Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Ltd
[2006] NSWCA 224
•14 August 2006
NEW SOUTH WALES COURT OF APPEAL
CITATION: Alamdo Holdings Pty. Limited v. Australian Window Furnishings (NSW) Pty. Ltd. & Anor. [2006] NSWCA 224
FILE NUMBER(S):
40337/05
CA40687/05
HEARING DATE(S): 4 and 5 May 2006
DECISION DATE: 14/08/2006
PARTIES:
Alamdo Holdings Pty. Limited - claimant
Australian Window Furnishings (NSW) Pty. Ltd. - 1st opponent
Hunter Douglas Ltd. - 2nd opponent
JUDGMENT OF: Hodgson JA Basten JA McClellan CJ at CL
LOWER COURT JURISDICTION: Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S): ED50135/99
LOWER COURT JUDICIAL OFFICER: Barrett J
COUNSEL:
Mr. R.G. McHugh with Ms. K. Richardson for the claimant
Mr. J.T. Gleeson SC with Mr. J.A.C. Potts for the opponents
SOLICITORS:
Speed & Stracey, Sydney for claimant
Corrs Chambers Westgarth, Sydney for opponents
CATCHWORDS:
LANDLORD AND TENANT - Covenants of lease - Construction and effect of covenants - Meaning of "demised premises" - Meaning of "reasonable wear and tear" - Meaning of "structural maintenance replacement or repair" - Whether repair of damage caused by sub-lessee was rendered necessary by the lessee's use of the demised premises - Whether lessor became liable for losses, claims or expenses arising from negligent use of facilities by the sub-lessee - Whether lessee's liability to repaint engaged by words "usually so treated" where the item would not generally be painted but had been painted at the leased property - Whether lessor had proved loss of rent because of lessee's breaches - Whether lessor entitled to interest at 20% on damages as moneys due pursuant to the lease but unpaid for 7 days.
LEGISLATION CITED:
DECISION:
1. Leave to Alamdo to appeal on issues identified by Hodgson JA as issues (1)-(4) granted. 2. Notice of Appeal to be filed within 14 days. 3. Appeal dismissed. 4. Leave to appeal or cross-appeal on issue (5) refused. 5. Alamdo to pay the opponents' costs of the application and the appeal.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40337/05
CA 40687/05
ED 50135/99HODGSON JA
BASTEN JA
McCLELLAN CJ at CLMonday 14 August 2006
ALAMDO HOLDINGS PTY. LIMITED V. AUSTRALIAN WINDOW FURNISHINGS (NSW) PTY. LIMITED & ANOR.
Judgment
HODGSON JA: On 7 June 2004, Barrett J gave judgment on applications in respect of a referee’s report concerning a dispute between the lessor (the claimant Alamdo) on the one hand, and the lessee (the first opponent (AWF) and guarantor of the lessee (the second opponent Hunter Douglas) on the other hand, of industrial property at Chester Hill, Sydney. In that judgment, the primary judge determined certain questions that had been left unresolved by the referee, determined that the report should be varied in certain respects and rejected in certain other respects, and otherwise adopted the report. Consequential orders were made on 1 April 2005.
On 2 August 2005 Barrett J determined as a separate question pursuant to Pt.31 r.1 of the Supreme Court Rules a question concerning the applicability of a provision of the lease concerning payment of interest to moneys recoverable by Alamdo.
Alamdo has applied for leave to appeal from both these decisions. AWF and Hunter Douglas have applied for leave to cross-appeal from the second of them. The applications for leave have been heard on the basis that, if leave is granted, the appeals and the cross-appeal will be determined without further argument.
CIRCUMSTANCES
On 28 April 1989, Alamdo and AWF entered into a lease of industrial property at Chester Hill for a term of ten years commencing on 1 March 1989 and terminating on 28 February 1999. The property contained two large factory buildings, called Unit 1 and Unit 2, and a number of bitumen areas adjacent to or near the buildings, called Bitumen Areas 1, 2, 3, 4, 5, 6 and 7. There were also areas of concrete pavement adjacent to each building. From the commencement of the lease, AWF occupied Unit 1 and granted sub-leases of Unit 2 to various successive sub-tenants.
On 1 February 1997, AWF granted a sub-lease of Unit 2 to Krueger Transport Equipment Pty. Limited (Krueger), which continued to the end of the lease.
On 30 May 1997, Alamdo sent a letter to Hunter Douglas in which the following was stated:
… Alamdo Holdings Pty. Ltd. grants consent to the sub-leases on the understanding that Alamdo Holdings Pty. Ltd. retains all its rights and remedies under the Lease, and that Australian Window Furnishings (NSW) Pty. Ltd. and the Guarantors continue to be bound by their obligations under the Lease.
On 17 July 1997, AWF granted a sub-lease of Unit 1 to Quad Distribution Pty. Limited (Quad) commencing on 1 August 1997 and terminating on 31 January 1999.
Around the time of the expiry of the lease on 28 February 1999, there was communication between Alamdo and AWF concerning work which AWF was required to do to the property at the expiry of the lease. Disputes arose concerning this matter.
Krueger continued in occupation of Unit 2 after expiry of the lease, but Unit 1 was vacant until 15 May 1999. That was the commencement day of a lease of Unit 1 from Alamdo to Fantastic Lounge Factory Pty. Limited (FLF), such lease having been executed on 18 March 1999. This lease provided for a rent-free period of two months, up to 15 July 1999.
On 7 September 1999 Alamdo sent a letter of demand to AWF and Hunter Douglas with respect to the cost of works, lost rental and interest. It claimed in all just under $1 million. AWF commenced proceedings in the Supreme Court on 4 November 1999. The matter was referred to the referee on 5 September 2000, and it was this referee’s report that was dealt with by the primary judge.
ISSUES
Five issues dealt with by the primary judge are raised in these applications:
(1)Whether AWF was liable for repairs to some or all of the bitumen areas on the property.
(2)Whether AWF was liable for the repainting of the roof of the buildings.
(3)Whether AWF was liable for repair to other specific items.
(4)Whether AWF was liable for loss of rent for Unit 1 for the whole or any part of the period 1 March 1999 to 15 July 1999.
(5)Whether Alamdo was entitled to interest at the rate of 20% (pursuant to a provision of the lease) rather than at Supreme Court rates.
The primary judge decided all issues against Alamdo, except to the extent that he qualified his decision on issue (5). It is against that qualification that AWF seeks leave to cross-appeal. Alamdo seeks leave to appeal in relation to all issues.
The first issue can be broken down into five sub-issues:
(1A)Were the bitumen areas part of the “Demised Premises” within the relevant clause of the lease (cl.5.1)?
(1B)Was the damage to areas 4 to 7 “reasonable wear and tear” within cl.5.1?
(1C)Was the work required to repair the bitumen areas “structural maintenance replacement or repair” within cl.5.1?
(1D)Was the work 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” within cl.5.1?
(1E)Did Alamdo become liable for any “losses … claims and expenses” “in respect of or arising from” negligent use of “facilities” by “a person claiming through the Lessee” (that is, by Quad) within cl.7.1(c)(i) of the lease?
It will be convenient to consider in turn each of these sub-issues, and then to consider in turn issues (2) to (5).
EXTENT OF DEMISES PREMISES
The clauses of the lease relied on by Alamdo in its claim concerning repairs to bitumen areas were cls.5.1 and 7.1, which are in the following terms:
5.1 The Lessee will during the whole of the Term and otherwise so long as the Lessee may remain in possession or occupation when where and so often as need shall be maintain replace repair and keep the whole of the Demised Premises in good and substantial repair order and condition damage by explosion, earthquake, aircraft, riot, civil commotion, fire, flood, lightning, storm, tempest and reasonable wear and tear, Act of God and war damage only excepted save where any insurance monies are irrecoverable through the neglect default or misconduct of the Lessee provided that this covenant shall not impose on the Lessee any obligation in respect of any structural maintenance replacement or repair except when the same is rendered necessary by any act or omission or default on the part of the Lessee or by the Lessee’s use or occupancy of the Demised Premises.
