Eddadock Pty Ltd v Denning Properties Pty Ltd - [2002] NSWSC 208

No judgment structure available for this case.

CITATION: EDDADOCK PTY LIMITED V DENNING PROPERTIES PTY LIMITED [2002] NSWSC 208

CURRENT JURISDICTION: Equity Division
Commercial List

FILE NUMBER(S): SC 50015/02

HEARING DATE(S): 14 & 18 March 2002

JUDGMENT DATE: 22 March 2002

PARTIES :

Eddadock Pty Limited (Plaintiff)
Denning Properties Pty Limited (Defendant)

JUDGMENT OF: Bergin J

COUNSEL : D.J Hammerschlag SC leading J.G Duncan (Plaintiff)
M.R Gracie leading J.J Gillespie (Defendant)

SOLICITORS: Cowley Hearne (Plaintiff)
Emerys Law Firm (Defendant)

CATCHWORDS: [LANDLORD AND TENANT] - Refusal to consent to sub-lease - Whether such refusal unreasonable.

CASES CITED: Ashworth v Gloucester City Council [2001] 1 WLR 2180
Bates v Donaldson [1896] 2 QB 241
Bickel v Duke of Westminster [1977] 1 QB 517
Bromley Park Garden Estate Ltd v Moss [1982] 1 WLR 1019
Colvin v Bowen (1958) 75 WN (NSW) 262
Coopers & Lybrand Ltd v William Schwartz Construction Co Ltd 116 DLR (3d) 450
Houlder Brothers Company Ltd v Gibbs [1925] 1 Ch 191(CA)
In Re Gibbs v Houlder Brothers and Company Limited's Lease [1925] 1 Ch 198
In Re Winfrey and Chatterton's Agreement [1921] 2 Ch 7
International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513
Masters v Cameron (1954) 91 CLR 353
Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547
Secured Income Real Estate Ltd v St Martins Investments Pty Ltd [1979] 144 CLR 596
Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310
Viscount Tredegar v Harwood [1929] AC 72

DECISION: Declarations and orders made.

- 19 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
Commercial LIST

BERGIN J

22 MARCH 2002

50015/02 EDDADOCK PTY LTD V DENNING PROPERTIES PTY LTD

JUDGMENT

1 The plaintiff, a company controlled by a group of general practitioners, is the lessee of premises forming part of a building at 2 Kable Street, Windsor, New South Wales (the Building). The defendant lessor has refused to consent to the plaintiff subletting part of the leased premises to Sonic Healthcare Limited (Sonic) a pathology services provider. The plaintiff seeks a declaration that such withholding of consent is unreasonable, a further declaration that it is entitled to enter into the sublease and an order that the defendant consent to the sublease forthwith.

2 The plaintiff filed its Summons on 7 March 2002 and an urgent final hearing of the matter occurred on 14 and 18 March 2002. Final written submissions were filed by 21 March 2002. Mr D Hammerschlag SC leading Mr J Duncan of counsel appeared for the plaintiff. Mr M Gracie of counsel leading Mr J Gillespie of counsel appeared for the defendant.

3 The defendant acquired title to the Building from Lloyd Property Developments Pty Ltd (Lloyd) on 2 February 2000. The Building is a strata title commercial building comprising lots 1 to 12 in Strata Plan 43795 together with common property. It is a two storey Building and is used as a Medical Centre comprising doctors’ consulting rooms, an optometrist, a physiotherapist and a pathologist, Sonic.

4 The defendant is the registered proprietor of all lots within the strata scheme which were transferred to the defendant subject to the encumbrances of two registered Leases. One was in favour of Portring Pty Ltd (Portring) and the other in favour of the plaintiff. The plaintiff has been a tenant in the Building since 1991 as a sub-lessee to Portring until 1995 and then as a lessee of Lloyd until the defendant purchased the Building in February 2000. The remainder of the Building was leased to Portring which sublet certain of the lots under its lease with Lloyd’s consent. One of those sublessees was Sonic. The leases expired in October 2001.

5 Prior to the purchase of the property by the defendant Christopher Francis Lane (Lane), a licensed real estate agent employed by Steven Krulis Real Estate and the agent of the defendant, spoke with a director of the plaintiff, Dr Antonio Rombola. Dr Rombola informed Lane that if the defendant purchased the Building the plaintiff would honour the current lease and then negotiate with the defendant when the lease expired in October 2001. In January 2001 Lane initiated negotiations with the plaintiff in relation to the possibility of the plaintiff exercising its option to renew its original lease or alternatively taking a new lease of the same or a different area within the Building. These preliminary discussions continued between January 2001 and May 2001 which was the last date for the plaintiff to exercise the option to renew. The option was not exercised.

6 On 31 August 2001 Lane met with Drs Crampton and Rombola of the plaintiff. On 3 September 2001 Dr Crampton confirmed the plaintiff’s intention to proceed with a lease of the downstairs portion of the Building that the plaintiff was then occupying. Dr Crampton also confirmed the plaintiff’s intention of “proceeding with the lease of further portions of the building”. He confirmed that the plaintiff had developed a plan to lease the remainder of the Building but that such plan was subject to a number of issues.

