Trans Petroleum Australia Pty Ltd v White Gum Petroleum Pty Ltd - [2011] WASC 150

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: TRANS PETROLEUM AUSTRALIA PTY LTD -v- WHITE GUM PETROLEUM PTY LTD [2011] WASC 150

CORAM: ALLANSON J

HEARD: 2 & 3 MAY 2011

DELIVERED : 3 JUNE 2011

FILE NO/S: CIV 2585 of 2010

BETWEEN: TRANS PETROLEUM AUSTRALIA PTY LTD
Plaintiff
AND
WHITE GUM PETROLEUM PTY LTD
Defendant

Catchwords:

Contract - Fuel Re-Selling Agreement - Construction of power to terminate - Limits on power - Good faith

Trade practices - Unconscionable conduct in business transactions

Legislation:

Trade Practices (Industry Codes - Oilcode) Regulations 2006 (Cth)
Trade Practices Act 1974 (Cth), s 51AC

Result:

Plaintiff's claim dismissed
Declaration made on counterclaim

Category: B

Representation:

Counsel:

Plaintiff: Mr M F Holler
Defendant: Mr J A Thomson

Solicitors:

Plaintiff: Morgan Alteruthemeyer
Defendant: Holborn Lenhoff Massey

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

Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119; (2008) 66 ACSR 594
Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99
Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 180 CLR 266
Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410
Canon Australia Pty Ltd v Patton [2007] NSWCA 246; (2007) 244 ALR 759
EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78
Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95
Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539
Hurley v McDonald's Australia Ltd (2000) 22 ATPR 41‑741
Qantas Airways Ltd v Cameron [1996] FCA 1483; (1996) 66 FCR 246
Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5; (2002) 240 CLR 45
Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd [1979] HCA 51; (1979) 144 CLR 596
Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222
Toll (FGCT ) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

ALLANSON J: The plaintiff operated a service station and convenience store under an agreement with the defendant. On 6 August 2010, the defendant gave notice terminating the agreement. The defendant acted under a clause under which either party was entitled to terminate the agreement upon two months written notice to the other. In these proceedings, the plaintiff claims the termination was in breach of express and implied limits imposed on the power to terminate. It also claims the defendant's conduct was unconscionable.

Background

The plaintiff operates a Peak service station and convenience store under licence from the defendant. It also owns the land where the service station and store are situated. In about February 2008 the plaintiff leased the land to the defendant for a 10 year term, commencing 29 March 2008. At the same time the defendant agreed to grant to the plaintiff a licence to conduct a convenience store business and to sell petroleum products on a consignment basis as a Peak service station and store on that land (the Peak Fuel Re‑Selling Agreement).
In March 2008 the then sole shareholder of the defendant sold his share to Gull Trading Pty Ltd, one of a group of companies (the Gull group). After purchasing the defendant, the Gull group had an interest in 39 service stations in Western Australia. It had its own system for the operation of the service stations. It is convenient in these reasons to refer to the Peak system and the Gull system.
During October 2009, the Gull group decided to move all the service stations in which it had an interest to the Gull system and to phase out the Peak system. By April 2010, the service station and convenience store operated by the plaintiff was the only one still using the Peak system. Although there were 12 other sites which still operated under the Peak brand, they used the Gull system.
In four meetings between representatives of the plaintiff and the defendant, between 23 October 2009 and 23 July 2010, Gull sought to have the plaintiff enter into a standard Gull franchise agreement. The plaintiff did not agree. On 6 August 2010 the defendant gave notice to the plaintiff that it was exercising the power in cl 3 of the Peak Fuel Re‑Selling Agreement to terminate the agreement. Following the notice of termination, the plaintiff applied to this court for interlocutory relief restraining the defendant from acting on the notice. The court was not required to make an order, because the defendant agreed to maintain the status quo pending resolution of the matter. That position was maintained to trial, and again by agreement, until judgment.

