Polish Club Limited v Gnych

HEADNOTE [This headnote is not to be read as part of the judgment] The appellant is a registered club under the Registered Clubs Act 1976 (NSW). The respondents operated a restaurant on the first floor of the appellant's premises, and used an adjoining hall from time to time. Although the parties contemplated signing an agreement for lease of the restaurant and licence of the hall, none was ever signed. A dispute arose between them and the appellant gave notice to the respondent to vacate the premises. The parties' solicitors exchanged correspondence, the respondents claiming that such notice was unlawful because the restaurant is a retail shop within the meaning of the Retail Leases Act 1994 (NSW) and the subject of a lease of a minimum term of five years by operation of that Act. On 5 August 2013, the appellant excluded the respondents from the premises. The respondents commenced proceedings in the Equity Division of the Supreme Court seeking a declaration that they were lessees of the restaurant area and adjoining hall and that the lease was for a term of five years. Ball J granted the respondents a declaration that the respondents were lesees of the restaurant area, and that said lease was for a term of five years. Ball J also granted the respondents specific performance of a non-exclusive licence with respect to the adjoining hall. The appellant appealed, arguing that the Court should not enforce the lease because it was granted in breach of s 92(1)(c) of the Liquor Act 2007 (NSW) which prohibits a licensee from granting a lease over licensed premises on which liquor is ordinarily sold or supplied; or alternatively, because the lease was granted in breach of s 92(1)(d) which prohibits the grant of lease over licensed premises, where alcohol is not ordinarily sold or supplied, without the approval of the Independent Liquor and Gaming Authority. The appellant also argued that in granting a lease and licence to the respondents, the appellant had breached s 41J of the Registered Clubs Act which prohibits the disposal of a registered club's core property unless by an open and transparent process, with the effect that the lease and licence were void and unenforceable. Finally, the appellant argued that the respondents were not entitled to specific performance of the licence to the adjoining hall because that licence was not a right of occupation for the purposes of the Retail Leases Act and the respondents did not elect in writing to have the benefit of the five year term under that Act. The Court held:

1. The lease was not in breach of s 92(1)(c) of the Liquor Act. The evidence established that alcohol was not ordinarily sold or supplied in the restaurant: [42]-[56]
2. The lease was in breach of s 92(1)(d) of the Liquor Act. Sub-sections 92(1)(c) and (d) are mutually exclusive: [57]-[58]
3. The purpose of the Liquor Act is to ensure that the licensee is at all times responsible for the personal supervision and management of business on the licensed premises. The grant of a lease in breach of s 92(1)(d) confers a right of exclusive possession on the lessee, including a right to exclude the licensee. Therefore, 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: [59]-[79], [81] Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65; Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410; Abinger Investments Pty Ltd v Royal George Hotel Holdings Pty Ltd (1993) 46 FCR 483; Tinsley v Milligan [1994] 1 AC 340; Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538; Miller v Miller [2011] HCA 9; (2011) 242 CLR 446; referred to. Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498; applied.
4. In enacting s 41J of the Registered Clubs Act, the legislature did not intend that any disposal of core property by a club in breach of that section would be void and unenforceable. The Act provides remedies for breach of that section in ss 41Q and 41V: [23]-[30]
5. The right of occupation granted to the respondents in respect of the adjoining hall is within the definition of lease in the Retail Leases Act and the letter of their solicitors asserting rights under that Act constituted an election to have the benefit of the five year term: [87]-[89]

Judgment 1MEAGHER JA: I agree that the orders proposed by Tobias AJA should be made for the reasons that his Honour gives. 2LEEMING JA: I agree with Tobias AJA. 3TOBIAS AJA: Polish Club Limited (the Club) is a registered club under the provisions of the Registered Clubs Act 1976 (NSW) (the RC Act). It is the holder of a club licence under the provisions of Div 3 of Pt 3 of the Liquor Act 2007 (NSW) (the Liquor Act). The Club's premises are situated in Norton Street, Ashfield and comprise a building of two floors together with a rooftop cocktail hall (the premises). The first floor of the premises relevantly comprises a restaurant with a capacity of approximately fifty seats with an adjoining kitchen and office (together the restaurant area). The ground floor comprises the entry to the premises together with, relevantly, a storage area and staff toilets. Adjoining the restaurant is an area referred to as the mirror hall or room (the mirror hall) with a capacity of approximately eighty seats and which is accessed directly from the restaurant by way of a moveable wall. This level of the premises also contains a bar where members can purchase liquor as well as male and female toilets and other areas for use by members of the Club not presently relevant. 4Between 31 March 2012 and 5 August 2013 the respondents, Mr and Mrs Gnych, operated the restaurant on the first floor of the premises. On 7 July 2013 the Club, through its solicitors, Strathfield Law, gave the respondents notice to vacate the restaurant area and, on 5 August 2013, they were excluded from the premises. 5On 8 August 2013 the respondents filed a summons in the Equity Division of the Court (amended on 16 August 2013) claiming a declaration that they are the lessees of the restaurant area, the adjacent mirror hall and the ground floor storage area and toilets. The claimed declaration also extended to the ground floor entry foyer, staircase and passageway leading to the restaurant on the first floor and the toilets on that floor, all to be used in common with the Club. The alleged lease was for a term of five years commencing on 31 March 2012. On 8 August 2013, the respondents also filed a notice of motion in which they sought an order that the Club permit them to resume and maintain possession of those parts of the premises the subject of the alleged lease from which they had been excluded. (Although the areas listed in the notice of motion do not include those areas added by the amended summons, the primary judge proceeded on the basis that the claim concerned the premises as set out in the amended summons.) 6The respondents sought and obtained ex parte injunctive relief on 8 August 2013. That relief was continued on 9 August when the proceedings returned to Court. On that day, the proceedings were expedited and set down for final hearing on 29 August 2013. On 5 September 2013 his Honour delivered judgment in which he rejected the defences advanced by the Club and held that the respondents were entitled to a declaration substantially in the terms sought except for the mirror hall in respect of which his Honour held that the respondents were entitled only to a licence: Gnych v Polish Club Limited [2013] NSWSC 1249. 7On 30 September 2013 the primary judge heard argument on the precise terms of the orders that should be made and delivered an ex tempore judgment (Gnych v Polish Club Limited (No 2) [2013] NSWSC 1452) at the conclusion of which he made the following declarations and orders (I omit irrelevant parts): "[1] Declare that the Plaintiffs are the lessees for a period of 5 years commencing on 31 March 2012 of that portion (such portion being hereinafter referred to as "the premises") of the property described in Folio Identifier 12/592302 situated at 73 Norton Street, Ashfield in the State of New South Wales ("the property") comprising the restaurant, including the kitchen, the adjacent office and the toilets and store room on the ground floor and to use in common with the defendant, its servants, agents and invitees the entry foyer into the property, the staircase and passageway leading to the restaurant and the toilets on the first floor of the building and reserving to the Defendant a base weekly rental of $500 payable monthly in advance during the first twelve (12) months of the term. Thereafter base rent to be varied on each anniversary of commencement of the lease in accordance with the Consumer Price (Sydney All Groups) Index. The Premises are to be used only for the purpose of conducting a restaurant and the holding of functions. ... [2] Declare that it was agreed by and between the Plaintiffs and the Defendant that the Defendant would grant to the Plaintiffs a non-exclusive licence (subject to clause 2.3) to use that portion of the aforementioned property known as the "Mirror Hall" upon the following terms: 2.1 The licence to commence as and from 31 March 2012. 2.2 The licence to subsist to continue during the currency of the lease referred to in Declaration 1 hereof. 2.3 The Plaintiffs are entitled to exercise an exclusive license [sic] in respect of the Mirror Hall on Fridays, Saturdays and Sundays during the Defendant's ordinary hours of opening and such additional hours that particular functions may last provided those hours are restricted to the Defendant's authorised opening hours. 2.4 As long as the Plaintiffs pay the rental and outgoings reserved in respect of the lease referred to in Declaration 1 hereof, the Plaintiffs shall not be required to provide any additional payment for the benefit of this licence. [3] Order that the agreement referred to in order 2 be specifically performed and carried into effect. [4] Order that the Defendant, its directors, servants and agents be restrained from interfering with the possession of the Plaintiffs in respect of the leased premises unless and until such time as the lease is rightfully terminated or otherwise comes to an end." 8On 16 December 2013 the Club filed a notice of appeal from the primary judge's declarations and orders and on 12 March 2014 the respondents filed a notice of contention, which was amended with leave during the hearing of the appeal. An issue arose as to whether the appeal was competent, it being suggested that it failed to comply with s 101(2)(r) of the Supreme Court Act 1970 (NSW). Although written submissions with respect to this issue were filed by both parties, no oral argument on the issue was advanced at the hearing. Nevertheless, the respondents maintained first, that the appeal was incompetent and that leave to appeal was required and, secondly, that such leave should be refused. The Court reserved its decision on this issue but nevertheless proceeded to hear the appeal upon the basis of a concurrent hearing. In my opinion the appeal raises a number of issues of principle and complexity which justify a grant of leave assuming leave is required. Accordingly, it is unnecessary to determine whether that is so.

