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- Unreported Judgment
Tradiga Pty Ltd v Smada Projects Pty Ltd QDC 184
DISTRICT COURT OF QUEENSLAND
Tradiga Pty Ltd v Smada Projects Pty Ltd  QDC 184
TRADIGA PTY LTD ACN 140 608 019
SMADA PROJECTS PTY LTD ACN 117 455 795 AS TRUSTEE UNDER INSTRUMENT 712033623
24 September 2019 ex tempore
23 September 2019
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – ENDING PROCEEDINGS EARLY – SUMMARY DISPOSAL – SUMMARY JUDGMENT FOR DEFENDANT – application for summary judgment on part of claim under r 293 Uniform Civil Procedure Rules 1999 (Qld) or, alternatively, a preliminary hearing – where part of the claim in question is the plaintiff’s action for damages for breach of contract – where the plaintiff claims the defendant breached obligations owed to the plaintiff by unreasonably withholding consent from the plaintiff to assign its lease to two separate purchasers – where the defendant seeks summary dismissal of the part of the plaintiff’s claim for damages for breach of contract – whether the plaintiff has no real prospect of success on that part of the action – whether there are no triable issues on that part of the claim
Property Law Act 1974 (Qld) s 121
Uniform Civil Procedure Rules 1999 (Qld) r 292, r 293, r 483
Ideal Film Renting Company Ltd v Neilsen  1 Ch 575
Ligon Sixty-Three Pty Ltd v ClarkeKann & Ors  QSC 153
Outback Energy Hunter Pty Ltd v New Standard Energy PEL 570 Pty Ltd  SASC 8
Scarcella v Linknarf Management Services Pty Ltd (in liq)  NSWSC 360
Spencer v Cth (2010) 241 CLR 118
Treloar v Bigge (1874) LR 9 Exch 151
Yared v Spier  2 NSWLR 291
M Jonsson QC for the applicant
B Hall for the respondent
Preston Law for the applicant
WGC Lawyers for the respondent
HER HONOUR: These proceedings concern a lease and the persistent refusal or failure of a landlord to consent to the assignment of the lease by the tenant. The lease is of shop premises in a suburban shopping centre near Cairns. They were let to the plaintiff for the purpose of conducting a convenience store business.
The provisions of the lease relating to assignment and subletting included a clause, clause 11.1, which had a heading “The tenant may assign the lease or sub-let the leased premises”. It then stated “The tenant may assign the lease or sub-let or part with possession of the whole or part of the leased premises but only after obtaining the landlord’s written consent. The landlord’s consent will not be unreasonably refused”.
That provision appeared under the heading “Section 11 Assignment Subletting and Mortgaging”. It was followed by a separate clause dealing with transfer of control of a company being deemed to be an assignment.
Summary of the plaintiff’s claim
The plaintiff pleads that the terms of the lease include a term that, by clause 11.1, the defendant would not unreasonably refuse its consent to the assignment.
The defendant denies that allegation on the basis that the clause is not in terms which impose any obligation on the defendant. Alternatively, the defendant says that on the proper construction of clause 11.1, non-compliance by the defendant with what it describes as the proviso in clause 11.1 does not entitle the plaintiff to damages for breach of contract.
The defendant pleads that the effect of what it describes as the proviso in clause 11.1 is that if the defendant did unreasonably refuse to consent to any proposed assignment by the plaintiff, the condition precedent to the assignment would be deemed satisfied against the defendant, the defendant’s written consent would be deemed given, and the plaintiff would have been at liberty to lawfully proceed with the proposed assignment in reliance on the imputed consent.
In its second amended statement of claim, the plaintiff also pleads that the terms of the lease included an implied term that the parties would conduct themselves in good faith with one another, entitling the other to the benefit of the lease. That allegation is also denied.
In the proceeding, the plaintiff complains that on two occasions, the defendant unreasonably withheld consent to a proposed assignment of the lease by the plaintiff to prospective third party purchasers of the convenience store business. It is necessary to summarise the nature of those allegations.
