Midcoast Petroleum Pty Ltd v Keldros Pty Ltd

Midcoast Petroleum Pty Ltd v Keldros Pty Ltd - [2019] NSWSC 970 - NSWSC 2019 case summary — Zoe

Judgment

HER HONOUR: This matter involves various claims made by the plaintiff, Midcoast Petroleum Pty Ltd (Midcoast), the registered proprietor of land in Budgewoi, New South Wales, (the Budgewoi Premises), against: the first defendant (the former lessee of the site), Keldros Pty Ltd (Keldros), for alleged breaches of a lease and of a separate fuel supply agreement; and the second defendant (the sole director of Keldros), Mr Andrew Plant, in his capacity as guarantor of Keldros' obligations under the relevant lease (though not the fuel supply agreement, to which Mr Plant was not party). At all material times (and indeed for many years before the events the subject of these proceedings), the Budgewoi Premises has been the site of a motor vehicle service station. Keldros was the operator of the service station from November 2005 until mid-2015.
The claims made against Keldros arise variously under its lease of the Budgewoi Premises (see [29] below) (claims (i)-(iv) below) and under the fuel supply agreement entered into between Midcoast and Keldros prior to Keldros' entry into the lease of the Budgewoi Premises (see from [46] below) (claims (i)-(iii) and (v) below).
Midcoast pleads in its amended statement of claim filed 12 November 2018 that contamination arising in or around January 2011 in the vicinity of the service station was caused by the failure of three underground storage tanks on Lot 8 (amended statement of claim at [21]-[22]). Midcoast also pleads that the groundwater and soil beneath or around the Budgewoi Premises remains contaminated by hydrocarbons at levels over and above the levels subsisting prior to 2 November 2005. It attributes this to the failure of one or more underground storage tanks and/or associated lines; the diesel fuel lines or former diesel bowser on the Budgewoi Premises; and/or Keldros' occupancy and use of the premises (amended statement of claim at [23]-[24]). (The claim referable to failure of the diesel fuel lines or bowser is no longer pressed.)
Midcoast's remediation claims are for costs and expenses that it has incurred or will incur in "making good the premises, remediating the premises or bringing the premises into compliance with environmental regulations" (see amended statement of claim at [56]-[59]).
As against Mr Plant, Midcoast seeks damages and/or an indemnity from Mr Plant for any amounts for which Keldros is liable for breaches of the lease. Midcoast further seeks orders against both defendants for interest on any award of damages, together with orders for costs.
The defendants largely deny liability for the various claims.
In summary, Midcoast claims the following amounts from Keldros (as quantified in Midcoast's closing submissions): 1. the sum of $8,249.75 paid by Midcoast in respect of an invoice issued to it by Wyong Shire Council (the Council) in September 2011, following the issue by the Council to Keldros of a clean-up notice dated 31 January 2011 (the clean-up notice) in relation to the Budgewoi Premises (said by Midcoast to relate to remediation works carried out by the Council at the Budgewoi Premises after a pollution incident in January 2011) (referred to as the Past Remediation Claim); 2. the sum of $639,561 for future remediation of the service station site arising from contamination that is alleged to have occurred to the Budgewoi Premises during Keldros' occupation of the site (said by Midcoast's experts most likely to have been caused by the failure of three underground storage tanks and/or associated fuel lines at some time between commencement of Keldros' lease and up to and including the January 2011 pollution incident) (referred to as the Future Remediation Claim); 3. the sum of $59,895.44 by way of loss and damage said to have arisen from Keldros' alleged failure, during its occupation of the Budgewoi Premises, to take the necessary steps to comply with environmental regulations which were introduced in 2008 and 2010 (referred to as the Regulatory Claims); 4. an amount (now quantified, depending on whether Midcoast's expert evidence in relation to various of the make good claims is accepted, plus additional amounts for contractors' preliminaries and the like) at either $87,188.75 or $38,019.60 for Keldros' alleged failure to comply with its make good obligations on the determination of the relevant lease (the Make Good Claim); and 5. the sum of $35,000 (plus a claimed service charge) in respect of a debt allegedly owing by Keldros for petroleum products supplied to it by Midcoast during the term of the lease (the Debt Claim).
For the reasons set out below I am of the view that the fuel supply agreement in question was applicable to govern the supply of Products at the Budgewoi Premises; the Past Remediation Claim should be allowed; the Future Remediation Claim should be allowed (in part); the Regulatory Claims should be dismissed; the Make Good Claim should be allowed (to a very minor extent); and, in respect of the Debt Claim, the amount drawn down on the $35,000 bank guarantee should be treated as referable to the Debt Claim and no further amount should be recoverable by Midcoast in relation to that claim.

[5]

Geography of the site and location of underground fuel storage tanks

The geography of the site of the Budgewoi Premises (as does the location of the underground fuel storage tanks on the respective Lots) occupies no little significance in this case, as will become apparent in due course.
Lot 8 is to the west of Lot 7. Although the hydraulic gradient of the two Lots was somewhat inconsistently described in the evidence (i.e., whether the gradient is northerly or north-easterly - see Mr Neralic's evidence at T 102), it is agreed that the land slopes downward in either a northerly or north-easterly direction away from Scenic Drive, Budgewoi (which is at the southern boundary of both Lots 7 and 8) and towards Republic Lane, Budgewoi (which is at the northern boundary of both Lots). (In some of the plans in evidence Republic Lane is named Tenth Avenue but again nothing turns on this discrepancy.) This is relevant in that it appears to be accepted by the respective environmental experts that the petroleum "plume" that was identified in 2014 on or adjacent to the site (see from [151] below) has migrated (or is migrating) off site in a northerly or north-easterly direction.
On Lot 7 (i.e., the leased premises), there is one underground fuel storage tank (tank 1) that is located wholly on the site (on the eastern side of the site) and one 27,000 litre capacity underground fuel storage tank (tank 6) that is located partly on Lot 7 (on the western or south-western side of the site) and partly on Lot 8. No issue arises in the present proceedings in relation to tank 1. It was used to store distillate (or diesel) but from at least late 2014 tank 1 was not used by Keldros to store any petroleum products. Tank 6, as noted, is in the south-west corner of the site (and to the south-west of the five petrol bowsers). The petrol bowsers are located under a canopy towards the centre of the site (outside the entrance to the service station shop). Tank 6 was used to store unleaded or premium unleaded (ULP/PULP) petrol. On Lot 7, apart from the service station shop, there was also a garage (referred to in various of the reports as a mechanic workshop). The garage was located towards the north-east of the site in the vicinity of tank 1 (and soil contamination in that area - about which there is no longer an issue - was attributed in some of the environmental reports to products stored in that tank).
Situated wholly on Lot 8, there are the four underground fuel storage tanks (tanks 2, 3, 4 and 5) to which I have already referred. These are all of a smaller storage capacity than tank 6 (each being of 9,700 litre capacity) and are much older than tank 6 (having been installed in about 1965). Tanks 2-4 were used to store ethanol; tank 5 was used to store either diesel or ULP/PULP. Tanks 2-4 have not been used for fuel storage since early in 2011 (after the pollution incident referred to above). Tanks 2-5 are located slightly to the north-west of tank 6 in what has been referred to in the reports variously as the "tank farm" or tank pit. (As already noted, part of tank 6 is located on Lot 8.)

[6]

The Lease

From about 1999 until around mid-2005, Keldros had leased (and operated a service station at) other premises in the Budgewoi area ("down the road" at 97 Scenic Drive, which is now a supermarket site) (the 97 Scenic Drive Premises). This is of some relevance since the fuel supply agreement (on which Midcoast bases a number of its claims in the present proceedings) was an agreement entered into when Keldros was in occupation of the 97 Scenic Drive Premises (at that time under the holding over provisions of an expired lease) and it made specific reference to the name under which Keldros traded from those premises (albeit that Midcoast contends it also applied to Keldros' subsequent occupation of the Budgewoi Premises) (see [169] below).
As adverted to above, from around January 2004, Keldros was occupying the 97 Scenic Drive Premises under a holding over tenancy. At some time during 2005, Mr Plant became aware that the service station site at the 97 Scenic Drive Premises had been sold and that the service station was to be demolished and converted into supermarket premises (see his affidavit sworn 7 December 2018 at [12]-[13]; cross-examination at T 123). He has deposed that in about June or July 2005 the petrol station business which operated at the Budgewoi Premises became available and he purchased that business (see his affidavit at [14]).
Annexed to Mr Plant's 7 December 2018 affidavit are documents relating to an assignment to Keldros of the balance of the then existing lease over the Budgewoi Premises (which was to expire in November 2005). Mr Plant's recollection is that when the matter (i.e., presumably, the assignment of the existing lease and/or his purchase of the service station business) settled, he moved out of the 97 Scenic Drive Premises and began operating at the petrol station on the Budgewoi Premises "within the next day or so" (see his affidavit at [19]; T 123-124). The defendants point to these matters as part of the surrounding circumstances at the time of the entry by Keldros into the fuel supply agreement with Midcoast (see from [74] below); in particular, that Keldros, through Mr Plant, was on a holding over tenancy at the time that the fuel supply agreement commenced and that he did not know at that time (around January 2005) that he would be moving to the Budgewoi Premises.
No condition report was prepared at the time that Keldros went into occupation of the Budgewoi Premises in or about mid-2005; nor was any condition report prepared at the time of commencement of Keldros' 2005 lease (in November 2005) or at the time of the 2008 variation of lease (see below).
After Keldros was already in occupation (under the assigned lease which expired on 1 November 2005), Midcoast and Keldros entered into a lease of the Budgewoi Premises, commencing on 2 November 2005, for an initial term of three years.
In or around 2008, the parties executed a Variation of Lease, among other things varying the lease entered into in 2005 to extend its term for a further five-year term from 2 November 2008 until 2 November 2013 (the Lease). (Unless otherwise indicated, where I refer to the Lease in these reasons it is to the lease as varied in, and operating from, 2008.) The defendants note that the amended statement of claim (at [13] and [61]) makes a claim for damages for breach of the lease commencing on 2 November 2008 (defined in the pleading as "the Lease") and, hence, they say that the relevant date for the Make Good Claim is that 2008 date. (Midcoast does not suggest otherwise.)
After 2 November 2013, when the Lease expired, Keldros continued in occupation of the Budgewoi Premises pursuant to the holding over provisions of the Lease until Keldros terminated the holding over tenancy and vacated the Budgewoi Premises on 31 July 2015.
Following termination of Keldros' tenancy of the Budgewoi Premises, Midcoast undertook a substantial renovation of the service station premises (largely reconfiguring the shop premises - a matter of relevance to its Make Good Claim). United has occupied and traded from the Budgewoi Premises (and Lot 8) since 13 January 2016. When United took over the conduct of the premises the only tanks in use at that point were tanks 5 and 6 (Ms Garvey at T 115.46). (Reference was made to an old kerosene tank - tank 7, but it does not feature in the present case; see T 116.)
On 13 November 2015, Kleinfelder Australia Pty Ltd (Kleinfelder) provided an estimate of remediation costs of $1,570,000 (see the affidavit of Ms Garvey, the former National Property Manager for the United Group, affirmed 30 March 2017 at [73]).
On 4 November 2016, Parsons Brinckerhoff (who had been undertaking bi-annual monitoring of existing contamination since United commenced trading from the premises) reported that four Oxygen Release Compound socks (ORCs) had been deployed in monitoring wells MW6, MW9, MW12 and MW13 in order to improve biodegradation of dissolved phase hydrocarbons in the groundwater.
VRI works (installation of ventilation system and tank works) were also carried out (by an entity trading as FuelSpec) after Keldros vacated the premises (Ms Garvey at T 114.40); which seems to have involved some re-lining of the tanks (T 115.46). The VRI works involved a two stage process - the first stage required compliance with environmental requirements and the second, at a later date, was more extensive in terms of pump recovery (see Ms Garvey at T 118).

[7]

Relevant lease provisions

As noted, the initial lease governing Keldros' occupation of the Budgewoi Premises was for a term of three years expiring on 1 November 2008. That lease was varied by an undated Variation of Lease, to which was annexed the form of the lease as varied. The Variation of Lease extended the term of the lease to eight years, so as to expire on 2 November 2013; increased the rent payable from 2 November 2008; and provided for the variation of the lease as set out in Annexure A thereto (that being the varied lease document).
The Lease specifies a commencing date of 2 November 2008 and a terminating date of 2 November 2013, with an option to renew for a period of five years in accordance with cl 21.
Clause 6, headed "[t]he use of the premises by the lessee", contains relevantly the following. The permitted use (as set out in Item 12 to the Reference Schedule) is as a motor service station (see cl 6.1). Clause 6.2, headed "[r]estrictions on use of the premises", then provides that: [Keldros] will not at any time during the continuance of this lease: (a) use, exercise or carry on or permit or suffer to be used, exercised or carried on in or upon the premises or any part thereof any noxious, noisome or offensive act, trade business, occupation or calling; or (b) do or omit or permit or suffer to be done or omitted any act, matter or thing whatsoever in upon or about the premises or any part thereof which is or shall or may be or grow to the annoyance, nuisance, damage or disturbance of other lessees, tenants or occupiers of the building or persons lawfully therein or occupiers or owners of any adjacent premises; (c) use or permit or suffer to be used the premises for any illegal purpose or activity; …
Clause 6.3 contains a provision dealing with exterior signs, in effect prohibiting Keldros from placing any such signs or devices without the written consent of the lessor and obliging Keldros, upon the expiration or sooner determination of the Lease, to remove at its expense "any such name, number, advertising sign or hoarding so erected, painted, written or attached with the prior written consent of [Midcoast]" and to make good any damage or disfigurement caused to the premises or the building or the land by reason of such removal.
Clause 6.5, headed "[l]essee's compliance with regulations, ordinances and by-laws", provides that: [Keldros] shall at all times during the term observe and comply in all respects with the provisions and requirements of any and every enactment (which expression in this covenant includes as well as any and every Federal and State Act of Parliament already or hereafter to be passed any and every order, regulation, ordinance and by-law already or hereafter to be made under or in pursuance of any such Act) so far as they relate to or affect the use by [Keldros] of the premises, or any additions or improvements thereto made by [Keldros] or the user thereof or the employment or residence therein of any person or persons or any fixtures, machinery, plant or chattels for the time being affixed thereto or being hereon or used for the purpose thereof and shall execute all works and provide and maintain all arrangements which by or under any enactment or by any government department,, [sic] local authority or public authority or duly authorised officer or court of competent jurisdiction acting under or in pursuance of any enactment or may be directed or required to be executed provided or maintained at any time during the said term upon or in respect of the premises or any additions or improvements thereto or in respect of the user thereof or employment or residence therein of any person or persons or fixtures, machinery, plant or chattels as aforesaid whether by the lessee or tenant thereof and to indemnify [Midcoast] at all times against all costs, charges and expenses of or incidental to the execution of any works or the provision or maintenance of any agreements so directed or required as aforesaid and not at any time during the said term to do or omit or suffer to be done or omitted on or about the premises any act or thing by reason of which [Midcoast] may under any enactment incur or have imposed upon it or become liable to pay any penalty, damages, compensation, fees, costs, charges or expenses.
Clause 6.6 obliges Keldros at all times at its own expense to keep clean and free all drains and waste pipes in or leading from the premises. (Pausing here, I do not understand this to encompass fuel lines and no reliance was placed on this clause in the proceedings.)
Relevantly, cl 6.11, headed "[c]ontamination", provides that: (a) [Keldros] may only (i) store, bring onto, use or release Contaminants on the Premises, Building or Land if it is necessary for the permitted use and all licenses [sic], consents and approvals required from Government authorities or instrumentalities by law have been obtained; and (ii) manufacture, produce or carry on an activity which creates or leads to the creation of Contaminations if it is necessary for the permitted use. (b) [Keldros] must not: (i) permit the Premises, Building, Land or the Environment to be contaminated, polluted or affected by Contaminants; (ii) do or omit to do anything that results in a governmental authority issuing notice, direction or order requiring a clean up, decontamination, remedial action or making good, under any law; (iii) do or omit to do anything that constitutes a violation or contravention of law, the Environment or occupational health and safety; (iv) do anything in or around the Premises, Building or Land that in the Lessor's reasonable opinion may be annoying, dangerous or offensive; (c) [Keldros] indemnifies [Midcoast] against all expenses, damages or costs (including legal costs on an indemnity basis) incurred arising from any breach of subclause 6.11(a) caused by [Keldros] or a predecessor of [Keldros] and releases [Midcoast] from any obligation or liability arising or which may arise from any Contamination of the site at the date of this lease. (d) If a notice or order is issued by any authority in relation to Contamination arising during [Keldros'] occupation of the Premises, to either [Midcoast] or [Keldros], [Midcoast] may comply with this notice and [Keldros] indemnifies [Midcoast] for all costs and expenses incurred relating to such compliance.
"Contaminant" is defined in cl 1.1 to mean: any form or pollution of the Environment; any waste in the Environment; anything which causes or contributes to an Environmental hazard; and a substance at a concentration above the concentration at which the substance is normally found and which harms or is likely to harm, directly or indirectly, the Environment or the health and safety of a person.
"Contamination" is defined in cl 1.1 to mean "the existence in the Environment of any Contaminant".
"Environment" is defined in cl 1.1 to mean: "a surrounding of human beings", including but not limited to: the physical characteristics of those surroundings (including by not limited to land, water, the atmosphere, the ozone layer and underground); the biological characteristics of those surroundings including any form of life; and the aesthetic characteristics of those surroundings including but not limited to the appearance, sound, smell, taste and texture of the surroundings.
"Land" is defined in cl 1.1 by reference to Item 4 of the Reference Schedule and means Lot 7. In the original (2005) lease, reference was made to the premises and "Premises" was defined in cl 1.1 to mean the premises described in the Reference Schedule and to include any fixture and fittings of the lessor (Midcoast) in the premises.
Clause 9, headed "maintenance and repair", contains obligations on the part of Keldros both during the term of the Lease (cl 9.1) and on the expiration or sooner determination of the Lease (cl 9.2) in relation to the repair of the premises. Relevantly, those clauses provide as follows: 9.1 Repair of premises during lease: [Keldros] will during the whole of the term and otherwise so long as [Keldros] may remain in possession or occupation when, where and so often as need shall be, maintain, replace, repair and keep the whole of the premises in good and substantial repair, working order and condition (having regard to their condition at the commencement of the lease or the date when [Keldros] or [Keldros'] predecessors entered into possession of the premises whichever is the earlier) and particularly all plate glass, machinery, plant, equipment, fixtures and things thereto belonging or which at any time during the term or possession or occupation as aforesaid shall be erected therein or thereon or be part thereof, damage by fire, flood, lightning, storm, tempest, act of God, war, aircraft damage and reasonable wear and tear only excepted, PROVIDED HOWEVER THAT nothing herein contained shall impose any obligation upon the lessee to do any work of a structural nature except such as may be occasioned by the act, neglect or default of [Keldros] or by its use or occupancy of the premises including any use or occupancy of [Keldros'] predecessors. 9.2 Repair on termination of lease [Keldros] will at the expiration or sooner determination of this lease peaceably surrender and yield up to [Midcoast] the whole of the premises and every part thereof in good and substantial repair, order and condition in all respects and clean and free from rubbish (having regard to their condition at the commencement of the lease or when [Keldros'] predecessors entered into possession of the premises whichever is earlier), damage by fire, flood, lightning, storm, tempest, act of God, war, aircraft damage and reasonable wear and tear and structural defects not caused by [Keldros] or [Keldros'] predecessors only excepted.
Clause 10, headed "[a]lterations", among other things prohibits Keldros from making any structural alterations or additions in or to the premises or any part thereof (cl 10.1) and obliges Keldros, not later than the expiration or sooner determination of the Lease, to remove all partitioning, equipment and fixtures installed by Keldros on the Budgewoi Premises and to make good all damage occasioned by such removal (cl 10.4).
Clause 12.2, headed "[l]essee's indemnities", provides that: [Keldros] will and does hereby indemnify [Midcoast] and will keep [Midcoast] indemnified from and against all actions, claims, demands, losses, damage, costs and expenses for which [Midcoast] shall or may be or become liable in respect of or arising from : … (c) loss, damage or injury from any cause whatsoever to property or person caused or contributed to by the use of the premises by [Keldros] or any servants, agent, sub-tenant or other person as aforesaid; (d) loss, damage or injury from any cause whatsoever to property or person within or about the building occasioned by or contributed to by any act, omission, neglect, breach or- [sic] default of [Keldros] or any servant, agent, contractor or sub-contractor, sub-tenant or other person as aforesaid; …
Clause 13.2, headed "[h]olding-over", provides that, if Keldros "remains in possession of the premises after the expiration or sooner determination of the term" of the Lease with the consent of Midcoast, Keldros will do so as a monthly tenant only, such monthly tenancy to be terminable by one month's notice in writing by either party expiring at any time.
Pursuant to cl 18 of the Lease (read with Item 17 of the Reference Schedule of the Lease), Mr Plant guaranteed the due payment of all moneys by Keldros and the due performance, observance and fulfilment by Keldros of all its obligations under the Lease; and indemnified Midcoast from and against all damages and all costs, losses and expenses which Midcoast may suffer or incur consequent upon or arising directly or indirectly out of any breach by Keldros of its obligations under the Lease.
Finally, pursuant to cl 19 of the Lease, headed "[s]ecurity bond", Keldros was obliged to pay to Midcoast or its agent a deposit in the sum of $35,000 (see Item 18 of the Reference Schedule), which sum was to be refunded to Keldros on the termination of the Lease and vacation of the premises by Keldros, provided that Midcoast was "to deduct from the said sum or apply the same towards the satisfaction of any amount that may be payable to [Midcoast] as a result of any breach by [Keldros] of any of the terms, conditions or covenants of this lease".

