Hirlmont P/L v Dybka & Anor [1998] QCA 305

3 The premises in question consist of a building of which the tenant occupies prescribed parts (units 1, 2, 4 and 5). It is a large commercial building or shed which is used by the tenant as a factory for the production of pottery. The lease was executed in August 1995, for a five year term commencing 1 June 1995, with provision for an option for a further period of five years.

4 The dispute between the parties is of long standing and was precipitated by a series of incidents in which rain-water entered the building causing damage to the tenant's property and disrupting their business. Some remedial action was undertaken by the landlord but not to the satisfaction of the tenant. The tenant alleges that the roof is, due to its age and condition, uneconomical to repair and needs to be replaced at a cost in the order of $140,000.

5 Over a period the tenant withheld payment of rent to the landlord, alleging an entitlement to do so under a rental abatement clause (cl.5.01). The landlord disputed the tenant's entitlement to do so and sued in the Magistrates Court for rent. The tenant counterclaimed for damages for breach of covenant and in due course brought the present proceedings in the Supreme Court to transfer the existing proceedings into this Court, to obtain an injunction, and if necessary to be granted relief against forfeiture.

6 The learned Chamber Judge determined that there was a serious question to be tried concerning applicability of cl.5.01 as a basis for withholding the unpaid rent, and that the balance of convenience favoured granting the interlocutory injunction. His Honour found it unnecessary to consider the question of relief against forfeiture.

7 Some of the live issues in the proceedings before the Chamber Judge are not now in contention. The landlord now concedes that if there is a serious question to be tried in relation to the applicability of cl.5.01, the balance of convenience favours the continuation of the injunction. The landlord also concedes that in the event that the tenant fails to show a serious question to be tried in relation to cl.5.01, there is no basis for refusing to grant relief against forfeiture provided of course that the tenant pays the arrears of rent and certain other moneys. In turn the tenant agrees that in the event that their case under cl.5.01 is held to be not seriously arguable, and they are driven to seek relief against forfeiture, it would be appropriate that they be required to pay the arrears of rental. It would seem that in the event that relief against forfeiture is to be granted at this stage, the tenant should be required to pay the sum of $42,052.78 as a condition of the grant of such relief.

8 It may be noted that while the tenant may have a prima facie arguable claim to damages for breach of covenant for quiet enjoyment,[1] and an arguable right in that event to set off such damages against rental,[2] Mr Sheahan SC for the tenant, although not abandoning the point, expressly refrained from pressing it, apparently acknowledging the prima facie destructive effect of certain exclusion clauses in the lease, namely cll.8.03, 8.04, 8.05 and 8.06. It follows that for the purposes of the present proceedings the only possible means of justification of the tenant's non-payment of rent is to be found in cl.5.01.

9 This means that the principal issue for determination upon this appeal is whether on the facts presented to the learned Chamber Judge there is a serious question to be tried whether the tenant is entitled to the benefit of an abatement of rent under cl.5.01. There is also a secondary argument advanced on behalf of the tenant, that the judgment appealed from is a determination on a matter of practice and procedure, and that even if error is shown in the order this Court should not interfere with it unless an additional component of injustice can be seen in the continued operation of the present order.[3]

"In case of the total or partial destruction of or damage to the demised premises by fire, flood, storm, tempest, explosion, riot, civil commotion, war or otherwise by inevitable accident or act of God without any neglect or default on the part of the Lessee whereby the demised premises shall be rendered wholly or partially unfit for occupation or use by the Lessee in the conduct of its business then payment of the rent hereby reserved or a proportionate part thereof according to the extent of the damage sustained and the covenants to repair herein contained so far as they relate to any such destruction or damage shall be suspended until the demised premises shall have been restored and again put in a proper condition fit for use by the Lessee for the purpose of its business but nothing herein contained or implied shall oblige the Lessor to restore the demised premises according to the former specifications thereof so long as the layout and dimension of the demised premises and the services thereto be not substantially different from the layout and dimensions of the demised premises and the services thereto prior to such damage or destruction and the materials employed therein be not of inferior quality or aesthetic appearance to the material formally used therein."

