Keys v Salway

The applicable principles

1. These developments reflected that there were no real issues as to the legal principles which had to be applied to the matters which had brought the parties to court.
2. In Newey v Westpac Banking Corporation [2014] NSWCA 319, Gleeson JA observed at [84] - [85]: "Intention of the parties 84 The objective approach to construction requires that the meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. Subjective beliefs or understandings of the parties are not relevant to the question of construction: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40]. 85 …any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement as understood in its factual and legal context: Wyllie v Tarrison Pty Ltd [2007] NSWCA 184 at [46] (Basten JA; Giles and Campbell JJA agreeing) citing Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; 210 CLR 181 at [11] (Gleeson CJ, Gummow and Hayne JJ).
3. In the commercial context in which this lease was negotiated, the relevant factual context includes the surrounding circumstances known to the parties, consideration of which is not confined only to questions of ambiguity (see Newey at [87]).
4. In Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 the majority reiterated at [35] that: "… As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'." [Footnotes omitted.]
5. What must be considered where, as it became common ground is the position here, there is ambiguity includes the evidence of the commercial purpose of the lease; the genesis of the transaction; and the background, context and market in which the parties were operating (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 350 and Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35]).
6. In this case that requires consideration of the regulatory scheme for BJD infection of cattle; the Salway herd's infected status under that scheme and how it could be altered; the impact of the herd being brought onto Farmhill and the need for the property to be decontaminated if the herd was still infected at the end of the lease; as well as the parties' discussions about these matters and the agreements which they reached about them.
7. In rectifying the lease, as it became common ground was necessary in this case, the Court may not, however, depart from the ordinary meaning of the words used by the parties in the lease merely because it regards the result as inconvenient or unjust (see Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 and McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690 at [17]-[18]). In McGrath it was also observed, however, at [18] "This does not mean that there are not exceptional cases where, to use the words of Lord Hoffmann, something has clearly gone wrong with the language so as to interpret it in accordance with the ordinary rules of syntax makes no commercial sense: see Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 at [15]-[16]; Jireh International Pty Ltd v Western Exports Services Inc [2011] NSWCA 137 at [55], [60]. In such a case, in my opinion, a court is entitled to depart from the ordinary meaning to give effect to what objectively speaking the parties intended. …"
8. In Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329, McClelland AJA (at 345) observed: "In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. In this context "effect" means the legal and factual operation of the instrument according to its true construction, but does not include legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind (for example, its liability to stamp duty).
9. In this case, the result of the application of these principles to the evidence, the parties accepted, was that the wording of clause 20.3 can only have been the result of a mistake, which did not give effect to the parties' common intention. The result is that orders for rectification must be made.
10. What those orders should be, remained in issue.

Conclusion as to rectification order

1. In summary, I have concluded that to rectify clause 20.3 of the lease in the way for which Mr Salway finally contended, would lead to a commercially absurd result.
2. Having taken the still infected herd away from Farmhill at the end of the lease and leaving the property contaminated with BJD, so that it had to undergo the decontamination process required under the applicable Rules, Mr Salway would not be obliged to pay Mr and Mrs Keys the compensation which they had agreed he would have to bear in such an eventuality.
3. On the evidence that would not be merely inconvenient and unjust to Mr and Mrs Keys, it is a result never intended or contemplated by the parties and one which clause 20.3 did not envisage.
4. Mr and Mrs Keys have met the onus falling upon them to establish that the parties' actual intentions were not given effect in the lease which they executed and that clause 20.3 must, accordingly, be rectified in the terms which they sought. Accordingly clause 20.3 must be rectified to provide: In the event that the Lessees' cattle have not reached non-assessed or higher ranking status at the expiration of the lease then, if requested by the Lessors the Lessee agrees to de-stock the land of all breeding cattle for a period of one (1) year and continue to pay rent for that same period being the rent for the final year of the lease increased by method 2.
5. I will now turn to explain the reasons for these conclusions. The evidence which established the parties' common intention
6. In the lease the parties used a number of undefined terms. There was no issue between them that those terms came from the National Johne's Disease Program, under which the 2003 "Standard Definitions and Rules for Cattle" apply.
7. There was also no issue that the parties' common intention was to enter a 5 year lease, with a 5 year option. Mr and Mrs Keys claimed that: "2A. On or about 13 January 2007, the plaintiffs offered to lease the Farm to the defendant on the following terms (the Offer to Lease): a. A lease be granted to the defendant in respect of the Farm; b. Rent to be payable by the defendant at $66,000 per year inclusive of GST; c. The Farm to be used by the defendant as a dairy farm; d. The term of the lease would be five years; e. The defendant would have an option for a further lease of five years; f. In the event that the Lessees' cattle have not reached non-assessed status [with respect to the infection of the defendant's herd with Bovine Johnes Disease (BJD) I at the expiration of the lease then the Lessees agree to de-stock the land of all breeding cattle for a period of one (1) year and pay rent for that same period."
8. Mr Salway claimed in his defence that: "a. The Defendant agreed to the terms of the Lease as they are recorded. b. The Defendant intended that only if his herd had not reached a status of non-assessed or higher under the Dairy Assurance Score regime by the tenth year of possession under the lease, he would pay an additional years' rent increased by CPI as provided in the lease based on the rent in the tenth year of possession under the lease and not otherwise. c. The Defendant intended that the Dairy Assurance Score regime commencing in about 2008 would apply to the assessment of the status of the herd with respect to the regulation of Bovine Johne's Disease. d. Under the Dairy Assurance Score regime for regulation of Bovine Johne's Disease, the herd would achieve the status of higher ranking than non- assessed before the end of the five year lease."
9. Mr Salway finally did not adhere to this defence.
10. Clause 20 of the lease as entered provides: "20 Stock Disease 20.1 The Lessee notifies the Lessors that in relation to Bovine Johnes Disease the current status of the Lessees' dairy cattle is infected. The Lessee notifies the Lessors that a whole heard test has been carried out and a result is pending 20.2 The Lessee agrees to continue to test the herd as per the Rural Lands Protection Boards directions until such time as the status of the herd becomes non-assessed. 20.3 In the event that the Lessee's cattle have not reached non-assessed or higher ranking status at the expiration of the lease then, if requested by the Lessors the Lessee agrees to de-stock the land of all breeding cattle for a period of one (1) year and continue to pay rent for that same period being the rent for the tenth year of the lease increased by method 2. 20.4 The Lessors agree that during this one (1) year period the Lessee can run non-breeding stock on the land or use the land to grow pastures which the Lessee will then be able to cut and carry from the land, on condition that soil fertility status is equal to that at the commencement of the lease. 20.5 The Lessee will immediately notify the Lessor and the proper public authorities of any infectious illness affecting the stock on the property and will take all necessary steps to contain such infection or to remove the affected stock and to comply with any notice or direction of the proper public authority."
11. Method 2, referred to in clause 20.3 is dealt with in clause 5 of Annexure 2 to the lease. It provides a method of rent review by reference to the consumer price index. Item 16 of Annexure A specified that the rent was not to be reviewed until 1 March 2012, after the expiry of the 5 year term. Increases for the following years to 1 March 2016 were specified. This reflected, it was submitted for Mr Salway, that Mr and Mrs Keys had received the significant commercial benefit of Mr Salway's purchase of their herd, in return for which they received two things, a rent holiday and a beneficial allocation of risk for the infected status of the land.
12. The difficulty with this submission was that it was not supported by the evidence. As was accepted, there was no evidence of a discussion about such an agreement. The only evidence of any discussion of risk, which supported Mr Salway's case, came from Mrs Salway.
13. Clause 32 of the lease was relied on, but it provided for a different possibility, early termination of the lease in the event that Mr Salway was unable to effectively and properly continue to operate a dairy farming business on the property without having to incur capital expenditure of $75,000 or more. There was no evidence about how this clause came to be negotiated. On its face it had nothing to do with the matters the subject of clause 20.
14. The parties certainly agreed to a fixed rent for the 5 year term of the lease. It was contemplated that the rent was only to increase in the event of the option being exercised. There is no question that they agreed to a 5 year lease, that being the only lease that Mr and Mrs Keys were prepared to offer. They also offered a 5 year option, which they all understood Mr Salway intended to exercise. As was finally submitted for Mr Salway, there was then a tacit assumption by all parties that the option would be exercised.
15. That clause 20.3 is ambiguous and contains a mistake is no longer in issue. That is because it is impossible to undertake the calculation there provided, when the lease came to an end on 1 March 2012. That was because, under Method 2, the calculation had to be undertaken by reference to unknowable future CPI figures. On all of the evidence that formulation was drafted by Mr and Mrs Keys' solicitor, Mr Taylor.
16. Rectification of the clause on the basis sought by Mr and Mrs Keys was resisted by Mr Salway, however, as not giving effect to the parties' common intention, when the lease was entered.
17. For reasons which follow, I am satisfied that the evidence establishes that the common intention of the parties was as claimed by Mr and Mrs Keys and that clause 20 of the lease did not give effect to that intention.
18. I am satisfied on all of the evidence that the case which Mr Salway pleaded in his defence and which he pursued at trial before it was abandoned in final submissions, was knowingly incorrect.
19. Mr Salway claimed in his defence on the one hand, that clause 20, as executed and on its proper construction, represented the true agreement of the parties. He also claimed on the other hand, that clause 20.3 should be read as providing for payment of rent for one year being the rent for the "tenth year of possession under the lease" increased by Method 2. Clause 20.3 it will be remembered, presently provides for payment of rent for one year being the rent for the "tenth year of the lease". Mr Salway eventually abandoned this claim in final submissions.
20. When the case was opened, it was submitted in the opening submission filed for Mr Salway that: "The objective intent of the clause once put in the context of the parties' negotiations supports the defendant's construction of the clause. The parties initially discussed a 10 year lease, and settled on a five year lease that would be renewed. In that context, the relevant BJD status would be that ascertained after the end of ten years. This reflects a commercial balance between imposing an obligation on the Defendant to pay an additional amount at the end the five-year lease and the concept of a contingent obligation, which the clause clearly expresses. It is consistent with commercial common sense for the lessee to agree to pay a contingent amount where there is a true contingency. The lease simply makes no provision for the position where the lease expires earlier, without the option being exercised, and the Plaintiffs must be taken to have accepted the risk that the Defendant would not renew the lease at the end of the first five year term."
21. That submission did not pay sufficient regard to the pleaded defence. Under a 5 year lease, there could never be a tenth year of possession, as was later conceded in final submissions. Even if Mr Salway had exercised his option, the original lease would not have continued and so even then, he could never have had a tenth year of possession under the lease. In that event the parties would have entered a new lease, on different terms, as the lease expressly contemplated. That is why it came to be accepted that clause 20.3 contained a mistake and had to be rectified.
22. In final submissions, Mr Salway thus pressed the view that the parties intended that an additional year's rent would only be paid under clause 20.3, if the herd had not achieved non-infected status after 10 years. Thus, it was argued, the rectification order would have to embrace a concept of possession after exercise of the option. This could be achieved by payment of rent for one year being the rent for the "tenth year of possession following exercise of the option under the lease" or for the rent for the "final year of a new lease".
23. This was submitted to reflect the contingent obligation finally agreed late in the negotiations, consistent with commercial common sense, that the obligation to make a payment under clause 20.3 only arose in the event that Mr Salway exercised the option. Such words, it was submitted, reflected that the parties intended the word "tenth", which Mr Keys' solicitor had used when drafting clause 20.3, to do some work.
24. It was also submitted however, that the evidence showed that the parties had never adverted "to the question of what would happen if the option was or wasn't exercised". That revealed the problem with the altered case which Mr Salway finally pressed.
25. The evidence was that Mr and Mrs Keys were only ever prepared to entertain Mr Salway's herd coming onto their land, if he agreed to pay rent for the year during which the decontamination process would have to be pursued, if the herd remained infected when the lease came to an end. There was never any discussion of Mr and Mrs Keys accepting the commercial risk that the herd would be infected at the end of the lease, if Mr Salway did not exercise the option as he intended, nor any agreement that Mr and Mrs Keys would then have to bear the cost of the decontamination of their land. That was neither discussed, contemplated nor agreed.
26. The evidence establishes that the drafting of the obligation imposed by clause 20.3 by reference to a tenth year, rather than to the final year of the lease, was a mistake. It flowed from the common assumption that Mr Salway would exercise the option, that being his stated intention at the time. The result was that clause 20.3 did not give effect to the parties' common intention. As it transpired, that mistake gave Mr Salway the opportunity in 2011, when he decided that he did not want to exercise the option and was looking for a basis on which he could avoid making the agreed payment for decontamination of the land, even though his herd remained infected, to refuse to do what he had agreed.
27. In order to understand these conclusions, it is necessary to explain the regulatory scheme for BJD, on which the defence which Mr Salway pursued rested; to explain how conflicts in the evidence given by Mr and Mrs Salway and Mr and Mrs Keys as to their understanding of this regulatory scheme and other matters in issue as to the negotiations, have been resolved; and what the evidence established as to the parties' common intentions.

