CHENUNG KWOK HUNG v. LIQUOR LICENSING BOARD

1994, MP No.2937

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H E A D N O T E

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JUDICIAL REVIEW - RENEWAL OF LIQUOR LICENCE - CERTIORARI AND MANDAMUS - "WEDNESBURY" UNREASONABLENESS - MULTIPLE HEARSAY EVIDENCE - LACK OF CROSS-EXAMINATION - PROBATIVE VALUE OF EVIDENCE - PROCEDURE AND PRACTICE OF LIQUOR LICENSING BOARD NOT UNFAIR - RELEVANCE OF CHARACTER OF EMPLOYER OF LICENCE HOLDER - RELEVANCE OF UNDESIRABLE ASSOCIATION - DETERMINATION UNREASONABLE AS EVIDENCE BEFORE THE BOARD COULD NOT HAVE LOGICALLY LED TO THE FINDINGS MADE.

1994, MP No.2937

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. The applicant was since 1989 the holder of the liquor licence and the manager of Domus Club, a karaoke lounge at 3rd floor, Cambridge Building, Nos.26-28 Cameron Road, Kowloon, Hong Kong. In March 1992, Dadol Ltd. ("the company") and one So Chun Pak ("So") commenced to operate the business of Domus Club at the said address. The company was established in 1991 with So as one of its directors. When the applicant's liquor licence came up for renewal in July 1993 he was met with objection from the police. In the premises, his licence was only renewed for 3 months. It was further extended for 6 months in September 1993 without objection from the police. At the next renewal of the licence in April 1994, objection was again made by the police. To enable further monitoring of the club's activities, the applicant's liquor licence was only renewed for 3 months. On 21 July 1994, strong objection was raised by the police pursuant to which the applicant's liquor licence was renewed for a further 3 months until 21 October pending a hearing of his application and the police objection.

2. The applicant was represented by counsel at the first hearing held on 28 July 1994. After hearing a brief submission from the applicant's counsel, the proceedings were adjourned to 22 September. After the second hearing and by a letter dated 28 September 1994, the applicant was informed that his application for a renewal of his liquor licence had been refused. The applicant successfully sought leave to apply for judicial review on 20 October 1994. He was also able to obtain an interim order for a further renewal of his liquor licence for 3 months pending the hearing of the judicial review. Leave was subsequently rescinded by the same judge. Both the applicant and respondent appealed against the orders. Leave was restored by the Court of Appeal, but I was given to understand it was held that the court has no jurisdiction to grant the said interim order for temporary renewal of liquor licence pending the judicial review.

3. The grounds given by the Liquor Licensing Board in its letter of 28 September 1994 are :

" The Board noted the report from the Police that your club and the Paris by Night Lounge one floor below your club were actually run by one and the same management. Although Paris by Night was unlicensed, liquor was found to be provided by your club to the unlicensed premises. The Board considered that this showed blatant contempt for the law and for the authority of the Liquor Licensing Board. The Board also noted the report from the Police that both premises had record of employing underage girls. Given the above factors, the Board decided that you are no longer a fit and proper person to hold a liquor licence and therefore refused your application."

4. Against this decision the applicant raises no less than 8 grounds of complaint. They can be grouped into 3 categories. Firstly, it is submitted that the decision was "manifestly unreasonable in theWednesbury sense". Secondly, it is contended that the Board erred in law in refusing to renew the applicant's liquor licence when he had not committed any breach of regulations or conditions of the licence. Lastly, the applicant complains generally that the refusal was unfair.

WEDNESBURY UNREASONABLENESS

5. It is useful to remind oneself of the principles enunciated by Lord Greene, M.R. in Associated Provincial Picture Houses, Ltd. v. Wednesbury Corporation [1948] 1 KB 223 at 229-230 :

" It is true the discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology commonly used in relation to exercise of statutory discretions often use the word 'unreasonable' in a rather comprehensive sense. It has frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted with a discretion must, so to speak, direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting 'unreasonably'. Similarly, there may be something so absurd that no sensible person could ever dream that it lay within the powers of the authority. Warrington L.J. in Short v. Poole Corporation [1926] Ch. 66, 90, 91 gave the example of the red-haired teacher, dismissed because she had red hair. That is unreasonable in one sense. In another sense it is taking into consideration extraneous matters. It is so unreasonable that it might almost be described as being done in bad faith; and, in fact, all these things run into one another.

