Boreland v Docker & Ors

[2007] HCATrans 309

[2007] HCATrans 309

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S204 of 2007

B e t w e e n -

JOHN LESLIE BORELAND

Applicant

and

SHANE DOCKER

First Respondent

DANIEL THOMAS DOCKER

Second Respondent

LIQUOR ADMINISTRATION BOARD OF NEW SOUTH WALES

Third Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 15 JUNE 2007, AT 10.02 AM

Copyright in the High Court of Australia

MR J.M. IRELAND, QC:   If the Court pleases, I appear with my learned friends, MR G.A. MOORE and MR A. HATZIS, on behalf of the applicant.  (instructed by Mavrakis & Associates)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR J.B. CONOMY, for the first and second respondents.  (instructed by JDK Legal)

GLEESON CJ:   Yes, Mr Ireland.

MR IRELAND:   Your Honour, we understand that the third respondent has submitted.  This case concerns the significant market that has developed in New South Wales for trading in what are called “poker machine entitlements”, that is, that is a right to operate the poker machine in licensed premises.  This situation arises by virtue of the New South Wales Act, the Gaming Machines Act 2001 which in an act of social engineering was supposed to cap in the first instance and then reduce the number of poker machines in operation in the State.

That was achieved by, as I mentioned, a freeze or a cap imposed with effect by the government in 2001 on 19 April coupled with an essential mechanism which was a system of transferability of the poker machine entitlements which were in that universe so established which would entail a reduction of the numbers.  So the New South Wales Act freeze these poker machine entitlements for transfer but insist upon a reduction of three for two when that takes place with some small exceptions.

So what became limited in supply became the subject of increased demand and instantly – such as in the old days with taxi plates when they were in finite numbers – the poker machine entitlements which allowed the operation of what proved to be such enormous revenue earning businesses attracted a premium.  All this, as I say, came out of the blue.  At page 147 of the application book there is an extract attached to an affidavit sworn on behalf of the first and second respondents of a seminar that was held about two weeks before this government announcement by the person who is a witness on a question relating to the general applicability of this case, which is a Mr Bulford who is an expert in the field, and he said:

I wish I knew what the Government was up to in respect of proposed changes to hotel and club gaming.  It might be the case that by the time I present this seminar paper I will be commenting upon a whole raft of changes introduced [by the government] on hotel and club gaming.

The world, as it stood before 19 April 2001 in New South Wales, was there was complete freedom to apply for poker machines in any numbers and so the scheme that I have described in opening my submissions came unpredicted.  One consequence of that was that leases which were then in place for hotels – and in many cases your Honours would be aware licensed hotel premises are the subject of leases – contain no reference or contemplation to the existence of, much less the transfer of, poker machine entitlements which came with this new legislation.  So it was that many cases were brought between the landlords and the tenants of licensed premises to see whether in all cases the landlords had effective control to prevent the tenants from transferring the poker machine entitlements, because the schemer of the legislation was that they might be transferred from one licence to another. 

Do your Honours have a blue book of materials? Thank you. I just want to take your Honours to section 19 which is pivotal to the Gaming Machines Act which is at page 19 of the materials.  Do you your Honours see:

(1)A poker machine entitlement allocated in respect of a hotelier’s licence or the premises of a registered club is transferable.

(2)The transfer of a poker machine entitlement does not have any effect unless the transfer:

(a)is approved by the Board –

that is the LAB, the third respondent, and then importantly:

(3)An application for the Board’s approval of the transfer of a poker machine entitlement must:

(a)be accompanied by the fee . . . 

(b)  be accompanied by such particulars or other matter as may be required –

and then critically –

(c)in the case of an application for the transfer of an entitlement allocated in respect of a hotelier’s licence –

which is this case and all the cases in the group I have sought to identify –

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 –

GLEESON CJ:   I note the entitlement is “in respect of a licence”.

