Goode v State of Queensland[2008] QSC 184

SUPREME COURT OF QUEENSLAND

The Background

[1] The applicants are the owners of the Withcott Hotel located near Toowoomba (“the hotel”). The applicants have owned the hotel since 1997.

[2] The third respondent, Gaoky Pty Ltd (“Gaoky”) leased the hotel for a term of five years from 1 April 2003 pursuant to a lease dated 23 April 2003.

[3] Gaoky surrendered the lease on 13 September 2007.  The applicants accepted the surrender.  Gaoky has since been placed in receivership.

[4] The present dispute concerns the fate of ten gaming machine operating authorities held by Gaoky as at the date of surrender.

[5] Gaoky had been in possession of the hotel from about November 1993.  Between the commencement of the tenancy and the execution of the lease the number of gaming machines in the hotel had increased from three to ten.  These additional seven machines were purchased by Gaoky over a period of time at a total cost to it of between $120,000 and $150,000.

[6] Presently, in order to operate a gaming or gaming machine in Queensland, in addition to requiring a liquor licence and a gaming licence, the Gaming Machine Act 1991 (Qld) (“the Gaming Machine Act”) requires that a gaming licence holder must also hold an ‘operating authority’ in respect of each gaming machine on the premises.[1]

[7] However, this was not always the case.

[8] Prior to the commencement of the Gaming Machine And Other Legislation Amendment Act 2003 (Qld) (“the Amendment Act”), it was sufficient to hold a gaming licence.

[9] Under the previous regime, the holder of a liquor licence could apply for a gaming licence.  The gaming licence specified the premises to which it attached and the number of gaming machines permitted.  Under that regime, once the gaming machines were purchased, and providing the gaming licence allowed for the number of gaming machines the licensee owned, the machines could be operated without the need for any further authority.

[10] One of the purposes of the Amendment Act was to cap the number of gaming machines throughout the State by issuing a finite number of operating authorities as an additional requirement before the holder of a gaming licence could operate the gaming machines.  Once a gaming licence was obtained, it became necessary for the intended operator to obtain separately, an operating authority for each gaming machine up to the number of machines permitted by the licence.  Under s 409 of the Gaming Machine Act, the holder of the gaming licence automatically received an operating authority for each machine then being operated. Consequently, Gaoky obtained ten operating authorities. No additional cost was incurred for the issue of these operating authorities.

[11] Separately from these proceedings, the applicants have purchased the gaming machines at the Withcott Hotel from Gaoky’s receiver.

[12] Gaming licences are not assignable and were not assignable under the previous legislative regime.  When licensed premises are transferred it is necessary for the gaming licence to be surrendered and for the transferee to apply for the grant of a fresh gaming licence.  On the other hand, operating authorities are transferable.

[13] Section 78 of the Gaming Machine Act allows for the transfer of an operating authority upon applications for the transfer of a liquor licence and for the issue of a new gaming licence. The section states;

78Certain applications under Liquor Act 1992 subject to chief executive's certificate

(1)Despite anything in the Liquor Act 1992, if a person makes a liquor licence transfer application relating to a club liquor licence, general liquor licence or prescribed liquor licence, the liquor licensing authority may transfer the licence only if the chief executive issues a certificate under subsection (2).

(2)The chief executive may issue the certificate only if--

(a)the premises for which the application under the Liquor Act 1992 was made are not licensed premises under this Act; or

(b)if the premises for which the application was made are licensed premises under this Act--

(i)the commission is prepared to grant a gaming machine licence to the applicant; and

(ii)satisfactory arrangements have been made for payment of any amounts payable by the current licensee under conditions mentioned in section 73 or under part 9.

(3)If a person--

(a)makes a liquor licence transfer application relating to a club liquor licence, general liquor licence or prescribed liquor licence; and

(b)applies at the same time for a gaming machine licence for the premises to which the application mentioned in paragraph (a) relates; and

(c)the liquor licensing authority is prepared to transfer the liquor licence; and

(d)the commission is prepared to grant the gaming machine licence;

the chief executive and the liquor licensing authority are to make arrangements so that the transfer of the liquor licence and the issue of the gaming machine licence happen at the same time.

(4)Subsection (5) applies if, under subsection (3), arrangements are made for a gaming machine licence (a new licence) to be issued at the same time as the transfer of a liquor licence and an associated gaming licence for the liquor licence is cancelled under section 96(1) because of the transfer of the liquor licence.

