Fresace P/L v Brian & Vivien Enterprises P/L; Brian & Vivien Enterprises P/L v Fresace P/L - [2005] SADC 120

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
FRESACE P/L v BRIAN & VIVIEN ENTERPRISES P/L; BRIAN & VIVIEN ENTERPRISES P/L v FRESACE P/L
Judgment of His Honour Judge Beazley
2 September 2005
GAMING AND WAGERING - CIVIL PROCEEDINGS IN RESPECT OF WAGERING CONTRACTS
PROPERTY LAW - EQUITY - HOTEL LICENCE - STATUTORY INTERPRETATION
Rights to poker machine entitlements regulated by Gaming Machines Act 1992, Division 3A - lease predates the allocation of gaming machine entitlements and obliges the lessee to transfer its gaming machine licence to the lessor at the expiration of the lease - lessor declines to consent to lessee selling entitlements - whether it is fair and equitable for lessee to sell entitlements in approved trading system - s 27B Gaming Machines Act 1992 - Reg 14 Gaming Machines Regulations 2005 - beneficial entitlement to poker machine entitlements on termination of the lease. Second reading speech - use of extrinsic materials.

LANDLORD AND TENANT
Lessor failing to give notice to lessee under s 20J(1)(b) of the Retail and Commercial Shop Leases Act - whether lessee estopped from insisting on compliance with s 20J(1)(b) - whether lessor should be exempted from requirement to give notice pursuant to s 20J(4) - whether lessee acted unconscionably, whether lessor entitled to an order for possession.
Gaming Machines Act 1992, Division 3A, s 88; Gaming Machines Regulations 2005, reg 14; Liquor Licensing Act 1997, s 78; Retail and Commercial Leases Act 1995 s 20J, referred to.
Gerah Imports Pty Ltd v The Duke Group Ltd (2004) SASC 178 [32-36]; Jabetin Pty Ltd v Liquor Administration Board [2005] NSWCA 92; Hogg v Roberts [2003] 87 SASR 248 at 249; Slatter v Railway Commissioners (NSW) (1931) 45 CLR 68 at 78-79; Talga v MBC International Limited (1976) 133 CLR 622 at 634; Ebrahimi v Westbourne Galleries Ltd (1973) AC 360 at 379, discussed.

FRESACE P/L v BRIAN & VIVIEN ENTERPRISES P/L; BRIAN & VIVIEN ENTERPRISES P/L v FRESACE P/L
[2005] SADC 120
Introduction

The two sets of proceedings between the lessor and lessee, respectively, of the Royal Family Hotel at Port Elliott (“the hotel”), have their genesis in Division 3A of the Gaming Machines Act1992 (“the Act”).[1]
[1] The Gaming Machines (Miscellaneous) Amendment Act 2004 (No.46 of 2004) was assented to on 9 December 2004
Brian & Vivien Enterprises Pty Ltd (“Brian & Vivien”) acquired the freehold and the business of the hotel in 1989. On 5 March 1993 it leased the hotel for a term of three years, together with three rights of renewal each of three years’ duration. The lease was due to expire, by efflux of time, on 7 March 2005. Fresace Pty Ltd (“Fresace”), as trustee of the CM and KJ Scudds Family Trust, is the current lessee of the hotel following various transfers and is relevantly the holder of the hotel licence and gaming machine licence both numbered 50104676. Brian & Vivien anticipated re-entering the hotel pursuant to the terms of the lease, on 8 March 2005. It expected the transfer to it of the respective hotel and gaming machine licences for the hotel for no consideration. Unfortunately for Brian & Vivien these plans were frustrated by the commencement of Division 3A five weeks earlier on 1 February 2005. Fresace did not, as anticipated, deliver up possession of the hotel.
By written notice dated 3 March 2005 pursuant to s 20J(4) of the Retail and Commercial Leases Act 1995 (“the RCL Act”) Fresace requested an extension of the lease upon the alleged failure of Brian & Vivien to give written notice that it did not propose to offer an extension of the lease. On 9 April 2005, Brian & Vivien gave that written notice to Fresace, pursuant to s 20J(1)(b) thereof on a without prejudice basis. Subject to questions of waiver and estoppel the term of the lease was extended by statute to 9 October 2005.
Prior to the commencement of Division 3A of the Act, Fresace was the holder of a gaming machine licence authorising it to operate 12 gaming machines at the hotel. A gaming machine licence which was necessary to acquire and operate gaming machines could only be held by the holder of specified liquor licences, in this case, a hotel licence pursuant to s15 of the Act. The two such licences were linked together so that the surrender or suspension of the liquor licence automatically brought about the surrender or suspension of the gaming licence pursuant to s34 of the Act. A gaming machine licence was personal to the licensee and was incapable of transfer save to the lessor at the expiration of the term of the lease.[2]
[2] See Pennington v McGovern (1987) 45 SASR 27; Jack v Smail (1905) 2 CLR 684
As appears hereafter, the principal purpose of Division 3A of the Act was to reduce the number of gaming machines within the State of South Australia. It created a new proprietary right, namely a transferable “gaming machine entitlement” and a means by which such an entitlement may be sold or otherwise transferred. Notwithstanding the number of machines previously authorized by the conditions of the licence, a licensee could now only operate the number of machines for which the licensee had entitlements allocated to it or purchased by it. The sale and purchase of entitlements cannot occur directly between vendor and purchaser, but only in a limited and somewhat artificial market controlled by the Liquor and Gambling Commissioner. An “approved trading system” was established on 31 March 2005 with the commencement of the Gaming Machines Regulations, 2005.[3] While the gaming machine licence still authorises the acquisition and operation of gaming machines, the gaming machine entitlement is a necessary precondition to that authorisation.[4]
[3] See s 27B of the Act and Regulation 14
[4] See Sec 3(1), 16(1) 27(D) and Schedule 1, (ca) of the Act
At issue is the competing rights of the lessor, on the one hand, and the lessee/licensee of the hotel, on the other, to those valuable gaming machine entitlements.
To give effect to its expressed intention to reduce the number of gaming machines, Parliament directed that with two exceptions, the number of gaming machine entitlements assigned to a licensee would be less than the number of machines approved.[5] In respect of the subject hotel, 12 gaming machine entitlements were assigned to the holder of the licence namely Fresace. Licensees, generally, were immediately entitled to sell one or more of their entitlements under the Act. Indeed, it may be said that they were encouraged to sell as a means of reducing further the number of machines through the structure of the approved trading system.
[5] See Sec 27A of the Act. The exceptions were for non-profit associations generally and other licensees for less than 20 machines
Parliament did however anticipate that there may be disputes as to the rights to those entitlements as between the lessor and lessee/licensee. It recognised that the lessor may have an interest in the preservation of such entitlements and the licence at the demised premises. It did so expressly by providing the mechanism for dispute in s 27B(5) with respect to the entitlements, and for the devolution of the licence to the lessor at the expiration of the lease in s28B of the Act.
With respect to leases, Parliament “qualified” the right of the holder of a gaming machine licence to sell entitlements. Where a lease was executed after 1 February 2005, (the date) Parliament acknowledged the right of the lessor and lessee to contractually exclude the right of sale. Where, however, as in the present case, the lease predated the date then, unless all parties agreed, the District Court is empowered to authorize the sale and make consequential orders.