7.1(a)The Lessee agrees to occupy use and keep the Demised Premises at the risk of the Lessee and hereby releases to the full extent permitted by law the Lessor and its contractors, employees, agents, servants and invitees in the absence of any breach of this lease tortious act or omission or other default on their part from all claims and demands of every kind and from all liability which may arise in respect of any accident or damage to property or injury to any person in or near the Demised Premises or on the land and the Lessee expressly agrees that in the absence of any such breach of this lease, tortious act or omission or other default the Lessor shall have no responsibility or liability for any loss of or damage to fixtures or personal property of the Lessee.
(b)The Lessee will and does hereby indemnify the Lessor its contractors and employees in the absence of any breach of this lease, tortious act or omission or other default on their part from and against all actions, claims, demands, losses, damages, costs and expenses incurred by the Lessor or for which the Lessor may become liable in respect of any damage to property or injury to any person which may be suffered or sustained in, upon or near the Demised Premises whether in the occupation of the Lessor or of the Lessee or of any other person.
(c)Without limiting the generality of paragraphs (a) and (b) of this Clause the Lessee will and does hereby indemnify the Lessor from and against all actions, claims, demands, losses, damages, costs and expenses for which the Lessor may become liable in respect of or arising from:-
(i)the negligent or careless use, misuse, waste or abuse by the Lessee or any contractor, sub-contractor, licensee, invitee, client, customer or visitor or the Lessee or any other person claiming through or under the Lessee of the water, gas, electricity, lighting or other services and facilities of the Demised Premises or arising from any faulty fitting or fixture of the Lessee;
(ii)overflow or leakage of water (including rain-water) into in or from the Demised Premises PROVIDED THAT such overflow or leakage is not caused by the negligence of the Lessor its employees servants agents or contractors;
(iii)loss, damage or injury from any cause whatsoever to property or person caused or contributed to by the use of the Demised Premises by the Lessee or any contractor, sub-contractor, licensee, invitee, client, customer or visitor of the Lessee; and
(iv)loss, damage or injury from any cause whatsoever to the Demised Premises or to any property or person within or without the Demised Premises occasioned or contributed to by any act, omission, neglect, breach or default of the Lessee or any contractor, sub-contractor, licensee, invitee, client, customer or visitor of the Lessee.
In order to ground liability pursuant to cl.5.1, it was first necessary that the bitumen areas be part of “the Demised Premises”. This question was not addressed by the referee, but the primary judge found that, while such areas were part of the Land leased to AWF, they were not part of the Demised Premises.
The operative words of the lease are that Alamdo “hereby leases” to AWF “the land and premises above described”. The description is contained in a box headed “Land of which Lessor is registered proprietor”, with three sub-boxes respectively headed “Torrens Title Reference”, “If Part of premises, see note (a)(ii)” and “Location”. The title reference is given in the first box, and the word “WHOLE” appears in the second box. What note (a)(ii) is does not appear from the papers before the Court.
Clause 1.1 of the lease provides as follows in relation to “Demised Premises” and “Land”:
1.1 In this Lease unless the contrary intention appears:-
“Demised Premises” includes where the context so admits such of the fixtures fittings furnishings plant machinery and equipment (if any) from time to time installed therein and owned by the Lessor and also any fences or gates at or around the Land to the extent that the Lessor has any interest in the same.“Land” means the land referred to in the Schedule on the first page of this Lease.
The primary judge gave the following reasons for his decision:
35 The definitions of “Land” and “Demised Premises”, taken together, seem to me to recognise the principle of land law quicquid plantatur solo solo cedit - that things placed in or upon the soil with an intention that they should remain permanently or indefinitely are part of the land. The unqualified reference in the lease to the whole of the land in Folio Identifier 21/702060 must, it seems to me, be a reference to everything within the boundaries of that identified parcel that, having regard to the law of fixtures, constitutes land. Buildings and pavements are, on this basis, part of the “Land” as defined in the lease.
36 The expression “Demised Premises”, as defined, refers to a part of the totality that constitutes the “Land”. The definition of “Demised Premises” is not exhaustive. It uses the word “includes”, not “means”. The definition does not refer to buildings but there can be no doubt that buildings on the “Land” are part of the “Demised Premises”. In the law of landlord and tenant, the expression “demised premises” generally refers to a house or building together with its land and outbuildings: Natural Gas & Oil Corporation Pty Ltd v Byrne (1951) 68 WN (NSW) 207; Cram v Bellambi Coal Co Ltd (1964) 82 WN (NSW) (Pt 1) 18. The basic meaning of “premises” refers to buildings: Beacon Life and Fire Assurance Co v Gibb (1862) 1 Moo (NS) 73; Turner v York Motors Pty Ltd (1951) 85 CLR 55. In the present case, where there is a distinction between the “Land” and the “Demised Premises”, it seems to me that the latter expression must be taken to comprehend the buildings on or forming part of the “Land”, together with the particularly identified items specifically brought within the “Demised Premises” concept, being (subject to any contrary indication in the particular context) fixtures, fittings, furnishings, plant, machinery, and equipment from time to time “installed therein”, plus any fences and gates “at or around the Land”, subject, in each case to the lessor’s having “an interest” in the particular item.
37 Two aspects of this definition call for attention. First, it is to be noted that the specific inclusion not referring to fences and gates is concerned with items “installed therein”. The word used is “therein”, not “thereon”. It refers to an undefined concept of “Demised Premises”. The use of “therein” rather than “thereon” seems to me to indicate that this part of the definition proceeds on the implicit footing that the “Demised Premises” consist primarily of buildings inside which fixtures and the like are capable of being installed – hence, “therein”. The second aspect calling for attention confirms this. There is separate reference to “fences or gates at or around the Land”. In the ordinary course of events, a fence (with or without gates) would be a “fixture” and thus caught by “fixtures fittings furnishings plant machinery and equipment … installed” upon land. If “therein” were meant to catch all fixtures and other installations upon the land the subject of the lease, there would be no need for the separate treatment of fences and gates. This, to my mind, confirms that “therein” refers to things within buildings and that the only items not forming part of or within buildings that are covered by the “Demised Premises” definition are the fences and gates specifically mentioned.
38 On the basis of this definition, paved areas outside the buildings do not constitute part of the “Demised Premises”. They are not, in relation to buildings, “therein”. And they are not caught by the specific part of the definition of “Demised Premises” dealing with fences and gates. The repair covenant in clause 5.1 therefore does not apply to them, with the result that the lease does not oblige AWF to repair those outside paved areas.
The primary judge did not refer to other clauses of the lease, which contain very many references to Demised Premises and a few references to Land. Most are consistent with the Demised Premises either being co-extensive with the Land or being limited to buildings on the Land, although in some clauses the words are used in such a way as to suggest it is just the buildings that are being referred to. In cls.7.1(a) and 13.1 the Land is distinguished from the Demised Premises, in such a way as to suggest that the Demised Premises are less extensive than the whole of the Land. There are also a few clauses where the words are used in such a way as to indicate that the whole of the Land is being referred to.
Some of the clauses relied on by AWF as indicating that the Demised Premises means only the buildings do not in my opinion support that contention.
For example, cl.3.2 deals with abatement of rent in the event that “the whole or any part of the Demised Premises shall be destroyed or damaged through any cause”, or “resumed by any competent … authority”, “so as to render the Demised Premises or any part thereof substantially unfit for the use or occupation of the Lessee or to the deprive the Lessee of the substantial use of the Demised Premises or any part thereof”. Although Mr. Gleeson SC for AWF submitted that this made sense only in relation to buildings, in my opinion this is not so: for example, if it is essential for the Lessee’s use of the property to have parking areas and good access to the building for transport vehicles, one would expect that the loss of such areas because of destruction or resumption would be an appropriate occasion for abatement of rent.
Another example is cl.4.1, the Lessee’s covenant not to use the Demised Premises for any purpose other than a factory and ancillary offices. In my opinion, that covenant would restrict use of the Land to uses ancillary to that purpose: the covenant would not in my opinion permit use of the Land for an entirely different purpose.
