Arko Investments Pty Ltd v Commonwealth of Australia [2011] ACTSC 5 (31 January 2011)

Last Updated: 8 February 2011

ARKO INVESTMENTS PTY LTD (ACN 008 608 571) v COMMONWEALTH OF

AUSTRALIA

[2011] ACTSC 5 (31 January 2011)

LEASES AND TENANCIES - commercial lease - interpretation - notice to lessor under

statute requiring expenditure - notice complied with by lessor - whether lessor entitled to

recover expenditure from lessee - earlier purchase of property by lessor from lessee by

contract including agreement to lease property to lessee on completion - whether permissible

to have regard to contract in construing provisions of lease

Occupational Health and Safety Act 1983 (NSW)

Occupational Health and Safety Act 1989 (ACT)

Occupational Health and Safety Act 1991 (Cth)

International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151

Re Piccolo: Mc Veigh v National Australia Bank Limited [2000] FCA 187

Smith v Chadwick (1882) 20 ChD 27 at 62

Telstra Corporation Ltd v Smith [2008] FCA 1859

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

Workcover Authority (NSW) v Boral Johns Perry Industrial Pty Ltd trading as Boral

Elevators (Maidment J, 8 August 1996, unreported)

No. SC 963 of 2006

Judge: Master Harper

Supreme Court of the ACT

Date: 31 January 2011

IN THE SUPREME COURT OF THE )

) No. SC 963 of 2006

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: ARKO INVESTMENTS PTY LTD

(ACN 008 608 571)

Plaintiff

AND: COMMONWEALTH OF AUSTRALIA

First Defendent

O R D E R

Judge: Master Harper

Date: 31 January 2011

Place: Canberra

THE COURT ORDERS THAT:

1. Judgment be entered for the defendant.
2. The defendant's costs be paid by the plaintiff.

1. The plaintiff, Arko Investments Pty Ltd, is the registered proprietor and crown lessee

of Lawley House in Brisbane Avenue, Barton. The defendant, the Commonwealth of

Australia, is the tenant of the property.

2. Lawley House was built in 1947 as a Commonwealth hostel to provide

accommodation for public servants. It remained in Commonwealth ownership until

2001, when the Commonwealth sold it to the plaintiff. Long ago it ceased to be

operated as a hostel. For about thirty years it has housed the Australian Federal Police

College. Some of the building is still used for residential accommodation, for AFP

personnel attending courses. Other parts of the building are used for the conduct of

the courses, and for related administrative purposes. The building is air-conditioned,

although it was not at the time of construction. Air-conditioning refrigeration units

and ducting are housed in the roof space, above plaster ceilings and joists, and below

rafters supporting the roof tiles.

3. On 15 May 2001 contracts for the sale of the building between the defendant as

vendor and the plaintiff as purchaser were exchanged. The property, identified as

block 6 section 19 Barton, had not previously been the subject of a crown lease. In

special conditions to the contract, the Commonwealth undertook the obligation of

granting a crown lease to the purchaser. The special conditions further provided that

on completion the purchaser must grant to the vendor a lease commencing the

following day, the form of the lease to coincide with a draft form of lease annexed to

the contract.

4. The purchase was completed on or about 19 June 2001. A lease in the agreed form

was duly executed by the parties, stamped and registered. The lease was expressed to

be for a term ending on 30 June 2009, with an option for a further three years. Since then the Commonwealth has paid rent to the plaintiff company. The occupancy of the building has remained unchanged.

5. In March 2004, ACT Workcover issued and served on the plaintiff two improvement

notices pursuant to section 76 of the then Occupational Health and Safety Act 1989

(ACT). That section was in the following terms:

76 Improvement notices

1. Where an inspectorbelieves"on reasonable grounds that a person (in this

section called "the responsible person ") –

a) is contravening a provision of this Act or the regulations; or

b) is likely to contravene a provision of this Act or the regulations;

the inspector may, by notice in writing given to the person, require the person to rectify the matters or activities occasioning the contravention or likely contravention.

2) An improvement notice shall

a)specify the contravention that the inspector believes is occurring or is

likely to occur, and set out the reasons for that belief; and

b) specify a period, being a period that is, in the inspector's opinion

reasonable, within which the responsible person is to rectify the

matters or activities to which the notice relates.

3) An improvement notice may specify action that the responsible person is to take during the period specified in the notice.

4) Where an improvement notice is given to an employer, the employer shall

a) give a copy of the notice to -

i) the health and' safety representative for each designated

work group for the employer's employees performing work

that is affected by the notice; and

ii) the Chairperson of any health and safety committee in

existence in respect of those employees; and

b) cause a copy of the notice to be displayed at or near each workplace

at which that work is being performed

5) A person who, without reasonable excuse, contravenes subsection (4) is guilty of an offence punishable, on conviction, by

a) if the offender is a natural person-a fine not exceeding $1, 000; or

b) if the offender is a body corporate-a fine not exceeding $5, 000.