The Proceedings
By application dated 10 March 2005, in the Magistrates Court of South Australia, Brian & Vivien sought orders that Fresace deliver up possession of the hotel and, inter alia, compensation for loss of profits for having been denied possession from 8 March 2005. In these proceedings, No 552 of 2005, Brian and Vivien assert that Fresace had at all times been well aware that there would be no further renewal of the lease and that Fresace had accepted that position. Brian and Vivien assert that Fresace unconscionably issued the notice pursuant to s20J(4) of the RCL Act to ensure that it remained in possession of the hotel premises until the approved trading system was established by Regulations on 31 March 2005. It claims that Fresace ought to be estopped from relying upon the failure to give notice. Alternatively it claimed relief pursuant to ss68 and 77(2) of the RCL Act relieving it from the obligation to give any such notice. The proceedings were transferred to this Court on 21 April 2005; notwithstanding they had been listed for trial in the Magistrates Court on that day.
In action no 603 of 2005, Fresace commenced proceedings on 14 April 2005 seeking an order authorising the sale of all of the 12 gaming machine entitlements it holds pursuant to Division 3A of the Act. Both proceedings were heard together by consent of the parties with the evidence in one being treated as evidence in the other. That evidence comprised a statement of agreed facts and the tender of a bundle of affidavits filed on behalf of both parties, which exhibited financial statements of the CM & KJ Scudds Family Trust, and reports containing expert opinions as to the valuation of the hotel business. Neither party called any oral evidence nor sought to cross-examine any deponent of any affidavit. Both proceedings were expedited on the assumption that there would be an agreed set of facts. Notwithstanding the best endeavours of the parties to agree those essential facts, some issues as to the knowledge and conduct of the parties remained in dispute. I have been left to resolve those issues by inferences drawn from documents, which were not in dispute. In addition the expert valuers were hamstrung by the limited financial information provided as to the trading figures of Fresace. Their reports were of limited assistance as the valuers did not turn their minds to the effect of a sale of some but not all of the entitlements.
The Principal Issue
Although there are various subsidiary issues, including fixing the date for re-entry, the principal issue is whether it is fair and equitable to authorise the sale by Fresace, of the 12 gaming machine entitlements in the approved trading system established by Division 3A of the Act, and Regulation 14 of the Gaming Machine Regulations 2005. This is the first such application by a lessee for an authorisation to sell gaming machine entitlements. Fresace asserts that it should be entitled to sell all of the entitlements as it solely acquired the gaming machine licence and established a gaming business at the hotel. Even if it be fortuitous, it does not matter that Divison 3A commenced shortly before the lease was due to expire. Brian & Vivien assert that upon a proper construction, Division 3A did not alter any pre-existing relationship between lessor and lessee and that Fresace was obliged to transfer those entitlements to it at the expiration of the lease.
Action Number 552 of 2005
Background Facts
The narrative of the facts in these reasons reflects my findings and is sourced primarily from the Statement of Agreed Facts (Exhibit A1), and those facts in respect of which there was no dispute in the respective affidavits tendered by the parties.
1.     Brian & Vivien acquired the freehold and business of the hotel in 1989. It expended in excess of $1,000,000 on renovations and operated the business as hotel licensee until approximately 5 March 1993.
2.     On 5 March 1993, Brian & Vivien leased the hotel to the then lessees, Mr and Mrs Huckel. The lease, being Memorandum of Lease Number 7469725, provided for a term of three years commencing 8 March 1993, together with three rights of renewal each of three years’ duration. It is this lease, which was to be transferred through subsequent lessees to a partnership of Fresace and Tyncu Pty Ltd jointly on 16 October 1995 and, ultimately, to Fresace solely on 10 July 1997 (“the Lease”).
3.     By three extensions of lease numbered respectively, 8007765, 8676322 and 9325187, the term of the lease was extended from 8 March 1996 to 7 March 2005.
4. The lease initially made no specific reference to a licence issued pursuant to the Act, presumably as the Act did not commence until 1 July 1993. It did, however, contain the following clauses in respect of which “the Act” is the LiquorLicensing Act 1985:
1.24.1That the Lessee shall maintain such a hotel licence and other necessary licences permits approvals and consents as may be necessary to carry on business contemplated by the permitted use hereunder … and following the termination of this lease to transfer all such licences permits approvals and consents as are transferable to the Lessor … at no cost to the Lessor …
1.24.3… that the Lessee will use all best endeavours to maintain and expand the business conducted on the demised premises to which any such licence relates and to preserve and improve the character thereof
1.24.6That the Lessee shall not remove any licence issued under the Act in respect of the premises to other premises
1.24.7That the Lessee shall not transfer any license issued under the Act in respect of the premises
5.     Such covenants have given rise to much litigation between lessors and lessees of licensed premises particularly as to the question whether it is the lessor or lessee, which beneficially owns the hotel liquor licence.[6] In considering such covenants and the rights of lessors in legislation similar to the Liquor Licensing Act 1997, the Court of Appeal in New South Wales (adopting Slatter v Railway Commissioners (NSW) (1931) 45 CLR 68 at 78,79) recently confirmed that the lessor does not have a beneficial interest in the licence but such covenants do recognise and protect the interests of the lessor:
[6] Dalgety Wine Estates Pty Ltd v Rizzon (1978) 19 SASR 543 at 545-546
These stipulations appear … to be intended to preserve the licence in the interests of the landlord, so that at the end of the term the premises would enjoy the advantage of being licensed … the tenant remains entitled to exercise the licence for its own benefit so long as it is entitled to occupy the premises. But the licence is exercisable by its terms only in the premises which the tenant holds of the landlord and when it ceases to occupy the premises it can no longer exercise the licence. The contractual rights given to the landlord to ensure the licence is not destroyed or removed to other premises but is kept on foot and transferred to a person chosen by the landlord do more than safeguard the interests of the owner which (Section 78 of the Liquor Licensing Act 1997) recognised.[7]
[7] Jabetin Pty Ltd v Benwine Pty Ltd (2005) NSWCA 92 at 4
6. By extension of lease number 8007765 dated 13 October 1995, the lessor and lessee added clause 3.17, which, the parties to this action agree, represents a standard hotel lease provision, following the commencement of the Act:
3.17   Gaming Machines Licensing Provisions
3.17.1The lessee shall maintain any gaming machine licence issued in respect of the demised premises and shall at all times observe and perform the conditions of the gaming machine licence and all relevant obligations imposed under the Gaming Machines Act 1992 (as amended) and where no such licence is issued in respect of the demised premises the lessee shall not make application for a gaming machine licence without obtaining the prior written consent of the Lessor, which consent shall not be unreasonably withheld.
3.17.2The lessee shall not do, omit or cause or suffer to be done or omitted any act, matter or thing whatever as a result of which act or omissions of the gaming machine licence issued under the Gaming Machines Act 1992 (as amended) in respect of the demised premises or any business conducted thereon may be liable to be surrendered or forfeited or removed from the demised premises or in any way prejudicially affected or whereby any offence is committed under the Act.
3.17.3The lessee shall not apply to the licensing authority or to any other authority to decrease or restrict the hours that gaming may be conducted on the demised premises.
3.17.4…
3.17.5The Lessee shall not remove or apply to remove any licence issued under the Gaming Machines Act in respect of the demised premises to any other premises.
3.17.6The Lessee shall not transfer any licence issued under the Gaming Machines Act in respect of the demised premises without the approval in writing of the Lessor.
3.17.7…
3.17.8…
7.     An application for a gaming machine licence could only be made by the holder of a liquor licence issued pursuant to the provisions of the Liquor Licensing Act 1985. In this case, only the respective lessees/hotel licensees could have applied for such a licence at the hotel premises.
