.

23. Clause 2.1, the definitions clause, includes the following definitions:

“Lessee” means the Lessee referred to on the front page of this Lease and the successors and permitted assigns of the Lease … and where the context permits, the employees, invitees, licensees, contractors, sub-lessees and agents of the Lessee.

[to which definition the defendant attaches some significance when considering the proper construction of cl 10.3 – see below]

“Land” means the land so described in the Reference Schedule.

[Item 1 of the Reference Schedule defines “Land” as “the Property known as 167 Prospect Highway, Seven Hills …”]

“Premises” or “premises” means the Premises described in the Reference Schedule and the plant furnishings and fittings and fixtures provided by the Lessor in the Premises from time to time …

[Item 2 of the Reference Schedule defines “Demised premises” as “Unit 2 having an area of 4,272.70 square metres (comprising approximately 3,339.70 square metres of office and warehouse space …”]

“Buildings” means the building or buildings and other improvements erected or to be erected on the Land from time to time together with any extensions modifications or alterations.

24. Clause 2.3 provides that headings are inserted for convenience and do not affect the interpretation of the Lease.

25. Clause 5 (headed “Damage to Premises”) provides:

5   If the Premises or the Building or any part shall at any time be damaged or destroyed so as to render the Premises or any part wholly or substantially unfit for the occupation and use of the Lessee or, (having regard to the nature and location of the premises and the normal means of access) wholly or substantially inaccessible, then and so often as the same shall happen:

…

5.2    except where such damage or destruction has been caused or contributed to or arises from any act or omission of the Lessee or the Lessee’s employees and agents or any policy or policies of insurance effected by the Lessor in respect of loss or damage to the Building shall have been vitiated or payment of the policy moneys refused in consequence of some act or omission by or on the part of the Lessee:

[(a)-(c) then set out what is to occur in that event, including at (b) circumstances in which the Lease may be terminated by written notice by the Lessee]

…

26. Clause 6.1, as adverted to above, provides that the Lessee must use the Premises only for the use stated in the Reference Schedule.

27. Clauses 7.1 and 7.2, under the heading “Repairs and Maintenance and Compliance with Laws”, relevantly provide:

7.1   The Lessee must during the term of this Lease:

(a)   keep and maintain the Premises … in the same condition and state of repair as they were at the commencement of this lease … except for fair wear and tear.

…

(e)    maintain, repair or replace (as necessary) any concrete paving, due to the negligence by the Lessee, in the enclosed yard of the premises as requires such maintenance, repair or replacement from time to time other than as a result of fair wear and tear.

[I include (e) only because it shows that at least in this sub-clause where fault, i.e., negligence forms part of the relevant enquiry it is expressly referred to in the clause]

7.2    (a)   Despite clause 7.1 the Lessee need not:

(i)    make structural repairs to the Premises; or

(ii)    replace items of a capital nature,

unless they arise because of any act, omission or breach of this lease by the Lessee or its employees or agents or unless they are required because of the Lessee’s use of the Premises; and

(b)    The Lessee is not responsible for repairs required as a result of natural disasters, deliberate damage or accident, such as fire, flood, storm, earthquake, explosion, which are beyond the Lessee’s responsibility or control, unless:

(i)    the damage occurred as a result of or was substantially contributed to by the Lessee’s act or omission; or

(ii)   the Lessor is unable to recover from its insurer insurance money for the damage because of some act or omission, neglect, default or misconduct by the Lessee or by other persons for whose conduct the Lessee is responsible.

28. Clause 10.3 (under the heading “Indemnities and Release”) relevantly provides:

10.3    The Lessee indemnifies the Lessor from and against any liability, loss, damage, expense, costs or claim suffered or incurred by the Lessor whether by act, omission or neglect of the Lessee or the Lessee’s contractors, sub-Lessees, licensees, agents, employees or invitees, including to a third party, during or after the term of this lease, in respect of or arising from:

(a)    loss, damage or injury to property or person caused or contributed to by the act, omission, neglect or default of the Lessee;

…

(c)    the overflow, leakage or escape of water, gas, electricity, fire, or other materials or substances in or from the Premises, caused or contributed to by the Lessee;

(d)    loss, damage or injury to property or person, caused or contributed to by the Lessee arising out of use of the Premises;

…   and

(h)    an accident on or about the premises [sic] not caused or contributed to by the Lessor.

29. Clause 12.1(a) (under the heading “Additional Covenants and Acknowledgements by the Lessee”) provides:

12.1    The Lessee must:

(a)    before (but not later than) the expiration or sooner determination of the said term:

(i)    yield up the Premises in a clean and tidy condition and in the same condition and state of repair as existed at the commencement of the term … except for fair wear and tear;

(ii)    where all or part of the Premises comprised a warehouse as at the commencement of this Lease …, then the Lessee must reinstate that part of the Premises to its original form as at the commencement of this Lease or earlier occupation of the Premises unless otherwise agreed to in writing by the Lessor;

…

30. Clause 12.5, under the same heading, provides:

12.5   If the Lessee fails to comply with clauses 12.1 and 12.4, the Lessee indemnifies the Lessor in respect of the cost of complying with clauses 12.1 and 12.4 including making good any damage to the Premises or the Building and until such time as the removal and making good required by clauses 12.1 and 12.4 has been completed by the Lessee or by the Lessor upon the Lessee’s default so as to permit reletting of the Premises, THEN the Lessee must pay or allow to the Lessor by way of liquidated damages in relation to any such default, a sum equivalent to the rent payable by the Lessee immediately prior to the expiration or determination of the term of this Lease for the period until the Premises are made fit for reletting.

31. The Lease also contains provision (see cl 19) as to the rent payable at the commencement of the renewed lease (if the option is exercised), namely that it be the current market rent calculated and determined in accordance with Schedule 1A as if the first day of term was a “review” date but specifies that in no event shall the rent payable at the commencement of the option term be less than the rent payable during the year immediately preceding the commencement of the option term. Both under the Lease and the renewed lease (if the option was exercised) provision is made for the review of rent during the term of the respective leases. I note this because it was relied upon by the defendant in support of an argument that it could not be inferred (from the fact that after the fire the defendant had entered into a lease for alternative premises at an equivalent rent but for a smaller lease area) that, but for the fire, the defendant would have exercised its option for a renewed lease (see 19/08/25; T 48ff). As I understand it, part of the defendant’s argument on this issue relies on the fact that, at the commencement of any option lease, the rent for Unit 2 would have been reviewed to market.

Pleaded claims

32. As already noted, there is now no dispute as to the physical cause of the fire, that being the ignition of the top layer of corrugated cardboard in the packaging of the pallets by the sun’s rays hitting a focal point (the aqua lens) in water that had pooled at the top of the plastic in which the pallets were wrapped (see as pleaded at [15]-[18] of the plaintiff’s Commercial List Statement). Where there is dispute in terms of the Lease provisions is broadly as to whether the notion of “repair” (see cl 7.1, 7.2 and 12.1(a)) encompasses the complete rebuilding of the warehouse structure and whether an act or omission of the plaintiff “caused or contributed” (see cl 10.3) to the damage occasioned by the fire (see as those terms in the Lease are properly to be construed or the damage occurred “as a result of or was substantially contributed” to by the Lessee’s act or omission (see cl 7.2(b)(i))). There is also dispute as to whether s 84(1)(b) of the Conveyancing Act1919 (NSW) (Conveyancing Act) operates to negative the obligation of repair by reason of an accident and the fire (as the defendant contends).

33. The plaintiff alleges (at [54] of the Commercial List Statement) that the storing of the pallets in an open yard (i.e., exposure of the pallets, packaged as they were, to the elements) was an act or omission within the meaning of cll 10.3 and 7.2 (b)(i) of the Lease. In oral submissions, the plaintiff expressly disavowed any allegation of negligence by the defendant in relation to the act of placing the pallets in that location and storing them there (19/08/25; T 26.48).

