GAMING & LEISURE Alert: The High Court decides on Club Catering Contracts

Jun 24 2015

Publications

The High Court of Australia has handed down its decision in Gnych v Polish Club Limited (2015) HCA 23 on an appeal from a judgment of the Court of Appeal of the Supreme Court of New South Wales regarding the arrangements between a registered club and its caterers. The outcome of these cases has implications for clubs when entering into leases or licences over any part of their licensed premises.

Background

The Polish Club and Mr & Mrs Gnych had negotiated the following arrangements:

  • a lease granting exclusive possession for the Gnychs over restaurant areas of the Club’s premises (comprising the restaurant, kitchen, an attached office, store room and toilet ); and
  • a non-exclusive licence for the Gnychs to use an adjoining ‘mirror room’ or hall on certain days for functions and overflow of patrons.

The Gnychs took occupation and started operating their business at the Club’s premises, but although lease and licence documents were drafted they were not signed. Over a year later, the relationship soured and the Club gave notice to the Gnychs to vacate the premises. The Gnychs commenced proceedings in the Supreme Court. While they were successful in the first instance, that decision was overturned by the Court of Appeal. The Gnychs then appealed to the High Court.

A number of issues were raised by the parties throughout the course of the litigation including:

  •  the application of the Retail Leases Act 1994 (NSW) (Retail Leases Act) to the arrangements; and
  •  whether any of the arrangements had been entered into in breach of section 92 of the Liquor Act 2007 (NSW) (Liquor Act), and if so, whether that would render them void and unenforceable.

The result

Although the documents were not signed, it was established through the course of the litigation that the Gnychs had exclusive possession of the restaurant area. The Court found that a lease had been created under ‘general law’, and as the lease was for the purpose of operating a restaurant, the Retail Leases Act also applied. Due to the circumstances of their occupation, the Gnychs were entitled to elect to take the benefit of the minimum 5 year term for the lease under section 16 of the Retail Leases Act.

Under section 92 of the Liquor Act, a club as licensee under its club licence, must not:

  • lease or sublease any part of the licensed premises on which liquor is ordinarily sold or supplied for consumption on the premises; or
  • lease or sublease any other part of the licensed premises except with the approval of the Independent Liquor & Gaming Authority (Authority).

In this case, the lease had not been approved by the Authority and had been granted by the Club in breach of the Liquor Act. The Club argued that the lease was therefore void and unenforceable. However, the High Court found that the breach of the Liquor Act did not automatically render the lease void and unenforceable. The Authority had regulatory powers if it wanted to penalise the Club for its breach and the Liquor Act does not mention that any arrangement entered into in breach of s 92 would be void.

The Retail Leases Act can also apply to an arrangement which is not a lease at general law, such as a non-exclusive licence. The Supreme Court found in the original decision that the non-exclusive licence for the Gnychs to use the mirror room at the Club’s premises was a right of occupation to which the Retail Leases Act applied, however, as the Gnychs did not have exclusive possession the licence did not amount to a lease at general law to which section 92 of the Liquor Act would apply. This position was not overturned in either the Court of Appeal or High Court decisions.

Implications for clubs

Some key points for clubs arising from these cases are:

  • A club must not lease any part of the licensed premises on which liquor is ordinarily sold or supplied for consumption on the premises. If a club wants to lease any other part of its licensed premises, it must obtain the approval of the Authority. If it fails to do so, the club may face penalties under the Liquor Act and the lease may still be enforceable by the tenant.
  • Each agreement will be different and the terms will depend on the club’s circumstances.  Clubs should establish whether a lease or licence is being granted, and whether the Retail Leases Act, the Liquor Act and any other legislation, such as the Registered Clubs Act 1976 (NSW), applies.
  • The Retail Leases Act applies to many agreements that grant a right to occupy premises (for value) for the purpose of a restaurant, cafe, coffee lounge, food court or other eating place. This includes many club catering contracts (with limited exceptions under that Act). The Retail Leases Act also applies to other retail shop premises in some clubs, such as golf equipment shops.
  • The Retail Leases Act can apply even if there is no written agreement and no right of exclusive possession is granted.
  • If the Retail Leases Act applies, and the agreement is to be for less than 5 years, in most cases a certificate must be given by an independent legal advisor confirming that the tenant/licensee has been advised that the term is less than 5 years. Otherwise, a minimum term of 5 years is likely to be imposed by law.
  • If the Retail Leases Act applies, the club will need to have a copy of the proposed draft contract available before it offers to enter into the contract, invites an offer to enter into the contract, or advertises that the shop is available. The club must also ensure that other prescribed documents, such as the disclosure statement, are provided within the timeframes required under the Act.
  •  The agreement should be signed before the other party takes occupation or starts paying any licence fee or rent.

For more information please contact:

Brett Boon | Partner | +61 2 8248 5832 | bboon@tglaw.com.au 

Arjunan Puveendran | Lawyer | +61 2 8248 3494 | apuveendran@tglaw.com.au