Dinyarrak Investments Pty Ltd v Amoco Australia Ltd

[1982] FCA 251

Re: DINYARRAK INVESTMENTS PTY. LIMITED
And: AMOCO AUSTRALIA LIMITED
No. G10 of 1982
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Fisher, J.

CATCHWORDS

TRADE PRACTICES - misleading and deceptive conduct - alleged promise of renewal of lease - franchise agreement for a service station - jurisdiction to entertain claim based on proprietary estoppel.

Trade Practices Act 1974 s.52, s.4(2)

Petroleum Retail Marketing Franchise Act s.3(1), s.13

HEARING

ADELAIDE

#DATE 5:11:1982

ORDER

1. The application be dismissed.

2. Dinyarrak Investments Pty. Limited pay to the respondent its costs of the application.

JUDGE1

Dinyarrak Investments Pty. Limited ("the applicant") claims that Amoco Australia Limited ("Amoco") has contravened s.52 of the Trade Practices Act 1974 ("the Act") in that by the representations and promises to the applicant of its servants and agents, Amoco has engaged in misleading or deceptive conduct. The relief to which the applicant contends it is entitled is a declaration that Amoco is liable to grant to the applicant a franchise agreement (as defined in the Petroleum Retail Marketing Franchise Act 1980) in relation to a particular service station for a term of three years commencing on 24 April 1982. In the alternative the applicant contends that Amoco is estopped from denying that it is so liable and in the further alternative the applicant claims damages resulting from the said contravention.

The relevant facts, other than those relating to certain crucial conversations, are not greatly in dispute and can be shortly stated. The applicant is a company incorporated by Mr. Michael Holland for the purpose of acquiring a lease and franchise agreement from Amoco of a service station situated at Hectorville, a suburb of Adelaide. Mr. Holland had had some prior experience in the motor vehicle industry when in 1980 he became the manager for a Mr. McLean of a Caltex Service Station at Gillies Plains. He managed this service station for approximately 18 months, during the later portion of which period he negotiated unsuccessfully with Caltex to acquire his own premises.

In December 1980 he saw an advertisement inserted by Amoco seeking lessees for service station sites. The following month he spoke by telephone to Mr. Pearce, the South Australian Marketing Manager of Amoco, from whom he learned that it had three sites available. Mr. Holland expressed interest in a Hectorville site and it was arranged that he would be visited by an Amoco representative Mr. Denis Walker who was acting as area representative for Amoco during the absence of a Mr. Tom Zorich. During the period of the latter's leave Mr. Walker visited Mr. Holland in the first instance at Gillies Plains and subsequently on 28 January 1981 at the Hectorville site. On each occasion the discussion turned generally on the features of that site and the fact that at the time it was operated by company employees. However Mr. Walker did enquire as to Mr. Holland's experience and upon ascertaining that he had not previously held a licence or a franchise his experience was noted by Mr. Walker on a document described as a "statement of applicant's experience" as nil.

This lack of experience was throughout designated as a lack of "prescribed experience" and is a crucial element in the proceedings. If the applicant had had this experience, which is "prescribed" by s.3(1) of the Petroleum Retail Marketing Franchise Act above mentioned, Amoco would have been obliged to offer him pursuant to s.13 of the latter Act a three years' term from the outset with two rights of renewal. As Mr. Holland did not have the prescribed experience, Amoco was under no such obligation and could in the first instance grant a lesser term with no rights of renewal. These factors underlay Amoco's reluctance to grant and the applicant's persistent attempts to obtain an initial term in excess of one year.

Early in February 1981 Mr. Holland and Mr. Walker met again at the Hectorville site. A conversation occurred on this occasion to which the applicant attached considerable significance. It took place in the rear of the sales-room of the premises and during part thereof Mr. McLean was present. Mr. Walker said that Amoco would be unable to give a three years' lease as Mr. Holland did not have the prescribed experience and that nothing could be done. Mr. Holland said that he then told Mr. Walker that he was not interested to go in just for 12 months as in his view it was a long term project. His evidence as to the balance of the conversation upon which he strongly relied is as follows:

"Mr. Walker said '...it is not a problem anyway because we are looking for dealers on a long term basis...for dealers that are going to stay...' Mr. McLean said 'there is no point in going into a service station if you are only getting a one year lease'."

