Oe ne CATCHWORDS 356 ~ PETROLEUM RETAIL MARKETING - Renewal of franchise aqreement - Breach of agreement by franchisee in relation to payment for fuel delivered - marketing practises of franchisor - Jurisdiction to make orders on application of franchisor for delivery of possession - Whether just and equitable to order renewal - Appropriate terms of renewal - Costs. Petroleum Retail Marketing Franchise Act 1980 ss.9. 10, 13, 16, 17, 18, 26. MOBIL OIL AUSTRALIA LIMITED V BRIAN BRINDLE G.425 OF 1983 WILCOX J 19 OCTOBER 1984 SYDNEY - - IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION co a leR i. BETWEEN : WILCOX J 19 OCTOBER 1984 SYDNEY Application dismissed. Upon the Cross-claim: No. G.425 of 1983 MOBIL OIL AUSTRALIA IMI | E | Applicant BRIAN BRINDLE Respondent BRIAN BRINDLE Cross-Claimant MOBIL OTL AUSTRALIA LIMITED Cross-Respondent a) NOTED that the Applicant acknowledaes that before 14 September 1984 the respondent. in accordance with the Reasons for Judaement of 14 Auaqust 1984, b) c) paid to the applicant the sum of $34,109.77 together with interest at the current rate applicable in the Supreme Court of New South Wales. ORDER that the Lease bearing date 1 April 1981 from the applicant to the respondent of the Service Station premises at Corner Pioneer and Towradai Roads, Towradai (the marketina premises) be renewed on the terms set forth in the Lease in Annexure B of the Affidavit of M Leahv of 2 July 1984 save that: (i) the rental in the renewed Lease shall be: Year 1 $11,600.00 per annum Year 2 $19,800.00 per annum Year 3 $24,000.00 per annum (ii) Clause 3 of the Lease be amended bv deletina the words from "PROVIDED HOWEVER" to the end of Clause 3. ORDER that the Reseller Contract dated 1 April 1981 between the applicant and the respondent in respect of the marketing premises be renewed on the terms set forth in the Reseller Contract in Annexure B of the Affidavit of M Leahv of 2 July 1984 and that the renewed Reseller Contract contain a Clause 1(1)(ba) in the following terms: "1(1)(ba) Nothing in this Contract shall oblige Dealer to purchase a "Refined" product whilst: (1) Mobil is offering for sale, to any retailer within the City of Wollongong, petrol at a wholesale price below the Mobil List Price; or (ii) Mobil's wholesale price to Dealer is less than five (5) cents below the retail price then being charaged at any commission agency site operated by Mobil within the Citv of Wollongona; and in relation to any month within which either of such events occurs the obligation of the Dealer to purchase a minimum of 58,500 litres of petrol shall not apply". da) ORDER that the Equipment Loan Contract dated 1 April 1981 between the applicant and the respondent in respect of the marketing premises be renewed on the terms set forth in the Equipment Loan Contract in Annexure B of the Affidavit of M Leahv of 2 Julv 1984 save that clause 4 shall be amended bv inserting after the words "Reseller Contract" the words "or products permitted bv the terms of the said Contract to be purchased otherwise than from Mobil". ORDER that the applicant pay to the respondent two-thirds of his costs whether incurred in the Application or in the Cross-clain, Upon the application of the applicant for a stav of a) proceedings pending appeal and upon the applicant undertakina: To prosecute with all possible expedition its Appeal against the orders made herein todav; and b) Pending the disposal of the Appeal to conduct itself in its relations with the Respondent Cross-Claimant as if it were bound by contractual obliaations in accordance with the terms of the documents orderd to be entered into, ORDER that the orders made herein be stayed pending the disposal of the Appeal or further order of the Court or of a Judae. ~ IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY ) No. G.425 of 1983 GENERAL DIVISION ) BETWEEN MOBIL OIL AUSTRALIA LIMITED Applicant AND: BRIAN BRINDLE Respondent REASONS FOR JUDGEMENT CORAM: WILCOX J DATE: 14 AUGUST -1984 PLACE: SYDNEY This is a dispute between an oil companv and one of its dealers. the lessee of a site upon which he carries on a service station business. Both an Application and a Cross-claim have been filed. Each party seeks relief under the provisions of the Petroleum Retail Marketing Franchise Act 1980. The affidavit evidence on each side is voluminous, much of it being at best peripheral to the ultimate issues in the case: whether it is 'just and equitable' that the Court order the applicant to renew its existing contractual arrangements with the respondent, in respect of his service station at Towradai and. if 80. upon what terms. I will refer only to the evidence which is sianificant in relation to those issues. Mr Brian Brindle. the respondent. has operated Mobil service stations, within the Wollongong district, for more than 21 vears. He has, from time to time. leased various sites. At the present time he occupies two sites: at Towradai, where he has been for about 8 vears, and at Unanderra. for about 6 vears. Each of these current businesses is, and - at least during recent years - has been, conducted by Mr Brindle in partnership with his wife. Daphne. Four documents were executed by the applicant. Mobil Oil Australia Limited. and Mr Brindle to govern their relationship, in respect of the Towradai site. for a period of three vears from 1 April 1981. First. there was a lease of the service station for a term ending on 31 March 1984. The lease contained various covenants by the lessee including a covenant to complv with the provisions of the Reseller Contract between the parties. Secondiy, there was a Reseller Contract, to operate contemporaneously with the lease, whereby it was agreed that Mobil should sell and Mr Brindle should purchase, inter alia. not less than 2,002,000 litres of refined petrol per year for Towradgi; but subject to a proviso that Mr Brindle would not be required. in any particular contract vear. to purchase from Mobil a quantity exceeding 50 per cent of the petrol sold at Towradai. The price was to be "Mobil's List Price". This term was defined as meaning "the price stipulated by Mobil for Resellers at the time and for the place of delivery ...". The Reseller Contract was made interdependent with the third contractual document. a Meter Wholesale Contract. The Meter Wholesale Contract also applied for a three vear period from 1 April 1981. It related to a system of supplv. apparently commonly used by Mobil but otherwise uncommon in the oil industrv, wherebv Mobil provides petrol to a service station on a consianment basis. The fuel is delivered to the storage tanks of the service station at such times, and in such quantities. as is convenient to Mobil. The petrol remains the property of Mobil until, in the course of sale to a customer, it is dispensed through a bowser. At that time it momentarily becomes the property of the dealer. who then becomes liable to pay Mobil for it at the wholesale "List Price". The Meter Wholesale Contract required Mr Brindle. each Mondav and Thursdav. to prepare an invoice setting out particulars of the quantity of each arade of petrol dispensed sinee the previous reading by reference to the totaliser on each pump. and containing a calculation of the amount of money pavable to Mobil accordina to the then current List Prices. The invoice was to be posted to Mobil. together with a cheque for the total amount owing under the invoice. by noon on that dav. The aqreement provided for Mobil to enter the service station at anv time to conduct an audit. The contract provided for its suspension by either party. inter alia, upon breach of the contract by the other party. Finally, there was an Equipment Loan Contract. co-terminous with the lease and entitling the lessee to use various items of plant owned by Mobil and located at the service station, Durina the whole of the period since 1 April 1981. and indeed for a considerable time before that. Mrs Brindle has worked full time at Towradai. Currently. she works about 60 hours per week at the service station. sharing duties on the console with her dauahter Susan. Between them they supervise petrol selling operations, which - since building works in 1977-78 - are conducted on the "self-serve" principle. during 15 hours per dav, seven days a week. Mr Brindle is also at the Towradai site much of the time. His son John manages the Unanderra site. The respondent has filed seven affidavits. sworn bv customers of the Towradai site, as to his manner of conduct of that business. The deponents speak of the long hours worked bv members of the Brindle family. the courtesv and assistance extended by them. and their staff, to customers, their honestv in relation to repairs, the efficiency of the operation and the pleasant appearance and tidiness of the site. They sav that the business was run-down when the Brindle family took over but has been built up by them into what is apparently a verv successful business offering petrol at competitive prices. The evidence of those deponents was not contested. On the contrary, Mr DH Murray, the Territory Manager of Mobil. who has supervised Mr Brindle's activities for over 15 vears. qave evidence that on a number of occasions he had written to his superiors "in glowing terms" about the respondent. He said that he had found Mr Brindle "to be a good merchandiser ... to be a qood hours operator and operate a very clean and tidy site". He agreed that Mr Brindle, his wife and children had worked hard for manv vears and that Mr Brindle "had really put his whole heart and soul into the business", Mr Brindle''s evidence is that he and his wife have taken out of their various businesses onlv modest living expenses. According to him they spend verv little on entertainments, holidays or