The BJD regulatory regimes and its application to the Salway herd

1. It was common ground that the parties had discussed the impact of the Standard Definitions and Rules for Cattle on the Salway herd and on Farmhill, if the herd was taken there, in their negotiations over the terms of the lease.
2. There was a dispute as to whether their discussions had also encompassed a new scoring system for cattle, the Dairy Assurance Score, which at the time of the negotiations in 2006, was due to come into operation in January 2008. Its implementation was in fact delayed until July 2008.
3. Dr Lugton was called to give expert evidence. That evidence did not support Mr and Mrs Salway's defence. In his office as District Veterinarian, he had advised both Mr and Mrs Salway and Mr and Mrs Keys over the years about their respective cattle. Eventually he advised all of them about the impact of the regulatory scheme for BJD on the infected Salway herd; Mr Salway's pursuit of uninfected status for his herd; the contamination of Farmhill by the Salway herd; and how Farmhill could be decontaminated.
4. Mr Salway also sought his advice as to how he could avoid making a payment under clause 20.3. The advice Dr Lugton gave was of no assistance to Mr Salway.
5. Dr Lugton explained BJD and its transmission. There is no known treatment for BJD, which causes wasting and chronic diarrhoea in cattle and some other susceptible species and results in premature death. The manure of infected cattle contains large numbers of BJD bacteria, which also contaminates land. BJD infection can exist, undetected, at the sub clinical level, with the result that even after years of testing, it can suddenly be detected in a herd. The regulatory system requires infected cattle to be culled and a testing regime for the affected herd to be pursued. In Dr Lugton's experience, it is common for known infection of a herd to take 8 or 10 years to be cleared up.

The Standard Definitions and Rules

1. Herd testing for BJD is not compulsory under the National Program for BJD, but the Standard Definitions and Rules require immediate notification of suspicion, or knowledge of infection. The Rules provide for herd testing; they establish various testing and control programs; and they also provide a program for management of infected herds.
2. The Rules specify various methods of testing for BJD. All animals tested have to be uniquely and permanently identified. The results must also be reported. Tested herds are then allocated a status, according to test results, which is recorded in a Register.
3. If a herd is found to have been infected with BJD, its status becomes "infected" under the Rules: That was the status of the Salway herd, before Mr Salway leased Farmhill and it retained that status when the herd was removed from Farmhill in 2012.
4. The Rules also provide for the declaration of various zones, upon satisfaction of specified criteria. These zones are relevant to how cattle can be traded throughout the Australian dairy industry. Herd status affects how cattle may be moved between zones. In practical terms status affects who cattle can be sold to and the price that they can command.
5. Mr Salway had become the owner of his family herd in 2006. Mr Salway's evidence was that he pursued testing for his herd, intending to regain and hold uninfected status, because that was important for his business, which involved not only a dairy operation, but also a breeding program.
6. Appendix 1 to the Rules provides a testing program for "Herd Status Progression for Infected Cattle Herds", which those pursuing uninfected status must follow. Mr Salway was pursuing such a program for his herd, at the time the negotiations with Mr and Mrs Keys commenced in 2006. By clause 20.2 of the lease, he agreed to continue pursuing such testing during the term of the lease. He was still pursuing that testing program in 2012.
7. If a herd has not been tested, its status under the Rules is "unassessed". The herd which Mr and Mrs Keys sold to Mr Salway had unassessed status. Their herd had never been tested for BJD, because status under the Rules was not important to the dairy business which they operated. No signs of BJD infection had, however, ever been detected in their herd, or in any animals sold from the herd, including those sold to Mr Salway.
8. Once any of the Keys' cows joined the Salway herd, however, their status also became "infected" and when the Salway herd went to Farmhill, the land also became contaminated under the Rules. The Rules provided for a 12 month de-contamination process, which had to be undertaken after the last of the infected herd left the property. If not undertaken, any cattle taken onto the land would also acquire infected status.
9. In his oral evidence, Dr Lugton said that some 50% of non-assessed herds in New South Wales were infected with BJD and some 90% of Victorian herds. He explained why an infected status was an adverse status for a herd to have. While cattle could be run on land contaminated with BJD, the options for moving or selling infected cattle elsewhere were limited, given the risk they posed to other uninfected animals and the resulting contamination of land to which they were moved. There were also zones where it was difficult to trade even non-assessed cows, because of their protected status. The National Dairy BJD Assurance Score ("DAS") scheme
10. Dr Lugton explained that with the introduction of the DAS system in 2008, the former strict quarantine regime under the Stock Diseases Act ended. The new scoring system depended on self-assessment and declaration of infection. False declarations could lead to prosecution. Status change of a herd, however, still depended on the Rules. That had to be signed off by the Department of Primary Industries, as well as by Commonwealth Government authorities, after regulated testing.
11. In the booklet "What's the Score with BJD?" the DAS scoring system was explained to be designed to minimise contamination of farms and to protect the status of non-infected herds, as well as minimising the social, economic and trade impacts of BJD. The system encouraged herd testing, by providing scores which can be used as a tool when stock is bought and sold and when farmers seek to improve the BJD assurance level of their stock. It was advised that introducing cattle with a lower score into a herd, should only be undertaken after professional advice is obtained.
12. This system uses the terminology of the Rules. Unassessed herds in south eastern Australia were initially given a score of 3, during a specified transition period. If an auditable calf rearing program, or testing, was not introduced before a specified date, however, the herd's score fell to 0. An infected herd began with a score of 1. Infected herds pursuing an approved test and control program under the Rules, could achieve scores from 2 up to 6, after negative whole herd testing. Uninfected cattlemap herds could attain scores of 8 to 10 and cattle in free zones, also 10.
13. Given its infected status, the Salway herd's DAS score on commencement of the DAS scheme was 1. Its DAS score later increased, as I will explain below, but its status under the Rules never changed.
14. The result of the operation of these two systems was thus that the only way for the infected Salway herd to attain uninfected or non-assessed status under the Rules, was for Mr Salway to continue testing, as clause 20.2 of the lease required. If the herd achieved uninfected status after three negative herd scores on ongoing testing and Mr Salway had then ceased testing, the herd would have reverted to non-assessed status and a DAS score of 0, after 12 months. The resolution of the conflicts in the evidence
15. It is convenient at this point to explain the conclusions I have reached in relation to the conflicts in the evidence given by Mr and Mrs Salway and Mr and Mrs Keys: namely, that Mr and Mrs Keys' evidence must be preferred in cases of conflict.
16. The credit of each of these witnesses was in issue.
17. There were problems with the affidavits, which indicated that Mr and Mrs Keys and Mr and Mrs Salway had read their respective husbands and wives' affidavits and that they agreed with what the other had said. The difficulty with that approach to the preparation of affidavit evidence is obvious and should be avoided, as discussed by Barrett J in Singh v Singh [2007] NSWSC 1357.
18. Mr and Mrs Keys swore their affidavits in May 2013 and Mr and Mrs Salway swore theirs in September. Mr Keys responded with an affidavit sworn in October 2013. Mrs Salway swore a further affidavit in June 2014 and Mr Salway swore another in February 2015. They were each cross-examined.
19. The evidence established that both Mr and Mrs Salway's evidence as to their understanding of the regulatory scheme; their discussions with Mr and Mrs Keys about that scheme and its operation; and the negotiation of clause 20 of the lease, was untrue and cannot not be accepted, in crucial respects. Their evidence was not only inconsistent with the evidence of Mr and Mrs Keys, it was inconsistent with the regulatory scheme, the advice which they received about that scheme from Dr Lugton and aspects of his evidence.
20. My conclusions as to credit rests on inconsistencies and contradictions in the affidavit and oral evidence given by Mr and Mrs Salway; the way in which their oral evidence was respectively given, namely by repeatedly resisting concessions adverse to Mr Salway's case, even when their evidence in chief was patently wrong. Their claimed understanding of the operation of the Standard Rules and DAS scheme was implausible, not only on the face of the documents themselves, but when their evidence was considered in light of the evidence of the advice they had received from Dr Lugton about the operation of those systems.
21. The result was that I had great difficulty in accepting that the evidence of either Mr or Mrs Salway was given in strict accordance with their oaths. Much of Mr Salway's oral evidence was reluctantly given, some of his evidence was admittedly wrong, some of it was demonstrably wrong and some of it was simply implausible in a number of relevant respects. For her part, Mrs Salway was not prepared to make certain obvious concessions, it seemed because she was conscious that they were inconsistent with the case which Mr Salway was advancing. I also do not consider her evidence to have been reliable as to critical matters.
22. Mr and Mrs Keys' evidence, by way of contrast, was supported by relevant evidence given by Dr Lugton and by the operation of the regulatory scheme for BJD. I found that they both gave their evidence honestly. In Mr Keys' case, in particular, in relevant matters he properly made concessions, even when potentially against his and Mrs Keys' interests.
23. In the result, even when Mr and Mrs Salway corroborated the evidence they respectively gave, I was unable to prefer their evidence over that given by Mr and Mrs Keys, in the case of conflict on critical matters.
24. These conclusions were finally supported by concessions made for Mr Salway in closing submissions, when amongst other things, the matter raised by clause 7(c) of his defence was abandoned.
25. There it was claimed that on its proper construction, clause 20 imposed an obligation on Mr Salway to pay an additional years rent, only if the herd had not reached "non-assessed" status or higher under the Dairy Assurance Score regime by the end of the lease. The abandonment of this aspect of his defence reflected that the evidence Mr and Mrs Salway had earlier given about the operation of the DAS scheme was not only implausible, but wrong. The DAS scheme did not regulate cattle status, as Dr Lugton had earlier advised them and as was his evidence. Such status was always regulated by the Standard Rules and Definitions, which on Mr and Mrs Salway's respective evidence, they had both studied and understood. The Salway herd did not achieve unassessed or higher status during the term of the lease
26. When Mr Salway sought advice from Dr Lugton in 2011, before the end of the lease, about whether his infected herd's status was then higher than unassessed, Dr Lugton informed him that it was not. That advice was correct under the Standard Rules. The herd's DAS score did not determine its status.
27. The Salway herd had first been tested in 2001 under a Market Assurance Program (MAP), conducted in accordance with the Standard Rules. Its status was then uninfected. In 2003 it was retested and attained "Monitored Negative Status" MN1. On next testing in 2005, however, an infected cow was detected in the herd, with the result that its status then became infected.
28. The Salway herd was entered into an "official test and control program" under the Rules, after the infected cow was removed for slaughter in December 2005. The first whole herd test under that program was due to be taken 10-14 months after slaughter of that infected cow. That test was conducted in October 2006, after Mr Salway came to own the herd. Two further infected cows were then detected. It was in the middle of that month, on Mrs Salway's evidence, that she and her husband approached Mr and Mrs Keys.
29. Farmhill was then classified "uncontaminated" and Mr and Mrs Keys' herd was classified "unassessed" under the Rules. Mr and Mrs Salway's herd was classified "infected" and their family farm Glencairn, "contaminated".
30. Mr and Mrs Keys had become interested in having a break from dairy farming. Mr and Mrs Salway needed to lease another dairy farm, because Glencairn had to be sold, following the death of Mr Salway's grandfather. On Mr and Mrs Salway's evidence, they had from the outset informed Mr and Mrs Keys that two of their cattle had tested positive for BJD. Mr and Mrs Keys' evidence was that they had first heard of the infection from a third party, but when raised they confirmed the infection.
31. What Mr and Mrs Salway told Mr and Mrs Keys about the ongoing testing was in issue. Mr Keys denied that he had been told of the results of the testing Mr and Mrs Salway said they were pursuing, before June 2007, when final faecal test results were received. He said that he had earlier only been told that test results were pending. But there was no issue that Mr and Mrs Keys were aware from early in the negotiations that the Salway herd was infected and that they were concerned about what that would mean for their farm in the future, particularly when the lease came to an end. That was the subject of negotiation and came to be dealt with expressly in clause 20.
32. That Mr and Mrs Keys' concern had a proper basis was well understood by Mr Salway and Mrs Salway. Indeed, they plainly had a better understanding of what it meant than did Mr and Mrs Keys, given their past experience of the operation of the Standard Rules. What their most recent problems meant for them and Farmhill, if they took their herd there, and their awareness of the impending introduction of the DAS scheme, which would affect cattle trading underscored their understanding of the risks they were causing Mr and Mrs Keys to take.
33. On detection of the two further infected cows in 2006, Dr Lugton asked the Salways to put their herd into quarantine at Glencairn. They refused and pursued further testing. The result was that the two cows were only removed from the herd for slaughter in December 2006. Dr Lugton again confirmed the infection after autopsy. Results of a faecal test, another testing method, were only received in 2007, after the herd was moved to Farmhill. That test also confirmed the BJD infection.
34. Under the Standard Rules, the result of the culling of the infected cows in December 2006 was that Mr Salway had to commence the testing program again. Contrary to Mrs Salway's affidavit evidence, the position was that if that testing program had continued without another infected cow being detected, the herd could have achieved uninfected status within 5 years, not the 6 years Mrs Salway claimed. That would have been before the expiry of the lease in March 2012. As events unfolded, that did not occur.
35. Contrary to their evidence-in-chief, as Mr and Mrs Salway finally conceded in cross-examination, the result of the infected cows detected in the Salway herd in December 2006 was that Mr Salway had to continue with the testing regime, which would have resulted in the herd regaining its uninfected status under the Rules within the term of the 5 year lease, which commenced on 1 March 2007, if no more infected cows were found in the herd on later testing.
36. The Salway herd was next tested in November 2007, after it was moved to Farmhill. Another infected cow was then detected and removed from the herd in January 2008. A further test was conducted in September 2008, which was negative, but it was outside the 10-14 month testing time frame required under the Rules. By that time the new DAS scoring system was in operation and the herd received a score of 1. The next whole herd test was conducted in April 2010. It was also negative, but the herd's status remained infected.
37. In June 2011, Dr Lugton advised Mr Salway that because the September 2008 test had been undertaken too early, the April 2010 test was regarded to be the herd's first negative test under the Rules. The result was that the Salway herd then attained RD1 status and was given a DAS score of 5, but it could not achieve non-infected status before the 5 year lease expired in March 2012. Contrary to Mrs Salway's oral evidence, at that time the herd's status remained infected.
38. Under the Rules "RD" means an infected herd pursuing a test and control program, which had achieved a negative herd test under the progression appendix. Under the appendix the Salway herd was next due to be tested again in two years, April 2012. If that test was negative, the herd would then have attained RD2 status. On further negative testing in April 2014, the herd would have regained its uninfected, MAP Standard MN1 status. If Mr Salway had then continued pursuing testing, his herd would have attained MN2 status.
39. It was only if the herd attained uninfected status in 2014, long after the termination of the lease and Mr Salway then did not continue to pursue a market assurance program under the Rules, that his herd could have achieved non-assessed status. That would have occurred 12 months after the last negative test due in April 2014. If that test was positive, however, the herd would again have been assessed infected. Had the option been exercised, that would have been within the term of the new lease.
40. Before the lease expired in 2012, Mr and Mrs Keys and Mr and Mrs Salway pursued various questions with Dr Lugton about the status of the Salway herd, and how its ongoing infected status and the contamination of the land could be addressed. Dr Lugton pursued some of these issues with the Senior District Veterinarian, Mr Bailey.
41. It was in January 2011 that Mr Salway asked Dr Lugton to confirm that his infected herd then had a higher ranking status than a non-assessed herd. Consistently with the applicable Standard Rules, Dr Lugton advised him that a herd known or suspected to be infected did not have a higher status than a non-assessed herd, even though its DAS score might be higher than that of a non-assessed herd.
42. Mr Salway also asked Dr Lugton for advice as to his obligations under clause 20.3 of the lease. This was at a time, it emerged at the hearing, when he was conducting his dairy operations on two properties, a matter to which I will return when assessing damages. Mr Salway was actively looking for a way in which he could avoid making the agreed payment if he did not exercise the option on Farmhill and the lease came to an end the following year.
43. Dr Lugton advised Mr Salway that he did not think that there was any way to "dodge this requirement" and explained that further testing had to be pursued, before the Salway herd could achieve non-assessed status under the Rules.
44. In June 2011, Dr Lugton advised Mr Salway that the earliest time that the herd could enrol in the MAP program was in April 2014. Mr and Mrs Salway also inquired whether any physical or chemical treatment could be used to decontaminate Farmhill, rather than destocking. Dr Lugton advised that such whole farm decontamination was not possible.
45. In July 2011, Mr Bailey agreed with Dr Lugton that the real aim of the BJD testing regime was to achieve uninfected status, with the final negative test 5 years after removal of the last infected animal. For the Salway herd the earliest possibility of a change of status to uninfected was thus identified to be January 2013. Dr Bailey confirmed that until then, with RD1 or RD2 status, on the herd's departure from Farmhill, the land would still be contaminated under the Rules and would have to be destocked in accordance with the Rules.
46. This evidence established that at the time that the Salway herd was removed from Farmhill in 2012, under the Rules, the herd's status remained infected and Farmhill was contaminated. The herd's DAS score did not determine its status. Contrary to the evidence-in-chief which Mr and Mrs Salway gave and the case which he advanced, the Salway herd had never achieved the unassessed or higher status which clause 20 of the lease expressly contemplated, if the payment provided for in clause 20.3 was to be avoided.

