—— Sdlges Lbeorten TRADE PRACTICES - franchise agreements - Petroleum Retail Marketing Franchise Act - action by corporate franchisee against franchisor - agreement expressed to be with natural person - director of franchisee - doctrine of undisclosed principal - motion to strike out proceeding as frivolous and vexatious - motion dismissed. Trade Practices Act 1974 s.82 Petroleum Reta1ll Marketing Franchise Act 1980 s.22 Bowstead on Agency 5th Ed. SAGITTARIAN ENTERPRISES PTY LTD AND RAYMOND ARTHUR WOOLLETT and KAYE LORRAINE WOOLLETT v AMPOL LIMITED NO. WAG 9 OF 1986 FRENCH J. 7 May 1987 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIAN DISTRICT REGISTRY GENERAL DIVISION No. WAG 9 of 1986 BETWEE Nz: SAGITTARIAN ENTERPRISES PTY LTD First Applicant and RAYMOND ARTHUR WOOLLETT and KAYE LORRAINE WOOLLETT Second Applicants and AMPOL LIMITED Respondent MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 7 May 1987 WHERE MADE: PERTH THE COURT ORDERS THAT: l. The respondent's motion is dismissed. 2. The respondent to pay the applicants' costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. Pe en! e+ e SOn On ne Oe eT ad a ee ea tyres IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIAN DISTRICT REGISTRY GENERAL DIVISION No. WAG 9 of 1986 BETWEEN: SAGITTARIAN ENTERPRISES PTY LTD First Applicant and RAYMOND ARTHUR WOOLLETT and KAYE LORRAINE WOOLLETT Second Applicants and AMPOL LIMITED Respondent CORAM: FRENCH J. 7 May 1987 REASONS FOR JUDGMENT On 17 February 1986 Raymond Arthur Woollett commenced proceedings against Ampol Limited, claiming compensation under s.22 of the Petroleum Retail Marketing Franchise Act 1980 and alternatively damages under s.82 of the Trade Practices Act 1974. By the statement of claim which accompanied that application Mr Woollett said he was the operator of a petrol service station in Dianella selling to the public, fuel and oil products produced by Ampol. He alleged that he had a written agreement with Ampol dated 29 July 1981 by which he was granted a licence to occupy the premises for a period of 3 years commencing 1 September 1981 for 2. the purpose of conducting a commercial service station using Ampol's products. This agreement was formally entitled "Service Station Franchise Licence Agreement" and was called in _ the pleadings "The Licence Agreement". He also had, he said, a further written agreement made on the same day whereby Ampol would supply products to him for a period of 3 years from 1 September 1981. This was designated the "Supply Agreement". A third written agreement, the Trade Mark Agreement, also dated 29 July 1981 gave him the right to use Ampol trade marks and logos for a period of 3 years from 1 September. The three agreements collectively are said to have constituted a franchise agreement within the meaning of s.3(1) of the Petroleum Retail Marketing Franchise Act 1980. Section 15 of that Act requires that a corporation shall not enter into a franchise agreement unless not less than 3 days before the agreement is made, it has supplied to the franchisee a written statement containing all information in the possession of the franchisor relating to the operation or proposed operation of the premises and reasonably likely to influence the decision of the franchisee to enter into the agreement. 7 ee a ee ee - 3. According to Woollett Ampol breached this provision by failing to provide him with the requisite statement. He also alleged that Ampol failed to disclose that it held the marketing premises on a lease due to expire on 3] August 1984. In 1984 Ampol refused to renew the franchise agreement, allegedly in breach of s.17(1) of the Petroleum Retail Marketing Franchise Act. This it was said to have done by its advice to Woollett that the agreement would expire on 30 August 1984. The facts pleaded were also relied upon as showing conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s.52 of the Trade Practices Act. Woollett alleged that he was obliged to vacate the service station and thereby lost his business and suffered loss and damage. By a motion filed 15 July 1986 he sought leave to join Sagittarian Enterprises Pty Ltd and Kaye Lorraine Woollett as co-applicants. While preparing for discovery Woollett's solicitor "became aware that the owner and operator of the service station premises....was in fact Sagittarian Enterprises Pty Ltd....". 