Nature of the application, affidavits and pleaded facts
By Originating Process filed on 5 August 2020, the Plaintiff, Bowery Bar Pty Ltd (in liq) ("Company") seeks relief including a declaration that an interest held by Investa Listed Funds Management Ltd ("Investa") in a liquor/hotel licence ("Hotel Licence") and 18 gaming machine entitlements ("Gaming Entitlements") constituted a "security interest" within the meaning of s 12 of the Personal Property Securities Act 2009 (Cth) ("PPSA"). The Company also seeks a declaration that, at the time it entered external administration, the Security Interest was unperfected and vested in the Company immediately before the appointment time pursuant to s 267 of the PPSA.
The Company originally also sought a declaration that an alleged transfer of the Hotel Licence and the Gaming Entitlements from the Company to Investa on 2 May 2019 constituted a conversion of property belonging to the Company, but that claim was not pressed by the Company at the hearing. I will also briefly record the reasons why that claim could not have succeeded as a matter of law. Mr Mirzai, who appears for the Company, foreshadowed that it may seek leave to amend the Originating Process and Statement of Claim to plead a claim for "misappropriation" of the Hotel Licence and Gaming Entitlements. Mr Sulan, with whom Mr Jameson appears for Investa, responded that Investa will oppose that amendment. Both parties accepted that question could be deferred to the further hearing of the Company's claim for other relief, which will arguably only arise if it establishes the relief to which I have referred above.
The Court made orders for the matter to proceed by way of pleading, and the Company's Statement of Claim and Investa's Defence identify the relevant factual issues, as to which there is little contest, and the legal issues which are in dispute. I have had regard to the affidavit evidence, although it seems to me that there is little substantive dispute as to any relevant matter that is necessary to the determination of this claim. The Company reads the affidavit dated 5 August 2020 of its liquidator, Mr Elkerton. Mr Elkerton there refers to the circumstances of his appointment as liquidator and sets out details of the Company and the history of the premises, and notes that one of the Company's employees, Mr Darnell, was the licensee of the Hotel Licence (I interpolate, after another employee had held that licence) while the Company owned the hotel business, including the sale of liquor and operation of gaming machines. Mr Elkerton also refers to several transactions in respect of a lease commencing 19 May 1993 in respect of the premises ("First Lease") and a second lease dated 1 November 1997 ("Second Lease") over an additional part of the property and to the circumstances in which Investa became the holder of the Hotel Licence, by its application made to the Independent Liquor & Gaming Authority ("ILGA") in its capacity as owner in possession of the premises.
By a further affidavit dated 16 March 2021 Mr Elkerton referred to documents obtained from Liquor and Gaming NSW, to the activities undertaken by the Company in the conduct of the hotel business, and to the position in respect of Mr Darnell's employment by the Company. By an affidavit dated 17 March 2021, Mr Taylor, a director of the Company, referred to the Company's policy from around late 2017 or early 2018 of employing someone who was not a director or shareholder of the Company as licensee, and his evidence is that Mr Darnell was employed as licensee from 12 March 2018. An affidavit dated 1 June 2021 of the Company's solicitor, Mr Wilkinson, refers to attempts to contact Mr Darnell which do not appear to be of any significance to the determination of the proceedings.
Investa in turn relies on the affidavit dated 9 February 2021 of its general manager, Mr Leo, who addresses the history of leases of the property and the relevant contractual arrangements between Investa and the Company entered in December 2013 and also refers to the circumstances in which Investa re-entered the property and lodged an application for transfer of the Hotel Licence with the ILGA as an owner in possession of the property.
By way of background, it is common ground that the Company previously conducted a hotel and gaming business at premises located at 347 Kent Street Sydney. Investa is now the registered proprietor of the land from which that business was conducted. The Company pleads (SOC [4]) that, as part of that business, it required the use of the Hotel Licence and Investa does not admit that proposition. That formulation obscures the fact that the Company did not hold the Hotel Licence, which for nearly all of the period in issue was held by two successive employees of the Company. It is common ground that the Gaming Entitlements were connected with the Hotel Licence (SOC [5]).
