CDLC Pty Ltd v Capital Estate Developments Pty Ltd
[2023] ACTSC 284
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | CDLC Pty Ltd v Capital Estate Developments Pty Ltd |
Citation: | [2023] ACTSC 284 |
Hearing Date: | 2 March 2023 |
DecisionDate: | 12 October 2023 |
Before: | McWilliam J |
Decision: | (1) Is the reasonableness of the first defendant’s refusal to consent to the sale of businesses pursuant to clause 2.6 of the Deed of Settlement to be determined by reference to: (i) Only information of which the first defendant was aware when it refused consent? Answer: (a) Yes, if the ground relied upon for refusal at the time falls within s 100(2) of the Leases (Commercial and Retail) Act 2001 (Leases Act); and (b) No, if the ground relied upon for refusal at the time concerns an objective fact or circumstance. (ii) Alternatively, the information in (i) and further information of which the first defendant was not aware when it refused consent, but which existed at that time? Answer: (a) No, if the ground relied upon for refusal at the time falls within s 100(2) of the Leases Act; and (b) Yes, if the ground relied upon for refusal at the time concerns an objective fact or circumstance within s 100(3) of the Leases Act. (iii) The information in (i) and (ii) and further information of which the first defendant was not aware when it refused consent and that did not exist at that time? Answer: No. (2) Costs are reserved. (3) The parties are directed to confer and provide a list of available dates for hearing for the remainder of 2023. |
Catchwords: | CONTRACT – LEASES – Consent to assignment – where consent refused – application of s 100 of the Leases (Commercial and Retail) Act 2001 (ACT) – whether reasonable in all the circumstances – to be determined subjectively or objectively – whether Court may take into account events that occurred or facts that became known after consent was sought and refused – answer depends on ground relied upon for refusal EVIDENCE – RELEVANCE – Ruling sought on scope of admissible documents – whether Court may take into account events that occurred or facts that became known after consent was sought and refused – relevance depends on the ground relied upon in s 100 of the Leases Act. PRACTICE AND PROCEDURE – SEPARATE QUESTION – rule 1521 of the Court Procedures Rules (2006) – whether separate question should be ordered – separate question ordered |
Legislation Cited: | Court Procedures Act 2004 (ACT) s 5A Court Procedures Rules 2006 (ACT) r 1521 Leases (Commercial and Retail) Act 2001 (ACT) ss 12, 19, 95, 96, 99, 100 Legislation Act 2001 (ACT) s 140 Retail Leases Act 1994 (NSW) ss 39, 41 |
Cases Cited: | Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; 239 CLR 27 Allmere v Burbank Trading Pty Ltd [2008] VSC 139 Ashworth Frazer Ltd v Gloucestor City Council [2001] UKHL 59; WLR 2180 Bates v Donaldson [1896] 2 QB 241 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Colvin v Bowen (1958) 75 WN (NSW) 262 Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd (1986) 1 Qd R 406 Eddadock Pty Ltd v Denning Properties Pty Ltd [2002] NSWSC 208 Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 Fulham Partners LLC v National Australia Bank Ltd [2013] NSWCA 296 Gifford v Strang Patrick Stevedoring Pty Limited [2003] HCA 233; 214 CLR 269 In the matter of Bar Machiavelli Pty Ltd (Administrator Appointed) [2018] NSWSC 1395 In the matter of Idoport Pty Ltd ACN 075 318 106; in the matter of Idoport Pty Ltd (In Liq) (Receivers Appointed) [2012] NSWSC 524 International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513 Ivanoff v Alto Scaffolding Pty Ltd [2022] ACTSC 155 JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd [1992] 2 Qd R 121 Leslie Josef Boss and Deborah Ann Owen v Hamilton Island Enterprises Limited & Anor [2008] QSC 274 Lewis & Allenby (1909) Ltd v Pegge [1914] 1 Ch 782 Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Moorcroft [2021] HCA 19; 273 CLR 21 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 256 CLR 104 Opera House Investment Pty Ltd v Devon Buildings Pty Ltd ; (1936) 55 CLR 110 Pimms Ltd v Tallow Chandlers Company[1964] 2 QB 547; 2 WLR 1129 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 Provident Capital Ltd v Zone Developments Pty Ltd [2001] NSWSC 843 R v A2 [2019] HCA 35; 269 CLR 507 Secured Income Real Estate (Australia) Limited v St Martins Investments Proprietary Limited [1979] HCA 51; 140 CLR 596 Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205 |
Parties: | CDLC Pty Ltd (First Plaintiff) Pouring Pty Ltd (Second Plaintiff) Capital Estate Developments Pty Ltd as trustee for Capital Estate Developments Trust (First Defendant) NURCAF Pty Ltd (Second Defendant) MDPUB Pty Ltd (Third Defendant) |
Representation: | Counsel B Buckland (Plaintiffs) P Walker SC, J Nottle (Defendants) |
| Solicitors McGilvray Law (Plaintiffs) Trinity Law (Defendants) | |
File Number: | SC 494 of 2022 |
McWilliam J:
1․The parties to this proceeding are involved in a commercial leasing dispute in respect of businesses located at Denman Prospect Shops: a café (known as Morning Dew) and a pub (known as Honeysuckle).
2․The plaintiffs are CDLC Pty Ltd (CDLC) and Pouring Pty Ltd (Pouring). They are sublessees of premises owned by the first defendant, Capital Estate Developments Pty Ltd (Capital). From their respective premises, CDLC operates the café and Pouring operates the pub.
3․The plaintiffs sought to sell the said businesses towards the end of 2022. The second and third defendants, respectively NURCAF Pty Ltd and MDPUB Pty Ltd, are the proposed purchasers.
4․In order to sell their businesses, the plaintiffs required Capital’s consent as landlord to assign each lease to the new owner. The regime for obtaining consent was set out in a Deed of Settlement executed between each of them and the first defendant on 30 September 2022 (Deed).
