Zangne Pty Ltd v Gregory Robert Cooper & 4 Ors

[2007] NSWSC 173

CITATION:	Zangne Pty Ltd v Gregory Robert Cooper & 4 Ors [2007] NSWSC 173 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	02/03/07
JUDGMENT DATE :	5 March 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	5 March 2007
DECISION:	See paragraphs 34-38 of judgment.
CATCHWORDS:	GAMING MACHINES ACT – LEASE – INTERLOCUTORY INJUNCTION – application by lessor for interlocutory injunction restraining transfer by lessee of poker machine entitlements – strong prima facie case that lessee’s application for approval to transfer entitlements a breach of lease –whether damages adequate remedy – express negative covenant strong foundation for grant of final injunction – balance of convenience – interlocutory relief granted.
LEGISLATION CITED:	Gaming Machines Act 2001 (NSW) Liquor Act 1982 (NSW)
CASES CITED:	Wonall Pty Limited v Clarence Property Corporation Ltd (2003) 58 NSWLR 23 Evans v Collins [2006] NSWSC 427 Boreland v Docker [2007] NSWSC 53 Trustees Executors and Agency Co Limited v Reilly (1941) VLR 110 Doherty v Allman (1878) 3 App Cas 709 JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 Dalgety Wine Estates Pty Limited v Rizzon (1979) 141 CLR 552 Maggbury Pty Limited v Hafele Pty Limited (2001) 210 CLR 181 Terceiro & Anor v Elmore & Ors [2006] NSWSC 893
PARTIES:	Zangne Pty Ltd v Gregory Robert Cooper & 4 Ors
FILE NUMBER(S):	SC 1605/07
COUNSEL:	Plaintiff: D P M O'Dowd Defendants: A Hatzis Liquidator: Ms Hailstone
SOLICITORS:	Plaintiff: O'Sullivan Saddington Defendants: Lands Legal

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Monday, 5 March 2007

1605/07 Zangne Pty Ltd v Gregory Robert Cooper & 4 Ors

JUDGMENT

1 HIS HONOUR: This is an application for an interlocutory injunction to restrain the first to fourth defendants from prosecuting an application before the Liquor Administration Board for approval of the transfer of poker machine entitlements allocated in respect of the hotelier’s licence for the Condobolin Hotel. The plaintiff also seeks to restrain the first to fourth defendants until further order from dealing with further poker machine entitlements allocated in respect of that licence.

2 The plaintiff is the owner and lessor of the Condobolin Hotel. The first to fourth defendants are the lessees of the hotel. The first defendant is also the holder of the hotelier’s licence for the hotel. The fifth defendant is the Liquor Administration Board. It has entered a submitting appearance.

3 By a lease dated 9 January 1996, the hotel was leased by the then registered proprietor to a Mr and Mrs Clyburn for a term of 12 years from 23 November 1995 to 22 November 2007. The lease to Mr and Mrs Clyburn was transferred to Condobolin Hotel Pty Limited and then to Claidale Pty Limited. Mr Clyburn and Claidale are associated with the plaintiff.

4 On 20 September 2004, Claidale made an agreement with the first to fourth defendants to sell the lease, goodwill, furniture and chattels of the business of the hotel for $139,751. The purchase price was apportioned as to $100,000 for goodwill, $1 for the lease and the balance for furniture, floor coverings and fixtures.

5 On the same day, an agreement was made between the plaintiff and the first to fourth defendants whereby the parties agreed that in consideration of a premium of $360,250, the plaintiff would grant, and the first to fourth defendants would accept, a lease of the hotel for a term of twelve years from 23 November 2007 to 22 November 2019.

6 By an undated deed between the plaintiff, Claidale and the first to fourth defendants, Claidale assigned its interest in the lease to the first to fourth defendants and the plaintiff consented to that assignment. The transfer of lease was executed on 15 December 2004. On the same day, the plaintiff and the first to fourth defendants signed a variation of the existing lease and entered into a new lease of the hotel for a further term of twelve years commencing on 23 November 2007 and terminating on 22 November 2019.

