Alamdo Holdings Pty. Limited v. Australian Window Furnishings (NSW) Pty.... [2006] NSWCA 224 | Case summary

Alamdo Holdings Pty. Limited v. Australian Window Furnishings (NSW) Pty.... [2006] NSWCA 224 | Case summary | Zoe

[15]

CIRCUMSTANCES 4 On 28 April 1989, Alamdo and AWF entered into a lease of industrial property at Chester Hill for a term of ten years commencing on 1 March 1989 and terminating on 28 February 1999. The property contained two large factory buildings, called Unit 1 and Unit 2, and a number of bitumen areas adjacent to or near the buildings, called Bitumen Areas 1, 2, 3, 4, 5, 6 and 7. There were also areas of concrete pavement adjacent to each building. From the commencement of the lease, AWF occupied Unit 1 and granted sub-leases of Unit 2 to various successive sub-tenants. 5 On 1 February 1997, AWF granted a sub-lease of Unit 2 to Krueger Transport Equipment Pty. Limited (Krueger), which continued to the end of the lease. 6 On 30 May 1997, Alamdo sent a letter to Hunter Douglas in which the following was stated: … Alamdo Holdings Pty. Ltd. grants consent to the sub-leases on the understanding that Alamdo Holdings Pty. Ltd. retains all its rights and remedies under the Lease, and that Australian Window Furnishings (NSW) Pty. Ltd. and the Guarantors continue to be bound by their obligations under the Lease. 7 On 17 July 1997, AWF granted a sub-lease of Unit 1 to Quad Distribution Pty. Limited (Quad) commencing on 1 August 1997 and terminating on 31 January 1999. 8 Around the time of the expiry of the lease on 28 February 1999, there was communication between Alamdo and AWF concerning work which AWF was required to do to the property at the expiry of the lease. Disputes arose concerning this matter. 9 Krueger continued in occupation of Unit 2 after expiry of the lease, but Unit 1 was vacant until 15 May 1999. That was the commencement day of a lease of Unit 1 from Alamdo to Fantastic Lounge Factory Pty. Limited (FLF), such lease having been executed on 18 March 1999. This lease provided for a rent-free period of two months, up to 15 July 1999. 10 On 7 September 1999 Alamdo sent a letter of demand to AWF and Hunter Douglas with respect to the cost of works, lost rental and interest. It claimed in all just under $1 million. AWF commenced proceedings in the Supreme Court on 4 November 1999. The matter was referred to the referee on 5 September 2000, and it was this referee's report that was dealt with by the primary judge.

[18]

7.1(a) The Lessee agrees to occupy use and keep the Demised Premises at the risk of the Lessee and hereby releases to the full extent permitted by law the Lessor and its contractors, employees, agents, servants and invitees in the absence of any breach of this lease tortious act or omission or other default on their part from all claims and demands of every kind and from all liability which may arise in respect of any accident or damage to property or injury to any person in or near the Demised Premises or on the land and the Lessee expressly agrees that in the absence of any such breach of this lease, tortious act or omission or other default the Lessor shall have no responsibility or liability for any loss of or damage to fixtures or personal property of the Lessee. (b) The Lessee will and does hereby indemnify the Lessor its contractors and employees in the absence of any breach of this lease, tortious act or omission or other default on their part from and against all actions, claims, demands, losses, damages, costs and expenses incurred by the Lessor or for which the Lessor may become liable in respect of any damage to property or injury to any person which may be suffered or sustained in, upon or near the Demised Premises whether in the occupation of the Lessor or of the Lessee or of any other person. (c) Without limiting the generality of paragraphs (a) and (b) of this Clause the Lessee will and does hereby indemnify the Lessor from and against all actions, claims, demands, losses, damages, costs and expenses for which the Lessor may become liable in respect of or arising from:- (i) the negligent or careless use, misuse, waste or abuse by the Lessee or any contractor, sub-contractor, licensee, invitee, client, customer or visitor or the Lessee or any other person claiming through or under the Lessee of the water, gas, electricity, lighting or other services and facilities of the Demised Premises or arising from any faulty fitting or fixture of the Lessee; (ii) overflow or leakage of water (including rain-water) into in or from the Demised Premises PROVIDED THAT such overflow or leakage is not caused by the negligence of the Lessor its employees servants agents or contractors; (iii) loss, damage or injury from any cause whatsoever to property or person caused or contributed to by the use of the Demised Premises by the Lessee or any contractor, sub-contractor, licensee, invitee, client, customer or visitor of the Lessee; and (iv) loss, damage or injury from any cause whatsoever to the Demised Premises or to any property or person within or without the Demised Premises occasioned or contributed to by any act, omission, neglect, breach or default of the Lessee or any contractor, sub-contractor, licensee, invitee, client, customer or visitor of the Lessee. 16 In order to ground liability pursuant to cl.5.1, it was first necessary that the bitumen areas be part of "the Demised Premises". This question was not addressed by the referee, but the primary judge found that, while such areas were part of the Land leased to AWF, they were not part of the Demised Premises. 17 The operative words of the lease are that Alamdo "hereby leases" to AWF "the land and premises above described". The description is contained in a box headed "Land of which Lessor is registered proprietor", with three sub-boxes respectively headed "Torrens Title Reference", "If Part of premises, see note (a)(ii)" and "Location". The title reference is given in the first box, and the word "WHOLE" appears in the second box. What note (a)(ii) is does not appear from the papers before the Court. 18 Clause 1.1 of the lease provides as follows in relation to "Demised Premises" and "Land": 1.1 In this Lease unless the contrary intention appears:- " Demised Premises " includes where the context so admits such of the fixtures fittings furnishings plant machinery and equipment (if any) from time to time installed therein and owned by the Lessor and also any fences or gates at or around the Land to the extent that the Lessor has any interest in the same.

[22]

38 On the basis of this definition, paved areas outside the buildings do not constitute part of the "Demised Premises". They are not, in relation to buildings, "therein". And they are not caught by the specific part of the definition of "Demised Premises" dealing with fences and gates. The repair covenant in clause 5.1 therefore does not apply to them, with the result that the lease does not oblige AWF to repair those outside paved areas. 20 The primary judge did not refer to other clauses of the lease, which contain very many references to Demised Premises and a few references to Land. Most are consistent with the Demised Premises either being co-extensive with the Land or being limited to buildings on the Land, although in some clauses the words are used in such a way as to suggest it is just the buildings that are being referred to. In cls.7.1(a) and 13.1 the Land is distinguished from the Demised Premises, in such a way as to suggest that the Demised Premises are less extensive than the whole of the Land. There are also a few clauses where the words are used in such a way as to indicate that the whole of the Land is being referred to. 21 Some of the clauses relied on by AWF as indicating that the Demised Premises means only the buildings do not in my opinion support that contention. 22 For example, cl.3.2 deals with abatement of rent in the event that "the whole or any part of the Demised Premises shall be destroyed or damaged through any cause", or "resumed by any competent … authority", "so as to render the Demised Premises or any part thereof substantially unfit for the use or occupation of the Lessee or to the deprive the Lessee of the substantial use of the Demised Premises or any part thereof". Although Mr. Gleeson SC for AWF submitted that this made sense only in relation to buildings, in my opinion this is not so: for example, if it is essential for the Lessee's use of the property to have parking areas and good access to the building for transport vehicles, one would expect that the loss of such areas because of destruction or resumption would be an appropriate occasion for abatement of rent. 23 Another example is cl.4.1, the Lessee's covenant not to use the Demised Premises for any purpose other than a factory and ancillary offices. In my opinion, that covenant would restrict use of the Land to uses ancillary to that purpose: the covenant would not in my opinion permit use of the Land for an entirely different purpose. 24 Clauses in which the Demised Premises must mean the whole of the Land include cl.4.3 (covenant against assignment, sub-letting or parting with possession), cl.8.1 (covenant for quiet enjoyment), cl.9.1 (right of re-entry), cl.9.5 (covenant to yield up the Demised Premises at the end of the lease), cl.10.1 (covenant to maintain a public risk policy), cl.12.1 (option for renewal), cls.16.1 and 16.4 (relating to the Lessor selling the Demised Premises) and the Third Schedule (concerning adjustment of rent to the market rental value of the Demised Premises). 25 As pointed out by Mr. Gleeson, however, the definition clause makes the definition meaning subject to indications of contrary intention. It is relevant also to take into account the ordinary meaning of the words. 26 In the Macquarie Dictionary, the plural of the word premise is given the meaning "a. the property forming the subject of a conveyance. b. a tract of land. c. a house or building with the grounds, etc. belonging to it". 27 The meaning of the word was considered in the case of Mowling v. Justices of Hawthorn (1891) 17 VLR 150. This case concerned a provision in a Victorian public health statute that applied to "any house or premises in such a state as to be a nuisance or injurious to health". What was alleged to be a nuisance in that case was refuse in a paddock contiguous to a house and yard occupied by the defendant, but divided from the house and yard by a fence. The Full Court rejected a contention that the "premises" did not extend beyond the curtilage of the house, holding that the word includes houses or lands at common law, and that it was open to the Justices to find that the paddock constituted premises. 28 Turning to cl.5.1, in my opinion there is no reason to construe Demised Premises in that clause so narrowly as not to extend to paved areas adjoining and near the buildings, including all the bitumen areas. These paved areas are substantial constructions on the Land for use in conjunction with the buildings, the state of repair of which would be very important both to the Lessor and the Lessee. Even if the Demised Premises were to be limited to some notion of curtilage of the buildings, these areas would be within that curtilage. 29 Accordingly, in my opinion the primary judge was in error in finding that the Demised Premises did not include the bitumen areas.

