Court allows appeal holding no statutory right to damages exists for unreasonable withholding of assignment consent in Irish law.

THE SUPREME COURT

No. 173/2005

Fennelly J.

Finnegan J.

O’Donnell J.

BETWEEN:

DENIS MEAGHER AND MIRIAM MEAGHER

PLAINTIFFS/APPELLANTS

and

LUKE J. HEALY PHARMACY LIMITED

DEFENDANT/RESPONDENT

Judgment of Mr Justice Finnegan delivered on the 16th day of June 2010

By Indenture of Lease dated the 14th May 1971 made between Marianne Neumann of the one part and Luke J. Healy Limited of the

other part (hereinafter “the Lease”) premises at 1 West Street, Drogheda (hereinafter “the premises”) were demised to Luke J Healy

Limited for the term of thirty five years from the 1st June 1971 subject to the yearly rent thereby reserved and the covenants on the

part of the Lessee therein contained. The appellants (hereinafter “the Lessors”) are entitled to the Lessors interest and the

respondent (hereinafter “the Lessee”) to the Lessee’s interest in the Lease.

The Lease contained the following covenants on the part of the Lessee:-

“1. During the continuance of this demise to preserve, uphold, support, maintain and keep the demised premises

including the roof and exterior walls, the glass in windows, all locks, sash cords, electric, gas and other fittings,

mains, pipes and water taps and all sanitary fixtures and fittings therein and all additions made to the said

premises in good and proper and sufficient order, repair and condition and at the end of the term hereby granted

or the sooner determination of this demise to so leave and yield up the same unto the Lessor.

2. Not to assign the said premises or any part thereof without the previous consent in writing of the Lessor first

had and obtained.

3. To use and occupy the premises solely for the purpose of the Lessee’s trade or business as a pharmaceutical

chemist to include cosmetics, chiropody and photographic goods and services and not to use any part thereof for

residential purposes or for any other trade or business whatsoever without the previous consent in writing of the

Lessor first had and obtained.”

The Lease contained a provision for re-entry and forfeiture in the event of a breach, non-observance or non-performance by the

Lessee of the covenants and conditions contained in the Lease. At all material times the Lessee was in breach of the repairing

covenant. Three schedules of dilapidations were served, the first in 1993, the second in 1995 and the third in 1999. The repairs were

not carried out and the present proceedings were instituted by the Lessor on the 17th October 1997, the relief sought being an

injunction requiring the Lessee to comply with the repairing covenant. The Lessee delivered a defence and counterclaim on the 23rd

October 1998. On the 9th December 1997 the Lessee sought consent to assign the Lease to Aidan Fitzpatrick on the basis that Aidan

Fitzpatrick would undertake and contract to carry out the agreed schedule of dilapidations within the period of one year of closing the

purchase of the Lease. By letter of the 17th December 1977 the Lessor responded as follows:-

“Our clients will not be consenting to the assignment herein nor will they even consider same until such time

as works as set out in the schedule of dilapidations have been completed by your client to our clients’

satisfaction as the same have been outstanding for a number of years.”

On the 20th April 1998 the Lessee sought consent to assign the Lease to Cyril Bellew and consent to change of user: this

correspondence was not responded to. By letter dated 30th June 1998 the Lessee sought consent to assign the Lease to Cellular

World Limited. Protracted correspondence followed but the Lessors neither granted nor refused consent to assign. The counterclaim

delivered on the 23rd October 1998 sought a declaration that the Lessee is entitled to assign the Lease to Cellular World Limited

without the consent of the Lessors and damages for breach of contract, breach of covenant and breach of statute. By letter dated

3rd December 1998 the Lessee sought consent to assign the Lease to Newgrange Crystals Limited. By letter dated 6th January 1999

the Lessee informed the Lessors that it was proposed to carry out the works required by the up-to-date schedule of dilapidations and

the works were carried out and completed by September 1999. On the 1st September 1999 the Lessee sought consent to assign the

Lease to Sean and Louise O’Sheehan. By letter dated 3rd November 1999 consent to assign to Esat Digifone Limited was sought. By

letter dated 18th November 1999 the Lessors consented in principle to an assignment to both Sean and Louise O’Sheehan and to Esat

Digifone Limited. Consent to assign to Esat Digifone Limited was ultimately furnished on the 28th July 2000.