The Peak Fuel Re‑Selling Agreement

The Peak Fuel Re‑Selling Agreement is undated, but it is common ground that it was made on or about 18 February 2008, and was to operate from 1 August 2008. It is executed by the parties as a deed. In the deed, the defendant is referred to as Peak, and the plaintiff as the Retailer.
Under the agreement, Peak agrees to grant to the Retailer a non‑exclusive licence to occupy the forecourt and all other areas of the site, and to operate a convenience store business and service station, using Peak's systems and process and selling Peak Petroleum products on a consignment basis.
Clause 1 of the agreement sets out definitions including:
1.5.6Daily Fee means a daily fee equal to the percentage of gross sales by the Retailer as specified in the Schedule which Daily Fee shall be reviewed on an annual basis unless otherwise agreed to by Peak and the Retailer;
…
1.5.13Peak System means a uniform system and process established by Peak for the operation of a convenience store and service station;
…
1.5.22Manual means the operations systems and the occupational safety manual or manuals as may be developed and prepared by Peak and as may be varied by Peak from time to time and loaned by Peak to the Retailer;
Clause 3 provides the term of the deed:
The Term, unless terminated as provided for in clause 14 of this Deed, shall continue from month to month with either party entitled to terminate this Deed upon two (2) months written notice to the other.
Clause 4 contains the provisions relating to licence fees and other payments:
4.1The retailer must pay and account to Peak:
4.1.1The Daily Fee on a daily basis in the manner directed by Peak from time to time.
4.1.2Proceeds from the sale of all Petroleum Products to be paid on a daily basis in the manner directed by Peak.
4.2The Daily Fee shall be reviewed annually on each anniversary of the Commencement Date by agreement between Peak and the Retailer.
4.3Peak and the Retailer shall negotiate in good faith in the review of the Daily Fee but in any event by no amount greater than twelve percent (12%) of gross sales.
Clause 6 sets out the Retailer's duties and obligations. Specific obligations include:
(a)to serve such food menu items as specified from time to time by Peak and to follow Peak's specifications and formulae;
(b)to maintain stocks and inventory of products in such quantities as reasonably determined by Peak from time to time;
(c)to operate the Peak franchise in accordance with the Manual as amended from time to time and in accordance with such standards, specifications and the procedures established by Peak from time to time;
(d)to comply with all directions given by Peak as to the Retailer's use and occupation of the Peak site;
(e)to have regard to the suggested or recommended retail price list for products published by Peak from time to time;
(f)to present to Peak proofs of all promotional or other material for Peak's approval prior to printing or publishing;
(g)to undertake training at the Retailer's cost in the operation of the Peak franchise using the Peak system;
(h)to use the Peak computer system in the conduct of the franchise;
(i)to comply with all EFTPOS arrangements entered into by Peak in respect of the site;
(j)to sell all Peak's Petroleum products from the site strictly in accordance with Peak's directions and to account to Peak for the proceeds of the sale; and
(k)generally to otherwise carry out and comply with such directions and requirements as determined by Peak from time to time.
The services to be provided by Peak are set out in cl 8. They include:
(a)to loan a copy of the manual to the Retailer;
(b)to provide training as and when required;
(c)to negotiate with suppliers and pass any benefits negotiated with suppliers to the Retailer in such form as Peak may determine from time to time;
(d)at its discretion to conduct advertising and promotional activities of the franchise;
(e)to provide guidance in marketing and merchandising of products and the conduct of the licence and the application of the system; and
(f)to make available to the Retailer the use of Peak's computer system.
The Retailer agrees to effect and keep in force such policies of insurance as Peak may reasonably require. Those policies include insurance for public liability, protection against fire and extraneous peril in relation to loss or damage to all products and plant, burglary and theft insurance, engineering insurance, worker's compensation and common law liability insurance, and business interruption insurance. The retailer agrees to accept and assume responsibility for all loss or damage and contractual liability to third parties arising out of or in connection with the operation of the franchise and to indemnify Peak in relation to claims for such loss or damage.
Clause 12 requires the Retailer to provide an irrevocable and unconditional bank guarantee in the amount of $50,000 which Peak may call upon in the event of default or failure by the Retailer.
Clause 13 provides for default and termination. First, it provides for termination where the retailer fails to remedy certain breaches after having been given 14 days notice by Peak. Second, under cl 13.3, Peak may terminate immediately on the occurrence of specified events. These include abandonment; the appointment of a manager, liquidator or administrator; insolvency; and repeated breach of the agreement. Clause 13.4 provides for the effect of termination or expiration of the deed due to effluxion of time.
Clause 14 provides for mediation of disputes between the parties. Either party may institute the dispute procedure by notice in writing to the other. This procedure dovetails with the mediation procedure under the Oilcode ‑ a mandatory code of conduct prescribed under s 51AE of the Trade Practices Act 1974 (Cth) ‑ see Trade Practices (Industry Codes ‑ Oilcode) Regulations 2006 (Cth). More generally, in cl 24, the parties agree to act in accordance with the Oilcode and to enter into such further agreements as may be required to ensure compliance with that code.
Finally, under cl 28, Peak agrees to pay the Retailer a commission for the sale by the Retailer of Peak Petroleum products, the commission to be set off against amounts owing by the Retailer to Peak from time to time.