Clauses in which the Demised Premises must mean the whole of the Land include cl.4.3 (covenant against assignment, sub-letting or parting with possession), cl.8.1 (covenant for quiet enjoyment), cl.9.1 (right of re-entry), cl.9.5 (covenant to yield up the Demised Premises at the end of the lease), cl.10.1 (covenant to maintain a public risk policy), cl.12.1 (option for renewal), cls.16.1 and 16.4 (relating to the Lessor selling the Demised Premises) and the Third Schedule (concerning adjustment of rent to the market rental value of the Demised Premises).
As pointed out by Mr. Gleeson, however, the definition clause makes the definition meaning subject to indications of contrary intention. It is relevant also to take into account the ordinary meaning of the words.
In the Macquarie Dictionary, the plural of the word premise is given the meaning “a. the property forming the subject of a conveyance. b. a tract of land. c. a house or building with the grounds, etc. belonging to it”.
The meaning of the word was considered in the case of Mowling v. Justices of Hawthorn (1891) 17 VLR 150. This case concerned a provision in a Victorian public health statute that applied to “any house or premises in such a state as to be a nuisance or injurious to health”. What was alleged to be a nuisance in that case was refuse in a paddock contiguous to a house and yard occupied by the defendant, but divided from the house and yard by a fence. The Full Court rejected a contention that the “premises” did not extend beyond the curtilage of the house, holding that the word includes houses or lands at common law, and that it was open to the Justices to find that the paddock constituted premises.
Turning to cl.5.1, in my opinion there is no reason to construe Demised Premises in that clause so narrowly as not to extend to paved areas adjoining and near the buildings, including all the bitumen areas. These paved areas are substantial constructions on the Land for use in conjunction with the buildings, the state of repair of which would be very important both to the Lessor and the Lessee. Even if the Demised Premises were to be limited to some notion of curtilage of the buildings, these areas would be within that curtilage.
Accordingly, in my opinion the primary judge was in error in finding that the Demised Premises did not include the bitumen areas.
REASONABLE WEAR AND TEAR
It is common ground that the state of bitumen areas 1 to 3 went beyond reasonable wear and tear; but AWF contended that the state of areas 4 to 7 at the end of the lease was within the reasonable wear and tear exception to the obligation to repair. The question was not addressed by the referee, but was decided by the primary judge in favour of AWF.
The primary judge gave the following reasons:
55 I nevertheless proceed to consider whether the “reasonable wear and tear” exception in clause 5.1 also operated to AWF’s benefit, that being the matter raised by Question 2 at paragraph 14 above. The evidence of the respective experts indicates that the deterioration of the pavements in Areas 4 to 7 began in the form of cracking and became more pronounced when the cracking was not treated, so that water ran in under the asphalt skin and undermined both it and the basecourse. This led to greater deterioration in the form of “crocodile cracking” and potholes.
56 Alamdo says that this deterioration is not put beyond the lessee’s responsibility by the “reasonable wear and tear” exception. Its contention, in summary, is that a tenant having the benefit of such an exception is not free simply to stand by and see the demised premises reduced to rack and ruin by the compounded effects of normal wear and tear – that there is a point at which the tenant must step in and put an end to the downwards slide. In this respect, Alamdo relies on a passage in the judgment of Talbot J in Haskell v Marlow [1928] 2 KB 45 which was first rejected by the Court of Appeal in Taylor v Webb [1937] 2 KB 283 but later reinstated as authoritative by the House of Lords in Regis Property Co Ltd v Dudley [1959] AC 370. The passage is as follows:
“The meaning is that the tenant (for life or years) is bound to keep the house in good repair and condition, but is not liable for what is due to reasonable wear and tear. That is to say, his obligation to keep in good repair is subject to that exception. If any want of repair is alleged and proved in fact, it lies on the tenant to show that it comes within the exception. Reasonable wear and tear means the reasonable use of the house by the tenant and the ordinary operation of natural forces. The exception of want to repair due to wear and tear must be construed as limited to what is directly due to wear and tear, reasonable conduct on the part of the tenant being assumed. It does not mean that if there is a defect originally proceeding from reasonable wear and tear the tenant is released from his obligation to keep in good repair and condition everything which it may be possible to trace ultimately to that defect. He is bound to do such repairs as may be required to prevent the consequences flowing originally from wear and tear from producing others which wear and tear would not directly ‘produce’.”
57 Talbot J then gave examples:
“For example, if a tile falls off the roof, the tenant is not liable for the immediate consequences; but, if he does nothing and in the result more and more water gets in, the roof and walls decay and ultimately the top floor, or the whole house, becomes uninhabitable, he cannot say that it is due to reasonable wear and tear, and that therefore he is not liable under his obligation to keep the house in good repair and condition. In such a case the want of repair is not in truth caused by wear and tear. Far the greater part of it is caused by the failure of the tenant to prevent what was originally caused by wear and tear from producing results altogether beyond what was so caused. On the other hand, take the gradual wearing away of a stone floor or staircase by ordinary use. This may in time produce a considerable defect in condition, but the whole of the defect is caused by reasonable wear and tear, and the tenant is not liable in respect of it.”
58 I am not persuaded that the situation with the pavement in Areas 4 to 7 is in any way analogous with the example of the broken roof tile. The evidence is that the pavement was at the end of its useful and expected life. It had, over time, got to a state where “crocodile cracking” occurred. This is symptomatic of decomposition or deterioration inherent in asphalt paving and to be expected in the ordinary course. It leads on to rutting and potholing. The expert evidence shows, in my view, that the process by which this pavement fell into a holed and rutted state was no more or less than a working out of the forces of nature upon the kind of material concerned.
59 Even allowing for the fullest effect of the principles stated by the House of Lords, it cannot be the case that, despite an exception for reasonable wear and tear, a tenant must continually scan an asphalt pavement for the first signs of any crack and then immediately act to repair it in case it becomes larger or lets water through into the basecourse. That would set at nought the exception for reasonable wear and tear. The pavement must, in my view, be seen as a whole and as subject to the ordinary processes of deterioration to which such a pavement, viewed as a whole, is susceptible. I view it as akin to the stone step referred to in Haskell v Marlow.
Mr. McHugh for Alamdo submitted that the primary judge was in error because he did not have regard to the evidence of experts. Mr. Thom, who gave evidence for Alamdo, said that defects in the surface of the asphalt, such as “crocodile cracking”, must be immediately repaired because otherwise the defect will extend to the basecourse and/or sub-grade. Mr. Colenbrander, giving evidence for AWF, said that only open potholes and unsealed surface areas involved more than reasonable wear and tear, but recognised that cracks in the asphalt layer would allow penetration resulting in further and more rapid deterioration.
Mr. McHugh submitted that the primary judge did not deal with a point raised in submissions, namely that a substantial part of the defects represented repairs which had actually been undertaken but which had subsequently deteriorated. The primary judge was also in error in holding that the pavement was at the end of its useful and expected life. This was irrelevant, and was wrong in relation to area 7, because, while the expert evidence was that this area would have a design life of 20 years, the area was in fact constructed in 1984.
In my opinion, no material error by the primary judge is shown. The extent of the defects which went beyond mere surface defects was small, and it was well open to the primary judge to conclude that the state of the areas as a whole could be characterised as reasonable wear and tear. Such error as there was concerning the period during which area 7 had been used could not be considered as material.
In my opinion, the principle in Haskell does not preclude this result. That principle applies where the ordinary operation of natural forces results in a condition which could be regarded as something to be dealt with by ordinary maintenance, and which would, if not attended to, cause damage going substantially beyond what could reasonably be considered reasonable wear and tear. In such cases, a tenant who has covenanted to maintain and repair, reasonable wear and tear excepted, will be required to carry out normal maintenance so as to prevent this kind of damage, even though the initial condition could fall within the term “reasonable wear and tear”. I do not think the existence of surface cracking and a small amount of potholes which could in time lead to further deterioration meant that the existence of such features demonstrates either a failure to maintain or a condition that exceeds reasonable wear and tear so as to demonstrate error by the primary judge.
The circumstance that maintenance had been carried out in the past by repair work such as filling potholes or the like does not affect this conclusion.
