Players Pty Ltd & Ors v Clone Pty Ltd
[2006] SASC 118
•24 April 2006
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
PLAYERS PTY LTD & ORS v CLONE PTY LTD
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Sulan and The Honourable Justice Layton)
24 April 2006
LANDLORD AND TENANT - ASSIGNMENT, SEVERANCE AND SUBLEASE - SUBLEASE
LANDLORD AND TENANT - LEASES AND TENANCY AGREEMENTS - CONSTRUCTION AND INTERPRETATION - SURROUNDING CIRCUMSTANCES
LANDLORD AND TENANT - AGREEMENTS FOR LEASE - BREACH
Appeal from a single Judge of the Supreme Court – whether Clone Pty Ltd consented to Players Pty Ltd subletting premises leased between the parties – whether Clone Pty Ltd consented to Players Pty Ltd removing a gaming machine licence from premises leased between the parties – whether Clone Pty Ltd consented to Players Pty Ltd applying for a gaming machine licence for premises leased between the parties – consent alleged to have been communicated by letters – letters also contained an alleged agreement that Players Pty Ltd would conduct maintenance on premises and set out a schedule for improvements to the premises - the trial Judge held no consent to be evidenced by conduct – the trial Judge held that notwithstanding the absence of consent to sublet and alter gaming licences on the part of Clone Pty Ltd the agreement to improve the premises on the part of Players Pty Ltd was made out – a single Judge held that Players Pty Ltd had breached covenants of the lease by failing to maintain the property - the question is whether a reasonable person in the position of Players Pty Ltd would have viewed the conduct between the parties as consent to subletting and to changes to gaming licences – no error made out on appeal – the question is whether the state of repair of the property evidences a breach of the agreement or the lease – no error made out on appeal – the question is whether the trial Judge erred in finding that additional conditions proposed by correspondence were on foot between the parties – error made out on appeal – no further conditions set out in correspondence on foot between the parties – the trial Judge found that a guarantee was a condition precedent to the lease – error made out on appeal – conduct of the parties shows that no precondition can be made out – whether a gaming licence could be transferred for nil consideration – construction of terms of an agreement – no error made out on appeal – licence was to be transferred for nil consideration - whether the dealing in the licence by Clone Pty Ltd was a breach of the lease – trial Judge held a breach made out – error made out on appeal – licence had not reached a point where it was liable to be surrendered or revoked – appeal allowed in part – remitted to trial Judge for consideration of relief against forfeiture.
Liquor Licensing Act 1997 (SA); Gaming Machines Act 1992 (SA), referred to.
Kennedy v Vercoe (1960) 105 CLR 521, applied.
A Roberts & Co v Leicestershire County Council [1961] Ch 555, discussed.
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; Wincant Pty Ltd v South Australia (1997) 69 SASR 126; Leggot v Barrett (1880) 15 Ch D 306; Slee v Warke (1952) 86 CLR 271; Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; Briginshaw v Briginshaw (1938) 60 CLR 336; Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1, considered.
PLAYERS PTY LTD & ORS v CLONE PTY LTD
[2006] SASC 118Full Court: Doyle CJ, Sulan and Layton JJ
DOYLE CJ: The parties to this appeal are Clone Pty Ltd (“Clone”) (the owner and landlord of premises, and respondent) and Players Pty Ltd (“Players”) (the tenant of the premises until early 2005 and appellant). Two main issues are raised.
First, did Clone in late 2003 consent to Players subletting the premises, removing to other premises a hotel licence in respect of the premises, and applying for a gaming machine licence in respect of those other premises? The consequence of grant of the latter application would be the termination of a gaming machine licence held by Players in respect of the leased premises. In proceedings issued while the Lease was running, Clone claimed a declaration that it had not consented, and sought orders to prevent Players dealing with the licences. Players opposed the making of that declaration.
The Lease of the premises provided that upon its expiry Players was obliged, upon demand by Clone, to transfer to Clone the hotel licence and gaming machine licence in respect of the premises. The Lease did not require Clone to make any payment to Players for the licences. By an amended pleading Players counterclaimed a declaration that Clone must pay for the licences. Players alleged that an Agreement for Lease, which preceded the Lease, required Clone to pay “a reasonable price” for the licences. Players claimed rectification of the Lease to make it accord with the Agreement. Clone opposed that claim, contending that by virtue of the Lease it was entitled to the licences without making any payment to Players for them. That claim was the second main issue.
There is a third issue, which is of less significance. This is whether, in June and July 2004, Players was in breach of certain covenants of the Lease, and if it was, whether it is entitled to relief against forfeiture for those breaches.
An Overview
What follows is a simplified overview of the case. I must say that the pleadings, and the Statement of Claim in particular, seem to ignore the requirements of the Supreme Court Rules that pleadings be as brief as the nature of the case permits and plead only the material facts and not evidence or arguments: r 46A.02. The pleadings plead evidence and correspondence in considerable and unnecessary detail. They are unduly complex.
On 23 August 1994 Clone executed an “Agreement to Lease” (“the Agreement”) that had been executed by Players on 15 August 1994. The Agreement was that Clone would lease premises in the City of Adelaide to Players for ten years. The premises were to be substantially renovated by Players at its expense, and were to be used by Players as a hotel, restaurant, gaming venue, offices and car park.
A Memorandum of Lease (“the Lease”) was executed by the parties and was dated 28 April 1995. The term of the Lease was from 1 March 1995 to 28 February 2005.
Players carried out substantial renovations to the premises, which Players alleged cost $3,500,000. Players acquired a hotel licence under the Liquor Licensing Act 1997 (SA) in respect of the premises, and removed that licence to those premises. This licence was acquired before Players executed the Agreement, and cost Players about $30,000. Players obtained a gaming machine licence in respect of the premises. The gaming machine licence did not have to be purchased. (Much later, as a result of legislative changes, it become a valuable asset.) Players began to conduct its business from the premises.
During 2002 each of Players and Clone received information indicating that repair and maintenance work might need to be done to the roof of the premises. There was some discussion between Players and Clone about the matter, but no work was done by Players. In early 2003 Players argued that it was not obliged by the Lease to carry out the repairs to the roof. The issue of Players’ obligation in relation to the roof was obviously a matter of dispute, and a cause of some tension.
In March 2003 some work was carried out on the roof by a builder employed by Players.
In May 2003 Ms Roche, on behalf of Clone, met with Mr Griffin on behalf of Players. Mr Griffin raised the possibility of Players assigning the Lease to another party, and Players then removing the liquor licence and gaming machine licence to other premises. The state of the roof, the extent of Players’ obligation to carry out repairs on the roof, and Players’ intentions in relation to the roof, was a background factor in the discussion, and continued to be so.
During 2003 there was some further discussion and correspondence about this matter.
From about August 2003 Mr Griffin was proposing Mr Walsh as a person to whom the Lease might be assigned, on the basis that Mr Walsh would apply for an entertainment venue licence in respect of the premises. Mr Griffin continued to speak of Players removing the hotel licence and the gaming machine licence to other premises.
During September and October Mr Griffin continued to press Ms Roche on the topic. On 1 September 2003 Ms Roche informed Mr Griffin in writing that until work was carried out on the roof as required by Clone, and arrears of rent were paid, Clone would not consider the proposals made by Mr Griffin.
In October 2003 Mr Griffin advised Ms Roche in writing that Players had arranged for work to begin on the roof. He continued to press the proposal for Mr Walsh to take an assignment of the Lease.
By letter dated 30 October 2003 Mr Marker, on behalf of Clone, wrote to Mr Griffin stating that Clone “would only consider accepting your proposal” on certain conditions set out in the letter. By letter dated 31 October 2003 Mr Griffin treated that letter as accepting Players’ proposal, and (by implication) as granting the consents that Players required under the Lease.
During November 2003 Players had work carried out on the roof of the building. Players entered into negotiations with a third party for the sale to it of the hotel and gaming machine licences and for the sale of the gaming machines and certain equipment.
By letter dated 10 December 2003 Clone informed Players that it would not consent to the removal of the licence. By letter dated 15 December 2003 Mr Griffin, on behalf of Players asserted that Clone was bound by the earlier exchange of letters.
In December 2003 Players and a third party made a joint application to the Liquor Licensing Authority for the removal of the hotel licence to alternative premises, and the third party applied for a gaming machine licence in respect of those premises.
In March 2004 Clone issued proceedings against Players. Clone sought a declaration that it had not consented to Players removing the hotel licence or dealing with the gaming machine licence in the manner proposed by Players. It also sought a declaration that Clone must deliver up to it the hotel licence and gaming machine licence, at the expiration of the Lease. It sought an order restraining Players and the third party from proceeding with their applications to the Liquor Licensing Authority. Other orders were sought.
Players filed a defence on 27 April 2004. It asserted that an agreement had been reached between Clone and Players under which Players was entitled to remove the hotel licence. Players denied that its conduct in making the applications relating to the hotel licence and the gaming machine licence amounted to a breach of the Lease.
On 4 June 2004 Clone filed an amended Statement of Claim. The thrust of the amendments was to allege, in much greater detail than before, breaches of the repair and maintenance covenants.
In June and July 2004 Clone served on Players four notices to remedy breaches of the Lease. The alleged breaches were, broadly, attempting to remove the hotel licence and the gaming machine licence, and failure to comply with covenants of the Lease relating to repair and maintenance.
On 9 July 2004 Clone filed a further amended Statement of Claim. It now alleged that by its dealings in relation to the licences, and by its failure to carry out repairs, Players had repudiated the terms of the Lease. Clone purported to accept that repudiation and to re-enter the premises.
Nevertheless, Players remained in possession of the premises. In late July 2004 Players obtained an order restraining Clone from taking possession of the premises.
On 16 July 2004 Players filed an amended Defence and Counterclaim. It now sought rectification of the Lease. Players claimed that the Agreement required Clone to pay a “reasonable price” for the hotel licence and gaming machine licence in the event that Players transferred those licences to Clone, and that the Lease should be rectified to accord with the Agreement.
In August and September 2004 Players further amended its Defence and counterclaim. The thrust of the pleading remained the same.
Players remained in possession of the premises until the expiry of the Lease. Players then vacated the premises.
The licences have been suspended, pending the outcome of these proceedings.
