Plaintiff v Defendant

1 These reasons concern an application for summary judgment brought by the defendant, Burgess Rawson & Associates Pty Ltd, against the plaintiff, Sparkling Waters Pty Ltd, pursuant to s 63 of the Civil Procedure Act 2010 (Vic) ('CPA').

2 The plaintiff owns a property at 63-67 Nicholson Street, Footscray. The building on the property is known as the 'Little Saigon Shopping Centre' ('shopping centre'). The defendant carries on the business of providing commercial property management services. The plaintiff has been a client of the defendant since about 2003, and the defendant was the property manager of the shopping centre until 13 December 2016, when the shopping centre was destroyed by fire.

3 It does not appear to be in dispute that the fire started as a consequence of a faulty circuit breaker in a switchboard in a supermarket in the shopping centre. The supermarket was operated by a tenant of the plaintiff, Lin Creations Pty Ltd, pursuant to a series of leases which were retail leases within the meaning of the Retail Leases Act 2003 (Vic).

4 The defendant provided property management services to the plaintiff under two management authorities, one executed in 2011, and another in 2014. For present purposes, there is no material difference between the terms of the 2011 and 2014 management authorities.

5 Under the 2014 management authority ('management agreement'), the defendant agreed to provide the following services to the plaintiff:

(a) perform or arrange weekly maintenance inspections of the shopping centre;

(b) liaise with tenants of the shopping centre in relation to their lease obligations, including compliance with statutory requirements, including essential services;

(c) instruct solicitors on legal matters in regards to the leases;

(d) provide advice and compliance with the retail tenancies legislation, as appropriate;

(e) perform or arrange annual maintenance inspections and appoint and supervise consultants and contractors, as required; and

(f) arrange for urgent repairs which were necessary to fix or remedy a fault or damage at the shopping centre substantially affecting a tenant's business.

6 The plaintiff alleged that it was implied by operation of law that the defendant would use reasonable care and skill in the performance of the services provided by it to the plaintiff. This is denied by the defendant in its defence, but I have no difficulty with that proposition, at least for present purposes.

7 As noted above, the plaintiff contends that the fire at the shopping centre was caused by a faulty switchboard. The plaintiff contends that the defendant should have identified the fault, and would have had it undertaken regular inspections of the switchboards in the shopping centre. As such, the defendant breached the terms of the management agreement, and is also liable to the plaintiff in negligence.

8 In its amended statement of claim dated 7 September 2022, the plaintiff alleged that by reason of the defendant's breach of its contractual obligation to provide its services with due care and skill, and the defendant's breach of its duty of care, it has suffered loss and damage, as follows:

(a) damage to the shopping centre of $5,315,461.90;

(b) the costs of removal of debris, estimated at $164,929.29; and

(c) loss of rental income of $1,399,500.00.

9 In its further amended defence filed on 7 October 2022, the defendant admitted that it agreed to provide certain services to the plaintiff, but did so on the basis that the defendant was providing an 'off-site' management service for the shopping centre, and as such, relied upon an exclusion clause in the management agreement ('exclusion clause').

10 The defendant relied upon the releases, indemnities, and bars against proceedings in the exclusion clause to support its contention that the plaintiff's claims in this proceeding have no real prospect of success, and accordingly, ought to be dismissed. Further, the defendant says that it was not in breach of the management agreement for the following reasons:

(a) it was not required by the plaintiff or any other party to arrange an electrical contractor to inspect the switchboard in the supermarket;

(b) it is not an electrician or an electrical contractor;

(c) the switchboard in the supermarket which caused the fire was within property owned by the plaintiff and leased by the tenant, and was not accessible to the defendant; and

(d) it was not required to arrange repairs to the switchboard in the supermarket.

11 The terms of the management agreement are in evidence. The exclusion clause provides as follows:

Offsite management

It is acknowledged that:

The Fees have been calculated on the basis that the Agent is providing an off-site property management service and will only be attending the Property on an infrequent basis; and

Such infrequent attendance is not consistent with the need for full control and management of the property for the Agent to be responsible for OH&S and public liability hazards and risks at the Property.

