Loren Enterprises Pty Ltd v The Shell Co of Australia Ltd

Federal Court of Australia|2001-06-20|Before: Lehane JJ, Carr J, Nicholson J, Spender J, Nicholson JJ

SPENDER J: 1 I have had the benefit of reading in draft the reasons for judgment of Carr J and of Nicholson J. 2 I agree that leave to appeal should be granted, for the reasons given by Carr J. Mr D.H. Solomon, counsel for the applicant, accepted that the decision appealed from: "has decided the substance of our claim. Without the appeal from his Honour's decision being successful, that part of our claim cannot be pursued. Indeed, we'll have to abandon it, it's finished, it's finally determined …" 3 In my opinion, the appeal should be dismissed with costs, for the reasons given by Nicholson J in particular, since the answer to the first question is crucial, in my respectful opinion. The diesel agency commission is not "a sum of money …allotted to meet expenses or requirements." I agree that payment to a commission agent is remuneration for work as an agent; normally there is a component for profit. I certify that the preceding three (3) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.

ON APPEAL FROM THE SUPREME COURT OF WESTERN AUSTRALIA

factual and procedural background 5 The following summary of the factual background is based mostly on facts which are not matters of dispute. 6 On 20 May 1992 the applicant and the respondent entered into a written agreement styled the "Shell Force Agreement" ("the Force Agreement"). In barest summary, under the terms of the Force Agreement: · the respondent granted the applicant a licence to use and occupy service station premises ("the Premises") known as the "Shell Roadhouse" at South Hedland, owned by the respondent, and to use its trademarks; · the applicant agreed to purchase motor fuel (as defined in the Act) from the respondent for resale at the Premises; and · the respondent also appointed the applicant as its agent to sell diesel from the Premises for a commission (which I shall call "the Diesel Agency Commission"), initially, of $7,488.00 per month. That rate of commission could be varied by the respondent at any time upon 14 days written notice to the applicant. 7 The applicant paid the respondent $50,000 for the grant of the franchise (Clause 43). On 1 May 1994 (just under two years later) the respondent reduced the Diesel Agency Commission from $7,488.00 per month to $2,030.00 per month. It was subsequently adjusted upwards slightly to $2,700 per month on 1 October 1994 and to $2,750 per month on 1 January 1995. Part of the applicant's case is that the volume of diesel fuel sold by the applicant on behalf of the respondent had not decreased during this period so as to justify any reduction in the Diesel Agency Commission. 8 The applicant maintains that the Force Agreement is a "franchise agreement" as defined in the Act. The respondent in its defence concedes that the Force Agreement is a franchise agreement as so defined. 9 The applicant also maintains (so far as is relevant to this application) that the respondent, by reducing the rate of the Diesel Agency Commission, has been unjustly enriched by receiving payments to which, by the application of s 9A(2) of the Act it was not entitled. The applicant claims compensation quantified in the sum of $160,704.00. 10 The proceedings in the Supreme Court were commenced by the filing of a writ and statement of claim on 25 June 1998. The matter proceeded on pleadings which have been the subject of sequential amendments, the last of which appears to be the filing of a re-amended defence filed on 25 March 1999 (probably in consequence of further re-amendments to the statement of claim on 3 February 1999). 11 On 23 November 1999, upon the applicant's application by summons, a Master ordered the trial of preliminary questions pursuant to the provisions of Order 32 rule 4 of the Rules of the Supreme Court. The order for trial of those preliminary questions required the Court to assume certain facts which were (subject to some minor editing by me) as follows: "(a) the respondent entered into an agreement ("Force Agreement") entitled "Shell Force Agreement" with the applicant under which: (i) the respondent granted to the applicant a licence to occupy premises at Shell Roadhouse, North West Coastal Highway, South Hedland, Western Australia ("Premises"); (ii) the respondent granted the applicant a licence to use the "Shell Trade Marks"; (iii) the applicant agreed to purchase motor fuel (meaning any fuel to be used in propelling road vehicles, other than diesel fuel or liquefied gas) from the respondent for the purpose of conducting a business at the Premises; (iv) the respondent also appointed the applicant as agent ("the diesel fuel agent") of the respondent to receive and dispose of automotive diesel fuel; (v) the respondent agreed to pay the applicant a commission with such commission being payable monthly in arrears for the applicant acting as diesel fuel agent; (vi) the applicant and the respondent agreed that such commission may be varied by the respondent at any time upon 14 days' written notice and that such variation may be in amount, method of payment or method of collection or payment; (vii) the applicant agreed to pay to the respondent royalties and fees; (b) on 1 May 1994 and thereafter, the respondent varied the commission payable by it to the applicant for the applicant acting as diesel fuel agent; (c) the amount of commission paid by the respondent to the applicant for its services as diesel fuel agent from 1 May 1994 was less than the amount previously paid by the respondent; (d) the royalties and fees paid by the applicant to the respondent under the Force Agreement did not change as a result of the variation in the commission payable by the respondent to the applicant for the applicant acting as diesel fuel agent." 12 The three questions and the answers to those questions which the applicant seeks to challenge were (again subject to some slight editing by me) as follows: "(a) Whether, for the purposes of section 9A(2) of the Petroleum Retail Marketing Franchise Act 1980 ("PRMF Act"), the amount payable by the respondent by way of commission to the applicant for the provision by the applicant of the service of selling diesel fuel as diesel fuel agent for the respondent can be regarded as a "rebate, waiver, discount, allowance or like arrangement". Answer: No. (b) Whether, for the purposes of section 9A(2) of the PRMF Act, the amount which is "payable" by the applicant [to determine whether it is "less than it would otherwise be"] can be determined by looking at what is payable by the respondent, as opposed to by the applicant alone. Answer: No. (c) . . . (d) Whether, in order to determine whether an increase is unreasonable under section 9A(2) of the PRMF Act, regard may be had to the market value of: (i) interest(s), goods or services provided by the respondent to the applicant under the Force Agreement; (ii) interest(s), goods or services provided by the applicant to the respondent in exchange for the rebate, waiver, discount, allowance or like arrangement given by the respondent (by reason of the reduction of which the increase occurred); or (iii) any other and, if so, what, other interest(s) goods or services? Answer: Consequently while, as I have said, in the light of the answers which I have given to the preceding questions it is not necessary for me to answer this question, it seems to me that if the answer to question (a) was to be "Yes", it would follow that the net increase would have to be tested as against the market value of the interest, goods or services provided by [the respondent] to [the applicant] (other than motor fuel or other stock in trade) less the market value of what is provided by [the applicant] to [the respondent]. 13 I have inferred from the terms of the order for trial of the preliminary questions, that that order was made on the assumption by all concerned that the Act applied to the Force Agreement. 14 The trial of the preliminary questions came before Steytler J on 3 March 2000. It appears from his Honour's reasons that, at the hearing, the respondent submitted that the Act did not apply to that part of the Force Agreement which made provision for the applicant to act as a diesel fuel agent for the respondent. As matters turned out, his Honour did not decide that issue, because he came to the conclusion that even if the Act applied to the whole of the Force Agreement, neither s 9 nor s 9A(2) of the Act applied on the facts which he was required to assume. His Honour gave fairly extensive reasons for that conclusion.

