Supreme Court New South Wales Medium Neutral Citation: Bong Bong Town Centre v Illawarra Clay Target Club [2015] NSWSC 316 Hearing dates: 24 March 2015 Decision date: 24 March 2015 Jurisdiction: Equity Division Before: McDougall J Decision: Defendant is liable to remove lead contamination from, and otherwise make good, the leased land under and to the extent required by cl 5 of the lease, and in default to reimburse plaintiff for doing so. Catchwords: CONTRACT - lease - construction of remediation clause - where clause required lessee to remove lead contamination from the land and to put the land in a condition suitable for development - where variation of lease inserted new clause qualifying those obligations - whether the lease required the lessee to remediate the land any further than removing lead contamination - notice procedure to trigger obligation - where notice went further than stipulating obligations by providing suggested method of compliance – whether notice valid Category: Principal judgment Parties: Bong Bong Town Centre Pty Limited (Plaintiff) Illawarra Clay Target Club Limited (Defendant) Representation: Counsel: T A Berberian (Plaintiff) D H Murr SC (Defendant) Solicitors: Colin Biggers & Paisley (Plaintiff) Kells (Defendant) File Number(s): 2013/214956 Judgment (ex tempore – revised 24 march 2015) 1. HIS HONOUR: On 15 September 2008, the plaintiff (Town Centre) leased land at Horsley to the defendant (the Club). The lease was for a period of two years ending on 14 September 2010. 2. There were two variations to the lease. By the second, dated 9 May 2011, the term of the lease was increased to four years expiring on 14 September 2012. In addition, a new clause was inserted. The dispute 1. The parties are in dispute as to the Club's obligations to remediate the land under cl 5 of the lease, read in conjunction with cl 10.1 (which was inserted by the second variation). The lease 1. Relevant provisions of the lease seem to be confined to cll 3, 5, 10.1 and 10.2. I set out those clauses: 3. Indemnity The Lessee indemnifies the Lessor from and against all cost, loss risk, claims or liability in any way arising out of the use and occupation of the Land by the Lessee. The Lessee accepts all of that risk and liability as if it was the registered proprietor of the Land, and this lease did not exist. … 5. Remediation At the end of the Term the Lessee must at its own cost remove any lead contamination from the Land, and put the Land into a condition suitable for development by the registered proprietor of the Land for the purposes contemplated by any development application lodged by or on behalf of the registered proprietor of the Land. This clause does not require the Lessee to make good the improvements on the Land, but the improvements and the Land must be left clean and safe. … 10.1 The Lessee will within 1 month of a request in writing from the Lessor provide to the Lessor a report detailing how it will comply with its obligations under clause 5 which will include: (a) The name of the consultant it will retain to carry out the removal of the lead contamination and to put the Land into a condition suitable for mixed use residential and commercial development by the registered proprietor of the Land (the "Remediation Work"). (b) The qualifications of the consultant referred to in clause 10.1(a). (c) A detailed plan of the works to be included in the Remediation Work including the proposed time to carry out the Remediation Work; and (d) Evidence satisfactory to the Lessor (acting reasonably) that the works to complete the Remediation Work will be sufficient to ensure that any certification required from any authority that the Remediation Work has been properly carried out will be obtained. 10.2 The Lessee will within 1 month of service of notice in writing by the Lessor commence the Remediation Work and will proceed diligently and in accordance with the plan referred to in clause 10.1(c) to carry out and complete the Remediation Work. 1. It is common ground that the land in question had been used for the purposes of target shooting and the like for at least thirty-four years before the lease was granted in September 2008. The clause 10.1 notice 1. On about 8 September 2011, Town Centre served on the Club what was, or purported to be, a notice under cl 10.1. That notice (as I shall call it for convenience) comprised a two page letter and an "Annexure A", which was a detailed report from Coffey Environments Australia Pty Ltd (Coffey) dated 7 September 2011. Coffey had been retained by Town Centre to oversee and certify the remediation works. 