Caltex Oil (Australia) Pty Ltd v Best

High Court of Australia|1990-07-01|Before: McHugh JJ, Toohey J

High Court of Australia Mason C.J. Dawson, Toohey, Gaudron and McHugh JJ. Caltex Oil (Australia) Pty Ltd v Best [1990] HCA 53

The facts and the relevant statutory provisions are set out in the reasons for judgment prepared by Toohey J.

However, it will enable the reader to understand more readily what we have to say if we set out ss. 7(1) and (2) and 16(1) of the Petroleum Retail Marketing Franchise Act 1980 Cth ("the Act") and cll. 17.4 and 49.1 of the dealer agreement between the appellant ("Caltex") and the respondents. Section 7(1) and (2) provides:

(1) This Act applies notwithstanding any agreement to the contrary and, in particular, but without limiting the generality of the foregoing, a provision in any agreement is void to the extent that it purports to exclude, limit or modify, or is otherwise inconsistent with, the operation of a provision of this Act or any right or remedy based on or arising out of a provision of this Act.

(2) Nothing in this Act shall be taken to affect the operation of an agreement to the extent that the agreement is capable of operating consistently with this Act.

Section 16(1) provides: A franchisor may terminate the franchise agreement in accordance with the succeeding provisions of this section, but not otherwise. Clause 17.4 of the dealer agreement is in these terms: Notwithstanding anything herein contained to the contrary, in the event that the Dealer commits a breach of the provisions of paragraphs (i), (ii), (iii), (iv), (viii), (xv) or (xvii) of Clause 20 hereof, or paragraphs (ii), (iii), (v), (vii) or (viii) of Clause 22 hereof, or otherwise conducts the Business or other operations carried on at the Premises in a manner which, in the reasonable opinion of Caltex, is prejudicial or harmful to or detracts from the commercial reputation or goodwill associated with Caltex or caltex Identifications, then without affecting any other right or remedy of Caltex in respect of such breach or conduct, Caltex shall have the right, exercisable by giving to the Dealer not less than forty-eight (48) hours notice, to revoke the licence and authority granted by paragraphs (i) and (ii) of Clause 17.1 hereof, or either of them, as shall be specified in such notice, and upon revocation of the licence and authority granted by paragraph (i) of Clause 17.1 hereof Caltex and its servants, agents and contractors shall have the right to enter the Premises and remove and obliterate caltex Identifications and upon such removal or obliteration:

(i) the Dealer shall not use, simulate or copy in any way caltex Identifications or otherwise represent that any service station business carried on or petroleum products sold at the Premises has any connection or association with Caltex;

(ii) the Dealer shall have no obligation to pay to Caltex the periodical franchise fees which would thereafter otherwise become due and payable pursuant to the terms hereof; and

(iii) the provisions of this Agreement, whether express or implied under or by virtue of which Caltex authorises, permits or requires the Dealer to use caltex Identifications or any other mark identifying or associated with Caltex in connection with the retail sale of motor fuel and other petroleum products by the Dealer at the Premises shall have no further force or effect and shall be deemed to have been deleted from this Agreement.

Clause 49.1 is as follows: Caltex may without prejudice to any claim which Caltex may have against the Dealer for any breach of this Agreement and without prejudice to any other rights or entitlements it may have hereunder or under statutory or common law, terminate this Agreement by notice in writing upon the occurrence of any of the following events (each of which shall for the purposes herein be deemed to be a breach of the provisions of this Agreement):

(i) The Dealer is unable, by reason of physical or mental incapacity, to control the operation of the Premises.

(ii) The Dealer makes a fraudulent misrepresentation in connection with the operation of the Premises.

(iii) The Dealer performs an act, omits to perform an act, or makes a statement, where the act or omission, or the making of the statement:

(a) constitutes an offence punishable by imprisonment or, in the case of the Dealer being a body corporate, by a fine of $500 or more; and

(b) in the case of the Dealer being a natural person, tends to show that he is dishonest or is otherwise not of good character.

(iv) In connection with the operation of the Premises, the Dealer performs an act, omits to perform an act, or makes a statement (other than an act or omission, or statement referred to in (iii) above), where the act or omission, or the making of the statement, constitutes a serious contravention of a provision of any law.

