» BAO CATCHWORDS Petroleum Retail Marketing Franchise Act - Agencies and |" franchises - "goodwill" payment to outgoing agents - promise by supplier to offer franchise to new agents - offer made and f rejected. Petroleum Retail Marketing Franchise Act 1980-1985 No. G.13 of 1986 [ R.J. & M.C. JARRETT PTY LTD trading as BP BRIDGE ROAD and BP AUSTRALIA LIMITED FORSTER, J. ADELAIDE 19 JUNE 1987 IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIA DISTRICT REGISTRY ) No. G13 of 1986 ) ) GENERAL DIVISION BETWEEN: R.J. & M.C. JARRETT PTY LTD trading as BP BRIDGE ROAD Applicants - and - BP AUSTRALIA LIMITED Respondent MINUTE OF ORDER JUDGE MAKING ORDER FORSTER J. oe ADELAIDE WHERE MADE DATE OF ORDER 19 JUNE, 1987 THE COURT ORDERS THAT: i. The application be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) SOUTH AUSTRALIA DISTRICT REGISTRY ) No. G13 of 1986 ) ) GENERAL DIVISION BETWEEN: R.d. & M.C. JARRETT PTY LTD trading as BP BRIDGE ROAD Applicants - and - BP AUSTRALIA LIMITED Respondent REASONS FOR JUDGMENT CORAM: Forster J. The applicant, ("the company"), a company of which Robert John Jarrett and Margaret Craig Jarrett are the directors, carries on business as lessees or franchisees or commission agents of service stations. The company claims against the respondent ("BP") with respect to a service station site in Bridge Road, Pooraka a few miles north of Adelaide. The claim is made on a number of bases with which I will deal later. At the end of the day the whole matter is in a relatively small compass and there is little contradiction between witnesses. Some of the background is non-controversial. The Jarretts personally had been commission agents and later lessees from BP with respect to a site in Salisbury known as the Long Range site. In January 1982 their then current lease was We re ny 2. assigned by the Jarretts to the company. The Jarretts and the company were successful at the Long Range site and were very well regarded by BP as commission agents and later lessees. Early in 1983 the Jarretts decided that they would like to operate another BP site either as commission agents or as lessees/franchisees. The terms lessees and franchisees seem to be used interchangeably in the oil industry to describe persons or companies who have a lease and which purchase petroleum products from an oil company for resale and have the benefit of the provisions of the Petroleum Retail Marketing Franchise Act 1980-1985 ("the Act"). Commission agents as the name suggests sell petroleum products which never become their property and they are remunerated by being paid commission on sales by the oil company whose products they sell. The Jarretts, so Mrs Jarrett who was the only one of them to give evidence. said, would probably have preferred, in due course, to become franchisees but expected that they would have to be commission agents with respect to any second BP site at least for a time. A number of different BP sites were considered and finally the Jarretts' attention centred on one in Bridge Road, Pooraka, not many miles from Salisbury East where the Jarretts lived and not very far from Long Range. The existing operators, some people called Whyte, were not satisfactory to BP because, put shortly, they did not run a clean and efficient operation. The witness Shaw, in 1983 the metropolitan sales manager for BP in Adelaide and not now employed by BP, was looking after the matter for BP. Shaw said that BP was anxious to be rid of the To eS 3. Whytes from Bridge Road because of their inadequacies. BP would have been well satisfied to substitute the Jarretts for the Whytes. The Whytes' agency agreement was due to expire on 2 May 1983 but nevertheless Shaw persuaded the Jarretts that the company should pay the Whytes $45,000 for their "goodwill". Shaw conceded that all that BP had to do was wait until the time the Whytes' agency expired when the Whytes would become trespassers and: could be evicted. BP was unwilling to do this because the Whytes had complained to a Federal member of Parliament with respect to a notice to quit which was given to them previously and "the matter had become political". BP was quite willing for the company to pay $45,000 in order to save BP the embarrassment of some poor public relations. The Jarretts did not object to the company paying the $45,000 provided they could look forward to some security of tenure or, put in another way, provided they got some return for their money. To describe as goodwill the payment of $45,000 for the privilege of obtaining occupation of a dirty