Mr and Mrs Salway's evidence about the negotiation of the lease cannot be accepted

1. The Salway herd had lost its uninfected status in 2005. If it was taken onto Farmhill, the land would be contaminated by BJD and under the system then operating, it, too, could have been quarantined, just as Glencairn was. To address the consequences of the infected herd being brought to Farmhill, either the Salway herd would have to achieve uninfected status, or the land would have to be decontaminated, in accordance with the Rules. This was what the parties were addressing in their negotiations.
2. Mr and Mrs Keys then wanted a break from farming. They had advertised their herd for sale in the Bega Cheese Circular on 26 October 2006. The Salway herd had been tested on 5 October 2006. By 27 October, Mr and Mrs Salway knew of the positive blood test results and had arranged for faecal blood testing. It was in December that the infected cows were slaughtered and autopsy confirmed the BJD infection.
3. Mr Keys' evidence in his first affidavit was that he and Mrs Keys had been considering leasing or selling Farmhill after four years of drought and low milk prices. His family had known the Salway family for many years. When approached by Mr Salway, they were not very interested in leasing the farm to him, having heard of the BJD infection. They wanted a less stressful lifestyle, but had not then advertised their property.
4. Mr and Mrs Keys agreed to consider his offer, given Mr Salway's confidence that his herd would be cleared of infection and that he was prepared to destock and lease the farm for a further 12 months at the end of the lease, if it was then still infected. This was understandably important to them, given that the status of their herd was non-assessed and the cost of implementing the decontamination of land provisions under the Standard Rules.
5. In cross-examination, Mr Salway agreed that he understood that he could not obtain a lease if he did not make an offer to decontaminate the land, but he insisted that the agreement reached with Mr and Mrs Keys was that the land would be destocked and an additional year's rent paid at the end of the tenth year. He gave no evidence in his affidavits however, of any discussion to that effect.
6. It was the evidence of both Mr and Mrs Salway that the new DAS system had been an important consideration for them in the negotiations over the lease and that they had not only provided Mr and Mrs Keys with the information pamphlet "What's the score with BJD", but that the DAS system had been discussed in the negotiation of the lease in January 2007. They also claimed that it had formed the basis of the agreement that clause 20.3 of the lease should be amended to read "non-assessed or higher status". That was in issue.
7. Mr and Mrs Keys both denied having received that pamphlet, having discussed it, or that the amendments agreed to clause 20 of the lease related to the document or the DAS scheme, as Mr and Mrs Salway claimed.
8. Mr Keys' evidence was that in their discussions they had made clear to Mr Salway that they did not want the farm to be infected at the end of the lease, but if it was, that their requirement was that it not be quarantined. That was what clause 20 was directed to.
9. Mrs Keys' evidence was that they had decided that they were prepared to lease the farm to Mr Salway, because he was prepared to buy their herd, if they could not sell it; he had assured them that his herd would be cleared of BJD and that if it was not, he was prepared to destock and lease for another 12 months, at the end of the lease, so that their farm would not be quarantined. It was Mr Salway's suggestion that the lease deal with this, their primary concern, so that they were protected from having the farm in quarantine at the end of the lease.
10. Mrs Salway agreed in her first affidavit that when the discussions commenced, they had discussed what would happen at the end of the lease. There she said: "29 When we first commenced to discuss what would happen at the end of the lease with Michael Keys, we discussed the possibility that at the end of the lease if we were not out of our infected status then we would agree to pay an extra year's rent to the Keys and we would be able to cut and carry off the farm or run non-breeding stock on the property. At this time the discussion was general in nature and no mention was made as to what system would be applied. It was more a discussion of what could happen if we were in agreement."
11. In her second affidavit Mrs Salway said that this discussion had occurred in December 2006 or January 2007.
12. Mr Salway paying a year's rent if at the end of the lease the herd was still infected was what clause 20 of the lease dealt with. That was then and remained the parties' common intention.
13. There was an issue as to who had drafted the first version of clause 20. On all of the evidence, I am satisfied that it was Mrs Salway. She did not deny that she had created the document in which it first appeared, but could not remember typing it and could not find a copy of the document on her computer.
14. Mrs Salway has legal qualifications and works at the WorkCover Authority, while Mr Salway and Mr Keys are farmers and Mrs Keys is an artist. The first version of the clause was printed on paper, which it is not disputed, came from the WorkCover Authority. On Mrs Salway's evidence she recycled such paper and used it for her personal affairs. It was Mrs Salway who led the negotiations with Mr and Mrs Keys on behalf of her husband. The suggestion that it was Mr Keys who had created the document on his computer and printed it on paper which Mrs Salway had left with him, was fanciful.
15. The document was annexed to an affidavit sworn by Mr Clark, Mr and Mrs Keys' solicitor. It was not he who had acted for Mr and Mrs Keys in relation to the lease, but another member of his firm, Mr Taylor. Mr Clark found the document in the file. Mr Salway recognised Mrs Salway's handwriting the document. The proper inference was that it was created by Mrs Salway, provided to Mr and Mrs Keys at a meeting with she and Mr Salway; that both Mr Keys and Mrs Salway wrote on the document, to reflect what had been discussed and agreed; and that Mr and Mrs Keys then provided it to Mr Taylor, who produced the first draft of the lease.
16. The document was undated. The printed parts of the document entitled "Some proposed terms of lease" dealt with matters of concern to Mr Salway, who was trying to convince Mr and Mrs Keys to allow him to bring the infected herd onto their uncontaminated land. The document includes the matters finally dealt with in clause 20, providing: "4. Stock Disease - (i) The lessee notifies the Lessor that in relation to Bovine Johnes Disease the current status of the Lessee's dairy cattle is infected. The Lessee notifies the Lessor that a whole herd test has been carried out and a result is pending. (ii) The Lessee agrees to continue to test the heard(sic) as per the Rural Lands Protection Board directions until such times as the status of the herd becomes non-assessed. (iii) In the event that the Lessee's cattle have not reached non-assessed status at the expiration of the lease then the Lessee agrees to de-stock the Land of all breeding cattle for a period of 1 year and continues to pay rent for that same period. (iv) The Lessor agrees that during this 1 year period the Lessee can run non-breeding stock on the Land or use the Land to grow pastures which the Lessee will then be able to cut and carry from the Land. (v) The Lessee will immediately notify the Lessor and the proper public authorities of any other infectious illnesses affecting the stock on the property and will take all necessary steps to contain such infection or to remove the affected stock and to comply with any notice or direction of the proper public authority."
17. This formed the basis of clause 20 of the lease prepared by Mr Taylor.
18. Mr Keys remembered discussions regarding the terms of the lease continuing over several weeks, with many phone calls and meetings during which they tried to work out the details. He and Mrs Keys were then concerned about the financial viability of what the Salways were proposing to do.
19. Mr Keys wrote in hand on the original document prepared by Mrs Salway: "FOR A PERIOD OF 5 YEARS. AT $66,000 + GST FOR 1ST 5 YEARS THEN CALCULATED ON CPI PER YEAR AND ACCULUMATING FOR 2ND TERM OF LEASE (YEARs 6-10).
20. This reflects the fixed term rent provided in the lease and the CPI adjustment provided for in the lease if the option was exercised.
21. Mr Keys instructed Mr Taylor to prepare the lease and in further discussions, an agreement for the purchase of the Keys' herd was reached with Mr Salway, which was implemented. Clause 20 in the first draft of the lease provided: "20 Stock Disease 20.1. The Lessees notify the Lessors that in relation to Bovine Johnes Disease the current status of the Lessees' dairy cattle is infected. The Lessees notify the Lessors that a whole herd test has been carried out and a result is pending 20.2. The Lessees agree to continue to test the heard(sic) as per the Rural Lands Protection Boards directions until such time as the status of the herd becomes non-assessed. 20.3. In the event that the Lessees' cattle have not reached non-assessed status as the expiration of the lease then the Lessees agree to de-stock the land of all breeding cattle for a period of one (1) year and continue to pay rent for that same period. 20.4. The Lessors agree that during this one (1) year period the Lessees can run non-breeding stock on the land or use the land to grow pastures which the Lessees will then be able to cut and carry from the land. 20.5. The Lessees will immediately notify the Lessor and the proper public authorities of any infectious illness affecting the stock on the property and will take all necessary steps to contain such infection or to remove the affected stock and to comply with any notice or direction of the proper public authority."
22. Mr Keys could not recall any specific discussion about the terms of clause 20, but agreed in cross-examination that he had written some words on a draft of that clause and someone else had written other words. Mrs Salway denied that the handwriting was hers (see exhibits 13 and 14).
23. Mrs Salway said in her affidavit evidence that it was in January 2007, that she and Mr Salway had discussed the new DAS scheme. This was after they had refused to give Dr Lugton an undertaking that they would quarantine their cattle on Glencairn. It was in January 2007, after the autopsy of the two cattle in December, when the BJD infection had been confirmed, that the quarantine of the herd at Glencairn was gazetted.
24. Annexed to Mrs Salway's first affidavit was the draft lease she and Mr Salway had discussed with Mr and Mrs Keys on 13 January; which they then sent to Mr Salway's solicitors for advice. Mrs Salway said she wanted a change to clause 20.3. Her handwritten note on that version of the lease said: "amend to add "either non-assessed status or higher than non-assessed, or higher under BJD score system."
25. There were a number of later changes sought to the clause, by Mr Salway, which Mr and Mrs Keys accepted, including the insertion of the words in clause 20.3 "or higher status". No reference was ever made to the DAS scoring system in the lease, consistently with it having nothing to do with cattle status. On Mr Keys' evidence, he understood that this amendment didn't change the effect of the clause because: "Non assessed" to me meant that Steven's herd was clear from infection and had a status that meant our farm would not be in quarantine when he removed his herd. This would allow us to place an uninfected herd on the farm without risk of re-classification to infected; whether the herd be our own or re-leased to another tenant so the farm may continue to be used as a dairy farm. It would have been very difficult to attract a new tenant to Farmhill if the quarantine status was not lifted. To get out of quarantine status we would require to de-stock the property of dairy cattle for 12 months."
26. This understanding reflected the provisions of the Standard Rules and the Stock Diseases Act, I have earlier discussed. Once uninfected status, a higher status than non-assessed, was achieved under the Rules, it was only if testing ceased, that after a further 12 months the Salway herd could have achieved a "non-assessed" status. This had nothing to do with the DAS system, as was finally accepted by Mr Salway's abandonment of the 7(c) defence.
27. Both Mr and Mrs Salway's evidence was that they had discussed both the testing regime for BJD, which Mrs Salway also said was not changed by the DAS system and the DAS system, with Mr Keys on 27 January, when they provided him with the document "What's the score with BJD?". Mr and Mrs Keys denied having received that document or discussing the DAS system. Their evidence must be accepted.
28. In Mr Salway's affidavit of 4 September 2013, amongst other things, he said that on 27 January he told Mr Keys that under the DAS system, his farm being non-assessed, would gain a score of 3 in 30 June 2008 and that his own low prevalence infected herd would have a score of 4 and would improve with continued testing. This advice, had it been given, would also have been wrong. The DAS system was not concerned with scoring land, but with scoring cattle.
29. In Mr Salway's February 2015 affidavit evidence, he said that both he and Mrs Salway had thoroughly studied the provisions for managing the regime for dealing with BJD and the new DAS scoring scheme that was introduced in 2008. He then said that he believed that if his herd "progressed through the scores" they would achieve a score of 4-6 by the end of the lease, which would be a higher score than that of a non-assessed herd of 1. He also said that: "On 27 January 2007, the BJD situation with our herd was not clear, although the District Vet, Ian Lugton, was operating on the basis that we had had a positive result. Michael Keys did ask about the BJD status of the herd. There had been two animals react with a positive blood test, however as the blood testing for BJD can be unreliable and put up false positives, we wanted the results to be confirmed by a faecal culture, which takes about 3 months to process, and we were still waiting for those results in January of 2007. I thought that by using the term "non-assessed or higher" in the BJD clause our position was protected because even an infected score is higher than "non-assessed" under the new BJD system."
30. That evidence was untrue. By the end of January 2007 the Salway's herd status was not only infected, it had been placed in quarantine. As he and Mrs Salway agreed in cross-examination, after two cows had tested positive in October 2006, they had been asked, but had refused to undertake to adhere to a quarantine. The BJD infection was confirmed on 17 December by Dr Lugton after autopsy and the quarantine was gazetted on 11 January 2007. Furthermore, the proposed new DAS scoring system was not concerned with the status of cattle and under the Rules, an infected herd did not have a higher status than an unassessed herd.
31. Mrs Salway's evidence in her first affidavit about the negotiation of this aspect of clause 20 with Mr Keys on 27 January, was: "43. Steven and l and Michael Keys also discussed when this clause would come into effect and it was agreed at that time that it would come into effect at the end of the 10th year of the lease. Steven and I had originally wanted a 10 year lease. Michael advised that they were happier with a 5 x 5 year lease. Michael said: "you will still have a 10 year lease in the end" Steven and I were operating under the assumption that the lease would be for a 10 year period. We were also mindful that to obtain a "non-assessed" status as set out in the draft lease a testing regime of 3 clear tests in a five year period would have to be followed, no matter whether under the old BJD system or under the new DAS system, with the first test having to commence 12 months after the last known infected animal had been removed. In effect it would take an infected herd 6 years to gain a "non-assessed" status no matter what system it was under. I refer to the affidavit of Michael Keys affirmed 20 May 2013 paragraph 27 and say that both Steven and I showed Michael Keys the Dairy Assurance Score Pamphlet."
32. I do not accept this evidence. It was certainly not correct. The first test under the Rules could have been administered 10-14 months after the culling of the Salway herd in December 2005. The lease was entered in March 2006. If the test had been administered in September 2006, after two further clear tests in September 2008 and September 2010, the herd could have achieved uninfected status, before the lease came to an end in 2012.
33. If Mr and Mrs Salway's evidence were accepted, it would mean that in seeking the amendment agreed on 27 January to clause 20.3, the insertion of the words "or higher status", they had deliberately sought to mislead Mr and Mrs Keys. On their understanding, when the DAS system was introduced in January 2008, their infected herd would have a score of 1 or higher and a non-assessed herd, which did not enter, testing would revert to a score of 0.
34. The result of the amendment sought to clause 20.3 of the lease would thus have been contrary to their discussions to that point with Mr and Mrs Keys. Mr Salway would never have been at any risk of having to make any payment under clause 20.3, even if his herd remained infected.
35. Mr Salway sought further advice from Mr Picone on the revised lease on 15 January. What advice he gave, was not revealed on the evidence.
