EM-ES Petroleum Pty Ltd & Nader, J. v BP Australia Ltd [1988] FCA 459

terms upon which this payable - whether petrol company engaged in

Federal Court of Australia|1988-08-15|Before: Sheppard J

Petroleum marketing - applicants retail sellers of petrol - first applicant lessee of four service stations owned by petrol company

second applicant owner of fifth service station - service stations supplied with petrol by petrol company pursuant to volume allowance agreements - whether applicants franchisees for

purposes of Petroleum Retail Marketing Franchise Act 1980 - in

addition to volume allowance rebate applicants claimed entitlement to additional pricing assistance ~- dispute as to the

terms upon which this payable - whether petrol company engaged in

misleading or deceptive conduct - questions of fact.

Petroleum Retail Marketing Franchise Act 1980, ss. 3, 6, 7

EM-ES PETROLEUM PTY. LIMITED and J. NADER v. BP AUSTRALIA LIMITED

) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG72 of 1987 ) )

The claim for the declaration sought in paragraph 1 of the application be dismissed.

The application be otherwise stood over generally with liberty to any party to restore to the list on three days' notice.

The applicants pay the respondent's costs of the proceedings

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. G72 of 1987 ) )

HIS HONOUR: This application is concerned with the dealings of the parties in which the respondent ("BP") supplied motor spirit to the applicants ("EM-ES" and Mr. Nader). The applicants make three substantial claims. The first is for a declaration that they are franchisees of BP within the meaning of the Petroleum

Retail Marketing Franchise Act 1980 ("the Act"). The second is

for payments said to be due under, or for damages for breach of, an agreement said to have been made between the applicants and BP and known as a temporary pricing assistance agreement. Pinally, there is a claim for damages for breaches of certain provisions

In the course of a directions hearing held on 30 November

1987 I made orders that the following issues be tried first:-

"(a) The question whether there exists a Franchise Agreement between the parties or any of them in respect of each of the sites operated by the Applicants.

(b) The question whether the Respondent is bound by a contractual obligation to afford the Applicants or either of them temporary price assistance in respect of their purchases of petrol at each of the sites operated by them.

(c) Whether the Respondent is in breach of s. 52 of the Trade Practices Act 1974 in respect of representations made to the Applicants or either of

The history of dealings between EM-ES and BP began in 1982 when BP supplied motor spirit to a service station at No. 550 Punchbowl Road, Lakemba which was owned by Mr. Michael Saklaoui who is a director of EM-ES. EM-ES was not then in existence. The supply was made pursuant to an agreement dated 13 June 1982. In circumstances later to be mentioned, Mr. Saklaoui in or about 1983, commenced to operate the service station under the EM-ES name. This was done with BP's approval. Eventually in 1984 EM-ES took leases from BP of a further four service station sites each of which was operated under the EM-ES name. The sites were No. 103-107 King George's Road, Wiley Park, No. 777 Canterbury Road, Belmore (in some of the documents referred to as Lakemba),

No. 155-157 Rookwood Road, Yagoona (sometimes referred to as

Potts Hill) and No. 930-932 Canterbury Road, Lakemba. EM-ES entered into possession of the first two of these sites on 8 February 1984. It took possession of the Yagoona site on 11 September 1984 and of the remaining site on 29 September 1984. In each case a formal lease of the premises was executed by the

Mr. Saklaoui did not keep the Punchbowl Road site of which he was the owner but sold it to the Shell company. Mr. Nader owned premises at No. 324 Punchbowl Road, Belfield. These were converted into a service station which was operated by EM-ES. BP supplied motor spirit to it as well as to the other four service

Punchbowl, Wiley Park, Lakemba, Belmore and Belfield are adjoining suburbs in south-western Sydney. Yagoona isa little to the west of these suburbs on the other side of Bankstown but not very far away from them. The evidence establishes - and it is a well known fact - that for many years there has_ been substantial discounting of petrol prices in this area. Price wars amongst the local service stations are common. Service stations operated by two independent companies, Solo and XL, and by each of the major petrol companies have for many years engaged in aggressive competitive conduct in the area. Obviously this can only occur because the petrol companies themselves are prepared to discount their wholesale prices to service station operators. Mr. Saklaoui, through EM-ES, has at all times been prepared to provide leadership in the discounting battles which

have taken place. It is clear that he is a most aggressive

competitor. Before he obtained leases of the four service stations additional to the one which he owned 1n Punchbowl Road, Lakemba, he was, so his evidence discloses, taken to task by Mr. Jowett of BP because of the low prices he was' charging. Mr. Jowett at that time was the Metropolitan Retail Sales Manager of

Mr. Saklaoui complained to Mr. Jowett at some time in 1983 that BP had either stopped or substantially reduced price support. He told Mr. Jowett, so he said, that he could not sell petrol without such support. Mr. Jowett said to him that BP was getting "backlash" from its dealers and from other oil companies. Mr. Saklaoui protested that he owned the site and should be able to do what he liked with it but Mr. Jowett said, "It doesn't matter - you've still got the BP flag up." Mr. Jowett said he would think about the problem. He then said, "Maybe we'll put up

Mr. Saklaoul is of Lebanese descent. He had a Lebanese flag, the colours of which are green, red and white. The flag contained a tree. Mr. Saklaoui drew a diagram of the flag, but replacing the tree with his initials "MS". He gave the diagram to Mr. Ryan who has since died but was at the time the Territory Manager of BP. Subsequently the BP markings on the Punchbowl Road service station was replaced with the EM-ES brand name and with other markings and colours designed by Mr. Saklaoui for the EM-ES operation. The four leased service stations were similarly marked and have continued to be marked in that way down

to the present time. The Punchbowl Road site ceased to be so

marked when it was sold but Mr. Nader's site at Belfield has borne the EM-ES insignia since Mr. Saklaoui began to operate it