8.     There had been no application for a gaming machine licence until 8 January 1996 when Fresace, jointly with Tyncu Pty Ltd, were granted a gaming machine licence authorising, initially, the acquisition and operation of 10 gaming machines, subsequently extended to 12 gaming machines for the hotel.
9.     Save for an option vested in the lessor to purchase the plant and equipment of the lessee, the gaming machines were the property of the lessee and could be removed by it at the expiration of the lease.
10.    Fresace and Tyncu expended the sum of $150,042 on alterations and plant and equipment without any monetary contribution from Brian & Vivien as follows:
10.1 the design, approval and construction of a gaming area at the hotel $12,284.00.
10.2 the purchase between 20 November 1995 and 1 February 1997 of 1 coin dispenser for $5,055.00, 10 gaming machines for $110,953 and two further gaming machines respectively for $9,950.00 and $11,800.00.
11.    Fresace purchased additional equipment to the value of $19,250 on: -
11.1 12 March 1998, a coin dispenser for $3,125.00.
11.2 13 May 1998, a further coin dispenser for $3,125.00.
11.3 30 May 2000, a further gaming machine for $13,000.00.
12.    No financial contribution was made by Brian & Vivien towards the application for the gaming machine licence, the purchase of the equipment including the gaming machines, the establishment of the gaming room or the building up of the gaming business at the hotel. The existence of a hotel licence at the hotel was however the necessary prerequisite for the grant of the gaming machine licence.
13.    The rental for the hotel was $75,000 initially in 1993. It increased thereafter at 5% pursuant to clause 3.6 of the Lease to the sum of $124,106 in 2004. The rental was not fixed by reference to the gaming machine turnover.
14. Notwithstanding the expenditure by Fresace in acquiring and operating the gaming machines pursuant to the gaming machine licence, inevitably, at the expiration of the term of the lease on 7 March 2005, the hotel liquor licence and the gaming machine licence would have devolved to Brian & Vivien. This would occur either by transfer from Fresace or, alternatively, by approval of the Liquor and Gambling Commissioner of an application by Brian & Vivien to carry on the business as licensee pursuant to s 73 of the Liquor Licensing Act 1997 and s 28B of the Act. [8]
[8] c.f. Wonall Pty Ltd v Clarence Property Corporation Ltd [2003] 58 NSWLR 23 at 46-47
15.    Pursuant to Clause 3.11 of the lease, Fresace had granted to Brian & Vivien an option to purchase, upon the termination of the lease, all plant, equipment, furniture, fixtures, fittings and stock in trade at an in-situ value.
16.    Prior to the enactment of the Gaming Machines (Miscellaneous) Amendment Act 2004, assented to on 9 December 2004 and, relevantly, for the purposes of Division 3A commencing on 1 February 2005:
16.1 The act had made no provision for a lessee to be compensated for any goodwill it had generated at the hotel.
16.2 Both Brian & Vivien, and Fresace, had the expectation that the hotel licence and the gaming machine licence, authorising the use of the 12 machines, would have vested in Brian & Vivien for no consideration in the event that there was no extension of the term of the lease beyond 7 March 2005.
17.    Fresace developed the gaming machine business to a high level having received awards as the Best Gaming Venue in the State for a venue with less than 20 machines in 1998 and 1999.
18.    In the months of August, November and December 2004, Fresace paid various levies and insurance premiums, pro rata, to 7 March 2005.
19.    By letter dated 8 December 2004, the solicitors for Fresace confirmed that vacant possession was required on 8 March 2005, and sought a decision by Brian & Vivien as to whether it would exercise the option to purchase the assets of Fresace.
20. By letter dated 21 January 2005, from its solicitors, Brian & Vivien exercised its option pursuant to Clause 3.11 of the lease to purchase the assets, plant and equipment of Fresace, and agreed with the nomination of valuers to prepare a valuation. Included within that plant and equipment were Fresace’s 12 gaming machines. In the event that the 12 entitlements were authorised pursuant to s27(B)(5) of the Act to be sold by Fresace, those machines would be of no value at all to Brian & Vivien.
21.    Between January 2005 and 24 February 2005, the parties acted consistently as if possession were to be given and taken on 8 March 2005.
21.1 Fresace instructed MGS Valuations Pty Ltd to value the plant and equipment for the purposes of Clause 3.11 of the lease. That valuation was provided by Fresace’s solicitors on 15 February 2005.
21.2 Fresace directed enquiries for bookings for events after 7 March 2005 to Brian & Vivien. Mr Scudds asserts that this was because he was uncertain about whether an extension would be granted, rather than knowing that it would not.
21.3 On 25 January 2005 Brian & Vivien attended the hotel with a builder, and subsequently made arrangements with various wholesalers to supply the hotel.
21.4 Brian & Vivien placed an advertisement in the local newspaper informing the public of its return to the hotel on 8 March 2005, lodged an application with the Office of Liquor and Gambling Commissioner, to enable it to carry on the business at the hotel effective from 8 March 2005, and engaged managers to operate the hotel on its behalf.
22. By letter dated 24 February 2005 Fresace, by its solicitors, raised, for the first time, its right to sell the gaming machine entitlements and sought the consent of Brian & Vivien pursuant to s 27(B)(5) of the Act.
23.    By letter dated 24 February 2005 Brian & Vivien, by its solicitors, refused its consent to the sale of the entitlements. By further letter dated 1 March 2005 its solicitors noted that Fresace had refused to vacate the premises and stated that their client would cancel other arrangements for taking over the hotel on 7 March 2005 as had previously been arranged.
24. By Notice dated 3 March 2005 Fresace sought, for the first time, to extend the term of the lease pursuant to s 20J(4) of the RCL Act.
25. By Notice dated 9 April 2005 approximately one month after commencing action No 552 of 2005, Brian & Vivien, on a without prejudice basis, complied with s 20J(1)(b) of the RCL Act.
26.    No agreement was reached between the parties as to the value of the plant and equipment in respect of which Brian and Vivien had exercised its option to purchase.
27.    From 1 February 2005, Fresace was the holder of the 12 entitlements. At least since 24 February 2005 it wished to sell those entitlements, however there was no mechanism for that sale until the approved trading system had been established by regulation commencing on 31 March 2005 namely after the due date of the termination of the lease.
28. Fresace was not and could not have been in any doubt at the time it served notice under s 20J of the RCL Act that Brian & Vivien would not under any circumstances extend the term of that lease. Whether Fresace served the notice under s 20J to buy time until the approved trading system was established or whether it simply sought to improve its position in negotiations with Brian & Vivien because there had been no agreement about the value of the assets to be purchased by the latter, is of no significance. The effect of the extension however was to enable Fresace to remain in possession at the time the approved trading system was established.
29 It is implicit that had Fresace not served its notice, it would have issued proceedings seeking an authorization for the sale of the entitlements pursuant to s27B(5) of the Act before the expiry of the lease on 7 March 2005.
30.    It seems clear that the s20J notice was issued because Fresace’s directors learnt for the first time shortly prior to 3 March 2005 that they had such a right. They did not, therefore, by their conduct, waive that right with knowledge of it.
31. On 3 May 2005 Fresace lodged an application with the Liquor and Gambling Commissioner to sell all 12 gaming machines at the first round of authorised trading listed for 11 May 2005. It was excluded from that round by s 27B(5) of the Act.
32.    On 11 May 2005, only 169 entitlements were offered for sale. By contrast there were 1346 offers to purchase an entitlement. The prospects of an early purchase to replace such entitlements appear bleak in the short term.
33.    Fresace did not make any financial payment for the gaming machine entitlements. It did not alter its gaming operations nor commit itself in any way upon the faith of the allocation to it of those entitlements.