the statutory framework 15 Section 3 of the Act relevantly provides that, unless the contrary intention appears: "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: . . . 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 (c) provisions, whether express or implied, under or by virtue of which: (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; "franchisee" means a party to a franchise agreement, being the person referred to as the franchisee in paragraph (a) or (b) or subparagraph (c) (i) or (ii), as the case may be, of the definition of "franchise agreement"; "franchisor" means a party to a franchise agreement, being the corporation referred to as the franchisor in paragraph (a) or (b) or subparagraph (c)(i) or (ii), as the case may be, of the definition of "franchise agreement"; . . . "motor fuel" means any fuel to be used in propelling road vehicles, other than diesel fuel or liquefied gas; (my emphasis) "provision", in relation to an agreement, means any matter forming part of the agreement, and includes a convenant (sic); . . . (5) A reference in this Act, except in subsection 19(3), to retail sale by a person shall not be read as including retail sale by that person as servant or agent of another person. . . ." 16 Section 6 of the Act relevantly provides that the Act does not apply in relation to a franchise agreement unless it contains provisions of the kind referred to in both paragraphs (a) and (b) and of the kind referred to in sub-paragraph (c)(i) or (ii) of the above definition i.e. the requirement is cumulative, whereas the definition is expressed in alternatives. Section 8A relevantly provides that, unless the contrary intention appears, the expression "franchise agreement" in Part II of the Act means a franchise agreement in relation to which the Act applies. 17 Section 9A of the Act, which is in Part II, is as follows: "Payments by franchisee not to be increased unreasonably 9A. (1) Where: (a) a provision of a franchise agreement or any other agreement to which the franchisee is a party has the effect, directly or indirectly, of conferring a right on the franchisor to increase an amount, or the aggregate of the amounts, that would, but for the exercise of that right, be payable by the franchisee in accordance with, or in a manner calculated or determined under, the franchise agreement; (b) in the exercise of that right, the franchisor increases such an amount, or the aggregate of such amounts; and (c) the whole or part of the amount of "the increase" is unreasonable, having regard to the market value of any interest, goods or services to which any amount included in the increase relates; the amount of the increase is, by force of this section, reduced by so much of the amount of the increase as is unreasonable. (2) Where: (a) by reason of any agreement providing for any rebate, waiver, discount, allowance or like arrangement, an amount, or the aggregate of the amounts, payable by a franchisee in accordance with, or in a manner calculated or determined under, the franchise agreement is less than it would otherwise be; (b) at a later time, by reason of the reduction or withdrawal of the whole or part of the benefit of the agreement referred to in paragraph (a), any such amounts, or the aggregate of such amounts, is increased; and (c) the whole or part of the amount of the increase is unreasonable, having regard to the market value of any interest, goods or services to which any amount included in the increase relates; the amount of the increase is, by force of this section, reduced by so much of the amount of the increase as is unreasonable. (3) For the purposes of this section, where a franchise agreement has been renewed, the franchise agreement and the franchise agreement as renewed shall be treated as a single franchise agreement. (4) This section shall be deemed to have extended to an increase or, where more than one, to have extended successively to each increase, made at any time before the date of commencement of this section, but, in relation to any such increase, has effect only for purposes of determining the amount of a payment that becomes due on or after that date. (5) In this section: "agreement", except in the expression "franchise agreement", includes an agreement that is not a franchise agreement; "amount" does not include an amount payable in respect of motor fuel or other stock in trade."

Whether there is a judgment or order from which an appeal lies to this court? 18 In an affidavit sworn in support of the application for leave to appeal, counsel for the applicant swore that the primary judge delivered reasons and made orders on 15 May 2000. Although there was annexed to that affidavit a copy of the primary judge's reasons, no copy of the orders was annexed. Counsel for the applicant informed us at the hearing of the appeal that his Honour's orders had not been extracted or formally entered. However, he assured us that his Honour ordered that the preliminary questions be answered in the manner set out above (save that I have set out only the answers under challenge) and also made an order that the applicant pay the respondent's costs of the preliminary hearing in any event. Counsel then undertook to extract the formal order. 19 Section 26(4) of the Act provides: "(4) An appeal lies to the Federal Court of Australia from a judgment or order of a court of a State or Territory exercising jurisdiction under this Act." 20 In my view, there is an appealable judgment or order within the meaning of those expressions in s 29(4) of the Act. The order for costs alone would so qualify: Maxwell v Keun [1928] 1 KB 645, see also generally Brooks v Upjohn Company (1998) 85 FCR 469. 21 It is clear that the orders at first instance are interlocutory and that, accordingly an appeal does not lie unless the Court or a Judge gives leaves to appeal see s 24(1)(c) when read with s 24(1A) of the Federal Court of Australia Act 1976 (Cth). See also Arrowcrest Group Pty Ltd v Gill (1993) 46 FCR 90 and Rotherwood Pty Ltd v Commissioner of Taxation (1996) 64 FCR 313 at 314.