Prior to either Investa or the Company having any involvement with the premises or the business, two third parties as lessor and another third party as lessee entered into the First Lease which contained, in Part 19, certain provisions relating to the Hotel Licence. Mr Mirzai places particular reliance on Part 19 of the First Lease and primarily on paragraphs 1(f) and 1(g) of that Part. By paragraphs 1(a), 1(c) and 1(e) of that Part, the lessee covenanted with the lessor to procure the licensee of the premises (implicitly, a different person from the lessee) to do certain things, including obtaining the relevant licences, and, at the expiration or determination of the Lease, transferring and assigning the licence to the lessor or its nominee. Paragraphs 1(b), 1(d) and 1(f) of that Part in turn impose positive and negative obligations on the lessee, prohibiting it from doing acts by which the Hotel Licence may become liable to be forfeited, suspended or cancelled; requiring it to manage and conduct the business in a proper and orderly manner; prohibiting it from making any application for removal of the Hotel Licence and acknowledging that the Hotel Licence "is the absolute property of the lessor". By paragraph 1(g), the lessee appointed the lessor and its officers as its attorney "for the more effective preservation of the Licence and the Premises as Licensed Premises", after default by the lessee that would entitle the lessor to enter the Premises and repossess them. That power of attorney extended to the transfer of the Licence and other matters (First Lease, Ex J1, 188-189).
On 1 November 1997 those third parties entered into the Second Lease, and cl 18.1 of the Second Lease contained substantially corresponding provisions to Part 19 of the First Lease (Ex J1, 265-266).
About 24 October 2006, the First Lease and the Second Lease were varied to include provisions dealing with Gaming Entitlements. By clause 1(n) of the first Variation of Lease, new clauses 5-13 were introduced in Part 19 of the First Lease by which the lessee, inter alia, acknowledged that the then lessor was the beneficial owner of the Gaming Licence (as defined) and stated that the Gaming Licence remained the absolute property of the lessor at all times, and that the lessor had a financial interest in the Gaming Licence. The new provisions also required that the lessee not do or permit any act by which the Gaming Licence may become liable to be forfeited, suspended, cancelled, transferred or otherwise dealt with or disposed of and provided for that licence to be made available to the lessee during the term of the First Lease to be used by the lessee in accordance with the provisions of that lease, the conditions of the Gaming Licence and the requirements of the Gaming Machines Act 2001 (NSW) and other relevant laws. The new provisions also imposed obligations upon the lessee in respect of compliance with the conditions and requirements of the Gaming Licence and legislation and cl 9 prohibited the lessee from taking certain steps, including surrendering or removing the gaming licence or transferring poker machine entitlements. Clause 10 appointed the lessor and its officers as the lessee's attorney in respect of specified matters. Again, it should be noted that neither the Company nor Investa was party to this transaction; rather, the terms of the First Lease which Investa assumed when it acquired the land and which the Company assumed when it later took a transfer of the First Lease from the former lessee of the premises incorporated these provisions. By a second Variation of Lease dated 24 October 2006, the Second Lease was varied in substantially corresponding terms (Ex J1, 324ff).
Subsequently, on 8 July 2011, the then owner of the land, ING Management Ltd, transferred the land to Investa (SOC [23]; Ex J1, 413).
The first relevant transaction involving the Company, for the purposes of these proceedings, occurred on or about 18 December 2013. By Transfer of Leases dated 18 December 2013, the former lessee transferred the two leases to the Company (Ex J1, 414-417). Two Variations of Lease, which did not relevantly affect the terms, were executed on the same day between Investa and the Company (Ex J1, 418ff) The Company then acquired certain rights and assumed certain obligations under the terms of the First Lease and the Second Lease. It is common ground that, also on 18 December 2013, a security deed was also entered into between the Company as grantor and Investa as secured party, under which the Company granted a security interest over certain fixtures and fittings to Investa (SOC [27]). A financing statement was lodged on the Personal Property Securities Register in respect of that security interest, which did not extend to the Hotel Licence or the Gaming Entitlements.
It is common ground (SOC [30]) that, from 18 December 2013, the Company conducted a hotel and gaming business from the premises described in the First Lease and the Second Lease. The Company does not plead, and it does not appear to be the fact, that it held either the Hotel Licence or the Gaming Entitlements at 18 December 2013 or any later date; rather, it structured its affairs so that a former employee was the licensee under the Hotel Licence, which in turn recognised the Gaming Entitlements.
From about 12 March 2018, a new employee of the Company, Mr Darnell, was the licensee under the Hotel Licence, although little turns on that where the transaction by which any security interest was created had occurred in December 2013, long before Mr Darnell commenced employment with the Company or became the licensee.
The Company ceased trading about 5 March 2019 and Mr Darnell advised the ILGA that he was no longer the licensee on or about 7 March 2019 (Ex J1, 601). On 12 March 2019, a liquidator was appointed to the Company. As at 15 March 2019, a search of key liquor licence details for the Hotel Licence still recorded Mr Darnell as licensee and recorded the Company as business owner and Investa as premises owner and recorded associated gaming machine entitlements in respect of 18 machines. It is at least arguable that, when Mr Darnell ceased to be the licensee, the Company was deemed to be the licensee under the Hotel Licence, by the terms of s 61 of the Liquor Act 2007 (NSW).
