Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Limited & Anor

[2007] HCATrans 94

[2007] HCATrans 094

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S323 of 2006

B e t w e e n -

ALAMDO HOLDINGS PTY LIMITED

Applicant

and

AUSTRALIAN WINDOW FURNISHINGS (NSW) PTY LIMITED

First Respondent

HUNTER DOUGLAS LIMITED

Second Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 2 MARCH 2007, AT 10.51 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friend, MR R.G. McHUGH, SC, for the applicant.  (instructed by Speed and Stracey)

MR A.J. MEAGHER, SC:   May it please the Court, I appear with my learned friend, MR J.A.C. POTTS, for the respondents.  (instructed by Corrs Chambers Westgarth)

GLEESON CJ:   Yes, Mr Walker.

MR WALKER:   Your Honours, accepting the corrections administered to us in our learned friend’s written submissions, the best way to describe the point which we seek to persuade this Court it should look at is found on page 241 of the application book commencing with the words “In the end” in paragraph 11.

GLEESON CJ:   Can I ask you a question about conveyancing practice, Mr Walker.  Are leases commonly drafted to deal with this issue?

MR WALKER:   I think my proper answer to that on the basis of the affidavit evidence, which your Honours have seen, is no.  That is, there is not explicit wording to do with the responsibility of a lessee for damage caused by activities of a sublessee with or without express discrimination according to authorised, permitted, compulsory or, indeed, prohibited activities.

GUMMOW J:   Is that right?  It is really a question of what you put in 4.3 on page 203.  Part 4.3 is an absolute bar initially.  So it is drafted to get round the section in the Conveyancing Act, is it not, which says that consent shall not be unreasonably refused?  So you do not get to consent, it is just a bar.  But then it goes on to say it shall not be a breach if (a), (b), (c), (d), (e), (f) and you could say, unless the sublessee enters into direct covenants with the head lessor, could you not?

MR WALKER:   Yes, the Chief Justice’s question was concerning leases.  Your Honour has referred to the way in which ad hoc between individual and ‑ ‑ ‑

GUMMOW J:   I am just talking about good conveyancing practice; it is pretty obvious.

MR WALKER:   Certainly upon the question of consent to a sublease arising these matters can be, no doubt as your Honour is raising with me, depending upon circumstances, should be the subject of attention. 

GUMMOW J:   Particularly in a development of this sort.  This is an industrial estate of some sort, is it not?

MR WALKER:   It is.

GUMMOW J:   There is going to be a lot of subletting going on, you can imagine.

MR WALKER:   Particularly with fluctuations in various markets for various ‑ ‑ ‑

GUMMOW J:   Some 50 areas involved.

MR WALKER:   Yes, your Honour. 

GUMMOW J:   Anyhow, in the question of general public importance that may be a framework you have to think about.

MR WALKER:   Yes, indeed.  Our evidence on that question of general public importance at page 222 of the application book, paragraph 9 of the affidavit says, in effect, that the matters raised with us by Justice Gummow would be matters of - according to her expert vantage point, that would be a definite change in practice.

GLEESON CJ:   What is the page, Mr Walker?

MR WALKER:   Page 222, your Honour, line 40, paragraph 9 and the expressions that I am referring to obviously are that “The practice . . . has not, to date, typically involved” the kind of ‑ ‑ ‑

GUMMOW J:   This is, with respect to the deponent, talking in a generality.

MR WALKER:   Very much, your Honour, and that, after all, is the fate of a deponent who seeks to put before the Court the possible broader ramifications industry‑wide or profession‑wide for the kind of implication that we say is to be drawn from the decision of the majority of the Court of Appeal in this case.  Now, of course it is true that professional practice, not merely legal professional practice, but the practice of people whose business derives income from renting out industrial premises with a possibility of subleases, no doubt that practice has to be shaped by appropriate response to decisions of the superior courts.  That much may be accepted but, in our submission, it is a legitimate consideration for this Court on a special leave application that a change involving ‑ ‑ ‑

GUMMOW J:   This affidavit is not directed to this sort of industrial development.

MR WALKER:   Your Honour, it is more general than that, yes.

GUMMOW J:   Exactly.