The agreements between the parties in relation to each of the service stations are partly in writing, partly oral and partly implied as the result of the course of dealing between them. There is no issue concerning the written parts of the agreements. The issues arise because of conflicts in the evidence about what was said in relation to a variety of matters and the nature of the course of dealing which took place. In relation to each of the four leased sites there have always been two written agreements. The most recent agreements are agreements entered into in April 1986. The agreements comprise formal leases for each of the premises, each of which is undated but was undoubtedly signed in April 1986, and four volume allowance agreements, each of which bears the date 17 April 1986. In respect of Mr. Nader's premises, there is, of course, no lease, but there is a volume allowance agreement which, like the others, is dated 17 April 1986. The volume allowance agreements are all in similar terms. They are for a period of two years commencing on 1 March 1986. Each has thus expired. Each contains a clause,

(g) To market motor fuel from the said premises under the brand name "EMES" and not to use the BP mark, insignia or colour scheme on or in connection

might suggest an association with BP in connection with the retail sale

By the agreements BP agreed to allow EM-ES rebates in respect of motor spirit, diesoleum and lubricants. For motor spirit the

The leases were each for a term of two years from 1 March 1986. Each of the leases contained a clause, clause 2(xxi), to an effect similar to clause 2(g) of the volume allowance agreements. Each lease also contained a clause, clause 4(1),

"The business conducted by the Lessee at the said premises is the independent business of the Lessee and this lease shall not be construed as reserving to or conferring upon the Lessor any right to direct or control the Lessee or any of the Lessee's employees in the conduct of the Lessee's said business PROVIDED ALWAYS that the Lessee will not in any way indicate or represent that the Lessor

Before coming to deal with the evidence relating to the oral and implied parts of the agreements, it is convenient to refer to the relevant provisions of the Act. It confers a number of protections on what it describes as franchisees. In the broad these protect certain occupiers of service station sites from eviction from the premises which they occupy unless one of the

grounds specified in s. 16 is made out and entitle a franchisee

to a renewal of a franchise agreement unless he is shown to have

(1) This Act does not apply in relation a franchise agreement unless the

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' in sub-section 3(1)"

"Franchise agreement" is defined in subsec. 3(1) as

"'franchise agreement' means an agreement containing-

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;

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 (1n 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

"Franchisor" and "franchisee" are defined in subsec. 3(1) to mean the parties toa franchise agreement being the persons referred to as franchisor or franchisee, as the case may be, in

the various paragraphs of the definition of franchise agreement.

Subsection 3(1) also defines the word "agreement". The

""'agreement' means any agreement, arrangement or understanding- (a) whether formal or informal or partly formal and partly informal; (b) whether written or oral or partly written and partly oral; and (c) whether or not having legal or equitable force and whether or not based on legal or equitable rights"

It remains to mention s.7 of the Act. Subsection 7(1) provides that the Act applies notwithstanding any agreement to the contrary. 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 the Act or any right or remedy based on or arising out of a provision thereof. On the other hand, subsec. 7(2) provides that nothing in the Act shall be taken to affect the operation of an agreement to the extent that the agreement is capable of operating consistently

I can now come to the first of the questions to be determined, the question whether the applicants are franchisees within the meaning of the Act. To be franchisees they must be parties to a franchise agreement. The case brought by Mr. Nader can be simply disposed of. Paragraph (b) of the definition of franchise agreement leads to the conclusion that an agreement will not be a franchise agreement unless it contains provisions under or by virtue of which a corporation, that is, a franchisor (BP in this case), grants a right to, or otherwise authorizes or permits, a person, being another party to the agreement, that is, the franchisee (Mr. Nader in this case), 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

Notwithstanding the use of the word "or" at the conclusion of

para. (b) of the definition and one's first impression that each

of the paragraphs 1s an alternative, s. 6 of the Act makes it clear that the paragraphs, except for sub-paras. (c)(i) and (ii), are to be read cumulatively. The agreement will not be a franchise agreement for the purposes of the Act unless it contains provisions of the kinds referred to in paras. (a), (b) and either sub-para. (c)(i) or (ii). It follows that, although an agreement may fall within para. (a), it will not be a franchise agreement to which the Act applies unless it also falls

On no basis can it be said that Mr. Nader is a party to a franchise agreement in which BP is the franchisor. BP has not granted Mr. Nader any right or permission to occupy the Belfield premises. It would not have been within its province to do so. It has no proprietary interest of any kind in the premises. They belong to Mr. Nader. It is he who permits EM-ES to operate a service station on them pursuant to an agreement the nature of which is not described in the evidence. The fact that he, rather than EM-ES, is a party to a volume allowance agreement with BP may mean that EM~ES conducts the service station on his. behalf. But it does not assist his case that he is a franchisee. All it does is to entitle him or EM-ES for him to certain discounts on motor fuel purchased from BP. That does not bring him within the

provisions-of para. (b) of the definition of franchise agreement

It follows that the application for a declaration that Mr. Nader is a franchisee under the Act must be dismissed. Although

his case fails at the outset, I shall continue to refer to

evidence about the Belfield service station because some of it is

interwoven with evidence concerning the other four sites.

More difficult are the questions which arise in relation to the claim by EM-ES that it is a franchisee of each of the service stations which it leases from BP. Plainly enough 1t occupies the service stations as a result of rights granted to it in the leases made between it and BP. It also occupies or uses the premises in connection with the retail sale of motor fuel. The issues which need to be resolved in relation to EM-ES do not stem from any consideration arising from para. (b) or para. (c) of the definition of franchise agreement. There was no argument of any substance by counsel for BP that the agreements and arrangements between BP and EM-ES did not fall within the Rrovisions both of para. (b) and sub-para. (c)(i) of the definition. The issues rather arise under para. (a) of the definition, particularly the words, "permits or requires a person ... 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" the franchisor. The case propounded by counsel for BP was that none of the agreements could be franchise agreements because no mark identifying, commonly associated with, or controlled by BP was authorized or permitted or required to be used at any of the service stations. The mark which the service stations used in connection with the

sale of motor fuel was the EM-ES mark and no other.

