Brand Hwy Pty Ltd v Hay Australia Pty Ltd - [2015] WASC 375

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: BRAND HWY PTY LTD -v- HAY AUSTRALIA PTY LTD [2015] WASC 375

CORAM: MASTER SANDERSON

HEARD: 30 SEPTEMBER 2015

DELIVERED : 8 OCTOBER 2015

FILE NO/S: CIV 1451 of 2015

BETWEEN: BRAND HWY PTY LTD
Plaintiff
AND
HAY AUSTRALIA PTY LTD
Defendant

Catchwords:

Summary judgment application by defendant - Lease providing for payment of insurance by tenant - Claim property damaged by tenant's negligence - Whether claim against tenant by landlord arguable - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O 16

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff: Mr G R Hancy
Defendant: Mr J R B Ley

Solicitors:

Plaintiff: WHL Legal Pty Ltd
Defendant: Greenland Legal Pty Ltd

Case(s) referred to in judgment(s):

Agnew-Surpass Shoe Stores Ltd v Cummer‑Yonge Investments Ltd (1975) 55 DLR (3d) 676
Bit Badger Pty Ltd v Cunich (1996) 9 ANZ Ins Cas 61‑312; [1997] 1 QD R 136
Community Credit Union v Homelvig 487 NW 2d 602 (1992)
Dix Mutual Insurance Company v LaFramboise 597 NE 2d 622 (1992)
Fred A Chapin Lumber Co v Lumber Bargains Inc 11 Cal Rptr 634 (1961)
General Accident Fire & Life Assurance Corporation Ltd v Traders Furniture Co 401 P 2d 157 (1965)
General Mills Inc v Goldman 184 F 2d 359 (1950)
Greenwood Shopping Plaza Ltd v Neil J Buchanan Ltd (1979) 99 DLR (3d) 289
Leisure Centre Ltd v Babytown Ltd [1984] 1 NZLR 318
Linden v Staybond Pty Ltd (1986) NSW ConvR 55‑308
Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211
Marlborough Properties Ltd v Marlborough Fibreglass Ltd [1981] 1 NZLR 464
National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 L1 Rep 582
New Hampshire Insurance Co v Fox Midwest Theatres Inc 457 P 2d 133 (1969)
Ross Southward Tire Ltd v Pyrotech Products Ltd (1975) 57 DLR (3d) 248
Sutton v Jondahl 532 P 2d 478 (1975)
T Eaton & Co Ltd v Smith (1977) 92 DLR (3d) 425

