Ranoa Pty Limited v BP Refinery (Bulwer Island) Limited (Formerly known as BP Oil Distribution Limited)

[1990] HCATrans 74

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl5 of 1990

B e t w e e n -

RANOA PTY LIMITED

Applicant

and

B.P. REFINERY (BULWER ISLAND) LIMITED

(formerly known as B.P. OIL

DISTRIBUTION LIMITED)

B.P. AUSTRALIA LIMITED

Respondents

Application for special

leave to appeal

BRENNAN J
DEANE J

McHUGH J

Ranoa

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 6 APRIL 1990, AT 3.46 PM

Copyright in the High Court of Australia

SlT13/l/PLC 1 6/4/90

MR R.W.R. PARKERd ~C: If the Court pleases, I appear with my

learne riend, MR M.O. TUBBS, for the applicant.

(instructed by Stojanovic & David)

MR R.A. CONTI, QC: If the Court pleases, I appear with

MR.L. FOSTER for the respondent. (instructed by

Clayton Utz)

MR PARKER:  If the Court pleases, this question involves the

true construction of section 23 of the PETROLEUM

RETAIL MARKETING FRANCHISE ACT and the question

precisely and the section of the Act is set out at

page 26 of the application book.	The section
reads, Your Honours:

Where, but for this section, the operation of a provision of this Act would result in the acquisition of property from a person by

another person otherwise than on just terms, there is payable to the person by that other person such reasonable amount of
compensation as is agreed upon between those
persons or, failing agreement, as is
determined by a court.

In sub-section (1), 'acquisition of property' and 'just terms' have the same respective

meanings as in paragraph Sl(xxxi) of the

CONSTITUTION.

Your Honours, before looking at the precise question which was a discrete question framed by

agreement between the parties and agreeing on

certain admitted facts - and I should tell the Court

that this was relevantly in the industry the test

case for the purpose of determining this question -

I am obliged to give Your Honours a short survey

of the Act itself by way of introduction.	I hand
Your Honours the relevant statute.

Your Honours, I make the following introductory

remarks about the Act. It has been accepted in a

series of cases since the Act was passed in 1980

that the Act is a remedial statute intended to

redress the grievances perceived by the Collins

Royal Commission into Petroleum. The second point

is this: that upon a person in the applicant's

position entering into a franchise agreement

it is acknowledged between the parties in this case

that the applicant would have the status of a
franchisee within the meaning of the Act for a period of
nine years from 19 September 1980 to 18 September 1989.

That finding, Your Honours, by the Court of Appeal

and the court below is set out at page 30, I believe.

At page 30, line 18, the Court of Appeal says:

In the events that have happened, the
appellant had the status of a "franchisee"

S1Tl3/2/PLC	2	6/4/90
Ranoa

within the meaning of the Act for a period

of 9 years from 19 September 1980 to

18 September 1989.

Now, Your Honours, this legislation, I understand,

has never been substantively considered by the

High Court although I understand that there may be one case on the way to this particular Court. But,

relevantly, the important thing, if I may just give

you a very short thumb-nail sketch of how it works,

at page 2 of the Act "franchise agreement" is set

out. That requires the conjunction of three separate facts to prove a franchise agreement, that is to say,

the dealer must, if I may use the phrase, use:

a mark identifying, connnonly associated

with, or controlled by, that corporation

or a related corporation -

the franchisor. (b), he must have relevantly

occupation of the land and (c), there must be a

retail sale by that franchisee in his own name from

the site.

Now, if those conditions are maintained, as

they are here, a number of significant consequences

follow. Amongst them is the fact that there is an

entrenched right to stay on the premises and not have

the franchise agreement terminated otherwise than on

specific grounds. I invite Your Honours to look at

section 16; much like the old NATIONAL SECURITY

legislation that passed into the LANDLORD AND TENANT

ACT here long ago. It says that:

A franchisor may terminate the franchise

agreement in accordance with the succeeding

provisions of this section, but not otherwise.

And then (2) sets them out:

A franchisor shall not terminate the franchise

agreement except on one or more of the

following grounds.