Counsel for EM-ES sought to overcome the problems with which

this submission confronted them in three different ways upon

which they relied both cumulatively and in the alternative. The

There was clear evidence that there are, and have been at all material times, BP marks upon each site placed there with the authority and permission of BP given by it either expressly

The get-up of each of the service stations, which BP had also

expressly or impliedly authorized, suggested to independent

The EM-ES mark is, and at all material times, has been, a mark controlled by BP. It was its idea to use it. It was on the service stations with its authority and the necessary alterations to the premises to accommodate it were paid for

These three matters were the subject of a substantial amount of evidence and it is necessary now to go to that evidence and make findings about it. It is difficult to break the evidence up into compartments so as to refer only to one or other of the three ways in which the case was put. This is because it is more appropriate to refer to the evidence as a whole and to refer to it in chronological order. In many cases there are conversations or other matters which are relevant to each of the ways in which

In order to deal with the matter adequately one has to go

. 13. back to conversations which occurred in the early stages of the parties' relationship in 1982 and 1983. It will be recalled that their relationship began when BP supplied motor fuel to the site which Mr. Saklaou1 owned in Punchbowl Road, Lakemba. I have given some account of conversations which occurred between Mr. Saklaoui and Mr. Jowett of BP about that time. The account is taken substantially from Mr. Saklaoui's evidence but so much of it as I have stated would appear to be common ground between them. Mr. Jowett in his principal affidavit has dealt with matters in Mr. Saklaoui''s principal affidavit with which he disagrees. He has given evidence of additional matters and obviously there are differences of emphasis of various matters which were discussed by them. But, by and large, it would seem to me that the reason for the adoption by My. Saklaoui of the EM-ES mark and for becoming independent of BP arose because' the two agreed that as an independent he could provide discounts of his retail prices which would not bring upon BP the criticisms of other petrol companies and its own dealers which Mr. Jowett was anxious to avoid. On the other hand, I do not think there could be any doubt that Mr. Saklaoui saw advantages in becoming independent and, at least at one stage, envisaged that the EM-ES organization might become a very much larger network than to date has been the case. One of the advantages which Mr. Jowett saw was that Mr. Saklaou1, being of Lebanese extraction, would be likely to attract the loyalty of a great many customers in the area of the service stations because of the large Lebanese

In evidence are a number of internal memoranda written from

time to time by various of BP's executives about the EM-ES operation. I do not refer to them all but I propose to quote from three of them. The first is a memorandum headed "EM-ES" dated 7 November 1984. It was written by Mr. Jowett. One section of it is headed "History". Under that heading the

"Qne private site Punchbowl ex Shell (the Punchbowl Road site owned by Mr. Saklaou2) causing pressure on market, felt we could influence more responsible attitude. Felt we needed to gain expertise in market as well to ultimately avoid long periods of price support.

Signed @ 3.65 with 3.00 price support later to be scaled to 2.0 cpl, and ultimately wiped out altogether - there were many disagreements with Emes of who moved first, etc., and agreement of marker (sic) Sites.

Emes received two new tanks to support taxi trade and he commenced to dispense product ex service station. This practice was stopped.

Emes showed he had ability to influence his Lebanese peers to respond to upward movement of prices and in fact on many occasions reluctantly was the first independent to follow majors.

The extension of Emes began with earnest discussion in the latter part of 1983, when the extent of our proceeds problems was linked with the extended period during 1983 of discounting.

fhe Canterbury area is the cesspit of price cutting and it was viewed that if this area could be stabilised then the arterial roads which fed off the area would support any movements."

The second of the memoranda is dated 25 September 1985 and

"By following the pricing history of the Emes network it becomes evident that its existence has not been successful in maintaining hagh retail prices.

start-up phase of the Emes Network has disturbed the equilibrium of the market resulting in substantial price discounting. Upon establishing a market presence, Emes has continued to price at an advantage over company owned outlets (resulting in substantial volume gains to his operation) and cannot be shown to have successfully influenced high retail prices. {The inability to influence the XL on Canterbury Rd to raise his price 1s perhaps the best example). Most recent pricing information, in fact, has pointed to Emes as having a downward influence on the market.

Emes aggressive pricing behaviour and BP's reluctance to price assist company owned outlets has seen a significant decay in the company owned volume performance."

The third memorandum 1s of significance in relation to the temporary pricing assistance part of the case to which I shall come in due course. It 1s dated 31 December 1985 and is in Mr. Jowett''s writing. The memorandum was prepared to record Mr. Jowett's recollection of an important conversation he had at dinner the previous evening with Mr. Saklaoui. But the record of the conversation is preceded by reference to the background of

the EM-ES operation. Amongst other things Mr. Jowett said:-

""EMES was conceived to compete in a hostile environment where company outlets were being devastated by independent branded outlets XL/Solo. Michael Saklaoui operated an independent outlet to which we were very attracted and gained this business as a below market rate (0.5 cpl to 1.0 cpl) as part of the package with the networking. Success was evident in 1983 where through aggressive pricing and then moving up at appropriate times there was stability. This time was shortlived when Mobil in particular altered

their pricing stance nationally. The additional problem of metropolitan

(a) Do the best to eradicate such practices by Court action

It is fact that oil coys are restricted also in being able to take retail sites end of the market 1n these price sinks & we have seen closed outlets reopen. Consequently the POSS (Privately owned service stations) sector in these Price Sinks are the major driving force as outlets with peer locations rely & will continue to do so, solely on Price. One must wonder how with these factors can the price ultimately reach 4.0 cpl above list price allowing the oil coy to recover full list price & achieve an acceptable level of rent & volume. The Industry could rectify the position but the competition is fierce & it remains a pipe dream that stable pricing in areas with high number of outlets, high percentage of POSS & an insurgence of foreign fuel will occur.

