Costco Wholesale Australia Pty Ltd v Woolworths Ltd - [2016] SASCFC 75

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
COSTCO WHOLESALE AUSTRALIA PTY LTD v WOOLWORTHS LTD AND ORS
[2016] SASCFC 75
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Bampton and The Honourable Justice Parker)
21 July 2016
GAMING AND LIQUOR - ADMINISTRATION - LIQUOR LICENSING - APPLICATION FOR A LICENCE - APPLICATION HEARING - MATTERS FOR CONSIDERATION - GENERALLY
GAMING AND LIQUOR - ADMINISTRATION - LIQUOR LICENSING - APPLICATION FOR A LICENCE - APPLICATION HEARING - POWERS OF LICENSING AUTHORITY - DISCRETION TO GRANT OR REFUSE LICENCE
STATUTES - ACTS OF PARLIAMENT - INTERPRETATION - GENERAL APPROACHES TO INTERPRETATION - WHOLE ACT TO BE CONSIDERED
Appeal from a decision of the Licensing Court refusing an application by Costco Wholesale Australia Pty Ltd (Costco) for the grant of a special circumstances licence with an extended trading authorisation in respect of premises at Churchill Road, Kilburn. The sales model proposed by Costco was to sell a limited range of liquor to Costco members and employees. The liquor was to be offered for sale in an area not physically separate from the rest of the store. The Licensing Court judge found that the preconditions were satisfied for the grant of a special circumstances licence under s 40 but refused the application by exercising against Costco the discretion to grant the licence under s 53 of the Liquor Licensing Act 1997. The issues on appeal were; first, whether the judge erred in finding that a retail liquor merchant’s licence could not adequately cover Costco’s business; secondly, whether Costco satisfied the two preconditions for a special circumstances license; and thirdly, whether the judge erred by exercising the discretion to refuse the application.
Held per Kourakis CJ, dismissing the appeal:
(1) Strong reasons would have to be shown to grant a special circumstances licence to authorise the sale of liquor for off-premises consumption without a need to meet the public demand test and free of the physical separation requirement.
Held per Parker J (Kourakis CJ and Bampton J agreeing), dismissing the appeal:
(1) The judge erred in finding that Costco would not qualify for a retail liquor merchant’s licence because the membership requirement was inconsistent with the implied requirement to sell to the public. Costco members are merely a class of the general public and thus Costco is selling to the public.
(2) The judge correctly concluded that a licensing authority would not exercise the s 37(2) discretion to exclude Costco from the physical separation requirement under a retail liquor merchant’s licence. A mere preference for full integration of liquor and general sales would not provide a proper reason to warrant exercise of the discretion.
(3) Costco does not qualify for a special circumstances licence because it does not satisfy the preconditions under s 40 that:
(a) no licence of any other category would adequately cover the kind of business proposed. The essential element of a retail liquor merchant’s licence is that it authorises the sale of liquor for consumption off the licensed premises. At its essence, the proposed Costco business is the sale of liquor for consumption off the Costco premises; and
(b) Costco would not be substantially prejudiced if its trading rights were limited to those possible under a retail liquor merchant’s licence so that it is required to satisfy the physical separation requirement. The integration of the liquor sales into the main part of the store is not a fundamental requirement of the operating model.
(4) The judge was correct in declining to exercise the unqualified discretion of the licensing authority under s 53(1) to refuse Costco a special circumstances licence.
(a) When deciding whether to grant a special circumstances licence for a proposal that closely resembles an existing category of licence, a licencing authority is required to find good reason to depart from the ordinary statutory requirements for the grant of that existing category of licence.
(b) The essence of the Costco model is a retail liquor merchant’s business. The preference of Costco for the particular features of its model does not provide good reason to depart from the physical separation requirement or the demand test (which it is uncertain that Costco could satisfy) under a retail liquor merchant’s licence.
Liquor Licensing Act 1997 s 3, s 27, s 37, s 40, s 44, s 53, s 58; Liquor Act 2007 (NSW) s 30; Liquor Licensing Act 1985 s 44(3); Fisheries Management Act 2007 s 115, referred to.
Zerella Holdings Pty Ltd v Williams (2012) 113 SASR 573; Panama (Piccadilly) Ltd v Newberry [1962] 1 All ER 769; Gray v Purvis (1992) 15 MVR 455; Director of Public Prosecutions v Vivier [1991] 4 All ER 18, applied.
Bottega Rotolo Pty Ltd v Saturno's Colonist Tavern Pty Ltd (2008) 100 SASR 1, distinguished.
Costco Wholesale Australia Pty Ltd [2014] SALC 55, discussed.
Liquorland (Australia) Pty Ltd v Lindsey Cove Pty Ltd (2002) 81 SASR 337; Facac Pty Ltd v Talbot Hotel Group Pty Ltd (2001) 80 SASR 580, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"public", "sell to the public", "adequately cover", "substantial prejudice", "unqualified discretion"

COSTCO WHOLESALE AUSTRALIA PTY LTD v WOOLWORTHS LTD AND ORS
[2016] SASCFC 75
Full Court: Kourakis CJ, Bampton and Parker JJ

KOURAKIS CJ: I would dismiss the appeal for the reasons given by Parker J. I agree that Costco Wholesale Australia Pty Ltd’s (“Costco”) proposed business is adequately covered by a retail liquor merchant’s licence and that Costco would not be substantially prejudiced by complying with the conditions of that licence.
