Tamsco Ltd v Franklins Ltd

[2001] NSWSC 1205

Reported Decision: (2002) NSW ConvR 56-018

New South Wales

Supreme Court

CITATION:	Tamsco Ltd v Franklins Ltd [2001] NSWSC 1205
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50178/01
HEARING DATE(S):	13/12/01
JUDGMENT DATE:	14 December 2001
PARTIES :	Tamsco Limited (P1) Metcash Trading Limited (P2) IGA Distribution Pty Limited (P3) Franklins Limited (D1) Franklins Management Services Pty Limited (D2) Sanwick Pty Limited (D3)
JUDGMENT OF:	Young CJ in Eq

COUNSEL :	D Williams and I Griscti (P) D Studdy (D1 & 2) P O'Loughlin (D3)
SOLICITORS:	Ebsworth & Ebsworth (P) Gilbert & Tobin (D1 & 2) Colin Daley Quinn (D3)
CATCHWORDS:	LANDLORD & TENANT [43]- Covenant not to assign without consent- Effect of lease stating matters of concern on assignment- Whether application for consent must be full and detailed- Relevance of collateral motive of landlord- Shopping centre lease. PROCEDURE [744]- Declarations- Standing of proposed assignee of lease for declaration that consent to assignment unreasonably withheld- Whether declaration of utility.
CASES CITED:	Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 139 ALR 663 Barrow v Isaacs & Son [1891] 1 QB 417 Bates v Donaldson [1896] 2 QB 241 Bromley Park Garden Estate Ltd v Moss [1982] 1 WLR 1019 Chalcedony Investments Pty Ltd v Faroud No 9 Pty Ltd (1988) ANZ Conv R 431 Chow v Registrar General (Young J, 24 June 1998) Dufaur v Kenealy (1908) 28 NZLR 269 Eastern Telegraph Co Ltd v Dent [1899] 1 QB 835 Haberecht v Chapman (1993 ANZ Conv R 277 International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513 Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corp [1977] 1 NSWLR 43 Lewis & Allenby (1909) Ltd v Pegge [1914] 1 Ch 782 McMahon v Docker (1945) 62 WN (NSW) 155 Noyes v Klein (1984) 3 BPR 9216 Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd (1979) 144 CLR 596
DECISION:	Orders made.

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

50178/01
YOUNG CJ in EQ
FRIDAY 14 DECEMBER 2001

TAMSCO LTD v FRANKLINS LTD

JUDGMENT

: These proceedings concern the lease over the Franklins store at the Riverwood Plaza Shopping Centre. The proceedings were commenced on 5 December 2001 and were listed yesterday for interlocutory hearing, or else final hearing, if that could be arranged.

2 This was rather a generous order as the documents show that any right the plaintiffs had had crystallised by mid October. However, I reluctantly agreed to save the day that had been set aside to hear as a final matter whether the declaration sought in para 7 of the summons, or a more precise form of that, should be made. I did so on the basis that no-one objected and that I was assured that we could finish it in a day. The case proceeded from 10am to 4.30 pm yesterday. I spent some hours last night and this morning considering the judgment, which will take me the best part of an hour to deliver. I say that because, as reserve Duty Judge, I think my time could have been spent better elsewhere, but c'est la vie.

3 About 11.15 am yesterday, when a disputed point of evidence arose, Mr O'Loughlin of counsel, for the third defendant, sought an adjournment to supplement the evidence. The point involved was whether the evidence given in the form of letters from other tenants in the Riverwood Plaza Shopping Centre was evidence of the facts stated in their letter, or evidence only of what they had told the landlord. This gave rise to further discussions as to whether it was necessary or expedient for a party to have before the court proper evidence as to what were the conditions in the shopping centre, where the neighbouring shopping centre and supermarket were situated, and whether the shopping centre was a district, regional or neighbourhood shopping centre or what have you.

4 The application of Mr O'Loughlin was opposed by Mr Williams of counsel, for the plaintiffs, whose instructions were that as the case had now commenced on a final basis his clients were not going to give that up for anything and insisted that the matter be determined.

