Bayview Hotel Batemans Pty Ltd & Anor v Enima Pty Ltd

Judgment 1His Honour: The first plaintiff is the lessee of the premises at which the business of the Bay View Hotel (the hotel) at Batemans Bay is conducted pursuant to a hotel licence (the licence) issued under the Liquor Act 1982 (the Liquor Act). The second plaintiff is the licensee. The defendant is the lessor. The lease, registered no. 178043, is for a term of 20 years commencing 25 July 1994 and terminating on 24 July 2014. Since about 9 December 2005 there have been 17 poker machine entitlements (PMEs), now called gaming machine entitlements (GMEs) allocated in respect of the licence under the Gaming Machines Act 2001 (the GM Act). Henceforth I refer to these entitlements as GMEs. 2In these proceedings, the plaintiffs seek a declaration that, upon the proper construction of the lease, they are entitled, to the exclusion of the defendant, subject to the statutory procedures, to sell, transfer, remove, or otherwise deal with or dispose of the GMEs. The defendant denies the claim and, based on the terms of the lease, pleads an estoppel. 3By its cross-claim, the defendant sought a declaration that it has a financial interest in the licence for the purpose of s 19 GM Act, and orders that the plaintiffs be restrained from selling or transferring the GMEs without its consent, and that, upon expiry of the lease, the first plaintiff cause to be transferred to the defendant the licence and the 17 GMEs. 4It is convenient to dispose of the cross-claim at the outset. The procedure for the transfer of GMEs is provided for by s 19 GM Act. Under 19(3)(c) an application for the approval of the statutory authority must demonstrate that the proposed transfer is supported by each person who, in the opinion of the authority, has a financial interest in the licence. Section 19(5) provides: "(5) For the purposes of subsection (3) (c), a person is taken to have a financial interest in a hotel licence if the person is entitled to receive any income derived from the business carried on under the authority of the licence or any other financial benefit or financial advantage from the carrying on of the business (whether the entitlement arises at law or in equity or otherwise)." 5The defendant maintains that its contractual rights under the lease are sufficient to establish a financial interest in the licence within the meaning of s 19(5). However, in these proceedings it was accepted that, following the decision of the Court of Appeal in Jabetin Pty Ltd v Liquor Administration Board [2005] NSWCA 92; (2005) 63 NSWLR 602, the issue was not open for determination at first instance. The defendant formally submitted that the Court of Appeal's interpretation of s 19(5) was wrong, and reserved its position should there be an appeal. It did not press for the declaration, and agreed (T p 22) that the cross-claim should be dismissed. 6The licence, no. 116012, in respect of the premises was granted under the Liquor Act on 4 November 1958, at which time there were no PMEs. On about 19 April 2001 the Liquor Administration Board allocated 15 PMEs in respect of the licence, and on about 19 December 2005 allocated two more. It is common ground that under the amendments of 2011 to the GM Act the 17 PMEs have been converted to GMEs. 7The plaintiffs' claim turns on the proper construction of the lease, the relevant provisions of which are the following: "ANNEXURE A ... PART 1. ADDITIONAL PARTICULARS ... 1.14 Permitted User Subject to paragraph 2.2 of the Operational Covenants Schedule a licensed hotel. 1.15 Additional Rights Nil. ... PART 1A. HOTEL AND LICENCE CONDITIONS Additional Definitions 1A.1 In this Lease, references to clauses include clauses in the Memorandum and, unless there is a contrary intention: ... 'Business' means the hotel business to be carried on by the Tenant upon the Premises. ... 'Hotel Name' means 'Bayview Hotel', being the name by which the Premises are known. 'Licence' means the hotelier's licence issued under the Liquor Act, 1982 authorising the sale of liquor on the Premises and includes any renewal of that licence and any licence issued in substitution for or in addition to that licence. 'Licensee' means the holder from time to time of the Licence. ... Additional Covenants Relating to Liquor Licence 1A.4 The Tenant acknowledges that the Licence is the absolute property of the Landlord and the Tenant covenants with the Landlord as follows: (a) to make application for and do all other things (and to procure the Licensee to make application for and do all other things) necessary to obtain and renew the Licence and all other licences that are, or may be, necessary for keeping open the Premises as duly licensed for the sale and consumption (whether on or off the Premises) of liquor by retail. (b) During the Term, not to do or permit or suffer any act, matter or thing in, on or about the Premises whereby the Licence may be, or become, liable to be forfeited or the renewal thereof refused. ... (d) To keep the Premises open, and to procure that the same are kept open, for the sale of liquor at all times during such hours as shall be required by law. (e) To manage and conduct the Business at all times in a proper and