GasN Go Petroleum Pty Ltd v Caltex Oil (Australia) Pty Ltd

[1991] FCA 201

Re: GAS'N GO PETROLEUM PTY. LIMITED
And: CALTEX OIL (AUSTRALIA) PTY. LIMITED
No. G83 of 1991
FED No. 201
Trade and Commerce

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Beaumont J.(1)

CATCHWORDS

Trade and Commerce - Petroleum Retail Marketing Franchise Act 1980, s.11 - whether consent to proposed assignment unreasonably withheld.

HEARING

SYDNEY

#DATE 26:4:1991

Counsel and Solicitors Mr G.A. Moore instructed by
for Applicant: Pettiford and Bottrill

Counsel and Solicitors Mr G. Lindsay instructed by
for Respondent: Moore and Bevins

ORDER

1. Application dismissed.

2. Order that the applicant pay the respondent's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

Gas'n Go Petroleum Pty. Limited, the applicant, seeks a declaration that Caltex Oil (Australia) Pty. Limited ("Caltex"), the respondent, for the purposes of s.11(3) of the Petroleum Retail Marketing Franchise Act 1980 ("the Act"), unreasonably withheld its consent to an assignment by the applicant of its interest under a franchise agreement. Other relief was originally sought by the applicant, but is no longer pressed.

1. It is common ground that Caltex has withheld its consent to the assignment of the applicant's interest in a franchise agreement to which the Act applies. The only matter for determination is whether the consent was unreasonably withheld. In order to understand the respective contentions of the parties, reference should be made to the relevant legislative scheme.
   The relevant legislative scheme

2. The general object of the Act was described by Mason C.J., Gaudron and McHugh JJ. in Caltex Oil (Australia) Pty. Ltd. v. Best (1990) 97 ALR 217 (at 222) as follows:
   

"The critical question then is whether the Act, on its true construction, manifests a purpose or policy which is at odds with the right which cl 17.4 purports to confer on Caltex. As Toohey J has noted, Fox J stated that 'the broad intention of the principal provisions of (the) Act is to give greater security of tenure to companies and individuals marketing motor fuel by retail': J and M O'Brien Enterprises Pty Ltd v Shell Co of Australia Ltd (1982) 70 FLR 33 at 34; 45 ALR 81 at 82. The Act seeks to achieve this object chiefly by regulating the duration of a specified category of franchise agreements, the renewal and termination of such agreements and the assignment of rights and interests under such agreements."

1. As was then pointed out (at p 222) the "regime of regulation" for which the Act provides (by s.8A) is expressed to relate to a "franchise agreement" containing provisions (see s.3(1)) which were summarised (at p 222) as follows:
   

"(a) provisions under or by virtue of which the franchisor corporation authorises, permits or requires the franchisee to use, in connection with the retail sale of motor fuel by the franchisee at the premises to which the agreement relates, a mark identifying, commonly associated with, or controlled by, the franchisor or a related corporation;

(b) provisions under or by virtue of which the franchisor corporation grants a right to, or otherwise authorises or permits the franchisee to, possess, occupy or use the premises to which the agreement relates in connection with the retail sale of motor fuel by the franchisee at those premises;

(c) provisions under or by virtue of which:

(i) the franchisor corporation is accustomed, entitled or required to supply motor fuel to the franchisee for retail sale by that person at the premises to which the agreement relates; or

(ii) the franchisee agrees with the franchisor corporation to acquire motor fuel from another person (whether a party to the agreement or not) for retail sale by the franchisee at the premises to which the agreement relates."

1. As has been said, it is common ground that the subject agreement between Caltex, as franchisor, and the applicant, as franchisee, fell within this description.

2. By s.7(1) of the Act, it is provided that the Act applies notwithstanding any agreement to the contrary. By s.9(1), it is provided that a corporation shall not enter, as franchisor, into a franchise agreement that contains a provision imposing an obligation on the franchisee that is likely to be impossible, or unreasonably onerous, to perform. By s.9A, provision is made with the object of ensuring that payments to be made by a franchisee are not to be increased unreasonably. By s.10(2), it is provided that the franchisor shall supply to the franchisee at the marketing premises such quantity of motor fuel as is from time to time reasonably required by the franchisee for retail sale at the premises.

