Serhan, C. v Ampol Petroleum Ltd

[1985] FCA 1

. C A T C H W O R D S

Petroleum Retail Marketinq Franchise Act 1980 -

franchise agreement - refusal to renew - negotiations by

franchisor for an agreement to sell interest - in good

faith - in normal course of business - interest - s.17(8)

notice in writing of decision - term of agreement deemed

to be extended - term sought to be further extended by

reliance on s.17(4) - whether any extenslons cumulative.

Petroleum Retail Marketing Franchise Act 1980 s.3, s.17.

CHARLIE SERHAN & GEORGETTE SERHAN v. AMPOL PETROLEUM LIMITED

No. NSW G187 of 1984

McGREGOR J.

SYDNEY

9 January 1985.

IN THE FEIjERAL COURT OF AUSTRALIA	)
)

NEW SljUTH NALES DISTRICT REGISTRY No. NSW G187 of 1984

)

GENERAL DIVISION

BETWEEN

CHARLIE SEWAN & GEORGmE

SERHAN

Applicants

AND

AMPOL PETROLEUM LIMITED

Respondent

McGresor J.

E&: 3 January 1985

L'ilARLIE SERHAN AND GEORGETTE SEFtHAN tapplicants) have,

as franchisees. in a Franchise Agreement dated lo June 1981 but

which commenced on 1 June 1981 and was expressed to expire on 31

May 1984, carried on at 321 Gardeners Road, Rosebery, New South

Wales, (the premises) a service station and motor fuel vending

business. Those premises are owned. and the motor fuel supplied

to the applicants, by AMPOL PETROLEUM LIMITED (respondent).

The vents preceding this litigation are to be

considered against the background that the respondent regularly

2 .

. appraised its property, at least in New South Wales, with the

- -

object of maximising return on investment thereon. After

reappraisal. a list of sites considered suitable for

disinvestment ( a word I understand to include a sale of the premises and dispossession of the franchise) was drawn up.

Decisions in that regard were made in the light of the

respondent's overall marketing strategy. It was often necessary

to sell petrol outlets (of which the premises was one) because

e.g. of declining demand for petroleum in the area; or to open a servlce station in an area of growing demand. An economic decision might be made to disinvest the site in order to release capital to finance. upgrade and perhaps acquire other sites

-

elsewhere. The list of properties selected fo r disinvestment were forwarded to what is called the Appropriations Committee of the respondent which met reqularly to conzlder matters of capital

expenditure. A submission might be given to the Managing

Director for his confirmation for the disposal of any slte. A

decision to sell may be carried out by way of public auction or

private sale. If the former. it was necessary to set a reserve or minimuln price. A real estate agent was employed to advertise and facilitate the sale. L.J. Hooker Limited \Hooker) had been in the past chosen for this task. The premises the subject of

the current proceedings, was one of 35 sites in New South Wales

in respect of which it was proposed that the process of

disinvestment should take place. Before the decision was finally

taken in respect of the premises a notice was sent on 22 March

1984 to the applicants expressed to be pursuant to s.17(2)(b) of

3 .

. the Petroleum Retail Marketinq Franchise Act, 1980 (the Franchise

A A ) that the respondent intended to offer its interests in the

premises for sale at public auction on 26 April 1984 at the

auction room of Hooker. A3 at 26 March 1984. a valuation report

of Duncan Properties Pty. Limited valued the property at

$815,000. On 30 March 1984. a further valuation by Dyson Austen

& Co. Pty. Limited valued the property at $230.000. On or

after 11 April 1984, Mr. Alexander, a Director of Hooker who was primarily responsible for the auction of the premises expressed the opinion "that we might achieve $650.000".

In a meeting on 16 April 1984. the Appropriations

Committee considered a proposal to offer the premises for sale at

suction on the date mentioned above -dith a reserve price of

$275.000. The current book value of th? Property Gas recorded as

3224,816 and its written down value as ;20b,b08. The proposal

was recommended by Dr. E1ac)rburn whose appointment. at the

relevant time, was described as Executive Asslstant. Retail. At

the meeting it was resolved that sale by auction of the premises

be recommended to the Managing Director, Mr. Harris. at a reserve

price of $25O.i)00. This figure was later changed to $275.000.

After le April 1984, advertisements were inserted in

newspapers, one of which was seen by a Mr. Winterton. a Director

of Winterton Constructions Pty. Limited. a building contractor.

He was currently considering a development project and therefore

was extremely interested in the premises.

4 .

. On or about 19 April 1984, Mr. Harris, approved the

recommendation for the sale of the property by auction with a

reserve price of $275,000. At the instruction of Mr. Colgate

whose appointment was Services Manager of the respondent the

actual reserve eventually fixed at the auction was $650,000.

On 26 April 1984. the auction was held. No offers

reached the reserve price of $650,000, the highest being $349.500

by a Mr. .William Winterton for William Winterton Construction

Pty. Limited. This was not accepted but immediately after the

auction Mr. Alexander, Mr. Cochran (Service Manager with the

N.S.W. Branch of the Respondent) and Mr. Winterton adjourned to a

conference room near the auction room where Mr. Winterton was

told that the instructions were to get a much higher price. Mr.

Winterton said that he had a limlt to go to but was keen to

purchase and would like to discuss the matter further. Mr.

