Boreland v Docker

[2007] NSWSC 53

CITATION:	John Leslie Boreland v Shane Docker & 1 Or [2007] NSWSC 53 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	31/01/07, 01/02/07
JUDGMENT DATE :	9 February 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	White J
DECISION:	See paragraph 118 of the judgment.
CATCHWORDS:	CONTRACT – Offer and Acceptance – Offer to vary terms of lease – Whether precise correspondence between offer and purported acceptance - LIQUOR LAW – Poker machine entitlements – Lessee required to transfer hotelier’s licence on termination of least at lessors’ direction – Whether poker machine entitlements held on trust for lessors prior to lessors re-taking possession - LANDLORD AND TENANT – Lease of licensed premises – Term that lessors were beneficial owners of hotelier’s licence – Where no trust created because licence is not property – Implications with respect to poker machine entitlements appurtenant to licence.
LEGISLATION CITED:	Gaming Machines Act 2001 (NSW) Liquor Act 1982 (NSW) Conveyancing Act 1919 (NSW) Trustee Act 1925 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
CASES CITED:	J W Carter, Carter on Contract, LexisNexis Butterworths, Sydney, 2002 Tonitto v Bassal (1992) 28 NSWLR 564 Jabetin Pty Ltd v Liquor Administration Board (2005) 63 NSWLR 602 Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4 ed, para [20-035] Walsh v Lonsdale (1882) 21 Ch. D. 9 Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Austotel Pty Ltd v Franklins Self Serve Pty Ltd (1989) 16 NSWLR 582 Masters v Garcia (2005) 65 NSWLR 92 Jack v Smail (1905) 2 CLR 684 Ex Parte Berry Re Kessell (1936) 36 SRNSW 485 Slatter v Railway Commissioners (NSW) (1945) 45 CLR 68 Casino & Tavern Pty Ltd v Hurlfobe Pty Ltd (1997) 8 BPR 15,505 Wonall Pty Ltd v Clarence Property Corporation Ltd (2003) 58 NSWLR 23 Evans v Collins [2006] NSWSC 427 Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Fitzgerald v Masters (1956) 95 CLR 420 Hurstville Municipal Council v Connor (1991) 24 NSWLR 724
PARTIES:	John Leslie Boreland v Shane Docker & 1 Or
FILE NUMBER(S):	SC 6461/05
COUNSEL:	Plaintiff: G A Moore, A Hatzis Defendants: D Murr SC, J Conomy
SOLICITORS:	Plaintiff: Mavrakis & Associates Defendants: JDK Legal

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Friday, 9 February 2007

6461/05 John Leslie Boreland v Shane Docker & 1 Or

JUDGMENT

1 HIS HONOUR: These proceedings concern the poker machine entitlements allocated in respect of a liquor licence held by the lessee of the Arncliffe Hotel. The plaintiff claims to be entitled to apply under s 19 of the Gaming Machines Act 2001 (NSW) to the Liquor Administration Board for the transfer of such poker machine entitlements. The plaintiff became the lessee of the hotel on 1 August 2003. The defendants are the owners and lessors of the hotel.

2 Prior to the entry into the lease, seventeen poker machine entitlements had been allocated in respect of the hotelier’s licence for the hotel. In November 2006, the plaintiff entered into an agreement to sell all of his interest in the poker machine entitlements at the Arncliffe Hotel for a price of $2,062,500 plus GST.

3 An application has been made by the plaintiff to the Liquor Administration Board pursuant to s 19 of the Gaming Machines Act for approval of the transfer of the poker machine entitlements. That application is presently stayed until these proceedings are determined.

4 The plaintiff acknowledges that on termination of the lease, he will be required to transfer the hotelier’s licence, and any poker machine entitlements then allocated in respect of it, to the defendants or their nominee. He claims to be entitled to deal with the poker machine entitlements for his own benefit in the meantime.

5 The defendants contend that the lease was terminated by a notice to quit which expired on 24 March 2006. If this is correct, and the defendants are not estopped from so contending, it is common ground that the plaintiff is required to transfer both the licence and the poker machine entitlements to the defendants or their nominee. The defendants also contend that even if the lease is on foot, certain covenants in the lease preclude the plaintiff from dealing with the poker machine entitlements in the way the plaintiff has done and proposes to do.

The Lease

6 The parties entered into a lease of the hotel to the plaintiff on 1 August 2003. The lease was a weekly lease terminable on one month’s notice. It included the following covenants:

“ DIVISION 7 LESSEE’S BUSINESS
7.1 PERMITTED USE
The Lessee will only use the Premises for the Permitted Use specified in Item 10.
7.2 BUSINESS LICENCES
The Lessee will keep current all licences and permits and registrations required for the Permitted Use and where 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 cause to be transferred each such licence or permit or registration to the Lessor or its nominee at no cost to the Lessor.
7.3 STATUTORY REQUIREMENTS
The Lessee will at all times comply with all statutes, ordinances, proclamations, orders and regulations affecting the Premises and the Lessee’s use of the Premises and the Lessee’s Property. The Lessee will at all times comply with all notices and orders given by any Licensing Authority in relation to the Premises, the Lessee’s use of the Premises and the Lessee’s Property. The Lessee indemnifies the Lessor in relation to any failure by the Lessee to comply with the Lessee’s obligations under this Clause. Unless required by the Lessee’s particular use of the Premises, the Lessee is not responsible for any structural alterations. ”

The use specified in item 10 was “ Hotel ”.

7 The lease also contained the following provisions:

“ Division 23 LIQUOR LICENCE
23.1 The Liquor Licence attaches to the Premises or part of them.
23.2 The Lessee acknowledges that the Lessor is the beneficial owner of the Licence and that it is permitted by its nominee to exercise the Liquor Licence while it is Lessee provided that it complies with this Division.
23.3 The Liquor Licence shall not be so exercised or dealt with that:
(a) proceedings are instituted by a Licensing Authority against the Licensee;
(b) a Licensing Authority adds any condition to the Liquor Licence that is restrictive and adverse to the commercial value of the Liquor Licence;
(c) the Liquor Licence is placed in jeopardy in that a Licensing Authority threatens to suspend the operation of the Liquor Licence, cancel the Liquor Licence or restricts its use;
(d) the hours of trade of the Liquor Licence are restricted;
(e) Duties payable by the Licensee are not paid when payment is due; and
(f) Proceedings are instituted against the Licensee and/or Lessor for breach of any relevant law by the Lessor or Licensee. ”

The Issues

8 The notice to quit gave one month’s notice of termination of the lease expiring on 24 March 2006. The grounds upon which the plaintiff contends that the notice to quit was not effective to determine the tenancy was that he claimed that the lease had been varied by correspondence between 12 May 2005 and 12 September 2005 which had the effect of extending the term to 31 August 2007. Alternatively, he says that the defendants are estopped from denying that he remains the lessee of the hotel.

9 The first issues are:

1. Whether the lease was determined on 24 March 2006 by the notice to quit given on 23 February 2006;

2. If so, whether the poker machine entitlements are presently held on trust for the defendants, or whether the defendants are entitled only to personal remedies against the plaintiff.

10 If the lease has not been determined, the further issues are:

1. Whether the plaintiff holds the poker machine entitlements on a resulting trust for the defendants;

2. Whether the poker machine entitlements are permits required for the permitted use of the premises which the defendants procured to be transferred to the plaintiff’s nominee, and which by reason of clause 7.2, the plaintiff is required on termination of the lease to transfer to the defendants or their nominee at no cost to the defendants;

3. Whether on the proper construction of clause 23.2, the plaintiff is required to hold the poker machine entitlements, which had been allocated in respect of the licence, for the benefit of the defendants and is thereby precluded from selling those entitlements for his own benefit; and

4. Whether because, at the time the defendants procured the transfer of the liquor licence to the plaintiff’s nominee, seventeen poker machine entitlements were allocated in respect of it, the obligation of the plaintiff under clause 7.2 on termination of the lease to transfer the licence to the defendants or their nominee requires the transfer back of that which had earlier been transferred to the plaintiff’s nominee, namely, the licence in respect of which seventeen poker machine entitlements had been allocated.