MR IRELAND:   Yes, it is.  Then subsection (5) is definitional.  It says:

(5)For the purposes of subsection (3)(c), a person is taken to have a financial interest in a hotelier’s licence if the person is entitled to receive any income derived from the business carried on under the authority of the licence or any other financial benefit or financial advantage from the carrying on of the business (whether the entitlement arises at law or in equity or otherwise).

(6)However, a person is not, for the purposes of subsection (3)(c), to be considered as having a financial interest in a hotelier’s licence by reason only of the person being the owner of the hotel.

So the scheme of the Act is to allow the transfer of the entitlements by a licensee, and the example in this case where there is a lease involved the licensee will be the tenant or his nominee or its nominee.  So the statutory scheme is to permit the assignability and, as I have mentioned, section 20 says that there is a forfeiture.

GLEESON CJ:   Where do we most conveniently see clause 7.2?

MR IRELAND:   Yes, your Honour. Clause 7.2, which is critical in this case, is reproduced in the application book in its context at page 4 in the judgment of the trial judge. Your Honours will see from that that it is cast in the setting of “DIVISION 7” concerned with “LESSEE’S BUSINESS”. Under a heading 7.2 “BUSINESS LICENCES” it was provided that:

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 –

and these are the critical words –

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.

Your Honour, the trial judge held that that obligation did not extend to, as it were, restoring at the conclusion of the term those poker machine entitlements which had been allocated to the liquor licence in this case.  That conclusion was reversed by the Court of Appeal, the critical matter being revealed in the reasoning of Justice Beazley at page 95 in the application book where her Honour said at paragraph 130:

The language of cl 7.2 is specific. It requires the appellant to transfer back at the end of the lease each licence transferred at the commencement of the lease. Put simply, what has to be transferred back is what was originally transferred. In my opinion, upon its proper construction, cl 7.2 means that the hotelier’s licence in the form in which it was transferred, that is with whatever conditions applied at the commencement of the lease and whatever incidents were attached to it, must be transferred back. For example, the licence as transferred back would have to have the same hours of operation that were permitted for the operation of the licence at the commencement. The incidents of the licence would include any right, whether of property or otherwise, that attached to the licence, at its commencement.

In this case, the hotelier’s licence transferred to the appellant at the commencement of the lease had allocated to it 17 poker machine entitlements. In my opinion, what has to be transferred back to the respondents at the end of the lease is the hotelier’s licence with the 17 allocated poker machine entitlements. Clause 7.2 does not impose any restriction upon dealing with the entitlements during the currency of the lease. Accordingly, subject to the operation of the Gaming Machines Act, the appellant would be entitled to utilise his property rights in those entitlements whilst the lease was on foot.

Pausing there, what her Honour has said is that the freedom which the Act allows to transfer poker machine entitlements whilst they rest with the licensee, if not directly and expressly inhibited by the terms of the lease – and your Honours will realise that nowadays all the leases which have been written in light of all this deal most specifically with these questions, but absent any express provision, there is a statutory freedom to deal with the poker machine entitlements but a covenant, in effect, to restore them, as the Court of Appeal would have it, in precisely the same form ‑ ‑ ‑

GLEESON CJ:   Is the present a case in which the hotelier’s licence was transferred by the lessor to the lessee at the commencement of the lease and there had been allocated ‑ ‑ ‑

MR IRELAND:   I think actually the mechanics were slightly different.  It lay in the hands of a previous tenant, so there was a direction to the expiring tenant ‑ ‑ ‑

GLEESON CJ:   The clause says, “has been transferred to the Lessee or its nominee by the Lessor” and there is no argument about the application of that?

MR IRELAND:   Of that part of it, there is no argument about it, your Honour.

GLEESON CJ:   There had been allocated in respect of that hotelier’s licence at the time a certain number of poker machine entitlements?

MR IRELAND:   Seventeen.

