//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2026] NSWCA 79
respondent. Appeal dismissed. The appellant was ordered to pay the respondent’s costs ([88]).
The Court of Appeal upheld the landlord’s judgment. It concluded that the lessee’s decision to store plastic-wrapped pallets outside was sufficiently connected to the fire to trigger the lease indemnity, including for damage to the neighbouring property. The lease also separately required the warehouse to be reinstated to its original form, which the Court read as including reconstruction. By contrast, the general obligation to keep and maintain the premises did not itself require reconstruction. The indemnity finding was enough to dismiss the appeal.
AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.
5 cited instruments linked from this judgment.
2,334 words · generated 08/10/2026
Polyaire Pty Ltd leased Unit 2, a warehouse at 167 Prospect Highway, Seven Hills, from 167 Prospect Highway Pty Ltd. The lease was entered into on or around 1 August 2014 ([3]). Polyaire used the premises for manufacturing and storing air-conditioning components, among other permitted activities ([13]).
Some components were stored outside the warehouse, on pallets on a hardstand. The goods were packaged in cardboard and covered with transparent plastic. When it rained, water collected in depressions in the plastic. The judgment describes the pooled water as an “aqua lens”. Under suitable conditions, sunlight concentrated through that water onto the cardboard, and a sufficient breeze contributed to ignition ([7]). There was no dispute about that mechanism before the primary judge ([7]).
The resulting fire destroyed both Polyaire’s leased warehouse and an adjoining warehouse on Lot 17, also owned by the respondent and occupied by another tenant ([3], [8]). The respondent sued, claiming that the lease made Polyaire responsible for the loss. At trial, the primary judge entered judgment for $15,180,146.68, plus interest and costs ([6]). The amount of lost rent and outgoings was not pursued on appeal ([5], [39]).
The appeal concerned the meaning and interaction of several lease provisions. The central clause was cl 10.3, an indemnity covering specified kinds of loss, including loss connected with the escape of fire and damage arising out of the lessee’s use of the premises ([16]). The other disputed provisions included cl 12.1(a)(ii), requiring reinstatement of a warehouse to its original form, and cl 7.1, requiring the lessee to keep and maintain the premises in their initial condition and state of repair ([14], [17]).
Payne JA gave the principal reasons. Leeming JA and Mitchelmore JA agreed ([1], [89]). The Court dismissed the appeal and ordered Polyaire to pay the respondent’s costs ([88]).
The Court treated cl 10.3 as the logical starting point because it was the only clause capable of extending to damage at Lot 17, outside the leased premises ([44]). It examined the clause’s text and structure rather than treating the parties’ agreed interpretation of one phrase as conclusive. Although the clause was described as “infelicitous” and imperfectly drafted, the Court said that this did not justify disregarding its language ([45], [49]).
The appellant and respondent had proceeded on the basis that “whether by” in the opening words of cl 10.3 imposed a causal requirement. Payne JA questioned that construction. In his view, the words could naturally operate as an expansion of the persons or conduct covered, rather than as a separate causal threshold ([51]–[55]). But the Court did not need to decide the point. It assumed in the appellant’s favour that the chapeau imposed a causal connection and considered whether that connection was established ([56]).
The Court also addressed the interpretive principle favourable to an indemnifier. It referred to Bofinger v Kingsway Group Limited and Nashco Pty Ltd v Yang. The principle did not mean that a court should select any arguable construction that narrows the indemnity. The court first applies ordinary contractual interpretation; only a doubt remaining after that exercise is resolved in favour of the indemnifier ([48]). This was important because the Court considered the clause in its full context, including the specific categories in paragraphs (a) to (h), rather than isolating language that might be read restrictively.
For causation, the appellant accepted that the question involved a judgment about the “closeness” of the conduct to the loss, rather than tracing every event in an unlimited chain of necessary conditions ([57]). The Court applied the common-sense approach to causation described in Royall v The Queen, while recognising that the exercise attributes legal responsibility ([56]). The storage decision mattered because it exposed the packaging to rain, sunlight and wind. The Court characterised that exposure as a foreseeable consequence of leaving the pallets outside, not a remote background circumstance ([58]).
That reasoning supported the conclusion that the storage was a material cause and, if required, a proximate cause of the fire. The Court described the relevant cause as leaving the pallets “outside, exposed to the elements, rather than placed within the warehouse” ([69]). It therefore rejected the contention that the elements alone were the real cause.
The Court considered three parts of cl 10.3. Under paragraph (c), it rejected the argument that a fire could not “escape” within the premises when it spread from one part of the leased premises to another. The clause covered an escape of fire “in or from” the premises ([61]). Under paragraph (d), the Court held that the fire damage arose out of the appellant’s use of the premises, and that the storage conduct caused or contributed to the loss ([62]–[63]). Under paragraph (h), it rejected the suggested reading that the clause applied only where the lessee took some action after an accident. A reasonable businessperson would understand it to cover the accident and loss in this case, where the lessor had not caused or contributed to the loss ([65]–[66]).
The Court also rejected the argument that cl 7.2 qualified the indemnity as a whole. It agreed with the primary judge that such a reading could deprive parts of cl 10.3, including paragraphs (c) and (h), of meaningful operation ([67]). It held that the implied covenant in s 84(1)(b) of the Conveyancing Act did not change the construction of cl 10.3, because cl 10.3(h) covered the same ground as the implied covenant in relation to accidental damage caused by the lessee’s act or omission ([68]).
The judgment applies established interpretive principles to the wording of this particular commercial lease. It records that the parties accepted that the meaning of a commercial contract is assessed objectively, by reference to its text, context and purpose, and from the perspective of a reasonable businessperson ([19]–[20]). The Court did not purport to replace that framework.
Its clarification about indemnity construction is narrower. An indemnity is first construed by ordinary principles. If those principles leave a genuine doubt, the remaining doubt is generally resolved in favour of the indemnifier ([48]). The judgment rejects an overly broad use of that principle: it is not a licence to adopt every plausible interpretation that reduces liability. This is an explanation of how the existing interpretive principle operates, not a rule that all indemnities should be read broadly.
On causation, the judgment applies a common-sense inquiry focused on attributing legal responsibility. It does not set out a new universal test for every contractual causation clause. The analysis proceeded on an assumption favourable to the appellant about the causal wording and concluded that the storage conduct met even the proposed material or proximate standard ([56], [69]). The practical emphasis is on identifying the conduct that played an integral role in the sequence, rather than treating every necessary antecedent as a legally relevant cause ([58], drawing on the primary judge’s reasoning at [22]).
For lease covenants, the Court maintained a distinction between repair and reconstruction. It treated cl 7.1’s “keep and maintain” language as insufficient to impose a duty to reconstruct the warehouse ([81]). But the distinct word “reinstate” in cl 12.1(a)(ii), read in the context of the separate warehouse-specific obligation, did encompass reconstruction ([74]). The result therefore depends on the wording and structure of the particular covenants, rather than a general proposition that every reinstatement clause requires rebuilding.
As to the Conveyancing Act, the Court applied the proposition that an implied covenant may be varied or excluded by an inconsistent express covenant. It held that the warehouse reinstatement obligation in cl 12.1(a)(ii) had that effect in relation to s 84(1)(b) ([77]–[79]). The judgment describes s 74(2) as providing for variation of an implied covenant by express declaration in the deed ([77]). It does not hold that every express repair or reinstatement obligation automatically displaces statutory implied covenants.
At [48], Payne JA states that doubt is resolved for the indemnifier only after ordinary construction has been attempted. In plain English, a court first reads the whole clause in the usual way. The rule favouring the indemnifier is a last step where real uncertainty remains, not a starting presumption that narrows the clause.
At [58], the Court says the pallets were left outside, exposed to the elements, and that this was a real cause of the fire. In plain English, the Court did not treat the fire as caused only by unusual weather or sunlight. The way and place the goods were stored were part of the operative cause because that storage exposed the packaging to the conditions that led to ignition.