Was the Lease Validly Terminated?

11 As I have said, the lease was a periodical weekly lease. As at April 2005, the rent was $4,000 per week inclusive of GST. The lessors were Mr Shane Docker and Mr Daniel Docker. It was an agreed fact that whilst both Messrs Dockers remained the registered proprietor of the land, the beneficial interest in the land was ultimately held by Mr Daniel Docker.

12 On 2 May 2005, writing as a director of Docker Holdings Pty Ltd, Mr Daniel Docker advised the plaintiff that effective from 9 May 2005, the weekly rent for the Arncliffe Hotel would be $6,000 per week plus GST. Shortly before writing this letter, he had told the plaintiff that he had received an offer from another party to enter into a lease of the hotel at that rent. He told the plaintiff that if he wanted to stay, he could either buy the hotel for $6,000,000 or pay Mr Docker $6,600 per week in rent. The plaintiff understood that this was not negotiable. Mr Docker put the matter to the plaintiff on the basis that he could take it or leave it, and if he did not take it, the plaintiff would have to leave.

13 On a later occasion, the plaintiff told Mr Docker that he needed more time in the hotel to recover the moneys he had expended. The plaintiff asked for a couple of years. Mr Docker told him that he could stay until August 2007 on the same terms and conditions as the current arrangements.

14 The finding which I have made in the preceding paragraph is based upon the evidence of Mr Docker. He was not cross-examined on that evidence. Where his evidence conflicted with that of the plaintiff, I prefer the evidence of Mr Docker.

A Non-Issue: Whether There was a Prior Agreement that the Plaintiff Could Stay Until August 2007

15 The plaintiff contended that an agreement had been made in 2004 that he could remain at the Arncliffe Hotel until at least August 2007. However, the plaintiff did not plead that there was an agreement in 2004 (or at any time before correspondence in 2005 to which I will refer) pursuant to which he was entitled to keep possession of the hotel until August 2007. The plaintiff annexed to his affidavit a document purporting to be a letter dated 24 March 2004 which he says he sent to Docker Holdings Pty Ltd on or about that date. His letter referred to his having had a conversation with Mr Docker concerning a letter which Mr Docker’s solicitors had written on 22 March 2004. In the purported letter, the plaintiff stated that:

“ You stated that Jon Martin instigated the letter, just reiterating the term of the lease when we had the agreement that I could be at the Arncliffe Hotel until at least August 2007 as the project at Wolli Creek was progressing quite slowly. ”

16 The reference to the “project at Wolli Creek progressing quite slowly” was to a matter which was common ground. When the plaintiff entered into the lease of the Arncliffe Hotel in August 2003, Mr Docker proposed establishing a hotel at Wolli Creek. He proposed at that time transferring the licence at the Arncliffe Hotel to the hotel to be established at Wolli Creek. The Arncliffe Hotel was very run down. He proposed to the plaintiff that when the new hotel at Wolli Creek was built, if Mr Docker chose to lease the Wolli Creek hotel, the plaintiff could have the first right of refusal to take the lease.

17 It was not suggested that there was any definite agreement about the building of a new hotel at Wolli Creek or the giving of a lease of it to the plaintiff. Rather, it was an indefinite proposal which reflected Mr Docker’s then intentions. By early 2005, Mr Docker decided not to proceed with the proposal.

18 The plaintiff did not give evidence in his affidavit of conversations which might amount to an agreement in 2004 or earlier that he should be entitled to remain in possession of the Arncliffe Hotel until August 2007. In his oral evidence, he asserted that such an agreement had been arrived at. Although the matter does not strictly arise, because there is no pleaded issue to which it is relevant, I should say that I do not accept that evidence.

19 Nor do I accept that the plaintiff wrote to Mr Docker on 24 March 2004 as he deposed to. The letter of that date was not received by Mr Docker or anyone on his behalf. The plaintiff produced what he said were diary notes of conversations on 23 and 24 March 2004. Those notes appear on pages of a diary immediately below what are clearly notes prepared on a running basis by employees of the hotel in relation to operational matters. However, the diary upon which the notes were entered was a diary for the days of Wednesday 23 and Thursday 24 March 2005, not Tuesday 23 and Wednesday 24 March 2004. The notes were not contemporaneous notes as the plaintiff deposed to. I conclude that they were created for the purpose of bolstering his evidence in the present proceedings. I take this into account in assessing the plaintiff’s credit.

Correspondence of 2005

20 To return to the events of 2005, following the conversation between the plaintiff and Mr Docker in which Mr Docker told the plaintiff that he was prepared to let him stay until August 2007, Mr Docker gave instructions to his solicitor, Mr Martin of JDK Legal, that Mr Docker had told the plaintiff that his rent would increase to $6,000 per week plus GST. Mr Docker told Mr Martin that:

“ I have also said that he can stay at the Arncliffe on the same terms and conditions until August 2007. Can you get him a letter? ”

21 Mr Martin wrote to the plaintiff on 12 May 2005 as follows:

“ We are instructed by our client, Mr Docker, that your rent will increase to $6,000 plus GST per week from 1 July 2005.
We are also instructed that Mr Docker will permit you to remain in occupation under the terms of the existing lease until 31 August 2007, subject to you:
(a) continuing to observe the covenants of the lease; and
(b) paying all arrears of GST for rent by no later than 31 May 2005. We are instructed the amount as at 31 May 2005 will be $38,250.
If you fail to comply with (a) and (b), our client’s offer to allow you to remain in occupation until 31 August 2007 is automatically withdrawn without further notice. ”

22 The plaintiff telephoned Mr Martin and told him that the requirement in the paragraph of the letter that he pay all arrears of GST for rent was incorrect because the existing rent was inclusive of GST. This point was conceded by the defendants.

23 On 23 June 2005, Mr Daniel Docker, (writing under the letterhead of Dockers Holdings Pty Ltd) wrote to the plaintiff as follows:

“ WEEKLY TENANCY OF THE ARNCLIFFE HOTEL, ARNCLIFFE
I refer to the letter from JDK Legal to you dated 12 May 2005.
I confirm that on and from 1 July 2005, your rent will increase to $6,000 plus GST per week.
I also confirm that provided you continue to observe the covenants of your lease, I will permit you to remain in occupation under the terms of the existing lease until 31 August 2007.
For the avoidance of doubt, your obligations under the lease include compliance with all statues, [sic] ordinances, proclamations, orders and regulations affecting the premises – this includes the fire safety compliance work you have carried out to date and any future fire safety measures and/or requirements for place of public entertainment approval at the premises. ”

24 From 1 July 2005, the plaintiff paid the increased rent of $6,000 plus GST per week.

25 The plaintiff deposed that on 12 July 2005, he sent a letter to Mr Martin of JDK Legal as follows:

” 12 July 2005
Mr Jon Martin
JDK Legal
Level 5
1 Castlereagh Street
SYDNEY NSW 2000
Fax: [phone]
Dear Sir
J L Boreland lease from D T Docker and S Docker
The Arncliffe Hotel, 185 Princes Highway Arncliffe, 1/442336
Your Ref: JCM:030392
I refer to your letter dated 12 May 2005 and reply as follows:
1. I accept the lessor’s offer to extend the term of the existing lease until 31 August, 2007 with a weekly rental of $6,000.00 plus GST from 1 July 2005 with no further increases.
2. I have paid via netbank to the lessor in the sum of $6,600.00 being the new rental for the week commencing 1 July 2005 and shall continue to pay by equal weekly instalments in advance on each rent payment date as provided in the lease.
3. I advise that all GST for past rent has been paid as it was due and that the lessor has received input tax credits on the rent of $4,000.00 which was inclusive of the GST. I accept the rental increase to $6,600.00 inclusive of GST but consider this excessive and feel that I am under duress in doing so, given that I have spent in excess of $500,000 on the premises, some items required by notices of authorities, as discussed with the lessor at the time of commencement of the lease, as you are aware.
I thank you for extending the term of the lease until 31 August 2007.
Yours faithfully
THE ARNCLIFFE HOTEL
John Boreland”

26 This letter was not received by Mr Martin. For reasons which appear later, I do not accept that it was sent by the plaintiff.