(v) The Dealer misrepresents the octane rating of, or wilfully adulterates Caltex motor fuels.

(vi) Without the consent of Caltex, the Dealer wilfully passes off motor fuels supplied to the Dealer by a person other than Caltex or a related corporation of Caltex as being motor fuels supplied to the Dealer by Caltex or a related corporation of Caltex.

(vii) The Dealer fails to operate the Premises (otherwise than by reason of an industrial dispute or an interruption, reduction or cessation of the supply of motor fuels or the compliance by the Dealer with an emergency law, or with a direction or order made under such a law):

(b) for a lesser period or lesser periods, where the failure to operate the Premises during that period or those periods is unreasonable, having regard to the interests of Caltex, the normal operation of the Premises and the reason for the failure.

(viii) The Dealer operates the Premises in a manner likely to cause injury to persons or property.

(ix) The whole or a substantial part of the Premises is, or is to be, acquired by, or by a public authority of, the Commonwealth, a State or the Northern Territory under a law relating to the compulsory acquisition of land.

(x) The sale of motor fuel at the Premises is prohibited by or under a law relating to the use of land.

(xi) The whole or a substantial part of the Premises is destroyed, or is damaged to such an extent as to render the operation of the Premises impractical, except where Caltex or a related corporation of Caltex is responsible for the destruction or damage.

(xii) The Dealer becomes bankrupt or insolvent, commits an act of bankruptcy or enters into any arrangement or composition with his creditors or makes an assignment to a Trustee for creditors.

(xiii) The Dealer being a company goes into voluntary or compulsory liquidation or is placed under official management, or a receiver or manager or provisional liquidator of any of its assets is appointed, or the Dealer enters into a scheme or arrangement for the benefit of its creditors.

(xiv) The Dealer dies or where there is more than one person as Dealer, any one of them dies.

(xv) Where the Dealer is or becomes a party to any other agreement with Caltex connected with the operation of the service station business or relating to the Premises, the termination for any reason of that other agreement, or if there is more than one other agreement, the termination of any one of those agreements.

(xvi) [T]he Dealer otherwise commits a breach of a provision of this Agreement.

The respondents contend that cl. 17.4 is void on three grounds, each of which has its foundation in the provisions of s. 7 of the Act. These grounds are: (1) that cl. 17.4 represents an attempt to take the agreement outside the operation of the Act in a manner contrary to the application of the Act as contemplated by its provisions, so that, in accordance with the language of the first part of s. 7(1), the Act "applies notwithstanding any agreement to the contrary"; (2) that cl. 17.4, in attempting to grant a right to Caltex to take the agreement outside the operation of the Act, amounts to a purported exclusion of, or inconsistency with, the rights created in the franchisee by Pt II of the Act, and is therefore avoided by that part of s. 7(1) which provides that "a provision in any agreement is void to the extent that it purports to exclude, limit or modify, or is otherwise inconsistent with, the operation of a provision of this Act or any right or remedy based on or arising out of a provision of this Act"; and (3) that cll. 17.4 and 49.1, taken together, are inconsistent with s. 16 of the Act as they are the "enabling mechanism" whereby the agreement may be terminated otherwise than in accordance with s. 16.

For our part, except in so far as there may perhaps be a distinction between holding a contractual provision to be void and holding it to be inoperative, we are unable to perceive a difference, in the context of this case, between the first and the second grounds on which the respondents rely. To say that the Act applies notwithstanding any agreement to the contrary is merely to say that a provision in the agreement which attempts to exclude, or is inconsistent with, the operation of a provision of the Act, or a right or remedy created by the Act, is void (or inoperative) to that extent: see s. 7(2). Thus, the inclusory words in s. 7(1) are but exemplifications of the preceding general provision and this is how the draftsperson correctly perceived the relationship between the two parts of s. 7(1).