........... It is true to say that, if a decision on a competent matter is so unreasonable that no reasonable authority could ever have come to it, then the courts can interfere. That, I think, is quite right; but to prove a case of that kind would require something overwhelming....."

6. The applicant submits that the decision of the Board is unreasonable in that :-

(i) there was no basis in fact for finding the said 3 factors;and

(ii) the Board had taken into account irrelevant matters.

Evidence before the Board

7. It is not controversial that at an early stage the owners of Domus Club also operated Paris by Night downstairs. In September 1992, So applied for the liquor licence for the Paris by Night unsuccessfully. He was rejected because of the frequent and blatant irregularities and breaches of law in the running of the business at Paris by Night. The irregularities and convictions related to the sale of liquor without a licence and employment of young girls on the premises. Such unlawful activities at Paris by Night continued into 1993. The applicant does not dispute the complaints made by the police in respect of Paris by Night. However, he alleges that the owners of the Domus Club had ceased to have any further interest in Paris by Night since 8 July 1993. He submitted that the common name cards of the employees of both businesses adduced by the police related only to the early period when they were still owned by the same operators. It is not disputed by the police that on the strength of corporate documents and business registration records, there had been a change of ownership of Paris by Night since July 1993. The representative appearing for the police at the hearing submitted :

" Although the applicant was able to submit relevant documents to prove the change of management of Paris by Night on 8.7.03, two of the shareholders of Domus Club claimed to be the persons-in-charge of Paris by Night during licence checks on 3.7.93, 20.4.94 and 23.6.94. These could indicate the close relationship between the two clubs."

The police also alleged in its report that :

"b) at 2100 hours on 29.4.94 an under cover (sic) police party went to the Paris by Night Lounge posing as customers and attempted to order alcoholic beverages. They were informed by a waitress that Paris by Night did not have a liquor license but that they could go to the DOMUS Club, buy alcohol and then return to the Paris by Night lounge to drink it.

c) at 0230 hours on 1.5.94 a police party found customers drinking alcoholic beverages in the Paris by Night Lounge. As a result of enquiries a mamasan in the lounge admitted :-

i) that she had arranged for the customers to be provided with alcohol from thhe (sic) DOMUS Club.

ii) that DOMUS and Paris by Night are operated by the same company and that she works for both clubs at the same time.

iii) that the company accounts office is responsible for tallying the bills from both clubs at the end of the month."

8. The above represent the sum of the evidence relied on by the police to allege that both businesses were still operated by the same management after July 1993. As against the first allegation the applicant gave evidence in his statutory declarations that it is a common practice for employees in such type of businesses to work for more than one establishment at the same time. He said this is not evidence of common ownership. In any event, he submitted that on the 3 occasions when the shareholders of the company were alleged to be in charge of Paris by Night no irregularities were discovered by the police. As to the raids on Paris by Night, the applicant complained that the police had adduced multiple hearsay assertions of an unidentified accuser having unknown means and source of alleged knowledge. It is contended that such material is of no probative value at all.

9. Diplock L.J., as he then was, said in Reg. v. Deputy Industrial Injuries Commissioner, ex parte Moore [1965] 1 KB 456 at 488 :

"The requirement that a person exercising quasi-judicial functions must base his decision on evidence means no more than it must be based upon material which tends logically to show the existence or non-existence of facts relevant to the issue to be determined, or to show the likelihood or unlikelihood of the occurrence of some future event the occurrence of which would be relevant. It means that he must not spin a coin or consult an astrologer, but he may take into account any material which, as a matter of reason, has some probative value in the sense mentioned above. If it is capable of having any probative value, the weight to be attached to it is a matter for the person to whom Parliament has entrusted the responsibility of deciding the issue. The supervisory jurisdiction of the High Court does not entitle it to usurp this responsibility and to substitute its own view for his."

In that case, it was held that the hearsay nature of the evidence did not render it void of probative value as it was a matter that affected only the weight of such evidence. In the premises, I do not accept that the multiple hearsay nature of the evidence, the failure to identify the waitress or mamasan, and the lack of information on how they acquired the alleged knowledge would void such evidence of any probative value. They may, however, affect the reasonableness of the Board's findings. This is particularly so when the police was apparently unable to discover any physical evidence, like account documents or other bills or sales records, relating to the alleged common accounts office or tallying of bills. There was also no employment record of common employees discovered by the police during the hundreds of raids on the premises. The applicant had made statutory declarations refuting strongly the allegations.

