J & M O'Brien Enterprises Pty Ltd v The Shell Company of Australia Ltd

[1983] FCA 80

Re: J. & M. O'BRIEN ENTERPRISES PTY. LTD.
And: THE SHELL COMPANY OF AUSTRALIA LIMITED
Nos. G134 of 1980 and G11 of 1981
Petroleum Retail Marketing Franchise Act 1980 - Trade and Commerce - Lanlord
and Tenant
76 FLR 1

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Petroleum Retail Marketing Franchise Act 1980 - Notice of Termination pursuant to sub-section 16(3) - Notice ineffective as statutory notice - Whether valid as notice to quit under general law.

Petroleum Retail Marketing Franchise Act 1980 Section 16

Dagger v. Shepherd (1946) 1 K.B. 215

Russell Cowan Pty. Ltd v. Bussell (1956) S.R. (N.S.W.) 300

Cowan v. Wrayford (1953) 2 A11 E.R. 1138

Mills v. Edwards (1971) 1 Q.B. 379

Phillip Morris Inc. v. Adam P. Brown Male Fashions Pty. Ltd. (1980) 33 A.L.R. 465

Trade and Commerce - Petroleum retail marketing franchise legislation (Cth) - Effect of invalid notice of termination of franchise agreement under statute - Periodical tenancy - Whether notice effective as notice to quit under general law - Petroleum Retail Marketing Franchise Act 1980 (Cth), s. 16(3).

Landlord and Tenant - Termination of tenancy - Notice to quit - Effect of notice of termination under petroleum retail marketing franchise legislation (Cth) - Periodical tenancy - Invalid under Commonwealth statute - Whether notice effective under general law - Petroleum Retail Marketing Franchise Act 1980 (Cth), s. 16(3).

HEADNOTE

Held, that an invalid notice of termination of a franchise agreement served under the Petroleum Retail Marketing Franchise Act 1980 (Cth), s. 16(3) could not operate as a valid notice to quit under the general law.

Dagger v. Shepherd (1946) 1 KB 215 at 220-221, applied.

Russell Cowan Pty Ltd v. Bussell (1956) SR (NSW) 300, distinguished.

HEARING

Sydney, 1983, April 18, 19, 28. #DATE 28:4:1983

APPLICATIONS.

Cross-applications as to the effect of an invalid notice of termination of a franchise agreement served under the Petroleum Retail Marketing Franchise Act 1980 (Cth), s. 16(3).

B. J. Tamberlin Q.C. and S. B. Austin, for the cross-applicant.

R. W. Parker Q.C. and D. J. McCredie, for the cross-respondent.

Cur. adv. vult.

Solicitors for the cross-applicant: Sly & Russell.

Solicitors for the cross-respondent: Warren Wells.

B.A.G.

ORDER

1. The cross-claims in each of matters G134 of 1980 and G11 of 1981 be dismissed.

2. The application of the cross-claimant to be released from its undertaking given to the Court on 13 August 1981 be refused.

3. The cross-claimant pay the costs of the crossrespondent of the proceedings on the cross-claims since 7 December 1982.

JUDGE1

I have before me two proceedings (G134 of 1980 and G11 of 1981) brought by J. & M. O'Brien Enterprises Pty. Ltd. (which I will call "O'Brien Enterprises") against The Shell Company of Australia Limited (which I will call "Shell") in which O'Brien Enterprises sought orders to the effect that Shell was bound under the Petroleum Retail Marketing Franchise Act 1980 to renew a lease granted by Shell to O'Brien Enterprises of certain premises at Liverpool, New South Wales for a period of three years from 1 October, 1977, or, alternatively, a declaration that it should be regarded as having done so and for a declaration that a Notice of Termination dated 23 December, 1980, served by Shell on O'Brien Enterprises and expressed to have been given pursuant to sub-section 16(3) of the said Act was of no effect. In both proceedings Shell cross-claimed seeking declarations that O'Brien Enterprises was not entitled to any renewal and that its rights to occupy the premises and carry on business there had been terminated and for an order that O'Brien Enterprises quit the premises and deliver up possession.

