FEDERAL COURT OF AUSTRALIA

Ringrow Pty Ltd v BP Australia Ltd [2003] FCA 1297

CONTRACT – whether an option to purchase a service station exercisable upon breach of an agreement relating to the operation of the service station is void as a penalty

EQUITY – relief against forfeiture – whether the exercise of the option involved an unconscionable forfeiture of property against which equity would relieve

STATUTORY CONSTRUCTION – whether the arrangements by which the applicants operated the service station are franchise agreements within the meaning of s 16 of the Petroleum Retail Marketing Franchise Act 1980 (Cth)

WORDS & PHRASES – ‘operational’ and ‘goodwill’

Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) s 6(1)

Petroleum Retail Marketing Franchise Act 1980 (Cth)s 3(1), 16, 16(2), 16(2)(f), 16(2)(j), 16(3), 16(4), 16(4)(b), 16(5), 16(6)

AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 applied

BICC PLC v Burndy Corporation [1985] 1 Ch 232 cited

CRA Ltd v NZ Goldfields Investments [1989] VR 873 cited

Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 followed

Forestry Commission of NSW v Stefanetto (1976) 133 CLR 507 cited

Jobson v Johnson [1989] 1 All ER 621 applied

Legione v Hateley (1983) 152 CLR 406 followed

O’Dea v All States Leasing System (WA) Pty Ltd (1983) 152 CLR 359 referred to

Patel v Ali [1984] 1 Ch 283 referred to

PC Developments Pty Ltd v Revell (1991) 22 NSWLR 615 followed

Re Moore and Texaco Canada Ltd (1965) 50 DLR (2d) 300 referred to

Romanos v Pentagold Investments Pty Ltd [2003] HCA 58 cited

Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 cited

Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57 cited

The Minister for Home & Territories v Lazarus [1919] 26 CLR 159 referred to

Turner v Bladin (1951) 82 CLR 463 cited

Watson v Foxman (1995) 49 NSWLR 315 cited

Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) 33 NSWLR 551 applied

Rossiter Penalties & Forfeiture (1992) p 66

Lanyon Equity and the Doctrine of Penalties (1996) 9 JCL 234

Meagher, Gummow and Lehane Equity Doctrines and Remedies (4^th Ed)

Butt The Standard Contract for Sale of Land in New South Wales (2^nd Ed)

RINGROW PTY LTD v BP AUSTRALIA LTD

N 278 OF 2003

ULTIMATE FUEL PTY LTD v BP AUSTRALIA LTD

N 279 OF 2003

NADER-ONE PTY LTD v BP AUSTRALIA LTD

N 280 OF 2003

HELY J

13 NOVEMBER 2003

SYDNEY

THE COURT ORDERS THAT:

1.         The respondent bring in short minutes of order to give effect to this decision.

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

REASONS FOR JUDGMENT

1                     Separate proceedings were instituted on 20 December 2002 by Ringrow Pty Ltd (No 6052/02), Ultimate Fuel Pty Ltd (No 6053/02) and Nader-One Pty Ltd (No 6054/02) against BP Australia Pty Ltd (‘BP’) in the Supreme Court of NSW.  The Statement of Claim in each proceeding contained exclusive dealing claims, hence each proceeding was a ‘Special Federal Matter’ within the meaning of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) (‘the Cross-Vesting Act’).  On 28 February 2003 the Supreme Court ordered that each proceeding be transferred to the Federal Court pursuant to s 6(1) of the Cross-Vesting Act.  After the proceedings were transferred into this Court, the Statement of Claim in each proceeding underwent substantial amendment.  One of the amendments resulted in the abandonment of the exclusive dealing claims.

2                     The three proceedings relate to the agreements governing the ownership and operation of four service stations:-

·                    BP Lansvale which was purchased from BP for $1.2M by Ringrow Pty Ltd in 1999 (matter no N 278 of 2003).  Ringrow is a company which at relevant times was controlled by Richard Nader and his wife.

·                    BP Meadows which was also purchased from BP by Ringrow for $900,000 in 1999 (matter no N 278 of 2003).  BP Meadows is also referred to from time to time as ‘Mt Pritchard’.

·                    BP Auburn which was purchased from BP by Ultimate Fuel Pty Ltd for $1.4M in 2000 (matter no N 279 of 2003).  Ultimate Fuel is a company controlled by Richard Nader and Joseph Ayoub.

·                    BP Silverwater which was purchased from BP by Nader-One Pty Ltd for $780,000 in 2000 (matter no N 280 of 2003).  Nader-One is a company controlled by Richard Nader and his brothers.

The proceedings were heard together.

3                     BP is a manufacturer and supplier of petroleum products.  Retail service stations are conducted throughout Australia under the BP brand.  BP owns (or is the head lessee of) various service station sites.  Some of those sites are operated directly by BP or one of its subsidiaries.  Others of those sites are operated by franchisees or commission agents.  Commission agents sell petroleum products as agents for BP and are paid a commission for each litre of petrol sold.

4                     Where a site is operated by a franchisee, the operator is supplied with petroleum products at a price which is set by BP, and which varies from time to time.  This price is called the ‘rack price’.  From time to time the franchisees are given assistance in their endeavour to supply fuel, at a retail level, competitively.  Those franchisees are provided, from time to time, with rebates on the ‘rack price’ of fuel purchased from BP.  Those rebates are called ‘price support’.  The relevant franchisee surveys the prices charged by its competitors and relays that information to BP.  This is done on a daily basis.  A rebate is calculated, on the daily information provided by these franchisees, to assist them in setting a retail price which allows them to compete with their competitors and still obtain a profit margin on the fuel sold by them.  The rebate which is provided is site specific.  It is determined by reference to the competitive conditions which obtain at each relevant site.

5                     BP also has an operator owned network of service station sites.  These sites are owned by the operator, but are BP branded and supplied with BP fuel.  Some of the sites in this network are ex-BP franchise sites that BP has sold to the operator.  As a condition of sale of the service station, the operator must enter into a package of agreements including an exclusive supply agreement with BP pursuant to which the operator agrees to purchase all of its petroleum product requirements from BP.  These exclusive supply agreements are known as POSA’s (Privately Owned Site Agreements).  The term of a POSA is five years.  During that time, the operator is permitted to conduct a service station under the BP brand and is required to purchase fuel only from BP.  At the end of the term, the operator may elect to enter into a new supply agreement with BP or may elect to obtain its supply of fuel from third parties.

6                     BP has established a wholesale price for petroleum products which is called the terminal gate price, or the ‘TGP’.  The TGP is uniform throughout all the suburbs in metropolitan Sydney.  BP supplies fuel to service stations operated under POSA’s at the terminal gate price plus a fee for delivery.  The TGP was introduced in mid-1998.  It was originally adjusted every day or two.  Since July 2001, it has been adjusted on a bi-weekly basis.  BP does not provide any form of price support to the operators of sites under POSA’s in the Sydney metropolitan market.

7                     Mr Nader started operating a service station business at BP Lansvale in about 1988.  Either he or Ringrow did so as a franchisee of BP.  He worked in the business on a daily basis and was intimately familiar with the business and the extent of the competition from other service stations in the area.  In mid-1991 Mr Nader acquired the additional business of BP Meadows which Mr Nader and/or Ringrow operated as a franchisee.  From 1993 Nader-One operated BP Meadows, in 1996 the franchise agreement was transferred back to Ringrow.  Each of those sites was then owned by BP, and leased to Mr Nader/Ringrow/Nader-One as part of the franchise operation.