At trial there was a major issue as to the form of the Agreement. Condition 11(i) was as follows:
The Lessee will upon expiration or earlier determination of the Lease transfer to the Lessor any Liquor Licences or gaming machine Licences held in respect of the premises for NIL consideration.
Witnesses for Players alleged that before Players executed the Agreement Mr Griffin struck out the word “NIL”, and that the Agreement was in that form when later executed by Clone. Clone denied that that was so.
Although it was on this basis that Players mounted its claim for rectification at trial, this fact or event (the deletion of the word “NIL”) was not specifically pleaded by Players in its Defence or Counterclaim.
The issues
As I have already indicated, there were two main issues that arose at trial.
The first was whether Clone had agreed in a binding manner to the proposal that Players sublet the premises, removed the hotel licence to other premises, and obtain a gaming machine licence in respect of those premises, the effect of that being to terminate the gamine machine licence in respect of the leased premises.
If Players succeeded on that issue, that was effectively the end of the dispute.
If Players failed on that issue, it was common ground that Players was obliged to transfer the licences to Clone.
In that event the issue was whether, by virtue of the alleged deletion of the word “NIL” from condition 11(i) of the Agreement, Players was entitled to a payment on transfer of the licences reflecting the value of the licences. The Judge has not made a finding as to the value of the licences. However, it is common ground that the value is substantial, and Players asserts that the value is about $750,000.
The third issue, which the Judge said was of limited relevance to the issues at trial, was whether Clone had terminated the Lease and had become entitled to possession of the premises in June or July 2004 by virtue of the service of the Notices to remedy breaches of the Lease. That required a consideration of Players’ claim for relief against forfeiture of the Lease, if breaches were proved.
Depending on the decision on these issues, each party has a claim for damages against the other. The Judge has not yet dealt with that part of the case.
The Judge’s findings
The Judge dealt first with the Agreement, and with the dispute as to the form of condition 11(i) when it was executed.
The evidence on this topic suffered from the fact that witnesses were dealing with events that had occurred about 11 years earlier. A number of relevant files and documents had been destroyed or misplaced over the years.
Clone had acquired the premises, in Pirie Street Adelaide, with a view to their complete redevelopment at a later time. The premises were badly run down. Clone was anxious to obtain a tenant who would meet the cost of improving the premises, and who would occupy them until the time was right for a redevelopment.
Players ran a bar not far away in Grenfell Street. Players was interested in ensuring that the premises were not run as a hotel in competition with its bar.
Mr Griffin (a solicitor) and Mr McDermott were directors of Players. They conducted negotiations on behalf of Players. Clone appointed Colliers Jardine (“Colliers”) as its agent. The letting of the premises was handled by Mr Mackie and Mr Mallett.
A premise of the negotiations was that Players would improve the premises at its own expense, and would install the plant and equipment needed for its proposal, and would acquire any licence under the Liquor Licensing Act 1997 (SA) or the Gaming Machines Act 1992 (SA) that it might need to use the premises as proposed.
Negotiations proceeded partly by exchange of letters, and partly by face to face negotiations. From time to time Colliers got advice from Mr Grope, a solicitor acting for Clone.
The negotiations did not take long. They occurred between about 19 July 1994 and 23 August 1994, when Clone signed the Agreement.
Mr Mackie sent a draft of the Agreement to Mr Griffin with a letter of 5 August 1994. A copy also went to Mr Grope. He proposed some changes to Mr Mackie. They were made, and Mr Mackie then delivered this further draft to Mr Griffin. He highlighted the changes with a fluorescent pen.
The second of these documents (it was headed “Draft”) is the Agreement executed by the parties. The executed original of the Agreement could not be located. The Judge accepted that somehow or other it had been misplaced at some stage.
Clone and Players each produced a photocopy of the executed Agreement. Each of these was tendered in evidence. The Judge said at [16]:
There are two versions of the third draft in evidence, neither of which is original. It is not possible to say whether they are copies of the original or of a copy of the original, or even whether the one is a copy of the other. Exhibit D9 is a version produced from the files of ADC [ADC is linked to Clone] and P9 is a version produced from Mr Griffin’s papers.
(The Judge referred to a “third draft” because there had been a draft that preceded the two drafts that I have mentioned.)
Each of these two drafts required Players to carry out at its expense the work necessary to make the premises fit for its proposed use: condition 10 and condition 11(a) and (e). Under each draft the Agreement was subject to Players obtaining the required liquor and gaming machine licences: condition 11(b). Conditions 11(j) and (k) are relevant to the dispute. They were as follows:
(j)The Lessor shall have an Option to Purchase the Lessee’s Plant, Equipment and Fittings at market value upon expiration or earlier determination of the Lease. In the event of a dispute with regard to market value an independent plant & equipment value is to be appointed.
(k)All other property forming a part of the structure of the premises and placed on the premises by the Lessee shall become the property of the Lessor for no consideration upon expiration or earlier determination of the Lease and the Lessee will return the premises to the Lessor in good condition subject to fair wear and tear.
It is to be noted that the second sentence of condition 11(j) did not appear in the earlier draft, and was one of the changes highlighted by Mr Mackie. The other provisions were in each draft.
The Agreement contemplated the preparation of a “formal Lease”: condition 11(h). Condition 15(a) was as follows:
15(a)The formal Lease shall be prepared by the lessor’s solicitors and shall be in a form nominated by the Lessor or its solicitors. It shall contain the terms and conditions recorded in this Agreement and such other terms and conditions as the Lessor’s solicitors deem reasonable for a lease of premises of the kind hereby leased provided that such other terms and conditions shall not vary the terms hereby agreed.
The condition about which much evidence was given was condition 11(i). It was in the same form in each of the two drafts referred to but did not appear, I gather, in the earlier draft. It was as follows:
11(i)The Lessee will upon expiration or earlier determination of the Lease transfer to the Lessor any Liquor Licences or gaming machine Licences held in respect of the premises for NIL consideration.
The dispute between the parties related to what appears on the photocopies of the Agreement as a faint line across the word “NIL”. There is a somewhat similar faint mark across the word “for”, but it is difficult to tell whether it is in fact a line, or merely some blurring in the letters as reproduced. As so much turned upon when the mark (as I will call it) was put there, and by whom and under what circumstances, it is unfortunate that the signed copy of the Agreement could not be located.
The Judge found that Mr May, another director of Players, signed the Agreement on behalf of Players, and that Mr May, Mr Griffin and Mr McDermott signed it as guarantors, on about 12 August 2004.
The Agreement was then delivered to Colliers. The Judge found that Colliers sent the Agreement to Mr Grope. He noted that Mr Cahill, another Director of Players, had not signed as guarantor although the Agreement contemplated him doing so. Against Clone’s attestation clause Mr Grope wrote:
Subject however in all things to the execution of Darren John Cahill below.
The Agreement was then sent to Clone, and the common seal of Clone was affixed in the presence of two directors (Mr Roche and Mr England) on 23 August 1994. Ms Roche, who was dealing with the matter on behalf of Clone, was present when the Agreement was executed.
The issue at trial was whether, immediately before Mr May signed the Agreement on behalf of Players, Mr Griffin drew a line through the word “NIL” in condition 11(i), intending to delete that word.
Players’ case was that the requirement to hand over the licences for no consideration was a departure from earlier negotiations. Players also relied on the fact that Players had obtained the grant of the licences in question, and that it was inconsistent with this that Players should be required to hand over the licences for no consideration.
Be that as it may, the evidence of Mr Griffin and Mr McDermott was that Mr Griffin drew a line through the word “NIL” using a pen with blue ink, and that the three men then initialled each page, initialled the changes to the draft that had been highlighted by Mr Mackie, signed (Mr May only) Players’ attestation clause and then each signed as a guarantor.
They did not initial the alteration to condition 11(i). The Agreement was delivered to Mr Mackie without anything being said about the mark on condition 11(i).
The witnesses for Clone who had cause to examine the Agreement before it was signed by Clone, the directors of Clone and Ms Roche, all denied that condition 11(i) was marked as claimed, prior to Clone executing the Agreement.
The Judge found that the word “NIL” was not deleted before Clone signed the Agreement. She rejected the evidence of Mr Griffin and Mr McDermott.
Players’ claim for rectification of the Lease was based on a submission that the Lease was intended to accord with the Agreement, and that having regard to the mark made by Mr Griffin, condition 11(i) provided that Players was obliged to transfer the licences to Clone “for consideration”, and not “for NIL consideration”. As the premise of the claim for rectification was not made out, the claim failed.
The Judge held, in any event, that upon execution of the Lease the parties had “discharged their obligations under the Agreement”: at [38]. The parties had changed the arrangements under the Agreement. The Lease was the “sole embodiment of the terms of the parties agreement”: at [41]. On that basis the claim to rectify the Lease failed, even if the Agreement was marked as claimed by Players.
The Judge then dealt with the qualification attached by Mr Grope to Clone’s execution of the Agreement. Mr Cahill did not sign the Agreement as a guarantor before the Lease was executed. The Judge held that the qualification amounted to a condition precedent to the formation of a contract, and so the Agreement never bound Clone. The fact that the parties complied with or carried out obligations under the Agreement (in particular, Players took steps to obtain the relevant licences and to begin to carry out the building works) did not persuade her otherwise.
The Judge found that Clone did not agree in a binding manner to Players’ proposal for a subletting and removal of the licences. She considered in some detail the dealings between Clone and Players in 2003 relating to repairs to the roof of the premises and a sublease of the premises and removal of the licences. There was a history of Clone claiming that Players should carry out substantial remedial works on the roof, and of Players failing to do so and denying that it was obliged to do so. There were a number of discussions about these matters involving Ms Roche and Mr Griffin in particular. As 2003 wore on Mr Griffin pressed Ms Roche about Players’ proposal, emphasising that the proposed new occupant and Players needed to know where they stood. The carrying out of remedial works on the building was evidently being used as the bargaining chip by Players. On 30 October 2003 Mr Marker, who had just begun employment with Adelaide Development Company Pty Ltd (“ADC”), which company was linked to Clone and conducted negotiations for Clone, wrote what was the crucial letter. It was addressed to Mr Griffin, referring to a letter that he had written on 20 October 2003 to Ms Roche. Mr Griffin’s letter had emphasised the need for Players to obtain a decision from Clone because Mr Walsh would not wait much longer, and because Players now had an offer of a lease of new premises to which it could remove the licences. In the letter Mr Griffin said that Players’ builder would carry out “the roof works” in late October 2003. He said that once that was done “all the matters we discussed some months ago have finally been attended to by us”. The letter from Mr Marker was as follows:
We refer to your letter faxed to our office on 20th October 2003, requesting approval to sub-lease the above premises.
