AWH Pty Ltd v Impact Fertilisers Australia Pty Ltd
[2015] VCC 346
•22 May 2015
cu19
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for Publication |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
Case No. CI-13-04986
| AWH PTY LTD | Plaintiff |
| v | |
| IMPACT FERTILISERS AUSTRALIA PTY LTD | Defendant |
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JUDGE: | LEWITAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16, 17, 18, 19, 20, 23, 24 and 25 March 2015 | |
DATE OF JUDGMENT: | 22 May 2015 | |
CASE MAY BE CITED AS: | AWH Pty Ltd v Impact Fertilisers Australia Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 346 | |
REASONS FOR JUDGMENT
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Subject:Construction of Lease, fair wear and tear, structural repairs, make good provisions
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff For the Defendant | Mr C McCarthy Mr C E Shaw | Grope Hamilton Lawyers HWL Ebsworth |
TABLE OF CONTENTS
(a) Background 2
(b) The construction of clause 2.4(t) of the first and second sub-leases 7
(c) The warranty claim................................................................................................................... 14
(d) The condition of the premises at the commencement of each of the sub-leases... 15
(e) Fair wear and tear..................................................................................................................... 20
(f) Improvements, structural or capital works.......................................................................... 45
(g) Betterment.................................................................................................................................. 51
(h) Implied covenant to deliver up the leased premises in a tenant like manner........... 53
(i) Waste............................................................................................................................................. 54
(j) Estoppel........................................................................................................................................ 55
(k) Make Good Expenses.............................................................................................................. 58
(l) Counterclaim............................................................................................................................... 65
(m) Conclusion................................................................................................................................ 69
HER HONOUR:
1 AWH Pty Ltd (AWH) occupied four warehouses (stores A-D) at 250 Forest Road South, Lara (the premises). AWH leased the western and central areas of store D (the leased premises) to Impact Fertilisers Australia Pty Ltd (Impact) pursuant to two sub-leases dated 1 March 2007 and 1 January 2008 respectively (the sub-leases). Impact stored and handled non-hazardous fertilisers at the leased premises. Impact vacated the leased premises on 30 April 2012. At that time there was corrosion damage to the leased premises. AWH claims that Impact is liable for the cost of rectifying the corrosion damage. Impact denies that it is liable to AWH as the damage to the leased premises was caused by fair wear and tear. Impact also contends that the repairs to the leased premises are improvements, structural or capital works which Impact is not obliged to carry out pursuant to the terms of the sub-leases.
2 The parties have agreed that the quantum of repairing the roof and walls of the leased premises is $1,050,000.
(a) Background
3 Store D measures 115 metres by 270.8 metres. The area leased under the first sub-lease was approximately 7935 square metres at the western end of the building and measures approximately 115 metres by 69 metres (the first sub- leased premises). The area leased under the second sub-lease was approximately 11,040 square metres (the second sub-leased premises) increasing Impact’s storage capacity to a total of 18,900 square metres.
4 AWH is a warehousing and logistic business. AWH predominantly handles agricultural products and mainly wool at Lara. AWH also handles cotton and dry bulk such as fertiliser, grains and meals. In addition AWH has a property leasing division which leases spare space to other tenants such as Cotton On Clothing, which leases store C at the premises.[1]
[1] Transcript p 173.
5 Jamie Leigh Crimmins was appointed administration manager of AWH on 9 June 2005. He manages all leases for AWH tenants in Victoria.[2] He has a bachelor of economics degree with an accounting major from Monash University in 1994. He was also a certified practising accountant from 1999.[3]
[2] Transcript p 172.
[3] Transcript p 171.
6 Impact Fertilisers Pty Ltd was a Tasmanian-based company. Impact Fertilisers Australia Pty Ltd is a joint venture formed in 2006 between Impact Fertilisers Pty Ltd and Ameropa, (a Swiss based trading company). [4] Impact was set up to store and distribute fertiliser to the mainland of Australia.[5] Between 2007 and 2012 Impact was an importer, a provider of storage, and a sales company of a wholesale nature to retailers throughout eastern Australia.[6] Impact supplied a range of fertiliser products, most of which were imported but some of which were manufactured domestically.[7] Some of the common fertiliser products were superphosphate, diammonium phosphate (DAP), monoammonium phosphate (MAP), urea, muriate of potash (MOP), ammonium sulphate, potassium chloride (KCL), triple superphosphate and a range of other trace elements. Impact’s customers were retailers in the rural agricultural sector.
[4] Transcript p 639.
[5] Transcript p 639.
[6] Transcript p 639.
[7] Transcript p 639.
7 International Marketing & Logistics Pty Ltd (Jebsens) were to manage the first sub-leased premises on behalf of Impact.[8] Ross Colley was the site manager for Jebsens.[9] Peter Cornish was the Chief Executive Officer of Impact at the time.[10] Mr Cornish dealt with two people at Jebsens; Grant Williams (logistics manager) and Ross Colley.[11] Ross Colley was the practical hands on organiser of the first sub-leased premises.[12]
[8] Transcript p 180.
[9] Transcript p 180.
[10] Transcript p 182.
[11] Transcript p 641.
[12] Transcript p 641.
History of occupation of store D and prior fertiliser use
8 I accept Mr Crimmins’ evidence about the history of occupation of store D. Mr Crimmins referred to the summary of the history of occupation of store D contained in Exhibit 29. Each of the occupiers referred to in that summary dealt with fertiliser in some way.[13] Far East Fertilisers Pty Ltd occupied 7,100 square metres from July 1997 until October 1997, 5980 square metres from 14 Oct 97 until 17 November 1997, 5115 square metres from 18 Nov 1997 until 11 May 1998 and 3250 square metres from 12 May 1998 until 17 June 1998. Far East Fertilisers Pty Ltd sold their stockpile of product to Kohl Refining International. Ownership of the product was transferred to Elders Ltd who occupied the premises from 23 June 1998 to 4 August 1998.[14] Elders Ltd returned on 4 Aug in 2006 and stored product in the north –east corner of the eastern area of store D ( about 1920 square metres), which is the area subsequently occupied by AWH.
[13] Transcript p 266.
[14] Transcript p 266.
9 Hifert Pty Ltd (Hifert) occupied two sections of store D. From 15 July 2005 to 15 November 2006 Hifert occupied 2,500 square metres on the north-east part of the shed. [15] That was the area that was subsequently occupied by AWH. From 15 February 2006 until 15 November 2006 Hifert occupied 5000 square metres at the western end of the shed. That was the area that was subsequently occupied by Impact.[16] Hifert had loaders but they were not on the premises all the time. Hifert did not have anyone permanently based at Store D. Hifert did not have any machinery such as a blender or conveyers for the purpose of either loading trucks or creating bagged products of fertiliser.
[15] Transcript p 268.
[16] Transcript p 268.
10 Incitec Pivot Ltd (Incitec) occupied three areas. There was an area of 5625 square metres on the south, towards the south eastern end of the shed. That area was spread across both the areas subsequently leased by Impact and the area retained by AWH. Incitec also occupied an area at the western end of the shed. Incitec were storing a mixture of bulk and bagged fertiliser.[17] I accept Mr Crimmins evidence that it was not a busy store. While Incitec was in occupation of store D during Mr Crimmins’ time, Incitec was winding down and moving out. Incitec did not have any staff permanently based at Lara. Mr Crimmins did not recall seeing any machinery.[18] Incitec had both bulk product and bulk bags but essentially utilised the area it occupied at store D as long-term storage.[19]
[17] Transcript p 272.
[18] Transcript p 273.
[19] Transcript p 273.
11 I accept Mr Crimmins evidence that the operations of Impact were far more substantial than Hifert or Incitec, both in the size of the area occupied and the throughput of tonnage annually. The volume of trucks that went through on a daily basis was significantly more than previous fertiliser tenants. Impact had full-on hoppers, blenders, conveying and out-loading equipment.[20] A blender was used to blend different types of fertiliser to make certain mixes of fertiliser.[21] No other tenant had used a blender. The equipment and machinery was located in the centre section under the centre ridge vent. Previous fertiliser tenants had not stockpiled the product to anywhere near the height that Impact did. Impact was stockpiling the fertiliser fairly close to the roof in many parts of the store.[22]
[20] Transcript p 275.
[21] Transcript p 278.
[22] Transcript p 285.
12 In 2007 AWH initiated a program of replacing the skylights at the premises.[23] Mr Crimmins stated that it was necessary to replace the skylights mainly due to the fact that they were dirty and were not allowing enough light through from an occupational health and safety point of view. The skylights were at an age where they could not be cleaned because they were too brittle and had to be replaced.[24] John Drew Services Pty Ltd performed that work for AWH from 2008 to 2012.[25] In cross-examination Mr Crimmins stated that there would have been some problems with water leaking through the skylights.[26]
The first sub-lease
[23] Transcript p 283.
[24] Transcript p 284.
[25] Transcript p 284.
[26] Transcript p 289.
13 In late 2006 Jebsens submitted an expression of interest on behalf of Impact to pursue a lease of portion of store D.[27]
[27] Exhibit 7.
14 By early 2007 there was an agreement in principle between Impact and AWH for Impact to occupy 7935 square metres of warehouse space at the westernmost end of store D. The term was for three years.[28] The sub-lease formally commenced on 1 March 2007 but was not signed on that date (the first sub-lease).[29] The sub-lease contained a right of renewal for two further periods of 2 years. The second right of renewal at the end of the first renewal term on 28 February 2012 was not exercised in full. There was an agreement between the parties and Impact was allowed to stay in possession for a few more months, until 30 April 2012.
[28] Exhibit 1, p 65.
[29] Exhibit 1.
15 The rent (without adjustment per year for CPI or 4.25% whichever is greater) was $325, 335 per annum.[30]
[30] Exhibit 1, p 65.
The second sub-lease
16 In late 2007 there were negotiations which led to a lease dated 1 January 2008 for a further 11,040 square metres to the east of the western part of store D, the middle portion in the same warehouse.[31] Impact then occupied two-thirds of the whole of store D. The other third at the eastern end of store D was retained by AWH and used for wool handling and the storage of fertiliser.
[31] Exhibit 2.
17 The second sub-lease (the second sub-lease) was for a different area but is in substantially the same form as the first sub-lease. It had a different commencement date (1 January 2008) but a similar expiry date (28 February 2010).[32]
[32] Exhibit 2.
18 The rent (without adjustment per year for CPI or 4.25% which is greater) was $496,800 (plus GST) per annum.[33]
[33] Exhibit 2, p 112.
19 At the time Impact went into possession of both the first sub-leased premises and then the second sub-leased premises, a wall was constructed between the area that remained and was occupied by AWH, separating the area occupied by AWH from the area occupied by Impact.
The head lease[34]
[34] Exhibit 3.
20 Perpetual Trustee Company Ltd and AWH Pty Ltd entered into an agreement to lease the four stores (A-D) at the premises (the head lease). The commencement date was 1 July 2008. The date of expiry of the head lease is 30 June 2023.
(b) The construction of clause 2.4(t) of the first and second sub-leases
21 AWH contends that clause 2.4(t) requires Impact to give vacant possession of the leased premises in the condition and state of repair that existed at the commencement of the agreement. Clause 2.4(t) makes no reference to fair wear and tear. The construction urged by AWH supports a literal reading of clause 2.4(t). Impact submits that the clause not be given its literal application. Impact submits that there is an ambiguity in the terms of each of the sub-leases and that clause 2.4(t) should be read subject to clause 2.5(a)(i) which excludes any obligation to repair the leased premises in respect of fair wear and tear.
22 In Australian Broadcasting Commission v Australasian Performing Right Association Ltd Gibbs J stated:
It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, “even though the construction adopted is not the most obvious or the most grammatically accurate”, to use the words from earlier authority cited in Locke v Dunlop, which although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley’s Case. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. [35] (emphasis mine)
[35] [1973] 129 CLR 99, 109.
23 In Allstate Exploration NL v QBE Insurance (Australia) Ltd [36] the Court of Appeal considered the interpretation of a clause in an insurance policy. Pagone AJA held:
The parties agree that the policy should be given a business-like interpretation.[37] In that task the Court is to consider what reasonable people in the position of the parties would have understood the words to mean by reference to the text of the agreement, the surrounding circumstances known to the parties and the purpose or object of the transaction.[38] The interpretation of words and resolution of any ambiguity should be undertaken in a common sense and non-technical way to give the agreement a commercially sensible construction.[39] In that task, as the learned trial judge correctly held, the Court should have regard to all the words used in the agreement ‘so as to render them all harmonious with one another’ and to ensure ‘the congruent operation to the various components as a whole.’