8                     In September 1996 Mr Nader acquired the BP Auburn service station business which Mr Nader/Ringrow operated as a franchisee.

9                     In 1998 the franchise agreement for BP Lansvale expired.  Ringrow ceased to operate BP Lansvale and vacated the site.  At the end of August 1998 BP bought out the remainder of the term of the franchise agreement for BP Meadows from Ringrow and thereafter Ringrow operated BP Meadows as a commission agent.

10                  By the late 1990s Mr Nader regarded himself as very familiar with how to run a service station business, and in particular, how to run a service station business from BP Lansvale, BP Meadows and BP Auburn.  Mr Nader had been a very successful dealer so far as BP was concerned.  He received various excellence awards over the years, and was regarded as one of BP’s best performing dealers.

Ringrow acquires BP Lansvale and BP Meadows

11                  In 1999 BP had a divestment program in place whereby BP sought to dispose of some of the service station sites which it owned.  A decision was taken to sell BP Lansvale and BP Meadows.  On 23 February 1999 Alcorn Corbin Nicholson Pty Ltd provided BP with a valuation of BP Lansvale which was valued, on a going concern basis, at $850,000 and on a non-petroleum use basis of $650,000.  On 22 February 1999 those valuers also provided BP with a valuation of BP Meadows.  BP Meadows was valued at $850,000 on a going concern basis, and at $550,000 on a non-petroleum use basis.  On 6 April 1999 divestment of these service stations was approved.  BP’s internal valuation of BP Lansvale was $1,148,070.  BP’s internal valuation of BP Meadows was $411,161.

12                  Dennis Vasiliou was the network consolidation manager of BP at the time.  His responsibilities included the carrying out of the divestment of service stations which BP had decided to sell.  In early 1999 Mr Vasiliou had a conversation with Mr Nader in which he proposed that if Mr Nader surrendered the BP Auburn franchise, BP would sell him the BP Lansvale and BP Meadows sites.

13                  During the weekend of 10-11 April 1999 Mr Nader met Mr Vasiliou for lunch to discuss the sale of the BP Lansvale and BP Meadows sites.  There is a dispute as to what occurred at this meeting.  In proceedings no N 278 of 2003, the Third Further Amended Statement of Claim (‘the FASC’) par [7] asserts that Mr Vasiliou represented that BP would supply fuel to Ringrow at the sites at a wholesale price which would enable Ringrow to compete with the retail prices of Ringrow’s agreed competitors at the Lansvale site and the Meadows site.  This representation is the foundation for the misleading and deceptive conduct claim.  Whilst Mr Vasiliou accepts that he said during the course of this conversation that BP’s supply prices would be competitive across the Sydney market, he denies that he made the pleaded representation.  At the time of this conversation the TGP was 5 to 6 cents below the rack price.  It will be necessary to return to this dispute when considering the misleading and deceptive conduct claim. 

14                  On 12 April 1999 Mr Vasiliou sent an email to several officers of BP on the subject of the sale of BP Lansvale and BP Meadows which included the following:

‘It’s been a busy weekend.  I have sold both Lansvale and Meadows to Richard Nader for $2.1M.  $100K over valuation.  No discounts apply and he is dead keen to spend some serious money (around $250K) in enlarging/renovating both stores.  To that end I have also agreed that as part of the deal, we will do the initial drawings for him as per John Clark’s offer to POSA Dealers if they upgrade their sites (costs approx $2,500/site).  The deal also involves the buy back for BP Parramatta Road which was done by Fred Pacchiarotta at $150K plus stock.  (Subject to valuation).  He had tenure to 31/08/05.  So I congratulate all involved – we did well …’

15                  On 30 April 1999 Mr Vasiliou had a meeting with Mr Nader to give him the documentation necessary for Ringrow to enter into POSA’s for the BP Lansvale and BP Meadows sites.  At that meeting Mr Vasiliou handed Mr Nader a bundle of documents relating to the sale of each site which included:

(a)        a letter of offer from BP to Ringrow dated 26 April 1999 to enter into a POSA;

(b)        the BP branded POSA;

(c)        a disclosure statement;

(d)        an ‘acknowledgement and certification by dealer’;

(e)        a solicitor’s certificate;

(f)         a business adviser’s certificate;

(g)        an accountant’s certificate;

(h)        a ‘certificate by dealer with business adviser’s certificate and/or accountant’s certificate not obtained’.

16                  The letter of offer in each case included a section headed ‘Pricing’.  Under that heading it was stated that the applicable prices for petroleum products under the agreement are as follows:

‘For motor spirit (of any grade) and diesel the price will be BP’s terminal gate price at the BP terminal from which the product is delivered to the Dealer plus the applicable delivery charge which is currently ….  This is a cash, full tanker load price.  The price will vary.  The delivery fee may also vary from time to time.  No rebates, temporary price assistance or any other form of price support will be offered by BP.’

The delivery charge included in the letter as applicable in the case of BP Lansvale was different from that applicable in the case of BP Meadows.

17                  On 11 May 1999 Mr Nader returned the signed documents relating to both sites to Mr Vasiliou.  Amongst those documents was a document styled ‘Acknowledgment and Certification by Dealer’.  By that document, Mr Nader certified that prior to the execution of the POSA he had received, read and had a reasonable opportunity to understand the disclosure document and the franchising code of conduct which had been sent under cover of the letter of 26 April 1999.  A section of the document was headed ‘Promises or Understandings’ which was as follows:

‘It is of vital importance that there has been no misunderstanding by an intending Dealer as to the nature of the BP Branded Privately Owned Sites Agreement, its costs, its profitability, the services to be provided by BP or the lead time to become established, amongst other and similar points.

Please detail below any promises or undertakings which have been made to you which are not covered in the BP Branded Privately Owned Sites Agreement or in other documents provided to you by BP.’

The space provided for the provision of that information was left blank.  Mr Nader accepted in evidence that the representation on which he sues is the very kind of representation that the document was inviting him to record.  The only explanation proffered for not recording that representation in the space provided was: ‘I thought we had good relations between me and BP’.   On about 16 May 1997 and again on 16 June 2000 Mr Nader had completed an equivalent section of the document in relation to BP Parramatta Road and briefly detailed promises that had been made to him by BP in connection with the grant of a franchise of that site.  Mr Nader agreed in cross-examination that he was not backward in completing documents such as this.

18                  The documentation also included a solicitor’s certificate to the effect that before the POSA was signed, the solicitor fully explained the agreement to the dealer.  The documentation also included an accountant’s certificate to the effect that before the POSA was signed, the accountant gave to the dealer accounting advice about the agreement and the business.  The documentation also included a certification by Mr Nader that he had been told that he should seek business advice about the POSA and the business from an independent business adviser but had decided not to seek it.  Mr Nader made a deliberate decision not to seek business advice because he felt he knew as much about the business as anyone else might be able to tell him. Mr Nader also certified that he had obtained accounting advice about the POSA and the business from an independent accountant. 

19                  On 27 May 1999 Ringrow exchanged contracts to purchase BP Lansvale for the sum of $1,200,000 and contracts to buy BP Meadows for $900,000.  Each site (including the freehold, fixtures and equipment) was being sold by BP as a service station business operating on a going concern basis.  Each contract contained a Special Condition whereby in consideration of BP agreeing to sell the property to Ringrow, Ringrow (the grantor) granted an irrevocable option to purchase the property to BP (the grantee) on the terms set out in the annexed option deed.  Ringrow was obliged to deliver an executed option deed to BP on completion of the contract.

