Supreme Court New South Wales

• Medium Neutral Citation: Gnych v Polish Club Limited [2013] NSWSC 1249
• Hearing dates: 29 August 2013
• Decision date: 05 September 2013
• Jurisdiction: Equity Division
• Before: Ball J

Decision

See paragraphs 52 to 55 of this judgment.

• Catchwords: REAL PROPERTY - leases - operation of the Retail Leases Act 1994 (NSW) ss 5, 6A, 8 and 16, the Liquor Act 2007 (NSW) s 92 and the Registered Clubs Act 1976 (NSW) ss 41J and 41Q - whether a leasehold interest vests in a tenant notwithstanding illegality of the lease
• Legislation Cited: Conveyancing Act 1919 (NSW); Liquor Act 2007 (NSW); Liquor Regulation 2008 (NSW); Registered Clubs Act 1976 (NSW); Retail Leases Act 1994 (NSW); Town Planning and Development Act 1928 (WA)
• Cases Cited: Abinger Investments Pty Limited v Royal George Hotel Holdings Pty Limited (1993) 46 FCR 483; Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65; Gollan v Nugent [1988] HCA 59; (1988) 166 CLR 18; Ison v Australian Wheat Board (1967) 68 SR (NSW) 102; Singh v Ali [1959] AC 167; Wilson International Pty Ltd v International House Pty Ltd (No 2) [1983] WAR 257
• Category: Principal judgment
• Parties: Jacek Gnych (First Plaintiff); Sylwia Gnych (Second Plaintiff); Polish Club Limited ACN 000 469 385 (Defendant)
• Representation: Counsel: GP Segal (Plaintiffs); VR Gray (Defendant); Solicitors: Drexler & Partners (Plaintiffs); Strathfield Law (Defendant)
• File Number(s): 2013/240942
• Publication restriction: Nil

Judgment

Introduction

1 Between 31 March 2012 and 5 August 2013 the plaintiffs, Mr and Mrs Gnych, operated a restaurant on the first floor of premises owned by the defendant Club in Norton Street, Ashfield. The rest of the building is used by the Club for the benefit of its members. The Club is licensed and has a bar where members can buy alcohol.

2 On 7 July 2013, the Club gave Mr and Mrs Gnych notice to vacate the premises they occupied and, on 5 August 2013, Mr and Mrs Gnych were excluded from the premises. In this proceeding, Mr and Mrs Gnych seek a declaration that they have a leasehold interest in the space they occupied for a five year period commencing on 31 March 2012 and seek ancillary relief to give effect to the interest they claim.

Factual background

3 Mr Gnych commenced negotiation for a lease of the restaurant area with the then President and Vice President of the Club in August 2011. It was agreed in principle that he and his wife would be granted a lease of the restaurant area, the kitchen attached to it, an office next to the kitchen and a store room and toilet, both of which were downstairs. In addition, it was agreed in principle that Mr and Mrs Gnych would have non-exclusive access to a room, known as the "mirror room", for overflow customers of the restaurant and to cater for larger functions. The restaurant is capable of seating approximately 50 people. The mirror room is divided from the restaurant by a moveable wall and is capable of seating approximately 80 people.

4 The Club sent Mr and Mrs Gnych a proposed contract on 26 October 2011. The contract was a lengthy document under which Mr and Mrs Gnych were to be engaged by the Club as the exclusive contractors for catering services to the Club. In response to that contract, on 6 December 2011, Mr and Mrs Gnych's solicitor sent the Club a term sheet setting out the essential terms of a proposed lease and licence of the space that it had been agreed in principle would be made available to Mr and Mrs Gnych. That evening, the management committee of the Club resolved to accept the terms set out in the term sheet.

5 The term sheet does not appear to have been complete. However, it recorded that the premises to be leased were:

Restaurant area, kitchen and downstairs storage area located at the Polish Club Ashfield NSW 2131

6 Under the heading "LICENCE AGREEMENT" the document recorded the following:

For use of small hall area adjacent to the restaurant on Frid/Sat/Sun

The term of the lease was expressed to be for two years plus two two year options. The rent was $26,000 per annum (that is, $500 per week) with a rent free period of four weeks together with a reduced rent of $200 per week for two months and $300 per week for three months (inclusive of GST).

