Old Papa's Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd
[2003] WASCA 11
•12 FEBRUARY 2003
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE FULL COURT (WA)
CITATION: OLD PAPA'S FRANCHISE SYSTEMS PTY LTD -v- CAMISA NOMINEES PTY LTD & ORS [2003] WASCA 11
CORAM: MURRAY J
PARKER J
MCLURE J
HEARD: 22 & 23 OCTOBER 2002
DELIVERED : 12 FEBRUARY 2003
FILE NO/S: FUL 109 of 2002
BETWEEN: OLD PAPA'S FRANCHISE SYSTEMS PTY LTD
Appellant (Second Plaintiff)
AND
CAMISA NOMINEES PTY LTD
First Respondent (First Defendant)FIELDGATE ENTERPRISES PTY LTD
Second Respondent (Second Defendant)CORADO PIZZALE
MARIA PIZZALE
Third Respondents (Third Defendants)
Catchwords:
Landlord and tenant - Assignment of equitable interest in lease - Whether covenant not to assign applies to an equitable assignment - Whether beneficiary of "bare trust" in possession of leased premises - Meaning of bare trust in Sale Agreement and trust deed - Whether assignment of trustee's interest vested under s 10(1) of the Trustees Act - Whether s 10(7) of Trustees Act applied -Whether refusal to consent to assignment of trustee's interest unreasonable - Relevance of financial position of assignee - Whether liquidation of assignor after assignment was a breach of the lease - Whether alterations to leased premises a breach of the lease - Whether lessor consented to alterations - Whether without prejudice communications admissible on issue of consent - Whether assignee has standing to seek relief from forfeiture - Entitlement to relief from forfeiture - Whether conduct unconscionable under s 51AC or s 51AA of the Trade Practices Act
Legislation:
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), s 10(2), s 13(1), s 13(6), s 15(2)
Trade Practices Act 1975 (Cth), s 51AA, s 51AC, s 80
Transfer of Land Act 1893 (WA), s 68, s 82
Trustees Act 1975 (WA), s 10
Result:
Appeal dismissed
Category: A
Representation:
Counsel:
Appellant (Second Plaintiff) : Mr D H Solomon
First Respondent (First Defendant) : Mr S Owen-Conway QC &
Mr P A Monaco
Second Respondent (Second Defendant) : Mr S Owen-Conway QC &
Mr P A Monaco
Third Respondents (Third Defendants) : Mr S Owen-Conway QC &
Mr P A Monaco
Solicitors:
Appellant (Second Plaintiff) : Solomon Brothers
First Respondent (First Defendant) : Godfrey Virtue & Co
Second Respondent (Second Defendant) : Godfrey Virtue & Co
Third Respondents (Third Defendants) : Godfrey Virtue & Co
Case(s) referred to in judgment(s):
Bentley v Nelson [1963] WAR 89
Biala Pty Ltd v Mallina Holdings Ltd (1990) WAR 174
Bickel v Duke of Westminster [1977] QB 517
Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019
Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd [2000] 2 WLR 566
Burton v Camden London Borough Council [2000] 2 AC 399
Comptroller of Stamps (Vic) v Howard Smith (1936) 54 CLR 614
Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370
Data Access Corporation v Powerflex Services Pty Ltd (1994) AIPC 91‑112
Daw‑Win Pty Ltd v Tagliaferri [1986] ANZ ConvR 876
DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510
Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279
Ex parte Peifer; Re English [1964] NSWR 500
Gentle v Faulkiner [1900] 2 QB 267
Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49
Haberecht v Chapman [1993] ANZ ConvR 277
Hurley v McDonald's Australia Ltd [1999] FCA 1728
J A McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd [1992] 2 Qd R 121
Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584
Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658
Ladies Sanctuary Pty Ltd v Parramatta Property Investment Ltd (1997) 7 BPR 15, 156
Lam Kee Ying v Lam Shes Tong [1975] AC 247
Lee v K Carter Ltd [1949] 1 KB 85
Love v Gemma Nominees Pty Ltd [1983‑84] ANZ ConvR 68
MacDonald v Robins (1954) 90 CLR 515
Manchester Brewery Co v Coombs [1901] 2 Ch 608
Massart v Blight (1951) 82 CLR 423
Old Grovebury Manor Farm Ltd v W Seymour Plant Sales & Hire Ltd (No 2) [1979] 3 All ER 504
Picton-Warlow v Allendale Holdings Pty Ltd [1988] WAR 107
Purchase v Lichfield Brewery Company (1915) 1 KB 184
Richardson v Somas [1967] WAR 109
Rodgers v Rodgers (1964) 114 CLR 608
Rush & Tompkins Ltd v Greater London Council [1989] AC 1280
Shiloh Spinners Ltd v Harding [1973] AC 691
South Shropshire District Council v Amos [1987] 1 All ER 340
Stern v McArthur (1988) 165 CLR 489
Swanson v Forton [1949] Ch 143
Thorpe v Bristile Ltd (1996) 16 WAR 500
Tomlin v Standard Telephones & Cables Ltd [1969] 1 WLR 1378
Unilever Plc v Procter & Gamble Co [2000] 1 WLR 2436
Warren v Coombes (1979) 142 CLR 531
Western Australia v Southern Equities Corporation Ltd (in liq) (1996) 142 ALR 597
Yared v Spier [1979] 2 NSWLR 291
Case(s) also cited:
Acorn Consolidated Pty Ltd v Hawkslade Investments Pty Ltd (1999) 21 WAR 425
Allen v Carbone (1975) 132 CLR 528
Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank [1982] QB 84
Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491
Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376
Australian Competition and Consumer Commission v LeeLee Pty Ltd & Anor (2000) ATPR 41-742
Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd [2000] 104 FCR 253
Australian Mutual Provident Society v 400 St Kilda Road Pty Ltd [1990] VR 646
Australian Securities Commission v Bank Leumi Le-Israel (1995) 18 ACSR 639
Avel Pty Ltd v Multicoin Amusements Pty Ltd (1990) 171 CLR 88
B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147
Bates v Donaldson [1896] 2 QB 241
Boranga v Flintoff (1997) 19 WAR 1
Butler Machine Tool Co Ltd v Ex-Cell-O Corp (England) Ltd [1979] 1 All ER 965
Cameron v Qantas Airways Ltd (1995) 55 FCR 147
Carratti v R (2000) 22 WAR 527
Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226
Christie v Ovington (1875) 1 Ch D 279
Clay v Clay (1999) 20 WAR 427
Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Commissioner of Main Roads v Hough (1997) 18 SR (WA) 111
Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd [2002] HCA 43
Commonwealth v Western Australia (1999) 196 CLR 392
Dataforce Pty Ltd v Brambles Holdings Ltd [1988] VR 771
Daventry Holdings Pty Ltd v Bacalakis Hotels Pty Ltd [1986] 1 Qd R 406
Davies v Nyland (1975) 10 SASR 76
Devries v Australian National Railways Commission (1993) 177 CLR 472
Dileum Pty Ltd v JK Corp Pty Ltd (1988) 1 WAR 244
Express Newspapers plc v News (UK) Ltd [1990] 1 WLR 1320
Field v Commissioner of Railways (NSW) (1957) 99 CLR 285
Frederick Berry Ltd v Royal Bank of Scotland [1949] 1 KB 619
Fuller's Theatre & Vaudeville Co Ltd v Rofe [1923] AC 435
Gabstone Pty Ltd & Anor v Camisa Nominees Pty Ltd & Ors [2001] WASC 224
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Garry Denning Ltd v Vickers [1985] 1 NZLR 567
Giumelli v Giumelli (1999) 196 CLR 101
GMS Syndicate Ltd v Gary Elliott Ltd [1982] Ch 1
Goldstein v Sanders [1915] 1 Ch 549
Great Western Railway Company v Smith (1876) 2 Ch D 235
Hart v MacDonald (1910) 10 CLR 417
Hartley v Palermo Nominees Pty Ltd (1998) 21 SR (WA) 204
Harvey v Walker (1945) 46 SR (NSW) 180
Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271
Hide & Skin Trading Pty Ltd v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310
Horsey Estate Ltd v Steiger and the Petrifite Company Ltd [1899] 2 QB 79
Howard Smith & Co Ltd v Varawa (1907) 5 CLR 68
Hyde v Wrench (1840) 3 Beav 334
International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513
Jones v Dunkel (1959) 100 CLR 298
L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235
Legione v Hateley (1983) 152 CLR 406
Magill v National Australia Bank Ltd [2001] NSWCA 221
Manufacturers' Mutual Insurance Ltd v Withers (1988) 5 ANZ Ins Cas 60-853
Metcalf & Kerr v Permanent Building Society (in liq) (1993) 10 WAR 145
Morgan v Swansea Urban Sanitary Authority (1878) 9 Ch D 582
Morison v Hall [1923] VLR 93
Mt Newman Mining Co Pty Ltd v Commissioner of State Taxation (WA) (1994) 11 WAR 413
Owston Nominees No 2 Pty Ltd v Branier Pty Ltd [2000] FCA 145
Paterson v Paterson (1953) 89 CLR 212
Paul v Nurse (1828) 8 B&C 486
Pentagold Investments Pty Ltd v Romanos [2001] NSWSC 269
Petkov v Lucerne Nominees Pty Ltd (1992) 7 WAR 163
Pimms Ltd v Tallow Chandlers in the City of London [1964] 2 All ER 145
Posgold (Big Bell) Pty Ltd v Placer (Western Australia) Pty Ltd (1999) 21 WAR 350
Powell v McFarlane (1979) 38 P & Cr 452
Qantas Airways Ltd v Cameron (1996) 66 FCR 246
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289
Scala House & District Property Co Ltd v Forbes [1974] QB 575
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Sharp & Anor v O'Driscoll & Anor, unreported; FCt SCt of WA; Library No 970111; 21 March 1997
Sportsvision Australia Pty Ltd v Tallglen Pty Ltd (1998) 44 NSWLR 103
Spunwill Pty Ltd v BAB Pty Ltd (1994) 36 NSWLR 290
Stoyles v Job (1954) 73 WN (NSW) 41
Temwood Holdings Pty Ltd v Paterson Group Architects Pty Ltd, unreported; SCt of WA (M Sanderson); Library No 980533; 22 September 1998
Thompson v Palmer (1933) 49 CLR 507
Trawl Industries of Australia Pty Ltd v Effem Foods Pty Ltd (1992) 27 NSWLR 326
Uranerz (Australia) Pty Ltd v Hale (1980) 30 ALR 193
VACC Insurance Co Ltd v BP Australia Ltd (1999) 47 NSWLR 716
Verschures Creameries Ltd v Hull & Netherlands Steamship Company Ltd [1921] 2 KB 608
Walker v Walker (1937) 57 CLR 630
Walker v Wilsher (1889) 23 QBD 335
Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Warwick Entertainment Centre Pty Ltd v McKenzie & Anor [2000] WASCA 280
Watson Holdings Pty Ltd v Hodinott (1957) 75 WN (NSW) 168
Welch v Birrane (1974) 29 P & Cr 102
West Layton Ltd v Ford [1979] 2 All ER 657
Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669
White v Australian & New Zealand Theatres Ltd (1943) 67 CLR 266
Wing Luck Foods v Lay Choo Lim [1989] WAR 358
MURRAY J: I have read in draft the reasons for decision to be published by McLure J. I agree generally with them and with her Honour's conclusion that the appeal should be dismissed.
