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[1989] FCA 523
Federal Court of Australia
1989-12-20
Hill J, As Hill J
Original judgment source is linked above.
Petroleum Retail Marketing Franchise Act 1980 - whether a franchise agreement which had terminated or expired was renewed within the meaning of sub-s.3(4) of the Act - whether the giving of a notice under sub-s. 17(7) of the Act was a condition precedent to an effective renewal of a franchise agreement - whether a holding over period is to be treated as part of the term of the agreement within the meaning of sub-s. 17B(4) of the Act - observations on differences between the operation of the Act and the general law of landlord and tenant.
Regent Oil Co. Ltd. v J.A. Gregory (Hatch End) Ltd. (1966) Ch 402
Kumar v Dunning [1987] EWCA Civ 1; (1987) 2 All ER 801
P. & A. Swift Investments v Combined English Stores Group Plc [1988] UKHL 3; (1988) 2 All ER 885
Magic Australia Pty. Ltd. v Caltex Oil (Australia) Pty. Ltd. (1988) 84 ALR 483
Associated Minerals Pty. Ltd. v N.S.W. Rutile Mining Co. Pty. Ltd. (1961) 35 ALJR 296
J. & M. O'Brien Enterprises Pty. Ltd. v Shell Company of Australia [1982] FCA 245; (1982) 45 ALR 81
Burdekin v Commissioner of Stamp Duties (1961) 61 SR (NSW) 514
Sid Marz Services Pty. Ltd. v Caltex Oil (Australia) Pty. Ltd. (1988) ATPR 46-031
the Respondent (Cross-Appellant): and M.O. Tubbs, Esq.
instructed by Messrs.
Stojanovic & David.
1. The appeal be allowed and the cross-appeal be dismissed.
2. Order 1 of the orders made 7 September 1989 be varied by substituting for the answer to the separate question the answer that the respondent is not entitled from 19 September 1989 to any renewal of the 1987 agreement.
3. Order 2 of the orders made 7 September 1989 be set aside.
4. The respondent should pay the costs of the appellant both on appeal and at first instance.
Note: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.
This appeal and cross-appeal are brought, by leave, from orders of a Judge of this Court (Hill J.) whereby his Honour, pursuant to Order 29 of the Rules of Court, answered a question separately from any other question arising in the proceedings. The question presented issues as to the proper construction of the Petroleum Retail Marketing Franchise Act 1980 ("the Act"), particularly in the form in which that statute stood in the period between its commencement on 19 September 1980 and the coming into force on 1 January 1985 of the principal provisions of the Petroleum Retail Marketing Franchise Amendment Act 1984. We will identify the Act in its original form as "the 1980 Act", and as amended in 1984 as "the 1984 Act". As Hill J. said, and as the respondent emphasised on the hearing of the appeal, it has been stressed in a number of authorities that one of the purposes of the 1980 Act was to give "security of tenure" to franchisees. But that does not afford any decisive guidance in the determination of the issues with which this appeal is concerned.
2. The question dealt with under Order 29 was in the following terms:
"Whether, on the true construction of the
several instruments itemised in the
attached schedule, and of the relevant
provisions of the Petroleum Retail
Marketing Franchise Act 1980, and upon
the assumption that (the respondent) has
committed no breaches of the 1987
agreement disentitling it to remain in
possession of the service station, (the
respondent) is entitled from 19 September
1989 to any, and if so, what renewal of
the 1987 agreement? It being noted that
there was no notice to renew the 1981
agreement and that J.A. & B.L. Langley
Pty. Limited held over under the terms of
the 1981 franchise agreement between 26
March 1984 and 31 October 1984 there being
a waiver in respect of part of the rent."
The answer by Hill J. to this question was that the respondent was entitled from 19 September 1989 to a renewal until 31 October 1990 of the agreement dated 12 October 1987. Hill J. also made a declaration that, upon the assumption that the respondent had committed no breaches of the franchise agreement dated 13 October 1987, the respondent was entitled to a renewal of that franchise agreement from 20 September 1989 to 31 October 1990.
3. By Notice of Termination and Notice to Quit dated 14 February 1989, the appellant purported to terminate the 1987 Agreement on the ground of several breaches by the respondent. The respondent commenced proceedings in this Court for a declaration that the Notice was invalid, and the appellant cross-claimed for a declaration as to the validity of the Notice and for possession of the premises. The parties sought the decision of the Court on the question in respect of which this appeal is brought, on the footing that, should it be decided that the appellant was under no obligation to renew the franchise agreement beyond 19 September 1989, then it would be unnecessary further to pursue the issues arising under the Notice of Termination.
