Broadwater Hospitality Management Pty Ltd v Primewest (Lot 4 Davidson Street Kalgoorlie) Pty Ltd - [2009] WASCA 230

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: BROADWATER HOSPITALITY MANAGEMENT PTY LTD -v- PRIMEWEST (LOT 4 DAVIDSON STREET KALGOORLIE) PTY LTD [2009] WASCA 230

CORAM: NEWNES JA

HEARD: 4 DECEMBER 2009

DELIVERED : 4 DECEMBER 2009

PUBLISHED : 17 DECEMBER 2009

FILE NO/S: CACV 128 of 2009

BETWEEN: BROADWATER HOSPITALITY MANAGEMENT PTY LTD (ACN 097 743 130)
Appellant
AND
PRIMEWEST (LOT 4 DAVIDSON STREET KALGOORLIE) PTY LTD (ACN 124 866 646)
Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :McKECHNIE J
Citation  :PRIMEWEST (LOT 4 DAVIDSON STREET KALGOORLIE) PTY LTD -v- BROADWATER HOSPITALITY MANAGEMENT PTY LTD [2009] WASC 304
File No  :CIV 2143 of 2009

Catchwords:

Practice and procedure - Application for stay of judgment pending appeal - Whether refusal of stay would render appeal nugatory - Turns on own facts

Legislation:

Civil Judgments Enforcement Act 2004 (WA), s 15

Result:

Stay granted

Category: B

Representation:

Counsel:

Appellant: Mr G M Abbott
Respondent: Mr G J Douglas

Solicitors:

Appellant: Griffin Hilditch
Respondent: Hotchkin Hanly

Case(s) referred to in judgment(s):

Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308
Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203
Primewest (Lot 4 Davidson Street Kalgoorlie) Pty Ltd v Broadwater Hospitality Management Pty Ltd [2009] WASC 304
Smolarek v Brian Keith McMaster as Administrator of Eznut Pty Ltd [2006] WASCA 216

NEWNES JA: The appellant has applied for a stay, pending the determination of the appeal, of the enforcement of an order of McKechnie J made on 13 October 2009 that the appellant deliver to the respondent by 30 November 2009 a copy of the audited accounts of the appellant. On 4 December 2009, I granted a stay. I said I would deliver reasons for my decision later. These are my reasons.

