Yarraburn Nominees & Anor v Alliance Engineering Pty Ltd & Ors

Supreme Court of NSW|2010-09-10|Before: Ball J

CITATION : Yarraburn Nominees & Anor v Alliance Engineering Pty Ltd & Ors [2010] NSWSC 1081

DECISION : See paragraphs 37 and 38 of judgment

CATCHWORDS : ADMINISTRATIVE LAW - judicial review - natural justice or procedural fairness - duty to give notice. HOTELS AND GAMING - Gaming Machines Act - transfer of poker machine entitlements - whether lease gave interest in entitlement - whether plaintiff entitled to restrain transfer. TORTS - detinue - conversion

Australian Casualty Co v Frederico (1986) 160 CLR 513 Boreland v Docker [2007] NSWCA 94 Coleman v Harvey [1989] 1 NZLR 723 Geltch v McDonald [2007] NSWSC 1000 Hill v Reglon Pty Ltd [2007] NSWCA 295 Jabetin Pty Ltd v Liquor Administration Board [2005] NSWCA 92; (2005) 63 NSWLR 602 Kristic v Brindley [2006] NSWSC 1414 CASES CITED : Lagudi Holdings Pty Ltd v Horizon Pty Ltd [2009] NSWSC 240 Masters v Garcia (2005) 65 NSWLR 92 Payne v Parker [1976] 1 NSWLR 191 Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 Re Calf & Sun Insurance Office [1920] 2 KB 366 Reglon Pty Ltd v Hill [2006] NSWSC 1360 Westcott v Hahn [1918] 1 KB 495 at 511 Wonall Pty Ltd v Clarence Property Corporation Ltd (2003) 58 NSWLR 23

Yarraburn Nominees Pty Limited ACN 005 216 526 (First Plaintiff) Peter Douglas Ryan (Second Plaintiff) Alliance Engineering Pty Limited (ACN 000 520 187) (First Defendant) PARTIES : Stephen John Lawler (Second Defendant) Denise Perry (Third Defendant) Richard Bryan Perry (Fourth Defendant) Casino, Liquor and Gaming Control Authority (Fifth Defendant)

COUNSEL : P Bolster (Plaintiffs) C Wilson (First and Second Defendants)

SOLICITORS : Henaghan Williams (Plaintiffs) Friedlieb Byrne (First and Second Defendants)