The proceedings were heard by Fox J. who delivered judgment on 8 December, 1982, dismissing the application in each case with costs. In relation to the cross-claims Fox J. said:

"It is unnecessary to make the first declaration sought in the cross-claim in proceedings G134 of 1980. I have not heard argument in relation to the other declaration and the order sought, and will stand over generally the further hearing of the cross-claim with liberty to either party to restore it on fourteen days' notice to the other. I make no order in respect of it at this stage. In matter G11 of 1981 the respondent is not entitled to the first declaration sought in the cross-claim, the second declaration is unnecessary, and, as in G134 of 1980, title to the other relief has not been argued before me. I therefore make no order in respect of it at this stage, but stand its further hearing over generally with liberty to either party to restore it on fourteen days' notice."

It may be convenient to set out in full the declarations and orders sought in the cross-claims. In proceedings G134 of 1980 Shell claimed:-

"1. A declaration that the Cross Respondents are not entitled to renew the agreements pursuant to Section 17 of the Petroleum Retail Marketing Franchise Act or at all.

2. That Cross Respondents are not entitled to continue in possession of the premises.

3. An order that the Cross Respondents deliver up vacant possession of the subject premises to the Cross Claimant.

4. Costs."

In proceedings G11 of 1981 the claims were:-

"1. A declaration that the Notice of Termination dated 23 December 1980 has effectively terminated the rights (if any) of the Cross Respondents to occupy and carry on business at the said premises under the said Act.

2. A declaration that the Cross Claimant is not bound to renew the Agreements referred to in paragraph 3 of this Cross Claim.

3. A declaration that the Cross Respondents are not entitled to continue in occupation of the said premises under the provisions of the said Act.

4. An order that the Cross Respondents quit the said premises and deliver up possession to the Cross Claimant.

5. Costs."

The references in the cross-claims to more than one cross-respondent is explicable by the fact that Shell had joined Mr. and Mrs. O'Brien as parties to the proceedings. Fox J., however, decided that they were not parties to the lease and judgment was given in their favour.

The proceedings have been restored to the list so that the outstanding matters may be resolved. The matter has proceeded before me on the basis of the findings made by Fox J. and, except in one respect to which I will refer, on the material that was before him.

The lease under which O'Brien Enterprises occupy the premises was made on 1 October, 1977 and was for a term of three years commencing on that date. The term thus expired on 30 September, 1980. The business conducted on the premises was conducted pursuant to two further agreements, both dated 1 October, 1977, one being a dealer sales agreement and the other an equipment agreement. Each of those agreements was for practical purposes dependent upon the continuation of the lease. There was a fourth agreement known as the Commercial Trade Through Retail Outlet Agreement ("C.T.T.R.O.") to which it will be necessary to refer later.

Two provisions of the lease should be mentioned. Clause 23 required Shell, at least three months before 30 September, 1980, (referred to in the lease as "the Ending Date") to give notice to the lessee

"(a) that Shell does not intend to enter into any further lease of the Premises with the Lessee after the Ending Date; or

(b) that Shell is willing for its part to enter into a further lease of the Premises of a like nature to this Lease (subject to negotiation of the precise terms and conditions thereof) with the Lessee after the Ending Date; or

(c) that Shell is willing for its part to enter into another agreement (subject to negotiation of the precise terms and conditions thereof) in relation to the Premises but of a different nature (which Shell shall indicate) from this Lease with the Lessee after the Ending Date."

The clause went on to provide for the consequences of Shell giving a notice in one or other of the permitted forms.

Clause 34 should be set out in full. It provided:-

"(1) If the Lessee with the consent of Shell continues in occupation of the Premises beyond the expiration of the Term such continued occupation shall be deemed to be a monthly tenancy at the rental reserved in Clause 3 of this Lease determinable by one month's notice in writing (which may expire on any day) given by either party to the other and otherwise upon and subject to the same provisions as are contained in this Lease.

"(2) If the Lessee continues so to occupy the Premises he shall extend the authority to be given to his Banker pursuant to his obligation under the heading "Manner of Payment of Rent" in the First Schedule so that Shell shall continue to receive such payments at the commencement of every month during which the Lessee continues to occupy the Premises."