5․Capital refused consent and instead sought to terminate each lease under the Deed. The ultimate issue is the reasonableness of the landlord’s withholding of that consent. A preliminary issue has arisen concerning how to assess reasonableness and what material is relevant to that assessment. This judgment concerns the preliminary issue.
Procedural history giving rise to the preliminary issue
6․The matter first came before the court on a duty basis on the final day of the court term in 2022. The plaintiffs sought relief permitting them to sell the businesses. Following an urgent hearing, an interim injunction was granted which permits the plaintiffs to remain in each of the premises pending the resolution of the Court proceeding. At that time, the matter was listed for final hearing on 2 March 2023.
7․However, the matter then evolved at the point when the parties issued subpoenas to prepare for hearing. The plaintiffs argued the subpoenas that had been issued by the first defendant were too broad in the material they sought. That led the first plaintiff to file an application in proceeding, seeking an order pursuant to r 1521 of the Court Procedures Rules 2006 (ACT) that the Court determine a separate legal question before the trial.
8․At the heart of the preliminary issue is how to assess the “reasonableness” of a landlord’s withholding of consent to assign a lease; in essence, whether reasonableness is assessed by reference only to what the landlord knew at the time consent was refused or more broadly.
9․How the Court ruled on the legal dispute may have significantly affected the scope of the evidence to be led at trial, and in turn, the length of the hearing. The plaintiffs argued the evidence to be put before the Court was confined to the material facts that the landlord knew at the time. Capital argued the admissible material was not so confined, and that it could rely on other reasons to withhold consent than those given to the plaintiffs. If Capital was correct, then the scope of the hearing was anticipated to be much wider, with additional witnesses, documents and cross-examination.
10․Given that the hearing on 2 March 2023 was imminent, I made orders on 24 February 2023 for a separate question to be determined in advance of the trial in the proceeding, with reasons to follow as part of the substantive judgment on the preliminary issue. Accordingly, these reasons will first briefly address why the order was made.
The Court’s discretion to order the separate hearing of a question
11․The principles behind the Court’s discretion to order a separate hearing of a question have been set out in Ivanoff v Alto Scaffolding Pty Ltd [2022] ACTSC 155 at [11]-[14]:
11.The Court is unlikely to make an order for the hearing of a separate question unless doing so will have the effect of resolving the controversies between the parties or substantially narrowing the field of litigious controversy on the basis of concrete facts (as opposed to hypotheticals): Bass v Permanent Trustee Co Ltd [1999] HCA 9; 198 CLR 334 at [45], [49]-[50]; Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718; 240 FCR 276 at [8]; Idoport v National Australia Bank [2000] NSWSC 1215 (Idoport) at [7].
12.To this end, the High Court has stated that the trial of single issues divorced from a case in its totality ought “only be embarked upon when their utility, economy, and fairness to the parties are beyond question”: Tepko Pty Ltd v Water Board [2001] HCA 19; 206 CLR 1 at [170].
13.The above principles were applied by Master Mossop (as his Honour then was) in Medici Clinics (Australia) Pty Ltd and Medici Clinics Pty Ltd v Patel [2014] ACTSC 29 (Medici Clinics). His Honour stated at [8]-[10] that while the Court plays an increasing role in taking measures to support the efficient and expeditious conduct of proceedings, the extent of this role was ultimately a matter of judgement and varies significantly depending upon the circumstances of the case.
14.Medici Clinics similarly involved an application under r 1521 where the determination of the separate question would potentially require cross examination of witnesses and findings of credit, would not dispose of the case, and would likely attract an appeal. That combination of factors led to his Honour dismissing the application, noting at [22] that the issues sought to be resolved separately would “in the long run, involve better use of resources of the parties and the court.” if determined together in the proceeding.
12․The preliminary issue is really an issue in the nature of a pre-trial ruling on evidence. However, the ruling itself requires a considered decision on relevance that in turn depends on a question of law (being whether reasonableness is to be judged subjectively at the time the decision was made, or by reference to additional material, either existing or emerging after the decision was made).
13․It became clear from the submissions made by the parties that such task was not a simple ruling, such as could be made at trial. It affected the scope of documents produced under subpoena, categories of discovery, and forensic decisions about which witnesses to call and the content of their affidavits. There was clear utility and potential cost savings for the parties in knowing the scope of relevant material prior to trial.
14․Further, the issue to be determined was a discrete question of law, which did not require cross-examination of any witnesses or resolution of contested facts.
15․Finally, even without ordering a separate question, the substantive hearing was not going to conclude within the day allocated and the matter would either need to be vacated and listed at a later date or go over part-heard. The latter alternative would have been a less than ideal outcome for this proceeding, as there was a risk that witnesses would be under cross-examination.
16․I decided that the case management objectives of s 5A of the Court Procedures Act 2004 (ACT) were best served by the parties having clarity on the point before the parties prepared for hearing, and that the most efficient conduct of the matter was to use the time that had been allocated for a substantive hearing on 2 March 2023 to deal instead with the separate question. Accordingly, orders were made for the determination of the separate question.
Separate question for determination
17․The form of the separate question was settled on 28 February 2023 as follows:
(a)Is the reasonableness of the first defendant’s refusal to consent to the sale of businesses pursuant to clause 2.6 of the Deed of Settlement to be determined by reference to:
(i)Only information of which the first defendant was aware when it refused consent; or
(ii)The information in (i) and further information of which the first defendant was not aware when it refused consent, but which existed at that time; or
(iii)The information in (i) and (ii) and further information of which the first defendant was not aware when it refused consent and that did not exist at that time.
18․For convenience in dealing with each alternative, I will label the three categories of information. The first category is “known material”. The second category is “unknown material” (that is, existing at the time the decision was made but not known by the landlord). The third category is “fresh material”.
Issues for determination
19․During the hearing on 2 March 2023, the parties both submitted that the answer to (iii) above was “no”. In assessing reasonableness, the Court does not take into account any fresh material that did not exist at the time.
