I
| IN THE FEDERAL COURT OF | AUSTRALAf.) |
)
| NEW SOUTH WALES DISTRICT REGISTRY) | . | ... |
)
| BETWEEN: | D.I. | & M.C. SETTREE | PTY. |
LIXITED
Applicant
| AND : | CALTEX PROPERTIES LIPIITED |
| - | ~ _ _ _ _ |
| Respondent |
CORAM: M. L. FOSTER, J.
| DATE : | 14 JULY, 1988. |
| PLACE: | SYDNEY. |
.
| directors of the Company, F t . and Mrs. Settree and thelr famlly |
| HIS HONOUR: | The applicant company conducts a servicc statlon |
| business with an assoclated restaurant buslness | in Cobar, New |
| South Wales. The business | I S | called "the Golden Fleece Service |
| Station, Cobar". The servlce station premises, | :ncludlrg the |
| restaurant, together vlch | a | r c s ~ c l o - t l a l -.ottaq~ | :n | h l C h | the |
| reside are leased from the respondent under | a lease agreemenc |
| dated 22 September, 1982, which provldes for | rent31 and contalns |
| a large number of other provlslons. It 1s annexure | C to the |
| Affldavit of Ian Settree of 6 [larch, 1987. |
| The lease expired according to its terms on | 31 August, |
1985. Since that time the premises have been occupied by the
applicant, apparently under a holding-over clause. The buslness
has been carried on by the appllcant in a s ~ t u a t ~ o n where there
was a dispute as to the proper rental to be paid for the leased
premises.
| The applicant brlngs these proceedings pursuant to | S. |
| 17A ( 7 ) and (9) of the Petroleum Retail rlarketlnprranchlse Act, | __ | - - |
1980 ("the Act"). The proceedings also Include a claim under S .
| 9 of the Act. | This claim has been abandoned. The appllcant now |
seeks the followlng orders In lts applicatlon; namely:-
"(l) A declaration that the agreement entered into
between the applicant and the respondent on 22
September, 1982 1 s a Franchise Agreement w ~ t h i n
the terms of the Petroleum Retail Plarketlng and
Franchise Act, 1980;
| ( 2 ) An order that pursuant to S. | 17A(7) of the |
| Petroleum Retail Marketlng Franchise Act, 1980 |
that the respondent be directed to renew the
Franchise Agreement with the appllcant; |
| ( 3 ) An order that the proposed Franchlse |
| Agreement, undated, betveen the appllcant and the |
| respondent, be | reneved on the terms set forth In | |
| the Deed of Lpase 1." | >nne<urr- "F" c f thF T.ffldavl? | |
| of | Tan Settree s ' : o r ? | or 5 r!er-.h, | 19Gi S U ~ I P C C | tcl | |
| che following 0~3e:s ard bcr~acions | 2 s ;ought | |
| herein: |
| (5) An order that the sald Deed of Lease be varled |
by lnsertlng ;n clausn l(a) sums payable as rent
calculated or d5termlned in such a nanner as to be
reasonable, hafling r e q r r d to the market value of
any interest, goQds, or services to whlch that sum
relates; and |
| ( 1 0 ) A n order that the | respondent pay the | |
| applicant's costs." |
| There is no dispute as to the first claim. | I |
accordingly make the declaration sought.
| The respondent, however, disputes that S. | 1 7 A 1s |
avallable to the appllcant. It submits that the applicant can
| proceed only under S. 9 . | Ic subrnlcs that by virtue of the |
| holdlng-over clause already referred to and the operation | of S. |
13 of the Act, the respondent, as franchlsor, has not relevantly
| proposed to renew the franchlse agreement under S. 17A. | It 15 |
n o t necessary to set out the argument in full. The respondent
| has had the benefit of | it. | I | r e ~ e c t | thls submlssion. In | my |
| view, the case quite clearly falls within | S. | 1 7 A . |
| I am quite satlsfled that the respondent's | letter of 27 |
July, 1985' (Annexure F to the Affidavit of Ian Settree) clearly
| amounts to a proposal to review the franchise agreement. | I am |
further satisfied that the respondent at all relevant tlmes vas seeking to invoke the machinery of S. 174 ~n relatlon to renewal of the agreement for a further fixed term at 'I :ncreased rental. .
| The letter ltself clearly | purpclrts tc be a -@t:cc | in accordance |
| with S. 17A(1) and ( 2 ) and includes a proposal a s to a provisiop differing from that of the ~>lstlng | agreement, namely that the |
| rent should be increased. |
| Section 1 7 A contains mandatory prov~sions | a s to time ~n |
relation to the service of a notice. 'There 1 s no dispute that these conditions were not cornplled ~11th. In the result, ~n my
| opinion, the applicant, as franchrsee, was entitled | to lnvoke the |
| provisions of S. | 1 7 A ( 7 ) seek1r.g an order from the Court dlrectlng |
the franchlsee to renew the agreement.