4. The Woolletts, it turned out, were directors and employees of the company to which they had transferred the business upon its incorporation on 25 January 1977. By an order made on 18 August 1986 Burchett J. directed that the company and Mrs Woollett be joined as applicants and gave them leave to amend the statement of claim. The amended statement of claim pleads that Sagittarian Enterprises Pty Ltd, the first applicant, was owner and operator of the premises. The Woolletts, the second applicants, were at all material times directors of the company. The plea now made is that the Licence, Supply and Trademark Agreements were all made with Sagittarian Enterprises. The same breaches of the Petroleum Retail Marketing Franchise Act and Trade Practices Act are alleged. Also pleaded is the fact that the company was obliged to vacate the premises. All applicants are said to have thereby suffered loss and damage. The respondent moves the Court, pursuant to 0.20 r.2(1), to dismiss the proceedings generally and in the alternative to dismiss the claim for compensation under s.22 of the Petroleum Retailers Marketing Franchise Act. eee, ok 5. Alternatively, it seeks an order under 0.11 r.16 to strike out certain words in para.7 of the amended statement of claim and otherwise seeks orders for the provision of further answers to certain interrogatories. In support of the motion there was filed an affidavit sworn by Mr R.W. Benzie, the administration manager of the respondent. That affidavit exhibited the Licence, Supply and Trade Mark Agreements each of which was on the face of it made between Mr Woollett and Ampol. Mr Benzie referred to answers to interrogatories sworn on 15 December 1986 where Mr Woollett had deposed that he signed the original of each of the agreements as agent for Sagittarian Enterprises Pty Ltd. Ampol Mr Benzies said, had been prepared to grant a licence to occupy to Mr Woollett "but not to any other person or entity". Ampol intended to enter into the agreement with Mr Woollett and did not know before hand that he had intended to enter it on behalf of Sagittarian Enterprises Pty Ltd. tay se ett 5 6. In his affidavit in reply, Woollett said that he and his wife first took on the operation of the service station in April 1973. It was the practice of Ampol to have annual licence agreements. In February 1977, according to Woollett, the business of the service station was transferred to Sagittarian Enterprises Pty Ltd. This acquisition was said to have been financed by loan funds advanced by the Woolletts. Ampol's area representative visited the service station in June 1977 to arrange for the signing of the annual licence agreement. This showed Raymond Arthur Woollett as licensee. Payments due under the agreement were made by cheque to cover the first instalment and promissory notes to cover the balance of 11 instalments. The cheque was stamped with the words "for and on behalf of Sagittarian Enterprises Pty Ltd. The cheque and promissory notes required the moneys to be paid from a bank account at the Dianella Shopping Plaza branch 2 Rhee ene eee See 7. of the then Bank of New South Wales in the name of Sagittarian Enterprises Pty Ltd. Similar arrangements were made for payments due under subsequent annual licence agreements up to 1981. On this basis there was, prior to the execution of the 1981 agreements, said to be a history of payments made in the name of the company. In his affidavit Mr Woollett said:~ "(a) the Respondent by its servants or agents Ron Taylor and/or Ross Bolton were for some time prior to the execution of the franchise agreements aware that the First Applicant was the operator of the service station premises. As from 1 February 1977 all payments to the Respondent in respect of either licence fees, fuel deposits, or trade mark fees, were paid either by a cheque from the First Applicant or by promissory notes drawn on the bank account of the First Applicant; (b) the Respondent by its servants or agents was accordingly aware for some time prior to the making of the franchise agreement the subject of these proceedings that the business was being operated by the company." The first paragraph of the respondent's motion seeks an order that the proceeding be dismissed generally on the ground that the amended statement of claim:- "(a} discloses no reasonable cause of action; (b) is frivolous or vexatious; or --— - = — eo ene 8. (c) is an abuse of the process of the court." "A reasonable cause of action means a cause of action with some chance of success when only the allegations in the pleading are considered" Drummond-Jackson v British Medical Association (1970) 1 WLR 688 per Lord Pearson On this basis the statement of claim does disclose a reasonable cause of action. The respondent however by its affidavit evidence and by exhibiting the agreements asserts that it is clear beyond doubt that there was no agreement between it and the first applicant, that the causes of action aepend upon the existence of such an agreement, and that the proceedings are thereby frivolous and vexatious or an abuse of process. It is plain that the written agreements on their face are made only between Raymond Arthur Woollett and Ampol Limited. ° Counsel for Ampol referred to various clauses in the Licence Agreement. These he said demonstrated a relationship of confidence between Mr Woollett and Ampol. This was not the type of contract that Ampol would enter into with any person. He submitted that the doctrine of undisclosed principal could not operate in respect of such a contract. 