Martin v Kelly - [2009] NSWCA 105

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: Martin & Anor v Kelly & Ors [2009] NSWCA 105

HEARING DATE(S): 21 April 2009

JUDGMENT DATE:
12 May 2009

JUDGMENT OF: Tobias JA at 1; McColl JA at 105; Macfarlan JA at 106

DECISION: (a) Summons for leave to appeal dismissed with no order as to costs;
(b) Appeal allowed;
(c) Set aside the orders made by Johnson J on 12 June 2008;
(d) Set aside the approval dated 20 December 2006 of the Liquor Administration Board with respect to the transfer of the poker machine entitlements the subject of its decision of that date;
(e) Remit to the Casino, Liquor and Gaming Control Authority for its consideration under s 19 of the Gaming Machines Act 2001 the application for the Authority’s approval of the transfer of one block of three poker machine entitlements from the Tabulam Hotel, Tabulam to the Black Market Hotel, Chippendale lodged with the Liquor Administration Board on 16 October 2006;
(f) The first, second, fourth and fifth respondents to pay the appellants’ costs of the proceedings before Johnson J and of the appeal but to have with respect to the latter a certificate under the Suitor’s Fund Act, 1951, if otherwise qualified;

CATCHWORDS: ADMINISTRATIVE LAW – Judicial review – Grounds of review – Error of law – Irrelevant consideration – Decision of Liquor Administration Board – Approval of transfer of poker machine entitlements – Gaming Machines Act s 19(3)(c) – Whether Board satisfied that the transfer was supported by each person who in its opinion had a financial interest in the hotelier’s license – Whether lessors of hotel were entitled to receive income derived from the business carried on under hotelier’s license where fixed rent paid – Lease contained option to renew clause with rent payable on the basis of poker machine turnover – No lease entered into in terms of option clause – Whether option to renew exercised – Whether lessee holding over under terms of lease – Whether agreement for lease entered into in terms of option – Whether conduct of parties precluded any claim for specific performance of any such agreement for lease constituted by exercise of option – Functions of Liquor Administration Board assumed by Casino, Liquor and Gaming Control Authority

LEGISLATION CITED: Casino, Liquor and Gaming Control Authority Act 2007
Gaming Machines Act 2001
Liquor Act 1982
Liquor Act 2007
Miscellaneous Acts (Casino, Liquor and Gaming) Amendment Act 2007
Supreme Court Act 1970

CASES CITED: Campbelltown City Council v Vegan & Ors [2006] NSWCA 284
Jabetin Pty Ltd v Liquor Administration Board [2005] NSWCA 92; (2005) 63 NSWLR 602
Martin & Anor v Kelly & Ors [2008] NSWSC 577
Masters v Garcia [2005] NSWCA 287; (2005) 65 NSWLR 92
Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259

PARTIES: George Owen Martin
Alison Martin
Robert James Kelly
Kenneth John Kelly
Liquor Administration Board
Reserve Hotels Pty Ltd
Scott Patrick Lane

FILE NUMBER(S): CA 40286/08

COUNSEL: A: B Coles QC / P T Russell
1&2R: M Leeming SC / J Taylor
3R: Submitting appearance
4&5R: W G Muddle SC / I J Stanley

SOLICITORS: A: Alister Somerville, Lismore
1&2R: Maxwell & Co, Lismore
3R: Crown Solicitor, Sydney
4&5R: Bruce Stewart Dimarco, Sydney

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S): SC30070/07

LOWER COURT JUDICIAL OFFICER: Johnson J

LOWER COURT DATE OF DECISION: 12 June 2008

LOWER COURT MEDIUM NEUTRAL CITATION: Martin and Anor v Kelly and Ors [2008] NSWSC 577

CA 40286/08

TOBIAS JA
McCOLL JA
MACFARLAN JA
Tuesday 12 May 2009

GEORGE OWEN MARTIN & ANOR v ROBERT JAMES KELLY & 4 ORS

Judgment

1 TOBIAS JA: The appellants, George Owen Martin and Alison Martin, are the freehold owners of the Tabulam Hotel, Tabulam (the Hotel). The first respondent, Robert James Kelly, is the holder of the hotelier licence for the Hotel. The second respondent, Kenneth John Kelly, is the lessee of the Hotel. The fourth respondent, Reserve Hotels Pty Limited, is the freehold owner of the Black Market Hotel, Chippendale (the Black Market Hotel) and the fifth respondent, Scott Patrick Lane, is the holder of the hotelier licence for that hotel. I shall refer to these parties collectively as the respondents.

2 On 20 December 2006 the third respondent, the Liquor Administration Board (the Board) constituted by s 72 of the Liquor Act 1982 (since repealed by the Liquor Act 2007), approved the transfer of certain poker machine entitlements allocated in respect of the hotelier’s licence for the Hotel to the hotelier’s licence of the Black Market Hotel (the transfer). By summons filed on 6 July 2007 in the Administrative Law List of the Common Law Division of the Supreme Court pursuant to s 69 of the Supreme Court Act 1970, the appellants sought an order quashing the decision of the Board approving the transfer. On 12 June 2008 Johnson J ordered that that summons be dismissed with costs: Martin & Anor v Kelly & Ors [2008] NSWSC 577.

3 On 2 July 2008 the appellants filed a Notice of Intention to Appeal the decision of the primary judge and on 10 September 2008 filed a summons seeking leave to appeal from his Honour’s decision. However, it was common ground that leave to appeal was not required with the consequence that the summons seeking such leave should be dismissed with no order as to costs.

The relevant provisions of the

Gaming Machines Act

2001

4 Poker machine entitlements are allocated under Part 3 of the Gaming Machines Act 2001 (the Act). The critical provision of the Act relevant to the determination of this appeal is s 19 which, as at December 2006, relevantly provided as follows:

5 Subject to s 19(6), s 19(5) spells out exhaustively the criteria to be taken into account by the Board when forming its opinion pursuant to s 19(3)(c) as to whether or not a person has a financial interest in a particular hotelier’s licence: Jabetin Pty Ltd v Liquor Administration Board [2005] NSWCA 92; (2005) 63 NSWLR 602 at 618 [41] per Mason P with whom, relevantly, Sheller and Hodgson JJA agreed.

The relevant terms of the lease between the appellants and the second respondent

6 As I have observed, the second respondent was at all material times (between October and December 2006) the lessee of the Hotel, the appellants being the lessors. The relevant lease was dated 22 March 1999 and was registered as dealing No. 6563169M (the Lease). Under the Lease the rent payable by the lessee to the lessors during the term was a fixed amount per annum payable by equal weekly instalments. The term of the lease commenced on 22 March 1999 and expired on 21 March 2005. At the time of its expiration the annual rent paid by the second respondent pursuant to cl 3.1(f) of the Lease was the sum of $73,003.31 payable by equal weekly instalments of $1,403.91 together with GST.

7 Clause 21 of the Lease contained an option to renew which was in the following terms:

21 OPTION TO RENEW

21.1 Should the Lessee wish to take a further lease of the Premises for a further term of six (6) years from the expiration of the term of this Lease and prior to the expiration of the term give to the Lessor not less than four (4) months notice in writing of intention to exercise this option and shall in the meantime duly and punctually pay the rent reserved by this Lease at the times appointed for payment and shall duly perform and observe the covenants and agreements by and on the part of the Lessee contained in this Lease up to the expiration of the term granted the Lessor will at the expense of the Lessee demise to the Lessee the Premises for a further term of six (6) years at a rental as determined as follows:

(a) the annual rental shall be equivalent to 10% of the combined total of all liquor purchases made by the Lessee together with 10% of the gross turnover of all forms of gambling carried on in the premises including gross turnover on poker machines together with an amount equivalent to any goods and services tax (GST) levied by any State or Federal Government Authority at such rate as may be determined from time to time.