Clone Pty Ltd would only consider accepting your proposal on the basis that Players Pty Ltd remains as Lessee and that all conditions of the existing lease remain in force. We would not object to Players Pty Ltd sub-letting the premises to Mr Walsh and transferring the gaming machine licence to other premises, provided that:-
1. All accounts and correspondence continue to be directed to Players Pty Ltd.
2.Players Pty Ltd remains responsible for the continuing compliance with the conditions of the lease.
3The existing personal guarantees remain in place.
4.Cash security equivalent to 6 months rental is lodged with our office.
5.All outstanding building works are satisfactory (sic) completed, by the Lessee at the Lessee’s cost.
6.A schedule of general maintenance and building works for the remainder of the lease period is provided to the Lessor.
7.A satisfactory proposal is provided for the refurbishment of the gaming room after the gaming machines are removed.
Yours sincerely
Mr Griffin replied the next day, by facsimile. The reply was as follows:
Dear Ian
RE: PLAYERS PTY LTD
Thank you for your letter of 30 October 2003. The conditions that you list are acceptable.
I shall deal with each of them individually as follows:
1. Agreed
2. Agreed
3. Agreed
4.I suggest that the cash security be paid upon the commencement of the sub-lease to Mr Walsh or his company in a form satisfactory to yourself.
5.Agreed
6.I shall commence the preparation of the schedule.
7.The gaming room will be converted into a lounge with sofas and chairs and used as a small function area.
I trust this is satisfactory. May I take the opportunity of thanking Adelaide Development Company for the speed of the response and the assistance it has provided for which I am extremely grateful.
The Judge found that Mr Marker’s letter was not an offer capable of acceptance so as to give rise to a binding contract. Nor did it amount to a binding consent under the Lease. She was influenced in particular by the use of the word “would”. She said at [95] that the letter expressed:
… an intimation or a contingent view or an hypothetical attitude which in all probability would be confirmed at a future time if the seven stipulations were addressed.
She said that Clone was indicating that Clone would consider its position, once all of the conditions were addressed: at [97] and [98].
That conclusion disposed of the other main plank of Players’ case.
The Judge also found that conditions 5, 6 and 7 of the letter were not satisfied by Players. She said that condition 5 required Players “to address the poor condition of the roof sheeting”: at [108]. She said that Mr Griffin had agreed to do that work, and that the Lease required it to be done. She found that Players’ earlier failure to remedy the condition of the roof sheeting, and the poor quality of the work that Players had carried out late in 2003, meant that Players did not comply with condition 5: at [118].
The Judge accepted evidence that the roof sheeting was in a poor state, with a good deal of rust damage and other damage present. Evidence was put before the Judge that experts had recommended that some parts of the roof sheeting needed to be replaced, and that there was a need for a protective paint coating to be applied to the roof sheeting. In late 2003 Players had a substantial section of the roof coated with a protective paint. However, the Judge found that this work was of poor quality, and that parts of the roof that needed repairing were not dealt with at all.
As to condition 6 of the letter, the Judge found that no schedule was provided. As to condition 7, she found that what Mr Griffin provided was inadequate. I gather that Players claimed that item 7 in Mr Griffin’s letter of 31 October 2003 (see above) was itself a sufficient compliance with condition 7.
That was a further reason for finding that Clone had not consented to the proposal by Players.
The Judge dealt with the Notices to remedy breaches of the Lease. She found that one of the breaches alleged by the first Notice was made out. Clause 8.2 of the Lease provided:
The Lessee covenants and agrees that the Lessee shall not do, omit or cause or suffer to be done or omitted any act, matter or thing whatsoever as a result of which act or omission the Gaming Machine Licence issued under the Act in respect of the demised premises or any business conducted thereon may be liable to be surrendered, suspended or revoked.
The Judge found that by lodging and prosecuting its application to remove the hotel licence, and to transfer it to Fairtown Holdings Pty Ltd (“Fairtown”), Players had done things that “… would, if successful, have led to the surrender of the gaming licence”. She had also found that in “suffering” Fairtown to apply for a gaming machine licence in respect of the machines for which Players had a licence, Players was in further breach of clause 8.2. By way of explanation it suffices to record, as the Judge did at [78], that the state of the legislation at the time was that if the hotel licence was removed to new premises, a gaming machine licence could be granted in respect of machines on those premises, and that a consequence of that would be that any gaming machine licence in respect of Clone’s premises would lapse.
As to the second Notice, the Judge found that in a number of respects Players was in breach of the repair and maintenance covenants under the Lease: at [140] and [152]. The Judge also found, as seemed inevitable, that the state of the roof when this Notice was issued was a breach of covenants under the Lease.
The Judge appears to have found (but it is not entirely clear) that breaches of maintenance and repair covenants alleged in the third Notice were established: at [144] and [153].
The Judge found that breaches of the Lease alleged in the fourth Notice were not made out: at [149] and [151].
During the course of the trial Players amended its Defence to include a claim for relief against forfeiture in respect of the second and third Notices only: at [153]. The Judge refused to allow Players to amend the first Notice.
The Judge said that she “might have been sympathetic to the plea for relief against forfeiture” if the matters raised in the third Notice stood alone. I think she must have intended to refer also to the breaches alleged in the second Notice: see at [153]. However, as Clone was entitled to forfeit the Lease on the basis of the breach alleged in the first Notice, she found it unnecessary to consider the matter of relief any further: at [153].
Accordingly, the Judge declared that Players was obliged to transfer to Clone the hotel licence and the gaming machine licence (without any entitlement to payment in respect of those licences) that Clone had been entitled to possession of the premises from 8 July 2004, and that Players was liable to pay to Clone damages to be assessed for breaches of maintenance and repair covenants identified by the Judge.
Did Clone consent to Players’ proposal to sublet the premises and to remove the licences?
I deal with this issue first because, if Players succeeds, the issue of the true terms of the Agreement is not determinative of the parties’ rights. If the hotel licence and gaming machine licence are to be removed from the premises, the question of whether Clone must pay Players for them will not arise.
Clause 2.4 of the Lease contains a common form covenant by Players that it will not assign or sublet the premises “without the prior consent in writing” of Clone, such consent not to be unreasonably withheld. Clause 7.3 of the Lease requires Players at the expiration of the Lease to deliver up to Clone on demand the hotel licence in respect of the premises. Clause 7.4 and clause 7.5 contain respectively covenants by Players not to transfer or to remove the hotel licence. Clause 8.5.3 contains a covenant by Players not to apply for the transfer of the gaming machine licence. Clause 8.8 contains a covenant by Players that at the expiry of the Lease it would upon demand “transfer and deliver up” to Clone the gaming machine licence in respect of the premises.
The proposal to which Players claims Clone consented had been canvassed between Mr Griffin and Ms Roche. It comprised the following aspects. First, Players subletting the premises to Mr Walsh (I will refer to Mr Walsh although, no doubt, the relevant entity would have been a company that he controlled) for the balance of the Lease term. It appears that Mr Walsh was hopeful that upon the expiry of the Lease, Clone would grant him an extension. Second, the removal by Players of the hotel licence to other premises in the city area. Third, the removal by Players of the gaming machine licence and of the gaming machines. Fourth, Mr Walsh obtaining an entertainment venue licence under the Liquor Licensing Act1997 (SA) in respect of the premises, and operating a nightclub on the premises. Mr Walsh did not propose to install gaming machines in the premises. Fifth, Players was proposing to carry out repairs to the structure of the roof, and to treat or replace rusted roof sheeting. Players’ intention was expressed in general terms, but it was indicating that it would do what Clone required. Sixth, Mr Griffin was offering to guarantee payment of the rent for a period of six months (the significance of this is not clear, because Mr Griffin and other directors were already guarantors of Players’ obligations, but there is no need to resolve this aspect of the matter).
Not all of these matters were set out in Mr Griffin’s letter to Ms Roche of 20 October 2003. However, this letter had been preceded by correspondence and discussions about the proposal, and each of these elements had been canvassed as between Players and Clone.
Mr Griffin’s letter to Ms Roche of 20 October 2003 emphasised the need for a quick decision because it would take some time to obtain the required approvals of the proposed dealings with the licences, and to carry out changes to the premises proposed by Mr Walsh. Players and Mr Walsh were anxious to complete a handover to Mr Walsh by February 2004.
The proposal required the consent of Clone to the subletting, a consent that could not be withheld unreasonably. The proposed dealings with the licences required a consent that Clone was entitled to withhold unconditionally.
In deciding whether Clone’s letter of 30 October 2003 (above at [65]) gave the required consents, the letter is to be interpreted or understood as it would have been understood by a reasonable person in Players’ position, meaning a reasonable person in Players’ position as tenant of Clone under the Lease. The earlier negotiations and discussions between Clone and Players provide a context in which the letter is to be understood. The subjective intentions of the participants are not relevant.
It is doubtful whether Mr Griffin, Ms Roche and other participants in the discussions clearly understood the effect of the Lease provisions in relation to the licences. To the extent that they did address their minds to the terms of the Lease, they might have had differing views about its effect, bearing in mind the dispute that later arose as to Players’ entitlement to a payment in respect of the licences. The evidence strongly suggests that as at 30 October 2003 neither Ms Roche nor Mr Marker (the writer of the relevant letter) realised that the Lease entitled Clone to have the licences transferred to it without Clone making any payment. That clearly influenced Clone’s decision, communicated to Players by letter of 10 December 2003, that it would not consent to the proposed removal of the hotel and gaming licences. Clone had realised by then that it stood to make a considerable gain by refusing its consent.
The Judge made a finding to that effect: at [87]. In my opinion the meaning of the letter of 30 October 2003 is to be determined without reference to the understanding of Ms Roche or Mr Marker as to the provisions of the Lease. Equally, it is to be determined without reference to Mr Griffin’s belief as to that matter.
A relevant part of the context in which the letter is to be considered is the series of discussions during 2002 and 2003 over Players’ obligation to carry out repair work to the structure of the roof and to the iron sheeting. There were a number of discussions about this. As the Judge said at [83], the condition of the roof, the need for work to be done and the extent of Players’ obligations was a matter of contention, and a cause of some dissatisfaction to Ms Roche and those who represented Clone. It appears that Clone was using Players’ need to get Clone’s consent as a lever to get Players to carry out the work that Clone wanted done. Players was offering to be co-operative in this respect, to induce Clone to consent.