7 The term sheet also set out proposed terms in relation to the menu, the right of Mr and Mrs Gnych to serve food in the Club premises, the selling of liquor and hours of operation. In relation to liquor, it contemplated that Mr and Mrs Gnych would have their own cash register in the bar area of the Club, that patrons of the restaurant would order their drinks from that area and Mr and Mrs Gnych would be entitled to keep 10 per cent of the takings from that register.

8 It was agreed that Mr and Mrs Gnych would renovate the restaurant. That work started in December 2011 and Mr and Mrs Gnych catered for a New Year's Eve function at the Club that year. The renovations were completed in March 2012. There is a dispute concerning precisely how much renovation work was done by Mr and Mrs Gnych and how much was done by the Club and the costs borne by each for that work. Nothing, however, turns on the resolution of that dispute. It is clear that a significant amount of work was done by Mr and Mrs Gnych.

9 On 29 March 2012, Mr and Mrs Gnych's solicitor sent the Club a draft lease in registrable form together with a licence agreement for the mirror room.

10 Although no lease had been signed, Mr and Mrs Gnych commenced trading on 31 March 2012. In May 2012, the Club engaged its own solicitors and there were negotiations concerning the terms of the lease and licence agreement. However, no written agreement was agreed or finalised.

11 The restaurant operated successfully. However, relations between Mr and Mrs Gnych and at least some members of the management committee of the Club deteriorated. On 7 July 2013, the Club's solicitors, Strathfield Law, sent Mr and Mrs Gnych's solicitor a letter setting out a number of grievances. The grievances concerned a function catered for by Mr and Mrs Gnych at the Polish House said to have been in competition with a similar function organised by the Club, the use of Club resources to cater for outside events, the service of liquor not acquired from the Club and the alleged refusal to serve some customers on a particular Sunday evening. The letter concluded:

It is with regret that our client's Board has determined to terminate the relationship with your client. The Club invites your client to make arrangements to vacate the Club's premises as soon as is reasonably practical.

The Club invites your clients to inform it of the arrangements they have made to vacate the Club's premises and provided those arrangements are reasonable, our client will agree to same. As a guide, our client would regard a commitment to vacate the restaurant within 4 weeks of the date hereof as reasonable.

12 Mr and Mrs Gnych's solicitors replied to that letter on 9 July 2013 disputing the allegations made in Strathfield Law's letter and seeking a mediated meeting with the then president of the Club to try to resolve the issues between the parties.

13 There was no response to that letter and, on 2 August 2013, Drexler & Partners, who had by then been engaged by Mr and Mrs Gnych, wrote to Strathfield Law saying:

We are instructed that since on or about 31 March 2012 our clients have occupied the abovementioned premises, for value and with the agreement of your client, and used same premises as a restaurant. We note that the restaurant is a retail shop as defined in the Retail Leases Act 1994 (the Act) and a minimum lease term of 5 years applies to the restaurant, given that it satisfies sections 16(1) and 16(2) of the Act and a Certificate under section 16(3) of the Act was not provided.

We, therefore, note that your client's request in your letter dated 7 July 2013 that our client's vacate same premises within 14 days is unlawful. Should your client disagree, we request that you provide us at least seven (7) days written notice of your client's intention to press the contents of same letter. In the alternative, we are instructed to seek an injunction to restrain your client and seek costs from your client on an indemnity basis.

14 Strathfield Law responded to that letter on the same day. In that response, they said:

We have never denied the assertion that your clients may have rights under the Retail Leases Act 1994 but that those rights are limited by two significant facts:

1. The relationship between the parties had some elements of a joint venture although that agreement was never finalized [sic]; and

2. Your client's occupation of the premises was not only subject to the Retail Leases Act 1994 but was also subject to the provisions of the Liquor Act 2007; specifically Sect 92(1)(c) and (d) and may have also been subject to Registered Clubs Act 1976; specifically Sects 30(i) and 41J(3).