The option deed

20                  The form of option deed provides that in consideration of the sum of $10 paid by BP to Ringrow, the receipt of which is acknowledged, Ringrow grants to BP an irrevocable option to purchase the property on specified terms and conditions.  The option lapses on the date being 5 years and 3 months after the date of the option deed.  Clause 1.2 provides that the option may only be exercised by BP if one of the events specified in cl (a)-(g) occurs.  The event specified in cl 1.2(a) is if:

‘(a)      the agreement titled BP Branded Privately Owned Sites Agreement (‘POSA’) entered into between the grantor and the grantee is terminated, and is not replaced by a further POSA which may or may not be called POSA, or becomes unenforceable or of no force or effect from whatever cause.’

21                  Clause 2 of the option deed headed ‘Determination of Price’ provides that the purchase price payable for the property will be calculated in accordance with the following formula:

P = V

where

‘P’ means the purchase price payable for the property.

‘V’ means the market valuation of the property as an operational service station as determined by an independent valuer in accordance with Clause 2.

(emphasis added)

22                  Clause 2.2 in each option deed is as follows:

‘Within 14 days following delivery of the Notice of Intention, the grantor and the grantee must jointly appoint an independent valuer to determine the market valuation of the property in accordance with this Clause 2.  If the grantor and the grantee fail to agree on an independent valuer within 14 day period the grantee may request the president (or if there is no president the senior office bearer) of the Australian Institute of Valuers and Land Economists to appoint an independent valuer in accordance with this Clause 2.’

The ‘Notice of Intention’ is a document required to be delivered by the grantee to the grantor pursuant to Clause 1.1 of the option deed confirming the grantee’s intention to exercise the option to purchase.

23                  Clause 2.5 of each option deed provides as follows:

‘The valuer shall be instructed to determine the market valuation of the property as at the date of the Notice of Intention and in making the determination shall have regard to all factors the valuer considers relevant but shall not include in the determination of the market valuation of the property any allowance for any goodwill attaching to any business conducted at the property.’

24                  Special Condition 39 of each contract provided that concurrently with the completion of the contract BP and Ringrow shall enter into a POSA in the form annexed to the contract.  Special Condition 41 of each contract provides that in consideration of Ringrow entering into a POSA with BP in accordance with Special Condition 39, BP agrees to sell to Ringrow the property on the terms and conditions specified in this contract.

The POSA

25                  Under the POSA, the operator is required, inter alia, to:

(a)        manage the site in a manner and to a standard which reflects favourably on BP: see cl A3.7;

(b)        refrain from making any misrepresentations about the products offered for sale: see cl A3.9(a);

(c)        avoid conduct that might be detrimental to BP or its public image: see cl A3.13;

(d)        purchase all motor fuel for retail sale from BP: see cl A4.2;

(e)        refrain from selling any motor fuel other than BP motor fuel: see cl A4.2; and

(f)         refrain from selling any BP petroleum products which have been mixed or adulterated with non-BP petroleum products or pass off or represent non-BP petroleum products as BP petroleum products: see cl A4.16.1.

26                  Clause A4.7 of the POSA provides that the prices payable by the dealer for products and services purchased from BP are the prices specified by BP as applicable to the dealer at the place of delivery and on the date and at the time of delivery.

27                  Clause A4.15 of the POSA is concerned with ‘foreign fuel’.  Clause A4.15.1 provides:

‘A4.15Foreign Fuel

A4.15.1     To the extent that BP Petroleum Products are, for any reason outside the Dealer’s control, not able to be supplied to the Dealer, the Dealer may sell non-BP Petroleum Products from the Site, if the Dealer:

(a)       purchases only Petroleum Products which meet the specifications and standards of quality nominated by BP;

(b)       before doing so obtains BP’s written consent to purchase those products, such consent to be granted or withheld without unreasonable delay and not to be unreasonably withheld where the Dealer has provided BP with details of the reasons for the unavailability of BP Petroleum Products;

(c)        complies with all reasonable directions issued by BP (both before and after the Dealer is permitted to purchase non-BP Petroleum Products) to minimise any adverse effect on the goodwill and reputation of BP, the BP Marks or BP Retail Fuel Outlets during any such time.  The directions may include, for example, the covering of the BP Marks on pumps, the covering of the pole sign at the Site and the erection of signs and notices to the Dealer’s customers;

(d)       establishes, maintains and keeps current at the Site a register of all those purchases containing details of purchase, the quantity and type of product purchased, the suppliers of the product and into which bulk storage tanks such products were delivered and which pumps are connected to those tanks; and

(e)        permits BP to inspect the register of Motor Fuels purchases and take copies of or extracts from it at any time during the normal business hours of the Retail Business.’

28                  Clause A13.2 of the POSA deals with termination for default.  Clause A13.2.1 provides that if:

(a)        the Dealer breaches this agreement, including without limitation:

            (i)         any failure by the dealer to perform any obligation imposed on the Dealer by this agreement …

            (ii)        …

            (iii)       …

            (iv)       …

            (v)        …

(b)        if that default is capable of rectification, it is not totally rectified within 30 days after written notice of such default (and notice of what is required to remedy the default) is given to dealer;

BP may terminate this Agreement at any time after then by giving written notice of termination to the Dealer.

29                  Clause A13.2.2 of the POSA provides that if BP reasonably believes, for any reason (and whether or not the dealer has breached a provision of this agreement), that the dealer is no longer suitable to carry on the retail business, then BP may terminate the agreement by giving not less than 30 days written notice of termination to the dealer.

30                  Clause A16.2 of the POSA provides:

‘Waiver

No failure or partial failure by BP to enforce any of their powers, rights or remedies under this Agreement is a general waiver or a waiver or partial waiver of that power, right or remedy and no waiver is effective unless made in writing and executed on behalf of BP or by an officer of BP as the case may be with actual authority to execute the waiver.’

31                  Clause A16.17 of the POSA provides that the Special Conditions set out in Item 20 of the schedule will apply to the agreement and form part of it.  Item 20 of the schedule includes a Special Condition dealing with liquidated damages.  In the case of BP Lansvale, that Special Condition provides as follows:

‘Item 20    Special Conditions (clause A16.17)

SC1     Liquidated Damages

            SC1.1  The Dealer acknowledges that it (or a Related Company of the Dealer of any other person related to the Dealer) has acquired from BP pursuant to a separate contract of sale with BP the freehold of the Site, equipment and other assets (excluding the Loaned Equipment) used in the conduct, as a going concern, of the retail fuel outlet at the Site (“Ongoing Business”).

            SC1.2  The Dealer and BP acknowledge and agree that:

                        (a)        BP agreed to sell the Site and the Ongoing Business to the Dealer (or a Related Company of the Dealer or any other person related to the Dealer) on the basis of continued operation of the business of a retail fuel outlet operating as a going concern at the Site under this Agreement for the Term (being a period of 5 years) and on the basis of the expected returns to BP under this Agreement over the Term.  The expected returns to BP under this Agreement over the Term is $289,531 (“Liquidated Damages”).