20․The plaintiffs submitted:
(a)the answer to (i) was yes; and
(b)the answer to (ii) was no.
21․The first defendant submitted:
(a)the answer to (i) was no (because that material is relevant, but not “only” that material); and
(b)the answer to (ii) was yes.
22․Thus, the two issues are whether the defendant’s withholding of consent is assessed by reference to (a) only known material, or (b) known and unknown material. For the reasons below, because of the way in which the applicable statutory provision in the Territory is drafted, the answer as to what material is relevant depends upon the particular reason the landlord has for withholding consent under s 100 of the Act.
The Legislative framework
23․It is helpful to first understand the relevant part of the legislation governing assignment of commercial leases in the Australian Capital Territory (Territory), being Part 11 of the Leases (Commercial and Retail) Act 2001 (Leases Act). In doing so, that does not mistake the overarching submission made by the parties, which was that the Court construes the Deed (being the relevant contract governing the rights and liabilities of the parties) to determine the answer to the separate question on the scope of documents that are relevant to reasonableness.
24․However, Clause 2.6 of the Deed expressly incorporates the legislation. It provides:
Where CDLC or Pouring has satisfied the requirements of clauses 2.3(1) and 2.3(2), the Lessor may only refuse to grant a New Lease to a proposed purchaser of the Morning Dew Business or the Honeysuckle Business in accordance with section 100 of the Leases Act.
25․It is therefore necessary to construe s 100 of the Leases Act.
Relevant provisions
26․A tenant may ask the lessor to agree to assignment of a lease in writing: s 95 of the Leases Act.
27․Section 12(5) of the Leases Act contains a broad definition of a “lease”, including “an agreement, whether in writing or not, that provides for the occupation of premises exclusively or otherwise, whether for a fixed term, periodically or at will”.
28․Within 14 days of receiving such a request, “or after a further period agreed by the parties, the lessor may, in writing, as the tenant to provide the lessor with further information or documents”: s 96(1) of the Leases Act.
29․Section 96(2) of the Leases Act prescribes the information that may be requested by a lessor. It is in the following terms:
(1)If the tenant's request is for consent to an assignment or sublease, the lessor may only request 1 or more of the following:
(a)information about the financial standing of the prospective assignee or subtenant, including details of any approved finance of the prospective assignee or subtenant;
(b)information about the financial standing of any prospective guarantor for the prospective assignee or subtenant;
(c)a certificate of occupancy for the premises;
(d)information about the business skills of the prospective assignee or subtenant;
(e)information about the proposed use of the premises by the prospective assignee or subtenant;
(f)references relating to the ability of the prospective assignee or subtenant to operate the business, or proposed business, on the premises.
30․Section 96(3) deals with requests for consent to the mortgage of the lease. It does not arise on the present facts.
31․After receiving the request, the lessor has 28 days to consent to or refuse the assignment by written notice to the tenant. This period may be extended by agreement of the parties or if the lessor asks for further information: s 99(2) of the Leases Act.
32․If the lessor asks for further information, the lessor has 21 days after receiving the information requested to either consent to or refuse the assignment in writing. Again, the period of time may be extended by agreement of the parties: s 99(3) of the Leases Act.
33․Section 99 also provides for circumstances where the lessor is taken to have consented and for the Magistrates Court to make orders following a deemed consent. Neither of those matters arise here.
Section 100 and its priority over contractual provisions
34․The critical section governing the present dispute is s 100 of the Leases Act (emphasis added):
100Refusal to consent to assignment or sublease
(1)The lessor may refuse consent to the assignment of a lease or granting of a sublease requested under section 95 (Request for consent to assignment, sublease or mortgage) only if it is reasonable in all the circumstances to do so.
(2)For subsection (1), the lessor’s refusal is taken to be reasonable if the lessor has reasonable grounds for believing that—
(a)the prospective assignee or subtenant intends to use the premises for a purpose not allowed under the lease; or
(b)the prospective assignee or subtenant (taking into consideration information about any proposed guarantor for the assignee or subtenant) does not have the financial resources to run the business; or
(c)the tenant cannot produce a current certificate of occupancy for the premises; or
(d)the prospective assignee or subtenant does not have adequate skills to run the business; or
(e)the prospective assignee or subtenant, or the business conducted by the prospective assignee or subtenant, will not be compatible with other tenants in the building containing the premises; or
(f)the tenant has failed to rectify a breach of the lease (other than a breach that has been waived by the lessor).
(3)If the lessor withholds consent on a ground not mentioned in subsection (2), the lessor has the burden of establishing that refusal to consent is reasonable.
(4)This section does not authorise anything that would, if it were not authorised, contravene the Competition and Consumer Act 2010 (Cwlth), part 4.
(5)In this section:
business includes proposed business.
35․The statutory regime for commercial leases does not exclude the common law, but as will be seen, it impacts upon it and modifies it. Further, s 19 of the Leases Act provides:
If a provision in a lease is inconsistent with this Act, the provision is void to the extent of the inconsistency.
36․Ordinarily, if the contract or lease signed by the parties carries a different meaning or different obligations from the provisions set out above, the statute prevails to the extent of any inconsistency.
37․Here, the plaintiffs argued that s 100 of the Leases Act applied as a clause of a contract, rather than as a section of an Act, and that this affected the construction of the words in s 100. The plaintiffs submitted that the words of the section, and in particular, the words “reasonable in all the circumstances” are to be construed by reference to the terms of the Deed.
38․The first defendant similarly submitted that the reference to ss 95 and 100 in clauses of the Deed does not result in those sections applying because of the statute itself, but instead because they are applied by the terms of the contract.
39․The reason for that position arises because of the specific terms of the Deed. Clause 2.1 of the Deed terminated the existing leases held by the plaintiffs. In its place, an interim lease was granted to each plaintiff, for a period commencing on 1 August 2022 and ending either when the business was successfully transferred or on 15 December 2022, whichever was the earlier date.