Accordingly, and notwithstanding any other clause of this agreement to the contrary, the Principal agrees:

(a) to release the Agent and its officers and employees from all actions, claims, demands, losses, liabilities, costs, expenses, outgoings or payments which the Principal may suffer, incur or become liable for or have against the Agent (including claims in negligence, tort or contract) now or in the future as a result of, arising from or in connection with personal injury or property damage occurring at, in or around the Property.

(b) to indemnify and keep indemnified the Agent and its officers and employees from and against all actions, claims, demands, losses, liabilities, costs, expenses, outgoings or payments which the Agent may suffer, incur or become liable to any other party (including claims in negligence, tort or contract) now or in the future as a result of, arising from or in connection with personal injury or property damage occurring at, in or around the Property; and

(c) that this clause may be pleaded as a bar to any legal proceedings the Principal may bring against the Agent or its officers or employees in relation to personal injury or property damage occurring at, in or around the Property.

12 The management agreement provides that the fee paid by the plaintiff to the defendant was $45,000.00 per annum plus GST, increased annually in accordance with the consumer price index.

13 The defendant contends that, by reason of the above, the plaintiff has released the defendant from liability for its claims in this proceeding, and is expressly barred from bringing its claims in this proceeding. Accordingly, the defendant says that the proceeding has no real prospects of success within the meaning of s 63 of the CPA, and should be dismissed.

Relevant legal principles and the parties' submissions

14 There was no real dispute between the parties regarding the legal principles applicable to the current application, being the principles governing the operation of s 63 of the CPA, and the principles governing the construction of contracts.

15 In relation to the former, the leading authority in this jurisdiction is the decision of the Court of Appeal in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd,[1] where Warren CJ and Nettle JA stated as follows (omitting citations):

(a) the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a "real" as opposed to a "fanciful" chance of success;

(b) the test is to be applied by reference to its own language and without paraphrase or comparison with the "hopeless" or "bound to fail test" essayed in General Steel;

(c) it should be understood, however, that the test is to some degree a more liberal test than the "hopeless" or "bound to fail" test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent's case is not hopeless or bound to fail, it does not have a real prospect of success;

(d) at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.[2]

16 Further, frequently referred to in the authorities is the statement by Neave JA that:

Undue emphasis on the caution with which a court must execute the power of summary dismissal runs the risk of reinforcing the historical approach to summary dismissal and may result in the legislative liberation of the test having little impact in practice.[3]

17 Section 64 of the CPA provides that:

Despite anything to the contrary in this Part or any rules of court, a court may under that civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because:

(a) it is not in the interests of justice to do so;

(b) the dispute is of such a nature that only a full hearing on the merits is appropriate.

18 In the current application, the defendant says that s 64 of the CPA has no application. For instance, this is not a case where granting summary judgment would not dispose of all of the issues in the proceeding. In response, the plaintiff says that the nature and scope of the dispute between the parties regarding the proper construction of the relevant terms of the management agreement is such that only a full hearing on the merits is appropriate.

19 In its written submissions, the defendant noted the frequent statements by the High Court to the effect that the correct approach to contractual construction is to:

... ascertain the objective meaning of the document by reference to the words in context and the commercial purpose and objects of the contract; and to favour the interpretation that makes the most commercial sense in that context.

20 The defendant submitted that the principles above also apply to terms limiting or excluding liability,[4] and, given that the exclusion clause refers expressly to claims in negligence, there can be no doubt that the management agreement expressly releases the defendant from any claims with respect to its concurrent duties in contract and tort of the kind relied upon by the plaintiff in this proceeding.

21 The defendant submitted that it is inevitable that a reasonable business person would understand the exclusion clause to include the risk of property damage caused by a fire at the shopping centre. The formulation of the exclusion clause gave effect to the risk allocation decisions made by the parties, with the broad scope of the exclusion clause being commensurate with the fees paid by the plaintiff to the defendant pursuant to the management agreement.