4. As is apparent from the foregoing, the proceedings concern the application of the statute to a number of documents spanning a period of some years. It is necessary first to outline the nature of those documents.
5. By lease dated 27 March 1979 ("the 1979 Lease") the appellant demised to J.A. & B.L. Langley Pty. Limited ("Langley") the premises at 919 Victoria Road, West Ryde (a Sydney suburb) from which Langley conducted a service station business involving the sale by retail of motor fuel. The 1979 lease was expressed to be for a term of three years from 27 March 1979.
6. By further agreement also expressed to have been made on 27 March 1979 ("the 1979 Supply Agreement") the appellant and Langley agreed the terms upon which the appellant would supply petroleum products to Langley for the period of three years commencing 27 March 1979. The 1979 Supply Agreement was connected with the 1979 Lease, in the sense that clause 7 of the 1979 Supply Agreement provided that it should forthwith terminate upon Langley ceasing to occupy or losing the right to occupy the premises at 919 Victoria Road, West Ryde.
7. The 1980 Act came into force, as we have said, on 19 September 1980. On the hearing of the appeal, it was accepted by both parties that upon the commencement of the 1980 legislation, the 1979 Lease and the 1979 Supply Agreement together became a "franchise agreement" to which the legislation applied. We will refer to the "1979 agreements", but as will become apparent from the definition of "agreement" in sub-s. 3 (1), there was but one agreement within the meaning of the 1980 Act.
8. On 26 March 1981, that is to say whilst the term of the 1979 Lease was still current, the appellant (identified therein as "Esso") and Langley entered into a further agreement, styled "Service Station Lease and Franchise Agreement" ("the 1981 Agreement"), of the premises at 919 Victoria Road, West Ryde. The term of the lease contained in the document was expressed to be three years commencing from 26 March 1981. Clause 15 was in the following terms:
"As from the date of commencement of this
Lease any prior Lease and Supply
Agreement between the parties hereto in
relation to the premises are hereby
cancelled, but such cancellation shall
not affect Esso's right to recover moneys
already owing under any such Supply
Agreement or prior Lease."
Quite apart from any question of whether, as a result of the execution of the 1981 Agreement the 1979 Lease was surrendered by operation of law, the appellant submitted that both the 1979 agreements were brought to an end by the consensual arrangement of the parties reflected in clause 15.
9. The 1981 Agreement also dealt with what would be the position as to holding over upon expiry of the term. Sub-clause 4 (d) was a covenant as follows:
"If the Lessee holds the premises with
the express or implied permission of Esso
after the expiration or sooner
determination of the term hereby granted
the Lessee shall be deemed to hold the
premises as tenant from month to month
and shall hold the premises subject to
all the covenants and conditions therein
contained so far as the same shall be
applicable to a monthly tenancy and the
tenancy so constituted may be determined
by one month's notice to quit by either
party which may be given so as to expire
at any time . . ."
The balance of the sub-clause provided a mechanism for an increase in the monthly rent. The term of the lease contained in the 1981 Agreement expired on 26 March 1984. However, from that date until 31 October 1984, Langley held over on the terms of the 1981 Agreement. There was a waiver by the appellant of its rights as to rental increase contained in the holding over provision of the 1981 Agreement.
10. On 17 October 1984, the appellant and Langley entered into a further service station lease and franchise agreement which provided for Langley to hold the subject premises as tenant for a term of three years commencing on 1 November 1984 ("the 1984 Agreement").
11. The next document is one styled "Deed of Assignment of Service Station Lease and Franchise Agreement" which is dated 25 July 1985. The parties are Langley (defined as "the Vendor"), Mr. and Mrs. Abela (defined as "the Purchaser"), who are the principals of the respondent, and the appellant (defined as "Esso"). In this document ("the Assignment Deed") it is recited that Esso leased to the Vendor the service station premises at 919 Victoria Road, West Ryde by the 1984 Agreement, and that Esso has agreed to consent to the assignment of that lease subject to the execution of the Assignment Deed by the Vendor and the Purchaser. The whole of the interest of the Vendor under the 1984 Agreement is assigned to the Purchaser, with effect from 25 July 1985, for the residue of the unexpired term of the 1984 Agreement. Clause 6 of the Assignment Deed is in the following terms:
"6. The Purchaser acknowledges that it has been
informed by Esso prior to the execution of
this Deed of Assignment that Esso's retail
marketing policies are constantly under
review by it and any decision as to the
retention and availability for lease of the
premises from Esso beyond the term of the
Lease will be determined by Esso in
accordance with marketing conditions and
regulations which may apply at that time
. . ."
