Peter Francis Dobb T/As Jamison Hotel Motel v Enima Pty Limited

[2004] ACTSC 106

PETER FRANCIS DOBB T/AS JAMISON HOTEL MOTEL v ENIMA PTY LIMITED
[2004] ACTSC 106 (8 October 2004)

PROCEDURE – costs – costs of application for declaratory relief – unreasonable witholding by lessor of consent to assignment of lease – application for principal relief resolved by agreement – plaintiff entitled to order for costs – claim for indemnity costs not made out

Leases (Commercial and Retail) Act 2001

Chalcedony Investments Pty Limited v Faroud No 9 Pty Limited, 4 March 1988, issue 86, Australia and New Zealand Conveyancing Report, p 429
Colvin v Bowen (1958) 75 WN (NSW) 262
Daventry Holdings Pty Limited v Bacalakis Hotels Pty Limited (1986) 1 Qd R 406
Calderbank v Calderbank [1976] Fam 93

No. SC 574 of 2004

Judge: Master Harper
Supreme Court of the ACT

Date: 8 October 2004

IN THE SUPREME COURT OF THE     )
  )          No. SC 574 of 2004
AUSTRALIAN CAPITAL TERRITORY           )

BETWEEN:PETER FRANCIS DOBB T/AS JAMISON HOTEL MOTEL

Plaintiff

AND:ENIMA PTY LIMITED

Defendant

ORDER

Judge:  Master Harper
Date:  8 October 2004
Place:  Canberra

THE COURT ORDERS THAT:

the plaintiff’s costs of the application made by originating notice of motion dated 1 September 2004, including the costs reserved by order of 3 September 2004, be paid by the defendant.

1. This is an application by the plaintiff for an order that the defendant pay his costs of an originating notice of motion.  The notice of motion, filed on 1 September 2004, sought declarations relating to the assignment of a lease.  The substantive issue between the parties has been resolved and the principal relief is no longer sought.

1. The defendant company is the registered proprietor, pursuant to Crown lease, of Block 9 Section 50, Macquarie, the site of the Jamison Inn Hotel Motel.  The company leased the land and building, including hotel equipment, to the plaintiff and his then wife in 1993.  The plaintiff and his wife have since divorced and it appears that the hotel business has been transferred to the plaintiff, although the lease is still in joint names.

1. The plaintiff wishes to sell the business.  A sale will require an assignment of the lease to the purchaser.

1. In October 2003, the plaintiff commenced proceedings in the Magistrates Court against the defendant, seeking relief pursuant to the Leases (Commercial and Retail) Act 2001. Essentially, the plaintiff asserted that the premises were in a state of disrepair, that the defendant refused to make good the damage, and that he was unable to utilise the premises to their full capacity. Accordingly he sought a reduction in rent. The parties are represented in those proceedings by the same solicitors as in the present application. The proceedings have not yet been determined.

1. The lease incorporates terms set out in a memorandum of provisions filed in the office of the Registrar of Titles.  Part 5 of the memorandum sets out the tenant’s covenants with the landlord, and includes clause 5.8.2 in the following terms:

Not to assign the whole of the Premises without the prior written consent of the Landlord such consent not to be unreasonably withheld.

1. In July 2004, the plaintiff identified two potential purchasers.  The plaintiff’s solicitors sent the defendant’s solicitors statements of assets and liabilities, trade references and other particulars of both interested parties.  The plaintiff decided to sell the business to one of these, Dohm Hotel Group Pty Limited.  A meeting took place between the plaintiff and his solicitor, a director of the defendant company and its solicitor, and the directors of the intending purchaser.

1. On 20 August 2004, the defendant’s solicitor wrote to the plaintiff’s solicitors conveying their instructions “that our clients consider that the proposed assignees/lessees are acceptable to the Company as having sufficient financial status and experience to engage in the management of the Jamison Inn.”

1. The letter went on to say that the directors of the defendant were not prepared to consider an assignment, or the issue of a new lease, unless certain preconditions were met by the plaintiff in relation to his current occupancy of the hotel.  The directors took the view that the lessee was in breach of the lease.  The solicitors asserted that the lessee had not paid land tax or rates or other outgoings for a considerable time (the lease required the lessee to pay by way of “further rent” a service charge defined as the total amount of the outgoings in each lease year.  The outgoings were defined to include rates and taxes including land tax).

1. In relation to the state of the premises, the letter asserted a general obligation on the part of the lessee to maintain the premises in the state they were in at the commencement of the lease, and said that this had not been done.  The directors of the defendant company accepted that there were repairs which ought to be carried out, but argued that these were the obligation of the lessee and not the lessor.  The company was not prepared to consent to an assignment of the lease until these issues were addressed.

