Grape Bay Ltd v Attorney General
| Jurisdiction | UK Non-devolved |
| Judge | Lord Hoffmann |
| Judgment Date | 28 October 1999 |
| Judgment citation (vLex) | [1999] UKPC J0721-8 |
| Court | Privy Council |
| Docket Number | Appeal No. 69 of 1998 |
| Date | 28 October 1999 |
[1999] UKPC J0721-8
Present at the hearing:-
Lord Hoffmann
Lord Goff of Chieveley
Lord Clyde
Lord Millett
Sir Christopher Slade
Privy Council
[Delivered by Lord Hoffmann]
On 21st July 1999 their Lordships agreed humbly to advise Her Majesty that the appeal should be dismissed and that the appellant must pay the Attorney-General's costs before their Lordships' Board and that they would deliver their reasons later. This they now do.
The McDonald's Corporation of Illinois has built up a successful world-wide business franchising the operation of fast food restaurants under its name and trade marks and in accordance with its standards. It has one of the best known brands in the world. But a consequence of this well-defined image is that some people feel that it does not fit into their own image of what their neighbourhood should be like. The result is that the prospect of the opening of a new McDonald's restaurant sometimes arouses opposition and high passion among the local residents. This is what happened in Bermuda when the appellant, Grape Bay Limited ("Grape Bay") proposed to open several restaurants on the Islands under a franchise agreement with McDonald's.
The history of the matter begins on 26th October 1992, when McDonald's wrote a letter to Mr. Leon Simmons, who was acting on behalf of a Bermudian company called Warner Holdings Ltd. ("Warner"). Their Lordships will call it "the letter of intent". It started by saying that the purpose of the letter was "to confirm our intent to enter into a restaurant development agreement with your investor group". It then said that "Some of the basic terms and conditions of our offer are as follows" and set out their requirements. They included a provision that McDonald's could hold an equity interest in Warner and that Warner would pay a royalty based upon gross annual sales. The licence to Warner was to be subject to McDonald's usual terms and conditions. McDonald's were to have the right to approve the appointment of a Managing Consultant who would oversee the operations of the Bermudian restaurants, which McDonald's would also be entitled to review, oversee and approve. The selection of sites and the construction of each restaurant was subject to review and approval by McDonald's. On the other hand, as long as the Bermudian population remained less than 100,000, Warner would have the sole right to operate McDonald's restaurants on the Islands. The letter said that the final terms and conditions of the licence were subject to the approval of McDonald's International Licensing Group and ended as follows:-
"This offer is further conditional upon our finalizing a written development agreement. If we are unable, after a good faith effort, to finalize a written development agreement within one hundred eighty (180) days after your acceptance of this letter of intent, either party may terminate its obligations under this letter of intent by serving written notice by certified mail return receipt requested upon the other party."
In fact it appears that more than three years elapsed before any steps were taken towards negotiating a development agreement. But neither party exercised its right to terminate. At the end of December 1995 Grape Bay was formed, with Sir John Swan as its principal shareholder. The principal object stated in the memorandum of association was:-
"To obtain all necessary permits or licences from McDonald's Corporation for the purpose of enabling the Company to carry on the business of McDonald's Restaurants within the Islands of Bermuda upon such terms and conditions as may be acceptable to it."
In accordance with section 6(1) of the Companies Act 1981 the promoters required the consent of the Minister of Finance for the registration of Grape Bay as a local company, authorised to carry on business within the Islands. For this purpose the Minister must be satisfied that Bermudians control at least 60% of the shares. The Minister gave consent on 19th February 1996 and the company was registered on 21st February 1996.
The giving of consent created a storm of disapproval in Bermuda. On 6th March 1996 the House of Assembly passed a motion deploring the consent and the approval of fast food franchises generally. Grape Bay was already involved in fairly detailed negotiations with McDonald's, which had written to Mr. Simmons on 4th March 1996 enclosing franchise application forms for Sir John Swan and the other promoters to complete. McDonald's said that $3,000,000 in capital would be required to launch the project and that a suitable operating partner should be identified as soon as possible. They said their lawyers would research the question of whether there were any barriers to their operations in Bermuda. Representatives of McDonald's made several visits to the Islands. On 8th April 1996 Grape Bay applied to the Government's Department of Airport Operations for a concession to operate a restaurant at Bermuda International Airport. The application was to be submitted to an Evaluation Committee which advised the Minister of Transport.
