Harrem Pty Limited, t/as, CTH Transport and Services v Toyo Tyre Rubber Australia Limited - [2008] NSWSC 776

No judgment structure available for this case.

CITATION: HARREM PTY LIMITED TRADING AS CTH TRANSPORT & SERVICES v TOYO TYRE RUBBER AUSTRALIA LIMITED [2008] NSWSC 776

HEARING DATE(S): 21, 22, 23, 25 May 2007; 3, 4, 5, 7 December 2007

JUDGMENT DATE :
31 July 2008

JURISDICTION: Equity

JUDGMENT OF: Hall J at 1

DECISION: Subject to any further submissions from either party, I propose to defer making any final orders until after the completion of the hearing on damages.
I will provide the parties with an opportunity to make any further submissions as to whether and what findings may be made in relation to the issue pleaded in paragraph 9 of the statement of claim as to the defendant’s liability under clause 21(b) of the lease having regard, in particular, to the findings as to the condition of the pavement before and after the lease and the question of the need for replacement of the damaged area.
The issue in paragraphs 10 to 12 of the statement of claim as to the validity of the plaintiff’s exercise of the option under clause 33 of the lease was not pressed. Provision, accordingly, will be made in the final orders in respect of the pleaded cause of action in those paragraphs.

CATCHWORDS: Landlord and tenant – commercial lease – scope or extent of permitted use – “warehousing, storage and distribution” – warranty by lessor to ensure that premises are in a reasonably fit condition for use at the commencement of the lease – scope of the warranty – construction of terms of lease as to permitted use and special condition permitting loading and unloading of containers – implied term that area on which loading and unloading of containers permitted were fit for the purpose of loading and unloading containers – approach in determining what is a reasonable manner of performing permitted use of leased premises – whether breach of lease and breach of duty of care by lessor in using heavy container handler – knowledge and acquiescence of lessor over nine months

LEGISLATION CITED: Uniform Civil Procedure Rules 2005

CASES CITED: Advance Fitness Corporation Pty Limited v Bondi Diggers Memorial Sporting Club Limited[1999] NSWSC 264
Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Limited [2006] NSWCA 224
Aussie Traveller Pty Limited v Marklea Pty Limited (1998) 1 Qd R 1
Barton (t/as Freedom Builders) v Stiff [2006] VSC 307
BP Refinery (Western Port) Pty Limited v Shire of Hastings (1977) 52 ALJR 20
Bradford House Pty Limited v Leroy Fashion Group (1983) 46 ALR 305;
Bradford House Pty Limited v Leroy Fashion Group (1983) Aust & NZ Conv R 245
Byrnes v Jokona Pty Limited [2002] FCA 41
Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337
Combara Nominees Pty Limited v McIlwraith-Davey Pty Limited (1991) 6 WAR 408
Cruse v Mount [1933] 1 Ch 278
Edler v Auerbach [1950] 1 KB 359
Hazelwood v Webber (1934) 52 CLR 268
Heinmann v Commonwealth of Australia (1938) 38 SR (NSW) 691
Hill v Harris [1965] 2 QB 601
Holiday Wise Koala Pty Limited v Queenslodge Pty Limited (1977) VR 164
Lend Lease Development Pty Limited v Zemlicka (1985) 3 NSWLR 207
R & J Lyons Family Settlement Trust Pty Limited v 155 Macquarie Street Pty Limited [2008] NSWSC 310
National Carriers v Panalpina (Northern) Limited [1981] AC 674
Savaiane v Stauffer Chemical Co (Aust) Pty Limited [1974] 1 NSWLR 665
Slater v Finning (1996) 3 All ER 398
Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited [2005] NSWSC 1148
Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited [2006] NSWCA 296
The Progressive Mailing House Pty Limited v Tabali Pty Limited (1985) 157 CLR 17
Wettern Electric Limited v Welsh Development Agency [1983] QB 796; [1983] 2 WLR 897

TEXTS CITED: Land Law, 5th ed (2006), Lawbook Co (Professor Butt) - at 1573

PARTIES: HARREM PTY LIMITED, t/as, CTH TRANSPORT & SERVICES
v TOYO TYRE RUBBER AUSTRALIA LIMITED

FILE NUMBER(S): SC 5471/04

COUNSEL: P: J Simpkins SC
D: S J Burchett

SOLICITORS: P: Byles Canceri Lawyers
D: Shanahan Tudhope

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HALL J

THURSDAY 31 JULY 2008

No. 5471 of 2004

HARREM PROPRIETARY LTD, trading as, CTH TRANSPORT AND STORAGE v TOYO TYRE & RUBBER AUSTRALIA LTD

HALL J:

The proceedings

1 The proceedings were commenced by the plaintiff company (referred to in this judgment as “CTH”) by way of statement of claim filed on 7 October 2004 in which it was claimed that the defendant (“Toyo”), as the lessor of premises, breached terms of a lease causing it to suffer damage by reason of a breach of warranty as to the condition of the premises.

2 Toyo leased to CTH part of the premises known as 135-149 Airds Road, Minto for a period of two years commencing 15 August 2002. The lease provided that the use of the premises “shall be used only as warehousing, storage and distribution”. Amongst several issues in the proceedings are questions as to the use of premises that was permitted or authorised by the lease and whether or not they were suitable for use as at the commencement of the lease.

3 The pre-lease condition of the leased premises (in particular, the condition of concrete pavement in the yard area described as the “hardstand area”), the nature of CTH’s operations conducted on the premises and the cause or causes of damage to the concrete pavement on the premises all raise factual matters subjacent to the issues of liability that arise for determination. The lease conditions are, of course, critical in assigning legal responsibility for the damage to the premises.

4 CTH pleaded and relied upon both express and implied terms of the lease (paragraphs 4 and 5 of the statement of claim). These were respectively

• whether the premises were in a reasonably fit condition for “use” in accordance with clause 2 of the lease (the express term); and

“loading and unloading containers in the hardstand yard area”

“permitted use of warehousing, storage and distribution …”

5 Amongst the provisions of the lease that arise for consideration, are clause 2, Condition of Premises, and clause 21(b), Repairs. The latter required, subject to an exception which CTH contended did not arise, the landlord to carry out without delay all reasonable repairs necessary for the tenant’s ordinary use and occupation of the premises having regard to the condition of the premises at the commencement of the lease. The obligations imposed on Toyo under both clauses 2 and 21(b) are of central importance in the plaintiff’s case.

6 A number of provisions of the lease imposed obligations upon CTH as lessee. These included:-

• Clause 12, the obligation to take care of the premises.

• Clause 16, indemnity in favour of the lessor, inter alia, for loss or damage to the premises as a result of any accident, neglect or a deliberate or careless act on the premises or a breach of any condition of the lease.

7 Toyo’s case in its cross-claim against CTH is that the damage arose out of an unauthorised use and fell within the provisions referred to in the preceding paragraph. Toyo also relied upon “Rules and Regulations” set out in the lease (in particular, Rule 4) which, by force of clause 14 in the lease conditions, CTH was bound to observe and perform.

8 CTH alleged that the premises were not reasonably fit for use at the commencement of the lease. In particular, it alleged they were not reasonably fit for the purpose of loading and unloading containers. It claimed that, as at the commencement of the lease, the pavement in the “hardstand yard area” and in other areas in the leased premises was deficient and had already deteriorated and suffered from significant cracking. It also claimed that Toyo was in breach of terms of the lease in refusing or neglecting to repair the damage to the above area.

9 CTH, accordingly, claimed for alleged losses and damage that it claimed occurred as a result of Toyo’s alleged breaches. It also sought declaratory relief in relation to its entitlement to renew the lease under an option clause together with mandatory relief for carrying out repairs.

10 In its amended defence and cross-claim against CTH on 8 April 2005, Toyo put in issue matters pleaded in the statement of claim, save for paragraph 8 (the cracking and deterioration in the hardstand yard area). Toyo contended that the damage to that area that occurred during the term of the lease resulted from the alleged neglect or deliberate or careless act or breach of the lease by CTH’s use of “an unusually heavy container forklift to load and unload container trucks with containers” (paragraph 7(a)) and due to its failure to take care of the premises (paragraph 7(b)).

11 Toyo alleged that CTH breached the lease by using a heavy container forklift known as a Clark Y650D forklift as a container handler. It alternatively claimed that CTH had negligently damaged the premises (paragraph 6).

12 It also relied upon an agreement between it and Mr Clarrie Howes, second cross-defendant, that he would be jointly and severally liable to Toyo, inter alia, for all monies payable to it and for the due performance and observance of all express or implied terms and conditions on the part of the first cross-defendant in the lease.

13 Toyo claimed the cost of repairs/replacement of the pavement in the hardstand area for the loss of extra rental for the premises from an alternative tenant.

14 In general terms, CTH’s case is that the concrete pavement of the leased premises was inadequate for the operation of container handling equipment including, in particular, a Clark Y650D forklift. The question in the proceedings is which party is responsible for that inadequacy, Toyo, as lessor, which warranted that the premises were in a reasonably fit condition for use or CTH, as lessee, in bringing the Clark Y650D onto the premises and using it for the purposes of container handling.

FACTUAL MATTERS

(1) The operations of CTH

15 The plaintiff company traded as CTH Transport Storage and Distribution. Mr Clarrie Thomas Howes is its managing director. Mr Howes has worked in various capacities in the heavy transport industry.

16 He formed CTH in 1992. The company initially commenced operations at Pembury Street, Minto. The business, in its early stages, was conducted through the use of owner/driver contractors. In about 1998, the company acquired its own rigid trucks and semi-trailer vehicles.

17 It entered into a lease with Otis Elevator Company Pty Limited to commence on 16 March 1998 with respect to premises at 50 Airds Road, Minto. From that date until mid-2002, CTH conducted its transport operations on the premises which comprised an area of 2,698 square metres including a warehouse space of 2,000 square metres. Mr Howes said that the yard area was principally used for container handling. The evidence indicated that the maximum available area for a parking, loading and driveway area was about 698 square metres.

18 The premises were sold in mid-2002. By then, Mr Howes said the business of CTH had grown to a point that the premises at 50 Airds Road were no longer sufficient. Accordingly, he commenced to look for alternative premises. In due course, he said he made contact with a Mr Tony Miracola of IPS with a view to finding new premises.

(2) The leased premises

19 Before the sale to Toyo on 30 June 2002, the premises, 135-149 Airds Road, Minto, (“the premises”) (including the portion leased to CTH) had been owned and used by Pirelli Cables Australia Limited. Toyo considered acquiring them for the purpose of its proposed rubber mixing operation. The premises had a total area of 7.6 hectares.

20 Mr Bruce Monahan, a general manager with Toyo, said that on his visits to the site in the early 1990s, the former owner, Pirelli, used the leased premises as its cabling dispatch area and he had seen in that area a number of parked semi-trailers. He added that rolls of cabling were loaded into the semi-trailers using a small forklift for distribution by Pirelli.

21 The main factory building on the premises covered an area of 2,500 square metres. It was constructed in about 1978.

22 Mr Monahan was charged with the responsibility of relocating the company’s factory which was formerly at Moorebank in Sydney. It was his function to design the layout for the new factory premises within the context of an existing building. This involved him preparing the necessary scope of works and consulting with engineers.