As to the exercise of the discretion conferred by s 53 of the Liquor Licensing Act 1997 (SA) (“the Act”), I observe that strong reasons would have to be shown to grant a special circumstances licence to authorise the sale of liquor for off-premises consumption without a need to meet the public demand test and free of the physical separation requirement. If such special circumstances licences were granted liberally, the purpose of s 37(2) and s 58(2) of the Act would be undermined. The grant of the licence in Bottega Rotolo Pty Ltd v Saturno’s Colonist Tavern Pty Ltd[1] is explained by the relatively insignificant volume of sales of a peculiarly specialised range of alcohol incidentally to the primary business of selling fine local and imported foods. Grants of special circumstances licences for businesses like that of Bottega Rotolo could only have a trivial effect on the off-premises retail liquor market and are most unlikely to cause any mischief of the kind to which the physical separation requirement is directed.
[1] (2008) 100 SASR 1.
BAMPTON J: I agree with the reasons of Parker J. I would give permission to the respondents to amend the notice of alternative contention to include ground 4 and I would dismiss the appeal.
PARKER J: This is an appeal under s 27 of the Act from a decision of the Licensing Court. Permission to appeal was granted on 30 January 2015.
The Licensing Court, on 16 October 2014, refused an application by Costco for the grant of a special circumstances licence with an extended trading authorisation in respect of premises at Churchill Road, Kilburn.[2]
[2] Costco Wholesale Australia Pty Ltd [2014] SALC 55.
For the reasons that follow I would dismiss the appeal.
Background
The proposed licensed premises would form part of a Costco store located at the Churchill Centre. This is a major retail development on the site of the former Islington railway yards.
Costco commenced business in Canada and now has more than 600 stores in eight countries. The Kilburn store is Costco’s first site in South Australia. At the time of the application it had six other stores in Australia located in Victoria, New South Wales, Queensland and the Australian Capital Territory.
The Costco business model is different to that customarily found in the liquor industry. The liquor licence proposal includes the following features:
·Liquor will be offered for sale in a defined area that will not be physically separate from the rest of the store. Purchases will be made at the same checkouts used for all goods purchased in the store;
·The trading hours will not be greater than 9.00 am to 9.00 pm on Monday to Friday and 9.00 am to 7.00 pm on Saturday, Sunday and public holidays. An extended trading authorisation was sought to allow sales between 9.00 am and 11.00 am on Sundays;
·Liquor will only be sold and supplied to persons whom are either members of Costco (the annual membership fee is $60) or employed by Costco;
·No more than 300 lines of liquor product will be stocked at any one time; and
·The liquor will be of high quality with an emphasis on imported products. It will not be refrigerated and beer will only be sold by the carton.
Costco stores have the internal appearance of a warehouse. Costco’s sales model has a dual focus. It operates as a wholesale supplier for small to medium businesses and also sells on a retail basis to individuals. Sales are only made to members. In addition to payment of the $60 annual fee, applicants for membership must be aged over 18 years, provide photographic identification and an address. Business applicants must also supply a tax file number or alternative proof that they operate a business.
The Kilburn store offers a wide range of goods. The range includes food, clothing, outdoor furniture, sporting goods, watches and jewellery, hearing aids, electrical appliances and car tyres. Fuel is also sold on a completely self service basis with customers inserting their credit card and membership card to make a purchase.
The evidence given in support of Costco was that it only intends to stock a limited range of liquor because dealing in pallet quantities minimises labour costs. Placement of the liquor section within the general store area (without separate checkout facilities) is, in part, intended to reduce shoplifting.
The legislative scheme
The grant of a retail liquor merchant’s licence is governed by s 37 of the Act. It provides:
37—Retail liquor merchant's licence
(1) A retail liquor merchant's licence authorises the licensee—
(a)to sell liquor on the licensed premises on any day except Good Friday and Christmas Day between the hours of 8 am and 9 pm, or over a continuous period authorised by the licensing authority, for consumption off the licensed premises (but a period authorised by the licensing authority must begin no earlier than 5 am, must end no later than midnight, and must not exceed 13 hours); and
(ab)to sell liquor at any time through direct sales transactions (provided that, if the liquor is to be delivered to an address in this State, the liquor is despatched and delivered only between the hours of 8 am and 9 pm and not on Good Friday or Christmas Day); and
(b)to sell or supply liquor by way of sample for consumption on a part of the licensed premises approved for the purposes by the licensing authority.
(2) It is a condition of a retail liquor merchant's licence that the licensed premises must be devoted entirely to the business conducted under the licence and must be physically separate from premises used for other commercial purposes.
Exceptions—
1Goods may be sold in the same premises if they are of the kind normally associated with, and incidental to, the sale of liquor (eg glasses, decanters, cheeses and pates).
2The licensing authority may grant an exemption from the above condition if satisfied that the demand for liquor in the relevant locality is insufficient to justify the establishment of separate premises or there is some other proper reason for granting the exemption.
The grant of a retail liquor merchant’s licence is further constrained by s 58(2) of the Act, which provides:
(2) An applicant for a retail liquor merchant's licence must satisfy the licensing authority that the licensed premises already existing in the locality in which the premises or proposed premises to which the application relates are, or are proposed to be, situated, do not adequately cater for the public demand for liquor for consumption off licensed premises and the licence is necessary to satisfy that demand.
A special circumstances licence issued under s 40 of the Act authorises the licensee, subject to the Act, to sell liquor for consumption on or off the licensed premises in accordance with the terms and conditions of the licence. Section 40(2) provides that:
(2)A special circumstances licence cannot be granted unless the applicant satisfies the licensing authority that—
(a) a licence of no other category (either with or without an extended trading authorisation) could adequately cover the kind of business proposed by the applicant; and
(b) the proposed business would be substantially prejudiced if the applicant's trading rights were limited to those possible under a licence of some other category.
