Lyndel Nominees Pty Ltd v Mobil Oil Australia Ltd Mogap Pty Ltd & Ors v Mobil Oil Australia Ltd
[1997] FCA 248
•15 APRIL 1997
C A T C H W O R D S
TRADE PRACTICES - Statements made by officers of petroleum company to service station franchisees concerning renewal of franchise agreements if franchisees achieved 90% score in performance evaluations in each of the following six years - Whether statements constituted misleading or deceptive conduct.
ESTOPPEL - Promissory estoppel - Whether statements gave rise to a promissory estoppel in favour of franchisees who acted on the assumption the statement would be honoured - Position of franchisees who failed to score 90% each year - Whether detriment established - Proportionality of detriment.
CONTRACT - Whether statements constituted a general offer capable of giving rise to an enforceable contract - Effect of purported revocation during the six year period.
Trade Practices Act 1974, ss 51A and 52.
NO. NG.835 of 1995
LYNDEL NOMINEES PTY LIMITED v MOBIL OIL AUSTRALIA LIMITED
No. NG.841 of 1995
MOGAP PTY LIMITED and OTHERS v MOBIL OIL AUSTRALIA LIMITED
CORAM: WILCOX J
PLACE: SYDNEY
DATE: 15 APRIL 1997
IN THE FEDERAL COURT OF AUSTRALIA ) No. NG.835 of 1995
)
NEW SOUTH WALES DISTRICT REGISTRY )
)
GENERAL DIVISION )
BETWEEN:LYNDEL NOMINEES PTY LIMITED (ACN 008 528 774)
Applicant
AND:MOBIL OIL AUSTRALIA LIMITED
Respondent
CORAM: WILCOX J
PLACE: SYDNEY
DATE: 15 APRIL 1997
MINUTES OF ORDERS
THE COURT ORDERS THAT:
The respondent, Mobil Oil Australia Limited, grant to the applicant, Lyndel Nominees Pty Limited, without charge, a franchise under the Petroleum Retail Marketing Act 1980 in respect of the Mobil service station currently occupied by the said applicant at 1 Lonsdale Street, Braddon in the Australian Capital Territory for a term of nine years commencing immediately upon the expiration of the applicant's current franchise in respect of the said service station, such franchise otherwise to be on the same terms and conditions as the current franchise in respect of the said service station.
The parties have liberty to apply on seven days' notice in relation to the implementation of order 1.
The costs of the proceeding be reserved.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
) No. NG.841 of 1995
NEW SOUTH WALES DISTRICT REGISTRY )
)
GENERAL DIVISION )
BETWEEN:MOGAP PTY LIMITED and ORS
Applicants
AND:MOBIL OIL AUSTRALIA LIMITED
Respondent
CORAM:WILCOX J
PLACE: SYDNEY
DATE: 15 APRIL 1997
MINUTES OF ORDERS
THE COURT ORDERS THAT:
The respondent, Mobil Oil Australia Limited, grant to the applicant W and JB Thorpe Pty Limited, without charge, a franchise under the Petroleum Retail Marketing Act 1980, in respect of the Mobil service station currently occupied by the said applicant at 656-660 North East Road, Holden Hill, Adelaide in the State of South Australia (known as Mobil Hilltop) for a term of nine years commencing immediately upon the expiration of the said applicant's current franchise in respect of the said service station, such franchise otherwise to be on the same terms and conditions as the current franchise in respect of the said service station.
The respondent, Mobil Oil Australia Limited, grant to the applicant, Wellcome International Pty Limited, without charge, a franchise under the Petroleum Retail Marketing Act 1980 in respect of the Mobil service station currently occupied by the said applicant at Sailors Bay Road and Eastern Valley Way, Northbridge in the state of New South Wales, for a term of nine years commencing immediately upon the expiration of the applicant's current franchise in respect of the said service station, such franchise otherwise to be on the same terms and conditions as the current franchise in respect of the said service station.
The claims of the applicants, Roseville Self Service Station Pty Limited and JTP Holdings Pty Limited, be dismissed.
The parties have liberty to apply on seven days' notice in relation to the implementation of order 1 or order 2 or in relation to the further conduct of the case.
The costs of the proceeding be reserved.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
) No. NG.835 of 1995
NEW SOUTH WALES DISTRICT REGISTRY )
)
GENERAL DIVISION )
BETWEEN:LYNDEL NOMINEES PTY LIMITED (ACN 008 528 774)
Applicant
AND:MOBIL OIL AUSTRALIA LIMITED
Respondent
and
No. NG.841 of 1995
BETWEEN:MOGAP PTY LIMITED, BARBOTINE PTY LIMITED, A J & M A BAKER, ZIPACE PTY LIMITED, MERSEC PTY LIMITED, CUMBERLAND SERVICE CENTRE PTY LIMITED, MILUNO PTY LIMITED, NEV WAYMAN MOTOR REPAIRS PTY LIMITED, R S & C A CATTANACH, SANVER PTY LIMITED, PAULSON MOTORS NOMINEES PTY LIMITED, FAHIC PTY LIMITED, ROSATO FAMILY PTY LIMITED, N & H VAGELATOS, VOCKRAL PTY LIMITED, A B & S MARTIN, R & P COHN NOMINEES PTY LIMITED, P F & D P WILSDON, TARBROOKE PTY LIMITED, TELSOO PTY LIMITED, WELLCOME INTERNATIONAL PTY LIMITED, ALLAN DICKINSON HOLDINGS PTY LIMITED, M P & V A McCALLION, L & S STEPHENS PTY LIMITED, K E & S L DARK, HANITY PTY LIMITED, CAVBURY PTY LIMITED, MURRAY INVESTMENTS PTY LIMITED, AUTOLAI PTY LIMITED, MERIPAPAR PTY LIMITED, MOODWAY PTY
LIMITED, W G & J K SMITH, ALTOLA PTY LIMITED, BROUGH INVESTMENTS PTY LIMITED, HAFNIUM PTY LIMITED, EXPRESSWAY SERVICE CENTRE PTY LIMITED, BENAUTO PTY LIMITED, DAMZ SERVICES PTY LIMITED, M J INGRAM & T K GERBER, C H & I H CAMERON, CAMWRI PTY LIMITED, K E & M E BOUGOURE-LATCHFORD, JULRUSS PTY LIMITED, ISLECRAFT PTY LIMITED, STADKY PTY LIMITED, MKM & ASSOCIATES PTY LIMITED, VAPUMI PTY LIMITED, NORTHAIME HOLDINGS PTY LIMITED, HADLEY WOOD PTY LIMITED, MOS HANCOCK NOMINEES PTY LIMITED, M F & M D'ARGENIO, MARMILL INVESTMENTS PTY LIMITED, W & J B THORPE PTY LIMITED, GRAHAM GILBERT MOTORS PTY LIMITED, L & P DOYLE (QUEENSLAND) PTY LIMITED, EQUITY TRANSPORT SERVICES PTY LIMITED, MOTOCO PTY LIMITED, CULARS NO. 28 PTY LIMITED, V & C QASABIAN, SUNNY SERVICE CENTRE PTY LIMITED, ROSEVILLE SELF SERVE STATION PTY LTD, J & E VITETTA, NEWSTART 24 PTY LIMITED, RISLOW PTY LIMITED, A & R NORTON PTY LIMITED, P M & W G JOHNSON, A & R EXCELL, G & M MARTINO, BAYYOUK PTY LIMITED, J K PUNCH, DAINDEE PTY LIMITED, E J & M J SMITH, GREENHATCH ENTERPRISES PTY LIMITED, RODGER THOMAS PTY LIMITED, KEVJEN PTY LIMITED, CHAPEL CORNER SERVICE CENTRE PTY LTD, HAYDAN SERVICE CENTRE PTY LIMITED, A J FRY, BAIRNSDALE SERVICE CENTRE PTY LIMITED, R L & L M BRAY, G ERDOSSY, GLINSTON PTY LIMITED, A & J MICALLEF ENTERPRISES PTY LTD, CHRIS CHAKOS PTY LIMITED, PETROGAS (RETAIL) PTY LIMITED, A J & M W A & A J
H & H DINTHER, T & P CORREA PTY LIMITED, M & J SCHWAB, FLOWSEA PTY LIMITED, UPSON INVESTMENTS PTY LIMITED, M B & D A KEMP, KEMPCORP PTY LIMITED, D A & L E BUCCI, KAIN & GRAHAM PTY LIMITED, WHITEPEAK INVESTMENTS PTY LIMITED, M & M WALSH, MAX & JAN FLAHERTY PTY LIMITED, IKAMILL PTY LIMITED, WARAGRAND PTY LIMITED, HOUWELING HOLDINGS PTY LIMITED, M & C BAYNI, HOSTLEY PTY LIMITED, LESLIEVALE PTY LIMITED, BAYCANDY PTY LIMITED, HALTULI PTY LIMITED, TRENA PTY LIMITED, TRYLASS PTY LIMITED, BIANCHINI INVESTMENTS PTY LIMITED & P & W WHYTE, AXWHEEL PTY LIMITED, DALBO NOMINEES PTY LIMITED, E J TARLINGTON PTY LIMITED PHILWAY MANAGEMENT PTY LIMITED, J T P HOLDINGS PTY LIMITED, TAMMETT PTY LIMITED, FELUGA PTY LIMITED, JUNEHOLM PTY LIMITED, XENCO ENTERPRISES PTY LIMITED, DAVPOS PTY LIMITED, ELSACOURT PTY LIMITED, KYLACT PTY LIMITED, TRESING PTY LIMITED, ARNOLD ENTERPRISES NEWCASTLE PTY LIMITED, GOLDAZ DEVELOPMENTS PTY LIMITED, TRENALLA PTY LIMITED, BELTSY HOLDINGS PTY LIMITED, S & N DORDEVIC, T B SABA, JENMI PTY LIMITED, G & C J MORTON PTY LIMITED, ELGEE PTY LIMITED, HOLTHAM INVESTMENTS PTY LIMITED, T & V TIGAS, HICBON PTY LIMITED, JART PTY LIMITED, DONACK PTY LIMITED, J A C REYNOLDS, K & J BROWN, MIDLAND BAY PTY LIMITED, RED LION SERVICE STATION PTY LIMITED, LACURMO PTY LIMITED, K F & P J SPITHILL PTY LIMITED, THOMNEW PTY LIMITED, PINEFIELD NOMINEES PTY LIMITED, BACCHIELLA
HOLDINGS PTY LIMITED, OLATALL PTY LIMITED, TRIANGLE SERVICE CENTRE PTY LIMITED, BRAY INVESTMENTS PTY LIMITED, HARUN HOLDINGS PTY LIMITED, TEMPCOM NAME NO.16 PTY LIMITED, MARIO PIVA MANAGEMENT PTY LIMITED, PETREX PTY LIMITED, T & S IMMURS INVESTMENTS PTY LIMITED, SURF'S UP PTY LIMITED, BUBBLIN' CRUDE PTY LIMITED and GLENGADING PTY LIMITED
Applicants
AND:MOBIL OIL AUSTRALIA LIMITED
Respondent
CORAM:WILCOX J
PLACE: SYDNEY
DATE: 15 APRIL 1997
REASONS FOR JUDGMENT
WILCOX J: On 22 May 1996 I handed down reasons for judgment in connection with two preliminary questions raised in these proceedings. I did not then make any formal order. I merely ordered that the matters be listed for directions on 13 June. As a result of discussions on that day and subsequent days, I directed a trial in the first instance of the claims of Lyndel Nominees Pty Limited ("Lyndel"), the applicant in matter NG.835 of 1995, and four of the applicants in matter NG.841 of 1995: W & J B Thorpe Pty Ltd ("Thorpe"), Wellcome International Pty Limited ("Wellcome"), Roseville Self Service Station Pty Limited ("Roseville") and JTP Holdings Pty Limited ("JTP"). The parties selected these five cases because they were thought to throw up some of the main factual permutations
in the cases of the 154 applicants. The parties hoped resolution of these five cases would enable them to agree the outcome of the remainder.