[8]

The Midcoast Petroleum Product Supply Agreement (Fuel Supply Agreement)

In 2005, Midcoast and Keldros (trading as Diamond Head Autos, Budgewoi) entered into an agreement for the supply by Midcoast to Keldros of fuel and other petroleum products (the Fuel Supply Agreement). (This is admitted at [19] of the defendants' defence, though the defendants there go on to say that the Fuel Supply Agreement related only to "Diamond Head Autos, Budgewoi located at 97 Scenic Drive, Budgewoi" and not the Budgewoi Premises or Lot 8.)
The Fuel Supply Agreement is undated but provides for a commencement date of 1 January 2005. The document bears inconsistent word processing footers: 11 January 2005 in the body of the agreement; 21 February 2005 on the execution clause page; and a third date of 5 January 2005 on the footer to the Reference Schedule. The Fuel Supply Agreement was not executed on behalf of Midcoast by Midcoast's former directors until on or about 16 November 2005, prior to the United Group's acquisition of Midcoast which was just after the commencement of the Lease.
The Commencement Date of the Fuel Supply Agreement, as noted above, is specified as 1 January 2005 (see Item 3 of the Reference Schedule and cll 3, 5.5 and 7.1) and the Expiry Date is specified as 31 December 2005 (see Item 5 of the Reference Schedule and cll 1.1 and 20).
In the definitions clause of the Fuel Supply Agreement (cl 1.1), "Site" is defined as meaning: the petrol retailing facility, the location of which is set out in Item 10 of the Reference Schedule and where there is more than one location means each and all locations
Item 10 of the Reference Schedule identified the site as: Diamond Head Autos, Budgewoi (throughout)
Under the Fuel Supply Agreement, Midcoast agrees to sell (and Keldros agrees to purchase) each month not less than the Minimum Quantity and not more than the Maximum Quantity of the Product (defined as those products of the type provided by Midcoast, being the products specified in Item 8 of the Reference Schedule - namely, automotive distillate oil (diesel), unleaded petroleum, premium unleaded petroleum, other petroleum products distributed by Midcoast including lubricants, and other products agreed to in writing by Midcoast) (see cl 3.2).
Clause 4.12, under the heading "[e]xclusivity", provides (without limiting cl 3.2) that Keldros would acquire all products required for the business from Midcoast "during the Term and any holding over period".
The Fuel Supply Agreement then sets out, among other provisions, clauses relating to: the terms of supply and delivery (cl 4), including the obligation on the part of Keldros to ensure the site is suitable for the delivery of the "Products" (and complies with all necessary laws and also with Midcoast's written requirements concerning safety and environmental protection) (cl 4.3); terms of payment (cl 5); title and risk (cl 6); warranties (cl 7); indemnity and release (cl 8); and, relevantly in the context of certain of the claims now brought against Keldros, environmental compliance (cl 10). Any moneys which Keldros fails to pay to Midcoast on the due date for payment, and for which an invoice had been delivered by Midcoast, are subject to a service charge which is to accrue from day to day and compound monthly from the due date for payment until payment was made (cl 5.6). Keldros is not permitted to set off any amounts it was obliged to pay to Midcoast under the Fuel Supply Agreement with any amounts it believes owing to it by Midcoast (cl 5.7).
Keldros indemnifies Midcoast against all losses and claims arising directly or indirectly from: Keldros' use of the Site (including adjacent footpaths, drives and kerbs) or of the equipment or facilities at the site; Keldros' operation of "the Business" from the site; the storage or handling of any Products on the site including the leakage or spillage of any Products; the presence of any pollutant, toxin or chemical waste on the site; and any breach of the Fuel Supply Agreement, except to the extent that the loss or claim is caused by the negligent act or omission of Midcoast (cl 8.1).
Clause 10, headed "[e]nvironmental Compliance", provides as follows: 10.1 Observance of the law [Keldros] must at all times comply with provisions of all acts, ordinances, regulations and by-laws of any Authority and with all orders, notices or directions of such Authorities in respect of the operation of the Site and the Business. 10.2 Compliance with Environmental Laws [Keldros] must at all times, in the operation of the Site (and conduct of the Business) comply with: (a) all environmental laws and all directions, procedures and standards regarding the protection of the Site and the surrounding area from environmental harm; and (b) all Midcoast's policies, standards, protocols and directions regarding the environment and occupational health and safety as notified by Midcoast from time to time. 10.3 Underground tanks If [Keldros] has any underground tanks at the Site in which Products are stored under its control, or any pumps through which any Products are sold from the Site or any other equipment storage facility or property used in relation to the Business, whether a part of the equipment or not, [Keldros]: (a) must maintain and repair such tanks, pumps, and other equipment and property and ensure that at all times such tanks, pumps and other equipment properly comply with all environmental laws and other statutory requirements; and (b) must at all times keep such pumps and other equipment and property clean and properly painted in such colour schemes as clearly designate that the Products being sold are Midcoast products. 10.4 Leakage or spillage [Keldros] must: (a) immediately notify Midcoast of any known or suspected leakage or spillage of the Products, pollutants, toxin, or chemical waste at the Site or in the surrounding area; and (b) accurately record details of any damage caused including without limitation the amount of Product spilled and take such steps as are directed by Midcoast and by any Authority which are necessary or desirable in the circumstances. 10.5 Testing of underground tanks (a) [Keldros] must test all underground storage tanks containing Products for water contamination in accordance with all standards, policies, protocols and directions notified by Midcoast to [Keldros] from time to time, and must keep detailed records of all such testing being conducted by it or on its behalf. (b) If any underground storage tank contains significant water or water contamination, [Keldros] must: (i) immediately notify Midcoast in writing of such event; and (ii) take all steps to halt any further risk of water content or water contamination in the underground tanks. 10.6 Risk [Keldros] acknowledges that, as from the date of this Agreement, [Keldros] assumes all risk of loss or injury to any person or property resulting in any way from the use of the Site including, without limitation, the leakage or spillage of Products. 10.7 Notices and orders [Keldros] must comply with any notice, order or requisition proposal, recommendation or report from any authority having environmental or occupational health and safety jurisdiction over the Site or [Keldros] and must immediately notify Midcoast in writing if [Keldros] is served with any notice or complaint concerning environmental or occupational health and safety non-compliance.
On expiry or early termination of the Fuel Supply Agreement, Keldros is obliged, among other things, promptly to pay to Midcoast all amounts due under the Fuel Supply Agreement (cl 14.2(a)).
Clause 20, headed "[h]olding Over", provides that: If Midcoast continues to supply the Products to [Keldros] and [Keldros] continued to receive and take delivery of the Products after the Expiry Date [defined under Item 5 of the Reference Schedule as 31 December 2005]: (a) the parties will continue to be bound on the same terms and conditions as contained in this Agreement; (b) the Agreement may be determined by one month's written notice by either party to the other which may expire on any day of a month; and (c) nothing contained in this clause will be construed as requiring Midcoast to continue to supply the Products to [Keldros] after the Expiry Date.
I interpose here to note that Midcoast emphasises that neither of the parties determined the Fuel Supply Agreement by one month's written notice (as provided for under the agreement).
Midcoast's evidence (see the affidavit of Ms Garvey) is that: Ms Garvey is not aware of any other agreement between Midcoast and Keldros for the supply of petroleum products to Keldros; Midcoast supplied petroleum products to Keldros up to the date on which the Lease was determined and Keldros vacated the Budgewoi Premises; between March 2007 and July 2015, Midcoast supplied petroleum products to Keldros (said to be pursuant to the terms of the Fuel Supply Agreement); the last delivery was made to Keldros on 21 July 2015, the date of the last invoice; and from at least late 2014 to 31 July 2015, all petroleum products supplied by Midcoast to Keldros were delivered to the tanks situated either on Lot 8 or partly on both Lot 8 and the Budgewoi Premises.
Hence, Midcoast contends, by reference to the continued supply and receipt of Products, that the parties continued to be bound by the Fuel Supply Agreement after 31 December 2005 (under cl 20) until Keldros vacated the Budgewoi Premises on 31 July 2015.

[9]

