Judgment
1The "Ettamogah Pub" - an idiosyncratic wooden structure, featuring a utility perched atop a red tin roof - was the centrepiece of the cartoon series "The Ettamogah Pub Mob" created in the 1960s by the late Kenneth Charles Maynard, an Australian author and artist who died on 2 September 1998, and published in the weekly picture magazine the "Australasian Post" and in other magazines and newspapers, including the Sydney Morning Herald, from the 1960s until around 2000. Mr Maynard was the owner of the copyright and intellectual property in the cartoons and the characters depicted in them, and Ken Maynard Studios Pty Ltd, of which Mr Maynard was a director, was the owner of trademarks and related intellectual and industrial property pertaining to the characters and depictions in the Ettamogah Pub Mob cartoons. By an Agreement made on 18 November 1993 ("the Agreement"), Mr Maynard and his company Ken Maynard Studios Pty Limited, in consideration of the payment of certain royalties, granted the defendant Timevale Pty Limited, which is the proprietor of a tourist facility now known as "Aussie World" on the Queensland Sunshine Coast ("the Facility"), a license to use, in the Facility and in any further facility developed and managed by Timevale, registered trademarks and any copyright and design rights acquired by the licensor in respect of cartoon depictions of the Ettamogah Pub and all "characters, buildings and parts" contained in cartoons published in the Australasian Post magazine and other publications, for a term of 25 years unless earlier terminated for breach, with an option to renew for a further 25 years. Pursuant to an Assignment and Master Royalty Agreement dated 2 June 1994, the plaintiff Southern Equity Pty Limited is the assignee from Mr Maynard and his company of their respective rights, titles and interests in and to the intellectual property and trademarks associated with the Ettamogah Pub Mob cartoons, and of the benefit of the Agreement. In these proceedings, which were originally commenced on 30 March 2006 in the Federal Court of Australia and subsequently transferred, pursuant to the (CTH) Jurisdiction of Courts (Cross-vesting) Act 1987, s 5(4), to this Court, Southern Equity claims, in substance, that Timevale has underpaid the royalties payable under the Agreement. Timevale denies this, and alternatively contends that any breach prior to June 2005 has been waived.
2The main issues for resolution are:
(1)Whether Timevale is obliged to pay royalties in respect of a number of disputed categories of income generated from the Facility;
(2)Whether Timevale has complied with its obligations to provide Southern Equity with detailed monthly statements as to the calculation of royalty payments and to keep proper books of account and records of activities undertaken by it at the Facility;
(3)If Timevale has breached the Agreement, whether Southern Equity has waived its right to royalty payments up to 2005, when an audit was carried out pursuant to the terms of the Agreement; and
(4)If Timevale has breached the Agreement, what is the appropriate remedy, and in particular should an account be ordered.
The Agreement:
3Pursuant to clause 27, the Agreement is governed by the laws of New South Wales. Clause 4.1 of the Agreement provides as follows:
The Licensor hereby grants to the Licensee for the term of this Agreement an exclusive licence to use the Property in connection with the Palmview Facility, any Further Facility and the goods and services made available at the Palmview Facility or any Further Facility.
4"Property" is defined by clause 1.1 to mean all right, title and interest of the licensor in registered trade marks, common law trade marks, service marks, copyright and design rights relating to the cartoon depiction of the Ettamogah Pub, the words "Ettamogah Pub" and all characters, buildings and parts of that cartoon depiction; for convenience in this judgment I refer to it as Ettamogah Pub Intellectual Property, or EPIP. "Further Facility" is defined as a reference to any other Ettamogah Pub built by Timevale within a 500 kilometre radius of the Facility; Timevale has not built any such other Ettamogah Pub, and accordingly references to any "Further Facility" are not relevant to these proceedings.
5Clause 8.3 provides as follows:
8.3 The Licensee may use the business name in connection with the operation of the hotel premises and any other part of the Palmview Facility and hotel part of any Further Facility.
6"Business name" in this clause is a reference to "Ettamogah Pub".
7Thus the Agreement grants Timevale a license to use, in the Facility and any further facility developed and managed by Timevale, the business name "Ettamogah Pub", registered trademarks, and any copyright and design rights acquired by the licensor in regards to cartoon depictions of the Ettamogah Pub and all "characters, buildings and parts" contained in cartoons published in the Australasian Post magazine and other publications. In return, Timevale is obliged to pay royalties on moneys received by it from certain income producing activities at the Facility. Timevale's obligation to pay royalties is governed by clause 9.1, which provides as follows:
9.1 In consideration of the licences granted by the Licensor to the Licensee and the other obligations of the Licensor under this Agreement the Licensee shall pay a royalty to the Licensor, being:
(a) 2% of:
(i) all money received from the sale of food and drink from hotel premises and any hotel the design of which is based on EP forming part of a Further Facility;
(ii) the net takings from all approved amusement devices, "Pub Tab", cigarette vending machines and similar equipment or services installed or provided in the hotel premises and any hotel the design of which is based on EP forming part of a Further Facility; and
(iii) all money received from any other income producing activity conducted at the hotel premises and any hotel the design of which is based on EP forming part of a Further Facility; and
(iv) all money received from the wholesale and retail sale within the exclusive area of souvenirs incorporating EP; and
received by the Licensee or by any associate of the Licensee; and
(b) 1% of all money received from the retail sale of souvenirs and other items from:
(i) the Palmview Facility (but excluding sale from the entertainment and food barn where used only for entertainment or functions); and
(ii) any Further Facility
received by the Licensee or by any associate of the Licensee and not otherwise covered by subclause 9.1(a).
(c) Should the barn at any time be utilised for any purpose other than where the primary focus includes entertainment, then all receipts from the area received during such time will be subject to the royalty payable to the licensor at the rate of 1% thereof.
8An "associate of the Licensee" means an "associate" within the meaning of the (NSW) Corporations Act, 1990, s 9; there is no evidence of any relevant associate. The exclusive area is a 500 kilometre radius from the Facility.
9During the relevant period, the Facility has included, as well as the hotel premises ('the Pub') - a two story building which has a cafe known as "Bluey's Bar and Grill" ("Bluey's") on the top floor and a bar on the lower level - an Entertainment and Food Barn ("the Barn") to the rear of the Pub, a souvenir shop, a cafe known as "FJ's cafe'', a general store, a bottle shop, a number of other retail shops, a service station, and a number of amusement rides and diversions. Some of the shops are owned and operated by tenants of Timevale, and in the past some of the amusements were operated by tenants, although all but one is now operated by Timevale.
10When the Agreement was made in 1993, Timevale conducted it under the style "Ettamogah Pub and Aussie Village". So far as can be ascertained from the evidence - including the site map attached to the Agreement - at the time of the Agreement in 1993 the Facility comprised the Pub, the Barn, a souvenir shop, a cafe, a bottle shop and a general store, a service station, some amusement rides and similar diversions such as glass blowing and a museum, and Bronco Oval. According to Timevale's general manager, Mr Paini, whose evidence in this respect was unchallenged, income was generated through sale of food and drink from the Pub; sale of souvenirs and products incorporating EPIP; sale of food, drink, souvenirs (both incorporating and not incorporating EPIP) and other items from the cafe, general store and other outlets; rent from tenants; commissions from the operators of amusement and vending machines; sale of tickets for amusement rides and diversions; and functions and entertainment, for which the Barn, then a separate large building located to the rear of the Pub, was the main venue. The Barn was used mainly for functions such as weddings and group meetings, or entertainment such as live music and bucking bull competitions. It had its own bar - which may have been portable - which was not open every day and was used only for special occasions, such as functions and entertainment. When not in use for functions etc, patrons could buy drinks or food from the Pub and walk out to the Barn to eat or drink.
11Since then, the Facility has apparently expanded, in the sense that additional attractions in the form of retail outlets and amusements have been incorporated in it; renovations have linked the Pub and the Barn; and it is now and has for some years been conducted under the name "Aussie World".
12At the heart of the present proceedings are longstanding disputes between the parties as to Timevale's royalty obligations in respect of various categories of income derived by it from various sources in the Facility. In dispute in particular is:
(1)Whether, by reason of renovations made to the Pub and the Barn in 1997, the Barn has been incorporated into the "hotel premises" for the purposes of clause 9.1(a);
(2)The content of "other items" in clause 9.1(b), and in particular whether it includes (prior to 9 December 2006) tickets purchased by patrons for the purpose of amusement rides and diversions, and (after 9 December 2006) facility admission fees charged to patrons that allow them to use rides, and rent received from tenants at the Facility;
(3)The scope of the exemption from clause 9.1(b)(i) in respect of the Barn; and whether and in what circumstances Timevale is obliged to pay royalties in respect of commissions received from amusement and vending machines located in the Barn, and in respect of receipts from outlets other than the Barn in respect of functions and group bookings; and
(4)Whether food prepared in Bluey's restaurant and FJ's Cafe for supply to entertainment and functions in the Barn attracts royalty under clause 9.1(a)(i) and 9.1(b) respectively.
13At the outset, it should be said that, as I perceive the case - with the exception of the non-payment of royalty in respect of certain sales from the Barn, and function-related from other outlets - neither party has adopted an unreasonable position in this respect; each has (understandably) interpreted the Agreement in a manner favourable to itself, but not unreasonably so; and the situation has been exacerbated by a lack of clarity in relevant provisions of the Agreement, and in the emergence with the passage of time of circumstances that did not obtain and were not necessarily contemplated when the Agreement was made. Similarly, subject to that one exception, I have found construing the disputed provisions of the Agreement a difficult exercise, with the competing constructions each usually supported by different indicia .
14Ultimately, little turns on the credit of the only witnesses. Mr O'Brien, Southern Equity's sole director, seemed a reasonably careful and accurate witness, although he was slightly inclined to be an advocate for his cause, and very confident of the righteousness of his position. His cross-examination revealed that he had received, for approval, some of the souvenirs, receipt of which his affidavit had denied. He acknowledged that he was frequently asked for approval, and admitted that he did not return royalty in respect of any that he did not approve. In those circumstances, a complaint about sale of non-approved souvenirs was not impressive, given the admitted retention of royalty in respect of them without objection. Mr Paini, Timevale's Managing Director, seemed a very reasonable and accurate witness when aware of the facts. He freely made concessions - including, in my judgment, at least one which was not called for - and did not seek to advocate or overstate the position. But his knowledge of the detail of operations and in particular of the accounts, was limited.