[26]

59 Even allowing for the fullest effect of the principles stated by the House of Lords, it cannot be the case that, despite an exception for reasonable wear and tear, a tenant must continually scan an asphalt pavement for the first signs of any crack and then immediately act to repair it in case it becomes larger or lets water through into the basecourse. That would set at nought the exception for reasonable wear and tear. The pavement must, in my view, be seen as a whole and as subject to the ordinary processes of deterioration to which such a pavement, viewed as a whole, is susceptible. I view it as akin to the stone step referred to in Haskell v Marlow . 32 Mr. McHugh for Alamdo submitted that the primary judge was in error because he did not have regard to the evidence of experts. Mr. Thom, who gave evidence for Alamdo, said that defects in the surface of the asphalt, such as "crocodile cracking", must be immediately repaired because otherwise the defect will extend to the basecourse and/or sub-grade. Mr. Colenbrander, giving evidence for AWF, said that only open potholes and unsealed surface areas involved more than reasonable wear and tear, but recognised that cracks in the asphalt layer would allow penetration resulting in further and more rapid deterioration. 33 Mr. McHugh submitted that the primary judge did not deal with a point raised in submissions, namely that a substantial part of the defects represented repairs which had actually been undertaken but which had subsequently deteriorated. The primary judge was also in error in holding that the pavement was at the end of its useful and expected life. This was irrelevant, and was wrong in relation to area 7, because, while the expert evidence was that this area would have a design life of 20 years, the area was in fact constructed in 1984. 34 In my opinion, no material error by the primary judge is shown. The extent of the defects which went beyond mere surface defects was small, and it was well open to the primary judge to conclude that the state of the areas as a whole could be characterised as reasonable wear and tear. Such error as there was concerning the period during which area 7 had been used could not be considered as material. 35 In my opinion, the principle in Haskell does not preclude this result. That principle applies where the ordinary operation of natural forces results in a condition which could be regarded as something to be dealt with by ordinary maintenance, and which would, if not attended to, cause damage going substantially beyond what could reasonably be considered reasonable wear and tear. In such cases, a tenant who has covenanted to maintain and repair, reasonable wear and tear excepted, will be required to carry out normal maintenance so as to prevent this kind of damage, even though the initial condition could fall within the term "reasonable wear and tear". I do not think the existence of surface cracking and a small amount of potholes which could in time lead to further deterioration meant that the existence of such features demonstrates either a failure to maintain or a condition that exceeds reasonable wear and tear so as to demonstrate error by the primary judge. 36 The circumstance that maintenance had been carried out in the past by repair work such as filling potholes or the like does not affect this conclusion.

[27]

STRUCTURAL MAINTENANCE, REPLACEMENT OR REPAIR 37 Because the condition of areas 1 to 3 went beyond reasonable wear and tear, AWF had an obligation to repair them unless this would amount to structural maintenance, replacement or repair. Both the referee and the primary judge found that it would do so. 38 The primary judge gave the following reasons: 39 … The first thing to be said is that, as I view matters, maintenance, replacement or repair that is "structural" can be undertaken only in relation to something that is a "structure" although, of course, not everything done by way of maintenance, replacement or repair in relation to a "structure" is properly classified as "structural". I regard as apposite, in this connection, a passage in the judgment of Brereton J in Hampson v Clyne (1967) 86 WN (NSW) 321: "Structure' of course is a word of which the meaning varies considerably according to the context, and the phrase 'structural character' or 'defect of a structural character' varies correspondingly. Literally 'structure' means something which has been constructed and 'defect of a structural character' means either a fault in putting the structure together or some subsequent failure on the part of the structure to remain satisfactorily put together. With particular reference to buildings in common parlance we refer to the bare building as the structure. We refer to fixtures and fittings attached to the structure although these may themselves as individual units be technically 'structures'. We refer also to installations, such as gas and water piping and electrical circuits. Each of these may, however, independently be in certain contexts regarded as a 'structure' in that it is something which has been constructed within another structure." 40 Applying the same concepts, maintenance, replacement or repair is "structural" when its purpose and effect are to remedy some "failure on the part of the structure to remain satisfactorily put together" . This is, I think, consistent with the approach taken to the meaning of "structural repairs" in relation to buildings as such in cases such as Granada Theatres Ltd v Freehold Investment (Leytonstone) Ltd [1959] 1 Ch 592 and Advance Fitness Corporation Pty Ltd v Bondi Diggers Memorial & Sporting Club Ltd [1999] NSWSC 264 to which counsel for both parties referred. Reference may also be made to what was said by Balmford J - again in relation to a building - in Carbure Pty Ltd v Brile Pty Ltd [2002] VSC 272: "'the structure' is that part of the total building that supports the loads and stops the building falling down. It should be emphasised that a building may be structurally sound notwithstanding that it shows signs of movement; as by the opening of cracks. Unless such cracks indicate a real and present threat to load bearing integrity, of building failure or collapse, they may be treated as simply cosmetic defect - susceptible of patching, painting or other straight-forward repair." 41 Also instructive, in this connection, is the decision of the Full Court of the Supreme Court of South Australia in J F Hillam Pty Ltd v Mooney (1988) 48 SASR 381. That case concerned an indoor swimming centre which included two heated pools built into the ground but inside a building. They had on their inside surfaces a particular coating akin to concrete (described as "marblesheen") to "make them safe and acceptable to swimmers". The marblesheen deteriorated and one of the issues for determination was whether its replacement was "a major repair of a structural nature to the premises". King CJ (with whom Jacobs and von Doussa JJ agreed on this aspect) answered the question in the affirmative: "The swimming pools were undoubtedly part of the structure of the premises. The marblesheen which rendered them usable as swimming pools by providing an appropriate surface must be regarded, to my mind, as part of the structure. The repair or replacement of that marblesheen is therefore a repair of a structural nature." 42 Returning to the particular case of the pavements, I am satisfied that they are properly to be regarded as "structures". They were put upon the land by a process of construction. Their character, as consisting of a skin or coating of asphalt placed upon a prepared land surface to which a basecourse of aggregate or blue metal had first been added, makes them similar to, although lesser in degree than, the "low attractive brick fence" considered in Durkin v Commonwealth Savings Bank of Australia (unreported, Full Court of the Supreme Court of South Australia, 30 November 1990) where a fence "in which the bricks are cemented to a cement base and to one another by mortar" was held to be a "permanent domestic improvement of a structural nature". In the same way pavements constructed in the way I have described should be characterised as being improvements "of a structural nature". Furthermore, the replacement of the asphalt skin and any missing basecourse that, to adapt the words in the JF Hillam case, made them usable as pavements by providing the necessary hard surface and its support, and, as stated in Hampson v Clyne , was necessary for them to "remain satisfactorily put together", must, in my judgment, amount to maintenance, replacement or repair that is "structural". 39 Mr. McHugh submitted that bitumen paving, as distinct from reinforced concrete paving, could not be a structure because it was flexible and did not distribute its load to the ground; and because it lacked the inter-connectedness of parts which could make it analogous to a building. 40 In my opinion, the concept of structure is not limited to this extent. In my opinion it was well open to the referee and the primary judge to find that the areas of bitumen paving were structures and that, as the experts agreed, the repairs needed to areas 1 to 3 were structural repairs.