In accordance with that direction, I heard the five cases together in October 1996, evidence in any one case being treated as evidence in the others to the extent of its relevance. The parties did not repeat the evidence adduced at the earlier hearing; they agreed that evidence, also, should be regarded as evidence in each of the five cases to the extent of its relevance. On the applicants' side, the earlier evidence was supplemented by affidavit evidence from the principals of each of the five companies, and the tender of various documents. The respondent's counsel read affidavits made by several of its officers concerning actions taken by them as a consequence of the statements made by Mr Stumbles at the July 1991 Mobil convention in Los Angeles. They also tendered numerous documents. Most deponents to affidavits were cross-examined. In the end there was little dispute about the primary facts.
In summarising the facts, I propose to commence with an account of the actions taken by Mobil officers and then go to the applicants' evidence as to their reaction to those actions. I will then deal with each of the three bases of the applicants' claim against the respondent: misleading or deceptive conduct, promissory estoppel and breach of contract.
Mobil's actions
(i) Mr Stumbles' address
In my earlier judgment I set out a summary of facts. At the recent hearing, there was no suggestion of error in that summary. Consequently, I adopt it for present purposes. It should be read as part of these reasons. The summary dealt with the Los Angeles Convention and especially Mr Stumbles' address to it. It contained a synopsis of the address and quoted the portion critical to these cases. It also referred to the post-Convention action taken by Mobil to publicise Mr Stumbles' address and, in particular, his words linking achievement of 90% or more in the Circle of Excellence awards to extended franchises. The summary also mentioned the regional meetings at which dealers were asked to "accept the challenge to exceed 90% in Circle of Excellence judging and qualify for extra tenure". As recounted, Barry Morris, principal of Lyndel, was one of those who did so.
For the purposes of the recent hearing, Mr Stumbles made an affidavit in which he stated he was employed by Mobil as General Manager for Retail Marketing from March 1987 to July 1992. In that capacity he was responsible for every aspect of the company's retail marketing including its retail franchise arrangements. He said the administration and continuing development of the Mobil retail franchise was one of his most important responsibilities; the retail franchisees
were Mobil's public face and the channel for most of its retail sales. He said:"We spent a great deal of time developing and implementing initiatives to improve the Mobil franchise and to encourage and assist franchisees to perform better and to improve their businesses".
He mentioned the Team Pak program launched in 1987. That was a program under which franchisees bound themselves to maintain the standards set out in a series of booklets covering most, if not all, aspects of the management of a service station. It seems the Circle of Excellence Awards arose out of that program; they were designed to reward those dealers who were judged to have achieved a high rate of compliance with the standards. Prior to 1991 there were prizes each year (usually overseas holidays) for the franchisees who scored best in the awards.
Mr Stumbles said that, prior to the Los Angeles convention, he spent several weeks thinking about the issues he would address in his speech. He obtained suggestions from others. But he wrote the speech himself, about two weeks before the Convention. Mr Stumbles took full responsibility for the content of the speech. It is not clear whether the concept of tenure for performance was his own idea, but it was one he embraced. He said in his affidavit:
"At that time Mobil was concerned to find ways to have our franchisees perform better in the area of complying with the Team Pak operating standards which were an important element of
the Franchise Agreements between Mobil and its dealers. I thought that the concept of tenure for performance would encourage dealers to perform better and reward them for doing so."
Mr Stumbles asserted he had authority to make his statements:
"At the time of the 1991 Los Angeles Convention I was responsible for Mobil's policy in relation to the Mobil retail franchise. I considered that I needed no further authority to make the statements in my speech at the convention which informed the dealers of Mobil's proposal for tenure for performance. I considered that Mobil was committed to this concept subject only to resolving legal and administrative impediments."
He explained the rationale of the proposal:
"I considered that the tenure for performance proposal would benefit both Mobil and Mobil dealers. To earn extended tenure dealers would have to score 90% or better in Mobil's Circle of Excellence program. Under this program both Mobil staff and unidentified or secret shoppers conducted assessments of the extent to which dealers were complying with Team Pak operating standards. These standards had been jointly developed by Mobil and its dealers in 1987/88 and had been subjected to field trials before being confirmed as Team Pak standards. It had been agreed by both Mobil and representatives of its dealer group that these standards represented a very high quality retail operation. I considered that consistent adherence to Team Pak standards by Mobil's franchisees would improve their businesses, including the profitability of their businesses, and would in turn improve Mobil's business.
I believed that this proposal presented an opportunity to reward a greater number of dealers than the 30 approximately who were rewarded under the then current conditions of our Circle of Excellence program and would do this in a way that would encourage our better franchisees to remain in the network which would be an advantage to Mobil."
In his affidavit Mr Stumbles explained aspects of his speech. In relation to his "commitment" "that we will find a way to extend the tenure automatically, at no cost, for those dealers who consistently achieve 90% or better in Circle of Excellence judgings", he deposed:
"When I said this I believed that Mobil was committed to finding a way to extend the tenure of franchisees who consistently achieved 90% or better in Circle of Excellence judgings and that it fully intended to do so. I held this belief because I, as General Manager Retail Marking, was committed to this course, had the authority to decide policy in this area, controlled the resources required to work on this project, and had no reason to think that Mobil would not carry it through."
Shortly after Mr Stumbles' return from Los Angeles, he was seconded to a Mobil project named "Phoenix". This project involved a major restructuring of the company. In late September he was assigned full-time to the "Phoenix" task force. It was not until late March 1992 that he returned to normal duties. By then he had been appointed General Manager of the Pacific Islands Division. The appointment was not to become effective until 1 July 1992 but Mr Stumbles immediately commenced to take over the responsibilities of his new position. He was aware that, from 1 July 1992, his old position was to be abolished and its retail responsibilities undertaken by the holder of a new position titled "General Manager Fuel Sales". Garth Symington had been designated to
take up that position on 1 July. So Mr Stumbles commenced progressively to transfer his responsibilities to Mr Symington. In the result, he said in evidence, because of the "Phoenix" project he "had no direct involvement in the tenure for performance proposal after returning from the 1991 Los Angeles convention".
During the course of cross-examination, Mr Stumbles was asked about his knowledge of the follow-up action with dealers, described in my earlier judgment. He agreed he knew about this, although he was vague about the details. He was also asked his belief about legal difficulties in extending tenure. He said that, before the Convention, there was not time to deal with the potential difficulties, "difficulties remained which had to be overcome and I was confident they would be overcome". He said he intended to resolve the legal issues later; he was "quite confident that there would be ways to overcome all of those difficulties". He did not envisage any variation in the method of Circle of Excellence judging.
Towards the end of his evidence, Mr Stumbles assented to this summary of his position:
"He says:1, he made the speech at Los Angeles, it was a considered speech, he made it, he believing he had authority from Mobil to make it and genuinely intending what he said, and intending people to listen to it and take it seriously and act on it; 2, he realised there were legal and administrative problems to be overcome, he genuinely believed that they were capable of resolution; 3, after the Los Angeles convention his subordinates, with his
knowledge and direction, spread the word amongst the dealers and got them to sign up all the forms; 4, subordinates under his direction addressed the legal and administrative difficulties, and; 5, that as at the date that he departed that role, 1 July 1992, he thought the promise was still valid and that the difficulties were capable of resolution."
(ii) Mr Cripps endeavours to "find a way"
Stewart Cripps was Mobil's Manager for Franchise Development during 1991 and until June 1992. He was involved with Mr Stumbles and others in developing the tenure for performance concept. He saw this as a way to encourage all franchisees "to adopt and maintain the high levels of standards set by Team Pak", in which case "both Mobil and its franchisees would benefit". He said: "The franchisees would benefit as their businesses would improve and this benefit would indirectly pass on to Mobil through higher customer acceptance and increased orders." After the Convention, in about October 1991, he prepared a memorandum headed "Extended Tenure" in which he set out his understanding of the proposal:
"The theory behind this would be that a dealer could have tenure in perpetuity so long as that [sic] high standards are consistently achieved. That is a dealer with six years to run would still have 6 years to run at the end of next year if he operated above the level set. However this is not possible under the PRMF Act which grants tenure in batches of 3 years up to a minimum of nine years. Once that 9 year period has concluded any additional tenure triggers another block of tenure for 9 years thus preventing any annual (or one off) additions to current franchise arrangements.
Currently the bulk of the franchise network (excluding Esso) are at the end of their first
3 year period and have 6 years remaining until they have to seriously consider tenure renewal. Our proposal is to offer them a new 9 year period without fees if they operate their sites over the next 6 years to a standard which exceeds 90% in the Circle of Excellence judgings for each of those 6 remaining years."
Mr Cripps said there was a "need for some form of formula and even the provision of a franchise fee structure" to cover sites that did not reach 90% in all of the six years. He discussed a possible discounting method.
In preparing this memorandum, Mr Cripps consulted an in-house lawyer, Peter Sanguinetti. Mr Cripps was aware of the provisions of the Petroleum Retail Marketing Franchise Act 1980 ("the PRMF Act") and concerned to avoid a situation where the grant to a franchisee of a reward of an extra year's tenure triggered an entitlement to a further nine years' franchise. However, Mr Cripps said he
"thought it may be possible to get around this difficulty by either discounting any franchise fees or varying an agreement with a franchisee after the first or second 3 year period. I understood that difficulties could arise if additional tenure was granted following the last 3 year period."
There were further discussions in November 1991 amongst Mobil officers. On 9 December Mr Cripps circulated to 17 other officers, including Mr Stumbles and Mr Sanguinetti, a memorandum headed "Extended Tenure for Performance". It commenced:
"It is proposed to offer franchised OGL dealers an additional year's tenure by way of a Deed of Variation and Extension to current franchise arrangements for each year that the site achieves above 90% in the Circle of Excellence judging. The offer of additional tenure would be made annually upon achievement of acceptable performance levels and would incorporate an incremental rental as part of the additional tenure.
Such a mechanism could be put in place within the framework of the PRMF Act. Effectively, it could mean that a dealer could operate, by way of extensions, within the current 3 year lease term for as long a period as the standards of performance are maintained."
Mr Cripps explained the mechanics of the proposal, using as an example a site that, at the beginning of 1992, had a current three year lease (for the years 1992, 1993 and 1994) with provision for one further 3-year renewal:
"Let's assume that at the completion of the 1992 Circle of Excellence program the site has achieved above the required level of 90%. Upon receipt of the final judgings we would provide the dealer with an offer to vary and extend his existing franchise agreement for one year at a specific rental (See attached example of a Deed of Extension). The rental could be set at an incremental increase (ie. CPI) on the third year rental and the dealer would have a specific time frame of 60 or 90 days to accept or reject the offer. Assuming he accepts then we have, by way of variation, provided him with a further year's tenure to his current franchise period as a reward for performance ...
Therefore, at the end of 1992, upon acceptance of the offer, the dealer would still have 3 years of tenure remaining plus his final 3 year lease period.
Similarly, if the dealer continues to operate at these high standards during 1993, then he would be provided with another offer of variation and extension which would, upon his
acceptance, provide him with a further year's tenure....
So long as the dealer maintains these high performance standards then he would receive additional tenure by way of an extension to his current franchise agreement. Such a system will not result in the triggering of the Franchise Act and the creation of a new nine year franchise period.
The reward to the dealer is immediate in that it provides him with the legal documentation which extends his franchise period by a year each time he achieves the required standards."
Mr Cripps went on to discuss the use and form of a standard deed of variation and extension. He thought the execution of deeds could be handled by Mobil's marketing officers, the only variation required for individual cases being in respect of dates and rental amounts. Where sites were held under a head lease, there could not be an extension beyond the date of its expiry; he thought that problem might be resolved by "storing up additional tenure" and providing it by way of an extended agreement, if and when Mobil was able to renegotiate or extend the head lease. Mr Cripps attached to his report a one page draft deed containing only three clauses:
"1.The expiry date of each of the Agreements is extended so that it shall end at midnight on the [blank] day of [blank] 1988.
2.For each of the Agreements its provisions applying immediately before what otherwise would have been its expiry date shall continue to apply during the extension under this Deed, with the following exception:-
Under the Lease, rental for the period from [blank] to [blank] shall be $[blank], payable by equal monthly instalments in advance on the first day of each month.
3.Dealer shall pay Mobil's costs of and incidental to the preparation and execution of this Deed and all stamp duty on or resulting from it."