At [69], the Court says the storage was both a material cause and, if necessary, a proximate cause. In plain English, even if the lease required a relatively close connection between the lessee’s conduct and the loss, the Court considered the connection sufficiently close on these facts.
At [74], the Court says “reinstatement” went beyond repair and included reconstruction. In plain English, the specific warehouse clause required more than fixing surviving parts. The wording required the warehouse to be returned to its original form, and in the circumstances this could require rebuilding.
At [81], the Court distinguishes “keep and maintain” from “reconstruct”. In plain English, a general obligation to maintain a building in repair does not necessarily make a tenant responsible for rebuilding it after destruction. Here, the lease dealt separately with reinstatement of the warehouse.
At [88], the Court orders that the appeal be dismissed and the appellant pay the respondent’s costs. In plain English, the primary judgment remained in place, and Polyaire had to meet the respondent’s appeal costs.
The decision is most directly relevant where a commercial lease contains a broadly worded indemnity and the loss is connected with the tenant’s use of the premises. In this case, the Court considered whether a lessee’s storage practices could be a legally relevant cause even though weather and sunlight were also necessary elements in the ignition sequence. It held that the storage conduct could satisfy the causal language where it exposed the goods to the conditions that produced the fire ([56]–[69]).
The case may also be relevant where the indemnity covers different categories of loss, including escape of fire, loss arising from use of the premises, or an accident on or about the premises. The decision shows the importance of reading each paragraph alongside the chapeau and the rest of the clause. In this lease, the Court considered the wording of paragraphs (c), (d) and (h) separately and in context ([60]–[68]).
A further relevant pattern is a lease containing both a general maintenance covenant and a specific reinstatement obligation. The Court treated “keep and maintain” as different from “reinstate” and gave the warehouse-specific wording independent effect ([74], [81]). The result may therefore turn on whether the lease uses express terms such as “rebuild”, “reconstruct”, “replace” or “reinstate”, and on how the provisions fit together.
The decision also matters where a party argues that statutory implied covenants under the Conveyancing Act remain operative despite express lease terms. The Court examined whether the express wording was inconsistent with the implied covenant relied on and concluded that the specific reinstatement clause varied or negatived it in this lease ([77]–[79]). The judgment does not establish that the same outcome follows from differently worded leases.
The supplied judgment contains no information about later judicial treatment of Polyaire Pty Ltd v 167 Prospect Highway Pty Ltd. It is dated 12 May 2026, and the material provided contains the judgment itself, not subsequent decisions. It is therefore not possible, on this source alone, to say whether later courts have followed, distinguished, limited or otherwise treated the case.
The judgment does identify the authorities Payne JA relied on or considered. For indemnity construction, it refers to Bofinger v Kingsway Group Limited and Nashco Pty Ltd v Yang in explaining the rule about residual doubt ([48]). For causation, it applies Royall v The Queen ([56]). For the repair/reconstruction distinction, it relies on Lurcott v Wakely and Wheeler and distinguishes Norwich Union Life Insurance Society v British Railways Board and Crédit Suisse v Beegas Nominees Ltd because the clauses in those cases expressly included rebuilding, reconstruction, replacement or renewal language ([81]–[82]). These relationships describe the reasoning in this judgment, not how later courts have treated Polyaire itself.
The judgment expressly leaves some matters unresolved. First, Payne JA questioned whether “whether by” in the opening words of cl 10.3 imposed a causal requirement at all, but assumed that it did because the parties argued the appeal on that basis. The Court therefore did not finally decide the correct construction of that phrase ([51]–[56]).
Second, the Court’s conclusion about causation arose from these facts: the packaging, the transparent plastic, pooled water, sunlight, wind and the decision to store the pallets outdoors ([7], [58]). The judgment does not specify how much causal contribution would be sufficient in different circumstances, or how the same wording would apply where the lessee’s conduct was less closely connected to the loss.
Third, the Court did not resolve the issues raised by the notice of contention concerning the long-standing authorities on repair, rebuilding and delivery up. Payne JA said it was undesirable to address those questions because they were unnecessary to the appeal’s disposition ([86]–[87]). That leaves those broader questions outside the decision’s determinations.
Finally, the decision does not establish how a differently drafted lease would interact with ss 74, 84 or 85 of the Conveyancing Act. Its conclusions depended on the particular combination of cl 10.3, cl 12.1(a)(ii), and the maintenance provisions ([68], [74], [77]–[85]). A lawyer assessing another lease would need to compare its exact language and statutory context with the provisions considered here.
This is general legal information, not legal advice. Zoe can make mistakes. Before acting on this, relying on it, or using any draft, have a qualified Australian lawyer check it.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Polyaire Pty Ltd v 167 Prospect Highway Pty Ltd [2026] NSWCA 79
Hearing dates: 25 March 2026
Date of orders: 12 May 2026
Decision date: 12 May 2026
Before: Leeming JA at [1];
Payne JA at [2];
Mitchelmore JA at [89]
Decision: (1) Appeal dismissed;
(2) Appellant to pay the respondent’s costs.
Catchwords: CONTRACTS — commercial lease — where fire originating on leased premises destroyed structures on leased and adjacent premises — proper construction of indemnity clause — whether causation in indemnity clause satisfied — whether reinstatement provision includes rebuilding not just repair — whether lease provisions imposing liability negatived implied covenant under s 84 of the Conveyancing Act 1919 (NSW)
Legislation Cited: Conveyancing Act 1919 (NSW), ss 74, 84, 85
Hire-Purchase Act 1960 (NSW), s 5
Trade Practices Act 1974 (Cth), s 82
Cases Cited: 167 Prospect Highway Pty Ltd v Polyaire Pty Ltd [2025] NSWSC 1144
Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716
Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49
Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44
Bowen Investments Pty Ltd v Tabcorp Holdings Pty Ltd (2008) 166 FCR 494; [2008] FCAFC 38
Crédit Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76; [1994] 4 All ER 803
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd [No 2] (1987) 16 FCR 410
Esanda Ltd v Clark (1985) 159 CLR 543
Fitzgerald v Masters (1956) 95 CLR 420
Graham v Markets Hotel Pty Ltd (1943) 67 CLR 567
Greer v Pickering [2015] NSWSC 1131
Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited [2005] NSWCA 66
LCA Marrickville Pty Ltd v Swiss Re International SE (2022) 290 FCR 435; [2022] FCAFC 17
Lurcott v Wakely and Wheeler [1911] 1 KB 905
Marks v GIO (1998) 196 CLR 494; [1998] HCA 69
Mount Bruce Mining Pty Ltd v Wright Prospecting [2015] 256 CLR 104; [2015] HCA 37
Nashco Pty Ltd v Yang [2022] NSWCA 137
Norwich Union Life Insurance Society v British Railways Board [1987] 2 EGLR 137; (1987) 283 EG 846
Percy E Cadle and Co Ltd v Jacmarch Properties Ltd [1957] 1 QB 323
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5
Royall v The Queen (1991) 172 CLR 378
Saviane v Stauffer Chemical Co (Australia) Pty Ltd [1974] 1 NSWLR 665
Simic v New South Wales Land and Housing Corp (2016) 260 CLR 85; [2016] HCA 47
Torrens v Walker [1906] 2 Ch 166
Waterhouse v Waugh [2003] NSWCA 139
Weatherhead v Deka New Zealand Ltd (No 2) (1998) 1 NZLR 453
Westina Corporation Pty Ltd v BGC Contracting Pty Ltd (2009) 41 WAR 263; [2009] WASCA 213
Texts Cited: Nuncio D’Angelo, “The Indemnity: It’s all in the drafting” (2007) 35 Australian Business Law Review 93
Perry Herzfeld and Thomas Prince, Interpretation (3rd ed, 2024, Lawbook Co)
Category: Principal judgment
Parties: Polyaire Pty Ltd (Appellant)
167 Prospect Highway Pty Ltd (Respondent)
Representation: Counsel:
N Hutley SC and D Weinberger SC (Appellant)
M Ashurst SC and N Simone (Respondent)
Solicitors:
McCabes Lawyers (Appellant)
Sparke Helmore Lawyers (Respondent)
File Number(s): 2025/00415291
Publication restriction: None.