[36] [2008] VSCA 148 [7].
[37] McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579,589 (Gleeson CJ); Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, 528-9.
[38] Pacific Carriers Ltd v BNP Parabas (2004) 218 CLR 451,462; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd and Ors (2004) 219 CLR 164, 179.
[39] Hillas v Arcos Ltd [1932] All ER 494, 499, 503-4; The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, 437; Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] 2 VR 732, 740; MLW Technology Pty Ltd v May [2005] VSCA 29, [76]-[81]; Mannai Investment Co ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, 770 -1.
24 I turn then to the terms of the sub- leases.
25 Permitted Use is defined to mean “the storage and handling of non-hazardous fertiliser, including the blending and bagging of bulk fertiliser and ancillary use.”
26 Under the heading “Sub-Lessee’s use of Sub-Lease Premises”:
2.4(a) Permitted Use
To use the Sub-Lease Premises only for the Permitted Use and in a manner consistent with that in which a business of that nature is usually conducted.
(b) Restriction on Floor Loading
To not place any load on the floor of the Sub-Lease Premises that exceeds 6.5 tonnes per square metre.
…
(e) Physical barriers
The Sub-Lessee shall be responsible for the cost and installation of appropriate physical barriers, or other devices, to prevent, as far as is practicable, the transfer of fertiliser dust from their operations to other parts of the Lara site.
…
(h) Heavy Equipment
The Sub-Lessee shall not install or position any heavy equipment or articles in the Sub-Lease Premises without the prior written approval of the Sub-Lessor, which will not be unreasonably withheld.
…
(m) Traffic Management Plan
The Sub-Lessor and the Sub-Lessee shall develop a traffic management plan for the site.
(n) Load Out Facility
The Sub-Lessee, or its contractors, may install, at their own cost, fertiliser load out facilities, blending equipment and a weighbridge within the Sub-Lease Premises.
(o) Concrete Pad
The Sub-Lessee, or its contractors, may construct, at their own cost, a concrete pad on the pavement outside the Northern door of the Sub-Lease Premises to enable trucks to safely access or exit the Sub-Lease Premises.
(p) Internal Walls
The Sub-Lessee, or its contractors, may construct, at their own cost, walls inside the Sub-Lease Premises, on the condition that the walls in no way compromise the structural integrity of the building. At the termination of the Sub-Lease these walls must be removed at the expense of the Sub-Lessee.
...
(r) Roadways and Hardstand Used Exclusively by the Sub-Lessee
The Sub-Lessee shall be responsible for the full cost of maintaining any roadways and hardstand on the site which are subsequently used exclusively by the Sub-Lessee, its contractors, clients or customers. It is noted by the parties that as the date entering into this Sub-Lease there are no such roadways for the exclusive use of the Sub-Lessee.
(s) Shared Roadways
The Sub-Lessee shall be responsible for a share of the cost of maintaining the Shared Roadways (as highlighted in red on the attached plan and initialled by the Sub-Lessor and Sub-Lessee) on a basis to be agreed between the parties.
(t) Vacant Possession
Upon termination or determination of the agreement the Sub-Lessee shall promptly and peacefully give vacant possession of the Sub-Lease Premises in the condition and state of repair that existed at the commencement of the agreement and shall deliver to the Sub-Lessor all keys to the Sub-Lease Premises.
27 Under the heading “2.5 Maintain Sub-Lease premises”:
(a) Repair
(i) At the Sub-Lessee’s cost, to maintain, replace repair and keep the Sub-Lease Premises clean substantially free of pollutants and contaminants and in good and substantial repair and working order, having regard to the condition of the Sub-Lease Premises at the commencement of this Sub-Lease but excluding any obligation in respect of fair wear and tear (including to replace or repair damage resulting from any inherent or latent defects in the condition of the Sub-Lease Premises at the commencement of this Sub-Lease where such defects are manifested in some physical way during the Term).
(ii) The Sub-Lessor agrees that the Sub-Lessee may carry out any maintenance or repair it is obliged to carry out under this Sub-Lease at such time that the Sub-Lessee determines as long as:
(A)the Sub-Lessee must deliver up the Sub-Lease Premises to the Sub-Lessor at the end of the Term (or on its earlier determination), subject to clause 2.5(a)(i), in the condition the Sub-Lease Premises were in at the commencement of this Sub-Lease;
…
(iv) The Sub-Lessee acknowledges that nothing in this clause 2.5(a) imposes any obligation on the Sub-Lessor to repair or maintain fair wear and tear in respect of the Sub-Lease Premises (but excluding any roadways) unless such fair wear and tear creates a safety hazard or substantially interferes with the Sub-Lessee’s ability to carry on its Business (being the Business carried on by the Sub-Lessee on commencement of this Sub-Lease).
(v) The Sub-Lessor acknowledges that nothing in this clause 2.5(a) imposes any obligation on the Sub-Lessee to perform or make any improvements, structural or capital works.
(vi) For the purposes of clause 2.5(a)(i) the parties agree that the condition of the Sub-Lease Premises at the commencement of this Sub-Lease shall be detailed in the condition report attached as Exhibit C to this Sub-Lease.
(b) Remedy breakage
To repair any breakage, defect or damage to the Sub-Lease Premises or any facility or appurtenance of the Sub-Lease Premises resulting from lack of care, misuse or abuse on the part of or other occasioned by the Sub-Lessee or the Sub-Lessee’s employees, agents, contractors, sub-tenants or invitees.
28 The Sub-Lessor covenants with the Sub-Lessee:
…
3.3 Condition at Commencement
That the Sub-Lease Premises are in a fit condition for use at the commencement of the Sub-Lease.
29 Under the heading, Essential Terms and damages:
4.4 (a) Essential terms
The following obligations of the Sub-lease are essential terms of this Sub-Lease:
…
(ii) the obligations under clauses 2.4(a), 2.4(d), 2.5, 2.7, 2.9 and 2.13, 4.3 and 4.8.
4.13 Entire agreement
Excepting the Deed of Acknowledgment entered into between, among others, the Sub-Lessor and the Sub-Lessee on or about the date of this agreement, the covenants, provisions, terms and agreements contained in this Sub-Lease expressly or by statutory implication cover and comprise the whole of the agreement between the parties and the Sub-Lessor and the Sub-lessee mutually agree and declare that no further or other covenants, agreements, provisions or terms whether in respect of the Sub-Lease Premises or otherwise will be deemed to be implied in this Sub-Lease or to arise between them by way of collateral or other agreement by reason of any promise, representation, warranty or undertaking given or made by either to the other on or prior to the execution of this Sub-lease and the existence of any such implication or collateral or other agreement is negatived.
30 AWH submitted that the Court should interpret the lease terms objectively, based on the totality of the provisions in the lease. AWH contends that the parties entered into a contractual arrangement that was mindful of the nature of Impact’s business. Clauses 2.4(a), 2.4(b), 2.4(3), 2.4(h), 2.4(m), 2.4(n), 2.4(o), 2.4(p), 2.4(r) and 2.4(s) of each of the sub-leases are directly relevant to the fertiliser business operated by Impact. Clause 2.4(t) does not stand alone. AWH submitted that objectively construed, the parties have set out a regime in clause 2.4 of each of the sub-leases that clearly takes into account the use of fertiliser in store D and states that Impact has a clear and unequivocal responsibility to return the store in the condition it was in when it leased it. AWH submitted that clauses 2.4 and 2.5 of each of the sub-leases are not inconsistent or contradictory.
31 Counsel for AWH, Mr McCarthy, referred to clause 2.5(b) and the obligation to repair any damage to the leased premises resulting from lack of care, misuse or abuse by Impact, and submitted that that clause sits with having to deliver the property back in the condition it was in when AWH leased it. However in my view, this clause deals with a different situation where damage is occasioned by the negligence of Impact and is not inconsistent with Impact’s obligation to deliver up the premises subject to fair wear and tear.
32 AWH referred to clause 2.5 (a)(ii) (A) and submitted that the first part of the clause is the ability for Impact to carry out maintenance which is consistent with clause 2.5(a) (i). AWH submitted that the requirement in clause 2.5(a)(ii)(A), to deliver up the premises at the end of the term in the condition that the leased premises were in at the commencement of the sub-lease, is consistent with clauses 2.4 and 2.4(t). However the requirement in clause 2.5(a)(ii)(A) to deliver the leased premises in the same condition is subject to clause 2.5(a)(i), which excludes any obligation in respect of fair wear and tear.
33 AWH submitted that this type of objective analysis, rather than the piecemeal approach by Impact, illustrates that the lease terms in clauses 2.4 and 2.5 set up a regime of a permitted use with significant benefits and burdens, with the proviso that the leased area is returned to the same condition. The obligation to return the leased premises to the condition of the premises at the commencement of the lease is clear and unambiguous.
34 I do not accept AWH’s submission that clauses 2.4 and 2.5 are not inconsistent or contradictory. I have had regard to the terms of the sub-leases as a whole. On its face, clause 2.4(t) obliges Impact on the termination or determination of the sub-leases to give vacant possession of the premises in the condition that existed at the commencement of the agreement. There is no express exclusion for fair wear and tear.
35 Clause 2.5(a)(i) requires Impact to maintain, replace and keep the premises in good and substantial repair but excludes any obligation of fair wear and tear. Clause 2.5(a)(ii)(A) provides that Impact’s obligation to deliver the leased premises at the end of the term in the condition the leased premises were in at the commencement of the sub-lease, is subject to clause 2.5(a)(i).
36 In Bunyip Buildings Pty Ltd v Gestetner Pty Ltd[40] there were two separate covenants in a lease; one clause to keep the premises in good tenantable repair and condition and a second clause whereby the lessee covenanted to yield up the premises at the expiration of the tenancy “reasonable wear and tear excepted”. The Full Court of South Australia held that the two subclauses must be read together and that the tenant’s obligation to keep the premises in good tenantable repair and condition was subject to the exception for reasonable wear and tear. The difference in that case was that the fair wear and tear exception was contained in the tenant’s obligation to yield up the premises. In this case the inconsistency lies in the requirement to keep the premises in good repair excepting fair wear and tear for the duration of the lease but to require Impact to deliver up the leased premises without that exception.
[40] (1969) SASR 87.
37 When all of the terms of the sub-leases are considered objectively, the requirement to give vacant possession in clause 2.4(t) is inconsistent with Impact’s obligation to repair in clause 2.5(a)(i) which excludes any obligation in respect of fair wear and tear. I accept Impact’s submission that there appear to be two contradictory make good obligations. A plain common sense business-like interpretation of the agreement between the parties does not impose two different obligations.
38 As stated by Gibbs J in Australian Broadcasting Commission v Australian Performing Right Association Ltd “it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument.”[41]
[41] [1973] 129 CLR 99, 109.
39 In my view it is necessary to avoid an inconsistency between clause 2.4(t) and clause 2.5(a)(i). Having considered the terms of each of the sub-leases and the submissions made by the parties, I have formed the view that Clause 2.4(t) of each of the sub-leases should be read subject to clause 2.5(a)(i).
(c) The warranty claim
40 In its Second Further Amended Statement of Claim dated 26 June 2014 (the second amended statement of claim), AWH alleged that Impact warranted that it would take measures to prevent corrosion of steel by :
(a) wrapping all internal support pillars in a protective material;
(b) installing a dust extraction system;
(c) applying a fish oil based product to steel structures in the area occupied by the defendant[42]. (the warranties)
[42] Second Further Amended Statement of Claim dated 26 June 2014, paragraph 6.
41 AWH claimed that the first warranty was made in an expression of interest document prepared by Mr Colley of Jebsens and that the second and third warranties were made orally by Mr Colley during discussions between Ross Colley on behalf of Impact and Jamie Crimmins on behalf of AWH.[43]
[43] Second Further Amended Statement of Claim dated 26 June 2014, paragraph 17.
42 AWH claimed that Impact breached the warranties and that AWH suffered loss and damage as a result.[44]
[44] Second Further Amended Statement of Claim dated 26 June 2014, paragraph 21.
43 In its defence and counterclaim, Impact denied that it made the warranties and that Mr Colley was not authorised to make the warranties.[45]
[45] Defence and Counterclaim dated 8 July 2014.
44 In opening, Mr McCarthy stated that the breach of warranty claim was not the main focus of AWH’s case.
I think the major issue for Your Honour to determine in this case will be whether or not the corrosion is fair wear and tear[46].
