Appeal number 45/2008

IpsofactoJ.com: International Cases [2015A] Part 3 Case 4 [SCIre]


SUPREME COURT OF IRELAND

Coram

Patrick McDonagh

- vs -

McMullan Brothers Limited

McKechnie J

MacMenamin J

Charleton J

5 MARCH 2015


Judgment

Justice Charleton

  1. This appeal is concerned with an underground leakage of petrol at the Singland service station, which is situated on the Dublin Road in Limerick City. This probably happened over several days, but was discovered on 13th January, 2003. Since a survey had taken place with the drilling of boreholes on 4th December, 2002 at the site and had discovered no such leakage, these are the dates within which the incident occurred. The result was that the petrol station had to be shut for safety reasons and the restaurant and supermarket on site were also put out of business. Apart from this appeal, there is also separate litigation between the parties herein and the owners of those businesses. What this judgment is concerned with is not the degree of the resulting harm to those parties but where liability lies in respect of the cause of the petrol leakage.

  2. As between the defendant/appellant, the lessee, and the plaintiff/respondent, the lessor and a part of the Maxol group, a lease dated the 1st February, 1995 ostensibly governed their relationship as lessee and lessor. This lease was found by Smyth J, the trial judge, in his judgment of 18th October, 2007 to determine where responsibility lay as between these parties. Smyth J held that the covenant to repair in the lease, considered in its proper context, established that the lessee’s responsibility extended to ensuring that the equipment from which the leakage occurred was in good working order and that in failing to check and repair the equipment, the lessee had primary responsibility. Given the nature of the relationship between the parties, he held, the lessor as supplier of the petrol should have known about the faulty equipment and consequently should have warned the lessee. In failing to do this, liability was reduced on negligence grounds so that the lessee bore 60% of the responsibility while the lessor was liable for the remaining 40%.

  3. Issues which were important at the trial have not been pursued on this appeal. In particular, it had been argued on behalf of the lessee that the coincidence of the lessor drilling boreholes in and around the petrol station about five weeks before the leakage, established that negligence on the part of those conducting this exercise had punctured one of the underground petrol storage tanks. Instead, the trial judge found that as a matter of probability and aluminium alloy cap on one of the tanks leading from underground to the petrol pumps on the forecourt of the filling station had corroded. Maxol is the supplier of petrol to this station with which it has, under the name of the plaintiff/respondent, the lessor, a solus agreement under the lease. When Maxol, as lessor, supplies petrol to the station the delivery tanker pumps this into an underground tank which is remote from the tank in question. This tank is connected by a pumping system to another tank closer to the site of the forecourt whereby petrol is moved into this underground tank which is capped by the aluminium cap in question and which, in turn, is connected to a valve to ensure that gravity does not cause the petrol that is in the pipe which runs from the tank and into the petrol pumps on the forecourt to fall backwards through gravity. The cause of the spillage, as determined by Smyth J, was that when the aluminium alloy cap became corroded, it ceased to be airtight with the consequence that the valve did not work and, as a result, that the petrol in the pipe above it was not held hydraulically but leached backwards and spilled out into the surrounding ground. The cap had become broken down by a process of sulphation, probably in consequence of the impact of groundwater and possibly by whatever chemical reaction also resulted from it being specked with concrete. The manhole chamber, through which the valve and cap were accessed, contained water and also debris of cement and timber. In 1994 and 1998 the pumps were replaced by Maxol, as lessor, since they had engaged in preventative maintenance due, it was claimed by them, to the fact that the previous lessee of the premises had allowed the petrol station to become somewhat dilapidated. There was evidence that at that time it might have been expected that this cap would have been replaced with a gunmetal substitute. This did not happen.

  4. The primary findings of fact of the trial judge were summarised by Smyth J at the end of his judgment as follows:

    1.

    The obligations set out under the lease never left the lessee and he was responsible in accordance with the terms of the lease for all equipment, fixtures, fittings and so forth save such as were excluded by clause 4.2.

    2.

    That the company [Maxol, the lessor], through being aware of debris, timber, residual elements of cement in the chamber and the various visitations to check out the equipment in the 1990s must bear some responsibility also for the events that occurred. While accepting that the primary liability rests upon .... the lessee, the company cannot be wholly excused from sharing a percentage of the liability in respect of the events that have occurred. In my judgment, the apportionment of liability should rest at 60/40 – 60 in respect of the lessee, 40 in respect of the company [Maxol, the lessor].

  5. Since both the lease of the 1st February, 1995 and the background to that lease was the foundation of the decision of Smyth J, it is necessary to reference these.

  6. On this appeal, the lessee as defendant/appellant has argued three grounds: firstly, that the tenant had no obligation to repair under the lease; secondly, that a letter of 10th May, 2000 represented that a licensee of the lessee who actually operated the petrol sales on the forecourt had any responsibility that might exist for repairs and that consequently the lessor was estopped from resiling from that position; and that, thirdly, on any apportionment much greater blame should attach to the lessor than that found by Smyth J. There is also a cross appeal and there the lessor, as plaintiff/respondent, argues that there was no basis in law or in fact upon which any apportionment of liability could be placed with them as lessor.

    The lease and its background

  7. The operative lease was made between the plaintiff/respondent as lessor and Eamonn Cosgrave the predecessor of the defendant/appellant as lessee on the 1st February, 1995 for a term of 99 years from the 1st January, 1997. That lease succeeds a lease made on the 19th February, 1976 between the same lessor and lessee which ran for a term of 21 years from the 1st January, 1976. Where parties to a legal transaction take the trouble to set out their agreement in a formal written document, particular and unusual circumstances will be needed before a court will qualify or elide the language upon which they have agreed. In this lease, considerations as to rent and rent review and covenants to pay are much less important than the precise nature of the repairing clauses therein set out. At clause 3.6 the following general clause occurs in relation to repairs:

  8. To keep clean and tidy and to replace (where necessary) and keep in good order repair and condition from time to time and at all times during the term hereby created the exterior and interior of the demised premises and every part thereof and all editions thereto, and without derogating from the generality of the foregoing the drains within or exclusively serving the demised premises plaster timber joists and beams of the floor and ceilings and the doors locks plate glass and other windows suspended ceilings electrical (including lighting) installations fixtures fittings fastenings wires, waste water drains and other pipes and sanitary and water apparatus and all plant apparatus and installations therein and the painting papering and decoration thereof.