[This headnote is not to be read as part of the judgment]
The appellant, Polyaire Pty Ltd, was found by Ward P in the Supreme Court to be liable under a lease to a property owner, 167 Prospect Highway Pty Ltd, for damages that resulted from a fire that destroyed the warehouse on the leased premises and a warehouse on an adjacent property (also owned by 167 Prospect Highway Pty Ltd). Damages were awarded in the total sum of $15,180,146.68.
Polyaire Pty Ltd sought to appeal this decision on the basis that it did not relevantly “cause” the damage and was not liable under the proper interpretation of various provisions contained within the lease.
The Court (per Payne JA, Leeming and Mitchelmore JJA agreeing) held, dismissing the appeal:
(1) The indemnity clause (cl 10.3) applied in this case. Where there is doubt as to the proper interpretation of an indemnity clause, first the ordinary principles of contractual interpretation should be applied. Thereafter, any remaining uncertainty should generally be resolved in favour of the indemnifying party. The principle does not mean that whenever a litigant can construct a potential construction of a provision that reduces the legal operation of the words, such a construction is preferred. [44]-[48]
Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44; Westina Corporation Pty Ltd v BGC Contracting Pty Ltd (2009) 41 WAR 263; [2009] WASCA 213; Nashco Pty Ltd v Yang [2022] NSWCA 137 cited and applied.
Assuming the appellant’s construction of cl 10.3 to be correct, the primary judge was correct to conclude that the storage of the pallets (packaged and in the location as they were) was both a material and, if it be necessary, proximate cause of the fire. Put in the language of senior counsel for the appellant on the appeal, the storage of the pallets by the appellant in the open air was “material to the outcome of the event”. Making the “judgment call” required about the “closeness” of the cause to the loss suffered, the real cause of the fire was that these pallets were left outside, exposed to the elements, rather than placed within the warehouse. [49]-[70]
Royall v The Queen (1991) 172 CLR 378 applied.
Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd [No 2] (1987) 16 FCR 410; Marks v GIO (1998) 196 CLR 494; [1998] HCA 69; Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited [2005] NSWCA 66 cited.
(2) The lease made express provision for the reinstatement of the warehouse at the end of the lease to its original form (cl 12.1(a)(ii)). The primary judge was correct to conclude that the parties intended the reinstatement obligation to go beyond repair. The concept of “reinstatement” encompassed reconstruction of the warehouse entirely. [71]-[74]
Esanda Ltd v Clark (1985) 159 CLR 543; Saviane v Stauffer Chemical Co (Australia) Pty Ltd [1974] 1 NSWLR 665 considered.
(3) Where there is an inconsistency between an express contractual clause and the implied covenant in s 84(1)(b) of the Conveyancing Act 1919 (NSW), the implied covenant is excluded. The primary judge was correct to conclude that the s 84(1)(b) implied covenant was excluded. [75]-[79]
Esanda Ltd v Clark (1985) 159 CLR 543; Waterhouse v Waugh [2003] NSWCA 139; Greer v Pickering [2015] NSWSC 1131 considered.
(4) The term that required the lessee to “keep and maintain” the premises in the same condition and state of repair as at the commencement of the lease (cl 7.1 and 7.2), did not encompass an obligation to “reconstruct” the premises. The primary judge was correct to interpret the clause in this way. [80]-[85]
Lurcott v Wakely and Wheeler [1911] 1 KB 905 at 918–9 applied.
Norwich Union Life Insurance Society v British Railways Board [1987] 2 EGLR 137; (1987) 283 EG 846; Crédit Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76; [1994] 4 All ER 803 considered.
LEEMING JA: I agree with Payne JA.
PAYNE JA: This is an appeal from a decision of Ward P, sitting in the Equity Division: 167 Prospect Highway Pty Ltd v Polyaire Pty Ltd [2025] NSWSC 1144.
On or around 1 August 2014, the appellant, Polyaire Pty Ltd, and the respondent, 167 Prospect Highway Pty Ltd, entered into a lease for warehouse premises at Unit 2, 167 Prospect Highway, Seven Hills NSW 2147. On 3 November 2018, a fire destroyed those premises and an adjoining warehouse, Lot 17, owned by the respondent.
On 23 November 2022, the respondent commenced proceedings against the appellant in the Equity Division seeking damages in the sum of $13,134,974.25, plus interest and costs. Shortly put, the respondent’s case was that the appellant was responsible under the lease for damages for the destruction of the leased premises and the adjoining warehouse as a result of the fire.
The matter was heard by the primary judge on 18 and 19 August 2025. By the time of the hearing, only two issues remained to be determined, being first, the proper construction of the lease and, secondly, the quantum of lost rent and outgoings. That second issue is no longer pressed on appeal.
The primary judge summarised her Honour’s conclusions as follows:
“[4] For the reasons that follow, I have concluded that the defendant [Polyaire Pty Ltd] is liable to indemnify the plaintiff [167 Prospect Highway Pty Ltd] pursuant to cl 10.3 of the Lease [the indemnity provision] for the damage suffered or incurred by the plaintiff as a result of the fire which occurred on the premises and which escaped onto the adjacent Lot 17 premises (and, but only in relation to the Unit 2 premises [occupied by Polyaire Pty Ltd at the time of the fire], pursuant to the obligation to reinstate the warehouse pursuant to cl 12(a)(ii) of the Lease [the reinstatement provision]), and that judgment should be entered in favour of the plaintiff for damages in the sum of $15,180,146.68, plus interest calculated in accordance with cl 12.1(e) of the Lease and costs.”
There was ultimately no dispute before the primary judge about the mechanism by which the fire originated. The appellant stored air conditioning unit components on pallets, which were placed on a hardstand in the open air outside the warehouse. The air conditioning units were packed with corrugated cardboard and covered by transparent plastic sheets. When it rained, water pooled in depressions in the plastic, creating an “aqua lens”. When the sun shone on the aqua lens at the right angle, the light rays were concentrated on the cardboard, and that coupled with there being a sufficient breeze caused the cardboard to ignite.
The fire started by the ignited cardboard destroyed both the warehouse leased by the appellant as well as the adjacent warehouse which was also owned by the respondent (Lot 17), occupied by another lessee (Blessington Pty Ltd).
“The Lessee shall take the Premises subject to such of the covenants conditions and restrictions implied by Sections 84 and 85 of the Conveyancing Act 1919 as are not expressly negatived or modified.”
“‘Lessee’ means the Lessee referred to on the front page of this Lease and the successors and permitted assigns of the Lessee … and where the context permits, the employees, invitees, licensees, contractors, subLessees and agents of the Lessee.
‘Land’ means the land so described in the Reference Schedule. [Item 1 of the Reference Schedule defines ‘Land’ as ‘the Property known as 167 Prospect Highway, Seven Hills …’]
‘Premises’ or ‘premises’ means the Premises described in the Reference Schedule and the plant furnishings and fittings and fixtures provided by the Lessor in the Premises from time to time …’ [Item 2 of the Reference Schedule defines ‘Demised premises’ as ‘Unit 2 having an area of 4,272.70 square metres (comprising approximately 3,339.70 square metres of office and warehouse space …’]
‘Buildings’ means the building or buildings and other improvements erected or to be erected on the Land from time to time together with any extensions modifications or alterations.”
Clause 2.3 provided that headings are inserted for convenience and do not affect the interpretation of the Lease.