A licensing authority is given an unqualified discretion by s 53 to grant or refuse an application for a licence, although the discretion is expressed to be “[s]ubject to the Act”.[3] Section 53 relevantly provides:
(1)Subject to this Act, the licensing authority has an unqualified discretion to grant or refuse an application under this Act on any ground, or for any reason, the licensing authority considers sufficient (but is not to take into account an economic effect on other licensees in the locality affected by the application).
…
(1a)An application must be refused if the licensing authority is satisfied that to grant the application would be contrary to the public interest.
…
[3] I discuss the nature of this discretion below at [85]-[87].
Section 3(2) requires that when deciding any matter under the Act a licensing authority must have regard to the objects set out in s 3(1):
(1) The object of this Act is to regulate and control the sale, supply and consumption of liquor for the benefit of the community as a whole and, in particular—
(a)     to encourage responsible attitudes towards the promotion, sale, supply, consumption and use of liquor, to develop and implement principles directed towards that end (the responsible service and consumption principles) and minimise the harm associated with the consumption of liquor; and
(b)     to further the interests of the liquor industry and industries with which it is closely associated—such as the live music industry, tourism and the hospitality industry—within the context of appropriate regulation and controls; and
(c)     to ensure that the liquor industry develops in a way that is consistent with the needs and aspirations of the community; and
(d)     to ensure as far as practicable that the sale and supply of liquor contributes to, and does not detract from, the amenity of community life; and
(e)     to encourage a competitive market for the supply of liquor; and
(f) to ensure that the sale and supply of liquor occurs in such a manner as to minimise the risk of intoxication and associated violent or anti-social behaviour including property damage and causing personal injury.
The objections
Objections were made to the application by Woolworths Ltd, Woolies Liquor Stores Pty Ltd, Rogwil Investments Pty Ltd, Goodearth Hotels (Empire) Pty Ltd and the Australian Hotels Association (SA). Rogwil Investments and Goodearth Hotels are respectively the proprietors of the Albion Hotel and the Empire Hotel. Those hotels are located near to the Churchill Centre. Where necessary to identify the respondents, I will refer to the first and second respondents as the Woolworths respondents. The third, fourth and fifth respondents I will refer to as the Hotel respondents.
The objectors contended in the Licensing Court that Costco could effectively operate its business under a retail liquor merchant’s licence. They submitted that a special circumstances licence should not be used as a backdoor means to obtain a retail liquor merchant’s licence without complying with the stringent requirements the Act ordinarily imposes on such applications. The objectors also contended that the Court should exercise its discretion under s 53 of the Act to refuse the application.
The judge’s reasons
The licensing judge first considered whether Coscto could potentially operate its business under a retail liquor merchant’s licence issued under s 37 of the Act. His Honour identified three relevant issues.
The first issue was that Costco did not intend to sell more than 300 lines. The evidence was that a typical BWS store would stock more than 2,000 lines. The judge held that it was arguable that if a need for a retail liquor merchant’s licence was established, that need might be capable of being met through the limited range of liquor products proposed to be stocked by Costco. Because of his conclusions in respect of the second and third issues, the judge did not find it necessary to resolve that issue.
The second issue identified by the judge was the proposal by Costco that it only sell liquor to its members and employees. His Honour held that there is an implication in the Act that the holder of a retail liquor merchant’s licence must sell to the public generally. That is because s 58(2) provides that such a licence cannot be granted unless Costco has established that existing licensed premises in the locality do not adequately cater for the public demand for liquor. The judge found there was no power to grant an exemption from this requirement and, without expressly stating so, held that Costco’s proposal did not meet the requirement to sell to the public generally.
The third issue was the proposal that the licensed premises not be physically separate from the rest of the Costco store. The judge noted that an exemption may only be granted if the licensing authority was satisfied that the demand for liquor in the relevant locality was insufficient to justify the establishment of separate premises or there was some other proper reason for granting such an exemption. The judge found that neither of these requirements was met.[4]
[4] Costco Wholesale Australia Pty Ltd [2014] SALC 55 at [61].
The judge concluded that the business model proposed by Costco could not operate under a retail liquor merchant’s licence. His Honour also decided that an exemption would not be granted by the licensing authority from the requirements under s 37(2) that the licensed premises be devoted entirely to the business conducted under the licence and that it must be physically separate from premises used for other commercial purposes.[5]
[5] Ibid at [62].
His Honour then considered the eligibility of Costco for a special circumstances licence under s 40. Under s 40(2)(a) the first issue was whether a licence of any category could adequately cover the Costco business. The second issue under s 40(2)(b) was whether Costco would be substantially prejudiced if it were forced to trade under such a licence.
The judge found that Costco would not be prejudiced by the fact that a condition could not be imposed limiting the range of stock that it offered for sale.[6] If Costco were to be granted a licence, it would be legally entitled to decide the range of liquor it was to provide. The judge also found that the requirement that the licensed premises be physically separate from the rest of the premises might cause Costco some inconvenience but that would fall well short of substantial prejudice.[7] The judge did find that Costco would be substantially prejudiced if it were required to sell liquor to the general public.[8] Such a requirement would be seriously contrary to its business model.
[6] Ibid at [65]-[66].
[7] Ibid at [67].
[8] Ibid at [68].

The judge then went on to consider the discretion available to the Court under s 53 to grant or refuse an application. That discretion must be exercised in light of objects set out in s 3(1) of the Act. His Honour found that the Costco model had not been contrived to avoid the requirements for the grant of a retail liquor merchant’s licence. The proposed model reflected Costco’s general approach to business.