2. Although parts only of the notice are relevant, they have to be read in context. Accordingly, I set out the whole of the letter of 8 September 2011 (omitting formal parts): Further to our recent discussions regarding your desire to commence the site remediation works, attached is the Notice under the Lease to commence this process. Under the Lease two Notices will be issued. The first Notice (attached) requires a Remediation Action Plan (RAP) to be prepared and submitted to the Lessor within one month of the Notice. Following receipt and approval of the RAP, BBTC will then serve the second Notice to Commence the Remediation Works under clause 10.2 of the Lease. To assist in the entire process, the Lessor has appointed at its cost, Dr Michael Dunbavan of Coffey Environments Australia Pty Ltd who is an Accredited Site Auditor. His role will be to review the RAP, oversee the remediation works and provide a Site Audit Statement when the works have been successfully completed. The purpose of this Statement is to certify that the Remediation Works have removed the contaminates from the land to allow it to be used for mixed use residential and commercial development as required by the Lease. … For your assistance we have annexed to the Notice a letter from Coffey Environments Australia Pty Ltd which sets out the steps which they consider will be required in preparing the RAP and in undertaking the Remediation Works to ensure that ICTC's obligations under the Lease are met. 1. There was some correspondence to and fro between the parties. On 9 July 2012, lawyers then (and now) acting for the Club wrote to Town Centre. That letter acknowledged service of "a notice pursuant to clause 10.1 of the lease": clearly, in context, the letter and attachment to which I have just referred. The letter stated in substance that the Club was unable to meet the cost of complying with the notice. I set out the relevant paragraphs of that letter: Our client acknowledges that your client served a notice pursuant to clause 10.1 of the lease on or about 9 September 2011. In compliance with the notice you would be aware that our client engaged its expert Sydney Environmental and Soil Laboratory for the purpose of undertaking the requisite work in completing a proper remediation plan. Our clients reject any suggestion that the period of time which has elapsed since 9 September 2011 to date is somehow reflective of inaction on our client's behalf or its members. Your client is aware that at all times during the course of this period our client's expert has worked in conjunction with your client's appointed auditor, the latter being heavily involved with any decision regarding the execution of the work. Any delay as your client knows was substantially caused as a result of the intemperate and unfavourable weather conditions over that period. Nevertheless, our client does not resile from its advice and discussion with Mr Knacksteadt; that it has limited resources as a not for profit organisation and that all of its surplus has been consumed for the purpose of meeting its expert fees in discharging its obligations to date. Consistent with this advice we are instructed to repeat that it has a limited reserve funds which are not sufficient to meet the current estimated fees sought by Sydney Environmental and Soil Laboratories in order to complete the further work. Consequently, it is unfair for your client simply to conclude that our client has "no intention". Our client's inability is one of capacity not intent. We are instructed that our client rejects your conclusions you draw from the statements made regarding the survey or in the context of any delay. 1. Town Centre has procured detailed reports which set out, in the views of the authors of the reports, what is necessary to remove lead contamination and "remediate" the land, and the likely cost of doing so. It is suggested that the cost overall will exceed $6 million. The issues 1. The issues between the parties arise out of a proper construction of cl 5 of the lease, read in conjunction with cl 10.1. The first issue is, in substance: what must the Club do to comply with its obligations under cl 5, properly construed? 2. The second issue is whether, upon the proper construction of cl 5, the notice dated 8 September 2011 was a valid notice for the purposes of cl 10.1. The parties' submissions 1. In relation to the first issue, Ms Berberian of Counsel, who appeared for Town Centre, submitted that the lease imposed two obligations. The first, she submitted, was to remove lead contamination. The second, she submitted, was (otherwise) to put the land into a condition suitable for development for the purposes contemplated by any development application that the registered proprietor had lodged. 2. Ms Berberian submitted that the effect of cl 10.1 was both to clarify cl 5 and to add an additional obligation to it, by requiring that the standard of remediation should be to "a condition suitable for mixed use residential and commercial development". 