Re Argyle Brewery Pty Limited Trading As the Craig Brewery Bar and Grill; Bruce Taylor Mcgregor; John Anton Szangolies and G and P Hotels Limited v Darling Harbourside (Sydney) Pty Limited [1993] FCA 69 (5 March 1993)

FEDERAL COURT OF AUSTRALIA

Re: ARGYLE BREWERY PTY LIMITED trading as THE CRAIG BREWERY BAR AND GRILL;
BRUCE TAYLOR McGREGOR; JOHN ANTON SZANGOLIES and G AND P HOTELS LIMITED
And: DARLING HARBOURSIDE (SYDNEY) PTY LIMITED
No. G 247 of 1992
FED No. 114
Number of pages - 11
Lease and License

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Davies J.(1)

CATCHWORDS

Lease and License - whether clause of hotel lease is invalid as contrary to s.154 Liquor Act 1982 (NSW) - whether lessor is entitled to require lessee/licensee to pay additional rent to offset statutory entitlement of lessee/licensee to deduct licence fee from rent - hotel manager holding licence as agent for corporate lessee - whether corporation entitled to recover or deduct amounts allowed under s.154 to a 'holder of a hotelier's licence'.

Trade Practices Act 1974 (Cth) s.52

Liquor Act 1982 (NSW) - ss.36, 38, 80(2), 154

Meredith v. Fitzgerald [1948] HCA 11; (1948) 77 CLR 161

Hotel Sydney v. Municipal Council of Sydney (1937) 37 SR(NSW) 422

HEARING

SYDNEY, 1 February 1993
5:3:1993

Counsel for the Applicant: Mr R.E. Dubler

Solicitors for the Applicant: Corrs Chambers Westgarth

Counsel for the Respondent: Mr W.G. Hodgekiss

Solicitors for the Respondent/
Cross-Claimant: Harris and Co.

Solicitors for the 2nd Cross-Respondent

to the First Cross-Claim: Corrs Chambers Westgarth

Solicitors for the 3rd Cross-Respondent

to the First Cross-Claim: Corrs Chambers Westgarth

Solicitors for the 4th Cross-Respondent

to the First Cross-Claim: Corrs Chambers Westgarth

ORDER

The Court orders:

1. In relation to Question 1:-
"Whether Clause 2.2.10 of the lease registered in the
New South Wales Land Titles Office as number Z75282
between the parties, is void as contrary to public
policy and/or section 154 of the Liquor Act of New
South Wales."
The answer is:- "No".
2. In relation to Question 2:-
"Whether the applicant is entitled to:
(a) deduct from rent payable under the lease; or
(b) recover from the respondent as a debt;
any and, if so, what amount pursuant to section 154 of
the Liquor Act of New South Wales."
The answer is:- "No".
3. That the Applicant pay the Respondent's costs of these
separate questions.
4. The Court reserves liberty to the parties to apply for any
ancillary order which may be necessary to give effect to
these answers.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

DAVIES J. Darling Harbourside (Sydney) Pty Limited ("Darling Harbourside") is the owner of an hotel property at Darling Harbour, Sydney leased to Argyle Brewery Pty Limited ("Argyle Brewery"), which engages in the business of hotelier on the property under the name "The Craig Brewery Bar and Grill".

2. In the principal proceedings, Argyle Brewery seeks damages and other relief in reliance upon s.52 and other provisions of the Trade Practices Act 1974 (Cth), and upon misrepresentation and breach of collateral warranty. Darling Harbourside seeks judgment for moneys alleged to be owing and an order for possession of the property. A second cross-claim deals with securities given with respect to the lease.

3. A relatively minor issue has arisen out of the fees payable for the hotelier's licence granted in respect of the Craig Brewery Bar and Grill. The following two questions have, by consent, been set aside under Order 29 of the Federal Court Rules to be decided separately from the other questions in the proceedings:-

"1. Whether Clause 2.2.10 of the lease registered in the
New South Wales Land Titles Office as number Z75282
between the parties, is void as contrary to public
policy and/or section 154 of the Liquor Act of New
South Wales.
2. Whether the applicant is entitled to:
(a) deduct from rent payable under the lease; or
(b) recover from the respondent as a debt;
any and, if so, what amount pursuant to section 154 of the
Liquor Act of New South Wales."

4. Relevant provisions of the Liquor Act 1982 (NSW) provide:-

"80(2) The fee payable under subsection (1) or (1A) is:
(a) in the case of a hotelier's licence:
(i) where the licence is not the subject
of a variation of trading hours
under section 25(3) - 10 per cent of
the applicable amount prescribed by
subsection (3); or
(ii) where the licence is the subject
of such a variation of trading
hours - $1,000 plus 10 per cent
of the applicable amount
prescribed by subsection (3),
and, in addition to the sum
determined in accordance with
subparagraph (i) or (ii), as the case
may require, where a condition has
been imposed under section 20 (2A),
or varied under section 20(2B),
authorising the holder of the licence
to keep and to permit the use and
operation of one or more approved
amusement devices:
...
(3) The applicable amount prescribed by this subsection is:
(a) in the case of a hotelier's licence,
or an off-licence to sell liquor by
retail - the amount paid or payable
by or on behalf of the licence for
all liquor that, during the
assessment period for the licence
fee, was delivered upon or purchased
for:
(i) the licenced premises
..."

5. Section 154 of the Liquor Act provides inter alia:-

"(1) This section has effect notwithstanding any
agreement to the contrary, whether entered into before
or after the commencement of this Act.
(2) Where the holder of a hotelier's licence is
not the owner of the premises to which the licence
relates, he may:
(a) deduct from any rent payable by him
in respect of the licensed premises
an amount equal to two-fifths of so
much of each licence fee payable by
the licensee as is referred to in
section 80(2)(a)(i) or (ii),
whichever is applicable; or
(b) recover that amount from his lessor as a debt."

6. Clause 2.2.10 of the lease provides inter alia:-

"The Lessee hereby covenants with the Lessor as follows:
no later than the due date for the payment of the
periodic Licence fee during the term of this Lease and
any extension thereof or holding over thereunder to pay
to the Lessor by way of further rent a sum equal to an
amount calculated at the rate of four dollars ($4.00)
for every one hundred dollars ($100.00) or fraction
thereof paid or payable by or on behalf of the Lessee
or Licensee for all liquor which during the preceding
assessment period was delivered or purchased for the
Licensed Premises or premises in which the Licensee
temporarily carries on the business pursuant to an
authority under Section 93 of Liquor Act or premises in
which the Licensee sold or supplied liquor pursuant to
the Licence by virtue of Section 18(6) of Liquor Act."

The sum payable under the clause is similar to if not identical with the deduction of two-fifths of the licence fee for which s.154(2) provides.

7. The crux of the first question is whether Clause 2.2.10 of the lease is void as directly contradicting the effect of s.154(2), by offsetting the entitlement of the lessee holding an hotelier's licence to deduct two-fifths of the licence fee from the rent by the simple stratagem of requiring the lessee to pay additional rent of two-fifths of the licence fee. The second question is whether, in the circumstance where the lessee is a corporation and therefore does not itself hold the licence, the licence being granted to a manager employed by the hotelier, the lessee is entitled to rely upon s.154(2), which uses the expression "the holder of a hotelier's licence".

8. Before the dispute arose between Argyle Brewery and Darling Harbourside, neither party relied upon its respective alleged right, that of Argyle Brewery under s.154 of the Liquor Act and that of Darling Harbourside under Clause 2.2.10 of the lease. I assume from this, and from the fact that counsel for both parties appeared to accept that a provision such as Clause 2.2.10 is a common clause in hotel leases in New South Wales, that lessors and lessees in this State ordinarily treat the two obligations as offsetting each other. There was no evidence of this matter, and any issue between the parties based on a principle of legal or equitable estoppel or waiver is not raised for consideration by these two questions. However, I do not propose to enter upon a lengthy discussion of the issues, for I suspect that my findings on the questions will provide little guidance to other lessors and lessees, who would seem to have their own practical view of the operation of s.154 and of clauses such as Clause 2.2.10.

9. Both questions are the subject of decisions of the High Court of Australia. On the first question, the decision is Meredith v. Fitzgerald [1948] HCA 11; (1948) 77 CLR 161, in which Latham C.J., Rich, Starke and Williams JJ., Dixon J. dissenting, held that a provision for further rent was not an agreement "to the contrary" of s.19(3) of the Licensing Act 1928 (Vic) which provided, inter alia:-

"Notwithstanding anything to the contrary in any agreement
(a) any licensed victualler who holds a victualler's licence
for any premises of which he is not the owner and who pays
the annual licence fee for such licence fixed on a
percentage basis may without suffering any penalty imposed
by any such agreement deduct from any rent payable by him
for the premises for any year in respect of which such fee
is paid a sum equal to three-eighths of the amount of such
fee or may recover the said sum in any court of competent
jurisdiction from the owner of the premises (c) in this
sub-section 'rent' includes any rent reduced or commuted
under any such agreement."

The lease in that case, like the present lease, provided for a fixed annual rent and, by way of further rent, an annual sum so calculated that it equalled or was substantially identical with three-eighths of the licence fee, the recovery of which s.19(3) allowed. Latham C.J. expressed his conclusion at 170-1, as follows:-

"An agreement that the tenant should not deduct the
landlord's part of the licence fee from the rent or that he
should not seek to recover from a landlord the three-eighths
of a fee paid by him would be contrary to the section. The
statutory rights given to the tenant by the section would
make such an agreement of no effect. An 'agreement to the
contrary' is an agreement which denies to a tenant either of
the rights given by the section. But there is no such
provision in the lease in this case. There is nothing in
the lease which prevents the tenant from deducting from the
rent or recovering from the landlord the three-eights of the
licence fee.
The 'further rent' is payable independently of the actual
payment of the licence fee by the tenant and independently
of the amount of any licence fee which the tenant pays. If
the tenant did not pay the fee or paid only part of it, or
if the amount of the fee were reduced or increased, the
'further rent' would remain unchanged."

Rich, Starke and Williams JJ. were of a like view. At 182, Williams J. pointed out that s.19(3) did not place any restriction on the right of the lessor to let the premises at the highest rent. The lessor was quite entitled to refuse to let the premises except at a rent the computation of which took into account the liability to pay the lessor's apportioned sum of the licence fee. Williams J. noted at 182-3 that the lease contained no provision for altering the formula for the rent in the event of an alteration of the formula for the payment of licence fees. Dixon J. dissenting, said, inter alia, at 179-180:-

"The statute has expressed an intention that no agreement
shall stand in the way of the tenant's retaining or
recovering three-eights of the licence fee, and it appears
to me to be clear that an agreement requiring the tenant to
pay to the landlord the same sum he retains or recovers or
is about to recover would stand in the way of the
realization of the substance of the statutory provision.
...
The whole matter may be summed up by saying that the
reservation of the further rent is an attempt to produce a
cross-demand so that the maxim frustra petis quod statim
alteri reddere cogeris will defeat s.19(3)(a) and that must
be contrary to the statutory provision."

10. Meredith v. Fitzgerald was referred to in the Trustees, Executors and Agency Co. Limited v. Gleeson [1959] HCA 53; (1959) 102 CLR 334. In that case, the subject of the Court's consideration was the commencing date of an amendment to s.19(3) of the Licensing Act, which had been enacted to overcome the effect of Meredith v. Fitzgerald. The judgment of the Court, delivered by Dixon C.J., inferentially accepted the law as stated in Meredith v. Fitzgerald.

11. There are three compelling reasons for applying Meredith v. Fitzgerald. The first is that there are no distinguishing features in the legislation or in the facts of the present case which would make the reasoning of the majority of the High Court inapplicable. Mr R.E. Dubler, counsel for Argyle Brewery, submitted that the opening words of s.154, "This section has effect notwithstanding any agreement to the contrary" differed in substance from the words "Notwithstanding anything to the contrary in any agreement ..." in s.19(3) of the Licensing Act. I see no relevant distinction in the terminology. Neither s.19(3) nor s.154 state in terms that any agreement to the contrary is void and both provisions confer upon a tenant certain rights, notwithstanding any agreement to the contrary. This effect of s.19(3) was relied upon in Meredith v. Fitzgerald by the majority Justices of the Court.

12. The second reason is that the reasoning in that judgment had application to the statutes of several of the States, and although there have been in other States, including Victoria, amendments introduced to overcome the effect of Meredith v. Fitzgerald, no significant change in this respect has been made to the Liquor Act of New South Wales. Meredith v. Fitzgerald has, of course, been well known in New South Wales, for it has been cited in McDonald's Liquor Laws, since at least the 1965 Edition. Had the New South Wales Parliament been dissatisfied with the result of Meredith v. Fitzgerald, one would have expected an amendment to the Liquor Act, particularly as the current form of s.154 was enacted long after the handing down of Meredith v. Fitzgerald.

13. The third reason is that Meredith v. Fitzgerald was applied in an analogous case, by Yeldham J. in Panatut Pty Ltd v. Phillips (1987) 15 NSWLR 331.

14. I shall therefore answer Question 1:- "No".

15. The second question is also governed by judicial authority, in Hotel Sydney Ltd v. Municipal Council of Sydney (1937) 37 SR (NSW) 422, an appeal from which was rejected by the High Court, noted in (1937) 59 CLR 807.

16. Section 36 of the Liquor Act provides that an application for an hotelier's licence may not be made by a corporation. Accordingly, the licence in respect of The Craig Brewery Bar and Grill was applied for and granted to a manager employed by Argyle Brewery and was transferred to subsequent managers. The hotelier's business was, nevertheless, the business of Argyle Brewery and Argyle Brewery paid the annual licence fees.

17. It is not in dispute that a person or persons other than the licensee may be the owner of, or interested in, the hotel business in respect of which the licence is granted. See, for example, Registrar of Liquor Licences v. Iliadis (1988) 83 ALR 54. Indeed, s.38 of the Liquor Act specifically provides, inter alia:-

"38(1) ...
(2) An application:
(a) for a licence; or
(b) for removal of a licence,
shall be accompanied by the affidavit referred to in subsection
(3).
(3) The affidavit specified in this subsection is an
affidavit by a person having knowledge of the facts stating:
(a) whether or not there are any persons who will be
directly or indirectly interested in the application
or in the business, or the profits of the business, to
be carried on pursuant to the licence if the
application is granted; and
(b) if there are any persons so interested:
(i) their names and dates of birth; and
(ii) where any such person is a proprietary company -
the names of the directors and shareholders."

In the case of each grant or transfer of the licence for The Craig Brewery Bar and Grill, an application as required by s.38 was lodged, stating that Argyle Brewery was the owner of the business.

18. In Hotel Sydney Limited v. Municipal Council of Sydney, a similar question with respect to the deduction arose in the circumstance that the plaintiff was a corporation and its manager held the licence as agent for it. Davidson J., with whom Maxwell J. and Owen A.J. agreed, said at 429:-

"The right to make a deduction is only given to the 'holder
of a publican's license' and it can hardly be suggested that
by substituting those words for the words 'any licensee'
which were used in s.33 of the Act of 1919, it was intended
to refer to a wider class. The plaintiff is not and could
not be a 'licensee' or a 'holder of a publican's license,'
and therefore cannot claim the benefit of the Act."

19. In the High Court of Australia, Latham C.J., Rich, Starke, Dixon and McTiernan JJ., dismissed the appeal. Mr W.G. Hodgekiss, counsel for Darling Harbourside, was able to obtain and to hand to the Court a copy of the judgment of Latham C.J. His Honour said inter alia:-

"The plaintiff is now the lessee under a building lease from
the defendant of the Hotel Sydney and other premises. A
publican's licence exists in respect of the Hotel Sydney.
That licence is held on behalf of the plaintiff by William
George Bulfin and thus the plaintiff is the lessee of the
licensed premises and Bulfin is the licensee. The licence
fees were in fact paid by the plaintiff and not by Bulfin.
Section 21(2) provides that 'Any holder of a publican's
licence ... paid by him' and then provision is made for
deduction for rent and a proviso deals with the case where
the sum paid to the lessee in respect of the licence fee
exceeds one-third of the rent.
The Supreme Court has held that the plaintiff is not the
holder of a publican's licence within the meaning of the
section and that, therefore, the plaintiff is not entitled
to recover from the owner (the defendant) two-fifths of the
licence fee paid. The amount involved is 2620.15.3.
It is clear that the plaintiff is not in the ordinary sense
the holder of a publican's licence, Bulfin is in that sense
the holder of the licence. It is urged however that the
Liquor Act recognises, as the Courts also recognise, that a
person who is not a grantee of a licence may nevertheless
have a beneficial interest in a licence.
The terms of 21(2) appear to be clear. The section confers
a right only upon the holder of a publican's licence. The
plaintiff is not in fact the holder of such a licence. The
plaintiff is not in fact the holder of such a licence, and
because of its incorporation it could not be the holder of
such a licence. ... The fact that the plaintiff is
beneficially interested in the licence does not make the
plaintiff the holder of the licence itself."

20. It seems to me that this case is so clearly in point that I should follow it. Again, the principle stated in the case is long established and, had the legislature desired to alter the law, it could have done so. I see no purpose in discussing the amendments to the Act since the Hotel Sydney case. The substance of the point remains the same.

21. I shall therefore answer Question 2:- "No".

22. The applicant should pay the costs of these separate proceedings.

23. I shall reserve liberty to the parties to apply for any ancillary order which may be necessary to give effect to these answers.