1. The letter concluded:

Hence, we are instructed to advise you that the grant of any assignment or lease in favour of Dohm Hotel Group Pty Ltd will not be agreed to unless the following conditions are met:-

1.   that all rates, land tax and statutory outgoings in relation to the Jamison Inn are paid up to date;

2.   that the arrears which our clients maintain are due and owing are paid upon the time of completion of the sale in favour of Dohm Hotel Group Pty Limited;

3.   that your clients execute a Deed of Surrender in respect of the current lease, thereby allowing our clients to issue a fresh lease in favour of the Dohm Hotel Group Pty Ltd upon similar terms  and conditions as those encapsulated in the conference and the original lease;

4.   that your clients file a notice of discontinuance in the current action before the Magistrates Court upon the terms that each party undertakes to be responsible for their own costs.

Unless your clients are prepared to provide your firm with a direction that the abovementioned sums are to be paid out of the proceeds of the sale in favour of Enima Pty Ltd, our client is not prepared to grant either an assignment of the lease, or (more preferably for practical purposes) a grant of a new lease for a period of four years in favour of Dohm Hotel Group Pty Ltd.

1. The solicitors for the plaintiff responded by letter dated 24 August 2004.  They denied any liability for arrears of rent, but accepted that there was a dispute in this regard and proposed that a portion of the proceeds of the sale be held on trust until the issue was determined, the plaintiff to institute any legal proceedings for recovery within 30 days of completion.

1. The plaintiff also denied any liability for arrears of land tax or rates, and enclosed copies of assessment notices establishing periodical payment of these outgoings by direct debit.  As to the condition of the premises, the plaintiff asserted that the buyer was satisfied with the condition of the premises and would carry out any necessary repairs in the course of refurbishment following occupation.  In the circumstances the defendant had no justifiable ground for refusal of consent to assignment of the lease.  The buyer was ready to settle within a week, and if the sale was lost, the plaintiff would hold the defendant liable for damages.

1. Two days later, on 26 August, the plaintiff’s solicitors wrote to the defendant’s solicitors again.  They gave notice that they would be commencing the present proceedings unless consent to the assignment was forthcoming by the following day.  The letter foreshadowed an application for indemnity costs.  The letter enclosed a copy of a report of a decision of Williams J in the Supreme Court of Queensland, Chalcedony Investments Pty Limited v Faroud No 9 Pty Limited, 4 March 1988, reported in Issue 86 (September 1988), Australia and New Zealand Conveyancing Report commencing at p 429.  I was referred to the decision during the course of argument.

1. At about 4.00 pm on Friday 27 August 2004, Mr Barnett, the solicitor for the lessor, telephoned Ms Maddock, the solicitor for the plaintiff.  He asked her not to file the originating application and supporting affidavit until the close of business on Monday 30 August, to give him an opportunity to obtain instructions.  He said that he would send a written response by that time.  Ms Maddock agreed to the request, but asked that Mr Barnett keep her informed by telephone as to his instructions.  He agreed to do so.  Ms Maddock confirmed the telephone conversation by letter, sent by fax after business hours on the Friday.  The letter confirmed that the solicitors were instructed to institute the present proceedings in the absence of a response by the close of business on Monday 30 August.

1. There was no contact between the solicitors on 30 August.  At 11.30 am on Tuesday 31 August, the defendant’s solicitors sent a letter to the plaintiff’s solicitors by fax.  They said that they were instructed to agree to the proposal that part of the proceeds of sale be held in trust pending resolution of the dispute as to arrears of rent.  They said that the defendant contended that the arrears exceeded $200,000.00 and they proposed an amount of $140,000.00 as security.

1. They asserted that there were amounts owing in respect of general rates, land tax, water and sewerage rates, which should be paid by the lessee on settlement.  Their clients were on longer concerned about the claim for repairs.  They concluded by expressing their concern in relation to the position of the plaintiff’s ex-wife, still a joint lessee.  They sought an indemnity in respect of any claim she might make against the lessor company.

1. The solicitors for the plaintiff responded by letter of the same date sent by fax at about 6.00 pm.  They said that they were no longer prepared to make further offers, the time for that having long since passed.  They asserted that the latest proposal from the lessor sought to achieve a collateral purpose.  They said that it was clear on the authorities that a lessor could not withhold consent for a collateral purpose.  They said that if written consent to assignment of the lease was withheld, they would proceed with filing their originating notice of motion and supporting affidavit for hearing on 3 September, and would be seeking indemnity costs.

1. Ms Maddock affirmed her affidavit in support of the originating application on the following day, 1 September, and on the same day the originating notice of motion and affidavit were filed, returnable for 3 September.

1. On 3 September, both parties were represented by counsel, and the application was adjourned for a week, with costs reserved.  It appears that on 3 September, agreement was reached between the parties which included the provision by 3.00 pm on that date of a written consent to the assignment.

