Loren Enterprises Pty Ltd v The Shell Company of Australia Ltd

[2000] WASC 123

LOREN ENTERPRISES PTY LTD -v- THE SHELL COMPANY OF AUSTRALIA LTD [2000] WASC 123

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2000] WASC 123
Case No:	CIV:1678/1998	Heard:	3 MARCH 2000
Coram:	STEYTLER J	Delivered:	15/05/00
No of pages:	19	Judgment Part:	1 of 1
Result:	Neither s 9 nor s 9A of the Petroleum Retail Marketing Franchise Act (1980) applies in the circumstances
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Parties:	LOREN ENTERPRISES PTY LTD (ACN 052 157 034) THE SHELL COMPANY OF AUSTRALIA LTD (ACN 004 610 459)
Catchwords:	Statutes Acts of Parliament Interpretation Construction of Petroleum Retail Marketing Franchise Act (1980) s 9A(2) Construction of Petroleum Retail Marketing Franchise Act (1980) s 9 Turns on own facts
Legislation:	Petroleum Retail Marketing Franchise Act (1980), s 3, s 6 s 8, s 9, s 9A(1), s 9A(2) Rules of the Supreme Court (1971), O 32 r 4
Case References:	Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516 Re Savcorp Pty Ltd and Ampol Petroleum (Qld) Pty Ltd, unreported; FCA (Spender J); 26 July 1990 Best v Caltex Oil (Australia) Pty Ltd (1989) 87 ALR 1 Bropho v State of Western Australia (1990) 171 CLR 1 Chronopoulos v Caltex Oil (Australia) Pty Ltd (1982) 70 FLR 8 EM-ES Petroleum Pty Ltd v BP Australia Ltd (1988) 22 FCR 149 Esso Australia Ltd v RT & MI Abela Pty Ltd (1989) 91 ALR 476 Mobil Oil Australia Ltd v Brindle (1985) 9 FCR 17 Montmelo Pty Ltd v The Shell Co of Australia, unreported; SCt of SA (Doyle CJ); 17 July 1997 NSW Associated Blue-Metal Quarries Ltd v Commissioner of Taxation (Cth) (1956) 94 CLR 509 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 R v Peters (1886) 16 QBD 636 Re J Skouloudis and George's Jet Gas (Australia) Pty Ltd Trading as Fina Petroleum, unreported; FCt of FCA; 29 March 1989 Richards v Golden Fleece Petroleum Pty Ltd (1983) 49 ALR 337 SA Service Stations Pty Ltd v BP Australia Ltd (1989) ATPR 50,350 State Chamber of Commerce and Industry v Commonwealth (Fringe Benefits Case [No 2]) (1987) 163 CLR 329

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION : LOREN ENTERPRISES PTY LTD -v- THE SHELL COMPANY OF AUSTRALIA LTD [2000] WASC 123 CORAM : STEYTLER J HEARD : 3 MARCH 2000 DELIVERED : 15 MAY 2000 FILE NO/S : CIV 1678 of 1998 BETWEEN : LOREN ENTERPRISES PTY LTD (ACN 052 157 034)

Plaintiff

AND

THE SHELL COMPANY OF AUSTRALIA LTD (ACN 004 610 459)
Defendant

Catchwords:

Statutes - Acts of Parliament - Interpretation - Construction of Petroleum Retail Marketing Franchise Act (1980) s 9A(2) - Construction of Petroleum Retail Marketing Franchise Act (1980) s 9 - Turns on own facts

Legislation:

Petroleum Retail Marketing Franchise Act (1980), s 3, s 6 s 8, s 9, s 9A(1), s 9A(2)

Rules of the Supreme Court (1971), O 32 r 4

(Page 2)

Result:

Neither s 9 nor s 9A of the Petroleum Retail Marketing Franchise Act(1980) applies in the circumstances

Representation:

Counsel:

Plaintiff : Mr D H Solomon
Defendant : Mr C L Zelestis QC & Mr B Dharmananda

Solicitors:

Plaintiff : Solomon Brothers
Defendant : Mallesons Stephen Jaques

Case(s) referred to in judgment(s):

Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516
Re Savcorp Pty Ltd and Ampol Petroleum (Qld) Pty Ltd, unreported; FCA (Spender J); 26 July 1990

Case(s) also cited:

Best v Caltex Oil (Australia) Pty Ltd (1989) 87 ALR 1
Bropho v State of Western Australia (1990) 171 CLR 1
Chronopoulos v Caltex Oil (Australia) Pty Ltd (1982) 70 FLR 8
EM-ES Petroleum Pty Ltd v BP Australia Ltd (1988) 22 FCR 149
Esso Australia Ltd v RT & MI Abela Pty Ltd (1989) 91 ALR 476
Mobil Oil Australia Ltd v Brindle (1985) 9 FCR 17
Montmelo Pty Ltd v The Shell Co of Australia, unreported; SCt of SA (Doyle CJ); 17 July 1997
NSW Associated Blue-Metal Quarries Ltd v Commissioner of Taxation (Cth) (1956) 94 CLR 509
Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355
R v Peters (1886) 16 QBD 636
Re J Skouloudis and George's Jet Gas (Australia) Pty Ltd Trading as Fina Petroleum, unreported; FCt of FCA; 29 March 1989


(Page 3)

Richards v Golden Fleece Petroleum Pty Ltd (1983) 49 ALR 337
SA Service Stations Pty Ltd v BP Australia Ltd (1989) ATPR 50,350
State Chamber of Commerce and Industry v Commonwealth (Fringe Benefits Case [No 2]) (1987) 163 CLR 329

(Page 4)

1 STEYTLER J: This is a trial of preliminary questions conducted pursuant to the provisions of O 32 r 4 of the Rules of the Supreme Court.

Assumed facts

2 I am asked to assume the correctness of the following facts.

3 The plaintiff and the defendant, on 5 June 1992, entered into a written agreement (which they have referred to as the "Force Agreement"). By the terms of that agreement:

(i) The defendant ("Shell") granted to the plaintiff ("Loren") a licence to occupy premises at Shell Roadhouse, North West Coastal Highway, South Hedland, Western Australia;

(ii) Shell granted Loren a licence to use its trademarks;

(iii) Loren agreed to purchase motor fuel (meaning any fuel to be used in propelling road vehicles, other than diesel fuel or liquified gas) from Shell for the purpose of conducting a business at the premises;

(iv) Shell appointed Loren as its agent to receive and dispose of automotive diesel fuel;

(v) Shell agreed to pay Loren a commission with such commission being payable monthly in arrears for Loren acting as its diesel fuel agent;

(vi) Loren and Shell agreed that such commission might be varied by Shell at any time upon 14 days written notice and that such variation might be in amount, method of payment or method of collection or payment; and

(vii) Loren agreed to pay to Shell royalties and fees.

4 On 1 May 1994 and thereafter Shell varied the commission payable by it to Loren for Loren acting as its diesel fuel agent with the result that the amount of commission paid by Shell to Loren for those services was, from 1 May 1994, less than the amount which had previously been paid by Shell. The royalties and fees paid by Loren to Shell under the Force Agreement did not change as a result of the variation in the commission payable by Shell to Loren for Loren's acting as its diesel fuel agent.
(Page 5)

Preliminary questions

5 The preliminary questions which I am asked to answer, against this factual background, fall into two categories. The first category involves the proper construction of s 9A(2) of the Petroleum Retail Marketing Franchise Act 1980 ("the Act"). The second involves the proper construction of s 9 thereof.

6 All of the questions (I will set them out below) other, perhaps, than question A(c), assume that the Act applies to the whole of the Force Agreement, including that part of it which makes provision for Loren to act as a diesel fuel agent on behalf of Shell. While the correctness of this assumption was put in issue by Shell, (its counsel referred, in this respect, to the definitions, in s 3 of the Act, of the terms "franchise agreement", "franchisee", "franchisor" and "motor fuel", to s 6(1) of the Act and to s 8A thereof), the answers at which I have arrived in respect of each of the questions posed to me has made it unnecessary for me to reach a conclusion on that issue. That is because I have come to the conclusion that, even if the assumption is correct, s 9A(2) of the Act has no application on the facts before me and nor, on those facts only, is there any basis for the application of s 9 thereof.