Factual background 9The primary judge set out the factual background at [3]-[16] of his reasons, none of which was challenged on appeal. I therefore confine myself to repeating so much of it as is germane to the issues debated on the appeal. 10The first respondent commenced negotiation for a lease of the restaurant area with the Club's President and Vice President in August 2011. It was agreed in principle that the respondents would be granted a lease of the restaurant area on the first floor and a storeroom and toilet on the ground floor of the premises. In addition, it was agreed in principle that the respondents would have non-exclusive access to the mirror hall for overflow customers of the restaurant and to cater for larger functions. 11Negotiations between the parties then continued until approximately early December 2011 when the respondents' solicitor sent to the Club a document referred to as a "term sheet", which appeared to be incomplete and which purported to set out the terms of a proposed lease of the "restaurant area, kitchen and downstairs storage area" on the one hand and a licence agreement for use of the mirror hall on Fridays, Saturdays and Sundays on the other. The term sheet included the following: "SELLING LIQUOR: Lessee to have own cash register in bar area (register provided by Club). Reconciliation to take place each evening of service & lessee to keep 10% of takings. Bar staff employed by Lessee." It was also agreed that the respondents would renovate the restaurant which they did between December 2011 and March 2012. 12Although on 29 March 2012 the respondents' solicitor sent to the Club a draft lease in registrable form together with a licence agreement for the mirror hall, no lease or licence agreement has ever been signed. Nevertheless, the Club permitted the respondents to commence operating the restaurant on 31 March 2012. In May 2012 the Club engaged its own solicitors and there were further negotiations concerning the terms of the lease and licence agreement which came to nought. 13The restaurant operated successfully but ultimately relations between the respondents and at least some members of the Management Committee of the Club (the Committee) deteriorated. As I have indicated, on 7 July 2013 the Club's solicitors, Strathfield Law, sent to the respondents' solicitors a letter setting out a number of the Committee's grievances. The letter concluded in the following terms: "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." 14In a letter dated 9 July 2013, the respondents' solicitors disputed the allegations made in Strathfield Law's letter and sought a mediated meeting to resolve the issues between the parties. As there appears to have been no response to this suggestion, on 2 August 2013 a new firm of solicitors engaged by the respondents wrote to Strathfield Law a letter which, relevantly, was in the following terms: "Re: J & S GNYCH Lease from POLISH CLUB PTY LTD Premises: Restaurant on First Floor & Adjoining Ground Floor Kitchen at 73 Norton Street Ashfield NSW 2131 We act on behalf of Jacek Gnych and Sylwia Gnych in relation to the above matter. 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 [sic] vacate same premises within 14 days is unlawful. Should your client disagree, we request that you provide us a [sic] 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." 15Strathfield Law responded to that letter on the same day stating that the respondents' solicitor's letter of 2 August 2013 "incorrectly asserts that [the respondents] were given 14 days notice to quit. That is incorrect". Strathfield Law's letter then, relevantly, continued as follows: "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 clients' 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). It follows that it was not possible for our client to 'lease' (as opposed to other possible relationships) the premises to your clients; either under the Retail Leases Act or the Conveyancing Act 1919 and the Retail Leases Act cannot have any application in this matter." The Club's solicitors then stated that its client's Board repeated and maintained its requirement that the respondents vacate the Club's premises within 28 days of 7 July 2013. As noted above, on 5 August 2013 the Club excluded the respondents from its premises. 16Notwithstanding what was set out in the term sheet with respect to the sale of liquor in the restaurant, the primary judge found (at [16]) that patrons dining in the restaurant were told that the restaurant could not sell or serve liquor because it was not licensed, but that they could obtain it from the bar area and, presumably, return with it to their tables in the restaurant for consumption. 17However, the practice was, at least to some extent, different in the case of functions. The respondents, who each held a Responsible Service of Alcohol licence (RSA licence) (the licence required by all persons serving alcohol by cl 40 of Liquor Regulation 2008 (NSW)) would sometimes place orders for customers and they, or a member of their staff who held an RSA licence, would place the pre-ordered alcohol provided by the Club's bar staff on the restaurant tables. If liquor ran out, the respondents or either of them would arrange for the bar staff to deliver additional liquor to the customer. The bar staff or other employees of the restaurant who held an RSA licence would then take the liquor to table that had ordered it. I mention the foregoing because the respondents submitted that the methods of providing liquor to restaurant patrons so adopted did not constitute a "supply" of liquor for consumption within the restaurant with the consequence that s 92(1)(c) of the Liquor Act had no application notwithstanding the assertion by Strathfield Law to the contrary.