36. It was on 2 February that Mr Salway's solicitor, Mr Picone, requesting an the insertion of the words "or higher status" in clause 20.3. Mr Keys agreed, he said because: "We have decided we are prepared to lease the property to you as long as everything is drawn up by solicitors and we were secured from any financial loss."
37. The agreement to insert the words "or higher status" in clause 20.3 in reality reflected that the parties were negotiating in a context where the Standard Rules and Definitions, both before and after the introduction of the DAS system, regulated herd status. "Non-assessed", like "uninfected", was a higher status than "infected" under those Rules. In order for the Salway herd to achieve such a higher status, Mr Salway had to successfully pursue the testing regime provided by the Standard Rules, to achieve uninfected status. As Mr and Mrs Salway finally conceded in cross-examination, uninfected status was theoretically achievable within the 5 year term of the lease, if no further infected cattle were detected in the herd. Non-assessed status was theoretically achievable within the term of the new lease, after exercise of the option. That was why it was important to include that term.
38. On Dr Lugton's evidence, in practice achieving uninfected status could take 8-10 years. The commercial risk which clause 20 was regulating was that the herd would not achieve the uninfected status which Mr Salway agreed to continue pursuing during the term of the lease.
39. Mr and Mrs Keys agreed to the contamination of their land, in return for Mr Salway agreeing to take the risk that he would have to pay for the decontamination of the land, if the herd remained infected. What payment the parties intended clause 20.3 to provide for
40. It was Mr Salway who wanted a 10 year term, but the Keys were only prepared to offer a 5 year term with a 5 year option. It was common ground that during the negotiation of the lease they discussed Mr Salway's intention to exercise the option. Mrs Salway said that during the discussions on 27 January, they were operating under the assumption that the lease would be for a 10 year period. Mr Salway said that it was Mrs Salway who led the discussion with Mr Keys.
41. It was Mrs Salway who prepared a document containing a list of agreed amendments to the draft lease they had discussed with Mr and Mrs Keys. It identified the commencing date of the lease to be 1 March 2007 and the terminating date 28 February 2012. It made no reference to any agreement that the obligation to make a payment under clause 20.3 would only arise in the event that Mr Salway exercised the option. Nor did this appear in the list of amendments about which the lessor needed instruction from the lessor's solicitor. Indeed, no reference to clause 20 was made in that list. Such an agreement would have been a significant departure from the discussions to that point, on the basis of which Mr and Mrs Keys were prepared to entertain Mr Salway's leasing of Farmhill.
42. There was also no reference in either of these lists to the words later inserted into clause 20.3, in place of the words "for that same period". Mr Keys accepted in his evidence, they must have resulted from instructions which he gave Mr Taylor, but the evidence does not establish that at the time those instructions were given, the parties had a common intention that if Mr Salway did not exercise the option at a time when his herd was still infected, that he would not have to make the payment contemplated by clause 20.3.
43. At this time, it was in Mr Salway's considerable interests to come to terms acceptable to Mr and Mrs Keys, given the sale of Glencairn in December 2006. It was clause 20 which was directed to this problem.
44. Mr Keys could not remember clause 20 being the subject of any further discussion or negotiation, but before it was executed, it was amended by the addition of the words "for the tenth year of the lease increased by method 2". Those words gave effect to the discussion about the fixed term rent provided for in the lease, to being adjusted for CPI increases, if the option was exercised, but contained the mistake I have already discussed.
45. Mrs Salway's second affidavit considerably expanded what she claimed had been discussed and agreed at the 27 January meeting with Mr Keys, including that: g. We also discussed with Michael Keys regarding clause 20.3 and when the clause was to come into effect. The testing regime for BJD required (and still requires) 3 clear tests 2 years apart with the first test taking place 12 months after the last known animal was removed from the herd. Steve and I believed that it was not possible to achieve a status of non-assessed within the period of a five-year lease commencing February 2007 as the testing regime of 3 clear tests 2 years apart, represented effectively a six-year period of testing. The first test for BJD purposes had to take place a year after the reactor had been removed from the herd. Our reactor had been removed in December 2006. We were also mindful that if we had another beast that tested positive at any stage of the testing regime, we would be back to square one and testing would commence again. That is why we agreed that the clause, 20.3, would come into effect at the end of the 10th year of the lease. Michael Keys suggested then in words to the effect that: "the rent payable under clause 20.3 would be the rent that you would have been paying for the 10th year plus CPl". We agreed to this amendment and Michael Keys advised that he would talk to Bill Taylor about this. As this was an amendment that Michael Keys was seeking I made no notation of it on my copy."
46. This evidence was also untrue, as Ms Salway finally conceded. The herd had tested positive for BJD in December 2006. Even if it tested negative in December 2007, December 2009 and December 2011, the herd would have achieved non-infected status within the term of the 5 year lease. In his second affidavit Mr Salway said that he had no specific recollection of the discussion on 27 January. He relied on Mrs Salway to ensure that the changes made to the lease were acceptable.
47. Support for Mrs Salway's evidence was submitted to have come from exhibits 13 and 14, (both copies of the same version of the lease), on which Mr Keys had written "But do not have option to" and "calculated on CPI for 3rd term". Someone else had written "If requested by the lessor" and "(10th yr) + CPI")". There was, however, no evidence of there having been any discussion of a second option.
48. Mr Keys was not cross-examined as to what he had in mind when he wrote these words. In cross-examination he said that he thought it was Mrs Salway who had written "(10th yr) + CPI)" on the draft at the 27 January meeting and on that basis, accepted that was what had been agreed. Mr Keys also accepted that the changes then made to clause 20.3 were "fine tuning" and that they could have also reflected his discussions with Mr Taylor, but he was not sure. Mrs Salway, however, denied that it was her handwriting on exhibits 13 and 14. There is no evidence that what appears there was discussed on 27 January, other than what emerged from Mrs Salway's second affidavit.
49. As I have explained, I am satisfied that evidence cannot be accepted.
50. The final version of clause 20.3 provided: "20.3 In the event that the Lessees' cattle have not reached non-assessed or higher ranking status at the expiration of the lease then, if requested by the Lessors the Lessee agrees to de-stock the land of all breeding cattle for a period of one (1) year and continue to pay rent for that same period being the rent for the tenth year of the lease increased by method 2."
51. Mr and Mrs Salway received the revised version of the lease on 28 February. Mrs Salway also claimed in her second affidavit that the amendment to clause 20.3, which it was later accepted at the hearing contained a mistake, reflected the discussions and agreements reached on 27 January.
52. It can be inferred from the parties' subsequent conduct, that the mistake in the clause and its ambiguity, were not appreciated by Mr and Mrs Keys, nor Mr or Mrs Salway, when they received the final version of the lease from Mr Taylor.
53. That the parties then had the common intention that payment under clause 20.3 would only be required if Mr Salway exercised the option, was not consistent with their previous discussions, or their subsequent conduct. In the case of Mr Salway, the advice which he and Mrs Salway later sought from Dr Lugton, which I have earlier discussed, puts beyond question that the parties' common intention when they entered the lease remained that if, when the lease came to an end, the Salway herd was still infected, so that Farmhill had to be decontaminated, the payment contemplated by clause 20.3 would be made.
54. This is why Mr and Mrs Keys' case as to the common intention of the parties and the resulting rectification order, so that instead of the concluding words of clause 20.3 providing "for the tenth year of the lease increased by method 2", they must be rectified to read "for the final year of the lease increased by method 2", must be accepted.
55. The lease was not executed by Mr and Mrs Keys until after Mr Salway had taken his herd onto the land. They had no concerns as to his integrity. Mr Keys then milked that herd until he and Mrs Keys moved out of the residence on 7 March. Mr Salway only executed the lease on 2 April. At the time the parties had the common intention which I have discussed. Reasons for ruling on tender of soil tests as business records
56. It is convenient at this point to deal with the reasons for a ruling given at the hearing.
57. The lease imposed an obligation on Mr Salway to apply fertiliser. In support of the claim that this obligation had been breached, two soil reports were tendered as business records under s 69 of the Evidence Act 1995 (NSW), objection having been taken to the part of Mr Keys' first affidavit, where he described the result of the reports and the costs which had been incurred in restoring the soil to the condition it was in, at the time of commencement of the lease.
58. I received the reports over Mr Salway's objections, concluding that they were business records falling within s 69 of the Evidence Act , which provides: "69 Exception: business records (1) This section applies to a document that: (a) either: (i) is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business, or (ii) at any time was or formed part of such a record, and (b) contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business. (2) The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made: (a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact, or (b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact. (3) Subsection (2) does not apply if the representation: (a) was prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding, or (b) was made in connection with an investigation relating or leading to a criminal proceeding. (4) If: (a) the occurrence of an event of a particular kind is in question, and (b) in the course of a business, a system has been followed of making and keeping a record of the occurrence of all events of that kind, the hearsay rule does not apply to evidence that tends to prove that there is no record kept, in accordance with that system, of the occurrence of the event. (5) For the purposes of this section, a person is taken to have had personal knowledge of a fact if the person's knowledge of the fact was or might reasonably be supposed to have been based on what the person saw, heard or otherwise perceived (other than a previous representation made by a person about the fact).
59. The documents revealed the results of the testing undertaken of the soil and the advice Mr and Mrs Keys were given as to how identified deficiencies in soil nutrients should be dealt with. They did not reveal who took the samples, or how they were tested, or by whom.
60. There was no question, however, that the reports formed part of the records Mr and Mrs Keys kept for the purposes of their business and contained previous representations made for the purposes of their business, namely, as to the condition of the soil at particular times, that being the subject of an express term of the lease. Such representations may be made by third parties (see Australian Competition and Consumer Commission v Air New Zealand Ltd (No 1) [2012] FCA 1335 at [45] - [46]).
61. I accepted that under s 69(2) the hearsay rule did not apply to the representations contained in the reports, because they were made "on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted facts".
62. "Personal knowledge" is defined in s 69(5) as requiring knowledge of the asserted fact to have been based on what the person saw, heard or otherwise perceived. The person in question need not be identified in the document itself (see ASIC v Rich (2005) ALR 320; [2005] NSWSC 417 at [197]). The definition of "personal knowledge" can be satisfied, even where the business record contains opinions (see Ringrow Pty Ltd v BP Australia Ltd (2003) 130 FCR 569 at [18]).
63. In this case, the documents contained opinions about the results of the testing of the soil about which the person who undertook that testing had personal knowledge, as defined, as to what testing was undertaken and what that testing revealed. In ASIC v Rich, Austin J was considering the admissibility of liquidator's reports, which contained various opinions. He observed at [211] - [212]: "211 The issue is one of substantial general importance. If the opinion rule were to apply on the shoulders of s 69, there would be large scope for its application. Documents containing "opinions", in the broad sense meaning inferences from observed facts (see ASIC v Rich [2005] NSWSC 149 at [261]), are commonplace in business records and in practice, they are frequently admitted in evidence. One immediately thinks, for example, of financial statements, which are replete with opinions on matters such as provisions (although, of course, financial statements of bodies corporate are admissible under s 1305). Documents about contracts and negotiations and business transactions are also likely to be full of opinion material. 212 Essentially business records are prepared as internal records in the course of or for the purposes of the business. It is most unlikely that those expressing opinions in business records would attend to the requirements of s 78 or s 79, let alone with the precision required by Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705. It would not occur to the people creating those documents that they should set out to justify their opinions in the same way that an expert would do in preparing a written report for a court hearing. In those circumstances, to apply the opinion rule to business records that meet the requirements of s 69 would be substantially to undermine, if not to negate, the implementation of the policy underlying the business records provisions, asserted so forcefully by Hope JA in Albrighton (at 548-549) and by the Australian Law Reform Commission in its Interim Report on Evidence at [709]. Courts would be prevented from having access to substantial components of the records of businesses so as to assess them for what they are, on the ground that they do not satisfy requirements which their authors would not have regarded as relevant. As Brownie AJ remarked in a somewhat different context (Linfox Transport (Aust) Pty Ltd v Arthur Yates & Co Ltd (2003) 47 ACSR 261 at [23]), "it does not seem apt in this context to draw a lawyerly distinction between the way a witness might or might not be permitted to give opinion evidence in court with the way in which a company officer routinely reports to his superiors"."
64. Adopting a similar approach to the opinions expressed in these documents in relation to the soil tests undertaken in the ordinary course of the operation of Mr and Mrs Keys' business, which depends on nutrients being maintained in the soil at Farmhill, I concluded that the parts of the soil reports relied on were admissible as business records.
65. I also concluded that there was no unfairness in their receipt. The claims advanced included a claim in relation to the obligations under the lease addressed in Mr Keys' first affidavit, where he explained the basis of his estimate of the damages pursued, including in relation to the soil.
66. Particulars of that claim were sought and answered by provision of the two reports, which had not been annexed to Mr Keys' affidavit, as clearly they ought to have been. Mr and Mrs Keys' case was that the 2007 report had been provided to Mr Salway when he leased the property and that the 2012 report supported Mr Keys' evidence of the steps taken to restore the soil to the position it was in at the time of the lease, after the termination of the lease and their cost.
67. I took the view, accordingly, that there was no surprise, nor unfairness in the receipt of those documents, the first having long been in Mr Salway's possession and the second having been provided to Mr Salway in 2013 as it was. Thereby the basis on which this claim was advanced had been clearly revealed. It had been met by Mr Salway's evidence as to the steps he had taken during the term of the lease in relation to the soil. Had he wished to challenge the results of the soil testing disclosed in the two reports, or the costs there disclosed, he had ample opportunity to have done so.
68. Whether the two reports were capable of establishing the claim advanced in relation to the breach of the obligation in question, is a different matter, to which I will return.