PARKER J: For the reasons given by McLure J I agree that this appeal should be dismissed and that the appellant should pay the respondents' costs of the appeal to be taxed.
McLURE J:
Introduction
The appellant (second plaintiff) appeals from the decision of the trial Judge dismissing its claims for a declaration that there had been no breach of a lease of a Fremantle landmark known as "Old Papa's" ("the Lease"), an injunction restraining the respondents from terminating the Lease and its alternative claims for relief from forfeiture and for breach of s 51AA and s 51AC of the Trade Practices Act 1975 (Cth).
The first plaintiff in the consolidated action the subject of the appeal was Gabstone Pty Ltd (In Liquidation) ("Gabstone"). Gabstone was placed in liquidation on 10 May 2001. It took no part in the proceedings thereafter.
Gabstone in its own right and as trustee for the Gabstone Trust and Gumina Investments Pty Ltd ("Gumina") in its own right and as trustee for the N A J Gumina Family Trust No 2 entered into the Lease with the respondents on 30 January 1996. The Lease is of premises at 17 South Terrace, Fremantle ("the leased premises"). It is for a term of 10 years from 1 October 1995 with two options for renewal each of five years. The business of Old Papa's Cafe has at all material times operated from the leased premises.
Prior to the start of 1999, a number of disputes had arisen between the respondents and the lessees, including disputes relating to the respondents refusal to consent to the assignment of the Lease to Gabstone and to a liquor licence application and associated works to the leased premises. In January 1999 Gabstone commenced proceedings in the Supreme Court concerning these and other matters ("original action"). The original action was settled.
By an assignment of lease dated 29 July 1999 ("1999 assignment") the Lease was assigned from Gabstone and Gumina to Gabstone "in its own right and as trustee for the Gabstone Trust".
In or around October ‑ November 1999, Gabstone carried out improvements to the leased premises which included the construction of a new toilet and associated structures to facilitate access for persons with disabilities and other works ("the Improvements"). The Improvements were necessary in order to obtain a liquor license which was granted to Gabstone in December 1999. The respondents served a notice of default dated 10 November 1999 under the Lease in relation to the Improvements ("default notice"). The respondents required the defaults to be remedied by removing the Improvements, failing which they would terminate the Lease. Gabstone commenced proceedings ("second action") claiming it was not in breach of the Lease because the respondents had consented to the Improvements as part of the settlement of the original action. This Court granted an interlocutory injunction restraining the respondents from terminating the Lease on the basis of the matters the subject of the default notice. The interlocutory injunction had not been dissolved or varied prior to trial.
The trial Judge concluded that the respondents had not consented to the Improvements and that Gabstone was in breach of the Lease.
By a sale agreement dated 4 May 2000 between Gabstone and Old Papa's Holdings Limited ("OPHL"), Gabstone agreed to sell the assets and goodwill of the business known as Old Papa's ("the Business") to OPHL ("the Sale Agreement"). Further, Gabstone agreed to hold the Business "on bare trust" for OPHL on the terms and conditions of a trust deed of the same date between Gabstone and OPHL ("the Trust Deed"). The trial Judge held that the effect of the Sale Agreement and Trust Deed was that Gabstone had assigned an interest in the Lease or the leased premises and parted with possession of the leased premises in breach of cl 8.01 of the Lease. That clause prohibits assignment or parting with possession without the respondents' consent.
On 22 December 2000 Gabstone gave notice to the respondents under s 10(2) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) requesting the respondents' consent to the assignment of the Lease to the appellant, Old Papa's Franchise Systems Pty Ltd.
Notwithstanding the respondents' refusal to consent, by an undated Deed of Assignment between Gabstone and the appellant, Gabstone assigned all its "legal and beneficial" estate and interest in the Lease and leased premises to the appellant ("undated Deed of Assignment"). A Deed dated 24 April 2001 between Gabstone, OPHL and the appellant ("April 2001 Deed") clarified that the assignment was subject to the rights of OPHL under the Trust Deed and that the effect of the undated Deed of Assignment was to change the trustee of the bare trust from Gabstone to the appellant ("the 2001 assignment"). The appellant commenced further Supreme Court proceedings ("third action") and obtained an interlocutory injunction restraining the respondents from terminating the Lease on the basis of the 2001 assignment. The second and third actions were consolidated. The trial Judge held that the 2001 assignment of the Lease to the appellant was in breach of cl 8.01 of the Lease.
As stated earlier, Gabstone was placed in liquidation on 10 May 2001. The trial Judge concluded that, notwithstanding the assignment of the Lease to the appellant in April 2001, Gabstone's liquidation in May 2001 resulted in a breach of the Lease justifying its forfeiture. Further, the trial Judge dismissed the appellant's claim for relief from forfeiture on the ground that the remedy was not available to the appellant but only to Gabstone "because it is only [Gabstone] that had the legal rights pursuant to the lease".
In the alternative to the claim for relief from forfeiture, the appellant claimed the respondents had acted unconscionably in breach of s 51AA and s 51AC of the Trade Practices Act ("TPA") and sought relief under s 80 of that Act restraining the respondent from terminating the Lease. The trial Judge held that the unconscionable conduct claims had not been made out.
The appellant's grounds of appeal address, in the following order, the May 2000 transactions, the 2001 assignment, the Improvements claim, the effect of Gabstone's liquidation, relief from forfeiture and the TPA claim. I will deal with the issues in the order in which they are raised in the grounds of appeal.
The May 2000 Transactions
The grounds of appeal are very lengthy. They are to the effect that the trial Judge erred in fact and law in holding that, by entering into and performing the Sale Agreement, Gabstone breached clause 8.01 of the Lease. In particular it is claimed that the trial Judge erred in holding that:-
(1)a declaration of bare trust pursuant to a contract of sale constitutes:-
(a)an assignment to which covenants in leases against assignment are generally applicable, and in not following and applying MacDonald v Robins (1954) 90 CLR 515 in that regard; and
(b)an assignment to which clause 8.01 of the Lease applied;
(2) the making or performance of the Sale Agreement and the Trust Deed by Gabstone amounted to a parting with possession of the leased premises by Gabstone in favour of the purchaser/beneficiary (OPHL).
Thus, the appellant's claim is that the Sale Agreement and the Trust Deed effected an equitable assignment to which cl 8.01 of the Lease does not apply and that Gabstone did not at any material time before the 2001 assignment part with possession or occupation of the leased premises.
Clause 8.01 of the Lease materially provides:
"The Lessee shall not without the prior written consent of the Lessor assign sub‑let or part with possession or occupation (including the granting of a licence) of the Leased Premises or any part thereof or this Lease or any estate or interest therein but in the event of the Lessee wishing to assign or sub‑let the whole of the Leased Premises the Lessor shall not unreasonably withhold its consent to such assignment or sub‑letting if:
(a)...
(b)The proposed assignee or sub‑lessee is a respectable and financially sound person the onus of proving which fact to the satisfaction of the Lessor shall be upon the Lessee;
(c)The Lessee has procured the execution by the proposed assignee or sub‑lessee and such guarantors as are referred to in Clause 8.01(d) of an assignment of this Lease ... to which the Lessor is a party and which is in a form prepared or approved of by the Lessor and its solicitors and has delivered such assignment or sub‑lease to the Lessor;
(d)Where the proposed assignee ... is a corporation the performance of the covenants by the assignee ... with the Lessor contained in the assignment ... shall be guaranteed by such of the directors and principal shareholders of such corporation and by such third parties as the Lessor may require."
The terms and effect of the Sale Agreement and Trust Deed are not straightforward. Matters that arise for consideration include the capacity in which Gabstone purported to contract, whether the sale included the Lease and the entity who was to carry on the Business after the sale.
Gabstone is a party to the Sale Agreement. The recitals to the Sale Agreement record that Gabstone is the owner of the Business which it agreed to sell to OPHL. However, it is not recorded that Gabstone is a party or was the owner of the Business in its capacity as trustee of the Gabstone Trust.
The Business is defined to mean the business of [Gabstone] previously carried out from the [leased premises] and known as "Old Papa's". Clause 2.1 of the Sale Agreement materially provides:
"[Gabstone] sells to [OPHL], which purchases, the Business, including the Sale Assets, with effect from the Effective Date free from all encumbrances in accordance with the terms, covenants and conditions contained herein."
The effective date means the latest of seven days after the date on which the condition in cl 6.1 has been fulfilled. Clause 6.1 provides that the agreement is conditional on the Director of Liquor Licensing giving his approval to the agreement. By cl 4.1 the parties acknowledge and agree that on and from the effective date Gabstone shall hold the Business on bare trust for OPHL on the terms and conditions of the Trust Deed.
The term "Sale Assets" is defined to mean the "Fixed Assets, Stock and Goodwill of the Business". Fixed Assets is defined to mean all the plant and equipment and vehicles of the Business set out in the Schedule. The Schedule is a depreciation schedule the heading to which is "The Gabstone Trust Trading as OLD PAPAS". That is the only reference in the documents to the Gabstone Trust.
The Lease is not expressly referred to in the definition of "Business" or "Sale Assets". However, there is an express reference to the Lease in cl 5.1 which is in the following terms:
"On the Effective Date:
5.1.1[Gabstone] shall hold the right title and interest in the Business, including the Sale Assets free from all encumbrances as bare trustee for [OPHL] on the terms covenants and conditions contained in the Trust Deed;
5.1.2The risk in and benefit attaching to the Business, including the Sale Assets, shall pass to [OPHL];
5.1.3Without limiting clause 5.1.1 [Gabstone] shall hold:
5.1.3.1the Lease;
5.1.3.2the Business Name;
5.1.3.3the Eating Licences; and
5.1.3.4the Liquor Licence,
as bare trustee for [OPHL] on the terms covenants and conditions contained in the Trust Deed."
Gabstone is described in the Lease and the 1999 assignment thereof as the lessee "in its own right and as trustee of the Gabstone Trust". The terminology suggests that Gabstone itself had some beneficial interest as lessee under the Lease. The Gabstone Trust Deed is not in evidence. There is no evidence concerning the nature of the trust (whether it be discretionary or otherwise), the powers of the trustee or the identity of the beneficiaries.
The Trust Deed also notes that Gabstone is the proprietor of the Business. The Trust is in the form of a declaration of trust. Clause 2 provides:
"[Gabstone] hereby declares that from and including the Effective Date it will at all time hold its entire estate right title and interest in the Business (including but not limited to [Gabstone's] right title and interest in the Lease, the Liquor Licence, the Licences, and the Business Name) as bare Trustee for and on behalf of [OPHL]."