EMES is a tactic to compete with the guerillas & has met the objective in that respect & despite reservations returns a positive leeway. Price the Brand or other tactics will be needed to keep us in the market in Price Sinks over the foreseeable future. I can't see BP Pricing the Brand."

The cost of changing each of the service station sites from a

BP site to an EM-ES site was paid for by BP and the change-overs

were carried out with BP's complete approval. None of the sites lost all the trappings of a BP site. Each has had all along a shop similar in get-up to shops on BP dealer sites. There is no Sign indicating that the shop is a BP shop but in it are sold a variety of goods, mostly motor accessories of various' kinds, which BP is able to make available, directly or indirectly, to its dealers at discounted prices so that they may sell them to their customers more cheaply than they could be purchased at other outlets. The goods sold are not usually BP products,

although they sometimes are. In one shop is hung a certificate

of merit awarded by BP. It includes the words, "BP Super Shop".

There 1s on each site an outlet for BP Zoom which 1s a_ two stroke fuel which comprises a mixture of petrol and oil. This is contained in a drum distinctly marked BP Zoom usually prominently displayed at each of the sites. There is also a pump from which the BP brand of kerosene - Coralite - is sold. It is marked with a BP shield. Another product which is prominently displayed is motor oil. This is usually marked, sometimes prominently and sometimes not, as having emanated from BP. That which is not marked prominently is usually a brand of oil associated in the trade with BP and known as Visco. Sometimes banners advertising the sale of this oil are displayed. The banners not only refer to Visco; they display the BP shield and the words "BP Visco". One of the sites has a prominent BP weather temperature gauge. Each has a Westpac Handyway charging facility arranged by BP with Westpac for a number of its dealer sites as well as for the EM-ES sites. Each of the sites 1s shown in the yellow pages

of the Sydney telephone directory as a BP site. They appear also

Much was made by counsel for the applicants of a comparison between the get-up of the EM-ES stations and that of the usual BP station. It was submitted that they were substantially similar. A photograph of an unidentified BP station appears on the cover of a service station safety handbook issued by BP. There are also in evidence photographs of some other BP service stations. The BP service stations have the BP shield prominently displayed on notice boards outside the service stations. The BP pumps display the BP shield and both on the facia boards of the service station buildings and on the notice boards appear the words "self serve". There is also, in smaller print, an indication that the service station carries the Handyway charging facility. The notice carries the letter "W" printed in red, that being the normal insignia adopted by Westpac. The colours of the service station depicted on the cover of the handbook are shown to be red, green, yellow and white. The facia board comprises four continuous horizontal strips coloured white, green, yellow and white again. The BP shield is green with the letters BP in yellow paint inside it. The self serve sign, although prominent, is in small print. The letters are white against a red background. As the other photographs show, not all BP service stations are got up in precisely the same way. Sometimes the self serve signs are green. Some facia boards are white; others are yellow. Some service stations are decorated with yellow and

green bunting. The BP shields seem always to be green with the

There are a number of photographs in evidence, some tendered by the applicants and some by BP, showing the various EM-ES stations. The appearance of the EM-ES pumps 1s very different from that of the BP pumps. The colours are red and white; the colours green and yellow are not used. The pumps display the letters EM-ES in bold print between two red slashes. The service stations themselves do not prominently show the colour green. In some cases there is a white facia board; in others it is yellow, a point of similarity heavily relied upon. A notice announcing that each station is an EM-ES station is prominent and easily seen by passing motorists. Another point of similarity is the self serve signs which appear to be very similar to, if not identical with, those used on BP stations. Notwithstanding the similarity of some of the facia boards and of the self serve signs, it does not appear to me that there is a_ substantial degree of similarity between the get-up of a BP station and that of the EM-ES stations. The prominence of the EM-ES mark is such as to leave no reasonable observer in doubt that the station is

In reaching that conclusion I have taken into account the matters earlier mentioned relating to BP products on sale at' the EM~ES sites, that is to say, the kerosene, the oil, the BP Zoom and the various products on display in the shops. I am of opinion, bearing in mind the prominent display of the EM-ES mark on the notice boards of the service stations and the petrol pumps, that no person could reasonably think that the petrol

I turn now to a matter which I have so far left out of account and which received a great deal of attention in the evidence. It is Mr. Saklaoui's evidence that on each of the pumps in each of the service stations there was placed a_ small sticker upon which was displayed the BP shield with the letters BP inside it. In the course of his evidence there were tendered photographs of pumps at the various sites which show these stickers affixed to the pumps. The stickers are comparatively small being no more than about five centimetres (two inches) square in each case. The photographs upon which Mr. Saklaoui relies were taken on 18 and 19 May 1987 after the application in this matter had been filed. It is Mr. Saklaoui's evidence that stickers of this kind have been placed on each of the pumps. on each of the sites during the whole of the period that he has occupied the service stations. This evidence is. strongly contested by BP which has submitted that their presence on the pumps on 18 and 19 May 1987 was for the purposes of this litigation. Its case is that the stickers were placed there

dishonestly by Mr. Saklaou1 in order to overcome the problems

with which he was confronted by para. (a) of the definition of

franchise agreement in the Act. The matter 1s of some importance

and it is necessary to go to the detail of the evidence about it.

As mentioned, in the early years of the relationship, the Territory Manager for the area in which the service stations were was Mr. Ryan. Mr. Ryan died in 1985. The negotiations which occurred in 1982 and 1983 were conducted partly by Mr. Jowett and partly by Mr. Ryan. According to Mr. Saklaou1, there was a

substantial interval between his original discussions with Mr.