luxuries. No suaqestion has been made bv the applicant that either Mr or Mrs Brindle is spendthrift. There is evidence to the contrary. Mr HD Dawson, Manager of a local bank with whom Mr & Mrs Brindle have dealt for some 11 vears, described them in his evidence as "thrifty people". Notwithstanding these matters, the current financial position of Mr and Mrs Brindle is not aood. For some vears they owned a home, close to the Towradai service station. but this was sold in 1982 in order to pay debts. The residue of the proceeds of sale. amounting to about $30.000, was subsequentlv used bv Mr Brindle to purchase a petrol tanker. At the present time, apart from the two businesses, Mr & Mrs Brindle's assets consist of an equity of about $30,000 in a vacant block of land at Towradai, in the name of Mrs Brindle. a one half share in a block of land at Nowra, the value of which land was recentlv estimated as being $18.000, the petrol tanker purchased for $30,000, a caravan estimated to be worth $2.000 and a water ski boat estimated to be worth $4,000. Mr Brindle operates overdraft accounts with his bank and the total owing under these accounts, together with a small personal loan debt to a different bank, is currently about $50,000. At the date of the hearing he owed Mobil the sum of $26,982.00. a debt which arose in circumstances to which I will refer later. In the result, Mr Brindle's liabilities sliahtiv exceed the totalitv of his assets, other than the two leasehold businesses. The reason for the family's modest financial position. in relation to their effort over 21 vears. emerged clearlv from the evidence of the respondent and of three experienced service station operators, Mr LR Fletcher. Mr BN Rvan and Mr NER Johnson. the evidence of whom was unchallenged. Mr Fletcher. who has overated Mobil service stations in the Wollonaona district for nearlv 12 vears, expressed the opinion that price is the maior factor influencing sales of retail motor fuel in the Wollondona district. He aqave reasons for this view, related both to the urban qeoagraphy of the district and the nature of emplovment in the area. Mr Fletcher said that until late 1978 or early 1979 the market was relatively stable but that since that time there had been severe price competition. Under those circumstances, the nature of the opposition has become verv relevant. There are, within the district, sites known as "freeholders", that is service stations conducted on land owned by the proprietor of the service station business. The proprietor purchases fuel from an oil company, whose name is identified with the site. but the oil company has no interest in the land. Mr Fletcher said. and other witnesses aqreed, that it is the practice of each of the oil companies to supply freeholders with fuel at a substantially lower price than that at which the same oil company supplies fuel to its lessee dealers. There are two 'freeholder' sites near Mr Brindle's Towradai service station. One, a Total site, is about half a mile away. on the same side of the road. The other, selling NA Petroleum, is about a mile away, on the same main road. Secondlv, there are now sites known as "commission aqency sites": that is sites owned and operated by oil companies and manaqed by commission agents. Under this arrangement the oil company owns the fuel stored at the site and itself retails to the public, payina to the commission agent a commission on sales by way of remuneration. The various 011 companies are able at will to adjust, and in practice do adiust. the retail price at commission agency sites to meet competition. There are two commission agency sites, one owned bv BP and one by Shell. in the near vicinity of Mr Brindle's Towradagi service station. The effect of the Mobil Meter Wholesale Contract is that. notwithstanding the 50% proviso in the Reseller Contract, a dealer operating under that contract has to take the whole of his petrol supplies from Mobil. The contract. for good practical reasons, prohibits the introduction of fuel purchased on the open market - known in the trade as "foreian" or "secondary" fuel - into the storage tanks containing the fuel held on consianment. Under the Reseller Contract Mobil has the sole richt to determine the wholesale price of the fuel supplied to the dealer. That price is adfusted to return to the dealer a specific retail marqin. During recent vears this has usually been of the order of 3 to 3.5 cents per litre. Mr Murray said that "we try to enable the dealer to remain competitive within the trading area". No doubt this is true: Mobil's sales volume would otherwise be affected. But, of course, consistently with this it is in Mobil's financial interest to maximise the wholesale price, thus minimising the available retail maraqin. The complaint of the respondent, which has been supported by other dealers. is that a margin of 3 to 3.5 cents is insufficient even in normal times to meet costs and to provide a reasonable income to the dealer. The situation becomes worse during times of severe price competition. At such times it is necessarv for dealers to reduce retail prices in order to match the prices charaed bv their competitors. Although Mobil has a policy of aivina some reduction in the wholesale price, in such circumstances, there is often delav in this being done - during which period the dealer has to reduce his maragin, sometimes eliminating it entirely. in order to retain his customers. Moreover, complaint is made at the extent of the concessions granted. According to Mr Fletcher, there have been numerous occasions on which freehold and commission aqencv sites in Wollongong have been selling fuel at a retail price less than the wholesale price charged to him by Mobil. He qave specific detail as to prices charged at particular dates. For example. he referred to 4 October 1983 when the price being charged bv various service stations in his area was 38.9 cents aqainst his retail price of 45.5 cents. On that dav. and bv way of concession, Mobil reduced the wholesale price to him to 40.4 cents per litre. still 1.5 cents higher than the retail price of his competitors. Mr Johnson, who has conducted a Mobil service station at Wollongong for some 20 vears on a site now owned bv, and leased from, Mobil. referred to occasions on which he has filled his own car at an opposition service station at a retail price lower than the wholesale price than being charged to him bv Mobil. The consequences to Mr and Mrs Brindle of these problems became manifest in June 1980. Their bank overdrafts had reached. or exceeded. permissible limits. Audits undertaken bv Mobil 10. established that Mr & Mrs Brindle owed $20,881.30 in respect of Towradai and $25.167.71 in relation to Unanderra which they could not immediately pav. Thev paid to Mobil the sum of $20,000, obtained by short term loan from a finance company, and repaid the balance by reqular instalments each month until November 1981. As a result of the arrangements made, Mr & Mrs Brindle were allowed to continue on the Meter Wholesale Contract in respect of both their sites. By early 1982 thev were aqain in difficulties with their overdrafts. Thev owed monev on other loans incurred to finance the business. Thev sold their house and this provided the funds to reduce their overdrafts to permissible limits and to pav out the other debts. As mentioned, there was a surplus of about $30,000 left over. However, the trading situation did not improve. There was severe competition in the Wollonaona retal1l market in 1982. Mr Brindle found that many of his competitors were purchasing fuel at prices lower than the Mobil wholesale price. He found that it was possible to buv foreian fuel at prices well below the Mobil wholesale price. (He has said in evidence that it has frequently been possible to buy foreian fuel at a price sufficient to allow a retail mark up of about seven cents, and up to 8.5 cents. per litre: more than twice the mark up usuallv available on the Mobil List Price). Mr Brindle reached the conclusion that he could no longer afford to purchase the whole ll. of his petrol from Mobil. However, for him to buy in his own fuel he would need his own tanker. He used the $30,000 left over from the sale of the house to buv a second hand vehicle. In early 1983 he commenced to purchase foreign fuel. Some he wholesaled to other dealers. Some he took to Unanderra. Initially, as I understand the position. the foreian fuel merely supplemented that purchased for Unanderra from Mobil. through the Meter Wholesale Contract, but in April 1983 Mobil suspended that contract. in relation to that site. by "closing out" the consianment arrangements. The company has a view - which is quite reasonable - that significant leaal and audit difficulties arise from the mixing, in the storage tanks of a service station, of Mobil petrol owned bv the company with "foreiaqn" fuel owned bv someone else. At the time of termination an audit was made of petrol dispensed at Unanderra and Mr Brindle purchased from Mobil the balance of its fuel in the tanks, raisina a debt of $24,177.38. Mr Brindle was not in a position to pav this amount but it was eventually agreed that the money should be paid bv monthlv instalments. Pavments were made in accordance with the arrangements and completed last Mav. Since Unanderra was "closed out" Mr Brindle has bought only foreian petrol for that site, with substantial savings in cost to him. However, he continued to purchase from Mobil other products, particularlv distillate and oil. for Unanderra on the 12. Towradgi account. After about two months Mobil required him to pay cash on deliverv. at either site, for these products. Mr Brindle then arranged with another Mobil dealer. Mr Ian Rolfe, for the purchase of