22 The defendant submitted that to view the exclusion clause as ambiguous is artificial when one has regard to the plain language of the exclusion clause. It is absurd to suggest that the fire did not cause any property damage 'at, in or around' the shopping centre.

23 The defendant submitted that the scope of the exclusion clause is clearly and deliberately broad, and the scope of the services provided by the defendant under the management agreement does not operate to confine the scope of the releases and indemnities provided by the exclusion clause.

24 The plaintiff did not take issue with the defendant's identification and expression of the relevant legal principles regarding the construction of contractual terms. Rather, it took issue with the defendant's contention that the exclusion clause was clear and unambiguous. The plaintiff relied upon the decision of the High Court in Codelfa Construction Pty Ltd v State Rail Authority (NSW)[5], where the Court said that:

... evidence of the surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible to more than one meaning.[6]

25 The existence of ambiguity, and thus the need for the parties to adduce evidence relevant to the commercial context and surrounding circumstances, is, according to the plaintiff, enough reason to dismiss the application for summary judgment, and for its claims in this proceeding to proceed to trial.

26 The plaintiff's submissions referred to the following decisions regarding the construction of exclusion clauses:

(a) the decision of the High Court in Darlington Futures Ltd v Delco Australia Pty Ltd,[7] where the Court said:

according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem [ie against the person seeking to rely on them] in case of ambiguity,[8] and

(b) the decision of the Full Court of the Supreme Court of South Australia in Glenmont Investments Pty Ltd v O'Loughlin (No 2), [9] where the Court said that:

the policy behind the recent approach to interpretation of exclusion clauses is based on the concept that the court should not impose a strained construction upon an exclusion clause, but should give effect to the intentions of the contracting parties who are capable of protecting their interests and deciding how to allocate risks (emphasis added).[10]

27 The plaintiff rejected the defendant's contention that '... the parties acknowledged that the defendant's fees as agreed by the parties were calculated on a basis that was not consistent with the need for full control and management of the property for (the defendant) to be responsible for OH&S and public liability hazards and risks at the property' relieves the defendant from liability for the plaintiff's claims in this proceeding. Rather, the plaintiff contends that, properly construed, the exclusion clause, which should be 'read down' in accordance with the principles referred to in the authorities above, does not operate to release the defendant from claims by the plaintiff with respect to property damage 'to' the shopping centre, as opposed to property damage occurring 'at, in or around' the shopping centre.

28 The plaintiff submitted that the context and commercial purpose of the exclusion clause is evident from the preamble to the exclusion clause, and, having regard to the references to the defendant not accepting responsibility for 'OH&S and public liability hazards and risks at the Property' in the preamble to the exclusion clause, the releases and bars in the exclusion clause do not apply to damage to the actual physical fabric of the shopping centre. The plaintiff submitted as follows:

This makes commercial sense, particularly in light of the commercial purpose of the Management Authorities, which includes the Defendant providing property management services. For example, the services which the Defendant agreed to provide under the 2014 Management Authority include "maintenance inspections of the property will occur weekly", "annual maintenance inspections, appointments and supervision of consultants and contractors, as required" and the Defendant is authorised to perform urgent repairs at the Property. It therefore makes commercial sense that the Defendant agree to accept responsibility for damage to the Property itself, being the Property it agreed to inspect and maintain, as distinct from personal injury and property damage suffered by occupants or visitors to the Property.

29 The plaintiff submitted that the exclusion clause was intended to apply to risks that arose because the defendant did not attend the site frequently, but did not apply to all risks. The plaintiff submitted that:

If the exclusion clause were intended to cover all losses suffered by the Plaintiff, including damage to the Property itself, then the preamble to the clause (referring to OH&S and public liability) would have no work to do.

Further, if the Defendant's construction of the exclusion clause were permitted, it would relieve the Defendant of liability for damage to the Property caused by the Defendant's failure to perform the contract. In other words, on the Defendant's construction, the Defendant could simply refuse to perform any maintenance at all, and the Plaintiff would have no remedy against the Defendant. Terms of exclusion clauses must be read down if they create an absurdity or defeat the main object of the contract.