15Broadly speaking, clause 9.1 creates a two-tiered royalty regime, with moneys received from the hotel premises, and from sale of souvenirs incorporating EPIP, attracting the higher (2%) royalty under clause 9.1(a); while retail sales elsewhere in the Facility of souvenirs which do not incorporate EPIP and of other items attract the lower (1%) royalty under clause 9.1(b) - subject to an exception for certain sales from the Barn, which when not exempt are subject to the lower (1%) royalty under clause 9.1(c).
16Clause 9.1(a) imposes the higher tier of royalty on moneys received from sales from the hotel premises, and sales of souvenirs that incorporate EPIP. The revenue streams caught by clause 9.1(a) are generated by the direct exploitation of EPIP: the hotel itself, in the case of sub-clauses (i), (ii) and (iii); and souvenirs that incorporate EPIP in the case of sub-clause (iv). Sub-clauses 9.1(a)(i)-(iii) catch moneys received from use of the Pub: sales of food and drink from the hotel premises; takings from amusement devices, vending machines and similar equipment or services installed in the hotel premises; and moneys received from any other income producing activity conducted at the hotel premises. Sub-clause 9.1(a)(iv) catches moneys received from the wholesale or retail sale, anywhere within the exclusive 500 kilometre radius, of souvenirs that incorporate EPIP.
17Clause 9.1(b) imposes the lower tier of royalty on moneys received from certain sales from elsewhere in the Facility (that is, other than from the hotel premises, which are caught by 9.1(a)(iii)). The revenue streams caught by clause 9.1(b) and (c) are not generated by a direct exploitation of EPIP. The rationale is presumably that though not involving a direct use of EPIP, their close association with the Ettamogah Pub in a facility that features the Pub means that the EPIP contributes to these revenue streams through the attraction of custom to the Facility generally. Sub-clause 9.1(b)(i) catches moneys received from the retail sale of souvenirs that do not incorporate EPIP (those that do are caught by 9.1(a)(iv)) and other items, subject to an exemption for sales from the Barn in certain circumstances. Clause 9.1(c) clarifies that the lower tier of royalty applies to sales from the Barn when they are not exempt.
Clause 9.1(a) - the "hotel premises" and the 1997 renovations:
18The first issue is whether, as a result of renovations made to the Pub and the Barn in 1997, the Barn has been incorporated into the Pub so that it forms part of the "hotel premises", with the consequence that moneys received from sales and other income generating activities in the Barn attract the higher tier of royalty as if they were conducted in the Pub.
19Before 1997, the lower level of the Pub contained a bar, located on the right hand side of the Pub from the Bruce Highway entrance. The bar was roughly semi-circular in shape, and extended almost from the front wall to the rear wall of the lower floor. At the rear of the Pub was a veranda. Separating the Barn from the rear of the Pub was an area described as "open space". The Pub and Barn were thus unmistakably two distinct buildings, although patrons were able to move between the Pub and the Barn, apparently by walking across the open space to one of the many entrances to the Barn. Mr O'Brien, who visited the Facility once before, as well as after, the renovations, recalled that a portable bar was situated in the Barn and had kegs placed under it.
20In 1997, Timevale caused the area between the Pub and Barn to be roofed over, thus connecting the two separate buildings. Mr Paini explained that this was effected by removing the rear wall of the Pub, demolishing the veranda, extending the Pub into the area that was previously open space, and relocating the bar from the right hand side of the lower floor of the Pub to the area that was formerly open space. In addition, a bar was also constructed in the Barn, which backed onto the bar in the now expanded Pub. The floor plans depict the new Pub bar and the new Barn bar as a single circular construction.
21Mr Paini said, in cross-examination, that the new bar in the Barn was the only bar from which a drink could be purchased in the Barn, and that that bar contained two cash registers which reported to a central till, allowing Timevale to account separately for takings from the Barn if it chose to do so. Mr Paini accepted that the open area, which now formed part of the expanded Pub, was part of the "hotel premises" for the purposes of the Agreement, but maintained that the Barn remained separate and distinct.
22The Agreement imposes on the licensee an obligation to maintain the manner in which the Pub premises are fitted out to the same standard and condition as at the time of its official opening. To this end, clause 8.2 provides as follows:
The Licensee shall at all times maintain the appearance of any premises at which it carries on business under the said business name or in which the business name is displayed and the manner in which such premises are fitted out therein to the same standard and condition as the Palmview Facility at the time of its official opening and in accordance with the reasonable requirements of the Licensor from time to time communicated to the Licensee. [emphasis original]
23For the purposes of clause 8.2, "the said business name" refers back to clause 8.1, where it is a reference to "Ettamogah Pub". It can be inferred that, as at the time of the official opening, the licensee carried on business under that name from the Pub.
24The obligation to maintain the fit-out in the same condition as at the time of the official opening is equivalent to an obligation not to alter the fit-out, at least except insofar as the licensor may reasonably require. Clause 8.2 does not allow the licensee to alter the premises or fit-out subject to the consent of the licensor which cannot be unreasonably withheld. While, if the licensor's consent were sought and given to a proposal by the licensee to alter the fit-out, that consent could found an estoppel or amount to a variation, Timevale was not entitled under the Agreement to alter the hotel premises, including the fit-out.
25Both Mr Paini and Mr O'Brien gave accounts of conversations with Mr Maynard in relation to the 1997 renovations. Mr Paini deposed that following the official re-opening of the revamped Pub and Barn, Mr Maynard had said to him "These are good changes. I like what you have done"; and that at no time had Mr Maynard expressed objection to any of the changes, nor contend that Timevale was obliged to pay additional royalties. Mr O'Brien deposed that he told Mr Maynard that he had been told by Timevale that Mr Maynard had approved the renovations to the Pub, Barn and outdoor area, to which Mr Maynard replied that he had "never approved them moving the bar".
26The renovations were substantial. The appearance of the Pub and manner in which it was fitted out were not maintained to the same standard and condition as at the official opening of the Palmview Facility. Even assuming that it had obtained Mr Maynard's consent - and, at most, Mr Paini's version indicates a post facto acquiescence to the renovations as opposed to a preceding consent - there is no evidence that Mr Maynard was acting as Southern Equity's agent. Timevale can be taken to have been aware from at least 4 August 1997 that Southern Equity, and not Mr Maynard, was the licensee and had been the licensee since 1994 (as would have been apparent from the deed of assignment sent on that date). Mr Paini conceded that Timevale did not seek Southern Equity's consent to the renovations. Accordingly, in breach of clause 8.2 of the Agreement, Timevale by effecting the 1997 renovation did not maintain the appearance of the Pub and the manner of its fit-out to the same standard and condition as at the time of the official opening.
27Southern Equity also submitted that the 1997 renovations were in breach of clause 6.4 of the Agreement, which it says imposed on Timevale an obligation to seek its approval before submitting drawings and designs to any relevant public authority. Clause 6.4 provides as follows:
No drawing or design shall be submitted to any statutory authority, licensing authority or other government department in connection with approvals to be sought and obtained for the construction of any hotel until all such drawings and designs have been approved by the Licensor and the assignment referred to in subclause 6.3 has been effected. Such approval by the Licensor shall not be unreasonably withheld.
28Context is provided by the remainder of clause 6, which is entitled "Design and Construction of Further Hotels". Clause 6.1 refers to "Any and every other hotel development of the Licensee based upon or incorporating EP". Clause 6.2 imposes an obligation on the licensor to do all reasonable acts to assist in submitting drawings, plans and like documents to relevant authorities for the granting of any licence or approval "with respect to any further hotel ". The reference in clause 6.4 to "the construction of any hotel", in the context of the references in clauses 6.1 and 6.3 to other or further hotels, conveys that clause 6.4 deals with prospective further hotels, as distinct from the existing Pub at the Facility. While Southern Equity argued that the renovations constituted the building of a new or further hotel, that is not an appropriate characterisation of the renovations, which were alterations to an existing hotel, not the construction of a new hotel. They therefore fell outside clause 6.4, and the submission that Timevale breached that clause fails.
29There was no evidence that the renovations directly occasioned Southern Equity any damage, whether indirectly through lost reputation or custom, or directly in the loss or diversion of royalties from the Pub. In any event, the breach occurred more than six years prior to the institution of proceedings, and the Limitation Act would now preclude the maintenance of proceedings in respect of it. However, Southern Equity contended that the renovations had the effect of making the Pub and Barn a single hotel premises, with the effect that a 2% royalty was payable under clauses 9.1(a)(i)-(iii) on all moneys generated from Barn area.
30"Hotel premises" are defined as "that part of the Palmview Facility described as "Pub" on the attached site plan". The "entertainment and food barn" is defined as "that part of the Palmview Facility described as "entertainment and food barn" on the attached site plan". The site plan attached to the Agreement depicts the Pub and Barn as distinct structures, in the same manner as portrayed on the original floor plan. The effect of the renovations, as outlined above, was to expand the Pub to the area denoted on the floor plan as "open space".
31It is quite clear that the Pub now extends into the area that was previously open space. Indeed, Timevale does not dispute that the Pub now includes the former "open space" area, and that that this area is now within the meaning of "hotel premises" and attracts higher tier royalties under clause 9.1(a)(i)-(iii). However, there is dispute as to whether the former Barn area is now, as a result of the renovations, included within the "hotel premises" so as to attract the higher tier of royalty.
32The Pub bar and the Barn bar share a common cool room. Access between the bars may be gained through doors on either side of the cool room. Mr O'Brien opined, during cross-examination, that the effect of this was to create one bar, because it was possible (ostensibly on the basis of the presence of the doors) to walk around the whole bar; he said: "That in the pub industry is one bar". In support of this proposition, he pointed to the fact both bars shared common facilities, such as kegs and lines. But notwithstanding that the bars share common facilities and a cool room, they are nonetheless physically separated by the cool room and by the doors. Furthermore, according to Mr Paini's evidence, in cross-examination, in practice, the Barn and Pub bars are treated as separate bars: they have separate cash registers which report to a central till, enabling Timevale to differentiate between sales from the Barn and Pub bars.
