Henderson J
IN THE GRAND COURT OF THE CAYMAN ISLANDS HOLDEN AT GEORGE TOWN, GRAND CAYMAN CAUSE NO. G0485/11 BETWEEN: ESSO CAYMAN LIMITED Plaintiff AND: PETER SOUTH Defendant Appearances: Mr. N. Timms, Q.C., for the Plaintiff The Defendant in person Before: Hon. Justice Henderson Heard: 10th August, 2012 JUDGMENT
The essential question presented during this hearing is whether a corporation can exercise control over the transfer of a liquor licence even though the licence must be issued in the name of a natural person. Facts
The Plaintiff Esso Cayman Limited ("Esso") is the owner of a piece of real property on Grand Cayman upon which a fuel service station and convenience store is located. The Defendant Peter South ("Mr South") is a shareholder in and sometime director of PSB Ltd. ("PSB"), a company doing business within the Cayman Islands. By a lease agreement made 3rd November, 2006 ("the Original Lease"), Esso agreed with PSB that the service station and convenience store would be leased to PSB and PSB would operate the business. Mr. South, executed the Original Lease as an authorised representative of PSB. Mr. Barry Smith, who was at that time a principal in PSB, also executed it and was a party to it.
The previous operator of the service station and convenience store, Mr. Shane Peynado, was the holder of a liquor licence ("the Licence") permitting him to sell liquor at the convenience store. The Licence had been issued under the Liquor Licensing Law (2007 Revision) ("the Law"), the material parts of which read: 7. (1) A licence is a permit to an individual person or to two individual persons jointly, who may or may not be the servants or representatives of another named person, in compliance with this Law, to dispose of: (a) such intoxication liquors; (b) in such quantities; (c) to such persons; (d) at such times; (e) at such premises; and (f) subject to such general conditions, as may be specified therein, and shall be in Form 3. (2) Persons licensed under subsection (1) are licensees under this Law. 8. (1) A Board may not grant a licence to any person unless it is satisfied that such person: (a) is of good character, and exhibits to the Board a certificate signed by the Commissioner showing his record of criminal convictions, if any, over the preceding fifteen years; (b) is over the age of twenty-one years; (c) is of sufficient business capability to understand and comply with this Law; and has paid the fee prescribed for the grant of a licence.
In 1993, Esso had paid the sum of $84,000 to "acquire" the Licence. As a corporate entity, it could not hold the Licence in its own name. The provisions quoted above are clear in their intent: a licence must be issued to an "individual" person, i.e., a natural person, who therefor has personal responsibility including criminal liability for compliance with its terms. The licensee must be a natural person of good character, without criminal convictions, and over the age of 21.
Although Esso owned the premises to which the Licence applied and had paid the price to acquire it, its tenant and operator, Mr. Shane Peynado, became the Licensee. The intention of the Original Lease was that PSB would replace David Peynado & Co. Ltd as operator of the service station and convenience store. Consequently, it was necessary to transfer the Licence to a natural person associated with PSB. The Original Lease provided that Mr. Barry Smith would be the Licensee. The material parts of the Original Lease pertaining to the Licence are as follows: 3.14 Liquor Licence 3.14.1 The Licensee acknowledges that he holds the Liquor Licence as nominee of Esso and, notwithstanding the Licensee is the named licensee under the Liquor Licence, Esso is the beneficial owner of the Liquor Licence 3.14.2 The Licensee agrees with Esso:- 3.14.2.1 To ensure that the Liquor Licence or its renewal is not prejudiced or endangered; 3.14.2.2 to renew as necessary the Liquor Licence and not to accept or volunteer to any conditions relating to the Liquor Licence nor to apply for any additional or different liquor licence without the prior written consent of Esso, which Esso may give or withhold in its absolute discretion, without giving any reason therefor; 3.14.2.3 to apply for any variation of the Liquor Licence as directed by Esso from time to time; 3.14.2.4 to give immediate notice to Esso of any complaint or any notice of intention to oppose a renewal of the Liquor Licence or of any arrest, charge or conviction of the Operator or the Licensee or any employee of the Operator or the Licensee; 3.14.2.5 not without Esso's consent which Esso may give or withhold in its absolute discretion, without giving any reason therefor, to permit any other person or persons to become the holder of the Liquor Licence; 3.14.2.6 not without Esso's consent which Esso may give or withhold in its absolute discretion, without giving any reason therefor, to apply for or obtain any occasional liquor licence as holder of the Liquor Licence.