Background

The substantive dispute turns on whether a provision in the lease agreement between the parties is unenforceable by the respondent by virtue of s 104 of the Liquor Control Act 1988 (WA) (the Act). Section 104 of the Act provides, in effect, that if a licensee of premises subject to the Act enters into any agreement or arrangement under which another person may participate in the proceeds of the business carried on under the licence, both the licensee and that other person commit an offence unless the agreement or arrangement has been approved by the Director of Liquor Licensing (the Director).
By a lease dated 23 September 2002, Kareelya Investments Ltd (Kareelya) leased to the appellant a property in Kalgoorlie on which was erected a hotel, previously known as the Broadwater Resort Hotel Kalgoorlie. The leased premises were subject to the Act. The lease contained (relevantly), by cl 3, a provision by which, in effect, the appellant agreed to pay to Kareelya, in respect of each financial year during the term, Additional Rent calculated as a percentage of the gross revenue and gross operating profit of the appellant, to be determined on the basis of the appellant's audited accounts. By cl 7.6, the appellant agreed to deliver to Kareelya within 120 days after the end of each lease year an audited profit and loss statement showing the result of operations at the premises during that lease year.
Prior to or at the time the lease was entered into, Kareelya applied to the Director, pursuant to s 104 of the Act, for approval to receive rental income under cl 3 of the lease. That approval was granted.
By a contract of sale dated 5 June 2007, the respondent purchased the property from Kareelya. By virtue of s 77 of the Property Law Act 1969 (WA) (the PLA), upon the acquisition of the property the respondent became entitled, among other things, to the rent payable by the appellant under the lease.
After the acquisition of the property by the respondent, a dispute arose between the appellant and the respondent as to the respondent's entitlement to receive the Additional Rent. The appellant contended that cl 3 of the lease was unenforceable by the respondent as receipt of the 'Additional Rent' by the respondent would be contrary to s 104 of the Act, the approval of the Director not having been obtained by the respondent.
The respondent, on the other hand, contended that it did not need to obtain any separate approval of the Director in order to receive the 'Additional Rent'. It had not entered into any agreement or arrangement with the appellant within the meaning of s 104 of the Act; it simply took the benefit of the Additional Rent as the successor in title to Kareelya pursuant to s 77 of the PLA, and it was entitled to the benefit of the approval obtained by Kareelya.
The respondent commenced proceedings against the appellant claiming, among other things, orders that the appellant provide it with audited accounts for the financial year ended 30 June 2008 (the audited accounts) and that the appellant pay on demand any Additional Rent found to be owing by reference to the audited accounts.
The respondent subsequently applied for summary judgment, seeking an order that the appellant produce the audited accounts. Counsel for the respondent explained on the hearing of the current application that this was regarded as a necessary first step in the calculation of the amount of Additional Rent owing by the appellant.
The appellant in turn applied for summary judgment pursuant to O 16 of the Rules of the Supreme Court 1971 (WA), seeking an order that the respondent's claim be dismissed on the ground that it disclosed no reasonable cause of action.
It appears to have been agreed between the parties at this point that the substantive issue which had to be determined was whether, having regard to s 104 of the Act, the Additional Rent clause in the lease was enforceable by the respondent.
On 13 August 2009, orders were made by Master Sanderson that the matter be entered for trial and the respective applications for summary judgment be adjourned sine die. Although no defence had been filed by the appellant, it seems to have been common ground that the issue to be determined at the trial was whether s 104 of the Act rendered the provision for Additional Rent unenforceable by the respondent.
It appears that at the trial, which took place on 9 September 2009, that was the sole issue before the court. The primary judge held that the respondent was entitled to receive the Additional Rent: Primewest (Lot 4 Davidson Street Kalgoorlie) Pty LtdvBroadwater Hospitality Management Pty Ltd [2009] WASC 304. His Honour concluded that where a profit‑sharing arrangement had been approved under s 104 of the Act, it was enforceable by a subsequent lessor who took the benefit of the rent payable under the lease pursuant to s 77 of the PLA. The primary judge found that the respondent was simply taking the benefit of an approved arrangement, not entering into a new arrangement, and accordingly was entitled to enforce the Additional Rent clause without itself obtaining the approval of the Director.
His Honour made a declaration that the appellant was required to pay the Additional Rent owing under the lease, calculated by reference to the audited accounts. He ordered, among other things, that the appellant deliver the audited accounts to the respondent by no later than 30 November 2009.
The appellant appeals against both the declaration that the Additional Rent provision was enforceable by the respondent and the order that the appellant provide the audited accounts to the respondent.
It was common ground on the application before me that the proceedings below had been fought on the basis that the audited accounts were required by the respondent in order to calculate the Additional Rent. The respondent's claim for the audited accounts was not put on any other basis. Moreover, the appellant contends that on the proper construction of the lease the respondent is only entitled to audited accounts of the appellant for the purpose of calculating the Additional Rent and, accordingly, if the respondent is not entitled to receive the Additional Rent it is not entitled to the audited accounts. It appears that the latter issue was not separately considered by the primary judge in view of the conclusion he reached.
The appellant seeks a stay of the order that it deliver the audited accounts to the respondent until the appeal has been determined on the basis first, that it would render nugatory the appeal against that order and, secondly, that the preparation of the audited accounts would involve substantial cost and that expenditure will be wasted if the appellant is successful on the appeal, there being no other reason for the appellant to have its accounts audited.

The relevant principles

Section 15(1)(b) of the Civil Judgments Enforcement Act 2004 (WA) (the CJE Act) provides, relevantly, that a person against whom a judgment is given may apply to the court that is dealing with an appeal against the judgment for an order suspending the enforcement of all or part of the judgment. By s 15(3), on such an application the court may only make such an order if there are 'special circumstances' that justify doing so. The onus of showing special circumstances lies on the applicant.
The principles which govern the exercise of the discretion under s 15 are not materially different from those which applied to an application for a stay of execution before the introduction of the CJE Act. See Ladang Jalong (Australia) Pty Ltd v Callander [2005] WASCA 203 [3]; Smolarek v Brian Keith McMaster as Administrator of Eznut Pty Ltd [2006] WASCA 216 [33].
The nature of the criteria which are ordinarily relevant to the exercise of the court's discretion to grant a stay of execution, pending an appeal, are well‑established. The principles generally applied on such an application were summarised by Murray and Parker JJ in Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308 [9]. Relevantly, for present purposes, a central issue is whether the grant of a stay is perceived to be necessary to preserve the subject matter or the integrity of the litigation, or whether refusal of a stay could create practical difficulties in respect of the relief which may be granted on appeal.