40․Under s 12(2)(c) of the Leases Act the Act does not apply to a lease that is for less than 6 months, unless the lease is a continuous occupation lease. The Deed expressly did not permit continuous occupation.
41․Nevertheless, the contract does not change the meaning of the statute; rather, by agreement, s 100 applies and may alter what might otherwise have been the meaning of the contract. Notwithstanding the nature of the document in which the obligations are contained, because of clause 2.6 of the Deed, fundamentally, the dispute is one which relates to the scope and operation of s 100 of the Leases Act.
42․The proper approach is to first construe s 100, including working out its meaning and scope as the Court would approach any task of statutory construction, independently of the specific contractual references. Then, in applying s 100 to this particular contract, part of the facts falling within “all the circumstances” includes the Deed which the parties signed.
43․Ultimately, the outcome may not be different from the respective positions submitted by the parties, but that nuanced distinction is important because of the emphasis the parties in this proceeding each placed on the common law. The legislature has imposed the provisions of the Leases Act on the common law principles of contractual construction. Where section 100 of the Leases Act modifies the common law, it is that modification which applies to the rights and obligations of the parties under the Deed. In what follows, it is significant that none of the cases relied upon by any party have specifically dealt with the statutory scheme applying in the Territory.
44․The foregoing is also relevant for another reason. These proceedings were brought in the Supreme Court on the basis that there may have been arguments about whether the Magistrates Court had jurisdiction over a contractual dispute arising out of a deed of settlement (with an interim lease for less than 6 months), as opposed to a leasing dispute. The Magistrates Court has jurisdiction to deal with all applications under the Leases Act. Section 17 of the Leases Act applies the Act, among other things, to “any other matter in relation to a lease”. For the assistance of the parties and future litigants, the interim lease falls within the definition of lease, notwithstanding that it is for a period of less than 6 months. My view is that the present dispute is plainly a matter “in relation to” a lease and would have fallen within the jurisdiction of the Magistrates Court.
45․However, I accept that the position is not as clear as it could be and in any event, that view is not to be taken as suggesting that the Supreme Court is an inappropriate forum in this case. The dispute involves complex questions of the intersection between statute and the common law, such that detailed judicial consideration and guidance by a court of superior record remains of assistance to the litigation.
The proper construction of s 100
46․The principles of statutory interpretation are well-established. The task of construction begins with the text of the provision: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; 239 CLR 27 at [47]. It so doing, it takes account of its context and purpose: Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Moorcroft [2021] HCA 19; 273 CLR 21 at [15]. Context is to be considered “at the first stage of the process of construction”: R v A2 [2019] HCA 35; 269 CLR 507 (A2) at [33], [148]. Context is to be understood in a wide sense, as including "surrounding statutory provisions, what may be drawn from other aspects of the statute and the statute as a whole": A2 at [33], [148].
47․The words of s 100(1) expressly refer to a consent “requested under s 95” of the Leases Act. Further, the general approach provided by s 140 of the Legislation Act 2001 (ACT) requires that the meaning of s 100 is to be worked out by reference to the text, context and purpose of the Leases Act, construed as a whole.
48․Section 100 has three material components. The first is that the lessor may refuse consent to the lease assignment, but only “if it is reasonable in all the circumstances” to do so. I will deal with reasonableness separately and in more detail below.
49․The second component of the section is s 100(2). It is a deeming provision, setting out a series of facts which will be taken to constitute “reasonable” refusal. The section does not require proof of each fact, but a lesser standard – namely proof that the lessor “has reasonable grounds for believing” each fact. That requirement carries with it two components:
(a)the genuinely held belief of the lessor, which is a subjective test; and
(b)such belief must have a reasonable basis, which is an objective test.
50․The third component of s 100 makes it clear that in addition to the matters listed in s 100(2), there may be other circumstances giving rise to a landlord refusing consent. However, the burden of proof is on the lessor to establish that, whatever other reason or ground is relied upon, it is “reasonable”.
51․Two things may be observed about s 100(3). First, the provision expressly shifts the onus on the question of reasonableness. Previously a plaintiff had to establish that a landlord’s refusal was unreasonable: International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513 (International Drilling) at 519-521;Secured Income Real Estate (Australia) Limited v St Martins Investments Proprietary Limited [1979] HCA 51; 140 CLR 596 (Secured Income) at 609, Allmere v Burbank Trading Pty Ltd [2008] VSC 139 at [220] and Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205 (Tamsco) at [49] (citing International Drilling). As submitted by the first defendant, s 100(3) expressly modifies the position at common law.
52․Secondly, on the plain text of s 100, while s 100(2) is confined to the state of mind or belief of the lessor, s 100(3) is expressly not so confined. It is unclear whether that was intended by the Legislative Assembly.
53․It is a difference of significance for determining the scope of material relevant to “reasonableness” under s 100. If the grounds for withholding consent are entirely confined by statute to the lessor’s belief at the time of refusal, then the Court assesses reasonableness based on what was known by the lessor at the time. If the permissible grounds for withholding consent are expanded to include objective facts, then the material that may be led may conceivably include documents that were not provided to the lessor or facts not known to the lessor at the time of refusal.
54․To illustrate the point, by way of comparison, the Retail Leases Act 1994 (NSW) (RL Act) contains a similar regime for assigning a retail lease. Section 41 of the RL Act succinctly captures the procedure for seeking consent, providing documents requested and obtaining a response:
41Procedure for obtaining consent to assignment
The following procedure applies to the assignment of a retail shop lease that requires the consent of the lessor--
(a)A request for the lessor's consent to an assignment of the lease must be made by the lessee in writing.
(b)The lessee must provide the lessor with such information as the lessor may reasonably require to be satisfied that the financial resources and retailing skills of the proposed assignee are not inferior to those of the lessee.
(c)
The lessee must provide the proposed assignee with an
updated lessor's disclosure statement(comprising a copy of the lessor's disclosure statement given to the lessee in respect of the lease together with details of any changes that have occurred in respect of the information contained in that disclosure statement since it was given to the lessee).