The first category of questions

7 Because the answers to the first category of questions turn upon the proper construction of s 9A(2) of the Act I will start by quoting that section. It reads as follows:

"9A.(1) ...

(2) Where:

(a) by reason of any agreement providing for any rebate, waiver, discount, allowance or like arrangement, an amount, or the aggregate of the amounts, payable by a franchisee in accordance with, or in a manner calculated or determined under, the franchise agreement is less than it would otherwise be;

(b) at a later time, by reason of the reduction or withdrawal of the whole or part of the benefit of the agreement referred to in paragraph (a), any such amounts, or the aggregate of such amounts, is increased; and

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(c) the whole or part of the amount of the increase is unreasonable, having regard to the market value of any interest, goods or services to which any amount included in the increase relates;

the amount of the increase is, by force of this section, reduced by so much of the amount of the increase as is unreasonable."

8 The questions to be answered in this category are as follows:

"A(a) Whether, for the purposes of section 9A(2) of ... [the Act], the amount payable by Shell by way of commission to Loren for the provision by Loren of the service of selling diesel fuel as diesel fuel against for Shell can be regarded as a 'rebate, waiver, discount, allowance or like arrangement'.

(b) Whether, for the purposes of section 9A(2) of the ... Act, the amount which is 'payable' by Loren [to determine whether it is 'less than it would otherwise be'] can be determined by looking at what is payable by Shell, as opposed to by Loren alone.

(c) Whether, for the purposes of section 9A(2) of the ... Act, an amount payable under an agreement relating to the provision by Loren of services as diesel fuel agent can be an amount payable by Loren, as franchisee 'in accordance with, or in a manner calculated or determined under, the franchise agreement'.

(d) Whether, in order to determine whether an increase is unreasonable under section 9A(2) of the ... Act, regard may be had to the market value of:


(i) interest(s), goods or services provided by Shell to Loren under the Force Agreement;

(ii) interest(s), goods or services provided by Loren to Shell in exchange for the rebate, waiver, discount, allowance or like arrangement given by Shell (by reason of the reduction of which the increase occurred); or

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(iii) any other and, if so, what, other interest(s), goods or services?"

Question A(a)

9 The first of the questions required to be answered is that of whether, for the purposes of s 9A(2) of the Act, the amount payable by Shell by way of commission to Loren in respect of its provision of services as a diesel fuel agent for Shell can be regarded as a "rebate, waiver, discount, allowance or like arrangement".

10 Loren submits that it can. It contends, in this respect, that where the commission payable by Shell is offset against the payments required to be made by Loren to Shell, the payment of the commission is, in effect, a rebate, waiver, discount, allowance or like arrangement by reason of which the amount payable by Loren to Shell is less than it would otherwise be and that, if the commission is later reduced, the amount paid by Loren to Shell is effectively increased.

11 It also contends that this argument is supported by what was said by the then Minister for Industry and Commerce in the course of his second reading speech in the Senate at the time of the bill by which s 9A of the Act was ultimately introduced by s 8 of the Petroleum Retail Marketing Franchise Amendment Act 1984. The Minister then said:

"Clause 8 introduces a new section into the Act to provide that payments required to be made by a franchisee during the currency of the franchise relationship, other than payments for motor fuel or other stock-in-trade, must not be increased unreasonably by the franchisor. At present, this protection only applies at the renewal stage of a franchise relationship. The new section will extend to the consideration of any rebates, waivers, discounts, allowances or other like arrangements which affect the actual amounts required to be paid by a franchisee."

12 I do not consider that the commission paid by Shell to Loren can be categorised in the manner contended for by Loren. Nor do I consider that its contention in this respect is lent any support by what was said by the Minister in the course of his second reading speech.