The judge held that the grant of a special circumstances licence so as to authorise Costco to conduct what would effectively be a slightly modified form of retail liquor merchant’s business would set an undesirable precedent for the grant of special circumstances licences. Another applicant might develop the same business model with a membership of $10 or $20. His Honour also noted that a retailer might be able to set up a loyalty program that mirrored Costco’s business model.
The judge concluded that the approval of this application:[9]
… might set a precedent that might result in a proliferation of such licences that might compromise the interests of the liquor industry and its appropriate regulation and control; might fail to ensure that the industry developed in a way that is consistent with the needs and aspirations of the community; and might fail to ensure that the sale and supply of liquor contributes to, and does not detract from, the amenity of community life.
[9] Ibid at [74].
All of these matters would be contrary to the objects of the Act.
In light of those findings, the judge refused the application by exercising the discretion under s 53 of the Act against Costco.
Grounds of appeal
Costco was granted permission to appeal on five broad grounds that raise close to thirty different points. In essence, Costco contends that, when considering the exercise of the court’s discretion under s 53 of the Act, the trial judge made errors of law and of fact. The principal contentions advanced by Costco are that the judge:
(a)Erred in refusing the application notwithstanding his findings that the application satisfied both parts of the test under s 40 for a special circumstances licence. There was no proper basis for exercising the discretion adversely to Costco as the application was in, and not contrary to, the public interest;
(b)Failed to take into account that there is no requirement that an applicant for a special circumstances licence prove public need having regard to nearby existing licensed premises. His Honour erred by taking such premises into account;
(c)Failed to have regard to the statutory object in s 3(1)(e) of the Act of encouraging a competitive market for the supply of liquor. There was ample evidence that Costco would be selling its products, including liquor, at cheaper prices than its competitors;
(d)Failed to draw a distinction between Costco’s genuine and established business model and the adoption by potential future applicants of a model that mirrored the Costco business plan. The undesirable precedent referred to by the judge would not arise because such applicants would be found to be contriving to avoid the provisions of the Act relating to retail liquor stores;
(e)Had wrongly applied the observations of the Full Court in Liquorland (Australia) Pty Ltd v Lindsey Cove Pty Ltd;[10] and
(f)Failed to take into account that s 40 of the Act provided that a special circumstances licence may authorise sale of liquor for consumption off the licensed premises.
[10] (2002) 81 SASR 337. Considered in Costco Wholesale Australia Pty Ltd [2014] SALC 55 at [70]-[76].
Costco submitted that the discretion should have been exercised in its favour and that a special circumstances licence should have been granted.
Notice of alternative contentions
Upon Costco filing their notice of appeal, the Woolworths respondents and the Hotel respondents each filed a notice of alternative contentions in substantially the same terms. It was contended that:
1The judge erred in law and in fact by finding that the test for a special circumstances licence under s 40 of the Act was met, ie:
1.1.A licence of no other category could cover the kind of business proposed by Costco; and
1.2.The proposed business would be substantially prejudiced if Costco’s trading rights were limited to those possible under a licence of some other category.
2The judge should have found that the grant of a retail liquor merchant’s licence would adequately cover the kind of business proposed if Costco varied its business to accommodate a retail liquor merchant’s licence in the same area of the store but which would be open to members of the public in addition to its members; and
3Alternatively, the judge should have found that the proposed business of Costco would not be substantially prejudiced if its trading rights were limited to those under a retail liquor merchant’s licence.
The respondents sought orders that the refusal of the application for a special circumstances licence be confirmed with costs.
Prior to the hearing of the appeal the Full Court requested that counsel should be prepared to address the question of whether Costco sells to the general public even though it requires persons to have become members before they may make purchases. In that light, after the appeal hearing the respondents sought leave to amend the notice of alternative contentions to include a ground 4 in these terms:
4.In the further alternative the judge should have concluded that the proposed Costco membership scheme was not inconsistent with any implied requirement that a retail liquor merchant’s licence be generally accessible to the public. If such a requirement is to be implied, Costco’s proposal:
4.1.Permitted membership to be attained at the store itself by an adult member of the public for the payment of a modest annual fee which fee was held out at a small cost easily offset by the savings available to members (see eg at CB47 “Our members can quickly recoup the cost of their membership through the money they save by shopping with us”);
4.2.Provided that a member would also receive a free household card enabling a family member at the same address to access the store (see eg at CB57);
4.3.Provided that a member could bring two guests over the age of 18 years (plus children) to enter the premises (but not make purchases unless they sign up for membership) (see eg at CB77); and
4.4.Sought to attract members of the public to the store in their capacity as members of the consuming public, and not because of any special defining features extraneous to their desire to purchase consumer goods.
Costco opposed the amendment.
Given that the proposed amendment was prompted by questions from the bench about the effect of the membership requirement, of which Costco was given adequate notice, I would permit this amendment.
Costco’s contentions
Costco maintains that a retail liquor merchant’s licence would not be appropriate for, inter alia, the following reasons:
·The limited range of liquor proposed to be sold;
·The exclusion of the general public; and
·The general fit out of the business (being a warehouse style utilised to minimise cost with no physical separation of the premises on which the liquor would be sold).
Counsel for Costco contends that the judge was correct in finding that it would be substantially prejudiced if it was required to sell to members of the public. On that basis the judge correctly found it would be inappropriate to grant a retail liquor merchant’s licence and that Costco therefore satisfies the preconditions for a special circumstances licence.
Costco also contends, contrary to the finding by the judge, that it would be substantially prejudiced if it were required to physically separate the licensed premises from the rest of the warehouse or to sell a wider range of liquor.