Then Mr. Holland related as follows:

"There was a discussion about the cost involved in setting up a business, stocking a business of that type, and there would not be much point in expending money for a period as short as 12 months. Mr. Walker ... reiterated...that would not be a problem because at the end of the interim franchise agreement we would be granted a three year lease... Mr. McLean asked Mr. Walker if it was possible to get that in writing and...Mr. Walker said something to the effect, 'you know oil company policy on putting things in writing'."

Mr. Holland said that both Mr. Walker and Mr. McLean then laughed. There was no dispute in that using the expression "lease", all parties were referring to a franchise agreement and lease.

In their evidence Mr. Walker and Mr. McLean each gave a somewhat different and less emphatic version of the conversation. Mr. Walker said that he told Mr. Holland that it was company policy that in his circumstances he would only get a one year lease. He went on to say, "As I see it, at the end of the year, providing everything is in order I do not know of any reason why Amoco will not grant you a lease". He said that if Mr. Holland gained another lease, it would be a three years' lease with two rights of renewal. Mr. Walker's oral evidence coincided with the contents of an affidavit which he had earlier sworn, to the effect that he informed Mr. Holland that as long as all was in order he could see no difficulty in obtaining a three years' lease once the prescribed experience had been obtained. I accept his version of the conversation to the extent that it differs from Mr. Holland's evidence.

Mr. McLean gave his version of the conversation which, whilst differing from both of the other versions, does not support the clear and unequivocal representation which Mr. Holland said he was given. He denies that Mr. Walker said to Mr. Holland that he could see no difficulty in obtaining a three years' lease once the prescribed experience was obtained. He acknowledged he was not involved throughout the discussion but he did hear Mr. Holland mention the expenses he would incur in taking on a one year lease, and that Mr. Walker said that the company was looking for dealers who were going into the station to stay. He said they, meaning the company, would not want to "keep changing dealers so that he need have no problems". When questioned as to what was meant by "no problems" he said it referred to "the extension of the period, that was the implication".

I find that Mr. Holland was not entitled to assume from the version of this conversation which I prefer that he was promised a term of three years at the conclusion of the interim period of one year. In fact, I do not accept that Mr. Holland believed he had received an assurance to this effect which satisfied him, as he was, (as Mr. McLean also said of him) far from satisfied with his position and had mis-givings. He thereafter made considerable efforts to improve his position, making approaches to officers of the company in an attempt to obtain greater assurance. He adopted Mr. McLean's suggestion that, in Mr. McLean's words, he should attempt to "set-up a confrontation", at which he would put "pointed questions" and record the questions and answers in a diary.

Early in April 1981 Mr Holland attended an obligatory training course at the Amoco Training Centre. During this course he had another crucial conversation, this time with Mr. Pearce and Mr. Zorich. Mr. Holland said that at the time he was waiting to see the lease of the premises before committing the applicant but that only a copy of a standard lease was produced. He said that the discussion lasted for more than half an hour, and that prior thereto he had spoken to a Mr Ball who conducted the training course. He said that Mr. Ball had told him he should have a three years' lease. Mr. Ball gave evidence denying this statement. Mr. Holland said he asked Mr. Pearce if he would be given a three years' lease. He related Mr. Pearce's reply as follows:

"No, it would be a one year lease only...he was not able to give... a three years' lease because I did not have the prescribed experience."

Mr. Holland said that he was however re-assured because in his words Mr. Pearce went on to say,

"...that was not a problem, he would be offered a three years' lease at the end of the initial one year term, you have no problems, providing you do not put up Shell signs on the service station and sell Shell petrol or punch Tom Zorich on the nose."

He said he "would be assured of getting a three years' lease". He further stated that "Amoco was a nice company" and "they liked to look after their dealers" and that "only one dealer had been evicted or refused a new lease on a site" and that particular person "passed bad cheques" and "refused to pay his rent". Mr. Holland said that he asked for Mr. Pearce's "words of assurance" concerning the three years' lease to be put in writing but Mr. Pearce said he was not able to do this. Mr. Holland said that he asked when the documents would be available as he had then made up his mind to accept the interim lease and was told that they would be presented to him when ready.

