BAYNHAM, PAUL AND ANOTHER v. LIQUOR LICENCING BOARD

HCAL 38/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 38 OF 2010

----------------------

----------------------

(Heard together)

----------------------

J U D G M E N T

----------------------

I.   INTRODUCTION

1.  Critima belongs to the Epicurean Group of companies.  Critima runs Bar George in Lan Kwai Fong.  Baynham is an Epicurean employee.

2.  In HCAL No. 38 of 2010 Baynham and Critima seek judicial review of the decision by the Liquor Licensing Board (LLB) to cancel Bar George’s liquor licence from 1 April 2010.  They say that the LLB ought to have transferred the licence to Baynham instead. The LLB cancelled the licence at the request of the then licence-holder Dhruba.

3.  In HCAL No. 71 of Baynham and Critima seek judicial review of the decision by the Municipal Services Appeals Board (MSAB) to dismiss their appeal against the LLB’s refusal to transfer Bar George’s liquor licence to Baynham.

II.  BACKGROUND

4.  The LLB issues liquor licences under the Dutiable Commodities (Liquor) Regulations (Cap. 109B) (DCLR).  No one may sell or supply liquor from premises without a licence issued by the LLB.  Applications for a licence are processed by a licensing office (the office) within the Food and Environmental Hygiene Department.

5.  Under the DCLR a licence is issued to a natural person.  It is not issued to an establishment or a company operating an establishment.  This is because a key condition for a licence is that there be a human being (namely, the licence-holder) who is personally responsible for supervising relevant premises and ensuring compliance with the terms of the DCLR and licence.  It is therefore routine for companies operating bars to designate an employee as licence-holder.

6.  Before December 2002 the licence for Bar George (then known as Buppa Thai) was held by Baird, an employee of Critima.  In June 2005 the licence was transferred to Dhruba (then an employee within the Epicurean group).

7.  In November 2009 Critima wished to have the licence transferred to Baynham.  He applied to the office for such transfer.  Dhruba wrote to the office to say that she consented to the proposed transfer.

8.  On 12 November 2009 the LLB responded that Dhruba’s signature on her consent form did not match her signature on the office’s records.  The office asked Baynham to rectify the situation if his transfer application was to be processed. 

9.  The change in Dhruba’s signature appears to have been occasioned by her marriage. On 4 November 2009 she had written to the office to request that her old signature be replaced by a new one styling herself by her married name D. Shrestha.  On 1 December 2009 Dhruba sent in to the office another consent form, this time with her new signature.

10.  On 17 December 2009 Dhruba told Baird (who had since become Epicurean’s Director of Operations) that she would withdraw her consent to a transfer of the licence.  This change of heart seems to have been caused by an employment dispute between Dhruba and Epicurean.  Dhruba seems to have wanted to make life as difficult as possible for Epicurean, possibly to gain an upper hand in negotiations relating to that dispute.  Epicurean says that it dismissed Dhruba on 16 November 2009.  

11.  In any event, Dhruba wrote to the office on 18 December 2009 stating that she “would like to cancel the licence transfer process immediately due to some complications and other reasons”.  She asked the office “not to accept the transfer process under my absence”.

12.  The office telephoned Dhruba in response.  The office noted that, the transfer application having been made by Baynham, the office did not consider it appropriate for Dhruba to cancel the transfer application. 

13.  On 22 December 2009, Critima wrote to the office confirming that Baynham was not withdrawing his application for a licence transfer.

14.  On 23 December 2009 Dhruba wrote again to the office.  For some unknown reason she dated this follow-up letter “18 December 2009”.  She referred once more to “some complications”.  She said that as a result she did “not want to transfer my licence to anyone at the moment”.  She requested that the office “cancel any liquor licence transfer process at the earliest”.

15.  On the same day, the office informed Dhruba by letter that, in light of her 23 December 2009 request, “no further action will be taken to process the captioned application”.  The office sent a similar letter to Baynham on 7 January 2010.

16.  On 26 January 2010 Dundons (solicitors for Baynham and Critima) urged the office to proceed with Baynham’s transfer application.  The office replied on 17 February 2010 that it had treated Dhruba’s 23 December 2009 communication as a withdrawal of consent to Baynham’s transfer application. Consequently, the office took the view that the “application for transfer ... cannot be processed without the consent of the current licence holder”.

