Background
The case concerned an appeal against an expert determination conducted under an industrial lease.
First, the landlord (Bagata) had left chattels in a leased premises. The tenant (Sunstorm) argued that they ought to be removed because they were an impediment to use of the premises by the tenant.
Second, the landlord argued that, while the tenant could install and make operational certain manufacturing equipment, the tenant was not permitted to make use of the equipment.
The landlord failed before the expert, before the primary judge, and before the Court of Appeal.
The three issues on appeal were:
- whether the primary judge had erred on the meaning of ‘manifest error’;
- whether the primary judge had erred in requiring ‘vacant possession’; and
- whether the primary judge had erred in finding that manufacturing was permissible under the lease.
Manifest error
As to whether the primary judge had erred on the meaning of ‘manifest error’, the Court of Appeal upheld the decision of the primary judge. The key authority relied on was a decision of the High Court in Westport Insurance Corporation v Gordian Runoff Ltd (2011) 244 CLR 239. A manifest error is an error that is ‘manifest on the face of the award’. It is not enough that the expert made an error. The existence of an error must not be equated with the error being manifest. There was no manifest error.
Vacant possession
As to whether the primary judge had erred in requiring ‘vacant possession’, the Court of Appeal upheld the decision of the primary judge and expert. While the lease contained no term requiring vacant possession, applying the settled principles of contractual construction, the expert was correct in finding that vacant possession was required.
The concept of vacant possession was well known to leases. As to its meaning, the authority of Cumberland Consolidated Holdings Ltd v Ireland [1946] KB 264 was relied upon. Vacant possession includes a right to ‘actual unimpeded physical enjoyment’. None of the special conditions indicated that the landlord would have a right to store goods. A reasonable business person would have understood that the objects of the lease included vacant possession.
Permitted use
As to whether the primary judge had erred in finding that manufacturing was permissible under the lease, the Court of Appeal upheld the decision of the primary judge and expert. The ‘Permitted Use’ under the lease was described as ‘Industrial – warehouse and ancillary office’. The landlord understood that the business of the tenant included the manufacturing of artworks and had permitted early access to install ‘certain plant and equipment’. The Court of Appeal agreed with the primary judge that it ‘would make no commercial sense for the parties to have agreed to a “Permitted Use” that did not allow Sunstorm to engage in the industrial activity which both parties know was its intention in entering into the Lease’.
The overall effect of the decision is that the landlords are bound by the expert’s determination that they were in beach of the lease for failing to provide vacant possession, and that the tenant had not itself breached the lease in any of the ways the landlords alleged. The landlords are liable to the tenant in damages.