15 On 5 August 2013, the Club excluded Mr and Mrs Gnych from the restaurant area.

16 As I have said, the term sheet prepared by Mr and Mrs Gnych's solicitors contemplated that Mr and Mrs Gnych would have their own cash register in the bar area of the Club, that patrons of the restaurant would order their drinks from that area and Mr and Mrs Gnych would be entitled to keep 10 per cent of the takings. In practice, however, that did not happen. Patrons dining in the restaurant were told that the restaurant could not sell or serve alcohol because it was not licensed, but that patrons could obtain alcohol from the bar area. In the case of functions, Mr and Mrs Gnych, who each have a Responsible Service of Alcohol licence (RSA licence) (a licence required by all persons serving alcohol by Liquor Regulation 2008 (NSW) reg 40), would sometimes place orders for customers and they, or a member of their staff who had an RSA licence, would place the pre-ordered alcohol provided by the Club's bar staff on the restaurant tables. If alcohol ran out, Mr and Mrs Gnych would arrange for the bar staff to deliver additional alcohol to the customer. The bar staff or employees of the restaurant who held an RSA licence would then take the alcohol to the table that had ordered it. At the end of the function, Mr and Mrs Gnych would sometimes obtain the bar account for a customer, collect the money to pay it and pay the money that had been collected to the bar.

The issues

17 Mr and Mrs Gnych do not suggest that an agreement for lease was reached. Rather, they say that by the provisions of ss 8 and 16 of the Retail Leases Act 1994 (NSW) (the RL Act), they obtained a leasehold interest in that part of the premises they occupied for a five year period commencing on 31 March 2012.

18 Section 8 of the RL Act provides:

(1) For the purposes of this Act, a retail shop lease is considered to have been entered into when a person enters into possession of the retail shop as lessee under the lease or begins to pay rent as lessee under the lease (whichever happens first).

(2) However, if both parties execute the lease before the lessee enters into possession under the lease or begins to pay rent under the lease, the lease is considered to have been entered into as soon as both parties have executed the lease.

19 "Retail shop lease" is defined in s 3 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.

20 "Retail shop" is relevantly defined to mean premises that "are used, wholly or predominantly for the carrying on of one or more of the businesses prescribed for the purposes of this paragraph ... ". No business has been prescribed. However, cl 17 of Schedule 3 (Schedule 3 sets out the transitional provisions for the RL Act) provides that the businesses specified in Schedule 1 are taken to be prescribed for the purposes of the definition of "retail shop". One business set out in Schedule 1 is:

Restaurants, cafeterias, coffee lounges, food courts and other eating places

21 Section 16 of the RL Act relevantly provides:

(1) The term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option for the acquisition by the lessee of a further term as an extension or renewal of the lease, must not be less than 5 years. An agreement or option is not taken into account if it was entered into or conferred after the lease was entered into.

(2) If a lease is entered into in contravention of this section, the validity of the lease is not thereby affected but the term of the lease is extended by such period as may be necessary to prevent the lease contravening this section.

22 Mr and Mrs Gnych contend that the premises that they occupy fall within the definition of "retail shop" because they are used predominantly as a restaurant, that by the conduct of the parties they have impliedly been granted a right of occupation of those premises for the purpose of the use of the premises as a retail shop, that by virtue of s 8(1) the lease is deemed to have been entered into when they obtained possession of the premises and that by virtue of s 16(2), the term of the lease, whatever it was, has been extended to be for a period of five years.

23 The Club disputes Mr and Mrs Gnych's claim on a number of grounds.

24 First, the Club denies that the premises are a retail shop. It submits that a retail shop does not include a restaurant where alcohol can be consumed.

25 Second, the Club relies on s 6A of the RL Act. That section relevantly provides:

6A Application of Act to short-term leases

(1) Generally, Act not to apply to short-term leases

Subject to subsection (2), this Act does not apply to a lease of a retail shop for a term of less than 6 months without any right for the lessee to extend the lease (whether by means of an option to extend or renew the lease or otherwise).