3. As to the validity of the notice, Ms Berberian submitted that it was adequate to require the Club to perform its obligations. She submitted that even if the suggestion made by the notice, as to assisting in the process through the use of Coffey, were not authorised by cl 5 or cl 10.1, that did not destroy the efficacy which otherwise the notice had. 4. In addition, Ms Berberian relied upon what she said was the admission that the Club had made in its lawyer's letter of 9 July 2012 as to the validity of the notice. 5. Mr Murr of Senior Counsel, for the Club, submitted that on its proper construction, cl 5 imposed only one relevant obligation. That, he submitted, was to remove lead contamination from the land so as to put the land in a condition suitable for development. To put it another way, Mr Murr submitted that the words "and put the land into a condition suitable for development..." did not add a separate and independent obligation of remediation. Rather, he submitted, they served to define the standard to which, or the purposes for which, lead contamination should be removed. 6. As to the cl 10.1 notice, Mr Murr made two submissions. The first was that if cl 5 were to be construed as he had submitted, the notice went beyond what was required under cl 10.1. The second was that in any event the notice went further than cl 10.1 permitted, by specifying how the Club was to comply with its obligations under cl 5. In substance, Mr Murr submitted, that part of the notice which commenced with the words "to assist in the entire process" was not merely informal or helpful or supplementary but, rather, a requirement specifying what it was that the Club was to do and how it was to do it. 7. There was a separate point argued in relation to cl 5, which emerged rather late in the piece. Mr Murr submitted that, under the clause as it stood originally, the specified extent or standard to which the land should be made suitable was that defined by reference to a development application that had in fact been lodged. Thus, Mr Murr submitted, if no development application had been lodged, there was no standard to which it was necessary to remediate the land. 8. Mr Murr submitted that cl 10.1(a) did not have any impact on this; it remained a requirement that there be a development application before the requisite condition or extent of remediation could be assessed. 9. Ms Berberian submitted that cl 10.1(a) effectively specified a standard, in respect of or to which remediation was required, which existed regardless of whether (or not) any development application had been submitted. Decision – clause 5 1. I start with cl 5. In my view, despite the infelicity of its wording, the clause does not impose one only single obligation. It imposes two obligations. The first obligation is that the Club must at its own cost remove lead contamination from the land. That must apply to lead contamination whether it was caused during the four years or so that the Club used the land, or whether it was caused over the thirty-four or so years of prior use. Mr Murr, I think, accepted this; but if he did not, I would have concluded in any event that this was the proper construction of the clause. 2. It is inconceivable that, knowing of the prior thirty-four years' use, the parties would have considered that it was in any way practicable (or feasible) for the Club to remove its own two years' worth of contamination, without touching the prior thirty-four years. That impracticability, or infeasibility, did not become significantly diminished when the term was expanded from two years to four. 3. That is important, because to my mind it puts the second of the obligations into its proper context. That is an obligation to put the land into a condition suitable for development of the specified kind (I leave aside for a moment, the question of whether a development application must be lodged). 4. It must have been obvious to the parties, at the time they made their lease, that there were at least two possible sources of contamination which required remediation. The first was contamination from lead shot. That was a given, or a certainty. The second possible source was that the Club's use might cause other problems which would require remediation before the land could be safely developed. Because the parties were not able to specify what that might be, in my view they included the words "and put the land into a condition suitable for development..." to cover the various possibilities (other than lead contamination) that might arise. 5. However, on this construction of the clause, the second obligation is limited in effect to making good contamination (or other matters falling within the scope of the required remediation) caused by or arising out of the Club's use of the land. Ms Berberian acknowledged that this limitation was inherent in cl 5. Again, if she had not done so, I would have concluded in any event that this was the proper extent of the obligation. 