7 Fifteen poker machine entitlements had been allocated in respect of the hotelier’s licence for the Condobolin Hotel. On 22 November 2006, the first to fourth defendants lodged an application for approval by the Liquor Administration Board for the transfer of one block of three poker machine entitlements, such that two poker machine entitlements would be transferred to the licensee of the Mayfield Hotel at Mayfield in Newcastle. One entitlement would be forfeited (see s 20(3) of the Gaming Machines Act 2001 (NSW)).

8 It was common ground that the first to fourth defendants, or one or more of them, own the business of the Mayfield Hotel. It is clear from an affidavit of the solicitor for the first to fourth defendants that they wish to deal with all fifteen of the poker machine entitlements prior to the expiry of the existing lease on 22 November 2007. That is so because the lease entered into on 15 December 2004 for a term commencing on 23 November 2007 clearly precludes the first to fourth defendants from dealing with poker machine entitlements. Clause 10 of that lease provides, amongst other things, that the lessee purportedly acknowledges that the lessor is, and will remain, the beneficial owner of the licence and any "Minister’s Permits". It contains a covenant that the lessee must not, without the prior written consent of the lessor, transfer or part with possession of the licence and Minister’s Permits. "Minister's Permits" are defined to include statutory permission to keep any approved poker machines upon the licensed premises and include any transferable poker machine entitlements.

9 These proceedings were not commenced until 23 February 2007. I do not know the reasons for the delay in commencing proceedings. Affidavits were sworn for the plaintiff in the proceedings in December 2006. However, no submission was made that the application for interlocutory relief should be refused by reason of the delay in commencing proceedings. I should assume that there was a good reason for that delay.

10 The plaintiff contended that there was a serious question to be tried that the defendants were not entitled to deal with the poker machine entitlements on any of three grounds. First, the plaintiff contends that the application for approval of the transfers was a breach of the lease of 9 January 1996. Secondly, the plaintiff contends that the dealings with the poker machine entitlements are a breach of the lease made on 15 December 2004 for the term commencing on 23 November 2007. If it fails in these contentions, the plaintiff also submits that it is entitled to rectification of the deed of assignment of lease. This is so because it says it was the clear intention of the parties that the poker machine entitlements would remain “the property of the plaintiff” (sic) and could not be transferred by the lessees.

11 In support of its claim, the plaintiff adduced evidence that the consideration on the purchase of the business was far below that which would be expected if the poker machine entitlements were part of the sale. It adduced evidence of admissions that the defendants understood that the poker machine entitlements were not part of the sale.

12 The first to fourth defendants accepted that there was a serious question to be tried on the case for rectification. They submitted there was no serious question that on the proper construction of either lease they were not presently entitled to deal with the poker machine entitlements. Although there was no countervailing evidence at this stage on the rectification claim, the first to fourth defendants submitted that the nature of such a claim is such that the Court should not form any view as to the strength of the plaintiff's claim for rectification, except that there is a serious question to be tried.

13 I turn to the first ground upon which the plaintiff says it is entitled to restrain the prosecution of the present application before the Liquor Administration Board. The lease of 9 January 1996 defines the term "licence" as meaning "the hotelier’s licence attaching to the hotel subject to any condition(s) and all permits and authorities attaching thereto."

14 By cl 5.13, the lessee covenants "not to make permit or suffer to be made any application of whatsoever nature in respect of the licence or the hotel including but without limiting the generality thereof any application for the transfer removal variation or extension of the licence or for any permit thereunder or for the imposition of a condition be endorsed thereon or any condition surrendered without the prior written consent of the lessor."

