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Taylors (1988) Limited [2009] NZLLA 1489; [2009] NZLLA 1404 (14 December 2009)

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Taylors (1988) Limited; [2009] NZLLA 1404 (14 December 2009)

Last Updated: 16 January 2010

Decision No. PH 1404/2009


IN THE MATTER of the Sale of Liquor Act 1989


AND


IN THE MATTER of an application by TAYLORS (1998) LIMITED pursuant to s.41 of the Act for renewal of an off-licence in respect of premises situated at 4 Milne Street, Hunterville, known as “Taylors”


BEFORE THE LIQUOR LICENSING AUTHORITY


Chairman: District Court Judge E W Unwin

Member: Mr P M McHaffie


HEARING at MARTON on 25 November 2009


APPEARANCES


Mr C Light – applicant
Inspector T Patterson – NZ Police – in opposition
Mrs V P Hodds – Rangitikei District Licensing Agency Inspector – to assist
Mr A S Galloway – representing Alcohol Advisory Council of New Zealand – submitter


RESERVED DECISION OF THE AUTHORITY


Introduction


[1] This is an application by Taylors (1998) Limited (hereafter called “the company”) for the renewal of its off-licence in respect of premises situated in Milne Street, Hunterville. The store frontage is on State Highway One. The company is a wholly owned subsidiary of Elders Taylors Limited which is a non-trading company. Due to an administrative error the renewal application was lodged and advertised in the parent company’s name. Mr C Light appeared for the company. He sought and was granted a waiver under s.111 of the Act.

[2] The business was established in 1904 and trades as a general store under the name of “Taylors”. It has a long history of providing a service to Hunterville, and in particular the surrounding rural community. Currently it sells groceries, general farming supplies, hardware, petrol and other automotive fuels, and liquor to residents, farmers and passing traffic. In addition the company provides a Lotto outlet and a post office.

[3] There are essentially four separate commercial entities trading in the building. Outside the premises on State Highway One, there is a service station selling petrol and diesel. There was a residual concern that the principal business of the store might have been the sale of petrol. However, figures produced by the company’s accountant showed that this was not the case. Immediately inside the premises is a large ‘Four Square’ grocery store that also includes the post shop and the Lotto stall. Inside this part of the store in a corner, is the bottle store selling all types of liquor. There is no physical separation of the bottle store from the grocery store. It is a one-stop shopping experience. At the back of the premises there is a large drive through store that stocks a large variety of farming supplies. This area is also used for the storage of liquor. “Taylors” was said to be one of the largest general stores in the country.

[4] The company’s off-licence has an interesting history as well. Prior to the Act being passed in 1989, stock and station agencies held wholesale licences authorising the sale of all types of liquor. However, the new Act effectively excluded stock and station agents from being able to hold licences as of right. The previously constituted Authority decided that as the Act was a liberalising enactment, it would be inconsistent to refuse to allow such licences to continue. Accordingly a new off-licence was granted on the basis that the sale of liquor would be an appropriate complement to the kind of goods sold in the premises. In other words the present company inherited a licence issued pursuant to s.36(2)(b) of the Act. This licence authorised the company to sell all types of liquor in the store.

[5] There was a significant change to the company’s shareholding in 1998, when the Duncan family purchased the business from the Taylor family. A new off-licence was issued to the new company. This was on the basis that the sale of liquor complemented the kind of goods being sold in the store. At this time the company added a grain and seed division, and together with “Challenge” upgraded the diesel and petrol dispensing facilities, and added a truck stop.

[6] There was an objection to the renewal of the off-licence in 2000. This was on the basis that two new fuel-dispensing facilities had been erected in front of the premises, as well as a canopy over the pumps. The objection was based on the grounds that the public perception was that the principal business of the store was the sale of petrol. However, the evidence at the hearing showed that the sale of fuel accounted for 10 percent of the total turnover. Accordingly the licence was renewed for three years (see LLA PH 1161/2000).