[28]

RENDERED NECESSARY BY DEFAULT OF LESSEE OR LESSEE'S USE 41 Even though the repairs required for areas 1 to 3 were structural, AWF would still be liable for them if they were rendered necessary by its own action, omission or default, or by its use of the premises. It was clear that, at least to a major extent, the repair was rendered necessary by the operations of AWF's sub-lessee Quad; and perhaps the most substantial issue argued in the case was whether this could be regarded as within AWF's use of the premises. I will consider that in some detail shortly. 42 However, Alamdo submitted that AWF would be liable on other grounds as well. 43 One of the grounds of appeal was that the primary judge erred in finding that the letter of 30 May 1997 from Alamdo to AWF, in the circumstances, did not effect a variation of the lease such that thereafter "lessee" within cl.5.1 included sub-lessees. Mr. McHugh submitted that, even if this letter did not of itself give rise to a contract to vary the lease, such a contract may be inferred from the parties' relevant conduct and correspondence. I would not draw such inference, and certainly see no basis for finding that the primary judge was in error on this point. 44 Another ground of attack on the primary judge's findings concerned cl.5.3(b) of the Lease, which is as follows: 5.3(b) All covenants contained or implied in this Lease regarding repairs to be carried out by the Lessee shall be deemed to include the cleaning and keeping free from chokage of all drain and water pipes and sewerage pipes and the maintaining of all gas and electrical fittings and pipes. 45 The primary judge dealt with this as follows: 43 I consider next the contention of Alamdo that AWF was liable to repair the paving on Areas 1 to 3 because of 5.3(b). That clause is seen as relevant because of the referee's finding that damage to that paving was caused by a combination of excessive weight on the surface and water penetration of that surface. There were also findings that the entry of water was not sufficient to constituted "flood" and was caused, or contributed to, by blockage of drainage pipes on land owned by the local authority lying a short distance outside the boundary of the land the subject of the lease.

[36]

A decision which is of assistance in determining the meaning to be ascribed to the word 'used' in the context in which it appears in s 27(2) is Ryde Municipal Council v Macquarie University (supra). That case concerned s 132(1) of the Local Government Act 1919 (NSW) whereby all land in a municipality was declared to be rateable, the section, however, containing a number of exceptions including: '(fii) Land which is vested in the Macquarie University, or in a college thereof, and is used or occupied by the University or college, as the case may be, solely for the purposes thereof.' Parts of a building erected in the grounds of the University were let to tenants who conducted therein with a view to profit retail shops, a travel centre and branches of two banks. The shops and the banks principally served the convenience of the staff and students of the University, but they were also open to the general public. It was held by Gibbs ACJ, Stephen and Murphy JJ, Jacobs and Aickin JJ dissenting, that the land on which the shops and commercial facilities were conducted was 'used' by the University 'solely for the purposes thereof' within s 132(1)(fii). Gibbs ACJ, after reference to authority, said (at 643) that land vested in the University may be 'used ... solely for the purposes thereof' within par (fii) 'notwithstanding that it is occupied by a tenant holding under a lease'. His Honour said (at 638-639): 'A person who owns land may be said to use it for his own purposes notwithstanding that he permits someone else to occupy it, even under a lease. That is almost beyond argument when the owner's purpose is to acquire income. In the ordinarily accepted meaning of the word a building is `used' for the purposes of acquiring income if rents are derived from it, and an owner of premises who leases them is making use of those premises by employing or applying them for the purpose of letting: Commissioner of Income Tax v Hanover Agencies Ltd [1967] 1 AC 681 at 689. But that is not the only way in which an owner of land may use it by letting it to someone else. An employer who provides premises in which he requires an employee to live so that the employee may perform more efficiently the duties of his position is in my opinion himself using those premises ... Where use, and not occupation, is in question, I can see no reason to disregard the indirect use which an employer makes of a house by providing it as a residence for the use of his employees. If, for example, a university considered it desirable in its own interests that the vice-chancellor should live in particular premises which the university owned, the university would, in my opinion, use those premises if it made them available as a residence for the vice-chancellor, and this would be so whether the premises were let or occupied under licence.'

[41]

25 For these reasons, I consider that (subject to the argument as to a possibly broader meaning of "Lessee" having emerged by reason of events at the time of consent to sub-letting) the referee was correct, as a matter of law, in proceeding on the basis that he did, namely, that any repairs to put right matters occurring by reason of activities of AWF's sub-lessee upon part of the leased property sub-let to it by AWF were not "rendered necessary … by the Lessee's use or occupancy of the Demised Premises". I accept, in this respect, the submission of Mr Meagher SC on behalf of AWF that AWF's "use" by sub-letting was not, in any way, causative of the need for repairs. That "use" was confined to making the property available to the sub-lessee. It was the independent activity (or "use") of the sub-lessee that rendered repairs necessary. 49 Before setting out the submissions, I should note that the sub-lease to Quad contained the provision that "the premises shall be used only as Transport and Distribution" and contained the following covenant by the tenant: 12. To take care of the premises and to keep them in a clean condition, and in particular: (a) To make no alterations or additions to the premises, including the erection of any sign or antenna, without the written consent of the landlord. (b) To do no decorating that involves marking, defacing, or painting any part of the premises, without the written consent of the landlord. (c) To put nothing down any sink, toilet or drain likely to cause obstruction or damage. (d) To keep no animals or birds on the premises, without the written consent of the landlord. (e) To ensure that rubbish is not accumulated on the premises and to cause all trade refuse to be removed regularly in a manner acceptable to the landlord. (f) To ensure that nothing is done that might prejudice any insurance which the landlord has in relation to the premises. (g) To notify the landlord promptly of any loss, damage or defect in the premises. (h) To notify the landlord promptly of any infectious disease, or the presence of rats, cockroaches or similar pests. 50 It also contained the following term: 21(a) The tenant shall have repaired in a proper way any damage to the premises resulting from neglect or a deliberate or careless act or a breach of any condition of the lease by the tenant or any person on the premises with his consent. (b) Except as in Condition 21(a), the landlord shall carry out without delay all reasonable repairs necessary for the tenant's ordinary use and occupation of the premises, having regard to the condition of the premises at the commencement of the lease. 51 It seems clear that Areas 1-3, like Areas 4-7, were designed as light duty pavements suitable for cars and light commercial vehicles only (see referee's report, paragraph [297]). While AWF was in occupation of Unit 1, Areas 1-3 were used only for light vehicles. However, when Quad took over Unit 1 in 1997, it brought on to the land and stored heavy containers, equipment and machines. It used forklifts to move the heavy containers, equipment and machines. Containers often contained air conditioners weighing 7.5 tonnes, and the weight of a loaded sea container would be 10 tonnes. (See referee's report, paragraph [46]) The referee made the following finding (report, paragraph [298]): Although there is considerable conflict in the evidence on the issues whether the surface of the damaged Areas was first weakened by the entry of water on them and then ponding and thereafter further damage by the entry on the areas of vehicles heavier than the surface was designed to accommodate and the parking on the surface of weighty goods, it seems clear enough that the ultimate damage to the surface of the Areas was due to the twin causes of excessive weight on the bitumen and water penetration of the surface.

[42]

Submissions 52 Mr. McHugh submitted the primary judge was correct to hold that the word "used" extended to use by way of sub-letting, because "used" was a word of wide import: Ryde Municipal Council v. Macquarie University (1978) 139 CLR 633 at 647. 53 However, Mr. McHugh submitted, the primary judge used too narrow a concept of causation. March v. E. & M.H. Stramare Pty. Limited (1991) 171 CLR 506 requires that a common sense view be taken of causation; and on that view, the repairs were made necessary by the sub-letting of the premises to Quad. It was not relevant that the premises might have been left vacant by a sub-lessee or made the scene of activities not leading to any requirement for repair. 54 Mr. McHugh submitted that the primary judge's construction of cl.5.1 produced the anomaly that, if a sub-lessee were to knock down and destroy one of the buildings on the Demised Premises, the Lessee would have no liability to the Lessor arising from the structural damage. 55 In oral submissions, Mr. McHugh pointed out that the sub-lease authorised Quad to use the premises for transport and distribution, and that overloading of the bitumen was not outside what was reasonably contemplated; and that to make the damage something not caused by the sub-letting there would need to be more than breach of the sub-lease, something in the nature of a novus actus interveniens. The primary judge erred in reasoning that, because the damage was caused by Quad's use of the premises, it was not caused by AWF's use. 56 Mr. Gleeson submitted that the expression "Lessee's use" in cl.5.1 referred to the actual activities of the Lessee on and in the Demised Premises. The expressions "use" and "occupy" appear in several places in the lease, and in each case the word "use" refers to activities undertaken on the Demised Premises. In cases concerning interpretation of statutes concerning the use of land, it has been held that land which has been leased is not used by the owner because the owner has parted with use and occupation of the land: Commissioners of Taxation v. Trustees of St. Mark's Glebe [1902] AC 416 at 420-421 and Randwick Municipal Council v. Rutledge (1959) 102 CLR 54 at 88. 57 Even if the primary judge were correct to have held that the sub-letting of the premises could properly be characterised as a use of the premises by the Lessee, Mr. Gleeson submitted the connection between that use and any need for structural repairs was too remote to enable a conclusion that the structural repairs were necessitated by the Lessee's use. 58 Mr. Gleeson submitted that the inclusion in the Lease of the usual covenant against sub-letting the Demised Premises meant that the Lessor could readily have obtained direct contractual protection against acts of a sub-lessee which caused damage to the Demised Premises. 59 Mr. Gleeson submitted orally that the sub-lease did not amount to a positive request or authorisation to Quad to use the premises for transport or distribution, but rather was a confining to that use. And once AWF had parted with possession, they had no right to control Quad's use of the premises and could not control that use. AWF never ran a case that the repair was rendered necessary by AWF's failure to require Quad to make good the damage.