In essence, s. 7(1) prohibits contracting out of the statute: see the discussion in Bennion, Statutory Interpretation (1984), pp. 30-32. The most obvious and direct form of contracting out of a statute is the case in which a party covenants under seal or agrees for valuable consideration not to make a claim for a benefit for which the statute provides: see Lieberman v. Morris [1] (where a covenant not to make a claim under the Testator's Family Maintenance and Guardianship of Infants Act 1916 N.S.W. was held to be void or inoperative). But contracting out of a statute is not limited to cases in which a party simply foregoes or waives a benefit directly conferred upon the party by the statute. Contracting out may take many forms. They will vary with the nature, subject-matter and object or purpose of the statute, as well as the means selected with a view to escaping from its provisions or its operation.

An express statutory prohibition against contracting out renders void or inoperative contractual provisions which are inconsistent with the statute. Inconsistency between contract and statute is not confined to literal conflicts or collisions between the contractual provisions and the statutory provisions. Inconsistency in this context arises whenever there is a conflict between a contractual provision or the operation of such a provision and the purpose or policy of the statute. So, if the operation of a contractual provision defeats or circumvents the statutory purpose or policy, then the provision is inconsistent in the relevant sense and falls within the injunction against contracting out.

The principle that it is not permissible to do indirectly what is prohibited directly, which is expressed in the maxim quando aliquid prohibetur, prohibetur et omne per quod devenitur ad illud, is a more traditional general statement of the same proposition. It has been acknowledged that, in conformity with this principle, the adoption of a circuitous device with a view to avoiding the need to comply with a constitutional requirement will be of no avail: Bank of N.S.W. v. The Commonwealth [2] ; Grannall v. Marrickville Margarine Pty. Ltd. [3] ; Wragg v. New South Wales [4] ; Attorney-General (Cth) v. Schmidt [5] .

(1948) 76 C.L.R. 1, at pp. 349-350. 2. (1955) 93 C.L.R. 55, at p. 78. 3. (1953) 88 C.L.R. 353, at pp. 387-388. 4. (1961) 105 C.L.R. 361, at p. 371.

The critical question then is whether the Act, on its true construction, manifests a purpose or policy which is at odds with the right which cl. 17.4 purports to confer on Caltex. As Toohey J. has noted, Fox J. stated that "the broad intention of the principal provisions of [the] Act is to give greater security of tenure to companies and individuals marketing motor fuel by retail": J. & M. O'Brien Enterprises Pty. Ltd. v. Shell Co. of Australia Ltd. [6] . The Act seeks to achieve this object chiefly by regulating the duration of a specified category of franchise agreements, the renewal and termination of such agreements and the assignment of rights and interests under such agreements.

(1982) 70 F.L.R. 33, at p. 34; 45 A.L.R. 81, at p. 82.

The regime of regulation for which the Act provides is expressed to relate to "a franchise agreement in relation to which this Act applies": s. 8A. A franchise agreement to which the Act applies is, for present purposes, one which contains provisions of the kinds referred to in pars (a) and (b) and of the kind referred to in par. (c)(i) or (ii) of the definition of franchise agreement in s. 3(1): s. 6(1)(a).

The provisions identified in pars (a), (b) and (c) of that definition may be summarized in this way: (a) provisions under or by virtue of which the franchisor corporation authorizes, permits or requires the franchisee to use, in connexion with the retail sale of motor fuel by the franchisee at the premises to which the agreement relates, a mark identifying, commonly associated with, or controlled by, the franchisor or a related corporation; (b) provisions under or by virtue of which the franchisor corporation grants a right to, or otherwise authorizes or permits the franchisee to, possess, occupy or use the premises to which the agreement relates in connexion with the retail sale of motor fuel by the franchisee at those premises; (c) provisions under or by virtue of which: (i) the franchisor corporation is accustomed, entitled or required to supply motor fuel to the franchisee for retail sale by that person at the premises to which the agreement relates; or (ii) the franchisee agrees with the franchisor corporation to acquire motor fuel from another person (whether a party to the agreement or not) for retail sale by the franchisee at the premises to which the agreement relates.