In the course of these discussions Players, through Mr Griffin, did not admit that it was obliged to carry out any substantial repairs. Nevertheless, Players had some work on the roof purlins carried out in May 2003. By letter of 13 August 2003 Mr Griffin said that Players had “virtually finished the structural roof matters”, and said that Players would treat or replace damaged roof sheeting over the next four to six months. Mr Griffin was indicating an intention to cooperate with Clone, in the interests of securing its consent. However, it is equally clear that there remained room for argument about the extent of what Players would do and was obliged to do. On 1 September 2003 Ms Roche informed Mr Griffin by facsimile that there was no point in them even meeting to consider Players’ proposal until all rental arrears had been paid, until she had confirmation from an engineer that the work carried out on the roof structure was sufficient, and until she knew the “scope and program” of the work in relation to the roof sheeting. Mr Griffin continued to indicate an intention to cooperate, saying that delays were due to the difficulty of getting “all of the experts to work together” (his letter of 2 September 2003). In a letter of 9 October 2003 to Ms Roche, Mr Griffin said that the roofing work would begin in the first week of November. In a letter of 20 October 2003 to Ms Roche Mr Griffin said that his builder would begin the work during the week commencing 27 October 2003. Referring to the state of the roof, he said that “all the matters we discussed some months ago have finally been attended to by us”. However, at that stage the work on the roof sheeting had not actually been carried out.
Accordingly, as at 30 October 2003 Mr Griffin was assuring Clone that Players would comply with its requirements in relation to the roof. However, it is evident that the parties had not grappled with the detail of this issue, and that there was scope for arguments as to the extent of Players’ obligation, and as to the sufficiency of the work that Players had done and was about to do.
As at 30 October I gather that the arrears of rent had been paid, and Players was up to date with the rental payments.
Another relevant aspect of the context is that Clone had an interest in the soundness of the proposed subtenant, in the nature of the business that Mr Walsh would conduct and in its likely profitability. I gather that Clone had other tenants whose business could be affected by the success or failure of the business conducted on the premises. As well, one would expect Clone to have an interest in the premises being used for a successful business venture as at the expiry of the Lease, because this would enhance Clone’s prospects of obtaining a suitable tenant and obtaining a suitable rental under a further Lease, assuming it did not then decide to redevelop the premises. Clone had made its interest in these matters clear when considering other proposed subtenants. It had rejected at least one of them, on the basis that the person in question was not a suitable subtenant from Clone’s point of view.
Correspondence that had passed between Clone and Players contained a fair amount of information about Mr Walsh’s experience in operating the premises as proposed, and about the likely profitability of the business.
In that content I come to the letter of 30 October 2003.
I consider its meaning and effect in the context that I have outlined, and from the point of view of a reasonable person in the position of Players as the existing tenant. In my opinion the letter does not indicate that Clone has consented to the proposal by Players, subject only to Players satisfying the conditions set out in the letter. The letter indicates that Clone is likely to accept Mr Walsh as a subtenant, and is likely to agree to the removal of the hotel licence and gaming machine licence. However, the terms of the letter indicate that Clone had not yet bound itself, and did not intend to do so at that stage.
The letter states that Clone “would only consider accepting” the proposal. A reasonable person in the position of Players would not understand that as indicating that Clone had agreed to the proposal at that stage. The context in which the letter was written suggests quite strongly that Clone would not agree to the proposal until it was satisfied that the building work it required to be carried out had been carried out satisfactorily. Having regard to the history of the negotiations between the parties, Clone could not reasonably be understood as intending to leave scope for Players to contest the extent of its obligations in that respect. It was apparent that Clone intended to use Players’ need for its consent to ensure that Clone got its way in relation to the maintenance and building work.
For those reasons I conclude that Mr Griffin was not entitled to treat the letter from Clone as a consent that bound Clone, provided only that Players agreed to accept the conditions set out in the letter.
The Judge did not accept that Mr Griffin “genuinely held the view that the passage of correspondence meant that he had secured Clone’s consent …”: at [104]. It is not essential to deal with that finding. However, in my opinion there is force in the submissions that Mr Whitington QC (for Players) made on this point. Mr Marker’s letter was poorly expressed. It is clear that Clone’s attitude to the proposal changed once it became aware of its entitlement under the Lease. Mr Griffin had every reason to think that Clone was favourably disposed to the proposal, and was likely to give its consent in due course. It is understandable that he was anxious to pin Clone down. It is equally understandable that he was upset when Clone refused its consent by letter of 10 December 2003. Clone had allowed Players to take a number of steps towards implementing its proposal, and bringing matters to a point at which Clone could be expected to give a definite and binding decision on the request for consent. Clone was entitled to refuse its consent when it did because, properly understood, it had done no more than indicate that it was likely to consent. But its about face would have been an understandable surprise for Mr Griffin.
It is not surprising that Mr Griffin’s response, a letter of 15 December 2003, attempted to persuade Clone that it was not entitled to refuse its consent. The Judge was critical of Mr Griffin in relation to this letter, finding to be false or misleading a number of assertions made by Mr Griffin about how Players had acted to its detriment in reliance on Clone’s consent: at [105]. Her Honour’s criticisms appear to be valid. However, I can understand that Mr Griffin would have been annoyed by Clone’s apparent about face. And, it must be remembered, although I agree with the Judge that Clone had not previously consented, its letter of 10 December was an about face.
Be that as it may, I agree with the Judge that Clone did not consent under the Lease to Players’ proposal, nor did it offer to do so on terms capable of being accepted by Players so as to bind Clone. Even if Mr Griffin did believe that Clone had consented or was bound to consent, his belief cannot give Clone’s letter an effect that it lacks when considered in its context.
If Clone consented to Players’ proposal, did Players satisfy the conditions that Clone attached to its consent?
The Judge considered the matter on the alternative hypothesis that Clone’s letter of 30 October was a binding consent under the Lease.
On that basis the seven conditions that Mr Marker attached would have effect as conditions precedent to Clone’s consent taking effect. Clone’s consent would take effect by it giving its consent to applications by Players under the Liquor Licensing Act1997 (SA) and Gaming Machines Act 1992 (SA), and by giving its consent to the terms of the sub-lease to Mr Walsh: see clause 2.4 of the Lease. Clone would be under an implied obligation to do what was reasonably necessary on its part to enable Players to perform its obligations: Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607-608 Mason J. For example, Clone would be obliged to respond with reasonable expedition to a request that it consider terms of the proposed sub-lease, or to a proposal for the refurbishment of the gaming room. Clone would also be under an obligation to allow Players a reasonable time to comply with the conditions.
The Judge found that Players did not meet the requirements of condition 5, condition 6 and condition 7. They are set out in the letter at [65] above. The Judge did not deal with the first four conditions. I assume that this is because the first three conditions were simply matters to be agreed, and Mr Griffin had agreed to them, and because there was no suggestion that the fourth condition would not be satisfied.
As to condition 7, the Judge found that Mr Griffin’s response (in his letter of 31 October 2003) gave Clone “nothing tangible to consider”: at [106]. As to condition 6, she found that no schedule at all was provided: at [107].
A difficulty with this conclusion is that Clone retracted its consent (if it had consented) on 10 December 2003. At that time there was still time for Players to comply with condition 6 and condition 7. It would suffice if Players complied before Clone’s consent was given to the licence applications and to the terms of the sub-lease. There is no indication that Players would have refused to provide the required maintenance schedule, or to provide a more detailed proposal for the gaming room. Indeed, the evidence indicates that Players was anxious to satisfy Clone. There is no evidence, as far as I am aware, that Clone had indicated dissatisfaction with the information provided in relation to the gaming room.
For those reasons I respectfully disagree with that aspect of the Judge’s conclusions. Clone’s refusal of consent made it unnecessary for Players to attend to these conditions.
The Judge also found that Players did not comply with condition 5: at [118]. The roof of the premises was not inspected until August 2004. The Judge accepted evidence from witnesses for Clone who inspected the roof then. The effect of the evidence was that the southern part of the roof had not been repaired at all, and was in a poor condition. The northern part of the roof had been painted, but the treatment was inadequate for the purpose, and signs of rust were already appearing. As well, sections of the sheeting were in poor condition and, I gather, should have been replaced. The Judge found that the condition of the roof was such that Players was in breach of its obligations under the Lease, and separately failed to comply with condition 5 of Clone’s letter.
Mr Whitington attacked this conclusion in some detail. He argued that there was no evidence that the condition of the roof in late 2003 was any worse that it was at the commencement of the Lease, and that Players was not obliged to put the roof in a better state of repair than that: Wincant Pty Ltd v South Australia (1997) 69 SASR 126. He argued that the deterioration in the roof was attributable, wholly or in part, to fair wear and tear, and accordingly was within an exception in clause 2.6 of the Lease to the obligations of Players. He submitted that before the work was done Mr Marker on behalf of Clone agreed that the southern section of the roof need not be treated.
I am not persuaded that the Judge erred in her findings as to the state of the roof in about November and December 2003. There was adequate evidence before her to support the findings that she made. There is no apparent error in her process of reasoning. On the basis of those findings the sheeting of the roof was in a poor condition in about November 2003 and the poor condition was not remedied by the painting work that had been done. I do not agree that the Judge reached a contradictory conclusion at [139]. Her reference to the state of the premises at the commencement of the Lease as setting a “high water mark” for the state of the premises is not necessarily inconsistent with her conclusion that by late 2003 the roof was in such a poor state of repair that Players’ failure to remedy that state was a breach of its obligations under the Lease. Nor am I persuaded that the Judge has erred in her approach to the construction of the Lease. She correctly summarises the relevant principles at [139] and at [140].
Whether Clone was entitled to refuse its consent on 10 December 2003 because of the failure to comply with the repair and maintenance covenants of the Lease is a difficult question. It is not something to which the parties directed their minds at the time. It is arguable that Players was entitled to further time, if required, to comply with its obligations. The evidence suggests that it would have carried out further work on the roof if called upon to do so, rather than fail to obtain consent that it needed from Clone.