Cochran said he would see what Head Office had to say and get back to hia. By agreement the matter was to be left in abeyance pending further instructions. There was further contact with

Winterton. A notice dated 2 7 April 1984 purporting to be

pursuant to sub-section 17(8) of the Franchise Act was on that

date served on the applicant. Charlie Serhan. at the premises. Omitting formal parts this document is worded as follows -

5 .

"RE: SERVICE STATION FRANCHISE LICENCE

AGREEMENT DATED 16TH JUNE. 1981.

PREHISES: AMPOL SERVICE STATION,

321 GARDENERS ROAD. ROSEBERY

Pursuant to sub-section 17(8) of the Petroleum

Retail Marketing Franchise Act, 1980. ("the Act")

notice is hereby given that Ampol Limited

(hereinafter called "Ampol") as Franchisor under

the above Service Station Franchise Licence

Agreement ( "hereinafter called "the Agreement" ) has

decided not to renew the Agreement after it expires

on 31st May, 1984 on the ground that it has. within

the meaning of sub-section 17(l)(c) of the Act, in

good faith and in the normal course of business

entered into negotiations for an Agreement (other

than an Agreement containing a provision having the

effect of prohibiting the use of the site for the

retail sale of motor fuel) to sell its interest in

the site to	a person other than	an associate of
Ampol.

PARTICULARS.

dffers have been received from William Winterton

Constructions Pty. Limited of 148 Foveaux Street,

Surrey Hills (hereinafter called "Winterton

Constructions") to purchase the above site with

vacant possession for re-development.

FACTS RELATING TO	GROUND FOR DECISION NOT To3 RENEW
AGREEMENT.

1. The site was put to auction on Ampol's behalf by L.J. Hooker Limited on April 20, 1984 being

an auction of which you had received at least

30 days' notice in accordance with sub-section

17(2)tb) of the Act.

2 . The site was not sold at auction but

afterwards negotiations were commenced with bidder. These negotiations are continuing.

3 .	The basis of the proposed Contract with
Winterton Constructions 1s the Agreement for

Sale which was the basis for the auction.

Having regard to the interests of Winterton

Constructions you are requested to keep the

abovementioned information confidential.

6 .

Because Ampol is negotiating with the highest

bidder at an auction it is not obliged to offer the

site for sale to you before entering into a

Contract for Sale provided the price is not lower

than the amount of the highest bid. However, if

negotiations are concluded by Ampol with any other

purchaser the site will be offered for sale to you

on the same terms as would apply to that other

purchaser prior to entering into formal Contracts

as is provided by sub-section 17(2)(a) of the Act.

You are advised that by virtue of sub-section 17(9) of the Act, the term of the Agreement is deemed to

be extended so that it will expire at the end of

the ninetieth day after your receipt of this

notice.

Furthermore. Ampol hereby gives notice that if

Contracts for Sale have not been entered into prior

to the expiration of the ninety day period, it

intends. pursuant to sub-section 17(4) of the Act,

to extend the term of the Agreement for a further-

six (6) months or until the date u9pon which

Contracts for Sale are entered into whichever	first
occurs.

Yours faithfully,

I SIGNED)

T. G. PIALSH,

5ecre:ary"

In a letter dated 25 May 1964, from the applicants'

solicitors to the respondent referring to the document dated 27

April 1984. it was noted that the Franchise Aareement was due to expire on 31 May 1984: and it was stated that the "terms of your

letter a e not sufficient to require the consequences

stipulated"; and that "you are required to renew the Franchise

Agreement....". A letter dated and received 28 May 1984 was sent

by respondent to the Solicitors for the applicants which.

omitting formal parts, read -

I .

"Service Station Franchise Licence.

Agreement Dated 16 June 1981

Premises: Amp01 Service Station,

321 Gardeners Road. Roseberry

We refer to your letter of 25th May 1984.

Our letter dated April 27. 1984 to your clients constituted a valid notice for the purposes of Sub-section 17(8) of the Petroleum Retail Marketing

Franchise Act 1980 ( "the Act"). As a consequence

of service of that notice on your clients the

expiry date of your clients Franchise Agreements is

26 July 1984 by virtue of the application of

sub-section 17(9) of the Act.

It is anticipated that formal contracts for the

sale of this site will shortly be exchanged with

the person who made the highest	bid at the recent
auction of the property.

For the purposes of Sub-section 17(4) of the Act

but without conceding that it has any obligation to do so Amp01 agrees to extend the term of your clients franchise agreements for a further period from 27 July 1984 until 26 January 1985 or the date

when formal contracts for the :.ale of the site are

entered into whichever occurs first.

If. as we anticipate, formal contract3 for the sale

of the site have been entered l n t o prior to 26 July

1984 then the franchise aqreements will terminate

on 26 July 1984.

In the circumstances we are not required to renew

your clients' franchise agreements as you contend

and we will oppose any Court proceedings that your

clients institute.

csqd.) T.G. W S H

Secretary"

I note that no submission has been made that the

Solicitors did not have any authority to receive this document	o r
did not receive it on behalf of the applicants.

On 31 May 1984 a further letter was sent by the

respondent to the applicants which, omitting formal parts, read -

8.

.

"RE: FRANCHISE SUPPLY AGREEMENT

DATED 16TH JUNE, 1981.

PREMISES: AWOL SERVICE STATION.

321 GARDENERS ROAD, ROSEBERY

We refer to our Notice under sub-section 17(8) of the Petroleum Retail Marketing Franchise Act 1980

("the Act") dated April 27. 1984 and served upon

you on that day.

As you are aware, William Winterton Constructions

Pty. Limited have offered to purchase the above site.