such items on the latter's 30 dav account. Mr Murray became aware of this arranagement but raised no obfection. However, on 21 November 1983, the Wollonaong office of Mobil received a telex requiring the local officers to terminate all credit arranagements in respect of distillate. This was done and all dealers, includina Mr Rolfe, were required to pav their accounts immediatelv. The result was that Mr Brindle had immediatelv to pav about $12,000, for distillate delivered to him. off the Rolfe account. Additionallv, he needed $6,000 to pay cash on future deliveries of distillate from Mobil. Mobil prides itself on its close association with its dealers. The companv reqularlvy obtains from its dealers information to assess their trading position. In addition. according to Mr Brindle, he had emphasised his financial position to Mobil executives, particularly Mr Murray. on numerous occasions over the years in relation to his requests for a reduction in the wholesale price. This was corroborated by Mr Fletcher who had participated in conferences with Mobil executives at which Mr Brindle. and others. had explained their position and, as Mr Fletcher put it. "pleaded with Mobil" fora more competitive wholesale price. At one such conference. in March 1983. with Mr John McAffrey, the then Area Manager for Mobil, and Mr Murray. Mr Brindle had said that he needed to 13. increase his earnings by $2.500 per month to remain viable. In evidence, Mr Murray acknowledged that, over "a long period of time", he had been aware of Mr Brindle's financial position in relation to both Unanderra and Towradaqi. He had accepted that Mr Brindle was unable to pav for stock delivered to Unanderra and. for this reason. the company had extended time to pav the Unanderra debt. He said that Mr Brindle had told him that he was not makina money at Towradai but he never said that he could not pav his debts at that site as thev fell due. However. in November 1983 Mr Brindle did tell Mr Murray that financiallv he was "in desperate trouble". It was two davs after that conversation that Mr Murray called at the service station and asked Mr Brindle to pay the distillate account. Mr Brindle indicated that he did not know where he would get the monev but this debt was subsequently paid: presumably out of the proceeds of the sale of the petrol which was delivered on and before 29 November and not paid for in accordance with the Meter Wholesale Contract. The April 1981 lease reserved rentals of $900.00 per month, $2,100.00 per month and $2,500.00 per month during the three respective vears of its term. The first vear fiqure was, bv the lease itself. made subject to a reduction to $600.00 per month during each of the first six months if the lessee complied with the terms of the lease. No similar concession was provided for the remainder of the term but. at least after the end of the first year, the rental fiaure was not treated seriously. Rather, 14. it was the practice of the local Mobil officers from time to time to discuss with Mr Brindle the appropriate level of a "concession" rent, having regard to his financial position. The figure they agreed would be submitted to Svdnev for approval and a credit put through for the difference between the nominal rental and the real rental. According to Mr JM Ryan. Mobil's Resale Manager for New South Wales, this was consistent with company practice throughout Australia in relation to dealers who were in difficulties. The actual rental paid by Mr Brindle after 1 April 1982 was $1,200 per month, a concession of $900 per month in the first 12 months and thereafter of $1,300 per month. Mr Ryan denied that. in deciding whether to qrant a concession, he took account of the question whether the dealer was purchasing all his petrol from Mobil. He said that the onlv question was the profitabilitv of the site. However, the position was not so understood by the men in the Wollongong office. In his memoranda of 19 September 1983 and of 27 October 1983. seeking rental concessions for Mr Brindle at Towradai. Mr Upson. who had become Area Manager in succession to Mr McAffrey. specifically mentioned that Mr Brindle was purchasing all his petrol from Mobil. Mr Murray said in evidence that it would be "virtuallv impossible" to keep a concession rental for a dealer who purchased anv foreign fuel. Mr Murrav's understanding is summarized in this evidence, at p 97 of the transcript: 15. "Q. So the rental he pays is directly related to whether or not he buys secondary market fuel, if he is on a concesion rebate situation? A. Yes." Mr BN Ryan, a local Caltex dealer with 26 vears in the industry. claims that this practice is widespread. At para 17 of his affidavit he said: - many oil companies ... provide the lessee dealer with a rental arrangement wherein the rental paid is excessive having regard to the facilities provided and rental income which could be expected to be received from the real estate upon which the service station is erected under normal circumstances. This is achieved by advising the dealer that although the rental has been set at a hiagh rate such rental will not be charaed and a rebate will be aranted to such dealer. It is mv opinion, having reaard to the fact that I own real estate within the environs of Wollonaong that the rental charaed by oil companies for service stations within that area is far in excess of what is reasonable having reaqard to the rental value of comparable properties within the same area. ... 1f a service station proprietor ... purchases fuel from other sources, such rebate is withdrawn bv the oil companv so that the site again becomes economically unviable ... " This evidence was not challenged. Mr Brindle was lead to believe that there was a relationship between the rental rebate and the purchase of foreian fuel. In his evidence he said that. whilst he was still on the Meter Wholesale plan for Towradai, he had discussions with Mobil representatives reaqarding the purchase of secondary market 16. fuel and he was told that if he purchased secondary market fuel Mobil "could not apply" the rental rebate any more. Mr Brindle would have to pay $2,500 per month, and this notwithstandinag the view expressed by Mr Murray in his evidence that a rental of $2,500 per month "was excessive based upon the down trend in the pusiness and in the Wollongong area qenerally". The dilemma, then, was either to pay an admittedly excessive rental or to purchase the whole - not merely the 50% referred to in the Reseller Contract - of his petrol from Mobil at that companv's above market price. Mr Murray interviewed Mr Brindle at the Towradgi service station on 26 or 27 October 1983 in relation to the preparation of a new lease to operate from the expirv of the then current lease, on 31 March 1984. He showed Mr Brindle some calculations and informed him that he was prepared to recommend a rental of $1.400 during the first vear of the new lease. which he explained "would not be concessioned unless there was a maior disaster such as a serious shortage of product, or if the place aot blown down". $1,650 per month during the second vear of the term and $2,000 per month during the third vear. Mr Brindle aqreed that these figures were reasonable and Mr Murrav promised to send a report to Sydney seeking approval of the fiaures. On Mondav 28 November 1983 Mr Brindle, in companv with some other Mobil dealers from the Wollongona area, iourneved to Sydney to attend a conference with senior Mobil executives, lead 17. by Mr JM Ryan. The dealers prepared an agenda of topics for discussion. Item 1 related to marains and complained. in effect, that the retail maraqin was insufficient because the Mobil wholesale price was too high. Mr Brindle aave evidence that he reaarded the matter of a reduction in the wholesale price as being one of the purposes of the meetina and that a sufficient reduction would be a way of overcoming his financial difficulties. In fact, Mobil did not agree to reduce the price. Mr Brindle said that he was "very upset" about this but he denied that he made an immediate decision to discontinue his payments to Mobil. Mr Brindle had made reaqular payments. in relation to Towradai, as required by the Meter Wholesale Contract up to and including the cheque sent on Thursday 24 November 1983. He was due to read the meters again on the following Monday, but he was in Sydnev on that day. He did not in fact read the meters or send an invoice and cheque, on the following dav, Tuesdav 29 November, as he should have done. On that same day there was a delivery of fuel to the service station. Mr Brindle denied requesting, or even knowing of, that deliverv.