"The expression "demised premises" means the premises described in Item 2 of the Form 7 to this Schedule and includes all internal partitions, ceilings, air-conditioning equipment, appurtenances, floor coverings, fixtures and fittings therein contained other than those the property of the Lessee."

"The Lessee shall at its own cost and expense keep and maintain the demised premises and all services thereto in good and substantial repair, order and condition as at the date of commencement except for fair wear and tear and damage by fire, flood, storm, tempest, explosion, riot, civil commotion, war or otherwise by inevitable accident or act of God or by any structural or other defect in the demised premises or any part thereof and without any neglect or default on the part of the Lessee PROVIDED ALWAYS that the exception in respect of fair wear and tear shall apply subject to the express obligations of the Lessee in this section and then only if the Lessee shall have taken all reasonable measures and precautions as required by this Lease to ensure that any damage, defect or dilapidation which, at any time, shall be attributable to fair wear and tear shall not give, cause or contribute to any further consequential damage to the demised premises."

Prima facie there are three elements that need to be established by the tenant in order to activate any rights under this clause. They are:

(a) damage to the premises (as distinct from the tenant's own property);

(b) resulting from a nominated cause (of which the most promising are "storm" and "flood"); and

(c) premises thereby rendered at least partially unfit for occupation by the tenant in the conduct of its business.

12 The tenant's case is that intermittently from the commencement of the lease the roof has leaked substantially when it has rained. This had also been the experience of the previous tenant.

13 There is considerable difficulty in relating the evidence to cl.5.01. The problem is that the evidence to date does not seem to have been focussed on the true legal issues. The tenant's complaints have been in broad terms such as "water damage to the factory", "damage by drains blocking", "water entry to the premises", "constant roof leaking in the premises and surrounding building has caused extensive damage", "stormwater entry", "a hailstorm" and the general sworn statement "my wife and I have suffered the damage referred to in the pleading ... as a consequence of the flooding of the premises". The difficulty is compounded by loose references in notes and letters written by the landlord's agent when he writes loosely about "stormwater entry". There is also evidence that the leaks are not from holes in the roof but rather from "water in blowy conditions entering the side laps of the sheeting".

14 One difficulty confronted by the tenant in showing a proper case for the application of cl.5.01 is that the bulk of the damage the tenant claims to have suffered appears to be in relation to the tenant's fixtures, fittings and pottery. Such damage, and presumably consequential damage fail to prove that the demised premises are unfit for occupation within the meaning of cl.5.01, as of course such items are excluded from the definition of the demised premises. On the other hand there is evidence of water entry into the premises from ground level that arguably might satisfy the requirement of "damage by flood". There is also some evidence supporting a case that "appurtenances" and "floor coverings" sustained some damage, and that cleaning up operations on more than one occasion over several days were necessary before the premises again became useable. One of the tenant's complaints is that the fibro roof is so old and porous that it leaks and that the guttering and drainage are defective.

15 There is evidence that on one occasion a drain-pipe carrying water from the roof, part of which is suspended internally in the premises, broke because of inadequate support, thereby discharging considerable quantities of water internally into the premises on the available evidence. It would be very difficult to ascribe that damage to storm, tempest or flood. It seems essentially to be the result of a structural failure.

16 Mr Matthews for the landlord submitted that the evidence was incapable of proving a case of damage to the demised premises by flood, storm or tempest whereby the demised premises were rendered wholly or partially unfit for occupation by the tenant in the conduct of its business. He submitted that by reference to the tenant's particulars, no more than five days' loss of use of the premises could be inferred as having any relationship to the premises as distinct from the tenant's fixtures, fittings and pottery. Such a relatively short total period in his submission is inadequate to justify any finding of entitlement to suspending a proportionate part of the rental under cl.5.01.

