Huang v Mac's Pty Ltd

1 In Application 035046 the Lessee, Mr Huang, under registered lease 896590V of restaurant premises 185 Oxford Street, Darlinghurst, where he runs "Emperor's Gourmet", seeks relief against forfeiture pursuant to Notices of Termination from the Lessor of 12 May 2003. The Application also seeks damages for failure to repair the roof. 2 In Application 035051 the Lessor, Mac's Pty Ltd, cross-applies for an order terminating the Lease against the Lessee together with expenses incurred in pursuing termination. The application and cross-application were heard together. 3 The Lease commenced on 20 July 2002 for 5 years without an option to renew. The business had been operating in the premises prior to the commencement of the Lease but for how long was not established to the Tribunal. 4 The key provisions of the Lease for the purposes of the matter finally at issue before the Tribunal are Clauses 17.01-17.03 which provide that:- 17.01 TENANT TO INSURE GLASS The Tenant shall at its own expense insure and keep insured all glass in or about the demised premises against breakage under a policy in the joint names of the Landlord and the Tenant with an insurance company approved of by the Landlord and shall produce such insurance policy and the receipted premium notices to the Landlord upon demand. 17.02 TENANT'S FITTINGS AND STOCK The Tenant shall at its own expense insure and keep insured the plant fittings fixtures and improvements upon the Demised Premises and its stock-in-trade contained in or about the demised premises to the full insurable value against loss or damage occasioned by fire-fighting activities fusion explosion lightning civil commotion storm tempest earthquake burglary and malicious damage with an insurance company approved of by the Landlord under a policy in the joint names of the joint names of the Landlord and Tenant and shall produce such insurance policy and the receipted premium notices to the Landlord upon demand. 17.03 TENANT'S PUBLIC RISK POLICY The Tenant shall at its own expense in the sum specified in Item 16 of the Reference Schedule [$10m] or for such greater sum as the Landlord may from time to time require and otherwise adequately insure against public risk and keep insured against public risk in the joint name of the Landlord and the Tenant with an insurance company approved by the Landlord in the form of a standard public risk policy but bearing an endorsement extending indemnity to such other risks of an insurable nature for which the Tenant is obliged to indemnify the Landlord by the Lease and shall produce any such insurance policies and the receipted premium notices to the Landlord upon demand. 5 The Lessor acquired the premises on 24 September 2002 from the original lessor and through its agent and lawyers began assessing compliance with the Lease in many respects including fire regulations, pest control, cleaning and insurance. There had been a history of prosecution by South Sydney Council pre-dating the Lease for breach of food standards regulations resulting in a conviction in September 2002 and undertakings by the Lessee to keep the premises clean in the future. By letter of 29 October 2002 the Lessor's lawyer required remedy of a number of alleged breaches. The Lessee was allowed 35 days to rectify pursuant to the Lease. 6 On 14 January 2003 the Lessee's lawyer claimed all works had been done and in reply raised the issue of a water leak; the agent replied the leak had been repaired by 19 January 2003. However the Lessor disputed the Lessee's compliance including on insurance and specifically by its agent's letter of 12 February 2003 required evidence of the insurance policies. 7 On 23 January 2003 GIO had issued a Business Insurance Policy "POLICY SCHEDULE AS AT 16/01/2003" covering the three designated risks under the Lease referring to the business as "Emperor's Gourmet" but naming as "Insured" not the Lessee but a company of which the Lessee is a director, and for a public liability amount of $5m not $10m as required under the Lease. There was no evidence of any relevant prior insurances and it is reasonable to infer that prior to that time the Lessee had not substantially complied with Part 17 of the Lease. 8 A Notice to Quit was served on 18 February 2003 listing a number of defaults, including failure to comply with the insurance obligations, which the Lessee's lawyer immediately disputed. Certainly by 26 February 2003 the Lessee had finally provided a copy of the 23 January Business Insurance Certificate to the Lessor whose lawyer on 26 February 2003 replied to the Lessee that it failed to comply as to the nature and extent of the insurance cover required by the Lease and also that :- "Our client is not listed as an interested party…." The 18 February Notice to Quit was not proceeded upon. 9 GIO amended the insurances on 28 February 2003 which, while still in the name of the company, noted both the Lessor and Lessee as "Interested Party(ies)", increased the public liability cover to $10m and amended details of the other cover. The total premium covering all three risks was noted as $2 507.48. The "Period of Insurance" remained at "16/01/2003 to 4pm 16/01/2004" but the Certificate includes "Endorsement for Term 26/02/2003 to 4pm 16/01/2004" in respect of the risks. However the Lessor by its lawyer rejected the Policy as non-complying without particularising the defects. 