JDM Investments Pty Ltd v Todbern Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1225/00 JDM INVESTMENTS PTY LIMITED (RECEIVER & MANAGER APPOINTED) (ADMINISTRATOR APPOINTED) v TODBERN PTY LIMITED

JUDGMENT His Honour: 1 These proceedings concern the right to assign a sub lease of premises ("the premises") which are part of the Super Centre at Hurstville ("the Hurstville Super Centre"). The sub lease expires on 28 May 2011. The leasing history of the premises is set out below. Some of the land on which the Hurstville Super Centre stands is under Torrens title, and some under old system title, so that some of the documents referred to are Torrens title documents, and some old system documents, but nothing appears to turn on this. The Leasing History 2 On 30 June 1961 the Commissioner for Railways (now the State Rail Authority - "the SRA") leased the Hurstville Super Centre to Super Centre Development Corporation Limited ("Super Centre") for the term of 30 years from 30 May 1981 ("the head lease"). The discrepancy of 20 years between the date of the head lease and the commencement of the term is not explained in the evidence, but all parties are agreed that the head lease, and the sub lease that falls for consideration, expire at the end of May 2011. By clause 22 the head lease prohibits assignment, subletting, etc, "without the consent in writing of the Lessor (such consent not to be unreasonably withheld)". The head lease was registered No 391 Book 2679. 3 By a sub lease dated 28 July 1964 ("the sub lease") Super Centre sublet the premises to W H Duffy (Holdings) Pty Limited ("Duffy") for a term commencing on 1 June 1981 and terminating on 28 May 2011. The rental reserved was $3,000 per annum. As I understand it, there was no provision for review of the rent, and the annual rental payable under this sub lease remains $3,000. The provision on which argument has centred in these proceedings is clause H.2 of the sub lease which is in terms following: " CLAUSE H.2 Assignment and Subletting. The Lessee shall not sublet, license, assign, transfer or part with the possession of the demised premises or any part thereof or the lease thereof or any estate or interest therein to any person BUT the Lessee may assign sublet license or transfer the whole of this lease if (i) The proposed assignee licencee or transferree [sic] or sublessee is a respectable, responsible, solvent fit and suitable person the onus of providing which shall be upon the Lessee. (ii) The Lessee procures the execution by such assignee or transferree [sic] or sublessee of any assignment or transfer or sublease of these presents to which the Company is a party in such form as the Company and its solicitors shall approve. (iv) [sic] All rent or other moneys then due or payable shall have been paid and there shall not then be any existing unremedied breach of the covenants, conditions and agreements herein contained but breaches which have been waived by the Company shall not be deemed to be unremedied breaches for the purpose of this sub-clause. (v) Such assignment or transfer or sublease shall contain a covenant by the assignee or transferree [sic] with the company that the assignee or transferree [sic] or sublessee will at all times during the continuance of the term hereby granted duly pay the rent and other moneys hereby reserved at the times and in the manner hereinmentioned and perform and observe all the covenants, conditions and agreements of this lease on the part of the Lessee to be performed and observed. (vi) Such assignment or transfer or sublease is approved by the Solicitors of the Company at the cost and expense in all respects of the Lessee. (vii) The Lessee pays to the Company all proper costs, charges and expenses incurred by the Company of and incidental to any proper and reasonable enquiries which may be made by or on behalf of the Company as to respectability, rsponsibility, solvency, fitness and suitability of any proposed assignee or transferee or sublessee. (viii) The consent in writing of the Commissioner for Railways is obtained and for he purposes of obtaining such consent the Lessee shall supply to the Commissioner particulars of the parties to, the premises the subject of, the term of, the consideration or rental to be paid for and other provisions of the proposed assignment, transfer, demise sublease or licence or agreement and shall within 7 days after the execution thereof deliver to the Commissioner an attested copy of such Deed or other instrument and of any plan or other instrument endorsed thereon or annexed thereto and the Lessee shall pay to the Commissioner a reasonable sum in respect of any legal or other expenses incurred in relation to such consent or approval. Where the proposed assignee or transferee is a corporation the Company may as a condition of its consent to such assignment or transfer require that the covenants contained therein by the assignee or transferee or sublessee shall be guaranteed by the Directors or principal shareholders of such company AND any change in the principal shareholding altering the effective control of the Lessee (if a company) shall be deemed an assignment of this lease and will require the consent of the Company as aforesaid."

The sub lease was registered No 868 Book 2741. 4 On 11 January 1983 Duffy assigned the benefit of the sub lease to Homestead Golden Chicken Pty Limited ("Homestead") (which has since changed its name to Lachlan Properties Pty Limited) ("Lachlan") for the consideration of $145,000. By deeds dated 21 October 1982 and made respectively between Duffy and the SRA and Homestead and the SRA, the SRA had consented to the assignment. On 4 April 1985 Super Centre assigned the benefit of the head lease including the reversionary interest in the sub lease to Todbern Pty Limited ("Todbern"). The document evidencing that is a transfer in respect of the portion of the Hurstville Super Centre under Torrens title. On 28 June 1991 Lachlan sublet the premises to Kentucky Fried Chicken Pty Limited ("KFC") by a deed which has been referred to as "the sub sub lease" for the term of five years commencing on 13 June 1991, with an option for renewal for a further term of five years. The contractual rental stipulated by the sub sub lease is $80,000 per annum. On 21 August 1992 Lachlan assigned its interest in the sub lease to JDM Investments Pty Limited. It is JDM Investments Pty Limited (Receiver and Manager Appointed) (Administrator Appointed) ("JDM") which is the plaintiff in these proceedings, and Todbern, as assignee of the benefit of the head lease, which is the defendant. 5 JDM holds the sub lease at a rental of $3,000 per annum, but is entitled to receive under the sub sub lease an annual rental of $80,000 or more. JDM is in administration. One of its few remaining assets is the sub lease. QSR Limited ("QSR") is a public company which has issued a prospectus to raise capital for the purpose of acquiring a number of KFC outlets. It appears that it will be amply funded for that purpose. KFC has indicated that it is prepared to grant an outlet licence to QSR to permit it to operate the KFC business conducted in the premises. QSR has offered JDM $350,000 for its interest in the sub lease, which offer JDM desires to accept. 6 The complex leasing transactions may be represented diagramatically as follows:

SUPER CENTRE TODBERN (4) assignment 04/04/85 (2) the sub lease 28/07/64

DUFFY HOMESTEAD/ LACHLAN JDM (3) assignment (6) assignment 11/01/83 21/08/92 (5) the sub sub lease 28/06/91

(7) option exercised 21/11/97

History of Consent of SRA to Transactions 7 In relation to transaction (2), being the sub lease, that document has endorsed on it a consent of the SRA (then the Commissioner for Railways) to the sub lease under the common seal of the Commissioner for Railways. In relation to transaction (3), the assignment from Duffy to Homestead/Lachlan, in recitals C(iii) and D it was recited that by deeds dated 21 October 1982 the SRA consented to the assignment of the benefit of the lease by Duffy to Homestead/Lachlan. In relation to transaction (4), the assignment of the benefit of the lease by Super Centre to Todbern, I have already noted that the document that is in evidence is the Torrens transfer in relation to the portion of the land under the Real PropertyAct 1900. Upon that transfer appears a consent under the common seal of the SRA to that transfer. The case has been conducted on the basis that that consent extended to the whole of the lease. It is in relation to transaction (5), the sub sub lease by Homestead/Lachlan to KFC that there appears to have been a departure from regularity in obtaining the written consent of the SRA to dealings with the lease. In that case there is attached to the copy of the sub sub lease that is in evidence a note in the handwriting of Mr Torrence Kitamura as follows: "Sub Sub Lease of Hurstville premises Blanket consent by SRA includes consent to this sub sub lease. Consent obtained by Todbern Pty Ltd." 8 Mr Kitamura is a solicitor, who by affidavit has deposed that he acted for Homestead/Lachlan between January 1983 and 1997, and in particular acted for JDM in respect of the sub sub lease. He says that he wrote the handwritten note: "… in or about June of 1991 at the time the sub sub lease was entered into. The note records the effect of the conversation I had with Mark Green from Verekers, Solicitors, concerning the consent of the SRA to the sub sub lease. The words 'blanket consent' refer back to the authority of Todbern to consent on behalf of the SRA to the assignment referred to in paragraph 4 above."

It is agreed that the reference to paragraph 4 is a clerical error and that in fact paragraph 3 of the affidavit was intended to be referred to. Paragraph 3 refers to Mr Kitamura acting for Homestead on the assignment of the sub lease from Homestead/Lachlan to JDM. However, this reference means that Mr Kitamura's evidence concerning a reference "back" to the authority of Todbern is erroneous, at least insofar as it suggests that that was an event or state of affairs which preceded the grant of the sub sub lease, since that assignment was made not before, but after, the grant of the sub sub lease. On the handwritten note attached to the sub sub lease there is a line under the handwriting which has already been set out, and under that line appear the further handwritten words: "See assignment Homestead to JDM Investments Pty Ltd in the JDM Investments security pkt."

Again, this is a reference to a document that was created after the creation of the sub sub lease. This means, either that Mr Kitamura wrote the whole handwritten note later than he believes, or alternatively, that the top part of the note was written during the course of a telephone conversation at the time of the grant of the sub sub lease, and the "footnote" under the line was added subsequently. The view I have formed is that the latter is correct, and I so find. 9 The sub sub lease is recited (recital F) to be subject to the consent of Super Centre and the SRA. There is a memorandum endorsed on the sub sub lease by which Todbern acknowledges under common seal that it consents to the grant of the sub sub lease. The document bears a blank memorandum of acknowledgment of consent by the SRA, but that memorandum is not filled in or executed. The sub sub lease was granted for a term of five years commencing 13 June 1991, and provided for a further term of five years upon the exercise of an option. The option was exercised, and there is in evidence a further sub sub lease dated 21 November 1997 for a further term of five years commencing on 13 June 1996. 10 So far as transaction (6) is concerned, the assignment of the benefit of the sub lease by JDM to Todbern bears a memorandum by which Todbern under seal: "… acknowledges that it consents to the within Assignment of Lease and warrants to the parties thereto that it has the express right to approve of the assignment without reference to the State Rail Authority provided the assignment is not inconsistent with the Head Lease and provided that Todbern Pty Limited notifies the State Rail Authority of the fact of the assignment which Todbern Pty Limited warrants and undertakes to the parties to the within assignment that it will do." Facts as to Transfers of Shares in JDM 11 Todbern has put on evidence that there are documents lodged by JDM in the Companies Office which show that in about 1992 all the issued shares in JDM were transferred by A J Mullan Investments Pty Limited ("A J Mullan") to Foodservice International Pty Limited ("Foodservice"). The evidence also reveals that an overwhelming majority of the voting shares in A J Mullan was and is held by Anthony John Mullan ("Mullan"). The case was argued on the basis that, after the 1992 share transaction, Mullan was entitled to the majority of votes at a general meeting of Foodservice. 12 On 4 February 2000 Todbern served on JDM a notice under s 129 of the Conveyancing Act 1919 ("the CA") that the change in the shareholding of JDM from 21 August 1992 was deemed by clause H.2 (viii) of the sub lease to be an assignment of the sub lease without consent, which constituted a breach which entitled the sub lessor to forfeit the sub lease. The Present Transaction: Facts Relating to Consents 13 In November 1999 the receiver of JDM advertised for expressions of interest in purchasing the sub lease and the sub sub lease. At about the same time the receiver received a letter from KFC seeking JDM's consent to KFC granting an outlet licence in respect of the premises to QSR to operate the KFC business under the terms of the existing sub sub lease. JDM at the same time received an offer from QSR to purchase from JDM its interest in the sub lease for $350,000. This is the transaction which the receiver now is desirous of carrying out as noted in [5]. 14 On 26 November 1999 Marco Panizzutti, an accountant at Prentice Parbery Barilla, who is assisting the receivers, spoke by telephone to Mr J C Cawood, a director of Todbern. Mr Panizzutti informed Mr Cawood of the advertisement and the receipt of a number of expressions of interest, and that there was a particular offer that the receiver was interested in accepting, subject to Todbern's consent. Mr Cawood asked for a copy of the advertisement, and on the same day wrote to Mr Panizzutti as follows: "We were not aware that you were proposing to tender the lease. I confirm that we have some interest in the matter but are also concerned as to both your and our legal rights and are taking legal advice. We ask you to take no further action to conclude the transaction until we have discussed the matter with you." 15 On 15 December 1999, Coudert Brothers, as solicitors for the receivers, wrote to Mr Cawood as follows: "I am instructed that the receiver has accepted an in principle offer to purchase the leasehold estate from JDM. Accordingly, the purpose of this letter is to seek your consent to the assignment of the sublease from JDB to that purchaser. The proposed assignee will be QSR Limited. I enclose a prospectus in relation to QSR's current fundraising which sets out the information you require in order to determine that the proposed assignee is respectable, responsible, solvent, fit and suitable tenant for the premises. I also enclose a draft Deed of Assignment for your consideration. I am instructed that my client will pay your reasonable costs associated with your enquiries into the respectability, responsibility, solvency, fitness and suitability of the proposed assignee. I look forward to receiving your consent to the assignment at your earliest convenience."