Whether leave should be granted 22 The applicant contends that leave to appeal should be granted because (a) the primary judge's decision is attended with sufficient doubt to warrant leave, (b) the decision has determined substantial rights of the parties, (c) the decision does not involve practice and procedure and (d) the issues are of general importance. 23 The respondent did not oppose the grant of leave to appeal otherwise than on the basis that there was no merit in the appeal. I would grant leave to appeal because the decision has determined substantial rights of the parties. In practical terms, the respondent could have moved for judgment in respect of the relevant cause of action identified above. Also, there is considerable utility in having these questions answered at an appellate level rather than obliging the applicant, possibly quite unnecessarily, to engage first in what could be a very long trial. The appeal does not involve practice and procedure. The issues are, in my view, of general importance and there is no case law directly in point.

my reasoning in the appeal 24 It is useful to note the following matters about s 9A. First, "the amount" or "the aggregate of the amounts payable" by the franchisee, as referred to in s 9A(1) and (2) are not for motor fuel or other stock in trade - see s 9A(5). In the context of the Force Agreement, the relevant amounts were payable by the applicant in respect of the following: · Licence fees for occupation of the Premises and use of equipment, trade marks and electronic systems (Clause 44 and Annexure A); · Royalties on the sale of Motor Fuels. Motor Fuels is a defined term; for the purposes of the Force Agreement it means motor spirits of any grade and automotive diesel fuel; (Clauses 45 and 1). [Thus, although diesel fuel is not within the definition of "motor fuel" in the Act, the applicant is required under the Force Agreement to pay royalties on its sale.] · Royalties on Gross Sales effected from the shop and restaurant conducted on the Premises (Clause 45); · Advertising and promotion fees, calculated as a percentage of Gross Sales effected from the shop and restaurant (Clause 46); · Franchise and Consultative Organisations Fee (Clause 48); · Service Fees, expressed as being a contribution to the cost of electronic, maintenance, administration and other services provided by the respondent (Clause 47); and · Merchant Service Fee in respect of products or services purchased on Shell Card (Clause 56). 25 Secondly, s 9A(1) applies where a provision of a franchise agreement (or any other agreement) directly or indirectly confers a right on the franchisor to increase any of, or the aggregate of, relevantly, the above amounts. In my view, the words "directly or indirectly" govern the manner by which the right is conferred, not the manner by which the amount or the aggregate of amounts payable are increased. I regard s 9A(1) as being concerned with provisions which enable the franchisor to make what I would term "direct" increases in those amounts. 26 Thirdly, where the word "agreement" is used otherwise than as part of the expression "franchise agreement" it includes an agreement that is not a franchise agreement - s 9A(5). The "agreement" referred to in the expression "any agreement" may thus also be a franchise agreement. 27 I have mentioned above that I consider that s 9A(1) is concerned with provisions which enable the franchisor to make "direct" increases in the relevant amounts payable. It is, of course, also possible indirectly to increase an amount payable by, for example, reducing a discount or rebate. When one turns to s 9A(2), it can be seen that that is at least part of what the sub-section is concerned with. The main question in the appeal is whether its operation is wide enough to include as an "… allowance or like arrangement" the Diesel Agency Commission which the respondent was obliged by the Force Agreement to pay to the applicant in respect of sales of automotive diesel fuel. If so, is it "by reason of" the agreement providing for such allowance or like arrangement that the aggregate of the amounts payable by the applicant for, relevantly, the services referred to above, "in accordance with, or in a manner calculated or determined under" the Force Agreement is less than it would otherwise be?

the applicant's contentions 28 In summary, the applicant's contentions were as follows:

The broad intention of the Act was to give greater security of tenure to companies and individuals marketing motor fuel by retail.
The object of s 9A was to prevent the benefit of tenure, conferred on franchisees by the main operative sections of the Act, being eroded or eliminated through unreasonable changes in amounts payable by the franchisee during the tenure-protected term.
Section 9A should be construed in a purposive manner. A construction which allowed a franchisor, in any way, unreasonably to increase the payments required to be made by a franchisee during the term of the franchise agreement would not promote the purpose or object underlying the Act.
The Act was remedial legislation and should be construed so that any ambiguity was resolved by advancing the remedy so as to afford the utmost relief which the fair meaning of its language would allow.
The Diesel Agency Commission was an "… allowance or like arrangement" within the meaning of s 9A(2)(a). It was a definite sum of money allotted or granted to meet the franchisee's expenses.
The Diesel Agency Commission was a payment by the respondent to the applicant by reason of which the aggregate of the amounts payable by the applicant to the respondent under the Force Agreement was less than it otherwise would have been.
The respondent's right, under Clause 65 of the Force Agreement, to withhold and retain any monies owing by it to the applicant and apply them in reduction of monies owing by the applicant to the respondent, "strengthened the submission" that the Diesel Agency Commission was an allowance or like arrangement by reason of which the aggregate of amounts payable by the applicant in accordance with the Force Agreement was less than it would otherwise be.
The market value to be considered was the market value of the services provided by the applicant as a diesel fuel agent in exchange for the Diesel Agency Commission.
The issue of unreasonableness depended on any changes in the market value of those services.