(b) the rental in each year shall be calculated on the basis of the total gross liquor purchases and gambling turnover in the proceeding year and for the first year of any option period commencing 6th March 2005, the rental shall be calculated on the basis of the period from 6th March 2004 to 5th March 2005. Notwithstanding any other provision herein, the rental for the first year of the option period and any subsequent years shall not be less than the rental payable in any proceeding year.”

8 The other relevant provision of the Lease was cl 10 which provided as follows:

“10. HOLDING-OVER

Should the Lessee with the consent of the Lessor continue to occupy the Premises beyond the expiration of the term of this Lease (otherwise than pursuant to the grant of a further lease) he shall do so as a weekly tenant only at a rental payable weekly in advance, the first such payment to be made on the day following the termination date equal to one-twenty-fifth of the sum of the following amounts:

(a) the annual amount of the rent payable under this lease immediately prior to the expiration of the term of this Lease; and

(b) the annual amount of the Lessee’s payment or contribution to the outgoings referred to in clause 4 of this Lease.

Such tenancy shall be subject to the terms and conditions of this Lease as far as they can be applied to a weekly tenancy and the tenancy so created shall be determinable at any time by either party by giving one month’s notice in writing to that effect to the other party.”

The exercise of the option to renew the Lease

9 On 28 July 2004 the second respondent’s then solicitor, Mr Russell Baxter (Baxter) wrote to the appellants’ then solicitors relevantly in the following terms:

“We wish to confirm that our client is desirous of exercising the option in respect to the property pursuant to Clause 21 of the Lease.

Please submit Option Lease for further six (6) years as soon as possible.”

10 It was essentially on the basis of the exercise by the second respondent of the option to renew the Lease that the appellants claimed to have a financial interest in the hotelier’s licence relating to the Hotel. Relevantly, they claimed that as the rent payable under any lease entered into pursuant to the exercise of the option was based on the gross turnover of the business of the Hotel (the turnover rent), it followed that the appellants were entitled to receive income derived from the business carried on under the authority of the hotelier’s licence for the Hotel within the meaning of s 19(5) of the Act.

11 The difficulty with this argument was that as at 20 December 2006 (being the date of the Board’s decision to approve the transfer), no such lease had been entered into. Nevertheless, the appellants submitted that there was then in force an agreement for lease constituted by the exercise by the second respondent of the option, pursuant to which the turnover rent was payable, thus giving the appellants an equitable interest which entitled them to receive income derived from the Hotel’s business.

12 The respondents conceded that if the exercise of the option resulted in an agreement for lease on the terms of cl 21 of the Lease, then if that agreement was specifically enforceable as at December 2006, it created a financial interest within the meaning of s 19(5) of the Act. However, the essence of the case sought to be made before the primary judge was that any such agreement for lease was not enforceable and, therefore, the appellants had no entitlement either at law or in equity to receive any income derived from the business carried on under the authority of the licence within the meaning of that provision.

The application to the Board

13 The application to transfer the relevant poker machine entitlements was dated 9 October 2006 and lodged with the Board on 16 October 2006. It stated that the only persons who had a financial interest in the hotelier’s licence for the Hotel were the first and second respondents. For reasons that are not relevant, by letter dated 24 October 2006 the Board directed the first respondent as the licensee of the Hotel to serve a copy of the application for transfer upon the appellants as owners of the Hotel. The first respondent was required to advise the appellants that they had 14 days in which to lodge any submission with the Board and to serve a copy of that submission upon the first respondent.

14 By September 2005 the appellants had changed solicitors to Mr Alister Somerville (Somerville). By letter dated 14 November 2006 Somerville wrote to the Board setting out facts and submissions in support of the appellants’ claim to a financial interest in the hotelier’s licence for the Hotel. The first and second respondents’ then solicitor, Mr John Maxwell (Maxwell), responded to that submission by letter to the Board dated 20 November 2006 to which Somerville replied by letter dated 14 December 2006.

15 The effect of these submissions was to place before the Board not only the Lease but also the correspondence that had occurred between the parties and their solicitors subsequent to the second respondent’s exercise of the option on 28 July 2004. As the submissions referred to that correspondence, it is appropriate to detail the relevant parts of it.

The correspondence between the parties following the purported exercise of the option

16 As already noted, the option was exercised by Baxter on behalf of the second respondent by letter dated 28 July 2004 to the appellants’ then solicitors. By email dated 13 October 2004 Somerville informed Baxter that he was now acting for the appellants and had received a copy of Baxter’s letter to the appellants’ former solicitors dated 28 July. The letter then relevantly continued in the following terms:

“Essentially my client has concerns about the possible harshness of the terms of Clause 21.1(a) of the current lease. It is felt that the lessee may not be able to endure such a (high) rent throughout the term. However your client may disagree with that.

If however there is concurrence on this issue then my client has indicated a willingness to renegotiate the term and the rent and also a possible option period.”

17 Somerville followed up this email with a letter to Baxter dated 27 January 2005 which included the following:

“I refer to my email of 13 October and also to our telephone conversation 2 days later.

I can now advise that George and Alison Martin have fully considered their position regarding the new lease and put the following proposal to you for your client’s early consideration.

Exercise of option to renew

My clients acknowledge the exercise of the option to renew the current lease (which expires on 21 March) pursuant to Clause 21.1.

If a new lease is entered into pursuant to that exercise, it would be for a term of 6 years and with the annual rental to be the equivalent of 10% of the combined total of all liquor purchases plus 10% of the gross turnover of all forms of gambling carried on in the hotel. The rent for the first year would be based on the purchases and turnover for the year commencing 6 March 2004. Furthermore the rent for the first year is to be not less than the rent paid at present and with each subsequent year to be no less than the year before.

As you are aware though, my clients believe that the rent for the new lease calculated on this basis would be onerous on the tenant and be difficult if not impossible to sustain. They are therefore prepared to look at another lease arrangement and put the following proposal to your client for early consideration. Please note though that this offer is made totally without prejudice to my clients being able to enter into a 6-year lease with your client in terms of the said option clause and as detailed above.”

18 The letter then set out what it referred to as “Proposal for a new lease arrangement” followed by nine paragraphs that proposed provisions for a new lease that were not reflected in the Lease. Paragraph 3 proposed that the rent for the first year be $1,800 per week exclusive of GST with subsequent years to increase at the rate of 5% per annum compounded.

19 Baxter replied to the appellants’ proposal by letter dated 7 February 2005 in the following terms:

“We confirm that you acknowledge the exercise of the option.

In accordance with the option to renew, we shall put to you all the figures for the liquor purchases and gambling turnover.

Your proposal for a new lease arrangement is rejected.”

20 By letter dated 3 May 2005 Somerville responded to Baxter setting out his instructions with respect to the terms of a new lease. Paragraphs numbered 1, 2 and 3 were in the following terms:

Agreed

This is a reduction from what has been previously proposed

21 By letter dated 4 May 2005 Baxter responded to Somerville in the following terms:

“Your offer of 3 May 2005 is rejected.

Our client has sought to exercise the option and advises that he requires a Lease to be sent in the terms of the option.”

22 At this point it was apparent that the second respondent was insisting on his rights founded upon his exercise of the option in cl 21.1 of the Lease including the turnover rent provision.

