Le v Williams

[2004] NSWSC 645

Reported Decision: (2005) NSW ConvR 56-109

Supreme Court

CITATION:	Le v Williams [2004] NSWSC 645
HEARING DATE(S):	3 June 2004
JUDGMENT DATE:	30 July 2004
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	No claim which registered proprietor wishes to bring against tenant has been released except claim for rent. Registered proprietor not precluded from bringing other claims against tenant.
CATCHWORDS:	CONTRACTS - release of cause of action by accord and satisfaction - construction of scope of release - INSURANCE - fire insurance - strata title home unit building - availability to individual lot proprietor of insurance of owners' corporation taken out pursuant to Strata Schemes (Freehold Development) Act 1973 to make good fire damage occurring within proprietor's lot - whether registered proprietor can sue tenant of home unit for damages when registered proprietor has had loss made good by insurer - whether insurer entitled to be subrogated to rights of registered proprietor against tenant - DAMAGES - general principles - whether receipt of indemnity from insurers precludes insured from suing person alleged to be wrongdoer who has caused damage
LEGISLATION CITED:	Insurance Contracts Act 1984 (Cth) Real Property Act 1900 Strata Schemes (Freehold Development) Act 1973 Strata Schemes Management Act 1996
CASES CITED:	AFG Insurances Limited v City of Brighton (1972) 126 CLR 655 Australian Workers' Union v Bowen (1946) 72 CLR 575 Baltic Shipping Co v Merchant "Mikhail Lermontov" (1994) 36 NSWLR 361 Bradburn v Great Western Railway (1874) LR 10 Ex 1 Burgchard v Holroyd Municipal Council (1984) 2 NSWLR 164 Clark v Inhabitants of the Hundred of Blything (1823) 2 B & C 254; 107 ER 378 Driscoll v Driscoll (1918] 1 IR 152 Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421 Hobbs v Marlowe [1978] AC 16 Illawong Village Pty Limited v State Bank of New South Wales [2003] NSWSC 18 Knox Street Apartments v Roger Percival Flexman [2002] NSWSC 102 Lawrom Nominees Pty Ltd v Kingsmede Pty Ltd [2000] NSWSC 1048; (2000) 10 BPR 18,417 Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 London and Southwestern Railway Co v Blackmore (1870) LR 4 HL 610 Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211 Mason v Sainsbury (1782) 3 Dougl 61; 99 ER 538 Morgan v Price (1849) 4 Ex 615 at 620 Morganite Ceramic Fibres Pty Ltd v Sola Basic Australia Ltd (1987) 11 NSWLR 189 The National Insurance Company of New Zealand Limited v Espagne (1961) 105 CLR 569 Newland v Nominal Defendant (Queensland) [1983] 1 Qd R 514 Parry v Cleaver [1970] AC 1 Richmond v Branson & Son [1914] 1 Ch 968 Russian Commercial and Industrial Bank v Comptoir d'Escompte de Mulhouse [1923] 2 KB 630 Russian Commercial and Industrial Bank v Comptoir d'Escompte de Mulhouse [1925] AC 112 Sola Basic Australia Limited v Morganite Ceramic Fibres Pty Ltd (NSWCA, 11 May 1989, unreported) Sydney Turf Club v Crowley [1971] 1 NSWLR 724 Sydney Turf Club v Crowley (1972) 126 CLR 420 Thiess Contractors Pty Ltd v Norcon Pty Ltd (2001) 11 ANZ Insurance Cases 61-509 Upton v Upton (1832) 1 Dow PC 400 The "Yasin" [1979] 2 Lloyd's Rep 45 Yates v Whyte (1838) 4 Bing (NC) 272; 132 ER 793
PARTIES :	Uyen Le - Plaintiff Terence Lee Williams - Defendant
FILE NUMBER(S):	SC 5873/03
COUNSEL:	C D Freeman; D J Jarrett - Plaintiff I McLachlan - Defendant
SOLICITORS:	Than & Co - Plaintiff McCulloch and Buggy - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

30 JULY 2004

5873/03 UYEN LE v TERENCE LEE WILLIAMS

JUDGMENT

1 HIS HONOUR: This is a dispute about the scope of a release given by a tenant to a landlord. The plaintiff, Ms Le, leased from the defendant, Mr Williams, a strata title home unit at 7/61 Avalon Parade, Avalon. Ms Le and her de facto husband Mr Luong (known as Vince) operated a bakery located near the home unit. Staff from the bakery used the home unit for preparing meals, and resting.

2 On 12 July 2002 a fire broke out in the kitchen of the home unit, as a result of some food being left on the stove unattended. The kitchen was extensively damaged, so that the entire benchtop, all wall cupboards, the stove, and the cork flooring all needed replacement, and other building work also needed to be done there. There was less extensive damage to other parts of the home unit.

3 Mr Williams worked as an international airline pilot, and in consequence was often away from Australia. He appointed Griffin Real Estate as his agent to manager the property. Mr Mark Griffin is a director of that organisation.

4 Ms Le appointed Mr Luong to deal with the real estate agent concerning the fire. Even though Mr Luong was not a lessee, he spoke in his dealings about the fire damage as though he was jointly liable with Ms Le for any moneys which might be payable. Mr Luong had several conversations with Mr Williams (who was in Sydney at the time) in the several weeks after the fire. Mr Luong said to Mr Williams, in a conversation fairly soon after the fire, “we are happy to pay for the repairs and we are prepared to continue to pay rent and lease the premises after the repairs are complete”.

5 Mr Luong spoke to a female employee of the real estate agency soon after the fire, and enquired whether Ms Le and he were liable for the damages caused by the fire. The real estate agent told him she was not sure, but she thought the insurance should cover it.

6 By 23 July 2002 Griffin Real Estate had made a claim on the insurance policy relating to the building in which the unit was located. By that date loss adjusters appointed by the insurer under that policy had prepared a scope of works document for repairs to the unit, and requested Griffin Real Estate to obtain quotations for those repairs. At no time prior to 15 November 2002 did the loss adjusters, or any other representative of the insurer, notify either Griffin Real Estate or Mr Williams that they would, or might, seek to recover from Ms Le the cost incurred by the insurer in repairing the unit.