Now, relevantly, there is power given to the franchisee

during his tenure to assign. That is dealt with in

the franchisee is entitled to a period of three years by three years by three years. So, that

section 11. Section 11 permits the franchisee with admitted,

the consent of the franchisor to assign~

is what is meant by the Court of Appeal when they

said that the franchisee here:

had the status of a "franchisee"
within the meaning of the Act for a

period of 9 years from -

SlT13/3/PLC	3	6/4/90
Ranoa

that period. That comes, Your Honours, from a number

of sections which I need not condescend to deal with

but primarily section 13. We are not concerned in

this case with the duration of the franchise

agreement.	The other section which is
important - - -

BRENNAN J:  Do we simply accept that the franchise agreement

came to an end?

MR PARKER:  We do, Your Honour. We say it came to an end by

virtue of the statute. It was granted by the

statute. It was a statutory grant and it came to

an end by the statute.

BRENNAN J:	How do you mean it was a statutory grant?
MR PARKER:	Your Honour, the statute provided the terms of the grant. It provided, to use the phrase of the Court
of Appeal, "entrenched rights" given by -
BRENNAN J:	But that is not the terms of the grant, surely?
MR PARKER:	No, Your Honour, but it permitted the franchisee to remain there for that nine year period.

BRENNAN J: That may be so.

MR PARKER: Thank you. Well, may I just - - -

BRENNAN J:  By that do you mean that the franchisor was not

entitled to exercise any of the rights that he would otherwise have had to terminate the agreement before the expiry of nine years?

MR PARKER:	I do, Your Honour.
BRENNAN J:	And is that all you mean?
MR PARKER:	Yes, I do, Your Honour.  Your Honour,

the next point is this: in section 17 it is said:

Subject to this section and sections 17A

and 17B, a franchisor shall not fail or refuse to renew the franchise agreement

except on one or more of the following
grounds.

So, we had a right of renewal during that period of

nine years but not without the consent of the

franchisor beyond it.

Now, may I just next say, Your Honours, this

particular point: at page 30, I think, of the book -

I have given Your Honours that particular passage,

there is no dispute. The section then, Your Honours,

I pass to, is at page 33 of the book. Dealing with

that, the Court of Appeal said this:

SlT13/4/PLC	4	6/4/90
Ranoa

Upon the expiry -

of that nine years -

on 18 September 1989 of the franchise

agreement the respondents, as franchisors,

were at liberty, but were not obliged, to

renew the franchise agreement.

We would interpolate there that the words "were

not obliged, to renew the franchise agreement", which

they did not, meant that when that franchise agreement

came to an end the franchisee had to go, he had to
leave the site; he had to quit and deliver up.

Relevantly, Your Honours - and this is the section

around whic.h we see the argument turning - Their Honours

set this out conveniently at 17B(4). It is said this:

Where -

(a) a franchise agreement (in this sub-section

referred to as 'the original agreement')

has been entered into otherwise than by

way of renewal;

(b) the provisions of section 17 of this Act

as in force before 1 January 1985, or of

sections 17 and 17A of this Act as in force on and after that date, or both,

have applied in relation to a renewal, or

2 or more consecutive renewals, of the

original agreement.

And we say those things apply.

(c) the term or terms of the agreement as so

renewed, together with the term of the

original agreement, amount in the

aggregate to 9 years or more.

Then it said:

sections 17 and 17A of this Act as in force

on and after that date do not apply in relation

to the renewal of the agreement -

means that there cannot be a renewal -

when the term of the agreement next expires -

which means, we interpolate, that the franchisee has

to go -

but, if the franchisor voluntarily renews

the agreement, those sections and this

section apply again as if the agreement

as so voluntarily renewed were entered

into otherwise than by way of renewal.

S1Tl3/5/PLC	5	6/4/90
Ranoa

Now, we would wish to make the next point, that it

is accepted that under the general law the benefit
of the goodwill built up by the franchisee carrying

on the business from the marketing premisesinures

to the benefit of the franchisor	at the expiration
of the term.	Now, transposing just a few formal

words, that admission is set out or finding, and I

am happy with it, at page 36 about line 6, and I

have read that and we accept that.

Now, Your Honours, the matter here for the purpose

of the agreed question which I will take you to in

a moment was the goodwill was local goodwill in the

nature of property estimated in the sum of $300,000
by a valuer who put on an affidavit. That affidavit
was requir€d informally by Mr Justice Burchett

and the facts and circumstances of that affidavit

are, regretfully, not referred to in the affidavit

of the Court of Appeal but if Your Honours wished

either now or later to see that affidavit, we have

a copy for the Court. But what I want to do now is

to actually put the question at (f) - my point -

the parties have agreed upon a discrete question of

law - - -

McHUGH J: Sorry, what page is this, Mr Parker?