1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2010/89611 YARRABURN NOMINEES PTY LIMITED & ANOR v ALLIANCE ENGINEERING PTY LTD & ORS JUDGMENT 1 This case concerns the rights to poker machine entitlements (PMEs) allocated in respect of a hotel licence. It also raises a number of subsidiary issues arising from termination of the lease of the hotel. Those issues concern ownership of equipment used at the hotel and the lessee's obligations to make good following termination of the lease. 2 The first plaintiff (Yarraburn) owns the Tuppal Hotel in Finley. Up until recently, Yarraburn was controlled by Mrs Margaret Ryan. Mrs Ryan and her late husband ran the hotel until April 1990, when they retired. Some time in 1989, they engaged Mr May, a real estate agent, to find a purchaser for the business carried on at the hotel. Precisely what happened then is not clear. It appears that the hotel was leased and the business conducted on it was sold to Mr Terry Irvine and his wife. Subsequently, the business was sold, and presumably the lease assigned, to Mr and Mrs Duffy. In April 2000, Yarraburn entered into a new lease with P&B Duffy Pty Ltd, a company that clearly was associated with the Duffys. That lease commenced on 13 April 2000. It was for a period of five years with an option to renew for five years. 3 In May 2000, P&B Duffy assigned the lease that it had just entered into to DJ & PL Jackson and also sold to the Jacksons the business carried on at the hotel. The purchase price was $187,000 of which $28,907 was for furniture and equipment and the balance was for goodwill. The contract of sale attached an inventory of property that was being sold with the business (the 2000 Inventory). That inventory was prepared by Mr May - this time acting for P&B Duffy - and was based on earlier versions he had prepared in connection with previous sales. The inventory lists a number of items that were marked "R/O" (standing for "reference only") - indicating that they were not being sold with the business. The inventory lists four "Olympic poker machines" (which are not marked "R/O"). The case concerns only three of them. What happened to the fourth remains unclear. 4 In 2001, the Gaming Machines Act was passed. The effect of that Act was to freeze the number of approved poker machines for a hotel to the number of poker machines in the hotel on 19 April 2001 and to allocate a PME for each approved machine. The PMEs were allocated "in respect of the hotelier's licence": s 15(2). The Act provides a system for transferring PMEs allocated in respect of a hotel licence. A transfer can only occur with the consent of the Casino, Liquor and Gaming Control Authority - the fifth defendant (the Authority). The persons who under the Act are entitled to control the transfer of a PME are those with a "financial interest" in it: s 19(3). Yarraburn concedes that, while the hotel was leased to Alliance, it did not have a financial interest in the three PMEs with which this case is concerned. The PMEs, of course, are quite distinct from the machines themselves. 5 Normally, PMEs must be transferred in blocks of two or three, and, on transfer, one entitlement must be forfeited to the Authority from each block: s 20(3). An exception exists for the transfer of a single entitlement in any 12 month period between country hotels: s 20(5). That exception is subject to one irrelevant limitation. PMEs may only be transferred to another hotel licence: s 20(1). They have become very valuable. 6 On 3 October 2003, the Jacksons sold the business and assigned the lease of the hotel to the first defendant (Alliance), which is controlled by Mr Lawler, the second defendant, and his wife. The purchase price of the business was $185,000. Again, attached to the contract was an inventory of property that was being sold with the business (the 2003 Inventory). That inventory was based on the inventory attached to the contract of sale to the Jacksons, although it did not purport to identify any items that belonged to Yarraburn. On completion of the sale, Mr Lawler became the licensee of the hotel. 7 In 2007, one of the three PMEs was sold to raise capital to renovate the hotel and to purchase a number of items used in connection with the business. Precisely how that came about is a matter of dispute, but I do not think anything turns on its resolution. What is agreed is that the PME was sold for $170,000 and the proceeds of sale were applied in renovating the hotel and buying additional equipment for it. 8 On 12 April 2010, the lease of the hotel was terminated by agreement. It is not entirely clear whether, at that time, Alliance had exercised the five year option or was in possession on a month to month basis following the expiry of the initial term. But, again, nothing turns on the resolution of that dispute. On 8 April 2010, shortly before the lease terminated, Alliance, relying on s 20(5) of the Gaming Machines Act 2001, transferred one of the remaining two PMEs to Mr and Mrs Perry, the third and fourth defendants, to be held on trust for Alliance and Mr Lawler. Yarraburn complains about that transfer and says that the Authority denied it natural justice by authorising the transfer without consulting it. It is for those reasons that Mr and Mrs Perry and the Authority have been joined as defendants. Each, however, has filed a submitting appearance and none participated in the hearing. Following the termination of the lease, Peter Ryan, Mrs Ryan's son and the second plaintiff, became the provisional licensee of the hotel. 9 Broadly speaking, there are three issues in the case. The first is who owns various items that were taken by Mr Lawler and his wife when they moved out of the hotel or that were left at the hotel at that time. The second is whether Alliance has breached the repair and make good obligations contained in the lease. The third concerns ownership of the two PMEs that were disposed of before the lease was terminated. These issues have been simplified as a result of an agreement reached between the parties on the first day of the hearing. As a result of that agreement, the following issues need to be addressed: a Is Alliance entitled to the items listed on the 2003 Inventory (other than those marked "R/O" on the 2000 Inventory)? It is now agreed between the parties that none of the items marked "R/O" on the 2000 Inventory belong to Alliance. It is also agreed that any dispute about which items listed on the 2003 Inventory are the same as items classified as "R/O" items on the 2000 Inventory should be resolved by an expert appointed by the parties. b If Alliance is entitled to the items listed on the 2003 Inventory, is Alliance nonetheless liable to replenish or restore those items by clause 1.13 of the lease? It is now agreed that if the answer