  9. Clause 3.8 allows the landlord to enter with a view to examining the state of repair and condition of the demised premises and, following a notice in writing, if the tenant does not properly repair and restore whatever defects are found, the landlord may repair and recover the appropriate cost as a sum of damages. Entry, in that regard, is to be permitted under clause 3.9. No additional buildings are to be erected and any unauthorised structures are to be removed pursuant to clauses 3.13 and 3.14. Nuisance is prohibited, under clause 3.15.1, in the sense that the tenant is not “knowingly to do or permit to be done any act matter or thing whatsoever which may be or grow to be a nuisance and annoyance disturbance or inconvenience or cause damage .... to any neighbouring adjoining or adjacent property or the owners or occupiers thereof.” Under the next subclause, the lessee is to pay to the lessor the costs of abating any nuisance that arises. The exclusive nature of the contract in terms of buying petrol between the lessee and the lessor is set out in clause 3.19.1. Here it is provided that the lessee must keep the filling station open at specified hours and is obliged to take an adequate quantity of petrol from the lessor, in effect Maxol, and to sell it. A prohibition against assignment, subletting, or alienation is contained in clause 3.21.1 and this provides a general restriction which is subject to “obtaining the prior consent in writing of [the lessor]”, not to be unreasonably withheld, and provides that “the assignee or underlessee as the case may be shall enter into a direct covenant with [the lessor] to perform and observe all the covenants and conditions herein contained....” Since the lease is reversionary, the lessor is entitled to bring prospective purchasers onto the premises, on notice, with a view to future sale. A standard clause requiring the premises to be yielded up at the expiry of the term of the lease is contained in clause 3.28. The indemnity clause has featured strongly in argument on this appeal. It is contained as clause 3.27 and should be quoted in full:

  10. To indemnify and keep indemnified the [lessor] against all and any expenses costs claims demands damages and other liabilities whatsoever in respect of the injury or death of any person or damage to any property howsoever arising directly [or] indirectly out of:

    1.

    the state of repair or condition of the demised premises or any fixtures or fittings thereon,

    2.

    the existence of any alterations thereto or to the state of repair condition of such alteration,

    3.

    the user of the demised premises by any party authorised by the tenant,

    4.

    anything now or hereafter attached to or projecting therefrom or any other cause arising out of the demised premises,

    5.

    any work carried out in the course of being carried out to the demised premises by the tenant his servants agents sub lessees or sub tenants, licensees and invitees.

  11. Special covenants also include at clause 4.9 a further form of indemnity which is expressed thus:

  12. To compensate the company for all damage and injury which may be caused to its property and to indemnify and keep indemnified the company from and against all actions claims and demands, costs and expenses (whether made by persons in the employment of the company or of the tenant or not) in respect of damage or injury to persons or property arising directly or indirectly from the construction, maintenance or use of the demised premises or any of the equipment, fixtures and fittings therein notwithstanding that all any part of the said equipment, fixtures and fittings shall have been constructed or brought upon the demised premises with the approval under the direction or supervision of the company its servants or agents.

  13. The solus nature of the agreement between the lessor, Maxol, and the lessee is restated in clauses 4.3 and 4.4. The lessee is to take at least 27,000 litres of motor spirit exclusively from the lessor on a periodic basis.

  14. In addition to the covenants as to repair previously referenced, particularly clause 3.6, a further special covenant is set out at clause 4.1 as follows:

  15. To keep the demised premises and all additions thereto and all doors locks windows and glass and the boundary walls and fences thereof and the drains soil and other pipes and the sanitary and water apparatus thereof in good and tenantable repair and condition.

  16. Then follows the clause which has been most referenced on this appeal and in the High Court below at 4.2:

  17. To replace maintain and keep in good order and repair the said equipment specified in the Second Schedule hereto and the said fixtures and fittings which made during the said term become unfit for the purpose for which the same now used by substituting therefore other equipment fixtures or fittings of a like nature and equal value and not to remove or permit to suffer to be removed from the demised premises the said equipment fixtures and fittings or any part thereof without the previous consent in writing of the company, provided always that this liability shall not extend to the following equipment:

    1.

    Dunclare Highway Pump.

    2.

    One Gilbarco Mark II Quadro Pump.

    3.

    2 Gilbarco Highline Mark 1 Plus Pumps.

    4.

    1 x 1,500 gallon over-ground rectangular tank.

    but provided also that the tenant shall take all possible care of the said items of equipment immediately hereinbefore referred to.

  18. Other clauses in the lease deal with overholding, re-entry and other standard provisions that may be expected in a commercial lease. Turning to the second schedule, that heading exists but under it nothing is specified. What looks like a subheading appears below as “The Equipment” followed by a quarter of a page of empty space. Had it been filled in at least one of the issues on this appeal and before the High Court would have been removed.

