Heron Woods Pty Ltd v Ampol Petroleum (Vic) Pty Ltd
[2000] VSC 81
•15 March 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL AND EQUITY DIVISION | Not Restricted |
No. 5384 of 1996
| HERON WOODS PTY LTD (ACN 050 279 859) | Plaintiff |
| v | |
| AMPOL PETROLEUM (VIC) PTY LTD (ACN 004 206 482) | Defendant |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28, 29 February, 1, 2 March 2000 | |
DATE OF JUDGMENT: | 15 March 2000 | |
CASE MAY BE CITED AS: | Heron Woods Pty Ltd v Ampol Petroleum (Vic) Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 81 | |
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Contract – licence – implied term – term that licensor would not deprive licensee of benefits under licence – whether licensor's consent to sub-licence a breach of implied term – loss and damage.
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APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr W.F. Gillies | Leo Dimos & Associates |
| For the Defendant | Mr P.D. Corbett | Hall & Wilcox |
HIS HONOUR:
This proceeding concerns the rights of occupancy to the Ampol Service Station, including its attached mechanical workshop, at the corner of Warrigal and Waverley Roads, Chadstone.
The plaintiff, Heron Woods Pty Ltd, is a company controlled by one Dimitrios Stefanou. In 1991 the freehold of the service station was held by the defendant, Ampol Petroleum (Vic) Pty Ltd. The operators of the service station, Barry Beacham and Cathy Beacham, did so under a franchise agreement dated 7 June 1990, under which Ampol gave to the franchisees a licence to use the premises for the purpose of conducting the service station business. The licence fee was $5,229 per month subject to adjustment. The term of the franchise was four years from 1 April 1990 to 31 March 1994 with a right of renewal in the franchisees for a further four years, that is, to March 1998.
It seems that the Beachams did not themselves conduct the motor vehicle repair shop business which was carried on on part of the site. This business was conducted by Fathom Quest Pty Ltd, a company controlled by John Faulkner and Margaret Faulkner. Fathom Quest had, for this purpose, been granted a sub-licence dated 12 December 1989 by the Beachams. The sub-licence fee was $2,500 per month, subject to annual review, and its term was from 9 December 1989 to 31 August 1991. The sub-licence contained a term for renewal:
"7.2IF at the expiration of the Franchise Licence Agreement the Head Licensor grants and the Sub Licensor accepts a new Franchise Licence Agreement for a term of 4 years with two options for two further terms each of 3 years the Sub Licensor, subject to the consent of the Head Licensor, shall grant to the Sub Licensee a new Sub-Licence on the following conditions:
(a)the term of the Sub-Licence and the rights as to further terms shall be identical with those contained in the new Franchise Licence Agreement;
(b)the fee payable by the Sub Licensee to the Sub Licensor shall be determined by agreement and failing agreement the terms contained in Clause 3 hereof;
(c)otherwise on the same terms and conditions as contained herein."
By agreement of sale dated 9 April 1991, Bembridge Promotions Pty Ltd (“Bembridge”) sold the business to Mr Stefanou and or nominees for $100,000 plus plant and equipment at valuation. The business is described in this document simply as "Ampol Chadstone". It will be noted that the vendor was not the Beachams, although it may be supposed that the vendor company was controlled by them since they signed the contract of sale as vendors. There is mention in the section 52 statement of the fact that the business was conducted by the "Beacham Family Trust", and it may be that the vendor company was the trustee of that trust. Bound into the contract of sale was a copy of the 1989 sub-licence not executed by Ampol and a copy of the 1990 franchise agreement.
On 6 May 1991 the Beachams wrote to Ampol informing it of their wish to assign the franchise agreement to Heron Woods. The letter from Ampol acknowledging receipt of this letter is dated 30 May 1991. Ampol signified its consent by letter dated 17 June 1991. Settlement of the contract was arranged for 24 June 1991 and the Deed of Assignment of the franchise agreement bears that date.
In the last weeks of June Mr Stefanou began to work with Mr Beacham in the service station business in anticipation of settlement. At this time he first met Mr Faulkner to whom he was introduced as the new owner. Mr Stefanou told me that he was told by Mr Faulkner nothing of any agreement between him and the Beachams entitling him to stay in the workshop beyond the term of the 1989 sub-licence, that is, beyond August 1991.