Mr Cripps annexed to his affidavit memoranda responding to his proposal, prepared by three recipients of it. Their comments related mainly to administrative details. Following those responses, between January and April 1992, he did some further work on the proposal. But no decision was made. Mr Cripps said that, as a result of the imminent restructuring of the company, "no one within Mobil was making decisions". In April he received from Mr Sanguinetti a redraft of the standard deed he had circulated. On an accompanying slip of paper, Mr Sanguinetti wrote it was sent "for your final review before I send it outside to get checked". Mr Cripps said in evidence he could not recall responding to the note or asking Mr Sanguinetti to send the document "outside" (that is, to external solicitors) for comment. According to Mr Sanguinetti, Mr Cripps never did so. In July 1992, Mr Sanguinetti sent the draft deed to Roger Keller, a consultant advising Mobil, with a note saying: "If this concept is still a goer, I would like this document vetted by an outside lawyer". Mr Sanguinetti's recollection is that he wanted confirmation of the mechanics of the scheme before referring the document to Mobil's outside lawyers "for final review". He said he had not yet formed a "concluded
view" as to whether or not it would be effective under the PRMF Act. Although Mr Sanguinetti did not agree with counsel that he believed he had found a way "to get round the problems of the Act", he did agree that any reservations he had were insufficiently strong to be recorded in his note to Mr Keller. Mr Sanguinetti said he never did refer the proposal or the draft deed for "outside" advice.
(iii) Abandonment of tenure for performance
In June 1992 Mr Cripps was transferred to another position. William Higgs became Franchise Development Manager and took over Mr Cripps' former duties. Mr Higgs reviewed the file regarding tenure for performance including the draft deed of variation. He thought the deed was "fraught with difficulties" and would "probably involve voluminous documentation in administering it". He received a memorandum from Hayden Burge, the Queensland Area Manager, suggesting legal difficulties, but Mr Higgs sought no advice about them. Nor did he ask Mr Sanguinetti to obtain external advice about his draft deed. At some stage, apparently between November 1992 and March 1993, a draft document was prepared which Mr Higgs said in evidence was "consistent with the issues that were being discussed at about that time by me and other people involved in the consideration of the tenure for performance proposal". This document proposed a scheme markedly different from that outlined by Mr Stumbles at Los Angeles. It contained this summary of the situation:
"At the Mobil Dealer Convention in Los Angeles in 1991, a commitment was given to dealers that Mobil would find a way to extend dealer tenure at no cost to the dealers. What was originally suggested was that for each year a dealer acheived [sic] over 90% in Circle of Excellence, their current franchise period would be extended by one year. IE: if a dealer who had six years to run on the current franchise acheived [sic] a score of 90% or greater in Circle of Excellence, than at the end of the year the dealer would still have six years to go.
Dealers have been waiting since the convention for some form of communication from Mobil about extended tenure. Dealers are of the belief that a firm committment [sic] was made and that we have an obligation to honour that committment [sic]. The issue was formally raised at the last NDAC meeting in November 1992 at which time Mobil advised that we would send out a letter to the dealer network outlining where Mobil stood on the issue of extended tenure. That that letter will basically state that Mobil will stand by its committment [sic]. It should go out to the dealers in March 1993.
From the work done to date, it has become apparent that legislation makes it extremely difficult to keep renewing franchises by a yearly deed of extension. It will be both a costly and a time consuming exercise. Further, yearly renewals mean the program just carries on from year to year with no definable end. This could in effect mean some dealers will end up with a perpetual lease.
We are suggesting therefore, that rather than extend tenure at the end of each year, we offer dealers free tenure towards their next franchise renewal. By free tenure we mean that the dealer will not have to pay a franchise fee for those free years earnt."
During early 1993, Mr Symington gave some attention to Mr Stumbles' tenure for performance proposal. He said that, by March 1993, he realised the proposal was still an issue with franchisees. He knew Mobil had to decide what it would do and that this was his responsibility. He said in evidence that his understanding, at that stage, "was that by granting 1 year extra tenure to a Mobil franchisee, there was a possibility that this would trigger an extra 9 year franchise agreement". He was not prepared to take that risk. Mr Symington initially said his understanding of the legal position came from Mr Cripps and Mr Higgs, but he later limited the attribution to Mr Higgs. He said he did not obtain advice from Mr Sanguinetti or any other lawyer.
(iv) The discounted fee proposal
On 6 May 1993, Mr Higgs met with Mr Symington and three other officers to determine "how Mobil should meet its commitments" arising out of Mr Stumbles' speech. The meeting decided to limit to the years 1992 and 1993 any implementation of the commitment, but apparently failed to determine the method of implementation. Three options were discussed. In a memorandum written four days later, Mr Higgs referred to these three options, and also a fourth option that had "re-surfaced" and which he thought worthy of reconsideration, namely, the addition of the years earned through the Circle of Excellence program to a new franchise period, if one was offered. However, Mr Higgs did not favour the granting of additional tenure itself. He said:
"It should be noted that the 'cleanest' way to resolve this issue is to reward dealers with a discount off Franchise fees upon taking up a new Franchise i.e. one ninth off fee for each year of 90% on CofE. The only real problem this might cause is that it commits Mobil to
charging fees. However these fees can be structured in any way to complement other franchise requirements. This method does not 'extend tenure' or give 'extra tenure' as the other methods do."
The evidence does not disclose what consultations took place about this proposal, but it found favour with the relevant Mobil officers. Mr Higgs prepared a Briefing Note for those attending a meeting of the National Dealer Advisory Council ("NDAC") Executive on 8 June 1993, being six dealers and six Mobil officers. The Note included this announcement:
"The reward of the free Tenure will be made for dealers achieving 90% or better in CofE for 1992-93 only, at this stage. The mechanism for reward will be via a pro-rata discount off Franchise fees upon dealers entering into a new Franchise i.e. on [sic] ninth discount off fees for each year of 90% or better on CofE.
The discount will be applied to the fee structure in place at the time of Franchise renewal and is available to lessee dealers only.
The future direction of this program will be finalised as part of the proposed Franchise review."
The announcement was included, in almost identical language, in a Mobil Newsletter sent to franchisees shortly after 8 June. The only differences were that the second paragraph was extended so as to say that the discount "is not transferable" and the last paragraph was made to read: "The future direction of this program will reviewed later in the year".
Mr Symington attended a State Dealers Advisory Council meeting on 23 June 1993. According to his affidavit he said words to the following effect:
"There have been delays regarding the tenure decision due to legal problems with the PRMF Act. Mobil has received legal opinion that if 1 year additional tenure is offered, a new 9 year franchise would affectively [sic] have to be offered. Therefore, Mobil proposes to rewards [sic] dealers achieving 90% or better in the Circle of Excellence programme for 1992 and 1993 only at this stage. The mechanism for reward will be by a pro-rata discount of franchise fees upon dealers entering into a new franchise agreement. Affectively (sic) this will be a 1/9th discount of fees for each year of 90% or better in the Circle of Excellence programme."
There is no evidence that Mobil received legal advice to the effect of the second sentence in this passage. The advice that Mobil had received, although tentative, was to the contrary.
Although Mr Higgs remained Franchise Development Manager until May 1994, he apparently took no further action in connection with Mr Stumbles' promise. The promised review "later in the year" did not occur.
During the course of cross examination, Mr Higgs was asked to clarify the decision announced to the NDAC Executive:
"Supposing Mobil in its wisdom and discretion did not give such a dealer who had achieved one year only another franchise, what rights would he have on your understanding?---As the offer was made it was upon taking up any franchise, so under your scenario there wouldn't be any franchise so there wouldn't be a discount needed.
So although this man had achieved 90 per cent in the Circle of Excellence, we will just say for one year, and although according to Mr Stumbles' speech he was entitled to an extra year, and if he got nothing more and Mobil in its wisdom decided, or in its discretion I should say decided not to grant him another franchise, then there would be no right to him under what might be called Mr Stumbles' proposals, is that correct?---There would be no right to him, that's correct."
Apparently, the NDAC Executive did not protest about Mobil's decision. But many franchisees were unhappy about the situation. The implementation of Mr Stumbles' promise remained a point of contention. It was discussed between individual franchisees and Mobil officers and at some meetings.
(v) The retail area franchise scheme
In early 1993 a number of Mobil officers were appointed to be members of a committee called the Retail Business Venture Group. Mr Higgs was one of them. The members of the group did not report to Mr Symington but he spoke to them regularly. The group spent about 18 months looking at all aspects of Mobil's retail operations. In about July or August 1994, according to Mr Higgs' recollection, the group decided to recommend a new franchise scheme under which one person would be given a franchise covering several service
stations. Adoption of that recommendation would mean, of course, that Mobil would require fewer franchisees than previously to operate its franchised service stations.
Apparently the recommendation was adopted. Mr Higgs said implementation of the recommendation "began probably about October" 1994. It was still proceeding when he gave evidence in October 1996.
(vi) The Roneberg letter
Mr Stumbles' 1991 promise was discussed at a meeting of NDAC late in 1994. As a result, the NDAC Chairman, Mr Ron Roneberg, wrote to Mr Symington. In reply, Mr Symington wrote a letter dated 28 November 1994 ("the Roneberg letter") that was later widely circulated. It read:
"At the Los Angeles Convention in 1991, Mobil put forward the concept of one year's extended tenure for each year a dealer achieved a 90% or better C of E result. (We have subsequently confirmed that this is limited to two years).
This offer was made in good faith, but we did make it very clear at the time that the PRMFA severely hampered our ability to deliver the offer as an 'insert option', given that the PRMFA prescribes a minimum renewal offer of 3 + 3 + 3.
As a result we had determined to offer the renewal as a 'discount' off the full franchise fee that would likely have been payable to Mobil upon renewal of the franchise.
As you well know, and indeed as you make reference to in your letter, competitive market conditions have overtaken us and we are having to meet that competition by dramatically
changing the basis upon which we will operate the network. The result of this change will mean fewer individual franchisees in the network.
That is a brief summary of events as we see them.
In response then, at the outset it must be said that we appreciate this situation would be causing some anxiety, however, we have not determined any hard and fast rules at this stage for surrendering or non-renewals of franchises and hence we cannot give definitive answers to your questions.
Suffice it to say we are conscious of the issues and are working to a tight timetable to try to come to some definitive resolutions."
Despite the contents of the last paragraph of this letter, no "definitive resolutions" were ever announced by Mobil.
(vii) Abandonment of the Circle of Excellence awards
In January 1996, shortly after the commencement of these proceedings, Mobil announced its abandonment of the Circle of Excellence awards. No reasons were given.
(viii) Findings
In his evidence, Mr Stumbles said he had authority, within the Mobil organisation, to make the statements contained in his Convention address. This assertion was not questioned by counsel. There is no evidence to the contrary. Consequently, I accept it. I find Mr Stumbles' statements
were made on behalf of Mobil. To the extent that Mr Stumbles' address contained commitments that were potentially legally binding, they were commitments on behalf of Mobil.
Did Mr Stumbles intend that franchisees would take seriously, and act upon, his statements? I think so. Mr Stumbles' address was one of the highlights of the Convention, in respect of which Mobil had gone to considerable effort and expense. After the Convention, Mobil went to further effort and expense in publicising his address and, particularly, his promise of tenure for performance. This is consistent only with the company intending that what he said would be taken seriously and stimulate action.
Further, I was favourably impressed with Mr Stumbles. I think he was genuinely enthusiastic about the tenure for performance concept. He saw it as a way of improving franchisees' operating standards, and therefore their businesses. Any improvement would benefit Mobil.
When Mr Stumbles spoke at Los Angeles there was no suggestion but that Mobil would continue its existing practice of granting franchises over individual service stations. The idea of multiple site franchises had yet to emerge. Accordingly, Mr Stumbles would have expected that Mobil would continue to require individual service station franchisees. In that situation, it would be natural for him to reason that the new franchises needed on the expiration of existing franchises might as well be offered as a reward for operational excellence, thereby obtaining benefits for Mobil in the meantime.
Having regard to these matters, I have no doubt that, when Mr Stumbles spoke at Los Angeles, he intended to implement a tenure for performance regime. There is no reason to doubt he firmly intended to implement the "nine years for six" promise. He knew some legal issues remained to be resolved in relation to a "one-for-one" proposal, but he was determined they would not be allowed to frustrate it. When Mr Stumbles caused his subordinates to have franchisees commit themselves to the scheme, he intended the scheme to come to fruition. His attitude was shared by Mr Cripps, who actively worked on the scheme and devised a method of implementing the "one-for-one" proposal that achieved the approval (subject to confirmation) of Mr Sanguinetti, the only lawyer who advised on it. The evidence strongly suggests that, but for the secondment of Mr Stumbles to the Phoenix project and his ultimate replacement by Mr Symington, Mobil would have implemented a tenure for performance scheme.