[7] There was a second occasion when the company came to attention. A controlled purchase operation was conducted on 16 January 2009. A 16 year-old volunteer was able to purchase a 12-pack of beer from the premises without being requested to supply identification. In an ‘on-the-papers’ decision (LLA 587-588/2009), the company’s off-licence was suspended for three days.
[8] On 24 June 2008, in Christchurch, we heard an application by Combined Rural Traders Society Limited (hereafter called “the Society”), to sell liquor to its farming clients on the basis that liquor was an appropriate complement to the kinds of goods that were sold in the premises. The application was declined as we were not satisfied that liquor was a fitting, or proper, or suitable complement, to what was essentially a stock and station agent.

[9] The Society had 10 other farm centres in the South Island that held similar style off-licences. It appealed the decision to the High Court. However, the appeal was dismissed by His Honour Mr Justice Chisholm (see Combined Rural Traders Society Limited v Alison Batchelor and anor CIV 2008-409-1813). Since that time the Society has decided to discontinue selling liquor from its stores as the licences have fallen due.

[10] “Taylors” is authorised to sell all types of liquor between 7.00 am and 9.00 pm daily. The off-licence fell due for renewal on 21 April 2009. No changes were sought to the conditions of the licence. The application was opposed by the Police, based on the decision referred to above. There can be no criticism of the Police for taking this action. They were simply following current jurisprudence and seeking clarification of the ‘type’ of licence being applied for, given that a complementary style licence was no longer appropriate. Accordingly the application was set down for a public hearing.

The Application


[11] Mr C Light appeared on the company’s behalf. He confirmed that in the light of the Combined Rural Traders decision (supra), it was no longer intended to renew the licence on the basis that liquor was an appropriate complement to the kind of goods sold on the premises. He advised that the company was relying on s.36(2)(a) of the Act. In other words, the company intended to show that in the Hunterville area, the sale of liquor in premises such as a bottle store or a supermarket or grocery would not be economic. He advised that according to the 2006 census data, the population of Hunterville was 441. There were 189 occupied dwellings. Mr Light submitted that because “Taylors” was so well established there was no room for a newcomer at any event.

[12] Mr K M Duncan is one of the company’s directors and gave evidence on its behalf. He argued that the business was a responsible operator in that there was no loss leading of liquor. Furthermore he noted that alcohol was not promoted outside the main entrance. He advised that there were seven members of staff who held General Managers’ Certificates.

[13] Mr Duncan advised that “Taylors” was one of very few ‘grocery’ stores that still provides a delivery service. Goods are delivered to the countryside once a week and daily in the township. Apparently the rural delivery is primarily for the supply of liquor. In addition the business supplies local hotels, restaurants, golf and sports clubs, and function centres with liquor stocks. It became apparent from the evidence, that this form of wholesale trade has a negative impact on the gross profit, as margins on such sales are reduced.

[14] Mr Duncan noted that there were two hotels in Hunterville. Both had previously operated off-licences, and no longer did so. He gave evidence that there were no other off-licences in Hunterville. He argued that if “Taylors” was unable to have its off-licence renewed, then customers would have to travel long distances to purchase liquor, and in doing so, might be encouraged to purchase other goods as well.

[15] Mr D R Coleman is the company’s accountant and has been involved in its financial management since its inception. He presented a number of facts and figures taken from the company’s annual financial statements. The first of these showed the mix of sales generated by the company. For the year ended 30 June 2009, these were as follows:

Grocery 30.2%
Farm merchandise 38.7%
Fuel and Oil 15.7%
Liquor 11.3%
Lotto 4.2%


[16] Mr Coleman was able to show that over the last four years there had been little variation in the above figures. These figures confirm that the principal business of the store was not the sale of petrol and diesel. Accordingly this case is quite different to our recent decision in AJ’s Liquor Store Limited LLA PH 1365/2689. That case involved similar premises in Waitara. However, the evidence showed that the sale of fuel accounted for 59 percent of total turnover.

[17] Mr Coleman then showed the gross profit mix of the various divisions. On the basis of gross profit the contribution of fuel to the overall figures reduced considerably. Liquor rose marginally, and the sale of groceries rose to nearly 50 percent. We have made an order suppressing the actual figures on the grounds of commercial sensitivity. However, when assessing the evidence about whether the sale of liquor in a bottle store or supermarket or grocery would be uneconomic in Hunterville, it is worth noting that annual sales of liquor from the store amount to well over half a million dollars. It is acknowledged that the cost of sales was quite high, or alternatively, that the gross profit margin was below the norm for the sale of liquor.

