New South Wales Supreme Court CITATION : March Investments Pty Limited & Ors v Vixeena Pty Limited & Ors [2003] NSWSC 1006 revised - 04/11/2003 HEARING DATE(S) : 27/10/03 and 28/10/03 JUDGMENT DATE : 4 November 2003 JUDGMENT OF : Barr J at 1 DECISION : Verdict for the cross-defendants with costs. CATCHWORDS : Agency - whether agents in breach of duty to principals PARTIES : March Investments Pty Limited & Ors Vixeena Pty Limited & Ors FILE NUMBER(S) : SC 20151/98 COUNSEL : 2nd, 3rd and 4th Defendants: B M J Toomey QC and J G Stewart 5th, 6th, 7th and 8th Defendants: D P F Officer QC and R S Sheldon SOLICITORS : 2nd, 3rd and 4th Defendants: Holman Webb Lawyers 5th, 6th, 7th and 8th Defendants: Murray, Stewart & Fogarty Solicitors IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION GRAHAM BARR J Tuesday, 4 November 2003 20151/98 March Investments Pty Limited & Ors v Vixeena Pty Limited & Ors JUDGMENT 1 HIS HONOUR: The cross-claimants, March Investments Pty Limited, Epsom Enterprises Pty Limited and Andale Nominees Pty Limited, sue the cross-defendants, Vixeena Pty Limited, Ellewood Pty Limited, Fernarde Pty Limited and Quixwood Pty Limited, for damages resulting from a fire that severely damaged factory premises at Prestons, near Liverpool. The cross-claimants were the owners of the premises and the cross-defendants their managing agents. 2 The premises comprised units which were let to various tenants. One such tenant was a furniture manufacturer called Jupiter Furniture Manufacturing Pty Limited ("Jupiter"). Occupying adjacent premises were tenants who traded under the name Vina Shoes. During the course of its business Jupiter used to receive quantities of timber. On 4 January 1997 timber which had been stored adjacent to the front wall of Jupiter's premises caught fire. The fire spread to Jupiter's unit and from there to Vina Shoes' unit. 3 The cross-claim is framed in breach of contract, negligence and breach of implied warranty under the Trade Practices Act. However, it is not necessary to set out here the pleaded particulars of breach. I shall deal with each asserted breach of duty, whether in contract, tort or warranty, as I deal with counsel's submissions. 4 The factory premises is very large and consists of at least two freestanding buildings enclosed within a perimeter fence. The premises generally fronts Hoxton Park Road but the back looks onto other industrial premises. 5 The cross-defendants carry on business under the name W. T. Newey & Co. Mr Mark Alan Newey is the licensee of the business and a director of each of the cross-defendants. He plays an active part in the management of these and other premises owned by the cross-claimants. He visits the premises every two months or so. He speaks on the telephone twice each day about such premises to Mr David Ross of the first cross-claimant. They have been dealing with each other for twenty-three years. 6 Mr Christopher John Wade is the property manager of W. T. Newey & Co. He has been with the firm for more than eight years. His duties include letting managed premises, collecting rent and overseeing the maintenance and repair of premises. 7 Mr Denis John Hocking is a maintenance contractor who is engaged from time to time by Mr Wade to do work on premises managed by W. T. Newey & Co, including the subject premises. 8 For a number of years before the fire trespassers used to cut the perimeter fence wire and enter the premises. Mr Hocking was always being called out to repair the breaches. He could not remember how many times he had been called in. Sometimes he was there on successive days. He erected additional barbed wire on the fence and used different kinds of mesh when affecting his repairs but those measures did not stop the incursions. He said that those entering were very determined. They used bolt cutters. 9 The cross-claimants were well aware of the problem and not only because the costs of repairs were charged to their account. In autumn 1995 there was a meeting at the premises attended by Mr Newey, Mr Ross and a representative of the mortgagee bank. Mr Newey took the others to the back of the premises where people were getting in and showed them the fence. He suggested its replacement with a pre-cast concrete structure like that of the factory units. Mr Ross asked whether he was suggesting such a fence for the front of the premises as well and Mr Newey said that he was not. I take it that both were concerned about the appearance of the portion of the premises facing Hoxton Park Road. Mr Newey pointed out that he was continually having the fence repaired. Mr Ross asked how much such a concrete fence would cost and Mr Newey said that it would be "very exorbitant". There was no formal costing, no quotation from any contractor or supplier. Mr Newey explained in his evidence that the cost would have been about $60000, which turned out to be about equivalent to one month's rent for the whole of the factory premises. There was no discussion about any other kind of fence. Mr Ross did not ask Mr Newey for any detailed costing for such a fence or for any other kind of structure that might have been an improvement on the existing fence. 