27 On 12 September 2005, the plaintiff wrote another letter in precisely the same terms, save as to the date, to Mr Martin.

28 The plaintiff’s case was that by either the letter of 12 July 2005 or the letter of 12 September 2005, he accepted the defendants’ offer contained in the letter of 12 May 2005 from JDK Legal. It was the plaintiff’s position that because the correspondence was identical, and because the letter of 12 May 2005 had not been withdrawn prior to 12 September 2005, it did not matter whether or not the letter of 12 July 2005 was sent or received. As pleaded, the plaintiff’s case was that the lease was varied by an offer of 12 May 2005 from the defendants’ solicitor, which was accepted by the plaintiff’s letter dated 12 July 2005, which acceptance was reaffirmed by the letter of 12 September 2005.

Was the Letter Dated 12 July 2005 Sent?

29 Because there are different ways in which the plaintiff’s case could be put, although not pleaded, it is desirable to express a conclusion as to whether or not the letter of 12 July 2005 was sent. It is desirable to do so because one possible analysis is that the letter of 12 May 2005 (or the letter of 23 June 2005) was an offer to vary the terms of the tenancy which, if not accepted by the payment of rent on 1 July 2005, was subject to a counter offer on 12 July 2005, which counter offer might have been capable of acceptance by the acceptance of rent without objection after 12 July 2005. No such case was pleaded or argued. If, however, it were sought to be raised on appeal, it would be undesirable for there to be no finding as to whether the letter of 12 July 2005 was sent.

30 It is striking that the letter of 12 September 2005 makes no reference to the plaintiff’s alleged reply of 12 July 2005 to JDK Legal’s letter of 12 May 2005. If the plaintiff had replied to JDK Legal’s letter on 12 July 2005, but had heard nothing further in response to that reply since that time, and so wrote again in September, one would expect him to make reference to his earlier reply to JDK Legal’s letter.

31 As I understand the plaintiff’s evidence, it is that he had saved his letter of 12 July 2005 in his computer, and then, not having received any response to it, changed the date on the letter and sent it out without any other changes.

32 In an affidavit of 30 January 2007, the plaintiff annexed a report which he had accessed from his computer which, he said, confirmed that the letter of 12 July 2005 was created on that day. The annexure consisted of a screen shot of a letter dated 12 July 2005 addressed both to Mr Martin of JDK Legal and to Mr Docker of Docker Holdings Pty Ltd. It showed that the letter had been created at 6.49pm on 12 July 2005, modified at 7.15pm on 12 July 2005, and accessed on 30 January 2007.

33 The document to which this report related was not the same physical document as the letter of 12 July 2005 annexed to the plaintiff’s affidavit. There was an additional addressee. There was a different font. The spacing of the lines was different. The fax number for Mr Martin was different in that it included a zero not contained on the letter which Mr Boreland deposed he had sent to Mr Martin. The spacing of the fax number was also different. As I understood the plaintiff’s explanation for these matters, it was that after printing the letter of 12 July 2005 which he sent to Mr Martin, he modified the document so that it had the appearance of the screen shot.

34 That would not explain why the document was not further shown to have been modified on 12 September 2005. The plaintiff said that he did not save that amendment and accordingly the modification was not recorded. There was no explanation as to why, if he had modified the document on 12 July 2005, he did not send the document as modified to Mr Martin and to Mr Docker.

35 The plaintiff said that there was email correspondence between him and his solicitor as at 12 July 2005 which would corroborate his evidence that he had sent the letter of that date to Mr Martin. Those emails were not produced.

36 The copy of the letter which the plaintiff annexed to his affidavit had a handwritten notation on it that it had been posted to “Cathy” from Bentley Barton. Bentley Barton is a firm of accountants who acted for Mr Docker. The plaintiff did not give evidence of having posted the letter to Bentley Barton. “Cathy” from Bentley Barton denies having received it.

37 I do not accept the plaintiff’s evidence that he sent the letter of 12 July 2005 to Mr Martin.

38 In his affidavit, the plaintiff asserted that the offer of 12 May 2005 was accepted by him by a facsimile of 17 May 2005. However, the facsimile of 17 May 2005 does not purport to be an acceptance of the offer. It merely asserted that he did not owe arrears of GST for rent because the rent payable under the lease was inclusive of GST. The plaintiff neither pleaded nor argued that this facsimile was an acceptance of the offer of 12 May 2005.

Was the Letter of 12 May 2005 an Offer which was Accepted by the Letter of 12 September 2005?

39 The question then is whether the letter of 12 September 2005 is an acceptance of an offer of 12 May 2005. It does not purport to be an acceptance of Mr Docker’s letter of 23 June 2005.

40 The defendants disputed that the letter of 12 May 2005 was an offer capable of giving rise to a contract which would either extend the term of the lease, or preclude the defendants from giving one month’s notice of termination of the lease if the lessee continued to observe the covenants of the lease. Rather, they submitted that the letter was a notification that rent would increase from 1 July 2005, together with an intimation of Mr Docker’s then intention with respect to the plaintiff’s occupancy. It was said that the statement of Mr Docker’s intention about the plaintiff’s occupancy was not intended to be capable of giving rise to legal consequences.

41 I do not agree. The qualifications to the statement that the plaintiff would be permitted to remain in occupation under the terms of the existing lease until 31 August 2007, namely, that he continued to observe the covenants of the lease and pay all arrears of GST, would be unnecessary if the defendants were to be free in any event to terminate the plaintiff’s right to occupy the premises before 31 August 2007. Nor were the defendants entitled unilaterally to increase the rent. The lease contained no such provision. The letter was an offer by the defendants to vary the terms of the lease such that from 1 July 2005, the rent would be increased to $6,000 per week plus GST, and the lessors would not give notice of termination of the lease so as to terminate the tenancy before 31 August 2007 if the plaintiff continued to observe the covenants of the lease and paid outstanding arrears of GST. As I have said, it is agreed that there were no outstanding arrears of GST. There was no issue about Mr Daniel Docker’s authority to make such an offer.

42 Such an offer was capable of acceptance. However, the offer was not to increase the term of the lease so that it became a fixed term until 31 August 2007. Rather, it was an offer that the plaintiff would be permitted to remain in occupation until that time if he observed the covenants in the lease. Had the term of the lease been extended, the plaintiff would have been bound by the terms of the lease until that date. That was not what was offered. Accordingly, the plaintiff’s statement in his letter of 12 September 2005 that he accepted “the lessor’s offer to extend the term of the existing lease until 31 August 2007” did not reflect what the offer was.

43 An acceptance must precisely correspond with the offer accepted (J W Carter, Carter on Contract, LexisNexis Butterworths, Sydney, 2002 at [03-220]; Tonitto v Bassal (1992) 28 NSWLR 564). A purported acceptance which seeks to vary the terms of the offer operates as a counter-offer.

44 Counsel for the plaintiff submitted that as what was “accepted” by him was at least as beneficial to the defendants as what they had offered, with the additional benefit that the plaintiff would be committed to the term until 31 August 2007, the letter was effective to create a contract on the terms of the letter of 12 May 2005. Everything that the defendants had offered had been accepted with something more proposed. Even if this analysis were correct, it would not follow that the offer had been accepted.

45 In any event, I do not accept the premise of the argument. This was not how the plaintiff was proceeding. Having taken legal advice, he considered it was important, if he were to be able to sell the poker machine entitlements, that he have a lease for a fixed term. He accepted in cross-examination that what he attempted to do was to translate the offer that Mr Docker had made into an offer to have a fixed term lease expiring in August 2007, because he regarded it as important to have such a fixed term lease to enable him to sell the poker machine entitlements.

