Perfect Pies Ltd ((in Receivership)) v Pearse Farrell and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Haughton
• Judgment Date: 06 November 2015
• Neutral Citation: [2015] IEHC 692
• Court: High Court
• Date: 06 November 2015

[2015] IEHC 692

THE HIGH COURT

[No. 9766 P/2014]

Perfect Pies Ltd (in receivership) v Pearse Farrell & Anor.

No Redaction Needed

Approved Judgment

COMMERICIAL

BETWEEN

PERFECT PIES LTD. (IN RECEIVERSHIP)

AND

PEARSE FARRELL

PLAINTIFFS

AND

CHUPN LTD.

DEFENDANT

Landlord & Tenant – Landlord and Tenant (Amendment) Act 1980 – Assignment of lease – Unreasonable withholding of consent – Ulterior motive

Facts: The plaintiffs sought a declaration that the defendant had acted unreasonably in withdrawing his consent to the plaintiff's request to assign the lease to the relevant party. The plaintiff also sought an order dispensing with the defendants consent to the said assignment.

Mr. Justice Haughton granted a declaration that the defendant, in delaying and failing to consent to the plaintiff's request for consent to assignment, had acted unreasonably within the meaning of s. 66 of the Landlord and Tenant (Amendment) Act 1980. The Court, however, refused to grant an order dispensing with the defendant's consent to assignment on the ground that there were reasonable grounds related to shortcomings in the sureties offered and the financial reference provided prior to the initiation of the present action. The Court proposed to address those shortcomings with the possibility of having a renewed application for consent. The Court held that the purpose of a covenant against assignment without the consent of the landlord, with the provision that such consent could not be withheld unreasonably, was to protect the landlord from getting his premises occupied in an undesirable way and that it was not necessary for the landlord to justify his conclusions in relation to refusal to consent. The Court held that the onus of proving the unreasonableness of the consent was on the tenant. The Court found that the evidence presented proved that the defendant was avoiding his consent with an ulterior motive to possess the alleged property and was engaged in an abuse of the process of law.

1 JUDGMENT of Mr. Justice Haughton delivered on the 6th day of November, 2015

Index

Introduction	2
The Leases	3
Section 66, Landlord and Tenant (Amendment) Act 1980	5
The Test of Unreasonableness	7
The Tender Process and Tender Agreement	15
The Consent Process	20
Post-Proceedings Exchanges	29
Motive - The Evidence in Controversy	34
Repair - Dilapidations	35
Licensees for which there was no Landlord's Consent	39
Ulterior Motive	49
Disputed Evidence on Ulterior Motive	49

The Petition	53
Conclusions	60
The Financial Covenant	63

Introduction

2 1. The first plaintiff is a limited company registered in the State and it is and was at all material times the lessee of the premises known as Café en Seine, 39/40 Dawson Street and 39 Anne's Lane in the city of Dublin ("the Premises"). The second named plaintiff ("the Receiver") is an accountant and is the lawfully appointed Receiver and Manager of the first plaintiff pursuant to Deed of Appointment executed by the first plaintiff's mortgagee Allied Irish Banks Plc. ("AIB") on 11 ^th December, 2009. The defendant is a limited company registered in the State and is one of a group of companies ("the Fitzgerald Group") owned or controlled by businessman Mr. Louis Fitzgerald ("Mr. Fitzgerald"). The defendant acquired the freehold interest in the Premises in October, 2010, and is the landlord of the first plaintiff under three leases, one dated 21 ^st April, 1993 for a term of thirty-five years from 20 ^th April, 1993, and two dated 29 ^th April, 1997 for terms of twenty-five years from 1 ^st April, 1997 ("the Leases").

3 2. Following a tender process, by Tender Agreement entered into on 12 ^th September, 2014 between the plaintiffs and Ardan Advisory Ltd. ("Ardan") the plaintiffs agreed that the leasehold interests in the Premises under the Leases would be assigned to Sequana Management Ltd. ("Sequana"), a subsidiary of Ardan being a company incorporated by it for the purpose of acquiring the Premises. The completion date agreed was 14 ^th October, 2014. The Tender Agreement was expressly subject to and conditional on the landlord's, i.e. the defendant's, consent to the assignment to Sequana. By letter dated 15 ^th September, 2014 A.C. Forde & Co. solicitors for the plaintiffs, wrote to Arthur Cox, solicitors for the defendant, formally requesting the defendant's consent to the assignment based on the information and extensive documentation furnished with that letter. There followed correspondence. Consent to assignment was not forthcoming, and by Plenary Summons dated 18 ^th November, 2014 the plaintiffs commenced these proceedings in which they seek:-