6) Where an inspector issues an improvement notice, the inspector shall take all reasonably practicable steps to give a copy of the notice to -

a) where the notice is given to an employee in connection with work

performed by the employee for an employer - that employer;

b) where the notice relates to any workplace, plant, substance, or thing

in which a person (other than the person to whom the notice is given

or an employer referred to in paragraph (a)) has a prescribed

interest - to each such person; and

c) where the notice is issued to a person (not being an employer) who

has a prescribed interest in any workplace, plant, substance or thing

by reason of which the inspector believes a contravention of this Act

or the regulations is occurring or is likely to occur - the employer of

the employees who work in that workplace or who use that plant,

substance or thing.

7) Before the end of the period specified in an improvement notice, the inspector who issued the notice may, by notice in writing given to the responsible person, extend the period within which the responsible person is to take action in accordance with the notice.

8) Where an inspector believes on reasonable grounds that adequate measures have been taken to rectify the matters or activities in respect of which an improvement notice has been given to a person, the inspector shall, by notice in writing given to the person, revoke the improvement notice.

6. The notice was signed by an inspector under the Act asserting that she believed on

reasonable grounds that the plaintiff was contravening section 29 of the Act. The

notice continued:

2) The reasons for that belief are: I observed access to plant in the underside of the roof is via a narrow piece of timber approx 180mm wide supported by steel rods fixed to the roof truss with no signage indicating the safe working load (SWL). The walkway is narrow and unstable. Tools can fall from the walkway and penetrate the plasterboard below. Information received that access to some areas of the plant is restricted to a crawling space over and under plant and duct work

3) You are required to remedy the above by no later than: - 4:00pm 19 April 2004.

4) The following action must be taken during the period specified:

Conduct a risk assessment of the building to assess the risk of safe access and egress of persons entering the roof cavity and working in the roof cavity.

Ensure control measures are in place including:

i) Install walkways of a safe width that is fixed in place and is stable. Ensure walkways extend from the access point to all areas where plant is to be serviced Ensure there is sufficient area to stand for people working on plant. Ensure the walkways SWL is displayed on the access door. Ensure there is a catch platform under the walkways to prevent tools from falling from the walkway and penetrating the plasterboard below; and/or

ii) Provide access to the plant from access points below the plant.

Ensure the access points through horizontal openings is safe and provides sufficient access for a ladder to extend above the opening.

7. The second Improvement 'Notice, 'signed by the same inspector and expressing the same belief that the plaintiff was contravening section 29, continued:

2) The reasons for that belief are: 1 observed in plant room 1 and 2 the following: access to the underside of the roof there is insufficient lighting to allow safe access to egress. Insufficient lighting to allow safe work to carry on which may lead to injury.

...

4) The following action must be taken during the period specified: ensure permanent artificial lighting is provided above the access way to the plant and above all plant with a switch located adjacent to the access opening.

No date was specified for this remedial action, but no point is taken between the parties about this.

8. Section 29 of the Act is a penal provision requiring a person who has, to any extent, control of a workplace, a means of access to or egress from a workplace, or plant or a substance at a workplace, to take all reasonably practical steps to ensure that it is safe and without risk to health.
9. The plaintiff arranged for a risk assessment to be carried out, and subsequently remedial work was carried out on the plaintiff s instructions and paid for by the plaintiff.
10. The plaintiff’s case is that it paid $292,459.00 for work, with the exception of one item, which was necessary to comply with the notices. The required work included the installation of five pull down access stairways, plywood crawl boards, ladders, and overhead safety lines. The exception was the installation of "whirlybird" roof ventilators. The plaintiff says that it is entitled to recover the expense from the defendant under the terms of the lease.
11. The defendant puts the plaintiff to proof that the work was carried out and says that the work did not constitute compliance with the notice. More significantly, the defendant says that the expense incurred in complying with the notice was the plaintiff s responsibility and that the plaintiff has no entitlement under the lease to recover the expense from the defendant.
12. The base charge by the roofing subcontractor for supply and installation of the whirlybird ventilators, according to the documentation, was $6,600.00. To this would have been added GST of $660.00, and a markup by the head contractor. I have been unable to identify the total amount paid by the plaintiff in relation to this item, which the plaintiff appears to concede on the pleadings is not recoverable.
13. The plaintiff contends that it has a contractual entitlement to recover its expense from the defendant arising from clause 10 of the lease. That clause is as follows:

10 WHO COMPLIES WITH OFFICIAL REQUIREMENTS

10.1 Landlord's duties

At its expense the Landlord must comply with any Official Requirement which requires alterations to the Structure but only if such requirement would apply if the Land or Building were vacant or occupied by a tenant for a different purpose unless the requirement arises from or is connected with any breach or default by the Tenant or the Tenant's Employees under this Lease.

10.2 Tenant's duties

(1) At its expense, the Tenant must, to the extent required by law, comply with any Official Requirement concerning the Land or Building, the Tenant's Property or the Tenant's use of the Land or Building unless the Landlord is required to comply, pursuant to clause 10.1.

(2) The Tenant will promptly forward to the Landlord a copy of any notice of any Official Requirement which the Tenant receives.