Costco further submits that the discretion under s 53 should not have been exercised to refuse its application. In exercising that discretion the Court should have had regard to the fact that the Costco business model is well-established and not a contrivance designed to circumvent the Act. The model is unique and there is no evidence that other businesses would seek to replicate it. There was no basis for concern that the granting of a special circumstances licence would set a precedent that other applicants would seek to exploit.
Due weight should be given to the public desire for such a facility and the positive effect it would have on competition. The Court should be careful about imposing its views about what is desirable upon the public and the market.
The respondents’ contentions
The respondents contend that a retail liquor merchant’s licence would have adequately covered the kind of business proposed by Costco. Alternatively, there would be no substantial prejudice to Costco if its trading rights were limited to those applicable under a retail liquor merchant’s licence.
In support of those contentions, the respondents submit, first, that it would be possible for Costco to physically separate the licensed premises from the rest of the warehouse (as it has already done in New South Wales).
Secondly, the respondents submit that the requirement to become a member before being permitted to make purchases does not exclude the general public. Alternatively, the respondents contend that it would not be impractical for Costco to allow members of the public access to the licenced area.
The respondents conceded that Costco may be inconvenienced, but contended that its business would not be substantially prejudiced, if its trading rights were limited to those possible under a retail liquor merchant’s licence. They drew support for that contention from the reasons of Doyle CJ in Facac Pty Ltd v Talbot Hotel Group Pty Ltd as follows:[11]
… the Licensing Court must also bear in mind that s 40 is not to be used simply to create a licence to meet an applicant’s wishes. If an existing class of licence will fit the proposed business, s 40 should not be used, unless the use of the existing class of licence would produce a result that “the proposed business would be substantially prejudiced.” The special circumstances licence is not, as I have said, to be created simply to meet an applicant’s wishes and proposal. The Court must consider whether another class of licence can and should be granted, even if requiring the applicant to trade under that licence imposes obligations that the applicant would rather not have, and even if that means that the applicant must prove a need for the grant of the licence.
[11] (2001) 80 SASR 580 at [51].
Consideration
Three primary issues require consideration. The first issue is whether the judge erred in finding that a retail liquor merchant’s licence under s 37 could not adequately cover Costco’s business. The second issue is whether Costco could properly be granted a special circumstances licence under s 40. The third issue is whether the judge erred by exercising the general discretion under s 53 to refuse the Costco application.
Retail liquor merchant’s licence
As I have already noted, the judge found on two grounds that Costco’s proposed business model could not operate under a retail liquor merchant’s licence. One ground was that s 37(2) would preclude grant of such a licence. That was because the premises were not to be devoted entirely to the business conducted under the licence and nor were they to be physically separate from premises used for other commercial purposes. The second ground was that Costco would not satisfy the implied requirement that the holder of a retail liquor merchant’s licence must sell to the public generally. His Honour did not find it necessary to resolve whether Costco’s intention to stock only 300 lines would preclude the grant of a retail liquor merchant’s licence.
Separation of business and premises
Costco is unwilling to remodel its store to the extent necessary to satisfy the physical separation requirement. For that reason, unless the discretion referred to in the addendum to s 37(2) is exercised in favour of Costco so as to exempt it from the physical separation requirement, its unwillingness to re-arrange the layout of its store precludes the grant of a retail liquor merchant’s licence. I have found at paragraph 78 below that his Honour correctly concluded that a licensing authority would not exercise the s 37(2) discretion in favour of Costco.
Whether sales are made to the public
The judge found that it was implicit in the legislative scheme that a holder of a retail liquor merchant’s licence must sell to the public generally. This implication arises because s 58(2) of the Act stipulates that such a licence cannot be granted unless the applicant has established that existing premises do not adequately cater for the public demand for liquor. He also found that there is no power to grant an exemption. Because Costco only proposed to sell liquor to its members and employees, it could not satisfy this requirement.
I consider that the judge was correct to find that it is implicit in the legislative scheme that the holder of a retail liquor merchant’s licence must sell to the public. His Honour also accepted the position put by the parties that because of the membership requirement Costco did not sell to the public. Because all parties accepted that conclusion its correctness was not subject to any analysis. However, the proposition requires closer examination. It was for this reason that the Court requested that counsel should be prepared to address the question of whether Costco sells to the general public.
Courts in South Australia and elsewhere have made many decisions as to whether or not a membership requirement or some other restriction on entry had the result that a building or site was not a public place. Many, but not all, of those cases have been decided under legislation dealing with the use of motor vehicles. While care needs to be taken because of the quite different legislative context, those cases provide useful guidance on the principles to be applied in determining whether a requirement to satisfy a condition before entry is allowed has the result that those persons who are admitted are not the public.
The issue before the Full Court in Zerella Holdings Pty Ltd v Williams was whether a person had been injured by a motor vehicle in a place that was “open to or used by the public” within the meaning of the compulsory third party insurance scheme.[12] Amongst other observations the majority (Kourakis CJ and Blue J)[13] noted that there is a distinction to be drawn between a general invitation extended without discrimination to the public and a series of invitations restricted to specific invitees for the purpose of transacting business with the occupier or otherwise. Much will depend upon the circumstances including the restrictions upon those eligible for entrance and the scope of the permitted uses on gaining access. The mere fact that a fee is charged or that the area is used only by the members of the public with a particular interest (eg, swimming or natural history in the case of public pools and museums respectively) does not, of itself, establish that the place is not “open to the public”.[14] The approach adopted in the judgments that follow is consistent with that of the majority of the Full Court in Zerella Holdings.
[12] (2012) 113 SASR 573.