The effect of the assignment was that for the purposes of, inter alia, ss. 13, 17, 17A and 17B of the 1984 Act, the 1984 Agreement as subsisting after the assignment was not to be taken, by reason of the assignment, to be a new agreement: sub-s. 11 (12).
12. It is also recited in the Assignment Deed that there is attached to it a copy of the Disclosure Statement which had been provided to Langley by Esso in connection with the 1984 Agreement. This document was expressed as a disclosure statement pursuant to s. 15 of the Act. The date of the disclosure was stated as 12 October 1984, and the proposed date of commencement of the lease thereunder was stated as 1 November 1984. On page 4, under the heading "RIGHTS OF LESSEE RELATING TO RENEWAL OF THE LEASE" there appeared the following:
"The term of the Lease is for the period
stated on page 1 only. If the lease is
for three years the Lessee has the right
to renew for two additional three year
terms, subject to his compliance with the
requirements of the Act."
There was a reference also to s. 13 of the Act. On page 1, opposite the words "LEASE TERM", there appeared "3 year(s), thence monthly subject to Lessee's right of renewal, if any, under the Act".
13. By Deed of Assignment dated 2 June 1987, the parties to which were Mr. and Mrs. Abela, the appellant and the respondent, Mr. and Mrs. Abela assigned to the respondent the whole of their interests under the 1984 Agreement with effect from 2 June 1987. It was recited in the Deed of Assignment that Esso had agreed to consent to this assignment subject to the execution of the deed by Mr. and Mrs. Abela and by the respondent. Sub-section 11 (12) of the 1984 Act again operated so as to prevent the 1984 agreement being taken by reason of the assignment to be a new agreement.
14. Finally, by a document styled "Service Station Lease and Franchise Agreement" bearing the date 12 October 1987, ("the 1987 Agreement") the appellant leased the subject premises to the respondent for a term commencing on 1 November 1987, and terminating on 19 September 1989, that is to say nine years after the coming into force of the 1980 Act. On 25 August 1987, the appellant had written to the respondent a letter whereby the appellant offered to renew the agreement on terms, inter alia, that it would be for a period from the date of expiry of the 1984 Agreement until 19 September 1989. The letter included the following:
"As the Premises have been occupied under
a franchise agreement with Esso since the
date on which the Act came into operation,
namely 19 September, 1980, you are entitled
to a renewal of your agreement for a further
term expiring on 19 September, 1989."
15. It is necessary now to turn to some of the provisions of the 1980 Act. In sub-s. 3 (1), the term "agreement" is defined as meaning any agreement, arrangement or understanding, whether formal or informal or partly formal and partly informal, whether written or oral or partly written and partly oral, and whether or not having legal or equitable force and whether or not based on legal or equitable rights. A "franchise agreement" was defined in the same provision as meaning an agreement containing certain characteristics which, it is not disputed, were possessed by the documents in question in these proceedings. Sub-sections 3 (2) and 3 (4) provided as follows, with emphasis supplied:
"3. (2) Except so far as the contrary
intention appears, a reference in
this Act to an agreement shall be
read as including a reference to a
proposed agreement, an agreement as
requested or proposed to be renewed,
or a terminated or expired agreement
and, in relation to such an
agreement, a reference in this Act to
a party to the agreement shall be
read as a reference to a person who
would be a party to the agreement if
the agreement were in effect.
. . .
(4) A reference in this Act to renewal,
in relation to a franchise agreement,
shall be read as a reference to
entering into a new franchise
agreement, where the provisions of
the new agreement are the same as
those of the first-mentioned
agreement or do not differ
substantially from the provisions of
the first-mentioned agreement except
in any one or more of the following
respects . . ."
It is not necessary to set out the four sub-paragraphs which listed these following respects.
16. So far as is material, s. 13 provided as follows:
"13.(1) A corporation shall not enter as
franchisor, into a franchise agreement
the term of which does not comply with
the requirements of this section.
(2) Subject to sub-section (6) hereof,
the term of -
(a) a franchise agreement entered
into otherwise than by way of
renewal, where the franchisee
has produced to the
franchisor, before entering
into the agreement, evidence
reasonably sufficient to show
that he is a person with
prescribed experience; or
(b) a franchise agreement entered
into by way of renewal, other
than an agreement referred to
in sub-section (4),
shall not be less than 3 years.