By letter dated 23 June, 1980, Shell gave notice to O'Brien Enterprises in terms of paragraph (a) of clause 23 of the lease. The letter went on

"On this basis we would normally require that you vacate the premises by the 30th September 1980. However, having regard to our long association with you, we further advise that we will consent to your continuing in occupation of the premises until approximately 30th November 1980, at which stage we will give you the one month's notice of determination in writing as set out in Clause 34(1). This will effectively extend your occupancy under the lease to approximately the 31st December 1980.

"We take this opportunity to confirm that, provided you vacate on or before the effective date, and are not then in breach of the lease referred to above and have maintained your accounts with Shell in conformity with the agreed terms, we will credit your Goods Account with $4,500.00 representing compensation at the rate of $500.00 per annum for the nine completed years as Shell Dealer tenants."

O'Brien Enterprises continued to occupy the premises after the expiration of the term of the lease on 30 September, 1980, such occupation being on the basis provided for in clause 34 of the lease, namely as a monthly tenant at the rental reserved in clause 3 of the lease determinable by one month's notice in writing expiring at any time. The notice of determination envisaged in the letter dated 23 June, 1980, was not, in fact, given. It should here be mentioned that the Petroleum Retail Marketing Franchise Act 1980 came into operation on 19 September, 1980, the day on which it received the Royal Assent.

By letter dated 21 November, 1980, the solicitor for O'Brien Enterprises acknowledged receipt of the letter dated 23 June, 1980, addressed to his client, referred to the coming into operation of the Petroleum Retail Marketing Franchise Act 1980 and sought an acknowledgment "that the terms, conditions and length of tenure which your letter of the 23rd June 1980 grant will conform to the statutory entitlements now given to our client by that Act."

The matter not having been resolved, O'Brien Enterprises commenced proceedings G134 of 1980 on 24 December, 1980.

On 23 December, 1980, Shell executed two documents addressed to O'Brien Enterprises. The first of those documents is headed "Notice of Decision Not To Renew" and was expressed to be given pursuant to sub-section 17(8) of the Petroleum Retail Marketing Franchise Act 1980. The second is headed "Notice of Termination". It is only to the second of these that I need refer in detail. It is set out in full in the reasons for judgment of Fox J. It is, however, convenient to set out again the operative part of the document. The document reads:-

"PURSUANT to Section 16(3) of the Petroleum Retail Marketing Franchise Act 1980 (hereinafter called "the Act") THE SHELL COMPANY OF AUSTRALIA LIMITED (hereinafter called "the Franchisor") HEREBY GIVES NOTICE to the Franchisees that the Franchisor hereby terminates to take effect on 31st March, 1981 the franchise agreements by virtue of which the Franchisees occupy and operate premises situate at 335-340 Hume Highway, Liverpool being the whole of the land comprised in Certificates of Title Volume 8002 Folio 141 and Volume 8061 Folio 1 and known as Collingwood Auto Port which said franchise agreements apart from provisions therein as to duration and other variations to comply with the Act are on the same terms and conditions as those contained in the lease and the dealer sales agreement between the Frachisor and Franchisees each of which was entered into on 1st October, 1977."

Thereafter are set out six grounds, each alleging a breach of one or other of the lettered paragraphs contained in sub-section 16(3) of the Petroleum Retail Marketing Franchise Act 1980, and, in respect of each ground, a detailed statement of the facts relied upon.

An affidavit was placed before me on behalf of Shell to prove the date of service of the Notice of Decision Not To Renew and the Notice of Termination. The evidence before Fox J. as to the service of these documents was conflicting (see his Honour's reasons for judgment at p.11). Counsel for O'Brien Enterprises objected to any general re-opening by Shell of the evidence given before Fox J. but agreed that I should proceed on the basis that the date of service as deposed to in the affidavit was correct. That date was 29 December, 1980.