23 Notwithstanding the foregoing, by letter dated 11 May 2005 marked “WITHOUT PREJUDICE”, Baxter wrote to Somerville in the following terms:

“We are instructed that our client will agree to a Lease:

1. Term of six years with no option.

2. Tenant to pay all outgoings.

3. Rent for the first year to be $1,800.00 per week increased annually by CPI.”

24 On 2 June 2005 Somerville responded to Baxter’s letter of 11 May in the following terms:

“I have instructions on the offer set out in your letter dated 11 May and in response to the numbered points those instructions are:

1. Accepted and agreed.

2. Accepted and agreed.

3. A weekly rent of $1,800.00 per week plus GST is acceptable for the first year provided that the rent for subsequent years varies according to the percentage rate advised in my letter of 3 May i.e. the greater of the CPI increase for the previous year and 3%.”

must be addressed and finalised

25 It would appear that Somerville’s letter of 2 June 2005 crossed with the following letter from Baxter to Somerville of the same date and again headed “WITHOUT PREJUDICE”. It stated as follows:

“We are instructed that our client will agree:

1. to pay $1,800.00 per week with a ratchet clause for the increase of the greater between 3% and CPI;

2. to paint the laundry;

We advise that we will revert to the other matters raised in your letter in due course.”

26 It may be that Somerville’s letter of 2 June 2005 was not received by Baxter, for by letter dated 23 June 2005 Baxter wrote to Somerville in the following terms:

“We note we have not received a response to our ‘without prejudice’ correspondence dated 2 June 2005.

We advise that our client has taken up the option on the Lease and at this stage it appears that [there] are a number alternatives, being:

o The Lease be done in accordance with the option that has been taken up by our client;

o A sensible resolution to the issues regarding a new Lease which is suitable to our client.

27 By letter dated 27 June 2005 Somerville responded to Baxter’s letter in the following terms:

“I have your letter of 23 June.

I remind you that you haven’t fully responded to my letter of 2 June. Once you do that, I will obtain instructions.”

28 The following day Baxter relevantly wrote:

“We refer to your letter of 2 June 2005.

1. Your paragraph 3 – this has been agreed upon.

2. Your paragraph 4 – this is not agreed upon. However, our client will agree to provide those figures prior to any Assignment of a Lease. Please note that our client’s figures will not be up to the date of the Assignment and are approximately sixty days behind.

…

As previously stated, our client will pay rent of $1,800.00 per week but from 6 June 2005.

We again refer you to the alternatives in our letter dated 23 June 2005.”

29 Somerville responded to Baxter’s letter of 28 June 2005 by letter dated 1 July 2005 in which the following was stated:

“I have taken further instructions and they are as follows: -

1. The agreed rent must commence on 22 March 2005 and all back rent together with interest must be paid without delay.”

so that I can prepare and submit a Lease to you

30 By letter dated 14 July 2005, Baxter responded to Somerville’s letter of 1 July 2005 relevantly in the following terms:

“We refer to your letter of 1 July 2005.

We confirm that the back rent must not commence until it has been agreed to be paid. If your client proceeds under the option, then the rent must be paid in accordance with the option. Your client has proposed a new lease and we are agreeing to the terms of that new lease and therefore there is no requirement for our client to pay that rent until agreement has been reached.

In respect to your point 2, our client does not agree. Our client relies upon the offer put in our letter of 28 June 2005.

In respect to your point 3, as above.

Our client states that he believes that the paintwork is satisfactory and further our client has incurred substantial capital costs being the placement of security.

Our client advises that he is becoming increasingly upset with your clients desire to have him pay all the costs and your client do reparation work at his leisure.”

31 It is clear from the last-mentioned letter that the parties were contemplating, if agreement could be reached, a new lease in substitution for the Lease to which the second respondent asserted his entitlement pursuant to his exercise of the option in cl 21.1 of the Lease.

32 Somerville responded by letter dated 26 July 2005 relevantly in the following terms:

“I refer to your letter of 14 July, upon which I have obtained instructions.

It would appear that we are at an impasse.”

“… Failing agreement, I suppose that the only thing that is left is to go back to the original Lease terms and the rent payment referred to in the option clause.”

33 Baxter’s response was by letter dated 16 August 2005 in the following terms:

“It is our opinion that the Option has been taken up.

At your request, rather than attend to calculating the rent, a rental figure has been agreed upon, being $1,800.00 per week plus CPI plus outgoings.

Our client will not agree to any change in the poker machines entitlements other than the Decision in the Supreme Court which, as we understand it, has been confirmed.

We do not believe anything needs to be resolved. The issue of the rent has been agreed upon. The issue of poker machine entitlements has been established by the Supreme Court.

Please prepare a Lease on behalf of our client.”

34 Somerville responded by letter dated 25 August 2005:

“I have taken further instructions.

We appear to have reached agreement on everything bar the following:

1. My client wants rent at the agreed rate from 22 March but is prepared to waive a claim for interest. This would mean that the new 6-year Lease would commence on that date.

2. Your client is to provide on an annual basis gross turnover from poker machines and turnover from liquor purchases.”

35 By letter dated 31 August 2005, Baxter wrote seeking the amount of the back rent. The letter concluded by stating that the second respondent would not provide any figures to the appellants whatsoever, a reference to paragraph 2 of Somerville’s letter of 25 August.

36 Somerville responded by letter dated 6 September 2005 advising the amount of the shortfall and making reference to a surveillance system that the second respondent had installed in the Hotel.

37 By letter dated 12 September 2005 Baxter acknowledged receipt of Somerville’s letter of 6 September 2005 and continued:

“It is our understanding that both parties agree that a new Lease should be drafted. That means in our humble opinion that each term of the Lease has to be agreed upon.

Our client did not agree to the rent being backdated but has agreed and has paid the rent from the date the agreement was reached. All other clauses need to be agreed upon.

It is not simply a matter for your client to say that as it was in the old lease it is therefore agreed upon.”

38 By letter dated 13 September 2005 and marked “WITHOUT PREJUDICE”, Baxter again wrote to Somerville acknowledging his letter of 6 September 2005 and stating:

“… Our client will agree to the rent being backdated but the cost of the surveillance system be deducted.

Please forward your draft Lease for our client’s perusal.”

39 It is to be noted that in his letter of 12 September 2005 Baxter asserted that it was still necessary for the parties to reach agreement on each term or clause of any new lease.

40 There then followed some further irrelevant correspondence until Somerville sent an email to Baxter dated 11 November 2005 attaching a draft lease. It is apparent from that email that a number of clauses in the proposed new lease were different from those of the Lease.

41 There must then have been some further communication between the parties, for by email dated 24 November 2005 from Somerville to Baxter, the former stated:

“I refer to my telephone call to your office this morning and confirm that my client rejects your client’s proposal, and there is no counter offer.”

42 Baxter responded to this email on 28 November 2005 in the following terms:

“We are instructed that our client exercised his option in respect to the Lease. We confirm an agreement has been reached in respect of the rental of $1800 per week plus GST plus outgoings.

Our client instructs that he requires this Lease to be prepared and forwarded for signing.”

“saying same lease and $1,800 pw. Told him can’t have cake and eat it too. He had to go and so not much more conversation.”

43 It would appear that at this point Baxter was asserting that his client was entitled to a lease containing the same provisions as the Lease except for the rental, a proposition which Somerville denied. That this was so was confirmed by the following email from Somerville to Baxter dated 29 November 2005:

“I refer to your email received yesterday and also to our brief telephone conversation after that.

I submitted you a draft Lease on 11 November and which I prepared following many months of negotiations. Your records will of course show that you had been expecting to receive it. My view is that it is a fair and reasonable document, but I appreciate that you and your client need to have some further input.

However you will note that the document acknowledges your client’s wishes as previously expressed in most, if not all, respects. Amongst other things, you will see that it doesn’t direct ownership of the Poker Machine Entitlements to my client and leaves the situation unstated. It would appear that respective our (sic) clients have contrasting claims in that regard.

Unless we resolve this matter, then there is potential for it to develop quickly into expensive litigation. This is something that my client would obviously like to avoid, as I would also hope, would yours.

Russell, I think that we are there, or at least nearly there, in reaching agreement. With a view to reaching an accord, please have a good look at the draft Lease and respond as soon as you can.”

44 Baxter responded by letter dated 8 December 2005 in the following terms:

“My client’s patience has unfortunately evaporated.