34. The particular breaches of the Lease which are alleged by the plaintiff are the following.

35. First, at [56], it is alleged that the defendant failed to maintain the Premises in the same condition as it was at the commencement of the Lease in breach of cl 7.1(a) of the Lease (to which I will refer as the alleged maintenance breach). I note that at [57] it is further alleged that the defendant breached cll 7.2(a) and 7.2(b) of the Lease. However, strictly speaking, those sub-clauses impose no obligation on the defendant. Rather, they provide, respectively, that the Lessee need not make structural repairs or replace items of a capital nature “[d]espite clause 7.1” unless one or other of two requirements are satisfied (cl 7.2(a)) and absolve the Lessee of responsibility for repairs required as a result of, relevantly, natural disasters or accidents, such as fire, which are beyond the Lessee’s responsibility or control, unless one or both of the requirements set out in (i) and (ii) are satisfied (cl 7.2(b)). They thus provide exceptions to an obligation arising under cl 7.1.

36. Second, at [58], it is alleged that the defendant breached cll 12.1(a)(i) and (ii) of the Lease (the obligations (i) to yield up the Premises before or no later than the expiration or sooner determination of the Lease in the same condition and state of repair as at the commencement of the term, fair wear and tear accepted and (ii) to reinstate the warehouse on the Premises to its original form at the commencement of the Lease). I refer to these as the alleged yield up/reinstatement breaches.

37. Third, at [60], it is alleged that the defendant breached cl 10.3 of the Lease (the indemnity clause) by failing to indemnify the plaintiff for property damage contributed to by the defendant’s acts and omissions (the indemnity breach). In oral submissions, the plaintiff identified sub-cll 10.3(a), (c), (d) and (h) as those matters on which it relies for this alleged breach. It is relevant to note that cl 10.3 is the sole basis on which the plaintiff’s claim in respect of the damage and consequential loss referable to the adjacent premises (i.e., Unit 17) can be made (see 19/08/25; T 28.18).

38. Fourth, at [62], it is alleged that the defendant, pursuant to cl 12.5 of the Lease, is required to indemnify the plaintiff in respect of the plaintiff’s costs of complying with cl 12.1(a)(i) and (ii) of the Lease.

39. The defendant, in its Commercial List Response, denies the alleged breaches of the Lease and the alleged loss claimed by the plaintiff. As adverted to above, the defendant relies on s 84 of the Conveyancing Act in further answer to the plaintiff’s contentions as a whole ([48A]).

40. The defendant contends that the relevant effect of s 84 is that there is an implied covenant in the Lease that the obligation to yield up the demised premises in good and tenantable repair is extinguished in the event of, relevantly, an accident or damage by fire.

41. The defendant in its Commercial List Response also raises (at [48B]) other matters in further answer to the whole of the plaintiff’s claims, namely, a contention that, by reason of the matters set out at [48B](a)-(f), the plaintiff agreed to waive its rights to claim against the defendant in the events which have occurred or, alternatively, the plaintiff, in breach of the Lease, failed to effect insurance in its name and the name of the defendant, causing the defendant damage. No submissions were addressed by the defendant to the matters alleged at [48B] of the Commercial List Response and, given the acceptance by the defendant that the issues to be determined are now limited to the proper construction of the respective lease provisions and the quantum of lost rent and outgoings, I understand the waiver/lessor breach allegations not to be pressed (and do not here deal with them).

Applicable principles

42. There was no dispute between the parties as to the orthodox principles of contractual interpretation, which it is recognised apply to leases (Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5), those being (where a commercial contract is concerned) as summarised in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35], including that the meaning of terms of a commercial contract is to be determined by reference to what a reasonable business person would have understood those terms to mean. See also Mount Bruce Mining Pty Ltd v Wright Prospecting [2015] 256 CLR 104 at [46]-[52] per French CJ, Nettle and Gordon JJ; Simic v New South Wales Land and Housing Corp (2016) 260 CLR 85; [2016] HCA 47 at [78] per Gageler, Nettle and Gordon JJ, to the effect that the proper construction of a contract is to be determined objectively by reference to its text, context and purpose.

43. Nor is it disputed that the Lease must be construed as a whole, with the same words in different covenants ordinarily being given the same meaning; and that inconsistences of expression in the words used should be reconciled in a natural and common sense way (see Fitzgerald v Masters (1956) 95 CLR 420 at 437; [1956] HCA 53; Bowen Investments Pty Ltd v Tabcorp Holdings Pty Ltd (2008) 166 FCR 494; [2008] FCAFC 38 at [50]).

44. I have approached the construction of the relevant clauses with those principles in mind.

Claim under cl 7.1 (the alleged maintenance breach)

45. I note that the plaintiff contrasts the timing of the obligation under cl 7.1 (i.e., the obligation is expressed to be “during the term of the Lease”) with that in cl 12.1 (i.e., what the lessee must do before but not later than expiration or sooner determination of the Lease). I see no significance in that distinction. The effect of both is that the obligation arises at some point during the term of the Lease, not after the expiration of the Lease. The only temporal difference as I see it is simply that cl 7.1 imposes an ongoing obligation while the Lease is on foot (and potentially might be breached more than once at various times during the Lease) whereas the yield-up obligation logically will typically only occur at the end of the Lease (whether that be by effluxion of time or earlier termination). Nothing here turns on this.

45. Further, I note that, in the course of its submissions, the plaintiff characterises cl 7.1 as effectively a “make good clause” (to which cl 7.2(a) is an exception – limited to situations where the lessee did not “cause” the damage that requires the structural repairs or replacement of capital items). I do not accept that characterisation. I see a difference between maintenance or keeping a building in repair during the term of a lease and “make good”, the latter ordinarily arising at the end of the lease, but again I do not see anything turning on this in the present case.

• Repair v reconstruction

47. The first issue that arises in relation to cl 7.1 is as to whether the obligation to “keep and maintain” the Premises in the same condition and state of repair as they were at the commencement of the Lease (except for fair wear and tear) extends to an obligation to make structural repairs or replace items of a capital nature. The plaintiff contends that it does, arguing that cl 7.2 (which provides an exception to the obligation under cl 7.1 in certain circumstances) demonstrates that cl 7.1 contemplates that the maintenance obligation extends to repairs of a structural nature or replacement of capital items.

48. The defendant, on the other hand, points to cases which have considered what the word “repair” connotes (citing Lurcott v Wakeley and Wheeler [1911] 1 KB 905 (Lurcott) at 918-919; 924; Percy E Cadle & Co Ltd v Jacmarch Properties Ltd [1957] 2 WLR 80 at [84]; Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716 (Anstruther-Gough-Calthorpe) at 731-4 per Atkin LJ; and Weatherhead v Deka NZ Ltd (No 2) [1999] 1 NZLR 453; (1999) ANZ Conv R 239) and to the discussion of the standard of repair required under a covenant to repair in Brendan Edgworth, Butt’s Land Law, (7th ed, (2017, Law Book Co)) at [7.840]. Reference is also made to the test articulated in Elite Investments 10 Ltd v TI Bainbridge Silencers Ltd [1986] 2 EGLR 43 by Judge Paul Baker QC as to “whether the totality of the work can properly be described as repairs, since it involves no more than renewal or replacement of defective parts, or whether it is in effect renewal or replacement of substantially the whole subject-matter of the demise”. (There, the ”general repair” covenant obliged the tenant, relevantly, from time to time and at all times during the term of the lease “well and substantially to repair, replace, … maintain, mend and keep the demised premises and the … the walls, roof, fences, yard …” and to yield up those premises at the expiration or sooner determination of the term “with all necessary replacements, reparations, cleansing, amendments whatsoever, and the demised premises so painted, repaired, replaced, cleansed, maintained, amended and kept as aforesaid”.)

49. In essence, while the defendant appears to accept that in some circumstances “repair” can extend to structural repairs (see 19/08/25; T 37), the defendant argues that reconstruction of the whole of the building on the Premises (as was required when the fire destroyed the warehouse structure) goes beyond the notion of “repair”. The defendant submits that it is not apposite to describe reconstruction of the whole as “structural repair” and that “capital nature” captures items such as plant and fittings.