Clause 5 (headed “Damage to Premises”) provided:
“5 If the Premises or the Building or any part shall at any time be damaged or destroyed so as to render the Premises or any part wholly or substantially unfit for the occupation and use of the Lessee or, (having regard to the nature and location of the premises and the normal means of access) wholly or substantially inaccessible, then and so often as the same shall happen:
5.1 this Lease may be terminated by the Lessor without compensation to the Lessee;
5.2 except where such damage or destruction has been caused or contributed to or arises from any act or omission of the Lessee or the Lessee's employees and agents or any policy or policies of insurance effected by the Lessor in respect of loss or damage to the Building shall have been vitiated or payment of the policy moneys refused in consequence of some act or omission by or on the part of the Lessee:
[(a)–(c) then set out what is to occur in that event, including at (b) circumstances in which the Lease may be terminated by written notice by the Lessee]
…”
Clause 6.1 provided that the Lessee must use the Premises only for the use stated in the Reference Schedule. The use stated in the Reference Schedule was “Manufacturing of sheet metal, insulation and ductwork for air conditioning installations and the manufacture, assembly, distribution and storage of air-conditioning components and other products that the Lessee may own or have an interest in and associated offices”.
Clauses 7.1 and 7.2, under the heading “Repairs and Maintenance and Compliance with Laws”, relevantly provided:
“7.1 The Lessee must during the term of this Lease:
(a) keep and maintain the Premises … in the same condition and state of repair as they were at the commencement of this lease … except for fair wear and tear…
…
(e) maintain, repair or replace (as necessary) any concrete paving, due to the negligence by the Lessee, in the enclosed yard of the Premises as requires such maintenance, repair or replacement from time to time other than as a result of fair wear and tear…
7.2
(a) Despite clause 7.1 the Lessee need not:
(i) make structural repairs to the Premises; or
(ii) replace items of a capital nature,
unless they arise because of any act, omission or breach of this lease by the Lessee or its employees or agents or unless they are required because of the Lessee's use of the Premises; and
(b) The Lessee is not responsible for repairs required as a result of natural disasters, deliberate damage or accident, such as fire, flood, storm, earthquake, explosion, which are beyond the Lessee's responsibility or control, unless:
(i) the damage occurred as a result of or was substantially contributed to by the Lessee's act or omission; or
(ii) the Lessor is unable to recover from its insurer insurance money for the damage because of some act or omission, neglect, default or misconduct by the Lessee or by other persons for whose conduct the Lessee is responsible.”
“9.1 The Lessee must maintain in respect of the Premises the following policies of insurance for:
(a) public liability for at least the amount set out in the Reference Schedule [$20,000,000] (or for such greater amount as the Lessor reasonably requires from time to time consistent with general good industry practice) including where reasonable to do so a cross liability and waiver of subrogation clause and bearing endorsement to cover “Lessee’s liability extension”; “lease liability extension”; and the liability of the Lessee to the Lessor under Clause 10 of this lease;
…”
“10.3 The Lessee indemnifies the Lessor from and against any liability, loss, damage, expense, costs or claim suffered or incurred by the Lessor whether by act, omission or neglect of the Lessee or the Lessee's contractors, sub-Lessees, licensees, agents, employees or invitees, including to a third party, during or after the term of this lease, in respect of or arising from:
(a) loss, damage or injury to property or person caused or contributed to by the act, omission, neglect or default of the Lessee;
(b) the misuse whether by act or omission by the Lessee of any services or facilities in the Building or in the Premises;
(c) the overflow, leakage or escape of water, gas, electricity, fire, or other materials or substances in or from the Premises, caused or contributed to by the Lessee;
(d) loss, damage or injury to property or person, caused or contributed to by the Lessee arising out of use of the Premises;
(e) loss, damage or injury to property or persons, caused or contributed to by the defective installation of plant, fixtures and equipment in the Premises by the Lessee;
(f) the Lessee’s failure to notify the Lessor regarding any defect in the facilities or services in the Premises;
(g) failure by the Lessee to comply with any laws relating to occupational health and safety; and
(h) an accident on or about the premises not caused or contributed to by the Lessor.”
“12.1 The Lessee must:
(a) before (but not later than) the expiration or sooner determination of the said term:
(i) yield up the Premises in a clean and tidy condition and in the same condition and state of repair as existed at the commencement of the term … except for fair wear and tear;
(ii) where all or part of the Premises comprised a warehouse as at the commencement of this Lease …, then the Lessee must reinstate that part of the Premises to its original form as at the commencement of this Lease or earlier occupation of the Premises unless otherwise agreed to in writing by the Lessor;
…”
“12.5 If the Lessee fails to comply with clauses 12.1 and 12.4, the Lessee indemnifies the Lessor in respect of the cost of complying with clauses 12.1 and 12.4 including making good any damage to the Premises or the Building and until such time as the removal and making good required by clauses 12.1 and 12.4 has been completed by the Lessee or by the Lessor upon the Lessee's default so as to permit reletting of the Premises, THEN the Lessee must pay or allow to the Lessor by way of liquidated damages in relation to any such default, a sum equivalent to the rent payable by the Lessee immediately prior to the expiration or determination of the term of this Lease for the period until the Premises are made fit for reletting.”
There was no dispute between the parties about the principles of contractual interpretation which applied to commercial leases such as this one. It was also accepted that the meaning of terms in a commercial contract should be determined by reference to what a “reasonable businessperson” would think: Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45; [2002] HCA 5; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35].
It was also common ground that the proper construction of the contract should be determined objectively by reference to text, context and purpose: Mount Bruce Mining Pty Ltd v Wright Prospecting [2015] 256 CLR 104; [2015] HCA 37 at [46]-[52] per French CJ, Nettle and Gordon JJ; Simic v New South Wales Land and Housing Corp (2016) 260 CLR 85; [2016] HCA 47 at [78] per Gageler, Nettle and Gordon JJ. It was agreed that like terms should be construed consistently or, in the event they cannot be, in a natural or commonsense way: Fitzgerald v Masters (1956) 95 CLR 420 at 437 and Bowen Investments Pty Ltd v Tabcorp Holdings Pty Ltd (2008) 166 FCR 494; [2008] FCAFC 38 at [50].
Whilst the primary judge addressed the claims in the order presented by the parties at trial, claims relating to cl 7, cl 12 and, finally, cl 10, on appeal that order was reversed. As will become apparent, that was the correct order in which to address the issues.
“[80] … Whether what is required is a proximate cause or a material cause to my mind makes no difference in the present case because I have concluded that the storage of the pallets (packaged and in the location as they were) was both a material and, if it be necessary, proximate cause of the fire. That is because it was the place and manner of storage that made it possible for the creation of the aqua lens, on which the elements operated to produce ignition of the cardboard layers in the pallets; and hence a material cause of the fire itself. Further, it was integral to the causation of the fire and hence an effective or proximate cause.
[81] The extraordinary nature of the occurrence or the chain of events necessary to produce the conflagration is not to the point. Had the pallets (packaged as they were so as to permit the pooling of water which created the aqua lens) not been exposed to the elements, the fire would not have occurred. From a common sense perspective (urged upon me by both parties) that was not simply a necessary condition for the fire nor a mere background circumstance but, rather, a proximate or material cause of its occurrence (in combination, of course, with the effect of the sun’s rays and wind).
[82] I do not accept that such a conclusion would mean that some much earlier or antecedent step in the chain (such as signing the lease or agreeing to import the air splitters) would on this reasoning be a material or proximate cause. Those steps would indeed be a necessary condition of the loss or damage, in the sense that without them one would not have ended up with the loss, but events of that kind cannot, viewed in a common sense way, be seen as playing an integral causative role in the fire.”
The claim under cl 10.3 was the only one that extended to the damage suffered in relation to the Lot 17 premises owned by the respondent and leased by Blessington Pty Ltd.
The respondent contended the indemnity in cl 10.3 was sufficiently broad to capture the loss in question, submitting that the loss was suffered or incurred by the act or omission of the appellant and was loss in respect of or arising from one or more of the events described in (a), (c), (d) and/or (h) of cl 10.3.