Environmental assessments of the Budgewoi Premises

On 7 December 2004, a Phase 1 Environmental Site Assessment of the Budgewoi Premises was conducted by Parsons Brinckerhoff Australia Pty Ltd and Parsons Brinckerhoff International (Australia) Pty Ltd, trading as Parsons Brinckerhoff (Parsons Brinckerhoff). The investigation was commissioned by Mobil Oil Australia Pty Ltd (Mobil) in July 2004 as part of a due diligence process in connection with a proposed sale (which did not ultimately proceed) of the Budgewoi Premises by Midcoast to Mobil (see the Executive Summary contained in the report produced in respect of that investigation) (PB ESA Phase I Report).
The PB ESA Phase I Report noted, as part of the history of the site, that the site had been leased to Caltex Oil Australia Pty Ltd from 1965 to 1976 and thereafter had been owned and operated by other entities (seemingly all for garage or service station uses). The report identified potential sources of impacts at the site (including underground storage tanks, fuel bowsers and associated fuel transfer lines) and potential routes of possible contaminant migration; stated that no evidence of previous environmental assessments (on site groundwater monitoring wells or cut concrete for soil borings) was noted; and stated that no evidence of leakages or spillages from fuel storage facilities had been observed but some minor staining was noted within the vicinity of the bowsers.
On 9 May 2005, Parsons Brinckerhoff prepared a Phase 2 Environmental Site Assessment (PB ESA Phase II Report) in respect of the Budgewoi Premises (again for the purpose of Mobil's due diligence process in connection with the proposed sale to Mobil which did not eventuate). The stated objectives of this assessment (which was commissioned in August 2004) included "to define the nature, extent and sources of any liquid, dissolved and vapour phase petroleum hydrocarbon impacts on site". Potential sources of contamination were again identified and, again, Parsons Brinckerhoff observed that a site inspection showed no evidence of leakages or spillages from fuel storage facilities but some minor staining within the vicinity of the bowsers.
The scope of works undertaken for this assessment included: drilling of 11 soil bores to a nominal depth and collection of representative soil samples at regular intervals; conversion of six soil bores into groundwater monitoring wells; and surveying of groundwater monitoring wells for location and elevation.
The results of the Phase 2 Environmental Site Assessment made reference, among other things, to a hydrocarbon odour and elevated PID (Photo-ionisation Detector) level for soil at Soil Bore 5 (SB5) and a hydrocarbon odour for groundwater in Monitoring Well 4 (MW4). (No issue is now raised in the present proceedings as to any soil contamination.) The report noted that PSH (Phase Separated Hydrocarbons) were not encountered in any of the monitoring wells on site. SB5 was shown in the report as located to the east of the fuel canopy towards the north of the Budgewoi Premises site; and MW4 was at the northern boundary of the site (the northern side of the fuel canopy and shop).
Pausing here, there was unfortunately some confusion as to the precise location of various soil bores and monitoring wells at different times (not helped by some inconsistency in the labelling of those in different reports). In particular, see the location of the monitoring wells in the plan drawn 19 April 2017 by Kleinfelder of the pre-November 2005 locations - which puts MW4 on the northern boundary (where MW8 is on the post-July 2015 sampling locations); MW8 on the pre-November 2005 plan being on the south-eastern boundary; and MW4 on the post-July 2015 plan being about where MW2 is on the pre-November 2005 plan). Relevantly, for present purposes, I note that there were no monitoring wells in the north-western area of the site until 2011 (T 98).
On 1 May 2007, Parsons Brinckerhoff prepared a Post-Phase II Environmental Site Assessment Report (PB ESA Post-Phase II Report), which had been commissioned by Mobil in February 2006 (the investigations for which were carried out during March 2006). The scope of works undertaken included: drilling and installation of two groundwater monitoring wells (MW3 and MW5), the surveying of all new and existing groundwater monitoring wells for location and elevation; the development of new groundwater wells; and purging and subsequent sampling of all new and existing groundwater monitoring wells (eight in total).
The key results of the groundwater investigation at the site at that time included that no PSH were encountered in the wells on the site; that hydrocarbon odours were noted in MW3, MW4 and MW5 during groundwater sampling and that a sheen was noted on water from MW3 and MW4. (MW3 appears to have been a monitoring well towards the far north-east of the site; MW5 a monitoring well at the far east of the site; and MW2, referred to in the extract below, was at the south-western corner of the site - seemingly in the vicinity of the boundary between Lots 7 and 8.)
The PB ESA Post-Phase II Report stated that: Generally, impacted groundwater samples have been collected from wells in the north eastern portion of the site, with some impact also detected in MW02 located along the southern (up gradient) site boundary. No groundwater impacts have been detected in the monitoring wells located in the south eastern, or south western corners of the site which is up hydraulic gradient of the USTs and oil storage areas. Consequently the extent of impacts on site can be assessed as being well delineated, however as impacts were detected in wells along the down gradient site boundary, off site migration of contaminants may be occurring and the impacts have not been delineated in this direction.
The report concluded that there were elevated TPH concentrations in the groundwater located in the north-eastern portion of the Budgewoi Premises (at MW3, MW4 and MW5), with the highest levels in MW3. The report stated: The magnitude of soil and groundwater impacts beneath the site does not appear to have increased since the previous investigation (PB 2005). The current investigation indicates that groundwater impacts exists and have the greatest magnitude in the north eastern corner of the site, indicating the source of contamination is most likely in this area of the site, being possibly the diesel UST or oil storage facilities location within the mechanic workshop. As groundwater is inferred to be flowing to the north it is also possible that impacted groundwater may be migrating across the northern site boundary towards Lake Munmorah 500m to the north. The extent of the impacts across this boundary is unknown.
In early 2011, the Council conducted an investigation following detection of a strong odour of petroleum at or near the Budgewoi Premises. The Council investigation was an enquiry as to high concentrations of hydrocarbons emanating from the local storm water system into the environment. This investigation included CCTV exploration footage of the stormwater infrastructure at a connection point near to the Budgewoi Premises. The Council concluded that the hydrocarbons entering the storm water system emanated from the Budgewoi Premises. (I note that the respective letters from the Council's Senior Environmental Protection Officer to Midcoast and then to Keldros in relation to this investigation - see below - were admitted not for the truth of the assertions contained therein but limited to the fact of what was communicated at that time. This is relevant insofar as Midcoast relies on these communications, and in particular the issue of a clean-up notice at around this time and subsequent tax invoice for clean-up costs, as establishing or giving rise to an inference in support of its Past Remediation Claim.)
On 21 January 2011, the Council wrote to Midcoast advising it of a pollution incident and enclosing a draft clean-up notice pursuant to s 91 of the Protection of the Environment Operations Act 1997 (NSW). Midcoast's response to this was that the Budgewoi Premises site was not under the management or control of Midcoast but was leased to Keldros and that, under the terms of the Lease, Keldros was responsible for maintenance of the tanks, daily inventory monitoring, and compliance with NSW environmental legislation. Midcoast requested that the Council issue the notice to Keldros. By letter dated 31 January 2011, the Council did so.
The clean-up notice issued to Keldros directed it to take the clean-up action specified therein (including to carry out certain investigative works by 20 February 2011 and to provide to the Council by 7 March 2011 a report in relation thereto).
The Council subsequently issued an invoice dated 8 September 2011 to Midcoast containing the following description of the amount claimed in the invoice: "Cost of Clean up - Fuel Contamination of Stormwater January 2011, Budgewoi Shops, Scenic Dr Budgewoi - United Petrol Station (67-69 Scenic Dr)". The invoiced amount was $6,598.11(inclusive of GST). Midcoast forwarded the invoice to Keldros by letter dated 15 September 2011, referring to "the issue of the failed tank at the above premises and the subsequent contamination resulting from the failure", which it was said was the responsibility of Keldros, as the lessee. Keldros apparently refused to pay the invoice. The Council then commenced proceedings in the Local Court claiming the sum of $8,249.75 (inclusive of interest and other costs) (the Local Court proceedings). This amount ($8,249.75) was paid by United on 9 August 2013.
Meanwhile, in January 2011, and, thus, before the Council notices referred to above were issued, Keldros had itself commissioned a tank and line test from Tanknology Australia (Tanknology). A report dated 3 February 2011 by Tanknology (the Tanknology Report) identified that there was a failure in tanks 2, 3 and 4 (each storing E10 petrol). Following the Tanknology Report, tanks 2, 3 and 4 were decommissioned (and thereafter were no longer used for storage of petrol). Tank 5, which was noted as storing diesel, passed the inspection as did tank 6, which it was noted stored unleaded petrol.
In the evidence there are copies of various groundwater monitoring reports commissioned by Keldros in the period from January 2011 and 17 November 2014 from Environmental Investigation Services (EIS) (collectively, the EIS Reports). In the first of those reports (dated 7 February 2011) (the 2011 EIS Report) it is noted that EIS undertook the screening "generally in accordance with an EIS proposal … of 13 January 2011 and written acceptance from Keldros Pty Ltd of 14 January 2011". Accordingly, that report was commissioned before the Council had issued its 31 January 2011 letter to Keldros (and, for that matter, before it had issued the draft notice to Midcoast). The groundwater testing for that report was conducted on 18 January 2011.
In the first of those reports, EIS reported: the presence of concentrations of ethylbenzene above the site assessment criteria (SAC) in two monitoring wells (MW6 and MW8); the presence of TPH concentrations (C10-C36) above the SAC in MW2, MW3, MW5, MW6, MW7 and MW8; and the presence of quantifiable concentrations of TPH (C8-C9) in MW6 and MW8. (Relevantly, on the post July 2015 drawing, MW6 is located to the east of tank 1; MW7 on the north-east boundary adjacent to the workshop; MW8 on the northern boundary adjacent to the shop and in the vicinity of the workshop.)
The 2011 EIS Report recommended notification of hydrocarbon contamination at the site and that the following steps be taken: to rectify any failures/leaks in the system; and to monitor all wells with an interface probe to identify any possible PSH and to analyse the wells regularly to assess whether the contamination concentrations detected are decreasing or increasing. (Midcoast complains that Keldros did not act on these recommendations. The EIS reports do, however, provide some evidence to the contrary of that complaint.)
EIS next prepared a report dated April 2012 (the 2012 EIS Report) (commissioned by Keldros on 13 March 2012) said to be in order to meet the groundwater monitoring requirements of the Protection of the Environment (Underground Petroleum Storage Systems) Regulation 2008 (NSW) (UPSS Regulation 2008) (see further below). The scope of work there carried out involved one sampling event from each of seven monitoring wells. Field work was conducted on 15 March 2012.
The 2012 EIS Report noted, among other things, the presence of TPH concentration (C10-C36) above the SAC in two monitoring wells (MW6 and MW7) and the presence of quantifiable concentrations of TPH (C8-C9) (there being no relevant SAC for there) in MW4 and MW7. The 2012 EIS Report concluded with the same recommendations as the previous report.
A further report dated 12 April 2013 was in evidence (the EIS 2013 Report). The subject header for that report was (in capitals) "Six Monthly Groundwater Testing - March 2013". In the background section of that report, EIS noted that it had in September 2012 conducted groundwater testing for seven wells (MW2, MW3, MW4, MW5, MW6, MW7, MW8). The EIS 2013 Report noted that TPH was detected in the samples MW6 and MW7 at concentrations above the SAC in September 2012 but no PSH was detected in any of the seven groundwater monitoring wells. (Midcoast accepts that this provides evidence of six-monthly testing having been carried out between the April 2012 report and the April 2013 report, although there is no separate report in evidence of that testing.)
The 2013 EIS Report noted that neither PSH nor sheen was detected in the groundwater monitoring wells during the current investigation and that some TPH was found in samples from MW6 and MW7.
The last EIS report in evidence, dated 17 November 2014 (the 2014 EIS Report), referred to earlier groundwater testing conducted for seven wells in November 2013 (i.e., around eight months after the March 2013 testing), noting that hydrocarbons were detected in the samples from MW6 and MW7 but, again, that PSH were not detected in any of the groundwater monitoring wells during the November 2013 groundwater testing event.
The 2014 EIS Report concluded that PSH were not detected in the groundwater monitoring wells "during the November 2014 monitoring round" and that there were "elevated concentrations" of hydrocarbons detected in MW6 and MW7. It was recommended that Keldros check infrastructure for potential losses (and rectify where necessary) and implement a regular monitoring program to sample and analyse the wells to assess whether contamination concentrations detected are decreasing or increasing. (Midcoast's complaint, again, is that Keldros did not act on this recommendation.) The letter noted that the next round of groundwater testing, as recommended in the UPSS Regulation, was due in May 2015.
Meanwhile, Midcoast also commissioned its own site assessments, to which Ms Garvey has deposed.
On 2 August 2011, Midcoast commissioned Alliance Environmental Engineering and Consulting Pty Ltd (Alliance) (now known as Kleinfelder) to prepare an environmental site assessment for the Budgewoi Premises (the Alliance Report). The Alliance Report noted that the investigation had been commissioned following the issue of a letter from the Council indicating its intention to issue a clean-up notice as a result of hydrocarbon contamination entering the local stormwater system and that it was "to develop a greater understanding of the nature and extent of the plume".
The Alliance Report noted that the field activities included installation and development of six groundwater monitoring wells (referring to the existence of 14 groundwater monitoring wells in all) and advancement of 16 soil bores. This report concluded there was contamination of hydrocarbons in the groundwater. In particular, it was said that two samples reported concentrations of BTEX and TPH that exceeded the solubility threshold and might be indicative of PSH and that both of those samples were collected from wells located hydraulically down-gradient of the underground "tank pit", along the northern boundary of the site. (It is clear, from [9.2] of the Alliance Report, that the two wells in question were the "newly installed monitoring wells MW12 and MW13", said to be located along the northern boundary of the site approximately 20 metres away from the "tank farm".) The Alliance Report went on to state that: The chemical composition and spatial distribution of the soil and groundwater contamination indicates that the source of the release is likely to be associated with the ULP/PULP USTs [i.e., the underground storage tanks]. The dissolved phase hydrocarbon plume appears to be migrating in a northerly direction with the highest concentrations being reported in samples collected along the northern boundary. The plume is not delineated to the north. …
In summary, the Alliance Report concluded that groundwater contamination had been caused by a release of ULP/PULP from the underground storage tanks and that a dissolved phase hydrocarbon plume was migrating in a northerly direction with the flow of groundwater and was not delineated (i.e., the extent of it was not known) along the northern boundary.
On 12 February 2014, Parsons Brinckerhoff prepared a report, having been commissioned by United to undertake a "groundwater monitoring event" comprising monitoring of 14 groundwater monitoring wells (2014 PB Report). In that report, Parsons Brinckerhoff summarised various earlier investigations and noted that: … Groundwater levels are sporadic around the site and do not give a clear indication of groundwater flow directions. Based off previous reports, groundwater flow has traditionally been to the north. Well MW12 located along the northern boundary noted 0.04m of product. Historically, this well has reported the highest concentrations at the site. Wells MW10 located adjacent the north-east of the UST farm and MW13 located along the northern boundary, north of the UST farm, reported the highest hydrocarbon concentrations. Impacts in these wells comprise predominantly light-end hydrocarbons suggesting a petrol source. Well MW09 located in the eastern portion of the site adjacent west of UST 1 comprised predominantly mid-range range [sic] (TPH C10-C14) hydrocarbons suggesting a diesel source. Wells MW02 and MW03 located in the south-eastern corner of the site comprise predominantly high-end hydrocarbons suggesting an oil source. Impacts in this direction have been delineated as MW01 did not detect any hydrocarbons. Further, well MW07 located in the north-western corner of the site also comprised predominantly mid to high-end hydrocarbons. Impacts in this historic down gradient direction from the fuel infrastructure have not been delineated.
Relevantly, the 2014 PB Report identified Light Non-Aqueous Phase Liquid (LNAPL) in MW12 (over 40mm) from samples taken in January 2014. Pausing here, I note the description given by Mr Neralic of LNAP is that it is "like just petrol sitting on top of water", though not necessarily fresh (T 103.27). The report concluded (at [8]) that: Hydrocarbon impacts have been detected in the groundwater beneath the site. Predominantly light-end hydrocarbon concentrations were reported in the groundwater beneath the western portion of the site and predominantly mid-range hydrocarbon concentrations were reported in the groundwater in the eastern portion of the site. High light-end dissolved phase and PSH reported in the groundwater beneath the western portion of the site may be attributed to leaks from the petrol USTs and/or fuel lines. The previous tank and line testing report (Tanknology, 2011) noted failures in UST's 2-4 (Ethanol) which is likely the source of the PSH in well MW12. Light-end hydrocarbon impacts may be migrating off-site to the north. Mid-range hydrocarbon concentrations reported in the groundwater in the eastern portion of the site is likely attributed to the diesel UST and/or fuel lines or the former diesel bowser located at the entrance of the garage. The highest hydrocarbon impacts are located within well MW09 with wells along the northern, eastern and southern boundaries reporting lower concentrations. Therefore, mid-range hydrocarbon impacts appear to be limited to the area beneath the vicinity of the eastern portion of the site. Delineation of impacts north of wells MW12 and MW13 is recommended along with remediation in the form of removal of hydrocarbon impacted groundwater (i.e., multiphase vacuum extraction). Additionally, six-monthly groundwater monitoring in accordance with clause 21(1)(a) of the UPSS Regulation should continue.
Following the vacation by Keldros of the Budgewoi Premises (in July 2015), Kleinfelder was engaged to conduct a further environmental site assessment (2015 Kleinfelder Report). For the purposes of this report, investigations were carried out on site in early August 2015. The 2015 Kleinfelder Report dated 13 November 2015) concluded there was contamination at the Budgewoi Premises, including dissolved phase hydrocarbon concentrations in the groundwater wells MW9 (MW9 being to the east of the canopy between the canopy and tank 1), MW12 and MW13, and that the likely source of the contamination was the "main tank farm" (located on Lot 8). It also concluded that there appeared to have been "a significant increase in groundwater contamination at the site between 1 January 2005 and 31 July 2015. LNAPL was not observed during groundwater gauging and sampling (though it was noted that LNAPL had historically been observed in MW12 and that the current concentrations of TRH F1 and F2 at that location remained indicative of LNAPL).
Pausing here, the map prepared by Kleinfelder showing pre-November 2005 sampling locations shows Soil Bore 3 (SB3) towards the far north-west corner of Lot 8, with MW4 behind the shop on the northern boundary. The post-July 2015 sampling locations show MW4 on the southern boundary of the site and do not show SB3. On the later map, MW12 is roughly in the vicinity of SB3 on the earlier map - though there was some contention as between the environmental experts as to the precise location of SB3. MW13 is to the far north-western corner of Lot 7.

[10]

Claims

As indicated earlier, there are three aspects to Midcoast's claim that Keldros breached the Lease: failure to make good (in breach of cll 6.3, 9.2 and 10.4 of the Lease); permitting contamination (in breach of cll 6.11(a), 6.11(b)(i), 6.11(b)(i) of the Lease); and failing to remediate (cll 6.5, 6.11 and 9.1 of the Lease) and failure to comply with environmental obligations (the UPSS Regulation and Protection of the Environment Operations (Clean Air) Regulation 2010 (NSW) (Clean Air Regulation)) (in breach of cll 6.2, 6.5 and 6.11 of the Lease); and two aspects to Midcoast's claim that Keldros breached the Fuel Supply Agreement (other than the Debt Claim): first, permitting contamination (in breach of cll 10.1, 10.2 and 10.3, of the Fuel Supply Agreement) and, second, failure to comply with the UPSS Regulation and the Clean Air Regulation (in breach of cll 4.3, 10.1, 10.2 and 10.3 of the Fuel Supply Agreement).
There is, thus, considerable overlap between the respective claims under the Lease and the Fuel Supply Agreement. However, where there is a distinction (and where weight was placed on the latter) was to the extent that the Fuel Supply Agreement imposes an express obligation on Keldros in relation to the maintenance/repair of the fuel tanks and lines (cl 10.3) whereas Midcoast accepts that there is not an express obligation under the Lease for maintenance/repair of the fuel infrastructure (though contending that there is an implied obligation arising out of the fact that Keldros is obliged under the Lease not to permit contamination on the leased premises and has the ability, under the easement, to access Lot 8 for maintenance or repair of the tanks and fuel lines on that property) (see T 234.21ff). A further distinction to be borne in mind is that Mr Plant has no personal liability in respect of any claims under the Fuel Supply Agreement (which becomes relevant if a breach of the Lease but not of the Fuel Supply Agreement is established or if the latter does not apply to Keldros in relation to the Budgewoi Premises, as Keldros contends).

