Cologrant Pty Ltd v JDA Milperra Pty Limited & Ors [2012] NSWSC 1407

Supreme Court New South Wales

Medium Neutral Citation: Cologrant Pty Ltd v JDA Milperra Pty Limited & Ors [2012] NSWSC 1407 Hearing dates: Monday, 5 November 2012 Decision date: 06 November 2012 Jurisdiction: Equity Division - Duty List Before: White J Decision: Refer to para [37] of judgment. Catchwords: GAMING MACHINES - leases of gaming machine entitlements - whether notice of termination validly given - effect of termination - orders made for specific performance of leases Legislation Cited: Liquor Act 1982 Gaming Machines Act 2001 Cases Cited: Mannai Investment Co Ltd v Eagle Star Assurance Co Ltd [1997] AC 749 Category: Principal judgment Parties: Cologrant Pty Ltd (Plaintiff) JDA Milperra Pty Limited (1st Defendant) JDA Southern (Trading) Pty Limited (2nd Defendant) Brendan Dean Kelly (3rd Defendant) John Theodore Feros (4th Defendant) Representation: Counsel: S Chapple (Plaintiff) M J Heath (Defendants) Solicitors: Holding Redlich (Plaintiff) File Number(s): 2012/338155

Judgment 1HIS HONOUR: These proceedings concern agreements that are styled leases of poker machine permits. The question is whether the defendants are required to take all necessary steps to enable the transfer of four poker machine permits back to the plaintiff. The answer to that question depends on whether the plaintiff has given a valid 90 days' notice of termination of each so-called permit lease. 2On 13 May 2009 the plaintiff entered into an agreement with the first defendant called a permit lease in relation to three poker machine permits. On 10 July 2009 it entered into an agreement with the second defendant called a permit lease in relation to two poker machine permits. The agreements are relevantly in identical terms. 3By the agreement of 13 May 2009 the plaintiff purportedly granted to the first defendant a lease of poker machine permits numbered PN369, PN374 and PN375. The agreement provided that conditional upon the approval of the transfer of the permits to the licensee or approved manager of licensed premises in Beaconsfield Road, Milperra, the plaintiff granted to the first defendant what was called a lease of the permits for a term of one year commencing on 31 August 2009 and terminating on 30 August 2010. The agreement provided for the payment of what was called rent in the sum of $15,000 per annum per permit (excluding GST) payable monthly in advance during the term of the lease. The "Term" included any period of holding over. The agreement provided for the holding over of the permits after the initial Term as follows: "7 HOLDING OVER If, with the Lessor's consent, the Lessee continues to enjoy the benefit of the Permits after the Expiry Date without entering into a new lease of the Permits, then: (a) the lease will continue on a year-to year basis terminable by either party on giving 90 days' notice to the other, which notice may expire at any time; and (b) all the terms and conditions of this lease will apply." 4Clause 8 dealt with termination of the agreement. Clause 8.1(a) dealt with termination if there were a breach by the so-called lessee. Clause 8.1(b)(i) and clause 8.2 provided: "8 TERMINATION 8.1 Termination by the Lessor ... (b) In addition to the rights under clause 8.1(a), the Lessor may terminate this lease: (i) at any time, by giving 90 days' notice to the Lessee provided that in the event that the Lessor needs to extend the 90 day period in order to complete a sale or lease of the Permits to a third party the Lessor may do so upon giving a further notice to the Lessee; ... 8.2 Termination by the Lessee The Lessee may terminate this deed at any time by giving 90 days' notice to the Lessor provided that: (a) the Lessee signs all documents and does all things necessary for the transfer of the Permits to the Lessor or its nominee; and (b) in the event that the Lessor needs to extend the 90 day period in order to complete a sale or transfer of the Permits to a third party, the Lessee will agree to extend the period on the basis that the Lessee will not be required to pay Rent under this deed." 5Clause 8.3 provided: "8.3 Obligations on Expiration and Termination Upon expiry of the Term or a termination of this deed, the Lessee must immediately: (a) sign all documents and do all things necessary for the transfer of the Permits to the Lessor or its nominee; and (b) pay to the Lessor any money due to the Lessor under this deed." 6Clause 9 dealt with the partial surrender of permits. It provided: "9 PARTIAL SURRENDER OF PERMITS (a) Subject to clause 10, in the event that the Lessor wishes to sell/lease some but not all of the Permits to a third party, then: (i) the Lessor must: (A) give the Lessee not less than 10 Business Days prior written notice requiring the Lessee to surrender the Permit or Permits (as applicable) (Partial Surrender Notice); (B) the Partial Surrender Notice must specify the date that the Permits are to be surrendered (Surrender Date); (ii) the Lessee must: (A) sign all documents and do all things necessary for the transfer of the Permits to the Lessor or its nominee; and (B) otherwise comply with clause 8.3 of this lease. (b) For the avoidance of doubt, on and from Surrender Date: (i) this deed will continue in full force and effect in respect of the remaining Permits; and (ii) Rent ceases to be payable in respect only of that Permit or those Permits which have been surrendered." 