MR WALKER:   It encompasses it, but it is more general.

GUMMOW J:   I mean, if this affidavit had been put before me I might have knocked it out at trial if it had been objected to.

MR WALKER:   It is before you, your Honour, and I accept ‑ ‑ ‑

GUMMOW J:   It is, but for what weight it can bear.

MR WALKER:   Quite so.  “Commercial leases” is a very general term.

GUMMOW J:   Exactly.

MR WALKER:   You find that at line 20 on that page.  Your Honours, the expedient that Justice Gummow has raised, of course, in the usual form will raise questions of fact concerning whether or not consent has been unreasonably withheld.

GUMMOW J:   No, it will not.

MR WALKER:   It will, I think, your Honour.

GUMMOW J:   No, that is the point.  That is the way it is drafted the way it is.  It does not talk about consent at all.  It is drafted that way in terms of an absolute prohibition, to avoid the operation of section 132, or whatever it is, of the Conveyancing Act.

MR WALKER:   Yes, in the usual case there will not be such terms as this and it will raise questions of what may be imposed by condition in an ad hoc negotiation.  When one has a term like this, in our submission, once again it is an ad hoc negotiation between people.  In our submission, a better approach is to deal with it, as the Court of Appeal in 1979 dealt with it in a somewhat analogous case, and to ask whether or not the degree of responsibility for the activities and the consequences of the activities of a sublessee which ought to be borne by a lessee is properly captured by the notion of the consequence being the outcome of the use of the land, in particular the use of its estate in the land by the sublessor, that is, by the head lessee. 

In our submission, that was an approach which did without the need for the kind of drafting to overcome what would otherwise be the usual position under the statutory provisions that have been drawn to attention on page 203 of the application book.  It is for those reasons, in our submission, that the matter does have general ramification and wide potential usefulness for an important part of the property industry in this State.  It is likely that it would have ramifications of its nature beyond this State.  Your Honours, none of that would avail even if that were true.  Of course, if there was insufficient doubt as to the correctness of the decision of the majority, in our submission, Justice Hodgson’s reasoning is compelling.  We have referred to the way in which his Honour reasons the matter.  We respectfully adopt that.  That is enough, in our submission, to demonstrate that ‑ ‑ ‑

GUMMOW J:   Where is the critical passage in his Honour’s reasons?

MR WALKER:   Your Honour will find our extract, which is the best way to highlight it, at pages 190 and 191 of the application book.  It is his paragraph 62, 63 and 65.  Paragraph 63 in particular, there:

was a sub‑lease to Quad for the purpose of transport and distribution, a purpose likely to involve use of heavy vehicles and equipment ‑ ‑ ‑

GUMMOW J:   This is very fact specific.

MR WALKER:   Your Honour, I cannot and do not try to avoid the fact that every one of these cases will require consideration of the premises, the purpose and the parties.  There is no question about that.  However, there is an a priori effect to the approach taken by the majority in the Court of Appeal which, in our submission, is inappropriate.  That is, once there is the sublease, there cannot be attribution of the consequences of the sublessee’s activities to the sublessor, to the head lessee.  That, in our submission, is an inappropriately abstract and generalised way for matters of interpretation to have proceeded.  So recognising the difficulty it may have on special leave that there are specific facts where none of us submit that as a matter of legal principle one could never look at such matters without facts and that that indeed is a shortcoming in the majority in the Court of Appeal.

Your Honours, we have drawn to attention in writing one other consideration which, in our submission, justifies this case receiving appellate attention from this Court and that is that when one compares the outcome in terms of, true it is here, negotiated responsibility, allocation of responsibility for damage, there are anomalies compared to what would happen under the law of nuisance to which we have drawn attention and, indeed, it would appear also compared to what Parliaments tend to provide for in relation to responsibility for illegal, that is, activities not authorised

by development control regimes.  In our submission, that places it yet again in a wider context transcending simply the efficacy of particular drafting in a particular lease.  May it please your Honours.

GLEESON CJ:   Thank you, Mr Walker.  Yes, Mr Meagher.