Mr Higgs and Mr Symington were unenthusiastic about tenure for performance. Counsel for Mobil attempted to ascribe this lack of enthusiasm to perceived administrative and legal difficulties. The attempt was not convincing.
As to administrative difficulties, there is no suggestion there would have been any administrative difficulty in granting a new nine-year franchise to each franchisee who achieved 90% in each of six years. Mr Cripps' "one-for-one" proposal would have required only the printing and distribution of copies of a standard form of deed of variation and, in relation to each dealer achieving 90% in the Circle of Excellence awards, the insertion of two items in the form (the new lease expiry date and the rental amount). It is difficult to believe this task would have been beyond the competence of the company's local territory managers.
As to legal problems, there was plainly no barrier to granting a new, free, nine-year franchise to a franchisee who achieved 90% in each of six years. The proposal of one year's extra tenure for any year of 90% achievement was more problematical. But the evidence does not reveal that Mobil ever received legal advice that an offer of one year's additional tenure would require it to offer a new, nine year franchise. The only lawyer who advised about the tenure for performance proposal was Mr Sanguinetti. It was his opinion that it was possible for Mobil to offer one or more additional years without being required to grant a new nine-year franchise, at least during the period prior to the final three years of the initial franchise. When Mr Symington was asked in cross examination whose opinion he was relying on when he spoke about legal difficulties, he said he was relying on what Mr Higgs said. But Mr Higgs was not a lawyer and he gave no evidence of receiving legal advice about any difficulties. During the course of his evidence, I commented to Mr Symington:
"it strikes me as odd that a senior executive who is confronted with a need to go back on a promise made by his predecessor because of a legal problem does not himself talk to a lawyer?"
He responded: "Well, that's what happened".
In his final address, Mr R Gyles QC, senior counsel for Mobil, submitted I should accept that Mr Symington genuinely wished to implement Mr Stumbles' promise but was unable to do so for legal reasons. In view of this submission, I have considered again the comment I made to Mr Symington and his response to it. But I remain of the view that it is extremely unlikely that a person in a senior executive position in a large company would abandon, for legal reasons, an important proposal, which he genuinely wished to implement, except after receiving clear advice from a lawyer as to its undesirability or impracticability. It is not as if Mr Symington had any problem in obtaining legal advice. He had direct access to Mr Sanguinetti, an in-house lawyer with an intimate knowledge of the PRMF Act. Mobil also regularly sought advice from a leading firm of solicitors and from counsel, including senior counsel. Mr Symington not only lacked advice from any lawyer that there was a legal problem; the tentative advice he had was to the contrary.
I do not accept Mr Symington's evidence that he abandoned the tenure for performance proposal because of perceived administrative and legal difficulties. I think the truth of the matter is that Mr Symington was never enamoured of Mr Stumbles' proposal and used the excuse of legal difficulties in order to kill it. Mr Symington probably decided to do this soon after he took over Mr Stumbles' duties; that may be why Mr Sanguinetti was never instructed to seek outside legal advice.
Mr Symington may have thought that, if nothing was said, his abandonment of Mr Stumbles' promise might pass unnoticed. However, at least by March 1993, it was apparent this would not be the case; franchisees were asking about it. So he had to find a substitute. He eventually did so, but the substitute was a travesty of the original. It was limited to only two years' judgings in the Circle of Excellence, whereas Mr Stumbles plainly had envisaged the promise would be effective over a period of at least six years. He had said "if you achieve 90% each year for the next 6 years then we'll guarantee you another 9 years as of right". Mr Symington's substitute did not involve a grant of extra tenure, something that might be expected to increase the capital value of a franchisee's business, but only a discount from franchise renewal fees, if any were to be charged. And if Mobil elected not to renew the franchise, for whatever reason, then the franchisee would obtain no benefit at all from its Circle of Excellence performance.
The five applicants' actions
(i) Lyndel
As recounted in my earlier judgment, Barry James Morris of Lyndel attended a meeting in late 1991 at which Tony Broome, a Mobil representative, played a videotape of Mr Stumbles' Los Angeles address. Mr Broome said "You heard the speech. For every year you achieve 90% or better in Circle of Excellence you will receive an additional year's tenure". David Browning, Mobil's territory manager, then handed out brochures containing a tear-off slip which Mr Morris signed and returned. It included the statement: "I accept the challenge to exceed 90% in Circle of Excellence judging and qualify for extra tenure". Mr Morris said in a more recent affidavit that, when he signed the tear-off slip, he believed Lyndel would be granted an extra year's tenure for each year of 90% achievement until it had achieved six years and would then be entitled to a new nine year franchise.
It appears that Lyndel first participated in the Circle of Excellence judgings in 1990, when it scored over 90%. Lyndel repeated this feat in 1991 but it is not clear whether Mr Morris was aware of that fact when he signed the tear-off slip. Whether he was or not, he made up his mind that Lyndel would achieve 90% in each of six years and thereby earn an extra nine years franchise. In an affidavit, Mr Morris said he took a number of steps to ensure this. The
items are numerous and some lost significance during cross-examination. It is sufficient to note the following:
Mr Morris' father had retired from his former employment but had been supervising the service station since April 1991. He had intended to leave the service station at the end of 1991. But he agreed to stay on to ensure maintenance of high standards, and therefore successes in the Circle of Excellence, in subsequent years. According to Mr Morris, his father remained at the service station "until late last year [that is, 1995] when this matter became obvious that they weren't going to give us tenure".
Extra staff were employed, to the extent of 20-30 hours per week and costing about $14,000 per annum. Mr Morris explained the need for extra staff by saying:
"Part of this Circle of Excellence and achieving that 90 per cent, it was all about providing the best standard of service facilities, customers, cleanliness, tidiness and so on so that there was a constant due diligence about making sure the cigarette butt on the driveway was not left on the driveway till the cleaner came in, there was extra staff put on at shift changes to make sure that that type of thing was always attended to."
Lyndel undertook several aggressive marketing schemes offering customers various benefits. In cross-examination, Mr Morris conceded that each of these schemes proved financially worthwhile, but he said that was a conclusion reached with the benefit of hindsight;
"but at October 1991 when you had to, under Circle of Excellence, have this innovative approach it was a substantial risk. I mean, we may well have sold the volume anyway at full margin at no cost."
Mr Morris agreed that it had not been his strategy to run these schemes at a loss; he had planned to make money.
According to Mr Morris, after October 1991 the Circle of Excellence standards were raised. Franchisees needed to have a comprehensive marketing plan that provided for increased sales. In order to achieve this, Lyndel gave customer discounts totalling $82,705 over the five years between October 1991 and the date of his affidavit. Mr Morris agreed that Lyndel's average annual discount cost was not greater after October 1991 than in the two immediately previous years but he said this was because there was a special situation in 1990 and 1991 in relation to discounts on liquid petroleum gas to a taxi company.
Lyndel retailed goods listed on Mobil's preferred supplier program rather than substitutes on which it could have realised a higher profit margin. Mr Morris agreed that Mobil's promotion of the listed goods might have raised Lyndel's sales volume.
Lyndel accepted the Mobil credit card system, which was more expensive than a system it could have arranged for itself.
Lyndel ordered equipment through the Mobil central ordering system rather than buying elsewhere at lower cost. Mr Morris explained:
"to ensure that you continued getting your 90 per cent or better in C of E, you buy from the central ordering system. It might cost you a few more dollars but that's - the few dollars - you know, a few hundred dollars is not relevant to the 90 per cent and the extra tenure."
In order to comply with a specific Circle of Excellence requirement, Lyndel displayed Mobil 1 oil and lubricant packs on the forecourt, rather than near the console. The result was an increase in the level of theft, these being high priced packs.
Mr Morris agreed the steps he had taken made good business sense. He agreed the business had always been successful and profitable "before and after Team Pak and Circle of Excellence". He agreed he had always kept a careful eye on the management of the service station and that it was against his nature to run a service station otherwise than in a clean, tidy and business-like fashion. But he added:
"at our other retail outlet up until recently when we renovated it, we did not apply the same level of detail and attention as we did to this site because we didn't have the same potential benefit attached."
In discussing these items with Mr Morris, Mr Gyles QC referred to the standards of operation required by the Team Pak documents. The Team Pak scheme commenced about 1988 and Lyndel was one of the franchisees that had agreed to observe its numerous and detailed requirements. Some of the things done by Lyndel in order to earn 90% in the Circle of Excellence awards were required to be done under the Team Pak scheme. Notwithstanding this, Mr Morris said he would not have done the things "if it didn't mean 90% gave me extra tenure, no. Why would I spend my money to do certain things if there was no, if there wasn't the carrot of tenure". This amounted to a concession by Mr Morris that, but for the promise of tenure for performance, Lyndel would have been willing to fall short of punctilious compliance with Team Pak, at least in respect of items that cost money.
Mr Gyles criticised this attitude, in relation to Lyndel and other dealers. But its existence is hardly surprising. Because they had the security of nine-year franchises, franchisees knew that minor infractions of the Team Pak standards would not prejudice their continuation in business during that term. Before Mr Stumbles' speech in Los Angeles, they had no guarantee of a renewal. Without a specific promise of renewal, it would be natural for franchisees to concentrate on maximising their immediate
profits. Mr Stumbles knew this was the position. He had no stick, effective to prevent some short-fall from Team Pak standards. That is why he offered what Mr Morris called "the carrot of tenure". In that situation, it seems unrealistic and unfair for Mobil to denigrate actions taken in response to the offer by saying Lyndel was bound to do these things anyway.
During the course of cross-examination, Mr Gyles took Mr Morris to some correspondence concerning the renewal of Lyndel's lease. He also asked him about his knowledge of the abandonment of tenure for performance. Mr Morris said he did not learn about this until he received a letter dated 30 November 1994.
As to the first matter, the lease correspondence suggests that, some time before 22 March 1993, Lyndel received from Mobil an offer to renew its sub-lease for a further three years. On that day, Mr Morris wrote to Mobil on behalf of Lyndel raising seven matters "for your consideration and adoption into the documents". They included:
"3TEAM PAK AGREEMENT SCHEDULE ITEM 11
This clause is inconsistent with Mobil's stated policy that tenure is automatically extended by one year for each year the dealer achieves 90% or better in the 'Circle of Excellence'. Please amend."
On 13 May 1993 Cutler Hughes & Harris, solicitors for Mobil, sent to Lyndel a letter enclosing a number of
documents for execution. They made no reference to extended tenure. At some stage Mr Morris spoke to Mark Hardy, the ACT Mobil representative, about the matter. On 5 July 1993 he returned the documents to Mr Hardy, duly executed, along with a letter drawing attention to the fact that he had amended the Team Pak Agreement schedule with respect to tenure "to reflect Mobil's extended tenure policy". On 10 August Cutler Hughes & Harris wrote to Lyndel stating that the amendment was not agreed and requiring re-execution. The letter concluded:"The method of granting any extended tenure has not yet been resolved by Mobil and the NDAC. It is anticipated that the reward will be via a pro-rata discount of franchise fees of a new franchise."
Mr Morris referred the letter to Mr Hardy with a note requesting him to "advise in writing the exact position" so he could finalise the documents. Two days later Mr Hardy sent a memorandum substantially repeating what had been stated by the solicitors and requiring deletion of the amendments Mr Morris had made. Mr Morris complied with this requirement.
I do not think Mr Morris' compliance with Mobil's requirement has any legal significance. It is apparent that he executed the documents in the form required by Mobil because this was the only way he could obtain the lease renewal to which he was entitled. He did not accept Mobil's failure to implement what he considered to be Mr Stumbles' promise.
Turning to the second matter, the letter of 30 November 1994 was sent to Lyndel by Brett Hay, Mobil's Retail Manager in Sydney. It read:
"Following a request from the NSW State Dealer Advisory Council, I wish to formally advise you of the status of the Franchisee Fee issue above.
As your site achieved 90% or better in Circle of Excellence judgings in 1992 and 1993, you are eligible for the reward.
Quoting from the minutes of previous NDAC meetings
'The mechanism for reward will be via a pro-rata discount off franchisee fees upon dealers entering into a new franchise ie. one ninth discount off fees for each year of 90% or better on Circle of Excellence.