Before he received that letter Mr Cawood telephoned Mr Panizzutti, and the following transpired according to a diary note kept by the latter: " John Cawood wanted to know what the value of the offer was. I informed John Cawood that I am not in a position to provide him with that information s [sic] I felt It [sic] was a matter between the Vendor and the Purchaser. John Cawood requested Steve Parbery phone him on his mobile on 0419 048 777."

16 Mr Parbery deposes that at a date which he describes only as "on or about December 1999" he had a telephone conversation with Mr Cawood in which the following was said: "I said: 'When can I expect to receive your consent?' He said: I won't consent, I'll just wait until JDM is wound up and then I will have the benefit of the sub lease.'" 17 On 23 December 1999 Mr Parbery had a conversation with Mr Cawood, of which a detailed diary note was kept. Mr Cawood again asked for the amount of the consideration, which Mr Parbery declined to give. Mr Cawood said that he did not necessarily accept that there was a lease and, if there was, "I withold [sic] consent". The conversation continued: "SP 'Are you withholding consent purely on the basis of not having this figure?' JC 'No, not necessarily/ there may be other matters.' SP 'What other matters?' JC 'I do not know.' SP 'Well that seems unreasonable. How can I deal with it if you do not tell me. If I can disclose the amount will that satisfy you?' JC 'Not necessarily. If I know the amount I may wish to make an offer.' … SP 'I repeat, are you withholding your consent only on the basis of not knowing the sale price?' JC 'No.' SP 'Are you seeking some money from us for your consent?' JC 'No, we wish to make an offer/ so if we know the amount and its [sic] reasonable we may make an offer.' SP 'Well unless you respond in writing and detail your reasons I will assume that you have consented.' JC 'Based on this phone call you can not [sic] assume my consent.' SP 'Unless you can articulate your reasons in writing we will continue with the sale.' JC 'You can not [sic] do that.' SP 'Well the reason you have given is a commercial reason rather than a legal reason and has no merit. Accordingly you may wish to have your lawyers write to me and outline your reasons for not giving us consent.' JC 'I will do that.'" 18 On 24 December 1999, Verekers, solicitors, on behalf of Todbern replied to Coudert Brothers as follows: "This firm acts for Todbern. Mr Cawood, concerned as to the content of the discussion with Mr Parbery, has requested that we write and advise you that:- 1 Todbern, on the information available to it, does not agree that your client holds an existing Sub-Lease which is capable of assignment to anyone; 2 Reserving the position in the context of the observation in paragraph 1, our client in any event has not been provided with such information as it considers appropriate to make an informed decision about any request for Todbern to consent to an assignment to the Sub-Lease; and 3. If there subsists in your client a Sub-Lease capable of assignment then as presently informed Todbern does not consent to the assignment of the Sub-Lease to QSR Limited. You are invited to make submissions on any of the above observations and if and when made such will be put to Mr Cawood for instructions."

That letter is Annexure "C" to Justin Adam's affidavit of 31 January 2000. On 30 December 1999, Coudert Brothers sent a long reply which I do not propose to set out in full. However, in section 3 Coudert Brothers refer to the lack of any "hint of a basis for your client's refusal of consent" and set out in detail allegations concerning the fulfilment of conditions (i) to (viii). As to (i), they allege that QSR has been established to be a suitable and solvent person. As to (ii), they refer to the Deed of Assignment already submitted. As to (iv), they aver the payment of all rent. As to (v), they refer to the material provision of the Deed of Assignment submitted. As to (vi) and (vii), they reaffirm their client's agreement to pay reasonable costs and expenses. As to (viii), relating to the consent of the SRA, they state: "This is no longer relevant in view of the warranty given by your client to our client in the Memorandum endorsed to the Deed of Assignment dated 21 August 1992 referred to above."