As the agreement between Caltex and the respondents contained provisions of the kind referred to in pars (a), (b) and (c), it was a franchise agreement to which the Act applied (s. 6(1)(a)) and was, accordingly, subject to the regime of regulation for which Pt II of the Act provides. By s. 16(1), a franchisor is empowered to "terminate the franchise agreement in accordance with the succeeding provisions of this section, but not otherwise". Section 16(2) goes on to provide that a franchisor shall not terminate the franchise agreement except on one or more of twelve grounds stated in the sub-section. One such ground is: "(j) the franchisee otherwise commits a breach of a provision of the franchise agreement." The other grounds, which are comprehensive, cover incapacity of the franchisee, acts amounting to serious misconduct on the part of the franchisee, failure to operate the marketing premises, compulsory acquisition, prohibition on sale of motor fuel at the premises and destruction of or damage to the whole or a substantial part of the premises. The section does not prohibit a franchisor from terminating the franchise agreement with the consent in writing of the franchisee given at any time after the commencement of the agreement: s. 16(9). Termination by mutual agreement is not precluded by the Act.

As its terms indicate, s. 16 regulates the termination by the franchisor of a franchise agreement to which the Act applies. The section does not in terms attempt to regulate unilateral action on the part of the franchisor, whether pursuant to an agreement or otherwise, the effect of which would cause the agreement to cease to be one to which the Act applies, though nevertheless it might leave the agreement on foot as an agreement unaffected by the Act. Section 11A, which was introduced in 1984, is the only provision in the Act that is directed to this problem. The section provides that a franchisor shall not grant or transfer any interest in any marketing premises to which the agreement relates, or assign any of its rights under the agreement, to a person other than the franchisee if, as a result, the Act would, by virtue of s. 6(1)(a) or s. 6(1)(b)(ii), cease to apply to the agreement. Such a purported grant, transfer or assignment in contravention of s. 11A(1) is void to the extent that it would have the result referred to in that sub-section: s. 11A(2).

The presence of s. 11A in the Act cannot in our view sustain an argument that in all other respects the Act permits the franchisor to take a step that will have the effect of depriving a franchise agreement falling within s. 6(1) of an essential characteristic which, along with other characteristics, brings the agreement within that section, thereby making it one to which the Act no longer applies. Section 11A was inserted in the Act to prevent a franchisor from taking unilateral action, outside the franchise agreement, which would have that effect. As the section is not directed to action by a franchisor taken under the apparent authority of a provision in the franchise agreement, the presence of s. 11A cannot be used as a platform for deducing a legislative intention that a franchisor is at liberty, if the franchise agreement so permits, to give a notice terminating a provision of the kind referred to in s. 6(1)(a). Nor is it possible to imply the existence of such an intention from s. 16(9), which is concerned only to limit the operation of the prohibition in s. 16(1).

The absence of any statutory provision avoiding a contractual stipulation which enables the franchisor to terminate a provision of the kind referred to in s. 6(1)(a) is of some significance. But we do not consider that, when attention is given to the statutory purpose and the scheme of regulation which the Act adopts to achieve that purpose, the inclusion of such a stipulation in the franchise agreement is permissible. The statutory purpose of giving greater security to franchisees marketing motor fuel by retail would be frustrated and the scheme of regulation would be undone if the Act were to be read as permitting a provision such as cl. 17.4 to be included in a franchise agreement. In the case of a statute, the object of which is to protect the interests of a class of persons who are at a disadvantage in negotiating a contract on fair terms with a class of corporations having superior bargaining power, the courts must reject an interpretation which would allow the statutory purpose to be circumvented. This is particularly so when the attempted circumvention takes the form of the adoption of a provision in the contract which would enable the party possessing superior bargaining power, by its unilateral action, to alter the parties' rights and obligations under the contract in such a way as to deprive the contract of the statutory protection.

Once the Act is understood in this light, cl. 17.4 must be regarded as a provision that purports to enable Caltex to take action which is inconsistent with both the purpose of the Act and the statutory scheme of regulation for which it provides. A provision which authorizes the taking of action inconsistent with the statutory purpose and scheme is itself inconsistent with the Act and therefore void or inoperative. It is a case in which the statutory purpose prevails over an inconsistent provision in the contract.