7 On 5 September 2001 Lane confirmed that the defendant was willing to agree to renewal of the plaintiff’s existing tenancy on the terms that had been the subject of correspondence earlier in the year. Lane also advised that the defendant would agree to lease to the plaintiff additional space within the Building including the leasing of the entire building at a rental that would be “reduced” to $186,000 per annum plus GST.

8 On 13 September 2001 Lane advised the defendants’ “acceptance of a lease” to the plaintiff of the whole Building for a period of six years with a commencement date of 1 November 2001 at an initial rental of $186,000 per annum plus GST and requested the plaintiff to provide its acceptance of the terms and conditions outlined in his letter of 13 September 2001. Dr Rombola informed Lane that if the plaintiff took a lease of the whole Building it would need subtenancies to be able to service the lease.

9 The plaintiff approached the existing tenants and subtenants to inform them of the plaintiff’s intention to lease the whole Building from the defendant. All of the existing tenants and subtenants, except for Sonic, indicated that they did not wish to sublease from the plaintiff.

10 On 26 October 2001 Dr Rombola informed Lane of this problem and the additional circumstance that Portring had informed the plaintiff that it intended not to vacate the premises by 1 November 2001 and intended to remain for a further six weeks. Lane informed Dr Rombola that he was of the view that the subtenants were not being realistic.

11 Although Dr Rombola tried to negotiate the amount of rent for a lease of the whole Building Lane informed him that it was not negotiable. In mid November 2001 Lane and Dr Rombola had a discussion about the various options the defendant would offer the plaintiff in respect of the Building. Dr Rombola informed Lane that the plaintiff would take a lease of the ground floor but that it wanted the area occupied by the optometrist to be vacated because it wanted a longer term tenant and was looking at some options in this regard. One of the options it was pursuing was a sublease to Sonic.

12 It is apparent from the evidence that Dr Rombola understood that Sonic was intending to sublet from the plaintiff under the original plan it had for leasing the whole Building at a rental of $62,000 per annum. Lane gave evidence that Dr Rombola informed him that Sonic “had agreed” to pay the plaintiff $62,020 under a sublease and that the defendant could “secure” Sonic at that same rent. Dr Rombola, who was not cross examined, denied saying that Sonic had “agreed” to pay that amount or that the defendant could “secure” Sonic at the same rent. Dr Rombola’s evidence was that he said to Lane that Sonic “were intending” to sublease upstairs from the plaintiff for $62,000. Dr Rombola provided Lane with contact telephone numbers for Sonic.

13 On 23 November 2001 Lane spoke to Patricia Killen, the area manager of Sonic. Lane claimed in his evidence that Ms Killen said “we want to stay. We will most definitely take a lease from the owner”. Ms Killen’s evidence differs and she was not cross-examined. Ms Killen claimed in her evidence that she said “we want to stay in the building”, however she denied saying the words attributed to her in relation to taking a lease from the owner. The defendant forwarded a lease proposal to Sonic on 27 November 2001.

14 On 29 November 2001 Lane forwarded a letter to the plaintiff offering a lease of the ground floor of the building for a period of six years from 1 December 2001 with an option for six years at an initial nett rental of $100,000 per annum plus GST. Lane advised the defendant would provide vacant possession of the optometrist’s unit by 31 January 2002.

15 On 30 November 2001 a further conversation occurred between Ms Killen and Lane in which Ms Killen referred to the fact that other tenants were paying less rental than that proposed in the offer to Sonic. Lane informed Ms Killen that the defendant “might be able to look at” negotiating the rental.

16 The plaintiff’s lease commenced on 1 December 2001 and provided relevantly as follows:

7.1 User

12.1 Prohibition of Dealings

12.5 Consent to Subletting
The Lessee may apply to the Lessor for consent to the grant of a sublease over the whole or part of the Leased Premises, which consent shall not be unreasonably withheld if the following conditions precedent are satisfied:

(d) The Lessee has paid to the Lessor all moneys due under this Lease up to the date of the sublease.

(e) There are no unremedied breaches of the Lessee’s obligations under this lease at the date of the sublease.

(f) Any other consents to the sublease that are required by mortgagees or others, are obtained before the sublease is granted.

(g) The execution of a deed of consent in a form reasonably required by and prepared on behalf of the Lessor, by the Lessor and Lessee and Sublessee.

Item 7 Use

17 On 3 December 2001 Ms Kirsten Bott, the Commercial Manager of Sonic, wrote to the plaintiff confirming Sonic’s “wish” to lease part of the downstairs portion of the premises from the plaintiff for 5 years with a 5 year option. Ms Bott’s evidence was that at this stage she was not sure whether a sublease would “come to fruition” because she had received information that the plaintiff might move the doctor’s practice to another location.