13 Sections 9A(1) and 9A(2) are, in a sense, reverse sides of a coin. Section 9A(1) provides that where a provision of a franchise agreement has the effect, directly or indirectly, of conferring a right on the franchisor

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to increase what would, but for the exercise of that right, be payable by the franchisee under the franchise agreement and, in the exercise of that right, the franchisor unreasonably increases the amount so payable, the amount of the increase is reduced by so much thereof as is unreasonable. Section 9A(2) compliments that provision by dealing with the situation in which the unreasonable increase is effected by the franchisor's withdrawal or reduction of a "rebate, waiver, discount, allowance or like arrangement" given or made in favour of the franchisee.

14 Counsel for Loren relied, in support of his contention, upon the fact that the Force Agreement provides, by cl 65, for a right of set off. That clause provides that "Shell may at any time withhold and retain any moneys due or owing to ... [Loren] by Shell and apply these moneys in reduction of moneys due or owing by ... [Loren] to Shell". However that does not mean that the amount so set off is, for the purposes of s 9A(2), a "rebate, waiver, discount, allowance or like arrangement" provided for by the Force Agreement. While the effect of the set off may in one sense be to reduce the amount which is payable by Loren under the Force Agreement, it does not seem to me that a set off of that kind, which is only a means of satisfying Shell's indebtedness to Loren in respect of a matter entirely separate from the matters giving rise to Loren's indebtedness to Shell, can be categorised as a "rebate, waiver, discount, allowance or like arrangement" which reduces the amount payable by Loren under the Force Agreement for the purposes of s 9A(2). Put differently, there never was a time when, by reason of any agreement providing for any rebate, waiver, discount, allowance or like arrangement, an amount or the aggregate of the amounts payable by Loren under the Force Agreement was less than it would otherwise have been. There was merely an agreement that what was owing by Shell to Loren on a separate account, albeit regulated by the same agreement, might be set off against what was owing by Loren to Shell.

15 The purpose of s 9A, as I read it (and there is nothing in the Minister's second reading speech to suggest otherwise), is that of preventing a franchisor from unreasonably increasing what is payable by the franchisee under a franchise agreement in respect of the interest, goods or services (other than motor fuel or other stock in trade, as to which see s 9A(5)) provided by the franchisor to the franchisee. It is not that of preventing the franchisor from unreasonably decreasing what is payable by it to the franchisee in respect of matters entirely and genuinely separate from those which give rise to the liability of the franchisee to the franchisor under the franchise agreement. So much is apparent, without more, from subs 2(c), which has, as the measuring stick of any

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unreasonableness in the increase, "the market value of any interest, goods or services to which any amount included in the increase relates" (my italics).

16 Counsel for Loren also relied upon the fact that s 9A(2)(a) refers not only to "an amount ... payable" by a franchisee but also to "the aggregate of the amounts" so payable. However that does not seem to me to advance Loren's contentions. There may well be a number of separate components of what is payable by a franchisee to a franchisor under a franchise agreement (as for example service fees, rent and franchise fees) and the rebate, waiver, discount, allowance or like arrangement may relate to one or some or all of these. It is no doubt for that reason that s 9A(2)(a) refers to "an amount, or the aggregate of the amounts, payable ... ".

17 It consequently seems to me to follow, from the language of s 9A(2), that the "rebate, waiver, discount, allowance or like arrangement" must be one in respect of the amount or amounts payable by the franchisee under the franchise agreement and that a reduction in what is payable by the franchisor to the franchisee in respect of something entirely and genuinely separate from what is paid for by the franchisee, albeit dealt with in the same agreement, cannot, merely because it may be set-off against what is payable by the franchisee under that agreement, be categorised as a "rebate, waiver, discount, allowance or like arrangement" reducing the amount so payable by the franchisee.

18 I would consequently answer this question "No".

Question A(b)

19 It follows from what I have said in answer to question A(a) that I would, on the basis of the assumed facts, answer question A(b) "No".

Question A(c)

20 I have some difficulty understanding question A(c). The only amount which appears to have been payable under the Force Agreement relating to the provision by Loren of services as diesel fuel agent is an amount payable by Shell to Loren. Assuming that I am correct in this understanding (and no different scenario has been put to me) it follows that the answer to this question is "No".