3. As has been noted, the present proceedings are concerned with the meaning and application of s.11 of the Act. The relevant provisions of s.11 are as follows:
   

"(1)...

(1A) In this section, 'person with prescribed experience', in relation to a particular time, means a person who, for a period amounting, or for periods amounting in the aggregate, to one year or more during the period of 6 years preceding that time, was a franchisee in relation to a franchise agreement or franchise agreements, where the agreement, or each of the agreements, as the case may be, was not terminated by reason of a ground referred to in any of paragraphs 16(2)(a) to (j) (inclusive) or by reason of any other breach of the agreement by the person.

(2)....

(3) Where a provision of a franchise 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 franchise 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 franchise 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, (in this sub-section and sub-section 5A) referred to as the proposed assignment), he shall serve on the franchisor a notice in writing setting out particulars of the proposed assignment and offering to do whichever of the following acts is required by the franchisor to be done, namely -

(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.

(5A) Within 30 days after the service on a franchisor of a notice under sub-section (5), the franchisor shall serve on the franchisee a notice in writing -

(a) granting or withholding consent to the proposed assignment;

(b) rejecting the offers made in the first-mentioned notice;

(c) accepting the offer to terminate the franchise agreement; or

(d) nominating a person to whom the franchisee may assign his interest in the agreement,

and if, at the expiration of that period of 30 days, the franchisor has not served such a notice, the franchisor shall be taken to grant consent to the proposed assignment."

1. It is common ground that, in the present case, the proposed assignee is a person with prescribed experience.
   The course of dealing between the parties