(d)For the purpose of enabling the lessee to provide the proposed assignee with the required updated lessor's disclosure statement, the lessor must provide the lessee with an updated lessor's disclosure statement within 14 days after being requested to do so by the lessee.
(e)If the lessor fails to provide the updated lessor's disclosure statement, it is sufficient compliance with the requirement to provide the proposed assignee with an updated lessor's disclosure statement if the lessee instead provides a lessor's disclosure statement completed by the lessee to the best of the lessee's knowledge (but with information as to current outgoings in place of information as to estimated outgoings).
(f)The lessor must deal expeditiously with a request for consent to assignment of the lease.
(g)The lessor has 28 days (the decision period) to decide whether to consent or to refuse consent to assignment. The decision period starts from when the request for consent was made by the lessee or from when the lessee has complied with the requirements of this section (whichever is later).
(h)The lessor is taken to have consented to assignment if the lessee has complied with this section and the lessor has not, within the decision period, given notice in writing to the lessee either consenting or withholding consent to assignment.
(i)The regulations may prescribe a period that is to replace the period of 28 days as the decision period in this section.
55․Section 39 of the RL Act then provides the grounds on which consent to assignment may be withheld, as follows:
39Grounds on which consent to assignment can be withheld
(1)The lessor is entitled to withhold consent to the assignment of a retail shop lease in any of the following circumstances (and is not entitled to withhold that consent in any other circumstances)--
(a)if the proposed assignee proposes to change the use to which the shop is put,
(b)if the proposed assignee has financial resources or retailing skills that are inferior to those of the proposed assignor,
(c)if the lessee has not complied with section 41 (Procedure for obtaining consent to assignment),
(d)the circumstances set out in section 80E [which relates to Sydney Airport and the international airport retail market],
(e)in the case of a retail shop lease that has been awarded by public tender, if the assignee fails to meet any criteria of the tender.
(2)This section does not preclude any right of the lessor to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with the consent, so long as the lessor has substantiated those expenses to the lessee at the request of the lessee.
56․In the case of In the matter of Bar Machiavelli Pty Ltd (Administrator Appointed)
[2018] NSWSC 1395 (Bar Machiavelli), having set out the above provisions, Brereton JA stated at [18]-[19] (emphasis added):18.Section 39 states the circumstances in which a lessor is entitled to withhold consent, not as matters of which the lessor must be reasonably satisfied, but as objective facts. The lessor is entitled to withhold consent only if one or more of the circumstances referred to in s 39(1)(a) to (e) objectively exists, regardless of whether or not in the lessor’s opinion, reasonable or otherwise, one exists. The question whether such circumstances exist is ultimately one for determination by the Court, on the evidence before the Court. I do not accept the submission made, on behalf of WFM, that the Court is confined to the material that was before lessor. Such confinement might be appropriate if the test were the state of mind of the lessor. But it is not; it is whether a relevant circumstance objectively exists.
19.A further reason for rejecting the view that the decision is confined to evidence that was before the lessor is that (1) the objective existence (or not) of one of the specified circumstances does not depend only on what is provided to the lessor; (2) there is no reason why the lessor could not later rely on grounds additional to those invoked when it made its decision; (3) while it may not be difficult to establish what was placed before the lessor by the lessee, it will be often be difficult to ascertain what other material the lessor may have taken into account.
57․The emphasised words in the above extract are to highlight reasoning that I consider to be equally applicable to s 100(3) of the Lease Act applying in the Territory. By including a generally worded catch-all provision of “a ground not mentioned in s 100(2)” that a lessor may rely upon, the legislature has left open the possibility of a lessor relying on a ground that requires assessment of whether a relevant circumstance objectively exists.
58․In my view, the above reasoning sufficient to answer the preliminary question. The Court’s task is to ascertain the true reason for refusal of consent: In the matter of Idoport Pty Ltd ACN 075 318 106; in the matter of Idoport Pty Ltd (In Liq) (Receivers Appointed) [2012] NSWSC 524 (Idoport)at [53], citing Tamsco (at [54]). If the reason for refusal is a ground specified in s 100(2) of the Leases Act, the material is confined to that known to the lessor at the time. If the reason for refusal is a ground available under s 100(3), which may be that a relevant circumstance objectively exists, then the lessor (who has the onus) may put before the Court material that was not within the lessor’s knowledge at the time the refusal was given. The reasons the first defendant had in the present case will be a matter for evidence and findings at trial.
At what point in time is reasonableness to be judged?
59․It must be remembered that the legislation in Bar Machiavelli was a different regime. There is one aspect of the above reasoning that I do not consider is apt to import to the interpretation of s 100 of the Leases Act here. That is the reason given in [19] of the above extract in Bar Machiavelli that “there is no reason why the lessor could not later rely on grounds additional to those invoked when it made its decision”. In my view, that aspect of the reasoning is not applicable, because s 100 is expressly tied to refusal at a point in time following a prescribed procedure, that being the time the decision was notified to the lessee. It is not assessed at a later point – such as when proceedings are commenced disputing the refusal, or at trial.
60․The reason that s 100 operates at the point of time when a consent is refused is because it is at that point that the landlord must have a genuine subjective belief about one of the matters listed in s 100(2) or another ground must be established under s 100(3). The objective assessment of ‘reasonableness’ then applies to the belief held, or other fact relied upon, at that time.
61․Section 99(4) is also relevant, because that provision deems consent if a (reasonable) refusal is not given within the timing regime set by the Leases Act. If the ground relied upon by the lessor is later found not to be reasonable, it is difficult to see how another ground may be separately invoked, as it would not be the true reason for refusal. Under this statute, absent a reasonable refusal, consent is deemed.
62․One of the beneficial features of the scheme is the provision of certainty for lessors and lessees. There is certainty in the time limits for the making of decisions. There is a limit on the information that may be requested. There are specific grounds that the Leases Act deems to be reasonable. A construction of s 100 that favours the assessment of reasonableness based on the ground at the time of the refusal of consent furthers that certainty.