Referring to the final paragraph of clause H.2, they say that, although JDM has not requested guarantees, JDM considers the financial substance of QSR such that "under section 133B of the Conveyancing Act, a request by your client for such guarantees could not reasonably be sustained." In the course of an argumentative conclusion to the letter they state: "Your client does not have a right of refusal in respect of the sub-lease. Your client has known for some time that our client proposed to sell the sub-lease and has had ample opportunity to make an offer in respect of the sub-lease. It has chosen not to do so." 19 Verekers made a reply on 30 December 1999 indicating that further response was not likely before 10 January 2000. On 4 January 2000, Coudert Brothers wrote to Verekers as follows: "We assume from the last sentence of your facsimile of 30 December 1999 that your client is considering our client's request for consent. If we are wrong in our assumption please let us know." 20 On 10 January 2000 Mr Panizzutti telephoned Mr Cawood and made the following note of the ensuing conversation: "MP: 'I phoned for the purpose to determine whether you had agreed to the assignment of the lease to QSR.' JC: 'I am waiting on some further information before I do anything.' MP: 'What exactly is the information you require?' JC: 'I need to know the sale price agreed for the sub sub lease.' MP: 'I don't think you knowing the sale price is relevant. The sale priced [sic] agreed is between the vendor and the purchaser.' JC: 'Notwithstanding you have received your own legal advice, I don't think it is going to be that easy.'" 21 On 21 January 2000, Coudert Brothers again wrote to Verekers concerning the continuing lack of response and indicating as follows: "We are instructed that, unless by 5.00pm on Monday 24 January 2000, we hear from you that you [sic] client is prepared to consent to the assignment of the sub-lease to QSR Limited, our client will issue proceedings against your client under section 133B of the Conveyancing Act seeking a declaration that your client has unreasonably withheld its consent."

On 24 January 2000, Verekers wrote a temporising letter to Coudert Brothers expressing doubts about the capacity of QSR and stating: "Further, if Mr Cawood becomes relevantly satisfied you should expect that he will require appropriate person [sic] guarantees and to our knowledge this has never been addressed by your client."

On 31 January 2000 the plaintiff issued the summons in the present proceedings seeking primarily a declaration that the defendant has unreasonably withheld its consent. 22 On 1 February 2000, Verekers wrote to Coudert Brothers, after service of the summons, setting out as matters needing to be addressed before Todbern could consider the request to consent to assignment:

1 The giving of personal guarantees by the directors of QSR.

2 The sub sub lease "effected by your client in November 1997" to KFC "without out client's consent".

3 The terms of the sub lease acquisition and the financial position of QSR.

By reply dated 2 February 2000, Coudert Brothers asked for immediate consent. Verekers replied on 4 February 2000 with a letter conveying some contentious material but insisting on a requirement of "guarantees of Directors and principal shareholders". It conceded that the price of $350,000 payable by QSR had now been conveyed to them and stated: "Under Clause 22 of the Lease between SRA and our client this information is required to be passed on as a condition of consent to assignment."

This appears to be the first suggestion of communication by either party with the SRA concerning the now subject matter. Portion of Coudert Brothers' reply of 7 February 2000 is as follows: "With the greatest respect, your client may grant its consent to the assignment subject to, if necessary, the consent of SRA. We note, however, that your client warranted in the Deed of Assignment between Lachlan Properties Pty Limited and JDM Investments Pty Limited that it has the express right to approve of an assignment of the lease without reference to State Rail, 'provided the assignment is not inconsistent with the Head Lease and provided that Todburn [sic] Pty Limited notifies the State Rail Authority of the fact of the assignment'."

In answer to the s 129 notice dated 4 February 2000 alleging an unremedied breach of covenant by lack of consent to the deemed change of control, Coudert Brothers alleged that there had been no change of effective control. 23 On 11 February 2000, during the course of the trial, Coudert Brothers wrote to the SRA's agents enquiring as follows: "I seek your urgent advice as to whether State Rail Authority (or its successor) requires its consent to be obtained to the assignment and, if so, could you please obtain such consent to the assignment of the sublease as a matter of extreme urgency."

On the same day, those agents, Jones Lang LaSalle, replied that legal advice was being obtained from Laurence and Laurence, solicitors, and on 14 February 2000 Coudert Brothers applied direct to Laurence and Laurence for the head lessor's consent. Laurence and Laurence replied on 16 February 2000 that they had obtained instructions. "These instructions are to the effect that no letter of consent will be issued at this stage." Facts Concerning Change of Use 24 The premises were originally let as a car yard but have for many years been used as a fast food outlet. At one stage there was an allegation that this change of use was without consent and was a breach of covenant which was relevant to the present situation, but as the evidence developed, this allegation was abandoned. The Interpretation of Clause H.2 25 The course of dealing relating to the premises and their leasing over the years has been complicated and at times confused. The recent dealings between the plaintiff and the defendant in these proceedings have done nothing to clarify or simplify the confused situation. A number of questions arise for decision in these proceedings. The first that arises is the interpretation which should be placed upon the terms of clause H.2 of the sub lease, itself an unhappy and confused provision. I shall deal with this question first, because what other questions arise will be substantially affected by this determination. 26 Clause H.2 is set out in [3] above. The difficulty that arises from its terms is the reference in the last paragraph to consent. The pattern of the clause is that it proceeds by way of a prohibition against subletting, assignment, etc, but then in terms makes an exception to that prohibition if conditions numbered (i) to (viii) are met. It should be noted that (iii) is missing. After these seven numbered conditions have been set out there is a final paragraph, which has been called for convenience during the argument of this case "the postscript". Both parties have argued the case on the basis that the postscript is a separate paragraph in the body of clause H.2, and should not be regarded as part of condition (viii). In my view, this is correct. The principal difficulties in the interpretation of clause H.2 arise from the reference in the postscript to what the sublessor may do "as a condition of its consent to such assignment or transfer", there being no previous reference in clause H.2 to any requirement of consent. 27 The plaintiff has contended that the clause should be interpreted as if it imposed a requirement of consent in all circumstances. If that be the effect of the covenant, then the covenant attracts the operation of s 133B(1)(a) of the CA, which provides as follows: "(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 …" 28 The plaintiff says that the conclusion should be reached on the facts set out above that consent has been asked for and unreasonably withheld, and that the Court should either so declare, or make a declaration to the effect that the plaintiff is entitled to enter into the assignment to QSR although consent has not been obtained. This submission is consistent with the course which the plaintiff has pursued, since it has at all times asked for the consent of Todbern to the assignment from the time of Mr Panizzutti's telephone conversation with Mr Cawood in November 1999: [14]. 29 Todbern makes alternative contentions:

(i) It contends that the postscript is meaningless, ie, that it cannot be given a rational meaning in the context, and that it ought be treated as surplusage and ineffective.

(ii) Alternatively, it concedes that, if the clause be construed as requiring consent, it should be construed as doing so only where the proposed sublessee or assignee is a corporation, and that the earlier portion of the clause should be interpreted as containing a prohibition upon assignment or subletting, but providing an exception to that prohibition if certain conditions be fulfilled; if those conditions be fulfilled, then the sublessor is entitled to assign and no consent is necessary.

(iii) If consent is required in the circumstances, it concedes that it has not given consent, but contends that consent has not been unreasonably withheld. 30 The legal background is as follows. A sub lease creates an estate or interest in land which may be transferred or assigned by the holder. However, even taking into account s 133B(1), a prohibition by covenant of the transfer or assignment of a lease or sub lease is not prohibited by law. If a lessee sub leases or assigns contrary to such a covenant, that does not invalidate the sub lease or assignment, but the sub lease or assignment is a breach of covenant, for which the lessor may in appropriate circumstances forfeit the lease. Equally, the law does not prohibit the stipulation of a precondition to the exercise of a right to sublet or assign with consent. In such a case the question of the consent does not arise until the precondition be met. Thus, in Creer v P & O Lines of Australia Pty Limited (1971) 125 CLR 84, the High Court dealt with a case where the covenant was not to assign, sublet, etc, without the consent in writing of the lessor, such consent not to be unreasonably withheld, with a proviso that, should the lessee desire to sublet, assign, etc, it should "before doing so offer in writing to the Lessor to surrender this Lease in respect of … the premises without any consideration." In that case the surrender had not been offered, and the lessee sought a declaration that the lessor had unreasonably withheld consent, or that the proviso to the covenant was void. Windeyer J said at 91: "A tenant for a term has, if there be no stipulation to the contrary, a right to assign his term or to create a sub-lease. A covenant not to assign or sub-let without the consent of the landlord is valid. It is, however, in New South Wales made subject, by s 133B just mentioned, to a proviso that consent is not to be unreasonably withheld. This proviso prevails notwithstanding any express provision to the contrary. And the parties cannot restrict its operation by a stipulation as to what shall be deemed reasonable or unreasonable. As appears from the contribution to the Law Quarterly Review, vol. 73, p. 157, a clause in the terms now in question had become not unusual in leases in England before Adler's Case [1957] 1 WLR 227; [1957] 1 All ER 229 in 1957; but its validity had not theretofore been disputed. Since that decision the clause is printed in forms of leases in works of conveyancing precedents in England and in Australia. Although I think that the verbiage of the clause is inelegant, certainly not beyond criticism as a matter of draftmanship, the meaning is plain enough. The requirement that the lessee wishing to assign his term must first offer to surrender it is introduced by the phrase 'provided that'. That in the circumstances seems to me apt. A statutory enactment that is in form a proviso may be, as Lord Loreburn said, 'in substance a fresh enactment, adding to and not merely qualifying that which goes before': Rhondda Urban District Council v Taff Vale Railway Co [1909] AC 253, at p 258. The same thing can sometimes be said of a contractual stipulation couched as a proviso. If the latter part of the clause in question be read as an independant covenant is it clearly valid and efficacious. But not I think the less so if it be read, as I think it should be read, as it is expressed to be, a proviso, limiting the effect of the earlier part without entrenching upon its validity. The first part of the clause states and controls the manner and circumstances in which the lessee may assign his rights under the lease. The later part states that the right to assign, thus recognized and regulated by the first part, is not to be exercised unless the lessee has first offered to surrender the lease. That qualifies what has gone before. It does so by prescribing a condition which must be fulfilled before an assignment pursuant to the clause is permissible."