This clause suggests the Business includes the Lease. Pursuant to cl 3.2 of the Trust Deed Gabstone was required upon receipt of a written direction from OPHL to transfer to it the entire estate, right, title and interest held by Gabstone in the Business. However, any transfer was to be subject to and conditional upon Gabstone "obtaining the consent of the relevant lessor (and of any other person whose consent is required) to the assignment of the lease" to OPHL.
The terms of the documents to which I have referred suggest that what was intended was the sale by Gabstone of the full beneficial interest in the Business and the Lease to OPHL. It would appear that the author of the Sale Agreement and Trust Deed did not know that Gabstone held the Business in its capacity as trustee of the Gabstone Trust.
It was not an issue at the trial or in the appeal as to whether Gabstone had the power to sell the beneficial interest in the Business. There is no doubt that beneficiaries of a trust may in certain circumstances and in a number of different ways transfer the beneficial interest in trust assets to a third party: Comptroller of Stamps (Vic) v Howard Smith (1936) 54 CLR 614 at 621‑623. There is no suggestion in this case that the beneficiaries transferred or assigned their beneficial interest in the Business to OPHL. If that had occurred, there would be no breach of cl 8.01 of the Lease because the beneficiaries (whoever they are) are not parties to the Lease. Further, there is no evidence that the beneficiaries had directed Gabstone to henceforth hold the trust property upon trust for OHPL and that Gabstone was acting in accordance with those instructions (as to which, see Comptroller of Stamps (supra) at 622‑623).
However, it was accepted by the parties that the Sale Agreement and Trust Deed effected the transfer by Gabstone of the full beneficial interest in the Business and the Lease from the Gabstone Trust (and Gabstone itself to the extent it had any beneficial interest in the Lease) to OPHL. That being the attitude of the parties, the analysis will proceed on that basis.
It follows that at all material times the property the subject of the transfer was equitable property. Equitable property can only be the subject of an equitable assignment. The trial Judge concluded that cl 8.01 prohibited the assignment of an equitable interest (he did not identify in what) without the consent of the respondents. He distinguished the facts of this case from those in MacDonald v Robins (1954) 90 CLR 515 in which there had been a transfer of an interest in a lease from one co‑tenant to another. The issue before the High Court in MacDonald v Robins (supra) was whether an option contained in a lease to purchase farm land had been validly exercised. It was a condition precedent to the exercise of the option that the lessee observe the terms and conditions of the lease. The lessor argued that there had been a breach of a clause of the lease which prohibited assignment without the lessor's consent. The lessees were two brothers and they farmed the leased land under a partnership agreement. The partnership was subsequently dissolved and the brothers entered into a dissolution agreement. The dissolution agreement provided that one brother should sell and the other should purchase as from the date of cessation of the partnership "all the one‑half share of the former in the business and in the assets thereof (including the benefit of the lease and the option of purchase therein contained)". The Court held that the clause amounted at most to an equitable assignment of the brother's interest in the term of the lease.
The lease contained a covenant by the lessees "Not to transfer assign sub‑let or part with the possession of the said land without the consent in writing of the lessor first had and obtained ... ". The Court held that the covenant did not apply to an equitable assignment.
Dixon CJ said (at 520):
"An assignment by one co‑tenant of his share in the demised premises operating at law, as distinguished from equity, to vest his share in his co‑tenant would constitute a breach of such a covenant as the present against transfer or assignment of the land. At all events it has been so held: Varley v. Coppard; Horsey Estates Ltd. v. Steiger …; Langton v. Henson. In the last case, as in Varley v. Coppard the co‑tenants themselves took by assignment and a reason given for the result was that the one co‑tenant by assigning to the other destroyed the privity of estate between himself and his landlord. It may be remarked that in the case of lessees, parties to the lease, the liability on the covenants is not affected by the assignment. But probably this is an insufficient ground for distinguishing the decisions. An equitable assignment, however, is an entirely different matter. The privity of estate and the liability on the covenants of the lease all remain. Even when the entirety as distinguished from an undivided share in the term is equitably assigned there is no breach of such a covenant against assignment: Gentle v. Faulkiner …; Martin v. Coultas."
Dixon CJ's reference to Gentle v Faulkiner [1900] 2 QB 267 was to pages 274 and 277 of that report. In Gentle v Faulkiner (supra) the lessee executed an assignment of all his real and personal property, except a lease, to a trustee for the benefit of his creditors. In relation to the lease, he declared that he would stand possessed of all his leasehold property upon trust for the trustee. The trustee entered into possession of the leased premises, but no legal assignment of them was executed. The lessor served on the trustee a notice alleging a breach of a covenant against assignment. The covenant materially provided that the lessee would "not ... assign or underlet the said demised premises or any part thereof without the consent in writing of the lessor ... ".
The covenant did not prohibit parting with possession of the demised premises.
A L Smith LJ said (at 274):
"What, then, is the meaning of a covenant not to assign the demised premises? In my judgment the meaning is not to execute a legal assignment. An equitable assignment is not sufficient to operate as a breach of the covenant. There must be an assignment at law."
Romer LJ said (at 276 ‑ 277):
" ... it seems to me to be clear that a covenant in a lease against assigning the demised premises, in the absence of any context shewing that the covenant is to have an extended meaning, covers only a legal assignment. The covenant against assignment is, therefore, not broken by anything short of a legal assignment. In my opinion such a covenant is not broken by the lessee executing a declaration of trust of the demised premises."
However, a declaration of trust by a legal owner with full beneficial ownership is not a transfer or assignment of a subsisting equitable interest because a legal owner in that situation does not own two estates, one legal and the other equitable: DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510. Thus, if a legal owner with full beneficial ownership declares a trust he or she creates a new equitable interest in the relevant property. No assignment is involved. However, the statement of principle in Gentle v Faulkiner (supra) has not been confined to a declaration of trust by a legal owner but has been held to apply generally to an equitable assignment of legal or equitable property.
The appellant says the statement of the law in MacDonald v Robins (supra) applies irrespective of the terms of the covenant in the lease under consideration. There is some support for the appellant's position. In "Hill and Redman's Law of Landlord and Tenant", Butterworths, London, 2002, Binder 1, par 2483 it is stated in effect that a covenant "not to assign" is only broken by a legal assignment for the entire residue of the term.
However, that position is inconsistent with the reasons of Romer LJ in Gentle v Faulkiner (supra) where he refers, (at 276) to "context" by which I understand him to mean that the terms of a covenant may indicate a contrary intention. That is consistent with principle, as acknowledged by the Court of Appeal in Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd [2000] 2 WLR 566 at 573.
It must be the case that whether or not an equitable assignment is prohibited is a question of construction of the relevant covenant in the lease. I do not regard anything said by the High Court in MacDonald v Robins (supra) as inconsistent with that view. However, the covenant has to be construed in the light of the matters adverted to by Dixon CJ in that case. In particular, a lease gives rise to contractual and property rights. Both the contractual rights (but not obligations) and property rights can be assigned at law or in equity. The burden of covenants in the lease that touch and concern the land will run with the assignment of the leasehold estate. A legal or equitable assignment of a lease does not alter the contractual relationship between the lessor and the lessee assignor. Privity of contract remains. However, a legal assignment of a leasehold estate creates privity of estate between the lessor and the assignee and brings to an end the privity of estate between the lessor and the lessee: Picton-Warlow v Allendale Holdings Pty Ltd [1988] WAR 107 at 110. An equitable assignment of the leasehold estate has no such effect. An equitable assignment of the leasehold estate does not create privity of estate between the lessor and the assignee or bring to an end the privity of estate between the lessor and lessee. Privity of estate is a legal relationship not equitable: Manchester Brewery Co v Coombs [1901] 2 Ch 608 at 614; Purchase v Lichfield Brewery Company (1915) 1 KB 184.
Further, as a covenant against assignment fetters a lessee's right of property which is an incident of the leasehold estate, it is strictly construed: Burton v CamdenLondon Borough Council [2000] 2 AC 399 at 409; Killick v Second Covent Garden Property Co Ltd [1973] 1 WLR 658.
Thus, the question at issue is whether, on its proper construction, cl 8.01 of the Lease applies to an equitable assignment of legal or equitable property. The trial Judge answered that question in the affirmative by reference to the words "or any estate or interest therein" in cl 8.01. Certainly those words are capable of including an equitable estate or interest in the relevant property. In my view the relevant property is the Lease and the leased premises for the following reasons. The reference in cl 8.01 to the "Lease" cannot be intended to refer to the physical document. In ordinary circumstances it would be a reference to the contractual and property rights it embodies. That, in my view is what is meant by the word Lease in cl 8.01. The "leased premises" is a reference to the physical property to link with the concepts of "sub‑let", "possession" and "occupation".
Not all the conduct conditionally prohibited by cl 8.01 can sensibly refer to both the leased premises and the Lease. The concepts "sub‑let", "possession" and "occupation" have little application to the Lease. Further the word "assign" in the context of a lease is usually a reference to an assignment of the Lease, in particular the lessee's proprietary interest in the leased premises (ie the leasehold estate). It is not an assignment (transfer) of the leased premises as such. However, it seems to be the intention that the word "assign" in cl 8.01, also refers to the leased premises because it provides that the lessor cannot unreasonably withhold its consent in the event the lessee wishes "to assign … the whole of the leased premises". Thus, it must have been intended that the words "or any estate or interest thereon" apply to the leased premises as well as the Lease because an assignment of a leasehold estate is an assignment of an estate or interest in the leased premises.
That leaves the question whether cl 8.01 is intended to apply to the assignment of an equitable estate or interest in the leased premises. As stated earlier, an equitable estate or interest can only be assigned in equity. Prima facie, the word "assign" refers only to a legal assignment. That is clear from MacDonald v Robins (supra). In which case, the phrase "or any estate or interest therein" would be confined to a legal estate or interest in the leased premises or the Lease, such as, for example, the leasehold interest or a legal interest by way of security.
In my view, there is nothing in the language of cl 8.01 which mandates a conclusion that it conditionally prohibits the equitable assignment of a legal or equitable interest in the Lease. In the circumstances, I conclude that cl 8.01 on its proper construction applies only to a legal assignment of an estate or interest in the leased premises or the Lease.
The trial Judge also concluded that as a consequence of the Sale Agreement and the Trust Deed, OPHL went into possession of the leased premises and thus was in breach of cl 8.01 of the Lease. In particular, he said the effect of the Sale Agreement was to transfer the Business from Gabstone to OPHL with Gabstone remaining as bare trustee of the Lease and that the "chain of documentation" made it clear that on completion of the agreements, OPHL owned and operated the Business. He further concluded that as a result of the sale of the Business to OPHL, Gabstone parted with possession of the Business and the leased premises.
The trial Judge said there were many similarities with the facts in Richardson v Somas [1967] WAR 109. In that case, the lessee sold a business he was conducting from shop premises and the sale agreement provided that the lease would be assigned to the purchasers if the lessor consented to the assignment. It emerges from the judgment of D'Arcy J that the covenant against assignment in that case required the assignment to be operative at law as distinguished from equity and thus did not prohibit an agreement to assign. However, the purchasers went into possession of the premises before the lessor had been given a proper opportunity to consider whether to consent.