17 It is appropriate then to restate the three elements necessary for the tenant to obtain a benefit under cl.5.01 and to consider whether the evidence is sufficient to show a serious question to be tried.

(b) By flood, storm, tempest or otherwise by inevitable accident or act of God without any neglect or default on the part of the lessee.

(c) So that the premises were rendered at least partially unfit for occupation by the tenant in the conduct of its business.

18 There is some evidence of damage to the demised premises, but not very much. Most of the tenant's complaint seems to relate to the condition of the roof which would seem to be the result of age or wear and tear or defect of design, which allows the water to penetrate or enter. However there is some unchallenged evidence suggesting that some damage has been sustained to parts of the demised premises by "stormwater" and by "flooding". There is also some evidence that some of the "flooding" was by water entering the premises from ground level.

19 The term "storm" has been referred to in numerous cases, usually in the context of insurance policies or leases. A useful statement concerning the term was made by Veale J in Oddy v Phoenix Assurance Co Ltd.[4]

"`Storm' means storm, and to me it connotes some sort of violent wind usually accompanied by rain or hail or snow. Storm does not mean persistent bad weather, nor does it mean heavy rain or persistent rain by itself."

Veale J further suggested that the word "tempest" means no more than a severe storm, and that the operative word in such a context is the word "storm". It has also been suggested in another English case that it is doubtful whether wind on its own or rain on its own would constitute a storm.[5] However the contrary view has been expressed in Australia in Brightwell Home Units Pty Ltd v United Insurance Co Ltd[6] where it was held that there is no need for proof of any wind for there to be a storm. Yeldham J considered that what was commonly called a rain-storm or a very heavy fall over a long period would suffice. Similarly in Harper v Zurich Australian Insurance Co Ltd[7] some disagreement was expressed with statements in the English authorities, and the view was repeated that there is no need for the existence of a violent wind before categorising a rain-storm as a storm.

20 There is also a good deal of conflicting authority on the meaning of the term "flood" according to its use in particular contexts.[8] It is generally understood as a movement of water along or from the ground. In the context of construing an exclusion clause, the term has sometimes been construed narrowly.[9] Kirby P suggested (in the context of the exclusion clause in that case) that the popular use of the word "flooded" was wider than the popular understanding of the word "flood", and construed the word (in that particular context) as confined to a natural phenomenon which has some element of violence, suddenness or largeness about it. However that "reading down" approach is not always so evident when the same word appears in a clause that confers rights.[10] Even the place where the possibility of "flood" arises may be influential in the result.[11]

21 The authorities which deal with these terms are difficult to reconcile. It is not surprising that the different climatic conditions in different countries have led to different understandings of such terms, and for this reason perhaps the United Kingdom authorities need to be considered with some circumspection. The "ordinary Australian" test, with recourse to the Macquarie Dictionary has been used in a number of Australian cases.[12] It is fair to say that the context of the document is of considerable importance, and not infrequently a narrower construction is found in relation to such terms in exclusion clauses than in clauses which grant a right or a benefit. If any ambiguity is detected, this is done by reference to the contra proferentum rule.

22 Mr Sheahan SC for the tenant contended that the deteriorated roof should itself be regarded as comprising "damage to the demised premises by ... storm ... or otherwise by ... act of God". It is enough to say that on the evidence so far presented such a submission is not open. There is no evidence that the deteriorated condition of the roof has been caused by a storm; indeed the evidence is strongly suggestive of natural decay, ordinary wear, and in some respects inferior design. No matter how theologians may approach the phenomenon, I do not consider the submission that deterioration of asbestos sheets is in legal terms an act of God. The tenant's potential case, as it now stands is limited to such damage as can be shown to the demised premises resulting from storm or flood. In deference to the arguments presented by Mr Matthews it is fair to say that the evidence presently advanced of this seems to be very slender.

