Taylor Woodrow Property Co of Australia Pty Ltd v Coles Myer Ltd & Anor

Court of Appeal (NSW)|1999-06-11|Before: Mason P, Giles JA

New South Wales Court of Appeal CITATION : Taylor Woodrow Property Co of Australia Pty Ltd v Coles Myer Ltd & Anor [1999] NSWCA 204 FILE NUMBER(S) : CA 40503/97 HEARING DATE(S) : 11 June 1999 JUDGMENT DATE : 25 June 1999

PARTIES : Taylor Woodrow Property Co of Australia Pty Ltd v Coles Myer Ltd & Anor JUDGMENT OF : Mason P at 1; Giles JA at 2; Brownie AJA at 51

LOWER COURT JURISDICTION : District Court LOWER COURT FILE NUMBER(S) : DC 41/93 (Bathurst) LOWER COURT JUDICIAL OFFICER : Dent DCJ

COUNSEL : Appellant - B Walker SC & J Neil Respondents - P Garling SC & P J O'Connor SOLICITORS : Appellant - Barker Gosling Respondents - Windeyer Dibbs CATCHWORDS : NEGLIGENCE - shopping centre - tenant conducts store - water entering through roof - customer slips - landlord owes duty of care to customer - whether breach of duty - balancing exercise in Wyong Shire Council v Shirt - on facts, not required to go to extraordinary expense of a system intended to detect and rectify source of water entry prior to entry of water - again on facts, not shown that system would have prevented the particular water entry. LEASE - shopping centre - tenant conducts store - landlord covenants to keep roof weatherproof - water entering through roof - water from cooling tower not rain - whether breach of covenant - on facts, water entry meant roof not weatherproof - was breach of covenant - fact water from cooling tower was part of causation of loss to tenant when customer slipped in water and sued tenant. LEASE - release and indemnity provisions - whether tenant indemnified landlord for tenant's claim against landlord for breach of covenant by landlord - badly drawn provisions - not to be so construed. DECISION : Appeal dismissed with costs.

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

MASON P GILES JA BROWNIE AJA

TAYLOR WOODROW PROPERTY CO OF AUSTRALIA PTY LTD v COLES MYER LTD & ANOR

1 MASON P: I agree with Giles JA. 2 GILES JA: The first respondent, which I will simply call the respondent, conducted a department store in premises part of a large shopping centre. It leased the premises from the appellant. The second respondent, a customer in the store whom I will simply call the customer, sued the respondent for damages for personal injury caused by the respondent's negligence, alleging that she had slipped in water on the floor of the premises which the respondent had allowed to accumulate from an air conditioning unit. By a third party notice the respondent claimed from the appellant contribution towards or indemnity from any verdict recovered by the customer. 3 The customer's claim against the respondent was settled, and consent orders were made in her favour. The appellant "endorsed" the settlement. The hearing was then concerned with the respondent's claim against the appellant. The claim was pleaded on two bases. One was that the appellant was in breach of a duty of care it owed to the customer, that it would have been liable to the customer if sued, and that there should be contribution or indemnity between tortfeasors. The other was that the appellant was obliged both by a duty of care in tort owed to the respondent and by the terms of the lease to ensure that the premises were safe for the use of entrants to the premises, that it was in breach of the duty of care and the contractual promise, and that its breaches caused the respondent to incur its liability to the customer. 4 Dent DCJ held that the appellant was in breach of a duty of care owed to the customer and that there should be contribution between it and the respondent, and apportioned responsibility 95 per cent to the appellant and 5 per cent to the respondent. He also held that the appellant was in breach of its contractual obligation to keep the roof of the premises weatherproof, and that the respondent's damages for that breach were the amount payable to the customer plus the costs of meeting the customer's claim. He said nothing about breach of a duty of care in tort owed by the appellant to the respondent. The appellant had relied on provisions of the lease which it said directly released it from any liability to the respondent or had that effect by virtue of an indemnity granted by the respondent, but his Honour considered that the provisions availed the appellant only to the extent of indemnity in relation to the respondent's "determined contribution … of 5%". So an order was made for the appellant to indemnify the respondent to the extent of 95 per cent of the amount of the consent orders in favour of the customer plus the respondent's costs of meeting the customer's claim. 5 The appellant appealed in relation to each of breach of a duty of care owed to the customer, liability to the customer, apportionment of responsibility, breach of contractual obligation, and release from or indemnity against liability. The respondent did not take up breach of a duty of care in tort owed by the appellant to the respondent.

