On 17 June 2015, the High Court of Australia gave judgment unanimously overturning a decision of the New South Wales Court of Appeal. The High Court held that a lease granted in contravention of s 92(1)(d) of the Liquor Act 2007 (NSW) was not void and unenforceable, and any consequences of a contravention (in addition to the prescribed monetary penalty of $5,500) were best left to the Independent Liquor and Gaming Authority: [2015] HCA 23.

This judgment of the High Court provides a timely reminder that statutory construction can be a difficult exercise. There is no universal rule that can be applied. A flexible approach is required and the application of 'blunt and drastic' rules may lead to error.

BACKGROUND FACTS

For a link to our article from a couple of months ago which discuss the Polish Club case in detail, and in particular the NSW Court of Appeal's decision, please click here.

By way of re-cap:

  • Section 92(1)(d) of the Liquor Act provides that a licensee (i.e. the holder of a licence under the Act) 'must not' lease or sublease any part of the licensed premises on which liquor is not ordinarily sold or supplied for consumption on the premises, without the approval of the Independent Liquor and Gaming Authority. The maximum penalty for an offence under the section is specified as $5,500.
  • The Polish Club did not seek or obtain the approval of the Authority to the lease which it granted to Mr and Mrs Gnych of the restaurant area within the Club premises. The Retail Leases Act 2005 (NSW) fixed the term of the lease between the parties as five years from the date that Mr and Mrs Gnych entered into occupation of the restaurant area and commenced trading.
  • After around 18 months, the Polish Club excluded Mr and Mrs Gnych from the restaurant area. They responded by commencing proceedings seeking to uphold a leasehold interest in the restaurant area for a period of five years.
  • The Polish Club sought to rely, in the proceedings, on its own contravention of s 92(1)(d) of the Liquor Act.;
  • The Court of Appeal concluded that as a matter of statutory construction 'any sanction short of the prohibited lease being rendered unenforceable and void would frustrate the implementation of the legislative purpose inherent in the statutory prohibition': (2014) 86 NSWLR 650 at 670; [2014] NSWCA 321 at [79].

JUDGMENT OF THE HIGH COURT

The High Court unanimously held that the Court of Appeal erred in its above conclusion.

Four Justices (French CJ, Kiefel, Keane and Nettle JJ) delivered a joint judgment. Their Honours emphasised the limited scope of the prohibition in s 92(1)(d) from a temporal perspective:

"The breach of s 92(1)(d) on which the Club sought to rely was a breach by the Club which gave rise to an offence that was complete at the moment when the Club allowed the appellants into exclusive possession. The subsequent observance by both parties of the terms of the lease was not prohibited and did not give rise to any continuing offence." (at [46])

Their Honours also observed that the Court of Appeal had failed to recognise the important role assigned by theLiquor Act to the Independent Liquor and Gaming Authority in relation to the supervision and management of licensed premises. Under s 141(2) the Authority may cancel or suspend the licence, if satisfied that a licensee has failed to comply with a requirement of the Act. It may also decide to take no action in relation to the licence. For example, the Authority might conclude that the lessees (in this case, Mr and Mrs Gnych) were fit and proper persons to be in charge of the part of the premises in question, which might lead it to decide to take no action in relation to the licence on this basis - notwithstanding the lessor's contravention of s 92(1). Their Honours said that:

"The conclusion that a breach of s 92(1)(d) automatically avoids the lease would pre-empt the effect of the Authority's decision in this regard. That outcome would not be consistent with the supervisory role entrusted to the Authority by the Liquor Act." (at [54])

The remaining Justice, Gageler J, delivered his own judgment, essentially agreeing with the joint reasons for judgment. Gageler J's judgment also provides a neat reminder and summary of the proper principles of statutory construction. This included his Honour issuing a veiled warning about seeking to 'shoehorn' a given agreement alleged to be unenforceable for statutory illegality into one of the three categories which the Court of Appeal had referred to in its decision. Such as incomplete mode of analysis may result in a result which is 'formal, technical and inflexible'. (at [60],[82])

Also of interest, Gageler J made implicit reference to the traditional legal maxim that 'ignorance of the law is no excuse'. This was in the context of the potential for implied statutory nullification of a lease as a result of a breach of s 92(1)(d) to cause hardship to an innocent lessee. His Honour said that he found difficult to place much emphasis on this consideration because "Any potential lessee could reasonably be expected to be aware at least of the existence of a licensing regime and to have the means of becoming aware of its details before entering into any agreement for lease." (at [81])