There is a further difficulty here. Clone was entitled to make its consent to the removal of the licences conditional on Players carrying out work on the roof, whether that work was required by the Lease or not. It is not simply a question of what was required under the Lease. The evidence indicates that Clone wanted the roof brought into a good condition, whether or not it was entitled to so require under the Lease. But the parties never got to grips on this issue.
On the alternative hypothesis considered by the Judge, I consider that the Judge erred in finding that Players had not complied with condition 6 and condition 7. I also conclude, although the evidence is rather sketchy, that Players’ failure to comply with condition 5 cannot be held against it, because the time within which Players might comply with the conditions in the letter had not yet expired.
There is a further argument advanced by Mr McNamara QC (for Clone) that needs to be dealt with under this heading. He submitted that the transaction that Players wished to implement was not the transaction to which Clone consented. It is apparent that Players’ proposal was that the hotel licence and the gaming machine licence would ultimately be held by Fairtown, and that Fairtown would conduct business under the licences at the proposed new premises. Mr McNamara submitted that Clone consented to a removal of the licences, but not to a transfer of the licences to a different entity. I do not agree that these circumstances meant that Players could not rely on the consent, if it had one.
Once Clone consented to the removal of the hotel licence, and to steps being taken that would result in the termination of the gaming machine licence, it had no further interest under the Lease in the ownership of those licences. There was nothing to prevent Players disposing of the licences at some later time, or at the time of the removal. The relevant right that Clone had was to refuse its consent, requiring that the licences remain attached to the premises and be available for it to acquire under the Lease.
Did the provisions of the Lease supersede condition 11(i) of the Agreement?
Players’ claim for rectification of the Lease was premised on the following propositions. First, that condition 11(i) of the Agreement was an agreement that Clone would pay to Players the value of the licences. Second, that condition 15 of the Agreement (set out above at [51]) provided that the Lease was not to vary the terms of the Agreement. Third, that the parties intended that the Lease reflect and incorporate the provisions of the Agreement, consistently with conditions 11(h) and 15 of the Agreement.
The Judge rejected the third of those propositions, or at least rejected a submission by Mr Whitington to the same effect.
The Judge said that the execution of the Lease was the performance of the Agreement, and that “… the parties’ intention was that the Lease was to be an exhaustive embodiment of the parties’ rights”: [38]. She referred to the statement by James LJ in Leggott v Barrett (1880) 15 ChD 306 at 309 that “… if parties have made an executory contract which is to be carried out by a deed after it was executed, the real completed contract between the parties is to be found in the deed …”: [39]. She then said at [41]:
On the basis of this principle, and my findings based on the documents, and having regard to the time lapse between the Agreement and Lease execution and the changes in the arrangements between the parties in the meantime, I should have found, irrespective of the condition upon execution of cl 11(i) of the Agreement, that after its execution and registration (on 22 May 1995) the Lease became the sole embodiment of the terms of the parties’ agreement. That meant that even if the word “NIL” was struck out of condition 11(i) of the Agreement before Players and Clone executed the Agreement, that provision of the Agreement ceased to bind the parties after the execution of the Lease.
I respectfully differ from the Judge on this point.
I accept that it was open to the parties to enter into a lease that departed from the terms of the Agreement. However, one would not readily conclude that the parties had departed from the provisions of condition 11(i), in whatever form it might have been at the execution of the Lease. While the licences may well have been worth a good deal less in 1994 than they were in 2003, the evidence showed that Players paid about $30,000 to acquire the licences under the Liquor Licensing Act 1997 (SA). Moreover, one would not readily conclude that Players agreed to surrender an entitlement to payment (if the condition entitled it to payment) and to accept that it should surrender the licences without any payment at all.
That is by way of background.
In considering this issue I regard the terms of condition 15(a) of the Agreement as significant. If condition 11(i) was in the form claimed by Players, then it was entitled to insist that the Lease reflect those terms. Moreover, condition 15 of the Agreement is an agreement by the parties that the provisions of the Agreement would be carried forward into the Lease.
Although the execution of the Lease was intended to be, and was the performance of the Agreement, a difference between the terms of the Lease and the terms of the Agreement would provide a basis for the Lease being made to accord with the Agreement. That would be the case unless the conduct of the relevant party, in this case Players, pointed to a conclusion that the party had so conducted itself as to indicate that it agreed to depart from the relevant provision of the Agreement, or had agreed in general terms that the Lease need not accord with the terms of the Agreement.
My starting point is, therefore, that one must look for an indication in the conduct of the parties, from the point of view of a reasonable person, that Players so conducted itself as to indicate agreement that the Lease should depart from condition 11(i) of the Agreement.
This is not a case in which it was necessary for Players to show that when the Lease was executed it was the concurrent intention of Players and Clone that Clone would pay Players for the licences: cf Slee v Warke (1952) 86 CLR 271 at 280. Condition 15(a) of the Agreement entitled Players to insist that the Lease accord with condition 11(i) of the Agreement. This condition indicates that the Lease was intended to give effect to the terms of the Agreement: cf Mason J in Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336 at 350-351. Rather, it was for Clone to show (if the word “NIL” had been deleted) that the circumstances, considered objectively, indicated that the parties intended to depart from the terms of the Agreement.
The Judge made the point that in the present case the purposes and terms of the Agreement and Lease almost entirely overlapped. I agree, but that does not affect the point already made. The parties had agreed that the Lease would not depart from the Agreement. Next, I accept the submission by Mr Whitington that by and large the parties conducted the negotiations over the terms of the Lease on the basis that those terms were to accord with the provisions of the Agreement.
It is true, as the Judge pointed out, that the effect of a number of clauses of the Lease was that upon the expiry of the Lease Clone would be entitled to resume occupation of the premises and run the business previously conducted by Players, to acquire certain fittings without payment, to acquire others upon payment, and to have the hotel licence transferred to it, and to acquire the gaming machine licence in respect of the premises. In this respect there was no substantial change as between the Agreement and the Lease, even though Mr Griffin and the directors of Players might not have realised that that was so, and even though that might have involved a departure from a statement by Mr Mallett, early in the piece, that Players would be free to remove the licences and plant and equipment on the expiry of the Lease. Even if the provisions in question involved a change in the arrangements between Players and Clone, I find no reason to infer from them that Players also agreed to surrender an entitlement to payment for the licences (if it had such an entitlement).
Another matter relied upon by the Judge was the time that elapsed between the Agreement and the execution of the Lease. The Agreement was executed by Clone on 23 August 1994. The Lease was executed in April 1995. To my mind there is nothing of any particular significance in the time elapsed.
For those reasons I consider that the Judge erred in finding that the provisions of the Lease had wholly superseded the provisions of the Agreement, or at least that the provisions of the Lease were intended by the parties to supersede the provisions of condition 11(i) of the Agreement.
I will come later to the question of Players’ entitlement to an order for rectification, which is linked to this issue, because later in her reasons the Judge found that the Agreement was not “a complete antecedent contract evidencing the parties’ continuing common intention that at the end of the Lease term the licences would go to Players, without any payment of consideration”: [at 71].
Did the Agreement bind Clone?
I referred earlier to the notation or qualification which Mr Grope attached to Clone’s attestation clause: above at [64].
Her Honour accepted a submission by Mr McNamara that the effect of this notation was that Mr Cahill’s execution of the Agreement as guarantor was made a condition precedent to the Agreement binding Clone. This condition was never satisfied, and so Clone was never bound by the Agreement: [69]-[70].
Mr Whitington argued at trial, and argued on appeal, that the notation made Mr Cahill’s execution of the Agreement as guarantor a condition precedent to the performance of Clone’s obligation to grant the proposed Lease, but not a condition precedent to the making of a binding agreement. He argued that as events unfolded Clone did not assert its right to refuse to perform its obligations under the Agreement. The parties dealt with each other on the basis that they were bound by the Agreement. Ultimately Clone granted a Lease to Players, and that Lease came with a guarantee by Mr Cahill, and the other directors, of Players’ obligations. Mr Whitington submitted that by its conduct Clone had in any event caused the stipulation for a guarantee from Mr Cahill to cease to have effect as a condition precedent to the Agreement binding Clone. Clone had so conducted itself that it could no longer refuse to carry out its obligation to grant a lease, or its implied obligation to do what was reasonable to enable Players to comply with its obligations under the Agreement (such as obtaining the licences and the building approval) by reason of the fact that Mr Cahill had not signed the Agreement as guarantor. By reason of Clone’s conduct it could do no more than refuse to perform its part under the Agreement unless Mr Cahill signed as guarantor within a reasonable period of time stipulated by Clone. He argued that the present case was similar to the circumstances of Kennedy v Vercoe (1960) 105 CLR 521. In that case the contract for the sale and purchase of a business was subject to the purchaser being accepted by the landlord as tenant. By agreement the purchaser went into occupation before the landlord’s acceptance was obtained. The High Court held that if the provision for the obtaining of the landlord’s consent was a “preliminary condition”, it ceased to be so when the purchaser went into possession of the business. It then became a condition with which it was sufficient for the vendor to comply in due course: at 527-528.
I agree with the substance of the submission by Mr Whitington.
In Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 Mason J considered the Court’s approach to conditions of the kind in question. Although his judgment was a dissenting judgment, there is no reason to think that his statement of the principles is not an accurate summary of the law. He said at 552:
Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.
The issue of the effect of the notation raises a question of the construction of the Agreement. The effect of the notation, as a matter of construction, is not affected by the later conduct of the parties, although that conduct may, as in Kennedy v Vercoe, affect the entitlement of a party to rely upon a condition.
The Agreement called for Players to act promptly to obtain the necessary licences and building approvals: condition 11(d). It was likely that Players would incur expenditure in preparing to perform its obligations under the Agreement. For its part, Clone clearly wanted Players to be bound by the Agreement: condition 14. Practical considerations suggest that the parties intended each other to be bound from the outset.
Full effect can be given to the evident intention of Clone to protect itself by treating the notation or qualification as giving rise only to a condition precedent to Clone’s obligation to perform its obligations under the Agreement. At any point along the way, on this basis, Clone could have refused to give consent, or to respond to a proposal from Players, unless Players first obtained Mr Cahill’s signature to the Agreement, or at least did so within a reasonable time. That being the case, there is no good reason to categorise the qualification as giving rise to a condition that prevented the Agreement having any binding effect. There is nothing in the Agreement, including the qualification, that points to this conclusion.