The water entry 6 The air conditioning unit was a cooling tower on the roof of the shopping centre. It was designed to release water from time to time, and may also have released water because defective. It was found that the water in which the customer had slipped had leaked from the roof surface down a screw through the corrugated iron roofing material and into the roof structure, had fallen onto the ceiling, and had then percolated through the ceiling and dripped onto the floor. The floor was a smooth and impervious material in a supermarket area. The weather at the time was fine, and it was found that the water came from the cooling tower. 7 The roofing was old, and was described as well worn with some sections requiring replacement. The screw in question was in a new sheet of roofing iron, which must have been part of repair to or replacement of the original roof. There had been water entry travelling to the particular part of the ceiling on a number of prior occasions, but whether the water entry on those occasions had been down the particular screw was not known. Water dripping from the ceiling at the place where the customer fell was described by one of the store employees as a reasonably common experience. On the prior occasions the respondent had reported the water entry to the appellant, and the appellant had called a plumber to trace the source of the water entry and rectify it. 8 On the particular occasion the water entry was slight, in that the water in which the customer had slipped was a small puddle about 30 cms in diameter and of no significant depth. The water on the floor had not been seen by the store employee when she had walked in the area five or ten minutes before the customer fell, and the employee said that it had not been there.

The lease 9 The lease of the premises from the appellant to the respondent, both being assignees from the original lessor and lessee, was for a term of 20 years from 27 November 1984. It was of part of the land in a collection of certificates of title, described as "Shop No 1 in the Shopping Complex erected on the said land". The lessor reserved to itself inter alia "the use of exterior walls and roof". 10 Provisions of the lease addressed responsibility for the condition of the roof and the cooling tower. The lessor covenanted by cl 5.11 to "maintain the structure of the Centre in good order and condition", and by cl 5.10 to "keep the roof of the Demised Premises in weatherproof condition" save where repair, maintenance or replacement was occasioned by the act or default of the lessee or those for whom the lessee was responsible. The cooling tower fell within the definition of building installations and plant. By cl 6 it was to be "maintained in good working order and condition" by the lessee but the lessor was responsible for "repairs (not being repairs incidental to maintenance) and … replacement". 11 The provisions of the lease on which the appellant had relied were contained in Part 9, headed "Indemnities and release", which should be set out in full - "9.1 (a) The lessee agrees to occupy and use the Demised Premises at the risk of the Lessee and hereby releases to the full extent permitted by law the Lessor and its contractors from all claims and demands of every kind resulting from any accident damage death or injury occurring therein except to the extent that the same arises out of the performance or non-performance of the Lessor's covenants herein contained or is caused by negligence on the part of the Lessor or its contractors. (b) Subject to the provisions of this lease the Lessee shall take and be subject to the same responsibilities in regard to persons and property and otherwise to which the Lessee would be subject if during the Term the Lessee were the owner of the freehold of the Demised Premises. (c) Without prejudice to the generality of the foregoing provisions, to the extent that any moneys paid to the Lessor out of insurances effected by the Lessee do not fully indemnify the Lessor from and against all actions, claims, demands, notices, losses, damages, costs and expenses to which the Lessor shall or may be or become liable in respect of all or any of the matters referred to in paragraphs (i), (ii) and (iii) of this sub-clause, the Lessee will indemnify and keep indemnified the Lessor from and against all actions, claims, demands, notices, losses, damages, costs and expenses to which the Lessor shall or may be or become liable in respect of all or any of the following - (i) any loss or damage to property, or death or injury of whatsoever nature or kind and howsoever or wherever sustained, caused or contributed to by the use or occupation of the Demised Premises and not caused by negligence or wilful act default or omission of the Lessor or its contractors; (ii) resulting from any act or omission by the Lessee hereunder and whether the same arises through any act default or omission of the Lessee or any of its agents, contractors, servants, licensees, sublessees, invitees or any trespassers; (iii) resulting from any notice claim or demand to pay do or perform any act matter or thing to be paid done or performed by the Lessee under this Lease except however to the extent that the Lessor shall be obliged under the provisions of this Lease to pay for or contribute to the cost of the same. (d) Without limiting the generality of sub-clauses (a), (b) and (c) hereof 