Holus Bolus Pty Ltd v The Wicko Pty Ltd
[2012] NSWSC 497
•16 May 2012
Supreme Court
New South Wales
Medium Neutral Citation: Holus Bolus Pty Ltd v The Wicko Pty Ltd [2012] NSWSC 497 Hearing dates: 26.03.12; 27.03.12 Decision date: 16 May 2012 Before: Nicholas J Decision: Par 50
Catchwords: LANDLORD AND TENANT - construction of hotel lease - works required for compliance with fire safety standards under Building Code of Australia - whether works "of a structural nature" - question of fact and degree - no question of general principle Legislation Cited: Environmental Planning and Assessment Act 1979 Cases Cited: Brew Bros. Ltd v Snax (Ross) Ltd [1970] 1 QB 612
Di Francesco & Ors v Blantrix Pty Ltd & Ors [2004] NSWLEC 669
R v Lowe (1954) 19 LGR (NSW) 345
Wates v Rowland [1952] 2 QB 12Category: Principal judgment Parties: Holus Bolus Pty Ltd - plaintiff
The Wicko Pty Ltd - defendantRepresentation: Counsel:
K Andronos/D Tynan - plaintiff
P A Regattieri - defendant
Solicitors:
Colquhoun Murphy Solicitors - plaintiff
Braye Cragg Solicitors - defendant
File Number(s): 09/290755
Judgment
By its amended statement of claim filed 20 December 2011 the plaintiff seeks declaratory relief, an order for specific performance, and damages arising from the defendant's failure to carry out fire safety works at the Terminus Hotel, Quirindi (the hotel) under a covenant contained in a lease dated 19 January 2004 between the defendant as lessor and the plaintiff as lessee.
The plaintiff is a family company of which the directors and shareholders are Mr Simon Lewis and his wife, Mrs Jane Lewis. Mr Lewis is the licensee.
The defendant is, and has been since about January 2008, the registered proprietor of the land on which the hotel is situated. Until about April 2004 the registered proprietor was Mr Lloyd Frater, and between about April 2004 and about January 2008 the registered proprietor was Sonspur Pty Ltd.
The premises at which the hotel is conducted comprises a public bar, accommodation including 14 units of five single rooms, three double rooms, one twin room, one triple room, and four family rooms. It also includes a restaurant licensed to seat 140 people, and a beer garden. It is a three storey building.
By letter of 20 April 2007 the Liverpool Plains Shire Council (the council) notified the plaintiff of the requirement to carry out works in compliance with the fire safety provisions under the Building Code of Australia (the code), failing which the plaintiff would be ordered to cease conducting accommodation activities on the premises. A revised list of fire safety works (the works) was served on the defendant by the council by letter of 16 June 2011. By letter of 20 January 2012 the council informed the defendant of its intention to issue an order requiring completion of the works within a specified time. These requirements underlie the principle issue in these proceedings which is whether the works are of a structural nature within cl 12.2 of the lease and, accordingly, are works which the defendant is obliged to perform.
Background
On 19 January 2004 the plaintiff entered into a lease of the premises from the then registered proprietor for a term of 16 years terminating on 18 January 2020. Relevantly the lease includes the following provisions:
7 REPAIRS AND MAINTENANCE
...
7.2 To make all repairs amendments alterations reparations and additions (except such as are structural) which by virtue of any order of any Court or of any Statute or By-law now or hereafter in force may be required to be done or executed by either the Lessor or the Lessee in or upon the Hotel or land upon which it is erected ...
9 USE OF PREMISES
9.1 Not to use the Hotel otherwise than as a Hotel.
9.2 To annually and from time to time as occasion may require cause application to be made and to use his best endeavours to obtain or renew all such licences and permits (including any authorisation to provide entertainment) at his own expense as are or may be necessary for keeping open the Hotel as a Hotel duly licensed for the sale and consumption therein of liquor and for the provision of accommodation and the supply of meals and refreshments.
...
9.7 To keep open the Hotel each day for at least twelve (12) hours for the provision of liquor and other drinks, meals and accommodation to members of the public at all reasonable times.
9.8 At all time [sic] to reside at the Hotel and manage and conduct the business thereof in a responsible, proper and orderly manner.