50. The plaintiff submits that cl 7.1 is not expressly a “repair” obligation; rather, it is an obligation to “maintain the Premises in the same condition and state of repair”, referring to the distinction drawn between such obligations by Fletcher Moulton LJ in Lurcott at 915.8-916.1. Further, the plaintiff notes that the statement at 924 of Lurcott on which the defendant relies is obiter. The plaintiff says that the authorities relied upon by the defendant do not stand for the proposition that the term “repair” can never be construed to include “replace”; and argues that those cases were ones, unlike the present, where the fabric of the building had become so degraded over time that the work in question could no longer be seen as repair.

51. The plaintiff points to cases such as Norwich Union Life Insurance Society v British Railways Board [1987] 2 EGLR 137; (1987) 283 EG 846, where Hoffman J, as his Lordship then was, considered that an obligation to “keep the demised premises in good and substantial repair and condition and when necessary to rebuild, reconstruct or replace the same in such repair and condition to yield up the same at the expiration or sooner determination of the said lease” could encompass an obligation to rebuild the house in question (see at 138); and to Credit Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76 (Beegas), where Lindsay J in the Chancery Division of the High Court concluded that an obligation (albeit in a non-standard form lease) to “maintain repair amend renew and otherwise keep in good and tenantable condition the structure roof and walls” included the obligation to replace the façade entirely with a watertight structure. (Pausing here, the terms of the clauses considered in those cases to my mind make those decisions distinguishable from the present; the former expressly including reference to re-building and the latter referring to renewal of the structure.)

52. The plaintiff submits that the real question here is one of risk allocation, namely, objectively, who the parties intended would bear the risk of damage occasioned to the premises that was caused by the non-negligent acts of the tenant; and argues that the intention was that the lessee should bear the risk if the damage in question was “substantially contributed to by the Lessee’s act or omission” or was “an accident on or about the premises not caused or contributed to by the Lessor” (referring to the language used in cl 5.2, cl 7.2(a), cl 7.2(b)(i), cl 10.2 and cl 10.3(a), (c)-(d) and (h)). That argument goes more to the proximate/material cause issue, which I consider below.

• Exception in cl 7.2(a)

53. The second issue that arises in relation to the claim for breach of cl 7.1(a) is whether the exception in cl 7.2(a) applies, that being the provision that, despite cl 7.1, the defendant need not make structural repairs or replace items of a capital nature unless they arise “because” of an act, omission or breach of the Lease by the defendant or “because” of the use of the Premises.

54. The plaintiff maintains that the exception in cl 7.2 to the obligation in cl 7.1 does not apply in the present case: first, because the repairs were caused by an act or omission by the defendant (that being the storage of the pallets in the open area); and, second, “because of the Lessee’s use of the premises” (i.e., because of the storage of the pallets, that being part of the permitted use of the Premises). The plaintiff argues that this is consistent with cl 5.2 of the Lease, which allows for abatement of rent or termination of the Lease when the Premises or the Building or any part be damaged or destroyed but not in circumstances where such damage or destruction has been “caused or contributed to or arises from” any act or omission of the Lessee or its employees or agents.

55. This raises the issue as to what is required by way of causal connection for the purposes of cl 7.2(a). The defendant argues that the relevant act or omission or use must be the proximate cause (elsewhere the defendant refers to the efficient or effective cause – see 19/08/25; T 36) of the need for structural repairs or the replacement of capital items. The plaintiff, on the other hand, submits that the notion of proximate cause is a concept arising in relation to insurance contracts and that the relevant notion here is as to material cause. The defendant, in response, argues that material cause is used in cases dealing with causation of loss not construction of contract. The defendant says that there must be an assessment of the sufficiency of the relationship by way of the causal chain between the act and the ultimate end (see 19/08/25; T 34); and that, even if the test is one of material cause, this involves an enquiry into the potency of the act or omission (19/08/25; T 36); arguing that the requisite causal connection is not found in the present case.

56. Further, the defendant argues that the words “act” and “omission” within the expression “act, omission or breach” in cl 7.2(a) connote fault of some description on the part of the defendant which is not necessarily a breach of the Lease. The defendant points out that the Lease, in various places, uses the words “act” and “omission” in conjunction with words such as “neglect”, “default”, “misconduct”, “misuse” and “failure” (the defendant here referring by way of example to cll 7.2(2)(b)(ii) and 10.3(a),(b) and (e)). In response, the plaintiff says that this is not supported by the subject matter of cl 7.2.

57. Again, the plaintiff argues that this is simply a matter of risk allocation; i.e., that the Lessee should not be responsible for repairs of a “structural” or “capital” nature unless the Lessee caused (“arise because of any act”) the damage necessitating those repairs. The plaintiff argues that on this analysis there is no basis for contending that any distinction was objectively required between repairs that were necessitated by any “fault” of the Lessee from those that were caused by the Lessee without fault. While the defendant accepts that the focus on cause (or contribution) to the loss or damage goes to the distribution of risk (19/08/25; T 35), the defendant says that it is not the guarantor of every eventuality unless it can be said that it “truly” caused or contributed to the loss.

58. As to what is the proximate cause of loss, the defendant notes that regard is to be had to the reality, predominance and efficiency of a cause, rather than proximity in time (citing HIH Casualty & General Insurance Limited v Waterwell Shipping (1998) 43 NSWLR 601 (HIH Casualty) at 608 per Sheller JA (Beazley and Stein JJA agreeing)); and referring generally to Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited [2005] NSWCA 66 (Lasermax) (at [39]ff) per McColl JA (Ipp and Tobias JJA agreeing)). The defendant says that common sense standards should be applied (citing Lasermax (at [109]-[110]). The defendant submits that, in practice, the last causal event is usually, but not always, the dominant effective cause (citing Hams v CGV Insurance Limited [2002] NSWSC 273).

59. Here, the defendant argues that the proximate cause of the fire was not an act by it nor its use of the premises; rather, it says that the proximate cause was the sun and rain (as it notes is alleged in [18] of the Commercial List Statement), those being the last causal events. The defendant argues that the storage of the pallets was no more than a necessary condition of the fire (“merely a background circumstance” – see 19/08/25; T 34) but not a cause of it. The defendant eschews a deterministic view of causation in this context (arguing that, on such a view, the mere signing of the lease was a step in the causal chain, which the defendant submits would be an absurd result) (see 19/08/25; T 33; 35). Similarly, even if the test be of material cause, the defendant says that, here, the placement of the pallets in the location was no more a material cause of the fire than agreeing to import the materials (19/08/25; T 37).

60. The plaintiff’s response is to argue that the sun and the rain, by themselves, could not be capable of causing any fire and therefore cannot be said to have been the proximate cause of this fire. The plaintiff maintains that the fire was caused by: the flammable nature of the “splitters”, the form of packaging in which the splitters were wrapped, and the fact that these items were exposed to the “sun and the rain” (i.e., rather than undercover).

61. The plaintiff cites the approach adopted by Lord Dunedin in Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] AC 350 at 362-363 (as cited in HIH Casualty at 608) of determining proximate cause by common sense principles (asking what the “common man” would think was the cause of the loss). Here, the plaintiff argues that the cause of the fire was the defendant’s act in leaving the pallets of splitters, in their particular form of packaging, outside in the elements.

62. As to whether the requirement for repairs or replacement of capital items arose “because of” the defendant’s “use” of the Premises (the second of the exceptions to the exemption in cl 7.2 in relation to structural repairs and replacement of items of a capital nature), the defendant says that this is not a case where, for example, it might be said that it had stored hazardous chemicals in an unsuitable area which caused the fire or used the Premises in a manner which could be expected to have caused the fire. (Pausing here, this again suggests that the causal connection – here, of use – imports some element of fault.)