run-down service station seems to me an abuse of language. However that may be, BP quietly achieved political peace by means of the payment. There is some difference between Shaw and Mrs Jarrett as to what Shaw said in answer to the Jarretts when one or other of them asked what their prospects were of getting a franchise with respect to Bridge Road. I should explain that because of the provisions of the Act a franchisee provided he or it performed well is guaranteed a term of occupation of a total of nine years which, in ordinary circumstances, makes a franchise more attractive than a commission agency. I prefer the evidence of ee Re en ne Be ees Sena eee cree : oo as aoe 7 aiectaiet eae Pn neg ee ' 4. tt emt ' 4. Mrs Jarrett to that of Shaw where the two conflict on this topic. I do not accuse Shaw of untruthfulness but I think that his recollection of what passed between him andthe Jarretts is imperfect after the lapse of four years, a good deal of which was devoted to business in Melbourne after he left the employ of BP not long after these events now dealt with. I find that what occurred is as follows. Notwithstanding the unsatisfactoriness of the Whytes as agents, Shaw told the Jarretts that if they wanted the company to get occupation of the Bridge Road site they would have to pay the Whytes goodwill at the suggested figure of $45,000. Shaw rejected as being "out of the question" a suggestion from the Jarretts that since BP wanted to get the Whytes out it should contribute half the payment of goodwill to then. Shaw finally said that if the company paid $45,000 to the Whytes and accepted an agency agreement for a term of three years BP would offer it a "lease under the franchise Act" within twelve to twenty-four months. This account of Mrs Jarrett gains some confirmation from letters later written by the Jarretts to BP and from Mrs Jarrett's evidence that she regarded the offer of a lease made on behalf of BP by Neville, a retail territory manager with BP, in late January or early February 1985 as an honouring of Shaw's Promise made in April 1983. The provisions of s.15 of the Act require a franchisor not to enter into a franchise agreement unless it has, not less than three business days before the day on which the agreement is entered into, supplied to the franchisee a statement in writing eee we 5. containing information relating to up to seventeen matters. BP's practice has been to make an informal approach to see if a proposed franchisee will accept a franchise and not to proceed to deliver the s.15 statement unless the franchisee accepts the offer of the franchise. This preliminary step however described does not, in my view, amount itself to a "franchise agreement" as defined in the Act. I am also satisfied that neither the Jarretts nor BP would have regarded an offer of a franchise even if accepted as constituting a franchise agreement as defined unless the formalities required by s.15 were complied with and also a written agreement entered into containing the provisions referred to in the definition of "franchise agreement" in s.3 of the Act. After entering into the Bridge Road site in early May 1983 the company sold petroleum products there as a commission agent of BP. Mrs Jarrett says that in November 1984 she telephoned Neville, the fairly recently appointed retail territory manager and asked what the position was about the lease of Bridge Road and that Neville came to the Jarretts' home in order to discuss the matter on 8 November 1984. Neville cannot remember this discussion but stopped short of denying that it occurred. He says however that towards the end of January 1985 after having telephoned he called at Bridge Road and offered to the Jarretts by which was understood by him and them, offered to the company, a lease of Bridge Road "under the Franchise Act" at a rental of $2,150 per month. sor cote a Neville says that this conversation and offer occurred on a day towards the end of January 1985. Mrs Jarrett on the other hand says that it occurred on 5 February. Mrs Jarrett says that she confirmed this date from an entry in a diary but this diary was not produced in evidence. Neville is sure that the offer was made towards the end of January because in an internal memorandum (Exhibit "Q") written to BP's South Australian sales manager he reported that the offer of a franchise had been refused. Having seen and heard both Mrs Jarrett and Neville I find that the offer was made towards the end of January. Exhibit "Q" should be looked at because although Neville says that he regarded