[11]

Evidence

Midcoast relied on evidence from: Ms Garvey, as noted above, the former National Property Manager of the United Group; Mr Nick Doumanis (the State Manager for New South Wales of the United Group, responsible for overseeing and managing approximately 65 properties owned by or leased to Midcoast including the Budgewoi Premises); Mr Geoffery Manolitsa, the General Manager - Property for United; Mr Alan Swenser, in house Counsel for United; Mr Joe Zakhar, the Business Development Manager employed at Enviropacific Pty Ltd (Enviropacific); Mr Jamie Lobb, a project engineer employed at Enviropacific; Mr Tom O'Callaghan, a manager employed at Enviropacific; the expert evidence of Mr Simon Gould formerly from Napier & Blakeley Pty Ltd (Napier & Blakeley) as to the make good issue; Mr Jeremy Newstead (of Kleinfelder) as to the contamination issues; and Mr Ivan Neralic (of Greencap) as to the cost of remediation.
The defendants relied on the evidence of Mr Plant and to evidence of an environmental expert, Ms Rowena Salmon of Ramboll Environ Australia Pty Ltd (Ramboll Environ), as to the contamination issues.
As to the lay witnesses (only some of whom were cross-examined), I make no adverse credit findings. Each of the lay witnesses for Midcoast who was cross-examined seemed to me to be genuine in his or her answers in cross-examination and appeared to be endeavouring, to the best of his or her recollection, to answer the questions posed. Each made appropriate concessions.
Mr Plant similarly, in my opinion, did his best to answer the questions put to him. He is retired. His Counsel informed me that he was in ill-health and to my observation he appeared tired at points during the cross-examination. He gave his evidence in a matter of fact manner and was brief and to the point. He seemed to me to be genuinely confused as to some of the questions and at times seemed to accept propositions that were put to him in a manner which suggested he was simply doing so rather than engage in argument on the point. I accept his explanation as to what he meant when, in his affidavit, he had deposed that certain make good items as outlined in the Make Good Schedule dated 11 August 2015 (the Schedule) (as discussed in more detail below) were "admitted" (see the cross-examination from T 127ff). It is consistent with the evidence he gave orally as to his understanding of reasonable wear and tear, for example. Ultimately, it became clear that what he understood by saying that an item was "admitted" was that he was admitting that work of the kind identified in that particular item of the Schedule was required to bring the premises back to the condition in which they were at the commencement of the Lease (not that he was accepting that the cost attributed to those items was reasonable; nor that he accepted that Keldros, or he, should be liable for those claimed amounts, or that the condition of certain items was not the result of reasonable wear and tear) (see for example at T 130.20; and at T 142 in relation to corrosion being reasonable wear and tear).
In cross-examination, Mr Plant's explanation as to particular items (such as the security cameras - in respect of which he said he had asked Midcoast if they wanted them left at the premises; and the storeroom - which he said he had never used) was both plausible and had the ring of truth. Quite understandably, Mr Plant wanted to be shown the particular photos of items that he was being asked to accept were the subject of the make good obligations. I did not consider him to be obstructive in any way in that regard and I considered him to be an honest witness. (I summarise below the evidence he gave in cross-examination as to particular items of the Schedule.)
As to the expert witnesses, I note as follows.
Midcoast's environmental expert, Mr Newstead (of Kleinfelder) prepared an expert opinion dated 9 May 2017 (Exhibit B). In that report he reviewed earlier reports and made a comparison of the groundwork results pre 2 November 2005 to the state of the site as at 31 July 2015 (see [12.6]). His opinion was that contamination was likely caused by tank failure, emanating from the location of three underground tanks on Lot 8, during Keldros' period of occupancy at the Budgewoi Premises.
Relevantly, in his expert report, Mr Newstead states (at [12.7] and [12.9]) 12.7 In general I cannot provide a likely date of release for the contamination identified within soil as soil samples obtained prior to 2 November 2005, during the lease period and post 31 July 2015 have targeted different areas of the site are not directly comparable. … 12.9 The area of greatest groundwater contamination detected is located directly down-hydraulic gradient of the western tank farm [on Lot 8] with monitoring wells MW12 (Lot 7) and MW13 (Lot 8) reporting concentrations of the COPC [Contaminants of Potential Concern] above guidelines. MW12 has historically detected LNAPL. No baseline groundwater conditions directly down-gradient of the tank farm are available prior to 2 November 2005; however soil samples obtained from SB03 [soil bore 3] (pre 2 November 2005) [this following an inspection in around September 2004] which is in a similar location to MW12, did not detect concentrations of COPC above the laboratory limit of reporting (with the exception of lead). Monitoring wells MW12 and MW13 were installed in 2011 and contamination was present above guidelines at that time. LNAPL was detected in monitoring well MW12 in 2014.
For the lay reader, Mr Newstead summarises the above (which he described as the "key finding") as follows: In my opinion, based on the soil sample obtained pre 2 November 2005 (SB03) that did not detect COPC above the laboratory limit of detection (with the exception of lead) and the presence of COPC in groundwater in 2011 in MW12, and given the tank and line testing indicating failures within 2011, it is most likely that the release of contamination occurred between 2 November 2005 and 7 Feb 2011 (well installation).
Mr Newstead goes on to state at [14.3] of his report: 14.3 A review of the contamination distribution (variable depths and lateral extent) at the site would indicate that there may be multiple sources of contamination, all of which are likely attributable to leaks from the underground petroleum storage system (i.e. underground tanks and fuel lines). The area of highest contamination (groundwater at MW12 and MW13) would appear to be sourced from the underground storage tanks and/or fuel distribution lines in the central to western portion of the site as these monitoring wells are located down hydraulic gradient of this infrastructure and failures were noted during 2011 tank and line testing …
(The defendants emphasise that any tanks under Lot 7 - being the premises leased by Keldros - are not blamed in this report as the source of the relevant contamination.)
Mr Newstead advises that remediation of the site could be undertaken in multiple ways, including: removal (excavation of contaminated material); groundwater removal and treatment; and in-situ remediation. He considers that the degree of remediation is dependent upon a number of factors including the extent of the contamination ("not currently fully quantified") and the "desired end point" and relevant land use for each portion of the property which is contaminated. His estimate of the cost of remediation of site to the conditions outlined in the PB ESA Phase II Report, as contained in his expert report, is $1,580,000 (see [21.9]).
The defendants' expert, Ms Salmon, provided an expert report dated 31 October 2017. Again, she had reviewed earlier environmental site assessments. As to the state of the site at 31 July 2015, Ms Salmon states at [74]: All of the new wells were placed in areas previously not investigated with the exception of MW12 located near SB3 (drilled on 21 September 2004). The logged stratigraphy was similar in both locations, and contamination was detected in shallow soil from both locations, although impact at SB3 was heavy end while MW12 was lighter end ... . MW12 also demonstrated elevated PID readings below the groundwater table which were not observed in SB3. This could indicate that impact to groundwater has migrated into the area between 2004 and 2011. It is noted, however, that location SB3 was not surveyed and well locations were shown inaccurately on the Document 3.3 and 3.5 figures, therefore the SB3 location shown may also be inaccurate which may also account for the different conditions observed. Data for SB3 is also somewhat unreliable due to the incorrect sample depth interval recorded …
At [77] Ms Salmon states: Given the apparently dominant groundwater flow direction to the northeast, the impact identified at MW12 may be sourced from the T2-T5 tank farm or the area of the two storey building. The UST vents are located in proximity to MW12, therefore the vent lines may have acted as a preferential pathway for migration. Impacts present at MW13, in the northwest corner of the site (and MW14 offsite), could potentially be derived from offsite, to the southwest, however, given the similar contaminant profile to MW12 it is most likely they are from the same source. The source of impact, or pathway to the identified locations, may also be influenced by the services of infrastructure located in the northwest portion of the site …, including a service pit, septic tank (immediately south of MW13) and a further structure located on the site boundary between MW13 and MW14 (observed during my site inspection).
Ms Salmon also states at [96]: In summary, with respect to the northwest groundwater impact, it appears likely that the impact was caused by failure of T2-T4 [on Lot 8], however, the date of this failure cannot be confirmed other than prior to 3 February 2011 (tank testing) and most likely prior to January 2011 (Clean-up notice).
Ms Salmon says at [122] of her report that "[n]o impacts identified at the site have been confirmed as being released during the period 2 November 2005 and 31 July 2015. The northwest impact is confirmed as occurring prior to 2011 and there are lines of evidence that suggest this may have been after 2 November 2005, although these are not conclusive".
Mr Neralic provided an expert report dated 5 July 2018.
Mr Neralic assessed various remediation strategies and selected "active groundwater recovery" as the appropriate strategy for the site, partly for the reason that the hydrocarbon plume was likely to have extended off site to the north (see [8.1.4] - [8.1.5]). As an overview, he considered that the ongoing remediation process would take a period of nine months and would cost $639,561 (exclusive of GST). The remediation area proposed was largely Lot 8 but with a triangular corner in the north-western portion of Lot 7.

[14]

Topic Two: What is the reliability of the baseline data in the north-west corner provided by SB3?

Mr Newstead opined that the data collected from SB3 was reliable. He noted that: Parson Brinckerhoff in part of its phase 2 investigation collected soil samples and screened the soil with a PID; they submitted samples for analysis which reported some low level petroleum hydrocarbon contamination; and the PID did not detect any significant petroleum hydrocarbon contamination (see the PB ESA Phase II Report).
Ms Salmon was less convinced about the reliability of the data from SB3, stating that (at T 182.6): Well, the question relates to the northwest corner, so I'm considering the reliability of that as a baseline data set to be reflective of the northwest corner. Obviously, it's one location. There's quite a large area further to the west that's not covered, and it's a soil investigation and most of the issues that we're dealing with are groundwater. So, from that point of view, it's not ideal as a baseline. It doesn't provide a baseline for groundwater data. I agree that you can use the screening results from that location to detect if there is potential for groundwater contamination to be present, and the results don't suggest that. It does go below the groundwater table and there was no high PID or hydrocarbon odours below the groundwater table, suggesting that groundwater in that location doesn't appear to be contaminated at that time. The issue that I have with that location, primarily, is the accuracy of the location, because it wasn't surveyed and a lot of the locations on this particular plan from this field exercise have, over time, been established as inaccurate. In particular, MWO6, which is also numbered in red as SBO6, has later been established to actually be located much closer to the southern boundary, you know, sort of around 10 metres or more away from the location that's marked. That just puts a question mark over the accuracy of these locations. In the field, when they're not surveyed in, or back then they wouldn't have had the, sort of, GPS locationing tools that people use nowadays … . … I'm just not 100% sure if they're in the same location. They could be distanced enough away for there to have been some groundwater impact, potentially, including in that gap area to the west that wasn't able to be detected by that location.
Ms Salmon said that the data is not "a good baseline data set" generally because it is soil not groundwater (though she accepted that the PID did give an indication) and it was only one location that does not (necessarily) reflect the larger area.
As to the location of SB3 and MW12, Ms Salmon said it was "very unlikely" that SB3 and MW12 (which was installed after SB3) were on the exact same spot (though she conceded they were probably within 5 metres of each other). Ms Salmon noted that (at T 184.27): … [L]ooking at the log for MW12, it was drilled into a natural soil profile. Once you finish a soil bore, you pull out the augers, you've taken your samples, it's back filled with material. So, you never redrill the exact same location unless you want to specifically install a well just for sampling groundwater at that location. … You would always find some fresh ground [for drilling] because you want to see the natural profile of that location to get the most value out of that location. So, it would - I would say it's very unlikely to be on the exact same spot.
In relation to the reliability of the data and the proximity to MW12, Ms Salmon also said that (at T 186.18): Five metres is close, but it's not very close when it comes to defining a plume. They can be narrow. You know, you can have an impact in one location and now [sic] 5 metres away. So, if SBO3 is in the same location as MW12, or a very close location, I agree that it doesn't appear to have any evidence of groundwater impact in that location, but I'm not sure what else you can say. When you deal with sites with data, there's always a reliability question over things, yes.
When asked, later in the course of the concurrent evidence, whether she still adhered "to the opinion that the data points or data source" (namely the information from SB3 taken in 2005) was unreliable, Ms Salmon (at T 189) stated that: In terms of the information you get from that bore hole and the information presented, I don't think it's unreliable, no. So, if we make the assumption that it is very close to MW12, then I agree it can be compared to MW12 as a baseline, yes.

[15]

Topic Three: What are the baseline impacts across the site as at 2 November 2005 and 2 November 2008?

South-east corner (MW6, MW8, MW11):

Mr Newstead said, in relation to the impacts there, that they "exceeded criteria at that time". No claim is, however, made referable to any contamination in the south-east corner of the premises.

North-west corner (MW4, Soil Bores 5, 7 and 9):

In summary, Mr Newstead's evidence was that: at Soil Bore 7 (SB7) there was some volatile contamination at a shallow depth; at Soil Bore 9 (SB9) there was no detections at a shallow depth; at SB5 there was low level volatile and less volatile material detected at 1 and 3 metres; at MW4 some "heavier ends and not as volatile contamination" at a "quite low level" was detected at 1 and 2 metres; and that the water at MW4 was reporting as non-detect, and "clean with the exception of some naphthalene".
In considering the Groundwater Concentration Plan (dated March 2006), Mr Newstead stated that the entries indicated: some volatile and non-volatile contamination at MW4; some non-volatile contamination at MW3; and a mix of both forms of contamination at MW5.
Ms Salmon agreed with Mr Newstead's summary in relation to this topic and said that (at T 193.39): Overall the north-east corner does demonstrate impacts to groundwater and there seems to be from two potential sources. The more western location is the more volatile impacts and the more eastern location is less volatile, so I attributed those to potential migration of - from the tank farm for the western location and potentially the nearby diesel UST or pits or in the workshop for the eastern location.
In relation to MW4, Ms Salmon said that the volatile hydrocarbons found were potentially from the tank farm (in particular tank 6). Mr Newstead, when asked to comment on this, said "[I] can't pin it to the tank farm if it is or not. It could also be from the, the bowsers or the lines which are in closer proximity to MW4, so it could be the tanks, the bowsers or, or the pipes running to and from those two things". Later, Ms Salmon noted that she also thought the lines and canopy bowser area were also possible sources (see T 198.25).

North-west corner (SB3):

The experts agreed that the only relevant data for that area was SB3 and the logs with the PID "which showed an absence of contamination there".

South-west corner (MW1, MW2):

Mr Newstead stated that: the groundwater at MW1 appeared clean (according to the 2004 and 2006 plans); and that MW2 had volatile and not so volatile material with one "exceedance" of criteria (according to the 2004 plan) and some "heavier and light end contamination" (according to the 2006 plan).
Ms Salmon agreed and noted that: … I found it to be similar in profile to what was detected at MW4, so whether that came from the, the tanks or the, the lines and pumps in between, I, I felt that those - that MW2 was a similar type of impact that was detected at MW4 [in the north-west corner].
The experts said that their opinions in relation to this topic did not change for 2 November 2008 (as there was no additional data).

[17]

Topic Five: What evidence is there of contamination from 2005 to 1 November 2008 and from 2 November 2008 to July 2015?

In relation to the evidence of contamination from 2005 to 1 November 2008, Mr Newstead noted that baseline contamination was identified in the reports from 2005 to 2006. Ms Salmon, when asked the same question, stated "[y]es, I would say it's equivalent to that same baseline".
In relation to the evidence of contamination from 2 November 2008 to July 2015, the experts were of the following opinions.
Regarding the north-west corner, Mr Newstead referred to the tank and line testing failure in 2011 as indicating that there was "a problem with the tanks". Mr Newstead linked the failure "with the installation of MR12 which detected very high PID results and then reported very high groundwater results followed by the subsequent detection of LNAPL within that well".
Mr Newstead referred to the monitoring conducted by Alliance which identified further contamination and then the Alliance Report which also identified contamination and the LNAPL which was detected at MW12 in 2014.
In relation to the whole of the site, Mr Newstead stated that he had not "identified any clear trends in terms of contamination during that period", noting that "[t]here was some contamination identified under the garage" though when that occurred was unclear.
Mr Newstead noted that there were locations that were tested that were not originally tested during the baseline so a comparison could not be made between the date range but that evidence of contamination could be found in the Alliance Report and the 2015 Kleinfelder Report and the other groundwater monitoring reports undertaken during that period.
Ms Salmon stated that she interpreted topic five as asking what additional contamination occurred during the later period that could be confirmed and/or considered. Ms Salmon opined that overall the results were "quite consistent" and the nature of the impacts were quite consistent" except for the north-west corner, where a new impact had been identified (though she noted that the location had previously not been investigated).
However, Ms Salmon said that the concentrations of hydrocarbons were higher in MW10 in 2011 than in 2014. Ms Salmon offered the reason that "there was a pre-existing groundwater contamination that was first sampled in July 2011 and that over time the concentrations have been degrading and by 2014 they had degraded further".
Mr Newstead was of the opinion that, had there been LNAPL in 2005 or 2006, then it would have been detected in the SB3 samples (as was detected in MW12 later on). Ms Salmon said that, assuming that SB3 was a "true representation" of the baseline, then she would also agree with this.
When asked whether a discrepancy in relation to the locations of the monitoring wells (i.e., MW6 and MW9, as picked up by Ms Salmon) made a difference to the opinion of Mr Newstead in relation to this topic, Mr Newstead stated that it makes no different to his opinion, "[i]t wasn't a strong factor in my decision or my opinion".
Ms Salmon was taken to Mr Newstead's report and agreed with the statement in the report that midrange hydrocarbon concentrations reported in the groundwater in the eastern portion of the site were likely attributed to the diesel UST (tank 1) and/or fuel lines or the former diesel bowser located at the entrance of the garage.

[20]

Topic Eight: What is the current level of risk for the site and what is the requirement for remediation?

In relation to the steps for remediation, Mr Newstead stated that without knowing the extent of the contamination, it is difficult "to effectively design a remediation end point". As stated above, Mr Newstead provided a costs estimate of $1,580,000 for the recontamination (an estimate that Midcoast does not press and that was described in effect as wholesale demolition of the buildings and digging up of the site - see T 255.18). Mr Newstead confirmed this costs estimate in light of the 2018 test results, stating that (at T 219.45): It's still my opinion that that would be a quick and effective remediation for that site based on the shallow nature of contamination, which was identified, and returning it to a condition back to the baseline conditions.
Mr Newstead stated that his estimate would be lower if it were based on risk and would be more in range with what Mr Neralic had estimated.
Ms Salmon opined that such an extensive remediation program as had been put forward by Mr Newstead, may not be necessary (at T 221.5): … [I]n the work that I do, in particular as a New South Wales EPA accredited contaminated sites auditor, I assess the need for remediation based on the degree of risk to human health and the environment so I haven't - from - and in doing that I look at the history of the data, I look at the trends, I look at the risk in this case, which we haven't confirmed off site if there is a risk or not, so from that point of view the need for remediation hasn't been confirmed, and looking at the, looking at the trends, if I came to a site with groundwater monitoring trends like this, I would not expect that, that the site owner would be embarking on an extensive remediation program to address those impacts, because they are decreasing and with a bit of further investigation and potentially some minor remediation exercises, then I think the onsite issue would be able to be addressed in a much more simple fashion than installing a large scale active remediation system.
Ms Salmon stated that remediating a site is a "two-step process" (at T 221.32): … The first thing is you remove the primary source material, which in this case is the highly - would be the highly contaminated material, so any LNAPL, and then there's secondary source removal and then beyond that you can move to a process of monitored natural attenuation and you need to demonstrate that that process is suitable for this site. So, by doing that you need - in order to prove that monitored natural attenuation is suitable you need to confirm that the plume is stable and shrinking or stable or shrinking, so the problem isn't getting bigger, and that you have the appropriate conditions in the groundwater that will allow the bacteria to break down those components naturally. So, it - to - if it was confirmed that there was a risk, then it would be an investigation exercise, an assessment exercise to demonstrate that that process will take care of the risk before it becomes significant to any of the receptors. And potentially you'd use some, some small scale local remediation activities within those - within the affected area.
In response to the process suggested by Ms Salmon, Mr Newstead commented that he would agree with the approach if the remediation was based on a risk approach, with the exception that it is unclear what is north of the property boundary (meaning he said that he could not comment on whether that was "a large scale remediation effort based on larger than what has been estimated or a small scale [remediation effort]").
Ms Salmon's estimate based on the concentrations for the monitoring in 2015/2016 was $400,000. As already noted, Ms Salmon acknowledged that she is not an expert in the estimation of current remediation costs but said she has some experience with it and that she is familiar with the scale of the systems that people adopt and the approximate costs. Ms Salmon also stated that her estimate may be different having regard to the data collected in 2018 and that, in light of the latest data, it was "highly unlikely anyone would embark on such an exercise" to remediate the site.
Both experts agreed investigation costs would be around (but less than) $100,000. (Ms Salmon proffered this estimate in response to a question from me - and therefore cannot be criticised, as Midcoast appears to do, for "venturing" such an opinion. Mr Newstead said that he probably would not "go that far" but that it would be "somewhere there" (T 223).)