46 In Jabetin Pty Ltd v Liquor Administration Board (2005) 63 NSWLR 602, Mason P said (at 622):

“The vital question is whether Benwine's [the lessee’s] conduct in acquiring the machines generated a basis for severing the equitable title to the poker machine entitlements from the licence that will have to be yielded up by Benwine on the termination of the lease. The contractual terms of the lease and the provisions of the Liquor Act put the licence at Jabetin's disposal at that stage. The onus lies on Benwine to explain why the appurtenant poker machine entitlements do not go with the licence.”

47 It was common ground that at the end of the term of the lease, the plaintiff was or is required to transfer the liquor licence to the lessors or their nominee with such poker machine entitlements as might at that time be allocated in respect of it. It is the plaintiff’s position that he is entitled to deal with the poker machine entitlements for his own benefit before the term of the lease expires.

48 If the plaintiff is correct in that contention, there would be a significant difference between, on the one hand, a periodical lease terminable on short notice coupled with a contract by the lessor not to give notice of termination before 31 August 2007 and, on the other hand, a lease for a fixed term expiring on 31 August 2007. In the former case, if the lessor gave notice of termination of the lease in breach of contract, the plaintiff would be entitled to damages, and might be entitled to an injunction to restrain the lessor from treating the lease as having been terminated. However, relief by way of injunction would be discretionary. There could be powerful reasons for not granting an injunction, independent of any question as to whether the plaintiff had clean hands.

49 The scheme of the Gaming Machines Act is that poker machine entitlements may be transferred only in blocks of two or three. From each such transferred block, one of the entitlements is forfeited to the Liquor Administration Board (s 20(3)). A hotelier may not keep approved gaming machines unless authorised by the Board (s 56(1)). The total number of approved gaming machines that the Board may authorise to be kept in a hotel from time to time depends, relevantly, upon the number of approved poker machines that correspond to the number of poker machine entitlements allocated for the time being in respect of the hotelier’s licence for that hotel (s 56(4)).

50 Accordingly, for the defendants to be able to operate the hotel with the existing number of poker machines, or to lease the hotel with authority to operate the existing number of poker machines, it would be necessary for the lessor to enter into a contract with another person to buy seventeen poker machine entitlements. In order for the defendants to buy seventeen poker machine entitlements, the vendor would need to sell twenty-six poker machine entitlements. Thus, the defendants complain that on the values reflected in the plaintiff’s contract to transfer seventeen poker machine entitlements, under which the buyer will acquire eleven entitlements, the effect of the sale of the poker machine entitlements would be to cause a loss to it, not of $2,062,500 plus GST (i.e. the price the plaintiff will receive), but $3,154,412 plus GST. This might well be a sufficient reason for leaving a plaintiff to his remedy for damages for breach of a contract not to terminate the lease.

51 It cannot be said that an agreement to vary the lease to a fixed term was as beneficial to the defendants as an agreement they would not give one month’s notice of the periodical tenancy if the lessee observed the covenants in the lease. The same discretionary considerations would not necessarily apply to a suit for specific performance of an agreement to vary the term of the lease as would apply to an application for an injunction to restrain the giving of notice of termination of the weekly tenancy. Usually, damages are not regarded as an adequate remedy for breach of a contract to lease land (Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4 ed, para [20-035]). Moreover, as the defendants’ counsel submitted, under the defendants’ offer, there was always the chance that the plaintiff might leave voluntarily, and that could be of significant benefit to the defendants.

52 However, it does not matter whether the plaintiff’s counter-offer was at least as beneficial to the defendants as an acceptance of the defendants’ offer. Because the letter of 2 September 2005 did not correspond with the terms of the defendants’ offer of 12 May 2005, it did not result in a contract.

53 The plaintiff’s counter-offer was not accepted. Mr Docker discussed the plaintiff’s letter with his solicitors and became concerned that the plaintiff was looking to find a way to sell the poker machine entitlements without his consent. On 20 September 2005, he wrote to the plaintiff as follows:

“ I refer to your letter of 12 September 2005.

I appreciate that you have put in considerable time and effort to develop your business. From your letter, I now understand that your concern is to secure an extended lease term until 31 August 2007 with provision for no further rent increases from the agreed weekly rental of $6000 plus GST. Although it was not my original intention (which was to keep your tenancy on a week-to-week basis), I am prepared to agree to your proposal.
To accommodate your concerns and to protect my interests, the new arrangement must be properly documented in a new lease to record:
(a) the extension of the tenancy. I have nominated 1 July 2005 as the commencement date – this has stamp duty benefits for you;
(b) the rent and the fact that there will be no rent review during the extended term; and
(c) my undisputed ownership of all poker machine entitlements attaching to the licence (which I note has never been in dispute given that I installed the machines and you only commenced as a weekly tenant after allocation of the entitlements to the licence). The amendment is necessary following recent changes in the law.
The proposed new lease is enclosed with this letter. Until the lease is executed and delivered to me, there will be no binding agreement and your tenancy will remain on a week-to-week basis. ”

54 There was no acceptance of the counter-offer. The new lease proposed by Mr Docker was not entered into.

55 For these reasons, I conclude that there was no purported acceptance of the offer of 12 May 2005 on or about 12 July 2005. I also conclude that the plaintiff’s letter of 12 September 2005 was not an acceptance of the offer of 12 May 2005.

56 The plaintiff’s case as pleaded was that the correspondence was effective to vary the term of the lease. Even had the defendants’ offer been accepted, it would not have created a new fixed term at law, as distinct from a contract to create such a term enforceable in equity, because the requirements of s 23C(1)(a) of the Conveyancing Act 1919 (NSW) were not satisfied. It is unnecessary to consider the implications of this and the application of the doctrine of Walsh v Lonsdale (1882) 21 Ch. D. 9 to those circumstances. The plaintiff made no submissions on whether specific performance should be decreed, and the defendants submitted that the only case they had to meet was based on a plea of a lease at law. As I have concluded that no contract to vary the term of the lease was made, it is unnecessary to pursue this further.

Acceptance of Offer by Payment of Rent?

57 In final submissions, the plaintiff also contended that the offer of 12 May 2005 was accepted by the payment and acceptance of rent from 1 July 2005. If that were so, there was an agreement in terms of the letter of 12 May 2005, or the letter of 23 June 2005, which was not in materially different terms. As the plaintiff’s counter-offer of 12 September 2005 was not accepted, such an agreement would have been made on the terms of the defendants’ correspondence.

58 That is not the way in which the matter was pleaded. The defendants objected to the plaintiff being able to rely on such a submission on the existing pleadings. No application was made for leave to amend. The defendants submitted that had it been pleaded that a contract was brought about in that way, evidence might have been adduced (and, it was submitted, would have been adduced) to the effect that neither the plaintiff nor the defendants intended that the payment of rent should constitute an acceptance of the defendants’ offer.

59 I accept that such evidence may well have been elicited. It is also possible that evidence may have been elicited that the plaintiff understood that the defendants did not intend that the offer could be accepted merely by the payment of rent. Such evidence, if elicited, would have been material to a determination of whether a binding contract existed, at least if the parties’ subjective intentions not to enter into a contract in that way, or the plaintiff’s understanding (if he were shown to have it) that the defendants did not intend to contract in that way, arose from communications between them (Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 per Mahoney JA at 330-331; per McHugh JA at 336-338).

60 Had an application been made for leave to amend, any such leave, if granted, would have been on terms entitling the defendants to adduce further evidence and to further cross-examine the plaintiff. In the absence of an amendment to the pleading, the question of whether a contract was made by the payment and acceptance of rent on 1 July 2005 and following does not arise.