18 Between 30 November and 13 December 2001 Lane telephoned Ms Killen on her mobile phone on a number of occasions, and left a number of messages for her to call him. On 13 December 2001 Ms Killen was in Dubbo on business and telephoned Lane. Lane asked her whether Sonic was going to take a lease of the upstairs portion of the Building. Ms Killen responded in words to the effect of “I don’t know at this stage” or “I will get back to you”. There was probably a further discussion on 20 December 2001 when Lane informed Ms Killen that the rent had not been paid for which she apologised but requested a tax invoice and bank details in order to pay.

19 On 2 January 2002 the optometrist vacated that part of the downstairs premises leased to the plaintiff and moved upstairs to lease part of that floor.

20 On 15 January 2002 Lane contacted Ms Killen again and she informed him that she was no longer responsible for the matter and directed him to Ms Bott. On the same day Lane telephoned Ms Bott and questioned her about Sonic’s intentions in relation to the proposal that he had forwarded to Sonic in November. Lane claimed that he said to Ms Bott “you must commit to a lease immediately”. Ms Bott informed Lane that Sonic did not wish to commit to any particular lease until Sonic was sure what the doctors, meaning the plaintiff, were doing. By this time Ms Bott had not heard from the plaintiff since she had forwarded Sonic’s letter of 3 December indicating its “wish” to take a sublease from the plaintiff.

21 On 22 January 2002 the plaintiff’s solicitor wrote to the defendant’s solicitor requesting information about the “progress” of the lease execution, stamping and registration. A request was also made for the defendant’s requirements to approve a sublease of part of the plaintiff’s leased premises. Although the commencement date of the plaintiff’s lease is 1 December 2001 it was not until 7 February 2001 that the defendant’s solicitors notified the plaintiff that the Lease had been executed on behalf of the defendant and stamped.

22 On 29 January 2002 Lane forwarded a further proposal to Sonic for a lease of the upstairs portion of the Building that it then occupied. The proposed lease was for six years commencing on 1 March 2002 at an initial nett rental of $62,040. Lane advised that “the medical practice in the building has now leased the ground floor on a 6 year term” and that the defendant was requiring all other tenants to “immediately commit to a formal lease”.

23 After receipt of this proposal Ms Bott telephoned Lane on 3 or 4 February 2002 and advised him that Sonic planned to take a sublease of part of the downstairs premises from the plaintiff and therefore did not want a new lease of the premises upstairs but would like to remain as a month to month tenant.

24 On 7 February 2002 Lane telephoned Ms Bott and informed her that the defendant had “another party interested” in taking Sonic’s space. He said:

If Sonic does not enter into a new lease with Denning Properties, then they will not give consent to the sublease with the doctors and we will put another pathology provider upstairs at a reduced rent and give them an exclusivity clause. You have until 5pm today to sign the lease with Denning Properties. If you do not agree to the new lease you will immediately be issued with a notice to vacate in one month.

25 During this conversation Lane also said that the defendant was prepared to accept the rent that Sonic was currently paying. Later in the day Ms Bott telephoned Lane to request an extension of the deadline until the following Tuesday, 12 February 2002. Lane refused such an extension.

26 On 7 February the defendant’s solicitors advised the plaintiff’s solicitors of the defendant’s requirements in relation to any proposed sublease. They advised amongst other things that the proposed use must not be of an existing tenancy in the building including a pathology clinic.

27 On 8 February Ms Bott telephoned Lane and informed him that Sonic was not happy “being manipulated” but that it would agree to a new lease of the upstairs premises if amended terms could be agreed. Ms Bott requested a commercial rent on the basis that if Sonic signed the lease it may also move in downstairs as well and utilise that space as the collection clinic and retain the leased space upstairs for offices. Lane advised Ms Bott that he had been advised to serve the Notice to Quit in any event.

28 After this conversation Ms Bott faxed a proposal dated 7 February 2002 from Sonic to Lane stating that Sonic wished to enter into a new lease for the premises it then occupied upstairs seeking as part of the defendant’s “other commitments” that the defendant “grant approval (upon formal application being received, and within noted guidelines) for their tenants on the lower floor to sublease to Sonic”. A further commitment sought was that if Sonic wished to sublet the upstairs premises approval would not be unreasonably withheld. On the same day Sonic received from the defendant’s solicitors, Emerys Law Firm (Emerys) a Notice to Quit the upstairs premises by 9 March 2002.

29 On 15 February 2002 Lane wrote to Ms Bott in response to the proposal in her letter of 7 February received on 8 February and stated:

As you may be aware, over the past month negotiations have also advanced with another pathology laboratory to lease your existing space. The Lessor has now instructed that although he would prefer to retain Sonic Healthcare as the tenant the only terms and conditions acceptable must be at least the same as those agreed to with the other party. Accordingly the final offer of a lease to Sonic Healthcare Ltd is as follows.

30 The letter then proposed a six year lease term with an option of six years commencing on 1 March 2002 at an initial rental of $46,991.88. Lane also advised that the defendant would grant approval to the plaintiff to sublease to Sonic for “any suitable activity provided the usage was not as a pathology collection centre”. He also included a term that should Sonic wish to sublet the upstairs premises approval would not be unreasonably withheld.