34.    It was not suggested by Fresace that there was no longer a demand for gaming machines at the hotel. This application is made by Fresace simply as an outgoing lessee which seeks a return to it of capital, and has no interest in the ongoing business at the hotel.
35.    The lease contains no express terms dealing with the rights to the gaming entitlements. The parties did not seek to argue whether, by the doctrine of accretion, the lessee was required to deliver up the entitlements as accretions to the property as demised, which occurred after the commencement of the lease.[9] Nor was it argued that there was an implied term of the lease that the entitlements, created by a change to the Act, must be transferred to the lessor in the same manner as the licence at the expiration of the lease.[10] I assume that such arguments were rendered nugatory because of a concession by Fresace as follows:
Fresace by the terms of its lease with Brian and Vivien is obliged to transfer 12 gaming machine entitlements to the latter as lessor at the expiration or sooner determination of the lease.
[9] Harrington v Harrington Services Pty Ltd (In Liq) [2002] NSWSC 859
[10] North Adelaide Nursing Home Pty Ltd v Seely [2000] SASC 455 at 63
The Legislation

The relevant provisions of the Act following the commencement of the Gaming Machines (Miscellaneous) Amendment Act 2004 are:
Section 3(1)
Gaming machine entitlement means an entitlement to operate 1 gaming machine under a gaming machine licence.
Section 16
(1)     A gaming machine licence authorises the licensee to possess and operate in the licensed premises a number of gaming machines equivalent to the number of gaming machines entitlements held in respect of the licensed premises (or a lesser number).
(2)     The number of gaming machine entitlements held in respect of particular licensed premises cannot exceed the maximum number approved by the Commissioner for operation under the gaming machine licence for the premises.
(3)     The Commissioner cannot approve more than 40 gaming machines for operation under a gaming machine licence.
…
Division 3A – Gaming machine entitlements
27A – Gaming machine entitlements
(1)     On the commencement of this Division, the Commissioner is to assign to each licensee who holds a gaming machine licence gaming machine entitlements as follows:
(a)    if –
(i)the Commissioner has approved the operation of 20 gaming machines or less under the licence; or
(ii)the Commissioner has approved the operation of more than 20 gaming machines under the licence and the licensee is a non-profit association,
the Commissioner is to issue to the licensee a number of gaming machine entitlements equivalent to the number approved by the Commissioner; and
(b)    if –
(i)the Commissioner has approved the operation of more than 20 but not more than 28 gaming machines under the licence; and
(ii)the licensee is not a non-profit association,
the Commissioner is to issue 20 gaming machine entitlements to the licensee; and
(c)    if –
(i)the Commissioner has approved the operation of more than 28 gaming machines under the licence; and
(ii)the licensee is not a non-profit association,
the Commissioner is to issue to the licensee a number of gaming machine entitlements calculated by subtracting 8 from the approved number.
(2)     A gaming machine entitlement may be held only by –
(a)a licensee holding a gaming machine licence who has an approval from the Commissioner to operate on the licensed premises a number of gaming machines equal to or exceeding the number of gaming machine entitlements held by the licensee; or
(b)…
27B – Transferability of gaming machine entitlements
(1)     A gaming machine entitlement is transferable as follows:
(a)if a gaming machine licence is transferred, the transferor may transfer together with the licence all gaming machine entitlements held by the transferor immediately before the transfer;
(b)…
(c)…
(d)if a person is authorised by or under Part 3 Division 4A to carry on the business of a licensee, the licensee’s gaming machine entitlements vest in the authorised person for the duration of the authorisation (and are not otherwise transferable during that period) but then revert to the person in whom they would (apart from this paragraph) have been vested;
(e)if a person holds a temporary licence under Part 3 Division 4A, the former licensee’s gaming machine entitlements vest in the licensee for the duration of the temporary licence (and are not otherwise transferable during that period) but then –
(i)if the temporary licence is converted into an ordinary licence – vest on the conversion in the holder of the licence; or
(ii)if the temporary licence is not converted into an ordinary licence – revert to the person in whom they would (apart from this paragraph) have been vested;
(f)the holder of gaming machine entitlements may (subject to this section) sell 1 or more of the entitlements under the approved trading system.
(2)The approved trading system is a system established by the regulations under which –
(a)the holder of gaming machine entitlements may offer 1 or more of them for sale at a fixed price of $50 000 for each entitlement; and
(b)intending purchasers may submit offers to purchase at that price.
(3)     …
(4)     …
(5)     If a gaming machine entitlement relates to premises that are (or were) held by the licensee under a lease, the right to sell the entitlement under the approved trading system is qualified as follows:
(a)if the lease is entered into after the commencement of this section, the lease may exclude or limit the right of sale;
(b)if the lease was entered into before the commencement of this section, the right may only be exercised if—
(i) all parties to the lease agree; or
(ii) the District Court, on application by the holder of the entitlement, determines that it is fair and equitable to authorise its sale and gives its authorisation accordingly.
(6)     If the District Court gives an authorisation under subsection (5)(b), it may exercise either or both of the following powers:
(a)it may impose conditions, such as a condition that the proceeds of the sale be shared between the parties on a fair and equitable basis;
(b)it may make a consequential alteration to the terms of the lease.
(7)     If the holder of a gaming machine entitlement makes an application for an authorisation under subsection (5)(b) and, before the proceedings are determined—
(a)the applicant is required under the terms of a lease to transfer the entitlement to someone else; or
(b)the entitlement vests in someone else on conversion of a temporary licence into an ordinary licence under Part 3 Division 4A,
the District Court may order the sale of the entitlement under the approved trading system and the payment of the net proceeds of sale to the applicant or the division of the net proceeds of the sale between the applicant and another or others in proportions the District Court considers fair and equitable.
27C    Premises to which gaming machine entitlements relate
(1)     A gaming machine entitlement is to be issued for the licensed premises in respect of which the licensee to whom it is issued holds a gaming machine licence.
(2)     The following provisions apply on the transfer of a gaming machine entitlement:
(a)if the entitlement is transferred together with a gaming machine licence, it will upon transfer relate to the same licensed premises;
(b)…
(c)if the entitlement is sold under the approved trading system, it will relate to premises nominated by the purchaser and approved by the Commissioner as part of the trading process.
(3)     …
(4)     …
(5)     …
27D   Effect of this Division on obligations under a lease or mortgage
If
(a)a lease, mortgage or related agreement was entered into before the commencement of this Division; and
(b)the licensee is required by the lease, mortgage or related agreement to maintain a certain number of gaming machines in operation on the licensed premises; and
(c)the number exceeds the number of gaming machine entitlements assigned to the licensee on the commencement of this Division,
the lease, mortgage or related agreement will be construed as if it required the licensee to maintain a number of gaming machines in operation on the licensed premises equivalent to the number of gaming machine entitlements assigned to the licensee on the commencement of this Division.
Schedule 1 – Gaming machine licence conditions -
(ca)    that the licensee will not have in the licensee’s possession more gaming machines than the number of gaming machine entitlements held in respect of licensed premises.
Regulation 14 of the Gaming Regulations 2005 dictates the manner in which the gaming machine entitlements will be disposed of, having regard to the statutory objective of reducing by 3,000 the number of gaming machines that may lawfully be operated in the State. A successful purchaser must pay the sum of fifty thousand dollars per entitlement, while the payment to the vendor is dependent upon the number of entitlements otherwise excluded by the Commissioner and may result in a payment of 75 per cent of the $50,000 namely $37,500 or some lesser sum.
Section 88 of the Act excluded any right to claim compensation in consequence of the amendment to the Act.