(3) The term of a franchise agreement,
other than an agreement referred to
in paragraph (2) (a) or an agreement
entered into by way of renewal, shall
be one year or less, or 3 years or more.
(4) Subject to sub-sections (5) and (6), where -
(a) a corporation enters, as
franchisor, into a franchise
agreement by way of renewal;
and
(b) the term of the original
agreement amounts, or the
terms of the original
agreement and of any previous
renewal amount in the
aggregate, to a period of more
than 5 years and less than 9 years,
the term of the agreement so entered
into shall be a period which is not
less than the difference between the
period referred to in paragraph (b)
and 9 years.
. . .
(10) Where a corporation purports to enter
into a franchise agreement in
contravention of a sub-section of
this section, the franchise agreement
is not thereby invalidated, but the
term of the agreement is -
(a) in case of a contravention of
sub-section (3) -
(i) if the marketing
premises are held by
that corporation or a
related corporation as
lessee under a lease in
respect of which the
lessor is not a
corporation related to
the lessee and the term
of the lease will expire
less than 3 years after
the commencement of the
agreement - a period
expiring immediately
before the expiration of
the term of the lease;
or
(ii) if sub-paragraph (a) (i)
does not apply - 3
years; or
(b) in any other case - the term,
or the minimum term, as the
case may be, provided by the
sub-section contravened.
. . ."
Sub-section 16 (1) provided that a franchisor might terminate the franchise agreement in accordance with the other provisions of that section but not otherwise, and sub-s. (2) provided that a franchisor should not terminate the franchise agreement except on one or more of the grounds which are set forth in the ten paragraphs which followed. They dealt with such matters as the rendering of the franchisee, by reason of physical or mental incapacity, unable to control the operation of the marketing premises, the wilful adulteration of motor fuel supplied under the franchise agreement, the making of fraudulent misrepresentations in connection with the operation of the marketing premises, and the breach by the franchisee of a condition of the franchise agreement. Sub-section 16 (9) provided:
"16.(9) This section does not prohibit a
franchisor from terminating the
franchise agreement with the consent
in writing of the franchisee given at
any time after the commencement of
the agreement."
This provision may be compared with sub-s.7(2) which provided that nothing in the statute should be taken to affect the operation of an agreement "to the extent that the agreement is capable of operating consistently with this Act".
17. Finally, sub-s. 17 (1) stated that a franchisor should not fail or refuse to renew a franchise agreement except on one or more of the grounds there listed. Sub-sections 17 (7), (15) and (16) should be set out in full:
"17.(7) Notwithstanding anything in the
preceding provisions of this section,
where -
(a) a franchisor, by notice in
writing served on the
franchisee not later than 30
days before the expiration of
the franchise agreement,
offers to renew the agreement;
and
(b) after that notice is served,
the franchisee fails to serve
on the franchisor before -
(i) if that notice is served
earlier than 120 days
before the expiration of
the agreement - the
ninetieth day before the
expiration of the
agreement; or
(ii) in any other case - the
expiration of 30 days
after the receipt of the
notice by the franchisee,
a notice in writing accepting
the offer of renewal,
the franchisor is not required to
renew the agreement.
. . .
(15) Where -
(a) a franchise agreement
has, whether before or
after the commencement of
this Act, been entered
into otherwise than by
way of renewal;
(b) this section has applied
in relation to a renewal,
or 2 or more consecutive
renewals, of the
franchise agreement; and
(c) the term of the renewal
or the terms of the
renewals, together with -
(i) if the franchise
agreement was
entered into before
the commencement of
this Act - so much
(if any) of the term
of that agreement as
occurred after the
commencement of this
Act; or
(ii) in any other case -
the term of the
franchise agreement,
amount in the aggregate
to not less than 9 years,
this section does not require
the franchisor to renew the
franchise agreement but, if
the franchisor renews the
franchise agreement, this
section has effect as if that
renewal were a franchise
agreement entered into otherwise
than by way of renewal.
(16) This section does not apply in
relation to a franchise agreement the
term of which is 9 years or more."
18. As we have indicated, the learned primary Judge held that the respondent was entitled from 19 September 1989 to a renewal of the 1987 Agreement until 13 October 1990, upon the assumption that the respondent had committed no breaches of the 1987 Agreement. Upon the appeal, the appellant contends that the respondent was not entitled to any renewal of the 1987 Agreement upon its expiry on 19 September 1989. On its cross-appeal the respondent contends that it is entitled to a renewal for a term ending 31 October 1993.