5 As I came to the view that the onus of proof was on the plaintiffs, who must suffer from any paucity of evidence, I pointed out to the plaintiffs at that time, and at one other stage in the day, that there was a problem in the evidence and they were at risk. I was virtually told they would accept that risk in order to have the case decided. The hearing then proceeded.

6 Mr David Williams appeared with Mr Griscti for the plaintiffs, who are Tamsco Ltd, Metcash Trading Limited and IGA Distribution Pty Ltd. Mr Studdy appeared for the first and second defendants, the Franklins interest, and Mr O'Loughlin appeared for the landlord, Sanwick Pty Ltd.

7 The first plaintiff is a company incorporated on 7 August 2001 for the purpose of operating supermarkets formerly operated by Franklins at various places throughout the State.

8 The second plaintiff is a public company said to be one of Australia's top one hundred and fifty companies. It has by its subsidiaries operated supermarkets, though its subsidiaries principally trade as wholesale grocers.

9 The third plaintiff is a wholly owned subsidiary of the second plaintiff. It again is principally a wholesale grocer. Its documents show it distributes goods to 4,500 independently owned shops of varying sizes, many of whom are obliged to identify themselves as IGA stores.

10 It appears that the first and second defendants sold various businesses to the first plaintiff, including the business operated by Franklins at the Riverwood Plaza Shopping Centre. In each case, the sales were subject to the lessor consenting to assignment of the relevant lease, or the court making an appropriate declaration.

11 Although, when the current proceedings were commenced, there were live issues between the Franklins defendants and the plaintiffs, that is no longer the case. Mr Studdy, thus, played little part in the actual hearing. The issue I have to try is basically whether the third defendant is entitled to withhold consent to an assignment of the lease to the second or third plaintiffs, and whether it is entitled to withhold consent to a proposed sublease from either the second or third plaintiff to the first plaintiff.

12 The relevant lease is for ten years from 28 June 1999 with three options each of five years. The 17th section of the lease is headed "Assignment, Subletting and Licensing" and contains, inter alia, the following provision:

"17.1 Landlord’s Consent Required

Franklins must not, subject to this clause 17, transfer, assign, sublet, license or otherwise part with possession of the Premises without the consent of the Landlord.

17.2 Procedure for Consent
In the event of a proposed assignment of the Lease the Landlord will not withhold, refuse or delay its consent if:
17.2.1 the proposed assignee is a respectable and financially responsible person being an experienced retail trader with management and size comparable to that of Franklins in conducting a business of the kind similar to the Permitted Use, the onus of proving same to the satisfaction of the Landlord (acting reasonably) being upon Franklins ... ".

Clause 17.6 is as follows:

"17.6 Consent to Sub-Lease
The Landlord will not withhold, refuse or delay its consent to a sublease of the Premises if the proposed sublessee is a respectable and financially responsible person being an experienced retail trader with a management and size capable of conducting a business of the kind similar to the Permitted Use, the onus of proving same to the satisfaction of the Landlord (acting reasonably) being upon Franklins."

13 Otherwise it is not necessary to consider the actual terms of the lease, though it should be noted that the assessment of the rent includes a factor for increase according to the turnover of the tenant.

14 In July 2001 the landlord was approached with a proposal for the assignment of the lease. However, the first approach for present purposes can be considered to have been made on 15 August 2001. On that day a meeting was held at the Riverwood Plaza. There were present Mr Nikola Saric, the controlling director of the third defendant, Messrs G Sweeney and Mark Waller of the first plaintiff, Mr T Wilson of the second defendant, as well as a Mr P Sorrell of Franklins, and a managing agent for the landlord, whose name no-one can remember.

15 At that meeting there was a presentation given as to the experience of the participants in the first plaintiff, and the proposed new business venture to be carried on, together with a business plan. As one would expect with that sort of presentation, the presentation was a surface survey without very much depth or details. However, it was followed up by a letter on the same day from a Ms Joanne Turner, who described herself as the National Property Development Manager of the second defendant. The letter began:

"As you would be aware, the Franklins Group is selling its stores throughout Australia."

