Grape Bay Ltd v Attorney General, 1997 Civil Jur. No.273

CourtSupreme Court (Bermuda)
Judgment Date14 October 1997
Docket NumberCivil Jurisdiction 1997 No. 273
Date14 October 1997

In the Supreme Court of Bermuda

Meerabux J.

Civil Jurisdiction 1997 No. 273

Grape Bay Ltd.


The Attorney General

Mr. M. Diel and Mr. R. Myers of Messrs. Smith, Barnard & Diel for the Applicant

Mr. E. Mottley Q.C., Attorney-General, and Miss N. Stoncham for the Respondent

Liyanage v RUNK [1966] 1 All ER 60

The Bribery Commissioner v RanasingheUNK [1964] 2 All ER 785

Binns v WardaleELR [1946] 1 KB 451

Moore v Commonwealth of AustraliaUNK 82 CLR 578

IRC and AG v LilleymanUNK (1964) 7 WIR 496

Maharaj v Attorney General of Trinidad and Tobago (No.2)(P.C.)ELR [1979] AC 385

Thornhill v Attorney General of Trinidad and TobagoWLR [1980] 2 WLR 510

Societe United Docks v Government of MauritiusELR [1985] 1 AC 585

La Compagnie Sucriere de Bel Ombre Ltee v Government of MauritiusUNK [1995] 3 LRC 494

State v ZumaUNK [1995] 1 LRC 145

Minister of Home Affairs v FisherUNK [1979] 3 All ER 21

Societe United Docks v Government of Mauritius [1981] MR 500

Pennsylvania Coal Co. v Mahon (1922) US 393

James v United KingdomHRC (1986) 8 EHRR 123

Attorney General of the Gambia v Jobe (P.C.) [1984] 689

Hillas and Co. v Arcos Ltd. [1932] 147 LT 503

Faries v David Malpas, 1992 Criminal App. No.3

Trans Trust SPRL v Dambian Trading Co. Ltd.ELR [1952] 2 QB 297

Madras v RowENR [1952] AIR SC 196

DPP v JacksonUNK (1975) 24 WIR 326

Attorney General v Antigua Times Ltd.ELR [1976] AC 16

King v Attorney GeneralUNK (1992) 44 WIR 52

Township of Nepean v LiekenUNK (1971) 16 DLR (3d) 113

Allhusen v BrookingELR [1884] 26 Ch.D. 559

Gloucester Union v Woolwich UnionELR [1917] 2 KB 374

West v GwynneELR [1911] 2 Ch.D.1

Spooner Oils Ltd. v Turner Valley Gas Conservation Board [1933] SCR 629

Prohibited Restaurant Act 1997 s.2; 3

Bermuda Constitution s.1(c); 2–13; 26; 15(1)

Companies Act 1981 s.6

Restaurant Act 1961

Liquor Licence Act 1974

Interpretation Act 1951 16(1)(c)

Constitutionality of Prohibited Restaurant Act 1997 — Deprivation of property without compensation — McDonald's Restaurant — Franchise — Vested rights


Meerabux J.


In its Originating Summons, as in its affidavits in support, the Applicant's challenge for present purposes is only in relation to the constitutionality of the Prohibited Restaurant Act 1997, No. 27 of 1997, (hereafter referred to as ‘the Act’). The Applicant's contention is that the true effect of the Act is to deprive the Applicant of propery without compensation in contravention of section 1(c) of the Bermuda Constitution. It was agreed between the parties that this preliminary issue be determined upon affidavit evidence only subject to the right of the Crown to apply for leave to cross examine upon showing cause.

Pursuant to directions, affidavit evidence was filed on behalf of the Applicant, the affidavits being the affidavit of Leon Simmons dated 11 August 1997 and the affidavit of Maxwell Burgess dated 11 August 1997. The Respondent did not file any affidavit of evidence.


From the affidavits I find the following facts.

Grape Bay Ltd. (hereafter referred to as ‘the Applicant’) was incorporated under the Companies Act 1981.

The principal object of the Applicant as set out in the memorandum of association is:

‘To obtain all necessary permits or licenses 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’.

The objects in the memorandum were presented in standard form to the Minister of Finance and on 19 February 1996 he gave his consent together with a letter from the Bermuda Monetary Authority (‘BMA’) dated 19 February 1996 acknowledging receipt of the application fee and stating that the Applicant is resident for exchange control purposes. He granted the Applicant consent to operate McDonald's Restaurants in Bermuda.

The sole purpose for which the Applicant was incorporated was to further an agreement executed on 26 October 1992 between the McDonald's Corporation and Warner Holdings Limited (‘Warner’).