This conclusion makes it unnecessary for us to deal with the respondents' argument that cl. 17.4 is inconsistent with s. 16 because it empowers Caltex to terminate the franchise agreement otherwise than in accordance with s. 16. And, as we have reached the conclusion that cl. 17.4 is inconsistent with the Act, the respondents' third argument directed to showing inconsistency between cll. 17.4 and 49.1 on the one hand and s. 16 on the other is beside the point. However, with respect to this argument we should point out that s. 7(2) needs to be taken into account. That sub-section would limit the operation of cl. 49.1 to the extent that it is capable of operating consistently with the Act. We would, accordingly, have some difficulty with an argument that proceeds on the footing that cll. 17.4 and 49.1 are to be read together without account being taken of the impact of s. 7(2) on cl. 49.1.

Clause 17.4 of the agreement between the parties purports to enable the appellant to convert that agreement from a franchise agreement to which the Petroleum Retail Marketing Franchise Act 1980 Cth applies to a franchise agreement to which the Act does not apply, thus enabling the agreement to be determined otherwise than in accordance with s. 16 of the Act. That being so, and for the reasons given by Mason C.J., Gaudron and McHugh JJ. and by Toohey J., cl. 17.4 is inconsistent with the Act whether considered generally or confined to s. 16. Accordingly, under s. 7(1) of the Act, which provides that a provision in a franchise agreement to which that Act applies is void to the extent that it is inconsistent with any right or remedy under the Act, cl. 17.4 is void and of no effect. I would dismiss the appeal.

The appellant ("Caltex") and the respondents ("Mr. and Mrs. Best") are parties to a dealer agreement ("the Agreement") which Brooking J., in the Supreme Court of Victoria, rightly described as a "formidable instrument". By a writ issued on 11 July 1988, Mr. and Mrs. Best alleged, inter alia, that the Agreement infringed provisions of two statutes. This appeal concerns only the implications for the Agreement of the Petroleum Retail Marketing Franchise Act 1980 Cth ("the Act").

It is well accepted, and was not challenged before this Court, that "the broad intention of the principal provisions of this Act is to give greater security of tenure to companies and individuals marketing motor fuel by retail": Fox J. inJ. & M. O'Brien Enterprises Pty. Ltd. v. Shell Co. of Australia Ltd. [7] . See also Chronopoulos v. Caltex Oil (Australia) Pty. Ltd. [8] ; Richards v. Golden Fleece Petroleum Pty. Ltd. [9] ; Mobil Oil Australia Ltd. v. Brindle [10] .

(1982) 70 F.L.R. 33, at p. 34; 45 A.L.R. 81, at p. 82. 2. (1982) 70 F.L.R. 8, at p. 11; 45 A.L.R. 481, at p. 484. 3. (1983) 49 A.L.R. 337, at p. 338. 4. (1985) 9 F.C.R. 17, at p. 24.

To this end the Act regulates certain franchise agreements in relation to their duration, their renewal and termination, the assignment of rights and interests thereunder, and other aspects of the relationship between franchisor and franchisee. Consistent with its object, the Act provides in s. 7:

(2) Nothing in this Act shall be taken to affect the operation of an agreement to the extent that the agreement is capable of operating consistently with this Act.

"Agreement" is defined in wide terms which it is unnecessary to set out. It is, however, desirable to set out the definition of "franchise agreement" in full. Following an amendment to the Act, effective from 3 June 1988, franchise agreement means:

an agreement (other than an agreement between bodies corporate that are related to each other) containing -

(a) provisions, whether express or implied, under or by virtue of which a corporation (in this Act referred to as the "franchisor") authorizes, permits or requires a person, being another party to the agreement (in this Act referred to as the "franchisee"), to use, in connection with the retail sale of motor fuel by that person at the premises to which the agreement relates, a mark identifying, commonly associated with, or controlled by, that corporation or a related corporation;

(b) provisions, whether express or implied, under or by virtue of which a corporation (in this Act referred to as the "franchisor") grants a right to, or otherwise authorizes or permits, a person, being another party to the agreement (in this Act referred to as the "franchisee"), to possess, occupy or use the premises to which the agreement relates in connection with the retail sale of motor fuel by that person at those premises; or

(i) a corporation (in this Act referred to as the "franchisor") is accustomed, entitled or required to supply motor fuel to a person, being another party to the agreement (in this Act referred to as the "franchisee"), for retail sale by that person at the premises to which the agreement relates; or

(ii) a person (in this Act referred to as the "franchisee") agrees with a corporation (in this Act referred to as the "franchisor") to acquire motor fuel from another person (whether a party to the agreement or not) for retail sale by the first-mentioned person at the premises to which the agreement relates.