In early 2019, Investa terminated the First Lease, the Second Lease and an associated occupation licence and took possession of the premises (Ex J1, 639). After it did so, on 12 April 2019, Investa applied to the ILGA to have the Hotel Licence transferred to it in its capacity as an owner that had retaken possession of the premises. That application fairly disclosed that Investa did not have the consent of the outgoing licensee (Mr Darnell) to the application and fairly disclosed the basis of the application as follows:
"On or about 9 February 2019, the business owner ceased trading. On 9 April 2019, the premises owner has retaken possession of the Licensed Premises, excluding both the licensee and the business owner. The premises owner makes this licence transfer application as owner in possession."
That application also noted that the Hotel Licence would then be held by Investa in a dormant capacity until further transferred to a certified qualified person (Ex J1, 646). Correspondence between the solicitors for Investa and the liquidator followed.
It appears that ILGA then recognised a transfer of the Hotel Licence with effect from 2 May 2019 (Ex J1, 719) and key liquor licence details recorded as at 22 August 2019 recorded the Gaming Entitlements in respect of the gaming machines as associated with that licence (Ex J1, 721). Another entity, IOF Custodian Pty Ltd, became licensee as of 12 May 2020 (Ex J1, 723) and a third party, Nettlewood Management Pty Ltd, became licensee from 7 December 2020 (Ex J1, 802).
[3]
Whether any interest held by Investa in the Hotel Licence and Gaming Entitlements was a "security interest" within the meaning of s 12 of the PPSA
The Plaintiff pleads a number of matters which may not need to be determined on the particular facts. Under the heading "The First Lease and the Second Lease are Security Interests", the Company pleads that the Hotel Licence and the Gaming Entitlements are "personal property" for the purposes of the PPSA. It will not be necessary to address that proposition given the findings which I have reached below. The Company also pleads that the First Lease and the Second Lease conferred upon Investa a "financial interest" in the Hotel Licence and restricted its ability to take certain steps in respect of that licence and in respect of the Gaming Entitlements and also contends that the First Lease and the Second Lease caused the Company to grant to Investa an interest in personal property, being an interest in the Gaming Entitlements (SOC [53]-[54]).
It appears, taking into account matters that were not pressed by Mr Mirzai in oral submissions, that the Company also contends that, under the First Lease and the Second Lease, it was obliged to refrain from dealing with the Hotel Licence and the Gaming Entitlements in a manner inconsistent with the stipulations of the First Lease and the Second Lease; Investa's interest in the Hotel Licence secured its compliance with the prohibitive clauses of the First Lease and the Second Lease in respect of the Gaming Entitlements; and its interest in the Gaming Entitlements secured its compliance with the prohibitive elements of the First Lease and the Second Lease in respect of the Gaming Entitlements (SOC [56]-[57]). The Company also contends that the First Lease and the Second Lease create an interest in the Hotel Licence and the Gaming Entitlements in favour of Investa and are each a "security interest" for the purposes of the PPSA (SOC [58]). It will immediately be noted that neither the Company nor Investa were party to the First Lease and the Second Lease at the time they were created. However, the Company obtained rights and assumed obligations under the First Lease and the Second Lease by the transfer and variations in December 2013.
I will now seek to identify the relevant issues. In doing so, I will also seek to identify the more important aspects of Mr Mirzai's submissions, although I do so with hesitation given their complexity, a degree of difficulty in identifying the logical sequence of the steps in them, and my impression that they shifted, possibly significantly, between Mr Mirzai's written opening submissions and his oral submissions and then further shifted in the course of those oral submissions. I also address Mr Sulan's response which was simpler in its logic and structure. I am not satisfied that the Company at any point granted a security interest to Investa in either the Hotel Licence or the Gaming Entitlements, for the purposes of s 12 and s 267 of the PPSA, for the reasons set out below.
First, Mr Mirzai relied on the fact that employees of the Company held the Hotel Licence and the associated Gaming Entitlements to seek to establish that the Company granted a security interest over them. Mr Mirzai developed a second and "alternative" submission that, even if the Company had no more than the right to make an application to the ILGA for the transfer of the Hotel Licence, that was a proprietary right such that the "security interest" created by the leases and variation documents attached to the Hotel Licence for the purposes of s 19 of the PPSA. Third, Mr Mirzai submits that, regardless of whether the Company had any proprietary rights in the Hotel Licence from the commencement of the leases (which it plainly did not, since it was not party to the leases at their commencement) or from the transfer of the leases from the former lessee to it and the variation documents in December 2013, it became the deemed holder of the Hotel Licence before it was wound up by reason of s 61 of the Liquor Act, when Mr Darnell gave notice to the ILGA that he ceased to be licensee of the Hotel Licence.
