Creer v P and O Lines of Australia Pty Ltd

[1971] HCA 65

HIGH COURT OF AUSTRALIA

Barwick C.J., Menzies, Windeyer, Owen and Gibbs JJ.

CREER v. P. &O. LINES OF AUSTRALIA PTY. LTD.

(1971) 125 CLR 84

7 December 1971

Landlord and Tenant

Landlord and Tenant—Lease—Covenant against assignment without licence or consent of lessor—Proviso against assignment without offering to surrender—Statutory proviso that license or consent be not unreasonably withheld—Whether lessee obliged to offer to surrender lease before he can assign—Conveyancing Act, 1919-1969 (N.S.W.), s. 133B (1).

Decisions

December 7.
The following written judgments were delivered:-
BARWICK C.J. A lease between the parties to this appeal contained the following covenant:

"1. The Lessee covenants with the Lessor that the Lessee shall not assign sublet or in any way dispose of or part with possession of the premises (except in any case to an assignee or sublessee who is a member of the partnership of the Lessee firm) or any part thereof without the consent in writing of the Lessor such consent (subject as hereinbefore provided) not to be unreasonably withheld in the case of a respectable solvent and responsible assignee PROVIDED that should the Lessee desire to sublet lease or assign the whole or any part of the premises the Lessee shall before doing so offer in writing to the Lessor to surrender this Lease in respect of such whole or part of the premises without any consideration on any subsequent monthly rent day within two months of the making of such offer as shall be selected by the Lessor and the Lessor may accept such offer in writing at any time within fourteen days of the receipt thereof (such acceptance to be without prejudice to the rights and remedies of the Lessor in respect of any rent in arrear or any breach of the covenants herein contained) but shall otherwise be deemed to have rejected it." (at p86)

2. Section 133B(1) of the Conveyancing Act, 1919-1969 (N.S.W.) provides as follows:

"133B. (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 license 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 license or consent is not to be unreasonably withheld . . . ". (at p86)

3. The appellants desiring to assign the whole of the premises to persons who were considered to be respectable solvent and responsible assignees were informed by the respondents that consent to such an assignment would not be forthcoming as the appellants had not offered the respondents a surrender of the lease, the respondents indicating that they would be prepared to accept such surrender when the offer was made. (at p86)

4. In a suit brought by the appellants in the Supreme Court of New South Wales a judge sitting in Equity held on the authority of Adler v. Upper Grosvenor Street Investment Ltd. (1957) 1 WLR 227; (1957) 1 All ER 229 that the respondent in not consenting to the proposed assignment was not in breach of the lease nor in violation of the provisions of s. 133B(1) of the Conveyancing Act. (at p86)

5. In my opinion the substance of the covenant which I have set out is that should the lessee desire to sublet lease or assign the whole or any part of the premises and thus be willing to part with the whole or part of the premises as the case may be he shall before assigning or subletting offer to surrender the lease. That means that he will not assign or sublet unless the lessor will not accept the surrender. But in that event he covenants not to assign or sublet with the lessor's consent. At that point the provisions of s. 133B are attracted. There is in my opinion no objection to the lessor stipulating that there shall be no right to assign or sublet unless the lessor is first offered a surrender to the lease and refuses to accept it: and the lease can provide that a covenant against assignment or subletting without consent will only apply if, having been offered a surrender the lessor has refused to accept it. It is that condition of affairs which the clause in question seeks to attain. In my opinion it succeeds in doing so. (at p87)

6. The difficulty which has arisen in this case stems largely from the presence in the clause after the words "such consent" of the bracketted words "subject as hereinafter provided" and the circumstance that the requirement that the lessee should offer to surrender is contained in a proviso to the covenant against assignment. It is the position in the clause which the words I have quoted occupy upon which the argument for the appellant, so far as it depended on those words, was based. The submission in substance was that by annexing those words to the provision for the giving of consent the lessor has sought to engraft on the conditions upon which he will grant consent to an assignment or subletting an inadmissible provision, inadmissible having regard to the provisions of s. 133B(1) and to the case law developed upon that section or upon statutory provisions of the same kind. But in my opinion that is not the proper reading of the clause. By the words "subject as hereinafter provided" it is intended to indicate that there will be an occasion when no question of assignment or subletting can arise, namely in the event either that the offer to surrender is not made or, if made, is accepted. The words are not intended in my opinion to import a condition on which consent will be granted. (at p87)