Generally the use of capital initial letters in the lease is an indication that the term has

a defined meaning. Definitions are set out in clause 1.2 of the lease. The relevant

definitions are:

"Building" means all improvements on the Land at any time including any

modifications, the Landlord's Property in or on the improvements, all fixtures and fittings and Services but does not include the Tenant's Property;

"Landlord's Property" means any property owned by the Landlord on the Land or in the Building at any time;

"Official Requirement" means any requirement, notice, order or direction of any authority and includes the provisions of any statute, ordinance or by-law and in respect of any future development of the Land includes any Development Control Plan agreed by the National Capital Authority;

"Structure" in relation to the Building includes all walls (whether load-bearing or not but excluding temporary walls or partitions), floors, windows, gutters, downpipes, facades, foundations, ceilings and roofs;

"Tenant's Property" includes all fittings, fixtures and other articles on the Land or in the Building at any time which are not Landlord's Property and include the property in Schedule 6;

[Schedule 6 lists various items not argued to be relevant to the present dispute]

14. It is common ground that the roof space referred to in the improvement notice was a workplace for the purposes of the Act during any period when there was a workman in the space. It seems unlikely that employees of either party would have been in the roof space at any time, and much more likely that any work being carried out in that space would have been carried out by employees of air-conditioning maintenance contractors, but this is not relevant to the application of the Act. It has not been submitted on behalf of the plaintiff that it did not have, at least to some extent, control of the workplace, or that for any other reason it was not obliged to comply with the improvement notice. The notice was, of course, addressed to the plaintiff and not to the defendant. If the notice had not been complied with, the defendant was therefore not at risk of prosecution (failure by a person to whom an improvement notice has been given to ensure that it is complied with is an offence under section 79 of the Act). The defendant no doubt could have been subject to prosecution for an offence under section 29, set out above, being a "person" having to some extent control of the workplace as occupier of the building.
15. Notwithstanding the fact that notice was given only to the plaintiff and not to the defendant, so that the defendant was under no statutory obligation to comply with the notice, the parties have conducted the litigation on the footing that clause 10 of the lease comes into play when an Official Requirement is imposed upon either of them. Briefly put, the plaintiff's case is that, by clause 10.2, compliance with an Official Requirement concerning the building is the responsibility of the tenant unless clause 10.1 applies. The plaintiff says that it does not, because the Official Requirement did not require alterations to the structure, or if it did, the requirement would not have been made if the building had been vacant or occupied by a tenant for a different purpose (for example, purely for storage not requiring air-conditioning).
16. The defendant's case is that the improvement notice amounted to an Official Requirement requiring alterations to the structure and that the exceptions in clause 10.1 did not apply. Hence compliance with the notice was the responsibility of the landlord.
17. The plaintiff in addition argues that the lease entitled it to perform the tenant's obligations, if not performed in a reasonable time, and to claim the cost from the. tenant. In this regard the plaintiff relies on clause 8.6 of the lease:

8.6 Landlord may carry out Tenant's obligations

(1) The Landlord may carry out any of the Tenant's obligations if the Tenant does not carry them out in a reasonable time in all of the circumstances.

(2) If the Landlord does so, the Tenant must promptly pay the Landlord's actual costs.

(3) The Landlord must give reasonable notice before doing so and must cause as little disruption to the Tenant's occupation as is reasonably possible in the circumstances.

18. Clause 8.6 forms part of part 8 of the lease, dealing with repair and condition, and sets out in some detail the tenant's duties to keep the land and building in good repair and condition, to fix any damage, and to conduct an annual maintenance program. Clause 8.3 in the same division contains a specific acknowledgment by the tenant that it is responsible to repair and maintain the Plant, defined in clause 1.2 to mean "air conditioning and ventilation systems, all wires, cables, pipes, ducts, conduits, tanks, cisterns and mechanical plant". Clause 8.4 makes provision in certain circumstances for a reduction in rent if the Plant fails to operate to cool, heat or ventilate the building adequately. It seems to me that clause 8.6 was intended by the parties to be limited to a failure by the tenant to carry out its obligations under the lease and in particular division 8 of the lease in a reasonable time. It does not seem to me that clause 8.6 was intended by the parties to have any application to compliance with an Official Requirement.