2. There is no real dispute about the course of dealing between the parties which was as follows.
   (1) On 29 December 1989, Caltex entered into a written dealer agreement ("the dealer agreement") with the applicant. The dealer agreement contained provisions which dealt with "Lease of premises" (known as the Caltex service station, Princes Highway, Bulli Heights near Wollongong, N.S.W.), "Motor Fuels Franchise", "Petroleum products sales", "Loan of equipment" and some general provisions, including clause 52 which provided (cl.52.2) that the applicant will not assign its interest under the dealer agreement without the consent of Caltex. The period of the dealer agreement was three years from 6 October 1989 at an annual rental of $48,000 for the first year, $60,000 for the second year and $72,000 for the third year. At the same time, the parties also entered into a franchise agreement (described as a "Quick Bite Agreement") in respect of a restaurant adjoining the service station premises.
   (2) On 29 January 1991, the applicant, as vendor, entered into a written contract with Sam Tanous (sc. Tannous) as purchaser, for the sale of the businesses the subject of the two franchise agreements, for a price of $150,000. The sale contract was expressed to be conditional upon the consent of Caltex (cl.2.1). The contract noted that the current annual rent was $60,000.
   (3) By letter dated 1 February 1991, the applicant's solicitors gave Caltex notice, pursuant to s.11(5) of the Act, of the proposed assignment to Mr Tannous. Particulars of the experience of Mr Tannous were given. It was said that he had the prescribed experience. The notice stated, and it is not disputed, that Mr Tannous had been a franchisee of another oil company of premises at 429 Princes Highway, Woonona (near Wollongong); and that he was the proprietor of a "freehold service station" operated at 436 Princes Highway, Woonona. (On 18 December 1990, the applicant had prematurely purported to give a notice to Caltex under s.11(5), but it seems that nothing turns on this.)
   (4) Caltex responded by letter dated 6 February 1991, stating that its decision would be made "once all the financial and other information (including full particulars of the proposed assignee's previous experience as franchisee) (had) been received..."
   (5) On 11 February 1991, David Lindsay Hinchliffe and Michael Mulligan, Territory Supervisors employed by Caltex, met with Mr Tannous. (Mr Mulligan had previously met Mr Tannous to discuss, briefly, the applicant's notice dated 18 December 1990.) Details of the capital required to acquire and operate the business were discussed, Mr Tannous indicating that more than $200,000 would be required. Mr Tannous said that he proposed to borrow $210,000 from a bank for this purpose. Mr Mulligan questioned this, but Mr Tannous said that he would obtain a letter from the bank confirming the proposed advance. Mr Tannous was also asked how he proposed to manage the service station and restaurant at Bulli Heights. Mr Tannous said that, although he was a mechanic, he had also trained as an accountant. Mr Hinchliffe explained that the Caltex pricing system was different from that of Ampol, the oil company that had earlier dealt with Mr Tannous. Mr Hinchliffe said that Caltex monitored the meters on a continuous basis every 14 days, whereas Ampol only checked the meters for the period of the price support. At the conclusion of the discussion, Mr Mulligan asked for, and Mr Tannous agreed to provide, a cash flow projection, the letter from the bank and other relevant financial information.
   (6) On 20 February 1991, Mr Tannous provided Mr Hinchliffe with the following documents: (1) "cash flow projections" from March 1991 to February 1992 for the Caltex service station; (2) "income and expenditure report" in respect of "Tannous Enterprises" for the year ended 30 June 1989 and 1990. Mr Hinchliffe examined the figures in these documents and indicated to Mr Tannous that, in his opinion, the projected margins on fuel sales were too high to achieve the volume expected and that it followed that food and shop sales would be less than anticipated. Mr Hinchliffe also questioned the basis for estimating significant increases in shop sales. Mr Tannous said that he wished to refer these questions to his accountant who, he said, had prepared the documents. Mr Hinchliffe then queried the basis upon which Mr Tannous had estimated the bank loan would be repaid. Mr Tannous acknowledged his point. Mr Hinchliffe then questioned the estimates for certain outgoings. Mr Tannous suggested that Mr Hinchliffe discuss this with his accountant. Mr Hinchliffe repeated the request for the bank letter.
   (7) On 20 February 1991, the applicant's solicitors wrote to Caltex with reference to its letter dated 6 February, contending that Caltex had "adequate information before (it) for (it) to commence to give consideration (to) the (s.) 11(5) notice..."
   (8) On 21 February, Mr Hinchliffe discussed the proposed assignment with Colin Leslie Manning, an Area Manager, Reseller Sales, employed by Caltex. Mr Manning then decided to reject the application.
   (9) Later on that day (21 February) Mr Hinchliffe spoke to Mr B. Jones, who acted as accountant for Mr Tannous. Mr Hinchliffe criticised the cash flow projections provided. Mr Jones acknowledged that the projections did contain some errors. Mr Hinchliffe said that consent to the proposed assignment would be refused.
   (10) By facsimile transmission dated 21 February, the applicant's solicitors informed Caltex that Mr Tannous had advised them that Caltex's representative "reflected that Mr Tannous was not a 'proper person' to operate the service station at Bulli and hence was an unacceptable assigneee....Time is of the essence of this matter as both (the applicant) and Mr Tannous would like to effect an assignment...immediately upon expiry of the 30 day period...in (s.) 11(5A)..."
   (11) On 22 February, Mr Hinchliffe informed Mr Tannous that the application for consent to the proposed assignment was refused. He mentioned that the cash flow projections were unsatisfactory, that Caltex had not had the letter from the bank and that, in his opinion, Mr Tannous did not have the financial capacity or the experience to run the site.
   (12) On the same day (22 February), Caltex wrote to the applicant's solicitors informing them that it had "reviewed the information supplied to us by Mr Tannous and on behalf of your clients" and advised that Mr Tannous "does not meet our usual requirements for a Franchisee therefore Caltex withholds its consent to the proposed assignment..."
   (13) The applicant's solicitors responded by facsimile transmission dated 22 February seeking further details of the reasons for the refusal of consent.
   (14) By letter dated 26 February, Caltex provided the applicant's solicitors with the following reasons:
   

"Our reasons briefly include the following:

(a) Mr Tannous is the Owner/Operator of an unbranded service station nearby to the Caltex Bulli Heights Service Station. We are unable to see how it would be possible for Mr Tannous to devote sufficient of his time to operate the site to the requisite standards of customer service which form the cornerstone of our new Direction Franchise. In this regard, your attention is drawn to the provisions of the Operations Manual and of the Dealer Agreement, including Clause 20

(xviii).