Although the Act defines "franchise agreement" in disjunctive terms, s. 6(1)(a) provides that the Act does not apply in relation to a franchise agreement unless the agreement "contains provisions of the kinds referred to in paragraphs (a) and (b), and of the kind referred to in sub-paragraph (c)(i) or (ii), of the definition of "franchise agreement" ". Out of what would appear to be undue caution, s. 8A provides that in Pt II - Franchise Agreements, the part of the Act which regulates the relationship of franchisor and franchisee, "franchise agreement" means, unless the contrary intention appears, a franchise agreement in relation to which the Act applies. Thus an agreement may answer the definition of franchise agreement in the Act but not be a franchise agreement to which the Act applies.

The Agreement, the subject of this appeal, contains provisions relating to the use by Mr. and Mrs. Best of the Caltex identification marks, provisions relating to the lease of certain Caltex premises in connexion with the retail sale of motor fuel by Mr. and Mrs. Best, and provisions relating to the supply by Caltex and the acquisition by Mr. and Mrs. Best of motor fuel. Hence the Agreement contains provisions answering each of the descriptions in pars. (a), (b) and (c) of the definition of franchise agreement in s. 3(1) of the Act. It is therefore, by s. 6(1)(a), a franchise agreement to which the Act applies.

As the case had been refined by the time it reached this Court, the question was whether cl. 17.4 of the Agreement "is void to the extent that it purports to have effect while the agreement is a franchise agreement in relation to which the Petroleum Retail Marketing Franchise Act 1980 applies". The words quoted are from the judgment of Jenkinson J. and constitute the declaratory order made by the Full Court of the Federal Court. The order itself leaves rather in the air the basis on which and the extent to which cl. 17.4 is struck down by the Act. This will emerge more clearly as these reasons develop. Since cl. 17.4 is crucial to the argument, I set it out in full:

Notwithstanding anything herein contained to the contrary, in the event that the Dealer commits a breach of the provisions of paragraphs (i), (ii), (iii), (iv), (viii), (xv) or (xvii) of Clause 20 hereof, or paragraphs (ii), (iii), (v), (vii) or (viii) of Clause 22 hereof, or otherwise conducts the Business or other operations carried on at the Premises in a manner which, in the reasonable opinion of Caltex, is prejudicial or harmful to or detracts from the commercial reputation or goodwill associated with Caltex or Caltex Identifications, then without affecting any other right or remedy of Caltex in respect of such breach or conduct, Caltex shall have the right, exercisable by giving to the Dealer not less than forty-eight (48) hours notice, to revoke the licence and authority granted by paragraphs (i) and (ii) of Clause 17.1 hereof, or either of them, as shall be specified in such notice, and upon revocation of the licence and authority granted by paragraph (i) of Clause 17.1 hereof Caltex and its servants, agents and contractors shall have the right to enter the Premises and remove and obliterate Caltex Identifications and upon such removal or obliteration:

(i) the Dealer shall not use, simulate or copy in any way Caltex Identifications or otherwise represent that any service station business carried on or petroleum products sold at the Premises has any connection or association with Caltex;

(ii) the Dealer shall have no obligation to pay to Caltex the periodical franchise fees which would thereafter otherwise become due and payable pursuant to the terms hereof; and

(iii) the provisions of this Agreement, whether express or implied under or by virtue of which Caltex authorises, permits or requires the Dealer to use Caltex Identifications or any other mark identifying or associated with Caltex in connection with the retail sale of motor fuel and other petroleum products by the Dealer at the Premises shall have no further force or effect and shall be deemed to have been deleted from this Agreement.