10. Furthermore, it has been rightly conceded by the respondent that the factor of common management per se cannot justify a finding that the applicant is no longer a fit and proper person to hold a liquor licence. A material distinction must be drawn between the holder of the liquor licence and his employer who owns the business that is the subject matter of the licence. It is improper to per se attribute the character or wrongdoing of the employer/owner to the holder of the liquor licence without evidence that the holder is himself involved in some way in such attributes or activities of his employer. If the holder knows of such wrongdoing of his employer and assisted in the perpetration of them, he becomes a party to such wrongs. If he turns a blind eye or is negligent in the supervision of the operation of the business under his charge so that such wrongful activities can take place, he is likewise tainted with such wrongs. However, if such activities took place in the premises under his charge without his express or implicit consent, or negligence as mentioned above, how would it be right to attribute any such wrong to him personally as a holder of a liquor licence? To do so would be condemning a wholly innocent man for the wrongs of his employer. He would be guilty of the crime of having an employer of bad character. It should be borne in mind that the legislative scheme does not stipulate that the holder of the liquor licence should own the business. Perhaps it should. But it does not. In the premises, the only real relevance the character of the employer of the licence holder has is whether it affected the way the licence holder runs the business. The respondent thus conceded that the only relevance of the fact of common ownership or management is that it is a fact to be taken into account in considering whether it is more likely than not that liquor would have been provided by the Domus Club to Paris by Night. It was conceded that such association cannot stand on its own as a ground for objection against the renewal of the applicant's liquor licence. I shall have more to say on this later.

11. In the premises, the only real grounds of objection are the alleged provision of liquor by the Domus Club to Paris by Night and the allegation that Domus Club had a record of employing underage girls. The first being indicative of a blatant contempt for the law, and the latter being a beach of the law. Both would render the applicant an unfit person to continue to hold a liquor licence.

12. The only evidence adduced before the Board to substantiate the alleged provision of liquor by Domus Club to Paris by Night is to be found in the allegations of the waitress and mamasan. There is no direct evidence substantiating such allegation. The allegation of the waitress only logically lead to the conclusion that there was an invitation by a waitress of Paris by Night that the customer (the undercover police agent) could go to Domus Club to buy liquor to return to Paris by Night for consumption. Firstly, it is not evidence of any invitation by employees of Domus Club. Thus, no fault can be attributed to the management of Domus Club for such an invitation. Secondly, I do not accept Mr Bradley's submission that such activity would per se constitute a breach of the conditions of licence by Domus Club. He submitted that it is the duty of a licence holder to prevent his customers from taking any unconsumed liquor off his premises. He suggested that staff should be posted at the entrance to carry out this duty. It is correct to say that the licence only permits the sale of liquor for consumption on the premises named therein. The licence does not permit the sale of liquor for consumption outside the premises. However, I do not accept that the licence imposes an absolute duty on the holder to prevent liquor sold for consumption at his premises from being subsequently taken off his premises by his customers. The duty imposed by the licence is to sell liquor for the purpose of consumption on the premises. The licence holder would be guilty of a breach of such duty only if he knowingly or negligently sold liquor for the purpose of consumption outside his premises. He would be negligent if he sold a whole carton of canned beer to a customer. But would he be negligent if he sold a bottle of beer with only half of its content poured inside a glass, and subsequently the customer emptied the beer in the glass into the bottle and walked out of the premises with a full bottle of beer? Or should he refuse to sell beer to a customer who prefer to drink it from a bottle instead of a glass? Would he be negligent if he failed to post a strong man at the exist to prevent such a customer from leaving the premises unless he first fully consumed the beer? I do not believe that could be the intention of the legislative scheme. Such a scheme is neither reasonable nor practical.