The first contract is referred to as the TPN contract. It is alleged that on or about 31 July 2017, the plaintiff entered into a written business sale contract with TPN for the sale of the business for the sum of $225,000. In accordance with clause 24.2 of the TPN contract, the plaintiff was required to obtain the defendant’s written consent to the assignment of the lease to TPN before the completion date. The contract was conditional upon the defendant’s consent to the assignment of the lease of the premises from the plaintiff to TPN. The plaintiff put the defendant on notice that it was required to obtain the defendant’s consent to the assignment of the lease as a term of the contract and requested the defendant’s consent to the assignment of the lease to TPN.
The plaintiff pleads that the defendant knew, or a reasonable person in the position of the defendant would have known, that it was a term of the TPN contract that the defendant consent to the assignment of the lease to TPN. It is further pleaded that the defendant ought to have known that if the defendant refused the assignment of the lease to TPN, TPN would be unwilling to settle on the TPN contract or otherwise buy the business.
At the start, the proposed assignment proceeded in the normal way. The defendant requested further information with regard to the assignment from the plaintiff. The plaintiff provided that further information. However, the defendant, it is said, then requested to meet with TPN’s directors. The plaintiff pleads that the defendant, by its director, Mr Adams, and TPN, by its directors, later met at Mr Adams’ office.
At that meeting, it is said that Mr Adams told the prospective purchasers a number of things, including: that they would need to invest $200,000 into the business straightaway to improve it; that Mr Adams did not consider that the purchasers had sufficient net worth or experience to buy the business or invest the required money into it; that the defendant may not renew the lease in future and, if it did, was not bound by any market review so may ask excessive rent; and that the defendant would not be consenting to the assignment. Details of the meeting are particularised.
Following that meeting, the defendant refused to provide consent to the assignment of the lease to TPN. As a result, the plaintiff was unable to satisfy the term that it obtain the defendant’s consent and was therefore unable to settle on the TPN contract.
It is alleged that, within days of that occurring, Mr Adams, on behalf of the defendant, advised the plaintiff that the defendant itself wished to purchase the business at the same contract price as the TPN contract. It is further alleged that Mr Adams advised the plaintiff that the defendant had already refused the assignment to TPN and, in doing so, had made the TPN contract “go away.”
In the event, the plaintiff did not accept the defendant’s offer, because it was ultimately on terms inferior to the TPN contract. The plaintiff ended up terminating the TPN contract, as the relevant clause requiring it to procure the lessor’s consent had not been met.
Following those events, the plaintiff entered into a second business sale contract with another prospective purchaser at a price of $290,000. That was referred to as the Durga contract. That contract was subject to REIQ standard conditions of sale for a business contract. They required, amongst other things, that the plaintiff obtain the defendant’s written consent to the assignment of the lease. The contract was conditional upon the defendant’s consent to the assignment of the lease.
Again, the plaintiff requested the defendant’s consent to the assignment of the lease to Durga. Similar allegations are pleaded with respect to this contract and that the defendant ought to have known that if it refused the assignment of the lease to Durga, Durga would be unwilling to settle on the contract or otherwise buy the business.
The defendant requested further information regarding the assignment. The plaintiff provided that further information.
Again, the defendant had direct communications with the prospective purchaser. In this case, it is alleged that the defendant advised the prospective purchaser that the defendant would be introducing a tobacconist as a tenant of the shopping centre, that the prospective purchaser, Durga, was paying more for the business than the previous buyer (which was a reference to TPN), and that the defendant would not consent to the assignment to Durga. The details of that conversation are particularised.
Following that, the plaintiff again sought the defendant’s consent to assignment of the lease. Further information was requested by the defendant and supplied, notwithstanding that the defendant continued to refuse to provide consent to the assignment of the lease to Durga.
As a result, the plaintiff was unable to satisfy the terms of that contract, and Durga terminated the contract. The plaintiff alleges that in those circumstances, the defendant breached clause 11.1 and/or the implied term of the lease by unreasonably refusing to consent to the assignment of the lease within a reasonable time or at all.
The plaintiff claims against the defendant for damages for breach of contract in the sum of $290,000, which is said to be the lost realisable value of the convenience store business.
The plaintiff relies upon the same refusals as breach of the alleged implied obligation of good faith that the defendant is said to have owed to the plaintiff.