...
9.12 At all times to duly and punctually observe and comply with the provisions of all present and future Federal or State Laws or Regulations affecting the demised premises and their use and in particular but without affecting the generality of the foregoing shall so observe and perform the provisions of the Public Health Act, the Local Government Act, and any other Acts replacing them and any regulations rules or ordinances or by-laws for the time being in operation and relevant to Hotels but nothing in this Covenant shall require the lessee to carry out work of a structural nature.
...
12 COVENANTS BY THE LESSOR
The Lessor COVENANTS with the Lessee:
...
12.2 To make all amendments alterations reparations and additions of a structural nature which by virtue of any statute or by-law now or hereafter in force may be required to be done or executed in or upon the demised premises including compliance with any fire notice or order by the Council or relevant authority at any time during the term of the Lease or any holding over thereof."
By letter of 20 April 2007 the council notified Mr Lewis, as licensee, of its intention to serve an order under Environmental Planning and Assessment Act 1979 (the Act) s 121B, order 8 to cease conducting accommodation services on the premises until specified fire safety works were carried out. The reason for the proposed order was stated to be that "Use of the premises for accommodation purposes constitutes a life threatening hazard".
On 3 May 2007 the council sent to the plaintiff a list prepared by NSW Fire Brigades of work required for compliance with the code.
By letter of 4 April 2008 the council enquired of the plaintiff its intention to comply with the code, and indicated that failure to do so might result in orders being served.
By letter of 15 May 2008 the plaintiff's solicitors advised the defendant that under cl 12.2 of the lease the defendant was required to comply with any fire notice or order by the council. They sought information as to when the works would be done.
By letter in reply of 16 May 2008 the defendant's solicitors asserted that the works were not of a structural nature, and should be undertaken by the plaintiff under cl 7.2 of the lease.
In its letter of 28 May 2008 to the plaintiff, the council specified the works required as follows:
"(a) That a smoke detection and alarm system be installed throughout the building;
(b) That a sprinkler system be installed throughout the building;
(c) That a hydrant system be installed externally in the beer garden, 10 metres away from the building;
(d) That emergency lighting be provided throughout all of the common areas;
(e) That exit signs be provided throughout all of the common areas and stairs;
(g)[sic] That all unit doors be fitted with solid core doors;
(h) That PFE's be installed;
(i) That all shafts be fire rated or sealed at each level;
(j) That all wall/floor penetrations be fire sealed;
(k) That the balustrading be undertaken as per the BCA requirements;
(m)[sic] That the gas cylinders be enclosed in masonry construction;
(n) That panic bars be installed to the doors in the POPE area;
(o) That exit doors swing outwards;
(p) That all electrical boards be enclosed in fire rated construction;
(q) The provision of annual fire safety certificate be undertaken each year as per the legislation requirements."
On about 13 December 2008 the plaintiff closed its accommodation facilities at the council's direction pending completion of the installation of a fire detection and alarm system, and emergency and exit lighting, smoke detectors, fire extinguishers and fire blankets. The necessary work was carried out by the plaintiff for the total cost of $49,282.99 between 1 February and 18 February 2009. Upon satisfaction that this work had been completed the council, on 19 February 2009 permitted the plaintiff to reopen the accommodation. The next day all accommodation was reopened except for the flat above the kitchen. By letter of 15 April 2009 the council informed the plaintiff that the flat was not suitable for accommodation as the area did not comply with the code, and it was necessary to obtain council's approval for such use in the future.
The letter of 26 November 2009 from the council to the defendant included the following:
"I refer to your letter dated 8 October 2009 and advise that in 2008 Council officers inspected the premises of the Terminus Hotel and identified urgently needed fire safety upgrade work. At that time the lessee was advised that until certain works included in the Plan of Fire Upgrade Works were completed the premises were dangerous and the accommodation areas should be closed. This agreement to close the accommodation areas was reached verbally without orders being served and to Council's knowledge the accommodation areas were not used by guests.
In regard to the reopening of the accommodation areas Council staff inspected works covered by the Plan of Fire Upgrade Works and agreed that the accommodation activities could be recommenced in February 2009. The flat in question is above the kitchen and this was to remain closed as the ceiling/floor areas is not fire rated and offered no protection to the occupants of the flat. To Council's knowledge this flat remains unoccupied."
