HARREM PTY LIMITED TRADING AS CTH TRANSPORT & SERVICES v TOYO TYRE RUBBER... [2008] NSWSC 776 | Case summary

HARREM PTY LIMITED TRADING AS CTH TRANSPORT & SERVICES v TOYO TYRE RUBBER... [2008] NSWSC 776 | Case summary | Zoe

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• Clause 21(a), the lessee's obligation to repair damage to premises resulting from neglect or a deliberate or careless act or a breach of condition. 7 Toyo's case in its cross-claim against CTH is that the damage arose out of an unauthorised use and fell within the provisions referred to in the preceding paragraph. Toyo also relied upon "Rules and Regulations" set out in the lease (in particular, Rule 4) which, by force of clause 14 in the lease conditions, CTH was bound to observe and perform. 8 CTH alleged that the premises were not reasonably fit for use at the commencement of the lease. In particular, it alleged they were not reasonably fit for the purpose of loading and unloading containers. It claimed that, as at the commencement of the lease, the pavement in the "hardstand yard area" and in other areas in the leased premises was deficient and had already deteriorated and suffered from significant cracking. It also claimed that Toyo was in breach of terms of the lease in refusing or neglecting to repair the damage to the above area. 9 CTH, accordingly, claimed for alleged losses and damage that it claimed occurred as a result of Toyo's alleged breaches. It also sought declaratory relief in relation to its entitlement to renew the lease under an option clause together with mandatory relief for carrying out repairs. 10 In its amended defence and cross-claim against CTH on 8 April 2005, Toyo put in issue matters pleaded in the statement of claim, save for paragraph 8 (the cracking and deterioration in the hardstand yard area). Toyo contended that the damage to that area that occurred during the term of the lease resulted from the alleged neglect or deliberate or careless act or breach of the lease by CTH's use of "an unusually heavy container forklift to load and unload container trucks with containers" (paragraph 7(a)) and due to its failure to take care of the premises (paragraph 7(b)). 11 Toyo alleged that CTH breached the lease by using a heavy container forklift known as a Clark Y650D forklift as a container handler. It alternatively claimed that CTH had negligently damaged the premises (paragraph 6). 12 It also relied upon an agreement between it and Mr Clarrie Howes, second cross-defendant, that he would be jointly and severally liable to Toyo, inter alia, for all monies payable to it and for the due performance and observance of all express or implied terms and conditions on the part of the first cross-defendant in the lease. 13 Toyo claimed the cost of repairs/replacement of the pavement in the hardstand area for the loss of extra rental for the premises from an alternative tenant. 14 In general terms, CTH's case is that the concrete pavement of the leased premises was inadequate for the operation of container handling equipment including, in particular, a Clark Y650D forklift. The question in the proceedings is which party is responsible for that inadequacy, Toyo, as lessor, which warranted that the premises were in a reasonably fit condition for use or CTH, as lessee, in bringing the Clark Y650D onto the premises and using it for the purposes of container handling. FACTUAL MATTERS

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(2) The leased premises 19 Before the sale to Toyo on 30 June 2002, the premises, 135-149 Airds Road, Minto, ("the premises") (including the portion leased to CTH) had been owned and used by Pirelli Cables Australia Limited. Toyo considered acquiring them for the purpose of its proposed rubber mixing operation. The premises had a total area of 7.6 hectares. 20 Mr Bruce Monahan, a general manager with Toyo, said that on his visits to the site in the early 1990s, the former owner, Pirelli, used the leased premises as its cabling dispatch area and he had seen in that area a number of parked semi-trailers. He added that rolls of cabling were loaded into the semi-trailers using a small forklift for distribution by Pirelli. 21 The main factory building on the premises covered an area of 2,500 square metres. It was constructed in about 1978. 22 Mr Monahan was charged with the responsibility of relocating the company's factory which was formerly at Moorebank in Sydney. It was his function to design the layout for the new factory premises within the context of an existing building. This involved him preparing the necessary scope of works and consulting with engineers. 23 He stated that he first inspected the premises in early 2001 with the vendor's agent, Mr Peter Steinhour, of Frank Knight. He did not recall noticing on that occasion anything adverse about the concrete pavement. 24 He inspected the premises again in or after May 2002 with Mr Williams, director and company secretary of Toyo, and Mr Steinhour. He said he did not recall anything adverse about the appearance of the pavement. 25 URS Australia Pty Limited had been engaged by Pirelli to inspect the premises and, in due course, that company provided a property environmental report in August 2000, a copy of which was attached to the contract of sale to Toyo. 26 The external areas of the premises were paved with concrete and bitumen. They had been used by Pirelli for heavy vehicle access, parking of passenger and semi-trailer vehicles and for the storage of cable drums and solid waste. In Exhibit 12(5), Mr Monahan recorded in his memorandum to Mr Williams that:- "2. It was common knowledge that the concrete was cracked but still generally flat and suitable for driving on. The area in question was used by Pirelli to load semi-trailers with reels of cable etc." 27 URS noted some localised fracturing in the surface of the pavement and observed that parts had been replaced due to fracturing. 28 Mr Philip Crane, Director of Woolacotts, Consulting Engineers, gave evidence on behalf of the Toyo. He stated in his report of 26 February 2004 (Exhibit B to his affidavit sworn 19 December 2005) that structural drawings indicated that the existing pavement was 170 millimetre thick concrete slabs supported on a 110 millimetre sub-base layer. The concrete had a design flexural strength of 4.5 MPa. It was unreinforced but was jointed at five metre centres which was said to be adequate to control shrinkage cracking. Mr Crane stated that the pavement is the type that would normally be designed to support highway loadings. He said it would be reasonable for use as a ring-road to support trucks loading and unloading at a typical factory warehouse. 29 Toyo purchased the premises on 4 June 2002.

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(3) Events preceding the lease 30 Mr Howes said he had requested Mr Tony Miracola of IPS of Elders Real Estate, Liverpool to locate premises that would provide a warehouse area, an office area and access for trucks. Toyo relied upon Mr Howes' correspondence with Mr Miracola as evidence of the fact that CTH's business was not involved in the storage of containers. 31 Mr Howes said that in about June 2002, he was driving past the premises at 135 Airds Road and saw a "For Sale" sign on the property. He spoke to Mr Miracola who advised him that the property had recently been purchased and the new owner was keen to rent part of the premises. 32 On Monday 24 June 2002 at a meeting at the premises, Mr Steinhour advised Mr Monahan that CTH wanted to use the premises for warehouse and distribution. Mr Steinhour walked with him to the warehouse and told him that that was the area CTH wished to lease. 33 On 24 June 2002, Mr Howes inspected the premises with Mr Miracola and Mr Peter Steinhour of Knight Frank, including in particular, the warehouse, office and the external yard area. He said at this inspection he noticed that there was "substantial cracking to many of the sections of the pavement". He said he also noted cracking in the concrete at the "rear of the building". 34 On 25 June 2002, he forwarded a proposal to lease part of the premises. The offer was rejected but some days later, Mr Steinhour called on Mr Howes at his premises at 50 Airds Road. Mr Howes said that Mr Steinhour said he wished to see him so that he could have a "look at his operations". Mr Howes said he pointed from his office to the warehouse area and said:- "This is where we do all of our warehousing. That area that you just walked through is where we unpack the containers and do all the handling. Outside is where we keep the containers." 35 Some days later, Mr Howes attended Toyo's premises at Moorebank for a meeting. Mr Steinhour and Mr Monahan of Toyo were present. Mr Monahan, at that time, was the general manager of Toyo's Rubber Products Division. Mr Howes said in his affidavit sworn 6 May 2006, paragraph 13:- "… During the course of that meeting, I said to Bruce Monahan:- 'I am involved in heavy transport. We load and unload containers and I am doing a lot of warehousing. We use semi-trailers and B Doubles and the yard area could be ideal for expanding my business. We could do loading and unloading there and store containers there. We use a large Fork for loading and unloading." 36 Mr Monahan disputed that evidence. In evidence in chief, Mr Howes corrected paragraph 18 of his affidavit. He said he had been mistaken when he said that Mr Steinhour had been present at the meeting. 37 On 25 June 2002, CTH wrote to Mr Miracola following an inspection of the property on 24 June 2002. The proposed leased area stated In the letter was:- Office 400 square metres Warehouse 2,600 square metres Total 2,900 square metres 38 The letter referred to "special conditions". These included:- "C - Hardstand area directly outside warehouse will be for loading, unloading vehicles and parking of equipment. Drive through area will be accessible at all times." 39 Mr Howes relied upon evidence of further conversations involving Mr Miracola and Mr Monahan as follows:- "14. During the next several days, I had further discussion with Tony Miracola. He said to me:- 'I think you should put a special condition in the Lease about the loading and the unloading of containers in the yard area.' I said:- 'That's a good idea, it should go in'. 15. Within the next few days, I had a meeting at the premises with Bruce Monahan and Tony Miracola. I notice that the office area had been painted and was clean and the warehouse had been swept out and the yard area had been swept and cleaned. I also noticed that some workmen were putting up some mesh on the fence. After that inspection, I was standing outside the office doors at the premises with Bruce Monahan and Tony Miracola. I said:- 'As I have said before, we might be able to be of some assistance to you loading and unloading your containers and doing your transport as we have got the fork on site and we can do the lifting. We can probably do a better rate than the people you are presently using, using a side-loader'. Mr Monahan said:- 'Yeah, that sounds okay. I will get my suppliers to give you a ring and you can give them a quote'. 16. At or about this time, Tony Miracola said:- 'Gee, the concrete out here is pretty bad'. (He was then standing outside the office door looking into the yard area.) Bruce Monahan then said:- 'Yes, it's not good'. I said:- 'Well I can remember it being like this 20 years ago when I was driving'. Bruce Monahan then said:- 'So how do you perform the handling'. I said:- 'We do not do any elevated handling. All containers get lifted to the ground for OH& S reasons. We've got a big Fork. It's the only way we perform our handling'." 40 As indicated above, Mr Monahan denied any discussion with Mr Howes at the Moorebank premises concerning the lifting of containers for Toyo by CTH. He said Moorebank was a factory and not a warehouse. 41 He said he only attended his company's premises at Minto on about two occasions between June 2002 and October 2002. He could not recall meeting with Mr Miracola and denied Mr Howes' allegation that he met him and Mr Miracola at the premises in late June or early July 2002. He said it was not until 2003 that he heard anything about CTH using a large forklift. 42 Mr Monahan said that he did not recall meeting Mr Howes on site before the lease was entered into. He said he first met him in his office, and he did not have a conversation with Mr Howes about CTH's operations. He said he was not involved with the original negotiations though he became aware of them after they had been concluded. 43 He said that he knew that the plaintiff's operations involved transport and containers, the emptying of containers and warehousing. He said his understanding was that they were going to use side loaders for unloading containers. He agreed that import/export containers are heavy and that CTH required a means of lifting them from trailers to the ground and the reverse. He said, however, that he was not aware of the need to place containers one on top of the other. 44 Mr Monahan said after the lease was entered into, he became aware of the presence of containers on site which he said amounted to "warehousing". He said he could not recall seeing containers double or triple stacked. He agreed, when it was put to him in cross-examination, that he did not take exception to CTH's operations because they were consistent with the "authorised use" under the lease. 45 At another point, he said that, although he considered the use of a large forklift was an unauthorised use, he did not do anything about it other than refer to "our people within our company who were looking after the site, in particular, Mr Williams". 46 Mr Miracola provided a detailed account of the pre-lease discussions and negotiations. He said he inspected CTH's operations at its former Otis premises at 50 Airds Road, Minto. He attended there on a number of occasions and said that he noted a number of containers stacked at least two high in the car park area. He estimated that there would have been approximately somewhere between six to 12 containers in the area. 47 Mr Howes' referred in correspondence to leasing premises that would provide an office and warehouse area. There was reference to CTH's requirements for loading and unloading vehicles and parking without express reference to containers or to their storage. Mr Howes conceded that it was in the later stage of lease negotiations that he requested that access be provided to the yard area for loading and unloading containers. 48 He was asked whether he had discussed with Mr Miracola the requirement for a large yard area for container handling:- "Q. So do you tell the court that Mr Miracola advised you to include in your lease proposal for Toyo, the specification of a quantity of yard area for your container handling business? A. Yes. Q. When do you say he did that? A. It was during discussions, just before signing the lease. I had it down as one way and he thought it was a good idea, because of the amount of containers, that we put that in as a special condition. Q. So it wasn't until just before signing the lease that Mr Miracola suggested to you that you actually have a reference to this very important part of your business, is that right? Q. Yes." 49 He agreed that a number of proposals for the lease had earlier been put forward:- "Q. It didn't concern you that right up until just before the signing of the lease, there was no reference in the proposals that you were making for the lease of the Toyo premises to the yard area that you wanted to use for container handling? A. No." 50 Mr Miracola said that, between 13 June 2002 and 19 June 2002, he believed that he had a discussion with Mr Howes in which Mr Howes requested the use of the yard area adjacent to the entry to the warehouse space. According to Mr Miracola, Mr Howes said, "We want some yard area to load and unload containers." 51 He attached to his affidavit copies of the relevant correspondence between 13 June 2002 and 1 July 2002 (Exhibits "B" to "P"). The letters sent by CTH in that period were on its letterhead entitled "CTH Transport, Storage & Distribution". In CTH's letters of 19 June 2002, 20 June 2002 and 25 June 2005, reference was made in the proposed special conditions to "… Hardstand area directly outside warehouse will be for loading, unloading vehicles & parking of equipment. Drive through area will be accessible at all times". 52 Exhibit P is a handwritten draft of the final terms prepared by Mr Miracola. It contained a special condition 5, which made reference in the same terms as the final special condition 6, to access to the hardstand area "… for the purposes of loading & unloading of containers". THE LEASE 53 On 3 July 2002, CTH, as lessee, and Toyo, as lessor, entered into the lease of part of the property 135-149 Airds Road, Minto. The term of the lease was for two years commencing on 15 August 2002. 54 The form of lease comprised a four page standard form lease issued by the Real Estate Institute of New South Wales with an additional page of "Special Conditions". The lease was entitled "Commercial Lease" and was subtitled "Suitable for small office buildings, factories and any shop premises …". 55 Toyo's agent was identified on the lease as "Knight Frank". The premises were identified as "Part, 135-149 Airds Road, Minto" including all fixtures listed in the inventory. 56 As noted above (paragraph [2]), the lease specified the "use" permitted under the lease as "warehousing, storage and distribution". 57 The rent was stated to be $15,437.50 per month payable in advance. The lease contained an option for renewal of the lease for a period of one year. 58 The standard conditions of the lease imposed obligations on Toyo in terms of clauses 1 to 8. CTH assumed the obligations in clauses 12 to 18. Clauses 19 to 34 contained provisions that were binding on both parties. 59 The specific standard conditions relevant to the issues in these proceedings included the following. 60 The previously mentioned provision entitled "use" that required that the premises "… shall be used only as warehousing, storage and distribution". "THE LANDLORD AGREES:- 2. To ensure that the premises are in a reasonably fit condition for use at the commencement of the lease." THE TENANT AGREES:- 12. To take care of the premises and to keep them in a clean condition, and, in particular:- (g) to notify the landlord promptly of any loss, damage or defect in the premises. 14. To ensure that he, his employees, licensees and agents observe, obey and perform the Rules and Regulations forming part of this lease … for the safety, care and cleanliness of the premises and of the building. 16. (a) To compensate and meet all claims of:- (i) the landlord for the loss of or damage to part or whole of the premises." 61 Clause 21 of the lease provided:- "BOTH PARTIES AGREE THAT:- Repair 21(a) The tenant shall have repaired in a proper way any damage to the premises resulting from neglect or deliberate or careless act or a breach of any condition of the lease by the tenant or any person on the premises with his consent. (b) Except as in Condition 21(a), the landlord shall carry out without delay all reasonable repairs necessary for the tenant's ordinary use and occupation of the premises, having regard to the condition of the premises at the commencement of the lease." 62 The "Special Conditions" refer in various provisions to five specific areas of the leased premises, being, "the office area", "the warehouse area", "the hardstand area", "the yard area" and "the driveway area". According to Mr Howes, the "hardstand area" was a concreted area in front of the warehouse where containers were handled. 63 Clause 6 of the Special Conditions was in the following terms:- "6. Tenant is to have access to the hardstand area noted in the annexed plan for the purposes of loading and unloading of containers. The driveway area is to be kept clear at all times allowing access for the landlord around the perimeter of the premises." 64 The lease contained "Rules and Regulations" which consisted of seven paragraphs. These were directed towards the regulation of the use of the leased premises. Paragraph 4 provided as follows:- "4. The tenant shall not install or position any heavy equipment or article without first raising the written consent of the landlord , which consent may prescribe the maximum weight and the position in which such heavy equipment or article may be placed or secured ; the tenant shall make good at his own expense all damage caused to the building or any part of it by the introduction, installation, presence or removal of any heavy equipment or article of which the tenant has ownership, custody or control. Before any safe or heavy article is moved into the building, due notice must be given to the landlord and the moving of it in and about the building shall only be done under the supervision of the landlord or his agent." (emphasis added) THE BUSINESS CONDUCTED BY CTH

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(5) That it was Mr Miracola who suggested to Mr Howes the insertion of special condition 6 into the lease permitting the loading and unloading of containers. 69 It was CTH's case that the concrete pavement had been affected by water penetrating the sub-base both before and after the lease commencement. In particular, there were number of incidents relied upon that were said to have led to water escaping and penetrating the concrete surface of the yard area (December 2002, pooling of water in May 2003, on 27 June 2003 an episode of water gushing from the pavement areas of the yard and on 24 February 2004 water gushing through pavement cracks in the warehouse on 19 January 2005). 70 Toyo contended that CTH's business was effectively "a container handling business" and that such a business was a separate part or "bracket" of the transport industry. It argued that a container terminal does not fall within the description "warehouse, storage and distribution". 71 Mr Howes said that during CTH's occupation of 50 Airds Road, numerous containers were stacked usually two or three high. He said that the company had a "large Heister forklift" on that site. I will refer below to evidence that established that the Heister forklift was on that site for a defined period and was last hired by CTH in October 2001. According to Mr Howes, Mr Steinhour said during his inspection at 50 Airds Road:- "It's some operation you've got here. It's a lot bigger than I thought." 72 Mr Howes maintained that since 1992 his business had utilised containers to transport goods and that the company had stored containers (and loaded and unloaded them) prior to the business being moved to Toyo's premises. 73 Mr Burchett of counsel, who appeared on behalf of Toyo, in cross-examination, relied upon what he contended was a distinction in the transport industry between operations involving the emptying of containers of their contents (referred to as "de-stuffing") and operations in which containers are stored until they are sent elsewhere. 74 It was put to Mr Howes that container handling was understood in the industry as the business of storing and moving containers (whether full or empty) "as a distinct business from unloading and loading of containers" with objects. It was put to him the nature of CTH's business was only concerned with the latter. Mr Howes rejected propositions put to him. 75 Mr Burchett also sought to distinguish CTH's operations as they had formerly been conducted at 50 Airds Road from those conducted at the leased premises. Toyo claimed that CTH had not previously been conducting a container handling business. It contended that there had not been space at 50 Airds Road for the handling of containers. It sought to reinforce its point by observing that it had only been at a very late stage in negotiations that special condition 6 was included in the lease permitting CTH to use the "hardstand area".