The parties were agreed that the words “whether by” in the chapeau to cl 10.3 introduced a requirement of causation. Her Honour was not convinced, but ultimately accepted the construction of cl 10.3 offered by the parties that:
“[131] While I remain of the view that linguistically (i.e., textually) that makes more sense, in context I accept that the words ‘whether by …’ must introduce a first requirement for the indemnity, as otherwise sub- cl 3(h) would not make commercial sense.”
“[135] I have concluded that cl 10.3(a) does involve surplusage but that this does not render the balance of cl 10.3 void for uncertainty (an argument which would need to have been pleaded in any event) nor does the surplusage require some alternative construction more favourable to the defendant (not identified in its submissions) to be adopted.”
The primary judge found that cl 10.3(c) was clearly satisfied. There was an escape of fire in and from the appellant’s leased premises which encroached on the neighbouring lot and it was caused in the relevant sense by an act of the appellant.
Clause 10.3(d) was also satisfied. Her Honour concluded that the question of whether the loss was caused or contributed to by the use of the premises was settled by the findings of causation I have set out above. Clause 10.3(h) was also satisfied due to the finding “as to cause of the damage by the act of the Lessee and the accident not being caused or contributed to by the Lessor.” Her Honour considered that the indemnity in cl 10.3(h) would negative the implied covenant in s 84 of the Conveyancing Act 1919 (NSW) and did so here.
As to cl 12.1(a)(i), the appellant maintained that it was not possible to “yield up” the premises given that renewal of the whole was required. In the context of the cl 12.1 claim in particular, the appellant attached significance to s 84(1)(b) of the Conveyancing Act.
The appellant argued that s 84(1)(b) “negative[d]” or “extinguishe[d]” the obligation to yield up the premises in good and tenantable repair in the event of an accident or damage by fire.
Her Honour concluded that “repairs” could be structural but would not extend to complete reconstruction. This conclusion disposed of the claim under cl 12.1(a)(i). The primary judge found that, if that was not correct, in any event cl 7.2(b) would operate to negative or vary the implied covenant in s 84(1)(b) and would then also apply to exclude its operation from cl 12.1(a)(i).
Clause 12.1(a)(ii), however, was different. Her Honour summarised her conclusions under cl 12.1(a)(ii) as follows:
“[110] As to the claim under cl 12.1(a)(ii), the Lease makes express provision for the reinstatement of the warehouse at the end of the Lease to its original form. Had the parties intended the reinstatement obligation to be that of repair, there would have been no need to use the word ‘reinstatement’. I consider that the concept of ‘reinstatement’ goes beyond repair and does encompass reconstruction of the warehouse. The fact that the parties have carefully identified the warehouse as the subject of the reinstatement obligation indicates that it is to be treated in a category of its own. I have concluded that cl 12.1(a)(ii), by requiring reinstatement (separately from the obligation to yield up that appears in cl 12.2(i)), operates to vary or negative the s 84(1)(b) implied covenant (even if that were not otherwise excluded by cl 7.2(b)).”
“[112] … I consider that the claim for breach of cl 12.1(a)(ii) is made good.”
The primary judge concluded that there are a number of cases dealing with repair or maintenance covenants where a distinction is drawn between “repair” and “reconstruction” or “rebuilding” of the whole: Lurcott v Wakely and Wheeler [1911] 1 KB 905; Crédit Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76; [1994] 4 All ER 803.
Her Honour concluded that this long-recognised distinction strongly pointed against cl 7.1 being the source of an obligation by the defendant to rebuild the warehouse. Her Honour found that cl 7.1 was an ongoing obligation, and that fact “points against the clause extending to complete reconstruction of the structure on the Premises”.
Her Honour concluded:
“[76] Thus, I am not persuaded that the obligation in cl 7.1 extends to works of the kind here required for the complete reconstruction of the warehouse.”
“[86] … had I been satisfied that the keep in repair and maintenance obligation in cl 7.1 extended to reconstruction, I would have concluded that the cl 7.2(a) exception to the exemption therefrom did not apply.”
“[91] The draftsperson was in my opinion making clear that something less than causation (proximate or material) would suffice to trigger the cl 7.2 exemption from the cl 7.1 requirement (if the cl 7.1 requirement arose).
[92] Thus, in my opinion, cl 7.2(b)(i) is satisfied, such that the exemption for responsibility under cl 7.1 for repairs required as a result of an accidental fire beyond the defendant's responsibility or control would not apply. In those circumstances, the emphasis placed by the defendant on the operation of cl 7.2(b) being unlimited is misconceived. In the events that have occurred, the defendant is not absolved by cl 7.2(b) of responsibility for repairs required by reason of the fire (assuming such liability is to be found elsewhere in the Lease – such as in cl 10.3).”
“The primary judge erred:
- In failing to find that clauses 7.1 and 7.2, as a matter of interpretation, qualify the lease as a whole such that the exceptions in clause 7.2(b) apply to all the pleaded causes of action unless the damage was a result of or substantially contributed to by an act or omission of the appellant: J92-93.
- In finding that the storage of the pallets was an act or omission which caused the fire, which was a material and a proximate cause of the fire, resulted in the fire and played a substantial part in causing the fire: J80-81, J90.
- In finding that the use of the premises by the appellant gave rise to the need for repairs/replacement: J84.
- In finding that the appellant breached clause 12.1(a)(ii) of the lease: J112.
- In finding that the appellant was liable to indemnify the respondent pursuant to clauses 10.3 and 12.5 of the lease in lieu of finding that clause 10.3 was incoherent and otherwise should be read with clauses 7.2(a) and (b) of the lease: J138 and J130.”
“The primary judge erred:
…
- In failing to find that clause 12.1(a) of the Lease did not explicitly negative or modify section 84 of the Conveyancing Act 1919 (NSW): J 101-112.”
On 25 March 2026, at the commencement of the hearing of this appeal, the Court granted leave for the appellant to file the amended Notice of Appeal containing this ground.
On 20 February 2026, the respondent filed a Notice of Contention. In it, the respondent advanced the following ground:
“At paragraphs [76], [86] and [109] of the first instance judgment, the trial judge erred by rejecting the Respondent's argument that the Appellant was in breach of clause s7.1(a) and 12.1(a)(i) of the Lease by failing to rebuild and/ or deliver up unit 2 in a clean and tidy condition at the expiration of the Lease following the fire on 3 November 2018.”
The logical starting point is cl 10.3, which is the only clause capable of extending to the loss suffered at Lot 17, and Mr Hutley SC, who appeared for the appellant in this Court, proceeded accordingly. Clause 10.3 is set out at [16] above.
The starting point is the text. It was common ground that it was infelicitous. That does not mean that when ascribing legal meaning to it, no regard is to be paid to it.
First, in form, cl 10.3 is expressed to be an indemnity. That is consistent with the heading cl 10 (“indemnities & release”). The verb which imposes an obligation upon the tenant, “indemnifies”, bears its ordinary meaning of subjecting the tenant to an obligation to make whole the landlord for specified classes of loss. That is a typical class of indemnity. It is common for an indemnifying party to indemnify the indemnified party for liability that party incurs to a third party. In Bofinger v Kingsway Group Limited (2009) 239 CLR 269; [2009] HCA 44 at [7], an indemnity in its widest sense was described as including a contract obliging one person to make good the loss suffered by another. Indeed, an indemnity can extend to the indemnified party’s own liability to the indemnifier. Buss JA described this as a “reflexive indemnity”, observing by reference to academic writing in this area that it operates as both an indemnity and a release: Westina Corporation Pty Ltd v BGC Contracting Pty Ltd (2009) 41 WAR 263; [2009] WASCA 213 at [51]. An indemnity where Party A indemnifies Party B against losses except those incurred as a result of Party B’s own acts or omissions has been described as a “proportionate” indemnity: Nuncio D’Angelo, “The Indemnity: It’s all in the drafting” (2007) 35 Australian Business Law Review 93 at 95. There is no reason in principle why a party cannot, by contract, promise to make whole another party for any loss suffered by that other party, including loss caused directly by the indemnifier itself. Doing so does not take the obligation outside the ordinary scope of an indemnity; instead, it means that in some cases, the person may be directly liable both as a matter of tort or contract and also pursuant to the indemnity.