  19. A slight complexity attends the landholding at the petrol station. The premises consisted of a leasehold and a freehold. Using geometry loosely, the inner semicircle, with the straight side being the public road, of the petrol station had its origins in a 999 year lease granted by John McNamara to Patrick O’Gorman. This interest was purchased by the plaintiff/respondent, the current lessor, in 1956. The subsequent lease to Eamonn Cosgrave was, like a prior letting, also for the purpose of selling petrol. To expand the area available for modern services at a filling station, such as the restaurant and supermarket that were at some stage constructed there, Eamonn Cosgrave also purchased the freehold of an outer semicircle of land. The defendant/appellant, as lessee and as purchaser entered into an indenture with Eamonn Cosgrave for some of £2.3 million on 12th September, 2000. In consideration of that sum he, the defendant/appellant, obtained a transfer in fee simple of the lands of that outer semicircle comprised in Folio 23597F of the Register of Freeholders, County of Limerick, and the inner circle of lands which were the subject of the lease of the 1st February, 1995, described above. The plaintiff/appellant, as purchaser of the lease and of the appurtenant freehold, thus covenanted with Eamonn Cosgrave as vendor:

  20. The Purchaser HEREBY COVENANTS with the Vendor that he the Purchaser, his heirs and assigns, will henceforth during the continuance of the term of years granted by the Lease pay the rent reserved therein, and perform and observe the covenants on the part of the Tenant, and the conditions therein contained, and will at all times keep the Vendor or, his Executors and Administrators effectually indemnified against all actions and proceedings, costs, damages, expenses, claims and demands whatsoever by reason or on account of the non-payment of the rent or any part thereof or the breach, non-performance or non-observance of the said covenants and conditions or any of them.

  21. As it turns out, this purchase was not to enable the defendant/appellant, as lessee, to sell petrol. Instead, for a number of years prior to the sale, it seems from August 1996, a man called Seán Murphy had taken over the forecourt, sold petrol and had an office in the building containing the restaurant and the supermarket, upstairs from these. There was no formal letting agreement with Seán Murphy, but there was what seems to have been a licence at £250 per week in the earliest stage of the relationship, whereby, without the consent of the lessor, he used the filling station and sold the petrol.

  22. This arrangement was irregular in consequence of the lack of consent from the lessor, the plaintiff/respondent. The purchase of the lease and the freehold by the defendant/appellant from Eamonn Cosgrave was preceded by the negotiation in respect of the lease which took place over a period of years up to the date of its signing on 1st February, 1995. In the negotiations for the purchase by the defendant/appellant of the interest of Eamonn Cosgrave, a letter was written by TG McVeagh solicitors, Simon Quick, for the plaintiff/respondent, as Maxol, to Michael D Murray, the solicitors for Eamonn Cosgrave. That letter was to be exchanged among the parties affected by the indenture of the 12th September, 2000. This letter of 10th May, 2000, it is said, constitutes a sufficient representation to amount to an estoppel. One section of the fourth numbered paragraph thereof has been the subject of considerable argument. That oft-quoted section needs to be seen in the context of a confirmation of consent by Maxol, in effect the plaintiff/respondent, to the subletting as that otherwise would have been forbidden under the lease. Clause 4 provides:

  23. Our client has confirmed its consent to the following sublettings;

    a.

    a lease of the unit marked with the letter “A” and coloured yellow on the copy map attached hereto situated on the ground floor of the property and comprising the supermarket premises leased to Seán Murphy. The lease in respect of these premises is dated the 19th day of September 1999. We are aware that Seán Murphy went into occupation of this unit on the 1st December 1991. The term of this lease is 35 years.

    b.

    Seán Murphy is in occupation of and operates the petrol pumps in the forecourt. We are aware that Seán Murphy went into occupation and commenced operating the petrol pumps on the 1st of August 1996 on the understanding that he would occupy the petrol pumps on a short-term letting of 3 years. There is no formal lease in place with Seán Murphy and Seán Murphy deals directly with our above named client in relation to the operation of the petrol pumps and compliance with the terms and conditions of the lease under which the leasehold title to these premises is held in so far as same relates to the operation of the petrol pumps.

    c.

    Seán Murphy occupies an office on the first floor of the property. This area is identified ....

    d.

    A lease of the area marked with the letter “B” on the ground floor of the property .... [is] the restaurant premises [least on 21st of October 1999] to Michael O’Leary.

    e.

    A lease of .... a hairdressing business ....

    f.

    A lease of .... a beauty salon ....

  24. The letter goes on to confirm the consent of Maxol, in effect the plaintiff/respondent as lessor, to the assignment of the leasehold interest held by Eamonn Cosgrave “to Patrick McDonagh c/o Supermacs Ireland Ltd, Ballybrit Industrial Estate, Ballybrit, Galway.”

  25. As noted above, the lease of 1st February, 1995 detailing at clause 4.2 the equipment which lessee has the duty to maintain references a second scheduled that lease which simply contains a subheading “The Equipment”. The lease which was the immediate predecessor of that was, as previously noted, one for 21 years between the same parties and dated the 19th February, 1976. As clause 3 (d) of that earlier lease had similar intent, containing a solus agreement, the tenant covenanted “to replace any of the equipment specified in the first part of the first schedule hereto .... which may during the said term become unfit for the purpose for which same are now used ....” That schedule also contained the heading “The Equipment” but went on to specify three particular kinds of pumps, for particular storage tanks, give rods, a 1000 gallon overground diesel tank, a particular kind of pump, a particular kind of compressor, a particular kind of dispenser, a particular kind of hose and reels, a particular kind of airline gauge, garage jack and a battery charger.

  26. To this factual background should also be added the evidence given at the trial in the High Court that Eamonn Cosgrave was not considered by the plaintiff/respondent to be a tenant who took any particular care in relation to the maintenance of this filling station. In consequence, the plaintiff/respondent busied itself pursuant to what was referred to in the judgment of Smyth J as a “preventative maintenance contract”. In that regard, pumps were replaced in 1994 and 1998 and the relevant valve cap then have been noticed as, it might be inferred, one of the older type which might usefully be replaced by a gunmetal equivalent, then available and widely used. Smyth J held that a preventative maintenance contract cannot supersede a covenant in a lease and nor is same a guarantee that all and every part of the equipment had been rendered safe. Further, the trial judge distinguished between a duty to repair and a duty to make equipment safe.

