Elkin v Roxby

TEXTS CITED : Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4 ed., 2002) K. R. Handley, Estoppel by Conduct and Election (2006)

PARTIES : Russell Gregory Elkin (Plaintiff) Michael Shane Roxby (Defendant)

COUNSEL : Mr R. Scruby (Plaintiff) Mr R. Kaye SC (Defendant)

SOLICITORS : O'Sullivan Saddington Lawyers (Plaintiff) Deutsch Partners Lawyers Pty Ltd (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5682 of 2007 RUSSELL GREGORY ELKIN -v- MICHAEL SHANE ROXBY JUDGMENT 1 HIS HONOUR: By notice of motion filed on 20 June 2008 the Defendant, Michael Shane Roxby, seeks substantively an order that the proceedings be summarily dismissed pursuant to Part 13, rule 13.4 of the Uniform Civil Procedure Rules 2005, or, in the alternative, that the Plaintiff's statement of claim be struck out pursuant to Part 14, rule 14.28 of those Rules. 2 The substantive proceedings concern the transfer of a hotel licence and poker machine entitlements associated with that licence. Those proceedings were instituted by statement of claim filed by the Plaintiff on 23 November 2007. By that statement of claim the Plaintiff seeks, inter alia, declaratory relief against the Defendant relating to any amounts of money received by the Defendant in consequence of the transfer of various poker machine entitlements, and an order that the Defendant make restitution to the Plaintiff of those amounts. 3 It is appropriate that I should set forth, at least in summary, the factual background to the proceedings. 4 The Plaintiff throughout the relevant period was the lessee of the Ocean View Hotel, situate at 85 Ocean Street, Dudley, in New South Wales. The Plaintiff was the sole owner of the hotel business, and was the holder of the hotelier's licence in respect of that hotel. 5 During the period from 1997 until October 2000 the Plaintiff installed eight poker machines at the hotel. At the time of the commencement of the Gaming Machines Act 2001 ("the Act") on 2 April 2002, those machines were "approved poker machines" (within the meaning of that phrase as defined in section 4(1) of the Act), and a poker machine entitlement was allocated for each of those machines pursuant to section 15 of the Act. 6 In August 2002 the Liquor Administration Board (being, at that time, the relevant authority designated by the Gaming Machines Act) granted to the Plaintiff approval to keep four hardship gaming machines on the hotel premises. (The phrase "hardship gaming machine" is defined in section 4(1) of the Act, and Division 3 of Part 3 makes provision concerning such hardship gaming machines.) 7 By August 2005 three years had elapsed since the approval to keep the four hardship gaming machines on the hotel premises had been granted. In consequence, the hotelier was entitled to apply for an additional four poker machine entitlements in respect to those four hardship gaming machines, pursuant to section 31 of the Act. 8 On 8 August 2003 the Plaintiff as vendor entered into an agreement with the Defendant and Lindlea Pty Limited as joint purchasers for the sale of the hotel business for the sum of $185,000. A copy of that agreement was admitted into evidence.