In oral submissions, Mr Mirzai also submitted that the fact the Company was not the holder of the Hotel Licence was "immaterial for present purposes" because Mr Lawler and then Mr Darnell were "merely the nominee or the agent" of the Company as lessee of the premises, being appointed as employees of the Company and by convention (T19); and that the Company had a property interest in the Hotel Licence because it "controls the identity of the licensee including that it can transfer the licence to itself", although it did not have ownership of the licence and was not the holder of that licence under the Liquor Act (T20) and that "the power to determine the identity of the licensee is itself a proprietary right in the underlying property, being the licence" (T21). Mr Mirzai fairly accepted that it is significant whether the Company had an interest in the Hotel Licence and the Gaming Entitlements at any relevant point, because the statutory definition of a "security interest" under s 12 of the PPSA requires that there be an interest in personal property (T22). Mr Mirzai accepted that the Company's position, in summary, was that it had such an interest in personal property being the Hotel Licence issued to Mr Lawler and then Mr Darnell had that interest or, after Mr Darnell surrendered that interest, by the deeming provision under s 61 of the Liquor Act.
Mr Sulan responds that the Company did not hold any proprietary interest in the Hotel Licence and no security interest under s 12 of the PPSA was capable of arising in that respect. In oral submissions, Mr Sulan identified the question of what interest in personal property the Company had in the Hotel Licence and Gaming Entitlements, at the date of the transaction by which it assumed the leases from the former lessor and entered a lessor/lessee relationship with Investa, and he submits, succinctly, that "[t]he answer to that question is none". Mr Sulan points out that, as I noted above, the then licensee to the Hotel Licence was Mr Lawler, who also held the Gaming Entitlements by reason that they travelled with the Hotel Licence (T47).
I am not persuaded that the Company held the Hotel Licence so as to grant a security interest over it to Investa and the position appears to be the same in respect of the Gaming Entitlements which followed the Hotel Licence in fact, although they could have potentially been dealt with separately. As to Mr Mirzai's first submission noted above, the Company chose to have the Hotel Licence held by a former employee, Mr Lawler, and later by Mr Darnell, rather than itself holding that licence. Mr Mirzai submits that that is a conventional practice, and that proposition is plausible although it is not established by evidence. However, the existence of such a practice, and any contractual arrangements between the Company and the relevant employees, does not have the consequence that the Company held a statutory licence that it has chosen not to hold, but instead to have successive employees hold. While Mr Mirzai adopted a colloquial usage in submission, suggesting that the successive employees held the Hotel Licence "on behalf" of the Company, there is no basis for a finding that a trust was or could be created in favour of the Company in respect of the statutory rights and obligations conferred upon the named licensee by the Liquor Act. It seems to me that it is also not to the point that, as Mr Mirzai submitted (although this was also not established by evidence) the Company may have had "ultimate control" over who was appointed as licensee of the Hotel Licence at material times, once it exercised any such control so that persons other than itself held the Hotel Licence and the associated Gaming Entitlements.
It seems to me that Mr Mirzai's second and "alternative" submission noted above is not, in truth, an alternative argument and does not lead to a different result where the Company did not hold the Hotel Licence at any relevant time. If it were correct, the Company would not be assisted by any vesting of a right to make an application to transfer the Hotel Licence to it, since it and Investa each already had the right to make such an application under the Liquor Act, and Investa was successful in such an application. As to Mr Mirzai's third submission, it seems to me that a statutory deeming of the Company as the relevant business owner as licensee is not an interest in the licence, but applies where no licensee is in place, and pending any application by the persons who may then apply for such a licence (namely the Company and Investa) under the Liquor Act. I am not persuaded that deemed interest is sufficient to support a security interest for the purposes of s 12 of the PPSA. In any event, the Company would also not be assisted by the vesting of any such right in it for the reasons noted below.