my reasoning 29 There was some debate at the hearing of the appeal about the question whether the Act applies to the whole of the Force Agreement and in particular whether the Act applies to those provisions of the Force Agreement which relate to sales of diesel on commission. In my opinion, I do not think that it is necessary to answer those questions. I say this because, in my view, the task at hand is simply to construe and apply s 9A(2) in accordance with its terms. 30 To start with, in my opinion, the Force Agreement is a "franchise agreement" within the meaning of the Act. That is because it is a franchise agreement within the definition in s 3 of the Act, it contains provisions which cumulatively satisfy the requirements of s 6(1)(a) of the Act and thus, by virtue of s 8A, Part II of the Act applies to it. 31 In my view, those portions of the Force Agreement which provide for the payment of the Diesel Agency Commission fall within the description of "... any agreement providing for any … allowance or like arrangement" in s 9A(2)(a). The Diesel Agency Commission, being payable for the services provided by the applicant as a consignment agent, fall quite neatly into the Macquarie Dictionary example (first edition at p 46) of the definition of "allowance" as being "a definite sum of money allotted or granted to meet expenses or requirements". It is interesting, though of course not determinative, that Clause 51 of the Force Agreement (which provides for the payment of the Diesel Agency Commission) refers to "This commission and any other allowance or payment…" 32 I do not consider that the Diesel Agency Commission amounts to a rebate, waiver or discount, all of which have in common a direct reduction from a sum of money to be paid. 33 The next question is whether by reason of that allowance an amount, or the aggregate of the amounts, payable by the applicant in accordance with, or in a manner calculated or determined under, the franchise agreement is less than it would otherwise be? 34 The expression "by reason of" or "by reason that" sometimes means "if" - see Australian Competition and Consumer Commission v Visy Paper Pty Ltd[2000] FCA 1640 at paragraph 99. However, as Sackville J noted in that paragraph, "by reason that" usually means "because". The same applies, in my view, to the phrase "by reason of". That is the sense in which that phrase is used in s 9A(2). Neither party suggested to the contrary. 35 The authorities show that the words "by reason of" indicate a relationship of cause and effect which need not be direct. See for example Vickers v Minister for Business Affairs (1982) 43 ALR 389 at 407; Kimberley-Clark Ltd v Commissioner of Patents (1988) 84 ALR 685 at 695 and 697 and Lyons v Registrar of Trade Marks (1983) 50 ALR 496 at 509. 36 In this regard, when I came to write these reasons I was somewhat puzzled by assumption (d) of the assumptions listed in the Master's order for the trial of these preliminary questions. Assumption (d) read as follows: "(d) the royalties and fees paid by Loren to Shell under the Force Agreement did not change as a result of the variation in the commission payable by Shell to Loren for Loren acting as diesel fuel agent." 37 I took this to mean that there was no change in the rates of royalties or fees resulting from the variation in the commission. Otherwise, so it seemed to me, there was little point in stating the questions. 38 I accept the submissions made on behalf of the applicant that s 9A, to the extent permissible, should be construed so as to promote the purpose or object of the Act. The authorities recognise that the broad intention of the principal provisions of the Act is to give greater security of tenure to retailers of motor fuel - see J and M O'Brien Enterprises Pty Ltd v The Shell Co of Australia Ltd (1982) 45 ALR 81 at 82; Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516 at 523 and 526-7. The purpose, in particular, of s 9A can be seen to be, as the applicant submitted, to prevent the benefit of tenure being eroded through unreasonable changes in amounts payable by franchisees during the tenure-protected terms. I accept also the applicant's submission that this is remedial legislation and thus "its language should be construed so as to give the most complete remedy which is consistent "with the actual language employed" and to which its words "are fairly open"" - see the main judgment in Khoury v Government Insurance Office (NSW) (1984) 165 CLR 622 at 638 where earlier authorities to this effect were approved. 39 At the same time, as the respondent pointed out, Parliament did not intend to regulate agency sales of motor fuel [see s 3(5)]. The Act applies only to agreements relating to the sale of "motor fuel" a defined term which does not include diesel fuel [s 3(1)]. I acknowledge the substance of the respondent's submission that a fortiori there was no intention to regulate agreements for the agency sale of diesel fuel. There are, as the respondent submitted, features of the Act which manifest a legislative intention to confine its application rather than expand it - see ss 3(12), 6(1) and 8A. 40 I think that these competing considerations can be resolved as follows. 41 First it must be recognised that the words - "… an amount, or the aggregate of the amounts, payable by a franchisee in accordance with, or in a manner calculated or determined under the franchise agreement …" may aptly describe two things. They may describe the amounts of the royalties and fees listed at paragraph 21 above or the aggregate of those amounts. It is convenient to refer, in short, to the aggregate of the amounts. The aggregate of the amounts could be likened to a gross figure payable in accordance with or in a manner calculated or determined under the Force Agreement. But the above expression is, in my opinion, equally apt to describe the net amount payable by the applicant at the end of each month, after deducting the applicant's entitlement to be paid or credited with the Diesel Agency Commission. The net amount would, in practical and commercial terms, be regarded as payable by a franchisee in accordance with or in a manner calculated or determined under the Force Agreement by both the average payee and, so I infer, the respondent. 42 Accordingly, in my view, there is a sufficient, though indirect, relationship of cause and effect between a reduction in the Diesel Agency Commission and the net amount payable by the applicant in accordance with or in a manner calculated or determined under the Force Agreement being less than it would otherwise be. That is, I consider that the facts of the matter fall within s 9A(2)(a). When the respondent, on 1 May 1994 reduced or withdrew a substantial part of "the benefit of" [I am quoting from s 9A(2)(b)] the agreement for payment of the Diesel Agency Commission, the aggregate of the net amount payable in accordance with or in a manner calculated or determined under the Force Agreement was increased. 43 I do not think that Clause 65 (which expressly confers a right of set-off) has any bearing on this point of construction. In my view, Shell would, in any event, have a right of set-off in relation to the Diesel Agency Commission at law. A right of set-off arises in Western Australia due to the application of two English Acts, the Insolvent Debtor's Relief Act 1729 (UK) 2 Geo II and the Debtor's Relief Amendment Act 1735 (UK) 8 Geo II.