The subsequent conduct of the parties is relevant to show that at no stage did Clone give notice requiring Players to obtain Mr Cahill’s guarantee before Clone would do what it was called upon to do under the Agreement. Clone did not exercise its right to insist upon Mr Cahill becoming a guarantor before it performed its express and implied obligations under the Agreement. As late as 22 March 1995 Mr Brown reminded Mr Griffin by letter that Mr Cahill had not signed as guarantor. He did not suggest that Clone would not proceed with the preparation and execution of the Lease.
For those reasons I reject the submission that Clone was not bound by the Agreement. The Judge erred in this respect.
I also reject the submission by Mr McNamara that the approach that I have taken to the construction of the qualification or notation is precluded by the fact that the qualification or notation was the result of a unilateral act by Clone. I cannot identify any reason why that makes the approach that I have taken inappropriate.
Was “NIL” deleted from condition 11(i) of the Agreement before it was executed?
The Judge found, contrary to the evidence of Mr Griffin and Mr McDermott, that Mr Griffin did not draw a line through the word “NIL” in condition 11(i), immediately before Mr Griffin, Mr McDermott and Mr May signed the Agreement. Mr Whitington mounted a detailed challenge to this finding. An equally detailed defence was presented by Mr McNamara.
I will deal with this issue by outlining some matters that are common ground, then by summarising the Judge’s reasons, and then by dealing with the main submissions made by Mr Whitington.
The following matters are common ground.
The original executed Agreement, referred to by the Judge as “the third draft”, could not be found. The Judge had before her a photocopy produced by Mr Griffin (P9) and a photocopy produced from the files of ADC (D9). The origin of the two documents is unknown. The Judge said at [16]:
There are two versions of the third draft in evidence, neither of which is original. It is not possible to say whether they are copies of the original or of a copy of the original, or even whether the one is a copy of the other.
She also referred at [43] to:
… the quite striking fact … that the photocopies in the possession of both the plaintiff and Mr Griffin bore the same mark over the word “NIL”, suggesting that however the mark or erasure came to be there, it came to be there at a time before dissemination of these two copies, or at least dissemination of one of them.
Condition 11(i) was in the same terms in each of the second draft and third draft.
Mr Griffin, Mr McDermott and Mr May signed the Agreement on 10, 11 or 12 August 1994: [19].
Mr Grope, the solicitor for Clone, examined the Agreement after they signed and before Clone executed it. That was when he attached the notation against Clone’s attestation clause: [20].
Clone executed the Agreement on 23 August 1994: [20].
Mr Grope, with some help from Mr Brown, prepared the Lease, and referred to a copy of the Agreement from time to time for that purpose.
The evidence to support Players’ case on the alleged deletion came from Mr Griffin and from Mr McDermott, and from the appearance of P9 and D9. Mr May was not called. The Judge drew no adverse inference from the failure to call him.
I have examined P9 and D9. As I have already said at [53] there is a faint horizontal line across the word “NIL”. The word is in the last line of text on the relevant page. On the photocopy it is the same colour (black) as the text of the exhibit. Unless it was drawn to my attention, I believe that I would not have noticed it, nor would I have realised that it was indicating an intention to delete that word. However, Mr Griffin said that he made the mark with a blue pen, and so I accept that it would have been more easily visible on the original, because the blue ink would have contrasted with the black type. However, although Clone’s case was not that the mark was there, but not able to be seen, it is relevant to record that one cannot say how clear the mark was on the original. I will return to this point later.
The Judge said that she “rejected” the evidence of Mr Griffin and Mr McDermott that “NIL” was struck out. She recognised that it was unlikely they could be mistaken as to this matter. She acknowledged the “striking fact” of the identical mark on P9 and D9: [43].
The Judge did not say that her conclusion was based on demeanour, or on a finding that the evidence of Mr Griffin or Mr McDermott was generally undeserving of credit. I have considered whether she in fact intended to do so. My conclusion (somewhat hesitant) is that she did not. She later described Mr Griffin’s evidence of his actions (in particular after the signing of the Agreement) as “inherently improbable” and as “untenable”: at [45] and at [48]. She must have reasoned that his evidence, and in particular his failure to raise the alteration with Clone, and his explanations for those matters, did not fit with his evidence that he had made the deletion, and led to the conclusion that the deletion was not made, because if it was made he would have acted differently. That is, Mr Griffin’s conduct was inconsistent with his claim. She also found “compelling” evidence by Mr Grope, Ms Roche, Mr England and Mr Brown that they would have noticed the deletion (and would not have signed the Agreement) if it was there. She said that Ms Roche and Mr England were “impressive” witnesses: [55]. To that extent she made a finding as to their demeanour, and relied on that demeanour.
This being so, it is necessary to consider the soundness of the Judge’s finding that the conduct of Mr Griffin was inconsistent with his claim and that of Mr McDermott. Was the Judge right to conclude that had the deletion been made as claimed, Mr Griffin would not have acted as he did?
I turn now to the matters on which the Judge relied. I will comment on some of them as I go. My failure to comment does not mean that I do not agree with a point made by the Judge.
The Judge began her treatment of this issue by recording her finding that the word “NIL” was not struck out. Before she turned to the facts in detail, she referred to the burden of proof on this issue. She said at [43]:
In view of the nature of this finding, I have thought it appropriate to require a quality of evidence beyond that usually called for when deciding matters on the basis of the civil standard of proof (see Briginshaw v Briginshaw (1938) 60 CLR 336). Indeed, in this matter the onus in relation to this particular issue would normally be cast on the defendants, and does lie there. However, I have considered that I should not make such a finding without being positively satisfied as to it. My reasons for the finding follow.
This passage indicates that the Judge proceeded on the basis that it was for Players to prove that “NIL” was struck out before Clone executed the Agreement. This passage indicates that the Judge was persuaded or affirmatively satisfied that “NIL” was not struck out. It was not simply a matter of Players having failed to satisfy her that the word was struck out.
On appeal counsel did not address this aspect of Her Honour’s reasons. In any event, I am satisfied that Her Honour correctly placed the burden of proof on this issue on Players.
Clone was the plaintiff in the proceedings. In the Statement of Claim Clone relied upon the terms of the Lease as entitling it to have the licences transferred to it. Players, in its Defence and Counterclaim, relied on the terms of the Agreement as entitling it to have the Lease rectified to accord with the Agreement, on the basis that “NIL” had been struck out of the Agreement before it was executed. By its Reply Clone pleaded clause 11(i) of the Agreement as having effect as it would if “NIL” was not deleted. Accordingly, the pleadings placed on Players the burden of proving that the Agreement entitled it to payment of consideration and entitled it to rectification of the Lease to accord with the Agreement. Players did not challenge Clone’s entitlement to the licences.
Even if the burden of proof rested on Clone, the Judge’s reasons indicate that she would have found that Clone had satisfied her that “NIL” was not deleted from the Agreement before it was executed, and that in reaching that state of satisfaction she made appropriate allowance for the significance of the finding.
I am satisfied that the Judge’s approach to this issue was correct.
Mr Griffin received the second draft of the Agreement on 5 August 2004. He sent it on to Mr McDermott and Mr May with a note to the effect that they needed to discuss it, but he wrote “I believe it is in order”. The Judge rejected Mr Griffin’s claim that he did not read the Agreement closely. She said that condition 11(i) was in its final form in the second draft. That being so, it was surprising that Mr Griffin did not raise an objection to the Agreement at that stage. This draft was in Players’ possession for about a week before the third draft was signed: at [44].
The evidence given by Mr Griffin on this topic was surprising. In cross-examination he said that he looked only at the first page of the second draft. It was on that basis that he concluded that it was “in order”, meaning that it was in accordance with an earlier document that Mr Griffin had seen (which did not include a provision to the effect of condition 11(i)). Mr Griffin was not able to explain why he made his notation that the Agreement was “in order”, if he read nothing other than the first page.
Mr Griffin gave evidence that he went through the third draft with Mr McDermott and Mr May before they signed. When he came to condition 11(i), he said to them that Clone was trying to “pull a swifty”. The Judge thought it was odd that he should leap to this conclusion. There was no reason to think that it was other than a mistake, which could easily be rectified: [46].
Mr Griffin did not inform Mr Mackie, Mr Mallett, or anyone else on behalf of Clone that he had made the deletion. He did not ask any one of them why “NIL” had been inserted. He made no protest about the “swifty”. Moreover, he did not make any enquiry over the next ten days or so as to whether the deletion was acceptable to Clone. Players pressed on with its preparations.
The Judge said it was surprising that a solicitor with Mr Griffin’s experience would think it sufficient merely to delete “NIL”. The condition then read that the licence would be transferred to Clone “for consideration”. How would this be quantified? This contrasted with other provisions of the Agreement that provided a mechanism for resolving disputes over payment: [48].
I agree with the Judge. These last two matters are telling. Common sense, commercial practice, sound legal practice and fairness all called for Mr Griffin to draw the change to the attention of Clone through one of its representatives. Mr Griffin’s failure to do so is inexplicable. He offered no satisfactory explanation. This is a problematic aspect of his evidence.
Mr Griffin did not initial the alteration that he made, and did not ask the other two men to do so. One would expect a solicitor to ensure that the alteration was initialled. This is all the more striking because when Mr Mackie delivered the third draft he asked Mr Griffin to ensure that certain alterations that had been made (after the second draft) were initialled. Mr Griffin and the other two men initialled those alterations. The failure to initial what they must have regarded as an important alteration is very strange. Mr Griffin’s suggested explanation, that it was not necessary to initial this alteration because condition 11(i) was at the bottom of the page, is unconvincing.
Mr Griffin supported his entitlement to strike out the word by calling in aid an earlier conversation with Mr Mallett in which Mr Mallett said that Clone was not interested in running licensed premises and that Players was at liberty to take with it the licence and plant and equipment at the expiry of the Lease. It is to be noted that this statement related to circumstances in which the building was going to be demolished. Be that as it may, Mr Griffin relied on this as inconsistent with the proposed condition 11(i). But there were other provisions of the Agreement that were inconsistent with Mr Mallett’s statement, in particular provisions giving Clone the entitlement to acquire certain plant, equipment and fittings. Mr Griffin took no objection to these.