[21]

My assessment of the experts

I considered that each of the environmental/remediation experts responded in a professional way to the questions asked and, in particular, I consider that Mr Newstead and Ms Salmon were co-operative and respected each other's opinions. I do not accept the criticism by Midcoast that Ms Salmon acted as an advocate for the defendants. Rather, I consider that Ms Salmon had approached the matter carefully and analytically; pointed to errors or inaccuracies as she perceived them; and made appropriate qualifications. She explained at some length (and at times in somewhat of a didactic fashion) her conclusions as to the contamination issue but that is not surprising given that she was endeavouring to explain matters relating to the characteristics of hydrocarbons and the like to lay persons. Insofar as she is criticised for "venturing" an opinion as to remediation cost, as I have adverted to above, that was in response to a question from me (see T 223.46).
I found Ms Salmon's evidence to be of considerable assistance in explaining the significance to be attached to the identification of LNAPL at the site and as to the question of contamination in general. To the extent that she was somewhat pedantic about locations in relation to the test results I considered that to be reflective of her thorough approach to the matter.
As to Mr Neralic, his evidence as to the remediation costs was prepared on the basis of an assumption that the whole area (as indicated by Mr Newstead - i.e., over the north-western part of Lot 7 but also over a large part of Lot 8) was required to be remediated. He conceded that the process suggested was an elaborate one. It seemed to me that his estimate represented what, in an ideal world (with no expense spared), one might undertake in order to ensure the complete remediation of the site without risk of migration of any residual contaminant, but not a reasonable assessment of what it is likely would be expended on the site by a reasonable person in the position of Midcoast having regard to the level of risk posed by the contamination.
The expert evidence as to make good culminated in a schedule of make good items (see, as previously defined, the Schedule dated 11 August 2015 - ultimately a revised schedule was handed up in closing submissions which reduced the claim as adverted to above). Mr Simon Gould, now of Cushman & Wakefield Building Consultancy (formerly at Napier & Blakeley), confirmed in cross-examination that the original expert make good report (of 28 April 2017) had been prepared by someone else (Mr Tim Bolten) and that no schedule of the condition of the premises at the commencement of the original lease existed (see T 70). He assumed that the condition of the Budgewoi Premises as at the commencement of the original lease was as depicted in the Asbestos Audit report dated 16 February 2005 by Parsons Brinckerhoff (the 2005 Asbestos Audit Report) (T 72; [3.2.3] of his report). That report was based on an inspection on 17 November 2004 (Mr Gould had incorrectly thought it was inspected in February 2005). Therefore, that report was based on an inspection at least eight months prior to Keldros' occupation of the premises and a year before the commencement of the original lease.
The original expert report as to make good was revised following Mr Plant's affidavit of 1 November 2017 in which Mr Plant gave certain evidence as to the condition of the premises; and having regard to some photographs taken (mainly of the exterior) during a site visit on 18 August 2004 (see T 75), about a year before Keldros went into occupation of the Budgewoi Premises.
As to Mr Gould, while I make no credit findings against him, his evidence was ultimately of limited use (and Counsel for Midcoast frankly acknowledged that there were some difficulties with his evidence - see T 226), based as it was on the adoption of someone else's inspection of the property and with no personal knowledge (or other reliable records) of the condition of the site as at or around the time of commencement of the Lease. The Asbestos Audit report (and photographs on which it was based) were also of limited use. Mr Gould himself accepted the difficulty in coming to a conclusion based on that material (see at T 73). Moreover, the task Mr Gould or his colleague had performed seems to have been to assess what needed to be done in order to put the premises into a state of good repair, assuming that Keldros were to be liable for that work, without focus on what would fall within the exception under the Lease for reasonable wear and tear (and without a clear idea of the state of the premises at the commencement of the Lease, nor by the time of the hearing whether such work would be otiose having regard to the renovations carried out by Midcoast/United). Mr Doumanis was not able to shed much further light on this because he did not see the interior of the service station shop until the renovations had commenced (T 60), although it is clear from his evidence that the interior was substantially reconfigured (including in relation to where items the subject of the Make Good Claim were situated in the premises - see T 61-63).

[22]

Fuel Supply Agreement

Before turning to the various claims by Midcoast, it is relevant first to consider the issue as to whether the Fuel Supply Agreement is applicable and enforceable against Keldros.
As noted earlier, Keldros asserts that the Fuel Supply Agreement did not apply to the Budgewoi Premises; whereas Midcoast argues that, on its proper construction, the Fuel Supply Agreement applied irrespective of whether Keldros was conducting a service station business at the 97 Scenic Drive Premises or the Budgewoi Premises.
Midcoast advances three reasons in support of its contention that the Fuel Supply Agreement does apply: first, the definition of "Site" under cl 1.1; second, that under cl 20, the continuation of the Fuel Supply Agreement after the expiry date makes no reference to supply to a particular site (rather, it refers simply to the supply of products to Keldros); and, third, that no written notice of termination of the Fuel Supply Agreement was ever given.
Alternatively, as pleaded in the amended reply filed 12 November 2018, Midcoast argues that (by reason of the matters pleaded at [2] of its amended reply) and the evidence of Ms Garvey (to which I have referred above and which Midcoast says was unchallenged in cross-examination), the defendants are estopped by convention from denying that the "Site" for the purposes of the Fuel Supply Agreement included the Budgewoi Premises (Midcoast there referring, by way of example, to Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300; [2005] NSWSC 1066). It is submitted that the evidence clearly demonstrates the parties were conducting themselves on the basis that the Fuel Supply Agreement applied up until Keldros vacated the Budgewoi Premises on 31 July 2015.
Midcoast also points to the evidence given by Mr Plant in cross-examination, to the effect that he considered that the Fuel Supply Agreement applied to the fuel Keldros purchased on 21 July 2015 and his agreement that the bank guarantee was to cover both Keldros' rental obligations under the Lease, and fuel under the Fuel Supply Agreement (T 172.37). Thus, it is submitted that both Keldros and Midcoast acted as if Keldros were bound by the Fuel Supply Agreement up until it left the Budgewoi Premises on 31 July 2015.
Midcoast contends for a finding that, in accordance with cl 20, Midcoast continued to supply Keldros with petroleum products (as defined in item 8 of the Reference Schedule) after 31 December 2005, and Keldros continued to take delivery of this product; that, on its proper construction the Fuel Supply Agreement applied or operated while Keldros was conducting a motor service station business from the 97 Scenic Drive Premises, until about July 2005 when Keldros left that site, and that it then applied or operated from about July 2005 when Keldros commenced operating a motor service station business from the Budgewoi Premises; and that Keldros was at all material times bound by the obligations in the Fuel Supply Agreement (in particular, by cl 10).
Thus, Midcoast contends that, under the Fuel Supply Agreement, Keldros was responsible for maintaining the underground storage tanks, pipes, pumps and all other equipment used in relation to the service station business (cl 10).

[23]

Defendants' submissions

The defendants argue that the claim under the Fuel Supply Agreement should be dismissed as it refers to the wrong site, namely 97 Scenic Drive, Budgewoi (see Items 1 and 11 of the Reference Schedule). The defendants say that the relevant evidence of surrounding circumstances in which the agreement was signed include that Keldros, through Mr Plant, knew that the service station at the 97 Scenic Drive Premises was to be demolished for a Coles Store and that Keldros was holding over at the 97 Scenic Drive Premises. As adverted to above, the evidence of Mr Plant was that about six months after the Fuel Supply Agreement was entered into the opportunity came up to move to the Budgewoi Premises and that he did so. Although the timing of his awareness of the opportunity is somewhat imprecise, the defendants submit that it has not been established by Midcoast that Mr Plant knew in January 2005 that he was destined to carry on in business at the Budgewoi Premises.
Further, the defendants say that the provisions of the Fuel Supply Agreement at cll 8.1 and 10.3-10.6 are in direct conflict with the obligations of Midcoast under cll 9.1 and 10.1 of the Lease because, under the Lease, Midcoast must maintain and repair the structural improvements (which the defendants say includes the tanks and fuel lines) and Keldros is expressly prohibited under cl 10.1 of the Lease from doing so; whereas, under the Fuel Supply Agreement, Keldros is required to maintain and repair the tanks, pumps and other equipment (under cl 10.3) and to assume the risk of failing to do that.
It is submitted that Keldros would not need to undertake its obligations under cl 10.3 if Midcoast had complied with its obligations under the Lease at cll 9.1 and 10.1; and, hence, a stalemate arises in that any indemnity claimed by Midcoast for a breach of the Fuel Supply Agreement in respect of underground infrastructure would be met with a set off under the Lease in the same amount. It is submitted that this highlights the absurdity of a conclusion that the Fuel Supply Agreement applied to the Budgewoi Premises.

[24]

Determination

The term "Site", as defined under the Fuel Supply Agreement, does not in its terms encompass the Budgewoi Premises (which is unsurprising since it was agreed, though not signed by Midcoast at that time, before Keldros went into occupation of those premises - and in all probability before Keldros was aware of the possibility that it might later do so). Rather, the term as defined (see cl 1.1) is "the" petrol retailing facility at the location set out in the Reference Schedule. The difficulty that then arises is that the relevant item of the Reference Schedule appears (and this was accepted by Midcoast) simply to refer to the trading or business name of Keldros - "Diamond Heads Auto, Budgewoi (throughout)"; not to any location as such.
It is possible that, if there had been a sign with Keldros' trading name prominently displayed at the 97 Scenic Drive Premises or it was commonly known by the parties at the time as the "Diamond Head Autos, Budgewoi" site, then, by reference to evidence to that effect as part of the surrounding circumstances at the time of entry into the Fuel Supply Agreement, a conclusion might have been able to be reached that, on its proper construction, the Fuel Supply Agreement specified that site as the location of the petrol retailing facility for the purposes of the definition in cl 1.1; but there was no evidence to that effect.
In the absence of a specified location, and there being no argument that this rendered the Fuel Supply Agreement too uncertain to be enforceable, an available (and I consider on balance the better) construction of the agreement is that it was intended to apply in relation to the supply and delivery of Products to Keldros at any petrol retailing facility from which, from time to time, Keldros was operating (and the fact that the agreement contemplated that there might be more than one such location supports such a construction). Though it is inconsistent with the apparent intention of the parties (by the fact that the Reference Schedule identified a space for insertion of a specific address and the definition itself) as discernible in the Fuel Supply Agreement to specify at least one, if not more than one, location for the purposes of the agreement (and while the uncertainty of giving what amounts to an ambulatory construction of "Site" has given me pause), I have concluded that the better view is that the Fuel Supply Agreement was objectively intended by the parties to govern the supply and delivery of Products by Midcoast to any location, being a petrol retailing facility, from which Midcoast carried on business at the relevant time (and hence was applicable in relation to the Budgewoi Premises).
Thus, while the definition of "Site" does not in terms refer to the Budgewoi Premises, I consider that on its proper construction the Fuel Supply Agreement did encompass Lot 7 (i.e., the Budgewoi Premises) for the period during which Keldros was operating a petrol retailing facility at that site. However, even had I reached the contrary view, that would not ultimately assist the defendants in circumstances where it is not disputed that the Fuel Supply Agreement applied in relation to the 97 Scenic Drive Premises and it was never expressly terminated.
That is because there is no doubt that Midcoast, in the words of cl 20 of the Fuel Supply Agreement, continued to supply the Products, and Keldros continued to receive and take delivery of the Products from Midcoast, after Keldros took possession of the Budgewoi Premises (and after the subsequent expiry of the term of the Fuel Supply Agreement on 31 December) and there is nothing in cl 20 that limits the operation of the "holding over" provision to deliveries at the "Site" as defined under the Fuel Supply Agreement. Therefore, even if "Site" did not encompass the Budgewoi Premises, the fact (as I so find) that Keldros continued to receive Products from Midcoast after it left the 97 Scenic Drive Premises and commenced its occupation of the Budgewoi Premises is sufficient to enliven the holding over provision of the Fuel Supply Agreement and render the terms of that agreement applicable to Keldros' receipt of Products at the Budgewoi Premises.
In those circumstances it is not necessary to consider the alternative conventional estoppel claim, save to note that it was not suggested (and I was taken to no evidence to show) that after Keldros left the 97 Scenic Drive Premises the Products were supplied to it on different terms (say, as to price or terms of supply or the like). I accept that the evidence is that the parties conducted themselves on the same basis in relation to the supply of fuel at both premises.
In reaching that conclusion, it is not necessary to place any weight on Mr Plant's evidence in cross-examination to the effect that the guarantee applied to the fuel delivered at the Budgewoi Premises (evidence to which Midcoast pointed in this regard). With no disrespect to Mr Plant, he is not a lawyer and his view as to the construction to be placed from a legal perspective on the dealings between the parties is irrelevant for that purpose. However, what his evidence did serve to confirm was that there was no relevant difference in relation to the supply arrangements as between the respective sets of premises.
I therefore find that the parties did continue to be bound "on the same terms and conditions as contained in" the Fuel Supply Agreement after Keldros moved to the Budgewoi Premises. That said, this does not lead to the conclusion that Midcoast's reliance on the terms of the Fuel Supply Agreement that relate to the maintenance and repair of what I will refer to as the fuel infrastructure (i.e., the underground storage tanks and fuel lines) and to the environmental compliance obligations is well-founded. That is not only because of the inconsistency between the Fuel Supply Agreement and the Lease in relation to the former, but also (and primarily) because even if the definition of "Site" in the Fuel Supply Agreement encompasses the Budgewoi Premises, I do not accept that it encompasses Lot 8 (which is where the underground fuel tanks in question, and at least part of the fuel lines leading from those tanks to the bowsers on Lot 7, were situated).
First, as to the inconsistency between the two agreements, it is relevant to note that it is not suggested that the underground fuel tanks and fuel lines were lessee fixtures or fittings (and, indeed, Midcoast accepted that the tanks were the property of the lessor - see T 233.12).
Under the Lease (cl 9.1), Keldros' repair obligation expressly did not extend to the making of repairs of a structural nature (unless occasioned by, among other things, its use or occupancy of the premises or that of its predecessors) and (cl 10.1) the making of structural alterations or additions by Keldros was expressly prohibited (cf cl 10.1 of the Fuel Supply Agreement). Midcoast's position in that regard was that, under the Lease, there was no express obligation on either party in that regard (i.e., as to maintenance of the tanks and fuel lines) (see T 232.14); hence, its reliance on the Fuel Supply Agreement where the obligation was clearly placed on Keldros (T 232.23). Thus, in the event that there were to be "some ambiguity" in the Lease as to whether Midcoast had the obligation to maintain the tanks and pipes, Midcoast calls in aid the Fuel Supply Agreement (T 232.23).
The Lease was entered into after the Fuel Supply Agreement. It is at least arguable that its terms in relation to the repair obligations and prohibition on structural alterations would prevail over the terms of the Fuel Supply Agreement (the latter not being referable in its precise terms to the site of the Budgewoi Premises as such). Whether or not that is how the inconsistency between the two documents should be reconciled is probably not necessary to determine in circumstances where I consider that the second difficulty (as to how the definition of "Site" extends the obligations under the Lease to fuel infrastructure under Lot 8 provides the answer to various of the claims here brought by Midcoast under the Fuel Supply Agreement).
So, for example, I note that cl 10.3, in its terms, is predicated on tanks which Keldros "has" at the site. The tanks in question are tanks 2-4 situated under Lot 8. They are not "underground tanks at the Site" (even accepting that "Site" includes Lot 7). (Nor, if the word "has" here imports the concept of ownership, are the tanks the property of Keldros; though it may be that the relevant part of cl 10.3 should read in effect as "has … under its control"; but it is not necessary to explore that issue because the tanks are not "at the Site" albeit used for the purposes of the business conducted "at the Site".)
There is nothing (unlike the position as to the terms on which the Products continued to be supplied to Keldros, as to price and the like) on which to base a finding as to a conventional estoppel relating to the use or maintenance and repair of the underground tanks. The most the evidence goes to in that regard is that, when an issue was raised as to the underground tanks on Lot 8 in the context of maintenance or repair obligations, the parties took diametrically opposed stances as to who it was that had responsibility therefor.
Therefore, I find that although the terms and conditions contained in the Fuel Supply Agreement continued to apply as between Keldros and Midcoast while it remained in occupation of the Budgewoi Premises, I am not persuaded that terms referable to the use or occupation of the site or the operation of items on the site (such as cl 10.3 and arguably cl 10.5) impose obligations on Keldros in relation to Lot 8 (and, relevantly, the fuel infrastructure situated on Lot 8). That said, other obligations, such as cll 10.1, 10.2, 10.4, 10.6 and 10.7 must be considered as having potential operation, insofar as one or more of those clauses relate to matters relating not only to the use or operation of the site but also "the Business" and/or they make reference to matters that may affect "the surrounding area".