7 On 25 July 2002 Ms Pointon, the Property Manager at Griffin Real Estate, wrote to Ms Le, saying:

“I refer to the fire on 12th July 2002 at the above property and our subsequent discussions.
We wish to confirm that the insurance company has completed its assessment of the property and will replace all fixtures in the kitchen. As discussed with you the following items are not, however, covered by insurance and are your responsibility to fix:
Carpets – replace throughout the property – including underlay
Walls and ceilings – clean, prepare and paint
Blinds – replace smoke & water damaged blinds throughout property
Lightfittings – replace heat damaged light fittings.
In order to complete the works as soon as possible we will obtain one quote, on behalf of the owners of the property, to complete the above works. We would appreciate it if you could obtain a second quote from your own tradespeople …
… We are attempting to undertake the works as soon as possible and we will inform you of a start date as soon as it has been confirmed by the insurance company.
At this stage we anticipate the works in total will take approximately 2 weeks to complete, during which time you will be required to vacate the property.
As I am away for the next few weeks could you please direct all future enquiries to Liz or Mark Griffin at our office …”

8 On 8 August 2002 Liz Griffin wrote, on behalf of Griffin Real Estate, to Ms Le, enclosing quotes for painting and carpet laying, and saying that she was still waiting for the quote for blinds. Ms Griffin enquired whether she should proceed with the quotations, or whether Ms Le was organising her own.

9 On 14 August 2002 Ms Pointon wrote to Ms Le, saying:

“I refer to my telephone conversation with Vince yesterday in regard to the fire at the above property, and the legal advice you have obtained. Could you please forward in writing the details of that legal advice at your earliest convenience.”

I accept evidence from Mr Luong that he had not actually sought legal advice at that time, and that what he had said was that it was getting a bit confusing and he thought he was going to have to seek legal advice. Ms Pointon must have misunderstood what he said.

10 That letter continued:

“In keeping with your advice that the property is uninhabitable, we have discussed your position with the owners of the property, and wish to give you notice to vacate the property immediately.”

11 On 15 August 2002 Ms Pointon wrote to Ms Le, saying, amongst other things:

“Following my telephone conversation with Vince of yesterday afternoon, I have met today with the owner of the property and informed them that you have taken legal advice. Could you please send to us, in writing, the details of that legal advice at your earliest convenience.”

12 The letter continued:

“Following your additional advice yesterday that the occupants continue to reside at the property despite it being uninhabitable, the owners believe that it is their duty of care to request that you vacate the property. Accordingly we wish to give you notice that, under section 61 of the Residential Tenancies Act 1987 , your Tenancy Agreement is terminated immediately and we require vacant possession of the property.”

13 There was a further discussion between Mr Luong and Mr Williams, concerning an arrangement for payment for the repairs. The evidence does not enable it to be fixed in time with any greater precision than that it occurred in the few weeks before 22 August 2002. Mr Luong’s account is that he suggested that he reimburse part of the replacement costs of the damaged items, because the unit was old and tired. According to Mr Luong Mr Williams then said:

“No, not really because I have replaced many of them fairly recently. I have papers to show you that I still claimed depreciation for those items. However, since you suggested a compromise, I am happy to split the total costs in half – fifty percent to each party.”

Mr Luong says that Mr Williams then pointed to the kitchen and said words to the effect: “Don’t worry about the kitchen, I’ll take care of it myself.”

14 Mr Williams’ version of a conversation in which that topic was discussed is that he said “In respect of the costs of the damage I have to personally meet, I’m happy to split those costs with you on a fifty-fifty basis”, and that concerning the kitchen he said “I have made a claim on the insurance company in respect of the damage to the kitchen.”

15 There is a handwritten document, written by Mr Luong, and dated 22 August 2002, which is as follows:

“Re: Flat number 7
Avalon Parade Avalon Beach
Dear Terry
Refer to our discussion on 20th/8/2002 in relation to the abovementioned matter. I would like to once again confirm our intention and commitment. The followings are some of the issues agreed upon between the two parties.
a) Cost of cleaning and replacement of new carpets, curtains, lighting and painting shall be shared between the two parties on a 50/50 ratio basis (equally).
b) The landlord(s) shall be responsible for replacement of the kitchen.
c) We (the tenants) is responsible for the cost of cleaning, removing and disposing of remaining objects left behind after the termination of lease, eg, furniture, foodstuff etc, in the premises including the garage.
We hope the you find this to your satisfactory and sincerely apology for your inconvenience.” [sic]

That document was handed by Mr Luong to Mr Williams at the unit on 22 August 2002. Mr Williams did not read it at the time. However a couple of days later, at the weekend, he read it. He did not contact Mr Luong or Ms Le to say that there was no agreement that the landlords would be responsible for replacement of the kitchen. Mr Williams gave a copy of the document to Mr Griffin, and at no time did he tell him that the document did not accurately reflect what had been agreed.

16 I accept Mr Luong’s version of the conversation referred to in para [13] above. It is confirmed by his contemporaneous document, and by Mr Williams’ failure to disagree with that contemporaneous document. There is no reason to believe that either Mr Williams or Mr Luong had turned their mind, at the time of that conversation, to how, as between them, the costs of repairing the kitchen should be borne – so far as they both were aware, it was covered by insurance. Further, Mr Williams referred without disagreement to Mr Luong’s handwritten letter of 22 August 2002 in his email to Mr Griffin of 4 October 2002 (para [17] below), and the Excel spreadsheet attached to that email (para [18] below) referred in two places to there being an agreement with Mr Luong. Mr Luong’s evidence about Mr Williams having the depreciability of the items in mind (and hence the tax consequences of the arrangement) is consistent with the terms of Mr Williams’ email of 17 October 2002 (para [23] below).

17 On 4 October 2002 Mr Williams sent to Mr Griffin an email headed “Excess Expenses on 7/61 Avalon Pde”. It said:

“Please find attached a list of items that were additional to my costs in repairing the flat.
All items are in agreement with the letter provided by Mr [Luong] on the 22 August 2002.
If you see any anomalies please call me, (if it is an omission, just add it to the list and we will discuss it later), so as the letter can be delivered ASAP.
As discussed would you please write the covering letter.”