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(2) Container handling - CTH's methods and equipment 76 CTH had leased a Heister forklift for use at 50 Airds Road from Price & Speed Clearances Pty Limited from a date early in 2001 and either August or October 2001. The Heister was a 28 tonne forklift with a 40 foot top lift. Mr Howes said it was introduced for use at those premises because his business was "picking up a lot more work that required us to hold containers for unpacking or re-delivery". 77 He said that the company had operated four forklifts at 50 Airds Road, including a Nissan (a 2.5 to 3 tonne forklift) and a Caterpillar C150 model. The smaller forklifts had the capacity to lift two light loaded containers on top of one another to make a stack of three containers. He said his business had handled both 20 and 40 foot long containers on that site. 78 Mr Howes' evidence was that the Heister forklift was of comparable dimensions to the Clark Forklift subsequently purchased by CTH. However, that was not so as the Clark forklift Y650D was, in fact, a 39 tonne forklift. 79 Mr Howes maintained that CTH still had the Heister at the time of the initial negotiations with Toyo representatives in 2002 for the lease of the subject premises. He said he made reference to it during the course of the lease negotiations. 80 Toyo's case was that Mr Howes had not, in fact, referred to CTH operating a very large forklift, in particular, the Heister. It relied upon hire records which established that CTH had hired a Heister forklift for a shorter period than Mr Howes had stated. The records, it claimed, indicated that CTH did not, in fact, have it on site as at the time of the lease negotiations. 81 The hire documentation from Price & Speed Clearances Pty Limited, indicates that the hire of the Heister forklift commenced in February 2001 and continued for a period of about eight months. Mr Howes stated that he thought the Heister was returned "as far as I recalled, 2002". He said the hire lasted for 18 months. It was put to him in cross-examination that the Heister was dismantled and removed from 50 Airds Road by October 2001. He was shown a number of documents including an invoice dated 11 October 2001 which referred to the Heister having been dismantled. Mr Howes agreed that that appeared to be the date the end of the hire period. 82 In later cross-examination, Mr Howes accepted that the invoices in fact established that the last time CTH used the Heister may have been in August 2001. It was then put to him:- "Q. Consequently, you did not use, in your business, any large forklift of the dimensions or scale of the Clark forklift that you subsequently brought to Toyo premises between August 2001 and at least November 2002, when the Clark came to Toyo?" 83 Mr Howes did not agree. However, in further answers, it became clear that CTH from about that time or from about October 2001 used smaller sized container handling equipment. 84 Mr Howes, however, did agree that, in light of the hire documentation, it was unlikely that the Heister forklift was on site at the time of the lease negotiations. On that basis, he accepted that his affidavit evidence to the effect that a Heister forklift was present at the time of Mr Steinhour's visit to 50 Airds Road could not have been correct. 85 Mr Howes also acknowledged that his affidavit evidence, to the effect that he told Mr Monahan before entering into the lease that "… we use a large forklift for loading and unloading", could not have been accurate given that the records that established that CTH had not used such a forklift/container handler for almost a year as at the time of speaking to Mr Monahan:- "Q. So you could not have told him 'we use a large forklift for loading and unloading', could you? A. Yes, I did. Q. Why would you tell him such a thing? A. Because we had, when we returned a forklift at a date and we were purchasing a forklift. As I said, it was always the case the forklift was going to be there. Q. You hadn't used one for about a year? A. From the evidence, no." 86 In light of the evidence that established that there was no large forklift in use by CTH at the time of the lease negotiations, Mr Howe's evidence as to the abovementioned statements he said he made to Mr Monahan in my assessment cannot be accepted. In cross-examination, he was asked:- "Q. At paragraph 15 your first affidavit, you refer to a meeting at the Toyo premises with Mr Monahan and Mr Miracola. You say that at that meeting you were standing outside the office doors of the premises with those persons and that you said 'As I have said before, we might be able to be of some assistance to you loading and unloading your containers and doing your transport as we have got the fork on site we can do the lifting.' A. Yes. Q. In hindsight, now that you have seen those records, which show that a large forklift had not been used almost a year and it was another five months or thereabouts before you acquired one, do you agree that it was highly unlikely that you would have made that statement at that time? A. No. I did make that statement." 87 In relation to paragraph 16 of his affidavit sworn 6 May 2005, he again referred to statements he said he made to Mr Monahan "we've got a big fork. It's the only way we perform our handling". It was put to him in cross-examination:- "Q. That clearly was not true at June 2002, was it? A. In the interim, no. Q. In the interim of over a year it wasn't true? A. No, no." 88 The evidence of Mr Howes, Mr Miracola and Mr Steinhour (discussed below) established on the probabilities and I find that:-

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(3) The Clark forklift 90 CTH acquired a used Clark C500Y 650D forklift with a 40 foot top lift container handling frame in November 2002. The evidence included an invoice from Forklift Trader to CTH dated 22 November 2002, together with a lease purchase by CTH of the forklift with National Australia Bank dated 31 October 2002. Finance was approved on 25 November 2002 (Exhibit C). Mr Howes' evidence was that it was delivered on 20 November 2002, although he said in giving that evidence he had relied upon an invoice date in stating it was delivered on that date. He acknowledged that the delivery date may have been in January 2003 and not December 2002. 91 Mr Howes said that CTH acquired the Clark forklift or container handler because of an increase in business:- "When I was at 50 Airds Road, our business was climbing rapidly and we were struggling to handle the amount of containers that we were getting." . 92 He added:- "It gives us the availability to take on more work and place the containers as in storage of goods … it allows us to do more containers, to hold more containers for storage purposes and for our redirection to customers." 93 He also explained:- "… the forklift comes into play when you get an abnormal amount of customers that require you to either hold their container or bring in more than one or two containers at a time on the same vessel, because there's restrictions to the availability of containers, restrictions in each shipping detention to get it back. So if it is a manual unload, which 50% of them would be physical labour, and they have 15 containers on one vessel, it is physically impossible to have 15 trucks sitting around for five days which you are trying to unload it from an elevated height. The forklift makes it easier, quicker, a lot safer and it keeps the business rolling on. It saves a lot of time measures." 94 Mr Howes acknowledged that operations as so described depended upon having the space to place the containers. He was asked in cross-examination:- "… that this was an opportunity (Toyo's premises) for you to greatly expand whatever container handling side of your business you had, isn't that right? A. Yes." 95 The Clark model Y650D was described as a heavy duty forklift capable of lifting 40 foot containers. It has a tonne weight of 40.8 tonnes with a lifting capacity of 30.9 tonnes. Mr Crane, in his report of 26 February 2004, stated that the front axle load for a loaded Clark Y650D container forklift is 57.5 tonnes. He added that this load "… is very large and should be supported by a specific heavy duty industrial pavement of the type used typically at airports and container facilities …". 96 Mr Howes said it operated on the premises for an average of one to one and half hours per day. 97 Mr Crane stated that if the Clark forklift was to continue to operate at the site, he recommended that the pavement should be replaced with a 350 millimetre thick concrete slab on a 150 millimetre bound sub-base layer. He added that the concrete should a tensile strength equal to or greater than 5.0 MPa.

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• In consequence, it was not reasonably fit for truck loading or loading imposed by the large forklift. 100 Mr O'Brien in his supplementary dated 8 May 2007 (p.4) observed that highly loaded industrial pavements fail first at joints and cracks. He stated that after this occurs, subsequent pavement deterioration can be very rapid, since large cracks and failed joints allow surface water/rainwater to enter the sub-grade thereby softening the sub-grade and creating a "vicious circle". I note here that this is consistent with Dr Wiesner's opinion. 101 Mr O'Brien further observed that, with such sub-grade mechanisms, sub-grade failure can be both the cause of slab failure and the effect of slab failure. 102 In his supplementary report (p.5), he observed that the loading of slabs across joints is important as the joints are the weakest point in a concrete slab. He referred to figure 1 to his report being the photograph of a tongue-and-groove joint which showed major damage. He stated that such damage can readily allow the ingress of water with subsequent pumping and compounding failure effects. 103 Mr Christopher Parkes, whose work involved the detection and location of water and gas leaks, attended at 135-149 Airds Road, Minto on 4 June 2001 to locate the source of leaking water in the driveway area. In evidence, he said he walked around part of the factory area and observed the concrete was "in poor condition and there were cracks everywhere …" (affidavit sworn 5 May 2005, paragraph 8). 104 He marked on a site diagram (Exhibit J) the area in which he made his observations. That area extended from the gate towards the factory building but short of the hardstand area. In oral evidence, he described the cracks he saw as "several metres in length and 10 to 15 mm in width, I guess. You wouldn't sort of see those sort of cracks in a public area normally …" (t.184). 105 In cross-examination, he said photographs 1.1, 1.2 and 1.3 in Exhibit B showed part of the area in which he walked around on 4 June 2001. These reveal obvious vertical cracks and that the cracks were of some metres in length, that is, more than hair line cracking and such cracks were present with horizontal cracking. He stated photograph, 1.4 of Exhibit B, showed cracking that was "a bit worse" than what he recalled it as having been. 106 Mr Parkes appeared to me to be a reliable witness and it was not suggested that his evidence as to the above observations were wrong. The effect of that evidence is that, in the areas in which he walked around, there was cracking as at the time he was on site on 4 June 2001. According to the evidence of Dr Wiesner for the plaintiff, significant cracking indicates "failure" of the pavement in the relevant area which is capable of allowing water penetration and is indicative of a pavement whose design life was well advanced. 107 Mr Steven Oswald, licensed plumber, drainer and gas fitter, attended Toyo's premises two or three times in 1999/2000 and December 2002 to repair water leaks. He marked by two "Xs" (X1 and X2) on a diagram, Exhibit D, the areas in which he undertook repair work in that period. He was sure that the work in area X1 was performed before CTH moved into the premises. 108 Mr Oswald said that photograph 1.4 in Exhibit B (which reveals a significant level of cracking in terms of length, vertical and horizontal orientation and apparent depth of cracking) was "pretty typical" of what he had seen as to the condition of the concrete before CTH took up occupation. 109 Mr Oswald appeared to be a straightforward and honest witness. His evidence was in line with that of Mr Inglis who also stated that photograph 1.4 depicted the condition of the concrete in the area of the apron as at the start of the lease (t.338). 110 Mr Miracola agreed in cross-examination that in mid-2002 at a meeting at the premises there was reference made to the state of the premises. He said:- "I could probably recall words to the effect that it was in poor condition, cracks in various places" . 111 He said the cracks were visible (t.340 to 341). When shown photograph 1.4 in Exhibit B, he said, "… there were cracks. I mean, yes, there were cracks everywhere". 112 Mr Monahan also agreed that at the time CTH went into occupation of the premises, there was cracking in the concrete, including, in particular, in the hardstand area. He agreed the cracking was "widespread" and that it was significant cracking. He said on his second visit to the premises (in 2002) "we did note there were cracks in the concrete". When it was put to him that it was "significant" cracking, he replied "significant, if you want to call it that, yes". He agreed that he saw "significant" cracking in the area to be leased to CTH and in other areas. 113 Dr Wiesner was shown photograph 1.4 of Exhibit B in cross-examination. He stated that he considered the cracks were "serious cracks". He stated that joints that are not sealed represent a potential avenue for water to enter the sub-grade and soften it, causing deterioration and further cracking. 114 The evidence to which I have referred establishes that the concrete pavement within the leased area (including that in the hardstand area) together with other areas of the premises had suffered significant cracking prior to the commencement of the lease. The expert evidence (see below) identified as significant matters:-

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• The depth of the cracking. 115 On the evidence, the cause of the cracking, on the probabilities, was the pavement's use over many years during the operations of the previous owner, Pirelli Cables Australia Limited. The report of URS Australia Pty Limited dated 10 August 2002, a copy of which is Annexure B to Mr Monahan's affidavit, referred (at pp.2 to 3) to heavy vehicle usage and the storage of cable drums and solid waste by Pirelli. It noted that some areas of the pavement had been replaced due to fracturing. The report also referred (at pp.4 to 5) to pallets of drums of paint having been placed on the pavement. 116 As noted above, Mr Monahan confirmed that Pirelli used the leased premises for a long period as its cabling despatch area. He recalled rolls of cabling were loaded onto semi-trailers by forklift. 117 Mr Howes said that when Pirelli owned the premises he had seen several containers going to the premises from time to time. He said there were always numerous semi-trailer vehicles in the area of what was to become CTH's lease and "hundreds of tonnes of cable drums" moved by 6, 8 and 10 tonne forklifts. 118 It is clear on the evidence that the premises had been subjected to substantial truck loading and that, as part of the ordinary operations of Pirelli heavy cable drums were loaded and unloaded by forklift. In the course of such operations, the pavement had been subjected to a high level of repetitive loading, including from loaded semi-trailer vehicles, and that this led over time to the fracturing or cracking of the pavement as described in evidence. 119 The expert evidence established that, once fracturing of concrete occurs to the extent that existed as at the commencement of the lease, the potential exists for further deterioration as the result of the combination of repetitive heavy loading and softening of the sub-base. 120 The evidence indicates that fracturing in pavements is often the product of direct and indirect factors interacting with one another. The discussion in the report of Dr Wiesner, which I accept as reliable, as well as the historical reports dealing with the original design and construction of the pavement which were made for the purpose of investigations some seven years after the pavement was laid, establish in all likelihood that progressive pavement damage up to September 2003 was the result of a number of factors. These include:-

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(5) Traffic loading particularly on a pavement which had a sub-grade value of less than four percent. Such loading may produce cracking leading to the penetration of rain and other water which further weakens the capacity of the sub-grade to bear loading from the concrete. 121 Dr Wiesner's analysis based on sub-grade weakening reflects certain observations of Mr Taylor made in 1983. In this report dated 28 November 1983, written for the investigations that preceded the reconstruction of failed areas of the pavement, Mr Taylor emphasised the causal significance of the CBR values which reflected local variation in the sub-grade strength. He observed that these could have resulted from water penetration through surface cracking in the pavement (at p.5 of the report). The early identification (in 1983) of the significance of cracking and of water penetration to the pavement provides a measure of support for Dr Wiesner's opinion. 122 The evidence also established that the rate of failure in pavements is partly dependent upon the frequency of heavy traffic - the more frequent and heavier the traffic, the faster failure accelerates the period over which it starts to break down and fail. 123 In cross-examination, Dr Wiesner confirmed that, once factures exist, the pavement will deteriorate with traffic loading albeit at different rates depending upon the amount of loading. "Q. Can I suggest to you that that same concrete, after that 20-year period of trafficking, has imposed upon it loads six or seven times at least the loads of those past 20 years -- A. Break up -- Q. -- and within a month or two breaks up? A. Well, the fractures are already there. The path for water to enter the subgrade is also there. All you need is more traffic and more load and it will deteriorate. As I mentioned, pavements aren't designed to fail and when you double the load you can reduce the design life by a factor of 16 times. A pavement designed for 30 years, if you double the load on it you can reduce the design life down to less than two years. Q. And so you would assume in the scenario I've just painted that the main cause of the failure to that concrete was the extra load imposed upon it? A. Well, the fact that there were cracks there was the main cause, allowing water to enter the subgrade, but the actual further deterioration was prompted by the additional traffic. If they'd dug out the pave - the slabs, replaced them and then put heavier loading on, I don't know what would have happened. It probably would have extended the design life to some stage, but to my point of view, those slabs were - had failed basically, there were cracks in them. You shouldn't have concrete pavements with those sort of cracks in them.