9 Consequent upon that agreement, on 18 August 2003 the Defendant and Lindlea Pty Limited became the lessees of the hotel, and their nominee, Lindsay Grant Milne, became the licensee. 10 The partnership between the Defendant and Lindlea Pty Limited was ultimately dissolved, and on 15 April 2005 that company transferred its interest in the lease to the Defendant for the sum of $50,000. The licence was transferred on 22 April 2005 to Mark Andrew Ross as the nominee of the Defendant. 11 The Defendant through his nominee later proceeded to sell some of the poker machine entitlements to other hotel licensees, pursuant to the provisions of section 19 of the Act. In October 2006 the Defendant sold three poker machine entitlements to the licensee of the Cooper Arms Hotel in Newtown (for the sum of $290,000 plus GST). In February 2007 the Defendant sold a further three poker machine entitlements to the licensee of the Bankstown Hotel (for the sum of $340,000 plus GST). In April 2007 the Defendant sold another three poker machine entitlements to the licensee of the Cumberland Hotel in Bankstown (for $340,000 plus GST). 12 The Plaintiff by his statement of claim asserts that at the time at which he transferred the hotelier's licence and the accompanying poker machine entitlements to the Defendant neither the Plaintiff nor the Defendant was aware that those entitlements could be transferred separately from the licence and that they thus had a value (in an amount asserted by the Plaintiff to have been about $900,000 at the time of the agreement for sale) additional to, and independently realisable from, the licence. The Plaintiff claims that the assumption of both the Plaintiff and the Defendant at the time of the sale of the hotel business led to the "unintentional gifting" of those poker machine entitlements to the Defendant. 13 It is asserted by the Plaintiff that the agreement was executed by him and by the purchasers on the common assumption that the purchasers, upon completion of the agreement, would have no entitlement to transfer or receive the proceeds of sale of the poker machine entitlements or of any poker machine entitlements that might be allocated for the hardship poker machines. Further, that the assumptions were false, in that the holder of the licence, subject to the provisions of section 19 (3) of the Act and the terms of the lease, was and is solely entitled to transfer the poker machine entitlements and any poker machine entitlements that might be allocated for the hardship gaming machines, and that the holder of the licence or the nominee of such holder was in fact entitled to receive any proceeds of sale in respect of such transfers. It was the case for the Plaintiff that, had the Plaintiff known that the foregoing assumptions were false, he would not have executed the agreement. 14 The Defendant by his defence filed on 19 March 2008 denies the existence of the foregoing assumptions, and denies, or expressly does not admit, various other of the factual matters asserted in the statement of claim. 15 In answer to the entirety of the Plaintiff's claim the Defendant asserts that the Plaintiff at all material times had knowledge of the Defendant's sale of the poker machine entitlements; did not at any time before the commencement of the present proceedings raise any formal claim or issue which is the subject of his present claim; and is accordingly disentitled by his conduct in [sic] seeking the relief claimed. As I understand it, by these assertions in answer to the entirety of the Plaintiff's claim, the Defendant raises defences in the nature of laches, acquiescence and delay. 16 In support of his claim to the proceeds of the Defendant's sale of those poker machine entitlements the Plaintiff relies upon principles in respect to restitution and to estoppel. 17 It will be appreciated that restitution is a remedy, and not a cause of action (see Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4 ed., 2002), chapter 24, especially paragraphs [24-040] - [24-070]), which may be available in the case of common mistake; whilst estoppel is essentially a defence, by which, in appropriate circumstances a party may be prevented from relying upon or exercising its rights (see K. R. Handley, Estoppel by Conduct and Election (2006), especially chapters 8 and 15). 18 The Defendant submits that the Plaintiff's claim, whether grounded upon a claim for restitution or upon estoppel, is unarguable and is destined to fail, and should therefore be summarily dismissed pursuant to rule 13.4 of the Uniform Civil Procedure Rules; or, in the alternative, that the Plaintiff's statement of claim should be struck out pursuant to rule 14.28 of those Rules. 19 I have had the benefit of receiving written outlines of submissions from Counsel for the respective parties. Those documents will be retained in the Court file. 20 The principles relating to summary dismissal of proceedings are well recognised. I need refer only to the decisions of the High Court of Australia in Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 per Dixon J (as he then was), and General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125, especially the judgment of Barwick CJ at pages 128 and 129. The power of dismissal should be exercised with caution, and only in the clearest of cases. It is not necessary that a plaintiff establish that he must necessarily succeed at a final hearing. It is necessary only that the plaintiff establish that his case is arguable and is not doomed to failure. 21 It should further be noted that to the extent that the present application for summary dismissal is grounded upon the assertion that the pleading discloses no reasonable cause of action, it is proper for the Court to proceed upon the basis that the Plaintiff at a final hearing will be able to establish the various factual matters asserted in the pleading. It is not appropriate, therefore, in the present application for the Court to give consideration to any question of the evidentiary strength or weakness of the Plaintiff's case. 22 Section 19 of the Act provided, at the relevant time, Transfer of poker machine entitlements

(1) A poker machine entitlement allocated in respect of a hotelier's licence or the premises of a registered club is transferable.

(2) The transfer of a poker machine entitlement does not have any effect unless the transfer: (a) is approved by the Board, and (b) complies with the requirements of this Division and any requirements specified in the regulations. (3) An application for the Board's approval of the transfer of a poker machine entitlement must: (a) be accompanied by the fee (if any) prescribed by the regulations, and (b) be accompanied by such particulars or other matter as may be required by the Board in relation to the proposed transfer, and (c) in the case of an application for the transfer of an entitlement allocated in respect of a hotelier's licence - demonstrate, to the satisfaction of the Board, that the proposed transfer is supported by each person who, in the opinion of the Board, has a financial interest in the hotelier's licence, and (d) be in the form and manner determined by the Board from time to time. (4) If a poker machine entitlement is transferred to another hotelier's licence or premises of a registered club in accordance with this Division, the transferred entitlement is, for the purposes of this Division, taken to have been allocated by the Board in respect of the other hotelier's licence or club premises.

(5) For the purposes of subsection (3) (c), a person is taken to have a financial interest in a hotelier's 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).