Overview of Division 3A
It is apparent that the primary objective of the Division is the reduction in the number of gaming machines in the State, at least in the interim. Questions of public interest in the maintenance of gaming machines at any venue are not relevant. Licensees may decide for themselves whether they wish to expand, continue or dispose of gaming operations by means of the purchase or sale of gaming machine entitlements.
The sale of entitlements assists the primary purpose of the Division, as the consequence of sales through the authorised trading system is that one out of every three entitlements sold in trading is relinquished.
Both counsel submitted that I was entitled to have regard to the Second Reading Speech of the Minister for Gambling delivered on 4 May 2004, and the legislative history of the Act as an aid to its construction.[11]
[11] See Gerah Imports Pty Ltd v The Duke Group Ltd (In liquidation) (2004) SASC 178 at [32-36]
Save for stressing the primary objective of the Division, which is apparent from the plain reading of the Statute, the speech offers no guidance as to the criteria to be considered when applications are made to the court pursuant to s 27B(5) of the Act.
The Act “shows a marked economy in the statement of its principles”.[12] It does not specify what matters are to be taken into account in determining whether it is “fair and equitable to authorise a sale”.[13]
[12] Polyaire Pty Ltd v K-Aire Pty Ltd [2005] HCA 32 at [1]
[13] cf Hogg v Roberts [2003] 87 SASR 248 at 249 per Doyle C.J.
In the case of a transfer of licence the transferor may transfer the gaming machine entitlements with the licence under s 27B(1). This presumably would enable lessors and lessees in dispute to settle upon a value, rather than proceed under s 27(B)(5)(ii) where the court is limited to authorising the sale of the entitlements. By contrast a court may order, as an alternative to sale, compensation under comparable legislation in Queensland.[14]
[14] Gaming Machine Act 1991 (QLD) s 409. See PJ Ryan's Hotels v Casey [2004] QSC 103 at [32-36]
Recognising that applications for authorization may occur near the expiration of a lease, Parliament provided the court with power to order the sale of the entitlement notwithstanding the entitlement has devolved to another before the proceedings are determined under s27B(7) of the Act. The order may be made in circumstances, like the subject case, where the terms of a lease oblige the lessee to transfer the entitlements. In my opinion, in giving the court such a power, Parliament was not indicating that rights under the lease could be ignored or afforded little weight.
While similar legislation interstate has spawned significant litigation with respect to transferable entitlements there are differences as between States, and none have an equivalent of s 27B(5).[15]
[15] Gaming Machine Act 2001 (NSW). See Jabetin Pty Ltd v Benwine [2005] NSWCA 92, Garcia v Masters [2005] NSWSC 480, Evans v Turner [2005] NSWSC 624, Murray v Tovock Enterprises [2005] NSWSC 377, Wonall v Clarence Property Corporation [2003] 58 NSWLR 23
The Construction of Section 27B (5) and (6)
Section 27B(5)(b) is a transitional arrangement for the resolution of disputes between lessors and lessees of pre-existing leases.
In construing the Act I note that it was said in Penny v Penny[16] that there is no presumption, especially with rights created by Statute, that Parliament did not intend to affect accrued rights and liabilities.
[16] (1965) 65 SR (NSW) 366 at 375, but contrast s16(1)(c) Acts Interpretation Act 1915
Notwithstanding the power conferred in s27B(7) of the Act, I am of the opinion that, in enacting Division 3A, Parliament did not intend to take away any pre-existing rights as between a lessor and lessee. As between lessor and lessee, it did not purport to confer beneficial ownership of the gaming machine entitlements. Because neither party to the lease could have anticipated the creation of the entitlements, it provided the mechanism for dispute resolution.
While the subject lease was due to expire shortly after the commencement of the section, these transitional arrangements apply to a myriad of circumstances with some leases continuing for many years with rights of renewal. Unlike Fresace, other lessees may have expanded the gaming business following the allocation of entitlements by purchasing further entitlements or altering the manner of trading on the faith of the security of tradeable entitlements. In addition, some leases may contain no reference at all to the business of gaming. Others may give rise to an implication that the entitlement ought to pass to the lessor at the expiration of the lease.
Fair and Equitable
The words “fair and equitable” like their synonyms “just and equitable” or “fair and reasonable” are frequently found in statutes as the legislative direction by which a Court must act. While the words are extremely wide, they do not give rise to a general and unfettered individual opinion nor a discretion of an arbitrary kind.[17]
[17] Hogg v Roberts (2003) 87 SASR 248; Masa v Corporate Affairs Commission (1986) 42 SASR 19
In Talga v MBC International Limited, the High Court[18] said:
The Court will have before it an existing transaction replete with all its surrounding facts and circumstances and in their light will determine what is just and equitable. In doing so it will certainly be exercising a wide discretion that is a commonplace of the curial process: the Court will be bound to act judicially, exercising its discretion by reference only to such considerations affecting the transaction as, on examination of the legislation, may be seen to be material to the decision which it is called on to make. Irrelevant matters … which have no rational connection with the policy … but would be expressive only of the personal predilections of the Court, cannot be allowed by it to play any part in its decision.
While it might be superficially attractive to approach the exercise with a presumption of a 50/50 apportionment, such an approach would be in error.[19] I repeat my opinion that Parliament did not intend to take away any accrued rights nor alter any pre-existing arrangements between the parties.
[18] (1976) 133 CLR 622 at 634
[19] Mallett v Mallett (1984) 156 CLR 605
The phrase does however enable the Court to take into account the conduct of the parties and “to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust or inequitable, to insist on legal rights, or to exercise them in a particular way.”[20]
[20] Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at 379 and see Schokker and Edwards (1986) 11 Fam LR 446
Two Tiered Inquiry
The Act assumes a threshold inquiry in s 27(B)(5)(b)(ii) as to whether a sale ought be authorised at all. Only if that inquiry is answered affirmatively, does the Court proceed with the second inquiry in s 27(B)(6) namely whether it should impose conditions “such as” the fair and equitable division of the proceeds. One issue is whether the respective subsections permit the Court to authorise the sale of a specified number of entitlements, or simply to decide whether to authorise a sale without regard to the number. Here, Fresace seeks to sell all 12 entitlements. If the Court were to conclude that a lessee ought be authorised to sell one entitlement only, a possible construction is that once the initial inquiry is answered affirmatively, the lessee is then able to sell all 12 entitlements, with the proceeds being divided 11/12 to the lessor and 1/12 to the lessee. Upon this construction the only issue is whether to authorise the sale, so that questions of apportionment arise subsequently in s 27B(6). This would produce an unjust result in that the lessor would lose all the entitlements and the opportunity to continue the business. Such a construction would, however, be consistent with promoting the purpose of the section to reduce the number of machines.
In my opinion the power to impose conditions in s 27B(6) must include the power to fix or limit the number of entitlements which may be authorised to be sold as an alternative to or in addition to apportioning the proceeds of such a sale.
The Criteria
In determining what is “fair and reasonable” for the purpose of Section 27B (5)(b)(ii) of the Act the considerations which would appear to be material are:
(a)The terms of the lease and any other collateral agreement between the parties with respect to the gaming business. While Parliament could not have intended that the lease be the sole determinant as it did with respect to section 27B(5)(a) of the Act, it did not alter the pre-existing arrangements between the parties. The question, therefore, is what were the pre-existing rights of the parties.
(b)The contributions by the respective parties in the acquisition of the Gaming Machine licence, which was the source of the entitlements assigned on 1 February 2005, and the development of the gaming business at the hotel.