Expert evidence

19. Each of the parties tendered a report by an engineer and both engineers gave oral evidence. Mr Andrew Montgomery, a civil and structural engineer, gave evidence for the Commonwealth. Mr Montgomery is a chartered professional engineer, a Fellow of the Institution of Engineers Australia and a Member of the Institution of Civil Engineers of the United Kingdom. He also holds a class A builder's licence in the Australian Capital Territory and has postgraduate degrees in building construction and building surveying. He is accredited as a building certifier in the ACT. Mr Montgomery conducted an inspection of the roof space and took photographs, I take it some time shortly before 9 May 2008, the date of his report. Mr Montgomery was asked by the defendant's solicitors to express an opinion on whether the improvement notice required alterations to the structure of Lawley House, and whether the work carried out to comply with the notice constituted alterations to the structure of Lawley House. He was also asked whether the work carried out had been of a structural nature and whether the alterations effected had been structural in nature. After considering Australian standards which he regarded as applicable, he arrived at the opinion that the notice had required alterations to the structure, that the work required to be carried out pursuant to the improvement notice was of a structural nature, and that the work which had been carried out in fact was of a structural nature. He was influenced in coming to this opinion by his conclusion that the walkways which had been installed had been fixed to the rafters, which would place additional loads on the rafters when the walkways were being used by workmen carrying tools and equipment.
20. The engineering expert qualified by the solicitors for the plaintiff was Mr Michael Jefferis, a civil engineer with the Canberra firm Northrop Engineers. Mr Jefferis is a registered professional engineer and a Fellow of the Institution of Engineers Australia. He has some thirty years experience in practice as a structural engineer. Mr Jefferis took issue with Mr Montgomery as to the applicable Australian standard. He made the point that Lawley House was an old building, required to comply with the standards current at the time it was built, but not with current standards. This made it inevitable that there would be difficulty in installing new walkways in the roof space so as to comply with current standards in a building which might not comply with those standards. He expressed the opinion that while the works required to satisfy the improvement notice might have been in themselves structural in nature, they did not affect the structural integrity of the building: that is, they did not require alterations to the structure of Lawley House and hence did not require building approval.
21. Mr Jefferis disagreed with Mr Montgomery that, by virtue of the fact that the walkways and platforms needed to be designed to carry additional loads, it followed that the work amounted to an alteration to the structure. It oral evidence, he explained that although the walkways which had been added were structural elements, they were not alterations to the structure because they did not require the structure supporting the building to be changed. His opinion in this regard was not altered by the fact that the walkways were fixed to the rafters by metal rods.
22. In cross-examination, Mr Jefferis agreed that the works required to satisfy the improvement notice were structural in nature. He conceded that he had not inspected the building himself, but had relied on Mr Montgomery's photographs. He said that he had not seen any evidence from those photographs that there had been alterations to the structure. He was aware that the word "Structure" was defined in the lease, and that the definition included downpipes. As a structural engineer, he would not treat a downpipe as part of the structure of a building. He conceded that he was not in any position to express a view about the legal consequence of the definition in the lease.
23. Mr Montgomery did not mention the lease definition of "Structure", although he used the word, without an initial capital, in his report. This question was not raised with him during his oral evidence.

The contract for sale

24. The lease is in identical terms to the draft lease which was attached to the contract. Senior counsel for the Commonwealth, the vendor and now the tenant, submits that the court should look at the contract for assistance in construing the lease. Senior counsel for the plaintiff submits that this is not permissible by reason of clause 1.3(8) of the lease, a part of the interpretation provisions. The paragraph reads:

(8) This Lease:

(a) contains the entire agreement and understanding between the parties on everything connected with this Lease; and

(b) supersedes any prior agreement or understanding on anything so connected

25. I should add that paragraph 11 of the same clause provides that no rule of construction is to apply to disadvantage a party on the basis that it put forward the lease. Normally a lease is "put forward" by the lessor but it is apparent in the present case that the lease was "put forward" by the Commonwealth, whose solicitors prepared the contract of which the lease effectively formed part. Neither party suggests that the contra proferentum principle should be applied against the other.
26. Counsel for the Commonwealth submits that the court should have regard to disclosures which it made to the purchaser in the contract. These included the disclosure of a Technical Building Report attached to the contract. The contract contained an acknowledgment by the purchaser that it had examined the Technical Building Report, was aware of its contents, could not rely on it, but had made its own inquiries in relation to the matters the subject of it. The purchaser agreed that it could not object because of any matter referred to in the Technical Building Report. The dictionary to the contract included the following definitions:

Object means to make any Claim against the Vendor (before or after Completion), raise any objection or requisition, rescind or terminate this contract or delay completion;

Claim means, in relation to any person or corporation, a claim, action,

proceeding, damage, loss, expense, cost or liability incurred by or to be

made or recovered by or against the person or corporation, however arising

or whether present, unascertained, immediate, future or contingent and

includes, without limitation, a claim for compensation.

27. The Technical Building Report was prepared by Gutteridge Haskins & Davey Pty Ltd, consulting engineers, in March 2001. The report commenced with an introduction stating that that company had been instructed on behalf of the Commonwealth to undertake technical due diligence identifying technical and engineering services issues of potential concern and providing, in concert with other documents, the basis for prospective purchasers to inform themselves of the technical nature of the property, and to identify in particular any deficiencies or non-compliance with relevant current Australian Standards. The report identified a number of capital works requiring attention, with estimates of cost. The table of items included:

Central block catwalks upgrade - action 5+ years $120,000.00.

Accomodation block catwalks - action 0 to 5 years $50,000.00

Access requirements to the air handlinglfan coil units in the roof space - action 0

to 2 years $25,000.00, 0 to 5 years $50,000.00,5+ years $25,000.00.