The plaintiff's claim

In its statement of claim, the plaintiff pleads that, properly construed, the power of termination in cl 3 can only be exercised by the defendant:
(a)for a proper purpose;
(b)honestly; and
(c)not capriciously or arbitrarily.
Alternatively, the plaintiff pleads that, properly construed, the power cannot be exercised for the purpose of avoiding the express term in cl 4 to negotiate in good faith in the annual review of the daily fee payable by the plaintiff under the agreement, capped at 12% of the gross turnover of all sales other than Peak's petroleum products.
Alternatively, the plaintiff pleads that such a limitation on the power of termination is to be implied in fact.
The plaintiff claims that the defendant, in breach of cl 4, attempted to insist on a new agreement which would result in the plaintiff paying a daily fee greater than 12% of gross turnover. The plaintiff says that the defendant issued the notice of termination in breach of the limits imposed on the power to terminate in cl 3, and in breach of its obligation to exercise the power only for a proper purpose, honestly, and not capriciously or arbitrarily.
The plaintiff pleads, as an alternative, that the defendant's conduct in purporting to terminate the Peak Fuel Re‑Selling Agreement is unconscionable conduct in terms of s 51AC of the Trade Practices Act 1974 (Cth) as the defendant:
(a)has not acted in good faith in issuing the termination notice;
(b)failed to first use the dispute resolution procedure provided in the Oilcode.
The plaintiff also pleads failure to comply with the Oilcode as a particular of the allegation that the defendant issued the termination notice in breach of limitations on the power of termination. Counsel for the plaintiff confirmed at the hearing, however, that the plaintiff relied on the Oilcode only in relation to whether the conduct of the defendant was unconscionable.
The defendant denies that cl 3 is limited in the way the plaintiff contends. It denies that it breached the obligation to negotiate the review of the daily fee in good faith. It says that its decision to terminate the agreement followed from the decision by the Gull group to move all the convenience stores in which Gull had an interest to the Gull system, and that maintaining one store only under the Peak system caused Gull a wide range of accounting, administrative, marketing, promotion, IT and other problems. The defendant denies that its conduct was unconscionable.
The defendant counterclaims for a declaration that the termination notice is valid and of full force and effect.