As you are aware. a consequence of our Notice dated

27 April, 1984. is that the term of your Agreement

is deemed to be extended by virtue of Sub-section

17(9) of the Act so that it will expire at the end

of the ninetieth day after your receipt of the

Notice. As the Notices were served on April 27.

1984. this means that the term of your Agreement-

expires on 26 July, 1984.

For the purposes of Sub-section 17(4) of the Act, but without conceding that we have any obligation to do so. we now advise our agreement to extend the

term of your Franchise Agreement for a further

period from 27 July 1384 until 26 January, 1985 or

the date when formal Contracts far Sale of the site

are entered into whichever occurs first.

If. as we anticipate. formal Contracts for the site

have been entered into prlor to July 26, 1984 then

tne Franchise Agreement will terminate on July 26,

1984.

Lsgd.) T.G. WALSH

Secretary"

The evidence does not disclose that any reply was

received to these last two letters.

It seems that in June 1984 Winterton failed to respond

to an invitation to offer a sum higher than $376,000 for the

premises; and Gordon Taylor & Sons Pty. Limited (Taylor) made an

offer unconditionally for that amount which the respondent is

9.

prepared to accept. Taylor has indicated that unless contracts

are exchanged in the near future, it would be "pulling out".

By letter of 20 September 1984, the respondent.

referring to its proposal to sell the premises to Taylor, offered to sell to the applicants on the same terms except as mentioned. There has been no acceptance of this.

The relief which the applicants seek is in substance set

out in their application dated 14 June 1984 as follows -

"1. Order that the Respondent comply with the

provisions of the Petroleum Retail Marketing

Franchise Act. 1980 and renew the franchise

agreement with the Applicants in respect of

the business of retail sale of motor fuel and

business conducted by the Applicants at 331

Gardners Road. Roseberry In conformity with

the Petroleum Retail Marketing Franchise	Act,
19813.

2 . Order that the Respondent prepare and execute

all documents and take all other steps

necessary to renew the said franchise

agreement with the Applicants in respect of

the said business and premises in accordance

with the Petroleum Retail Marketing Franchise

Act. 1980 within 30 days of the date of this

order.

3 . . 4 , 5 ....

There is a cross claim filed on behalf of the respondent

including an application for declaratory relief as follows -

"1. Upon the expiration of the period of s i x

months commencing on 27 July 1984, namely 26

January 1985, the term of the Service Station

Franchise Licence Agreement wlll expire;

10.

2 . ....

3 . ....

An examination of the provisions of the Franchise Act,

. including ss. 3 , 16, 17, is necessary to decide the issues

arising in this matter -

3 . ( 1 ) . . . .

"franchise agreement" agreement means an

containing"-

(a)	provisions, whether express or implied, under or by virtue of which a corporation (in this
Act referred the as to "franchisor")
authorizes. permits or requires a person,

being another party to the agreement (in this-

Act referred to as the "franchisee"), to use,

in connection with the retail sale of motor I.

fuel by that person at the premises to which the agreement relates, a mark identifying,

commonly associated with. or controlled by,

that corporation or a rela:?d corporation;

(b) provisions. whether express or implied, under

or by virtue of which a corporation (In this

Act referred to as the "franchisor") grants a

right to, or otherwise authorizes or permits,

a person. being another party to the agreement

tin this Act referred to as the "franchisee"),

to possess, occupy or use the premises to

which the agreement relates in connection with

the retail sale of motor	fuel	by that person
at those premises; or

(c)	provisions, whether express or implied, under
or by virtue of which -
(i) a corporation (in this Act referred to as

"the franchisor") is entitled or required

to supply motor fuel to a person, being

another party to the agreement (in this

Act referred to as the "franchisee" ) , for

retail sale by that person at he

premises to which the agreement relates;

or

. 11.

(11) a person (in this Act referred to as the

"franchisee") agrees with a corporation

(in this Act referred to as the

"franchisor") to acquire motor fuel from

another person (whether a party to the

agreement or not) for retail sale by the

first-mentioned person at the premises to

which the agreement relates;

( 3 ) ....

Except so far as the contrary intention appears, a reference in this Act to an agreement shall be read as including a reference to a

( 2 )

proposed agreement, an agreement as requested or

proposed to be renewed, or a terminated or expired

agreement and. in relation to such an agreement, a

reference in this Act to a party to the agreement shall be read as a reference to a person who would

be a party to the agreement if the agreement were

in effect.

....

( 4 ) A reference in this Act to renewal, in i

relation to a franchise agreement, shall be read as

a reference to entering into a new franchise

agreement. where the provijlons of the new

agreement are same he 33 those the of

first-mentioned agreement o t n t do differ .

substantially from the pravlslons of the

first-mentioned agreement except in any one	or more
of the following respects:

an amount payable by the franchisee under the

new agreement is greater or less than the

amount that was payable by the franchisee

under the corresponding provision of the

first-mentioned agreement:

the term of the new agreement is longer or

shorter than the term of the first-mentioned

agreement;

a provision of the new agreement (other than a

provision relating to an amount payable by the

franchisee or the term of the agreement)

differs, with the consent of the franchisee,

from the corresponding provision of the

first-mentioned agreement;

a provision of the new agreement differs from

corresponding the provision the of

first-mentioned agreement and the difference

12.

results olely from the operation of a

provision of this Act or is designed to make -

the new agreement conform with a provision of

this Act.

.....

Termination of franchise asreements

16.(1) A franchisor may terminate the

franchise agreement in accordance with e

succeding provisions of this section. but not

otherwise.