(b) We fail to see how Mr Tannous could avoid a conflict of interest between operating his present site and our site, should Mr Tannous take over operation of the Caltex Bulli Heights site.

(c) Mr Tannous intends to borrow 100% of the capital necessary to operate the business. With this level of gearing, the risk of Mr Tannous failing in the proposed business venture must be considered high.

(d) Mr Tannous' cash flow analysis of the business indicates to us a number of serious flaws in his projections for the business:-

(i) We cannot accept that Mr Tannous will be able to sustain the very high level of borrowings of the business based on the projected profit and loss statement;

(ii) There are a number of matters of concern to us in Mr Tannous' assessment of the business and his projected earnings compared to expenses;

(iii) Mr Tannous' figures show a projected loss until June

1991. There is no likelihood in our opinion that these losses will cease after June; In addition to the above matters we must also take into consideration the potential damage to Caltex, our goodwill and reputation caused by the failure of any of our franchisee's businesses.

Naturally any such failure has a detrimental impact on us as well as all our other franchisees.

It is our opinion based on the information supplied to us that Mr Tannous' proposed venture has a high risk of failure."

(15) By letter dated 1 March 1991, the applicant's solicitors asked Caltex to re-consider its decision.

(16) By letter dated 4 March, Caltex maintained its refusal, saying:

"We have made our decision with reference to a number of matters including those outlined in our letter of 26 February 1991.

In reaching our decision we relied on the information supplied to us by Mr Tannous and your client. Certainly Mr Tannous has had experience operating a service station, but he has not previously operated a Highway Restaurant or Fast Food operation, as far as we are aware. We believe it is reasonable for us taking into consideration all the facts of this matter to withhold our consent."

1. It is common ground that Mr Tannous had no previous experience in the areas mentioned.
   The reasoning processes of Mr Hinchliffe and Mr Manning

2. There is a serious contest between the parties in this area and a dispute as to what the real processes of reasoning of Caltex's officers were. Moreover, the applicant contends that, even if the reasoning expressed in the Caltex's letters dated 26 February and 4 March were to be accepted at face value, the grounds there advanced were not adequate for present purposes. Although neither Mr Tannous nor Mr Jones was called, counsel for the applicant, in cross-examination and in submissions, strongly challenged the approach adopted by Mr Hinchliffe and Mr Manning in several respects.

3. Particular emphasis was placed by counsel for the applicant upon a diary note made by Mr Hinchliffe of his visit to Mr Tannous on 11 February as follows:
   

"Site well presented well stocked. Appears to know what its all about. Mentioned the Caltex price system against Ampol, i.e. we do meters on a continuous basis as the only reason I would see why he would want the site would be foreign fuel possibilities."

1. In cross-examination, Mr Hinchliffe explained that the reference to "foreign" fuel indicated fuel acquired by Mr Tannous from a source other than Caltex. Mr Hinchliffe was "concerned (at the possibility) that fuel that was going into Tannous' site at Woonona could go into the site at Bulli..." which was about six kilometres distant. He explained that Mr Tannous might acquire fuel at Woonona in the course of his operation as the independent dealer (and thus at a favourable price) and then move that product to Bulli. That is to say, Mr Hinchliffe believed that Mr Tannous might act in breach of the franchise agreement, which obliged the franchisee to seek the consent of Caltex to acquire fuel from an outside source. Mr Hinchliffe acknowledged that he did not mention his concern to Mr Tannous. At about the time of the interview with Mr Tannous, Mr Hinchliffe prepared the following memorandum of the course of the interview:
   