On 28 July 2004, our client exercised the option. We note that you advised us on 13 October that you had carriage of the matter.

We confirm that there were discussions in respect to a new lease and in respect to the enforceability and workability of the lease. Quite clearly, clause 21 was totally unworkable and unenforceable. It required figures to be provided to calculate rent prior to those figures being available. As a result, figures were provided but not for the precise period and it was agreed that the rent would be equal to the sum of $1800 per week.

The rental figure was agreed as per your letter of 2 June 2005.

We then had negotiations over a lengthy period of a number of matters. Your client has not attended to repair the roof.

Our client instructs us that he requires the option to be exercised at the agreed rental with no further negotiations.”

“So far you haven’t given me any specific comment on the draft Lease. Perhaps you will now be able to do so and hopefully at an early date.”

45 By email to Somerville dated 15 February 2006 Baxter stated that he was instructed that:

“[T]here is no change from the original Lease apart from the rent figure which has been agreed upon.”

46 Somerville responded by email dated 22 February 2006 stating that agreement had been reached on all but two things of which the second was as follows:

“…

2. We had an agreement that we would revise the form and wording of the Lease and the draft that you have is the one that we are going to use, but subject to any reasonable submissions that you might like to make in respect to any proposed amendments. You will recall that we agreed not to go back to using the old form of the Lease because of its unsuitability.

…”

terminate the Lease and retake possession

47 That the impasse continued is apparent from Baxter’s response by email dated 9 March 2006:

“I am instructed that our client has taken up the option and an agreement has been reached on a rental figure together with an annual increase of 3%.

Our client instructs he has agreed to pay the arrears when he receives a lease in identical terms to the previous lease with the exception of the option to renew clause being Paragraph 21.

Please provide a lease in the form as has been taken up by our client and with the rental agreed and our client will pay the arrears as agreed.”

48 An exchange of emails then took place in May 2006 in which one party asserted that a lease had been signed which the other denied. In any event, by email dated 23 June 2006 from Somerville to Baxter, a form of lease was attached which, it was stated, was in the form of the lease submitted on 11 November 2005 with some six amendments which were then identified.

49 Baxter responded by email dated 29 June 2006 in the following terms:

“We are extremely disappointed to again receive the Lease of 11 November which we rejected.

We reiterate our position client’s position (sic). The Lessee took up the option on the existing Lease.

The only clause that cannot be included in the new Lease is Clause 21, the option, which provided a means of calculation of the rent which is impossible to achieve.

As a result of this, the parties agreed on $1,800.00 a week rent to be increased by 3% p.a.

We advise that if you do not provide us with the Lease as per the take up of the option, we will be forced to bring proceedings in the Supreme Court.”

50 In July 2006 Maxwell replaced Baxter as solicitor for the second respondent. By letter dated 12 July 2006 to Somerville, Maxwell referred to the new draft lease indicating that he would be in touch with Somerville in the near future in relation “to the final terms of the document”. Maxwell followed this up with a letter to Somerville dated 1 August 2006 where, after referring to having compared the draft lease submitted by Somerville to Baxter on 23 June 2006 with the Lease, the following was stated:

“It seems to us that the position is as follows:

o It is acknowledged that our client validly exercised his option for renewal under the Lease of 22 March 1999 but the calculation of the rent for the new Lease under Clause 21.1(a) of the Option to Renew Clause was controversial.

o It was agreed between the parties’ Solicitors that the rent for the new Lease would be $93,000.00 yearly ($1,800.00 weekly).

o Notwithstanding the usual expectation that the new Lease would be in the same format as the previous Lease the draft document that has been submitted is in substantially different format to the former Lease.

o Our client has no objection in principle to the re-drafting of the document subject to the clauses not placing upon him more onerous obligations or greater restrictions than that in the former Lease.

51 It would appear that there were neither further negotiations between the parties nor any response by Somerville to Maxwell’s letter of 1 August 2006. The final piece of correspondence was a letter from Somerville to Maxwell dated 14 November 2006 which stated:

“I refer to your letter of 1st August.

Clearly agreement cannot be reached on the terms of a suitable replacement Lease and so my clients withdraw from further negotiations and I will submit a Lease pursuant to the option clause of the expired Lease shortly.”

52 It is to be noted that the date of this letter is the same as that of Somerville’s written submission to the Board in response to the first respondent’s application to transfer the relevant poker machine entitlements. To those submissions I now turn.

The parties’ submissions to the Board

53 As I have indicated, Somerville’s submission on behalf of the appellants was by letter dated 14 November 2006. After referring to the provisions of the Lease and in particular the option to renew in cl 21.1, reference was made to Somerville’s letter to Baxter of 27 January 2005 and to Baxter’s response of 7 February 2005 in which, so it was asserted, Baxter confirmed the appellants’ acknowledgment of the valid exercise of the option and that the proposal for a new lease arrangement had been rejected.

54 The submission then referred to the “replacement lease”, a draft of which was emailed to Baxter on 23 June 2006, and to Maxwell’s letter of 1 August 2006 objecting to parts of it.

55 Somerville informed the Board that his instructions were now to withdraw from further negotiations with regard to a replacement lease and to submit a lease strictly in accordance with the option clause in the Lease. It was submitted that the rent provision of cl 21 clearly gave his clients a financial interest in the hotelier’s licence, an entitlement that had “never been lost”.

56 Maxwell responded to Somerville’s submission to the Board by letter dated 20 November 2006. He noted that the receipt of Somerville’s letter of 14 November 2006 was the first indication received by his client that the appellants were withdrawing from further negotiations in relation to the terms of the new lease. The submission stated:

“It was certainly our opinion prior to the receipt of Mr Somerville’s letter that the solicitors for the parties had agreed that the rent for the new Lease would be $93,000.00 yearly payable by weekly instalments of $1,800.00. That is the amount of rent that has been paid by the tenant to the Landlord since the end of the term of the previous Lease on 21 March 2005.”

57 After referring to some of the correspondence in May and June 2005, the submission continued in the following terms:

“It can be seen from this correspondence that there is no doubt that the rent for the new Lease was agreed at $1,800.00 weekly subject to increase in accordance with the greater of 3% or CPI.

In any event as no new lease has been entered into between the parties it is clear that the tenants remain in occupation of the premises pursuant to the holdover clause contained in the existing Lease. The board is referred to clause 10 on page 12 of the Lease, a copy of which has been supplied.

Jabetin Pty Ltd v Liquor Administration Board

58 By letter dated 14 December 2006 Somerville responded to Maxwell’s submission to the Board noting that the parties over a lengthy period had tried to negotiate new terms and conditions for a replacement lease but with no final or complete agreement having been reached. The submission then stated:

“3. The Lessors withdrew from further negotiations as advised in my letter to Maxwell & Co dated 14th November 2006, the consequence of that being that a Lease pursuant to the option clause of the expired Lease applies as from 22nd March 2005.”

59 The submission then stated that the negotiations between the parties were carried out on a “Without Prejudice” basis. Reference was made to Somerville’s letter of 27 January 2005 and to Baxter’s letters of 11 May and 2 June 2005 – all of which had been marked “Without Prejudice”.

60 The submission then responded to Maxwell’s letter of 20 November 2006 stating the following:

“(a) It is conceded that rent of $1,800.00 per week plus GST was being paid and accepted. However, so far as the Lessors were and are concerned, this was only an interim measure and its finality was dependent upon full and final agreement being reached on all other terms. This didn’t happen.”