[13] Gray J dissented on the facts.
[14] Ibid at [40].
In Panama (Piccadilly) Ltd v Newberry a Queen’s Bench Divisional Court considered an appeal by a strip club against its conviction for operating without being licensed under the Disorderly Houses Act 1751.[15] Persons seeking admission to the club were required to pay a membership fee and to complete, sign and date a membership application form recording their name and address and nationality. While the form provided for a proposer and seconder, that part of the form was not completed.[16] The rules of the club permitted prospective members to be admitted as guests on completion of the form and payment of the membership fee. There was no scrutiny of prospective members other than the completion of the form. The club owners contended that “the public” were not being admitted to the premises and thus the conviction should be set aside.
[15] [1962] 1 All ER 769.
[16] Or at least not in relation to the vice squad officer who had given evidence before the magistrate.
Lord Parker CJ held (with Ashworth and Fenton Atkinson JJ agreeing) that applicants for membership were admitted to the club as members of the public. While it was unnecessary for him to decide, Lord Parker CJ also noted by way of obiter dictum that, because no proposer or seconder was required and there was no evidence of any selective process so that persons could become members without the committee knowing anything about them, even persons who had been elected as members of the club would continue to be members of the public.
In Gray v Purvis the appellant had been charged with various driving offences that had allegedly occurred on a privately owned farming property where a “bachelor and spinster ball” was being conducted.[17] Some 600 to 700 people had attended the event. The admission fee was $60. Persons seeking entry were checked to determine whether they met the “black tie” dress standard. They were also apparently required to satisfy an age requirement. Beyond that there was no evidence as to what criteria, if any, were applied to determine who was to be admitted to the premises. Olsson J followed Lord Parker CJ in Panama (Piccadilly) Ltd v Newberry as to the requirement for there to be a selective process so as to establish a sufficient degree of segregation to distinguish members from the public. Due to the inconclusive evidence as to whether any criteria were applied to determine eligibility for admission, Olsson J held that the prosecution had not proved that the premises were a public place.
[17] (1992) 15 MVR 455.
In Gray v Purvis Olsson J also referred to Director of Public Prosecutions v Vivier.[18] That case concerned a large privately owned caravan park. Members of the public could gain access by registering at reception and obtaining a vehicle pass. Casual users could obtain a pass upon payment of a fee. Guests of persons staying at the park were issued a pass without charge. In the Queen’s Bench Divisional Court, Simon Brown J held (with Mann LJ agreeing) that the test to be applied is:[19]
… do those admitted pass through the screening process for a reason, or on account of some characteristic, personal to themselves? Or are they in truth merely members of the public who are being admitted as such and processed simply so as to make them subject to payment and whatever other conditions the landlord owner chooses to impose.
[18] [1991] 4 All ER 18.
[19] Ibid at 24.
On that basis the Divisional Court held that the general public did have access to the caravan park notwithstanding the requirement for registration and payment of a fee.
The evidence establishes that Costco does not conduct any screening process and nor does it require a nomination before admitting a person to membership. The only requirements are that the applicant is, in the case of a natural person, aged at least 18 years, produces identification and pays the annual fee of $60. A business must provide a tax file number or other proof that they operate as a business. Costco knows nothing else about applicants for membership although it does reserve the right to expel members.
The only right gained from membership is to allow the person or business to make purchases from any Costco store and to be accompanied on Costco premises by two guests or children. Neither a child nor a guest may make purchases. A second card will be issued to a resident of the member’s household.
The incentive to join and to pay the annual membership fee is access to the allegedly lower prices offered by Costco. To put it another way, the quid pro quo for the right to buy at those prices is the membership fee. The membership numbers are potentially very large and it can be safely inferred that Costco seeks to increase, rather than limit, the number of members. Prior to the opening of the Adelaide store, several thousand members had already enrolled. The membership scheme operated by Costco is, in effect, a loyalty program calculated to attract and retain a large section of the public as customers.

A Costco member does not have rights of the type commonly held by members of a club or an association. Thus, for example, they cannot vote in elections for the body corporate or participate in its meetings. In essence, their rights are no greater that those of persons who pay to enter licensed premises or other places of entertainment. Rather than being entertained, Costco members may make purchases.
I consider that Costco members are merely a class of the general public and thus Costco is selling to the public. I hold that view because the rights of members are limited to entering and making purchases, the requirements for acceptance as a member are far from onerous, and, most importantly, because Costco does not undertake any form of selection process before admission to membership. Thus, the circumstances of Costco members cannot relevantly be distinguished from the member of the nightclub in Panama (Piccadilly) Ltd v Newberry or the entrant to the caravan park in Director of Public Prosecutions v Vivier.
Although the parties had not contended otherwise before his Honour, I consider that the judge erred in finding that Costco would not qualify for a retail liquor merchant’s licence because of the membership requirement.
Special circumstances licence
The Act imposes two requirements in relation to the grant of a special circumstances licence under s 40. They are, first, could a licence of any other category (either with or without an extended trading authorisation) adequately cover the kind of business proposed by the applicant. Secondly, would the proposed business be substantially prejudiced if the applicant’s trading rights were limited to those possible under a licence of some other category?
In Bottega Rotolo Pty Ltd v Saturno’s Colonist Tavern Pty Ltd (Bottega Rotolo), Debelle and Bleby JJ held:[20]
As a general rule, s 40(2)(a) of the Act will be satisfied if the applicant establishes that the proposed business is of the kind that prevents the applicant from complying with the obligations of the retail liquor merchant’s licence or if those obligations could not be modified by appropriate conditions to accommodate the needs of the proposed business. However, the mere fact that an applicant does not wish to trade with all the benefits of the retail liquor merchant’s licence does not have the consequence that that licence could not adequately cover the applicant’s business.
