Bayata Pty Ltd v Ampol Ltd

[1982] FCA 301

Re: BAYATA PTY. LIMITED and LIMPORTA PTY. LIMITED
And: AMPOL LIMITED
No. G199 of 1982
Trade

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SYDNEY DISTRICT REGISTRY
GENERAL DIVISION
Fox J.

CATCHWORDS

Trade - Petroleum Retail Marketing Franchise Act - Franchise agreement restricting right to assign without franchisor's consent - Consent withheld - Whether consent deemed to be reasonably withheld - Whether a restriction which is subject to consent not being unreasonably withheld is affected by s.11 - Application of common law.

Petroleum Retail Marketing Franchise Act, 1980 - sections 3, 6(1), 11.

HEARING

SYDNEY

#DATE 20:12:1982

ORDER

1. The application be dismissed.

2. The applicants to pay the respondent's costs.

JUDGE1

This is an application brought under the provisions of the Petroleum Retail Marketing Franchise Act, 1980. The second applicant Limporta Pty. Limited, seeks orders to enable it to become the legal assignee of a franchise agreement in respect of a motor vehicle service station situated at Sylvania. The first applicant, Bayata Pty. Limited, which was added as a party by amendment, at present holds the franchise agreement in question as franchisee, the franchisor being the respondent Ampol Limited.

It is agreed that franchise agreements within the meaning of s.3 of the Act exist between Bayata and Ampol, and that s.6(1) of the Act is satisfied.

The case is brought in reliance on s.11 of the Act. It is convenient to set out the terms of that section:

"11. (1) In this section - 'assignment' does not include an equitable assignment; 'interest' includes rights and benefits; 'obligations' includes liabilities and burdens; 'prescribed agreement' means a franchise agreement containing provisions of the kind referred to in paragraph (b) of the definition of 'franchise agreement' in sub-section 3(1).

(2) A corporation is not entitled, directly or indirectly, to enforce, or to rely as a defence on any provision of a franchise agreement or of a related agreement (not being a provision to which sub-section (3) applies) that would, but for this sub-section, have the effect of -

(a) prohibiting the franchisee in relation to the first-mentioned agreement from assigning the whole or part of his interest under the first-mentioned agreement;

(b) limiting or restricting, or imposing conditions on, his power to make such an assignment; or

(c) requiring him, before making such an assignment, to offer to surrender the whole or part of that interest to the franchisor.

(3) Where a provision of prescribed agreement has the effect of prohibiting the franchisee from assigning the whole or part of his interest under the agreement without the consent of the franchisor, the franchisor shall not unreasonably withhold its consent and, where its consent is unreasonably withheld, it shall be deemed to have granted its consent.

(4) Where a franchisor withholds consent to an assignment of the whole or part of the interest of the franchisee under a prescribed agreement (being an agreement containing a provision referred to in sub-section (3)) and the proposed assignee is a person who is none of the following:

(a) a person with prescribed experience;

(b) a member of the franchisee's immediate family;

(c) a company controlled by the franchisee, then, for the purposes of sub-section (3), the consent of the franchisor shall be deemed to be reasonably withheld.

(5) Where a franchisee proposes to make an assignment of the whole of his interest under a prescribed agreement (being an agreement containing a provision referred to in sub-section (3)) to a person who is neither a member of the franchisee's immediate family nor a company controlled by the franchisee, he shall serve on the franchisor a notice in writing, offering -

(a) to terminate the franchise agreement for an amount of consideration equal to the consideration for the proposed assignment; or

(b) to assign the whole of that interest to such person as the franchisor may nominate, on terms not less favourable to the person nominated than the terms of the proposed assignment.

(6) Where, without the consent of the franchisor, a franchisee in relation to a prescribed agreement (being an agreement containing a provision referred to in sub-section (3)) -

(a) makes an assignment of the whole of his interest under the agreement without first having served on the franchisor a notice under sub-section (5); or

(b) after having served on the franchisor such a notice, but before the expiration of 30 days after service the notice - makes an assignment of the whole of his interest under the agreement to a person other than a person nominated by the franchisor, then, for the purposes of sub-section (3), the consent of the franchisor shall be deemed to have been reasonably withheld.