None of the excludrng provisrons of sub-section ( 5 ) or
| sub-section ( 7 ) apply. | The Court consequently makes the orders |
| sought in paragraph | 2 of the applicatlon. |
The applicant is thus entitled to seek an order under
| sub-section (9)(a). | This provides that the Court may make: |
| "Orders determining any amount to | be payable by the |
franchisee under the franchlse agreement as to be
In the circumstances of this case, the court 1s asked
to determme the rent payable under the renewed franchlse
| agreement. Although in | ~ t s | proposal for renewal the respondent |
| sought an increased rent, it now seeks only that | the rent payable |
| at the date of expiry of the franchise agreement; namely, | $67,008 |
| per year, be fixed as the rent for the reneved agreement. |
| Furthermore, lt does not sec1 | a v y :nq~el z s c ? l a t l ? ? o f | i?? | r e n t |
a s had previously been provlded for.
| The applrcant contends for c | considerably l o w e r | ~ e n t |
| than lt was paylng at che end of the prevlous term. | ~t asserted |
that the rent was renderlng the conducc of th5 buslness
| unprofitable. Thls was dlsputed | by the respondent vlllch |
maintained that any unprofltablllty of the buslness r~sulted from
poor management on the part of the appllcant, ln partlcular from
the employment of excess staff in the restaurant, and from a
cessation of 24 hour tradlng. These matters would have asumed
far more importance had the case fallen for conslderatlon and
| determination under S . 9 of the Act rather than | S. 17.4. | However, |
| insofar as these conslderatlons | may have some sllght bearlng upon |
| the approach to be adopted ~n the flxlng of rent, I ~ndlcate | that |
| I formed the view, on the evidence, that | Fr. Settre5 was an |
| experlenced servlce statlon operator and that he and hls | q'lfe |
worked dlligently ln the buslness, and that they were genulnely
| unable to achieve anything llke the level of proflt sald | to be |
theoretically available in accordance wlth calculatlons produced
by Mr. Lilllngton on behalf of the respondent, Exhiblts H and J.
| . | The Court, under S. | 1 7 A ( 9 ) in the Instant case, 1s |
| requlred, as it were, to perform the functlon ot a valuer ln |
fixing an appropriate mark of rental to be pald by the appllca~t
| to the respondent for the servlce statlon | premises, restaurant, |
| and dwelllng. Part of | the land avallable has, | :-, | :a?c, | b e ~ n | u s e d |
| by the applicant to conduct a 3er:z | Reni-a-S?..r fra~c;.lse | I am |
| satisfied on the evldence that thls area was made available | by |
| the respondent to the | appl-1car.t wlthout charge. | 1 therefore |
| exclude it from conslderatlon | l n flxllg the rcnt. |
| A s might | be | expected, evldence f r g m | e ~ p e r t | valuers has |
| been called on both sldes and | the testimony has deal; not only |
| with approprlate flgures for | the rent but also wlth pr-lnclples to |
be applied in arrlvlng at a market rental for servlce station premlses. It has been made abundantly clear ~n argument that thls litiqatlon has not been approached by elther slde, on the
basis that it constitutes a cest case ln whlch the Court 1 s belng asked to lay down approprlate prlnclples for such a valuatlon.
| It has been accepted qulte clearly that | the questlon 1s one of |
fact, and the expert evldence serves only as a guide to the Court
in determlninq the questlon.
| The servlce station premlses, and I | embrace 1n that |
descriptlon the restaurant and dwelllnq, are sltuated in the
| western outskirts of Cobar, a country town in | the western |
| distrlct of New south Wales. It | 1 s predominantly a mlnlnq | t o m |
in which the incomes of lts approxlmately flve thousand
.