63. In the context of responding to the claim under cl 10.3(d) (see below), the defendant notes that the meaning of “use of premises” arose in a different context in Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWCA 224 (Alamdo), where the question was whether work was rendered necessary “by any act or omission or default on the part of the Lessee or by the Lessee’s use or occupation of the Demised premises” in circumstances where the work in question was rendered necessary by the use by the sub-lessee to whom the premises had been sub-let. The defendant notes that the Court there held that sub-letting constituted “use” of the premises and that the damage that occurred (as a result of the use by the sub-lessee of heavy vehicles on the light duty pavement) was within a risk created by the sub-lease, and occurred in a way that could reasonably be considered a materialisation of that risk, rather than arising independently of it. The defendant argues that, by parity of reasoning with Alamdo, the storage of pallets containing air splitters in an open yard within the Premises which caused the fire in the present case did not occur in a way that can readily be considered a materialisation of any particular risk but, rather, arose independently of it. Accordingly, the defendant submits that the “use” of the Premises did not cause the damage.

64. The plaintiff, on the other hand, points to the fact that storage of the items in question fell squarely within the permitted use of the Premises and argues that the repairs were required because of that use of the Premises. The plaintiff points out that the particular question considered in Alamdo at [65] (whether use by the sub-lessee was in effect use by the lessee) does not here arise (as to which, I agree).

• Exception in cl 7.2(b)

65. The next issue that arises in relation to the s 7(1) claim is as to the application of cl 7.2(b), which the defendant contends applies to qualify not just the maintenance/repair obligation under cl 7.1 but also the indemnity in cl 10.3 (and, indeed, the entire Lease).

66. The defendant contends that the fire was beyond its responsibility or control such that if (contrary to its argument) cl 7.1, read with cl 7.2(a), encompasses within the notion of structural repairs an obligation to reconstruct the destroyed warehouse then cl 7.2(b) has the effect that it is not responsible for those repairs.

67. There is no dispute that the re-building of the warehouse on Unit 2 was required as a result of the fire; nor was it suggested that the fire was not an “accident” (the defendant referring to Saviane v Stauffer Chemical Co [1974] 1 NSWLR 665 (Saviane) where the meaning of “accident” within s 84(1)(b) of the Conveyancing Act was considered and the Court held at 671 that the word should be given the ordinary meaning of an event causing damage for which the lessee is not responsible). Rather, the issue is whether the exception in cl 7.2(b)(i) applies, namely whether the damage occurred “as a result of” or was “substantially contributed to by”, the defendant’s act or omission (in storing the pallets in the open yard, in the form in which they were packaged).

68. Whether the damage occurred “as a result of” the defendant’s act raises the same issue as to the requisite causal connection that arises in the context of cl 7.2(a). The meaning of “substantially contributed to” raises a different issue. The term “contributed to” appears elsewhere in the Lease (albeit without the qualification introduced by the adjective “substantially”); significantly in cl 10.3.

69. The defendant argues that, when construed in the context of a phrase that juxtaposes “caused” (or “as a result of”) and “contributed to”, the concept of contribution is to be understood as applying where there are co-ordinated events leading to the one loss (i.e., two causal pathways to the relevant event) rather than referring to an antecedent event in the causal claim (19/08/25; T 33). The defendant argues that otherwise the concept of “caused” would not add anything to the concept of “contributed to” (see at 19/08/25; T 35). In other words, the defendant argues that “contributed to” applies where there is a multiplicity of causal chains each of which may be sufficient to cause the damage. The defendant submits that if “contributed to” also means caused, in the sense of the same causal chain, then “caused” is devoid of any meaning (19/08/25; T 35).

70. As to the adjective “substantially”, the defendant submits that “substantially contributed to” means some causal chain which is in effect particularly potent (19/08/25; T 36). The defendant refers to the consideration given to the meaning of the phrase “substantially contributed to” (in the context of workers’ compensation legislation) in Fisher v Nonconformist Pty Ltd (2024) 114 NSWLR 1; [2024] NSWCA 32, where the Court quoted the following passage from Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 at [45] per French CJ, Hayne and Kiefel JJ:

The law’s recognition that concurrent and successive tortious acts may each be a cause of plaintiff’s loss or damage is reflected in the proposition that a plaintiff must establish that his or her loss or damage is “caused or materially contributed to” by a one cause. The relevant enquiry is whether the particular contravention was a cause, in the sense that it materially contributed to the loss. Material contribution has been said to require only that the act or omission of a wrongdoer play some part in contribution to the loss

their Honours there citing Wilson J in Gould v Vaggelas (1984) 157 CLR 215 at 236; [1984] HCA 68. The defendant also notes that the court used “substantial contribution” and “substantial cause” interchangeably in Simpson Design Associates Pty Ltd v Industrial Court of New South Wales [2011] NSWCA 316; (2011) 214 IR 373.

71. The plaintiff contends that the storage of the “splitters” in the plastic packaging, outside and exposed to the elements, was an act that “substantially contributed to” the damage suffered as a consequence of the fire (within the meaning of cl 7.2(b)(i) of the Lease). Insofar as the defendant disputes this and contends that “the fire resulted from the sun and the rain, being the only and certainly the substantial contributing factors”, the plaintiff again argues that the sun and the rain would have been ineffectual of themselves at causing the fire without the form of the packaging of the splitters, the chemical composition of the splitters themselves and the fact that the splitters were left by the defendant exposed to the elements.

Determination – claim under cl 7.1

• Repair v reconstruction

72. There is no doubt that in a number of cases dealing with repair or maintenance covenants in leases, there is a distinction drawn between “repair” and “reconstruction” or “rebuilding” of the whole. In Lurcott, as the defendant emphasises, the example was given of the situation where a house had “tumbled down” and it was said that it would not be apt to describe the rebuilding of the house as “repair” (see at 918-9). That there is a recognised distinction between “repair” (or “make good”, although as noted already, I do not read cl 7.1 as a make good obligation as such) and the renewal (or re-construction or re-building of the whole) of a structure strongly points against cl 7.1 being the source of an obligation by the defendant to rebuild the warehouse on Unit 2 that was destroyed by the fire.

72. I do not accept that the cases relied upon by the defendant in this context can simply be distinguished on the basis that the structures in those cases were old or dilapidated (as opposed to a structure that had not yet fallen into disrepair). However, I consider that the fact that the obligation to keep in repair and to maintain the Premises under cl 7.1 is an ongoing obligation during the term of the Lease points against the clause extending to complete reconstruction of the structure on the Premises.

73. Does cl 7.2, by the opening words “[d]espite clause 7.1”, operate against such a conclusion? Certainly, cl 7.2 is premised on cl 7.1 encompassing repairs of a structural nature or replacement of items of a capital nature. Otherwise there would be no need to provide an exception thereto. (Though I accept that “despite” might potentially be read as being for the avoidance of doubt, I think that is not a compelling construction.) Nothing in cl 7.1(b)-(e) appears on its face likely to involve structural repairs or the replacement of items of a capital nature.

74. However, I am not persuaded that cl 7.2(a) could not have a meaningful operation if cl 7.1, as properly construed, did not encompass wholesale reconstruction. Structural repairs might well be required to a building that do not amount to a complete reconstruction of the building (as, for example, where the “repair” involved structural works to the façade of the building, as was the case in Beegas). The same may be said for replacement of items of a capital nature.

75. Thus, I am not persuaded that the obligation in cl 7.1 extends to works of the kind here required for the complete reconstruction of the warehouse.

• Exception in cl 7.2(a)

77. In light of the above conclusion, the proper construction or application of the exception contained in cl 7.2(a) to the exemption from the cl 7.1 obligation (i.e., the words commencing “unless they arise”) does not arise. However, in the event that I am wrong in the conclusion that cl 7.1, read with cl 7.2, does not impose an obligation completely to rebuild the destroyed warehouse on the Premises, I consider below the requirements contained in cl 7.2 for the exemption to cl 7.1 introduced by that clause not to apply.

78. First, that the requirement for the repairs/replacement arises because of an act or omission by the defendant or its employees or agents. I note that the definition of Lessee, extracted earlier, itself includes employees and agents. Therefore, unless there is taken to be surplusage in the reference to employees or agents in this part of cl 7.2, it would appear that acts or omissions, etc, for the purpose of this requirement are limited to those of the Lessee itself or to its employees or agents (not, for example, its licensees, if any). Nothing turns on this in the present case though I note it here because the defendant makes reference to the expanded definition of Lessee when construing cl 10.3 (see below).