16 She noted that the store at Riverwood Plaza was one such and that Franklins had agreed to sell the store to Greg Sweeney and Mark Waller and:

"Franklins seeks your consent in principle for the proposed assignment and the release of the Franklins lessee with effect from the date of the store transfer. We anticipate this will be over the next two months and will supply a transfer date at a later date. Your consent is obviously subject to formal assignment documents being signed."

17 She then asked for the approval in principle to be faxed to her at a particular number as soon as possible.

18 On 20 August the landlord sent a memo to his solicitors, which was distributed to the other side, from which Franklins assumed that the landlord may well decline consent.

19 On 3 September 2001 a Tim Mak, describing himself as corporate counsel for Franklins Limited, asked the landlord to reconsider its position. The fax itself could not be taken as an application for consent because it pre-supposed the existence of the earlier application.

20 On 2 October 2001 Mr Carlile, who described himself as the National Asset Manager of the second plaintiff, wrote to the landlord noting the landlord's concerns and indicating that the second plaintiff had every confidence in the first plaintiff's capacity "to successfully trade the Franklins Store at Riverwood under the IGA banner". He indicated that the proposal now was that the Franklins' lease would be assigned to IGA Distribution Pty Ltd, which would enter into a sublease with the first plaintiff. He pointed out that IGA Distribution was a wholly owned subsidiary of the second plaintiff and there were cross guarantees registered with ASIC, and enclosed a copy of the latest annual report.

21 On 7 October 2001, the landlord wrote to Ms Turner a formal letter which reiterated its strong opposition to the lease assignment. The letter said:

"Again I refer to lease Clause 17.2, which clearly states that the assignee must be an experienced retailer. IGA/Metcash are distributors not retailers and are therefore not suitable or a true representation of what this clause states as being a suitable assignee. IGA/Metcash are only a vehicle in which to allow a group of inexperienced retailers to trade from this store, therefore not a true representation of what is stated in clause 17.2 of the lease.
The assignment of this lease must be to the retailer that the lease is assigned to, thus giving a true representation and understanding of exactly how business will be conducted, with a proven track record in the market place."

22 The landlord then went on to point out that he had had adverse experience with the second plaintiff at its Taren Point store, which had left the shopping centre with substantial losses, and he did not want to have history repeating itself.

23 The letter continued:

"I suggest that you carefully consider this situation and consider extenuating circumstances in your attempts at concluding this matter."

24 On 15 October the second plaintiff sent to the landlord a facsimile, which noted that it could not agree with the points raised, and asked the landlord to reconsider, basing its reconsideration on the factors raised in the letter. The last subparagraph of the facsimile said:

"In the light of the above, please advise as a matter of urgency whether you will consent to an assignment of the Franklins lease to Metcash and a sublease to Tamsco."

25 It is to be noted that this is a clear request, though it is a request for a different assignment to that previously considered. The only problem with it is that it is made by the corporate solicitor of the second plaintiff and not the tenant.

26 On 18 October 2001 the third defendant's solicitor sent to Ms Turner a letter which said:

"We are instructed ... to formally reject the proposed assignment of your company's Lease to IGA Distribution Pty Ltd and a further proposed sub letting to Tamsco Limited.
Notwithstanding the submission of Metcash Trading Limited Australia the principals of our client company do not consider the pre conditions for assignment and subletting contained in Clause 17.2 or 17.6 of your Lease have been satisfied.
The principals of our client company assert that neither the proposed assignee or sub-lessee satisfy the requirement of being an experienced retail trader, nor has the proposed assignee established a structure of 'management and size comparable' to that of your client company. The occupation of the above premises by an 'experienced retail trader' remains a pre-requisite to the viability of the whole centre."

27 There was a meeting on about 1 November with Mr Saric, Mr Reitzer of the second plaintiff, and Mr Cornell of Franklins, at Franklins premises, but this did not see any party alter its position, and so things stood for a couple of months before this so-called urgent hearing.