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 shall or may be or become liable in respect of or arising from all or any of the following - (i) overflow or leakage of water (excluding rain water) and other fluids in, into or from the demised premises; and (ii) any damage to property loss of life or injury to persons which may be suffered or sustained by the Lessee or any employee or invitee of the Lessee in or upon any portion of the building whether in the occupation or control of the Lessor or of any other person except to the extent that the same is caused by negligence on the part of the Lessor or its contractors." The appellant's liability to the customer 12 As his Honour noted, because of the settlement there was no determination of how the respondent breached its duty of care to the customer. The appellant had admitted that the respondent, if sued, would have been found liable to the customer. His Honour recorded that the respondent asserted that its negligence lay in continuing to permit persons to enter the premises when there was a likelihood that the roof would leak from time to time and cause water danger on the floor. His Honour also recorded that this was not a particular of negligence upon which the customer had relied. It is relevant to ask why the respondent was liable to the customer, since that might bear on why the appellant might have been liable to the customer. 13 The roof area of the shopping centre was large, described as the size of two or three football fields, and the area over the premises was described as the size of one football field at least. As I have said, the roof was old, and there had been water entry from time to time. His Honour said that no one suggested that the roof required wholesale replacement. According to the evidence of Mr Louis Olney, a plumber called by the appellant, while it was possible to seal roofs prior to a leak the costs were so extraordinary that that was not done: when a leak occurred, it was traced back and rectified. In Mr Olney's opinion, the ad hoc approach to repairs to a corrugated galvanised or zincalume roof was the preferred approach of those who were responsible for their state of repair. I will return in more detail to Mr Olney's evidence. 14 His Honour nonetheless found breach of a duty of care owed by the appellant to the customer. He said that the customer clearly stood in a relationship of proximity with the appellant, such that the appellant was under a general duty to take reasonable care to safeguard her from injury caused by her activities or inactivities over which it had control. He said it was a matter of common knowledge that water entering from the roof onto the floor of the supermarket area would give rise to a risk of injury to people walking in that area. He rejected the ad hoc approach as a sufficient discharge of the duty of care, saying - "The entire circumstances have to be taken into account and in my view the entire circumstances dictate that as there is an extremely foreseeable risk that should water penetrate the roof and percolate down onto the floor surfaces of the supermarket that state of affairs will create a hazard for shoppers in the supermarket because of the nature of the floors that exist in those types of premises and existed quite clearly in the premises here under consideration. The potential risk to which a pedestrian is exposed of slipping is the result of encountering an area of floor where the co-efficient of friction between the footwear of the ambulant pedestrian and the floor surface is unexpectedly reduced ranges from a transient injury to the dignity to brain damage and death. No matter how commercially expedient or economically rational it might be to deal with that danger on an ad hoc approach of repairing a leak after it has manifested itself the law of negligence will not accept that as a proper discharge of the duty. In this case the court does not have before it any specialised evidence as to the proneness of the corrugated metal roof to become leaky as a consequence of the seal waterproofing the screws which bind the roof surface to its underlying structures breaking down but the case before the court is clearly one where such a break down did occur and there is sufficient evidence before the court that these things do happen. The court is not impressed by arguments or opinions that an ad hoc approach to this inevitability is a sufficient response. The Plaintiff in this action was clearly injured because that response is an inadequate one. There is not a scintilla of evidence before the court that the ad hoc response was not the real response to the known problems with the roof. No evidence has been placed before it that a system of regular maintenance and inspection was in place at the behest of the Third Party to check that the roof was properly sealed against water intrusion at any given point of time. The ordinary principles of negligence reaffirmed in Council of the Shire of Wyong v Shirt 146 CLR 40 are an undiminished statement of the law of negligence in Australia and it is crystally clear that the state of affairs which permitted the water entry which cause the Plaintiff to slip on the floor of the Defendant's premises demonstrated a breach of the Duty of Care which was owed by the Third [Party] to the Plaintiff in the particular circumstances of this case. The Third Party is guilty of negligence."