(2) Exception for successive, extended or renewed leases for more than one year

If the lessee has been in possession or entitled to be in possession of the retail shop without interruption for more than one year (whether by means of a series of 2 or more leases or by means of an extended or renewed lease or leases, or by any combination of those means), this Act applies to:

(a) the lease on and from the day on which the lessee has been in possession or entitled to be in possession of the shop for more than one year, and

(b) any succeeding lease or leases of the shop to the lessee, where possession or entitlement to possession is not interrupted.

(3) Operation of provisions for disclosure statements

...

(4) Operation of provisions for minimum 5 year term

Section 16 (1) and (2) do not apply to the lease referred to in subsection (2) (a) unless the lessee notifies the lessor in writing during the term of the lease that the lessee elects to have the benefit of section 16. However, in that case, any period for which the lessee has already been in possession or entitled to possession of the retail shop without interruption is taken to be included in the term of the lease.

26 The Club submits that, since no term for the lease was agreed, Mr and Mrs Gnych were monthly tenants under s 127(1) of the Conveyancing Act 1919 (NSW). That section provides:

No tenancy from year to year shall, after the commencement of this Act, be implied by payment of rent; if there is a tenancy, and no agreement as to its duration, then such tenancy shall be deemed to be a tenancy determinable at the will of either of the parties by one month's notice in writing expiring at any time.

As a result, according to the Club, the term of the lease was less than six months. However, the Club accepts that Mr and Mrs Gnych were in possession of the Club's premises without interruption from 31 March 2012 to 5 August 2013, a period exceeding one year. Consequently, it accepts that the RL Act applies. However, s 16 only applies if Mr and Mrs Gnych notified the Club in writing during the term of the lease that they elected to have the benefit of s 16. According to the Club, they gave no such notice.

27 Third, the Club relies on s 5 of the RL Act. That section relevantly provides that the Act does not apply to "shops that are used wholly or predominantly for the carrying on of the business by the lessee on behalf of the lessor". The Club maintains that the restaurant was carried on by Mr and Mrs Gnych on its behalf.

28 Fourth, the Club contends that the lease is illegal under s 92 of the Liquor Act 2007 (NSW) and that consequently Mr and Mrs Gnych are not entitled to the relief that they seek. Section 92 of the Liquor Act relevantly provides:

(1) A licensee or a related corporation of the licensee must not:

(a) if the licensee is an individual-allow any person to have the personal supervision and management of the conduct of the business under the licence for a longer continuous period than 6 weeks except with the approval of the Authority, or

(b) lease or sublease the right to sell liquor on the licensed premises, or

(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.

Maximum penalty: 50 penalty units.

(2) The owner of licensed premises must not:

(a) lease or sublease any part of the premises on which liquor is ordinarily sold or supplied for consumption on the premises, or on which an approved gaming machine is ordinarily kept, used or operated, to any person other than the licensee or a related corporation of the licensee, or

(b) except with the approval of the Authority, lease or sublease any other part of the licensed premises to any person other than the licensee or a related corporation of the licensee.

Maximum penalty: 50 penalty units.

The Club maintains that the relevant provision is s 92(1)(c) because the Club has leased a part of its premises (the restaurant) on which liquor is ordinarily supplied for consumption. Alternatively, it submits that s 92(1)(d) applies because the restaurant forms part of the licensed premises. It is common ground that the Authority (meaning the Independent Liquor and Gaming Authority) has not given its approval to the lease of the restaurant to Mr and Mrs Gnych.

29 Lastly, the Club says that, as a result of s 41J of the Registered Clubs Act 1976 (NSW), the management committee of the Club had no power to grant a lease to Mr and Mrs Gnych of the premises. Section 41J(3) provides:

A registered club must not dispose of any core property of the club unless:

(a) the property has been valued by a registered valuer within the meaning of the Valuers Act 2003 , and

(b) the disposal has been approved at a general meeting of the ordinary members of the club at which a majority of the votes cast supported the approval, and

(c) any sale is by way of public auction or open tender conducted by an independent real estate agent or auctioneer

30 "Dispose" is defined in s 41J(1) to mean "sell, lease or licence the property or to otherwise deal with the property in such manner as may be prescribed by the regulations".