                        (b)        if this Agreement is terminated prior to the expiry of the Term, BP will suffer losses as a result including the specific loss of the Liquidated Damages;

                        (c)        the reducing rate at which the Liquidated Damages may be payable over the Term as set out in clause SC1.3 represents a fair and proper basis for payment in the circumstances set out in this clause SC1;

                        (d)        the amount payable on termination of this Agreement as specified in clause SC1.3 represents a genuine pre-estimate of the minimum loss BP will suffer as a result of the termination of this Agreement if this Agreement is terminated prior to the expiry of the Term; and

                        (e)        BP has the right to acquire the Site under a separate option agreement between BP and the Dealer (or between BP and a Related Company of the Dealer or any other person related to the Dealer).  BP also has a first right of refusal to acquire the Site under clause A5.11.  If this Agreement is terminated and BP has exercised its right to acquire the Site under the separate option agreement or under clause A5.11, the Liquidated Damages will not be repayable to BP under clause SC1.3.

            SC1.3  The Dealer agrees that if this Agreement is terminated prior to the expiry of the Term the Liquidated Damages will be payable by the Dealer to BP as follows:

                        If termination or acceptance occurs between the Commencement Date and the expiration of year 1 of the Term: ……………………………………………………………….$289,531

                        If termination or acceptance occurs between the expiration of year 1 and the expiration of year 2 of the Term:   …..$231,625

                        If termination or acceptance occurs between the expiration of year 2 and the expiration of year 3 of the Term: …...$173,719

                        If termination or acceptance occurs between the expiration of year 3 and the expiration of year 4 of the Term: …..$115,812

                        If termination or acceptance occurs between the expiration of year 4 and the expiration of year 5 of the Term: …...$57,906

                        If termination or acceptance occurs after the expiration of year 5 of the Term: …………………………………………….$ Nil

            SC1.4  The Liquidated Damages are payable by the Dealer to BP within 7 days of the date of the termination of this Agreement.  Any monies received by BP pursuant to the separate contract of sale referred to in clause SC1.1, by way of payment of the Liquidated Damages, will be credited against the amount owing by the Dealer under this clause SC1.

            SC1.5  The Dealer (or a Related Company of the Dealer or any other person related to the Dealer) has agreed under and on the terms and conditions set out in the separate contract of sale referred to in clause SC1.1, to grant a mortgage in favour of BP over the Site to secure payment of the Liquidated Damages in the event of a termination of this Agreement prior to the expiry of the Term.’

32                  A similar Special Condition is to be found in the POSA relating to BP Meadows, except that the figures for liquidated damages are different.  In the case of BP Meadows the applicable figures are:

·                    from the date of commencement to the expiration of year 1        – $210,641;

·                    from the expiration of year 1 to the expiration of year 2 – $168,512;

·                    from the expiration of year 2 to the expiration of year 3              – $126,385;

·                    from the expiration of year 3 to the expiration of year 4                – $84,256;

·                    from the expiration of year 4 to the expiration of year 5    – $42,128;

·                    following the expiration of year 5                                               –    nil.

33                  Each of the contracts contains Special Conditions 40.2, 40.3 and 40.4.  In the Lansvale contract, those Special Conditions are as follows (they are the same in the BP Meadows contract except that the figures for liquidated damages are different, and are as set out above):

‘40.2    The purchaser acknowledges that the vendor will obtain financial benefit during the term of the POSA from the sale of petroleum products to the purchaser under the terms of the POSA.  If the POSA is terminated prior to the expiry of the 5 year term the vendor will suffer loss which loss the vendor has estimated to be $289,531 (“Liquidated Damages”).  The purchaser agrees that if the POSA is terminated prior to the expiry of the 5 year term the purchaser will pay the vendor the Liquidated Damages as follows:

            If the POSA is terminated:

·        from the date of commencement to the expiration of year     $289,531

·        from the expiration of year 1 to the expiration of year 2        $231,625

·        from the expiration of year 2 to the expiration of year 3        $173,719

·        from the expiration of year 3 to the expiration of year 4        $115,812

·        from the expiration of year 4 to the expiration of year 5         $57,906

·        following the expiration of year 5                                              Nil

40.3     The Liquidated Damages are payable by the purchaser to the vendor within 7 days of the date of the termination of the POSA.

40.4     The vendor and purchaser acknowledge and agree that:

            (a)        the vendor is prepared to sell the property on the basis of continued operation of the business of a retail fuel outlet operating as a going concern at the property under the POSA for a period of 5 years and the Liquidated Damages reflects the expected returns to the vendor under the POSA over that 5 year period;

            (b)        if the POSA is terminated prior to the expiry of the 5 year term, the vendor will suffer losses as a result;

            (c)        that the amortisation of the Liquidated Damages over the 5 year term of the POSA as set out in special condition 40.2 represents a fair and proper basis for amortising the Liquidated Damages over the Term of the POSA; and

            (d)        the amount payable on termination of the POSA as specified in special condition 40.2 represents a genuine pre-estimate of the minimum loss the vendor will suffer if the POSA is terminated prior to the expiry of the agreed 5 year term of the POSA.’

However, it will be recalled that the effect of Special Condition 1.2(e) of the POSA is that liquidated damages are not payable should BP exercise its right to acquire the site under the option deed.

34                  On 1 July 1999 Ringrow completed the purchase of BP Meadows and entered into the following documents:

(a)        a deed of option dated 1 July 1999;

(b)        a mortgage dated 30 June 1999;

(c)        a caveat in favour of BP;

(d)        a deed of priority dated 1 July 1999; and

(e)        the BP Meadows POSA dated 24 August 1999 but commencing 1 July 1999.

35                  On 28 July 1999 Ringrow completed the purchase of BP Lansvale and entered into the following documents:

(a)        a deed of option dated 28 July 1999;

(b)        a mortgage in favour of BP dated 29 July 1999;

(c)        a deed of priority dated 28 July 1999; and

(d)        the BP Lansvale POSA dated 24 August 1999, but commencing 28 July 1999.

36                  On 2 August 1999 Ringrow and BP entered into a deed of termination whereby Ringrow received the sum of $140,000 for the surrender of the franchise of BP Auburn together with the sum of $15,000 for equipment.

Acquisition of BP Silverwater by Nader-One Pty Ltd and BP Auburn by Ultimate Fuel Pty Ltd

37                  On 24 June 1999 BP approved divestment of BP Silverwater.  Alcorn Corbin Nicholson Pty Ltd had valued BP Silverwater as at 1 June 1999 at $800,000 both on a going concern basis and on a non-petroleum use basis.  A target sale price of $800,000 was fixed as BP’s internal valuation and the external valuation were the same.

38                  On 1 November 1999 BP approved divestment of BP Auburn.  Alcorn Corbin Nicholson Pty Ltd had valued BP Auburn as at 30 August 1999 at $1M, both on a going concern basis and on a non-petroleum use basis.  As BP’s internal valuation was $1,084,548, a target sale price of $1.1M was fixed.

39                  In early 2000 discussions took place between Mr Vasiliou and Mr Nader initially in relation to BP Auburn and later in relation to BP Silverwater.  Mr Vasiliou offered to sell BP Auburn for $1.5M and ultimately a figure of $1.4M was settled upon.  It is common ground between Mr Nader and Mr Vasiliou that during the course of these discussions Mr Vasiliou assented to the proposition that the deal for BP Auburn was the same deal as for BP Lansvale and BP Meadows except that Mr Nader would have to operate the site as a commission agent for three months before the deal could be done as BP was putting the existing franchisee out.

