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A registered club, the holder of a club licence under the Liquor Act 2007 (NSW), lets a husband and wife into occupation of its premises to operate a restaurant. There is no signed agreement between the parties. After about a year, the Club tells the husband and wife to leave. They refuse, asserting that they have a lease for a minimum term of 5 years by operation of the Retail Leases Act 1994 (NSW). The Club responds that any such lease is void and unenforceable because the Club breached s.92(1)(d) of the Liquor Act by not obtain approval from the Independent Liquor and Gaming Authority prior to letting the husband and wife into occupation of the restaurant.

What is a Court to do when confronted with these circumstances?

These are the facts in a nutshell of the case of Gnych v Polish Club Limited which has been heard by the Supreme Court of New South Wales, the Court of Appeal and more recently the High Court of Australia (which reserved judgment following a hearing in Canberra on 5 May 2015).

This case is important for a number of reasons including that it highlights:

A person can be granted an interest in land – in this case, a lease – without a signed contract, even if the parties intended that a signed contract would be entered into. Relevantly, as the present case demonstrates “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 Polish Club Limited v Gnych [2014] NSWCA 321 at [77])
So landlords need to be very careful about letting a person into occupation of their property before all the terms have been finalised in writing. And they need to be particularly careful when the property in question is a “retail shop” as defined in section 3 of the Retail Leases Act 1994 (NSW). Because that Act may automatically operate to make the term of the arrangement between the parties for a minimum of 5 years.
A licence differs from a lease according to the legal nature of the occupation. Whereas a lessee has an interest in the subject land, a licensee only has a personal privilege to enter and use the premises. The decisive factor in determining whether the occupant has a lease or a licence is whether a right to exclusive possession, or control of the premises during the term of the agreement, has been conferred on the occupant. (See Radaich v Smith (1959) 101 CLR 209)
The Retail Leases Act 1994 (NSW) does not only apply to “leases” as legally defined. Subject to some limitations set out in the Act, it applies to “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”. The right granted does not have to be a right of exclusive occupation. In other words, the Act covers licences as well as leases (See Retail Leases Act section 3 – definition of “retail shop lease” or “lease”).
Whether an agreement is void and unenforceable for statutory illegality will not always be clear from the wording of the statute, and may be a question of statutory construction (i.e. gleaning the legislative intention from a careful consideration of the scope and purpose of the relevant statute).

Background

For a period of approximately sixteen months between March 2012 and August 2013 the plaintiffs, Mr and Mrs Gnych, operated a restaurant on the first floor of premises owned by the defendant Polish Club in Ashfield.

Mr Gnych commenced negotiation for a lease of the restaurant area with the Club in August 2011. It was agreed in principle that he and his wife would be granted a lease of a restaurant with a capacity of approximately fifty seats with an adjoining kitchen and office (together the restaurant area) as well as a store room and toilet, both of which were downstairs.

In December 2011, Mr and Mrs Gnych’s solicitor sent the Club a term sheet setting out the essential terms of a proposed lease of the space that it had been agreed in principle would be made available to Mr and Mrs Gnych. The management committee of the Club resolved to accept the terms set out in the term sheet.

The term of the lease was expressed to be for two years, plus two two year options. The term sheet also set out proposed terms in relation to the selling of liquor. It contemplated that Mr and Mrs Gnych would have their own cash register in the bar area of the Club, that patrons of the restaurant would order their drinks from that area, and Mr and Mrs Gnych would be entitled to keep 10 per cent of the takings from that register.

On 29 March 2012, Mr and Mrs Gnych’s solicitor sent the Club a draft lease in registrable form. Two days later, Mr and Mrs Gnych commenced trading. No written agreement was agreed or finalised.

The restaurant operated successfully, however, relations between Mr and Mrs Gnych and at least some members of the management committee of the Club soured.

In July 2013 the Club’s solicitors sent Mr and Mrs Gnych’s solicitor a letter advising that the Club had determined to terminate the relationship and requesting that Mr and Mrs Gnych vacate the Club’s premises within 4 weeks.

Mr and Mrs Gnych’s solicitor responded noting that the restaurant is a “retail shop” as defined in the Retail Leases Act 1994 (NSW) (the RL Act). The letter asserted that by the provisions of sections 8 and 16 of the RL Act, Mr and Mrs Gnych obtained a leasehold interest in that part of the Club’s premises they occupied for a term of 5 years.

Those provisions provide that a retail shop lease is considered to have been entered into when a person enters into possession or begins to pay rent, whichever happens first (s 8); and the term for which a retail shop lease is entered into, together with any further term or terms provided for by any agreement or option, must not be less than 5 years (s 16(1)).

The Club’s solicitor responded noting that Mr and Mrs Gnych’s occupation of the premises was not only subject to the RL Act but was also subject to the provisions of the Liquor Act 2007 (NSW) (the Liquor Act); specifically sections 92(1)(c) and (d). Those provisions provide:

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

…

(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 ($5,500).”