Damages under clause 20.3

1. The damages pressed were identified in MFI 10. They were addressed in final written submissions filed by the parties after the hearing, where one claim which had earlier been identified as not being pressed in MFI 10, was dealt with. The calculation under clause 20.3 was undertaken by reference to CPI figures about which there was no issue. That order must be made in favour of Mr and Mrs Keys.

Other damages claims

1. The amended statement of claim pleaded a failure to maintain all fixtures, plant, equipment and roads in proper working condition in accordance with the lease. This was denied.
2. Mr and Mrs Keys and Mr and Mrs Salway gave evidence about these claims. Mr Keys inspected Farmhill on 26 February and Mr Salway vacated on 1 March. There were various photos and documents tendered.
3. Mr Salway relied on the fair wear and tear exceptions provided for in the lease to defend various of the claims, submitting that "fair wear and tear" encompasses both the results of ordinary use, or the operation of natural forces. This was not in contest, but whether the exception applied was.
4. Mr Salway also relied on the fact that the parties had not created an inventory or conditions report at the commencement of the lease, to submit that this meant that Mr and Mrs Keys could not establish their claims as to the condition of particular items at the commencement of the lease.
5. This submission cannot be accepted. The parties not having considered it necessary to keep information as to the condition of the property and equipment on commencement of the lease, does not mean that the claims that obligations imposed by the lease were breached are incapable of being established. The resolution of the disputes over the claims finally pressed depend on an assessment of whether or not Mr and Mrs Keys had met the onus falling upon them, to establish their claims, on the balance of probabilities.
6. Mr and Mrs Salway lived at Farmhill. Mrs Salway's evidence was that she and Mr Salway had made every effort to leave the farm in the same condition as it was when they moved in. That cannot be accepted. Mr Salway's evidence was to different effect. On some matters he conceded claims which Mr and Mrs Keys made against him.
7. Still it was submitted for Mr Salway that where there appeared to be a departure from his obligations under the lease, he had discharged the onus of demonstrating that the damages pursued had arisen directly from the ordinary use of the premises, for their intended purpose, or from the forces of nature. That also cannot be accepted.
8. For reasons which I have already explained, where the contest between the parties came down to the question of whether the evidence of Mr and Mrs Keys should be preferred over that of Mr and Mrs Salway on a particular matter, I have concluded that the evidence of Mr and Mrs Keys had to be preferred.
9. The evidence also had to be assessed in light of evidence given by Mr Salway in cross-examination that he had leased Farmview some 18 months before the lease at Farmhill expired on 1 March 2012 and that he had then gradually moved his herd to the new property. The result of moving the Salway herd to Farmview was that it was also contaminated with BJD.
10. Farmview also had a dairy, but Mr Salway only commenced milking there in January 2012, because he had an agreement with Country Energy not to milk there initially, while a significant power line was being constructed there. He removed the last of his cows from Farmhill in February 2012.
11. Mr Salway's evidence was that while he was paying rent for both properties during that period, Country Energy was reimbursing the rent for Farmview. There was no evidence that it made any other contribution to Mr Salway's costs of running a significant second property, which, it must be inferred from evidence as to, for example, the cost of spraying the properties for weeds, must have been considerable.
12. When this evidence was considered together with the evidence of what Mr and Mrs Keys found on their return to Farmhill and answers which Mr Salway gave to questions put to him in cross-examination as to when and what he had done to comply with his obligations under the lease in relation to various matters, it became apparent that his compliance with the obligations imposed upon him by the lease fell away over time, consistent with his acquisition of Farmview and the cost of then operating that property, as well as Farmhill.
13. Mr Keys' estimates of costs of repair and replacement of various items were not challenged, although he was asked whether he had actually incurred particular costs. It emerged that in many cases he had obtained quotes, but had not been able to afford to incur the cost involved and so the work had not been done, or he had to undertake particular work himself. That Mr and Mrs Keys were not able to afford to repair or replace some of what had been damaged, in breach of Mr Salway's obligations under the lease, is not a basis on which claims they otherwise established, can be refused. The sprinklers
14. I am satisfied that both breach and the damages claimed have been established.
15. This claim depended on clause 25.1 of the lease, which provides: "All fixtures plant and equipment installed by the Lessors including feed mixer, bins, silo, cablevey, sundry feed equipment, Milk Vat and ancillary equipment, Milking machine plane, hot Water service and sundry equipment and irrigation pumps, gates and fences shall be maintained in a proper working condition fair wear and tear excepted."
16. The claim was defended on the basis that the sprinklers were chattels used in conjunction with the irrigation of the property, not equipment described or referred to in this clause. It was also submitted that this clause did not apply to "consumables'' likely to be damaged and replaced in the ordinary course of use of the equipment and further, that this claim was subject to fair wear and tear exception.
17. Clause 25.1 applies to all fixtures, plants and equipment installed by Mr and Mrs Keys, of which a non-exclusive list is there given, which includes "sundry equipment." Why that term does not include the sprinklers, equipment installed as a crucial part of the irrigation system described by Mr Salway in his evidence, so that the paddocks, on which the feeding of Mr Salway's herd depended could be watered, is not apparent.
18. The evidence established that the sprinklers fell within clause 25.1.
19. Mr Keys' evidence was that he found that in one paddock, 30 sprinkler set ups were missing, that sprinklers in another paddock had been used to repair broken sprinklers elsewhere on the property and that the cost of repairing and replacing damaged sprinkler set ups and heads, connectors and valves would be $4,110.24.
20. In cross-examination Mr Keys described the brass sprinklers, which he said were sturdy and did not regularly break down, or in the normal course of operation. He denied that what he had repaired after his return to Farmhill involved wear and tear. Consistent with Mr Salway's evidence, he described what he found to have been broken.
21. In his September 2013 affidavit, Mr Salway admitted that his cattle had damaged the sprinklers from time to time and that they were also damaged when contractors and farm employees did not see them, when moving in vehicles through irrigated paddocks.
22. Mr Salway said that it was crucial for sprinklers to be working and so he had repaired them when the need arose, they not being new at the commencement of the lease. He described how he had repaired the sprinklers using parts of broken sprinklers left by Mr Keys in the machinery shed. He also said that during the term of the lease he had spent some $6,377.65 on maintaining the sprinklers. He said that when he left, there were sprinklers available for all turf valves, they were all 5 years older, but up to the job they were built for.
23. In her affidavit, Mrs Salway sought to give corroborative evidence as to various of these claims, by reference to identified paragraphs of Mr Salway's affidavit, most of which were finally not read, that not being a reliable way to give such evidence. Some of the other evidence Mrs Salway gave independently, however, contradicted that given by Mr Salway. She said, for example, that Mr Salway had used "sprinklers located on the property for spares to repair broken sprinklers".
24. I am satisfied that Mr Keys' evidence as to the missing and unrepaired sprinklers which he found after the termination of the lease must be preferred over the evidence of Mr and Mrs Salway. The sprinklers are not consumables. Nor does vulnerability to damage by cattle and vehicles make the damage Mr Salway described, wear and tear.
25. Mr Keys' evidence must be accepted. The claim is thereby established.