I infer from the fact that Mr. South executed the Original Lease on behalf of PSB that he understood and accepted the intent of the agreement pertaining to the Licence. In effect, the natural person holding the licence was doing so as a representative of Esso. The Licensee was required to keep the Licence in good standing by renewing it but was not permitted to agree to any variation of it. The Licensee had no power to transfer or assign the rights represented by the Licence. (without Esso’s consent) and could not apply for an additional licence in his name. The Licence represented a valuable asset: the right to sell liquor to the public from the convenience store not only during normal liquor store hours but also during certain periods of time when ordinary liquor stores were required to be closed. The value of the Licence is enhanced substantially by the fact that it represents a non-conforming use; the evidence shows that such licences are no longer being issued to service station convenience stores.
As it happened, Mr. Smith (for personal reasons which are not material here) decided he did not wish to hold the Licence in his name. It was proposed that Mr. South do so instead.
On July 24th, 2007, Mr. South sent a draft letter (to be signed by Esso’s Country Manager for the Cayman Islands) to the Chairman of the Liquor Licensing Board ("the Board") requesting a transfer of the Licence from Mr. Peynado to Mr. South. In this draft, Mr. South described himself as Esso’s "nominee" and as "our nominated dealer representative". Earlier, Mr. Peynado had advised the Chairman that he held the Licence "as representative of Esso" and gave his consent to the transfer of the Licence "to some other representative of Esso, as nominated by Esso". Mr. South’s emailed message by which he transmitted his draft letter to Esso shows that he was aware of the terms of Mr. Peynado’s letter.
In due course, the Licence was issued to Mr. South. The Licence identified the fuel service station and convenience store as the "Licensed Premises" in question and specified the hours during which the sale of liquor would be permitted. At Mr. South's initiative, the Licence was renewed on several occasions.
The Original Lease, which had an initial term of one year, was renewed. Esso and PSB then entered into negotiations for a new lease agreement. In July, 2010 a fresh agreement ("the New Lease") was presented to PSB and Mr. South for signature. It was contemplated that PSB would execute the New Lease as the operator of the fuel service station and convenience store and Mr. South would execute it as the liquor Licensee. The provisions of the New Lease pertaining to the Licence are identical to those found in the earlier Original Lease.
The Registered Land Law, (2004 Revision) contains (in section 46) a requirement that a lease for a specified period exceeding two years must be registered. The New Lease was not registered.
Mr. South did sign the New Lease in his personal capacity as Licensee but the agreement was never executed by PSB. (Esso alleges that PSB had no directors at the time, although that is denied. It is unnecessary for present purposes to resolve that dispute.)
By this time, the business relationship between Esso and PSB had deteriorated significantly. Esso served a notice of termination on PSB dated 3rd December, 2010. It issued a writ seeking possession of the premises in the following month. By order dated February 18th, 2011, Foster J. of this Court stayed the proceedings in favour of arbitration.
The arbitration was between Esso and PSB; Mr. South was not a party to it. The Arbitrator (Mr. Nigel Meeson, Q.C.) said (in his interim award against PSB of November 29th, 2011) that he had no jurisdiction to make any award against Mr. South. The Arbitrator’s final decision of March 14th, 2012 refused to grant an adjournment which PSB had requested and then dismissed PSB’s counterclaim because it was entirely unsupported by evidence.
On December 22nd, 2010 the Liquor Licensing Board renewed the Licence in the name of Peter South. At the behest of Esso, the Board included this wording in the Licence: The following special conditions apply to this Licence: Sales prohibited to other licencees for the purpose of disposal by him/her under the terms of his/her licence. Conditions subject to contract between Licensee and Esso Standard Oil S.A. Limited. Authorised to open outside permitted hours for the sale of non-alcohol items. (underlining added)
By letter dated October 26th, 2011 Mr. South asked the Liquor Licensing Board to transfer the Licence (still in his name) to a different geographical location where he planned to establish a liquor outlet. Esso took objection to this and alleged that Mr. South held the Licence only as its representative. By letter dated November 30th, 2011 Mr. South responded. He reiterated his request to transfer the location of the Licence, denied that he held the Licence as a nominee or representative of Esso, and asserted erroneously that the Arbitrator had found that he had "never been a party to any valid legal and binding agreement to act as nominee for Esso or at all". Issue
Mr. South, who represented himself at the hearing before me, argued that a liquor licence is a piece of property which can be owned only by an individual or natural person because of the provisions of the Law cited above. He said that this is not a requirement which can be altered by contract. He argued, in essence, that the provisions of the Original Lease and the New Lease concerning the Licence to which he had consented on two occasions were of no force or effect, with the result that he had an unconstrained right to request a transfer of the Licence to a business of his own. Severability
The New Lease was not executed by the tenant but it was executed by Mr. South, the Licensee. It contained a severability clause which reads: The parties expressly state that in entering into this Agreement it is not their intention to violate any law, ruling or regulation in effect on this date, and if any sections, sentences, paragraphs, phrases, clauses or combinations thereof ("provision") should violate any law or be or declared unenforceable by a court of law, such provision shall be annulled, but the remainder of this Agreement shall continue to be binding for the parties, unless the remaining portions should become inadequate to define the rights and obligations of the parties.