In August 2013, the Club excluded Mr and Mrs Gnych from the restaurant area. Mr and Mrs Gnych then commenced proceedings in the Supreme Court of New South Wales seeking, amongst other relief, a declaration that they have a leasehold interest in the space they occupied for a five year period commencing on the date they entered into possession.

Submission that lease was illegal under the Liquor Act

The Club disputed Mr and Mrs Gnych’s claim on a number of grounds including that the lease is illegal under s 92 of the Liquor Act and that consequently, Mr and Mrs Gnych are not entitled to the relief that they seek.

It was common ground that the Club had not obtained approval from the Authority (meaning the Independent Liquor and Gaming Authority) prior to letting Mr and Mrs Gnych into occupation. The trial judge, Ball J, observed in his reasons for judgment (Gnych v Polish Club Limited [2013] NSWSC 1249) that:

“It is the place where liquor is sold or supplied for a particular purpose – that is, consumption anywhere on the premises – that attracts the prohibition” in s 92(1)(c). On the other hand, parts of the premises where liquor is not sold or supplied are governed by s 92(1)(d);
In the present case, if patrons purchase liquor from the bar and take it back and consume it in the restaurant, the liquor is sold or supplied to them in the bar area. However, if liquor is delivered to a patron in the restaurant, then that act falls squarely within the definition of “supply” in s 92(1)(c);
Section 92(1) creates a single offence. The offence is committed at the time when the lease is entered into. A limitation period of three years starts to run from that time: see Liquor Act s 146(2).

Ball J was not satisfied that there had been a breach of s 92(1)(c) of the Liquor Act. His Honour found that there was no evidence concerning the question whether liquor was ordinarily supplied in the restaurant area to patrons at the time the lease commenced. Rather, there was evidence that Mr and Mrs Gnych developed a practice of permitting patrons who had booked the restaurant 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.

Ball J was however satisfied that there had been a clear breach of s 92(1)(d) of the Liquor Act. The restaurant was part of a licensed premises and it was leased to Mr and Mrs Gnych without the approval of the Authority.

Mr and Mrs Gnych submitted that that breach of the Liquor Act on the part of the Club did not disentitle them from relief. They relied on the principle stated in Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65 where the English Court of Appeal said (at 71):

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

Ball J found that Mr and Mrs Gnych’s claim did not depend on any illegality. They simply asserted that a lease arose from the conduct of the parties (i.e. the Club gave Mr and Mrs Gnych the right to exclusive possession of the restaurant area) and by operation of s 16 of the RL Act, which rendered certain a lease for a minimum term of five years. In the words of his Honour, “It is the Club that seeks impermissibly to rely on the illegality.”

His Honour therefore granted Mr and Mrs Gnych a declaration concerning the existence of a five year lease and an injunction restraining the Club from interfering with their rights of exclusive possession during the term of that lease.

Trial judge’s decision overturned

The Club lodged an appeal against the decision of Ball J, including challenging Ball J’s decision to enforce the lease to Mr and Mrs Gnych notwithstanding that it was granted in breach of s 92(1)(d).

Tobias AJA delivered the lead judgment of the Court of Appeal (Polish Club Limited v Gnych [2014] NSWCA 321). His Honour noted judicial criticism of the Bowmakers rule, including that it has regard “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.” (Nelson v Nelson (1995) 184 CLR 538, at 609 per McHugh J).

The Court of Appeal also noted that the most recent pronouncement of the High Court of Australia in this area is Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498. At [23] French CJ, Crennan and Kiefel JJ observed 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’."

In the third category of case, the Court acts to uphold the policy of the law … [and] 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’.”

Applying the above principles to the present case, the Court of Appeal observed (at [72]) that “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.”

The Court of Appeal continued (at [81]): “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.”

Special leave to appeal the High Court

On 13 March 2015, the hearing of Mr and Mrs Gnych’s application for special leave to appeal to the High Court took place. Before special leave was granted, Hayne J posited that the question in the case is: does the lessor who has acted in breach of the law “by granting to someone else an interest in land – can that person say, there we are, that was unlawful, the grant I made is of no value?”

The appeal was heard in Canberra on 5 May 2015. The transcript of that hearing indicates that the resolution of the case might actually turn upon implied terms and the difference between a lease and a licence, and specifically the questions:

whether there is implied into every lease of a licensed premises a right on the part of the landlord (or holder of the relevant liquor license) to enter upon the premises to exercise the licensee’s statutory responsibilities; and
if the answer is yes, how does this impinge upon the right to exclusive possession which is the decisive factor in determining whether an occupant has a lease or a licence (in circumstances where a licence is not captured by section 92 of the Liquor Act).

It will be very interesting to see how the High Court rules when its judgment is delivered.

This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.

published by

Andrew Lacey

Managing Principal

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Litigation and Dispute Resolution

Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan

29 August, 2023

Government

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes

18 August, 2023