18 That email had attached to it an Excel spreadsheet, headed “Excess Costs as agreed with Mr V [Luong] 22 August 2002.” It set out expenses, the most significant of which related to painting, floor coverings and light fittings, together with some other expenses for cleaning, waste disposal, trailer hire, curtains and electrical goods, and $100 for Telephone/Fax/Postage”. The spreadsheet showed a total amount of $8,103.18, and its next line said “50% of Total as agreed - $4,051.59”. The only items on it related to repairing the damage in the kitchen, were blind and light fittings – the most significant of the items in the kitchen which had been damaged were not included.

19 On 8 October 2002 loss adjusters appointed by CHU Underwriting Agencies, the strata corporation’s insurer, wrote to Ms Le saying:

“Our enquiries have revealed that the fire was the result of the ignition of foodstuffs left unattended on the stove top. We therefore look to you for reimbursement of the building Insurer’s costs in this matter and we shall advise further in relation to the quantum of the claim in due course.
In the meantime, we request your advice as to whether you hold household contents or personal liability insurance which would indemnify you in these circumstances …”

Mr Luong contacted Mr Griffin straight away and asked him to explain. Mr Griffin said to leave it to him, he would sort it out. However, Mr Griffin at no time had any contact with the insurers.

20 An undated letter from Mr Griffin to Mr Luong says:

“The repairs and maintenance required on premises have now been completed. We have attached a list of cost for your information.
We refer to your letter dated 22nd August confirming your intention to pay half the cost of this refurbishment. Please note your half share is an amount of $4,051.59, we look forward to and would appreciate payment in full immediately in order to finalise this matter.”

21 The letter bears a note, in Mr Luong’s handwriting, which says:

“Spoke to Mark on mobile … 1pm 17/10/02 – As agreed to arrange for tax invoices of est – prepare Rental Bond Board and 2 week Rent overpaid and bring them over ASAP.”

It is likely that the letter was sent on 17 October 2002 or up to a few days before then. The attachment to the letter was a copy of the Excel spreadsheet which Mr Williams had prepared – see para [18] above. A copy of the letter was seen by Mr Williams at or very soon after the time it was sent, and he made no complaint about its terms.

22 An email from Mr Griffin to Mr Williams sent on 17 October 2002, at 3:25pm reports:

“I have today spoken to Vince regarding the outstanding repair costs. He is prepared to pay the outstanding amount less the bond and 2 weeks extra rent they paid following them vacating the property.”

That email then set out the mathematics, whereby the amount of the tenancy bond and two weeks rent were subtracted from $4,051.59, to give an amount of $2,191.59. It concluded, “we await your instructions on this matter” .

23 Mr Williams replied by email the same day “that is ok, provided he makes out the cheque personally to me … The reason I originally accepted these terms was so I could claim the costs as a tax deduction and leave it cost neutral.”

24 On 1 November 2002 the loss adjusters wrote to Ms Le saying:

“We refer to our previous correspondence dated 8 October 2002 and advise that building repairs have now been completed at a cost of $12,485 in accordance with the attached invoices from Update Project Management Pty Ltd.
Please advise whether you hold household contents or personal liability insurance and, if so, we request your confirmation that a claim has been lodged with the relevant Insurers. If you do not hold insurance please advise your intentions in relation to settlement of the building Insurer’s claim.”

25 Mr Luong gives evidence that, shortly after receiving that letter, he telephoned Mr Griffin, and had a conversation to the following effect:

LUONG: “My wife has just received a demand for payment from the insurer. We’ve already settled this.”
GRIFFIN: “I apologise. It must be a misunderstanding between the landlord and his insurers. Don’t take any notice of the claim. I’ll contact the landlord and have things straightened out.”

While I accept that Mr Luong and Mr Griffin had a conversation around this time in which Mr Luong enquired about the demand from the loss adjusters, Mr Griffin denies he said the words Mr Luong attributes to him. While Mr Luong was an honest witness, I am not confident of his ability to recall the detail of the words of Mr Griffin’s response. I am not persuaded that the words of Mr Griffin to which Mr Luong deposes were said.

26 On 13 November 2002 Mr Griffin wrote to Mr Luong saying:

“Re: Repairs & Maintenance
7/61 Avalon Prd, Avalon
In reference to our recent telephone conversation concerning the above property, the owner has agreed the final payment being $2191.59 as per account below.

Share of repairs	$4051.59
Less: Bond	$1240.00
2 Weeks Rent	$620.00	$1860.00
Balance Due	$2191.59


Immediate payment of the above balance due will release you from any further claim in this matter.

Mr Williams received a copy of that letter on or soon after its date. When asked in cross-examination whether he had called Mr Griffin to say he had further claims against Ms Le, he said “No, I didn’t” , and explained that answer by saying “This is with the agreement that we made” .

27 On 15 November 2002 the plaintiff obtained a bank cheque for $2,191.59, and that day, or soon after, paid it to Griffin Real Estate. On 19 November 2002 Griffin Real Estate gave Mr Williams a cheque for $2,191.59.

28 Both Ms Le and Mr Luong went to the real estate office to hand over the bank cheque. They were not content to simply leave the cheque with “the lady at the office”, but asked to speak to Mr Griffin. Ms Le asked Mr Griffin for a written document to confirm that they would not have to pay any more money. Mr Griffin said words to the effect of “I have already sent you a letter to that effect which releases you from any further claim.”

29 Mr Griffin gives evidence that his instructions from Mr Williams were that Mr Luong had “agreed to pay half the costs of my out of pocket expenses”, and that Mr Griffin was to arrange for payment of that money. Mr Griffin gives evidence that on or about 17 October 2002 he spoke to Mr Luong, when Mr Luong said, “I agree to pay half of Mr Williams’ claimed out of pocket expenses as itemised, less two weeks rent and the bond owing”. I do not accept that the expression “out of pocket expenses” was used in either of these conversations. Mr Williams denies that his instructions to Mr Griffin included the expression “out of pocket expenses”, and Mr Luong denies using that expression. I prefer their evidence on this topic to that of Mr Griffin.