to this question is yes, then Alliance will pay Yarraburn $12,000 on account of those items that were removed by Alliance and replaced by Yarraburn and that if the answer to this question is no, then the expert appointed by the parties will determine the value of the items which remain at the hotel (and which belong to Alliance) and Yarraburn will pay Alliance that amount. I should add that it is also now agreed between the parties that Alliance will pay Yarraburn $4,000 in any event on account of cleaning costs arising from the make good obligations in clause 1.13 of the lease. c Was Alliance entitled to transfer the two PMEs without Yarraburn's consent? It is now agreed between the parties that if the answer in relation to the first PME is yes, then the question whether the proceeds of sale were used to purchase any particular items in respect of which Alliance has made a claim and the current value of those items will be referred to the expert and Yarraburn will pay Alliance the amount determined by that expert, and if the answer is no, Alliance will not be entitled to items purchased from the proceeds of sale of the PME. If the answer is yes in relation to the second PME, then it is agreed that Yarraburn has no claim in respect of it and if the answer is no, then Alliance will direct Mr and Mrs Perry to transfer the PME to Yarraburn. 10 For completeness, I should also say that the parties have agreed that Alliance is not entitled to any item that is a fixture and that the question of whether an item is a fixture or not will be determined by the expert. Is Alliance entitled to the items listed on the 2003 Inventory? 11 This issue raises two questions. The first is whether the items on the 2003 Inventory were transferred to Alliance. The second is whether Alliance now has a claim in respect of those items. 12 As to the first question, Yarraburn submits that Alliance has not established that Yarraburn itself sold any of the items on the 2003 Inventory. All Alliance can establish is that the Jacksons purported to sell those items to it. 13 I do not accept that submission. It is true that there is no contract in evidence for the sale of the business to which Yarraburn is a party. Presumably, any such contract would be between Yarraburn and the Irvines. It is also true that Mrs Ryan said that she could not recall a contract for the sale of the business. However, I think that the likelihood is that the contact for sale between Alliance and the Jacksons is the last in a chain, and that the links in that chain before the transfer from P&B Duffy to the Jacksons have been lost. 14 Mr May gave evidence that, at the time that Mr and Mrs Ryan were considering retiring, he was engaged to sell the hotel business on Yarraburn's behalf and that that is what he did. He has been involved in every transfer of the hotel since. He gave evidence that the usual practice where the owner of an hotel proposed to sell the business of the hotel but to retain ownership of the building was for the owner to prepare a contract of sale of the business and to attach to that contract the lease of the building and an inventory to make it clear which items were being sold with the business. He accepted that it was common practice that the goods and chattels used in connection with the business were sold with it. He said that, in the normal course of events, when acting for the vendor, he would not see the contract for the sale of the business but that he would prepare the inventory - which is what he did in this case. That document clearly draws a distinction between items that remain the property of the landlord and other items. There would have been no point in drawing that distinction if the other items were not intended to be sold with the business; and I do not think that Mr May would have prepared the document that he did unless it was consistent with the instructions he had received from Mrs Ryan and her husband at the time. Nor do I think that Mr May would have prepared modified versions of the original inventory (including the 2000 Inventory and the 2003 Inventory) in connection with subsequent sales of the business in which he acted for the vendor unless he believed that items shown on the inventory were part of the business that was being sold. The original sale of the business occurred about twenty years ago. It is not surprising in those circumstances that the original contract of sale cannot be located. Mrs Ryan, who is 83, clearly has a poor recollection of what happened back then, as she readily conceded. Mr Bolster, who appeared for the plaintiffs, suggested that I should draw an adverse inference against the defendants from the fact that they had not called previous purchasers of the business to establish that the items on the 2000 Inventory and 2003 Inventory that were not marked "R/O" were sold with it. However, there is no evidence that the Irvines were available to give evidence. Nor is there any reason to suppose that they could properly be regarded as being in Alliance's camp rather than Yarraburn's: see Payne v Parker [1976] 1 NSWLR 191 at 201-2 per Glass JA. For those reasons, I am not prepared to draw any adverse inference against Alliance from the fact that neither Mr nor Mrs Irvine were called to give evidence. In my opinion, for the reasons that I have given, it is more likely than not that Yarraburn did sell the items in the hotel (other than those marked "R/O" on the 2000 Inventory) at the time of sale of the business. 15 The second question in this context is whether Alliance now has a claim in respect of the items listed on the 2003 inventory. Mr Bolster says that it does not. In his submission, Alliance's claim is in detinue. An essential element in a cause of action in detinue is that the owner of the goods makes a demand for their return: see Reglon Pty Ltd v Hill [2006] NSWSC 1360 at [21] per Windeyer J (overruled on other grounds in Hill v Reglon Pty Ltd [2007] NSWCA 295). No such demand was made by Alliance before it filed its cross-claim seeking possession of the goods or, alternatively, damages. 16 I do not accept Mr Bolster's submission. Yarraburn commenced these proceedings seeking, among other orders, a declaration that it is the lawful owner of the property listed on the 2000 Inventory. In response, Alliance served a cross-claim seeking possession of those items or, alternatively, damages for their wrongful detention. That claim could equally be brought in conversion. As Somers J explained in Coleman v Harvey [1989] 1 NZLR 723 at 730: "Conversion is the wrongful act of dealing with goods in a manner inconsistent with the owner's rights with the intention of denying the owner's rights or asserting a right inconsistent with them. One of those rights is possession or the immediate claim to it."