MR MEAGHER:   Your Honours, could I address first of all the question of whether the matter raises any issue of general application and could I address specifically the question asked by the Chief Justice.  In Woodfall it is pointed out in paragraph 11767 that a sublease should always contain an express covenant by the sublessee to observe and perform all the covenants and conditions in the original lease.  That is so as to protect the lessee by giving it, in effect, an indemnity.

In this case there was no such provision in the sublease and one has added to that, as has been observed, the fact that by clause 4.3 of the head lease the sublease could not occur without the consent of the lessor and then only as a condition in circumstances where the lessor was a party to the sublease and the sublease was in a form which was acceptable to the lessor.  There was in this case plainly sufficient protection for the lessor against the event which the Court of Appeal has said that the relevant covenant to repair did not cover.  The evidence also indicates, if your Honours go to page 220 of the application book, that the lessor or its agent expressly consented to the sublease and one would infer only after having seen the terms of the sublease and the use which it provided for.

As to the question whether the decision of the Court of Appeal is arguably wrong, could I take your Honours to the reasoning of Justice Hodgson which is at page 152 of the application book.  The matter was argued before the trial judge and before the Court of Appeal on the basis that the lessee’s use should include or be said to cover the use of the sublessee.  The trial judge and the other judges of appeal dealt with the matter on the basis that the lessee’s use in subletting the premises was not the cause of the need for the structural repairs and, therefore, the exception in the covenant to repair did not apply.  His Honour Justice Hodgson sought to take the matter slightly further by asking whether the fact of the sublease or whether the fact of any conduct of the lessee in relation to the sublease could be said to have caused the repairs. 

In paragraph 63 he observed that the sublease use, which was transport and distribution, was likely to involve the use of heavy vehicles, but not necessarily their use on this particular area, which was the light duty paving area.  It was argued by Mr Gleeson, who appeared for the lessee in the Court of Appeal, that there was no ability of the lessee having given up possession of the premises to in any way control the specific use which Quad put the premises to within transport and distribution.  The argument which was put against that was that the sublease provided for the sublessee to take reasonable care with respect to the premises.  That, your Honours, can be seen from page 235, which is the terms of the sublease, in clause 21(a).  His Honour said at line 18 on page 152, “To the extent that the sub‑lease did not authorise Quad to use light duty pavement” there was an element or “a measure of control”.

Now, the simple fact of the matter is that neither before the trial judge nor the Court of Appeal was there any investigation as to whether in fact what Quad did on the premises constituted a breach of its covenants in clause 21.  Our friends accept that in their written submissions in reply at page 240 where they say:

Whether or not the relevant activities of the sub‑lessee, Quad, were or were not in breach of the sub‑lease has not been determined by a Court.

So the basis upon which Justice Hodgson ‑ ‑ ‑

GLEESON CJ:   Really his decision turns on the second sentence of paragraph 64, an “omission of AWF to enforce compliance with Quad’s covenants”.

MR MEAGHER:   That is so, and then if your Honour goes to paragraph 65, line 4, the sublease for the purpose could involve the use of heavy vehicles on the relevant pavement.  Then he says:

and the circumstance that this occurred and damage resulted, notwithstanding provisions of the sub‑lease which entitled.

If we were here to persuade your Honours that Justice Hodgson was wrong, we would submit that that is where he went wrong because that question of entitlement was never addressed as a matter of fact.

GUMMOW J:   Can we just look at Justice Barrett who has considerable experience in these matters.  At page 71, paragraph 22 his Honour says, I would have thought correctly:

it is possible to refer, in ordinary parlance, to a lessee who grants a sub‑lease as thereby “using” the demised premises by subjecting them to and turning them to account through the sub‑lease.  But it is equally valid to refer to the sub‑lessee . . . The respective “uses” are of different kinds –

and this seems to be the critical factor –

only the latter involving possession of and physical deployment of the premises:  indeed, the sub‑lease, of its nature, would exclude entry and physical deployment by the sub‑lessor.

That is correct, is it not?

MR MEAGHER:   Yes.

GUMMOW J:   Then go over to page 72.

