The window frames
56 In my summary of the facts I mentioned Mr Brownie's report, which referred to his interpretation of cl 2(c)(i), the repair covenant. His construction was, as mentioned earlier, varied by Windeyer J (1998) NSW ConvR 55-830 at 56,498 and this was later affirmed by the Court of Appeal in Alcatel Australia Ltd v Scarcella.
57 The relevant new text inserted by Windeyer J into Mr Brownie's report is set out at paragraph 52 of Austin J's judgment. It includes the following:
"The lease obliges the plaintiff to keep the building 'in good and substantial repair'. What must the plaintiff do to perform this covenant? At the commencement of the lease the building was brand new. What is required to keep a brand new building in good and substantial repair? Time must be taken into account. A 28 year old building is not to be made new. But so far as repair can make good, or protect against the ravages of time and the elements, it must be undertaken. This means that if deterioration to the building is now evident after 28 years but would not have been evident, or evident to such degree, if in earlier years maintenance or repairs which could have been undertaken had been undertaken, then the plaintiff is required to put the building in the condition in which it would have been if the maintenance had been undertaken in the earlier years. This may entail renewing subsidiary parts of the building (though not renewal of the whole building). The plaintiff is not allowed to neglect the building and then, by reason of the neglect, at a later date say that the deterioration to the building which has occurred by reason of that neglect diminishes the extent of its obligation to put and keep the building in good and substantial repair. He is bound by seasonal application of labour to keep the premises as nearly as possible in the same condition as at the commencement of the lease.
58 Mr Brownie's report also said, as noted by the Referee:
… but it seems clear that the test established by the authorities is whether, in relation to each item said to require repair, a reasonably minded owner would carry out that repair work, having full regard to the age of the building, the locality, and the class of tenant likely to occupy the building, all such matters to be considered as at the date of commencement of the lease: and bearing in mind the obligation to maintain the property in such a way that only an average amount of annual work would be necessary in the future: … [emphasis added]
59 The relevant claims of the lessors in its notice of default are items 145 and 146. Item 145 required the appellant to '[R]emove all traces of corrosion from aluminium framed windows and seal to prevent recurrence, clean glass on both sides'. Item 146 was in the alternative to 145 and required the appellant to 'replace windows'.
60 Austin J noted that the report of Mr Brownie, as varied by Windeyer J, had been formally adopted by the court and therefore became the final word on the law to be applied by Mr Lumsdaine, the Referee.
61 In the relevant parts of his report with regard to the window frames the Referee said:
16. 5 The evidence was clear that regular maintenance, for example monthly washing, (a most onerous and unusual burden to place on a tenant), would operate only to slow down the rate of corrosion. That rate of corrosion is a function of the material used to construct the window frames and the atmospheric environment of the subject building.
16.6 The Landlord contends that the Tenant is obliged to perform regular preventative maintenance to preserve the element in its original condition - even if this involves high pressure cleaning at weekly intervals. This follows from Mr. Brownie's finding that: … so far as repair can make good, or protect against the ravages of time and the elements, it must be undertaken. However, he also states: … it seems clear that the test established by the authorities is whether, in relation to each item said to require repair, a reasonably minded owner would carry out that repair work, having full regard to the age of the building, the locality, and the class of tenant likely to occupy the building, all such matters to be considered as at the date of commencement of the lease.
16.7 Would a reasonably minded owner, bearing in mind the industrial environment in which the building is located, consider for example that the windows should be replaced because of the appearance of corrosion products on the frames? I note here that, despite the dire prognostications of Dr. Young, the expert retained by the Landlord, I accept Dr. Cordery's evidence to the effect that the windows are sound and fully functioning, and will continue functioning for many years. The defect is one of appearance. In my view a reasonably minded owner in these circumstances would not replace the windows.
16.8 The Tenant has agreed to do precisely what the Landlord has claimed in claim 145, and that no doubt closes the issue. I note however, based on the evidence given by the experts in relation to the limited protection afforded by anodising, that it is highly improbable that any method of sealing will prevent recurrence of corrosion. That would require substitution with a material such as bronze. The Landlord's claim does not specify any particular method of sealing, and the Tenant's acceptance is in a similar imprecise state. The experts were not questioned as to whether there is any alternative material or process which may be used in situ to seal the aluminium after cleaning off the corrosion products; and which may provide the material with the degree of protection which would have remained if regular maintenance had been carried out for 30 years. I believe it is incumbent on the Tenant to provide some satisfactory indication that the sealing which it proposes to carry out will satisfy that standard. [emphasis added]
62 Austin J adopted the report but excluded paragraphs 16.7 and 16.8, as well as the last sentence in paragraph 16.5, which he said was incorrect. The deleted portions are bolded in the above quotation. According to his Honour, the appellant's failure to comply with item 145 or, at its election 146, constituted a breach of the repair covenant. His order so declared.
63 His Honour referred to the expert evidence before the Referee - that of Professor Young and Dr Corderoy. He said that the finding of the Referee in the last sentence of 16.5 was inconsistent with the evidence accepted by both experts that regular maintenance would have reduced the rate of corrosion. I should say that I am unable to see the inconsistency. Indeed, the Referee's finding was entirely consistent with the evidence that regular maintenance would reduce the rate of corrosion.
64 His Honour also found that the Referee had misapplied Windeyer J's test in 16.7 because it was common ground between the experts that the corrosion was a defect requiring repair (which statement is disputed by the appellant) and that both parties took the view that something should be done while disagreeing upon the nature and extent of the remedial work. While the Referee was correct to say that the lessee was to provide the windows with the degree of protection that regular maintenance would achieve, he was wrong to exclude the possibility that to do so it may be necessary to replace them. According to his Honour the Referee's reason for excluding replacement was contrary to the principles upon which Windeyer J insisted.