The discount will be applied to the fee structure in place at the time of Franchise renewal and is available to lessee dealers only. The future direction of this program will be finalised as part of the proposed Franchise review.'
With regard to the consequences of this entitlement in the case of surrendering or non-renewals of franchises, I have attached a letter from Garth Symington, General Manager Fuels, to Ron Roneberg, Chairman of the NDAC. As you will read, a final answer is forthcoming and we will advise you upon receipt of same."
He enclosed a copy of the Roneberg letter.
On 27 March 1995 Mr Morris wrote to Roger Thain, who had become Mobil's ACT representative. He referred to Mr Stumbles' promise and subsequent events, including the effort his company had made to achieve 90% better in the Circle of Excellence. He went on:
"In 1994 Mobil withdrew from their promise and notified dealers that the extended tenure offer was withdrawn. We accept Mobil's right to withdraw from the promise from that date. We do not accept, however, that Mobil's withdrawal can be effective retrospectively.
Subsequently Mobil has endeavoured to change and rearrange the promise made in 1991 by offering a discount equivalent to 2/9ths off the next franchise fee. We therefore assume that Mobil will be offering us a new franchise at the end of the current franchise term and at terms and conditions and a francise [sic] fee similar to the offer of a Teampak franchise in 1990. If this assumption is incorrect please advise:
(i)Will Mobil be offering us a new franchise at the end of the current franchise term,
(ii)The terms and conditions and fees under which you propose to offer that franchise,
(iii)If the answer to (i) is no, how do you propose to compensate us for the extended tenure that was promised by Mobil and earnt by its dealer.
If you do not propose to offer us a new franchise on similar terms, conditions and fees as the existing franchise, we wish to inform you that your discount franchise fee offer is not acceptable and that we insist that Mobil honour its promise 'To extend tenure automatically at no cost'.
Finally, we would point out that in most agreements between parties, usually many of the obligations undertaken turn out to be inconvenient and undesirable. However, this does not remove the obligation of performance, from either party, or for ethical conduct to be maintained." (Original emphasis)
Mr Thain responded by sending Mr Morris another copy of the Roneberg letter.
On 14 August 1995 Mr Hay wrote again to Lyndel offering to buy out the remainder of its tenure for $105,553.47. This sum was said to represent the nominal market value of the franchise as at 1 July 1995, on the basis that it would expire on 31 December 1999, and to include "a reward of an amount of $32,209.97 being equivalent to the nominal market value of an additional 2 years to reflect your achievement of a score of 90% or better in the Circle of Excellence program in 1992 and 1993".
Mr Morris did not accept this offer. This is not surprising, given that Lyndel's average annual after-tax profit from the business over each of the previous five years well exceeded the offered price. Analysing the figures in a different way, the offered reward for achieving 90% or better in the Circle of Excellence amounted, for each year, to a figure that represented about one-tenth of Lyndel's average annual after-tax profit.
As acknowledged in Mr Hay's letters, Lyndel achieved 90% in the Circle of Excellence awards in both 1992 and 1993. It did the same thing in 1994 and 1995, although Mobil no longer regarded this as relevant to tenure or franchise fees. It will never be known whether Lyndel would have scored 90% in
later years; as already mentioned, in January 1996, Mobil peremptorily terminated the Circle of Excellence awards.
Mr Hay's letter of 14 August 1995 made it clear that, if Lyndel did not accept the buy-out offer, the "reward" of $32,209.27 would be paid in cash on expiration of the franchise.
(ii) Thorpe
The evidence on behalf of Thorpe was given by Chris Phillip Scorgie, a director of the company. At one stage of his career, Mr Scorgie worked for Mobil as a territory manager. In about 1981, apparently in conjunction with his wife, he purchased the shares in Thorpe, the franchisee of a Mobil service station at Holden Hill, in Adelaide. In 1988 Thorpe entered into a Team Pak agreement, apparently as part of a new nine-year franchise that is due to expire on 31 December 1997.
Mr Scorgie attended the Los Angeles Convention in company with his wife. He heard Mr Stumbles's speech and noted his reference to extra tenure. He thought this to be "a very good offer, it seemed to me the offer was giving dealers the opportunity to have a sort of perpetual lease". He particularly noted Mr Stumbles' reference to a new nine-year lease at no cost for people who achieved 90% or better for six years.
According to Mr Scorgie, Mr Stumbles' speech caused considerable excitement at the Convention, amongst both dealers and Mobil personnel. He said it changed his attitude to the Circle of Excellence, which he had not previously taken very seriously. When he returned home, perhaps in conjunction with the local Mobil territory manager, he organised a meeting of all the dealers in his area. He and the territory manager spoke to them about Mr Stumbles' offer. The dealers decided immediately to introduce "a trial run in which dealers were out judging each other's sites before the new year 1992 Circle of Excellence Program and judging started". He said the Mobil territory manager participated in the trial run and informally visited sites to judge their standards. Mr Scorgie recalled receiving from Mobil a videotape containing highlights of the Convention, the "Mobil Marketeer" report of Mr Stumbles' address and the brochure with tear-off slip, which he signed and returned. He said he held staff meetings to talk about the Circle of Excellence program, stressing the importance of extended tenure and its effect on the staff's long term employment.
In his affidavit, Mr Scorgie deposed to a number of actions taken by him to meet the standard required by the Circle of Excellence. Once again, some fell by the wayside during cross-examination but I note the following:
Thorpe purchased uniforms for all employees. Prior to Los Angeles, staff had worn only parts of the uniform.
Employees were occasionally required to work additional hours to keep the service station "immaculate in appearance".
Thorpe discontinued the sale of products put out by Mobil's competitors, notwithstanding that some were very profitable lines in high demand from customers. Thorpe would have lost points if any competitive products had been found on its site during Circle of Excellence judging.
Thorpe purchased its site equipment from Mobil's central ordering depot, notwithstanding that many items could have been purchased cheaper elsewhere.
Mr Scorgie went to the trouble of ensuring that equipment located on the forecourt of the service station - the ice box and some trailers he held available for hire - were repainted in Mobil's approved colours.
Thorpe displayed Mobil 1 oil on the forecourt, with a consequent increase in losses through theft.
Mr Gyles put to Mr Scorgie that he was bound by Team Pak to do many of these things. Mr Scorgie responded that it was not his obligation to meet the Team Pak standards "to the letter of the law as is determinated in the judging sheets of the Circle of Excellence". The evidence went on:
"Are you suggesting to his Honour that the Team Pak standards were optional extras so far as you were concerned?---No, I - what I'm saying is that I operated - the Team Pak franchise type concept was being developed in 1988/89 and what I'm saying is that at that point of time I was operating my business under what I would consider difficult circumstances and it was not a priority of mine to comply with those standards. Now, if I wasn't complying with the standards I would expect that someone from Mobil Oil would have advised me accordingly and then I would have made an effort to comply with whatever standards that they thought I wasn't complying with which may have been critical. The lesser important items which are the items that I addressed myself to in depth after 1991 I didn't bother with prior to 1991.
Well, do you say that you made a conscious decision to lift your game at some point?---Absolutely.
When was that point?---That would have been - it would have been on the day that Ken Stumbles offered me something that I saw as extremely - an extremely good incentive, the best incentive that I could ever wish for."
Mr Scorgie said in evidence that he read the report in the Newsletter of 8 June 1993 but he did not accept what was stated. There were protests from many dealers at that time; there were discussions at dealers' meetings. But he said Mobil did not make its position clear until 12 January 1996 when Grant Barrett, General Manager Fuels Sales, sent out a circular letter to all Team Pak members notifying the immediate termination of the Circle of Excellence awards.
Thorpe obtained a score of 90% or better in the Circle of Excellence awards for each of the years 1992, 1993, 1994 and 1995.
Wellcome
Wellcome is a company owned by members of the Jevaherjian and Sarkis families. Evidence concerning its case was given by Abraham Jevaherjian, a director and the person responsible for the day to day management of the company's service station at Northbridge, a suburb of Sydney.
It is important to note that Wellcome did not conduct the service station in July 1991, when Mr Stumbles made his speech in Los Angeles. It acquired the lease of the site, and franchise of the business, in 1992. The vendor was Phillip Lee.
Mr Jevaherjian gave evidence that he first met Mr Lee in February 1992. Mr Lee informed him that the "lease" would run until December 1999; presumably he meant the nine- year franchise. Mr Jevaherjian requested information about trading figures. They were supplied. At a second meeting, about one week later, Mr Lee mentioned the Circle of Excellence program and said that, if the purchaser achieved over 90% in a year, "it will be added to your final lease and if you maintain that level of standard over the six years, at the end of the lease you will get a new nine years with no cost". Mr Jevaherjian said that, when he heard this, he thought the service station offered an excellent opportunity to secure long tenure and, therefore, a career for him and George Sarkis. Both were young men, aged 28 and 29 respectively.
At a further meeting a few days later, Mr Jevaherjian said, there was talk about price. Mr Lee wanted to include in the sale a shipping container that was situated on an adjoining property leased by him. Mr Jevaherjian was not keen to buy the container or lease the property, but decided to do so after Mr Lee explained that the container enabled him to store materials off-site and so present the service station in a cleaner state for the Circle of Excellence judging.
At a later meeting, agreement was reached for the sale of the business at a price of $230,000. Mr Jevaherjian said in evidence he was induced to make this agreement by the opportunity to obtain extra tenure.
On 28 March 1992, Mr Jevaherjian applied to Mobil for its approval of the purchase. He and Mr Sarkis were interviewed and required to attend a dealer training course. An agreement for sale was exchanged in 12 June 1992 and completed on 30 June. Mobil consented to the sale and executed the necessary documents.
At about the time of completion, Mr Lee gave Mr Jevaherjian a bundle of documents concerning the Circle of Excellence awards. Mr Jevaherjian read them and prepared a plan to enable Wellcome to meet the required standards. On 3 August 1992 the first inspection under his regime took place. It was conducted by the territory manager, Leanne Davies. According to Mr Jevaherjian, he told her he wanted to win the Circle of Excellence. He said she told him that, if he achieved 90% or better, he would get an extra year's tenure and, if he got 90% for six years, he would get a full new nine-year franchise for free.
Ms Davies made an affidavit in which she said she did not recall this conversation. She added that, at the time, she had only recently commenced in the Northern Beaches area. She was aware of Mobil's tenure for performance concept but had not been "personally briefed" on its details. She said: "Therefore I do not believe that I would have referred to specific details of the proposal". Ms Davies was not cross-examined. Accordingly, it is difficult to know what she meant by the words "personally briefed". Ms Davies had spent 1990 and 1991 as a Mobil trainee and January to June 1992 as a junior territory manager in the western suburbs of Sydney. I do not know whether she saw the issue of the "Mobil Marketeer" dealing with Mr Stumbles' address. Even if she did not, it seems unlikely that she did not pick up the basics of his promise. I accept that Ms Davies now does not recall her conversation with Mr Jevaherjian but I think she would have had the information to enable her to say what he attributes to her, and I accept his account of the conversation. He had every reason to remember it; she none. Given that the statements he attributes to Ms Davies are consistent with what senior Mobil officers thought to be the substance of Mr Stumbles' promise, it is not at all improbable that Ms Davies would have said what Mr Jevaherjian suggests.
Mr Jevaherjian listed in his affidavit numerous things he claimed were undertaken by Wellcome in pursuit of 90% in the Circle of Excellence. They included preparation of a detailed business plan, but it seems this was required anyway to obtain Mobil's consent to the assignment from Mr Lee. They also included some items pertaining to site presentation that were not challenged by counsel for Mobil: painting the pump islands, facias and parking lines, removal of some old and unsightly plants and their replacement by new plants and shrubs, the installation and maintenance of new shop shelving and customers' trolleys and baskets, the purchase and wearing of new uniforms and badges, and daily cleaning of the site. Mr Jevaherjian said his wife and members of her family (who were co-directors) worked at the service station one or two days each week, without salary, "for the sole purpose of maintaining the premises in a clean and tidy condition". He himself, with the employees of the business, regularly attended to cleaning and rubbish removal. Mr Jevaherjian also said he leased the adjoining land, and purchased the shipping container located on it, so as to use the container for storage. He referred also to additional services that Wellcome offered to customers, but it is not clear to me that they would have increased its Circle of Excellence score.