On 16 June 2011 the council wrote to the defendant concerning fire safety upgrade works for the hotel. The letter included:
"It is agreed that a series of fire safety upgrade works have already been undertaken within the Hotel to include the installation of Fire Extinguishers: Fire Blankets; Automatic Fire Detection and Alarm System; Smoke and heat Detection; Illuminated Exit Signs and Emergency Lighting. It is noted that the fire safety upgrade report submitted by McCarthy Consulting Group Pty Ltd acknowledges these upgrade works within the methodology of additional upgrade works.
Council acknowledge that the Terminus Hotel is an existing premises and that there are no alterations or additions proposed to the building. The report by McCarthy Consulting Group details site investigations and recommends upgrades to the building to reduce risk and improve safety to the buildings occupants.
A life safety analysis has been prepared within the report to address layout and geometry; escape routes; fire management systems; life safety; and signs and lighting. Additional considerations include Egress; Smoke Management; Exit Signs and Emergency Lighting; Detection and Alarm System; Evacuation and Response Time; and Management.
The calculations used in the report predict an evacuation travel time (including response and coping time) from alarm activation to be 6.92 minutes from the most disadvantaged bedroom within the premises. Council consider this timeframe to be a worst case scenario based on conservative response and coping time of 5 minutes. It is also recognised that existing fuel loads will be significantly reduced by the introduction of fire rated coatings that will be applied to walls, floors and ceilings within the premises and BCA complaint floor coverings.
It is recognised that compartmentation of all accommodation areas and associated paths of egress is proposed using a product titled 'Firefree 88'. From previous discussions with NSW Fire Brigade Manager - Building Compliance Unit Green Acre (Mr Warrick Isomonger) Council is prepared to accept this form of fire protection as a retrofit solution to an existing building (that does not propose any alternations or additions).
...
Reasonable improvements have been observed at the premises over the past few years. A series of changes have occurred in building classifications and legislative requirements and the current fire safety upgrade report prepared by Mr Brett Taylor - A1 Accredited Building Certifier of McCarthy Consulting Group Pty Ltd is considered to address fire safety deficiencies within the existing building for the purpose of improving the life safety to building occupants.
Discussions have been undertaken with Council's Director of Environmental Services and the Implementation Plan that forms part of the report is endorsed for action. These works are to be carried out and certified with a fire safety certificate and annual fire safety statement. Council requests that progressive inspections of the works be coordinated with a Council building inspector in line with the milestone target dates for each upgrade activity as follows:
1 Apply in tumescent coating to kitchen walls and ceiling - 1 month;
2 Apply in tumescent coating to class 6 portion ceiling - 3 months;
3 Apply in tumescent coating to timber floors, timber stairs, walls and ceilings separating bedrooms from each other and the adjacent public corridors - 6 months;
4 Replace existing non-complying carpets with carpets complying with Specification C1.10 BCA 2011 - 6 months;
5 Provide self closers to all bedroom doors - 3 months;
6 Provide hold-open device to exit doors - 3-6 months;
7 Seal all transoms - 3 months;
8 Replace existing kitchen door with self-closing solid core door - 2 months;
9 Provide 120/120/120 fire rated cabinet to the electrical distribution board - 1 month;
10 Apply in tumescent coating to the walls and underside ceilings of the internal stairwell - 1 month;
11 Seal high level vents - 12 months;
12 Provide fire rated mastic to all penetrations through floors - 6-7 months;
13 Apply in tumescent coating to the walls and ceilings of the internal stairwell to the managers flat - 6-7 months; and
14 Replace existing door to the stairwell with self-closing solid core door with suitable smoke seals - 3-6 months."
By letter of 20 January 2012 to the defendant, the council gave notice of its intention to serve an Order 6 under s 121B of the Act requiring completion of the works specified in the letter of 16 June 2011. The letter included:
"... Liverpool Plains Shire Council issues the attached Notice of intention to issue an Order (with a copy of the proposed order) to Mr Barry Morton (The Wicko Pty Ltd) the owner of the Terminus Hotel at Lot 1, DP 658834, 262 George Street Quirindi NSW 2343.