79. I do not accept that “act or omission” connotes fault on the part of the Lessee. There is no textual support for this and, as to context, if it be a question of risk allocation there is no commercial absurdity in a Lessee of commercial premises being liable for repairs etc required because of loss caused by it albeit without fault on its part. That is simply a matter of the bargain struck between the parties.

80. The word “because” clearly introduces the requirement for a causal connection between the act or omission in question and the need for the repairs/replacement. Whether what is required is a proximate cause or a material cause to my mind makes no difference in the present case because I have concluded that the storage of the pallets (packaged and in the location as they were) was both a material and, if it be necessary, proximate cause of the fire. That is because it was the place and manner of storage that made it possible for the creation of the aqua lens, on which the elements operated to produce ignition of the cardboard layers in the pallets; and hence a material cause of the fire itself. Further, it was integral to the causation of the fire and hence an effective or proximate cause.

81. The extraordinary nature of the occurrence or the chain of events necessary to produce the conflagration is not to the point. Had the pallets (packaged as they were so as to permit the pooling of water which created the aqua lens) not been exposed to the elements, the fire would not have occurred. From a common sense perspective (urged upon me by both parties) that was not simply a necessary condition for the fire nor a mere background circumstance but, rather, a proximate or material cause of its occurrence (in combination, of course, with the effect of the sun’s rays and wind).

82. I do not accept that such a conclusion would mean that some much earlier or antecedent step in the chain (such as signing the lease or agreeing to import the air splitters) would on this reasoning be a material or proximate cause. Those steps would indeed be a necessary condition of the loss or damage, in the sense that without them one would not have ended up with the loss, but events of that kind cannot, viewed in a common sense way, be seen as playing an integral causative role in the fire.

83. Thus, I consider that the first requirement for the exemption in cl 7.2(a) to be disapplied would here be satisfied.

84. As to the alternative second requirement, namely that the need for structural repairs was because of the use of the Premises, once it is concluded that the storage of the pallets in the open area (packaged as they were) was a proximate or material cause of the fire, then it is difficult to escape the conclusion that the use of the Premises by the defendant gave rise to the need for the repairs/replacement. Insofar as the defendant gives the example of the storage of hazardous chemicals in an unsuitable way as something that could be said to lead to the conclusion that its act or the use of the Premises caused the fire, that does not seem to me to assist it. In a sense, one might well say that the way in which the pallets were left in the open area was hazardous in that (though the risk might not have been expected) it created the risk of a conflagration in the way that ultimately occurred. The question is not whether the use of the Premises was in a manner which could be expected to have caused the fire; it is whether the use in fact was a cause of the fire.

85. The substance of the defendant’s argument was that the repairs were not required because of the use of the Premises except in a trivial deterministic sense (19/08/25; T 39). I disagree. The placement of the pallets in the open yard area was a “use” of the Premises and an integral part (by reason of the form of the packaging) of the causal chain that led to the fire.

86. Thus, had I been satisfied that the keep in repair and maintenance obligation in cl 7.1 extended to reconstruction, I would have concluded that the cl 7.2(a) exception to the exemption therefrom did not apply.

• Exception in cl 7.2(b)

87. As to cl 7.2(b), which provides that the Lessee is not responsible for repairs required as a result of, inter alia, accident such as fire “which are beyond the Lessee’s responsibility or control”, unless one or both of sub-cll (i) and (ii) apply, this raises the issue of what is required for the causal connection (“as a result of”) which I have already considered, and what is meant by the phrase “substantially contributed to” by the Lessee’s act or omission.

88. Read literally, cl 7.2(b)(i) requires that, for the exception to cl 7.2 to operate because the damage occurred was substantially contributed to by the defendant, the defendant (by some act or omission) “contributed” to the damage in a substantial way. I do not accept that there could only be such a contribution if there were two (or a multiplicity of) causal pathways to the damage or loss. True it is, that the phrase has been considered in the context of circumstances where concurrent or successive acts might each play a part in causing the loss. However, I see no basis for limiting the operation of the words “contributed to” in 7.2(b)(i) in that way.

89. Rather, I consider that the concept of contribution to the loss (or substantial contribution as required for the purposes of cl 7.2(b)(i)) can encompass the situation where, within the one causal chain, an act or omission may play a part in causing the loss but not itself be the proximate or material cause of the loss. The defendant’s response to that is to argue that then there would be no need for the reference to cause (“as a result of”) and the clause could simply have used the notion of contribution. However, I see no tautology or redundancy here in the draftsperson using the concept of “caused” and then providing for a lesser involvement by way of contribution (albeit requiring that it be a substantial contribution).

90. Here, I consider that there is no doubt that the storage of the pallets (packaged as they were) in the outdoor location played a substantial part in causing the fire, since without the conditions necessary to permit the creation of an aqua lens (packaging in the plastic transparent wrapping that allowed water to pool and create depressions in the packaging), which aqua lens was necessary to allow the sun’s rays to be magnified and focused on a focal point where there was flammable material, the fire would not have occurred.

91. The draftsperson was in my opinion making clear that something less than causation (proximate or material) would suffice to trigger the cl 7.2 exemption from the cl 7.1 requirement (if the cl 7.1 requirement arose).

92. Thus, in my opinion, cl 7.2(b)(i) is satisfied, such that the exemption for responsibility under cl 7.1 for repairs required as a result of an accidental fire beyond the defendant’s responsibility or control would not apply. In those circumstances, the emphasis placed by the defendant on the operation of cl 7.2(b) being unlimited is misconceived. In the events that have occurred, the defendant is not absolved by cl 7.2(b) of responsibility for repairs required by reason of the fire (assuming such liability is to be found elsewhere in the Lease – such as in cl 10.3).

93. For completeness, I note that I have difficulty reading cl 7.2(b) as limiting the operation of the cl 10.3 indemnity. To suggest that cl 7.2(b) absolves the Lessee from any responsibility under the indemnity provision for, say, repairs required as a result of the escape of fire in or from the Premises even if caused or contributed to by the Lessee (cl 10.3(c)) or for damage suffered by the Lessor’s act or omission in respect of an accident on the Premises not caused by the Lessor (cl 10.3(h)) would render those indemnity provisions meaningless. However, for the above reasons, I am not persuaded that the exemption in cl 7.2(b) applies.

94. That said, for the reasons explained already, I am not persuaded that the claim based on the alleged breach of cl 7.1 is made good.

Claim under cl 12.1(a)(i)-(ii) (the alleged yield up/reinstatement breaches)

95. I turn next to the second of the pleaded breaches, those being the alleged breach of the obligation in cl 12.1(a)(i) that the Lessee must yield up the Premises before but not later than the expiration of the Lease in the condition and state or repair as at the commencement of the term of the Lease and of the obligation under cl 12.1(a)(ii), where all or part of the “premises” comprise a warehouse, to reinstate that part of the Premises to its original form.

96. The defendant here relies on what was said by Starke J in Graham v Markets Hotel Pty Ltd (1943) 67 CLR 567 at 585; [1943] HCA 8 (Graham v Markets Hotel) (at 585) as to the state of repair required by a yield up covenant being dependent primarily on the words used in the relevant clause, Starke J there referring to what was said in Lurcott; and to the observations of Atkin LJ in Anstruther-Gough-Calthorpe at 734 that such a covenant involves renewal of subsidiary parts; not renewal of the whole. The plaintiff, in response takes issue with the relevance of Graham v Markets Hotel to cl 12.1 of the Lease, noting that the controversy in that decision was whether the failure to reinstate lavatories that had been dismantled was a breach of the “covenant to repair”, whereas in the present case the relevant obligation in cl 12.1(a)(ii) of the Lease was to “reinstate that part of the Premises to its original form as at the commencement of the Lease”.