33Although the contrary view is not unarguable, in my judgment the 1997 renovations do not have the consequence that the Barn now forms part of "the hotel premises". The original floor plan, and the site plan attached to the Agreement, allocate spaces to each of the Pub and Barn, described on those plans by two-dimensional representations of two separate buildings. The constraints of clause 8.2 apply only to premises at which business is carried on under the name "Ettamogah Pub", that is, the Pub; the restrictions imposed on Timevale by clause 8.2 in relation to the hotel premises do not apply in respect of the Barn - which was not operated under the "Ettamogah Pub" business name - and Timevale was thus at liberty to renovate the Barn as it saw fit. The circumstance that two formerly entirely separate premises are now attached, to the extent that they are joined by a roof over the former "open space", does not deprive them of the quality of being separate and distinct occupational spaces. They remain separated by a wall which protrudes from either side of the circular bar, through which a door located on the left hand side (from the Bruce Highway perspective) of the bar permits access from one area to the other. According to Mr Paini, this door is generally closed but is opened, as required, for access by disabled persons; whether or not that is the case does not affect the conclusion that they remain distinct occupational spaces. In light of the specific contemplation by the Agreement of a separate and distinct Barn (which could be altered at any point by Timevale) and Pub, the physical and practical changes wrought by the 1997 renovations, while they have extended the Pub premises by removing the rear verandah and relocating the bar into the former open space, have not been of such an extent or degree as to deprive the Barn of its character as a separate occupational space, so as to render the Barn a part of the hotel premises. Accordingly, sales and other income generating activity in the Barn are not subject to the higher rate of royalty under clause 9.1(a).
Clause 9.1(b) - other items:
34Timevale has not paid royalties in respect of revenue from:
(1)rides, whether generated by sales of tickets up to 9 December 2006, or by facility admission fees after that date.
(2)takings from amusement devices and games located in the Barn (and possibly commissions derived from vending machines, in respect of which it may have, and conceded it should have, been paying royalties); and
(3)rents received from tenants who conduct business at the Facility.
35Southern Equity contends that all these, and retail sales of food and drink, giftware items, clothing items, pharmacy items, mechanical items and nursery items, fall within clause 9.1(b), which imposes the lower tier of royalty (1%) on "all money received from the retail sale of souvenirs and other items from the Palmview Facility (but excluding sale from the entertainment and food barn where used only for entertainment or functions)".
36A souvenir is an article purchased as a reminder of a place or event, that is taken away by the purchaser. It was not in dispute that in clause 9.1(b) the term necessarily means souvenirs that do not incorporate EPIP, as souvenirs that incorporate EPIP are in any event caught by the higher tier royalty under clause 9.1(a)(iv), whether sold from the hotel premises, or elsewhere in the Facility, or elsewhere within the 500 kilometre radius. The disputes depend essentially on the scope of "other items". Southern Equity contends that "other items" under clause 9.1(b) of the Agreement catches all other retail sales from the Facility, the intent being to impose the lower tier of royalty on all sales from the Facility not subject to the higher tier, on the footing that custom was attracted to the Facility generally by its association with the Ettamogah Pub.
37I accept that the apparent rationale of clause 9.1(b) would support its application to all sales from the Facility not caught by clause 9.1(a). But regard must primarily be paid to its express words. In construing contractual instruments, courts focus first and foremost on the plain and ordinary meaning of the words used by the parties. While, in so doing, courts strive to provide business-like or commercially commonsensical constructions [ McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 (at [22]-[23])] , " a court is not justified in disregarding unambiguous language simply because the contract would have a more commercial and businesslike operation if an interpretation different to that dictated by the language were adopted" [ Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137, [55]-[56] ( Macfarlan JA); approved in Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45].
38The most recent version of the Macquarie Dictionary defines "retail" as "the sale of commodities to household or ultimate consumers", while the Oxford English Dictionary defines "retail" as "the action or business of selling goods in relatively small quantities for use or consumption rather than for resale". The meaning of "retail sale" was discussed by Viscount Simmons in Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 (at 102):
It is a sale to a consuming member of the public and I know of no other factor which distinguishes a retail sale from other sales. Put negatively, it is not a sale wholesale to a purchaser who proposes himself to sell it retail.
39In Collector of Customs v Chemark Services Pty Ltd (1992) 114 ALR 531, a full bench of the Federal Court considered what constituted a "retail sale". At first instance, Ryan J had identified a division of opinion as to what constituted a "retail sale": one view, epitomised by Napier CJ's statement in Wright v Edwards [1961] SASR 267, was that a "retail sale" was a sale of a commodity in "small quantities"; the other, associated with the opinion of Lord Evershed MR in Dolton Ltd v Osmond [1955] 1 WLR 621, was that a "retail sale" was a sale to an "ultimate consumer", regardless of the quantity of goods sold. Ryan J had considered that the meaning of "retail sale" depended both on the quantity of goods sold and nature of the purchaser [ Chemark Services Pty Ltd v Collector of Customs (1992, unreported, Federal Court of Australia, Ryan J, 29 May 1992]. The Full Court resolved (at 537):
The weight of authority seems to us to support a conclusion that the words "retail sale" have generally acquired a specialised meaning of a sale to an ultimate consumer.
40But in construing the term in this contract, it must be remembered that one is ascertaining (albeit objectively [see Franklins Pty Ltd v Metcash Trading Ltd; Metcash Trading Ltd v Franklins Pty Ltd (2009) 76 NSWLR 603, [4]-[5] (Allsop P)] what a reasonable person in the position of these parties would have understood the provisions of a contract to mean, taking into consideration the purpose and object of the transaction [ Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461-462, Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179; Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, 528-529; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 234 CLR 151, 160, 174]. This is not necessarily the same meaning as is attributed to the words used by dictionaries or by judicial pronouncements in other cases, although those sources will often inform the objective meaning of words used by parties. The facts that existed when the contract was made may assist in the interpretation of the contract if the language is ambiguous or susceptible to more than one meaning, though not so as to contradict language that has a plain meaning [ Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 , 352 ( Mason J, as he then was)].
41When the contract was made, there were a number of retail outlets in the Facility. This suggests that what the parties had in mind as "retail sales" were sales through those retail outlets, to ultimate consumers.
42I do not accept that the prefatory adjective "other" necessarily means that, in addition to souvenirs not incorporating EPIP, any other thing sold at or from the Facility was to be subject to the lower tier of royalty. A reference to "souvenirs and other items" would be a curious way to catch "all other retail sales" from the facility. If it were intended to catch all other retail sales, terminology to that effect could and would have been used. In my view, there is a strong argument that "other items" is to be construed eiusdem generis with "souvenirs", so as to catch retail sales of articles analogous to retail sales of souvenirs.
43Significant support for this view is derived from clause 9.3, which imposes an accounting obligation only in regards to hotel sales, and souvenirs:
The royalty payable pursuant to subclause 9.1 shall be calculated on the receipts for a calendar month and shall be paid to the Licensor by the end of the following calendar month. Each payment to the Licensor shall be accompanied by a detailed statement as to how the payment was calculated. The statement shall include the total moneys received from each individual business activity at each hotel, the number of souvenirs sold for each category of souvenirs and the moneys received for each such category.
44Further support is provided by clause 14, which imposes an obligation on Timevale to maximise turnover from hotels and the sale of souvenirs:
The Licensee shall use its best endeavours during the term of this Agreement to diligently and vigorously promote its business with the intent of maximising "turnover" from its hotels and sales of souvenirs.
45These clauses - neither of which refers to sales of "other items" - indicate that the main purpose of the parties was to generate income and royalties from hotel sales and from souvenir sales. Although clause 9.1(b) clearly imposes an obligation to pay royalties in respect of moneys received from sales of "other items", in those circumstances, absence of reference to "other items" in clause 9.3 and clause 14 suggest that such sales were regarded as incidental, strongly supporting the view that "other items" is to be construed eiusdem generis with souvenirs.
46This conclusion is further reinforced by the absence of reference in clause 9.1(b) to sales of types that are specifically mentioned in clause 9.1(a), such as sales of food and drink, and takings from amusement devices, games and vending machines.
47I have therefore concluded that the preferable construction is to treat "retail sales of souvenirs and other items" as a composite description of a class of sales, characterised by sale of articles through retail outlets at the Facility, generally of tangible articles that can be taken away from the Facility as a memento. The royalty applies to money received by Timevale from such sales.
48Food and drink. However, given the description of the Barn as "Entertainment and Food Barn", and the evidence that at and about the time of the Agreement it contained a portable bar from which drinks could be bought when open, the exemption contained in clause 9.1(b)(i) - for sales from the Barn when used for functions - suggests that it was accepted that food and drink sales from the Barn would otherwise be caught; as does clause 9.1(c), which provides that while it is being used other than for entertainment, all receipts from the Barn shall attract the lower tier of royalty. While this could mean, "all receipts in respect of souvenirs and other items" within the meaning of clause 9.1(b), that is improbable given the absence of evidence, and apparent unlikelihood, that the Barn was a place where souvenirs were sold . Accordingly, I am compelled to conclude that the parties contemplated that sales of food and drink (other than from the hotel premises) also fell within clause 9.1(b).
49Rides and admission fees. When Mr Paini's company assumed control of Timevale, a number of rides operated at the Facility. These included the Pony and Train Ride, the Luge Ride and the Super X Stimulator. According to Mr Paini, some of these were owned and operated by tenants, who paid rent to Timevale, while others were owned and operated by Timevale. Between 1995 and 2005, Timevale installed further rides, and some of the original rides closed down. Mr Paini said, in cross-examination, that Timevale now operated all the rides in the facility, subject to the qualification that the Skirmish facility was owned and operated by a tenant. Mr Paini was "98 per cent" certain that this tenant was charged a fixed rent (as opposed to one calculated by reference to turnover), although he noted that "many years ago" the tenant who operated Skirmish did pay a rent computed on the basis of a percentage of turnover.
50Until 9 December 2006, Timevale sold tickets to patrons for each individual ride, which entitled them to go on a ride. Since then, Timevale has instead charged an admission fee, which permits entry into the Facility and with it the ability to go on a certain number of rides.
51The issue is whether moneys received from the sale of tickets prior to 2006, and for admission fees subsequent to 2006, are retail sales of other items, not otherwise covered by clause 9.1(a), that are captured by clause 9.1(b). Mr Lucas, for Southern Equity, submits that the sale of tickets entitling the purchaser to travel on a ride is the sale of an "item" - namely, the ticket entitling its holder to ride - and thus falls within clause 9.1(b). Mr Harris SC, for Timevale, submits that sale of a ticket, entitling a patron to the use of a ride, is not a "retail sale", as the ticket is not itself consumed or used; and that purchasers of tickets were merely purchasing a right to ride.