"Mr SAM TANNOUS WAS INTERVIEWED ON THE 11/2/91 IN RELATION TO THE ASSIGNMENT OF THE ABOVE SITE. HE HAS A DEALER OWNED SITE (UNBRANDED) APPROX. 5KLMS FROM THE ABOVE SITE. THIS SITE WAS WELL PRESENTED AND WELL STOCK, ALLOWING FOR ITS AGE. HE WOULD NOT DISCLOSE HIS CURRENT SUPPLIER AND INDICATED HE WAS BUYING ON A SPOT BASIS. HIS KNOWLEDGE OF THE PETROLEUM INDUSTRY WAS ABOVE AVERAGE AND IT WAS EXPLAINED THAT CALTEX SYSTEM WAS DIFFERENT IN SO FAR AS WE DID FORTNIGHTLY AUDITS ON METER READINGS AND DIPS. HE WAS ASKED HIS SOURCE OF FINANCE AND ADVISED THAT HE WOULD BE BORROWING THE TOTAL AMOUNT I.E. $210000 APPROX. IT WAS REQUESTED THAT HE SUPPLY PROJECTED CASH FLOW AND PROFIT AND LOSS DETAILS. THIS HE AGREED TO DO AND SUPPLY TO ME WHEN AVAILABLE. IT IS RECOMMENDED THAT THE ASSIGNMENT BE REJECTED DUE TO 1) CONFLICT OF INTEREST 2) LACK OF CAPITAL TO OPERATE"

1. In my opinion, this memorandum accurately reflects Mr Hinchliffe's views at the time, notwithstanding that he had not yet received the financial information he had requested from Mr Tannous.

2. In his cross-examination, Mr Manning said of this memorandum:
   

"So you would've seen it but you don't necessarily recall having seen it?---Well, I would've seen it but I don't recall having gone through it, no.

The phrase 'conflict of interest', does that mean to you effectively the concern that someone might be using foreign fuel?---Not necessarily, no.

Could you explain to the court what you understand by the phrase conflict of interest?---Sorry - in this particular instance, you're referring to in this context? Yes?---In this particular case I look at a conflict of interest being when you're trying to operate two businesses that are separately apart and when they are different types of businesses and have different pressures and different concerns, etcetera upon the individual. If something is going wrong at one particular site he may not be able to go to that and fix it because he's got a problem at the other site. Another problem with conflict is that your pricing policy in one site can affect the pricing policy in the other site.

Is that a concern where someone's got two sites and one of them perhaps is a discount site and the other one is, say, here a highway type site?---That is one of the many ways it can happen. That is one way it can happen. But I take it the expression conflict of interest can embrace some concern about foreign fuel being sold?---I'm not overly concerned about foreign fuel. In the majority of cases our systems can cope with that. It's not a major consideration to me.

It can cope in the sense that you have auditing and other procedures to catch people out if they do that?---That's right."

1. Later, Mr Manning was cross-examined as follows:
   

"So what tipped the balance for you was wholly and solely Tannous' cash flow projections, is that the evidence?---No, I had regard for a few other things as well but they were not the major items and they're the ones that have been listed here.

So the fact that he had another service station would not of itself - - -?---On its own it would not have prevented me from approving the deal, no.

And in fact, as you've said, some 10 per cent in a rought guestimate of operators are in that category?---That's right. What's the difference between what you've said in A and B?--- The first one simply relates to time, the second one is more the conflict of interest which involves things such as pricing and other things of that nature. They are two different types of businesses.

One being highway, one being discount?---All sorts of things, one being more of a local site with workshop and panel beating and all those sorts of things. The other one being a restaurant."

1. In my opinion, this evidence accurately indicates Mr Manning's views on this matter at the time of his decision to withhold consent.

