Jax Franchising Systems Pty Limited v State Rail Authority [2003] NSWLEC 397 | Case summary

No. 30757 of 2002 JAX TYRES PTY LIMITED ACN 000 955 840 Applicant v STATE RAIL AUTHORITY (NEW SOUTH WALES) Respondent EXTEMPORE JUDGMENT HIS HONOUR: 1 These two cases were heard together. The applicants in each case claim compensation for the compulsory acquisition, by the State Rail Authority, of land known as No. 1001 Pacific Highway Roseville for the Parramatta rail link. Neither applicant was the owner of the land. 2 The applicant, Jax Tyres Pty Limited, which I shall call Jax Tyres, was a lessee of the land but had subleased it to a company called Noterush Pty Limited on substantially the same terms as its head lease; that is, the rent Jax Tyres received from Noterush Pty Limited was the same as the rent payable by Jax Tyres to the owner. 3 The applicant, Jax Franchising Systems Pty Limited, which I shall call Jax Franchising, previously known as Rebony Holdings Pty Limited, had a franchising agreement with Noterush Pty Limited under which Noterush was licensed to conduct a tyre retailing franchise known as Jax Tyres Chatswood in return for fees, royalties and the reimbursement of advertising expenses and computer expenses. 4 The questions for determination are whether either or both of the applicants had a compensable interest in the land and if so how much. 5 I have come to the view that neither of the applicants had a compensable interest in the land. That is, the compensable interest of both applicants is nil. I have come to this view for the following reasons. 6 Compensation is only payable to a person who is an owner of an interest in land: see s 37 of the Land Acquisition (Just Terms Compensation) Act 1991. An interest in land is defined in that Act as: (a) a legal or equitable estate of interest in the land, or (b) an easement, right, charge, power or privilege over or in connection with the land. 7 In Hornsby Council v Roads and Traffic Authority of New South Wales (1997) 41 NSWLR 151, the Court of Appeal held that some limitation must be placed on the words in para (b) of the definition of interest in land. Mason P, at 152, held that a literal interpretation produces absurdity and the words cannot be construed out of context. Mason P further held that part of that context is the colour which each part of the overlapping definition takes from its associates; and even more critical to that context is the reference to ownership as ownership of an interest 8 Meagher JA (Mason P and Powell JA concurring) said at 155: Whilst the rights which fall within par (b) must be wider than the rights which fall within par (a), I feel that they must be limited to jura in re aliena, proprietary or quasi-proprietary rights less than a fully-fledged estate, that is, easements, charges, profits à prendre, profits à rendre, licences coupled with interests, etc. 9 It follows that the person claiming compensation must be one who is an owner of an interest in land in the sense described; that is, the person claiming compensation must show that any loss suffered arose out of that person's interests in or use of the land. 10 Senior Counsel for the applicants in the present case submits that the interest is not necessarily limited by the examples given by Meagher JA, as appears from the use of the abbreviation "et cetera" in the passage I have quoted. He submits that the words in the definition are wide enough to include those of the present claimants including that of Jax Franchising as franchisor. 11 In my opinion, however, the interest of Jax Franchising under the franchising agreement does not amount to an interest in land in the defined sense. According to Mason P and Meagher JA there has to be an ownership - I emphasise ownership - of a proprietary or quasi-proprietary right. The examples given by Meagher JA are all examples of such rights. The abbreviation "et cetera" in the passage of the judgment of Meagher JA must be confined to rights which can be described as proprietary or quasi-proprietary rights. The interest of Jax Franchising does not amount to a proprietary or quasi-proprietary right. It is, at best, future property or an expectancy: see generally the discussion in Meagher, Heydon and Leeming, Equity: Doctrines and Remedies, 4th ed., (2002) at pp 242-246. 12 Moreover, both the rights described in the definition itself and the examples given by Meagher JA of proprietary or quasi-proprietary rights are either corporeal or incorporeal hereditaments. The interest of Jax Franchising does not amount to either: see for example Clos Farming Estates Pty Limited v Easton [2002] NSWCA 389 at [68] where it is suggested that in order to amount to an interest in land, the interest must be either a corporeal or incorporeal hereditament. 13 In this respect I accept what was put by Senior Counsel for the respondent, that is any benefit that Jax Franchising might have received under the franchising agreement was not an incident of any use of the land by Jax Franchising. Jax Franchising did not use the land. It had no legal or equitable estate or interest in the land. It had no right to occupy and did not occupy the land, it had no proprietary interest in the business of Noterush Pty Limited. It is not a joint venturer, partner, agent, employee or fiduciary of Noterush Pty Limited. In this respect clause 10.16 of the franchise agreement states: The relationship between the franchisor and the franchisee is strictly that of franchisor and franchisee. This agreement does not constitute either party a joint venturer, partner, agent, employee or fiduciary of the other. 