6. Thus, it seems to me, cl 5 imposed two obligations. The first was to remove all lead contamination, howsoever caused. The second was to make the land suitable for development to the requisite standard, to the extent that doing so was required by, or was a consequence of or arose out of, the Club's use of the land. 7. Logically (if not in the verbal sequence of the clause), the next issue is whether, and if so to what extent, cl 10.1(a) varied those two obligations, which in my view arise on the proper construction of cl 5, by subordinating the second to the first (which in essence was Mr Murr's analysis). In my view, it did not. 8. First of all, cl 10.1(a) confirms that there is to be "removal of the lead contamination". Secondly, it confirms that the land is to be "put... into a condition suitable for... use". And thirdly, in my view, it specifies the kind of use which is to be the standard or referent that determines the extent of any remediation required. That is "mixed use residential and commercial development". 9. Thus, in my view, cl 10.1(a) qualifies the obligation to remediate imposed by the second part of cl 5, because it limits the standard of remediation to what is required for the purposes of mixed use residential and commercial development. 10. Further, in my view, cl 10.1(a) has another effect. I think it is at least arguable, under cl 5, that if there were no development application lodged at the end of the term of the lease, there could be no independent obligation to put the land into a condition suitable for development. That is because the standard or referent was to be that referable to the use the subject of the development application. Absent any development application, the Club would not know what (if anything) it was required to do. 11. In my view, the parties, looking at their intention objectively, addressed that in cl 10.1(a). They did so by specifying the use, which was in effect to govern the extent of remediation required apart from removal of lead. And they did so, among other things, by removing the need for there to be a development application. Thus, in my view, whether or not a development application had been lodged by the time the lease came to an end, the obligation to remediate, and the standard to which remediation was required, both crystallised and became definable by reason of cl 10.1(a). 12. However, there is nothing in the operation of cl 10.1(a) that has the effect of making the independent obligation to remediate under cl 5 no more than a specification of the extent to which lead contamination must be removed. Decision – validity of the notice 1. I turn to the dispute as to the validity of the notice. As to the first ground taken of objection by Mr Murr, that the notice was invalid because it was premised on an inappropriate construction of cl 5: it will be apparent from what I have just said that I do not agree. 2. The second ground of objection requires attention to the detail of the notice. In substance, the question is whether the words that I have identified already are specified as part of the content of the Club's obligations under cl 10.1(a). If they are, then there is much to be said for the proposition that the notice is invalid. However, in my view, those words are not intended to stipulate how it is that the Club was required to comply with its cl 10.1(a) obligations. 3. I should start by observing that although the letter refers to a notice under the lease which is said to be "attached", there was no attached notice. The letter itself seems to have been the notice. Certainly, at least from the letter of 9 July 2012 to which I have referred, that appears to be common ground. 4. The next point is that the letter on any view requires the Club to submit a remediation action plan (RAP) within one month. Although the letter does not expressly refer to cl 10.1, it is in my view clear (in particular, because of what follows as to the requirements of in cl 10.2) that the requirement to do so was both intended and understood to be one under cl 10.1. 5. The next point, as I have said, is that the letter also foreshadows the service of a cl 10.2 notice once the scope of works stated in the Club's cl 10.1 report, or RAP, have been agreed. 6. It is only after the two subclauses of cl 10 are referred to that the letter turns to how it is that the process overall might be carried out. In other words, it seems to me, what follows from (and including) the words "To assist in the entire process" was intended to be read as Town Centre's suggestions as to the appropriate way that the parties might cooperate to ensure that the Club does comply with its obligations under cl 5, to a standard that (within the scope of those obligations) is reasonably acceptable to Town Centre. However, I do not think that it can be said that the notice specified that compliance with those suggestions was an integral part of the Club's obligations, or that, on Town Centre's view of cl 10, compliance with those suggestions was mandatory. 