61 There then followed a reference to the letters of 11 May 2005 and 2 June 2005 which had been referred to by Maxwell in his submission to the Board. Somerville then observed that it would be helpful for the Board to have copies of all relevant correspondence. He then listed and enclosed copies of the correspondence. The submission concluded in the following terms:

“I submit that the only conclusion that could be drawn from all of the correspondence and the facts and circumstances is that there was no binding and final replacement lease agreement reached between the parties. Therefore, the Lessee having properly exercised the option under the expired Lease, the terms of that Lease with the new rent as dictated by the option clause must apply. This is so even though the parties had conditionally reached agreement on certain matters, including the rent. However, it is in my unequivocal view that the parties had to reach agreement on all matters before the said conditionally agreed terms be came unconditional.

It is also my view that at no time did the Lessors waive any rights that they had in respect of the Poker Machine Entitlements.

This would include seeking an Order from the Supreme Court for specific performance

In the circumstances, it is my submission that the Board must find that the Lessors have a financial interest in the Hotelier’s Licence and in view of the fact that they do not consent to the Application to the transfer of the Poker Machine Entitlements, the Board must refuse that Application.” (emphasis added)

62 It is apparent from that part of the last submission that I have emphasised, when taken in conjunction with the last paragraph of Baxter’s email to Somerville of 29 June 2006 to which I have referred at [49] above, that both parties were asserting an entitlement to specific performance in respect of an agreement for lease constituted by the exercise of the option, the only difference being that the second respondent was asserting an agreed variation of the rental provision in the lease to be granted pursuant to the exercise of the option which would otherwise be in the same terms as the Lease apart from cl 21.

The decision of the Board

63 The Board, being an administrative body, from which there was no right of appeal, was not obligated to give reasons: Campbelltown City Council v Vegan & Ors [2006] NSWCA 284 at [20]–[21] per Handley AJA, at [102]–[106] per Basten JA (McColl JA agreeing with both). But it did and it cannot be gainsaid that having done so, the lawfulness of its decision must be judged in light of the reasons it gave, bearing in mind that those reasons were “meant to inform and not to be scrutinised” overzealously: Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259 at 272 per Brennan CJ, Toohey, McHugh and Gummow JJ; at 291 per Kirby J.

64 The Board’s decision of 20 December 2006, signed by its Chairperson, Magistrate Armati, was in the following terms:

On 16 October 2006 the Board received a Poker Machine Entitlement Transfer Form in relation to the Tabulam Hotel, Tabulam from Robert James Kelly as seller, licensee and signed by him as licence owner and by Kenneth John Kelly as business owner. No particulars were given for any other person or corporation having a financial interest.

The Board directed that the application be served upon the freehold owner. On 14 November 2006 the Board received submissions from Alister Somerville, solicitor for George Owen Martin and Alison Martin as freehold owners. On 20 November 2006 Maxwell and Co, solicitors for the licensee made written submissions in response. On 14 December 2006 the Board received a further response from Alister Somerville.

The Board has considered the submissions.

The Board’s function is to determine whether the lessors, freehold owners, have a financial interest in the hotelier’s license. Section 19 of the Gaming Machines Act 2001 is the relevant provision.

In 1999 a 6 year lease was granted for the hotel. In January 2002 the hotel business was sold to Kenneth John Kelly who became the licensee. The licence was transferred to Robert James Kelly in October 2004. The Board does not have documents to confirm this but it appears that the lease was transferred from the previous lessee to one of the Kellys.

Clause 21 of the lease contained an option to renew for a further term of 6 years. That clause provided for rent to be ‘equivalent to 10% of the combined total of all liquor purchases made by the lessee together with 10% of the gross turnover of all forms of gambling …’. On 28 July 2004 the lessee exercised the option.

As a result of the exercise of the option substantial correspondence was exchanged between lessor and lessee as to the terms of the new lease. No agreement was reached and the negotiations have terminated.

The Board finds that accordingly the lessee continues to occupy the premises under the holding over provisions contained in the 1999 lease. The Board does not find that the terms of the option to renew the lease which would provide new provisions are in force.

Accordingly the determination of whether the lessor has a financial interest is based upon the 1999 lease. That lease contains no provisions which give the lessors a financial interest within the meaning of s 19 of the recent case law upon s 19.

The lessors do not argue to the contrary but submit that the lessee is bound by the terms of the lease which were required to be entered into as a result of the exercise of the option. As set out the Board does not accept that these provisions are in force.

No other financial interest in the lessors within the meaning of s 19 is identified.

The Board is satisfied, that for the purposes of s 19 the only person with a financial interest in the hotelier’s licence is the lessee.

65 Mr Armati was a licensing magistrate and Chairperson of the Licensing Court. By virtue of both offices, he was an ex-officio member and Chairperson of the Board: Liquor Act 1982 ss 72(1) and (2). In this respect the Board was constituted by the licensing magistrates for the time being holding office under s 8 of that Act together with such other appointed members not exceeding three as the Minister thinks fit and appoints to the Board. It is sufficient for present purposes that the Chairperson of the Board who signed its decision was a licensing magistrate and Chairperson of the Licensing Court.

The submissions before the primary judge

66 The appellants’ submissions before the primary judge which were, in essence, repeated in this Court, may be summarised as follows:

(a) On the exercise by the second respondent of the option on 28 July 2004, a valid and binding agreement for lease arose between the appellants and the second respondent on the terms referred to in cl 21.1 of the Lease. That agreement for lease was specifically enforceable so that, in equity, the second respondent was regarded as having a lease for a further term of six years and the parties had rights in relation to that agreement including the right to call for the execution of a formal lease in accordance with its terms;

(b) Although the parties had sought to negotiate a new lease required by force of the exercise of the option, no agreement had been reached. The Board so found which precluded any finding that the agreement for lease which arose on the exercise of the option was discharged or otherwise not operative;

(c) The Board erred in finding that the second respondent was holding over pursuant to cl 10 of the Lease as that would be inconsistent with the agreement for lease created by the exercise of the option;

(d) In any event the rent being paid by the second respondent of $1,800 per week was substantially less than the rent provided for in cl 10 of the Lease on a holding over thereunder;

(e) The Board therefore erred in failing to find that the option provisions were in force, it being clear that the Board misconstrued or did not understand the legal effect of the exercise of the option;

accordingly

in force

67 The first and second respondents submitted as follows:

(a) It was for the Board to resolve the competing claims of the parties so as to answer the question posed by s 19(3)(c) of the Act; the answer to that question depended upon the nature of the tenancy of the second respondent as at the end of 2006 which depended, in the first place, on the facts;

(b) It was common ground that the second respondent was not paying a turnover rent but was paying a fixed rent and that the appellants, at least conditionally, had accepted rent on that basis since the expiration of the Lease on 21 March 2005;

(c) Although the second respondent had expressed an intention to exercise the option, the appellants had not supplied a lease for execution pursuant to that exercise before 20 December 2006. In any event, even if it be assumed that the letter of 28 July 2004 gave rise to a binding agreement for a new lease in accordance with the terms of cl 21.1 of the Lease, unless that agreement was specifically enforceable, the appellants had no equitable interest which entitled them to receive any income derived from the business carried on under the authority of the licence within the meaning of s 19(5) of the Act;

(d) In the circumstances it would be speculative in the extreme to assert that in December 2006 the appellants would have been entitled to specific performance of an agreement entered into in July 2004 when both parties had been acting inconsistently with that agreement for more than 12 months. The fact was that the appellants had not sought to enforce any rights they might have had pursuant to the exercise of the option in July 2004 and thus would have been met with the defences of laches and delay as discretionary grounds for the refusal of specific performance had it been sought at or before the end of 2006;

(e) Accordingly, it was open to the Board to form the view that the “ option in the lease was not in force ”;

68 The fourth and fifth respondents submitted as follows:

(a) The financial interest to which s 19 refers must be one which is a present and not merely prospective interest. The person claiming the interest must have a present right to receive income from the relevant business: Jabetin at 619 [46].

