Spotlight Pty Ltd v Fatseas Investments Pty Ltd

Solicitors: McCabe Curwood (Appellant) Moray & Agnew (Respondent) File Number(s): 2019/297322 Decision under appeal Court or tribunal: District Court of New South Wales Jurisdiction: Civil Date of Decision: 27 August 2019 Before: Olsson SC DCJ File Number(s): 2013/299083

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the Judgment] Spotlight Pty Ltd (Spotlight) was the lessee of premises in Nowra under a registered lease granted by the lessor Fatseas Investments Pty Ltd (Fatseas) on 28 April 2004. The premises became damaged a result of water entering through the roof following a heavy rainfall event on 3 November 2007. In October 2013, Spotlight commenced proceedings in the Supreme Court against, among others, Fatseas, claiming damages for negligence, nuisance and breach of the lease. In November 2015, Fatseas filed a second cross-claim against Spotlight alleging breaches of the covenants in the lease to maintain and repair the premises, and to regularly clean and clear all gutters, downpipes, drains and other pipes. Fatseas claimed damages or indemnity for the costs of repair and reinstatement of the premises, and loss of rent and outgoings for the period after the flooding from November 2007 to July 2008. Spotlight's claims were ultimately settled by the parties in August 2017. Fatseas' second cross-claim was transferred to the District Court. On 27 August 2019, the primary judge (Olsson SC DCJ) gave judgment in favour of Fatseas finding that the "only available inference" was that Spotlight had installed decorative grates and gauze in the box gutters on the roof of the premises, and that their placement constituted the breach of certain clauses of the lease and were a cause of the overflow of water which damaged the premises. On 13 December 2019 by agreement of the parties, the primary judge reduced the amount of the judgment in favour of Fatseas to $497,769.00. In a second judgment given on 27 February 2020, her Honour awarded pre-judgment interest from November 2015 under s 100 of the Civil Procedure Act 2005 (NSW). Spotlight appealed against the whole of the principal judgment and Fatseas cross-appealed against the part of the second judgment relating to the award of pre-judgment interest. The principal issues before the Court were: whether the primary judge erred in finding that the grates and gauze were installed by Spotlight or one of its contractors, sub-contractors or agents; whether the primary judge erred in finding that Spotlight breached cl 5.1 (covenant to maintain and repair premises) and cl 10.5 (covenant to clean and clear gutters, downpipes and drains) of the lease; on the cross-appeal; whether the primary judge erred in finding that the contractual entitlement to interest under cl 11.3 of the lease did not apply to that part of Fatseas' claim for damages or indemnity for loss of rent and outgoings of $208,921.98 from November 2007 to July 2008; and whether the primary judge erred in the exercise of her discretion in awarding pre-judgment interest on the balance of the judgment sum under s 100 of the Civil Procedure Act only from November 2015 and not from June 2008. Held, dismissing the appeal and the cross-appeal (per Gleeson JA; White JA and Emmett AJA agreeing) As to issue (i): The primary judge erred in finding that find the "only available inference" was that Spotlight or one of its contractors or sub-contractors or agents had installed the grates and gauze in the box gutters, because that stated the evidence too highly. It was open to the Court on appeal to review the evidence and make any finding that ought to have been made: at [37]. The reasonable inference to be drawn was that it was more probable that the grates and gauze were installed by Spotlight or one of its contractors or sub-contractors or agents, than the possibility they were installed by Fatseas: at [70]. Jackson v Lithgow City Council [2008] NSWCA 312 considered. As to issue (ii): Spotlight's failure to remove the grates and gauze answered the description of breach of cll 5.1 and 10.5. Spotlight failed to maintain and keep the premises in good and substantial repair, order and condition, and to clean and clear the gutters of rubbish and debris: at [80]. The primary judge's finding that Spotlight's failure to clean and clear the gutters of rubbish and debris was a cause of the water damage was sufficient for the purpose of causation of loss: at [87]-[88]. As to issue (iii): The case as pleaded by Fatseas did not give rise to an entitlement to contractual interest under cl 11.3 of the lease for the loss of rent and outgoings from November 2007 to July 2008. The only pleaded claim was an unliquidated claim for damages and indemnity for loss and damage for breach of cll 5.1, 5.10 and 10.5 of the lease: at [97]. Such a claim for unliquidated damages did not answer the description of "moneys due … pursuant to the Lease" in cl 11.3: at [101]. Arnold v Forsythe [2012] NSWCA 18; and Merritt Cairns Constructions Pty Ltd v Wulguru Pty Ltd [1995] QCA 273 considered. As to issue (iv): No House v The King error was shown in the exercise of the primary judge's discretion to award pre-judgment interest from November 2015. While delay is a relevant factor to take into account when determining whether or not to award interest, no submission was made by Fatseas below as to the absence of detriment suffered by Spotlight as a result of delay. That the Court was deprived of the primary judge's discretionary judgment addressing this point had it been raised, and Spotlight could have responded to it by adducing new evidence, were sufficient grounds to preclude Fatseas from raising a new argument on appeal: at [104]-[111]. Simonius Vischer v Holt & Thompson (1979) 2 NSLWR 322; Consolidated Lawyers Pty Ltd v Abu Mahmoud [2016] NSWCA 4; Suttor v Gundowda (1950) 81 CLR 418; Coulton v Holcombe (1986) 162 CLR 1; and Water Board v Moustakas (1988) 180 CLR 491 considered.

Judgment

1. GLEESON JA: This appeal concerns the liability of a lessee for damage to leased premises as a result of water entering the premises through the roof following heavy rain in Nowra on 3 November 2007. At the time, the premises were occupied by the appellant Spotlight Pty Ltd (Spotlight) as lessee under a registered lease dated 28 April 2004 granted by the respondent Fatseas Investments Pty Ltd (Fatseas) as lessor.
2. The premises comprised four adjoining buildings which were referred to in the evidence as Buildings A, B, C and D, as shown on the diagrammatic roof plan in Schedule 1 to these reasons. Three of the buildings fronted Berry Street, Nowra. Building A was a 2-storey heritage building situated on the north-western corner of Berry Street and Schofield Lane, and included a small building facing Schofield Lane. The adjacent 2-storey structure, Building B, was approximately 80 years old and extended back until it connected to a new 2-storey brick and reinforced concrete building built in the mid-1950s, referred to as Building C. Building D fronted Berry Street on the south side of Building B and was a similar age to Building B.
3. Prior to the commencement of the lease, Fatseas had replaced the roof and gutters, flashings, sumps, downpipes and rainheads on the roof of Buildings B, C and D. That work had been undertaken by Maintek Roofing Pty Ltd (Maintek) which had engaged a sub-contractor, Best Quality Roofing Pty Ltd (Best). Spotlight occupied the premises and commenced its fitout in about January 2004. In September 2005, Maintek replaced the roof on Building A, again engaging Best as its sub-contractor.
4. The lease contained covenants by the lessee, including:

• to maintain and repair the premises (cl 5.1);
• to regularly clean and clear all gutters, downpipes, drains and other pipes (cl 10.5); and
• to indemnify the lessor from and against all losses, damages, costs and expenses for which the lessor may become liable in respect of or arising from … "overflow or leakage of water (including rainwater) in to or from the premises or caused or contributed to by any act by any act or omission on the part of the Lessee or other persons [being any contractor, subcontractor, licensee, invitee, client, customer or visitor of the Lessee]" (cl 9.1(c)).

1. Fatseas incurred costs and expenses in the repair and reinstatement of the premises from November 2007 to July 2008. A dispute arose as to whether Spotlight was liable for these costs, whether Fatseas was liable for water damage to Spotlight's stock, and whether Spotlight was entitled to an abatement of rent during the period November 2007 to July 2008.
2. In October 2013, Spotlight commenced proceedings in the Supreme Court against, among others, Fatseas, claiming damages for negligence, nuisance and breach of the lease. Fatseas filed a second cross-claim against Spotlight in November 2015 alleging breaches of the covenants in the lease to maintain and repair the premises, and to regularly clean and clear all gutters, downpipes, drains and other pipes. Fatseas claimed damages or indemnity for the costs of repair and reinstatement of the premises, and loss of rent and outgoings for the period November 2007 to July 2008. The claims by Spotlight against all parties, including Fatseas, were ultimately settled in August 2017. In September 2017, the second cross-claim was transferred to the District Court.
3. On 27 August 2019, the primary judge gave judgment in favour of Fatseas in the sum of $503,073.07 plus interest: Spotlight Pty Ltd v Maintek Roofing Pty Ltd (NSWDC, Olsson SC DCJ, 27 August 2019, unrep). By agreement of the parties, on 13 December 2019 the primary judge reduced the amount of the judgment to $497,769.00 to correct an arithmetical error in her Honour's reasons.
4. In a separate judgment given on 27 February 2020, the primary judge made orders with respect to interest and costs (the second judgment). Her Honour awarded Fatseas pre-judgment interest on the judgment sum under s 100 of the Civil Procedure Act 2005 (NSW) from the date of filing of its cross-claim in November 2015. Her Honour ordered Spotlight to pay Fatseas costs of the proceedings on the second cross-claim on the ordinary basis up to 29 August 2017, and thereafter on an indemnity basis.
5. Spotlight has appealed against the whole of the principal judgment, and Fatseas has cross-appealed against part of the second judgment relating to the award of pre-judgment interest.
6. For the reasons that follow, both the appeal and the cross-appeal should be dismissed.