Mr. Holland said that he well remembered those points of the conversation which he considered vital. These points he wrote down on a piece of paper in his car immediately at the conclusion of the conversation, although Mr. Pearce and Mr. Zorich said he accompanied them back to the room in which the training school was being conducted.

Mr. Pearce in his evidence said that this discussion took place as a result of a telephone call from Mr. Ball. His version was that he explained to Mr. Holland Amoco's policy and that the offer to him was of a one year lease only. He said that Mr. Holland appeared upset and asked whether the company would consider a new agreement at the end of the 12 months' initial period. Mr. Pearce said that he answered "yes". Mr. Holland asked whether as a company Amoco had ever not granted a new agreement to which he again replied "yes". Upon being asked by Mr. Holland why and in what circumstances, Mr. Pearce said that he replied:

"Those circumstances being that we did not ratify a new agreement for one of our existing service station dealers on the ground that he tore up a petrol agreement and that he refused to pay site rental, and did not operate the site in what we considered to be a reasonable and clean atmosphere and breached certain conditions of his agreement with us at the time".

Mr. Pearce stated that he had no recollection of having said that Mr. Holland would have no problems in respect of a further lease provided he did not put up Shell signs on the service station and sell Shell petrol, or punch Tom Zorich on the nose. His memory was that he merely said the position would be reviewed at the end of the initial term.

Mr. Pearce said that at the conclusion of the conversation he again informed Mr. Holland that he could expect nothing more than an interim lease from Amoco at that stage. He gained the impression from Mr. Holland's demeanour that he did not seem happy. He also denied that he gave Mr. Holland any assurance that he would be getting a three years' lease but said that he said he would give consideration at the end of the 12 months' period to a new lease. Mr. Tom Zorich however confirmed Mr. Holland's evidence concerning the statement about Shell signs, Shell petrol and punching Mr. Zorich on the nose, and thus I find that Mr. Pearce's recollection of certain portions of the conversation is not wholly reliable. Mr. Zorich, Mr. Pearce agreed, was present throughout the conversation but took little part therein.

Mr. Zorich gave his version of what was said and it differs from the recollection of each of them, Mr. Pearce and Mr. Holland. I find Mr. Zorich's version the most acceptable and not only because it is in the circumstances the more likely, but also because he is a more independent witness having left the employment of Amoco. He said that he had earlier been involved in discussions with Mr. Holland concerning the matter of his lease. Mr. Holland had on 2 or 3 occasions spoken to him about the reason why he was getting a 12 months' interim lease and that he had explained to Mr. Holland on more than one occasion the reasons for it. He said Mr. Holland had been persistent in his enquiries concerning the length of his lease.

Mr. Zorich related that at the discussion with Mr. Holland, Mr. Pearce said that the situation was that a 12 months' interim agreement would be offered and after 12 months it would be reviewed. Mr. Pearce gave information to Mr. Holland concerning circumstances in which a particular dealer was not granted a further lease and some examples of other circumstances in which a new lease would not be granted, namely putting up Shell signs and punching him on the nose.

Under cross-examination he strongly denied that Mr. Pearce said to Mr. Holland that he would get a renewal provided he did not put up Shell signs or punch Mr. Zorich on the nose. His evidence was to the effect that Mr. Holland was told of the circumstances in which he would not get a further lease and was not told anything as to the circumstances in which he would be granted another lease. He said that there was no promise and no assurance given in respect of a further term, and that Mr. Holland was only told that after a 12 months' period a review would be granted. Mr. Zorich's evidence was not shaken in cross-examination and I find his the most acceptable version of what was said at this discussion.

Subsequent to this conversation the applicant took over the service station at Hectorville. Mr. Holland said that this would not have been done but for the assurance that he had received, namely that so long as his conduct was satisfactory he would receive a further lease of three years. However in my opinion it is on the evidence equally likely that he was prepared to enter into the arrangements with Amoco in the circumstances as stated by Mr. Walker and Mr. Zorich. He had been very persistent in his efforts to obtain a firmer assurance. However in my opinion he had not been successful and was not entitled to assume that provided its conduct was satisfactory the applicant was promised a further term.

