SMITH BROS TRADE & TRANSPORT TERMINAL PTY LTD v PACIFIC POWER SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MASON P, MEAGHER JA and FITZGERALD AJA 21 July 1998, 31 July 1998 [1998] NSWCA 212 Licence for occupation of land — occupied land partially flooded — whether implied term that land would be suitable for use — frustration — unconscionability Mason P The appellant's business was described as that of providing an "outdoor warehouse" (AB 33) for storing large quantities of imported timber belonging to its clients. For many years it operated from premises at Glebe leased from the Maritime Services Board (MSB). By mid 1988 the MSB was pressing the appellant to leave the Glebe site. The MSB had offered alternative premises at Port Botany, but these were not yet available. It appears that the MSB used its good offices with the respondent to enable the appellant to negotiate an arrangement for temporary occupation of a site at Bunnerong belonging to the respondent. It had been formerly used as a power station. Oral discussion led to a written licence agreement evidenced by a letter from the respondent to the appellant dated 17 June 1988 upon which a representative of the appellant, Mr Tzaneros, indicated his assent in writing. So far as relevant the letter said: "BUNNERONG POWER STATION TEMPORARY TIMBER STORAGE I refer to recent telephone conversations between Commission officers and Messrs Smith and Tzameros [sic] concerning the temporary occupation of part of Bunnerong Power Station site for timber storage. Tam pleased to advise that the Electricity Commission [the former name of the appellant] would be prepared to enter into an occupation agreement with Smith Brothers Cranes & Cartage Pty Ltd [the former name of the respondent], (herein after called 'the Company') for an area of about | ha of land fronting Bunborah Point Road as shown on the enclosed plan. It is proposed that the occupation would include the following terms and conditions: 1. The use shall be for timber storage. 2. The term shall be for seven weeks, commencing from 17 June, 1988 and terminating on 5" August, 1988 at 5pm. 3. A fee of $8, 000 shall be payable in advance, upon commencement of the occupation for the first four weeks occupation. A fee of $2,000 per week shall be paid in advance for the remaining 3 weeks occupation. 5. The Electricity Commission does not warrant that the property is suitable for any particular purpose and it shall be the Company's responsibility to ensure that the property is suitable for the intended use. " 2 UNREPORTED JUDGMENTS The initial arrangement was clearly intended to be short term (see Condition 2). Before entry into the agreement, the site was inspected by Mr Tzaneros. He accepted in cross examination that he may not have examined the site very carefully, but this is understandable in the light of his evidence that he expected to occupy the premises for no more than one month and that no other suitable site was available. He formed the view that "the site actually suited our needs. It looked like a flat site. It looked ideal for a timber storage area." (AB 51). The fact that the relevant area was totally exposed presented no problem in itself. But from about September 1988 onwards, while the appellant remained in occupation (beyond the intended term), there was significant rainfall. Water started to build up in places. The timber was stored on "bearers or gluts" which were about 6 inches off the ground, capable of being lifted by a forklift. Pooling in some areas meant that some timber stacks had to be moved, some to outside the particular area designated in the plan attached to the letter I have quoted. Two vessels came into port with timber that the appellant needed to store. The appellant wrote (undated letter: AB 99) asking for an extended area on the site and remonstrating (fairly gently) about difficulty in stacking timber because recent rainfall placed "a sufficient portion of the area now under licence... under water up to three feet in some parts (unsuitable in stacking timber)". By letter dated 27 July 1988, which may have been written before or after the said undated letter, the respondent agreed to increase the area from approximately 1 ha to 1.7 ha with the licence fee rising from $2,000 pw to $3,400 pw. The letter made it plain that the original conditions continued to apply. This letter and other evidence reveal that it was the appellant who was pressing to extend the licence both as regards its term and its area. The respondent on the other hand was pressing the appellant to vacate the power station site as soon as practicable. Mr Tzaneros conceded that he was aware that the respondent wanted his company to leave the site by 19 August 1988 and that he wished to stay (AB 62). In his words, "our fear was that we would be actually asked to vacate the site" (AB 39). The continuation of the licence agreement at the instigation of the appellant was further evidenced by letters dated 21 October 1988 and 8 February 1989. The appellant paid the licence fee (as varied) up to and including March 1989. The respondent sued in the District Court for licence fees totalling $59,743.00 plus interest covering the period from 31 March 1989 (AB 4) to 1 August 1989. Non payment was admitted. The appellant pleaded that it vacated the premises on or before 1 May 1989 but that "it was unable to remove a small quantity of timber on the premises until about 1 August 1989 by reason of not being able to access that timber and remove it because of flooding and water accumulation" (para2A of Further Amended Grounds of Defence). The issue fought at trial before Mahoney DCJ was whether the appellant had a defence, indeed a cross claim for damages (yet to be assessed), by reason of the unsuitability of the site due to flooding from accumulated rain water. The evidence about the extent and impact of the flooding is far from precise, and this lack of precision is necessarily reflected in the findings of the learned trial judge. There were photographs showing the flooding in about April 1989. These reveal stacks of timber standing in extensive pools of uncertain depth, interposed with apparently dry areas. The photographs do not identify the area flooded in relation to the licence area. Mr Tzaneros' evidence was that, at its worst, approximately 50% of the licensed area was flooded. As indicated already, his company took some respite by moving some of the timber to a dry area (RUTH BROS TRADE & TRANSPORT TERMINAL PTY LTD v PACIFIC POWER (Maso& P) outside of the licensed portion, apparently without protest from the respondent. Mr Tzaneros' evidence was that the water levels "never went down " (AB 44). Consistent with the appellant's pleading, he gave evidence that on 1 May the greater part of the timber was removed by relocating it to the appellant's new site nearby. This apparently took roughly four days, day and night. The fact that it was able to be done indicates that the site was not impassable as regards the greater bulk of the timber stored over the greater part of the licensed area. Mr Tzaneros' evidence (AB 45) was that approximately three loads of timber were "actually unaccessible... actually in water, and no matter how we tried, we just couldn't get them off". A fair reading of his answer (which was interrupted shortly after) is that these loads of timber remained on the site between | May and | August 1989 and that this was due to the water problem which prevented accessibility by normal lifting equipment. The respondent's claim for licence fees can therefore be divided into two parts:- 1. (Between 1 April and 1 May) when the bulk of the timber remained on site, although accessible; and 2. (Between 1 May and | August 1989) when three loads of timber remained on site due to inaccessibility. The appellant defended the claim for the licence fee (at trial and on appeal) on three bases: 1. Implied term. 2. Frustration of contract. 