(5)All operating authorities, if any, for the licensed premises under the cancelled associated gaming machine licence are transferred by operation of this subsection to the holder of the new licence.

(6)In subsection (5)--

operating authority, for the licensed premises under the cancelled associated gaming machine licence, does not include an operating authority that must be sold at an authorised sale.

[14] As lessee of the hotel, Gaoky was granted ten operating authorities upon commencement of the Amendment Act in July 2003. It is not in issue that each operating authority is of significant monetary value.

[15] The bill containing the amendments was not presented to the legislature until May 2003. 

[16] At the time the lease was negotiated and signed, the superseded legislative regime was in effect.  However, it is apparent from the terms of the lease that the parties were aware that changes were to be introduced and the general thrust of those changes.[2]

The Lease

[17] The relevant clauses of the lease for the purpose of this application include;

‘Clause 1 – Interpretation

Gaming Licence means the licence granted under the Gaming Act for the conduct of gaming activities on the Premises and the operation of ten (10) gaming machines, together with any additional licences or authorisations that may be issued or required from time to time with respect to the operation of the gaming machines on the Premises or otherwise with respect to such purposes’. ……..

‘Clause 18.1 – The Tenant acknowledges that:

(a)prior to the grant of this Lease, the Tenant was the holder of the Gaming Licence;

(b)changes are anticipated to the Gaming Act, particularly with respect to the licensing of machines and the transfer of such Licences;

(c)the purpose of this clause is to preserve the operation of the Gaming Licence during the term of the Lease and to facilitate the surrender of the Gaming Licence by the Tenant and the re-issue of the Gaming Licence to the Landlord upon the expiration or earlier termination of the Lease and;

(d)in the event the anticipated changes to the Gaming Act are implemented, the obligations incumbent upon the Tenant pursuant to the provisions of this clause 18 in respect of the Gaming Licence will be deemed to extend to any gaming machine licence or gaming machine authority held by it in respect of the individual gaming machines operated by it from time to time in the Gaming Business which may be required to be held in conjunction with the Gaming Licence’. ……..

‘Clause 18.3 – Negative Covenants

The Tenant agrees with the Landlord not to -

(a)surrender the Gaming Licence;

(b)apply to reduce the number of gaming machines approved for the premises;

……….

(e)take advantage of any offer or scheme of arrangement for the return, transfer or the surrender of gaming machines operated by it or gaming machine authorities held by it;

………

(g)otherwise do anything or permit anything to be done … that may result in the Gaming Licence being suspended or cancelled or the number of gaming machines approved for the premises being reduced

………’

‘Clause 18.5 - Surrender on Expiration/Termination

The Tenant, in the event of termination, or expiry of the Lease, agrees to do all things necessary and to execute all documents that may be required in accordance with the provisions of the Gaming Act for the purposes of surrendering the Gaming Licence and to procure lodgement by and approval in favour of the Landlord of an application for a Gaming Licence’.

The Dispute

[18] The applicants contend that once the lease ended, the terms of the lease were such that the operating authorities were to remain for the benefit of the landlord, that is, the applicants.  In other words, the operating authorities were to be transferred to the new gaming licence holder.

[19] Upon surrender of the lease by Gaoky, the gaming machines remained in the hotel.  At that time payments to the Queensland Office of Gaming Regulation (“QOGR”) were in arrears.  Those arrears were subsequently paid by the applicants.

[20] The applicants entered into a contract for the sale of the hotel. The sale is contingent upon the purchasers being granted operating authorities to operate the gaming machines.

[21] On 11 March 2008, the purchasers lodged an application pursuant to the Gaming Machine Act for the issue of a gaming licence in respect of the hotel. The consequential effect of this application together with sections 57 and 58 of the Gaming Machine Act is such that the QOGR is required to process the purchaser’s application.

[22] On 3 June 2008, Gaoky lodged a notification of surrender of the operating authorities with the QOGR (“the surrender application”). The surrender application was lodged pursuant to s 95 of the Gaming Machine Act and as a result, pursuant to subsection 95 (2A), the operating authorities are required to be sold at an authorised sale. Relevantly, s 95 provides;

95Surrender of gaming machine licences

(1)A licensee, at any time, may surrender the licensee's gaming machine licence by giving the chief executive--

(a)a notification in the approved form; and

(b)the gaming machine licence, unless the surrender is conditional on the sale of the licensee's operating authorities.