10 Nothing came of the conversation, the fence remained and the regime of repair continued. The only reasonable conclusion is that the cross-claimants found it more convenient to leave things as they were, with all their irritations and expense, than to spend money devising a more secure system of protection. 11 About two years after the fire the cross-claimants installed a new fence made of stout vertical metal posts with spiked tops, braced at the top and the bottom. The whole fence was set in masonry or concrete. Its cost was about one-third of Mr Newey's previous rough estimate. Mr Newey said that the fence was stronger than the old but was still subject to vandalisation. Apparently people used to bend the bars, but it was not clear whether they thereby gained entry to the premises. It seems clear that, whatever its deficiencies, the new fence was superior to the old. 12 During business hours the premises was open to members of the public and anybody could enter. At other times the gates were locked and Mr Newey had security guards performing regular patrols at all hours of day and night. 13 Jupiter took up occupancy of its three factory units on 1 June 1995. Its lease ran from 1 August that year. By clause 6 of the lease Jupiter, called the lessee, covenanted with the cross-claimants as follows- (g) The Lessee will not bring upon or permit or suffer to be upon the demised premises or on any other part of the building any goods or material of a combustible or inflammable or corrosive or dangerous or offensive nature except goods or materials of the nature and in the quantities necessary for carrying on the business hereinbefore authorised and will not in any way whatever do or permit or suffer to be done or permitted any act deed matter or thing whereby any insurance in respect thereof may be vitiated or rendered void or voidable or whereby the rate of premium on any insurance shall be liable to be increased. The Lessee will from time to time as and when required by notice in writing from the Lessor pay to the Lessor any increased or additional premium which the Lessor may be charged or be required to pay in respect of every such insurance as aforesaid by reason of the nature of the Lessee's business or the use to which the demised premises are put or by reason of any act deed matter or thing so done or omitted or which may be done or omitted by the Lessee or by the storage or use of any liquid or material or substance in the demised premises or the use of any plant or machinery therein. 14 The cross-defendants kept the premises insured through an insurance broker, Sedgwick Limited. On 26 July 1995 the insurer, having been informed of the change of occupancy and having re-surveyed the premises occupied by Jupiter, wrote a letter to Sedgwick Limited. That letter was sent onto W.T. Newey & Co. It noted that the area was highly congested and had high volumes of flammable materials throughout. It observed that somebody appeared to be living on the site. It made certain recommendations for improvement. W. T. Newey & Co sent a copy of the letter to Mr Manuel Khoury, the principal of Jupiter, and to Jupiter's solicitor. The letter reminded Jupiter of certain of its obligations under the lease and asked it to put right the things pointed to by the insurer. Mr Newey also informed Mr Ross and Mr Curtis, representing the second cross-claimant, about the matter by sending them copies of the insurer's letter. 15 Mr Wade used to call at Jupiter's factory twice each month. One of those visits was at the end of the month to collect the rent, which fell due on the first day of each month. He noticed on occasions that rubbish bins were sometimes overflowing and excess stock and materials like foam and timber had been left in the common area at the front of the factory. Whenever that happened he asked Mr Khoury to rectify the problem. Mr Khoury always did as requested. 