40                  Shortly thereafter Mr Vasiliou and Mr Nader settled on a price of $800,000 for BP Silverwater and Mr Vasiliou confirmed that it was the same deal as for the other service stations.

41                  Ringrow operated BP Silverwater as a commission agent commencing on 20 March 2000.  On 17 May 2000 a contract for sale was exchanged under which Nader-One Pty Ltd agreed to buy BP Silverwater on a going concern basis for $780,000.  The contract followed the same general form of the contracts for BP Lansvale and BP Meadows, and in particular included Special Conditions relating to the grant of an option to purchase, the entry into of a POSA and the payment of liquidated damages in the event that the POSA is terminated prior to the expiration of the five year term.  In the case of BP Silverwater, the liquidated damages were as follows in special condition cl 40.2:

‘If the POSA is terminated:

·        from the date of commencement to the expiration of year 1       $242,755;

·        from the expiration of year 1 to the expiration of year 2             $194,204;

·        from the expiration of year 2 to the expiration of year 3            $145,653;

·        from the expiration of year 3 to the expiration of year 4             $97,102;

·        from the expiration of year 4 to the expiration of year 5             $48,551;

·        following the expiration of year 5                                                               nil.’

42                  On 17 May 2000 BP forwarded a letter of offer to Nader-One Pty Ltd under which it offered to enter into a POSA in relation to the Silverwater site.  The letter of offer followed the same form, and enclosed the same documents as the letters of offer in relation to BP Lansvale and BP Meadows.  Completion of the sale of BP Silverwater occurred on 30 June 2000.

43                  BP Auburn was operated on a commission agency basis from 12 April 2000 by Ringrow.  On 12 April 2000 Ultimate Fuel Pty Ltd accepted a letter of offer from BP to enter into a POSA with respect to BP Auburn.  The letter of offer is erroneously dated 12 March 1999 and it follows the same form and encloses the same documents as the other letters of offer.

44                  On 17 May 2000 contracts for the sale of BP Auburn were exchanged and BP Auburn was sold to Ultimate Fuel Pty Ltd on a going concern basis for $1.4M.  The contract for sale followed the same form as the other contracts including the Special Conditions as to the grant of an option to purchase, the entry into of a POSA and the payment of liquidated damages.  In the case of BP Auburn the liquidated damages were as follows in special condition cl 40.2:

‘If the POSA is terminated:

·        from the date of commencement to the expiration of year 1        $414,724;

·        from the expiration of year 1 to the expiration of year 2             $331,779;

·        from the expiration of year 2 to the expiration of year 3           $248,834;

·        from the expiration of year 3 to the expiration of year 4           $165,889;

·        from the expiration of year 4 to the expiration of year 5             $82,944;

·        following the expiration of year 5                                                                nil.’

45                  Completion of the sale of BP Auburn occurred on 30 June 2000.

Complaints about pricing

46                  Ringrow and Nader-One needed to make a margin of 3.0^c per litre on sales of unleaded petrol to cover expenses and to make a profit of about 0.5^c per litre.  Unleaded petrol was the highest selling product, but the price had to equal or better the prices charged by competitors to attract customers.  Once customers were brought to the premises to buy fuel, there was a likelihood that they would acquire non-fuel items such as shop sales, car wash and motor vehicle associated lines such as oils, lubricants, fuel additives and car accessories.

47                  In the period from July 1999 – March 2000 BP’s TGP was such that Ringrow was able to secure a margin of 3.0^c per litre on sales of motor fuel, and sell fuel at a price which matched or bettered that of its competitors.  From late 2001 and throughout 2002 Mr Nader’s evidence is that he was forced to reduce the margin to less than 3.0^c per litre in order to meet his competitors’ prices.  Detailed figures for the period commencing from 30 April 2002 show that the retail price charged by BP Lansvale was sometimes less than the TGP, sometimes there was a small margin above the TGP, and occasionally a margin of the order of 2.0^c or 3.0^c.  The position between March 2000 and late 2001 is not addressed in the evidence.

48                  Mr Ayoub said that from late 2001, he observed that on at least two or three times per week, BP commission agents at Potts Hill and Chullora were posting retail prices for unleaded petrol below the TGP charged by BP.

49                  Both Mr Nader and Mr Ayoub contend that in late 2001 they attended a meeting with Mr Clark and Mr Fletcher of BP at which they complained that the wholesale price which BP was charging them was sometimes more than the retail selling price at BP’s multi-station franchise sites (these are similar to a commission agency).  They attribute to Mr Clark the response that this should not happen.

50                  Mr Clark has no recollection of a conversation with Mr Nader or Mr Ayoub on the relativity of the TGP to prices posted at BP franchised or agency sites.  He left BP in the first week of July 2001, hence he could not have participated in the conversation which Mr Nader and Mr Ayoub assert occurred at the end of 2001.  Mr Fletcher was not called to give evidence.

51                  Mr Ayoub’s evidence was that in the ensuing three months, he was able to add a margin of 3.0^c to the TGP, and match his competitors’ prices.

52                  There is documentary evidence from BP of the price being charged for unleaded fuel at BP Lansvale on 14 May 2002.  At 7.31 am BP’s board price was 82.9^c which matched the board prices of its competitors.  Mr Blair Main noted in his diary that at 4.00 pm BP Lansvale’s board price was 82.47^c per litre.  The TGP on that day was 84.05^c.  Mr Main made this note in his diary because it was uncommon for a service station operator to fix his retail price at less than the TGP, and he suspected that Mr Nader may have been acquiring foreign fuel.

53                  Substantial reconstruction works were undertaken at BP Lansvale in the first half of 2002.  The costs of the works were greater than Mr Nader had anticipated.  Ringrow had all but exhausted its cash reserves and needed to generate sufficient profit from its businesses to cover the cost of the works and operating expenses.  Petrol sales were down and in many cases petrol sales made a loss.  The experience of Mr Nader and Mr Ayoub is that once the retail price of petrol exceeds the competitors’ price from as low as 0.5 cents/litre (Mr Nader) and 0.2 cents/litre (Mr Ayoub) retail sales of petrol start to decline.

54                  In the period from about February 2002 to July 2002, Mr Nader said that he had eight to ten conversations with his BP business manager, Mr Blair Main, about the wholesale price (TGP) which BP charged for fuel.  Mr Main accepts that there were such conversations on three or four occasions, and it is common ground between Mr Nader and Mr Main that the conversations were to the effect of the following:

‘Blair, we need a better buying price.  We can’t match the market …we used to be competitive but BP’s price especially around Lansvale and Meadows won’t let us match competition any more.’

Mr Main passed on Mr Nader’s concerns about pricing to BP head office in Melbourne.

55                  In none of those conversations did Mr Nader say to Mr Main that when he entered into the POSA he was assured that the TGP would be fixed at a price which would enable him to match his competition.

56                  Mr Nader says that during the rebuilding of BP Lansvale, he had a conversation with Mr Marsh, whom he described as the national retail manager for BP.  Mr Marsh says, and I accept, that the conversation occurred on 9 May 2002.  In Mr Nader’s affidavit of 13 June 2003 he gave the following account of the conversation at [100]:

‘Marsh:           “You’re not putting foreign fuel through this place, are you?”