30 On 27 November 2002 the loss adjusters wrote to Ms Le saying:

“We must now advise that, should we not receive advice as to your intentions towards settlement of our Principal’s claim within a period of fourteen days the matter will be referred to the Company’s legal advisors.”

31 On 31 July 2003 a Statement of Liquidated Claim issued from the Local Court at Sydney, against Ms Le. The plaintiff was stated to be Mr Williams. It alleged that the plaintiff as lessee was negligent in permitting the fire to arise. It sought from her the amount of $8,103.18 (the total amount of the Excel spreadsheet which Mr Williams had prepared setting out his uninsured losses), the re-instatement costs which had been paid by the insurer of $12,485, professional costs of $2,151.05, and gave credit for $4,051.51 which Ms Le had already paid. (That amount of $4,051.51 is presumably a typographical error – the amount actually paid by Ms Le was $4,051.59.)

32 Since that Statement of Liquidated Claim was issued, Mr Williams has stated it is his intention also to make a claim against Ms Le for loss of rent. He has also stated that he intends to delete the portion of the claim relating to $8,103.18. The hearing before me has been conducted on the basis that that deletion will be made, and that in consequence the credit of $4,051.51 (which I take to mean $4,051.59) will no longer be given.

Plaintiff’s Claims in these Proceedings

33 In broad terms, Ms Le claims:

(1) A declaration that she and Mr Williams entered an agreement to compromise all claims of Mr Williams against Ms Le arising out of the fire, on terms whereby Ms Le would pay Mr Williams $4,051.59.

(2) A declaration that Ms Le has performed her obligations under that agreement, and is under no further liability to Mr Williams concerning the fire.

(3) A declaration that Mr Williams has compromised the claim which is the subject of the Local Court proceedings.

(4) An order restraining Mr Williams from continuing the Local Court proceedings.

Construction of the Release

34 Ms Le does not allege that the negotiations, up to the time of Mr Luong writing his letter dated 22 August 2002, amounted to a contract to settle the claims relating to the fire. Her contention is that the letter of 13 November 2002, together with the payment of $2,191.59 on 15 November 2002, gave rise to an accord and satisfaction. In Illawong Village Pty Limited v State Bank of New South Wales [2004] NSWSC 18, at [262] – [263] I extracted some authorities concerning accord and satisfaction:

“Accord and satisfaction is a common law doctrine. It provides the means whereby a cause of action which a plaintiff has can be rendered unenforceable. In McDermott v Black (1940) 63 CLR 161, at 183-185 Dixon J (with whom Rich and McTiernan JJ agreed) said:
“The essence of accord and satisfaction is the acceptance by the plaintiff of something in place of his cause of action. What he takes is a matter depending on his own consent or agreement. It may be a promise or contract or it may be the act or thing promised. But, whatever it is, until it is provided and accepted, the cause of action remains alive and unimpaired. The accord is the agreement or consent to accept the satisfaction. Until the satisfaction is given the accord remains executory and cannot bar the claim. The distinction between an accord executory and an accord and satisfaction remains as valid and as important as ever. An accord executory neither extinguishes the old cause of action nor affords a new one … of accord and satisfaction there are two cases, one where the making of the agreement itself is what is stipulated for, and the other, where it is the doing of the things promised by the agreement. The distinction depends on what exactly is agreed to be taken in place of the existing cause of action or claim. An executory promise or series of promises given in consideration of the abandonment of the claim may be accepted in substitution or satisfaction of the existing liability. Or, on the other hand, promises may be given by the party liable that he will satisfy the claim by doing an act, making over a thing or paying an ascertained sum of money and the other party may agree to accept, not the promise, but the act, thing or money in satisfaction of his claim. If the agreement is to accept the promise in satisfaction, the discharge of the liability is immediate; if the performance, then there is no discharge unless and until the promise is performed.”
As is apparent from Dixon J’s statement that “an accord executory neither extinguishes the old cause of action nor affords a new one”, the accord need not be contractual. It can take the form “I agree with you that if you do X I will release my cause of action”, where there is no obligation on the “you” to do X. However there is no requirement that the accord not be contractual – in some cases, it might be contractual. And there can be different types of contract involved. Thus Phillips JA (with whom Winneke P and Charles JA agreed) said, in Osborn v McDermott [1998] 3 VR 1, at 10,
“Thus, there are three possibilities, not two. First, there is the mere accord executory which on the authorities, does not constitute a contract and which is altogether unenforceable, giving rise to no new rights and obligations pending performance and under which, when there is performance (but only when there is performance), the plaintiff’s existing cause of action is discharged. Secondly, at the other end of the scale is the accord and satisfaction, under which there is an immediate and enforceable agreement once the compromise is agreed upon, the parties agreeing that the plaintiff takes in satisfaction of his existing claim against the defendant the new promise by the defendant in substitution for any existing obligation. Somewhere between the two, there is the accord and conditional satisfaction, which exists when the compromise amounts to an existing and enforceable agreement between the parties for performance according to its tenor but which does not operate to discharge any existing cause of action unless and until there has been performance.” “

35 In the present case, there is no dispute that the letter of 13 November 2002, and the subsequent payment of the “balance due”, gives rise to an accord and satisfaction. The dispute is about the extent of that accord and satisfaction.

36 In Grant v John Grant & Sons Proprietary Limited (1954) 91 CLR 112 at 123-4, Dixon CJ, Fullagar, Kitto and Taylor JJ quoted with approval the words of Lord Westbury in London and Southwestern Railway Co v Blackmore (1870) LR 4 HL 610 at 623 that:

“The general words in a release are limited always to that thing or those things which were specifically in the contemplation of the parties at the time when the release was given.”

Their Honours also, at 124, approved the words of Taunton J in Upton v Upton (1832) 1 Dow PC 400 at 406; 36 RR 817 at 821, that:

“… the general words of a release may be limited by the particular matter out of which the release springs and the particular intent of the parties by whom the release is executed.”

Their Honours in Grant , at 129-130, also referred to an equitable principle whereby:

“… a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor.”

37 I do not construe the release which arose from the payment as extending to the claim of Mr Williams to recover the amount CHU has expended.