. 21. Jowett which eventually led to his use of the mark EM-ES, and BP's decision to allow him to go ahead. Some time towards' the end of 1982 he asked Mr. Ryan what the position was and he told Mr. Ryan that he proposed to ring Mr. Jowett to ask him what was happening. Mr. Jowett said, "We're having a bit of a problem with the TWU (the Transport Workers' Union). This is the first time that we've ever been involved in delivering BP fuel to a site marked with a different brand. That is why it's going to

On the day the signs were being installed at the Punchbowl Road premises, Mr. Ryan attended. Mr. Saklaoui asked him whether the drivers, who were members of the union, were "all right". According to him, Mr. Ryan said, "We are ,having a bit of difficulty with the tanker drivers, because if the tanker drivers come out here and see the signs EM-ES they will not drop the fuel." Mr. Saklaou1 asked him what was to be done and, so Mr. Saklaoui said, Mr. Ryan suggested that they put "little stickers on the pumps to cover ourselves." Mr. Saklaoui asked where' the stickers were to come from. The two walked into the showroom. Mr. Ryan pointed to a packaged one litre 011 container. Attached to it was a label which included the BP shield. Mr. Saklaoui peeled a label from the container, cut the shield from it and stuck it to the pump. According to him, Mr. Ryan said, "That is perfect." Mr. Saklaoui thereupon put stickers on the other fuel pumps on the site. It is Mr. Saklaoui's evidence that thereafter BP stickers were always attached to each of the pumps, not only on the Punchbowl Road site, but also on each pump on each of the

leased sites and on Mr. Nader's site at Belfield. He

acknowledged that from time to time stickers lost their adhesion and that there might have been short intervals when, for this reason, there was no sticker on a particular pump. But he said that by and large the stickers were usually attached to each pump on each site throughout the whole period which is involved. There is no issue between the parties that such stickers have been fixed to pumps at the four leased sites and Mr. Nader's site since 18 and 19 May 1987 when the photographs were taken. But BP disputes the presence of them in earlier years and contends that

no stickers were on the pumps prior to the commencement of this

A number of BP representatives were called. None could remember seeing stickers of this kind prior to,1987. Mr. Jowett said that he knew nothing about the matter at any relevant time. Mr. Ryan could not be called. Thus the only evidence of what occurred at the commencement of the relationship in 1982 1s that of Mr. Saklaoui. There is, however, some additional evidence which was called in the EM-ES case which, if accepted, would tend

Mr. McIntyre is a director of a company, Southern Cross Petroleum (NSW) Pty. Limited, which is involved in the distribution of bulk supplies of motor fuel. He has been involved in the service station industry in various capacities for a number of years. He knows Mr. Saklaoui. Mr. McIntyre said that his association with him began when he was the owner of the service station in Punchbowl Road. Mr. McIntyre visited the

service station on a number of occasions, not as a customer, but

for the purpose of business discussions with Mr. Saklaoui who sought his advice in connection with matters related to the

Mr. Mcintyre remembered the installation of the EM-ES signs both on notice boards and on pumps. He said that, apart from these signs, he saw that there were displayed a mumber of BP marks and insignia of BP. He referred to a display of products bearing BP marks, presumably oil and kerosene. He also saw BP stickers on the petrol pumps and on products that were for sale in the shop. He said that, because of the affixing of the BP marks to the pumps, he believed that the motor fuel sold on the premises was fuel supplied by BP. Mr. McIntyre has not visited any of the four leased sites or Mr. Nader's site and gave no evidence of having seen BP marks attached to any of the pumps at

In his oral evidence Mr. McIntyre said that he visited the Punchbowl site in 1983 and on later occasions through to 1985. He said the BP stickers on the pumps were less than five centimetres square. He did not remember noticing every pump, but assumed they were on each pump. In the course of his cross-examination Mr. McIntyre said that he could not say for sure that each pump had the mark on it but said that it was "required under the T.W.U. regulations that every dispensing pump has the insignia on it." Mr. McIntyre said that he had not seen BP marks on pumps of the leased service stations because he had only driven past them. He said that it would be impossible to

see them if one were only driving past. He said that he believed

that if union drivers were continuously delivering a reasonable quantity of fuel into a service station, they may not continue to search for any mark or label showing the origin of the fuel. Mr.

"I could not really say whether it has fallen into disuse or not. I know that it was, from the time 1t started supplying freehold sites or arranging supply for freehold sites the TWU were quite vigorous and that was from round 1980/81 through to probably about 84/85 but our growth in sites when they were making the original insistence stopped around about 84. We were not supplying extra sites at that time because of the lack of competitiveness and the prices we were able to offer. But I can only say that it was a very vigorously followed practice from 1980 through to about 83/84."

Mr. Wijesekera is employed by AMEV Finance Limited. He resides 1n Punchbowl and he purchases petrol at the EM-ES service station in Canterbury Road, Belmore. He has been a customer of the service station for the last two years and purchases petrol there about once each month. In addition to the EM-ES signs he has seen BP signs. One of these was a large banner attached to the canopy of the service station bearing the words "BP Visco". He said that he had also noticed BP signs attached to the pumps. In his oral evidence Mr. Wijesekera said that the petrol pumps had affixed to them on the top lefthand side stickers with the BP

sign on them. He said they were about two inches square.

Mr. Wijesekera said that on one occasion upon which he visited the service station he saw there Mr. Stojanovic who is

the solicitor for the applicants. Mr. Stojanovic was inside the

; 25. service station and spoke to Mr. Wijesekera when he came to pay for his petrol. He asked him when he first remembered seeing stickers on the pumps. Mr. Wijesekera said "... I cannot confirm what actual dates are actually, I can confirm about nine months

ago I started noticing the stickers. But before that it is only

Neither party called any official of the union to give any evidence of the practice which was said to have been the reason why the stickers were attached in the first place. Although I think it would have been helpful to have this evidence, it would have been available to each of the parties and no criticism can be made of either one of them for failure to call it. In those circumstances I am persuaded by Mr. McIntyre's evidence that in 1983 and perhaps 1984 there was a problem of the kind he mentioned which may have led to the necessity in those years of placing some mark on pumps not bearing the petrol company's name showing the origin of the fuel in a service station's tanks. But Mr. McIntyre was only able to speak of the position at the Punchbowl Road site which has long since been sold. He could not speak one way or the other of the position at any of the leased sites although it would be open to one to infer that the existence of the practice would have led to the stickers being used at those sites also. However, Mr. McIntyre substantially qualified his evidence when he said, 1n the passage I have quoted from it, that the union may have become used to the fact that the motor fuel being delivered to the sates was BP fuel and not worried about the matter any further. So Mr. McIntyre's evidence

is really not of great assistance to the EM-ES case. Mr.