Nader:             “Well with the market so hot, sometimes you don’t have a choice”.’

57                  Mr Marsh’s account of that conversation, as given in his affidavit of 27 June 2003 at [10] is as follows:

‘Marsh:           “Richard, are you buying any non-BP fuel?”

Mr Nader looked me in the eye and said: “No I am not”.’

58                  In Mr Nader’s affidavit of 25 July 2003 he agreed with Mr Marsh’s version of this conversation, but asserted that at the time he said ‘No I am not’ he had a smile on his face.

59                  In cross-examination, Mr Nader:

-                     initially denied Mr Marsh’s account of the conversation [T 338];

-                     later accepted Mr Marsh’s account of the conversation [T 339];

-                     later reverted to his denial of Mr Marsh’s version [T 341]; and

-                     agreed that he had given answers which were ‘utterly at odds with each other’ [T 342].

60                  Given the inconsistencies and contradictions in Mr Nader’s evidence, I prefer the evidence of Mr Marsh on this topic to that of Mr Nader.

61                  I accept that at some stage after July 2002, probably in August 2002 after the first breach notice was served in relation to BP Lansvale, Mr Nader had a conversation with Mr Blair Main in which Mr Nader said that particularly having regard to the cost of upgrading the BP Lansvale site, he could not compete on BP’s TGP, and that he was forced to buy foreign fuel to match the market, and have a margin as well.

Breach of the POSA’s

BP Auburn

62                  By letter dated 12 June 2002 the solicitors acting for BP, Corrs Chambers Westgarth, notified Ultimate Fuel Pty Ltd that on 4 May 2002 Ultimate Fuel purchased fuel from a supplier other than BP.  This was said to constitute a serious breach of the POSA which entitled BP to terminate the agreement.  The solicitors reminded Ultimate Fuel that if BP elects to terminate the POSA it has two options.  BP can elect to acquire the BP Auburn site pursuant to the option agreement dated 30 June 2000 or BP can exercise its rights to require Ultimate Fuel to pay to BP within seven days, liquidated damages of $331,779 as set out in special condition 1 of the agreement.  A Notice of Breach of Condition was enclosed, and the solicitors advised that BP reserves its rights under the agreement.

63                  The Notice of Breach of Condition gave notice that the purchase of fuel from a supplier other than BP on or about 4 May 2002 was a breach of cl A4.2 of the POSA.  The Notice continued:

‘BP Australia Pty Ltd gives notice that the breach constitutes a ground for termination of the POSA Agreement under Clause A13.2.1 of the POS Agreement and BP reserves its right to take that action.

BP Australia Pty Ltd also gives notice that if there is a recurrence of this breach BP Australia Pty Ltd may exercise its rights at law arising therefrom, in particular its rights under A13.2.1 of the POS Agreement to terminate the POS Agreement.

It is noted that the POS agreement provides that failure to exercise such rights shall not constitute a waiver of BP’s rights in respect of the aforementioned breach.’

64                  On about 12 or 13 June 2002 Mr Ayoub had a conversation with Mr Blair Main, the retail business manager of BP whose responsibilities included the management of BP’s relationship with the privately owned service stations the subject of these proceedings.  The general subject matter of the conversation was the breach notice.  According to Mr Ayoub, during the course of this conversation Mr Main said:

‘You should reply to the matter in writing.  As long as you do not repeat the incident everything will be OK.’

Mr Main denies that he said words to the effect:

“As long as you do not repeat the incident everything will be OK.’

He points out that he had no discretion to excuse dealers from breaches of the agreements with BP.  No submission was put on behalf of Ultimate Fuel that BP waived the breach, or elected not to terminate the POSA by reason of that breach if there was no repetition of the conduct in question.

65                  On 22 July 2002 Ultimate Fuel Pty Ltd wrote to BP expressing disappointment at the receipt of a breach notice ‘especially when we were never questioned about the incident in question’.  The general tenor of the letter was that the purchase of foreign fuel on 4 May 2002  was an isolated incident, and withdrawal of the Notice of Breach was requested.  On 5 August 2002 BP’s solicitors indicated that BP would not withdraw the Notice of Breach.

66                  Ultimate Fuel Pty Ltd did not purchase any foreign fuel after receipt of the Notice of Breach.  However, a Notice of Termination of Contract was sent to Ultimate Fuel Pty Ltd on 2 December 2002 which notified that BP would terminate the POSA on 1 January 2003 on the grounds set out in the Notice.  The fact relied upon to sustain that Notice of Termination was the purchase of foreign fuel on 4 May 2002 which was alleged to result in a contravention of Clauses A 3.7, A3.9(a), A3.13, A4.2, and A4.16.1 of the POSA.

67                  The purchase of foreign fuel by BP Auburn on 4 May 2002 was not an isolated incident.  Documents produced on subpoena reveal that for the period between 23 December 2000 and 13 June 2002 there are 77 invoices documenting the sale and delivery of fuel by DM and BP Wiskich Pty Ltd to Ultimate Fuel Pty Ltd at BP Auburn.  The details of those 77 invoices are also recorded by Wiskich’s debtors history enquiry.  The debtors history enquiry records the details of an additional 6 invoices, copies of which were not provided by BP to Wiskich.  Exhibit 2 records that the total sales of BP Auburn of super, unleaded petrol, diesel and pulp, in the period July 2000 – June 2003 were 25,950,495 litres of which 2,695,305 litres were non-BP product.  In the financial year ended 30 June 1992 the total sales of unleaded petrol at BP Auburn were 5,340,454 litres of which 1,809,250 had been obtained from Wiskich.  Unleaded petrol was the most popular of motor spirit sold at BP Auburn, and about 33 per cent of its sales in the year ended 30 June 2002 were obtained from Wiskich.  The last recorded sale of foreign fuel to BP Auburn is with respect to two invoices dated 13 June 2002.

BP Lansvale

68                  BP’s solicitors gave Notices of Breach to Ringrow on the undermentioned dates in relation to purchases of foreign fuel:

Date of Notice                                    Date of Breach

1 August 2002                                      14 July 2002

27 September 2002                              16 September 2002

24 October 2002                                 5 October 2002

24 October 2002                                 9 October 2002

The Notices, and the accompanying letters, were in similar terms to those issued in relation to BP Auburn.

69                  On 18 November 2002 BP’s solicitors gave four further Notices of Breach to Ringrow.  The covering letters advised that on 13 July 2002, 15 September 2002 and 5 October 2002 samples of unleaded petrol were drawn from Ringrow’s pumps.  The letter of 18 November 2002 advised that on 17 September 2002 a sample of lead replacement petrol was drawn from those pumps.  Subsequent analysis of those samples was said to have revealed that they were not BP motor fuel.  The letters also advised that whereas BP motor fuel does not contain ethanol, the samples were analysed as containing various percentages of ethanol, the lowest of which was 20.4 per cent and the highest of which was 43.2 per cent.

70                  On 2 December 2002 a Notice of Termination of Contract was served on Ringrow with effect from 1 January 2003.  The Notice alleged that the notified breaches involved a contravention of Clause A3.7, A3.9(a), A3.13, A4.2 and A4.16.1 of the POSA.

