Jose's Ltd v Esso Standard Oil SA Ltd

• Jurisdiction: Cayman Islands
• Judge: (Zacca, P., Georges and Rowe, JJ.A.)
• Judgment Date: 16 August 2000
• Court: Court of Appeal (Cayman Islands)
• Date: 16 August 2000

Court of Appeal

(Zacca, P., Georges and Rowe, JJ.A.)

JOSE”S LIMITED (trading as JOSE”S SERVICE CENTRE)

and

ESSO STANDARD OIL S.A. LIMITED

R.D. Alberga, Q.C. and Ms. C.J. Bridges for the appellant;

R.J. Ellis, Q.C. and J.C.B. Chapman for the respondent.

Cases cited:

(1) Cope v. RowlandsENR(1836), 2 M. & W. 149; 150 E.R. 707; 6 L.J. Ex. 63, distinguished.

(2) Jackson, Stansfield & Sons v. Butterworth, [1948] 2 All E.R. 558; (1948), 64 T.L.R. 481, distinguished.

(3) Mahmoud and Ispahani, In re, ELR[1921] 2 K.B. 716; [1921] All E.R. Rep. 217; (1921), 90 L.J.K.B. 821, distinguished.

(4) Nelson v. NelsonUNK(1995), 184 C.L.R. 538; 132 Aust. L.R. 133, distinguished.

(5) Phoenix Gen. Ins. Co. of Greece S.A. v. Halvanon Ins. Co. Ltd.ELR, [1988] Q.B. 216; sub nom. Phoenix Gen. Ins. Co. of Greece S.A. v. Administratia Asigurarilor de Stat, [1987] 2 All E.R. 152, distinguished.

(6) St. John Shipping Corp. v. Joseph Rank Ltd., [1957] 1 Q.B. 267; [1956] 3 All E.R. 683, dicta of Devlin J. applied.

(7) Tinsley v. Milligan, [1994] 1 A.C. 340; [1993] 3 All E.R. 65, distinguished.

(8) Victorian Daylesford Syndicate Ltd. v. Dott, [1905] 2 Ch. 624; (1905), 74 L.J. Ch. 673, distinguished.

(9) Yango Pastoral Co. Pty. Ltd. v. First Chicago Australia Ltd.UNK(1978), 139 C.L.R. 410; 21 Aust. L.R. 585, applied.

Legislation construed:

Local Companies (Control) Law, 1971 (Law 24 of 1971), Memorandum of Objects and Reasons: The relevant terms of this memorandum are set out at page 308, lines 38–40.

s.2(1): The relevant terms of this sub-section are set out at page 316, lines 31–32.

(2): The relevant terms of this sub-section are set out at page 308, line 45.

s.4(1): The relevant terms of this sub-section are set out at page 309, lines 4–11.

(2): The relevant terms of this sub-section are set out at page 309, lines 12–16.

(3): The relevant terms of this sub-section are set out at page 309, lines 17–20.

s.9: The relevant terms of this section are set out at page 316, lines 30–31.

s.10(1): The relevant terms of this sub-section are set out at page 316, lines 38–44.

(2): The relevant terms of this sub-section are set out at page 316, line 45 – page 317, line 4.

(3): The relevant terms of this sub-section are set out at page 317, lines 8–18.

s.23: The relevant terms of this section are set out at page 314, lines 24–27.

Local Companies (Control) Law (1995 Revision) (Law 24 of 1971, revised 1995), s.25: The relevant terms of this section are set out at page 318, lines 16–23.

Local Companies (Control) Regulations, 1972, reg. 10: The relevant terms of this regulation are set out at page 317, lines 25–26; lines 30–31.

Trade and Business Licensing Law, 1971 (Law 25 of 1971), s.2: The relevant terms of this section are set out at page 318, lines 44–45.

s.4: ‘Every person carrying on a trade or business mentioned in the Schedule to this Law … shall, unless exempted under section 3, take out an annual licence in respect thereof in accordance with … this Law in respect of each place where such trade or business is carried on.’

Companies-administrative control of companies-licence to trade-Trade and Business Licensing Board may validly back-date licence under Local Companies (Control) Law-no breach of rule against retrospective operation of legislation-power unaffected by form of licence prescribed by Regulations

Companies-administrative control of companies-licence to trade-dealership contract and lease of service station valid and enforceable even if distributor unlicensed under Local Companies (Control) Law, s.4(1) and Trade and Business Licensing Law, s.4, since no legislative intention to prohibit collateral contracts-contracts saved by Local Companies (Control) Law, s.23 in any event

Contract-illegal contracts-ex turpi causa non oritur actio-contract may be unenforceable when made in course of prohibited business if breach of law has fraudulent or immoral purpose

The respondent sought an injunction in the Grand Court restraining the appellant from breaching a dealership agreement, and declarations relating to the renewal of the agreement and the lease of the appellant”s premises.

