JUSMELL PTY LIMITED v Gregory Alan BAGGOT & Ors

Contractual documents 27 I now propose to outline the salient material contained in the contractual documents. The relevant contractual documents are: · the lease of the premises naming Jusmell as lessor and Rosadew as lessee, executed on 7 November 2001; · a Deed of Consent to assignment of the lease, naming Jusmell as "landlord", Rosadew as "tenant", and Eagles Rock as "assignee"; · the contract for sale of the hotel business, naming Rosadew as vendor and Eagles Rock as purchaser, dated 13 October 2005, with a projected completion date 28 days hence, ie, 10 November 2005. 28 Relevant provisions in these documents are:

(i) The lease : 29 It is convenient to paraphrase the lease (which names Rosadew as lessee) to give it its correct effect after the assignment whereby Eagles Rock became the lessee. Although the lease was executed on 7 November 2001, its operation was deferred. The term of the lease specified commenced on 3 December 2005 and terminated on 2 December 2015. In clause 2 it contained provision for rental, with a formula for increase in the figure there specified. By clause 6(j) the lease required Eagles Rock to use its best endeavours to obtain and maintain the necessary licences under the Liquor Act to permit the continued operation of the hotel. In clause 6(q) the lease required Eagles Rock, at the determination of the lease, to do all acts necessary to transfer and assign to Jusmell or its nominee the then current licence. Clause 6(t) precluded Eagles Rock from otherwise transferring the licence without the written consent of Jusmell. Clause 9 contained further provisions for the "effectual preservation" of the licence. 30 It is of some interest that the lease contains no mention of poker machine entitlements. This is easily explained. In 2001, when the lease was drawn and executed, "poker machine entitlements" were a concept whose time had not yet come.

(ii) The Deed of Consent for the assignment of the lease : 31 The copy of the Deed of Consent for the assignment of the lease that is in evidence is undated. However, it was agreed that it was executed in late 2005, and before 15 December of that year. In essence, it evidenced a consent by Jusmell to the assignment of the lease by Rosadew to Eagles Rock. Only one of its provisions need here be noted. Clause 12.3 provides: "The Assignee [Eagles Rock] also acknowledges that the Landlord [Jusmell] disputes that the Assignor [Rosadew] has ownership of the poker machine entitlements attached to the licence and reserves the Landlord's rights in relation to such entitlements. This Deed is not to be taken as consent to any assignment by the Assignor to the Assignee of such entitlements. The Landlord intends to endeavour to negotiate with the Assignee as to such entitlements."