[46] Transcript p33.
45 Despite this statement by Mr McCarthy, a large portion of the trial was devoted to this issue. Witnesses were examined and cross-examined on each of the alleged warranties. In his closing submissions Mr McCarthy advised the Court that the warranty claim was not being pursued[47].
[47] Transcript p829.
(d) The condition of the premises at the commencement of each of the sub-leases.
Jamie Leigh Crimmins
46 The first sub-lease was initially managed by Bruce Harper, the state manager of AWH at the time. Mr Crimmins reported to him.[48] The task of dealing with the leasing to Impact was subsequently delegated to Mr Crimmins. In the early days of his employment with AWH, Mr Crimmins was given a tour of store D by Bruce Harper.
[48] Transcript p 178.
47 Mr Crimmins took some photographs at the time when Hifert commenced their subtenancy.[49] At the time Hifert were going into occupation, Mr Crimmins was not aware of any report about the roof leaking or having any other problem.[50]
[49] Exhibit 12.
[50] Transcript p 198.
48 On 2 February 2007 Mr Crimmins took some photographs of the proposed area to be sub-leased by Impact.[51] Mr Crimmins said that he took the photographs to document the condition of the site prior to Impact moving into the first sub-leased premises.[52] At the time that Impact went into occupation, no issue had ever been reported to him about the integrity of the roof.[53]
[51] Exhibit 11, Transcript p 186.
[52] Transcript p 188.
[53] Transcript p 198.
49 Mr Harper ceased being the state manager of AWH in August 2007.
50 On behalf of Impact, Jebsens arranged the condition report referred to in clause 2.5(vi) of the sub-leases and attached as Exhibit C to the first sub-lease. Mr Crimmins said that AWH intended to arrange the condition report itself but when Mr Crimmins found that Impact were in the process of preparing a report, AWH waited for that report to be completed. Upon reviewing the condition report, there were no real issues and AWH were happy to incorporate the condition report into the sub-lease.[54]
[54] Transcript p 240.
51 In relation to the second sub-lease, Jebsens/Impact arranged a condition report through Safe Operating Systems.[55]
[55] Transcript p 242.
52 Mr Crimmins said that Impact had erected a barrier to isolate the first sub-leased premises from the rest of store D, which was being utilised for AWH operations.[56] The barrier was erected to restrict the dust to the area occupied by AWH.[57] When Impact took possession of the second sub-leased premises, Impact took this barrier down and built a more substantial separation wall.[58] It was constructed further east on the far eastern side of the leased premises. The bottom section of the separation wall was made out of sections of a shipping container and then a wooden frame covered in black plastic was attached to the bottom of the smoke curtain. That smoke curtain was not modified.[59]
[56] Transcript p 246.
[57] See photograph 2, exhibit 19.
[58] Transcript p 247.
[59] Transcript p 247.
53 As at 1 January 2008 AWH was on the other side of the eastern end of the barrier. AWH remained on the other side of that barrier[60] and has used that area for the purpose of storing wool bales. AWH has also stored fertiliser at that east end of the store since early 2010 pursuant to a storage and handling agreement with Wengfu.
[60] Transcript p 250.
54 In relation to the condition report attached to the first sub-lease[61], Mr Crimmins said that the person who prepared the report, Mr Needs, obviously looked at the roof because the report refers to the outlet ventilator which is the centre ridge ventilator.[62] Mr Crimmins said that nothing was said about the condition of the outlet ventilator because generally in these type of reports, the report does not make a note if there is no issue.[63]
[61] Exhibit 1.
[62] Transcript p 311.
[63] Transcript p 311.
Alan James Needs
55 Ross Colley asked Mr Needs to conduct a visual inspection and an independent building audit of the first sub-leased premises. Mr Needs said that he was asked to look at the building inside and out and to report on the floors, roof and windows and to look for damage and to prepare a report. [64] Mr Needs prepared the condition report annexed as exhibit C to the first sub-lease (the first condition report)[65]. Mr Needs subsequently prepared a condition report in relation to the second sub-lease (the second condition report).[66]
[64] Transcript p 381.
[65] Exhibit 1 p33.
[66] Exhibit 18.
56 Mr Needs has previous experience in inspecting buildings. In 1983 he was a general inspector under the Occupational Health and Safety Act. That work included inspecting buildings.[67] A lot of the original work he did when he joined the Department of Labour and Industry in 1979 involved registering factories. Part of that work required inspecting the buildings, inspecting roofs, ventilation, fire exists and amenities.[68]
[67] Transcript p 384.
[68] Transcript pp 390 -391.
57 Mr Needs went to the leased premises on two occasions in 2007.[69] Mr Needs said that Mr Colley was normally on site when he visited the leased premises.[70] On a third occasion Nr Needs was asked to report on a damaged column.
[69] Transcript p 381.
[70] Transcript p 388.
58 Impact submitted that given the unhelpfulness of the photographs and condition reports, and the limitations on the witnesses who gave evidence about the condition of the premises in 2007 and 2008, the Court cannot be confident about the condition of the premises at that time and, in particular, whether corrosion had begun. Impact submitted that the Court cannot be satisfied that the corrosion was caused by Impact.
59 However there is no evidence that there was corrosion damage to the leased premises at the time Impact entered into each of the sub- leases. I accept Mr Crimmins evidence that the first sub-leased premises were in very good to excellent condition at the time that the first sub-leased premises were first leased to Impact. [71]
[71] Transcript p 314, 318.
60 Mr Shaw submitted that the condition reports were prepared 8 years ago and that Mr Needs had no independent recollection of the leased premises beyond his reports. Mr Shaw submitted that the condition reports are of no assistance because they do not show the condition of the premises when Impact entered into possession of the sub-leased premises. Mr Shaw submitted that the condition reports do not show the state of the roof or the girts. I do not accept Mr Shaw’s submission.
61 Mr Needs was at the leased premises for two to three hours and prepared the first condition report in January 2007.[72] Mr Needs took the photographs at pages 37 – 108 of the first condition report. Mr Needs looked at the roof from inside the building. When he looked at the roof, he could not see anything which warranted concern. He did note the skylights were dirty and “probably could have done with a clean.” Mr Needs recorded the ridge ventilation right up the middle of the building.[73] Mr Needs said that if there was anything wrong with the roof, he would have documented it.
[72] Transcript p 386.
[73] Transcript p 387.
62 Mr Needs conducted a second inspection of a new area in the same building and prepared a report dated 19 November 2007.[74] The inspection took two or three hours.[75] Mr Needs inspected the second sub-leased premises on that inspection. He inspected the roof from underneath. Mr Needs said that the roof was good. Mr Needs said that he highlighted anything that was wrong. Mr Needs said that he was always looking for corrosion and if it was in the roof he would have highlighted it and documented it.[76]
[74] Transcript p 383, exhibit 18.
[75] Transcript p 388.
[76] Transcript p 389.
63 AWH submitted that Impact retained Mr Needs to prepare each of the condition reports. Impact were satisfied with the reports which were incorporated as part of the sub-leases in accordance with clause 2.5 of each of the sub-leases. AWH submitted that Impact bears the onus of proof and there is no evidence of any corrosion on the roof at the time Impact entered into each of the sub-leases.
64 The parties agreed in Clause 2.5(a)(vi) that the condition of the sub-leased premises at the commencement of each of the sub-leases was detailed in the condition reports. Mr Cornish said that it is usually the landlord who prepares the condition report. In this case Impact prepared the condition reports.
65 Each of the condition reports referred to the central ridge ventilation. On each occasion when Mr Needs inspected the leased premises, Mr Needs took photographs of the roof.[77] Mr Needs also took photographs of areas of the sub-leased premises which had been damaged.[78] I accept Mr Needs evidence that he would have documented any damage to or areas of concern about the condition of the roof.
[77] Exhibit 1 pp 98-99, exhibit 18 pp 5-6, 16.
[78] Exhibit 1 pp 45-48, Exhibit 18 pp 7-12.
66 I accept Mr Lindros evidence that the purlins were in good condition and that there was no evidence of corrosion when he repaired a hole in the roof in early 2008 [79] and when he repaired and replaced the skylights in shed D the subject of invoice number 11464 dated 31 August 2008.[80]
[79] Transcript p 95.
[80] Exhibit 4.
67 I accept Mr Eakins evidence that there was no corrosion in 2007.
68 As stated in the above paragraphs 46 to 67, I am not satisfied that there was any corrosion to the roof at the date of each of the sub-leases.
(e) Fair wear and tear
The onus of proof
69 Where the obligation of the sub-lessee is to keep the demised premises in good repair, then if there is any want of repair, the onus lies upon the lessee to show that it comes within the exception.[81]
[81]Haskell v Marlow (1928) 2 KB 45, 50; Brown v Davies [1957] 1 WLR 818, 825-826.
70 I turn to the evidence.
Peter Rowan Cameron Lindros
71 Mr Lindros has been a plumber for about 30 years. In 1988 Mr Lindros started a business on his own account by purchasing a company called John Drew Services Pty Ltd (John Drew Services). AWH first opened an account with John Drew Services in 1999. Mr Lindros performed plumbing works for AWH at stores A-D at Lara. He was typically engaged by AWH to repair roof leaks and, in particular, sky light replacements.[82]
[82] Transcript pp 85-86.
72 John Drew Services were engaged progressively to replace the skylight sheets. The skylight sheets in store D are made of fibreglass and are three to four metres apart. In between two skylights there is normal galvanised iron (also known as zinc-coated metal), sheeting. It was necessary to replace the skylights because they were ageing. A skylight that had deteriorated could be observed by discolouration. Purlins are connected to columns that provide the vertical support for the roof.[83] Skylight sheets have mesh underneath them to stop people falling through.[84] There are basically four sections of skylight down the roof, and each section of skylight is about 3.6 metres. John Drew Services would cut the sheets the right length to match the purlins exactly and take them up on the roof already cut. John Drew Services slipped out the old skylight sheets and slipped in the new sheets.
[83] Transcript p 88.
[84] Transcript p 89.
73 I accept Mr Lindros’ evidence that he had a good view of the purlins when he removed a fibreglass skylight sheet. Mr Lindros started removing skylights in respect of store D in the first half of 2008.[85] I accept Mr Lindros evidence that every time a skylight was removed, you could see what condition the purlins were in. Mr Lindros worked on the D store roof for the last time in August 2012.[86]
[85] Transcript p 90.
[86] Exhibit 4.
74 Mr Lindros referred to invoice no 113778 rendered 24 February 2008.[87] The invoice indicted that he repaired a hole in roof D shed caused by machinery hitting the shed roof.[88] The roof was badly affected and John Drew Services replaced perhaps ten sheets side by side in the area.[89] A sheet is 0.76 of a metre wide. This was only a temporary repair.[90] The full repairs were about six metres by four metres. Mr Lindros said that he was able to see the purlins at the time he did that repair. I accept Mr Lindros’ evidence that aside from being bent, the purlins were in good condition and that there was no evidence of corrosion at that time.[91]
[87] Exhibit 4.
[88] Exhibit 4.
[89] Transcript p 95.
[90] Transcript p 94.
[91] Transcript p 95.
75 Mr Lindros referred to invoices numbered 114243 (dated 5 June 2008) and 1114664 (dated 31 August 2008)[92]. I accept Mr Lindros’ evidence that, at that point, he had not seen any rusting of any purlins.
[92] Exhibit 4.
76 Mr Lindros said that it was his practice to make notations about anything he observed that he thought AWH should know or if there was anything of concern.[93] Mr Lindros referred to Invoice 1116390 dated 24 June 2009 and stated that there was no note in that invoice about any other issues that John Drew Services encountered at that time.[94]
[93] Transcript p 97.
[94] Transcript p 99.
77 On 15 March 2010 Mr Lindros was required to repair mesh vents at the leased premises. Mr Lindros referred to invoice 1117927 dated 15 March 2010 which stated at the top “Delivery to ‘D’ Shed – Mesh vents”. On both sides of the gable at the top of the roof, the galvanised sheets stop short of meeting each other by about three or four feet. To keep the birds out, there was a mesh wire across that gap and then there was a smoke vent above the mesh. Lumps of this mesh vent were falling down over the loading bay area and John Drew Services were asked to get up on the roof and stop the mesh vent from falling down. John Drew Services got up on the roof and removed the mesh vent.[95] Mr Lindros said that the he would have started work in respect of the mesh vents in early February 2010.[96] Mr Lindros said that the type of notation he made to the client is noted on the third page of invoice 1117927. Invoice 1117927 records:
[95] Transcript p 101.