28 The amended form of declaration which is sought by the plaintiffs is:

"7. Declare that upon the proper construction of the lease between the second and third defendants for the Franklins Fresh Supermarket, Riverwood Plaza, Belmore Road, Riverwood registration number 7662427P ("the Lease") and in the events which have happened:

A. The third defendant has unreasonably withheld its consent to:

(a) A transfer of the Lease by the second defendant to:
(i) the first plaintiff;
(ii) the second plaintiff;

(iii) the third plaintiff;

(b) A sublease of the Lease from the second or third plaintiffs to the first plaintiff.
B. The second defendant is entitled, without being in breach of the Lease, to assign its right, title and interest in the lease to:
(i) the first plaintiff;
(ii) the second plaintiff;
(iii) the third plaintiff.
C. The second and third plaintiffs are each entitled, in the event of an assignment of the lease to either of them to sublease the premises referred to in the lease to the first plaintiff."

29 The sub-questions that arise are:

1. Can this Court make a declaration in these proceedings similar to that sought as noted above?
2. Should it do so?
3. Did the tenant make an application for consent to assignment or sublease?
4. What matters could the landlord properly take into account on the application for consent to assignment?
5. What matters could the landlord properly take into account on the application for sublease?
6. Have the plaintiffs demonstrated that any consent was unreasonably refused?
7. What is the result of these proceedings?

30 I will deal with each of these issues in turn.

1. The plaintiffs are not parties to the lease. Prior to the assignment the plaintiffs had no privity of contract or privity of estate with the third defendant. Have they then any standing to apply for a declaration of right?

31 Mr Williams relied on a passage from my judgment in Chow v Registrar General (24 June 1998, unreported) that there does not always have to be a completely formed legal right before a person can obtain a declaration of right. There is abundant authority for this proposition and I need only quote from what Hutley JA said in Johnco Nominees Pty Ltd v Albury-Wodonga (NSW) Corp [1977] 1 NSWLR 43, 65:

"The plaintiff seeking a declaration may not necessarily have to have an existing bond which he is entitled to enforce, but a declaration itself must be made within the sphere of legal relations."

32 Mr Williams relied principally on the decision of the Full Federal Court in Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 139 ALR 663. That was an appeal from a decision by Northrop J who was hearing a separate question as to whether the court could make a declaration where the declaration was sought by A that the effect of an agreement between X and Y compelled X to grant A a sublease. The court held that the trial judge was correct in holding that he had power to grant the declaration. Mr Williams says that this is a direct authority for his submission that the present plaintiffs have locus standi to apply for a declaration in this case.

33 There is, however, an even closer case and that is Dufaur v Kenealy (1908) 28 NZLR 269. In that case a landlord sought ejectment against the assignee of the lease, who was in possession without his consent. The defendant cross-claimed for a declaration that the landlord had unreasonably refused consent and the declaration was granted.

34 It seems to me that these authorities show that whilst in ninety-nine percent of the cases it is the tenant who seeks the declaration, it is open to the proposed assignee to approach the court in appropriate cases. Accordingly, I answer question 1 in favour of the plaintiffs.

35 2. Mr O'Loughlin has submitted I should not grant a declaration in my discretion. He says that Franklins do not intend to make any claim against the landlord. The plaintiff is not able to get specific performance. It cannot force the landlord to do anything. It cannot force the landlord to execute an assignment or sublease by any reasonable instrument. There is no utility in making a declaration. I oversimplify the submission, but that essentially is what it is.

36 I will assume these propositions are correct, although I have doubt about some of them. Even, however, on that assumption there is some utility in making the declaration as the plaintiffs would be protected from ejectment by the landlord. I, thus, find question 2 in favour of the plaintiffs.

37 3. It is clear law that where a lease includes a covenant, such as cl 17.1 of the present lease, the lessee must actually seek the consent. Even if the assignee is a person to whom there could be no reasonable objection, the landlord may re-enter for breach if no application for consent is in fact made: Barrow v Isaacs & Son [1891] 1 QB 417; Eastern Telegraph Co Ltd v Dent [1899] 1 QB 835; McMahon v Docker (1945) 62 WN (NSW) 155, 157.

38 In the present case, if consent was sought, it was sought in the most desultory way. Indeed, there is great force in Mr O'Loughlin's submission that the general attitude of the plaintiffs was that they had done a commercial deal and the landlord really was not in a position to do anything else but consent.