(i) The giving of the notice under the option clause did not give rise to a binding agreement for lease;

(ii) The course of conduct thereafter undertaken by the parties was plainly consistent with the parties having abandoned, by late 2006, any such agreement which arose in mid-2004;

(iii) The putative equitable interest was dependent upon the ability of the appellants to obtain specific performance when such relief would not have been granted; and

(c) It was further submitted that from the outset the parties had abandoned the terms of any option lease, particularly as the appellants’ solicitor’s letter of 13 October 2004 made it plain that they did not wish a turnover rent to be provided as they considered its payment would be unsustainable. Negotiations then took place. The only term that was agreed upon was that the rent would be a fixed and not a turnover rent. In these circumstances it was open to the Board to find that the provisions for the payment of a turnover rent constituted by the exercise of the option were not in force.

ragbag of defences

69 The primary judge (at [81]) accepted the respondents’ submission that it was open to the Board to conclude that the second respondent had held over under the Lease at an agreed rental that differed from that provided in cl 10. The fact that the second respondent had indicated an intention to exercise the option to renew under cl 21 went nowhere as the appellants had not furnished a new lease in the terms of the option to the second respondent by the time of the Board’s decision in December 2006. This was a requirement of cl 21 which had not occurred. I pause to note that that finding, repeated at [87], was an acceptance of the submission on behalf of the fourth and fifth respondents, not made by the first and second respondents, that the letter of 28 July 2004 did not constitute the exercise of the option but only an offer to accept a lease containing the terms referred to in cl 21 upon such a lease being proffered by the appellants to the second respondent.

70 At [83] his Honour expressed the following conclusions with respect to the Board’s decision:

“(a) the LAB was correct in observing that the lessee exercised the option on 28 July 2004, in the sense of indicating an intention to exercise the option;

(b) the LAB was correct in observing that substantial correspondence was exchanged thereafter between the lessors and the lessee as to the terms of the new lease, but no agreement was reached and the negotiations were terminated;

“the lessee continues to occupy the premises under the holding over provisions contained in the 1999 lease”

“not find that the terms of the option to renew the lease which would provide new provisions are in force”

(e) it was open to the LAB to conclude that “accordingly the determination of whether the lessor has a financial interest is based upon the 1999 lease … that lease contains no provisions which gives the lessors a financial interest within the meaning of section 19 or the recent case law upon section 19”;

(f) it was open to the LAB to conclude that the option to renew provisions in the 1999 lease were not in force..”

71 At [84] his Honour found that it was open to the Board not to accept that the appellants had demonstrated that they had a relevant financial interest. A most significant fact in that respect was the conduct of the parties between July 2004 and December 2006 in offering and accepting rent calculated upon a basis unrelated to turnover.

72 At [86] the primary judge accepted the submissions of the respondents that the conduct of the parties, over an extended period of time, would constitute

“an impenetrable barrier to any claim for specific performance by the [appellants].”

73 Finally, at [88], his Honour accepted the submission of the fourth and fifth respondents that even if the appellants had demonstrated an equitable lease, this would not have been a present interest in the income of the business so as to constitute a “financial interest” in a hotelier’s license for the purposes of s 19 of the Act.

The submissions on the appeal and their resolution

74 The parties’ submissions on the appeal generally reflected those made to the primary judge. The appellants submitted that his Honour erred in accepting the submissions of the fourth and fifth respondents that an essential condition for the valid exercise of the option was the submission by the appellants to the second respondent of a lease in terms of that contemplated by cl 21.1 of the Lease. In any event, the appellants submitted that this was not a finding made by the Board, which unequivocally stated that the option had been exercised. Therefore the issue was not open to be decided by the primary judge. As the matter before the primary judge was one for judicial review and not an appeal from the decision of the Board on its merits, the only issue was whether the Board’s reasons disclosed an error of law or the failure to take into account a relevant consideration.

75 In my view, there can be no doubt that as at the date of the exercise of the option, an agreement for lease came into existence. His Honour was in error in finding to the contrary. Furthermore, as the appellants submitted, both they and the second respondent, through their respective solicitors, unequivocally asserted and acknowledged the due and valid exercise of the option. In fact, Somerville on behalf of the appellants acknowledged as much in his letter to Baxter of 27 January 2005 and Baxter in his letters of 4 May 2005 and 23 June 2005, made it clear that his client was entitled to a lease in terms of the option. Later correspondence was to the same effect. No doubt this explains why the first and second respondents did not join in the fourth and fifth respondents’ submission that the letter of 24 July 2004 only mentioned an offer that had never been accepted.

76 The appellants further submitted that the Board’s finding that the second respondent was holding over under cl 10 of the Lease was in error. In my view there can be no doubt that the Board was correct in finding that from the expiration of the Lease until December 2006 the second respondent was indeed holding over at a weekly rental of $1,800 plus GST. Whether the second respondent was holding over under cl 10 or under the common law matters not. The fact, correctly found by the Board, was that he was holding over during the course of the negotiations between the parties for a replacement lease.

77 However, it does not follow from the fact that the second respondent was so holding over that, in the circumstances revealed in the correspondence to which I have referred, the parties had abandoned, as the respondents submitted, the agreement for lease constituted by the exercise of the option so as to justify the rejection by the Board of a finding “that the terms of the option to renew the lease which would provide new provisions” were in force.

78 The difficulty with the Board’s decision is that having come to the correct conclusion that no agreement had been reached with respect to the terms of a new lease and that negotiations therefor had terminated, it concluded that it therefore followed (“accordingly”) that the second respondent continued to occupy the premises under the holding over provisions of the Lease in circumstances where the agreement for lease constituted by the exercise of the option had ceased to be “in force”.

79 It is true, as the respondents submitted, that the Board’s apparent reason for finding that the effect of the option was no longer “in force” was because negotiations with respect to the terms of a new lease had terminated so that the second respondent continued to hold over on a fixed rent. However, there was no finding by the Board that the reason that the exercise of the option and what flowed from it was not “in force” was because the appellants had lost the right to obtain an order for specific performance of the agreement for lease constituted by the exercise of the option due to the intervening conduct of the parties. Nevertheless it was submitted, particularly by the fourth and fifth respondents, that it was open to the primary judge to support the Board’s finding on a basis other than that which it had adopted.

80 The fourth and fifth respondents submitted and the primary judge found, that specific performance would inevitably be denied by a court of equity whereas the first and second respondents submitted that it was at least likely that that would be the case although not inevitable.

81 The first and second respondents accepted that it was open to his Honour to have reference to the evidence that was before the Board in order to construe or properly understand the Board’s reasons. They reiterated their submission at trial that both parties had acted inconsistently with the alleged agreement for lease arising from the exercise of the option by the second respondent tendering, and the appellants accepting a fixed rent of $1,800 per week for almost two years which was explained by the appellants informing the second respondent that they considered a turnover rent to be too onerous.

82 General assertions were made that defences of estoppel by convention, misleading and deceptive conduct and perhaps laches and delay, could be thrown into the mix to counter the appellants’ assertion of a current equitable interest constituted by the agreement for lease as at the date of the Board’s decision. However, the difficulty with this submission and his Honour’s finding adopting it, was that little attempt was made by the respondents to assert facts arising from the correspondence between the parties which it would be open for a court of equity to find in support of the potential defences asserted.

83 The only submission made apart from bare assertions, to identify any alleged misleading or deceptive conduct on the appellants’ part was the insistence by the appellants, when negotiations terminated, on the second respondent paying the turnover rent provided under the option, having accepted a fixed rent in the meantime. Why in the circumstances that was misleading or deceptive was not explained. It is certainly not self-evident. Further, no reasoned submission was advanced in support of any relevant change of position or prejudice sustained by the second respondent as a consequence of any particular conduct of the appellants which might support some form of estoppel. Although it may have been suggested that a conventional estoppel could have arisen out of the correspondence which I have detailed above, no reasoned submission was put to support any such suggestion.