[96] Transcript p 101.
Vent mesh
Down the middle of shed vent ridge – Mesh is separating from mountings and falling down.
9/2/2010 inspected mesh vents for replacement.
10/2/2010 removed wire from smoke vents above weigh bridge and conveyor belt as wire was rusted through and falling down.
Wire is brittle and breaking up, above the section of D shed that houses impact fertiliser.
Spoke with Jamie Crimmins. Advised that the wire falling has been removed. However the balance of the wire is in equally bad shape. Jamie authorised replacement of the wire.
Removed old wire and replaced as requested.
…
Please note: the smoke vent structure and the ends of the roofing sheets at the vented ridge are deteriorating above impact fertilisers (badly rusted). This will create safety concerns in the not too distant future in relation to the support under the roof sheets at the top end. Continual monitoring will be required, particularly in relation to carrying out further work on this roof.[97]
[97] Exhibit 4.
78 I accept Mr Lindros’ evidence that he had not seen any corrosion of either the purlins or any other fixings of the roof prior to early February 2010.[98] Up until February 2010 the roof and purlins was in good serviceable condition and consistent with the other sheds.[99] The entire section of the mesh vent in store D above the area occupied by Impact had to be removed.[100] Impact leased roughly two thirds of the shed. There was a massive wall which went from the floor to the ceiling. This wall separated one tenant from another. Beyond the area occupied by Impact, the galvanised coating was still on the mesh vent. Mr Lindros said that phosphate was stored in the eastern end of the shed. Mr Lindros went into the eastern end of the shed to check the mesh vent. He said that he checked enough to be satisfied that it had its galvanised coating on. He did not think that there was any corrosion of the mesh bird wire on the eastern side of the wall.[101]
[98] Transcript p 102.
[99] Transcript p 102.
[100] Transcript p 103.
[101] Transcript p 104.
79 When Mr Lindros reinstalled the mesh wire, he took off one of the side sheets of the smoke vent to observe the smoke vent structure. He observed that the internal areas of the smoke vent were particularly rusted over the loading bay area and then got progressively less away from that area.[102] The eastern area the roof which was occupied by AWH still had galvanising on the sheet metal.
[102] Transcript p 104.
80 Mr Lindros referred to invoice number 2100722 dated 7 October 2010 and stated that in the smoke vent structure, the bolts and screws in the fastenings of the smoke vents were particularly bad because of the rusting around the holes of the bolts holding it all together.[103] Mr Lindros said that invoice number 2100722 indicates that 103.632 square metres of zinc-coated roof material were used to replace the sheets next to the skylights. When that roofing material was replaced, Mr Lindros had an opportunity to observe the steel structure under the roof. He observed that the purlins were also rusting. There was quite thick rust on the purlins.
[103] Transcript p 110.
81 When Mr Lindros was on the roof of the leased premises over a year later in November 2011, he noticed significant corrosion, particularly on the sheets that he had replaced 13 months earlier. I accept his evidence thatwhen “we were changing the skylights, particularly near the loading bay and around that area, we saw that the purlins were in fact rusting. There was rust between the iron sheets and the purlins. When you walked along it, you could actually hear the rust crunching under your feet between the sheets and the purlins.”[104]
[104] Transcript p 109.
82 Mr Lindros referred to invoice number 2101466 dated 30 November 2011.[105] At the top of that invoice he recommended “structural engineer to inspect roof from underneath and on top of roof.”
[105] Exhibit 4.
83 Mr Lindros stated that as part of making repairs on the roof, he was particularly concerned about the rate at which it was rusting out. He wanted to monitor the roof a little bit more closely. John Drew Services cut out numbers from sheet metal and affixed the numbers to the roof as an identifying point so that it could be monitored six or 12 months down the track. Mr Lindros said that each time he went up on the roof the rust holes were much bigger. Mr Lindros produced a formal plan of the shed.[106] Mr Lindros provided this document to Mr Eakins, the engineer retained by AWH.
[106] Exhibit 5.
84 Invoice number 2100722 dated 7 October 2010 indicates that about 103 square metres of roof sheets were replaced. A little over a year later, the new sheets had started to corrode at the ends. Mr Lindros said that he had not seen that rate of deterioration and corrosion before. Mr Lindros said that under normal circumstances, in his experience, roofing material should last about 40 years.[107]
[107] Transcript p 123.
85 Mr Lindros said that after the completion of the work referred to in invoice 2101466 dated 30 November 2011, the rust spots were continuing to appear at a fairly rapid rate. Invoices 2101650 and 2101651 dated 30 January 2012 related to the supply of materials and labour to lift roof sheets on shed D for inspection. Mr Lindros said that when he lifted the roof for inspection by Mr Eakins and Mr May, the screws were actually snapping off.
86 Mr Shaw submitted that the Court should find that Mr Lindros was not a witness on whom it can rely because of his substantial commercial connection with AWH (both past and expected in the future) and his involvement in the preparation of this case. I do not accept Mr Shaw’s submission. I found Mr Lindros to be a straightforward and honest witness. He was prepared to make concessions. Mr Lindros candidly said that AWH was a large client and that he is prepared to work for AWH, Impact or anybody who would pay his bill.
87 Mr Shaw submitted that Mr Lindros gave evidence eight years after these events and that he took no notes or photographs of the state of the premises in 2007 and 2008. However Mr Lindros made detailed notes of the work he performed for AWH in the period from November 2007 until September 2012.[108] His accounts contain warnings to AWH about what work needed to be done, who needed to be engaged and what he observed. Mr Lindros also produced a plan and survey of all the sheets that were replaced in store D.[109]
[108] Exhibit 4.
[109] Exhibit 5.
Howard Louis Eakins
88 In 1959 Mr Eakins obtained a bachelor of Civil Engineering with honours from the University of Melbourne. From 1959 Mr Eakins worked as a consulting engineer in major engineering and project management companies until he started his own consultancy with Coverland Pty Ltd. (Coverland). Since 1959 Mr Eakins has worked as either a consulting or employed engineer. Mr Eakins has specialised in warehouses and bridges.[110]
[110] Transcript p 339.
89 Between 1984 and 1985 Mr Eakins was employed with a company known as CED (Construction Engineering and Development). In that capacity he designed and oversaw the construction of stores A to D at 250 Forest Road, Lara. Since the time of construction of those wool stores, he has continued to consult the owners or tenants at that site who may require engineering advice about the stores at Lara.[111]
[111] Transcript p 340.
90 In February 2007 Mr Eakins provided consulting advice about the subject of removal of some smoke curtains. He also provided advice on a number of occasions about columns that had been impacted by machinery and how they were to be replaced.[112]
[112] Transcript p 340.
91 The chief executive officer of AWH, Craig Findlay, contacted Mr Eakins when corrosion was detected throughout store D in December 2011.[113] Mr Eakins investigated the corrosion on the roof of store D and was involved in the remediation of repairs.[114] He deferred the issue of corrosion to Mr May and obtained Mr May’s expert opinion because it was outside his expertise. Mr May then took over on that subject and Mr Eakins was involved with the proposed repairs to store D.[115]
[113] Transcript p 340.
[114] Transcript p 341.
[115] Transcript p 341.
92 Mr Eakins said that it was necessary to repair the ridge ventilator and the areas of corrosion adjacent to the ridge ventilator in the leased premises. The purlins, roof sheeting and the flashings were rusted away to such an extent that some of the sheets were not supported at their ends on the purlins. Mr Eakins and Mr May also found a lot of other areas of corrosion in the lapping of the sheets, the tops of the purlins and the bottoms of the purlins in various places throughout the leased premises, but the west end was the worst .[116] The purlins are “z” shaped which gives strength and also gives a mounting point for the sheets.[117] Most of the purlins are 2.4 millimetres thick, but some are 1.5 millimetres thick. The east end of store D had very little damage.[118]
[116] Transcript p 342.
[117] Transcript p 343.
[118] Transcript p 342.
93 Mr Eakins said that it was necessary to replace 50 metres of the ridge ventilator in the western end of store D. It was also necessary to replace the purlins and the sheeting adjacent to it.[119] Mr Eakins prepared a scope of work and a schedule of quantities and materials, and sent it out to four tenderers in April 2012.[120] The repairs did not initially proceed at that time but are now almost finished. Mr Eakins was retained as consulting engineer in respect of the repairs.[121]
[119] Transcript p 343.
[120] Transcript p 344.
[121] Transcript p 344.
94 When asked what precisely was done to shed D in respect of the corrosion, Mr Eakins replied that the sheeting and the purlins on the centre section of the west end of the store have been replaced and the ridge ventilator has been rebuilt and replaced. The girts which support the wall sheeting on the west wall are being replaced and the wall sheeting is being replaced. On the north and south side walls a lower panel of sheeting and the lower girts on the side walls are being replaced on the west end.[122]
[122] Transcript p 377.
95 Mr Eakins never considered the use of second-hand materials because second-hand material of the right length is not available.
96 When cross-examined, Mr Eakins said that he attended the leased premises on four or five occasions between 2007 to 2011. Mr Eakins inspected the roof of store D in 2007 because Impact had damaged a column and punched a hole through the roof. It was necessary to take sheets off the roof and repair it. Mr Eakins said he had to go back and inspect the roof when the repairs were completed which involved maybe three trips over 12 months. Mr Eakins said that he observed that there was no corrosion or rust on the roof at that time. On that occasion he observed there was no rust at all. Mr Eakins said that the process of oxidation had not begun.[123] Mr Eakins said that there was no corrosion to the roof of the leased premises in 2007.[124]
[123] Transcript p 353.
[124] Transcript p 352.
97 In re-examination Mr Eakins stated that he was aware that white powder is evidence of oxidation or early corrosion. Mr Eakins said that he never saw any white powder when he was up on the building to inspect the damage to the roof caused by the damage to the column in 2007.[125]
[125] Transcript p 379.
Robin F May
98 AWH called Robin F May to give expert evidence. Mr May obtained a diploma in secondary metallurgy in 1974 and a Master of Science specialising in corrosion science and engineering in 1976. In 2000 Mr May set up his own business, CMET (Aust) Pty Ltd – Corrosion Materials Engineering & Testing Consultants. Mr May stated that he carries out a lot of corrosion work in the building industry. A curriculum vitae for Robin May was tendered.[126]
[126] Exhibit 32.
99 In 2012 Mr Eakins engaged Mr May to provide advice in respect of the stores at 250 Forest Road, Lara. Mr May stated that the building reaches about 10 metres high. The roof is fixed to the purlins by long galvanised screws. The roof sheets run over a series of six or eight purlins until they reach a double purlin. On the double purlin the roof comes across and overlaps another purlin which is set below. There is flashing in between to control the moisture. [127] The purlins are Z-shaped. The worst corrosion on the roof sheeting was on the double purlin. There was also corrosion, brown rust, occurring where each section of roof overlaps the next.[128]
[127] Transcript p 414.
[128] Transcript p 413.
100 Mr May conducted an internal survey of the roof area which took several days.[129] Peter Lindros drove the scissor lift and did the physical work such as taking the roof sheets off. Mr Lindros also took off the side panel from the ridge ventilators so that Mr May could see what was happening within the ridge ventilator from the top side. Mr May said that the severe corrosion was at the ridge ventilator.[130] The ends at the apex were like a torn bit of paper.
[129] Transcript p 416.
[130] Transcript p 416.
101 Mr May stated that there was a very strong pattern of corrosion in store D. There was very intense corrosion along the ridge and extending each side of the ridge in the west part of store D.[131] The roof sheeting has zincalume, a coating which was developed in Australia where aluminium is added to the zinc. That improves the corrosion resistance of the galvanised coating.[132] The zincalume roof sheeting has a longer life because it has aluminium added to zinc. The purlins are just straight zinc so they will have a reduced life compared to the roof sheeting.[133]
[131] Transcript p 425.
[132] Transcript p 428.
[133] Transcript p 428.
102 Mr May conducted an initial assessment of the leased premises on 17 January 2012 (May’s first report). Mr May conducted further inspections and published reports dated 11 April 2012 and 19 April 2012[134].
[134] Exhibit 33.
103 On 5 November 2012 Mr May compared store D to store C and the differences in the extent of corrosion in each of the stores. These two stores had the same type of roof structure and were built at a similar time. Fertiliser had been stored in store C for a short period of time but Cotton On occupied store D at the time Mr May conducted the inspection. Mr May prepared a report dated 28 November 2012. Mr May said that there were significant differences between stores C and D.[135]
[135] Exhibit 33.