Estoppel

61 The plaintiff pleaded that by the correspondence of 12 May and 23 June 2005, the defendants represented that in return for the plaintiff increasing the rental to $6,000 plus GST per week, they would allow the plaintiff to continue in occupation until 31 August 2007, continue to be the lessee and licensee of the Arncliffe Hotel until 31 August 2007, and continue to enjoy all the rights available to him as the licensee of the Arncliffe Hotel until 31 August 2007. The plaintiff pleaded that he paid the increased rental in reliance on that representation. He pleaded that in reliance on that representation, he assumed that by increasing the rental from $4,000 inclusive of GST per week to $6,000 plus GST per week, he would continue in occupation until 31 August 2007, continue to be the lessee and licensee of the hotel until 31 August 2007, and continue to enjoy all the rights available to him as licensee of the hotel until 31 August 2007. The plaintiff pleaded that the defendants were aware that he had made those assumptions, and that in the circumstances it would be unconscionable for them to depart from the representations made. Accordingly, it is alleged that the defendants are estopped from denying that the plaintiff remained the lessee and licensee of the hotel and remains the legal and equitable owner of the poker machine entitlements attaching to the hotel.

62 I accept that the letters of 12 May and 23 June 2005 both contain an offer and convey a representation that in return for the plaintiff paying the increased rental from $4,000 to $6,000 plus GST per week, the defendants would allow the plaintiff to continue in occupation as lessee of the hotel until 31 August 2007, if he continued to observe the provisions of the lease. The correspondence conveyed no representations about the plaintiff’s rights as licensee, including his right to deal with poker machine entitlements.

63 The plaintiff did not give evidence that he assumed that by increasing the rent paid, he would be entitled to continue in occupation of the premises as lessee until 31 August 2007.

64 The plaintiff deposed that he would not have entered into the lease of 1 August 2003, nor into what he described as a lease arising from the offer of 12 May 2005 accepted by him on 17 May 2005, nor would he have incurred any expenditure in relation to the hotel, including rent from 1 August 2003, but for a representation made by Mr Docker to him on 25 July 2003. The alleged representation of 25 July 2003 was that Mr Docker would like him to take over the lease of the Arncliffe Hotel and discuss another hotel proposal at Wolli Creek, that the rent for the Arncliffe Hotel would be $4,000 per week inclusive of GST, that it would only cost him a couple of hundred thousand dollars to tidy up the appearance of the hotel and promote it, and that the little stock and cash involved could be paid for weekly after which rent would resume to $4,000 per week. No case was put forward that that conversation gave rise to any legal rights or created an estoppel.

65 The plaintiff also deposed that “both leases” (that is the lease of 1 August 2003 and the alleged lease arising from the acceptance of the offer of 12 May 2005) were entered into, and all expenditure was incurred, in reliance on his belief that he would become and remain the business owner of the hotel until such time as he became the business owner of the hotel at Wolli Creek.

66 No estoppel was pleaded on the basis of any representations that Mr Boreland could remain the business owner of the Arncliffe Hotel until he became the business owner of the hotel at Wolli Creek. There were no such representations. The representations in the letter of 12 May 2005 and 23 June 2005 are plainly inconsistent with it.

67 It was submitted that it should be inferred from the fact that the plaintiff paid the increased rent that he understood from the correspondence and assumed that the defendants were obliged to allow him to remain in occupation of the premises until 31 August 2007 as lessee. In other words, the act of detrimental reliance (the payment of the increased rent) was also said to be evidence that he understood that the payments were made pursuant to an enforceable contract.

68 I do not agree. The plaintiff was seeking to manoeuvre himself into a position of best advantage for himself by seeking to establish an agreement that he would have a lease for a fixed term. There is no reason to assume that he believed that the correspondence and payment of rent obliged the defendants to allow him to remain, or led him to assume that he would so remain in occupation. The absence of evidence is not to be filled in by such an inference.

69 In any event, even if the plaintiff had made some such assumption, there is no evidence that the defendants knew that he had done so. Mr Docker did not give evidence that he knew that any such assumption had been adopted by the plaintiff. It was not put to him in cross-examination that he knew the plaintiff had paid the rent on the assumption that he would be allowed to remain in occupation until 31 August 2007.

70 Moreover, even if that were the position, it would not be unconscionable for the defendant to deny such an assumption in the particular circumstances of this case. There is a parallel to Austotel Pty Ltd v Franklins Self Serve Pty Ltd (1989) 16 NSWLR 582 in that the plaintiff was deliberately manoeuvring to set matters up to his best advantage. That is not a criticism. But if the plaintiff overreached himself, as he did, conscience does not demand his rescue.

71 For these reasons, the defendants were not bound by the offers of 12 May or 23 June 2005. The lease continued as a weekly tenancy terminable on one month’s notice. There was no dispute that the notice to quit was validly given if this were the position. Accordingly, the tenancy terminated on 24 March 2006.

72 It follows that all of the plaintiff’s claims fail. The cross-claimants are entitled to judgment for possession and ancillary orders.

73 There was no dispute that if the lease had been determined by 24 March 2006, the defendants were entitled to a declaration that the plaintiff was obliged to do all things necessary on his part to transfer to the defendants the hotelier’s licence and the poker machine entitlements that were allocated in respect of that licence as at 24 March 2006, at no cost to the defendants. It also follows that the plaintiff was not entitled to apply for a transfer of the poker machine entitlements to his purchaser, or to anyone except a licensee nominated by the defendants.

Are the Poker Machine Entitlements Held on Trust for Defendants?

74 Part of the relief sought by the defendants in their cross-claim was a declaration that the plaintiff holds the right to apply for the transfer of the poker machine entitlements on trust for the defendants. As such a “right” is an incident of the ownership of poker machine entitlements, the claimed relief raises the issue whether the plaintiff now holds the poker machine entitlements on trust for the defendants. If the answer is yes, the appropriate declaration would be one to that effect. As there was no dispute that if the lease had been terminated, the defendants are entitled to personal remedies to protect their position, submissions were not focused on this question. However, I did have the benefit of submissions on whether the poker machine entitlements could be held on trust for the defendants during the term of the lease. Those submissions raised the relevant considerations.

75 In Jabetin Pty Ltd v Liquor Administration Board, Mason P, with whom Sheller JA agreed, held that whilst it was possible to create a trust over poker machine entitlements, any equitable interest so created must be consonant with the Gaming Machines Act. Subsection 20(1) provides that poker machine entitlements allocated in respect of the hotelier’s licence may be transferred only to another hotelier’s licence. His Honour said that there could be no trust of a poker machine entitlement in favour of a former lessee of the hotel where, following expiry of the lease, the lessee would cease to hold the licence. His Honour said (at [85]-[87]):

“ [85] … In the situation hypothesised the lease will have come to an end and the hotelier's licence will have been transferred to Jabetin's nominee (presumably the incoming licensee of the Prince of Wales Hotel). The Gaming Machines Act does not contemplate an entitlement becoming detached from a licence even temporarily, except by passing under the Board's control (cf s 14(3) and s 58). An entitlement is transferable (subject to the partial forfeiture scheme in s 20), but only to the holder of another licence (see s 20(1)).
[86] Yet the right asserted by Benwine and upheld in the declarations under appeal places the remaining poker machine entitlements at the disposition of the now departed licensee, a situation that could presumably continue indefinitely. The Gaming Machines Act contemplates the reduction over time of the number of entitlements. But it does not appear to countenance this
occurring through entitlements falling into an unlicensed “black hole”, no matter how short in duration. Benwine's position presupposes a type of market involving potentially unattached poker machine entitlements disposable by persons who are not licensees and who have no interest in a licence.

[87] The trial judge's reasoning, supported in this Court by the respondent, started from the undoubtedly correct premise that a poker machine entitlement is a species of property capable of being owned, disposed of and made the subject of a trust. It does not however follow that ownership, disposal or trust relationship occurs outside the legislative framework. On the contrary, the
property incidents which stem from the legislation must conform to its dictates. ”

76 In Masters v Garcia (2005) 65 NSWLR 92, Basten JA said (at [72]) that the Court of Appeal determined in Jabetin that the beneficial ownership of poker machine entitlements could not vest in any person, whether by way of trust or otherwise, who was not at the relevant time the holder of a hotelier’s licence.

