Supreme Court New South Wales Medium Neutral Citation: JB Northbridge Pty Ltd v Winners Circle Group Pty Ltd [2014] NSWSC 950 Hearing dates: 10 July 2014 Decision date: 17 July 2014 Jurisdiction: Equity Division - Expedition List Before: Rein J Decision: See [22] Catchwords: EQUITY - Leases - Assignment - Construction of a lease - Consent to assignment - Refusing consent to assignment - Preconditions to assignment Legislation Cited: Conveyancing Act 1919 (NSW) Cases Cited: American Dairy Queen (Q) Pty Ltd v Blue Rio Pty Ltd (1981) 147 CLR 677 Creer v P&O Lines of Australia Pty Ltd (1971) 125 CLR 84 JDM Investments Pty Ltd v Todburn Pty Ltd [2000] NSWSC 349 Price v Perpetual Trustee (1955) 72 WN (NSW) 290 Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205 Category: Principal judgment Parties: JB (Northbridge) Pty Ltd (Plaintiff) Winners Circle Group Pty Ltd (Defendant) Representation: Counsel: T M Faulkner (Plaintiff) S B Docker (Defendant) Solicitors: William James (Plaintiff) Kemp Strang Lawyers (Defendant) File Number(s): 2014/107158 Publication restriction: Nil Judgment 1These proceedings concern a lease of commercial premises at 45-51 Main Street, Blacktown. The Lessee has been conducting a licensed hotel at the premises but following default in its arrangements with St George Bank, the bank appointed receivers and managers to the hotel business. Subsequently the Lessee was placed in liquidation. The lease permitted exercise of a renewal option and the option has been exercised. The validity of the exercise was contested in earlier proceedings but this Court ruled that the Lessee was entitled to a renewed lease and in January 2014 this year that new lease was registered. 2The receivers and managers wish to sell the business including, as part of that sale, the Lessee's leasehold interest. Disputes have arisen between the Lessor and the Lessee (acting through the receivers and managers) as to the requirements of clause 4 of the lease which deals with assignment. The Lessor has lodged a caveat to protect its right and the Lessee has sought to have the caveat removed. The proceedings commenced as an application by the Lessor for extension of a caveat and there were questions about whether the caveat could or should be maintained which no longer need concern the Court since the parties have agreed that undertakings will be given by the Lessee and that it has been accepted will obviate the need for continuation of the caveat. 3I set out the relevant parts of clause 4 of the lease (which lease is found at Tab 4 of Exhibit A1): 4.5 No Assignment The Lessee shall not during the continuance of this Lease assign or transfer the Lessee's interest in the Premises or this Lease or by any act or deed procure any assignment or transfer, except in accordance with the terms of this Lease. 4.6 Assignment 4.6.1 This Lease may be assigned or transferred if the Lessee requests the Lessor's consent to the assignment or transfer of this Lease in writing and shall furnish with that request: 4.6.1.1 information regarding the financial resources and financial standing and the business experience and retailing skills of the Ingoing Tenant; 4.6.1.2 particulars of the use of the Premises intended by the Ingoing Tenant; 4.6.1.3 confirmation that the Lessee has complied with paragraph 4.6.2 of this clause. 4.6.2 The Lessor is entitled to withhold consent to the assignment or transfer of this Lease in any of the following circumstances: 4.6.2.1 if the Ingoing Tenant proposes to change the use to which the Premises are put (unless the Lessor consents to the change of use); 4.6.2.2 if the Ingoing Tenant has financial resources and retailing skills that are inferior to those of the Lessee; 4.6.2.3 if the Lessee has failed to comply with the provisions contained in this clause for requesting and obtaining consent to the assignment or transfer. 4.6.3 If requested by the Lessor, the Lessee shall furnish to the Lessor such further information as the Lessor may reasonably require concerning the financial standing and business experience of the Ingoing Tenant. 4.6.4 The Lessor agrees to deal expeditiously with the Lessee's request for consent to assign or transfer this Lease. 4.6.5 The Lessee shall pay the Lessor's costs of and incidental to the giving of its consent. 4.6.6 Despite the present terms of this Lease the Lessor may require from the Ingoing tenant personal guarantors (as provide for in clause 19) or the provision of a Bank Guarantee for 6 months Rent (as provide for in clause 20). 4.6.7 If the Lease is assigned or transferred in accordance with this clause then, provided a suitable guarantee or Bank Guarantee is furnished to the Lessor by the assignee or transferee, the Lessor shall return the Lessee's Bank Guarantee. 4The only other term of the lease which may bear on the present dispute is found as part of clause 1.12: In the event of ambiguity all of the covenants clauses and words in this Lease shall be construed to widen and not restrict the powers rights and remedies of the Lessor. 