Good Earth Hotels Australia v SPHC Australia Ltd and Sun Australia

[2001] QSC 28

SUPREME COURT OF QUEENSLAND

CITATION:

Good Earth Hotels Australia v SPHC Australia Ltd and Sun Australia [2001] QSC 028

PARTIES:

GOOD EARTH HOTELS AUSTRALIA (GOLD COAST) PTY LTD (ACN 087 844 666)
(applicant)
v
SPHC AUSTRALIA LIMITED (ARBN 050 577 252)
(first respondent)
and
SUN AUSTRALIA PTY LTD (ACN 003 584 398)
(second respondent)

FILE NO:

9674 of 2000

DIVISION:

Trial Division

DELIVERED ON:

15 February 2001

DELIVERED AT:

Brisbane

HEARING DATE:

2000

JUDGE:

Mackenzie J

ORDER:

1. The applicant is at liberty to proceed with this proceeding against the second respondent pursuant to s471B Corporations Law.
2.  The application is dismissed.
3.  The applicant is ordered to pay the first respondent's costs of and incidental to the application to be assessed.

Corporations Law s471B
Liquor Acts 1912-1948
Liquor Act 1992

Abinger Investments Pty Ltd v Royal George Hotel Holdings Pty Ltd (1992) 46 FCR 483
Chaka Holdings Pty Ltd v Sun Sim Pty Ltd (1987) NSW Conv R 55 367
Coghlan v Peel (1906) 6 SR NSW 560
Montague v Pooley (1951) St RQd 291

CATCHWORDS:

LIQUOR ACT – LICENSING – TRANSFERS – Objections – grounds for grant or refusal – first and second respondents entered into management agreement for a hotel – applicants subsequently purchased hotel - whether assignment of agreement was illegal by force of s149 and s153 Liquor Act 1992 – whether agreement is binding on applicants
CORPORATIONS – CONSTITUTION LEGAL CAPACITY – EXTERNAL LITIGATION – whether leave to proceed is required

COUNSEL:

Mr P Lyons QC with him Mr J Rolls for applicant
Mr SL Doyle SC with him Mr R M Lilley

SOLICITORS:

Short Punch and Greatorix for applicant
Deacons Lawyers for respondent

1. MACKENZIE J: The applicant seeks declarations that a deed of covenant of assignment of management agreement made between it and the respondents on 31 August 1999 was an agreement made illegal by force of s149 and/or s153 of the Liquor Act 1992 and is was and remains enforceable. A further declaration is sought that the management agreement dated 13 September 1989 (as varied) between the first respondent and second respondent is not binding upon the applicant.

1. Since the second respondent is in liquidation it was also necessary to apply for leave to proceed.  Following discussions with the liquidator, who regarded the dispute as principally between the applicant and the first respondent, an undertaking was given that the applicant would not seek costs against the second respondent or the liquidator.  The understanding was that in that event the second respondent and the liquidator would not be represented at the hearing.

1. There was no specific objection to leave being granted by the first respondent.  In all of the circumstances I will give leave to proceed against the second respondent.

1. The second respondent entered into a management agreement with SPHC Operations Pty Ltd in relation to what subsequently became the Surfers Paradise Park Royal Hotel Towers.  The agreement was varied from time to time and the first respondent became the manager under the agreement prior to the applicant purchasing the hotel.  By cl 2.3 of the 1989 agreement the second respondent appointed the first respondent's predecessor to be operator of the hotel for a period which, subject to the issue now raised, has some years to run.  It is estimated to be worth about $300,000 per annum to the first respondent. 

1. On 2 June 1999 the applicant agreed with the second respondent to purchase the hotel.  One of the recitals makes reference to the management agreement in the context of use of certain business names relating to the hotel.  The "business assets" to be acquired included licences, which were defined as licences and permits relating to the use of the hotel and the conduct of the business, specified in schedule 3.  Schedule 3 classifies the licences and permits into those capable of assignment and those not capable of assignment.  The general liquor licence is referred to in the former category.  There is also a definition of "management agreement", which means the agreement made September 13, 1989 between the vendor and SPHC Operations Limited (which was assigned by SPHC Operations Pty Limited to SPHC Australia Limited in November 1992) and as varied by a first variation agreement made January 20, 1997. 

1. The sale agreement, in cl 4.1, provided for the purchaser to receive, inter alia, possession of the hotel (subject to the rights of the manager under the management agreement) and a properly executed transfer of the licences which at that date had not been approved for transfer to the purchaser or a surrender and issue of a new licence in the name of the purchaser. 

1. Since none of the documents relating to the application before the Licensing Commission are in evidence it is unexplained by what means the transfer of the licence was achieved, but the licence itself shows that it was issued on 1 September 1999.  Prior to that date, according to the evidence, it was held in the name of the first respondent.  There were, in the management agreement, provisions for transfers in blank to be signed by the manager and for the owner of the premises to be its attorney. 

1. Clause 13.1 of the sale agreement made completion conditional upon approval of the Liquor Licensing Authority to the transfer of the liquor licence to the purchaser or its nominee with effect from the date for completion.  Clauses 13.6 to 13.8 were concerned with the mechanics of achieving transfer of the licence and the consequences if it did not occur. 

1. Clause 23 provides that the purchaser covenanted to enter into a covenant in favour of the manager by which the purchaser agreed to be bound by the provisions of the management agreement.  This was done.  All rights of the vendor were assigned to the purchaser with effect from completion of the contract. 