63․Thus, a landlord who has no reasonable ground for refusing consent (whether listed in s 100(2) or another ground under s 100(3) of the Leases Act) at the time such refusal is notified to the lessee, will be in breach of s 100. That is so, even if the landlord identifies a reasonable ground after notification of the refusal has been given.
64․The question is discussed further below in the context of addressing the parties’ arguments on the common law. However, ultimately the resolution of the separate question presently before the Court does not require the point to be finally determined.
65․What follows is largely in deference to the submissions made by the parties as they argued the case with a greater emphasis on the common law and the contractual provisions of the Deed. I have dealt with the arguments on each of those matters for completeness, as an alternative pathway of reasoning in the event the above analysis is wrong.
Whether the common law applies here to permit additional objective grounds (and unknown material)
66․The general purpose of the Leases Act is broadly consistent with the position at common law, set out in International Drilling (with the relevant principles recorded in Tamsco at [49]). A lease may be assigned, but the landlord’s permission should be sought. The landlord cannot refuse permission on grounds unrelated to the lease. In other words, a lessor’s consent to assignment must not be unreasonably withheld, or capriciously or arbitrarily withheld. The purpose of such clauses in commercial leases is to protect the lessor from having his or her premises used or occupied in an undesirable way or by an undesirable assignee: Bates v Donaldson [1896] 2 QB 241 at 247, cited in Eddadock Pty Ltd v Denning Properties Pty Ltd [2002] NSWSC 208 (Eddadock) at [57].
67․At common law, if a lessor receives a request for assignment, a lessor cannot simply ignore it or string out the process of responding. Where the lessor delays unreasonably, that may be taken as a constructive refusal to give consent: Provident Capital Ltd v Zone Developments Pty Ltd [2001] NSWSC 843 at [41]; Lewis & Allenby (1909) Ltd v Pegge [1914] 1 Ch 782, both of which were cited in Idoport at [57]. Here, the Leases Act has modified the common law position, in that s 99(4) provides that where a lessor does not respond within the time stipulated or agreed, the lessor is taken to have consented to the assignment.
68․Further, “the reason for refusal must be something affecting the subject matter of the contract which forms the relationship between the landlord and the tenant and not something extraneous and dissociated from the subject matter of the contract”: Colvin v Bowen (1958) 75 WN (NSW) 262 at 264, adopted in Secured Income at 609-610.
69․Accordingly, a lessor cannot use the request to negotiate more favourable lease terms or to obtain early surrender of the lease. The lessor cannot withhold consent in order to achieve an objective which is “a collateral advantage outside the terms of the [contract]”: JA McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd [1992] 2 Qd R 121 (McBeath) at 133. The lessor is not entitled to refuse consent on grounds that have nothing to do with the relationship of landlord and tenant: International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513, cited in Eddadock at [57].
70․In Idoport at [53], Ball J referred to the principle in McBeath and said that it remained true “even if there were reasons for refusing the consent that were reasonable which the obligor did not rely on. It is objectively unreasonable for an obligor to withhold consent in order to achieve a collateral object if the obligor is unconcerned about particular matters concerning the proposed assignee, even if some other obligor could reasonably attach significance to those matters.” Again, his Honour’s focus was on the true reason for refusal by the particular obligor, as opposed to any available reasonable ground of refusal.
71․In Ashworth Frazer Ltd v Gloucestor City Council [2001] UKHL 59; WLR 2180 (Ashworth), Lord Bingham of Cornhill stated at 2183 (citing Pimms Ltd v Tallow Chandlers Company[1964] 2 QB 547 at 564) (emphasis added):
…it is not necessary for the landlords to prove that the conclusions which led them to refuse consent were justified, if they were conclusions which might be reached by a reasonable man in the circumstances.
72․The above principle has been cited in cases such as Leslie Josef Boss and Deborah Ann Owen v Hamilton Island Enterprises Limited & Anor [2008] QSC 274 at [67] and Eddadock at [54]. The words emphasised in that passage are to again draw attention to the fact that the conclusion in question is that of the lessor, which is then assessed against the objective standard of a reasonable person. This is to be distinguished from any reasonable conclusion which might have led a reasonable person to refuse consent.
73․Section 100 of the Leases Act similarly limits the grounds of refusal to those which are “reasonable in all the circumstances”. Under s 100, the landlord does not have to prove the fact relied upon, only that the position taken by the landlord was a reasonable one in all the circumstances. Where the true ground of refusal is one of those deemed to be reasonable in s 100(2), there is likely to be little role for the above principles to operate. However, they continue to inform the expanded grounds that may be relied upon under s 100(3).
Reasonableness
74․That leads to consideration of what constitutes “reasonableness” in all the circumstances, in refusing consent. As discussed in Fulham Partners LLC v National Australia Bank Ltd [2013] NSWCA 296 (Fulham) at [42], the inquiry requires identification of:
…the legal principles pursuant to which the reasonableness (or otherwise) of the refusal is to be characterised. … [T]his inquiry has two elements, namely, (a) content and (b) timing. Regarding content, the question is what kind of factors may properly be taken into account by the party whose consent is sought. Regarding timing, the question is whether the relevant factors are limited to those known to and relied upon by the party whose consent is sought at the time consent is withheld, or whether they include factors which either were not known to the party at the time of refusal or, if known, were not subjectively relied upon at that time. These elements are interrelated.
75․The plaintiffs drew attention to Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd (1986) 1 Qd R 406 at 411, where Thomas J held that the “reasonableness” test included “both subjective and objective elements”. His Honour stated at 411:
It requires a submission of information that will enable the particular landlord to make a decision in the particular circumstances, and it also requires that the landlord will apply the standards of the reasonable man. By definition one may assume that such a man would not be acting arbitrarily or capriciously.
76․Although that explanation was in the context of the common law and not any legislative test, it is generally consistent with the text and purpose of s 100 of the Leases Act above and I respectfully agree with it.