97. As to cl 12(a)(i), the defendant maintains that it was not possible to “yield up” the Premises given that renewal of the whole was required. (To the extent that this suggests some kind of frustration argument, none was pleaded.) Further, the defendant says that there is a degree of overlap between cll 12.1 and 7.2(b) and, as adverted to above, argues that the latter should qualify the former, such that the exception for accidents and fire contained in cl 7.2(b) should apply unless the defendant substantially contributed to the damage by an act or omission. Insofar as the plaintiff contends that repair encompasses renewal, the defendant argues that the same position would apply to reinstatement (see cl 12(a)(ii)) and says that s 7.2(b) is plenary and removes responsibility for things that fall within it (19/08/25; T 39).

98. The defendant here invokes Saviane, where it was said that s 84 of the Conveyancing Act would protect a lessee who establishes that it was reasonable that he did not know of or anticipate the occurrence in question, the Court holding at 670 that the provision applies if it can be shown that the event that caused the damage was unintentional and unexpected (in the sense that a reasonable person in the position of the lessee would not have expected it). Here, the defendant emphasises that there is no allegation (or evidence) to suggest that the damage caused by the fire was anything but unintentional and unexpected.

99. As to the “yield up” obligation under cl 12.1(a)(i), the plaintiff raises the same arguments as to scope of the concept of repair, which I have considered above. The plaintiff says that the “yield up” clause in cl 12.1(a), as the repair obligation which arises under at the end of the term of the lease, should be read consistently and concurrently with the repair obligation which subsists throughout the term of the Lease, being cll 7.1 and 7.2.

100. As to the reinstatement (cl 12.1(a)(ii)), the plaintiff emphasises the use of the verb “reinstate” (distinguishing Graham v Markets Hotel which was a covenant “to repair”; not to “re-instate”).

Section 84(1)(b) Conveyancing Act

101. In the context of the cl 12.1 claim, the defendant attaches significance to s 84(1)(b) of the Conveyancing Act, which provides:

84 Covenants by lessees

(1)   In every lease of land made after the commencement of this Act there shall be implied the following covenants by the lessee, for himself or herself, his or her executors, administrators, and assigns, with the lessor, his or her executors, administrators, and assigns—

…

(b)   That the lessee or the lessee’s executors, administrators and assigns will, at all times during the continuance of the said lease, keep and, at the termination thereof, yield up the demised premises in good and tenantable repair, having regard to their condition at the commencement of the said lease, accidents war damage and damage from fire, flood, lightning, storm and tempest, and reasonable wear and tear excepted.

102. The defendant argues that s 84(1)(b) of the Conveyancing Act negatives or extinguishes the obligation to yield up the Premises in good and tenantable repair in the event of an accident or damage by fire. The defendant says that such an outcome is consistent with cl 5 of the Lease in that it permits the plaintiff to terminate the Lease if the Premises is damaged and rendered unfit for occupation, in which circumstances, the defendant says it would not have the opportunity to yield up the Premises in good and tenantable repair.

103. Referring to s 74(2) of the Conveyancing Act, which deals with when implied covenants may be negatived, the defendant submits that cl 12.1(a) is not a provision which expressly negatived or modified s 84 of the Conveyancing Act.

104. In this regard, the defendant refers to various cases which have considered what is required to negative or exclude implied terms: Esanda Ltd v Clark (1985) 159 CLR 543; [1985] HCA 74, which considered s 5(3) of the Hire-Purchase Act 1960 (NSW), where it was held that what was required was an unequivocal statement expressly and unqualifiedly negativing the relevant conditions and warranties; Waterhouse v Waugh [2003] NSWCA 139 (Waterhouse), where an express term in the lease that was clearly inconsistent with the term that might be implied by s 84(1)(a) meant that the implied term was excluded (at [33]); Greer v Pickering [2015] NSWSC 1131, where, in the absence of an express declaration that negatived, varied or extended the terms implied by ss 84 and 85, they were held to continue to form part of the contract for sale and the lease; and B M & J A Holdings Pty Ltd v Clarence Street Developments Pty Ltd [2012] NSWSC 1236, where it was found that, despite there being an abatement clause within the relevant lease agreement, the implied covenant for abatement under s 84 of the Conveyancing Act applied as well.

105. The defendant also points to academic commentary suggesting that an express covenant must cover the same ground or concern the same subject matter in order to exclude an implied covenant (citing Clyde Croft, Robert Hay and Luke Virgona, Commercial Tenancy Law (5^th ed, 2023, Lexis Nexis) at [8.3.]).

106. The plaintiff relies on the proposition that an implied covenant which is inconsistent with an express covenant is excluded (citing Lowe v Dorling & son [1906] 2 KB 772 at 785 and Fausett v Keleher [1924] NZLR 1 at 4 and referring to Bucknell v Reid (1876) 10 SALR 188).

107. To the extent that the defendant claims some support for its argument by reference to cl 5.2 of the Lease, the plaintiff points to the exception in the chapeau to that clause to “damage or destruction caused or contributed to by any act … of the Lessee …”, and the plaintiff points out that the Lessee’s entitlement to terminate the Lease (pursuant to cl 5.2(b)) is subject to the exception of “where such damage has been caused or contributed to or arises from any act or omission of the Lessee …”.

108. The plaintiff says, further, that the words in cll 7.2(b) and 7.2(b)(i) cover the same ground as the excepted matters listed in s 84(1)(b) of the Conveyancing Act and expressly negative them in circumstances where cl 7.2(b)(i) applies. The plaintiff argues that, where cl 7.2(b)(i) is a term clearly inconsistent with s 84(1)(b), there is also a clear intention to negative the operation of the latter; and this applies also to the yield up obligation in cl 12.1(a).

Determination – claim under cl 12.1(a)

109. I have already concluded that “repairs” in cl 7.2, though they may be structural, would not extend to the complete reconstruction of the warehouse structure on the Premises. This disposes of the claim under cl 12.1(a)(i). However, if that be wrong, then cl 7.2(b) would in my opinion operate to negative or vary the implied s 84(1)(b) covenant because it makes provision for the Lessee to be liable for repairs required as a result of, relevantly, accident such as fire in circumstances where sub cll (i) or (ii) applies. This covers the same ground as the implied covenant and hence would exclude it. This would then also apply to exclude its operation from cl 12.2(a)(i).

110. As to the claim under cl 12.1(a)(ii), the Lease makes express provision for the reinstatement of the warehouse at the end of the Lease to its original form. Had the parties intended the reinstatement obligation to be that of repair, there would have been no need to use the word “reinstatement”. I consider that the concept of “reinstatement” goes beyond repair and does encompass reconstruction of the warehouse. The fact that the parties have carefully identified the warehouse as the subject of the reinstatement obligation indicates that it is to be treated in a category of its own. I have concluded that cl 12.1(a)(ii), by requiring reinstatement (separately from the obligation to yield up that appears in cl 12.2(i)), operates to vary or negative the s 84(1)(b) implied covenant (even if that were not otherwise excluded by cl 7.2(b)).

109. It is therefore not necessary here to enter into the debate raised in submissions as to whether the s 84 covenant would be implied in any event by reference to the status of the Lease as a deed or otherwise (the plaintiff here referring to Waterhouse at [32] and PR Watts, “Implied Covenants in Leases” (1937) 10 ALJ 357-9, 32; and the defendant pointing to the definitions of “deed” in s 7 of the Conveyancing Act and “dealing” in s 3 of the Real Property Act 1900 (NSW)).

110. Accordingly, I consider that the claim for breach of cl 12.1(a)(ii) is made good.

Claim under cl 10.3 (the indemnity provision)

113. The third basis of the claim (and the only one that extends to the damage suffered in relation to the Unit 17 warehouse) is that under cl 10.3. The plaintiff contends that the indemnity in cl 10.3 is sufficiently broad to capture the loss in question; arguing that the loss was suffered or incurred by the act or omission of the defendant and was loss in respect of or arising from one or more of the events described in (a), (c), (d) and (h) of the clause.