Agreed findings

The trial was conducted over two days. The plaintiff called Chye Shin Jimmy Wong and Walter Polok, a Director and Business Development Manager of the plaintiff respectively. The defendant called Timothy Francis Cocks, formerly the Chief Financial Officer and Group Financial Controller for Gull Petroleum (until November 2009); Darryl John Copestake, a Gull Group Franchise Manager, Errol Paul Stone, an employee and Retail Manager of the Gull Group and Michael Timothy Mullins, General Manager of Gull Petroleum.
The parties tendered by consent a trial bundle containing 10 documents, principally:
1.The lease between the plaintiff and the defendant for the site.
2.The Peak Fuel Re-Selling Agreement.
3.A multi‑site operation franchise deed and a single site operation franchise deed (both unsigned) for operation under the Gull system.
4.The notice of termination, and accompanying letter, of 6 August 2010.
While six witnesses were called, there was little factual dispute and, with some minor reservations, the parties agreed to the court making findings of fact set out in a document prepared by the defendant. The agreed findings (omitting references to the trial bundle,) were as follows:
Entry into Relevant Agreements
1.The plaintiff and the defendant entered the lease.
2.The plaintiff and the defendant entered the Peak Fuel Re‑Selling Agreement.
Gull Acquisition and Last Remaining Peak Station
3.Gull Trading Pty Ltd acquired all of the shares in the defendant on or about 14 March 2008.
4.When Gull Trading Pty Ltd acquired the shares in the defendant, Gull Trading Pty Ltd already operated 27 service stations under the Gull brand.
5.When Gull Trading Pty Ltd acquired the shares in the defendant, the defendant then operated 13 service stations under the Peak brand.
6.Ten of those service stations were owned and operated by the defendant. Three of those service stations were owned and operated by an agent of the defendant as franchises.
7.The three franchise Peak service stations operated using a single computer and accounting system, which was different to the Gull computer and accounting system.
8.Between March 2008 and August 2010, the defendant changed all of the Peak service stations, apart from the plaintiff's service station, to operating under the Gull system.
Differences between Accounting Operations for Peak Model and Gull Model
9.In daily operations under the Peak Fuel Re‑Selling Agreement up to 6 August 2010:
(a)where a customer purchased products at the plaintiff's service station using a credit card or by means of an electronic funds transfer, the customer's payment would not be transferred to the plaintiff, but instead would be transferred directly to the defendant or the defendant's agent;
(b)where a customer purchased products at the service station by means of cash, the cash would be collected by the plaintiff and remitted daily to the defendant;
(c)consequently, the defendant was required to perform an accounting reconciliation to determine the net amount due to it under the Peak Fuel Re‑Selling Agreement.
10.In daily operations under the proposed Gull single site operation franchise deed:
(a)where a customer purchases products at the service station using cash, a credit card or by means of an electronic funds transfer, the customer's payment will be transferred to the plaintiff;
(b)the plaintiff, and not Gull, will perform an accounting reconciliation of the net amount due to Gull, and remit a single net amount to Gull on a daily basis.
11.As a consequence of these differences, the administration of the Peak Fuel Re‑Selling Agreement compared to the administration of the proposed Gull single site operation deed required:
(a)more work to be performed by the defendant;
(b)an additional employee to be employed by the defendant.
Differences between Purchasing and Promotion Practices for Peak Model and Gull Model
12.Under the Peak Fuel Re-Selling Agreement the plaintiff:
(a)purchased its own stock and inventory for non‑fuel products sold in the convenience store at the service station;
(b) and (c) were not agreed
13.Under the proposed Gull single site operation deed, Gull:
(a)would purchase stock and inventory for non‑fuel products sold in the convenience store at the service station;
(b)would set the prices for such stock and inventory sold in the convenience store at the service station;
(c)would market such stock and inventory under the Gull brand.
Brand Significance of Peak and Gull
14.Fuel and non‑fuel products sold by the plaintiff under the Peak Fuel Re‑Selling Agreement are sold under the banner of the Peak brand.
15.Fuel and non‑fuel products which would be sold by Gull under the proposed Gull single site operation deed would be sold under the banner of the Gull brand.
Although the plaintiff did not challenge this proposed finding, the evidence (not contested) was that up to 13 stations continued to trade under the Peak brand, while operating under the Gull system.
16.The plaintiff did not agree to paragraph 16
Different Parties
17.It was proposed by the defendant that it should not be a party to the Gull single site operation deed, but instead that Gull Trading Pty Ltd should be a party to that deed.