17.  But Dundons continued to press the office.  On 19 March 2010 the office wrote that at its meeting on 9 March 2010 the LLB had decided that “for the transfer application to proceed, the transferor and transferee of the liquor licence at [Bar George] should reach a consensus”.  Baynham and Critima then appealed to the MSAB against the LLB’s decision to refuse a transfer.

18.  In the meantime, on 18 March 2010 Dhruba told the office that she was no longer prepared to perform the duties of a licence-holder.  She requested that the licence be cancelled immediately.  In consequence, the office informed Dundons by letter of the same date that “the liquor licence is treated as cancelled with effect from 1 April 2010”.

19.  On 8 April 2010 Baynham applied to renew the liquor licence in respect of Bar George.  This renewal application, however, does not appear to have been received by the office.  On 21 July 2010 Baynham also applied for the grant of a new licence, without prejudice to the contention that the LLB wrongly refused to consider the transfer of the licence from Dhruba to Baynham.  The office has received this application for a new licence.

20.  By Order dated 12 April 2010, in giving leave to apply for judicial review in HCAL 38 of 2010, I directed that there be a speedy determination of the application.  I further directed that there “will be a stay of the effect of the cancellation of the licence of Bar George such that the licence will be deemed to remain valid until the determination of this judicial review or further order.”

21.  Had it run its natural course without a cancellation or renewal, the licence in Dhruba’s name would have expired on 4 May 2010.

22.  On 30 June 2010 the MSAB dismissed the appeal against the LLB’s decision to refuse a transfer.  The MSAB held (at para.10 of its Decision):-

“We are of the view that the [LLB] refused to consider the application rather than refusing the application.  We are further of the view that the decision of refusal to consider the application is not an administrative decision in terms of the Municipal Services Appeals Board Ordinance [(Cap.220)] [MSABO]. Hence, we have no jurisdiction to consider the decision made by the [LLB] pursuant to Section 3 of the [MSABO].”

III. DISCUSSION

A.  HCAL No. 38 of 2010

23.  Mr. Abraham Chan (appearing for the Board) argues that judicial review in HCAL No. 38 is now “academic” since (despite my direction of April 2010) the licence expired on 4 May 2010. 

24.  In any event, Mr. Chan submits that the LLB did not have the power to permit a transfer of the licence without Dhruba’s consent.  On the contrary, the LLB (according to Mr. Chan) was entitled to treat the licence as cancelled upon Dhruba’s request and there was no denial of natural justice in the LLB’s decision to treat the licence as cancelled.

A.1    Judicial review now academic?

25.  I am unable to accept Mr. Chan’s submission that the judicial review has been rendered academic by any expiry of the licence on 4 May 2010.

26.  The argument here is that my direction only stayed the effect of the licence being treated by the LLB as cancelled as of 1 April 2010.  My direction (Mr. Chan argues) could not have extended the validity of the licence beyond its expiry date of 4 May 2010.  This is because the duration of a licence (Mr. Chan says) is exclusively for the LLB to determine under DCLR r.20(3) (which limits the validity of a licence to “a period of 1 year or such lesser period as the [LLB] shall determine”).

27.  Mr. Chan submits that a court cannot make an order which has the effect of extending a licence beyond the expiry date fixed by a licensing authority.  In support of this proposition, Mr. Chan relies on Cheung Kwok-hung v. Liquor Licensing Board [1995] 2 HKLR 456 (CA). There Godfrey JA said (at 460):-

“For those reasons, what I propose to do is this.  I propose to indicate that in my view the Court of Appeal should consider as soon as possible whether leave for a judicial review ought to be granted here.  Whether it will be possible for the applicant to obtain an expedited hearing of his appeal, so that the matter can be resolved before 20th January 1995 (when the current licence, on the footing that it is valid, would expire) I do not know; that must be dealt with through the usual channels.  Having regard to the state of the legislation, which does not provide for continuance of the licence pending an appeal, an expedited appeal is necessary to protect the position of an applicant who has or may have been unfairly treated.  It seems to me unsatisfactory that the court should be absolutely unable to interfere in order to put such a matter right before it is too late and the licensee’s business has been ruined by a refusal to renew the licence.  The failure to renew a licence is so serious in this sort of case that the applicant is justified in suggesting that its business will in fact be ruined if the licence (if it ought to be renewed at all) is not renewed before it is too late.  It is not for me to judge today whether the applicant deserves that fate.  My only concern is to indicate what might be done to do justice between the parties.”