STRUCTURAL MAINTENANCE, REPLACEMENT OR REPAIR
Because the condition of areas 1 to 3 went beyond reasonable wear and tear, AWF had an obligation to repair them unless this would amount to structural maintenance, replacement or repair. Both the referee and the primary judge found that it would do so.
The primary judge gave the following reasons:
39 … The first thing to be said is that, as I view matters, maintenance, replacement or repair that is “structural” can be undertaken only in relation to something that is a “structure” although, of course, not everything done by way of maintenance, replacement or repair in relation to a “structure” is properly classified as “structural”. I regard as apposite, in this connection, a passage in the judgment of Brereton J in Hampson v Clyne (1967) 86 WN (NSW) 321:
“Structure’ of course is a word of which the meaning varies considerably according to the context, and the phrase ‘structural character’ or ‘defect of a structural character’ varies correspondingly. Literally ‘structure’ means something which has been constructed and ‘defect of a structural character’ means either a fault in putting the structure together or some subsequent failure on the part of the structure to remain satisfactorily put together. With particular reference to buildings in common parlance we refer to the bare building as the structure. We refer to fixtures and fittings attached to the structure although these may themselves as individual units be technically ‘structures’. We refer also to installations, such as gas and water piping and electrical circuits. Each of these may, however, independently be in certain contexts regarded as a ‘structure’ in that it is something which has been constructed within another structure.”
40 Applying the same concepts, maintenance, replacement or repair is “structural” when its purpose and effect are to remedy some “failure on the part of the structure to remain satisfactorily put together”. This is, I think, consistent with the approach taken to the meaning of “structural repairs” in relation to buildings as such in cases such as Granada Theatres Ltd v Freehold Investment (Leytonstone) Ltd [1959] 1 Ch 592 and Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd [1999] NSWSC 264 to which counsel for both parties referred. Reference may also be made to what was said by Balmford J – again in relation to a building – in Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272:
“’the structure’ is that part of the total building that supports the loads and stops the building falling down. It should be emphasised that a building may be structurally sound notwithstanding that it shows signs of movement; as by the opening of cracks. Unless such cracks indicate a real and present threat to load bearing integrity, of building failure or collapse, they may be treated as simply cosmetic defect – susceptible of patching, painting or other straight-forward repair.”
41 Also instructive, in this connection, is the decision of the Full Court of the Supreme Court of South Australia in J F Hillam Pty Ltd v Mooney (1988) 48 SASR 381. That case concerned an indoor swimming centre which included two heated pools built into the ground but inside a building. They had on their inside surfaces a particular coating akin to concrete (described as “marblesheen”) to “make them safe and acceptable to swimmers”. The marblesheen deteriorated and one of the issues for determination was whether its replacement was “a major repair of a structural nature to the premises”. King CJ (with whom Jacobs and von Doussa JJ agreed on this aspect) answered the question in the affirmative:
“The swimming pools were undoubtedly part of the structure of the premises. The marblesheen which rendered them usable as swimming pools by providing an appropriate surface must be regarded, to my mind, as part of the structure. The repair or replacement of that marblesheen is therefore a repair of a structural nature.”
42 Returning to the particular case of the pavements, I am satisfied that they are properly to be regarded as “structures”. They were put upon the land by a process of construction. Their character, as consisting of a skin or coating of asphalt placed upon a prepared land surface to which a basecourse of aggregate or blue metal had first been added, makes them similar to, although lesser in degree than, the “low attractive brick fence” considered in Durkin v Commonwealth Savings Bank of Australia (unreported, Full Court of the Supreme Court of South Australia, 30 November 1990) where a fence “in which the bricks are cemented to a cement base and to one another by mortar” was held to be a “permanent domestic improvement of a structural nature”. In the same way pavements constructed in the way I have described should be characterised as being improvements “of a structural nature”. Furthermore, the replacement of the asphalt skin and any missing basecourse that, to adapt the words in the JF Hillam case, made them usable as pavements by providing the necessary hard surface and its support, and, as stated in Hampson v Clyne, was necessary for them to “remain satisfactorily put together”, must, in my judgment, amount to maintenance, replacement or repair that is “structural”.
Mr. McHugh submitted that bitumen paving, as distinct from reinforced concrete paving, could not be a structure because it was flexible and did not distribute its load to the ground; and because it lacked the inter-connectedness of parts which could make it analogous to a building.
In my opinion, the concept of structure is not limited to this extent. In my opinion it was well open to the referee and the primary judge to find that the areas of bitumen paving were structures and that, as the experts agreed, the repairs needed to areas 1 to 3 were structural repairs.
RENDERED NECESSARY BY DEFAULT OF LESSEE OR LESSEE’S USE
Even though the repairs required for areas 1 to 3 were structural, AWF would still be liable for them if they were rendered necessary by its own action, omission or default, or by its use of the premises. It was clear that, at least to a major extent, the repair was rendered necessary by the operations of AWF’s sub-lessee Quad; and perhaps the most substantial issue argued in the case was whether this could be regarded as within AWF’s use of the premises. I will consider that in some detail shortly.
However, Alamdo submitted that AWF would be liable on other grounds as well.
One of the grounds of appeal was that the primary judge erred in finding that the letter of 30 May 1997 from Alamdo to AWF, in the circumstances, did not effect a variation of the lease such that thereafter “lessee” within cl.5.1 included sub-lessees. Mr. McHugh submitted that, even if this letter did not of itself give rise to a contract to vary the lease, such a contract may be inferred from the parties’ relevant conduct and correspondence. I would not draw such inference, and certainly see no basis for finding that the primary judge was in error on this point.
Another ground of attack on the primary judge’s findings concerned cl.5.3(b) of the Lease, which is as follows:
5.3(b)All covenants contained or implied in this Lease regarding repairs to be carried out by the Lessee shall be deemed to include the cleaning and keeping free from chokage of all drain and water pipes and sewerage pipes and the maintaining of all gas and electrical fittings and pipes.
The primary judge dealt with this as follows:
43 I consider next the contention of Alamdo that AWF was liable to repair the paving on Areas 1 to 3 because of 5.3(b). That clause is seen as relevant because of the referee’s finding that damage to that paving was caused by a combination of excessive weight on the surface and water penetration of that surface. There were also findings that the entry of water was not sufficient to constituted “flood” and was caused, or contributed to, by blockage of drainage pipes on land owned by the local authority lying a short distance outside the boundary of the land the subject of the lease.
44 I am satisfied that clause 5.3(b) imposed no relevant obligation on Alamdo referable to the water penetration that played a part in the damage to the pavement on Areas 1 to 3. … The clause does not impose any obligation. Its effect is to give added meaning and content to the separately existing provisions with respect to repair. It does so by identifying or defining a specific aspect of the relevant concept of “repair”. That concept is stated by clause 5.3(b) to include, in addition to whatever it includes according to the ordinary meaning of “repair”, certain specific activities. One of these is “the cleaning and keeping free from chokage of all drain and water pipes and sewerage pipes”.
45 Read alone and in isolation, this specification refers to all drain, water and sewerage pipes in the world. But, as I have said, clause 5.3(b) is not to be read alone and in isolation. It is to be read as injecting further or additional meaning into the provisions dealing with repair – specifically, for present purposes, clause 5.1. This means that the activities making up “repair”, for the purposes of clause 5.1, are to be understood as extending to the activities of cleaning drainage, water and sewerage pipes and keeping them unchoked. The relevant pipes thus in contemplation for the purposes of clause 5.1 are, of necessity, those forming part of the “Demised Premises”, since the clause 5.1 covenant is concerned only with repair of the “Demised Premises”. The specifically injected ingredient of the “repair” concept concerning cleaning and unchoking pipes that results from clause 5.3(b) is not made, by that clause or otherwise, to operate beyond the scope of clause 5.1. There is therefore no available construction that causes the lessee to be under an obligation to deal with blockages of pipes on land outside the parcel on which the “Demised Premises” are positioned.
46 I therefore accept AWF’s submission that the repair covenants did not require it to deal with such blockages of pipes on the local authority’s land as were found by the referee to have caused or contributed to the damage to the pavement on Areas 1 and 3.