The disposition of the application

In an affidavit sworn in support of the application, Mr Cogar, the managing director of the appellant, says that, based on his knowledge of the business affairs of the appellant, the Additional Rent that is payable by the appellant, if cl 3 of the lease is enforceable by the respondent, is an amount in the order of $155,000. Mr Cogar says the respondent has previously informed the appellant that it accepts that the respondent owes the appellant the sum of $104,278.12 in respect of unrelated matters. The net amount payable by the appellant to the respondent would therefore be an amount in the order of $50,000.
The respondent does not accept that the amount of the Additional Rent is in the order of $155,000 and says that the amount estimated by Mr Cogar may change substantially following an audit. It has not, however, proffered any other estimate. The respondent did not, for the purposes of this application, put in issue the amount of $104,278.12 which the appellant says is owing to it by the respondent.
Although the position is not entirely clear, it appears from the affidavit evidence that, by an engagement letter dated 22 October 2008, the appellant engaged Ernst & Young to audit the appellant's accounts for the financial year ended 30 June 2008 and the month of July 2008. It is not apparent in what circumstances that occurred. In any event, the retainer of Ernst & Young was terminated in July 2009 following what Mr Cogar believed to have been an inappropriate change in the accounting treatment of certain expenses following discussions between a partner of Ernst & Young and a representative of the respondent.
By a letter of 14 July 2009, the appellant's solicitors informed Ernst & Young that its retainer was terminated and requested that all of the appellant's documents in relation to the audit be transferred to another firm of chartered accountants, Edwards Marshall Chartered Accountants. They also demanded the return of an amount of $28,325 which the appellant had to that date paid Ernst & Young for work undertaken on the audit.
In a letter from Ernst & Young to the appellant's solicitors of 27 July 2009, Ernst & Young denied the alleged discussion between a partner of Ernst & Young and a representative of the respondent and said that the audit had almost been completed. They said they had unbilled fees which 'significantly surpasses' the amount of $35,000 set out in the engagement letter. Ernst & Young declined to repay the sum of $28,325 already paid by the appellant.
Mr Cogar says the dispute between the appellant and Ernst & Young has not been resolved and Ernst & Young is in possession of a considerable quantity of documents which would be needed to complete the audit. Other material which would be needed for that purpose is no longer in the control of the appellant because it is contained in the computer system of the business previously conducted by the appellant at the property. The appellant says it has been informed by Edwards Marshall that its fees to audit the accounts would be in the order of $30,000.
It was submitted on behalf of the appellant that the delivery of the audited accounts to the respondent in accordance with the order of the primary judge would render nugatory the appeal against that order. It would also require expenditure of an amount of some $30,000 which will be wasted if the appeal is successful. It would be necessary too for the appellant to obtain the documents which are currently in the possession of Ernst & Young with which it is in dispute over the fees claimed for work on the incomplete audit.
It was submitted on behalf of the appellant that there would be no real prejudice to the respondent by reason of the stay. The primary judge ordered that the appellant pay interest on the Additional Rent at the rate of 2 % above the Commonwealth Bank overdraft index rate until the date of payment, pursuant to the provisions of the lease.
Counsel for the respondent submitted that the appeal would not be rendered nugatory. At most, only that part relating to the order for delivery of the audited accounts would be affected. It was further argued that the evidence fell short of establishing that the appellant would have to expend a further $30,000 to obtain the audited accounts. The appellant has been informed by Ernst & Young that the audit has almost been completed. Counsel submitted that the fact the appellant wishes to engage another firm of chartered accountants to carry out the audit is beside the point. There was no credible evidence that the audit being carried out by Ernst & Young would be unsatisfactory. The audited accounts could readily be obtained by the appellant at relatively small cost to enable it to comply with its obligations under the order.
It was not contended on behalf of the respondent that, for the purposes of this application, the appeal did not have reasonable prospects of success and I am satisfied that it does.
I consider that a stay should be granted pending the outcome of the appeal. Once the audited accounts are delivered to the respondent, that part of the appeal will be rendered nugatory. I do not consider that in the circumstances of this case it is necessary to show that the whole of the appeal will be rendered nugatory. It is sufficient that the appeal against the order for delivery of the audited accounts will be rendered nugatory.
I am also satisfied that it will be necessary for the appellant to expend a significant sum of money to procure the audited accounts. It is apparent from Ernst & Young's letter of 27 July 2009 that even if the audit were to be completed by Ernst & Young there would be a significant (albeit unquantified) further sum to be paid for its completion. If the audit were to be carried out by another firm of chartered accountants the appellant would incur further expenditure in the order of $30,000. It was not in issue that the expenditure incurred by the appellant would be irrecoverable and therefore wasted if the appeal were successful.
On the other hand, there is no evidence that the respondent will suffer substantial prejudice if a stay is ordered. If the Additional Rent is found to be payable, the respondent will be entitled to interest on it at a commercial rate until it is paid. It is also relevant that the appeal involves a short point. There is unlikely to be undue delay in its determination. I was informed that the trial took less than an hour. On the basis of the materials before me, the appeal would certainly take no more time than the trial. There is no reason that, if the appeal is pursued diligently, it could not be heard within the next few months.

Conclusion

It is for those reasons I ordered a stay of the order of the primary judge that the appellant deliver the audited accounts to the respondent, pending the determination of the appeal or further order.