  27. Construction of the lease

  28. This is a commercial lease. There is no dispute as between the parties on the applicable principles. These are derived from the judgment of Geoghegan J in Analog Devices BV v Zurich Insurance Company [2005] 1 IR 274 and in turn that unanimous judgment of the Supreme Court draws those principles from other authorities and in particular the speech of Lord Hoffman in ICS v West Bromwich BS [1998] 1 WLR 896. While what was therein concerned was the construction of an insurance contract, the principles are of general application. The following appears at pages 280-281 of the judgment of the Supreme Court:

  29. Lord Hoffman in I.C.S. v West Bromwich B.S. [1998] 1 W.L.R. 896 considered that quite a radical change had come about, the result of which, "subject to one important exception", was to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. He then set out the modern principles at p. 912 as he saw them and which I would accept:-

    (1)

    Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

    (2)

    The background was famously referred to by Lord Wilberforce as the 'matrix of fact' but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be next mentioned, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

    (3)

    The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

    (4)

    The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meaning of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must for whatever reason, have used the wrong words or syntax; see Mannai Ltd. v Eagle Star Ass. Co. Ltd. [1997] A.C. 749.

    (5)

    The 'rule' that words should be given their 'natural and ordinary meaning' reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania S.A. v Salen A.B. [1985] A.C. 191, 201:

    If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.

    [....]

    A fundamental principle which appears to be particularly relevant to this case is the principle of contra proferentem. Clark in Contract Law in Ireland (4th ed.) at p. 149 sets out the general principle as follows:-

    If the exempting provision is ambiguous and capable of more than one interpretation then the courts will read the clause against the party seeking to rely on it.

    The application of the principle to insurance contracts is treated in the same work at p. 273. The author points out that two Irish cases provide clear guidance on the position to be adopted in the interpretation and construction of insurance contracts. The first passage is from Rohan Construction v I.C.I. [1986] I.L.R.M. 419 from a High Court judgment of Keane J. The passage reads as follows:-

    It is clear that policies of insurance, such as those under consideration in the present case, are to be construed like other written instruments. In the present case, the primary task of the court is to ascertain their meaning by adopting the ordinary rules of construction. It is also clear that, if there is any ambiguity in the language used, it is to be construed more strongly against the party who prepared it, i.e. in most cases against the insurer. It is also clear that the words used must not be construed with extreme literalism, but with reasonable latitude, keeping always in view the principal object of the contract of insurance.

    In Cheshire Fifoot and Furmston's Law of Contract (13th ed.) the rule is defined as meaning that if there is any doubt as to the meaning and scope of the excluding or limiting term, the ambiguity should be resolved against the party who inserted it and seeks to rely on it.

  30. These are the rules of construction which will be applied to the interpretation of this lease.

  31. Here it must readily be accepted that this lease leaves something out. Absent is that which is present in its predecessor, namely a description of the equipment which it is the responsibility of the lessee to maintain, repair and replace. That absence was the subject of evidence from Simon Quick, solicitor for the plaintiff/respondent in relation to what was then the impending purchase of the freehold and leasehold interest in the filling station by the defendant/appellant from Eamonn Cosgrove. The trial judge dealt with the contention that Simon Quick deliberately left the second schedule to the lease blank in a way which makes it clear that, having heard the evidence, he was making a primary finding of fact. He stated:

  32. While I am satisfied that Mr Quick at all stages gave truthful evidence and responded to the best of his ability – the interval of time, the fact that both he and Mr Coote at different times were dealing with the matter and the introduction of the first schedule from the 1976 lease cast an element of frailty over some of his evidence. When asked in cross-examination as to whether he got instructions to waive the insertion of items in schedule 2 of the 1995 lease, his response was “from memory, I believe so” [....] I do not doubt the honesty of his belief, but I consider it to be a mistaken belief. The issue that caused delay in finalising the terms of the lease was ultimately what was to be contained in the second schedule. It seems improbable to me that having agreed on what was to be excluded from the tenant’s liability in clause 4.2 in June 1995 and the finalisation of the terms of the lease years later that two experienced solicitors would conclude the transaction without completing the second schedule to the lease or deleting it and all references to it in the text. If Mr Quick’s recollection is correct that he received a letter confirming that schedule 2 need not be detailed [....] and that is not the same as an express waiver or indeed an authority to give a waiver express or implied, a letter which was never located or discovered, it would mean that there was no liability other than the excluded items in clause 4.2 on the part of the tenant – but rather that all equipment other than excluded [equipment] was included in the tenant’s liability and that both parties knew or ought to have known or had the means of knowing what equipment was on site, neither considered its detailing necessary.

  33. On the plain terms of the lease, considered against the background of facts set out in the judgment of Smyth J and excluding negotiations, the construction that is inescapable is not that the lease is ambiguous but that the second schedule was not filled out in error. Whose mistake that was is, on the evidence, ambiguous and no finding was made on that point by Smyth J. What is inescapable, however, is that a general obligation of repair and maintenance is cast by the lease on the lessee in unmistakable terms through clauses 3.6 and 4.2. Were there to be a change from that and was it to be the case that the letter of 10th May, 2000 had been intended as a waiver, the reality remains that any such situation was rendered inconsistent with the indenture of sale of the leasehold interest and freehold of Eamonn Cosgrave to the defendant/appellant dated the 12th September, 2000.

  34. In argument, it has also been claimed that clause 4.2 should be considered in isolation. So considered, it is contended that it is ambiguous and ought, because the lease derived from and was drafted by the lessor, be construed contra proferentem. That doctrine traditionally derived in part from take-it-or-leave-it standard forms being foisted in some transactions on the other party to an agreement. The degree to which minds might truly be said to have met in such a situation and the repugnance of exclusion clauses that effectively denied the very service contracted for could also have motivated the courts in their approach to contracts that were drafted by one side to a bargain with minimal or no input from the other. But, for that rule of construction to be operative, some ambiguity has to be found in the term in question. Leaving something out is different to expressing something in an equivocal way. What is left out can alter a contract or can turn plain terms into puzzling ones. No term in a contract, however, is to be considered in isolation either from the background of facts that led to it and from the other terms that inform its meaning and context. The trial judge dealt in just that way with the contra proferentem argument:

  35. This is not a contra proferentem case. There was no confusion, the lessee was not to be liable for the items under clause 4.2, if everything was to be excluded that was no need for the limited list. Much debate arose at the hearing in which the defendant contended that the company had given a waiver in respect of the responsibilities of the lessee in respect of repair, replacement and maintenance of all fixtures, fittings and equipment in the letter of 10th May, 2000 or at the time of the statutory declaration of Eamonn Cosgrave. Altogether from the absence of any deed of release or a letter of waiver or any consideration therefore, such waiver as may be said to exist is in the nature of an absolution in respect of past events (unspecified) of non-compliance compliance with the lessee’s obligations under the 1995 lease. If there ever was a waiver, it was in respect of compliance in the past and retrospective in effect – not by way of any form of amendment to the lease to be of future effect. I am satisfied and find is a fact that there was no waiver given by the company in respect of the lessee’s obligations under the lease of 1995.