| inhabitants can fluctuate. The servlce statlon | 1 s on the main |
| highway to and from Broken | H111 and 1s che flrst servlce statlon |
to be encountered by trucks approachlng Cobar from the vest along
| the highway. It therefore has | 3 no1 lncons~derable | passlnq trade |
| in addltion to the t o m trade. | ??ere arc- qthec sr_.r-;~lce | scatlqns |
| ln the town. They are | described, ..-lth~.~t | C L S T I ) U C ~ , | the |
| evidence. They naturally provlde competltlon but | lt 1 s not, as I |
| understand the evidence, asserted thaE | the level O F competlrion |
| has changed in a manner whlch should influence the | rental |
| determlnatlon for the sub~ect | prernrses. |
Apart from the restaurant the business provides the
usual servlce station facilities, including sale of petrol of all
kinds, distillate, tyres, accessorles, servicrng of vehlcles,
mechanlcal repairs, and sales through a shop of ltems that
| travellers buy. Accounting records | of an ordinary kind have been |
| kept wlth the asslstance | of accountants, and these have been the |
sublect of examlnatlon and evldence ln the case.
| It 1s clear that the servlce station, although havlnq many features in common to all small service statlons, | also has |
| features attributable to its locatlon | rn a small country town rn |
a fairly isolated area upon a maln hlghway. It appears, for instance, that the employment of labour presented difficult features for the applicants from those applicable ln the clty,
| and that the cost of raw materials for use | in the buslness could |
| be hlgher. In partlcular, from a valuation point | of view, ~t was |
| most diff;cult | to obtain comparable rentals. The service station |
| businesses in Cobar | were not really comparable. Dubbo and |
| Nynqan, the closest towns, were a far larger slze, | a fact which |
| made comparison difficult. |
| The evidence made ~k abundantly clEa: | t h a c t h e |
valuation exercise requlred partook more of art than of science.
R .
| The experts differed markedly, not only | in the figures arrived at |
but also in respect of the appropriat? approach to be adopted.
All experts were agreed that truly comparable rentals were the
best gulde on appropriate market rental, but that these were not
available.
| I n these clrcumstances two maln approaches appeared | in |
| the evidence; valuers relled | upon by the applicant used |
predominantly an approach described as "return on capital". Thls
| was a simple approach claimed | to be approprrate to a fairly |
| remote country area of establlshlng a proper capltal value | f o r |
the premises and then establishing rent by flxing approprlate
| percentage return on | that capltal. The applicant called three |
| qualified valuers who adopted thls approach. Of the three | I |
| found the evidence of M r . Sammervrlle the most Impressive. | He |
| valued the service station | and restaurant facllltles at $250,000 |
and took 15.5. per cent as an appropriate percentage to apply.
| He arrived thereby at a figure | of $ 3 8 , 7 5 0 as rental approprlate |
| to that part of the premlses. | HE allowed in addltion a rent of |
| $4,000 per annum for the dwelling. | This latter rent does not |
| seem to be the subject of any | real dispute whereas the former is. |
| It IS clear that Mr. | Sommervllle did not approach the |
establlshment of the capital value of the buslness premises on the basis that they were mere static real estate. 3e approached on the basis that he was valulng prern~ses used a s a s~:11ce
station; that this vas thelr Sesc LISP ard t??t the 5erv1c~
station was an established and golng concern. Any doubts as to
this were completely dispelled by answers he gave vhen recalled
| to the witness box in the | last day of evidepce | LP. | th:s | c a s e . | For |
| this reason hls evidence, in | my view, carries more hrelght chan |
| that of Mr. Poulter. | He did not value | the premlses orher than as |
| real estate. |
| Mr. | McLennan, the other valuer called for Ehe |
| applicant, contributed evidence, which I | regard as rnost u s e f u l , |
| to the effect that the percentage return reasonably to | be |
expected on a service station capltal investment necessarily
increased with the distance of the statlon from the larger urban
areas in the Blue Mountarns 2nd beyond as the lnvestnent risk in
| terms of capital appreciation | or depreciatlon necessarily |
increased with dlstance from such areas.