[18] Mr Coleman had been asked to comment on the likely financial performance of the company’s liquor division if it was required to operate as a stand alone enterprise from a location physically separated from the present general store. He used the gross profit figure and then made a number of assumptions. For example he considered it would be necessary to employ two staff members given the extended trading hours, as well as relief staff to cover annual leave and public holidays. In his costing model, the wages accounted for 91 percent of the gross profit. Not unnaturally Mr Coleman considered that there was a high risk that the business would not be economic as a stand-alone enterprise. He submitted that there was a difference between making a profit and being economically viable.

[19] Mr Light supported this argument with his own submissions. He quoted several decisions where applicants had been granted licences on the grounds that in the areas in which each of the premises were situated, the sale of liquor in a bottle store, supermarket or grocery would not be economic. Perhaps the most similar situation referred to a business in Ward in the name of The Old Ward Garage Limited LLA PH 1142/2006. In all other cases the Authority was asked to issue a licence for a shop or store in a community where there were no other liquor outlets. However, the business had no similarity to “Taylors” in terms of size or nature. In making that decision we confirmed that if the principal business of the store became the sale of food, then the licence could not be renewed. As it happens the licence is no longer operating.

[20] Mr R Leary, the Mayor of the Rangitikei District, gave evidence on the company’s behalf. He supported the retention of the off-licence. He argued that there was no evidence to suggest that “Taylors” was creating problems in Hunterville due to the operation of the licence. He suggested that we should avoid imposing blanket measures that, while designed to improve the quality of life in New Zealand, actually detract from it.

The Police

[21] Inspector T Patterson is the manager of Police National Alcohol Programmes based in Wellington. She stated that the Police saw the case as one of national importance given the precedent that would be set if the application was granted in its present form. She noted that in our decision in Combined Rural Traders Society Limited LLA PH 957/2008, we had stated that although liquor abuse issues were non-existent, there was a potential for more outlets to follow if the application was granted. In particular, we noted that there would be greater access to the sale of spirits and RTDs. In the same decision we also commented that the law prevented us from granting off-licences based on convenience and the demand of customers.

[22] She argued that the original licence had been issued in error, particularly as s.36(4) of the Act specifically prevents the grant of a licence in which the sale of liquor is said to be complementary to the kind of goods sold in the premises, to any premises in which the principal business is the sale of food or groceries. With the benefit of hindsight it seems clear that the original licence had been issued to allow the sale of spirits within the footprint of a grocery store, in direct contradiction to the Act. The issue of national consistency was one of the reasons why the Police had considered it appropriate to bring the issue back before the Authority.

[23] Inspector Patterson accepted that the company was suitable to hold a licence. The issue was the style of the licence. She pointed out that if one applied a strict interpretation of the Act the company should be required to file a fresh application for a new off-licence. She argued that the appropriate licence that should be issued, was a grocery style licence restricted to the sale of beer, wine, and mead.

The Alcohol Advisory Council of New Zealand


[24] The Alcohol Advisory Council of New Zealand (hereafter called “the Council”), was established in 1976. Its primary objective is to encourage and promote moderation in the use of liquor, and discourage and reduce the misuse of liquor, and the minimisation of the personal, social, and economic harm, resulting from liquor abuse. Pursuant to s.108(f) of the Act, the Council was granted the right to appear and be heard.

[25] Mr Andrew Galloway is the Council’s Project Manager, and spoke on its behalf. He emphasised that the Council had no issue with the company’s suitability. Its primary concern was the precedent that would be set and the consequences that would follow, if the application were to be granted. Mr Galloway questioned the appropriateness or otherwise of a petrol station, grocery store or stock and station agent holding a full off-licence allowing the sale of spirits and RTDs. He referred to current jurisprudence on the issue of a store within a store, and argued that a renewal of the company’s licence could lead to similar applications, resulting in greater competition, and ultimately, to increased alcohol-related harm in the community.