31 "Core property" is defined to include any real property owned or occupied by the Club that comprises the premises of the Club or any facility provided by the Club for the use of its members and their guests.

The meaning of "retail shop"

32 According to the Club, the word "restaurant" in the phrase "Restaurants, cafeterias, coffee lounges, food courts and other eating places" must be interpreted applying the noscitur a sociis maxim. The expressions "cafeterias", "coffee lounges", "food courts" and "other eating places" each have as one of their characteristics the fact that alcohol is not served in conjunction with meals. Applying the maxim, "restaurant" should be interpreted as covering eating places that have the same characteristic. According to the Club, that conclusion is reinforced by the fact that none of the other types of retail shop listed in Schedule 1 to the RL Act involves the consumption of alcohol. The only other category which refers to alcohol is the following:

Beer, wine and spirit shops (except where goods are for consumption on the premises)

According to the Club, that category makes it clear that the RL Act was not intended to regulate shops where alcohol is consumed and that the legislature must have intended any premises of that type be regulated by the Liquor Act.

33 I do not accept that submission. In my opinion, it is not possible to spell out of the phrase "cafeterias, coffee lounges, food courts and other eating places" a genus which excludes places where alcohol might be consumed and which governs the meaning of the word "restaurant". The word "restaurant" would have no work to do if it were intended to refer only to restaurants where alcohol is not consumed. Any restaurant meeting that description would be caught by the phrase "other eating places". It is an unusual interpretation of the word "restaurant" that excludes any eating place where it is permitted to consume alcohol. A feature which distinguishes most restaurants from other types of eating place is the fact that patrons are permitted to consume alcohol. It would have been a simple matter for the legislature to exclude eating places where alcohol is consumed if that is what it intended - as it did in the case of beer, wine and spirit shops. It is possible that the relevant class of retail shops does not include eating places where alcohol is sold. However, even assuming that that is the case, Mr and Mrs Gnych's restaurant does not fall within that class. There is no apparent policy reason for excluding from the operation of the RL Act restaurants where alcohol is consumed. There is no reason why restaurants of that type cannot be regulated by both the RL Act and the Liquor Act. For those reasons, in my opinion, the restaurant that was leased to Mr and Mrs Gnych was a retail shop within the meaning of the RL Act.

Section 6A of the RL Act

34 Mr and Mrs Gnych submit that the exclusion contained in s 6A does not apply because the exclusion only applies to leases for a fixed term (of less than six months). It does not apply to a periodic lease. I do not accept that submission. It is clear that the policy behind s 6A is that the RL Act should not apply to short term leases. Section 6A(2) reinforces that policy by making it clear that if, as a matter of fact, the lease is extended for a period exceeding a year as a result of any type of extension or renewal, the Act does apply. A periodic monthly lease is a lease for one month that is automatically extended from month to month until terminated by either party. The obligations imposed on each party are necessarily short term ones. There is no reason why the policy of excluding the operation of the RL Act in respect of short term leases should not apply equally to all leases of that type.

35 However, in my opinion, Mr and Mrs Gnych, by their solicitor's letter dated 2 August 2013, gave written notice during the term of their lease that they elected to have the benefit of s 16 of the Act. The Club submits that that notice was not effective because it was not expressed as an election. Rather, it was expressed as the assertion of a right said to arise under the RL Act itself. I do not accept that submission. The notice required by s 6A(4) is not required to be in any particular form. Although Mr and Mrs Gnych's solicitor's letter was expressed as an assertion of right, there could be no misunderstanding on the part of the Club as a result of the letter that what Mr and Mrs Gnych were asserting was that they were entitled to a five year lease in accordance with s 16 of the Act. The fact that the letter was not expressed as an election does not alter the fact that in substance they were claiming to have the benefit of such a right. The Club clearly understood that to be the position. Indeed, by its solicitor's letter dated 2 August 2013, the Club acknowledged that Mr and Mrs Gnych asserted rights under the RL Act. It did not suggest that they were not entitled to the right conferred by s 16 because they had failed to give notice of an election to have the benefit of that right. Rather, the Club asserted that Mr and Mrs Gnych were not entitled to that right for other reasons. In those circumstances, in my opinion, Mr and Mrs Gnych elected to obtain the benefit of s 16 while the lease was still on foot.