38 Throughout the negotiations about replacement costs, both sides were aware that there was an insurer, and that the insurer would be attending to reinstatement of the kitchen. At the time of Mr Luong’s handwritten letter of 22 August 2002, it had not occurred to either party that the insurer might seek to recover from either of them the amount it expended in fixing the kitchen. The negotiation of the amount which Ms Le was to pay in connection with the damage proceeded on the basis that the cost of repairing the kitchen was not being quantified. Mr Williams’ description, in the heading of his Excel spreadsheet (which Mr Luong received in mid October 2003 – see para [21] above) of the amount he was quantifying as “Excess Costs as agreed …” confirms that only some of the total costs incurred were being quantified. When Ms Le and Mr Luong received the letter from the loss adjusters dated 8 October 2002, Mr Luong’s telephone call to Mr Griffin, asking for an explanation, shows a realisation on his part that this demand was not consistent with the assumptions on which both parties had, up to that time, been working. Mr Griffin’s response to Mr Luong’s phone call, that he would sort it out, shows an understanding on both sides that it was a matter which required sorting out. When the loss adjusters wrote again on 1 November 2002 to Ms Le, this provided confirmation that this question had not been sorted out. Nor am I persuaded that the conversation between Mr Luong and Mr Griffin, after Ms Le received that letter, was one in which the problem was definitively sorted out.

39 By the letter of 13 November 2002, Mr Griffin was, it seems to me, dealing with payment of those expenses which had been paid by Mr Williams personally. The offer, contained in that letter, that “payment of the above balance due will release you from any further claim in this matter” needs to be understood by reference to what counted as “this matter”. In circumstances where both parties were aware that the insurer was claiming the amount it had expended on repairs, and there had been no express discussion between Ms Le and Mr Luong on the one hand, and Mr Williams and Mr Griffin on the other, about how that claim should be dealt with between them, I do not regard it as being released by the payment.

40 In Morganite Ceramic Fibres Pty Ltd v Sola Basic Australia Ltd (1987) 11 NSWLR 189, Smart J reviewed legal authority relating to a contention that a release given to a tortfeasor or party in default under a contract will not bind a subrogated insurer if, at the time of the release, such tortfeasor or party was aware that payments had been made by the insurer to the insured and of the rights of the subrogated insurer. His Honour appears to have been of the view that there was such a legal principle. On appeal to the Court of Appeal (Sola Basic Australia Limited v Morganite Ceramic Fibres Pty Limited (NSWCA, 11 May 1989, unreported), Meagher JA held no such principle existed, but Priestley JA (with whom, it appears, Hope JA agreed) did not need to decide the question. In Baltic Shipping Co v Merchant “Mikhail Lermontov” (1994) 36 NSWLR 361 at 370, Handley JA (with whom Kirby P and Mahoney JA agreed) appears to have accepted the proposition. In circumstances where I have come to the view, as a matter of construction, that the release does not extend to the insurer’s claim, it is not necessary for me to decide which of Smart J and Meagher JA I should follow, nor what is the precise import of the passage in Handley JA’s judgment in Baltic Shipping Cov Merchant “Mikhail Lermontov” to which I have referred, nor whether that passage was part of the ratio of the case, and therefore binding upon me.

41 The release, on its proper construction, prevents Mr Williams from making any additional claim for loss of rent concerning the property. The question of what rent the tenant should pay, in the period following the fire, was part of the discussions which made up the “this matter” which was released. From soon after the date of the fire, Mr Luong was offering to continue to pay rent (para [4] above). Even after the lease was terminated, the tenant continued to pay rent, for two weeks. However that payment of rental was, by agreement, regarded as an overpayment, and deducted in calculating the amount which the tenant was required to pay – see paras [21], [22] and [26]. Thus, any claim for further rent falls within the ambit of “any further claim in this matter” which was released by payment of the agreed amount of $2,191.59.

Entitlement to Sue in Local Court Proceedings – No Subrogated Rights

42 A fallback argument of the plaintiff is that the Local Court proceedings are not validly instituted. It is common ground that the Local Court proceedings are being conducted, in the name of Mr Williams, by CHU Underwriting Agencies.

43 One basis on which the institution of the proceedings is challenged concerns the law of subrogation. The plaintiff points to the uncontroversial proposition that under the general law, unless and until an insurer makes good any loss, it is not entitled to be subrogated to the rights of the insured: AFG Insurances Ltd v Mayor, Councillors and Citizens of the City of Brighton (1972) 126 CLR 655 at 663. While sometimes an insurance policy might, as a matter of contract, give an insurer rights akin to subrogation at a time when the insurer has granted only a partial indemnity, the insurer has been unable to prove the terms of the policy. That means that the insurer cannot rely on any such right here. The plaintiff submits that CHU has not indemnified Mr Williams in full for his loss, and hence it cannot be subrogated to any rights of Mr Williams.

44 Business records have been produced by the insurers, consisting of tax invoices from Update Project Management Pty Ltd totalling $12,485, payment advice slips of the insurer relating to each of those tax invoices, and file copies of “advice to payee” documents relating to all except the first of those payments. I am satisfied that the insurers have paid the whole of the amount claimed by Update Project Management, and that Update Project Management did all the work on restoration of the kitchen which was not personally paid for by Mr Williams.

45 There is in evidence an invitation to insure, from CHU to “The Owners - S.P. 2772”, which shows that insurance was offered, for risks including “Building”, on a particular policy number, for the period which includes the date when the fire occurred. The payment advice slips which are part of CHU’s business records are all annotated with a reference to the Strata Plan number, the policy number, and the address at which the fire occurred. I am satisfied that it is pursuant to an insurance policy with the owners’ corporation of the building in which the unit was located, that CHU made the payments to Update Project Management.