71                  On the hearing of these proceedings BP ultimately chose not to lead evidence to support each of the particular breaches alleged in the Notices of Breach.  Instead, it established from records produced in answer to subpoena addressed to Manildra Park Pty Ltd, that for the period between 30 April 2002 and 2 December 2002 there are 85 invoices documenting the sale and delivery of fuel by Manildra Park to Ringrow Pty Ltd at BP Lansvale.  For the period between 14 March 2000 and 27 December 2000 there are 5 invoices documenting the sale and delivery of fuel by Wiskich to Ringrow at BP Lansvale.  BP was entitled to rely upon these matters in support of its notice of termination notwithstanding that they were not referred to in the notices and were not known to BP at the time the notices were issued: Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359.  The applicants did not contest BP’s entitlement in this respect.

72                  It was agreed during the course of the proceedings that motor fuel supplied by BP in New South Wales up to the date of termination of the POSA’s the subject of these proceedings, did not contain ethanol.  It was also agreed that motor fuel supplied by Manildra Park contained between 10 per cent and 20 per cent ethanol.  Scientific evidence was called from both sides as to the effect of ethanol upon motor engines in cars.  There was no cross-examination of either expert.  It is sufficient for present purposes to say that there is a disagreement between the experts as to whether the presence of ethanol in motor fuel has any adverse effect on motor cars.  BP tendered some newspaper articles which tended to show a perception on the part of some members of the public that ethanol might have adverse effects.  The topic is a controversial one.

73                  Exhibit 2 records that the volume of motor spirits sold through BP Lansvale in the period July 1999 – July 2003 was 27,964,130 litres, of which 3,460,410 litres were non-BP product.  In the month of June 2002 531,389 litres of unleaded petrol were sold through BP Lansvale, of which 468,950 litres were non-BP product, about 88 per cent.

BP Silverwater

74                  The following Notices of Breach were given to Nader-One in relation to BP Silverwater:

Date of Notice                                    Date of Breach

25 July 2002                                        6 July 2002

30 July 2002                                        16 July 2002

24 October 2002                                 18 October 2002

The Notices were in similar terms to those issued in relation to the other service station sites and the breach assigned was a purchase of foreign fuel on the dates indicated.

75                  In addition, on 18 November 2002 four Notices of Breach were given in relation to fuel samples extracted from the BP Silverwater pumps on 18 July 2002, 16 October 2002, 17 October 2002 and 18 October 2002.

76                  On 2 December 2002 BP gave Nader-One a Notice of Termination of the POSA for BP Silverwater with effect from 1 January 2003, based upon the breaches the subject of the notices to which I have referred.

77                  Again, BP did not seek to establish each of the breaches the subject of those notices in these proceedings.  It did, however, establish that for the period between 27 November 2001 and 8 November 2002 there are 25 invoices documenting the sale and delivery of fuel by Manildra Park to Nader-One Pty Ltd at BP Silverwater.  It also established that for the period between 23 December 2001 and 31 July 2002 there are seven invoices documenting the sale and delivery of fuel by Wiskich to Nader-One Pty Ltd at BP Silverwater.  Exhibit 2 records that in the period April 2000 – July 2003 a total volume of 21,429,362 litres of motor fuel was sold by BP Silverwater, of which 808,108 litres were not BP product.

BP Meadows

78                  On 2 December 2002 a Notice of Termination of Contract was sent to Ringrow in relation to BP Meadows.  The basis of the claimed entitlement to terminate the POSA for BP Meadows was that in the light of the breaches by Ringrow of the POSA for BP Lansvale, BP believes that Ringrow is no longer suitable to carry on the retail business of BP Meadows.

79                  Documents obtained on subpoena reveal that for the period between 26 February 2000 and 26 December 2000 there are six invoices documenting the sale and delivery of fuel by Wiskich to Ringrow at BP Meadows.  Exhibit 2 shows that in the period between June 1999 and July 2003 16,753,868 litres of fuel were sold through BP Meadows, of which 162,960 litres were non-BP product.

80                  Ultimately, counsel for the applicants conceded that each applicant was in breach of its POSA, and that the POSA’s were effectively terminated by the Notices of Termination of Contract given to each applicant on 2 December 2002 subject to the possible operation of s 16 of the Petroleum Retail Marketing Franchise Act 1980 (Cth).

Exercise of options

81                  The solicitors for the applicants disputed BP’s entitlement to terminate the POSA’s.  On 17 December 2002 Corrs Chambers Westgarth advised the applicants’ solicitors that BP not only proposed to terminate the POSA’s, but also intended to exercise its contractual rights under the option deeds for each of BP Lansvale, BP Silverwater, BP Meadows and BP Auburn to buy back those sites.

82                  On 10 January 2003 an interlocutory regime in the Supreme Court proceedings was agreed upon whereby, without admissions, the operation of the POSA’s was effectively continued pending the determination of the proceedings relating to the four sites, although it was noted that BP intended to exercise its option to purchase those sites.

83                  On 19 June 2003 Notices of Intention to exercise the option were given in relation to the BP Silverwater, BP Lansvale and BP Auburn sites (but not in relation to BP Meadows), and BP nominated Jasbe Lansvale Pty Ltd, Jasbe Auburn Pty Ltd and Jasbe Silverwater Pty Ltd as its nominee to exercise the option in relation to the Lansvale, Auburn and Silverwater sites respectively.  By letter dated 15 August 2003 Corrs Chambers Westgarth revoked the nomination notices and confirmed that BP intends to proceed with the conveyance of the sites directly to it, rather than by way of nomination in favour of a third party.

84                  The process prescribed by cl 2 of the option deed is in hand.  It is common ground that the detail of what is involved is outside the scope of these proceedings, but it is also common ground that no determination by a valuer in terms of cl 2 has yet been made.

Misleading and deceptive conduct

85                  Mr Nader appreciated in April 1999 that the proposal by which he would operate a dealer owned site was entirely different from the franchise and commission agency arrangements in which he had previously been involved.  He knew that BP Lansvale and BP Meadows were located in areas of relatively cheap fuel supply within the Sydney marketplace.  In the past, he had received price support from BP which enabled him to reduce his prices to meet the competition, while still maintaining an acceptable margin.

86                  It is common ground between Mr Nader and Mr Vasiliou that at the meeting on the weekend of 10-11 April 1999 Mr Nader enquired of Mr Vasiliou how the proposed arrangements were going to work.  Mr Nader was not then familiar with the TGP and he wanted to find out from Mr Vasiliou what it was.  It is common ground that Mr Nader asked Mr Vasiliou whether the TGP would be at a rate where he could compete with each of his marker sites in the area.  A marker site is a site identified by BP and the franchisee as being one with which the BP franchisee was in close competition, and in relation to whose prices the BP franchisee might be entitled to receive price support so as to enable the BP franchisee to match the competitor’s prices.

87                  It is common ground that at this meeting Mr Nader was told that he would not be receiving any price support, but that BP would sell fuel to him at the TGP.  Mr Nader was told that the TGP was the same price for all dealer owned, dealer operated sites in metropolitan Sydney, and that the price was set for the whole of the Sydney region, and not by reference to localised areas within that region.  He was told that the price was set with competitiveness in mind across the whole Sydney market.

88                  It is also common ground that Mr Vasiliou said at this meeting that Mr Nader understood how competitive BP Lansvale and BP Meadows are, and that Mr Vasiliou said that Mr Nader should make sure that he can survive under TGP.  Otherwise he should not buy the sites.  Mr Vasiliou handed Mr Nader a running sheet of TGP prices from 1 July 1998 up to about the time of the discussion in April 1999, and advised Mr Nader to check those figures against the prices at which he had been selling fuel, and to make sure ‘you can make a buck’.  Mr Vasiliou said:

‘If you can’t make a dollar out of it don’t go in there because at the end of the day it’s no good for either of us because we will just argue.’