23 He stated that he first inspected the premises in early 2001 with the vendor’s agent, Mr Peter Steinhour, of Frank Knight. He did not recall noticing on that occasion anything adverse about the concrete pavement.

24 He inspected the premises again in or after May 2002 with Mr Williams, director and company secretary of Toyo, and Mr Steinhour. He said he did not recall anything adverse about the appearance of the pavement.

25 URS Australia Pty Limited had been engaged by Pirelli to inspect the premises and, in due course, that company provided a property environmental report in August 2000, a copy of which was attached to the contract of sale to Toyo.

26 The external areas of the premises were paved with concrete and bitumen. They had been used by Pirelli for heavy vehicle access, parking of passenger and semi-trailer vehicles and for the storage of cable drums and solid waste. In Exhibit 12(5), Mr Monahan recorded in his memorandum to Mr Williams that:-

“2. It was common knowledge that the concrete was cracked but still generally flat and suitable for driving on. The area in question was used by Pirelli to load semi-trailers with reels of cable etc.”

27 URS noted some localised fracturing in the surface of the pavement and observed that parts had been replaced due to fracturing.

28 Mr Philip Crane, Director of Woolacotts, Consulting Engineers, gave evidence on behalf of the Toyo. He stated in his report of 26 February 2004 (Exhibit B to his affidavit sworn 19 December 2005) that structural drawings indicated that the existing pavement was 170 millimetre thick concrete slabs supported on a 110 millimetre sub-base layer. The concrete had a design flexural strength of 4.5 MPa. It was unreinforced but was jointed at five metre centres which was said to be adequate to control shrinkage cracking. Mr Crane stated that the pavement is the type that would normally be designed to support highway loadings. He said it would be reasonable for use as a ring-road to support trucks loading and unloading at a typical factory warehouse.

29 Toyo purchased the premises on 4 June 2002.

(3) Events preceding the lease

30 Mr Howes said he had requested Mr Tony Miracola of IPS of Elders Real Estate, Liverpool to locate premises that would provide a warehouse area, an office area and access for trucks. Toyo relied upon Mr Howes’ correspondence with Mr Miracola as evidence of the fact that CTH’s business was not involved in the storage of containers.

31 Mr Howes said that in about June 2002, he was driving past the premises at 135 Airds Road and saw a “For Sale” sign on the property. He spoke to Mr Miracola who advised him that the property had recently been purchased and the new owner was keen to rent part of the premises.

32 On Monday 24 June 2002 at a meeting at the premises, Mr Steinhour advised Mr Monahan that CTH wanted to use the premises for warehouse and distribution. Mr Steinhour walked with him to the warehouse and told him that that was the area CTH wished to lease.

33 On 24 June 2002, Mr Howes inspected the premises with Mr Miracola and Mr Peter Steinhour of Knight Frank, including in particular, the warehouse, office and the external yard area. He said at this inspection he noticed that there was “substantial cracking to many of the sections of the pavement”. He said he also noted cracking in the concrete at the “rear of the building”.

34 On 25 June 2002, he forwarded a proposal to lease part of the premises. The offer was rejected but some days later, Mr Steinhour called on Mr Howes at his premises at 50 Airds Road. Mr Howes said that Mr Steinhour said he wished to see him so that he could have a “look at his operations”. Mr Howes said he pointed from his office to the warehouse area and said:-

“This is where we do all of our warehousing. That area that you just walked through is where we unpack the containers and do all the handling. Outside is where we keep the containers.”

35 Some days later, Mr Howes attended Toyo’s premises at Moorebank for a meeting. Mr Steinhour and Mr Monahan of Toyo were present. Mr Monahan, at that time, was the general manager of Toyo’s Rubber Products Division. Mr Howes said in his affidavit sworn 6 May 2006, paragraph 13:-

“… During the course of that meeting, I said to Bruce Monahan:-

‘I am involved in heavy transport. We load and unload containers and I am doing a lot of warehousing. We use semi-trailers and B Doubles and the yard area could be ideal for expanding my business. We could do loading and unloading there and store containers there. We use a large Fork for loading and unloading.”

36 Mr Monahan disputed that evidence. In evidence in chief, Mr Howes corrected paragraph 18 of his affidavit. He said he had been mistaken when he said that Mr Steinhour had been present at the meeting.

37 On 25 June 2002, CTH wrote to Mr Miracola following an inspection of the property on 24 June 2002. The proposed leased area stated In the letter was:-

38 The letter referred to “special conditions”. These included:-

“C – Hardstand area directly outside warehouse will be for loading, unloading vehicles and parking of equipment. Drive through area will be accessible at all times.”

39 Mr Howes relied upon evidence of further conversations involving Mr Miracola and Mr Monahan as follows:-

“14. During the next several days, I had further discussion with Tony Miracola. He said to me:-

‘I think you should put a special condition in the Lease about the loading and the unloading of containers in the yard area.’

I said:-

‘That’s a good idea, it should go in’.

15. Within the next few days, I had a meeting at the premises with Bruce Monahan and Tony Miracola. I notice that the office area had been painted and was clean and the warehouse had been swept out and the yard area had been swept and cleaned. I also noticed that some workmen were putting up some mesh on the fence. After that inspection, I was standing outside the office doors at the premises with Bruce Monahan and Tony Miracola. I said:-

‘As I have said before, we might be able to be of some assistance to you loading and unloading your containers and doing your transport as we have got the fork on site and we can do the lifting. We can probably do a better rate than the people you are presently using, using a side-loader’.

Mr Monahan said:-

‘Yeah, that sounds okay. I will get my suppliers to give you a ring and you can give them a quote’.

16. At or about this time, Tony Miracola said:-

‘Gee, the concrete out here is pretty bad’.

(He was then standing outside the office door looking into the yard area.)

Bruce Monahan then said:-

‘Yes, it’s not good’.

I said:-

‘Well I can remember it being like this 20 years ago when I was driving’.

Bruce Monahan then said:-

‘So how do you perform the handling’.

I said:-

‘We do not do any elevated handling. All containers get lifted to the ground for OH& S reasons. We’ve got a big Fork. It’s the only way we perform our handling’.”

40 As indicated above, Mr Monahan denied any discussion with Mr Howes at the Moorebank premises concerning the lifting of containers for Toyo by CTH. He said Moorebank was a factory and not a warehouse.

41 He said he only attended his company’s premises at Minto on about two occasions between June 2002 and October 2002. He could not recall meeting with Mr Miracola and denied Mr Howes’ allegation that he met him and Mr Miracola at the premises in late June or early July 2002. He said it was not until 2003 that he heard anything about CTH using a large forklift.

42 Mr Monahan said that he did not recall meeting Mr Howes on site before the lease was entered into. He said he first met him in his office, and he did not have a conversation with Mr Howes about CTH’s operations. He said he was not involved with the original negotiations though he became aware of them after they had been concluded.

43 He said that he knew that the plaintiff’s operations involved transport and containers, the emptying of containers and warehousing. He said his understanding was that they were going to use side loaders for unloading containers. He agreed that import/export containers are heavy and that CTH required a means of lifting them from trailers to the ground and the reverse. He said, however, that he was not aware of the need to place containers one on top of the other.

44 Mr Monahan said after the lease was entered into, he became aware of the presence of containers on site which he said amounted to “warehousing”. He said he could not recall seeing containers double or triple stacked. He agreed, when it was put to him in cross-examination, that he did not take exception to CTH’s operations because they were consistent with the “authorised use” under the lease.

45 At another point, he said that, although he considered the use of a large forklift was an unauthorised use, he did not do anything about it other than refer to “our people within our company who were looking after the site, in particular, Mr Williams”.

46 Mr Miracola provided a detailed account of the pre-lease discussions and negotiations. He said he inspected CTH’s operations at its former Otis premises at 50 Airds Road, Minto. He attended there on a number of occasions and said that he noted a number of containers stacked at least two high in the car park area. He estimated that there would have been approximately somewhere between six to 12 containers in the area.

47 Mr Howes’ referred in correspondence to leasing premises that would provide an office and warehouse area. There was reference to CTH’s requirements for loading and unloading vehicles and parking without express reference to containers or to their storage. Mr Howes conceded that it was in the later stage of lease negotiations that he requested that access be provided to the yard area for loading and unloading containers.

48 He was asked whether he had discussed with Mr Miracola the requirement for a large yard area for container handling:-

“Q. So do you tell the court that Mr Miracola advised you to include in your lease proposal for Toyo, the specification of a quantity of yard area for your container handling business? A. Yes.

Q. When do you say he did that? A. It was during discussions, just before signing the lease. I had it down as one way and he thought it was a good idea, because of the amount of containers, that we put that in as a special condition.

Q. So it wasn’t until just before signing the lease that Mr Miracola suggested to you that you actually have a reference to this very important part of your business, is that right? Q. Yes.”

49 He agreed that a number of proposals for the lease had earlier been put forward:-

“Q. It didn’t concern you that right up until just before the signing of the lease, there was no reference in the proposals that you were making for the lease of the Toyo premises to the yard area that you wanted to use for container handling? A. No.”

50 Mr Miracola said that, between 13 June 2002 and 19 June 2002, he believed that he had a discussion with Mr Howes in which Mr Howes requested the use of the yard area adjacent to the entry to the warehouse space. According to Mr Miracola, Mr Howes said, “We want some yard area to load and unload containers.”

51 He attached to his affidavit copies of the relevant correspondence between 13 June 2002 and 1 July 2002 (Exhibits “B” to “P”). The letters sent by CTH in that period were on its letterhead entitled “CTH Transport, Storage & Distribution”. In CTH’s letters of 19 June 2002, 20 June 2002 and 25 June 2005, reference was made in the proposed special conditions to “… Hardstand area directly outside warehouse will be for loading, unloading vehicles & parking of equipment. Drive through area will be accessible at all times”.

52 Exhibit P is a handwritten draft of the final terms prepared by Mr Miracola. It contained a special condition 5, which made reference in the same terms as the final special condition 6, to access to the hardstand area “… for the purposes of loading & unloading of containers”.

THE LEASE

53 On 3 July 2002, CTH, as lessee, and Toyo, as lessor, entered into the lease of part of the property 135-149 Airds Road, Minto. The term of the lease was for two years commencing on 15 August 2002.

54 The form of lease comprised a four page standard form lease issued by the Real Estate Institute of New South Wales with an additional page of “Special Conditions”. The lease was entitled “Commercial Lease” and was subtitled “Suitable for small office buildings, factories and any shop premises …”.

55 Toyo’s agent was identified on the lease as “Knight Frank”. The premises were identified as “Part, 135-149 Airds Road, Minto” including all fixtures listed in the inventory.

56 As noted above (paragraph [2]), the lease specified the “use” permitted under the lease as “warehousing, storage and distribution”.

57 The rent was stated to be $15,437.50 per month payable in advance. The lease contained an option for renewal of the lease for a period of one year.

58 The standard conditions of the lease imposed obligations on Toyo in terms of clauses 1 to 8. CTH assumed the obligations in clauses 12 to 18. Clauses 19 to 34 contained provisions that were binding on both parties.

59 The specific standard conditions relevant to the issues in these proceedings included the following.

60 The previously mentioned provision entitled “use” that required that the premises “… shall be used only as warehousing, storage and distribution”.

“THE LANDLORD AGREES:-

2. To ensure that the premises are in a reasonably fit condition for use at the commencement of the lease.”

THE TENANT AGREES:-

(g) to notify the landlord promptly of any loss, damage or defect in the premises.