14 It follows from what I have said that Jax Franchising had no interest in the land. 15 It is clear that Jax Tyres, as a lessee, had an interest in the land. But it was not a compensable interest. It had a lease for five years commencing on 1 July 2001 and expiring on 30 June 2006 with an option to renew for a further period of five years. Jax Tyres had in turn subleased the land to Noterush Pty Limited for five years commencing on 1 July 2001 and expiring on 29 June 2006 with an option to renew for a further period of five years. The rent and outgoings payable under the sublease were the same as set out in the head lease so that there was no element of any profit rent. 16 The sublease had a clause stating that the sublease was conditional upon and interdependent with a franchise agreement made between Jax Franchising, formerly named Rebony Holdings Pty Limited, as franchisor and the sublessee, Noterush Pty Limited, as franchisee: see cl 4(a) of the franchise agreement. That clause goes on to say that in the event the franchise agreement is terminated the estate of the sublessee will concurrently determine. There is no other agreement or contractual arrangement between Jax Tyres and Noterush Pty Limited. 17 The benefit to Jax Tyres was that it received income from the sale of tyres to Noterush together with rebates on such sales allowed by manufacturers. That benefit, however, did not attach to the sublease. It was not an incident of any use of the land by Jax Tyres, being the person claiming a compensable interest. Moreover, there was no obligation under the franchise agreement upon Noterush Pty Limited to buy tyres from Jax Tyres. Clause 9.6 of the franchise agreement states: The franchisor shall not limit the suppliers from which such items may be purchased. 18 Apart from being unenforceable, the benefit to Jax Tyres did not attach to the sublease and was not an incident of the use of the land by Jax Tyres. It follows that any benefit to Jax Tyres was not an interest over or in connection with the land, as required by the statutory definition of "interest" in land. 19 I should refer briefly to the fact that there was a registered charge given by Noterush Pty Limited over all of its assets including its interest under the sublease, in favour of both Jax Tyres and Jax Franchising. This would clearly amount to an interest in land but that interest has no value, as was conceded by Senior Counsel for the applicants. The charge operated to secure moneys owing by Noterush Pty Limited to Jax Tyres and Jax Franchising. As I understand it, either Jax Tyres or Jax Franchising had advanced money to Noterush Pty Limited to enable it to establish its business of tyre retailing on the land. 20 At the time of the compulsory acquisition all such money advanced to Noterush Pty Limited had been paid. No money owed under the charge. The applicants' interest under the charge therefore had no value. At its highest, the applicants' interest under the charge was either a future property or a mere expectancy as explained in Meagher, Heydon and Leeming at pp 242-246, previously noted. 21 It follows that the formal orders will be: in proceedings No. 30756 of 2002, the Court determines the amount of compensation payable as nil; in proceedings No. 30757 of 2002, the Court determines the amount of compensation payable as nil. The exhibits may be returned. 22 PRESTON SC: We ask for costs. Can I tender two documents being by way of Calderbank letters from my instructing solicitors to the solicitors for Jax Franchising and Jax Tyres? They are both dated 14 January 2003. 23 PRODROMOU: Your Honour could I ask the question of costs be reserved so that we can consider our position on it? We weren't expecting judgment to be delivered today and obviously it makes a significant difference. I mean costs in the proceedings will be quite substantial for both parties and I just think it's something we really need to address and prepare on properly. I'm happy to have written submissions on it. 24 HIS HONOUR: I would have thought that even absent the Calderbank letters the normal course would be that the losing party pays the successful party's costs. 25 PRODROMOU: That's exactly what I'd like to make submissions on your Honour. 26 HIS HONOUR: You may be only postponing the inevitable. 27 PRODROMOU: I'm happy to do it in writing your Honour to avoid further court appearances. 28 PRESTON: This is not a case where they came close to, or about, the amount that was offered. There was an amount offered, they appealed against it and they have failed in that respect. So we would think that it's open and shut as far as the ordinary order of costs. In relation to indemnity costs, we would simply be seeking it from 14 January 2003. They may wish to say something in relation to that. 29 HIS HONOUR: You are seeking indemnity costs? 30 PRESTON: We would seek it from 14 January 2003 where there was an offer and that's the purpose of the tender. 31 HIS HONOUR: If you're seeking indemnity costs then I think I should allow the applicants time to make submissions. 32 PRESTON: Could I just ask for instruction because it may well be my client just simply says resolve it today, rather than come back on another occasion? SHORT ADJOURNMENT 33 PRESTON: My instructions are to resolve the matter today and so just seek normal party/party costs. In that respect we would just simply rely upon the result. Can I still tender these two letters, not for the purpose of now seeking indemnity costs but just to show that there was-- 34 HIS HONOUR: Just to reinforce your position. 35 PRESTON: Yes. EXHIBIT #6 TWO LETTERS TENDERED, ADMITTED WITHOUT OBJECTION COUNSEL ADDRESSED ON COSTS 36 HIS HONOUR: The respondent seeks an order for costs on the usual basis. The expression "usual order as to costs" embodies the important principle that, subject to limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. This principle is grounded in reasons of fairness and policy and operates whether the successful party is an applicant or respondent. Costs are not awarded to punish the unsuccessful party. The primary purpose is to indemnify the successful party. As between parties, fairness dictates that the unsuccessful party typically bears the liability for the costs of the unsuccessful litigation. Accordingly, there will be an order in each case that the applicant pay the respondent's costs. I have made an order that the exhibits be returned. I except from that direction Exhibit 6 which will remain with the papers.

Jax Franchising Systems Pty Limited v State Rail Authority

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