McEvoy Food Company Pty Limited v Miziner and Finch

Resolution by the Tribunal

Mr Vainauskas referred the Tribunal to a series of cases relating to the ability of a landlord to withhold consent. A significant number of these cases were decided within the first 6 to 8 years of the operation of the RLA and they are instructive.
Significantly the decision of Palmer J in Harbourside Catering Pty Ltd v TMG Developments Pty Limited [2007] NSWSC 1375 is most helpful. His Honour stated at paragraphs 40 to 42 the following: 40. I am unable to accept Mr Lever's submission that the "retailing skills" of an assignee for the purposes of s39(1)(b) RLA means skill in retailing regardless of the area of retailing activity in which the assignee has acquired those skills. The section is intended as a protection for both lessors and lessees. The lessees are not prevented from realising the goodwill of a business by selling that business and assigning the lease by the lessor's capricious withholding of consent to the assignment. Likewise, lessors are not compelled to accept as a tenant by assignment those who are not likely to trade at least as well as the outgoing lessee. For that reason, the section requires a comparison between the retailing skills of the existing lessee and those of the prospective lessee. Like must be compared with like if any basis for assessment is to be sensibly available, both to the lessor and to those who may have to review the lessor's decision under the Retail Leases Act. 41. The fact that a proposed assignee has skills in operating a business which is completely different in character from the business of the assignor provides no readily apparent and sensible means of comparison between the retailing skills of the assignor and those of the assignee and, therefore, no sensible means of assessing whether the assignee, as new tenant, will be at least as satisfactory as the former tenant. 42 A comparison of retailing skills for the purposes of s39(1)(b) RLA does not require that the businesses of the assignor and the assignee be identical. However, they must be similar enough to permit ready comparison of the retailing skills involved. Whether the similarity is close enough in degree to permit ready comparison for the purposes of the section is a question of fact and impression in each particular case.
Further assistance to the Tribunal can be obtained from the decision of the Court of Appeal in Lockrey v Historic Houses Trust of New South Wales (2012) NSWCA 249. Barrett JA gave the leading judgment. At paragraphs 48 and following, his Honour held: 48. '… the permitted ambit of a requirement imposed by the lessor is that the information sought concerning financial standing be "reasonably" required in the sense of having some rational bearing on an objective assessment of relevant matters concerning the financial standing of the proposed assignee as that standing is material to the lease and the financial obligations it entails. An assessment of what is "reasonably" required will proceed in the way indicated by the following observation of Latham CJ in Opera House Investment Pty Ltd v Devon Buildings Pty Ltd (1936) 55 CLR 110 at 116: The word 'reasonable' has often been declared to mean 'reasonable in all the circumstances of the case'. The real question, in my opinion, is to determine what circumstances are relevant. In determining this question regard must be paid to the nature of the transaction. 49. Beyond that, two different views emerged in the course of submissions as to the ambit of the information that a lessor "may reasonably require" within the meaning of … s41(a). When considering a lease that is not regulated by the Retail Leases Act but contains (either expressly or by operation of s133B(1)(a) of the Conveyancing Act) a proviso that the lessor will not unreasonably withhold consent to an assignment, the commercial desirability of the assignee is taken into account in deciding whether consent has been unreasonably withheld. In deciding that question, it is legitimate to take into account matters that bear upon the likelihood that the proposed assignee will be able to pay the rent and perform the other covenants that the lease imposes on the lessee for the balance of the term. 50. However, it may be that for a lease that is regulated by the Act the ambit of the information that the lessor can "reasonably require" within s41(a) is more limited. It may be that the limited grounds upon which a lessor was entitled to withhold consent to an assignment have the effect that the only information that a lessor may "reasonably require concerning the financial standing and business experience of the proposed assignee" is information that will enable the lessor to decide whether the proposed assignee has financial resources or business experience or retailing or restauranting skills inferior to those of the lessee. 51 The difference between these two approaches to the ambit of the information that the lessor could reasonably require would show up in a situation where the existing lessee was a person of only marginal financial standing and indifferent retailing skills. If the second view of the ambit of the information that the lessor could reasonably require were correct, the lessor would not be able to use the opportunity of an assignment being requested to obtain a tenant that was superior to the tenant to whom the lessor was currently leasing the premises. Counsel for Mr Lockrey argued that the Act was beneficial legislation designed to protect tenants of retail premises, and that that purpose of the Act favoured the second of the two possible constructions. It is not necessary in this case to choose between these alternatives.