46 It is true that the insurers did not reimburse Mr Williams for the whole of the loss he sustained in consequence of the fire – as well, there were the costs which he agreed to share with the plaintiff. Because the defendant was unable to prove what were the precise terms of the insurance policy, it was unable to demonstrate that the payment CHU actually made to Update Project Management, was the full extent of the liability which it had under the policy to indemnify. There is some argument about whether an insurer’s rights of subrogation arise under the general law only if the insurer has indemnified the insurer against the totality of the loss the insured suffered, or whether it is enough that the insurer has provided indemnity to the full extent the policy requires it to do so: Sutton, Insurance Law in Australia, 3rd ed (LBC Information Services, 1999), p 1226. Even assuming, without deciding, that the latter is correct, if it were necessary for the defendant to demonstrate that circumstances had arisen where his insurer had an entitlement to be subrogated to any rights which the defendant had against the plaintiff, he would have failed to do so.

47 In my view, however, this does not matter. Whether or not the insurers have an enforceable legal right against the defendant, arising under the law of subrogation, to run the Local Court proceedings in his name, they have his consent to run those proceedings in his name.

48 It may be – I do not need to decide – that this point should properly have been taken in the Local Court, by way of a motion seeking to stay those proceedings on the ground that the solicitors acting there in Mr Williams’ name were not really retained by him or otherwise entitled to sue in his name: Richmond v Branson& Son [1914] 1 Ch 968 at 974; Russian Commercial and Industrial Bank v Comptoir d’Escompte de Mulhouse and Others [1923] 2 KB 630 at 671 – 672 per Atkin LJ (dissenting, but whose view was upheld on appeal: Russian Commercial and Industrial Bank v Comptoir d’Escompte de Mulhouse and Others [1925] AC 112 at 130, 148); AustralianWorkers’ Union and Others v Bowen (1946) 72 CLR 575 at 586, 589, 590, 592; Harry S Bagg's Liquidation Warehouse Pty Ltd and Others v Whittakerand Others (1982) 44 NSWLR 421; Knox Street Apartments v Roger Percival Flexman & Another [2002] NSWSC 102. When the matter has been argued before me, and the amount of money at stake is not large, I think it is preferable to deal with the substance of the point, and ignore the procedural niceties.

49 I note that this is not a case where it is submitted that the tenancy agreement contained terms allocating the obligation to insure to one of the parties, such that there is an implied term that the insurance taken out will be for the benefit of both parties and no rights of subrogation will be claimed: cfMark Rowlands Ltd v Berni Inns Ltd and Others [1986] 1 QB 211.

No Loss Suffered by Mr Williams

50 Another argument the plaintiff puts is that the Local Court proceedings must fail because Mr Williams has not suffered the loss for which he sues in the Local Court, because the strata plan’s insurer has already made good the loss caused by the fire in the kitchen. Consideration of that argument requires review of some of the legislation governing strata schemes.

51 The Strata Schemes (Freehold Development) Act 1973 draws a fundamental distinction between the lots in a strata plan, and the common property. Section 5(1) of that Act defines “parcel” as meaning:

“(a) except as provided in paragraph (b), the land from time to time comprising the lots and common property the subject of a strata scheme, and
(b) in relation to a plan lodged for registration as a strata plan, the land comprised in that plan.”

Section 5(1) also defines “lot” as meaning:

“one or more cubic spaces forming part of the parcel to which a strata scheme relates, the base of each such cubic space being designated as one lot or part of one lot on the floor plan forming part of the strata plan, a strata plan of subdivision or a strata plan of consolidation to which that strata scheme relates, being in each case cubic space the base of whose vertical boundaries is as delineated on a sheet of that floor plan and which has horizontal boundaries as ascertained under subsection (2), but does not include any structural cubic space unless that structural cubic space has boundaries described as prescribed and is described in that floor plan as part of a lot.”

The same subsection defines “structural cubic space” as meaning:

“(a) cubic space occupied by a vertical structural member, not being a wall, of a building,
(b) any pipes, wires, cables or ducts that are not for the exclusive enjoyment of one lot and:
(i) are in a building in relation to which a plan for registration as a strata plan was lodged with the Registrar-General before the day appointed and notified under section 2(3) of the Strata Titles (Development Schemes) Amendment Act 1985 , or
(ii) in any other case—are in a building or in a part of a parcel that is not a building;
(c) any cubic space enclosed by a structure enclosing any such pipes, wires, cables or ducts.”

Section 5(1) also defines “common property” as meaning:

“so much of a parcel as from time to time is not comprised in any lot.”

52 Section 5 contains the following further provisions:

“(2) The boundaries of any cubic space referred to in paragraph (a) of the definition of floor plan in subsection (1):
(a) except as provided in paragraph (b):
(i) are, in the case of a vertical boundary, where the base of any wall corresponds substantially with any line referred to in paragraph (a) of that definition—the inner surface of that wall, and
(ii) are, in the case of a horizontal boundary, where any floor or ceiling joins a vertical boundary of that cubic space—the upper surface of that floor and the under surface of that ceiling, or
(b) are such boundaries as are described on a sheet of the floor plan relating to that cubic space (those boundaries being described in the prescribed manner by reference to a wall, floor or ceiling in a building to which that plan relates or to structural cubic space within that building).
(3) A reference in this Act to cubic space includes a reference to space contained in any three-dimensional geometric figure which is not a cube.”

53 A lot is something to which the Real Property Act 1900 applies (section 6(2) Strata Schemes (Freehold Development) Act 1973). Hence a lot can have its own registered proprietor, who has the rights of ownership over that lot which are conferred by the Real Property Act 1900. The common property in a strata plan vests in the body corporate (sections 18, 19 Strata Schemes (Freehold Development) Act 1973), but the body corporate holds its estate or interest in common property as agent for the proprietors of the lots (section 20 Strata Schemes (Freehold Development) Act 1973).

54 It follows from this scheme that the structural material contained in the walls which are at the boundaries of a lot, and the structural materials which lie in the slabs beneath the floor or above the ceiling of a lot, are part of the common property. It also follows that internal walls within a strata title unit are not part of the common property: cfBurgchard v Holroyd Municipal Council and Others [1984] 2 NSWLR 164.