7Clause 10 was deleted. 8Clause 13.4 provided: "13.4 Further steps The parties must promptly do whatever the other party reasonably requires of it to give effect to this document and to perform their obligations under it." 9The agreement of 10 July 2009 with the second defendant related to two poker machine permits to be transferred to the second defendant to be held in relation to the hotel licence for a hotel known as the Great Southern Hotel. The permits that were the subject of that agreement were permit numbers PN361 and PN362. 10Poker machine permits were granted pursuant to s 182C of the Liquor Act 1982. That section was repealed by the Gaming Machines Act 2001. Paragraph 5 of schedule 1 of the latter Act provided: "5 Saving of permits issued under section 182C of former Liquor Act The repeal of section 182C of the Liquor Act 1982 by this Act does not affect the acquisition of any permit issued under that section before its repeal." 11The number of gaming machines that may be kept at a hotel must correspond with the number of gaming machine entitlements and poker machine permits held in relation to the hotel licence (Gaming Machines Act, s 56(4)). Transfer of poker machine permits is regulated by Division 3 of Pt 3 of that Act. Section 26 provides that a permit held in respect of a hotel licence may be transferred to another hotel licence in accordance with arrangements approved by the Director-General. Mr Chapple, counsel for the plaintiff, correctly submitted that the fact that the Gaming Machines Act allows permits to be transferred means that, when a permit is transferred, the corresponding authorisation under s 56(4) in respect of the transferee's and transferor's hotel licence must be varied. Section 57 of the Gaming Machines Act permits a hotelier to apply for authorisation to keep or dispose of gaming machines and relevantly provides: "57 Application for authorisation to keep or dispose of gaming machines (1) An application to the Authority by a hotelier or club (the applicant): (a) for authorisation to keep or dispose of an approved gaming machine, or (b) for a variation of an authorisation to keep an approved gaming machine, is to be in a form approved by the Authority and is to be accompanied by such documents as comply with the requirements of the form. (2) If, before a decision is made in respect of an application, there is a change in the information provided in or accompanying the application (including information provided under this subsection) the applicant must immediately provide the Authority with full particulars of the change. Maximum penalty: 50 penalty units. (3) The Authority may, at any time before making a decision in respect of an application under this section, require the applicant to provide, or require the applicant to authorise another person to provide, the Authority with such further information in relation to the application as is specified by the Authority and, until the information is provided, may defer consideration of the application." 12Although a poker machine permit may be considered to be property, just as a poker machine entitlement is property, it is not capable of physical possession. The essential characteristic of a lease is that it confers on the lessee the right of exclusive possession of the leased property. But the fact that the contractual documentation employs the inappropriate concept of a lease does not affect the issue for decision. I agree with the submission of Mr Chapple for the plaintiff that each agreement called a permit lease is essentially an agreement for the transfer of the poker machine permits to the first or second defendant for a consideration to be paid periodically and for the retransfer of the permits to the plaintiff or its nominee on the occurrence of the events specified in the agreement as bringing about the termination of the so-called lease, or requiring the surrender of one or more of the permits. 13In conjunction with the so-called permit leases, the plaintiff entered into deeds with the first and third defendants and also with the second and fourth defendants. The third defendant is the licensee of the hotel at Milperra to which the first permit lease relates. The fourth defendant is the licensee of the Great Southern Hotel. 