The pleadings 18Points of claim and points of defence were filed. Relevantly, the respondents' points of claim alleged in paragraph 4 that the restaurant area as described in the amended summons and referred to in the points of claim as "the premises" was a retail shop within the meaning of the Retail Leases Act 1984 (NSW) (the RL Act). Paragraph 5 then alleged that as and from 31 March 2012 the respondents entered into occupation of the premises and paragraph 9 alleged that insofar as the premises comprised the ground floor storage area and downstairs toilets, the restaurant and the office adjacent to the restaurant, "such premises were as and from 31 March 2012 the subject of the exclusive occupation of the [respondents]." 19Perhaps unsurprisingly, in its points of defence the Club admitted paragraph 9 of the points of claim for it was in the interest of its defence based on s 92(1) of the Liquor Act to do so. In this context, I pause to note that the respondents accepted that before the primary judge they at all times maintained that they had exclusive possession of the premises as defined in the points of claim and that as a consequence of the general law combined with s 16(1) of the RL Act, they had a lease of the premises (as defined in the points of claim) for five years commencing on 31 March 2012. When during oral argument on the appeal it was pointed out to counsel for the respondents that the admitted allegation of exclusive possession had the consequence that there was a lease of the premises which had the potential to be prohibited by s 92(1)(c) or (d) of the Liquor Act as distinct from a non-exclusive licence which would not, counsel quite properly accepted, and confirmed in a supplementary written note to the Court, that he was bound by the manner in which he had conducted the case at trial.

The now non-contentious issues 20At [17] of his reasons the primary judge noted that the respondents did not suggest that an agreement for lease had been reached. Rather, they asserted that by the provisions of ss 8 and 16 of the RL Act they obtained a leasehold interest in that part of the Club's premises they occupied for a five year term commencing on 31 March 2012. The basis of this contention is found in the definition of "retail shop lease" or "lease" defined in s 3 of the RL Act 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." 21Although in issue at trial, there was no dispute on appeal that if the RL Act otherwise applied, the premises as defined in the points of claim were relevantly used for the purpose of a restaurant and therefore a "retail shop" as defined in that Act. The respondents thus submitted that they had a retail shop lease which, by virtue of s 16(1) of the RL Act was for a minimum term of five years. The Club responded to this contention on the basis that s 6A(4) of the RL Act provided that s 16(1) did not apply to the asserted lease unless the respondents had notified the Club in writing during its term that they elected to have the benefit of that section. Notwithstanding the Club's submission to the contrary, the primary judge held at [35] that the letter from the respondents' solicitors to the Club's solicitors of 2 August 2013 (which I have extracted at [14] above) satisfied the requirement of notice under s 6A(4). There is no challenge to this finding on the appeal. 22The Club further contended that the RL Act did not apply to its premises as a consequence of s 5, which excludes certain shops from the operation of the RL Act. His Honour rejected this submission at [37] and again it is not the subject of challenge. I therefore turn to the contentious issues argued on the appeal.

The RC Act issue 23The Club relied upon s 41J of the RC Act submitting to the primary judge that the Committee had no power to grant a lease to the respondents of the restaurant area. Section 41J(3) provides as follows: "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." 24"Dispose" is defined in s 41J(1) to mean, relevantly, "sell, lease or license" and "core property" is defined, relevantly, to include the Club's premises. 25The primary judge held (at [50]) that s 41J of the RC Act must be read together with s 41Q which provides as follows: "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." 26At [51] his Honour concluded that it was clear from the terms of s 41Q 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 to be exercised by the Director-General. Accordingly, unless and until relief was sought by the Director-General in respect of the respondents' lease, there was no reason not to give effect to it. 27In its third ground of appeal the Club challenged his Honour's rejection of its submission that the effect of s 41J was to render any lease of the restaurant area or licence of the mirror hall void and unenforceable. For that purpose it relied on s 41V of the RC Act which provides as follows: "41V Offences by secretary and members of governing body of registered club in relation to contracts If a registered club contravenes, whether by act or omission, any provision of Division 4 [which includes s 41J] ..., the club is not guilty of an offence but each person who is the secretary of the club, a member of the governing body of the club or a close associate of the club is guilty of an offence punishable on conviction by a maximum penalty of 100 penalty units unless the person satisfies the Court that: (a) the club contravened the provision without the knowledge actual, imputed or constructive of the person, or (b) the person was not in a position to influence the conduct of the club in relation to its contravention of the provision, or (c) the person, if in such a position, used all due diligence to prevent the contravention by the club." 28It was submitted that his Honour had failed to consider this provision which was relevant to the issue of illegality. In that section the relevant lease or licence constituted an unlawful transaction and that a consideration of the provisions of the RC Act including s 41V revealed a policy of absolutely prohibiting the lease or granting of a licence in respect of any core property of a registered club unless in compliance with (relevantly) s 41J, indicating a legislative intention that core property only be disposed of in an open and transparent process. This policy would not be implemented unless the relevant transaction was rendered unenforceable and void. It was further submitted that the effect of his Honour's finding was that the Club would be unable to itself set aside the transaction but would be reliant upon the Director-General exercising his discretion to make an application under s 41Q. 29So far as this last submission is concerned, in my view it overlooks the fact that the impugned disposition is made by the registered club, so that, on one view, the legislature did not intend that the club itself should be provided with a remedy with respect to its own action; rather the remedial consequences of a breach of s 41J(3) are to be found in ss 41Q and 41V. 30Further, s 41Q proceeds upon the assumption that the relevant disposition is extant in the sense that it is neither void nor unenforceable for otherwise s 41Q would have little, if any, work to do. Accordingly, in my view the Club's challenge to his Honour's rejection of the Club's reliance on s 41J as rendering the respondents' lease of the restaurant area and/or licence of the mirror hall void and unenforceable, is unsustainable.

(a) The nature of the issue 31The main issue between the parties before the primary judge and on the appeal concerned the Club's contention that the lease was illegal under s 92(1) of the Liquor Act and that consequentially the respondents were disentitled to the relief they sought. Section 92 relevantly provides as follows: "92 Control of business conducted on licensed premises (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 Authority referred to in s 92(1)(a), (d) and (2)(b) is, by definition, the Independent Liquor and Gaming Authority. 32At [28] of his reasons the primary judge noted that the Club maintained that the relevant provision which was breached was s 92(1)(c) as it had leased part of its licensed premises (the restaurant) on which liquor is ordinarily supplied for consumption. Alternatively, it submitted that s 92(1)(d) applied because the restaurant formed part of the licensed premises. 33The Club's first and second grounds of appeal related to this issue. It formed the main focus of the appeal. It is therefore necessary to deal with it in some detail. It has two aspects to it. The first is whether there was a breach of s 92(1)(c) or (d) and, if there was, the second concerns the consequences of any such breach in terms of the relief sought by the respondents.