Laurence Bernard Giles, who was in 1991 Ampol's retail business manager for the South Eastern Region of Melbourne, told me that he met Mr Stefanou in May or June of 1991, as the prospective franchisee of the Chadstone Service Station. At some time, possibly before settlement of the purchase, Mr Faulkner pressed Mr Giles to have Ampol sign a further sub-licence agreement which had been made between him and the Beachams or perhaps between their companies. No copy of this first 1991 sub-licence was produced. Mr Giles, who had just taken over the management of the area, told Mr Faulkner that he knew nothing of the document. Some time later a second copy of this new sub-licence agreement was sent to Ampol, for its execution as a consenting party. This document, when received by Ampol, was undated, but it had been executed by Bembridge as sub-licensor and by Fathom Quest as sub-licensee. The date of its receipt by Ampol is obscure. The nearest contemporaneous record is the inter-office memo from Mr Giles to Schaan O’Hara, Ampol’s Corporate Solicitor, dated 6 September 1991, which shows that this sub-licence was, in late June 1991, “presented” to Ampol for signature. I shall refer to this document as "the 1991 sub-licence". Mr Giles' recollection was that the document was received by him some time after settlement of the contract of sale. It was certainly received prior to 6 September 1991. I am content to accept this evidence.
The copy of the 1991 sub-licence agreement in evidence is dated 30 May 1991. I find that this date was inserted by a person unknown after it came into the possession of Ampol, but before 6 September 1991, the date on which it was forwarded by Mr Giles to Ms O'Hara in Sydney.
Settlement of the contract of sale and hand over of the premises took place at the service station on 24 June 1991. Present were Mr Stefanou, his solicitor John Mingos, Mr Beacham and two representatives of Ampol, Mr Giles and Graham Eric Thomson. Mr Stefanou said that his wife, his daughter and Mrs Beacham were also present. Of these persons, evidence was given only by Mr Stefanou, Mr Giles and Mr G. Thomson. Mr Stefanou said that at this time Mr Mingos specifically asked if there were any other agreements in existence and that Mr Beacham and the Ampol representatives assured him that there were none. Mr Thomson said he had no recollection of this exchange.
Mr Stefanou duly entered into occupation of the service station and Mr Faulkner continued to operate the workshop. Following the expiry of the term of the 1989 sub-licence on 31 August 1991 Mr Stefanou asked Mr Faulkner to leave. This he refused to do.
A meeting took place at the service station soon after this to discuss this dispute. Present were Robert Douglas McArthur and Mr Giles on behalf of Ampol, Mr Faulkner, Mr Stefanou and Nicola Card of VACC. At this meeting Mr Faulkner asserted a right to occupancy based on the 1991 sub-licence which was produced at that time. The debate then moved to the question whether, under the terms of the 1989 sub-licence, Mr Faulkner had the right to a renewal of the sub-licence term. No copy of the 1989 sub-licence was available at the meeting and it terminated on the basis that this document would be produced.
The position adopted by Ampol at this stage was that it would not give its consent to the 1991 sub-licence against the wishes of its franchisee unless it were satisfied that Mr Faulkner was entitled to the sub-licence under the terms of the 1989 sub-licence. The 1989 sub-licence was produced to Ampol in January 1992 and forwarded on 15 January 1992 to Ms O'Hara for her consideration. Mr Giles said that she advised him simply to "go ahead" and he, therefore, forwarded the 1991 sub-licence to Mr Thomson for execution. This was done shortly afterwards on a date which was said to be "a couple of weeks" before 25 March 1992. The copy of the 1991 sub-licence in evidence before me is therefore dated 30 May 1991 and executed by Ampol as consenting party.
I mention, because it was the subject of some debate before me, that Ms O'Hara's reasons for giving this advice are not readily apparent. First, cl. 7.2, the renewal clause in the 1989 sub-licence, which is set out in paragraph [3] above, entitled Fathom Quest to a renewal in the event that Ampol granted to the franchisee a new franchise agreement for four years with two three year options. This did not occur. The term granted on 7 June 1990 was for four years with one option of four years. Second, the grantor of the 1991 sub-licence was not Ampol's licensee, the Beachams, but their company, Bembridge. Nevertheless, Ampol executed the 1991 sub-licence as a consenting party.