At a later point, when dealing with apportionment of responsibility, his Honour said that the appellant "had within its capacity to take reasonable care by a system of regular inspection and maintenance to prevent the danger arising at all". 15 The appellant did not take issue with his Honour's statement of its general duty to take reasonable care to safeguard the customer from injury: cf Northern Sandblasting Pty Ltd v Harris (1997) 188 CLR 313, at 340, 342-3, 347-8, 365-6. It submitted that his Honour had fallen into error in three respects. First, it said that there was no evidence that water entry down a screw, as was found to have occurred on this occasion, had occurred previously - rather, the evidence identified rusty sheets of iron as the likely source of the earlier leaks, and the offending screw was in a new piece of iron. The "inevitability" of water entry in the particular manner was, it said, an erroneous basis for what followed. Secondly, it said that in insisting on a system of regular maintenance and inspection his Honour had misapplied the "ordinary principles of negligence" in Wyong Shire Council v Shirt (1980) 146 CLR 40, and had in effect imposed strict liability on the appellant. Thirdly, it said that in any event it had not been established that employment of a proper or better system of regular maintenance or inspection would have detected the source of water entry or the water entry, so as to preclude the presence of the water in which the customer had slipped. Causation had not been shown, at least unless the system of regular maintenance or inspection would have led to discovery of the problem with the screw, and there was no evidence that it would have. 16 For present purposes I am prepared to assume that, as his Honour said, the seal waterproofing a screw holding roofing iron can break down so that there can be water entry down the screw, even that breaking down in relation to some of the screws in a roof is inevitable. In my opinion, however, the appellant's submission in other respects should be upheld. 17 In Wyong Shire Council v Shirt, in a passage which has often been adopted and applied, Mason J said (at 47-8) - "In deciding whether there has been a breach of the duty of care the tribunal of fact must first ask itself whether a reasonable man in the defendant's position would have foreseen that his conduct involved a risk of injury to the plaintiff or to a class of persons including the plaintiff. If the answer be in the affirmative, it is then for the tribunal of fact to determine what a reasonable man would do by way of response to the risk. The perception of the reasonable man's response calls for a consideration of the magnitude of the risk and the degree of the probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities which the defendant may have. It is only when these matters are balanced out that the tribunal of fact can confidently assert what is the standard of response to be ascribed to the reasonable man placed in the defendant's position." 18 Mr Olney had extensive experience to do with roofing, and had attended to the roof of the shopping centre over a period of about six years. He had been called on to ascertain the source of a leak in a roof hundreds of times. He described how that was done, in brief by seeing where water was running down a beam or a truss and if it could not be traced in that way by putting a dye colour on the roof and seeing where the colour came in, and - "Q. Can we summarise that by saying that when tracing the source of a leak one follows the water? A. Yes you can summarise that, that's the way of finding a leak in a roof. Q. Is it possible to find a leak in a roof of a kind that was above Grace Bros section of the shopping mall in the absence of water to trace? A. I can't say no, because nothing is impossible with all due respect, but it's very improbably [sic] because you have to be advised a leak is there before you go look for it, and the only way you're advised a leak is there, is it's leaking and there's water coming through it. It is possible to seal roofs prior to a leak, but that's an extraordinary cost that people just don't go to. The standard way of finding a leak is when there's water and it leaks, and you follow the trace back. And you can go to a lot of other problems if you want me to explain, but I mean it's a lot of cost. Q. In your years of tracing the source of leaks, have you ever employed any other technique than following the water to the source? A. No we've suggested it to some RSL Clubs, but they are not interested once you tell them the cost, they're happy to wait until they find a leak and go with it from there." 