The action came on for hearing on the 5th, 6th and 7th April 2005 and judgment was delivered on the 15th April 2005. The learned

trial judge found that the Lessors had acted unreasonably in refusing consent to assign the Lease to Cellular World Limited and made

a declaration to that effect. In addition he awarded the Lessee damages from the 20th October 1998, the date of expiration of a

completion notice served on the Lessee by Cellular World Limited, the learned trial judge finding that Cellular World Limited were ready,

willing and able to complete the purchase of the Lease on that date. He measured damages at the rent and rates paid by the Lessee

from the 20th October 1998 to the assumption by Esat Digifone Limited of responsibility for the same together with the selling agent’s

fees in respect of the sale of the Lease to Esat Digifone Limited.

From the learned trial judge’s judgment and order the Lessors appeal. In summary it is contended that the learned trial judge was in

error in holding that consent to assign had been unreasonably withheld and in awarding damages to the Lessee on that basis. In

advance of the hearing in the High Court the Lessor furnished consent to the assignment of the Lease to Esat Digifone Limited and

the assignment had taken place. In these circumstances if, as a matter of law, damages cannot be recovered for the unreasonable

withholding of consent to assign to Cellular World Limited the declaration sought by the Lessee would be of no practical benefit. Only

if the court decides that the Lessee is entitled to damages upon consent to assign to Cellular World Limited being unreasonably

withheld will it be necessary to consider whether the Lessors’ failure or refusal to grant consent to assign in respect of an assignment

to Cellular World Limited was unreasonable.

Submissions of the Parties

For the Lessee reliance was placed on Kelly v Cussen and Cussen 88 I.L.T.R. 97 a decision of the Circuit Court. There it was held

that a like covenant arising under the Rent Restrictions Act 1946 section 40(4)(b) would entitle a statutory tenant to damages where

consent to assign was improperly withheld. The plaintiff in that case also relied on The Landlord and Tenant Act 1931 section 56(1)

and while not considered in the judgment that provision, in logic, could also give rise to an entitlement to damages where consent

was unreasonably withheld. For the Lessors reliance was placed on Rendall v Roberts and Stacey Limited 175 E.G. 265, [1960]

E.G.D. 161, a decision of the Queen’s Bench Division in England and Wales. In the course of the judgment I propose dealing with each

of the authorities relied upon by the parties in more detail.

Discussion

The covenant in this case is an absolute covenant by the tenant:-

“Not to assign the said premises or any part thereof without the previous consent in writing of the Lessor first had

and obtained.”

Most covenants to be found in leases are however in qualified form, the restriction normally being followed by a clause “such consent

not to be unreasonably withheld”. The Landlord and Tenant Act 1931 section 56 provided as follows:-

“56(1) Every Lease (whether made before or after the passing of this Act) of a tenement which contains a

covenant, condition, or agreement absolutely prohibiting or restricting the alienation, either generally or in any

particular manner, of such tenement shall have effect as if such covenant, condition, or agreement were a

covenant, condition, or agreement either (as the case may be) prohibiting or restricting the alienation, either

generally or in any particular manner, of such tenement without the licence or consent of the Lessor.”

The Landlord and Tenant Act 1931 was repealed by the Landlord and Tenant (Amendment) Act 1980. The 1980 Act in section 66

thereof provides as follows:-

“66(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 licence or consent of

the lessor.

(2) In every lease (whether made before or after the commencement of this Act) in which there is contained or in

which there is implied by virtue of the British Statute passed on the 5th day of May 1826 and entitled ‘An Act to

amend the Law of Ireland respecting the Assignment and Sub-letting of Lands and Tenements’ or by virtue of

subsection (1) a covenant prohibiting or restricting the alienation, either generally or in any particular manner, of

the tenement without the licence or consent of the lessor, the covenant shall notwithstanding any express

provision to the contrary be subject –

(a) to a proviso that the licence or consent shall not be unreasonably withheld, but this proviso shall not preclude

the lessor from requiring payment of a reasonable sum in respect of legal or other expenses incurred by him in

connection with the licence or consent.”

Kelly v Cussen & Cussen concerned a statutory tenancy under the Rent Restrictions Act 1946. That Act provides in section 40(4)

(b) as follows:-

“40(4)It shall be deemed to be a condition of a statutory tenancy in any controlled premises –

(b) that the tenant will not assign the premises or any part thereof without the consent in writing of the landlord,

which consent may be withheld only if greater hardship would, owing to the special circumstances of the case, be

Consent to assign was withheld. The learned Circuit Court judge held that the greater hardship resulted from the withholding of

the consent than the granting of consent would have caused and so declared. However the statutory tenant also sought

damages for the unreasonable and wrongful withholding of consent and the learned Circuit Court judge dealt with the issue of

damages as follows:-

“As a matter of principle, where there is a breach of statutory duty, damages can be recovered for injury

resulting thereform (Feeney v W. & G.T. Pollexfen and Co Ltd [1931] I.R. 589), and if the plaintiff if this

case had proved loss, I see no reason why he should not be entitled to damages.”