It can be seen that cl. 17.4 purports to operate by way of revocation of "the licence and authority" granted by cl. 17.1. By cl. 17.1, Caltex grants Mr. and Mrs. Best licence and authority to operate a service station business from the premises in question and to use a service station business records system developed by Caltex. Before Brooking J., counsel on both sides accepted that, if cl. 17.4 could operate according to its tenor, the consequence would be that the Agreement would remain a franchise agreement within the meaning of the Act but it would not be a franchise agreement to which the Act applied, as it would not contain provisions of the sort referred to in par. (a) of the definition of franchise agreement. Brooking J. expressed no opinion as to whether that result would follow. That common approach was maintained before the Full Court of the Federal Court and before this Court. It is unnecessary therefore to express any view on the matter.

One other clause of the Agreement should be mentioned, namely, cl. 49.1. This clause empowers Caltex to "terminate" the Agreement in any of the circumstances there mentioned, each of which is said to "be deemed to be a breach of the provisions of this Agreement".

Clause 49.1 follows fairly closely the language of s. 16(1) of the Act, though there are differences. Section 16(1) empowers a franchisor to a franchise agreement to which the Act applies to terminate the franchise agreement in accordance with the succeeding provisions of the section, "but not otherwise". Section 16(4) permits a franchisee, served with a notice of termination pursuant to s. 16(3), to apply to a court for an order declaring the notice "to have had, or to have, no effect". Section 16(6) precludes a court from declaring such a notice to have terminated, or to terminate, the franchise agreement unless -

(a) a ground specified in the notice is established by the franchisor to the satisfaction of the court; and

(b) the court is satisfied that the termination of the agreement is just and equitable, having regard to all the circumstances.

Thus the Act grants a large measure of protection to a franchisee who is alleged to have breached or who the Court finds has breached a franchise agreement. See, by way of illustration, Richards v. Golden Fleece Petroleum Pty. Ltd. [11] . If Caltex's argument is correct, a notice of revocation under cl. 17.4 of the Agreement would have the consequence that none of the provisions of Pt II of the Act would be applicable, hence that termination of the Agreement could be effected in reliance upon the Agreement itself. 1. (1983) 49 A.L.R. 337.

Caltex contends that nothing in the Agreement is inconsistent with the operation of a provision of the Act, as it is only when a clause of an agreement is operating that the question of inconsistency arises. It would follow that cl. 17.4 presents no problem unless and until it is invoked. Further, it is said, the provisions of Pt II of the Act can only operate on a franchise agreement to which the Act applies and, if Caltex were to exercise its powers under cl. 17.4, there would no longer be a franchise agreement to which the Act applies. It must be said that the proceedings came before Brooking J. on a somewhat hypothetical basis. Caltex had not invoked cl. 17.4; it was declaratory relief only that was sought by Mr. and Mrs. Best from his Honour. As expanded, Caltex's argument is that, once cl. 17.4 has been invoked, the identification marks provisions of the Agreement are "deleted" from the Agreement. In consequence, there remains nothing to which the Act can attach since there is no longer a franchise agreement to which the Act applies. In those circumstances, so the argument runs, there can be no inconsistency between the operation of the Act and any provision in the Agreement.

These arguments may be thought to have a certain attraction but they cannot stand against s. 7 of the Act, properly construed. The clear intent of s. 7(1) is to avoid any provision of an agreement which in its terms purports to exclude, limit or modify or is otherwise inconsistent with the operation of a provision of the Act or any right or remedy based on or arising out of a provision of the Act. It is true that the Act does not in terms prohibit parties from entering into an agreement containing such a provision. However, it does not follow, from the absence of a prohibition on the making of such an agreement, that the Act therefore is confined to striking down clauses when they are invoked or are in operation. What does follow is that s. 7 is concerned with the content of an agreement. Caltex appears to have assumed that, as s. 7 does not seek to prevent the parties from agreeing to include a provision such as cl. 17.4 but strikes only at the provision itself, therefore s. 7 does not strike down a clause of an agreement by which the parties have agreed that at some time in the future one of them may invoke that clause, even though the clause would be inconsistent with the operation of a provision of the Act were it not for its inchoate nature. However, as s. 7 is concerned with the content of an agreement, a clause in an agreement, by which it is agreed that conduct inconsistent with the operation of the Act is permissible, is of necessity itself inconsistent with the operation of the Act. Inconsistency must be tested when an agreement is entered into, assuming that the agreement is a franchise agreement to which the Act applies. If it should happen that a franchise agreement is not one to which the Act applies because it lacks a provision in one of the paragraphs of the definition of franchise agreement but later, by amendment, acquires the necessary provision and so becomes a franchise agreement to which the Act applies, then that is the time for the application of s. 7.