19 This evidence was uncontested. It was not suggested to Mr Olney, or the subject of other evidence, that leaks in a roof of the kind presently in question could be detected ahead of time by inspection, that maintenance of a roof would include detecting and obviating a leak of the kind presently in question in the absence of water entry to trace, or that a system of inspection and maintenance was either normal or something which could usefully be put in place at reasonable cost. Mr Olney's evidence was that sealing roofs prior to a leak, by which in context was meant finding a leak in the absence of water to trace, was an extraordinary cost, a cost "that people just don't go to". 20 The water entry presently in question was down a screw securing a new sheet of iron. The respondent's case was not of negligence in fixing the new sheet of iron, nor was it of negligence in having leaky old iron on the roof. In the balancing of which Mason J spoke the "expense, difficulty and inconvenience of taking alleviating action" was in instituting a system of maintenance and inspection in order to detect and obviate a source of water entry down a screw. On the evidence of Mr Olney, there was both little prospect that a system of maintenance and inspection would be sufficient to detect such a source of water entry, and an extraordinary expense of such a system in an endeavour to do so, to balance against the magnitude of the risk to entrants to the premises and the degree of probability of its occurrence. 21 On the other side of the scales in the balancing exercise, it was correct to envisage possibly severe consequences to a person slipping in water on the floor. But the risk was lessened by the expectation, although of course not a guarantee, that the occupier of the premises would detect any water entry and take steps to clean it up, and would erect barricades to prevent slipping in the water while the source of the water entry was detected and rectified. That is why it could have been material to investigate why the respondent was liable to the customer, but that was not done. Even in relation to common areas of the shopping centre, a procedure could have been put in place to guard against occasional water entry leading to injury. 22 In my opinion, his Honour should not have held that the appellant was in breach of a duty of care owed to the customer. I do not think that a duty of care owed by it as lessor of the premises to entrants to the premises required that it go to the extraordinary expense, so far as the evidence showed not an expense which would necessarily have detected and rectified a source of water entry of the kind presently in question ahead of the entry of water, of something more than the ad hoc approach; and what that could have been was not disclosed. 23 Even if this be incorrect, in my opinion there was no evidence on which it was open to his Honour to conclude that, if a system of regular maintenance and inspection had been in place, it would have detected ahead of time the source of water entry presently in question. The only material evidence was that of Mr Olney. It gave no support to a system for detecting that water would leak from the roof surface down the screw. He was not asked what could have been done to "seal roofs prior to a leak", or to explain what he meant by "or you can go to a lot of other problems"; he was not asked what had been suggested to the RSL clubs. The respondent pointed to his evidence to the effect that, in order to trace a leak which was not still leaking, more water could be put on the roof, but that was evidence directed to a known leak the precise location of which was to be found. It was not suggested to Mr Olney that a system of maintenance and inspection could have been putting water on a roof greater in size than a football field in order to see whether and where there might be water entry. 24 The leak in question was in fact traced by Mr John Rogers, a plumber summoned by the respondent, who went into the ceiling and traced the leak to the screw, and then got up onto the roof, pulled the screw out, and replaced it with a silicone sealant. Mr Rogers said that the screw could have been loose, but he could not remember whether it was. As I have said, it was not shown that the earlier water entry coming to the particular place within the premises had been from the screw. 25 Even if the appellant had been in breach of a duty of care owed to the customer, it would not have been liable to the customer unless the breach caused or contributed to the customer's loss, and so it had to be established that having in place a system of regular maintenance and inspection would have precluded the water entry which caused the customer to slip: cf the need to establish that a proper or better system of cleaning would have prevented the slipping in Sleiman v Franklin Food Stores Pty Ltd (1989) Aust Tort Rep 80-226 esp at 68,834-5. There was no evidence that such a system would or might have detected the unsatisfactory sealing at the particular screw, no doubt one of thousands in the roof. I do not think that was established.