104 Trevor Rowlands, the expert retained by Impact, conducted an examination of the leased premises on 1 May 2014 and prepared a report dated 19 May 2014.[136] Mr May prepared a short report dated 24 July 2014 commenting upon the report prepared by Mr Rowlands.[137]
[136] Exhibit G.
[137] Exhibit 33.
105 Both men agree that the corrosion in store D is caused by fertiliser. Once the corrosion starts, it cannot be stopped other than by treatment or replacement. Mr May assesses that the corrosion was caused by the fertiliser used by Impact.
106 Both men agree that certain fertiliser products can accelerate the corrosion in steel. When fertiliser dust of certain kinds gets on steel, it in itself does not cause a reaction. The presence of moisture and oxygen is required which results in a chemical reaction which is known generically as corrosion.
Comparison between the leased premises and the eastern end of shed D.
107 Mr May said that when he was on top of the roof of store D, he could see that there was a variation between the east and west end of the building. Mr May said that the photographs he took of the ridge ventilator showed that the western end of the ridge ventilator was heavily corroded. [138] Mr May said that there was fertiliser dust on the eastern end of the ridge ventilator but there was no corrosion. Mr May said that the photographs he took showed the difference between the east and the west end of Store D.[139]
[138] Transcript p 416.
[139] Exhibit 34.
108 Mr May conducted a transverse survey of store D to determine what materials needed to be replaced in the roof of store D.[140] It was necessary to replace a number of purlins in the western area of the shed. The only damage to the roof sheeting along the eastern side was along the ridge at the exposed ends of the sheeting but that was limited to the very ends of the sheeting.
[140] Transcript p 428.
109 The ventilator on the eastern side of the shed was in very good condition. There was only minor deterioration and what Mr May considered would be very good performance considering the 25 year life.[141]
[141] Transcript p 431.
110 Mr May said that the area of the ridge vent over the loading area suffered the most corrosion. In this area Mr Lindros had to replace some roof sheeting due to the extent of the corrosion.[142] The mesh vent in figure 8 of exhibit 34 had been replaced twelve months previously and this indicates the severe corrosion which had taken place within the 12 months prior to Mr May’s visit.[143] When Mr May went inside the store, he could see that the new sheeting that Mr Lindros had put into position had actually perforated in that same time frame of just over 12 months.[144] Mr May said that the corrosion rate was close to half a millimetre a year which is right at the top end of what you would expect from atmospheric type corrosion.[145]
[142] Transcript p 440.
[143] Transcript p 440.
[144] Transcript pp 439 – 440.
[145] Transcript p 441.
111 When cross-examined Mr May agreed that he would expect there to be significantly more corrosion in the western end than the eastern end of store D because fertiliser had been stored in the western end for significantly longer.
Previous storage of fertiliser in the D shed[146]
[146] Transcript pp 466 – 467.
112 After he was advised that fertiliser had previously been stored in the leased premises (see the above paragraphs 8-10), Mr May examined the photographs, the data and the corrosion rates associated with the products used by the previous occupants. I accept Mr May’s evidence that he also looked at store D and confirmed that there were no obvious locations of corrosion damage which could be associated with any of the previous storages of fertiliser.[147] Mr May came to the conclusion that the prior fertiliser was not responsible for the corrosion damage.
[147] Transcript p 469.
113 In cross-examination Mr May agreed that in a shed like this, used by Impact in the way he saw Impact using it, storing and handling fertilisers at least some of which are of the most corrosive kind like potassium chloride, you would expect to see the sort of corrosion that he saw in shed D.[148]
[148] Transcript p 560.
114 However Mr May also said that the effect of the storage of fertiliser on the rate of corrosion will depend on the nature of the fertiliser.
115 Mr May agreed with Mr Rowlands’ report that:
“The extent to which the corrosion which occurred would be a usual and expected consequence of storing fertiliser?” And he said, “The environment created by the fertiliser, its handling and presence of moisture is severe for the steel construction. The rapid growth and extent of the corrosion is not unexpected.” And you agreed with that, didn’t you?
…Yes…I’d say on reflection – you know, I came back with a qualification regarding the type of fertiliser.[149]
[149] Transcript pp 560-561.
Trevor John Rowlands
116 Trevor John Rowlands is a principal material engineer at ATTAR, Advanced Technology Testing and Research. Mr Rowlands has a bachelor of engineering and materials engineering from Monash University and a preliminary Masters from Monash University. He has worked as a materials engineer for over 20 years. This is the first time Mr Rowlands has advised about fertilisers and the issue of corrosion. [150]
[150] Transcript p 702.
117 Mr Rowlands inspected shed D on one occasion on 1 May 2014 and was there from 10 am to 12.05pm.[151] Mr Rowlands did not conduct a transverse survey. Mr Rowlands did not conduct a comparison of shed D with shed C. Mr Rowlands had access to the roof structure with an elevated work platform but could only have access to the vent line in the central area of store D because there was fertiliser everywhere.[152] Mr Rowlands was not able to use the elevated work platform to inspect any other portion of the roof including the side walls.[153] Mr Rowlands was not able to inspect the purlins and the girts on the rear wall. Mr Rowlands was not able to observe the upper surfaces of the purlins. Mr Rowlands was not given any guidance as to where the weighbridges or loaders or blenders may have been located.[154]
[151] Transcript p 696.
[152] Transcript p 696.
[153] Transcript p 697.
[154] Transcript p 700.
118 In relation to the presence of fertiliser that may have been stored in the shed D prior to the occupation by Impact , Mr Rowlands was not given details of where that fertiliser was stored and for what periods.[155] In his report Mr Rowlands stated that the most appropriate apportionment of responsibility is probably related to the time the plaintiff stored fertiliser in the premises compared to the overall fertiliser exposure time in the premises.[156] “ However, factors such as amounts and composition of stored material and the frequency or method of handling may influence the extent of corrosion that has formed, and therefore possibly the degree of responsibility.”[157]
[155] Transcript p 700.
[156] Exhibit G para 1.6.
[157] Exhibit G para 6 (b).
119 Mr Rowlands stated that in order to provide a meaningful opinion about prior fertiliser use, you would need to know the chemical species and how much handling and movement there would be that would create the dust, as well as the height of the piles of fertiliser that were stacked in the store. You would need to know whether or not there was bulk and/or bagged fertiliser. You would need to know the amount of truck movements. You would need to know whether there was loading via machinery or by loader, whether or not a blender was in operation, whether it was in effect benign storage, where material was dropped, left unhandled and then removed at some later stage. That would be significant.[158]
Without that sort of information, you could not assist the court about prior fertiliser use. That’s right, isn’t it?
I don’t know the history of other fertilisers that were stored there prior to that time period, no.[159]
[158] Transcript p 706.
[159]Transcript p 706.
120 Mr Rowlands said that he did see corrosion in the roof line areas of all three sections of store D.[160] When he looked at figures 23 and 24 of exhibit 34, Mr Rowlands said that he could see some corrosion at the eastern end of Store D. “It is not as heavy as certainly the other areas, but essentially there is still corrosion there.”[161]
[160] Transcript p 703.
[161] Transcript p 704.
121 Mr Rowlands said Goldseal is designed to stop the corrosion as it was at the time the product is applied.[162] It does that by denying oxygen and moisture contacting the steel.
[162] Transcript p 709.
Ross David Colley
122 Ross David Colley was employed by Jebsens Logistical Services Pty Ltd for 10 years from 1 July 2001 to 30 June 2011.[163] Mr Colley said that he was the person sent by Jebsens to inspect the facility with Impact’s fertiliser representative. From there Mr Colley would take directions to set up the facility to a suitable state to be able to accommodate the chemical fertiliser.[164]
[163] Transcript p 481.
[164] Transcript p 482.
123 Mr Colley said that he visited the shed in the early or mid-part of 2008. Mr Colley recalls that he first inspected the shed with Impact’s general manager, Peter Cornish, to determine if the shed was suitable. Mr Colley said that the rails and purlins in the shed contained a lighter substance that looked very much like fertiliser residue.[165] The floor was clean. [166]
[165] Transcript p 485.
[166] Transcript pp 486-487.
124 Mr Colley said that it was common practice for Jebsens to commission a condition report of any storage that Jebsens took on “as an agent management role” for a client, in this case Impact Fertilisers Australia.[167] Mr Colley arranged for the condition report to be prepared by a man called Alan. Jebsens were happy with the report.[168]
[167] Transcript p 522.
[168] Transcript p 524
Wayne Martin Newitt
125 Wayne Martin Newitt is the General Manager (Operations) for Impact Fertilisers Australia Pty Ltd.[169] He commenced work at Impact in November 2007. He stated that Impact vacated the premises in May 2012.[170] “When we were leaving, I could see there was some corrosion. Certainly when we arrived, I could not really see too much of the roof”.[171]
[169] Transcript p 575.
[170] Transcript p 577.
[171] Transcript p 580.
126 Mr Newitt gave detailed evidence of the operations at store D. He said that Impact received product in bulk from the wharf. Impact trucked the fertiliser in bulk from ships to the site. A ship typically holds 30,000 tonnes. As much as 20,000 tonnes would come into the site from one-in-load. Impact built walls between different products internally to segregate them. Customers placed orders either for a straight product or for blends. Impact blended the fertiliser to order or loaded it straight. Impact dispatched the fertiliser mostly in bulk but they did do some bagging. Impact had two front-end loaders, two forklifts and one skid steer which is a bobcat for cleaning.[172]
[172] Transcript pp 587- 588.
127 Impact had two weighbridges.[173] The second weighbridge and a second loading station was installed when Impact occupied the second sub-leased premises.[174] The weighbridge on one side was for straight product and the other was for blends.[175] A blender was installed as part of the original weighbridge in the first sub-leased premises. The blender increased the dust in the area.[176] As a result of having a blender, Impact increased its output.[177] The throughput at the site was over 100,000 tonnes and 20 -30% of that fertiliser product would have been blended.[178]
[173] Transcript p 587.
[174] Transcript p 629.
[175] Transcript p 629.
[176] Transcript p 630.
[177] Transcript p 631.
[178] Transcript p 631.
128 The loader to the east mainly loaded non-blended bulk fertiliser.[179] Bulk load could go through either weighbridge and loader but if you wanted a blend, you had to be on the western bridge with the blender.[180] Mr Newitt said that the straight loader to the east had a higher volume.[181]
[179] Transcript p 631.
[180] Transcript p 632.
[181] Transcript p 632.
129 Mr Newitt gave evidence about the fertilisers stored and handled at the warehouse in the course of Impact’s occupation. Mr Newitt stated that probably the bigger volume fertilisers were phosphates - Monoammonium phosphate, diammonium phosphate, single superphosphate, urea, potassium chloride or muriated potash (MOP), sulphate of potash (SOP) and some trace elements such as boron, molybdenum, zinc sulphate and things of that nature. Mr Newitt said that these fertilisers are quite common in the industry. [182]
[182] Transcript p 603.
130 Mr Newitt said that shortly after he started at the Lara facility, Impact erected bulk retaining walls. The walls were also built to serve as a dust barrier. Between the area that Impact occupied on the AWH side, there was a further wooden frame built with HTP plastic from the floor to the ceiling as a full dust barrier.[183]
[183] Transcript p 604.
131 Nothing was put to Mr Newitt to the effect that Impact was not using the premises reasonably or not in accordance with the permitted use.
Peter Donald Cornish
132 Peter Donald Cornish is the chief executive officer of Wengfu Australia (Wengfu). He has been in that position since 1 January 2010.[184] Mr Cornish was previously employed by Impact in a number of roles going back to 1998. From July 2006 Mr Cornish was employed as the general manager of Impact. He subsequently became the chief executive officer of Impact.[185]
[184] Transcript p 638.
[185] Transcript pp 638 – 639.
133 While he was employed by Impact, Mr Cornish was involved in the original leasing of shed D. Wengfu is currently a tenant of that facility. At the time of entering into the lease, Impact was looking for a range of different warehouses. It was looking to expand into warehouses to be able to import, store and sell fertiliser.[186] Mr Cornish first visited the warehouse in either late 2006 or early 2007 before Impact moved in. Fertiliser was being stored at the warehouse.
What, if anything, did you notice about the state of the warehouse on that visit? Nothing that springs to mind. It was of many of the sheds that were available at the time.[187]
[186] Transcript p 640.