15 The authority of a hotelier to keep poker machines is derived from authority given by the Liquor Administration Board pursuant to s 56 of the Gaming Machines Act. Section 56 relevantly provides:

“ 56 Requirement for authorisation to keep or dispose of gaming machines
(1) A hotelier or registered club must not keep or dispose of an approved gaming machine unless:
(a) the keeping or disposal of the gaming machine is authorised by the Board, and
(b) the hotelier or club complies with the requirements of or under this Act in relation to the keeping or disposal of the gaming machine and with the conditions to which the authorisation is subject.
Maximum penalty: 100 penalty units.
(2) The Board may, by instrument in writing, authorise a hotelier or registered club to keep or dispose of approved gaming machines. An authorisation to keep approved gaming machines may be varied by the Board from time to time.
(3) An authorisation to keep approved gaming machines is an authorisation that relates to the total number of approved gaming machines kept in the hotel or registered club concerned at any one time as well as to the keeping of a particular approved gaming machine.
(4) The total number of approved gaming machines that the Board may authorise to be kept in a hotel from time to time consists of the following:
(a) the number of approved poker machines that corresponds to the number of poker machine entitlements allocated for the time being in accordance with this Act in respect of the hotelier’s licence,
(b) the number of approved poker machines that corresponds to the number of Liquor Act poker machine permits held by the hotelier,
(c) the number of hardship gaming machines kept in the hotel,
(d) the number of approved amusement devices kept in the hotel. ”

16 An "approved gaming machine" includes an approved poker machine (s 4).

17 When the definition of "licence" is read into cl 5.13, that clause relevantly provides that "the lessee covenants with the lessor not to make ... any application of whatsoever nature in respect of the hotelier’s licence attaching to the hotel ... with all permits and authorities attaching thereto ... without the prior written consent of the lessor." It is clear that the reference to specific applications in cl 5.13 does not limit the generality of the opening words of the clause.

18 If the application for transfer of the poker machine entitlements is approved by the Board, the effect of s 56(4)(a) of the Gaming Machines Act will be that the licensee can no longer be authorised to keep the same number of authorised poker machines as he is presently authorised to keep. The question then is, whether an application under s 19 of the Gaming Machines Act for approval for the transfer of poker machine entitlements is an application "in respect of" the hotelier’s licence, with all permits and authorities attaching to it.

19 Counsel for the first to fourth defendants correctly submitted that a poker machine entitlement is not itself a permit for the keeping of poker machines. It is a precondition to the grant of authorisation for the keeping of poker machines (Wonall Pty Limited v Clarence Property Corporation Ltd (2003) 58 NSWLR 23 at [49]; Evans & Anor v Collins & Ors [2006] NSWSC 427; Boreland v Docker [2007] NSWSC 53 at [97]). However, that observation raises, it does not resolve, the issue as to the construction of cl 5.13.

20 Although the question was not the subject of full argument, at present it appears to me that the authority under s 56 is an authority which attaches to the licence. Subsection 56(2) provides that the authority is given to, relevantly, a "hotelier". The term "hotelier" is defined to have the same meaning as it has in the Liquor Act 1982 (NSW) (Gaming Machines Act, s 4). In the Liquor Act, "hotelier" means "the holder of a hotelier's licence” (Liquor Act, s 4). It is at least seriously arguable - and in my view, it is prima facie correct - that as authority to keep poker machines given under s 56 of the Gaming Machines Act is given to the holder of the hotelier’s licence, the authority attaches to the licence. If the licence were transferred to an approved transferee pursuant to s 61 of the Liquor Act, although the transfer would have effect as if the licence had been granted to the transferee (Liquor Act, s 61(7)), the authority under s 56 of the Gaming Machines Act to keep poker machines at the hotel would then be conferred on the transferee of the licence. That must follow from the fact that the authority is conferred on the holder of the hotelier’s licence, and from the fact that the hotelier’s licence relates to particular licensed premises (see the definition of "hotelier’s licence" and "licensed premises" in ss 4, 18(1) and (2)(a) of the Liquor Act).

21 The expression "in respect of" has a wide meaning denoting a connection or relationship between the two subject matters to which the words refer (Trustees Executors and Agency Co Limited v Reilly (1941) VLR 110 at 111, and authorities cited by Campbell J in Wonall Pty Limited v Clarence Property Corporation Pty Limited at [41]-[43]).

