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  • An illegal act by a party to a contract will not necessarily make the contract unenforceable. The mere fact that a party has failed to fulfil a legislative requirement will not automatically invalidate a contract.
  • A court will consider the scope and purpose of a legislative provision when determining whether a breach of that provision is said to render a contract unenforceable.

When entering into, or giving effect to a contract, it is possible that a party to the contract will fail to comply with a duty imposed by legislation. If that happens, the question arises whether the contract is still enforceable and what factors are relevant.

Gnych v Polish Club

In the recent case of Gnych v Polish Club Limited [2015] HCA 23, the respondent, the Polish Club, (‘the Club’) owned and operated licensed premises that were subject to the Liquor Act 2007 (NSW) (‘the Act’). The Act contains extensive provisions regulating the use of licensed premises. The Club and the appellants, Mr and Mrs Gnych, engaged in negotiations from August 2011 to March 2012 for the execution of a lease that would enable the appellants to operate a restaurant on the premises. Drafts of a lease were prepared and exchanged between the parties reflecting their discussions. However, no written agreement was ever finalised or signed. Despite that fact, the appellants commenced operating their restaurant at the premises on 31 March 2012.

The restaurant operated successfully, but relations between the appellant and some members of the Club’s management committee deteriorated over time. In July 2013, the Club’s solicitors informed the appellants in writing that the arrangement would be terminated. The appellants’ solicitor responded that the restaurant was a ‘retail shop’ under the Retail Leases Act 1994 (NSW) (‘RL Act’), and the RL Actentitled the appellants (who were already in occupation) to a five year lease, despite the absence of a written agreement.

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