Apportionment of responsibility 26 In the light of what I have said, it is unnecessary to address this.

Breach of contractual obligation 27 His Honour said - "I now turn to the claim of the Defendants that the Third Party was contractually bound by the Terms of the lease the clauses of which are recited herein earlier to provide that [sic] a roof that was weatherproof and relevantly breached the contract. The facts of the particular accident supply ample evidence that at the time that it occurred the roof was not weatherproof even though it is very plausible that the source of the water upon the roof was an evaporative air conditioning system under the proprietary responsibility of the Defendant which may well have been leaking beyond its normal expectation at the time that water flowing from it encountered the unsealed or insufficiently sealed screw binding down the corrugated roof to its supports and allowing water to thus percolate into the premises under the general care, control and management of the Defendant. The facts of the accident in my view supply ample evidence that the Third Party failed to discharge its obligation under the covenants of the lease in respect of the weatherproofing of the roof and under the ordinary principles of recovery of damages in contract the Third Party cannot free itself from its obligation to pay the Defendant damages for the breach by reason of an interruption in the chain of causation arising from the Defendants own negligence in the subject case because given the overall circumstances that breach of duty was one which was clearly within the foresight of the Third Party as the terms of the lease between the Third Party and the Defendant required the Defendant to be open for business within the hours dictated by the Third Party come what may." 28 His Honour found a breach of cl 5.10 of the lease, the promise to keep the roof in waterproof condition. The appellant did not contest that, if there were a breach of that provision, the respondent's damages extended to its liability to the customer. 29 The appellant first submitted that on the proper construction of cl 5.10 it did not impose on the appellant an obligation to ensure that the roof was proof against water leaking from the cooling tower. The respondent did not fall back on cl 5.11 of the lease. 30 On the appellant's argument, the lease drew a distinction between water from evaporative coolers, for which the respondent was responsible, and rain water, for which the appellant was responsible. The definition of building installations and plant included "evaporative coolers", and hence the cooling tower. By cl 6.1(a) the lessee was obliged to use its best endeavours, at its own expense, to ensure that the building installations and plant were maintained in good working order and condition; by cl 6.1(b) the lessee was obliged to comply with and observe the reasonable requirements of the lessor in regard to the building installations and plant, and not to do or permit to be done anything in relation to it which might interfere with or impair its efficient operation; by cl 6.1(c), failure of any of the building installations and plant to function did not entitle the lessee to determine the lease or give it any right of action or claim for compensation. By cl 7.8 the lessee was obliged to give the lessor prompt notice in writing of any accident to or defect or want of repair in any building installations and plant in the premises. These provisions, it was said, placed the responsibility for the operation of the cooling tower on the appellant, including responsibility for the water released from the cooling tower from time to time. Clause 9.1(d)(i), part of the clause set out in full earlier in these reasons, was said to distinguish between overflow or leakage of rain water and overflow or leakage of water other than rain water, and to reflect this responsibility. 31 I am unable to accept the suggested restriction on the appellant's obligation under cl 5.10. The obligation was plain - to keep the roof in weatherproof condition. Weather included rain, and the obligation included keeping the roof in a condition in which rain water would not enter the premises. If the appellant failed to keep the roof in that condition, and as a result water from the cooling tower entered the premises, the fact that the water which entered the premises came from the cooling tower did not nullify the appellant's breach of its obligation to keep the roof of the premises in weatherproof condition. That fact was part of the causation of the loss from the breach of contract. 32 The appellant then submitted that it had not been established that the appellant failed to keep the roof in a weatherproof condition, relevantly in a condition in which rain water would not enter the premises. His Honour had reasoned from the fact of entry of water from the cooling tower to failure to keep the roof in weatherproof condition. This was erroneous, it was said, because the concentration of water from the cooling tower and its nature meant that its entry did not establish that the roof was in a condition in which rain water would enter the premises. 33 Again I am unable to accept the submission. The cooling tower was on a sloping part of the roof, so there was no ponding of water at the point of water entry. A discharge pipe directed water released from the cooling tower to the roof surface, but there was nothing to indicate that the quantity of water was greater than would come from a rainstorm, even if (which I do not think there was any reason to conclude) the amount of water affected entry down the screw. For the nature of the water the appellant referred to some rather unclear evidence from Mr Olney that "chemical treatment on roofs from evaporative coolers, and cooling towers can cause a breakdown in the zincalume or the galvanised iron, and can cause rust and deterioration which will cause leaks", saying that this established that the water from the cooling tower was corrosive. Assuming that it does, there was nothing to show that the water was more prone than rain water to take advantage of a point of water entry in the roof, or specifically to enter down a screw the seal of which was inadequate. In my opinion water from the cooling tower was relevantly equivalent to rain water, and its entry showed that the roof was not weatherproof. 34 Finally, the appellant submitted that the minor water entry in the present case did not mean that the roof was not weatherproof: there could be water entry, not from the weather, consistently with the roof being weatherproof. No doubt that could be so if, for example, the water entry was at a point not exposed to the weather because sheltered by an overhang. But that was not this case. Even if the water entry was small, it showed that the roof was not proof against the weather. The lessee was entitled to a weatherproof roof, not a roof which only leaked a little bit, and while the lessor may have taken on a significant burden by promising to keep the roof weatherproof it did so in clear terms.

Release and indemnity 35 His Honour rejected reliance on cl 9.1(a) on the ground that he had found that the appellant's liability arose out of non-performance of the covenant in cl 5.10 and was caused by negligence on the part of the appellant. Even if there was no negligence, the breach of cl 5.10 meant that cl 9.1(a) did not avail the appellant. 36 As to cl 9.1(b), his Honour said that it spoke for itself and "imposes on the lessee as between the parties to the lease the residual responsibilities of the lessor, subject to the provisions of the lease". I am not confident of the clarity of its voice, or of this meaning. 37 As to cl 9.1(c), his Honour said - "Clause 9(1)(c) is a peculiar provision as it seems to proceed upon the assumption that the lessor was a person indemnified by the insurances effected by the lessee pursuant to Part 8 of the lease but Part 8 does not as I read it do any more than oblige the lessee to insure against public liability in respect of the demised premises and that that insurance covers the indemnities referred to in Part 9 of the lease and otherwise conforms with the reasonable requirements from time to time of the lessor. There is no evidence in this case that any monies were paid to the lessor out of insurances effected by the lessee so this provision bears no relevance in the present case."