52Southern Equity's argument emphasised that there was a sale of an article or thing, namely a ticket (or, after the substitution of admission fees in 2006, a token or ticket evidencing the permit to enter). However, I do not think that characterising the transaction as the sale of a ticket or token to a consumer is helpful, as the moneys received are attributable not to the sale of a piece of paper, but to the sale of a chose in action - that is to say, the entitlement to go on a ride, or to be admitted to the Facility. In substance, the purchase of a ticket is the purchase of a chose in action [cf, in the context of a lottery, Van Rassel v Kroon (1953) 87 CLR 298 , 302 (Dixon CJ)]. While I do not doubt that a sale is involved, it is not a sale of an item or article, but of rights. It is not analogous to a sale of a souvenir through a retail outlet.
53In my judgment, therefore, money received from sales of tickets for rides, or admission fees, is not "money received from the retail sale of souvenirs and other items from the Palmview Facility" within clause 9.1(b), and does not incur royalty.
54Amusement devices, games and vending machines in the Barn. There are located in the Barn a number of amusement devices, games and vending machines.
55I accept that there is a "sale" when the requisite number of coins is inserted into an amusement device or a game. The question is whether it is a "retail sale of [an] item" for the purposes of clause 9.1(b). Analogous to a ticket, the payment is in consideration of a right or permission to play the machine and receive any prize that might result, which would be a chose in action. While I do not doubt that a sale is involved, it is not a sale of an item or article, but of an experience or rights. It is not analogous to a retail sale of a souvenir.
56Some support for this view is derived from the specific reference in clause 9.1(a)(ii) to "net takings from all approved amusement devices ... cigarette vending machines and similar equipment or services installed or provided in the hotel premises". The reference to "net takings" in that clause - as distinct from "money received from sales of" - indicates that moneys so generated were not considered to be the product of "sales", and that the parties recognised a distinction between, on the one hand, moneys produced by sales of food and drink in 9.1(a)(i) and of souvenirs in 9.1(a)(iii), and, on the other, "takings" from amusement devices and like machines in clause 9.1(a)(ii).
57One difficulty with this view is that the same sub-clause refers to cigarette vending machines (and similar equipment), which undoubtedly involve a sale: a vending machine provides, in exchange for money, a product such as a packet of chips or cigarettes, the property in which passes to the person who pays for it. However, the vending machine is owned by a third party, and the owner of the premises receives a commission, not the proceeds of the sale; that is why the phrase "net takings" is used in respect of vending machines as well as amusement devices and games. Timevale does not receive the proceeds of sale; it receives a commission. In my view, despite Mr Paini's concession in cross-examination that Timevale ought to pay royalty in respect of sales through vending machines, the commission that Timevale receives is not "money ... from sales". The concept of "money received from sales" is narrower than money received in respect of sales , and connotes the direct proceeds of sales. This is reinforced by the distinction of such receipts as "net takings" in clause 9.1(a)(ii). Timevale receives commission on, not the direct proceeds of, sales made through vending machines.
58The conclusion that clause 9.1(b) does not deal with takings from amusement devices, games and vending machines is somewhat further supported by the absence of reference to such revenue in that clause, when it is specifically referred to in clause 9.1(a); although the force of this is weakened by the observation that clause 9.1(b) also contains no reference to food and drink, which is also the subject of specific mention in clause 9.1(a), and which I have concluded is caught by clause 9.1(b), it is not entirely deprived of force, as clause 9.1(b) is limited to "moneys received from sales", as distinct from "takings".
59Accordingly, takings from amusement devices, games and vending machines, are not "money received from the retail sale of souvenirs and other items from the Palmview Facility" within clause 9.1(b), and (except for those located in the hotel premises) do not incur royalty.
60Rents. Many of the retail outlets in the Facility are operated by tenants, who pay rent to Timevale. Southern Equity contends that Timevale is liable to pay royalties on rents received from tenants who conduct business at the Facility, at least where those rents include a component that is referable to turnover. There seems to have been at one time a suggestion that the tenants are or might be "associates" of Timevale, but there is no evidence to that effect.
61No sale occurs when a tenant pays a landlord rent. In receiving rent, Timevale is not receiving money from a sale. Moneys received from tenants by way of rent are not moneys received from retail sales. This is so, even if the rent is calculated by reference to the tenant's turnover: what Timevale receives is not the proceeds of the sale. It follows that Timevale is not obliged to pay royalties on rent it receives from tenants, whether or not it is calculated according to the tenant's turnover.
62Conclusion. Accordingly, clause 9.1(b) catches and catches only the direct proceeds of sale through retail outlets in the Facility, received by Timevale, of souvenirs not incorporating EPIP and analogous sales to an ultimate consumer, of articles that can be taken away, including food and drink, giftware, clothing, toys, nursery items, mechanical items and pharmaceuticals. It does not catch takings from amusement devices and games, nor commission derived from vending machines, nor proceeds of sale of tickets for amusement rides, nor facility entry fees.
Clause 9.1(b) and (c) - the Barn, group bookings and non-barn functions:
63The next contentious area is receipts from the Barn, which are the subject of an exemption from clause 9.1(b)(i), further explained in clause 9.1(c):
9.1 In consideration of the licences granted by the Licensor to the Licensee and the other obligations of the Licensor under this Agreement the Licensee shall pay a royalty to the Licensor, being:
...
(b) 1% of all money received from the retail sale of souvenirs and other items from:
(i) the Palmview Facility (but excluding sale from the entertainment and food barn where used only for entertainment or functions)
...
received by the Licensee ... and not otherwise covered by subclause 9.1(a).
(c) Should the barn at any time be utilised for any purpose other than where the primary focus includes entertainment, then all receipts from the area received during such time will be subject to the royalty payable to the licensor at the rate of 1% thereof.
64Clause 9.1(c) was inserted by the parties as an amendment to the engrossed draft when the Agreement was signed. Southern Equity contends that clause 9.1(c) qualifies the exemption in clause 9.1(b)(i), so that receipts from the Barn are exempt from the lower tier royalty only when it is used exclusively for entertainment or a function the primary focus of which includes entertainment , so that Barn receipts in respect of functions or like events that do not have entertainment as their primary focus incur royalty. Timevale contends that clause 9.1(c) clarifies clause 9.1(b)(i), so that read together the effect is that the exemption applies whenever the Barn is used exclusively for entertainment or a function, but otherwise a 1% royalty applies. The key difference relates to a function that does not have "entertainment" as a primary focus.
65So far as is possible, the clauses should be read together. Southern Equity's construction - that clause 9.1(c) defines and circumscribes the circumstances in which sales from the Barn would not attract a royalty, by limiting them to where it is used only for entertainment or functions where the primary focus includes entertainment - suffers from the difficulty that the words "where the primary focus includes entertainment" do not add anything to "where it used only for entertainment"; if anything, "only for entertainment" is a narrower exception than "primary focus includes entertainment". The effect of this construction would be to limit exempt functions to those where the primary focus included entertainment, but if that were the intent, one would have expected to see "or functions" deleted from 9.1(b)(i), rather than a contradictory qualification introduced by 9.1(c). It is improbable that the parties intended by clause 9.1(c) to override an exception created by clause 9.1(b)(i), or to describe by the words "other than where the primary focus is entertainment" a concept different from "where used only for entertainment or functions". In my view, this was a somewhat infelicitous attempt to describe the same concept in different words. The real purpose of clause 9.1(c) was to provide clarity that where the exception contained in clause 9.1(b)(i) for entertainment and functions did not apply - that is where the Barn was not exclusively used for entertainment or a function - Barn receipts - even if related to a function or entertainment which was a non-exclusive use - would attract the 1% royalty. The clarification may have been unnecessary, but this would not be the first time that parties have insisted on unnecessary clarification.
66Accordingly, when the Barn is not being used exclusively for a function or entertainment, Barn receipts (in respect of "retail sales of souvenirs and other items") attract the lower tier of royalty. When it is being so used ("exempt Barn function"), Barn receipts incur no royalty.
67Not all "functions" conducted at the Facility are conducted in the Barn. Some are conducted in FJ's Cafe. Where functions are conducted in the Barn, sometimes other parts of the Facility (such as rides or retail shops) may also be used. Mr Paini gave evidence that in calculating royalties, employees of Timevale - such as Ms Van Geel, who was Timevale's Administration Manager at the Facility from 1999 to 2009 - determined whether an activity was "entertainment" or a "function" in the Barn and was thus excluded from royalty calculations.
68Mr Paini was cross-examined on a "group booking sheet", recording bookings made at the Facility. A booking made on 13 March 2008, for 31 persons, was for "rides, guests, cafe", apparently being a reference to FJ's Cafe. Mr Paini doubted whether royalties were paid for this booking, and said that it was a "sale without being a retail sale". Similar such bookings were pointed out to Mr Paini, which he contended did not incur royalty payments because they were categorised as "functions", notwithstanding that they were held in FJ's. Mr Paini conceded that Timevale categorised bookings such as these, which occurred in FJ's, as "functions" that escaped royalty obligations, notwithstanding that they were not connected with the Barn. At no stage during her almost decade long employment at Timevale did Ms Van Geel read the Agreement.
69I have already concluded that proceeds from the rides do not incur royalty; accordingly the question is whether royalties were payable in respect of sales (presumably of food and drink) made in the cafe. Ordinarily, sales of food and drink to consumers in FJ's Cafe would incur the lower tier of royalty under clause 9.1(b). The exemption from liability for royalties in respect of "functions" applies only in respect of sales from the Barn, when used exclusively for functions. I have considered the argument that these functions were not retail sales, on the basis that if there were a lump sum charge to cover the function, paid by the function organiser, that might be in the nature of a wholesale as distinct from retail sale. But two things at least point against this: first, if that were so, the exemption in respect of Barn functions would be superfluous; secondly, there is no evidence that these "group bookings" were paid for on a wholesale basis, as distinct from each of the participants paying for what they consumed. In my view, sales of food and drink to participants in functions conducted in FJ's Cafe attract the lower tier royalty under clause 9.1(b)(i).
70Mr Paini was also taken to a booking on 4 May 2008 for 300 people, which included the Barn, rides and the town hall (a building and shop located in the Facility). He conceded that no royalty had been paid in relation to income derived from the non-Barn component of this booking, namely the rides and the town hall. Indeed, he said that it was "quite likely" Timevale had not paid any royalties in respect of group bookings that included a Barn component. While I have concluded that revenue from rides does not incur royalty, the "town hall" includes a shop, and thus a retail outlet, sales from which would incur royalty.