....

Benewal of franchise asreements

17.(1) Subject to this section, d franchisor

shall not fail or refuse to renew the franchise

agreement except on one or more of the following

grounds :

( a ) ,	(b)...
(c)	in the case of franchise a agreement
containing provisions of the kind referred to
in paragraph tb) of the definition of
"franchise agreement" in s>:b-sectlon 3(1). the
franchisor has. in good faith and in the
normal course of business -
(F) entered into an agreement, or

negotiations for an aqreement, to grant a

lease of the marketing premises to a

person other than an associate of the

franchisor for a use other than the

retail sale of motor fuel; or

(ii) entered agreement. into an or

negotiations for an agreement, (other

than an agreement containing a provision having the effect of prohibiting the use of the marketing premises for the retail sale of motor fuel) to sell its interest

in 'the marketing premises to a person

other than an ssociate the of

franchisor.

( 2 ) A franchisor shall not enter into an

agreement to sell its interest in the marketing

premises to a person other than the franchisee

unless -

13.

(a) before entering into the agreement, the

franchisor has offered the interest for sale

to the franchisee on terms that were no less

-

favourable to the franchisee than the terms of

the agreement with that person; or

(b) the agreement was entered into in the

following manner, namely, the franchisor

offered the interest for sale at a public

auction of which at least 30 day's notice in

writing was served on the franchisee, and the

f ranchisor -

(1) sold the interest at the auction to a

person other than an associate of the

franchisor: or

(11) sold the interest by private treaty after the auction, to the person (not being an associate of the franchisor) who made the

highest bid at the auction, for a price

not lower than the amount of that bid and-

on other terms substantially the same as the terms on which the interest was so offered.

( 3 ) . . . .

( 4 ) Where, before the expirltlon of a franchise

agreement, the franchisor h s . in the manner

descrlbed in paragraph (1) c ) , entered into

negotiations for an agreement G C a kind referred to

in that paragraph, the franchlsor may, in lieu of renewing the franchise agreement, extend the term

of the franchise agreement until -

(a) an agreement of that kind is entered into; or

(b)	the expiration of the period of 6 months commencing on the date on which, but for this
sub-section. the franchise agreement would

expire,

whichever first occurs, or until such earlier time

as is agreed upon between the franchisee and the

franchisor.

15) If, at the expiration of the period referred

to in paragraph (4)(b), no agreement of a kind

referred to in paragraph (l)(c) has been entered

into, paragraph (l)(c) ceases to be a ground for

failure or refusal to renew the franchise

agreement.

( 6 ) . ( 7 ) , ....

14.

If a franchisor decides not to renew the franchise agreement, it shall serve on the

( 8 )

franchisee, not later than 30 days before the

expiration of the agreement, notice in writing of its decision, setting out full particulars of the

ground or grounds, including a statement of the

facts relating to each ground, upon which the

decision is based.

( 9 ) If notice is served on a franchisee under

sub-section ( 8 ) after the commencement of the

perioid of 90 days before the expiration of the

franchise agreement, the term of the agreement

shall be deemed to be extended so that it expires

at the end of the ninetieth day after receipt of

the notice by the franchisee.

(10) Subject to this section, a court shall, on

the application of a franchisee, make an order

directing the franchisor to renew the franchise

agreement unless -

(a)	the franchisor has served on the franchisee a
notice in accordance with sub-section (8);
(b)	ground a specified in the notice is
established by the franchisor the to

satisfaction of the court: and

(c) except where a ground 5.3 established is a

ground referred to in paragraph (l)(c), the

court is atisfied thac it 1s just and

equitable. having re ard to all the

circumstances. for the agreement and any

related agreement	or agreements not to be
renewed.

(12) Where the court makes an order under

sub-section (10), it may make -

(a)	orders determining any amount, or the manner
of calculating any amount, to be payable by
the franchisee under the franchise agreement as to be renewed;
(b)	orders determining any other provisions of the agreement as to be renewed; and
(c)	such ancillary or consequential orders as it
thinks fit, including Orders directing the
preparation and executin of documents.

15.

( 1 3 ) . (14), (15). (16) . . . . . ' I

Senior counsel for the applicants accepted that the person

William Winterton was not an associate of the respondent.

Counsel pointed out that the onus lay upon the respondent to

establish grounds specified in the s.17(8) notice the efficacy of

which had been challenged in the letter dated 25 May 1984 to

which reference has already been made.

The claim of the applicants is set out in a Statement of

Claim dated 14 June 1984 thus -

"4. At all material times there was in force

between the parties a franchise agreement

within the meaning of the Petroleum Retail

Marketing Franchise Act. 1980; which

franchise agreement commenced on 1st June,

1981, and	was	stated to expire on 31st May,
1984.

5. The Applicants continue to occupy the premises

and to operate thereon the said business
pursuant to the franchise agreement with the Respondent.
6 .	On or about 27th April, 1984, the Respondent
purported give to notice pursuant to
sub-section 17(9) of the Petroleum Retail

Marketing Franchise Act, 1980 that the term of

the franchise agreement is deemed to be

extended so that it would expire at the end of

the 90th day and after receipt of the said

not ice.

7.

By the said notice, the Respondent further been entered into prior to the expiration of the 90 day period, it intends pursuant to

section 17(4) of the P troleum Retail

Marketing Franchise Act. 1980 to extend the

terms of the agreement for a further 6 months

or until the date upon which contracts for

16.

sale are entered into, whichever first occurs.