Material terms of the lease

1. The lease was for a term of seven years commencing on 8 April 2004 with three options to renew, each for a period of five years. The lease provided for the payment of rent and outgoings by Spotlight under cl 3.1 and Sch 3 of the lease. Clause 3.2 provided for a rent-free period from the commencement date of the lease (8 April 2004) to 7 February 2005, provided the lessee otherwise complied with the terms and conditions of the lease.
2. Clause 3.4 dealt with damage to the premises and the abatement of rent, relevantly, as follows: If the whole or any part of the building shall be destroyed or damaged by fire, flood, lightning, storm, tempest or other disabling cause so as to render the Demised Premises during the Tem substantially unfit for the use and occupation of the Lessee or so as to deprive the Lessee of substantial use of the same …….. then: a. This lease may be terminated without compensation by either the Lessor or the lessee by notice in writing to the other provided always that in the latter case the Lessors shall have failed to rebuild or reinstate the building or as much thereof to admit the lessee substantial use of the Demised Premises within a reasonable time after it being requested to do so in writing by the Lessee. …….. c. Nothing herein contained or applied shall be deemed to impose any obligation upon the Lessor to rebuild or reinstate or make fit for occupation the Demised Premises of the building. d. Upon the happening of any such damage or destruction as aforesaid the annual base rent hereby reserved together with all the moneys payable by the Lessee to the Lessor as provided herein or a proportionate part thereof according to the nature and extent of the damage sustained shall abate until the Demised Premises shall have been rebuilt or reinstated or make fit for the occupation and use of the Lessee or until a Lease shall be terminated pursuant to the provisions of sub-clause (a) of this clause as the case may be. e. In the event of any dispute arising out of this clause the same shall be referred to arbitration under the provisions of the laws for the time and being in force in the State of New South Wales. Notwithstanding anything in this clause expressed or implied the Lessee shall have no such right of termination and rent shall not abate if the destruction or damage was caused or contributed to by the Lessee, its employees, agents and contractors, licensees or invitees.
3. Clause 5.1 dealt with the lessee's obligations to maintain, replace and repair the premises as follows: 5.1 To keep in repair The Lessee will during the whole of the term and otherwise so long as the Lessee may remain in possession or occupation when, where and so often as the need shall be to maintain, replace, repair and keep the whole of the Demised Premises in good and substantial repair, order and condition (having regard to the condition at the date of commencement of the initial term of the Lease set out in item 8 of Schedule 5 hereto) damage by explosion, earthquake, aircraft, riot, civil commotion, fire, flood, lightning, storm, tempest, act of God and war damage only excepted unless any insurance moneys are irrecoverable through the neglect, default or misconduct of the Lessee. The Lessee acknowledges that the Demised Premises at the date of commencement of the initial term set out in Item 8 of Schedule 5 hereto had work and improvements carried out prior to such date by the Lessee and/or Lessor all of which work and/or improvements are acknowledged and agreed upon expiry or termination of this lease for any reason whatsoever shall become and remain the property of the Lessor provided that the Lessee shall have the right prior to termination of this lease to remove any air-conditioning system it has installed during the term or further term for the lease subject to and conditional upon the Lessee patching, repairing and otherwise making good where required as a result of such removal.
4. Clause 5.10(a) prohibited the lessee making any alteration or addition to the premises without the prior written consent of the lessor. It is not necessary to set out its terms since that the primary judge made no finding in relation to the alleged breach of this clause and there is no notice of contention by Fatseas seeking to uphold her Honour's decision on the basis of a breach of cl 5.10(a).
5. Clause 10.5 dealt specifically with the parties' respective obligations in relation to the walls and roof as follows: The Lessor covenants to repair the walls and roof of the Demised Premises provided the Lessee does hereby covenant and agree to regularly clean and clear all gutters, downpipes, drains and other pipes attached to or are pertinent to the Demised Premises and/or building.
6. Clause 9.1(c) provided for an indemnity in favour of the lessor as follows: Without limiting the generality of paragraphs (a) and (b) of this clause the Lessee will and does hereby indemnify the Lessor from and against all actions, claims, demands, losses, damages, costs and expenses for which the Lessor may become liable in respect of or arising from: … (ii) overflow or leakage of water (including rain water) in to or from the Demised Premises or caused or contributed to by any act or omission on the part of the Lessee or other persons as aforesaid; … (iv) loss, damage or injury from any cause whatsoever to the Demised Premises or to any property or person within or without the Demised Premises occasioned or contributed to by any act, omission, neglect, breach or default of the Lessee or other persons as aforesaid.
7. Clause 11.3 provided for the payment of interest as follows: If the Lessee omits or neglects to pay any money or to do or effect anything which the Lessee has herein covenanted to pay, do or effect … without prejudice to the rights, powers and remedies of the Lessor otherwise under this Lease the Lessee will pay to the Lessor interest at the rate of twelve per cent per annum (12%) on any moneys due by the Lessee to the Lessor on any account whatsoever pursuant to this Lease but unpaid for seven (7) days such interest to be computed from the due date of payment of the moneys in respect of which the interest is chargeable until payment of such moneys in full and recoverable in like manner as rent in arrears.

Primary judge's reasons - principal judgment

1. The primary judge found, consistently with the expert evidence, and it is not challenged on appeal, that the entry of water into the premises and the resulting damage in November 2007 was caused by the presence of "decorative grates" together with a material in the nature of "gauze" or "fish wire" over certain of the sumps and in certain of the gutters on the roof of the premises, in particular, gutters C and E on Building C as shown on the diagram of the roof area in Schedule 2 to these reasons. The grates obstructed the flow of rainwater, the obstruction being exacerbated by the presence of rubbish and debris on the roof and in the gutters, which collected in the grates. As a result of the obstruction, during the rainfall event the gutters overflowed and water entered the premises.
2. The primary judge found that the "only available inference" is that the grates and the gauze were installed by Spotlight or by one of its contractors, sub-contractors or agents, and this gave rise to a reasonably foreseeable and indeed "obvious" risk of harm, because of a risk that the flow of water would be thereby impeded and consequently run the risk of surcharging or backflowing into the anterior of the premises (Judgment [105], [106]).
3. The primary judge found that cll 5.1 and 10.5 of the lease required Spotlight to maintain the premises in good repair and to regularly clean and clear the roof gutters and downpipes, and that cl 10.5 did not simply involve cleaning leaves, rubbish and dead birds from the roof; it also required Spotlight to remove obstacles from the gutters and downpipes, including those that had been deliberately or negligently placed in the gutters or over the downpipes such as the grates and associated gauze (Judgment [109]).
4. The primary judge found that a reasonable retailer in Spotlight's position ought to have recognised the risk posed by the grates and removed them regardless of who installed them (Judgment [110]), that it was reasonable for inspections to occur every two months and that, "[a] reasonable system of inspection would have detected either the actual obstruction or the risk of obstruction posed by the grates and would have removed the grates and any rubbish or debris or dead birds in the gutters" (Judgment [118]).
5. As to causation, the primary judge found that whether the obstruction was the result of the grates, the gauze, the build-up of rubbish or debris or a combination of all three is not relevant; it was clear from the evidence of each of them that it was the obstruction that caused gutters C and E to overflow: at [112].
6. Her Honour further found that the breach of the lease by Spotlight in failing to maintain and clean the roofs of the buildings was causative of loss to Fatseas and that loss comprised repair of damage to the premises caused directly by the ingress of rain, indirect damage, and the cost of business interruption and loss of rent (Judgment [123]-[124]).
7. Given Spotlight's breach of the lease, her Honour found that Spotlight had no entitlement to an abatement of rent under cl 3.4 of the lease (Judgment [134]).
8. With respect to the claim under the indemnity in cl 9.1(c), her Honour found that Fatseas was entitled to recover its repair and other out of pocket costs under the indemnity (Judgment [108]). Her Honour expanded upon her reasons at Judgment [140]: Repair and rectification costs are losses and costs and expenses respectively to which the indemnity responds. The cost of investigation and claims preparation may also be characterised as losses, costs and expenses to which the indemnity responds. It is arguable whether unpaid rent could be characterised as a loss or a cost or expense, but in any event it remains payable under the covenant to pay rent in circumstances in which Spotlight cannot rely upon Clause 3.4 of the lease.