9. Referring to a covenant against assignment in the Licence Agreement he went on to cite Bowstead on Agency 5th Ed. at p.321 where it is said:- "It seems reasonable to assume...on the analogy of the assignment rule, that where the benefit of a contract is not assignable, or its burden could not be vicariously performed, the undisclosed principal cannot intervene..." Reliance was also placed on the judgment of the New South Wales Court of Appeal in Andrews v The Nominal Defendant (1969) 70 S.R. (NSW) 419 and in particular on the passage in the judgment of Asprey JA at 432 (Sugerman JA agreeing) :- "The doctrine of the undisclosed principal has been stated to be "a primitive and highly restricted form of assignment" (See Goodhart and Hanson, 4 Cambridge Law Journal 320, 352) and its emergence in the law appears to have been due to the imperatives of business convenience (Powell on Agency 2nd Ed., pp.148, 150, 151-152). Whilst there are certain differences between that doctrine and assignment in the strict sense of the term (see Powell pp.165, 166), in my view the two concepts are sufficiently analogous in principle to lead to the conclusion that a contract which is of such a nature that it is incapable of assignment either, (a) because of the personal confidence imposed by one of the parties to it in the other, or (b) because the parties to it have agreed specifically that it shall not be assignable, should be held to be one in respect of which the rule as to the operation of the undisclosed principal cannot operate (cf. Powell (supra), pp.158, 166) ." The affidavit material indicates an issue as to whether the alleged principal, in this case the company, was undisclosed. esr tte ze nee oma 10. Further and to the extent that the principal in question is or may be a corporate alter ego for its "agent", the strength of the implication against its intervention in the contract may be weakened. The power conferred on the Court to dispose summarily of a proceeding by striking out the pleadings is one to be exercised sparingly:- "The test to be applied has been variously expressed; "so obviously untenable that it cannot' possibly succeed"; "manifestly groundless"; "so manifestly faultly that it does not admit an argument"; "discloses a case which the Court is satisfied cannot succeed"; "under no possibility can there be a good cause of action"; "be manifest that to allow them (the pleadings) to stand would involve useless expense"." - General Steel Industries v Commissioner for Railways {NSW) (1964) 112 CLR 125 at 129 per Barwick CJ. See also Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 per Dixon J. In my opinion there is shown on the materials a triable question as to whether the principal was undisclosed. Further, if the case is one of an undisclosed principal, it is not so obvious that it would be excluded from the agreement as to warrant striking out the proceedings. That is not to say that the issue of agency will not require pleading by way of reply. The applicants may need to give consideration to that possibility. I am not however prepared to dispose of the action summarily on the basis advanced by the respondent. li. In the alternative the motion by para. 2 secks an order that the claim for relief pursuant to s.22 of the Petroleum Retail Marketing Franchise Act be dismissed. In this regard the respondent in its outline of submissions refers to sub-s.13(6) of the Act which provides:- "13(6) Where - {a) a corporation proposes to enter, as franchisor, into a franchise agreement; (b) the marketing premises to which the proposed agreement relates are held by that corporation or a related corporation as lessee under a lease in respect of which the lessor is not a corporation related to the lessee; and {c) the term of the proposed agreement would, but for this sub-section, be required by sub-section (2), (3) or (4) to extend beyond the expiration of the term of the lease, the term of the proposed agreement shall be a period expiring immediately before the expiration