[187] Transcript p 640.
134 Impact went into occupation of shed D in early 2007. Mr Cornish left Impact in April 2009.[188]
[188] Transcript p 644.
135 Mr Cornish gave evidence about Impact’s operation at the sub-leased premises. The product from vessels was discharged onto trucks. Trucks tipped the product in the sub-leased premises. The product was pushed up from the ground with front-end loaders and excavators and stacked up in the shed. Hoppers were installed with conveyor belts that loaded onto a truck situated on a weighbridge. The front-end loader was used to take the product from the stockpile to the hoppers and outload the product.[189]
[189] Transcript p 646.
136 At the time Mr Cornish left Impact in April 2009, Mr Cornish was not aware of any issue of corrosion of either the western wall or the roof of the sub-leased premises.[190]
[190] Transcript p 689.
137 Impact also contends that the corrosion was due to the ingress of water into the building. Mr May accepted that the corrosion in the shed was made worse by water leaks.[191] Mr Rowlands said that he saw perforations in the steel of the roof which would have let water leak into the leased premises. In cross-examination Mr Rowlands said that the perforations he saw were due to advanced corrosion.[192]
[191] Transcript p 562 L 24-28.
[192] Transcript p 701.
138 In his report, Mr Rowlands made the following comments about the extent to which the corrosion damage has been made worse by water leaks.
The water leaks at the roof vent line are a consequence of loss of material due to corrosion, not existing leaks. I believe it likely that most areas of severe corrosion are the result of the corrosion process itself which has created water leaks and the resultant degradation of the steel components, rather than incorrect installation or damage to the sheeting.[193]
[193] Exhibit G.
139 Having regard to the matters set out in the above paragraphs 71-138, I am satisfied that the corrosion damage to the leased premises was caused by Impact.
Does the corrosion damage to the leased premises fall within the exclusion of fair wear and tear?
140 In, JSM Management Pty Ltd v QBE Insurances (Australia) Ltd[194] Osborn J refers, with approval, to Scott LJ’s definition of fair wear and tear in Taylor v Webb:
The phrase “wear and tear” is a very old English idiom and the clause “fair” (or “reasonable”) “wear and tear excepted,” has been common in leases and tenancy agreements for two or three centuries. It is, like many idiomatic expressions, complex in meaning; it implicitly refers to both cause and effect, and in each aspect it covers two classes of disrepair, (a) that brought about by the normal or ordinary operation of natural causes, such as wind and weather, in contradistinction to abnormal or extraordinary events in nature such as lightning, hurricane, flood or earthquake; and (b) that brought about by the tenant, and other persons present in or on the premises with the consent of the tenant, either unintentionally or as a normal incident of a tenant’s occupation, in the course of the “fair” (or “reasonable”) use of the premises for any of the purposes for which they were let.
[194] [2011] VSC 339.
141 Impact referred to JSM Management Pty Ltd v QBE Insurances (Australia) Ltd[195] and Taylor v Webb and submitted that the permitted use of the warehouse under both sub-leases was the storage and handling of non-hazardous fertiliser including the blending and bagging of bulk fertiliser. Impact submitted that the evidence is clear that the use of the sub-leased premises was reasonable. If the presence of fertiliser accelerated corrosion in the sub-leased premises, then that corrosion comprised fair wear and tear because it involved the reasonable use by the tenants of the premises and the effect of outside elements.
[195] [2011] VSC 339.
142 There is no dispute that the permitted use of the leased premises pursuant to the two sub-leases was “the storage and handling of non-hazardous fertiliser, including the blending and bagging of bulk fertiliser and ancillary use.”[196]
[196] Ex 1 clause ; Ex 2 clause .
143 Mr Crimmins agreed that the corrosion was a result of Impact’s use of the premises and that Impact acted within the permitted use.[197] The following questions were put to Mr Crimmins in cross-examination:
[197] Transcript pp 304 and 307.
Now, Mr Crimmins, I think you agreed with me that the subleases in each instance provided a permitted use of the storage and handling of non-hazardous fertiliser, including the blending and bagging of bulk fertiliser and ancillary use. You agree with that, don’t you?...Yes.
As that was the permitted use that’s what you knew Impact was going to be doing at the warehouse, didn’t you?...Yes, that’s correct.
With that permitted use, you’d expect fertiliser dust to be in the warehouse, wouldn’t you?...Yes. You would expect some dust.[198]
…
The permitted use is precisely what Impact used, the western area or the central area for, isn’t it?...Yes, that’s correct.
What they did there was exactly what you knew they were going to do and anticipated they were going to do, wasn’t it?...Yes.
You knew that fertiliser granules have a corrosive nature, didn’t you? You knew that at the time?...Yes.
Now, there’s no suggestion that Impact used the warehouse, other than in accordance with the permitted use, is there?...No.
So you’d agree, wouldn’t you, that Impact made reasonable use of the warehouse?...How would you define “reasonable”?
…
You’d agree, wouldn’t you, that Impact used the warehouse exactly as you would have anticipated and expected them to use it, didn’t they?...Yes.[199]
[198] Transcript p 302.
[199] Transcript pp 304 -305.
144 AWH conceded that this is not a case based on unreasonable use.[200]
[200] Transcript p 292.
145 Mr May was also asked in cross-examination:
In a shed like this [shed D]….used by Impact in the way that you saw Impact using it, storing and handling fertilisers at least some of which are of the more corrosive kind, like potassium chloride, you would expect to see the sort of corrosion that you’ve seen in this shed, wouldn’t you?...Yes. Yes. Yes.
And when Mr Rowlands said something similar – [in his report at p552][201]:
You’ll see that this is part of the report of Mr Rowlands, and the Question D is,
‘The extent to which the corrosion which occurred would be a usual and expected consequence of storing fertiliser?” And he said, “The environment created by the fertiliser, its handling, and presence of moisture is severe for the steel construction. The rapid growth and extent of the corrosion is not unexpected.’
And you agreed with that, didn’t you?...Yes. Yes, it – I’d say on reflection – you know, I came back with a qualification regarding the type of fertiliser.
I understand that. Yes, but at 534 of your last report, you said you agreed with Mr Rowlands’ conclusions in that regard, didn’t you?...That’s correct, yes.[202]
Particulars of reservation
The reservation was to argue liability on the sum of $61,270.00 of the said items, on the basis reinstatement will not occur due to a permanent change in use.
3. On 11 March 2015, by email sent at 3.11pm, the defendant’s solicitors offered to the plaintiff’s solicitors, to agree quantum for the roof and wall repairs, subject to a reservation on liability set out in the email, in the sum of $1,050,000.00.
Particulars of reservation
The reservation was to argue that application of a product during the repairs known as Goldseal in the sum of $388,973.20 was a betterment of the plaintiff’s asset.
4. On 12 March 2015, by email and attached letter sent at 1.06 pm, the plaintiff’s solicitors accepted the defendant’s two offers on quantum set out in paragraphs 2 and 3 herein, including the reservations set therein and sought confirmation of that agreement.
5. On 12 March 2015, by email sent at 4.08 pm, the defendant’s solicitors acknowledged and confirmed agreement in line with the plaintiff’s solicitors email letter referred to in paragraph 4 herein.
6. By the acceptance in paragraph 4 herein a contract between the parties on quantum was completed. The contract was confirmed by the email in paragraph 5 herein.
7. Other than the reservations set out in paragraphs 2 and 3 herein, the agreement on quantum did not include any reservation by the defendant to argue that any component of the agreed quantum for repairs constituted an improvement, structural or capital work. Accordingly the plaintiff says the defendant:
7.1 By its agreement is only able to only raise those matters it specifically reserved in the agreement on quantum; and
7.2 The defendant is thereby estopped from asserting any other matter, other than the agreed reservations, on the issue of quantum of the plaintiff’s claim.
181 I accept Impact’s submission that the agreement referred to in the amended reply is plainly an agreement on quantum. It is not an agreement on liability.[217] The agreement on quantum does not estop Impact from arguing that the repairs fell within the exclusion of improvements, structural or capital works.
[217] Transcript p 711.
182 AWH submitted that Impact has not proved what items it says had been improved or are a capital replacement. The total amount of the agreed quantum is $1,050,000. Other than the sum of $388,000 attributed to the application of Goldseal, Impact is not able to say whether the remaining $661,000 is a capital improvement, repair or some other type of category of expense. AWH submitted that Impact bears the burden of proving the nature and cost of the improvements or structural or capital works. AWH submitted that Impact can argue its case on liability, but it cannot prove its case on quantum.
183 AWH contends that you could not conclude that the whole of the balance of $661,000 are improvements or structural or capital works because Impact has not proved what items it says had been improved or are structural or capital works. Impact contends that all the works are structural works and therefore Impact is not liable for them.
184 It is not necessary for me to consider AWH’s submission on the effect of the agreement as to quantum because of my determination that the repairs did not constitute improvements or structural or capital works. However I am not persuaded by AWH’s submission that the Court is not in a position to determine the amount referable to capital or structural works because a large percentage of the agreed sum of $661,000 would consist of labour and other items like consumables that are not quantified in the agreement on quantum.
(g) Betterment
185 Impact submits that if it is liable, it should not be liable for the application of Goldseal ($388,000) as that will result in the leased premises being more resistant to corrosion than they were when Impact moved into the leased premises and therefore comprises betterment. I do not accept Impact’s submission.
186 Goldseal is a waxy type of material. Mr Eakins said that it has to be heated to about 100 degrees before it can applied. It can be applied directly over rusting steel and it adheres to it. It is not like other paints. With most other paints it is necessary to sand-blast the steel down to bare metal before a coat can be applied. Otherwise the paint will not protect the steel.[218] But Goldseal stays sticky and flexible after it is applied.[219]
[218] Transcript pp 344 -345.
[219] Transcript p 345.
187 Mr Crimmins agreed that when Impact went into possession there was no Goldseal coating on any of the steel structures. When cross-examined, Mr Crimmins said that it is proposed to use Goldseal to repair part of the warehouse. In areas where the corrosion damage was too extensive, AWH had to replace purlins and sheeting.[220] Goldseal will stop any further corrosion and basically alleviates the need to replace purlins and sheets. I accept Mr Crimmins evidence that the application of Goldseal is a more cost-effective way of preventing the need to replace purlins and sheets and a means of mitigating the corrosion damage.[221]
[220] Transcript p 322.
[221] Transcript p 322.
188 Mr Eakins compared the cost of Goldseal with the repairs he had previously costed in 2012. The average cost of replacing the 2.4 millimetre thick Z purlins was $66 a lineal metre and for the 1.5 thick Z purlins it was $60 a lineal metre compared with the cost of $50 for applying Goldseal.[222] The other advantage of using Goldseal was that Goldseal could be applied from inside the store without taking the roof sheets off. Otherwise it is necessary to remove the roof sheets to replace the purlins which means that the store is exposed to the weather and any product must be moved out of the building when the purlins are replaced.[223] Accordingly AWH chose to use Goldseal because it was cheaper in price and took less time to apply.[224] The Goldseal will protect the purlin for 5 to 10 years. Mr Eakins said that the life of a purlin, where there is no fertiliser, is between 40 and 50 years. The purlins at the leased premises under normal circumstances without fertiliser will last another 15 years.[225] The Goldseal will last another five to 10 years and probably longer if you touch them up again.[226] The application of Goldseal will give the life back to the purlin equivalent to what it would have been if there was no fertiliser in the building.[227] If there was a purlin in one part of the shed that had no corrosion at all, it would not have been painted with Goldseal.[228]
[222] Transcript p 345.
[223] Transcript p 346.
[224] Transcript p 346.
[225] Transcript p 349.
[226] Transcript p 350.
[227] Transcript p 350.
[228] Transcript p 350.
189 Mr Eakins said that the application of Goldseal is not really an improvement. It has still only got the life which it would have had if it had not rusted. Those purlins have got a 15 year life left in them.[229]
[229] Transcript p 356.
190 A substitute for replacement of purlins is the application of Goldseal. [230] AWH made the decision not to replace the purlins and to spray them instead. Mr Eakins stated that it costs $50 a linear metre to spray the Goldseal as against the greater amount of $62 to $66 for replacing a purlin. Furthermore Goldseal could be applied without taking the roof sheets off and did not require removal of the tenant’s fertiliser product.
[230] Transcript p 348.
191 I accept Mr Eakins evidence that the application of Goldseal will give protection to the purlin for five to ten years. If the purlins were not corroded by fertiliser, they would last another 15 years. I accept Mr Eakins’ evidence that the application of Goldseal does not give any greater life out of the purlin.