this memorandum as reporting that the Jarretts had rejected the offer of a franchise counsel for the applicant argues the contrary. Exhibit "Q" is as follows : "Review on Agency - Leased Outlets - BP Bridge Road, R.J. & M.C. Jarrett P/L Agency Agreement expires 30/4/86 Current Agency Rental $1325.00 per month Current Guarantee Contribution $6380.00 Proposed Rental $2150.00 Despite the long term advantages of being a franchisee versus an agent, i.e. goodwill - 9 year franchise agreement etc. due to the current climate of petrol discounting, the profitability on motor spirit is only barely acceptable for outlets in this volume band. For example, as agent:- Current income $6380 Guaranteed Contribution Current income 250 Commission $6630 Less Rent 1325 $5305 Gross ry , As lessee:-— Profit on motor spirit sales 145 000 L @ 3.0 epl $4350 Less Proposed Rent 2150 $2200 Gross Deficit of $3105 per month. Because of the above and coupled with the fact that the Jarretts are still repaying a bank loan for the $40,000 goodwill paid to the ex agent, they would not be in a position to consider taking the site on as a leased outlet for at least 12 months. The subject of a goodwill payment in exchange for a lease agreement would in my opinion spark off considerable adverse reaction and I will discuss this matter with you later. In conclusion, it would appear that because of financial reasons, the Jarretts are not in favour of converting to a leased site in the immediate future." It is true that Neville does not say in so many words in this memorandum that the Jarretts rejected the offer of a lease but using that circumlocutory style so dear to many in the commercial world, in my view, Neville makes his meaning clear enough and that is that for various reasons the Jarretts rejected the immediate offer of a lease. When the offer was made the company was paying rent as a commission agent of $1,373 per month. Jarrett said immediately to Neville that to take a lease at $2,150 involved a great increase in rent and that the Jarretts would have to consider their viability under the proposed new arrangement. Neville says that one or two days later Jarrett telephoned him and said that because of "the viability of the site" and the rental increase "they would not take the site on". Neville understood —— ae yar — 8. this to be a rejection of the offer made a day or two earlier and did not make arrangements for formal documents to be prepared which he would have done if Jarrett or Mrs Jarrett said they would accept the offer of a lease. Neville regarded the matter as being at anend, at least for the time being until another offer was made by BP or an application by the company. Mrs Jarrett says that she knew nothing of Jarrett's rejection of the offer made by Neville and says that they were considering the offer made by Neville but were very busy with a sales promotion scheme and she was unfamiliar with the company's new computerised bookkeeping system. These matters she says delayed the company's response to the offer. Finally, spurred on by stories emanating from New South Wales that BP was terminating the retail agency agreements of some agencies and not renewing others, the Jarretts decided in early August 1985 that they wanted the company to have a franchise agreement from BP with respect to Bridge Road. Mrs Jarrett says that she spoke to Neville about the position in New South Wales and whether such a thing might happen to their company. Neville cannot remember this but says that Jarrett approached him in late July or early August when Neville was doing a periodic audit at Bridge Road and said that the company wanted a lease. Neville says that he told Jarrett that the matter of granting a franchise was outside his authority and suggested to Jarrett that the Jarretts should write a letter to the company. On 7 August 1985 in response to this suggestion a letter (Exhibit "F") was sent by the company to BP. I set out the text of this letter in full - or ~~- ary i SOT oe re tro. Do a "Dear Sir, This letter follows recent conversations held between Mr. Des Neville and ourselves on the future operations of B.P. Bridge Road, Pooraka. After considerable thought on the matter we would like now to apply for the Lease of B.P. Bridge Road as offered to us by the Company several months ago. At this point we will await your reply and further discussions on this proposal." Mrs Jarrett says that what this letter was intended to be was an acceptance of the offer made by Neville in late January or early February. It seems to me that the