MR PARKER:  The question, Your Honour, is at page 28, line 5.

Now, it was re-formulated by the Court of Appeal and unfortunately, Your Honours, it had also been

re-formulated by Mr Justice Sheppard but for present

purposes this was the question which was tried:

"Upon the basis of the following assumptions,

namely, that for the purpose only of the

determination of this separate question,

on 18 September 1989

(a) the Respondents acquired property

namely some species of goodwill from

the Appellant and,

(b)	such property was acquired otherwise
than on just terms,

did the operation of some provision of the

PETROLEUM RETAIL MARKETING FRANCHISE ACT

1980 result in the acquisition of this

property so as to require the Respondents
to pay to the Appellant compensation

pursuant to s.23 of the said Act?"

Now, first of all, Your Honours, may I deal with a

matter that I think Mr Conti would agree with. This
was put before Mr J 1.:.stice Burchett and the trial judge

Mr Justice Sheppard and proceeded with in the Court of

Appeal upon the basis it was in the nature of a test

case. This is the first case that has considered this

particular section and this Act has generally not been

considered by the High Court.

SlT13/6/PLC	6	6/4/90
Ranoa

We would submit that it is a matter of tremendous

public importance as it affects every franchisee in

the country whose term has run the nine years and who

might have a right to compensation under section 23.

BRENNAN J: It is rather a pity that for a test case the parties

were unable to agree on what property was the subject

of the test.

MR PARKER:  I agree with that, Your Honour, but we did our

best and we thought, in the circumstances, that this

was a proper way of bringing this important question

before the Court, but I accept what Your Honour says.

May I just make the point to Your Honour, if you

wanted me to develop that, the facts about the Act

and the number of franchisees, a number of oil

companies, is dealt with in Mr Stojanovic's affidavit

but as I understand it to be accepted, I do not seek

to develop it.

Now, Your Honours, the way in which the Court of

Appeal dealt with the question of law and which we

say is plainly wrong is set out in the last paragraph

of - really, the last page and paragraph of their

judgment which is dealt with at page 38. Your Honours,

it begins in the middle of that page:

Upon the expiry of the term of a franchise

agreement in circumstances such as those in the

present case, where the franchisor is not bound to renew the agreement and does not voluntarily

do so, does the legislation bring about a result

as regards the goodwill which differs from that

under the general law? In the present case, by
dint of sub-s.17B(4) the legislation does not

oblige the respondents to renew the franchise

agreement for a further term.

If I may interpolate there, Your Honours, that must mean, as we would submit, that the franchisee is

obliged to quit and deliver up.	Then the judgment
proceeds:

Does this mean that within the meaning of

sub-s.23(1) the operation of a provision
of the legislation would result in the

acquisition of property from the appellant

by the respondents?

Under the general law, in the absence

of any special convenant and any other
applicable statute, upon the tenancy of the

appellant coming to an end, the benefit of

any goodwill of the character described

above would enure to the benefit of the

first respondent as lessor. The Act operated

upon this relationship by limiting the means

by which it could be brought prematurely

S1Tl3/7/PLC	7	6/4/90
Ranoa

to an end and, in effect, by entrenching the right to possession of the appellant for a period of 9 years from 19 September

1980. To the extent to which the

legislation in this way cut in upon what

would otherwise be the rights of the

franchisor in relation to the Premises,

this might have involved an acquisition

from the franchisor of property within

the meaning of s.5l(xxxi) of the CONSTITUTION.

Reference is made to TOOTH's case and other cases.

Then this is the critical passage - we would submit

that the next sentence at the beginning of the next

paragraph is an admission of the case made by the

applicant .. It is said:

In a sense, because in the present case the legislation has entrenched the tenure of the appellant only for a 9 year term, the

acquisition of goodwill of which the appellant

complains has comeabout for the reason that

sub-s.17B(4) does not stipulate a maximum

period in excess of 9 years.

The judgment might have said, with respect to that

sentence, quite equally well, "In a sense, because

in the present case the legislation has entrenched

the tenure of the appellant only for a 9 year term,

the acquisition of goodwill of which the appellant

complains has come about for the reason that

section 17B(4) does not stipulate a maximum period
in excess of nine years and requires in those

circumstances the applicant/franchisee to quit

and deliver up."