3. Unconscionability. 1. Implied term The appellant pleaded that the licence agreement was subject to an implied term variously formulated as:- (a) that the subject land would be reasonably fit for occupation by the appellant; (b) that the subject land was suitable for use by the appellant; (c) that the subject land would be suitable for use by the appellant for the purposes of storing bulk timber; (d) that the respondent was not aware of any latent defects in the land (Further Notice of Amended Grounds of Defence, para3). In argument, senior counsel for the appellant seemed to move away from supporting one or other of these straightforward implied terms. Mr Bennett QC contended that the implication was that the land was not subject to defects which rendered the bulk of it unsuitable for any reasonable purpose. Whatever its content, the implied term was said to arise either as a matter of business efficacy or by implication of law. Particular reliance was placed on the fact that this was a licence agreement and not a lease. Counsel cited Wettern Electric Ltd v Welsh Development Agency [1983] QB 796 at 808-9. Whether or not that case is authority for the proposition that a licence of premises intended to be used for particular purpose contains an implied condition of fitness (contrast Morris-Thomas v Petticoat Lane Rentals (1986) 53 P & CR 238) I do not see how it can possibly be established that this particular licence contained any of the implied terms suggested in argument. The stipulation in condition 5 (set out above) expressly negates any warranty as to the fitness of the premises for the stated use of "timber storage". What is more, it imposed on the appellant the "responsibility to ensure that the property [was] suitable for the intended use". 4 UNREPORTED JUDGMENTS The submission that the land was totally useless for storing timber fails on the facts. Counsel for the appellant argued that the land was useless for many purposes. This is obviously so, but irrelevant. The appellant had no cause to complain about any general impediment caused by flooding given its promise to use the land for timber storage. And the unsuitability (at least in part) of the land for timber storage over part of the extended term of the licence could not be laid at the respondent's door, in the light of condition 5. A fortiori, in the light of the extended term sought by the appellant after flooding first appeared. This also answers the appellant's argument that there was a legally significant change of circumstances on 1 May 1989. Even if it were accepted that the remaining three loads of timber were unable to be removed between May and August, that did not put an end to the licence agreement nor to the appellant's relevantly unconditional promise to pay the weekly licence fee. The appellant continued to occupy the land, despite being pressed by the respondent to vacate it completely. If (which I doubt) it was impossible by any means to remove the remaining loads of timber, the fact is that those loads were not removed. This was not the responsibility of the respondent. The remaining defences can be addressed briefly. 2. Frustration The appellant's late application to amend to plead frustration was correctly rejected by the trial judge. Given the terms of the contract to which reference has already been made, it is impossible to see how the flooding of even 50% of the land so destroyed the bargain that the appellant was deprived of "substantially the whole benefit which it was the intention of the parties as expressed in the contract that [it] should obtain" (Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 66, emphasis added). Condition 5 prevents the appellant maintaining that the parties contracted on the basis that the premises would remain substantially suitable to the appellant's needs: cf Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 359-60. The appellant was to make its own enquiries and to take the risk on this issue over the anticipated short term of the licence in its original contemplation. The land continued to be available and to be used for its intended purpose of storing timber, albeit that access to some of that timber was severely hindered by the flooding. 3. Unconscionability At trial and in the appeal the appellant relied upon Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 467 to found an argument that the licence fee was effectively suspended because of the site's tendency to accumulate water and problems associated with coal dust residue, which were problems known to the respondent and not disclosed in the pre-contractual negotiations. Mahoney DCJ ruled that the parties do not "fall into the types of categories at which the Amadio principle is aimed". He added that the Amadio principle is not available as a form of ad misericordiam relief to an experienced trading corporation which had made absolutely no suggestion of anything in the nature of underhand dealing or moral turpitude against the respondent. His Honour was correct in rejecting the application of the Amadio principle. Whatever that case decides, it does not effect the general overturn of the principle of caveat emptor. It is unnecessary to address the judge's reasons at any length. RUTH BROS TRADE & TRANSPORT TERMINAL PTY LTD v PACIFIC POWER (Fitzgerald AJA) The nub of the matter was that the appellant's case never rose above one involving non-disclosure. The appellant was under no negotiating disadvantage, its representative was able to inspect the site, and the need for the appellant to rely on its own enquiries was reinforced by condition 5 of the licence agreement. The appeal should be dismissed with costs. Meagher JA I agree with Mason P. I would, however, wish to add that in my view the learned President has granted the appellant an indulgence it did not deserve by treating its submission so carefully. Fitzgerald AJA I agree with Mason P. Appeal dismissed with costs. Counsel for the appellant: D Bennett QC/J Atkin Solicitors for the appellant: Coroneos & Co Counsel for the respondent: C P Locke Solicitors for the respondent: P C Sistrom