In 1981 the respondent, a Bahamian company which had been selling and distributing petroleum products in the Islands for many years, obtained from the Caymanian Protection Board a Local Companies (Control) Law licence to operate, back-dated to 1975 and expiring in 1986. In 1988, when applying to vary the terms of the annual bulk fuel installation licence which it was also obliged to hold under the Trade and Business Licensing Law, it was informed that its Local Companies licence had expired in 1986 and that the annual licences issued since then had been issued erroneously.

In 1988 the parties entered a formal dealership agreement, entailing a ‘tied sales’ agreement and a 10-year lease-back arrangement for the appellant”s premises. The head-lease and sub-lease both contained an option to renew the term for a further 10 years.

In 1989, the respondent applied for a new Local Companies licence, which was not granted until 1992. The Board stated that the licence had been approved earlier, and back-dated it to 1987. It was to expire in 1998.

In 1997, the respondent notified the appellant that it intended to renew the lease until 2008, but the appellant responded that it wished to repudiate the agreement and stated that the leasing arrangements were invalid. The respondent brought proceedings to restrain the appellant from repudiating the agreement. The validity of the dealership agreement and lease was tried as a preliminary issue.

The Grand Court (Murphy, J.) held, inter alia, that the respondent had been properly licensed under the Local Companies (Control) Law since 1975. The Board”s discretion to grant licences under s.10 (s.11 of the 1995 Revision in force at the time of the hearing) was unfettered and the practice of back-dating was valid, and even if the first licence had operated only prospectively from 1981, its 12-year duration would have covered the period when the dealership agreement and leases were signed.

The court further held that even if the respondent had been unlicensed at the relevant time, its contracts with the appellant would not have been void or unenforceable as a result, since the prohibition on unlicensed trading in s.4(1) of the Local Companies (Control) Law and s.4 of the Trade and Business Licensing Law did not expressly or impliedly prohibit the making or performance of the contracts. Moreover, s.23 of the Local Companies (Control) Law saved any transaction which might otherwise be illegal by virtue of a breach of the Law. In any event, the respondent could enforce the option to renew the head-lease under an illegal contract, since it could acquire an enforceable proprietary right in the premises provided that it did not rely on the illegality itself to assert the option. The proceedings in the Grand Court are reported at 1999 CILR 51.

Held, dismissing the appeal:

(1) The respondent had held a valid licence when the dealership agreement and lease arrangement were concluded. The Board”s discretion to grant a licence under the Local Companies (Control) Law, s.10 was unfettered save as to the considerations to which it must have regard and the 12-year minimum duration of each licence. Accordingly, it could validly back-date a licence at the time it was issued, even if the commencement date of the licence preceded the date of the application. This was supported by the fact that companies incorporated before the Law came into force were automatically entitled to the grant of a licence without reference to the s.10 criteria. The wording in the licence prescribed by reg. 10 of the Local Companies (Control) Regulations, stating that the licence would run for 12 years ‘from the date of issue,’ could not restrict the powers conferred by the Law itself. Nor was there any question of the statute operating retrospectively, since the licence had been granted to commence on a date after the Law came into force (page 317, line 22 – page 318, line 26; page 319, lines 36–39).

(2) However, even if the respondent had been unlicensed at the time of the dealership agreement and lease-back, the arrangements were not illegal or unenforceable, since s.4 of the Local Companies (Control) Law, prohibiting unlicensed trading, was directed at the carrying on of business by non-Caymanians in the Islands without authority, not the invalidation of contracts made in the course of that business. It was significant that the Law prescribed a daily fine for failure to obtain a licence, and an ultimate penalty of revocation of the licence for non-compliance. Furthermore, s.23 of the Law specifically excluded the invalidation of transactions on the sole basis of a breach of the Law (page 313, line 33 – page 314, line 36).

(3) Nor were the contracts unenforceable as having been concluded in the course of a prohibited business, on the basis of the maxim ex turpi causa non oritur actio. That principle applied only if the breach of the Law had a fraudulent or immoral purpose (e.g. if the defendant stood to gain more than the prescribed penalty by operating without a licence). There had been no fraud or oppression by the respondent in this case, and although the appellant would be obliged to continue to distribute the respondent”s products for a further term if the option to renew the lease were exercised, that was a common arrangement in the industry (page 314, line 37 – page 315, line 45).

10	GEORGES, J.A.:.This is an appeal from a judgment of Murphy, J. in
which he granted declarations claimed by the respondent (‘Esso’)
affirming the validity of agreements entered into in 1988 between Esso
and the appellant, Jose”s Ltd. (‘Jose”s’). Esso is a wholesale distributor of
petroleum products in the Cayman Islands. Jose”s operates a petrol station
15	retailing Esso

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