1. Williams J in Chalcedony Investments was dealing with a factual situation with some similarities to the present dispute.  The applicant lessee had sought a declaration that the lessor was not entitled to rely upon specified matters as justifying a refusal of consent to an assignment of a lease of a childcare centre.  The lease contained a clause to similar effect to the assignment clause in the lease in the present proceedings, though expressed at much greater length and with much greater particularity.  The lessor and lessee were engaged in litigation in the Federal Court of Australia about a number of questions, including an issue about council approval of the building and of the maximum number of children who could be cared for.  The lessor was prepared to consent to the assignment conditionally upon payment of an amount into court to abide the decision of the Federal Court, and the execution of a deed agreeing upon the effect of a rent escalation clause and the quantum of rent payable under that clause.  Williams J applied a decision of Walsh J, Colvin v Bowen (1958) 75 WN (NSW) 262, in which his Honour had accepted the existence of established legal principles which required that a covenant as to assignment, with lessor’s consent not to be unreasonably withheld, be construed so as to prevent the lessor from relying upon extraneous matters as justifying a refusal. His Honour accepted that a refusal of consent would be reasonable only if based on the character and personality of the proposed assignee, or upon matters affecting the proposed user of occupation of the premises.

1. Williams J referred to an earlier Queensland decision, Daventry Holdings Pty Limited v Bacalakis Hotels Pty Limited (1986) 1 Qd R 406, in which Thomas J held that the question of whether certain fixtures were landlord’s property or tenant’s property was not relevant to the issue of consent. This could be determined between the landlord and the tenant, whoever the tenant might then be, at any time, and did not need to be settled before assignment. In the circumstances, the landlord was using the consent power to obtain an advantage by settling in its own favour the question of the status of the fixtures.

1. In Chalcedony Investments, Williams J held that the lessor’s attempt to obtain security with respect to the amount in issue in the Federal Court proceedings by making that a condition for the grant of consent was designed to achieve a collateral purpose wholly unconnected with the terms of the lease and therefore not a matter which it could lawfully take into account as a matter justifying refusal of consent.  The questions to be determined in the Federal Court proceedings were not matters affecting the future use and occupation of the premises by the proposed assignees and therefore were not matters which could in law provide the basis for refusal of consent to the assignment.  In seeking to rely on those considerations, the lessor was endeavouring to obtain a collateral advantage with respect to questions in issue in the Federal Court proceedings, and was endeavouring to circumvent the outcome of that litigation by attaching conditions to the granting of consent to the assignment.  His Honour accordingly made the declarations sought.

1. Williams J referred to a Queensland legislative provision then in force which apparently provided that consent to assignment was not to be unreasonably withheld. His Honour did not base his decision upon that legislative provision. Section 100 of the Leases (Commercial and Retail) Act 2001 seems to be in similar terms, but neither counsel in the present application relies upon it.

1. On reflection, it seems to me that the conditions sought to be imposed by the defendant as to discontinuance of the proceedings before the Magistrates Court and payment of an amount into trust to abide the outcome of foreshadowed proceedings for recovery of arrears of rent do not relate to matters which could under the general law provide the basis for refusal of consent to the assignment.  I am satisfied that in seeking to impose those conditions, the lessor was endeavouring to obtain a collateral advantage with respect to questions in issue in the Magistrates Court proceedings, and was endeavouring to circumvent the outcome of that litigation.  The lessor was also seeking to improve its position in relation to the dispute about arrears of rent, and was using its power in relation to consent to the assignment for that impermissible purpose.

1. Whilst it might be said that the solicitors for the plaintiff commenced proceedings so soon after their letter of 31 August 2004 as not to have provided the defendant with any opportunity to take any steps consequent upon that letter, I am satisfied that there was nothing to give the plaintiff any confidence that the defendant would alter its position on the strength of that letter, so that further time for commencing proceedings would have made no difference.

1. I am satisfied that the proceedings were justifiably instituted by the plaintiff, and that the plaintiff was entitled to the relief sought.  The plaintiff should have its costs.

1. The plaintiff seeks those costs on an indemnity basis.  In their letter of 26 August, in which the plaintiff’s solicitors foreshadowed the application and provided the solicitors for the defendant with a copy of the decision in Chalcedony Investments, they said that they would be asking for indemnity costs, and they repeated this in their letter of 31 August 2004.  It was not suggested in argument that the plaintiff had offered to accept something less than it was seeking, or made some other concession which might bring it within the principle having its genesis in Calderbank v Calderbank [1976] Fam 93. It does not appear to me that the defendant has engaged in conduct in relation to the litigation which requires an order for indemnity costs in order to mark the court’s disapproval of its conduct. The application for indemnity costs was not pressed on behalf of the plaintiff with obvious enthusiasm, and I am not persuaded that costs should be awarded other than on the usual party-and-party basis.

1. An order was made by consent on the return date of the originating notice of motion, 3 September, that the costs of that day be reserved.  There having been no submission to the contrary, it seems to me that those costs should be included in the order.

   I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

   Associate:

   Date: 8 October 2004

Counsel for the plaintiff:  Mr C M Erskine

Solicitor for the plaintiff:  National Business Lawyers

Counsel for the defendant:  Mr R F Livingstone

Solicitor for the defendant:  Rod J Barnett and Associates

Date of hearing:  1 October 2004

Date of judgment:  8 October 2004