28.  In the passage just cited, Godfrey JA was a long way from definitively holding that a Court could not (as an interim measure pending determination of a judicial review) extend the validity of a liquor licence beyond its natural expiry period.  There was no need for him to go so far since the relevant application could possibly be dealt with expeditiously and reach some resolution before the expiry date.  Given Godfrey JA’s comment on the “unsatisfactory” situation which would arise if the Court is unable to extend a liquor licence pending the resolution of a judicial review, it is clear that the Court should be slow to conclude that it definitely has no such power to extend. 

29.  For what it is worth, in my view, my direction was within the Court’s inherent jurisdiction to take measures to safeguard its procedures and preserve a status quo pending the substantive determination of a dispute. My direction had the effect of precluding the LLB from treating the licence as expired on 4 May 2010. As a result, the licence is deemed to continue until such time as the judicial review in HCAL No. 38 of 2010 is resolved. Otherwise, to the extent that the LLB acted wrongly, the Court’s procedures would be circumvented. The LLB would be absolved from performing its duty by the mere chance event (not due to anyone’s fault) that the Court could not hear this matter substantively until today.

30.  But I do not have to determine the precise extent of my direction for present purposes.  Assume that Mr. Chan is correct in his submission and the Court indeed has no such power to extend.  Assume that, despite my direction, the licence lapsed on 4 May 2010.  It does not follow that the present judicial review is rendered academic.

31.  To begin with, at a most basic level, there remains the question of costs.  That is not a moot question.

32.  The review application was taken out (and leave granted) long before 4 May 2010.  Fortuitously, for whatever reason beyond anyone’s control (for example, the state of the Court’s and counsel’s diaries and the need to give a reasonable time for the filing of evidence), it happens that a substantive judicial review can only be heard today after the licence’s expiry date. 

33.  Nonetheless, significant costs have been accrued by both sides in the preparation of this case, both before and after 4 May 2010. On whom should such costs fall? It will be relevant towards determining the incidence of costs (especially those accruing before 4 May 2010) to decide whether or not the LLB was right in refusing to consider the transfer application.  If (for instance) the LLB was wrong in its stance, it is difficult to see why it should not bear all or at least some of the costs incurred by Baynham and Critima in applying for judicial review.

34.  Further, on a more profound level, it does not follow from the Court’s lack of a power to extend that the LLB has no power to extend and that the LLB cannot be ordered by the Court to exercise such power. 

35.  It is implicit under DCLR r.15(1), for instance, that the LLB has the power, not just to grant an initial licence, but also the power to renew, transfer or amend existing licences.  Thus, if the Court thinks (as Baynham and Critima contend) that the LLB failed in its duty to consider the transfer of Dhruba’s licence, the Court can order mandamus. 

36.  That order of mandamus would comprise 2 elements. 

37.  First, the Court could direct the LLB to determine the proposed transfer in accordance with its duty. 

38.  Second, to enable the LLB meaningfully to comply with its duty, the Court could also direct that the LLB exercise its power to renew the validity of the existing licence for such period as may be necessary. 

39.  The necessary period would encompass such time following a judgment in this judicial review as would allow the LLB to assess Baynham’s suitability as a transferee.  Logically, it should also include such time as may be necessary for the LLB (in the event that Baynham is deemed to be a suitable transferee) to consider Baynham’s application to renew the licence for a longer duration. Otherwise, there would be little point in transferring a licence to Baynham only for that licence to expire immediately upon transfer.

40.  Since the necessary period would be reckoned in days or weeks, certainly no more than a couple of months, there should be no clash with DCLR r.20(3) (authorising the issue of liquor licences valid for no more than a year). The exercise of the power to renew for the requisite period can, moreover, where the LLB deems appropriate, be made conditional on the payment by Baynham or Critima of a pro rata licence fee in accordance with the DCLR.

41.  In support of his argument that the Court lacks the necessary power to extend the validity of a liquor licence, Mr. Chan has also cited Sino Asia Investment Ltd. v. Secretary for Justice HCAL No.37 of 1998, 23 June 1998 (Findlay J) and Happy Pacific Ltd. v. Commissioner of Police HCAL No.11 of 2009, 5 November 2009 (Stock J).  But those cases concern the licensing regime for massage establishments.  They are an unreliable guide in determining the scope of the Court’s powers in the wholly different situation of liquor licensing.

42.  In summary, whether or not the Court has power to extend a licence and whatever the interim effect of my direction, the issues raised in HCAL No. 38 of 2010 are far from academic.  The substantive merits of the complaints made in the judicial review have to be determined.

A.2    Power to consider transfer despite lack of Dhruba’s consent?