GLEESON CJ:   The question is whether on a true construction of clause 7.2 there was a contractual obligation on the lessee at the end of the lease to transfer the hotelier’s licence with, as it were, the number of her entitlements in tact?

MR IRELAND:   That is so, but the reasoning also seems to contemplate that in that time between the commencement of the lease and the end of the lease there is a freedom consonant with the Act.

GLEESON CJ:   What is the point of departure?  The competing construction is?

MR IRELAND:   Your Honour, the competing construction is that 7.2 is a very restricted – can I take you, please, back to page 4 where you see the context of 7.2, that it is concerned with licences, permits or registrations; that the poker machine entitlements themselves do not answer any of those descriptions, that is what the trial judge said, and one does not have an implication found in the context of business licences for two reasons.  Number one, because it is only governed by those licences, permits and registrations which are required for the permitted use.  You do not have to have to poker machines or poker machine entitlements for the operation of a hotel.

GLEESON CJ:   I put the question this way, how did the lessee come by the entitlements?

MR IRELAND:   They were, as your Honour has said, allocated in respect of the licence when it came into the lessee’s hands.

GLEESON CJ:   They came with the licence?

MR IRELAND:   Yes.  Then the statutory regime engages, we say, giving a freedom for transferability which, in accordance with the policy of the Act, is to encourage the reduction in the numbers of these things, and the liquor licence itself – the reason I asked your Honours to go to page 4 – on the opposite page, page 5, one sees, “Division 23”, which were the express provisions of the lease dealing with the liquor licence, and that had what the Court of Appeal in Jabetin’s Case, which was the last matter that came on the special leave application for this Court, characterised as the ordinary protective covenants in favour of a lessor.

So the argument is, as I say, upheld by the trial judge, that 7.2 is not intended – and we say it is typical of a number of long leases that were granted before this scheme was ever understood or foreshadowed.

CALLINAN J:   Mr Ireland, was this a week to week tenancy, or a month to month ‑ ‑ ‑

MR IRELAND:   Your Honour, there was another issue in the case.  It started off as a week to week tenancy and there was a second issue in the case which was decided adversely to my client at trial, whether it had been extended, in effect, to a fixed term.

CALLINAN J:   No, I understand that, and did that depend ‑ ‑ ‑

MR IRELAND:   We lost that at trial and prevailed in the Court of Appeal.

CALLINAN J:   You have a week to week tenancy which was extended, but it seems a little unlikely, does it not, that something that you have from week to week which is of very great value, any aspect of it you can transfer?  I mean, does not it argue against the construction to some extent?  I would not suggest it is decisive but ‑ ‑ ‑

MR IRELAND:   I understand what your Honour says, that when one starts off one has a short term tenancy, that everything I am saying about the construction must operate on that situation as equally as it does on the lease as it was finally extended and, therefore, it is unlikely, it would be said, on the other side, that someone who has gained the benefit of a week in a hotel should be able to transfer $2 million worth of poker machine entitlements to somebody else.  The answer comes that whilst it was a week to week tenancy, there was obviously facility upon the landlord to give a month’s notice, so one could not get the transfer through the system ‑ ‑ ‑

CALLINAN J:   I understand that, but does this all stem from those cases here which decided, I think, when there was a takeover of – was it Tooheys, and there was a question about the value of the goodwill of week to week tenants.

MR IRELAND:   And whether it lay with the tenants or the breweries?

CALLINAN J:   I think it was held that there was an estoppel because there had always been an assumption encouraged by Tooheys ‑ ‑ ‑

MR IRELAND:   By the breweries.

CALLINAN J:   By the breweries that you would get at least three years, I think it was, and then it would be transferable, but it is a pretty flimsy basis to say, one would have thought, that you could have this very, very valuable asset which has been transferred to you, and assume you are there for a month, you then can sell off at a very large sum of money.  What I am really suggesting is – and I must say when I read it, I was not absolutely sure that that proposition was, with all due respect, correct; that even during the currency you could have sold it off.

