Do Illegal Acts Automatically Render A Contract Unenforceable?
An illegal act by a party to a contract will not necessarily make the contract unenforceable. The fact a party has failed to fulfil a legislative requirement will not automatically render the contract invalid. The court will usually consider the scope and purpose of a legislative provision when determining whether a breach of that provision is said to render a contract unenforceable.
In the recent case of Gnych v Polish Club Limited, the Polish Club (‘the Club’) a registered club, the holder of a club licence under the Liquor Act 2007 (NSW), allowed Mr and Mrs Gynch to occupy its premises to operate a restaurant. There was no signed agreement between the parties. After approximately a year of operating the restaurant, the Club told Mr and Mrs Gynch to vacate the premises. They refused, asserting that they held a lease for a minimum term of 5 years under the Retail Leases Act 1994 (NSW). The Club argued that any such lease would be considered void under section 92(1)(d) of the Liquor Act by not obtaining the required approval from the Independent Liquor and Gaming Authority prior to letting Mr and Mrs Gnych into occupation of the restaurant.
The High Court held that the lease was not affected by the breach of the Liquor Act. This decision reaffirmed the Court’s previous position that non-compliance with a statutory requirement will not necessarily invalidate a contract. Unless there is an express prohibition on a contract affected by legal conduct, a court is unlikely to declare it unenforceable where the scope and objects of the relevant legislation indicate there are other legal consequences (such as fines, regulatory action etc.) for non-compliance.
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