See also Adler v Upper Grosvenor Street Investment Ltd [1957] 1 WLR 227; International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513. 31 Against this background, I turn to the interpretation of clause H.2. The excision of the postscript would make the clause simpler, and remove the problems which are now faced. However, I do not accede to the submission that the postscript can or ought be treated in this way. There is a duty to give to this commercial document meaning and operation, unless this is "utterly impossible": Brown v Gould [1972] Ch 53 at 57; Hammond v Vam Ltd [1972] 2 NSWLR 16 at 18; Murphy v Wright (1992) NSWConv R par 55-652 at 59-733. As Barwick CJ said in Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 436-7: "But a contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it. Lord Tomlin's words in this connexion in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, at p 512 ought to be kept in mind. So long as the language employed by the parties, to use Lord Wright's words in Scammell (G) & Nephew Ltd v Ouston [1941] AC 251 is not 'so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention', the contract cannot be held to be void or uncertain or meaningless. In the search for that intention, no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved." 32 JDM says that a term that subletting, assignment, etc, should be permissible only with consent should be implied, so that the operation of s 133B(1) is then attracted. The relevant principle according to which such implication should be made is set out in the well known passage in the judgment of Mason J (as his Honour then was) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347: "The conditions necessary to ground the implication of a term were summarized by the majority in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20, at p 26: '(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.'" 33 In my view, clause H.2 should be construed as showing an intention of the parties to the sub lease that at least in some circumstances the consent of the lessor is required. I come to this conclusion as a result of the construction of the clause by the Court, rather than by the implication of a term. But the passage set out above correctly states the principle by which such a term might be implied, and I should, if that were necessary, hold that such a term was implied. By whichever route this solution be reached, the difficulty is whether the intention should be taken to be that all transfers and assignments require consent, or only sub leases, assignments, etc, to corporations. JDM presses for the first alternative. If there be any reason as to why consent should be required only in the case of corporations, it is perhaps to be derived from the notion that "$2 companies" are more common than $2 individuals, and this receives some support from the concern the clause shows for the obtaining of guarantees, some of which at least should be by natural persons, in the latter provisions of the postscript. On the other hand, it is put on behalf of JDM that at least some of the numbered conditions in the clause are more appropriate if they be regarded as part of a consent process, than if they are regarded simply as conditions which, if met, will give an absolute right to sublet, assign, etc. One condition which is pointed to is condition (ii), which requires the approval both of the lessor and of its solicitor. However, whilst this provision is slightly curious, it is plain in its terms that the approval required is only as to the form of the sub lease, assignment, etc. Even though the approval of the lessor itself, as well as of its solicitors is required, as is more usually the case, it seems to me that the approval spoken of clearly relates only to the form of the lease, and that refusal to grant the approval except by reference to matters of form rather than outside commercial considerations would not be valid: see Caney v Leith [1937] 2 All ER 532; Provost Developments Ltd v Collingwood Towers Ltd [1980] 2 NZLR 205 at 209; and see generally W D Duncan, Commercial Leases in Australia (3rd ed, 1998) 16 - 17; CCH NSW Conveyancing Law and Practice 220. It is also argued that some of the conditions may only be met after consideration by the lessor of the transaction, and that that indicates that they should be taken to be co-extensive with a process of consideration of consent. Thus, payment is required of the expenses of considering the suitability of the proposed subtenant, assignee, etc, and also payment of the legal expenses of the approval of the sub lease, assignment, etc. But, as Bryson J pointed out in Spintar Pty Ltd v Ranieri Nominees Pty Ltd 1 February 1991 SCNSW unreported in relation to similar provisions, the point of time at which preconditions must be met is not until the time of actual perfection of the assignment. 34 It was put to me that the subsequent conduct of the parties could and should be taken into account in construing the clause and I was referred to the decisions of the Court of Appeal in Hide & Skin Trading Pty Limited v Oceanic Meat Traders Limited (1990) 20 NSWLR 310; of Santow J in Spunwill Pty Limited v Bab Pty Limited (1994) 36 NSWLR 290; and of Bryson J in Sportsvision Australia Pty Limited v Tallglen Pty Limited (1998) 44 NSWLR 103. I do not need to choose between or attempt to rationalize the views expressed in those cases, because in my view, whatever the correct principle is taken to be, there is no course of conduct in the complicated circumstances of this case sufficiently clear to assist with the construction. I have not made any use of subsequent conduct in reaching the conclusion that I have. 35 What seems to me to be of importance in construing clause H.2 is its structure. It opens with a clear and absolute prohibition upon subletting, assignment, etc. The conditions (i) to (viii) are articulated to that absolute prohibition by the clear words "BUT the lessee may assign, sublet … if", and the statement of the conditions follows. The postscript appears thereafter, and opens with the words "Where the proposed assignee or transferee is a corporation …", and then follows the reference to a condition that shall apply if consent be granted. 36 In all the circumstances it is my view that the correct interpretation to be given to this troublesome clause is that there is an absolute prohibition upon assignment, subletting, etc; that an exception is provided to that absolute prohibition if conditions (i) to (viii) are met, in which case no question of consent arises; but that, after those conditions are met, if the subletting, assignment, etc is to a corporation, then there is a further requirement that the consent of the lessor be obtained and there are certain stipulations as to what may be required in that case. Section 133B(1)(a) attaches at that point the requirement that the consent stipulated for shall not be unreasonably withheld. But, as I have said, the occasion for consent does not arise if conditions (i) to (viii) be fulfilled; in that case the prohibition upon subletting, assignment, etc, ceases to prevail. Further Questions in the Proceedings 37 The further questions that arise in the light of this interpretation of clause H.2 are as follows:

(5) If so, has consent been unreasonably withheld? 38 So far as the satisfaction of conditions (i) to (viii) is concerned, I have already observed, by reference to the decision of Bryson J in the Spintar case, that it is not necessary that the conditions should actually have been fulfilled at the time the matter is considered, if it is apparent that the conditions will be fulfilled by the time that the transfer or assignment is in fact perfected. So far as the individual conditions are concerned, it seems clear that QSR amply fulfils the requirements of condition (i), and it is not in reality argued to the contrary. So far as (ii) is concerned, it is true that no approval has been given to the form of the lease by either Todbern or its solicitors. However, a draft assignment has been submitted and no argument has been put to me that suggests that that draft assignment is deficient or objectionable in form. It seems to me that there should be no difficulty in fulfilment of this condition, provided that Todbern and its solicitors approach the question of whether or not to approve according to the correct construction of that condition. As I have already remarked, there is no (iii). As with (ii), there appears to be no difficulty in condition (v) being complied with, by the assignment containing the appropriate covenant. And equally there appears to be no difficulty with (vi) and (vii), so far as concerns the payment of the relevant costs and expenses once ascertained. There remain conditions (iv) and (viii), and it is by reference to these that the argument has proceeded that the conditions are not met, so that the question of consent under the postscript in the case of the corporate assignee arises. 39 So far as condition (iv) is concerned, Todbern relies upon the alleged existence of an unremedied breach of covenant. The breach alleged is that there is a deemed assignment of the sub lease to which the required consent of Todbern has not been sought or given and which constitutes a "change in the principal shareholding altering the effective control of the lessee". The change in shareholding referred to is the change set out in [11] above. It seems clear that to constitute a breach there must be a change in the principal shareholding in the company, and the effective control of the lessee must be altered. It is true that, in one sense, the control of the lessee was altered by that transaction, because one company transferred to another the shares carrying the votes which would prevail at a general meeting of JDM. However, as I have said above, there is no dispute between the parties that when one looks at the shareholding of the shareholder corporations themselves, each was controlled by Mullan, in the sense that he held the controlling shareholding in each of the shareholders. It does seem to me that what is intended to be referred to in the condition is the ultimate effective control of the voting power in the lessee. Although the chain of companies was different, it was Mullan who held that control both before and after the transaction. It was argued that there had been a change of control because Mullan held the shares in the originally controlling company in his own right, and held the shares in the successor company as a trustee. This is not entirely clear on the evidence. However, even if it were so, it seems to me that it does not matter if a trust were imposed on Mullan in respect of the ownership of the shares in the second instance. A trustee is not controlled by the beneficiaries of the trust, and it was in each case Mullan who would decide how the relevant parcel of shares would be voted upon any issue as to the ultimate control of JDM. And this conclusion is reinforced by what was said by Kitto J in Mendes v Commisioner of Probate Duties (Victoria) (1967) 122 CLR 152 at 164. I find that no unremedied breach of that covenant has been established. The notice referred to in [12] is therefore ineffective. 40 That leaves condition (viii). So far as condition (viii) is concerned, there is no doubt that there is no written consent of the SRA. In my view it cannot realistically be said that the SRA has withheld consent in the sense that it has given any firm indication that it will not consent to the transaction. The stance taken by JDM at all times until very recently during the course of the trial was that the consent of the SRA was not necessary for reasons to which I shall shortly turn. During the trial, and while the SRA was subject to a subpoena to produce on short notice to the Court very old documents, it was for the first time asked urgently to give immediate consent to the transaction. All it has said, in effect, is that it wishes to consult with its solicitors over the matter and, upon being pressed to issue a document of consent instanter, it has indicated that it will not do that, rather than give itself time for consideration. On the one hand, I do not think that the evidence shows that it is impossible that the SRA will give its consent if given a proper opportunity to do so. It needs to consider the position, and to take advice as to its legal situation: see [23]. There is some indication that it may ascertain and consider Todbern's wishes, but if the request for its consent is persisted with, it will need to take care as to the considerations upon which it should give or withhold its consent. It may well be that commercial considerations pertaining to Todbern, or the wishes of Todbern, are not matters which it ought take into account in granting or withholding its consent. 41 Whilst JDM has finally asked for the SRA's consent, it continues to maintain the argument that compliance with condition (viii) is not necessary, because that compliance has been waived, or Todbern is estopped from relying upon the condition. It is in relation to the consideration of these arguments that I have set out with some care the history of consent or non-consent of the SRA to the various transactions over the years. 42 One matter of law in the light of which the question of waiver must be considered is the provisions of s 120 of the CA: "Where any actual waiver of the benefit of any covenant or condition in any lease on the part of any lessor or the lessor's heirs, executors, administrators, or assigns is proved to have taken place in any one particular instance, such actual waiver shall not be assumed, or deemed to extend to any instance or any breach of covenant or condition other than that to which such waiver specially relates, nor to be a general waiver of the benefit of any such covenant or condition unless an intention to that effect appears." 43 As to both waiver and the operation in relation to it of provisions as CA s 120, the following was said in Mulcahy v Hoyne (1925) 36 CLR 41 by Knox CJ at 49-50: "First, as to waiver: - Some reliance was placed on the provisions of sec 17 of the Landlord and Tenant Act 1915, which provides that an actual waiver of the benefit of a covenant in one particular instance shall not be deemed to extend to any other instance or to be a general waiver of the benefit of such covenant unless an intention to that effect shall appear. But this section was intended to limit or cut down in favour of the lessor the effect of a waiver, and cannot properly be read as extending the right of the lessee to treat a waiver of particular breaches of a covenant as a general waiver of the benefit of the covenant. Dealing with the question apart from this statutory provision, it seems that a passive acquiescence in one breach of covenant cannot be considered to be a waiver for all future time of the right to complain of any other breach (per Lord Chelmsford L.C. in Western v MacDermott (1866) LR 2 Ch 72, at p 74). The finding in the present case is that the appellant knew of and acquiesced in unauthorized trading, and in my opinion this is not sufficient to support a conclusion that the appellant waived the benefit of the covenant. It is not suggested that there was any valuable consideration for the alleged agreement to waive the benefit of the covenant. It is said that the conduct of the appellant was equivalent to an expression by her of an intention not to insist upon her right to have this covenant observed by the lessee; but, even so, the mere statement of an intention not to insist on a right is not effectual unless made for consideration."