10 There was further correspondence over their differences as to compliance with the precise terms of the insurance covenants in Part 17 of the Lease and as to the water leak. On 25 March 2003 the Lessor issued 3 Notices to Rectify one each claiming breach of Clauses 17.01-17.03 of the Lease without particularising the nature of the alleged breach. The Lessee immediately rejected those Notices and shortly after sent a Certificate of Currency of the insurances as at 31 March 2003; in reply the Lessor specified the defects namely that the policies were in the company name and not "in the name of the tenant and the landlord" and that they do not date from the start of the lease on 20 July 2002 but from a later date. 11 The Lessor amended its Notices to Rectify on 7 April 2003 to reflect that, issuing a Notice of Termination based thereon on 12 May 2003 together with a second Notice based on failure to pay legal costs. 12 On 16 May 2003 the Lessee obtained from GIO a new Certificate of Currency now in the Lessee's name for the same Business Insurance Policy Number repeating the same risks and limits. The premium was not noted and it can be inferred it was unchanged. The "Period of Insurance" remained at "16/01/2003 to 4pm 16/01/2004" and the Certificate repeats "Endorsement for Term 26/02/2003 to 4pm 16/01/2004". This time the Certificate noted:- Insured(s): JIANG HUANG Trading Name(s): EMPERORS GOURMET Interested Party(ies): MAC'S PTY LTD (LANDLORD) 13 The issue between the parties is whether the Lessee has complied with its insurance obligations under the Lease. The references in the Notices to Rectify concerning failure to provide policies and premium receipts were not pressed before the Tribunal as a continuing ground for termination. In any event there was evidence that the premiums had been paid and a copy of the policy was annexed to an affidavit of the Lessor's lawyer. The case is therefore about the names in which the policy has been issued and the period of insurance not running from the start of the Lease. 14 The Lessor says the Lessee has failed to insure the stated risks from the commencement date of the Lease on 20 July 2002 "in the joint names of the Landlord and Tenant" as required by the Lease, thereby entitling it to terminate the Lease. 15 The Lessee, in essence, claims that, despite a series of admitted errors including not properly naming the Lessee as the insured on the insurance policy or registering the interest of the Lessor, he had finally by 16 May 2003 secured from GIO business insurance covering all the relevant risks up to the required amounts under the Lease and noting the Lessor as "Interested Party". 16 The Lessor simply contends that this is not in the "joint names" in terms of clauses 17.01-3 and that it does not operate from the start of the Lease. 17 The Lessee replies that he has been unable despite his best endeavours to obtain a policy in the "joint names":- a. GIO will not issue a policy in any other form, except noting the Lessor's interest, and he led evidence from GIO to that effect; b. he says he has been unable to find any other insurer to issue a policy in joint names; and c. both under the general law and more particularly under s.48 of the Insurance Contracts Act 1984 (Cth) the Lessor is fully protected, at least from 16 May 2003 (and also possibly from 28 January 2003) being named as "Interested Party". Accordingly the Lessee says, despite being in breach possibly up to 16 May 2003 (and certainly up to 28 February 2003), any breach has been cured from that date such that forfeiture of the Lease should not be ordered. 18 In relation to the central dispute in this case, both parties led evidence concerning insurance in joint names. 19 The Lessee's lawyer gave evidence that he made unsuccessful inquiries for insurance policies in the joint names. The GIO officer who managed the Lessee's account and policies gave evidence that it was not GIO's practice to issue insurance in joint names. She identified an internal GIO document dealing with GIO's practice concerning leases which "contain an obligation that the tenant 'insure the building' or pay for the property owner's insurance" where tenants "request building insurance which notes the property owner as an/the insured". The document states: "This is not our practice and it should not be allowed. In all cases the property owner must arrange the insurance themselves and take out a separate policy… - For the purposes of the Public and Products Liability policy section the description of the business will have a large impact on the activities covered by the policy. Cover for the property owner under this policy section will be ineffective if the business description relates only to the tenant's activities. - If the landlord and tenant are both insureds under the Public and Products Liability policy and one party suffers loss or damage for which the other is liable, our rights to seek recovery from the responsible party will be affected. Generally speaking, we cannot seek recovery from one insured on behalf of another insured under the same policy. If a tenant has an insurance obligation as part of a lease you should suggest that: - The property owner separately applies for insurance in relation to the building occupied by the tenant. The property owner must receive the relevant policy document, renewal notices etc. in relation to this policy to ensure that cover is appropriate for their needs and that they are provided with the necessary legislative notices (such as the duty of disclosure notice and privacy statement). - The tenant may reimburse or pay the premium for the property owner's insurance. However, how this is arranged between the property owner and tenant is a matter for them. Our only concern in this regard is that the premium is paid, and that it is paid on time. 20 It should be noted that this internal document does expressly relate to "building" insurance even though it does mention public risk in that context, and so it is somewhat confusing in dealing with the central issue in this case where the Lessee is not required to take out 'building insurance'. 