No damages were, however, awarded as the statutory tenant failed to establish loss.

It will be immediately clear that Kelly v Cussen & Cussen is not directly in point, it being concerned with the Rent Restrictions Acts

and being concerned with a covenant implied and which in its terms differs significantly from the covenant in issue in the present

proceedings as affected by the Landlord and Tenant (Amendment) Act 1980 section 66. Nevertheless the learned Circuit Court judge

there held that where the landlord withheld consent to assignment of a statutory tenancy in breach of the deemed condition the

statutory tenant had an entitlement to damages.

Apart from damages a Lessee has the following remedies where a Lessor unreasonably refuses consent to assign. An application can

be made to the court for a declaration that consent has been unreasonably withheld in which case the Lessee will be entitled to

assign without consent: Treloar v Bigge [1874] L.R. 9 Exch. 151. Alternatively, following the repeal of Deasy’s Act section 10 by the

Landlord and Tenant (Ground Rents) Act 1967 section 35 (1) the lessee can assign and the lessee and any assignee of the lease can

raise as a defence to any proceedings taken by the lessor for breach of the covenant against alienation the unreasonable refusal of

consent. Finally an assignee of a lease without consent, consent having been refused, may seek a declaration that consent was

unreasonably refused and in proceedings taken by the lessor can raise the unreasonable withholding of consent by way of defence. In

assigning without consent there is the risk that ultimately the withholding of consent may be held not to have been unreasonable:

however in such an event, since the repeal of Deasy’s Act section 10 and the amendment of the Conveyancing Act 1881 section 14

by the Landlord and Tenant (Ground Rents) Act 1967 section 35(1) relief against forfeiture may be obtained.

The entitlement of a Lessee to damages for the unreasonable refusal of consent is dealt with in The Law of Landlord and Tenant,

Deale at page 184 as follows:-

“An unreasonable refusal of consent may entitle the Lessee to damages: Kelly v Cussen and Cussen: but see

Rendell v Roberts and Stacey to the contrary.”

Landlord and Tenant Law, Wylie does not deal with Kelly v Cussen and Cussen or with the issue of damages for unreasonable

refusal of consent.

In Rendell v Roberts and Stacey Limited the Lease contained the following covenant by the Lessee:-

“The Lessee will not assign, transfer, underlet or part with the possession of the said premises or any part thereof

without the previous consent in writing of the Lessors and of the superior Lessors but so that such consent shall

not be unreasonably withheld to an assignment of the whole of the demised premises to a respectable and

responsible person or limited company to the reasonable approval of the Lessors who shall in the case of an

assignment enter into a direct covenant with the Lessors to pay the rent and perform the covenants and

conditions and obligations herein contained.”

The defendant lessor refused consent to assignment and it was accepted at the hearing that the refusal of consent was

unreasonable. The issue on the hearing was whether the defendant’s refusal of consent amounted to a breach of covenant on their

part which would make them liable for damages. The plaintiff lessee contended that the covenant was a covenant by the lessee not

to assign without consent, but that it amounted also to a positive covenant by the lessor that he would not withhold consent

unreasonably: the lessor being in breach of that covenant the lessee claimed an entitlement to damages. The lessor contended that

the covenant was a covenant by the lessee not to assign without consent with the qualification that the consent should not be

unreasonably withheld: the effect of the covenant, it was submitted, was that if the consent should be withheld unreasonably the

lessee would be entitled to assign without consent but that the covenant did not entitle the lessee to damages. The learned trial

judge in that case referred to Ideal Film Renting Company Limited v Nielsen [1921] 1 Ch. 575 where the covenant read as

follows:-

“The plaintiffs covenant with the defendant that they will not assign, underlet, or part with the possession of the

said premises, or any part thereof without the previous consent in writing of the Lessor, but the Lessor covenants

with the company not unreasonably to withhold such consent in the case of a respectable and responsible

assignee or under-tenant.”