39 I do not consider that the rule in Barrow v Isaacs should be too rigidly applied; cf cases such as Lewis & Allenby (1909) Ltd v Pegge [1914] 1 Ch 782. Although there is no direct authority on the point that I have discovered, it seems to me that so long as the tenant properly communicates its request for consent that is enough. It must be the tenant who does this, not the proposed assignee, though the tenant may involve the proposed assignee in some of the correspondence and negotiation, and will usually need to do so, as the assignee will have to provide details as to its financial position.

40 In the present case, the laid back nature of the tenant's approach was most odd. It may be it relied on inexperienced in-house lawyers, or it may be, as Mr O'Loughlin suggests, that it just gave little importance to the landlord's rights.

41 I am not completely happy that the true construction of the various pieces of paper which passed from the tenant and the proposed assignee to the landlord amounted to a proper application for consent. The proposal shifted from a proposal that the first plaintiff be the tenant, to a proposal that the second plaintiff be the tenant, and the first plaintiff the sublessee, and then a proposal that the third plaintiff be the tenant. There was never any submission of formal documentation, except a document which would have given up all the landlord's rights against the assignor as soon as the assignee came into the picture.

42 The evidence is extremely weak on the point, but it seems to me that there is just enough to get over the line, in view of the fact that apart from the correspondence there were meetings between the parties and the landlord. The solicitor's letter of 18 October 2001 shows quite clearly that the landlord appreciated at least the general nature of what was being asked. Accordingly, I answer question 3 in favour of the plaintiffs.

43 4. I have already set out the provisions of clauses 17.1 and 17.2 of the lease. Mr Williams says that it is not necessary for the tenant to show that it is an experienced retail trader with management and size comparable to that of Franklins, as indicated in cl 17.2.

44 The basal reason for that submission is that the provision is struck down by s 133B of the Conveyancing Act 1919. So far as is relevant to the present case, section 133B provides:

"(1) In all leases ... containing a covenant, condition, or agreement against assigning ... without licence or consent, such covenant, condition, or agreement shall, notwithstanding any express provision to the contrary, be deemed to be subject:
(a) to a proviso to the effect that such licence or consent is not to be unreasonably withheld ... ".

45 The submission is that because the section provides that it applies notwithstanding any express provision to the contrary, if a lease prescribes various hoops through which the tenant must leap in order to get consent, then that runs contrary to the general requirement of s 133B that the consent must not be unreasonably withheld.

46 Anything in cl 17.2, so goes the submission, cannot subscribe any other test than that the consent is not to be unreasonably withheld.

47 During oral argument this submission was watered down and, indeed, I think in the end everyone agreed with the result of that discussion, that is, that if one wishes to set down a series of conditions that the tenant must fulfill before the lease can be assigned, one must not make the assignment subject to consent, but rather draft the lease to remove any reference to consent and set out the preconditions.

48 If one does not draft the lease in this way, then the section does not prevent the parties from specifying a number of guidelines, as to what they both consider, when the lease is signed, are relevant to the question as to whether it is reasonable to grant or refuse the consent to assign. Thus, the question is still whether the consent was unreasonably withheld, but in considering that question one takes into account the various matters specified in cl 17.2, although it does not necessarily follow that just because there is a non establishment of one of the factors set out in cl 17.2 that the consent must be refused.

49 When considering reasonableness of a refusal to consent to assign, one usually commences with the seven propositions enunciated by Balcombe LJ, with whom Mustill and Fox LJJ agreed, in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513, 519 to 521 which, omitting any reference to the underlying authority, may be summarised as follows:

1. The purpose of a covenant against assignment without the consent of the landlord, such consent not to be unreasonably withheld, is to protect the lessor from having his premises used or occupied in an undesirable way, or by an undesirable tenant.

2. As a corollary of 1, a landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease.

3. The onus of proving that consent has been unreasonably withheld is on the tenant.

4. It is not necessary for the landlord to prove that the conclusions which led him to refuse consent were justified, if they were conclusions which might be reached by the reasonable man in the circumstances.

5. It may be reasonable for the landlord to refuse his consent to an assignment on the ground of the purpose for which the proposed assignee intends to use the premises, even though that purpose is not forbidden by the lease.