- There was no evidence to the contrary and I accept his evidence. He explained that the service station had no control over deliveries and that he and his staff would only rina for a delivery "when we thought they might have forgotten it" and the tanks were very low. Even after that delivery the tanks were apparently only about one quarter full. 18. It is clear that Mr Brindle made a decision after the meeting in Sydney that he would discontinue payments under the Meter Wholesale Contract. I think that it is likely that he had been hoping to achieve a reduction in the wholesale price and that when this hope was disappointed he decided. either that evening or the next morning, that he would qo off the Meter Wholesale Contract and purchase foreign fuel for Towradqi, as he had been doina for some months in respect of Unanderra. He did not, however, inform anybody at Mobil of that decision with the result that a further delivery was made by Mobil, in the belief that Mr Brindle still regarded himself as bound by the Meter Wholesale Contract. The practice of Mobil is that. 1f a cheque due under the Meter Wholesale Contract is not paid, the dealer qoes on toa "delinquency list". Mr Brindle knew of this practice and realised that. after he failed to post his cheque on 29 November, he would be placed on the delinquency list and denied further supplies. In the event, there was no further deliverv after 29 November but it was not until either Friday 9 December or Mondav 12 December that there was anv contact between Mobil and Mr Brindle reaarding non-payment. On that dav Mr Upson telephoned Mr Brindle and asked the reason for non-pavment. Mr Brindle said that he could not pay. 19. On 12 December Mr SW Twist attended at the service station to audit the meters. He found that petrol having the wholesale value of $26,721.81 had been dispensed since the last invoice and that the value of petrol still in the tanks was $7,387.96. Mr Brindle forthwith siqned invoices accepting responsibility for the payment of the total of these sums, namely $34,109.77, but, at a meeting with Mr Upson on the following day, indicated that he could not pay immediately and that he did not know when he would be able to pay. Since 12 December 1983 Mr Brindle has been purchasing foreian petrol for Towradai. He has purchased some other products from Mobil, indirectly through another dealer. On 15 December 1983 Mobil wrote to Mr Brindle requiring payment of the invoices amounting to $34,109.77 within seven davs, failing which the company would take leaal proceedinas, including proceedinas for non-renewal of the Franchise Aqreement. Mr Brindle replied on 20 December stating that this was impossible but referrina to an offer of payments by instalments, apparently along the lines of the Unanderra arrangement. which had previously been made to Mr Murrav. In this letter Mr Brindle said that this offer still stands. Mobil did not respond to this offer but. on 23 December 1983 it served upon the respondent a Notice of Termination pursuant to the Petroleum Retail Marketing Franchise Act. This 20. notice purported to terminate all written aqreements, and also any agreement which may have arisen out of the conversation between Mr Brindle and Mr Murray regarding rent, as at 14 February 1984. This notice was accompanied by a Notice of Non-renewal of the existing aqreements. On 29 December 1983 the applicant filed an Application in this court seeking the following relief: "1. A DECLARATION that the Lease from the Applicant to the Respondent bearing date First April 1981 in respect of the marketing premises known as the Mobil Service Station Corner Pioneer and Towradgi Roads Towradai (the Franchise Agreement) terminated on Fourteenth Februarv 1984 pursuant to the Petroleum Retail Marketing Franchise Act 1980. 2. A DECLARATION that the Reseller Contract bearina date First April 1981 and the Equipment Loan Contract bearing date First April 1981 made between the Applicant and the Respondent terminated on Fourteenth February 1984. 3. A DECLARATION that the Respondent will not be entitled to anv Renewal of the Franchise Aqreement. the Reseller Contract or the Equipment Loan Contract pursuant to the Petroleum Retail Marketing Franchise Act 1980. 4. A DECLARATION that anv franchise agreement between the Applicant and the Respondent arising out of discussions between Mr. Murray of the Applicant and the Respondent in about November 1983 as reaards the marketina premises known as the Mobil Service Station Corner Pioneer and Towradgi Roads Towradgi terminated on Fourteenth February 1984 pursuant to the Petroleum Retail Marketing Franchise Act 1980. 21. S. A DECLARATION that the Applicant was entitled to vacant possession of the marketing premises as of Fourteenth February 1984. 6. AN ORDER that the Respondent quit and deliver up possession of the marketing premises to the Applicant." Prior to the Application coming before the Court, on 26 January 1984, the solicitors for the applicant made an open offer to the respondent: to discontinue the proceedings and to enter into a fresh lease for three vears from 1 April 1984, with an associated Reseller Contract and Equipment Loan Contract for the same period, subtect to payment to Mobil of the sum of $34,109.77, with interest at 13.5%, by 10 February 1984, pavment of outstanding rental at the rate of $2,500 per month - Mr Brindle had been continuing to pay the rebated fidqure of $1.200 per month - and payment of Mobil's costs. The draft lease. which was enclosed with the letter. provided for rentals sianificantlv higher than those discussed between Mr Murrav and Mr Brindle viz an annual rental of $33,000 ($2.750 per month), risina to $36,000 ($3,000 per month) in the second vear and $39.000 ($3,250 per month) in the third vear. The Reseller Contract provided for purchase from Mobil of not less than 58,500 litres of petrol per month, subject to a proviso that purchases need not exceed 50% of the sales of petrol at the service station. The offer was not accepted and on 24 February 1984 a fresh Notice of Non-renewal was served. 22. The fresh Notice of Non-renewal referred to the outstanding debt of $34,109.77, in relation to which no arrangements had then been made: according to Mr Brindle in his evidence because he had been waiting for a response to his letter of 20 December. On 5 March 1984 the solicitors for the respondent wrote to the applicant's solicitors advising that the respondent would reduce the debt by payments of $2,000 per month, such payments to commence immediateliv, until the whole debt was paid. The respondent also offered interest in accordance with the rate approved in the Supreme Court. In fact the first instalment was paid shortly thereafter and, at the date of the hearing commencing on 9 Julv, five instalments of $2,000 each had been paid. However. with interest at Supreme Court rates on the amount outstanding from time to time, the balance owing was then still $26,982.54. On 4 June 1984, the respondent filed a Cross-claim seeking the following relief: "1. An order declaring a purported notice under section 17(8) of the Petroleum Retail Marketing Franchise Act, 1980 and dated the 24th February, 1984 qiven bv the cross-defendant to the cross-claimant to have had, and have. no effect. 2. An order directing the cross-defendant to renew the franchise aqreement. 3. An order determining an amount. or the manner of calculatina an amount, to be 23. payable by the cross-claimant to the cross-defendant under the franchise ageement as to be renewed. same to be the franchise fee. An order or orders determining anv other provisions of the agreement as to be renewed. Orders directing the preparation and execution of the documents (that is the renewal of the franchise agreement) including orders if necessarv authorisina the Reqistrar of the Federal Court of Australia to execute documents if either party fails or neglects to execute anv documents within fourteen days of the receipt of such documents. Further and in the alternative, if the cross-defendant acquires the property of the cross-claimant bv the operation of a provision of the Petroleum Retail Marketing Franchise Act. 1980. the cross-claimant seeks a determination bv this Honourable Court as to the amount of compensation payable bv the cross-defendant to the cross-claimant in accordance with the terms of the Petroleum Retail Marketing Franchise Act qenerally and more particularly but not exclusivelv, section 23 of that Act. Further and in the alternative that the cross-claimant and cross-defendant have aqreed to a fresh franchise aqreement which arises out of discussions between a representative of the cross-defendant and the cross-claimant in or about November 1983. Further and alternatively. a determination bv this Honourable Court as to the amount of compensation payable by the cross-defendant to the cross-claimant in accordance with the terms of section 22 of the Petroleum Retail Marketing Franchise Act." 24. The Petroleum Retail Marketing Franchise Act defines the term "franchise agreement" so as to include an aqreement containing provisions by virtue of which a corporation (the "franchisor") grants to another party to the agreement (the "franchisee") the right to occupy or use premises in connection with the retail sale of motor fuel by that person at those premises. The lease between Mobil and Mr Brindle falls within that definition. The term "franchise aqreement" also includes an agreement under which a franchisor is entitled or required to supplv motor fuel to a franchisee for retail sale by that person at particular premises or under which a franchisee agrees to acquire motor fuel from a franchisor for retail sale by the franchisee at particular premises. The Reseller Contract falls within this definition. The policv underlying the Act was referred to by Toohev J in Richards v Golden Fleece Petroleum Pty Limited (1983) 49 ALR 337 at pp 347-348: "The leaqislation seeks to put franchisees in the position of independent operators, protecting them aaainst termination of their agreements and giving them rights of renewal of those aqreements. Franchisors and franchisees do not stand in the relationship of master and servant, principal and agent, or in any fiduciary capacity that imposes rights and obligations apart from those which the parties have contracted, controlled as thev are by the legislation." 