7. It is quite true that the requirement of the offer of a surrender is expressed as a proviso. Generally a proviso ought not to be converted into a substantive provision. Nor is it necessary to do so in this instance. The main provision of the clause is undoubtedly a covenant against assignment or subletting which, though apparently negative in form, does, because of the provision for consent, confer rights on the lessee. The proviso qualifies the operation of the covenant by stipulating the occasion on which it will become effective. It seems to me that the appellants' submission gathers no strength from the fact that what the latter part of the covenant provides is done by way of proviso. (at p87)

8. In my opinion Adler v. Upper Grosvenor Street Investment Ltd. (1957) 1 WLR 227; (1957) 1 All ER 229 was rightly decided and covers this case. That the clause in question had been in use by conveyancers before that case was decided and that it has subsequently been included in books of precedents, is an added reason for rejecting this appeal but does not constitute the principal reason for my decision. (at p88)

MENZIES J. The appellants, as lessees, sought, by way of originating summons in the Supreme Court of New South Wales, declarations against the respondent as lessor to establish their right to assign a lease on the footing that the lessor had unreasonably withheld its consent to an assignment to Patrick Partners who, it was conceded, were respectable, solvent and responsible assignees. Consent was withheld because the lessees, desiring to assign to Patrick Partners, had not offered the lessor to surrender the lease. It was intimated that the lessor would accept such offer, if and when made. (at p88)

2. It is necessary to set out the relevant covenant in full:

"1. The Lessee covenants with the Lessor that the Lessee shall not assign sublet or in any way dispose of or part with possession of the premises (except in any case to an assignee or sublessee who is a member of the partnership of the Lessee firm) or any part thereof without the consent in writing of the Lessor such consent (subject as hereinbefore provided) not to be unreasonably withheld in the case of a respectible solvent and responsible assignee PROVIDED that should the Lessee desire to sublet lease or assign the whole or any part of the premises the Lessee shall before doing so offer in writing to the Lessor to surrender this Lease in respect of such whole or part of the premises without any consideration on any subsequent monthly rent day within two months of the making of such offer as shall be selected by the Lessor and the Lessor may accept such offer in writing at any time within fourteen days of the receipt thereof (such acceptance to be without prejudice to the rights and remedies of the Lessor in respect of any rent arrear or any breach of the covenants herein contained) but shall otherwise be deemed to have rejected it."

It is common ground that the word "hereinbefore", where italicized should read "hereinafter". (at p88)

3. A lessee may assign his lease, unless he binds himself not to do so, but he can lawfully covenant not to do so. A less comprehensive covenant, which would be equally valid, would be not to assign the lease before offering to surrender it. If, however, a lessee covenants not to assign without the consent of the lessor, s. 133B(1) of the Conveyancing Act, 1919-1969 (N.S.W.) applies, and, such a covenant, notwithstanding express provision to the contrary, is deemed to be subject to a proviso to the effect that consent is not to be unreasonably withheld. It is well established that the question to which this provision gives rise in an appropriate case is objective and is whether consent has been unreasonably withheld. Furthermore, it is settled that the parties cannot, by other terms in the lease, fix what is reasonable or otherwise modify the simple requirement that consent is not to be unreasonably withheld. It is also well settled that the desire of the landlord to obtain possession for himself is not a reasonable ground for refusing consent to an assignee. In In re Smith's Lease; Smith v. Richards (1951) 1 All ER 346, at p 349 , Roxburgh J. stated the foregoing propositions. (at p89)

4. In Adler v. Upper Grosvenor Street Investment Ltd. (1957) 1 WLR 227; (1957) 1 All ER 229 , Hilbery J. had to consider the very question to which this case gives rise. In the lease there under consideration there was a covenant on all fours with the covenant already set out. His Lordship said (1957) 1 WLR, at p 231; (1957) 1 All ER, at p 282 :

"It may well be, as it was pointed out in argument, that if there were no such express covenant and undertaking to offer a surrender by the tenant, if the landlord was to make such a thing a condition of giving his consent to an assignment, that would be an unreasonable withholding of the consent; he would then be seeking to impose upon the tenant, though there was no provision by the tenant that he should afford such a thing, a term that the tenant should afford something, namely, an offer of surrender as a condition for his getting a consent."