44 When one turns to s 9A(2)(c) I consider that the market value referred to in that sub-paragraph is the market value of interests goods or services supplied by the respondent to the applicant. It is convenient to set out the text of sub-paragraph 9A(2)(c):

"(c) The whole or part of the amount of the increase is unreasonable, having regard to the market value of any interest, goods or services to which any amount included in the increase relates;" 45 I accept that the word "relates" has a wide meaning. But there are contextual matters which, in my opinion, weigh heavily against the applicant's contention that the market value referred to is the market value of its agency services in selling diesel fuel. First, I refer to s 9A(1). As I have described above, that sub-section applies where a franchisor exercises a right to increase an amount or the aggregate of the amounts payable by the franchisee. It operates to reduce those amounts by so much of any increase as is unreasonable having regard to the market value of any interest, goods or services or which any amount included in the increase relates. It is quite clear that the interest goods or services are those provided by the franchisor to the franchisee. In this case they would be the interests goods or services described at paragraph 21 above. 46 Counsel for the applicant submitted that because the relevant allowance was being given under an agreement, it was being given in exchange for something. I interpolate to observe that that does not necessarily follow in the context of the Act; an agreement may be as little as an informal oral understanding not having any legal or equitable force - see s 3(1). Counsel argued that the "something" given in exchange was the services to which the increase relates. I disagree. The relevant increase which has to be assessed to ascertain whether it is unreasonable is in relation to the services provided by the respondent. 47 Furthermore, I draw some slight confirmation from the heading to s 9A "Payments by franchisee not to be increased unreasonably". I regard that heading as extrinsic material to which reference may be made pursuant to s 15AB of the Acts Interpretation Act 1901 (Cth). 48 If Parliament had intended to cover the situation in the manner contended for by the applicant, it could easily have provided that no allowance was to be reduced unreasonably having regard to the services in respect of which it was paid. 49 Section 9A(2)(c) is expressed in identical terms to s 9A(1)(c). I think it should be construed as referring to unreasonable increases in amounts payable by the franchisee for the interests, goods or services received in exchange for such payments. That is, increases which are unreasonable having regard to the market value of such interests, goods or services. 50 So construed, the two sub-sections, as the primary judge noted, complement each other. The franchisee is protected from an increase in fees or royalties or the like which is achieved unreasonably (after taking into account their market value) either by a provision which confers a right on the franchisor to do so, or by the removal of a rebate, waiver, discount allowance or like arrangement. 51 Accordingly I would answer the three questions as follows: (a) Whether, for the purposes of section 9A(2) of the Petroleum Retail Marketing Franchise Act 1980 ("PRMF Act"), the amount payable by the respondent by way of commission to the applicant for the provision by the applicant of the service of selling diesel fuel as diesel fuel agent for the respondent can be regarded as a "rebate, waiver, discount, allowance or like arrangement". Answer: Yes (b) Whether, for the purposes of section 9A(2) of the PRMF Act, the amount which is "payable" by the applicant [to determine whether it is "less than it would otherwise be"] can be determined by looking at what is payable by the respondent, as opposed to by the applicant alone. Answer: Yes. (c) . . . (d) Whether, in order to determine whether an increase is unreasonable under section 9A(2) of the PRMF Act, regard may be had to the market value of: (i) interest(s), goods or services provided by the respondent to the applicant under the Force Agreement; Answer: Yes (ii) interest(s), goods or services provided by the applicant to the respondent in exchange for the rebate, waiver, discount, allowance or like arrangement given by the respondent (by reason of the reduction of which the increase occurred); or Answer: No (iii) any other and, if so, what, other interest(s) goods or services? Unnecessary to answer.

Conclusion 52 For the foregoing reasons I would allow the appeal to the extent that the above answers be substituted for those of the primary judge. That would leave the question of the costs at first instance and on appeal. As I am in dissent, those questions are somewhat academic but I shall state briefly what would have been my conclusions had my views prevailed. The applicant would have had a degree of success, measured by the extent to which the answers of the primary judge would have been varied. But the overall result would have been in favour of the respondent. I think that costs should have followed that event. I would not disturb the costs order at first instance and I would order that the applicant pay the respondent's costs of the appeal. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr.

ON APPEAL FROM THE SUPREME COURT OF WESTERN AUSTRALIA

BETWEEN: LOREN ENTERPRISES PTY LTD ACN 052 157 034

AND: THE SHELL COMPANY OF AUSTRALIA LIMITED ACN 004 610 459

R D NICHOLSON J 53 The applicant seeks leave to appeal from orders setting out answers to certain preliminary questions concerning the application of ss 9 and 9A of the Petroleum Retailing Marketing Franchise Act 1980 (Cth) ("the Act") in respect of three of such answers. The appellate jurisdiction in this Court arises pursuant to s 26(4) of the Act. The essence of appeal relates to the interpretation of the Act and its application and the circumstances of the agreement entered into between the applicant and the respondent ("the Force Agreement"). 54 I have had the benefit of reading in draft the reasons of Carr J. These relieve me from the obligation of repeating matters germane to the factual and statutory background except so far as may be necessary for the development of the these reasons.