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Q. Softer? A. I think a lot of these design life calculations are based on the assumption that the pavement is like a sandwich where you have a good quality subgrade, you have a good quality sub-base, you have a concrete slab on top. As soon as you get a crack, water enters into the sub-base and penetrates the subgrade and softens it, so those analyses are no longer totally valid because you have a non uniform sub-base, you have a non uniform subgrade, and it makes it more susceptible to traffic." 124 The expert evidence establishes that as deterioration in a pavement, evidenced by "serious" cracking or fracturing, continues to occur with traffic loading, the pavement has failed at least in the sense that it can no longer be used without the potential or the actuality of further damage resulting from repetitive use. 125 The plaintiff relied upon Dr Wiesner's evidence for the proposition that the photographs taken in 2002, including in particular, photograph 1.04 in Exhibit B, established that the pavement had failed in the leased area before the lease commenced. Dr Wiesner expressed the opinion that, as at the date of the lease, it had reached the stage of requiring replacement. Mr Simpkins SC for CTH submitted that the pavement as at that time was not adequate to provide proper performance for truck movements let alone forklifts used for container handling. 126 In his final submissions, Mr Simpkins relied upon the fact that it was not until about May 2003 that Mr Gregory noticed damage to the pavement which he attributed to the use of the Clark forklift. The point here was that the damage did not become apparent immediately following the commencement of the Clark forklift's operations in late 2002 or early 2003. The fact that the deteriorating condition of the pavement took some months to become apparent suggested that the cause of failure was not only the use of the large forklift. It was, Mr Simpkins submitted, consistent with something more complex and represented an evolving situation involving more than one causal factor. 127 Mr Simpkins also relied upon Mr Howes' evidence to the effect that the Clark forklift operated on average one to one and a half hours per day including in areas other than the hardstand area without causing apparent damage. This, he argued, also suggested that there was some other factor operating in the hardstand area before the damage in due course became visible after the Clark forklift's initial months of operation. WATER PROBLEMS

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(1) Water leaking episode: 6 December 2002 128 Mr Howes, in his affidavit sworn on 6 May 2005 (paragraph 26), said that on or about 6 December 2002, he observed water leaking from sections of the yard area. According to his account, water was coming up through the ground in numerous places over an area of about 100 metres. He said initially the water came out at only a trickle about 10 centimetres high, but over the next hour, spouts of water became as high as three metres. He said he telephoned a plumber, Mr Ray Ingles, of the defendant company who, in due course, attended the site and turned off the water main. 129 Mr Howes identified the area in question in a plan, Annexure D to his second affidavit. He identified the point marked "1" as the point of the "main water explosion". He agreed that point was near a fire hydrant. He said there were leaks through the pavement. Mr Howes marked on the plan, Annexure D, the leased premises in yellow. He said in his first affidavit (paragraph 28) that, as a result of the water explosion, the water pooled in various areas of the yard for two or three days. He acknowledged in cross-examination that the hardstand area sloped away from the warehouse. After two or three days, he said when the trucks ran over certain areas of the pavement, water was pushed up from the cracks. This was still occurring over a period of approximately two weeks. It is apparent that the water episode on 6 December 2002 was a significant one and resulted in a substantial release of water that was capable of penetrating the pavement through the cracking and thereby reaching the sub-base material. 130 On 7 December 2002, Mr Howes said he took 24 photographs of the premises. These were annexed to his affidavit. 131 Mr Howes' evidence was that over the next two or three days, the water pooled in various locations. At the end of this time, CTH's trucks ran over certain areas of the pavement which he said resulted in water being pushed up out of the cracks. He said he also noticed movement of the pavement up and down under the weight of the trucks. 132 Over the next two months, he said the concrete surface of a part of the yard area (measuring about 2,200 square metres) commenced to break up and sections of the concrete measuring up to about one square metre became displaced. He said that the surface became uneven and unusable by about February 2003. Having considered Mr Howes' evidence in some detail, I am of the opinion that his evidence was to his above observations were reasonably accurate and should be accepted. 133 Mr Oswald, licensed plumber, drainer and gas fitter, had, as noted earlier, from time to time, attended the Toyo site for the purposes of undertaking plumbing work. In his affidavit sworn on 5 May 2005, he referred to his attendance in December 2002. Exhibit G contains a copy of a tax invoice dated 19 December 2002 which recorded repair work for a "Broken Fire Hydrant Line" undertaken on 6 and 9 December 2002. 134 He marked on a diagram, Exhibit D, two areas X1 and X2 respectively in the north and south portion of the Toyo premises where he had previously undertaken plumbing work. 135 In relation to the area X1, he said that he had attended for the purposes of advising and undertaking work associated with a pipe in an area near the gate where a slab of concrete was being replaced. 136 He said in December 2002, there was a large amount of water pooled in the area under the awning adjacent to the entrance of the warehouse occupied by CTH. He engaged Pinpoint Locating (a Mr Parkes), to identify the source of the leak. Exhibit H is a copy of that firm's tax invoice dated 8 December 2002 relating to the work performed. Mr Parkes, who did the tests, took him to a location adjacent to a fuel bowser in an area inside the front gate and then around to the left of it. He there undertook excavation of the concrete and removed and repaired a broken pipe. He said the pipe appeared to be in a deteriorated condition. 137 Mr Oswald marked with a cross on a further copy of the same diagram (Exhibit E) the area immediately adjacent to the point described on the diagram as "metal awning" being the area where he saw pooled water. 138 Mr Oswald identified the area where the repair was carried out in December 2002 (the fixing of a pressure pipe) which is depicted in Exhibit B, photograph exhibit 1.22. 139 Mr Parkes swore an affidavit dated 5 May 2005. He had attended at 135 Airds Road on previous occasions, in particular, on 4 June 2001, 31 January 2001 (or 31 January 2002). He also attended on 8 December 2002. On the latter occasion, the plumbing problem was noted as "water leak in fire main …". He attended again on 9 March 2003 in respect of three water leaks, two in the fire service and one in the domestic supply. He said he also attended on 21 August 2003 in respect of a large leak on the fire main end of the factory. Invoices in respect of these attendances constituted Exhibit H. 140 Mr Parkes marked on a diagram, Exhibit J, the area where he attended in June 2001. He said that he noted that there were several metres in length of cracking, 10 to 15 millimetres in width.

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(3) Water leaking episode: 27 June 2003 142 Mr Howes gave evidence of a further episode of water gushing from the pavement areas of the yard on 27 June 2003. He said he again spoke to Mr Ingles of the defendant. The main was turned off and whilst the gushing of the water stopped, for some days water continued to flow from various cracks in the yard area. He said the water took some days to subside. Further photographs were taken by Mr Howes on 27 June 2003 (CTH 4.1 to 4.13). 143 In September 2003, Mr Howes said he became concerned about the concrete and telephoned Mr Bruce Monahan of the defendant in which he said he stated, "What are you going to do about the concrete?". 144 Mr Monahan is said to have replied, "Look Clarrie, I know it's bad and it's breaking up. You'll have to watch where your forklift goes because it could be a health hazard". Mr Howes stated, "No Bruce, it's not the fork, it's all the water explosions which is causing the problems". He said, "Well, I will have to get back to you". 145 On 29 September 2003, Mr Monahan wrote to the plaintiff (Annexure C to Mr Howe's affidavit sworn on 6 May 2005). The letter did not refer to any communication having been made by Mr Howes in September 2003 about pavement damage. I will refer to the letter again in later discussion. 146 Mr Howes stated that there were other episodes of water emerging from cracks in the pavement (in particular on 25 February 2004 and thereafter whenever it rained). 147 Having considered the evidence, it is clear and I so find that on 6 December 2002, there was a large volume of water which escaped due to a broken pipe. This was the most significant episode of "water explosion" in the lease period. This probably resulted in water penetration of the pavement, including in particular, the hardstand area. On the probabilities and having regard to the expert evidence, the penetration was significant in that it was present and pushed up to the surface by traffic loading over a two week period following the episode on 6 December 2002.

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Photographic evidence of pavement deterioration 148 CTH relied upon a series of photographs which Mr Howes said he took over time commencing on 7 December 2002. 149 It was put to him that he went looking around the Toyo site "to find examples of cracked concrete":- "Q. And that was in order to prepare yourself for a fight with Toyo about the cause of the damage to the concrete outside the warehouse? A. In substance, yes." 150 A little later, it was put to Mr Howes:- "Q. You didn't complain to Toyo about the conditions of that concrete at that time, did you? A. I had discussions with Toyo at that time, yes. Q. But you didn't complaint, did you? A. In the [sic] sense, no. Q. You didn't ask them to do anything about it, do you? A. I asked them what they were going to do about it. Q. You didn't ask them to do anything though, did you? A. I can't remember. 151 He then was asked:- "Q. You didn't say effectively, 'this concrete is breaking up because its inadequate for our business. You have to fix it', or something like that? A. I remember a conversation - yes, I did say that. Q. When did you say that? A. I said that to Bruce Monahan by phone." 152 In Mr Howes' affidavit sworn 6 May 2005, he identified in paragraphs 27 to 47 a series of photographs. 153 Exhibit A contains a series of diagrams of the Toyo premises marked "Bundle 1 to Bundle 17" with numbers that correlated with the numbers of the photographs contained in the plaintiff's tender bundle. 154 The plaintiff's tender bundle, Exhibit B, contains a series of photographs, including the exhibits to Mr Howes' affidavit sworn on 6 May 2005, being photographs taken on later dates, namely, on 16 May, 12, 27 June 2003 and 19 January, 25 February, 25 May, 3 June, 17 November and 22 December 2004 and on 5, 18 and 24 May 2005. 155 These photographs CTH claimed evidenced the presence of water at different times as well as the progressive damage to the pavement in 2003. The following summary is based upon matters raised in Mr Howes' first affidavit and in the course of his cross-examination said to be relevant to factual issues concerning the condition of the pavement and the cause or causes of the damage to it.

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(1) Container handling 170 CTH placed containers along the length of the pavement outside the warehouse which effectively created a corridor or an alleyway down the middle of the containers, spaced so as to permit the operation and manoeuvre of the Clark forklift. Two areas of pavement at the ends of the corridor or alleyway suffered severe damage. Mr Howes said the worst area of damage was in the area marked "12" on the diagram, Annexure D to his affidavit sworn 13 September 2006. He also indicated damaged areas by the description "turning area". 171 Photographs, exhibits 1.1 to 1.6 in Exhibit B were, according to Mr Howes, taken in mid to late December 2002. These showed cracking in the concrete pavement. 172 Photo, exhibit 1.9 of Exhibit B was said to show cracking at a later stage, but well before May 2003. Photograph, exhibit 1.12, according to Mr Howes, was taken in early 2003, possibly in March 2003. 173 In the second series of photographs, photo Exhibit 2.3 of Exhibit B, taken on 16 May 2003 looking south down the "container alley", shows the Clark forklift and damage to the pavement in that area. Photo, exhibit 2.9, shows cracking on the access road 100 yards from the tenancy also taken on 16 May 2003. Photo Exhibit 3 of Exhibit B also taken on 16 May 2003 is a close-up of severe pavement cracking. 174 Mr Howes that that "in the early stages, CTH worked around the problem". He said that by about February 2003, parts of the premises had become unsafe. He said that the deterioration in the pavement restricted the company's use of the premises because of safety concerns. He said he raised his concerns with Mr Inglis of Toyo. He understood that Mr Inglis had spoken to Mr Monahan about the matter. 175 In his affidavit sworn 13 September 2006, Mr Howes' stated:- "8. I say that when the Plaintiff took up occupation of the premises in August 2002, there were numerous cracks in the concrete over the hardstand area which the Plaintiff was subsequently to occupy. Some of these cracks were between 1 - 2 cm wide. Some of the cracks gave the appearance of having been patched because tar had been poured into the crack. From the time the Plaintiff commenced occupation of the premises in August 2002, I observed that the original cracks were commencing to break up at their edges. At this time, the Clark Forklift had not been brought to the premises. This initial break up was particularly so in the area where the Plaintiff's trucks were driven. 9. … I say that from about February 2003, a large section of the yard area forming part of the premises leased by the Plaintiff had become broken and uneven and was unusable by either the Plaintiff's trucks or its Clark Forklift. 10. … 11. I have marked on the plan being 'Annexure A' a hatched area which is the area which had become unusable by about February or March 2003. From that time, the Plaintiff was unable to traverse that hatched area with either its trucks or forklift and from that time it commenced to stack containers in the areas marked 'R' to 'S' on the said plan. 12. Because the area in which containers could be stored had been reduced, from about March 2003, the Plaintiff commenced to double and triple stack containers in the areas designated 'R' to 'S' on the said plan. Some of the containers were stored outside the area which was leased to the Plaintiff. Because the Plaintiff began to double and triple stack containers from about March 2003, it took the Plaintiff longer to both stack and to retrieve containers when they were required for on forwarding." 176 Mr Howes' observations in paragraphs 8 and 9 set out above generally accord with that of Toyo's witnesses and I accept those observations to be reasonably accurate.

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(2) CTH and Toyo communications on pavement deterioration 177 Although Mr Howes claimed that it was he who first raised the issue of the deteriorating pavement with Toyo, there was no contemporaneous record such as email, letter or memorandum of any such communication by him. 178 Mr Monahan said in September 2003, he heard from staff that the damage to the concrete was significant. As a consequence, he inspected the premises and noted severe cracking, crumbling and lifting of segments of the concrete, particularly in the north-eastern end of the area of the tenancy between two rows of stacked containers. He did not speak to Mr Howes at that time. 179 On 29 September 2003, he wrote to CTH/Mr Howes (Annexure C to Mr Howes' first affidavit). The letter, in part, stated:- "A recent inspection of our property at Airds Road has confirmed that the property has sustained significant damage as a consequence of your operations. When you occupied the property on or about 15 July 2002 the building and concrete apron area adjacent to your leased area were inspected and found to be in good condition. Much documentation in relation to the sale of the property supports this assessment. Sometime [sic] since the commencement of this lease, you acquired a 40-ton container forklift which is currently on site and being used in your operations. This machine has caused significant and permanent damage to much of the concrete apron on the eastern side and northern end of the building. On the eastern side, damage extends outside the agreed area under the lease and we note for the record that you have used this area for storage at one time or another. Further, the mesh fence has been pushed out of alignment due to impact with containers and vehicles. Some unloading and heavy truck/forklift activity has taken place in the northeastern [sic] corner of the site and this has caused slab cracking and deterioration. We are concerned that the ongoing use of a machine which was not discussed with us at the time of leasing will cause further substantial damage to our property. The use of this machine on this surface would also constitute a safety risk to all concerned. As this damage is clearly a result of your activities on the site we request you to advise us (i) of your intention to use this machine on an ongoing basis for the remainder of the lease. (ii) With your acknowledgement that CTH will compensate Toyo (the landlord) as per clause 16 (a) and (b) of the lease in respect of the damage incurred to date. (iii) That all damage that may occur beyond this point in time will be reinstated as per the terms and special conditions of the lease. … We look forward to an early response as the apron area could be dangerous and unusable should the soil become wet and soft." 180 On the same date, Mr Howes replied asserting that the concrete had been in poor condition before the lease, that a number of water "explosions" had occurred which resulted in emissions of dirt and clay leaving hollows beneath the concrete, that the deterioration would have occurred under any traffic conditions and that it had occurred in areas not used by CTH and that:- "… I find it strange that I receive this email now as this was brought to your attention by myself with a short conversation and at that time nothing was said …" 181 Mr Howes stated in his reply that CTH "takes no responsibility to compensate for (sic) unforeseen breakage to concrete as this was not deliberate or for that matter a careless act". He also contended:-

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(5) At no time was CTH advised that the site was not suitable for a transport company's use. 182 Mr Howes contended that the deterioration was due to the allegedly defective condition of the concrete at the time of lease commencement, the lack of reinforced steel and the effect of water escaping onto the pavement. 183 He conceded in cross-examination that he was, by this letter, responding defensively to Toyo's demand that CTH repair the damage. He also conceded that he had taken photographs of the damaged pavement because he thought Toyo might claim against him for the damage. 184 Mr Monahan stated that rather than argue the matters with Mr Howes, having stated his position in his letter of 29 September 2003, he decided to seek instructions from Mr Williams by email, a copy of which was annexed and marked "G" to his affidavit. In it, Mr Monahan advised that he was seeking legal advice on the matter and that on receipt of the advice, he would let him know how the issue was to be resolved. 185 It is to be noted that Mr Monahan's email of 29 September 2003 did not expressly raise a question as to whether CTH's use or operations were beyond the authorised activities or use referred to in the lease. 186 On Mr Williams' advice, Mr Monahan advised Mr Howes that the facts of the situation were going to be sent to the company's lawyers for comment and that he would let Mr Howes know how the issue might be resolved. 187 Mr Howes sent an email asking, inter alia, for a copy of the report that Toyo held at the time of purchase. 188 Mr Monahan stated in paragraph 24 of his affidavit:- "I do not recall any discussion whatsoever about the type of equipment that was to be used at the premises nor do I have any recollection about any discussion concerning the use of a forklift to move and/or stack heavy containers. My understanding of the proposed use of the premises was that the premises were to be used by CTH primarily as a warehouse storage facility. In other words, containers would come in, be off-loaded from truck, emptied, the contents stored in the warehouse and the containers returned to the shipping companies." 189 In cross-examination it was put to him:- "Q. Would that be right that you've responded to Mr Monahan's emails but you didn't make complaints about the concrete? A. Other than in the first official letter, no. Verbally, possibly. I can't remember …" 190 The reference to the "first official letter" was apparently referring to Mr Howes' letter dated 29 September 2003. THE DEFENDANT'S EVIDENTIARY CASE 191 Mr Bruce Monahan swore an affidavit on 27 October 2005 in which he addressed the following matters:-