(c)The value to be ascribed to the hotel licence, without which no gaming machine licence could have been issued.
(d)The effect of the sale of one or more gaming machine entitlements upon the value of the business of gaming at the hotel, and upon the value of the freehold of the hotel.
(e)The expectation of the parties prior to the commencement of Division 3A as to which of them would have the benefit of the conduct of the gaming business at the expiration of the lease.
(f)Whether either party has altered its position on the faith of the allocation of the entitlement. In this respect whether a licensee has expanded the business and/or purchased more entitlements since the commencement of Division 3A on the understanding that it could return capital to itself or have the security of such capital upon the sale of the entitlement.
(g)The duration of the lease of the hotel and the balance of the term.
(h)The conduct of the parties in the period 1 December 2004 to 3 March 2005.
(i)The consequence of a sale within the trading system whereby the lessor, having received the gaming machine licence at the expiration of the lease, would not be able to operate machines without the expensive and delayed process of purchasing replacement entitlements.
(j)Whether one party stands to make a windfall gain at the expense of the other as a result of the allocation of the gaming entitlements.
The Application of the Criteria to the Facts
(a)     Lease
I have set out the relevant clauses of the lease and the agreed fact that Fresace was obliged by the lease to transfer the 12 entitlements to Brian & Vivien at the expiration of the lease. While I appreciate that subclause 1.24.3 formed part of the lease before the concept of a gaming business was in contemplation, it clearly envisaged that the lessee would use its best endeavours to maintain and expand the business to which any licence related. When the parties envisaged that a gaming business may be established they amended the terms of the lease to include specific subclauses in respect of gaming. Clause 3.17 of the lease prohibited the transfer or removal, of the licence, and obliged Fresace to maintain the licence. I note that the clause does not specifically prohibit Fresace from reducing the number of gaming machines during the currency of the lease. It may be said that it is implicit that it would not reduce the number because of the obligation to maintain the licence. In any event it is an agreed fact that by the terms of the lease Fresace was obliged to transfer all 12 entitlements at the expiration of the lease. In my opinion, this is the starting point as to whether it is fair and equitable to authorise a sale.
I do not overlook the agreed fact that the clauses are standard lease covenants. Parliament was not simply concerned with those rare cases where there is no lease with the standard terms. In my opinion the section is designed to cover a variety of circumstances including those where no implication arises as to the beneficial ownership of the entitlements. It also permits the Court to authorise a sale in circumstances where a lessee may have expended money upon an assumption which was erroneous, or where the conduct of the parties makes it inequitable for the lessor to rely on the strict terms of a lease.
(b)An Analysis of the Financial Contributions and the consequences of a sale within the trading system.
By affidavit sworn 13 April 2005, Mr Scudds stated that Fresace had spent a total of $446,000 in respect of its gaming business at the hotel over the eight and a half year period. In the course of argument, it was suggested that if notional interest could be charged on each item of expense, including monitoring fees, the expenditure would total $557,596.08.
With respect, those figures are of little assistance. The major proportion of those sums is for the day-to-day operational expenses. With the exception of minor maintenance items, only the respective sums of $12,284 for the establishment of the gaming room and $157,000 for gaming equipment were of a capital nature. The balance was made up of operational expenses, including staff in the sum of $225,000 and the allowance for notional interest in the sum of $107,652.08.
It is necessary to contrast those sums with the income received by Fresace since the commencement of its gaming business and the depreciation claimed by Fresace of the establishment and gaming machine costs.
The affidavit of Mrs Tonkin, sworn 29 April 2005, disclosed that the net revenue from gaming alone at the hotel for the period July 1997 to November 2004 was the sum of $2,121,191.84. The financial statements show that the gaming business has been profitable to Fresace after taking account of the operation expenses. As to the capital items, they have been significantly depreciated over the years. The sum of $12,284 was mainly expended on partitioning. Pursuant to the exercise of the option, Brian & Vivien are required to purchase those partitions. As to the gaming machines, by 30 June 2003 they had been depreciated to a value of $3,576, at least for tax purposes. Whatever the true value of the gaming machines, Brian & Vivien are required to pay Fresace for the same in consequence of exercising the option to purchase. Although Fresace did pay a sum for goodwill when it purchased the business in 1995, that sum related to the hotel business without gaming. The total purchase price, including stamp duty, approximated $100,800. Fresace did not provide any consideration for the allocation of the entitlements. While Fresace did acquire the gaming machines it has had the ongoing benefit of the revenue from them. In the absence of any other factors, the fact that a lessee had established the gaming business without any financial assistance from the lessor would be a strong indicator that it would be fair and equitable to permit a sale of at least some of the entitlements.
(c)     The Value of the Licence
While Brian & Vivien did not contribute financially to the acquisition of the gaming business it did provide quality premises following the expenditure of over one million dollars on renovations in 1993, and transferred the existing hotel licence.
(d)The Impact Upon the Freehold and the Business of the Sale of any Entitlement
I did not gain much assistance from the expert report of the valuer, James Pledge, dated 18 May 2005. While he set out the principles by which freehold and leasehold premises ought be valued, he was not requested to provide an opinion as to the impact of the sale of less than the full number of gaming machine entitlements.
He did, however, conclude that the absence of gaming machines “can make a substantial difference, as compared to a property which has machines”. He pointed out that the income from gaming machines is seen by the market as far more attractive than traditional hotel turnover with the net income generally higher for a small hotel such as the subject hotel. The sale of the entitlements would, therefore, negatively affect the income of the business, the consequential calculation of rent and the freehold value. The entitlements themselves have a capital value which would be lost upon sale. Mr Ron Aschberger provided an expert valuation report dated 2 May 2005 and supplementary reports dated 8 June 2005 and 16 June 2005.
Mr Aschberger was somewhat hamstrung by the limited financial information provided to him which did not permit him to isolate the various income producing sectors of the hotel business. He did, however, make clear that the loss of gaming would impact negatively on the hotel. Both the market rental would drop and there would be a drop in the value of the freehold and leasehold from $1.75 million to $900,000. In the report dated 16 June 2005, he had been provided with details of the current rental. This led him to conclude that the hotel without gaming revenue would drop from a significant profit to a small annual loss. In fact, because of the duplication of rent there would still have been a reduced profit. He also was not requested to provide an opinion as to the impact of a sale of a lesser number of entitlements. I am however able to conclude that the loss of gaming entirely would have a significant effect upon the value of the business and freehold of the hotel. The loss of an entitlement would be a loss of the capital value of at least $37,500. The cost to replace the same, if possible, is $50,000. Having exercised the option to purchase the gaming machines, a loss of one entitlement would result in that machine having no value. I am unable to say, on the evidence, how many entitlements would need to be retained to prevent an effective total loss of gaming revenue. I do not know what minimum number of machines is necessary to attract gaming customers.
(e)     The Expectation of the Parties
There is no doubt that both lessor and lessee anticipated that the gaming machine licence would be transferred to Brian & Vivien for no consideration on 8 March 2005. Fresace had no expectation that it would receive any goodwill. In addition, it is an agreed fact that all 12 entitlements would be transferred to Brian & Vivien at the expiration of the lease.
(f)     Whether any Party has Altered its Position
Fresace has not altered its position on the faith of the allocation to it of the entitlements, nor by any conduct or representations by Brian & Vivien. The fact that it has chosen to extend the term of the lease under s20J of the RCL Act does not count as a factor in its favour. It has not expanded the gaming business, nor committed itself to any expenditure upon the expectation that it will receive the capital from the entitlements. It is simply in the fortuitous position that weeks before the lease expired it has the prospect of a substantial windfall gain.