114. As indicated earlier, the plaintiff says that the relevant act or omission for the purpose of the indemnity could be one or any combination of the acts or omissions by the defendant in the chain of events which led to the fire, including the placement of the goods (packaged with corrugated cardboard layers and a transparent plastic wrap) in the outdoor storage yard at the Premises which was exposed to both the rain and the sun. Alternatively, the plaintiff says that the defendant failed to store its goods, containing combustible material, away from the heat of the sun’s rays. The plaintiff contends that the defendant’s acts or omissions resulted in the presence of all three necessary ingredients for fire ignition (heat, oxygen and fuel).

115. At the outset, there was a dispute as to the construction of cl 10.3, the language of which was conceded by the plaintiff to be difficult and said by the defendant to be incoherent.

116. The difficulty identified in the text of cl 10.3 arises in the following way.

117. In its terms, the indemnity is “from and against any … loss, damage … suffered or incurred by” the Lessor “whether by act, omission or neglect of the Lessee or the Lessee’s contractors … during or after the term of this lease, in respect of or arising from” any of the matters in the following sub-clauses (my emphasis).

118. The defendant points to the repetition inherent in the reference to the Lessee, which as defined includes various others including “where the context permits” followed by the inclusion of those various same categories of people. I accept that the reference to those other categories of people is unnecessary since they would have already been encompassed with the definition of Lessee. However, I consider that nothing turns on this – at worst it is unnecessary repetition (perhaps for the avoidance of doubt); more charitably, the reference to those persons in the clauses means that in that context, the expansive definition of Lessee is unnecessary and does not apply. I have referred above to another clause where there is seemingly similar surplusage in the use of the defined term “Lessee” (cl 7.2).

119. More problematic is the phrase introduced by the words “whether by …”. Both parties approached this as being a first requirement for the operation of the indemnity (the second, being that the loss or damage be in respect of or arise from one or more of the matters in (a)-(h)). To my mind, it would make more sense linguistically if that phrase be read in effect as a parenthetical inclusion to explain that it matters not whether the loss etc. is suffered or incurred “by act, omission or neglect” of the Lessee or those various other persons.

120. The difficulty in reading the phrase “whether by …” as a first requirement (rather than, say, an explanation introduced for the avoidance of doubt) is that this produces an overlap with or repetition of sub-cl 10.3(a). However, the difficulty with the suggestion that this might be some kind of (parenthetical) explanation is that it then renders the operation of the indemnity for (h) (an accident not caused or contributed by the Lessor) extremely broad (i.e., as requiring no connection with any act or omission, etc, of the Lessee – a construction that seems quite unlikely in terms of commercial risk allocation).

121. The plaintiff accepts that construing cl 10.3 as requiring (in the body of the indemnity or “chapeau” as it was referred to in submissions) a first requirement that there be an act or omission etc by the Lessee or other named parties means that sub-cl 10.3(a) has included a dual requirement of causation; i.e., that the Lessor must have suffered a loss caused by an act or omission [or neglect] of the Lessee (the first requirement) that was itself caused by (in respect of or arising from) an act or omission neglect or default by the Lessee (the second requirement). The plaintiff argues that it is possible that the objective purpose of this sub-clause (10.3(a)) was to provide for consequential loss (i.e., that the Lessee is required to indemnify the Lessor from any loss that arises as a consequence of the loss caused by the Lessee’s acts) but the plaintiff accepts that the problem with that construction is that there would be no objective purpose for the second requirement that the “consequential” loss also be caused by the act of the Lessee.

122. The plaintiff submits that the better construction is that the words in the body of the indemnity are (in respect of sub-cl 10.3(a)) surplusage; the plaintiff noting that the issue does not arise in relation to sub-cl 3(h), (namely that the Lessee is indemnifying the Lessor from any loss caused by an accident (unless the accident was caused or contributed to by the Lessor) provided the accident was itself the result of, relevantly, an act or omission of the Lessee).

123. The plaintiff accepts that there is a presumption against redundancy (or “surplusage”) (referring to Dovuro Pty Ltd v Wilkins (2000) 105 FCR 476; [2000] FCA 1902 at [152]). However, the plaintiff argues that, in respect of “torrential style of drafting” particularly in respect of commercial leases, that presumption is very weak and that it has been held to be “of little value in the interpretation of commercial contracts” (referring to the observation by Mason P in Big River Timbers Pty Ltd v Stewart [1999] NSWCA 34; (1999) 9 BPR 16,605 (at 16,608) that the presumption “is not a strong presumption in the light of commercial drafting techniques involving standard form commercial documents”).

124. The plaintiff refers to the recognition by Ball J, as his Honour then was, in AFC Holdings Pty Ltd v Shiprock Holdings Pty Ltd [2010] NSWSC 985; (2010) 15 BPR 28,199 at [13] that the general principle that words of a contract should be interpreted in a way which gives them effect rather than in a way in which makes them redundant does not operate as an invariable rule. Ball J there considered that it might be appropriate in some cases to interpret words in a way that makes them redundant, giving as examples of this where “the alternative construction is inconsistent with the commercial purpose of the contract or where it appears that the words have been included out of an abundance of caution”.

125. The plaintiff also refers in this context to the observation of Lord Hoffman in Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266 at 273-4 to the effect that even in legal documents, people often use superfluous words, his Lordship giving as an example of a lack of inhibition as to the use of too many words the covenants in a traditional lease.

126. The plaintiff thus contends that, where the literal construction of the “torrential style of drafting” has created an absurdity, it would be presumed that this was caused by a drafting error and the Lease should be construed to make commercial sense.

127. As to the invocation by the defendant in its submissions of the principle referred to in Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44 at [53] (that, in contracts of guarantee and indemnity, a doubt as to the construction of a provision should be resolved in favour of the indemnifier), the plaintiff says that that the doctrine of contra proferentem applies only to the selection of one of a number of reasonably possible interpretations of the contract (referring to what was said by Campbell JA in Rava v Logan Wines Pty Ltd [2007] NSWCA 62 at [56]). The plaintiff notes that the defendant has not here identified a reasonable available construction for which it contends (and has not pleaded that the clause is void for uncertainty).

128. The remaining issues of construction raised in relation to the claim under cl 10.3 relate to what is meant by “caused or contributed to” (in sub-cll (a), (c), and (d)), which have already been addressed above; and the meaning of “use of the Premises”, which has also been considered above.

129. As to the defendant’s contention that cl 10.3 should be read as subject to cll 7.2(a) and (b) of the Lease, the plaintiff submits that the express terms of the two clauses do not support this. The plaintiff points out that cl 10.3 is the sole provision in the Lease that is objectively directed to loss and damage incurred by the Lessor beyond damage to the Premises. The plaintiff contends that the purposes of cll 7.2 and 10.3 are distinct. The plaintiff says that the objective purpose of cl 7.2 of the Lease is directed to limiting the “make good” obligations of the Lessee whereas cl 10.3 is an indemnity that is directed to any loss that the acts of the Lessee may have caused the plaintiff. The plaintiff submits that the width of the cl 10.3 indemnity is demonstrated by cl 10.3(h) that expressly includes “an indemnity from loss” “incurred by the Lessor” arising from “an accident” provided the accident was not caused or contributed to by the lessor.

130. For completeness, I note that reliance is also placed by the plaintiff on the further indemnity in cl 12.5 in relation to the breach of cl 12.1.

Determination – claim under cl 10.3

131. I have referred above to the potential construction of cl 10.3 which would remove the overlap or duplication otherwise to be found between the body of the indemnity and cl 10.3(a). While I remain of the view that linguistically (i.e., textually) that makes more sense, in context I accept that the words “whether by …” must introduce a first requirement for the indemnity, as otherwise sub- cl 3(h) would not make commercial sense.

132. In argument, the example (topical at the time of the hearing) was of a light aeroplane crash-landing into the stored pallets and causing a fire of the kind that here occurred. The defendant argues that if “whether by …” does not introduce a requirement that there be an act or omission etc of the Lessee, then it would be liable under the indemnity in such a scenario.

133. The defendant argues that the “chapeau” to cl 10.3 (i.e., what I have referred to as the body of the indemnity) is central to the understanding of it and that it is an express indemnity that extends to losses suffered by or incurred by the Lessee to a third party (see 19/08/25; T 41).