22 There is a direct connection or relationship between the application for approval of the transfer of the poker machine entitlements allocated in respect of the hotelier’s licence, and the authority to keep poker machines which attaches to the licence. It therefore appears to me that there is a strong prima facie case that the application for approval for the transfer of poker machine entitlements allocated in respect of the licence is an allocation "in respect of" the hotelier’s licence, with all authorities attaching to it.

23 In my view, there is a strong prima facie case that the application to the Liquor Administration Board for approval of the transfer of a block of three poker machine entitlements is a breach of cl 5.13 of the 1996 lease.

24 Having reached this conclusion, it is unnecessary to express a view as to the strength of the plaintiff’s claim, that clause 10 of the 2004 lease has immediate operation, rather than applying only to such poker machine entitlements as may be allocated in respect of the hotelier’s licence at the commencement of the term of the lease.

25 I turn to the balance of convenience. The strength of the plaintiff's prima facie case is a relevant consideration in the balance of convenience, particularly where that case depends on the construction of a document and not on conflicting factual evidence.

26 Counsel for the first to fourth defendants submitted that if the application to the Liquor Administration Board for approval of the transfer of the poker machine entitlements were in breach of a covenant in the lease, damages would be an adequate remedy. Moreover, the balance of convenience, it was submitted, favoured a refusal of an injunction, as the plaintiff would not suffer damage, if at all, until the end of the further term of the lease. Until 2019, the plaintiff was entitled to its rent. It could not lease the hotel, with or without poker machine entitlements, to a third party. The rent was not tied to income derived from the operation of poker machines.

27 As to the first point, if it is found at the final hearing that the application to the Liquor Administration Board for approval of the transfer was in breach of the express negative covenant in cl 5.13 of the lease, there would be a strong foundation for the grant of a final injunction irrespective of whether damages would be an adequate remedy (Doherty v Allman (1878) 3 App Cas 709 at 719-720; JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 at 299; Dalgety Wine Estates Pty Limited v Rizzon (1979) 141 CLR 552 at 576; Maggbury Pty Limited v Hafele Pty Limited (2001) 210 CLR 181 at [102]-[103]).

28 In relation to the second point, I was referred to Terceiro & Anor v Elmore & Ors [2006] NSWSC 893 where Palmer J said of a lease of a hotel which had five years to run, and where the lessee sought to dispose of poker machine entitlements allocated in respect of the licence for the hotel that:

“ [27] If it is ultimately held in these proceedings that the Lessors have an interest in these particular poker machine entitlements, being an interest which required those entitlements, once acquired, to be preserved throughout the currency of the lease and handed over to the Lessors at the expiry of the lease, then any damage which will be suffered by the Lessors if the Lessees dispose of these entitlements will be suffered at the expiry of the lease and not before. That is because, as the Lessors concede, they are not entitled during the currency of the lease to any income from poker machines on the premises. All they have is an entitlement to the rent of the premises under the lease.”

29 I do not accept that, in this case, the plaintiff would suffer no loss until 2019. It is true that the rent is not tied to the income derived by the lessees from the poker machines. Nonetheless, in my view, the loss of poker machine entitlements allocated in respect of the licence for the hotel is likely to have an immediate effect on the value of the reversion. There was evidence of a conversation between Mr Clyburn, a director of the plaintiff, and the first defendant in which the first defendant said that business was a bit slow, and foreshadowed that he might walk away from the hotel. If the first to fourth defendants did surrender the lease, then it may well be the case that the plaintiff could not let the hotel to a new lessee at the rent provided for in the 2004 lease if there were no authorised poker machines, or if they were fewer authorised poker machines, in the hotel. Alternatively, the plaintiff could be required to buy replacement poker machine entitlements. If the plaintiff were to seek to sell the reversion, on the present evidence, the price to be obtained on sale would be likely to vary substantially according to whether or not the lessor was entitled to control the disposition of the poker machine entitlements. If the plaintiff were required to buy replacement poker machine entitlements, it would have to find a vendor or vendors willing to sell a block of two, and a block of three poker machine entitlements to reinstate the existing three poker machine entitlements (Gaming Machines Act, s 20(3)).