71Moreover, Ms Van Geel deposed that before 9 December 2006 - when, in conjunction with the introduction of the admission fee, circulation of patrons was restricted to prevent direct access from the Pub to the Barn - no royalty payments were made in respect of sales of drinks in the Barn, whereas since then non-exempt bar sales from the Barn bar have been included in Hotel bar sales and royalty paid at 2%. In response to an audit conducted in 2000 of Timevale's compliance with the Agreement, Mr Paini stated, in correspondence with Southern Equity's then lawyers: "Having reviewed the Pub or Hotel royalty, I comment as follows: No royalty is payable on the Barn". This statement reveals that Timevale operated on the basis that it was not obliged to pay any royalties whatsoever on moneys received from the Barn. Although Mr Paini said that this had not been his consistent position, he was unable to point to any communication with Southern Equity in which he acknowledged that royalties were payable on Barn sales in any circumstances.
72The mere fact that a booking relates partly to the Barn does not mean that retail sales to function participants from elsewhere in the Facility do not incur royalty; only sales "from the Barn" fall within the exemption. And the involvement of the Barn (often called "the Shed" in the booking sheet) does not of itself mean that royalties are not payable even in respect of proceeds of sales from the Barn: only when the Barn is used solely for a function or entertainment are royalties not payable in respect of Barn sales.
73It was therefore not open to Timevale to exclude from royalty under clause 9.1(b) proceeds of sales merely because they were associated with functions or group bookings. Sales associated with functions made from outlets other than the Barn were not exempt in any circumstances. Sales from the Barn were exempt only when the Barn was being used solely for a function or entertainment.
74Accordingly, Timevale in breach of clause 9.1(b) has failed to pay royalties in respect of (a) moneys received from sales from outlets other than the Barn to participants in functions, including sales in connection with "functions" held in FJ's cafe, and (b) sales from the Barn (other than in respect of exempt functions), at least until 9 December 2006.
Clause 9.1(a)(i) - food supplied from Bluey's to Barn functions:
75For some Barn functions, food is prepared in Bluey's (located on the top floor of the Pub) and delivered to the Barn. For others, food is prepared in FJ's cafe (located in a different building in the Facility) and delivered to the Barn. For still others, it is prepared on the barbeque and spit roast located in the Barn. Timevale has not paid royalties in respect of food prepared in Bluey's and supplied to Barn functions, although on other occasions when food was prepared in Bluey's but served elsewhere in the Facility a 2% royalty was paid. Nor, for that matter, has it paid royalties in respect of food prepared in FJ's and supplied to Barn functions.
76Southern Equity contends that food prepared in Bluey's and supplied to Barn functions attracts the 2% royalty under clause 9.1(a)(i), which catches "all money received from the sale of food and drink from the hotel premises ". The essential question for present purposes is whether food so prepared and supplied to Barn functions is, for the purposes of the Agreement, properly characterised as being sold from the hotel premises.
77The circumstance that food for Barn functions may be prepared and cooked at, and supplied from, Bluey's does not necessarily means that it is sold from the hotel premises. The test is not whether the food was prepared in the hotel, but whether there was a sale from the hotel. A sale takes place when and where the contract for sale is made. This could be when an individual consumer places an order with a waiter, or when the organiser books the function (which would have taken place in advance, probably by telephone or in writing). Neither would apparently occur at Bluey's, or otherwise in the Pub. If it were ordered by consumers from a menu, the order would be placed by the consumer, and accepted, in the Barn. If it were a pre-arranged menu, the order might have been previously placed, when the function was booked; in those circumstances, the contract pursuant to which the food was supplied - the function booking - is made in advance, not as a sale from the hotel. The food, although prepared in Blueys, is delivered to consumers in the Barn. They receive it in the Barn. Accordingly, in the relevant circumstances, neither sale nor delivery occurs at the hotel premises.
78This conclusion is reinforced by the rationale of clause 9.1(a), which is to impose the higher tier of royalty on receipts generated through use of EPIP. Sales from the hotel premises are included, because they are generated by custom attributable to EPIP. The supply of food to a function in the Barn does not involve any such use of EPIP: it makes no difference to the persons attending the function whether the food is prepared in Blueys, in FJ's, off-site, or in a temporary kitchen. EPIP is not used to generate receipts from the supply of food to Barn functions. The purpose and rationale of clause 9.1(a)(i) tell against rather than in favour of its extension to food prepared in Bluey's but supplied to Barn functions. In my judgment, no sale from the hotel premises is involved.
79Alternatively, can it be said that preparation of the food in Bluey's is an income-generating activity conducted at the hotel premises, so that moneys received as a result are within clause 9.1(a)(iii)? In my judgment, the answer is in the negative: income is generated not by the mere preparation of the food, but by its provision to consumers at the function in the Barn. That activity does not take place at the hotel premises, but in the Barn. Again, this conclusion is supported by the rationale and purpose of clause 9.1(a).
80On the same reasoning, food prepared in FJ's for supply to Barn functions is not sold at or from FJ's, but is attributable to the Barn, and where supplied to an exempt Barn function does not incur the lower tier royalty under clause 9.1(b).
Clauses 9.3 and 10.1 - Royalty statements and accounts:
81Clause 9.3, mentioned above, imposes an obligation on Timevale to provide to Southern Equity, each calendar month in conjunction with the monthly royalty payment, "a detailed statement as to how the payment was calculated" including "the total moneys received from each individual business activity at each hotel, the number of souvenirs sold for each category of souvenirs and the moneys received for each such category". Southern Equity alleges that Timevale, in breach of clause 9.3, has failed to provide monthly statements of requisite detail, including moneys received from business activities at the hotel premises, and the number and type of souvenirs sold at the Facility.
82The evidence on this issue comprises a series of royalty statements provided to Southern Equity accompanying royalty cheques for the calendar months spanning July 2008 to December 2008, which Mr Paini accepted were typical of the format used by Timevale (supplemented by another earlier statement, dated 3 April 1998, for the period 15 February to 15 March 1998). These statements first set out the total dollar value of sales of souvenirs, divided into "trade mark sales" and "other sales", the former attracting a 2% royalty and the latter a 1% royalty, and the amount of royalties attributable to each, GST payable in respect of the royalties, and the total payment (being the royalties plus GST). Next is a subheading for "bottle shop sales", also subdivided into "trade mark sales" and "other sales", the former attracting a 2% royalty and the latter a 1% royalty, again showing the total dollar value of sales, royalties on them, GST, and the total payment. There follows a subheading "Hotel", subdivided into "Bar sales", "Commissions", "Merchandiser", "Gaming" and "Bluey's", providing similar information in respect of each. The final subheading is "Cafe".
83The only breakdown of souvenirs is between "Trade Mark Sales" and "Other sales". While this is one relevant way of categorising souvenir sales, and little guidance is provided by the Agreement as to what is meant by "categories" of souvenirs, clause 9.3 is concerned with categories of souvenirs rather than of sales , and the reference to "the number of souvenirs sold for each category of souvenirs and the moneys received for each such category" suggest that what was contemplated was a detailed description by type of merchandise - for example mugs, pens, T-shirts, and so on. Generally the statements, in this regard, do not contain the detail required by clause 9.3 insofar as they concern souvenirs, although a detailed breakdown by category of souvenir was provided with the 3 April 1998 statement.
84Under the subheading "hotel", net moneys received from bar sales, commissions, merchandiser, gaming and Bluey's were listed. These are the business activities engaged in at the hotel, and in this respect the statements comply with the obligation in clause 9.3, to the extent that they illustrate how royalties from moneys received from the hotel were calculated.
85Southern Equity submitted that the "inclusive" prescriptions about the hotel premises and souvenirs did not limit the requirement for "a detailed statement as to how the payment was calculated", and that quite apart from the deficiencies relating to souvenirs the statements did not meet that requirement. However, the statements were not required to be an account of all income received by Timevale from the Facility, explaining in respect if each source whether royalty was paid at 2%, 1% or not at all; they were required only to show how the payment was calculated, and they did that.
86I conclude that breach of clause 9.3 is established only to the extent that Timevale has failed to provide to Southern Equity detailed statements of souvenirs sold for each category of souvenirs and the moneys received for such categories.
87Clause 10.1 of the Agreement obliged Timevale to keep and maintain records, in the following terms:
The Licensee shall at its own cost and expense establish proper books of account and records of all activities undertaken by it and shall ensure that such books of account and records are at all times maintained and are kept up-to-date.
88Clause 10.2 allows Southern Equity to appoint an auditor to audit the books and other financial records maintained by Timevale in order to certify the amount properly due to the licensor; and clause 10.3 obliges Timevale on reasonable notice to produce all its books and records for inspection and provide all requisite written and oral information relating to its licenses business and affairs. These clauses work together to enable the licensor by a combination of inspection of books and requests for information to investigate and ascertain the amount of royalty properly payable. The reference to providing "all requisite written and oral information" reveals that it was not anticipated that everything would necessarily be ascertainable from the "books of account and records".
89While, according to Ms Van Geel, no royalty payments were made in respect of sales at the Barn before 2006, it does not follow that no records were maintained in regards to such sales. While it appears that group bookings were made without records necessarily identifying where in the Facility they were held, and Mr Paini accepted that an auditor would be unable to discern from Timevale's records whether the reservation was for a function in FJ's or in the Barn, he also said that an auditor would be able to determine this by inquiry of an officer or employee who may know about the nature of the booking. While Mr Paini was somewhat ambivalent as to whether Timevale had kept all records from 2001 - he could not say whether Timevale had kept "absolutely everything" - that does not prove the converse.
90I am not satisfied that such defects as have been suggested in Timevale's books and records amount to a failure to keep and maintain proper books of account and records of all its activities, for the purpose of clause 10.1.
Defence - waiver:
91Timevale pleads that Southern Equity has waived its rights to claim underpaid royalties (if any) prior to June 2005. This plea appears to be based on an alleged failure by Southern Equity to assert breaches of the Agreement by Timevale following audits conducted in 2001 and 2005.
92Three audits have been undertaken at the instance of Southern Equity pursuant to clauses 10.2 and 10.3 of the Agreement: on 11 August 2000, 28 May 2001 and 7 June 2005.