4 i "(i) A Declaration that the Defendant, in delaying or failing to consent to the plaintiff's request to assign dated the 15 ^th September, 2014 is acting unreasonably within the meaning of the Leases and/or Section 66 of the Landlord and Tenant (Amendment) Act 1980;

5 (ii) An Order dispensing with the defendants consent to the said assignment"

6 3. In its Defence the defendant asserts that it "has acted reasonably in declining to provide its consent, and has good and substantial reason for so declining", and denies that "in delaying or failing to consent to the plaintiffs request" that it is acting unreasonably within the meaning of the Leases or s. 66 of the 1980 Act.

The Leases

7 4. The Leases cover separate parts of the Premises, but nothing turns on this. All three Leases contain at clause 3.21 similar provisions prohibiting the tenant from assigning, transferring, underletting or parting with or sharing the possession or occupation of the demised premises or any part thereof subject to the proviso that "the Landlord shall not unreasonably withhold or delay its consent to an assignment". In all three Leases in clause 3.21 there is a covenant by the tenant not to assign "BUT SO THAT NOTWITHSTANDING the foregoing the Landlord shall not unreasonably withhold or delay its consent to an assignment…". Under clause 3.21.1 it is provided that:-

"the Tenant shall prior to any such assignment or under-letting apply to the Landlord and give all reasonable information concerning the proposed transaction and concerning the proposed assignee or under-lessee as the Landlord may require".

8 5. There are some differences between the 1993 Lease and the 1997 Leases in the wording used in clauses 3.21, and certain relevant sub-clauses, that should be identified:-

9 a a. The 1993 Lease in clause 3.21 having stated that "the Landlord should not unreasonably withhold or delay its consent to an assignment" has the added words "to an assignee of .... good financial standing", whereas the 1997 Leases refer "to an assignee of satisfactory financial standing".

10 b b. In the 1993 Lease clause 3.21.3 provides - "in the case of an assignment to a Limited Liability Company it may be deemed reasonable for the Landlord to require that two Directors of a standing satisfactory to the Landlord shall join in such consent as aforesaid as sureties for the company for a period of not more than five years .... and shall further provide for the sureties to accept a new lease of the demised premises upon the disclaimer of these presents by the company or on its behalf if so required by the Landlord within three months of such disclaimer such lease to be for the residue then unexpired of the said term of five years". It will be noted that this provision says "it may be deemed reasonable …", and limits the guarantees from such directors to a period of not more than five years.

11 c c. By comparison the 1997 Leases at clause 3.21.3 provide - "in the case of an assignment to a limited liability company it shall be deemed reasonable for the Landlord to require that two Directors and/or shareholders of a standing satisfactory to the Landlord shall join in such consent as aforesaid as sureties … and shall further provide for the sureties to accept a new lease of the demised premises upon the disclaimer of these presents by the company or on its behalf if so required by the Landlord within three months of such disclaimer such lease to be for the residue then unexpired of the term hereby granted …".

12 6. Thus, under the 1997 Leases the wording is "shall be deemed reasonable", and the sureties may be directors or shareholders, and there is no five year limitation on the guarantee or the period during which the sureties may be required to take a lease in the event of a disclaimer.

13 7. The 1993 Lease was guaranteed by the then directors of Perfect Pies Ltd., Liam O'Dwyer and Desmond O'Dwyer for the first three years of the term. There was no evidence that that guarantee was ever extended, or that, once it lapsed, it was replaced by any other guarantee.

14 8. The 1997 Leases were supported by guarantees executed by "Break for the Border Group Plc." for the duration of the respective leases. It was common case that those guarantees ceased to be effective some years ago. Thus, there were no guarantors in place at the time of the Tender Agreement or the request for consent to assignment.

Section 66, Landlord and Tenant (Amendment) Act 1980

15 9. This provides, so far as relevant:-

16 2 "66

17 (1) A covenant in a lease (whether made before or after the commencement of this Act) of a tenement absolutely prohibiting or restricting the alienation of the tenement, either generally or in any particular manner, shall have effect as if it were a covenant prohibiting or restricting such alienation without the license or consent of the lessor.

18 (2) In every lease (whether made before or after the commencement of this Act) in which there is contained … a covenant prohibiting or restricting the alienation, either generally or in any particular manner, of the tenement without the...