(b) The primary judge's reasoning 34With respect to the first aspect, the primary judge's reasoning is to be found at [40]-[45] of his reasons. At [44] he held that he was not satisfied that there had been a breach of s 92(1)(c). His reasoning may be summarised as follows: (a) 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" is a reference to any part of the licensed premises, not just that part which is the subject of a lease; (b) The subsection is saying that that part of the licensed 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 those premises, whether leased or not; in other words, the words "for consumption on the premises" refers to the whole of the licensed premises; (c) The prohibition is on the leasing of that part of the licensed premises where liquor is "ordinarily sold or supplied". The subsection focuses on the area where, relevantly to the present case, supply occurs, not where the liquor is consumed; it is the place where the liquor is supplied that attracts the prohibition; (d) In other words, the purpose of the provision is to prohibit the leasing of any part of licensed premises where, relevantly, liquor is distributed; it is not to prohibit the leasing of areas where liquor is only consumed not being an area where liquor is ordinarily supplied. The latter is governed by s 92(1)(d); (e) The word "supply" is defined in s 4 of the Liquor Act to include "dispose of or deliver". In the present case, the restaurant patrons purchase liquor from the bar and take it into the restaurant with the consequence that the liquor is sold or supplied to them in the bar area: it is not sold or supplied to them in the restaurant albeit that that is where it is consumed; (f) However if liquor is delivered to a patron in the restaurant then it is supplied to the patron there, the place of delivery being the place of supply pursuant to s 4. I do not understand either party to challenge the correctness of the above reasoning. 35At [43] his Honour remarked that s 92(1)(c) created a single offence which was committed at the time when the lease is entered into. Again there is no challenge to that proposition. His Honour's reasoning then continued in the following passage: "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." Accordingly, at [44] the primary judge held that he was not satisfied that there had been a breach of s 92(1)(c). However, at [45] he held that there had been a breach of s 92(1)(d). The restaurant was part of the licensed premises and was leased to the respondents without the approval of the Authority. Accordingly, there was a clear breach of that provision. 36The following observations may be made with respect to the passage at [43] of his Honour's reasons set out above. First, the only evidence that his Honour referred to was that of the respondents to the effect that they developed a practice whereby a patron would order liquor from the bar and that liquor would be "supplied to them, either by the bar staff or restaurant staff who held an RSA licence". Secondly, although the delivery of liquor by the bar or restaurant staff to a patron who had ordered it but who had not himself or herself taken delivery of it at the bar, would be a supply for the purposes of s 92(1)(c), there was no evidence that liquor was "ordinarily ... supplied" in that manner at the time the lease was entered into on 31 March 2012. That was not to say it was necessary that such a supply should occur on that very date, although as will be seen it may. The restaurant appeared not to be operating due to renovations during the period December 2011 to March 2012 so if there was no evidence of supply on 31 March 2012, the question becomes whether prior to December 2011 liquor was ordinarily supplied to the restaurant in the manner referred to. Thirdly, his Honour's point with respect to the mirror hall is clearly correct as that was never the subject of a lease. The contrary was not suggested on the appeal.

(c) The evidence as to supply at or prior to 31 March 2012 37No doubt because the matter was heard expeditiously and as a consequence his Honour was concerned to provide a judgment as quickly as possible which he clearly did, it is apparent that he overlooked some evidence which went to the issue as to whether the restaurant was part of the licensed premises on which liquor was ordinarily supplied for consumption therein. I set out that evidence in the following paragraphs. 38Mr Richard Borysiewicz, the President of the Club, swore an affidavit on 23 August 2013 relied upon by the Club. He relevantly deposed as follows: "3 On the premises at 73 Norton Street is erected a building in and from which the Club conducts its activities, which building includes on the first floor: (a) Two function halls; a small (mirrored) hall and a larger hall (b) A restaurant (c) A bar area with Poker machines (d) Associated offices, toilet facilities, etc. 4 Liquor has at all material times, being from the time the facilities described in paragraph 3 were erected or at least from the time the Club was granted a Liquor Licence, been ordinarily sold or supplied by Club in the areas described in paragraphs 3(a), 3(b) and 3(c). ..." 39Mr Borysiewicz was cross-examined on behalf of the respondents but the only part of the cross-examination which was directed at paragraph 4 of his affidavit was in the following exchange: "Q. Can I take you, if you wouldn't mind, to paragraph 4 of your affidavit? A. Yes. Q. In that paragraph you refer to liquor being sold or supplied by the club in the areas that you have nominated, those having been referred to in paragraph three? A. That's correct. Q. And you say that at all material times liquor was being supplied by those areas? A. That's correct." 40There is no doubt that so much of paragraph 4 of Mr Borysiewicz's affidavit that I have set out at [38] above was objectionable as constituting a conclusion rather than evidence of a fact. However, it was admitted without objection. Furthermore, it was confirmed in cross-examination. Nevertheless the respondents submitted that that evidence should be ignored because the deponent was merely quoting the terms of s 92(1)(c) rather than specifying the particular acts in respect of the supply of liquor that occurred or did not occur from time to time in the past and, in particular, prior to the commencement of the renovations of the restaurant in December 2011. It is correct that, to be unobjectionable, Mr Borysiewicz's evidence should have been confined to the particular activities which it was asserted constituted a supply. The opportunity was there for the cross-examiner to take that course and, in particular, to object to paragraph 4 but no such objection was taken. 41The respondents relied upon the affidavit evidence of Mr Lucian Romanowski, the Club Manager since 2007, sworn 23 August 2013. One could therefore infer that he was in a position to give evidence as to the manner in which liquor was consumed in the restaurant during and prior to December 2011. His evidence with respect to this issue was as follows: "17 ... Alcohol was supplied or served by the Club in the restaurant and adjoining mirrored hall at all times after 1 January 2012; except for the period from January to about March 2012 when the restaurant itself was being renovated. During the renovations alcohol was served or supplied by the Club in all other licensed areas including the mirrored hall. 17.B No final agreement was ever reached for the Plaintiffs to act as the Club's agents in supplying or serving alcohol in the restaurant or mirrored hall; being the smaller reception hall adjacent to the restaurant and bar. Generally, in my direct observation and under my supervision, patrons of the restaurant would exit the restaurant and go into the bar area where they would purchase alcohol from the Club and take it back and consume it within the restaurant. 18 When the Plaintiffs catered for a function in the mirrored hall, the Plaintiffs would on occasions pre-order alcohol and I would direct the barman to supply the alcohol as ordered. On occasion the Plaintiffs and their staff would collect the alcohol before a function and place it on the tables inside the hall. On other occasions when alcohol had been ordered by the Plaintiffs, the Plaintiffs and their staff would during the function have the barman provide the alcohol as ordered and they would take it to a particular table. On other occasions when alcohol was not pre-ordered by the Plaintiffs, either the patrons would approach the bar, which opens into that hall on one side, collect the alcohol for their table or, Mr Gnych or his staff would collect the alcohol from the bar and take it to the tables inside the mirrored hall. Sometimes the patrons would pay the Club's barman for the alcohol they had ordered and sometimes Mr Gnych would pay the barman the whole alcohol tab at the end of a function. That happened a couple of times. ... Sometimes the Plaintiffs provided a verbal list of requested alcohol. The Club's barman would prepare the stock, store it at [the] bar and supply on demand from either the Plaintiffs, their staff or patrons. There was no direct payment by the Plaintiffs to the Club office; they paid directly to the barman. There was never any "tab" per-ce [sic] kept during any function in the sense that if the Plaintiffs had placed an order, they would pay for that order. On the occasions when patrons at functions placed orders with the barman directly, tabs or running accounts for those patrons were kept. All payments for alcohol supplied by the Club and consumed in either the restaurant seating area or the mirrored hall were paid to the Club bar." (Emphasis added.) Mr Romanowski's evidence in cross-examination did not take the matter any further.