Section 5 of the RL Act

36 The Club submits that Mr and Mrs Gnych carried on the business of the restaurant on behalf of the Club. That submission has two limbs. First, the Club relies on the fact that the restaurant was conducted in the Club's premises primarily for the benefit of members of the Club - a point that was reinforced by the fact that Mr and Mrs Gnych were required to and did offer a European cuisine with strong Polish influences. Second, the Club submits that the exception created by s 5 of the RL Act operates in respect of businesses that are carried on by the lessee where those businesses are carried on on behalf of the lessor. In other words, the section takes as its starting point the fact that the business is carried on by the lessee - that is, it is the lessee's business - and requires the court to ask whether that business is carried on on behalf of the lessor.

37 In my opinion, the Club's interpretation of s 5 should be rejected. The expression "carrying on of the business by the lessee on behalf of the lessor" is a composite phrase which describes a situation where the business is properly regarded as the lessor's business but the lessee is carrying that business on on behalf of the lessor.

38 In the present case, there is no basis for saying that Mr and Mrs Gnych carried on the restaurant on behalf of the Club. The business was Mr and Mrs Gnych's business. They were responsible for all aspects of the business, including hiring staff, advertising the business, deciding on menus and determining how the business was run. The name of the business was registered by them. They kept and were entitled to keep any profits derived from the business; and they were responsible for any losses the business suffered. They simply paid a fixed rent to the Club for the space that they occupied and agreed to run the restaurant in a way which clearly identified it as Polish. But I do not think that that is sufficient to say that the business was run on behalf of the Club.

The Liquor Act

39 It is common ground that the relevant prohibitions are found is s 92(1) of the Liquor Act. To the extent that s 92(2) imposes prohibitions on the owner of licensed premises, those prohibitions do not add anything to the prohibitions imposed on a licensee by s 92(1).

40 The prohibition in s 92(1)(c) is in respect of a lease of any part of the licensed premises "on which liquor is ordinarily sold or supplied for consumption on the premises". The reference to "premises" in the passage quoted is a reference to any part of the premises, not just that part which is the subject of the lease. The section is saying that that part of the premises where liquor is ordinarily sold or supplied cannot be leased or subleased where the liquor is sold or supplied for consumption on any part of the premises (whether leased or not). That is, the words "for consumption on the premises" is a reference to the whole of the premises and operates as a qualification on the words "sold" and "supplied". The prohibition is on leasing that part of the licensed premises where the liquor is "sold or supplied". The section is focussed on the area where the supply occurs, not where the liquor is consumed. It is the place where liquor is sold or supplied for a particular purpose - that is, consumption anywhere on the premises - that attracts the prohibition. It is not necessary for the area to be used only for the sale of liquor in order for the prohibition to apply. It is sufficient if liquor is ordinarily sold or supplied in that area. The purpose of the provision is to prohibit the leasing of places where liquor is distributed. The purpose of the provision is not to prohibit the leasing of areas where liquor might be consumed. Parts of the premises where liquor is not sold or supplied are governed by s 92(1)(d).

41 The word "supply" is defined in s 4 of the Act to include "dispose of or deliver".

42 In the present case, if patrons purchase liquor from the bar and take it into the restaurant, the liquor is sold or supplied to them in the bar area. It is not sold or supplied to them in the restaurant. However, if liquor is delivered to a patron in the restaurant, then that act falls squarely within the definition of "supply" as that word is defined in the Act; and the place of supply must be the place of delivery - that is, the restaurant.