13. The material consideration is whether the licence holder has any guilty knowledge or is turning a blind eye to such activities. Did he deliberately or negligently fail to supervise his operation to enable customers to take liquor off his premises for the purpose of consumption at Paris by Night? The allegation of the waitress at Paris by Night is certainly unhelpful on this. The allegation of the mamasan was to the effect that she had "arranged" for the customers to be provided with alcohol from the Domus Club. There is no further elaboration on the alleged scheme of arrangement. The bare allegation of the tallying of the bills is not helpful either. Even taken all allegations together they do not logically lead to the conclusion that the applicant was guilty of any default. Was the mamasan alleging that the liquor provided by Domus Club to Paris by Night would not be paid for by the customer at the premises of Domus Club, and that payment made by the customer at the premises of Paris by Night for liquor consumed thereat would be settled with Domus Club by the common accounts office at the end of the month? If so, where are the accounting and sales documents earlier observed to be acutely missing? Further, if it was truly a case of common ownership and management, why should there be any necessity of a settling of accounts between the two businesses? Further, if there had been such a provision of liquor by Domus Club to Paris by Night as alleged, when Paris by Night ceased business and vacated the downstairs premises in August 1994 (though a fact not known to the Board at the time of the hearings in September), one would have expected a sudden drop in the sale of liquor in Domus Club since then. However, there is no evidence of such a phenomenon before the Board. There is also no investigation conducted by the authorities on the stocks of Domus Club against its sales revenue and cash deposits at the banks to detect any alleged tallying of bills. The alleged provision of liquor by Domus Club is so riddled with doubts and vagueness that it is difficult to draw any logical conclusion as to the precise scheme of operation alleged to have existed. In any event, the allegations could not logically lead to the conclusion that the applicant personally knew of such activities. The inability to draw any logical conclusion how the alleged arrangement operated also renders it impossible to conclude that the applicant was somehow negligent in supervising the sale of liquor at the premises of Domus Club in the sense discussed supra.

14. On this issue there is a dearth of evidence. There is no material placed before the Board that would entitle it to infer any knowledge or negligence on the part of the applicant even if it could, with great effort and some imagination no doubt, draw any inference that liquor found on the premises of Paris by Night did come from Domus Club by an unknown manner of arrangement.

15. The respondent perhaps conceded too readily the lack of independent importance in the alleged association with undesirable characters or employment under an undesirable employer. It is a relevant factor of its own right in the determination of an application for a liquor licence or a renewal of it. But such factors must be considered in the wider context in the light of all surrounding circumstances to assess the risk of the applicant in upholding his own integrity and honour against any unwarranted influence or control that may be brought by such undesirable association in the discharge of his duty under the licence. Mere undesirable association without more is too arbitrary a criterion to adopt. In this context it is not without interest to note that despite the alleged continued common management after July 1993, over 200 raids at Domus Club conducted between 6 May 1993 and 21 June 1994 by various authorities, including the police, revealed no irregularities save a wholly unsubstantiated allegation by an alleged prostitute that she was recruited by a mamasan who worked in Domus Club. Furthermore, no irregularities were found at Domus Club between 21 June and 26 July 1994 despite the over 100 raids carried out during that month; sometimes at the frequency of 2 to 3 times a day. Even if the police had established a continued common management after July 1993, they were not able to adduce a single piece of evidence indicative of any undesirable influence over the applicant from such association. It appears that despite the remarkably vigorous efforts of the police and other authorities to find fault with the applicant and the Domus Club, such energy had been wholly wasted at great expense to the public purse. One would have thought that it must have occurred to the relevant authorities that if they would only spend a fraction of the said energy to keep the operation of Paris by Night under constant surveillance to monitor the actual carriage of liquor between the floors or from elsewhere, greater results would have been achieved in understanding the source of liquor at Paris by Night. There is, however, no evidence of such nature adduced before the Board.

16. On the last objection of employment of underage girls at the premises of Domus Club, it is not disputed that the applicant had pleaded guilty to two counts of "employing a female under 18 on licensed premises" on 11 January 1993. The offences came to light during a police check on 15 October 1992. They were the only convictions of the applicant during the whole of his licensed period since 1989. A charge against him for breaching licensing condition in failing to keep record of female employees of ages 16 and 17 on 6 May 1993 was dismissed on a finding of no case to answer. He was granted renewals of his liquor licence despite such convictions and police objection in July 1993, and without police objection in September 1993. He was granted another renewal in April 1994. It would appear that the Board never regarded his said convictions per se of such severity as to warrant a refusal of his liquor licence during those renewals. Mr Bradley submitted that was because the police only drew their attention to the common management with Paris by Night for the first time in September 1994. This must be the reason for the Board's finding that "both premises had record of employing underage girls". It is not disputed that Paris by Night had accumulated quite a few convictions including those relating to underage girls. However, it would be wrong for the Board to take into account the convictions of Paris by Night when considering the applicant's renewal of licence even on the basis of a proven common management between the two businesses. Such convictions of Paris by Night relating to the way the business was managed at its premises could not assist the Board in deciding if the applicant was managing and is capable of managing his business at Domus Club properly. There is a total void of evidence or material to link or associate the applicant with such wrongdoing at the premises of Paris by Night.