Mr Jevaherjian said he received the Mobil Newsletter reporting the NDAC Executive meeting of 8 June 1993. He read it but thought it not "absolutely clear". He said he understood "a franchise would be given and I would be getting a discount". He did not complain to Mobil about this. He thought it was only a "discussion paper"; it was a general Newsletter, not a document addressed to him. He said he disregarded it "because as long as Mobil conducted their Circle of Excellence program, I maintained my standards to excel even higher".
It was put to Mr Jevaherjian that he did no more than comply with Team Pak standards. He disagreed, saying he achieved "far in excess". Asked for an example, he replied:
"The checks were done so stringently that it was put a hand-glove and wiped the benches and the shelves to see if there was dust. The palms were polished. The toilet everywhere is tidy. Not one piece of paper on the forecourt. The bins were tidy, clean, empty most times. Water, squeegees, everything had to be the right colour and matching coordination which because of those reasons you had to get them from central ordering or you had to go to the extra expense of having numerous ones in stock in case they failed or got stolen that you would replace it with a new one, so you won't lose points for it."
Wellcome received from Mobil a letter dated 30 November 1994 advising that it had achieved 90% or better in 1992 and 1993 and was "eligible for the reward". The letter quoted the earlier Newsletter and enclosed a copy of the Roneberg letter. Mr Jevaherjian understood the letter as an indication that his company would be "offered a franchise after the expiration and would be in the form of a discount".
On 14 August 1995 Mobil wrote to Wellcome offering an immediate buy-out of its tenure for the sum of $54,862.81. This amount was said to represent the market value of the franchise at 1 July 1995 (on the basis that the franchise would expire at 31 December 1999) and to include the sum of $16,880.86 to reflect scores of more than 90% in the Circle of Excellence in 1992 and 1993. Even with this bonus, the offered buy-out sum was only one-sixth of the price Wellcome had paid Mr Lee three years earlier.
Mr Jevaherjian was cross-examined about his motivation. The evidence read:
"Well I suggest to you that the efforts you put in, in relation to the Circle of Excellence, were in order to comply with your Team Pak obligations. That is correct, is it not?---To secure my extra tenure.
I suggest that they were there in order to show Mobil that you were one of the top dealers - - - ?---For the long term.
- - - with an eye to the future, long term future?---Yes.
I suggest that the steps you took were in any event you thought good business steps to take to make your self a top dealer? That is, they were - - - ?---For future prospect, yes.
And I would suggest immediate, that they would immediately make your business a good one?---Yes, but I have gone out of my way to make sure that I comply and I excel myself so that I could get the next nine years, hopefully the Circle of Excellence program, to secure my long term plan to be there for commitments that I would then take."
As well as in 1992 and 1993, Wellcome achieved better than 90%
in both 1994 and 1995.
(iv) Roseville
Roseville is a company controlled by Domenic Fossano and his father. Domenic Fossano has been a director of the company since 1982 and is the manager of its service station in the Sydney suburb of Roseville. He attended the Los Angeles Convention and heard Mr Stumbles' speech. He noted that key words were displayed on a screen and particularly recalled the words "Tenure for performance", both in the speech and on the screen. He noted the statement that any dealer who achieved 90% or better in the Circle of Excellence for the year would receive an additional year's tenure, free. He said he "felt fantastic" when he heard this because he knew Mr Stumbles' conditions were achievable. When he returned home, he told his father about the offer.
Mr Fossano later received a videotape containing extracts from Mr Stumbles' speech and the "Mobil Marketeer" referring to it. About one month later, he attended a dealers' meeting and completed and returned the tear-off slip. He said Roseville relied on Mobil's promise in making a number of changes to the way it conducted its business. Mr Fossano did this by working through a Circle of Excellence judging sheet and comparing the items with Roseville's current practices. Mr Fossano said the company purchased new Mobil uniforms, with name badges, for all employees and insisted on them being worn with ties. It retained a contract cleaner to ensure the highest standards of cleanliness, and increased employees' participation in training programs. Supplies were obtained from Mobil-preferred suppliers and the range of goods was widened, notwithstanding that some of the new items were slow in selling. Additional equipment was purchased. A site manager was employed. Promotional activities were increased. A business plan was prepared. Mr Fossano extended his hours of work from about nine hours per day to twelve. He said this was necessary because he spent a great deal of time "ensuring, on behalf of (Roseville) that the required standards were met".
In cross examination, Mr Fossano agreed that Roseville scored over 90% in the Circle of Excellence awards in 1989, 1990 and 1991. But he added: "you have got to remember that the judging was not as stringent as it was after the convention in LA". Even so, Roseville scored over 90% in 1992 and again in 1994 and 1995. Because of a poor "mystery shopper" score in 1993, the company failed to achieve 90% that year.
Mr Fossano read the Newsletter report of the June 1993 NDAC Executive meeting, but he did not understand this to be a definitive statement that Mobil had cancelled the tenure for performance program. Because Mobil continued the Circle of Excellence judgings, he thought Mr Stumbles' offer continued to apply. This remained Mr Fossano's belief even after he received a copy of the Roneberg letter at the end of 1994.
In August 1995 Roseville received a letter from Mobil offering to buy out its franchise for the sum of $41,718.06. This included $12,210.16 for one year's score of 90% in the Circle of Excellence awards. Roseville did not accept the offer.
(v) JTP
JTP is a company controlled by Jeffrey Riddle and his two brothers. Since 1988 it has operated a service station at Watson in the Australian Capital Territory. In 1988 the premises were in poor repair. JTP surrendered the existing franchise and took a new nine year franchise from 1 January 1989. Shortly after that date JTP entered into a Team Pak agreement. Mr Riddle became aware of the Circle of Excellence scheme but took little interest in it. He believed that, given his poor facilities, he had no chance of achieving 90% and did not attempt to do so.
Mr Riddle did not attend the Los Angeles Convention. He received the videotape of Mr Stumbles' speech and the "Mobil Marketeer" but neither made any impression on him. Some time later the territory manager spoke to him about participating in the Circle of Excellence scheme. He discussed the matter with his brothers. They decided to upgrade the premises in order to do this. Mr Riddle signed and returned the tear-off slip. He then set about improving the premises. He installed pantry shelving he had acquired some years before but never erected, painted the showroom, purchased uniforms for staff, attended training programs, instituted regular staff meetings and upgraded the exterior of the building and the site. He said he and his wife worked many Sundays in upgrading the site, and he spent about $2,000 in cash.
Notwithstanding these efforts, JTP did not achieve 90% in either 1992 or 1993. Mr Riddle said the main reason was that the shop area was sub-standard. He asked the territory manager to upgrade this area but was told Mobil had no funds currently available. Nothing was done. Despite this, JTP achieved 90% in 1994. Early in 1995 the company upgraded the showroom and office at its own expense. In that year, the company again achieved 90%.
Mr Riddle first learned of a change in Mobil's position at a dealers' meeting held in March 1995. He wrote to Mr Thain, the senior territory manager for the area. Mr Thain responded with a letter enclosing the Roneberg letter. Mr Riddle was involved in a joint remonstrance by Canberra dealers in July 1995. In August 1995 he received an offer to buy out JTP's franchise for $20,000, no allowance being made for his Circle of Excellence success in 1994.
(vi) Findings
Principals of each of the five applicants whose activities are summarised above became aware of Mr Stumbles' speech at a relatively early stage. In the case of the four applicants who were already franchisees, they either heard the speech at Los Angeles or learned of it shortly afterwards. In the case of Wellcome, Mr Jevaherjian learned of Mr Stumbles' promise of tenure for performance during his negotiations with Mr Lee for an assignment of the lease and franchise.
The only remaining question, in relation to promissory estoppel, is whether it would be unconscionable for Mobil to depart from its promise to grant a free nine-year franchise to those franchisees who achieved 90% or better in each of the years 1992 to 1997 inclusive. As Mason CJ and Wilson J pointed out in Waltons at 406, in a passage quoted in my earlier judgment, "failure to fulfil a promise does not of itself amount to unconscionable conduct". Something more is required. Their Honours suggested this may be "the creation or encouragement by the party estopped [Mobil] in the other party [the franchisee] of an assumption that ... a promise will be performed and that the other party [the franchisee] relied on that assumption to his detriment to the knowledge of the first party [Mobil]". As indicated by the bracketed insertions, I think those words apply to this case. However, it is clear from the subsequent High Court decision in The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 that not every detriment will be enough to cause the promisor's subsequent conduct to be adjudged unconscionable. Even though the promisee has suffered some detriment in relying on the promise, a question of degree may arise. In Verwayen Mason CJ at 413 referred to the need for "a proportionality between the remedy and the detriment which it is its purpose to avoid".
At 429 Brennan J spoke of "the minimum equity needed to avoid the relevant detriment". He explained that the relevant detriment is the detriment occasioned by reliance on the promise, not the loss attributable merely to non-fulfilment of the promise. Deane J at 442 said:"There is clear support in the cases and learned writings for the view that, in this as in other fields, equitable relief must be moulded to do justice between the parties and to prevent a doctrine based on good conscience from being made an instrument of injustice or oppression. That being so, it should be accepted that the prima facie entitlement to relief based on the assumed state of affairs must, under a doctrine which is of general application in a system where equity prevails, be qualified if it appears that that relief would exceed what could be justified by the requirements of conscientious conduct and would be unjust to the estopped party".
See also Dawson J at 454, Toohey J at 475-476, Gaudron J at 487 and McHugh J at 501.
Having regard to Waltons and Verwayen, it seems to me that the issue of promissory estoppel, in each case, turns on whether Lyndel, Thorpe or Wellcome has established that:
(a)it relied, to its detriment, on the assumption that Mobil would fulfil its promise of a free nine-year franchise to those who achieved 90% in each of the years 1992 to 1997 inclusive;
(b)Mobil knew this; and
(c)the degree of detriment suffered by it was such as to make it necessary, in order to avoid Mobil acting unconscionably, for the Court to require it to adhere to the assumption stated in (a).
I think the first two questions must be answered in the affirmative.
In respect of the first question, I have already indicated my acceptance of the evidence given by Mr Morris, Mr Scorgie and Mr Jevaherjian as to the effect the promise had on them, and their beliefs it would be honoured. I have found that, as a result, each of their companies did things and incurred expenditures they would not otherwise have done or incurred. I have also found it is impossible, on the evidence, to determine the specific effect of these things and expenditures on the net profitability of any of the businesses in any relevant year. But I have accepted that the franchisees' decisions to use the Mobil central-ordering system, so as to avoid losing points in the Circle of Excellence judgings, adversely affected their net profits. This was a detriment suffered by them because of their assumption that Mobil would adhere to its promise.
I have no doubt that relevant Mobil officers were keenly aware of the alternative products available to their franchisees. They must have been aware that franchisees could purchase some products more advantageously than through Mobil's central-ordering system. They knew that any franchisee who carried competitors' products would be penalised in the Circle of Excellence judgings. It follows that they knew that any franchisee which confined its purchases to those offered by Mobil, in order to improve its chances of achieving 90% in the Circle of Excellence awards, was thereby accepting a financial detriment.
The principals of Lyndel, Thorpe and Wellcome each told the local Mobil territory manager of their determination to achieve tenure for performance. It would have been obvious from their subsequent goods orders, and the absence from their service stations of competitors' products, that one element of their determination was that they were confining their purchases to the Mobil central-ordering system, and that this must be at some cost to them. It does not matter that the evidence does not enable the Court to quantify that cost. The franchisees incurred costs they would not otherwise have incurred because they assumed Mobil would honour its promise, and Mobil officers knew this.
I turn to the final matter: the degree of detriment suffered by the three franchisees and the proportionality between the relief claimed by them - an order requiring Mobil to grant each of them a free nine-year franchise - and the detriment I have found they suffered. At this point, I think the franchisees' promissory estoppel case fails. Although the evidence does not enable me to quantify the cost of the detriment, in each case I think it is likely to have been comparatively small. Mr Morris spoke of Mobil-approved products costing "a few more dollars". Mr Scorgie gave some examples of items where his company suffered a detriment from adhering to the Mobil central-ordering system; each amount cited was comparatively small. Although I appreciate these individual amounts must be multiplied by the number of items purchased over a period of four years, I am not satisfied that the total detriment suffered by any of the three franchisees would exceed the value of the "reward" promised by Mobil to each of the three franchisees in respect of its success in the 1992 and 1993 Circle of Excellence judgings. This reward was stated to be available to them on expiration of the current franchise.