Issues on appeal

1. The notice of appeal raises the following issues: 1. whether the primary judge erred in finding that the grates and gauze were installed by Spotlight or one of its contractors, sub-contractors or agents (grounds 1 and 2); 2. whether the primary judge erred in finding that the indemnity in cl 9.1(c) was engaged (grounds 3 and 4(i)); 3. whether the primary judge erred in finding that Spotlight breached cll 5.1 and 10.5 of the lease (grounds 5, 6, 7 and 8); 4. whether the primary judge erred in finding that Spotlight had no entitlement to abatement of rent under cl 3.4 of the lease (grounds 11 and 12);
2. Spotlight did not press ground 4(ii), which challenged the primary judge's construction of the indemnity irrespective of the factual findings. Nor did Spotlight press grounds 9 and 10 which challenged her Honour's finding that a reasonable system of inspection would have detected the grates and gauze and associated obstruction.
3. The primary focus of the appeal was the challenge to the factual finding that the grates and gauze were installed in the box gutters by Spotlight or one of its contractors or sub-contractors or agents. Spotlight accepted that if it was unsuccessful in setting aside this finding then that was dispositive of the appeal, because the indemnity was engaged and Fatseas was entitled to succeed. That concession removed the need to consider the issue identified by her Honour at Judgment [140], which is set out at [25] above, as to whether the scope of the indemnity included loss suffered by Fatseas as a consequence of Spotlight failing to pay rent and outgoings.
4. On the other hand, Spotlight submitted that if this finding is set aside, her Honour's conclusion that the indemnity was engaged would not follow. As to the finding of breaches of cll 5.10 and 10.5 of the lease because of the failure to clean and clear rubbish and debris from the box gutters, Spotlight submitted that there was no finding that these breaches alone were causative of the water damage to the premises in November 2007. Spotlight said that the finding on causation only addressed the causative effect of the presence of the grates and gauze in the box gutters.

Grounds 1 and 2 - installation of grates and gauze

1. Spotlight challenged the primary judge's findings at Judgment [95] (except the first sentence), [96] and [105], which it is convenient to set out in full: [95] A complaint was made to Fatseas regarding water penetration to the roof in May 2005. Other than that, there was no evidence that any notice of damage or any request to carry out roof repairs due to water entry was made to Fatseas from the commencement of the lease until 3 November 2007. [96] There is no documentary evidence that Fatseas or its employees, contractors or agents attended the premises between 2003 and 2007 to carry out work to the roof other than some minor repairs, and pigeon eradication work around the roof to Building A in 2005. … [105] The preponderance of the evidence satisfies me that the only available inference is that the grates and the gauze were installed by Spotlight or one of its contractors, subcontractors or agents and I so find. (Underlining and emphasis in original.)
2. The "preponderance" of the evidence to which her Honour referred was summarised at Judgment [91]-[104], based on her Honour's review of the evidence at Judgment [18]-[66]. Relevantly, in addition to the findings at [95] and [96], which are set out at [30] above, her Honour's findings included that: 1. Spotlight commenced its fitout work after the commencement of the roofing work in or about December 2003 or January 2004: at [91]; 2. the unanimous evidence was that the decorative grates were not on the roof in 2003 when the roofing work was completed: at [92]; 3. there was no evidence to suggest that any employee, contractor or agent of Fatseas was on the roof between completion of the 2003 roofing work and the commencement of the lease in early 2004: at [93]; 4. Fatseas retained the right but (subject to one exception) not the obligation to enter the premises of the purpose of inspection and to carry out repairs: at [94]; 5. Ms McKenzie's evidence established that Spotlight and its contractors (including Urban Maintenance Systems (UMS) and Assist Building & Maintenance) carried out work on and around the roof, including the roof to Building C, throughout the period of the lease: at [98]; 6. employees of Spotlight were concerned about the ongoing presence of pigeons: at [99]; 7. access to the roof was via a locked door, the code to which was known only to the managers of Spotlight: at [100]. Spotlight did not challenge any of these findings.
3. Spotlight submitted that the primary judge erred in finding that the grates and gauze were installed by Spotlight or one of its contractors, sub-contractors or agents essentially for three reasons: 1. Fatseas did not discharge its burden of proof in establishing that fact, for which it contended; 2. the available evidence did not support an inference as to the identity of the person or persons who installed the grates and gauze; 3. the primary judge should have found that there was insufficient evidence to draw an inference that Spotlight installed the grates and gauze.
4. Spotlight drew attention to the evidence about attendances at the premises in 2005 by various contractors engaged by Fatseas who undertook work on the roof to address leaks and pigeon infestation issues. According to the submission, her Honour erred in giving little or no weight to the evidence that Maintek subcontracted that work to Best, and also to Mr Noel Rogers of Rogers Plumbing and Mr Andrew McNaughton, however Mr Alan George of Maintek could not recall the scope of the work Mr Rogers performed, and there was no evidence of the work performed by Mr McNaughton. The submission continued that Mr Rogers attended the premises in September 2005 to perform "bird eradication and bird ingress/egress blocking work", and that work might be thought to be a likely occasion for the installation of the gauze and grates.
5. In oral argument, Spotlight accepted that the grates and gauze were not installed prior to Spotlight taking possession of the premises in early 2004, and that it was "possible" that either Spotlight or Fatseas or one of their respective contractors, sub-contractors or agents installed the grates and gauze in the box gutters. Nevertheless, the factual finding for which Spotlight contended is that there was insufficient evidence to draw an inference that Spotlight installed the grates or gauze.

Consideration

1. The relevant question at trial was whether Fatseas had established that it is more probable than other possibilities that Spotlight or one of its contractors, sub-contractors or agents installed the grates and gauze. As stated in Jackson v Lithgow City Council [2008] NSWCA 312 at [12] (Allsop P, Basten JA and Grove J agreeing), "[t]he inference must be available and be considered to be more probable than other possibilities". This does not mean more probable than any one other possibility, but more probable than not. The finding by the primary judge that there was "only" one available inference as to who installed the grates and gauze in the box gutters stated the effect of the evidence too highly. That was an error.
2. Contrary to the primary judge's finding, the evidence at trial gave rise to two competing inferences - it was "possible" that either Spotlight or Fatseas or one of their respective contractors, sub-contractors or agents installed the grates and gauze in the box gutters. So much was properly acknowledged by counsel for Spotlight in oral argument in this Court. A third possibility, that a trespasser was responsible was inherently improbable; it was inconsistent with the evidence of Ms McKenzie that access to the roof was via a locked door, and the code was known only to the managers of Spotlight. It is implicit in her Honour's reasons that she had rejected the possibility that a trespasser was responsible.
3. Notwithstanding the error by her Honour, it is open to this Court on a re-hearing to review the evidence and make any finding that ought to have been made by the primary judge: Supreme Court Act 1970 (NSW), s 75A(5) and (10). Spotlight's submissions, in effect, invited the Court to undertake that task, to which I now turn.