MR IRELAND:   Her Honour says that.

CALLINAN J:   I know she does.

MR IRELAND:   Her Honour does not really say that.  Her Honour says, you can exercise the rights that might be available in connection with the use of the poker machine entitlements in the currency of the lease, but once it is over, there is a covenant to give it back in the same pristine form.

CALLINAN J:   I understand all that.  What I am even questioning is that, with all due respect, the correctness of the proposition, which is not in issue here ‑ ‑ ‑

MR IRELAND:   No, it is not.

CALLINAN J:   The proposition that during the currency you might have been able to transfer them anyway.

MR IRELAND:   It all depends upon the reach of 7.2 in its terms.

CALLINAN J:   Yes, it does.

MR IRELAND:   But the matter must be debatable.  The trial judge was in our favour on that construction and the Court of Appeal was contrary to it.  The question is whether this ‑ ‑ ‑

CALLINAN J:   I understand that.  We do not have the full lease, though, do we?  I mean, I am not asking for it ‑ ‑ ‑

MR IRELAND:   I have it here, I cannot hand up a copy.

CALLINAN J:   It is not part of the record so we do not know what the full context is.

MR IRELAND:   No.  I can tell your Honour anything that is needed to be known about it.

CALLINAN J:   I do not need to see it at the moment.

MR IRELAND:   So the question then becomes, well, this is a debatable question of construction with a decisive outcome in a considerable amount of money – not in this case.  It is the subject matter of – as the affidavits that I have briefly referred to, we would suggest, really agree – common place provisions in a world where leases were written and are still extant in ignorance of this statutory scheme, and so there is a lot swinging on this kind of case, just as there was a lot swinging on the Jabetin Case in the Court of Appeal which your Honours refused special leave to nearly two years ago, and in that case, of course, the tenant won the day.  The tenant was free to deal with the poker machine entitlements.

So, your Honour, the industry is breathlessly, we would suggest, looking at both these cases.  I had the distinction to appear for the losing landlord in that case and the losing tenant in this case and Mr Jackson is symbiotically in the other position.  So we are all very anxious to know whether ‑ ‑ ‑

GLEESON CJ:   At least your form is consistent.

MR IRELAND:   That is right, and his as usual, your Honour, so I confess that immediately, although we did rescue the variation of the lease point in the Court of Appeal.  So we would say this is a very significant case for this industry.  I looked at the figures from Treasury today and New South Wales gets half a billion dollars tax from these machines each year.

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   Your Honours, I hope I do not sound unduly breathless but we do not have quite the same enthusiasm for it as our learned friends.  Could we say these things, your Honours, special leave should be refused, in our submission, basically for two reasons; first, the decision below is insufficiently attended by doubt and, secondly, in our submission, the case does turn very much on a particular contractual provision.  One, very arguably – and I will go to the affidavits in a moment – not of general application.  Could I say this thing about it at the moment.  This is a provision that came in after the poker machine entitlements scheme came into being.  This is not an old lease carried over. 

Your Honours, could I go to the first of those things. The case involves, in our submission, a question of construction of clause 7.2. If your Honours go to clause 7.2 on page 4 our learned friend referred to earlier, what you will see is that it operates – if I go to the second line of it:

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 –

Your Honours, we had caused or procured to be transferred to the applicant the hotelier’s licence in respect of the premises.  The licence which we caused to be transferred had attached to it the 17 poker machine entitlements.  I will come to what I mean by “attached to it” in just a moment, if I may.  They were worth a great deal of money and, as your Honours see from our learned friends’ submissions at page 110, paragraph 11, as at November 2006 they were worth some $2,062,000.