Liverpool Plains Shire Council has issued the Notice following repeated failure to complete the fire safety upgrade works scheduled to commence in July 2011. As you are aware the outstanding fire safety upgrade works have continued to be a public safety issue at the Terminus Hotel during the past 4 years and Council is obligated to ensure the safety of the general public and the buildings occupants."
The reasons for the proposed order were stated to be:
"a Provisions for the fire safety or fire safety awareness are not adequate to prevent fire, suppress fire or prevent the spread of fire or ensure or promote the safety of persons in the event of fire; and
b use of the premises constitutes a fire hazard to its occupants."
The works
It is common ground that the works are necessary and were properly directed by the council to be done.
The council's requirements were to ensure that the hotel building complied with the fire safety standards under the provisions of the code. Under the code, a building is classified with regard to the purpose for which it is designed, constructed, or used, and must comply with the provisions relevant to its classification. Section C of the code is concerned with fire resistance. It contains provisions concerning the nature of structural stability during fire, and safeguards to prevent and avoid fire spread, and for the protection of the building from the spread of fire and smoke to allow sufficient time for the orderly evacuation of the building in an emergency. According to the code, a fire resisting building element is one with an appropriate fire resistance level which is a grading determined with regard to the building's structural adequacy, integrity, and insulation. According to its classification the code required that the hotel building in this case should have a fire resistance level of 60/60/60, meaning that it must be structurally adequate, and capable of maintaining its integrity and insulation for 60 minutes after the start of a fire.
Under s 121B of the Act the council may order the owner of premises to do such things as are specified to ensure adequate fire safety (order 6), or any person to cease conducting an activity on premises which is, or likely to be, a life threatening hazard or a threat to public health and safety (order 8). It was in the exercise of this power that council required the defendant to comply with the code.
Turning to the items specified in the council's letter of 16 June 2011, items 1, 2, 3, 10 and 13 required the application of an intumescent coating to the building's walls and ceilings. The recommended product is known as "Firefree 88" or "F88". This product is said to act as a fire retardant which prevents flame spread, and a fire resistant which resists fire penetration. It is said to be capable of withstanding extreme temperatures for a period of up to two hours, and of containing a fire from penetrating walls and ceilings thus allowing occupants to evacuate, and preserving the structural integrity of the building.
The evidence of Mr Steven Hill, building surveyor, described the fire resistant and retardant features of the works. To illustrate their general purpose and function it is sufficient to refer to some only. He said that F88 creates fire protected compartments in buildings, and that compartmentation protects the structure of the building by preventing radiant heat and fire spread. The carpets (item 4) will have a low critical radiant flux and a smoke development rate to reduce the fuel available for a fire to burn, thus will slow it down. Self-closers on doors (item 5), transom glass (item 7), self-closing doors (items 8, 14) and the sealing of vents and floor penetration (items 11, 12) are part of the system which includes the application of F88 paint, to increase compartmentation thereby preventing fire spread, and protecting the structural adequacy of the building. Hold-open devices (item 6) improve the safety of the building by facilitating the evacuation of occupants in case of fire.
The following evidence of Mr Brett Taylor, a building surveyor with expertise in fire upgrading programmes for hotels, is in point: (T p 61, l 30 - p 62, l 27):
"Q. ... the reality is the council using its powers and so on and so fort[h] has identified defects in the fire resistant capacity of this building?
A. Correct.
Q. And the long and short of it is that the building shouldn't be used until the defect has been remedied, correct?
A. Ideally, yes.
Q. And obviously according to the applicable standards?
A. Correct.
Q. And in this particular case the work that you have referred to in your reports and for example Mr Hill, I think, identified in his letter of 16 June 2011 is work which is necessary for the remedying of the defects in the building?
A. Yes.
Q. And for the protection of the building and for the protection of those who use it?
A. Yes, in the first instance for the protection of the occupants of the building. The Building Code of Australia recognises that the protection of the occupants is paramount.
Q. Is fundamental?
A. Is fundamental and the protection of the building or for the building to not fall over is secondary to both the Building Code of Australia and the philosophy of the New South Wales Fire Brigade, they want to get the people out of the building. After that essentially all bets are off.