2005

1. In 2005 Spotlight complained about two issues relating to the premises. One related to water leaks in the roof of the old heritage building - in May 2005 Spotlight complained that one of the box gutters had corroded and one required replacement. Counsel for Spotlight accepted that this leak related to Building A. The other complaint related to pest control issues - the first complaint of this nature was made in August 2005.
2. Ms McKenzie, Spotlight's store manager at Nowra, gave evidence in cross-examination that the water leaks were around the area of the heritage roof, being the nursery and/or "Spartys" and that the pigeon problem involved "birds nesting on at least the outside of the building, possibly on the inside of the building", which she identified as the "nursery" department. Ms McKenzie identified these buildings by placing a circle in pen on a site plan where Building A and the adjacent small building were located. A detailed site plan of the premises confirms that the nursery was located in the small building behind Building A, and that "Sparty's" was located in Building A.
3. Following further substantial leaks in late July 2005, Mr George of Maintek informed Mr Nick Fatseas of Fatseas in an email of 20 July 2005, that he would send his supervisor with a roof plumber to check the problems and fix whatever they could on the day and report back.
4. On 5 August 2005, Spotlight complained to Fatseas that the necessary repairs to the box guttering had not been completed. Spotlight also complained that the store had "begun" experiencing pest control issues with the store roof cavity infesting with pigeons, and the pigeons had begun to nest on the suspended ceiling, creating a breeding ground for rodents, mites and disease.
5. On 9 August 2005, Mr George sent an email to Mr Fatseas and Mr David Mayes, the architect for Fatseas, advising: Please see attached pick's [sic]. The water ingress problem is coming through the old heritage roof section of the property adjacent to Spotlight, ie, through the old box gutter which is now rusted out and coming down an internal wall then running into Spotlight. Unfortunately this roof has deteriorated badly over the last 2-3 years and is now in need of replacement. … The majority of the rodent/bird issue would appear to be coming from the old building structure and roof with possibly some minor ingress attributable to the new roof area. My suggestion would be to meet a Pest Control Contractor onsite to look at the premises and put some recommendations forward for consideration. Spotlight accepted in this Court that the "roof" referred to in this email was the roof of the old heritage building.
6. On 24 August 2005, Mr George sent a facsimile to Spotlight advising that "Mr Noel Rogers of Rogers Plumbing had been requested to inspect and report on the pigeon bird access into the roof space above ceilings at your premises early next week". Mr George stated that following this report, action will be taken to "close off access points for any bird life which had been identified" and this process will probably involve several days' of visits to complete. Mr George advised that the work in relation to roof leaks in the old heritage roof area should commence the following week, with the roof and box gutter work taking approximately 4 to 5 days.
7. On 21 September 2005, Mr George sent an email to Mr Fatseas, advising success in eradicating the pigeons "yesterday": We believe/hope we have found and blocked point of entrance, however, this will take a few days to see if we have been completely successful. The email also referred to the new roof section having been completed, being a reference to Building A, as evidenced by the handwritten notes of Mr Paul Lawrence (of Best) dated 21 and 22 September 2005, the invoice dated 21 September 2005 issued by Best in respect of works installing "roof/insulations/gutters and downpipes to roof section", and the tax invoice issued by Maintek to Fatseas dated 23 September 2005 for replacement of the "Nowra section of heritage roof replacement" in the amount of $15,763. Maintek also issued a further tax invoice to Fatseas on 28 September 2005 for "Nowra Pigeon Eradication" in the amount of $2,918.30. This was a reference to the work done on 20 September 2005.
8. Spotlight made another complaint about the pigeon issue in an email to Mr Fatseas on 5 October 2005, alleging that birds were still trapped in the air-conditioning ducting and that "the air conditioning system in the front of the store not being operational".
9. On 6 October 2005 at 7.57am, Mr George emailed Mr Fatseas advising that one of "our supervisors", Mr Lawrence (of Best), and another person, were going down to the Nowra store that morning and would liaise with Andrew McNaughton "who did both the previous bird eradication missions to make sure everyone is on the same page". The email continued that, after speaking to Mr McNaughton, the complaint sounded fabricated because the air-conditioning ducts were not accessible and no birds had actually been in the ducts and: What noise they now or have previously heard are the birds alighting on the roofs and gutters trying to find their previous access which we blocked off.
10. Spotlight submitted in argument that the reference in the 6 October email to "we blocked off" can only be a reference to people other than Mr George, because he did not have any personal involvement in the work; that can be accepted. Spotlight further submitted that it is "highly likely" that the persons engaged by Maintek installed the grates and gauze in the box gutters of Building C. I do not agree. As indicated, Building C was at the rear of the store; it did not front Berry Street where Spotlight said birds were trapped in the air-conditioning ducting. The reasonable inference to be drawn is that the work done on 20 September 2005 in blocking off the "previous access" involved the roof of Building A, and the adjacent small building where the nursery was located. That was the location of the buildings with pigeon issues in August 2005, which Ms McKenzie had identified in her evidence: see [39] above.
11. Later on 6 October 2005 at 5.11pm, Mr George sent an email to Mr Fatseas advising that Mr Lawrence had completed his inspection of the premises and reported: • Since our last site bird eradication and bird ingress/egress blocking works of the 20th & 29th September 2005, no birds have been in the store except for one very small birddropping (sic) found today which would indicate that a small bird has either gained access through some very small access point in the roof or flew in through the loading dock or front doors??? • We have today blocked of (sic) 2 more points in the roof/gutter/flashing junction where a very small bird may have gained access. [Emphasis added.] This work was the subject of a tax invoice issued by Maintek to Fatseas on 20 October 2005 in the amount of $936. As to the reference to the work done blocking two small points in the "roof/gutter/flashing junction", the following observations can be made.
12. First, accepting her Honour's finding at Judgment [34] that the "bird problem appeared to be coming from the old heritage building with possibly some access points available for nesting in the new roof area", the description of the work in the second 6 October email does not support an inference that the work involved the installation of grates and gauze in the box gutters of Building C. A flashing is usually a strip of metal, the purpose of which is to seal the gap between the roof and the gutter, including at the junction where gutters meet. Its function is to block access to the roof cavity behind the gutter, generally to avoid rain water ingress into the roof cavity behind the gutter. There is no suggestion in the evidence that any of the flashings on Building C required replacement.
13. Second, the first bullet point in the second 6 October email does not support an inference that birds gained access to the roof cavity through the new box gutters on Building C.
14. Third, Mr Lawrence gave evidence, which her Honour accepted, that he was present at all times when work was done and that neither he nor any of his employees or sub-contractors took grates or gauze onto the building or installed the grates and gauze.
15. On 14 October 2005, the solicitors for Fatseas sent a letter to Spotlight asserting that following inspection by their client's representative there were no birds in the air-conditioning ducts and that such ducts are not accessible. Reference was made to the lessee's obligation under cl 7.8 of the lease regarding pest control and to take all reasonable precautions to keep the premises free of rodents, vermin, insects, pests, birds and animals. The letter sought reimbursement of the costs incurred by Fatseas in the eradication of the pigeons and enclosed a copy of Maintek's 28 September 2005 invoice for $2,918.30.
16. Spotlight did not reply to Fatseas' solicitors until its letter of 30 December 2005. After referring to its earlier correspondence of 6 July 2005 and 6 August 2005 advising that the box guttering was corroded and needed to be replaced (being a reference to Building A), Spotlight said of the "bird control issue": As the premise (sic) didn't have a bird control issue prior (sic) August and doesn't have an existing issue with bird infestation, we believe that once the box guttering was replaced and the birds removed the issue was resolved. All repairs indicate the birds gained access in to the ceiling cavity via the holes in the box guttering, therefore as we notified the Lessor of the box guttering issue we are not responsible for the bird infestation and the cost of the eradication. …
17. Separately to the work described above, Spotlight engaged UMS in September and in November 2005 to address problems experienced with flooding and the removal of excess water and drying and cleaning of carpets. Spotlight submitted that this work by UMS did not relate to the roof. That is the reasonable inference, given the description of the work.

2006

1. Mr Lawrence gave affidavit evidence that in 2006 Maintek asked Best to come back to do additional jobs which included replacing the roof, gutters and associated fittings on the heritage area, the adjacent small building, and to also do some pigeon eradication work. The reference to pigeon eradication work in 2006 seems to be an error; the contemporaneous evidence indicates that this work was done in September and October 2005. The note by Mr Lawrence dated 8 March 2006 referring to "Strip all roof to be replaced", may be taken to be a reference to the small building next to Building A. The works evidenced in two invoices issued by Maintek to Fatseas, both dated 8 May 2006, in the amounts of $3,278 and $3,806 respectively, related to minor roof maintenance and repairs and glazing and replacement of new floorboards.
2. In September 2006, UMS attended the premises at the request of Spotlight to attend to several leaks coming through the roof in the nursery department, which as indicated was contained in the out buildings attached to Building A.

2007

1. During 2007, UMS attended the premises at the request of Spotlight to attend to a variety of work. On 7 February 2007, UMS dealt with bird lice in the "Notions/Craft Area". Ms McKenzie, the Nowra store manager, gave affidavit evidence that following complaints from two staff members about bites which looked like heat rash on their arms and ankles, UMS arranged for Amalgamated Pest Control (APC) to come on a regular basis to spray the floors and perimeters of the building and on one occasion she saw a man from APC place feed and baits adjacent to the building. Ms McKenzie said that she was told by the man from APC that he replaced the deterrent wires on the roof which were spikes to deter the birds from landing and had placed netting over the air-conditioning units which were at the rear of the premises, and that he would also remove dead birds.
2. On 11 February 2007 UMS attended the premises to deal with carpet damage due to rain, and on 14 February 2007 UMS attended the premises to deal with the absence of power downstairs in the sewing area. Also in February 2007, Spotlight engaged Asset Building and Maintenance (ABM) to fix leaks in the store as directed by the manager.
3. On 14 June 2007, UMS again attended the premises to address what was described in its invoice to Spotlight as major roof and ceiling leaks from the top floor through to the bottom floor, "Furnishing and Craft depts", and "possibly more depts".