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(2) The leasing of the premises 195 On a date after 24 June 2002, Mr Monahan met with Mr Howes and Mr Steinhour at Toyo's offices at Moorebank. Mr Monahan said at no time during the meeting or subsequently did Mr Howes mention that it was proposed to use the premises for the storage of containers or to locate any heavy equipment on the site. In particular, he said there was no mention made of an intention to use heavy lifting equipment or a large forklift. 196 Mr Monahan stated that he was initially told by Mr Heinz Williams of Toyo that a warehousing and distribution company was interested in renting part of the premises. This led to a meeting with the vendor's agent, Mr Steinhour at Toyo's premises at Minto on Monday 24 June 2002. In the course of that meeting, according to Mr Monahan, Mr Steinhour said words to the effect:- "They want to use the premises for warehousing and distribution." 197 He was shown the area that CTH wished to lease. He said he was not directed to the concrete apron in front of the warehouse or advised that it was intended to be leased or used by the tenant in any way. 198 Mr Monahan noted in his affidavit (paragraph 7):- "I note Mr Howes has alleged, that he was prompted in speaking to me about his forklifting containers by walking out into a warehouse at our Moorebank premises and seeing a container, apparently being lifted by side-loader. Moorebank was a factory and not a warehouse; our warehouse at that time was at Ingleburn. We never had containers delivered to the Moorebank premises; all goods were delivered by flat-top truck precisely because we had no capacity to fill containers. Furthermore, a container would not fit inside the factory. I deny, that I had any such conversation with Mr Howes or that he offered to use any of his equipment to lift Toyo deliveries until after commencement of the lease in about September 2002. He never mentioned to me using the large fork instead of side-loaders to lift containers." 199 Mr Monahan said he was not involved in negotiating the lease. He subsequently received a copy of it and noted that CTH would be using the premises for warehousing, storage and distribution. 200 He said he could recall going to Toyo's premises on about two occasions between June and October 2002. He denied Mr Howe's account that he met him and Mr Miracola at the premises in June/early July 2002 and offered to use a CTH forklift to lift Toyo containers or that he or anyone in his presence at that time expressed any concern as to the condition of the concrete paving. As noted earlier, his evidence was that it was not until early 2003 that he heard anything about CTH using a large forklift. 201 Mr Monahan said that he did recall a phone call from Mr Howes in about September 2002 in which he offered for CTH to pick up a container for Toyo and put it into Toyo's store. Mr Monahan told Mr Howes he would have to speak to Toyo's suppliers. He believes that he later heard that CTH had arranged with a supplier of rubber (Australian Organics) and possibly another supplier for CTH to handle deliveries to the Minto site. He said he assumed the containers were unloaded by side-winders. 202 On or about 16 October 2002, Mr Monahan met Mr Howes and Mr Williams in Mr Howes' office to discuss the matter of extra space within the warehouse. He said he did not then notice any abnormal damage to the concrete. 203 Mr Monahan stated that at the time of this meeting he recalled there were containers located on the pavement area of the premises. He said he could not recall how many were there and did not recall whether they were stacked. He said that he definitely did not recall seeing either a container lift containers or seeing a large quantity of containers on the apron in front of the building. He recalled seeing a Caterpillar forklift with a counterbalance attached to the rear of it to taking containers off semi-trailers and placing them on the ground. He said that he also observed two or three smaller forklifts apparently unloading goods from containers and storing them in the warehouse or loading goods from the warehouse on to smaller trucks. He stated that Mr Howes did not indicate at this meeting that "he had any intention of using the premises as a container terminal, for storage of containers or any intention to bring heavy equipment onto the site or specifically any lifting equipment. About this time, I recall seeing a container being unloaded in the vicinity of the warehouse from a truck using a 'side-loader', being a small crane attached to the truck at either end of the container, which lowered the container to the ground beside the truck" (affidavit paragraph 13). 204 Mr Monahan said that he was informed by Toyo's maintenance foreman, Mr Paul Gregory, in late January 2003 or early February 2003, that CTH had obtained a large forklift. It was in about March 2003 that Mr Gregory came to him and advised him that the new forklift appeared to be breaking the concrete and he showed him some photographs (Annexure D to his affidavit). 205 Mr Monahan's affidavit does not suggest that he took any action in response to that advice. He stated that in about June 2003, Mr Gregory came back again and told him that the damage to the concrete was getting worse and that something would need to be done about it. He said that he informed Mr Heinz Williams of what Mr Gregory had told him. 206 In September 2003, Mr Monahan stated that, having heard from staff that there was significant damage to the concrete, he inspected the leased premises. He stated:- "… at this time, severe cracking, crumbling and lifting of segments of the concrete were obvious at the north-eastern end of the area of tenancy between two rows of stacked containers and the cracking and crumbling extended down the alley between the rows to the southern end. I did not speak to Mr Howes either in person or by telephone at around this time and certainly did not receive any complaint from him about the condition of the concrete." (paragraph 19 of his affidavit) 207 In paragraph 21 of his affidavit, Mr Monahan stated: - " (a) On inspection of the site with me before leasing, there was no comment made by Mr Howes or anyone to the effect, that:- (i) the concrete was in very poor condition or severely cracked, or (ii) CTH was a company dealing in import and export containers or had heavy equipment or specifically heavy lifting equipment. (b) The driveways and thoroughfares or other concrete paving around the leased area were not noticeably deteriorating. (c) I am unaware of any heavy water explosions of the fire hydrant system prior to the Toyo purchase and CTH occupancy of the site. (d) CTH was regularly storing trucks, cars, trailers and equipment outside its leased space without permission (e) The fencing was in good condition at the time of entry into the lease, but was repeatedly damaged by CTH. (f) Mr Howes did not at any time prior to this letter assert to me, that water pipe explosions or poor drainage was likely to cause damage to the concrete or otherwise complain about the condition of the concrete. (g) There are lines clearly showing the boundaries of the tenanted area on the plan annexed to the lease." 208 Mr Steinhour gave oral evidence for the defendant pursuant to a subpoena rather than by affidavit. He was employed by Knight Frank and recalled acting on behalf of Toyo in respect of the purchase of the premises. He said that he had several meetings concerning the leasing of the premises to CTH. The first occurred at 149 Airds Road. He said that a Mr Mick Ferreri from CB Richard Ellis and Mr Tony Miracola were present as conjunction agents. He said Mr Bruce Monahan was also present. 209 He said that the amount of space required by CTH was discussed at the meeting as well as issues concerning ingress and egress to the property. He said that "… we walked the site to make sure it was suitable, discussed suitability issues and timing" (t.345). 210 Mr Steinhour said Mr Howes said that he required approximately 3,000 square metres and "some yard" and that he was "… in transport and distribution". 211 Mr Steinhour said in his evidence in chief that the reason given for the use of 3,000 square metres was "basically warehousing". When he was asked if Mr Howes gave a reason for wanting the yard or part of the yard, Mr Steinhour said that Mr Howes said he wanted the yard "for storage and parking trucks". He was also asked in evidence in chief whether he indicated what it was that he wanted to store on the yard area. He replied, "Well, he was looking to store containers on the site as well as some other product". He said that he was not involved in any discussion as to how the containers would be moved. 212 He said that at a discussion at Toyo's Moorebank offices, Mr Howes said that he was "in storage and distribution". He said there was also a discussion in Mr Howes' office on the subject of how Mr Howes conducted his business. The purpose for attending, he said, was "to see his operation". This was viewed from the balcony or the window of his office to the warehouse. He saw trucks driving in and out. He said there were containers on site. When asked how many, he responded "half a dozen potentially. I don't know". He said that he did not see any forklift trucks and "to his knowledge" there was no discussion about forklift trucks. He said there was no discussion as to how containers were loaded or unloaded when he was present. 213 In cross-examination he said he was first asked about the events of 2002 the previous year (that is, 2007). 214 On the occasion he attended Mr Howes' office he said that he thought that containers were stacked. 215 Mr Steinhour said that he was not present at all times with all parties during the inspections. He said that sometimes, on such inspections, he allowed the client to walk and have a look themselves and talk amongst themselves. Accordingly, he was not privy to every conversation. 216 Mr Steinhour agreed that Mr Howes may have said words to the effect "I'm involved in heavy transport" or something like that. He did not recall him referring to loading and unloading containers or that he was doing a lot of warehousing. He acknowledged, however, that he could well have said such things. When asked whether Mr Howes said that "we use semi-trailers and B doubles and that the yard area could be ideal for expanding my business" he said he could have said that. He did not recall him saying "we could do loading and unloading there and store containers there". He was not prepared to deny that something like that was said, adding "no, it's more than likely".

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(3) Container handling in the CTH business 223 In cross-examination of Mr Howes, it was suggested that the CTH business as conducted at 50 Airds road did not involve container handling as a component of the business. It was put that there had been little space available for placing containers and that the business was centred on unpacking and storing goods for distribution. If containers were handled, Toyo submitted it had essentially been for the purpose of removing their contents (described in evidence by the term "de-stuffing"). 224 Mr Howes was firm in his evidence that CTH conducted container-handling activities and the receiving and storage of import/expert containers in the yard area of 50 Airds Road pending their further transportation. He said, in effect, that whatever restrictions may have existed on the use of access areas under the lease, that was the way operations were conducted, acknowledging as he did that the space to conduct those activities on the premises was restricted. 225 Mr Miracola said he had attended 50 Airds Road on a number of occasions. In his affidavit (paragraph 8), he said he noticed a number of containers stacked at least two high in the car park area. He estimated about six to 12 containers in the area. 226 He also agreed in cross-examination that he had seen containers stacked one on top of another, that is, two high at 50 Airds Road (t.341). On each occasion, he said he saw "at least several containers" (t.342). He also said "there were containers in the yard" (t.342). He, at first, said he did not think there would have been as many as 15 or 18 containers there, but then qualified his evidence in that respect saying that, whilst there were containers present "in the front" at 50 Airds Road, he never paid much attention to them. 227 Mr Steinhour, as noted above, also seen stacked containers when he attended on Mr Howes at 50 Airds Road and said that Mr Howes referred to the fact that he was looking to store containers in the yard area of the premises. 228 The evidence established, and I find accordingly, that container storage and handling was a part of CTH's business at 50 Airds Road. CTH had an arrangement for containers over 10 tonne to be off-loaded at McCarthur Container Terminal. The container storage and handling activities (not involving "de-stuffing" of containers) were separate and distinct from the business of receiving and unloading and storing the contents of containers. The evidence does not permit a determination to be made as to the extent or proportion of the container handling component of the business to the whole. 229 I am also satisfied by the evidence, including Mr Steinhour's evidence, that Mr Howes made it clear prior to the lease being entered into, that he wanted CTH to lease the yard area for the purpose of storing containers in that area. EXPERT EVIDENCE

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(9) Once saturated, it is very difficult to reduce the level of saturation of the sub-grade. 244 Mr Forrest concentrated on the part of the premises where he was told the Clark Y650D had operated (t.397). Annexure D to his report depicted areas of damage, in particular, areas marked "1", "2" and "3" as areas of severe damage. 245 The location of three fire hydrant standpipes is shown relative to the three areas of slab failure in Annexure "D". These were intended to indicate the effect or correlation between any failed fire hydrants and failure of the sub-surface as depicted by the shaded area on Appendix D. 246 It was put to Mr Forrest in cross-examination that, contrary to his instructions of leaks along the line that fed the fire hydrants, there had been only one leak within the tenancy in the vicinity of the awning and to its south. On that basis, he agreed that it would be less probable that the water would migrate from the hydrant near location "2" to location "3". He said, however, there could be an "erosion effect" from "2" but "the probability of it permeating such a distance between 2 and 3 when there's a leak only near 2 is low". 247 He also agreed that, it there was an "erosion effect" it would be the most severe closest to the leak. He added, however, that there was the possibility of an erosion of sub-base or sub-grade through migration of moisture. He accepted that just as there was a "low" probability of water travelling from "2" to "3", it would also be less probable with location "1". 248 Mr Forrest further agreed in cross-examination that the direct correlation between the hatched areas on the diagram and the area of operation of the forklift mean that the impact of the Clark forklift would have to be considered. 249 Mr Forrest stated that he believed the forklift "contributed to the failure of the pavement". He also stated that the single axle load of the forklift was four times the axle load of the maximum allowed by the Roads and Traffic Authority for trucks on roads and that it was reasonable to assume its load was four times greater than the load that the pavement at Toyo premises were designed for. He also accepted that an increase in load has an "exponential affect in relation to the deterioration and the design life of the pavement subject to repetition. The design life is a function of repetition per day and loading of each of those repetitions". 250 Mr Forrest stated that he adopted 40.4 tonne as an accurate axle load for a fully loaded forklift (that is, like the Y650D Clark forklift). Unloaded, the real axle load was 22 tonne. Mr O'Brien in his supplementary report dated 8 May 2007 (Annexure B to his affidavit) sworn 29 November 2007 referred to the estimated axle load adopted by Mr Crane of 60 tonnes and to a 50 tonne value which he had calculated. He stated that the principal physical effect of the higher axle load would be to reduce the time taken for the pavement to fail. 251 In re-examination, Mr Forrest stated that leaks could travel under a pavement if the water was under pressure. He was asked to assume that water was seen bubbling up through the cracks and gaps "to a height of something like 20 to 30 millimetres". He said that would indicate water under pressure which would cause migration of moisture through the sub-grade which would potentially erode the sub-grade and some of the sub-base. The performance of the sub-grade would by that means be impaired. 252 Mr Forrest said he had not modelled the load bearing capacity of the pavement as, in his opinion, it had failed by the start of the lease by reason of the cracking and joint movement which he understood existed as at the date of the lease.

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(2) If not, whether the use of the area of the site by a Clark Y650D forklift probably caused the pavement damage. 254 Dr Redman visited the site on 21 September 2004. He identified on figure 2 to his report dated 11 August 2005 the area of "main pavement damage" which he said was a strip 155 metres long by 15 metres wide. Figure 2 also depicts the location, parallel to that area of damage, of the hydraulic line. 255 Dr Redman noted in pavement areas remote from the above damaged area "longitudinal cracking typically at about 5 m spacing with some orthogonal cracks typically at 2 to 3 m spacing". Examples are shown in photographs 3 and 4 in Attachment 2 to his report. He also noted some "alligator cracking" near the northeast corner of the main building. 256 Dr Redman's observations on sub-grade materials, based on boreholes 2, 3 and 8 made in 1975 on the eastern side of the leased premises, are said to be consistent with Table 1 to his report (which relates to two locations as at 1983 and one in 2004). There are no results from borehole testing in and about the damaged strip referred to in his report. 257 The analysis in his report focuses upon the differential load intensity arising from the impact of trucks and a Clark Y650D vehicle. In doing so, he addressed the range of load repetition for a pavement with a thickness of 170 millimetres. 258 Dr Redman recorded that:- "6.5 … where the pavement is underlain by a poor sub-grade (soaked CBR valves of 1.5 and 2), it is possible that some pavement failure could develop with the 170 mm thick pavement and truck loading within a normal pavement design life …" 259 That paragraph is to be read with paragraph 6.6 of his report. 260 This observation is consistent with the evidence of Dr Wiesner. If it is assumed that the Pirelli use of the premises over the years between the late 1970's and 2002 was truck loading, then the inquiry focuses upon what caused the "significant" cracking prior to the lease period. The possibilities include very substantial periodic vehicular loading or softening of the sub-grade leading to cracking of the pavement or a combination of both. 261 The fact that the cracking in the pavement was, as described in evidence, "significant" prior to the lease period (in terms of its nature, extent, number and configuration) lends support to the analysis and conclusions of Dr Wiesner, namely, that softening of the sub-grade, a recognised cause of pavement deterioration played a part. Dr Redman's observation quoted above supports that explanation. 262 Dr Redman's analysis was, in part, based upon industrial pavement design as set out in the Cement & Concrete Association's Industrial Floors and Pavements Guidelines for design, construction and specification (transcript p.48). He compared the loading of a single truck to the Clark Y650 as follows:-

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(2) Clark Y650 forklift: 57.5 t mass or 564 kN single axle loading. 263 He noted, accordingly, that the mass or 564 kN single axle loading represented a five to six times greater times loading intensity to truck loading, although that load would only apply to a single axle context. He stated in oral evidence that the higher loading with the Y650D would require a pavement of over 300 millimetres as against the actual pavement thickness of 170 millimetres. 264 He said that load repetitions were a secondary factor compared to the difference in the load intensity for the abovementioned loading cases. 265 He examined sub-grade conditions that were likely to have existed versus traffic loading made up of magnitude and repetitions. He considered separately the impact on pavement performance of the two types of traffic loading which included that of the Clark forklift. 266 Dr Redman said in comparing the two loadings he took into account expected thickness of the pavement for the loadings and the sensitivity to repetition for truck loading. The purpose of his analysis was to understand how significant was a change represented by the use of the Clark forklift loading in terms of the assessment of pavement capacity. 267 That led to the conclusion that the load form the Clark forklift was very significantly higher than what would be expected of the design thickness of 170 millimetres. Those matters were significant in the likely life of the pavement. The load being so high, he said was a factor of greater relevance than the number of repetitions and, accordingly, a rapid deterioration of the pavement could be expected. 268 Dr Redman identified the hydraulic line in relation to the damaged area utilised by the Y650D and noted that the area is located to the east of the line with relatively undamaged areas located immediately beside the hydraulic line on the east and west sides. He observed that, if leakage had occurred, it had not impacted on the sub-grade or base course to cause problems in the areas not trafficked by the Y650D. In paragraph 6.8 of his report, he observed:- "6.8 In my opinion, it is implausible, given the location of the hydraulic line in relation to the area of main pavement damage, that leakage would have impacted on the pavement sub-grade and/or base consistently over the area of damage." 269 In paragraphs 7.1, 7.2 and 7.3, Dr Redman dealt with the differential impact of loading. They were objected to but, following a separate hearing on the issues as to their admissibility, the subject matter of those paragraphs were fully examined in cross-examination:- "7.1 There is insufficient information on the past traffic volumes in the area of the leased premises to quantitatively differentiate between the impact of traffic loading and subgrade variability. However, in my opinion it is possible to identify a probable cause of the pavement failure on the basis of the following elements: (a) The relative effect on assessed pavement life from a poor subgrade versus the higher axle loading of the Clarke [sic] Y650D; (b) The site data indicating a probable subgrade CBR in the leased area of at least 3; (c) The distribution of the areas of significant block failure is generally limited to areas trafficked by the Clarke [sic] Y650D. Within the areas trafficked by the Clarke [sic] Y650D the damage is reasonably consistent; (d) The nature and degree of pavement damage elsewhere on site is of a lesser degree and different character. One area of distress near the entrance to the site is outside the area of the Clarke [sic] Y650D loading, but is of very limited extent (Photograph 5 in Attachment). (e) The area of main pavement damage correlates with the trafficking of the Clarke [sic] Y650D and not the location of the hydraulic line; (f) Failure has developed relatively rapidly once the pavement was subjected to the Clarke [sic] Y650D loading. (g) The lack of evidence indicating a substantial change in subgrade moisture conditions co-incident with the use of the Clarke [sic] Y650D loader; (h) The absence of any other credible explanation, such as pavement design and/or construction, for the degree, extent and timing of the damage that has occurred. 7.2 The calculations and design charts referred to above indicate that the Clarke [sic ] Y650D loading would be expected to cause pavement failure in a relatively short period of time. This is consistent with the reports of the timing of pavement distress in the leased premises. Although poor subgrade conditions would be expected to limit the pavement life, the transition from a truck loading to a Clarke [sic] Y650D loading represented a greater impact on pavement life than the subgrade condition. 7.3 In my opinion, the above comparison indicates that the most probable cause of the failure of the pavement in the leased premises is the use of the Clark Y650D loader." 270 In cross-examination, Dr Redman conceded:-

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(3) He said his analysis indicated that a significantly higher load from the large forklift would require a pavement "probably over 300 millimetres in thickness …" (t.432). He acknowledged that sub-grade moisture changes can impact but the impact would be expected to develop over a longer period of time and require significant degrees of saturation and moisture change to have a widespread impact. 273 Dr Redman's opinion was based upon an analysis that compared two "key factors" (paragraphs 5.1 to 5.6 of his report). These were the sub-grade conditions versus traffic loading (the latter made up of the magnitude of the loading and its repetition). He compared traffic loading based on "truck loadings" and the Clark forklift loading. Attachment 4 to his report, p.2, compared the two loadings. The purpose of this exercise, Dr Redman explained, was to understand how significant was a change represented by the Clark forklift loading in terms of an assessment of pavement capacity. 274 He concluded that the latter loading was "very significantly higher than what would be expected for the design thickness of 170 millimetre pavement". 275 In paragraphs 6.3 to 6.7 of his report, Dr Redman considered the likely impact of poor sub-grade. He had regard in this respect to variable CBR, namely, the variable nature of the ground condition. He said a CBR of 3 was a key factor in determining performance of a pavement. He also addressed the question of softening of the ground through leaking surfaces. Potential pavement performance, he said, can be adversely affected by moisture content. If this led to deterioration in the sub-grade condition, that would, in turn, reduce the life of a pavement. He said, however, that although it would lead to a reduction in the life of the pavement, it would not itself lead to a significant and rapid failure of the kind that occurred in 2003 and within the time that it developed at the leased premises. In other words, sub-grade moisture would be expected to only have significance over a longer period and require longer degrees saturation to have a widespread impact. He said that that impact that may tend to occur closer to the point of the leaking. 276 In cross-examination, Dr Redman stated that, on the information available to him, the leased site was developed in the late 1970's. He understood the pavement had been subjected to "truck traffic" but, as noted above, he had no information on how many repetitions the pavement had been subjected to. 277 He agreed that, in assessing and determining the state of the concrete as at the commencement of the lease, he would need to know the state of the deterioration in the concrete at that time including, in particular, whether it exhibited cracking. However, it would be "a matter of the degree of cracking". In undertaking his comparison between the two "load cases" (the loading from trucks and the loading from the Clark forklift), he agreed that he did not consider it necessary to have regard to the state of the pavement at the commencement of the lease "because, if the case was in a poorer condition than the design case, it would be more probable that you could have a situation where the load is applied to the edge of a crack". 278 He agreed that, in assessing the load bearing capacity of the pavement to sustain truck loading, matters such as the quality of the construction and previous usage were relevant. He qualified this to a degree by saying that they were relevant in assessing the likely length of time the pavement would endure such loading. 279 He also accepted that the actual load bearing capacity may be affected by any changes in the sub-grade through significant moisture penetration and retention. The CBR value to which a pavement is designed, he said, allows for saturated soil conditions "so there will be an increase in moisture within the sub-grade and it will be functioning in accordance with its design assumptions" (t.462). 280 He assembled data in the area of the lease in the area of the western side of the premises near the leased area. The data was summarised in Table 1 in this report. Based on that information, he adopted a CBR value of 3. 281 In terms of the effect of moisture on CBR values, he said sub-grade softening does not lead to a lower CBR. That would occur if there was by water penetration disturbance of the sub-grade where voids develop or other disturbance results. 282 He explained that in term of CBR values, the pavement design envisages a level of moisture content in soil. Soil is compacted and placed under water for four days and then tested. In the field, he said, conditions are not usually that extreme. The design is, in other words, based on a "worst case" condition of saturation. When it becomes drier, the sub-grade will become stiffer than when saturated but the CBR is not changed in terms of their soil property. However, he agreed that a CBR value of 3 does not itself exclude the possibility that there has been substantial softening of the sub-grade.