8. On or about the 25th day of May, 1984, the

Applicant challenged the efficacy of the said notice.

9. The applicants charge, and the fact is, that

the notice given on or about 27th April. 1984

was ineffective to determine the relationship

between the parties and the Respondent is

bound to renew the franchise agreement."

The facts set out in paragraphs 1-8 are not in dispute.

The parties have agreed upon a statement of issues as

follows -

l/.

I' 1 .	Wether the
Winterton were in good faith.

negotiations with William

2.	Whether the negotiations were	in	the normal
course of business.

3 . Whether the contract itself intended to be

entered into prohibited. or had the effect of

prohibiting, the use of the marketing premises

for the sale of motor fuel. that is petroleum.

4. Whether Ampol Limited purported to sell its interest.

.

5. Whether the notice given on the 27th April.

1984. was a notice sufficient for the purposes

of The Petroleum Retail Marketing Franchise

Act, 1980. "

An issue, not requiring a conslderation of additional

facts. was raised by the respondent 111 a cross claim seeking

declaratory relief, inter alia, that -

"1. Upon the expiration of the period of six

months commencing on 27 July 1984, namely 26

January 1985, the term of the Service Station

Franchise Licence Agreement will expire;"

2 . 3 . . . . . I 8

18.

The issues 1 to 5 may now be considered separately. The

first of these is as follows -

1. Whether the negotiations with William

Winterton were in good faith.

The words "in good faith are, of course, taken from

s.l7(l)tcl. In the context of this case the presence or absence

of good faith is to be examined connection with s.l7(l)(c)(Ii)

and is to be considered in relation to the actions of the

respondent (franchisor). No doubt if there were discovered some

indication of bad faith by a proposed purchase during the course

of such negotiations there might emerge material suggesting bad

faith by the franchisor; or alack of good faith. The

expression itself has been referred to in many authorities to

which counsel have referred. I add a reference to Moqridcre v.

~'lapp (1892) 3 Ch. 382 and The Dictionarv of Enqlish Law (Jowitt)

at p.070 &here the expression "Good faith" is referred to thus -

"A thing is deemed to be done in good faith if it

is done honestly, whether or not it is done

negligently. 'I

and as to (part of) the way to which it is referred in Black's

Law Dictionary Fifth ed. at p.624 is -

"Commercial Law. Honesty in fact in the conduct or transaction concerned. In the case of a merchant,

honesty in fact and the observance of reasonable

commercial standards of fair dealing in the trade."

The circumstances here were that the respondent wished

to carry out a process of "disinvestment" which included, in the

19.

circumstances, sale of the relevant property because it was not

sufficiently advantageous to it to retain it; and because,

further, the funds it might receive by sale could be used

elsewhere to advantage, e.g. in upgrading a Sungas service

station at Kingsford. Mr. Donoghue (Group General Manager, Marketing, of the respondent) agreed that the auction had been arranged "in advance" (i.e. of a decision that there would be

sale of the property) to ensure that respondent would not be -

required to give applicants a further franchise agreement. The

executives of the respondent went about his process of

disinvestment attempting to pay due regard to the requirements of

the Franchise Act. They did, of course. owe a duty to their

shareholders to manage its assets to the best commercial

advantage commensurate with observation of the law. Their

conduct in so doing, so far as I can see. evinced no dishonesty, deception nor trickery. No suggestions to that effect were made

in cross examination. I do not accept that any evidence shows

that the rtspondent by its executives were guilty of a "fraud on

the power" or were acting for some private purpose which the

Franchise Act does not permit. In fact, the Act contemplated

there may be a sale of premises in good faith and in the normal

course of business. Mr. Winterton or his company were similarly

motivated to make a good commercial deal. He was not cross

examined to suggest that there was any collusion or hidden

purpose. Nothing suggests that Taylor is inspired by anything

but ordinary commercial advantage. The argument for the

applicants here is rather to put the respondent to proof of an

20 .

issue in respect of which it carried the onus than itself to advance some material which could show a lack of good faith. Counsel expressly disavowed any claim that any witness has spoken

untruthfully. In my opinion there is nothing to suggest bad

faith or lack of good faith in the negotiations in this matter.

On the evidence before me I am of the view that all concerned

acted in good faith. I answer the first question "Yes".

2 .	Whether the negotations were	in the normal
course of business.

There is evidence in the form of a list of some 21

properties sold by Ampol since July 1977. Senior counsel for the

applicants points out that the list showed that (except in two

~nstances) the amount realised on sale was in excess of the

amount f o r which the sites were valued: whereas in the present case the amount for which the neqotiarlons with first of all

Winterton and, later, Taylor, was in respect of the first

instance in the vicinity of $400,000. Later the negotiations were

for a sale at less than that amount, i.e. in respect of Taylor.

This, he says is in contrast to real value as shown in the

valuation report of the premises on 26 March 1984 by Duncan Properties Pty. Limited for the sum of $815.000. Senior counsel for the applicants submitted, inter alia. that having regard to

the reserve fixed. attempting to make a sale at $400,000

"bespeaks bad faith" and was only consistent with a "fraud on the

power" : or "a purpose foreign to the statute": that the

respondent was and is prepared to sell at undervalue. There were,

as I have mentioned, other valuations. e.g. by Dyson Austen ti Co.