orderly manner. (f) At the expiration of the Term, to procure the Licensee to transfer and assign, and do all acts and things necessary for transferring and assigning, the Licence to the Landlord or to whomsoever it may nominate. (g) Not to make, or allow to be made, at any time, any application for the surrender of the Licence. Power of Attorney 1A.5 For the more effectual preservation of the Licence and the Premises as licensed premises, the Tenant hereby nominates ...and irrevocably appoints the Landlord ...the ... attorney of the Tenant ... to do any or all of the following: (a) to transfer, or cause to be transferred, the Licence and any interest in the Licence to any person whomsoever the Landlord may nominate and to apply for any renewal or removal of the Licence and to sign all notices, transfers and documents for the purpose of that transfer, renewal or removal. ... (d) generally to do and perform all such further acts, matters and things as shall be necessary or expedient to enable the landlord or his nominee to obtain the reinstatement of the Licence or to transfer the Licence and to carry on and conduct the business of a licensed hotel on the Premises and to serve (or employ any person to serve in the name of the Licensee) liquor to customers and the Tenant hereby ratifies, allows and confirms and agrees to ratify, allow and confirm all and whatsoever the attorney or attorneys shall lawfully do or cause to be done under or by virtue of these presents and to pay to the landlord and indemnify the landlord, against, all costs and expenses in connection therewith." 8Clause 2.2 of the Operational Covenants Schedule dealt with the lessee's use of the premises. Clause 2.1 prevented use of the premises for any purpose other than a purpose permitted by the "Planning Acts" or for another purpose with the lessor's consent. In clause 2.15 of the Memorandum to the lease "Planning Acts" were defined to mean "... all legislation, rules, orders, requirements, or directions of any competent authority relating to the use of Premises or the erection or installation of any building, structure or improvement on or within the Premises". 9The essence of the dispute in these proceedings concerns the meaning to be given to the term "Licence" as defined in clause 1A.1 of the lease. The plaintiffs contend that, in context, its meaning should be confined to a licence issued under the Liquor Act authorising the sale of liquor, and should not be understood to include GMEs allocated under the GM Act. The defendant's primary argument was that the phrase "... and any licence issued ... in addition to that licence" in the definition should be understood to include GMEs. It contends that as the PMEs were allocated in respect of the licence they (now GMEs) are, in substance, incidents of a licence and, accordingly, may not be sold or transferred by the plaintiffs without the defendant's consent. 10The statutory regime under which GMEs are established and regulated has been analysed and explained in recent cases (Wonall Pty Ltd v Clarence Property Corporation Ltd [2003] NSWSC 497; (2003) 58 NSWLR 23; Jabetin v Benwine Pty Ltd [2005] NSWCA 92; (2005) 63 NSWLR 602; Boreland v Docker [2007] NSWCA 94; [2007] Aust Contract Reports 90-256, Alliance Engineering Pty Ltd v Yarraburn Nominees Pty Ltd [2011] NSWCA 301). For present purposes, it is sufficient to provide some background, much of which is gratefully taken from the following overview provided by Sackville AJA (Macfarlan, Whealy JJA agreeing), in Alliance: "The Liquor Act Regime 23 At the time the Lease was entered into in 2000, the Liquor Act governed the sale and consumption of liquor at hotel premises. The Liquor Act also governed the operation of " approved gaming devices ", including poker machines, on the premises. 24 The Licensing Court was empowered to grant a licence to a licensee to sell liquor on premises specified in the licence (s 18(1)). In particular, the Licensing Court could grant a hotelier's licence, which authorised the licensee to sell liquor by retail on hotel premises, subject to the conditions of the licence (s 18(2)(a)). 25 A hotelier's licence was subject to such conditions as might be imposed by the Licensing Act, the Licensing Court or the Liquor Administration Board (s 20(2)). A licence was subject to " any conditions imposed under this Act in relation to an approved gaming device ... " (s 20(2)(c1)). It was lawful to keep, use and operate an approved gaming device in a hotel, subject to the conditions of the hotelier's licence (s 160). 26 The Liquor Administration Board was empowered, on the application of a hotelier, to impose a condition on the hotelier's licence authorising the licensee to acquire, keep and permit the use of not more than 30 approved gambling devices (s 161(1)). A hotelier's licence was subject to a statutory condition that not more than 15 poker machines could be kept, used and operated, unless the licensee held a permit from the Minister for additional machines (s 182C(1)). The Gaming Machines Act Regime 27 Prior to the enactment of the Gaming Machines Act, a " freeze " was imposed by regulation and, later, by legislation on the number and location of poker machines in the State. The Gaming Machines Act was designed to maintain the freeze and, as the Minister explained in his Second Reading Speech, to ensure that in the future hotels would only be able to acquire additional machines by purchasing the right to keep the machines from other premises: see Wonall, at 27-31 [17], [18]. 