[25]

Lease

The only issue to note at this point in relation to the Lease is the emphasis placed by the defendants on the fact that the Lease was varied in 2008 (and hence they say that the relevant date for purpose of considering the Make Good Claim is the commencement date of that lease). Midcoast, in its statement of claim, as earlier noted, has sued under the Lease (as varied) (see T 11).
At common law, a variation of a lease may operate as a surrender of the lease (and a regrant of a new lease on the terms as varied) (see Brendan Edgeworth, Butt's Land Law (7th ed, 2017, Thomson Reuters) (Butt's Land Law) at [7.2110]), dependent on whether the variation changes "the nature or extent of the tenant's estate in the land, as distinct from merely changing the obligations of the covenants that 'touch and concern' the land and that are 'imprinted' on that estate" (Butt's Land Law at [7.2110]). Edgeworth in Butt's Land states that: [I]t is not possible to vary the term (duration) of a lease, whether by shortening or lengthening, without a surrender of the existing lease and a regrant for the new duration, because it is not possible simply to convert the existing estate in the land into a different estate by adding more years to it […]; if the parties attempt to do so, then the law will achieve the result they intend by implying a surrender of the existing lease and a grant of a new lease for the varied duration.
In Re Savile Settled Estates [1931] 2 Ch 210, Maugham J stated (at 217) that: … an alteration of an existing lease so that it will operate for a term extending beyond the original term can operate, in law, only as a surrender of the old lease and a grant of a new one …
See also Pascoe-Webbe v Nusuna Pty Ltd (1985) 3 BPR 97,231 where Young J (as his Honour then was) stated that whether variations to a lease result in a surrender and a regrant "is a question of fact" and that "normally where the term of the lease is altered it is difficult to satisfy the court that there has been a mere variation".
Section 55A of the Real Property Act 1900 (NSW) permits a registered lease to be varied (by a registered document in approved form) in relation, inter alia, to the duration of the term (i.e. "the period for which the lease is to have effect" - s 55A(1)(b)) (Butt's Land Law at [7.2110]). That is what happened in the present case. Edgeworth in Butt's Land Law (at [7.2110]) has suggested that the implication to be drawn from the wording of s 55A is that the same registered lease continues after the variation, referring to the Second Reading Speech, NSW Parliamentary Debates, Legislative Assembly (20 March 1991) at 1439, where it was said that the recording of the variation on the title would evidence the variation and that: … The variation will then form part of the terms of the original lease or mortgage and persons acquiring subsequent interests in the land will take their interest subject to the variation. ...
In the present case, it is admitted by the defendants that the lease governing the leasehold relationship with Midcoast is the lease as varied in 2008. Accordingly, the relevant date to assess the Make Good Claim would be 2 November 2008. However, nothing relevantly turns on this as the defendants do not point to any evidence suggesting that the condition of the Budgewoi Premises as at the commencement of the term of the Lease in 2008 differed relevantly from its condition as at the commencement of occupation of the Budgewoi Premises in 2005. There was not, for example, any condition report prepared at that later time. Therefore, the only possible difference seems to be that the baseline against which Midcoast's expert quantified the make good (an Asbestos Audit report from 2004) would be even further away from the relevant date.

[26]

(i) Past Remediation Claim

This claim relates to the clean-up notice issued by the Council on 31 January 2011 and paid by Midcoast (following the commencement of the Local Court proceedings) in September 2011.
Midcoast relies upon the obligations contained in cll 6.5, 6.11(b)(ii), 6.11(b)(iii) and 6.11(d) of the Lease in this regard and in cll 8.1, 10.1, 10.2 and 10.6 of the Fuel Supply Agreement.
It is submitted that the clean-up notice was directly referable to the Budgewoi Premises; and that the tax invoice issued to Midcoast, insofar as it refers to the performance of "clean-up" works, establishes that the Council performed the required remediation works for Midcoast and, hence, that the costs incurred by Midcoast are directly referable to Keldros' obligations under cl 6.11(b)(ii) of the Lease and/or cll 8.1, 10.1, 10.2 and 10.6 of the Fuel Supply Agreement.
The defendants maintain that it is no more than speculation as to what Midcoast was charged for in relation to the Council's September 2011 tax invoice. It is noted that Mr Plant's evidence was that he smelt fuel and the police made him shut down the service station (T 162.6ff); that he then engaged Tanknology to test the underground tanks and found that three tanks failed the test (tanks 2-4) and that he shut those tanks down for the next four and a half years. It is noted that Midcoast did not call the author of the clean-up notice.
The defendants emphasise that it is for Midcoast to prove that the clean-up was for something that was Keldros' responsibility under the Lease and say, in this regard, that Midcoast must disprove that any event was caused by something that was not a structural failure (such as a leaky tank or fuel line). It is submitted that Midcoast has not proven that whatever needed cleaning up was not from a failure of underground equipment that Midcoast (as opposed to Keldros) was responsible to keep and maintain; and, therefore, that this head of damage has not been made out.
Midcoast, to the contrary, argues for a finding that Keldros has breached cl 6.11(b)(ii) of the Lease and/or cll 8.1, 10.1, 10.2 and 10.6 of the Fuel Supply Agreement and is liable to pay damages to (or indemnify) Midcoast in the amount of $8,249.75.

[27]

Determination of the Past Remediation Claim

As far as the Past Remediation Claim is concerned, I consider that a breach has been established at least of cll 6.5 and 6.11(d) of the Lease in respect of the costs associated with the clean-up notice issued by the Council in January 2011.
Clause 6.5 (as extracted earlier) requires Keldros, among other things, to execute all works required by a local authority upon or in respect of the use of the premises and to indemnify Midcoast against all costs, charges and expenses of or incidental to the execution of any works so directed and not at any time do or omit or suffer to be done or omitted on or about the premises any act or thing by reason of which Midcoast may incur or have imposed upon it a penalty. Clause 6.11(d) applies (again, as extracted earlier) where a notice or order is issued by an authority in relation to "Contamination" arising during Keldros' occupation of the premises and requires Keldros, if Midcoast complies with the notice, to indemnify Midcoast for all costs and expenses incurred relating to such compliance. I consider that, for the purposes of these clauses, a notice or direction in relation to contamination could extend to contamination off site, i.e., off Lot 7 itself.
In the present case, there is no dispute that the Council issued a clean-up notice to Keldros in January 2011 (under cover of a letter that in terms referred to a "pollution incident" at the site and to the existence of "suggestive evidence" of high concentrations emanating from the local stormwater systems, coupled with the terms of the clean-up notice itself). I accept that the issue of the clean-up notice of itself does not establish that there was such an incident. However, coupled with the fact that Mr Plant detected a strong petrol odour at the time; he accepts that the police shut down the service station; and a failure of tanks 2-4 was identified by Tanknology a short time later, there is a clearly available inference that the notice (as its name suggested) related to an incident of contamination in January 2011 (a concern in that regard being what had led Mr Plant to commission the very report, the Tanknology Report, which identified those tank failures). The clean-up notice required certain works to be undertaken. Subsequently, the September 2011 tax invoice was issued which in terms referred to clean-up works referable to a pollution incident ("Cost of Clean up - Fuel Contamination of Stormwater January 2011, Budgewoi Shops, Scenic Dr Budgewoi - United Petrol Station (67-69 Scenic Dr)"). Midcoast (after the commencement of the Local Court proceedings) paid that invoice.
While I do not suggest that the clean-up notice (or the description in the subsequent tax invoice of the clean-up works) of itself establishes that the "cost of clean-up" for which Midcoast was ultimately charged was due to any failure on Keldros' part to maintain the underground fuel storage tanks or fuel lines on Lot 8, I consider that the irresistible inference from the relevant chronology of events is that the failure of the tanks in the tank farm (established by the Tanknology Report) was a source of contamination that led to the issue of the clean-up notice and subsequently the tax invoice. That gives rise, in my opinion, in the circumstances, to liability on the part of Keldros to indemnify Midcoast in respect of the cost it incurred in meeting that invoice (whether or not Keldros had any obligation to maintain or repair the fuel lines or tanks in the first place).
I consider that the conclusion as to the failure of tanks 2-4 being a cause of contamination on Lot 8 (and in the north-western corner of Lot 7) at or around January 2011 is supported by the opinions expressed by the environmental experts as to the likely cause of the contamination later identified at MW12, particularly since the earlier (2004) Parsons Brinckerhoff reports (i.e., the PB ESA Phase I and Phase II Reports) did not identify any other source of contamination in that portion of the site (though I accept that there was no monitoring well at the north-western corner of the site at that stage). Even though it has not been established that the failure of tanks 2-4 was due to any act or omission by Keldros, and even though they were situated wholly on Lot 8, I consider that the clean-up notice was a direction by the local authority (the Council) against the cost of compliance with which Keldros was liable to indemnify Midcoast (for the purposes of cl 6.5) and that the omission to take steps to clean up the contamination can be said to have resulted in the issue by the authority of the clean-up notice (cl 6.11(d)), those being works for which, if complied with by Midcoast as was ultimately the case when it paid the invoice, Keldros was liable to indemnify Midcoast.
It is not therefore necessary to determine whether there was also a breach of cl 6.11(b)(ii) of the Lease (by Keldros permitting Lot 7, or for that matter, Lot 8 as part of the "Environment", to be contaminated, polluted or affected by "Contaminants"); nor is it necessary to determine whether Keldros had a similar liability under the relevant provisions of cl 10 of the Fuel Supply Agreement. Suffice it merely to note that the obligation not to permit the "Premises, Building, Land or the Environment to be contaminated, pollute or affected by Contaminants" under this clause is a very broad one and would arguably extend to an obligation not just to take steps to prevent the release of contaminants in the first place but also to take steps to remediate any contamination that might (irrespective of fault on its part) have been released onto Lot 7 or elsewhere (at least insofar as there was at least some causal link to Keldros' use of the Budgewoi Premises and Keldros had some ability to take such steps - as it seems here to have had by reference to the easement over Lot 8).
Accordingly, I find Keldros liable for the amounts claimed under the Past Remediation Claim (even though I accept that it had no obligation under the Lease or otherwise to effect repairs of a structural nature to tanks 2-4 and even though the precise nature of the clean-up works was not established). I do not consider that the failure to call the author of the clean-up notice compels a different conclusion, particularly in circumstances where it could hardly have been said that the relevant Council officer(s) were in the same "camp" as Midcoast.
I would, thus, allow this aspect of the claim.

[29]

Midcoast's submissions

Midcoast points to the obligation contained in cl 6.11(b)(i) of the Lease on the part of Keldros not to permit the "Premises, Building, Land or the Environment" to be contaminated, polluted or affected by the contaminants it used or released was a "critical and central obligation"; and to the obligations contained in cll 10.1, 10.2 and 10.3 of the Fuel Supply Agreement on the part of Keldros to comply with environmental legal obligations and to maintain and repair the tanks, pumps and other equipment used by the motor service station; as well as the assumption by Keldros under cl 10.6, from the date of the Fuel Supply Agreement, of all risk of loss or injury to any person or property resulting in any way from the use of the site including, without limitation, the leakage or spillage of Products.
Midcoast argues that, under the Fuel Supply Agreement, the "Site" meant any location where Keldros carried on its service station business and says that this included the whole of the service station site (both Lot 7 and Lot 8). I have already addressed the meaning of "Site" under the Fuel Supply Agreement. I do not accept that it encompasses Lot 8. That said, it must be noted that cl 10.1 extends to the operation of "the Business" (which would include the use of fuel tanks for storage of petrol on Lot 8 and the operation of fuel lines to transfer fuel from there to the petrol bowsers); that cl 10.2 refers to compliance at all times "in the operation of the Site (and [relevantly] conduct of the Business)" with, inter alia, directions regarding the protection of the Site and the surrounding area from environmental harm; and cl 10.3 again refers to equipment used in relation to "the Business".
In that regard, Midcoast argues that, under the Lease, Keldros (as lessee) had the benefit of the easement over Lot 8; and, thus, had the right to enter Lot 8 of the purpose of maintaining and repairing the underground storage tanks on Lot 8 (tanks 2, 3, 4, 5 and tank 6, the latter being situated over both lots). This is relied upon to support the existence of an implied obligation under the Lease to maintain and repair those tanks and fuel lines (see T 233-234).
It is, thus, submitted that it was Keldros (and not Midcoast) that had the obligation to maintain the tanks and fuel pipelines (and all related equipment) which ran from the tank farm in the western corner of the service station on Lot 8 to the fuel dispensers on Lot 8 under the fuel canopy.
In particular, as to the meaning of cl 6.11(b)(ii) of the Lease, Midcoast says that the obligation not to "permit" contamination extends to an obligation not to allow contamination to be permitted to remain on the premises - so that it contends that the residual contamination of Lot 7 (albeit a small portion of Lot 7) is a breach of the clause. Thus, the complaint includes a complaint that Keldros did not do anything to stop the contamination from either occurring in the first place or continuing thereafter (see T 253.25ff). Again, Midcoast emphasises that Keldros had the ability to do this.
Midcoast points to the evidence of the experts and argues that: there is no evidence of any leakages or spillages from fuel storage tanks when Keldros commenced its occupation of the Budgewoi Premises under the Lease in November 2005 (although there was some minor staining within the vicinity of the bowsers); according to data obtained on 21 September 2004 (Appendix L and Appendix P of Ms Garvey's affidavit) from SB3 there was no identifiable hydrocarbon contamination in the north-western corner of the Budgewoi Premises; and the SB3 data is an appropriate baseline for Mr Newstead's opinion that there was no contamination in the groundwater on the Budgewoi Premises at the commencement of the Lease. In this regard, Midcoast notes that Ms Salmon ultimately conceded that, assuming SB3 was close to MW12 (as Midcoast says it clearly was), then SB3 was a suitable baseline (T 189.3). (Ms Salmon put the location of SB3 as within 5 metres of MW12 - see T 186.12.)
Midcoast, thus, contends for a finding that, at the commencement of the Lease, there was no relevant contamination in the groundwater at the Budgewoi Premises (or, if there was, it was negligible particularly in the north-western part of the Budgewoi Premises). It is said that this is consistent with the objective evidence (the SB3 data and PID readings on that data sheet) and from the three relevant environmental assessments that were conducted around that time; as well as being consistent with the expert evidence given concurrently on 12 March 2019 on this topic.
Midcoast next points to the evidence that contamination occurred after the commencement of the Lease on 5 November 2005, including Mr Plant's evidence in cross-examination about the contamination in the stormwater, namely that the police shut down his service station for a month or so (T 162) and that the reason he obtained the February 2011 EIS Report was because he thought there was contamination in the groundwater caused by tanks 2, 3 and 4 (T 167).
Midcoast also relies upon: the tax invoice issued by the Council; the EIS environmental assessment reports (namely, the EIS Reports in 2011 and 2012); the Alliance Report dated 4 August 2011, containing a site assessment after the clean-up at the Budgewoi Premises in early 2011 (which was confirmed by Mr Newstead at T 201.10); the 2014 PB Report, which identified LNAPL in MW12 in January 2014 and concluded that there was contamination in the north-western corner from leaking underground storage tanks from the tank farm (and in the east from the diesel underground storage tank and diesel bowser located near the garage); and the 2015 Kleinfelder Report, which concluded there was contamination at the Budgewoi Premises, including dissolved phase hydrocarbon concentrations in the groundwater wells MW9, MW12 and MW13, and that the likely source of the contamination was the main tank farm (located on Lot 8); and that there appeared to have been a significant increase in groundwater contamination at the site between 1 January 2005 and 31 July 2015.
Midcoast points to Mr Newstead's conclusion (based on a comparison of SB3 data from 2004) that, after November 2005, the greatest ground water contamination detected was located down the hydraulic gradient from the tank farm (with MW12 and MW13 reporting concentrations of hydrocarbons above guidelines in the north-western corner of the Budgewoi Premises) and that this contamination had occurred between 2 November 2005 and 7 February 2011 (based on the presence of hydrocarbons in 2011 in MW12, given the Tanknology Report in February 2011 and its conclusions regarding the failure of tanks 2, 3 and 4).
Midcoast notes that Mr Newstead concludes that the groundwater contamination was "most likely that the release of [this] contamination occurred between 2 November 2005 and 7 February 2011" and that he confirmed this opinion in his cross-examination (T 210.4ff). It is submitted that this was not challenged, and that Ms Salmon agreed with this conclusion (T 210.16). Midcoast also points to the conclusion of Mr Neralic in this regard, based on the reports reviewed and his own site observations on 6 and 7 June 2018.
It is noted that Ms Salmon made two statements about the issue of contamination after 5 November 2005, namely: that it appears likely that the groundwater contamination was caused by the failure of tanks 2, 3 and 4; and that there are "lines of evidence", albeit not conclusive, that the groundwater contamination occurred after 2 November 2005 (being the commencement of the Lease).
Midcoast notes that, in cross-examination, Ms Salmon gave evidence that she considered the readings for MW4 in March 2006 was evidence that contamination was occurring prior to the commencement of the Lease; and pointed to tank 6 at that time, but that she later conceded that the Tanknology Report showed that tank 6 was intact and had not failed; and attributed the contamination to tanks 2, 3, and 4 in the western tank farm. Midcoast submits that Ms Salmon's evidence was not reliable on this issue.
Midcoast also points to Mr Plant's evidence that, apart from 12 monthly then six monthly groundwater monitoring commencing in January 2011, closing the Budgewoi Premises for a month or so, and ceasing to use tanks 2, 3 and 4, he did not do anything else to prevent the contamination of the Budgewoi Premises (T 156-157 and T 162); and that he did not take any steps to remediate the contamination or fix the tanks (T 163.36ff). Complaint is made that Mr Plant took no such steps even though he knew from early 2011 that the tanks were leaking.
Midcoast contends for a finding that during the Lease, and from November 2005, Keldros permitted contaminants (namely, hydrocarbons and/or other petroleum products) associated with Keldros' business to contaminate the groundwater beneath or around the Budgewoi Premises in breach of cl 6.11(b)(i) of the Lease. It is noted that cl 6.11(b)(i) of the Lease is not, in terms, restricted to contamination or pollution on or affecting only the Budgewoi Premises. Midcoast argues that it would include any contamination caused to the groundwater beneath or around the Budgewoi Premises (and hence would include contamination beneath or around the Budgewoi Premises and Lot 8). It is submitted that the evidence of both Mr Newstead and Ms Salmon is that there is residual contamination on Lot 7 and Lot 8 (despite some of the contaminant plume having moved off site) (see also in that regard Mr Neralic's evidence at T 106.35).
Midcoast further contends for a finding that Keldros has breached cll 10.3 and 10.6 of the Fuel Supply Agreement. It argues that Keldros plainly failed to maintain or repair the tanks and related equipment (i.e., pipelines and bowsers), noting Mr Plant's evidence that he believed it was not his obligation to maintain the tanks and pipelines (T 168.26).
Insofar as the defendants rely upon authorities as to the lessor's responsibility for structural repairs (see at [233] below), Midcoast says that each case turns on its own facts and, perhaps more relevantly, says that the question here is not whether or not repair of the tanks was structural in nature but whether there is a contractual obligation of repair (and an obligation to remediate contamination) (T 254.32). Midcoast relies upon cl 6.11(b)(i) in the Lease and cl 10 in the Fuel Supply Agreement as imposing a contractual obligation on Keldros for the maintenance of the underground storage tanks and pipelines; and disavows any claim for structural repairs, as such, in these proceedings.
As to the amount claimed for future remediation costs, Midcoast relies on Mr Neralic's evidence that the remediation cost for cleaning up the residual contamination at the Budgewoi Premises is $639,561. To the extent that Ms Salmon gave evidence contrary to this (estimating the cost of remediation to be $400,000) and suggesting that the cost would be less because of a lower level of risk to the Budgewoi Premises (because the contamination had degraded or moved off site), Midcoast submits that the evidence of Mr Neralic should be preferred as to the issue of the likely cost of remediation of the Budgewoi Premises. Midcoast points in this regard to Ms Salmon's statement in her report that she has no expertise in cost estimates for remediation (at [12.4]), in particular her statement that: I am not an expert in the estimate of current remediation costs, having primarily performed in the role of an EPA accredited site auditor for 15 years, not in the execution of remediation projects. However, advice I have received from oil company clients, based on experience at numerous service stations, is a typical cost for remediation of a service station following close and redevelopment is in the order of $400,000.
It is submitted that Ms Salmon, in giving this evidence was acting more as advocate for the defendants than as an expert and that, on this topic, her evidence was not reliable. (I have already outlined above my conclusion in relation to this submission.) Midcoast submits that Mr Neralic's evidence on the issue of remediation costs was not challenged in cross-examination (noting that his opinion was based on the latest data in the Greencap (2018) Report, which he authored). Broadly, I accepted to be the case (although, as I have noted, the experts were challenged as to matters going to the reasonableness of the extent of remediation).