The plaintiff also claims against the defendant for damages for misleading and deceptive conduct and for unconscionable conduct, pursuant to section 236 of the Australian Consumer Law. The damages claimed under each of those later causes of action is the same amount of $290,000, representing the lost realisable value of the convenience store business.
The defendant now applies for summary judgment with respect to that part of the action by which the plaintiff seeks damages for breach of contract against the defendant.
Alternatively, the defendant seeks orders that would facilitate the hearing and determination of certain constructional questions presented by the above claims as preliminary issues to be determined in advance of the hearing.
The plaintiff opposes the application, including the alternative relief sought.
Law relating to summary judgment
Summary judgment, with respect to part only of a plaintiff’s claim is permitted under rule 293(2) of the Uniform Civil Procedure Rules 1999 (Qld). As for the alternative relief sought, the hearing and determination of a preliminary issue may be facilitated under rule 483(1).
The court may give summary judgment, pursuant to rule 293, for all or part of the plaintiff’s claim if the court is satisfied of two matters –
- (a)first, the plaintiff has no real prospect of succeeding on all or a part of the plaintiff’s claim; and
- (b)second, there is no need for a trial of the claim or the part of the claim.
The test to be applied in relation to applications for summary judgment is well settled, and it is unnecessary to refer to all of the relevant authorities.
The onus on a defendant is no less onerous than on a plaintiff under rule 292. The test is that which has been accepted in cases where a plaintiff seeks summary judgment.
A case must be clear to justify the summary intervention of the court. The power must be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.
Summary judgment will be not be obtained as a matter of course. If the court is satisfied that the plaintiff has some real prospect of succeeding at trial on its claim for damages for breach of contract, then the matter must go to trial. If there is a real prospect of success, the discretion to give summary judgment does not arise merely because the court may conclude that success is improbable.
Summary judgment should not be given where there is a real issue of law or fact or both for determination.
In considering whether there is a need for a trial, a court must keep in mind why the interests of justice usually require the issues to be investigated at a trial.
I turn now to consider in summary the defendant’s submissions. The defendant has the burden of satisfying the court of the two requirements of rule 293(2), and only when a prima facie entitlement to summary judgment has been established does the evidentiary burden shift to the plaintiff.
The defendant submits that on the proper construction of clause 11.1, the plaintiff has no action for damages for breach of contract against the defendant.
It relies upon a body of authority, starting with the 1874 English decision of Treloar v Bigge to the effect that contractual mechanisms of the kind in clause 11.1 have long been recognised as excluding the right to damages for breach of contract.
The defendant contends that on the now conventional construction of such a clause, a stipulation that the lessor must not unreasonably or arbitrarily withhold consent to a proposed assignment serves merely to condition the negative requirement bearing upon the lessee which stands in the way of any assignment or sublease without the lessor’s consent.
The defendant further submits that it is no answer to this construction that the qualifying requirement in this case is expressed as an ostensibly independent stand alone obligation on the lessor’s part.
In support of this construction, the defendant points to the cognate statutory stipulation in section 121(1)(a)(i) of the Property Law Act 1974 that a licence or consent to a proposed assignment or sublease is not to be unreasonably withheld.
The defendant further argues that the constructional question is also relevant to the alleged implied obligation of good faith, because the implied term is, it says, a gap-filling construct which is not appropriately deployed where the parties have, by their contract, made express provision with respect to a particular subject matter. The defendant says that an implied term cannot rise above the express terms of the contract, and there is no objective need to resort to an implied term regarding the same subject matter. That is because the contract governs by its express terms, and those terms, it is said, preclude an action for damages for the reasons submitted. Even if an obligation of honesty or good faith were implied, departure from it would, on the same construction, not give rise to an action for damages for breach of contract but sound merely in an unconstrained right to proceed with the proposed assignment in specie. It would not displace the construction described in the cases relied upon.
For those reasons, the defendant argues that, as a matter of objective construction, the plaintiff has no actionable right to damages for breach of clause 11.1 and whether for unreasonableness, or reasonableness overlayed by an implication of good faith. It says that the contractual claim for damages has no real prospect of succeeding either on the construction of clause 11.1 or on the implied term of good faith.