Secondly, cl 10.4 qualifies the indemnity by providing that it does not apply “to the extent that the loss, damage or injury was caused by the wilful act omission or neglect of the Lessor, its employees or agents.” (To an extent, cl 10.4 duplicates the concluding words of cl 10.2, but nothing turns on that save that it is another instance of duplicative drafting.)
Thirdly, there is accordingly applicable the principle stated in many places including Bofinger v Kingsway Group Limited at [53] that doubt as to the construction is to be resolved in favour of the indemnifying party. But that principle does not mean that whenever a litigant can construct a potential construction of a provision that reduces the legal operation of the words, such a construction is preferred. The doubt which is referred to in the statement of principle is a doubt that remains after the ordinary principles of construction of commercial contracts have been deployed. That makes this principle no different from other principles of construction of contracts which resolve ambiguity in a particular way, such as . As it is put in P Herzfeld and T Prince, (3rd ed, 2024, Lawbook Co) at 666, by reference to authorities many of which are collected in [2022] NSWCA 137 at [29]-[32]:
“The guarantee or indemnity should first be construed according to ordinary principles of construction. Where the application of those principles leaves the court with a doubt as [to] the document’s construction, the doubt should be resolved in favour of the surety or indemnifier.”
Fourthly, there are obvious difficulties with cl 10.3. One is the expanded definition of “Lessee” is presumably displaced in the opening words, which expressly refer to contractors, sub-Lessees etc. but subsequently in the clause, “Lessee” is used seven times without elaboration. It seems likely that in those later references it bears its expanded meaning as per the definition, else the breadth of the opening words would have no work to do. Happily, nothing turns on that, save to conclude that the clause is imperfectly drafted.
The structure of cl 10.3 may be summarised thus:
The clause first identifies the matters which are the subject of the indemnity: “liability, loss, damage, expense, costs or claim suffered or incurred by the Lessor”;
Secondly, it identifies a range of conduct and a range of legal persons following the words “whether by”, to which it will be necessary to return;
Thirdly, the clause identifies words of connection “in respect of or arising from”; and
Fourthly, the clause specifies eight paragraphs identifying types of loss or conduct causing loss.
The natural meaning of the second component is that they are words of expansion, rather than requirement. What other meaning is to be given to the word “whether”? Mr Hutley’s suggestion that it means “either” is unlikely — that would be to replace the open-ended words by a binary requirement. A natural meaning of these words is that they make it plain that it does not matter whether the liability etc. in respect of or arising from the eight specified paragraphs is characterised as an act or omission or neglect by the Lessee or any contractor, sub-Lessee etc. On this construction, the confining words are “in respect of or arising from” and those found in the particular paragraphs (a)–(h).
Not only is that the ordinary meaning of “whether by …”, but it is consistent with language used in the same clause. In cl 10.3(b), the natural meaning of the words “whether by act or omission by the Lessee” is that they are plainly expansionary, rather than by themselves connoting a requirement. There is no good reason to construe the materially identical words in the opening portion of the same clause differently.
Another reason that the common ground is improbable is that it leads to a substantial overlap between the introductory words of cl 10.3 and the first nominated paragraph (a) which refers to loss, damage, or injury to property or person, caused or contributed to by the act, omission, neglect or default of the lessee. Why, it may be asked, would one construe the words “whether by” in the introductory words to impose a causal connection in relation to the specified paragraph, which explicitly has a broad causal test of “caused or contributed to”? It is likely that the words “the act, omission, neglect or default” refer to the “act, omission or neglect” in the opening words and the fact that paragraph (a) extends to default is simply another example of the looseness of the language used by the drafter.
PAYNE JA: Just before you leave this question of ‘by’ while it occurs to me, if it's like s 82 but ‘by’ is a cause, where do you get sole cause out of ‘by’?
HUTLEY: I’m not saying sole cause, but what we say, it has to be a material cause. It’s not purely deterministic, I mean in the sense of it’s not an infinite regress of events antecedent and necessary to the event. It has to be, in effect, a form of judgment which the High Court says a cause which, as a matter of construction, is, as it were, material to the outcome of the event. For example, entering into the lease is a cause in the sense of the causal chain, but no one would say that that would be sufficient for the ‘by’ of the chapeau, so it becomes a judgment call, essentially, of what one might call, the closeness. There could be multiple causes which are sufficiently close to the process to achieve that. I accept that, your Honour.” (Emphasis added.)
Applying this suggested test of causation to the various relevant sub-paragraphs of cl 10.3, I would conclude that the appellant’s act of leaving the parts, wrapped as they were, outside and exposed to the elements, was sufficiently close to the process to be described as a cause of the loss or damage within the meaning of each of sub-paragraphs 10.3 (c), (d) and (h). As a matter of common sense, leaving transparent plastic-wrapped articles outside is apt to expose them to rain and sunshine and wind. That is the foreseeable and indeed certain consequence of the decision to do so. There is nothing at all artificial in ascribing the real cause of the fire to the fact that these pallets were left outside, exposed to the elements, rather than placed within the warehouse.
I will next deal briefly with the appellant’s challenge to the conclusions of the primary judge about cll 10.3(c), (d) and (h).
As to cl 10.3(c), I reject the appellant’s submission that the clause does not apply. Mr Hutley said of 10.3(c):
“Going back, if I could, to 10.3, your Honours will see in (c) the reference to the overflow, leakage or escape of water, gas, electricity, fire or other materials in, or from the premises. As your Honours appreciate, the fire started in the packaging. It spread within the premises and then jumped the border of the premises to burn down 17. Now, in our respectful submission, there has not been an escape of fire in the premises. That is, the burning down of the building on lot 2 was not damaged from escape of fire in the premises…. To escape, in effect, suggests a confine which is moved beyond, and therefore one can say it escaped the premises because it was within the premises and it left them. In our respectful submission, it is not an escape in the premises, so there would be no liability under (c) for unit 2. Maybe for unit 17.”
As can be seen, the appellant thus accepted that in so far as the fire had spread to Lot 17, it “maybe” fell within paragraph (c) (subject to the overall question of causation dealt with above). However, the appellant said that in so far as the fire destroyed the demised premises themselves, it could not be said to be an escape of fire “in” the premises. That seems most improbable. The clear wording of the clause states that the escape of fire can be “in or from the Premises” (italics added). It is an ordinary use of language to describe a fire which has started in one part of a leased premises to escape in the premises, when that fire spreads throughout the rest of the leased premises.
As to cl 10.3(d), the damage to property must be caused or contributed to by the appellant and arise out of the use of the Premises. Mr Hutley said of cl 10.3(d):
“When one comes to (d),… Our point is, we accept that if your Honours found that the placement of the packaging on the hardstand was for an adequate causal relation to the loss, for the purposes of this clause, we’d accept that the placement did involve the use of the premises. It’s a permitted use and that’s what occurred. We were able to store the packaging on the hardstand. All the point is, is that merely to accept that there was a use of the premises, doesn’t answer the question. One’s still got to have a finding that our Act, being that use of the premises, caused the loss, and that gets back to the first point that we’ve put, and I won’t repeat.”
I reject that submission. Applying the test for causation advanced by the appellant, I would conclude that the real cause of the fire was the act of leaving these pallets outside, exposed to the elements, rather than being placed within the warehouse. This was the relevant cause of the loss or damage within the meaning of cl 10.3(d).