Fresace has had over 8 years’ occupancy of the hotel in which it has received the benefit of the gaming income.
(g)     The term of the lease and the conduct of the parties
I have already dealt with this issue. Fresace had the benefit of the gaming revenue for 8 years and had the expectation six weeks before the expiration of the lease that it would receive nil consideration for the gaming business.
(h)     Windfall gain
I have no doubt that in the circumstances of this case Fresace has sought to obtain a substantial windfall gain in circumstances where Parliament did not intend such a windfall to be created. It was obliged to hand the entitlements to the lessor upon the expiration of the lease. It sought the windfall at the expense of the lessor, in disregard of its obligations.
Conclusion
Each case must be decided on its own facts. In some cases the lease will be silent with respect to gaming and a great deal of weight will be given to the financial contributions made by the lessor and lessee. There will be cases where notwithstanding that the terms of a pre-existing lease will implicitly oblige a licensee/lessee to transfer all of its entitlements to the lessor at the expiration of a lease, that it would not be just or equitable to deny the lessee the right to sell its entitlements. Some leases, properly construed, will permit lessees to sell entitlements during the currency of the lease, and oblige them to transfer only such entitlements as remain at the expiration of the lease.
I accept the submission that upon a proper construction of Division 3A the court has power to authorise the sale of a specified number of entitlements as a condition of that authorisation.
In this case it has been necessary to weigh up the matters raised in the various criteria. There is no doubt that Fresace solely established and developed the gaming business. There is equally no doubt that it expended significant sums of money to operate that business.
It must be remembered that in every case it is the licensee which must make application for a gaming licence. A lessor cannot make such an application. When the parties determined that a gaming business would be established by the lessee, they altered the lease to make it clear that the licence would revert to the lessor at the expiration of the lease. They made provision for the lessor to have the option to purchase the lessee’s plant and equipment at the expiration of the lease. In this case Brian & Vivien exercised that option. Both parties expected that the respective licences would be transferred to the lessor for no consideration at the expiration of the lease. They both acted upon that expectation that possession would be given and taken on 8 March 2005.
The commencement of Division 3A was entirely fortuitous for Fresace. It had invited Brian & Vivien to purchase its gaming machines. It acknowledges that it was obliged to transfer all 12 entitlements to Brian & Vivien at the expiration of the lease. Apart from its acknowledged obligation, it could not in fact sell the entitlements before the expiration of the lease because no authorised trading system had been established until well after that date.
In my opinion Brian & Vivien has not received a windfall.[21] It, as lessor, is due to receive what the parties both anticipated at the expiration of the lease. It could either operate the business itself or lease or sell it. The lessee has had over 8 years occupancy of the hotel in which it has received the benefit of the gaming income. It is Fresace which has sought to obtain a windfall gain from the allocation of the entitlements. It will suffer no financial loss in the event it complies with its obligation to transfer all 12 entitlements to Brian & Vivien. By contrast Brian & Vivien will suffer loss in the event that the gaming entitlements are not transferred as expected. If none are transferred the losses to the value of the freehold and leasehold will be significant. The capital value of any entitlements sold will also be lost. As to the loss in value of the excess gaming machines, which the lessor had opted to purchase, I accept that an order under s 27B(6) could be made to compensate Brian & Vivien. I have given much thought to whether I should authorise the sale of a small number of entitlements to compensate for the establishment costs. However, given the terms of the lease, the expectation of the parties, the period of occupancy and the timing of the allocation of the entitlements at the expiration of the lease, I do not accept that it is fair and equitable to authorise the sale of any of the entitlements.
In these circumstances the application for an authorisation to sell the entitlements must be dismissed. I will hear the parties as to costs of the application.
Action No 603 of 2005
[21] See Jabetin v Benwine at [78-79]
The Possession Proceedings

At issue was whether an order for immediate possession ought be made in favour of Brian & Vivien. It was common ground between the parties that s 20J of the RCL Act applied to the lease between the parties so that Brian & Vivien were obliged not less than 6 and not more than 12 months before 7 March 2005 to give written notice to Fresace that it did not propose to offer a renewal or extension of the lease. Brian & Vivien did not give that written notice. It is unclear whether the notice was not given because of a view that s 20J did not apply because of the number of extensions already granted, or whether its directors believed that it had otherwise orally made clear to Fresace that no further extension or renewal would be granted. In any event, the term of the lease was extended pursuant to s 20J(4) until 9 October 2005 subject to the right of Fresace to terminate the lease by giving not less than one month’s notice in writing to Brian & Vivien pursuant to s 20J(5) thereof.
In the Magistrates Court Brian & Vivien sought, inter alia, an order pursuant to s 68 of the RCL Act requiring Fresace to surrender possession of premises, and an exemption pursuant to s 77(2) from the obligation to give notice under s 20J. The monetary claim was amended to exceed the sum of $40,000 thereby giving the District Court, pursuant to s 69(2) of the RCL Act, the powers of the Magistrates Court contained in s 68 of the Act. The Court does not however have the powers of the Magistrate Court to grant exemptions under s 77 (2) thereof. Brian & Vivien also sought a declaration that Fresace be estopped from relying upon the failure to give written notice pursuant to s 20J of the Act. In the event that Brian & Vivien was successful, the question of quantum would be dealt with subsequently.
Evidence
As explained earlier, the evidence consisted of a bundle of affidavits in respect of which there was no cross-examination. The evidence on behalf of Brian & Vivien is that contained in Exhibits R8 and R9. Vivien Norah Tonkin deposed to a meeting at the Governor Hindmarsh Hotel, which she attended with her husband Brian Maxwell Tonkin. Also present were Craig Murray Scudds, a director of Fresace and a Hotel Broker, John Langford. Mrs Tonkin said that the meeting occurred in or about 2002 although it is clear from other evidence that the meeting in fact took place in the first half of 1999. She stated that Mr Scudds was told at that meeting that there would not be any extension to the lease as Brian & Vivien intended to return to the hotel at the expiration of the lease on 7 March 2005. She referred to the series of correspondence between the parties and the conduct of Fresace which is set out in the “background facts” herein as establishing that both Lessor and Lessee acted consistently with the understanding that vacant possession would be given on 7 March 2005. Exhibited to Mrs Tonkin’s affidavit was a letter written by Mr Langford on behalf of Fresace to the directors of Brian & Vivien dated 9 September 1999. The relevant part of that letter reads:
Please be assured that this is not an attempt to have you reconsider your stance on the lease term issue. Your decision not to extend the Lease as requested by Craig and Kerryn is well understood.