The Authority’s Decision and Reasons


[26] In considering the company’s application for renewal we are required to have regard to the criteria set out in s.45 of the Act. These criteria are:

[27] In view of the way that the case has been argued, these criteria are largely irrelevant. The company is effectively seeking a different style of licence. It accepts that the current style of licence cannot be justified. It seeks a different style of licence on the basis that in the area that the premises is situated, the sale of liquor in a bottle store or grocery or supermarket would be uneconomic. Although Inspector Patterson was correct that the company could be required to make a fresh application, the fact of the matter is that it has assumed the onus of establishing that it is entitled to a full off-licence because in an area such as Hunterville, the sale of liquor from a new stand-alone bottle store, or grocery, or supermarket would be uneconomic.

[28] It may be helpful if we set out s.36 of the Act in full.

(1) Except as provided in subsections (2) and (5) of this section, an off-licence shall be granted only –

(a) To the holder of an on-licence in respect of a hotel or tavern, in respect of the premises conducted pursuant to that licence; or

(b) To the holder of a club licence, being a club that is entitled under paragraph (i) or paragraph (j) of section 30(1) of this Act to hold an off-licence, in respect of the premises conducted pursuant to that licence; or

(c) In respect of premises in which the principal business is the manufacture or sale of liquor; or

(d) In respect of –

(i) Any supermarket having a floor area of at least 1000 square metres (including any separate departments set aside for such foodstuffs as fresh meat, fresh fruit and vegetables, and delicatessen items); or

(ii) Any grocery store, where the Licensing Authority is satisfied that the principal business of the store is the sale of main order household foodstuff requirements.

(2) The Licensing Authority or District Licensing Agency, as the case may be, may grant an off-licence in respect of any other premises if the Licensing Authority or District Licensing Agency, as the case may be, is satisfied, in a particular case, -

(a) That, in the area in which the premises are situated, the sale of liquor in premises of a kind described in paragraph (c) or paragraph (d) of subsection (1) of this section would not be economic; or
(b) That the sale of liquor would be an appropriate complement to the kind of goods sold in the premises.

(3) Nothing in subsection (1) or subsection (2) of this section shall authorise the grant of an off-licence in respect of –

(a) Any service station or other premises in which the principal business is the sale of petrol or other automotive fuels; or

(b)Any shop of a kind commonly known as a dairy.

(4) Nothing in subsection (2)(b) of this section shall authorise the grant of an off-licence in respect of any supermarket or grocery store or any other premises on which the principal business is the sale of food or groceries.

(5) This section applies subject to sections 51 and 52.


[29] It will be seen that there are effectively seven types of off-licences that can be issued as follows:

[30] There are several reasons why the company has failed to satisfy us that the sale of liquor from a bottle store or a supermarket or a grocery would be uneconomic in Hunterville. In general we do not consider that the area of Hunterville is so small or isolated or remote that it could not sustain one of the first three off-licences. The most obvious reason is that the company has already proved that such an enterprise is not only economic but it is profitable. On the basis that “Taylors” is a very large general store we note that the sale of liquor contributes 11.3 percent of the turnover and 12 percent of the gross profit. We know that the income from liquor is in excess of half a million dollars. While it is accepted that some of this income is from spirits and RTDs, which cannot be sold in a supermarket or grocery, there is no doubt that there is a large demand in the area for all types of liquor.

[31] We note that no statistics were given for the population of the surrounding area. In our assessment Hunterville is the hub of a successful rural community. We note that rural deliveries from the store are essentially for liquor. It would therefore be illogical to exclude the rural population from any assessment. In our view the township has shown that it can sustain the sale of liquor in a bottle store or a grocery or supermarket. We believe that for such an assessment to be made it would be necessary to imagine Hunterville as having no such outlet at present. As stated, that is the basis on which previous grants have been made.

