Gnych v Polish Club Ltd

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HIGH COURT OF AUSTRALIA

FRENCH CJ,
KIEFEL, GAGELER, KEANE AND NETTLE JJ

JACEK GNYCH & ANOR  APPELLANTS

AND

POLISH CLUB LIMITED  RESPONDENT

Gnych v Polish Club Limited

[2015] HCA 23

17 June 2015

S58/2015

ORDER

1.Appeal allowed with costs.

2.Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales made on 17 October 2014 and orders 3, 4, 6 and 7 of the orders of that Court made on 16 September 2014 and, in their place, order that the appeal be dismissed with costs.

3.Remit the matter to the Supreme Court of New South Wales for determination of the assessment of damages, if any, pursuant to the undertakings listed in order 4 of the orders of the Court of Appeal of the Supreme Court of New South Wales made on 6 November 2014.

On appeal from the Supreme Court of New South Wales

Representation

G O'L Reynolds SC with G P Segal and M A Friedgut for the appellants (instructed by Drexler Litigation & Compensation Lawyers)

P R Clay SC with J M McKelvey and A Isaacs for the respondent (instructed by Strathfield Law)

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

Property – Leases – Section 92(1)(d) of Liquor Act 2007 (NSW) provides that licensee must not grant lease over certain parts of licensed premises without approval of Independent Liquor and Gaming Authority – Where lease granted in breach of s 92(1)(d) – Whether lease void and unenforceable.

Contracts – Statutory illegality – Where lease granted in contravention of s 92(1)(d) of Liquor Act 2007 (NSW) – Where Liquor Act imposes statutory penalty for breach – Whether lease void and unenforceable.

Liquor Act 2007 (NSW), s 92(1)(d).
Retail Leases Act 1994 (NSW), ss 6A, 8(1), 16(1), 16(2).

  1. FRENCH CJ, KIEFEL, KEANE AND NETTLE JJ. Section 92(1) of the Liquor Act 2007 (NSW) ("the Liquor Act") provides:

    "A licensee or a related corporation of the licensee must not:

    …

    (c)lease or sublease any part of the licensed premises on which liquor is ordinarily sold or supplied for consumption on the premises or on which approved gaming machines are ordinarily kept, used or operated, or

    (d)lease or sublease any other part of the licensed premises except with the approval of the Authority."

  2. The respondent ("the Club") leased part of its licensed premises to the appellants. Section 92(1)(c) of the Liquor Act did not apply in the circumstances because liquor was not sold or supplied on that part of the premises leased to the appellants, nor were gaming machines kept, used or operated on that part of the premises. But because the lease had not been approved by the Authority[1], there was a contravention of s 92(1)(d).

    [1]The Authority is the Independent Liquor and Gaming Authority ("the Authority"), constituted under the Gaming and Liquor Administration Act 2007 (NSW): Liquor Act, s 4(1).

  3. The issue in this…

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Details
Case
[2015] HCA 23
Decision Date

CaseChat Overview and Summary

The appeal concerned a dispute between the Polish Club Ltd (the Club) and Mr and Mrs Gnych (the appellants) regarding a lease agreement. The Club, a registered club holding a liquor licence, had granted the appellants a lease over part of its licensed premises, specifically a restaurant area and a storage area, along with rights to use an adjacent hall for functions. The central issue was whether this lease, granted in contravention of section 92(1)(d) of the *Liquor Act 2007* (NSW), was void and unenforceable. The matter reached the High Court of Australia following decisions by the Court of Appeal of the Supreme Court of New South Wales.

The High Court was required to determine whether the Club's contravention of section 92(1)(d) of the *Liquor Act 2007* (NSW), which mandates approval from the Independent Liquor and Gaming Authority for granting a lease over certain parts of licensed premises, rendered the lease void and unenforceable. The Court also considered the principles of statutory illegality in contract law, specifically whether the lease was void due to an express or implied prohibition by statute, or because it was associated with or in furtherance of an illegal purpose.

The High Court reasoned that the offence created by section 92(1)(d) was committed by the Club at the time the lease was granted without the necessary approval, and this offence was complete at that point. The continuation of the lease was not a continuing offence. While the contravention rendered the Club liable to a statutory penalty and empowered the Authority to cancel the Club's licence, the Act did not expressly provide that a lease entered into in breach of section 92(1)(d) would be void and unenforceable. The Court found no reason to infer that the Act necessitated the avoidance of such a lease, particularly as the Authority possessed regulatory powers to address any subsequent issues arising from the lease. The Court allowed the appeal, setting aside the orders of the Court of Appeal and remitting the matter for determination of damages.

Orders

Orders of the court

1. Appeal allowed with costs.

2. Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales made on 17 October 2014 and orders 3, 4, 6 and 7 of the orders of that Court made on 16 September 2014 and, in their place, order that the appeal be dismissed with costs.

3. Remit the matter to the Supreme Court of New South Wales for determination of the assessment of damages, if any, pursuant to the undertakings listed in order 4 of the orders of the Court of Appeal of the Supreme Court of New South Wales made on 6 November 2014.