28 The Gaming Machines Act repeals the key provisions of the Liquor Act relating to gaming devices and poker machines. In their place, it establishes a tradeable PME scheme in respect of poker machines in hotels and registered clubs. The scheme operates within the framework of an overall State cap on the number of poker machines (s 14(1)). 29 The initial allocation of PMEs is governed by s 15 of the Gaming Machine Act, which provides as follows: '(1) On the commencement of this section, one poker machine entitlement is to be allocated by the Board: (a) for each approved poker machine that comprises the frozen number of approved poker machines for a hotel, and (b) ... (2) The poker machine entitlements are to be allocated: (a) in the case of a hotel - in respect of the hotelier's licence, or (b) ... and are to be allocated in accordance with such arrangements as may be approved by the Director-General. (3) For the purposes of subsection (1) (a), the ' frozen number ' of approved poker machines for a hotel is the number that is determined by the Board after taking into account: (a) the number of poker machines authorised to be kept in the hotel under the Liquor Act 1982 as at 19 April 2001, and ... 30 A PME allocated in respect of a hotel licence is transferable (s 19(1)), but the transfer does not have effect until approved by the Authority (s 19(2)). An application for approval of a transfer of a PME must demonstrate, among other things, that the proposed transfer is supported by all those with a financial interest in the hotel licence (s 19(3)(c)). However, the owner of a hotel is not, as such, a person who has a financial interest in the licence (s 19(6)). PMEs allocated in respect of a hotel licence may be transferred only to another hotel licence (s 20(1)). 31 Part 5 of the Gaming Machines Act imposes controls in respect of gaming machines. A hotelier must not keep or dispose of an approved gaming machine unless the keeping or disposal of the machine is authorised by the Authority (s 56(1)(a)). The total number of machines that the Authority may authorise to be kept in a hotel from time to time consists of: 'the number of approved poker machines that corresponds to the number of [PMEs] allocated for the time being in accordance with this Act in respect of the hotel licence." (s 56(4)(a)).' ... Hotelier's Licence 33 As has been seen, s 15(2) of the Gaming Machines Act provides that, in the case of a hotel, PMEs are allocated " in respect of the hotelier's licence ". As originally enacted, the Gaming Machines Act stated (s 4(1)) that " hotelier " and " hotelier's licence " had the same meaning as in the Liquor Act 1982. Those meanings were as follows (s 4): 'hotelier means the holder of a hotelier's licence. hotelier's licence means a licence that, subject to this Act and the conditions of the licence, authorises the licensee to sell liquor by retail on the licensed premises, whether or not for consumption on those premises, being a licence that is granted as a hotelier's licence.' 34 The Liquor Act 1982 was repealed by the Liquor Act 2007 as from 1 July 2008. The Miscellaneous Acts (Casino, Liquor and Gaming) Amendment Act 2007, Sch 3, omits the definition of " hotel ", " hotelier " and " hotelier's licence " in the Gaming Machine Act and substitutes new definitions as follows: 'hotel means the premises to which a hotel licence relates. hotelier means the holder of a hotel licence under this Act.' 35 Section 14(1) of the Liquor Act 2007 provides as follows: 'A hotel licence authorises the licensee to sell liquor by retail on the licensed premises for consumption on or away from the licensed premises.' 36 The transitional provisions of the Liquor Act 2007 provide that an existing licence is taken to be a licence of the corresponding kind. A reference in any Act, instrument or document to an existing liquor licence of any kind is to be read as a reference to a licence of the corresponding kind. The corresponding licence for an existing hotelier's licence is a hotel licence: Sch 1, Div 2, cll 3(1), (5), 4(1). ... 66 Under the legislative scheme, the allocation of a PME in respect of a licence was a prerequisite to the grant of an authorisation by the Authority to keep a poker machine on hotel premises. That was because the total number of approved gaming machines that the Authority could authorise to be kept in a hotel from time to time had to correspond to the number of PMEs allocated for the time being in respect of the hotelier's licence. In other words, the number of poker machines kept at a hotel could not exceed the PMEs in force from time to time in respect of the hotelier's licence. 67 It follows that at any given time the Hotel could keep only that number of poker machines for which the licensee had PMEs and authorisation from the Authority. Once the Authority granted authorisation for a poker machine (or a particular number of poker machines) to be kept at the Hotel, the lessee had the necessary ongoing permission to keep and operate the machine on the premises, provided that it did so in accordance with the statutory requirements. 