77․Both parties addressed in detail the meaning and effect of a passage in Secured Income, where Mason J said at 610-611 (emphasis added):
A consideration of the refusal is complicated by the circumstance that the respondent did not give reasons to the appellant before or at the time of refusing to grant the lease on 31st May. A document headed "Reasons for Refusal" was produced in court on the second day of the trial, but neither the document nor its contents had been communicated to the appellant or its advisers before the trial. There is authority for the proposition that the question whether consent has been unreasonably withheld to an assignment of a lease is a subjective, not an objective, question in the sense that the court must confine itself to points raised by the landlord at or about the time of refusal. In Lovelock v. Margo the Court of Appeal so decided, Lord Denning M.R. saying (1963) 2 QB 786, at pp 789-790 : "it is not right to say that this is an objective question, as counsel said. This matter cannot be considered without regard to the state of mind of the landlord herself as to her reasons for refusing consent. How otherwise can a lessee hope to see whether he can assign unless he knows the landlord's reasons for objection." This passage seems to suggest that the landlord should be confined to reasons which are given to the lessee at or about the time of refusal of consent. To this extent, at least, the judgment cannot be reconciled with earlier authority which indicates that an omission to give reasons leads more readily to the inference that the refusal was capricious, although not to the conclusion that the refusal was necessarily capricious. Moreover, the passage seems to be at odds with a later decision of the Court of Appeal in Sonnenthal v. Newton (1965) 109 Sol Jo 333, where the lower court was held to be entitled to take into account reasons not referred to at earlier stages of the case. See also Isow's Restaurants Ltd. v. Greenhaven (Piccadilly) Properties Ltd. (1970) Est Gaz 82. (at p611)
78․The parties each grappled in particular with the view expressed by Mason J at 611:
I am inclined to the view that the landlord is entitled to rely on a ground not taken at or about the time of refusal. It would be most unjust if the landlord could not take advantage of an important ground justifying refusal merely because it was not known to him at the time, e.g. the impending bankruptcy of the proposed assignee. In the context of this case, the reasons for allowing the respondent to advance a ground not communicated at the time of refusal are rather stronger. There is here no question of informing a lessee so that he can decide whether he should assign or not. And the general rule in contract is that a party can justify his termination or rescission of a contract by reference to grounds not taken at the relevant time (Shepherd v. Felt and Textiles of Australia Ltd. (1931) 45 CLR 359).
79․This passage has caused some controversy. In Idoport, Ball J was dealing with a submission that reasons given at the time of a refusal of an assignment were not always relevant, because an obligor (such as a lessor) was able to rely on reasons other than those communicated at the time of the refusal. Ball J stated at [54] (emphasis added):
[The obligor relied] on the general principle stated by Dixon J in Williams v Frayne (1937) 58 CLR 710 at 733 in these terms:
... as a general rule, it is enough that upon the true facts a party is entitled to act as he has done and his justification is independent of his own knowledge of the facts ...
A particular application of that principle is that a party who terminates a contract may, at trial, rely upon any ground for termination whether or not taken at the time: see Shepherd v Felt & Textiles (1931) 45 CLR 359. However, in my opinion, the analogy is not an accurate one. Normally, the right to terminate a contract depends on the existence of objective facts, not on the reasonableness of the conduct of the parties. The effect of the principle is that a party who exercises a right to terminate a contract is entitled to rely on the objective facts, even if those facts were not relied on at the time. But where the issue is whether a party acted reasonably in deciding whether or not to give consent, it is necessary to consider that party's own conduct in determining the question of reasonableness. The result is that the obligor's reasons, and the reasons the obligor gives (or does not give), are part of the objective facts against which the question of reasonableness must be answered. But that does not mean that the question is not an objective one and that other facts, even facts not known to the obligor, are not relevant in answering that objective question. It simply means that the court must consider all the facts, including the obligor's own conduct, in considering the question of reasonableness.
80․Mason J’s view at 611 of Secured Income was also discussed in Fullham, where Basten JA (with whom Barrett JA and Bergin CJ in Eq agreed) stated at [49]-[50] (emphasis added):
49.There is a further element of uncertainty in these propositions. In Secured Income there was no doubt as to the reason, held contemporaneously with the refusal, on which the purchaser based its refusal. The question was whether that basis was objectively reasonable. It was the evidence to establish that it was objectively reasonable which the Court held could be supplemented by material not known to the party at the time it refused consent. Apart from the reference to Shepherd v Felt and Textiles, it is by no means clear whether the case supports reliance on a ground for refusal which was not known at the time of the refusal, rather than a ground which was relied on but not then known to be reasonably based. The respondents relied upon the broader proposition, for which they found support in the judgment of this Court in Downer EDI v Gillies [2012] NSWCA 333 at [131]-[138] (Allsop P, Macfarlan and Meagher JJA agreeing). In this context, it may be helpful to distinguish between disputes which go to the validity of the reason (that is, whether extraneous or legitimate) and disputes as to whether a potentially legitimate reason was reasonable in the circumstances.
50.As will be explained below, the present case did not turn upon reliance on facts not known to the NAB parties at the time consent was withheld. Rather, the appellants' assertion was that the reasons given by the NAB parties for withholding consent were not the reasons actually relied upon in refusing consent. That was because, once the letters of February 2007 were excluded, as the appellants submitted they should have been, there was no evidence to support the reasons relied on by the NAB parties in their pleadings. However, if the letters were properly admitted, they supported the assertions in the pleadings. It is, therefore, convenient to turn immediately to the two subsidiary issues, namely which party bore the onus of proof and the admissibility of the letters.
81․In confining these reasons to answering the separate question, and without dealing with any factual dispute about the reasons for refusal relied upon by the first defendant, it suffices to say that Secured Income was not dealing with the operation of the Leases Act. Both of the alternative pathways (being circumstances specified in s 100(2) or s 100(3) of the Leases Act) are tied to the grounds for “the refusal”, being grounds actually relied upon at the point in time that refusal is notified as required by the statute.