6. It may be permissible, though this is not clear on the authorities, to have regard to the consequences to the tenant if consent to the proposed assignment is withheld.

7. Subject to 1 to 6, it is in each case a question of fact, depending upon all the circumstances, whether the landlord's consent to an assignment is being unreasonably withheld.

50 Mr Williams relies on the authorities which say that refusal of consent is unreasonable if the lessor's main aim is to obtain some collateral advantage, such as surrender of the lease. Authorities for this proposition include Bates v Donaldson [1896] 2 QB 241 and Bromley Park Garden Estate Ltd v Moss [1982] 1 WLR 1019.

51 However, one must be precise as to what the real principle is. Kearney J in Noyes v Klein (1984) 3 BPR 9216, 9231 said:

"… if the landlord's refusal of consent was designed to achieve the purpose of covenant, the refusal was reasonable, but if the refusal was designed to achieve a collateral purpose or benefit wholly unconnected to the terms of the lease, then it was unreasonable."

52 Likewise, in Chalcedony Investments Pty Ltd v Faroud No 9 Pty Ltd (1988) ANZ Conv R 431, 434, Williams J in the Supreme Court of Queensland said that consent is not reasonably refused where the lessor aimed:

"… to achieve a collateral purpose wholly unconnected with the terms of the lease …."
See also Butt Land Law 4th ed (Law Book Company, Sydney 2001) at para [1596] p 315.

53 Three points must be made about the submission:

(1) There is, indeed, no independent rule that a collateral purpose necessarily makes the refusal of the consent unreasonable. Indeed, Balcombe LJ puts it merely as an illustration of his rule 2.

(2) A collateral purpose connected with the terms of the lease is, in any event, not necessarily bad, as is made clear from the passages of the judgments of Kearney J and Williams J noted above.

(3) Just as it would be wrong of a lease to trespass on the general concept of unreasonableness in s 133B of the Conveyancing Act, so would also the adoption of any other special factor, such as debilitating collateral purpose.

54 Accordingly, although the court has to work out what was the real and true reason for the refusal of consent, the mere fact that the landlord has in mind some collateral purpose or some back-up scheme, which is outside what is contemplated by the tenant of the assignment, does not necessarily mean that the refusal of consent will be unreasonable.

55 If the consent is based on the area of concern that is legitimate for the landlord to take into account, the mere fact that that may involve a motive or a collateral purpose will not be enough for the tenant to succeed in showing that the landlord's refusal was unreasonable.

56 Mr O'Loughlin in his written submissions said that there were thirteen reasons why the landlord was entitled to refuse consent in the instant case. It should be noted that the better authorities are that a landlord can rely at the hearing on any ground which is available to support its attitude, notwithstanding that it was not taken at the time of refusal; see Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd (1979) 144 CLR 596, 611. However, as the task of the court is to find the real reason for refusal, if no reason is given at the time of refusal, or if only some reasons are given, which are not the reasons relied on at the trial, then the court may have little difficulty in finding that the additional reasons were not the real reasons.

57 Mr O'Loughlin's points were that the assignee/sublessee had not shown that it was a respectable and financially responsible person; that it was not an experienced retail trader with management and size comparable to Franklins; it had no proven history of running an independent retail business; other tenants opposed an unknown operator acquiring the lease; that the store was supposed to be occupied by an anchor tenant and the name IGA Riverwood was nowhere near as big a name such as Woolworths or Coles; that the second and third plaintiffs were distributors and not retailers, and would only be a vehicle to permit inexperienced retailers to trade; and that the landlord had had a previous and unfavourable experience with the second plaintiff. There were other reasons given as well.

58 The evidence, however, made it clear that Mr Saric, the controlling director of the third defendant, was anxious to have two anchor tenants in his shopping centre. It was also clear that in this he had support from some of the specialty shop holders.

59 Originally there were two anchor tenants, one was Franklins, the other Woolworths; neither was considered second rate. It came out clearly in the evidence that Mr Saric took the view that on the material before him Coles was the only possible competitor for Woolworths and that any other person, unless the contrary could be demonstrated, would be no second anchor tenant but only a weak second link.

