JB Northbridge Pty Ltd v Winners Circle Group Pty Ltd

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.

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