Warner became involved with the McDonald's Corporation in or about December 1990 when McDonald's was interested in discussing the possibility of a Bermuda company operating McDonald's Restaurants in Bermuda.

It was not possible to operate a traditional McDonald's franchise in Bermuda as the BMA and the Minister of Finance needed to be satisfied that the overseas entity, that is, McDonald's, was not ‘doing business’ in Bermuda. The franchise scheme at that time proposed by McDonald's would not have been in accordance with Government policy.

As a result of that dilemma the agreement dated 26 October 1992 was entered into with McDonald's and which agreement could meet the BMA's existing policy requirements. It was agreed that there was to be a company formed expressly for the purpose of operating a McDonald's and that all McDonald's was to provide was training for the local staff and ongoing monitoring of the operation to ensure compliance with McDonald's standards. The company was to be completely Bermudian owned and operated. It was further agreed that McDonald's would take a percentage of the revenue as opposed to a flat rate, which was McDonald's traditional method of franchising. It was not until late 1995 that Warner was able to have with McDonald's the form of agreement which would satisfy the existing Government policy. The agreement was tailored to fit Bermuda policy. In the incorporation process of the Applicant there was total and frank disclosure of all details to the Bermuda Government. In fact the incorporation procedure was more stringent due to the persons involved..

Following the incorporation of the Applicant the negotiations for the McDonald's franchise as contemplated by the 1992 agreement continued and on 4 March 1996 the McDonald's Corporation sent four draft franchise applications to the Applicant. Then there were numerous exchanges of draft and redrafted development agreements pursuant to the 1992 agreement.

McDonald's required that the Applicant and/or its shareholders establish that it/they had sufficient capital in order to set up a McDonald's in Bermuda. As such, Sir John Swan, one of the principal shareholders established that: through a number of his properties, he met this requirement. By an oral agreement between Sir John and the Applicant, Sir John agreed to make these properties available for this purpose. On 4 March 1996 McDonald's International (McDonald's Corporation) required the provision of some $3,000,000 for the purposes of operating a McDonald's Restaurant(s) in Bermuda. Subsequently a ‘proforma’ balance sheet dated 31 March 1996 was sent by the Applicant to McDonald's Corporation which document showed that there was a contributed surplus in excess of $3,000,000. Then the Applicant caused to be executed a Deed of Guarantee between itself and Sir John Swan whereby Sir John Swan confirmed his guarantee in that sum for the purpose of the Applicant operating McDonald's Restaurant (s).

The 1992 agreement was assigned by Warner to the Applicant on 17 July 1997. The agreement, which is still in force, provides for the incorporation of the company and confirms that the Applicant will hold the licence(s) to operate the various McDonald's Restaurants contemplated thereby. The agreement restricts the Applicant to operating the McDonald's Restaurants as its sole business.

McDonald's is the second most recognisable brand name in the world. All McDonald's Restaurants operate using a specific tested and proven layout, scheme, produce and marketing. It is this that allows for McDonald's anywhere worldwide to be instantly recognisable. The agreement permits, indeed requires, the Applicant to use the McDonald's name, layout, scheme, produce and marketing.

Immediately after the incorporation of The Applicant, the initial meeting of Directors and Shareholders took place. The Applicant employed architects for the purpose of presenting plans for proposed McDonald's sites and McDonald's employees from the United States were constantly coming to Bermuda with the knowledge and consent of The Bermuda Immigration authorities to examine and comment on their progress. There was a total of 11 trips made between April and June of 1996 by McDonald's officers or employees and the Applicant paid all local transportation and entertainment costs whilst they were on the Island.

The Applicant determined that one of the most effective areas to operate would be at the airport. Alter a public, invitation to tender, the Applicant submitted a tender and was subsequently put on a ‘short list’.

On 30 April 1996 Mrs. Anne Cartwright-DeCouto tabled a private member's Bill, intituled the Prohibited Restaurant Bill 1996, the effect of which once passed would be to make it a criminal offence for the Applicant to do that which it was incorporated to do. This Bill was debated in the House of Assembly on 14 and 15 June 1996 and was passed but on 26 June 1996 it was defeated in the Senate.

On 21 June 1996 the airport concession for the Applicant was approved, however, the lease for the concession could not be effective until it was laid before and approved by the House of Assembly. Despite requests by the Applicant the Bermuda Government has failed to lay the lease. The Applicant's efforts to secure the lease at the airport were again made in furtherance of its obligations under the 1992 agreement.

On 10 May 1996 the Minister of Finance read a statement in the House of Assembly on the issue of ‘fast food’ wherein he mentioned that the House had passed a motion deploring the approval of fast food franchises and in particular the consent he granted to the Applicant to operate McDonald's restaurants. In the statement, he set out current Government policy respecting franchises and indicated...

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