The lay evidence

1. Turning to the lay evidence, including cross-examination, Spotlight drew attention to the following matters.
2. First, Mr Fatseas did not say in his witness statement or give oral evidence as to the precise work undertaken by Mr Rogers and Mr McNaughton insofar as they addressed the pigeon problem in 2005. That can be accepted, but the absence of such evidence from Mr Fatseas is not determinative since he left the work to Maintek and others.
3. Second, although the architects Mr David Mayes and Mr Brian Carrigan of Robertson & Marks each gave evidence at trial that the grates and gauze were not installed as part of the new roof on Buildings B, C and D in 2003, neither gave any direct evidence concerning who installed the grates and gauze in the box gutters. Again that can be accepted.
4. Third, Spotlight submitted that Mr George of Maintek could not recall in cross-examination the nature and scope of the works undertaken in 2005. That submission requires qualification. Whilst Mr George could not recall the work undertaken in 2005 with any precision, he recalled that Mr Rogers was a plumber who carried out work to do with the older building. It was not suggested to Mr George in cross-examination that the "older building" was other than a reference to Building A. And, although Mr George could not recall whether he had engaged Mr Rogers to address the bird issue, he had a vague recollection that this issue involved some peripheral work around the heritage building, maybe at the front façade of the Spotlight building. He was not challenged on this evidence as to the location of the bird issue; and his evidence is consistent with the evidence of the work done on 6 October 2005 in response to the complaint by Spotlight of birds in the air-conditioning ducting: see [46]-[47] above. Mr George rejected the cross-examiner's proposition that one of the access points to the premises for the birds was the box gutters. He said that he did not believe that the birds would have been able to get through, whilst later qualifying his answer that he was not "100% sure".
5. Importantly, Mr George was not cross-examined on his evidence in his witness statement dated 14 August 2015 referring to exhibit "AG 10", showing areas where work at the premises additional to the 2003 work by Maintek was undertaken. At [24] of his statement Mr George said: The pigeon eradication work is highlighted in orange, the roof replacement of heritage section of the building is highlighted in pink, and other small sections of roof replaced are marked in green. Making allowance for a slight difference in colour-coding on the copy of exhibit AG 10 in the Appeal Books, the exhibit indicated that the pigeon eradication work occurred on the northern edge of Building A, and the other small sections of roof replacement occurred on the smaller building adjoining Building A. Accepting that Mr George's oral evidence lacked precision as to the work undertaken in 2005, the failure to directly challenge his evidence in his witness statement meant that there was unchallenged evidence inconsistent with the inference that Maintek or Best or one of their subcontractors had installed the grates and gauze on the roof of Building C.
6. Fourth, Spotlight submitted that while Mr Lawrence gave affidavit evidence about personally inspecting the roof in 2005, his oral evidence was that he didn't. Again, that submission requires qualification. Mr Lawrence gave oral evidence that he returned to the property at Nowra to address water leaks once or twice between 2003 and 2007. Although he could not specifically recall attending the property in 2005 to address issues with pigeon infestation and pigeon droppings, nor did he recall Mr McNaughton, he agreed that it was possible that he had attended the site in October 2005 to address that issue. That is consistent with the contemporaneous evidence of a report by Mr Lawrence to Mr George of his attendance at the premises on 6 October 2005, as recorded in Mr George's email to Mr Fatseas of 6 October 2005. Mr Lawrence was frank in his explanation of his lack of recollection; he said that he was being asked about events 13 years earlier and could not recall "off the top of my head" what the dates were or what the years were.
7. Importantly, Mr Lawrence was unequivocal in his rejection of the cross-examiner's suggestion that one of Best's sub-contractors may have installed the metal grates on the gutters. He said: A. No-one who I employed would have put anything on that roof that wasn't supplied by Maintek because that would have required them purchasing something out of their own pocket that they were never going to get reimbursed for. Does that make sense to you?
8. The cross-examination of Mr Lawrence continued: Q: Please wait for my question, you don't know one way or another with any degree of certainty whether or not one of your subbies installed the grates or not, do you? You are just guessing when you say no? A: I know beyond any shadow of a doubt without hesitation that none of my subbies put those on the roof, without any hesitation because every day I was there with my subbies. I was the last one on the roof. If I was there I would have seen it. So definitely not, no-one who was in contact with me put that on the roof. … Q: I want to suggest to you that in 2005 the gutters were blocked off, do you agree or disagree? HER HONOUR: Blocked off how? WITNESS: As I told you mate without specifics I don't remember dates and when I went to do what. We are talking about 13 years ago on a job that at the time there was no particular significance. So there was no reason to - it was just work. There was no reason to install these things into my memory because it was just work. Nothing particular was exciting about the job, nothing outstanding about the job to remember it for any particular reason. So mate I can't remember off the top of my head what years and what reason I went there for. … Q: Does it follow from your answer you have no specific recollection as to whether or not the grates were installed in 2005 or not? A: The grates - I know I went to the roof on one occasion. When I finished the job the grates weren't there. I went back to the roof on a later occasion and the grates were there. So somebody has put them there after I've installed the roof, complete the job, had it fully inspected and gone home. Someone has since altered these retrospectively after I finished.
9. The significance of this passage of evidence is that Mr Lawrence was definite that he inspected the work done by Best and its subcontractors and there was no reason for installing grates and gauze in the box gutters to Building C to address the bird issue in 2005. His evidence is supported by the absence of evidence that pigeons were gaining access via the newly installed box gutters on Building C.
10. Fifth, whilst Spotlight emphasised that Mr Rogers and Mr McNaughton were not called to give evidence, the evidence of Mr Lawrence, which her Honour accepted, was that he was not engaged to do any work on Building C after 2003; that he was always onsite if any work was performed; and that he did not leave his workmen unsupervised: Judgment at [39]. As mentioned, Mr Lawrence was adamant that the grates and gauze were not installed in 2005.
11. In summary, her Honour correctly excluded as more probable the possibility that Fatseas or one of its contractors, sub-contractors or agents was responsible for the installation of the grates and gauze. That left the likely possibility that Spotlight or one of its contractors, sub-contractors or agents was responsible. That Ms McKenzie personally had no knowledge of the decorative grates is not to the point, particularly given her evidence that she had never been on the roof. On the other hand, Ms McKenzie's evidence established that Spotlight and its contractors and sub-contractors carried out work on and/or about the roof throughout the period of the lease up to the rainfall event. The reasonable inference to be drawn is that it is more probable that the grates and gauze were installed by Spotlight or one of its contractors or sub-contractors or agents.
12. Grounds 1 and 2 are not made out.

Grounds 3 and 4 - Indemnity

1. In light of the conclusion on grounds 1 and 2 and Spotlight's acknowledgment that in such event, Fatseas is entitled to succeed in recovering all of its loss and damage under the indemnity in cl 9.1 of the lease, it is not necessary to address grounds 3 and 4.

Grounds 5, 6, 7 and 8 - cll 5.1 and 10.5 of the lease

1. Spotlight submitted that the primary judge erred in finding that cll 5.1 and 10.5 of the lease were breached essentially for two reasons: 1. the obligation to repair in cl 5.1 did not extend to any obligation to "detect and remove any hazards or debris" from inside the roof cavity; 2. the "proviso" to cl 10.5 is no more than a condition precedent to Spotlight's right to require Fatseas to repair the roof in the event of damage; it is not a covenant by Spotlight to regularly clean and clear all gutters.
2. Spotlight further submitted that any breach of cll 5.1 and 10.5 was not causative of the damage suffered by Fatseas.
3. Whilst these grounds only arise if grounds 1 and 2 are made out, they have been considered in accordance with Kuru v New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12].

Clause 5.1

1. Clause 5.1 dealt with the lessee's obligation to maintain and keep the premises in repair. Subject to two exceptions, the scope of that obligation was to "maintain, replace, repair and keep the whole of the Demised Premises in good and substantial repair, order and condition", having regard to the condition of the premises at the date of the commencement of the lease. The relevant exceptions were first, that Spotlight was not required to reinstate the premises where damage was the result of "storm" (cl 5.1), and second, Fatseas, not Spotlight, retained responsibility for repairing the roof (cl 10.5).
2. The exception from the general covenant by Spotlight to maintain and keep the premises in repair, in the case of damage by storm, is to be read in light of the other terms of the lease, in particular, cl 3.4, which dealt with "damage to the premises" and cl 10.5 which dealt with repair of the walls and roof of the premises. In the case of damage caused by storm, if the premises were substantially unfit for Spotlight's purpose, cl 3.4 operated to provide an abatement of rent, assuming Spotlight did not elect to terminate the lease. Fatseas was also given the option to terminate the lease itself or to reinstate the premises, in which case rent would only abate for the period of time taken to reinstate the premises. However, cl 3.4 was subject to a proviso that Spotlight could not rely on the clause to terminate the lease and rent would not abate, if Spotlight and certain categories of entrants to the premises connected to Spotlight (being its employees, agents and contractors, licensees and invitees) contributed to the damage.
3. Thus, the effect of cl 5.1 was that where Spotlight or one of the related categories of persons for whose conduct it was responsible, caused or contributed to the damage to the premises by failing to maintain the premises and keep the premises in good and substantial repair, order and condition, then Spotlight, and not Fatseas, was responsible for the cost of reinstatement of the premises.
4. Spotlight seeks to avoid this obligation by arguing that the obligation imposed on Spotlight by cl 5.1 did not extend to any obligation to "detect and remove any hazards or debris" from inside the roof cavity or require Spotlight to maintain and report or keep the premises in good and substantial repair, by itself inspecting and removing debris from "within the roof". This submission misses the point. The relevant breach of cl 5.1 found by her Honour did not relate to any failure by Spotlight to inspect, detect or remove hazard or debris from inside the roof cavity or from within the roof. The breach involved the failure to remove the grates and gauze installed in the box gutters by one of its contractors, sub-contractors or agents.
5. Given the unchallenged finding that the grates and gauze caused the overflow of water which damaged the premises, Spotlight's failure to remove the grates and gauze answers the description of breach of cl 5.1. Spotlight failed to maintain and keep the premises in good and substantial repair, order and condition. There was no error in her Honour's finding that Spotlight breached the covenant in cl 5.1 of the lease.