The provisions of the New Lease pertaining to the Liquor Licence are entirely capable of standing on their own, severed from the other, inoperative terms of the contract. They are adequate to define the rights and obligations of Esso and the Licensee with respect to the Liquor Licence even though other provisions of the New Lease may be unenforceable and the Operator has not executed it. Decision
The real question, and the only one argued by Mr. South, is whether Esso can rely upon the severed provisions of the New Lease or upon the incorporation of the Licensee terms in the Original Lease to prevent Mr. South from inducing the Board to transfer the lease to another geographical location at which Esso does no business and to require Mr. South to transfer the Licence to a nominee of Esso. Is a Liquor Licence so exclusively personal in nature that the licence holder cannot by contract bind himself in this manner?
It is understandable that the Legislature would require that a liquor licence, which can be abused easily to the detriment of the public, must be held by an individual. By this means, personal accountability for adherence to the terms of the licence can be enforced most effectively. Nonetheless, many licensees will prefer to operate their businesses through a corporate entity for the obvious advantages that brings. Any such corporation will have a financial interest in deciding which individual will hold the licence. Not unnaturally, the corporation may wish to constrain the licence-holder's right to deal with the licence in a manner detrimental to the company's interests. The Legislature can be assumed to have appreciated all of that. It is entirely in accordance with commercial practice.
A Liquor Licence is a collection of rights (with concomitant obligations) defined in the Law. The rights surrendered by Mr. South to Esso by contract are not integral to the regulatory scheme under the Board's jurisdiction. He has agreed with Esso, among other things, to refrain from applying for a variation of the Licence terms. Giving up his right to apply for a variation cannot affect the Board's power to regulate liquor outlets. The Board's jurisdiction remains unchanged. Similarly, he has agreed "not to apply for any additional or different" licence. Again, that does not trench upon the Board's jurisdiction in any way. In the absence of express language in the Law forbidding a licensee from divesting himself of the right to apply for a variation or the right to apply for an additional or different licence, I would not hold that such a contract is forbidden. There is no such express language in the Law. I find that Mr. South is prohibited by the terms of his agreement with Esso from seeking to have the Licence transferred to another geographical location.
The ultimate request by Esso is for an order requiring Mr. South to consent to a transfer of the Licence to Esso's nominee. The Licence can have no application to any location except the convenience store without Esso's consent. PSB's operation of that store has ceased. Mr. South's involvement with the store is at an end. The fair and natural result of these circumstances is that Mr. South must now transfer the Licence to a representative of Esso.
Three collateral points can be disposed of shortly. Mr. South's assertion that the Arbitrator found the New Lease to be "invalid" is incorrect. His interim award concerned his own jurisdiction and the final award dismissed PSB's counterclaim due to a lack of evidence. There is also no merit in the assertion that Foster, J. found the New Lease to be invalid; the point was not before him. Finally, the fact that the New Lease was not registered under the Registered Land Law cannot affect Mr. South’s obligations of a personal nature to Esso. Judgment
For these reasons, I make a declaration that: (1) on a true construction of the 2010 Deed and in the events that have happened, the defendant holds the Package Liquor Licence number P20-62: (a) upon terms described in clauses 3.14 of the 2010 Deed; (b) as representative of and nominee of the Plaintiff and at its direction and will; and (c) upon terms that, at the direction of Plaintiff, he shall consent to the transfer of the Licence to a person nominated by the Plaintiff. and grant to Esso an injunction: (a) restraining the Defendant, by himself, his servants or agents from dealing with the Licence save at the direction of the Plaintiff; (b) restraining the Defendant, by himself, his servants or agents from making or pursuing any application for variation of alteration of the Licence save at the direction of the Plaintiff; and (c) requiring the Defendant to consent in writing to the transfer of the Licence to a person nominated by the Plaintiff.
Esso is also entitled to damages in the amount of $3015.50 for its cost of intervening in Mr. South's wrongful application to the Board, to interest thereon at the court rates, and to its costs on the standard basis. Dated this 31st day of August, 2012. Henderson, J. Judge of the Grand Court