14. To ensure that he, his employees, licensees and agents observe, obey and perform the Rules and Regulations forming part of this lease … for the safety, care and cleanliness of the premises and of the building.

16. (a) To compensate and meet all claims of:-

(i) the landlord for the loss of or damage to part or whole of the premises.”

61 Clause 21 of the lease provided:-

“BOTH PARTIES AGREE THAT:-

Repair

21(a) The tenant shall have repaired in a proper way any damage to the premises resulting from neglect or deliberate or careless act or a breach of any condition of the lease by the tenant or any person on the premises with his consent.

(b) Except as in Condition 21(a), the landlord shall carry out without delay all reasonable repairs necessary for the tenant’s ordinary use and occupation of the premises, having regard to the condition of the premises at the commencement of the lease.”

62 The “Special Conditions” refer in various provisions to five specific areas of the leased premises, being, “the office area”, “the warehouse area”, “the hardstand area”, “the yard area” and “the driveway area”. According to Mr Howes, the “hardstand area” was a concreted area in front of the warehouse where containers were handled.

63 Clause 6 of the Special Conditions was in the following terms:-

“6. Tenant is to have access to the hardstand area noted in the annexed plan for the purposes of loading and unloading of containers. The driveway area is to be kept clear at all times allowing access for the landlord around the perimeter of the premises.”

64 The lease contained “Rules and Regulations” which consisted of seven paragraphs. These were directed towards the regulation of the use of the leased premises. Paragraph 4 provided as follows:-

“4. The tenant shall not

install

or

position

any

heavy equipment

or

article

without first raising

the written consent of the landlord

, which consent may prescribe the maximum weight and

the position

in which

such heavy equipment or article may be placed or secured

; the tenant shall make good at his own expense all damage caused to

the building or any part of it

by the

introduction, installation, presence or removal

of any

heavy equipment

or

article

of which the tenant has ownership, custody or control. Before any

safe

or

heavy article

is moved into the building, due notice must be given to the landlord and the moving of it in and about the building shall only be done under the supervision of the landlord or his agent.”

THE BUSINESS CONDUCTED BY CTH

(1) Introduction

65 Mr Howes gave evidence that CTH’s business was divided into three categories:-

(1) Transport – the collection of containers and the transportation to a place other than the leased premises.

(2) Storage – the delivery of containers to the leased premises where they are unloaded and stored without the container being opened. Containers in due course were reloaded and delivered to consignees.

Storage and distribution

66 Mr Howes stated that the business of loading and unloading of containers from semi-trailer vehicles could be undertaken using a range of equipment including:-

(1) A fixed gantry crane.

(2) Forklift vehicles including forklifts called container handlers which were capable of stacking containers three high.

(3) Straddle carriers.

67 In his affidavit sworn 13 September 2006, he explained the basis for his contention that the use of a saddle carrier and a side-loader would have been impractical (paragraph 44).

68 Mr Howes stated:-

(1) That before the lease, container handling operations was an established part of the business of CTH.

(2) That both Toyo’s agent, Mr Steinhour, and Mr Monahan were made aware of that fact before the lease.

(3) That CTH operated a large Heister forklift at 50 Airds Road and that he had expressly referred to it in a conversation with Mr Monahan to the fact that CTH.

(4) That before the lease was entered into, whilst on site, Mr Miracola, on an inspection of the lease premises, had noted and commented on the poor condition of the concrete.

69 It was CTH’s case that the concrete pavement had been affected by water penetrating the sub-base both before and after the lease commencement. In particular, there were number of incidents relied upon that were said to have led to water escaping and penetrating the concrete surface of the yard area (December 2002, pooling of water in May 2003, on 27 June 2003 an episode of water gushing from the pavement areas of the yard and on 24 February 2004 water gushing through pavement cracks in the warehouse on 19 January 2005).

70 Toyo contended that CTH’s business was effectively “a container handling business” and that such a business was a separate part or “bracket” of the transport industry. It argued that a container terminal does not fall within the description “warehouse, storage and distribution”.

71 Mr Howes said that during CTH’s occupation of 50 Airds Road, numerous containers were stacked usually two or three high. He said that the company had a “large Heister forklift” on that site. I will refer below to evidence that established that the Heister forklift was on that site for a defined period and was last hired by CTH in October 2001. According to Mr Howes, Mr Steinhour said during his inspection at 50 Airds Road:-

“It’s some operation you’ve got here. It’s a lot bigger than I thought.”

72 Mr Howes maintained that since 1992 his business had utilised containers to transport goods and that the company had stored containers (and loaded and unloaded them) prior to the business being moved to Toyo’s premises.

73 Mr Burchett of counsel, who appeared on behalf of Toyo, in cross-examination, relied upon what he contended was a distinction in the transport industry between operations involving the emptying of containers of their contents (referred to as “de-stuffing”) and operations in which containers are stored until they are sent elsewhere.

74 It was put to Mr Howes that container handling was understood in the industry as the business of storing and moving containers (whether full or empty) “as a distinct business from unloading and loading of containers” with objects. It was put to him the nature of CTH’s business was only concerned with the latter. Mr Howes rejected propositions put to him.

75 Mr Burchett also sought to distinguish CTH’s operations as they had formerly been conducted at 50 Airds Road from those conducted at the leased premises. Toyo claimed that CTH had not previously been conducting a container handling business. It contended that there had not been space at 50 Airds Road for the handling of containers. It sought to reinforce its point by observing that it had only been at a very late stage in negotiations that special condition 6 was included in the lease permitting CTH to use the “hardstand area”.

(2) Container handling – CTH’s methods and equipment

76 CTH had leased a Heister forklift for use at 50 Airds Road from Price & Speed Clearances Pty Limited from a date early in 2001 and either August or October 2001. The Heister was a 28 tonne forklift with a 40 foot top lift. Mr Howes said it was introduced for use at those premises because his business was “picking up a lot more work that required us to hold containers for unpacking or re-delivery”.

77 He said that the company had operated four forklifts at 50 Airds Road, including a Nissan (a 2.5 to 3 tonne forklift) and a Caterpillar C150 model. The smaller forklifts had the capacity to lift two light loaded containers on top of one another to make a stack of three containers. He said his business had handled both 20 and 40 foot long containers on that site.

78 Mr Howes’ evidence was that the Heister forklift was of comparable dimensions to the Clark Forklift subsequently purchased by CTH. However, that was not so as the Clark forklift Y650D was, in fact, a 39 tonne forklift.

79 Mr Howes maintained that CTH still had the Heister at the time of the initial negotiations with Toyo representatives in 2002 for the lease of the subject premises. He said he made reference to it during the course of the lease negotiations.

80 Toyo’s case was that Mr Howes had not, in fact, referred to CTH operating a very large forklift, in particular, the Heister. It relied upon hire records which established that CTH had hired a Heister forklift for a shorter period than Mr Howes had stated. The records, it claimed, indicated that CTH did not, in fact, have it on site as at the time of the lease negotiations.

81 The hire documentation from Price & Speed Clearances Pty Limited, indicates that the hire of the Heister forklift commenced in February 2001 and continued for a period of about eight months. Mr Howes stated that he thought the Heister was returned “as far as I recalled, 2002”. He said the hire lasted for 18 months. It was put to him in cross-examination that the Heister was dismantled and removed from 50 Airds Road by October 2001. He was shown a number of documents including an invoice dated 11 October 2001 which referred to the Heister having been dismantled. Mr Howes agreed that that appeared to be the date the end of the hire period.

82 In later cross-examination, Mr Howes accepted that the invoices in fact established that the last time CTH used the Heister may have been in August 2001. It was then put to him:-

“Q. Consequently, you did not use, in your business, any large forklift of the dimensions or scale of the Clark forklift that you subsequently brought to Toyo premises between August 2001 and at least November 2002, when the Clark came to Toyo?”

83 Mr Howes did not agree. However, in further answers, it became clear that CTH from about that time or from about October 2001 used smaller sized container handling equipment.

84 Mr Howes, however, did agree that, in light of the hire documentation, it was unlikely that the Heister forklift was on site at the time of the lease negotiations. On that basis, he accepted that his affidavit evidence to the effect that a Heister forklift was present at the time of Mr Steinhour’s visit to 50 Airds Road could not have been correct.

85 Mr Howes also acknowledged that his affidavit evidence, to the effect that he told Mr Monahan before entering into the lease that “… we use a large forklift for loading and unloading”, could not have been accurate given that the records that established that CTH had not used such a forklift/container handler for almost a year as at the time of speaking to Mr Monahan:-

“Q. So you could not have told him ‘we use a large forklift for loading and unloading’, could you?

A. Yes, I did.

Q. Why would you tell him such a thing?

A. Because we had, when we returned a forklift at a date

and we were purchasing a forklift. As I said, it was always the case the forklift was going to be there.

Q. You hadn’t used one for about a year?

A. From the evidence, no.”

86 In light of the evidence that established that there was no large forklift in use by CTH at the time of the lease negotiations, Mr Howe’s evidence as to the abovementioned statements he said he made to Mr Monahan in my assessment cannot be accepted. In cross-examination, he was asked:-

“Q. At paragraph 15 your first affidavit, you refer to a meeting at the Toyo premises with Mr Monahan and Mr Miracola. You say that at that meeting you were standing outside the office doors of the premises with those persons and that you said ‘As I have said before, we might be able to be of some assistance to you loading and unloading your containers and doing your transport as we have got the fork on site we can do the lifting.’ A. Yes.

Q. In hindsight, now that you have seen those records, which show that a large forklift had not been used almost a year and it was another five months or thereabouts before you acquired one, do you agree that it was highly unlikely that you would have made that statement at that time? A. No. I did make that statement.”

87 In relation to paragraph 16 of his affidavit sworn 6 May 2005, he again referred to statements he said he made to Mr Monahan “we’ve got a big fork. It’s the only way we perform our handling”. It was put to him in cross-examination:-

“Q. That clearly was not true at June 2002, was it?

A. In the interim, no.

Q. In the interim of over a year it wasn’t true?

A. No, no.”

88 The evidence of Mr Howes, Mr Miracola and Mr Steinhour (discussed below) established on the probabilities and I find that:-

(1) The CTH business conducted at 50 Airds Road did involve the transportation and handling of containers, in particular, the lifting, loading and unloading of containers.

(2) Mr Steinhour and Mr Monahan, on attending at those premises, saw containers some of which were stacked two high.

89 The evidence established on the probabilities that:-

(1) The Heister forklift was not present on that site when Mr Steinhour and Mr Monahan attended in 2002 at 50 Airds Road before the lease was entered into.

(2) Mr Howes’ evidence that he told Toyo’s employees at the time of the negotiations that CTH used a large forklift in its operations cannot be accepted as accurate.

(3) The Clark forklift

90 CTH acquired a used Clark C500Y 650D forklift with a 40 foot top lift container handling frame in November 2002. The evidence included an invoice from Forklift Trader to CTH dated 22 November 2002, together with a lease purchase by CTH of the forklift with National Australia Bank dated 31 October 2002. Finance was approved on 25 November 2002 (Exhibit C). Mr Howes’ evidence was that it was delivered on 20 November 2002, although he said in giving that evidence he had relied upon an invoice date in stating it was delivered on that date. He acknowledged that the delivery date may have been in January 2003 and not December 2002.