The appellant did not take issue with this view of the operation of cl 9.1(c), a view by which it operated only if some insurance money was paid to the lessor but the amount paid was less than full indemnity. 38 His Honour then said (the references to cl 9.1(d) are as in the judgment) - "The Third Party submits however that in respect of the claims made contractually and on a concurrent tort feasor basis against yet [sic] it is entitled to the specific indemnity provided by clause 9(1)(d)(i) of the lease. On the ordinary principles of interpretation those who seek to rely upon exclusion clauses and indemnities bear the onus of satisfying the court that the contractual provisions bear the meaning contended for by the party so relying. In my view that onus is not discharged by the Third Party in this case. In my view Clause 9(1)(d) is limited to a situation where the Third Party lessor has become liable in respect of an action etc arising from inter alia a leakage of water into the demised premises other than rain water and as a consequence damage to property, loss of life or injury has been suffered by prescribed persons who are the lessee or any employee or invitee of the lessee, in any portion of the overall building whether in the occupation or control of the lessor or the lessee or to any other person except to the extent that the same is caused by negligence on the part of the lessor of its contractors. D(i) and (ii) are in my view intended to be read together and being provisions of the lease they detract from the overall shifting of responsibility sought to be achieved by Clause 9(1)(b). As I have already determined in this judgment the comparative contributions to the damage arising from the negligence of the Defendant lessee and the Third Party lessor the indemnity that the Third Party lessor is entitled to pursuant to this provision is limited to the determined contribution of the Defendant lessee of 5%." 39 His Honour seems to have read cl 9.1(d) as stating two cumulative conditions for the indemnity in favour of the lessor, that the lessor's liability be in respect of or arising from first, leakage of water other than rain water into the premises (cl 9.1(d)(i)), and secondly, personal injury to an invitee (customer) suffered on the premises except where caused by the lessor's negligence (cl 9.1(d)(ii)). So he referred to liability arising from leakage of water into the premises and "as a consequence" damage to property, loss of life or injury suffered by prescribed persons. The partial indemnity as to the appellant's 5 per cent responsibility seems to have been because his Honour had found the appellant negligent and he considered that the exception in the last few lines of cl 9.1(d)(ii) therefore applied. 40 With respect to his Honour, if his reading of cl 9.1(d) otherwise be accepted I have difficulty with the partial indemnity as to the appellant's 5 per cent responsibility. The last few lines of cl 9.1(d)(ii) are concerned with causation, while contribution between tortfeasors is concerned with responsibility. For reasons which will become apparent, it is not necessary to go into this. 41 The appellant submitted that his Honour erroneously read cl 9.1(d)(i) as subject also to cl 9.1(d)(ii). It said that, on the natural and ordinary meaning of cl 9.1(d)(i) (Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510), the indemnity was absolute: liability in respect of or arising from overflow or leakage of water other than rain water into the premises. Clause 9.1(d)(ii) was a separate matter, using as the criterion for indemnity the consequences of events rather than, as did cl 9.1(d)(i), the nature of the events, and that it was a separate matter was apparent from the syntax and punctuation of cl 9.1(d) and from the fact that cl 9.1(d)(ii) was qualified where there was negligence on the part of the lessor or its contractors but cl 9.1(d)(i) was not so qualified. 42 The respondent made cascading submissions: that his Honour's reading of cl 9.1(d) as stating cumulative conditions was correct; that if it was not correct cl 9.1(d)(ii) was the applicable provision and there was no indemnity because the appellant's liability was caused by negligence on its part; that if this was not correct cl 9.1(d) did not apply at all, because it was restricted to indemnity for the lessor's liability to third parties, not its liability to the lessee: alternatively, it did not extend to indemnity for the lessor's liability in consequence of breach by the lessor of a covenant of the lease. 43 Clause 9 is not well drawn, and neither the appellant nor the respondent could confidently explain its structure or reconcile all its parts. Such are the difficulties in its expression that a consistent and harmonious operation of all its words and phrases is illusory. That does not excuse a court from the need to ascertain the intention of the parties to the lease from the words used, but it does mean that "semantic niceties" should not drive the construction of the clause (Mitsui Construction Co Ltd v Attorney General of Hong Kong (1986) 33 BLR 1 at 14), and that it may be necessary to modify the strict wording, even reject words or whole provisions (Glynn v Margetson & Co (1893) AC 351 at 357. 