There was served with the Notice of Decision Not To Renew and the Notice of Termination a letter dated 29 December, 1980, from the solicitors for Shell to O'Brien Enterprises to which was attached a copy of a letter of the same date addressed by those solicitors to the solicitor for O'Brien Enterprises. The latter referred to the commencement of the Petroleum Retail Marketing Franchise Act 1980 and stated that Shell had decided not to renew the franchise agreement which Shell had been advised expired on 30 September, 1980. The fourth paragraph of the letter was in the following terms:-

"Our client has been further advised that since 1st October last there has not come into being nor have your clients become entitled to franchise agreements which conform with the Act. This state of affairs stems from the anomalous position in which our client found itself whereby it was simply not possible for it to have given the thirty days prior notice called for by Section 17(8) of the Act because the Act was only assented to eleven days prior to the date the relevant franchise agreements expired."

The letter then referred to the notice being served under sub-section 17(8) of the Act, that is to say, the Notice of Decision Not To Renew and continued:-

"It appears to us from an examination of the Act that no time limit is imposed by the Act which is applicable to the present matter. Nevertheless consistent with the spirit of the Act as reflected in Section 17(9) of the Act relating to a ninety day period would you please inform your clients that they are required to vacate the subject premises by 31st March 1981.

"Should it be the case that the view expressed in the fourth paragraph above is incorrect and your clients are occupying the subject premises pursuant to franchise agreements which came into being on or have come into being since 1st October, 1980 then entirely without prejudice to the service of or the efficacy of the Notice already referred to above our client intends to forthwith serve upon your clients an appropriate Notice terminating, pursuant to the Act, the presently subsisting franchise agreements."

It was also said that, if the premises were not vacated as the letter required, Shell would, without further notice, commence proceedings to recover vacant possession of the premises and that no further rental payments would be accepted.

On 11 August, 1981, O'Brien Enterprises commenced proceedings G11 of 1981. In those proceedings Shell filed a cross-claim. In its amended form the cross-claim alleged that O'Brien Enterprises had been in occupation of the premises pursuant to the lease agreement, a dealer sales agreement and an equipment agreement all dated 1 October, 1977, that a Notice of Termination had been served pursuant to sub-section 16(3) of the Petroleum Retail Marketing Franchise Act 1980 and that O'Brien Enterprises had engaged in the conduct set out in that notice and in the Notice of Decision Not To Renew. It was further alleged that by reason of the conduct referred to and the Notice of Decision Not To Renew, Shell was not bound to renew the agreements dated 1 October, 1977. Paragraph 7 of the cross-claim as amended was in the following terms:-

"The Notice of Termination referred to above has determined any rights which the Cross-Respondents may have to occupy the said premises and carry on business thereat under the provisions of the Petroleum Retail Marketing Franchise Act 1980."

The declarations and orders sought were those set out earlier in these reasons.

It is clear that the Notice of Decision Not To Renew was given on the basis that the operative franchise agreements were the lease, the dealer sales agreement and the equipment agreement dated 1 October, 1977. The Notice of Termination, however, proceeded on a different basis. It postulated that franchise agreements had come into existence on or after 1 October, 1980. Any doubt on this point that might arise from a reading of the Notice of Termination itself is dispelled by the letter dated 29 December, 1980, from the solicitors for Shell to the solicitors for O'Brien Enterprises.

Fox J. held that the Act had no application to the lease, the term of which expired on 30 September, 1980 and that no franchise agreement to which the Act applied came into existence on or after 1 October, 1980. The applications by O'Brien Enterprises therefore failed. His Honour's finding that, where a holding over under a lease is on a periodical tenancy, the Act has no application involves the consequence that the Notice of Termination dated 23 December, 1980, could have no operation by reference to section 16 of the Act to terminate the right of O'Brien Enterprises to occupy the premises. In these circumstances counsel for Shell submitted that the Notice of Termination, or the letters dated 29 December, 1980, or a combination of them, operated according to the general law to terminate the monthly tenancy under which O'Brien Enterprises occupied the premises pursuant to clause 34 of the lease.

It is clear on the authorities that no precise form of words is necessary to constitute a valid notice to quit under the general law. To be valid, however, the notice must be clear and unambiguous and, in substance and effect, request the tenant or other person for the time being entitled to possession to quit and deliver up possession of the premises at the proper time: Dagger v. Shepherd (1946) 1 K.B. 215 at pp. 220-1.