Against the contingency that I am incorrect in that view, I now turn to Mr Mirzai's further submissions. On the assumption (which I have not accepted) that the Company had a sufficient interest in the Hotel Licence and the Gaming Entitlements to support its granting a security interest in them, Mr Mirzai addressed the question whether the Hotel Licence and Gaming Entitlements were "personal property" for the purposes of s 10 of the PPSA. Mr Mirzai rightly submits that that definition includes a statutory licence, created under a law of a state, where that law does not declare it not to be personal property for the purposes of the relevant law. Mr Mirzai submits, and I accept, that liquor licences are created by the Liquor Act and that Gaming Entitlements are created by the Gaming Machines Act, and that, in New South Wales, that legislation does not exclude those licences or entitlements from the definition of "personal property" for the purposes of the PPSA. Mr Sulan responds that the Company's interest in the Hotel Licence is not "property" and refers to the position at general law in that respect (Boreland v Docker [2007] NSWCA 94 at [89]); that the attachment provisions in s 19 of the PPSA require that the grantor have some type of proprietary interest in order to grant a security interest; and that it was not possible for the Company to provide Investa with a proprietary interest in the Hotel Licence as collateral for the purposes of the PPSA, where its interest was always subject to ILGA's registration of that licence. Mr Mirzai responds that, although a liquor licence was not recognised as property at general law prior to the PPSA, it falls within the definition of "personal property" in s 10 of the PPSA, for the reasons noted above. Mr Sulan accepts that Gaming Entitlements are "property" in the sense that they are "capable of being owned, disposed of and made the subject of a trust": Jabetin Pty Ltd v Liquor Administration Board (2005) 63 NSWLR 602; [2005] NSWCA 92 at [87]. However, he submits that the Gaming Entitlements could not "vest" in the Company, because any transfer of ownership of them required ILGA's approval. It is not necessary to address these submissions given the conclusions that I have reached on other grounds.
Mr Mirzai in turn contended that the arrangements between the Company and Investa fell within the general definition of "security interest" under s 12(1) of the PPSA, rather than the traditional forms of security interest specified in s 12(2) of the PPSA. That general definition is that:
"A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property)."
Mr Mirzai helpfully referred to the elements of that definition, as identified by Santamaria JA (with whom Maxwell P and Whelan JA concurred) in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (2014) 49 VR 86; [2014] VSCA 326, as requiring that there exist an "outstanding existing monetary or non-monetary obligation"; an "in substance security" to support the performance of that obligation; that the security amount to an "interest" in personal property; and the interest arise out of that transaction. Mr Sulan points out that the question whether an interest secures the performance of an obligation is an objective one and refers to the economic or commercial substance of the transaction and has regard to the rights that the parties intended to create and whether those rights as a matter of law gave rise to a charge: Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd above at [37]; McCallum, Re Holdco Pty Ltd (admins apptd) (No 2) [2021] FCA 377 at [123].
Mr Mirzai submits that it is "beyond dispute" that there were, relevantly, non-monetary obligations owed by the Company to Investa under both the First Lease and the Second Lease. Mr Mirzai submits that the rights contractually bestowed upon Investa, under the First and Second Lease (I interpolate, presumably as assumed by the Company by the December 2013 transactions) amount to taking an interest in the Hotel Licence or Gaming Entitlements to secure payment or performance of the relevant obligations. Mr Mirzai refers to the Brereton J's analysis of the operation of poker machine entitlements under the Gaming Machines Act in Geltch v MacDonald [2007] NSWSC 1000, by reference to the decisions in Jabetin Pty Ltd v Liquor Administration Board above and Masters v Garcia (2005) 65 NSWLR 92; [2005] NSWCA 287. Brereton J there noted that a party who has a financial interest in a hotelier's licence can be bound by contractual entitlements not to deal, or deal in a particular way, with poker machine entitlements allocated in respect of that licence. Mr Mirzai also emphasised that a person who is given a "financial interest" in respect of Gaming Entitlements has the power to prevent a transfer of gaming entitlements, by reference to s 19 of the Gaming Machines Act. Mr Mirzai also referred to s 61 of the Liquor Act, which deals with an application for transfer of a liquor licence on dispossession of the licensee and permits, inter alia, the owner of the licensed premises who comes into, or becomes entitled to, possession of the licensed premises to the exclusion of the licensee, or the business owner, to make such an application.
Mr Mirzai also refers to the contractual arrangements between the Company and Investa under Part 19 of the First Lease, to which I have referred above, and to the corresponding provisions in cl 18 of the Second Lease (I interpolate, presumably as assumed by the Company from December 2013). He submits that sub-clause 19(f) of the First Lease (to which I referred above) recognised Investa's absolute ownership of the licence over the life of the First Lease and sub-clause 19(g) of the First Lease gave Investa a power of attorney to deal with the Hotel Licence as the Company's attorney and these rights are additional to those conferred by the Liquor Act. While I accept that submission, it seems to me, as I have noted above, that that did not amount to a transaction that secured the performance of an obligation, but merely to the assumption of the relevant obligations as between the Investa and the Company by the Company's taking the transfer of the leases from the former lessee and entering into associated variation arrangements with Investa.