25. In particular the legislation seeks to aive to franchisees areater security of tenure than they would have enijioved under their contractual arrangements, standing alone: see J & M O'Brien Enterprises Pty Limited v Shell Company of Part II of the Act deals with franchise agreements. Sections 9 and 10, although not directly applicable, give an indication of the principle of fairness underlying its provisions. Section 9 provides that a corporation shall not enter, as franchisor. into a franchise agreement that contains a provision imposing an obligation on the franchisee that is likely to be impossible or unreasonably onerous to perform at the time when it is required to be performed. Any such provision is void. Section 10 deals with the supply of motor fuel, obliaating a franchisor who has contracted to supply, or who has taken from the franchisee a covenant to purchase motor fuel. to supply during the term of that agreement such quantity of motor fuel as is from time to time reasonably required by the franchisee for retail sale by him at the premises. Specific provision is made for any case where supply is not possible because of shortage of supplies, an industrial dispute or circumstances bevond the franchisor's control. In such a case the franchisor is bound to use its best endeavours - 26. "to supply motor fuel to its franchisees in such manner as is fair and equitable as between each of its franchisees and as between its franchisees and any other persons to whom it supplies motor fuel, having regard to the respective needs of its franchisees, of those other persons and of the public". Section 13 deals with the duration of franchise agreements. It provides, with immaterial exceptions, for a minimum term of three years, both in the case or original and renewed agreements. Section 16 limits the circumstances in which a franchisor may terminate a franchise aqreement. Termination may take place only on one or more of specified aqrounds. Those grounds include: "the franchisee otherwise commits a breach of a condition of the franchise aqreement": see $.16(2)(1). Section 17 is directly relevant to the circumstances of this case. It provides: "17.(1) Subject to this section. a franchisor shall not fail or refuse to renew the franchise aqreement except on one or more of the following arounds: (a) the existence of circumstances, or the occurrence of an event, of a kind referred to in anv of paraaqraphs 16(2)(a) to (2)(k) inclusive; (Db)... (c) eee (2) (3) (4) (5) (6) (7) (8) 27. For the purposes of sub-section (1), a franchisor shall not be taken to have failed or refused to renew a franchise aqreement if the aqreement is not renewed by reason only of a stipulation by the franchisor that an amount payable by the franchisee under the franchise agreement as proposed to be renewed (other than an amount payable in respect of motor fuel or other stock in trade) is to exceed, or is to be calculated in such a manner as to exceed, the corresponding amount payable under the existing agreement, where the amount of the excess is reasonable, having regard to the market value, at the time when the agreement is proposed to be renewed, of the interest, goods or services in respect of which the amount is payable. Notwithstanding anything in the preceding provisions of this section, where - (a) a franchisor. bv notice in writing served on the franchisee not later than 30 davs before the expiration of the franchise agreement, offers to renew the agreement: and (b) after that notice is served, the franchisee fails to serve on the franchisor ... a notice in writing accepting the offer of renewal, the franchisor is not required to renew the agreement. If a franchisor decides not to renew the franchise agreement, it shall serve on the franchisee, not later than 30 days before the expiration (9) (10) (11) (12) 28. of the agreement. notice in writing of its decision, setting out full particulars of the ground or grounds, including a statement of the facts relatina to each ground, upon which the decision is based. Subject to this section, a court shall. on the application of a frachisee, make an order directing the franchisor to renew the franchise aqreement unless - (a) the franchisor has served on the franchisee a notice in accordance with sub-section (8); (b) a around specified in the notice is established by the franchisor to the satisfaction of the court; and {c) except where a around 30 established is a qround referred to in paraaqraph l(c), the court is satisfied that it is fust and equitable, having regard to all the circumstances, for the agreement and any related agreement or agreements not to be renewed. Without limiting the generality of paragraph (10)(c), the circumstances referred to in that paragraph include the conduct of the franchisor and the franchisee after the time when the franchisor became aware of the existence of the circumstances, or the occurrence of the event, constituting a ground referred to in paragraph (10)(b) ... Where the court makes an order under sub-section (10), it may make - (a) orders determining any amount, or the manner of calculating 29. any amount, to be payable by the franchisee under the franchise aqreement as to be renewed; (b) orders determining any other provisions of the agreement as to be renewed; and (ec) such ancillary or consequential orders as it thinks fit, including orders directing the preparation and execution of documents. (13) ... (14) ... (15) ... (16) ..." Section 18 provides that where a franchise agreement is one of two or more related agreements and that franchise agreement is not renewed then the related agreement shall be not renewed. Section 26 confers jurisdiction on this Court "with respect to all matters arising under this Act". It is. in my opinion, clear that in the absence of the Cross-Claim the Court would have no power to arant anv of the relief sought by the applicant in this case. It is a notable feature of the Act that. with one exception, it does not in express terms confer any power upon the Court to qrant relief to franchisors. The reason, no doubt, is that the constitutional foundation of the leqislation is the power granted to the Commonwealth Parliament, under s.51(XX) of the Constitution to make laws with respect to trading and financial corporations. 30. The purpose of the leqislation is to requlate the conduct of such corporations in relation to franchise agreements which they enter as franchisors. Legislation conferring upon the Court a power, in the absence of any application by the franchisee, to declare that a franchisor has validly terminated an agreement and to make consequential orders such as for the possession of land would extend beyond that purpose and, arguably, beyond the relevant constitutional power. The exception I have noted is s.16(5) which provides that in a case where the franchisee has sought an order that a notice of termination is of no effect: "the court may, by order, either - (a) declare the notice referred to in that sub-section to have had, or to have, no effect; or (b) declare that notice to have terminated. or to terminate, the agreement on the date specified in the notice or on such later date as is specified in the order, and may, in either case, make such ancillary or consequential orders as it thinks fit. including orders directing the preparation and execution of documents." For reasons unclear to me, s.17, in dealing with non-renewal, does not confer any similar power upon the Court. Counsel for the applicant arqued that this did not matter, that 3.26 of the Act confers jurisdiction upon the Court to determine applications made to it under the Act - including applications by way of Cross-Claim - and that once the jurisdiction is invoked - 31. then the Court has jurisdiction under s.32 of the Federal Court Act to resolve all matters in dispute and power under ss. 22 and 23 of that Act to make all appropriate orders, including orders, such as for possession of land, not otherwise within power. I think that this submission is correct and that the result of the filing of the Cross-Claim is that the Court is able to give effect to whatever conclusions are reached upon the issues posed by s.17(10) of the Act. The respondent concedes that the franchisor has served upon him a notice in accordance with s.17(8) of the Act namely the Notice of Non-renewal dated 24 February 1984, which was served upon the respondent on 27 Februarv. That Notice specified three qrounds for non-renewal., each of them based upon s.16(2)(4) of the Act. The first breach related to the failure bv Mr Brindle to prepare and post invoices in respect of the period 24 November 1983 and 11 December 1983. The second breach alleged was the failure of Mr Brindle to pav for the petrol dispensed during that period, in accordance with the requirements of the Meter Wholesale Contract. The third around related to the failure of Mr Brindle to pay for the petrol in the storage tanks at the date of the final audit. The respondent did not contest the claim that he was in breach of the Meter Wholesale Contract, and therefore of the Reseller Contract and lease, in relation to each of the matters 32. particularised in that Notice. The requirement of para (b) of 3.17(10) is made out. Under these circumstances, the critical question is that arising under s.17(1)((c): whether the court is satisfied that it is "just and equitable" for the relevant aqreements not to be renewed. If the Court is not satisfied that it is just and equitable for the agreements not to be renewed then the Court must order renewal and the question will arise as to the terms of renewal. Section 17(12) empowers the Court to make orders determining the provisions of the agreement as to be renewed. The primary submission made by counsel for the applicant is that it is not just and equitable for the aqreement to be renewed and that. therefore, the court should refuse the relief sought by the respondent in his Cross-claim. Counsel relies on two matters in support of this submission: the conduct of the respondent and his financial position. There was a considerable volume of affidavit evidence regarding the circumstances in which the respondent incurred the debt of $20,881.30 