In the alternative, the defendant seeks that the question of construction as to whether or not the plaintiff is entitled to assert and recover damages for breach of clause 11.1 should be heard and determined as a preliminary issue on the grounds that such a determination would be relatively short, convenient and inexpensive and might serve to substantially narrow (if not conclude) the issues requiring resolution. It further submits that that narrowing of the issues might also contribute to the prospect of a compromise of the proceeding. Perhaps it would, but in my view that is not a critical consideration.
The defendant submits that the statutory claim arises out of the same facts as the contractual claim. Even if the plaintiff succeeded in its claims of misleading and deceptive conduct or unconscionable conduct, it must also prove that it suffered loss and damage because of the impugned conduct. The defendant argues that on the proper construction of clause 11.1, the plaintiff was always contractually at liberty to proceed with the proposed assignments, and thus to realise the asserted value of the business, so it will not be able to prove that it has suffered loss and damage because of the impugned conduct. Thus, the defendant argues that a preliminary determination on clause 11.1 could also foreclose the prospect of statutory damages under the Australian Consumer Law.
Some relevant principles of construction of leases
It is worth mentioning, first, some general principles with respect to the construction of leases and the body of cases relied upon by the defendant.
For words to constitute a covenant, they must be construed so as to operate as an agreement and not merely as words of condition or qualification. This is a question of intention to be gleaned from a construction of the words and a consideration of the whole of the instrument. There is no particular form of words necessary to create a covenant, and words may be both a covenant by one party and a condition precedent to the obligation of another.
In respect of the assignment of a lease, the expression “such consent not to be unreasonably withheld” applies to a lessee’s covenant to assign without the previous consent of the lessor. Ordinarily, it does not amount to a contract on the part of the lessor not to unreasonably withhold consent, but is merely a qualification of the covenant of the lessee.
The condition with respect to refusal of consent by a lessor in relation to assignment is normally construed as a qualification on the generality of the lessee’s covenant not to assign. Accordingly, a refusal by a lessor to consent does not ordinarily give the lessee any cause of action for damages for breach of covenant against the lessor even if the lessee suffers loss, but leaves the tenant or lessee free to proceed with the assignment without consequence. That is because the standard provisions in a lease relating to the withholding of consent are not ordinarily promissory in character.
In practice, of course, an incoming assignee who is properly taking an assignment of a lease as part of the purchase of a business conducted on the premises would not be prepared to accept an assignment without the consent of the lessor, notwithstanding that the outgoing lessee considered the lessor’s refusal to consent unreasonable. That is exactly what occurred here.
The contracts for sale of the business contained a provision requiring the lessee to obtain the lessor’s consent to the assignment. Because it was not forthcoming, on both occasions the contracts were terminated. In those circumstances, the remedy is ordinarily for the lessee to bring an action for a declaration that the lessor’s consent is unreasonable in the circumstances. The burden of proving unreasonableness probably lies on the lessee and includes both subjective and objective elements, including application of the standards of a reasonable person.
The situation is different if the terminology of the lease is such that the lessor is, upon its true construction, to be taken to have made a covenant or given a promise.
If a lease contains a covenant by the lessee not to assign without the lessor’s consent and also a covenant by the lessor not to withhold his consent unreasonably, these two covenants would be construed together.
When construing the lessor’s covenant, if there be one, certain things must be borne in mind. The purpose of a covenant against assignment without consent of the lessor, such consent not to be unreasonably withheld, is to protect the lessor from having her premises used or occupied in an undesirable way or by an undesirable assignee. Its purpose is not to coerce the lessee into surrendering the lease in order that the lessor, or some other party of the lessor’s choice, might obtain possession of the premises. The lessor cannot withhold consent to obtain for himself some collateral purpose or advantage.
In effect, that is what the plaintiff asserts occurred here.
In Treloar v Bigge, the lessee’s covenant contained the words as part of the same sentence, “such consent not being arbitrarily withheld”. Kelly CB, at 154 to 155, placed some emphasis on the fact that the words, taken grammatically, did not seem to him to amount to an undertaking by the lessor, but were part of the same sentence as that containing the lessee’s covenant and qualified its generality. He referred to some cases where there was a lessor’s covenant in express terms, but Treloar was not one of them.