Mr Mirzai also draws attention to the inclusion of new provisions relating to the Gaming Entitlements in the First Lease and the Second Lease by the variations made on 24 October 2006. Mr Mirzai refers to cl 18.4 which included additional acknowledgements in respect of the Gaming Licence, and submits that that clause granted Investa "a right or interest" in the Gaming Entitlements which it would not otherwise have under the Gaming Machines Act. I accept that that clause gave Investa contractual rights in respect of the Gaming Entitlements and I also accept Mr Mirzai's further submission that cl 18.18 introduced further prohibitions in respect of the lessee taking specified steps in respect of the Gaming Licence, and to that extent prohibits or limits rights that would otherwise be enjoyed by the lessee under the Gaming Machines Act. However, those variations were made long before the Company became party to the First Lease and the Second Lease, and the Company assumed those obligations by taking a transfer of the First Lease and the Second Lease from the former lessee in December 2013. It seems to me that this also amounted to the Company's assumption of those contractual obligations and the associated rights by taking a transfer of the leases, and not to the Company's entry into a transaction with Investa that in substance gave security for those obligations.
Mr Sulan responds that Investa did not hold a "security interest" within the meaning of s 12 of the PPSA and its interest in the Hotel Licence and Gaming Entitlements did not in substance secure the performance of the Company's obligations under the leases. I accept that submission, for the reasons I have set out in addressing Mr Mirzai's submissions. Mr Sulan also submits that the restrictions on the Company's rights to deal with the Hotel Licence and Gaming Entitlements during the term of the leases do not establish that the transaction secures payment or performance of an obligation; and there is no term of the leases which allows Investa to "enforce" its interests in the Hotel Licence or Gaming Entitlements so as to remedy a default by the Company under the leases; and the restrictions on the Company's dealings with the Hotel Licence and Gaming Entitlements are rights in personam but not rights in rem in respect of the Hotel Licence and Gaming Entitlements to remedy a default. Importantly, Mr Sulan submits that the Company's rights, under the First and Second Lease:
"were part of the arrangements by which [the Company] was permitted to occupy the Premises during the period of the Leases. They were an incident of [the Company] being in possession of the premises. Such rights were not, however, 'assets' of [the Company] which were provided as collateral in favour of Investa."
Mr Sulan also pointed out that the provisions relating to the Gaming Entitlements had the same structure, so far as they imposed specified obligations upon the Company as the licensee, both to itself take specified acts and to ensure that the holder of the Gaming Entitlements took other acts, and that the power of attorney conferred on Investa again did not constitute a security interest (T50). Mr Sulan also emphasises that the relevant provision operated to recognise and protect the interests of the owner in the Hotel Licence and the Gaming Entitlements, so as to preserve the advantage of being licensed for the relevant premises (T50). I return to the significance of that matter below.
It seems to me that the elements of the definition of "security interest" in s 12 of the PPSA are not satisfied, at least as between the Company and Investa, in respect of the entry into the First Lease and the Second Lease, where neither Investa nor the Company were party to the transaction involved in the entry into those leases between the former landowner and lessor and the former lessee. Those elements are also not satisfied in respect of the Company's taking a transfer of the First Lease and the Second Lease from the former lessee and entering the associated variation arrangements with Investa in December 2013. No security was then granted, as a matter of substance, to support the performance of any outstanding non-monetary obligation. At that point, the Company assumed contractual rights and contractual obligations, as delimited by the terms of the First Lease, the Second Lease and the variation arrangements, which placed obligations on and gave rights to each of the Company and Investa in accordance with their terms, and allocated contractual risks between them. It may be that some or many of those terms were intended to make it more likely that the relevant obligations would be performed, and the relevant rights protected, but that does not seem to me to give rise to the grant of any security over, relevantly, the Hotel Licence or the Gaming Entitlements or aspects of the obligations in respect of them. It seems to me that Mr Mirzai's contrary approach to the concept of "security interest" is so wide that he would treat many ordinary course contractual obligations as a "security interest" falling within the scope of the PPSA, at least where a contract involves any dealings with personal property. I can see little attraction, in principle or in policy, in that approach.