16 Records of timber purchases by Jupiter show that the last delivery before the fire was made on 27 November 1996. Early in December Mr Wade called at the factory as usual and noticed several large packs of new timber, wrapped in plastic, stacked outside the front of the factory. He also noticed that a rubbish bin was overflowing. He spoke to Mr Khoury, who said that he would contact the waste management company to have the rubbish skip emptied as soon as possible. It appears that that was done. Mr Khoury said that he would move the packs of timber inside as soon as possible but that he was short of storage space. He did not name a date for the removal of the timber and Mr Wade did not require him to have the job done by any particular time. I think that Mr Khoury's purpose in mentioning his shortage of space must have been meant to imply that it might take longer on this occasion to move the timber inside the factory. I think that Mr Wade must have thought that that was what was meant. 17 It was that timber or part of it that caught fire on 4 January. According to a police officer, Constable Agius, the stack of timber which caught fire was about 2 metres high, about 1.5 metres wide and about 6 metres long. There was a second stack of timber, its end facing the end of the first stack and separated from it by about 1.3 metres. Both stacks were parallel to the factory wall and about one metre from it. Constable Agius noticed white paper between the component pieces of the burning stack. Despite his best efforts, Constable Agius found it impossible to put out the fire and was eventually driven back by the heat. By the time the fire brigade arrived the fire had spread to the factory premises and substantial damage resulted. 18 Reports of investigations into the cause of the fire were tendered. It is not necessary to deal with them in detail. Accidental causes like electrical fault can safely be excluded. It is unlikely that the fire could have resulted from a thrown cigarette butt. Tests showed that no accelerant was used. The investigators agree that the fire was most probably deliberately lit. The presence of the paper within the burning stack and the exclusion of other theories justifies that conclusion. As on so many earlier occasions, the back fence had been breached. I conclude that the fire was deliberately started by a trespasser. 19 Mr Toomey QC on behalf of the cross-claimants submitted that the cross-defendants knew that the timber was stored where it was, that trespassers were likely to enter the premises and that it was foreseeable in the circumstances that a fire might commence in much the way that it did. Mr Officer QC for the cross-defendants did not concede foreseeability but did not strongly argue the matter. I think that the risk of vandalism by trespassers entering by breaching the fence was foreseeable. I think that it was foreseeable that damage might result by fire. 20 Mr Toomey submitted that the cross-defendants breach their duty as agents in the following ways- (a) they permitted the timber to be stored close to the factory knowing of the risk of fire and consequent damage; (b) they failed to take reasonable steps to have the timber removed, whether into the factory or further from the factory wall, so as to remove the danger. 21 The reasonableness of the actions of the cross-defendants has to be seen in the light of the difficult circumstances in which they found themselves. No doubt they would have preferred to be managing premises which were properly secured, but the cross-claimants had no interest in spending money on keeping trespassers out. Mr Officer submitted that the trespassers were unstoppable and I think that the submission was well made. Then the cross-defendants were faced with a tenant who, perhaps like many tenants, presented intermittent risks of danger. Bins would overflow. Timber would be left at the front. The strategy of the cross-defendants was to inspect regularly – I think that twice a month was reasonable – and require things seen to be wrong to be put right. Generally the strategy was successful. It was only on this last occasion that the timber was not moved into the factory. 22 Mr Toomey submitted that the timber must have lain there between the date of its delivery on 27 November and the date of the fire, 4 January, more than a month. I accept that that is what must have happened and that Mr Wade most probably made a visit to Jupiter's premises once after the occasion on which he had the conversation with Mr Khoury about moving the timber and before the fire. He must have realised then that the timber had not, as on other occasions, been moved as required. I accept that something like that must have happened. 23 Mr Toomey submitted that by dealing with Jupiter in the way they did they cross-defendants sanctioned the storage of timber where it was accessible to trespassers. The timber was stored in that position for most of the time. There was no evidence that the cross-defendants had told Jupiter not to store timber there. 