23 It is necessary for the tenant to prove causation, that is to say that the damage complained of was the result of a storm or flood rather than the mere entry of rain water.[13] Obviously any damage resulting from the entry of water through an opening made by the storm would be regarded as being caused by the storm. Questions of fact and degree are bound to emerge in this area. There may well be merit in Mr Matthews' submission that taken at its highest the tenant's evidence, even if it conforms to the requirements of cl.5.01, does not go far enough to justify more than a trivial abatement. However the evidence is not in its final form, and it is not possible to engage in assessments of degree at this point.

24 It is not profitable to address these questions further in the absence of actual facts and findings so that the Court has a particular factual situation to consider in relation to the words in question.

25 The learned Chamber Judge was confronted with a situation in which not only were the authorities difficult to reconcile, but also the facts were very loosely referred to in the evidence of both parties. It is of course not necessary for an applicant for an interlocutory injunction to produce the final evidence upon which an entitlement to judgment may be seen, and the evidence in the present matter falls well short of doing so. There is however enough material to suggest that there is a serious question to be tried in relation to the applicability of cl.5.01.

26 The further point should be noted that the only point in bringing this interlocutory appeal seems to have been to obtain a relatively minor monetary advantage for the landlord, the question of dispossession of the tenant having entirely disappeared at this stage. I say "relatively minor" in the context of a payment of approximately $42,000 compared with an annual rental exceeding $100,000 in a lease of five years plus five. The appeal challenges the exercise of a discretion in a process which does not resolve substantive rights. Such decisions are sometimes described as matters of practice and procedure, and it has been suggested that in such matters it is not necessarily enough for an appellant to show error below. It has been said that "the question of injustice flowing from the order appealed from will generally be a relevant and necessary consideration".[14] In the present case I would have difficulty in identifying the immediate correction of the present monetary position between the parties as a sufficient basis to have justified the bringing of this interlocutory appeal. However in my judgment the appeal fails on the primary point.

1 I agree with the reasons of Thomas J.A. and the orders proposed by His Honour.

[1] Martins Camera Corner Pty Ltd v Hotel Mayfair Ltd [1976] 2 NSWLR 15, 27; Westpac Merchant Finance Ltd v Winstone Industries Ltd [1993] 2 NZLR 247, 252.

[2] Knockholt Pty Ltd v Graff [1975] Qd R 88.

[3] Adam P. Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170, 177.

[4] [1966] 1 Lloyds Rep 134, 138.

[5] Anderson v Norwich Union Fire Insurance Society Ltd [1977] 1 Lloyds Rep 293; S & M Hotels Ltd v Legal and General Assurance Society Ltd [1972] 1 Lloyds Rep 157, 181.

[6] New South Wales Supreme Court, Yeldham J, 22 May 1980 unreported.

[7] [1987] 4 ANZ Ins Cas 60-779.

[8] Young v Sun Alliance & London Assurance Ltd [1976] 3 All ER 561; [1977] 1 WLR 104; Manufacturers Mutual Insurance Ltd v Stargift Pty Ltd [1985] 3 ANZ Ins Cas 60-615; Spika Trading Pty Ltd v Royal Insurance Australia Ltd [1985] 3 ANZ Ins Cas 60-663.

[10] Ashmore Aged Centres v Cigna Insurance [1989] 1 Qd R 241.

[11] Ashmore Aged Centres v Cigna Insurance, above; see discussion of the Australian authorities by Sutton, Insurance Law in Australia, 2nd ed., pp 501-505.

[12] e.g. Harper v Zurich Australian Ins Co Ltd (1987) 4 ANZ Ins Cas 60-779, per Clarke J.

[13] Cf. S & M Hotels Ltd v Legal and General Assurance Society Ltd [1972] 1 Lloyds Rep 157; Oddy v Phoenix Assurance Co Ltd above. However care is required in the application of insurance cases on this question - see Davies "Proximate Cause in Insurance Law" (1995) 7 Insurance Law Journal 135.

[14] Adam P. Brown Male Fashions Pty Ltd v Philip Morris Inc, note 3 above at p 177.