NEW SOUTH WALES SUPREME COURT
Equity Division
Between:
and
Hearing date: 17 December 2003
Judgment date: 19 December 2003
C. Wood (Beazley Singleton) - Plaintiff
M.W. Young (Bolster & Co) - Defendant
1. On 5 August 1997, the High Court delivered judgment in Ha v State of New South Wales (1997) 189 CLR 465, in which the majority held that licence fees exacted under the Business Franchise (Tobacco) Act 1987 (NSW) were duties of excise within s.90 of the Commonwealth Constitution and were, therefore, invalid. Very shortly afterwards, the New South Wales Government conceded that, by parity of reasoning, licence fees exacted under the Liquor Act 1982 (NSW) were also invalid as duties of excise.
2. On 21 August 1997, the Premier of NSW announced that licence fees paid under the Liquor Act for the licensing year 1997/98 would be proportionately rebated, that proportion attributable to the period immediately following the publication of the High Court’s decision in Ha being refunded to those who had paid them. No liquor licence fees were exacted in respect of the 1998/99 licensing year.
3. The Plaintiff was a director of Regalco Pty Ltd (“Regalco”), now in liquidation. In 1995 Regalco entered into a lease with the Defendant whereunder it took a monthly tenancy of a hotel and bottle shop at Tweed Heads owned by the Defendant. Another director of Regalco eventually became the licensee of the hotel and thereby became liable under the Liquor Act to pay the licence fees. However, the Defendant at all times after the lease continued to pay the licence fee in respect of the hotel.
4. Clause 7 of the lease required Regalco to pay to the Defendant each month a sum calculated by reference to the cost of all liquor purchased by Regalco during the preceding month. The Plaintiff says that pursuant to an agreement between Regalco and the Defendant which is not recorded in the lease, the Defendant paid licence fees in respect of the hotel on behalf of Regalco using funds paid to it by Regalco under clause 7 of the lease. The Plaintiff says that the Defendant held the sums collected under clause 7 until the licence fee for the ensuing year became payable to the Liquor Administration Board under the Licensing Act.
5. The Plaintiff alleges that between January and October 1997 Regalco paid to the Defendant as trustee for it a total of $149,043.34 in respect of the licence fee to paid for the hotel in early January 1998 for the 1998/99 licensing year. When, as a result of the High Court’s decision in Ha, liquor licence fees were no longer payable in respect of the 1998/99 licensing year, the money held on trust for Regalco by the Defendant for payment of the licence fees for that year became repayable by the Defendant to Regalco.
6. After Regalco went into liquidation the liquidator assigned whatever rights the company had against the Defendant to the Plaintiff. The Plaintiff now claims:
– a declaration that the Defendant holds on trust for her the sum of $149,083.34 paid by Regalco to the Defendant in respect of the licence fees payable under the Liquor Act for the 1998/99 licensing year;
– alternatively, a declaration that the Defendant has been unjustly enriched by the payments from Regalco under clause 7 of the lease which were made in the mistaken belief that the exaction of licence fees under the Liquor Act was valid.
7. A claim for damages, which appears only in the relief sought in the Amended Statement of Claim and is not identified in the pleading as arising from any particular cause of action, was not the subject of any submissions by the Plaintiff. I do not propose, therefore, to give it further consideration.
8. By memorandum of lease dated 18 December 1995, the Defendant leased to Regalco the hotel known as the Tweed Heads Hotel in Wharf Street, Tweed Heads. The lease provided that the term was “month to month”.
9. Clause 3 of the lease provided:
“The lessee shall pay to the lessor each and every month the monthly rental without any formal or other demand in advance with the first payment to be paid on the commencement date and each subsequent payment to be paid on the same day in each consecutive month thereafter. The rental payable by the lessee is the sum of thirteen thousand dollars ($13,000.00) per month.”
Clause 7 of the lease provided:
“The lessee further covenants with the lessor to pay to it by way of further rental on the anniversary date in each month during the term of this and any renewed lease or period of holding over an amount calculated at thirteen percent (13%) of the cost of all liquor (as defined by the Liquor Act) purchased by the lessee or delivered on the premises during the assessment period as prescribed by the Liquor Act next preceding the said anniversary date. The cost of liquor as aforesaid shall be the cost as properly recorded by the licensee of the demised premises pursuant to the Liquor Act. Each and every month this amount shall be paid to the lessor and the lessor shall have the right to audit the liquor purchases register of the lessee on a monthly basis.”
10. The lease contained no provision as to who was responsible for paying licence fees payable under s.80(1) of the Liquor Act. That section imposed liability for payment of licence fees on a licensee of licensed premises.
11. The licensee of the hotel as at the date of the lease was Mr G. Martin, an employee of the Defendant. It appears that for some time before the lease was executed the Defendant had both owned the hotel premises and run the hotel business therein.
12. On 11 March 1996, Mr Matthew Fitzpatrick, who is the Plaintiff’s son and was a director and shareholder of Regalco, became the licensee of the hotel. Thereupon, he became primarily liable under the Liquor Act to pay the licence fees payable under the Act. However, it is common ground that during the whole of the occupancy of the hotel by Regalco, the Defendant itself directly paid to the Liquor Administration Board all licence fees payable under the Act.
13. It is common ground between the parties that, pursuant to the Regulations made under the Liquor Act, the licence fees in respect of the hotel were payable in respect of a licensing year commencing on 16 January in each year and were calculated by reference to liquor purchases made by the licensee of the hotel during the financial year ended on the previous 30 June. Licence fees payable to the Liquor Administration Board could be paid in one lump sum or by instalments. At all material times the Defendant chose to pay licence fees by two instalments, one in February and one in August in each year.
14. The monies paid monthly by Regalco under clause 7 of the lease were calculated by reference to its liquor purchases for the previous month. The payments received under clause 7 were not kept by the Defendant in a separate bank account. They were mingled with the Defendant’s own monies and when licence fees in respect of the hotel were payable in February and August in each year during the currency of the lease, the Defendant drew a cheque for the fees on its general account.
15. However, the amounts received by the Defendant under clause 7 of the lease were identified in its accounting records separately from rent received under clause 3 of the lease. They were credited to a suspense account in the books of the Defendant, to make it plain that they ought not to be regarded as income earned by the Defendant. According to evidence given by the Defendant’s secretary, Mr Roylance, the payments were so treated because the Defendant regarded itself as having an obligation to pay those monies to the Liquor Administration Board in respect of licence fees.
16.Mr Fitzpatrick gave evidence that in November 1995, when the lease between Regalco and the Defendant was still in negotiation, he had a conversation with Mr Roylance in which Mr Roylance told him that the Defendant required Regalco to make payments to the Defendant on a monthly basis for the liquor licensing fees because the Defendant did not want to be liable for the fees if Regalco became insolvent. Mr Fitzpatrick protested that if Regalco paid the fees to the Defendant and the Defendant became insolvent Regalco would still be liable for the fees to the Liquor Administration Board. Mr Roylance said: “That won’t happen.” Mr Fitzpatrick then suggested a compromise, namely, that Regalco would place the licensing fees into a trust account and the parties would share the interest on that account equally. Mr Roylance said that he would think about the proposal.
17. According to Mr Fitzpatrick, he had a conversation later with Mr Roylance at a charity lunch in which he asked what was happening about his proposal for a trust account. Mr Roylance said that he needed board approval but that there happened to be other directors of the Defendant present at the lunch. Mr Fitzpatrick says that Mr Roylance put to the other directors Mr Fitzpatrick’s proposal about a trust account and that the other directors said that they would agree.
18. Mr Roylance disputed that an agreement about the trust account had been reached at the charity lunch, as Mr Fitzpatrick alleged.
19. In the result, however, the dispute is of no significance. Mr Fitzpatrick said that, as a result of the discussions at the charity lunch, he believed that the lease would be amended to provide that the money to be paid under clause 7 would be placed in a trust account. But when he came to execute the lease on behalf of Regalco there was no amendment to the lease. His solicitor told him that he had spoken to the Defendant’s solicitor, who had said: “You [i.e. Regalco] either sign the lease as is or you won’t get the lease of the hotel”. Mr Fitzpatrick signed the lease on behalf of Regalco.
20. Regalco ceased payments to the Defendant under clause 7 of the lease after July 1997, obviously as a result of the decision in Ha. The undisputed evidence is that the Defendant paid to the Liquor Administration Board in respect of the 1996 and 1997 licensing years a total sum of $470,122. The total sum paid to the Defendant by Regalco pursuant to clause 7of the lease was $317,506.47.
Mr C. Wood of Counsel, in his able argument for the Plaintiff, submits that it is clear from the evidence that there was a common understanding or intention between Regalco and the Defendant both prior to the commencement of the lease and at all relevant times thereafter that the payments received by the Defendant pursuant to clause 7 were received for the purpose of enabling the Defendant to pay the licence fees for the hotel in the ensuing licensing year. He says that although there was no obligation imposed on the Defendant to retain the payments under clause 7 in a separate trust account, nevertheless the crediting of the money to a suspense account in the Defendant’s books “earmarked” the money as held for the purpose of paying the licensing fees. These circumstances, he says, sufficiently indicate an implicit agreement or common intention of the parties that the payments under clause 7 were to be held on trust. The payments made by Regalco under clause 7 in 1997 were payments by instalments in advance in respect of the licence fee for the 1998/99 licensing year and were held by the Defendant on trust for that purpose. When that purpose failed because of the declared invalidity of the licence fee regime under the Act, the Defendant was obliged to account to Regalco for all payments which it had received under clause 7 during 1997.
22. I am unable to accept this submission, essentially for the reasons advanced by Mr M. Young of Counsel for the Defendant.
23. In my opinion, the evidence is quite inconsistent with a common intention or implicit agreement or understanding between the parties that the payments under clause 7 of the lease were to be held in trust. My reasons are as follows.
24. First, clause 7 itself describes the payments as “further rental”, a provision clearly designed to ensure that the Defendant would be entitled to the payments beneficially and that it received payments under clause 7 in exactly the same character as it received payments under clause 3.
25. Second, prior to the execution of the lease Mr Fitzpatrick directly proposed to the Defendant that the payments under clause 7 be held in trust and that the lease be amended accordingly, but the proposal was rejected by the Defendant which insisted on retaining clause 7 in its original terms. The rejection of the proposal destroys any imputation of an intention on the part of the Defendant to depart from the legal effect of clause 7 according to its terms.
26. Third, payments under clause 7 were not held by the Defendant separately from its own monies but were deposited into its general bank account upon which the Defendant drew in due course to pay the licence fees due to the Liquor Administration Board. It is true that in its own books the payments under clause 7 were credited to a suspense account, but this was at the instigation of its own accounting staff and there is no evidence that Regalco ever knew how the receipts were treated in the Defendant’s books.
27. In the absence of any evidence which could suggest any obligation on the part of the Defendant to keep the monies received under clause 7 as a separate fund, it seems to me that I must apply the well known principle stated by Channell J in Henry v Hammond [1913] 2 KB 515, at 521:
“... It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust. If on the other hand he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money, then, in my opinion, he is not a trustee of the money, but merely a debtor.”
See also Walker v Corboy (1990) 19 NLSWLR 382.
28. Fourth, it is not correct to say, as Mr Wood submits, that payments made under clause 7 were, in their very nature, collections in advance of the licence fee due for the ensuing year. The licence fee payable for a licensing year (which commences under the Regulations on 15 January in each year) is calculated on liquor sales for the financial year ended on the previous 30 June. If liquor purchases for the hotel in the months from July to December in any year fell substantially below average purchases in the financial year ended on 30 June, then the receipts collected by the Defendant under clause 7 could fall well below what was required to pay the licence fee payable for the following licensing year. The fact that the Defendant paid licence fees for the 1996 and 1997 licensing years which were more than $150,000 in excess of what it received from Regalco under clause 7 demonstrates in itself that clause 7 did not operate as a means for the Defendant to accumulate all of the funds which it would need to pay the licence fee for the following year.
29. For these reasons, I cannot impute to Regalco and the Defendant a common intention, understanding or agreement that, despite the express terms of clause 7of the lease, payments made under that clause were to be held by the Defendant as trustee for the purpose of paying the liquor licence fee for the ensuing year. All that one can deduce as the common intention of the parties, if anything, is that the Defendant would be responsible for paying the licence fee for the hotel and would look to clause 7 of the lease to safeguard its reimbursement of those fees.
30. Mr Wood submits that the Defendant has been unjustly enriched by the payments under clause 7 because those payments were made by Regalco in the mistaken belief that the liquor licence fees exacted under the Liquor Act were valid. It was not clear from the submissions whether the Plaintiff sought recovery of all of the money paid under clause 7 from the commencement of the lease or only of that money which was paid during 1997.
31. In my opinion, this claim fails for at least three reasons.
32. Firstly, I do not think that it is correct to say that the payments under clause 7 were made by virtue of a mistaken belief as to the validity of the liquor licence fees. Repayments were made pursuant to a valid and enforceable contractual obligation contained in clause 7 to make the payments “by way of further rental”. The fact that the payments were calculated by reference to liquor purchases did not convert the payments into payments of the licence fees to the Liquor Administration Board.
33. Further, the fact that the exaction of licence fees under the Liquor Act was subsequently held to be invalid did not in itself render clause 7 unenforceable by the Defendant although it seems that the Defendant chose not to enforce clause 7 after the decision in Ha became known.
34. Second, I cannot see that the Defendant has been enriched by the payments made under clause 7. The Defendant assumed an obligation to pay the licence fees for the hotel during Regalco’s occupancy and it honoured that obligation to a total sum of $470,122. The payments which it received from Regalco under clause 7 fell short of that sum by more than $150,000. As Mr Young pithily put it, far from being unjustly enriched by the operation of clause 7 the Defendant was, if anything, unjustly impoverished.
35. Third, the Plaintiff has not shown that the total of the amounts paid under clauses 3 and 7 of the lease were in excess of a proper market rental for the hotel achievable at the time so that the Defendant has been unjustly enriched in consideration of the grant of a leasehold estate which it made in favour of Regalco.
36. There will be judgment for the Defendant on the Plaintiff’s Further Amended Statement of Claim. I will hear the parties as to costs.