Brian Maxwell Tonkin also deposed to the meeting at the Governor Hindmarsh Hotel, which he conceded, occurred in the first half of 1999. He said that he and his wife had made it clear at that meeting that they would not provide Fresace with an extension of the lease and that they wanted the hotel back at the expiration of the lease on 7 March 2005. By implication, he would not have agreed to exercise the option to purchase the plant and equipment had he been aware that Fresace did not intend to vacate the premises on 7 March 2005. He would certainly not have exercised the option had he been aware that Fresace proposed to seek an order authorising the sale of the gaming machine entitlements. The affidavit of Mr Tonkin was sworn on 6 May 2005 in answer to an affidavit sworn by Craig Murray Scudds on 28 April 2005. Mr Scudds had deposed to a telephone conversation with Mr Tonkin in the month of February or March 2004 in which he alleged that he enquired as to the Tonkins’ intentions in relation to the lease and that he was seeking certainty on behalf of his family in relation to the lease. He said that Mr Tonkin said words to the effect “there are still 12 months remaining on the lease and I cannot make a decision this far in advance”. While Mr Tonkin admitted such a telephone conversation did occur, he could not recall whether he used words to that effect. He deposed that if he had used such words, then they were used in the context of answering what Brian & Vivien intended to do with the hotel when it was returned, and not in the context of whether they would provide Fresace with an extension of the lease. The evidence of Fresace was that of Mr Scudds in the affidavit sworn 28 April 2005. He denied that at the meeting at the Governor Hindmarsh Hotel he was told that an extension of the lease would not be granted after 7 March 2005. He said that the various pro rata payments were made due to the uncertainty as whether an extension of the lease would be granted and that he was hopeful that an extension would be granted. As to the correspondence between the parties, he stated the correspondence was in the context of “negotiating an exit from the hotel, subject to certain matters particularly the purchase of the plant and equipment being agreed”. He referred to the telephone conversation in February or March of 2004, saying:
I telephoned Mr Tonkin and enquired as to the applicant’s intentions in relation to the lease. I explained to Mr Tonkin that my family and I, we were seeking certainty in relation to the lease, as we needed to make plans in relation to future housing, schooling etc. Mr Tonkin said to me words to the effect of “there are still 12 months remaining on the lease and I cannot make a decision this far in advance”. I replied with words to the effect of “Brian it is obvious you just don’t care”.
Although Mr Scudds did not depose to requesting an extension of the term of the lease, it is implicit that he was directing the conversation to that topic, as it is unlikely that he would have been discussing the terms of his leaving the hotel some twelve months in advance.
I have already referred to the fact that none of the witnesses were cross-examined. Mr Langford was apparently not requested to provide an affidavit. He was not called by Fresace as a witness to the meeting in 1999. There was no criticism of the failure to call him, nor was a Jones v Dunkel submission made.[22] Objectively, from the terms of the letter from Mr Langford, it is reasonable to conclude that in 1999 Mr Scudds was informed that the Tonkins did not propose to extend the lease beyond 7 March 2005. It must be remembered that this was 6 years before the lease was due to expire and much could change in that time. It is also reasonable to infer that in February or March of 2004 Mr Scudds did make an attempt to find out from Mr Tonkin whether the position had changed and that he was further rebuffed. Whether or not Mr Scudds felt that the question of a renewal had not been finally disposed of, I have no doubt that both Mr and Mrs Tonkin did believe that they had conveyed to Mr Scudds their intention at all times not to renew the lease beyond 7 March 2005.
[22] See Jones v Dunkel (1959) 101 CLR 298 and Spence v Demasi (1980) 48 SASR 538 at 547
Brian & Vivien carry the onus of establishing why Fresace should not receive the statutory protection given to lessees under s 20J of the RCL Act. The section is designed to give lessees at least six months’ notice in writing of the certainty that the lease will not be renewed. I feel some sympathy for Brian & Vivien in that its directors are adamant that they had made their position abundantly clear since 1999. In addition, Brian & Vivien point to the undisputed facts that at least from March 2004 until 24 February 2005, Fresace had acted consistently in acknowledging the right of Brian & Vivien to re-enter and take possession of the hotel after 7 March 2005. Brian & Vivien assert that in consequence of at least silence from Fresace, its directors contracted with suppliers and staff and committed themselves to take over the hotel as and from 8 March 2005.
If indeed losses were caused to Brian & Vivien by the conduct of Fresace, and that conduct was unconscionable, then Fresace may be estopped from relying upon the statutory rights given to it.[23] The failure of Brian & Vivien to give notice by at least September 2004 was not caused by any conduct of Fresace. Brian & Vivien also submit that Fresace has, by its conduct, presumably since December 2004, waived its rights to an extension. I do not accept that submission. Strictly waiver is an intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right. Fresace will be taken to have waived its rights to the notice only if when at the time it could have exercised that right it knowingly abstains from exercising it.[24]
[23] Commonwealth v Verwayen (1990) 170 CLR 394; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
[24] (1990) 170 CLR 394 at 427 per Brennan J
I accept that Fresace was not aware of its rights under s 20J of the RCL Act until shortly prior to 3 March 2005. Fresace did not knowingly waive its rights. I have already found that the failure by Brian & Vivien to give written notice between 12 and 6 months prior to the expiration of the lease was not caused by any conduct of Fresace. Brian & Vivien alternatively submit that Fresace ought be estopped from relying upon the notice because of its conduct between December 2004 and 1 March 2005. It says that Fresace had at least impliedly represented that it would give vacant possession on 8 March 2005. It says that it was induced by that implied representation to contract with various suppliers and employees, and commit itself to resuming the hotel. The evidence of actual losses other than the loss of opportunity to gain income from 8 March 2005 is scant. Counsel for Brian & Vivien referred to the well known passage of Brennan J’s judgment in Walton Stores (Interstate) Ltd v Maher (1997) 164 CLR 387 at 428-429. He submitted that Brian & Vivien did assume that Fresace would give vacant possession on 8 March 2005, and that Fresace would not withdraw from that position. He submitted that Fresace by correspondence and conduct had induced Brian & Vivien to adopt those assumptions, and that it did so act in the sense of preparing to enter on 8 March 2005 in reliance on that assumption. He also submitted that Fresace knew that Brian & Vivien had acted upon that assumption and that Fresace’s failure to notify of its intention to rely on the rights under the RCL Act did occasion some detriment to Brian & Vivien.
The difficulty for Brian & Vivien is to establish that the assumption was induced by the conduct of Fresace. Both parties proceeded towards settlement on 7 March 2005 on the basis that issues such as the value of plant and equipment would be resolved. Even if Fresace had known of its rights under s20J, it would not necessarily have been unconscionable for Fresace to exercise its rights once the disputes as to value had arisen. Fresace did not positively assert by either words or conduct that it would not exercise its rights under any circumstances.
It is all a matter of degree.
There is no doubt that Brian & Vivien has suffered considerable inconvenience and some risk of financial loss. Brian & Vivien have been delayed taking over the hotel until 9 October 2005. In the interim Fresace has been required to pay rent and maintain the business at the hotel. No agreement had been reached with respect to the value of the plant and equipment and the ownership of the entitlements had not been resolved.
Brian & Vivien created the dilemma, by failing to give notice. It placed Fresace in the position where it could extend the lease at any time up to 7 March 2005. In the days leading up to that date, a dispute had occurred with respect to the value of assets. This had the potential to stall the re-entry. All that Brian & Vivien did was to make the preparations it had to make anyway. I have already found that Fresace did not, at law, waive its rights. In the circumstances, I do not accept that Fresace ought be estopped by its conduct from exercising its rights to the extension vested in it by s20(4) of the RCL Act. While it may be said to have been opportunistic of Fresace to change its stance, it is a right given to lessees by Parliament. Brian & Vivien claimed an order for possession in the alternative because of the prospect that the hotel business would be run down. There is no evidence that that has occurred or would occur. It certainly did not occur in the period leading up to the changeover and before Mr Scudds was aware of his rights under s 20J of the RCL Act.
If Fresace did engage in such conduct in the future it would be acting in breach of the terms of its lease and would be liable for damages for such breach, and face the likelihood that Brian & Vivien would seek to re-enter. Fresace is thus entitled to remain in possession until 9 October 2005.
I do not need to consider whether the statutory right in s20J is one which is capable of waiver by conduct in light of s20K of the RCL Act.[25]
[25] Commonwealth v Verwayen at pp404-406 per Mason CJ
I therefore dismiss the application by Brian & Vivien in action No 603 of 2005. I will hear the parties as to the costs of the action.