Mr. McHugh submitted that, as cl.5.3(b) did not contain any limitation to the effect that the blockages to pipes must be on the Land, it was implicit that the obligation extended to pipes outside the Land which drain water from the Land.
In my opinion, the primary judge dealt with this argument adequately and correctly.
The main submission on this aspect of the case challenged pars.[19]-[25] of the primary judge’s judgment, which were as follows:
19 The first question (being Question 1 at paragraph 14 above) is whether, as a matter of law, damage necessitating structural repair caused directly by AWF’s sub-tenant falls within the provision concerning structural repair “rendered necessary by … the Lessee’s use … of the Demised Premises”. AWF did not dispute that, despite the sub-letting, AWF alone was “the Lessee” as defined by the lease (although, in that connection, there is a question, to be considered presently, whether the terms upon which sub-letting was consented to by Alamdo caused a modified concept of “Lessee” to prevail). That being so, the obligation to repair fell upon AWF, subject to the exceptions, including that in the proviso excluding responsibility for “structural” maintenance, replacement or repair not “rendered necessary” by an act, omission or default of the lessee or by “the Lessee’s use or occupancy of the Demised Premises”. That raises the question whether repair arising from activities of AWF’s sub-tenant upon the premises was “rendered necessary … by the Lessee’s use or occupancy of the Demised Premises”.
20 The referee took the view that, on its proper construction, the lease did not make the lessee liable for the acts or omissions of a sub-lessee where the sub-lease had been expressly consented to by the lessor. Alamdo submits that this conclusion of law reached by the referee should not be accepted and that, as a matter of construction, repair of matters resulting from acts and omissions of the sub-tenant was “rendered necessary … by the Lessee’s use … of the Demised Premises”, the relevant “use” by AWF, as “the Lessee”, being the “use” of turning the premises to account by sub-letting them. That particular argument was not put to the referee but is open upon the present applications, given that it goes to a question of law as to the proper construction of the lease.
21 Mr Jackman SC, who appeared for Alamdo, referred to the decision of the High Court in Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 in support of the proposition that a person having an estate in land may be taken to “use” the land by leasing it to another. The reasoning in that case and in earlier analogous cases was discussed in the joint judgment of Gallop, Lockhart and Neaves JJ in Re Attorney-General for the Australian Capital Territory (1990) 26 FCR 82:
“It is trite that the words of a statute must be read in their context. The verb ‘to use’ and its derivatives are words whose meaning will depend, to a very great extent, upon the context in which they are employed. The wide variety of contexts in which the verb appears is graphically illustrated by a perusal of Stroud's Judicial Dictionary (5th ed, 1986), and Words and Phrases Legally Defined (3rd ed). However, most of the decided cases which have considered the verb ‘to use’ or its derivatives have done so in a context very different from the context of s 27(2) of the Planning and Land Management Act and are, in consequence, of limited assistance in the present case.
Many of the authorities describe the verb ‘to use’ as one of wide import: see, for example, Newcastle City Council v Royal Newcastle Hospital (1957) 96 CLR 493, per Taylor J (at 515); Ryde Municipal Council v Macquarie University (supra), per Gibbs ACJ (at 637); see also what was said by Lord Evershed MR, speaking for the Court of Appeal, in Shell-Mex and BP Ltd v Clayton [1955] 1 WLR 982 at 1004; [1955] 3 All ER 102 at 117. His Lordship referred, with obvious approval, to the following statement by Stirling J in British Motor Syndicate Ltd v Taylor & Son [1900] 1 Ch 577 at 583: ‘The first meaning assigned to the word “use” in Johnson's Dictionary is “to employ to any purpose”; it is, therefore a word of wide signification’. This is probably as close as one can get to an accurate, albeit broad, definition of the word for presently relevant purposes. Land may be said to be ‘used’ within the meaning of s 27(2) if it is held or possessed so as to derive revenue, profit or other benefit from it: Shorter Oxford English Dictionary.
Not only is ‘use’ a word of wide signification, it is also a word which does not have a precise meaning: Arbuckle Smith & Co Ltd v Greenock Corporation [1960] AC 813, per Lord Radcliffe (at 828). His Lordship added that ‘in general it conveys the idea of enjoyment derived by the user from the corpus of the object enjoyed’.
A decision which is of assistance in determining the meaning to be ascribed to the word ‘used’ in the context in which it appears in s 27(2) is Ryde Municipal Council v Macquarie University (supra). That case concerned s 132(1) of the Local Government Act 1919 (NSW) whereby all land in a municipality was declared to be rateable, the section, however, containing a number of exceptions including:
‘(fii) Land which is vested in the Macquarie University, or in a college thereof, and is used or occupied by the University or college, as the case may be, solely for the purposes thereof.’
Parts of a building erected in the grounds of the University were let to tenants who conducted therein with a view to profit retail shops, a travel centre and branches of two banks. The shops and the banks principally served the convenience of the staff and students of the University, but they were also open to the general public. It was held by Gibbs ACJ, Stephen and Murphy JJ, Jacobs and Aickin JJ dissenting, that the land on which the shops and commercial facilities were conducted was ‘used’ by the University ‘solely for the purposes thereof’ within s 132(1)(fii). Gibbs ACJ, after reference to authority, said (at 643) that land vested in the University may be ‘used ... solely for the purposes thereof’ within par (fii) ‘notwithstanding that it is occupied by a tenant holding under a lease’. His Honour said (at 638-639):
‘A person who owns land may be said to use it for his own purposes notwithstanding that he permits someone else to occupy it, even under a lease. That is almost beyond argument when the owner's purpose is to acquire income. In the ordinarily accepted meaning of the word a building is `used' for the purposes of acquiring income if rents are derived from it, and an owner of premises who leases them is making use of those premises by employing or applying them for the purpose of letting: Commissioner of Income Tax v Hanover Agencies Ltd [1967] 1 AC 681 at 689. But that is not the only way in which an owner of land may use it by letting it to someone else. An employer who provides premises in which he requires an employee to live so that the employee may perform more efficiently the duties of his position is in my opinion himself using those premises ... Where use, and not occupation, is in question, I can see no reason to disregard the indirect use which an employer makes of a house by providing it as a residence for the use of his employees. If, for example, a university considered it desirable in its own interests that the vice-chancellor should live in particular premises which the university owned, the university would, in my opinion, use those premises if it made them available as a residence for the vice-chancellor, and this would be so whether the premises were let or occupied under licence.’
Stephen J, in whose judgment Murphy J agreed (at 647) concluded that the word ‘used’ in the phrase ‘used ... by the university ... solely for the purposes thereof’ referred not to the active, personal use of the land by the University as the owner of it but to its use by being made available by the University for use by others for a particular purpose.”
22 I am satisfied that 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 who lives or carries on some business or other pursuit in the premises as also “using” them. The respective “uses” are of different kinds, with 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.
23 Accepting that sub-letting by AWF constituted “use” of the part of the leased property by AWF and that the actual activities of a sub-lessee from AWF upon the part of the leased property the subject of its sub-lease constituted, quite separately, “use” of the premises by the sub-lessee, it becomes necessary to consider whether structural maintenance, replacement or repair that became necessary during the term of one of the sub-lessee’s sub-lease were “rendered necessary by” the “use” by AWF.
24 It is true that, but for the sub-lease granted by AWF, such requirements for structural repair as may have flowed from activities of AWF’s sub-lessee would not have arisen. Had it not been for the sub-lease and the right of exclusive possession it conferred on the sub-lessee, the activities of the sub-lessee upon the premises giving rise to the need for structural repair would not have occurred. At the same time the grant of the sub-lease could in no sense be seen as producing any such requirement independently of the activities of the sub-tenant. Had the sub-lease been granted and the premises either been left vacant by the sub-lessee or made the scene of activities not leading to any such requirement, the “use” by AWF represented by its having granted the sub-lease would not have been the source of any need for structural repair. Where the sub-lessee makes the premises the scene of activities and those activities have such an effect upon and in relation to the premises that a need for repairs arises, the source of the need is the sub-lessee’s activities – that is, its “use” – even though the occasion for that “use” would not have existed but for the “use” consisting of AWF’s granting of the sub-lease. In these circumstances, 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”.