The evidence was that when the lessor visited the leased premises, there was no sign of the lessees who had in fact departed. The purchasers were in possession and had installed a new refrigeration unit. Wolff CJ said (at 111):
"By law the lessee parts with possession of the leased premises when he allows someone else to enter into free and uncontrolled possession to his exclusion:"
Thus, whether a person has parted with possession (or occupation) of the leased premises will depend upon all the relevant facts and circumstances: Lam Kee Ying v Lam Shes Tong [1975] AC 247 at 256.
However, the respondents in their pleading and at trial relied solely on the terms of the Sale Agreement and the Trust Deed and on formal admissions to the effect that:
(a)Each of the parties to the Sale Agreement wholly performed the Sale Agreement in accordance with the terms of the Sale Agreement and the bare trust in all respects on or before 28 July 2000.
(b)The Sale Agreement became unconditional in or about July 2000 and on or before 28 July 2000.
(c)Each of the parties to the bare trust wholly performed on or before 28 July 2000 the obligations imposed by the bare trust to enable completion of the Sale Agreement.
(d)Each of the parties to the bare trust has, since 28 July 2000, performed all obligations imposed on it by the bare trust.
There are a number of indicators in the Sale Agreement and Trust Deed that Gabstone would continue to carry on the Business, albeit as trustee for OPHL. It was accepted by the parties that on a proper construction of the Sale Agreement and the Trust Deed, OPHL was to be the beneficial owner of the Business. Gabstone was the legal owner. Under the Sale Agreement, Gabstone was to terminate the services of all the employees of the Business and offer to re‑employ them in its new capacity as trustee for OPHL. Gabstone was to hold the books of account of the Business as bare trustee for OPHL. Under the Trust Deed OPHL agreed to pay or reimburse Gabstone for payments required to be made by it "at any time associated with the establishment … development or holding of the Business ... ".
Further, cl 6 of the Trust Deed provides that:
"All income derived from the Business shall be paid to and received by [Gabstone] who shall pay all expenses associated with the Business and the operation of the Trust and keep and maintain all books of account relating to the operation of the Business upon and subject to the term of this trust deed."
There are also indicators to the contrary. The Sale Agreement and Trust Deed consistently describe Gabstone as a bare trustee and as holding the trust property on a bare trust. The term "bare trustee" is often used in statutes where its meaning depends on its context: Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 at 398; Thorpe v Bristile Ltd (1996) 16 WAR 500 at 505‑506.
In the context of the companies legislation considered in Coruma Holdings (supra), the term was held to mean a trustee who was no more than a nominee or cypher in a common sense commercial view.
In Thorpe v Bristile Ltd (supra) Malcolm CJ (at 505), with whom Pidgeon and Owen JJ agreed (at 507), referred with approval to the statement in Jacob's Law of Trusts in Australia to the effect that:
"A 'bare trust' is simply a trust in which the trustee has no active duties to perform. In its classic form it occurs when a principal vests property in his agent as his nominee, but obviously can occur in other circumstances. There are only two circumstances in which it is relevant to consider whether or not a trust is a 'bare trust'. The first concerns the question of possession: a cestui que trust is entitled to the possession of the trust assets if a trust be a 'bare trust', but not otherwise. The second concerns the effect of the creation of a sub‑trust. If A holds property on trust for B, and B declares himself a trustee of his interest for C, if the intermediate trust is a 'bare trust', but not otherwise, it is arguable (but not certain) that the effect of B's declaration of trust is to bring A and C into a direct relationship, so that A becomes a trustee for C."
Although the beneficiary of a bare trust is "entitled to possession" of the trust property, it does not necessarily follow that it is in actual possession. Further, as Meagher JA observed in Corumo Holdings (at 398), in reality almost no situation can be postulated when a trustee cannot in some circumstances have active duties to perform. However, by no stretch of the imagination can it be said that a trustee carrying on a business would or could be a bare trustee.
Neither the Sale Agreement or the Trust Deed expressly requires or empowers Gabstone to carry on the business. However, such power may be implied from the trust instrument and it has been suggested that there is statutory authority to do so: Ford H A J and Lee W A, "Principles of the Law of Trusts", 3rd ed, Law Book Company, Australia, 1996, par 12,500.
Having regard to the documents as a whole, I have difficulty in reconciling Gabstone's express obligations under the Sale Agreement, in particular its role as an employer of the staff of the Business, and its obligation to receive the income of the Business and pay its expenses with the label of "bare trustee". In my opinion, as a result of the inconsistent and contradictory indicators in the Sale Agreement and the Trust Deed, it is not possible based on those documents and the agreed facts to make a finding on the balance of probabilities that Gabstone parted with possession or occupation of the leased premises. Thus, the trial Judge erred in finding that, based on the construction of the Sale Agreement and the Trust Deed, Gabstone parted with possession of the leased premises. For these reasons I would uphold the appellant's appeal in relation to the May 2000 transactions.
The 2001 Assignment
The appellant contends that the trial Judge erred in fact and in law in holding that the undated Deed of Assignment and the April 2001 Deed did not effect a vesting of the legal interest held by Gabstone as trustee for OPHL to which s 10(7) of the Trustees Act 1962 (WA) applied in that:
(a)it was not pleaded that the May 2000 transactions and/or the 2001 assignment were ineffective or shams or illegal or unenforceable;
(b)there was no evidence that the 2001 assignment was not a genuine transaction;
(c)the trial Judge conflated the effect of the two separate and genuine transactions.
The appellant's case in substance is that the trial Judge erred by not giving effect to s 10(7) of the Trustees Act 1962 (WA). The grounds of appeal imply that the reason for the failure to apply s 10(7) was because the trial Judge found that the May 2000 transactions and/or the 2001 assignment were shams or that he had conflated the effect of the two separate transactions. There is no basis to infer that the trial Judge found that the relevant transactions were shams or that he conflated the effect of the two.
The trial Judge concluded that as a result of the 2001 assignment Gabstone had "totally divested" itself of any interest in the leased premises. He then states (at par 92‑93):
"Section 10(7) of the Trustees Act 1962 upon which counsel for the plaintiff relies has no application to these facts. …
Gabstone leased the premises from the defendants in its own right and as trustee for the Gabstone Trust. There was no vesting of this trust in a new trustee within the meaning of that section."
I infer from the trial Judge's reasons that he held that s 10(7) did not apply because just prior to the 2001 assignment Gabstone had an interest in the lease in its own right. That conclusion is inconsistent with the accepted effect of the Sale Agreement and the Trust Deed which was that Gabstone's interest in the Business, including the Lease, was solely as trustee for OPHL. Accordingly, it is necessary to consider whether s 10(7) of the Trustees Act applies.
Section 10 of the Trustees Act materially provides:
"(1)Where a new trustee is appointed, the execution of the instrument of appointment vests, subject to the provisions of this section, the trust property for which the new trustee is appointed in the persons who become and are the trustees, as joint tenants for the purposes of the trust, without any conveyance.
(2)…
(3)Subsections (1) and (2) do not apply –
(a)…
(b)to any property, including property subject to the operation of the Transfer of Land Act 1893, which is transferable … in manner directed by or under an Act of Parliament.
(4)…
(5)…
(6)…
(7)For the purposes of a covenant against assignments, or against assignment without licence or consent, contained in any lease, underlease or agreement for a lease or underlease, a vesting under this section shall be deemed not to be an assignment."
The undated Deed of Assignment provides that Gabstone "assigns to [the appellant] absolutely" with effect from 20 February 2001 all the legal and beneficial estate and interest held by Gabstone in the leased premises and under the Lease for the unexpired residue of the term of the Lease. The subsequent April 2001 Deed asserted that OPHS held the beneficial interest in the leased premises and the Lease and that the effect of the undated Deed of Assignment was to change the trustee of the trust.
Under s 10(1) of the Trustees Act, the execution of the instrument of appointment of a new trustee effects an automatic assignment or transition of property rights to the new trustee, subject to s 10(3). In this case, the parties intended the assignment to take effect by way of deed and not automatically by operation of law. For that reason alone, s 10(1) and thus s 10(7) have no application.
There is a further ground for this conclusion. The creation and assignment (transfer) of the legal interest in the leasehold estate under the Lease can only be effected by registration of the transfer under the Transfer of Land Act 1893 (WA) ("TLA"): ss 68 and 82 of the TLA. There is no evidence on whether the Lease, the 1999 assignment from Gabstone and Gumina to Gabstone or the assignment from Gabstone to the appellant were registered. However, the parties conducted the trial and the appeal as if there had been a transfer of the legal leasehold estate to the appellant. I will proceed on that basis. It follows that s 10(1) of the Trustees Act would be excluded by s 10(3) and accordingly s 10(7) would not apply.
As to the relationship between Torrens title land and of s 10 of the Trustees Act, the authors of "Principles of the Law of Trusts" (supra) note (at par 8440):
"The provisions under discussion are untidy in appearance because they all share the wrong point of departure, namely adherence to a provision deriving from the context of 19th century private conveyancing practice in England. In that practice the title to the legal estate was transferred by a simple deed of conveyance and the statute provided that an appointment of new trustees have the effect of a conveyance. In Australia the provision is inadequate to deal with the transfer of forms of property requiring a tripartite mechanism of transfer and registration or notification, and so the general vesting provision becomes hedged about by exceptions which merely serve to emphasise its irrelevance."
For these reasons there has been a prima facie breach of cl 8.01 of the Lease as a result of the 2001 assignment. However, a further ground of appeal, albeit in the context of the appellant's case on relief against forfeiture, was that there was no breach of cl 8.01 resulting from the 2001 assignment because the respondents had unreasonably withheld their consent to the assignment. If a lessor unreasonably withholds consent, the lessee is not in breach of the lease by assigning without consent: Yared v Spier [1979] 2 NSWLR 291; Haberecht v Chapman [1993] ANZ ConvR 277 at 279. It is convenient to deal with this ground at this stage.
The trial Judge dealt with this matter as follows (at par 94):
"Counsel for the plaintiffs maintains that the plaintiffs have requested the defendants to consent to an assignment of the lease from the first plaintiff to the second plaintiff as trustee for OPHL … It is contended by counsel for the plaintiffs that the effect of the defendants consenting to such an assignment would be that the second plaintiff would replace Gabstone as the bare trustee of the lease, the beneficiary being OPHL. As a matter of law, I accept that proposition as being correct. It would, nonetheless, remain the case that, if assigned, the defendants would have had as tenant the [appellant], a company about which the defendants knew very little apart from the limited material provided. It is contended by counsel for the plaintiffs that the [appellant] would be a lessee in the capacity of a trustee only, the beneficial interest remaining with OPHL. Nonetheless, the fact remains that OPHL, as a company with an appointed administrator, would operate the business."
Thus, it appears the trial Judge held that it was reasonable to withhold consent, in part, because OPHL was operating the Business from the leased premises. I have already concluded that the trial Judge was in error in making that finding. However, the financial position of the trust is relevant to the financial position of a trustee carrying on the business of the trust because the trustee is entitled to an indemnity from the trust assets in relation to trust related liabilities.