Whether there is a judgment or order from which an appeal lies to this Court 55 I agree with the reasons stated by Carr J on this issue. 56 I add that it is apparent from the manner in which the matter was dealt with before the primary judge that the preliminary questions which he answered were not framed upon an assumption of law so that it cannot be said that the issues raised by the application and the appeal are hypothetical.

Whether leave should be granted 57 I agree with the reasons stated by Carr J on this issue.

Purposive construction of the Act 58 The central reasoning of the primary judge included the following components: (1) The Minister's second reading speech did not lend any support to the applicant's contention that where the commission payable by the respondent is off-set against the payments required to be made by the applicant to the respondent, the payment of the commission is, in effect, within the categories addressed in the question. (2) The set-off was a means of satisfying the respondent's indebtedness to the applicant in respect of a matter entirely separate from the matters giving rise to the applicant's indebtedness to the respondent. The agreement for set-off was on a separate account, albeit regulated by the same agreement. There was therefore never a time when, by reason of any agreement providing for any rebate, waiver, discount, allowance or like arrangement, an amount or the aggregate of the amounts payable by the applicant under the Force Agreement was less than it would otherwise have been. (3) The purpose of s 9A was not that of preventing a franchise or from unreasonably decreasing what is payable by it to the franchisee in respect of matters entirely and genuinely separate from those which give rise to the liability of the franchisee to the franchisor under the franchise agreement. This, it was said, was made apparent without more by subs 2(c) which has, as the measuring stick of any unreasonableness in the increase, "the market value of any interest, goods or services to which any amount included in the increase relates" (italics added). (4) The reference in s 9A(2)(a) to "the aggregate of the amounts" does not advance the applicant's case because there may well be a number of separate components of what is payable by a franchisee to a franchisor under a franchise agreement (as for example service fees, rent and franchise fees). 59 Against the reasoning, it is contended for the applicant that regard should be had to the purpose or object of the Act. It is submitted that a construction of s 9A of the Act which allows a franchisor in any way to unreasonably increase payments required to be made by a franchisee during the term would not promote the purpose or object underlying the Act. That purpose or object is said to be the provision of greater security of tenure to companies and individuals marketing motor fuel by retail: J & M O'Brien Enterprises Pty Ltd v The Shell Co of Australia Ltd (1982) 70 FLR 33 at 34 per Fox J approved in Caltex Oil (Australia) Pty Ltd v Best (1990) 170 CLR 516 at 523 per Mason CJ, Gaudron and McHugh JJ and at 526 - 7 per Toohey J. It is said that the Act should be construed so as to prefer this purpose or object: s 15AA of the Acts Interpretation Act 1901 (Cth). 60 In further advancement of this submission it is said for the applicant that the special rules of construction for remedial legislation apply to the Act so that any ambiguity in its provisions should be resolved by advancing the remedy which it appears to be intended to provide: Wacal Developments Pty Ltd v Realty Developments Pty Ltd (1978) 140 CLR 503 at 510 per Gibbs J and related authorities referred to in the submissions. 61 For the respondent in response it is submitted that there is no foothold in the Act on which to ground the purposive construction asserted on behalf of the applicant. That assertion involves consideration of whether the Act manifests an intention to regulate non-franchise aspects of a relationship. It is submitted that the applicant would have no case on the point if the diesel agency aspect was in a separate instrument and there was no contractual arrangement for set-off. Furthermore, the contention for the applicant requires testing against the range of businesses which might be associated with the marketing of petrol or oil although involving neither. It is submitted that Parliament's intention was not to seize upon a particular activity and then regulate all that which is around it, but rather to seize only upon a very narrow form of an activity. It is submitted that Parliament has gone out of its way to emphasise the confined nature of the reach of the Act in this respect. A number of provisions in the Act are referred to in this respect on behalf of the respondent. 62 The first is the provision in subs 3(5) to the effect that "a reference in this Act, accept in subsection 19(3), to retail sale by a person should not be read as including retail sale by that person as servant or agent of another person". It is said that the construction contended for on behalf of the applicant is inconsistent with a franchisor having chosen to combine activities as principal with activities involving sale by an agent. 63 Secondly, reference is made to a provision in s 6(5) to the effect that where a franchisee enters into an agreement with a corporation related to the franchisor under which that corporation is entitled or required to supply the franchisee with lubricants, parts, accessories or other materials for road vehicles for retail sale by that person at the marketing premises, the Act applies in relation to that agreement as if it were a franchise agreement. The submission for the respondent is that if the ancillary agreement or arrangement was itself a franchise agreement there would have been no need for Parliament to have legislated to this effect. By giving distinct recognition that an agreement for these related products closely connected to the sale of motor fuel is not a franchise agreement it is said that Parliament has manifested a clear reflection of its limited intention in the Act. 64 That intention is said to be manifested, thirdly, in s 6(8) to the effect that if the Act does not apply in terms of s 6 in relation to a franchise agreement, it does not apply in relation to any "related agreement". The description "related agreement" is undefined but it is also used in s 18 for the purpose of avoidance of such agreements consequential upon their voidance of franchise agreements to which they are related - there being no intent manifested to regulate the related agreements themselves. 65 Furthermore, s 3(12) excludes from regulation agreements relating to the retail sale of motor fuel when that motor fuel is not delivered at the retail marketing premises into the supply tanks of road vehicles by a metered pump, and references to the retail sale of motor fuel are to be construed accordingly. There is therefore an intention so manifested not to regulate even motor fuel so far as it falls outside this requirement. 66 Parliament's limited intention is also said to be manifested by the introduction of s 8A (and s 20A) by amendment in 1984, accompanied by amendment of s 3(1) to exclude diesel fuel. Before those amendments to the Act a person could qualify as a franchisee within one of the three limbs of the definition of "franchise agreement" in s 3(1) so that arguably a reference to "franchisee" in the substantive provisions could be a reference to that person. However, s 8A provided that the descriptions "franchisee" and "franchisor" should be construed according to the application of the definition of "franchise agreement", absent any contrary intention. The significance of this is that the expressions "franchise agreement", "franchisor" and "franchisee" are all defined exclusively in s 3(1) of the Act and are confined to agreements relating to the retail sale of "motor fuel" which does not include diesel fuel or liquefied gas: s 3(1). 67 Although the definition of "franchise agreement" in s 3(1) of the Act is disjunctive in its formulation, the effect of s 6(1) is that the Act only applies to such agreements which satisfy all three limbs of the definition: Best v Caltex Oil (Australia) Pty Ltd (1989) 87 ALR 1 at 2, 3; Richards v Golden Fleece Petroleum Pty Ltd (1983) 49 ALR 337 at 339. It is submitted for the respondent that the absence of an intention to regulate agreements satisfying only one limb is not consistent with an intention to regulate terms which have nothing at all to do with the retail sale of motor fuel. 68 For the applicant the contention is not that the Act applies to the commission because the provisions dealing with motor fuel and the provisions dealing with diesel fuel are found in a single agreement. Rather, the submission is that the Act has that application because its provisions relate to the same marketing premises. That is a reference, initially, to the definition of "marketing premises" in s 3(1) where the description is defined to mean premises to which a franchise agreement relates, being the premises referred to in par (a) or (b) or subpar (c)(i) or (2), as the case may be, of the definition of franchise agreement. The submission is that once the business at the premises satisfies the threshold, the relationship of franchisor and franchisee at the premises is one which is regulated. In practical terms it is submitted that, for example, where you have premises where there is a bowser for petrol, a bowser for diesel and a shop and that is the franchise business at the premises, it is the total business relationship that is regulated. Consistently with this submission it is submitted that even if the businesses were dealt with under separate documents, they would still be subject to the application of the Act because that is the nature of the relationship at the premises. 69 The reference to premises in the three paragraphs of the definition of "franchise agreement" is designed to limit the relevant reference to the retail sale of motor fuel in each paragraph to the specific case of sale at the premises to which the agreement relates and so not otherwise. The words "in connection with" relate only to the use of the mark (par (a)) or the possession, occupation or use of the premises (par (b)). Reading those references in that context does not suggest to me that the prime parliamentary intention was to apply the provisions concerning such agreements to other agreements. The reference to premises in those three contexts is a subsidiary and contextual device intended apparently to ensure that the agreement is related (in its reference to marks and use and use and occupation of the premises and other matters) to the specific retail sale of motor fuel as defined. This is an approach consistent with the approach which Parliament has otherwise taken in the legislation as evidenced by the matters to which the respondent's case has directed attention. 70 There is strength in the submission for the respondent that the applicant's case cannot identify a relevant purpose or object for the purposes of the resolution of the issue on this appeal. That is, while the broad intention of the principal provisions of the Act is to give greater security of tenure to retailers of motor fuel, that purpose or objective is not one which provides an answer to the principal issue here, namely Parliament intended to regulate only agreements relating to the sale of motor fuel in the terms defined. There is, therefore, no appropriate base to apply a remedial approach to answer the question in issue. 71 I agree with the primary judge that what was said by the Minister for Industry and Commerce in the course of his second reading speech in the Senate at the time of the Bill by which s 9A of the Act was ultimately introduced by s 8 of the Petroleum Retail Marketing Franchise Amendment Act 1984, does not lend any support to the applicant's case on the breadth of the parliamentary intention. It is the case that the statement describes the clause as providing that payments required to be made by a franchisee during the currency of the franchise arrangements, other than payments for motor fuel or other stock and trade, must not be increased unreasonably by the franchisor. I read those words as a general reference carrying with them no relevant particular expression of Parliamentary intent on the question in issue. 72 The features of the Act pointed to on behalf of the respondent, while not overwhelming in their force, are nevertheless the best evidence available of Parliamentary intent. They disclose a careful and selective approach by Parliament to that which it sought to regulate. I am therefore inclined to the view that the correct position is that the Act therefore has no application in the circumstances here in issue. However I acknowledge the matter is not beyond doubt and I proceed to consider the arguments of construction which remain.