91 Mr Howes said that CTH acquired the Clark forklift or container handler because of an increase in business:-

“When I was at 50 Airds Road, our business was climbing rapidly and we were struggling to handle the amount of containers that we were getting.”

92 He added:-

“It gives us the availability to take on more work and place the containers as in storage of goods … it allows us to do more containers, to hold more containers for storage purposes and for our redirection to customers.”

93 He also explained:-

“… the forklift comes into play when you get an abnormal amount of customers that require you to either hold their container or bring in more than one or two containers at a time on the same vessel, because there’s restrictions to the availability of containers, restrictions in each shipping detention to get it back. So if it is a manual unload, which 50% of them would be physical labour, and they have 15 containers on one vessel, it is physically impossible to have 15 trucks sitting around for five days which you are trying to unload it from an elevated height. The forklift makes it easier, quicker, a lot safer and it keeps the business rolling on. It saves a lot of time measures.”

94 Mr Howes acknowledged that operations as so described depended upon having the space to place the containers. He was asked in cross-examination:-

“… that this was an opportunity (Toyo’s premises) for you to greatly expand whatever container handling side of your business you had, isn’t that right?

A. Yes.”

95 The Clark model Y650D was described as a heavy duty forklift capable of lifting 40 foot containers. It has a tonne weight of 40.8 tonnes with a lifting capacity of 30.9 tonnes. Mr Crane, in his report of 26 February 2004, stated that the front axle load for a loaded Clark Y650D container forklift is 57.5 tonnes. He added that this load “… is very large and should be supported by a specific heavy duty industrial pavement of the type used typically at airports and container facilities …”.

96 Mr Howes said it operated on the premises for an average of one to one and half hours per day.

97 Mr Crane stated that if the Clark forklift was to continue to operate at the site, he recommended that the pavement should be replaced with a 350 millimetre thick concrete slab on a 150 millimetre bound sub-base layer. He added that the concrete should a tensile strength equal to or greater than 5.0 MPa.

The condition of the pavement prior to the commencement of the lease

98 The concrete pavement was constructed in about 1978. Prior to the lease, it had been in use for approximately 24 years and had, as earlier noted, over that time, been subject to truck loading and other uses.

99 The evidence established that, as at the date of purchase by Toyo in 2001 and at the commencement of the lease there was extensive cracking in the concrete including in the leased area. The depth and width of cracking are relevant to its nature and significance in terms of its design life. The plaintiff’s case, is that:-

• The cracking was substantial and widespread.

• It was of such a nature that water penetration occurred with the effect of softening the sub-base.

• The pavement had “failed” as at the commencement of the lease.

100 Mr O’Brien in his supplementary dated 8 May 2007 (p.4) observed that highly loaded industrial pavements fail first at joints and cracks. He stated that after this occurs, subsequent pavement deterioration can be very rapid, since large cracks and failed joints allow surface water/rainwater to enter the sub-grade thereby softening the sub-grade and creating a “vicious circle”. I note here that this is consistent with Dr Wiesner’s opinion.

101 Mr O’Brien further observed that, with such sub-grade mechanisms, sub-grade failure can be both the cause of slab failure and the effect of slab failure.

102 In his supplementary report (p.5), he observed that the loading of slabs across joints is important as the joints are the weakest point in a concrete slab. He referred to figure 1 to his report being the photograph of a tongue-and-groove joint which showed major damage. He stated that such damage can readily allow the ingress of water with subsequent pumping and compounding failure effects.

103 Mr Christopher Parkes, whose work involved the detection and location of water and gas leaks, attended at 135-149 Airds Road, Minto on 4 June 2001 to locate the source of leaking water in the driveway area. In evidence, he said he walked around part of the factory area and observed the concrete was “in poor condition and there were cracks everywhere …” (affidavit sworn 5 May 2005, paragraph 8).

104 He marked on a site diagram (Exhibit J) the area in which he made his observations. That area extended from the gate towards the factory building but short of the hardstand area. In oral evidence, he described the cracks he saw as “several metres in length and 10 to 15 mm in width, I guess. You wouldn’t sort of see those sort of cracks in a public area normally …” (t.184).

105 In cross-examination, he said photographs 1.1, 1.2 and 1.3 in Exhibit B showed part of the area in which he walked around on 4 June 2001. These reveal obvious vertical cracks and that the cracks were of some metres in length, that is, more than hair line cracking and such cracks were present with horizontal cracking. He stated photograph, 1.4 of Exhibit B, showed cracking that was “a bit worse” than what he recalled it as having been.

106 Mr Parkes appeared to me to be a reliable witness and it was not suggested that his evidence as to the above observations were wrong. The effect of that evidence is that, in the areas in which he walked around, there was cracking as at the time he was on site on 4 June 2001. According to the evidence of Dr Wiesner for the plaintiff, significant cracking indicates “failure” of the pavement in the relevant area which is capable of allowing water penetration and is indicative of a pavement whose design life was well advanced.

107 Mr Steven Oswald, licensed plumber, drainer and gas fitter, attended Toyo’s premises two or three times in 1999/2000 and December 2002 to repair water leaks. He marked by two “Xs” (X1 and X2) on a diagram, Exhibit D, the areas in which he undertook repair work in that period. He was sure that the work in area X1 was performed before CTH moved into the premises.

108 Mr Oswald said that photograph 1.4 in Exhibit B (which reveals a significant level of cracking in terms of length, vertical and horizontal orientation and apparent depth of cracking) was “pretty typical” of what he had seen as to the condition of the concrete before CTH took up occupation.

109 Mr Oswald appeared to be a straightforward and honest witness. His evidence was in line with that of Mr Inglis who also stated that photograph 1.4 depicted the condition of the concrete in the area of the apron as at the start of the lease (t.338).

110 Mr Miracola agreed in cross-examination that in mid-2002 at a meeting at the premises there was reference made to the state of the premises. He said:-

“I could probably recall words to the effect that it was in poor condition, cracks in various places”

111 He said the cracks were visible (t.340 to 341). When shown photograph 1.4 in Exhibit B, he said, “… there were cracks. I mean, yes, there were cracks everywhere”.

112 Mr Monahan also agreed that at the time CTH went into occupation of the premises, there was cracking in the concrete, including, in particular, in the hardstand area. He agreed the cracking was “widespread” and that it was significant cracking. He said on his second visit to the premises (in 2002) “we did note there were cracks in the concrete”. When it was put to him that it was “significant” cracking, he replied “significant, if you want to call it that, yes”. He agreed that he saw “significant” cracking in the area to be leased to CTH and in other areas.

113 Dr Wiesner was shown photograph 1.4 of Exhibit B in cross-examination. He stated that he considered the cracks were “serious cracks”. He stated that joints that are not sealed represent a potential avenue for water to enter the sub-grade and soften it, causing deterioration and further cracking.

114 The evidence to which I have referred establishes that the concrete pavement within the leased area (including that in the hardstand area) together with other areas of the premises had suffered significant cracking prior to the commencement of the lease. The expert evidence (see below) identified as significant matters:-

• The number and extent of the cracks.

• The length and pattern of the cracking.

• The unevenness in some areas of cracking.

• The width of the cracking.

115 On the evidence, the cause of the cracking, on the probabilities, was the pavement’s use over many years during the operations of the previous owner, Pirelli Cables Australia Limited. The report of URS Australia Pty Limited dated 10 August 2002, a copy of which is Annexure B to Mr Monahan’s affidavit, referred (at pp.2 to 3) to heavy vehicle usage and the storage of cable drums and solid waste by Pirelli. It noted that some areas of the pavement had been replaced due to fracturing. The report also referred (at pp.4 to 5) to pallets of drums of paint having been placed on the pavement.

116 As noted above, Mr Monahan confirmed that Pirelli used the leased premises for a long period as its cabling despatch area. He recalled rolls of cabling were loaded onto semi-trailers by forklift.

117 Mr Howes said that when Pirelli owned the premises he had seen several containers going to the premises from time to time. He said there were always numerous semi-trailer vehicles in the area of what was to become CTH’s lease and “hundreds of tonnes of cable drums” moved by 6, 8 and 10 tonne forklifts.

118 It is clear on the evidence that the premises had been subjected to substantial truck loading and that, as part of the ordinary operations of Pirelli heavy cable drums were loaded and unloaded by forklift. In the course of such operations, the pavement had been subjected to a high level of repetitive loading, including from loaded semi-trailer vehicles, and that this led over time to the fracturing or cracking of the pavement as described in evidence.

119 The expert evidence established that, once fracturing of concrete occurs to the extent that existed as at the commencement of the lease, the potential exists for further deterioration as the result of the combination of repetitive heavy loading and softening of the sub-base.

120 The evidence indicates that fracturing in pavements is often the product of direct and indirect factors interacting with one another. The discussion in the report of Dr Wiesner, which I accept as reliable, as well as the historical reports dealing with the original design and construction of the pavement which were made for the purpose of investigations some seven years after the pavement was laid, establish in all likelihood that progressive pavement damage up to September 2003 was the result of a number of factors. These include:-

(1) The effect of sub-grade clay materials of medium to high plasticity with moderate susceptibility to shrinkage and swelling movements according to seasonal changes in soil moisture content.

(2) Water penetration though surface cracking causing local variation in sub-grade strength.

(3) A lack of uniformity in the sub-grade material. Tests carried out at the site in 1983 and reported on by Mr A J Taylor of D J Douglas & Partners revealed a wide variation in CBR values. (Sub-grade CBR being the Californian Bearing Ratio.) The pavement was designed for a CBR of four percent. The CBR results in 1983 revealed a number of locations of less than four percent. The expert evidence indicates that a lack of uniformity can contribute to cracking.

(4) Concrete and base thickness. In 1983, tests revealed variations in both thicknesses. Dr Wiesner considered that these indicated a generally poor quality construction of the pavement.

121 Dr Wiesner’s analysis based on sub-grade weakening reflects certain observations of Mr Taylor made in 1983. In this report dated 28 November 1983, written for the investigations that preceded the reconstruction of failed areas of the pavement, Mr Taylor emphasised the causal significance of the CBR values which reflected local variation in the sub-grade strength. He observed that these could have resulted from water penetration through surface cracking in the pavement (at p.5 of the report). The early identification (in 1983) of the significance of cracking and of water penetration to the pavement provides a measure of support for Dr Wiesner’s opinion.

122 The evidence also established that the rate of failure in pavements is partly dependent upon the frequency of heavy traffic - the more frequent and heavier the traffic, the faster failure accelerates the period over which it starts to break down and fail.

123 In cross-examination, Dr Wiesner confirmed that, once factures exist, the pavement will deteriorate with traffic loading albeit at different rates depending upon the amount of loading.

“Q. Can I suggest to you that that same concrete, after that 20-year period of trafficking, has imposed upon it loads six or seven times at least the loads of those past 20 years --

A. Break up --

Q. -- and within a month or two breaks up?

A. Well, the fractures are already there. The path for water to enter the subgrade is also there. All you need is more traffic and more load and it will deteriorate. As I mentioned, pavements aren't designed to fail and when you double the load you can reduce the design life by a factor of 16 times. A pavement designed for 30 years, if you double the load on it you can reduce the design life down to less than two years.