Pty. Limited dated 30 March 1984 for $230.000 and the valuation

by Hooker in April 1984 wherein the market value was said to be

$275.000. About 11 April 1984 Mr. Alexander, a Director of

Hooker who was primarily responsible for auctioning respondent's property for some 5 years, expressed the opinion that "we could

achieve $650.000". Counsel. referring to the reserve price of

$650.000 and negotiations at less than $400,000. said that

therefore there was a sale at under value, and one thereby

inconsistent with previous sales of its premises by the

respondent. Such a sale, he said, could not be said to be in the

normal course of business. As	he put it. "people do not sell at
a loss".

It is apparent that in connection with the disposal of

this site, there were widely differing views as to its value, no

doubt a not uncommon situation. even if the extent of the

difference was greater here than one might have expected. In the

circumstances. the figure at which the negotiations have taken place was not one as to give rise to any suspicion. nor is it beyond experience of such matters that the figure at which

negotiations proceeded was less than the figure of $650,000. A

reserve is not necessarily a figure which represents the seller's

view of the proper price that should be realised. The

proposition advanced by counsel for the appllcants that this was

to have been or is to be a sale at a loss could not be sustained.

I observe that a sale compared to book and written down value

would be a sale at a profit.

22.

On the evidence before me the negotiations were for the

sale of property held by the respondent. Such sales are common

place in everyday business and have been shown to be a common

. part of the activities of the respondent in its endeavour to

employ its assets to the best advantage. In my opinion, the

evidence supports that the decision to sell, and the

negotiations, were in the normal course of business. I would

answer the second question in the affirmative.

3 . Whether the contract itself intended to be

entered into prohibited, or had the effect of

prohibiting, the use of the marketing premises

for the sale of motor fuel, i.e. petroleum. -

In this regard senior counsel for the applicants points to the exclusion in the projected so call2d "auction contract" of

fuel pumps. flood light, compressor an(: identification sign. I

understand this aspect of the contract La have been suggested by

Mr. Kelly. By way of rejoinder, senlor counsel for the

respondent pointed out that the tanks which would be an integral

part of installation required for any use of premises in the

future as a service station were, if a sale took place, to

remain. However. there is nothing which has emerged in the

evidence as to negotiations, the advertlsements ("ex service

station") the auction contract itself or the negotiation with

Winterton or Taylor in respect of any contract to be entered into

which, in my view, could be said to have the effect of prohibiting the use of the premises for the sale of motor fuel. The purchaser, pursuant to such a contract, would be at liberty

23.

to do what he pleased with it, subject to compliance, of course,

with Local Government and other restrictive requirements of the	-
law.

In my opinion the third question should be answered

No " .

4 . Whether Ampol purported to sell its interest.

This is a reference to s.l7(l)tc)(ii) of the Franchise

AA. It is common ground that the franchise agreement between

the parties is one which comes within the definition of-that

phrase in s.3(1) of the Act. It was expressed to expire on 31 ..

May 1984. The respondent could not fail or refuse to renew it

except on the grounds set out in 3.17. One such ground is in

sub-para.tc)cii) that the franchisor xith the qualificatlons

mentioned) entered into nesotiations for an agreement to sell its

"interest" in the "marketing premises", i.e. as defined in

s.3(1). If it is necessary to say so, the "inclusive" definition

of "franchise agreement" or "marketing premises" do not indicate

that the franchisor must be the owner or have an estate in land

on which are the premises. The word "interest" is broader in its

scope. Furthermore, the franchise agreement gives the licensee

(applicants) the right to enter upon and have access to and use

the premises, though not with exclusive possession. The right is

subject to the licensor's (respondent) continued entitlement at

all times to enter upon the premises for any reasonable purpose

connected with the licencsees' (applicants) operation of the

24 .

service station. The franchise agreement specially provides that

the rights granted by it are by way of licence only, that the

licensee shall not be entitled to exclusive possession of the

"said lands or the licenced buildings" and that the agreement is

not to be construed as a lease nor conferring a tenancy. But

applicants' counsel referred to Radaich v. Smith (1959) 101

C.L.R. 209 (Radaich). In my opinion, on its facts, the present

case is distinguishable from Radaich. There, the members of the .

Court were'able to find from the agreement before it that the so

called licensee had exclusive possession of the relevant

premises. See per McTiernan. Taylor, Menzies and Windeyer JJ. at

pp.215, 220, 224 and 225 respectively. I am unable to make such

a finding from the subject Franchise License Agreement, or to

find that it was otherwise than what, on its face, it purports to be, i.e. a license agreement. The applliants have not chosen to give any evidence throwing any light on the matter. I have expressed this view out of deference to the submissions of

seniuor counsel for the applicants; though, if I understood him,

he did say finally that it did not matter for the purpose of this

case whether the relevant agreement was a lease or a license.

All the evidence here proves beyond dispute that the

respondent was and is endeavouring to sell its "interest in the

marketing premises", s.l7(l)(c)(ii). This is so whether one

regards "interest" as meaning a right or advantage generally, or

an estate or a reversion. I am of the view that "interest" is

not used in this legislation in any narrow sense.

25.

I do not want to be understood as accepting that what the respondent had, following termination of the license, was a "right of reversion". The "interest" which the respondent has and is endeavouring to sell is its ownership, the fee simple of

the premises, though made up by various parcels of land. No

useful purpose is, I suggest, served by endeavouring further to

refine "interest" by describing it as e.g. a reversion (even if

it were correct to do so) or by any other term.

I find that the respondent was and is negotiating to

sell that interest; and if it is appropriate to ask whether it

-

purported to sell that (though I have some difficulty with

"purported" 1 the answer to issue 4 is "Yes".

