Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd (No 3)
[2014] VSC 90
•14 March 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2009 07142
| FENRIDGE PTY LTD (ACN 052 286 521) | Plaintiff |
| v | |
| RETIREMENT CARE AUSTRALIA (PRESTON) PTY LTD (ABN 51 113 960 946) & ORS | Defendants |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | Not applicable. Decision made on written submissions filed 16 and 23 January 2014 | |
DATE OF JUDGMENT: | 14 March 2014 | |
CASE MAY BE CITED AS: | Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd & Ors (No 3) | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 90 | |
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LANDLORD AND TENANT – Lessee’s covenant to repair and maintain leased premises during the currency of the lease in good and substantial repair, order and condition – Covenant subject to fair wear and tear exception – Further guidance for special referee – Whether Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 relevant to content of the covenant, notwithstanding that there was no fair wear and tear exception in the covenant at issue in that case.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C M Scerri QC with Ms M Norton | Arnold Bloch Leibler |
| For the Defendants | Mr D G Collins SC with Mr D McAloon | Clayton Utz |
HIS HONOUR:
In paragraphs 374-384 of the principal reasons for judgment in this proceeding,[1] I gave some guidance to the special referee to be appointed to report on ‘make good’ issues in the proceeding. In paragraph 373 of the principal reasons, I expressly reserved leave to the parties to make further submissions as to the appropriate guidance to be given to the special referee. The defendants now contend that there are aspects of the guidance given in the principal reasons which are incorrect and should, accordingly, be deleted, qualified or further explained so as not to mislead the special referee. For the reasons given below, I accept that there is a need to amend paragraphs 379 to 384 so as to avoid the possibility that the special referee will be led into error.
[1]Fenridge Pty Ltd v Retirement Care Australia (Preston) Pty Ltd & Ors [2013] VSC 464 (‘principal reasons’).
First, in paragraphs 380 and 381 of the principal reasons, I said:[2]
[2]Principal reasons [380]-[381] (citations in original).
380Fifth, as to the failure to maintain the premises in good and substantial repair, order and condition during the currency of the lease, the referee should apply the statement of Sheller JA in Alcatel Australia Ltd v Scarcella,[3] that a lessee’s covenant to keep the premises in good and substantial repair imposes an obligation on the tenant:
that so far as repair can make good or protect against the ravages of time and the elements, it must be undertaken to such a degree as to put the building in the condition it would have been in if good and substantial repair had been undertaken during the period of the lease.[4]
381Sheller JA acknowledged, however, that a covenant to maintain in good and substantial repair did not require the tenant to restore the premises to their original condition at the commencement of the lease. In that case, the building had been newly erected at the commencement of the lease.[5]
[3](1998) 44 NSWLR 349.
[4]Ibid 356.
[5]Ibid.
The defendants contend that the quoted statement of Sheller JA in Alcatel cannot apply to the circumstances of this case because the lessee’s covenant to keep the premises in good and substantial repair in that case was not subject to an exception for damage by fair wear and tear, and clause 2.3.1 of the lease in this case has such an exception.
The plaintiff contends that the quoted statement from Alcatel remains relevant and applicable to clause 2.3.1 of the lease because:
The ‘fair wear and tear’ exception simply informs the condition in which the premises would have been ‘if good and substantial repair had been undertaken during the period of the lease’.[6]
[6]Plaintiff’s written submission, 23 January 2014, [10].
I have also read two cases considered by Sheller JA in Alcatel, and relied upon by the plaintiff in its written submissions: Lurcott v Wakely & Wheeler[7] and Anstruther-Gough-Calthorpe v McOscar.[8] In those cases also, the relevant covenant contained no fair wear and tear exception.
[7][1911] 1 KB 905.
[8][1924] 1 KB 716.
I have concluded that it may mislead the special referee if paragraphs 380 and 381 of the principal reasons remain as guidance for him in the conduct of the reference. Further, I will amend paragraph 379, so as to distinguish between clause 2.3.1 (which contains a fair wear and tear exception) and clauses 2.3.2 and 2.3.3 of the lease which do not. The amended paragraphs appear in the schedule to these reasons.