[43]

Decision 60 I accept that Alamdo could have made consent to entry into the sub-lease to Quad conditional on Quad undertaking directly to Alamdo to be liable for any damage caused by its negligent conduct. Accordingly, I see no anomaly from the circumstance that the primary judge's construction would leave Alamdo without a remedy in respect of negligent damage of the premises by a sub-lessee. 61 However, in my opinion the primary judge was correct to hold that "the Lessee's use … of the Demised Premises" is wide enough to encompass use by way of sub-letting the premises. In my opinion, the words "use or occupancy" indicate that use is there used in a way different from occupancy. The question is, was the repair that was made necessary by damage caused by Quad "rendered necessary … by the Lessee's use … of the Demised Premises"? 62 If the sub-lease had explicitly permitted Quad to use Areas 1-3, which were suitable for light duty only, for the movement and parking of heavy vehicles likely to damage the pavement of these areas, and Quad had then done this and damaged the pavement, I would have concluded that consequential repairs were rendered necessary by AWF's use of the premises, such use being its sub-leasing the premises to Quad on terms that permitted Quad to cause this damage, and Quad acting on that permission and causing the damage. The fact that the damage was caused by Quad's use would not preclude it also being caused by AWF's use. 63 What actually happened was a sub-lease to Quad for the purpose of transport and distribution, a purpose likely to involve use of heavy vehicles and equipment, though not necessarily their use on light duty paving areas. The sub-lease had covenants by Quad to take care of the premises, and to repair damage resulting from its neglect or careless act. In those circumstances, Mr. Gleeson's submission that AWF had no right to control, and could not control, Quad's use of the premises is not wholly correct. To the extent that the sub-lease did not authorise Quad to use light duty pavement for the movement and parking of heavy vehicles and equipment, and Quad nevertheless did this and thereby caused damage, the sub-lease did give AWF a measure of control. 64 It is true that no claim was made by Alamdo that AWF was liable for repairs because they were "rendered necessary" by "any … omission … on the part of the Lessee"; that is, by AWF's failure to require Quad to make good the damage. However, this does not prevent the omission of AWF to enforce compliance with Quad's covenants so as to prevent or remedy the damage caused by Quad from being one aspect of AWF's use of the premises by sub-letting relevant to consideration of whether the repair was rendered necessary by the Lessee's use. 65 I find this a difficult question; but in my opinion, the circumstance that the sub-lease was to Quad for a purpose that could involve the use of heavy vehicles and equipment on the light duty pavement, and the circumstance that this occurred and damage resulted, notwithstanding provisions of the sub-lease which entitled AWF to require that the damage be prevented or remedied, are sufficient to make the necessity for repair something which, as a matter of common sense, was caused by AWF's use of the premises in entering into the sub-lease and dealing in that way with its sub-lessee. To put this matter another way, the damage that occurred was within a risk created by the sub-lease, and occurred in a way that can reasonably be considered a materialisation of that risk, rather than arising independently of it. 66 Accordingly, in my opinion AWF is liable for damage to Areas 1-3, to the extent that it was caused by Quad's excessive use. It is common ground that Alamdo in fact repaired this area to a better standard than previously, so any damages must not include the cost of these repairs to the extent that they reflect this betterment.

[46]

Decision 72 In my opinion, the primary judge was plainly correct to hold that Quad was a person claiming through or under the Lessee; and in my opinion, he was also correct to hold that the bitumen areas fell within the word "facilities". There is in my opinion insufficient basis to read that word narrowly, where the only relevant class that could be used to restrict its meaning is that of services, and where the word "services" is used as well as the word "facilities". 73 There is force in Mr. Gleeson's explanation of cl.7.1(c)(iv), and in his submission that cl.7.1(c) should, like cls.7.1(a) and 7.1(b), be considered as directed to liability incurred to third parties. However, on the whole I think the better view is that cl.7.1(c)(iv) does indicate that one should not give a narrow construction to the words "losses, damages, … for which the Lessor may become liable", and that these words should extend to include liability arising by reason of a practical necessity to remedy damage caused to property, and also liability incurred to third persons who have reasonably been engaged to do that work. 74 In my opinion, "losses, damages, costs and expenses for which the Lessor may become liable in respect of or arising from … loss, damage or injury … to the Demised Premises" must include the cost of rectifying that loss, damage or injury, either on the basis that the Lessor is liable to incur costs as a matter of practical necessity or because the Lessor becomes legally liable to contractors engaged to do the work. I would not read sub-paragraph (iv) of cl.7.1(c) as limited to such matters as liability to comply with Council notices. 75 If, as I believe they should be, the words "losses, damages, costs and expenses for which the Lessor may become liable" are read in that way in relation to sub-paragraph (iv) of cl.7.1(c), they should be read in the same way in relation to sub-paragraph (i). The damage caused by Quad to the bitumen areas 1-3 did arise from misuse by Quad, a person claiming through or under AWF, of a facility fo the demised premises; and the costs of repair of those areas are costs and expenses for which Alamdo became liable in respect of or arising from that misuse. 76 Accordingly, on this ground also, in my opinion AWF is liable in respect of the cost of repairs to Areas 1-3, to the extent previously indicated.

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REPAINTING THE ROOF 77 This issue concerns the interpretation of cl.5.2 of the lease, which is as follows: 5.2 Without prejudice to the provisions of Clauses 5.1 and 10.4 hereof, the Lessee will in the last year of the term and from time to time if necessary or reasonably required by the Lessor paint, repaint, clean or otherwise appropriately treat in a proper and workmanlike manner such part of the Demised Premises usually so treated. 78 The primary judge dealt with this issue as follows: 62 The referee found that the roof was of galvanised steel of a type expected to be maintenance free during its expected serviceable life. He also found that it was coated in the course of manufacture and is not usually painted during its normal service life; also that, because it was not designed to be painted on a periodic basis and was supposed to be a paint-free product, it did not fall within clause 5.2. The referee noted that some previous owners had sought to extend the life of the roof beyond its normal service life by overcoating. He then referred to competing submissions: viz, the submission of AWF that, in view of the matters mentioned and the fact that the roof was beyond painting, the surface was not one that was "usually" painted or otherwise coated; and the submission of Alamdo that the test to be applied is an objective one. The matter appears to have been disposed of by the referee in accordance with AWF's submissions, so far as clause 5.2 is concerned. The referee also referred to "the structural maintenance exception" and the exception for "reasonable wear and tear", but as they are relevant to clause 5.1 and not to clause 5.2, his findings on them may be disregarded. The real issue in this context is as to the operation of clause 5.2 alone. 63 Alamdo submits and I accept that the only real issue under clause 5.2, so far as the roof is concerned, is that arising from the words "usually so treated". This is because the question at hand relates to the last year of the term where the liability the clause imposes is otherwise strict. 64 Provisions generally similar to clause 5.2 are common in leases. The covenants in items 9 and 10 of Part II of Schedule IV to the Conveyancing Act 1919 are in some respects similar to clause 5.2, although each uses the words "now or usually painted". Submissions do not refer to any decided cases in which words such as "usually so treated" in covenants of this kind have been considered. Nor have my researches found any. On the basis that - surprisingly, I think - there is no guidance to be had from case law, I proceed to construe the clause by reference to its words and its context. 65 The parties have made competing submissions as to the meaning of "such part of the Demised Premises usually so treated", noting that "so treated" refers back to the words "paint, repaint, clean or otherwise appropriately treat". Both "paint" and "repaint" appear here. 66 The controversy is whether "usually so treated" directs attention to what has historically been done at the particular premises under consideration or whether the relevant standard is one that has regard to the generality of premises and what people habitually do at or in relation to premises of the relevant kind. If the first possibility represents the correct construction, the scope of "usually so treated" will be fixed by what was in fact done to these particular premises at inception. Nothing will be "usual" that was not done originally. The second possibility, by contrast, imports an objective standard that has regard to the treatment of buildings generally. 67 One factor in particular persuades me that the latter construction is to be preferred so far as this particular provision is concerned. I refer to the inclusion of both "paint" and "repaint". If the first meaning were accepted, there would be no work to be done by the word "paint", as distinct from "repaint". The latter word must be taken to refer to the process of applying new paint to something previously painted. It cannot refer to the application of paint for the first time. "Paint" (as a verb), on the other hand, encompasses the application of paint to either a surface that has been painted before or to one that has never been painted. It is this last aspect that, to my mind, rules out the history of treatment of the particular premises as the determinant of what is "usual". If that standard applied and everything were judged according to what was done to the particular premises at their inception, the only parts to which paint was to be applied in conformity with clause 5.2 would be those painted at inception. And that would, in every case, be properly described as "repainting", so that the concept of "paint" - encompassing the application of paint for the first time - would never be capable of coming into play. 68 Accepting, as I do (and as did the referee), the objective test of what is "usual" for the purposes of clause 5.2, I turn to the referee's conclusion on the application of clause 5.2 to the repainting of the roof. The referee appears to have taken the relevant question to be whether someone responsible for a building with a roof of the particular material in question (galvanised steel coated during manufacture and expected to be maintenance free during its serviceable life without painting) would, as a matter of upkeep according to the generally applicable objective standard, either "paint" or "repaint" that roof. He answered that question in the negative. 69 There is an argument that, once the material in question reaches the end of its life, painting becomes "usual" because the hypothetical building owner or manager following generally adopted procedures would then resort to painting in order to secure some extension of the roof's life. I do not accept that argument. Given the inclusion in clause 5.2 of the words "or otherwise appropriately treat", acceptance of the argument would mean that, once the roof reached the end of its serviceable life or was about to do so, clause 5.2 caused to come into play an obligation not only to paint so as to postpone renewal but also to effect other treatments to that end - perhaps to the extent of applying some bituminous coating or sticking on some form of plastic sheeting, assuming one could find examples of other cases in the ordinary run of building management where those steps were taken in order to extend the life of the roofing metal or, at all events, the effectiveness of the roof made of the old and worn out metal. 70 In my judgment, the relevant criterion of what is "usual", for the purposes of clause 5.2, is to be approached by reference to what is habitually done by way of painting and other "treatment" of the particular material in the ordinary course as that material proceeds towards the end of its useful life. A clause such as clause 5.2 does not have in contemplation the taking of steps of a new and different kind with a specific purpose of prolonging life beyond the conclusion it would have in the ordinary course of deterioration. 71 I therefore do not accept the contention of Alamdo that the referee wrongly construed clause 5.2 in concluding that AWF was not required to repaint the roof during the last year of the term.