21 It is consequently unnecessary for me to consider the further contention referred to above, which was advanced on behalf of Shell, that

(Page 10)

the Act does not regulate the Force Agreement, insofar as it deals with the provision of services as diesel fuel agent, by virtue of s 6(1) and s 8A of the Act read with the definitions, in s 3 thereof, of the words "franchise agreement" and "motor fuel".

Question A(d)

22 Question A(d) asks whether, in order to determine whether an increase is unreasonable under s 9A(2), regard may be had to the market value of the interest, goods or services provided by Shell to Loren under the Force Agreement, or those provided by Loren to Shell in exchange for the rebate, waiver, discount, allowance or like arrangement given by Shell (by reason of the reduction of which the increase incurred) or any other, and if so what, interest, goods or services. That question only arises if the answer to question A(a) is "Yes". However I will answer it in any event.

23 In the case of each of the two legs of s 9A the question whether the amount of the increase is unreasonable must be answered by "having regard to the market value of any interest, goods or services to which any amount included in the increase relates". I should add that, by virtue of s 9A(5), "amount" does not include an amount payable in respect of motor fuel or other stock in trade.

24 It seems to me to follow inevitably from the wording of s 9A that, if I should be wrong in the manner in which I have answered question A(a), the increase, which must necessarily be in the amount payable by Loren to Shell, must be measured against the value of what is provided by Shell to Loren (other, of course, than motor fuel or other stock in trade). That is the "interest, goods or services" in respect of which the increased amount is paid.

25 Counsel for Loren contended in this respect that, because of what is said in s 9A(2)(c), it is necessary only to look at what he described as "the particular increase", being that which arises "because of the reduction in the amount coming back to the franchisee", and to value only the interest, goods or services provided in respect of the payment which has been reduced. However I do not, with respect, consider that this can be right. Section 9A strikes at unreasonable increases in what is payable by the franchisee. If the net amount payable by the franchisee is increased as a consequence of a reduction in what is payable to it by the franchisor (and I have mentioned that the Force Agreement provides, by cl 65, for a right of set-off by Shell of amounts due by it to Loren against what is due by Loren to it) then it is still the value of any interest, goods or services

(Page 11)

provided by the franchisor which must, by the terms of s 9A, be assessed as against the increased amount payable by the franchisee in order to see whether or not the increase is unreasonable.

26 Counsel for Loren once again sought to draw support for his contentions from what was said by the Minister for Industry and Commerce in the extract from his second reading speech in the Senate which I have quoted above. I am, with respect, unable to see that that extract provides any support for Loren's contentions. What was said by the Minister places the emphasis on "the actual amounts required to be paid by a franchisee". The reasonableness of those amounts can only be valued against what is provided, in return, by the franchisor.

27 Counsel for Loren again relied upon the fact that s 9A(5) defines the word "agreement" to include an agreement that is not a franchise agreement except where it appears in the expression "franchise agreement". However this does not assist Loren's contentions. The "agreement" must still be one which provides for a "rebate, waiver, discount, allowance or like arrangement" for the purposes of s 9A(2). I have already said above that the agreement in this case does not fall within that category notwithstanding that it provides for the payment of a commission in respect of the sale of diesel fuel. However, even if I am wrong in that, the increase in what is payable by Loren which is brought about by the reduction in the amount of the commission must still, by the words of s 9A(2), be valued against the "interest, goods or services to which any amount included in the increase relates".

28 The payment made by Loren to Shell is in respect of interests, goods or services other than the sale, by Loren, of diesel fuel as Shell's agent. It is an unreasonable increase in an amount, or the aggregate of the amounts, payable by the franchisee to the franchisor in respect of those interests, goods or services at which the section strikes, not an unreasonable reduction in the amount payable by the franchisor to the franchisee in respect of some other interest, goods or services provided by the franchisee to the franchisor. Put differently, because the increase to which the section refers is in the amount or the aggregate of the amounts payable by the franchisee, and because it is the reasonableness of that increase which is to be examined, the interest, goods or services, the market value of which is to be considered, must be the interest, goods or services to which the increased amount or amounts payable relates or relate. So, for example, if the increase related solely to the rent payable by Loren, it would have to be assessed against the value of the leasehold. If the increase related to the fee charged to Loren for the use of Shell's

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trademark it might be necessary to look at the market value of that use. If the increase applied to the whole of the interest, goods or services provided, then it would be necessary to look at the value of the whole of what was provided other than motor fuel or other stock in trade.