84 As I have noted at [80] above, only the fourth and fifth respondents submitted that it was inevitable that a court of equity would refuse specific performance of the agreement for lease arising as a consequence of the exercise of the option. The Board did not consider the issue and adopted different reasons for its conclusion that the option provisions were not “in force”. However, the primary judge (at [86]) did hold that the parties’ conduct would constitute “an impenetrable barrier to any claim for specific performance” by the appellants.

85 Only such a finding could sustain that of the Board that the option provisions were not “in force” at the time of the decision. Being an application for judicial review, it was not open to his Honour to decide a specific performance suit unless he correctly found that the only conclusion the Board could have reached was that specific performance would be refused. The first and second respondents’ submissions on the issue did not go so far although those of the fourth and fifth respondents did. In my view it is simply impossible to speculate, and it could only be speculation, as to whether a court of equity would refuse, let alone inevitably refuse, specific performance given the common stance of the parties as to their rights arising out of the exercise of the option which each maintained throughout the negotiations for a replacement lease.

86 In my opinion the Board’s decision cannot be sustained on the basis that specific performance of the agreement for lease constituted by the exercise of the option would necessarily be refused.

87 The first and second respondents also submitted that there had been no agreement reached on the essential terms of the lease to be granted pursuant to the exercise of the option except with regard to rent. Accordingly, there could be no agreement for lease and, in particular, no specifically enforceable agreement for lease.

88 With respect, I have difficulty in understanding this submission. It is true that cl 21.1 of the Lease only stated that upon the exercise of the option the lessor would at the expense of the lessee demise to the lessee the premises for a further term of six years at the turnover rental stated. It did not, as is normally the case, state that the lease so granted would be subject to the covenants, agreements and provisos as contained in the existing lease except for the option to renew provision. However, in my opinion that was clearly implied. In fact it is consistent with the assertions of the parties in the correspondence to which reference has been made. Thus the only complaint made by the second respondent with respect to the terms of the new draft lease that was proffered by the appellants was that its terms were different to and more onerous than those of the Lease.

89 The fourth and fifth respondents nevertheless submitted that even though the reasoning of the Board in coming to its conclusion that the “new provisions” arising out of the exercise of the option were not “in force” might be flawed, nevertheless there was available a substratum of fact and law which would have led to the same finding even if it was not on made the basis that the Board expressed.

90 It was thus submitted that in these circumstances it was open to his Honour to find, as he did at [86], that the conduct of the parties over an extended period of time would constitute an impenetrable barrier to any claim for specific performance of any agreement for lease constituted by the exercise of the option.

91 The difficulty with this submission is that the factual material that was before the Board does not support it. That material established the following:

(a) The appellants and the second respondent at all times acknowledged that the option contained in cl 21.1 of the Lease had been validly exercised and as a consequence thereof the second respondent was entitled to receive and the appellants were bound to grant, a lease on the same terms as the Lease except for cl 21 for a term of six years at a rental determined in accordance with cl 21.1(a) and (b);

(b) Nevertheless, the appellants were prepared to negotiate with the second respondent for a lease on different terms to the Lease that provided for the payment of a fixed rather than a turnover rent;

(c) The appellants proffered terms which were not acceptable to the second respondent who insisted, as at 4 May 2005, that he required a lease in terms of the option;

(d) As at 23 June 2005 the second respondent acknowledged that there were two alternatives: either a lease in accordance with the terms of the option or a new lease on terms which were suitable to both parties. At all times both parties, whilst seeking to negotiate the terms of a new lease, reserved their rights to enforce the agreement for lease constituted by the exercise of the option;

(e) The second respondent acknowledged (see Baxter’s letter of 14 July 2005), when requested to pay back rent, that such rent would only be paid if any lease granted was pursuant to the exercise of the option. On the other hand if a new lease was entered into (that is, in substitution for that which would otherwise be granted pursuant to the exercise of the option), there was no requirement to pay rent until that lease had been granted;

(f) From 16 August 2005, Baxter was asserting on behalf of the second respondent that the option had been exercised and that his client was entitled to a lease in accordance with the terms of the option subject only to the payment of a fixed rental rather than that provided for in cl 21.1 as had been agreed;

(g) That proposition was disputed by the appellants who made it clear that any agreement with respect to the payment of a fixed rental was subject to the negotiation of lease terms which were different from those of the Lease. Baxter’s letter to Somerville of 12 September 2005 made that clear;

(h) Correspondence that occurred between November 2005 and August 2006 also made it clear that the second respondent continued to insist that he had exercised the option and was entitled to a lease in accordance therewith except with respect to the rental. The appellants acknowledged that the option had been validly exercised but that any agreement for a rent of $1,800 per week was subject to negotiation with respect to the terms of the draft lease first submitted on 11 November 2005 and the amended draft lease submitted on 23 June 2006;

92 In the light of the correspondence which I have sought to summarise above, it is clear and understandable that the second respondent wished to remain in possession of the Hotel and to obtain a lease for a further six year term. Furthermore, neither party was asserting that either had abandoned their or his rights arising out of the exercise of the option. On the contrary, each was asserting those rights at all material times. Thus the reference in some of the correspondence to it being “WITHOUT PREJUDICE” was, in my view, intended to make clear that the negotiations were without prejudice to the rights of the parties arising on the exercise of the option which remained “in force”. Furthermore, the appellants were prepared to accept a fixed rent of $1,800 per week only upon the basis of the negotiation of a new lease with terms that differed from those which would otherwise be the subject of a grant pursuant to and in accordance with the exercise of the option.

93 The point that emerges from the foregoing is that at all material times, both parties to the negotiations accepted that the agreement for lease constituted by the exercise of the option remained “in force”. However, the second respondent was asserting that agreement had been reached for the grant of a lease pursuant to the exercise of the option but with a variation to the rent provision, whereas the appellants were asserting that their agreement for a fixed rent was subject to the negotiation of the terms of a lease different from that which would be granted pursuant to the exercise of the option. On that issue the parties were never ad idem and it was not open to the Board to find, if impliedly it did, that the rent provisions of cl 21 were not “in force” because agreement had been reached that any lease granted pursuant to the exercise of the option would contain a rental provision based on a fixed rent rather than a turnover rent as required by cl 21.1.

94 The Board’s finding that at the date of its decision the second respondent continued to occupy the premises under the holding over provisions of the Lease was not, in law, an answer to the appellants’ submission to the Board that as at the date of its decision the agreement for lease constituted by the exercise of the option was still “in force”. The Board’s finding to the contrary was, in my view, an error of law. That error was compounded by the Board’s reasoning, as I understand it, that because negotiations had been terminated in relation to the terms of a new lease, the only outstanding relationship between the parties was one constituted by the holding over provisions of the Lease because any agreement for lease arising out of the exercise of the option was no longer in force. His Honour’s findings upholding the Board’s reasoning (and supplementing it) cannot, in my respectful opinion, be sustained.

95 Furthermore, it was put squarely to the Board that there was an agreement for lease constituted by the exercise by the second respondent of the option to renew the Lease. However, it is apparent from its reasons that although the Board acknowledged the exercise of the option, it did not appreciate that on the exercise of the option an agreement for lease came into being. The Board’s failure to take that relevant fact into consideration amounted to legal error.

96 Finally, I would address the fourth and fifth respondents’ submission that even if, as at December 2006, the agreement for lease constituted by the exercise of the option was “in force”, nevertheless it did not constitute a present entitlement to receive any income derived from the business carried on under the authority of the hotelier’s licence within the meaning of s 19(5) of the Act.

97 It is true that in Jabetin Mason P (at 619 [46]) stated that s 19(5) speaks of present entitlement to income derived from the relevant business. But the mere fact that the relevant parties had not entered into a lease which would constitute a legal entitlement of the appellants to receive a turnover rent, does not detract from the proposition that an enforceable agreement for lease at the relevant time gives rise in equity to a present entitlement to receive that rental. It is important to note that it is the entitlement to receive income which is relevant for the purposes of s 19(5); not the requirement that there be actual receipt of such income. So long as the agreement for lease remained in force, in my opinion, the appellants had a present entitlement in equity to the turnover rent referred to in cl 21.1.