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LOSS OF RENT 84 In relation to Alamdo's claim for loss of rent, the primary judge found adversely to this claim, for the following reasons: 81 The referee rejected this claim. He observed that, to succeed in the claim, Alamdo would have to show that, absent any failure of AWF to observe the repair covenants, it would have started to receive rent from a new tenant in mid-March 1999. He did not regard Alamdo as having discharged that onus. The evidence showed that discussions between Alamdo and FLF had been on foot as early as December 1998 and that a rent free period at the start of any lease to FLF had always been part of the negotiations. The referee also found that the basis of agreement reached between Alamdo and FLF involved an undertaking by Alamdo to carry out works in relation to the property before any lease to FLF commenced. This was in addition to work required under the covenants in the lease to AWF and "involved a great deal of additional work which necessarily called for time to be carried out". The final list of work items was agreed on 12 March 1999. There was also the point that Alamdo had not advertised for new tenants or taken other active steps beyond engaging in negotiations with FLF. 82 Bearing these matters in mind, the referee found that, at best, rent payments under a new lease would not have commenced until the end of April or beginning of May, 1999. The referee continued: "On the other hand, if doing the work required by the new Lessee commenced only after 12 March 1999 when the final list was agreed on, and the rent free period kicked in after completion of that work, once again the time for loss of rental would be postponed by whatever period of time was required for the doing of that work. That has not been precisely identified in the evidence." 83 The referee's conclusions were then stated: "It appears to me that the proper conclusion to be drawn is first, that the rent free period has nothing to do with the failure on the part of Lessee to satisfy the covenants to repair and was simply a fact of the new tenant exerting its market power to insist on favourable terms. Second, that the rental payment would not have commenced during the period when the works insisted upon by the Lessee were being carried out. Third, that the loss has to be calculated at the rate payable under the new lease." In all the circumstances, I am not satisfied that even if everything had been done that was required to be done by the defendant, the Lessor would have obtained more favourable terms from Fantastic than it did under the new lease." 84 Alamdo accepts that any recovery under this heading must be calculated according to the rental rate under the new lease to FLF. But it contends that the other reasons stated in the referee's conclusions reveal a patent misapprehension of the evidence or manifest unreasonableness in fact-finding. As is observed in submissions made on behalf of AWF, Alamdo cannot succeed under this heading unless it clearly shows that no reasonable tribunal of fact could have made the decision made by the referee. AWF submits that the complaints made by Alamdo do not rise to the high standard required. 85 In support of the case it seeks to make, Alamdo traces the course of negotiations between itself and FLF. It identifies four ways in which the finding that the rent free period under the FLF lease had nothing to do with any breach of repair covenants by AWF and was attributable simply to "the new tenant exerting its market power to insist on favourable terms" is defective. The finding is said to be inconsistent with: "(a) the unchallenged evidence of Mr Maurici that Mr Draper of FLF said to him in late 1998 and early 1999 that FLW would not pay rent until the interior was ready for occupation and all the work was finished; (b) the fact that the only reason put forward by FLF for a delayed commencement date and a rent-free period was the need for substantial work to be carried out to make the premises ready for occupation; (c) the lack of any evidence (or even a suggestion put in cross-examination) that FLF's insistence on having 'a clean building in which we can make sofas etc' before paying rent was merely a bluff; and (d) the lack of any evidence that FLF had any 'market power' (which in any event is a most attenuated proposition)." 86 Mr Draper of FLF sent Mr Maurici of Alamdo a memorandum dated 5 December 1998 in which the commencement date of the proposed lease was described as: "1st March 1999 or 14 days after the date that the Lessor advises the Lessee in writing that the premises will be ready for occupation (no later than 15th April 1999)." 87 The memorandum also imposed requirements (or expressed wishes) as to completion of "lessor's works" in three stages - some before the commencement date of the lease, others within 14 days after the commencement date and the rest within 30 days of the commencement date. These works obviously involved many items of improvement and alteration well beyond the scope of the repair covenants binding on AWF. 88 Discussion about the "lessor's works" continued between Alamdo and FLF. A memorandum from Mr Draper to Mr Maurici dated 16 January 1999 referred to further items clearly beyond the repair covenants, including replacement of a ceiling, removal of partitions, removal of raised floors and windows and installation of a kitchenette. The memorandum also said that there were other items of work to be discussed. 89 The matter of lessor's works was referred to in correspondence of February 1999. FLF sought to make the new lease conditional on completion of the works. Alamdo resisted that and made a counter proposal that was not acceptable to FLF. The final arrangement in relation to the lessor's works was recorded in a letter of 17 March 1999 from Alamdo to FLF. Alamdo agreed that · it would carry out "interior" works by 15 May 1999 "except if delayed by your works"; · it would carry out "external" works by 30 June 1999 "weather permitting". 90 The descriptions of the two classes of work included items clearly outside the scope of the repair covenants binding on AWF. Items of "interior" work not covered by the repair covenants were spraying for pests, removing partitions, building a tea room, installing a new ceiling and lowering sprinklers, laying carpet tiles, building a chain wire fence within the factory, removing vinyl flooring, demolishing internal offices, installing a water cooler, tiling a toilet floor and removing two crane access platforms. External items not within AMF's repair covenants were removal of window air conditions, removal of certain bitumen and the removal of security gates. 91 It is significant that the negotiation about the scope of the lessor's works, as between Alamdo and FLF, continued virtually up to the signing of their lease on 18 March 1999 (with the term commencing on 15 May 1999) and that, as late as 18 February 1999, Mr Draper had written to Mr Maurici: "Tony, as I said at the outset of this letter, we all feel this is getting too hard and think that it may be better for both parties if we all call it quits." 92 The commencement date of the FLF lease was also the subject of ongoing negotiation. By letter dated 13 February 1999 - just 15 days before the expiry of AWF's lease - Mr Maurici proposed to Mr Draper a lease start date of 6 April 1999, with rent commencing on 6 June 1999. Mr Draper's memorandum of 18 February 1999 agreed to the idea of a fixed start date, adding "but the premises must be ready on that date". Mr Draper also said: "Perhaps the start date should be set at say 1st May or 1st June 1999 and you will then have two to three months to get everything done." 93 Mr Draper's memorandum of 7 March 1999 proposed a start date of 1 May 1999 "provided that the Landlord's works on the interior of the premises are completed". 94 The referee found, as I have said, that Alamdo had not discharged the onus of showing that, absent any failure of AWF to observe the repair covenants, it would have started receiving rent from a new tenant in mid-March. I consider that conclusion to be fully supported by the evidence. It may be inferred that the schedule of lessor's works included with Alamdo's letter of 17 March 1999 included only items which, at that point, still required attention. Matters already attended to (if any) would not logically have been mentioned in it. It follows that the several specific items of lessor's works to which I have referred as being beyond the scope of AWF's repair covenants remained outstanding and that, with those (whether with or without others) not having been attended to, FLF's position was that it would not start paying rent. 95 There is then the question of the rent free period. Mr Draper's memorandum of 5 December 1998 proposed a rent free period of 60 days from the commencement of the lease, at the same time nominating a commencement date of 1 March 1999 or 14 days after the lessor's notification that the premises were ready for occupation (no later than 15 April 1999). Draft heads of agreement sent by Alamdo on 14 December 1999 included a reference to the rent free period of 60 days while proposing a lease start date of 14 days after notice by the lessor of readiness for occupation but no later than 15 April 1999. There was no reference to a rent free period in correspondence again until such a reference appeared in Mr Draper's memorandum of 7 March 1999. It referred to a lease commencement of 1 May 1999 (subject to completion of the lessor's interior works) and rent commencement on 1 July 1999. 96 This evidence about the rent free period is quite sufficient, to my mind, to justify a finding that there was no connection between the inclusion of that feature and the completion or performance of any of the lessor's works. The issue of completion of the works played a part in the various proposals regarding the commencement of the lease and in deferrals of that commencement. But the concept of a rent free period of two months (or 60 days) immediately after commencement had been introduced into the negotiations by Mr Draper at the relatively early point of 5 December 1998. It thereafter remained a constant, not being re-visited or questioned by either party. The inclusion of the rent free period at the start of the lease term was a product of the ordinary processes of negotiation (which the referee chose to label "market power" of the lessee) unrelated to and isolated from the discussions about the time of lease commencement and the impact of the timing of the lessor's works. 97 I am satisfied that the referee's findings in relation to the loss of rent claim do not reflect any patent misapprehension of the evidence or any perversity or manifest unreasonableness.