. 26. Wijesekera has no real recollection of matters before the middle of last year, that is, at a time after the litigation commenced

as to which there 1s no issue. Thus his evidence does not help

The only other witness called in the applicants' case was a Mrs. Sweep who is an accountant employed by EM-ES. She has been employed by Mr. Saklaoui for 12 or 13 years and has been acting as his accountant for six or seven years. During that time she has been in private practice. She visits the EM-ES office twice a month. My understanding is that the office is not at any of the service station premises so that her opportunities to observe marks and signs at the service stations may not have been great. She was not called to deal with this matter, but for another purpose which need not be mentioned here. Thus she was not asked about any observations she had made of the get-up of the service

There were witnesses whom it is reasonable to think might have been called in the EM~ES case about this matter but who were not. These include Mr. Nader and a Mr. Hannah who is an employee of EM-ES and who is mentioned in the evidence from time to time. In addition to Mr. Nader and Mr. Hannah, there must have been other persons in Mr. Saklaoui's or EM-ES' employ who are familiar with the service stations and the signs and marks on them. The absence of these persons from the witness box strongly suggests

that nothing they could have said would have been of assistance

As I have mentioned, a number of employees of BP gave evidence to the effect that they had not seen the stickers on the pumps until some time last year. They had to concede that, on their visits to the service stations, they were not particularly looking for the stickers and may have failed to observe them. But it seems to me to be significant that no one noticed them. Furthermore, there are in evidence photographs of the sites taken in the course of a survey of all BP outlets. None of the pumps in any of these photographs bears a BP sticker. There is also a video in evidence. It was filmed by one of the television stations for its news program. The pumps are shown at a distance

but it does not appear that there is any sticker on any of them.

Having considered the entirety of the evidence which there is about the stickers on the pumps, I have reached the conclusion that I should reject Mr. Saklaoui''s evidence of their continuous presence on the pumps from 1984 through to the present time. I think Mr. McIntyre's evidence warrants the conclusion that stickers may have been placed on the pumps at Punchbowl Road for industrial reasons in 1983, but I am not persuaded by that evidence that I should draw the inference that they were placed on the pumps at the four leased sites or Mr. Nader's site at Belfield. If there were a period during which the stickers were attached to the pumps at these sites, I am satisfied that it must have been comparatively short. It follows that until some time shortly before May 1987 there were no BP stickers on the pumps. Those that were placed there after the beginning of 1987 were placed there for the purposes of the case and without the

authority of BP. I conclude, therefore, that the stickers play

no part in the consideration of whether the applicants have brought themselves within para. (a) of the definition of

There is one matter which remains to be mentioned. There is some evidence of the need to repair a panel on one of the petrol pumps at one of the sites and of the repairer unwittingly replacing the damaged panel with one which bore the BP shield. Mr. Saklaoui would not admit the repairer when he went back to

replace the panel with one which did not carry the BP letters.

The question is whether the totality of the matters relied upon by counsel for the applicants leads to the conclusion that BP authorized, permitted or required EM-ES to use the BP mark in connection with the retail sale of motor fuel by it at the various premises. The predominant sign used at each service station in connection with the retail sale of motor fuel has at all relevant times been the EM-ES sign. If one leaves out of account the stickers as I have concluded one should, each of these service stations is one which is prominently marked EM-ES and which has petrol pumps upon which the mark EM-ES is prominently displayed. No other mark appears thereon. The question is whether the fact that there were a number of BP products at each service station other than motor fuel makes any difference. The products were principally two stroke fuel, oil of various kinds and kerosene as well as some other products sold in the shops. I do not think that it could be correct to

conclude that the presence on the premises of BP products other

than motor fuel leads to the conclusion that the BP marks on

those products are in some way used in connection with the retail sale of motor fuel. The sites themselves and the pumps from which the motor fuel comes are so prominently marked with the EM-ES name that no one could reasonably conclude otherwise than that the only mark used in connection with the sale of motor fuel

There is then the get-up of the service stations. I have already expressed a view about this. I think the argument on get-up fails at the outset because the EM-ES stations are plainly distinguishable from BP stations partly because the EM-ES signs are so prominent and partly because the colour schemes of the

two, when considered overall, are substantially different.

That leaves the submission that the EM-ES mark was really a BP mark. I have considered the evidence given in relation to this matter. The most important evidence is of the conversations had by Mr. Jowett and Mr. Saklaovi in the early stages of the parties' relationship. There is not a substantial conflict between the two as to what was said. In my opinion it is clear that the upshot of these conversations was that Mr. Saklaoui would become an independent dealer and, in the joint interests of the parties, thus be able to have more freedom to discount prices than he would have had if he had remained a BP dealer. The fact that the idea, as the earlier quoted memoranda tend to show, may have come from Mr. Jowett and may have been something which BP strongly supported is not to the point. The two made an arm's length, business deal. This led to the various agreements which

were entered into over the years culminating in those which were

. 30. signed on 17 April 1986. I bear in mind that s. 7 of the Act provides that the Act applies notwithstanding any agreement to the contrary, but I should also bear in mind that it provides as well that nothing in the Act shall be taken to affect the operation of an agreement to the extent that the agreement is capable of operating consistently with it. On the findings I have made, there is no basis for the conclusion that the five service station sites were in reality masks or disguises for BP sites. I reject the submission made by counsel for the applicants to this effect. The deal was a_ perfectly straightforward business deal between two independent persons. The manner in which the deal was implemented over the years was consistent with the provisions of the agreements. In particular ut was consistent with clause 2(g) of eagh of the volume allowance agreements and clause 2(xxi) of each of the leases which precluded EM-ES from marketing motor fuel under the 8&P mark. That, in my opinion, is precisely how the EM-ES business was conducted. The agreements are not at all in conflict with the parties' subsequent course of dealing or oral arrangements. It follows that the applicants have not established that they are franchisees because they are unable to bring themselves within the provisions of para. (a) of the definition. Mr. Nader, as I have earlier found, had the threshold difficulty of bringing himself within para. (b) as well. It follows that the

declaration sought by the applicants will be refused.