98 For the foregoing reasons, therefore, in my opinion the Board’s finding that the appellants had no financial interest in the hotelier’s licence was legally flawed. It follows that the decision of the Board approving the transfer of the relevant poker machine entitlements should be set aside and the matter remitted for redetermination.

What relief should be granted?

99 On 1 July 2008 the Act was amended by the Miscellaneous Acts (Casino, Liquor and Gaming) Amendment Act 2007 (the Miscellaneous Act), the effect of which was that the functions of the Board were assumed by the Casino, Liquor and Gaming Control Authority (the Authority) constituted under the Casino, Liquor and Gaming Control Authority Act 2007. The Miscellaneous Act contained transitional provisions, the relevant effect of which was that the Board ceased to exist on 31 December 2008. To the extent to which, upon the setting aside of the Board’s decision to approve the transfer, the respondents’ application to transfer the relevant poker machine entitlements remains undetermined, the functions of the Board under s 19 of the Act are assumed by the Authority. Accordingly, it is appropriate that the application for approval of the transfer be remitted to the Authority for determination in accordance with the law.

100 One final point that was raised by the Court but which was not fully argued was the date at which the Authority is required under s 19(3)(c) to form the opinion as to whether the appellants have a financial interest in the relevant hotelier’s licence. It was submitted by the respondents that that date was the one upon which the application for approval of the transfer was lodged with the Board, being 16 October 2006. On the other hand the appellants submitted that the relevant date is the date upon which the Authority is required to form the opinion as to the persons who have a financial interest in the licence, which is the date at which the transfer is either approved or disapproved.

101 Section 19(3)(c) requires an application for the Board’s (now the Authority’s) approval of the transfer of a poker machine entitlement allocated in respect of a hotelier’s licence to demonstrate to the Board’s satisfaction that the proposed transfer is supported by each person who has a financial interest in that licence. However, it is left to the Board’s opinion as to who has such an interest.

102 In Masters v Garcia [2005] NSWCA 287; (2005) 65 NSWLR 92 at [79] Basten JA, with whom, relevantly, myself and M W Campbell AJA agreed, observed that the time at which the relevant factual matters must be addressed for the purpose of s 19(3)(c) is either the time at which the transfer was executed or the time at which it was approved by the Board. As no considered argument was directed to the point, his Honour did not come to any conclusion with respect to it. However, I would observe that the first of these alternatives may not relevantly coincide with the respondents’ submission that the relevant time is the date upon which the application for approval of the transfer is lodged with the Board.

103 This Court should take the same approach in the present case. Although raised with counsel, the point was not the subject of considered argument. Its resolution should await another day.

Conclusion

104 In my opinion, the following orders should be made:

(a) Summons for leave to appeal dismissed with no order as to costs;

(b) Appeal allowed;

(c) Set aside the orders made by Johnson J on 12 June 2008;

(d) Set aside the approval dated 20 December 2006 of the Liquor Administration Board with respect to the transfer of the poker machine entitlements the subject of its decision of that date;

(e) Remit to the Casino, Liquor and Gaming Control Authority for its consideration under s 19 of the Gaming Machines Act 2001 the application for the Authority’s approval of the transfer of one block of three poker machine entitlements from the Tabulam Hotel, Tabulam to the Black Market Hotel, Chippendale lodged with the Liquor Administration Board on 16 October 2006;

(f) The first, second, fourth and fifth respondents to pay the appellants’ costs of the proceedings before Johnson J and of the appeal but to have with respect to the latter a certificate under the Suitor’s Fund Act , 1951, if otherwise qualified;

105 McCOLL JA: I agree with Tobias JA.

106 MACFARLAN JA: I agree with Tobias JA.

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Citations

Martin v Kelly [2009] NSWCA 105

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CITATION:	Martin & Anor v Kelly & Ors [2009] NSWCA 105
HEARING DATE(S):	21 April 2009
JUDGMENT DATE:	12 May 2009
JUDGMENT OF:	Tobias JA at 1; McColl JA at 105; Macfarlan JA at 106
DECISION:	(a) Summons for leave to appeal dismissed with no order as to costs; (b) Appeal allowed; (c) Set aside the orders made by Johnson J on 12 June 2008; (d) Set aside the approval dated 20 December 2006 of the Liquor Administration Board with respect to the transfer of the poker machine entitlements the subject of its decision of that date; (e) Remit to the Casino, Liquor and Gaming Control Authority for its consideration under s 19 of the Gaming Machines Act 2001 the application for the Authority’s approval of the transfer of one block of three poker machine entitlements from the Tabulam Hotel, Tabulam to the Black Market Hotel, Chippendale lodged with the Liquor Administration Board on 16 October 2006; (f) The first, second, fourth and fifth respondents to pay the appellants’ costs of the proceedings before Johnson J and of the appeal but to have with respect to the latter a certificate under the Suitor’s Fund Act, 1951, if otherwise qualified;
CATCHWORDS:	ADMINISTRATIVE LAW – Judicial review – Grounds of review – Error of law – Irrelevant consideration – Decision of Liquor Administration Board – Approval of transfer of poker machine entitlements – Gaming Machines Act s 19(3)(c) – Whether Board satisfied that the transfer was supported by each person who in its opinion had a financial interest in the hotelier’s license – Whether lessors of hotel were entitled to receive income derived from the business carried on under hotelier’s license where fixed rent paid – Lease contained option to renew clause with rent payable on the basis of poker machine turnover – No lease entered into in terms of option clause – Whether option to renew exercised – Whether lessee holding over under terms of lease – Whether agreement for lease entered into in terms of option – Whether conduct of parties precluded any claim for specific performance of any such agreement for lease constituted by exercise of option – Functions of Liquor Administration Board assumed by Casino, Liquor and Gaming Control Authority
LEGISLATION CITED:	Casino, Liquor and Gaming Control Authority Act 2007 Gaming Machines Act 2001 Liquor Act 1982 Liquor Act 2007 Miscellaneous Acts (Casino, Liquor and Gaming) Amendment Act 2007 Supreme Court Act 1970
CASES CITED:	Campbelltown City Council v Vegan & Ors [2006] NSWCA 284 Jabetin Pty Ltd v Liquor Administration Board [2005] NSWCA 92; (2005) 63 NSWLR 602 Martin & Anor v Kelly & Ors [2008] NSWSC 577 Masters v Garcia [2005] NSWCA 287; (2005) 65 NSWLR 92 Minister for Immigration and Ethnic Affairs v Wu Shan Liang [1996] HCA 6; (1996) 185 CLR 259
PARTIES:	George Owen Martin Alison Martin Robert James Kelly Kenneth John Kelly Liquor Administration Board Reserve Hotels Pty Ltd Scott Patrick Lane
FILE NUMBER(S):	CA 40286/08
COUNSEL:	A: B Coles QC / P T Russell 1&2R: M Leeming SC / J Taylor 3R: Submitting appearance 4&5R: W G Muddle SC / I J Stanley
SOLICITORS:	A: Alister Somerville, Lismore 1&2R: Maxwell & Co, Lismore 3R: Crown Solicitor, Sydney 4&5R: Bruce Stewart Dimarco, Sydney
LOWER COURT JURISDICTION:	Supreme Court
LOWER COURT FILE NUMBER(S):	SC30070/07
LOWER COURT JUDICIAL OFFICER:	Johnson J
LOWER COURT DATE OF DECISION:	12 June 2008
LOWER COURT MEDIUM NEUTRAL CITATION:	Martin and Anor v Kelly and Ors [2008] NSWSC 577