19. Upon the appeal, there was no dispute that the 1979 Lease and 1979 Supply Agreement, the 1981 Agreement, the 1984 Agreement and the 1987 Agreement were franchise agreements within the meaning of the Act. In particular, it was accepted that the 1980 Act applied to the 1979 agreements, so that the balance of the term of those agreements might be taken into account in computing the entitlement under the legislation of a franchisee to renewal. The dispute on the appeal essentially concerns the question of the extent to which under the legislation each of the 1981 Agreement, the 1984 Agreement and the 1987 Agreement was a renewal of the franchise agreement constituted by the documents which preceded it.
20. Any entitlement of the respondent after 1 January 1985 to renewal of its franchise agreement flows from s. 17B of the 1984 Act, though that provision in terms refers back to the provisions of the 1980 Act. In particular, sub-ss. (4) and (6) of s. 17B of the 1984 Act are as follows:
"17B.(4) Where -
(a) a franchise agreement (in this
sub-section referred to as the
'original agreement') has been
entered into otherwise than by
way of renewal;
(b) the provisions of section 17
of this Act as in force before
1 January 1985, or of sections
17 and 17A of this Act as in
force on and after that date,
or both, have applied in
relation to a renewal, or 2 or
more consecutive renewals, of
the original agreement; and
(c) the term or terms of the
agreement as so renewed,
together with the term of the
original agreement, amount in
the aggregate to 9 years or more,
sections 17 and 17A of this Act as in
force on and after that date do not
apply in relation to the renewal of
the agreement when the term of the
agreement next expires, but, if the
franchisor voluntarily renews the
agreement, those sections and this
section (subject to section 6) apply
again as if the agreement as so
voluntarily renewed were entered into
otherwise than by way of renewal.
. . .
(6) For the purposes of this section, a
reference to the term of an agreement
includes a reference to any part of
the term that occurred at a time when
this Act did not apply in relation to
the agreement, other than a time
before 19 September 1980."
21. The appellant submits that when the 1984 Agreement expired by effluxion of time on 31 October 1987, the combined total of so much of the term of the 1979 agreements as could be taken into account for the purposes of applying sub-s. 17B (4) of the 1984 Act, together with the terms of subsequent renewals, was made up as follows:
(a) 19 September 1980 - 25 March 1981
(i.e. 6 months and 6 days)
(b) 26 March 1981 - 31 October 1984
(i.e. 3 years 7 months and 5 days)
(c) 1 November 1984 - 31 October 1987
(i.e. 3 years)
The total of the computable original term together with renewals up to 31 October 1987 was 7 years 1 month and 11 days, with the result that the respondent was entitled as at 31 October 1987 to a further 1 year 10 months and 19 days, a period which expired on 19 September 1989. This was the term fixed by the 1987 agreement. Therefore, the appellant submits, the terms of the agreement as renewed in 1981, 1984 and 1987 together with the allowable portion of the term of the 1979 agreements, having amounted in the aggregate to 9 years, the respondent was not, within the meaning of sub-s. 17B (4) of the 1984 Act, entitled to any further renewal for a term after 19 September 1989. The appellant might voluntarily renew the agreement with the consequences spelt out in sub-s. 17B (4), but the appellant was not willing to proceed in this way.
22. In our view, the submissions for the appellant should be accepted. We turn to explain why this is so.
23. Clause 15 of the 1981 Agreement has been set out earlier in these reasons. In terms, it stated that as from the commencement of the 1981 Agreement, the 1979 agreements were "hereby cancelled". There was, at first instance, some discussion of the principles in the law of leases whereby the grant of a second lease during the term of the first lease may bring about a surrender of the first lease by operation of law. But, in our view, the effect of clause 15 of the 1981 Agreement was to bring about a consensual termination of the unexpired periods of the 1979 agreements, without any recourse to principles which operate in the absence of any express statement of intention of the parties. There was a bilateral discharge of the 1979 agreements, which brought them to an end or "terminated" them.