In order to understand the cases of the parties in relation

to this matter it is necessary to state the background of what is

known in the industry as temporary price assistance, or, as Mr.

Saklaoui calls it, "Support". It is to be distinguished from the

volume allowance which was provided for in the volume allowance agreement made in respect of each of the service stations. In the way that BP administered its temporary price assistance scheme prior to 30 December 1985, when EM-ES contends that a different agreement was made, the grant or refusal of assistance was within the discretion of BP. Usually it was not granted to a service station operator who was not a BP dealer but from the inception of the arrangement made between Mr. Saklaoui and BP, temporary price assistance was regularly, although not continuously, made available. The reason for this was the aggressive competition which has always been a feature of the area in which the service stations are situated and to which I have referred earlier. In the words of some of the documents 1t was a "price sink". This is not to say that temporary price assistance was not at times made available to service station operators in other parts of the metropolitan area of Sydney and

When temporary price assistance applied, the volume allowance payable under the volume allowance agreement became subsumed in the temporary price assistance figure. The starting point for an understanding of the scheme is the list or wholesale price of petrol at any given time. As I understand it, BP first of all decides whether it is prepared, during a given period, to make temporary price assistance available at all. If it ais, it informs its territory managers on a daily basis, of the maximum

level of price assistance which they can offer in particular

; 32. areas. A consequence of this is that there results a "bottom" wholesale price. But this is not usually communicated to any of the dealers, although occasionally it is. BP thus reserves to itself the question whether price assistance will be granted at all and, if it is, the maximum amount of it at any given time. Another factor that is sometimes taken into account is the anticipated cost per litre of operating a service station over and above the cost of acquiring the fuel at whatever wholesale price applies. For a service station to break even, that is, neither to make a profit or a loss, there is a recognized figure calculated out at cents per litre which provides a guide to BP and its dealers of what the dealers need to charge by way of retail price in order to break even. A

If, in a particular area, the market is stable at or about prices which enable the dealer to make a profit at the ruling wholesale price, it is unlikely that temporary price assistance will be granted. But in the area in question this was rarely the case. On the evidence the independent stations Solo and XL have continuously applied an aggressive marketing policy by reducing their retail prices well below what the petrol companies (the "majors" as they are referred to in the evidence) have regarded as economic. For a dealer to stay in business the price charged by the independents has to be met or at least closely approached. The way this 1s done is to provide the dealers as necessary with temporary price assistance for as long as it is reasonably needed in order that they may match the independents' prices. Sometimes the companies deliberately go underneath the

independents' prices with a view to forcing them up and sometimes Pp P

they will take away the assistance or substantially reduce it in an attempt to force the market up. The game which is' played involves a large number of tactics, some of which are described in the evidence. The statement I have made of .the scheme is no doubt superficial, but it is sufficient for the purposes of this case. It is to be emphasized that the three important elements of it are the discretion of BP to make temporary pricing assistance available at all, the level of that assistance at any given time, and the existence of a bottom price below which its territory managers are not authorized to provide assistance. There is a qualification to be made to the last element. There may be special circumstances in which a particular territory manager will be authorized to grant assistance at a level below the ruling bottom price but he does not have uthority to grant

it without first referring the matter to his superior.

It is the applicants' case that, so far as they are concerned, all this changed on or about 30 December 1985 when an agreement was made during a discussion between Mr. Saklaoui and Mr. Jowett over dinner at a restaurant in Redfern known as Dimitri's. It is BP's case that no agreement was made that evening but that matters discussed at the meeting became the basis of an agreement which was approved in February 1986. The question whether there was an agreement made at the meeting or a month or so later 1s not important. Both sides agree that an agreement was reached. The difficult question is to determine what the terms of the agreement were. The agreement is entirely oral. Mr. Saklaoui asked that it be put in writing but temporary

price assistance agreements are never written down. For policy

It is the applicants' case that the agreement which they contend was made at the end of December 1985 resulted in a situation 1n which EM-ES was always entitled to price assistance when the market was such that the prevailing retail selling price was below a figure made up of the ruling wholesale price, less the four cents discount payable under the volume allowance agreement, plus a margin of 2.75 cents per litre to allow for operating costs. Thus if the ruling wholesale price were 52 cents per litre and the prevailing retazl price in the area 42 cents per litre EM-ES was to be entitled to purchase motor fuel from BP at 39.5 cents per litre, not 48 cents per litre which would be the case if one had regard only to the volume allowance

It is now appropriate to go to the evidence of the conversation which occurred over dinner at Dimitri's. What was said during that conversation has to be understood against the background that it is common ground between the parties that up to that time the discretionary elements of temporary price assistance to which I have referred had always been present in their dealings. Indeed, BP's insistence on them had been the subject of continual complaint by Mr. Saklaoui. In Codelfa

Construction Pty. Limited v. State Rail Authority of N.S.W.

(1982) 149 C.L.R. 337 Mason J. (as he then was) said (p. 352) that prior negotiations will tend to establish objective background facts which were known to both parties and the subject

matter of the contract. One objective background fact is the

The immediate background to the discussion at Dimitri's was the fact that leases granted EM-ES and Mr. Nader were due to expire at the end of that year. In order to preserve its position BP gave notices terminating the leases and the volume allowance agreements in November 1985. BP didnot do this because of any particular complaint about the way the service stations were being run; it simply wished to be in a position to resume possession of the sites - except, of course, Mr. Nader's

site - in the event that the negotiations were not successful.