[20] (2008) 100 SASR 1 at [32].
Costco has contended that the kind of business it proposes is of a special kind that is quite different to that ordinarily covered by a retail liquor merchant’s licence. Of course, it is only the proposed liquor sales element of the Costco business that is relevant in this context and not its business in selling groceries, clothing, jewellery, petrol, tyres and so forth.
The submissions referred to a number of particular features of the Costco liquor sales model, ie a relatively limited number of liquor lines will be offered for sale, many of the lines will be imported, beer will only be sold by the carton, white and sparkling wines and beer will not be chilled, and the premises closely resemble a warehouse.
The phrase “could adequately cover the kind of business proposed by the applicant” should be given its ordinary meaning and read relatively widely to mean the provision of cover in the sense of authorising the sale and supply of liquor as part of that business. The essential element of a retail liquor merchant’s licence is that it authorises the sale of liquor for consumption off the licensed premises. I do not regard the particular features of the proposed Costco business as being inconsistent with a retail liquor merchant’s licence. In essence, what is proposed is the sale of liquor for consumption off the Costco premises. A retail liquor merchant is free to select the range of products it will offer for sale, and their price and quantities, as it sees fit to optimise its competitive advantage. The adoption of a marketing plan as to range, price and quantity which is relatively uncommon, or even unique, does not make its business any less an off-premises retail liquor business.
Thus, subject to the question of substantial prejudice posed by s 40(2)(b) of the Act arising from applicable statutory conditions, a retail liquor merchant’s licence would cover Costco’s proposed business.
Costco’s business meets the requirement to sell to the public for the reasons I have already given. The remaining question is whether the judge erred in finding that Costco would not be substantially prejudiced if it were required to modify the physical layout of its store so as to meet the physical separation requirement?
The judge found that the physical separation requirement in s 37(2) might cause Costco some inconvenience. However, his Honour concluded that because the required degree of physical separation could be achieved by some remodelling of the store (as has been done in Costco stores elsewhere) that inconvenience would fall well short of substantial prejudice.
I note from the plans supplied to the Court that the proposed liquor sale area would be confined to a discrete area in the store. I also note that the store has an internal fit out very much resembling a large warehouse, ie it has bare concrete flooring and industrial style shelving. The judge’s finding that the necessary physical separation could be achieved by some remodelling without causing substantial prejudice is entirely consistent with those facts.
Costco has separated the liquor sales area in a New South Wales store from the rest of the premises by installing a wire fence and separate cash registers. That action has apparently been taken so as to satisfy the requirement in s 30 of the Liquor Act 2007 (NSW) that the liquor sales area must be adequately separated from those parts of the premises in which other activities are carried out.
The decision by Costco to arrange the physical layout of the relevant New South Wales store so as to satisfy the similar (but not identical) requirements in the New South Wales Act demonstrates that the integration of the liquor sales area into the main part of the store is not a fundamental requirement of the Costco operating model.
This Court should not readily interfere with the factual finding by a judge of a specialist court on matters within its particular expertise, particularly when those findings have been made after receiving substantial evidence. In light of that principle and having regard to the matters referred to in paragraphs 70 to 76, I am not persuaded that the judge erred in concluding that the business of Costco would not be substantially prejudiced if its trading rights were limited to those possible under a retail liquor merchant’s licence so that it was required to satisfy the physical separation requirement.
For the reasons stated in paragraphs 70 to 76 I also consider that the judge did not err by concluding that the discretion under the addendum to s 37(2) to grant an exemption from the physical separation requirement would not be exercised in favour of Costco. While Costco may prefer that liquor sales are not physically separated from its general business, the approach it has adopted in New South Wales indicates that the separation of liquor sales from general sales is not an essential element of its business model. A mere preference for full integration of liquor and general sales would not provide a proper reason to warrant exercise of the discretion to dispense with the physical separation requirement in s 37(2). At most, compliance with the physical separation obligation would cause Costco some inconvenience.
Contrary to the finding by the judge, I consider that Costco does not qualify for a special circumstances licence under s 40. Its proposed business could be adequately covered by a retail liquor merchant’s licence. That business would not be substantially prejudiced if Costco’s trading rights were limited to those possible under a retail licence by being required to comply with the physical separation requirement.
Exercise of the discretion under s 53(1)
Due to that conclusion it is not strictly necessary for me to consider whether the judge was correct in declining to exercise the unqualified discretion of the licensing authority under s 53(1) of the Act to refuse Costco a special circumstances licence. However, for completeness, I will do so.
The judge held that the grant of a special circumstances licence so as to authorise Costco to conduct what would effectively be a slightly modified form of retail liquor merchant’s business would set an undesirable precedent that could lead other applicants to seek a licence based upon a modified version of the Costco business model. This might result in a proliferation of licences that would be contrary to the objects of the Act in several respects.
The judge characterised the liquor sales model proposed by Costco as a slightly modified form of a retail liquor merchant’s business. While the Costco proposal has some distinctive and unusual features, I have observed at paragraph 70 that it has the essential characteristic of a business authorised by a retail liquor merchant’s licence, ie the sale of liquor for consumption off the premises. Accordingly, I consider that judge’s characterisation of the Costco proposal was a relevant consideration that could properly be taken into account when his Honour exercised the discretion under s 53.