McHUGH J:  But it is not the legislation that requires him to

quit and deliver up. It is the terms of the lease.

It had come to an end.

MR PARKER:  No, Your Honour, the Act itself provides that

the franchisee shall have the nine year term.

Section 7 of the Act provides that the terms of

Act shall predominate. Our submission is quite
clear, and we would submit, correct, that what the

Act does, and the judgment accepts this, is to give

the franchisee, if he obeys the provisions of the

Act, the term of nine years. It is only then, if

he does not have the consent of the franchisor, that

he must go. So, Your Honours, can I just - - -

BRENNAN J:	Why must he go?
MR PARKER:	Because, Your Honour, he no longer has the protection

of the Act and therefore he is obliged to quit and

deliver up. Those are, we submit, the meaning of

section 17B(4). This meaning is given in the last - - -

SlT13/8/PLC	8	6/4/90
Ranoa

BRENNAN J: If the landlord was seeking to recover possession,

by reason of what title would the landlord seek to

recover possession?

MR PARKER:  He would rely, of course, upon his ownership of

the remainder and he would then also state that

section 17 does not apply, there was no right to

renewal and therefore the term of the franchise

had come to an end. May I just try and press this, Your Honour, because it is at the key of the way we

seek to put it? Then the judgment says:

But this does not mean that, within the meaning of sub-s.23(1), the acquisition

by the first respondent of the goodwill
in question is the "result" of the

operation of sub-s.17B(4). Sub-section 23(1)

is couched in terms of "result".

Now, we submit, Your Honours, that that is the wrong

test. The right test about the operation of a

statute is dealt with, amongst in other places, by

Sir Garfield Barwick in the NORTH EASTERN DAIRY

case which is quoted, Your Honours - if I may just

quote it from the appeal papers. Could Your Honours

look, please, at page 62, because this submission was

made to the court below but has not been considered

and it is taken from Sir Garfield Barwick's

statement in the NORTH EASTERN DAIRY CO:

It was submitted that the Primary Judge

had not properly construed s.23 of the

Act. It was the "operation" of the Act

which had to be considered. The operation

of an Act is that which it does in a

situation in which it is to work according

to its proper construction. An Act must

not operate in a vacuum so you study only

its words in the abstract. It operates

in and upon matters of fact which if valid

modifies and causes by that modification

such further changes. All these facts

are within its operation until the point

of remoteness is reached. Reference was

made to this test.

Your Honours, in that same case, the present

Chief Justice Sir Anthony Mason referred to the practical effect of legislation and that, if

Your Honours wish to see the judgment - we have

it for Your Honours. I hand up the copies of the

judgment. The present passage, Your Honours, is

of the Chief Justice at page 606. May I ask

Your Honours to look at the paragraph at the end.

If I may point out to Your Honour Mr Justice Brennan:

This approach takes account of the

practical effect of a law. The contrary

view has no secure base in s.92 itself.

SlT13/9/PLC	9	6/4/90
Ranoa

What we seek to say is that kind of practical

approach was dealt with in the PHILIP MORRIS

case in a particular way but, most importantly,

considered by COLE V WHITFIELD, the other decision

on section 92 -

McHUGH J: Just surmnarize it. I think we are familiar with

COLE.

MR PARKER:  Of course Your Honour is familiar with it. I

just wanted to put it correctly. Your Honours

say this at the bottom of that unanimous

judgment at page 399:

The concept of discrimination in its

application to interstate trade and commerce

necessarily embraces factual discrimination

as well as legal operation. A law will

discriminate against interstate trade or commerce if the law on its face subjects that trade or commerce to a disability

or disadvantage or if the factual operation

of the law produces such a result. A

majority of the Court so held in NORTH

EASTERN DAIRY. And the more recent

decisions proceed upon that footing. The Court looks to the practical operation of the law in order to determine its validity.

We would submit that when Your Honours go over the page of the judgment which we are submitting to

analysis, it is quite plain that the question

raised at the very bottom of page 39:

The acquisition results from the operation

of the general law -

well, that may be so but it only occurs when we

give up the site -

as it affects the relationship between the

parties in question, freed as it now is

from the constraints and qualifications

imposed by the Act. The acquisition of
goodwill upon the end of the term on

18 September 1989 was not the result of

the operation of any provision of the Act

so much as a consequence of what the

Parliament did not provide, namely an

entrenched tenure for a period greater
than 9 years.