The factual background to this matter is as follows. By a notice dated 22 December 2000 ("assignment notice") Gabstone requested the respondents to consent to the assignment of the Lease to the appellant. The assignment notice was issued under s 10(2) of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) ("Retail Shops Act"). It was accepted by all parties that the Lease is a retail shop lease as defined in that legislation and is thus regulated by the Retail Shops Act. Under s 10, a retail shop lease is to be taken to grant to the tenant a right to assign the lease, subject only to a right of the landlord to withhold consent to an assignment on reasonable grounds.
The recitals to the assignment notice refer to the Lease and to the assignment in July 1999 from Gabstone and Gumina to Gabstone but make no mention of OPHL's interest under the Sale Agreement and Trust Deed. In the assignment notice, Gabstone requested the respondents to consent to an assignment of the Lease to the appellant and advised that it was proposed that the new guarantors of the Lease would be OPHL and Mr Monteath. Enclosed with the assignment notice were balance sheets as at 31 October 2000 for each of the appellant and OPHL. Although these documents might be thought to support a finding that OPHL was carrying on the Business and in possession of the leased premises, they formed no part of the respondents' pleaded case on that subject. The appellant's balance sheet as at 31 October 2000 disclosed a negative equity of $171,921. The OPHL balance sheet as at 31 October 2000 showed positive equity of $1,249,593. However, according to the appellant, the balance sheet records the value of the goodwill of the Business at $1,142,400 which value would be very significantly affected by the early termination of the Lease.
The respondents' lawyers responded to the assignment notice advising that the assignment of the lease should await the outcome of the Supreme Court proceedings and their clients withheld their consent to the assignment on the grounds that:
(a)the Lease was terminated pursuant to the notice of default relating to the Improvements and therefore there was no Lease to assign;
(b)the validity of the notice of default was the subject of litigation;
(c)as the Lease had been terminated there was no leasehold interest capable of being transferred.
The correct position was that the Lease, and thus the leasehold interest, had not been terminated because of the interlocutory injunctions restraining the respondents from terminating the Lease. The trial Judge concluded that it was understandable that Mr Bafile would have believed that the respondents were prohibited by the terms of the injunction from consenting to the assignment. I disagree. The terms of the injunction did not even arguably prohibit assignment and the respondents were legally represented at the time. Further, the fact that there is litigation on foot contesting the respondents' right to terminate does not necessarily render the refusal to consent reasonable. If the appellant was unsuccessful in its action, the respondents could terminate the Lease notwithstanding the assignment. However, it would be prudent for the proposed assignee to be put on notice of the relevant circumstances. In my view none of the grounds expressly relied on by the respondents' solicitors render the refusal to consent reasonable.
However, the respondents in their pleading relied on additional matters, including the appellant's and proposed guarantor's financial position. The appellant contended that on a proper construction of s 10 of the Retail Shops Act the onus is on the landlord to raise reasonable grounds in writing at the time consent is sought and is not permitted to subsequently rely on a ground not raised in the notice. I disagree. Section 10(1) and (2) of the Retail Shops Act provides:
"(1)Notwithstanding any other written law, a retail shop lease shall be taken to grant to the tenant a right to assign the lease, subject only to a right of the landlord to withhold consent to an assignment on reasonable grounds.
(2)Where a tenant under a retail shop lease has in writing requested the landlord to consent to –
(a)an assignment of the lease; …
(b)…
and the landlord fails to give notice in writing of consent or withholding of consent to the tenant within 28 days after receiving the request, the landlord shall be taken to have consented to the assignment or sub‑lease, as the case may be."
The landlord is not statutorily required to specify the grounds on which consent is withheld. It follows that the section does not confine the landlord to the grounds that are actually specified.
Further, s 10 does not in terms place the onus on the landlord to establish reasonable grounds to withhold consent. Further, there is no clear reason in policy or principle to alter the common law. At common law, the onus is on the lessee to establish that the lessor's refusal was unreasonable: Ex parte Peifer; Re English [1964] NSWR 500; J A McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd [1992] 2 Qd R 121; Bickel v Duke of Westminster [1977] QB 517.
It is reasonable for a lessor to withhold consent to an assignment if there are reasonable grounds to believe that the assignee would or may be unable to meet its financial obligations to the lessor: Swanson v Forton [1949] Ch 143; Lee v K Carter Ltd [1949] 1 KB 85.
As the trial Judge noted, a cursory perusal of the financial information accompanying the assignment notice was sufficient to conclude that the assignment proposal was unsatisfactory. The trial Judge accepted Mr Bafile's evidence that he concluded that the financial position of the [appellant] and of the proposed guarantor, OPHL was, to say the least precarious.
The appellant relied on evidence of the appellant's conduct after the assignment in support of a submission that it had the financial ability to comply with its financial obligations. However, reasonableness is to be determined as at the date of refusal of consent: J A McBeath Nominees Pty Ltd v Jenkins Development Corporation Pty Ltd (supra) at 123. The appellant's subsequent conduct and financial position is relevant to its claim for relief from forfeiture. I will address it in that context. In my opinion, the respondents did not unreasonably withhold consent to the proposed assignment having regard to the financial position of the appellant and OPHL.
A related ground of appeal is the appellant's claim that as a result of a rent review in 2001 the respondents were estopped from refusing consent to the assignment. This ground is without substance. After the respondents had been restrained by this Court from terminating the Lease, they initiated a rent review which was conducted under, and in accordance with, the terms of the Lease. It resulted in an increase in the rent payable. Thus, on the appellant's application, the respondents had been injuncted from terminating the Lease. The respondents were contractually entitled to review the rent during the currency of the Lease. The pursuit of that entitlement while the injunction was operative did not result in the respondents adopting inconsistent positions or "approbating or reprobating". In these circumstances there is no estoppel (or waiver or election) arising from the respondents' initiation of a rent review under the Lease.
For these reasons I am satisfied that the trial Judge was not in error in concluding that the 2001 assignment was a breach of cl 8.01 of the Lease and that the respondents' consent to the 2001 assignment was not unreasonably withheld.
Improvements Claim
The appellant contends that the trial Judge erred in holding that Gabstone breached the lease in carrying out the Improvements. In particular it is said:
(1)by letter dated 27 April 1999 the respondents consented to Gabstone carrying out the Improvements;
(2)the trial Judge erred in admitting without prejudice letters exchanged before and after the letter dated 27 April 1999;
(3)alternatively the trial Judge erred in holding that the correspondence referred to in (2) established that the respondents did not consent to the Improvements;
(4)the trial Judge erred "with respect to the matter of provision to the respondents … of plans of works to be carried out at the Leased Premises to obtain a liquor licence".
Clause 6.01 prohibited the lessee from making structural and other alterations to the leased premises without the prior written consent of the lessor. The clause materially provides:
"The Lessee shall:
Clause 6.01‑ No alterations or additions
Not make or permit to be made any alterations or additions of a structural nature without obtaining the prior written consent of the Lessor which consent may in the absolute discretion of the Lessor be withheld without giving any reason and if granted may be granted subject to such conditions or amendments or variations to the proposed alterations or additions as the Lessor shall require and not without the like consent cut maim or injure any of the walls partitions timbers doors or floors thereof
…
The Lessor may call for reports from architects, engineers or other consultants in respect of any such alterations or additions and the cost of doing so shall be borne by the Lessee. All works for which the consent of the Lessor is given pursuant to this Clause 6.01 shall be carried out by contractors approved of by the Lessor (such approval not to be unreasonably withheld) and pursuant to the plans and specifications approved by the Lessor but no such works shall be commenced before such approvals have been obtained by the Lessee."
The background to this claim is described in the trial Judge's reasons. The original action concerned (inter alia) the respondents' alleged refusal to consent to the assignment of the Lease from Gabstone and Gumina to Gabstone unless Gabstone agreed to the removal of the options from the Lease ("option condition") and the respondents' refusal to consent to a liquor licence application and certain alterations and additions to the leased premises in connection therewith (the "original works") unless Gabstone agreed to the option condition.
Paragraph 18 of the statement of claim in the original action states:
"Notwithstanding that the [the respondents] approved a development application being made to carry out works necessary to obtain a liquor licence for the Leased Premises, the [respondents] have thereafter refused, and continue to refuse, to consent to an application for the grant of a liquor licence for the Leased Premises … or the carrying out of those [original] works unless and until the plaintiffs agree to the [option condition]."
The plaintiffs in the original action sought an injunction requiring the defendants to consent to the application for the grant of a liquor licence and the carrying out of the said works.
Correspondence passed between the solicitors for Gabstone and the respondents in an attempt to settle the original action. The letter of 27 April 1999 referred to in the grounds of appeal is from the respondents' solicitors to Gabstone's solicitors and is in the following terms:
"We refer to your correspondence of 21 April 1999.
In Supreme Court proceedings numbered CIV 1034 of 1999 your client claimed:
(a)a declaration that the lease has not been terminated
(b)alternatively to (a), a declaration that any attempt to invalidate to terminate the lease was void
(c)alternatively to (a) and (b), a declaration that any agreement to permeate the lease was invalid
(d)alternatively to (b) or (c), a declaration to cancel the options in the lease ineffective
(e)alternatively to (a) – (d) relief from forfeiture
(f)a declaration that the lessors unreasonably withheld consent of the assignment
(g)an injunction requiring the lessors to consent to the Application being a grant of a liquor licence for the Leased Premises and the work necessary to obtain a liquor licence
(h)an injunction requiring a lessor to remedy the defects being matters in your correspondence of 6 November 1998.
Our clients maintain that all the matters the subject of the writ have been resolved, namely
1.items (a) to (f), above have been resolved and an assignment of lease has been prepared and presented to your client for execution. We await from your client the executed assignment;
2.item (g) above has been resolved as our clients have indicated their consent and await from your client:
(I)comment as to the terminology of the written consent to be supplied by our clients (see our facsimile of 30 March 1999).
(II)Details of the works required to support the liquor licence application;
3.item (h) above has been resolved and our clients are awaiting firm quotes before instructing the completion of the works by subcontractors.
There has been resolution with respect to all matters in the writ. Accordingly, our clients require that your client discontinue the writ with each party paying their own costs as agreed.
Your clients now seek to obtain from our clients permission on extensive works beyond what was original (sic) suggested and beyond what is required to support the application for a liquor licence. This is a new matter.
The works now proposed by your clients carry significant consequences for the lessors and impact on the lease including but not limited to, the building fabric, the rights of other tenants and occupants, the requirements of the local authority, the requirements of statutory authorities, insurance, leased area, maintenance and common property. Each of these issues raise many more concerns and your clients response to the issues will no doubt raise further concerns.
Your clients want a prompt decision. Our clients will accommodate your client's request on receiving:
(a)a discontinuance of the writ;
(b)an executed assignment;
(c)a detailed written proposal for the proposed extra works addressing not only the structural issues but all relevant issues arising from the construction of such extensive works as are contemplated by your client.