24. It also should be borne in mind that whilst the 1979 agreements indubitably included a lease of the subject premises, the totality of those agreements included covenants by the franchisee, some of which might not have "touched and concerned" the land within the meaning of traditional doctrine in the law of leases. The point is suggested by the inclusion in the definition of "franchise agreement" in sub-s. 3 (1) of the 1980 Act, of provisions, express or implied, dealing with use of a mark in connection with the retail sale of motor fuel by the franchisee at the premises; cf. Regent Oil Co. Ltd. v J.A. Gregory (Hatch End) Ltd. (1966) Ch 402 at 431-432, 434, 436-437; Kumar v Dunning [1987] EWCA Civ 1; (1987) 2 All ER 801; P. & A. Swift Investments v Combined English Stores Group Plc [1988] UKHL 3; (1988) 2 All ER 885. Further, the Act is concerned, in terms, not with leases, but with franchise agreements. The term "agreement" is so defined in sub-s. 3 (1) as to mean any agreement, arrangement or understanding. Thus, some care is called for against too readily carrying over into a consideration of the operation of the statute, doctrines and concepts flowing from the law of landlord and tenant.
25. Clause 15 of the 1981 agreement operated consistently with the legislative regime imposed by the 1980 Act. As we have indicated, s. 16 permitted a franchisor to terminate a franchise agreement only in accordance with the provisions of that section, but sub-s. 16 (9) meant that there was no prohibition upon a franchisor terminating a franchise agreement with the consent in writing of the franchisee given at any time after the commencement of the franchise agreement; see Magic Australia Pty. Ltd. v Caltex Oil (Australia) Pty. Ltd. (1988) 84 ALR 483 at 487. In our view, clause 15 of the 1981 Agreement is to be construed as a consensual termination of the kind contemplated by sub-s. 16 (9) of the 1980 Act. Nothing turns upon the use of the expression "cancel" in clause 15 rather than "terminate".
26. The 1981 Agreement contained provisions which did not differ substantially from those of the 1979 agreement, within the meaning of sub-s. 3 (4) of the 1980 Act. That would indicate that the 1981 Agreement was to be regarded as a renewal of the 1979 agreements for the purposes of s. 17 of the 1980 Act. But, at first instance, it was submitted by the respondent that one could not, in terms of the legislation, speak of renewal of a franchise agreement where that franchise agreement had been terminated before it had run its course. Hill J. held that the grant of a new lease, in circumstances such as occurred in 1981, immediately upon the termination of a previous lease, is not to be seen as a renewal of that lease, and that nothing in sub-s. 3 (4) required that conclusion. His Honour's attention was concentrated upon the concept of a "lease". He said:
"Consistent with what I would understand
to be the legislative purpose of the 1980
Act there then becomes in a case such as
the present no requirement to count the
whole term of a lease (notwithstanding
that the lease has been surrendered) as
part of the nine year statutory period.
Rather, once the lease is a lease which
has been terminated it does not count at
all in the nine year period and the grant
of a new franchise agreement will set in
train a new nine year period."
It was for this reason that his Honour held that the 1981 Agreement was entered into otherwise than by way of renewal of the 1979 agreements, with the result that time should not be computed from 19 September 1980. The appellant appeals against this holding.
27. It appears that his Honour's attention was not directed to sub-s.3(2) of the 1980 Act which, in our view, requires that a reference to "renewal" in relation to a franchise agreement be read as including a reference to a "terminated or expired agreement". The term "terminated" is, given the scheme of s.16 (including the reference in sub-s. 16 (9) to consensual termination), to be construed as encompassing a franchise agreement brought to an end before its expiry by effluxion of time, and by a consensual termination, as happened here.
28. The respondent referred to Associated Minerals Pty. Ltd. v N.S.W. Rutile Mining Co. Pty. Ltd. (1961) 35 ALJR 296 at 298, as indicating that in ordinary usage, the word "renewal" used in relation to a lease, identifies a lease which is granted during and which follows immediately upon, the term of a lease which has expired by effluxion of time. But the 1980 Act, as is indicated by sub-ss. 3 (2) and (4), is so drawn that a franchise agreement may be a renewal of a franchise agreement which preceded it and came to an end before the renewal was granted.
29. In our view, the 1981 Agreement operated, within the meaning of the legislation, as a renewal of the 1979 agreements. The appellant should succeed on this branch of the case.
Was the giving of a notice under sub-s. 17 (7) of the 1980 Act a condition precedent to an effective renewal of the 1981 Agreement?
30. The respondent took the point on its cross-appeal that the 1984 Agreement was not a renewal of the 1981 Agreement, because the franchisor had not observed what was described as the condition precedent laid down in sub-s. 17 (7) of the 1980 Act.
31. Sub-section 17 (1) of the 1980 Act provided that a franchisor was not to fail or refuse to renew a franchise agreement except on one of the grounds specified in that sub-section. It was not stated that the franchisor and franchisee might agree to renewal of a franchise agreement only by following any procedure laid down in the section. This impression is strengthened if one has regard to the terms of sub-s. 17 (7), which we have set out earlier in these reasons.
