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Purpose

This factsheet sets out the limited circumstances in which a licensee is permitted to enter into profit sharing arrangements.

Legislative background

The Liquor Control Act 1988 (LC Act) provides that it is an offence for a licensee to enter into an arrangement to share the profits of the business carried on under the liquor licence with another party. If the licensee enters into a partnership, agrees to share the profits, or pays someone profits obtained from the business, both parties commit an offence, for which they could receive a $1000 infringement notice,¹ or be subject to the full fine of $10,000.²

There are a limited number of permitted exceptions, where a licensee or permit holder can enter into a profit sharing arrangement. Most of these require the approval of the Director of Liquor Licensing (DLL). On application by an interested person, the DLL may approve a profit sharing agreement, or any other agreement or arrangement, in which case the parties to the agreement do not commit an offence.³ This provision allows all licence or permit holders under the LC Act to apply to the DLL for approval to enter into a profit sharing arrangement.

Specific provisions for certain licences/permits seeking DLL approval for a profit sharing agreement

The holder of an occasional licence⁴ or an extended trading permit⁵ can apply to the DLL for approval of an agreement for profit to be shared based on a proportion of the gross receipts from the sale of alcohol, a charge for alcohol in addition to some other service, or an amount calculated on some other specified basis. The DLL may authorise the agreement and set conditions on that approval.

A profit sharing agreement may also be approved by the DLL in relation to an approved event where entertainment is provided solely for juveniles on the licensed premises.⁶ The licensee should set out the details of the profit sharing agreement when applying for approval to hold the juvenile event.

The holder of a producer or a wholesaler licence may apply to the DLL for approval to enter into an arrangement with a person acting as an unlicensed agent, where payment is based on the amount of liquor sold by them. The DLL is to be satisfied that the agent is a fit and proper person to act in this way,⁷ before approving this arrangement.

In addition to the agreements already listed, the DLL can approve any other agreement or arrangement.⁸

The LC Act places a particular restriction on the holders of a club licence entering into profit sharing arrangements. Under a club licence, the authorisation to sell alcohol is only exercisable through the members, officers or employees of the club. A licensed club can enter into a contract for the provision of services for the benefit of members of the club, but it must not relate to the sale or supply of alcohol.⁹

For any event where a third party is organising a function at a licensed premises which is exempt from the LC Act, they must enter into a profit sharing arrangement with the licensee, which is approved by the DLL.¹⁰ This arrangement must set out that at the function the licensee will provide the venue, food and alcohol, charging a fixed price to the organiser, and the organiser is to arrange the advertising and ticket sales. The ticket price includes admission and the provision of alcohol, food and entertainment during the function. All advertising for the function is to include a reference to the terms of the licence under which the supply of alcohol is authorised.¹¹

Agreements will not be approved if they conflict with the LC Act

Any provisions in a profit sharing agreement authorising a person other than the licensee to conduct business under the licence have no effect. In addition, the DLL will not approve any agreement which seeks to allow a person to sell alcohol on behalf of the licensee.

Similarly, any provisions in the agreement which seek to override requirements imposed on the licensee by the LC Act¹² will have no effect. The licensee always has responsibility for the conduct of the business under the licence. For example, every liquor licence is subject to the condition that the licensee has a right to occupy the licensed premises to the exclusion of all others,¹³ so an agreement cannot set out that a portion of the licensed premises will be leased out to a third party. The agreement would not be approved by the DLL.

Accordingly, the following are examples of profit sharing arrangements which would not be approved:

• A not-for-profit group wants to organise the sale and supply of wine to its members and share the profits with the liquor store licensee they sourced the wine from (unacceptable because the not-for-profit group is acting as a de facto licensee).
• An organisation wants to hire out the entire licensed premises to run an event where they serve alcohol to the public, with the proceeds to be shared equally with the licensee (unacceptable because the organisation is acting as a de facto licensee).
• A delivery company wants to organise every aspect of taking alcohol orders from customers, including receipt of money and the delivery of the alcohol. They then source the alcohol from a licensee (unacceptable because the delivery company is acting as a de facto licensee).
• A licensee leases a portion of his licensed premises to a travel agent (unacceptable because the licensee is not occupying the premises to the exclusion of all others).

Profit sharing arrangements that do not require DLL approval

Licensees which are body corporates can enter into profit sharing agreements without requiring the approval of the DLL if they distribute the proceeds of the business to a person in authority in the body corporate,¹⁴ or to its shareholders.¹⁵

Additional guidance

Further information on licence requirements is available, or contact 61 8 6551 4888.

Disclaimer

The factsheet on this subject is general information and is not professional advice or a legal opinion. The information is provided on the understanding that any person reading it must take responsibility for assessing its relevance and accuracy.

Notes

1. LC Regs r27 Prescribed offences for infringement notices (Act s. 167(2))
2. LC Act s104(1)
3. LC Act s104(3)
4. LC Act s59(3)
5. LC Act s60(8)
6. The process for seeking the DLL’s approval for the juvenile event is set out in the LC Act s126B. The provision allowing this type of event to be subject to a profit sharing arrangement is at s104(2)(ba)
7. LC Act s104(3)(b)
8. LC Act 104(2)
9. LC Act s104(4)
10. LC Act s104
11. LC Regs r 8E. Exemption from Act, sales etc. at functions on licensed premises
12. LC Act s104(3a)
13. LC Act 37(5)
14. LC Act s104(2)(c)
15. LC Regs r18E.