28. The report made reference to previous reports examined in the course of its preparation. These included a December 1999 life cycle analysis and budget report, which identified in detail certain foreseeable maintenance expenses.
29. The authors of the report stated that the 1999 report had identified improvements to walkways for access to mechanical and electrical services as an item where significant improvement was necessary to conform to current occupational health and safety standards and to provide appropriate access to all mechanical units. The then system consisted of predominantly 150 mm-wide catwalks without safety rails, crossed by intermittent surfaces in a confined space, with two of the mechanical units being inaccessible from the walkway. The building manager had informed the authors of the report that the then contractors appeared to accept the current arrangements. The 1999 report had included a budget figure of $255,000.00 to replace the walkway system, but Gutteridge Haskins and Davey believed that the problems could be fixed at much less expense.
30. I accept that the plaintiff was in possession of all of this information at the time of the purchase.
31. Clause 7.10 of the contract is argued by counsel for the defendant to be relevant:

7.10 No merger

The provisions of this contract do not merge on Completion.

32. The defendant pleads the quoted provisions in the contract for sale as a complete answer to the plaintiff's claim.

Plaintiff's submissions

33. Senior counsel for the plaintiff bases his client's case squarely on clause 10 of the lease. He submits that there is no evidence that clause 10.1 applies, and that accordingly the defendant is bound by clause 10.2 to reimburse the plaintiff for the expense of compliance with the improvement notice. The scheme of the clause is that the expense of compliance with an Official Requirement falls upon the tenant unless subclause 10.1 applies.
34. Counsel submits that the responsibility of bearing the financial expense of compliance with the improvement notice is governed by clause 10 of the lease, notwithstanding that it was addressed to and served on the plaintiff and that the plaintiff complied with it.
35. Counsel for the plaintiff submits that the obvious intent of the scheme reflected by clause 10 of the lease is to deal comprehensively with the question of who, as between landlord and tenant, bears the responsibility for complying with Official Requirements. The plaintiff rejects a submission on behalf of the defendant that the words "to the extent required by law" in subclause 10.2 are to be construed as meaning "to the extent required by law of the tenant". To read the clause in this way would have the effect of reading additional words into the lease, an impermissible course unless the words otherwise lack meaning or give rise to an unintended commercial absurdity. Further, such a construction would leave a hiatus. The tenant would be obliged to meet only notices addressed to it, and the landlord would be obliged to meet notices only if they required alterations to the Structure. This would mean that notices not addressed to the tenant and not within clause 10.1 would be left umegulated. If it had been intended that compliance was to tum on who received the notice, it would have been unnecessary to make any provision, and if any provision had been made it would have been clearly expressed to that effect. The words "to the extent required by law" merely served to avoid the tenant having to incur expense in meeting an Official Requirement which lacks enforceability.
36. It is further submitted on behalf of the plaintiff that the tenant bears the onus of proving the elements of the exceptions in clause 10.1. It would be for the defendant tenant to establish that the notice required alterations to the Structure; that the requirement imposed by the notice would apply if the land or building were vacant or occupied by a tenant for a different purpose; and that the requirement did not arise from and was not connected with any breach or default by the tenant under the lease. The obligation on the landlord under clause 10.1 was accordingly a conditional obligation.
37. With that context, the plaintiff s primary submission is that the notice did not require alterations to the Structure. In this regard counsel refers to the definition of Structure in the lease, and to the expert opinion evidence, in particular of Mr Jefferis, that the work required and carried out did not involve any alterations to the Structure. It did not affect the structural integrity of the building and did not require building approval.
38. Next, counsel for the plaintiff submits that the improvement notice would not have been issued, or if issued would not have been applicable, if the land and building had been vacant. The only reason access was required by workers to the roof cavity was to maintain or repair the air-conditioning units. If the building had been vacant such access would have been unnecessary and would not have occurred. The onus of establishing otherwise was on the tenant, which had not adduced any evidence that compliance with the notice would have been necessary if the building had been vacant.
39. Further, counsel for the plaintiff submits that if the building had been vacant, the roo cavity would not have been a workplace, and hence the improvement notice could not have been issued.
40. "Workplace" was defined in the Act as it was at the time of issue of the notice to mean any premises where employees or self-employed persons work. Counsel has been unable to identify any authority in this Territory in which the definition has been considered relevantly to the facts of the present case. He has taken me to decisions of the New South Wales Industrial Relations Commission, including Workcover Authority (NSW) v Boral Johns Perry Industrial Pty Ltd trading as BoralElevators (Maidment J, 8 August 1996, unreported), in which His Honour determined that a lift in a residential building, maintained by the defendant through its employees, was not a place of work during periods when maintenance work was not being conducted at the site. This was in the context of a prosecution of the defendant for a breach of section 16 of the Occupational Health and Safety Act 1983 (NSW) requiring an employer to ensure that persons not in his employment were not exposed to risks while at his place of work. The decision had been followed with approval in other single-judge decisions of the Commission, as authority for the proposition that a place may be a place of work at certain times but not at others. The case was distinguished by Middleton J in Telstra Corporation Ltd v Smith [2008] FCA 1859, in which His Honour determined that a Telstra pit with a lid, on a public footpath, was a workplace under the Occupational Health and Safety Act 1991 (Cth), so that Telstra had a continuing obligation as to the safety of non-employees at or near such a pit, not only when Telstra staff were working in or in the vicinity of the pit.
41. A distinction from Boral Elevators is that the roof cavity in the plaintiff s building was used for no other purpose than for maintenance and repair of the air-conditioning .. units, and entered by no one other than persons engaged in such work. The ladders and walkways within the roof cavity were used for no other purpose. A lift in a block of residential apartments is used frequently and regularly by the residents to get to and from their apartments. One would expect that it would be used by maintenance staff as a place of work rarely and for relatively short periods.
42. In any event, the plaintiffs case is that it received the improvement notice and paid to have the work needed to comply with it carried out. For the plaintiff now to argue that the roof cavity was not a workplace is inconsistent with its primary case and, if accepted, would raise an issue as to whether, under clause 10.2, it could be argued that the tenant had any obligation, to the extent required by law, to comply with the notice.
43. I am satisfied that at the time of issue and service of the notice, the roof cavity of the building was.a workplace.
44. The plaintiffs submissions then dealt with whether the notice would have applied if the land and building had been occupied by a tenant for a different purpose. The submission in essence was that the Commonwealth had the onus on this question and had not called any evidence about it. In the absence of evidence, the exception required the parties to contemplate a hypothetical scenario which was uncertain, indeterminate, and in the realm of guesswork.
45. In relation to those parts of the defence relying on provisions in the contract of sale, including the disclosure of the Technical Building Report, counsel for the plaintiff submits that the responsibilities of the landlord and tenant are governed by the lease and not by the contract. The lease is stated to contain the entire agreement between them and its terms are not expressed to be subject to the contract for sale. The disclosure of the Technical Building Report may have notified the plaintiff of a potential deficiency in the building, but this had no bearing on where the expense of rectification work fell. The present dispute between the parties was governed by the lease and it was not to the point that they had agreed in the contract that the purchaser could not object because of anything disclosed in the Technical Building Report.