And so Fathom Quest and Mr Faulkner remained in possession of the workshop until after 31 August 1991 despite Mr Stefanou's protests and his efforts to remove them. These efforts, it seems, were not very strenuous, at least after January 1992. Up to that date, Fathom Quest continued to pay and Heron Woods continued to accept, the licence fee at the old rate of $2,500 per month although there was some correspondence by Mr Mingos seeking to have Fathom Quest leave. On 31 January 1992 Mr Mingos proposed that a new sub-licence be granted at a fee of $3,260 per month plus electricity charges. Fathom Quest responded saying that it would agree to a fee review but that the licence fee, until reviewed, would remain at the old rate of $2,500 per month. The same proposal, when repeated by the second solicitors for Heron Woods on 10 July 1992, met with the same response on 27 August 1992. The licence fee at the old rate continued to be paid and accepted. On 16 March 1994 Ampol entered into a new franchise agreement with Heron Woods for a further term expiring on 31 March 1997 with one option for a further three years. The 1991 sub-licence expired on 31 April 1994 without any renewal. And still Fathom Quest and Mr Faulkner remained in occupancy of the workshop paying the fee at the old rate of $2,500 per month.
At about this time, Heron Woods consulted its third and present solicitor. On 30 May 1994 it commenced proceeding no. 6201 of 1994 against Fathom Quest seeking possession and against the Beachams and Bembridge. This litigation had a chequered and unsatisfactory career. The claims against the Beachams and Bembridge were struck out on 16 August 1996. When the proceeding against Fathom Quest came on for trial on 18 June 1997 it was settled on the basis that Fathom Quest would vacate the workshop by 30 September 1997 and that each party would bear its own costs. The workshop was vacated on 20 September 1997.
While that proceeding was yet on foot, Heron Woods on 6 May 1996 commenced this proceeding against Ampol. I say nothing about the claims set out in this proceeding as issued. Some two years later, on 4 November 1998, an entirely new statement of claim was filed and it is this claim which was the subject of the trial before me. In it Heron Woods seeks damages for Ampol's execution of the 1991 sub-licence and for its failure to remove Fathom Quest from the workshop. This failure was not relied upon before me and I say nothing about it. It was put that the execution by Ampol of the 1991 sub-licence was a breach of an express term of the 1990 franchise agreement under which the franchisee was to have the sole right to conduct the service station business on the premises. It was further put that this amounted to a breach of an implied term of the 1990 franchise agreement or of the deed of assignment to Heron Woods, which implied term is formulated as follows:
"Ampol would not act in a manner which would deprive the franchisee (Heron Woods) of the benefits to which it became entitled under the 1990 Franchise Agreement upon the assignment of the 1990 Franchise Agreement to Heron Woods."
At the trial the debate concerned this implied term and its breach.
It was put that the suggested term should be implied in accordance with the principles laid down in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[1]. I doubt that the term satisfies the five-fold requirements of that test. It is not necessary in order to give business efficacy to the contract; it is not obvious. More importantly, the term as formulated is not capable of clear expression. I could understand that the parties could be taken as accepting that Ampol would not deprive the franchisee of the benefit of the licence, at least insofar as this was not inconsistent with a term of the franchise agreement, but this is not the term pleaded. It will be noted that, in this regard, the franchise agreement is very comprehensive and gives many rights to Ampol to intrude upon the licensee's use of the land. The difficulty here is that Ampol's act in consenting to the 1991 sub-licence does not deprive Heron Woods of any rights to occupy the workshop. It simply provided some strength to the claim that Heron Woods' right of occupancy of the workshop was subject to a right granted by its predecessor asserted by Fathom Quest. To my mind, there is no warrant for implying the term on the application of the BP principle.
[1](1977) 180 CLR 266.
Next, it was said that the term should be implied as an incident to the licence agreement[2]. It is like an implied term that, having granted to Heron Woods or its predecessor the right to occupy the service station, including the workshop, Ampol cannot take that right away. The weakness in this argument is that the term, as formulated, goes further than that. Implied terms of this kind tend to be framed narrowly; the term must be necessary for the performance of the fundamental obligations imposed by the contract.[3] For example, where the performance of a contract can be achieved only by the continuance of a state of affairs, a party is taken to have agreed not to put an end to that state of affairs.[4] What is here proposed is a term which would prevent Ampol from acting in a manner which would have the consequence of depriving Heron Woods of the benefits of the licence. If it were formulated more strictly, as a term not to derogate from the grant of the licence, it would not avail Heron Woods, for reasons which will appear.
[2]Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104 at 123,per Court of Appeal.
[3]Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607, per Mason J.
[4]Stirling v Maitland (1864) 5 B & S 840 at 852; 122 ER 1043 at 1047, per Cockburn CJ.