192 I find that the application of Goldseal restored the purlins to the position they would have been if the corrosion had not occurred, which is not betterment.
(h) Implied covenant to deliver up the leased premises in a tenant like manner.
193 In the second amended statement of claim, AWH claimed that there was an implied covenant of the sub-leases that Impact would use and deliver up the premises in a tenant like manner. AWH relied on the same breaches of the terms of the lease to support the breach of the implied covenant.[231]
[231] Second Further Amended Statement of Claim dated 26 June 2014, paragraphs 13 & 19.
194 AWH did not make any submissions in regard to this claim at the trial. Impact did make some short submissions in defence of the claim.
195 The implied covenant provides that at law and in the absence of a specific delivery up covenant the tenant must use the premises in a tenant like manner and he must deliver up the premises in the same condition as he received them reasonable wear and tear excluded. These common law obligations would subsist unless excluded by the terms of the lease.[232]
[232]Combara Nominees Pty Ltd v McIlwraith-Davey Pty Ltd (1991) 6 WAR 408.
196 AWH relied on the breaches of the express covenants of the lease to support the breach of the implied covenant, and I agree with Impact’s submission that the effect of the implied covenant is to the same effect as the express covenant and therefore the same considerations must determine whether it succeeds or fails. In that regard I refer to my discussion on the breaches of the terms of lease in the above paragraphs 140 to 164. To the extent that the implied covenant is inconsistent with the terms of the lease, the express terms of the lease apply.
(i) Waste
197 In the second amended statement of claim, AWH claimed that Impact was under a duty not to commit or permit waste in respect of the leased premises. In breach of the duty, Impact allowed the premises to be wasted by allowing fertiliser dust to accumulate on internal steel surfaces of Building D. The accumulation of the fertiliser dust caused corrosion to the steel surfaces, affected the structural integrity of Building D and reduced its effective service life by 25%.[233]
[233] Second Further Amended Statement of Claim dated 26 June 2014, paragraphs 14 & 20.
198 AWH did not make any submissions on this issue at the trial, but Impact did make submissions in defence of the claim. As a matter of completeness, I consider the matter of waste as follows.
199 Waste is a tortious act or omission which, without consent, permanently alters the nature of the premises to the prejudice of the holder of the reversionary interest. Waste has been described as archaic as it has been effectively replaced by actions on a covenant to repair.[234] However, where such waste amounts to a breach of covenant, the landlord may sue either in tort, or on the covenant, at his election.[235] Waste is classified as voluntary or permissive waste.
[234]Mancetter Developments Ltd v Garmanson Ltd [1986] QB 1212 at 1218.
[235] Ibid.
200 I agree with Impact’s submission that in order to commit voluntary waste, the offending act must be wilful or negligent and occur not merely as a consequence of a reasonable permitted use.[236] There is no allegation that Impact did anything wilful or negligent and AWH has agreed that Impact’s use of the premises was within the permitted use. Accordingly, this claim cannot succeed.
[236]Saner v Bilton (1878) 7 Ch D 815.
201 The second category, being permissive waste, occurs due to a failure by the tenant to take action to prevent damage resulting to the premises[237]. Impact argued that AWH has not identified any failure by Impact to take action to prevent damage to the premises. In the absence of such a claim, the claim cannot succeed. To the extent that it is said to be the failure to apply fish oil or install a dust extraction system, the case is not pleaded that way and nothing else has been identified. In any event, these measures would not have prevented the damage. I agree that no failure to take action has been particularised by AWH specifically in relation to permissive waste. It would appear that AWH has effectively elected to sue in breach of covenant as opposed to the tort of waste.
[237]Mancetter Developments Ltd v Garmanson Ltd [1986] QB 1212.
(j) Estoppel
202 In its Defence and Counterclaim dated 8 July 2012, Impact claimed that AWH was estopped from bringing the proceeding on two bases:
(1) That Impact was induced into assuming it was not required to install a dust extraction system and apply a fish-oil based product to steel products (the works);[238] and
(2) That AWH knew that Impact was storing and handling non-hazardous fertiliser at the premises and that Impact therefore assumed it was entitled to do so in the manner in which it was.[239]
[238] Paragraphs 17A-17H.
[239] Paragraphs 18A-18P.
203 As AWH abandoned its claim in relation to the warranties, I do not propose to consider the first estoppel claim by Impact.
204 Turning to the second estoppel claim, although not explicitly submitted by Impact, it appears that it relies on estoppel by convention. Mr McCarthy agreed that this was the case.
205 The difference between estoppel by convention and estoppel by representation is explained by the High Court in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Aust) Ltd[240]:
Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted upon by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying.
[240] (1986) 160 CLR 226.
206 In Waterman v Gerling Australia Insurance Co Pty Ltd[241] Brereton J set out the matters necessary to establish an estoppel by convention:
(1) that [the plaintiff] has adopted an assumption as to the terms of its legal relationship with the defendant;
(2) that the defendant has adopted the same assumption;
(3) that both parties have conducted their relationship on the basis of that mutual assumption;
(4) that each party knew or intended that the other act on that basis; and
(5) departure from the assumption will occasion detriment to the plaintiff.
[241] (2005) 65 NSWLR 300.
207 Impact submitted that it assumed that it was entitled to store and handle fertiliser in the premises because it was within the permitted use, and AWH never complained about that including when corrosion was discovered. In those circumstances it would be unconscionable for AWH to resile from the assumption made by it and Impact about the use of the premises and therefore AWH is estopped from bringing the claim.
208 Mr McCarthy submitted there is no situation where either party has taken a position that is contrary to the lease which the other party has relied upon to their detriment. The test for estoppel is not established on the evidence, and therefore there can be no estoppel.
209 I do not accept Impact’s submission that AWH is estopped from making the claim based on its conduct in relation to the permitted use of the premises. The permitted use was not disputed by AWH. AWH conceded that Impact were using the premises in accordance with the permitted use.[242] AWH also agreed that the corrosion damage which occurred was a result of Impact’s use of the premises in accordance with the permitted use.[243] This assumption has not been departed from by AWH to the detriment of Impact.
[242] Transcript p304.
[243] Transcript p307.
210 What is disputed by AWH is whether the damage caused by the permitted use constituted fair wear and tear. There is no shared assumption that the damage was fair wear and tear. I accept that AWH acted in a reasonable manner upon discovering the corrosion, and did not induce Impact into an assumption that it would not enforce its rights to repair under the lease.
211 Mr Lindros’ evidence in relation to the corrosion damage is outlined in the above paragraphs 71 to 87. Most relevantly, Mr Lindros first noted the corrosion damage in 2010, and recommended monitoring of the situation. In late 2011, he noted significant rust and recommended inspection by a structural engineer. By early 2012, Mr Eakins and Mr May had been engaged to conduct inspections and prepare reports. It was shortly after this that AWH raised the corrosion issue with Impact.[244] In cross-examination, Mr Crimmins stated he first became aware of corrosion in 2010 when Mr Lindros advised him regarding the bird mesh. Mr Crimmins said that he did not raise that with Impact at that point because it was just bird mesh and they decided to replace the bird mesh and monitor it at that point in time to see how things went.
[244] Transcript pp301-302.
212 Considering the above evidence, I do not consider that timeline to be excessive or that the conduct by AWH would result in a legitimate assumption by Impact that AWH’s rights pursuant to the lease would never be enforced against it.
(k) Make Good Expenses
213 In the second amended statement of claim, AWH claimed $100,052.62 for what it described as “make good costs” pursuant to the sub-leases for reinstalling smoke curtains, smoke detectors, fire hose reels and other miscellaneous repairs. AWH referred to clauses 2.5(a)(ii)(A) and cl 2.4(t) of the sub-leases to the effect that Impact was to deliver the premises in the condition the premises were at the time of the commencement of the sub-lease in support of Impact’s liability to reinstate these items.
214 In its defence, Impact denied liability for all the make good damages.
215 At the start of the trial, the parties advised that they had agreed on the quantum for these make good costs, subject to some exceptions. AWH later tendered an email detailing this agreement.[245] The parties advised that Impact had admitted liability and quantum on the following items:
[245] Exhibit 36.
Smoke Curtain 1 $20,170.00
Pavement Repairs $11,320.62
Replacement of hi-bay lights $ 4,882.00
Store sweeping $ 960.00
Column 13 repairs $ 1,450.00
TOTAL $38,782.62
216 Despite agreeing on quantum, Impact disputed its liability to reinstate the remaining items:
Smoke detectors $20,100.00
Smoke curtain 2 $20,170.00
Fire hose reels $21,000.00
TOTAL: $61,270.00
The smoke detectors
217 Mr Crimmins gave evidence that the store was protected by 176 spot smoke detectors.[246] The detectors do not function very well in highly dusty environments as the dust penetrates inside the device and sends a false alarm to the fire brigade. AWH of its own volition decided to disconnect the detectors[247] after Impact experienced a false alarm early in the tenancy.[248]
[246] Transcript p 182.
[247] Transcript p 185.
[248] Transcript p 184.
Fire hydrants and hoses
218 Mr Crimmins stated that seven hydrants were depressurised, cut off slightly above floor level and capped. Sixteen hose reels were cut off, removed and capped just above floor level. This was done as Impact wanted to reduce the risk of mixing fertiliser and water.[249]
The smoke curtains
[249] Transcript pp 196-197.
219 Impact also modified two smoke curtains by taking out the bottom section through the centre section of the smoke curtain.[250] Mr Crimmins gave evidence that two smoke curtains were modified within months of February 2007.[251]
[250] Transcript p 200.
[251] Transcript p 236.
220 Mr Cornish referred to an email dated 23 February 2007 from Bruce Harper to Howard Eakins in relation to the removal of the smoke curtain at the Lara store. Mr Cornish stated that the reason for a modification to the smoke curtain was to increase the available height within the store. The height needed to be increased partly to get a clearance for the large trucks tipping fertiliser into the store and partly to “allow the product to be stored higher in the available space. To allow for greater capacity”[252].
[252] Transcript p 672.
221 Two of the smoke screens were modified. Mr Cornish agreed that there was a requirement for reinstatement.
When they were modified, you understood in your capacity as CEO that they would have to be reinstated at the end of the lease?...
I imagine, yes, it sounds reasonable that there would be a requirement if the landlord so required to put it back.[253]
[253] Transcript p 672.
222 On 28 February 2007 Bruce Harper forwarded an email to Ross Colley stating that:
Naturally the smoke curtain would need to be reinstated to its original design/condition at the end of the lease term. I believe that we could cover the proposed modification outside of the sub-underlease with an exchange of letters. I would assume that the “responsible party” to such an agreement would be the sub-underlessee (Impact Fertilisers) and not IML. This is a building modification which would require the consent of the head lessor and the head lessee but I would not anticipate any problems from either party as we are not going outside the building code.
223 A letter dated 8 April 2008 by Matt Allen, Fire Safety Officer CFA Barwon Corangamite Area, stated:
The above variation to the fire safety prescribed matter is subject to the following recommendations:
2. If the building uses changes a fully compliant Hydrant and Fire hose Reel system must be installed and the existing 1670 smoke detection system must be totally recommissioned.[254]
[254] Exhibit 21
224 By letter dated 16 January 2009, Bob Butt, asset manager of Dexus Property Group stated that they had reviewed the documentation prepared by SKIP Consulting (fire engineer engaged by AWH) together with the City of Geelong & the Country Fire Authority approvals and granted their consent for the works to proceed as described. “Please note however, that this approval is given on the basis that the equipment removed may be required to be re-instated at the expiry of the sub-lease to impact Fertilisers.”[255]
[255]Exhibit 22.
225 At the end of the lease, Mr Crimmins asked Impact to reinstate both smoke curtains.[256] Mr Crimmins said that at the meeting on 23 January 2012 with Wayne Newitt (Impact’s operation manager), Mr Newitt acknowledged that the reinstatement of the smoke detection system, the fire curtains, hydrants, hose reels were requirements for which Impact were liable, but he raised the issue of whether that could be changed so reinstatement wasn’t required.[257] After this meeting Crimmins re-read the CFA report dated April 2008 which confirmed that if there was any change in use, the items would need to be fully reinstated.[258]
[256] Transcript p 237.
[257] Transcript p 257, exhibit 20.
[258] Transcript p 258.