25 For these reasons, I consider that (subject to the argument as to a possibly broader meaning of “Lessee” having emerged by reason of events at the time of consent to sub-letting) the referee was correct, as a matter of law, in proceeding on the basis that he did, namely, that any repairs to put right matters occurring by reason of activities of AWF’s sub-lessee upon part of the leased property sub-let to it by AWF were not “rendered necessary … by the Lessee’s use or occupancy of the Demised Premises”. I accept, in this respect, the submission of Mr Meagher SC on behalf of AWF that AWF’s “use” by sub-letting was not, in any way, causative of the need for repairs. That “use” was confined to making the property available to the sub-lessee. It was the independent activity (or “use”) of the sub-lessee that rendered repairs necessary.
Before setting out the submissions, I should note that the sub-lease to Quad contained the provision that “the premises shall be used only as Transport and Distribution” and contained the following covenant by the tenant:
12. To take care of the premises and to keep them in a clean condition, and in particular:
(a)To make no alterations or additions to the premises, including the erection of any sign or antenna, without the written consent of the landlord.
(b)To do no decorating that involves marking, defacing, or painting any part of the premises, without the written consent of the landlord.
(c)To put nothing down any sink, toilet or drain likely to cause obstruction or damage.
(d)To keep no animals or birds on the premises, without the written consent of the landlord.
(e)To ensure that rubbish is not accumulated on the premises and to cause all trade refuse to be removed regularly in a manner acceptable to the landlord.
(f)To ensure that nothing is done that might prejudice any insurance which the landlord has in relation to the premises.
(g)To notify the landlord promptly of any loss, damage or defect in the premises.
(h)To notify the landlord promptly of any infectious disease, or the presence of rats, cockroaches or similar pests.
It also contained the following term:
21(a)The tenant shall have repaired in a proper way any damage to the premises resulting from neglect or a deliberate or careless act or a breach of any condition of the lease by the tenant or any person on the premises with his consent.
(b)Except as in Condition 21(a), the landlord shall carry out without delay all reasonable repairs necessary for the tenant’s ordinary use and occupation of the premises, having regard to the condition of the premises at the commencement of the lease.
It seems clear that Areas 1-3, like Areas 4-7, were designed as light duty pavements suitable for cars and light commercial vehicles only (see referee’s report, paragraph [297]). While AWF was in occupation of Unit 1, Areas 1-3 were used only for light vehicles. However, when Quad took over Unit 1 in 1997, it brought on to the land and stored heavy containers, equipment and machines. It used forklifts to move the heavy containers, equipment and machines. Containers often contained air conditioners weighing 7.5 tonnes, and the weight of a loaded sea container would be 10 tonnes. (See referee’s report, paragraph [46]) The referee made the following finding (report, paragraph [298]):
Although there is considerable conflict in the evidence on the issues whether the surface of the damaged Areas was first weakened by the entry of water on them and then ponding and thereafter further damage by the entry on the areas of vehicles heavier than the surface was designed to accommodate and the parking on the surface of weighty goods, it seems clear enough that the ultimate damage to the surface of the Areas was due to the twin causes of excessive weight on the bitumen and water penetration of the surface.
Submissions
Mr. McHugh submitted the primary judge was correct to hold that the word “used” extended to use by way of sub-letting, because “used” was a word of wide import: Ryde Municipal Council v. Macquarie University (1978) 139 CLR 633 at 647.
However, Mr. McHugh submitted, the primary judge used too narrow a concept of causation. March v. E. & M.H. Stramare Pty. Limited (1991) 171 CLR 506 requires that a common sense view be taken of causation; and on that view, the repairs were made necessary by the sub-letting of the premises to Quad. It was not relevant that the premises might have been left vacant by a sub-lessee or made the scene of activities not leading to any requirement for repair.
Mr. McHugh submitted that the primary judge’s construction of cl.5.1 produced the anomaly that, if a sub-lessee were to knock down and destroy one of the buildings on the Demised Premises, the Lessee would have no liability to the Lessor arising from the structural damage.
In oral submissions, Mr. McHugh pointed out that the sub-lease authorised Quad to use the premises for transport and distribution, and that overloading of the bitumen was not outside what was reasonably contemplated; and that to make the damage something not caused by the sub-letting there would need to be more than breach of the sub-lease, something in the nature of a novus actus interveniens. The primary judge erred in reasoning that, because the damage was caused by Quad’s use of the premises, it was not caused by AWF’s use.
Mr. Gleeson submitted that the expression “Lessee’s use” in cl.5.1 referred to the actual activities of the Lessee on and in the Demised Premises. The expressions “use” and “occupy” appear in several places in the lease, and in each case the word “use” refers to activities undertaken on the Demised Premises. In cases concerning interpretation of statutes concerning the use of land, it has been held that land which has been leased is not used by the owner because the owner has parted with use and occupation of the land: Commissioners of Taxation v. Trustees of St. Mark’s Glebe [1902] AC 416 at 420-421 and Randwick Municipal Council v. Rutledge (1959) 102 CLR 54 at 88.
Even if the primary judge were correct to have held that the sub-letting of the premises could properly be characterised as a use of the premises by the Lessee, Mr. Gleeson submitted the connection between that use and any need for structural repairs was too remote to enable a conclusion that the structural repairs were necessitated by the Lessee’s use.
Mr. Gleeson submitted that the inclusion in the Lease of the usual covenant against sub-letting the Demised Premises meant that the Lessor could readily have obtained direct contractual protection against acts of a sub-lessee which caused damage to the Demised Premises.
Mr. Gleeson submitted orally that the sub-lease did not amount to a positive request or authorisation to Quad to use the premises for transport or distribution, but rather was a confining to that use. And once AWF had parted with possession, they had no right to control Quad’s use of the premises and could not control that use. AWF never ran a case that the repair was rendered necessary by AWF’s failure to require Quad to make good the damage.
Decision
I accept that Alamdo could have made consent to entry into the sub-lease to Quad conditional on Quad undertaking directly to Alamdo to be liable for any damage caused by its negligent conduct. Accordingly, I see no anomaly from the circumstance that the primary judge’s construction would leave Alamdo without a remedy in respect of negligent damage of the premises by a sub-lessee.
However, in my opinion the primary judge was correct to hold that “the Lessee’s use … of the Demised Premises” is wide enough to encompass use by way of sub-letting the premises. In my opinion, the words “use or occupancy” indicate that use is there used in a way different from occupancy. The question is, was the repair that was made necessary by damage caused by Quad “rendered necessary … by the Lessee’s use … of the Demised Premises”?
If the sub-lease had explicitly permitted Quad to use Areas 1-3, which were suitable for light duty only, for the movement and parking of heavy vehicles likely to damage the pavement of these areas, and Quad had then done this and damaged the pavement, I would have concluded that consequential repairs were rendered necessary by AWF’s use of the premises, such use being its sub-leasing the premises to Quad on terms that permitted Quad to cause this damage, and Quad acting on that permission and causing the damage. The fact that the damage was caused by Quad’s use would not preclude it also being caused by AWF’s use.
What actually happened was a sub-lease to Quad for the purpose of transport and distribution, a purpose likely to involve use of heavy vehicles and equipment, though not necessarily their use on light duty paving areas. The sub-lease had covenants by Quad to take care of the premises, and to repair damage resulting from its neglect or careless act. In those circumstances, Mr. Gleeson’s submission that AWF had no right to control, and could not control, Quad’s use of the premises is not wholly correct. To the extent that the sub-lease did not authorise Quad to use light duty pavement for the movement and parking of heavy vehicles and equipment, and Quad nevertheless did this and thereby caused damage, the sub-lease did give AWF a measure of control.
It is true that no claim was made by Alamdo that AWF was liable for repairs because they were “rendered necessary” by “any … omission … on the part of the Lessee”; that is, by AWF’s failure to require Quad to make good the damage. However, this does not prevent the omission of AWF to enforce compliance with Quad’s covenants so as to prevent or remedy the damage caused by Quad from being one aspect of AWF’s use of the premises by sub-letting relevant to consideration of whether the repair was rendered necessary by the Lessee’s use.