(7) For the purposes of sub-section (3), where a franchisor requires payment or other consideration for its consent to an assignment (other than payment of reasonable administrative and legal costs incurred in the giving of consent), the consent shall be deemed to be unreasonably withheld.

(8) Nothing in this section shall be taken to limit the grounds upon which consent to an assignment may be reasonably withheld.

(9) When a franchisee duly assigns the whole or part of his interest under a prescribed agreement (whether or not the agreement contains a provision referred to in sub-section (3)), the agreement has effect, by force of this sub-section, as if the franchisor, the franchisee and the assignee had agreed -

(a) in the case of an assignment of the whole of that interest - to the immediate assignment to the assignee of all the obligations imposed on the franchisee by the provisions of the agreement, other than obligations transferred by the assignment of that interest; or

(b) in the case of an assignment of part of that interest - to the franchisee and the assignee immediately becoming joingly and severally bound by all those obligations, other than obligations transferred by the assignment of that interest.

(10) Where

(a) a franchisee duly assigns to a person (in this sub-section referred to as the 'assignee') the whole or part of his interest under a prescribed agreement that is one of 2 or more related agreements (whether or not the prescribed agreement contains a provision referred to in sub-section (3)); and

(b) at or after the time when the assignment is made, the person who is the franchisee in relation to a related agreement (in this sub-section referred to as the 'assignor') duly assigns the whole or part of his interest under that related agreement to the assignee, that related agreement has effect, by force of this sub-section, as if the corporation that is the franchisor in relation to that related agreement, the assignor and the assignee had agreed -

(c) in the case of an assignment of the whole of the interest under that related agreement - to the immediate assignment to the assignee of all the obligations imposed on the assignor by the provisions of that related agreement; or

(d) in the case of an assignment of part of the interest under that related agreement - to the assignor and the assignee immediately becoming jointly and severally bound by all those obligations.

(11) Where, but for this sub-section, the whole or part of the interest of the franchisee under a franchise agreement would not be capable of assignment by reason of the agreement being a contract of a personal nature, the agreement has effect, by force of this sub-section, as if the franchisor had agreed, at all relevant times, that that interest, or that part of that interest, as the case may be, was capable of assignment.

(12) Where an assignment of obligations under a franchise agreement occurs by virtue of paragraph (9)(a) or (10)(c), then, for the purposes of sections 13, 15 and 17, the franchise agreement as subsisting after the assignment shall not be taken, by reason of the assignment, to be a new agreement.

(13) A reference in this section to obligations, in relation to the assignment of an interest under an agreement, does not include a reference to an obligation the time for the performance of which has arisen before the time when the assignment is made.

(14) Nothing in this section shall be taken to affect the right of a franchisee -

(a) to assign his interest under the franchise agreement by way or mortgage or charge; or

(b) to grant, confer or sublet a lesser interest derived from his interest under the franchise agreement, or to affect the operation of a provision of the agreement of a kind referred to in sub-section (2) to the extent that it relates to such an assignment or grant."

The applicants concede that Limporta Pty. Limited, the proposed assignee, is not "a person with prescribed experience" within the meaning of s.11(4) (see definition in s.3(1)). It is not disputed, however, that the terms of sub-section (5) were satisfied (assuming it to be applicable at all), in that a notice in writing was served on the respondent making an offer or offers in accordance with that sub-section.

The particular franchise agreement in question is called "a service station franchise licence agreement", and is dated 1 June 1982. Clause 25 is in the following terms:

"The licensee shall not without the prior written consent of the licensor (such consent not to be unreasonably withheld) execute any assignment or novation of its rights or obligations under this agreement."

The franchisor has withheld its consent.

It is submitted, with reference to sub-section (6), that thirty days having elapsed after service of the notice, and the offer not having been taken up, the assignment should proceed.