It does seem, your Honours, a possible no doubt but in fact surprising interpretation of the contractual provisions of the lease that we were making, in effect, a gift to the lessee of that possible magnitude particularly when the rent was $4,000 a week including GST in the first part of the lease.  Your Honours will see the figures referred to at page 109, paragraphs 6 to 8.  Your Honours, I said the poker machine entitlements were attached to the lease.  What I mean by that is that they were issued in respect of it, a matter emphasised in the terms of the relevant Act.  Could I take your Honours to the Act in just a moment, and the provisions to which we would refer your Honours, first, is section 15(2)(a) at the top of page 16 of that book.  It says:

The poker machine entitlements are to be allocated:

(a)in the case of a hotel – in respect of the hotelier’s licence, or –

That conception that they are in respect of the licence is picked up in a number of other important provisions. Section 15AA(1), the first line your Honours will see the reference to allocation “in respect of a hotelier’s licence”. You will see it in section 16(1), your Honours, the third and fourth lines, they may “be allocated by the Board from time to time in respect of hotelier’s licences” and to the same effect, your Honours, if I could just refer to the provisions, section 19(1), to which my learned friend referred, section 19(3)(c), section 19(4) and, your Honours, section 20(1):

Poker machine entitlements allocated in respect of a hotelier’s licence may be transferred only to another hotelier’s licence.

Also, your Honours, section 21(1) and section 23.

CALLINAN J:   And the hotelier’s licence relates specifically to premises?

MR JACKSON:   Yes, your Honour, yes, it does.

CALLINAN J:   That is on page 135 the definition of “hotelier’s licence” in the Liquor Act.

MR JACKSON:   That is so, your Honour, and also that provision for the grant of such a licence, which I think is at page 142 and section 18(2)(a).

CALLINAN J:   Goes with the premises, subject, of course, to that right to sell the poker machine licences.

MR JACKSON:   Yes, your Honour.  What I was seeking to say about it was that the provisions of the Gaming Machines Act demonstrate that the hotelier’s licence carries with it poker machine entitlements.  It is part of the ordinary operation.

CALLINAN J:   They in turn relate to the premises?

MR JACKSON:   Yes, your Honour, and that was so at the time when we caused it to be transferred to the applicant. That is what, in our submission, clause 7.2 required to be given back. Your Honours, the operation of gaming machines has been part of the conduct of hotels for quite some time. In days gone by, people might say that gambling and liquor and some other matters should not go on together, but time seems to have passed that view by. Your Honours, the Gaming Machines Act is rather a reflection of that, and when clause 7.2 speaks of “licences and permits and registrations required for the Permitted Use” it is not speaking, in our submission, in the abstract but, rather, of the actual hotel and of the licences and permits then in being reflecting the ordinary use of premises.

Your Honours, could I go to the second aspect, whether the provision is of sufficiently general application. There are affidavits from two solicitors who practise in the area. The first on behalf of the applicant side appears at page 131 and this in a sense is coming to what might be said to be the high point of the applicant’s case on general applicability. You will see paragraphs 15 to 17 at page 131. He refers in paragraph 15 to clause 7.2, he speaks in paragraph 16 of the first part, which he then quotes. Now, your Honours, we will accept that that is a very common provision,

but that is not the provision one is talking about here. Then in paragraph 17 he speaks of the terms of the remaining clause 7.2. He says:

it is commonplace to find like covenants, which provide for the transfer of licences and permits to the lessor upon expiry of the Lease. In my experience, such covenants usually stand alone from covenants of the kind contained in the first part of Clause 7.2. Moreover, such covenants usually define specifically the “licence” or “permit” –

which this one does not, of course, and then he says –

I have seen covenants in many leases of licensed premises which, like Clause 7.2, define the relevant “licence” or “permit” by reference to the actual licence or permit –

But, your Honours, one does not see a statement that one would expect to see that a provision like this – this part of 7.2 – is commonly seen. The other affidavit is from Mr Bulford which is at page 134, paragraphs 12 to 15. He speaks in paragraph 12, in the last sentence, of there being quite often “wide variations between different hotel leases”. You will see in paragraph 13 that he refers, as a similar view, about, “the first part of clause 7.2”, and then in paragraph 14 he says that:

I am also of the opinion that the obligation to transfer licences, permits and registrations, to the lessor upon the expiry of the lease is of almost universal application.