30 Accordingly, the plaintiff submitted that, even if I do not consider that the plaintiff's construction of the exclusion clause is to be preferred, there is, at the very least, a real question to be tried, and the defendant has not established that the plaintiff's cause of action has no real prospects of success.

31 In the alternative, the plaintiff submitted that the proceeding ought proceed to trial in accordance with s 64 of the CPA, as it is not in the interests of justice to summarily dispose of the proceeding, as only a full hearing on the merits is appropriate.

32 The plaintiff submitted that the following matters relevant to the proper construction of the management agreement necessitate a full factual inquiry, which tells against the summary dismissal of the proceeding:

(a) the nature and scope of the 'off-site property management services' referred to in the preamble to the exclusion clause;

(b) the nature and scope of the term 'annual maintenance inspections', and 'appointment and supervision of consultants and contractors, as required' under the heading 'services included', in particular, the question of whether inspection of electrical switchboards falls within the scope of 'annual maintenance services'; and

(c) what equipment or areas in the shopping centre were required to be inspected weekly under the management agreement?

33 The plaintiff submitted that the management agreement is so poorly drafted that it is not possible, without a full hearing, to properly understand the context and commercial purpose of the management agreement and the services provided under the management agreement, which in turn will inform the question of whether or not some or all of the services provided by the defendant under the management agreement fall within the scope of the exclusion clause.

34 Essentially, the resolution of the defendant's application boils down to the following issue: is the proper construction of the exclusion clause so clear cut (and in accordance with the defendant's construction) such as to lead to the inevitable conclusion that the plaintiff's claims in this proceeding have no real prospects of success, such as to justify the grant of summary judgment in its favour.

35 The defendant says that the scope of the releases and indemnities in the exclusion clause are not confined by the words in the preamble to the exclusion clause, or the scope of the services provided under the management agreement. That much is clear from the fact that the exclusion clause includes the following statement:

Accordingly, and notwithstanding any other clause of this agreement to the contrary ...

36 Further, the defendant submitted that the statements of the High Court to the effect that the words of a contractual provision should be given their natural and ordinary meaning, as would be understood by business people in the position of the parties, support a broad construction of the exclusion clause, and the Court should not be unduly pedantic in its approach to construing the terms of the management agreement. This submission was no doubt made in response to the plaintiff's submission that the failure of the exclusion clause to refer to personal injury and property damage 'to' the shopping centre meant that the exclusion clause did not apply to the damage caused 'to' the shopping centre by the fire.

37 The plaintiff submitted that the reference in the preamble to the defendant's infrequent attendance at the property being inconsistent with the defendant being responsible for 'OH&S and public liability hazards and risks' at the shopping centre provides the necessary context in which the scope of the exclusion clause should be construed, having regard to the contra proferentem principle. While it is not entirely clear from the preamble precisely what is meant by the reference to OH&S and public liability risks and hazards, I accept that the common understanding of these terms is that 'OH&S risks and hazards' generally refer to the risks and hazards to which employees of the plaintiff (and possibly tenants at the shopping centre) are exposed, and 'public liability risks and hazards' generally refer to the risks and hazards to which customers and other users of the shopping centre are exposed. Such a construction is arguably consistent with the reference in the exclusion clause to personal injury or property damage 'at, in or around' the shopping centre, but not 'to' the property. In any event, given the ambiguity and uncertainty surrounding the scope of the exclusion clause, the plaintiff contends that the question of the nature and scope of the services provided under the management agreement and the scope of the releases in the exclusion clause are properly matters for trial.

38 I agree. In my view, this proceeding, given the significance of and the legitimate doubts about the question of the proper construction of the exclusion clause, is an inappropriate vehicle for the grant of summary judgment. While I am not convinced that the plaintiff's preferred construction of the exclusion clause is correct, I am not convinced that it is wrong either, certainly not to the degree of satisfaction required to grant summary judgment.