This passage was cited with approval in Hill v Reglon Pty Limited [2007] NSWCA 295 at [122] per Beazley JA (with whom Spigelman CJ and Ipp JA agreed). See also Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 229 per Dixon J. 17 In the present case, Yarraburn committed conversion by asserting a right that is inconsistent with the immediate right to possession of Alliance. Is Alliance liable to replace items claimed by it by cl 1.13 of the lease? 18 Clause 1.13 of the lease provides that the lessee covenants with the lessor that it will: "… (1) keep furnished at all times during the said term the demised premises to the satisfaction of the Licensing Inspector for the district in which the premises are situated and (2) shall and will at the expiration of the term hereby granted or other sooner determination thereof leave in the said premises for the absolute use and benefit of the lessors all electric light fittings in the same good order and condition and will replace any of the same which may be broken, destroyed or damaged with similar fittings or similar quality and of equal value and (3) will repair and keep in repair all of the furniture and chattels the property of the Lessor in the premises and (4) will replace all floor coverings, linoleum, curtains, fabrics and coverings which have been discoloured torn or damaged and (5) will make good and replace all furniture and other chattels which shall be marked or damaged in any manner whatsoever and (6) will replenish and restore all such goods and chattels to the minimum number and quality which were upon the premises at the time of taking possession thereof."