Defendant's submissions

46. Senior counsel for the defendant submits that the genesis of the lease is the contract for sale. It was a term of the contract that on completion the plaintiff would grant the defendant a lease, on the terms of the lease annexed to the contract. Thus the transaction was a "sale and lease back". The execution of the lease was necessary to achieve the overall purpose of the contract.
47. By clause 12.1 of the contract, the Commonwealth disclosed to the plaintiff the Technical Building Report. By clause 12.7, the plaintiff agreed that it could not Object because of any matter disclosed in the Technical Building Report. Object was defined to include "make any Claim against the Vendor (before or after Completion)". Claim was defined to include a claim or proceeding "howsoever arising" and included "a claim for compensation". The Technical Building Report disclosed that certain capital works items had been identified as requiring attention, including improvements to walkways for access to mechanical and electrical services in the ceiling space. It was agreed that the provisions of the contract for sale did not merge on completion.
48. Clause 10.2 of the 'lease was only enlivened to the extent that the Commonwealth was obliged by law to comply with an Official Requirement. On the proper construction of the clause, the Commonwealth's obligations arise only to the extent that the Commonwealth is required by law to comply. It was significant that the words "to the extent required by law" appeared in -clause 10.2 but not in clause 10.1. The implication is that the intention of the parties was that those words were relevant only to the tenant's obligations, and not to those of the landlord. The clause, in the submission of counsel for the defendant, should be read:

At its expense, the Tenant must, to the extent [that it is] required by law, comply with any Official Requirement . . .