Whether diesel fuel commission an "allowance or like arrangement": s 9A(2)(a) 73 I agree with Carr J in his conclusion that the diesel agency commission does not amount to a "rebate, waiver or discount", all of which have in common a direct reduction from a sum of money to be paid. The question is whether, if the Act is not to be understood as seeking only to regulate franchise agreements in relation to motor fuel as defined, such commission is within the description "allowance or like arrangement". 74 That issue arises, of course, only if the Force Agreement is a franchise agreement within the meaning of the Act. I agree with Carr J that the Force Agreement satisfies the relevant provisions and qualifies as a franchise agreement. 75 The Shorter Oxford English Dictionary 4th ed. 1993, p 50 defines "allowance" in one meaning as "a limited portion or sum, especially of money or food". It is also defined in another meaning as "rebate, deduction, discount". The latter are in the category of rebate, waiver and discount being the other items referred to in the section. 76 The same dictionary at p 376 defines "commission" relevantly as "a pro rata remuneration for work done as agent". Carr J is of the view that the diesel agency commission provided for in cl 51, being payable for the services provided by the applicant as a consignment agent, fall quite neatly into the Macquarie Dictionary example at p 46 of the definition of "allowance" as being "a definite sum of money allotted or granted to meet expenses or requirements". Section 51 provides that the respondent will pay to the applicant a commission, the rate of which commission is set out in schedule 17. Reference to schedule 17, which is headed "Commission Rate" and which makes cross-reference to cl 51(1) refers only a sum of money, namely $7488.00. There is therefore no specification of a rate and I do not consider the provision in cl 51(2) requiring commission to be paid monthly in arrears changes that position. However, there is nothing on which to found a conclusion that the sum so allotted or granted is "to meet expenses or requirements". Rather, it is apparent from cl 51 that the amount paid is a commission. A commission has about it the element of being related as remuneration for work as an agent. It does not have about it the element of allowance to meet expenses or requirements. I do not therefore agree that the diesel agency commission falls within the description of "allowance". 77 Furthermore, I do not think that the matter is solved for the applicant by reference to the added words "or like arrangement". No like arrangement to those enumerated, including allowance as understood in the sense just discussed, will include the payment of a commission.