(d) Was there a contravention of s 92(1)(c)? 42I have recorded paragraph 18 of Mr Romanowski's affidavit which relates to the mirror hall (with the exception of the last sentence) in order to contrast it with the paragraph 17B which relates to the restaurant. In my view on the basis of that evidence, the manner of providing liquor so described to or in the mirror hall constituted a supply within the meaning of the Liquor Act. However, as the mirror hall was never leased to the respondents, there was no contravention of s 92(1)(c). 43In my view, if liquor was supplied to patrons of the restaurant in the manner referred to in that part of the paragraph 17B of Mr Romanowski's affidavit which I have emphasised, that is, where liquor was delivered to a restaurant patron in the bar area, then there would be no supply in the restaurant notwithstanding that that liquor was consumed in that location: the supply would be in the bar area. As I have indicated, the primary judge found (at [43]) that there was no evidence concerning the question of whether liquor was ordinarily supplied in the restaurant to patrons at the time the lease commenced. With respect, I think there was. 44It is true that the evidence of Mr Romanowski is a little confusing. In paragraph 17 he asserts that liquor was "supplied or served" by the Club in the restaurant and adjourning mirror hall at all times after 1 January 2012, except for the period the restaurant closed for renovations. On the other hand, in paragraph 17B, he deposes to the precise manner in which patrons of the restaurant would obtain liquor to be consumed therein. As I have indicated, to the extent to which that method of obtaining liquor was usual, it did not constitute a supply of liquor in the restaurant. 45When one reads the paragraphs 17 and 17B together, it seems to me that Mr Romanowski was not using the words "supplied or served" in the paragraph 17 in any statutory sense. He was merely setting the scene with respect to the provision of liquor to the restaurant and mirror hall after 1 January 2012. The actual method of providing liquor to each of those areas was then recorded by him in detail in the paragraphs 17B and 18 respectively. The contrast between that adopted with respect to the restaurant and that adopted with respect to the mirror hall is stark. One is clearly not a supply whereas the other clearly is. 46Furthermore, from Mr Romanowski's evidence as to the method of providing liquor to the restaurant and mirror hall after 1 January 2012, it can be inferred that those methods were employed when the lease of the restaurant area commenced on 31 March 2012. Therefore, there was evidence as to the ordinary supply of liquor at the relevant time, being, as the primary judge identified, the date the lease commenced. 47As to the evidence of Mr Borysiewicz who deposed that "at all material times" being "at least from the time the Club was granted a Liquor Licence", liquor was "ordinarily sold or supplied by the Club" in that area, the respondents are correct when they submit that Mr Borysiewicz was simply repeating the words of the statute. As already noted his evidence was inadmissible in form but admitted without objection. How should it be treated? 48The significance of a failure to object to the admission of arguably inadmissible evidence, particularly in criminal trials, is uncertain: S Odgers, Uniform Evidence Law (11th ed 2014, Lawbook Co) at [1.1.98]. In Smits v Roach [2006] HCA 36; 227 CLR 423, the High Court took the view (at [46]) that in civil litigation, if a legal representative for a party fails to object to inadmissible evidence in the course of the trial, that party is "bound by the consequences" on appeal. The problem is to identify those consequences. 49As Odgers notes, while courts in criminal proceedings may be required to reject the evidence if it is inadmissible in the absence of objection, the accepted view in civil proceedings is that it is not the role of the court to raise questions of admissibility, including any which turn on relevance. For example: "[w]here evidence is admitted which the court regards as not relevant under s 55 [of the Evidence Act 1995 (NSW)], the court will give the evidence no weight. On the other hand, where evidence is admissible for one use but not admissible for another use, absence of objection will usually be understood to apply to the first use, so that the court should not use the evidence in the second impermissible way." (Citations omitted.): S Odgers, Uniform Evidence Law at [1.3.290]. 50In Lym International Pty Ltd v Marcolongo [2011] NSWCA 303, Campbell JA, with the agreement of Sackar J, said at [103]: "The topic of the use that may legitimately be made of evidence that has been admitted without objection has its complications. However, it can at least be said that it would be improper for a judge to use, in assessment of the probability of the existence of a fact in issue, evidence that in truth does not rationally affect that probability. Further, sometimes a rule of evidence specifically restricts the use that may be made of admissible evidence, by providing that a type of evidence is admissible to prove some particular type of matter, or by imposing a condition on the use of evidence in a particular way." (Citations omitted.) 51If evidence, admitted without objection, is "not legally admissible in proof of any issue", it may, once in, be used "as proof to the extent of whatever rational persuasive power it may have": JD Heydon, Cross on Evidence (9th ed 2013, LexisNexis Butterworths) at [1665] citing McLennan v Taylor (1966) 85 WN (Pt 1) (NSW) 525 and other cases. In McLennan, Walsh J observed at 528: "I think that a failure to object may carry more extensive consequences as to the use which can afterwards be made of the document, if it is clear that an objection would have been sustained, than such a failure would carry if the document is admissible, although only upon some limited ground or for some limited purpose. In the former case, the failure to object may more readily be taken as an assent to the full use of the document for whatever probative value it may have." See also, Jones v Sutherland Shire Council [1979] 2 NSWLR 206 at 219 (Samuels JA). 52Mr Borysiewicz's evidence was not legally admissible on the issue of supply but having been admitted without objection, it can be used to the extent of whatever persuasive power it has. In my view, it is of limited persuasion. However, I consider it unnecessary to form a concluded view on that issue as I regard the evidence of Mr Romanowski of far greater probative value. 53Mr Romanowski was the manager of the Club in 2011 and 2012 and was responsible, pursuant to s 91(1) of the Liquor Act, at all times for the personal supervision and management of the conduct of the business of the Club under its licence. He would therefore be expected to have a more intimate knowledge of how the restaurant was run prior to, on and after 31 March 2012 so far as the provision of liquor to patrons of the restaurant was concerned. His evidence can be read as directed to the position post 1 January 2012 and therefore includes the period on and from 31 March 2012 when the restaurant was first operated by the respondents. 54The primary judge held that there was no contravention of s 92(1)(c) as there was no evidence of what was ordinarily done at the time the lease commenced. In my respectful view there was such evidence being that of Mr Romanowski. On the basis of his evidence, as at 31 March 2012 and thereafter whilst the respondents were in possession of the restaurant, liquor was not ordinarily supplied on that part of the licensed premises comprising the restaurant. 55Furthermore, the fact that Mr Romanowski was the manager of the licensed premises for the purpose of s 91(1) of the Liquor Act and, therefore, would be concerned as part of his responsibilities under that provision to ensure that there was no contravention of s 92(1)(c), adds to the probative value of his uncontradicted evidence. 56For the foregoing reasons, in my view, his Honour was correct, albeit for different reasons, in finding that he was not satisfied that there had been a breach of s 92(1)(c) of the Liquor Act as of 31 March 2012 when the respondents' lease of the restaurant area commenced.