Mr Griffin signed the Lease, and must have examined it on behalf of Players. Clause 7.3 was similar to condition 11(i). It provided for the delivery up of the hotel licence, but made no reference to a payment by Clone. The same comment applies to clause 8.8 in relation to the gaming machine licence. When the Lease was signed, Mr Griffin made no comment or complaint about this. I agree that that is very surprising. In view of his belief that Clone had attempted a “swifty”, one would expect him to be particularly careful to ensure that the deletion of “NIL” was reflected in the Lease. I agree with the Judge that Mr Griffin’s evidence, that he did not understand the Lease to require Players to hand over the licences on the expiry of the Lease, could not be accepted: [51]. The effect of the Lease in this respect was quite clear.
An odd feature of the case is that the first clear reference to the deletion of “NIL” did not come until it was raised in a letter that a member of Mr Griffin’s firm sent to Clone’s solicitors on 14 May 2004 and in a letter of the same date signed by Mr Griffin. The Judge said it was surprising that the point should not have been raised before then: [50]. Also, the claim for rectification was not raised when Players first filed a Defence. It was raised only by its amended Defence and counterclaim: [54].
As to Mr McDermott, the Judge simply said that she was not “assisted” by his evidence, and found his evidence “unpersuasive”: [53].
On the other hand, the Judge found the evidence of Mr Grope, Ms Roche and Mr England “compelling”: [55]. She accepted that each of them examined the Agreement before signing it. She found Ms Roche and Mr England to be “impressive”. She accepted that they took care to examine the Agreement before they signed it. She was satisfied that if the deletion had been present, they would have seen it. Mr Brown’s evidence was of less weight, because of his limited recollection. She was satisfied that Mr Grope examined the document in his capacity as Clone’s solicitor, and would have noted and reacted to the deletion had it been there. These are significant findings. They are based in part on the demeanour of the witnesses.
I summarise the position as follows. The Judge pointed to aspects of Mr Griffin’s conduct that were surprising, sometimes inexplicable, if he had made the deletion when he claimed. She accepted evidence from Clone’s witnesses that made it unlikely that the deletion was made before they signed the Agreement, but escaped their attention. That latter evidence provided firm support for her conclusion.
Mr Whitington attacked her Honour’s reasons at each point. I will deal with his main arguments.
He submitted that the Judge’s conclusion fails to explain the mark on P9 and D9. The mark was a fact. Its presence on each copy of the Agreement was highly significant, as the Judge recognised. Mr Whitington argued that the possibility of it being a chance machine-made mark (perhaps by a photocopier) or a handmade mark made in error could be dismissed. The chance of the mark having been made deliberately after the Agreement was executed could be dismissed. The presence of the mark on P9 and D9 pointed, as a matter of probability, to it having been on the Agreement before its execution.
Each of those points has force, although I do not agree with the final point. The evidence before the Judge was not such that the presence of the mark pointed to the mark having been on the Agreement before it was executed. All one could say is that that was a possibility. The source of the copies of the Agreement, P9 and D9, was uncertain. It was possible that someone made a mark on a copy of the Agreement after it was executed, and that this became the source of P9 and of D9.
However, I agree that this submission required careful consideration. The Judge did not overlook the point. She referred to it at [43].
Mr Whitington argued that Mr Griffin and Mr McDermott would not have given false evidence on this topic, knowing that they ran the risk that someone would locate the original Agreement and demonstrate the falsity of their evidence. As to that, Mr McNamara made the point that by the time they gave evidence, it had become clear that the original Agreement would not be found. However, it is true that the claim to have altered the Agreement was made in correspondence at a time when it was not clear that the original Agreement was missing.
Mr Whitington submitted that her Honour did not find that Mr Griffin and Mr McDermott had lied. He submitted that it was not put fairly and clearly to Mr Griffin that he had lied, and not put at all to Mr McDermott. I consider that the possibility was sufficiently put to Mr Griffin, although it was not put to Mr McDermott. That is a matter to be considered.
He submitted that Mr Griffin and Mr McDermott supported each other on the essential aspects of the issue. That is correct, although Mr McNamara pointed to some discrepancies in their evidence as to the events that took place when the Agreement was signed.
Mr Whitington pointed to evidence that suggested that Ms Roche and Mr England had little independent recollection at all of signing the Agreement, and so might have been reconstructing events, meaning that they claimed that the deletion was not present because they believed that they would have detected it had it been there. He made a similar submission as to Mr Grope’s evidence, arguing that it left open the possibility that Mr Grope failed to see the deletion. He pointed to the unexplained failure to call Mr Roche (Ms Roche’s father) who witnessed the affixing of Clone’s seal.
He also submitted that these witnesses might have noticed the deletion, but accepted it. That possibility can be rejected. It is quite unlikely.
As to the main submission in relation to Clone’s witnesses, the difficulty is that the Judge regarded them as impressive witnesses. She was entitled to rely on their demeanour, and the manner in which they gave evidence. I accept that to some extent the witnesses must have been relying upon what they considered to be their usual practice. That would be true of any witness when asked to recall the circumstances of the signing of a document so many years ago. But the Judge was satisfied that the claim by these witnesses that they examined the Agreement carefully was reliable.
I consider that this was important evidence.
Other points of detail were argued by Mr Whitington. Mr McNamara identified a number of matters that tended to support her Honour’s findings. But these were the main matters canvassed.
The issue presented to her Honour was a difficult one. It was made more difficult by the loss of the signed Agreement, and by the passage of time.
The fact of the mark on P9 and D9, the difficulty of explaining its presence on each copy of the Agreement, if it was placed on the Agreement after it was signed, and the evidence of Mr Griffin and Mr McDermott as to its origin, all called for careful consideration. But I agree with her Honour that against this there was to be balanced conduct, or the failure to do certain things, by Mr Griffin, that really was inexplicable and was inconsistent with his evidence. As well there was persuasive evidence from witnesses for Clone that they would have seen the mark if it was there.
I realise that subject to the effect of the finding that the key witnesses for Clone were impressive, the decision by her Honour rests largely on what was or was not a probable or acceptable explanation for the conduct of the parties leading up to the signing of the Agreement. Events thereafter are of less significance. In the case of Players, the difficulty was the lack of an explanation for the failure to raise the presence of the word “NIL” in condition 11(i) with Clone, and the complete silence over the alleged deletion. In the case of Clone the issue was the significance to be attributed to the fact that Clone executed the Agreement, and the weight to be attributed to the claim that the witnesses it called examined the Agreement and would not have signed had “NIL” been deleted.
The submissions by Mr Whitington, attacking the Judge’s conclusions, were thorough and to the point. But I am not persuaded that the Judge erred. The conclusion that she reached was open to her on the evidence. There was no objective fact that stood in the way of the conclusion that she reached. The mark on P9 and D9 was an objective fact, but its origin remained an issue to be decided. The conclusion that her Honour reached is not at all improbable. The matters to which she pointed as being inconsistent with the claim that “NIL” was deleted had considerable force. Her acceptance of the evidence from Clone’s witnesses was another matter to go in the scales.
Her Honour was entitled to rely upon each of the matters upon which she relied. They supported the conclusion that she reached. To acknowledge that Mr Whitington advanced a solid argument for the contrary conclusion does not mean that the conclusion that her Honour reached was wrong. As I have said, I am not persuaded that her Honour erred. I would not reverse her finding.
A further matter
If the Judge’s finding as to condition 11(i) were reversed, a further issue would arise.
A striking feature of the case is that on Players’ own case Mr Griffin did nothing at all to bring the deletion of the word “NIL” to the attention of any representative of Clone. Moreover, the signed Agreement was returned to Clone’s agent (Colliers) in circumstances that would suggest that Players had accepted the draft Agreement in the terms proposed by Clone. Thereafter Players maintained its silence while the Agreement was executed by Clone and while the terms of the Lease were negotiated and the Lease was executed.
Even if I were persuaded that Mr Griffin’s evidence that he deleted the word “NIL” should be accepted, I find no basis to reject the evidence of Mr Grope, Ms Roche and Mr England that they did not notice the deletion. The appearance of condition 11(i) in exhibit P9 and exhibit D9 is such that the possibility of them having failed to observe the deletion cannot be put aside.
On those facts and findings, could or should the court order that the Lease be rectified to provide (in accordance with the Agreement) that Clone should pay consideration to Players for the hotel licence and for the gaming machine licence? On those facts and findings, the proper finding might be that Clone executed the Agreement under a mistake as to one of its terms. Normally that would not enable Clone to deny that it was bound. Players would be entitled to say that by signing the Agreement Clone had so conducted itself as to indicate to a reasonable person that it assented to the terms of the Agreement.
But on the facts and findings referred to, it may be that the proper conclusion would be that Clone’s mistake as to condition 11(i) is one of which Players (through its directors) was aware, and that the mistake was attributable to Mr Griffin altering the Agreement without having the alteration initialled, and without doing anything to bring to Clone’s attention the fact of the alteration, in circumstances in which Clone had no reason to think that any alteration had been made. In those circumstances a finding that Players had been guilty of unconscionable conduct might be made. The case might be similar to A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555, in which rectification was ordered at the instance at the mistaken party. I refer also to Leibler v Air New Zealand Ltd (No 2) [1999] 1 VR 1 at 14 (Kenny JA).
This matter was not argued on appeal. Nor in its Defence to the Counterclaim has Clone raised this defence to the Counterclaim for rectification. Nor has it claimed that it is entitled to rectification in the event that the Agreement was signed after the word “NIL” was deleted. The closest Clone has come to this appears to be para 16.5 of its Defence to Counterclaim which asserts:
The first defendant is estopped from asserting that the Lease does not embody the terms of the Agreement between the plaintiff and the first defendant and is estopped from seeking rectification of the Lease.
In substance that plea is based on the fact that Players executed the Lease and that the parties have relied upon the terms of the Lease as governing the situation between them.
This is a matter on which I would have wished to hear further submissions, had I been persuaded that the Judge erred in finding that the word “NIL” had not been struck out of condition 11(i) before Clone signed the Agreement.
Was Players in breach of the Lease in June or July 2004?
The Judge found that Players was in breach of the Lease as alleged in Clone’s first Notice of 15 June 2004.
The breaches in question were breaches of clause 8.2 of the Lease which provides:
8.2The Lessee covenants and agrees that the Lessee shall not do, omit or cause or suffer to be done or omitted any act, matter or thing whatsoever as a result of which act or omission the Gaming Machine licence issued under the Act in respect of the demised premises or any business conducted thereon may be liable to be surrendered, suspended or revoked.