14These further agreements are called "licensee/approved manager deeds". In those agreements the plaintiff is described as the permit owner. By clause 4 of each agreement the relevant defendants appointed the plaintiff as their attorney, with power to make such application as is required in respect of the permits to transfer the permits to the plaintiff or its nominee when the "Lease" had expired or been terminated or when permits had been surrendered in accordance with the terms of the "Lease" (clause 4.1G (v) and (vi)). 15On 10 January 2010, or possibly 10 January 2011, the plaintiffs served on the first defendant a transfer surrender notice under clause 9 of the permit lease of 13 May 2009 requiring the first defendant to surrender the poker machine permit PN369 on either 24 January 2010 or 24 January 2011. The dates of the transactions are not clear on the evidence, but that is not relevant to any issue I have to decide. 16The notice was complied with, with the result that only two poker machine permits, namely permit numbers PN374 and PN375, remained the subject of the "permit lease" of 13 May 2009. 17On or about 20 June 2012 Holding Redlich, solicitors for the plaintiff, served notices on the first and second defendants. The notices are dated 20 June 2012. Each notice was expressed to be given under clause 8.1(b)(i) of the relevant permit lease and required the recipient to surrender the two poker machine permits that either were or remained the subject of each so-called permit lease. The notices required the poker machine permits to be surrendered on the 90th day after the date of the notice, being 18 September 2012. 18There was no issue as to whether the period of the notice was sufficient. It can be taken that the notices were served on the date they bear. Each notice was served under cover of a letter from Holding Redlich dated 20 June 2012. That letter stated that the firm enclosed a "partial surrender notice in accordance with clause 8.1(b)(i) of the permit lease". 19The only clause of the "permit lease" dealing with the partial surrender of permits was clause 9. None of the notices required a partial surrender of permits. The question is whether the notice expressed to be given under clause 8.1(b)(i) requiring the surrender after 90 days of the permits (or in the case of the first defendant, the remaining permits) was a notice of termination of each so-called permit lease. 20Mr Heath, who appeared for the defendants, submitted that, as there were three different modes for termination of the "lease", notice had to state clearly and unequivocally the mode intended. The three different "modes" were termination during a holding over period under clause 7(a), termination of the lease on 90 days' notice under clause 8.1(b)(i) (to which could be added clause 8.2) and a partial surrender of permits under clause 9. I interpolate that the last is not a termination of the whole lease. Because the covering letters wrongly described the notices as partial surrenders, Mr Heath submitted for the defendants that the notices did not clearly and unequivocally terminate the so-called leases. 21The validity of the notices is to be determined from the perspective of a reasonable recipient (Mannai Investment Co Ltd v Eagle Star Assurance Co Ltd [1997] AC 749 at 768). As I have said, the notices were expressed to be given under clause 8.1(b)(i). They required the surrender after 90 days of all of the poker machine permits the subject or remaining the subject of the agreements. 22The question is whether, on the surrender of the permits, the agreements themselves would terminate. Mr Heath could not point to any right or obligation that either party would have under the agreements after the surrender of the poker machine permits. The periodical consideration was only payable during the "term" which included the period of holding over, but would not be payable after the surrender of the permits. 23Mr Heath submitted that, for the notices to be valid, it should be clear to the recipient whether the notice was being given to complete a sale or a lease for the purposes of clause 8.1(b)(i). That clause provides that the lessor can extend the 90-day period of notice in order to complete the sale or lease of the permits to a third party. The rationale for that part of the clause is that, as a poker machine permit must be held in respect of a hotel licence and can only be transferred to another hotel licence (s 26), and as the number of gaming machines that can be kept in a hotel must correspond with the number of gaming machine entitlements or poker machine permits held in respect of the hotel, the plaintiff might not be in a position to accept a retransfer of a poker machine permit. But this does not affect the validity of the notices. A notice can be given under clause 8.1(b)(i), or under clause 8.2, whether or not a sale or "lease" of the permits is contemplated. 