(e) Was there a breach of s 92(1)(d)? 57As already noted, having come to the conclusion at [44] that there was no evidence of a contravention of s 92(1)(c), his Honour held at [45], in my view correctly, that there was a breach of s 92(1)(d) in that the restaurant was part of the licensed premises and was leased to the respondents without the approval of the Authority. 58Section 92(1)(d) relevantly prohibits the lease of "any other part of the licensed premises" meaning thereby a part of the licensed premises other than any part of such premises referred to in s 92(1)(c) being, relevantly, a part on which liquor is ordinarily sold or supplied for consumption on the premises. As the restaurant area was not part of the licensed premises of the Club on which liquor was ordinarily supplied, it follows that there was a contravention of s 92(1)(d) as his Honour held. In this respect, the two sub-sections are mutually exclusive. It is no doubt because s 92(1)(d) applies to that part of the licensed premises on which liquor is not ordinarily sold or supplied for consumption that it can be leased only with the approval of the Authority. On the other hand, if it is part of licensed premises on which liquor is ordinarily sold or supplied for consumption, then the prohibition of leasing any such part is absolute.

(f) The consequences of a breach of s 92(1)(d) 59At [46] of his reasons the primary judge noted the submission of the respondents that a breach of s 92(1)(d) did not disentitle them from relief. They were not seeking specific performance of an unlawful agreement for lease but, rather, a declaration that they had a leasehold interest in the restaurant area. Reference was made to the decision of the English Court of Appeal in Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65 at 71 where it was held that a plaintiff could recover his or her own chattels which had come into the defendant's possession by reason of an illegal contract between the defendant and the plaintiff, provided that the latter did not seek and was not forced either to found his or her claim on the illegal contract or to plead its illegality in order to support that claim. Reference was made to a number of other cases where that principle had been applied. 60The primary judge noted at [47] but did not discuss the decision of Drummond J of the Federal Court in Abinger Investments Pty Ltd v Royal George Hotel Holdings Pty Ltd (1993) 46 FCR 483. That case concerned s 153 of the Liquor Act 1992 (Qld) which provided, relevantly, that a licensee must not let or sublet any part of the licensed premises without the Chief Executive's prior approval. The maximum penalty was 40 penalty units. His Honour held that the act of letting the licensed premises without prior approval from the licensing authority and the act of entry by the licensee into a relevant agreement was prohibited with the consequence that any tenancy agreement arising with respect to the licensed premises was void and unenforceable. 61Nevertheless Drummond J also held that the section did not operate to render an agreement for a lease or tenancy prohibited by s 153 ineffectual to pass a proprietary interest to the party in possession under the terms of the agreement. In other words, notwithstanding the illegality, the section did not operate to make such an illegal agreement for lease ineffectual to pass any title to the person who has gone into possession under the agreement. At 491 his Honour noted that although in rare situations legislation may direct that an illegal contract is ineffective to pass any title in the subject matter thereof, the section with which his Honour was concerned was not such a case as it contained no prohibition directed against the person who goes into possession of licensed premises under an agreement prohibited by the section. In particular, it did not provide that any letting or any agreement made in contravention of the section by the licensee is to be without any legal effect. 62At [48] the primary judge accepted the proposition that the respondents obtained a leasehold interest in the restaurant, kitchen and office on the first level of the premises, and the storeroom and toilet on the ground floor level. He noted 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. As his Honour observed, the Club's argument based on s 92 was dependent on the existence of a lease. The respondents' claim did not depend on any illegality as they were simply asserting a lease that arose from the conduct of the parties and by operation of s 16(1) of the RL Act. Accordingly, his Honour considered there was no reason why the respondents should not be entitled to a declaration concerning the existence of a lease and an injunction restraining the Club from interfering with their right of exclusive possession during its five year term. 63So far as the mirror hall was concerned, his Honour found at [49] that no question of illegality arose with respect thereto as the Club had not purported to lease that space to the respondents. Accordingly, they were entitled to an order for specific performance of their licence to use that area on certain occasions. 64Both parties referred to authorities on the issue of the effect of illegality which do not appear to have been referred to the primary judge. In particular, reliance was placed upon the judgment of McHugh J in Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538 (to which the primary judge was referred) where his Honour commented upon what he referred to as the Bowmakers rule. Thus, at 609 McHugh J said: "The Bowmakers rule has no regard to the legal and equitable rights of the parties, the merits of the case, the effect of the transaction in undermining the policy of the relevant legislation or the question whether the sanctions imposed by the legislation sufficiently protect the purpose of the legislation. Regard is had only to the procedural issue; and it is that issue and not the policy of the legislation or the merits of the parties which determines the outcome." 65Again, at 610, after referring to what Lord Goff had said in Tinsley v Milligan [1994] 1 AC 340, McHugh J observed: "A final criticism of the Bowmakers rule adopted by the majority in Tinsley is that it may often defeat the intention of the legislature. Parliament almost invariably provides mechanisms for dealing with breaches of its laws. Those mechanisms sometimes include a provision that makes unlawful and unenforceable an agreement that defeats or evades the operation of the relevant law. If a particular enactment does not contain such a provision, the prima facie conclusion to be drawn is that Parliament regarded the sanctions and remedies contained in the enactment as sufficient to deter illegal conduct and saw no need to take the drastic step of making unenforceable an agreement or trust that defeats the purpose of the enactment." (Citations omitted) 66McHugh J then remarked (at 612-613) that if courts withhold relief because of an illegal transaction, they necessarily impose a sanction on one of the parties to that transaction that will deprive one party of his or her property rights and effectively vest them in another person who will almost always be a willing participant in the illegality. Leaving aside cases where the statute makes rights arising out of the transaction unenforceable in all circumstances, such a sanction can only be justified if two conditions are met. The first is that the sanction should be proportionate to the seriousness of the illegality involved. The second is that the imposition of the sanction must further the purpose of the statute and not impose a further sanction for the unlawful conduct if Parliament has indicated that the sanctions imposed by the statute are sufficient to deal with conduct that breaches or evades the operation of the statute and its policies. 67At 613 McHugh J framed his conclusion in the following terms: "Accordingly, in my opinion ... courts should not refuse to enforce legal or equitable rights simply because they arose out of or were associated with an unlawful purpose unless: (a) the statute discloses an intention that those rights should be unenforceable in all circumstances; or (b)(i) the sanction of refusing to enforce those rights is not disproportionate to the seriousness of the unlawful conduct; (ii) the imposition of the sanction is necessary, having regard to the terms of the statute, to protect its objects or policies; and (iii) the statute does not disclose an intention that the sanctions and remedies contained in the statute are to be the only legal consequences of a breach of the statute or the frustration of its policies." (Citations omitted.) 