Q. And so you would assume in the scenario I've just painted that the main cause of the failure to that concrete was the extra load imposed upon it?
A. Well, the fact that there were cracks there was the main cause, allowing water to enter the subgrade, but the actual further deterioration was prompted by the additional traffic. If they'd dug out the pave - the slabs, replaced them and then put heavier loading on, I don't know what would have happened. It probably would have extended the design life to some stage, but to my point of view, those slabs were - had failed basically, there were cracks in them. You shouldn't have concrete pavements with those sort of cracks in them.

Q. So in your view any concrete that has cracks in it has failed; is that right?
A. Large cracks, yes, it is, large pavement cracks.

Q. So it is a question of the degree of the cracking, is it?
A. That is a factor.

Q. And a concrete pavement that has a high degree of cracking, but a substantially compacted sub-base would mean that that higher degree of cracking would not have been as significant as it might be in other situations; is that right?
A. Well, if it's got cracking it will allow water into the sub-base and subgrade which will soften the material and reduce your design life of the pavement. You end up with a situation where the slab is being asked to span over material which is uniformed material which is softer.

Q. Softer?

A. I think a lot of these design life calculations are based on the assumption that the pavement is like a sandwich where you have a good quality subgrade, you have a good quality sub-base, you have a concrete slab on top. As soon as you get a crack, water enters into the sub-base and penetrates the subgrade and softens it, so those analyses are no longer totally valid because you have a non uniform sub-base, you have a non uniform subgrade, and it makes it more susceptible to traffic.”

124 The expert evidence establishes that as deterioration in a pavement, evidenced by “serious” cracking or fracturing, continues to occur with traffic loading, the pavement has failed at least in the sense that it can no longer be used without the potential or the actuality of further damage resulting from repetitive use.

125 The plaintiff relied upon Dr Wiesner’s evidence for the proposition that the photographs taken in 2002, including in particular, photograph 1.04 in Exhibit B, established that the pavement had failed in the leased area before the lease commenced. Dr Wiesner expressed the opinion that, as at the date of the lease, it had reached the stage of requiring replacement. Mr Simpkins SC for CTH submitted that the pavement as at that time was not adequate to provide proper performance for truck movements let alone forklifts used for container handling.

126 In his final submissions, Mr Simpkins relied upon the fact that it was not until about May 2003 that Mr Gregory noticed damage to the pavement which he attributed to the use of the Clark forklift. The point here was that the damage did not become apparent immediately following the commencement of the Clark forklift’s operations in late 2002 or early 2003. The fact that the deteriorating condition of the pavement took some months to become apparent suggested that the cause of failure was not only the use of the large forklift. It was, Mr Simpkins submitted, consistent with something more complex and represented an evolving situation involving more than one causal factor.

127 Mr Simpkins also relied upon Mr Howes’ evidence to the effect that the Clark forklift operated on average one to one and a half hours per day including in areas other than the hardstand area without causing apparent damage. This, he argued, also suggested that there was some other factor operating in the hardstand area before the damage in due course became visible after the Clark forklift’s initial months of operation.

WATER PROBLEMS

(1) Water leaking episode: 6 December 2002

128 Mr Howes, in his affidavit sworn on 6 May 2005 (paragraph 26), said that on or about 6 December 2002, he observed water leaking from sections of the yard area. According to his account, water was coming up through the ground in numerous places over an area of about 100 metres. He said initially the water came out at only a trickle about 10 centimetres high, but over the next hour, spouts of water became as high as three metres. He said he telephoned a plumber, Mr Ray Ingles, of the defendant company who, in due course, attended the site and turned off the water main.

129 Mr Howes identified the area in question in a plan, Annexure D to his second affidavit. He identified the point marked “1” as the point of the “main water explosion”. He agreed that point was near a fire hydrant. He said there were leaks through the pavement. Mr Howes marked on the plan, Annexure D, the leased premises in yellow. He said in his first affidavit (paragraph 28) that, as a result of the water explosion, the water pooled in various areas of the yard for two or three days. He acknowledged in cross-examination that the hardstand area sloped away from the warehouse. After two or three days, he said when the trucks ran over certain areas of the pavement, water was pushed up from the cracks. This was still occurring over a period of approximately two weeks. It is apparent that the water episode on 6 December 2002 was a significant one and resulted in a substantial release of water that was capable of penetrating the pavement through the cracking and thereby reaching the sub-base material.

130 On 7 December 2002, Mr Howes said he took 24 photographs of the premises. These were annexed to his affidavit.

131 Mr Howes’ evidence was that over the next two or three days, the water pooled in various locations. At the end of this time, CTH’s trucks ran over certain areas of the pavement which he said resulted in water being pushed up out of the cracks. He said he also noticed movement of the pavement up and down under the weight of the trucks.

132 Over the next two months, he said the concrete surface of a part of the yard area (measuring about 2,200 square metres) commenced to break up and sections of the concrete measuring up to about one square metre became displaced. He said that the surface became uneven and unusable by about February 2003. Having considered Mr Howes’ evidence in some detail, I am of the opinion that his evidence was to his above observations were reasonably accurate and should be accepted.

133 Mr Oswald, licensed plumber, drainer and gas fitter, had, as noted earlier, from time to time, attended the Toyo site for the purposes of undertaking plumbing work. In his affidavit sworn on 5 May 2005, he referred to his attendance in December 2002. Exhibit G contains a copy of a tax invoice dated 19 December 2002 which recorded repair work for a “Broken Fire Hydrant Line” undertaken on 6 and 9 December 2002.

134 He marked on a diagram, Exhibit D, two areas X1 and X2 respectively in the north and south portion of the Toyo premises where he had previously undertaken plumbing work.

135 In relation to the area X1, he said that he had attended for the purposes of advising and undertaking work associated with a pipe in an area near the gate where a slab of concrete was being replaced.

136 He said in December 2002, there was a large amount of water pooled in the area under the awning adjacent to the entrance of the warehouse occupied by CTH. He engaged Pinpoint Locating (a Mr Parkes), to identify the source of the leak. Exhibit H is a copy of that firm’s tax invoice dated 8 December 2002 relating to the work performed. Mr Parkes, who did the tests, took him to a location adjacent to a fuel bowser in an area inside the front gate and then around to the left of it. He there undertook excavation of the concrete and removed and repaired a broken pipe. He said the pipe appeared to be in a deteriorated condition.

137 Mr Oswald marked with a cross on a further copy of the same diagram (Exhibit E) the area immediately adjacent to the point described on the diagram as “metal awning” being the area where he saw pooled water.

138 Mr Oswald identified the area where the repair was carried out in December 2002 (the fixing of a pressure pipe) which is depicted in Exhibit B, photograph exhibit 1.22.

139 Mr Parkes swore an affidavit dated 5 May 2005. He had attended at 135 Airds Road on previous occasions, in particular, on 4 June 2001, 31 January 2001 (or 31 January 2002). He also attended on 8 December 2002. On the latter occasion, the plumbing problem was noted as “water leak in fire main …”. He attended again on 9 March 2003 in respect of three water leaks, two in the fire service and one in the domestic supply. He said he also attended on 21 August 2003 in respect of a large leak on the fire main end of the factory. Invoices in respect of these attendances constituted Exhibit H.

140 Mr Parkes marked on a diagram, Exhibit J, the area where he attended in June 2001. He said that he noted that there were several metres in length of cracking, 10 to 15 millimetres in width.

(2) Rain water pooling: May 2003

141 Mr Howes stated that after heavy rain falls in the Minto area, water again commenced to pool on the pavement. He said that he noted parts of the concrete pavement were starting to break away and small areas of rubble were forming over the yard area. Photographs taken of the yard area on 16 May 2003 were annexed to his affidavit (CTH 2.1 to 2.11). Mr Howes took further photographs on 17 June 2003 (CTH 3).

(3) Water leaking episode: 27 June 2003

142 Mr Howes gave evidence of a further episode of water gushing from the pavement areas of the yard on 27 June 2003. He said he again spoke to Mr Ingles of the defendant. The main was turned off and whilst the gushing of the water stopped, for some days water continued to flow from various cracks in the yard area. He said the water took some days to subside. Further photographs were taken by Mr Howes on 27 June 2003 (CTH 4.1 to 4.13).

143 In September 2003, Mr Howes said he became concerned about the concrete and telephoned Mr Bruce Monahan of the defendant in which he said he stated, “What are you going to do about the concrete?”.

144 Mr Monahan is said to have replied, “Look Clarrie, I know it’s bad and it’s breaking up. You’ll have to watch where your forklift goes because it could be a health hazard”. Mr Howes stated, “No Bruce, it’s not the fork, it’s all the water explosions which is causing the problems”. He said, “Well, I will have to get back to you”.

145 On 29 September 2003, Mr Monahan wrote to the plaintiff (Annexure C to Mr Howe’s affidavit sworn on 6 May 2005). The letter did not refer to any communication having been made by Mr Howes in September 2003 about pavement damage. I will refer to the letter again in later discussion.

146 Mr Howes stated that there were other episodes of water emerging from cracks in the pavement (in particular on 25 February 2004 and thereafter whenever it rained).

147 Having considered the evidence, it is clear and I so find that on 6 December 2002, there was a large volume of water which escaped due to a broken pipe. This was the most significant episode of “water explosion” in the lease period. This probably resulted in water penetration of the pavement, including in particular, the hardstand area. On the probabilities and having regard to the expert evidence, the penetration was significant in that it was present and pushed up to the surface by traffic loading over a two week period following the episode on 6 December 2002.

Photographic evidence of pavement deterioration

148 CTH relied upon a series of photographs which Mr Howes said he took over time commencing on 7 December 2002.

149 It was put to him that he went looking around the Toyo site “to find examples of cracked concrete”:-

“Q. And that was in order to prepare yourself for a fight with Toyo about the cause of the damage to the concrete outside the warehouse?

A. In substance, yes.”

150 A little later, it was put to Mr Howes:-

“Q. You didn’t complain to Toyo about the conditions of that concrete at that time, did you?

A. I had discussions with Toyo at that time, yes.

Q. But you didn’t complaint, did you?

A. In the

sense, no.

Q. You didn’t ask them to do anything about it, do you?

A. I asked them what they were going to do about it.

Q. You didn’t ask them to do anything though, did you?

A. I can’t remember.

151 He then was asked:-

“Q. You didn’t say effectively, ‘this concrete is breaking up because its inadequate for our business. You have to fix it’, or something like that?

A. I remember a conversation – yes, I did say that.

Q. When did you say that?

A. I said that to Bruce Monahan by phone.”

152 In Mr Howes’ affidavit sworn 6 May 2005, he identified in paragraphs 27 to 47 a series of photographs.

153 Exhibit A contains a series of diagrams of the Toyo premises marked “Bundle 1 to Bundle 17” with numbers that correlated with the numbers of the photographs contained in the plaintiff’s tender bundle.

154 The plaintiff’s tender bundle, Exhibit B, contains a series of photographs, including the exhibits to Mr Howes’ affidavit sworn on 6 May 2005, being photographs taken on later dates, namely, on 16 May, 12, 27 June 2003 and 19 January, 25 February, 25 May, 3 June, 17 November and 22 December 2004 and on 5, 18 and 24 May 2005.

155 These photographs CTH claimed evidenced the presence of water at different times as well as the progressive damage to the pavement in 2003. The following summary is based upon matters raised in Mr Howes’ first affidavit and in the course of his cross-examination said to be relevant to factual issues concerning the condition of the pavement and the cause or causes of the damage to it.