2. The applicant also criticised the way in which Caltex treated the cash flow projections provided by Mr Tannous. Counsel for the applicant put this to Mr Manning, who gave the following evidence in cross-examination:
   

"You had nothing to believe that at the time you made this decision on the 21st that Mr Tannous was other than the successful businessman?---I had a recommendation from Ampol or from an Ampol representative that the fellow wouldn't meet franchise standards, but that was only word of mouth and I didn't pay a great deal of heed to it. I see. Now, having regard to Mr Tannous experience in the industry, if you were disatisfied with any cash flow projections why didn't you give him further opportunity to clarify whatever problems you may have had?---When I went through the cash flow preparations, it came out that he was losing $5000 in the first month and so on through the projections month by month until he came to the stage when there was some calculations done to change the face of it and I think it was round about April in the calculations when all of a sudden the shop sales had gone up from something like $4000 per month to $17000 per month, and the figures are in here, and I mean of course it was just totally unreasonable and when you looked at it that's the way the bottom line was balanced out. So my belief was that if I went back and asked for anything all I would end up getting was a more professional - - -

Cover up, is that what you - - -?---Cover up, is what I'm saying, yes."

1. In my opinion, this accurately reflected Mr Manning's views at the time.

2. In my opinion, the grounds stated in the letters dated 26 February and 4 March represent the actual reasons why Caltex refused its consent. There remains the question, to be dealt with later, whether the applicant has shown that, for present purposes, those reasons were inadequate.
   The significance of the failure by the applicant to call Mr Tannous or Mr Jones

3. No explanation for the failure of the applicant to call the proposed assignee or his accountant was offered. In the present case, I think that it should be inferred from the failure to give this evidence that the evidence would not help the applicant's case (see Jones v. Dunkel (1959) 101 CLR 298 at p 321).
   The applicant's contentions

4. The applicant advances two arguments, in the alternative, to show that, for the purposes of both s.11(3) and cl.52.2, Caltex unreasonably withheld its consent. The applicant accepts that it carries the onus of establishing its case. It is convenient to deal with the arguments separately.
   1. The applicant's first argument based on its construction of s.11(3) and cl.52.2

5. The applicant says, in the first place, that, on their true interpretation, s.11(3) and cl.52.2 allow consent to be withheld on two grounds only: (1) the character and personality of the proposed assignee; and (2) matters affecting the use and occupation of the leased premises which may result from the proposed assignment.

6. I have difficulty in accepting this construction of s.11(3) and cl.52.2. It may be accepted that, in the context of landlord and tenant, the grounds may be so limited (see Secured Income Real Estate (Australia) Limited v. St. Martins Investments Proprietary Limited (1979) 144 CLR 596 per Mason J. at pp 609-10; Daventry Holdings Pty. Ltd. v. Bacalakis Hotels Pty. Ltd. (1986) 1 Qd R 406 at p 410). But the present relationship is not merely that of landlord and tenant, although a lease is involved as part of the transaction. The subject matter here is a franchising transaction which, as the Act itself recognises in its definition of a "franchise agrement" in s.3(1), contemplates the supply by the franchisor of its product to the franchisee to be marketed by retail at premises identified with the franchisor. A franchise thus involves a continuing commercial relationship (see Shannon, "Franchising in Australia" (1982) at p 6; Adams and Prichard Jones, "Franchising", (1987) 2nd ed at p 9).

7. In Esso Australia Ltd. v. R.T. and M.I. Abela Pty. Ltd. (1989) 91 ALR 476 (at p 485) the Full Federal Court referred to the provisions of the Act dealing with the use of a mark in connection with the retail sale of fuel and pointed out that -
   

"...the Act is concerned, in terms, not with leases, but with franchise agreements...some care is called for against too readily carrying over into a consideration of the operation of the statute, doctrines and concepts flowing from the law of landlord and tenant."