  36. It is not for the courts to recast the agreement of the parties. It is clear from the terms of the lease that there was a full repairing and maintenance obligation which was derogated from only in respect of particular equipment. That exclusion strengthens the construction that otherwise included all the fixtures, fittings and equipment in the demised premises.

  37. Estoppel

  38. The letter of 10th May. 2000 was, it is agreed, to be exchanged between all the relevant parties including the prospective purchaser of the leasehold and freehold interest of Eamonn Cosgrave; that is the defendant/appellant. In consequence, a representation therein waiving any legal rights of the parties would operate, in this particular context, as a representation that such legal rights as were declared by the lease were not operative. Here, the representation is claimed by the defendant/appellant to be that the entire responsibility in respect of all petrol reception from Maxol, as plaintiff/respondent, all petrol storage and pumping together with the operation of the sale to customers on the forecourt was to be that of Seán Murphy. It is to be noted that this individual is not party to these proceedings, a situation with which both sides to this appeal appear content. The letter does not reasonably bear that meaning. Hence the argument as to estoppel must fail.

  39. Modern application of the law on estoppel tends to take into account developments in the case law which have resulted in that defence being capable of application in a way more in accordance with an appropriate review of the balance of equities in a given situation. An appropriate statement is set out in Snell’s Equity, 32nd Ed., (London, 2010) at para.12-009 thus:

  40. Where by his words or conduct one party to a transaction freely makes to the other a clear and unequivocal promise or assurance which is intended to affect the legal relations between them (whether contractual or otherwise) or was reasonably understood by the other party to have that effect, and, before it is withdrawn, the other party acts upon it, altering his her position so that it would be inequitable to permit the first party to withdraw the promise, the party making the promise or assurance will not be permitted to act inconsistently with it.

  41. Adopting that formulation, there is nothing in the letter of 10th May, 2000 which either clearly, or at all, represents that the obligation of lessee and his assignee as set out in various clauses in the lease, but most particularly in clauses 3.6 and 4.2 as quoted above, will not henceforth be relied upon. Furthermore, that letter should be read in its context because within that context its meaning becomes clear. Several sub-lettings had been made by Eamonn Cosgrave without the permission of the plaintiff/respondent as lessor. Anyone considering investing a great deal of money in the purchase of the leasehold and freehold interest that the petrol station would need to be assured between the parties to the lease, namely Eamonn Cosgrave and the plaintiff/respondent, that the lessor would not act so as to upset the business relationships that had been put in place and upon which the value of that purchase depended. Hence, it is not only the petrol selling and pumping operation of Seán Murphy that comes into question, and on which reassurance is given in an unequivocal way, but also the shop, the office and the supermarket, the restaurant in respect of which assurance is given as to the validity of the existing arrangements.

  42. It is also argued that an estoppel arose by virtue of the conduct of the plaintiff/respondent, through Maxol maintaining the relevant equipment during the time when Seán Murphy was in occupation. The trial judge was satisfied that while the company supplied petrol to Mr. Murphy to sell at the service station, at no time “did it have any privity of estate or contract pertinent to the demised premises with him”. The only privity of contract that existed between the company and Seán Murphy is that referable to the supply of petrol. In the view of Smyth J the company was not estopped from maintaining its action against the defendant/appellant under the lease, even if “the letter of 1998 superseded by subsequent correspondence and events or the arrangement for the supply of petrol to Mr Murphy or by the defendant voluntarily (and for no stated consideration received) over some years effectively doing what ought contractually have been done by the defendant.” Smyth J did not accept the evidence that the plaintiff/respondent represented by words or conduct to the defendant/appellant or Mr Cosgrave that the defendant/appellant as lessee “was exonerated from compliance with all and every obligation of the lessee under the lease”.

  43. Estoppel can also arise by virtue of an assumption shared by parties. Such an assumption must not only be shared but, if not founded on a representation, it must also be based on conduct which establishes an objective state of affairs whereby the party otherwise bound by the legal relations is placed in circumstances whereby it is understood that a new state of affairs governs the relations between the parties. This clearly requires some action or behaviour or representation by the party who is to be bound by the new state of affairs. A waiver of legal obligations through estoppel cannot be based on a party jumping to a conclusion about matters, with no foundation in the behaviour of the party whose rights in law are to be estopped. Estoppel cannot arise from a bare assumption. Estoppel is based either on representations or on situations of behaviour that, reasonably construed, clearly withdraw, or alter, the strictures of legal obligations in such a way that it would be unfair to later enforce these. Where the matter is one of representation, it should be easy to identify the legal term supposedly altered and the representation directed in this regard. Where it is a matter of both parties proceeding on the basis of a common understanding, the mutual convention of the parties may suffice. That, however, depends on an analysis of the conduct of the parties and of their understanding of the situation as founded thereon. If estoppel is to operate to override legal rights, it is because of that common understanding. In Treitel’s The Law of Contract, 13th Ed. (London, 2011) at 3.094 the learned editor sets out the law thus:

  44. Estoppel by convention may arise where both parties to a transaction "act on an assumed state of fact or law, the assumption being either shared by both or made by one and acquiesced in by the other". The parties are then precluded from denying the truth of that assumption, if it would be unjust or "unconscionable" to allow them (or one of them) to go back on it. Such an estoppel differs from estoppel by representation and from promissory estoppel in that it does not depend on any "clear and unequivocal" representation or promise. It can arise where the assumption was based on a mistake spontaneously made by the party relying on it, and acquiesced in by the other party, though the common assumption of the parties, objectively assessed, must itself be "unambiguous and unequivocal".