Clause 10.5

1. Spotlight submitted that the "proviso" to cl 10.5 is no more than a condition precedent to Spotlight's right to require Fatseas to repair the roof in the event of damage, with the consequence that the finding by her Honour that Spotlight failed to clean and clear the gutters is not a breach of covenant by Spotlight.
2. The difficulty with Spotlight's argument is that it seeks to read the words "… provided the Lessee does hereby covenant and agree to regularly clean and clear all gutters, downpipes, etc" (emphasis added) as a true proviso limiting the operation of the first part of cl 10.5 and operating only as a condition of the lessor's covenant to repair the walls and roof. That construction should be rejected.
3. While in many cases the function of a proviso is to limit or qualify what preceded it, "it is the substance and content of the enactment, not its form, which has to be considered, and that which is expressed to be a proviso may itself add to and not merely limit or qualify that which precedes it": Commissioner of Stamp Duties (NSW) v Atwill (1972) 126 CLR 655 at 668. That observation, made in the context of statutory provisions containing the words "provided that", is equally applicable to the construction of a proviso in a contract.
4. Here, the substance and content of cl 10.5 is the allocation of responsibility for maintaining the condition of parts of the premises. The lessor's obligation is to maintain the roof and walls; the lessee's obligation is to regularly clean and clear all gutters, downpipes, drains and other pipes.
5. Further and importantly, the lessee's covenant is prefaced by the words "provided the", rather than the words "provided that", and the lessee's obligation to regularly clean and clear all gutters, downpipes, drains and other pipes is expressed in terms of an obligation that the lessee "hereby covenant and agree". Read in context, the proviso in cl 10.5 would be the same if instead of the words "provided the" there had appeared the word "and" or the word "however", that is, the proviso is a lessee's obligation which is complementary to the lessor's obligation. The lessee's covenant is not to be read simply as a true proviso limiting or qualifying what preceded it in cl 10.5.
6. Spotlight did not otherwise challenge her Honour's finding of breach of the covenant in cl 10.5 of the lease by failing to clean and clear the gutters of debris.

Causation - failure to clean and clear gutters

1. Spotlight submitted that her Honour did not make an express finding that Spotlight's breach of cll 5.1 and 10.5 of the lease, by failing to maintain the premises in good order and condition and failing to clean and clear the gutters of rubbish and debris, was causative of the water damage to the premises. I do not agree. Her Honour made the following finding as to the causation at [112]: Messrs Chance, Lawry and Brown, agreed that, but for the obstruction of gutters C and E as constructed and the associated downpipes, the roof plumbing was adequate to discharge the volume of water at peak flow as it entered. Whether the obstruction was the result of the grates, the gauze, the build-up of rubbish or debris or a combination of all three is not relevant. It was clear from the evidence of each of them that it was the obstruction that caused gutters C and E to overflow.
2. This is a finding that Spotlight's failure to clean and clear the gutters of rubbish and debris was a cause of the water damage to the premises. That is sufficient for the purpose of causation of loss.

Grounds 11 and 12 - abatement of rent

1. Spotlight does not challenge the primary judge's analysis of cl 3.4 of the lease with respect to the abatement of rent in the event of damage to the premises. Nevertheless, Spotlight submitted that if it succeeded in setting aside the findings that it breached the lease, then it was entitled to an abatement of rent. The submission continued that the claim by Fatseas for indemnity or damages should not have included loss of rent in the period of reinstatement of the premises from November 2007-July 2008.
2. In light of the conclusion on grounds 1 and 2, Spotlight's claim to an abatement of rent does not arise.

Primary judge's reasons - second judgment

1. In her second judgment, the primary judge gave two reasons for rejecting Fatseas' argument that the contractual entitlement to interest under cl 11.3 of the lease applied to its claim for damages, including its claim for loss of rent and outgoing:

• the judgment sum did not answer the description in cl 11.3 of an amount due and unpaid for seven days; it was not a quantifiable sum and could not have been due for payment until the issues had been decided; and
• Fatseas did not sue for breach of the covenant to pay rent and outgoings, it specifically abandoned such a claim in its amended cross-claim; rather, it sued for unliquidated damages.

1. Addressing the alternative claim by Fatseas for pre-judgment interest under s 100 of the Civil Procedure Act for the whole of the period from June 2008 until 27 August 2019, her Honour took into account the delay by Spotlight in commencing the proceedings in 2013 and the delay by Fatseas in filing the second cross-claim against Spotlight in November 2015. Her Honour found that pre-judgment interest should run on the judgment sum from November 2015, being the date when the second cross-claim was filed. The formal order made by her Honour on 27 February 2020 was: (1) Interest is payable in accordance with rate allowed in s 100 of the Civil Procedure Act 2005 and is payable from November 2015.

Issues on cross-appeal

1. The cross-appeal by Fatseas raises two issues: 1. whether the primary judge erred in finding that the contractual entitlement to interest under cl 11.3 of the lease did not apply to that part of Fatseas' claim for damages or indemnity for loss of rent and outgoings of $208,921.98 from November 2007 to July 2008 (grounds 1 and 2); 2. whether the primary judge erred in the exercise of her discretion in awarding pre-judgment interest on the balance of the judgment sum under s 100 of the Civil Procedure Act only from November 2015 and not from June 2008 (grounds 3 and 4).

Grounds 1 and 2 - interest under the lease

1. Fatseas submitted that the amounts the subject of its damages claim for loss of rent and outgoings from November 2007 to July 2008 are payable under cl 3.1 of the lease as liquidated sums. The submission continued that these amounts, by their very nature, fall within the description of payments to which cl 11.3 applied, being "moneys due by the Lessee to the Lessor on any account whatsoever pursuant to this Lease but unpaid for seven (7) days", with "such interest to be computed from the due date for payment of the moneys in respect of which interest is chargeable until payment of such moneys in full".
2. Fatseas also submitted that her Honour erred in finding that it specifically abandoned its claim for rent and outgoings in its amended second cross-claim and only sued for unliquidated damages.
3. Spotlight sought to uphold the primary judge's reasoning and repeated its submission below that the amended second cross-claim did not include a liquidated claim for breach of the covenant to pay rent under cl 3.1 of the lease.