(iii) The contract for sale of the business : 32 The contract expressly provided in the Special Conditions that the purchase price (of $1,750,000) included: " … all plant fittings, chattels and fixtures used by the Vendor in connection with the Hotel Business, including the Hotelier's Licence …" 33 An annexed inventory included 13 poker machines and 13 poker machine chairs, presumably as part of the "chattels" or "fittings". 34 An Apportionment Schedule broke up the purchase price into an amount attributed to goodwill, and an amount ($140,000) attributable to "plant and equipment", and the balance to an estimate of rent payable. 35 It may be assumed that the assignment of the lease and completion of the contract for sale were more or less simultaneous and took effect late in 2005. 36 The following factual propositions are uncontroversial: · Jusmell was the owner of the building that comprised the hotel (the Fernhill Tavern); · until 2 April 2002, the licence-holder was able, within the constraints of the then-existing statutory provisions, to maintain and operate 13 poker machines; · on 2 April 2002, pursuant to s 15 of the Act, the licence-holder was allocated 13 poker machine entitlements. These poker machine entitlements were attached to the licence and were tradeable but could not be traded other than in accordance with s 19 of the Act; · from 3 December 2005 Rosadew was the lessee and it (through its nominee) was the licence-holder, and therefore entitled to the benefit of the poker machine entitlements; · from about December 2005, Eagles Rock, by assignment, was the lessee and (through its nominee) was the licence-holder, and therefore entitled to the benefit of the poker machine entitlements; Rosadew's obligations under the lease, specifically those concerning maintenance and transfer of the licence, were transmitted to and assumed by Eagles Rock; · Eagles Rock's application to transfer the poker machine entitlements could not be approved unless the Board was satisfied that the proposed transfer was supported by each person who, in the opinion of the Board, had a financial interest in the hotel licence; · by reason of s 19(6), the circumstance, alone, that Jusmell was the owner of the building that comprised the hotel did not entitle it to be considered as having a financial interest in the hotel licence; · by s 19(5)(b), and because the hotel was subject to a lease, Jusmell was entitled to be considered to have a financial interest in the licence, (and therefore the Board could not approve the transfer of the poker machine entitlements unless satisfied that the proposed transfer was supported by Jusmell, which it patently was not), unless (by s19(7)) the poker machine entitlements had been purchased by a person other than itself - in this case, by Eagles Rock. 37 It is of interest to note here the following. In 2008 the Act was amended, with effect from 14 April 2008. Prior to the amendment, s 19(5) was in the terms now represented by s 19(5)(a): that is, the provision now contained in s 19(5)(b), (that a person is taken to have a financial interest in a licence if, where the hotel to which the licence relates is subject to a lease, the person is the lessor and has a beneficial interest in the business and the hotel, including in the goodwill of the business at the end of the lease) did not exist. Nor did the qualification that subs (6) is to be construed as subject to subs (5)(b). And nor did the further qualification in subs (7) - that subs (5)(b) does not apply in relation to the transfer of a poker machine entitlement that was purchased by a person other than the lessor or a person acting on behalf of the lessor. Those amendments were made by the Gaming Machines Amendment (Temporary Freeze) Act 2008. 38 Both parties put detailed written submissions before the Board. Jusmell was not able to argue that it had a financial interest in the licence under s 19(5)(a) by reason of an entitlement to receive income from the business, or any other financial benefit or financial advantage from the carrying on of the hotel business arising out of its reversionary rights under the lease: that was conclusively decided against it by the decision of the Court of Appeal in Jabetin, against which special leave to appeal was refused by the High Court on 2 September 2005. 39 Jusmell accordingly argued before the Board (in terms of subs (5)(b)), that as lessor it had a beneficial interest in the business of the hotel, including the goodwill of the business at the end of the lease, and that it was not caught by the exclusion of subs (5)(b) contained in subs (7) where the poker machine entitlements were purchased by a person other than the lessor (ie Jusmell) or a person acting on its behalf. 40 In respect of the latter proposition, (that subs (7) did not exclude the operation of subs (5)(b)), it pointed out that the contract for the sale of the business to Eagles Rock made no reference, express or implied, to the poker machine entitlements. It argued (as was argued in the present proceedings) that subs (7) was enacted to protect the position of a lessee, who, during the currency of a lease, acquired additional poker machine entitlements, and who might otherwise be prevented, by the exercise by the lessor of its right to withhold its support for a proposed transfer, from selling them prior to the expiration of the lease. Such a scenario would work an injustice to the lessee, and unjustly enrich the lessor at the expense of the lessee. 41 The Board rejected the second limb of Jusmell's argument. It accepted that Jusmell was a lessor and had a financial interest within the meaning of s 19(5)(b). It then turned to consider whether the application of subs (5)(b) was excluded by subs (7), and held that it was. This was, on the finding made by the Board, because Eagles Rock had purchased the poker machine entitlements the subject of the transfer application. Accordingly, the poker machine entitlements were purchased by a person other than the lessor (Jusmell) or a person acting on Jusmell's behalf. 42 The Board contrasted the statutory use of the expressions "purchase" and "transfer", and took the view that, because of the use of the two different words, Parliament must have intended "purchase" to mean something different from "transfer". It appears, although it is not explicit, that the Board reached its conclusion on an analysis of the contractual documents, specifically the contract for sale of the business. It is the reasoning of the Board towards that conclusion that provides the foundation for the present challenge. Jusmell contended that the Board was in error in its approach to the construction of "purchase" as it appears in subs (7). 43 In fact, the summons particularises three essential errors on the part of the Board:- (i) that the Board misconstrued subs (7), in particular as to the meaning of "purchased";