44 It is clear enough that cll 9.1(a) and 9.1(b) were intended to state the basic allocation of risk between the lessor and the lessee - the following cll 9.1(c) and 9.1(d) were expressed to be without prejudice to and without limiting that which preceded them. Whatever their precise operation in this respect, a matter far from clear, by stating that the lessee had the responsibilities of the owner of the freehold and occupied and used the premises at its own risk they indicated that the allocation was generally to the lessee. That was given effect for the case of a claim by the lessee against the lessor by a release in favour of the lessor, save where there was a kind of fault on the part of the lessor. There was the fault if the claim arose out of the performance or non-performance of the lessor's covenants or was caused by negligence on the part of the lessor or its contractors. Whatever else this meant, a claim by the lessee against the lessor for damages in the amount of a customer's claim for personal injury would not be released if the lessor's breach of covenant brought the customer's claim. The lessor's liability to the lessee for that breach and its consequences was deliberately left intact. 45 Clause 9.1(c) then provided for indemnity in favour of the lessor in the circumstances it set out. It presupposed the insurance which the lessee was required to put in place. By cl 8.1(a) the lessee was required to put in place public risk insurance, and specifically to "ensure that such insurance covers the indemnities referred to in the following Part …". While an indemnity can operate to release the liability of the indemnified party to the indemnifying party (see for example Smith v South Wales Switchgear Co Ltd (1978) 1 WLR 165 at 168, 172, referring to an indemnity clause as the obverse of an exception clause), the contrast with the release in cl 9.1(a) indicates that the indemnity is for a claim made by a third party against the lessor, not for a claim made by the lessee against the lessor, the foundation on the insurance does the same, and the language of cl 9.1(c) does not say otherwise. Clause 9.1(c) also gave effect to the basic allocation of risk between the lessor and the lessee, not for the case of a claim by the lessee against the lessor but for the case of a claim by a third party against the lessor, and in the circumstances of the insurance to which it referred. It did not extend to indemnity for a claim by the lessee against the lessor for breach of covenant. 46 Finally, cl 9.1(d) additionally provided for indemnity in favour of the lessor in the circumstances it set out. From its opening words, it was a specific statement, included for more abundant caution, of something already within the preceding paragraphs. Giving that effect to the opening words is not easy, if only because the exception in cl 9.1(d)(ii) was different from and narrower than the exceptions in the preceding paragraphs, and it had to be given independent operation. But the operation was again by way of indemnity, not by way of release, and subject to one matter cl 9.1(d) gave effect to the basic allocation of risk between the lessor and the lessee also for the case of a claim by a third party against the lessor, but beyond the circumstances of the insurance to which cl 9.1(c) referred. The very concept of indemnity as distinct from release so suggested. The draftsman saw a need for an indemnity provision with a more general operation than that linked with the insurance in cl 9.1(c), and intended to supplement the provision for indemnity for a claim made by a third party against the lessor; and that the exception in cl 9.1(d)(ii) was as to negligence alone, not breach of covenant, indicated that the indemnity was not concerned with a claim by the lessee against the lessor. On this basis, whether or not cl 9.1(d)(i) was subject also to cl 9.1(d)(ii), as to which I have considerable doubt, cl 9.1(d) also did not extend to indemnity for a claim by the lessee against the lessor for breach of covenant., 47 However, there is the matter earlier mentioned. Clause 9.1(d)(ii) included reference to damage to property, loss of life, or injury to "persons" (which I take to mean personal injury) suffered or sustained by the lessee. Describing these generally as loss, the lessee indemnified the lessor for claims for which the lessor was liable "in respect of or arising from … [loss] suffered or sustained by the lessee …". Did this mean that cl 9.1(d) extended to indemnity for a claim by the lessee against the lessor, specifically a claim for breach of covenant by the lessor? It would be extraordinary if it did: cf Viscount Dilhorne's reference to it being "inherently improbable that one party should agree to discharge the liability of the other party for acts for which he is responsible" in Smith v South Wales Switchgear Co Ltd at 168. It would be all the more extraordinary where cl 9.1(a) had deliberately left the lessor's liability to the lessee for breach of covenant intact. 48 The words "in respect of or arising from" were used, so the lessor's liability did not have to be liability to the lessee for the lessee's loss. It was sufficient that the lessor be liable to a third party and the liability have a connection with the lessee's loss. If the lessee suffered or sustained loss whereby a third party claimed against the lessor, for example, if damage to the lessee's property affected its trading and it could not pay creditors or death of the lessee brought a compensation to relatives claim, this part of cl 9.1(d) would have work to do. If this be thought strained, in my view the construction of cl 9 as a whole requires that the reference to loss sustained by the lessee be rejected. 49 In my opinion, cl 9.1(d) did not extend to the appellant's liability to the respondent resting upon breach of cl 5.10.

The result 50 The appellant should probably have been found liable to the respondent in an amount being the full amount of the consent orders in favour of the customer plus the respondent's costs of meeting the customer's claim, not as to 95 per cent only. In the absence of a cross-appeal, I propose that the appeal be dismissed with costs. 51 BROWNIE AJA: I agree with Giles JA.

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Judgment (17 paragraphs)

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Cases Cited (3)