17. Taken the totality of the evidence and material before the Board, I am satisfied that no reasonable tribunal properly directing itself on the law could have come to the said findings of the Board that liquor had been provided by Domus Club to Paris by Night. Even if that finding can be said to be reasonable, the Board had misdirected itself in failing to distinguish the applicant's conduct and fitness with that of his employers that owns the business of Domus Club. There is no factual foundation to entitle the Board to come to the conclusion that the applicant should be held responsible in any way for the alleged provision of liquor by Domus Club to Paris by Night, or for the alleged wrongdoing of his employers in respect of another business operated by them in the neighbourhood. In finding as it did, the Board had taken into account matters irrelevant to their consideration. The applicant had improperly been attributed with guilt and prejudice that could not and should never have tainted his fitness as a holder of a liquor licence. The unsubstantiated vague and misty suspicion raised by the police reports leads to the inevitable conclusion that the Board must have acted arbitrarily on the applicant's mere association with an undesirable employer (even assuming common management after July 1993 had been adequately established). I am satisfied the applicant has made out an overwhelming case that the findings of the Board have failed to attain the degree of reasonableness and rationality that is required of it in the determination of the applicant's application for renewal of a licence he had held for 5 years. Their arbitrary conclusion that the applicant had ceased to be a fit and proper person to hold a liquor licence cannot reasonably be support by the evidence and materials before it.

UNFAIRNESS

18. This complaint of the applicant is made against the procedure adopted by the Board in the hearing of the application. It is submitted that the evidence adduced by the police consisted of multiple hearsay of no probative value without any opportunity for the applicant to test the allegations by cross-examination. It is contended that the production of police reports without calling the maker of allegations to give viva voce testimony is inapt for the resolution of serious and highly contentious disputes of facts. I find no merits in this objection. The applicant was represented by counsel at the hearing, as were most applicants. He was given ample notice of the nature and contents of the police objection and evidence prior to the hearings. The rules of evidence do not apply to such hearings and it is open to the Board to act on multiple hearsay evidence subject only to its having some probative value. No application was ever made by the applicant's counsel to seek cross-examination of the makers of allegations relied on by the police. His counsel was contended with submitting on the basis of evidence via statements and police reports. In the premises, the applicant is taken to have waived any right to test the veracity of such allegation by cross-examination. He cannot now be heard to complain of the lack of any test of veracity of such allegations. Weight of such evidence is a matter entirely for the Board subject only to the reasonableness of its findings at the end of the day. I am wholly satisfied that the procedure and the manner of conduct of the proceedings before the Board cannot be justly criticised on any valid grounds. There is no justification in any complaint that serious disputes of facts cannot or should not be resolved by the procedure practised by the Board. I am unable to find any inherent defect with the procedure adopted.

ABSENCE OF ANY BREACH OF CONDITIONS

19. Though absence of any breach of the law or of conditions of licence is a material factor in the consideration of a renewal of liquor licence, it is fallacious to suggest that such an absence of breach would per se render any refusal to renew ultra vires or unlawful. A holder of a liquor licence does not necessarily continue to be a fit and proper person so long as he has refrained from breaking the law or breaching any conditions of licence. The Board has an absolute discretion, subject only to the supervision of the court on prescribed grounds, in the determination of the fitness of a person as a holder of a liquor licence. The fallacy of a suggestion that any law-abiding citizen with an unblemished record must necessarily be a fit and proper person to hold a liquor licence is only too obvious. The Board must necessarily consider a whole variety of other factors and surrounding circumstances in coming to its determination. The absence of any breach is but one of many such factors. This objection must fail for lack of merits.

20. For reasons given supra, orders were made to quash the decision of the Board in refusing to renew the applicant's liquor licence on 28 September 1994. And on 30 January 1995 a consent order was made for the Board to rehear and determine the applicant's application for renewal by 13 February 1995. As the applicant's application for the interim order for a temporary licence pending the determination of the judicial review was held to be without jurisdiction, the applicant was only to recover 90% of his costs in the action (inclusive of his application for leave) against the respondent.