But then he goes on to say in paragraph 15 that the part that is relied in this case is:

unusual and uncommon in leases of hotel premises in New South Wales.

The point we would seek to make, your Honours, is in short, first, we would submit, that the conclusion of the Court of Appeal is open on the terms of the provision.  Secondly, as a matter of construction and as a matter of, really, the commercial sense of the provision, it appears the better conclusion and, thirdly, we would submit, no issue of general importance is involved, the case simply concerns the drafting of a rather particular provision.

GLEESON CJ:   Yes, Mr Ireland.

MR IRELAND:   Your Honour, could I add reference to the third affidavit in the papers which is in reply from Mr Schwartz.  It is reproduced at application book 142 and 143.  He was the first opponent to which my learned friend referred.  Mr Bulford then put on his affidavit.  This reply is to Mr Bulford’s affidavit.  On page 142 at line 36 Mr Schwartz says that he agrees with what has been said regarding “hotel leases prepared and signed after 19 April, 2001”.  Then over on page 143 at paragraph 8 he refers to the “seminar”.  I have already taken your Honour to that detail, and he says in paragraph 9:

For leases written prior to the Government’s announcement in 2001, clauses such as Clause 7.2 and 23 of the present Lease remain critically important in determining whether the tenant is permitted to transfer valuable poker machine entitlements first issued pursuant to the Gaming Machines Act 2001.

Your Honour, what seems to have happened here is that, although this – I am sorry, before I leave that, there is reference to the fact that these are typically lengthy leases, up to 10 years or more.  What seems to have happened in this case is that the draftsman of this lease, notwithstanding the fact that the tenancy was actually granted in 2003, it is noteworthy that the lease does not deal with these poker machine entitlements.  In other words, the government had made its move.  The specialists, such as these two individuals, who jointly gave the seminar about what was to come and who recommended various things in that seminar, no doubt exercised changes which would protect, if it were thought suitable, the position of a landlord, but in this case no provision is introduced into the lease which deals with the poker machine entitlements at all, notwithstanding the fact that the legislation is well‑known.  That in itself is a considerable factor.

What the Court of Appeal has done in its construction of clause 7.2 is to build out of a clause which is concerned with business permissions, we say, in its essence, what is identified as an incident of the liquor licence. Clause 23 is the one that devotes itself to what is to happen with the liquor licence. Clause 7, we say, is a completely different subject matter. The reasoning of the Court of Appeal, we would suggest, could not be correct because what her Honour Justice Beazley says is that you have to give back to the liquor licence with all of its incidents in tact.

Could it be that a tenant in this situation who suffered some initiative from the licensing department, for example, to reduce the hours of operation of the hotel would find himself in breach of this covenant if at the end of the term the licence was restored to the landlord with reduced hours?  We would say that that is unthinkable in the circumstances of the case, and that is the absolute linchpin of the reasoning of the Court of Appeal as to why it extends to matters outside the licence – to characteristics of the licence in a sense that has been described, and that is what Justice White, in essence, was saying.

So, as we say, on its construction it must be debatable.  The real issue for your Honours would be whether you are convinced that it involves a significant representation of commercial leases in similar terms.  If the Court pleases.

GLEESON CJ:   The central issue in this matter at the present stage concerns the construction of clause 7.2 of the relevant lease. On that issue we think there are insufficient prospects of disturbing the conclusion of the Court of Appeal to warrant a grant of special leave to appeal. Other issues were dealt with in the reasons of the Court of Appeal that are not presently material and we say nothing about them.

The application for special leave to appeal is dismissed with costs.

We will adjourn for a short time to reconstitute.

AT 10.35 AM THE MATTER WAS CONCLUDED