49. The structure of clause 10 of the lease was that the Commonwealth was to have no liability to comply with an Official Requirement unless it was legally obliged to do so. Then, and only then, was there to be an allocation of responsibility between the Commonwealth and the plaintiff pursuant to the clause. The scheme was that, if and when such a legal requirement in the Commonwealth arose, it was obliged to discharge the responsibility unless the matter fell within clause 10.1.
50. This construction, it was submitted, gives effect to the words used by the parties in clause 10.2, and also reflects the genesis of the transaction, including the disclosure by the Commonwealth of the capital works items in the Technical Building Report, and the plaintiff s agreement not to make any claim against the Commonwealth in respect of those matters. In this context, it was understandable that the parties would have agreed that only when the Commonwealth had a legal liability to comply with an Official Requirement (which might well concern one of the items identified in the Technical Building Report) would the question of allocation of responsibility between the parties arise for consideration. In the present case, the notice was directed to the plaintiff and not to the Commonwealth. Accordingly only the plaintiff, and not the Commonwealth, was a "responsible person" as that term is used in section 76 of the Occupational Health and Safety Act 1989 (ACT) as then in force. Therefore only the plaintiff, and not the Commonwealth, was under any obligation to comply with the notice. Accordingly the plaintiff s case could not succeed.
51. It was then submitted on behalf of the defendant that in any event the plaintiff had been obliged to comply with the improvement notice by virtue of clause 10.1 of the lease. This was because the notice required work which involved "alterations to the Structure" as that word was defined in the lease. The clause referred to "alterations to the Structure" rather than structural alterations. It was possible to make an alteration to the Structure of the building as defined, without the alteration being a structural alteration as understood by engineering and other building construction professionals. An example specifically referred to in the inclusive definition of Structure would be replacement of the downpipes, although this would not be a structural alteration as generally understood, and would certainly not affect the structural integrity of the building. The work required by the improvement notice involved alterations to the structure in the roof cavity, in that extra walkways and crawl-ways were built, suspended from the building rafters rather than fixed to the roof trusses. Expert evidence as to whether or not these changes affected the structural integrity of the building was beside the point. Such work was clearly within the expression "alterations to the Structure" having regard to the definition.
52. In any event, the genesis of the transaction made it clear that the intention of the parties was that improvements to walkways in the roof cavity were to be, if required, at the plaintiff s cost.
53. In construing clause 10.1, it was permissible and necessary to have regard to the fact that, in the contract for sale, the plaintiff agreed to make no claim, before or after completion, and "howsoever arising", in respect of the matters disclosed in the Technical Building Report, including the necessity to "replace the present walkway system" in the ceiling space to conform with current occupational health and safety standards.
54. There were two reasons for this. In the first place, the plaintiffs agreement in the contract that it could not make a claim of this kind was known to both parties before settlement and before commencement of the lease. In those circumstances, a reasonable person in the position of the plaintiff could not have understood the language of clause 10.1 of the lease to permit it to make a claim of the very nature that, pursuant to the contract, it had agreed not to make. A reasonable person in the plaintiffs position would have understood the reference in clause 10.1 to "alterations to the Structure" to include any alterations of the kind identified as necessary in the Technical Building Report.
55. The second reason was that the contract and the lease were executed as part of the one transaction. It was a term of the .contract that the plaintiff would lease back the property to the defendant. The terms of the lease annexed to the contract were identical to those in the lease as executed at settlement. Accordingly, the contract and the lease had to be read together in order to understand what the parties intended to achieve in clause 10.1.
56. Senior counsel for the defendant made reference to the decision of Jessel MR in Smith v Chadwick (1882) 20 ChD 27 at 62:

. . . when documents are actually contemporaneous, that is two deeds executed at the same moment, . . . or within so short an interval that having regard to the nature of the transaction the court comes to the conclusion that the series of deeds represents a single transaction between the same parties, it is then that they are treated as one deed; and of course one deed between the same parties may be read to show the meaning of a sentence and may be equally read, although not contained in one deed but in several parchments, if all the parchments together in the view of the Court make up one document for this purpose.

57. This passage was cited by Finkelstein J (at paras [29] to [34]) and Kenny J (at [68]- [69]) in Re Piccolo: Mc Veigh v National Australia Bank Limited [2000] FCA 187.
58. More broadly, the principles to be adopted in construing a commercial contract were described by Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40] in the following terms:

This court in Pacific Carriers Pty Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined It is not the subjective beliejs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of the contractual document is to be determined by what a reasonable person would have understood them to mean. That normally requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.

59. Counsel also referred to the recent reaffirmation of these principles by the High Court in International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [53] per Gummow, Hayne. Heydon, Crennan and Kiefel JJ. In the same case Gleeson CJ said at [8]:

In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the object which it is intended to secure. An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background and the market.

60. Counsel concluded on this point that in the contract the plaintiff had agreed to make no "Claim" against the defendant in respect of the replacement of the walkways systems. It cannot be the case that the lease, executed as part of the same transaction, and in order to accomplish the same purpose, was intended by the parties to have the effect of enabling the plaintiff to make that very claim.
61. Senior counsel for the defendant then dealt with the proviso in clause 10.1 of the lease (. . . but only if such requirement would apply if the Land or Building were vacant or occupied by a tenant for a different purpose. . .). He submitted that the use of the word or between vacant and occupied makes clear that the ordinary and natural meaning of the proviso is as if the word "either" was inserted before the word "vacant". Thus the plaintiffs obligation to comply with an Official Requirement requiring alterations to the Structure was to be excused only if neither of the two specified circumstances existed. The first alternative was the Land or Building being vacant, which must mean untenanted. The second was the Land or Building being occupied by a tenant for a different purpose.
62. Here, counsel submitted, the obligation to comply with the notice would have arisen whether the building was vacant, untenanted, or let to a tenant for a different purpose. The notice was consequent on an asserted breach of section 29 of the Occupational Health and Safety Act 1989 (ACT). It required that walkways be installed, and that other work be done, in the roof cavity to ensure safe access to the air-conditioning plant. That requirement would have applied no matter what use was being made of the building, and even if it were untenanted or vacant. The roof cavity would remain a workplace for the purposes of the Act in any of those circumstances.
63. Finally, counsel for the defendant submitted that the work which had been done in the roof cavity did not comply with the notice, and that the cost incurred by the plaintiff was not incurred in compliance with the notice. Counsel relied on the evidence of Mr Montgomery to the effect that the walkways installed were not of a safe width, not fixed in place, and not stable. They did not extend from the access points to all areas where plant was to be serviced. They did not provide enough room for people working on the plant to stand. The safe working load was not displayed on access doors. There was no catch platform, or any equivalent safety measure, installed under the walkways, and artificial lighting was not provided above all of the plant. Accordingly the work carried out did not meet the requirements of the notice. It followed that the expenditure was not recoverable from the defendant, regardless of any of the other arguments on which the defendant relied.