of the term of the lease." It 1S common ground on the pleadings that Ampol held the marketing premises as lessee only. The statement of claim alleges that the expiry date of the lease was 31 August 1984. The amended defence asserts it was 2 September 1984, Whichever is the case, the effect of sub-s.13(6) is that the term of the franchise agreement was for a period expiring immediately before the expiration of the term of the lease. iT ar De TTO Te _ en Cor OR 12. The respondent contends that this being the case the applicants can have suffered no loss or damage by reason of Ampol's failure to renew the franchise agreement and therefore have no right to compensation under s.22 of the Act. This however is not the only basis upon which that relief is claimed. Section 22 of the Act provides in sub-s. (1):- "Where a party to a franchise agreement suffers loss or damage by reason of the other party to the agreement contravening a provision of this Act or of the regulations, that other party is liable to compensate the first mentioned party for the loss or damage." The failure to renew the franchise agreement is not the only contravention alleged in the amended statement of claim. It is also alleged that the respondent failed to comply with s.15 of the Act in relation to precontractual disclosure. In the circumstances it cannot be said that no claim for compensation under s.22 would lie. In the alternative the respondent attacks para. 7 of the amended statement of claim which reads:- "Neither in July 1981 nor at any material time did the Respondent disclose to the First Applicant as Franchisee or to the Second Applicants that the service station premises the subject of the Franchise Agreement were held by the Respondent under a Lease which was due to expire on 3lst August 1984." 13. By its motion the respondent seeks to strike out the words "or to the Second Applicants" where they appear in that paragraph. The grounds upon which it is sought to strike the words out are that they:- "(a) tend to cause prejudice, embarrassment or delay in the proceedings; or (b) are otherwise an abuse of the process of the Court." ' The respondent contends that the obligation under s.15 of the Act is to make disclcsure to the proposed franchisee. As the Woolletts are on the face of the statement of claim, not the franchisee, a failure to make disclosure to them is not a material fact. On the basis however that the Woolletts are directors ne = and employees of the company disclosure to them would arguably have constituted disclosure to the company. In my opinion no basis for striking out on this ground *" is shown and I decline to accede to the motion in that regard. voces A further order sought in the alternative in the "respondent's motion is that the first applicant by its officer the | first named second applicant, give a further answer to ! interrogatory number 32. re eee te ee ee 14. The question and answer in interrogatory 32 were as follows:- "(a) Look at paragraph 7 of the Amended Statement of Claim. Do the Applicants allege that had the Respondent disclosed to the First Applicant or the Second Applicants that the Respondent held the service station premises under a lease which was due to expire on 31 August 1984 the First Applicant would not have entered into the franchise agreement referred to in paragraph 4 of the Amended Statement of Claim? (b) If yes to (a), state precisely:- (i) the other agreements the First Applicant and the Second Applicants would have entered into in lieu of the franchise agreement; (ii) the other business undertakings in which the First Applicant and the Second Applicants would have become involved in lieu of the franchise agreement. Answer {a) The Applicants do not allege this in paragraph 7 of the Amended Statement of Claim. (b) (i) Not applicable. (i1}) Not applicable." In my opinion the interrogatory is plainly inappropriate. Its form is that of a request for particulars. What the applicants allege in para. 7 is clear enough and it does not include the allegation proposed in interrogatory 32. In the circumstances I will make no order that they be required to answer that interrogatory. 15. For the same reasons I decline to make the order sought in para.5 of the Notice of Motion. I hereby certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment of his Honour Mr Justice French. Associate: Clasabeth (erdonen Date: 7~ Nig (96 7. Counsel « for the Applicants: Mr C. Stokes instructed by Warren McDonald French & Harrison . for the Respondent: Mr S.R. Paterniti instructed by Parker & Parker Date of Hearing: 27 March 1987 Date of Judgment: 7 May 1987 ata Sate ER tn ae SEP wl