Q. Assuming protection of the users was the paramount aim?
A. Correct, yes.
Q. That is achieved by remedying the defective fire resistance capacity in this case of this building?
A. Yes, it is the object of it, yes.
Q. And it needs to be done?
A. Yes.
Q. And the items of work spelt out in the various paragraphs and the various categories at work, whether they are hold up devices for doors or intumescent coating in various parts of the place, all these items of work are taken overall interrelated, are they not?
A. The majority of them are interrelated, yes.
Q. Because they combine to remedy the existing defective situation, don't they?
A. Yes."
Determination of the cl 12.2 issue
The crucial question in this case is whether the defendant was bound to carry out the works required by the council's letter of 16 June 2011 at its expense. The source of the defendant's obligation, if any, is cl 12.2 of the lease which provides:
"12.2 To make all amendments alterations reparations and additions of a structural nature which by virtue of any statute or by-law now or hereafter in force may be required to be done or executed in or upon the demised premises including compliance with any fire notice or order by the Council or relevant authority at any time during the term of the Lease or any holding over thereof."
In summary, the defendant denied that the works were of a structural nature and thus fell outside the application of cl 12.2. It was put that to satisfy this description it was necessary for the works to be shown to affect or alter the framework, or load bearing capacity or stability of the building, or to remedy some failure in the structure. It was put that it was the present effect on these aspects of the structure which was relevant rather than the limitation of damage to the building in the future, or that the underlying purpose was for the safety of the public. It was put that the relevant question was whether the works interfere with or alter the framework or load bearing capacity of the building, or remedy some failure on the part of the structure.
The defendant further submitted that it was necessary to make a separate determination in respect of each item with regard to its effect upon, or interference with, the framework or load bearing capacity of the building. The argument was that this exercise could not be carried out merely by looking at the works as a whole. On the defendant's approach, it was submitted that none of the items were of a structural nature as they did not alter or interfere with the framework or the load bearing components of the building. Finally, it was put that under the lease the defendant was not obliged to undertake the works. Liability to do so fell upon the plaintiff under cl 7.2.
The plaintiff submitted that the works to be done for compliance with the fire safety provisions of the code were amendments, alterations, or reparations of a structural nature within cl 12.2. It was put that the question whether the works are of a structural nature will turn on the particular circumstances of the case and the language used in the legal instrument giving rise to the obligations between the parties. It was put that, in deciding the question in this case, the works should be considered as a whole rather than as separate components, and the court should adopt a practical approach. Further, it was submitted that it was relevant to take into account the purpose or effect of the works, and their relationship to the use and operation of the hotel building. It was submitted, taken as a whole, the works were for the preservation of the structural adequacy and integrity of the hotel building in the event of fire and, hence, were works of a structural nature. It followed, so it was put, that under the lease the defendant was obliged to carry them out.
The question is whether or not the works, or part of them, are within the meaning of "amendments alterations reparations and additions of a structural nature". Under the lease, the lessee's obligation to carry out works which are "structural" (cl 7.2) or "of a structural nature" (cl 9.12) is expressly excluded.
The term "amendments" is ordinarily understood to include improvements, or rectifications, or corrections of a fault. The term "alterations" is ordinarily understood to include changes or modifications. Meanings of "reparations" given in the Macquarie Dictionary include "3. restoration to good condition; 4. repairs". The natural and ordinary meaning of "structural" given in the Macquarie Dictionary is "1. of or relating to structure; relating or essential to a structure".
In context in cl 12.2, the term "of a structural nature" is intended to be descriptive of works carried on in and upon the hotel building. As a structure is something consisting of component parts, it follows that the description is not limited to works which affect only those parts which are load bearing such as the main walls.
There are many cases which discuss the meaning of "structure", "structural alteration", and "structural repairs", but all are with regard to the legislation, lease, or agreement in the particular case. Sometimes they afford helpful, but not determinative, guidance for the approach to be taken. In the end, the question is one of interpretation to ascertain the obligation of the party with regard to the words used in the clause in context, and to the surrounding circumstances.