Second, in paragraph 382 of the principal reasons I said:
382Sixth, as to the make good obligation at the end of the lease contained in clause 2.6, the referee should proceed on the basis that RCA was obliged to repair the premises to the repair, order and condition they were in at the commencement of the lease. As I have said, the only evidence about this is that the premises were in good condition.[9]
[9]Principal reasons [382].
The defendants contend that this paragraph would be clearer if it included an express reference to the fact that clause 2.6 of the lease is subject to a fair wear and tear exception. I agree. An amended paragraph appears in the schedule to these reasons.
Third, in paragraphs 383 and 384 of the principal reasons, I said:
383Seventh, RCA bears the onus of proving that any damage to the premises falls within the fair wear and tear exception.[10] Further that exception did not negate RCA’s obligation to maintain the premises in good and substantial repair during the course of the lease, including its obligation to repair any damage caused by fair wear and tear in order to prevent further damage. The referee should proceed on the basis that the position was correctly stated by Talbot J in Haskell v Marlow:[11]
Reasonable wear and tear means the reasonable use of the house by the tenant and the ordinary operation of natural forces. The exception of want of repair due to wear and tear must be construed as limited to what is directly due to wear and tear, reasonable conduct on the part of the tenant being assumed. It does not mean that if there is a defect originally proceeding from reasonable wear and tear the tenant is released from his obligation to keep in good repair and condition everything which it may be possible to trace ultimately to that defect. He is bound to do such repairs as may be required to prevent the consequences flowing originally from wear and tear from producing others which wear and tear would not directly produce.[12]
384For example, while a tenant may not be responsible for the immediate consequences of a tile falling off a roof, the tenant would be liable if a failure to repair the roof caused water to enter through the roof causing damage to the premises.[13]
[10]Regis Property Co Ltd v Dudley [1959] AC 370, 393.
[11][1928] 2 KB 45.
[12]Ibid 59; expressly approved in Regis Property Co Ltd v Dudley [1959] AC 370, 393-4.
[13]Principal reasons [383]-[384] (citations in original).
The defendants do not challenge the quoted statement of principle from Haskell v Marlow. Nor do they challenge the example given in paragraph 384, which is taken from that case. They contend, however, that the Court should also direct the special referee to consider the observations of the New South Wales Court of Appeal in Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd.[14] In Alamdo, the tenant’s covenant to repair and keep in good order and condition during the currency of the lease was, like here, subject to a reasonable wear and tear exception. The dispute concerned areas of dilapidated bitumen. It was common ground that some areas were dilapidated beyond reasonable wear and tear. The dispute was whether the dilapidation of other areas fell within the reasonable wear and tear exception. The primary judge held that the deterioration in those areas began in the form of cracking and, when it was not treated, water ran in under the asphalt skin and undermined the sub-surface and surface. This led to greater deterioration in the form of crocodile cracking and potholes. The primary judge referred to the passage from Haskell, which is quoted at paragraph 383 of the principal reasons in this case, and then referred in full to some examples given by Talbot J in Haskell – one of which I have summarised in paragraph 384 of the principal reasons:
For example, if a tile falls off the roof, the tenant is not liable for the immediate consequences; but, if he does nothing and in the result more and more water gets in, the roof and walls decay and ultimately the top floor, or the whole house, becomes uninhabitable, he cannot say that it is due to reasonable wear and tear, and that therefore he is not liable under his obligation to keep the house in good repair and condition. In such a case the want of repair is not in truth caused by wear and tear. Far the greater part of it is caused by the failure of the tenant to prevent what was originally caused by wear and tear from producing results altogether beyond what was so caused. On the other hand, take the gradual wearing away of a stone floor or staircase by ordinary use. This may in time produce a considerable defect in condition, but the whole of the defect is caused by reasonable wear and tear, and the tenant is not liable in respect of it.[15]
[14][2006] NSWCA 224.