93The first, which dealt with the period from 6 July 1998 to 4 July 1999, and was conducted by Hart Larwill Chartered Accountants, concluded (1) that errors in calculations resulted in an amount of $12,226 owing to Southern Equity, and (2) that Timevale had failed to pay fees for businesses operated in the Facility that were not directly associated with the Ettamogah Pub, including a "Bush Camp/Camels", "Rides and Games" and FJ's, which was estimated to have resulted in an annual royalty shortfall of $44,647 (being 1% of annual turnover from other business outlets, excluding rental income). A formal demand was sent to Timevale by Southern Equity's legal representatives on 24 November 2000, requiring Timevale to remedy the breach by paying the $12,226 identified within 7 days, plus $285,740.88 (being $44,647 per annum for the period since the agreement was assigned to Southern Equity in 1994). A further demand was sent on 6 December 2000 in relation to unpaid royalties in respect of moneys received from the Barn.
94Timevale responded, on 11 December 2000, that fees were not payable on rides and games, and that Timevale was unaware that any Barn receipts had been received that did not relate to entertainment or functions. It asserted that no royalties were owed, and noted that as the parties were unlikely to agree, dispute resolution under clause 22 of the Agreement ought to follow.
95On 3 January 2001, Southern Equity purported to serve a notice of termination. Timevale's legal representatives replied on 12 January, that the purported termination notice was "invalid" and the dispute should be referred for alternative dispute resolution. Further correspondence between the parties ensued, but there was apparently no resolution of it.
96In the context of this audit, Southern Equity did assert a failure by Timevale to pay royalties due, and does not appear to have withdrawn or abandoned that claim.
97On 28 May 2001, legal advisers for Southern Equity, while reserving their rights in regards to the previous notice of termination, sent a formal demand to Timevale under clause 10.3, demanding inspection of all relevant books and financial records and the provision of oral and written information in relation to Timevale's business and affairs; and under clause 10.2 appointed an auditor to audit Timevale's books and financial accounts. Timevale acceded to the request, and apparently provided all records requested. This audit was carried out in 2002; its results were not in evidence.
98In a letter sent on 30 March 2004, solicitors for Southern Equity commented that two years had elapsed since the last audit, and indicated that Southern Equity intended to revisit the matter in the near future. In May 2005, Southern Equity by its solicitors again invoked its rights under clause 10.3 and appointed a Mr Chris White to inspect all books and financial records and to seek oral information. The details of Mr White's investigation, also, were not in evidence.
99Waiver, "a word of flexible meaning", in the context of contract law usually denotes a contracting party losing its ability to insist on rights available to it under the contract [ Mulcahy Hoyne (1925) 36 CLR 41, 53 (Isaacs J)]. Distinct from the concepts of discharge or variation, "waiver" does not require consideration [ W J Alan Ltd v El Nasr Co [1972] 2 All ER 127, 140 (Lord Denning MR)]. In a discussion of the concept of waiver in Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, Gummow, Hayne and Kiefel JJ said (at [51]):
Waiver has often been used in senses synonymous with election or estoppel. It has been suggested that waiver is indistinguishable from one or other of those doctrines. Sometimes, although expressed in terms of waiver, the reasoning adopted in cases reveals the elements for applying a more specific principle, typically election or estoppel. And it may be that in cases of the several kinds last mentioned, the term is used as no more than a conclusionary word stating the consequences of that more specific principle, rather than as indicating the application of any distinct and independent principle.
100As their Honours explain, waiver has generally been employed when speaking of an "election" by a promisee between inconsistent rights, or as an estoppel arising from words or conduct of the promisee which are relied on by the promisor in a way that makes it unconscientious for the promisee to insist on a particular right. Of "waiver" in the sense of election, Gummow, Hayne and Kiefel JJ said in Agricultural & Rural Finance v Gardiner (at 588-589):
As Jordan CJ pointed out in O'Connor v SP Bray Ltd, "since the days of the Year Books it has been recognised that you cannot have the egg and the halfpenny too". If, then, something happens which gives rise to the existence of two alternative rights, and one of those rights is satisfied, the other is no longer available. A breach of contract by one party always gives the other party a right to recover damages for the breach. If serious, the breach will give the innocent party the right to treat the contract as at an end. But the innocent party need not accept the repudiatory breach and avoid the contract; the innocent party may choose to insist upon further performance.
101Insofar as Southern Equity may have been entitled to treat any breach by Timevale as a repudiation of the Agreement (by virtue of any failure to comply with its obligations under the Agreement which may have been identified by the 2002 and 2005 audits) and elect to terminate the Agreement, it is clear that it has elected to keep the Agreement on foot. In that sense, it has "waived" its right to terminate the agreement, and indeed has acknowledged this, by abandoning reliance on the notices of termination. Such "election" is, however, immaterial to its claim for underpaid royalty, reliant on breaches of the agreement that may have been identified by any audit. Mere failure to bring proceedings sooner, or failure to assert earlier that it had been underpaid, does not amount to a "waiver" of its rights to insist on performance of Timevale's royalty obligations.
102Insofar as concerns waiver in the sense of estoppel, at its highest Timevale's case appears to be that, as Southern Equity did not take any action immediately following the audits of 2002 and 2005, it would somehow be unfair for Southern Equity now to insist on its rights in this respect. For estoppel to be established, Southern Equity by its words or conduct must have led Timevale to believe that it would not insist on its rights to royalties under the contract, and Timevale must have relied on such words or conduct to its detriment, such that it would be unconscientious for Southern Equity now to insist on its rights [see Larratt v Bankers & Traders' Insurance Co (1941) 41 SR (NSW) 215, 227 (Jordan CJ), Grundt v The Great Builder Proprietary Goldmines Limited 59 CLR 641, 674-676 (Dixon J), Waltons v Maher, 428-429 (Brennan J), WJ Alan Ltd v El Nasr Co, 140 (Lord Denning MR)]. There is no evidence that Southern Equity did anything to convey that it would not insist on its strict legal rights, nor that Timevale altered its position in reliance on a belief that Southern Equity would not do so. Indeed, Southern Equity insisted on its rights in 2006 by initiating these proceedings, albeit originally in the Federal Court.
103Moreover, clause 23 of the Agreement relevantly provides:
23.1 The failure by either party to insist upon a strict performance by the other party of any of the terms and provisions herein shall not be deemed a waiver of any such breach or default in the terms and provisions herein.
23.2 Unless expressly provided to the contrary herein, no delay or omission or failure to exercise any right or remedy provided for herein shall be deemed a waiver thereof or acquiescence in the event giving rise to such right or remedy, but every such right or remedy may be exercised from time to time and so often as may be deemed expedient by the party exercising such right or remedy.
104The defence of waiver accordingly fails.
Remedy:
105It is plainly desirable to quell the dispute, so far as practicable, by making declarations as to the proper construction of clause 9.1 of the Agreement in the relevant respects.
106Beyond that, I have concluded that the evidence establishes breaches of the Agreement, properly construed, by Timevale in the following respects:
(1)In breach of clause 8.2, Timevale by effecting the 1997 renovations did not maintain the appearance of the Pub and the manner of its fit-out to the same standard and condition as at the time of the official opening. However, there is no evidence that this breach has occasioned any loss or damage to Southern Equity, and no specific relief is sought in this respect - understandably so, as the prospects of obtaining a mandatory injunction so long after the 1997 renovations have been completed would be remote in the extreme, and proceedings in respect of the breach are statute-barred. Accordingly, relief in respect of this breach requires no further consideration;
(2)In breach of clause 9.1(b), Timevale has not paid royalty on proceeds of sales from retail outlets other than the Barn, including FJ's cafe, which were associated with functions or group bookings; and (at least until 2006)Timevale has not paid royalty on Barn sales when the Barn was not being used solely for a function or entertainment;
(3)In breach of clause 9.3, Timevale has not provided detailed monthly statements to Southern Equity of the number of souvenirs sold for each category of souvenirs and the moneys received for each such category.
107Southern Equity claims:
(1)Orders for an account (and discovery in aid thereof) and for payment in respect of the unpaid royalties; and
(2)An order that Timevale provide detailed royalty statements pursuant to clause 9.3 for the period 2 June 1994 to date, showing the total moneys received from each individual business activity conducted by Timevale at the Facility, the number of souvenirs and other items sold and the royalties payable in respect of such sales.
108In respect of the remedy of account (and discovery in aid thereof) to ascertain the amount of underpaid royalties, it is common ground that, by reason of the expiry of the applicable limitation period, Southern Equity is not entitled to recover underpaid royalties that predate 30 March 2000, the proceedings having been commenced, in the Federal Court of Australia, on 30 March 2006; accordingly any account could commence only from 30 March 2000.
109The account is sought in the auxiliary jurisdiction, in aid of the legal right of Southern Equity as creditor; no equitable right is involved. This is significant because, while plaintiffs asserting an equitable right are entitled, as of right, to an account [ London Chatham & Dover Railway Co v South Eastern Railway Co [1892] 1 Ch 120, 138], the position in equity's auxiliary or concurrent jurisdiction in regards to common law rights is "less clear" [Meagher, Heydon and Leeming, Equity: Doctrines and Remedies, 4th ed, [25-015]]. One consistent observation has been that equity will not decree accounts where the case could be disposed of as fully and conveniently by a court of common law [see, for example, Southampton Dock Co v Southampton Harbour & Pier Board (1870) LR 11 Eq 254; Davis v Hueber (1923) 31 CLR 583, 595]. Meagher Heydon and Leeming (at [25-020]) identify eight categories of case in which accounts are decreed in equity in aid of common law rights: where there are mutual accounts; where the parties stand in a quasi-fiduciary relationship, such as principal and agent [ Warman International Ltd v Dwyer (1995) 182 CLR 544]) or a relationship of trust and confidence [ Esther Celia Feiglin v Ainsworth [2011] VSC 454 (at [26])]; where a court has ordered the general administration of a dissolved partnership; a "vaguely defined number of cases" where accounts are too complicated to be resolved by a court of law [ Lang v Simon (1953) 53 SR (NSW) 508, in which the manager of a farm on a profit-share basis was held entitled to a decree for accounts against his employer]; where a plaintiff has committed legal waste; in intellectual property cases; where failure to order an account would abort the plaintiff's rights; and where the defendant has profited from treasonable activities [ Attorney-General v Blake [2001] 1 AC 268]. However, the authors make clear that these categories are examples, and are not closed. As Lord Cottenham LC pointed out in North-Eastern Railway Co v Martin (1848) 2 Ph 758, 762; 41 ER 1136 (at 1138):
It is, therefore, impossible with precision to lay down rules to establish definitions as to the cases in which it may be proper for this Court to exercise this jurisdiction. The infinitely varied transactions of mankind would be found continually to baffle such rules, and to escape from such definitions. It is, therefore, necessary for this Court to reserve to itself a large discretion, in the exercise of which due regard must be had, not only to the nature of the case, but to the conduct of the parties.