31 On 18 February 2002 the plaintiff’s solicitor forwarded by e-mail to Lane two applications to sublease part of the premises on the ground floor. The first application was to sublet shop 1 to Jeanette James and Veronica Thompson for a chemist and shop 2 and part of shop 3 to Sonic. This was sent again by post on 21 February 2002.

32 On 21 February 2002 Lane telephoned Ms Bott and informed her that the lease proposal contained in the letter of 15 February 2002 was not negotiable. He said:

You can choose to have two suites upstairs plus the waiting area or three suites upstairs without the waiting area but the rent is the same for both options and the term is to be six years. The landlord would agree to a sublease from the doctors downstairs for any suitable activity provided the use is not as a pathology collection centre.

33 Ms Bott informed Lane that Sonic would not proceed and would take a sublease from the plaintiff downstairs. Lane informed Ms Bott that the defendant would not give consent to the sublease . Ms Bott informed Lane that such refusal would be unreasonable.

34 On 22 February 2002 Emerys advised the plaintiff’s solicitor that the defendant had approved the sublease to Ms James and Ms Thompson but did not consent to the proposed sublease to Sonic. The letter stated:

As you are aware, our client was negotiating with another pathologist to take the space that Sonic Healthcare Limited presently occupies under an expired sub-lease. An agreement to lease has now been finalised with Mayne Health Pathology Services Pty Ltd and the lease will contain an exclusivity clause. On that basis our client cannot and will not agree to the grant of a sub-lease by your client to Sonic Healthcare Ltd.

35 On 22 February 2002 Emerys wrote to Sonic confirming that Sonic had advised Lane the previous day that it was not proceeding with the proposed new lease but rather intended taking the sublease from the plaintiff. That letter advised that the defendant “has now finalised an Agreement with Mayne Health Pathology Services Pty Ltd for the Lease of the space you presently occupy. The commencement date of the lease is 11 March next”. The letter advised that the lease would contain an exclusivity clause and that the defendant would not agree to the plaintiff subletting to Sonic.

36 On 1 March 2002 the plaintiff’s new solicitors Cowley Hearne wrote to Emerys in relation to their letter of 22 February 2002 and alleged that the withholding of the consent was unreasonable. Cowley Hearne requested the defendant to consent to the sublease urgently because of the requirement on Sonic to vacate the premises in compliance with the Notice to Quit. Emery’s response of the same date alleged that the plaintiff and Sonic had engaged in “sharp dealings” but that it remained open to Sonic to deal directly with the defendant in relation to the deadline to vacate the premises.

37 On 1 March 2002 Ms Bott telephoned Lane and suggested that the letter to the plaintiff’s solicitors had left the door open for negotiations. Lane agreed and said, “There is still an opportunity for Sonic to sign. Mayne have not signed and there is a window of opportunity for you. We’re showing Mayne the premises on Tuesday afternoon.” Lane informed Ms Bott that the defendant would only agree to terms of the Lease previously forwarded to Ms Bott and that it was not negotiable because “those are the terms Mayne has agreed to”. Ms Bott informed Lane that in those circumstances Sonic would not sign. On 5 March 2002 Ms Bott phoned Lane in an attempt to have the Managing Director of Sonic negotiate directly with the director of the defendant. Lane informed Ms Bott that “the owner” was not interested in talking directly to the director of Sonic.

38 On 7 March 2002 the plaintiff filed its Summons. After the defendant had received the Summons Lane forwarded confirmation of the defendant’s offer to lease to Pathology Services Pty Ltd (PSPL) the upstairs of the premises for one year with an option for five years or six years to commence from 11 March 2002 at a rental of $46,991 per annum, but at “half rental” for the first three months. That letter stated that the lease agreement was “conditional upon” the defendant being “able to provide” an exclusivity clause within the lease to carry out pathology collection services within the whole of the Building. PSPL was requested to confirm the acceptance of the terms “immediately”. Mr Mustafa Ozluk, the New South Wales Business Development Manager of PSPL, signed a copy of the letter accepting the proposal and returned it to Lane by fax that day.

39 Lane was cross examined at some length. From his evidence it is clear that the contents of his letter to Ms Bott of 15 February 2002 and his conversation with Ms Bott on 1 March 2002 contain statements that were not true. The letter and the conversation stated that PSPL had agreed to the terms of the proposal contained in the 15 February letter to Sonic. That was not true.

40 Mr Ozluk gave evidence that he informed Lane “categorically” that PSPL would not commit to a long term agreement and proposed three months maybe six months and “highlighted” that anything beyond one year would be difficult. Indeed Lane’s evidence was that the term was the “only sticking point”. The term, that is the period of the proposed lease, was not agreed at any stage prior to 7 March 2002 when Mr Ozluk returned the fax that agreed to one year with an option of five or six years.

41 The letter and the conversation were untrue in another respect. Mr Ozluk had not agreed to the same rental as contained in the proposal of 15 February 2002 to Sonic. Mr Ozluk had requested “half rental” for the first three months and Lane had agreed to such a proposal. In cross examination Lane agreed that such statements were negotiating ploys and then admitted that the statements were false but that he “truly didn’t consider it at the time”. I find that difficult to accept.