[15]Haskell v Marlow [1928] 2 KB 45, 59; Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWCA 224, [31].
The primary judge in Alamdo decided that the dilapidation of the bitumen surface was more akin to the second example in Haskell v Marlow and thus within the fair wear and tear exception:
58I am not persuaded that the situation with the pavement in Areas 4 to 7 is in any way analogous with the example of the broken roof tile. The evidence is that the pavement was at the end of its useful and expected life. It had, over time, got to a state where ‘crocodile cracking’ occurred. This is symptomatic of decomposition or deterioration inherent in asphalt paving and to be expected in the ordinary course. It leads on to rutting and potholing. The expert evidence shows, in my view, that the process by which this pavement fell into a holed and rutted state was no more or less than a working out of the forces of nature upon the kind of material concerned.
59Even allowing for the fullest effect of the principles stated by the House of Lords, it cannot be the case that, despite an exception for reasonable wear and tear, a tenant must continually scan an asphalt pavement for the first signs of any crack and then immediately act to repair it in case it becomes larger or lets water through into the basecourse. That would set at nought the exception for reasonable wear and tear. The pavement must, in my view, be seen as a whole and as subject to the ordinary processes of deterioration to which such a pavement, viewed as a whole, is susceptible. I view it as akin to the stone step referred to in Haskell v Marlow.[16]
[16]Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWCA 224, [31].
In the Court of Appeal in Alamdo, the majority upheld the trial judge.[17] Basten JA dissented. In his view, the failure to rectify the initial problem caused by cracking in the bitumen may well have constituted reasonable wear and tear, but the failure to rectify the initial problem before greater damage resulted was more closely analogous to the first example given in Haskell v Marlow of a tile being dislodged on a roof and that, therefore, the deterioration was not within the reasonable wear and tear exception.[18]
[17]Ibid [34] per Hodgson JA, [143] per McClellan CJ at Common Law agreeing.
[18]Ibid [119].
In my opinion, Alamdo is merely an application of the principle in Haskell v Marlow. As the dissent shows, reasonable minds may differ on the application of the principle by reference to the examples given. Each case must depend upon its own facts. There are no doubt other cases on different factual situations. In my opinion, the best way to deal with this issue is for paragraph 383 of the principal reasons to be amended so as to include both examples given by Talbot J in Haskell v Marlow, and for paragraph 384 to be amended to reflect the fact that the principles and examples in Haskell v Marlow should be applied to the facts of each particular case. The amended paragraphs appear in the schedule to these reasons. It is for the parties to address the special referee upon the facts of this particular case. They may do so by reference to cases such as Alamdo, or other cases, which they contend are relevant or analogous to the make good issues in this proceeding.
SCHEDULE OF AMENDMENTS[19]
[19]Marked-up to show amendments from principal reasons.
177Paragraphs 34-36, further amended statement of claim, 6 February 2013.
178(1998) 44 NSWLR 349.
179Ibid 356.
Fourth, in determining the scope of works required to meet the make good obligation in the lease, the referee should have regard to Fenridge’s pleaded case,177 that RCA breached the make good obligation and related obligations by failing to:
(1) maintain the premises during the currency of the lease in good and substantial repair, order and condition
,(having regard to their condition at the commencement of the lease), damage by fair wear and tear excepted, in breach of clauses2.3.1, 2.3.2 and 2.3.3of the lease;and
(2) maintain the paintwork at the premises and repaint as reasonably necessary in breach of clause 2.3.2 of the lease;
(3) keep the premises clean, in breach of clause 2.3.3 of the lease; and
(
24) deliver up the premises to Fenridge at the end of the lease in a clean state and in as good repair, order and condition as at the commencement of the lease, with the exception of fair, wear and tear and damage by accidental fire, storm, tempest, act of God, inevitable accident, civil commotion and impact, in breach of clause 2.6 of the lease.