[30]

Defendants' submissions

The defendants note that the claim for remediation of soil at the Budgewoi Premises was abandoned during opening submissions and, hence, the only remaining claim for remediation being in relation to groundwater contamination alleged to have been caused by a failure of three tanks located on Lot 8 (tanks 2-4).
The defendants, thus, argue that the claim is for remediation not on the Budgewoi Premises (or below it) but, rather, to the area beneath Lot 8 (referring to Mr Neralic's plan of the area proposed to be remediated).
The defendants say that Midcoast's claim under the Lease that Keldros permitted contamination at Lot 7 cannot succeed as the maintenance and repair of underground tanks and pipes were structural works, which it was prohibited from doing under cl 10.1 of the Lease and for which Midcoast had the obligation under cl 9.1 of the Lease (referring to Granada Theatres Ltd v Freehold Investment (Leytonstone) Ltd [1959] Ch 592 at 603-4 per Jenkins LJ (Romer and Ormerod LJJ agreeing) and Holus Bolus Pty Ltd v The Wicko Pty Ltd [2012] NSWSC 497 (Holus Bolus) at [28]-[35] per Nicholas J).
The defendants contend that that they cannot be held liable for a failure to comply with any environmental notices or regulations, compliance with which depended upon the failed structural integrity of Midcoast's tanks, pipes and underground infrastructure.
The defendants note that the evidence of Mr Newstead and Ms Salmon was that: the only possible baseline data for the north-western corner of the site was SB3; that Ms Salmon's evidence was that she could not rely on SB03 because its actual location was likely known only to within five metres of MW12 and that her other concern was it was a soil sample not groundwater monitoring, but that PID results indicated no volatiles in the groundwater at SB3 (wherever it was located). It is noted that Ms Salmon also expressed concern that SB3 alone was a poorly defined data set for the entire north-western corner.
That said, it is submitted that, Ms Salmon accepted that, if SB3 is a reliable baseline to compare to MW12, then the north-western groundwater contamination occurred sometime between September 2004 and January 2011. Ms Salmon's opinion was that if SB3 was not a reliable baseline to compare MW12 then all that could be said was that the north-western groundwater contamination occurred sometime before January 2011.
The defendants note that the experts identified the tank farm and the fuel lines as each being potential sources for volatile contamination in the north-eastern corner of the site in September 2004 to March 2006. It is submitted that this shows there was a leak of petrol (not from tank 6) before 2008 and that it is likely that this was before November 2005 from either the tank farm on Lot 8 or the fuel lines (or both). It is also noted that both experts agreed that risk is low on site, and that off site it is unknown. It is noted that Mr Neralic would not opine on the remediation of any contamination on Lot 7 (T 110.28).
The defendants contend that, based on the environmental evidence, one could not be satisfied on the balance of probabilities that the contamination occurred while Keldros occupied the Budgewoi Premises; but submit that, even if it were, the Lease did not oblige Keldros to undertake works in the form of repair and maintenance of tanks and pipes buried underground.
The defendants submit that the 2018 testing the subject of Mr Neralic's evidence shows that the affected area on Lot 8 is of significantly decreased risk for the purposes of a service station.
The defendants submit that there should be a finding that the plume is migrating from Lot 8 away from the service station site as a whole; and that the plume was degrading naturally or at least degradation sped up with the assistance of ORCs deployed in 2016 in some of the monitoring wells (see the explanation of Mr Neralic at T 105ff as to the use of ORCs). (In that regard, Mr Neralic said at T 100.34 that there would be no point doing tests to determine whether there would be degradation by natural attenuation in circumstances where LNAPL was present, because it will just keep seeping through the ground water; but he accepted at T 101.27 that it was likely that the plume was moving off site. In re-examination he clarified that there would be no point testing to determine whether natural attenuation was working until LNAPL was removed - T 111.36.)
It is noted that Mr Neralic ultimately agreed that the system of remediation proposed, lasting nine months for a low onsite risk, was elaborate (T 110.30); that Ms Salmon opined that a site owner would be unwilling to invest in this level of remediation; and that Mr Newstead and Ms Salmon agreed that further investigation would be required before any remediation could be done. It is said that their concern was what was happening to the plume on its journey away from the site. (In this regard, it is submitted that the $100,000 figure "ventured" by Ms Salmon was for the purposes of determining what to do with the contamination offsite (not at Lot 8 "and certainly not on Lot 7")). (Mr Neralic accepted that monitoring natural attenuation was a legitimate remediation technique but did not accept that it would be so in this instance and said more tests would need to be done to determine if it would be viable (see T 108.5).)
The defendants say that Midcoast's claim is not a claim for damages for possible future nuisance to neighbouring properties and/or other places, it is for the costs of remediating the Budgewoi Premises; and that this head of damage has not been made out.
A further reason proffered by the defendants in resisting any damages claim for land contamination, is said to be found in the evidence of Midcoast's own remediation cost expert (Mr Neralic) insofar as he has opined that the site has been "cleansing itself" since around 2011. (Midcoast cavils with this proposition, referring to the evidence of Mr Neralic that natural attenuation or degradation is not a suitable remediation strategy until LNAPL has been removed.)
It is, thus, submitted that the quantum of loss due to contamination is nil.

[31]

Determination of the Future Remediation Claim

I accept that the data from SB3 in 2004 is a relevant baseline from which to assess this claim (being in the vicinity of what later was installed as MW12). I consider that, even though Ms Salmon raised queries in this regard, she ultimately accepted that (if SB3 was within the vicinity of MW12) then it provided a suitable baseline.
In circumstances where there was at least some evidence to support the conclusion that there was no contamination of the soil in the area as at September 2004, and there was an established contamination event in 2011, I find, on the balance of probabilities that, as at 2 November 2005, the commencement date of the original lease (that was later varied in 2008), there was no relevant contamination in the groundwater at the Budgewoi Premises (or, if there was, it was negligible in the north-western part of the Budgewoi Premises). I accept that this is consistent with the SB3 data (and PID readings) and consistent with the three relevant environmental assessments that were conducted around that time and the expert evidence. Further, I find that, on the balance of probabilities, the groundwater contamination later identified at MW12 occurred sometime between the commencement of the original lease on 2 November 2005 and 2014, when LNAPL was discovered at MW12; and that it is most likely that this resulted from the failure of tanks 2, 3 and 4 in early 2011. Again, I consider this to be supported by the expert evidence, understood in the context of the events of early January 2011 and the findings by Tanknology as to the failure of the said tanks.
Although the failure of the tanks occurred (based on the Tanknology results) on Lot 8, there is no doubt that at some point there was contamination in that portion of Lot 7 where MW12 was installed. Keldros had the use and operation of the tanks in the tank farm and the use of the fuel lines to the bowsers on Lot 8. I find that, even though it had no express obligation under the Lease (or the Fuel Supply Agreement) to repair the tanks or the fuel lines on Lot 8, there was a breach of cl 6.11(b)(i) of the Lease in that Keldros permitted (in the sense of not preventing) part of Lot 7 to be contaminated, polluted or affected by contaminants (namely, the LNAPL or hydrocarbon plume that in all likelihood emanated from the failure of tanks 2-4). In that regard, the fact that there was no contractual obligation on the part of Keldros to effect structural repairs to the underground storage tanks does not in my opinion assist Keldros.
However, while I accept that cl 6.11(b)(i) in its terms is not limited to contamination, pollution or the like affecting Lot 7 alone (since it also encompasses the Environment, as defined), I do not accept that it has been established that by its conduct Keldros "permitted" the failure of tanks 2-4 and hence permitted the release of contaminants onto Lot 8 (even accepting that Lot 8 forms part of the Environment) and I do not accept that it can be said to have had an obligation to prevent any such contamination remaining on Lot 8 (an area over which it had no control, albeit rights of access under the easement). I do not consider that it has been established that Keldros is liable to indemnify Midcoast for the cost or remediation of Lot 8 (even though United is now trading from that site as well). Issues as to reasonable foreseeability of damage (though not explored at the hearing) would in my opinion be likely to arise in that context. Relevantly, there is no evidence that Midcoast has any liability (as the present owner of Lot 8) for any remediation of Lot 8 for which Keldros could be said to be liable under the terms of the Lease or (so far as it is applicable) the Fuel Supply Agreement. As pointed out for Keldros, it has not been sued for any liability that Midcoast might have in nuisance in relation to neighbouring properties or the like as a result of the contamination.
The difficulty with Midcoast's claim in relation to the residual contamination on Lot 7 (in respect of which I consider that a breach of cl 6.11(b)(i) of the Lease has been established), is that I am not persuaded that Midcoast has established the quantum of any damage suffered by it as a result of contamination of that relatively small portion of Lot 7 (as distinct from its claim for remediation of a large proportion of Lot 8 as well as that small portion of Lot 7). Nor is there any evidence that Midcoast is liable (say pursuant to an order from a relevant authority) to effect any remediation of that particular portion of Lot 7 (or the cost of so doing). I accept the evidence that the hydrocarbon plume that contaminated the site in the vicinity of MW12 is migrating (or has migrated) away from the Lot 7 site and that it has been in the process of degradation (assisted by the ORCs deployed in particular wells) over the period since at least 2014.
I would, therefore, quantify the damage referable to the breach of this covenant of the lease as being limited to the cost of deployment of the ORC sock in MW12 (that being the relevant monitoring well on Lot 7) and a proportion of the cost of the environmental assessment reports referable to that portion of the site alone (assuming that this proportion could be isolated from the overall costs). I will make directions for the parties to consider what apportionment should be made to the overall costs of the environmental assessments to reflect this.
I note in this regard that there was no evidence by Midcoast of any actual intention to carry out the remediation works proposed by Mr Neralic (over much of Lot 8 and a portion in the north-western corner of Lot 7) and that Mr Manolitsa, who said that such a decision would be made by the directors, nevertheless agreed that one would need to have good reason to spend some $600,000 on remediation (see T 89.46). As already noted, any reliance on Mr Newstead's much more expensive estimate (based on a complete excavation of the site) was disavowed by Midcoast (see T 255.43).

[37]

(iv) Make Good Claim

Midcoast's claim for make good is based on cl 9.2 of the Lease. The quantum of Midcoast's Make Good Claim is set out most recently in a report dated 20 February 2019 by Mr Gould. In this report, Mr Gould has updated his original report. The claim was originally for $122,593.61 (inclusive of GST). It was revised by Mr Gould to $99,714.35 (following service of Mr Plant's November 2017 affidavit). It was further revised in closing submissions (as explained below).
Before turning to the respective parties' submissions as to this aspect of the claim, it is relevant to note the following evidence from Mr Plant in cross-examination (from T 120ff) as to the copy of the Make Good Schedule dated 11 August 2015 (i.e., the Schedule) referred to by Mr Plant in his 1 November 2017 affidavit in the proceedings.
When asked about the meaning of the word "[a]dmitted" in the Schedule, Mr Plant initially agreed that that term signified an admission by Mr Plant that Keldros needed to make good that item (as well as an admission in relation to the cost to make good the item, as per the estimates in the Schedule) (see T 127.38). At T 132, Mr Plant re-stated his position as being that Keldros was admitting responsibility to make good specific items but not necessarily the costs stated in the Schedule (cf items 1.1 and 1.5). (Mr Plant referred to a revised list of costing for the cost of remediation, however, this was not explored further.)
During the course of the cross-examination, I formed the view that Mr Plant may not have understood the questions he was being asked (and therefore the concessions he was seemingly making on behalf of Keldros). That led Counsel for Midcoast quite fairly to clarify whether, by accepting Keldros was liable, Mr Plant was accepting implicitly that the damage went beyond reasonable wear and tear (so as to be caught by the make good obligations in the Lease).
Mr Plant was asked about specific items in the Schedule and responded as follows:

As to item 1.1 ('boarded over one window'), Mr Plant admitted that Keldros was liable to make good this item (and the remediation cost attributed of $500);
As to item 1.5 ('security camera installed to rear elevation'), Mr Plant admitted that Keldros was liable to make good this item (and the remediation cost attributed of $700); in relation to the comment in the Schedule for this item that "I've never received any direction from Midcoast to remove this item", Mr Plant explained that was a query on his behalf whether Midcoast, would like to "keep the security camera there or not".
As to item 2.1 ('external decorated surfaces wear and corrosion'), Mr Plant said that "Admitted" in relation to this item had a "different meaning" to "Admitted" in the context of Items 1.1 and 1.5. Mr Plant did not concede that Keldros was responsible for the repairs. Mr Plant stated that he admitted that the corrosion was there but was not admitting that it was Keldros' responsibility to remedy it. See from T 131.45: Q. Yes, and you admit that Keldros has to make good that item, that's what you say? A. I'd debate that. I would have debated that. If it was already there, Keldros shouldn't have to fix it. I'm just saying that I've admitted to it being there. I'm not, not admitting to Keldros repairing it.
As to item 2.3 ('rusty guttering'), Mr Plant initially admitted that Keldros was responsible to make good this item, but later opined that it was "common sense" that this damage constituted reasonable wear and tear.
As to item 2.4 ('holes (penetrations) below guttering'), Mr Plant admitted that Keldros was responsible to make good this item but that it was not caused by reasonable wear and tear and was "manmade".
As to item 2.5 ('graffiti present and low level staining to bare faced brickwork'), Mr Plant did not remember there being any graffiti at this location.
As to item 2.12 ('light fittings corroded and finish wearing'), Mr Plant admitted that Keldros was responsible to make good this item and that it was caused by reasonable wear and tear.
As to item 3.1 ('security fittings, fixtures and cameras'), Mr Plant admitted that Keldros was responsible to make good this item but also added that Keldros had never received any directions from Midcoast whether Midcoast wanted to leave these items there or not.
As to item 3.5 ('security barrier to door and counter in shop'), Mr Plant admitted that Keldros was responsible "[t]o take those security screens down" and responsible to make good this item.
As to item 3.10 ('plant anchor points to workshop slab'), Mr Plant conceded Keldros was responsible to make good the item.
As to item 4.1 ('internal painted surfaces worn, damaged, marked and aged') Mr Plant admitted that Keldros was responsible for making good this item but not the cost. In particular, Mr Plant agreed that the patchwork (pictured in two photographs in Appendix B of the Schedule - in particular, see the bottom two images for Items 4.1 at 1798 of the Court Book) was not reasonable wear and tear and that Keldros should repair this patchwork.
As to item 4.4 ('shop floor tiles chipped and damaged'), Mr Plant admitted that Keldros was responsible to make good this item and that this damage was not caused by reasonable wear and tear.
As to item 4.6 ('broken tap'), in cross-examination, Mr Plant stated that he could not remember where the broken tap was or ever seeing a broken tap.
As to item 4.15 ('section of plasterboard missing in store area'), Mr Plant admitted that Keldros was responsible to make good this item.