The breach had its origins in an agreement between Players and Fairtown of 4 November 2003. Under the agreement Players was to take all steps necessary to enable Fairtown to obtain a gaming machine licence in respect of the premises to which Players proposed to remove the hotel licence, after which the licence would be transferred to Fairtown. The application by Players to remove the hotel licence to those premises, and to transfer it to Fairtown, would have led to the surrender of the gaming machine licence in respect of Clone’s premises, and the grant of a replacement gaming machine licence to Fairtown. As well, Players had agreed to Fairtown applying for a gaming machine licence in respect of the new premises.
The Judge said that the lodging and prosecution of the application for removal and transfer of the hotel licence would, if successful, have led to the surrender of the gaming machine licence. She also relied on the fact that Players allowed Fairtown to apply for a gaming machine licence in respect of the machines for which Players held a licence. She said that the Agreement between Players and Fairtown was not a breach of the Lease, because that Agreement was subject to and conditional upon Clone consenting to the making of the application for removal of the hotel licence.
I would read clause 8.2 of the Lease somewhat more narrowly than did the Judge. I read it as referring to and prohibiting conduct or omissions by Players that would put Players in a position such that, whether Players agreed or not, the licence was liable to be surrendered, suspended or revoked. I would not read it as referring to conduct that might and would bring about that result, only if and when Players did or omitted further things that remained under its control, that might bring about that result. In other words, I would read clause 8.2 as dealing with acts and omissions that jeopardise the licence, in the sense of putting the licence at risk independently of any further decision or voluntary act or omission by Players. Bearing in mind that Players’ Agreement with Fairtown was subject to Clone’s consent to the making of the removal applications, I consider that the lodging and prosecuting of the application or applications was not a breach of clause 8.2, at least until the applications reached the point at which the licence was liable to be surrendered, suspended or revoked whether or not Players wished that to happen.
In my respectful opinion, the Judge’s approach to the clause gave it an unduly wide meaning. On the Judge’s approach the clause applied to an act or omission which might bring about the prohibited result, even though the situation remained under the control of Players, and even though Clone itself had the ability to control the situation by refusing its consent, as it was doing.
I have not overlooked the fact that clause 8.2 is intended to protect Clone’s interest, and is not to be read narrowly.
Nor did Players breach clause 8.5, which was a covenant by Players not to apply for a transfer of the licence. That was not the application that it made. In any event, I do not consider that an application that was subject to Clone’s consent was a breach of the clause.
I consider that the breaches alleged in the first Notice were not made out.
The second and third notices also alleged breaches of clause 2.6 of the Lease, a lengthy clause dealing with the topic of maintenance and repair, and containing an exception for fair wear and tear.
Earlier in my reasons I said that I agree with the Judge’s finding that the state of the roof in late 2003 was such that Players was in breach of its obligation under clause 2.6 and under other clauses of the Lease. As I understand the evidence no work of any particular significance was carried out on the roof during 2004 or 2005. It follows that to the extent that the second and third notices alleged breaches of the maintenance and repair obligations in relation to the roof, those breaches are made out. I agree with the Judge in that respect: at [141] and at [152].
The Judge found that other breaches of the obligation to maintain and repair the premises were made out. She relied upon Mr Jankovic, a witness for the plaintiff, whom she found to be “an impressive witness who was inclined to take a reasonable and practical viewpoint”. She found that a number of matters that he identified as requiring work by Players were attended to, or were insignificant. However, she found that some 27 matters that he identified were a breach of the obligation under clause 2.6. She identifies the items in her reasons, by reference to his report: [140].
It is difficult enough for a court of appeal to deal with a challenge to findings like these which turn so much on the detail of the evidence given by a witness. But in this case the only witness on the point was Mr Jankovic, and the Judge found him to be an acceptable witness. Mr Whitington handed to the Court a schedule dealing with the items relied upon by her Honour. As to many of them, his response is that the exception for fair wear and tear applies, or alternatively that it was not shown that the state of the premises was any worse than at the commencement of the Lease, and therefore it was not shown that Players was obliged to remedy the relevant condition. Although there is an issue of law bound up in all this, at the end of the day the issue turns very much on her Honour’s assessment of the facts, and nothing has been pointed to which provides a basis for doubting her Honour’s conclusions in that respect. Apart from that, as to almost every item, Players’ response is that the item is trifling or insignificant. Taken in isolation, one by one, that may be so, but this submission overlooks the combined impact of all of these items.
At the end of the day I am not persuaded that her Honour erred in finding that these breaches were made out.
That leaves the question of whether her Honour should have granted relief against forfeiture.
Her Honour allowed Players to amend its pleadings, during the course of the trial, to claim relief against forfeiture in respect of the second and third notices.
As I understand her reasons, the only breaches made out in relation to the third notice were, again, breaches of the repair and maintenance covenant.
Her Honour said at [153]:
Had the matters raised by the third notice stood alone, I might have been sympathetic to the plea for relief against forfeiture. However, in light of my findings as to the proven breach in respect of the gaming machine licence, it is not necessary to further discuss the issue of relief against forfeiture; the plaintiff was entitled to forfeit the Lease on the basis of the breach alleged in the first notice.
As I have said earlier, I think that her Honour must have intended to refer to the second and third notice in that passage, because breaches of the maintenance and repair covenants were alleged under each of them, and were made out.
My conclusion is that there was no breach proven in relation to the first notice. Accordingly, it is appropriate to consider the claim for relief against forfeiture in respect of the breaches made out under the second and third notices. It is appropriate to allow the appeal for the purpose of remitting to her Honour, for further consideration, the claim for relief against forfeiture as that claim has not been considered.
Conclusion
For those reasons I would allow the appeal in part.
I would order that para 1 of the declaration made by order of 29 July 2005 be set aside. That is a declaration that the Lease “became the sole and exclusive embodiment of the Agreement between the plaintiff and the first defendant”. In my view such a declaration was inappropriate in any event. As it is inconsistent with what I consider to be the correct approach to the Agreement, it should be set aside to avoid any possible confusion about the status of the Lease.
Para 4.3 of the order should be set aside, that order being a declaration that Players is liable to pay damages for breach of the Lease by its dealings with the hotel licence.
Para 7 of the order, dismissing Players’ Counterclaim, should be set aside, and the matter should be remitted to the Judge for the limited purpose of considering Players’ Counterclaim for relief against forfeiture in respect of the breaches of the Lease found by her Honour.
Otherwise the appeal should be dismissed.
SULAN J: I agree with the reasons of the Chief Justice. I agree with the orders he proposes.
LAYTON J: In this matter I have the benefit of the detailed draft reasons for decision of the Chief Justice. With respect I agree with the conclusions of the Chief Justice that the appeal should be allowed in part as he expresses, but that otherwise the appeal should be dismissed. I also agree with his reasons for so concluding.
There were two particularly concerning issues in this case and they are whether or not the word “NIL” was deleted from the Agreement at the time when it was executed by Players and where the onus of proof lay on that issue.
On the latter issue, I was initially concerned about the reference to the case of Briginshaw v Briginshaw (1938) 60 CLR 336 by the trial Judge in [43] followed by the immediate reference to the onus of proof. Further I was uncertain about what issue the trial Judge was referring to by the phrase “this particular issue” and whether the trial Judge was correct in finding that the onus lay on the defendants.
I have assumed in the context that the Judge was referring to “this particular issue” as being the positive proposition that the word “NIL” was deleted in the Agreement at the time of its execution by Players, and not for example the negative assertion of this proposition. I have concluded, as indeed does the Chief Justice, that in deciding where the onus lay, the starting point must be with the pleadings and the case being made by each of the parties. For the reasons already set out in the Chief Justice, by its pleading and the nature of its case and relief sought, the onus was cast on Players to prove that the Agreement entitled it to a payment of consideration by way of rectification of the Lease to accord with the Agreement. Players did not challenge Clone’s entitlement to the licences. I therefore have reached the same conclusion as the Chief Justice that the Judge was correct in stating that the onus was on Players to prove that the word “NIL” was deleted at the time of the execution the Agreement in order to lay the foundation for its argument as to the relief sought. This was required to be satisfied on the balance of probabilities. This was not a matter to which the standard of proof in Briginshaw applied.
The Judge when approaching her task on this issue, presumably because of the importance of the issue and the significant consequences of rejecting the evidence of Mr Griffin and Mr McDermott, decided that she should not simply reject that the word “NIL” was deleted at the time of the execution the Agreement on the balance of probabilities, but that she should apply the standard of proof referred to in Briginshaw, and not reject that proposition unless she was affirmatively satisfied that the word “NIL” was not so deleted. This is not how the Judge expressed herself but it appears to be the outcome and in fact she found that she was affirmatively satisfied that the word NIL was not deleted at the time of the execution the Agreement. I therefore consider that there was no error of the Judge in her approach to the onus of proof or the standard of proof in the circumstances of the case.
A further matter of significant concern to me, was the basis on which the Judge rejected the evidence of Mr Griffin and Mr McDermott that the word “NIL” was struck out at the time of the execution of the Agreement. My concern was that the trial judge was rejecting the evidence of the only witnesses called who could and did give evidence as to what occurred at the time of the execution of the Agreement and which provided the only evidence as how the marking occurred. There was no evidence to the contrary. Having rejected their evidence for reasons which she expressed, it remains a mystery as to how the photostats of the executed Agreement tendered in the case namely Exhibit P9 and D9, both show the same faint horizontal mark through the word “NIL” and a portion of a mark through the word “for” which immediately precedes it.
I considered that there was a plausible alternative scenario which was open on the evidence and which could explain the markings on the photostats, the failure of Mr Griffin to draw attention to the deletion, and a potential explanation as to why the witnesses Mr Grope, Ms Roche and Mr England, did not see such a deletion. Bearing in mind that the Judge approached her task on the basis that applying Briginshaw she should not reject the proposition unless she was affirmatively satisfied that the word “NIL” was not so deleted, such an alternative plausible explanation could produce a different result on that issue.
However, I am persuaded by the process of reasoning of the Chief Justice as to the effect of the evidence, which supports that the trial judge had a firm basis for her rejection of the evidence of Mr Griffin and Mr McDermott, and with respect I agree with him.
For these additional reasons I therefore agree with the conclusions reached by the Chief Justice.
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