32. The effect of sub-s. 17 (7) was that a franchisor might not be required or compelled to renew the franchise agreement if the franchisor had taken the steps indicated as necessary on its part and the franchisee had failed to take the step indicated on its part. There was nothing in these provisions to exclude from characterisation as a renewal for the purposes of the legislation, steps taken consensually by the franchisor and franchisee. Hill J. concluded that the giving by a franchisor of a notice under sub-s.17(7) of the 1980 Act was not a condition precedent to there being an effective renewal by a consensual arrangement between franchisor and franchisee. With respect, we agree. The respondent's cross-appeal fails.
33. It is true that sub-s.17(15) was a central provision of the 1980 legislative scheme. It operated upon one or more consecutive renewals of the franchise agreement and did not oblige the franchisor to renew so as to produce an aggregate of more than 9 years. The sub-section spoke of s.17 having "applied in relation to a renewal, or 2 or more consecutive renewals . . .". In our view, the section still will have "applied" in the case where it obliged the franchisor to renew a franchise agreement, but in the events that happened the franchisor was not forced to do so because the parties between them agreed upon a renewal which accorded with that which might have been compelled. What was excluded by the words in question were renewals of franchise agreements, which renewals took place before the commencement of the 1980 Act; the term of any such renewal played no part in the computation of the aggregate of 9 years because s. 17 had not applied in relation to it.
34. Hill J. held that, whilst the term of the 1981 Agreement expired on 25 March 1984, the holding over provisions contained in the 1981 Agreement did not intervene to prevent the 1984 Agreement being a renewal of the 1981 Agreement. His Honour said:
"Nevertheless the wording of s.13 of the
1980 Act does rather imply that the
concept of the term of an agreement on
the one hand and the concept of the time
when the agreement would expire on the
other are both the same. However, it
seems to me that whether it can be said
that the franchise agreement expired when
its term came to an end or whether it
continued in existence during the holding
over period notwithstanding that its term
had come to an end, I think that where
there has been a franchise agreement
which has expired and no new franchise
agreement has been entered into either
with the franchisee or any other person,
a subsequent franchise agreement entered
into with the franchisee is properly to
be seen as a renewal of the franchise
agreement, notwithstanding that the term
of the franchise agreement had expired
and irrespective of the holding over period."
We would, with respect, approach the question somewhat differently.
35. It followed from sub-s. 13 (2) of the 1980 Act that the term of the 1981 Agreement should not be less than three years. That was the case in the sense that what in the 1981 Agreement was described as "the demise" was for a term of three years commencing on 26 March 1981, and the agreement between the parties as to the sale and purchase of petroleum products was described in clause 6 as operating "during the term of this Lease". It is true also that the 1980 Act dealt with the situation where there was a franchise agreement, but the "marketing premises" (as defined in sub-s.3(1)) were held under a lease, the parties to which were not the franchisor and the franchisee; see, for example, sub-s. 13 (6), para. 13 (10) (a).
36. Nevertheless, it is, in our view, wrong to approach the construction of the expression "term" used in the legislation in relation to a franchise agreement as if it bore the technical meaning of that expression in the law of leases. That approach does appear to have coloured the construction given the legislation by Fox J. in J. & M. O'Brien Enterprises Pty. Ltd. v Shell Company of Australia [1982] FCA 245; (1982) 45 ALR 81 at 93. It also influenced the approach taken by Hill J. in the present case, where his Honour referred to what was said by Sugerman J. in Burdekin v Commissioner of Stamp Duties (1961) 61 SR (NSW) 514 at 518 as to the expression "term" meaning in relation to a lease of real property, "a fixed or definite period"; that is, a period with a certain time of determination.
37. Hill J. went on to hold that, without regard to authority, the 1980 Act required the term of a franchise agreement to be calculated at the time the franchise agreement was entered into or renewed, and not by reference to what actually happened in occupation under the franchise agreement. His Honour referred to the provisions of s. 13, which we have set out earlier in these reasons. But to say, for example, that the term of a franchise agreement "shall not be less than three years", (as did sub-s. 13 (2)), does not mean that the franchise agreement may not be more than three years, nor that the extent to which the franchise agreement lasts beyond three years must be fixed at the time of the commencement of the franchise agreement.