5. Whether the notice given on the 27th April.

1984, was a notice sufficient for the purposes

of the Petroleum Retail Marketing Franchise

Act, 1980.

The applicants' submissions in this regard have been

reduced to writing.	They will	remain with the file.	I do not
restate them.

Arguments of senior counsel for the respondent included,

In effect, that issue 5 raised only an enquiry as to the

sufficiency of the notice - a matter of its form only. He said that assuming the notice was in conformity with s.17(8) the term

of the franchise agreement was extended so that the expiry date,

31 May 1984, would be extended by a period of 90 days after receipt of the notice by the applicants, to 26 July 1984. Then

26.

he said that by the letter Of 28 May 1984 (to which I have

-

referred as the s.17(4) notice) that already extended term was

further extended for a period of 6 months so that the expiry date

would then become 26 January 1985. In this regard he submitted

that the letter of 27 April 1984 met the requirements of s.17(8)

because it did set out full particulars of the ground including a

statement of the facts relating to that ground, being that

provided by s.l7(l)(c)(ii). No question, he contended, was

raised in issue 5 as to the availability of facts which might be

thought necessary to support the ground; but only whether the

notice was - -

of...." purpose the "sufficient or I

the Franchise Act. The notice, he said, precisely set out

information as to the ground, i.e. that the respondent in good

faith and in the normal course of buslness, had entered into

negotiations of the kind referred to in S. 1 7 ( 1 ) ( c ) (11) ; that the

site had Seen submitted to auction (of which the applicants had

been notified on 22 March 1984) but not sold; that the highest

bidder at the auction whose name and address was supplied wished

to purchase with vacant possession and for redevelopment. It was

indicated. in effect, in the notice that any agreement for sale

would be by the Auction Contract. Other information was

included. Reference in arqument was made to Hudson v. B.P. Australia Limited (25 September 1984, unreported). per Fox J. With respect, I would pay great attention to anything his Honour

said, even extemporaneously. However. any notice pursuant to

this legislation would need to be considered in the context of

I

27.

the facts of the particular transaction. I note that the notice

in the case cited misnamed the company said to be negotiating to	*
purchase the property. His Honour apparently treated this as

bearing upon the validity of the notice. (Validity of a notice

might be a different consideration from its ufficiency.

However, I do not understand that any issues were agreed upon i

that case). He considered this misnomer was "an insuperable

difficulty in the way of the franchisor". There is no such

difficulty,in the instant case where the name, address of the

proposed purchaser and how the negotiations commenced are set

out. His Honour, in the case cited, was further of the opinion that the notice before him should have contained more than a

simple statement that "negotiations for sale were being carried

on". The s.17(8) notice in evidence before me did more than make

such a "simple statement"; and had been preceded by advice to

the applicants of the time and place of the auction. Other

difficulties to which	Fox J. referred in his Reasons do not exist
in the present case.

Submissions on behalf of the applicants included that

the applicant must establish the ground referred to in the

notice: and if the negotiations do not ripen into contract, the

applicants get the advantage of the statutory condition in

s.17(5). I do not accept that these arguments are available or

relevant to a consideration of issue 5 as presently worded

though, as it happens, the evidence establishes that the

respondent had entered into negotiations of the kind mentioned	in
s.l7(l)(c)(ii).

28.

The second submission was that full particulars had not -

been provided. In my opinion the particulars in the s.17(8)

notice, and which I have quoted earlier from the submission of

counsel for the respondent, were a reasonable response to the

requirements of that section.

The third submission included that the s.17(8) notice, as I have referred to the document dated 27 April 1984. is to be

construed as, inter alia, founded on the substantive ground in

s.l7(l)(c)(ii) and s.17(4). I do not accept this proposition. I

consider the third submission as to issue S is. having regard to

the wording of issues. not available to the applicants, though it

may be considered in the claim for declaration.

Fox J., in the case lastly cited. and referring to

s.17(8) said -

"The purpose or principal purpose is, as it seems

to me. to give the recipient a full opportunity to

investigate and test what is asserted and to decide

its course of action accordingly."

Assuming this to be a test to apply to a s.17(8) notice,

then that which is before me did give such a full opportunity.

In my opinion, the notice was an adequate compliance with

s.17(8). I answer issue S "Yes".

The respondent, in its cross claim, seeks a declaration

that -

29.

Issue arisins on the Cross-claim

“1. Upon the expiration of the period of six

months commencing on 27 July 1984, i.e. 26

January 1985, the term of the Service Station

Franchise expir . agreement will

Both parties have requested that I should deal with this

application for declaratory relief. No suggestion has been made

nor, in my view, could it have been made, that this Court has no

relevant power to enable it so to do.

Arguments for the respondent, the moving party in the

that - include claim cross -

by the s.17(8) Notice the term of the Franchise Agreement

was, on 27 April 1984, deemed to Se extended so that it

expired on 27 July 1984 (i.e. 90 days after the receipt of

the Notice by the franchisee) (applicants).

by relying on s.17(4) (i.e. as set out in the letter of 28

May 1984) the already extended term was by the respondent

(franchisor), on that date. further extended from 27 July

1984 to 26 January 1985, being the date marking the

expiration of the period of 6 months commencing on the date

(i.e. 27 July 1984) on which but for this sub-section the

Franchise Agreement would expire.

So counsel contended that the separate acts, the s.17(8)

Notice and the extension purported to have been made relying upon s.17(4), operated cumulatively.