The five franchisees' promissory estoppel claim must be rejected.
(iii) Breach of contract
In my earlier judgment, I dealt only briefly with this cause of action. I understood the applicants' argument to be that the franchisees accepted Mr Stumbles' offer by completing and returning the tear-off slip on the brochure, thereby stating they accepted "the challenge to exceed 90% in Circle of Excellence judging and qualify for extra tenure". For the reasons stated in my earlier judgment, I thought that analysis of the situation untenable.
On 13 June 1996, the first occasion on which the matter was listed for directions after the earlier hearing, counsel for the applicants told me I had misunderstood their argument. They mentioned the way the contract claim had been pleaded. Lyndel's Statement of Claim pleads the contract claim in this way:
"13.On or about August 1991 the respondent forwarded to the applicant a brochure directed to the applicant requesting the applicant to accept an offer to exceed 90% of the Circle of Excellence judging and qualify for the extra tenure, and did so qualify.
The applicant achieved 90% or more for each of the years 1992, 1993, 1994 and 1995 in the Circle of Excellence judgings.
14.From in or about August 1991 the applicant performed the obligation stipulated in the offer made by the respondent and thereby a contract came into existence between the applicant and the respondent.
PARTICULARS
See the particulars to paragraph 13 herein.
15.Some time prior to August 1995 the respondent repudiated the agreement."
The Statement of Claim in matter NG841 of 1995 pleads the contract claim of the applicants covered by it in a similar way.
It is not clear to me how the misunderstanding arose but I am satisfied there was a misunderstanding. Having regard to the terms of the Statements of Claim and the explanation of the applicants' argument offered by counsel on 13 June 1996, it is not unfair to Mobil to deal with the contract claim by reference to that argument. Mobil had notice of the applicants' true position well before the hearing in October 1996.
Contrary to the submission of counsel, there is no question of an issue estoppel. The earlier hearing merely involved a consideration of some preliminary questions. My conclusion, in relation to this aspect of the case, was expressed in these terms: "I do not think the contract claim can succeed." I made no order about the matter.
As I now understand the applicants' argument concerning breach of contract, it is that, in his address at Los Angeles, Mr Stumbles made two offers on behalf of Mobil that were capable, upon acceptance by franchisees, of giving rise to a legally enforceable contract. One offer, they say, was to give an additional year's tenure to any franchisee who achieved 90% in any one year of Circle of Excellence judgings. The other offer was to give a new nine-year franchise to any franchisee who achieved 90% in each of the following six years. Counsel for the applicants say the fact that these offers were seriously intended, and intended to be capable of giving rise to legally enforceable contracts, is indicated by Mobil's post-Convention activities; in particular its action in bringing the offers to the attention of all franchisees through the "Mobil Marketeer", the video-tape and the meetings organised by territory managers. Franchisees were asked to commit themselves to "accept the challenge to exceed 90% in Circle of Excellence judging and qualify for extra tenure", "to participate in the development of the World Class Standards" and to "use the new World Class Standards on my site". The references to "development" of World Class Standards and "the new" World Class Standards is an indication, counsel say, that franchisees were being asked to do more than comply with the existing standards, whether measured by Team-Pak obligations or the standards previously used in Circle of Excellence judgings. The standards they were now being asked to meet were something new; franchisees were being challenged to achieve them and being told that, if they did so, they would receive a tangible benefit - extended tenure.
For the reasons already expressed, I reject the argument that Mr Stumbles made a "one-for-one" offer. But he did make a statement about a new nine-year franchise for franchisees who achieved 90% in each of the following six years. It is necessary to consider whether this constituted an offer capable of acceptance by a franchisee so as to give rise to a legally-enforceable contract.
In my earlier judgment I referred to the decision of the High Court in Australian Woollen Mills Proprietary Limited v The Commonwealth (1954) 92 CLR 424. I quoted a short extract from the Court's reasons (at 456-457) in which it was pointed out that, in order to establish a contract constituted by an offer of a promise for an act:
"it should be made to appear that the statement or announcement which is relied on as a promise was really offered as consideration for the doing of the act, and that the act was really done in consideration of a potential promise inherent in the statement or announcement".
The Court went on to give the example of a case where A, in Sydney, says to B in Melbourne: "I will pay you $1,000 on your arrival in Sydney" and the next day B arrives in Sydney. The Court said, if only these facts were proved, it is clear that no contract is established; there may be no relation between A's statement and B's act; B may have intended to go to Sydney anyhow. However, the Court said, further facts might establish the necessary relationship; for example, that A told B it was important to him that B come to Sydney and that B objected this would involve him in financial loss. Those facts would support an inference (a) that the statement that $1,000 would be paid to B on arrival in Sydney was intended as an offer of a promise, (b) that the promise was offered as the consideration for the doing of an act by B, and (c) that the doing of the act was at once the acceptance of an offer and the provision of an executed consideration for a promise.
The Court went on to say, at 457:
"It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty. In such cases as the present, therefore, in order that a contract may be created by offer and acceptance, it is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation."
At 458 the Court observed that a test that had often been applied was to ask whether there was a request by the alleged promisor that the promisee do the act on which the promisee relies. But the Court did not suggest this was essential; it endorsed a suggestion "that the essential thing is that the 'offeror' should state a price which the 'offeree' must pay if he wishes to purchase a promise" (original emphasis).
In considering the application of these principles to the present case, it is necessary to revert to Mr Stumbles' evidence. In relation to the promise, he was the "mind" of Mobil; his intention was Mobil's intention. As I have already found, Mr Stumbles intended his words to be taken seriously and acted upon. He said as much in his evidence. He intended, and so Mobil intended, that his offer of tenure for performance would motivate franchisees to improve their businesses; and he believed this "would in turn improve Mobil's business".
If confirmation of the serious nature of the promise is required, it is furnished by the subsequent conduct of Mobil. Franchisees were asked to commit themselves in writing to "accept the challenge to exceed 90% in Circle of Excellence judging and qualify for extra tenure". This is the language of mutual commitment. In this situation, it seems to me that
the case meets the test stipulated in Australian Woollen Mills: "the statement or announcement which is relied on as a promise was really offered as consideration for the doing of the act"; the promise of a new nine-year franchise was offered as consideration for achieving 90% over each of the next six years. If it is necessary to show a request by Mobil that each of the franchisees attain that achievement, there was clearly such a request, both by Mr Stumbles in his speech and in the follow-up action.
Further, Mr Stumbles made clear that he, and therefore Mobil, intended that his offer would, upon the performance by franchisees of the condition, give rise to an obligation. He said in evidence that the "proposal presented an opportunity to reward a greater number of dealers ... and would do this in a way that would encourage our better franchisees to remain in the network which would be an advantage to Mobil". He "had no reason to think that Mobil would not carry it though".
Counsel for Mobil submitted that, if an offer was made, there was no acceptance by any of the five franchisees whose cases are presently under discussion. They contended I should hold that, as a matter of probability, these franchisees would in any event have achieved over 90% in the Circle of Excellence awards in the years they did; to use the High Court's example in Australian Woollen Mills, this is a case where B intended to go to Sydney anyhow.
Counsel's submission is at its most appealing in relation to Lyndel and Thorpe, both of which, under the same management, scored 90% in the Circle of Excellence awards in 1990 and 1991. In relation to Lyndel, the role of Mr Morris senior must be remembered. It seems to be common ground that he was a very effective supervisor; no doubt he played a major part in Lyndel's success in the Circle of Excellence awards in 1991. However, he was due to leave the service station at the end of that year. Mr Barry Morris said that, as a result of his acceptance of the challenge presented to him by Mr Broome and Mr Browning, he asked his father to stay on at the service station for the specific purpose of ensuring it maintained high standards and would be successful in future years' Circle of Excellence awards. Mr Morris senior agreed to this. He in fact stayed at the service station throughout all its subsequent successful years, 1992, 1993, 1994 and 1995.
I accept the evidence of Mr Barry Morris about his father's role. While it is not possible to be categorical about the matter, it seems probable that the father's continuation at the service station was a major factor in Lyndel's success in the years 1992 to 1995. In saying this, I appreciate that Lyndel had also been successful in 1990, before Mr Morris senior became supervisor. But the judging standards were raised after Mr Stumbles' speech; it became more difficult to obtain 90%. This point is relevant also to Thorpe.
Mr Morris, Mr Scorgie and Mr Fossano all spoke of the change in Circle of Excellence judging criteria after Mr Stumbles' speech. Their evidence was not contradicted and appears to be borne out by the judging sheets that are in evidence. The sheets changed from year to year and contained numerous items. An item by item comparison would be tedious and is unnecessary. It is immediately apparent that the sheets used in 1991 and earlier years contained many more items, most of which attracted only a small number of points. The total number of available points was greater, so failure to score points in respect of any particular item represented a smaller percentage loss. I will cite some examples, comparing the 1990 judging sheet with those for 1993 and 1994.
In 1990, a total of 18 points (out of a possible maximum of 1,185 points) was available in respect of driveway service equipment - three points each for the provision of a 60 litre waste receptacle, a bucket, a watering can, a windscreen washer, a paper towel dispenser and a battery filler. In 1993 four items were mentioned, each worth five points out of a possible score of 125 points. In 1994 the possible maximum was 863 points. Of this number, 60 points were attributable to driveway facilities; 20 points for each of three items: rubbish bins, watering can, bucket and squeegee and paper towel dispenser. In 1990 the absence of a paper towel dispenser would have cost the franchisee about
0.3% of the possible maximum number of points; in 1993, 4%, and in 1994 about 2.5%.
Likewise in regard to customer toilets. The 1990 schedule contained 11 items relating to customer toilet cleanliness, each of which earned 2 points. In 1993 there was only a single item, worth five points, involving the toilets being "clean and well-stocked with soap and toilet paper". The 1994 list had three restroom items, each worth 20 points. An absence of soap would cost a franchisee about 0.2% in 1990, but 4% in 1993 and about 2.5% in 1994. If a staff member was found not to be wearing a name badge in 1990, that would mean a loss of ten points (about 1%), but also ten points (8%) in 1993. In 1994 it would cost 30 points (about 3.75%).
I have referred to the possible maximum of points in 1990 and 1994. But this number could be earned only by service stations that had the full range of facilities, including fast food, snack food and roadhouse, car care, service bays and car wash. The judging sheets show this was not the situation of any of the five franchisees. In practice, their maximum was nearer 600 points. It follows they could not afford to lose more than about 60 points. Only two or three omissions, in respect of matters like a missing name tag or toilet soap, would cost the franchisee the chance of scoring 90% or more in that judging. This was not the case before 1991.
Having regard to the changed criteria for Circle of Excellence judgings, I do not think it is possible to treat the pre-1991 success of Lyndel and Thorpe as an indication of the result they would have achieved after 1991, in the absence of their positive reaction to Mr Stumbles' promise. The promise had a profound effect on Mr Morris and Mr Scorgie, both of whom understood the commercial importance of qualifying for a new nine-year franchise and set about doing so. The onus rests on Mobil to demonstrate that the relevant franchisees would have scored 90% in the years 1992 to 1996 anyway: see per McPherson J (with whom Andrews CJ agreed) in Veivers v Cordingley [1989] Qd R 278 at 291-292, citing The Crown v Clarke (1927) 40 CLR 227 at 244. It has not done so. To paraphrase the High Court in Australian Woollen Mills, I am not satisfied that B would have travelled to Sydney anyhow.
Although I appreciate the rarity of cases where a contract comes into existence as a result of performance of acts specified in a general offer, it seems to me this is such a case.
However, it is necessary to deal with three further points raised by counsel for Mobil. First, they say there could be no contract because the terms of any new franchise were left unsettled. I do not agree. Mr Stumbles promised "9 years as of right, no fees just a renewal". The word "renew" means to make again something that already exists. In using the word "renewal", Mr Stumbles was promising a new franchise on the terms of the existing franchise. That does not necessarily mean the parties' obligations would remain the same. For example, if the existing franchise provided for a periodic rent review, that would continue to apply under the new franchise; as would other terms.