In Yared v Spier, Waddell J said that “it seems to me that it has been taken to be settled law for many years that, in the absence of an express covenant by a lessor not to refuse his consent, provisos of the kind under discussion have been regarded as not exposing him to any liability in damages for such a refusal”.
I turn now to summarise the plaintiff’s submissions. The plaintiff submits that the defendant’s application should be dismissed because the claim involves a real issue of law that should be determined at trial, as well as disputed issues of fact that do not lend themselves to determination as a preliminary point.
The plaintiff contends that clause 11.1, properly construed in the context of the lease as a whole, is capable of containing an express covenant or promise by the lessor. Therefore, it cannot be said that the plaintiff has no real prospects of succeeding in its claim for damages for breach of contract, and the matter should go to trial.
The plaintiff will, at trial, seek to rely upon evidence of the business relationship between the parties and evidence from both sets of prospective purchasers about what the defendant said to them in refusing consent to assignment. The plaintiff submits that on the scale of unreasonable conduct in refusing consent to assignment, the defendant’s conduct here was high. It was not a simple refusal to grant consent on the basis of documents presented. The plaintiff will submit that the defendant had an improper motive in refusing consent, which included to buy the business itself.
The plaintiff points to a number of cases in which the court has found, on the wording of the clause, that there was an express covenant by the lessor not to withhold consent and where it was accepted that breach of such an express covenant could found an action for damages by the lessee.
The plaintiff relies, first, upon the English decision of Ideal Film Renting Company Ltd v Nielsen, a case where there was an express covenant by the lessor. Eve J said, at pages 581 to 582 that if the lessee’s covenant “not to assign without consent is merely qualified by a proviso that the consent of the lessor is not to be unreasonably withheld, there is no implied covenant by the lessor that he will not unreasonably withhold his consent, and in the absence of an express covenant to that effect no action will lie against him for unreasonably withholding it.” Eve J also said that if there is an express covenant by the lessor not to withhold consent, that gives the lessee a further remedy against the lessor such that the lessee can bring an action for breach of the lessor’s covenant.
The plaintiff also points to Ligon Sixty-Three Pty Ltd v ClarkKann & Ors, which involved a separate sub-clause dealing with the lessor’s withholding of consent. In that case, Philip McMurdo J (as he then was) said at paragraph 21 that the clause was a covenant by the sub-lessor not to arbitrarily or capriciously withhold its consent if there existed the combination of circumstances set out in that clause.
The plaintiff also relies upon Outback Energy Hunter Pty Ltd v New Standard Energy PEL 570 Pty Ltd, which involved a sub-clause containing the words “the consent…will not be unreasonably withheld” in certain circumstances. Blue J said at paragraph 392 that “The use of the words ‘will not be unreasonably withheld’ is a strong indication that the party whose consent is required [under subclause 7.1] is promising not unreasonably to withhold consent”. That is the same wording as appears in clause 11.1 here.
The plaintiff submits that, arguably, the relevant sentence in clause 11.1 is capable of constituting an express covenant by the lessor. It points to the fact that the reference to the lessor not unreasonably withholding consent is not part of the same integrated sentence containing the lessee’s covenant. It is a separate stand alone sentence. It points to the fact that the clause uses the words “will not be unreasonably withheld”, which is indicative of the covenant or promise, rather than a proviso.
I have considered carefully everything the parties have said and the words of clause 11.1 in the context of the whole lease. These are matters of some complexity.
None of the cases relied upon by either party involves the precise wording of the clause in this particular case. The cases are of some, but limited, assistance in construing clause 11.1 because of the different structure and language of the particular clauses, some of which are integrated and some of which are separate in those cases.
On the basis of the limited submissions on this application, my present view is that the defendant has the better argument on the point about the proper construction of clause 11.1. That is, that the provision for consent not to be withheld is in the nature of a proviso rather than a covenant or promise by the lessor, and that the unreasonable withholding of consent does not give rise to an action for damages. However, that is not determinative of the application.