The effluent pump and sprinkler

1. This breach of clause 25.1 of the lease and the damages claimed were also established.
2. On his return to the property, Mr Keys said that he found that the effluent pump had not been used, effluent was flowing into the creek and the sediment trap was full of mud and sand. He claimed for repair of the pump and replacement of the sprinkler, estimated to be $1,759.76. That was not challenged in cross-examination, although Mr Keys was asked and denied that there was still a stink at the Bemboka River, although he said that there was one when he returned to the property.
3. Mrs Salway's affidavit evidence contradicted Mr Salway's affidavit evidence that the pump was not working at the commencement of the lease in 2007, but that he and Mr Keys had cleaned out the effluent system and the pump then worked. Mrs Salway said that the pump had never worked.
4. Mr Salway also said that in 2010 he undertook repairs to the pump. Despite this, the system was not able to cope with the effluent and so he turned the pump off and left the sprinkler in a paddock. Neither Mr nor Mrs Salway's evidence can be accepted.
5. Given that the pump and the effluent system were in use until 2010, while Mr Salway ran his entire herd on the property, their evidence was not credible. If then repaired as Mr Salway claimed, the pump should have worked as it did before. In cross-examination, Mr Salway said that he had commenced leasing Farmview in July 2010. Over time he kept fewer cattle on Farmhill while, on his evidence, he was not using its effluent system. That, it must be inferred, was because the pump was not repaired as it ought to have been.
6. That Mr Keys was not able to afford the cost of repair of the pump, which had not been kept in repair as clause 25 of the lease required, is not a basis on which this claim can be refused. It must be allowed.

Blackberries

1. This breach and the damages claimed were also established
2. Clause 21.3 required Mr Salway to use proper control for the management of noxious weeds. It provided: "The Lessee shall use all proper means for control of Rabbits and other vermin and noxious animals and all weeds and other noxious plants not already specified in this lease and shall comply with all laws and regulations in force from time to time in relation to the control of noxious animals and plants applicable to the land."
3. Mr Keys' evidence was that Farmhill was sprayed for blackberries shortly before the Salways moved in. When he returned to the property in 2012, he found an infestation for which he had a quote for labour and chemicals of $2,326.80. He tendered photographs which Mr Salway submitted merely showed isolated patches and could not establish the infestation Mr Keys described in his evidence.
4. Mr Keys' oral evidence was that he had not accepted the quote at the time, which was not in evidence, but he had spent money to deal with the blackberries, how much to the time he gave, in his evidence he could not then quantify.
5. Exhibit 6 was a text message sent to Mr Salway in January 2012, regarding the need to deal with the blackberries. Mr Salways' evidence was that during the term of the lease he had engaged various contractors to spray Farmhill for weeds, including blackberries, at a cost of some $28,833.77. In evidence was a 2010 inspection report, as to the then state of noxious weeds, which was favourable, as Mr Keys accepted, consistent with his evidence as to the spraying undertaken before the lease began.
6. In cross-examination, Mr Salway agreed that the invoices annexed to his affidavit were for spraying both Farmhill and Fairview and that the larger part of the spraying related to Farmview. He could not recall any spraying at Farmhill after July 2011. He also agreed that the chemical Grason was usually used to spray for blackberries and that Glyphosate, the weedicide referred to in the invoices, was not commonly used for blackberries.
7. The only invoice for Grason purchased, Mr Salway accepted, was dated November 2007. The Foord Spraying Service invoice for spot spraying of blackberries and other weeds, between December 2007 and February 2008 totalled $1,435.00. That is inconsistent with there having been any blackberry infestation at the commencement of the lease.
8. Mrs Salway's evidence was, however, that the spraying Mr Keys had done before the commencement of the lease was ineffective, despite his obligation to Bega Cheese to control weeds growing in contract areas. She said that Mr Salway had spent time and money to try to eradicate the blackberry infestation on the property. Given Mr Salway's evidence, this evidence cannot be accepted.
9. On all this evidence I am satisfied that this breach of the lease was established. There is no reason why Mr Keys' evidence as to the cost of dealing with the resulting damages should be rejected, supported as that was by the invoices which showed what Mr Salway had spent on spot spraying blackberries in 2007 and 2008 alone.

Water Trough

1. This breach and the damages claimed were also established.
2. The claim depended on cause 25.1 and 25.4, the latter providing: "With the exception of any plant and equipment referred to in 27.2 and any water troughs and feed pads installed by the Lessee all fixtures plant and equipment will remain the property of the Lessors and at the expiration of the lease and will not be removed by the Lessee."
3. Mr Keys' evidence was that the water trough was missing. In cross-examination, he described discussing the trough with Mr Salway, at a time when he wanted to use it, while they were standing together in front of it and that later it had disappeared. He said that the trough to which Mr Salway referred in his evidence, was a different trough.
4. Mr Salway's evidence was that there was one small trough which held 700 litres. Early in the lease it was damaged by an employee who drove into it with a tractor and afterwards, it was only capable of holding 650 litres. In cross-examination, Mr Salway agreed that his employee had damaged this trough.
5. Contrary to the submissions advanced for Mr Salway, such damage does not involve wear and tear, that is, as was put for him, "ordinary use or the operation of natural forces".
6. Mr Keys' evidence that the trough, the subject of the claim, was in fact missing, must be accepted. This claim is established by the evidence.

Remediate damage to paddock

1. This breach and the damages claimed depended on clauses 7, 19.6 and 25.4, of the lease, the former providing: "CLAUSE 7 CONDITION AND REPAIRS Who is to repair the property? 7.1 The lessor must - 7.1.1 maintain in a state of good condition and serviceable repair the roof, the ceiling, the external walls and external doors and associated door jambs, and the floors of the property and must fix structural defects; 7.1.2 maintain the property in a structurally sound condition; and 7.1.3 maintain essential services. 7.2 The lessee must otherwise maintain the property in its condition at the commencement date and promptly do repairs needed to keep it in that condition but the lessee does not have to - 7.2.1 alter or improve the property; or 7.2.2 fix structural defects; or 7.2.3 repair fair wear and tear. 7.3 The lessee must also - 7.3.1 reimburse the lessor for the cost of fixing structural damage caused by the lessee, apart from fair wear and tear; 7.3.2 maintain and decorate the shop front if the property has one; 7.33 decorate the inside of the property in the last 3 months of the lease period (however it ends) - 'decorate' here means restoring the surfaces of the property in a style and to a standard of finish originally used e.g. by repainting; 7.3.4 where the property is a lot in a strata scheme: 7.3.4.1 meet the cost of all damage to the common property occasioned by the lessee or any invitee or licensee of the lessee; and 7.3.4.2 permit the owners corporation, temporarily, to close any part of the common property for the purpose of making and effecting repairs to it 7.4 If an authority requires work to be done on the property and it is structural work or work needed to make the property safe to use then the lessor must do the work unless it is required only because of the way the lessee uses the property. But if it is any other work or is required only because of the way the lessee uses the property then the lessee must do the work. 7.5 If the lessee fails to do any work that the lessee must do the lessor can give the lessee a notice in writing stating what the lessee has failed to do. After the notice is given the lessee must- 7.5.1 do the work immediately if there is an emergency; and 7.5.2 do the work promptly and diligently in any other case. If the lessee does not do the work, the lessor can do it and the lessee must reimburse the lessor for the cost of the work. 7.6 The lessee must not make any structural alterations to the property. Any other alterations require the lessor's consent in writing (but the lessor cannot withhold consent unreasonably). Clause 19.6 The Lessee will practice good pasture management practices including: (a) The up keep and maintenance of introduced pasture species; (b) the application of superphosphate or organic fertiliser to the property to a reasonable level sufficient to maintain soil test analysis at a level equal to that at the commencement of the lease.
2. Mr Keys' evidence was that Mr Salway had brought 13 of his own troughs onto Farmhill, which he had attempted to purchase from Mr Salway, so that Farmhill would be left in working order on his departure. Mr Salway refused and removed the troughs from the middle of irrigation paddocks, leaving the farm's water system non-operational. Poly lines were also found to have been cut, damaged and blocked. Had Mr Salway given notification beforehand, they could have been replaced, so that damage could have been minimised. The paddocks were also left damaged.
3. The result was that gravel had washed over the property. It had to be removed, pastures reseeded and poly fittings blocked off. Mr Keys had to hire a tractor to perform the work, to level sites, reinstall pressure cylinders and new troughs.
4. Mr Keys was not cross-examined about this.
5. Mr Salway's evidence was that during the negotiations he had informed Mr and Mrs Keys he had 16 troughs to bring from Glencairn, which he wanted to install on Farmview. It was agreed that he could install them and later remove them at the end of the lease.
6. Mr Salway levelled pads at each site and installed the troughs. This involved cutting water lines and installing T pieces and placing the troughs to the sites he described, using a hired crane. Polythene pipe was then laid underground and each trough was connected to the farm water system. They ranged in size from 700 to 6,500 litres. When the troughs were removed, the poly water pipes were cut a metre or so from the T pieces.
7. On 5 July, Mr and Mr Keys' solicitor wrote to Mr Clark, advising that Mr and Mrs Keys wanted to purchase the troughs for $700 each, that being the amount they had recently paid for other troughs and advising that if Mr Salway removed them, to ensure that the pipework and pastures remained undisturbed.
8. Mr Salway said that he had engaged a contractor to help him remove the troughs. They used a skid steer with pallet forks to move the troughs off their gravel beds and loaded them onto his hay trailer, which was towed by his tractor. There was some resulting disturbance to the pasture, even though vehicle movements were kept to a minimum. Mr Salway said pasture damage was minimal, no large areas require reseeding and the existing water system was not damaged, because the water lines cut were those he had installed. The pipe was cut off by being bent over and tied up.
9. There were also other troughs and lines which he cut off and reconnected, or bent over and tied off, with the result that the existing water lines and systems were left undamaged. In cross-examination, Mr Salway agreed that he had made no payment for the damage caused to the pasture.
10. While submitting that this claim ought not to be considered, because it was identified as withdrawn in MFI 20, it was addressed. There is no unfairness in those circumstances, for Mr and Mrs Keys being permitted to revisit the pursuit of this claim.
11. For Mr Salway it was submitted that anything Mr and Mrs Keys were entitled to complain of under clause 25.4, namely that removal of the troughs had damaged the pasture, it imposed no obligations in relation to the consequences of removal.
12. This submission may not be accepted. Damage to the pasture, like any other damage in breach of the obligation to maintain the property in its condition at the commencement date of the lease, as clause 7 of the lease obliged, can be recovered.
13. The sum pressed was $2,600, which was said to have come from [72] of Mr Keys' affidavit (exhibit 2). There the amount claimed was $400 for a new trough. It was submitted that the cost of the troughs referred to in Mr Clark's letter and the evidence of spray seeding by Mr Salway during the course of the lease, established the cost of remediation required by the removal of the troughs.
14. I am at a loss to understand how this submission can be accepted. How the $2,600 was calculated is simply not apparent. The claim cannot be allowed.

Replace and install pressure tanks

1. This breach and the damages claimed depended on clauses 7 and 25 of the lease. Clauses 25.2, 25.3 and 25.5 have not earlier been quoted. They provide: "25.2 In the event of failure, breakdown or damage to milk vat, feed mixer, cablvey or dairy equipment (diary plant) or irrigation pump such that it is uneconomical or impractical to repair the item of plant, then the Lessee shall replace such item of plant at their own expense. 25.3 The lessee shall make no permanent structural improvements or add any permanent fixtures without the consent of the Lessors which shall not be unreasonably withheld. 25.5 On termination of the lease, the lessors shall purchase any new or replaced fixtures, plant or equipment provided by the Lessee. The purchase price shall be determined as the depreciated value of the fixture, plant or equipment less 20% of the value of such new or replaced item."
2. Mr Keys' evidence was that 10 water troughs were installed at their cost, for Mr Salway's benefit, during the term of the lease and that it was agreed that Mr Salway would install a pressure tank to run them, which Mr and Mrs Keys would purchase at the end of the lease. In cross-examination, he clarified that three troughs were for Mr Salway's benefit and seven were installed as part of an agreement which he had entered with Bega Cheese. He claimed that Mr Salway removed the pressure tank, which was replaced at a cost of $1,700.
3. Mr Salway's evidence was that Mr and Mrs Keys had entered an agreement with Bega Cheese and Southern River Catchment Authority, which he believed, required Mr Keys to install a number of troughs as well as a tank at a high point on the property into which water would be pumped from the irrigation system. He pointed out a flaw in the system, with the result that in March 2009, Mr Keys decided he would connect his troughs into the existing water line. Mr Salway provided the use of his tractor, to allow this work to be done.
4. Mr Salway claimed that he had installed the pressure tank before Mr Keys installed the troughs. Mr Keys disputed this in cross-examination. He said it was installed in order to make the water system work and he expected later to be able to purchase it under the lease.
5. Mr Salway said that this tank belonged to him and he always intended to remove it and take it with him at the end of the lease. He engaged a contractor in February 2012 to remove the tanks and return the system to the same configuration as it was at the commencement of the lease.
6. Under clause 25.5 of the lease, Mr Salway was not entitled to remove the tank and Mr and Mrs Keys were obliged to acquire it at a price fixed in accordance with the formula there provided. In cross-examination, Mr Salway said that Mr Keys had approached him and asked him to leave the troughs there, but that he could not afford to pay for them. He denied that any price was discussed and asserted that under the lease he was entitled to remove them. There was no evidence of any discussion about the removal of the tank.
7. It follows that Mr Salway's removal of the tank involved a breach of clause 25.5, which required Mr and Mrs Keys to purchase the tank. This does not oblige Mr Salway to make a gift of the tank to Mr and Mrs Keys. The evidence does not establish that they could not afford to pay for the tank. Unilaterally removing the tank without any prior discussion, because Mr Salway held the view that it was his and that they could not afford to buy it, did not accord with his obligations under the lease.
8. If there had been a problem, the parties could have negotiated a departure from the agreed terms, but they did not. It was not even put to Mr Keys that he would not have been able to pay Mr Salway in accordance with the lease. Accordingly, Mr Salway is liable for the cost of the replacement of the tank.
9. The alternative put for the first time in submissions, that "the value of the pressure tank should be allowed in favour of Mr Salway on condition that he redeliver it to Mr Keys" cannot be accepted, for various reasons. They include that this was not explored in evidence and that some three years have passed since the lease came to an end. What has been done with the tank in the meantime, is simply unknown.
10. Accordingly, this claim must be allowed.