The applicant carried on business at the Hectorville service station under the terms of the interim lease and has continued up to the present pursuant to an interlocutory order of this Court. Amoco has not and did not in its evidence criticise the applicant's conduct and agreed that it did not seek to act for any reason other than that it was entitled in law to do so. However, it is difficult to refrain from gaining the impression that Amoco found Mr. Holland unwilling to participate to the extent it thought reasonable, in competitive discounting of petrol.

Mr. Holland said that the applicant had incurred expense in the conduct of the service station which it would not have incurred if it had not understood it was to receive a further lease of three years. However the evidence in this regard is very unsatisfactory and Mr. Holland has not been able to establish any expenditure which is of significance. Certainly he did not make any improvements to the site or the fixtures thereon.

On 7 April 1982 Mr. Pearce in company with a Mr. Bohaines visited the service station. The latter gave evidence to the effect that on two earlier occasions, namely in December 1981 and January 1982 Mr. Holland had brought up in conversation the question of renewal of his lease. I accept Mr. Bohaines' evidence and it confirms my view that Mr. Holland was at the time far from satisfied that he had a firm promise of a further term of three years. At the conversation on 7 April 1982 Mr. Holland was told that he would not be offered a new lease. Mr. Holland said that he asked why and Mr. Pearce had replied that Amoco had decided to exercise its rights under the dealer trading agreement not to renew. Mr. Holland said that he said to Mr. Pearce that "that did not make his words of 12 months ago . . . look terribly good" and that Mr. Pearce replied "that was 12 months ago". Mr. Holland said that he turned and walked away.

However I prefer Mr. Bohaines' evidence as to what happened on this occasion. He said that Mr. Pearce said to Mr. Holland that Amoco had considered all of its options in respect of the expiry of Mr. Holland's lease and had decided not to offer him a new agreement. Mr. Holland asked why, and Mr. Pearce said that Amoco had considered every aspect and decided not to offer a new agreement. In reply Mr. Holland said that that "went against" or "makes a lie of what you said at the training centre 12 months ago". Mr. Pearce said that that was not correct, that he had "never made any assurances". When Mr. Holland asked for an explanation why he was not being offered a new agreement, Mr. Pearce repeated his earlier statements to the effect that after considering all of its options Amoco was not going to offer a new agreement.

Counsel for the applicant relied upon the actions of the respondent over a period of some 12 months as constituting the misleading conduct. These actions, he said, comprised the statements made by Mr. Walker and Mr. Pearce in February and April 1981 respectively, the action of the respondent in standing by whilst the applicant made improvements to the service station in reliance upon the statements, and the ultimate refusal of the respondent to grant the applicant a further lease. This course of conduct, it was said, was misleading in that the applicant was led into the error of believing he would receive a further term.

It is however necessary to analyse this conduct because on the applicant's version of the facts, it was indeed culpable conduct and the applicant is justified in its disappointment. The whole course of conduct, as distinct from the individual items thereof, could not in my opinion be characterised as misleading or deceptive because at the end of the day the applicant was under no misapprehension as to his position. He could not at that time have had an erroneous belief that he was to receive a new lease. It is therefore necessary to look at each aspect of this conduct of the respondent to determine whether, in its context, any aspect led or had the capacity to lead the applicant into error.

Section 4(2) of the Act extends the normal meaning of engaging in conduct beyond the doing of an act to cover refusing to do an act and refraining from doing the act otherwise than inadvertantly. Thus each item of conduct relied upon, the making of statements, the refraining from acting whilst the applicant improved the premises and perhaps the refusal to grant a lease, is capable in appropriate circumstances of amounting to illegal conduct. Each of the items, if not in itself misleading or deceptive, could also form portion of the context in which another act would be properly characterised as misleading. It is therefore necessary to consider each of these aspects of the respondent's conduct.