24 I do not accept those submissions. The evidence does not justify a conclusion that there was timber in such a position most of the time. The only evidence about the matter comes from the statement of Mr Wade, who said that "on previous occasions" he had had to speak to Mr Khoury. All one can say is that the timber was stored there a number of times between 1 June 1995 and December 1996. One of those times might have been when the insurance company wrote its letter. 25 I find that each time Mr Wade saw timber in that position he told Mr Khoury to move it. A direction to move the timber implied that the cross-defendants disapproved of its being kept outside the factory. There was no sanctioning by the cross-defendants of the storage of timber outside the factory. 26 Mr Toomey submitted that the cross-defendants had the powers of the owner and should have terminated the lease. Then he retreated from that position. Plainly the cross-defendants had no right to terminate Jupiter's lease. Mr Toomey submitted nevertheless that they should have threatened to recommend to the cross-claimants that the lease be terminated. That, it was submitted, would have achieved the desired removal of the risk. 27 I do not think that the cross-defendants breached their duty by failing to make any such threat because I think that such a threat would have been ineffective. The cross-claimants were well aware of the danger presented by trespassers, many of whom were children or youths. They could foresee the risk of fire as well as the cross-defendants. They were content to let the state of affairs to continue. They knew about the peculiar problem of Jupiter, rubbish and timber. They had been sent the insurance company's letter. There is no direct evidence that they were informed about any of the occasions upon which Mr Wade spoke to Mr Khoury but such was the degree of interest taken by Mr Newey and such was the frequency of communication between himself and persons on behalf of the cross-claimants, particularly Mr Ross, that I think that the cross-claimants probably knew about the timber storage problem as well. Nobody was called to give evidence on behalf of the cross-claimants. I would have expected Mr Ross to give evidence about what he knew. I infer that his evidence would not have assisted the cross-claimants' case. 28 No person ought to be under a duty to make an empty threat. I regard as fanciful the submission that the cross-claimants would have seriously entertained a recommendation by Mr Newey that Jupiter's lease be terminated either because it was occasionally leaving timber outside the factory or because in December it had not removed the timber as on previous occasions. According to Mr Wade, Jupiter was an average tenant that paid its rent each month. I think that a recommendation to terminate its lease in such circumstances would have been rejected by the cross-claimants and I think that Mr Newey would have known it. 29 Then it was submitted that the cross-defendants ought to have required Jupiter to wet the timber down so that it would not easily catch fire or move it further away from the factory wall. The timber was covered in the first place with heavy industrial plastic, and no doubt that was to protect it from the weather. Weather damage would have made it difficult to use in the factory. So would wetting it down. The plastic was there to stop such a thing happening. 30 It would have been no solution to require Jupiter to move the timber further away from the factory wall. There is no evidence how much further away it could have been removed or whether that would have removed the danger of a fire spreading to the factory. But such a removal would have left Jupiter in continuing breach of the conditions of its lease not to store the timber on common premises. No reasonable agent would have made such a suggestion. 31 I think that the cross-defendants acted reasonably in circumstances that were impossible for them to control. They maintained reasonable security patrols during times that the factories were closed. They recommended a better fence. They informed the cross-claimants what was happening. Through Mr Wade they supervised the tenants' use of the premises and gave immediate notice of the need to rectify problems as they arose. I think that they acted reasonably in permitting Jupiter more time than usual on the last occasion to remove the timber, taking into account the shortage of space into which to move it. In any case, it is difficult to know what else they could have done. 32 The cross-claimants have failed to show that the cross-defendants were in breach of any duty they owed them as their agents. There will be a verdict for the cross-defendants. The cross-claimants must pay the cross-defendants' costs. ********** Last Modified: 11/06/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.