Mr. Saklaoui's account of what occurred at Dimitri's is in

para. 22 of his principal affidavit and is as follows:- +

"Sometime in early 1986 (this 1s a mistake) I had dinner with Peter Jowett of the respondent at a Restaurant known as Dimitri's at Redfern. During the course of the dinner, I had a conversation with Peter Jowett in the following words or words to their effect:

I said 'I will accept four cents on the top but we need support at the bottom level because we are not making money. What would it cost a company operated site to run, it is about 2.75 cents per litre isn't it?'

Peter Jowett said 'Yes that is right' He then said:

"No we will give you a four cents per litre rebate off the top and we will give you a reducible level of price assistance according to how far the price goes down and it will start at three cents per litre to a maximum of 1.8 cents per litre at the bottom level. It doesn't matter about what the bottom level is you will be guaranteed 1.8 cents per litre once you hit bottom level.'

I said 'Instead of going through changes of price all the time and causing so much paper work we don't want the three cents we don't want below 2.5. It will be to your advantage and my advantage to cut down the paper work why don't you give us 2.5 all the time when support 1s needed.'

Peter Jowett said ''O.K. that should be all right.'"

Mr. Saklaoui said that the agreement made at the meeting was not reduced to writing. He said that he did not expect that it would be because Mr. Jowett had told him that BP would not put that part of their agreement in writing. It was to be a "verbal

Mr. Jowett's account of the conversation is to be found in para. 45 of his principal affidavit. Before the meeting at Dimitri's, there had been earlier discussions in which one suggestion made had been that the BP owned sites revert to BP

He said: 'Warren Wells (a solicitor) has told me not to accept your current offer to revert to BP branding specifically because of the goodwill you are asking for. I should pay nothing for the goodwill.'

He also said: 'the proposed rental at Lakemba is too

I said: 'come on - are these the only two problems you have got.'

'I do not want BP branding as I have invested a lot of money, expertise and effort in achieving my current market position. When I read the letter of

termination 1t hardened my attitude. The legal advice I have been given supports my view in not accepting your offer. I will remain under the EM-ES brand for two years and accept the reduced rebate figure for an aimproved rebate at the bottom.' I understood that Saklaoui, in referring to 'improved rebate at the bottom' was referring to the margin he received (at that time 2 cents per litre) at bottom of the TPA scale when BP was offering EM-ES Temporary Price Assistance. He also said: 'I need two years as a minimum term to allow me to keep the workshop viable.' I said: 'we can offer a number of options - 4 cents per litre with 2.5 cents per litre as a bottom margin when price support is offered. Alternatively 3.5 cents per litre as a volume allowance with 3.0 cents per litre as the bottom margin when price support is offered. The Belfield Site could remain at a volume allowance rebate of 4 cents per litre.' We then discussed the manner in which the relationship in which BP and EM~ES would be conducted in the event that the sites were reverted to BP signalisation. I said: 'as a POSS (Privately Owned Service Station) site we will sell you fuel at, say, 4 cents per litre below list price. What you do with the margin is up to you. If you are a BP branded site we will sell fuel at the list price unless price support is being offered.' The discussion then reverted to the terms of a new Volume Allowance agreement between BP and EM-ES. After some discussion Saklaoui said: 'I would prefer to take your first offer of 4.0 cents per litre volume allowance with 2.5 cents per litre as a minimum margin of support.' I said: "OK - we should delay the proposed change over from 1 February to 1 March so that I can discuss this with Ken Bangs when we get back from leave at the end of January.' He said: 'O.K." Later in the course of our conversation he said: 'I want the price support scheme to be put into writing.' I said:

'Look you know we can't do that we do not put the price support scheme in writing as 1t is purely at our discretion as to whether it is granted or not - you know that.' He said: 'that 1s not very good it leaves me with no protection.' I said: 'We can't do any more, that's the way it is.' I say that in the course of a number of our previous conversations I had discussed the nature of Temporary Price Assitance with Saklaoui. On each of those occasions I. said to Saklaoui words to the effect: 'Price support is given at the complete discretion of BP. There will be occasions when we can simply not offer to go any lower or when we have got supply problems. Sometimes it simply will not be available.' With respect to paragraph 22 of Saklaoui's affidavit I deny that I said the words: 'It doesn't matter about what the bottom level is you will be guaranteed 1.8 cents per litre once you hit bottom leyel' attributed to me in the sixth sub-paragraph. I also deny that the words in the seventh and eighth sub-paragraph were said by Saklaoui and myself."

Mr. Jowett's superior was Mr. Bangs who was the State Marketing Manager for New South Wales. Mr. Jowett said that he obtained Mr. Bangs' approval to the proposal put by Mr. Saklaou.. This led to the new volume allowance agreements being entered into on 17 April 1986. These are the agreements referred to at the outset of this judgment. They provided for rebates of four cents per litre for motor spirit, five cents per litre for diesoleum and 35 cents for lubricants. The agreements were for a period of two years commencing on 1 March 1986 and ending on 29 February 1988. As mentioned, leases were also entered into in

On 31 December 1985 Mr. Jowett made a record of the background of the matter and of the discussions had the previous evening with Mr. Saklaoui. The record 1s in Mr. Jowett's handwriting and is written out on the back of some used computer printout paper. I have earlier referred to some of the contents of it. The note of the conversation refers to the fact that Mr. Saklaoui did not want "BP Branding". He said, "Our original letter of termination was a telling factor in his hard line attitude, and the subsequent legal advice had turned his attitude. One comment was that he would not be required to pay legal fees should the case not be won on his behalf." As I understand the the purport of these statements, it was that Mr. Saklaoui was originally pessimistic about the consequences of the

At a glance

Court

Decision date

Before

Source

Email me a plain-English brief of this case

Judgment (268 paragraphs)