Consideration

1. Contrary to the submissions of Fatseas, her Honour correctly observed in her second judgment at [11], that the claim in pars 19 and 20 of the amended second cross-claim relating to the "rent-free" period under the lease for the period 8 April 2004 to 7 February 2005 in an amount of $293,333.33 was abandoned, and that "the claim which was agitated [by Fatseas] was based on breaches of cll 5.1, 5.10 and 10.5 of the lease" and there was also a claim for indemnity under cl 9.1(c). There was never a pleaded claim by Fatseas for a liquidated sum for breach of the covenant to pay rent and outgoings under cl 3.1 of the lease from November 2007 to July 2008.
2. The composite description in cl 11.3 of the lease requires that the subject matter of the lessor's claim be "moneys due" by the lessee to the lessor "on any account whatsoever", where the attribute of being "moneys due" is qualified by the words "pursuant to this Lease". A claim is not necessarily one for a liquidated amount merely because it can be readily quantified: Arnold v Forsythe [2012] NSWCA 18 at [45] (Sackville AJA), citing Alexander v Ajax Insurance Co Ltd [1956] VLR 436 at 445.
3. The words "any money due" in the context of the phrase in a building contract "any money due from the Contractor to the Principal", have been held not to include an amount which the principal claimed to be payable to it by the contractor as unliquidated damages for delay: Merritt Cairns Constructions Pty Ltd v Wulguru Pty Ltd [1995] QCA 273; [1995] 2 Qd R 521 at 522 (Fitzgerald P), 523 (Davies JA) and 526 (McPherson JA). That reasoning is equally applicable here. The words "moneys due ... pursuant to this Lease" refer to a liquidated sum due under the lease, not a claim for unliquidated damages for breach of the lessee's covenants under the lease.
4. As to the nature of the indemnity in cl 9.1 of the lease, the indemnity is compensatory: to indemnify Fatseas as lessor "from and against all actions, claims, demands, losses, damages, costs and expenses for which the Lessor may become liable in respect of or arising from", relevantly, the specified matters identified in sub-pars (ii) and (iv) of cl 9.3(c). Spotlight's obligation under the indemnity was to "make good a loss": Canty v Paperlinx Australia Pty Ltd [2014] NSWCA 309 at [39], citing Sutton v Grey [1894] 1 QB 285 at 288-289; Guild & Co v Conrad [1894] 2 QB 885 at 896. The claim for indemnity under cl 9.1 is not for a debt or a liquidated sum due under a contract, it is a claim for loss based on breaches of cll 5.1, 5.10 and 10.5 of the lease and the nature of the action is for unliquidated damages.
5. That the pleaded claims did not answer the description of "moneys due … pursuant to the Lease" was.ultimately accepted in oral argument by senior counsel for Fatseas who sought leave to amend the second cross-claim to add a liquidated claim under cl 3.1 of the lease for rent and outgoings from November 2007 to July 2008. The amendment application is addressed below. Otherwise, grounds 1 and 2 of the cross-appeal are not made out.

Grounds 3 and 4 - interest under s 100, Civil Procedure Act

1. Fatseas accepted that an award of interest under s 100 of the Civil Procedure Act is discretionary and that in challenging the date from which interest was awarded, namely, November 2015, it must establish error in the sense referred to in House v The King (1936) 55 CLR 499 at 505; [1936] HCA 40. Here, the asserted error is that her Honour's discretion miscarried in "arbitrarily" choosing the date of commencement of the proceedings by Fatseas as the date from which interest should run.

Consideration

1. The relevant principles are not in dispute. Interest is compensatory; it is not to be withheld to punish delay: Bennett v Jones [1977] 2 NSWLR 355 at 367. It has been said that interest should generally be awarded on the "neutral" basis that the defendant "ought to have paid" the plaintiff money at a particular time, but did not and since that time the plaintiff has been out-of-pocket of that money and the defendant has had the benefit of it: Bennett v Jones at 367-368.
2. Delay is a relevant factor which the Court should take into account when determining whether or not to award interest or to reduce interest: Simonius Vischer v Holt & Thompson [1979] 2 NSLWR 322 at 338-339 (Moffitt P, Reynolds and Samuels JJA agreeing); Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382 at 389, 394, 396, 398. Generally where delay is treated as relevant it is used to reduce the period over which interest is awarded. In H K Frost Holdings Pty Ltd (in liq) v Darvall McCutcheon (a firm) [1999] FCA 795, Finn J said at [11]: There is considerable diversity in judicial opinion as to the extent to which, if at all, the rate or (more usually) the period selected for an interest award should as a discretionary matter be moulded adversely to a party that delays in the prosecution or defence of a claim where no resultant detriment to the other party is shown: see eg Geoffrey W Hill & Associates (Insurance Brokers) Pty Ltd v Squash Centre (Allawah North) Pty Ltd (1990) 6 ANZ Insurance Cases SS 61-012 ("[t]he principle of punishment is not borne out by a consideration of the purpose of the statutory discretion"); De Girolamo v South Australia (1991) 56 SASR 40 at 44-45; but cf Keates v Nelson (New South Wales Court of Appeal, Kirby P, Mahoney and Cripps JJA, 16 April 1992, unreported); Golden West Refining Corporation Ltd v Daly Laboratories Pty Ltd (Carr J, 16 February 1995, unreported): Tilbury, above, para 3230; and see also BP Exploration Co (Libya) Ltd v Hunt (No 2) [1979] 1 WLR 783 at 845-847 and McGregor on Damages, 16th Ed, 1997, paras 668-669. Nonetheless, insofar as concerns a successful applicant who has been guilty of unreasonable delay, the view I am prepared to follow in the absence of binding authority is that the period for which the interest award is made can properly be adjusted if to allow interest for the whole period for which it could otherwise be ordered would work an injustice to the respondent in the circumstances: cf Clarke v Foodland Stores Pty Ltd, above, at 400. Such would seem to be consistent with the policy of the s 51A (1) in that an applicant that has been held out of the benefit of its money because of its own unreasonable actions should not be allowed as of course to cast the effects of a `self-inflicted burden' onto the respondent: Keithara Pty Ltd v J G L Holdings Pty Ltd (Supreme Court of Victoria, Smith J, 6 December 1994, unreported).
3. Fatseas accepted that delay might, in certain circumstances, justify an award of interest for a more confined period, but only where the defendant demonstrates a detriment as a result of the delay. The submission continued that Spotlight had not demonstrated such detriment.
4. Spotlight objected that Fatseas was seeking to raise a fresh argument on appeal, since the absence of evidence of detriment to Spotlight because of the delay, was not an argument advanced by Fatseas before the primary judge. Spotlight submitted that it could have sought to address this argument by evidence had it been raised below. Fatseas did not seriously advance any contrary submission.
5. The new point would require factual findings, which Fatseas should have given the primary judge the opportunity to make. Her Honour would have been required to make an evaluative decision as to the significance of any detriment to Spotlight because of the delay: Consolidated Lawyers Pty Ltd v Abu Mahmoud [2016] NSWCA 4 at [54]-[56] (Macfarlan JA, Bathurst CJ and Tobias AJA agreeing).
6. Suttor v Gundowda (1950) 81 CLR 418 at 438; [1950] HCA 35; Coulton v Holcombe (1986) 162 CLR 1 at 7-8; [1986] HCA 33; and Water Board v Moustakas (1988) 180 CLR 491 at 497-498; [1988] HCA 12 confirm that a party does not have an unrestricted right to present a new argument for the first time on appeal. The present case is an example of one in which the parties should be held to be bound by the conduct of their legal representatives at first instance and precluded from raising a new argument for the first time on appeal.
7. If it were necessary to decide, in my view, the complaint by Fatseas that her Honour's choice of the date from which interest should run was arbitrary should not be accepted.
8. Accepting that some reasonable time needed to be afforded to Fatseas to allow it to investigate whether an action can and should be brought, the delay of eight years in bringing the claim after the damage was suffered, notwithstanding the countervailing delay of six years by Spotlight in commencing proceedings, was prima facie productive of unfairness to Spotlight. There is no evidence that Spotlight had notice, or early notice, that such a claim would be made until the second cross-claim was filed in November 2015: Simonius Vischer v Holt & Thompson at 338.
9. Grounds 3 and 4 of the cross-appeal should be rejected.

Proposed amendment to second cross-claim to claim rent and outgoings

1. Anticipating rejection of grounds 1 and 2 of the cross-appeal, Fatseas made an oral application on the hearing of the appeal for leave to amend its amended second cross-claim to plead new pars 19-21A adding the following allegations:

• that in breach by Spotlight of the covenant to pay rent and outgoings, Spotlight failed to pay any rent or outgoings for the period between November 2007 and July 2008, in purported reliance upon the abatement clause in cl 3.4(d) of the lease;
• that Spotlight's obligation to pay rent did not abate;
• that Spotlight remains liable to pay such rent and outgoings; and
• that interest is payable on the arrears of rent and outgoings at the contractual rate in cl 11.3 of the lease.