43 Section 92(1)(c) creates a single offence. The offence is committed at the time when the lease is entered into. A limitation period of three years starts to run from that time: see Liquor Act s 146(2). There is no evidence concerning the question whether liquor was ordinarily supplied in the restaurant area to patrons at the time the lease commenced. There is evidence that Mr and Mrs Gnych developed a practice of permitting patrons who had booked the restaurant, or the restaurant and mirror room, for functions to order liquor from the bar and for that liquor to be supplied to them, either by the bar staff or restaurant staff who held an RSA licence, in those areas. However, two points may be made about that evidence. First, it is not evidence of what was ordinarily done at the time the lease commenced. Second, even if the practice was to supply liquor to the mirror room at the time the lease was entered into, the mirror room was not leased to Mr and Mrs Gnych. Mr and Mrs Gnych had a licence to use that room on certain occasions. Consequently, there could be no breach of s 92(1)(c) in respect of the mirror room.

44 It follows from what I have said that I am not satisfied that there has been a breach of s 92(1)(c) of the Liquor Act.

45 In my opinion, there has been a breach of s 92(1)(d) of the Act. The restaurant was part of the licensed premises. It was leased to Mr and Mrs Gnych without the approval of the Authority. That was a clear breach of the provision.

46 Mr and Mrs Gnych submit that that breach does not disentitle them from relief. They do not seek specific performance of an agreement for lease. Rather, they seek a declaration that they have a leasehold interest in the restaurant area. In making that submission, Mr and Mrs Gnych rely on the principle stated in Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65. In that case, the English Court of Appeal said (at 71):

In our opinion a man's right to possess his own chattels will as a general rule be enforced as against one who, without any claim or right, is detaining them or has converted them to his own use, even though it may appear ... that the chattels came into the defendant's possession by reason of an illegal contract between himself and the plaintiff, provided that the plaintiff does not seek and is not forced either to found his claim on the illegal contract or to plead its illegality in order to support his claim.

The principle has been approved by the High Court in Gollan v Nugent [1988] HCA 59; (1988) 166 CLR 18 at 47-9. See also Singh v Ali [1959] AC 167; Ison v Australian Wheat Board (1967) 68 SR (NSW) 102.

47 The principle has also been applied to leasehold interests in land. For example, in Wilson International Pty Ltd v International House Pty Ltd (No 2) [1983] WAR 257 a lease agreement over a car parking area breached the now repealed s 20(1)(a) of the Town Planning and Development Act 1928 (WA). That section prohibited certain leases exceeding a prescribed time period unless approval from the relevant planing authority had been obtained. No such approval had been granted to the lease in question. The plaintiff tenant unsuccessfully sought specific performance of the agreement. The defendant landlord claimed that it was therefore entitled to possession of the car park and relied on a notice in writing requiring the plaintiff to quit the premises. In response, the tenant submitted that its interest in the land had vested and that fact was not affected by the illegality. Smith J found for the plaintiff on that basis. In reaching that conclusion, his Honour said (at 265):

[t]he leasehold interest purported to be granted by a lease vests in the tenant notwithstanding the illegality and ... the court will not assist the landlord to recover what he has transferred in pursuance of the illegal transaction. Once the term has expired then there is no illegal contract in existence which the landlord would have to explain away before he could succeed in an action for possession based on his ownership of the land. It is only when the illegal but temporary title has ceased that a landlord in the situation of the defendant can rely upon his previous lawful title.

See also Abinger Investments Pty Limited v Royal George Hotel Holdings Pty Limited (1993) 46 FCR 483.

48 The position in the present case has a complication. I accept that Mr and Mrs Gnych obtained a leasehold interest in the restaurant, kitchen, office, storeroom and toilet. It seems clear that they had exclusive possession of those areas; and that the intention of the parties was that their right of occupation amounted to a lease. Indeed, the Club's argument based on s 92 of the Liquor Act depends on the existence of a lease. Mr and Mrs Gnych's claim does not depend on any illegality. They simply assert that a lease arose from the conduct of the parties and by operation of s 16 of the RL Act. It is the Club that seeks impermissibly to rely on the illegality. In those circumstances, there is no reason why Mr and Mrs Gnych should not be entitled to a declaration concerning the existence of a lease and an injunction restraining the Club from interfering with their rights of exclusive possession during the term of that lease.