On 10th May 1996 the Minister of Finance made a statement in the House of Assembly. He said that he was setting up a committee under the chairmanship of the Minister of Tourism and Marine Services to review government policy on franchises. Members were chosen from a broad spectrum of interests. The Committee sat for three months and consulted widely. Meanwhile on 30th April 1996 a private member tabled a Bill in the House of Assembly called the Prohibited Restaurant Bill 1996. It contained only three clauses. The first was the short title. The second contained definitions. It defined a "prohibited restaurant" as:-
"a restaurant which is operated in any manner, whether through distinctive name, design, uniforms, packaging, decoration or otherwise, which reasonably suggests a relationship with any restaurant or group of restaurants operating outside Bermuda":
and a "restaurant" as:-
"any tavern, public house or place trading for profit by provision to the public of food or refreshment with or without entertainment."
The third clause was short and to the point. It said that no person should after the commencement of the Act operate a prohibited restaurant in Bermuda. There was an exception for restaurants in operation on the date of the Minister's statement on 10th May 1996, which were entitled to continue to operate in the same manner as before. Finally, contravention of the Act was declared to be punishable by a fine of $5,000 or imprisonment for 6 months or both.
The Bill was debated on 14th and 15th June 1996 and passed. On 26th June, however, it was defeated in the Senate. It remained however open to the proposer of the Bill to reintroduce it in the new session of the House of Assembly due to commence in November 1996. Meanwhile, the effect of the Bill and the review committee was to create sufficient uncertainty to put the McDonald's franchise project on hold. On 26th June 1996 the Project Manager at the airport wrote to Grape Bay saying that the Evaluation Committee had recommended the company to the Minister of Transport as "the leading proponent for the category, Food & Beverage" but that in view of the Bill, no further action would be taken. Any lease of premises at the airport would also be subject to approval by Parliament. On 30th July 1996 McDonald's decided to wait until the Legislature reconvened before taking any further action. The only exception was that they agreed that Mr. Goard-Savery, who had been put forward by Grape Bay as the managing consultant or operating partner, should go to London for training in a McDonald's restaurant. He started there at the beginning of August.
The report of the review committee was laid before the House of Assembly on 22nd November 1996. It recommended against the complete prohibition of franchise restaurants. On the other hand, it advised that their continuation should be contingent on the formation of a Franchise Commission with responsibility for supervising the conditions under which they would be allowed to operate. There should be "strict controls with strong regard to aesthetics, image and appearance". For example, all food franchises should trade under a local name and all exterior signage should give prominence to the local name. Reference to the foreign franchise affiliation should be in letters not exceeding three inches in height. The restaurants should "project a Bermudian image and appearance" on the outside. Only inside could the foreign name and logo be used more liberally.
The recommendations of the review committee evidently did not satisfy the proposer of the Bill. It was reintroduced into the House in December 1996 and given a second reading. It appeared likely that the Bill would pass its remaining stages. If that happened, then, pursuant to section 38(2) of the Constitution, the Bill could, if rejected a second time by the Senate, nevertheless be presented to the Governor for signature. On 17th December 1996 the General Manager of the Department of Airport Operations wrote to Grape Bay saying that it looked as if the operation of a McDonald's restaurant would almost certainly become unlawful. He asked Grape Bay to say what in the circumstances were its intentions about operating a concession at the airport. On 17th January 1997 Grape Bay's attorneys wrote back saying that the Bill was not yet law and their intentions were still the same. In any case, they had advised their clients that the Act, if passed, would be unconstitutional.
On 20th June 1997 the Bill passed the House of Assembly but on 2nd July 1997 it was again defeated in the Senate. This meant that the Bill could be presented to the Governor for signature...
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