Different Rates
18.The fee rates proposed by the Gull single site operation deed were different to the equivalent rates in the Peak Fuel Re‑selling Agreement.
19.The rates proposed in the Gull single site operation deed were the standard rates for Gull franchises.
Meetings to Request Entry into Gull Single Site Operation Deed
20.There were four meetings at which the defendant requested the plaintiff to transfer to a new model for operating its service station. These were on 23 October 2009, 1 February 2010, 16 March 2010 and 23 July 2010.
21.The first three meetings were attended by Wong and Polok on behalf of the plaintiff and Copestake on behalf of the defendant. The fourth meeting was also attended by Stone on behalf of the defendant.
22.At the first meeting, Copestake informed the plaintiff's representatives that the Gull group wished to replace the Peak Fuel Re‑Selling Agreement with a standard Gull Franchise agreement. There was no discussion about the rates payable under the Gull Franchise Agreement and Copestake did not provide the plaintiff's representatives with a copy of the standard Gull Franchise Agreement.
23.At the second meeting, Copestake provided the plaintiff's representatives with the standard multi‑site operation franchise deed, but the effect of this document was not discussed at the meeting as the plaintiff's representatives had not had an opportunity to go through it.
24.At the third meeting, Wong and Copestake discussed the franchise fee and forecourt management fee. Copestake told Wong that the franchise fee (ie the equivalent of the daily fee in the Peak Fuel Re‑Selling Agreement) would increase to 14‑15% per cent and Wong said that he was not happy about this.
25.On 22 July 2010, the day prior to the fourth meeting, Copestake emailed to the plaintiff a proposed Gull single site operation deed and associated documents.
26.Given this email, it is unlikely that, but unnecessary to resolve whether, a draft version of the proposed Gull single site operation deed was provided at the third meeting. One reason why it is unnecessary to resolve this issue is because the proposed Gull single and multi‑site site operation deeds are in materially identical terms. (Mr Wong, in evidence, said he was given a draft copy of the Gull single site operation deed at the third meeting).
27.At the fourth meeting, Stone said that negotiations for transferring to the Gull franchise agreement had gone on too long and that there was a need for finality. He also in effect said that he had prepared a termination notice to end the Peak Fuel Re‑Selling Agreement but that he did not propose to use it immediately. The parties negotiated about the proposed fees under the proposed Gull single site operation deed.
28.There is no doubt that by the end of the fourth meeting the negotiations were reaching a stage of being exhausted. It is unnecessary to resolve two small factual issues, namely whether Stone said that all incentives would be withdrawn and whether the meeting was left on the basis that there would be a further meeting on 6 August 2010.
29.There was a further telephone call between Polok and Copestake on 4 August 2010, which confirmed that the parties were not prepared to move further from their negotiating positions.
Termination Notice
30.On 6 August 2010, the defendant issued a termination notice.
Reason for Proposed Gull Single Site Operation Deed and Termination Notice
31.The Group General Manager for the Gull group of companies, the Group's Chief Financial Officer and the Group's Retail Manager each subjectively believed that the plaintiff should enter the proposed Gull single site operation deed for the following reasons:
(a)Gull Trading Pty Ltd wished to operate the plaintiff's service station under the Gull model rather than the Peak model;
(b)the continued operation of the plaintiff's service station under the Peak Fuel Re‑Selling Agreement caused the defendant extra work which would not occur if the Gull single site operation deed was implemented, due to the additional accounting reconciliations which were required and the need to employ an additional staff member.
32.These reasons were the motivating or dominant reasons for the defendant requesting the plaintiff to enter the single site operation deed with Gull Trading Pty Ltd.
33.These reasons were the motivating or dominant reasons for the defendant issuing the notice of termination of the Peak Fuel Re‑Selling Agreement on 6 August 2010.
34.Such findings are consistent with the following:
(a)the changes to all other Peak stations operated by the defendant, subsequent to being purchased into the Gull group;
(b)the administrative inconvenience of different accounting and computer systems;
(c)negotiations with the plaintiff commenced in October 2009, and it took until the third meeting until new fee rates were even discussed.
No Dispute Notice / Mediation
35.The plaintiff has never issued any dispute notice pursuant to cl 14 of the Peak Fuel Re‑Selling Agreement or the Oilcode.
36.The plaintiff participated in a court‑based mediation, and the defendant's group general manager, retail manager and franchise manager attended that mediation.