MASTER SANDERSON: This was the defendant's application for summary judgment. Although not without merit the application fails. The nature of the application and the issues to be determined highlight the weakness of the summary judgment procedure in cases such as this.
For the purposes of the application the defendant accepts, as it must, the plaintiff will succeed in making out its pleaded claim. The summary of facts which follows is taken from the statement of claim which was endorsed on the writ of summons. At all material times the plaintiff was the owner of land and building located at 290 Brand Highway, Muchea. The defendant was a company specialising in producing hay products for farmers. On or around 6 November 2000 the plaintiff entered into an agreement to lease the subject premises to Milne Feeds Pty Ltd for a term of seven years with two options to renew the term for five years each. On or around 1 November 2006 Milne Agrigroup Pty Ltd (formerly known as Milne Feeds) assigned to the defendant its leasehold interest in the premises together with the options for renewal. On 30 July 2007 the lease was renewed for a further period of five years.
On or around 2 October 2010 there was a fire at the premises which caused damage to three sheds that were joined by a central roof area. A bale builder in the north‑western corner of the sheds was decommissioned one month prior to the fire. The plaintiff alleges the fire was caused by spontaneous combustion as a consequence of the defendant failing to properly decommission the bale builder. The plaintiff pleads a claim in negligence and breach of contract and particularises those claims. I need say nothing further about those issues. It is enough if I say that for the purposes of this application (and only this application) the defendant accepts the plaintiff will make out a case that the fire that damaged the premises was caused by the defendant's negligence.
A copy of the lease is found as attachment MLG1 to the affidavit of Mark Lindsay Greenland sworn 4 June 2015 and filed in support of the application. The defendant says pursuant to the terms of the lease the plaintiff cannot maintain its claim. They point first to cl 10.1 of the lease. That clause is in the following terms:
10.1Repair of Premises
(1)The Tenant must keep the Premises, the Tenant's Fittings, and the Landlord's Fixtures, in good and substantial repair and condition except for:
(a)fair wear and tear; and
(b)damage covered by insurances taken out by the Landlord in respect of the Premises.
(2)The exception in clause 10.1(1)(b) will not apply if:
(a)insurance money is irrecoverable through the act, default, neglect, omission or misconduct, of the Tenant or the Tenant's Employees; or
(b)the Landlord is unable to obtain insurance.
(3)Nothing in clause 10.1(1) imposes any obligation on the Tenant in respect of major structural replacement unless required because of:
(a)the act, omission, neglect, default, or misconduct, of the Tenant or the Tenant's Employees;
(b)the Tenant's use of the Premises; or
(c)a specific provision of this Lease.
Reference is then made to cl 5 of the lease which is headed 'Operating Expenses'. Pursuant to cl 5.5 of the lease the plaintiff must pay the operating expenses to the landlord. In cl 5.2 the term 'Operating Expenses' is defined. Relevantly it includes as subclause (3):
[I]nsurances relating to the Premises, and its use and occupancy including without limitation, insurance against fire and other usual risks on a replacement basis, public risk, plate glass breakage, and loss of rents.
The defendant's argument can then be reduced to this. They say pursuant to cl 10.1(1)(b) they are not liable for damage to the premises if that damage is covered by insurance taken out by the plaintiff. Because they were required to pay the operating expenses, and the operating expenses included insurance, it can be assumed the loss occasioned by the fire was covered by the insurance. Therefore, no claim can lie against the plaintiff because they are protected by the terms of the contract.
It is worth pausing at this point to note what a party seeking summary judgment must establish. In the case of the defendant they must establish the plaintiff's pleading has not disclosed there is a serious question to be tried. It is commonly said when the requirements of the Rules of the Supreme Court 1971 (WA), O 16, have been satisfied the evidentiary burden shifts from the defendant to the plaintiff. In this case there is no argument about the facts. But it still remains the case that here all the plaintiff needs to show is that there is a serious question to be tried. It is a low threshold and in this case it proved fatal to the defendant's claim.
The question raised by this application is not one which has been directly determined in any case in Australia. There are two first instance decisions which are relevant and I will deal with those below. But to make good his submissions counsel for the defendant canvassed authorities from the United States of America, Canada, New Zealand and one English authority. The difficulty with applying these cases is twofold. First, none of the fact situations are directly comparable with the contractual position in this case. Second, all of the cases have dissenting judgments which are persuasive. It is not possible to say with certainty what the position actually is in any of the jurisdictions to which reference was made. To provide some flavour as to the extent of the authorities canvassed there follows a list of cases referred to, often in some detail, by counsel for the defendant. These cases are: Sutton v Jondahl 532 P 2d 478 (1975); Community Credit Union v Homelvig 487 NW 2d 602 (1992); Dix Mutual Insurance Company v LaFramboise 597 NE 2d 622 (1992); General Mills Inc v Goldman 184 F 2d 359 (1950); Fred A Chapin Lumber Co v Lumber Bargains Inc 11 Cal Rptr 634 (1961); General Accident Fire & Life Assurance Corporation Ltd v Traders Furniture Co 401 P 2d 157 (1965); New Hampshire Insurance Co v Fox Midwest Theatres Inc 457 P 2d 133 (1969); Agnew-Surpass Shoe Stores Ltd v Cummer‑Yonge Investments Ltd (1975) 55 DLR (3d) 676; Ross Southward Tire Ltd v Pyrotech Products Ltd (1975) 57 DLR (3d) 248; T Eaton & Co Ltd v Smith (1977) 92 DLR (3d) 425; Greenwood Shopping Plaza Ltd v Neil J Buchanan Ltd (1979) 99 DLR (3d) 289; Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211; Marlborough Properties Ltd v Marlborough Fibreglass Ltd [1981] 1 NZLR 464; Leisure Centre Ltd v Babytown Ltd [1984] 1 NZLR 318; and National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 L1 Rep 582.