55 Fixtures within the cubic spaces of a strata title lot (not including structural cubic spaces) are part of the lot: Lawrom Nominees Pty Ltd v Kingsmede Pty Ltd and Another [2000] NSWSC 1048; (2000) 10 BPR 18,417 at [65] per Hodgson CJ in Eq. Thus, even if such fixtures are affixed to a wall, ceiling or floor which is common property, the fixtures themselves are owned by the registered proprietor of the lot. It is unusual, in real property law, for a fixture to be owned by someone different to the owner of the real estate to which it is affixed, but that unusual consequence follows, so far as owners’ fixtures are concerned, from the structure of the Strata Schemes (Freehold Development) Act 1973.

56 This analysis shows that it was Mr Williams who had ownership rights in the items damaged in the kitchen which were fixtures.

57 Insurance of strata title units is regulated by Part 4 of the Strata Schemes Management Act 1996, running from section 81 to section 95. Section 81 provides:

“In this Part, building includes:
(a) owners’ improvements and owners’ fixtures forming part of the building other than paint, wallpaper and temporary wall floor and ceiling coverings …
but does not include:
(d) fixtures removable by a lessee or sublessee at the expiration of a tenancy; or …”

58 Section 83(1) requires the owners’ corporation for a strata scheme for the whole of a building to insure the building, and keep it insured, under a damage policy.

59 Section 82 provides:

“(1) In this Part, a damage policy for a building means a contract of insurance providing for the matters referred to in this section in the event of the building being destroyed or damaged by fire …
(3) A damage policy is to provide for the repair of damage to, or the restoration of the damaged portion of, the building in the event of its being damaged but not destroyed …”

60 Section 83(3) requires the damage policy to be in the name of the owners’ corporation.

61 Section 90(1) provides:

“A person (including an owners corporation) is taken to have an insurable interest in the subject-matter of a contract of insurance entered into by the person in accordance with this Part.”

62 It is the combined effect of these provisions that the owners’ corporation is required to take out a damage policy which covers the “building” in the extended sense provided by section 81. Even though the owners’ corporation does not own fixtures which are located within a lot, the damage policy which the owners’ corporations is obliged to take out must cover owners’ fixtures located within a lot.

63 Even though sections 16 and 17 Insurance Contracts Act 1984 (Cth) modify considerably the previous law about the extent to which a person taking out a policy of (relevantly) fire insurance must have an insurable interest in the property insured, the concept of insurable interest retains some application. One of the tasks of section 90 Strata Schemes Management Act 1996 is to remove any scope for argument that, to the extent to which an owners’ corporation took out insurance which covered owners’ fixtures which formed part of the building, the insurance was invalid on the ground of lack of insurable interest.

64 Section 94(1) Strata Schemes Management Act 1996 provides:

“If an owners corporation receives payment of money from an insurer in respect of … damage to a building, that money must be immediately applied by the owners corporation in rebuilding, replacing, repairing or restoring the building.”

It is permissible, under the definition of “damage policy” in section 82 for the damage policy to be one which obliges, or entitles, the insurer to itself carry out, or cause to be carried out, the work of restoration. Section 94 deals with the situation where the policy taken out is not one which obliges the insurer to carry out, or cause to be carried out, the restoration work, or where the insurer chooses not to itself carry out or cause to be carried out the restoration work. Sections 82 and 94 are part of a legislative policy that, when a strata title building is damaged, the damage will be made good. There is no scope for either the owners’ corporation, or an individual owner, deciding to keep an insurance payout and not spend it on making good the damage.

65 It has been clear law at least since the decision of the Court of Kings Bench in Mason v Sainsburyand Another (1782) 3 Dougl 61; 99 ER 538 that the fact that an insured has recovered his loss from an insurer does not prevent the insured from suing, for the full extent of the loss, a wrongdoer who has caused it. Mason v Sainsbury arose in a situation where the Riot Act had made the Hundred liable, to the same extent as the trespassers who actually caused the damage, for loss sustained in a riot. A householder whose house had been demolished in the Gordon Riots of 1780, had been paid the amount of his loss by his insurer. The insurer brought an action, in the plaintiff's name and with his consent, against a representative of the Hundred. The insurer’s right to do so was upheld. Lord Mansfield said (at 64 of Dougl, 540 of ER):

“The office paid without suit, not in ease of the hundred, and not as co-obligors, but without prejudice. It is, to all intents, as if it had not been paid. The question, then, comes to this, can the owner, having insured, sue the hundred? Who is first liable? If the hundred, it makes no difference; if the insurer, then it is a satisfaction, and the hundred is not liable. But the contrary is evident from the nature of the contract of insurance. It is an indemnity. Every day the insurer is put in the place of the insured. In every abandonment it is so. The insurer uses the name of the insured. The case is clear: the Act puts the hundred, for civil purposes, in the place of the trespassers; and, upon principles of policy, as in the case of other remedies against the hundred, I am satisfied that it is to be considered as if the insurers had not paid a farthing.”

Willes, Ashurst and Buller JJ agreed.

66 However, a payment of a full indemnity by an insurer prevents the insured from suing on any other policy of insurance with respect to the same loss. In that situation, Mason v Sainsbury does not apply, and the rights between the respective insurers are adjusted by the doctrine of contribution: Morgan and Others, Assignees of J Stockdale, a Bankrupt v Price (1849) 4 Ex 615 at 620; The Sydney Turf Club v Crowley (1972) 126 CLR 420 at 424.

67 The principle in Mason v Sainsbury and Another (1782) 3 Dougl 61; 99 ER 538 has been applied consistently ever since: Clark v The Inhabitants of the Hundred of Blything (1823) 2 B & C 254; 107 ER 378; Yates v Whyte and Others (1838) 4 Bing (NC) 272; 132 ER 793; Bradburn v The Great Western Railway Company (1874) LR 10 Ex 1; In re Driscoll, Deceased; Driscoll v Driscoll [1918] 1 IR 152 at 156; Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 at 576 – 577; The National Insurance Company of New Zealand Limited v Espagne (1961) 105 CLR 569 at 589-90, 599; Parry v Cleaver [1970] AC 1 at 13 F – G; The “Yasin” [1979] 2 Lloyd’s Rep 45 at 48; Hobbs v Marlowe [1978] AC 16 at 32, 34, 37, 41, 42; Newland v The Nominal Defendant (Queensland) [1983] 1 Qd R 514 at 515, 518; Sydney Turf Club v Crowley [1971] 1 NSWLR 724 at 730; Thiess Contractors Pty Ltd v Norcon Pty Ltd (2001) 11 ANZ Insurance Cases ¶61-509.