3 0 .

Already I have decided that the s.17(8) Notice was

sufficient in form for the relevant purposes. It is not disputed

that it was served within the appropriate time span referred to

in that sub-section.

Applicants' counsel pointed to the differing wording of

s.17(4) and s.17(9): S. 17( 9 1 producing only a "deemed"

extenslon. So he said that the s.17(9) extenslon 1s one for the purposes of s.17(8): not of the kind referred to in s.17(4).

I have had some difficulty with the wording of the

letter af 28 May 1984 in that it states that respondent "agrees

to extend the term" rather than in terms of the sub-section using

words extending the term. A slmllar fotm was used in the letter

dated 31 May 1984 to the applicants; :Jet no evidence suggests

there was agreement between the parties. However, no argument

was addressed to me by applicants' counsel that the wording

rendered by the notice ineffective. My view, anyway, is that

reliance on s.17(4) having been forecasted in the last paragraph

of the s.17(8) Notice, the clear indication from the reference

there and in the letters of 28 May and 31 May 1984, is that by

those letters s.17(4) was being invoked. Accordingly, I accept

that the letter of 28 May 1984 was in a form appropriate to

indicate that respondent was extending the term, though I note

that in s.17(4) there is no provision for a notice.

31.

If the submission on behalf of the respondent is

correct, the action on 28 May 1984 extending the term was taken -

"before the expiration of.....Franchise Agreement"

On one reading, all that need happen may be that before the expiration of the Franchise Agreement, there shall have been

entered into certain negotiations as referred to in s.17(4); and

then at some unspecified time. the act by franchisor to extend

the term takes place. It is not said explicitly the act

extending must be taken before that time. However the better

view is that the negotiations and the act which extends should

take place before the expiration.

The more difficult problem arises from the use of

"deemed" in 3.17(9) and the words which rollow.

TSle word "deemed" is said to be "overworked" - (51

A.L.J. 229). There is abundant references to it in decided cases

some of which are collected in Words and Phrases Leqallv Defined

Vol. 2 p.27 and Stroud's Judicial Dictionarv Fourth Ed. Vol. 4

p.716. See also Hunter Douqlas Australia Ptv. Ltd. v. Perma

Blinds (1969-1970) 122 C.L.R. 49.

Sections 17(8) and 17(9) must be read with s.17(1) which

envisages that there may not be valid failure or refusal to renew

except on the grounds it sets out. It is mandatory that, If

there is to be a valid refusal to renew, an appropriate notice

wlll be served. Section 17(9) wlll then operate to allow the

3 2 .

.

franchisee a period of 90 days, for whatever purpose (perhaps to

enable it to investigate validity of the ground; or to make whatever arrangements are necessary for closing its operation). During this period, there is a notional extension f the term in the Franchise Agreement up to the date determined by addmg 90

days to the date of receipt of the s.17(8) notlce. As I

understood the argument for the respondent, s.17(9) should be

read (in this area of the debate) in two steps i.e. -

the receipt of the Notice will produce an automatic or

deemed extension of the term of the franchise agreement,

so that the franchise agreement then will expire on the

date so calculated.

Without then considering how the new date has come lnto being, the Franchise Agreement is to be treated as one wlth an expiry

date of 26 July 1984. 5.17(4) will then operate to enable the

franchisor to extend this enlarged term.

I do not agree that s.17(9) and s.17(4) are to be read

together. "he wording of s.17(4) supports that the extension

of the term to which it refers is that of the (orlglnal)

franchise agreement Itself, not of that agreement already

artificially extended. Thus if the act by the franchisor to

extend was performed by it "before the expiration of the

franchise agreement" the term will be extended by 6 months; any

3 3 .

.

. earlier "deemed" extension for shorter a period wlll be

overtaken, subsumed or included within the longer period.

In reality, both subsections have been invoked by the

respondent upon the same basis, i.e. the decision not to renew by

reason of the negotiations to sell. It would be a strange

result, I suggest, if there could be two extensions arising out

of the one state of affairs. In my opinion s.17(8) and s.17(4)

have separate not cumulative operation. The period of six months

is, in my view, the maximum extension; whereafter if no

agreement has been entered into the ground in s.l7(l)Cc)(ii) for

refusal of renewal, ceases to be a ground for fallure or refusal

to renew. Section 17(5) is to be given effect. A perlod of 6

months extension where negotiations for In agreement to sell are

relied on is a maximum. after which the negotlations will not any

longer be available to hold up renewal.

Senior counsel for the respondent placed reliance on the

words in sub-s.l7(41(b) -

"....but for this subsection. ..."

He has attributed a signifiance to them whlch,	m my view they do
not have.

In my opinion, after the s.17(9) notice, operating on

the franchise agreement, produced a deemed extension of its term

for 90 days, the effect of s.17(4), also operating on the

original agreement, extended the term until a period of 6 months

34.

-

commencing on the date which - so far as s.17(4) was concerned -

t

the agreement would expire. That expiry date was 31 May 1984 and

it was to that date that 6 months must be added.

I do not accept that s.17(4) and s.17(9) can have a

cumulative operation. In the circumstances of this case the

latest expiry date of the relevant agreement could not be beyond

6 months after 31May 1984 i.e. 30 November 1984, unless,	of
course, by agreement In that regard.

I have not attempted to set out all the arguments of

counsel.

I refuse the declaration sought	by the respondent.
1 Dated: 7 1 ;;-