Until your client attends to the matters raised at 2 (I) and (II), and (a), (b) and (c) above our clients do not see any value in meeting with your client or continuing with correspondence in relation to these matters."
The logical first issue is whether the trial Judge erred in admitting the without prejudice correspondence into evidence. The appellant sought to confine the trial Judge's consideration solely to the letter of 27 April 1999 or alternatively to that letter and the other letters expressly referred to therein. The respondents relied on a chain of correspondence between the solicitors in the period February 1999 to August 1999.
Statements made without prejudice in an attempt to settle a dispute or action are privileged. Without prejudice privilege is a joint privilege and thus cannot be waived without the consent of the negotiating parties. The mere fact that a document is or is not marked "without prejudice" is not decisive. The test is whether the communication was part of a genuine attempt to settle a dispute: Rodgers v Rodgers (1964) 114 CLR 608 at 614. If so, the whole course of the negotiations is privileged: South Shropshire District Council v Amos [1987] 1 All ER 340.
A binding contract brought into existence as a result of without prejudice negotiations is not protected by the privilege. Although the resulting contract is not privileged, the negotiations leading to the agreement remain privileged: Biala Pty Ltd v Mallina Holdings Ltd (1990) WAR 174 at 180; Bentley v Nelson [1963] WAR 89 at 93.
However, without prejudice negotiations leading to an agreement can be considered where there is a dispute as to whether or not an agreement to settle was made: Tomlin v Standard Telephones & Cables Ltd [1969] 1 WLR 1378; Unilever Plc v Procter & Gamble Co [2000] 1 WLR 2436 at 2444.
The authorities establish that the without prejudice rule is not absolute and resort may be had to without prejudice material for a variety of reasons when the justice of the case requires it: Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 per Lord Griffiths at 1300.
Thus, without prejudice negotiations may be "pleaded into evidence" in such a way that the privilege is no longer available, by analogy with the rule concerning legal professional privilege: Western Australia v Southern Equities Corporation Ltd (in liq) (1996) 142 ALR 597 at 601‑602. The principle is not confined to the case where the party seeking to assert privilege raises a positive case: Data Access Corporation v Powerflex Services Pty Ltd (1994) AIPC 91‑112.
The content of the without prejudice communications is an issue in the case. The appellant pleaded that by the letter of 27 April 1999 the respondents "in settlement and compromise" of the original action, consented to the first plaintiff carrying out the original works "subject to the first plaintiff providing details" of the original works and, "in consideration thereof, the first plaintiff discontinued" the original action. The respondents pleaded that the settlement or compromise "was expressed in or would have been implied from" a series of correspondence between the solicitors as particularised. The correspondence relied on includes the chain of without prejudice communications.
Thus, the focus on whether there was a settlement agreement pursuant to which the respondents consented to the original works resulted from the way the parties pleaded their cases. That in turn affected what was relevant and admissible to prove the agreement and its terms. The appellant claimed that the only contractual document was the letter of 27 April 1999 and that evidence of prior (and subsequent) communications as an aid to construction of the agreement was inadmissible. The appellant's submissions proceeded on the false premise that the letter on 27 April was an agreement in writing to which the parol evidence rule applied. The 27 April letter is not and does not purport to be the agreement. The letter refers to agreements and consents previously reached and given. Whether there was an agreement and if so its terms can only be resolved by reference to the chain of correspondence. Further, it would be unfair and unjust to attempt to interpret the letter of 27 April 1999 in a vacuum without reference to the communications preceding it. The without prejudice communications are directly relevant on the pleadings and the justice of the case required that they be admitted. The same analysis is equally applicable to the question whether the respondents had given non‑contractual consent to the Improvements.
Another ground of objection to the admissibility of some of the without prejudice communications was that they were admitted into evidence without the author being called. It was accepted that the authenticity of the documents was not in issue. The letters written by the respondents' solicitors were relevant and admissible as communications between the parties, by their solicitors, for the purpose of objectively determining whether there was an agreement, if so its terms, and contract aside, whether the respondents had consented to the works. It was not necessary to call the author of the letters for that purpose. It is sufficient if the sending or receipt was established by admissible evidence. Accordingly, I do not uphold the grounds of appeal relating to the admissibility of the communications. I go to the other grounds of appeal. For that purpose it is necessary to go to the chain of correspondence
On 1 February 1999, shortly after the commencement of the original action the respondents' solicitors wrote to Gabstone's solicitors offering to settle the action and advising that the respondents "have not and do not object to your client's application for a liquor licence entirely at your client's expense subject to the terms of the lease". By letter dated 26 February 1999 Gabstone's solicitors responded to that offer with a counter‑offer. They required the respondents to provide their written consent to the liquor licence application "and the carrying out of works at Old Papa's in relation to the liquor licence, the details of which had previously been provided by our client to your client". The respondents' solicitors wrote again on 9 March 1999 stating that the carrying out of the works needed to be properly detailed and documented for consideration and approval by the respondents and that they did not have any details of the works required to support the application for the liquor licence.
By letter of 17 March 1999, Gabstone's solicitors advised the respondents' solicitors that Gabstone had forwarded to Mr Bafile all necessary details of the works required to be carried out to the premises in relation to the liquor licence application. In a letter dated 19 March 1999 the respondents' solicitors referred to the drawings provided to Mr Bafile and stated "the drawings are insufficient and are inadequate to enable our clients to make an informed decision. What can be discerned from the documents that our client has received to date is that extensive works are proposed and therefore if our clients are to agree to these extensive works appropriate information should be supplied".
By letter dated 26 March 1999, Gabstone's solicitors advised that their client would forward to the respondents by 26 March 1999 a complete copy of the plans for the proposed works in relation to the liquor licensing application. By letter dated 30 March 1999 the respondents' solicitors referred to drawings provided to the respondents on 26 March 1999 and noted that there did not appear to be any correlation between the works required to support the liquor licence application and the proposed works referred to in the drawings. The solicitors repeated their request for the drawings and a list of works that are required for the liquor licence application.
Gabstone's solicitors responded by letter dated 31 March 1999. They confirmed that the drawings provided on 26 March 1999 went beyond the works required for the grant of a liquor licence, repeated the request for the respondents' consent to the works as a whole and ignored the request for drawings and a list of the works required for the liquor licence application alone.
By letter of 8 April 1999 the respondents' solicitors stated that all matters the subject of the original action had been resolved and in relation to the liquor licence application, the respondents were prepared to consent to an application for a restaurant licence "subject to the finalisation of an agreement as to the works and documentation required only to satisfy that application".
Gabstone's solicitors replied by letter dated 9 April 1999 stating that Gabstone wanted to proceed with all of the works and demanded a list of the respondents' written concerns so that they could consider them and resolve any outstanding issues.
Gabstone's solicitors wrote again on 21 April 1999 when they had received no response to their letter of 9 April 1999. They suggested a meeting to attempt to resolve outstanding matters. The 27 April 1999 letter was in response to the letter of 21 April 1999.
The trial Judge concluded that the respondents had never consented to any structural works being done to the leased premises and that no such consent would be forthcoming from them until such time as they knew precisely the structural works to be undertaken. The trial Judge found that Gabstone at no stage advised the respondents of the specific work necessary to obtain a liquor licence. Gabstone had provided plans and drawings to the respondents for works including, but not limited to, the Improvements without ever identifying those Improvements.
The trial Judge also found that the respondents' representative, Mr Bafile, was under the misapprehension that no structural works were necessary to obtain a liquor licence and that he understood that the respondents' consent was always subject to the Lease so that structural alterations had to be approved before they could be undertaken. It is not clear to what extent, if any, the trial Judge's finding that the respondents had not consented to any structural works was linked with these findings. However, consent, as with contractual intention, is to be objectively determined. Mr Bafile's subjective intention and understanding is irrelevant.
Having regard to the terms of the letter of 27 April 1999 in the context of the chain of correspondence, I am of the opinion that the respondents had given consent to works of such a nature or type as were necessary for a liquor license. However, the respondents had not consented to or waived their rights under cl 6.01 to see, and if appropriate, vary the detail of the proposed works, approve the plans and specifications or approve the contractors to carry out the works. Thus, the consent given was narrower than that required under cl 6.01 of the Lease and it was not consent to proceed with any works. It is for this reason that the consent given in the letter of 27 April 1999 was subject to the provision of details of the works required to support the liquor license application. The trial Judge found that the necessary details had not been provided. In my view the trial Judge did not err in concluding that the Improvements were undertaken without the respondents' consent in breach of the Lease.
The correspondence after April 1999 between the parties' solicitors reflect what the trial Judge describes as the misunderstandings of the respective parties. Gabstone filed a notice of discontinuance of the original action on 6 May 1999. In a letter dated 6 May 1999 Gabstone's solicitors informed the respondents' solicitors that their client was collating details of the proposed work which would be forwarded to Mr Bafile. That occurred, however the trial Judge found that the details provided related to all of the proposed works and not just the works required to support the liquor licence application.
By letter dated 30 July 1999 the respondents' solicitors stated that the lessor approved the application for a liquor licence "subject to the terms of the lease" but declined permission to carry out any internal or external structural alterations to the leased premises.
In a response dated 17 August 1999, the appellant's solicitors advised that their clients intended to proceed with the original works and sought approval of the liquor licence application on the basis that the works would be confined to the original works. By letter dated 2 September 1999 the respondents' solicitors confirmed the respondents' position as set out in their letter of 30 July 1999. Gabstone's solicitors responded by letter dated 17 September 1999 that their clients would be proceeding with the original works. Gabstone carried out the Improvements in around October‑November 1999 in reliance on the letter of 27 April 1999.
Gabstone Liquidation
The appellant contends that the trial Judge erred in holding that the respondents were entitled to terminate the Lease at common law because Gabstone was in breach of cl 11.01(c) of the Lease. In particular it is said the trial Judge erred in holding that cl 11.01(c) of the Lease:
(1)was not void by reason of ss 13(6) and 15(2) of the Commercial Tenancy (Retail Shops) Agreement Act 1985;
(2)applied to the liquidation of Gabstone on 10 May 2001,
"which was after the assignment at law of the leasehold estate from Gabstone to the [appellant] … had been effected on 20 February 2001".
Clause 11 of the Lease deals with the circumstances in which the lessor can re‑enter and terminate for breach. Clause 11.01(c) provides that if:
"(c)the Lessee being a Company shall go into compulsory or voluntary liquidation (except for the purposes of amalgamation or reconstruction) or shall have appointed under any Act or instrument or by order of any Court a manager or an administrator or a trustee or a receiver or a receiver and manager or provisional liquidator or liquidator or agent in possession in relation to any part of the Lessee's undertakings or assets or property; or
…
…
then in any such case the Lessor may at its option … enter and repossess the Leased Premises and thereby the Term and the estate and interest of the Lessee in the Leased Premises will immediately determine …"
There is no substance in the appellant's contention that cl 11.01(c) is void by reason of ss 13(6) and 15(2) of the Retail Shops Act. Section 13(6) sets out the grounds on which a retail shop lease to which s 13(1) applies can be terminated. The liquidation of the lessee/assignor is not a ground of termination. However, s 13(1) only applies to a retail shop lease for a term of less than five years or where the current term plus any term that may be obtained by way of an option to renew is less than five years. The Lease was for a term of 10 years with two five-year options.