49 On the other hand, there can be no suggestion that the rights Mr and Mrs Gnych had in relation to the mirror room amounted to a lease. Rather, they had a licence to use that space on certain occasions. That right falls within the definition of "lease" under s 16 of the RL Act. Consequently, Mr and Mrs Gnych are entitled to the benefit of s 16 of that Act in respect of the mirror room. No question of illegality arises in relation to the mirror room because the Club did not purport to lease that space to Mr and Mrs Gnych. Consequently, there is no reason why Mr and Mrs Gnych should not be entitled to an order for specific performance of that licence.

Section 41J of the Registered Clubs Act

50 Section 41J of the Registered Clubs Act must be read together with s 41Q. That section provides:

41Q Director-General may apply for orders in relation to disposal of real property owned by registered club

(1) If any real property that is owned or occupied by a registered club is disposed of otherwise than as provided by section 41J, the Director-General may make an application to the Supreme Court for an order in relation to the disposition of the property.

(2) In determining an application under subsection (1), the Supreme Court may make such of the following orders as it thinks fit if it is of the opinion that the disposal of the property has not been generally to the benefit of the members of the registered club:

(a) an order declaring a contract for the disposal of the property void,

(b) where the property had been owned by the club when it was disposed of, an order directing that the property be transferred back to the registered club,

(c) an order directing the payment of an amount or a further amount in relation to the disposal of the property by the person to whom the club disposed of the property or any person who benefited from the disposal of the property,

(d) such other orders as the Supreme Court considers necessary or appropriate in the circumstances.

(3) The Supreme Court is not to make an order under this section that, in the opinion of the Supreme Court:

(a) would unfairly and materially prejudice an interest or right of a person who acted in good faith and with no reasonable grounds to suspect that the disposal of the property concerned was in contravention of this Act, or

(b) would result in the extinguishment of an interest in the property (without proper compensation) held by a person who had no knowledge that the property had been disposed of in contravention of this Act or no means of preventing the disposal of the property.

51 It is clear from this section that the legislature did not intend to render void or unenforceable any lease or agreement for lease that was granted or entered into in breach of s 41J. Rather, it created a remedy exercisable by the Director-General. No relief has been sought by the Director-General in respect of Mr and Mrs Gnych's lease. Unless and until it is, there is no reason not to give effect to the lease.

Orders

52 Mr and Mrs Gnych are entitled to a declaration substantially in the terms they seek in respect of the restaurant including the kitchen, the office adjacent to the kitchen and the ground floor storage area and toilet. They are also entitled to an injunction to restrain the Club from interfering with their rights of possession. In addition, implicit in the grant of a lease of those areas is a right of access to the entry foyer into the property, the staircase and passageway leading to the restaurant.

53 Mr and Mrs Gnych also claim that they are entitled to a declaration that they have a leasehold interest in the mirror room. In my opinion, they are not entitled to a declaration in those terms. However, they are entitled to an order for specific performance of an agreement to license that area to them for a period of five years commencing on 31 March 2012. The precise terms of that licence agreement are not in evidence. However, it should be possible to identify the terms of the licence from the term sheet and the conduct of the parties since Mr and Mrs Gnych started to operate the restaurant. If there is an issue about the terms on which the licence was granted I will hear further evidence and submissions on that issue.

54 Mr and Mrs Gnych should bring in short minutes of order to give effect to this judgment. If the terms of the short minutes of order can be agreed between the parties I will make them in chambers. If not, the matter should be listed for further submissions and, if necessary, further evidence.

55 The Club should pay Mr and Mrs Gnych's costs of the proceeding to date.

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Decision last updated: 05 September 2013