60 The evidence shows that from at least September Mr Saric was in deep negotiations with Coles to see whether one or other of its supermarket divisions would be interested in taking a lease over the premises. The submission was that a landlord who took that attitude had made it plain that it would not consider any other reasonable application for assignment, it would disregard the fact that the tenant had a lease with options for over thirty years to run and was putting pressure on the tenant so that there would be a surrender of the lease and a new lease granted by the landlord at a higher rent.

61 However, the evidence does not bear that out in this particular case. The evidence of Mr Saric, which I accept, was that because of tenant disquiet, and his own view that it would only be if the second supermarket in the centre was competitive with Woolworths, that it would not be appropriate to consent to a transfer of the lease.

62 When one looks at the guidelines which are set out in cl 17.2, that appears to be the very matter that the parties considered was appropriate in consideration of the assignment. It is clear that the assignee or sublessee did not meet the tests in cl 17.2, but even when one puts these aside and asks the basal question, has the tenant shown that the landlord's approach was unreasonable, one has to come to the answer no.

63 Even if there was a collateral purpose involved, having accepted Mr Saric's evidence, the collateral purpose was for the good of the shopping centre and the tenants. The court at present is a bit hamstrung in that it was very strange that there was very little evidence put forward by the plaintiffs, and when the third defendant at the last minute tried to do so the approach to put in further evidence about how the shopping centre operated was rejected.

64 However, there is sufficient evidence from what the third defendant did put in to show that it is a very real concern for the operation of shopping centres that they be properly balanced, that there be anchor tenants which will attract business to the centre and that there be available specialty shops and one has to be very careful about the way in which assignments are considered.

65 In the light of all that material, it would seem to me that the landlord's approach was reasonable or, at least, the tenant has not demonstrated that it was unreasonable.

66 There was some suggestion in the submissions of Mr Williams that what the landlord was seeking to achieve was unattainable anyhow because the ACCC would not permit Coles to be a tenant. The only evidence of this was a statement made by a solicitor in a brief to counsel to advise. Whilst that statement may be admissible, its weight would be little more than a scintilla.

67 At the heel of the hunt Mr Studdy, for Franklins, endeavoured to reopen so as to put in proper evidence as to what was the real ACCC position, but Mr Williams objected to this. It just seemed to me that as the plaintiffs' evidentiary material was so weak I could not conclude on that evidence any attitude as to the ACCC to Coles in this particular centre and so I did not give Mr Studdy leave to reopen. This was just again an example of waiting six weeks then rushing the case on and presenting it without the evidence that one would expect.

68 I should note that Mr O'Loughlin relied on the words of Meagher JA in Haberecht v Chapman (1993) ANZ Conv R 277, 279 to reinforce his argument. Although one must be careful to treat every case of alleged unreasonable refusal of assignment on its own facts, what his Honour said in that case does reinforce the view to which I have come.

69 His Honour said that in that case there were two reasons why the landlord's refusal was not wrongful:

"One is that the uncontested evidence was that some of the other tenants in the Moree Market objected to the proposed assignee, one of them even threatening to vacate his premises if the assignment were made. In my view, even if their reasons were wholly fallacious, a landlord would be entitled to take the view that potential discontent amongst his tenantry was sufficient reason to refuse consent."

70 Accordingly, in my view, there is not enough material from which I could find that the landlord's views were unreasonable and, accordingly, I must answer question 4 in favour of the third defendant.

71 5. As has been noted cl 17.6 is in slightly different terms with respect to a sublease. However, I consider that what I have said in sections 3 and 4 of these reasons means that question 5 must also be answered favourably for the third defendant.

72 6. It follows that no declaration should be made as sought in paragraph 7.

73 7. It further follows that the plaintiffs must pay the costs of the third defendant of this application to decide the separate question.

74 It will be necessary to now consider what, if any, orders for costs should be made in respect of the Franklins interests and what should happen to the rest of the proceedings. I will stand the matter down to 2pm.

LATER
Following the reasons I gave this morning the parties agree that the orders in the short minutes should be made. Thus, I make orders in accordance with the short minutes and that terminates the dispute. The exhibits are to be returned.

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Last Modified: 02/07/2002