43.  DCLR r.22 provides that:-

“Upon application in writing as required by the [LLB], the [LLB] may exercise the same powers in relation to the transfer of liquor licences as are conferred by section 7 of the [Dutiable Commodities Ordinance (Cap.109) (DCO)], and upon payment of the prescribed fee, particulars of such transfer shall be endorsed by the Director of Accounting Services on the licence.”

44.  DCO s.7(1)(b)(ii) provides that a licensing body may:-

“permit the transfer of the licence or permit from one person to another or, if the licence was issued for certain premises, the substitution therefor of other premises, or may amend the licence or permit, on sufficient cause being shown to [its] satisfaction and on payment of the fee prescribed for such transfer....”

45.  Stressing the verb “permit” therein, Mr. Chan reads DCO s.7(1)(b)(ii) as requiring that there be a proposed transfer must be agreed between transferor and transferee.  He suggests that s.7(1)(b)(ii) does not authorise depriving an individual of the personal privilege embodied by a licence without that individual’s consent.

46.  I am unable to read s.7(1)(b)(ii) as imposing such a requirement for a transfer.  As far as I can see, there are no words in the provision limiting a transfer to the situation where putative transferor and would-be transferee consent to a transfer.

47.  Consider the case where an employee E holding a licence in respect of an establishment ceases for some reason to be a fit and proper person to serve as licence-holder.  The establishment on whose behalf that person holds the licence then applies for the licence to be transferred to some other employee X who is a fit and proper person.  The licence still has some time before its expiry.  Suppose that E does not accept that E has ceased to be a fit and proper person. E objects to the proposed transfer and insists on remaining a licence-holder. 

48.  Under DCLR r.23 the LLB may revoke, suspend or refuse to renew a licence where a person ceases to be a fit and proper person to hold a licence. 

49.  It would be odd if, in such situation as that posited above, the LLB could only revoke the licence under DCLR r.23 and could not invoke DCLR r.22. Revoking the licence would mean that the establishment has to apply for a new licence to be issued to X.  This could potentially be more time-consuming than a transfer because third parties (such as the police and fire services) may have to be consulted before a new licence is granted.  In the course of any delay, the establishment could lose business, notwithstanding that E’s licence still has a substantial period to run before expiry.

50.  Why (one asks rhetorically) should r.22 not be applicable in the hypothetical situation described?  In the absence of plain words to the contrary, one would expect the Legislature to have intended DCLR r.22 and DCO r.7(1)(b)(ii) to apply in the hypothetical situation when justice demands.  There is no compelling basis for reading a restriction such as that advocated by Mr. Chan.  On the contrary, the requirement of E’s consent could lead to the “unsatisfactory” state of affairs (decried by Godfrey JA) where an establishment suffers substantial loss despite being concerned to replace an unreliable E with a fit and proper X as soon as possible.

51.  In my judgment, then, the LLB has a power to consider transferring a licence even where a current licence-holder disagrees.

52.  Mr. Chan goes on to submit that the LLB was “entitled to refuse the proposed transfer on the basis that it would be contrary to its established practice of requiring consent”.

53.  It may be salutary as a matter of general policy for the LLB to check whether named transferors and transferees agree to a proposed transfer.  But, in a case where someone applies for a transfer and a current licence-holder disagrees, the LLB cannot fetter its discretion and rigidly apply its policy in all circumstances.  That would be abdicating the LLB’s statutory duty under DCLR r.22.  The LLB must also determine whether a given situation is one where, as a matter of discretion, the general policy should be followed.

54.  In the present case, there is no evidence that the LLB considered whether or not to adhere to its general practice in the circumstances.  The LLB instead appears to have assumed that, Dhruba’s consent being lacking, a transfer was simply not possible until the parties reached a consensus.  Such assumption on the part of the LLB was wrong.

55.  Mr. Chan draws a distinction between “cancelling” a licence and “revoking” it under DCLR r.23.  But this distinction seems to me a question of semantics.  I see no real difference between:-

(1) “cancelling” a licence because Dhruba intimated that she was no longer willing to abide by its terms; and,

(2) “revoking” a licence because, Dhruba having said that she was no longer willing to abide by its terms, Dhruba thereby ceased to be a fit and proper person to serve as licence-holder.

56.  Mr. Chan suggests that a “revocation” takes place where a licence-holder is unwilling to surrender a licence, while a “cancellation” takes place where a holder voluntarily gives up the licence.  Revocation requiring compulsion, resort to it has been regulated (Mr. Chan says) by DCLR r.23.  On the other hand, where a person voluntarily surrenders a licence, it can simply be “cancelled” without recourse to a regulatory provision.