29 Consequently while, as I have said, in the light of the answers which I have given to the preceding questions it is not necessary for me to answer this question, it seems to me that if the answer to question (a) was to be "Yes", it would follow that the net increase would have to be tested as against the market value of the interest, goods or services provided by Shell to Loren (other than motor fuel or other stock in trade) less the market value of what is provided by Loren to Shell.

The second category of questions

30 That brings me to the second category of questions. These relate to the proper construction of s 9(1) of the Act. That section, and s 9(2), (4) and (5) provide that:

"9. (1) 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 at the time when it is required to be performed.

(2) Where a franchise agreement contains a provision of a kind referred to in subsection (1), the provision is void.

...

(4) Where a provision of an agreement is rendered void by the operation of subsection (2), the validity of the agreement is not otherwise affected, but, if that provision is not severable, the franchisee may:

(a) avoid the agreement; or

(b) apply to a court for an order under subsection (5).

(5) In any proceedings under subsection (4) in relation to an agreement, the court may make:

(a) an order varying the agreement in such manner as the court considers just and equitable for the purpose of

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enabling the provisions of the agreement to have effect to the extent that they are not rendered void by the operation of subsection (2); and

(b) such ancillary or consequential orders as it thinks fit, including orders directing the preparation and execution of documents."

31 The questions to be answered are as follows:

"B. Whether, on the proper construction of section 9(1) of the ... Act, Shell, as franchisor, entered into a franchise agreement with Loren which contains a provision 'imposing an obligation on [Loren] that is likely to be impossible or unreasonably onerous to perform at the time it is required to be performed'.

More particularly:

(a) Whether, for the purposes of section 9(1) of the ... Act, a provision can be said to impose an 'obligation' on Loren, as franchisee, when that provision confers a right on Shell, as franchisor, to vary the commission payable by Shell to Loren for the provision by Loren of services as diesel fuel agent.

(b) Whether, for the purposes of section 9 of the ... Act:


(i) in section 9(1), the 'provision' which is said to impose an 'obligation' on Loren can be taken to be the combination of:

(A) a provision requiring Loren to act as Shell's diesel fuel agent; and

(B) a provision enabling Shell to vary the commission payable by Shell to Loren for the provision by Loren of services as diesel fuel agent;


(ii) if the answer to paragraph (i) above is yes, whether the 'provision' which is made 'void' by section 9(2) must be the whole of

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the provision [in this case, the combination of the provisions referred to [in] paragraph (A) and (B) above] or can the 'provision' which is made 'void' by section 9(2) be a part of the 'provision';

(iii) if the answer to paragraph (ii) above is that the 'provision' which is made 'void' by section 9(2) can be a part of the 'provision', whether the part of the 'provision' sought to be rendered void may be rendered void by the application of section 9 of the ... Act:

(A) if it does not impose any 'obligation';

(B) if the obligation, if any, under that part of the 'provision' is not itself 'impossible or unreasonably onerous to perform'.

(c) Assuming paragraph 15 of the further re-amended statement of claim [that which raises the claim under s 9(1) of the Act] refers to any 'obligation' relevant to the application of section 9(1) of the ... Act, for the purposes of section 9(1) of the ... Act, can an 'obligation' be 'impossible or unreasonably onerous to perform' if the 'obligation':

(i) only resulted in a reduction in the amount payable by Shell, as franchisor, to Loren, as franchisee; or

(ii) did not result in Loren, as franchisee, being required to pay any amount to Shell, as franchisor."

32 It is, I think, convenient to deal with these questions together.

33 Perhaps the first point to be noted with respect to the operation of s 9(1) is that the question whether a particular provision imposing an obligation on the franchisee is likely to be impossible or unreasonably onerous to perform at the time when it is required to be performed is one which must be answered by reference to the circumstances at the time at which the agreement was made. That much is evident from the use of the words "likely to be" (cfRe Savcorp Pty Ltd and Ampol Petroleum (Qld)

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Pty Ltd, unreported; FCA; 26 July 1990 at par 92 per Spender J). By virtue of s 9(2), where a franchise agreement contains a provision of that kind, the provision is void.