1. On 31 August 1999 a Deed of Covenant between the second respondent, the applicant and the first respondent was executed.  After reciting salient features of the 1989 agreement and subsequent events the deed provided that the second respondent assigned to the assignee absolutely all the rights and benefits of the assignor pursuant to the management agreement from the date for completion.  The assignee covenanted with the assignor and the manager that it would be bound by the provisions of the management agreement from the date of completion. 

1. The applicant's argument that the management is unenforceable depends on two provisions of the Liquor Act. Section 149 provides that a licensee must not permit licensed premises to be in the keeping of a person who is not a licensee or an employee of the licensee. Section 153 makes it an offence for a licensee to enter into a management agreement for all or part of the licensed premises. The applicant relies on authorities to the effect that the legislative policy behind a provision such as s153 not only creates an offence but renders the agreement illegal and unenforceable (Coghlan v Peel (1906) 6 SR NSW 560; Montague v Pooley (1951) St RQd 291; Chaka Holdings Pty Ltd v Sun Sim Pty Ltd (1987) NSW Conv R 55 367; Abinger Investments Pty Limited v Royal George Hotel Holdings Pty Limited (1993) 46 FCR 483). Each of these was a case where, at the time of making the impugned agreement a party to it was a person then holding a licence.

1. The application seems to be based on the premise that notwithstanding that a party  has covenanted to bind itself and has bound itself to a management agreement, it nevertheless has the right to avoid such agreement by reason of its own acts in failing to facilitate a necessary statutory approval to allow the management agreement to be lawfully performed, and keeping the licence necessary for that purpose to itself.  On the face of it that situation does not seem to have great intrinsic merit in terms of justice.  However, if that is the consequence of what has happened the result contended for cannot be avoided. 

1. A question was raised as to whether it had been proved by the applicant, since the onus was on it as the party who raised the issue, that no approval had been given.  I am prepared to infer from the scintilla of evidence to that effect in the applicant's case and the absence of evidence otherwise that no approval has been given.  The question then is what follows from this.  

1. Read literally, the act at which s153 strikes is the act of entering into a management agreement for all or part of licensed premises without the chief executive's approval.  The notion of "entering into" an agreement is not without some ambiguity.  The natural meaning of "entering into" a transaction places the focus on the act of creation of the arrangement.  It does not easily imply a continuing process.  It is straining the concept to hold that it includes the process of implementation of the arrangement subsequently.  As against this, it was submitted that s153 should be construed as prohibiting agreements entered into prior to a licence issuing being enforced, since the philosophy behind s153 was to ensure that only suitable persons conducted licensed premises.

1. This is of some importance on the facts of this case.  Also important is whether the arrangement is "entered into" only on the date when the mutual rights and obligations under the agreement begin to operate inter se or whether the date of formation of the agreement, with the creation of rights under the agreement, is the critical date.  That issue is critical in this case having regard to the argument advanced by the first respondent that at the time the agreement was made the applicant was not a licensee, since its licence was not granted until the next day.

1. In my opinion, the agreement was "entered into" on 31 August 1999, the day when the deed of assignment was signed.  At that time, the applicant was not a licensee.  The term "licensee" is defined as the holder of a licence and includes a person prescribed to be subject to the Liquor Act 1992 as if the person were a licensee. No submissions were made on behalf of the applicant that the applicant fell within the second category. No submissions were made as to its meaning. One possibility is that it relates to persons to whom the transitional provisions in the Act relate following the restructuring of the licensing regime. If there are other possible categories it was not suggested that the applicant was in one of them.

1. The proper conclusion is that there was not a contravention of s153 because the applicant was not a licensee at the time the arrangement was entered into.  However, had this not been the case, I would have taken the view that I would be bound to apply Montague v Pooley (supra) a decision of the Full Court on a provision not materially different from the current s153. 

1. The application for the declarations sought on the basis that there has been a breach of s153 which renders the Deed of Covenant of assignment of the management agreement illegal and unenforceable fails. So does the application for the second declaration which is essentially consequential. It was also submitted that s149 of the Liquor Act 1992 had a like invalidating effect. That prohibits, amongst other things, a licensee from being absent from the management and supervision of business conducted under the authority of a licence for a continuous period longer than 28 days without the Chief Executive's prior approval, and from permitting the licensed premises to be in the keeping of a person who is not a licensee of the premises or an employee of the licensee.

1. There is no obvious reason why an agreement under which a licensee absents himself from the management and supervision of a business conducted under the authority of a licence or permits the licensed premised to be in the keeping of a person who is not a licensee or an employee of the licensee is invalidated by reason of the breach of s149. It is unlike s153 in that s153 necessarily implies that there is an agreement as a result of which someone would acquire rights with regard to the conduct of the premises but for the invalidating effect of s153. A contravention of 149 may be committed in circumstances where there is no such formal arrangement as well as in cases where there is. Where an unapproved management agreement was entered into by a licensee as a result of which a breach of s149 was committed, s153 would invalidate it.

1. In Montague v Pooley the invalidation was held to be effected by a predecessor of s153 (s62 (5A) Liquor Act 1912-1948). A ground of appeal that the Magistrate had erred in finding that the ancestor of s149 (s83 of the Liquor Acts 1912-1948) did not avoid the contract was abandoned on appeal without further comment by the court. That is of course not decisive but is not inconsistent with the view that s149 does not have an invalidating effect. Failure to comply with s149 results simply in an offence being committed, but may have consequences with regard to the continued existence of the licence itself under the powers of the Liquor Licensing Authority to deal with misconduct by licensees if it chooses to act under them.

1. The orders are as follows:

1. The applicant is at liberty to proceed with this proceeding against the second respondent pursuant to s471B Corporations Law.                

2.          The application is dismissed.

3.          The applicant is ordered to pay the first respondent's costs of and incidental to the application to be assessed.