77 I agree that that was the Court of Appeal’s holding in Jabetin. Mason P’s reasoning was that the Act did not countenance a secondary market where beneficial entitlements in poker machine entitlements could be traded between persons who did not hold hoteliers’ licences. Special leave to appeal to the High Court in Jabetin was refused.

78 The defendants do not hold the hotelier’s licence. As they are now entitled to possession of the hotel, they are entitled pursuant to s 42(2) of the Liquor Act 1982 (NSW) to apply for a transfer of the licence. If they come into possession of the premises, they will be taken to be the licensee of the premises for up to 28 days, or, provided they apply for a transfer of the licence within that period, until the application is determined (ss 42(2A) and (5)). As the defendants have not come into possession of the hotel they are presently not taken to be licensees of the premises.

79 In Masters v Garcia, Tobias JA (with whom on this point Campbell J agreed) said (at [4]-[5]):

“[4] However, I would observe, lest there be any misunderstanding, that in my opinion the reasoning in Jabetin does not mandate that only the holder of the hotelier's licence has a sufficient interest therein to support under the Act a right to or in the poker machine entitlements allocated in respect of that licence. The judgment of Mason P (at 620 [53], 621 [57] and 623 [78]) establish that firstly, a poker machine entitlement is in the nature of property; secondly, that as such it may be the subject matter of a trust under which the equitable interest therein may vest in a person other than the holder of the hotelier's licence in respect of which the entitlement has been allocated; thirdly, the entitlement and the right to transfer that entitlement pursuant to s 19(1) of the Act may be the subject of a separate contract or dealing which may give rise to a trust; provided, fourthly, that contract or trust (including any equitable interest arising under that trust) is consonant with the Act.
[5] Accordingly, consonance with the Act in terms of the creation of a trust requires that the holder of the equitable or beneficial interest under the trust must at all times retain an interest in the hotelier's licence in respect of which the poker machine entitlements have been allocated. The fact that there may be more than one person who has a financial interest in a hotelier's licence is recognised in s 19(3)(c) and s 19(5) of the Act. ”

80 His Honour said (at [2]) that the respondent “had at the relevant time ceased to have any legal, equitable or financial interest in the licence”, and (at [6]), “had no interest, financial or otherwise in the hotelier’s licence”.

81 A “financial interest” in a hotelier’s licence is a statutory concept. Subsection 19(3) of the Act requires that an application for the Board’s approval for the transfer of the poker machine entitlement allocated in respect of a hotelier’s licence must demonstrate, to the satisfaction of the Board, that the proposed transfer is supported by each person who, in the opinion of the Board, has a financial interest in the hotelier’s licence. Subsection 19(5) describes all of the matters which the Board may take into account, and subsection 19(6) describes matters which it may not take into account, in reaching satisfaction as to whether a person has a financial interest in the hotelier’s licence (Jabetin at [39]-[49], [95]-[96]). Whilst, to the satisfaction of the Board, each such person must support an application by a licensee for transfer of a poker machine entitlement, the Act does not provide that an entitlement may be transferred to such a person.

82 Tobias JA contemplated that a person, other than the holder of the licence, might have an interest, other than a financial interest, in the licence which could qualify him or her to hold a beneficial interest in a poker machine entitlement. His Honour contemplated that a person may have an equitable interest in a hotelier’s licence (at [2]).

83 It was not suggested in this case that the defendants have a financial interest, in the defined sense, in the hotelier’s licence. However, the lease does provide that the lessors are the beneficial owners of the licence. They are entitled to apply for a transfer of the licence. Thus, on the basis of the observations of Tobias JA, it could be said that the lessors have such an interest in the hotelier’s licence that entitles them to a beneficial interest in the poker machine entitlements.

84 However, there are difficulties with this. A hotelier’s licence is not property. Whilst the licence relates only to particular licensed premises, it is personal to the licensee. It authorises him or her to do that which would otherwise be forbidden. A hotelier’s licence may only be transferred with the approval of the Licensing Court to a person approved of by it who would be entitled to apply for the same kind of licence in relation to the licensed premises. A transfer of a licence has effect as a new grant of a licence to the transferee (s 61(7) of the Liquor Act 1982 (NSW)). If a licensee dies, the licence is not an asset of the estate. Instead, certain persons have statutory authority to carry on business for a limited period until a new person’s name is endorsed on the licence who thereby obtains a fresh authority to carry on the business (ss 63 and 64). Where probate or letters of administration are granted, the executor or administrator is required to apply to the Licensing Court for the transfer of the licence to himself or herself, or to a person nominated by him or her as transferree. Approval of a transfer takes effect as a new grant. In the event of bankruptcy, the Liquor Act itself confers authority on the trustee in bankruptcy to carry on the business of the licensee subject to certain conditions (s 63(4)).

85 The provisions in the Liquor Act relating to the grant and transfer of hoteliers’ licences are not materially different from those considered in Jack v Smail (1905) 2 CLR 684 where it was held that the licences there under consideration were not property, but gave a personal right to the licensee to carry on business in a particular place under the conditions prescribed by law (at 705, 711 (per Griffiths CJ), at 704-5 (per O’Connor J)). (See also Ex Parte Berry Re Kessell (1936) 36 SR (NSW) 485 at 488 (per Jordan CJ); Slatter v Railway Commissioners (NSW) (1945) 45 CLR 68 at 79 (per McTiernan J); 888 Casino & Tavern Pty Ltd v Hurlfobe Pty Ltd (1997) 8 BPR 15,505 at 15,509 (per Windeyer J); Garcia v Masters [2005] NSWSC 480 at [56]-[58] (per Einstein J)).

86 The fact that the Gaming Machines Act provides for poker machine entitlements to be allocated “in respect of” hotelier licences and thus provides a link or connection between the licence and the poker machine entitlement, such that the poker machine entitlement can be said to be “appurtenant” to the licence (Jabetin per Mason P at [64]), and the fact that poker machine entitlements are property, does not mean that hotelier licences are property. Third parties cannot have an equitable or other proprietary interest in a hotelier’s licence. There is a statutory concept of a financial interest in a hotelier’s licence, but the Gaming Machines Act does not allow a poker machine entitlement to be transferred to a person with a financial interest in a hotelier’s licence, but only to a licensee.

87 Accordingly, unless the Court of Appeal were to reconsider the reasoning in Jabetin, it follows that only the holder of a hotelier’s licence, or a person who by statute is to be taken to be the licensee, can be beneficially entitled to poker machine entitlements. The observations of Tobias JA and Campbell J on this point were not necessary for their decision in Garcia v Masters. I regard myself as bound on this point by the decision in Jabetin.

88 Accordingly, whilst it is consonant with the Act that the defendants will become beneficially entitled to the poker machine entitlements on their re-taking possession, they cannot presently be the beneficial owners of the entitlements consistently with the reasoning in Jabetin. I refuse the declaration sought that the plaintiff presently holds the poker machine entitlement on trust for the defendants. I see no utility in making an hypothetical declaration as to what the position will be in the future. Circumstances may change before the defendants re-take possession. The defendants are entitled to personal remedies to protect their position.

89 That is sufficient to dispose of the proceedings. However, in case I am wrong in my conclusion that the lease has been terminated, and in deference to the arguments based upon the assumption that the lease was current, I will deal with the further issues.

Resulting Trust of Poker Machine Entitlements Arising From the Transfer of the Licence to Lessee’s Nominee

90 The poker machine entitlements were allocated in respect of the licence which permitted the sale of liquor from the Arncliffe Hotel prior to the lease to the plaintiff. Prior to the lease to the plaintiff, the hotel was leased to a company called Acola Holdings Pty Ltd. The licence was held by a Mr Tsoukatos. Fifteen poker machine entitlements and six approved amusement device entitlements were allocated in respect of the hotelier’s licence of the Arncliffe Hotel on 2 April 2002. On 10 December 2002, the six approved amusement device entitlements were converted to two tradeable poker machine entitlements, bringing the total poker machine entitlements to seventeen.