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INTEREST 92 The separate question which gave rise to the judgment of 2 August 2005 was as follows: Is the plaintiff entitled to recover interest pursuant to the terms of clause 9.4 of the lease dated 28 April 1989 between the plaintiff as lessor, and the first defendant as lessee, on the amounts claimed as damages in these proceedings for breaches of covenants in the said lease by the first defendant? 93 Clause 9.4 of the lease, referred to in that question, is as follows: If the Lessee omits or neglects to pay any money or to do or effect anything which the Lessee has herein covenanted to pay do or effect then on each and every such occasion it shall be lawful for but not obligatory upon the Lessor and without prejudice to any rights or powers arising from such default to pay such money or to do or effect such thing by itself as if it were the Lessee and for that purpose the Lessor may enter upon the Demised Premises and there remain for the purpose of doing or effecting any such thing and without prejudice to the rights powers and remedies of the Lessor otherwise under this Lease the Lessee will pay to the Lessor interest at the rate of twenty percentum (20%) per annum on any moneys due by the Lessee to the Lessor on any account whatsoever pursuant to this Lease but unpaid for seven (7) days such interest to be computed from the due date for the payment of the moneys in respect of which the interest is chargeable until payment of such moneys in full and be recoverable in like manner as rent in arrears. 94 Before this Court, although not before the primary judge, Alamdo also relied on cl.11.5 of the lease. That clause is as follows: 11.5 The Lessee will pay (or reimburse the Lessor for) the Lessor's reasonable legal costs and all duties fees charges and expenses of or incidental to the preparation completion stamping and registration of this Lease and of any Agreement for Lease pursuant to which this Lease has been executed (notwithstanding anything in any such Agreement to the contrary) and any renewal hereof and any application for the consent of the Lessor hereunder and of or incidental to any and every breach or default by the Lessee hereunder and in or incidental to the exercise or attempted exercise of any right power privilege authority or remedy of the Lessor under or by virtue of this Lease and the reasonable fees of all professional consultants properly incurred by the Lessor in consequence of or in connection with breach or default by the Lessee hereunder. 95 Another clause of the lease that could possibly be relevant, although it was not relied on by either party, is cl.11.12, which is as follows: 11.12 To the extent permissible at law the Lessee will forthwith upon demand pay to the Lessor by way of additional rent an amount equivalent to any moneys paid by the Lessor in respect of any liability imposed on the Lessee under or by virtue of this Lease notwithstanding that any statute ordinance proclamation order regulation or moratorium (present or future) directly or indirectly imposes such liability upon the Lessor. 96 It is also relevant, in relation to this question, to note that in its Summons in these proceedings, what Alamdo claimed was that it had suffered loss and damage as a consequence of breaches of covenants; and that in its particulars of that loss and damage, Alamdo included "interest pursuant to cl.9.4 of the lease". Among the covenants which Alamdo alleged AWF had breached were cl.9.4 and cl.11.5. An amendment was allowed, before the interest decision, so as to include reliance on cl.7.1(c)(i), referred to above. 97 Since the primary judge's judgment on the interest issue, Alamdo has applied for leave to amend the summons to add a claim that AWF had failed to reimburse Alamdo upon reasonable demand for moneys paid by Alamdo that AWF covenanted to pay under cl.9.4 and/or cl.11.5 of the lease but has not paid, giving as particulars of the demand letters from Alamdo to AWF and to Hunter Douglas dated 7 September 1999, and alternatively the service of the Summons in these proceedings on or about 5 November 1999. That application has not yet been determined.

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Decision of Primary Judge 98 The primary judge dealt with two submissions made for Alamdo: (1) That any amount payable as damages for breach of covenant of the lease is "moneys due by the Lessee to the Lessor on any account whatsoever pursuant to this lease" within cl.9.4. (2) That where Alamdo had incurred expense carrying out repairs which AWF should have carried out, AWF had an implied obligation to reimburse Alamdo, so that money due under that obligation was "moneys due by the Lessee to the Lessor" within cl.9.4. 99 The primary judge rejected the first submission, holding that money payable as damages for breach by a lessee of a covenant in the lease, although due by reference to the covenant, is due pursuant to a judgment or order awarding damages, not pursuant to the covenant itself: see Young v. Queensland Trustees Limited (1956) 99 CLR 560. 100 However, the primary judge accepted the second submission, on the basis that there was to be implied in cl.9.4 a requirement that the lessee reimburse the lessor in respect of things done by the lessor pursuant to the first part of cl.9.4. The primary judge said this about such an implied requirement: 14 I accept these submissions as to the implied term. It cannot have been contemplated that the economic position of the lessee should be better (and that of the lessor worse) where the lessor pays money that the lessee should have paid or to bring about some result that the lessee should have procured than it would be if the lessee had duly performed the lease covenants. In a case where the lessor pays money as contemplated by the first part of clause 9.4, the implied term requires the lessee to pay to the lessor a sum equivalent to that paid by the lessor. And where the lessor does or causes to be done some other thing as contemplated by the first part of clause 9.4 and, in so doing, pays out money that it is reasonably necessary to outlay in order to do the thing or to cause it to be done, the implied term requires the lessee to pay to the lessor a sum equivalent to that so paid by the lessor. 15 The implied term must, of course, be seen as fixing some time for payment by the lessee. Given the nature of the context (in which the lessor may pay money without the knowledge of the lessee), it must be the case that the lessee's obligation to reimburse does not become due for performance before the lessor gives to the lessee information sufficient to show that the money in question has been paid by the lessor in circumstances attracting the operation of the implied term. Another pre-condition must be that the lessor demands payment by reference to that information and the right of reimbursement arising under the lease. Once both pre-conditions had been satisfied, the law would imply a reasonable time for the lessee to pay, so that the due date for payment (as contemplated by the part of clause 9.4 dealing with interest) would arrive only upon the expiry of that reasonable time after satisfaction of the pre-conditions. 16 Once the implied term is recognised, the two parts of clause 9.4 can be seen to constitute a coherent whole, with the second part providing for the computing and payment of interest upon moneys that include moneys due by the lessee to the lessor under the implied term by reason of the actual outlay of money by the lessor to cause to be effected repairs and maintenance that the lessee failed, in breach of the lease covenants, to effect. 17 The separate question, as it relates to unliquidated damages, must be answered in the negative but with a rider to the effect that there is implied into clause 9.4 the term I have described and that the plaintiff is entitled to recover interest pursuant to the terms of clause 9.4 on liquidated sums that become due by the lessee to the lessor under that implied term. 101 Alamdo seeks leave to appeal from the negative answer to the separate question, and also challenges the pre-conditions referred to in par.[15]. AWF and Hunter Douglas seek leave to cross-appeal from the rider referred to in par.[17].