in respect of Meter Wholesale Purchases at Towradgi in June 1980. In one affidavit, sworn by Mr KW Walker. Internal Auditor of the applicant, the suggestion was made that, at that time, the respondent had deliberately understated the readings on his meters so as to reduce the amount which was then due by him to Mobil. Mr Walker set out some calculations to 33. indicate that the "back reading" as it was called, amounted to about 60,000 litres. Ina later affidavit, in reply to the respondent, he conceded that this calculation was wrong but maintained his suggestion in respect of a figure of 18,750 litres. Mr Brindle strenuously denied that he had ever been quilty of "back reading" and there was filed on his behalf an affidavit sworn by Mr John Galloway, who has since left Mobil's employment but who was the man who did the audit at Towradgi in June 1980. Mr Galloway - though understandably vaque on some details such as the actual time of his audit - sets out an explanation consistent with the respondent's return having been correctly compiled. I have no doubt that Mr Walker makes his allegation honestly but his computation does depend upon certain assumptions, including the assumption that Mr Galloway carried out his audit at his usual time in the dav. In the face of the denial of the respondent and the evidence of Mr Galloway which, at least, casts doubt upon the validity of that assumption. it would not be proper to make any finding adverse to the respondent in respect of this matter. In anv event, as counsel for the applicant accepted during argument, any allegation of misconduct in June 1980 must be regarded as peripheral to the question whether it is just and equitable, in 1984, that the franchise aqreement not be renewed. With knowledge of whatever events had occurred in June 1980, the applicant in 1981 entered into the agreements giving rise to these proceedings. 34. The second matter relating to conduct is much more pertinent. The applicant criticizes the behaviour of the respondent in relation to his decision to qo off the Meter Wholesale Contract in late November 1983. The applicant araques that, if Mr Brindle had reached a decision that he could no longer afford to take the whole of his petrol from Mobil, the open and honest course for him to take would have been to so inform Mobil, to arrange an immediate audit of the fuel in his tanks and to pay Mobil immediately for all petrol which had been delivered to the service station. In contrast, the applicant says, the respondent failed to notify Mobil of the decision he had made on or before the morning of Tuesday 29 November. with the result that on that day further fuel was delivered to the service station. Despite the close working relationship he had had with the local officers of Mobil, Mr Brindle did not contact them at all. Rather he left it to the Mobil officers to contact him, nearly two weeks later, in relation to his failure to send cheques. Then, it is said, when the audit was done there was found to be an amount payable, for petrol already delivered, of $34,109.77. Although the respondent acknowledged his indebtedness for this amount. he was not able to make pavment immediately. The effect. according to the arqument of the applicant, is that the respondent by his conduct put Mobil in the position of making to him an involuntary loan of the proceeds of sale of the relevant petrol, which proceeds he, inter alia, used to purchase "foreiqn" fuel for use in the service station in 35. substitution for Mobil fuel. Mobil submits that it is not dust and equitable to require it to continue in a business relationship with a franchisee who has acted in this manner. The factual analysis contained in the foregoing arqument is correct. The criticism made by the applicant of the respondent's conduct is, in my view, well founded. The honest, open way of dealing with the problem which confronted Mr Brindle on 28 and 29 November 1983 would have been for him to have discussed the situation with Mr Upson or Mr Murray and to have made mutually satisfactory arrangements for an audit and for payment of the monevs which were found to be due on the audit. The course taken by Mr Brindle had the result, perhaps unintended, of Mobil delivering further fuel to the service station at a time when Mr Brindle had decided to go off the Meter Wholesale Contract and was aware that he was not in a position to make immediate payment for deliveries already made. The effect was to obtain an involuntary loan from Mobil. That loan was critical to him in being able to carrv on the business, particularly in regard to the necessity to pay cash for ""foreian" fuel. Mr Brindle was asked in cross examination as to the reason why he did not contact Mobil in relation to his decision to qo off the Meter Wholesale Contract. His answer was: "I was having a lot of problems at the time." This is not an adequate excuse. It would have taken very little effort for Mr Brindle to 36. have put through a telephone call to Mr Upson or Mr Murrav. However, I do not think that Mr Brindle acted, or failed to act, with dishonest intention. I think that he was in a position of considerable financial strain and worry as a result of which he procrastinated. An intent to act dishonestly is inconsistent with the character of Mr Brindle as portrayed in the evidence. Mr JM Ryan, the senior officer of Mobil called to aive evidence before me, in his evidence expressly disclaimed any suqgestion that Mr Brindle had ever been dishonest with the company. The fact that a dealer has acted improperly in regard to his relationship with the franchisor does not necessarily mean that it is just and equitable that his franchise aqreement not be renewed. This proposition is illustrated bv O'Brien in which the "just and equitable" issue was determined in favour of the franchisee notwithstanding a finding of conduct amounting to fraud. p 97, and Richards where the franchisees succeeded despite a finding that they had deceived the franchisor reqarding the purchases of foreign fuel, p 349. The conduct of Mr Brindle in relation to his goina off the Meter Wholesale Contract, though reprehensible, was less serious than the conduct found against the franchisees in these two cases. This conduct is to be taken into account but it does not conclude the enquiry whether it is just and equitable not to renew. 37. The other matter relied upon by the applicant is the financial position of the respondent. The applicant arques that the respondent's contractual obligations in reaard to the Unanderra site will require him, in conformity with the 50% provision, to purchase his Unanderra fuel from Mobil at normal wholesale prices during the remainder of 1984; he having already purchased "foreign" fuel for more than half the year. This will mean that the profits which have been made at Unanderra as a result of the purchase of "foreian" fuel, and which have enabled the respondent to reduce his outstanding debts, will no longer be available. Moreover, it is said that under the usual Reseller Contract Mr Brindle would have to purchase 50% of his Towradqi fuel from Mobil and this would adverselv affect his position. as compared with the period since early December 1983 during which the whole of his Towradgi fuel has been purchased on the open market at lower prices. Counsel for the applicant arques that an assumption that Mr Brindle will comply with the Reseller Contract leads to a result that the Towradgi business is not profitable and that it is unfair to his client to require it to enter into a renewal arrangement with a franchisee who 15 operating an unprofitable business. It appears to me to be a curious situation for a franchisor to argue that a business is not viable because of the price which it charges to a franchisee, being more than the price at which fuel could be obtained from alternative sources, and on 38. the basis of that lack of viability to contend that the franchise agreement should not be required to be renewed. The Reseller Contract stipulates the price of fuel as being "Mobil's List Price". This means that the price is adjustable by Mobil at will. To accede to the applicant's argument would be to provide the opportunity for a franchisor to subvert the policy of the Act by unilaterally raising its price and then arquing that. at that price, its franchisees could not remain viable so that the franchises should not be renewed. If it is otherwise proper, in the present case, that the franchise be renewed, and if the only legitimate objection to such a course is a discriminatory price charged by Mobil for its product then it seems to me to be appropriate to make an order which will eliminate the discrimination and thus give to the franchisee a reasonable opportunity of carrying on a competitive business during the period of the renewed franchise; not to refuse the renewal. There are, to my mind, two major circumstances favouring the view that Mr Hrindle's franchise ought to be renewed. The first of these is the disastrous consequences to him and to his wife of non-renewal. As I have mentioned, the assets of Mr and Mrs Brindle, after many vears of hard and efficient work, consist substantially of their two service station businesses. If there is no renewal then the Towradqi business is lost, without 39. compensation to them. Although I have criticized Mr Brindle's conduct in November-December 1983, such a loss would be quite disproportionate to the degree either of his fault or of any * disadvantage suffered by Mobil as a result of that conduct. Secondly, I must have regard to the circumstances surrounding the breaches of the agreement specified in the Notice of Non-renewal, and upon which Mobil has successfully relied. Mr Brindle failed to comply with his obligations under the Meter Wholesale Contract because of his financial position and, in particular, the fact that the price he was forced to pay under that agreement was considerably hiqher than the price of alternative sources of fuel and the price at which his competitors were supplied. There is no evidence of anv particular "freeholder" service station supplied by Mobil at prices lower than those charged to Mr Brindle, but there is general evidence that it is the practice of the various oil companies to supply freeholder sites in Wollonaong at lower prices than those charged to their lessees. This qeneral statement is wide enough to include Mobil. I note that there has not been any denial by Mobil of the accuracy, or of the applicability to it, of this general statement. Similarly, there is no evidence of any particular Mobil commission agency site directly competitive with Mr Brindle's Towradgi site but, once again, there is qeneral evidence that the various oil companies operate commission agency sites within the Wollongong area; presumably the general statement includes Mobil. 