110In my judgment, consistent with its approach to granting injunctions and specific relief in the auxiliary jurisdiction, equity will not decree an account where there is a sufficient legal remedy; but where the legal remedy is an imperfect one, equity has a large discretion to intervene. Meagher Heydon and Leeming's eight categories are but illustrations of types of cases in which it intervenes. Otherwise, while there are no hard and fast rules, relevant factors that will incline the court to order an account include that it would otherwise be difficult for the plaintiff to establish the true state of affairs, as the defendant is in possession and control of the relevant information and documents [ Beaumont v Boultbee (1802) 7 Ves 599; 32 ER 241; Mackenzie v Johnston (1819) 4 Madd 373; 56 ER 742; Padwick v Stanley (1852) 9 Hare 627; 68 ER 664]; and that the accounts are too complex to be fairly resolved in a common law trial, that is to say to be left to a jury [ O'Connor v Spaight (1804) 1 Sch & Lef 305; Freitas v Dos Santos (1827) 1 Y & J 574, 576; 148 ER 800, 801; Taff Vale Railway Co v Nixon (1847) 1 HLC 111, 126; 9 ER 695, 701; Lang v Simon ].
111Mr Harris SC submits (1) that Southern Equity's claim is for damages for breach of contract, and it should be left to the ordinary remedy of damages at law for breach of contract; (2) that the claim does not fall into one of the eight recognised categories in which equity will order an account; (3) alternatively, that as a matter of discretion an account should not be ordered (a) because Southern Equity has conducted audits of Timevale's books and records for the purpose of identifying unpaid royalties up to 2005, and as Timevale has complied with extensive discovery obligations in the present proceedings, Southern Equity will have ample material to enable it to identify the quantum of any underpaid royalties, while (b) the lax and haphazard prosecution of the proceedings by Southern Equity has resulted in Timevale incurring significant wasted costs some of which will be irrecoverable.
112First, it is not strictly correct that the claim is one for damages for breach of contract; it is a claim for debt - for moneys due and owing by Timevale under the Agreement. That relationship of debtor and creditor satisfies the prerequisites to ordering an account that the plaintiff be entitled to moneys from the defendant, and that the defendant be an "accounting party" [ Doss v Doss (1843) 18 ER 464, 472, Re Sharpe (Drummond J, Unreported, Federal Court of Australia, 11 December 1992), [5]]. Any account would be ordered for the purpose of calculating the amount of the debt, rather assessing damages.
113Secondly, Mr Harris SC's first two submissions are, in essence, that assessment at law is a sufficient remedy. To the contrary, in my view, subject to the discretionary considerations addressed below, this would be a paradigm case for decreeing an account. The relevant information, as to what relevant sales have taken place on which royalty has not been paid is in the possession of the defendant. While Southern Equity has and may conduct an audit under clause 10.2 and 10.3, that will depend on the sufficiency of Timevale's records; moreover, the Agreement casts on Timevale the obligation to calculate the royalty and account for it, and it having been established that it has not done so correctly in some respects, it is appropriate that Timevale bear the burden of doing so correctly now. Many individual transactions over a lengthy period are likely to be involved, such that the matter could not conveniently be examined in a common law trial. The difficulty is exacerbated by Timevale's breach of clause 9.3 insofar as souvenirs are concerned.
114That leaves discretionary considerations. It is true that Southern Equity has conducted audits of Timevale's books and records for the purpose of identifying unpaid royalties up to 2005. It is also true that Timevale has complied with extensive discovery obligations in the present proceedings. However, it is far from apparent that, in the areas that will be relevant to an account - essentially, sales associated with functions - Timevale's records contain the requisite information for an auditor to ascertain (1) whether the relevant function was held wholly or partly in the Barn or elsewhere, (2) if in the Barn, whether it was the exclusive use of the Barn, and (3) what sales were made from the Barn when it was not being used exclusively for functions or entertainment. The location of functions and what non-Barn sales were associated with them is not able to be gleaned from Timevale's records, some of which may in any event no longer be in existence. Accordingly, the conduct of audits and discovery to date is not an adequate substitute for an account in which Timevale bears the onus of disclosing the relevant sales.
115While the last submission, in respect of wasted costs, does not carry much weight in itself, as wasted costs can be addressed by costs orders, the delay in the prosecution of the proceedings is not without significance, because it has lengthened the timeframe to be covered by any account, and thus its complexity, and in the meantime records may have been lost, relevant witnesses may longer be available, and the recollections to which it will be necessary to resort will have dimmed. The practical impact of this on an account for a period commencing twelve years ago is potentially enormous. This is all the more significant in a jurisdiction that places a premium on seeking equitable relief promptly, according to the maxim vigilantibus non dormientibus aequitas subvenit.
116Against that, Timevale has been aware, since 2000, of Southern Equity's concerns that there may have been failures to pay royalty in respect of certain sales from FJ's and the Barn sales: they were raised in the 2000 audit; the FJ's (cafe) sales were a subject of the Demand of 24 November 2000, and the Barn sales were a subject of the 5 December notice. The dispute was never resolved. In respect of FJ's, Timevale's response was that the exclusion was food delivered to Barn functions, and I have found that exclusion to be justified; however, it did not emerge until the hearing that sales in connection with functions conducted not in the Barn but in FJ's itself were also excluded as a matter of routine practice. In respect of Barn sales, the consistent answer has been that no royalties are payable on Barn sales [see, for example, Timevale's letter of 5 October 2000], and/or that Timevale is unaware of any Barn receipts unrelated to entertainment or functions [see, for example, Timevale's letter of 11 December 2000]. Only in Ms Van Geel's affidavit of 15 August 2008 did it emerge that, at least until 2006, there were bar sales from the Barn unassociated with functions or entertainment in respect of which royalty had not been paid. Timevale has consistently operated on a misconceived view of its obligations so far as functions are concerned, involving non-payment of royalty in respect of non-Barn functions, or in respect of non-exempt Barn sales. I cannot see in the evidence any cause for Timevale to suppose that this was known to, let alone accepted by, Southern Equity, when Timevale consistently denied it. In those circumstances, I would not decline, for discretionary reasons, the otherwise appropriate remedy of account, although the accounts should be limited in scope to the areas in which defaults have been established, namely (a) moneys received from sales from outlets other than the Barn to participants in functions, including sales from "functions" held in FJ's cafe, and (b) sales from the Barn (other than in respect of exempt functions), at least until 9 December 2006.
117The order sought for provision of detailed royalty statements is in the nature of specific enforcement of a contractual obligation. Such orders have been made in a similar context. In Burns Philp Trust Co Pty Ltd v Kwikasair Freightlines Ltd (1963) 63 SR (NSW) 492, a trustee held unsecured notes issued by the appellant on trust, and the appellant having covenanted with the trustee to allow inspection of the notes, had refused to do so. The Court (Sugerman, Hardie and Collins JJ) said (at 498-499):
The particular term here sought to be enforced by injunction is not within the class of those promises to which equity denies specific enforcement by reason of a necessity for continuous supervision or otherwise. Courts of equity have found no difficulty in enforcing duties to permit inspection... In the present case the common law provides no adequate remedy. The duty to permit inspection... was not undertaken merely in order that, by breach of it, an acceleration of the liability to pay the principal moneys might be produced. Its purpose was that the trustee... might be better enabled to exercise its office. This same consideration supplies in so far as may be necessary, the relative situation of the parties necessary to give rise to an equity to injunctive relief...
...
As was said by Gavan Duffy J., as he then was, and Starke J., in Pakenham Upper Fruit Co. Ltd. v Crosby, "... the court of chancery had also jurisdiction 'to give effect to a clear right'... in appropriate cases, and the jurisdiction was exercised in such cases by means of both mandatory and prohibitory injunctions"...
118The order claimed is too wide, in two respects. First, the claimed order includes a requirement that the statement show "the total moneys received from each individual business activity conducted by Timevale at the Facility "; that goes beyond the obligation imposed by clause 9.3, which is limited to ""the total moneys received from each individual business activity at [the] hotel ". Secondly, I have found that the statements provided have complied with the requirements of clause 9.3 that they include the total moneys received from each individual business activity at the hotel, so no basis for recovering that subject matter is established. The only legitimate scope of the order, in the circumstances, is "the number of souvenirs sold for each category of souvenirs and the moneys received for each such category".
119The monthly statements provided have stated the amounts received from sales of souvenirs, segregated as "trade mark sales" (attracting 2% royalty) and "other sales" (attracting 1% royalty). Save in the respects already identified as to sales associated with functions, and non-exempt Barn sales, the evidence does not establish, that Timevale has underpaid royalty in respect of any category of souvenirs. Accordingly, although Southern Equity is strictly entitled to them, it is not apparent that making such an order, in respect of the past, will be of practical utility, although a declaration that Southern Equity is entitled to such statements and order that they be provided in futuro may be of assistance.
Interest:
120Southern Equity claims interest pursuant to clause 12.7 of the Agreement, which relevantly provides as follows:
In addition to all and any other rights that the Licensor may have arising from non-payment of any moneys due to him by the Licensee, the Licensee shall pay to the Licensor on any moneys outstanding interest calculated on a daily basis at the indicator or reference rate used from time to time by the Commonwealth Bank of Australia Limited plus 3% per annum, or should there be no such indicator or reference rate; then at the rate of 18% per annum. Such interest shall be payable at the end of the calendar month in which it accrues or upon the date of the moneys in respect of which the interest is payable, are paid, whichever is the earlier...
121Any amount of royalty which is found on the taking of accounts to be outstanding will bear contractual interest in accordance with clause 12.7.
Costs:
122The question of costs is complicated by several matters.
123First , while Southern Equity's success in the substantive proceedings would prima facie, in principle, entitle it to recover its costs, that success is far from complete. Southern Equity has failed on the majority of the contentious issues, and the practical significance of such success as it has achieved remains, in terms of quantum, yet to be ascertained and might prove to be modest.
124Secondly, on the first day of the hearing, Southern Equity abandoned the relief claimed in paragraphs 1, 8 and 10 to 13 of its further amended statement of claim. In written submissions lodged after the hearing, it also abandoned the relief claimed in paragraphs 3 and 9. These parts of its claim will be dismissed. Prima facie, in principle, Southern Equity should pay Timevale's costs attributable to those parts of the claim, at least to the extent that they increased Timevale's total costs.