The plaintiff expressed one general reservation ‑ that, in its submission, all of the differences between the Gull model and the Peak model which the defendant said caused it operational difficulties were subject to change by directions issued by the defendant pursuant to the existing agreement. The plaintiff further submitted that I should make two additional findings ‑ neither of which was disputed by the defendant:
1.the plaintiff's site was the only service station in the Gull group where the licensee was also the lessor of the site;
2.the defendant did not ask the plaintiff to make changes to the system the plaintiff was using, other than to the point of sale system, to make it more closely conform to the Gull system.
I am satisfied that the matter can be properly determined on the findings proposed, and that they properly are made on the evidence, subject to one qualification. The references to the defendant in the agreed findings might, in many instances, be accurately replaced by a reference to either Gull, or the defendant and Gull.

Construction of the agreement

The general construction principles are well settled. The primary duty of the court in construing a written contract 'is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied': Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99, 109. Intention, in this context, describes what would be objectively conveyed by the words used in the circumstances in which they were used. The meaning of the terms of a contractual document is determined by what a reasonable person would have understood them to mean, and requires consideration of the text, and also the surrounding circumstances known to the parties, and the purpose or object of the transaction: Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95, 105; Toll (FGCT ) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, 179 ‑ 180. In ascertaining the meaning of the words the parties used, the court must consider the contract as a whole: Australian Broadcasting Commission v Australasian Performing Right Association Limited (109).
Relevantly, the surrounding circumstances include the Oilcode, as the statutory context in which the parties contracted: see, for example, Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5; (2002) 240 CLR 45 [153] (Callinan J); Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119; (2008) 66 ACSR 594 [116]. Under s 32(4) of the Oilcode, a fuel re‑selling agreement entered into on or after the date of commencement of the Oilcode must have a duration of at least five years, unless s 32(5) or s 32(11) applies. Relevantly, s 32(11) provides that a supplier and a prospective retailer may agree on a different duration for a fuel re‑selling agreement, if the total initial non‑refundable amount that the prospective retailer must pay, or agree to pay, to the supplier before commencing operation under the agreement would be less than $20,000. It is common ground that there was no such non‑refundable amount, and the parties were free to agree on the duration for the agreement. In that context the parties agreed to the term set out in cl 3.
The plaintiff generally submits that the bargain struck by the parties in the Peak Fuel Re‑Selling Agreement is part of a long term 'multi‑faceted relationship', and not one terminable on 60 days notice at the whim of one of the parties. It points to several factors as leading to that conclusion: first, at about the same time as they made the agreement, the parties entered into a lease of the site for 10 years; second, the agreement provides in cl 4 for a daily fee which 'shall be reviewed annually on each anniversary of the Commencement Date'; third, there are obligations in the agreement for insurance, and for the plaintiff to provide a bank guarantee. The plaintiff submits that all of these are indicative of a long term continuing relationship.
The plaintiff also relies on the provision for annual review of the daily fee in cl 4 in another way. It pleads that the power to terminate, properly construed, cannot be exercised for the purpose of avoiding the express term to negotiate in good faith in the review of the daily fee. In particular it could not be used to avoid the 12% cap on the daily fee. That plea tended to merge into a submission that the power was limited so that it could not be exercised if it would have the effect of avoiding annual negotiation and the 12% cap.
The plaintiff submitted that the power of termination in cl 3 would still have work to do, notwithstanding cl 13, in that it could appropriately be used in situations of force majeure (not otherwise provided for in the contract); further it could be used for situations of breach or unsatisfactory performance on the part of the Retailer falling short of one of the grounds for termination in cl 13.
None of these matters, in my opinion, is a reason to construe cl 3 in the manner advanced by the plaintiff.
First, in the context of an existing 10 year lease made at about the same time, and where the Oilcode would otherwise have provided for the agreement to have a duration of at least five years, the parties agreed to a contractual term which continued on a monthly basis and which either party was entitled to terminate on two month's notice. It is, in my opinion, relevant that the parties expressed this in a clause defining the term of the relationship.
Second, I agree that the lease is relevant, but I would not give it the significance claimed by the plaintiff. In particular, in my opinion, it is important that the plaintiff is the lessor. Were the plaintiff the lessee as well as the licensee, termination of the licence would leave the plaintiff with obligations as a lessee without the ability to carry on business at the site. That is not the case here.
Third, the entitlement to end the agreement by two months notice was available to both parties.
Fourth, the plaintiff argues that cl 3 should be construed according to the principle that a contractual discretion cannot be exercised in a manner or for a purpose which will remove a benefit which was contemplated or which had been agreed. The primary benefit or grant which the plaintiff identifies is that found in cl 4.2, to annually review the daily fee and in any event for that daily fee to remain capped at 12% for the term of the agreement. The plaintiff says that the commercial object of the agreement is denied if the agreement is terminable on two months notice, as it could not have been intended that it was to carry on business as a licensee while under threat of termination at short notice.