The difficulty with Heron Woods' case is exposed when the conduct amounting to breach is examined. In early January 1992, before Ampol executed the 1991 sub-licence, the position of Heron Woods and Fathom Quest was as follows. Fathom Quest was in occupation of the workshop after the termination of the 1989 sub-licence. It asserted a right to occupancy under an agreement with Bembridge which had been executed some time before September 1991. If that agreement was effective to confer a right of occupancy as between Heron Woods and Fathom Quest, then no act of Ampol in consenting to that sub-licence affected this. If, on the other hand, no right of occupancy was effectively granted by the 1991 sub-licence, the consent of Ampol is relevant, only if this renders the 1991 sub-licence effective.
The question then turns to the requirement, if there be one, that the franchisee obtain the consent of Ampol to a sub-licence of part of the premises and to the significance of Ampol's failure to consent to this sub-licence.
Counsel for Heron Woods placed some emphasis upon the fact that Ampol's consent was given to the sub-licence in circumstances where fraud had taken place. I told counsel at the time that I would decide this case on the pleadings. No fraud is alleged. In any event, there is no evidence at all which implicates Ampol in any fraud, if indeed there be any, in the grant of the 1991 sub-licence.
Next, it was said that the 1991 sub-licence was of no effect for various reasons, including the fact that it was granted by the wrong person and that it was granted after the execution of the contract of sale. If this be the case, the consent of Ampol did not validate it. It may be that the consent of Ampol had the consequence of making it more difficult to evict the trespasser; it did not take away any right of Heron Woods under the licence.
I was referred to the terms of the 1990 franchise agreement is support of the proposition that a sub-licence granted by the franchisee is of no effect unless and until Ampol gives its consent. Clause 52(a) prohibits the franchisee from assigning any right or obligation under the franchise agreement. The disposition in question was not an assignment. No other provision was drawn to my attention, nor could I find any, which supports the proposition for which counsel for Heron Woods contended.
I conclude, therefore, that no breach of any supposed implied term has been shown.
In case this matter should go further, I shall now briefly venture my views on the allegations of loss and damage. In its particulars dated 13 May 1998 Heron Woods alleges three heads of damage: loss of opportunity to earn income from the workshop from August 1991 until September 1997; loss in the nature of outgoings for rent and electricity paid in respect of the workshop; and legal costs incurred in attempting to eject Fathom Quest.
A feature of this trial was the failure by the plaintiff to present any evidence in its witness statements or discovery in support of its claim for loss of opportunity to earn income. The trial order directed the parties to file witness statements and further ordered that, subject to the leave of the trial judge, no party might lead evidence in chief other than that contained in the witness statements. I refused to give to Heron Woods leave to call evidence on this issue on the grounds that it was in breach of this order; no expert witness statement had been provided and no expert witness was available; no discovery in support of this claim had been given and no witness statement of fact dealt with the matter. I concluded that to permit Heron Woods to lead this evidence would be to impose an injustice on Ampol.
The claim for loss in the nature of outgoings was scarcely better. With respect to the claim for $70,006.19 for electricity paid, I was told that Heron Woods paid electricity for the whole of the service station including the workshop. Bills totalling only $23,877.32 from December 1991 to August 1994 were in evidence. Mr Stefanou expressed the opinion that a fair proportion of these bills attributable to the workshop's consumption of power would be 45 percent. I am not prepared to act upon that evidence. No basis for it was shown and the witness himself was not qualified to express any opinion as to the relative consumption of power by the two parts of the service station.
The claim for rent represented the sum of $277,980 which Heron Woods paid to Ampol between September 1991 and September 1997 less $180,000 paid by Fathom Quest. Mr Stefanou told me that when he bought the business the licence fee paid for the workshop equalled the licence fee he paid to Ampol. This is not correct. He then concluded that he should therefore have received from Mr Faulkner or his company the fee that he paid to Ampol, including periodic adjustments. I am not persuaded that there is any good reason for such a conclusion. This claim, likewise, must fail.
Next, it was said that Heron Woods had incurred $50,150 in legal fees to the three firms of solicitors who attempted to obtain possession of the premises from Fathom Quest. I accept that sums of this order were paid to the solicitors in question. What I am unable to accept is that these legal fees were incurred as a consequence of any wrongful act by Ampol. Much of the legal fees, it would seem, were expended in litigious procedural steps which did not seem to advance the cause of Heron Woods to evict the licensee. Indeed, the litigation did not start until the 1991 licence had already expired. This loss also has not been demonstrated.
Accordingly, the plaintiff's claim must fail. There will be judgment for the defendant with costs.
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