5At the commencement of the hearing Mr T M Faulkner, counsel for the plaintiff, and Mr S B Docker, counsel for the defendant, agreed that the issues which need to be determined are whether, as a matter of construction of the lease: (1)The Lessor's positive consent is required by clause 4; (2)Clause 4.6.2 sets out the only reasons which would permit the Lessor to refuse consent; and (3)A requirement by the Lessor that the assignee provide a personal guarantee or bank guarantee as specified in clauses 19 and 20 of the lease respectively is a precondition to assignment of the lease to an assignee. 6Reference has been made in submissions to s 133B(1)(a) of the Conveyancing Act 1919 ("the Act") so I set out that subsection: 133B Covenants against assigning etc "(1) In all leases whether made before or after the commencement of the Conveyancing (Amendment) Act 1930 containing a covenant, condition, or agreement against assigning, underletting, charging, or parting with the possession of demised premises or any part thereof without licence or consent, such covenant, condition, or agreement shall, notwithstanding any express provision to the contrary, be deemed to be subject: (a) to a proviso to the effect that such licence or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the lessor to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with such licence or consent, and..." 7I received detailed and helpful written submissions from Mr Faulkner and Mr Docker and they expanded on those submissions in the course of the hearing on Thursday. The matter has been expedited and the parties' solicitors and counsel have diligently worked to ensure that the Court was provided with the Court Book and submissions by the required time. 8In relation to [5](3) above, in the course of oral submissions and on further reflection, Mr Docker conceded that the provision is a precondition. In my view that concession was appropriately made. Is the Lessor's positive consent required? 9As Mr Docker emphasised, clause 4 does not expressly state that the Lessor's consent is required to an assignment. However, Mr Faulkner pointed out that clause 4.6.2 speaks of the Lessor being entitled to "withhold consent", 4.6.1 speaks of the Lessee requesting "the Lessor's consent", 4.6.3 requires the Lessor "to deal expeditiously with the Lessee's requests for consent to assign". These subclauses and the requirement that the Lessee provide information about the financial standing and skills of the proposed assignee compared to the Lessee, and the proposed use of the property, the ability of the Lessor to seek further information on the financial standing and business experience of the proposed assignee and a requirement that the Lessee pay for the Lessor's costs of considering the information provided, all point, in my view, to the Lessor's consent being required if assignment is to occur. Mr Faulkner accepted that in exercising its decision on whether to give consent or not, based on the financial and business experience material provided, the Lessor must act reasonably. No argument was addressed on the question of changed use, and I think it was accepted that the landlord is entitled to refuse consent if the proposed use in fact involves a change from the current use permitted by the lease. 10Mr Docker's contentions on this point had the following components: (1)The right of a tenant to assign its interest in a lease is at common law an incident of every leasehold interest (subject to presently irrelevant exemptions): American Dairy Queen (Q) Pty Ltd v Blue Rio Pty Ltd (1981) 147 CLR 677, at 683; Creer v P&O Lines of Australia Pty Ltd (1971) 125 CLR 84 ("Creer") at p 91 per Windeyer J with whom Owen J and Gibbs J agreed. (2)The right to assign can be negatived by an express clause in the lease. (3)Covenants against assignment are construed strictly against the landlord because they restrict the common law right. (4)Assignment in breach of a covenant not to assign without consent can lead to forfeiture of the lease. (5)Clauses which do not give the landlord scope for real or effective consent are not affected by s 133B(a) of the Act. (6)The information required by 4.6.1 was to be supplied by the Lessee (and if any further information was sought pursuant to 4.6.3 then that also was to be supplied) and thereafter there was no decision to be made by the Lessor. The Lessor was required to assign and the question of whether the information was sufficient was a matter of objective fact not to be determined by whether the Lessor was acting unreasonably in refusing consent. He contended that the draftsmen of the lease had been careful not to specify that the Lessor had the right to consent or not because of a concern that to do so would have brought into play s 133B. (7)Consent of the landlord is therefore not required and the Lessor's argument requires the implication of a term requiring the Lessor's consent to the assignment, which term ought not be implied. Mr Faulkner, I should note, eschewed any assertion of an implied term. 11Mr Docker made reference to Creer, Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205 ("Tamsco") at [47]-[48] per Young CJ in Eq; JDM Investments Pty Ltd v Todburn Pty Ltd [2000] NSWSC 349 ("JDM") [25]-[30] per Hamilton J; and Price v Perpetual Trustee (1955) 72 WN (NSW) 290 ("Price") at 290-291. 