DELETED
Fifth, as to the failure to maintain the premises in good and substantial repair, order and condition during the currency of the lease, the referee should apply the statement of Sheller JA in Alcatel Australia Ltd v Scarcella,178 that a lessee’s covenant to keep the premises in good and substantial repair imposes an obligation on the tenant:
that so far as repair can make good or protect against the ravages of time and the elements, it must be undertaken to such a degree as to put the building in the condition it would have been in if good and substantial repair had been undertaken during the period of the lease.179
DELETED
Sheller JA acknowledged, however, that a covenant to maintain in good and substantial repair did not require the tenant to restore the premises to their original condition at the commencement of the lease. In that case, the building had been newly erected at the commencement of the lease.180180Ibid.181Regis Property Co Ltd v Dudley [1959] AC 370, 393.
182[1928] 2 KB 45.
SixthFifth, as to the make good obligation at the end of the lease contained in clause 2.6, the referee should proceed on the basis that RCA was obliged to repair the premises to the repair, order and condition they were in at the commencement of the lease, fair wear and tear excepted. As I have said, the only evidence about this is that the premises were in good condition.
SeventhSixth, RCA bears the onus of proving that any damage to the premises falls within the fair wear and tear exception.181 Further, that exception did not negate RCA’s obligation to maintain the premises in good and substantial repair during the course of the lease, including its obligation to repair any damage caused by fair wear and tear in order to prevent further damage. The referee should proceed on the basis that the position was correctly stated by Talbot J in Haskell v Marlow:182
Reasonable wear and tear means the reasonable use of the house by the tenant and the ordinary operation of natural forces. The exception of want of repair due to wear and tear must be construed as limited to what is directly due to wear and tear, reasonable conduct on the part of the tenant being assumed. It does not mean that if there is a defect originally proceeding from reasonable wear and tear the tenant is released from his obligation to keep in good repair and condition everything which it may be possible to trace ultimately to that defect. He is bound to do such repairs as may be required to prevent the consequences flowing originally from wear and tear from producing others which wear and tear would not directly produce.
For example, if a tile falls off the roof, the tenant is not liable for the immediate consequences; but, if he does nothing and in the result more and more water gets in, the roof and walls decay and ultimately the top floor, or the whole house, becomes uninhabitable, he cannot say that it is due to reasonable wear and tear, and that therefore he is not liable under his obligation to keep the house in good repair and condition. In such a case the want of repair is not in truth caused by wear and tear. Far the greater part of it is caused by the failure of the tenant to prevent what was originally caused by wear and tear from producing results altogether beyond what was so caused. On the other hand, take the gradual wearing away of a stone floor or staircase by ordinary use. This may in time produce a considerable defect in condition, but the whole of the defect is caused by reasonable wear and tear, and the tenant is not liable in respect of it.183
183Ibid 59; expressly approved in Regis Property Co Ltd v Dudley [1959] AC 370, 393-4; see also, Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWCA 224, [31].
For example, while a tenant may not be responsible for the immediate consequences of a tile falling off a roof, the tenant would be liable if a failure to repair the roof caused water to enter through the roof causing damage to the premises.As the examples given in Haskell v Marlow show, each case must depend on its own facts. It is, however, open to the special referee to reason by analogy from the examples given, or from decisions in cases of persuasive authority.
SCHEDULE OF PARTIES
| S CI 2009 07142 | |
| BETWEEN: | |
| FENRIDGE PTY LTD (ACN 052 286 521) | Plaintiff |
| - and - | |
| RETIREMENT CARE AUSTRALIA (PRESTON) PTY LTD (ABN 51 113 960 946) | First Defendant |
| RCA OPERATIONS (2) PTY LTD (ABN 16 113 961 103) | Second Defendant |
| MORAN HEALTH CARE GROUP PTY LTD (ACN 008 585 242) | Third Defendant |
| GRETA MORAN (as executor of the estate of the late DOUGLAS JOHN MORAN) | Fourth Defendant |
| REGIS GROUP PTY LTD (ACN 084 720 561) | Fifth Defendant |
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