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Submissions 102 In relation to the first issue decided by the primary judge, Mr. McHugh submitted that the expression "any moneys due by the Lessee to the Lessor on any account whatsoever pursuant to this lease" extended to any liability of the lessee to the lessor in consequence of any breach of the lease. He submitted that the manifest purpose of the second part of cl.9.4 was to afford interest to the lessor in respect of any moneys for which the lessee was liable to the lessor, whether as debts due directly under the lease or as damages. 103 On the second issue, Mr. McHugh submitted that the implied term found by the primary judge was unnecessary, because cl.11.5 of the lease expressly covered the situation where the lessor had incurred expenses of or incidental to breaches by the lessee, and also in or incidental to the exercise of rights of the lessor under or by virtue of cl.9.4 of the lease. Then, the "due date for the payment of the moneys" within cl.9.4 was either the date on which the lessor actually incurred a liability or outlaid an expense, or alternatively immediately upon demand. Further, there was no warrant for imposing any requirement that a demand include either reference to the specific basis under the lease upon which the obligation arose, or particulars as to the circumstances attracting the operation of the relevant term of the lease. Further, there was no ground for the primary judge's third condition, that of a reasonable time for payment. 104 Mr. Gleeson submitted, as regards the first issue, that damages are not payable pursuant to or under a contract, but represent pecuniary compensation for a wrong comprising a breach of contract: Young. Further, it made no sense to speak of a due date for payment of damages, or of damages being unpaid for 7 days. In the case of a claim for damages, a defendant does not have a legal obligation to pay money on a due date: Hungerfords v. Walker (1989) 171 CLR 125 at 139. 105 On the second issue, Mr. Gleeson submitted that Alamdo should not be permitted to pursue a claim on this basis, because it is wholly outside the pleadings. The application that has been made to include a claim on this basis in the pleadings is made too late. Further, the basis on which Alamdo now sought to avoid the pre-conditions asserted by the primary judge, namely cl.11.5, was not relied on below. Alamdo was attacking the very implication of a term that it had sought below. In any event, Mr. Gleeson submitted, even if a claim for interest under cl.9.4 could be supported in the way submitted by Alamdo, it would still be necessary for a proper demand to be made, conveying the basis of entitlement and giving a reasonable time for compliance.

[57]

Decision 106 In my opinion, the primary judge was clearly correct on the first question. Damages awarded for breach of covenant are not moneys due by the lessor to the lessee pursuant to the lease, but are compensation awarded by the Court as a remedy for the damage caused by the lessee's breach; and there is no due date for payment until judgment for damages is given. 107 On the second issue, I accept that cl.7.1(c)(i), cl.11.5, and indeed cl.11.12, can give rise to moneys being due by the lessor to the lessee pursuant to this lease, for which there could be a due date for payment and which could then bear interest at 20% if they are not paid within 7 days of that due date, pursuant to cl.9.4. However, in my opinion there would not be moneys due by the lessee to the lessor on any particular date in consequence of those clauses unless and until a proper demand had been made; and in my opinion that demand must sufficiently identify the amount payable, and must also sufficiently identifythe basis on which it is payable, by sufficiently adverting to the relevant provision of the lease and the facts and circumstances that engage that provision. If such a demand is made, I accept that the obligation to pay arises upon receipt of the demand, although the liability to pay interest will only arise after a further 7 days. 108 However, that view of the matter does not determine either the appeal or cross-appeal, assuming leave is granted. It still leaves the correct answer to the specific question asked as "no"; and the occasion for the rider referred to in par.[19] of the primary judge's judgment could only arise if it were considered appropriate to permit Alamdo to make a claim on that basis. 109 Mr. McHugh submitted that the question had been argued before the primary judge, so that it did not matter that it was not within the pleadings: see Leotta v. Public Transport Commission (NSW) (1976) 50 ALJR 666. However, what was before the primary judge was only whether a rider should be put on the answer to the separate question, not the question whether Alamdo should be permitted to make a claim that was not included in its pleadings, much less whether such a claim succeeded. It seems clear from the documents before this Court that the documents relied on as demands do not clearly show the amount properly claimed, the provisions of the lease relied on and the facts and circumstances giving rise to the liability. If the documents in question are to be adequate demands, it is likely that there would need to be a quite close examination of the facts and circumstances surrounding those demands. 110 Plainly, Alamdo's pleadings have never included a claim for interest on this basis; and the argument before the primary judge on the separate question did not involve any determination of either such a claim or whether such a claim should be permitted at this late stage. In my opinion, the appropriate course for the primary judge would have been simply to answer the question no, this being a correct answer to the question, and one that could not be considered misleading when considered in the light of the claims that were actually before the Court.The rider that the primary judge gave in par.[17] could be considered as suggesting that Alamdo can pursue a claim on that basis in these proceedings, and that is a further reason for thinking the rider should not have been added: if, as seems to be the case, pursuit of this claim would require further factual investigation, the amendment now sought may not be permitted. 111 For those reasons, in my opinion Alamdo's appeal on this aspect should be dismissed and AWF's cross-appeal allowed.

[58]

CONCLUSION 112 As the discussion has shown, these applications raised substantial issues, and in my opinion it is appropriate that leave to appeal and to cross-appeal be granted. 113 For the reasons I have given, I would allow Alamdo's appeal on issues (1) and (3) identified in par.[11], and otherwise dismiss Alamdo's appeal; and I would allow AWF's cross-appeal on issue (5) identified in par.[11]. 114 I would propose that Alamdo be ordered to bring in agreed short minutes, including the appropriate orders disposing of the appeal and disposing of costs questions, within 28 days; or if agreement cannot be achieved, submit within that time its proposed short minutes and submissions in support thereof. In that event AWF should, within a further 14 days, submit its proposed short minutes and its submissions, and Alamdo submit any material in reply within a further 7 days. 115 BASTEN JA: The key issues in this case related to repair of the bitumen surfaced areas surrounding the buildings the subject of the lease from Alamdo Holdings Pty Ltd ("Alamdo") to Australian Window Furnishings (NSW) Pty Ltd ("AWF"). The areas which had suffered damage were broken into two categories, namely areas 1-3 and areas 4-7. The first group were distinguishable because they had suffered damage arising from inappropriate use by heavy vehicles and equipment during the period of a sub-lease by AWF to Quad Distribution Pty Ltd ("Quad"). As a result, it was not argued that the damage to areas 1-3 was caused by "reasonable wear and tear" for which AWF might not be liable. 116 I agree with Hodgson JA that the surfaced areas surrounding the buildings were part of the "Demised Premises" and that the primary judge was wrong in holding otherwise, being issue (1A) as identified by his Honour. 117 I also agree with Hodgson JA that the repairs involved "structural maintenance replacement or repair": being issue (1C). 118 In relation to areas 4-7, his Honour has concluded that the damage involved no more than reasonable wear and tear, for which AWF was not liable: issue (1B). 119 In relation to this issue, I am inclined to reach a different conclusion. The cracking of the concrete may well have constituted reasonable wear and tear, but the failure to repair the cracks led, according to the experts, to the intrusion of water into the sub-stratum, which resulted in further damage. On its face, the failure to rectify the initial problem before the greater damage resulted is closely analogous to the example of the tile, dislodged from the roof of a house, adverted to by Talbot J in Haskell v Marlow [1928] 2 KB 45. To say, as the primary judge did at [58], that cracking was to be expected in the ordinary course of events, is to say no more than might be said of the tile, namely that as a roof ages, the possibility that tiles will become dislodged will increase. The fact that the dislodgment of the tile may have an element of reasonable wear and tear does not mean that the tenant can stand by and allow the intrusion of water to inflict serious consequential damage inside the building. The requirement to repair the tile does not "set at nought the exception for reasonable wear and tear" (primary judge at [59]); nor does the imposition of responsibility on the lessee to ensure that cracking in the bitumen was rectified. 120 This result does not, however, make a difference to the outcome if AWF is not in any event liable for structural maintenance and if, the work being such as to involve structural maintenance, AWF is not liable under clause 5.1 or clause 7.1. 121 For the reasons noted below, I differ from the conclusions reached by Hodgson JA in relation to the operation of clauses 5.1 and 7.1, being issues (1D) and (1E). Accordingly, in my view AWF is not liable for the damage to any of the areas 1-3 or 4-7. Accordingly, the appeal in relation to responsibility for the bitumen surfacing (issue (1)) should be rejected. 122 I agree with Hodgson JA that the appeal in relation to the liability to repaint the roof (issue (2)) should be rejected. 123 In relation to the miscellaneous structural repair claims, the answer must be the same as in relation to the bitumen surfacing and accordingly the appeal in relation to issue (3) should be rejected. 124 I also agree with Hodgson JA that the loss of rent claim (issue (4)) should be rejected. 125 In relation to the claim for interest under the contract (issue (5)), I am not inclined to grant leave to appeal. I agree with Hodgson JA that the primary judge answered the question correctly, and in the negative. Both parties challenge the addition of the rider. Alamdo does so because it sees it as unduly restrictive; AWF does so because it sees in it an invitation to Alamdo to expand the grounds of its claim. Whilst AWF may be correct in saying that Alamdo should not be invited to reformulate its claim at this late stage, it seems unlikely that Alamdo would succeed on the basis of the rider, a view which presumably triggered its own challenge to the rider. In any event, I do not see the addition of the rider as providing an invitation to Alamdo which is likely to bear fruit.