Barrett JA identified there were two approaches. Again it may not be necessary to make the choice between these two approaches. Accordingly following his Honour, it is necessary for the Tribunal to compare the retailing skills of the proposed assignee to that of the retailing skills of the lessee, namely the applicant. Mr Byrne has made the point that those retailing skills do not compare given the retailing and restaurant ability of the former directors. There can be no debate about that. Those nominated directors certainly had significant retailing and restaurant ability, however those directors are no longer working in the business, having resigned. Further, the applicant is now not open to business and is not trading and, as the Tribunal was advised, has not traded for some 6 months. In fact, one could take the view that there are currently no retailing skills being demonstrated by the applicant as there is in fact no retailing. Consequently, as there are no retailing skills for comparison, any retailing ability by the proposed assignee must be greater than that currently being demonstrated by the applicant.
Whilst Barrett JA in Lockrey feared that by taking the second alternative, that being the ability of the lessor to refuse consent to the assignment of a lease based on the limited information only, and not being able to request a more comprehensive range of information would often result in the lessor gaining an assignee of inferior retailing skills to that of the current lessee. However, that is not the case in this situation as the respondents would gain an assignee with greater retailing skills than currently being demonstrated by the applicant.
The facts in this case highlight the question of what is the appropriate time for comparison of the retailing skills. The view of the Tribunal is that the comparison should be made of the relevant skills at the time of the assignment, not at the commencement of the Lease. If the retailing skills of the lessee had to be compared at the time of entry into the lease with the retailing skills of the proposed assignee at the time of the proposed assignment, then of course those retailing skills would be greater than the proposed assignee. But that seems to be an artificial way of looking at the situation given that currently there are no retailing skills demonstrated by the applicant. Why should a lessee be held to account to an earlier time when the retailing skills were there but have now are no longer there? Businesses change over time for the better or for the worse.
Further, in connection with the financial standing of the proposed assignee and its directors, the comparison provided by the applicant's solicitor, Stephen Wawn and Associates in a table form to the lawyers for the respondents quite adequately demonstrates that the financial resources are superior to that of the applicant and its sole director. It is noted that the financial information is not verified by an accountant and the tax returns are not signed. Whilst this is unhelpful, it is not fatal to the question of adjudging on an objective view which party has the greater financial capacity.
Again, the time of comparison is relevant. It should, as I stated in paragraph 43 above, be at the time of the proposed assignment not at commencement of the Lease. In fact, the position of the respondents on the temporal question was that for the financial comparison they accepted that the relevant time was at the time of the assignment but for retailing skills it was at the time of the ease commencement for the lessee. Such a dual position taken by the respondents regarding timing is in the view of the Tribunal inconsistent..
The Tribunal notes that no references were provided regarding both retail experience and financial capacity of the proposed assignee and it s directors. Again, this was unhelpful on the part of the applicant/ assignee. It is usual for references to be provided. However, in the current circumstances there were sufficient other benchmarkers, such as the disparity in retailing experience of the current lessee, the applicant and the proposed assignee and the deterioration of the financial position of the applicant that the lack of references was not determinative.
It was submitted by Mr Vainauskas on behalf of the applicant that the letter of 12 August 2016 from the respondents then lawyers (recited in paragraph 25 above) constituted a deemed consent to assignment under s 41(1)(b). While given the view the Tribunal has arrived at, it is not necessary to consider this, on first reading of the correspondence I am not persuaded that it would constitute a deemed consent. Certainly the wording and intent is along the lines of a counter offer, which if accepted, would produce the requisite consent. Any delay in timing of the consent as required to engage the operation of the deemed consent under s 41(1) must be seen in the context of the concern by the respondents regarding the change in the proposed use of the premises. It may be that the proposed assignee poorly explained its intention regarding use, which I took as not to run two active businesses from the premises to which the respondents objected, but rather to use the office above the restaurant as an office to store files and records from a closed business of music as well as use the office actively for the restaurant business. In this regard an office is an office and the use of such would not be inconsistent with the general use of the premises as restaurant with an office. The applicant indicated that there was no change of use required. The case was properly run by the respondents then that there was no change of use and s 39(1) was not applicable.
Consequently, the Tribunal holds that he respondents are not entitled to withhold consent to the assignment of the Lease to the proposed assignee.
If the applicant wishes to seek damages pursuant to s 72(1)(a) of the RLA, then it shall apply to have this application relisted on 14 days' notice. D Bluth Senior Member Civil and Administrative Tribunal of New South Wales 29 December 2016 I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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: 15 February 2017

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