I find this a difficult question; but in my opinion, the circumstance that the sub-lease was to Quad for a purpose that could involve the use of heavy vehicles and equipment on the light duty pavement, and the circumstance that this occurred and damage resulted, notwithstanding provisions of the sub-lease which entitled AWF to require that the damage be prevented or remedied, are sufficient to make the necessity for repair something which, as a matter of common sense, was caused by AWF’s use of the premises in entering into the sub-lease and dealing in that way with its sub-lessee. To put this matter another way, the damage that occurred was within a risk created by the sub-lease, and occurred in a way that can reasonably be considered a materialisation of that risk, rather than arising independently of it.
Accordingly, in my opinion AWF is liable for damage to Areas 1-3, to the extent that it was caused by Quad’s excessive use. It is common ground that Alamdo in fact repaired this area to a better standard than previously, so any damages must not include the cost of these repairs to the extent that they reflect this betterment.
NEGLIGENT USE OF FACILITIES BY QUAD (CL.7.1(c)(i))
I have already set out cl.7.1 in para.[15]. This clause was not relied on by Alamdo before the referee, but was relied on before the primary judge on the basis that the costs of repair of Areas 1-3 fell within the words “losses, damages, costs and expenses for which the Lessor may become liable … arising from … the negligent or careless use … by … any other person claiming through or under the Lessee of … facilities of the Demised Premises” within cl.7.1(c)(i).
The primary judge accepted that Quad was a person claiming through or under the Lessee, and that the bitumen areas were facilities of the Demised Premises. However, he considered that the indemnity provided by cl.7.1(c) was enlivened only in circumstances where Almado was caused to have a legally enforceable obligation or liability to some other person, and not where damage was caused to Alamdo’s own property which Alamdo then incurred expense in having repaired.
Submissions
Mr. McHugh submitted that although the indemnities given by cl.7.1(a) and cl.7.1(b) were directed to the liability of Alamdo to third parties, cl.7.1(c) was not so limited. This was shown by the reference to “losses, damages, costs and expenses”, and also by cl.7.1(c)(iv) relating to “loss damage or injury … to the Demised Premises”. (It should be noted that cl.7.1(c)(iv) could not apply here, because it does not include sub-lessees among persons whose neglect etc. can enliven it.) The word “liable” extends to where a person is liable as a matter of practical necessity, for example, liable to incur expenses to repair damaged property, and also to liability to contractors to do work made necessary by the careless use.
Mr. Gleeson submitted that the primary judge was in error in finding that Quad was a person claiming through or under the Lessee, and also submitted that “facilities” in cl.7.1(c)(i) should be read as referring to something like services of the nature of water, electricity etc.
In any event, he submitted, the primary judge was correct to hold that cl.7.1(c), like cls.7.1(a) and 7.1(b), dealt with liability to third parties. He submitted that cl.7.1(c)(iv) does not indicate otherwise because a lessor can become liable to third parties as a result of damage to demised premises, for example if a local authority gives a statutory notice requiring that the damage be remedied.
Decision
In my opinion, the primary judge was plainly correct to hold that Quad was a person claiming through or under the Lessee; and in my opinion, he was also correct to hold that the bitumen areas fell within the word “facilities”. There is in my opinion insufficient basis to read that word narrowly, where the only relevant class that could be used to restrict its meaning is that of services, and where the word “services” is used as well as the word “facilities”.
There is force in Mr. Gleeson’s explanation of cl.7.1(c)(iv), and in his submission that cl.7.1(c) should, like cls.7.1(a) and 7.1(b), be considered as directed to liability incurred to third parties. However, on the whole I think the better view is that cl.7.1(c)(iv) does indicate that one should not give a narrow construction to the words “losses, damages, … for which the Lessor may become liable”, and that these words should extend to include liability arising by reason of a practical necessity to remedy damage caused to property, and also liability incurred to third persons who have reasonably been engaged to do that work.
In my opinion, “losses, damages, costs and expenses for which the Lessor may become liable in respect of or arising from … loss, damage or injury … to the Demised Premises” must include the cost of rectifying that loss, damage or injury, either on the basis that the Lessor is liable to incur costs as a matter of practical necessity or because the Lessor becomes legally liable to contractors engaged to do the work. I would not read sub-paragraph (iv) of cl.7.1(c) as limited to such matters as liability to comply with Council notices.
If, as I believe they should be, the words “losses, damages, costs and expenses for which the Lessor may become liable” are read in that way in relation to sub-paragraph (iv) of cl.7.1(c), they should be read in the same way in relation to sub-paragraph (i). The damage caused by Quad to the bitumen areas 1-3 did arise from misuse by Quad, a person claiming through or under AWF, of a facility fo the demised premises; and the costs of repair of those areas are costs and expenses for which Alamdo became liable in respect of or arising from that misuse.
Accordingly, on this ground also, in my opinion AWF is liable in respect of the cost of repairs to Areas 1-3, to the extent previously indicated.
REPAINTING THE ROOF
This issue concerns the interpretation of cl.5.2 of the lease, which is as follows:
5.2 Without prejudice to the provisions of Clauses 5.1 and 10.4 hereof, the Lessee will in the last year of the term and from time to time if necessary or reasonably required by the Lessor paint, repaint, clean or otherwise appropriately treat in a proper and workmanlike manner such part of the Demised Premises usually so treated.
The primary judge dealt with this issue as follows:
62 The referee found that the roof was of galvanised steel of a type expected to be maintenance free during its expected serviceable life. He also found that it was coated in the course of manufacture and is not usually painted during its normal service life; also that, because it was not designed to be painted on a periodic basis and was supposed to be a paint-free product, it did not fall within clause 5.2. The referee noted that some previous owners had sought to extend the life of the roof beyond its normal service life by overcoating. He then referred to competing submissions: viz, the submission of AWF that, in view of the matters mentioned and the fact that the roof was beyond painting, the surface was not one that was “usually” painted or otherwise coated; and the submission of Alamdo that the test to be applied is an objective one. The matter appears to have been disposed of by the referee in accordance with AWF’s submissions, so far as clause 5.2 is concerned. The referee also referred to “the structural maintenance exception” and the exception for “reasonable wear and tear”, but as they are relevant to clause 5.1 and not to clause 5.2, his findings on them may be disregarded. The real issue in this context is as to the operation of clause 5.2 alone.
63 Alamdo submits and I accept that the only real issue under clause 5.2, so far as the roof is concerned, is that arising from the words “usually so treated”. This is because the question at hand relates to the last year of the term where the liability the clause imposes is otherwise strict.
64 Provisions generally similar to clause 5.2 are common in leases. The covenants in items 9 and 10 of Part II of Schedule IV to the Conveyancing Act 1919 are in some respects similar to clause 5.2, although each uses the words “now or usually painted”. Submissions do not refer to any decided cases in which words such as “usually so treated” in covenants of this kind have been considered. Nor have my researches found any. On the basis that - surprisingly, I think - there is no guidance to be had from case law, I proceed to construe the clause by reference to its words and its context.
65 The parties have made competing submissions as to the meaning of “such part of the Demised Premises usually so treated”, noting that “so treated” refers back to the words “paint, repaint, clean or otherwise appropriately treat”. Both “paint” and “repaint” appear here.
66 The controversy is whether “usually so treated” directs attention to what has historically been done at the particular premises under consideration or whether the relevant standard is one that has regard to the generality of premises and what people habitually do at or in relation to premises of the relevant kind. If the first possibility represents the correct construction, the scope of “usually so treated” will be fixed by what was in fact done to these particular premises at inception. Nothing will be “usual” that was not done originally. The second possibility, by contrast, imports an objective standard that has regard to the treatment of buildings generally.