(ii) that the Board took into account irrelevant considerations; (iii) unreasonableness in the sense explained in Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223; [1947] 2 All ER 680. 44 No definition of the word "purchase" appears in the Act. Applying ordinary principles of construction, "purchase" means "to acquire for value". So much was not in issue. However, on behalf of Jusmell, the argument went further. It was submitted that the word also connotes - and can only connote - the purchase of an outright interest in property, to the exclusion of any limited interest. (Implicit in this was that the ownership of poker machine entitlements held pursuant to a lease are limited interests, expiring at the expiration of the lease.) I do not accept that "purchase" is so confined. The word is used frequently to encompass the acquisition, for value, of limited rights - the residue of a tenancy, the remainder of a sportsperson's contract, to give just two examples. What is saleable (and purchasable) is what a vendor owns and has a right to sell. If what a vendor owns is limited in tenure, then that is all that the vendor can sell - but sell that the vendor can. I reject the submission that only property owned outright can be the subject of sale and purchase. 45 The notion advanced is, in any case, quite inconsistent with the decision in Boreland, upon which heavy reliance was placed on behalf of Jusmell. 46 Boreland was a case concerned with the construction of contractual documents. At [127] Beazley JA said: "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 the lease. Thus, it may be that in a particular case the terms of the lease for a hotel may restrict a lessee/licensee's right to transfer the entitlements. But if the lease does not deal with the matter, then the lessee/licensee may dispose of the entitlement in conformity with the Gaming Machines Act ." (italics added) 47 Beazley JA then dealt specifically with the terms of the contract there under consideration. In the circumstances of that case, she held that what the lessee was obliged to transfer back to the lessor at the end of the lease was what had been originally transferred - in that case, a licence with 17 poker machine entitlements attached. But she held that the relevant clause did not impose any restriction upon dealing with the entitlements during the currency of the lease. At [131] her Honour said: " … Accordingly, subject to the operation of the Gaming Machines Act , the appellant would be entitled to utilise his property rights in those entitlements whilst the lease was on foot." 48 Beazley JA plainly envisaged that, subject to contractual terms, the lessee could, during the term of the lease, sell the rights that it held; the lessee's obligation was, at the end of the lease, to transfer the licence in the condition in which it existed at the commencement of the lease, with the rights then appurtenant to it. But (it is implicit in her Honour's judgment) the lessee was not obliged to retain the licence in that condition during the currency of the lease. 49 Of course, depending upon the contractual terms, a lessee who disposes of rights it is obliged to return to the lessor at the end of the lease may put itself at risk of being in breach of the terms of the contract. But that is not a question of the lessee's capacity to dispose of those rights; it is a question for its commercial judgment. 50 The central question for the Board involved the construction, not only of subs (7), but also of the contract for sale of the business. It held that, on its proper construction, that contract included the sale to Eagles Rock of the poker machine entitlements. Whether its sale of those poker machine entitlements, or its potential inability to transfer them to Jusmell at the end of the lease (if that potential inability is realised) put Eagles Rock in breach of its contract with Jusmell is another question entirely. 51 It is true that the contract for sale of business made no reference to poker machine entitlements. But it did make specific reference to the licence, and the poker machine entitlements were an integral part of that licence unless and until approval for their transfer to another licence was sought and granted. 52 I have previously mentioned (in passing) a Valuation Report, prepared for mortgage security purposes, which was part of the material presented to the Board. In that report it was explicitly stated that the valuation assumed that the lessee owned the poker machine entitlements. 53 This is some basis for the view that the contract for sale ought to be construed (as between Rosadew and Eagles Rock) as including the poker machine entitlements. It is therefore a basis on which the Board could properly conclude that Eagles Rock had purchased the poker machine entitlements from Rosadew. 54 No error has been shown in the Board's reasoning in this respect. The first ground is rejected. 55 The second ground advanced on behalf of Jusmell asserted that the Board erred by taking into account an irrelevant consideration, that being the subjective intention of Eagles Rock. The ground arises because, included in the material placed before the Board, were two statutory declarations, one made by Mr Shipway, and one by Mr Gary Gant, a Director of Eagles Rock. Each asserted, in effect, that the purchase price of the business included, and was intended to include, the poker machine entitlements. 56 Whether or not it was open to the Board to take the subjective intention of the parties to the contract into account need not be decided. Examination of the Board's decision discloses no reference to that material and there is no reason to suppose that the Board placed any reliance upon it at all. This is not material, such as may be the case in more formal litigation, where a tribunal determines that evidentiary material is admissible; this was material presented to the Board which it had no opportunity to reject. But that does not mean that it played any part in the decision of the Board and I see no reason to suppose that it did. I reject the second ground. 57 The final ground asserted that the decision was "so manifestly unreasonable that no reasonable decision-making body would have made such a decision". When senior counsel presented argument to support this ground, he relied only upon the circumstances supporting the first ground. He accepted, therefore, that this ground is redundant. I reject it. 58 I therefore dismiss the summons. I order the plaintiff to pay the defendant's costs of the proceedings.

ANNEXURE "A" Gaming Machines Act 2001 "19 Transfer of poker machine entitlements

(1) A poker machine entitlement allocated in respect of a hotel 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 Authority, and (b) complies with the requirements of this Division and any requirements specified in the regulations. (3) An application for the Authority'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 Authority 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 hotel licence - demonstrate, to the satisfaction of the Authority, that the proposed transfer is supported by each person who, in the opinion of the Authority, has a financial interest in the hotel licence, and

(d) be in the form and manner determined by the Authority from time to time. (4) If a poker machine entitlement is transferred to another hotel 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 Authority in respect of the other hotel licence or club premises.

(5) For the purposes of subsection (3) (c), a person is taken to have a financial interest in a licence if: (a) 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), or

(b) in the case where the hotel to which the licence relates is subject to a lease - the person is the lessor and has a beneficial interest in the business of the hotel (including the goodwill of the business at the end of the lease). (6) Subject to subsection (5) (b), a person is not, for the purposes of subsection (3) (c), to be considered as having a financial interest in a hotel licence by reason only of the person being the owner of the building comprising the hotel.

(7) Subsection (5) (b) does not, in the case where the hotel to which the licence relates is subject to a lease, apply in relation to the transfer of a poker machine entitlement that was purchased by a person other than the lessor or a person acting on behalf of the lessor."

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