(The numbers identifying the conjuncts of this clause have been inserted for ease of reference.) 19 Yarraburn asserts that the words "and will make good and replace all furniture and other chattels which shall be marked or damaged in any manner whatsoever and will replenish and restore all such goods and chattels to the minimum number and quality which were upon the premises at the time of taking possession thereof" refer to all goods and chattels on the premises at the time the lease was entered into. Yarraburn submits that the words impose an obligation on the lessee to replenish and restore those goods and chattels. 20 I do not accept that submission. In my opinion, the reference to "all such goods and chattels" in (6) is a reference back to the various types of goods and chattels referred to in the clause starting with the electrical light fittings referred to in (2). Although (1) refers to an obligation to "keep furnished" the demised premises, it does not itself refer to any goods or chattels and consequently I do not think that it identifies anything to which (6) can refer back. There is a question of what is meant by (5). In my opinion, the reference to "all furniture and other chattels" in that conjunct cannot be read at large. Those words must be read as a reference to furniture and other chattels identified somewhere else in the clause. What (5) is saying is that that furniture and those chattels, to the extent that they are marked or damaged, must be made good and replaced. It might be said that (5) must be given a broader interpretation because (3) already imposes an obligation to repair furniture and chattels belonging to the lessor. But what broader interpretation could it be given? It makes no sense, for example, to interpret (5) as referring to furniture and other chattels belonging to the lessee. Why would the lessor be interested in whether that furniture and those chattels were marked or damaged? And what words in the conjunct suggest that it is concerned with goods and chattels of that type and not others? On the other hand, if the conjunct is interpreted as referring to all goods and chattels in the hotel, that interpretation makes (3) redundant. In my opinion, (5) is concerned with furniture and other chattels referred to elsewhere in the clause which has been marked or damaged and imposes an obligation to make good or replace that furniture and those chattels. It is to be contrasted with (3), which imposes an obligation to repair and keep in repair furniture and chattels belonging to the lessor in the premises. (3) does not impose an obligation to replace. No doubt, there is an overlap between (3) and (5). But cl 1.13 is drafted in a way - typical of many leases - to catch all possibilities rather than to make the most economical use of language; and I do not think that the fact that (3) and (5) impose overlapping obligations is a reason to seek to give (5) a different meaning from the one I have concluded it has. 21 In my opinion, the conclusion of the previous paragraph is supported by the context in which the clause operates. On the findings that I have made, the lease was prepared in circumstances where, to the knowledge of the parties, Yarraburn had sold the business of the hotel and, in connection with that sale, sold goods and chattels used in the business. Against that background, the parties could not have intended by cl 1.13 to impose an obligation on the lessee to replenish and restore goods and chattels that belong to the lessee. 22 It follows that Alliance is obliged to pay Yarraburn $4,000 in respect of cleaning costs, but Yarraburn is obliged to pay Alliance the amount determined by the expert to be the value of the items listed on the 2003 Inventory (other than those marked "R/O" on the 2000 Inventory and other than those determined by the expert to be fixtures). Was Alliance entitled to transfer the two PMEs without Yarraburn's consent? 23 This issue also raises two questions. The first is whether Alliance was prevented by the lease from transferring the PMEs without Yarraburn's consent. The second is whether the Authority denied Yarraburn natural justice in permitting the transfer of the second PME without giving Yarraburn an opportunity to be heard. 24 Clause 4.1 of the lease provides that "the lessee will not use the said premises otherwise than as an hotel". Clause 4.2 provides that the lessee: "… shall and will annually cause application to be made and use his best endeavours to obtain all such licences at his own expense as are or may be necessary for keeping open the said premises as an hotel duly licensed for the sale and consumption thereof of spirituous and fermented liquors by retail;" 25 Clauses 4.10 and 4.11 provide: "4.10 [the lessee] shall and will at the expiration of the term hereby granted or sooner determination thereof transfer and assign and do all acts necessary for transferring and assigning unto the lessor or to such other persons as the lessors may appoint for that purpose the hotelier's licence and any other licences of the said premises for the then current year. 4.11 And that the Lessee will not without the previous consent of the Lessor duly obtained in writing make any application for removal of the license or licenses of the said Hotel." 26 It is relevant to observe that, at the time the lease was executed, PMEs did not exist. Rather, the right of an hotelier to keep poker machines on the premises was governed by the Liquor Act 1982. Section 18 of that Act gave the Licensing Court power to grant a hotelier's license in a form approved by the Liquor Administration Board. Section 20 of the Act made provision for licensees to have conditions imposed on them. One such condition was a condition authorising the licensee to acquire and keep in the hotel a specified number of "approved gaming devices": ss 20(2)(c)(i); 161. "Approved Gaming Device" was defined to include an "approved poker machine" and "authorised poker machine" - terms which were themselves defined in the Registered Clubs Act 1976 in a way which clearly covered the machines in question in this case. For discussion, see Wonall Pty Ltd v Clarence Property Corporation Ltd (2003) 58 NSWLR 23 at [9] - [15] per Campbell J. 27 Although Yarraburn does not have a financial interest in the PMEs, it is accepted that a party that does not have a financial interest can be bound by contractual obligations not to deal, or to deal in a particular way, with PMEs, so long as the obligation is not inconsistent with the scheme of the Gaming Machines Act: Jabetin Pty Ltd v Liquor Administration Board [2005] NSWCA 92; (2005) 63 NSWLR 602; Geltch v McDonald [2007] NSWSC 1000 at [18] per Brereton J. 28 Yarraburn relies on cls 4.10 and 4.11 of the lease. It says that cl 4.11 prevents Alliance from disposing of a PME without Yarraburn's consent and that cl 4.10 requires Alliance to transfer the PMEs to Yarraburn on termination of the lease. 29 There have been a number of cases in which a similar issue has arisen. I will refer to some of them. 30 In Wonall Pty Ltd v Clarence Property Corporation Ltd (2003) 58 NSWLR 23, the permitted use of the hotel was expressed as "licensed hotel and associated activities". Clause 21 of the lease, which was entered into prior to the passing of the Gaming Machines Act, provided: "When the Lease ends for any reason, the Lessee must do everything necessary to transfer to the Lessor or its nominee any transferable licences or permits that are required to carry on the hotel business."