Background

Background to the litigation

The issue in this appeal is whether, as the Club contends, its contravention of s 92(1)(d) of the Liquor Act rendered the lease void and unenforceable. For the reasons that follow, the Club's contention should be rejected. Factual background The Club is a registered club under the Registered Clubs Act 1976 (NSW) and the holder of a club licence under the provisions of Div 3 of Pt 3 of the Liquor Act. The Club's licence pertains to a building of two floors with a rooftop cocktail hall ("the premises"). The ground floor comprises the entry to the premises and, relevantly, a storage area and staff toilets. The first floor contains male and female toilets, and a bar where liquor can be purchased. The first floor also contains a restaurant with a capacity of approximately 50 seats and an adjoining kitchen and office ("the restaurant area"). Adjoining the restaurant is an area referred to as the mirror hall ("the mirror hall") with a capacity of approximately 80 seats, which is accessed from the restaurant by way of a moveable wall. By letter to the Club dated 3 August 2011, the appellants offered to run a restaurant in the restaurant area and organise functions on the premises. The Club responded with a counter‑proposal in the form of a lengthy document, stipulating that the appellants were to be engaged as the exclusive contractors for catering services to the Club. In response, the appellants, by their solicitors, sent the Club a "term sheet" proposing the terms of a lease agreement with respect to the restaurant area and the downstairs storage area. The lease was proposed to be for two years with two two‑year options, at a rent of $500 per week payable monthly, beginning with an initial rent‑free period and five months payable at a reduced rate. The appellants proposed not to occupy the bar on the first floor but to operate their own cash register at the bar. Restaurant patrons could order drinks in the bar area and take them back to the tables, and the appellants were to be entitled to 10 per cent of those takings. The appellants also proposed to renovate the restaurant. On the term sheet, under the heading "Licence Agreement", it was stated that the appellants would have "use of [the] small hall area adjacent to the restaurant on Frid/Sat/Sun", referring to the mirror hall. The Club resolved to accept the terms proposed by the appellants, but it appears this resolution was not communicated to the appellants. Nevertheless, renovations commenced in December 2011 and were completed in March 2012. On 29 March 2012, the appellants' solicitors sent the Club a draft lease in registrable form together with a licence agreement for the mirror hall. On 31 March 2012, the appellants held a "grand opening" for the restaurant, and commenced regular trading. In May 2012, the Club engaged solicitors. Negotiations ensued about the terms of the lease, but no written agreement was ever finalised.The Retail Leases Act Section 3 of the Retail Leases Act 1994 (NSW) ("the Retail Leases Act") defines "retail shop lease" or "lease" to mean:"any agreement under which a person grants or agrees to grant to another person for value a right of occupation of premises for the purpose of the use of the premises as a retail shop:(a)whether or not the right is a right of exclusive occupation, and (b) whether the agreement is express or implied, and(c)whether the agreement is oral or in writing, or partly oral and partly in writing."

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

FRENCH CJ, KIEFEL, KEANE AND NETTLE JJ GAGELER J
Finally, it is distinctly possible that, in a case where the Authority has granted its approval to a lease of part of the licensed premises, the lessee may later cause the licensee to fail to observe the requirements of the Liquor Act relating to the licence or the licensed premises. It may be accepted that such a lessee should not have the power to exclude the licensee from the leased part of the licensed premises. The Act does not provide that the lease shall be void and unenforceable in those circumstances. It deals with that possibility by arming the Authority with the regulatory powers already referred to. Accepting that the policy of the section is to guard against the possibility that a lessee may exclude the licensee from the leased part of the licensed premises in such circumstances, there is no more reason to suppose that the Act necessitates avoidance of a lease entered into without approval than that it necessitates avoidance of a lease entered into with approval.Conclusion The offence created by s 92(1)(d) was committed by the Club when the Club granted the appellants possession of the restaurant area. That offence was committed at that time, once and for all, because the approval of the Authority to the lease had not then been obtained. The continuation of the lease was not a continuing offence. One consequence of the contravention was that the Club was liable to a fine; but that was not the only consequence. The Club's breach of the Act also meant that the Authority was empowered to cancel the Club's licence should it decide to do so. It might do so, but it might not. Whether the licence should be cancelled is a matter for the Authority. The Authority might decide that the licence should be permitted to stand if it does not regard the current arrangements between the parties as unacceptable insofar as the public interest in the due observance of the standards required by the Liquor Act is concerned. If the Authority were to make such a determination, there would be no reason connected with the licence why the lease should not continue.Orders The appeal should be allowed. The following orders should be made: 1. Appeal allowed with costs. 2.Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales made on 17 October 2014 and orders 3, 4, 6 and 7 of the orders of that Court made on 16 September 2014 and, in their place, order that the appeal be dismissed with costs. 3.Remit the matter to the Supreme Court of New South Wales for determination of the assessment of damages, if any, pursuant to the undertakings listed in order 4 of the orders of the Court of Appeal of the Supreme Court of New South Wales made on 6 November 2014. This appeal was argued on the assumption that an agreement unenforceable for statutory illegality is an agreement the making, or some step in the making, of which was expressly prohibited by statute, was impliedly prohibited by statute, or was otherwise associated with or in furtherance of a purpose made illegal by statute. Mr and Mrs Gnych suggested that their case might be analysed by reference to the first or perhaps the third of those categories; the Club suggested that it might also be analysed by reference to the second.

Ratio Decidendi

Legal Principle Established

Established by: FRENCH CJ, KIEFEL, KEANE AND NETTLE JJ, GAGELER J

Full text does not contain this section.