68In the same case Deane and Gummow JJ said (at 551-552) that authorities in contract law (including Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd [1978] HCA 42; (1978) 139 CLR 410 at 429-430) suggest drawing a distinction between three cases: "(i) an express statutory provision against the making of a contract or creation or implication of a trust by fastening upon some act which is essential to its formation, whether or not the prohibition be absolute or subject to some qualification such as the issue of a licence; (ii) an express statutory prohibition, not of the formation of a contract or creation or implication of a trust, but of the doing of a particular act; an agreement that the act be done is treated as impliedly prohibited by the statute and illegal; and (iii) contracts and trusts not directly contrary to the provisions of the statute by reason of any express or implied prohibition in the statute but which are 'associated with or in furtherance of illegal purposes'." (Citations omitted.) 69In Miller v Miller [2011] HCA 9; (2011) 242 CLR 446, French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ cited at [26] the passage from the judgment of Deane and Gummow JJ in Nelson that I have set out in the preceding paragraph. At [27] their Honours refer to what McHugh J had said in Nelson at 611 observing that the statement of Lord Mansfield that "[n]o Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act", by its all-embracing generality, fails to take sufficient account of the different ways in which questions of illegality may arise. Their Honours continued: "Hence the emphasis given in Nelson v Nelson ... to the discernment, from the scope and purpose of the statute, of whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable. But implicit in, indeed at the very heart of, that process lies the recognition that there are cases where the breach of a norm of conduct stated expressly or implied in the statutory text requires the conclusion that an obligation otherwise created or recognised is not to be enforced by the courts." (Citations omitted.) 70The most recent pronouncement of the High Court on this subject is that in Equuscorp Pty Ltd v Haxton [2012] HCA 7; (2012) 246 CLR 498. At [23] French CJ, Crennan and Kiefel JJ refer to the joint judgment of the Court in Miller and the decisions of the Court there cited, observing that an agreement may be unenforceable for statutory illegality where: "(i) the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute; (ii) the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute; (iii) the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a 'contract associated with or in the furtherance of illegal purposes'." (Citations omitted.) 71Their Honours continued: "In the third category of case, the Court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The Court must discern from the scope and purpose of the relevant statute 'whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable'. As in the case when a plaintiff sues another for damages sustained in the course of or as a result of illegal conduct of the plaintiff, 'the central policy consideration at stake is the coherence of the law'." (Citations omitted.) 72In essence, the Club submitted that upon consideration of the objects and policy of the Liquor Act and, in particular, of s 92(1), it was apparent that a lease which falls within any of the sub-paragraphs of s 92(1) is expressly prohibited, absolutely by s 92(1)(c) and conditionally by s 92(1)(d). The policy of the Act generally, and ss 91 and 92 in particular, is to ensure that the licensee or in the case of a licensee which is a corporation, the manager of the licensed premises, at all times is responsible for the personal supervision and management of the (lawful) conduct of the business of the licensed premises. That objective cannot be realised if any part of the licensed premises is subject to a lease to a third party who might not be a fit and proper person to be a licensee or, for that matter, a manager, but who, by virtue of the lease has exclusive possession of part of the licensed premises thus having the right to exclude therefrom the licensee or in the case of a corporate licensee, the manager. 73Thus the Club submitted that the purpose of s 92 is not simply to create an offence but to ensure that licensees or owners do not enter into arrangements with others whereby the orderly and lawful use of the licensed premises is or may be compromised: Abinger Investments at 490. 74The respondents submitted in their amended notice of contention that there had been no breach of s 92(1)(c) or (d) because the evidence did not establish that the Club had granted to the respondents a lease of any part of the licensed premises. It was thus submitted that for there to be a lease within the meaning of s 92(1) there had to be a grant of a lease at law; that an agreement to grant a lease was therefore insufficient; that in the present case there was no grant although a "lease" came into existence only by operation of the RL Act; and that such a "lease" was not a grant by the licensee of a lease under the general law. 75There can be no doubt that given the wide definition of the term "retail shop lease" and "lease" in s 3 of the RL Act (at [20] above), a "lease" can come into existence for the purpose of that Act which would not qualify as a lease under the general law. This is particularly so in the case of license which does not carry with it a right to exclusive possession. 76But in the present case the respondents conceded in their oral argument that there was at least an implied agreement between the parties that the respondents would have exclusive possession of the restaurant area. Furthermore the parties seem to have agreed the rent (which was, I infer, paid over a period of some 17 months). By virtue of s 16(1) of the RL Act the term of the respondents' exclusive occupation was five years from 31 March 2012. 77It is trite law that a lease or leasehold interest is created whenever one person gives another the legal right to exclusive possession of land for a period or term that is certain (or capable of being rendered certain): see, for instance, Radaich v Smith [1959] HCA 45; (1959) 101 CLR 209 at 222. It matters not whether or not rent is paid, although here rent was paid. Once the respondents entered into possession the term of their right to occupy was rendered certain by s 16(1) of the RL Act. It follows in my view that contrary to the respondents' contention, there was created between the parties a lease at law. The fact that the term of the lease depended on the operation of the RL Act does not detract from that conclusion. 78The position may well have been different had the parties not agreed that the respondents had the right to exclusive possession of the restaurant area. The respondents asserted that right and it was admitted by the Club in paragraph 7 of its points of defence: see [18] and [19] above. There was therefore a lease by the Club to the respondents within the meaning of s 92(1) of the Liquor Act. 79Notwithstanding that a breach of s 92(1)(d) gives rise to an offence on the part of the licensee (in this case the Club) and notwithstanding that the prohibition contained in that provision can be overcome by the obtaining of approval from the Authority, nevertheless in my view for the reasons indicated, 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. In this respect it is noteworthy that the prohibition only applies to a lease or sub-lease which, by definition as it were, entitles the lessee or sub-lessee to exclusive possession and, therefore, the right to exclude the licensee (or its manager) from the leased or sub-leased premises. That cannot serve the purpose or policy of the statute and, in particular, the overarching responsibility of the licensee to personally supervise and manage the conduct of the business of the licensed premises. 80As noted, I put to one side in the preceding paragraph the fact that a breach of s 92(1) carries with it a penalty. The respondents referred the Court to the decision of the High Court in Stevens v Kabushiki Kaisha Sony Computer Entertainment [2005] HCA 58; (2005) 224 CLR 193 at [45]-[47] as stating the approach the courts should take in such cases. The paragraphs referred to in the judgment of the plurality deal with the construction of a statutory provision breach of which has penal consequences. I do not find them of any assistance in resolving the issue in the present case. Those paragraphs are directed to determining the scope of a statutory definition, rather than determining the consequences of conduct in breach of a statutory provision that carries a penalty. 81In my view, when one considers the legislative purpose of the relevant provisions of the Liquor Act as well as the policy behind the subject prohibitions, then it follows that the prohibition stated expressly in the statutory text of s 92 requires the conclusion that any lease caught by that provision is not to be enforced by the courts. It follows that the Club is entitled to a declaration that the lease of the restaurant area to the respondents is void and unenforceable. Accordingly, Declaration 1 and Order 4 made by the primary judge on 30 September 2013 should be set aside.