30 If the matter were evenly balanced the policy behind subs 20(3) of the Gaming Machines Act would suggest that the transfer should not be restrained. The effect of the transfer of a block of three poker machine entitlements by the first to fourth defendants would be to reduce by one the number of authorised poker machines available to be allocated in respect of a hotelier’s licence. Subsection 20(3) reflects a public interest in reducing the number of poker machines in hotels.

31 However, in this case the issues are not evenly balanced. Having regard to the prima facie strength of the plaintiff's case there is a lower risk of injustice in maintaining the status quo until the final hearing rather than in letting the transfer proceed. It may be that the proceedings can be finally disposed of a reasonable time before 22 November 2007. In any event, the plaintiff will be liable on its undertaking as to damages if it is found it is not entitled to a final injunction, and because of the interlocutory restraint the first to fourth defendants are unable to dispose of the poker machine entitlements. There is no direct evidence of the ability of either the plaintiff or the first to fourth defendants to meet a claim in damages. However, if, as the first to fourth defendants accept, the poker machine entitlements will be at the disposition or under control of the plaintiff after 22 November 2007, those entitlements will constitute an asset which should be capable of being realised to satisfy or to go towards the satisfaction of the undertaking as to damages. Moreover, because of the operation of subs 20(3) of the Gaming Machines Act, the first to fourth defendants would be exposed to a greater liability in damages if the injunction is not granted, but it is held at a final hearing that the application was a breach of covenant, than would the plaintiff under its undertaking as to damages if the injunction is granted, and it is held at a final hearing that it should not have been.

32 By its summons, the plaintiff also sought an order that upon it giving the usual undertaking as to damages, the first to fourth defendants be restrained until further order from entering into any agreement or agreements with any other party to sell, transfer or otherwise deal with the poker machine entitlements without the consent in writing of the plaintiff. As no transfer of the poker machine entitlements is effective unless it is approved by the Board (Gaming Machines Act, s 19(2)), an injunction in those terms will not substantially add to the protection which the plaintiff will obtain from the injunction which I will grant. Moreover, cl 5.13 of the lease of 9 January 1996 does not contain a covenant against dealings with licence or with authorities attaching to it, let alone with poker machine entitlements. Rather, it is a covenant against making applications "in respect of" the licence and permits and authorities attaching to it.

33 I do not regard that clause as providing a substantial ground for an injunction in the wider terms also sought by the plaintiff. It may be that either on the proper construction of the 2004 lease, or pursuant to a claim for rectification, the plaintiff would be entitled to a final injunction in those terms. However, I have formed no view as to the strength of the plaintiff's case under the 2004 lease, or of a claim for rectification, other than that I think both claims raise a serious question to be tried. Given the protection which the plaintiff will have in any event, I do not consider that the balance of convenience warrants an injunction in such wider terms.

34 I note that the plaintiff, through its counsel, gives the usual undertaking as to damages.

35 For these reasons, upon the plaintiff by its counsel giving the usual undertaking as to damages, I order that the orders numbered 2 and 3 made on 23 February 2007, and extended on 2 March 2007 until 5 pm today, be further extended until the final disposition of these proceedings or further order.

36 The costs of the application of 2 March 2007 will be the plaintiff's costs in the proceedings.

37 I direct that if any party wishes to apply for an order for expedition of the proceedings that the notice of motion in that behalf and supporting affidavit be filed and served by 5 pm on 6 March 2007. I direct that such notice of motion be returnable before the expedition judge on 9 March 2007.

38 These orders may be entered forthwith.

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08/03/2007 - Typo in date - Paragraph(s) 0