42 On 22 February 2002 Lane had instructed the defendant’s solicitors to advise Sonic that the defendant had “now finalised” an agreement with PSPL to lease the space it then occupied. Lane accepted in his cross examination that at the time he instructed the defendant’s solicitors to advise Sonic of this matter, the term or period of the proposed lease to PSPL had yet to be agreed and that prior to that occurring he would have to discuss it with the defendant. There was then the suggestion to Ms Bott of the “window of opportunity”. If there was a concluded or “finalised” agreement it is difficult to understand how there could be any such “window of opportunity”.

43 In this respect Mr Gracie in his Supplementary and Further Submissions filed on 20 March 2002 relied on Masters v Cameron (1954) 91 CLR 353 and Sinclair Scott & Co. Ltd v Naughton (1929) 43 CLR 310 to submit that incomplete terms and a preliminary agreement may be binding if so understood by the parties. The defendant and PSPL had not agreed to an essential term, the period of the lease. If the defendant had “finalised” an agreement with PSPL what, it may be asked, was it doing offering Sonic a “window of opportunity” to sign. Notwithstanding Mr Gracie’s further submissions I am of the view that an agreement between PSPL and the defendant was not concluded or finalised until 7 March 2002. The principles in Masters v Cameron do not assist the defendant in this case.

44 Lane knew that the defendant wanted him to obtain the best rent and that his attempts to secure a tenant at that rent were proving somewhat unsuccessful. If the defendant permitted the plaintiff to sublet to Sonic it was concerned it would not secure PSPL because PSPL wanted exclusivity. It would then have to look for other tenants. What Lane did was to attempt to pressure Sonic into leasing the upstairs premises by informing Sonic untruthfully that PSPL had agreed to the terms of the 15 February proposal and also informing it that it would only consent to the plaintiff subletting part of its premises downstairs to Sonic for purposes other than pathology collection services.

45 It is difficult to understand why the defendant would not agree to Sonic’s proposal of 8 February 2002 or at least further negotiate the terms of the proposed lease to Sonic. It could have achieved rental of the upstairs to Sonic for six years as opposed to one year to PSPL. If the defendant also consented to the plaintiff subletting to Sonic that portion previously occupied by the optometrist for use as a pathology collection clinic it would not have disadvantaged the defendant. It would still have had Sonic as a tenant upstairs at a negotiated rental. Even if Sonic applied to sublet some or all of that portion of the upstairs premises, that burden would fall on Sonic, not the defendant, to find an acceptable sublessee.

46 On 18 March 2002 the defendant applied to reopen its case to call evidence from Mr Peter Dan, a principal of the defendant. Over objection, I allowed the defendant to reopen and Mr Dan was cross-examined on his affidavit filed in court on 18 March 2002. Mr Dan gave evidence that the proposal put to Sonic on 15 February 2002 was inconsistent with what he had instructed Lane were the defendant’s wishes. Mr Dan said that the restriction on Sonic utilising the downstairs premises as a pathology collection clinic was not intended. If that is true Sonic has never been informed that the defendant was willing to consent to it being a sub-tenant of the plaintiff on the basis that it also took a lease of the upstairs. Certainly the plaintiff was not advised of this by the defendant at any time until it heard it in Mr Dan’s cross examination.

47 Mr Hammerschlag SC submitted that if Mr Dan’s evidence is to be accepted the refusal to consent to the proposed sublease to Sonic was unreasonable because such a condition had nothing to do with the landlord and tenant relationship between the defendant and the plaintiff nor the use to which the premises would be put pursuant to the lease between the plaintiff and the defendant. He submitted that I would not accept Mr Dan’s evidence having regard to the evidence given by Lane. That evidence was that Lane discussed the proposal of 15 February 2002 with the defendant and that it was the defendant who did not want Sonic vacating upstairs and going downstairs. According to Lane that was the reason the condition was imposed in the 15 February proposal.

48 A not dissimilar set of facts is found in Tomlin J’s judgment In re Gibbs v Houlder Brothers and Company Limited’s Lease. Houlder Bros and Company Limited v Gibbs [1925] 1 Ch 198 affirmed on appeal [1925] 1 Ch 575 (CA). In that case the defendants had demised to the plaintiffs premises known as 10 Market Street Sheffield for a term of 21 years from 29 September 1908. The plaintiffs covenanted that they would not during such term without the consent of the defendant assign, sublet, or part with the possession of the demised premises or part thereof, “such consent not to be withheld unreasonably in the case of a respectable and responsible person or corporation”.

49 In June 1924 the plaintiffs agreed to assign the premises to Roneo, Ld. (Roneo) for the residue of the term subject to the consent of the defendant. Roneo was a yearly tenant from the defendant of 12 Market Street adjoining the premises the subject of the lease. By letter dated 18 June 1924 addressed to the plaintiffs’ manager, the defendant expressed its unwillingness to consent to the proposed assignment on the grounds that such assignment would result in Roneo determining the tenancy of 12 Market Street. A subsequent letter stated “my sole reason for withholding my consent is on the reasonable ground that by the assignment I should lose Roneo as good tenants of no.12 and because I should gave great difficulty in finding any tenant for no.12”.