Campbell J (as he then was) concluded that, while cl 21 required the lessee to transfer back at the end of the lease any PMEs which might at that time be allocated in respect of the hotelier's licence, neither cl 21 nor any other provision of the lease prevented the transfer of PMEs prior to the end of the term. In reaching that conclusion, his Honour pointed out that, while the parties knew at the commencement of the lease that there were poker machines on the premises, the lease did not oblige the lessee to continue to carry on all the activities on the premises that were carried on at the time the lease commenced. 31 The opposite conclusion was reached by the Court of Appeal in Boreland v Docker [2007] NSWCA 94. In that case, cl 7.2 of the lease provided: "The Lessee will keep current all licences and permits and registrations required for the Permitted Use and wherein any such licence or permit or registration has been transferred to the Lessee or its nominee by the Lessor or the transfer thereof has been procured by the Lessor, upon the expiration of this Lease or its earlier termination, the Lessee will transfer or caused to be transferred each such licence or permit or registration to the Lessor or its nominee at no cost to the Lessor."

The Court of Appeal concluded that (1) the operation of poker machines was part of the existing operation of the hotel and consequently was part of the permitted use; (2) the PMEs that were attached to the relevant hotelier's licence were encompassed in the expression "each such licence"; and (3) cl 7.2 required the hotelier's licence to be transferred back to the lessor in the form it was transferred together with whatever conditions applied at the commencement of the lease and whatever incidents were attached to it; (4) therefore, cl 7.2 required the lessee to transfer back the hotelier's licence with the PMEs that had been allocated to it at the time of the commencement of the lease: [2007] NSWCA 94 at [128] - [131] per Beazley JA with whom Mason P and Ipp JA agreed. In reaching this conclusion, Beazley JA did not deal in any detail with Wonall. Her Honour thought that the wording of the lease in that case was sufficiently different from the wording with which the court in Boreland was concerned; and, in any event, Wonall was decided before the principles relating to PMEs were clearly established by the Court of Appeal in Jabertin and in Masters v Garcia (2005) 65 NSWLR 92. 32 In each of Kristic v Brindley [2006] NSWSC 1414 and Geltch v McDonald [2007] NSWSC 1000, the court reached the same conclusion as the Court of Appeal in Boreland. In Kristic, the lease contained an obligation "to use the best endeavours to maintain and extend the business" of the hotel. Campbell J thought that it was inconsistent with this obligation for the lessee to seek to dispose of one of the PMEs attached to the relevant licence. In Geltch - a case where the lease was entered into before the Gaming Machines Act came into force - cl 9.1 of the lease imposed an obligation on the lessee "to apply for and maintain all Licences [defined to mean the hotelier's licence] and authorities that may be required by law to enable the sale of food and beverages (alcoholic and non alcoholic) and the provision of entertainment that may be required by law". Brereton J, in reaching the conclusion that the lessee could not dispose of PMEs during the course of the lease, thought that the critical words were "maintain … all … authorities … to enable … the provision of entertainment". His Honour reached the opposite conclusion in Lagudi Holdings Pty Ltd v Horizon Pty Ltd [2009] NSWSC 240. There, the relevant clause (cl 4.2) provided: " Business Licences. The Lessee shall obtain and keep current all licences and permits required for the carrying on of all activities conducted by the Lessee in or upon the Premises.