The question is whether the Notice of Termination read alone or in combination with the letters dated 29 December, 1980, would have brought home to O'Brien Enterprises in clear and unambiguous language that Shell was intending to terminate, in accordance with the general law and clause 34 of the lease, the monthly tenancy under which O'Brien Enterprises occupied the premises. It was submitted, and I think correctly, that this question is to be approached on the basis of what the documents would have conveyed to a reasonable mind acquainted with the general law and the general purport of the Petroleum Retail Marketing Franchise Act 1980 at the time the notice was received.

In my opinion the action taken by Shell did not operate to determine the monthly tenancy according to the general law. A number of considerations have led me to this conclusion.

The Notice of Termination purported plainly to be given in pursuance of sub-section 16(3) of the Act. There can be no question as to that, having regard to the reference to that provision in the notice and the terms in which it was couched. The accompanying letters also made it plain that the notice was given on the basis that O'Brien Enterprises was occupying the premises pursuant to franchise agreements, as defined in the Act, which came into existence on or after 1 October, 1980. The detailed grounds and the facts alleged to support them would, in my opinion, have conveyed unequivocally to the recipient that Shell was relying solely on the statutory provisions and not on the general law. As such the notice failed for the reasons given by Fox J.

A notice under sub-section 16(3) of the Act gives rise to consequences different from those which would have arisen from a notice given under the general law. Section 16 prohibits the termination of a franchise agreement, an expression defined in sub-section 3(1), except in accordance with the provisions of that section. Sub-section 16(2) sets out in ten lettered paragraphs the grounds upon one or more of which a franchise agreement may be terminated. When a franchisor serves notice on a franchisee terminating a franchise agreement, it is open to the franchisee to apply to the Court for an order declaring the notice to have had, or to have, no effect (sub-section 16(4)). The Court cannot find the agreement to have been terminated by the notice unless it is satisfied that a ground specified in the notice is established by the franchisor and that the termination of the agreement and any related agreement or agreements is "just and equitable" having regard to all the circumstances (sub-section 16(6)). The "circumstances" are to include the conduct of the franchisor and the franchisee after the time when the franchisor became aware of the existence of the circumstances, or the occurrence of the event, constituting the ground for termination (sub-section 16(7)). These consequences are quite different from those arising from a notice to quit given under the general law.

In my opinion, Shell, having proceeded on a basis which failed, cannot treat the notice as founded on a completely different approach, one which would have dictated a different course of action by O'Brien Enterprises.

A further consideration is that the cross-claim as amended does not allege that the monthly tenancy constituted by holding over under clause 34 of the lease has been validly terminated under the general law. The cross-claim is consistent only with a termination of the rights to possession in accordance with the provisions of the Petroleum Retail Marketing Franchise Act 1980.

Counsel for Shell relied on a passage in the judgment of Owen J. in Russell Cowan Pty. Ltd. v. Bussell (1956) S.R. (N.S.W.) 300 at p. 301. His Honour said:

"At common law the service of a notice to quit is a means of terminating a tenancy and the notice must require the tenant to quit all the demised premises and not part only of them. There is only one lease and only one tenement, so that a notice to quit cannot be valid as to one part of the tenement and invalid as to another. Its purpose is to determine the whole lease. The Landlord and Tenant (Amendment) Act operates to prevent the termination of tenancies of prescribed premises by notice to quit unless that notice truly states one or more of the statutory grounds. A notice in the form required by the Act would be a valid notice at common law and would not be invalidated by the fact that it contained a statement of the grounds for requiring possession which could be treated as surplusage. The Landlord and Tenant (Amendment) Act does not alter the fundamental purpose of a notice to quit. What it does is to require, in the case of prescribed premises, that if it is effectively to terminate the tenancy it must comply with certain requirements. Where, as here, the tenement contains both prescribed and nonprescribed premises, a notice to quit must still purport to terminate the lease of the whole of the premises and require the tenant to give up possession of the whole of the tenement. But to be a good notice it must fulfil the requirements both of the common law and of the statute. If it fulfils these requirements, it effectively terminates the lease."