91 There were disputes between the lessors and Acola Holdings Pty Ltd. Those disputes were resolved by a deed dated 31 July 2003. Under the deed, Dockers Holdings Pty Ltd agreed to purchase plant and stock from Acola Holdings Pty Ltd. Acola Holdings Pty Ltd agreed to surrender the lease. The effect of the settlement reached with Acola Holdings Pty Ltd was that the lessors became entitled to nominate to whom the hotel licence should be transferred. Following the entry into the lease with the plaintiff, the defendants procured the transfer of the licence to a Ms Edwards. She was the plaintiff’s nominee. On 6 September 2004, the licence was transferred to the plaintiff.

92 The defendants submitted that the case was analogous to one where the legal owner of property transferred legal title to it to another without consideration. They submitted that the plaintiff held the legal title to the poker machine entitlements on a resulting trust for them.

93 I do not accept this submission. It is implied by clause 7.2 of the lease (by which the plaintiff agreed to keep the licence current) that the licence would be transferred by the defendants to the plaintiff or his nominee. The consideration for that transfer was the plaintiff’s covenants in the lease. The case is not analogous to a transfer of property into the name of another without consideration.

94 In any event, for the reasons previously given, it would not be consonant with the Gaming Machines Act, as interpreted by Jabetin, for the defendants to hold the beneficial interest in the poker machine entitlements.

Permits Required for Permitted Use

95 By clause 7.2, the lessee is obliged on the expiration of the lease to transfer each licence, permit or registration required for the permitted use of the premises as an hotel to the lessor at no cost. It was submitted that poker machine entitlements were “permits” within the meaning of the clause. It was also submitted that the expression “required” in the context of clause 7.2 should be taken to include that which was needed or desired for the conduct of the hotel business in the way it was in fact being conducted from time to time.

96 I do not accept either of these submissions. In Wonall Pty Ltd v Clarence Property Corporation Ltd (2003) 58 NSWLR 23, Campbell J (as his Honour then was) said (at [49]):

“ [49] I have some doubt about whether a poker machine entitlement counts as a“transferable licence or permit” within the meaning of cl 21 of the lease. A poker machine entitlement is transferable, but it is not clear to me that it is a “licence or permit”. A “licence” in its ordinary meaning, is an authorisation to do something which would otherwise be unlawful. A poker machine entitlement does not, of itself, permit a hotelier to keep poker machines — it is the authorisation under s 56 which has that effect. However under s 56(4) the existence of a poker machine entitlement is a necessary precondition for the granting of that authorisation, at least in relation to poker machines which are
not ones for which a Liquor Act poker machine permit is held, and are not hardship gaming machines. … ”

97 It was submitted for the defendants that his Honour did not express a concluded opinion on the question as to whether a poker machine entitlement counted as a licence or permit. Whether that is so or not, the reasons his Honour gave as to why a poker machine entitlement is not a permit are compelling. Poker machine entitlements are rather a necessary pre-condition for the granting of an authorisation. Gzell J reached the same conclusion in Evans v Collins [2006] NSWSC 427.

98 Nor are poker machine entitlements required for the use of the premises as an hotel. Clause 7.3 did not provide that the lessee should transfer to the lessor all things required for the conduct of the business of the hotel as it was carried on from time to time, but only all licences, permits or registrations required for the premises to be conducted as an hotel. It is not necessary to have poker machines in hotels.

Clause 23.2

99 By clause 23.2, the plaintiff acknowledged that the defendants were the beneficial owners of the licence. For the reasons I have given, the draftsman of the lease was mistaken in providing that the parties acknowledged that the lessors were the beneficial owner of the licence. It was submitted for the plaintiff that “Clause 23.2 is misconceived and cannot have effect at law” and that only the provisions of clause 7.2 were “effective to impose any restrictions on the plaintiff’s exercise of the hotelier’s licence.”

100 Whilst it is correct that clause 23.2 did not have the effect of declaring a trust over the licence, it does not follow that the clause was without effect. In construing the lease, as with any other contract, the object “is to ascertain what the mutual intentions of the parties were as to the legal obligations each assumed by the contractual words in which they … chose to express them: or, perhaps more accurately, what each would have led the other reasonably to assume were the acts that he was promising to do or to refrain from doing by the words in which the promises on his part were expressed.” (Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 per Lord Diplock at 736.) The words in clause 23.2 are clearly mistaken. It does mean that they are without meaning. The question rather is, what are the parties to be taken to have meant as to their respective legal obligations by their providing that the lessors would beneficially own the licence?

101 This is not an inquiry as to what term might be implied as a matter of fact to give business efficacy to the contract to which the requirements in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283 for the implication of a term apply. Rather, it is concerned with the implications contained in the express words of the contract (Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [28]-[30]).

102 Where it is clearly necessary to do so, words may be supplied or corrected in order to avoid absurdity or inconsistency (Fitzgerald v Masters (1956) 95 CLR 420 at 426-427).

103 It was argued for the plaintiff that the words do no more than seek to ensure that the liquor licence was kept on foot for the benefit of the premises when it was required to be transferred to the lessors at the end of the lease. Reference was made to the judgment of Einstein J at first instance in Garcia v Masters [2005] NSWSC 480. There, the lease included terms incorporated by reference to the effect that “the Licence is the Lessor’s property and shall remain with the Demised Premises”, as well as terms that the licensee would not make any application for removal of the licence or without the lessor’s consent seek to vary, revoke or impose any condition on the licence, and that at the end of the lease, the licensee would hand the licence over to the lessor or its nominee (at [51]-[53]). It was argued for the lessors that at all times they were the sole holders of “the ownership interest” in the hotelier’s licence. Accordingly, so the argument went, “it could never be said that either [the lessee or the purchaser from the lessee] ever had any ‘proprietary interest’ in the hotelier’s licence necessary to sustain the critical parameter emphasised in Jabetin that poker machine entitlements ‘go with the licence’. Only [the lessors] are said to have had property in the hotelier’s licence sufficient to make good that critical nexus which, unless established, could never give rise to a severance of the equitable title to the entitlements from the hotelier’s licence” (at [55]).

104 Einstein J rejected this submission holding that a hotelier’s licence was not property. His Honour said (at [59]):

“In truth these contractual arrangements were directed to ensuring that the licence was kept on foot for the benefit of the premises and at term end transferred to the Lessors or their appointee.”

105 It was evidently not argued in Garcia v Masters that the implication from the express, but mistaken, term that the licence was the property of the lessors, was that the parties intended that the lessee should not deal with the benefits appurtenant to the licence, except for the benefit of the lessors, or that he held the benefits appurtenant to the licence for the lessors. No such argument was addressed in the judgments at first instance or on appeal.

106 The difficulty in construing clause 23.2 merely as a clause directed to ensuring that the licence was kept on foot for the lessor at the end of the term is that that outcome is achieved by clause 7.2 and clause 23.3.