The phrase "of a structural nature" is of wide generality. It concentrates the mind upon the condition, state, or quality of the building. It suggests something which is associated with, relates to, or affects the structure considered as a whole. I would respectfully agree with the following statement of Paine J in Di Francesco & Ors v BlantrixPty Ltd & Ors [2004] NSWLEC 669:
"53 Adopting a practical approach to the provisions of cl 4 of Sch 3 of SEPP 60 ... and mindful of observations in cases such as Bondi Diggers and Almado, I consider that the phrase 'structural alterations' refers to work which is substantial, meaning not de minimis or minor and which changes or adds to the form of the fabric of the building in a manner which cannot be regarded as merely decorative. Works that fall within this description cannot be 'non-structural alterations' ..."
The cases establish that the determination of the question whether or not, for example, amendments or alterations are of a structural nature, is largely a matter of fact and degree. The court should apply a practical, "common-sense man-of-the-world view". (Wates v Rowland [1952] 2 QB 12, p 23; Brew Bros. Ltd v Snax(Ross) Ltd [1970] 1 QB 612, pp 640, 641.)
In my opinion, the question in this case must be determined with regard to the whole of the works to be done rather than to the component parts of the works individually (Brew Bros p 641, 646). This is because necessary compliance with the fire safety standards under the code depends upon the combined effect of completion of the various items required. The defendant's denial of liability turned on a narrow interpretation of the scope of the term "of a structural nature" which, in the circumstances, I find to be wrong. On this issue I reject the defendant's submissions, and accept generally those for the plaintiff.
The inescapable conclusion on the evidence is that the works affect, and are directly related to, the fire safe and fire resistant condition of the hotel building. The evidence shows, and I find, that because the building falls short of the required fire safety standards its utility as a place for public access and accommodation as a hotel is compromised. In my assessment, the works, taken as a whole, involve the installation of a system for the compartmentation and containment of fire in the hotel building. By carrying out the works the condition of the building will be amended or changed to a standard which is regarded as essential for the ordinary use and enjoyment of the amenities of a hotel (cf: R v Lowe (1954) 19 LGR (NSW) 345, p 351). Put another way, without completion of these works the structure could not be lawfully used for the purpose for which it was designed, built, and let to the plaintiff. It is relevant, of course, that under the lease the plaintiff is required to use the premises as a hotel, and to keep it open for the provision of liquor and accommodation to members of the public at all reasonable times (cll 9.1, 9.2, 9.7).
In short, performance of the works will change the condition of the building from unsafe to safe. Accordingly, in my opinion, the works the subject of the council's letter of 16 June 2011 require the making of amendments and alterations of a structural nature within the meaning of cl 12.2 of the lease.
Damages
The plaintiff claims damages against the defendant arising from the defendant's breach of cl 12.2 of the lease in failing to carry out the works. In particular, it claims liquidated damages in the amount of $48,176.99 for fire safety installations it carried out during the period December 2008 to February 2009, and damages for loss of profits in the amount of $20,000 for accommodation for the periods during which it was prevented from providing accommodation to the public.
It is common ground that the plaintiff carried out the fire safety work as claimed. It included the installation of a fire detection and alarm system, emergency and exit lighting, and smoke detectors. It is agreed the cost incurred by the plaintiff in doing so was the amount of $48,176.99. The defendant denied liability on the ground that the works were not of a structural nature within cl 12.2.
The following background is relevant.
By letter of 28 May 2008 the council notified the plaintiff of the fire upgrading works required. These included the installation of a smoke detection and alarm system and a sprinkler system throughout the building, and emergency lighting and exit signs throughout the common areas. Completion of these was required as soon as possible.
By letter of 24 November 2008 the council demanded from the plaintiff an action plan by 1 December 2008 failing which it would order closure of the accommodation. The plaintiff submitted its "Plan of Fire Upgrade Works" to the council the same day, advising that work on most items would be commenced on 1 February 2009, and proposing installation of the sprinkler system within 12 - 18 months. At council's direction the accommodation was closed on about 13 December 2008. Work according to the plaintiff's plan was carried out between 1 February and 18 February 2009. By letter of 19 February 2009 the council informed the plaintiff as follows:
"Council is prepared to allow the accommodation to reopen, but will need to see ongoing works in regard to fire isolation of the switchboard and fire isolation of the sole occupancy units in the future.