In respect of the statements relied upon, in each instance they were at most promises or predictions. I accept that such statements are not in themselves misleading except to the extent that by implication they are tantamount to statements of existing facts. If it was established that at the time of making a particular promise or prediction the person making it and Amoco on whose behalf it was made did not believe it could be satisfied or was recklessly indifferent, then in my opinion the statement would be misleading. The applicant would have been led into error as to the state of mind of the respondent and its officers. In this matter there is no evidence on the basis of which I can make such a finding as to the state of mind of the respondent or its officers. It follows that, standing alone, these statements, accepting the applicant's version thereof, can not be held to be misleading or deceptive in the relevant sense. The applicant has not established that it was led into error as to the respondent's state of mind.

Turning to the contention that the respondent led the applicant into error in standing by whilst the latter performed work on the service station site, I can accept that this could in appropriate circumstances amount to misleading conduct. The applicant's case would be that by refraining from correcting the prediction when it became aware that the applicant was acting in reliance upon it, the respondent had or could have by its conduct led the applicant into error. However in this regard it is necessary for the applicant to establish that the respondent did not refrain through inadvertance, i.e. being ignorant of the fact that the applicant was making the improvements in reliance upon its prediction. I have given careful consideration to the appropriate findings of fact in relation to the statements, the improvements which the applicant contends it made and the state of knowledge which the respondent had or should have had in respect of the applicant's actions.

My findings of fact are that the applicant was not told that if its conduct was satisfactory it would receive a three years' lease at the end of the present term. I accept Mr. Zorich's evidence to the effect that Mr. Holland was only told of circumstances in which a further term would not be offered and not as to the circumstances in which it would. This statement should have been sufficient to disabuse Mr. Holland of any belief he may have had arising out of the conversation with Mr. Walker. The respondent was therefore entitled to act on the assumption that Mr. Holland, notwithstanding his persistence and his hopes, was aware that he had received no assurance as to the future. In these circumstances even if the respondent was aware that any expenditure and improvements such as they were, were made by the applicant because he thought he would obtain a further term, it was under no duty to take any action. The fact that it refrained from taking action was not tantamount to engaging in conduct. In any event my finding is that the applicant has not established that it made any expenditure in reliance upon any assurance on the part of the respondent.

I need say little about the respondent's refusal to grant a further term, which refusal was conveyed by Mr. Pearce to Mr. Holland on 7 April 1982. If Mr. Holland had the belief that the applicant was to be offered a further term, the statement to the contrary effect was not misleading as it did not and could not lead him into error. Rather the reverse, it indicated to him what was the true position.

It follows that it is my opinion that the respondent has not been guilty of contravention of s.52 of the Act.

Counsel for the applicant contended that even though such a contravention was not established I had jurisdiction under the general law to grant relief on the basis of proprietary estoppel. It is my opinion however that the facts do not justify the granting of such relief but I must first give consideration to my jurisdiction to entertain this claim.

The applicant in its pleading seeks a declaration that Amoco is obliged to grant it a three years' term, with which is coupled a further contention that Amoco is estopped from denying its liability. In calling in aid the doctrine of proprietary estoppe it seeks to avoid the contention that it is not entitled to found its cause of action upon the alleged estoppel (Coombe v Coombe (1951) 2 K.B. 215). It seems to be accepted that unlike estoppel generally, proprietary estoppel can in appropriate circumstances give rise to a cause of action in equity. Such a cause of action would appear to rest primarily upon the actions of the plaintiff performed with the encouragement or acquiescence of the defendant (Spencer Bower and Turner, Estoppel by Representation 3rd Edit. paras 307 and 308). The doctrine has its roots in Ramsden v Dyson (1866) L.R. 1 H.L. 129, Plimmer v Wellingtom Corporation (1884) 9 App. Cas. 699 and Inwards v Baker (1965) 2 Q.B. 29 which case was discussed by Professor D.E. Allen in 79 L.Q.R. 238. To date it has usually been considered by the Courts in the context of an interest in land and expenditure by the plaintiff thereon.