His Honour thought that this wording was sufficiently different from the wording of cl 9.1 in Geltch . Clause 4.2 was not concerned with the hotelier's licence. That licence was dealt with in another clause. Clause 4.2 did not contain anything like the critical words "maintain all authorities to enable the provision of entertainment". Moreover, it was juxtaposed to a provision that the lessor did not warrant that the premises were able to be used for any specific activity. 33 Although these decisions provide a useful guide to the approach to be taken to the question of construction in this case, they cannot determine the issue. They could only do so if the language and the circumstances of the present case and those that are said to operate as a precedent are substantially identical, which plainly they are not: see Re Calf & Sun Insurance Office [1920] 2 KB 366 at 382; Australian Casualty Co v Frederico (1986) 160 CLR 513 at 525; Westcott v Hahn [1918] 1 KB 495 at 511 per Scrutton LJ . However, two relevant points emerge from the decisions I have referred to. First, depending on the context, the word "licence" may be sufficiently broad to catch PMEs. Secondly, the word 'licence" will, in an appropriate case, be interpreted as being ambulatory - that is, as catching species of licence that were not in existence at the time the lease was entered into. Neither of these points is surprising. Prior to the passing of the Gaming Machines Act, the right to operate poker machines in an hotel was attached to the hotelier's licence; and so when the parties sought to govern what could be done with that licence they must, in the absence of some contrary indication, be taken to have been dealing with the operation of poker machines at the same time. Under the Gaming Machines Act, PMEs in a sense remain attached to hotelier licences, although they can now be transferred between licences and, unlike the licences themselves, are a species of property: Boreland [2007] NSWCA 94 at [89], [106]. In those circumstances, it seems logical to treat parties who place restrictions in respect of licences relating to the hotel as they existed before the Gaming Machines Act came into force as intending those restrictions to apply to PMEs - again, of course, in the absence of some contrary indication in the contract. 34 In this case, Alliance sought to place emphasis on the fact that cls 4.1 and 4.2 of the lease limited the permitted use of the premises to the operation of an hotel which was licensed for the sale and consumption of spirituous and fermented liquors by retail. However, in my opinion little weight can be placed on those clauses. At the time that the lease was entered into, poker machines were operating on the premises. The parties could not have intended by cls 4.1 and 4.2 to have prohibited the continued use of those machines. 35 One way of approaching the interpretation of clauses 4.10 and 4.11 is to ask what the position would have been before the Gaming Machines Act came into force. Would those clauses have prevented the lessee from varying the hotelier's licence so as to remove the condition permitting the licensee to keep in the hotel a specified number of approved gaming devices? In my opinion, the answer to that question is that they would have. Although cl 4.10 does not expressly say that the licensee may not seek to vary the licence, I think that an obligation of that type is implicit in the clause taken together with cl 4.11. The condition permitting the use of poker machines seems to me to fall within the description "any other licences" in cl 4.10; and cl 4.11 prevents the removal of such a licence without the Lessor's prior written consent. The commercial purpose of the clauses is to ensure that licences that are important to the value of the hotel as a hotel are returned to the Yarraburn at the end of the lease. An interpretation of cls 4.10 and 4.11 which would permit the lessee to undermine seriously the value of those licences before they are transferred to Yarraburn would undermine that commercial purpose. It seems to me that cls 4.10 and 4.11 operate in the same way in relation to PMEs. As I have said, courts have been prepared to interpret the word "licence" to cover PMEs; and there is no reason why that word should not be interpreted in that way in this case. Clause 4.11 does not expressly prohibit the assignment of the licences with which it is concerned. However, in the context, in my opinion, an application to transfer a licence falls within the description "any application for removal of the license or licenses of the said Hotel", since it is an application that has the effect of removing the PME from the hotelier's licence associated with hotel which is the subject of the lease. 36 It follows from what I have said that it is not necessary to consider Yarraburn's alternative case that the Authority denied it natural justice in permitting the transfer of the PME without first giving Yarraburn an opportunity to be heard. I should say, however, that I find it very difficult to see how the Authority owed an obligation of natural justice to a person who, under the relevant legislation, has no interest in the PME that is the subject of the application for transfer. Costs and conclusion 37 That leaves the question of costs. Alliance has been successful in relation to the make good obligations of the lease. Yarraburn has been successful in relation to the entitlements to the PMEs. The two issues occupied similar lengths of time at the hearing. In those circumstances, I think that it is appropriate not to make any order in relation to costs. 38 The parties should bring in short minutes of order that are consistent with this judgment. If the parties can agree on those short minutes, I will make the orders in chambers. If not, the parties should relist the matter before me for argument in relation to the form of the short minutes.

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Liquor Act 1982(NSW)

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Cases Cited (12)