  45. A similar analysis was carried out by the Supreme Court in Courtney v McCarthy [2008] 2 I.R. 376, resulting in the granting of an order of specific performance for the sale of a house. In that case, however, there was in fact the clearest possible representation that legal rights were to be held in abeyance in relation to the closing of a sale of a property.

  46. There is no such situation here or anything that might found an estoppel by convention. There is nothing, further, in the correspondence or actions of the parties upon which an estoppel based on convention might be found.

    Indemnity clause

  47. The relevant indemnity clauses, lessee to lessor, are those set out above and appear in clauses 3.27 and 4.9 of the lease. In addition, the indenture of 12th September, 2000 reaffirmed the obligations of the purchaser pursuant to that lease. Clause 3.27 covers personal injury and damage to property arising out of the state of repair or condition of the premises, alterations, user apart from the tenant, any work carried out and anything projecting from the premises. Clause 4.9 adds nothing to that, in that it requires the lessee to indemnify the lessor from all claims arising “in respect of damage or injury to persons or property arising  .... from the construction, maintenance or use of the  .... premises or any of the equipment .... therein ....” This indemnity is expressed to operate “notwithstanding that all or any part .... shall have been constructed or brought upon the .... premises with the approval or under the direction or supervision of” the lessor, the plaintiff/respondent.

  48. The plaintiff/respondent claims as lessor that fault in regard to the leakage of petrol occurring is irrelevant; that the indemnity covers any occurrence which results in damage to property; and that upon such damage, no mater where the fault lies, the defendant/appellant must pay. That depends, however, on the construction of the relevant clauses and, in this case in particular, where the fault lies for the leakage.

  49. There was no dispute among the parties as to the proper approach to the construction of an indemnity clause. The relevant principles derive from the opinion of Lord Morton in the Privy Council decision in Canada Steamship Lines Limited v The King [1952] AC 192 at 208 where he summarised the “duty of a court in approaching the consideration of such clauses” thus:

  50. (1)

    If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called “the proferens”) from the consequence of the negligence of his own servants, effect must be given to that provision. Any doubts which existed whether this was the law in the Province of Quebec were removed by the decision of the Supreme Court of Canada in The Glengoil Steamship Company v Pilkington. [16 (1897) 28 S.C.R. (Can.) 146]

    (2)

    If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens in accordance with article 1019 of the Civil Code of Lower Canada: “In cases of doubt, the contract is interpreted against him who has stipulated and in favour of him who has contracted the obligation.”

    (3)

    If the words used are wide enough for the above purpose, the court must then consider whether “the head of damage may be based on some ground other than that of negligence,” to quote again Lord Greene in the Alderslade case. [[1945] K.B. 189, 192] The “other ground” must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification, which is no doubt to be implied from Lord Greene’s words, the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants.

  51. These principles were derived from cases where one party sought to exclude the liability of another. The decision cited in that judgment is that of Lord Greene MR in Alderslade v Hendon Laundry Limited [1945] K.B. 189, 192 as follows:

  52. Where the head of damage in respect of which limitation of liability is sought to be imposed by such a clause is one which rests on negligence and nothing else, the clause must be construed as extending to that head of damage, because it would otherwise lack subject-matter. Where, on the other hand, the head of damage may be based on some other ground than that of negligence, the general principle is that the clause must be confined in its application to loss occurring through that other cause, to the exclusion of loss arising through negligence. The reason is that if a contracting party wishes in such a case to limit his liability in respect of negligence, he must do so in clear terms in the absence of which the clause is construed as relating to a liability not based on negligence

  53. The Canada Steamship principles were recently discussed by the Court of Appeal of England and Wales. In MIR Steel UK Limited v Morris [2012] EWCA Civ 139 Rimer LJ, having reviewed earlier U.K. authorities on those principles (in particular HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 2 Lloyd’s Rep. 61), commented at para. 35:

  54. Those various comments about the Canada Steamship principles show that they should not be applied mechanistically and ought to be regarded as no more than guidelines. They do not provide an automatic solution to any particular case. The court’s function is always to interpret the particular contract in the context in which it was made.

    And this must be correct. Approaching the Canada Steamship principles as guidelines, and starting with the question of whether the clauses are sufficient to exempt the lessor should the lessor be the origin of the wrong, it is clear that express and clear words are required in that regard. These are absent. One turns then to the second question which is whether the wrong of not inspecting the cap and valve, not noticing that these would be better replaced and not generally maintaining the equipment is the wrong of the plaintiff/respondent as lessor or of the defendant/appellant as lessee?

    Contributory liability

  55. Section 34 of the Civil Liability Act 1961 provides:

  56. (1)

    Where, in any action brought by one person in respect of a wrong committed by any other person, it is proved that the damage suffered by the plaintiff was caused partly by the negligence or want of care of the plaintiff or of one for whose acts he is responsible (in this Part called contributory negligence) and partly by the wrong of the defendant, the damages recoverable in respect of the said wrong shall be reduced by such amount as the court thinks just and equitable having regard to the degrees of fault of the plaintiff and defendant: provided that—

    (a)

    if, having regard to all the circumstances of the case, it is not possible to establish different degrees of fault, the liability shall be apportioned equally;

    (b)

    this subsection shall not operate to defeat any defence arising under a contract or the defence that the plaintiff before the act complained of agreed to waive his legal rights in respect of it, whether or not for value; but, subject as aforesaid, the provisions of this subsection shall apply notwithstanding that the defendant might, apart from this subsection, have the defence of voluntary assumption of risk;

    (c)

    where any contract or enactment providing for the limitation of liability is applicable to the claim, the amount of damages awarded to the plaintiff by virtue of this subsection shall not exceed the maximum limit so applicable.