68 A variety of reasons have been given to justify the principle. In Yates v Whyte and Others (1838) 4 Bing (NC) 272; 132 ER 793, Tindal CJ (at 283 of Bing (NC), 797 of ER) justified the principle by saying:

“If the Plaintiff cannot recover, the wrong-doer pays nothing, and takes all the benefit of a policy of insurance without paying the premium.”

However this is not a complete explanation, as it has been held that the principle applies regardless of whether the plaintiff has paid the premium for the insurance policy, or someone else has paid it: The “Yasin” [1979] 2 Lloyd’s Rep 45 at 48 – 49.

69 In Mason v Sainsbury and Another (1782) 3 Dougl 61; 99 ER 538, Buller J said (at 65 of Dougl, 540 of ER):

“The principle is, that the insurer and insured are one, and, in that light, paying before or after can make no difference.”

“Paying before or after” is a reference to the fact that, if the householder had chosen to sue the Hundred first, he would have been able to recover damages, and would have been able to sue on his insurance policy only to the extent to which he had not been fully indemnified. The thought implicit in this remark of Buller J is that the order in which the householder chose to resort to the two different sources from which his loss could be made good ought not affect where, as between them, the loss ultimately lies.

70 Derham, Subrogation in Insurance Law (the Law Book Company Limited, 1985) p 22 gives a further reason:

“ … the common law recognised that the insurer was entitled in equity to anything paid, or payable, by third parties to the insured in diminution of the loss, and determined that this right should not be emasculated by a damages rule that would prevent the insured receiving any such payments.”

71 Yates v Whyte and Others (1838) 4 Bing (NC) 272; 132 ER 793 was a case where the insured was bringing the action against the wrongdoer for his own benefit. Bosanquet J did not see this as a reason for detracting from the principle. He said (at 285 of Bing (NC), 798 of ER):

“There [in Mason v Sainsbury ], the action was brought for the benefit of the underwriters; here, the Plaintiff sues on his own account. But I think that makes no difference; for he has the legal right to the damages, and if the underwriters have an equitable right they will establish it in another court.”

In other words, the insured may well hold any damages he recovers on trust for his insurer, but that does not affect his entitlement to those damages.

72 Because Mr Williams owned the fixtures in the kitchen, it is he who has suffered loss in consequence of them being burnt. Legislation required that the owners’ corporation take out insurance, which covered loss of the type which Mr Williams sustained. That legislation also required that, when a claim was made on the insurance for Mr Williams’ loss, the proceeds of the insurance be expended in making good his loss. Even though he was not named as an insured in the policy, it was a policy which was, in its application to the fire in his unit, no different to an insurance which he had taken out himself. The claim which Mr Williams brings against Ms Le in the Local Court proceedings, is one which alleges that she or her agents were negligent, and alternatively that she is in breach of the terms of the lease. Thus, those proceedings are ones which allege that she is a wrongdoer. In these circumstances the principle in Mason v Sainsbury and Another (1782) 3 Dougl 61; 99 ER 538 prevents her from arguing that the insurance payment which Mr Williams has received, has resulted in him suffering no loss.

Entitlement to Sue in Local Court – Who is the Insured?

73 Another basis upon which it is submitted that no right of subrogation has arisen is that Mr Williams is not an insured under the policy. This argument is sufficiently answered by my finding that, whether or not Mr Williams is an insured under the policy, he consents to CHU bringing proceedings in the Local Court in his name.

74 As well, even though Mr Williams is probably not named as one of the contracting parties to the policy of insurance, the structure of the legislation governing insurance of strata title units is such that he is a person for whose benefit the policy has been entered into. Not only does it insure the structure of the building in which is located the lot of which he is registered proprietor, but it also insures his owner’s fixtures and, in conjunction with the Strata Schemes Management Act, provides a practical assurance that property of his own, which falls within the definition of “the building”, will be reinstated if damaged. Further, section 92 Strata Schemes Management Act prevents the insurer from exercising a right of subrogation against him if it accepts a claim based on his act or omission, unless that act or omission was wilful. Kelly and Ball, Principles of Insurance Law in Australia and New Zealand, (Butterworths, 1991) para 11.65 correctly say:

“In some cases, the insurance may be regarded as having been taken out on behalf of the third person as well as the primary insured. In that case, the third party is an insured and a subrogation will be available.”

Thus, the mere fact that the policy is not one in which Mr Williams is named as an insured is not of itself sufficient to show that no right of subrogation was available, if the insurers needed to show that.

75 In light of the conclusions to which I have already come, it is not necessary to give consideration to another argument raised by the defendant, that when the insurance contract which section 83 Strata Schemes Management Act required was entered into, it was entered into by the owners’ corporation as agent for each of the lot proprietors.

Orders

76 The only point on which the plaintiff has succeeded is that there has been a release of Mr Williams’ proposed claims for rent. The orders I make are:

1. Declare that the defendant has released all claims that the plaintiff pay him damages in connection with loss of rent of the strata title home unit at 7/61 Avalon Parade, Avalon in consequence of the fire at that home unit on 12 July 2002.

2. Order that the defendant make no such claim against the plaintiff in any proceedings in any court.

Costs

77 I have not heard the parties on costs. My preliminary view is that, while the plaintiff has had some measure of success, that success has been small. In those circumstances, the appropriate order as to costs seems to me to be that the parties should bear their own costs. Particularly when the amount of money at stake in this litigation is small, I would not like the parties to have the expense of another appearance in Court if that could be avoided. If the parties are content to have no order made as to costs, that result can be achieved by them not using the leave which I propose to grant to allow the question of costs to be argued.

78 I further order:

3. The declaration in paragraph 1, and the order in paragraph 2, not be entered for 28 days from the handing down of these reasons for judgment.

4. If any party wishes to present evidence or submissions on costs, that party should, within 14 days of the handing down of these reasons for judgment, make an appointment with my Associate, with notice to the other side, for the purpose of such argument.

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Last Modified: 08/03/2004