Replace damaged air compressor

1. This claim alleged breaches of clause 7 and 25.1 of the lease.
2. Mr Keys' evidence was that the dairy air compressor was found no longer to be functioning and required replacement. He obtained a quote for $825 to replace the compressor, but had not done so. There was no challenge to the claimed cost.
3. Mr Salway's evidence was that the compressor had stopped working during the first year of the lease. He purchased a new compressor and had Mr Keys' compressor repaired, but later rarely use it. Later, he purchased a second compressor as a back-up. Mr Keys' compressor was operational at the end of the lease, as Mr and Mrs Keys' solicitor had advised in a letter of 5 March.
4. That letter was not in evidence, but Mr Keys said in cross-examination, that when he tested the compressor, he had only turned it on. The motor was working, but later he found that the compressor was not.
5. On that evidence, I am not satisfied that the claim was established. Mr and Mrs Keys were not able to run a dairy operation on the property when they returned, because the land was contaminated. When it was that it was discovered that the compressor was not working and what had occurred in the meantime, was not revealed by the evidence.
6. In those circumstances, I am not satisfied that this claim was established. The cow lifter
7. This claim also alleged breaches of clause 7 and 25.1 of the lease.
8. Mr Keys' evidence was that he had left a cow lifter for Mr Salway to use. It was unusable, he said, because Mr Salway had driven over it with a tractor. The cost of replacement of $235.20 was not challenged, but Mr Keys agreed he had not yet purchased a replacement.
9. Mr Salway's evidence was that the lifter was not new, had suffered a lot of wear and tear and was damaged while he was in the process of lifting a cow. He did not replace the lifter, but borrowed a neighbour's.
10. Mr Salway himself differentiated between wear and tear in the course of normal operation and other damage. On his own evidence the claim was established.

Road repairs and weeds

1. This claim alleged a breach of Clause 28.3 of the lease, which provided: "The Lessee will maintain all roads on the property in the same condition as they were in at the earlier of the commencing date of the lease and the date on which the Lessee first occupied the property and for this purpose the Lessee shall be allowed to extract gravel from the property. Any gravel extracted shall only be used on the property and under no circumstances shall be removed from the property. For the purposes of this clause, roads include culverts, ramps, grids, bridges, table drains and causeways but does not include roads which the Commonwealth, state or local governments or statutory authorities have the duty to maintain."
2. Mr Keys' evidence was that there was a gravel pit at Farmhill specifically for road maintenance. He found the gutters at the sides of the road filled in and blocked with Kikuyu and weeds. They should have been contained by spraying and cleaned, to enable water to drain away, rather than running down the road. He had hired a tractor and bought chemicals which he had used to spray, at a total cost of $200. He also claimed the cost of re-grading the damaged road. In cross-examination he said that he had paid only $540 to fix holes and had not paid all the $1,500 quoted for road repair.
3. Mr Salway said that he had repaired and maintained the road during the lease to the standards required by Bega Cheese, which required its tankers to have access to Farmhill on a daily basis and towards the end of the lease, twice a day. In assessing this evidence it is pertinent that Mr Salway ceased milking at Farmhill in January 2012.
4. Mr Salway said he had used gravel from the pit, as well as blue metal he had purchased, to patch the road. He had also engaged a contractor to put in drainage and grade the road and clean gutters, work for which he had not paid money, but had involved an "in kind arrangement", which he described. Mr Foord had also sprayed the weeds along the side of the road when he had excess spray in the tank that needed to be used.
5. Mr Salway also said that there had been over 300mls of rain at the end of February and beginning of March 2012, which had caused a substantial amount of erosion to the roadway. The area was flooded. This evidence was consistent with photographs annexed to Mr Keys' affidavit.
6. In cross-examination, Mr Keys said that the photos were consistent with no upgrade to the road afterwards, given the amount of vegetation there shown, which was consistent with his experience, when roads were not maintained. He agreed that the photos did not meet Bega Cheese requirements. He also agreed that the rains had been heavy between 28 February and 9 March, but said that the bulk fell on 28 February, which caused the flood.
7. In cross-examination, Mr Salway agreed that his evidence was that there had been heavy rainfall on the two last days of the lease, and the resulting damage was not his responsibility.
8. Mr Salway's case was that because there was no condition report at the commencement of the lease, Mr Keys could not prove that there had been any deterioration in the roads, from their condition at the commencement of the lease. Nor did the evidence establish that the damage shown in the photographs had occurred before the lease expired. The condition of the roads after the termination of the lease did not establish a failure to maintain. The roads must have been passable when Mr Salway took his last cows off on 15 February. Therefore the state of the roads must have been attributable to the heavy rain afterwards. Accordingly, no breach of clause 28 had been established.
9. Contrary to these submissions, I am satisfied that the evidence establishes that at the commencement of the lease the condition of the roads as Mr Keys had maintained them, permitted Bega Cheese Milk tankers to access the farm. They remained in that position until the last of the milking undertaken by Mr Salway in January 2012, but the attention to weeds was inadequate, consistent with the evidence earlier dealt with in relation to weeding generally. That had an impact, when heavy rain fell.
10. There was no maintenance after milking finished. The roads were still navigable when the last of the cows were removed in mid February. There was heavy rain before the termination of the lease, which caused a flood and damaged the roads. The rain continued afterwards, until 9 March, but the most significant damage occurred on the two days before the end of the lease. The result was that on termination of the lease, the roads no longer permitted Bega Cheese Milk tankers to access the farm.
11. It follows that Mr Salway was in breach of his obligation under clause 28.3 on termination of the lease, but he was not responsible for the entire cost of the repairs, which in part was the result of rain which continued to fall afterwards. Had necessary weeding been done beforehand, that damage would have been less significant.
12. In the result, Mr Salway must be held responsible for the cost of the spraying and removal of the weeds in the gutters on the side of the road and 80% of the balance of the cost of repairs.

The dairy

1. This claim also alleged a breach of Clause 25 of the lease.
2. Mr Keys' oral evidence was that in 2006 the dairy was new, they having spent $40,000 on an upgrade, 6 months before Mr Salway took possession.
3. Mr Keys affidavit evidence was that in 2012 the dairy was left in a state which would not have permitted it to pass a HACCP audit; the steps to the milk vat had been smashed; the ceiling had been smashed and poorly repaired, the inside of the vat room needed to be repainted to attend to mould; the toilet was filthy; the front door was smashed; a computer motherboard was not working and had to be replaced.
4. In cross-examination, Mr Keys was taken to various photographs and asked whether the state there depicted was the same as at the start of the lease. He agreed that the toilet was in a similar state at the commencement of the lease, but did not agree that the door had a handle missing when the lease commenced. He agreed that a hole in the ceiling could have been caused when an employee of Mr Salway put his foot through the ceiling, while fixing something on the roof and that the ceiling did not have sufficient strength to withstand a person's weight. He agreed that his complaint was that the hole had not been fixed.
5. Mr Salway's evidence was that the side yard of the dairy, the vat room, office and toilet were dirty and had to be cleaned for two days before they were fit for use. He found that the concrete floor of the side yard was covered with muck, which had to be removed. This took he, Mrs Salway and an employee working 2 to 3 hours a day, a week to clean. Before they left Farmhill, the three of them had cleaned the dairy, vat room office and toilet.
6. Mr Salway admitted that an employee had overbalanced while attempting to retrieve a rat from a reservoir tank in the ceiling of the dairy, to which there was no fixed access, with the result that a small area of the ceiling had been damaged. He had placed two flat metal bars across the damaged celling to close off the hole and ensure it was supported.
7. Mr Salway described automatic cup removers, controlled by a touch pad in a plastic control box, which had teat spray dripping onto them even before the commencement of the lease, which made them brittle over time. He had discussed this with the Bega Cheese Engineering Department, which had advised him to take preventative measures by gluing and taping the plastic boxes, to protect the motherboards inside.
8. It was the hostile, moist environment which Mr Salway described which required preventative action to make sure that the motherboards remained sound. Routine tests showed that in May 2011 the automatic cup removers were in a satisfactory condition. The motherboards were all working on 15 February 2012, when he removed the last of his herd.
9. In cross-examination, Mr Salway agreed that by comparison to Glencairn, Farmhill was a modern and more efficient dairy and that he made no complaint about its condition on commencement of the lease. He did not accept that the motherboards were new when he arrived, but agreed that by the time he finished, they were held together by tape.
10. Mrs Salway said that the dairy was kept clean. In 2010 it was audited by the Safe Foods, NSW Food authority and received an "A" rating which continued to the end of the lease. The west side of the dairy however, was covered in muck at the commencement of the lease, and she and Mr Salway on two windy occasions had to wear snow goggles, because of dirt being blown from the back yard. The steps were worn out and broken by a milk tank driver and had been put back in place at the end of the lease.
11. Mr Salway tendered an affidavit sworn by Mr Rood in September 2013. He was not required for cross-examination. He inspected Farmhill in early March 2012 on a day when he and his partner later had dinner with Mr and Mrs Salway. Mr Rood said that they decided not to lease the property, due to the price of the lease, the age and state of condition of the dairy, which he described as "extremely rundown" and the age of the house. That evidence supported Mr and Mrs Keys' case.
12. The costs claimed were: Celling repair - $1,000 Door- $200 Vat steps - $150 Motherboard - $697 Two motherboard cover kits - $295.80 Paint - $100 Labour - $239.04
13. They were not challenged, but in cross-examination, Mr Keys conceded that there were, however, no invoices as to the cost of the repair or replacement of the motherboards, two of which were cracked and had tape on them and one was just not working at all.
14. The obligation under clause 25.1 was to maintain all fixtures and fittings in proper working condition, fair wear and tear excepted. Contrary to Mr Salway's submissions, damage such as that caused to a ceiling not capable of carrying a person's weight, when an employee puts a foot through it, is not wear and tear. For reasons which I have explained, I prefer Mr Keys' evidence over that of Mr Salway as to the motherboards.
15. On all of this evidence, I take the view that the damage to the ceiling, door, vat steps and motherboards did not involve wear and tear for which Mr Salway was not responsible, but that the need for repainting the dairy and the labour involved, was.

Repair Damage to and clean the hayshed

1. This claim also alleged a breach of Clause 25.1 of the lease
2. Mr Keys' evidence was that the shed was purchased in September 2005 and erected over some 6 months at a total cost exceeding $30,000. It was finished about 12 months before the lease commenced. It was left in a filthy state on termination of the lease; there were punch holes in the back of the shed, which had to be re-sheeted. A beam had been hit so hard that it had been twisted, with the result that it could only be repaired by pulling down the whole shed.
3. The costs claimed were: Cleaning - $1,115.76 Repair - $1000 Labour - $59.76 Pressure washer hire - $56
4. In cross-examination Mr Keys said the shed had been cleaned before the auction sale and that at the end of the lease it had to be cleaned of hay. He had no invoices or quotes for the work undertaken, which he explained had been necessary because the hayshed had been covered in straw over the walls and floor, which had to be removed, because they had to run sheep on their return to the property.
5. In cross-examination, Mr Salway agreed that the shed had been damaged, but not repaired, and that he had made no payment towards its repair. In her affidavit Mrs Salway said that the shed was still fit for purpose.
6. On the evidence, I cannot see that a hayshed left with hay in it, involved a breach of any obligation imposed on Mr Salway by clause 25.1 of the lease, as Mr and Mrs Keys claimed. The cost of repairing the shed is a different matter. The cost of that repair was unchallenged and so an order in favour of Mr Keys for $1,000 must be made.