It is a general rule that each party agrees to do all things which are necessary to enable the other party to have the benefit of the contract: Secured Income Real Estate (Australia) Ltd v St Martins Investment Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607. But that principle does not limit cl 3 in the way submitted. The parties sought to achieve their commercial object by the grant of a license to the plaintiff to conduct the business and occupy the site for a term which continues indefinitely, but is terminable on notice by either party. Ultimately, the benefit enjoyed by the plaintiff under the agreement must be read with the terms of cl 3. That clause was part of the bargain, and the decision of the defendant to terminate the agreement does not deny the plaintiff the benefit that the parties intended it to have.
The provision for an annual review of fees in cl 4 is consistent with a relationship that either party can determine on two months notice. The same applies to the provision for insurance and a guarantee. None of these provisions suggests cl 3 should be read other than in its natural meaning.
I find the plaintiff's argument regarding the intended scope of cl 3 unconvincing. Clause 3 operates quite independently of cl 13.1 (termination on default) and cl 13.3 (immediate termination on the occurrence of specified events). A party who gives notice under cl 3 is not giving notice of breach or cause for termination. Two months after notice is given, the term of the agreement comes to an end.
The plaintiff says further that, in particular circumstances in this case, the power was exercised in the context of meetings between the parties at which the level of the daily fee was being discussed, when the annual review of fees for the relevant year had not then been done, and when the plaintiff offered to increase fees to the maximum amount under the Peak Agreement. I cannot, however, see how those factual circumstances affect the construction of the contract.
The plaintiff further submitted that the power to terminate in cl 3 can only be exercised reasonably and in good faith. It argued that the limitation may be inferred, alternatively that it would be implied in law, or alternatively that it was implied in fact. The plaintiff accepted that on the evidence, the defendant had not acted dishonestly, but honesty did not exhaust the inferred or implied requirement that the defendant act 'reasonably and in good faith'.
On the facts, I found that the defendant acted reasonably and in good faith. First, the meetings between the parties were conducted in circumstances where a new entity had acquired the businesses of Peak. They were not held to negotiate on the annual review of fees ‑ the question of fees did not arise until the plaintiff raised it at the third meeting: Agreed findings [20] ‑ [25]. The parties were negotiating whether and how the plaintiff would enter an agreement which would bring it into conformity with other businesses within the Gull Group, and which would require it to use the Gull system.
Second, the defendant relied on the practical difficulties and extra expense in conducting its business that arise from the differences between the two agreements, in requiring the plaintiff to come under the Gull system ‑ including the requirement for the equivalent of an extra employee: see Agreed Findings [9] ‑ [19], [31] ‑ [32].
Third, there were important differences between the Peak Fuel Re‑Selling Agreement and the proposed Gull agreement, other than the level of daily fees:
1.The parties to the agreement are different, in that Gull Trading Pty Ltd and not the defendant is the contracting party.
2.The term of each agreement is different. The Gull agreement provides for a one year term. That term is not subject to earlier termination other than in the circumstances set out in cl 19 of that agreement ‑ in effect termination for cause, either after notice of a breach of the agreement, or immediate on the occurrence of certain defined events.
3.The Gull agreement provides for the franchisee to pay a goodwill fee to Gull on the transfer, sale or assignment of the business. There is no equivalent provision in the Peak Fuel Re‑Selling Agreement.
4.There are detailed provisions for the payment of franchise fees and proceeds of sale of petroleum products in the Gull agreement which are not in the Peak Fuel Re‑Selling Agreement;
5.Under the Gull Agreement the franchise fee (the equivalent of the daily fee under the Peak Agreement) is calculated under a formula set out in a schedule to the agreement and reviewed every two months.
I do not accept the plaintiff's argument that a position of practical equivalence could be reached by directions under the existing agreement ‑ the different term of each agreement is an obvious example where the agreements were substantially different. Further, the intended scope of the power to give directions was not to permit the defendant to require the plaintiff to operate under a different system from that specified in the licence.
I am satisfied that the defendant's requirement that the plaintiff come under the Gull agreement was neither unreasonable nor unfair.
That finding makes it unnecessary to determine whether the agreement was of a class where an obligation to act reasonably and in good faith would be inferred, or implied either by law or in fact. I make the following additional comments. First, in my view, the Peak Fuel Re‑Selling Agreement is a formal contract, executed as a deed, and complete on its face. The circumstances do not call for the court to infer what the parties intended to agree and imply a term for the reasonable and effective operation of the contract: see, for example, Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539, 573; Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410, 422.
Second, I doubt that the Peak Fuel Re‑Selling Agreement falls into a class of contracts in which the law would imply such a term: see the recent consideration of the implication of obligations of good faith in Strzelecki Holdings Pty Ltd v Cable Sands Pty Ltd [2010] WASCA 222 [79] ‑ [81] (Murphy JA). An implied obligation to act in good faith or for a proper purpose should not alter the substance of an agreement so that it provides a benefit which was not agreed: EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78 [109]. In this case, an obligation to act in good faith should not alter the parties express agreement that their contract is from month to month, and terminable at two months' notice.
Finally, the requirements for implication of the relevant constraints in fact are not satisfied: as to which see BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40; (1977) 180 CLR 266, 283 ‑ 284. The court should be cautious about implying a term which the parties have not agreed to in circumstances where the parties have expressly provided for termination for cause, but have chosen to express the term of the agreement as terminable on notice and without cause.