21 The Lessor led uncontested evidence from a senior insurance consultant that he knows of no legal impediment to an insurance policy being issued in joint names and stating the opinion that "it is very likely that GIO General Ltd would issue a policy of insurance in the joint names…". I note however that the Lessor did not lead any evidence that it had been able to obtain a quote from an insurer for these 3 specific risks in joint names. 22 During the hearing at my invitation, the Lessee repeated an offer similar to one he said he had previously made namely to obtain 3 quotes for the Lessor for the relevant insurances. However correspondence filed since the hearing indicates this course has not resulted in any agreement between the parties and confusingly the Lessor has referred to a quote "for the insurance of the premises (my emphasis) in the [joint] names…subject to…a satisfactory survey…$5 052.89." This does not seem to assist me because from the description, the premium (being double the GIO's cover on the existing policies) and the need for a survey, it appears to be building insurance, not for the relevant risks. 23 The Lessee also drew attention to Item 5 of the General Conditions of the GIO Policy applying to the policy in this matter:- "5.Other Interests You must tell us in writing of the interests of all third Parties (for example banks, lessors) when you want their interest in any item insured under any policy section in this policy covered. If a person is not named, they are not insured and cannot make a claim. The third parties must comply with all the terms and conditions of your policy." 24 It is common practice for a Lessor to require insurances to be in place for all usual risks relating to the operation of the Lessee's business on its premises. The standard Law Society of NSW Retail Lease requires the Tenant to keep current public liability and plate glass insurance policies and to produce to the Landlord on request both the policies and receipts for the premiums; this standard lease does not require the policy to be in joint names. (It does not include tenant's fittings and stock as in the Lease in this matter). 25 Does this Lease go further and seek to protect the Lessor against any liability in relation to these risks? I think a reasonable construction of Clauses 17.01-17.03 is that this is the intention of the reference to 'joint names'. 26 In the course of the hearing I discussed with the parties whether public liability, while essentially a risk of the occupier of premises also includes liability asserted against the owner of premises where damage to a member of the public on the premises in connection with the Lessee's business results from defects in the building which are the owner's obligation. The Policy in this case in Section 7 dealing with 'Public and Products Liability' states:- "We will insure you, under the terms of this policy section and subject to the limits set out below, for any amount you become legally liable to pay as compensation for personal injury or damage to property happening during the period of insurance and caused by an occurrence connected with your business." In my view that would include an occurrence during the operation of the business but caused by a building defect. 27 A Lessor would have an insurable interest in plate glass being part of the fabric of the building. It may be arguable that a Lessor does not have an insurable interest in Tenant's fittings and stock for the purposes of the covenant for that insurance in clause 17.02 of this Lease. Nevertheless the GIO policy in this case notes the interest of the Lessor in relation to all risks covered. Accordingly whatever rights the Lessor has as a noted interested party will extend to its liability if any in relation to the tenant's fittings and stock. 28 The first question is whether the insurance policy, at least in the final form of 16 May 2003 with the Lessee named as insured and the Lessor correctly named as "interested party" constitutes an insurance policy in the "joint names" of the Lessee and Lessor. 29 The general law on third party rights under insurance contracts was the subject of the split decision in the High Court in Trident General Insurance Co Ltd v. McNeice (1988) 80 ALR 574 where a person within the classes of named 'Assureds' in the policy was held entitled to recover even though not a party to the policy and not becoming a member of one of the classes until some time after the policy was written. The majority did require that the insurer be shown to have intended to indemnify the third party. In this case the Lessor was not listed as one of the Insured but as an 'Interested Party' so in terms of the principles in Trident the issue is whether the contract shows an intention to indemnify. 30 Now Section 48 of the Insurance Contracts Act 1984 (Cth) provides:- INSURANCE CONTRACTS ACT 1984 - SECT 48 Entitlement of named persons to claim (1) Where a person who is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract. (2) Subject to the contract, a person who has such a right: (a) has, in relation to the person's claim, the same obligations to the insurer as the person would have if he were the insured ; and (b) may discharge the insured's obligations in relation to the loss. (3) The insurer has the same defences to an action under this section as the insurer would have in an action by the insured . 31 Again, under the Act, the third party must be 'specified…as a person to whom the insurance cover provided by the contract extends…'. 32 In my opinion that is the legal effect of the Policy in this case under both the general law and by virtue of s.48 of the Insurance Contracts Act because a person named as an "Interested Party" is "specified or referred to in the contract, …, as a person to whom the insurance cover provided by the contractor extends". 