He noted that in that case there was an express covenant by the Lessor not unreasonably to withhold consent in the case of a

respectable and responsible assignee. In giving judgment in that case Eve J. said:-

“It is established beyond controversy that if the covenant on the part of the lessee 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.”

In giving judgment in Rendall v Roberts Stacey Limited, Salmon J., having quoted as above, went on to say:-

“Eve J. was stating what has been clear law since the case of Treloar v Bigge L.R. 9 Exch. 151. Treloar v Bigge

had never been doubted up to the date of Eve J’s judgment in 1921, and it has not been questioned since.”

Later in the judgment Salmon J. continued:-

“There is not, as far as I know, any reported case where a tenant has successfully sued for damages for breach

of a covenant in the present form. The high watermark of the plaintiff’s case is to be found in the judgment of the

Master of the Rolls in the case of Moat v Martin [1950] 1 K.B. 175. In that case there was a tenancy agreement

under which the tenant entered into a covenant with the landlord ‘not to assign, underlet or part with possession

of the demised premises or any part thereof without the consent in writing of the landlord such consent will not be

withheld in the case of a respectable and responsible person.’ As the covenant was written there was no full stop

between the word ‘landlord’ and the words ‘such consent’, but it is quite plain that grammatically it is necessary to

insert a full stop there in reading the case. The Master of the Rolls said ‘since Treloar v Bigge in the ordinary case

where the covenant is qualified by words such as ‘such consent not to be unreasonably withheld’ the effect is not

to impose a countervailing obligation on the landlord but to limit or curtail the tenant’s obligation under his

covenant. In the present case there is, as I have said, a very unusual formula and it might be thought to be an

exception to the general rule; but I think it unnecessary to express a conclusion one way or the other-because as

he points out, on the facts of the case it was not necessary to decide the point.”

Finally Salmon J. dealt with the clause which he was required to construe as follows:-

“As I have said, the language of this clause in the under lease between the plaintiff and the defendant is somewhat

unusual. The crucial words are ‘but so that such consent shall not be unreasonably withheld’. If the words were

‘provided that such consent shall not be unreasonably withheld’ it is conceded that that would not impose any

obligation upon the landlord. I am being asked to construe these words as going beyond a qualification and

amounting to an express covenant by the landlord to consent in a proper case. I am quite unable so to read the

words. It seems to me that it would be unreal and highly artificial to draw a distinction between ‘but so that such

consent shall not be unreasonably withheld’ and ‘provided that such consent shall not be unreasonably withheld’. I

have come to a clear conclusion that, although the form of the words is unusual – and one of the textbooks to

which I have been referred (Key and Elphinstone’s Precedents in Conveyancing) suggests in a footnote that there

is a danger in these words – I cannot give them the meaning which the plaintiff attributes to them.”

Treloar v Bigge L.R. 9 Ex. Ch. 151 was decided on the 24th April 1974. The covenant in issue there was as follows:-

“And the said Thomas Treloar doth covenant with the said T.E. Bigge that he shall not nor will assign this present

Lease, or let etc, or otherwise part with the premises hereby demised, or any part thereof, without the consent in

writing of the said T.E. Bigge, such consent not being arbitrarily withheld.”

Kelly C.B. gave judgment as follows:-

“Two questions arise in this case, the first being whether certain words introduced in the clause prohibiting

assignment, and whether the plaintiff covenants not to assign without licence in writing, amount to an absolute

covenant on the part of the Lessor not to withhold his consent arbitrarily. I am of the opinion that they do not

constitute a covenant on which the Lessee can sue but are words the only effect of which is to qualify the

generality of the phrase into which they are introduced. The plaintiff covenants that he will not assign the Lease or

the premises demised ‘without the consent in writing of the said T.E. Bigge first had and obtained’, and if the

words stopped the tenant’s covenant would be absolute, but they are qualified by the words ‘such consent not

being arbitrarily withheld’. Now the rule of law, no doubt, is that any words in a deed which impose an obligation

upon another amount to a covenant by him; but the words must be so used as to shown an intention that there

should be an agreement between the covenantor and the covenantee to do or not to do a particular thing. I

cannot find any such intention here. The words taken grammatically, do not seem to me to amount to an

undertaking by the Lessor, but are part of the same sentence as that containing the Lessee’s covenant, and

qualify it’s generality. They prevent that covenant operating in any case of arbitrary refusal on the part of the

Lessor, that is in any case where, without fair, solid and substantial cause, and without reason given the Lessor

refuses his assent. I have known in my own experience several cases in which actions have been brought for the

arbitrary withholding of consent by a landlord. But in all (as in the case of Shepherd v Hong Kong and Shanghai

Banking Corporation, 20 W.R. 459) there was a covenant in express terms, so as to give the Lessee a right of

action. In the present case for the reasons I have given, I think there was no such covenant.”