40. There is evidence that there is price competition throughout the Wollongong district. Any concessions given by Mobil to freeholders or at commission aqencv sites anywhere in the Wollongong district are likely to cause at least an indirect disadvantage to Mr Brindle. The evidence is clear, and unchallenged, that the reasons for his present financial difficulties, and therefore for his breaches of the Meter Wholesale Contract, were the disadvantages suffered by him because of the small marain allowed to its lessee dealers bv Mobil and because of the pricing policies of the various oil companies, in relation to freeholders sites and commission agency sites; those practices occurring in a highly competitive retail environment in which demand was static or falling. Section 9 of the Act, dealing with supply in times of shortage, requires that there should not be discrimination between lessee dealers on the one hand and freeholder dealers on the other. That particular requirement is not directlv applicable but the Court should take note of the legislative policy it embodies in considering what is just and equitable in a particular case. It seems to me that if a franchisee does discriminate, in relation to price, aqainst lessees and, as a consequence, a franchisee breaches his franchise aaqreement, it will not normallv be just and equitable to refuse renewal on that ground. 41. Counsel for the applicant put an alternative submission, designed to overcome any reluctance by the Court to take a course which meant the immediate forfeiture by Mr Brindle of his rights. The submission was that there should be a renewal but for a short period, say three months, to allow the sale of the business by Mr Brindle. The araument was that this would enable him to recoup some capital without exposing Mobil to the problem of having a franchisee who was not able to trade profitably. It was said that. if this course was taken, Mobil would be prepared to enter into a franchise agreement with the purchaser for an initial period of three years, with the subsequent rights of the franchisee being governed bv the Act. If Mr Brindle succeeded in selling within the three month period then he could repay his debt to Mobil out of the proceeds of sale. This course would have the advantage of avoiding the total loss of the business by Mr Brindle but it is not a course which I reqard as being appropriate. It would put Mr Brindle in the position of having to make a forced sale within a limited period. It may be extremely difficult for him to realise anything like the true value of the business upon such a sale. Moreover, I see no reason for such a limited renewal. The evidence is that Mr and Mrs Brindle are first class operators. Given a non-discriminatory pricing policy by Mobil they could, I am sure, indefinitely operate the service station with profit to themselves and with advantage, in terms of sales volume, to Mobil. Further, I bear in mind evidence from Mr Brindle that, as 42. a result of changes in the main road system, it is likely that traffic at Towradgi will increase during the next year or two with a consequent prospect of an increase in turnover at the service station. I think that Mr Brindle should be given the opportunity of reaping the benefit of this change, particularly as he had to bear the disadvantage of the loss of business during a period of four months in 1977-78 when there were maior alterations made to the service station. It is submitted by the applicant that. if the lease is to be renewed for a lonaer period of time than three months. this should be subject to certain conditions. First. 1t 13 arqued that it ought to be a condition precedent to anv renewal that the existing indebtedness to Mobil be discharged. I agree with this. I have already commented adversely upon the circumstances in which this debt arose and I do not think that it would be appropriate for the Court to take the course of compelling Mob21 to enter into new contractual arrangements with a franchisee who continued to be indebted to it under those circumstances. The Court should not subject Mobil to the continuation of an involuntary loan. Put another way, in terms of s.17(10), at would be just and equitable not to renew the agreement of Mr Brindle if he further persists in failing to repav that involuntary loan. It will not be easy for Mr Brindle to pav off the debt immediately but I think that. given his assets and financial credit, this will not be impossible. He should be given the chance. 43. Secondly, it is said that the rental under any new term should be the amount proposed by the franchisor for the first year, ie $33,000 per year or $2,750 per month. Alternativelv, it is said that the rent should be the figure of $2,500 per month. the contracted rental for the final year of the prior aqreement. I do not accept this submission. It seems to me that the rental reserved by the franchise aqreement has never been reaarded bv the parties as being a true indication of rental value of the site. Mr Murray has admitted that it was excessive during 1983 and there is nothing to indicate that the position has changed since that time. The parties did neqotiate rentals for the period of anv renewal viz $1,400 per month durina the first vear, $1,650 per month during the second year and $2,000 per month during the third year. I think that these rents should obtain during anv renewal, subiect to a qualification to be mentioned. Thirdly, the applicant submits that there should be a Reseller Contract pursuant to which the franchisee is required to take 50% of his product from Mobil. The applicant points out that Mobil owns service station sites not merelv, and perhaps not mainly, to earn rental income but to promote the sale of its product. It would be unreasonable. it was arqued, to force upon Mobil a renewal of its franchise agreement without ensuring that at least half of the petrol sold from the site would be purchased directly from Mobil. I think that there is substance in this arqument but the position of the franchisee must also be 44. considered. I do not think that the Court should force upon the franchisee an obligation to purchase fuel from Mobil at Mobil's List Price if, at that same time, Mobil is selling fuel ata cheaper wholesale rate to freeholder competitors of the franchisee or is, as a retailer, using its ability to control the wholesale price to undercut the franchisee at commission agency sites. There is in the standard Reseller Contract a proviso excluding the operation of the contract during such times as Mobil shall be unable to supplv fuel. I think that it would be a proper term of any renewal that the proviso extend to exclude from the provisions of the agreement any fuel which mav be sold by the franchisee from the site during a period when Mobil is offering for sale, to any retailer within the Citv of Wollonqonda, petrol at a wholesale price below the Mobil List Price. The proviso should also ensure an adequate margin to the franchisee in relation to the sale price fixed by Mobil at anv commission aqency site which it operates in the City of Wollogona. Various maraqins have been mentioned in evidence, ranging from 2.5 cents per litre during periods of discounting up to 8.5 cents per litre realised by the respondent when he has been fortunate enough to purchase foreian fuel at particularlv favourable rates. A marain of 5 cents per litre seems to be a figure which will enable an efficient service station operator to cover his costs and to make a reasonable return from the site. It seems to me that if Mobil wishes to have the right to supply at least 50% of the throughput of the Towradgi site, during the period of anv renewal, it should be on the basis that the wholesale price at which Mr Brindle can 45. purchase will allow him a margin of not less than 5 cents and still be competitive with any Mobil operated commission agency site within the City of Wollongonaq. The proviso ought therefore to require that it is not to operate during any time at which Mobil's wholesale price to the franchisee is less than 5 cents below the retail price then being charged at any Mobil operated commission aqgency site within the Citv of Wollongong. Finally, the applicant contends for a renewal of the Equipment Loan Contract. There is no contest about this matter. It is mutually desirable for there to be a renewal of that contract during the term of any new lease. There is one other issue outstanding between the parties: whether or not Mr Brindle should pav to Mobil the difference between the contracted rent, $2,500 per month. and the concession rent, $1,200 per month, in