24In any event, the notices did state the clause under which they were given. The defendants could not have been in any doubt that the notices, by requiring surrender of the permits within 90 days, were bringing the agreements to an end on the expiry of that 90-day period. 25I conclude that, notwithstanding the incorrect reference to a partial surrender of the permits, the notices dated 20 June 2012 were effective to terminate the agreements of so-called leases. Pursuant to clause 8.3, the defendants were obliged to do all that was necessary on their part to transfer the poker machine permits back to the plaintiff or its nominee. 26The plaintiff had entered into a contract on 2 August 2012 with a third party for the sale of the permits to it. Completion was due on 19 September 2012. On 18 September 2012, being the surrender date stipulated in the notices, the director of the plaintiff signed transfer applications in the name of the hotel licensees pursuant to the powers of attorney in each Licensee/Approved Manager Deed. 27The Office of Liquor, Gaming and Racing advised the plaintiff that, while the transfer applications were in order, the transfers could not be approved because that would leave the transferring hotelier with more gaming machines than gaming machine entitlements or poker machine permits. The hotelier would have to apply under s 57 of the Gaming Machines Act for the authority to dispose of the corresponding number of gaming machines. 28On 18 October 2012 the application transfer was formally refused for those reasons. No application had been made by the hotel licensee under s 57 of the Act to vary the authority for the keeping of approved gaming machines. 29The plaintiff's solicitor was advised by the Office of Liquor, Gaming and Racing on 3 October 2012 that, for the transfer of the permits to be approved, "JDA" (the first and second defendants) would need to apply under s 57 of the Act to reduce their holding and would need physically to remove four gaming machines from the hotel at Milperra and from the Great Southern Hotel and place them in the custody of a licensed gaming machine dealer, seller or technician. The Office of Liquor, Gaming and Racing would then need confirmation that the defendants had completed the "deauthorisation process". 30Although not stated, presumably an alternative course would be for the defendants to acquire four more gaming machine entitlements or poker machine permits to replace those transferred to the plaintiff's purchaser. The purchaser from the plaintiff has agreed to an extension until 9 November 2012 of the time by which the plaintiff has to transfer the permits to it. Hence the urgency of this application. 31The defendants did not submit that, if they were in breach of the agreements, the plaintiff was not entitled to an order for specific performance because, for example, damages would be an adequate remedy. The plaintiff sought orders for specific performance as follows: "1. A declaration that the Plaintiff is entitled to specific performance of the Gaming Machine Permit Lease dated 13 May 2009 between the Plaintiff and the First Defendant (JDA Milperra Permit Lease). 2. A declaration that the Plaintiff is entitled to specific performance of the Licensee/Approved Manager Deed dated 13 May 2009 between the Plaintiff, the First Defendant and the Third Defendant (JDA Milperra Licensee Deed). 3. A declaration that the Plaintiff is entitled to specific performance of the Gaming Machine Lease dated 10 July 2009 between the Plaintiff and the Second Defendant (JDA Southern Permit Lease). 4. A declaration that the Plaintiff is entitled to specific performance of the Licensee/Approved Manager Deed dated 10 July 2009 between the Plaintiff, the Second Defendant and the Fourth Defendant (JDA Southern Licensee Deed). 5. An order that the First Defendant and Third Defendant specifically perform the JDA Milperra Permit Lease and the JDA Milperra Licensee Deed by taking the following actions: a) On or before 5pm on 6 November 2012, make an application to the Office of Liquor, Gaming and Racing (OLGR) under s. 57 of the Gaming Machines Act 2001 (NSW) for an authorisation to dispose of the two gaming machines to which Permits Number 374 and 375 presently relate. b) On or before 5pm on 7 November 2012, contact a licensed gaming machines dealer, seller or technician who service the metropolitan area (daily) to arrange for that dealer, seller or technician to by 5pm on 8 November 2012: i) physically attend 'The Mill Hotel' at 191 Beaconsfield Street, Milperra; ii) switch off the two gaming machines to which Permits Number 374 and 375 relate; iii) remove from the premises the two gaming machines to which Permits Number 374 and 375 relate; and iv) store the two gaming machines to which Permits Number 374 and 375 relate in the custody of a licensed gaming machines dealer, seller or technician. c) On or before 5pm on 8 November 2012, notify the OLGR and confirm that the gaming machines to which Permits Number 374 and 375 relate have been removed from The Mill Hotel. 