(1) 7 December 2002 – 24 photographs, CTH 1.1 to 1.24

156 A number, but not all, of these photographs were said to be related to water leaks in the yard area, the water having been emitted on 6 December 2002.

157 Mr Howes’ affidavit evidence was that photographs CTH 1.1 to 1.24 were taken by him on 7 December 2002. However, other evidence established that a number of such photographs were taken on a later date, as discussed below.

• Photographs 1.1 to 1.11 depict areas of the concrete pavement with various degrees of cracking or fracturing. The evidence established that such cracking had occurred over previous years before the lease period.

• Photographs 1.12 and 1.13 show damage to pavement and loose gravel. They were on dates “possibly” in March 2003.

• Photographs 1.14 to 1.19 inclusive show water pooling generally towards the car park area and not in the leased area.

• Photograph 1.15 depicts water in the car park area after heavy rain. The date of the photograph is unknown.

• Photograph 1.20 depicts an area about 100 metres on the other side of the factory building away from the leased area.

• Photographs 1.21 and 1.22 show the point of the first water explosion and repair to the concrete pavement following repairs to a broken pipe.

“possibly”

158 In re-examination, Mr Howes stated that photographs in Exhibits 1.1, 1.2, 1.3, 1.4 and 1.5 were taken mid to late December 2002. Photographs 1.6, 1.7 and 1.8 he thought were taken late December 2002 or early January 2003. Photographs 1.10 and 1.11, he thought as a “guess”, were taken in January/February 2003, whilst photograph 1.12 was taken “possibly” in March 2003. Photograph 1.13 was taken a little later, about mid to late March 2003. Photographs 1.12 and 1.13 Mr Howes said in chief are said to depict the condition of the surface of the pavement approximately two weeks after the water explosion on 6 December 2003 in which time Mr Howes said the pavement moved, in places, and water came up between the cracks. Photographs 1.14 and 1.22, he considered, was taken in later December 2002 and 1.18 and 1.19 in early to mid-December 2002.

159 Mr Howes stated that photograph 1.21, which showed the repair in the concrete, was taken on about 12 December 2002.

(2) 16 May 2003 –11 photographs, CTH 2.1 to 2.11

160 These photographs show pooling of rain water at Toyo’s premises, including in the yard area.

161 Photograph 2.3 shows the “container alley” looking south. The photograph shows loose gravel on the concrete surface in the vicinity of one or two of the three areas identified on the diagram, Exhibit 10. It shows the Clark forklift and the containers spaced for the convenience of its manoeuvre. It is in the area where severe damage had occurred as marked on a diagram, Exhibit 10.

12 June 2003 – Exhibit 3 to Mr Howes’ first affidavit

162 This photograph shows an area of severe pavement damage. The damaged areas were in the area in which the Clark forklift operated, being one of the three areas marked by Mr Howes on Exhibit 10.

27 June 2003 – 13 photographs, CTH 4.1 to 4.13

163 These photographs depict areas after an episode of “water gushing” in the pavement area of the yard.

164 Photograph 4.5 is a photograph of a leak 50 metres or so from the boundary of the leased area.

165 Water show in photograph 4.6, according to Mr Howes, entered into the extreme southern end of the warehouse which CTH did not lease.

166 Photographs 4.8, 4.10 and 4.13 relate to an area 50 metres or so from the boundary of the leased premises.

19 January 2004 – 6 photographs, CTH 5.1 to 5.6

167 These photographs depict water shown on the floor of the warehouse area, part of which was leased to the plaintiff.

168 Photograph 5.5 relates to water in the warehouse in an area of the warehouse outside the leased premises and did not relate to the pavement area where the forklift operated.

25 February 2005 - 4 photographs, CTH 6.1 to 6.4

169 These photographs depict a further episode of water spurting from cracks in the pavement and some water pooling in the yard area.

CTH SITE OPERATIONS DURING THE TERM OF THE LEASE

(1) Container handling

170 CTH placed containers along the length of the pavement outside the warehouse which effectively created a corridor or an alleyway down the middle of the containers, spaced so as to permit the operation and manoeuvre of the Clark forklift. Two areas of pavement at the ends of the corridor or alleyway suffered severe damage. Mr Howes said the worst area of damage was in the area marked “12” on the diagram, Annexure D to his affidavit sworn 13 September 2006. He also indicated damaged areas by the description “turning area”.

171 Photographs, exhibits 1.1 to 1.6 in Exhibit B were, according to Mr Howes, taken in mid to late December 2002. These showed cracking in the concrete pavement.

172 Photo, exhibit 1.9 of Exhibit B was said to show cracking at a later stage, but well before May 2003. Photograph, exhibit 1.12, according to Mr Howes, was taken in early 2003, possibly in March 2003.

173 In the second series of photographs, photo Exhibit 2.3 of Exhibit B, taken on 16 May 2003 looking south down the “container alley”, shows the Clark forklift and damage to the pavement in that area. Photo, exhibit 2.9, shows cracking on the access road 100 yards from the tenancy also taken on 16 May 2003. Photo Exhibit 3 of Exhibit B also taken on 16 May 2003 is a close-up of severe pavement cracking.

174 Mr Howes that that “in the early stages, CTH worked around the problem”. He said that by about February 2003, parts of the premises had become unsafe. He said that the deterioration in the pavement restricted the company’s use of the premises because of safety concerns. He said he raised his concerns with Mr Inglis of Toyo. He understood that Mr Inglis had spoken to Mr Monahan about the matter.

175 In his affidavit sworn 13 September 2006, Mr Howes’ stated:-

“8. I say that when the Plaintiff took up occupation of the premises in August 2002, there were numerous cracks in the concrete over the hardstand area which the Plaintiff was subsequently to occupy. Some of these cracks were between 1 – 2 cm wide. Some of the cracks gave the appearance of having been patched because tar had been poured into the crack.

From the time the Plaintiff commenced occupation of the premises in August 2002, I observed that the original cracks were commencing to break up at their edges. At this time, the Clark Forklift had not been brought to the premises. This initial break up was particularly so in the area where the Plaintiff’s trucks were driven.

9. …

I say that from about February 2003, a large section of the yard area forming part of the premises leased by the Plaintiff had become broken and uneven and was unusable by either the Plaintiff’s trucks or its Clark Forklift.

10. …

11. I have marked on the plan being ‘Annexure A’ a hatched area which is the area which had become unusable by about February or March 2003. From that time, the Plaintiff was unable to traverse that hatched area with either its trucks or forklift and from that time it commenced to stack containers in the areas marked ‘R’ to ‘S’ on the said plan.

12. Because the area in which containers could be stored had been reduced, from about March 2003, the Plaintiff commenced to double and triple stack containers in the areas designated ‘R’ to ‘S’ on the said plan. Some of the containers were stored outside the area which was leased to the Plaintiff. Because the Plaintiff began to double and triple stack containers from about March 2003, it took the Plaintiff longer to both stack and to retrieve containers when they were required for on forwarding.”

176 Mr Howes’ observations in paragraphs 8 and 9 set out above generally accord with that of Toyo’s witnesses and I accept those observations to be reasonably accurate.

(2) CTH and Toyo communications on pavement deterioration

177 Although Mr Howes claimed that it was he who first raised the issue of the deteriorating pavement with Toyo, there was no contemporaneous record such as email, letter or memorandum of any such communication by him.

178 Mr Monahan said in September 2003, he heard from staff that the damage to the concrete was significant. As a consequence, he inspected the premises and noted severe cracking, crumbling and lifting of segments of the concrete, particularly in the north-eastern end of the area of the tenancy between two rows of stacked containers. He did not speak to Mr Howes at that time.

179 On 29 September 2003, he wrote to CTH/Mr Howes (Annexure C to Mr Howes’ first affidavit). The letter, in part, stated:-

“A recent inspection of our property at Airds Road has confirmed that the property has sustained significant damage as a consequence of your operations.

When you occupied the property on or about 15 July 2002 the building and concrete apron area adjacent to your leased area were inspected and found to be in good condition. Much documentation in relation to the sale of the property supports this assessment. Sometime

since the commencement of this lease, you acquired a 40-ton container forklift which is currently on site and being used in your operations. This machine has caused significant and permanent damage to much of the concrete apron on the eastern side and northern end of the building.

On the eastern side, damage extends outside the agreed area under the lease and we note for the record that you have used this area for storage at one time or another. Further, the mesh fence has been pushed out of alignment due to impact with containers and vehicles.

Some unloading and heavy truck/forklift activity has taken place in the northeastern

corner of the site and this has caused slab cracking and deterioration.

We are concerned that the ongoing use of a machine which was not discussed with us at the time of leasing will cause further substantial damage to our property. The use of this machine on this surface would also constitute a safety risk to all concerned.

As this damage is clearly a result of your activities on the site we request you to advise us

(i) of your intention to use this machine on an ongoing basis for the remainder of the lease.

(ii) With your acknowledgement that CTH will compensate Toyo (the landlord) as per clause 16 (a) and (b) of the lease in respect of the damage incurred to date.

(iii) That all damage that may occur beyond this point in time will be reinstated as per the terms and special conditions of the lease.

477 The observations of the Court of Appeal in Alamdo (supra), with respect, do not support the submission made. One of the claims in that case was whether the lessee, AWF, which entered into a sub-lease of a unit of the premises, was liable for repairs to some or all of the bitumen areas on the property. The relevant clauses of the lease employed the expression “the Demised Premises …”. That expression was defined in a clause of the lease (clause 1.1). The lease also employed the term “Land”. In paragraph [28] of his judgment, Hodgson JA, in referring to clause 5.1, expressed his opinion that there was no reason to construe “Demised Premises” in that clause narrowly so as not to extend to paved areas adjoining and near the buildings. Basten JA agreed at [116]. However, by reason of the particular clauses referred to by Hodgson JA and the definitions of what constituted “Demised Premises”, support cannot be found in the particular construction of that term for the proposition that “building” in Rule 4 must be taken to include the concrete pavement of the leased premises in this case, as submitted for Toyo.

478 On the issue of any consent under Rule 4, there was evidence of consent. This included:-

• That in early 2003, Toyo became aware of the presence and use of the Clark Y650D forklift.

• That from early 2003, Toyo was aware that deterioration of the pavement was present and continuing.

• That from early 2003, Toyo was informed that the deterioration in the pavement was associated with the use of the Clark Y650D forklift.

• That from early 2003, Toyo was aware that continued use of the forklift would be likely to result in further deterioration of the pavement.

479 On the above facts, consent may be inferred from the fact of knowledge, that is, knowledge at both senior and other levels within Toyo, of the above matters and, by reason of the lack of complaint, intervention or requirement for CTH to cease using the Clark forklift. The absence of consent in writing, if it was a breach of Rule 4, would, in my opinion, be properly considered to be a technical breach that was not causative of loss.

Conclusions as to breach of the warranty as to suitability of premises

480 On the basis of the findings as to the condition and causes of the pavement failure, Toyo was in breach of its obligation in terms of clause 2 to ensure that the premises were in a reasonably fit condition to use. The premises were not, at the time of the lease, in a reasonably fit condition for use as a warehouse, storage and distribution facility in which the loading and unloading of containers would reasonably require the use of heavy container handling equipment. The pavement upon which the activities contemplated by the parties were to be conducted during the lease term was unsuitable by reason of the fact that in its structurally deficient and deteriorated condition at the commencement of the lease, it was not in a reasonably fit condition for the permitted use.