terms of the letter are wholly inappropriate as an acceptance but are appropriate for applying for a lease as previously offered and rejected. This new application was finally rejected by BP by letter of 8 November 1985 (Exhibit "K"). It is necessary to deal with the position of Mr Jarrett. He has not given evidence and of course his evidence would have been of critical importance to the case. He could either have confirmed or denied Neville's evidence about the rejection of the offer and the terms of his conversation with Neville in late July or early August 1985 could have been explored. In the ordinary course certain inferences could be drawn from the failure of the applicant to call Mr Jarrett but I had evidence from Dr le Page, a psychiatrist, which I accept, that Mr Jarrett suffers from a stress related disability which would make his giving evidence a risk to his health and might well cause him to be quite unable to give any useful evidence at all hecause his disability would cause him to forget things and his mind to go blank. I consider wep eae + oe - 7 7. Z TIT °F a rn ag on ee + 7 SIT oer 10. that it was reasonable not to call Mr Jarrett and that no adverse inference should be drawn arising out of failure to call him. On the vital issue of whether or not Mr Jarrett on behalf of the company rejected the offer made by Neville I am left with the evidence of Neville alone which is supported by Exhibit "Q" and the terms of Exhibit "F", Also I do not believe Mrs Jarrett's account of the reasons for the delay from late January or early February to August which I find extremely unconvincing. This positive disbelief adds strength to Neville's position. I consider that the reason why the question of a franchise was not raised by the company until August was that the earlier offer had been rejected and the Jarretts' \ interest in the franchise was re-awoken by apprehension as to their security of tenure as commission agents which made the prospect of an effective term of nine years as franchisee more attractive. The applicant puts its case on a number of bases with which it is now necessary to deal. First it is said that a contract was made between the applicant and BP when the offer of February 1985 was accepted on 7 August 1985. I have found that this offer was rejected one or two days after it was made, whether this was in late January as Neville says or on about 5 February as Mrs Jarrett says. A claim based on a breach of this contract fails. 11. Secondly, a claim is made on the basis of a collateral agreement between BP and the company that if the company paid the Whytes $45,000 goodwill BP would offer it a franchise. It is sufficient to say that if there were such a collateral agreement BP fulfilled its side of the bargain when it offered the franchise which offer was promptly rejected. A claim based on this collateral agreement fails. Next it is said that BP in trade or commerce engaged in conduct that was misleading or deceptive and a breach of s.52 of the Trade Practices Act. It was pleaded that the totality of the conduct of BP surrounding the offer of franchise agreement at a rental of $2,150 offended against the section. It was also said that representations made by BP as to the facts preceding and succeeding the offer were made when BP did not believe what was stated or was recklessly indifferent to its accuracy. In answer to this claim it is sufficient to say that I have found that BP undertook to make an offer of a franchise in consideration of the company paying the Whytes $45,000 for goodwill, that such an offer was made and that it was rejected. I am quite unable to find that BP was guilty of any misleading or deceptive conduct towards the company or the Jarretts. ' This claim fails. A claim was also pleaded based on s.59(2) of the Trade Practices Act but this claim was effectively abandoned by counsel for the applicant and I say no more about it. we pe - meyers st For all of these reasons the applicant's claim must be dismissed and there will be judgment for the respondent with costs. Counsel for the applicant Solicitors for the applicant Counsel for the respondent Solicitors for the respondent Date(s) of hearing oe I certify that this and the 11 preceding pages are a true copy of the Reasons for Judgment of Mr Justice Forster. nsscctate WL. Ando. Dated: 1q 4m , 1&4 Mr R.W.R. Parker, Q.C. with Mr L. Palombi Grope Hamilton & Co. Mr H. Williams, Q.C. with Miss M, Mitchell Baker McEwin 23 & 24 April, 28 May 1987 we ee ee re ee eee ote eee way we la 4 z LT ey -s ames ee Fone Ts ~