6. An order that the Second Defendant and Fourth Defendant specifically perform the JDA Southern Permit Lease and the JDA Southern Licensee Deed by taking the following actions: a) On or before 5pm on 6 November 2012, make an application to the OLGR under s. 57 of the Gaming Machines Act 2001 (NSW) for an authorisation to dispose of the two gaming machines to which Permits Number 361 and 362 presently relate. b) On or before 5pm on 7 November 2012, contact a licensed gaming machines dealer, seller or technician who service the metropolitan area (daily) to arrange for that dealer, seller or technician to by 5pm on 8 November 2012: i) physically attend 'The Great Southern Hotel' at 717-723 George Street, Sydney; ii) switch off the two gaming machines to which Permits Number 361 and 362 relate; iii) remove from the premises the two gaming machines to which Permits Number 361 and 362 relate; and iv) store the two gaming machines to which Permits Number 361 and 362 relate in the custody of a licensed gaming machines dealer, seller or technician. c) On or before 5pm on 8 November 2012, notify the OLGR and confirm that the gaming machines to which Permits Number 361 and 362 relate have been removed from The Great Southern Hotel." 32The first and second defendants did not propose an alternative means of satisfying their obligations under clause 8.3 to do all things necessary for the transfer of the permits to the plaintiff. An order for specific performance should state expressly what the defendants are required to do. The proposed orders satisfy that requirement. 33The orders sought are appropriate unless the defendants can satisfy the requirements of the Office of Liquor, Gaming and Racing to approve the transfer by some other means, for example by acquiring replacement gaming machine entitlements or poker machine permits. However, the matter is urgent. The defendants have had ample time to perform their obligations. 34I have made orders in accordance with the proposed paras 5 and 6. I will hear from the parties as to whether the time in paras 5A and 6A should be amended. 35I have also made a further order that: "The first to fourth defendants will be excused from complying with orders 5 and 6 if they take other steps that result in The Office of Liquor, Gaming and Racing granting approval prior to 9 November 2012 for the transfer of poker machine Permit Numbers 374 and 375 (in the case of the first and third defendants) or Permit Numbers 361 and 362 (in the case of the second and fourth defendants) pursuant to the obligations for transfer of permits that are at tab 15 of exhibit TDH 1." 36There is no present threat that would warrant the grant of an injunction as sought in paragraph 7 of the plaintiff's proposed short minutes in the summons. 37It is for these reasons that I have made the declarations and orders that I pronounced earlier today. The orders made were: 1.Make declarations and orders in accordance with paras 1-6 of the short minutes of order handed up by counsel for the plaintiff on 5 November 2012, as amended by his Honour, initialled and dated today by his Honour and placed with the papers. 2.Order that the first to fourth defendants will be excused from complying with orders [5] and [6]if they take other steps that result in Office of Liquor Gaming & Racing granting approval prior to 9 November 2012 of the transfer of poker machine permit nos. 374 and 375 (in the case of the 1st & 3rd Defendants) or permit nos. 361 and 362 (in case of the 2nd & 4th Defendants), pursuant to the applications for transfer of permits that are at tab 15 of Exhibit TDH-1. 3.Order that the summons be otherwise dismissed and the cross-summons be dismissed. 4.Order that the defendants pay the plaintiff's costs of the proceedings. 5.Exhibit may be returned. 6.Orders may be entered forthwith. 38In relation to paras 5A and 6A of the short minutes the time provided for in those orders was 5 pm today for the application to be made to The Office of Liquor, Gaming and Racing under s 57. [Mr Chapple advised that the application could be done online and quite quickly. The defendant's solicitor did not seek a variation of the order.] In that case I will not vary the terms of paragraphs 5A and 6A. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 November 2012