relation to the period December 1983 to date. As mentioned. Mr Brindle has continued payments at $1,200 per month. Mobil claims $2,500 saving, as is the fact, that it has not aranted a concession for these months. I have already commented upon the attitude of the parties to the contracted figure. The fair position would be for the rental paid to reflect the understanding between Mr Murray and Mr Brindle, that is $1,200 for each of the months of 46. December, 1983, January, February and March 1984 and $1,400 for each month thereafter. The figure of $1,400 should apply until and including March 1985, the figure of $1.650 commencing in April 1985. I do not think that I have any power directly to compel Mobil to waive the difference between $2,500 and the lesser fiqure during the months from December 1983 to the date of the renewal. But the terms of the renewal may reflect any failure by Mobil to waive this sum. If Mobil is not willing to aqive an undertaking to waive this sum then the terms of the renewal should include a provision that no rental be paid until the relevant amount has been offset. The amount owing by Mr Brindle to Mobil, pursuant to the audit last November. as at 12 July last was $26,982.54 and interest was then accruing - assessed at the current rate applicable in the Supreme Court of New South Wales - at $10.30 per day. Further payments may have been made between that day and the date of this judgement. It will he a condition precedent to any order requiring the renewal of the franchise agreement that the whole of the outstanding indebtedness be paid. I propose to allow a period of one month for that purpose. If the outstanding balance is paid to the applicant on or before Friday 14 September 1984 then there ought to be an order for renewal of the franchise agreement for a term expiring on 31 March 1987. The terms should be those contained in the lease, Reseller 47. Contract and Equipment Loan Contract - but not, of course, the Meter Wholesale Contract - applicable from 1 April 1981, subject only to the specific modifications indicated herein and such other modifications as the parties may agree. If payment is not made by 14 September, then there ought to be a declaration that it is fust and equitable that the aqreements not be renewed. with consequential orders in favour of the franchisor. I should add that. whatever the course taken bv the respondent in relation to payment, and thus whatever the primarv orders to be made, the relief claimed in paraaqraphs 6, 7 and 8 of the Cross-claim should be refused. Section 23 of the Act, referred to in para 6, deals with compensation for acquisition of property. It has no application to this case. Paragraph 7 depends upon the view that the discussions between Mr Murray and Mr Brindle created a fresh franchise agreement. I do not think that either man believed that he was then entering into a binding contract. The two men were discussing one term of a complex arrangement to be set out in documents vet to be prepared. It is doubtful that Mr Murray either had authority or was believed bv Mr Brindle to have authority to contract. as distinct from to negotiate, on behalf of Mobil. Paraaraph 8 refers to s.22 of the Act but this deals with compensation to a franchisee for loss suffered as a result of a contravention by the franchisor of the Act or the regulations. There has been no such contravention in this case. 48. The matter will stand over to a convenient date shortly after 14 September for the purpose of making orders to aive effect to these reasons, the terms of which will depend upon whether payment has been made of the outstanding debt and for which Short Minutes should be brought in by the applicant. At that time I will also hear any argument as to costs. I certify that this and the forty seven (47) preceding pages are a true copy of the Reasons for Judgement herein of his Honour Mr Justice Wilcox. Associate: FROULMAL Thelen Dated: j4/8 [s+ 49. NEW SOUTH WALES DISTRICT REGISTRY No. G.425 of 1983 GENERAL DIVISION BETWEEN : MOBIL OIL AUSTRALIA LIMITED Applicant AND: BRIAN BRINDLE Respondent FURTHER REASONS FGR JUOGGMENT CORAM: WILCOX J DATE 1+ OCTOBER 1384 FLACE: SYDNEY after delivery of tudgement in thi3z matter on 14 Auaust I stood the matter over until 14 September for the purpose of making formal orders. There has been some delay in the preparation of the appropriate Short Minutes but this has now been done and I now make orders in accordance with the Short Minutes dated today and placed with the papers. There remains outstanding the matter of costs. Each party seeks costs. The applicant acknowledges that the Application failed and that there ought not therefore to be an order in its favour for costs in respect of the Application. However. it says. the bulk of the costs were incurred in relation to the Cross-claim. The applicant acknowledaes that the 50. defendant was ultimately successful on his Cross-claim in the sense that he obtained an order for the renewal of the franchise. However. it points out that the price of the renewal was an immediate payment by Mr Brindle to Mobil of the whole of the moneys owing by him. Counsel for the applicant points out that, at an earlv stage of the litigation. his client had offered to renew the franchise provided that Mr Brindle immediatelv repaid the amount owina. He says, therefore, that the view taken by the Court - leaving aside the terms of the renewal - reflects the situation which his client was prepared to accept prior to the incurrina of the overwhelming maiority of the costs. Counsel concedes that the terms of the renewal as ordered by me are materially different from those upon which his client was prepared to renew but he savs that the Act is concerned with the fact or otherwise of renewal and that the terms must be disreaarded. He also arques that the Court should take into account both the fact of Mr Brindle''s breach of his previous agreement with Mobil and the fact that this was a substantial and continuing breach, as reflected in the requirement of the Court for repayment prior to anv order for renewal. The matters of fact to which counsel referred are. of course, correct. However, 1t is unrealistic to disreaard the terms of the renewal. There is a considerable difference between the terms upon which Mobil were prepared - whether prior to or during the proceedings - voluntarily to renew the franchise and those in relation to which I have ordered renewal. The 51. differences extend both to the price to be charged for petroleum and the rental of the service station: these being the critical matters in dispute between the parties and which have given rise _ to the whole of the problem between them. I do not think it can be said that Mobil has been successful in relation either to the Application or to the Cross-claim. I do not, therefore. see anv basis for ordering Mr Brindle to pay Mobil's costs. In support of his claim for costs the solicitor for Mr Brindle arques that the Court found substantiallv in his favour. especially in relation to the critical factual matters: the appropriate price for petroleum and the appropriate rent of the premises. He points out that the policv of the Act - as evidenced in s.17(6) - is that any increase in a charage made by the franchisor under a renewal of the franchise agreement shall be reasonable. He contends that his client not only succeeded in resisting the Application but substantiallv succeeded in his Cross-claim. He also submits that whilst his client was in breach of the previous aqreements the cause of the breach was directly related to the unreasonable requirements of the franchisor and that Mr Brindle had alwavs intended to pav the amount that was owina. It seems to me that there is considerable force in what is said on behalf of Mr Brindle. He has succeeded in resisting the Application. In relation to the Cross-claim - the maior battleqground before me - Mr Brindle has been substantially 52. successful. His failure to make payment to Mobil of the monevs owing by him is related to the terms of his arrangements with Mobil. I think that it is probable that. if Mobil had offered to grant to Mr Brindle the terms which I have reaarded as reasonable on condition that he immediatelv pay the amount owing, he would have accepted that offer. However, Mr Brindle has not had complete success. The fact is that at no time, whether before or during the hearing, did he make an offer immediately to pay the outstanding debt. This has been forced upon him by my order and. to that extent, he has achieved less than full success. Whilst I think that he 1s entitled to an order in his favour, in relation to costs. an order for the payment of the whole of his costs would not be an accurate reflection of the result, The strict approach would be to require the applicant to pay the whole of the costs of the respondent on the Application and to pav to him a proportion of his costs on the Cross-claim. However, the assianment of particular items to the Application or the Cross~-claim would present difficulties upon taxation. I think that the better approach is for me to select a proportion of the total costs, having regard both to the fate of the Application and the degree of success of the parties on the Cross-claim. Anv proportion necessarilv involves a degree of 53. arbitrary assessment but I thripkythat it would be a reflection of all relevant matters for me to order that the applicant pay to _ the respondent two-thirds of his costs of the proceedings whether -incurred in the Application or the Cross-claim. I so order. I certify that this and the FAK Wwo(S2) preceding pages are a true copv of the Reasons for Judqgement herein of his Honour Mr Justice Wilcox. Associate ROU Moar Date 9 (0[ &