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(22) He said that in the period from March to September 2003, he would have visited the site from time to time but he did not inspect the leased area on each occasion. He said in that period he noticed the damage was getting worse. He did not, however, speak to Mr Howes about it. 290 Toyo consulted Woolacotts, Consulting Engineers, on the subject of "forklift loading". Woolacotts provided a report dated 26 February 2004. The author, inter alia, stated:- "The structural drawings indicate that the existing pavement is 170 mm thick concrete slabs supported on 110 mm sub-base layer. The concrete has a design flexural strength of 4.5 MPa. It is un-reinforced but is jointed at 5 m centres which is adequate to control shrinkage cracking. This pavement is what would normally be designed to support highway loadings and is thus reasonable for use as a ring-road to support trucks loading and unloading in a typical factory/warehouse. A front axle load for a loaded Clark Y650D container forklift is 57.5 tonnes. This load is very large and should be supported by a specific heavy duty industrial pavement of the type used typically at airports and container facilities. If the forklift is to continue to be operated at the site, we recommend that the existing pavement should be replaced with a 350 mm thick concrete slab on a 150 mm bound sub-base layer. The concrete should have a tensile strength equal to or greater than 5.0 MPa. The existing pavement has not failed due to lack of reinforcement. In typical pavement design, reinforcement is used only to control shrinkage cracking, not to provide additional strength. Neither has the pavement failed due to poor quality. The pavement was adequately designed to support the anticipated imposed loads. A forklift of this size should only be used on specifically designed heavy duty industrial pavements. In our opinion, the existing pavement has failed due to the excessive loading of the container forklift." 291 On 3 March 2004, Mr Williams wrote to Mr Howes enclosing a copy of the letter of 26 February 2004 from Woolacotts. In the letter, Mr Williams, inter alia, stated:- "Discussions with other industry people indicate that what has happened was predictable and could have been avoided by not using such a large machine. Please advise what you propose to do to rectify the damage." 292 Mr Howes, on behalf of CTH, replied by letter dated 4 March 2004, stating:- "… in brief, you apply to our large forklift we use for container handling as the cause of the damage, as I agreed this forklift and our equipment has brought this forward though [sic] daily use, I do not agree that it is the cause of the problems." 293 Mr Howes, as earlier noted, stated in the letter that the relevant causes of the pavement failure were the poor condition of the concrete, the lack of reinforcement in the concrete and the effect of flooding. He maintained that, before signing the lease on inspection of the property with Mr Monahan, the "… bad state of repair of this concrete was mentioned, also the fact that we are a containerised transport company with large lifting equipment to do this, along with large forklifts as we had in our previous lease …". 294 Mr Howes went on to observe in the letter that, at the time of the inspection, "these issues" were mentioned to Mr Monahan, "… Bruce did not seem to think it was a problem". 295 Mr Howes referred to the special condition in the lease that permitted the loading and unloading of containers which, he said, was "handling". He attached a copy of what he described as an independent engineer's report together with specifications of the large forklift. Mr Howes maintained that CTH was not liable for the damage. 296 Mr Monahan said that he and Mr Williams decided to send a letter to CTH, a copy of which was marked as Exhibit E to his affidavit. It was sent by email with a covering note. 297 Mr Monahan also stated that he was not told at any time by Mr Howes and was not aware until mid-2003 that he intended to conduct or was conducting a container storage business at the site or that his company used or intended to use unusually large lifting equipment or forklift trucks.

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(2) The evidence of Paul Allan Gregory 298 Mr Gregory was employed by the defendant as a maintenance supervisor and had been employed by Toyo for 36 years. He had been in charge of maintenance of the Minto site. He said he was experienced in the use of forklift trucks and identifying their weight and handling capacity. 299 Mr Gregory said that, before the lease, he noticed some "crazing and about an average of one old undisturbed crack per slab". From the commencement of the operations, he drove across the site leased by the plaintiff and observed the state of that area of the premises and the operations of the plaintiff every day. He noted from the commencement of the lease that the plaintiff used a small forklift truck capable of lifting about eight tonne. It had a large steel counter-weight on it. 300 In a conversation with Mr Howes, he was informed that a larger forklift would be used instead and that in early 2003, perhaps as late as April 2003, he saw a large forklift truck or "container handler" being used by the plaintiff on the site for the first time. 301 In relation to water problems, he said that in about mid-2003 there were breakages in the fire hydrant ring water main that went around the perimeter of the warehouse and factory. He could only recall a breakage occurring in or near the leased premises. 302 Mr Gregory said over the period the large forklift operated, he noted that its use was limited to what he described as the apron in front of the warehouse beyond the awning and driveway in front of the warehouse. He said that that was an area where containers had been stored and stacked and he had observed employees unloading the contents of containers dropped in the area near the awning and storing the goods with the use of the small forklift within the warehouse. 303 He said that after the large forklift commenced operation, he believed in early 2003. In about April 2003, he noted in the leased area small fragments of concrete breaking off and as time progressed the fragments became bigger and there developed what he described as "edge cracks and corner cracks". He said these were progressing across the surface every day. 304 Mr Gregory said it was probably within a couple of months of the big forklift operating that he brought Mr Monahan's attention to the damage that was occurring. He could not recall when it was that he first noted the deterioration, but estimated that it was six months or so later. He considered that that was around May 2003 or thereabouts. He agreed that by this time, the plaintiff had been in occupation for approximately a year. 305 He said that at the start of the plaintiff's occupation of the leased area, the state of the concrete was the same as in surrounding areas of the site. He was uncertain as to when the greater rate of deterioration began to occur in the leased area. 306 In relation to CTH operations, it was put to him that he saw containers stacked one on top of the other shortly after the plaintiff entered into occupation. However, he replied that "I couldn't say that". He said he did recall seeing single containers at that stage. He then added "by the end" there were containers stacked one on top of the other but that he could not place that observation in terms of a time frame. 307 He conceded that it was possible that stacking of containers had occurred within a few months of the lease being entered into. 308 He said "… there were containers stacked, but as I said to you initially, I don't know the dates that those containers were being stacked, whether it was as soon as they got there or six months after they got there. I had no reason to look at why containers were being stacked …". 309 Mr Gregory marked on a plan (Exhibit P) the area where the concrete commenced to deteriorate which led him to believe "something unusual was happening". 310 He confirmed that, upon noticing the deterioration, he spoke to Bruce Monahan and that that was in May 2003. He described the state of the concrete to Mr Monahan, and referred to the fact that the edges and the corners of the slabs had commenced to break. He said Mr Monahan told him to "keep an eye on it". 311 He agreed that from time to time after May 2003, he made further reports to Mr Monahan. The state of deterioration, he said, was "an ongoing thing" and that he was reporting on it. He said he was not given any "remedial orders" to do anything about the deterioration. 312 He said that he could not recall whether he had discussed the matter with Mr Howes. At the time he said he was in the middle of moving a factory operation to another location and was preparing for the move. He said that the question of the deterioration of the concrete was "… an outside observation as I was going to do my job". 313 He confirmed that he did not receive any direction from Mr Monahan to do anything by way of fixing the problem. He said it was his problem to fix mechanical things, downpipes and so forth, what he termed "internals". He said "grounds" were too big a job for him and was not his responsibility. 314 Mr Gregory gave evidence of occasions when water overlayed the concrete apron. On one such occasion, it was on the south, probably south corner of the awning and the other was at, what he described as, the north-eastern corner. He said that an inspection revealed the causes to be some fractured pipes due to age or were pressure fractures.

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(3) The evidence of Heinz Williams 315 Mr Williams had been the company secretary and a director of the defendant company since about 1975. He stated that his role included responsibility for the maintenance and upkeep of premises occupied by the company around Australia. He had retired by the time of the hearing of these proceedings. 316 He said he initially inspected the Minto premises in 2001 in the company of Peter Steinhour and believed that Mr Monahan was probably present on that occasion. 317 On 24 May 2002, he again attended the site with the company's managing director, Mr Yoshimoto, Mr Bruce Monahan and Mr Roger Monahan and Mr Steinhour as well as another agent who he said had an Italian name which could have been a Mr Ferreri. 318 On 4 June 2002, he signed the contract to buy the Minto premises on behalf of the defendant company. 319 In June 2002, Mr Steinhour told him that he had a prospective tenant for part of the site. Mr Steinhour phoned again prior to 24 June 2002 about the question of a lease. Mr Williams told him to speak to Mr Monahan to work out details of the area of the premises to be let. 320 On 24 June 2002, he received an email from Mr Monahan setting out details of the premises and comments on rental. He said that on or about 26 June 2002, Mr Steinhour advised him that the prospective lessee was a transport company interested in renting space at the premises. He said in the course of the conversation Mr Steinhour advised that the prospective lessee handled imports by containers for clients which he said they "de-stuff" and redeliver to customers and that they required a large warehouse capacity. 321 According to Mr Williams, he asked Mr Steinhour how they proposed to handle their containers and he said "with side loaders", to which he said, "that should be alright". Exhibit V includes a copy of a handwritten note entitled "Discussion P Steinhour" dated 26 June 2002. The note recorded details about the proposed lease but not about the matter of container handling. 322 On 4 July 2002, Mr Steinhour attended on him and presented the executed lease dated 2 July 2002. He signed it and returned to him a copy. 323 He said that he spoke to Mr Howes on or about 16 October 2002 about the latter's request for more space in the warehouse for the Christmas period. He indicated that that would be possible. He said he walked around the premises with Mr Howes. He noticed a container being unloaded by a side loader. He also noticed two or three normal sized forklifts. 324 In January or early February 2003, Mr Monahan advised him that the plaintiff had a big forklift and that it was damaging the concrete. He said that he did not do anything about it at that time. 325 Mr Williams next referred to the occasion in September 2003 when he approved the letter dated 29 September 2003 to be sent by Mr Monahan to the plaintiff company. 326 In February 2004, he engaged Woolacotts, Consulting Engineers, to investigate and report on the damage to the concrete paving. 327 He said that he rejected the purported exercise of the option by the plaintiff company by a letter to the company dated 1 April 2004. The rejection was based on the claimed failure by the plaintiff company to take care of the premises, in particular, in damaging and failing to repair the concrete paving. 328 In cross-examination, he said that he had inquired of Mr Steinhour before the lease as to how CTH proposed to handle the containers. He said he did so because he thought it might be significant information when making a decision. He agreed that at the time he considered that the way in which containers might be handled could have had implications for the sufficiency of the concrete apron, he having had professional experience with the adequacy of concrete aprons for storing items such as containers. 329 Mr Williams was taken to his handwritten note date 26 June 2002 (part of Exhibit 5). He was asked to explain how it was that he had made a record of the conversation on that occasion but had omitted to make a note concerning the method by which the containers were to be handled on site. 330 Mr Williams said the note of 26 June 2002 recorded the requirements of the conditions of the lease. He rejected the suggestion, when put to him, that he did not, in fact, before the lease have a discussion on the subject as to how the containers were to be handled. He also would not agree that he was prepared for CTH to handle the containers in any way it sought fit. 331 There was no occasion on which Mr Williams asserted to Mr Howes that Mr Steinhour had been informed that CTH proposed to handle containers by means of side-loaders or any statement by him to the effect that other alternative methods (including large or small forklifts) were impermissible mechanisms for loading/unloading containers. Given that Mr Williams displayed a very limited recollection of pre-lease events and the fact that the note is said to have recorded other matters of "importance" (such as the proposed lessee's responsibility to pay the cost of outside lighting) but did not record his stated concern about container handling, together with the absence of a note confirming any advice from Mr Steinhour as to how CTH would undertake such activities, I am unable to accept his account to the effect that Mr Steinhour said that CTH would handle containers by means of side-loaders. 332 Mr Williams confirmed in cross-examination that there was no record or any reporting to him by anyone on the subject of how the containers were to be handled. 333 He was then challenged to explain why it was that he did not take any action when he heard that a large forklift was being used. He said his thinking was that, if the plaintiff company used a large forklift and damaged the concrete, then it would need to refix it at the end of the lease. 334 Mr Williams also said, in cross-examination, that he considered the use of a large forklift on site for the handling of containers was "impermissible", that it was "a dangerous piece of machinery" given that it "would damage the concrete". He said under the lease CTH was entitled to use such a forklift "at their own risk" and to use it without the defendant's interference. He also said that he understood the "logic" behind why CTH would use a large forklift, notwithstanding his view that damage would inevitably flow from its use. 335 In cross-examination, he was asked (at t.362):- "Q. It's correct to understand that answer to mean, is it, that your view, having regard to the terms of the lease, in late 2002 and early 2003, was that CTH was entitled to bring a large forklift on to the premises for the purposes of handling the containers? A. At their own risk, yes. Q. And you regarded CTH, therefore, as being able to do that without any interference by your company? A. That was my initial feeling, yes. Q. That was something that you thought about when this matter was first drawn to your attention in late 2002, early 2003? A. Yes Q. And may I take it you took that view because, whether or not you thought it was sensible, you regarded the use of a large forklift as being an available means, that is, a reasonably available means of handling the containers? A. I could understand the logic for why they would want to use a machine like that, yes. Q. Even if one accepts that, Mr Williams, you contemplated, you say in December 2002 or January 2003, that would inevitably produce damage to the leased area in relation to the concrete apron? A. I was of that view. Q. And that at the time you say you contemplated that if that occurred, or when that occurred, perhaps more accurately, that either then or at some later time CTH, as a tenant, would be asked to rectify, or to pay for rectification? A. Yes." 336 He said that when he first became aware of the use of the large forklift late in 2002 or early in 2003, he did not raise the prospect of possible future rectification with CTH. 337 He said that it was some months after being informed of the presence of the large forklift on site (probably by Mr Gregory), that he was told that the concrete was breaking up. This, he agreed, was what he had expected to occur. However, notwithstanding, what he had been told he still did not engage in any communication with CTH about the damage or rectification, even though it was apparent that the damage would only get worse. 338 He agreed, even after this second communication (which he thought was with Mr Monahan), he did not do anything and he could not recall any further communication with anyone about it. 339 He again stated that his view was that the use of the large forklift for dealing with container handling was "permitted at their own risk … I mean it was not illegal". He agreed that, if he had thought about the matter and that CTH were not permitted under the lease to use the large forklift, he would have considered the appropriate step to have been to write to CTH and have the use of the forklift stopped. This he did not do. He added that he had been aware of a clause in the lease that "would possibly have required them to take some action to get permission from us". This clause, he considered, related to "heavy equipment being brought onto the site". 340 He said he did consider in 2002/2003 whether CTH required permission to bring the forklift on site. He agreed that the logical step to take, consistent with that view, would have been to tell CTH it could not use it without Toyo's permission. He again agreed he did not do anything about the use of the forklift (such as making a demand that it not be used) and he repeated that CTH was entitled to use it at its own risk. 341 He agreed that, in late 2002 and 2003, no permission for the use of the forklift had been sought or given by Toyo even though it was reportedly used and causing damage. When it was put to him that he did nothing about it, he said "yes I agree, its crazy". He rejected that what he had said was "untruthful". He acknowledged that he should have taken action earlier. 342 He confirmed that, when he had inspected the premises in 2001 and 2002 before purchase, he said he did not see any "abnormal" cracking in the concrete. He said he was more interested in inspecting the building. He later qualified his evidence, saying that the site was a very large one and that he did see some cracking in the concrete in some areas. 343 He said he agreed with the letter sent by Mr Monahan on 29 September 2003. It was put to him that the letter did not reflect the view he expressed in evidence that CTH required but had not obtained Toyo's permission to use the forklift. He agreed it did not, in terms, say that.