Mr Mirzai also submitted that the provision for Investa to act as the Company's attorney in specified circumstances conferred an interest in personal property on Investa. In oral submissions, Mr Sulan responded, and I accept, that the creation of a power of attorney in favour of Investa was not a security interest, so far as any rights under that power of attorney would be exercised by Investa in the Company's name, and Investa would be an unsecured rather than a secured creditor at the time of exercising those rights: Application by Commonwealth Bank of Australia [2014] NSWSC 279. As a matter of both form and substance, as Mr Sulan pointed out, those provisions authorised Investa or its officers to exercise the Company's rights in the Company's name, rather than themselves conferring such rights on Investa.
Mr Sulan also submits that the PPSA does not apply to the Hotel Licence and Gaming Entitlements by operation of s 8(1)(f)(i) of the PPSA because the clauses governing the Company's use of the Hotel Licence and Gaming Entitlements formed part of the creation of an interest in leasehold land. Mr Sulan submits that, so far as the leases conferred a leasehold interest in the premises on the Company, the provisions relating to the Hotel Licence and Gaming Entitlements operated to ensure that those statutory rights were maintained by the Company so that the premises remained licensed premises, and were part of the creation of an interest in land and within the exception under s 8(1)(f)(i) of the PPSA. That paragraph relevantly provides that the PPSA does not apply (with certain exceptions not presently relevant) to an interest "provided for by … the creation of transfer of an interest in land". The term "land" is in turn defined in s 10 of the PPSA to include all estates and interests in land, including leasehold. Mr Mirzai responds, and I do not accept, that s 8(1)(f)(i) of the PPSA applies only to the creation or transfer of an interest in land and that the Hotel Licence is, obviously enough, connected to but distinct from the land.
It seems to me that any interests that Investa obtained in the Hotel Licence and Gaming Entitlements were "provided for" by the creation or transfer of an interest in the First Lease and the Second Lease to the Company, in December 2013, in the sense that are detailed in and arise from that transaction. They therefore fall, in terms, within the exception in s 8(1)(f)(i) of the PPSA, which is not limited to an interest in the land itself, but expressly extends to any other interest "provided for" by the transaction which creates or transfers that interest in the land. The relevant provisions were also, as a matter of substance, connected with creation or transfer of the Company's interest in the land and the leases, where they protected Investa's interest in the reversion of the land. Adopting the language in Slatter v Railway Commissioners (NSW) (1931) 45 CLR 68 at 78-79, cited with approval in Jabetin above at [4], they operated to:
"preserve the licence in the interests of the landlord, so that at the end of the term the premises would enjoy the advantage of being licensed. … The tenant remains entitled to exercise the licence for [its] own benefit so long as [it] is entitled to occupy the premises. But the licence is exercisable by its terms only in the premises which the tenant holds of the landlord and when [it] ceases to occupy the premises [it] can no longer exercise the licence. The contractual rights given to the landlord to ensure that the licence is not destroyed or removed to other premises, but is kept on foot and transferred to a person chosen by the landlord, do not more than safeguard the interests of the owner which [the Liquor Act] recognise."
I am therefore not satisfied that any interest held by Investa in the Hotel Licence and Gaming Entitlements was a "security interest" within the meaning of s 12 of the PPSA, since I am not satisfied that any such interest was provided for by a transaction that, in substance, secures payment or performance of an obligation. If it would otherwise have been such an interest, it was excluded from that concept by s 8(1)(f)(i) of the PPSA.
[4]
Whether any security interest held by Investa was unperfected and vested in the Company immediately before the appointment of the Liquidator pursuant to s 267 of the PPSA
It is common ground that Investa did not register or lodge a financing statement on the PPSA relating to the Company's obligations in respect of the Hotel Licence and Gaming Entitlements arising under the First Lease, the Second Lease or the December 2013 transaction. The Company pleads (SOC [60]) that any security interest held by Investa in either the Hotel Licence or the Gaming Entitlements was unperfected as at the Appointment Date and, upon the occurrence of an event under s 267 of the PPSA, any unperfected security interest vested in the Company. It pleads that, at the time of the liquidator's appointment, the security interest held by Investa in the Hotel Licence and the Gaming Entitlements vested in the Company (SOC [62]).
Mr Mirzai submits that the registration of a security interest lodged by Investa on 10 December 2014 did not extend to a security interest in the Hotel Licence or the Gaming Entitlements. I do not understand that proposition to be contested by Investa. However, nothing turns on that proposition where I have not found that the relevant obligations as between Investa and the Company under the First Lease and the Second Lease (as assumed by the Company in December 2013) were a "security interest" for the purposes of s 12 or s 267(1)(b) of the PPSA, so as to be unperfected at the point of the Company's winding up, and no such security interest vests in the Company immediately prior to the winding up under s 267(2) of the PPSA.