Fertiliser

1. The claim related to the cost of fertiliser which had to be applied to re-establish soil nutrients. The claim relied on clauses 7 and 19 of the lease, the latter providing: 19. Management of the property 19.1. The Lessee will manage the property and adopt and use ecologically sustainable soil and water management practices and technology in the maintenance of the property. 19.2. The Lessee acknowledges that burning of vegetation for the purposes of encouraging new grass is not to be undertaken without the prior written approval of the Lessors and all relevant authorities. 19.3. The Lessee will comply with all laws including those relating to bushfire prevention, environmental protection, conservation and land management. 19.4. The Lessee will at all times carry out all grazing and related activities in accordance with the rules of good husbandry and such proper practices which apply in the district where the property is situated and will not do or permit anything to be done to or on the property that will cause, aggravate or accelerate soil erosion. 19.5. The Lessee will punctually observe and comply with the requirements of all statutes, ordinances, proclamations, orders or regulations present or future relating to the grazing and related operations conducted by the Lessee on the property. 19.6. The Lessee will practice good pasture management practices including; (a) the up keep and maintenance of introduced pasture species; (b) the application of superphosphate or organic fertiliser to the property to a reasonable level sufficient to maintain soil test analysis at a level equal to that at the commencement of the lease. 19.7. The Lessee will manage and graze the property according to the most improved methods of husbandry in the district including but not limited to these methods: (a) sensible sustainable grazing management; (b) grazing management to ensure longevity and maximise pasture efficiencies; (c) correct chemical rotations and management particularly in relation to herbicide resistance;"
2. The 2012 soil report (Exhibit 3) indicated the price of various fertilisers and the results of sample paddocks tested. The damages claimed were calculated by averaging the results for adjoining paddocks. MFI 2 was a document which purported to summarise what was in other exhibits. Its tender was rejected. It was explained that the items there appearing in red reflected what was in Exhibits 3 and 4, Exhibit 4 indicating the state of the soil in 2007, the subject of clause 19.6(b) of the lease.
3. The parts of MFI 2 appearing in blue had been subjected to an averaging process not explained in either the document nor any evidence. It was accepted that those calculations contained unexplained assumptions, with the result finally, that the document could not be received without further evidence being called. In the result, the damages claim was reduced to reflect the result of what had been tested in 2012, as appearing in Exhibit 3.
4. Mr Keys' evidence was that a soil test had been conducted for Farmhill by the Catchment Management Authority for Bega Cheese in spring 2006. A further test was conducted in March 2012 on less than half the farm. I have earlier dealt with the admission of the reports. Contrary to the submissions advanced for Mr and Mrs Keys, they were objected to and I received them as business records. The results of the tests were not, however, challenged.
5. Mr Keys had been asked to produce quotes, receipts and invoices for fertiliser which he had applied after the termination of the lease. He did not supply any, explaining in cross-examination that he had not then applied any fertiliser. He did not, however, tender any invoices to show what he had spent since.
6. Mr Salway's evidence was that during the term of the lease he had engaged contractors to fertilise the farm, as well as an expert, Dr Moss, to advise in relation to the application of fertiliser. He had spent some $212,087, of which some $19,900 was organic fertiliser in the form of poultry manure, over the term of the lease, fertilising, he said, every year from 2007 to 2011. Mrs Salway said that he had applied fertiliser regularly.
7. In cross-examination Mr Salway accepted, however, that primarily the receipts which he said evidenced his application of fertiliser, related to urea, which he said had been applied to enhance pasture growth. He was not aware of urea adding phosphorous or sulphur to the soil, but denied that application of urea left the land with less nutrients for future cropping. He also denied that he had not been taking care of Farmhill during the last 18 months of the lease.
8. Mr Salway relied on Mr Rood's evidence that in March 2012, Mr Keys told him that: "Steve did a very good job on the farm and the farm has never been better. Steve had done a very good job at growing feed and the pasture has never been better."
9. This was before Mr Keys had the soil tested. Mr Rood's opinion of the state of the dairy was inconsistent with a statement by Mr Keys that the farm had never looked better.
10. In final submissions, while the soil test reports were still submitted to reflect expert opinions which could not be received as a business record of Mr and Mrs Keys, they having been provided to him, not made by him, it was accepted that in the absence of test results contradicting Exhibit 3, a breach of the lease had been established.
11. It was argued however, that even though the soil test results might show deficiencies, they could not establish the quantum of the damages claimed, the testing organisation not having cause in the course of its operations to record matters of price. That submission may not be accepted.
12. Soil testing was undertaken as a normal part of the operation of the business which Mr and Mrs Keys conducted. The 2012 report reflected the advice they received as to the result of the testing then undertaken. That included advice as to the cost of remediation. There is nothing in the reports which suggests that this advice was anything other than advice given as part of the testing organisation's normal operations, by a person who "might reasonably be supposed to have had personal knowledge of the asserted fact" (s 69(2)(b) of the Evidence Act, that is, the cost of particular substances needed to be added to the soil. There was no challenge to any part of the report, including those prices.
13. In the result, I am satisfied that the damages pressed have been established.

Remove rubbish and damage to garden

1. This claim alleges breach of clauses 7, 19 and 30.1 of the lease, the latter providing: "The Lessee will not destroy any growing timber on the property except for the purposes of the provisions of this lease which relate to fencing and cultivation."
2. Mr Keys described the unkempt state of the garden and the work needed to be done to deal with the overgrown grass, fallen trees and branches, including slashing and application of poison. The entire herb garden and sage and lavender hedges had died. The rockery plantings were also dead and overgrown with weeds. An old pine tree, described by Mr Keys as a historic part of the national trust listed property, was dead and agapanthus beds had been removed. An old orange tree was missing, as was an old peppercorn tree. The sand play area nearby was covered by grass, weeds and branches. Mr Keys said that it took two full days to cut up, stack and burn the remainder of the pine tree.
3. Mr Keys was cross-examined about what various photographs of the garden showed. He agreed that there had been significant amount of drought in the region during the term of the lease, but said that the garden had survived the previous four year drought, the worst on record. He considered that Mrs Salway had not done much to keep the garden alive, given what was dead at the end of the lease, but said that it was Mrs Keys who was the gardener. He agreed that he had not sought expert advice as to what caused the pine tree to die. He also said that if it was the only tree in the yard which had died, he could have accepted that it had just reached the end of its life, but it was not.
4. Mr Keys agreed that the outside labour he had paid for was $425 to fell the pine tree and that other work he had done himself, using a tractor.
5. Mrs Keys' evidence that she agreed with that of Mr Keys was not read. She said that she had helped Mr Keys with the cleaning and repair work necessary after the end of the lease. In her oral evidence she said that she helped predominantly with the garden and the house. She described cleaning the several acre garden to have been a massive job, with trees down and grass longer than in the paddocks. There were massive trees, one five storeys high, dead as well as two very old plum trees and a 100 year old orange tree of significance to the heritage listing to the property also dead.
6. The trees had to be taken away and burned, together with other rubbish, which was tended to over the next 12 months. Trees and about 20 metres of sage hedging, the vegetable garden and herb garden also had to be replaced.
7. Mr Salway gave no separate affidavit evidence about the garden, but agreed with Mrs Salway's affidavit evidence. In cross-examination, he agreed that there were dead plants and trees, but could not recall any blown over. He denied not having properly cared for the property over the last 18 months.
8. Mrs Salway's evidence was that her brother-in-law had mowed the lawn before they vacated the property. She denied having done anything which caused the death of trees. An orange tree had gone rotten in the trunk and had been blown over by high winds. She also said that Mr Keys had been to the farm repeatedly, was aware of the loss of the trees and had never asked about them, while they occupied the property.
9. Mrs Salway said that plants in the garden had died despite her best efforts during the drought. There were cease to pump restrictions in place and they were trying to conserve water for stock and domestic purposes. 37 months of the first 48 months of the lease the property was drought declared or marginal. This evidence has to be considered in light of Mrs Salway's affidavit evidence that at the commencement of the lease, the Bega Valley was drought declared. That was lifted in May 2007, when they were declared satisfactory, with March and April being marginal. She also said that the state of the paddocks had been described in October 2011 by Mr Hyson of Elders, as being in a fantastic state.
10. This evidence was inconsistent with Mrs Salway's evidence that the plants in the garden had died because of drought. It suggests that they were not sufficiently watered.
11. It was not conceded that the garden had suffered any detriment. There being no baseline evidence as to the state of the garden, in a condition report, it was submitted that Mr and Mrs Keys could not establish their claim. While there was evidence that some plants had died, that was submitted to have been because of drought and water restrictions, which was not the result of neglect, but fell within the wear and tear exception.
12. Mrs Keys' evidence was submitted to have been coloured by her emotional attachment to the garden. Her view that if she had been able to keep the garden alive during four years of drought, the Salways should have been able to do the same, would not be accepted.
13. Mr Salway's case was that the evidence established that it would have required superior gardening skills to have prevented the garden from dying, given the drought conditions endured during the period of the lease. Mr and Mrs Keys could not even establish the condition of the garden before the lease and the lease did not require the lessee to keep the garden alive, no matter what the weather conditions were. The condition of the garden was not the result of neglect, but operation of natural forces, namely drought. This constituted tear which modified the obligation to maintain.
14. Mr Keys had not established the cause of the death of the trees and that the only damage he had spent money to rectify was $485. There was no other evidence of damage or diminution in value which was compensable.
15. Mr Salway's case cannot be accepted. The photographs and evidence of Mr and Mrs Keys established the condition of the garden before the lease. The fact that here was a drought did not relieve Mr Salway of the obligation to maintain the garden. Mrs Salway's evidence was inconsistent with the state of the garden being the result of drought. The evidence is that available water was used for stock and domestic purposes. In the drought conditions before the commencement of the lease, the garden was maintained. The conditions during the lease do not constitute "tear". The state of the garden which Mr and Mrs Keys described is the result of insufficient attention paid to the garden's maintenance.
16. I am not able to come to the same conclusion in relation to the trees, but the obligation to maintain the garden, includes an obligation to deal with dead and broken plants.
17. The calculation of the claim was not challenged, other than to explore what part of the claim had been paid to external contractors. I am satisfied that the claim has been established.

Damage to Floors

1. This claim alleged a breach of clause 7.
2. Mr Keys' evidence was that the floors had been sanded and lacquered three months before commencement of the lease.
3. In cross-examination, Mr Keys identified photographs of the study where something had been spilled and blistered the polish. He said that the scratches in the floor were apparent when they first entered the house. Its state was worse than before it had been sanded in 2007, after many more years of use. Mr Keys did not suggest the damage had been done deliberately, although he had no idea what had caused the damage in the study, which he denied could be the result of normal use of the house.
4. Mrs Keys' oral evidence was that while the floors were irreparably marked and dented, they had been repolished after their return to the house. Mrs Keys was also cross-examined about the damage depicted on photos of the floor. She described damage to the entire hallway, marked as could be seen on one photo. She said there was different damage to other floors, including a 2 by 3 metre area in the study and many scratches on other floors. She was aware of Mr Salway's complaint about a defect in the floor of the dining room, when a guest fell through a floorboard. She said that they were asked to pay for its repair, after they had asked Mr Salway about a number of bills which had not been paid, after their return from India in 2008.
5. Mrs Keys explained that the house was old, having been built in 1885 and heritage listed. She understood that the floors dated from that time. When the floors had been sanded a small hole had been created, which had weakened the floor. Mr Keys had fixed the hole by removing and replacing a 30cm board.
6. Mrs Salway described a dispute with Mrs Keys over who had the responsibility to repair the hole. This and other evidence suggests a falling out. Mrs Salway was not cross-examined about this.
7. Again, Mr Salway relied on the absence of a condition report to defend this claim. I accept Mr and Mrs Keys' evidence that the old floorboards had been freshly sanded and lacquered three months before the commencement of the lease.
8. That there was wear and tear to the floor over the course of the 5 year lease for which Mr and Mrs Salway have no responsibility, must be accepted. Other damage depicted in the photographs, particularly the spill in the study and the dents in the hallway, are not consistent with such wear and tear. The alleged breach has thereby been established, but the entire claim cannot be allowed.
9. I assess this claim at 50%.

Stove

1. This claim alleged a breach of clause 7.
2. Mr Keys' affidavit evidence was that a new stove had been installed prior to the lease. He found it filthy on inspection at the end of the lease, with mould on the inside and corroded hotplates. He said it was irreparable and needed to be replaced, at a cost of some $1,433.94.
3. He agreed in cross-examination that the kitchen had been renovated after they moved back in in 2012. They paid $1,600 for a new gas stove, but he said that they claimed a lesser amount, reflective of the cost of a replacement electric stove, for which they had paid $640 in 2006. He also agreed, however, that the stove was working at the end of the lease, but said that a hotplate did not heat properly.
4. Mrs Keys' oral evidence was that the stove had to be replaced. It looked like it had never been cleaned and the hotplates were corroded. The manuals and creams had been left for the tenants, but when they returned, it wasn't very new at all. The elements did not work properly, it did not regulate temperature anymore and it burned the food. Mrs Keys also said that the claim pursued was for cost of replacement of the stove installed before the lease.
5. In cross-examination, Mr Salway said that he was not aware of any damage to the stove. He could not identify the stove from photos in evidence but agreed that the hotplate was rusty, he did not agree that it was pitted. He also said that everything was 5 years older at the end of the lease.
6. On all of that evidence, it must be accepted that the stove was not clean, but it was still operating, apart from a hotplate which was not working as it had been when first installed. That there was some wear and tear must also be accepted. In the result that a basis on which a claim for replacement of the entire stove can be established has been made out cannot be accepted. There must be some allowance for the replacement of hotplates, which I assess at $400. Orders
7. For the reasons given, I find for Mr and Mrs Keys.
8. The usual order as to costs is that they follow the event, which in this case would be an order that Mr Salway must bear Mr and Mrs Keys' costs, as agreed or assessed. I will hear the parties if any departure from that order is sought.
9. The parties should produce orders reflecting the conclusions I have reached.
10. The matter will be listed on 11 June 2015 at 9:45am for mention.

Amendments 02 July 2015 - [173] - typographical error 'Austen' changed to 'Austin' DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 July 2015