There are two main reasons why I have not considered these cases in detail. The first and main reason is that I have concluded the plaintiff has an arguable case. That being so, no view that I adopt in relation to any of these cases could in any way be binding upon whoever finally determines this action. To provide my view on the widely differing views of judges in other jurisdictions would serve no useful purpose.
The second reason was provided by Foster J in Linden v Staybond Pty Ltd (1986) NSW ConvR 55‑308. His Honour said:
It follows, in my view, that even if these decisions had been given by superior courts in our own judicial system, the line of reasoning adopted in the majority judgments, although highly persuasive, would not be binding as a matter of judicial precedent. I consider that I am, in all respects, free to adopt the approach followed in the dissenting judgments, should I come to the view that that approach is the correct one. These remarks apply equally to the case decided in the New Zealand Court of Appeal (56,862).
The second Australian case to which counsel referred was Bit Badger Pty Ltd v Cunich (1996) 9 ANZ Ins Cas 61‑312; [1997] 1 QD R 136.
The relevant facts in the Linden case and the outcome can be summarised by quoting the headnote. It is in the following terms:
The defendant company ('the lessee') had leased certain premises from the plaintiff ('the lessor') for commercial purposes. Part of the lessee's operations was the heating of resin in a hot metal kettle. The premises were damaged by fire.
Under the provisions of cl 5 of the lease, the lessee covenanted to keep the premises in good order, but was not obliged to carry out structural work on the premises except where such was necessary as the result of an act of neglect on the part of the lessee, in which case the lessee was liable to make good the damage. Fire damage was referred to in the provisions of cl 5, such that the lessee was under no liability except where the fire damage was caused by the fault of the lessee or of those for whom the lessee was responsible.
Under cl 15 of the lease the lessee agreed to reimburse the lessor for all insurances taken out in respect of the premises. The insurances were described in cl 23, which also gave the lessee the right to participate in the selection of a reputable insurer; some control over the size of the insurance premium and the nature of the cover; and the right to seek to be included in the policy as a person beneficially entitled to be covered (which right had not been exercised by the lessee).
The lessor sued the lessee for damages, alleging that the fire damage was caused by the lessee's negligence; that the lessee had been obliged to repair the damage; and that the lessee's failure to do so constituted a breach of the provisions of the lease.
At a preliminary hearing in the lessor's action, Foster J heard a challenge by the lessor to the defences raised by the lessee. Thus, if the defences were made out, the lessee would be entitled to judgment in the action. If the defences were not made out, the matter would proceed to the trial of the question of the lessee's liability in negligence for the fire damage.
For the purposes of the preliminary hearing, the following facts were assumed:
•that the lessor had effected fire insurance;
•that the lessor had been reimbursed for this by the lessee;
•that the lessor had been paid under this policy in respect of the fire damage;
•that the lessor had effected repairs to the premises; and
•that the insurance policy in question did not cover the lessee and did not give the lessee any beneficial interest in any insurance moneys payable under the policy - the policy did not indemnify the lessee in respect of any claims against it for fire damage caused by the negligence of the lessee or of those for whom the lessee was responsible.
The lessee denied that it was liable in respect of the fire damage and that it had been obliged to repair the damage under the lease. The lessee further argued that the lessor was prevented from recovering the cost of repairs from it on two alternative grounds:
(1)That there was to be implied in the lease a term that any insurance moneys received by the lessor under the policy taken out at the lessee's expense were received in discharge or partial discharge of any liability of the lessee for the damage.
(2)That the lessee was entitled, in equity, to have the insurance moneys received by the lessor applied in discharge or partial discharge of any liability of the lessee for the damage.
In relation to the first ground, the lessee submitted that, in determining whether such a term could be implied in the lease, the Court should totally ignore the insurance contract between the lessor and his insurer.
The lessee argued that the implied term contended for had to be implied in order to give the provisions of the lease relating to fire insurance business efficacy between the lessor and the lessee. The lessee further argued that the provisions of cl 23 clearly implied that the lessee was to have a beneficial interest in any insurance moneys paid to the lessor in respect of fire damage, even where the damage had been caused by the lessee's negligence.
Held: for the lessor.
1.     Provided negligence on the part of the lessee was established, the lessee would be liable in respect of the fire damage under cl 5 of the lease.
2.     The lease contained no implied term that the insurance moneys received by the lessor were to be applied in discharging the lessee's liability. In determining whether such a term should be implied, the Court was obliged to have regard to the contract of insurance between the lessor and his insurer. It would be quite unrealistic to disregard the fact that when provisions of the lease relating to fire damage and insurance were being agreed upon, the parties to the lease did so knowing of the insurer's ordinary rights of subrogation, which entitled it to bring action against any party negligently causing fire damage for which a claim had been paid.
The implied term contended for by the lessee was quite unnecessary to give business efficacy to the lease: cl 5 placed the clearest obligation on the lessee to bear the costs of repairs necessary as a result of the lessee's negligence; there was no obligation on the lessor under the lease either to effect a fire cover appropriate to protect the lessee from liability for its own negligence or to apply the proceeds of insurance in diminution or extinction of any claims against the tenant; cl 23 did not imply that the insurance cover effected by the lessor was effected partly for the lessee's benefit; and if the lessee had wished to be protected from claims arising out of its own negligence, it could have sought that such cover be obtained when the policy was taken out, or it could have taken out appropriate insurance itself.