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(a) The lease provisions 347 Mr Simpkins emphasised the need to construe the permitted use provision in the lease in context which included the provisions of special conditions 6 and 9. On that approach, he submitted that the central issue is whether the nature and extent of CTH's operations were within the scope of a reasonable use conforming to the very general description "Warehousing, Storage & Distribution" and the permitted activities as described in special condition 6. 348 Alternatively, CTH relied upon the existence of an implied term to similar effect. CTH's use of the large forklift for container handling, he argued, constituted a reasonable manner of performing an authorised activity. Toyo was, accordingly, required as at the lease commencement to ensure that the premises were in a reasonably fit condition for such use. 349 The submission as to the implied term, it was contended, drew support from the judgment in Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited [2005] NSWSC 1148 (Palmer J) and the judgment of the Court of Appeal in that case [2006] NSWCA 296. 350 Reliance was also placed upon a number of other authorities in support of the implication of the terms: Plaintiff's Outline of Submissions, paragraph 18. 351 On the issue as to whether the premises were, as at the commencement of the lease on 15 August 2004, "reasonably fit for use" and "reasonably fit for the purpose of loading and unloading containers in the hardstand area …", I accept, as Mr Simpkins SC submitted, that the premises had to be sufficiently suitable at the lease commencement to permit the authorised use to be carried on for the duration of the lease: CTH's Submissions in Reply, paragraph 44. 352 Plainly, the loading and unloading of shipping containers could only be achieved through the use of mechanical equipment. The evidence established that the types of equipment conventionally employed for the purpose of undertaking container handling includes side loaders, straddle carriers, limited capacity forklifts and large forklifts such as the Clark Y650D forklift. 353 It was submitted for CTH that it was entitled to carry on the use in any reasonable manner and that use of the Clark forklift was reasonable. This was said to be so, firstly, upon the basis that the evidence disclosed that similar businesses to the plaintiff used that type of equipment and, secondly, mechanical lifting by means of side loaders were reasonably regarded by CTH as being unsuitable. 354 CTH, alternatively, argued that even if the use of the Clark forklift was not a reasonable method for the purpose of loading and unloading containers, the premises nonetheless were not fit for the purpose of loading and unloading containers in the hardstand yard area. In this respect, it was contended that the evidence established that the concrete pavement had "failed" prior to the commencement of the lease and required replacement. In that condition, no forklift could have been used to lift loaded containers without further or progressive damage occurring. 355 As to whether or not the pavement damage was caused by a breach by CTH, it was contended for the plaintiff, inter alia, that there was no failure by it to take care of the premises in circumstances in which CTH used them "… for the reasonable conduct of the permitted use": Plaintiff's Outline of Submissions, paragraph 34. 356 The plaintiff also submitted, if the use was not a reasonable one, then "a reasonable use" would, in any event, have caused the same damage. This, it was argued, was by reason of the premises' unsuitability at the time of the commencement of the lease and the consequential and additional deterioration of the sub-grade thereafter. 357 On the questions as to whether or not a Clark forklift could be regarded as an authorised manner of effecting the loading and unloading of containers on the hardstand area and the suitability for that purpose of the premises, CTH contended that the evidence established that the premises were not suitable for such use. In this respect Mr Simpkins submitted:- "At one level it is a very simple case. It is simple because the lease permitted a use involving container handling. A reasonable use for container handling purposes could involve a large forklift like the Clark forklift and these premises were totally unfit for that use. It's only if your Honour is against us on that particular proposition that we need to get to further refinements of the arguments about use and about breach. As I say, at one level it is a very simple case." (t.502) 358 On the "use" question, CTH pointed to the business as operated by it at 50 Airds Road as a relevant matter in determining whether or not the use on the leased premises was reasonable or not. The evidence, it was contended, indicated the need at those premises for containers to be stacked and that the use of mechanical equipment for container handling was clearly required for that to be done. The agents acting on the lease negotiations, Mr Miracola and Mr Steinhour, it was noted, had actually observed stacked containers when attending CTH's premises at 50 Airds Road. That evidence, it was contended, established that CTH's operational methods included both the transportation, loading and unloading containers and standing or storing them in the open area of the premises. 359 The fact that CTH used a Heister forklift at 50 Airds Road was, in the plaintiff's submission, evidence that the use of a large forklift had been an ordinary incident of the conduct of its business for a substantial period. Even if the Heister forklift was not on site at the time Mr Miracola and Mr Steinhour attended, that went only to the issue of Toyo's knowledge and consent to the actual use of the Clark forklift. It still remained relevant to what was reasonable in the use of equipment to handle containers for the purposes of loading and unloading. 360 Submissions were made in relation to communications said to have existed between the parties to the lease as to the nature and conduct of the CTH business before the lease was entered into. 361 Mr Simpkins commenced his submissions on this aspect by contending that, regardless of the findings made as to those communications, the construction of the lease terms was to be determined by the meaning and ambit of ordinary English words used to describe the business use in the lease and by a determination as to whether CTH's activities on the premises fell within the reasonable confines of the ordinary conduct of such business use. 362 It was submitted that findings favourable to CTH should be made on the pre-lease communications, namely, that the defendant knew or reasonably should have known that CTH employed heavy equipment such as the Clark forklift. Even the absence of findings to that effect, it was argued, would not undermine CTH's case based on the lease terms. 363 CTH submitted that Mr William's evidence, that he had been advised by Mr Steinhour that CTH would use side loaders to handle containers should be rejected. Mr Williams made a note of the conversation. Whilst it referred to a number of minor matters, it contained no reference at all to the equipment CTH would employ in handling containers. I have previously recorded my conclusion on this point that I do not accept that such advice was given to Mr Williams. 364 CTH placed particular reliance upon the evidence of Mr Steinhour who said that he observed containers stacked at 50 Airds Road. 365 The fact that Mr Williams' evidence was to the effect that he inquired of Mr Steinhour as to the method of container handling to be used, it was contended was significant as it demonstrated a real and conscious appreciation by him "… that it was fundamental to focus on how the containers would be handled … namely, his understanding that if the containers were to be handled using a forklift, the concrete would disintegrate to the extent that you couldn't conduct a business …" (t.501). 366 CTH also relied upon what it claimed was Mr Williams' complete indifference as to how the containers were to be handled. This was said to be so both prior to the lease being entered into, and during its term. In this latter respect, it was submitted that he became aware of the use of the large forklift and of the fact that it was causing damage for several months. His inaction in the face of knowledge of such matters, it was contended, was significant on the issues as to reasonable use and the methods employed by CTH for handling containers. It was further contended that the evidence revealed that Mr Williams appreciated the fact that a large forklift was at least an available means of handling containers. 367 On the issue of reasonable use, CTH relied upon Mr Howes' evidence as to the use of various sized container forklifts in businesses similar to that of CTH. These involved a range of weights from a 25 tonne forklift (Trojan Transport), an Omega forklift with a lifting weight of 28 tonnes (Quantum Transport Pty Limited), a Mitsubishi forklift with a lifting capacity of 40 tonnes (Beechy Transport) and a Stacker forklift with a weight 75 tonnes (Trojan Transport). Reliance was also placed upon a calculation which Mr Simpkins requested Dr Redman to undertake (recorded in Exhibit U) which is said to support the conclusion that a forklift with a 20 tonne load on the axle would still have resulted in pavement failure, even assuming that the pavement was new and properly constructed within a usage ranging between 100 to 1,000 movements. The submission in this respect was:- "… so nothing in this case is going to turn on whether instead of a Clark forklift we should have got the Omega forklift having a lifting weight of 28 tonnes. Once we are in the area of big forklifts, it makes no difference because this concrete was just inadequate for any big forklift." (t.507) 368 It was also submitted that the use by CTH of the Clark forklift was not an act of "neglect" (in the sense of an omission to act), nor was it a "deliberate" act (in the sense of an act engaged with the intention of causing damage). Further it was submitted that it was not "careless" if it represented a reasonable means of carrying on the permitted use. 369 CTH submitted that there was no need for Toyo's consent to be obtained for the use of the Clark forklift. Consent was only required under the Rules and Regulations in the lease, it observed, for "installing" and "positioning" in accordance with Rule 4. Neither expression, it was submitted, was apt to cover the use of heavy equipment on the concrete pavement. 370 Alternatively, the plaintiff submitted that the defendant, in any event, had consented to the use of the Clark forklift. Such consent, it was argued, could be inferred from actual knowledge in Toyo's employees of the use and lack of complaint or requirement for removal. 371 The fact that any consent was not "in writing" was said to be a very technical breach if any and no damage could be demonstrated to have arisen from such a technical omission. 372 In relation to Toyo's obligation to repair the pavement damage, CTH submitted that the damage that occurred to the pavement after the commencement of the lease required Toyo to repair or restore it to a condition that permitted the ordinary use and occupation of the premises by CTH. This it failed to do. 373 The plaintiff contended that there was no implication of a duty as contended for in paragraph 6 of the amended cross-claim. It submitted that there was no liability for damages if what CTH did was permitted by the lease. 374 As to the alleged loss and damage suffered by Toyo, as noted earlier, reliance was placed upon the proposition that a "use" that was in accordance with any duty of care would nonetheless have produced physical damage and it had not been demonstrated to have been likely to be any less extensive than that which in fact occurred. 375 In his oral submissions, Mr Simpkins correctly contended that the ultimate determination of the proceedings would, apart from the terms of the lease, otherwise largely turn on the various factual findings made as to the state of the premises at the commencement of the lease and the circumstances in which they deteriorated. 376 The plaintiff relied upon the lay evidence which it contended established that at the lease commencement, the concrete pavement and the leasehold area had been significantly fractured or cracked from prior use over the 24 years or so since its original construction. The lay and expert evidence together, it was submitted, supported the making of a finding that, prior to occupation of the premises by CTH, the pavement "… was in a state of significant deterioration with large and substantial cracking throughout those slabs in the area leased to CTH" (t.495). 377 Mr Simpkins correctly observed that there was no evidence that established with any precision what loading the pavement had been subjected to prior to the commencement of the lease. The evidence indicated that the area that eventually "collapsed" during CTH's use had been used by the prior owner, Pirelli, for many years as a cabling despatch area, with rolls of cabling being loaded onto semi-trailers using small forklifts. "So whilst no-one knows how many forklifts or how many semi-trailers or how many rolls of cabling, the inference your Honour would be entitled to draw from the evidence is that, over a period of 25 years, this particular area was put to substantial use involving the application of quite heavy loads being loaded, significantly more than just the mere weight of semi-trailers, and that large cables were being lifted by forklifts onto and off semi-trailers that were regularly moving in and out of the area and standing upon it." (t.496-497) 378 A finding, it was submitted, should be made to the effect that the relevant area was cracked generally as depicted in photo 1.4 in the tender bundle, Exhibit B, and that such damage had resulted from the use of the site by Pirelli being a substantial use involving the application of repeated heavy loads. 379 Submissions were made as to Toyo's knowledge of the Clark forklift. It was submitted that the evidence established that it came on site in November 2002. Mr Gregory's evidence that he spoke to Mr Monahan about a month after it was introduced to the premises, was relied upon as supporting the inference or conclusion as to Toyo's consent for its use. On the assumption (which CTH did not concede) that consent was required, it argued it could, as previously noted, be readily inferred from the knowledge of Toyo's employees of the use of the forklift and the absence of any complaint or any requirement for its use to stop. 380 Accordingly, Toyo's response to the use of the Clark forklift or the lack of response (in particular that of Mr Monahan and Mr Gregory) was relied upon as establishing its consent. It was observed in this respect that such lack of action operated from an early point in time when the damage was occurring and about which Toyo had full knowledge. The only response, it was contended, was to instruct staff to keep an eye on the damage. The absence of complaint and what was said to be the total inactivity by Toyo for several months prior to September 2003 was, accordingly, relied upon as consistently demonstrating Toyo's consent. 381 Mr Monahan's evidence that he did not regard the stacking of containers as an unauthorised use and Mr Williams' conclusion that it was logical for CTH to have such a forklift were also relied upon by CTH. The large Heister forklift used by CTH at 50 Airds Road was a 26 tonne forklift. The Clark Y650D forklift had a weight of approximately 39 tonnes. They were both in the category of "large" forklifts. Both were said to be accepted means for handling containers. The use of the large forklift was, accordingly, said to have constituted the use of the premises by CTH that was a reasonable one. 382 Submissions were made in relation to the "water episodes", referring to the escape of water across and under the concrete pavement. The first of such episodes was said to have occurred on 4 June 2001 followed by an incident on 31 August 2001. The occurrence of such leaking was linked to expert evidence, in particular, that of Dr Wiesner as to the impact that moisture can have upon the state of sub-grade and the likely condition of the sub-grade at the time of the lease commencement. 383 Reliance was also placed upon the escape of water on other occasions, in particular, on 6 December 2002 and subsequently on 28 February 2003 and 11 March 2003 and the blocking of a drain in the presence of heavy rain on 16 May 2003. 384 It was submitted that Mr Howes' evidence as to the break-up of the concrete after December 2002 could be causally linked to the water episode of 6 December 2002. The general submission, however, was that the concrete had actually fractured and deteriorated well prior to the commencement of the lease and continued to deteriorated thereafter.

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(c) Defendant's submissions on the provisions of Clause 2 386 Mr Burchett submitted that clause 2 of the lease should "be presumed" to deal only with "the ordinary general position" and to be superseded, to the extent of any inconsistency, by the special conditions. It was also submitted the clause applied the objective standard of reasonableness to the condition of fitness. 387 It was contended, in particular, that clause 2 did not warrant that the premises were fit for the purpose of loading and unloading containers in the hardstand area. 388 On the interpretation of the permitted "use", Toyo submitted, in effect, that Special Condition 6 should be read separately from the provision as to "use" which stated that the premises were to be only used as "warehousing, storage & distribution". That submission on one view appears to proceed upon the basis that the description "warehousing, storage and distribution" is not capable of embracing or relating to such loading and unloading activities. 389 Mr Burchett submitted that the meaning of clause 2 is to be understood as bound up with the quality of the fitness of premises rather than the nature of the use of them and that "the warranty of fitness is independent of and performs a different function from the permitted use". However, it is sufficient to note at this point that clause 2 addresses the concept of the reasonably fit condition of premises "for use". The "use" is specifically identified in the lease. The premises may only be used as specified and not used otherwise. 390 Mr Burchett submitted that the activities associated with loading and unloading containers were no more than the activities "which [are] ancillary to the permitted use". He submitted that such activity was not a "primary use". 391 As to the issue whether clause 2 is to be construed separately from special condition 6, it was argued that clause 2 did not warrant that the premises be in a reasonably fit condition for the use specified in Special Condition 6, that is, "… for the purposes of loading & unloading of containers …". 392 Mr Burchett submitted that clause 2 of the lease should be interpreted as not reaching beyond what he termed "… the ordinary, general position" (paragraph 1.1. of the defendant's primary submissions). In this respect, he submitted that the fitness with which clause 2 is concerned "… is for ordinary, general use and the standard required is only, that which is reasonable at the commencement of the lease" (primary submissions, p.7). He further submitted that "… plainly it would not be reasonable to require the premises to be in a condition at the start of the lease fit for a range of uses exceeding that, for which the premises are ordinarily used or even which can be reasonably contemplated by the landlord, having regard to the nature of the premises" (primary submissions, p.7). 393 Again, in relation to the express warranty in clause 2, that the premises be "reasonably fit for use", Mr Burchett submitted that this can "… be no more, than fitness for ordinary, reasonable use as premises, the meaning being found in the quality of the fitness, rather than the nature of the use. To construe that general word 'use' as including a specific use, which was obviously not an ordinary, reasonable use of the premises, indeed in the manner pursued by the Plaintiff, for which they were known or ought to have been known by the parties to be unfit, would be impermissibly adding words to create a 'commercial nonsense' …" (Response to Plaintiff's Outline of Submissions, paragraph B2). 394 I have previously set out Toyo's submission to the effect that the CTH's business did not, at the time of the lease, involve or require the use of a forklift such as the Clark forklift, nor did it involve "container handling" in the sense of the storage of unopened containers. On this basis, it was submitted, there was no basis for construing any warranty of fitness as extending to the use of a "container handler" or the loading or unloading of containers unopened for storage as a primary use of a premises or indeed as anything other than as ancillary to a warehousing business.

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(f) The cause of the failure of the concrete 401 Submissions were made in relation to Mr Howes' evidence concerning water explosions and areas of damage. On that basis, the analysis of Dr Wiesner and Mr Forrest were the subject of criticism. The expert evidence and the issues raised in relation thereto are referred to below. 402 Reference was also made to clause 21(b) of the lease which employs the expression "tenant's ordinary use" in contrast to clause 2 which is said to make reference "without specificity". 403 Mr Burchett further submitted that, even if there was an obligation to ensure the premises were fit for loading and unloading containers, it could only require fitness for an ordinary, reasonable manner of loading and unloading relative to the nature of the premises as not having been purpose-built as a container terminal (Primary Submissions, p.10). 404 Toyo also relied upon the proscription on the use of heavy equipment or articles pursuant to Rule 4 of the Rules and Regulations to the lease. It was submitted, the lease dealt with the allocation of risk from the use of such equipment, in contrast to the "general provision for fitness" of the premises otherwise imposed on the landlord: Defendant's Primary Submissions, p.7. 405 Toyo also submitted that the Clark forklift fell within the description of "any heavy equipment or article" in Rule 4. 406 On the question of fitness for general use, it was contended that the plaintiff had acknowledged that the premises had been used for "general transport and storage purposes for 20 years without damage to the concrete apron" (primary submissions, p.8). In CTH's Submissions in Reply, (paragraph 18), Mr Simpkins responded that that statement was not accepted. 407 Toyo further submitted that the expert evidence established that the premises "were fit for general truckloads and containers could be loaded and unloaded without exceeding such normal truck loads" (Primary Submissions, p.8). It submitted that the direct cause of the damage was the use of the Clark forklift. Such use, it was argued, was "not an ordinary use of the premises and it would not be reasonable to expect the premises to be generally fit for its use" (Defendant's Primary Submissions, p.8). 408 Rule 4 of the Rules and Regulations applied to the Y650D and it was, accordingly, a breach of condition to bring it to the premises without consent. The plaintiff is, therefore, liable under clause 21(a). It was argued that the pavement was part of the "building" and therefore liability arises under the last-mentioned rule itself. 409 On the question of the implied warranty relied upon by the plaintiff, Toyo disputed the existence of circumstances that would permit an implied obligation of the kind relied upon. In particular, it disputed that the conditions for the implication of such term as stated in BP Refinery (Western Port) Pty Limited v Shire of Hastings (1977) 52 ALJR 20 at 26 could be met. 410 In respect of those conditions, Toyo submitted:- (1) It cannot be reasonable and equitable to impose an obligation on the landlord to ensure premises are fit for purposes, of which only the tenant is in a position to know the relevant details and which may range from light to heavy impact, depending on the manner of conducting business chosen by the tenant.