It is also material to note what was said by his Honour at 50 - 51 in respect of estoppel in the same context: "There remains the question whether the appellant is estopped by her conduct from taking advantage of a breach of this covenant committed after 18th February. The conduct of the appellant which is said to give rise to the estoppel consists of her continuing to accept rent under the lease and treating the lease as subsisting with knowledge that breaches of the covenant in question had been, were being and/or were about to be committed. In other words, the respondent sets up estoppel by acquiescence. In this connection acquiescence may be said to be quiescence in such circumstances that assent may reasonably be inferred, and, applying this definition to the facts of this case, the respondent in order to succeed must establish that he might reasonably have inferred from the conduct of the appellant that she consented to any breach of the covenant which he might choose to commit and would not attempt to take advantage of any such breach. Having regard to the serious consequences which might result from a breach of this particular covenant, I do not think the respondent could reasonably draw the inference suggested." 44 Each case must, however, be determined according to its own facts. I have, as I have said, set out the history of the transactions under the head lease with relation to consent by the SRA. In respect of the earlier transactions, the consent of the SRA was formally obtained and recorded in the transaction documents. When it came to transaction (5), the sub sub lease, an oral representation was made on behalf of Todbern that the "blanket consent by SRA includes consent to this sub sub lease". Upon that basis JDM did not seek or require to be sought the consent of the SRA, nor did Todbern seek it, which corroborates the suggestion that at that time there was some arrangement between the SRA and Todbern which removed the necessity of consent. As I have already observed, Mr Kitamura's handwritten note must be mistaken in suggesting that the "blanket consent" was that recorded in the assignment from Homestead/Lachlan to JDM, since that transaction had not taken place. The representation at that time was a representation of Homestead/Lachlan, and not of JDM. No consent was obtained to transaction (7) when a renewed term was granted by JDM to KFC, but this was not necessary, because the original sub lessor had represented to the sub lessee that the transaction was approved by the SRA, and the transaction which was approved was a transaction which, in the option clause, contained a provision for the grant of a renewed term. That grant, when made, must be taken to have been the subject of the approval, as much as the original grant of the sub sub lease. It should be added that, indirect as the evidence of this representation of approval by the SRA may be, there is no suggestion on the evidence before me that the representation was not true. 45 The remaining transaction is transaction (6). In that case the representation was different in its terms: [10]. There was not reference to a "blanket consent", whatever that may have meant, but there was under seal the warranty and representation of Todbern that it had "the express right to approve of the Assignment without reference to the State Rail Authority provided the Assignment is not inconsistent with the head lease and provided that Todbern Pty Limited notifies the State Rail Authority of the fact of the Assignment". It is not clear whether this refers to the same consent as was referred to earlier as a "blanket consent" or to a different arrangement. 46 The significant thing in my view, is that in the case of neither the representation in relation to transaction (5) nor the representation in relation to transaction (6) is the duration of the arrangement spelt out. It is not stated clearly that the blanket consent in the first case, or the delegated right of Todbern in the second case, is given for any particular period, or for the whole of the duration of the sub lease. Also, there is no evidence as to whether or not the right, if of long duration, has been revoked during the considerable time that has elapsed since 1991 or 1992. Furthermore, the later representation, that in respect of transaction (6), refers in terms to a consent only to that transaction, not to a consent in general terms to other or future transactions. As I have already noted, the SRA, or successor, has not yet had an opportunity to give a considered response to the matter, but certainly its initial reaction, upon being asked for its consent, was that it desired to consider its position and that no letter of consent would issue at this stage, rather than that a blanket consent or a delegation of authority had been given and was subsisting in favour of Todbern, so that Todbern should be approached rather than the SRA. Acts to constitute a waiver must be clear. In short, I do not think that it is established on the evidence that the SRA has waived its right of consent de futuro so that the requirement of consent can be said, as against either the SRA or Todbern, to be inoperative in 1999 or 2000. Similarly, a representation to found an estoppel must be clear. And there can be no estoppel, because neither is there any clear representation to the requisite effect, upon which it could be said that JDM had acted, so that Todbern should be estopped from insisting upon the requirement at this time. 47 It follows that condition (viii) has not been complied with. This means, in accordance with my interpretation of clause H.2, that, albeit the proposed assignee is a corporation, the occasion for consent has not yet arisen. Questions (1) and (2) in [37] must be answered in the negative. The situation is that the exception to the prohibition against assignment is not yet operative, and the prohibition remained and remains effective both at the commencement of these proceedings on 31 January 2000, and as at the date of this judgment. Questions (3) to (5) in [37] do not arise. 48 It appears from what I have said that it may be that conditions (i) to (viii) could yet be fulfilled. It may be that it will yet be contended that the conditions have been fulfilled, that the postscript has come into operation, and that the requirement of consent has become operative. I do not propose to go into these matters at this stage in light of the conclusion to which I have come. It is not necessary for me to say whether refusal of consent by reason of the absence of compliance with condition (viii) would be unreasonable. I should say that, if it were necessary for me to express a view at this stage, based upon the facts proved before me, I should be of the view that the withholding of consent for lack of the SRA's consent would not be unreasonable. I have already indicated that it is not proved that the SRA has given up or foregone its right to require that transactions not be entered into without its consent under the relevant clause of the lease set out in [2] above. Entering into the transaction without the SRA's consent could arguably be an occasion of forfeiture of the lease by the SRA. Bearing in mind the seriousness of this consequence, it would not in my view, be unreasonable for Todbern to withhold consent by reason of the lack of the SRA's consent. Conclusion 49 For these reasons it appears to me that JDM is not entitled to succeed upon its summons, but short minutes of order ought be brought in by JDM and the form of the orders may be debated, if necessary, on that occasion. …oOo…

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