Oblift Pty Ltd v Liquor Administration Board [2006] NSWSC 1279 | Case summary

5856/06 OBLIFT PTY LIMITED v LIQUOR ADMINISTRATION BOARD & 3 ORS JUDGMENT - Ex Tempore 1 HIS HONOUR: This is an application for an interlocutory injunction to restrain the transfer of some poker machine entitlements. The poker machine entitlements are ones that relate to the placement of 14 poker machines at the Shaws Bay Hotel in Ballina East. The 14 poker machines have been there since some time prior to December 1999. 2 In December 1999, the owner of the freehold, who is the plaintiff in this case, entered into an agreement with EGP Holdings Pty Limited ("EGP"), under which it sold to EGP the goodwill, certain plant and equipment, and as well both parties entered into an obligation to enter a lease of the hotel on particular terms. 3 The 14 poker machines that were on the premises were located in a separate poker machine room. They were all leased. The agreement between the plaintiff and EGP provided for EGP to take over both the burden and the benefit of the leases relating to the poker machines. 4 The real property lease that was entered into is a very poor piece of conveyancing. It includes the following provisions: "2. THE trade or profession which the Lessee is authorised to carry on in the demised premises is that of Hotelier. … 7.(b) At the expiration of this lease or any sooner determination thereof or upon the lessee vacating the premises the lessee agrees to make available the trading statement and profit and loss account for the hotel to the lessor for a minimum of the last three years trading. … 13. THE lessee does hereby covenant with the lessor: … (e) To keep the demised premises open and to produce that the same are kept open for the sale of articles referred to in Clause 2 above at all times during such hours as shall be allowed by law. (f) To manage and conduct the said business and to procure that the same is managed and conducted, at all times, in a proper and orderly manner." 5 The lease was one under which a rental of a fixed monetary amount was payable, not a rental that varied with profits or takings. 6 The lease was one which lasted for five years, expiring on 20 January 2005. 7 On 6 February 2003, EGP assigned the lease to a company called Winnetka Pty Limited. That is the former name of the second defendant. 8 The lease was varied on 11 January 2005, by extending the term so that the term expired on 20 January 2007. There was also a change in the rental provision. As it happens, that variation of lease was another example of poor conveyancing, in that by the time it was executed Winnetka Pty Limited had changed its name to Simgib Pty Limited. Another company had then adopted the name Winnetka Pty Limited. The ACN of the company that was referred to in the 11 January 2005 variation was that appropriate to the second Winnetka, not to the second defendant. However, the case has proceeded before me on the basis that it was intended that it be the second defendant who was a party to the variation. 9 The circumstance that brings the parties to Court is that the solicitor for the lessee wrote, on 17 May 2006, saying "our client proposes to transfer the 14 poker machine entitlements attached to the Hoteliers Licence ("the Entitlements") before the expiration of lease". 10 Further, an agreement has been entered into for the transfer of three of those poker machine entitlements. As the lease will not terminate until 20 January 2007 there is still time in which the defendant might enter other arrangements for the transfer of poker machine entitlements, to carry out its stated intention. 11 The case that is presented before me does not raise any complications arising from the nature of poker machine entitlements. Rather, it is an application for an injunction to restrain what are alleged to be breaches of covenants in the lease. 12 I have earlier set out clauses 13(e) and (f). Notwithstanding the wording of clause 13(e), there are no articles of any kind referred to in clause 2 of the lease. There is a provision in clause 13(b) of the lease, that says: "13(b) To procure the appointed licensee of the premises to make application for and use to his best endeavours to obtain all such licences at his own expense as are or may be necessary for keeping open the said premises as duly licensed for the sale and consumption thereof of spiritous and fermented liquors by retail." 13 It might be that the draftsman miswrote, so that the reference to clause 2 was intended to be a reference to clause 13(b). 14 While clause 13(f) refers to managing and conducting "the said business" nothing in the lease previous to that clause refers to a business at all. I have said that the lease was entered into pursuant to the terms of the agreement for sale of goodwill, plant and equipment to EGP. If there had been a reference to any business in that agreement for sale, that might have been a useful aid to construction of the expression "the said business" in clause 13(f), but as it eventuates there is no reference to a business in the agreement for sale either. 15 There is some extrinsic evidence relating to the circumstances in which the lease was entered. Before it was entered, a Mr Freeman, who is apparently a director of EGP, went to the hotel and asked to inspect the hotel's books, to determine what the revenues were from the poker machines. Those books were made available to him for inspection. He told Miss Childs, who was then an employee of the hotel, that he wanted to see the poker machine figures for the winter months, as well as the bar trading figures. 16 The accounts of the plaintiff relating to the operation of the hotel in each of the years ended 30 June 1999, and 30 June 2000 are in evidence. Those accounts would in the ordinary course of things be based upon figures including those made available for Mr Freeman to inspect. The accounts show that, out of a total revenue generated by the hotel of $727,000 in the year ended 30 June 2000, $328,532 came from machines takings minus pay outs. Of the order of $100,000 would in addition be payable for licence fees conducted with those machines. There has been no attempt made to carry out a proper cost accounting exercise allocating the various other expenses between the liquor sale component of the activities and the gaming component of the activities, but there is a basis on which it could be submitted, at an ultimate hearing, that the machine takings and profits were a significant component of the overall business that was conducted in the hotel. 