(6) However, a person is not, for the purposes of subsection (3) (c), to be considered as having a financial interest in a hotelier's licence by reason only of the person being the owner of the hotel.

23 The nature of the foregoing legislative scheme and its operation were the subject of careful and detailed consideration by Campbell J (as he then was) in Wonall Pty Limited v Clarence Property Corporation Limited [2003] NSWSC 497; (2003) 58 NSWLR 23. (Passages from His Honour's judgment, especially at 42-46, were quoted with approval by the Court of Appeal of New South Wales in Jabetin Pty Limited v Liquor Administration Board; Jabetin v Benwine Pty Limited [2005] NSWCA 92; (2005) 63 NSWLR 602.) 24 Within that legislative scheme a poker machine entitlement is a species of property capable of being owned, disposed of, and made the subject of trusts. Whilst poker machine entitlements are initially allocated "in respect of the hotelier's licence" (section 15(2)(a)), dealings with respect to poker machine entitlements can be made separately from the licence, but only within the legislative framework. Without a separate contract or dealing giving rise to a trust situation consonant with the Act, at the end of the lease any remaining entitlements will go with the licence (Jabetin at 620 - 625). As was recognised by Mason P, at 624, the Act does not contemplate an entitlement becoming detached from a licence even temporarily, except by passing under the Board's control (cf section 14(3) and section 58). An entitlement is transferable (subject to the partial forfeiture scheme in section 20), but only to the holder of another licence (see section 20(1)). 25 The essential complaint of the Plaintiff is that, had he been aware that the poker machine entitlements could be transferred by the licensee independently of the licence, the Plaintiff would have charged a far higher price for the sale of the hotel business and the transfer of his licence. 26 It is quite clear, from the detailed consideration to the legislative scheme given by the Court of Appeal in Jabetin, that once that licence was transferred by the Plaintiff to the Defendant (or his nominee) the Plaintiff lost all rights concerning the poker machine entitlements. 27 It seems to me that it is only if the Plaintiff is able to establish that the sale price set forth in the agreement for sale in 2003 was calculated under a common mistake of fact or of law that there can be any possibility of the Plaintiff successfully arguing a claim against the Defendant. 28 Whether or not, in the light of recent authorities concerning the law in relation to common mistake, it can properly be said that the law has now become, if anything, "even more 'arcane, uncertain in application, complex and controversial'" (Errichetti Nominees Pty Limited v Patterson Group Architects Pty Limited [2007] WASC 77 at [62]), it is essential that the Plaintiff establish, as an element in his entitlement to relief by way of restitution, that the Defendant received a benefit at the expense of the Plaintiff in circumstances that would entitle the Plaintiff to restitution. (The other elements essential to a cause of action grounded upon a common mistake, being that the contract was entered into under a common mistake, and that, as a result, the contract is void or voidable, are dependent upon, respectively, a factual determination, and a factual finding about the nature and quality of the mistake made. For the purposes of the instant case, it may be assumed that the Plaintiff, at a final hearing, can establish the foregoing factual matters.) 29 The problem confronting the Plaintiff is, however, that the legislative scheme regarding the transfer of poker machine entitlements independently of the liquor licence is a scheme which could not, in any possible way, entitle the Plaintiff, after transferring the licence, to have any claim to a benefit which the Defendant might thereafter receive, thereby entitling the Plaintiff to restitution. The benefit which has been obtained by the Defendant through the sale of the poker machine entitlements cannot be regarded as a benefit at the expense of the Plaintiff. It is a benefit to which the Defendant, as the transferee of the hotelier's licence, is entitled in consequence of the statutory scheme (and the Defendant's decision to exercise his rights thereunder by sale of his poker machine entitlements to other licensees). It is not a benefit for which the Defendant can in any way be beholden to the Plaintiff. 30 Further, the claim of the Plaintiff, grounded upon a cause of action in mistake for which he claims restitution, and supported by an asserted estoppel against the Defendant, is postulated upon the disposition by the Defendant of the poker machine entitlements. At the time when the parties entered into the original agreement in August 2003, there was no certainty that the Defendant purchaser either would have the right to dispose of the poker machine entitlements of which he ultimately disposed (since the final number of those entitlements was dependent upon the hardship gaming machines eventually becoming the source of the Defendant's right to acquire a number of additional poker machine entitlements); or that, in any event, the Defendant would dispose of any or all of the poker machine entitlements which he acquired, either upon the completion of the agreement in August 2003, or subsequently (in consequence of the expiration of three years since approval to his keeping the hardship gaming machines had been granted). If the Defendant had chosen (as was clearly his right to do) to retain his ownership of the poker machine entitlements and not in any way to dispose of that ownership, then the Plaintiff could have had no cause for complaint against the Defendant. 