In Polyaire Pty Ltd v 167 Prospect Highway Pty Ltd [2026] NSWCA 79, the Court (Payne JA, Leeming and Mitchelmore JJA agreeing) dismissed an appeal from a decision which held that a tenant of a commercial property was required to indemnify the lessor for $15m in loss and damage after a fire, caused by an "aqua lens" igniting materials stored outside, destroyed the property and an adjoining property.
Case background
In August 2014 Polyaire entered into a lease for a warehouse at 167 Prospect Highway, Seven Hills. The warehouse and an adjoining warehouse was owned by 167. In November 2018 Polyaire stored air conditioning unit components on pallets on the hardstand in the open air. The components were packed with cardboard and covered by transparent plastic sheets. When it rained the water pooled in depressions in the plastic creating an "aqua lens". When the sun shone through the lens at the right angle, the light rays concentrated on the cardboard, and that coupled with a slight breeze caused the cardboard to ignite and the subsequent fire destroyed the premises and the adjoining warehouse. In November 2022 167 commenced proceedings against Polyaire seeking damages of $13.1m plus interest and costs on the basis that it was responsible under the lease for damages for the destruction of the two premises as a result of the fire. In October 2025 the primary judge's decision concluded that Polyaire was liable to indemnify 167 under the lease for damage to both properties. Polyaire appealed. The Court dismissed the appeal.
The Indemnity
The obligation to indemnify bore its ordinary meaning of subjecting the tenant to an obligation to make whole the landlord for specified classes of loss, a typical class of indemnity. In its widest sense an indemnity is a contract obliging one to make good the loss suffered by another and can include the indemnified party's own liability to the indemnifier (a "reflexive indemnity"). The indemnity in the lease was more akin to a "proportionate indemnity" and did not apply to that caused by the wilful act omission or neglect of 167. Doubt as to the construction of an indemnity is to be resolved in favour of the indemnifying party, but that doubt must remain after the ordinary principles of construction of commercial contracts have been deployed. Ultimately the Court upheld the primary judge's interpretation of the indemnity and rejected Polyaire's arguments that the true cause was the combination of water, sunshine, and a breeze, not mere storage sanctioned by the lease.
Reinstatement
The Court also upheld the primary judge's findings that "reinstatement" was not limited to repair but encompassed reconstruction of the warehouse entirely, express contractual clauses excluded the implied covenant in s 84(1)(b) of the Conveyancing Act 1919 (NSW), and the obligation to "keep and maintain" the premises in the same condition and state of repair at the commencement of the lease did not encompass an obligation to reconstruct the premises.