[60]

However, his Honour further held that "even though the occasion for that 'use' would not have existed but for the 'use' consisting of AWF's granting of the sub-lease … the necessity for structural repairs … must be seen as having arisen from the sub-tenant's 'use', not from AWF's 'use'; and the repairs must be seen as 'rendered necessary by' the sub-tenant's 'use' as distinct from AWF's 'use'." 128 The lessor sought to challenge this reasoning on two bases. First, it argued that the damage flowed, in a relevant sense, from the act of the lessee in introducing the sub-lessee and granting it possession of the premises for the purpose of conducting the business which in fact caused the damage. In the alternative, if the relevant act or use of the lessee was merely the grant of the lease, the consequential damage should be understood as flowing from the act of subleasing and was therefore within the terms of the proviso. 129 The lessee submitted that clause 5.1 should be construed according to its terms and that there was no justification for expanding the phrase "by the Lessee's use or occupancy" to include the consequences of the sub-lessee's activities. The lessee argued that it was not necessary to exclude all activities of third parties, and the activities of contractors, for example, allowed or invited on to the premises by the lessee, could fall within the concept of the lessee's use of the premises. However, that concession did not extend to the activities of a sub-lessee to whom the lessee had transferred possession and control of the premises. 130 That approach was supported, it was submitted, by the specific provisions in clause 4.3 which prohibited assignment, transfer and sub-letting absent satisfaction of six identified conditions, which included, in substance, a requirement that the lessor consent both to the sub-lessee and to the terms of the sub-lease. Further, its reading of clause 5.1, was said to be consistent with the indemnities given by the lessee pursuant to clause 7.1(c), which included an indemnity against the liability of the lessor with respect to misuse not only by the lessee, but by "any contractor, sub-contractor, licensee, invitee, client, customer or visitor of the lessee or any other person claiming through or under the Lessee": clause 7.1(c)(i) and (iv). That liability did not extend, it was submitted, to the acts of a sub-lessee. (It will be necessary to address the correctness of that submission shortly.) 131 The scope of clause 7 is, in parts, obscure. However, there is some logic to the proposition that if the lessee is liable to indemnify the lessor for the damage caused to the demised premises under clause 7.1, there is no need for the lessor to rely upon 5.1 and therefore no justification for an expansive construction of clause 5.1. On the other hand, if clause 7.1 does not extend to an indemnity in relation to the acts of a sub-tenant, for damage to the demised premises, that intention would be consistent with an intention not to render the lessee liable under clause 5.1 for the actions of a sub-lessee. 132 The right of the lessor to consent or withhold consent in relation to a sub-lease is not, in my view, of assistance in relation to the construction of clause 5.1. It allows the lessor control over sub-letting, but it does not assist with the answer to the question as to what rights the lessor retains as against the lessee under the head lease, in the event of a sub-lease. 133 The proviso to clause 5.1 is concerned with structural repairs (amongst other things) rendered necessary by - (i) any act or omission or default on the part of the lessee; (ii) the lessee's use of the demised premises, or (iii) the lessee's occupancy of the demised premises.

[61]

As already noted, no reliance was placed, understandably, on the third basis of possible liability, the lessee's occupancy having terminated with the grant of the sub-lease. 134 In relation to (ii), the term "use" is an ordinary English word which can have different meanings in different contexts. One can conduct activities on premises through parties and be said to apply the premises for one's own purposes and hence to use the premises. In some cases one can "use" land by doing nothing with it: see, eg, Council of the City of Newcastle v Royal Newcastle Hospital (1957) 96 CLR 493. Use does not require presence on or activities on any particular area of land or over any particular period of time. However, where a person parts with possession of land the use made by the landlord and the use made by the lessee may be viewed differently. The landlord may use the land as an investment, whilst the lessee may use the land for a business or residence. The business is not a use of or by the landlord, nor is the residence a use of or by the landlord. In my view, the lessee in the present case used the premises by sub-letting them, but the repairs rendered necessary by the acts of the sub-tenant were not, in a relevant legal sense, rendered necessary by the lessee's use of the premises. 135 It was clearly arguable that the structural repairs were rendered necessary by the failure of the sub-lessee to keep the premises in good repair, in accordance with its obligations under the sub-lease. It might also have been contended that the repairs which remained necessary at the termination of the lease were rendered necessary by the omission of the lessee to enforce the obligations of the sub-lease against the sub-lessee, that being an omission which may have fallen within limb (i) of the proviso as identified at [134] above. However, it was common ground that no claim was based on the first limb of the proviso, either before the referee or before the primary judge: Tcpt on appeal, 5/5/2006, pp 8-9. The purpose in raising it at this stage is not to suggest that the lessor could have succeeded on that basis, but rather to support the view that a more limited construction of the concept of repairs caused by the lessee's "use" of the demised premises, would not necessarily give rise to some surprising or unexpected gap in the lessor's rights under the lease.

[62]

Liability of AWF under clause 7.1 136 The alternative basis upon which Alamdo sought to establish liability on the part of AWF was by reliance on the indemnity given in clause 7.1 of the lease, set out [15] above. While the argument focused on sub-paragraphs 7.1(c)(i) and (iv), the context in which those sub-paragraphs operate should be noted. Sub-clause 7.1(a) constitutes a release granted by the lessee to the lessor; to the same end, sub-clause 7.1(b) is an indemnity granted by the lessee to the lessor. Sub-clause 7.1(c) is formulated as an exegesis on the scope of paragraphs (a) and (b), which is expressed not to limit their "generality". It is in the form of an indemnity. The opening words of the paragraph include an indemnity for "losses … for which the lessor may become liable" in certain respects. Although, as accepted by Hodgson JA at [73]-[75] above, that language may encompass damage to the premises which the lessor may need to make good, that result would be clearer if the paragraph included a reference to losses 'suffered', rather than merely loses for which the lessor becomes liable. 137 However the limitation becomes clearer from the specification of the events, relevantly for present purposes, being those found in sub-paragraphs (i) and (iv). The cause of the liability must be the use or misuse of the services and facilities of the demised premises by one of a class of persons which does not expressly include sub-lessees, but does in sub-par (i) include "any other person claiming through or under the lessee". Assuming that damage to the demised premises falls within the potential losses for which the lessor is liable, the paragraph is inapt to include loss caused by a sub-lessee as a "person claiming through or under the lessee". No person is claiming against the lessor. Rather, this language suggests that the person identified (who has misused a service or facility) is the person to whom the lessor is claimed to be liable. In my view this sub-paragraph does not include the loss caused to the lessor by misuse of the facilities by a sub-lessee, who is making no claim or demand against the lessor. 138 Sub-paragraph (iv) may be closer to the mark, because it includes "loss, damage or injury from any cause whatsoever to the Demised Premises … ." (emphasis added). No negligent or careless misuse is required. However, the loss must be occasioned by the act of someone falling within an identified class, which does not include a sub-lessee, or a person 'claiming under or through' the lessee. Accordingly, sub-paragraph (iv) does not assist the Appellant either.

[63]

Conclusion 139 For these reasons, in my view AWF is not liable for the structural repairs identified for the purposes of the appeal. 140 I would grant leave to Alamdo to appeal with respect to the issues identified by Hodgson JA as issues (1)-(4), but I would reject the appeal. I would refuse leave to Alamdo and to AWF to appeal or cross-appeal respectively, in relation to issue (5). I would order Alamdo to pay the Respondent's costs of the application and the appeal. 141 McCLELLAN CJ at CL: I have had the benefit of reading in draft the judgments of Hodgson and Basten JJA. 142 I agree with Hodgson JA in relation to his Honour's resolution of issues (1A) and (1C). 143 In relation to issue (1B) I agree with Hodgson JA that in relation to areas (4-7) the damage involved no more than reasonable wear and tear. To my mind there is a significant difference between a road pavement which involves the integrated construction of sub-base with a surface seal and a building where the roof forms a separate component of the entirety. In the ordinary course surface cracks will appear in the road surface which will allow penetration and ultimately failure of the road which when it was constructed had a predictable and finite life depending on the nature and quality of both the sub-base and the seal. 144 However, in relation to issues (1D) and (1E) I agree with Basten JA and, but for one matter, with the reasons his Honour gives. To my mind there are significant difficulties in applying concepts developed to resolve issues with respect to planning and rating problems to the commercial arrangements between contracting parties. Although I accept that in some contexts a person may use land by subletting it, it seems to me that significant to an understanding of the present contractual arrangements is the requirement, in cl 4.3, which effectively provided for the lessor to consent to the sub-leasing arrangements. In that event although the act of sub-leasing may be a use of the premises, the activities of the sub-lessee, who thereafter has possession of the premises, could not be understood as a use of the premises by the lessee. Although not itself determinative it is an indication that the parties intended, absent any provision in the sub-lease, that the sub-lessee's activities would not be the use of the lessee. 145 I agree with the orders proposed by Basten JA.

Alamdo Holdings Pty. Limited v. Australian Window Furnishings (NSW) Pty. Ltd. & Anor. [2006] NSWCA 224

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