In determining whether this Court has jurisdiction, it is necessary to consider the scope of the matter before me under the Act and the facts upon which the claim in equity is based. If the claim under s.52 of the Act and the claim based on proprietary estoppel arise out of "a common substratum of facts" the latter claim should proceed in this Court. In respect of the test based on "a common substratum of facts" I refer to and adopt the approach of Toohey J. in Muller and Anor. v Fencott and Ors (1981-82) 39 A.L.R. 496 at p.503 and following. He there made particular reference to the relevant passages in the judgments of the High Court in Phillip Morris Inc. v Adam P. Brown Male Fashions Pty. Ltd. (1981) 33 A.L.R. 465 and the fact that the test of common substratum of facts formulated by Mason J. appeared to represent the highest common factor of the various reasons. This test must be applied to the pleadings to the facts as found. The pleadings and facts therein in my opinion are capable of establishing a negative proposition, namely that there is no common substratum of facts but a positive finding can only be made upon proof of facts at the trial.

For the purposes of s.52 of the Act the matter before me concerned either a misleading or deceptive course of conduct on the part of Amoco over a period of some 16 months or certain acts of misleading or deceptive conduct during this period. Such acts have been identified earlier in these reasons as the statements by Mr. Walker and Mr. Pearce, the standing by of Amoco when the applicant acted to its detriment in reliance upon such statements and the conduct of Amoco in refusing to grant a further term.

The necessary facts to enable the applicant to raise the estoppel have been defined by the cases (See Meagher Gummow and Lehan Equity, Doctrines and Remedies para 1717 and Dawson and Pearce Licences relating to Land pages 33-35). In a matter such as the present the applicant must have acted in the belief that it had or would obtain an interest in the property in respect of which it is sought to raise the estoppel and must have altered its position for the worse in reliance upon such belief. The applicant must also prove that Amoco knew of its own rights in the property as inconsistent with the right claimed by the applicant, that Amoco knew of the applicant's belief as to its rights and that Amoco by its conduct or inaction encouraged the applicant to alter for the worse its position.

In order to succeed in this cause of action the applicant must plead and prove facts which go beyond and of necessity are subsequent in time to the statements by Amoco's employees upon which it relies to establish misleading or deceptive conduct. The facts upon which relief is sought under each cause of action are not the same or even substantially the same. A number of crucial facts including that of alteration of its position, are not a necessary feature of a contravention of s.52 when the impugned conduct comprises statements. It is of course a necessary feature of a claim for compensation under s.82 that there be reliance upon the conduct, in the same way that this element and many other elements are relevant to other remedies under the Act. A claim based on the statements as misleading or deceptive conduct does not depend necessarily upon these elements. Thus the claim arising out of this conduct and the claim in equity do not depend upon common transactions and facts. If this was all there is in the applicant's case I would rule that this Court has no jurisdiction.

The applicant however also contends that Amoco, having made by its employees these statements, engaged thereafter in misleading or deceptive conduct in permitting the applicant to act to its detriment in reliance upon such statements. As in my opinion such conduct could in appropriate circumstances be misleading or deceptive, the claim under the Act and the claim in equity arise essentially out of common transactions and facts and there is a "common substratum of facts". It may well be that all of the five elements of proprietary estoppel and in particular the mental elements, necessary to raise the estoppel are not common to a contravention of s.52 but to reject jurisdiction on this ground would be to adopt a very restrictive approach. Moreover such mental elements could be very relevant on the vital question whether the respondent acted inadvertantly (s.4(2) of the Act) in refraining from taking action. I hold that the question whether the applicant is entitled in these proceedings to equitable relief based on proprietary estoppel is a matter within the jurisdiction of the Federal Court.

However my earlier findings on questions of fact render it inevitable that I dismiss the applicant's claim based on proprietary estoppel. I am not satisfied that the applicant acted in the belief that it would receive a further lease nor that it in any way acted to alter its position for the worse. There is a world of difference between a hope and an expectation. Furthermore the evidence as to what the applicant did or expended over and above what it would otherwise have done is inadequate and insufficient to enable me to make a positive finding favourable to the applicant. In my opinion Amoco did not give any encouragement to the applicant to do what it did on the site, nor can it be correctly said that by its conduct it led the applicant to believe it would be granted a further lease. It follows that the applicant has not established a right to relief based on proprietary estoppel.

The applicant's claims must be dismissed with costs.