Whether amount payable by franchisee is less than it would otherwise be by reason of allowance by way of commission: s 9A(2)(a) 78 The first contention for the respondent is that it is the benefit in the form of the allowance by way of commission (assuming that to be the case) which must occasion the amount payable by the franchisee under the franchise agreement to be "less than it would otherwise be". It is submitted that here the payment of the allowance by way of commission has no such effect (other than through the right of set-off) and that the amounts payable by the franchisee "in accordance with, or in a manner calculated or determined under, the franchise agreement" remains unaffected. Only if the right of set-off provided for in the franchise agreement is taken as being a provision which affects the calculation or determination of the amount payable by a franchisee would the benefit be the occasion of making those amounts less than they would otherwise be. 79 I am not able to share with Carr J his view that the description "an amount, or the aggregate of the amounts payable by a franchisee in accordance with, or in a manner calculated or determined under the franchise agreement…" is apt to describe the net amount payable by the applicant at the end of each month after deducting the applicant's entitlement to be paid or credited with a diesel agency agreement. Quite simply the point of difference between us is that I do not consider the right of set-off is a provision directed to the manner of calculation or determination of the amount payable. Rather, it is a discretionary power vested in the respondent to withhold and retain monies and apply them in the reduction of monies "due or owing". It is the calculation of what is "due or owing" which is separate from the right to withhold and so apply. That would be the case whether the right is exercised pursuant to cl 65 or common law, although in that case it would be further arguable against the applicant that the amount being calculated by application of that right of set-off was not one which arose pursuant to the franchise agreement. The Act should not be read so as to apply where a right of set-off is provided in respect of an amount in a franchise agreement but not where it is in an agreement other than the franchise agreement or arises at common law. 80 I am reinforced in this view as to the nature of the set-off by reference to description of set-off in Meagher, Gummow and Lehane JJ, Equity Doctrines and Remedies 3rd ed. 1992 at p 810, pars [3701] - [3703]. It is made clear there that the concept of set-off should be kept entirely distinct from the concept of legal liability arising from a running account. It is only when a balance is to be struck or ascertained as the result of the taking of an account that the issue of set-off arises. No question of set-off arises in the case of the running account. 81 I therefore do not consider that the provisions of cl 65 of the Force Agreement can properly fall within the description of being provisions directed to the manner of calculation or determination of the amount payable by the franchisee. Clause 51 in itself does not occasion the amount to be less than it otherwise would be.

Whether reduction of benefit has relevant nexus to increase in amounts: s 9A(2)(b) 82 Likewise, the provisions of s 9A(2)(b) are directed to the amounts payable by the franchisee "in accordance with, or in a manner calculated or determined under, the franchise agreement". The reduction in the allowance by way of commission has no effect in increasing such amounts. It is only in application of the contractually provided right of set-off in cl 65 (which right may exist at common law in any event, as Carr J has referred to) that any increase can be occasioned. For reasons given above, I consider the provisions of the Force Agreement relevant to the manner of calculation or determination of the amount do not include cl 65.

Whether nexus between "amount payable by a franchisee" and "interest, goods or services": s 9A(2)(c) 83 It is submitted for the respondent that s 9A(2)(c) cannot operate where the interest, goods or services, the subject of the disputed increase and of the reduction or withdrawal of benefit (being the allowance by way of commission in this case) are not part of the interest, goods or services to which the amount payable by a franchisee relates. As the reasons of Carr J make apparent, the relevant amounts payable by the applicant as the franchisee to the respondent as the franchisor arise under cl 23(1) (motor fuel); cl 43(1) (franchise fee); cl 44 (license fee); cl 45 (royalties); cl 46 (advertising/promotions fee); cl 47 (service fee); and cl 48 (franchise organisation fee). It is said therefore that a change in the amount of the allowance by way of commission does not change the amounts payable in other respects and has no connection with the subject matter (interest, goods or services) of the other payments. 84 Carr J has referred to a number of contextual matters which favour the respondent's view on the application of this paragraph. I agree with that statement of considerations and consider that it is consistent with the understanding which I have of the application of pars (a) and (b) of s 9A(2).

Conclusion 85 Accordingly I consider that the primary judge was not in error in answering "no" to questions (a) and (b) (which are set out at the conclusion of the reasons of Carr J). 86 In relation to question (d) it was unnecessary for the primary judge to answer this in view of his answer to questions (a). However, on the assumption that question (a) should be answered ("yes") as Carr J has answered, the primary judge said it would follow that the net increase would have to be tested as against the market value of the interest, goods or services provided by the respondent to the applicant (other than motor fuel or other stock in trade) less the market value of what is provided by the applicant to the respondent. However, for the reasons given I would answer question (d) on the same supposition in the manner proposed by Carr J. 87 For these reasons I consider that leave should be granted but the appeal should be dismissed and orders made so that costs follow that event. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.

Counsel for the Respondent: Mr C L Zelestis QC With Mr B Dharmananda

Solicitor for the Respondent: Mallesons Stephen Jaques

Petroleum Retailing Marketing Franchise Act 1980(Cth)ss 9, 9A.

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