134. The plaintiff on the other hand accepts that my suggested construction would be an available construction in relation to cl 10.3(a) but says that this would not apply in relation to cl 103(h), where the plaintiff says one has to get through the “gateway” that loss is caused by some act of the Lessee.

135. I have concluded that cl 10.3(a) does involve surplusage but that this does not render the balance of cl 10.3 void for uncertainty (an argument which would need to have been pleaded in any event) nor does the surplusage require some alternative construction more favourable to the defendant (not identified in its submissions) to be adopted.

136. Leaving aside cl 10.3(a) for present purposes (since that is not necessary for a conclusion on the cl 10.3 claim in light of the other matters relied on by the plaintiff), in my opinion cl 10.3(c) is clearly satisfied. Here there was overlap of fire from the Premises and I have already concluded that it was contributed to by an act of the Lessee. As to 10.3(d), I have already concluded above that the loss was caused or contributed to by the use of the Premises. Finally, as to 10.3(h) this is satisfied again because of the finding as to cause of the damage by the act of the Lessee and the accident not being caused or contributed to by the Lessor.

137. Accordingly, subject to the defendant’s argument as to s 84 of the Conveyancing Act (see above) the claim under cl 10.3 of the Lease is made good. In that regard, the plaintiff submits that cl 10.3(h) of the Lease clearly negatived or varied (within the meaning of s 74 of the Conveyancing Act) the lease terms otherwise implied by operation of s 84 of that Act. It is submitted that, where the defendant’s allegation is that the fire arose out of an accident, then the indemnity in cl 10.3(h) would apply and, in so doing, negative s 84. I agree.

138. I consider that there is a clear inconsistency between this clause and the implied covenant in s 84(1)(b) such that the implied covenant is excluded. They cover the same ground in terms of liability for damage occasioned by reason of accident caused by an act or omission of the Lessee.

Quantum of lost rental/outgoings claim

139. Turning to the second of the two remaining issues for determination in these proceedings, as already noted the only dispute as to quantum is as to the claim for lost rent and outgoings. In this regard, the plaintiff relies on the evidence of Mr Ford as well as Mr Mark Wylie (the estate manager responsible for managing the tenancies on the Land). The plaintiff also adduced evidence from an expert valuer, Mr John Waugh.

140. The dispute on this issue turns on whether the plaintiff has established, on the balance of probabilities, that, but for the fire, the defendant would have exercised its option for a further lease of Unit 2 and similarly that Blessington, the tenant of Unit 17, would have exercised its option for a further lease of those Premises.

141. The plaintiff argues that this is readily established in relation to Unit 17 by reference to the fact that, once the reinstatement works were complete, Blessington entered into a fresh lease for Unit 17. The plaintiff says that, in the case of Unit 2, such an inference should be drawn from the fact that the defendant entered into the lease for its current premises in the same area for a similar building for the same use at a similar market rent but for a much smaller area of land. The plaintiff emphasises that the defendant was a long term tenant on the land from 2002 (19/08/25; T 30-31) and that the defendant adduced no evidence that it had any intention to move before the fire occurred (the plaintiff here invoking Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 (Blatch v Archer)) (19/08/25; T 31; T 49).

142. As to Unit 17, the defendant did not address this specifically in its submissions. It seems to me that there is an irresistible inference (from the fact that Blessington chose to enter into a new lease of Unit 17 as soon as the reinstatement works were complete) that, but for the fire, it would have exercised the option to renew. I so find.

143. As to Unit 2, as adverted to earlier, the defendant submits that it is relevant in this context that the Lease provisions included rent review provisions. The defendant argues that if it was content with premises of half the size (as it suggests may be inferred from entry into the new lease) then the probabilities are that it would not have exercised the option for a new lease of Unit 2 because on exercise of the option the Lessee could increase the rent by bringing it to market value (see 19/08/25; T 48). The difficulty with that submission is that there is no evidence on the basis of which I could infer that the defendant was “content” with the smaller premises (in the sense that, had the large premises been available at an equivalent rental the defendant would still have chosen to enter into a lease for smaller premises). For all I know that might have been the only available location for the defendant to carry on its business in the immediate aftermath of the fire. Nor could I assume or infer that the smaller size premises were adequate for its purposes (see 19/08/25; T 49), particularly in circumstances where the evidence suggested that even the larger premises were not adequate for the storage indoors of the defendant’s then newly received stock as at the time of the fire.

144. The evidence of Mr Ford (in his affidavit at [99]-[106]), not challenged by the defendant, was that there were cordial relations between landlord and tenant before the fire and no reason for him to believe the defendant was intending to move. In those circumstances, the fact that the defendant was prepared to pay the equivalent of market rent for other (smaller) premises in the area after the fire provides a reasonable basis to infer, on the balance of probabilities, that, but for the fire, the defendant would have exercised the option to renew its lease of Unit 2.

145. I accept that in order to draw such an inference, the circumstances must give rise to “a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture” (see Richard Evans & Co Ltd v Astley [1911] AC 674, at 687 per Lord Robson, as quoted in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5); and that the plaintiff here bears the onus.

146. As to the maxim cited by Lord Mansfield CJ in Blatch v Archer at 970, namely that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted, I simply note that there was no evidence from the defendant to quarrel with the assessment by Mr Ford as to the previously cordial nature of the relations between the parties or the lack of any indication of an intention to move; matters that could have been addressed in evidence by the defendant (which, after all, would have had peculiar knowledge of those matters).

147. To my mind, the fact that the defendant chose to relocate to other premises in the same area as Unit 2 (presumably to continue its business without interruption in the same general location), coupled with Mr Ford’s evidence, gives rise to the “reasonable and definite” inference that, but for the fire, the defendant would have exercised its option. I so find.

148. Accordingly, I will adopt the calculations of damages for this head of damage on the basis of the finding that both the defendant and Blessington would have exercised the respective options for renewal but for the intervention of the fire.

149. According to the calculations in the Schedule of Damages, this means that, as to Unit 2, the claim for loss of rent and outgoings totals $2,581,367.39 comprising loss rent and outgoings for the Premises for the period from 3 November 2018 to 31 January 2022 pursuant to the terms of the Lease; and loss of rent from 1 February 2022 to 31 July 2026, calculated as the difference between the rent that would have been received under the (Unit 2) Lease had the option been exercised and the rent actually received under the new lease with a third party. The plaintiff also claims costs incurred in securing the new tenancy for the Premises (Unit 2) in the sum of $6,397.50 plus GST (see Mr Ford’s affidavit at [114]).

150. As to Unit 17, the plaintiff's claim for loss of rent and outgoings totals $476,528 comprising lost rent and outgoings for Unit 17 for the period from 3 November 2018 to 31 July 2020 pursuant to the terms of the Unit 17 lease. The plaintiff also claims the cost of negotiating a new lease for Unit 17 in the sum of $16,361 plus GST (see Mr Ford’s affidavit at [135]).

151. This brings the damages (including the agreed damages) and interest to $15,177,870.83 (plus GST on the sums of $6,397.50 and $16,361 referred to above), totaling $15,180,146.68.

Conclusion

152. The plaintiff has succeeded in its claim under cl 10.3(h) of the Lease (and, in respect of the Unit 2 damages, under cl 12.1(a)(ii)). Lost rent and outgoings are to be calculated on the basis of the agreed arithmetical calculations based on my finding that the options would have been exercised for both Unit 17 and Unit 2. I have adopted the calculations in the Schedule of Damages accordingly, with the addition of the additional costs plus GST relating to entry into the new leases for the respective premises (as outlined above).

Orders

153. For the above reasons, I make the following orders:

1. Enter judgment against the defendant in the amount of $15,180,146.68.

2. Order the defendant to pay the plaintiff interest on the judgment sum at the rate provided for under cl 12.1(e) of the Lease.

3. Order the defendant to pay the plaintiff’s costs.

4. Liberty to apply if there has been an arithmetical error in my adoption of the calculations as to damages.

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Decision last updated: 02 October 2025