50 Tomlin J said that the real question was to identify the considerations to which the court is entitled to have regard when considering whether or not a particular reason for refusal is justified within the meaning of the clause (at 201). After analysis of the relevant cases Treloar v Bigge [1874] L.R 9 EX. 151; Barrow v Isaacs & Son [1891] 1 QB 417; Governors of Bridewell Hospital v Fawkner (1892) 8 T.L.R. 637; Bates v Donaldson [1896] 2 QB 241; Harrison, Ainslie and Co. v Barrow-In-Furness 63 L.T. 834; In re Winfrey and Chatterton’s Agreement [1921] 2 Ch 7. Tomlin J said at 209;

…it is by reference to the personality of the lessee or the nature of the user or occupation of the premises, that the Court has to judge of the reasonableness of the lessor’s refusal. It is quite true that the injury threatened or apprehended to the lessor may be in respect of something which has nothing to do with the lease of the demised premises; it may be in relation to other property of which he is the owner, but the danger must come from the nature of the user or occupation or from the personality of the assignee. In the present case what is the real reason of the refusal? The real reason is not one which had anything to do with the personality of the lessee, or with the user or occupation of the premises; the real reason is that the lessor wants to prevent the assignee from giving up other premises of which he is also lessor; in other words, his real purpose in refusing an assignment is not in relation to the demised premises at all, but in relation to other property, and to bring pressure to bear on the assignee not to give up a tenancy of different premises belonging to him.

51 Tomlin J concluded that the refusal was unreasonable and that in the circumstances the lessee was free to assign the interest in the lease. On appeal Pollock M.R agreed with Tomlin J’s judgment both in its reasoning and in the conclusions (at 581). The Master of the Rolls noted that the lessor had frankly avowed that there was no objection to Roneo as a respectable and responsible person or corporation and that the sole reason operating upon the defendant’s mind was “something extraneous to the relation of landlord and tenant, something extrinsic from the lessee, and something which is wholly personal to the lessor” (at 583). Warrington LJ was of the same opinion and said, at 584:

The proposed assignee happens to be tenant to himself of a shop in the same building, and adjoining that which is the subject of the lease, and the lessor is convinced on what I will assume to be sufficient ground, that if the proposed assignee is allowed to take the assignment of the plaintiff’s shop, the subject of the lease, he will give up the other shop, and the lessor will have considerable difficulty in finding a new tenant therefor. It is on that ground that the lessor has refused his consent. That is on a ground having no reference to the personality of the proposed assignee, and having no reference to the effect of the proposed assignment on the user and occupation of the demised premises.

52 Sargant LJ was of the same opinion and said, at 588:

In the present case the reason for refusing has nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the demise. The sole reason is that if the property is allowed to be assigned to the new tenants, the new tenants, in respect of a tenancy of a completely different property which they hold from the lessor, will probably desire to terminate their tenancy of that other property. In my judgment that is a reason wholly dissociated from, and unconnected with, the bargain made between the lessor and the lessees under lease that we have to consider, and is, from that point of view, a purely arbitrary and irrelevant reason.

53 In his further submissions filed on 20 March 2002 Mr Gracie submitted that Houlder Bros v Gibbs had been the subject of “judicial disquiet” and on that basis I should not follow the approach adopted in that case. This disquiet is traced to statements made by Lord Denning in Bickel v Duke of Westminster [1977] 1 QB 517 at 523 and those made by Danckwerts J in In re Town Investments Ld Underlease [1954] 1 Ch 301 at 313 and Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547 at 568. Some of the disquiet is based on obiter observations made by Lord Dunedin and Lord Phillimore in Viscount Tredegar v Harwood [1929] AC 72 that reasonableness should be understood in the “general sense”.

54 In Colvin v Bowen (1958) 75 W.N. (NSW) 262 Walsh J at 264 referred to “critical remarks and expressions of doubt” expressed in Tredgar v Harwood about Houlder Bros v Gibbs but nonetheless concluded that it was binding authority in cases to which the principles it contained were applicable. That approach was approved by the High Court in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 per Mason J at 601-610 and is one that I intend to adopt in this case. In my view this approach is able to be adopted consistently with that referred to by the House of Lords in Ashworth v Gloucester City Council [2001] 1 WLR 2180 that reasonableness is to be determined by considering what the reasonable landlord would do when asked to consent in the particular circumstances before the Court (per Lord Rodger of Earlsferry at par [69].

55 The plaintiff relied upon other grounds in support of its submission that the defendant’s refusal to consent was unreasonable. They included that such refusal was manifestly designed to achieve a collateral purpose unconnected with the terms of the lease: Bromley Park Garden Estate Ltd v Moss [1982] 1 WLR 1019 and that such refusal was in the face of a request for a use that conformed to the only use permitted under the lease: International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513.

56 The plaintiff also argued that the refusal amounted to a derogation from the grant comprised by the lease and an arbitrary and capricious attempt to deprive the tenant of a benefit under the lease. In this regard the plaintiff relied upon Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd .

57 The purpose of clauses 7.1 and 12.5 of the plaintiff’s lease is to protect the defendant from having the premises used or occupied in an undesirable way or by an undesirable tenant: Bates v Donaldson [1896] 2 QB 241 at 247. Under such a clause the defendant is not entitled to refuse consent on grounds that have nothing to do with the relationship of landlord and tenant “in regard to the subject matter of the lease”: International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513.

58 Mr Gracie submitted that it is reasonable to withhold consent if a proposed sublessee intended to compete with other tenants of the landlord in the same complex: Coopers & Lybrand Ltd v William SchwartzConstruction Co Ltd 116 DLR (3d) 450 especially at 458-60. He also submitted that in assessing whether the withholding of consent was reasonable I should take into account that a landlord is entitled to consider the affect a consent to such a sublease would have on its ability to satisfactorily let different parts of its property: Pimms LTD v Tallow Chandlers Company [1964] 2 QB 547.

59 The defendant had purported to introduce a restriction on the use of the plaintiff’s premises by restricting any use of the premises by a sub-tenant to exclude any use of an “existing tenant”. In this case there was at the time of the refusal of consent no existing tenant with whom the proposed sub-lessee, Sonic, would compete.

60 There is in this case a claim made by Lane that the defendant released the plaintiff from an agreement to lease the whole of the Building on the basis of Dr Rombola’s alleged representation that Sonic had “agreed” to pay $62,000 and that the defendant could “secure” Sonic as a lessee to it. There is a question as to whether or not Dr Rombola said what Lane claimed he did say. The difficulty for the defendant is that Dr Rombola was not cross- examined and his credibility is unscathed. Lane on the other hand has admitted to false statements being made in the 15 February 2002 letter to Sonic.

61 Between October and December 2001 Lane agreed to attend the Building for the purpose of trying to mediate the difficulties being experienced by the plaintiff in obtaining sub-tenants if it was to pursue the plan of leasing the whole Building. It is also apparent that the defendant approached a number of the subtenants directly. Lane agreed in cross-examination that he realised that there had to be some modification and movement of ground. He also said that he understood that the doctors were uncomfortable in taking the whole building and he did not want to see them disadvantaged.

62 On 16 November 2001 Lane offered the plaintiff a number of options including leasing the whole Building or only the downstairs of the Building. No condition was imposed in the plaintiff’s lease in relation to Sonic leasing upstairs nor was any particular restriction imposed on the plaintiff’s capacity to sublet the premises to Sonic. The defendant granted the lease to the plaintiff quite willingly.

63 In the circumstances of the successful attack on the credibility of Lane I prefer the evidence of Dr Rombola and am satisfied that more probably than not he did not say to Lane that the defendant could “secure” Sonic at $62,000. The defendant wanted the medical practitioners to remain in the Building and it seems to me that was the priority. The defendant understood that it was the medical practitioners who would generate business for the pathology tenant and possibly also for the physiotherapist and the optometrist.

64 A great deal of focus has been placed upon Sonic in respect of the evidence called in the case but it must be remembered that it is the plaintiff who sought consent to sublet to Sonic on 18 February 2002 before any agreement had been finalised with PSPL. The plaintiff had the benefit of a lease with a use and an entitlement to sublet to a respectable subtenant within that use. I am satisfied that the defendant’s refusal of the consent for the plaintiff to sublet to Sonic was to secure a tenant in another part of the Building.

65 No evidence has been given by Lane in relation to any attempts to find tenants other than PSPL for the premises occupied by Sonic upstairs. Indeed when it was suggested that he had failed to mediate the sub-tenants unrealistic approach to future tenancy in the Building he said that he had not failed. In his affidavit Mr Dan stated that he was not aware of any other health service provider who would rely on doctor’s referrals or proximity to the doctors who would be prepared to pay the rent that PSPL is prepared to pay. However he conceded that he was not the person who secured tenants for the defendant as he did not have the expertise and that he left that up to Lane who had experience in pursuing tenants for the Building. In the circumstances there is no evidence upon which I could conclude that the defendant is unable to secure a tenant for the upstairs premises Sonic had occupied.

66 The chief considerations in this case are whether or not the refusal related to the relationship between the plaintiff and the defendant under the lease of the demised premises and whether or not such refusal related to the permitted use in the plaintiff’s lease. The refusal has to be associated to or connected with the bargain made between the plaintiff and the defendant under the lease.

67 Mr Gracie submitted that the false statements made by Lane in the 15 February letter to Sonic are irrelevant to determining whether the defendant’s refusal was reasonable, particularly in the light of the fact that Sonic had not given any evidence about reliance on the false statements. It is true that Ms Bott did not refer specifically in her evidence to the statement that Lane made that PSPL had agreed to the terms of the 15 February proposal. However this false statement is relevant to my assessment of the defendant’s conduct at the time it was considering the plaintiff’s application to sublet to Sonic.