The valuers called for the respondent favoured an
approach referred to as the piecemeal approach. Thls consisted
of valuing rent in relation to the turnover achieved in various
aspects of the business and only using the real estate valuatlon
as some sort of a check.
| Only one of these valuers, however, actually saw the premises and provided a figure for tent. He was Mr. Breckenridge
whose evldence I did not find particularly helpful. He appears |
| to have been very much Influenced, ~n | "47 :.IP~', hv the r'isting |
| agreed rental which | was under attzc'c. | ? e ? d c c t c d t rp .~lecemeal |
| approach to the extent that he valued | the rental for the fuel |
selling area on the basis of turnover, hut he valued c h e rl)ther
| portlons of the premises on a recurn of real estate l1as1s. | He |
| acknowledged that there was no standard way of arrlT~:1-3 at ? |
| rental value of business premlses | and that it was a sarter of |
| looking at indlvldual c~rcumstances | of each service statlon. |
The other two valuers: Messrs. Parlsh and Aubln dld
| not see the premises although each of thPm sald thac | 1t was of |
signiflcance to do so in making a rental valuation. They heavlly
espoused the piecemeal approach based on turnover. Xiether of
them, however, provided a valuation to the Court although It
| appears that they were aware | of the exlstence of the applicant’s |
| financial records which evldenced turnover in | all relevant areas |
| and they merely affirmed the superiority | of a method whlch took |
into account and fixed a separate rental in respect of the
turnover of particular aspects of the service station business.
| The absence of their actually fixlng figures In respect | of the |
applicant’s business IS, ~n my view, very detrimental to the respondent‘s case. It 1s a poor substitute to proceed as was
| done simply by applying the scated prlnclples as a matter | o f |
arithmetic to flgures extracted from the applicant‘s records and
| the experts may not have proceeded in thls way, chey may have |
acceded to suggestlons in cross-examinatlon xhlch vould have
| altered the purely arithmetrcal sltuat~on | .Then applied to the |
| speciflc facts of | this rase. 90th valuers | ~ | 1 | r r - r ? ~ ~ ~ s e d | s | ~ | t h a T |
| other approaches vere poss:ble | znd qiaS1E. |
In all these clrcumstances, for the purpose of decldlng
this particular case, I feel that I should place more rellance on
| and follow the principles of the capltal return | eth hod a s |
| espoused by Mr. Sommervllle. | I am fortlfled ln thls vlew by the |
| fact already referred to that M r . | Sommervllle made it abundantly |
| clear that in fixlng a total | sum f o r capltal value of the |
| business premises he bore In mlnd the factors | .rihlch, ln |
| accordance wlth the other method, a r e made the sub~ect | of |
| separate assessment. Indeed, 1t | was | recognlsed ln che evldence |
of M r . Aubln that the valuatlon of the slte as a servlce station as an on-golng operatlon was an avallable method of arrlvlng at the rent in the absence of comparable rental lnformatlon.
| Furthermore, the one expert, apart from | M r . |
| Breckenrldge, who apparently | had regard to the actual turnover |
.
| and other flgures relatlng to the buslness was | M r . | Sommervllle, |
| who expressed the vlew when called ln reply that the strlct |
applicatlon of the plecemeal prlnclple could produce a rental
| figure in the present case vhlch | .:as | conslderably 1n ?/cess of |
| anything regarded as accept?blc | -r | t h e | 1 ~ ~ 5 t e 1 n | ? , r e a . |
li.
On the ocher hand, I do not feel obliged to accept IR
| toto the rental appralsal of the Dusl~ess | prerises p?cle | by F r . |
| Sommervllle. |
The evldence of Mr. ?IcLennan coupled wlth other
| evidence ln the case, particularly that relatlng to an | 18 per |
cent risk factor In respect of a service station ln the Nyngan
| area, make me believe that | a 20 per cent approach would be more |
| appropriate here. |
Accordlngly, I would adlust Mr. Sommerville’s flqure of
| $ 3 8 , 7 5 0 | upwards by the appllcatlon of 20 per cent to a figure of |
$50,000 with the result that the flgure of annual rent that I fix
is $54,000.
I accordingly make order ( 5 ) in terms that the Deed of
Lease be varled by inserting in clause l(a) the sum of $54,000 In respect of each period thereln set out.
| I order the respondent to pay che appllcant’s | c o s t s | of |
thls application.
| I certify that thls and the 11 precpdlng pages |
| are a true copy of the reasons l o r ludgment |
| hereln of his Honour, 7 r . , J U S ~ L C P | !!.L. | T’oster. | |
| Dated: | 3 | >.uouS:, | 1 9 8 8 . | |
| Associate: -K!!& |