There are undoubtedly problems in the construction of the relevant parts of s.11, but, despite the able argument of Mr. Wells for the applicants, I am unable to agree with the way in which he submits it should be interpreted.

Broadly speaking, the scheme of the section is as follows: Sub-section (2) renders nugatory certain limitations or qualifications upon an assignee's right to assign. Sub-section (3) says that whee a provision of an agreement prohibits assignment without consent, consent is not to be unreasonably withheld; and where it is unreasonably withheld it shall be deemed to have been granted.

Sub-section (4) deals with a case where a franchisor has withheld his consent, and the assignee does not satisfy one of three stated requirements. One of those - namely, that in s.11(4)(a) which I have already mentioned, is that the proposed assignee be a person with prescribed experience. Where the proposed assignee does not satisfy any of the three requirements the consent of the franchisor shall be deemed to have been reasonably withheld.

In this sequence one might expect sub-section (5) to be granting further benefits to the franchisee, but it seems to me that it and the related sub-section (6) turn in the opposite direction. Sub-section (5) says in effect that where it is proposed to make an assignment to a person who is not a member of the franchisee's immediate family or a company controlled by the franchisee, the franchisee is required to serve a notice offering to terminate the agreement for a consideration equal to the consideration for a proposed assignment, or to assign the whole of its interest to a person nominated by the franchisor, on terms not less favourable than the terms of the proposed assignment. If the proposed assignment is to a stranger, the franchisor should have an option, or pre-emptive right.

Sub-section (6) is mainly an enforcement provision in aid of sub-section (5), and it provides, in short, that if notice is not given and an assignment takes place without it being given or without thirty days having expired after it is given, the consent of the franchisor to the assignment is deemed to have been reasonably withheld.

Sub-section (8) is important because it makes it plain that the section operates together with, and with the background of, the common law. It says:

"Nothing in this section shall be taken to limit the grounds upon which consent to an assignment may be reasonably withheld."

In the present case there is a proposed assignment to a corporation which does not have the prescribed experience. Also, it cannot be a member of the franchisee's immediate family and is not a company controlled by the franchisee.

On one view of the relevant sub-section, sub-section (4) makes it plain that in these circumstances the consent of the franchisor shall be deemed to be reasonably withheld. These words must then be regarded as applying to the general law position, as well as having relevance to the operation of sub-section (3). One simply finds therefore, that there is a common law position in which the licensor (franchisor) has reasonably withheld his consent to an assignment.

There is a question raised by a number of sub-sections, including sub-section (4), when they refer to an agreement "containing a provision referred to in sub-section (3)". Strictly, that means a provision which has the effect of prohibiting assignment without consent. Sub-section (3) then deals with two further matters. One is that it engrafts a statutory requirement that consent is not to be unreasonably withheld. The second is that it provides that if consent is unreasonably withheld it shall be deemed to have been granted. The reference in sub-section (4) would then be to a provision prohibiting assignment without consent - that is, to a provision that has no reference to the reasonableness of the withholding of consent. Other sub-sections would also have reference to the same situation. The result would be that sub-sections 3, 4, 5 and 6 and other sub-sections of s.11 would not have any effect so far as concerns a provision such as that faced in the present licence.

It is not necessary to say more of this question on this occasion, because the applicants' case has been based on the Act, and sub-section (4) operates to defeat a claim so presented. Having in mind the way the matter has been pleaded and argued, I do not think I should attempt to deal with it simply as a common law matter.

Emphasis has been placed on behalf of the applicants on sub-sections (5) and (6), but in my view they do not have the effect relied on. The notice which sub-section (5) refers to was given. It had a negative result. The consequence is that, so far as appears, the licence is still on foot. The franchisor in this case has not taken the benefit of the offer to which sub-section (5) refers. The franchisee has not been able to secure consent to the particular assignment. I am unable to read sub-section (5) and (6) as having the effect that if the offer under sub-section (5) is not taken up, consent is deemed to have been unreasonably withheld.

I dismiss the application, and order the applicants to pay the respondent's costs.