And then, Your Honours, comes this particular, we

would submit, significant passage almost like an

apologia:

Where a franchisor elects to grant a new lease the franchisee has the benefit of

S1Tl3/10/PLC	10	6/4/90
Ranoa

continued exploitation of the goodwill

of the site; perhaps for another 9 years. But where a franchisor elects not to grant

a new lease -

this is the key to it -

the franchisee is turned from

or means, "turned out of"

the site without compensation for any goodwill

which it may have developed during its period

of occupancy. A franchisee, such as the
appellant, may regard this result as harsh,

the harshness being exacerbated if it should

be the case - we do not know whether it is so -

that franchisors are more likely to decide

themselves to operate sites to which substantial

goodwill attaches.

And that is obvious~ with great respect.

But if this result is harsh, it is a product

of the circumstance that the Act does not

require the franchisor who elects not to

renew to pay any compensation to the franchisee.

Any such harshness cannot be met by extending

s.23 to cover not only an acquisition which

results from the operation of the Act but

also an acquisition which results from what

the Act does not provide.

We submit that section 17B(4) in terms provides that

we are, to use the phrase of the Court of Appeal,

"without the consent of the franchisee turned from

the site." We say, at the very least, that is an

indirect consequence and on the true meaning of the

words "operation of the provision of this Act",

section 23 has the result that the very purpose of

this Act which was a remedial Act intended to give

benefit to franchisees, results that the very people

who build up the service stations, build up property

of any kind, perhaps buildings on the site; machinery

or anything else, are placed in a situation

where, by giving a restrictive meaning to section 23,

the very purpose this remedial statute is denied.

I only wish now, Your Honours, to conclude my

submission this way: the Full Court below actually

framed the question which is now before you to avoid

any constitutional argument. May I just, please, show

you this because it is an extra factor for this Court

to consider. It said at line 20 of page 27:

When senior Counsel for the appellant

opened the appeal it became apparent that

on his case questions involving the

S1Tl3/ll/PLC	11	6/4/90
Ranoa

interpretation of s.5l(xxxi) of the

CONSTITUTION might sufficiently be drawn

into the proceedings, so as to make it the

duty of the Full Court not to proceed

unless and until it had been satisfied

that the appropriate notices had been

given ..... With an eye to avoiding the need

for an adjournment for a time sufficient

to enable compliance with s.78B, the

parties reformulated the question for

determination on the appeal so as to avoid

raising -

it -

at this stage.

Then, they say:

The separate question was then

reformulated.

Your Honours, this Court might be troubled by the

consequence of the decision which is given by the

Court of Appeal and whilst it does not strictly

arise, I feel bound to raise it because we submit

that the affect of the Full Court's decision is to

permit by what I might call, using Sir Harry Gibbs' s phrase

"a circuitous device" the oil company franchisors

to acquire property of the franchisee. This, we

would submit, would be in defiance of the

constitutional safeguard enshrined in placitum Sl(xxxi)

and not permitted in terms of TOOTH's case.	TOOTH's
case is a warrantyfor the view that we express.	But

we would submit that what has, in effect, happened

is that if the language that the Court of Appeal has ascribed to section 23 is correct, they have

given it, we would submit, an extremely narrow

non-practical meaning, the effect of it is, by

admission, that the frachisor has acquired property.

We therefore, Your Honours, would take the view

that if it did involve for the purpose of seeking

special leave that some kind of constitutional

consideration be given to the matter in accordance
with ...... case, REEVE's case and others, we
would submit to the consequences of that and of

giving the notices.

Your Honours, for those reasons, we submit

that this application should be granted.

BRENNAN J:  We need not trouble you, Mr Conti.

The Court is of the opinion there is not

sufficient reason to doubt the correctness of the decision fran 'Whim the appeal is sought to be brought. Accordingly, special leave to appeal

will be refused.

S1Tl3/12/PLC	12	6/4/90
Ranoa

MR CONTI:	We seek an order for costs, Your Honour.
BRENNAN J:	Have you anything to say about costs, Mr Parker?
MR PARKER:	No, nothing, Your Honour.

BRENNAN J: With costs.

AT 4.16 PM THE MATTER WAS ADJOURNED SINE DIE

S1Tl3/13/PLC	13	6/4/90
Ranoa