226 By letter dated 10 April 2012, James Phyland state manager AWH Victoria, stated that the fire hose reels must be reinstated as they were at the commencement of the sub-lease, the smoke curtains must be reinstated and the smoke detection system must be reinstated in the area.[259]
[259] Exhibit 23.
227 Mr Newitt’s understanding was that the smoke detectors would be replaced by Impact at the end of the lease.[260] Mr Newitt said that at the end of Impact’s tenancy, the smoke detectors, smoke curtain no 2 and the fire-hose reels had not been reinstated.[261] Mr Newitt also said that no funds had been paid to AWH for the cost of reinstatement.[262]
[260] Transcript p 614.
[261] Transcript p 605.
[262] Transcript 606.
228 Mr Crimmins gave evidence that at the time of the trial, one fire curtain has been reinstated and there is still one to be reinstated. The one furthest east from the west wall has been reinstated. The one that is to be repaired is closest to the western wall.[263] None of the remaining works referred to in the email by Mr Crimmins to Mr Newitt dated 24 February 2012[264] have been carried out. The only thing that was being carried out was the cleaning of the floor[265].
[263] Transcript p 217.
[264] Exhibit 20.
[265] Transcript p 261
229 Mr Shaw submitted that Impact was not liable for the replacement of smoke detectors, the smoke curtain and fire hose reels as it was clear that there has been a permanent change in use of the premises (to fertiliser storage) and therefore AWH does not intend to restore these items. The current tenant, Wengfu, is also using the premises to store fertiliser and does not want these things to operate for the same reasons that Impact does not. Mr Shaw referred to Bellgrove v Eldridge[266] and stated that the work has to be reasonable to allow compliance with the contract and it has to be a reasonable course to adopt.
[266] (1954) 90 CLR 613.
230 AWH submitted that there was no evidence that AWH was not going to restore the items at some stage and referred to the letter from DEXUS, which says at the end of the term they require them to be reconnected.[267]
[267] Exhibit 22.
231 It is true that Bellgrove, later qualified by Tabcorp Holdings Ltd v Bowen Investments[268], is authority for two propositions. First, that the measure of damages recoverable by a building owner for breach of a building contract is the difference between the contract price of the work contracted for and the cost of making the work conform to the contract together with consequential loss. Second, that this principle is subject to the qualification that the works undertaken to produce conformity must be necessary and in the circumstances the reasonable course to adopt, that question being a question of fact in every case. Tabcorp declared that the test of unreasonableness would be satisfied only in fairly exceptional circumstances.
[268] (2009) 236 CLR 272.
232 Bellgrove also said that the fact that a party might not carry out the rectification work was quite immaterial. However, the subsequent English case of Ruxley Electronics & Construction Ltd v Forsyth[269] stated that while courts are not normally concerned about what a plaintiff does with damages, it does not follow that intention is not relevant to reasonableness in those cases where the plaintiff does not intend to reinstate.
[269] [1996] AC 344.
233 Cordon Investments v Lesdor Properties Pty Ltd[270], in deciding the question of reasonableness in light of intention to rectify, relied upon the judgment in Westpoint Management Ltd v Chocolate Factory Apartments Ltd[271]. The Court considered that the plaintiff’s intention to carry out the rectification work is relevant to the question of reasonableness, however, the plaintiff’s intention to carry out the works is not of significance in itself. The significance will lie in why the plaintiff intends to carry out the work or not carry out the work for the light it sheds on whether the rectification is necessary and reasonable.
[270] [2012] NSWCA 184.
[271] [2007] NSWCA 253.
234 After considering the evidence, I accept that at the present time, AWH does not have an intention to reinstate the items in dispute because these items are not required by the current sub-tenant. However, the requirement to reinstate these items at some point in time in the future cannot be ignored.
235 Evidence was led that there is a new sub-tenant at the premises, but there is no evidence as to the termination date of this tenancy. As a result, I cannot be satisfied that the warehouse will be used as fertiliser storage permanently, or whether the use will change on a change of tenancy, which will then require reinstatement of the items to comply with fire regulations.[272] Before it was known that the new tenant would also be storing fertiliser, the requirement of Impact to reinstate appeared to be agreed in correspondence between the parties when the alterations were being negotiated.[273]
[272] Exhibit 21.
[273] See above paragraphs 223-225.
236 AWH is also subject to the head-lease[274] which contains similar “make good” provisions to the sub-leases, providing, inter alia, that the tenant must deliver up the premises to the Landlord at the end of the term of the lease in the condition that the premises were in at the commencement of the head-lease.
[274] Exhibit 3.
237 In addition, the sub-leases contain the following clause 6:
Head Lease Covenants
Insofar as they are not inconsistent with the terms hereof all of the Lessee’s covenants contained in the Head Lease are hereby deemed to be incorporated mutatis mutandis into this Sub-Lease as if they were specifically set out herein and so that the Sub-Lessor shall be put in the place of the Head-Lessor and in particular but without limiting the generality of the foregoing in all matters which the Lessee pursuant to the Head Lease is required to obtain the consent of the Head-Lessor, the Sub-Lessee shall be required to likewise obtain the consent of the Sub-Lessor.
238 Whilst it may be that AWH will not reinstate the items until the termination of the head-lease in 2023, the obligation on AWH is currently in force with no reason to suggest that that obligation will be vacated. There remains a mutual intention that that covenant will be met, albeit later in time. By virtue of clause 6 of the sub-leases Impact must also be required to observe this covenant.
239 In the circumstances, I am not satisfied that the fact that reinstatement will not be immediate, but sometime in the future, meets the burden of the exceptional circumstances test set out in Tabcorp to make damages for reinstatement unreasonable.
240 In cases where unreasonableness was found due to a lack of intention to reinstate such as in Ruxley and Cordon, the plaintiffs had perfectly functioning and aesthetically pleasing premises without the works being done, and the works could not or would not ever practically be completed. Here, whilst the property is functioning for its current use, the uncertainty as to future use and the overriding obligation on both parties to reinstate the items pursuant to the head-lease means that the damages for reinstatement must be considered necessary and reasonable.
241 For these reasons in my view Impact is obliged to pay to AWH the sum of $100,052.62 for make good costs. This amount includes the disputed amount of $61,270.00.
(l) Counterclaim
242 In its counterclaim dated 8 July 2012, Impact claims that it is entitled to the return of the amount of its bank guarantees.
243 Pursuant to the terms of the sub-leases, Impact provided AWH with two bank guarantees totalling $249,845.34.[275] The bank guarantee relating to the first sub-lease was for $101,365.87 (the first bank guarantee) and the bank guarantee relating to the second sub-lease (the second bank guarantee) was for $148,479.47.
[275] Exhibit 28.
244 AWH considered that Impact did not fulfil its obligation under each of the sub-leases and therefore they were entitled to draw down the bank guarantees in payment of the repair and make good costs pursuant to clause 5.5 of each of the sub-leases.[276]
[276] Transcript p55.
245 Mr Crimmins gave evidence that the bank guarantees were drawn down by AWH:
MR McCARTHY: … From the terms of the lease, you would be aware there are lease guarantees where sums of money were provided through a bank guarantee to guarantee the obligations of the lease. You're aware of that?---Yes.
Do you know what happened in respect of the bank guarantees?---We called in the bank guarantees, basically.[277]
[277] Transcript p264.
246 The letters of demand to the National Australia Bank Limited (NAB) were exhibited, showing the draw down date of the guarantees as 26 April 2012[278]
[278] Exhibit 28.
247 Mr Newitt acknowledged receiving letters from the AWH’s solicitors on 12 and 19 April 2012 outlining, inter alia, AWH’s intention to draw down the bank guarantees.[279] Mr Newitt responded on 30 April 2012 disputing the right of AWH to draw down the bank guarantees and “hold[ing] AWH Pty Ltd responsible for any loss it suffers as a result of the bank guarantees being called upon”.[280]
[279] Transcript p625.
[280] Exhibit H.
248 Impact submitted that AWH would only be entitled to draw down the bank guarantees in the event that it was successful on the corrosion claim and the make good claim. If not, that money ought be paid back, excluding the approximately $38,000 of the make good claim that is not disputed.[281]
The first sub-lease
[281] Transcript p81.
249 Clause 5.6 of the first sub-lease provides that the first bank guarantee will be returned to Impact on the latter of termination of the first sub-lease or fulfilment of its obligations under the sub-lease. In the circumstances, if Impact has not defaulted on any terms of the sub-lease, Impact is entitled to return of the bank guarantees. In those circumstances AWH would be obliged to pay Impact the sum of $1313.25 being the amount of the first bank guarantee less the amount of $100,052.62 for make good items.
The second sub-lease
250 Pursuant to clause 5.6 of the second sub-lease, AWH is obliged to pay Impact the full amount of the second bank guarantee being $148,479.47.
Interest on the counterclaim
251 Impact submitted that it is entitled to interest on the amount claimed from the termination date of the sub-leases or alternatively the date demand for payment was made. Mr Shaw referred to s58(1) of the Supreme Court Act 1986 (Supreme Court Act):
If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
252 Mr Shaw referred to Mr Newitt’s letter to the plaintiff’s solicitors dated 30 April 2015 and submitted that this letter constitutes a demand for payment. A J Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd[282] stated that where an award of interest is sought under s 58 from the time when demand for payment was made, the “demand need not be in any particular form, or specify the exact sum due, so long as it contains a distinct demand of payment”. After considering the exact terms of the letter, I do not agree that it contains a “distinct demand” for the bank guarantees to be paid back. Whilst it appears to challenge the right of AWH to draw down the guarantees, it does not appear to express an explicit request for return of the funds. As such, I do not consider that the letter constitutes a demand under s58 of the Supreme Court Act.
[282] [2009] VSCA 310.
253 Turning then to the terms of sub-leases, clause 5.6 provides that AWH will return the bank guarantees “as soon as practicable” following the latter of the expiry of the sub-lease or the date upon which Impact has fulfilled all its obligations under the sub-leases. However, clause 5.6 of the second sub-lease adds the qualifier “but no later than 3 months from the termination date”. This qualifier is not contained in clause 5.6 of the first sub-lease.
254 Mr Shaw submitted that pursuant to clause 5.6 of the first sub-lease, the date that the debt became due was the date of the expiration of the lease, but this is not correct. The sub-leases provide that the bank guarantees were returnable “as soon as practicable after” this date, or when Impact had fulfilled all its obligations to AWH.
255 Section 58 of the Supreme Court Act requires the date for payment to be at a “date or time certain”. Due to the term “as soon as practicable after” it is not possible to determine a date certain for payment of the sum for the first sub-lease. Furthermore, Impact has admitted that it has not fulfilled all its obligations under the make good provisions of the sub-leases. As there is no date certain in the first sub-lease and no demand for payment made, s58 cannot apply.
256 Instead, the Court may order interest pursuant to s60 of the Supreme Court Act[283]. This section provides that the court must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate from the time being fixed under s 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of judgment.
[283]A J Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2009] VSCA 310 at 187.
257 Impact initially claimed for return of the full amount of the bank guarantees. As stated in the above paragraph 241, Impact had an obligation to pay $100,052.62 to AWH for the make good costs. In the circumstances, I do not consider it appropriate that Impact be entitled to interest on the full amount of the first bank guarantee but would only be entitled to interest on the reduced sum. Pursuant to my discretion, I would deduct the amount from the first bank guarantee in consideration of the fact that the make good obligations were in force from the beginning of the occupation of the premises by Impact.
258 Accordingly, I would order that AWH pay Impact interest on the sum of $1,313.25 at the penalty interest rate from the date of the counterclaim, being 8 July 2014 to judgment.
259 In relation to the second sub-lease, it is possible to determine a date certain based on the qualifying statement limiting the time for payment to the end of the 3 month period. The expiry date of the renewed sub-lease was 30 April 2012. In the circumstances, I consider the date certain for payment of the sum of the second bank guarantee to be 3 months from that date, being 31 July 2012.
260 Accordingly I would order that AWH pay impact interest on the sum of $148,479.47 at the penalty interest rate from the date that debt became due pursuant to the sub-lease, being 31 July 2012, to judgment.
(m) Conclusion
261 The defendant is not obliged to pay the plaintiff the sum of $1,050,000 being the cost of repairing the roof and walls of the leased premises.
262 I propose to order that there be judgment for the plaintiff in respect of make good costs in the sum of $100,052.62 together with interest.
263 In relation to the defendant’s counterclaim, I propose to order that there be judgment for the defendant on its counterclaim in the sum of $149,792.72 together with interest.
264 I will hear counsel on the question of interest, costs and the form of the orders.
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