1. The competing interests involved in the present context were explained in "Franchising Review", Consultative Paper, prepared by the Business Affairs Division of the Commonwealth Attorney-General's Department for and on behalf of the Ministerial Council for Companies and Securities (1986) at p 64 as follows:
   

"169. Under NCSC Release 118 the written franchise agreement is required to indicate any conditions governing the transfer of the franchise and by para.8(f) to include a covenant that the franchisor will not unreasonably withhold his consent to the franchisee's transfer of his right or interest in the franchise. This covenant has been translated into a legislative prohibition of unreasonably withholding consent; it represents a reasonable compromise between enabling a franchisee to recover his investment by sale to a new franchisee, and the policy of respecting the property right of the franchisor."

1. The need to consider the present question in the context of an ongoing commercial relationship is supported by two decisions of the Supreme Court of New South Wales (see Caltex Oil (Aust.) Pty. Ltd. v. Allan, Young J., unreported, 10 June 1987; L.E. Stewart Investments Pty. Ltd. v. Mercedes-Benz (NSW) Pty. Ltd., Brownie J., unreported, 9 March 1990; see also Viscount Tredegar v. Harwood (1929) AC 72 at p 81).

2. It follows, in my opinion, that the question whether consent was unreasonably withheld falls to be judged by considerations which may be wider than those to which reference could be made in a mere landlord and tenant relationship. Specifically, in the present case, in addition to the two traditional "landlord and tenant" factors stated above, Caltex was, in my opinion, entitled to have regard to the perceived capacity, or lack of capacity, of Mr Tannous to conduct the Bulli Heights operations in a reasonably satisfactory way.
   2. The applicant's second argument: That even if Caltex could legitimately have regard to the matters specified in its letters dated 26 February and 4 March 1991, or any of them, those considerations did not justify the withholding of consent.

3. Although Caltex relies upon the impact of all of these matters when taken together, it is convenient to look now at each item separately.
   (1) Letter dated 26 February
   Ground (a)

4. In my opinion, it was reasonable for Caltex to take this consideration into account. It was, on its face, a legitimate matter of concern in assessing the future conduct of the operations at Bulli Heights if Mr Tannous were in control. As has been noted, Mr Tannous was not called.
   Ground (b)

5. This is similar to ground (a) and similar comments may be made.
   Ground (c)

6. In my view, it was proper for Caltex to take into account the potential financial risk involved in Mr Tannous' borrowing the whole of his capital. Again, Mr Tannous was not called.
   Ground (d)

7. In addition to the evidence of its executives criticising Mr Tannous' estimates, Caltex called evidence to similar effect from David Fisher, an accountant in private practice. His opinions were not seriously challenged. In my opinion, Caltex could legitimately be concerned about these matters.
   (2) Letter dated 4 March

8. In my view, it was reasonable for Caltex to take into account Mr Tannous' lack of experience in conducting a restaurant business when that activity was carried on, as here, in conjunction with the service station operations.
   3. Some general considerations

9. Counsel for the applicant criticised both Mr Hinchliffe and Mr Manning for making up their minds too quickly. It is true that Mr Hinchliffe was prepared to recommend against the proposal after his first meeting on 11 February. It is also true that when Mr Hinchliffe and Mr Manning met on 21 February to discuss the matter, Mr Manning came to his decision to refuse consent after about half an hour's consideration. On the other hand, it must be borne in mind that the applicant's solicitors had pressed for an urgent consideration of the proposal. They told Caltex that time was of the essence. It is difficult for the applicant now to complain if Caltex dealt with the matter expeditiously. Further, whatever may be said of Mr Hinchliffe's early verdict, the actual decision-maker for Caltex was Mr Manning. Mr Manning impressed me as an experienced and capable executive. In my opinion, it was within his capacity to make a rational commercial judgment on the question he had to decide on the material before him in the time he took to do so. I am not persuaded that his commercial judgment as to the likely course of future events in this specific instance, especially in the absence of evidence from Mr Tannous and his accountant, was unreasonable.
   Conclusion

10. In the result, the applicant has not, in my opinion, demonstrated that the views expressed by the officers of Caltex in their letters dated 26 February 1991 and 4 March were not reasonably open to them. It follows that this application must be dismissed, with costs.