65 Austin J concluded that regular maintenance by cleaning would have reduced the rate of corrosion to the window frames and that something must be done by way of repair to the standard enunciated by Windeyer J. Only Professor Young had addressed the correct question and his evidence was therefore accepted by Austin J.
66 Accordingly, the appellant was required to comply with item 145 or, at its election, replace the window frames pursuant to item 146.
67 The two experts were at odds before the Referee about whether the corrosion to the window frames was merely cosmetic or functional. Professor Young said that their functioning was affected. Dr Corderoy said that they were all in good working order. In 16.7, excluded by his Honour, the Referee had rejected Professor Young's 'dire prognostications' and accepted Dr Corderory's evidence 'to the effect that the windows are sound and fully functioning, and will continue functioning for many years'. It was a defect in appearance only. The Referee then said 'a reasonably minded owner in these circumstances would not replace the windows'.
68 It seems plain that although the appellant had offered to clean the outside window frames, an offer which the respondents rejected, it never agreed nor conceded that the corrosion on the outside of the frames constituted a defect requiring repair. Its case was that the blemishes were cosmetic only and did not require repair.
69 The submission made on behalf of the appellant that the Referee was sitting as an expert and entitled to bring his own personal knowledge, experience and expertise to bear on the issues before him must be accepted, Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 557. He could bring into account his own knowledge of the way in which aluminium windows react to the environment and the pollutants within it.
70 In any event, there was evidence that the corrosion was a function of the chemistry of the metal and pollutants in the atmosphere. In my view, his Honour was not entitled to alter the Referee's factual finding in 16.5.
71 While his Honour was exercising a discretion in reviewing the report in order to decide whether to adopt, vary or reject it, that discretion will normally be confined to questions of law and the application of legal standards to the facts. In such a circumstance a judge may consider and determine that matter afresh (Super at 563). However, in relation to 16.5 and 16.7, the factual findings of the Referee was both open on the evidence and on the Referee's expertise. What the Referee said in the disputed sentences of 16.5 and 16.7 was not an error in principle, some absence or excess of jurisdiction, a patent misapprehension of the evidence or manifest unreasonableness in fact-finding, (Super at 563). There was, in my opinion, no reason for rejecting them. Moreover, in cases where the evidence is conflicting, where there is evidence available to support a finding of a Referee or the issue involves a choice between evidence, a judge should not ordinarily interfere, Super at 564.
72 It follows also in my view that his Honour should not have intervened to exclude 16.7, a finding which involved no more than choosing between conflicting evidence.
73 Leaving 16.5 and 16.7 in the report means that the Referee found that there was no functional defect with the window frames but rather a cosmetic problem. Once this is accepted, and upon applying the amended Brownie test, it was open to the Referee to find that a reasonably minded owner would not replace the windows. I do not see how it can be said that this conclusion eliminated the ingredients in the principles to be applied in the Windeyer J qualification of the Brownie report. While it is true that this repair covenant casts a heavy burden on the appellant, that burden is qualified by the obligation that it must be measured against the standard of a reasonable owner.
74 The lack of regular cleaning of the window frames had only a cosmetic effect (by the preference for Dr Corderoy's evidence by the Referee). Accordingly, there was no defect requiring repair under the covenant and no breach of the appellant's covenant to maintain in good and substantial repair.
75 That at one point the appellant had offered to do some work on the window frames, which was rejected by the lessors, was irrelevant to the determination of the claim in item 145. Accordingly, his Honour was right to exclude 16.8. Indeed, both parties before his Honour had sought exclusion of 16.8.
76 As I have said, in my view, his Honour was wrong to exclude the last sentence in 16.5 and the whole of 16.7. It follows that his Honour was not entitled to conclude that the appellant was in breach of the repair covenant and had to comply with item 145 or, at its election, item 146. His Honour was also wrong to find that the continued functionality of the window frames was beside the point. This conclusion was based, at least in part, upon his Honour's perception that the parties were agreed that the corrosion was a defect warranting repair. As I have pointed out, this was not the case. To the contrary, it was the appellant's case that the corrosion was aesthetic only and not in breach of the repair covenant.
77 One issue debated before us was whether it is necessary to remit the matter to the Referee to determine what would have comprised reasonable maintenance. Given the Referee's findings of fact in 16.5 and 16.7, which should be adopted, I do not believe that any remitter is necessary. I add that, in light of the Referee's conclusion, which should be adopted, there would in any event be no utility in a remitter. The parties had accepted that repair would be more expensive than replacement and this was the reason that the Referee directed himself to replacement.
78 It follows that his Honour's declaration that the appellant's failure to comply with item 145 or in the alternative item 146, constituted a breach of cl 2(c)(i) of the subject lease, should be set aside. According to his Honour's judgment of 22 March 2001, that order appears to be number 4 (see judgment at Red AB 28 para 7), however, the court does not have a copy of his Honour's final orders.
79 The result is that the appellant loses on issues 1 and 3 in the appeal, but succeeds on issue 2. The appeal should be allowed in part and his Honour's order mentioned immediately above be set aside. There should be substituted therefore a declaration that the appellant was not in breach of cl 2(c)(i) of the lease with respect to items 145 and 146 of the notice of default.
80 In the circumstances, I believe that it is appropriate that each party bear its own costs of the appeal. I would not, however, disturb the costs order of the trial determined by his Honour.
81 The parties should file agreed Short Minutes of Order within 7 days.
82 DAVIES AJA: The facts and issues are set out in the reasons of Stein JA.