As to cl 10.3(h), the appellant submitted in writing:
(a) the loss or damage was not by the act of storage; (b) it is incoherent to say that the act of storage arose from an accident on or about the premises; and (c) if the act of storage contributed to the loss, then it was, at least in part, caused by the respondent in permitting the premises to be used for the storage of air-conditioning components.
“HUTLEY:…Then one comes to (h), and your Honour, the (h) it’s necessary to look at from and to bring back into account the chapeau. It says the indemnity is from loss suffered by act, relevantly here, of the lessee in respect of, or arising from, ‘an accident on or about the premises not caused or contributed to by the Lessor’. It seems that our act has to succeed the accident.
LEEMING JA: Your act is later in time than the accident?
HUTLEY: The damage. Because it says the lessor indemnifies against loss suffered by act of the lessee in respect of, or arising from, ‘an accident on or about the premises’. The syntax is--
LEEMING JA: Yes. I see.
HUTLEY: And it seems to be dealing with a situation where there is an accident and something we do in response to that accident causes loss, which could well be not taking care of things adequately. And so we say we don’t fall within that.”
I would reject the appellant’s submission regarding cl 10.3(h). I do not read the clause as responding only to a case where there is an accident and something the appellant does in response causes loss. A reasonable businessperson would understand the obligation as relating to the events here, properly described as an accident on or about the premises, requiring the lessee to indemnify the lessor, unless it could be proved that the loss or damage was caused or contributed to by the Lessor.
Two remaining matters need be addressed. First, the appellant submitted in writing but not orally, that cl 10.3 should be read as “subject to” cll 7.2(a) and (b) of the Lease. I do not accept that submission. The express terms of the two clauses do not support this construction. I agree with the primary judge’s observation that:
“[93] … I have difficulty reading cl 7.2(b) as limiting the operation of the cl 10.3 indemnity. To suggest that cl 7.2(b) absolves the Lessee from any responsibility under the indemnity provision for, say, repairs required as a result of the escape of fire in or from the Premises even if caused or contributed to by the Lessee (cl 10.3(c)) or for damage suffered by the Lessor's act or omission in respect of an accident on the Premises not caused by the Lessor (cl 10.3(h)) would render those indemnity provisions meaningless.”
Assuming the appellant’s construction of cl 10.3 to be correct, the primary judge was correct to conclude that the storage of the pallets (packaged and in the location as they were) was both a material and, if it be necessary, proximate cause of the fire. Put in the language of senior counsel for the appellant on the appeal, the storage of the pallets by the appellant in the open air was “material to the outcome of the event”. Making the “judgment call” required about the “closeness” of the cause to the loss suffered, the real cause of the fire was that these pallets were left outside, exposed to the elements, rather than placed within the warehouse.
This conclusion is sufficient to dispose of this appeal, which should be dismissed with costs. As I noted at the outset, cl 10.3 was the only clause which applied to Lot 17. In deference to the careful submissions of the parties, however, I will briefly address the remaining issues.
The respondent also succeeded in relation to cl 12.1(a)(ii). The appellant advanced two challenges to her Honour’s conclusions under this clause:
the appellant submitted that “[c]lause 12.1(a)(ii) should be read subject to cl 7.1”. The language in the clause of “that part of the Premises”, is that of reinstatement. It was submitted that it strongly suggests and is consistent with the concept of repairs of a subsidiary part of the warehouse, but not of the whole;
the appellant was granted leave to file an amended notice of appeal containing an additional ground of appeal that explicitly addressed their position on the interaction between cl 12.1(a) and s 84 of the Conveyancing Act.
The appellant submitted the primary judge erroneously equated reinstatement with reconstruction in finding that the obligation to reinstate the Premises goes beyond repair and encompasses reconstruction. The appellant submitted the “proper interpretation” was that:
the “fair wear and tear” carve-out in cl 12.1(a)(i) does not apply; and
structural repairs are not required unless the qualification in cl 7.2(a) applies.
It was put thus in oral submissions on behalf of the appellant:
“The first point to note is that there is no allowance for fair wear and tear. That, we say, is the real purpose of this clause, that it is taking the obligation under (i) and extending it to the peculiar position of the warehouse to except from the obligation under (i) of the exception for fair wear and tear. No doubt, as a matter of negotiation, because warehouses probably tend to fair wear and tear on warehouses over extended leases is probably pretty hard going.
The clause to be construed, although the phrase - it’s actually the clause to be construed is this clause, ‘The lessee must reinstate the warehouse to its original form’. In our respectful submission, if you are reinstating a warehouse to its original form, that implies that the warehouse still exists. It is not to create another warehouse looking like the old warehouse, which is an obligation to rebuild, is not to reinstate the warehouse to its original form, because it can never be its original form because it will be a new warehouse.
We say that viewed in that form, you see it as working in what one might call sympathy with (i) and going to what objectively we say is the likely intent is with respect to the warehouse part of the premises, you don’t get the fairer wear and tear exception, and the change in words is driven by the difficulty if one tries to, as it were, transfer exactly the words of (i) into (ii) and take out the fair wear and tear, it becomes very problematic.
In other words, the fact that they have used a different form is driven by the fact that firstly there is not a yielding up obligation with respect to the warehouse because the warehouse is part of the premises and the yielding up obligation is under (i) and therefore the draftsperson has in effect, as it were, created a different structure but pursuing the same idea but extending the obligation to a state without regard to the effects of fair wear and tear.
Her Honour’s construction has extended it to as if the original warehouse has ceased to exist, rebuild another structure, presumably, in the original form. Now, that’s an odd thing to require because there may be all manner of changes which have occurred in the laws, the appetites and the like, particularly the laws, about getting the building back to its original form. You may not be capable of doing it. It may be an old warehouse, which, if you had to rebuild, you may not get approval again. Where it’s quite different if you’re reinstating it. That is, the warehouse still exists and you’re merely putting it back to the extent that it has deteriorated to where it was.”
The appellant submitted that the primary judge erred by “[overlooking] the fact that cl 12.1(a)(ii) is concerned with reinstatement of the part of the Premises” — rather than the whole. As such, it was submitted, s 84(1) was not expressly negatived. The appellant cited Saviane v Stauffer Chemical Co (Australia) Pty Ltd [1974] 1 NSWLR 665 at 670–671 as establishing that:
an “accident” was to be interpreted as being limited to an event causing damage to the premises for which the lessee was not responsible;
section 84 applies if it can be shown that the event that caused the damage was unintentional and unexpected; and
whether damage caused by an event can be said to be unexpected is determined by an objective test. The damage will be unexpected only if a reasonable person in the position of the lessee would not have expected it.
The appellant also relied on:
Esanda Ltd v Clark (1985) 159 CLR 543 at 548, in which the High Court held that a clause of a hire-purchase agreement did not comply with s 5(3) of the Hire-Purchase Act 1960 (NSW) as it did not “unequivocally state that all conditions and warranties of fitness and suitability are expressly negatived”;
Waterhouse v Waugh [2003] NSWCA 139 at [33], in which this Court held that a clause of a lease agreement was clearly inconsistent with the term that might be implied by s 84(1)(a) of the Conveyancing Act, which was therefore excluded; and
Greer v Pickering [2015] NSWSC 1131, in which Adamson J held that as a standard residential tenancy agreement contained no express declaration that negatived, varied or extended the terms implied by ss 84 and 85 of the Conveyancing Act, they continued to form part of the agreement.
Section 74(2) of the Conveyancing Act provides for the variation of any implied covenant (such as s 84(1)(b)) by “an express declaration in the deed wherein it is implied”. An implied covenant which is inconsistent with an express covenant is excluded. The primary judge was correct to conclude that cl 12.1(a)(ii), by requiring reinstatement, separately from the obligation to yield up that appears in cl 12.2(i), operates to vary or negative the s 84(1)(b) implied covenant (even if that were not otherwise excluded by cl 7.2(b) — which her Honour also found).