1. The explanation for the late amendment application was given by the solicitor for Fatseas, Mr Shaun Jackson, in his affidavit of 11 May 2020. Mr Jackson gave unchallenged evidence that he took the view, having conferred with counsel, that interest could be claimed at the contractual rate under cl 11.3 of the lease for both liquidated and unliquidated sums. Mr Jackson said that he did not turn his mind to whether Fatseas needed to plead a separate cause of action for unpaid rent in order to claim interest under cl 11.3 of the lease for the failure to pay rent and outgoings.
2. Spotlight opposed the amendment application. It submitted that Fatseas ought to be held to the case which it had run at trial and should not be permitted to advance a new case on appeal by way of amendment of the second cross-claim. There is force in Spotlight's submission.
3. First, despite Spotlight having taken the pleading point during argument on 13 December 2019, leave was not sought by Fatseas below to amend its second cross-claim to include a claim of breach of the covenant to pay rent and outgoings under cl 3.1 of the lease. The response of counsel then appearing for Fatseas was that cl 11.3 can apply to claims for damages. As indicated, her Honour rejected that argument and was correct to do so.
4. Second, accepting that counsel for Fatseas gave notice in his opening at trial that Spotlight was not entitled to rely upon the abatement of rent provision in cl 3.4 of the lease, I am not persuaded that the parties departed from the pleadings and argued the case on a different basis, namely, that the claim for loss of rent and outgoings for the period November 2007 to July 2008 was advanced by Fatseas as a liquidated claim relying upon breach of the covenant to pay rent and outgoings under cl 3.1 of the lease.
5. Third, Spotlight correctly submitted that it had suffered detriment as a consequence of the delay by Fatseas in making the amendment application. It is not in dispute that Spotlight was not put on effective notice of a tenable claim for interest under cl 11.3 until first notified of the proposed amendment to claim liquidated damages relying upon breach of the covenant to pay rent under cl 3.1 of the lease, during oral argument in the appeal. And it should be accepted, as Spotlight submitted, that it has been deprived of the forensic advantage of making decisions in the litigation armed with notice of the true quantum of the claim, including decisions as to a possible resolution of the proceedings such as by the making of costs protective offers.
6. It is well-established that a party is bound by its conduct of its case and should not be permitted to raise a new argument which, whether deliberately or by inadvertence, it failed to put during the hearing when it had an opportunity to do so: Rowe v Australian United Steam Navigation Co Ltd (1909) 9 CLR 1 at 24; [1909] HCA 25; University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481; [1985] HCA 28 at 483; Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 647 (Mason P, Gleeson CJ and Priestley JA agreeing).
7. As the High Court said in University of Wollongong v Metwally (No 2) at 483: It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so. …
8. Fatseas has not established any exceptional circumstances. Accordingly, the amendment application should be refused with costs.
9. In light of this conclusion, it is not necessary to address the parties' submissions as to whether the proposed amendment should be refused on the ground that it is futile because the claim for unpaid rent from November 2007 to July 2008 is statute barred, assuming the relevant limitation period is 12 years from the date the cause of action first arose, being a claim under a deed given registration of the lease: Limitation Act 1969 (NSW), ss 16 and 66.

Conclusion

1. Both the appeal and cross-appeal have failed and there is no reason why costs should not follow the event in each case: Uniform Civil Procedure Rules 2005 (NSW), r 42.1. The costs of the cross-appeal should be taken to include the unsuccessful application by Fatseas for leave to amend the amended second cross-claim.
2. The Court has an inherent discretion to allow the set-off of costs orders in the same proceedings: Wentworth v Wentworth [1996] NSWCA 553. There should be an order to set-off the costs orders in the present case.
3. It is appropriate that a further order be made quantifying the amount of interest under s 100 of the Civil Procedure Act which the parties have agreed is payable by Spotlight if the cross-appeal is dismissed, since the order made by the primary judge on 27 February 2020 did not do so. This further order should take effect on 27 August 2019, being the date judgment was given: UCPR, r 36.4(3).
4. Accordingly, I propose the following orders: 1. Appeal dismissed. 2. Appellant to pay the respondent's costs of the appeal. 3. Cross-appeal dismissed. 4. Refuse leave to the cross-appellant to amend the amended second cross-claim. 5. Cross-appellant to pay the cross-respondent's costs of the cross-appeal, including the costs of the application to amend the amended second cross-claim. 6. The costs orders referred to in orders (2) and (5) above are to be set-off. 7. Order (1) made by the primary judge on 27 February 2020 is supplemented by the following orders: (1) Spotlight Pty Ltd pay Fatseas Pty Ltd the amount of $104,923, being interest on the judgment sum of $497,769 under s 100 of the Civil Procedure Act 2005 (NSW) for the period 23 November 2015 to 27 August 2019. (2) This order shall take effect on 27 August 2019.
5. WHITE JA: I agree with Gleeson JA.
6. EMMETT AJA: This appeal is concerned with the liability of the appellant, Spotlight Pty Ltd (the Tenant), for damage to premises situated in Nowra, New South Wales (the Premises) as a result of the entry of water into the Premises through the roof following heavy rain in November 2007. The Tenant was the occupier of the Premises under a lease to the Tenant (the Lease) granted by the respondent, Fatseas Investments Pty Ltd (the Landlord), in April 2004. The damage resulted from the blocking of access to storm water drains by the installation of grates and gauze in box gutters on the roof of the Premises. The primary question in the appeal was whether or not the grates and gauze were installed by the Tenant.
7. The Tenant commenced proceedings against the Landlord claiming damages for negligence, nuisance and breach of the Lease. The Landlord filed a cross-claim against the Tenant alleging breaches of the covenants in the Lease to maintain and repair the Premises and to clean and clear all gutters, downpipes, drains and other pipes regularly. The Landlord claimed damages for the costs of repair and reinstatement of the Premises and loss of rent and outgoings.
8. A judge of the District Court (the primary judge) directed the entry of judgment against the Tenant in favour of the Landlord in the sum of $497,769. Subsequently, the primary judge made orders in relation to interest and costs, ordering the Tenant to pay prejudgment interest on the judgment sum under s 100 of the Civil Procedure Act 2005 (NSW). Her Honour ordered the Tenant to pay the Landlord's costs of the proceedings on the cross-claim on the ordinary basis up to 29 August 2017 and thereafter on the indemnity basis.
9. The Tenant has appealed to this Court from the whole of the principal judgment and the Landlord has cross-appealed against the part of the primary judge's second judgment relating to the award of prejudgment interest. I have had the advantage of reading in draft form the proposed reasons of Gleeson JA for ordering that the appeal and the cross-appeal be dismissed. I agree with Gleeson JA, for the reasons proposed, that it is more likely than not that the Tenant or one of its contractors, subcontractors or agents was responsible for the installation of the grates.
10. The onus was on the Landlord to establish that it is more likely than not that the Tenant installed the grates. While the Lease should not be construed as requiring the Tenant to remove the grates if some other person had installed them without its knowledge or authority, the evidence leads to the conclusion that it is more likely than not that the Tenant or its contractor, subcontractors or agents installed the grates. While the obligation to keep the drains clear would not extend to changing the physical set up to ensure that the drain was adequate, the evidence indicates that the grates were installed after the Tenant entered into exclusive occupation of the Premises.
11. The Landlord made an oral application during the hearing for leave to amend its amended statement of cross-claim. The proposed further amended cross-claim does not claim arrears of rent as debt. Rather it includes arrears of rent as damages. That seems to be misconceived. Either there is a claim in debt for a liquidated sum or there is a claim for unliquidated damages.
12. The explanation for the failure to claim rent is hardly satisfactory. Paragraph 7 of the affidavit in support of the application to amend is a bold assertion that the Landlord's claim to recover unpaid rent and outgoings was at all times made clear to the Tenant. No attempt has been made to specify the communications either in writing or in the course of argument that made such a claim clear. If the Landlord seeks to establish that rent was always claimed as a debt, notwithstanding the form of the pleading, specific facts should be established.
13. The cross-claim alleged loss and damage by reason of the Tenant's breaches of specific clauses of the Lease, namely, cl 5.1, which imposed an obligation to maintain and repair the Premises, cl 5.10, which contained a prohibition on making any alteration or addition to the Premises without prior written consent and cl 10.5, which imposed an obligation to clean and clear, regularly, gutters, downpipes drains and other pipes attached to the Premises, and claimed an amount for loss of rent. That claim for loss of rent could only be because there was an entitlement to abatement by reason of the damage to the Premises. In light of finding that the Tenant breached the Lease and caused or contributed to the damage to the Premises, the primary judge rejected the Tenant's claim to be entitled to abatement. Therefore, abatement cannot be a head of damage flowing from a breach of cl 5.1, cl 5.10 or cl 10.5. It also follows that cl 11.3 of the Lease, which provided for payment of interest where Tenant neglects to make a payment pursuant to the Lease, was not triggered if there was no money payable under the Lease.
14. However, the Tenant appears to accept that, if it fails on the factual issue as to who installed the grates, there would be no adjustment to the judgment notwithstanding that the judgment includes an amount for unpaid rent. It is significant that the Tenant accepts that, if it fails on its factual challenge, it accepts that the judgment is correct. The judgment that has been given includes the amount of the rent. If the case was not conducted on the basis that the Landlord was claiming arrears of rent, it is difficult to see why the Tenant would submit to judgment for arrears of rent. The only complaint appears to be about interest. The question therefore seems to be whether or not the case was conducted on the basis that, if the Landlord succeeded in recovering arrears of rent, as a debt, it was also claiming interest under cl 11 of the Lease. That is to say, the complaint by the Tenant appears to be about the late claim for interest, not the claim for arrears of rent as a debt.
15. I agree with Gleeson JA, for the reasons proposed, that leave to amend the cross-claim should be refused. I agree with his Honour that the cross-claim should be dismissed.

SCHEDULE 1 SCHEDULE 2 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 July 2020