67 One factor in particular persuades me that the latter construction is to be preferred so far as this particular provision is concerned. I refer to the inclusion of both “paint” and “repaint”. If the first meaning were accepted, there would be no work to be done by the word “paint”, as distinct from “repaint”. The latter word must be taken to refer to the process of applying new paint to something previously painted. It cannot refer to the application of paint for the first time. “Paint” (as a verb), on the other hand, encompasses the application of paint to either a surface that has been painted before or to one that has never been painted. It is this last aspect that, to my mind, rules out the history of treatment of the particular premises as the determinant of what is “usual”. If that standard applied and everything were judged according to what was done to the particular premises at their inception, the only parts to which paint was to be applied in conformity with clause 5.2 would be those painted at inception. And that would, in every case, be properly described as “repainting”, so that the concept of “paint” – encompassing the application of paint for the first time – would never be capable of coming into play.
68 Accepting, as I do (and as did the referee), the objective test of what is “usual” for the purposes of clause 5.2, I turn to the referee’s conclusion on the application of clause 5.2 to the repainting of the roof. The referee appears to have taken the relevant question to be whether someone responsible for a building with a roof of the particular material in question (galvanised steel coated during manufacture and expected to be maintenance free during its serviceable life without painting) would, as a matter of upkeep according to the generally applicable objective standard, either “paint” or “repaint” that roof. He answered that question in the negative.
69 There is an argument that, once the material in question reaches the end of its life, painting becomes “usual” because the hypothetical building owner or manager following generally adopted procedures would then resort to painting in order to secure some extension of the roof’s life. I do not accept that argument. Given the inclusion in clause 5.2 of the words “or otherwise appropriately treat”, acceptance of the argument would mean that, once the roof reached the end of its serviceable life or was about to do so, clause 5.2 caused to come into play an obligation not only to paint so as to postpone renewal but also to effect other treatments to that end – perhaps to the extent of applying some bituminous coating or sticking on some form of plastic sheeting, assuming one could find examples of other cases in the ordinary run of building management where those steps were taken in order to extend the life of the roofing metal or, at all events, the effectiveness of the roof made of the old and worn out metal.
70 In my judgment, the relevant criterion of what is “usual”, for the purposes of clause 5.2, is to be approached by reference to what is habitually done by way of painting and other “treatment” of the particular material in the ordinary course as that material proceeds towards the end of its useful life. A clause such as clause 5.2 does not have in contemplation the taking of steps of a new and different kind with a specific purpose of prolonging life beyond the conclusion it would have in the ordinary course of deterioration.
71 I therefore do not accept the contention of Alamdo that the referee wrongly construed clause 5.2 in concluding that AWF was not required to repaint the roof during the last year of the term.
Submissions
In relation to (ii), the term “use” is an ordinary English word which can have different meanings in different contexts. One can conduct activities on premises through parties and be said to apply the premises for one’s own purposes and hence to use the premises. In some cases one can “use” land by doing nothing with it: see, eg, Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493. Use does not require presence on or activities on any particular area of land or over any particular period of time. However, where a person parts with possession of land the use made by the landlord and the use made by the lessee may be viewed differently. The landlord may use the land as an investment, whilst the lessee may use the land for a business or residence. The business is not a use of or by the landlord, nor is the residence a use of or by the landlord. In my view, the lessee in the present case used the premises by sub-letting them, but the repairs rendered necessary by the acts of the sub-tenant were not, in a relevant legal sense, rendered necessary by the lessee’s use of the premises.
It was clearly arguable that the structural repairs were rendered necessary by the failure of the sub-lessee to keep the premises in good repair, in accordance with its obligations under the sub-lease. It might also have been contended that the repairs which remained necessary at the termination of the lease were rendered necessary by the omission of the lessee to enforce the obligations of the sub-lease against the sub-lessee, that being an omission which may have fallen within limb (i) of the proviso as identified at [134] above. However, it was common ground that no claim was based on the first limb of the proviso, either before the referee or before the primary judge: Tcpt on appeal, 5/5/2006, pp 8-9. The purpose in raising it at this stage is not to suggest that the lessor could have succeeded on that basis, but rather to support the view that a more limited construction of the concept of repairs caused by the lessee’s “use” of the demised premises, would not necessarily give rise to some surprising or unexpected gap in the lessor’s rights under the lease.
Liability of AWF under clause 7.1
The alternative basis upon which Alamdo sought to establish liability on the part of AWF was by reliance on the indemnity given in clause 7.1 of the lease, set out [15] above. While the argument focused on sub-paragraphs 7.1(c)(i) and (iv), the context in which those sub-paragraphs operate should be noted. Sub-clause 7.1(a) constitutes a release granted by the lessee to the lessor; to the same end, sub-clause 7.1(b) is an indemnity granted by the lessee to the lessor. Sub-clause 7.1(c) is formulated as an exegesis on the scope of paragraphs (a) and (b), which is expressed not to limit their “generality”. It is in the form of an indemnity. The opening words of the paragraph include an indemnity for “losses … for which the lessor may become liable” in certain respects. Although, as accepted by Hodgson JA at [73]-[75] above, that language may encompass damage to the premises which the lessor may need to make good, that result would be clearer if the paragraph included a reference to losses ‘suffered’, rather than merely loses for which the lessor becomes liable.
However the limitation becomes clearer from the specification of the events, relevantly for present purposes, being those found in sub-paragraphs (i) and (iv). The cause of the liability must be the use or misuse of the services and facilities of the demised premises by one of a class of persons which does not expressly include sub-lessees, but does in sub-par (i) include “any other person claiming through or under the lessee”. Assuming that damage to the demised premises falls within the potential losses for which the lessor is liable, the paragraph is inapt to include loss caused by a sub-lessee as a “person claiming through or under the lessee”. No person is claiming against the lessor. Rather, this language suggests that the person identified (who has misused a service or facility) is the person to whom the lessor is claimed to be liable. In my view this sub-paragraph does not include the loss caused to the lessor by misuse of the facilities by a sub-lessee, who is making no claim or demand against the lessor.
Sub-paragraph (iv) may be closer to the mark, because it includes “loss, damage or injury from any cause whatsoever to the Demised Premises … .” (emphasis added). No negligent or careless misuse is required. However, the loss must be occasioned by the act of someone falling within an identified class, which does not include a sub-lessee, or a person ‘claiming under or through’ the lessee. Accordingly, sub-paragraph (iv) does not assist the Appellant either.
Conclusion
For these reasons, in my view AWF is not liable for the structural repairs identified for the purposes of the appeal.
I would grant leave to Alamdo to appeal with respect to the issues identified by Hodgson JA as issues (1)-(4), but I would reject the appeal. I would refuse leave to Alamdo and to AWF to appeal or cross-appeal respectively, in relation to issue (5). I would order Alamdo to pay the Respondent’s costs of the application and the appeal.
McCLELLAN CJ at CL: I have had the benefit of reading in draft the judgments of Hodgson and Basten JJA.
I agree with Hodgson JA in relation to his Honour’s resolution of issues (1A) and (1C).
In relation to issue (1B) I agree with Hodgson JA that in relation to areas (4-7) the damage involved no more than reasonable wear and tear. To my mind there is a significant difference between a road pavement which involves the integrated construction of sub-base with a surface seal and a building where the roof forms a separate component of the entirety. In the ordinary course surface cracks will appear in the road surface which will allow penetration and ultimately failure of the road which when it was constructed had a predictable and finite life depending on the nature and quality of both the sub-base and the seal.
However, in relation to issues (1D) and (1E) I agree with Basten JA and, but for one matter, with the reasons his Honour gives. To my mind there are significant difficulties in applying concepts developed to resolve issues with respect to planning and rating problems to the commercial arrangements between contracting parties. Although I accept that in some contexts a person may use land by subletting it, it seems to me that significant to an understanding of the present contractual arrangements is the requirement, in cl 4.3, which effectively provided for the lessor to consent to the sub-leasing arrangements. In that event although the act of sub-leasing may be a use of the premises, the activities of the sub-lessee, who thereafter has possession of the premises, could not be understood as a use of the premises by the lessee. Although not itself determinative it is an indication that the parties intended, absent any provision in the sub-lease, that the sub-lessee’s activities would not be the use of the lessee.
I agree with the orders proposed by Basten JA.
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