11 Thus, while sub-section (1) prohibits and makes it an offence to keep or dispose of a gaming machine unless the keeping or disposal is authorised, sub-section (2) empowers the Board to authorise a hotelier to keep or dispose of such machines and to vary such authorisation from time to time.
12 Section 20(7) provides that if the Board approves the transfer of Poker Machine Entitlements, it is also to vary the authorisation under Pt 5 of both the transferor and transferee to keep approved poker machines. Given that upon a transfer of a block of three poker machines, one would have to be forfeited, the result would be that the authorisations of the transferor would be reduced by three, and those of the transferee would be increased by two.
13 Section 56(2) has the effect that only an hotelier or a registered club can be given a s 56 authorisation, and that is reflected in s 57(1) (which provides for applications for such authorisation or variations of them by an hotelier or registered club). But it does not follow that an authorisation granted under s 56(2) is an authorisation, a permit or anything else "under" the licence held by the hotelier. The licence does not provide for, or authorise, or govern, the issue of authorisations, nor contemplate their existence or their grant. Provision in respect of those matters is made by s 56 and other aspects of Pt 5 of the Gaming Machines Act. A s 56 authorisation is granted under s 56, not under the liquor licence. It is not a permit under the relevant liquor licence.
14 In Zangne Pty Ltd v Cooper [2007] NSWSC 173, White J expressed the view on an interlocutory application, that it was at least seriously arguable (and indeed, prima facie correct) that an authority to keep Poker Machine Entitlements under s 56, given to the holder of an hotelier's licence, could be said to attach to the licence. However, in that case his Honour was concerned with a definition of "licence" which extended its ordinary meaning to include "all permits and authorities attaching thereto". Accordingly, the substance of what his Honour concluded was that, for the purpose of the particular definition of "licence" applicable in that case, a s 56 authority could be said to be an authority attaching to the relevant licence. There is no equivalent definition in this case, the term used being "permit under", which differs in content from "authority attaching to".
15 Accordingly I do not accept that the authorities are "under the license" nor that an application which could ultimately lead to the extinction of a poker machine entitlement is one in respect of the license as defined.
16 Turning to the second issue, Mr Ireland submitted that the extended definition of licence, as including a "permit under the licence", brought a poker machine authority, which would be jeopardised by an application to transfer the corresponding entitlements, within the scope of covenant 7.4. My above conclusion that a poker machine authority is not a permit under the relevant licence disposes of that submission also.
17 I turn then to the third issue, namely the submission that the proposed transfer of the Poker Machine Entitlements amounts to a failure to manage and conduct the business in a proper businesslike, efficient and orderly manner in contravention of covenant 7.7.
18 First, I have already referred to the definition of "business", but it is to be noted that the business is, of course, the lessee's business, and is presumably carried on primarily for the benefit of the lessee. And the definition - in referring to the lessee's business of whatsoever nature - does not convey the sense of a business necessarily fixed in time, but connotes a substantial degree of flexibility about the content of the business. In that respect, the case is different from Oblift Pty Ltd v Liquor Administration Board [2006] NSWSC 1279, in which a covenant "to manage and conduct the said business and to procure that the same is managed and conducted at all times in a proper and orderly manner" was complicated by the absence of any definition for prior reference to "the said business", a lacuna which was to some extent overcome by evidence of the nature of the business at the commencement of the lease. There was no such evidence in the present case.
19 Secondly, the evidence plainly establishes that poker machine revenue comprises a very significant component of the business of the Turvey Tavern. However, the evidence also establishes that there has been a reduction in the revenue derived from poker machines since mid 2007 (when restrictions on smoking in club premises and poker machines areas took effect). The evidence also establishes that there has been a reduction in revenue per machine in the hotel since that time.
20 Thirdly, I accept that the proposed transfer of three Poker Machine Entitlements is part of a plan on the part of the lessee to realise for its own benefit all the Poker Machine Entitlements prior to termination of the lease.
21 Generally speaking, covenants of the type contained in covenant 7.7 are concerned with the manner of conducting a business, rather than with an obligation to conduct it at all [see Tsangaris v Gaymark Investments Pty Ltd (1986) 82 FLR 269; Jervis v Tomkinson (1856) 1 H & N 195; Wheatley v Westminster Brymbo Coal Company (1869) LR 9 Eq 538; Jegon v Vivian (1871) LR 6 Ch App 742; and EMS Quarries Pty Ltd v Beaumont [2001] NSWSC 355, where Windeyer J collects and considers the foregoing cases (at [16]-[22])].
22 In the context of a hotel lease, such a covenant is also concerned to protect the licence, by ensuring that the business is carried on in a manner which does not attract adverse attention of the licensing authorities and jeopardise its future. Unlike the covenant under consideration in Krstic v Brindley [2006] NSWSC 1414, this covenant imposes no obligation to maintain the business, and unlike that in Oblift v Liquor Administration Board, this covenant does not contain separate obligations to manage and conduct the business simpliciter, as well as to procure that it be managed and conducted in a proper and orderly manner: it is noteworthy that clause 13(f) of the lease in Oblift imposed an obligation "to manage and conduct the said business and to procure that the same is managed and conducted, at all times, in a proper and orderly manner" [emphasis added]. In Oblift, Campbell J was assisted by evidence of the nature of the business at the date of the lease, which included the operation of 14 poker machines, to conclude that it at least seriously arguable that that covenant imposed an obligation to retain 14 poker machines on the premises. But in Oblift, the covenant did not use "businesslike" and "efficient" as criteria.
23 Efficient management of a business can clearly involve a reduction, as well as an increase, in the scale of the undertaking. Here, unlike in Oblift, there is a definition of "business" which, as I have said, seems to contemplate a flexible rather than a fixed state of affairs. Unlike in Oblift, there is no obligation to maintain the business in its current form and scale. The efficient and businesslike management of a business is not inconsistent with the withdrawal of capital, or the sale of income-generating assets for profit, at least where it will be more beneficial for the proprietor to realise the asset for profit than to leave it as an income generating asset. Indeed, in some circumstances, to do so may maximise the profitability of the business. The withdrawal of capital from a business may be an efficiency in the conduct of the business. I can see no basis for concluding that the sale of three Poker Machine Entitlements is a failure to manage and conduct the business in a proper businesslike, efficient and orderly manner.
24 Mr Ireland submitted that if it were to be contended that it was an efficiency to realise the Poker Machine Entitlements rather than to retain them, the defendants bore an onus of making good that proposition and adducing evidence to establish it. However, in a case where a plaintiff is asserting that there has been a breach of the relevant covenant, or that such a breach is threatened, the onus must be on the plaintiff to make good that proposition, including to show that what is proposed would not be an efficiency. I do not decide this case on the basis that it is necessarily a financial efficiency to sell the Poker Machine Entitlements now, and that such a course is a more efficient outcome than retaining them in the business, though it may well be: I decide the case on the basis that it has not been shown to my satisfaction that the course prepared by the defendants, at least in respect of these three Poker Machine Entitlements, is a failure to manage the business in a businesslike and efficient manner.
25 Accordingly, on all three contentions the plaintiff fails.
26 I order that the summons be dismissed with costs.
27 I order that the exhibits be returned.
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