(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.