68 I am satisfied that Lane was hoping to secure Sonic for the defendant and the use of the false statement was to pretend to Sonic by this “negotiation ploy” that the defendant had a party that had already agreed to the terms of the proposal. The restriction on the proposed consent referred to in clause 13 “Other commitments” was apparently to prevent Sonic from leaving the upstairs premises. The evidence of Mr Dan suggests that the refusal to consent to the use of the downstairs premises as a pathology collection clinic was unintended and that as long as Sonic took the lease to the upstairs premises it could sublet the downstairs premises from the plaintiff and use the premises as a pathology collection clinic. The defendant did not inform the plaintiff at any time that it would consent to the sublease to Sonic so long as Sonic took a lease of the upstairs premises as well.

69 From the evidence of Lane and Mr Dan it is difficult to know what the defendant really intended in respect of its willingness or otherwise to consent to the plaintiff’s application to sublet the premises to Sonic. Firstly there is the expressed willingness in the defendant’s letter to Sonic of 15 February to consent to the plaintiff subletting to Sonic so long as Sonic took a lease of the upstairs premises and did not use the downstairs premises as a collection clinic. Secondly there is the refusal to consent communicated to the plaintiff in the 22 February letter. Thirdly there is the confirmation by Lane in his evidence that any consent to the plaintiff subletting to Sonic was conditional upon Sonic taking a lease of the upstairs premises and not using the premises downstairs as a pathology collection clinic. Fourthly there is the evidence of Mr Dan that the defendant did not intend to impose the condition on the consent that Sonic could not use the downstairs premises as a collection clinic and that so long as Sonic took a lease of the premises upstairs it would consent to the plaintiff subletting to Sonic downstairs without the restriction referred to in the letter of 15 February 2002.

70 If I believe Mr Dan then it was intended that consent would be given to the plaintiff to sublet to Sonic within the permitted use so long as Sonic leased the upstairs premises. If I believe Lane then the only way the defendant would grant its consent to the plaintiff to sublet to Sonic was if Sonic agreed to the lease of the upstairs premises and Sonic would not be able to use the downstairs premises for a pathology collection clinic. However the stated basis for the refusal of consent was that an agreement to lease had been finalised with PSPL.

71 The alleged basis for refusal for consent was in my view not a reasonable basis for refusal. There was no finalised agreement with PSPL. The offering of the “window of opportunity” to Sonic was a further attempt to persuade Sonic to sign the proposal that according to Dan contained the error of restricting the use of the downstairs premises. On either the Lane or Dan approach I am of the view that a reasonable landlord having regard to the relationship with the plaintiff and the permitted use within the plaintiff’s lease would not have acted in this way.

72 I am satisfied that the reasons for the defendant’s refusal were extraneous to the relationship between the plaintiff and the defendant under the lease and the permitted use in the plaintiff’s lease. It was for the ulterior purpose of pressuring Sonic to lease the upstairs premises. In those circumstances I am satisfied that the refusal of consent was unreasonable.

73 The plaintiff is entitled to the declarations and order it seeks in the Summons. I make those declarations and order. If the parties are unable to agree on a costs order I will hear argument in due course.

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Last Modified: 03/25/2002

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Citations

Eddadock Pty Ltd v Denning Properties Pty Ltd [2002] NSWSC 208

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CITATION:	EDDADOCK PTY LIMITED V DENNING PROPERTIES PTY LIMITED [2002] NSWSC 208
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50015/02
HEARING DATE(S):	14 & 18 March 2002
JUDGMENT DATE:	22 March 2002
PARTIES :	Eddadock Pty Limited (Plaintiff) Denning Properties Pty Limited (Defendant)
JUDGMENT OF:	Bergin J

COUNSEL :	D.J Hammerschlag SC leading J.G Duncan (Plaintiff) M.R Gracie leading J.J Gillespie (Defendant)
SOLICITORS:	Cowley Hearne (Plaintiff) Emerys Law Firm (Defendant)
CATCHWORDS:	[LANDLORD AND TENANT] - Refusal to consent to sub-lease - Whether such refusal unreasonable.
CASES CITED:	Ashworth v Gloucester City Council [2001] 1 WLR 2180 Bates v Donaldson [1896] 2 QB 241 Bickel v Duke of Westminster [1977] 1 QB 517 Bromley Park Garden Estate Ltd v Moss [1982] 1 WLR 1019 Colvin v Bowen (1958) 75 WN (NSW) 262 Coopers & Lybrand Ltd v William Schwartz Construction Co Ltd 116 DLR (3d) 450 Houlder Brothers Company Ltd v Gibbs [1925] 1 Ch 191(CA) In Re Gibbs v Houlder Brothers and Company Limited's Lease [1925] 1 Ch 198 In Re Winfrey and Chatterton's Agreement [1921] 2 Ch 7 International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] 1 Ch 513 Masters v Cameron (1954) 91 CLR 353 Pimms Ltd v Tallow Chandlers Company [1964] 2 QB 547 Secured Income Real Estate Ltd v St Martins Investments Pty Ltd [1979] 144 CLR 596 Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310 Viscount Tredegar v Harwood [1929] AC 72
DECISION:	Declarations and orders made.