[39]

Defendants' submissions

The defendants' response to this claim is said to be as contained in the affidavit of Mr Plant. In that affidavit, Mr Plant's response to a number of items was simply the word "[a]dmitted". It is submitted by the defendants that Mr Plant's explanations should be accepted in relation to all items (noting that he was not cross-examined on most of them; the cross-examination focussing on the items that he had "admitted" in his affidavit).
The items "admitted" by Mr Plant in his affidavit are said to be confined to the following (as quantified by Midcoast): 1.1 boarded over one window $500 1.5 security camera $700 2.1 external decorated surfaces wear and corrosion $4,400 2.3 rusty guttering $400 2.4 holes (penetrations) below guttering $100 2.12 light fittings corroded and finish wearing $2,560 3.1 security fittings, fixtures and cameras $680 3.5 security barrier to door and counter in shop $520 3.10 plant anchor points to workshop slab $150 4.1 internal painted surfaces worn, damaged, marked and aged $21,320 4.4 shop floor tiles chipped and damaged $100 4.15 section of plasterboard missing in store area $100
The defendants say that in cross-examination Mr Plant clarified that only items 1.1, 2.4, 3.5, 3.10, 4.4 and 4.15 were unequivocally admitted as being the responsibility of Keldros (albeit that the allocated repair costs were not agreed to). In particular, it is noted that item 2.12 (corrosion to forecourt canopy lights for $2,560) was attributed to reasonable wear and tear; and that for item 4.1 in respect of the internal painting it was only some minor patchwork that was not attributed to reasonable wear and tear and Mr Plant did not admit item 2.1 in respect of the external decorated surfaces.
The defendants submit that Mr Gould was unable to give evidence first-hand as to the damages, since he did not inspect the site in preparation of the Schedule. It is noted that he had no condition report as at 2 November 2008, or any other date from which to draw a comparison with the exit condition in late July 2015; the only source he had available was the 2005 Asbestos Audit Report (with site inspection occurring on 17 November 2004). It is submitted that this gave scant detail of most items in the Schedule.
The defendants, thus, submit that only items 1.1, 2.4, 3.5, 3.10, 4.4 and 4.15 (totalling $1,470) could be considered as a valid claim for damages and as not falling within the fair wear and tear exception; but even then they submit that such a claim fails in relation to most of the items, having regard to the evidence of Mr Doumanis under cross-examination that the service station improvements had been radically altered in the second half of 2015.
The defendants point out that a decision had been made by Midcoast to trade the service station itself (or by its parent, United), in preparation for which a major refurbishment took place, including: the male and female toilets were gutted and completely renovated to a high standard; the shop was gutted, including to the point of demolition of its walls and then completely reconfiguring the shop within, the counter facing in the opposite direction to previous; the entrance in a different location and brand new equipment installed; the office and kitchen were also majorly renovated, the later with new fittings installed; externally, the Budgewoi Premises were remodelled with the installation of brand new pumps and a complete renewal of the facade in "proud United livery"; and structural alterations were also made to the rear elevation of the building, which is now totally covered in metal sheeting. (The defendants note that it is not known what happened to the storeroom that Mr Plant says he never used but nothing turns on this.)
It is submitted that no damages are recoverable for a breach of any covenant in respect of any make good obligations as it has been shown that the premises, regardless of their state of repair, have shortly after determination of the Lease had such structural alterations made to them as to render any repairs that might have been done by Keldros valueless (by reference to s 133A of the Conveyancing Act 1919 (NSW) (Conveyancing Act)). Section 133A provides: (1) Damages for a breach of a covenant or agreement to keep or put premises in repair during the currency of a lease, or to leave or put premises in repair at the termination of a lease, whether such covenant or agreement is expressed or implied, and whether general or specific, shall in no case exceed the amount (if any) by which the value of the reversion (whether immediate or not) in the premises is diminished owing to the breach of such covenant or agreement as aforesaid; and in particular no damage shall be recovered for a breach of any such covenant or agreement to leave or put premises in repair at the termination of a lease, if it is shown that the premises, in whatever state of repair they might be, would at or shortly after the termination of the lease have been or be pulled down, or such structural alterations made therein as would render valueless the repairs covered by the covenant or agreement. (2) A right of re-entry or forfeiture for a breach of any such covenant or agreement as aforesaid shall not be enforceable, by action or otherwise, unless the lessor proves that the fact that such a notice as is required by section 129 had been served on the lessee was known either: (a) to the lessee, or (b) to an under-lessee holding under an under-lease which reserved a nominal reversion only to the lessee, or (c) to the person who last paid the rent due under the lease either on the person's own behalf or as for the lessee or under lessee, and that a time reasonably sufficient to enable the repairs to be executed had elapsed since the time when the fact of the service of the notice came to the knowledge of any such person. Where a notice has been sent by post in a registered letter addressed to a person at the person's last known place of abode in or out of New South Wales, and that letter is not returned through the post office undelivered, then, for the purposes of this subsection, that person shall be deemed, unless the contrary is proved, to have had knowledge of the fact that the notice had been served as from the time at which the letter would have been delivered in the ordinary course of post. This subsection shall be construed as one with section 129. (3) This section applies whether the lease was created before or after the commencement of the Conveyancing (Amendment) Act 1930.
The six items the defendants concede are "potentially" items that the defendants should make good are (other than the workshop slab penetrations) said to be subject to the provisions of s 133A of the Conveyancing Act 1919.
It is noted that if the lessor has repairs actually carried out that is strong evidence that the cost of the works is the proper amount of damages (Jones v Herxheimer [1950] 2 KB 106) but that, otherwise, the lessor should prove the actual diminution in value of the premises to achieve more than nominal damages (Espir v Basil Street Hotel Ltd [1936] 3 All ER 91; James v Hutton [1950] 1 KB 9; [1949] 2 All ER 243).
The defendants also made reference to William Duncan's commentary in Commercial Leases in Australia (5th ed, 2008, LawBook Co) (at [7.160]): … [D]amages for breach of the covenant to keep or put premises in repair during the currency of the lease, or to leave the premises in repair at the termination of the lease, shall not exceed the amount by which the value of the reversion in the premises is diminished owing to the breach of such a covenant. Further, no damages shall be recovered for a breach of any covenant if it can be shown that the premises, regardless of the state of repair, would, shortly after determination of the lease, be pulled down, or have structural alterations made to them as to render the repairs valueless. [footnotes omitted]
Further, in Annotated Conveyancing and Real Property Legislation New South Wales (3rd ed, 2003, Butterworths) the author explains the effect of s 133A (at [32740.1]) as: The effect of this section is to provide an upper limit to the amount of damages which may be received by a landlord for breach of a covenant to keep or put premises in repair during the currency of the lease or to leave or put premises in repair at its termination. The section does not provide an altered method for assessing the damages: Hanson v Newman [1934] Ch 298, nor does it apply to other covenants, such as a covenant to restore a building to its original condition at the determination of the lease: James v Hutton and J Cook & Sons Ltd [1950] 1 KB 9; [1949] 2 All ER 243. The purpose of the section is to prevent landlords recovering damages or forcing payments from tenants where strictly speaking, a tenant may be under an obligation to repair an uneconomic building that will be pulled down in any event, though it does not only operate in such an extreme class of case. If the landlord actually does have repairs carried out, that is strong evidence that the cost of the works is the proper amount of damages: Jones v Herxheimer [1950] 2 KB 106; [1950] 1 All ER 463; Smiley v Townshend [1950] 2 KB 311; Haviland v Long [1952] 2 QB 80; [1952] 1 All ER 463. Otherwise it would seem that the landlord should give evidence of the actual diminution in value of the premises if he is to succeed in more than nominal damages: Espir v Basil Street Hotel [1936] 3 All ER 91; James v Hutton and J Cook & Sons Ltd [1950] 1 KB 9; [1949] 2 All ER 243. As an illustration of how the section operates, in Salisbury v Gilmore [1942] 2 KB 38, there was a lease for 14 years expiring in 1939. In 1936 the tenant requested a renewal of the lease, but was informed that the landlord intended to pull the premises down at the expiration of the lease. In 1939 the tenant vacated the premises and left them out of repair, but the landlord then changed its mind. The court held that the tenant was entitled to rely on this section to limit the landlord's damages.
It is submitted that none of the claimed make good items has actually been repaired.
In cross-examination, Mr Plant did not admit 2.1, 2.3 and 2.12. It is submitted that repair of all of these items except for the workshop slab item was rendered otiose by the structural alterations made to the service station improvements. The only amount ultimately conceded was the amount of $150 for item 3.10.

[40]

Determination of the Make Good Claim

Broadly speaking, I accept the submissions made by the defendants in relation to this claim. It is not possible to determine precisely the condition of the Budgewoi Premises at the relevant time by reference to which the make good obligation is to be tested; Mr Gould's evidence was unsatisfactory in that regard; a large number of the items clearly became otiose once there was a substantial reconfiguration of the Budgewoi Premises; and a significant number of other items would in my opinion clearly also have fallen within the reasonable fair wear and tear exception (although I note that this was not pleaded by way of defence). For example, with item 2.12, which related to corroded light fittings that might have been in the premises for some time from 2005 through to 2015, there is an obvious likelihood that corrosion would fall within the proviso for reasonable wear and tear. Insofar as this was not pleaded, Keldros argues that it emerged on the evidence but in any event that those items would not be recoverable by reference to s 133A of the Conveyancing Act.
The basis on which Midcoast sought to maintain its claim to the items that might be said now to have become otiose because of the renovations was that it was the obligation at the date of the termination of the Lease that was relevant. However that does not take into account s 133A of the Conveyancing Act. A whole series of items relating to the shop premises cannot possibly now be recoverable (such as the items relating to the shop counter which has now been relocated and the items relating to the new toilets which have been installed). Although it was said that some of the areas of the shop premises (such as the rear elevation) had not been altered, I was left with insufficient evidence to be able to conclude that the claimed make good items (even those where rectification works were admitted by Keldros to be required as at the date it vacated the Lease) are now recoverable.
I would therefore allow no more than the conceded amount of $150 in relation to item 3.10 for the Make Good Claim and in those circumstances the additional amounts claimed on the recalculated schedule handed up on 13 March 2019 do not arise.

[41]

(v) Debt Claim for Petrol and Diesel Purchased in July 2015

This claim is brought under cl 5.1 of the Fuel Supply Agreement, pursuant to which Keldros is obliged to pay for petroleum products purchased by Keldros.
Midcoast notes that there is no dispute by the defendants that a debt for petroleum products was owing by Keldros; and points to admissions made to that effect on determination of the Lease by Mr Plant and in cross-examination.
On 21 July 2015, Midcoast invoiced Keldros for $38,876.76 for 3,003 litres of diesel and 27,952 litres of unleaded petrol. On or about 31 July 2015, Keldros paid to Midcoast $3,876.76 in payment of the invoice. The complaint is that in breach of cl 5.1 of the Fuel Supply Agreement, Keldros has failed to pay Midcoast the amount of $35,000. It is submitted that Keldros owes Midcoast $35,000 for petroleum products plus interest.
In relation to the Debt Claim, the defendants say that, in or around August 2015, the amount was paid to United, as Midcoast's agent, "as a call up pursuant to a Bank Guarantee provided to it by the first defendant for a Fuel Bond" (see [54] of the defence). Midcoast admits that it received the sum of $35,000 in or around August 2015 following a call up of the bank guarantee (see [4(b)] of its reply) but says that the sum was applied against the loss and damage suffered as a result of Keldros' breach of the Lease, or alternatively, breach of the Fuel Supply Agreement "generally"; and denies that the sum was paid or applied to satisfy the outstanding invoice (see [4(c)-(d)]). (Midcoast says in its closing submissions that this money is currently held in a separate bank account and it concedes that any ultimate award of damages for breach of lease should be reduced by the amount of $35,000.)
The defendants say that there is no doubt that Keldros short paid its last fuel invoice by $35,000; however, Keldros directed Midcoast to apply the bond to the payment of fuel. The defendants point to the evidence of Ms Garvey to the effect that the bank guarantee was "cashed" (T 113.50) and the funds held in "some sort of bond trust of some description" (T 114.5). The first defendant's position is that it has, thus, paid for the fuel and that the service charge does not accrue as the fuel has been paid (or, if not paid, Midcoast and/or United have had the use of the money that should have been refunded to the first defendant). Pausing here, as I understand it Midcoast accepts that it cannot press the claim for a service charge (or interest) on money that it has retained in its account but not applied to any rental arrears or other default (T 266). In that regard, Midcoast contends that the bank guarantee or security bond was to be applied against the Make Good Claim and the clean-up notice (T 266).

[42]

Determination of the Debt Claim

True it is that the security bond was not provided pursuant to the terms of the Lease and strictly was not able to be called upon by Midcoast to meet the outstanding fuel amounts. However, there was a clear direction by Keldros to permit Midcoast to apply the amount for that purpose and it was not open in my opinion to Midcoast to draw down that amount and then simply retain it in a bank account as some form of security for a claim it might later make for breach of the Lease. (See, for example, my observations in Gupta v Fordham Laboratories Pty Ltd [2018] NSWSC 551.) Certainly, Midcoast did not point to any contractual entitlement for it to do so.
I was not taken to any authorities as to the circumstances in which a claim may be made on a bank guarantee provided as security for performance of a party's obligations, perhaps because the point is an obvious one. It suffices here simply to refer to Clough Engineering Ltd v Oil and Natural Gas Corporation Ltd [2008] FCAFC 136 (Clough Engineering), adopted in Walton Construction Pty Ltd v Pines Living Pty Ltd [2013] ACTSC 237.
In Clough Engineering at [85], the Full Court of the Federal Court (French J, then sitting in the Federal Court, Jacobson and Graham JJ) said, in the context of an appeal from a decision in relation to a claim for interlocutory injunctive relief to restrain calls on certain guarantees furnished under an international construction contract: The question of construction as to whether the underlying contract contains a qualification on the right to call upon the security must be determined in light of the contract and the form of the performance guarantee as contained in the contract. This accords with the basic principle of construction that the terms of an instrument must be read as a whole: Re Media, Entertainment and Arts Alliance; Ex parte The Hoyts Corporation Pty Ltd (1993) 178 CLR 379 at 386-387. It also accords with the approach taken to the construction of the underlying contract in the leading authorities to which we have referred: see eg Wood Hall Ltd 141 CLR at 445, 451, 457-458; Fletcher Construction [1998] 3 VR at 821-822.
In the context of disputes as to whether a call upon a performance bond or guarantee will be enjoined, their Honours noted that there were three principal exceptions to the rule that a court will not enjoin the issuer from performing its unconditional obligation to make payment: to restrain the party in whose favour the performance guarantee was given from acting fraudulently; to restrain that party from acting unconscionably; and, where that party has made a promise not to call upon the bond, to enjoin that party on normal principles relating to the enforcement by injunction of negative stipulations in contracts (see from [75]ff).
Once called upon, however, there can be no serious suggestion (nor did I understand it to be suggested by Midcoast) that the party calling on the guarantee (Midcoast) can retain the funds for its own purposes (whether to hold as security or otherwise) but at the same time maintain a claim for the breach in respect of which the funds were claimed. In the present case, as I understand it, there was no complaint by Keldros as to the cashing in by Midcoast of the bank guarantee - in fact, Keldros gave directions to that effect, but it did so on the basis that the moneys be applied to the accepted amount owing for rent. Midcoast chose not to apply the funds in that way and appears to have retained them as security for any anticipated (and not then quantified) make good claim or to satisfy any liability in respect of the clean-up notice and tax invoice (though it is not apparent that this was its position at the time).
Midcoast has retained that sum for a considerable period of time and has not, in effect, yet accounted for it. In the circumstances, no service charge should be allowed in respect of the claimed amount for fuel and the $35,000 should be treated as referable to the Debt Claim. (The alternative would be that the Debt Claim would be allowed, minus the service charge, and the amount of $35,000 otherwise to be refunded to Keldros would be set-off against the amounts for which it is liable in these proceedings - including the Debt Claim; which would, thus, have the same effect.)

At a glance

Court

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Catchwords

Judgment (46 paragraphs)

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Legislation Cited (5)

Cases Cited (7)

Cited By (7)