Furthermore, the notion that the parties to an agreement to which the Act applies can, as it were, agree that in certain circumstances a step may be taken so that the Act no longer applies, would be to set s. 7 at nought. The parties to an agreement, faced with a section such as s. 7, cannot agree that the Act shall not apply and that means that they cannot agree that one of them may take steps aimed at ensuring the Act does not apply. The parties to a franchise agreement may of course agree to rescind their arrangement. Section 16(9) expressly contemplates such a situation by providing that s. 16 "does not prohibit a franchisor from terminating the franchise agreement with the consent in writing of the franchisee given at any time after the commencement of the agreement" (emphasis added).

In the absence of statutory proscription, subsequent events could result in an agreement losing one or more of the necessary characteristics of a franchise agreement to which the Act applies. Section 11A contemplates such a situation. It renders void any grant, transfer or assignment by a franchisor of any interest in "any marketing premises" (an expression which s. 3 defines as premises to which a franchise agreement relates) to a person other than the franchisee if, as a result, the Act would, by virtue of s. 6(1)(a) or s. 6(1)(b)(ii), no longer apply to the agreement. Without such a provision, a franchisor might dispose of part of the interest under a franchise agreement so that the relationship between franchisor and franchisee no longer constituted a franchise agreement to which the Act applied. In the Federal Court Jenkinson J. drew attention to the problems associated with a franchise agreement which, by virtue of s. 6(1)(b) of the Act, is a franchise agreement to which the Act applies, where the franchisors are related corporations. Section 4 defines what is meant by "related to each other". His Honour adverted to the possibility that control of the composition of the board of directors or of votes at a general meeting, or the shareholding, of a body corporate which is a party to an agreement might change so that "corporations related to each other when a franchise agreement was made may thereafter cease to be related".

But, while a franchise agreement to which the Act applies is on foot, any of its provisions which is inconsistent with the operation of a provision of the Act is void to that extent. Clause 17.4 is inconsistent with the Act to the extent that it permits Caltex to terminate the Agreement, other than in accordance with s. 16.

It was argued on behalf of Caltex that a notice of revocation pursuant to cl. 17.4 would not result in a termination of the Agreement. I do not accept that argument, for two reasons. First, a notice of revocation, if effective, would change the character of the Agreement. It would change that character substantially by removing the right of Mr. and Mrs. Best to use Caltex's identification marks. It is true that this right carries an obligation, namely, to pay Caltex for the use of the marks. The franchisees would not necessarily be worse off by reason of the revocation of licence for they would still be entitled (and bound) to receive petrol from Caltex and would still be able to sell it without identifying it as a Caltex product. But that is not the point. The consequence of a revocation of licence is that the rights and obligations between the parties are no longer the rights and obligations that made up the franchise agreement. Secondly, a notice of revocation of licence amounts to the cancellation of an essential component of a "franchise agreement to which the Act applies", thus rendering it simply a general franchise agreement as defined in s. 3. In effect, the franchise agreement to which the Act applies would have been brought to an end, as would the protection afforded by Pt II to the franchisee, in contravention of s. 16 which prohibits termination by a franchisor of a franchise agreement to which the Act applies other than in accordance with s. 16 itself. Such a termination of a franchise agreement to which the Act applies cannot be accepted as being authorized by the Act simply because s. 11A contemplates that it is possible to terminate a franchise agreement to which the Act applies other than through repudiation of obligations. Even though the words of the Agreement remain the same, the substance of the Agreement has been altered.

The franchise agreement into which Caltex and Mr. and Mrs. Best entered was a franchise agreement to which the Act applied. Clause 17.4 is inconsistent with the operation of the Act because it purports to authorize the franchisor to act in a manner contrary to a provision of the Act, namely, s. 16.

At a glance

Court

Decision date

Before

Source

Judgment (79 paragraphs)

Parties

Cited By (2)