That case was concerned with the problem of framing a valid notice to quit where the tenement contained both prescribed and non-prescribed premises. The question was, therefore, quite different from that which arises in the present case and nothing that was said in that case requires me to hold that a valid notice to quit under the general law has been given by Shell to O'Brien Enterprises.

I, therefore, hold that Shell, having proceeded and failed under sub-section 16(3) of the Petroleum Retail Marketing Franchise Act 1980 and the Notice of Termination read alone or together with the letters dated 29 December, 1980, not being a clear and unambiguous notice that it wished to rely on the general law as an alternative, may not rely on the notice as a notice under the general law to terminate the monthly tenancy. Shell is, therefore, not entitled to possession of the premises. This conclusion is, I think, supported by the reasoning in Cowan v. Wrayford (1953) 2 A11 E.R. 1138; Mills v. Edwards (1971) 1 Q.B. 379.

Before parting with this aspect of the matter I should mention that counsel for Shell adverted to the question whether this Court had jurisdiction to entertain the claim that Shell was entitled to possession of the premises under the general law. He submitted that the Court had jurisdiction and no submission to the contrary was made on behalf of O'Brien Enterprises. Applying the principles laid down by the High Court in Phillip Morris Inc. v. Adam P. Brown Male Fashions Pty. Ltd. (1980) 33 A.L.R. 465, I am satisfied that the Court has jurisdiction.

The cross-claim in each of the proceedings G134 of 1980 and G11 of 1981 is, therefore, dismissed.

I turn now to the second matter that was argued before me.

Some reference has already been made to the C.T.T.R.O. agreement which was part, though not an essential part, of the marketing arrangements between Shell and O'Brien Enterprises. That agreement is described by Fox J. as providing that the retailer or dealer would supply motor fuel without charge to holders of Shell authorisation cards; that the retailer or dealer was to charge Shell at the wholesale price applicable at the time of last delivery to it; and that the retailer or dealer was entitled to receive a dispensing fee from Shell for its participation.

On 7 July, 1981, a notice was executed by Shell in the following terms:-

"PURSUANT to the provisions of the Agreement between THE SHELL COMPANY OF AUSTRALIA LIMITED (hereinafter called "Shell") and you dated 5th December, 1975 (the said Agreement being hereinafter called "the CTTRO Agreement") SHELL GIVES NOTICE to you that SHELL HEREBY TERMINATES to take effect on 14th August, 1981 the CTTRO Agreement."

That notice was thereafter served on O'Brien Enterprises and shortly thereafter proceedings G11 of 1981 were commenced.

Certain interlocutory proceedings were heard by the Court on 13 August, 1981. The parties agreed on certain mutual undertakings pending the outcome of the proceedings. One of the undertakings given by Shell, without prejudice and without admissions, was in the following terms:-

"To keep the CTTRO Agreement on foot until determination of these proceedings and forthwith to take all necessary steps to notify its customers accordingly".

It was submitted by counsel for Shell that that company should be relieved from its undertaking on the ground that the basis for it had disappeared, Fox J. having found the CTTRO Agreement not to be a franchise agreement within the meaning of that expression in the Petroleum Retail Marketing Franchise Act 1980.

Counsel for O'Brien Enterprises submitted that I should not accede to the application made by Shell on the ground that the situation as it at present exists under which O'Brien Enterprises is a participant in the scheme embodied in the CTTRO agreement should be maintained, that is to say, the CTTRO agreement should remain on foot until the final resolution of the matters between the parties. Reference was made to the appeal pending to the Full Court from the orders made by Fox J. and, although counsel for Shell contended that the ground had not been taken in the notice of appeal, counsel for O'Brien Enterprises assured me that the appellant will seek to argue on the hearing of the appeal the question whether the CTTRO agreement is a franchise agreement to which the Petroleum Retail Marketing Franchise Act 1980 applies.

In all the circumstances I think the situation that exists at present should be maintained until the hearing of the appeal and I am, therefore, not prepared to release Shell from its undertaking. The application is, therefore refused.