Between 1874 and the passing of the Landlord and Tenant Act 1988 in England and Wales, Treloar v Bigge was cited with approval

and followed in many cases. This was so notwithstanding the provisions of the Landlord and Tenant Act 1927 section 19(1)(a) which

provided that a covenant, condition or agreement against assigning, under-letting, charging or parting with possession of demised

premises or any part thereof without licence or consent contained in any Lease is deemed to be subject to a proviso to the effect

that such licence or consent is not to be unreasonably withheld. In those cases I have found only one dissenting voice. In Rose &

Another v Gossman 201 E.G. 767, [1966] E.G.D. 103 in the Court of Appeal where the covenant against assignment was qualified

with the words “such consent not to be unreasonably withheld” Denning J. said:-

“This is not by any means an easy point. If I were left to construe this document without the aid of previous

authority, I confess I would be inclined to say that the landlord promises not unreasonably to withhold his consent.

But, as against this view, there is a line of authority going back to Treloar and Bigge [1874], L.R. 9 Ex. Ch. 151,

including observations by Romer L.J. in F.W. Woolworth and Company v Lambert [1937] 1 Ch. 53 and finally the

decision of Salmon J. in Rendall v Roberts and Stacey Limited [1960] E.G. 265. These show that it has been

accepted for nearly a hundred years now that with the Lessee’s covenant in this form, the words ‘such consent

not to be unreasonably withheld’ are only a qualification on the lessee’s covenant. If the landlord unreasonably

refuses consent, the tenant is entitled to assign or sublet without consent. But it does not give the tenant a right

to damages. Mr Samuels says he wishes to challenge that view. I cannot say that he has much chance of success

in doing so, for it has stood so long.”

That judgment concerned an application to strike out that part of the statement of claim in which the plaintiff claimed damages for

his lessor’s failure to consent to an assignment: the court refused to strike out that claim on the grounds that the application was

taken far too late.

I am satisfied that Treloar and Bigge represents the law in Ireland unless the law has been changed by the provisions of the

Landlord and Tenant (Amendment) Act 1980 section 66(1). I am not satisfied that the section has that effect. In its terms it provides

that a covenant prohibiting assignment generally or in a particular manner shall have effect as if it were a covenant prohibiting or

restricting such alienation without the licence or consent of the lessor. The effect is not to impose a statutory duty but rather to

regulate the construction of covenants freely entered into between a lessor and a lessee. What is required by the Act of 1980 is that

the covenant should be construed as affected by the statutory provision. So construed the covenant is clear as to its effect in law.

Statutory Interpretation, Benion, 2nd edition at section 269 provides as follows:-

“It is a principle of legal policy that laws should be altered deliberately rather than casually, and that Parliament

should not change either common law or statute law by a sidewind, but only by measured and considered

provisions. In the case of common law, or Acts embodying common law, the principle is somewhat stronger than

in other cases. It is also stronger the more fundamental the change is.”

Had the Oireachas intended to alter the law as it has been understood for over one hundred and thirty years it is to be expected that

clear wording would have been used. No such words were used and I am satisfied that the Act of 1980 did not alter the common law

by providing an action for damages where none previously existed. In so holding I am mindful that the Landlord and Tenant Act 1931

and statutes relating to the law of landlord and tenant thereafter are statutes ameliorating the tenant’s position and this is relevant

in construing their provisions. Notwithstanding this I am satisfied that had the Oireachtas intended to confer upon a lessee a cause of

action where none had previously existed it would have done so in clear and unambiguous terms.

Conclusion

For the foregoing reasons I am satisfied that in Irish law having regard to the terms of the covenant against assignment in the Lease

and the provisions of the Landlord and Tenant (Amendment) Act 1980 section 66 the Lessee has no right of action for damages by

reason of the Lessors having unreasonably withheld consent to assign. It is, of course, open to the parties to a lease to include a

covenant by the lessor not to unreasonably withhold consent the breach of which covenant would give to the lessee a right of action

for damages. Absent such a covenant no such right arises. On this issue I would allow the appeal and set aside the judgment of the

High Court. This being so it is unnecessary to consider whether the Lessors in refusing consent to the assignment of the Lease to

Cellular World Limited acted unreasonably.