The implied term

481 The plaintiff’s primary case depends upon the express warranty as to the condition of the premises set out in clause 2 of the lease and the contention that on its proper construction the premises were not in a reasonably fit condition for the activities of loading and unloading of containers in the hardstand yard area. CTH alternatively pleaded an implied term as follows:-

“5. It was an implied term of the lease that the Premises were fit for the purpose of loading and unloading containers in the hardstand yard area.”

482 CTH relied, inter alia, upon the decision in Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited (supra) (Palmer J) and of the Court of Appeal: [2006] NSWCA 296. CTH also relied upon the matters set out in paragraphs 4 to 21 inclusive of the “Plaintiff’s Outline of submissions”.

483 The implication of the alleged implied term must, of course, pass the tests stated in Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337 per Mason J at 346 and 347. Additionally, where there is an express covenant in a lease dealing with a particular matter as to the leased premises, there is no room for an implied covenant covering the same ground or any part of it: Lend Lease Development Pty Limited v Zemlicka (1985) 3 NSWLR 207, 218.

484 In R & J Lyons Family Settlement (supra), Bryson AJA observed at [63]:-

“The contractual character of the relationship under a lease (Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17) and the application to leases (as to other contracts) of the implication of terms BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282-283, Codelfa, do not render leases, or other written contracts, open to ready implications; the primary source of rights is the express provisions in the document, and established principles on the relationship of lessor and lessee are important for understanding their documents. The implication of terms in accordance with Westernport and Codelfa is a process very sensitive to the facts of each particular case and to the circumstances and contractual provisions which give rise to the perception that the implication is necessary for the contract actually to be effective.”

485 In Advance Fitness (supra), Austin J at [90] observed that traditionally the law of landlord and tenant was reasonably clear, and also quite restrictive, on the question of implied covenants by a landlord, observing that courts had held that there was no implied covenant that demised premises were fit for any particular use. Austin J further observed that this was so, even if the lease contemplated use of the demised premises for a particular purpose, and contained a covenant by the tenant not to use the demised premises for any purpose other than the one stated, citing Hill v Harris (supra).

486 However, in Advance Fitness (supra), it was also observed at [93] that a commercial lease being not merely a demise of a propriety interest in land may, as a matter of contract, modify or override the bare principles of the law of landlord and tenant.

“93. … Thus, if the lease contains a promise by the tenant that it will use the demised premises in a particular way, which necessarily involves the use of heavy machinery (for example, a promise that the premises be used as a printery in which rolls of paper must be moved by fork lift), the lease may well contain an implied warranty that the floor of the premises is sufficiently strong to permit the normal conduct of the business and the use of heavy machinery for that purpose. Here the commercial relationship between the parties goes beyond a mere covenant by the tenant not to use the premises other than for the stated use. These principles were accepted by Smithers J in the Bradford House case (at 314), though in that case the implication of such a term was excluded because of an express provision dealing with the use of heavy machinery. A similar implied term was read into a commercial licence in the Wettern Electric case.”

487 In Land Law, 5th ed (2006), Lawbook Co (at 1573), Professor Butt stated:-

“There is no landlords’ implied covenant that leased premises are suitable for the purposes for which they are let, or that they can lawfully be used for the purposes for which they are let. Nor does the express inclusion of a covenant for quiet enjoyment require otherwise.

However, it may be possible to imply such a covenant in the particular case under general contract law principles governing the implication of terms into contracts. These principles fall into two categories: implication as a matter of business efficacy, an implication as a legal incident of the particular class of contract concerned …

On these bases, it is conceivable that a term may be implied that (for example) the landlord will do whatever work is necessary to render the premises fit for the purpose for which they are let and will maintain them in that condition (although in practice such an implication will be difficulty to establish); or (more easily perhaps) a term may be implied that the landlord will not undertake work that would render the premises unfit for their intended purpose (there seems less difficulty in applying these principles to imply a term into a licence that the premises are fit for the purposes of the licence) …”

488 The term that was implied in Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited [2005] NSWSC 1148 arose in very particular circumstances and, as Bryson AJA in R & J Lyons Family Settlement (supra) observed, Palmer J upheld:-

“… a strong case of fact which supported the view that the premises were unusable. An important element in support of the implication was [28]:-

’28. The positive requirement in the lease that the plaintiff used the premises in the specified way …’”

489 On appeal, Basten JA upheld the finding that the term was implied as necessary to give business efficacy, following reference (at [26], [27]) to the general principle that it is the business of the tenant to satisfy himself that the premises are fit for the purpose for which he wants to use them. Accordingly, the basis on which the case was disposed of and the need for the implication for business efficacy was founded on facts which provided a very clear foundation for the implication.

490 In the present case, the facts and circumstances do disclose in the evidence a proper basis for the implication of the term relied upon by the plaintiff. The position on the evidence in the present case is not unlike that in the example provided by Austin J in Advance Fitness (supra). The hardstand area was to be used in a particular way that necessarily involved heavy containers, both loaded and unloaded, and the use of substantial container handling machinery. The use of such machinery for that purpose would, under special condition 6, be carried out in a relatively confined area of the yard. That necessarily would mean a high level of repetitive loading to that particular part of the premises.

491 As observed by Jordan CJ in Heinmann v Commonwealth of Australia (1938) 38 SR (NSW) 691 at 694, in certain circumstances the parties to a contract are bound not only by the express terms of their contract but also by additional terms which are implied by law by reason of the nature of the contract or of the nature of the terms of the contract, or of the circumstances in which the contract was entered into.

492 In the present case, on the findings earlier made, the parties contemplated that the premises would, in part, be used by CTH for containerised operations and so much is reflected in the words of special condition 6 itself. In that context, the hardstand area had to be suitable for the conduct of that part of the plaintiff’s business and it may readily be implied that that area would be of sufficient strength to support accepted methods of loading and unloading containers in the conduct of CTH’s business. The implication would be both consistent with the other terms of the lease and necessary to give it business efficacy as well as satisfying the other grounds necessary to support the implication: Codelfa (supra) at 347.

493 Accordingly, I find that there was an implied term that the hardstand area would be fit for the purpose of loading and unloading containers.

THE CROSS-CLAIM

Whether Toyo had an obligation under the lease to repair the pavement damage?

494 The issues between the parties require consideration of the question as to whether the pavement damage to the premises was caused by CTH’s breach of the lease as a result of:-

(1) Neglect, deliberate or careless act or breach of condition in using an unusually heavy container forklift (clauses 16(a) and 21(a) of the lease).

(2) Failure to take care of the premises or notify the defendant of the damage as it arose (clause 12(g)) of the lease.

(3) Failure to obtain the defendant’s consent to the installation and positioning of the container forklift (clause 14 of the lease and special conditions).

(4) Failure to make good at its expense all damage caused by the container forklift as it arose.

495 The question as whether Toyo had an obligation under the lease to repair the pavement damage is dependent upon the analysis of those issues.

496 I turn to the question as to whether the pavement damage was caused by any breach by CTH of any duty of care or any breach of the lease in the respects identified in the cross-claim (paragraph 6).

Damage to premises

497 The lease conditions assign the liability for loss of or damage to the premises according to the circumstances attending such loss or damage. Accordingly, by clause 16(a)(iii), a lessee is to compensate and meet all claims, inter alia, for damage to part or whole of the premises “… as a result of any accident or neglect or a deliberate or careless act on the premises or a breach of any condition of the lease by the tenant, his employees or agents …”.

498 Additionally, by clause 21(a), the lease provides that the lessee shall repair in a proper way any damage to the premises “… resulting from neglect or a deliberate or careless act or a breach of any condition of the lease by the tenant or any person on the premises with his consent”.

499 Except as provided by condition 21(a), the lease provides, in clause 21(b), that “... the landlord shall carry out without delay all reasonable repairs necessary for the tenant’s ordinary use and occupation of the premises, having regard to the condition of the premises as the commencement of the lease”.

500 In the submissions on behalf of Toyo, it was contended that, inter alia, that the damage to the pavement, inter alia, was the result of “neglect” or “a deliberate or careless act” by CTH in operating the Clark Y650D forklift.

501 In determining the operation of the abovementioned provisions imposing obligations to repair damage to the premises either on the lessee or, in the circumstances provided, on the lessor of the property, the clauses are to be applied in a commercially sensible manner.

502 I accept, as submitted on behalf of CTH, that, at least subject to observations made below, there can be no liability in the plaintiff for damage if what it did was permitted by and otherwise was in accordance with the lease. In such circumstances, the obligations in respect of damage to the pavement is determined by the provisions that prescribe the respective obligations of the parties.

503 Further, I do not consider that the provisions of clause 16(a)(iii) or those in clause 21(a) of the lease apply so as to impose responsibility on CTH in respect of the damage to the premises resulting from its permitted use. In that respect:-

(1) Damage to the premises as a result of “any accident” would not attach in the circumstances of the present case. Those circumstances include the fact that Toyo, as lessor, gave a warranty that the premises were in a reasonably fit condition for use by CTH in the conduct of its transport, warehouse and distribution business but where the premises were not in fact in such a reasonably fit condition. They also include the fact that there is no evidence that, prior to entering into the lease, Toyo undertook due inquiry or other steps to ensure the structural integrity and suitability of the pavement. In those circumstances, I do not consider that it can be said that the damage which I have determined was the causal consequence of Toyo’s breach can be said to be an event under clause 16(a)(iii) of the lease which was unintentional and unexpected and therefore “an accident” : Savaiane v Stauffer Chemical Co (Aust) Pty Limited [1974] 1 NSWLR 665, 669 to 670.

“Q. The fork you acquired ultimately was a fork which, up until then, the entire work life, as far as you were aware, had operated on purpose-built, compacted, top grade pavement at the wharves; isn't that right?

A. That forklift, yes.

Q. And you proposed to bring it to be used on pavement apparently set up for receiving trucks of the normal weight used on roads in and around Sydney; isn't that right?

A. Yes.

Q. And you proposed to bring it there knowing that there was damage already to the pavement, isn't that right?

A. The cracking, yes.

Q. And you proposed to bring it there knowing that that pavement was already at least 20 years old, is that right?

A. Yes.

Q. And it doesn't occur to you at all that there was any risk in doing this to the structural integrity of the pavement, is that right?

A. No. “

504 In Mr Burchett’s written submissions (p.13), it was contended that the damage caused by the operation of the Clark Y650D forklift could reasonably be considered:-

“… the materialisation of a risk taken by the tenant in the manner of use of the premises, irrespective of any contribution from the flawed condition of the pavement. Indeed it was an overwhelming cause of the damage, irrespective of the risk, that a lighter load may have caused such damage at some time in the future.”

505 Mr Howes agreed in cross-examination that he was aware that, what were referred to as “container handling companies”, limit their operations to what was referred to as “… specialty built container handling surfaces”, although he added that he was not qualified to say whether or not the hardstand area of the leased premises was not a “specially compacted area required for container handling operations”.

506 In re-examination, he was asked:-

“Q. Why didn't it occur to you that there was any such risk of damage to the pavement?