57.  I am unable to agree.  In both situations, in practical terms, what the LLB did was to treat the licence as revoked pursuant to DCLR r.23. 

58.  The LLB did so here, without addressing its mind to whether, in the alternative, the licence should be transferred to Baynham under DCLR r.22.  In so doing, the LLB failed to consider all things which it ought to have considered.  On that basis, the LLB’s decision to treat the licence as “cancelled” (and to refuse even to consider a transfer) was flawed.  That decision cannot stand.    

59.  Mr. James Thomson (appearing for Baynham and Critima) contends that there was a breach of natural justice in that his clients were not heard by the LLB before the licence was cancelled.  But, in light of the conclusion which I have just reached, it is unnecessary for me to rule on this point.

A.3    What relief?

60.  I believe that the following relief should be granted:-

(1) The LLB’s decision to treat the licence as cancelled from 1 April 2010 is quashed.

(2) The question of the transfer of the licence will be remitted to the LLB with a direction that it consider whether, despite the absence of Dhruba’s consent, the licence should be transferred to Baynham.

(3) There will a further direction that the LLB exercise its power to renew the licence for a limited period to ensure that:-

(a) the licence remains valid pending the determination of    the question of transfer by the LLB; and,

(b) in the event that the licence is transferred to Baynham,   the licence remains valid pending the LLB’s consideration of   Baynham’s application to renew the licence.

(4) In exercising its power to renew the licence for a limited period, the LLB will be at liberty (if so minded) to impose a fee in accordance with the DCLR to cover any limited period of renewal.

B.  HCAL No. 71 of 2010

61.  Appeal from a decision of the LLB is to the MSAB.  Under MSABO s.3, the MSAB hears and determines any appeal to the MASAB “from an appeal board decision or an administrative decision from which an appeal lies to the Board”.

62.  For similar reasons to those discussed above in relation to HCAL No. 38 of 2010, the judicial review against the MSAB’s decision is not academic.

63.  For one thing, there is the question of costs. 

64.  Submissions were advanced to the MSAB on behalf of the LLB to the effect that there had been no “administrative decision” by the LLB against which Baynham and Critima could appeal.  All that there had been (the LLB suggested) was a refusal to consider whether to transfer the licence. Those submissions prevailed before the MSAB.

65.  The MSAB does not appear before this Court.  It is content to be bound by my ruling.  But, if the MSAB’s decision is found upon judicial review to have been erroneous, a question arises as to the incidence of costs of this judicial review as against the LLB.

66.  More pertinently, under MSABO s. 7(1), the MSAB may “exercise all the powers and discretions that are conferred on the person who made the administrative decision [being appealed against]”. 

67.  Consequently, just as the Court can remit a matter to the LLB with a direction to exercise the LLB’s power to extend a licence pending determination of the transfer application, the Court may do the same in relation to the MSAB.  If in judicial review the Court regards the MSAB as having come to an invalid decision, it may ask the MSAB to reconsider that decision and to exercise its ancillary powers in such a way as to prevent its reconsideration from being nugatory.

68.  On the substantive question of the validity of the MSAB’s decision, it seems to me that the MSAB erred.  A refusal even to consider a transfer when the LLB is under a duty to consider the same must be an “administrative decision”.

69.  An administrative body (such as the LLB) tasked with exercising a discretion cannot shirk the duty to consider whether or not to exercise the discretion in a given case.  If the body refuses to consider whether to exercise its discretion or refrains from exercising its discretion for invalid reasons, the refusal is tantamount to a decision not to exercise the relevant discretion. 

70.  In plain words, “not to decide” is “to decide not to decide”. A decision “not to decide” must therefore be susceptible to review by the MSAB as an “administrative decision,” if only to compel the administrative body concerned to do its duty and properly consider a matter.

71.  The MSAB’s conclusion that it lacked jurisdiction was therefore invalid. The MSAB’s decision is quashed.  But, given what I have just decided in relation to HCAL No. 38 of 2010, it is unnecessary to remit the matter to the MSAB for reconsideration.  The reconsideration by the LLB which the Court has directed should be sufficient to dispose of the parties’ current disputes.

IV. CONCLUSION

72.  The applications for judicial review succeed.  There will be an Order as set out in Section III.A.3 above.  The decision of the MSAB is quashed.

73.  I will hear the parties on costs and consequential orders.