The High Court has determined that a restaurant lease was not void as a result of the lessor’s breach of the Liquor Act 2007 (NSW).
The lessor operated licensed premises in Ashfield, Sydney. It agreed to allow the lessees to operate a Polish restaurant business for members and patrons of the club in an area on the first floor of the club. The lessor also agreed to allow the lessees a non-exclusive licence to use a room adjoining the restaurant area called the mirror room on Fridays, Saturdays or Sundays when extra seating capacity was required.
A written lease for the restaurant area and a written licence for the mirror room were prepared and submitted to the lessor for execution. However, no written agreements were ever finalised or signed.
Although the restaurant was operating successfully, relations between the lessees and the lessor deteriorated. The lessor eventually demanded that the lessees vacate the club as soon as possible.
The lessees commenced proceedings in the Supreme Court of New South Wales for a declaration that they had a leasehold interest in the restaurant area and the mirror room.
The lessor defended the proceedings arguing (inter alia) that the lessees did not acquire a leasehold interest in the restaurant area and mirror room because the lease was illegal under s 92(1)(c) and (d) of the Liquor Act 2007 (NSW). It was argued that the lessor, as a “licensee” within the meaning of the Liquor Act, breached those provisions by “(c) [leasing] or [subleasing] any part of the licensed premises on which liquor is ordinarily sold or supplied for consumption on the premises” and “(d) [leasing] or [subleasing] any other part of the licensed premises except with the approval of the [Independent Liquor and Gaming] Authority”.
On the question whether the lease was illegal under the provisions of the Liquor Act, the trial judge held (see Gnych & Anor v Polish Club Ltd  NSWSC 1249) that s 92(1)(c) had not been breached because there was no evidence that liquor was ordinarily supplied in the restaurant area to patrons at the time the lease commenced. On the other hand, there had been a breach of s 92(1)(d) in relation to the restaurant area. The restaurant area had been leased without the approval of the Independent Liquor and Gaming Authority. However, despite the illegality, the trial judge held that the lessees’ leasehold interest had vested and the lessor could not now claim possession of the restaurant area.
The Court of Appeal (see Polish Club Ltd v Gnych  NSWCA 321) overturned the trial judge’s decision, holding that the effect of the breach of the Liquor Act was to invalidate the lease.
High Court’s decision
The High Court unanimously allowed the appeal, holding that on the proper construction of the Liquor Act, the lessor’s breach of s 92(1)(d) did not automatically render the lease void and unenforceable.
The High Court concluded that the contravention of s 92(1)(d) of the Liquor Act occurred when the lessor granted the lessees possession of the restaurant area. The continuation of the lease was not a continuing offence.
Citation: Gnych v Polish Club Limited  HCA 23
The High Court’s summary is available here.
This decision will be reported in CCH’s NSW Conveyancing Law and Practice, Lang’s Commercial Leasing and Australian Contract Law Reporter.