  57. The indemnity clauses do not “operate to defeat any defence arising under a contract”, within the meaning of s. 34(1)(b) unless that the wording is sufficiently wide to exonerate the plaintiff/respondent as lessor, and as supplier of the petrol under the guise of Maxol, from negligence. The clause is not so widely drafted. It deals instead with liability in respect of third parties suffering damage. The probable intention of the drafter of such a clause would normally be to ensure that the occupier under the lease would have the entire responsibility for everything that might go wrong on the premises leading to damage to third party property or persons. Any actions resulting were to be the sole responsibility of the defendant/appellant as lessee. What is required under s. 34 of the Act of 1961 is an apportionment of liability that is just and equitable having regard to the degrees of fault between the parties, which apportionment is to be equated with blameworthiness and not to the potency of the causative factors moving from each side; see the judgment of Walsh J in Kelly v Jameson (Unreported, Supreme Court, 1st March, 1972). This is to be weighed according to what a reasonable person would have done in the circumstances, of how the parties each contributed to the happening of the accident; see the judgment of Kenny J in Carroll v Clare County Council [1975] IR 221 at 227.

  58. Having heard the evidence, the degree to which the plaintiff/respondent as lessor was accessing the manhole in question, the level of knowledge about the condition of the state therein of the cap that eventually corroded and sprung a leak, the detectability of the problem, and the corresponding primary duty of the defendant/appellant under the lease become important. Here, any liability as against the plaintiff/respondent is disputed on the basis of the neighbour principle, that knowing of the condition of the manhole through accessing it in the course of inspections, being aware as well that gunmetal would be better in substitution for an aluminium alloy cap, there was a duty to warn the lessee, the defendant/appellant. In the light of the findings of fact of the trial judge, that case is very difficult to make out:

  59. Mr Murphy’s role from the mid-1990s was as a seller of petrol and operator (personally or through his employees) of the pumps. Whatever needed to be done above that he left to Maxol [the lessor] – who it would appear through from self-interest maintained the installations even if the legal liability for same rested elsewhere [....] Mr Murphy – although a businessman who very modestly expressed his offsite interest as “I do a bit of buying and selling property” [....] – did not know exactly what profit he made from the sale of petrol [....]

    There is no evidence of any smell that might have been attributable to the leakage causing concern until early December 2002. The witness dealt with elements of maintenance of the pumps – that is the defendant’s witness – which have dealt one way rather than another would or might have revealed the corrosion of the valve: the fact that of different methods of maintenance one [of these] would (in the event that happened) been preferable does not mean that the method used was improper or negligent.

    More importantly, he confirms that at any stage it was [not] possible to reconcile what had been put into the tanks with what remained in the tanks so as, by deduction, to ascertain what quantity had escaped, the vapours from which caused the pollution complained of. In my judgment, this exercise is one that common sense suggests could and should have been carried out by the person who bought the petrol and sold it. I found it difficult to accept Mr Murphy’s evidence from a businessman, not only did he not check purchases and sales of petrol, but said he did not distinguish petrol sales from shop sales.

    Taking a conspectus view of the evidence as a whole, I am satisfied that as a matter of probability that the valve cap alloy corroded over a period of time unspecified and an ascertainable with precision and that the leakage and the migration of the pollution occurred over an undefined period of time before early December [2002] but was so miniscule as to be undetectable by instrument until mid-January 2003 and that the fans in the restaurant probably drew in the fumes so that they [became] detectable.

    Mr Henry said in evidence:

    The thing that most concerned me on this site was that nobody appreciated where the stock was and in my experience that is the most risky way to run a petrol filling station, to not be aware of how much product there is in the tank and what has been sold. That is the most concerning thing to myself. We do not know how much product was lost to this day.

    [....]

    He went on to say that he would expect the person to do this task would be the person running and operating the pumps, and that it would be a fair expectation that such person would be taking regular “dips” such as would lead to an appreciation that the leak was manifest before 13th January 2003. By the evidence established that Mr Murphy had no specific training and maintenance operation of the pumps or garage business this, in my judgment, is no defence to the obligations of the defendant or to the absence of taking stock of what he was buying and selling by the operator. While some expertise might have been required to appreciate the refinements of the mechanisms, knowing what was in stock and checking its sale is ordinary business practice and calls for no more than common sense and simple exercise in business practice.

    Much debate and discussion occurred at the conclusion of the evidence concerning the legal principles applicable. In this regard I am satisfied and find as a fact that:

    1.

    The obligations set out under the lease never left the lessee and that he was responsible in accordance with the terms of the lease for all equipment, fixtures, fittings and so forth save such as were excluded by clause 4.2.

    2.

    That the company [the lessor], through being aware of debris, timber, residual elements of cement in the chamber and the various visitations to check out the equipment in the 1990s must bear some responsibility also for the events that occurred. While accepting that the primary liability rests upon that of the lessee, the company [as lessor] cannot be wholly excused from sharing a percentage of the liability in respect of the events that have occurred. In my judgment the apportionment of liability should rest at 60/40 – 60 in respect of the lessee, 40 in respect of the company [the lessor].

  60. Once there was evidence upon which the trial judge could reach these conclusions, is not for the Supreme Court on appeal to interfere even if the preponderance of evidence might seem in the face of the transcript to have gone the other way; Hay v O’Grady [1992] 1 IR 210.