Consideration of the submissions

64. It is common ground that the plaintiff paid out the amount it claims, and it is not seriously in contest that the amount was paid for work done within the roof space of Lawley House for the purpose of complying with the improvement notice. For the reasons I have explained, I am not satisfied that the notice required the installation of whirlybird ventilators, but otherwise I am satisfied that the work claimed for was carried out. I am satisfied on the documentary evidence that the amount paid out for the work was fair and reasonable. I can reasonably infer that ACT W orkcover regards its notice as having been complied with. Otherwise there would, I have no doubt, have been evidence of its dissatisfaction in that regard.
65. I accept the defendant's argument that the roof space was a workplace for the purposes of the improvement notice and the relevant provisions of the Occupational Health and Safety Act 1989 (ACT). Unlike the lift in Boral Elevators, but like the Telstra pit in Telstra Corporation Ltd v Smith, the roof space did not have a principal use or function other than as a workplace. I reject the submissions on behalf of the plaintiff on that issue.
66. The court may and should have regard to the contract for sale in construing the lease. I accept the submission of the defendant that the transaction between the parties was a sale and lease back, with the lease a necessary element of the agreement. Hence it is permitted for me to take into account the disclosure by the defendant to the plaintiff of the Technical Building Report,andtheagreement between the parties contained in the contract for sale that the plaintiff would make no claim in respect of matters therein disclosed. Clause 10 of the lease must be interpreted in that context. I adopt the submission of senior counsel for the defendant that in the circumstances, a reasonable person in the position of the plaintiff could not have understood the language of clause 10.1 of the lease as allowing it to make a claim of precisely the kind it that it had agreed in the contract not to make. A reasonable person in the plaintiff s position would have understood the reference in clause 10.1 to "alterations to the Structure" to include alterations of the kind identified as necessary in the Technical Building Report.
67. Expert opinion evidence about whether or not the work carried out involved structural alterations to the building, or alterations to .i1sstructure, in the sense in which those expressions are used by civil and structural engineers, is of no real assistance in determining what the parties meant by the expression "alterations to the Structure" in clause 10.1. The parties chose to define the word "Structure" in a way which encompassed some parts of the building, which, I accept, would not be regarded within the engineering profession as structural. To the extent that the definition itself does not include the walkways and other elements in the roof space, I am persuaded that I should look to the contract as well as the lease in working out what the parties intended. I accept the submissions of senior counsel for the defendant, that they cannot have intended that the defendant would be required to pay for work which it disclosed to the plaintiff in the contract and in respect of which the plaintiff agreed to make no claim. In all of the circumstances, I am satisfied that such work was within the expression "alterations to the Structure" in the sense in which the parties intended that expression to be read in the lease.
68. I also prefer the submissions of senior counsel for the defendant as to the construction of the proviso in clause 10.1 of the lease. The building was equipped with airconditioning. Whether or not the building was vacant, and regardless of the purpose for which it might have been occupied by a tenant, the air-conditioning equipment would have required at least inspection and probably some work by way of maintenance, at intervals, and a workcover inspector attending the site would have discovered the same shortcomings from a safety perspective and would, I have no doubt, have issued improvement notices, just as occurred.
69. It follows that, if one reads clauses 10.1 and 10.2 as constituting a comprehensive scheme for allocation of expense between landlord and tenant, I would find that the landlord was obliged under clause 10.1 to comply with the improvement notice, and hence the duties imposed on the tenant by clause 10.2 would not arise.
70. I am not in any event persuaded that it was the intention of the parties that clause 10 would constitute such a scheme. If the intention of the parties had been to provide for circumstances in which one would be entitled to be indemnified by the other for expenditure in compliance with an Official Requirement, I would have expected the parties to have used words similar to those used in clause 12 of the lease, which provided for certain circumstances in which the tenant would be obliged to indemnify the landlord. In clause 10 the parties chose not to use the language of indemnity. The fact is that only the landlord was served by Workcover with an Official Requirement. No Official Requirement was served on the tenant. Hence the tenant was at no time obliged by law to comply with any Official Requirement. Of course, any legal liability on the part of either party to comply with an Official Requirement would exist quite apart from any agreement between the parties in the lease. The purpose of clauses 10.1 and 10.2 must therefore be to set out the situations in which the parties agreed that a failure by one or the other to comply with an Official Requirement would amount to a breach of the lease.
71. The plaintiff has not made out its claim to be entitled to recover its expenditure from the defendant. There will be judgment for the defendant with costs.

I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Associate:

Date: 31 January 2011

Counsel for the plaintiff: Mr J B Simpkins SC & Ms T T Baw

Solicitor for the plaintiff: Rod J Barnett & Associates

Counsel for the defendant: Mr J W J Stevenson SC

Solicitor for the defendant: Clayton Utz

Date of hearing: 29, 30 June 2009

Date of decision: 31 January 2011