107 The lease must be construed by reference to the mutually known objective facts in existence when it was entered into. Unlike the position in Garcia v Masters, an important part of such matrix was the passing and coming into operation of the Gaming Machines Act, and the creation of tradeable poker machine entitlements which would be allocated in respect of hotelier licences. The Second Reading Speech of the Minister for Gaming and Racing on the introduction of the bill for the Gaming Machines Act included the following (quoted in Wonall Pty Ltd v Clarence Property Corp Ltd (at [18]):

“ …
The hotel industry has expressed strong interest in which party or parties will have the beneficial ownership of the new poker machine entitlements.
It is not proposed to confer ownership rights through the legislation. Entitlements will be issued in respect of a particular hotel licence or a certificate of registration for a club. In the case of a hotel, the licensee will be permitted to apply for the transfer of entitlements to another licence, provided the licensee can satisfy the board that the licence owner has consented. Many hotel licences are owned by one party and leased to another under contracts that may last as long as 20 years. There is concern that lessors may attempt to force the lessee from the business, thereby allowing the lessor to take advantage of the poker machine entitlements that are issued in respect of the licence. The bill includes a savings provision to give protection for the existing contractual rights of lessees.’ ”

108 Before the lease was entered into, poker machine entitlements had been allocated to the licence, and approved amusement devices allocated in respect of the licence had been converted into additional poker machine entitlements. It can be taken that the parties were conscious that poker machine entitlements were tradeable, and that they went with the licence. No separate consideration was provided by the lessee for the acquisition of poker machine entitlements. They were not specifically referred to in the lease.

109 In that context, the natural conclusion from the parties expressing their intention that the lessors be the beneficiary of the licence, is that they intended that the lessors, and not the lessee, should enjoy the property which was appurtenant to the licence. For the reasons I have given, the clause was incapable of declaring a trust in favour of the lessors of the licence. Consistently with the decision in Jabetin, during the period of the lease at least, the lessors could not be beneficially entitled to the poker machine entitlements. However, that does not mean that there was no implied contractual obligation on the lessee in his dealing with the entitlements consonant with the personal obligations he would have if it were possible to declare a trust of the licence. Whilst such an implication might not preclude the lessee from selling the poker machine entitlements (just as a trustee may, unless expressly forbidden by the trust instrument, invest trust funds in any form of investment and vary such investment (Trustee Act 1925 (NSW) s 14)), the implication would preclude the lessee from selling the entitlements for his own benefit.

110 In my view, the necessary implication from the express words in clause 23.2 that the lessors are the beneficial owners of the licence, is that the plaintiff may not deal with property appurtenant to the licence for his own benefit without the consent of the defendants. The contract for sale of the poker machine entitlements and the application to the Liquor Administration Board to approve the transfer to the purchasers was a breach of that term.

Obligation to Transfer Licence at End of the Lease

111 Clause 7.2 and clause 23 should be construed together. If clause 7.2 stood alone, I doubt that the obligation to transfer the liquor licence to the lessors at the end of the lease should be construed as requiring the transfer of the liquor licence together with the poker machine entitlements that were appurtenant to it when the transfer of the licence was directed by the lessors at the commencement of the lease. However, read with clause 23.2, and the implications derived from it, I consider that clause 7.2 does require the lessee, at the end of the lease, to transfer to the lessors, or the lessors’ nominee, the licence with the same appurtenant entitlements as were transferred to the lessee. That is because clause 23.2 prevents the lessee from dealing with the appurtenant poker machine entitlements for his own benefit and without the consent of the lessor during the term of the lease. If the lease were on foot, the dealing with the poker machine entitlements which, if consummated, would disable the plaintiff from fulfilling his obligation, would be an anticipatory breach of the lease and be liable to be restrained. As the lease has been determined, there is an actual breach of clause 7.2.

112 Counsel for the plaintiff referred to the construction which Campbell J gave in Wonall Pty Ltd v Clarence Property Corp Ltd to the lease in that case. A clause of the lease in that case provided that if the lease ended for any reason the lessee should do everything necessary to transfer to the lessor or its nominee any transferable licenses or permits that were required to carry on the hotel business. His Honour found (at [52]) that the lease was simply silent on the topic of the parties’ rights to deal with poker machine entitlements. That is hardly surprising as it commenced on 21 October 1999 before such features existed. His Honour said (at [51]) that:

“ I would be prepared to accept that cl 21 requires the transfer back at the end of the lease of any poker machine entitlements which might at that time be allocated in respect of the hotelier's licence — but neither the terms of s 21, nor any implication, goes so far as to prevent the lessee from transferring poker machine entitlements prior to the end of the term. conclude that the lease does not require the lessor to transfer the poker machine entitlements at the end of the lease. Hence there is no scope for the operation of an implied term in the lease, that the lessee would not disentitle itself from being able to perform an obligation to transfer back the poker machine entitlements at the end of the lease. ”

113 His Honour was construing the particular terms of the lease with which that case was concerned. There is no general principle that a lessee who is a licensee, or a lessee through his nominated licensee, can deal with poker machine entitlements before the end of the lease. Parties are free to contract as to their manner of dealing with poker machine entitlements. Whether in any particular case a lessee is so entitled depends on the terms of the lease. In the present case, I consider that even if the lease had remained on foot, it would be a breach of clause 23.2, and an anticipatory breach of clause 7.2, on their proper construction, for the plaintiff to have attempted to deal with the poker machine entitlements as he did.

Costs

114 Clause 6.1(a)(iii) of the lease provided:

“ 6.1 The Lessee will pay the Lessor’s costs (including legal costs as between solicitor and client) in relation to:

…

(iii) any litigation involving the Lessor commenced by or against the Lessee in which no judgment is recorded against the Lessor. ”

115 No judgment will be recorded against the defendants in the present matter. The defendants claimed indemnity costs pursuant to this provision. The defence to that claim denied the existence of the term. I do not understand how that denial could have been pleaded. The defence also stated that “any obligation to pay the Lessor’s costs does not extend to the payment of costs for contentious litigation, in which the Lessor wrongly asserts the validity of a notice to quit and/or wrongly asserts that it is the beneficial owner of poker machine entitlements”.

116 I have found that the notice to quit was valid. Whilst I have not found that the lessors are the beneficial owners of the poker machine entitlements, I have found that they are entitled to restrain the plaintiff from dealing with the poker machine entitlements, except at their direction.

117 Accordingly, the condition for the payment of costs “as between solicitor and client” is satisfied. The rules no longer make provision for the payment of costs on a solicitor and client, or solicitor and own client, basis (see Hurstville Municipal Council v Connor (1991) 24 NSWLR 724 at 731-734). An order for indemnity costs would require the payment of all costs other than those that appear to have been unreasonably incurred, or appear to be of an unreasonable amount (Uniform Civil Procedure Rules 2005 (NSW), r 42.5(b)). Such a basis cannot exceed and might be less than the legal costs payable as between solicitor and client. It might be less than costs payable as between solicitor and client because the client might agree to pay unreasonable costs. Accordingly, it is appropriate to make the indemnity costs order sought.

Orders

118 For these reasons, I make the following orders:

1. that the claims for relief in the statement of claim be dismissed;

2. judgment for possession of the land at 185 Princes Highway, Arncliffe, New South Wales, being the land described in certificate of title folio identifier 1/442336, excluding that portion of the roof of the Arncliffe Hotel that is leased to Lucent Technologies Australia Pty . Ltd.;

3. grant leave to issue a writ of possession after 28 days;

4. declare that the cross-claimants are entitled to mesne profits from 25 March 2006 until the date the plaintiff gives up possession of the said land;

5. declare that the plaintiff is now, and has been since 25 March 2006, obliged to do all things on his part necessary to transfer to the defendants or their nominee the hotelier’s licence relating to the Arncliffe Hotel and the poker machine entitlements that were allocated in respect of that licence as at 1 August 2003, at no cost to the defendants;

6. order that the plaintiff by himself, his servants and agents be restrained from taking any steps or further steps to apply for the transfer of the poker machine entitlements allocated in respect of the said hotelier’s licence otherwise than in accordance with directions of the defendants;

7. order that the plaintiff pay the defendants’ costs of the proceedings, including the cross-claim, on an indemnity basis;

8. order that the cross-claim be otherwise dismissed;

9. reserve the proceedings for further consideration;

10. direct that any application for the assessment or payment of mesne profits be made by notice of motion supported by affidavit;

11. order that any such application be referred to a Registar or Deputy Registrar for determination; and

12. exhibits may be returned after 28 days.

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05/03/2007 - The word 'as' substituted for the word 'or' in line 4 of para 51. - Paragraph(s) 51