A. Over the years that I was familiar with the Pirelli site there were several containers going in there from time to time. I can't question on how, where or when. But over a period of time that I was driving and also in vehicles going past, there was always a numerous amount of semitrailers in the area that I leased, and without counting at any one time, hundreds of tonnes of cable drums being outside with smaller fork-lifts, not container handlers, but smaller 6 to 8 to 10-tonne fork-lifts, more than one, running around and these fork-lifts were of a weight and size that they could lift the larger cable drums in an open area. And I believe that our operation was not much different than that. With hundreds of tonnes previously being put in that area, noticing the cracks from a long period ago, that this equipment was operating over it. They stored - the amount of heavy weight that was stored in this area, I just didn't think that it would affect the concrete any worse than what it was.”

507 It was submitted for Toyo that Mr Howes agreed that he was aware that the forklift container handling exerted more pressure on pavement than other types of container handling equipment. It was also suggested on behalf of Toyo that a straddle carrier would have been suitable for his operations. Mr Howes, however, provided in evidence the reason as to why he did not consider that such equipment would have been suitable.

508 In circumstances in which the lessor warranted the condition of the premises, there is no evidence that it was incumbent on CTH to undertake its own investigation into the structural condition of the pavement.

509 There is a difference between undertaking a permitted use of premises and doing what is permitted in a negligent fashion. A lease, for example, that permits a fabricating company to conduct manufacturing activities requiring the use of oxy-acetylene equipment would not operate to protect the lessee from liability for a negligent act in using acetylene equipment in hazardous circumstances as where there is a known gas leak on the premises. The permission to carry on a particular class of activities may, as earlier discussed, be an associated contractual right to the right of possession. The mere performance of activities that are permitted and envisaged by a lease will not generally render the lessee liable for breach of duty under the general law. It may be otherwise where, as in the above example, there exist some additional fact (such as the gas hazard in the above example).

510 On the basis of the findings earlier made establishing that the use of the Clark forklift fell within the permitted use under the terms of the lease and that on the evidence, forklifts in the heavier range of such machinery were employed in similar businesses to CTH in the transport industry, CTH’s use of the forklift was not, in my opinion, one that could be said to constitute a breach of any duty of care owed by it to Toyo.

511 The duty owed by CTH was essentially defined by the parties in the terms and conditions of the lease. To do what was permitted under the lease could not, in the circumstances of the present case, in my opinion, constitute an “accident or neglect or a deliberate or careless act on the premises or a breach of any condition of the lease …” within clause 16(a).

512 By reason of the design specification of the concrete pavement and, additionally, its deteriorated condition that existed at the commencement of the lease, the premises were not in a reasonably fit condition at the time of the lease for the use it authorised. In other words, the evidence established that the pavement lacked the necessary structural integrity to support the container handling operations permitted by the lease. In particular, the pavement was not in a reasonably fit condition to support the use of forklifts in the loading and unloading of forklifts falling within the lower end of the heavier range of machinery (eg, 20 tonnes beyond 100 – 1,000 repetitions).

513 The damage to the property consequent upon the authorised use, accordingly, resulted from the structural deficiencies earlier identified that affected the condition and the loading capacity of the pavement and Toyo’s act in leasing it for the permitted use when it was not, in fact, in a reasonable fit condition or such use within clause 2 of the lease.

514 I accept the alternative submission made on behalf of CTH that, even if it could be said that the use of the forklift was not reasonable, damage would have been sustained in any event by a reasonable use of premises by a transport company and this by reason of the premises unsuitability as at the date of the lease.

515 In relation to the submissions of the defendant as to breach of duty, it is necessary to make one observation on the issue of “damage”. The damage that occurred during the period of the lease was progressive and not limited to one or more points in time. The causes of the damage have been the subject of findings set out above.

516 This is not a case where further deterioration in the pavement occurring after the initial damage in early 2003 can be seen as specific “damage” constituting a separate element of negligence. The expert evidence to which reference has earlier been made established that, once the pavement had initially failed and further deterioration had taken place in early 2003, it was by then not a practical option to repair it. By that stage the only response was to replace the damaged areas with a new pavement constructed in accordance with suitably designed specifications. In other words, further or additional deterioration beyond early 2003 did not produce the need for replacement as that need had already arisen.

517 On the basis of the findings and factual and other conclusions set out above and by way of separate determination pursuant to Part 28 Rule 28.3(a) of the Uniform Civil Procedure Rules, I record the findings and decision as to liability and causation arising in respect of the statement of claim and cross-claim as follows:-

(1) The premises, in particular, the hardstand area within the yard area described in Annexure A to the lease, was not, at its commencement, in a reasonably fit condition for the use specified in the lease.

(2) That it was an implied term of the lease that the premises, in particular, the hardstand area, was fit for the purpose of loading and unloading containers in that area.

(3) That in breach of clause 2 of the lease and in breach of the above implied term, the hardstand yard area of the premises was not in a reasonably fit condition for the use permitted under the lease and was not fit for the purpose of loading and unloading containers in that the pavement of the area was structurally inadequate to support such activities and had, prior to the lease, suffered deterioration which impaired the load bearing capacity of the pavement.

(4) That further deterioration to the pavement in the hardstand yard area that occurred during the use of the premises by CTH during the term of the lease was the causal consequence of the breaches by Toyo in (3) above.

(5) That the damage to the premises was not caused by the neglect or deliberate or careless act or breach of condition of the lease by CTH or by persons on the premises with its consent or by the failure to take care of the premises.

(6) That CTH, in bringing onto the premises and operating a Clark Y650D forklift, was not in breach of any duty of care it owed to Toyo but acted reasonably and in accordance with the terms of the lease with respect to its use of such equipment.

Orders

518 These proceedings were case managed as a long matter. On 8 September 2006, Barrett J made an order on a notice of motion filed on behalf of the defendant, Toyo, on 31 August 2006 for separate determination of issues related to liability as separate questions from damages. The precise order made was that, pursuant to Rule 28.2 of the Uniform Civil Procedure Rules 2005, all questions of liability and causation arising on the statement of claim and the cross-claim be determined separately from and in advance of all questions of quantum of damages.

519 On the question of orders and directions, I record the following:-

(1) Subject to any further submissions from either party, I propose to defer making any final orders until after the completion of the hearing on damages.

(2) I will provide the parties with an opportunity to make any further submissions as to whether and what findings may be made in relation to the issue pleaded in paragraph 9 of the statement of claim as to the defendant’s liability under clause 21(b) of the lease having regard, in particular, to the findings as to the condition of the pavement before and after the lease and the question of the need for replacement of the damaged area.

520 I will hear submissions on the question of any directions necessary for a hearing on damages.

521 I propose that the proceedings be re-listed before me for mention and directions at 9.30 am on 8 August 2008

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Citations

Harrem Pty Limited, t/as, CTH Transport and Services v Toyo Tyre Rubber Australia Limited [2008] NSWSC 776

Most Recent Citation

A and J Verdi Pty Ltd v Uckan (RLD) [2010] NSWADTAP 83

Cases Citing This Decision

1

A & J Verdi Pty Ltd v Uckan (RLD) [2010] NSWADTAP 83

Cases Cited

12

Statutory Material Cited

1

Fallon Street Properties Pty Ltd v Steel & Stuff Pty Ltd [2006] NSWCA 296

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24

Paridis v Settlement Agents Supervisory Board [2007] WASCA 97

CITATION:	HARREM PTY LIMITED TRADING AS CTH TRANSPORT & SERVICES v TOYO TYRE RUBBER AUSTRALIA LIMITED [2008] NSWSC 776
HEARING DATE(S):	21, 22, 23, 25 May 2007; 3, 4, 5, 7 December 2007
JUDGMENT DATE :	31 July 2008
JURISDICTION:	Equity
JUDGMENT OF:	Hall J at 1
DECISION:	Subject to any further submissions from either party, I propose to defer making any final orders until after the completion of the hearing on damages. I will provide the parties with an opportunity to make any further submissions as to whether and what findings may be made in relation to the issue pleaded in paragraph 9 of the statement of claim as to the defendant’s liability under clause 21(b) of the lease having regard, in particular, to the findings as to the condition of the pavement before and after the lease and the question of the need for replacement of the damaged area. The issue in paragraphs 10 to 12 of the statement of claim as to the validity of the plaintiff’s exercise of the option under clause 33 of the lease was not pressed. Provision, accordingly, will be made in the final orders in respect of the pleaded cause of action in those paragraphs.
CATCHWORDS:	Landlord and tenant – commercial lease – scope or extent of permitted use – “warehousing, storage and distribution” – warranty by lessor to ensure that premises are in a reasonably fit condition for use at the commencement of the lease – scope of the warranty – construction of terms of lease as to permitted use and special condition permitting loading and unloading of containers – implied term that area on which loading and unloading of containers permitted were fit for the purpose of loading and unloading containers – approach in determining what is a reasonable manner of performing permitted use of leased premises – whether breach of lease and breach of duty of care by lessor in using heavy container handler – knowledge and acquiescence of lessor over nine months
LEGISLATION CITED:	Uniform Civil Procedure Rules 2005
CASES CITED:	Advance Fitness Corporation Pty Limited v Bondi Diggers Memorial Sporting Club Limited[1999] NSWSC 264 Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Limited [2006] NSWCA 224 Aussie Traveller Pty Limited v Marklea Pty Limited (1998) 1 Qd R 1 Barton (t/as Freedom Builders) v Stiff [2006] VSC 307 BP Refinery (Western Port) Pty Limited v Shire of Hastings (1977) 52 ALJR 20 Bradford House Pty Limited v Leroy Fashion Group (1983) 46 ALR 305; Bradford House Pty Limited v Leroy Fashion Group (1983) Aust & NZ Conv R 245 Byrnes v Jokona Pty Limited [2002] FCA 41 Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337 Combara Nominees Pty Limited v McIlwraith-Davey Pty Limited (1991) 6 WAR 408 Cruse v Mount [1933] 1 Ch 278 Edler v Auerbach [1950] 1 KB 359 Hazelwood v Webber (1934) 52 CLR 268 Heinmann v Commonwealth of Australia (1938) 38 SR (NSW) 691 Hill v Harris [1965] 2 QB 601 Holiday Wise Koala Pty Limited v Queenslodge Pty Limited (1977) VR 164 Lend Lease Development Pty Limited v Zemlicka (1985) 3 NSWLR 207 R & J Lyons Family Settlement Trust Pty Limited v 155 Macquarie Street Pty Limited [2008] NSWSC 310 National Carriers v Panalpina (Northern) Limited [1981] AC 674 Savaiane v Stauffer Chemical Co (Aust) Pty Limited [1974] 1 NSWLR 665 Slater v Finning (1996) 3 All ER 398 Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited [2005] NSWSC 1148 Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited [2006] NSWCA 296 The Progressive Mailing House Pty Limited v Tabali Pty Limited (1985) 157 CLR 17 Wettern Electric Limited v Welsh Development Agency [1983] QB 796; [1983] 2 WLR 897
TEXTS CITED:	Land Law, 5th ed (2006), Lawbook Co (Professor Butt) - at 1573
PARTIES:	HARREM PTY LIMITED, t/as, CTH TRANSPORT & SERVICES v TOYO TYRE RUBBER AUSTRALIA LIMITED
FILE NUMBER(S):	SC 5471/04
COUNSEL:	P: J Simpkins SC D: S J Burchett
SOLICITORS:	P: Byles Canceri Lawyers D: Shanahan Tudhope