3.     The lessee was not entitled in equity to have the insurance moneys received by the lessor applied in discharge of its liability for the fire damage.
It is perhaps appropriate to quote the 'Editorial comment' that follows on from the Headnote summary. The learned editor says:
This is the first New South Wales decision (as far as the Editor is aware) dealing with a difficult topic which has been considered by the appellate courts in Canada, New Zealand and the United Kingdom (some of the decisions are referred to in ¶26‑940 of the commentary and are analysed in the reported decision). If it is intended to exempt the lessee from liability for negligence causing damage to the leased premises, that should be covered in express terms in the lease. That is particularly relevant to determine when the lessee is required to pay or to substantially contribute to the lessor's insurance premium, and also when the lessor is required to restore the premises from the proceeds of the insurance claim. It should not be overlooked that any lease covenant exempting the lessee from liability for negligence should be disclosed to (and approved by) the lessor's insurer, as it affects the insurer's right of subrogation and could otherwise result in avoidance of the insurer's liability to the lessor in respect of the loss or damage.
It is clear the facts in Linden differ significantly from the facts in this case. It is also clear Foster J was dealing with the particular provisions of the lease between the plaintiff and the defendant. To that extent the case is of limited relevance to determining the issues in this case.
The facts in the Bit Badger decision also differ significantly from the facts in this case. Once again it is enough if I quote the Headnote to show both what was in issue between the parties and the conclusions reached by Justice White. It is in the following terms:
A lease of commercial premises relevantly provided that the lessee would pay the lessor the latter's outgoings on fire insurance premiums in respect of the premises; the lessee would keep the premises in good and tenantable repair, damage by fire without any neglect or default on its part excepted; in the case of such damage the lessee's covenants to pay rent and to repair would be relevantly suspended until the premises were restored, but the lessor was not obliged to restore the premises and the lessee was not entitled to request the insurer to apply the insurance moneys towards reinstatement; and the lessee would indemnify the lessor against loss arising from its use of the premises.
The lessee contended that on the proper construction or by virtue of an implied term of the lease, any insurance moneys received by the lessor in respect of fire damage caused by the lessee's negligence were to be applied in reduction of its liability under the repair covenant.
Held, that the lessee's obligation to pay the lessor's fire insurance premiums did not have the effect of making the lessee a co-insured under the lessor's policy and thus immune from the insurer's right of subrogation, but was explicable on the bases that the lessor was to have its rent free of outgoings and that insurance moneys would provide a fund from which the premises could be repaired should the lessor choose to do so. The suggested term could not be implied as the lease had business efficacy without it, and it was not so obvious that it went without saying. Accordingly the lessee's contention would be overruled.
It is true in White J reasons there are some statements which support the defendant's position. For instance, White J says:
Although always subject to the particular terms of the lease the preponderance of authority in cases similar to the present seems to favour a conclusion either that the lease ought to be construed expansively to exclude any right of recourse against the tenant or that a term ought to be implied into the lease to give it business efficacy and to reflect the parties' intention that the tenant was to have the benefit of the landlord's policy even if negligent thus precluding any right of subrogation (76,461).
Further in the judgment White J sets out certain propositions which are described as 'uncontroversial'. They are:
•the exception of fire in a repairing covenant does not exculpate a tenant from liability for damage done by a fire caused by the tenant's negligence (indeed cl5.7 specifically mentions this);
•that the landlord has obtained fire insurance does not relieve the tenant of the obligation to make good the loss so caused;
•fire insurance provides indemnity to the insured for both accidental and negligently caused fires;
•the rights of subrogation of the landlord's insurers are co-extensive with the rights of recovery of the landlord under the lease;
•if the landlord by virtue of the agreement between it and the tenant has waived or excluded its rights of recovery against the tenant the insurer may not recover from the negligent tenant;
•a covenant between the landlord and the tenant that fire insurance obtained by the landlord will be for the benefit of both will bar any right of recovery by the landlord from the tenant for loss due to the tenant's negligence and in turn any right of subrogation by the insurer (76,464).

Once again the decision in Bit Badger is based on facts which differ significantly from the facts in this case. That being so while the authority may assist the defendant's position it can hardly be seen as conclusive.
In the end I am satisfied the plaintiff's position is arguable. That being so the application for summary judgment should fail.
It is also worth considering the practical ramifications of an application for summary judgment in these circumstances. If after an analysis of the cases I was to determine the plaintiff did not have an arguable case then the plaintiff has of course a right to appeal. The question on the appeal would be whether the plaintiff has an arguable case. The question would not be whether or not the plaintiff's case would in the end carry the day. The position would be different if there had been a trial of a preliminary issue. There a final determination of the merits of the parties respective positions could be determined. The question to be answered on the trial of a preliminary issue is different from the question to be answered on a summary judgment application. That I think highlights the weakness of attempting to use the summary judgment procedure in a case such as this.
The plaintiff will have leave to proceed with its action. The costs of the application, including the reserved costs, should be costs in the cause.