In oral submissions, Mr Sulan emphasised that Investa had exercised a statutory right to apply for a transfer of the licence under s 61 of the Liquor Act and had not exercised any interest under the Leases or any form of security interest and had not dealt with the Company's property (I interpolate, to the extent that it had such property in the Hotel Licence and the Gaming Entitlements) in that regard (T43). It seems to me that, even if Investa had held a "security interest" for the purposes of s 12 of the PPSA in the Hotel Licence and the Gaming Entitlements, and even if that security interest had vested in the Company under s 267 of the PPSA immediately prior to the winding up, Investa was still the owner of the premises and had entered into occupation of them; it was entitled to apply for the transfer of the Hotel Licence to it under the Liquor Act and it did so on that basis; and it was successful in that application, so it then obtained the Hotel Licence, after any vesting event had occurred, in accordance with the applicable statutory framework under the Liquor Act. It is not apparent that, if any such security interest in the Hotel Licence had vested for a period in the Company, that would that have added anything of substance to the fact that the Company was arguably the deemed licensee under the Liquor Act, until the Company was divested of the Hotel Licence and Investa obtained it by the operation of the Liquor Act.
Mr Sulan went on to submit that, because Investa had acquired its interest in the Hotel Licence under the Liquor Act, rather than by exercise of any security interest, the questions arising under the PPSA were hypothetical and the declarations sought would not lead to any form of compensation for the Company and the Court need not address those declarations (T46). While there is force in that submission, I have considered that I should address those matters above, where the Company has foreshadowed an amendment to put a "misappropriation" case which I note below. For completeness, I note that Mr Sulan also submitted that, although a proprietary interest may arise in Gaming Entitlements, those Entitlements could not "vest" under s 267 of the PPSA in the Company, because any transfer of such entitlements was always subject to the approval of ILGA. It is not necessary to address that latter submission, given the conclusions that I have reached above.
[5]
The Company's claim in conversion and other relief
In paragraphs 63-66 of the Statement of Claim, the Company pleads, in order to establish the Company's conversion claim, that it is the owner or holder of the Hotel Licence and the party entitled to hold the Hotel Licence and is the owner or holder of the Gaming Entitlements or the party entitled to own or hold them. Paragraph 73 in turn pleads that, by reason of a transfer of the Hotel Licence and Gaming Entitlements said to have occurred on 2 May 2019, Investa "converted the Hotel Licence and the Gaming Entitlements and wrongfully deprived the [Company] of the Hotel Licence and the Gaming Entitlements". Mr Mirzai rightly no longer presses that claim. Mr Sulan responds that a claim in conversion could not established, because Investa did not deal with goods or chattels in a manner repugnant to any immediate right of possession of the Company, as holding property or special property in the chattel: Bunnings Group Ltd v Chep Australia Ltd (2011) 82 NSWLR 420; [2011] NSWCA 342 at [124], [129]; Volvo Finance Australia Pty Ltd v Waterfront Enterprises Pty Ltd (in liq) (No 2) [2020] NSWSC 262 at [32]-[36]. It is also not necessary to address that submission, where the Company no longer presses its claim in conversion.
In paragraph 74 of the Statement of Claim, the Company seeks other relief which remains to be determined. As I have noted above, whatever the position under the PPSA and irrespective of any vesting of any security interest in the Company, any interest of the Company in the Hotel Licence and associated Gaming Entitlements was a product of statute and ceased when Investa acquired the Hotel Licence and any associated Gaming Entitlements, by the exercise of the ILGA's statutory powers under the Liquor Act, and third parties have now acquired those interests. It will likely be necessary to address that matter, if the Company now presses its claim in respect of any further relief.
Mr Mirzai has also foreshadowed an application to amend the Company's Statement of Claim to allege a "misappropriation" of its alleged interest in the Hotel License and the Gaming Entitlements and Mr Sulan has foreshadowed that Investa will oppose that amendment application. There may be a question as to how the Company could succeed in establishing any "misappropriation" of any interest in the Hotel Licence or Gaming Entitlements, having regard to the findings that I have reached above and the fact that all that Investa did after the winding up was to exercise the statutory right to apply for a transfer of the licence which the Liquor Act conferred upon it, as the owner of premises which had entered into possession of them.
[6]
Conclusion
For these reasons, the Company has not established that it is entitled to the declarations sought in paragraphs 1-3 of the Originating Process, and those paragraphs are dismissed. I will relist the matter in the Corporations Directions List on 28 June 2021 to hear the parties as to whether it is now necessary to determine the balance of the proceedings, or whether the balance of the proceedings should now be dismissed by reason of these findings.
[7]
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Decision last updated: 29 June 2021