MR MEAGHER:   Yes, that is where his Honour sets out his reasoning with respect to the question of ‑ ‑ ‑

GUMMOW J:   Yes, and the last sentence in paragraph 24 on page 72:

the necessity for structural repairs of the kind under discussion must be seen as having arisen from the sub‑tenant’s “use”, not from AWF’s “use”; and the repairs must be seen as “rendered necessary by” the sub‑tenant’s “use”, as distinct from AWF’s “use”.

MR MEAGHER:   Yes, that is the judgment and the reasoning which we seek to uphold.  My point was that even if one sought to argue that in some way there was an authorisation or an acquiescence in the tenant or sublessee’s use, an argument to that effect is foreclosed in this case because the matter was not addressed and is not the subject of any findings or holdings.

GLEESON CJ:   That referee referred to on paragraph 25, line 3 is Mr Rogers, is it?

MR MEAGHER:   It is.

GUMMOW J:   This argument does not seem to have been run there, was it?

MR MEAGHER:   It was.  He deals with it at pages 20 and 21 of the application book between paragraphs 96 and 100 of the interim award.  The argument is set out on page 21 of the application book, the last sentence, that is, my clients’ argument, and his conclusion is set out in the following paragraph 100.  Your Honours, those are our submissions.

GLEESON CJ:   Yes, thank you, Mr Meagher.  Yes, Mr Walker.

MR WALKER:   Your Honours, the passage of reasoning in Justice Barrett’s judgment drawn to attention on pages 71 and 72 in his Honour’s paragraphs 22 and 24 contain, in our submission, an unnecessary “either/or” approach.  All that is necessary for the liability for which we contended was that the necessity came from a use by the lessee.  The fact that, as is obvious, it is the activities of the sublessee which actually caused the damage leading to the need for structural repairs does not logically exclude the necessity also being within the meaning of the same word in the lease due to the use of the premises by the lessee. 

As Justice Hodgson points out, if there were a case of a required or compulsory use of the premises, and may it be supposed all over the hardstand stipulated in the sublease, it would be difficult to say that the damage was not made necessary by the sublessor’s stipulation to that effect notwithstanding the actual occurrence of the damage required the activities of the sublessee to be in accordance with that requirement.  It is then difficult to see why as a matter of principle something which is permitted as opposed to required ought to bring about a distinction so that the use, that is, by turning to account to gain rent for the occupation by another person with a permitted use, why that ought not to be a case where the resulting damage requires repairs made necessary by that use.

Now, if that is correct, in our submission, the error in Justice Barrett’s reasoning is to presume that it may not be both which renders necessary the repairs.  It is irrelevant, of course, by reason of the nature of the privity of covenant.  It is irrelevant, of course, for us to complain that the repairs were made necessary by the use of the premises by the sublessee.  The only question is, it being obvious from the nature of the facts asserted by us that its activities caused the damage, whether that was not only caused by their activities but also by that use of those premises which permitted those activities in the first place.  It is for those reasons, in our submission, that the reasoning which is adverse to my client in the reference and courts below ‑ ‑ ‑

GUMMOW J:   You do the primary judge an injustice really.  The relevant use you are talking about is physical deployment.

MR WALKER:   Your Honour, there is no question it is the physical deployment that causes the damage.

GUMMOW J:   That is right.

MR WALKER:   But, as his Honour points out, you can use premises ‑ ‑ ‑

GUMMOW J:   Not turning to commercial account by giving agreement to this arrangement made under 4.3.

MR WALKER:   Unquestionably that is the difference between the use by the sublessee and the use by the sublessor, but his Honour correctly ‑ ‑ ‑

GUMMOW J:   What I understand you saying is the word “use” is ambiguous, it can have several meanings.  The relevant meaning here is a meaning which can be attributed in terms of liability only to activities by the sublessor.

MR WALKER:   But they are activities part and parcel of transport and distribution which was the expressly stipulated permitted use under the sublease.  It is for those reasons that his Honour commenced correctly in paragraph 22 and thereafter, in our submission, erred by confining the question to the physical deployment on premises.  May it please your Honours.

GLEESON CJ:   We think that there are insufficient prospects of an appeal to warrant a grant of special leave in this matter and the application is dismissed with costs.

We will adjourn for a short time to reconstitute.

AT 11.15 AM THE MATTER WAS CONCLUDED