[32] While we appreciate the efforts made by Mr Coleman, his report raises a number of questions. He has made his assessment on the basis of two employees. It seems that one employee might be able to manage a store with reduced trading hours. His report refers only to a bottle store. Yet the company has shown that it is financially rewarding to combine the sale of liquor with the sale of groceries. In our view the appropriate test is not necessarily to envisage a separate bottle store. Liquor can be sold from a grocery. There are issues about the gross profit given the company’s service to other on-sellers of liquor. The fact is that it has been proved that Hunterville can sustain a liquor outlet in the way envisaged by the Act. In our view, even if the company could prove that such a venture would be uneconomic, given the make up of the store, we would be bound to restrict the nature of the liquor that could be sold under s.37(6) of the Act to beer, wine and mead.

[33] It was argued that there were no liquor abuse issues associated with the business. We accept that this is the case. However, the fact of the matter is that this present licence acts as national precedent. Its existence sets the standard. The Act is being seriously breached by allowing the sale of spirits and RTDs in the grocery footprint. This was precisely what had been sought in the “Countdown” decision in the name of General Distributors Limited LLA PH 712/2008. The Act is also being breached by allowing a ‘complementary’ style licence for a type of business that has been specifically disallowed by the High Court.

[34] It is our view that if we were to renew the licence for three years then the Act would tend to lose its integrity. Other licensees would seek to follow the precedent or set their own rules. A law that is ignored creates uncertainty and disrespect. Once that happens then liquor abuse issues will certainly follow. It is clear that the company is exercising rights to sell liquor that could never have been intended in the first place. It is regrettable that the granting of these types of licences has added to the proliferation of off-licences and the consequences in terms of achieving the Act’s objective.

[35] We accept that there have been major changes in the way the Act has been interpreted since this licence was granted. We accept that the company is entitled to the observance of the principles of natural justice. On the other hand we draw support from a decision of McGechan J in Buzz & Bear Limited v Woodroffe [1996] NZAR 404. In this case a tavern’s trading hours had been reduced. His Honour Mr Justice McGechan commented as follows:

“I am satisfied it was within powers, and proper, for the Authority to take into account, not only the specifics of the Cork ‘n’ Fork operation, but also more general community concerns which had been made known to it. Quite simply why not? Of course the Authority must be closely concerned with the actual operation of the actual licensed premises, here the Cork ‘n’ Fork. One does not renew a licence without thinking about the licensee and his operations. That is directed by s.22 (a) and (c). However, there is no logical or policy need to stop at that, as the licensee urges.


Times change. Communities and environments change. Social habits and levels of tolerance change. Obviously it would have been seen by the legislature to be wise to keep conditions imposed under review in light of potential social change. The licensee’s submissions would have licence conditions frozen in some time warp while the world marches on; not, even in the arcane world of liquor licensing, a likely legislative intention. Section 4 interpretation directives align with common sense to point towards allowing the Authority to engage in a wider perspective. It can keep its eye on wider trends and needs in a specialist area where it has unique, and uniquely current, expertise. Any licensee takes a licence under risk that conditions may change, and a report may recommend adjustment. There is no asset protected for all time whatever may happen outside.”


[36] Given the company’s unequivocal support from the Mayor as well as the evidence, we propose to adjourn this application for nine months from the date of this decision. The company has some important commercial decisions to make, any one of which will come at a cost. One option would be to change the style of the licence to a grocery style licence allowing the sale of beer, wine and mead only. This is the option favoured by the Police. A second option would be to open up a separate entrance way into the rear of the premises where a separate bottle store could be operated. Provided there was real physical separation from the rest of the store in terms of a separate till, we believe that this could be an appropriate case for the exceptional ‘store within the store concept’. A view of the premises earlier in 2009 indicated that such an arrangement might be possible. A third option is to appeal this decision to the High Court. A fourth option is to withdraw from the licensing business. There may be other options available to the company that will need to be discussed with the Agency and the Police.

[37] At the end of the nine-month period, we will call for reports to see whether the matter has been resolved to the satisfaction of the monitoring agencies as well as the Authority, or whether further time is needed, or whether the application should be scheduled for further hearing. Leave is granted to all parties to apply for further directions. Accordingly, and for the reasons given, the application for renewal of the off-licence is adjourned for nine months on the above terms.

DATED at WELLINGTON this 14TH day of December 2009


Judge E W Unwin
Chairman


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