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(5) If intended to include fitness for use of the heavy forklift, it would contradict the apparent intention of the lease provision requiring written consent of the landlord of the use of such heavy equipment, as was the case in Bradford House … if intended to include the positioning of containers for other purposes, such as storage, by that forklift, it is beyond the authorised use of the hardstand area." (primary submissions at p.10) 411 A condition authorising or delimiting the use to which premises may be put by a tenant, it was contended, does not imply a warranty for fitness for that purpose. 412 It was contended that, both in relation to the alleged implied provision and the express provision in clause 2 of the lease, there was no obligation on the landlord to take steps to ascertain and remedy a "latent" defect. 413 Finally, on the issue of interpretation, it was submitted that Special Condition 6 conferred only limited lights upon CTH to "access" to the hardstand area and then for the limited purpose of "loading and unloading of containers". 414 It was further submitted that special condition 6 was intended to permit a transient use of the hardstand area consistent with the reasonable requirements of loading and unloading containers for the purpose of "destuffing", storing in the warehouse and distribution and not storing the containers themselves or goods in the containers. 415 Toyo contended that the premises were reasonably fit for the purpose of loading and unloading containers in the hardstand area at the commencement of the lease. In this respect, again, submissions were made with respect to what was said to be the usual and reasonable manner of unloading by means of equipment such as side loaders, straddle carriers or other means which did not carry risk to the hardstand area. The defendant relied upon expert evidence as to what was described as the "normal truck load", that the pavement design was for an axle being a load of no more than 10 tonnes and that the pavement was, in fact, adequate for such a load. 416 Toyo contended that special condition 6 did not envisage or authorise what it referred to as "long term storage" and the manoeuvring of containers and that CTH had not made known to Toyo that it intended to make such use of the premises. 417 In relation to the contractual obligation under the lease to carry out repairs, Toyo submitted that the lease place the "primary obligation" upon the tenant during the tenancy to take care of the premises and to repair damage that resulted from "neglect or deliberate or careless act or a breach of any condition". The submission was that the premises were damaged by CTH being in breach of clause 21(a). 418 In this respect, reliance was placed upon Rule 4 under the lease and what was said to be a breach by CTH of its provisions. Failure to obtain written consent was said to be sufficient to render CTH liable for all consequential repairs. The concrete pavement was part of the "building" and liability arose under Rule 4. 419 Toyo submitted that the damage caused by the Clark forklift can reasonably be considered as the materialisation of a risk taken by the tenant in the manner of its use of the premises, irrespective of any contribution from the flawed condition of the pavement. It was submitted to be the "overwhelming cause" of the damage. 420 In relation to the landlord's obligation to repair, it was submitted that such obligation "could never be used to improve the design capacity of the pavement to that which would cope with a Y650D forklift" (Primary Submissions, p.14). 421 Toyo further submitted that CTH was negligent in its continuing use of the Clark forklift. 422 In Toyo's response to the Plaintiff's Outline of Submissions, Mr Burchett contended that it had not been CTH's case that the lease contained an express term warranting that the premises were fit for the purpose of loading and unloading containers in the hardstand area. 423 In CTH's Submissions in Reply, paragraph 35, it was asserted that the statement of claim had always made it plain that reliance was placed upon the express covenant as to use which was breached because of the unsuitability of the premises for carrying heavy vehicles and heavy storage. CONSIDERATION 424 Lease obligations in relation to the suitability of premises are dependent upon the express terms of the lease or, in particular circumstances, by implied terms. As the case law referred to in the discussion below makes clear, the provisions in commercial leases, may form an important aspect of lease drafting in affording protection for a lessee in relation to the suitability of premises by the insertion of an express condition or warranty. Protection otherwise may be secured by careful expert investigation: see Australian and New Zealand Conveyancing Report, Issue 38, September 1983, p.251 - editorial comment on decision in Bradford House Pty Limited v Leroy Fashion Group (1983) FC Federal Court of Australia. 425 The lease between Otis Elevator Company Pty Limited and CTH dated 16 March 1998 (Exhibit 12(7)), arguably a more sophisticated form of commercial lease than the standard form of lease between CTH and Toyo, expressly provided that the lessor gave no warranty that the premises could be used for the purpose stipulated in the lease and stated in clear terms that it was for the lessor to satisfy "himself" that the premises could be so used. In the present case, of course, Toyo provided a warranty that the premises were in a reasonably fit condition for use. Submissions have been directed to whether or not the use of the Clark Y650D fell within the permitted use. 426 The general concept of caveat emptor applies to leases. Although on the leasing of a chattel there may be implied by statute a warranty of fitness for a particular purpose, the rule in relation to the demise of land is that even where the land is let for use in a particular way, there is no implied warranty that it is fit for such use: Bradford House Pty Limited v Leroy Fashion Group Limited (1983) 46 ALR 305 at 313 per Smithers J; Hill v Harris [1965] 2 QB 601; Edler v Auerbach [1950] 1 KB 359; Holiday Wise Koala Pty Limited v Queenslodge Pty Limited (1977) VR 164; Cruse v Mount [1933] 1 Ch 278; Wettern Electric Limited v Welsh Development Agency [1983] QB 796, [1983] 2 WLR 897. 427 Two contentions at the centre of the plaintiff's case were:-

[183]

The permitted "use" : "warehousing, storage and distribution" 433 In providing, as the lease did, in respect of the "use" of the premises that "the premises shall be used only as warehousing, storage and distribution", the phrase "only as" focuses attention upon the three aspects of the described use. In relation to the word "warehousing" in clause 2, it was observed in Bradford House Pty Limited v Leroy Fashion Group Limited (1983) Aust & NZ Conv R 245 at 246 (issue 38 - September 1983), the Court (Bowen CJ, Fisher and Lockhart JJ) that:- "… in ordinary usage, a 'warehouse' is a building used for the storage of merchandise. In a narrower sense, it is described as a building used for the storage of merchandise and for the exposure of that merchandise for sale by wholesale …" 434 The word "storage" in clause 2 embraces a broader concept than the word "warehousing". The ordinary meaning of "storage" includes a space for storing, a place where something is stored: Shorter Oxford English Dictionary. CTH relied, in its submissions, upon the wording in the lease as extending the authorised use beyond warehousing functions to those involving the storage of containers that are external to the warehouse itself. I accept that the two words, even if there is some overlap between them, are not coterminous in their meaning and operation. 435 The description of the "use" as including warehousing and storage, as a matter of construction, in my opinion, embraced then the use of the premises both as a warehouse for the storage of various goods or cargo and also the yard area for the purpose of placing and storing containers as an incident of the plaintiff company's business as a transport company. 436 The nature of the obligation under the contractual warranty provided by Toyo in clause 2 commencing with the expression "to ensure" conveys the notion of "guarantee, warrant", as part of the ordinary meaning of the word: Shorter Oxford English Dictionary. The warranty, however, is to be read in context with the expression "reasonably fit condition for use …". The expression "reasonably fit" as observed in Slater v Finning (1996) 3 All ER 398, 408 is a relative concept. It conveys the ordinary meaning of "sufficiently" "suitably". 437 CTH relied upon the provisions in special condition 6 as confirming or extending the scope of the authorised "use" to include "loading and unloading of containers" in or on the hardstand area. The "yard area" as described in the site plan by special condition 9 is included in the area under the lease. 438 Apart from the contextual construction of the lease terms, the warranty in clause 2 may also be construed having regard to the purpose or purposes of the lease as discussed in the next paragraph. 439 The provisions of the lease in this case as to "use" reflect the purpose(s) of the lease. In Aussie Traveller Pty Limited v Marklea Pty Limited (1998) 1 Qd R 1 at 9, McPherson JA, in relation to a similar lease provision, stated that the purpose of the lease in that case was evident from the provisions which limited the use of the premises to the manufacture and sale of canvas goods. In generally similar fashion, with a builder's warranty that work and materials would be reasonably fit for the stated purpose the Court (Hargrave J) in Barton (t/as Freedom Builders) v Stiff [2006] VSC 307, stated that the warranty of fitness for purpose relates to the relevant purposes as properly identified in the agreement. 440 CTH's case, of course, is that, even absent special condition 6, the conduct of transport operations, including container handling by mechanical equipment (including by large forklift chosen by CTH as suitable to the task), constituted an ordinary and a lawful enjoyment of the premises for warehousing, storage and distribution. If correct, such a use would not be in breach of the lease and indeed would be protected by the lessor's covenant for quiet enjoyment. In this latter respect, the evidence, of course, established that, prior to September 2003, Toyo personnel knew the Clark Y650D was in regular use and did not interfere with that use. 441 If CTH's contentions as to the "use" provided for in the lease are correct, the remaining question is whether the phrase "reasonably fit condition for use" in clause 2, in the context of the lease as a whole, afforded CTH protection with respect to its use of the container handling equipment chosen by it for the purpose of loading and unloading containers.

[184]

Special condition 6 442 Special condition 6 is to be read with and in light of the more general "use" provisions set out on the first page of the lease. The principle of reading lease provisions in the context of the lease as a whole is illustrated in the case of lease covenants. Where two covenants deal with the same subject, the instrument must be read as a whole and the words of each clause must be construed so as to bring them into harmony with the other provisions of the instrument if possible without doing violence to their natural meaning: The Laws of Australia, 28 Real Property, at 28.7.90; Combara Nominees Pty Limited v McIlwraith-Davey Pty Limited (1991) 6 WAR 408 (applying the principle of harmony). 443 Adopting the approach to reading lease provisions in context, clause 2 and special condition 6 are both directed to the use of the premises. The specification in the special condition elaborates upon the more general "use" provisions in its reference to "containers" (meaning import/export containers), and to the specified activities ("loading and unloading") involved in their handling. The two provisions may be read together as harmoniously reflecting the parties' contractual intentions as to the extent of use permitted under the lease. 444 The nature of a particular or special use may serve to confirm or "colour" the ambit or scope of what was permitted by the general "use" provisions and/or by the special condition. Additionally, a particular or specific use may impliedly authorise the use of heavy machinery. In Advance Fitness (supra) Austin J observed:- "93. … Thus, if the lease contains a promise by the tenant that it will use the demised premises in a particular way , which necessarily involves the use of heavy machinery (for example, a promise that the premises be used as a printery in which rolls of paper must be moved by fork lift), the lease may well contain an implied warranty that the floor of the premises is sufficiently strong to permit the normal conduct of the business and the use of heavy machinery for that purpose ." (emphasis added) 445 In the present case, the provisions of the lease as to the permitted "use" and special condition 6 together convey the purposes of the lease. CTH's entitlement to possession of the hardstand area was supplemented by the associated rights provided for in special condition 6 to conduct the activities to which it refers.

[185]

Was the use of the Clarke Y650D within the permitted use? 446 Toyo's warranty in clause 2 was not expressed to be subject to qualifications or exceptions of any kind. Similarly, special condition 6 did not specify any conditions or limitations on the vehicles, the machinery or the equipment that might be used for the purpose of undertaking the activities to which it referred. The commercial transportation of bulk containerised cargo of its nature will frequently involve and require the repeated loading or unloading of heavy objects by vehicles or machinery moving in restricted spaces. Even unloaded containers are substantial objects in themselves. In Alamdo Holdings Pty Limited v Australian Window Furnishings (NSW) Pty Limited [2006] NSWCA 224 a sub-lease explicitly permitted the sub-lessee to use areas that were, however, only suitable for light duty in the movement and parking of heavy vehicles and which was likely to damage the pavement of those areas. As Hodgson JA observed on the facts of that case at [63]:- "… what actually happened was a sub-lease … 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." 447 Hodgson JA, accordingly, noted the extent of the permitted use under the sub-lease to the sub-lessee for a purpose that itself indicated the likely use of heavy vehicles and equipment on the light duty pavement and to the fact that that had occurred and damage resulted. 448 CTH, in the present proceedings, in addition to the lease provisions discussed above, relied on Mr Williams' evidence as to his understanding as to what was permissible so far as loading and unloading containers was concerned. Mr Williams was the only Toyo employee who claimed familiarity with the loads that can be carried by concrete pavement in the normal operation of industrial equipment. In cross-examination, he was asked about the matter:- "… You tell his Honour that your view, as at late 2002, early 2003, was that it was in impermissible for CTH to have a large forklift on the site that was handling containers, is that right? A. No, I wouldn't say it was impermissible, but I think it was a dangerous piece of machinery to use given the fact that it would damage the concrete.

[189]

Q. And may I take it you took that view because, whether or not you thought it was sensible, you regarded the use of a large forklift as being an available means, that is, a reasonably available means of handling the containers? A. I could understand the logic for why they would want to use a machine like that, yes." 449 Mr Williams agreed that when the occurrence of damage was brought to his attention in December 2002 or January 2003, "he did not even raise the prospect of future costs rectification with the tenant". 450 Toyo's case was, in effect, that, although certain activity involving heavy equipment was a permitted or authorised use of the premises, there was a point at which, what might be termed, "very heavy" equipment (such as the Clark forklift) was not permitted. The difficulty with that submission, however, is that, whilst as a matter of construction the provisions of the lease permitted or authorised the use of heavy equipment they did not set limits on what might be considered to have been "too heavy" or excessive. Whether or not Toyo actually considered that the hardstand area to be sufficiently robust to withstand the heaviest loads is not known. The contractual position, however, is that the lease provisions did not seek to regulate the loading and unloading activities by imposing conditions or limitations on the use that they permitted. 451 The construction of Rule 4 in the Rules and Regulations is considered below. It is sufficient to state here that the limitation or restriction imposed by that rule is directed to the installation or positioning in the building of heavy equipment or articles. Whilst the parties clearly contemplated the lifting, moving, loading and unloading of shipping containers in the yard area during the term of the lease, they did not make provision subjecting such use to the need for specific regulation or consent by the lessor. 452 The lease, in failing to place any qualification or conditions upon the warranty as to the use or suitability of the premises in the yard area, may be contrasted with the lease provisions considered in Bradford House (1983) 46 ALR 305 (Smithers J) and on appeal (1983) Aust and NZ Conv R 245 at 246 (issue 38 - September 1983, Full Court of the Federal Court of Australia, Bowen CJ, Fisher and Lockhart JJ, 4 August 1983). In that case, there was a provision (clause 4.12) that prohibited heavy machinery, plant or other equipment from being brought onto the premises unless the specified conditions (which included information being furnished in advance to the lessor) were fulfilled. 453 I return to the issue as to whether the use of the Clark Y650D, being equipment that was designed and suited for container handling, was within the permitted use under the lease or whether it should be regarded as an exceptional or extraordinary use falling outside such use or beyond what Mr Burchett referred to in his written submissions (p.7) as "ordinary general use". 454 No authority has been cited by which that precise issue is to be determined. However, the terms of the lease, once properly identified and construed, are to be applied to the facts established by the evidence. The fact that the Clark Y650D was considerably larger in size and capacity and heavier in weight than CTH's other forklifts alone is not sufficient, in my opinion, to thereby establish that its use fell outside the permitted use. It is necessary also to have regard to what container handling in the context of the transport industry involves and what are considered to be its ordinary incidents. 455 The assessment or judgment to be made in that respect may be approached in a similar manner to that applied where the question as to what is to be considered as the ordinary or accepted use of land and what is not is in issue. The High Court's analysis of the common law liability of a landowner in Hazelwood v Webber (1934) 52 CLR 268, 277 to 278 illustrates such an approach. Gavan Duffy CJ, Rich, Dixon and McTiernan JJ observed:- "… when the use of the element or thing [in that case the lighting of fire to burn off stubble] which the law regards as a potential source of mischief is an accepted incident of some ordinary purpose to which the land is reasonably applied by the occupier, the prima facie rule of absolute responsibility for the consequences of its escape must give way …" 456 In determining the incidents of ordinary use of land, reference was made to the standards and other matters by which the question was to be determined:- "… the experience, conceptions and standards of the community enter into the question of what is a natural or special use of land, and of what acts should be considered fraught with risk to others as not to be reasonably incident to its proper enjoyment …" 457 Whilst the question of the occupier's liability in that case, of course, is a very different one from the task of determining permitted activity under the terms of a lease, the above observations serve, however, to illustrate that, in determining what is an "ordinary" or permitted use in a particular context, the assessment is best made by reference to appropriate points of reference. These may be found in standards, practices or accepted methods applicable to a particular area of endeavour and, in the present case, those that indicate what are accepted or reasonable methods and equipment by which container handling in the transport industry is performed. 458 In the plaintiff's case, there was evidence as to the type and range of equipment or machinery employed in the practice of container handling in the industry. That evidence, as noted earlier, established that container handling involved various forms of specialised equipment including forklifts of large size and capacity. That evidence, in my opinion, establishes that the Clark Y650D forklift is an accepted or ordinary incident of container handling operations within the transport industry and its use could not, accordingly, be considered to be either unreasonable or exceptional. 459 Mr Simpkins contended that the pavement was, in any event, shown to have been unsuitable even in its original design condition to support a forklift of 20 tonnes, being one that falls at the lower end of the range of larger forklifts (between 20 tonnes to 75 tonnes). He relied, in this respect, upon Dr Redman's evidence in cross-examination (at t.470 to 472, 477) and the calculations he made and incorporated into Exhibit U. 460 Dr Redman based his calculations on assumptions of a 20 tonne axle load on a 170 millimetre thick new pavement and by applying the Guidelines for design, construction and specification for pavements (5.48 - extract Appendix C to Mr Forrest's affidavit sworn 10 November 2006), Chart 1.2, Axle loads - edge loading. On that basis, for such a piece of equipment, he calculated that the number of forklift repetitions (on the above assumptions) that would produce fatigue failure would be less than 1,000 and probably in the order of 100 repetitions. 461 The submission, accordingly, was that nothing in the case from a practical viewpoint turns on whether a Clark Y650D forklift was used as the pavement would not have been suitable for a large but less heavy forklift such an Omega forklift, having a lifting weight of 28 tonnes. 462 Accordingly, it was contended on Dr Redman's calculations that the pavement was inadequate for any of the larger species of forklift falling within the range referred to in paragraph [367]. 463 Dr Redman's calculations in Exhibit U are, I consider, relevant at least to this extent. They support the conclusion, reflected in other evidence concerning the original pavement design specifications, namely, that the premises were never designed to be used other than for industrial truck loading. The evidence supports the fact that Toyo did not, between the purchase and the leasing of the property to CTH, investigate whether its leasing potential was limited to industrial uses of a less intensive nature than that involved in the operations of a transportation business. The only report available to it was the environmental property report of URS. The brief paragraph in that report on paved areas (2.3.2) did not provide any information on the loading capacity of the pavement. On the evidence, Toyo's legitimate interest in realising the property's leasing potential was activated without an examination or determination of the level of industrial usage to which the property could be considered to be reasonably fit for use. 464 I, additionally, do not accept the submission for Toyo that there was a change of use of the premises after the lease nor that the nature of CTH's business changed to incorporate a "container terminal" business. The evidence establishes that the business operated by the plaintiff at 50 Airds Road involved container handling in the area indicated on Exhibit 10 and that that part of the business was expanding during its occupancy of those premises. 465 Mr Howes, in his affidavit sworn 13 September 2006, paragraph 5, outlined that "container handling" both on those premises and on the leased premises involved the receipt of containers and its subsequent on - forwarding without the removal and warehousing of their contents. That activity was, accordingly, distinct and separate from the warehousing function of the business. 466 The nature of CTH's business operation prior to the lease was assessed by Toyo's agent, Mr Steinhour, on his visit to 50 Airds Road. Mr Steinhour said that the purpose of the visit by himself and Mr Monahan was, in fact, "to see his operation". 467 Whilst he said that he did not see any forklift trucks during his visit, his evidence did not suggest any a basis for disputing Mr Howes' evidence that container handling was an ongoing part of CTH's business at that time. His evidence of having seen stacked containers corroborates Mr Howes' evidence that container handling by mechanical equipment was a regular part of the business. 468 On the evidence, a Clark Y650D may be considered conventional equipment used in moving and handling containers in the transport industry and its use cannot, in my opinion, be classed as either unreasonable or inappropriate.