34 The relevant provisions of the Force Agreement in this case are cl 5(3), read with Schedule 3, and cl 51. By cl 5(3)(i) Shell appoints Loren as its agent "to receive, accept[,] hold and store for ... Shell ... such Shell automotive diesel fuel as Shell may from time to time consign" to it. By cl 5(3)(v) Loren is required to "sell Shell automotive diesel fuel at such prices and subject to such terms and conditions as Shell may from time to time require". Clause 5(3)(iii) requires Loren "diligently and faithfully [to] serve Shell as its agent and ... [to] use ... [its] best endeavours to promote and extend the sale of Shell automotive diesel fuel at and from the Premises and ... [to] observe all reasonable directions and instructions given to ... [it] by Shell in relation to the sale of Shell automotive diesel fuel ... ". Clause 51 provides that:

"Where Franchisee [Loren] is a ... Diesel Fuel Agent:

(1) Shell will pay to the Franchisee a commission, the rate of which commission is set out in Schedule 17. This commission and any other allowance or payment made by Shell to the Franchisee may be varied by Shell at any time upon fourteen (14) days written notice, and such variation may be in the amount, method of calculation or method of collection or payment.

(2) The commission shall be paid by Shell monthly in arrears."

35 Here, the relevant obligations are those which are imposed upon Loren in relation to its sale of diesel fuel as Shell's agent in return for payment of a variable commission. The provision concerning Shell's right to vary the amount of the commission payable does not, taken on its own, impose any obligation upon Loren, assuming (without deciding) that it is, for this purpose, a franchisee for the purposes of the Act.

36 It was, at the time of the making of the Force Agreement, no doubt possible that Loren's obligation to act as a diesel fuel commission agent could become unreasonably onerous at the time at which it was required to be performed, if the commission payable in respect thereof was reduced to a point at which it became entirely unreasonable, in circumstances in which, it seems, Loren had no right to terminate the agency upon that ground. However it is not possible to conclude, merely because of the

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existence of a power to vary the commission, that the obligation to provide the agency services was, at the time at which the agreement was made, "likely to be" either impossible or unreasonably onerous to perform at the time when it was required to be performed. It was, on the face of the Force Agreement taken on its own (and nothing else has been relied upon by Loren), just as likely that the commission would be varied upwards as it was that it would be varied downwards if, indeed, the amount thereof was to be varied at all. Moreover there is nothing on the face of the agreement itself to suggest that, if it was varied downwards, it would unreasonably be varied downwards.

37 Counsel for Loren relied, in support of his contentions, upon the case of Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516.

38 That case dealt with s 7(1) and s 16 of the Act. Section 7(1) provides that the Act applies notwithstanding any agreement to the contrary and that "a provision in any agreement is void to the extent that it purports to exclude, limit or modify, or is otherwise inconsistent with, the operation of a provision of this Act or any right or remedy based on or arising out of a provision of this Act". Section 16(1) thereof provides: "A franchisor may terminate the franchise agreement in accordance with the succeeding provisions of this section, but not otherwise". Subsection (2) sets out a number of grounds upon which the franchisor might terminate a franchise agreement and subs (4) thereof enables a franchisee served with a notice of termination under subs (3) to apply for a court order declaring the notice to have or have had no effect. Finally, subs (6) precludes a court from declaring a notice to have terminated, or to terminate, the agreement unless satisfied that the ground specified in the notice was established and that it was just and equitable that the agreement be terminated.

39 The agreement under consideration, being a franchise agreement subject to the Act, provided that if the franchisee conducted the business in a manner which, in the franchisor's opinion, was prejudicial to its commercial reputation, it might terminate the franchisee's licence to use its mark in connection with the sale of fuel. The court held that the clause was void. Mason CJ and Dawson, Gaudron and McHugh JJ held this to be so upon the basis that it purported to enable the franchisor to take action which was inconsistent with the purpose of the Act and the statutory scheme of regulation for which it provided. Dawson J also found it to be void on the further ground that it purported to allow the franchisor to terminate the agreement otherwise than in accordance with s 16. Toohey J, too, found it to be void on this last ground.