Was the defendant's conduct unconscionable?

The plaintiff contended, as an alternative ground for relief, that termination of the agreement is unconscionable pursuant to s 51AC of the Trade Practices Act. It relied, in its pleading, on two matters:
1.that the defendant did not act in good faith in issuing the termination notice;
2.that the defendant failed to use the dispute resolution procedure prescribed in the Oilcode.
In answer to the defendant's request for further and better particulars, the plaintiff specified that the relevant dispute was in relation to the replacement of the Peak Agreement with the Gull Franchise Agreement and arose '[o]n or after 23 July 2010 and before issue of the termination notice on 6 August 2010'.
In submissions, the plaintiff went beyond its pleaded case. It submitted that under s 51AC I should also have regard to the extent to which the defendant was willing to negotiate the terms and conditions of the agreement, whether the defendant had a contractual right to vary unilaterally a term or condition, and the extent to which each party acted in good faith (s 51AC(3)(j), s 51AC3(ja), and s 51AC(3)(k)). In substance, the plaintiff submitted it was unconscionable for the defendant to attempt to force a new agreement that did not cap the daily fee rather than comply with the obligation under the existing agreement to negotiate any new fee in good faith and within a 12% cap.
Part 4 of the Oilcode provides a dispute resolution procedure where there is 'a dispute arising between the parties to a fuel re‑selling agreement': s 40(b). Under s 44:
(1)For a dispute to which section 43 does not apply, the parties must attempt to agree about how to resolve the dispute, unless the dispute resolution adviser is satisfied that there is no reason to attempt negotiation.
(2)If the parties attempt to agree about how to resolve the dispute:
(a)the parties may agree to refer the matter to a person to provide mediation or other assistance; or
(b)if the parties cannot agree to refer the matter:
(i)the parties must notify the dispute resolution adviser that they cannot agree; and
(ii)the dispute resolution adviser must appoint a person to provide mediation or other assistance within 7 days after the dispute resolution adviser has been notified.
The Peak Fuel Re‑Selling Agreement provided in cl 14 for mediation of disputes. Under cl 14.2, either party to the agreement who had a dispute with the other party may, at any time, use the procedures under cl 14.3. That clause prescribed a procedure, initiated by the complainant telling the other party in writing the nature of the dispute, what outcome the complainant wants, and what actions the complainant thinks will settle the dispute. The parties were to try to agree how to resolve the dispute, and if they could not agree, may refer the matter to a mediation (including mediation by a mediator appointed under the Oilcode).
It is common ground that the parties did not use the mediation procedure under the agreement or under the Oilcode.
The concept of unconscionable conduct in s 51AC may include conduct which would not be unconscionable under unwritten law: Canon Australia Pty Ltd v Patton [2007] NSWCA 246; (2007) 244 ALR 759 [39]; Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132 [30]. For conduct to be held unconscionable, however, some 'serious misconduct or something clearly unfair' must be demonstrated; there must be actions 'showing no regard for conscience, or that are irreconcilable with what is right or reasonable': Canon Australia[40], [55]; Hurley v McDonald's Australia Ltd (2000) 22 ATPR 41‑741; Qantas Airways Ltd v Cameron [1996] FCA 1483; (1996) 66 FCR 246, 262.
I have already found that, on the facts, the defendant acted in good faith.
The defendant submitted that its dispute with the plaintiff did not arise until after the termination of the agreement, and that there was therefore no dispute between 'parties to a fuel re‑selling agreement'. I do not accept that argument. The plaintiff's pleaded case was that the dispute was in relation to the replacement of the Peak Fuel Re-Selling Agreement with the Gull Franchise Agreement, and that dispute arose before the issue of the termination notice. On the facts, there was a dispute between parties to a fuel re‑selling agreement.
The defendant also says that it was for the plaintiff and not the defendant to activate the procedure under the agreement and under the Oilcode by giving written notice of the dispute under cl 14 of the agreement. Until that notice had issued, and the parties had tried to agree about how to resolve it, the procedure under the Oilcode had not been activated and there was no failure to comply with it. I do not wholly accept this submission. In the event of a dispute between the parties it was open to defendant to activate the procedure. But that does not determine whether it was unconscionable conduct for the defendant not to do so.
I accept the defendant's third submission that in the circumstances its conduct was not unconscionable, where the plaintiff did not give notice of a dispute or seek mediation, but instead had immediate recourse to the courts. The failure by the defendant to activate the dispute resolution procedure, where the plaintiff did not seek any resolution of the dispute under the Oilcode, is not sufficient to constitute unconscionable conduct.
Specifically, I find that the notice of termination was not issued for the purpose of either avoiding the obligation to negotiate on the daily fee, or to force the plaintiff to accept an agreement that was not capped at 12%. Gull did require the plaintiff to enter a Gull Franchise Agreement, but I am not satisfied that it did so for any reason other than the perceived (and, to an extent, real) disadvantage of having one business only conducted under a different system from the other businesses in which it had an interest. This purpose does not, in my opinion, involve misconduct or a degree of unfairness that can properly be described as unconscionable. In particular, it is not sufficient that the defendant could, by direction under the Peak Fuel Re‑Selling Agreement, have achieved some greater degree of uniformity in the operation of the two systems and in that way could have mitigated the problems it faced.

There is nothing else in the defendant's conduct which, in my opinion, attracts relief for unconscionable conduct.

Conclusion

For these reasons I dismiss the plaintiff's claim. It is appropriate, in my opinion, to make the declaration sought on the counterclaim.