Today the Court of Appeal, by majority, dismissed an appeal brought by Agtan Pty Ltd (‘Agtan’). Agtan is the lessor under a lease of premises from which the lessee, Caltex Australia Petroleum Pty Ltd (‘Caltex’), conducts a petrol service station business. The premises contains eight underground steel storage tanks, collectively defined in the lease as ‘the Tank System’.

Agtan and Caltex entered into the original lease, which commenced on 1 September 1999, for a term of 10 years with two options, each for a term of five years. Caltex exercised each of the options under the original lease: the first in 2009 and the second in 2014. In 2011, after Caltex exercised the first option, but before it exercised the second, one of the underground steel storage tanks (‘Tank 2’) suffered a rupture and was decommissioned by Caltex. A dispute arose between the parties as to who was to be responsible for repairing Tank 2.

Much of the dispute turned on the proper construction of cl 19.1 of the lease. That clause required Caltex, first, to ‘keep and maintain the Demised Premises and appurtenances in good and tenantable repair and good and efficient working order and condition’. This obligation was subject to the condition of the premises ‘as at the date of commencement of the Lease’ and also subject to an exception for fair wear and tear, among other things. Secondly, the clause required Caltex to ‘effect repairs to the Demised Premises and appurtenances as necessary including the replacement of all worn or defective parts’. The clause contained a proviso to the effect that Caltex was not obliged to effect structural works except structural works to and replacement of the Tank System, among other equipment, or where the need for such works arises out of the neglect or default of Caltex or the use of the premises by Caltex.

In 2015, Caltex issued proceedings against Agtan seeking, among other relief, a declaration that Caltex was not in breach of cl 19.1 of the lease. One of the issues was whether cl 19.1 imposed a single obligation to ‘keep and maintain the Demised Premises and appurtenances in good and tenantable repair and good and efficient working order and condition’, a subset of which was the obligation to ‘effect repairs to the Demised Premises and appurtenances as necessary including the replacement of all worn or defective parts’. If it did, this single obligation was to be subject to the original condition of the premises at the date of commencement of the lease as well as the fair wear and tear exception, with the result that Caltex would not be required to repair Tank 2. If the two obligations were independent of each other, with the obligation to ‘effect repairs’ being a freestanding obligation that was not subject to the original condition of the premises at the date of commencement of the lease or the fair wear and tear exception, Caltex would be required to repair Tank 2.

The trial judge delivered judgment in favour of Caltex against Agtan. Relevantly, he held that cl 19.1 imposed a single obligation and, accordingly, that Caltex was not required to repair Tank 2. Agtan sought leave to appeal.

By majority, the Court of Appeal dismissed the appeal. It reached the following conclusions:

  1. (Santamaria and McLeish JJA, Hargrave JA dissenting) Clause 19.1 imposed a single obligation, as described above, rather than two independent obligations. The obligation to ‘effect repairs to the Demised Premises and appurtenances as necessary including the replacement of all worn or defective parts’ formed part of the obligation to ‘keep and maintain the Demised Premises and appurtenances in good and tenantable repair and good and efficient working order and condition’ and was subject to the original condition of the premises at the date of commencement of the lease and the fair wear and tear exception.
  2. (The Court) The ‘date of commencement of the Lease’ in cl 19.1 was the date of commencement of any renewal period, and, specifically, the date of commencement of the second renewal of the original lease (1 September 2014).
  3. (The Court) The single obligation in cl 19.1 extended not only to the Tank System as a whole, but also to individual tanks that formed part of the Tank System.
  4. (Santamaria and McLeish JJA, Hargrave JA dissenting) Based on the evidence, the decommissioning of Tank 2 had no material adverse effect on the Tank System, and the Tank System remained in ‘good and tenantable repair’ at all material times.
  5. (The Court) The inference that the rupture in Tank 2 had resulted from fair wear and tear was the most probable conclusion to be drawn from the facts. Accordingly, the rupture in Tank 2 was the result of fair wear and tear.

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NOTE: This summary is necessarily incomplete. It is not intended as a substitute for the Court’s reasons or to be used in any later consideration of the Court’s reasons.

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Author
Supreme Court of Victoria
Publisher
Supreme Court of Victoria
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