17 Mr Smith SC for the plaintiff, accepts that to succeed in the application, it is necessary to distinguish the lease in the present case from the lease that was under consideration in Wonall Pty Limited v Clarence Property Corporation Ltd (2003) 58 NSWLR 23. He seeks to do that principally in two ways. One of them concerns the construction of clause 13(f). He submits that clause 13(f), on its proper construction, requires the "said business" to actually be conducted, and to continue to be conducted throughout the term of the lease. As well, he submits, the presence of 14 poker machines was an integral element of the business that was conducted, and was known to both parties to the lease to be an integral element of the business that was conducted. He submits that, whilst there has been some extrinsic evidence tendered at the present hearing, there is a realistic possibility that other extrinsic evidence might be available to support the construction for which he contends. 18 Mr O'Dowd, for the second to fourth defendants, submits that there is really no ambiguity about clause 13(f) - that all it does is to stipulate a manner in which the business is conducted (namely, in a proper and orderly manner) and that it does not require the business to be actually carried on at all. 19 His written submissions point me to a passage that states: "It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, "even though the construction adopted is not the most obvious, or the most grammatically accurate" …" 20 Those written submission identified that passage as being from the judgment of the High Court in Fitzgerald v Masters (1956) 95 CLR 420 at 426-427. Editing and checking of these reasons for judgment, after the judgment was delivered orally, has shown that it is nothing of the kind. Rather, it is a quotation from the dissenting judgment of Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99, at 109. Even so, it still states what I accept to be correct principle. 21 There is authority, in the judgment of Spigelman CJ in the Court of Appeal in South Sydney Council v Royal Botanic Gardens (1999) 10 BPR 18,961 at [35], that whether a piece of language is ambiguous is not just a question of whether it has more than one meaning, considered as a piece of language - that is as well, it can be ambiguous, so that extrinsic circumstances can be looked to, whenever the parties' intentions are doubtful. While that passage was not expressly adverted to when the decision was taken to the High Court (Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289; (2002) 76 ALJR 436), neither was it disapproved, nor does the drift of the reasoning in the High Court judgment in Royal Botanic Gardens appear, at least on first glance, to be inconsistent with it. Under those circumstances, it must be, to put it at only the low level needed for an interlocutory application like the present, a seriously arguable view of the law. 22 In my view, there is a serious question to be tried about whether, on the proper construction of clause 13(f), in the various circumstances that were known to the contracting parties, an obligation arose to manage and conduct the business in a way that required the continued presence of 14 poker machines on the premises. 23 Another argument put by Mr Smith related to clause 13(e). He submitted that the "articles" there referred to included any sort of thing, including the opportunity to engage in gaming activities. Given the view that I have already come to concerning there being a serious question to be tried concerning 13(f), it is not necessary for me to make a decision about whether there is also a serious question to be tried concerning construction of clause 13(e). 24 There is evidence obtained from a hotel broker, to the effect that poker machine entitlements are very scarce at the moment. As well, there is evidence that those hoteliers who are interested in selling poker machine entitlements prefer to sell them into the Sydney market, because a higher price is obtainable for them if they are sold into the Sydney market than if they are sold to a country hotel. He expresses the view that it is unlikely that enough poker machine entitlements could be located prior to January 2007 to enable there to be continuity of the presence of 14 poker machines in the hotel. Because of the forfeiture provisions relating to poker machine entitlements, on transfer, it would be necessary for more than 14 to be purchased. It appears, at least on the present evidence, that it would be necessary to purchase 21 of them, as one entitlement is forfeited for every two that are actually transferred. 25 If there were to be a gap in the availability of poker machines at the hotel, it would be likely, in my view, to affect the commercial attractiveness of the hotel, either to an incoming lessee, or to a potential purchaser of the freehold complete with an operating business on it, or in the hands of the plaintiff, if the plaintiff neither leased nor sold the hotel once the lease had come to an end. There would be significant difficulties in the ascertainment of damages that were suffered, if the defendant were to have an obligation to keep 14 poker machines operating at the hotel, but the number of poker machines at the hotel were to be less than 14. 26 By comparison, if the lessee were to be deprived of the opportunity to transfer the poker machine entitlements, its loss would be far more readily quantifiable, by reference to the market price that it could have got for those poker machine entitlements. 27 When the injunction the plaintiff seeks is to prevent an alleged breach of contract, and so is in equity's auxiliary jurisdiction, the question of whether damages are an adequate remedy goes both to whether there is a serious question to be tried, and also to the balance of convenience: Inetstore Corp Pty Ltd (in liq) v Southern Matrix International (2005) 221 ALR 179 at 184, [30]-[31]; Varley v Varley [2006] NSWSC 1025 at [23]-[25]. In my view, the balance of convenience favours the granting of an interlocutory injunction. 28 I will reserve the costs of the interlocutory hearing. I note that the defendant made no submission based on laches. **********

Oblift Pty Ltd v Liquor Administration Board

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