39 It is sometimes difficult to resist the temptation to deal with an apparently simple point of contractual construction on a summary basis, particularly given the more liberal test enacted by s 63 of the CPA, and the statements in the CPA to the effect that the Court should exercise its powers under the CPA to promote the efficient and cost effective resolution of civil disputes. However, one must resist the temptation to deal with what might (and in the current case, I should stress the word 'might') be appropriate for preliminary determination of a question under r 47.04(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) in an application of the current kind. That a question of contractual construction may not be appropriate for summary judgment is illustrated by the decision of Croft J in JBS Southern Aust Pty Ltd v Westcity Group Holdings Pty Ltd,[11] when the CPA was in its infancy, where his Honour reversed a decision I made to grant summary judgment in favour of a plaintiff on the basis that the defendant's arguments regarding the proper construction of a contractual provision had no real prospects of success. Not only did his Honour disagree with that finding, he went on to say:

Further, having regard to the amount of money, principal and interest, the subject of the judgment and orders and the length and complexity of the provisions of the [relevant agreement], I am of the opinion that even if the Court had doubts as to the prospects of success of a defendant's claims in circumstances like the present in terms of the s 63 test, the proper course would be to exercise the discretion under s 64 and to require a full trial of the claims.[12]

40 With respect, I do not consider the statement above should be taken to stand for the proposition that the Court should apply different standards of rigour in the application of s 63 (or perhaps also s 64) depending upon the quantum of the claim. However, it should be noted that in this proceeding, the plaintiff brings a substantial claim, and it seems to me that there is a real contest regarding the other issues in the proceeding, such as the question of whether the defendant's responsibilities under the management agreement extended to conducting or arranging regular inspections of electrical equipment, and, even had it done so, whether the fire would have been prevented. If those issues, and other subsidiary issues in relation to loss and damage are resolved in the plaintiff's favour, the only barrier impeding the recovery of substantial damages would be the defendant's reliance upon the exclusion clause. In those circumstances, I am reminded that the principle that the power to grant summary judgment should be exercised with great care remains important, notwithstanding the liberalisation of the test for summary judgment under s 63 of the CPA.

41 I accept that the defendant's preferred construction of the exclusion clause may well be successful at trial. After all, the exclusion clause is broadly expressed, and I doubt that the releases and indemnities in the exclusion clause can be read down so far as to only exclude liability for services not required to be performed by the defendant under the management agreement. However, in my view, the matter is not free from doubt.

42 However, it is not necessary or appropriate for present purposes to evaluate whether the plaintiff's contentions regarding the proper construction of the exclusion clause are likely to be successful at trial. All I have to be satisfied about is whether the plaintiff's contentions have any real prospects of success, and I am so satisfied. In that regard, I am not convinced that attributing some significance to the absence of the phrase 'to the Property' in the exclusion clause would be an exercise in uncommercial pedantry. After all, while the fire occurred 'at' the shopping centre, the property damage caused by the fire happened 'to' the shopping centre. Arguably, the releases and indemnities in the exclusion clause attach to property damage, not the event causing the property damage. Further, it seems to me to be at least arguable that the phrase 'notwithstanding any other clause of this agreement to the contrary' does not preclude the language in the preamble to the exclusion clause (which forms part of the exclusion clause, not part of any other clause of the management agreement) being relevant to the exercise in contractual construction required in order to determine the scope of the exclusion clause and its application to the plaintiff's claims in this proceeding.

43 Finally, while the question of whether extrinsic evidence will be admissible in order to ascertain the proper construction of the exclusion clause will ultimately be a matter for the trial judge, I accept the plaintiff's submissions that such evidence may well be relevant and admissible. In those circumstances, granting summary judgment would be inappropriate and unwise.

44 Accordingly, the defendant's application will be dismissed. I shall hear further from the parties as to whether directions are required for the further conduct of the proceeding, and regarding the question of the costs of the application.

[1] [2013] VSCA 158; (2013) 42 VR 27.

[4] Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500, 510.

[5] (1982) 149 CLR 337.

[7] [1986] HCA 82; (1986) 161 CLR 500.

[9] [2000] SASC 429; (2000) 79 SASR 185.

[11] [2011] VSC 476.