[193]

• Rule 3 which deals with the subject matter of insurance "… upon the building …" . 471 Rule 4 is specifically relied upon by Toyo and is in the following terms:- "4. The tenant shall not install or position any heavy equipment or article without first obtaining the written consent of the landlord, which consent may prescribe the maximum weight and the position in which such heavy equipment or article may be placed or secured; the tenant shall make good at his expense all damage caused to the building or any part of it by the introduction, installation, presence or removal of any heavy equipment or article of which the tenant has ownership, custody or control. Before any safe or heavy article is moved into the building, due notice must be given to the landlord and the moving of it in and about the building shall only be done under the supervision of the landlord or his agent." 472 The word "install" means, inter alia, to place an apparatus system etc in position for service or use: Shorter Oxford English Dictionary, whilst "position" (as in "the action of positioning or placing") in its ordinary meaning includes to put a thing into a situation, a site or station: Shorter Oxford English Dictionary. 473 A tenant who brings and operates mobile mechanical lifting equipment such as a container handler on to premises does not, in my opinion, thereby install or position heavy equipment or an article within the meaning of Rule 4. So much is clear, in my opinion, by the reference to "… the position in which such heavy equipment or article may be placed or secured". The words "place" or "secured" are not apposite to refer or describe the horizontal and vertical functions of mobile lifting equipment as used by CTH in the yard area of the leased premises. Rule 4 may be contrasted with the wording of a clause (clause 4.12) which proscribed, inter alia, heavy machinery, plant and other equipment the subject of consideration in Bradford House (supra) at 314 to 315. 474 The reference in Rule 4 to "the building" has, in my opinion, the ordinary meaning of the word, namely, a structure or edifice, in particular, a permanent fixed thing built for occupation such as a house, school, factory, stable or church: Shorter Oxford English Dictionary. The hardstand area being part of the yard could not be said to have constituted a building within the meaning of Rule 4. 475 The reference in the last sentence of that Rule to "Before any safe or heavy article is moved into the building, due notice …" again does not apply to the bringing on site of a mobile forklift. 476 Mr Burchett's submission was:- "It is apparent from the above submissions, that Rule 4 applied to the Y650D or any other equipment or article of a weight sufficiently capable of damaging the premises, that it could be described as 'heavy'. It was therefore a breach of condition to position the Y650D on the premises without written consent, which is sufficient to render the plaintiff liable for all consequential repairs under clause 21(a). However, in addition, the concrete pavement is part of the building ( Alamdo v Australian Window Furnishings [2006] NSWCA 224 at [28] and [116]) and therefore liability arises under the rule itself. (Defendant/Cross-Claimant's written submissions p.12) 477 The observations of the Court of Appeal in Alamdo (supra), with respect, do not support the submission made. One of the claims in that case was whether the lessee, AWF, which entered into a sub-lease of a unit of the premises, was liable for repairs to some or all of the bitumen areas on the property. The relevant clauses of the lease employed the expression "the Demised Premises …". That expression was defined in a clause of the lease (clause 1.1). The lease also employed the term "Land". In paragraph [28] of his judgment, Hodgson JA, in referring to clause 5.1, expressed his opinion that there was no reason to construe "Demised Premises" in that clause narrowly so as not to extend to paved areas adjoining and near the buildings. Basten JA agreed at [116]. However, by reason of the particular clauses referred to by Hodgson JA and the definitions of what constituted "Demised Premises", support cannot be found in the particular construction of that term for the proposition that "building" in Rule 4 must be taken to include the concrete pavement of the leased premises in this case, as submitted for Toyo. 478 On the issue of any consent under Rule 4, there was evidence of consent. This included:-

[200]

The implied term 481 The plaintiff's primary case depends upon the express warranty as to the condition of the premises set out in clause 2 of the lease and the contention that on its proper construction the premises were not in a reasonably fit condition for the activities of loading and unloading of containers in the hardstand yard area. CTH alternatively pleaded an implied term as follows:- "5. It was an implied term of the lease that the Premises were fit for the purpose of loading and unloading containers in the hardstand yard area." 482 CTH relied, inter alia, upon the decision in Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited (supra) (Palmer J) and of the Court of Appeal: [2006] NSWCA 296. CTH also relied upon the matters set out in paragraphs 4 to 21 inclusive of the "Plaintiff's Outline of submissions". 483 The implication of the alleged implied term must, of course, pass the tests stated in Codelfa Construction Pty Limited v State Rail Authority (NSW) (1982) 149 CLR 337 per Mason J at 346 and 347. Additionally, where there is an express covenant in a lease dealing with a particular matter as to the leased premises, there is no room for an implied covenant covering the same ground or any part of it: Lend Lease Development Pty Limited v Zemlicka (1985) 3 NSWLR 207, 218. 484 In R & J Lyons Family Settlement (supra), Bryson AJA observed at [63]:- "The contractual character of the relationship under a lease (Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17) and the application to leases (as to other contracts) of the implication of terms BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 282-283, Codelfa, do not render leases, or other written contracts, open to ready implications; the primary source of rights is the express provisions in the document, and established principles on the relationship of lessor and lessee are important for understanding their documents. The implication of terms in accordance with Westernport and Codelfa is a process very sensitive to the facts of each particular case and to the circumstances and contractual provisions which give rise to the perception that the implication is necessary for the contract actually to be effective." 485 In Advance Fitness (supra), Austin J at [90] observed that traditionally the law of landlord and tenant was reasonably clear, and also quite restrictive, on the question of implied covenants by a landlord, observing that courts had held that there was no implied covenant that demised premises were fit for any particular use. Austin J further observed that this was so, even if the lease contemplated use of the demised premises for a particular purpose, and contained a covenant by the tenant not to use the demised premises for any purpose other than the one stated, citing Hill v Harris (supra). 486 However, in Advance Fitness (supra), it was also observed at [93] that a commercial lease being not merely a demise of a propriety interest in land may, as a matter of contract, modify or override the bare principles of the law of landlord and tenant. "93. … Thus, if the lease contains a promise by the tenant that it will use the demised premises in a particular way, which necessarily involves the use of heavy machinery (for example, a promise that the premises be used as a printery in which rolls of paper must be moved by fork lift), the lease may well contain an implied warranty that the floor of the premises is sufficiently strong to permit the normal conduct of the business and the use of heavy machinery for that purpose. Here the commercial relationship between the parties goes beyond a mere covenant by the tenant not to use the premises other than for the stated use. These principles were accepted by Smithers J in the Bradford House case (at 314), though in that case the implication of such a term was excluded because of an express provision dealing with the use of heavy machinery. A similar implied term was read into a commercial licence in the Wettern Electric case." 487 In Land Law, 5th ed (2006), Lawbook Co (at 1573), Professor Butt stated:- "There is no landlords' implied covenant that leased premises are suitable for the purposes for which they are let, or that they can lawfully be used for the purposes for which they are let. Nor does the express inclusion of a covenant for quiet enjoyment require otherwise. However, it may be possible to imply such a covenant in the particular case under general contract law principles governing the implication of terms into contracts. These principles fall into two categories: implication as a matter of business efficacy, an implication as a legal incident of the particular class of contract concerned … On these bases, it is conceivable that a term may be implied that (for example) the landlord will do whatever work is necessary to render the premises fit for the purpose for which they are let and will maintain them in that condition (although in practice such an implication will be difficulty to establish); or (more easily perhaps) a term may be implied that the landlord will not undertake work that would render the premises unfit for their intended purpose (there seems less difficulty in applying these principles to imply a term into a licence that the premises are fit for the purposes of the licence) …" 488 The term that was implied in Steel & Stuff Pty Limited v Fallon Street Properties Pty Limited [2005] NSWSC 1148 arose in very particular circumstances and, as Bryson AJA in R & J Lyons Family Settlement (supra) observed, Palmer J upheld:- "… a strong case of fact which supported the view that the premises were unusable. An important element in support of the implication was [28]:- '28. The positive requirement in the lease that the plaintiff used the premises in the specified way …'" 489 On appeal, Basten JA upheld the finding that the term was implied as necessary to give business efficacy, following reference (at [26], [27]) to the general principle that it is the business of the tenant to satisfy himself that the premises are fit for the purpose for which he wants to use them. Accordingly, the basis on which the case was disposed of and the need for the implication for business efficacy was founded on facts which provided a very clear foundation for the implication. 490 In the present case, the facts and circumstances do disclose in the evidence a proper basis for the implication of the term relied upon by the plaintiff. The position on the evidence in the present case is not unlike that in the example provided by Austin J in Advance Fitness (supra). The hardstand area was to be used in a particular way that necessarily involved heavy containers, both loaded and unloaded, and the use of substantial container handling machinery. The use of such machinery for that purpose would, under special condition 6, be carried out in a relatively confined area of the yard. That necessarily would mean a high level of repetitive loading to that particular part of the premises. 491 As observed by Jordan CJ in Heinmann v Commonwealth of Australia (1938) 38 SR (NSW) 691 at 694, in certain circumstances the parties to a contract are bound not only by the express terms of their contract but also by additional terms which are implied by law by reason of the nature of the contract or of the nature of the terms of the contract, or of the circumstances in which the contract was entered into. 492 In the present case, on the findings earlier made, the parties contemplated that the premises would, in part, be used by CTH for containerised operations and so much is reflected in the words of special condition 6 itself. In that context, the hardstand area had to be suitable for the conduct of that part of the plaintiff's business and it may readily be implied that that area would be of sufficient strength to support accepted methods of loading and unloading containers in the conduct of CTH's business. The implication would be both consistent with the other terms of the lease and necessary to give it business efficacy as well as satisfying the other grounds necessary to support the implication: Codelfa (supra) at 347. 493 Accordingly, I find that there was an implied term that the hardstand area would be fit for the purpose of loading and unloading containers. THE CROSS-CLAIM

[207]

Damage to premises 497 The lease conditions assign the liability for loss of or damage to the premises according to the circumstances attending such loss or damage. Accordingly, by clause 16(a)(iii), a lessee is to compensate and meet all claims, inter alia, for damage to part or whole of the premises "… as a result of any accident or neglect or a deliberate or careless act on the premises or a breach of any condition of the lease by the tenant, his employees or agents …". 498 Additionally, by clause 21(a), the lease provides that the lessee shall repair in a proper way any damage to the premises "… resulting from neglect or a deliberate or careless act or a breach of any condition of the lease by the tenant or any person on the premises with his consent". 499 Except as provided by condition 21(a), the lease provides, in clause 21(b), that "... the landlord shall carry out without delay all reasonable repairs necessary for the tenant's ordinary use and occupation of the premises, having regard to the condition of the premises as the commencement of the lease". 500 In the submissions on behalf of Toyo, it was contended that, inter alia, that the damage to the pavement, inter alia, was the result of "neglect" or "a deliberate or careless act" by CTH in operating the Clark Y650D forklift. 501 In determining the operation of the abovementioned provisions imposing obligations to repair damage to the premises either on the lessee or, in the circumstances provided, on the lessor of the property, the clauses are to be applied in a commercially sensible manner. 502 I accept, as submitted on behalf of CTH, that, at least subject to observations made below, there can be no liability in the plaintiff for damage if what it did was permitted by and otherwise was in accordance with the lease. In such circumstances, the obligations in respect of damage to the pavement is determined by the provisions that prescribe the respective obligations of the parties. 503 Further, I do not consider that the provisions of clause 16(a)(iii) or those in clause 21(a) of the lease apply so as to impose responsibility on CTH in respect of the damage to the premises resulting from its permitted use. In that respect:-

[209]

(2) The fact that the Clark Y650D forklift was considerably larger than other forklifts that had been used on the premises and, indeed, was heavier than the 28 tonne Heister forklift used at 50 Airds Road, Minto meant, of course, that it was apparent to Mr Howes that it would impose heavier loading upon the pavement. The particular factual matters raised with Mr Howes in cross-examination included the following (at t.59):- "Q. The fork you acquired ultimately was a fork which, up until then, the entire work life, as far as you were aware, had operated on purpose-built, compacted, top grade pavement at the wharves; isn't that right? A. That forklift, yes. Q. And you proposed to bring it to be used on pavement apparently set up for receiving trucks of the normal weight used on roads in and around Sydney; isn't that right? A. Yes. Q. And you proposed to bring it there knowing that there was damage already to the pavement, isn't that right? A. The cracking, yes. Q. And you proposed to bring it there knowing that that pavement was already at least 20 years old, is that right? A. Yes. Q. And it doesn't occur to you at all that there was any risk in doing this to the structural integrity of the pavement, is that right? A. No. " 504 In Mr Burchett's written submissions (p.13), it was contended that the damage caused by the operation of the Clark Y650D forklift could reasonably be considered:- "… the materialisation of a risk taken by the tenant in the manner of use of the premises, irrespective of any contribution from the flawed condition of the pavement. Indeed it was an overwhelming cause of the damage, irrespective of the risk, that a lighter load may have caused such damage at some time in the future." 505 Mr Howes agreed in cross-examination that he was aware that, what were referred to as "container handling companies", limit their operations to what was referred to as "… specialty built container handling surfaces", although he added that he was not qualified to say whether or not the hardstand area of the leased premises was not a "specially compacted area required for container handling operations". 506 In re-examination, he was asked:- "Q. Why didn't it occur to you that there was any such risk of damage to the pavement? A. Over the years that I was familiar with the Pirelli site there were several containers going in there from time to time. I can't question on how, where or when. But over a period of time that I was driving and also in vehicles going past, there was always a numerous amount of semitrailers in the area that I leased, and without counting at any one time, hundreds of tonnes of cable drums being outside with smaller fork-lifts, not container handlers, but smaller 6 to 8 to 10-tonne fork-lifts, more than one, running around and these fork-lifts were of a weight and size that they could lift the larger cable drums in an open area. And I believe that our operation was not much different than that. With hundreds of tonnes previously being put in that area, noticing the cracks from a long period ago, that this equipment was operating over it. They stored - the amount of heavy weight that was stored in this area, I just didn't think that it would affect the concrete any worse than what it was." 507 It was submitted for Toyo that Mr Howes agreed that he was aware that the forklift container handling exerted more pressure on pavement than other types of container handling equipment. It was also suggested on behalf of Toyo that a straddle carrier would have been suitable for his operations. Mr Howes, however, provided in evidence the reason as to why he did not consider that such equipment would have been suitable. 508 In circumstances in which the lessor warranted the condition of the premises, there is no evidence that it was incumbent on CTH to undertake its own investigation into the structural condition of the pavement. 509 There is a difference between undertaking a permitted use of premises and doing what is permitted in a negligent fashion. A lease, for example, that permits a fabricating company to conduct manufacturing activities requiring the use of oxy-acetylene equipment would not operate to protect the lessee from liability for a negligent act in using acetylene equipment in hazardous circumstances as where there is a known gas leak on the premises. The permission to carry on a particular class of activities may, as earlier discussed, be an associated contractual right to the right of possession. The mere performance of activities that are permitted and envisaged by a lease will not generally render the lessee liable for breach of duty under the general law. It may be otherwise where, as in the above example, there exist some additional fact (such as the gas hazard in the above example). 510 On the basis of the findings earlier made establishing that the use of the Clark forklift fell within the permitted use under the terms of the lease and that on the evidence, forklifts in the heavier range of such machinery were employed in similar businesses to CTH in the transport industry, CTH's use of the forklift was not, in my opinion, one that could be said to constitute a breach of any duty of care owed by it to Toyo. 511 The duty owed by CTH was essentially defined by the parties in the terms and conditions of the lease. To do what was permitted under the lease could not, in the circumstances of the present case, in my opinion, constitute an "accident or neglect or a deliberate or careless act on the premises or a breach of any condition of the lease …" within clause 16(a). 512 By reason of the design specification of the concrete pavement and, additionally, its deteriorated condition that existed at the commencement of the lease, the premises were not in a reasonably fit condition at the time of the lease for the use it authorised. In other words, the evidence established that the pavement lacked the necessary structural integrity to support the container handling operations permitted by the lease. In particular, the pavement was not in a reasonably fit condition to support the use of forklifts in the loading and unloading of forklifts falling within the lower end of the heavier range of machinery (eg, 20 tonnes beyond 100 - 1,000 repetitions). 513 The damage to the property consequent upon the authorised use, accordingly, resulted from the structural deficiencies earlier identified that affected the condition and the loading capacity of the pavement and Toyo's act in leasing it for the permitted use when it was not, in fact, in a reasonable fit condition or such use within clause 2 of the lease. 514 I accept the alternative submission made on behalf of CTH that, even if it could be said that the use of the forklift was not reasonable, damage would have been sustained in any event by a reasonable use of premises by a transport company and this by reason of the premises unsuitability as at the date of the lease. 515 In relation to the submissions of the defendant as to breach of duty, it is necessary to make one observation on the issue of "damage". The damage that occurred during the period of the lease was progressive and not limited to one or more points in time. The causes of the damage have been the subject of findings set out above. 516 This is not a case where further deterioration in the pavement occurring after the initial damage in early 2003 can be seen as specific "damage" constituting a separate element of negligence. The expert evidence to which reference has earlier been made established that, once the pavement had initially failed and further deterioration had taken place in early 2003, it was by then not a practical option to repair it. By that stage the only response was to replace the damaged areas with a new pavement constructed in accordance with suitably designed specifications. In other words, further or additional deterioration beyond early 2003 did not produce the need for replacement as that need had already arisen.

HARREM PTY LIMITED TRADING AS CTH TRANSPORT & SERVICES v TOYO TYRE RUBBER AUSTRALIA LIMITED

At a glance

Court

Decision date

Before

Source

Judgment (221 paragraphs)

Parties

Cases Cited (16)

Cited By (2)