38. Sub-section 13 (4) dealt with duration of renewed franchise agreements. It posed, in para. (b), the question whether the term of the original agreement and any previous renewal amounted in the aggregate "to a period" of more than 6 years and less than 9 years. There is no difficulty in answering that question by looking to what in fact has already happened, where, for example, there has been a holding over for some period which goes into the computation of the aggregate.
39. His Honour referred to sub-s. 17 (7) of the 1980 Act which, as we have indicated, required, as a condition precedent of the franchisor not being required to renew an agreement, the service on the franchisee of a notice in writing of the franchisor not later than thirty days "before the expiration of the franchise agreement". His Honour said that unless the term of the agreement was fixed at the outset, it might be impossible, particularly if the holding over period were on a weekly basis, to identify that period which was thirty days before the expiration of the franchise agreement. However, in our view, in such a case the exigencies of the legislation would be met by the franchisor resolving not to let the holding over continue for more than a further five weeks, and then giving the thirty day notice containing the offer to renew the franchise agreement.
40. We adopt what was said on this subject by Wilcox J. in Sid Marz Services Pty. Ltd. v Caltex Oil (Australia) Pty. Ltd. (1988) ATPR 46-031 at p 53,099, in a passage upon which the appellant relied. One of the issues before the Court was whether notice by a franchisor of a decision not to renew given during a holding over period was a valid notice for the purposes of sub-s. 17A (5) of the 1984 Act. The point of construction involved was similar to that presented by sub-s. 17 (7) of the 1980 Act. Wilcox J. said:
"It is argued on behalf of the applicant
that the result of this requirement is
that the notice should have been served
before 28 February 1987, when the term of
the lease expired.
I am unable to accept that submission.
The Petroleum Retail Marketing Franchise
Act makes a distinction, in a number of
places, between the term of a lease and
the operation of an agreement. I think
that the requirement of subsec. 17A (5)
is directed, not to the expiration of the
original leasehold term, but to the date
when the agreement itself would expire.
Where there is a holding-over clause, the
agreement may continue to operate,
perhaps for a considerable time, after
the expiration of the term. It cannot be
said that the agreement has expired until
the date when the holding-over clause
ceases to have effect. In this case the
holding-over clause, as is common ground,
continued to have effect until 30
September 1987. Consequently, subsec.
17A (5) required that notice be served
before that date. This was done."
41. It appears that J. & M. O'Brien Enterprises Pty. Ltd. v Shell Company of Australia (supra) had not been cited to his Honour. But, in any event, for the reasons given above, we would prefer the reasoning expressed by his Honour in the passage we have cited. We should add that we do not read what was said by Burchett J. in Magic Australia Pty. Ltd. v Caltex Oil (Australia) Pty. Ltd. (supra at 484-485) as finally accepting the contrary position.
42. The "holding over" period from 26 March 1984 to 31 October 1984 is to be treated as part of the term of the 1981 Agreement for the purposes of the legislation, and the 1981 Agreement is to be treated as having expired on 31 October 1984. The 1984 Agreement was a renewal of the 1981 Agreement because it was a new franchise agreement whose provisions did not differ substantially from those of the expired 1981 Agreement. The 1984 Agreement was for a term of three years, and whilst it too had a holding over clause (sub-clause 4 (d)) it was replaced on its expiry by the 1987 Agreement which had been executed on 12 October 1987 with effect from 1 November 1987 until 19 September 1989. At the time of entering into the 1987 Agreement, the Act had been amended by the 1984 Act. The question, therefore, was whether the term of the 1987 Agreement complied with s. 17B of the 1984 Act. It follows from what we have said that the provisions of the 1984 Act did not apply in relation to renewal of the franchise agreement when the term of the 1987 Agreement expired on 19 September 1989, because, in the events that had happened since 19 September 1980, the terms of the franchise agreement amounted in the aggregate to 9 years, within the meaning of sub-s. 17B (4).
43. In the result, the appellant has succeeded on the appeal and the respondent has failed on the cross-appeal. The appeal should be allowed and the cross-appeal should be dismissed. The respondent should pay the costs of the appellant both on appeal and at first instance. The orders appealed from should be varied by substituting for the answer to the separate question, the answer that the respondent is not entitled from 19 September 1989 to any renewal of the 1987 Agreement. If the question is answered in this way, that removes the need for the making of any declaration.
# Re Esso Australia Limited
RT & MI Abela Pty Limited \[1989\] FCA 523; 91 ALR 476
(1988) 84 ALR 483
(1961) 35 ALJR 296
(1982) 45 ALR 81