The Club's challenge with respect to the mirror hall 82The Club sought the Court's leave to amend its notice of appeal to add the following ground not argued below: "The Court erred in finding that the Respondents were entitled to specific performance of the licence for the 'mirror room' because such licence did not amount to a 'right of occupation' under the RL Act 1994 and no notice under s 6A(4) [of the RL Act] was given." 83The respondents indicated that they did not consent to this proposed amendment but accepted that they were not prejudiced if leave to add the ground was given. In my view leave should be granted to add this further ground of appeal. 84It was common ground and the primary judge held (at [49]) that the rights of the respondents with respect to the mirror hall did not amount to a lease. He also held that the respondents had a licence to use that space on limited occasions and that that right fell within the definition of "lease" under s 16 of the RL Act. In fact the definition of "lease" in the RL Act is not to be found in s 16 but in the definition provisions of s 3. As noted above at [20], a "lease" means, relevantly, 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". It matters not that that right does not extend to exclusive occupation. 85The Club first submitted that the "rights" in relation to the mirror hall did not amount to a "right of occupation" but was only a right to use the space from time to time for the purpose of catering for a function. It was simply a room available for the respondents' use at their election. In this respect, the notion of "occupation", it was contended, must mean more than simply the opportunity use a space for a particular purpose from time to time. If this be correct, then the respondents' "licence" to use the mirror room did not amount to a "lease" within the meaning of the RL Act and, therefore, s 16(1) had no application thereto. 86In the course of argument the respondents referred the Court to the decision of this Court in Harris v McKenzie (1987) 9 NSWLR 139 where at 147 Kirby P defined the word "occupier" to "normally" mean a person who "has the immediate supervision and control of premises and the power of permitting or prohibiting the entry of other persons". 87There is nothing in the definition of "lease" in the RL Act that requires the relevant right of occupation to be for any particular period, let alone to be continuous. The primary judge found that the respondents' right with respect to the mirror hall was to use it on Fridays, Saturdays and Sundays. Given that the definition of "lease" in the RL Act includes a right of occupation which is not exclusive, in my view on Fridays, Saturdays and Sundays the respondents' right to use the mirror hall on those days gave them the right of immediate supervision and control of that space and the non-exclusive power to permit or prohibit the entry to it of patrons. Accordingly, in my view the agreement between the parties with respect to the mirror hall involved the grant of a "right of occupation" within the meaning of the definition of "lease" in s 3 of the RL Act. 88The Club's second point was that the letter of 2 August 2013 (which I have set out at [14] above) which was held by the primary judge to be a written notice within the meaning of s 6A(4) of the RL Act, did not extend to the mirror hall but was confined to the restaurant area. Although there is no reference in the letter to the mirror hall, it is tolerably clear that the letter was intended to, and in fact implicitly did, extend to the licence to occupy and use the mirror hall on Fridays, Saturdays and Sundays. The fact that the letter was written in response to the letter of 7 July 2013 of Strathfield Law notifying the respondents that the Board of the Club had determined to terminate their relationship and that they should make arrangements to vacate the Club's premises as soon as reasonably practicable, supports the proposition that the August letter, which adopted the a similar heading as that of Strathfield Law of 7 July, implicitly included the whole of that part of the Club's premises that was occupied by the respondents, including the mirror hall, which they were being required to vacate. 89Accordingly, in my view, the letter of 2 August 2013 extended to the mirror hall for the purpose of complying with s 6A(4) with the consequence that s 16(1) applied to the licence with respect to that space. It therefore follows that the additional or fourth ground of appeal advanced by the Club cannot be sustained.

Conclusion 90The effect of the foregoing reasons is that the Club has: (a) failed to overturn the primary judge's finding that there was no contravention of s 92(1)(c) in the present case; (b) failed in its challenge to the primary judge's finding with respect to s 41J of the RC Act; (c) succeeded in upholding the primary judge's decision that the respondents' lease was granted in breach of s 92(1)(d); (d) succeeded in having Declaration 1 and Order 4 of the declarations and orders made by the primary judge on 30 September 2013 set aside; (e) failed to overturn the primary judge's finding that the respondents' licence to use the mirror hall was not a lease for the purposes of the RL Act. 91Declaration 2 and Order 3 relate to the non-exclusive licence of the mirror hall which is untouched by s 92(1). Whether the retention of that declaration and order has any utility is a matter upon which the Court did not receive argument. It may be that the respondents will be able to negotiate a licence of the restaurant area which they can then use in conjunction with their licence of the mirror hall. Absent further submissions from the parties, the prima facie result would be that Declaration 2 and Order 3 would remain in place except for an appropriate variation of Declaration 2.2 to delete any reference to the lease the subject of Declaration 1. However, in my view, the parties should have an opportunity to make submissions as to whether Declaration 2 and Order 3 should survive, and if so, in what form. 92Order 5 made by the primary judge on 30 September 2013 was that the Club pay the respondents' costs of and incidental to the proceedings. In my view that order should, in the circumstances, be set aside. The major issue between the parties both before the primary judge and on the appeal has been the effect of s 92(1)(c) or (d) upon the respondents' lease of the restaurant area in respect of which it has at all times maintained that it had exclusive possession. In the result the Club has had a greater degree of success than have the respondents. Accordingly, I consider that the respondents should pay two-thirds of the Club's costs of the proceedings below and that a similar order should be made with respect to the costs of the appeal. 93I would therefore propose the following orders: (1) Grant leave to appeal, if such leave is necessary. (2) Grant leave to the appellant to amend its Notice of Appeal to add a new ground of appeal relating to the licence referred to in Declaration 2 made by Ball J on 30 September 2013. (3) Appeal allowed in part. (4) Set aside Declarations 1 and 2.4 and Orders 4 and 5 made by Ball J on 30 September 2013. (5) Direct the parties to file written submissions within seven days as to whether Declaration 2 and Order 3 made by Ball J on 30 September 2013 should remain unaffected by this judgment, and if they should, whether Declaration 2.2 should be deleted and the following substituted: "The licence to subsist for a term of five years as and from 31 March 2012." (6) Order that the respondents pay two-thirds of the appellant's costs of and incidental to the proceedings at first instance. (7) Order that the respondents pay two-thirds of the appellant's costs of the summons for leave to appeal and the appeal but to have with respect to those costs a certificate under the Suitors' Fund Act 1951 (NSW) if otherwise qualified.

Amendments 24 February 2015 - [14] 1st line of letter should read "Gnych" not "Gynch". [74] 4th line should read "within" not "written". [92] 6th line should read "have the respondents" not "has the respondents". DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 February 2015