31 I do not see how, at the time at which he completed the agreement with the Defendant, a cause of action in the Plaintiff could have arisen grounded upon what was at that time no more than a hypothetical possibility, being that the Defendant, first, would have acquired the number of poker machine entitlements which by the period October 2006 - April 2007 he had in fact acquired, and, further, would throughout that period have disposed of various of those poker machine entitlements in the numbers and for the prices that he in fact did. 32 The flaw in the Plaintiff's argument can be recognised when that argument is seen to depend upon, first, the fact of the sale of the poker machine entitlements by the Defendant (for the future occurrence whereof there could in August 2003 have been no certainty), and, further, the time or times at which such sale might occur. Presumably, the price which the Defendant was able to obtain for the poker machine entitlements which he sold in 2006 -2007 was a commercial one, which depended upon market factors, which could not accurately have been predicted in 2003. 33 The rights of the Plaintiff upon which he presently relies in asserting a cause of action grounded upon common mistake, for which he now claims restitution, must be rights which existed at the time at which the parties entered into the agreement. They cannot be rights which came into existence some three to four years later only in consequence of sales by the Defendant of the poker machine entitlements (the totality whereof the Defendant had not even acquired at the time the agreement was completed). 34 An essential element in a claim for restitution is that there must be what is referred to in the case law as a representation and that the representee (the Plaintiff in the instant case) has "changed his position" (either by way of positive change or merely by refraining from some action which otherwise he would have been at liberty to take). But he must be able to show "detriment", which has some prejudicial effect upon his temporal interest. However, that "detriment" which the representee must be shown to have suffered is judged only at the moment when the representor proposes to resile from his representation. (See Jones v Watkins (26 November 1987, unreported, English Court of Appeal). The element of detriment is also essential to the Plaintiff being able successfully to invoke the principles relating to estoppel. (See Grundt v Great Boulder Proprietary Gold Mines Limited (1938) 59 CLR 641, especially per Dixon J (as he then was) at 674f; Keen v Holland [1984] 1 WLR 251 CA at 261; Handley, op. cit., 5, 86,122.) 35 The departure from the alleged assumptions which is asserted by the Plaintiff is the Defendant's act in claiming an entitlement to transfer the poker machine entitlements and in receiving the proceeds of sale of such transfer. Since at the time of each of the sales of the poker machine entitlements in 2006 - 2007 the Plaintiff was no longer the lessee of the hotel, and no longer held the hotelier's licence, it follows, that at those times, the Plaintiff himself had no right of transfer in relation to the poker machine entitlements (that statutory right reposing with and being exercisable solely by the Defendant through his nominated licensee); and that the Plaintiff himself had no equitable rights in relation to those entitlements. 36 In such circumstances, therefore, even if (as asserted by the Plaintiff) the Defendant were to be held to the assumptions asserted in the statement of claim, the Plaintiff's position would not have improved. The Plaintiff would have been no better off and no worse off by reason of the Defendant having sold the poker machine entitlements and having retained the proceeds. 37 Once the Plaintiff had disposed of his hotelier's licence, he could assert no interest whatever in the poker machine entitlements in respect to that licence. As has already been observed, the statutory scheme does not contemplate such entitlements becoming detached from a licence. The Plaintiff, having disposed of his licence, retained no interest in, and could make no claim in respect to, the entitlements associated with that licence. 38 I am satisfied that the circumstances of this case are such that it is not possible for the Plaintiff, whether or not the assumptions in the statement of claim can ultimately be proved, to establish his assertion that the Plaintiff, by reason of the existence of those assumptions and the conduct of the Defendant regarding the poker machine entitlements, has suffered detriment. 39 That conclusion, separately from the conclusion which I have already expressed concerning the hypothetical basis for the Plaintiff's claim to restitution (which assumes an event which might never have occurred), also satisfies me that the Plaintiff's case is unarguable and is doomed to failure. 40 For the foregoing reasons, therefore, I am satisfied that the Plaintiff cannot succeed in a claim for restitution, or in establishing an estoppel by convention against the Defendant, arising out of an asserted common mistake of the parties at the time at which the agreement was entered into. 41 It follows, therefore, that the Defendant is entitled to the relief sought in his notice of motion, for the summary dismissal of the Plaintiff's claim. (That conclusion makes it unnecessary of me to consider the alternative relief sought in the notice of motion, being for the striking out of the statement of claim.) 42 I make the following orders: 1. I order that the proceedings be dismissed.

2. I order that the Plaintiff pay the costs of the Defendant of the notice of motion filed by the Defendant on 20 June 2008, and of the proceedings. **********

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