33 That opinion seems confirmed by Commonwealth Bank of Australia v. Baltica General Insurance Co Ltd (1992) 28 NSWLR 579. There the policy named as the "Insured" a number of persons for their respective rights and interests and then stated "Mortgagee: Commonwealth Bank of Australia." Giles J noted that the insurer conceded such a reference to the Bank was sufficient to entitle it to seek to recover its loss under s.48 for fire damage to the building. The Judge did not question that concession relating to that manner of naming the Bank and said:- "It was common ground that the Bank is not a party to the contract of insurance but specified or referred to in the contract as a person whom the insurance cover provided thereby extended - hence, no doubt Baltica's concession … A person who is not a party to the contract of insurance but is an identifiable beneficiary of the cover has the right conferred by s.48(1), but is not an insured for the purposes of the Act".p.582 34 In this case, the evidence does raise some degree of uncertainty, principally from the GIO practice of not issuing policies in joint names and the uncertainty of its officer who gave evidence whether the naming of the lessor as an interested party would entitle it to recover any loss in the light of the policy against joint insureds. However I do not think the uncertainty of that officer prevails over the legal position as outlined even though it may be considered surprising that with the law in its current form for over 15 years, an insurer of the standing of GIO has not reflected it in its practice directions to staff. 35 Against that uncertainty stands the provisions of the GIO Policy itself in Item 5 of the General Conditions set out above (par 23) which contemplate that a person noted as interested can claim under the Policy. 36 I also note that when the Lessor first identified the nature of the deficiency in the insurance cover in this respect in its letter of 26 February 2003 it referred to the failure to note it as an 'interested party' (par 8); this was its first articulation of the manner in which the policy failed to be in joint names. 37 For these reasons I am satisfied that the policy as at 16 May 2003 constitutes compliance with clauses 17.01 - 17.03 of the Lease. 38 However the Notices to Rectify of 7 April 2003 and the resulting Notices of Termination of 12 May 2003 were validly issued because at the time the Lessee had not finally corrected the Policy so the issue now becomes whether the Lessee is entitled to relief against forfeiture applying the principles under s.129 of the Conveyancing Act 1919 NSW. 39 In my opinion applying Legione v. Hateley (1983) 46 ALR 1 (see also Liristis Holdings Pty Ltd v. Wallville Pty Ltd [2001] NSWSC 428) it would not be a just outcome to this period of the endeavour by the Lessee to fully comply with the quite proper requirements of the Lessor to remedy issues under a number of the provisions of the Lease, for the Lessee now to lose his business goodwill when he has complied. 40 I do note in this regard that the interests of the Lessor and the Lessee had both been noted by the insurer from 28 February 2003 even if it took 3 more months to change the Lessee's status from Interested Party to Insured. 41 There was no evidence of any claims being made which may have given rise to an uninsured liability of the Lessor and while it is not inconceivable that claims could be made well into the future, the apparent absence of occurrences with the capacity to produce such claims makes it unlikely that the Lessor has in fact been prejudiced by the delay in correcting the insurance position. 42 Accordingly in my opinion, the Notices of Termination of 12 May 2003 should be set aside and the Lease should not be terminated. 43 The Lessor in the cross-application says that under clause 7.02 of the Lease it is entitled to its legal expenses in pursuing termination for breach of the insurance covenant. The Lessee did not resist such claim in principle if such a breach is found but I did not take that concession as accepting an obligation to pay all the invoiced costs of the Lessor's lawyers as sought in the Lessor's Application. 44 Clause 7.02 of the Lease effectively pre-determines whether or not the Lessor would be entitled to costs in any proceedings relating to the Lease, entitling it to costs regardless of result and regardless of a costs order. This effect of the clause was not the subject of argument or analysis before the Tribunal but I do not think it can replace the jurisdiction of a court or of this Tribunal to decide under its statutory provisions whether costs should be ordered. 45 The Lessee acknowledged some acceptance of costs but since this case would not otherwise involve 'special circumstances' within s.88 of the Administrative Decisions Tribunal Act 1997 NSW, I think the costs it should be obliged to pay under clause 7.02 should be limited to the costs relating to the insurance issue between the parties up to 16 May 2003 which, having regard to the invoices of the Lessor's lawyer of 5 March 2003 and 3 June 2003, should not exceed $3000 inclusive of GST. 46 The Lessee's claim for water damage from the roof was not pressed at the hearing and will not be further considered. Orders Application 035046 1. Notices of Termination dated 12 May 2003 from the Respondent to the Applicant be set aside. 2. Application otherwise dismissed. 3. No order as to Costs Application 035051 1. Respondent Lessee to pay Applicant $3000 (inclusive of GST) pursuant to cl 7.02 of the Lease. 2. Application otherwise dismissed. 3. No order as to costs.

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