7. Again, it seems to be reasonably clear that this is how the Club read the letter, as is apparent from its lawyer's letter of 9 July 2012. 8. On that view of cl 10.1 and the notice, it is clear that the Club has not complied with its obligation. However, as Mr Murr submitted (following on observations that I made to Ms Berberian in the course of submissions), breach of cl 10.1 has not been shown to sound in any substantial damages. What it means is that Town Centre has not had an RAP from the Club and it has not had the opportunity of considering the adequacy of the works described in the Club's RAP. In the absence of evidence that this has sounded in real rather than nominal damages, it does not seem to me that it is necessary to pursue the issue. 9. I should add a further observation at this point. Ms Berberian submitted later (after I had given what precedes and follows this and the next paragraph by way of reasons, and given Counsel an opportunity to address on the form of relief) that Town Centre had incurred expense in procuring its own RAP. She submitted that the cost of the plan was recoverable as damages. I do not agree. It is plain (and the cl 10.1 notice confirms) that Town Centre had retained Coffey in any event. It is equally plain, in my view, that Town Centre would have incurred substantial cost (for which it had no entitlement to be reimbursed) in reviewing any RAP that the Club might have submitted. 10. To the extent that Town Centre has incurred or will incur costs in developing a scope of works for remediation that would not have been incurred had the Club prepared an RAP, those costs would form part of the reasonable cost of doing the work. 11. It cannot be said of what in my view was the breach of cl 5 that there is unlikely to be any damage. Clearly, that is something that is liable to sound in substantial damages. Because I am not at present satisfied that the reports on which the Club relies approach the question of remediation in accordance with the clause as I think it should be construed, I do not think that it is appropriate to quantify damages. 12. Although it is unfortunate, I think that the better course is to grant declaratory relief as to the nature and extent of Town Centre's entitlements, and the Club's obligations, under the lease, and to stand the matter over so that it can be seen whether the parties are able to agree on the appropriate method and cost of remediation. If the parties are not able to agree, then, subject to any further submissions that might be put, I would be inclined to refer the question out. Other questions argued 1. I should note that relief had been claimed under cl 3, which provides for indemnity. However, the indemnity under cl 3 is only against losses, et cetera, arising out of the use and occupation of the land. It does not seem to me that any failure to comply with the cl 5 obligations of remediation, or indeed the cl 10.1 obligations in relation to a report, could be made the subject of an indemnity under cl 3. That is because neither of those obligations gives rise to a loss which could be said to arise out of the use and occupation of the land. 2. Nonetheless, even if the claim to indemnity is not based on cl 3, it is plain, on my view of the proper construction of cl 5, that the Club is obliged to remove lead contamination and otherwise in effect to make good any consequences of its own use, and to the extent that it does not do so, it is liable to pay to Town Centre the reasonable cost of doing so. 3. In those circumstances, I think that the appropriate course is to make declarations of right, to deal with the question of costs (should there be any dispute) and to stand the matter over in the manner that I have indicated, and I will hear from counsel as to how we go about that. [Counsel addressed.] Orders 1. (1) Declare that on the proper construction of cl 5 (as varied) of lease registered AE216382B made on 15 September 2008 as varied by variation AG241443Q made on 9 May 2011, the defendant is liable, at its own cost: 1. to remove any lead contamination from the land the subject of that lease, and 2. to put the land into a condition suitable for mixed use residential and commercial development by the plaintiff, to the extent that the need to do so arises out of or in consequence of the defendant's use and occupation of the said land. (2) Declare that to the extent that the defendant does not comply within a reasonable time with its said obligations under cl 5 as varied, the defendant is bound to reimburse the plaintiff in full for the reasonable cost of doing such work as may be required to put the said land into the condition it would have been in, had the defendant complied with those obligations. (3) Order the defendant to pay the plaintiff's costs to date. (4) Stand the proceedings over to 10am on 26 June 2015 before me for directions. (5) Reserve liberty to apply on three days' notice. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 March 2015