Second, counsel argue that the present existence of a legally-enforceable contract between Mobil and each of its franchisees necessarily excluded the creation of a new legally-enforceable contract as a result of acceptance of Mr Stumbles' offer. Again, I do not agree. Although the present existence of a contract between them is a relevant factor in considering whether parties intended to enter into a new contract, it is not necessarily decisive of the matter; parties may decide that it is in their mutual interests for them to make a supplementary contract. Veivers v Cordingley was such a case. In the present case, the existing contract related to the parties' obligation during the terms of the existing franchise. The supplementary contract related to a new subject, not yet covered by any agreement, but which both parties had an interest in addressing.
By way of variation of this argument, counsel say that the performance of extant obligations cannot constitute consideration for a later promise. But none of the franchisees was under an extant obligation to achieve any particular level of performance in the Circle of Excellence awards.
Counsel's third argument has more substance. They point out that Mobil withdrew its promise before any franchisee had complied with the requirement of achieving 90% or better in each of six years. Consequently, they say, the offer was revoked before completion of the act required to constitute acceptance of the offer and the furnishing of consideration by the franchise for performance of the promise.
There is some dispute between the parties as to when Mobil made clear it would not be bound by Mr Stumbles' promise. Counsel for Mobil contend this happened in June 1993 when it informed the NDAC, and later announced in the Newsletter, that the "reward of free tenure" would be made available only to franchisees achieving 90% or better in the Circle of Excellence for 1992 and 1993, and that the mechanism for reward would be by discount off future franchise fees. But counsel for the applicants point out that the limitation to 1992 and 1993 was specifically stated to be "at this stage" and that the announcement spoke of the "future direction" of the program being reviewed later in the year. They say this fell well short of an unequivocal revocation of the offer.
There is a similar issue concerning the Roneberg letter. That letter included the statement that "we (Mobil) have not determined any hard and fast rules at this stage for surrendering or non-renewals of franchises and hence we cannot give definitive answers to your questions". The letter concluded with a statement that "we are conscious of the issues and are working to a tight timetable to try to come to some definitive resolutions"; in other words, counsel for the applicants say, even in November 1994 the position remained uncertain. They say the position did not become clear until January 1996 when Mobil abandoned the Circle of Excellence awards.
I accept the franchisees' argument in relation to this matter. The Newsletter of June 1993 provided the franchisees with cause for concern, but it was expressly stated not to be Mobil's final position. The "future direction" of the program was to be reviewed later in the year. The program was still extant, but more decisions would be made and notified.
Similar observations apply to the Roneberg letter. Even in November 1994, Mobil had not determined "any hard and fast rules ... for surrendering or non-renewals of franchisees" and could not give "definitive answers" to NDAC's questions. I think it is correct to say that the situation was not made clear before the offer letters of 1995, by which time the 1995 Circle of Excellence judgings must have reached an advanced stage.
Even if Mobil had unambiguously revoked the offer constituted by Mr Stumbles' promise before the latter half of 1995, it seems this would not defeat the applicants' contract claim. The point is one of some interest. It is discussed at length in at least two text books dealing with the law of contract: Cheshire and Fifoot's The Law of Contract (second Australian edition) at 137-139:
"Is a promise in return for an act revocable?-A further difficulty is suggested by the nature of 'unilateral' contracts. If the offeror contemplates, not the creation of mutual promises, but the dependence of his own promise upon the offeree's performance of an act, may he revoke his offer at any time before the completion of this act? A reward may have been advertised for the return of a lost dog to a given address, a sum of money may have been promised if, at the end of five years, the offeree can prove that he has abstained from strong drink throughout the period, or, as in the illustration put by Brett, J., in Great Northern Railway v. Witham, (1873) LR 9CP 16, the defendant may have said to the plaintiff 'If you will go to York, I will give you £100.' May the offeror, by giving notice, revoke his offer when he sees his dog being led through the streets towards his house, or when the offeree has endured three years of abstinence, or when, after a laborious journey, he has succeeded in reaching Doncaster? The application of the ordinary rules of revocation would suggest an affirmative answer. An offer may be revoked at any moment before it matures by acceptance into a contract, and it has generally been assumed that, when a promise is offered in return for an act, there is no acceptance until the act has been completely performed. The problem, though it has rarely occupied the time of the courts, was discussed during the argument in Offord v. Davies (1862) 12 CBNS 748; 142 ER 1336. Williams, J., asked counsel, 'Suppose I guarantee the price of a carriage to be built for a third party who, before the carriage is finished and, consequently, before I am bound to pay for it, becomes insolvent, may I revoke my guaranty?' Counsel replied, 'Not after the coach-builder has commenced the carriage'; but Erle, C.J., dissented. 'Before it ripens into a contract, either party may withdraw and so put an end to the matter.'
This solution, though logical, has been felt to be hard, and methods of evasion have been sought. It has been suggested in America that two separate offers are inherent in the offeror's statement: an express offer to pay on the performance of the act, and an implied offer not to revoke if the offeree begins his task within a reasonable time. On this assumption, the beginning of the task not only constitutes the acceptance of the implied offer, but also supplies the consideration which the law requires for its validity, as for that of every contract not under seal. If the offeror attempts thereafter to revoke, he may be sued for the breach of this secondary promise. In England, a less subtle, if more doubtful, argument has been propounded by Sir Frederick Pollock. A distinction is to be drawn between the acceptance of the offer and the consideration necessary to support it. The latter, no doubt, is the completion of the act, and, until this takes place, the offeror need pay no money. The former may be assumed as soon as the offeree 'has made an unequivocal beginning of the performance requested,' and proof of this fact mades revocation impossible. (See Pollock on Contracts, 12th ed at 19)."
In Contract Law in Australia (third edition) at 67-69, Professors J W Carter and D J Harland discussed the same point. They said:
"A difficulty arises as to whether an offer of a unilateral contract may be revoked after an offeree has commenced performance but before it has been completed. This question has given rise to much debate but is the subject of curiously little authority, no doubt because the point will only relatively rarely cause difficulty in practice. It is difficult to see how a unilateral contract may be said to have been performed prior to complete performance by the offeree, because while it has only been partially performed the offeree is at all times free to withdraw. If, therefore, we are to say that the offeree has not accepted until the performance is complete, may not the offeror revoke the offer on the principle that an offer may be revoked at any time prior to acceptance? Often the offeree will have expended considerable time and energy, and perhaps expense, in a partial performance and it is usually thought that it would be unjust if the offeree were to be deprived of the opportunity to complete performance and to become entitled to claim the benefit promised by the offeror.
An American writer has suggested that an offer of a unilateral contract should be read as containing an implied subsidiary promise that the offer will not be revoked once performance has commenced. Some support for such an approach may be gained from the early New South Wales case of Abbott v Lance (1860) Legge 1283, although both the agreement and the reasoning of the court are not altogether clear. Lance had offered to sell certain stations to Abbott on certain terms, but Abbott was not willing to accept until he had inspected the stations, which were situated about 500 miles away. It was therefore agreed that Abbott would have two months for the purpose of inspection and that if within that time Abbott offered to purchase on Lance's terms, Lance would sell on those terms. There was a promise that Lance was in the meantime free to sell to anyone else, but that if Abbott made within the two months a bona fide offer to buy on Lance's terms Lance would, if he had already sold, pay the sum of £100 to Abbott. Abbott therefore commenced to ride to inspect the stations, but when about half-way was overtaken by a letter from Lance advising that the stations had been sold. The question was whether Abbott was entitled to recover £100 from Lance. The objection was made that no contract had been formed as Lance could withdraw his offer at any time and Abbott was not bound to purchase. (He was presumably not bound either to inspect the property.) The court appears to have regarded the arrangement as involving a unilateral offer to keep the offer of sale open (or alternatively to pay £100) if Abbott should inspect the properties and make a bona fide offer to buy. The court considered that the principle that an offer may be retracted before acceptance was not applicable, the part performance of the journey by Abbott constituting sufficient consideration to prevent revocation of the unilateral offer.
The promise not to revoke the unilateral offer in Abbott v Lance was an express offer, but there would seem little difficulty in implying such an offer in an appropriate case. Part performance of the act called for could then be regarded as sufficient consideration for the promise not to revoke. If this analysis is accepted by the courts, it would of course not be possible to imply a promise not to revoke if the offeror expressly reserved the power to revoke at any time, or if the facts gave rise to an inference that the offeree took the risk of revocation even after he had commenced performance. Moreover, revocation would apparently still be effective if the offeree had not commenced to perform but had merely made preparations to perform."
The learned authors added a footnote:
"In Errington v Errington [1952] 1 KB 290 at 295 Denning LJ considered that a unilateral offer could not be revoked once the offerees had entered on performance, but he did not discuss any theory upon which this result could be reached. Similarly, in Daulia Ltd v Four Millbank Nominees Ltd [1978] 1 Ch 231 Goff LJ, with whom Buckley and Orr LJJ agreed, considered that there must be an implied obligation on the part of the offeror not to prevent the condition imposed in his offer becoming satisfied, that obligation arising as soon as the offeree starts to perform. Consequently, once the offeree has embarked upon performance it will be too late for the offeror to revoke. The point was regarded as doubtful in Aldwell v Bundey (1876) 10 SALR 118."
In Daulia, Goff LJ said at 239:
"Whilst I think the true view of a unilateral contract must in general be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound, that must be subject to one important qualification, which stems from the fact that there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his offer."
Abbott v Lance was followed by the Full Court of the Supreme Court of Queensland in Veivers v Cordingley. At 297-298 McPherson J said:
"It seems to me that the decision in Abbott v. Lance is authority for propositions that, although as a general rule an offer may be retracted before acceptance, yet, if it takes the form of an offer in exchange for the doing of an act or acts, then: (1) acceptance takes place when the offeree 'elects' to do the relevant act or acts; and (2) the offer becomes irrevocable once the act or acts, which will constitute consideration for the offer, have been partly performed."
As will be apparent, there is some difference in the authorities as to the proper juristic basis for the proposition that a person who makes an offer susceptible of acceptance by performance of an act, may not revoke that offer after the offeree has embarked upon performance of the act. I need not explore those differences. It is sufficient to say that the weight of authority is in favour of the proposition. Importantly, it has been adopted by decisions of Full Courts of two Australian Supreme Courts, and in a strong dictum of Goff LJ in the United Kingdom Court of Appeal. In a technical sense, I am not bound to follow these decisions, but I should do so unless positively satisfied they are wrong. I am not so satisfied.
For the reasons given in connection with the promissory estoppel claim, the contract claims of Roseville and JTP must be rejected. However, I think the other three franchisees, Lyndel, Thorpe and Wellcome, are entitled to succeed on this cause of action.
Orders
The franchisees primarily seek orders in the nature of specific performance, requiring Mobil to grant to each of them a new nine-year franchise on the expiration of their existing franchises. There is no material before me that suggests this is impracticable in relation to Lyndel, Thorpe or Wellcome; Mobil apparently owns all three sites. Nor is there material that indicates any discretionary reason for refusing such orders.
In matter NG.835 of 1995, I am concerned only with the position of Lyndel. In that case it is possible, and appropriate, to make final orders. I propose to order that, upon the expiration of the current franchise under the PRMF Act, Mobil, without charge, grant to Lyndel a new franchise over the site for a period of nine years from that day.
Matter NG.841 of 1995 involves numerous applicants, most of whose claims have not been investigated. In relation to Thorpe and Wellcome, it is appropriate to make orders similar to those made in favour of Lyndel in matter NG.835 of 1995. It is also appropriate to make orders dismissing the claims of Roseville and JTP. The position in relation to the remaining applicants must be reserved.
Because of the reservation of orders in respect of the other applicants, the orders I will make in NG.841 of 1995 concerning Thorpe, Wellcome, Roseville and JTP will not be final orders, in a technical sense. If any party wished to appeal against those orders, leave would be required. If asked, I would be disposed to grant leave. The orders deal substantively with the position of those four franchisees and the final resolution of their claims may assist the parties in resolving the remaining claims.
I think it is preferable at this stage to reserve the question of costs.
I certify that this and the preceding ninety (90) pages are a true copy of the Reasons for Judgment of his
Honour Justice Wilcox.
Associate:
Dated: 15 April 1997
APPEARANCES
Counsel for the Applicant: R W R Parker QC and M D Tubbs
Solicitor for the Applicant: Stojanovic & David
Counsel for the Respondent: R V Gyles QC and L V Gyles
Solicitor for the Respondent: Cowley Hearne
Dates of hearing: 14-18, 21-25 October 1996
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