If works are not ongoing or improvements cease Council may close the accommodation in the future."
In its letter of 15 April 2009 to the plaintiff, referable to the accommodation above the kitchen area, the council said:
"I refer to a recent meeting with Council's Manager of Health and Development Mr Merv Prendergast and confirm that the room above the kitchen of the Terminus Hotel (which could be used for accommodation) is not suitable for this purpose as the area would not comply with the relevant provisions of the Building Code of Australia (BCA).
If you wish to use the room for accommodation as part of the Hotel's commercial operations Council recommends that you firstly discuss the proposal with your contractor who prepared the BCA report or a consulting Fire Engineer and then seek a formal approval from Council."
In its letter of 11 August 2009 to the plaintiff, the council confirmed the reason for closing the accommodation was that the hotel and accommodation did not comply with the code.
In its letter of 26 November 2009 to the defendant the council said:
"In regard to the reopening of the accommodation areas Council staff inspected works covered by the Plan of Fire Upgrade Works and agreed that the accommodation activities could be recommenced in February 2009. The flat in question is above the kitchen and this was to remain closed as the ceiling/floor area is not fire rated and offered no protection to the occupants of the flat. To Council's knowledge this flat remains unoccupied."
I have already held that, under cl 12.2, the defendant is obliged to carry out the works. There is no difference in substance between the works specified in the council's letter of 28 May 2008 and those specified in its letter of 16 June 2011. It follows that the defendant's failure to carry out those parts of the works which were the installations the subject of the plaintiff's claim for liquidated damages was a breach of the covenant. The defendant's breach forced the plaintiff to do the work at its cost or face closure. In the circumstances, I find that the plaintiff is entitled to an award of damages in the sum of $48,176.99, with interest, in compensation for the expenditure incurred in carrying out this work.
As for the claim for loss of profits for accommodation, quantum was agreed in the amount of $20,000.
As I understood the defendant's position, liability was denied on grounds that closure of accommodation was not attributable to the defendant's failure to carry out work pursuant to its obligation under cl 12.2, and/or that reopening was not dependent upon the installation of a sprinkler system.
In my opinion, denial of liability cannot be sustained. The evidence supports the finding, which I make, that closure of the accommodation resulted from non-compliance with the fire safety provisions of the code. The plaintiff's loss was directly attributable to the closure until compliance to the satisfaction of the council was achieved. With the exception of the unit above the kitchen, the accommodation was upgraded to the council's satisfaction by the installations carried out by the plaintiff, which enabled it to be reopened on 19 February 2009. It appears that the reopening was permitted although the requirement to install a sprinkler system throughout the building remained outstanding.
As explained in the letter of 26 November 2009 from the council to the defendant, the unit above the kitchen attracted special consideration. It was found to be non-compliant because its ceiling/floor area was not fire rated, and it offered no protection to its occupants. From a practical viewpoint, the defendant's obligation to carry out such works as were necessary to ensure the hotel building complied with the code included the work required to enable the unit to be reopened for accommodation. Whilst this remained to be done the profit from the operation of the unit was lost to the plaintiff.
Accordingly, I hold the plaintiff is entitled to an award of damages in the amount of $20,000 for loss of profits for accommodation at the hotel.
Conclusion
The plaintiff is entitled to a declaration and order in terms of pars (a) and (b) respectively of the amended statement of claim filed 20 December 2011. The plaintiff is also entitled to awards of damages comprising liquidated damages of $48,176.99 with interest, and damages for loss of profits in the amount of $20,000 with interest.
The parties should have the opportunity to agree upon the final terms of the declaration and orders to be made to give effect to these reasons, following which the plaintiff is to bring in short minutes of orders.
The question of costs remains outstanding. My prima facie view is that the appropriate order is that the defendant should pay the plaintiff's costs of these proceedings. However, absent agreement, the parties should have the opportunity to make submissions on the issue.
The parties are directed to arrange with my associate by 4pm 23 May 2012 for the matter to be relisted for the purpose of making final orders, and for directions as to any argument as to costs.
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Decision last updated: 16 May 2012
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