Section 58 of the Act requires that an applicant for a hotel or a retail liquor merchant’s licence must prove an unsatisfied public demand for liquor in the locality. A ground of appeal advanced by Costco is that the judge failed to take into account that there is no requirement that an applicant for a special circumstances licence must prove public demand in the relevant locality for liquor for consumption off licensed premises. Costco also contends that his Honour erred by taking into account nearby licensed premises.
While the judge referred in his reasons to the availability nearby of licensed premises, I consider that the primary basis for his decision was the avoidance of an undesirable precedent. In any event, regardless of the precise basis for his Honour’s decision, for the reasons that follow, I consider that public demand in the relevant locality was a relevant consideration that could have been taken into account when exercising the discretion under s 53.
Several principles must be taken into account when considering the exercise of the discretion under s 53. Section 53(1) expressly directs that a licensing authority may not take into account the economic effect on other licensees in the locality affected by the application. I also note that the Full Court observed in Bottega Rotolo that the discretion under s 53 is expressed to be an “unqualified discretion”, ie the widest of possible discretions.[21]
[21] (2008) 100 SASR 1 at [26].
That observation by the Full Court must be applied in light of the opening words of section 53(1) which stipulate that the discretionary powers conferred by that provision are “[s]ubject to this Act”. Thus, the otherwise unqualified discretion conferred by s 53 does not permit the licensing authority to dispense with the specific requirements of the Act that prescribe eligibility for a licence. In that sense the discretion conferred by s 53 is more limited than that conferred by some other regulatory statutes which empower a public authority to grant a conditional or unconditional exemption from compliance with an otherwise mandatory requirement of an Act.[22]
[22] See, for example, s 115 of the Fisheries Management Act2007.
It is also necessary when exercising the discretion under s 53 to consider the legislative scheme established by the Act. That is because the discretion arises under the Act and does not exist independently from it. Thus, the licensing authority must take into account the statutory objects set out in s 3 of the Act. It is also necessary to have close regard to the requirements for the grant of the various specific categories of licence created by the Act. In this case the relevant categories are a retail liquor merchant’s licence and a special circumstances licence.
Because the Costco proposal displays the essential characteristics of a business authorised by a retail liquor merchant’s licence it is relevant to take into account the requirements for the grant of such a licence when considering whether the s 53 discretion permitted the judge to refuse the application made under s 40 for a special circumstances licence.
Section 40 is designed to deal with situations that were not readily identifiable by the Parliament when the Act was enacted and new or unusual business models that do not fit comfortably within the specific categories of licence.[23] It does so by conferring substantial flexibility upon a licensing authority to fashion a licence with appropriate terms and conditions.
[23] The facts in Bottega Rotolo illustrate the type of application that the Parliament could not readily have foreseen. The case concerned a business that proposed to specialise in regional Italian wines and cooking.
However, for the reasons already given at paragraph 87, when fashioning a special circumstances licence it is necessary for the licensing authority to have regard to what is permissible under the various specific categories of licence.
The Act does not require an applicant to establish a demand for a special circumstances licence. There is also no requirement that the licensing authority take into account the probable effect of a grant of a special circumstances licence on other licensed premises in the relevant locality.[24] This was a significant change from the general facility licence prescribed by s 44(3) of the Liquor Licensing Act 1985.
[24] Bottega Rotolo Pty Ltd v Saturno’s Colonist Tavern Pty Ltd (2008) 100 SASR 1 at [20].
In exercising the power prescribed by s 40 it is important that the power does not subsume the carefully defined categories of licence expressly provided for in the Act. As I have said, the power under s 40 is designed to meet cases not readily identifiable and outside the contemplation of Parliament when it prescribed the categories of licences. Accordingly, good reason would need to be established before granting a licence that is tantamount to a retail liquor merchant’s licence without proper physical separation or without having satisfied the demand test under s 58.
Because Costco had applied for a special circumstances licence it did not need to establish that there was an unmet demand for supply of take away liquor. There was limited evidence at trial from the respondents suggesting that the local demand was already met by the Liquorland store in the same shopping centre and by the two nearby hotels (particularly the Albion located almost directly opposite Costco on Churchill Road). The evidence was sufficient to establish that there was uncertainty as to whether Costco could meet the demand test. That uncertainty would have been a relevant consideration in deciding whether the s 53 discretion should have been exercised to refuse the application for a special circumstances licence on the basis that the Costco proposal was, in essence, a particular form of retail liquor merchant’s business.
Consideration of the uncertainty about satisfaction of the demand test would not be contrary to the prohibition in s 53(1) on taking into account an economic effect on other licensees in the locality. That is because s 58 is concerned with unmet public demand and not the economic interests of other licensees.
While the judge stated that he was exercising the s 53 discretion on the basis of his concern about a potential proliferation of special circumstances licences being issued to slightly modified retail liquor merchant’s businesses, in substance he took the same approach as I have adopted. That approach requires a licencing authority, when deciding whether to grant a special circumstances licence for a proposal that closely resembles an existing category of licence, to find good reason to depart from the ordinary statutory requirements for the grant of that category of licence. In Bottega Rotolo the particular features of the business provided good reason for departure. However, in this case the essence of the Costco model is a retail liquor merchant’s business. The preference of Costco for the particular features of its model does not provide good reason to depart from the physical separation requirement and nor is it good reason to disregard the demand test. That is not to suggest that the Costco model is a contrivance. Clearly it is not. The model operates at many stores in several countries.
Conclusion
Costco is not entitled to the grant of a special circumstances licence because it has not established under s 40(2)(a) that its proposed business would be substantially prejudiced if its trading rights were limited to those possible under a retail liquor merchant’s licence. I would grant permission for the respondents to amend the notice of alternative contention to include ground 4 and I would dismiss the appeal.