However, the learned judge refused the declaration sought upon the ground expressed by him as follows (1957) 1 WLR, at p 232; (1957) 1 All ER, at p 233 :

"I see no reason myself why this particular proviso should not be construed as a covenant, as indeed it is a covenant, and, if so, it is a covenant which the parties have contracted shall be a covenant by way of a condition precedent, and it operates on matter which is anterior to the coming into operation of the covenant against underletting or assigning without the previous consent of the landlord. I so construe it. If it is put into operation and the landlord refuses the surrender, the tenant has not lost anything of his right under the covenant against assigning or underletting without the landlord's previous consent; if the landlord accepts the surrender, then the whole lease goes and the situation of the tenant is no worse and no different from what it would be if he had a covenant against assigning which was absolute." (at p89)

5. This decision is not, I think, distinguishable. When the originating summons came on before Helsham J. he recognized that the Adler (1957) 1 WLR 227; (1957) 1 All ER 229 decision was not distinguishable and decided to follow it, although entertaining doubts as to its correctness. I feel obliged to follow the same course. (at p90)

6. It does appear that, even prior to the Adler (1957) 1 WLR 227; (1957) 1 All ER 229 decision, this form of covenant had appeared and was becoming increasingly common in leases. Since that decision the covenant has appeared in books of forms and precedents in England and Australia and the decision has been referred to by text book writers and commentators without criticism. In such circumstances, upon a matter of conveyancing, I consider conformity to be more important than originality. I propose, however, to state shortly why, although I accept the decision, I am not assured of its correctness. (at p90)

7. It is a commonplace that what is expressed as a proviso should not ordinarily be regarded as a positive provision. That prima facie rule is reinforced in the covenant under consideration by the insertion of the words "subject as hereinafter provided" between the word "consent" and the words "not to be unreasonably withheld", indicating, one might think, that the provision so referred to, and relating to making an offer to surrender, was intended, in some way, to bear upon the lessor's giving or the withholding of consent to assign. Notwithstanding this, the basis of the decision, which made no reference to the words "subject as hereinafter provided", is that it has no such bearing, and that, what is to be extracted from a proviso to a covenant against assigning without consent, is a positive covenant not to assign without offering to surrender. As his Lordship pointed out, if the surrender be accepted, the tenant is in the same position as if he had covenanted absolutely against assigning. The difficulty is that the tenant did not do so; he covenanted not to assign without consent. I acknowledge that the construction adopted in Adler's Case (1957) 1 WLR 227; (1957) 1 All ER 229 is a possible construction, and, because it is so, I consider that, in all the circumstances, this Court should accept it now, without determining for itself whether, if the matter were res integra, it would reach the same conclusion. (at p90)

8. Accordingly, in my opinion the appeal must be dismissed. (at p90)

WINDEYER J. This is an appeal from Helsham J. in the equity jurisdiction of the Supreme Court of New South Wales. His Honour followed the decision of Hilbery J. in Adler v. Upper Grosvenor Street Investment Ltd., (1957) 1 WLR 227; (1957) 1 All ER 229 . I do not myself entertain any misgivings about that decision. It was there held that a clause in the same terms as that in question in the present case was not rendered invalid by s. 19 of the English Landlord and Tenant Act 1927, which is in the same terms as s. 133B of the Conveyancing Act, 1919-1969 (N.S.W.). (at p91)

2. 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. (at p91)

3. 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. (at p91)

4. I would dismiss this appeal. (at p92)

OWEN J. I read the covenant in the lease in the present case in the same way as does my brother Windeyer and I do not wish to add anything to the reasons which he has given. (at p92)

2. I would dismiss the appeal. (at p92)

GIBBS J. I have had the advantage of reading the judgment prepared by my brother Windeyer. I agree with him that Adler v. Upper Grosvenor Street Investment Ltd. (1957) 1 WLR 227; (1957) 1 All ER 229 was rightly decided and that the appeal should therefore be dismissed. (at p92)

Orders

Appeal dismissed with costs.