125Thirdly, Southern Equity also filed a notice of motion shortly prior to the hearing, seeking vacation of the hearing and consequential orders, but when the matter came on for hearing, that application was not pressed. Prima facie, in principle, Southern Equity should pay Timevale's costs of that motion.
126Fourthly, Timevale abandoned a cross-claim, which sought declarations as to the construction of the Agreement, and an order for rectification of the Agreement. The cross-claim will be dismissed. Prima facie, in principle, Timevale should pay Southern Equity's costs of the cross-claim.
127Finally, Southern Equity seeks an order that its costs be recoverable on a solicitor/client basis, pursuant to clause 21 of the Agreement, which provides:
The Licensee will pay to the Licensor upon demand all of the Licensor's reasonable legal costs and disbursements assessed on a solicitor/client basis incurred by the Licensor in respect of obtaining advice relating to and/or arising from any breach or default of any of the covenants, obligations and provisions of this Agreement to be performed by the Licensee. Provided that such indemnity shall only operate in the event of an actual breach of, or default under this Agreement by the Licensee.
128Although under (NSW) Uniform Civil Procedure Rules, 2005, r 42.2, costs are ordinarily assessed on the party/party basis, parties are at liberty to agree as to how costs are to be borne, and a "plainly and unambiguously expressed" contractual provision may provide a basis upon which costs may be assessed other than the party/party basis [ Re Adelphi Hotel (Brighton) Limited [1953] 2 All ER 498, 502 (Vaisey J)]. Clause 21 provides such a contractual entitlement, and the court's discretion ought ordinarily be exercised to reflect the contractual right [ Lava Limited v Avery [2009] NSWSC 237, (at [20])]. But the court may decline to do so, including where a statement of claim fails specifically to plead a contractual entitlement to costs on a particular basis [ Kyabram Property Investments Pty Ltd v Murray [2005] NSWCA 87, (at [16]-[17]). That circumstance does not pertain in the present case, Southern Equity having claimed (at paragraph 18 of its further amended statement of claim) costs assessed on a solicitor/client basis pursuant to clause 21 of the Agreement.
129The solicitor/client basis is no longer a recognised basis for assessing costs in New South Wales, having generally been replaced by the indemnity basis.
130I do not accept Timevale's submission that clause 21 is limited to costs of advice; it extends to costs "arising from any breach or default". But a large proportion of Southern Equity's costs must be attributable to issues on which it has failed, and thus are not attributable to any breach or default. Moreover, Southern Equity's conduct of the proceedings generally, through delay and amendment, has been such that costs have been increased and/or wasted. These factors must be balanced against any contractual entitlement to a costs order on a special (indemnity) basis.
131I have referred to the " prima facie, in principle" position, first because further argument might show that a different result should obtain; and secondly because it is undesirable to make a raft of costs orders in respect of different issues, as to do considerably complicates the process of assessment. Ultimately, I will instead endeavour to adopt a broad-axe overall approach that apportions the total costs of the proceedings, having regard inter alia to the "in principle" position on the various issues, and the extent to which those issues contributed to the total costs.
Conclusions:
132My conclusions may be summarised as follows.
133While by effecting the 1997 renovations Timevale did not maintain the appearance of the Pub and the manner of its fit-out to the same standard and condition as at the time of the official opening, in breach of clause 8.2 of the Agreement, and while no consent or acquiescence on the part of Southern Equity precluded it from now complaining of this breach, there is no evidence of any loss occasioned by it, and proceedings in respect of it are now statute-barred. The renovations were not in breach of clause 6.4, which is concerned not with the existing hotel at the Facility but with further hotels. In light of the specific contemplation by the Agreement of a separate and distinct Barn (which could be altered at any point by Timevale) and Hotel, the physical and practical changes wrought by the 1997 renovations, while they have extended the hotel premises by removing the rear wall and verandah and relocating the bar into the former open space, have not been of such an extent or degree as to deprive the Barn of its character as a separate occupational space, so as to render the Barn a part of the hotel premises. Accordingly, sales and other income generating activity in the Barn are not subject to the higher rate of royalty under clause 9.1(a).
134Clause 9.1(b) catches and catches only the direct proceeds, when received by Timevale, of sales through a retail outlet in the facility to an ultimate consumer, of souvenirs not incorporating EPIP and analogous sales of articles that can be taken away, including food and drink, giftware, clothing, toys, nursery items, mechanical items and pharmaceuticals. It does not catch proceeds of sale of tickets for amusement rides or facility entry fees, nor takings from amusement devices and games and commission derived from vending machines, nor rents received from tenants, whether or not calculated by reference to turnover.
135When the Barn is not being used exclusively for a function or entertainment, Barn receipts attract the lower tier of royalty under clause 9.1(b). When it is being so used, Barn receipts incur no royalty. It was not open to Timevale to exclude from royalty under clause 9.1(b) proceeds of sales merely because they were associated with functions: sales made from outlets other than the Barn in connection with functions, wheresoever held, are not exempt; and sales made from the Barn are exempt only when the Barn was being used solely for a function or entertainment. Timevale has breached clause 9.1(b) by failing to pay royalties on sales from FJ's and other outlets when FJ's was used for functions; by not paying royalties in respect of external-to-Barn sales associated with Barn functions; and by not paying royalties (at least prior to 2006) on Barn sales not associated with exempt Barn functions.
136When food is prepared in Blueys (or for that matter FJ's) but delivered to a function in the Barn, neither sale nor delivery occurs at the hotel premises (or at FJ's), nor does it involve a direct exploitation of EPIP. The supply of food from Blueys to exempt Barn functions does not attract the higher tier of royalty, and the supply of food from FJ's to exempt Barn functions does not attract the lower tier.
137In breach of clause 9.3, Timevale has failed to provide in the monthly royalty statements "the number of souvenirs sold for each category of souvenirs and the moneys received for each such category". While an order that Timevale do so in the future should be made, delay in seeking it and lack of utility in granting it in respect of the past makes it inappropriate to make the order retrospective in operation.
138Southern Equity has not waived any right to claim and receive underpaid royalties prior to 2005. It has not elected between inconsistent rights, and no estoppel arises precluding it insisting on its rights to unpaid royalties.
139Southern Equity is entitled to an order that Timevale account to it for royalties in respect of moneys received by it from retail sales from FJ's and outlets other than the Barn associated with functions wheresoever conducted (other than food delivered to the Barn for an exempt Barn function), and (until 2006) in respect of moneys received by it from Barn sales not associated with exempt Barn functions.
140I therefore propose to make orders to the following general effect:
1.Declare that upon the true construction of the Agreement made on 18 November 1993 between Kenneth Charles Maynard, Ken Maynard Studios Pty Limited and the defendant Timevale Pty Limited ("the Agreement") and in the events which have happened:
a.the Barn does not form part of the Hotel premises, and moneys received by the defendant from sales and other income generating activity in the Barn are not subject to the 2% royalty under clause 9.1(a);
b.the 1% royalty charged by clause 9.1(b) applies and applies only to the direct proceeds, when received by the defendant or an associate, of sale through a retail outlet in the Facility to an ultimate consumer, of souvenirs not incorporating EPIP and analogous sales of articles that can be taken away, including food and drink, giftware, clothing, toys, plants and nursery stock, mechanical items and pharmaceuticals, but not including tickets for amusement rides, facility entry fees, takings from amusement devices and games and commission derived from vending machines, or rents received from tenants, whether or not calculated by reference to turnover;
c.moneys received by the defendant from sales from the Barn of the type referred to in b. attract the 1% royalty under clause 9.1(b) whenever the Barn is not being used exclusively for a function or entertainment, but when it is being so used incur no royalty;
d.moneys received by the defendant from sales of the type referred to in b. from outlets other than the Barn in connection with functions, wheresoever held, attract the 1% royalty under clause 9.1(b), and are not exempt from that royalty even if the relevant function is held wholly or partly in the Barn;
e.food prepared in Blueys but delivered to an exempt Barn function is not sold from the hotel premises but is attributable to the Barn, and money received from such sales does not incur the 2% royalty under clause 9.1(a)(i); and
f.food prepared in FJ's but delivered to an exempt Barn function is not sold from FJ's but is attributable to the Barn, and money received from such sales does not incur the 1% royalty under clause 9.1(b)(i).
2.Declare that in breach of clause 9.1(b) and (c), the defendant has:
a.failed until 9 December 2006 to pay royalties in respect of moneys received from sales from the Barn of the type described in 1.b. when the Barn was not being used exclusively for a function or entertainment; and
b.failed to pay royalties in respect of moneys received from sales of the type described in 1.b. from FJ's and other outlets in connection with functions and group bookings, wheresoever held.
3.Order that an inquiry be held and an account taken of:
a.Royalties payable under clause 9.1(b) in respect of moneys received by the defendant and its associates from Barn sales when the Barn was not being used exclusively for a function or entertainment during the period 30 March 2000 until 9 December 2006;
b.Royalties payable under clause 9.1(b) in respect of moneys received by the defendant and its associates from sales from FJ's and other retail outlets in connection with functions and group bookings, wheresoever held, during the period 30 March 2000 to date.
4.Order that until further order, the inquiry and account proceed before me.
5.Give judgment that the defendant pay the plaintiff the amount certified to be due on the taking of such account, together with interest calculated in accordance with clause 12.7 of the Agreement.
6.Declare that in breach of clause 9.3 of the Agreement, the defendant has failed to provide to the plaintiff detailed monthly royalty statements that show the number of souvenirs sold for each category of souvenirs and the moneys received for each such category.
7.Order that the defendant henceforth include in its monthly royalty statements pursuant to clause 9.3 of the Agreement the number of souvenirs sold for each category of souvenirs and the moneys received for each such category.
141However, it is possible that these reasons may give rise to additional issues that the parties desire to have clarified. It is also possible that they may result in the parties being able to resolve some or all of the remaining issues without having to proceed to a taking of accounts. Accordingly, I will direct that the plaintiff bring in short minutes to give effect to these reasons. In addition to orders to the general effect of those set out above, and any additional orders proposed consistent with these reasons, the short minutes should include directions in respect of the inquiry and account. When short minutes are brought in, I will hear the parties further as to costs, including as to whether it is preferable that the question of costs be deferred until after completion of the inquiry and account.
142At this stage, therefore, my only order is:
(1)Direct that the plaintiff bring in short minutes, on a date to be fixed, to give effect to this judgment.