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40 However counsel for Loren relied upon what was said by Toohey J in that case, at 531, as follows:

"However, as s.7 is concerned with the content of an agreement, a clause in an agreement, by which it is agreed that conduct inconsistent with the operation of the Act is permissible, is of necessity itself inconsistent with the operation of the Act. Inconsistency must be tested when an agreement is entered into, assuming that the agreement is a franchise agreement to which the Act applies."

41 I am, with due respect, unable to see that this lends any support to the contentions advanced on behalf of Loren. There is, in the case of the Force Agreement, no relevant inconsistency between that agreement and the Act. The clauses to which I have referred would only infringe s 9 if, as I have said, their effect was such, at the time at which the agreement was made and in the context of circumstances then obtaining (as to which, see Re Savcorp, above, ibid), the obligation thereby imposed on Loren was such as was likely to be impossible or unreasonably onerous to perform at the time when it was required to be performed. I have already said that there is nothing in the clauses referred to, looked at in isolation, which should result in their being categorised in that way and that no other circumstances, obtaining at the time, have been relied upon by Loren.

42 Moreover, even if the provisions in question could, of themselves, be construed as infringing s 9(1) at the time of the making of the Force Agreement, the consequence of that infringement would be that all of the provisions obliging Loren to act as Shell's diesel fuel commission agent would be avoided and not merely cl 51, which entitles Shell to vary the amount of the commission. That is the effect of s 9(2) of the Act, which, as I read it, renders the provision which imposes the obligation of the prohibited kind void. I have already said that the provisions which relevantly impose the obligation are those which require Loren to act as Shell's diesel fuel agent in return for payment of a variable commission, albeit it is only the power to vary the commission payable which gives that obligation the potential to be (but not, without more, the likelihood of being) unreasonably onerous to perform at the time when it is required to be performed.

43 I should mention, in this respect, that Loren does not seek to have those provisions of the Force Agreement requiring it to act as Shell's diesel fuel agent declared void (I should add that I was told that the Force

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Agreement has run its course and is now at an end). It seeks only to have cl 51 thereof declared void. For the reasons I have given that course would not be open to it even if the combination of the clauses to which I have referred had the effect contended for by Loren.

44 I would, consequently, answer the four questions in the second category as follows:

(a) No, but see answer (b)(i) below.

(b) (i) It seems to me that this question is best answered by saying that the provision requiring Loren to act as Shell's diesel fuel agent is that which imposes an obligation on Loren but that, if that provision had been coupled with another which made this obligation likely to be impossible or unreasonably onerous to perform at the time when it was required to be performed, then s 9(1) would be infringed. However there is nothing, as matters stand, to suggest that this is so.

(b) (ii) I doubt that it is necessary to answer this question in the light of my answers to the preceding questions. However it seems to me that if s 9(1) was infringed by a combination of those provisions of cl 5(3) which impose upon Loren the obligation to act as a diesel fuel agent and cl 51 then all of those provisions would be void. Certainly it could not be said that cl 51 alone would, in that event, be void. I have said above that that clause does not, itself, impose any obligation on Loren.

(b) (iii) I have already answered this question, as well as it can be answered, in dealing with the preceding questions.

(c) It seems to me that this question is not happily worded. However it will be apparent from what I have said that the clause imposing the obligation is not solely that which resulted in a reduction in the amount payable by Shell to Loren. Rather the relevant obligation was imposed by those clauses which required Loren to act as Shell's diesel fuel agent in return for payment of a variable commission. If it was to be shown (and there is, as I have said, nothing before me to show this) that it was likely, at the time of

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making the Force Agreement, that cl 51 would be made use of by Shell in such a way as to make Loren's obligation to act as Shell's diesel fuel agent impossible or unreasonably onerous to perform at the time when it was required to be performed, then s 9(1) would be infringed by this combination of clauses.