  61. Clear evidence would be required for the devolution of responsibility of the lessee to repair a demised premises to be countered by an assumption of responsibility. Such a situation might arise where notwithstanding a covenant to repair, a lessor had become aware of the situation which if not rectified might lead to damage to the demised premises and where the lessor then neglected to inform the lessee of the situation. The facts as set out before the trial judge in this case were wholly exceptional. According to the evidence, this site was treated for all practical purposes as one owned by Maxol, through the lessor. For several of the years prior to the spillage of petrol, Maxol inspected the premises and all of the equipment. This was not simply the inspection by a landlord to see whether or not some communication might be made to the tenant, for instance as to the obligations of the tenant. Rather, equipment was replaced as and when it appeared to be necessary and there was nothing before the trial judge to indicate that, in accordance with the lease, a bill for repairs was ever furnished to the lessee. The primary evidence, in this regard, came from Mr J Brett, who was the project manager of the lessor. For no reason that could be regarded as being consistent with the repairing obligation under the lease, as has been previously detailed, trial holes were drilled in and around the petrol station in December 2002. Prior to that, the indications on the evidence were that there were yearly inspections and repairs. The actual physical condition of the manhole in question was described by him thus: “we found the chamber to be covered in water and concrete, boardings from builders’ muck, that sort of thing.” That situation, describing the manhole as it appeared after the spillage of petrol, was such that it could reasonably and probably have been expected to have prevailed over a number of years and certainly back to 1998 when there was a general inspection and repair by the lessor. Counsel for the lessee and Mr Brett and the following exchange a trial:

  62. Q.

    On the aspect we are dealing with here, [the site] was treated no different than any other Maxol company-owned site in relation to the maintenance, the reviews, the inspections certifications carried out by Maxol on the site, is that not correct?

    A.

    I cannot speak for this document. Yes, I do agree that it was treated as part of the maintenance contract.

    Q.

    You came to court to give evidence in relation to what your company did in relation to the Singland site. So I presume you are aware of who was carrying out the maintenance on whose instructions on this site?

    A.

    It was carried out by RPS on Maxol’s instructions.

    Q.

    Who was invoiced for all of the maintenance and all of the inspections carried out and all of the works carried out in relation to this site?

    A.

    I assume Maxol.

    Q.

    Was Mr Cosgrave ever invoiced by you?

    A.

    No.

    Q.

    Not you personally, but Maxol for carrying out any maintenance, any inspections, any repairs, any monitoring of the equipment in relation to – and I am only talking about the garage, forget about all the rest of us, was he ever invoiced?

    A.

    I have no idea, it would not be part of my brief. Whatever arrangement would be made between the retail people and Mr Cosgrave would not come down to me.

    Q.

    Absolutely, I’m sure I will be corrected in this, but I have gone through all the vast discovery furnished, there is not one invoice for the carrying out of, repair or maintenance by Mr Cosgrave, not one instruction given by him to anybody in relation to carrying out maintenance or repair. At all times what resume of maintenance, what type of maintenance and testing was carried out at all times by Maxol under the instructions of Maxol and Maxol invoiced for, isn’t that correct?

    A.

    I cannot state that. What I can state is that all of the testing and all of the work was done by Maxol and organised by my colleagues and myself .... The reason for it was insurance, health and safety and that was the reason White Young Green was brought in to test the sites.

    Q.

    You had insurance on this site, did you not?

    A.

    Yes.

    Q.

    You still have insurance on this site in relation to it?

    A.

    I assume so, yes.

    Q.

    If you say, Mr Brett, that the obligation was on Mr Cosgrave why are you carrying the insurance on this site?

    A.

    Not my brief.

  63. There was also evidence that there was certification in relation to storage tanks, pipework, relevant pumps and wiring to comply with the Dangerous Substance Regulations, in 1991. Mr Brett explained that this was due to responsibility cast by legislation on the supplier of petrol. Nonetheless, the evidence was that in 2001 the professional firm involved in this process reported to Maxol in this way: “recommend re-piping at site.” In addition, Mr Richard Henry gave evidence on behalf of the lessee that, on the basis of his experience, the cap had failed due to what was in the manhole. That process was described as chemical in nature. The particular cap in question is related to the cause of the petrol failure which he described as follows:

  64. It appeared to have suffered from serious corrosion from my judgment externally .... It means that the metalwork had been broken down by a process of probably sulphation, maybe as a result of impact of groundwater .... Groundwater in manhole chambers is very common .... It is made of aluminium alloy .... These valves are very commonly in use, the body of the valve is made of gunmetal and these caps were of an earlier design made by aluminium alloy, there were withdrawn from production in 1991 and replaced with a gunmetal cap. The valve – these particular caps, the earlier ones, the alloy ones were particularly susceptible and vulnerable to corrosion .... I think we were generally aware that this valve cap was vulnerable. For my own part we made sure that we changed them on sites that we were involved in .... It had obviously been deteriorating in its condition for some time, it may have been five or 10 years, but I would be assuming that, I have no knowledge of the actual acidity or otherwise of the groundwater .... The job of this valve as to hold the line full of petrol to feed the pump, then in order to safely remove the pump and change it in normal practice the cap would be removed, the valve would be opened and the line would be drained back to the tank prior to work commencing on the pump.

  65. The trial judge characterised the times at which he would have expected this to have been done as being in 1994 and 1998.

  66. This was a case where there was the assumption of the responsibility of the lessee by the lessor in circumstances where for several years, to the knowledge of the lessee, the lessor was inspecting, repairing and replacing the equipment that was under the covenant to repair and making no reference to the lessee that the lessor was instead insuring the premises as if it was entirely the responsibility of the lessor. There was a complete absence of communication by the lessor as to what might occur when the relevant equipment began to be upgraded as a matter of general practice from 1991. Unlike the division of responsibilities characterised in clear language in the lease, the lessor had never insisted on repairing and passing on expense to the lessee. Nor was the lessee either informed of any problem or potential problem. Counsel for both sides have agreed on this appeal that in the particular context of this factual matrix it was correct for the trial judge to proceed to an apportionment of liability. There was sufficient evidence upon which the trial judge could have come to the conclusion as to the division of fault which he did and there is therefore no basis upon which that might be reviewed.

    Result

  67. In the result, the judgment of Smyth J is upheld in full both as the reasoning of the trial judge and the result arrived at by him.


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