The other attack on the trial Judge's finding is based on the assignment of the legal leasehold estate from Gabstone to the appellant. As stated earlier, the parties approached the case on the basis that the 2001 assignment effected a legal assignment of the leasehold estate in the leased premises. If there was no such legal assignment, there would be a clear breach of cl 11.01(c). The appellant's submission was in substance that after a legal assignment, the word "lessee" in cl 11.01(c) of the Lease refers to the assignee. The appellant relied on Picton‑Warlow v Allendale Holdings Pty Ltd (supra) at 110‑112 per Brinsden J and 117‑118 per Rowland J. In that case, the lessor had consented to the assignment of the lease and the "lessee" was defined in the lease to include, inter alia, "permitted assigns". The issue in contention in that case was whether a rent review notice had to be served on the lessee/assignor or the assignee. The Court held that, on its proper construction, where there had been an assignment with the lessor's consent the word "lessee" meant assignee. The question is whether the outcome in Picton-Warlow would have been different if the assignment had taken place in breach of a covenant against assignment.
The term "lessee" is also defined in the Lease to mean, inter alia, "permitted assigns". The appellant is not a permitted assign. However, it is clear that cl 11.01 of the Lease is predicated on the "lessee" being the holder of the leasehold estate at the time of the breach because it is that lessee's estate that is liable to forfeiture as a result of the breaches listed in that clause. As Gabstone at the time of the breach had already legally assigned its leasehold estate to the appellant it had nothing to forfeit. That situation is to be contrasted with the position if the breach had occurred prior to or contemporaneously with the assignment, in which case the assignees derivative leasehold estate would be liable to forfeiture. Thus, the trial Judge erred in holding that Gabstone's breach of the lease after the assignment rendered the appellant's leasehold estate liable to forfeiture.
Relief from Forfeiture
The grounds of appeal are very lengthy and I propose to state their substance. It is said the trial Judge erred in fact and in law in refusing relief from forfeiture in that he:
(1)should have found that Gabstone's deliberate failure to advise the respondents of the May 2000 transaction and the 2001 assignment was based on a mistaken but reasonable analysis of legal and equitable principles and was not conduct justifying the refusal of relief without a detailed analysis of the significant prejudice to the appellant and lack of prejudice to the respondents occasioned by forfeiture, particularly in the light of Mr Bafile's long standing adversarial and unco‑operative attitude to Gabstone;
(2)held that Gabstone and not the appellant was the proper party to apply for relief from forfeiture;
(3)failed to find that the appellant had paid all rent and that there was no evidence of any inability of the appellant to pay rent and perform and observe the conditions of the lease;
(4)should have found that there was no challenge to the appellant's ability to provide a six-month bank guarantee of future rent;
(5)by reason of the matters in (3) and (4), should have held that the respondents could not reasonably withhold consent to the assignment of the lease to the appellant on trust for OPHL;
(6)should have found that Gabstone's solicitors had twice informed the respondents' solicitors that the Improvements would be carried out without any dissent in that regard from the respondents and that fact coupled with the terms of the letter of 27 April 1999 and the discontinuance of the proceedings are strong factors in favour of the grant of relief against forfeiture;
(7)failed to hold that relief against forfeiture was justified with respect to the Improvements because they were necessary to obtain a liquor licence for leased premises, had materially increased the value of the leased premises, was a minor breach and forfeiture would unjustly enrich the respondents;
(8)should have found that the respondents did not identify any prejudice if relief against forfeiture was granted in that they had no plan to do anything other than to rent the premises, the rent they were receiving was a market rent, they could not charge a new tenant a premium or key money and could not redevelop the building;
(9)should have found that there would be extreme prejudice to the appellant if relief against forfeiture was granted because it would lose the value of all improvements and OPHL would lose the benefit of their substantial goodwill paid to acquire the benefit of the lease pursuant to the May 2000 transactions.
The trial Judge concluded that the breaches of the lease by the plaintiffs were wilful and substantial and of such a nature as to entitle the respondents to forfeit the lease relying on Shiloh Spinners Ltd v Harding [1973] AC 691 at 725. He dismissed the appellant's claim for relief from forfeiture in the following terms (at par 109‑111):
"Counsel for the [appellant] maintains that equitable relief against forfeiture is available to the second plaintiff because the assignment of the lease from the first plaintiff to the second plaintiff is not nugatory but effective in law. In that respect, counsel relied upon the passage from Massart v Blight set out earlier in these reasons. In my view, that passage is of no assistance to the [appellant]. It is only [Gabstone] who could seek relief against forfeiture because it is only [Gabstone] that had the legal rights pursuant to the lease. Once an order for forfeiture is made against [Gabstone], then [the appellant's] leasehold title which derives from [Gabstone] falls with it.
The principles upon which a court will grant relief against forfeiture are well established in Shiloh Spinners Ltd v Harding (Supra) at 723‑724.
It is to be noted that [Gabstone] does not seek relief against forfeiture and, as I have said earlier in these reasons, took no part in these proceedings. Had it done so, it could have been required to do so through the liquidator. It follows, in my view, that the [appellant] is unable to obtain relief against forfeiture: see Daw‑Win Pty Ltd v Tagliferri (sic) [1986] ANZ Conv R 876; SCt of WA Franklyn J; 29 July 1986."
The logical first issue is the appellant's standing to seek relief from forfeiture. At common law, an assignment of a lease in breach of a condition against assignment does not make the assignment nugatory but merely exposes the lease to forfeiture: Massart v Blight (1951) 82 CLR 423 at 440‑441; Old Grovebury Manor Farm Ltd v W Seymour Plant Sales & Hire Ltd (No 2) [1979] 3 All ER 504 at 505‑506. It follows that after a legal assignment of the leasehold estate, the proper plaintiff to seek for relief from forfeiture is the assignee: Picton Warlow v Allendale Holdings Pty Ltd (supra) at 111, Old Grovebury Mann Farm Ltd (supra) at 506; Ladies Sanctuary Pty Ltd v Parramatta Property Investment Ltd (1997) 7 BPR 15, 156. The case of Daw‑Win Pty Ltd v Tagliaferri [1986] ANZ ConvR 876 relied on by the trial Judge does not support the proposition for which it was cited.
As an equitable assignment does not alter the privity of estate (or contract) between lessor and lessee, the lessee (assignor) would be a necessary party to a claim for relief from forfeiture: Meagher R P, Gummow W M C and Lehane J R F, "Equity Doctrines & Remedies" 3rd ed, Butterworths, Sydney, 1992, par 6102 and 6103.
The parties conducted this case on the basis that the legal title in the trust property including the Lease had been assigned to the appellant. On that basis, the appellant was the proper applicant for relief from forfeiture. Accordingly, it is necessary to consider the other grounds of appeal.
The equitable remedy of relief against forfeiture is discretionary. As stated by Burt CJ in Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279 at 289:
"A person seeking the exercise of the court's equitable jurisdiction to relieve against forfeiture of his interest as lessee under a lease must satisfy the court that the case is on the facts 'appropriate' for the exercise of that jurisdiction and that
'involves considerations of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared to the damage caused by the breach': Shiloh Spinners v Harding at 723‑724 per Lord Wilberforce."
The basis of relief against forfeiture is to prevent unconscientious or unconscionable conduct: Stern v McArthur (1988) 165 CLR 489 at 527 per Deane and Dawson JJ.
Perhaps as a result of the trial Judge's conclusion that the appellant had no standing, there is no detailed analysis of, or findings in relation to, all matters relevant to the claim for relief from forfeiture.
I start with the Improvements. In my view it is correct to characterise the breach of the Lease resulting from the Improvements as minor. The Improvements were necessary in order to obtain a liquor licence, they cost Gabstone approximately $58,000 and increased the value of the leased premises or at worst did not decrease their value. The trial Judge found that Gabstone had undertaken the Improvements on the mistaken understanding that the respondents had consented to them in their letter of 27 April 1999. When considered in isolation, the breach of the lease arising from the Improvements is not an impediment to the grant of relief from forfeiture.
I also accept that the refusal to grant relief will occasion very significant prejudice to the appellant and OPHL. Their financial position is linked with the Business conducted from the leased premises.
The appellant says the grant of relief will not prejudice the respondents because they intend to continue to rent the leased premises. It is said redevelopment is not an option. However, the issue of prejudice to the respondents is related to the 2001 assignment and the financial position of the relevant parties to which I now turn.
As I have concluded that the May 2000 transactions did not breach cl 8.01 of the lease, it is unnecessary to consider that matter further. However, I have concluded that no error has been demonstrated in relation to the trial Judge's conclusion that the 2001 assignment was in breach of cl 8.01 of the lease. The appellant says the trial Judge should have found that its conduct was based on a mistaken but reasonable analysis of the law. This Court was not referred to any evidence given on behalf of the appellant to support such a finding. Further, the documentary evidence does not support an inference to that effect. The undated Deed of Assignment purports to be an absolute assignment of the full legal and beneficial interest in the Lease and the leased premises to the appellant. Whoever drafted that document cannot have had s 10 of the Trustees Act in contemplation.
The circumstances surrounding the 2001 assignment support an inference that Gabstone's conduct was driven or at least affected by its financial position. Gabstone went into liquidation in May 2001. OPHL was placed in administration in April 2001. Company documents in evidence disclose that at the material time, Gabstone, OPHL and the appellant had at least one director in common and that Gabstone was a shareholder in OPHL and OPHL held all of the shares in the appellant. On the basis of the balance sheets enclosed with the assignment notice, the trial Judge described the financial position of the appellant and the proposed guarantor OPHL as precarious. It was such as to justify the respondents refusal to consent to the assignment.
However, the appellant says the evidence establishes that it has paid the rent since the rent review which was completed in February 2001 and operative from October 2001, and had the ability to provide a six-month guarantee for future rent. The former can be accepted. However, in relation to the latter the evidence goes no further than that the appellant, by letter sent by facsimile transmission to the respondent on 7 May 2001, offered to settle its disputes with the respondents on the basis, inter alia, that the appellant provide a bank guarantee to secure rental payments for up to six months, the guarantee to replace any requirement for directors or shareholders' guarantees. The Court was not referred to any other evidence as to the financial position of the appellant or OPHL. I am not persuaded that any inference as to the appellant's financial position can be drawn solely from the offer.
There is authority to the effect that where a tenant undertakes to remedy the breaches giving rise to forfeiture, relief against forfeiture should be granted usually as of course and refused only in exceptional circumstances: Jam Factory Pty Ltd v Sunny Paradise Pty Ltd [1989] VR 584; Greenwood Village Pty Ltd v Tom the Cheap (WA) Pty Ltd [1976] WAR 49. In both cases there was evidence of reasonably based concerns as to the financial ability of the lessees to comply with their financial obligations under the relevant leases. Indeed, in the Greenwood Village case the lessee had entered into a scheme of arrangement with its creditors. The approach in these cases is a reflection of the principle that equity regards forfeiture of the lease as an ultimate security mechanism to ensure compliance with the agreement and if that can be achieved without forfeiture, relief will be granted: Love v Gemma Nominees Pty Ltd [1983‑84] ANZ ConvR 68 at 71.