12In Creer the High Court had to consider whether a lessor has unreasonably withheld consent to assignment of a lease where the lease, by a proviso to the assignment, required the lessee prior to seeking consent to offer to surrender the lease, which it had not done. Windeyer J, with whom Owen and Gibbs JJ concurred, held that the lessee's failure to meet the requirement of the proviso precluded reliance on the need for consent not to be unreasonably withheld. The proviso, his Honour held: "qualifies what has gone before. It does so by precluding a condition which must be fulfilled before an assignment pursuant to the clause is permissible". Barwick CJ agreed with that conclusion saying: "The words were not intended to import a condition on which consent will be granted". 13In the course of his judgment in Creer Windeyer J observed in relation to s 133B that it imposes a proviso that consent to an assignment is not to be unreasonably withheld and that the parties cannot restrict its operation: "by stipulation as to what shall be deemed reasonable or unreasonable". 14Mr Docker then referred to Tamsco. I had rather understood him to regard the case as supportive of the defendant's position (see para 21 of his written outline of submissions) but in the course of oral argument he contended that what had been said by Young CJ in Eq (as his Honour then was) at [48] was inconsistent with Creer, and therefore erroneous. 15I do not read the words of Windeyer J as dealing in any way with the present problem. I cannot accept that by specifying particular matters which the Lessee must address when seeking consent to an assignment (all of which Mr Docker conceded, I might add, were reasonable) the lease thereby contains a stipulation as to whether the withholding of consent will be unreasonable in an attempt to oust the effect of s 133B. I reject the proposition that Tamsco is inconsistent with Creer, and I agree with respect, with what Young CJ in Eq said at [48]. 16In JDM the lease had a provision for assignment which set out conditions that had to be met for an assignment under the lease. Hamilton J concluded at [36] that, as a matter of construction, if those conditions were met no question of consent arose except when the proposed assignee was a corporation. The clause is in very different terms to that contained in the present clause. JDM demonstrates that a clause can be drafted to exclude the need for a landlord's consent and see Tamsco at [47]. 17In Price, the Court of Appeal (Street CJ, Roper and Herron JJ) held that on the short form wording deemed by s 86 of the Act to be part of the lease in question the landlord was required to accept an assignment and could not refuse if certain criteria were met with the consequence that to succeed in establishing a breach by the lessee having assigned the lease to the Public Trustee the onus was upon the lessors to establish that the criteria had not in fact been met. The clause imposed by the Act was very different in terms to that in question here. 18None of the cases to which Mr Docker refers lead me to doubt that clause 4 requires that the Lessor's consent must be forthcoming before an assignment can be made to a proposed new lessee. 19It follows that I am unable to accept that the draftsman of the lease was seeking to avoid the impact of s 133B, and that I do not accept that the landlord's consent is not required for an assignment to a new lessee. Can the Lessor withhold consent for reason other than non-compliance with clause 4.6? 20Mr Faulkner contended that the absence of the word "only" in 4.6.2 before the phrase "in any of the following circumstances" means that this clause was specifying the minimum requirements to be met for consent but not specifying that the Lessor could not, even if acting reasonably, withhold consent on some other basis. 21The structure of clause 4 is as follows: (1)To preclude assignment by the Lessee except in accordance with the terms of clause 4 (clause 4 being the only clause dealing with assignment and transfer). (2)To specify in 4.6.1 that the lease can be assigned if the Lessor's consent is sought and the conditions of 4.6.1 are met. (3)To specify some other matters where notwithstanding compliance with 4.6.1-4.6.1.3 the Lessor may still be entitled to refuse consent. (4)To require the Lessor to consider the request expeditiously (clause 4.6.4). (5)To provide that the Lessor can insist on guarantees if it wishes. I read clause 4.6.1 as permitting the Lessee to assign if (a) the conditions of 4.6.1 are met and (b) none of the conditions for refusal of consent in 4.6.2 are met. The absence of the word "only" is not an impediment to that construction. I do not regard the clause as ambiguous so I do not need to consider the effect of clause 1.2. The clause is sufficiently detailed to lead to the conclusion, on a fair reading of it, that the parties objectively must have understood that the grounds upon which assignment or transfer of the lease could be refused were those specified in 4.6. Conclusion 22It follows that in my view the answer to (1) is yes; (2) is yes; and, by agreement, to (3) is yes. I will hear the parties on the form of the declarations to be made and on the issues of costs. ********** 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: 17 July 2014