(2)The notification is to be signed in the same way as that specified for an application made under section 56(5)(b) or (c).

(2A)If a category 1 licensee surrenders the licensee's gaming machine licence, all operating authorities for the licensed premises under the licence must be sold at an authorised sale.

(2B)If the licensee is a category 1 licensee, the notification under subsection (1) may state the surrender is conditional on the sale of the licensee's operating authorities for the licensed premises under the licence.

…….

(7)An approval under subsection (5) may provide for the disposal of the gaming machines by sale or destruction of the machines.

[23] On 19 June 2008, the QOGR sent a letter to the applicants indicating that pursuant to the provisions of the Gaming Machine Act, it considered there to be a conflict between the purchaser’s and Gaoky’s applications.

[24] The application before this court concerns the entitlement to the benefit of the operating authorities.

[25] Since the provisions of the lease provide for the gaming machines and the related licences, the central question is whether the surrender application by Gaoky is permitted by the terms of the lease and if so, whether Gaoky has complied with the terms of the lease in making the surrender application to the QOGR.

Does the lease apply to the operating authorities?

[26] Although the lease was entered into prior to the introduction of operating authorities, clause 18(1)(b) makes it clear that the lease was drafted in anticipation of the Amendment Act.

[27] The definition of a ‘Gaming Licence’ in the lease is broad and makes particular reference to additional licences or authorisations that might be required to operate gaming machines. By itself, the broad nature of this definition would suggest that an ‘operating authority’ would fall within the definition of a ‘Gaming Licence’ in the lease.[3]

[28] Although the lease was brought to an end by the applicants’ acceptance of Gaoky’s surrender in September 2007, clause 18.5 of the lease is clearly intended to continue to impose obligations on the parties.  No submission was made to the contrary.

Does the surrender application comply with the Lease?

[29] Counsel for the applicant argues that the surrender application by Gaoky was in breach of the lease. Pursuant to clause 18.3 of the lease, Gaoky was not able to surrender the operating authorities during the term of the lease. However since the surrender application was made after the lease had been terminated, the applicants argue that Gaoky’s surrender application breaches clause 18.5 of the lease. The effect of a surrender under subsection 95 (2A) of the Gaming Machine Act is that the benefit of the operating authorities does not revert back to the applicant in a way that clause 18.5 requires.

[30] Counsel for Gaoky argues that the surrender application complies with the lease because the word surrender in clause 18.5 of the lease must take on the same meaning it is given in clause 18.3 (a). The only section of the Gaming Machine Act which refers to ‘surrender’ is s 95. Therefore, if the meaning of surrender in clause 18.3 (a) is to take on the meaning it does in s 95, Gaoky’s surrender application following the termination of the lease cannot be in breach of clause 18.5.

[31] At the outset, I am not sure that clause 18.3 is of any real relevance to the issues I have to determine. In any event, taken as a whole, clause 18.3 seems to me to be nothing more than an obligation to preserve the gaming licence for the term of the lease after which time Gaoky’s obligations are determined by clause 18.5. 

[32] The proper construction of clause 18.5 must be considered in the light of the background.  In particular it must be considered in light of the legislative regime operating at the time the lease was entered into and the anticipation of a change to introduce something equivalent to the present operating authorities but which change had not yet been made publicly available in the form of a bill.

[33] The use of the conjunction in clause 18.5 of the lease links Gaoky’s concurrent obligations to surrender the gaming licence and assist in procurement of a gaming licence in favour of the landlord.  In my view, this can only be interpreted as an obligation on the tenant to use best endeavours to procure the result contemplated by s 78 (3) of the Gaming Machine Act.  Beyond agreeing to the cancellation of the existing gaming licence and consenting to the automatic transfer of the operating authorities to the landlord, a tenant has no other capacity to influence the acquisition of either a licence or an operating authority.

[34] Gaming licences have never been transferable. The transfer, as opposed to the surrender and reissue of the operating authority, was a new feature introduced by the Amendment Act.  The gaming licence is still required to be surrendered and reissued.

[35] That clause 18.5 of the lease should be interpreted in the way I have indicated is made abundantly clear by clause 18.1 (c) which expressly states that the intention of the clause was to procure the result that the gaming licence was to revert to the applicants at the expiration of the lease.  The expanded definition of “Gaming Licence” in clause 1 of the lease is such as to include the operating authorities.  Thus there is an express statement of the intention that not only the gaming licence but also any additional licences or authorities required to operate the gaming machines should pass to the applicants on termination of the lease by whatever means the Gaming Machine Act provides.

[36] Notwithstanding the use of the word “surrender” in clause 18.5, the conjunction of the obligations refers the reader back to the statement of intention in clause 18.1 (c).

[37] I can see no reason why ‘surrender’ in clause 18 must necessarily be taken to mean a surrender under s 95 of the Gaming Machine Act.  Given the consequences of subsection 95 (2A), it is not apparent that clause 18.5 was intended to assume the meaning of surrender as it appears in s 95 of the Gaming Machine Act.  Such an interpretation would not lead to the acquisition of a gaming licence (including any necessary operating authorities) in favour of the applicants.  If the parties had intended that meaning in clause 18.5, the obligation in clause 18.5 on the tenant to assist in obtaining a gaming licence in favour of the landlord loses all content.  The tenant would be a stranger to any such application without the capacity to assist in any material way.  Imposing such a limited meaning on the word ‘surrender’ in clause 18.5 would also ignore entirely that which the parties have included in their written agreement as the express intention of the clause.

[38] In the event of any ambiguity in the way the parties have expressed their agreement, it is useful to turn to the words of Kirby P in Hide & Skin Trading v Oceanic Meats where His Honour said;

‘Whoever may be the parties to the agreement, it is a fundamental rule, that a court should give the words of a written agreement the natural meaning they bear. Subject to that rule, in giving meaning to the words of an agreement between the commercial parties, courts will endeavour to avoid a construction which makes commercial nonsense or is shown to be commercially inconvenient. This is because courts will infer that commercial parties would not themselves normally agree in such a way’.[4]

[39] To similar effect is the passage from the judgment of Chesterman J in Norco Co-operative Ltd v Parmalat Australia Ltd at paragraph [21].[5]

[40] I see no reason why clause 18.5 cannot be interpreted as contemplating the procedure under s 78 of the Gaming Machine Act or any anticipated re-enactment of it. This gives effect to the whole of clause 18 of the lease, is commercially sensible and ensures that the operating authorities are disposed of in favour of the landlord as was intended by clause 18.5.

[41] If further authority was necessary for the proposition that clause 18.5 of the lease should be construed so as to give effect to the express intention of the parties, it is to be found in the judgment of Muir JA in Elderslie Property Investments No 2 Pty Ltd v Dunn;[6]

‘[20] The object of contractual construction is to “ascertain and give effect to the intentions of the contracting parties.” Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at 737.  Those intentions, to be determined objectively, are “what a reasonable person would have understood [the words of the contract] to mean.” Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.  And to ascertain that “normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.” Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.  Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract. Per Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912.  The Deeds, as commercial contracts, “should be given a businesslike interpretation”. The interpretation of each Deed requires “attention to…the commercial circumstances which the document addresses, and the objects which it is intended to secure.” McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589.

Commercial contracts are to be construed with a view to making commercial sense of them.

[21] In Wickman Machine Tool Sales Ltd v L Schuler AG [1974] AC 235 at 251 Lord Reid said:

"The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear."

[22] In Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201, Lord Diplock expressed stronger views concerning the imperative to make business sense of commercial contracts, stating:

“If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”

[23] The foregoing principles have application to Clause 10(a) and to the construction of the Deeds generally’.

[42] I am not persuaded that the construction of clause 18.5 of the lease submitted on behalf of Gaoky stands scrutiny in the light of these principles.

[43] The orders sought by the applicants in their originating application include a declaration that Gaoky’s purported surrender of the lease is of no effect. 

[44] I will need persuasion that such a declaration is open.  I would, without further argument be prepared to declare that the application for the grant of a new gaming licence should be processed prior to Gaoky’s surrender application being processed. In other words, the application which was first in time and results in the automatic transfer of the operating authorities under s 78 of the Gaming Machine Act should be processed prior to the surrender of Gaoky’s gaming licence.  I would also be prepared to restrain Gaoky from pursuing its surrender and requiring it to take steps to retract it.

[45] I will declare that under clause 18.5 of the lease between the applicants as lessor and the third respondent as lessee, the third respondent is required to use its best endeavours to enable the applicants to obtain the benefit of the existing operating authorities.

[46] I will dismiss the respondent’s cross application and hear argument on the form of any other orders.