And it does not mean that the plaintiff’s argument is completely devoid of merit or is fanciful. There are some matters in support of the plaintiff’s construction. They include that the form of a separate clause or sentence relating to the withholding of consent can be more readily regarded as constituting a promise by the lessor. Here, the words, taken grammatically, are not part of the same integrated sentence as that containing the lessee’s covenant and merely qualifying its generality. It is not merely a phrase at the end of the sentence. The lessor’s obligation is expressed in a stand alone sentence, although it is not numbered as a separate clause. The use of the word “will” is indicative of a promise or covenant rather than a proviso. There are also the cases referred to by the plaintiff, and clauses 13.7 and 13.8 of the lease. The plaintiff submits that those clauses are relevant to construction of the lease as a whole, and support the construction of clause 11.1 as containing an express promise on the part of the lessor.
The answer to the question, whether on a proper construction of this lease there is an express covenant by the lessor, is not so clear or straightforward as the defendant suggests as to justify a summary order preventing the plaintiff from advancing its case at trial.
The question of construction of clause 11.1 is one part of the plaintiff’s claim for damages. There is also a separate question as to whether the asserted obligation of good faith should be implied into the contract. There are also the separate statutory causes of action to be determined.
The plaintiff here seeks to rely upon evidence to establish that the defendant unreasonably withheld consent. It also seeks to adduce extrinsic evidence of surrounding circumstances in aid of its preferred construction of the lease. For the purposes of this application, I do not need to determine whether such evidence would be admissible at trial.
However, the effect that evidence in general may have at a trial cannot be underestimated. This is a case where the questions whether the defendant unreasonably withheld consent and whether the obligation of good faith that the plaintiff contends should be implied might be affected and determined by evidence. That is particularly so in circumstances where the plaintiff alleges that the defendant not only unreasonably withheld its consent but that it did so for a collateral purpose or advantage.
Having regard to the philosophy of rule 5, it is relevant in the present case that a decision in the defendant’s favour upon the present application will not necessarily quell the controversy between the parties, because the plaintiff’s claim for damages for misleading and deceptive conduct and unconscionable conduct will remain for trial.
The plaintiff submits that the question does not lend itself to determination as a preliminary issue because the facts are interrelated, and that the evidence will not be short and uncontroversial.
In support of this, the affidavit of the plaintiff’s solicitor deposes on information and belief to the circumstances surrounding the defendant’s refusal to provide consent consistent with the allegations in the statement of claim.
It further deposes that the plaintiff has already obtained expert opinion evidence with respect to quantum and disclosed that to the defendant. The plaintiff has agreed to provide security for costs by way of personal guarantee, and has provided such security. The lease the subject of the dispute is no longer on foot. The defendant has thus far not produced an expert report on loss, and on that basis, there has not yet been a mediation. Those matters also militate against the exercise of the discretion to order summary judgment.
The plaintiff says that there is no warrant to hive off the question of quantum, and that the quickest and most straightforward way forward, consistent with the obligations in rule 5, is to set the matter down for trial.
I am not prepared to rule that the plaintiff’s argument about the construction of clause 11.1 is so devoid of merit that it has no real prospect of succeeding at trial on its claim for damages for breach of contract. There is a triable issue of law and there are disputed questions of fact. The interests of justice require that the disputed legal and factual issues be determined at a trial rather than summarily.
In the result, the application for summary judgment should be dismissed and directions should be made to progress the proceeding to trial.
For the reasons above, I am also not satisfied that the question is appropriate to be determined as a preliminary question of law.
The orders I make are these:
(1) The application is dismissed.
- (2)Unless either party applies for, or the parties otherwise agree on, a different costs order, within 14 days of this judgment, the costs of the application are reserved.
 Spencer v Commonwealth (2010) 241 CLR 118.
 (1874) LR 9 Exch 151. And the cases set out in the Submissions on behalf of the Applicant Defendant at  – .
 Treloar v Bigge (1874) LR 9 Exch 151 at 156 per Amphlett B.
 Yared v Spier  2 NSWLR 291; Scarcella v Linknarf Management Services Pty Ltd (in liq)  NSWSC 360 at  per Hamilton J.
  2 NSWLR 291 at 297.
  1 Ch 575.
  QSC 153.
  SASC 8.
- Published Case Name:
Tradiga Pty Ltd v Smada Projects Pty Ltd
- Shortened Case Name:
Tradiga Pty Ltd v Smada Projects Pty Ltd
 QDC 184
24 Sep 2019