68 Alliance, immediately before the transfer of the PME, had permission to keep two poker machines at the Hotel. That permission comprised two statutory elements, both of which were essential for the permission to be operative: two PMEs allocated in respect of the hotelier's licence and authorisation from the Authority, based on the two PMEs, to keep two poker machines on the Hotel premises. It is true that the allocation of a PME in respect of a licence and the grant of an authorisation by the Authority to keep a machine on the premises were two separate acts and came about under different provisions of the Gaming Machines Act. But Alliance could not keep (or operate) two poker machines at the Hotel unless it had two PMEs allocated to the hotelier's licence and authorisation from the Authority to keep both machines on the premises. 69 It is a conventional use of language to describe Alliance as having a licence to keep and operate two poker machines at the Hotel ..." 11In Wonall (pars 40, 41) Campbell J concluded that when the GM Act says that PMEs are to be allocated "in respect of a hotelier's licence" the legislature said no more than there was to be a link or connection between the PME and the hotelier's licence. The legislation maintains the distinction between a hotelier's licence under the Liquor Act for the sale of liquor and the authorisation under s 56(2) GM Act to keep and operate poker machines on the premises. Such an authorisation is not a permit under the relevant liquor licence (Turvern Pty Ltd v Jemwire Pty Ltd [2008] NSWSC 420, pars 13, 15). 12Whatever the statutory features of GMEs may be, the rights and obligations of the parties under a lease of a licensed hotel relating to them must be governed by the terms and conditions of the lease. For example, in Alliance, Sackville AJA (par 58) emphasised the necessity to consider the specific language of the terms, rather than to reason from the construction given to different provisions in other cases. In Boreland, Beazley JA (Mason P, Ipp JA agreeing) explained: "126 ... that poker machine entitlements are property and carry with them all the usual incidents of property, including the right of disposal, save only that the exercise of such rights must be in accordance with the legislation. Accordingly, any disposition of the entitlements would need to be made in accordance with ss 19 and 20 of the Gaming Machines Act. It may also be that in a given case there are contractual or other restrictions on the right of disposal, subject, of course, to the operation of the Act. 127 The right to deal with the property rights inherent in the entitlements, including the right of disposal, may be affected by contractual rights, such as by the terms of a lease. Thus, it may be that in a particular case the terms of the lease for a hotel may restrict a lessee/licencee's right to transfer the entitlements. But if the lease does not deal with the matter, then the lessee/licencee may dispose of the entitlements in conformity with the Gaming Machines Act." 13The authorities (eg Alliance, Boreland) say that it is apt to describe a GME as a licence. Whether or not it is a licence to which the covenants of a lease apply will depend upon the construction of the covenants in the particular case. Sometimes other cases afford helpful, but not determinative, guidance for the approach to be taken. In the end, the question is one of interpretation of the words of the provisions in context, and to the surrounding circumstances. 14The principles of construction were encapsulated in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 by Bathurst CJ (Macfarlan, Meagher JJA agreeing) who said: "52 The principles underlying the construction of written contracts are well established and it is not necessary to deal with them at length. A contract is to be construed by reference to what a reasonable person would understand by the language in which the parties have expressed their agreement having regard to the context in which the words appear and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Limited v Alphafarm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [53]. At least in the case of ambiguity, resort can be had to the surrounding circumstances known to the parties in interpreting the particular provision: Codelfa Construction Pty Limited v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352; Western Export Services Inc v Jireh International Pty Limited [2011] HCA 45; (2011) 282 ALR 604." 15In the present case the legislation creating PMEs had not been enacted when the lease commenced. Since PMEs did not come into existence until after the lease commenced they were not incidents which attached to the hotelier's licence at the date of commencement of the lease (Alliance par 57). At the commencement of the lease (and, for that matter, throughout the lease) the only licence required for the sale and consumption of liquor at the hotel was a hotelier's licence (subsequently renamed a hotel licence) (Alliance par 60).