82․On the above findings about the proper construction of s 100 of the Leases Act, s 100(3) deals with the distinction made by Basten JA, namely grounds relied on at the time of refusal, but (potentially) not then known to be reasonably based.
83․If it be the case that the available grounds for withholding consent are broader at common law, for assignments to which the Leases Act applies, that principle has been impliedly modified, noting that no special clarity is required in the statute to alter general common law principles: Gifford v Strang Patrick Stevedoring Pty Limited [2003] HCA 233; 214 CLR 269 at [36]. The principles that the parties each sought to draw upon and apply from the cases are not ones that would be categorised as fundamental common law rights or freedoms, such that the principle of legality needs to be considered.
84․However, as the statute is not a replication of a contractual clause such as “consent will not be unreasonably withheld”, the discussion by Mason J is not directly applicable and any controversy about what was said, or whether the available grounds at common law are broader (as Mason J suggested), does not need to be resolved.
The construction of the Deed
85․The parties each relied on various clauses of the Deed. The clauses and contents of the Deed are relevant to the question of whether the particular ground relied upon by the first defendant to refuse consent was “reasonable in all the circumstances”. As that is a fact dependent argument, it is really a matter best left for trial. Accordingly, to avoid trespassing on those arguments, the parties’ submissions on how the Deed impacts upon the preliminary question will be dealt with briefly.
86․The relevant clauses are clauses 2.1, 2.3 and 2.6 (repeated for ease of reading), as follows:
2.1 The Parties agree and warrant to one another that:
(1) the Existing Leases are hereby terminated with effect from 31 July 2022;
(2)on or about the date of the Deed, CDLC and Pouring must each provide the Lessor with an executed surrender of lease form in registrable form, to allow the Lessor to deregister the Existing Leases
(3) the Morning Dew Fit-Out at the date of this Deed is the property of the Lessor;
(4)if the sale of the Honeysuckle Business is not completed by 15 December 2022, Pouring will either:
(a)transfer all rights, interest and title whatsoever to the Honeysuckle Fit-Out (free of all encumbrances) to the Lessor at no cost to the Lessor, in which case the Lessor irrevocably waives any requirement for Pouring to payback any incentive associated with the Honeysuckle Lease; or
(b)if Pouring elects to keep the Honeysuckle Fit-Out, pay the Lessor the sum of $480,000.00 (including GST) and undertake a full make-good of the Honeysuckle Premises according to the terms of the Interim Lease for the Honeysuckle Premises
…
2.3If CDLC proposes to sell the Morning Dew Business or Pouring proposes to sell the Honeysuckle Business:
(1) the proposed sale or sales must occur and settle on or prior to 15 December 2022;
(2)CLC or Pouring, as the case may be, must request the approval of the Lessor to the proposed purchaser(s) and provide the Lessor with:
(a) a Sale Disclosure; and
(b) a New Lease Disclosure; and
(3) CDLC or Pouring must pay the Lessor and New Lease Costs.
…
2.6Where CDLC or Pouring has satisfied the requirements of clause 2.3(1) and 2.3(2), the Lessor may only refuse to grant a New Lease to a proposed purchaser of the Morning Dew Business or the Honeysuckle Business in accordance with section 100 of the Leases Act.
87․Sale Disclosure and New Lease Disclosure are defined elsewhere in the Deed. Those definitions require information to be requested by the first defendant in order to permit it to assess the request for assignment.
88․The plaintiffs argued that the context and purpose of the commercial agreement was one where the parties sought to end their commercial relationship, like a ‘commercial divorce’ citing Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; 256 CLR 104; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640; Opera House Investment Pty Ltd v Devon Buildings Pty Ltd (1936) 55 CLR 110. So much may be accepted. That is the evident purpose of the Deed.
89․The plaintiffs then argued that on the terms of the Deed, in making its decision under the Deed to refuse to transfer each lease, the first defendant cannot rely on information or documents (or a lack thereof) which may have been requested from the plaintiffs, but which they did not so request.
90․The first defendant submitted that its determination of consent does not require it to rely solely on information within its possession at the time of the decision-making. The first defendant argued the process of determining whether to consent to the transfer involved commercial due diligence, aimed at providing the first defendant with assurance that the proposed assignees (the second and third plaintiffs) had the financial capacity and integrity to continue the commercial leasing arrangement. The first defendant further submitted that the Deed does not preclude it from relying on other information, including information that had not been provided by the plaintiffs.
91․These arguments are more relevant to the reasonableness of the particular ground relied upon by the first defendant. They are matters for trial and will depend on what the Court finds was the lessor’s true ground for refusal at the time.
Conclusion
92․For the above reasons, the separate question is answered as follows:
(1)Is the reasonableness of the first defendant’s refusal to consent to the sale of businesses pursuant to clause 2.6 of the Deed of Settlement to be determined by reference to:
(i) Only information of which the first defendant was aware when it refused consent?
Answer:
(c)Yes, if the ground relied upon for refusal at the time falls within s 100(2) of the Leases (Commercial and Retail) Act 2001 (Leases Act); and
(d)No, if the ground relied upon for refusal at the time concerns an objective fact or circumstance.
(ii)Alternatively, the information in (i) and further information of which the first defendant was not aware when it refused consent, but which existed at that time?
Answer:
(c)No, if the ground relied upon for refusal at the time falls within s 100(2) of the Leases Act; and
(d)Yes, if the ground relied upon for refusal at the time concerns an objective fact or circumstance within s 100(3) of the Leases Act.
(iii)The information in (i) and (ii) and further information of which the first defendant was not aware when it refused consent and that did not exist at that time?
Answer:
No.
(2)Costs are reserved.
(3)The parties are directed to confer and provide a list of available dates for hearing for the remainder of 2023.
| I certify that the preceding ninety-two [92] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Justice McWilliam. Associate: Date: 12 October 2023 |
3