Seen in that light, a lessee may properly be given the benefit of any uncertainty concerning its financial capacity to comply with its obligations because any subsequent breach of the lease can be met with a further termination for which relief from forfeiture is unlikely to be granted. However, that approach is inappropriate in the circumstances of this case. There has been a wilful breach of cl 8.01 in circumstances where the assignee had a negative equity, the proposed guarantor (and beneficial owner of the Business and the leasehold interest) was in a situation where its positive balance sheet position was largely dependent on the goodwill of the Business and is subsequently placed in administration. This Court was not referred to any evidence relating to OPHL's financial position at the time of the trial. Added to that is the financial failure of the assignor. In these circumstances, I am not persuaded that the trial Judge erred in the exercise of his discretion to refuse relief from forfeiture.
The Trade Practices Claim
The appellant's final ground of appeal is that the trial Judge erred in not holding that the respondents had engaged in unconscionable conduct in breach of s 51AC of the TPA or alternatively, s 51AA of the TPA. It is alleged that the respondents engaged in conduct designed to harm the lessee and ensure the Lease was terminated in that the respondents:
(a)for no good reason refused to consent to a liquor licence application on a separate document despite agreeing to do so in the 27 April 1999 letter;
(b)delayed from 12 May 1999 to 30 July 1999, without explanation, in responding to the plans and scope of works proposed;
(c)interfered with Gabstone's business by lengthy unjustified erection of scaffolding;
(d)issued the default notice of 10 November 1999 despite the terms of the letter of 27 April 1999 and the lessee's statements in the letters of 17 August and 17 September 1999 of its intention to carry out the works necessary to obtain a liquor licence to which the respondents failed to object;
(e)required the lessees to pursue three separate actions to protect the lease;
(f)sought to impose a rent increase by letter dated 29 August 2000 in terms suggesting the amount was based on market evidence when it was in fact only based on a preliminary assessment which the agent thought would not be acceptable and ultimately was not that agent's assessed market rent;
(g)refused to consent to the assignment without negotiation on untenable grounds;
(h)refused to negotiate on any matters including a request made by the administrator of OPHL to surrender the liquor licence;
(i)permitted the lessee to incur substantial costs in preparing plans when the respondent's agents had no intention of permitting any works the subject of the plans;
(j)objected to the assignment of the Lease from Gabstone and Gumina to Gabstone.
(k)asserted the lessee's solicitors had a conflict of interest based on the assertion that a declaration trust was an assignment in breach of cl 8.01 of the lease.
Section 51AA of the TPA was inserted by the Trade Practices Legislation Amendment Act 1992 to prohibit a corporation engaging in conduct that is unconscionable within the meaning of the unwritten law from time to time of the States. The section does not apply to conduct prohibited by s 51AC.
Section 51AC was inserted in the TPA by the Trade Practices Amendment (Fair Trading) Act 1998 and commenced to apply from 1 July 1998.
It applies to small business transactions involving the supply to or acquisition of goods or services under $3,000,000 by a person other than a listed public company. Section 51AC(1) provides:
"A corporation must not, in trade or commerce, in connection with:
(a)the supply or possible supply of goods or services to a person (other than a listed public company); or
(b)the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable."
The section contains a non‑exhaustive list of factors to which the Court may have regard in determining whether the conduct is unconscionable: s 51AC(3),(4). The factors include the relative strengths of the parties bargaining positions, whether any undue influence or pressure was exerted or unfair tactics used, whether the supplier acted in good faith and other matters.
For the purpose of determining whether a corporation has contravened s 51AC a court may have regard to circumstances existing before the commencement of the section but not to conduct engaged in before that commencement: s 51AC6(b).
In Hurley v McDonald's Australia Ltd [1999] FCA 1728 the Court said (at par 22 ):
"For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated ‑ … Whatever 'unconscionable' means in s 51AB and s 51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable … The various synonyms used in relation to the term 'unconscionable' import a pejorative moral judgment …"
The trial Judge, after listing some of the pleaded matters on which the appellant relied in support of its trade practices claim continued (at par 117‑119):
"The circumstances surrounding the plaintiffs' proposal to install decking around the premises have been discussed earlier in these reasons. The plaintiffs maintain that without the increased patronage that the constructed decking would accommodate, the liquor licence for the restaurant is commercially unviable. The defendants, on the other hand, maintain that the building is of heritage value and they have not consented to any structural alterations. In my view, accepting, as I do, Mr Bafile's evidence, it seems to me that the defendants' attitude in this respect is entirely reasonable.
As to the rent increase, it is conceded that the rent review was conducted under the terms of, and in accordance with, the lease. Valuers were appointed and a market rental determined, with both parties participating in the process. In addition, it is not in dispute that the rental has been paid in accordance with the arbitrated increase since the date of its determination.
Having considered the evidence and the plaintiffs' claims, I am quite unable to conclude that the plaintiffs' claims in relation to unconscionable conduct have been made out for the purposes of these proceedings."
The trial Judge said that it was unnecessary to deal with the appellant's unconscionable conduct claims in detail because they were directed towards the claim for damages and did not reflect "upon the status of the lease which falls for consideration on these proceedings". That is incorrect. The relief sought in relation to the trade practices claim included injunctions under s 80 of the TPA restraining the respondents from terminating the Lease.
As a result the trial Judge did not expressly deal with or address all of the matters the subject of the grounds of appeal. It should be noted that the grounds of appeal raise in clearer terms than the appellant's pleading the allegation that the respondents' conduct was for the collateral purpose or motive of harming the lessee and terminating the Lease.
This Court is in as good a position as the trial Judge to decide on the proper inferences to be drawn from undisputed facts or facts found by the trial Judge: Warren v Coombes (1979) 142 CLR 531 at 551. Further, the trial Judge's assessment was that Mr Bafile's evidence was to be preferred to the evidence called on behalf of the appellant. The trial Judge described Mr Bafile's evidence in general as compelling.
I start with the Improvements. I am not persuaded that it is open to find that the respondents acted unreasonably in refusing to consent to the liquor licence application on a separate document. The consent to the liquor licence application was linked with the works said to be necessary to obtain that licence. The respondents' solicitors had repeatedly requested the appellant to identify the necessary works which the trial Judge found was not done.
So too, the respondents' delay in responding to the plans and scope of works proposed by the appellant has to be seen in the light of the appellant's continuing refusal to separately identify the works necessary for the liquor licence from the additional works. Mr Bafile's evidence was that the delay resulted from the need for the respondents to confer about the proposed works. In response to the proposition put in cross‑examination that the refusal to separately consent to the liquor licence application and the delay in responding to the works was to impede the lessee, Mr Bafile said that the lessee was responsible because of its failure to provide the requested information about the works necessary for the licence.
The appellant did not refer the Court to any detail concerning the allegation that the respondents interfered with Gabstone's business by the lengthy unjustified erection of scaffolding. The evidence is that the erection of the scaffolding was in response to Gabstone's complaints about the respondents' failure to comply with its obligations under the Lease. Mr Bafile explained that the scaffolding was erected firstly to inspect the area to be repaired and that during the conduct of the works they suffered delays as a result of bad weather and other works related issues.
As to the issue of the default notice of 10 November 1999 relating to the Improvements, the trial Judge found that Gabstone was in breach of the Lease and that the respondents' attitude in refusing to consent to the Improvements was reasonable. Further, the respondents' conduct in issuing the notice is to be seen in the light of the unco‑operative and adversarial nature of much of the correspondence between the solicitors for the parties.
The three actions referred to in the grounds of appeal are the original action and the second and third actions referred to previously. Insofar as the conduct resulting in the original action occurred prior to 1 July 1998, regard cannot be had to it under s 51AC of the TPA. However, there was a continuing refusal to give unconditional consent to the 1999 assignment and the liquor licence application and works after 1 July 1998. The appellant says that the respondents' refusal was for the collateral purpose of obtaining Gabstone's consent to the surrender of the two five year options of renewal of the lease. A landlord's refusal of consent must be directed to the purpose of the covenant and not to some collateral purpose: Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019; Love v Gemma Nominees (supra) at 71. However, Mr Bafile's evidence on the subject was that the Lease had previously been terminated for breach and as a result of negotiations for its reinstatement, the lessees had agreed to the deletion of the options. This was itself an issue in contention between parties. It was in that context that the issue of the options intruded into subsequent disputes the subject of the original action.
As to the rent review, the trial Judge found that because it was concluded in accordance with the terms of the Lease, it was not unconscionable. However, the matter relied on by the appellant was a unilateral decision of the respondents to attempt to increase the rent from $79,008 per annum to $135,000 per annum. That information was conveyed to Gabstone by the respondents' agent, Stanton Hillier Parker, in a letter dated 29 August 2000. However, the agent's letter goes on to say that in the event Gabstone does not agree to the proposed increase, the agent would initiate the provisions for rent review under the Lease. Even if, which appears to be the case, this was an uncommercial ambit claim, that does not itself justify an inference of collateral purpose or motive. In a situation where there has been a history of disputation with both parties' interests being protected by their legal advisers, I would not characterise the conduct as unfair pressure or otherwise evidence of an improper purpose. The conflict of interest allegation is in the same category.
I have already dealt with the respondents' refusal to consent to the assignment of the Lease to the appellant on the grounds set out in its letter of 8 January 2001. The fact that the stated grounds are not objectively reasonable falls short of establishing that the respondents' refusal was to harm Gabstone. Further, the trial Judge accepted Mr Bafile's evidence that he regarded the financial position of the appellant and OPHL as precarious.
The appellant complains generally of the respondents' failure to negotiate on any matters including a request by the administrator of OPHL to surrender the liquor licence. However, the respondents' conduct must be seen in the light of (as the trial Judge found) the appellant's failure to inform the respondents of OPHL's interest in the Lease or the intention to assign the Lease to the appellant notwithstanding the respondents' refusal to consent. By the time the administrator of OPHL became involved there was obvious confusion as to who was in possession of the leased premises. The administrator appeared to be of the view that OPHL was in possession. By this stage there was a complete breakdown in the relationship between the parties for which both sides (and their advisors) must share responsibility. Mr Bafile described the situation as chaos because the respondents did not know who the tenant was, who was in possession and what defaults had occurred. The respondents decided not to get involved.
Mr Bafile emphatically rejected in cross‑examination that it had been his intention "since before 1997" to do everything he could to cause the termination of the Lease.
I am of the view that the trial Judge's findings, his acceptance of Mr Bafile's evidence and the documentary evidence foreclose a finding that the respondents were actuated by a desire to harm the lessee and terminate the Lease or otherwise engaged in unconscionable conduct under s 51AC or s 51AA of the TPA.
For these reasons, I would dismiss the appeal and order that the appellant pay the respondents' costs of the appeal to be taxed.
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