The principal cases relied upon by the appellant, Saviane v Stauffer Chemical Co and Esanda Ltd v Clark are clearly distinguishable and give rise to no different conclusion. Saviane was in substance a construction summons where a declaration was sought based on agreed facts. It was accepted that the s 84 covenant was implied in the lease. Helsham J found that to say, as asserted by the agreed facts, that the lessee did not intend its contractor to cause damage to the building or expect that it would do so, was not sufficient to establish that the damage was caused by an accident. The lessee in was liable to make good the loss. was a case about a different statute and the construction of a consumer protection provision, some distance from this commercial arrangement. Neither nor assist the appellant, the former being a case where an express covenant excluded the implied covenant and the latter being a case where no such express covenant was found.
Perhaps the lengthiest part of the written submissions exchanged by the parties on the appeal and the notice of contention concerned clauses 7.1 and 7.2. Given my conclusions above, nothing now turns on the resolution of these claims, so I will address them only briefly.
Shortly put, I agree with the primary judge that the obligation in cl 7.1(a) to, during the term of the Lease, “keep and maintain” the Premises in the same condition and state of repair as they were at the commencement of the Lease, does not encompass an obligation to “reconstruct” the Premises. Her Honour’s construction was consistent with long-standing authority, including Lurcott v Wakely and Wheeler [1911] 1 KB 905 at 918–9.
I agree with the primary judge that the cases relied upon by the respondent can be distinguished:
Norwich Union Life Insurance Society v British Railways Board [1987] 2 EGLR 137; (1987) 283 EG 846, was a case where Hoffman J considered that an obligation to “keep the demised premises in good and substantial repair and condition and when necessary to rebuild, reconstruct or replace the same in such repair and condition to yield up the same at the expiration or sooner determination of the said lease” could encompass an obligation to rebuild the house in question. As the primary judge observed, the clause being construed expressly included an obligation to “rebuild, reconstruct or replace”; and
Crédit Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76; [1994] 4 All ER 803, where Lindsay J concluded that an obligation to “maintain repair amend renew … and otherwise keep in good and tenantable condition: … the structure of the Building and in particular the roof’s foundations and walls” included the obligation to replace the façade entirely with a watertight structure. As the primary judge observed the clause being construed expressly included an obligation to renew the structure.
As to cl 7.2(b), the appellant submitted (in writing) that cl 7.2(b) is incoherent. It was submitted that the notion that the appellant could have substantially contributed to the damage if the fire was beyond the appellant’s control “makes no sense”. As I have earlier explained, I reject that characterisation of the appellant’s conduct.
In writing, the appellant submitted that to the extent that any provision in the Lease “collides with clause 7 as a whole, clause 7 should prevail”. Clauses 7.1 and 7.2 are “central” and “qualify the entire Lease”. This contention was not addressed by the appellant in oral submissions. I need say no more than I do not agree with the appellant’s written submissions. I agree with the primary judge that:
“[91] The draftsperson was in my opinion making clear that something less than causation (proximate or material) would suffice to trigger the cl 7.2 exemption from the cl 7.1 requirement (if the cl 7.1 requirement arose).
[92] Thus, in my opinion, cl 7.2(b)(i) is satisfied, such that the exemption for responsibility under cl 7.1 for repairs required as a result of an accidental fire beyond the defendant's responsibility or control would not apply. In those circumstances, the emphasis placed by the defendant on the operation of cl 7.2(b) being unlimited is misconceived. In the events that have occurred, the defendant is not absolved by cl 7.2(b) of responsibility for repairs required by reason of the fire (assuming such liability is to be found elsewhere in the Lease - such as in cl 10.3).”
As I have explained at the outset there was a notice of contention. The debate about the notice of contention roamed widely and involved a close consideration of long-standing authority including G**raham v Markets Hotel Pty Ltd (1943) 67 CLR 567 at 585; Lurcott v Wakely and Wheeler [1911] 1 KB 905 at 912 per Cozens-Hardy MR, 915–6, 919, per Fletcher Moulton LJ; Percy E Cadle and Co Ltd v Jacmarch Properties Ltd [1957] 1 QB 323 at 329; Torrens v Walker [1906] 2 Ch 166; Weatherhead v Deka N**ew Zealand Ltd (No 2) (1998) 1 NZLR 453; LCA Marrickville Pty Ltd v Swiss Re International SE (2022) 290 FCR 435; [2022] FCAFC 17 at [111]; Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716 at 734, per Atkin LJ.
Having considered the obligation of this Court (see Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49 at [8]), I have decided that it is undesirable to attempt to resolve these issues about the understanding of long-standing authorities if it is unnecessary to do so. Given my conclusion about the notice of appeal, it is unnecessary to address the notice of contention further.
For the foregoing reasons I propose the following orders:
Appeal dismissed;
Appellant to pay the respondent’s costs.
MITCHELMORE JA: I agree with Payne JA.
**********
Polyaire Pty Ltd
167 Prospect Highway Pty Ltd
[2002] HCA 5
(2019) 268 CLR 593
(2009) 239 CLR 269
(2008) 166 FCR 494
(2014) 251 CLR 640
(1987) 16 FCR 410
(1985) 159 CLR 543
(1956) 95 CLR 420
(1943) 67 CLR 567
(2022) 290 FCR 435
(1998) 196 CLR 494
(2002) 240 CLR 45
(1991) 172 CLR 378
(2016) 260 CLR 85
(2009) 41 WAR 263
Appeal dismissed. The appellant was ordered to pay the respondent’s costs ([88]).
However, Mr Hutley SC insisted that no assistance whatsoever would be gained from having regard to paragraph (a). That submission is difficult to reconcile with the ordinary approach to construction, involving reading the language as a whole, and especially where there is overlap between the opening words and the paragraph in two respects — the words “act, omission or neglect” as well as the posited causal connection posed by “by” with the undoubted causal connection posed by “caused or contributed to”.
Instead, it was common ground at the bar table that the word “by” in the opening words of cl 10.3 itself imposed a causal connection analogous to the causal connection held to apply to (the former) s 82 of the Trade Practices Act 1974 (Cth) (Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd [No 2] (1987) 16 FCR 410 and Marks v GIO (1998) 196 CLR 494; [1998] HCA 69). No submissions were directed to how the double causation, applicable in the cases where paragraphs (a)–(g) were engaged, would be resolved. Seemingly what drove the parties’ agreement as to the force of “whether by” in the opening words was paragraph (h) which did not on its face contain any words connecting the conduct of the Lessee to the accident. In part the submission was based on the improbability that an indemnity would extend to losses for which the Lessee was in no way responsible. That submission confronts the difficulty that commercial parties may choose to contract on such a basis. There may be perfectly good commercial reasons for such an approach (for example, to make it quite plain which party’s insurer will be liable), particularly having regard to the breadth of the Lessee’s insurance obligation in cl 9.1. The common ground also faces the difficulty that it is unlikely that in this poorly worded lease paragraph (h) drives the operation of the rest of the clause.
Although this Court is not bound on a question of construction by what is agreed between the parties, it is not necessary to take the point any further. Let it be assumed that “by” in the opening words of the clause imposes the causal connection. The appellant submitted, and I am prepared to accept, that the question of causation is to be determined by applying common sense to the facts, whilst appreciating that the purpose of the enquiry is to attribute legal responsibility*: Royall v* T**he Queen (1991) 172 CLR 378.
The gravamen of the appellant’s submission was that the “true” or “real” cause of the fire was the combination of water, sunshine, and a breeze in 2018. The appellant submitted that the “innocent bystander or the ‘man in the street’ (to deploy the expression in [Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited [2005] NSWCA 66]) would not conclude that mere storage, being the very conduct sanctioned by the Lease, caused the fire”. The “common man”, so it was said, would think the cause was “the elements operating through the aqua lens”. In oral address, Mr Hutley SC presented a more nuanced approach to causation under cl 10.3: