Does a breach of liquor licensing requirements render a lease void and unenforceable?

In Gynch v Polish Club Limited[1] the High Court held that a lease granted in contravention of s 92(1)(d) of the Liquor Act 2007 (NSW) (Liquor Act) was not void and unenforceable.

Background

The Gynches (Tenant) operated a restaurant in part of the Polish Club Limited’s (Landlord) premises.  There was no written lease.

The Landlord gave the Tenant notice to leave.

The Tenant asserted that it had a five year lease under the Retail Leases Act 1994 (NSW).

On the same level of the premises as the restaurant there was a bar, where liquor could be purchased.

Section 92(1) of 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.”

Because the lease had not been approved by the Authority[2], there was a contravention of s 92(1)(d).

The Landlord contended that its contravention of s 92(1)(d) of the Liquor Act rendered the lease void and unenforceable.

Argument in the High court

The principal argument advanced by the Tenant was that contravention of s 92(1)(d) of the Liquor Act was the failure of the Landlord to have a lease approved by the Authority before allowing the Tenant into possession of part of the licensed premises. 

It was argued that to hold the lease agreement to be void and unenforceable would prejudice the Tenant without furthering the objects of the Liquor Act.

Decision

This was a question of statutory construction. 

Also, there is a general disinclination on the part of the courts to allow a party to a contract to take advantage of its own wrongdoing.

It was not the case that the only way in which legal effect can be given to s 92(1)(d) of the Liquor Act is by the sterilisation of leases granted in contravention of the prohibition.  Section 92(1)(d) imposes a penalty upon breach.

The High Court (French CJ, Kiefel, Keane & Nettle JJ, Gageler J agreeing) held that s 92(1)(d) of the Liquor Act is directed to the conduct of the licensee, rather than the relationship between the licensee and a third party ([43]). 

Although the Landlord breached s 92(1)(d) when it gave the Tenant possession of the restaurant area of the premises, that did not affect the lease.  The provision of a statutory penalty for this breach meant that there was no need to prevent the lease from contnuing.

Lavan Legal comment

This case is important in Western Australia as Western Australia liquor law has a very similar provision as to leases of licensed premises.

The Liquor Control Act 1988 (WA)[3] provides that every licence, other than a club restricted licence or an occasional licence, is subject to the condition that the licensee retains the right to occupy the licensed premises to the exclusion of all others.  This condition continues to apply during any period that the licence is suspended.

This means that licensees cannot enter into any agreement which gives rights to another party to use the kitchen, restaurant or any other part of the premises.

If such an unauthorised agreement or arrangement were to be entered into, sanctions under the liquor legislation could potentially be imposed and potentially in the worst case scenario it may result in the licensee losing its interest in the licence.  These adverse consequences would prevail despite the possibility of a court upholding the agreement on the basis of the High Court ruling.

The effect of this is that while the tenant may have a lease of premises, it may not be of much use if the tenant does not have the required liquor licence (and the tenant will have all of the obligations as tenant under the lease – such as paying rent and outgoings).



[1] Gynch v Polish Club Limited [2015] HCA 23

[2] The Authority is the Independent Liquor and Gaming Authority (Authority), constituted under the Gaming and Liquor Administration Act 2007 (NSW):  Liquor Act, s4(1)

[3] s37(5) Liquor Control Act 1988 (WA)