Mr Nader compared the prices on the sheet and ‘my competition’ and made an assessment that ‘I can work this one out and make a margin’.  

89                  According to Mr Vasiliou, he told Mr Nader that there may be times when he will be buying at a cheaper price compared to the marketplace, and there may be times when he will be buying at a dearer price; ‘with TGP we are not going to guarantee you a price margin’.  Mr Nader does not recall Mr Vasiliou making these statements, but he accepts that they may have been said.  In my assessment, they probably were said.  The point of direct conflict between Mr Nader and Mr Vasiliou is whether Mr Vasiliou gave Mr Nader an assurance that BP’s prices ‘will allow you to match the competition’. 

90                  Mr Vasiliou impressed me as a careful person and as a reliable witness.  I prefer his evidence to that of Mr Nader upon this issue for a number of reasons.  First, Mr Vasiliou’s denial that he gave this assurance was not shaken in cross-examination.  Second, Mr Vasiliou explained to Mr Nader that the TGP was set for the whole of the Sydney region and not by reference to localised areas within that region.  That being so, Mr Vasiliou could not responsibly assure Mr Nader that BP’s prices would throughout the term of the POSA enable him to match the competition in his particular area, no matter how aggressive the price competition in that area might be.  Third, the assurance, if given, would have been a matter of considerable significance to Mr Nader.  He did not record it on the document styled ‘Acknowledgement and Certification by Dealer’ even though, on one occasion before, and on another occasion after this meeting, he did record in the space provided, representations made to him by the representatives of BP.  His explanation for non-inclusion of that matter on this occasion is unconvincing, because he had good relations with BP both at the time of completion of the document for BP Lansvale and BP Meadows and at the times when he completed the disclosures in those other documents.  Fourth, if Mr Nader had been given the assurance for which he now contends, one would have expected that reference would have been made to it in the conversations which he had with Mr Main in the first half of 2002 in which he complained that BP’s buying prices did not enable him to meet the market.

91                  I do not think that Mr Nader was a dishonest witness, but I am firmly of the view that his evidence is less reliable than Mr Vasiliou.  Other factors which have influenced me in coming to that conclusion, in addition to those referred to above, are:

-                     in the Statement of Claim filed in the Supreme Court proceedings par [13(d)] a representation was alleged that BP would sell fuel to the applicants at a price equal or better than the price of other wholesalers of fuel.  Although that allegation was verified, Mr Nader agreed in cross-examination that it was incorrect.  It is not an allegation which he has persisted with in these proceedings;

-                     the alleged conversation with Mr Clark in late 2001 could not have occurred at that time, and I see no reason to doubt Mr Clark’s denial that he was even a participant in a conversation with Mr Nader to that effect; and

-                     the inconsistencies and contradictions in Mr Nader’s evidence in relation to his conversation with Mr Marsh on 9 May 2002.

92                  A passage in Mr Nader’s cross-examination is worthy of quotation:

‘You did not come away from your meeting with Mr Vasiliou understanding that BP was guaranteeing to you that at all times including the times of the most intense price competition that its prices would allow you to be competitive with your local rivals? --- With my understanding I thought the price was going to be good enough for me to be able to match those markets.

That was your understanding? --- That’s correct.

That understanding may I suggest, was reached because Mr Vasiliou was telling you that the price was set having regard to competitive factors? --- That’s correct.

But you understood that when he said that, he was talking about a price that was being set for the whole Sydney region? --- That’s correct.

You understood because he explained to you, that the competitive factors by reference to which the price was set, were competitive factors across metropolitan Sydney? --- That’s correct.’  [T 310]

93                  My assessment of Mr Nader is that he is a competent and successful service station proprietor.  He made his own assessment as to whether he could make a success of BP Lansvale and BP Meadows if he purchased those sites and came to the conclusion that he could.  That assessment was not underpinned by any assurance on the part of Mr Vasiliou that the TGP would always be fixed at a level which would enable Mr Nader to match or better the prices posted at the sites which were his marker sites during the franchise operation.  Whilst Mr Nader no doubt believed that generally, or over time, he would be able to match his competitors’ prices and make a reasonable margin, that was an understanding which he drew from the conversation with Mr Vasiliou and from the running sheet produced by Mr Vasiliou, rather than an assurance which was given to him by Mr Vasiliou.  The passage in the cross-examination of Mr Vasiliou quoted above supports that conclusion: cf Watson v Foxman (1995) 49 NSWLR 315 at 318-319.

94                  I have not overlooked the contents of Exhibit K in coming to this conclusion.  Exhibit K consists of documents internal to BP which came into existence at the time of the introduction of the TGP.  There are various references in the document to ‘competition’, but in the context of the overall Sydney market.  There is nothing to suggest that Mr Vasiliou ever saw these documents.  In any event, there is no inconsistency between Exhibit K and Mr Vasiliou’s evidence that the TGP was fixed as a competition responsive across the whole Sydney area.

Penalty

95                  The applicants contend that the contractual obligation to transfer a service station site to BP if BP elects to terminate the POSA in relation to that site for breach, and to exercise its rights pursuant to the option deed, is a penalty which is void and unenforceable.  In the applicants’ contention, the provision is in the nature of a punishment for non-observance of a contractual stipulation.  It is ‘the imposition of an additional or different liability upon a breach of the contractual stipulation’: Legione v Hateley (1983) 152 CLR 406 at 445.  In the applicants’ submission the provision is penal in character because it enables acquisition of a service station site at a price which may not reflect the highest and best use of the property on which the service station business is conducted, and because it excludes any allowance being made for the value of any goodwill attaching to the business conducted at the property.  Even if the acquisition is at a fair value, it is submitted that the provision would still be a penalty because the applicants incurred obligations in the expectation that they would be conducting a service station business on each site in the long term, which expectation would be disappointed as a result of the exercise of the option.

96                  In the respondents’ submission the option is not a penalty.  Its function is not to ensure performance of the terms of the POSA.  Rather, its function is to restore the parties to their pre-contractual position on the occurrence of a number of specified events including the termination of the POSA.  Each service station was conveyed to an applicant upon the condition that the applicant would obtain its fuel supplies from BP for a period of at least five years.  That was at the heart of the original conveyances.  Each applicant took its property encumbered by both the POSA and the option agreement.  The option protects the commercial interests of BP in maintaining a source of supply of its petroleum products for at least five years.  If the restoration of the parties respective pre-contractual positions results in a ‘windfall’ for BP, then equity may assist an applicant by providing relief against forfeiture if the applicant otherwise establishes an entitlement to that relief.  But it is not a penalty.

97                  The modern rule against penalties is a rule of law: AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 191.  The sphere of operation of the penalties doctrine is limited to payment of agreed sums or transfer of property upon a breach of contract: Rossiter Penalties & Forfeiture (1992) at p 66.  A clause providing for a payment of an agreed sum on termination of a contract (in itself not an event of breach) is still within the reach of the penalties doctrine if one of the grounds on which the agreement may be terminated is breach: O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 at 367; Lanyon Equity and the Doctrine of Penalties (1996) 9 JCL 234 at 235. 

98                  Although the principles as to relief against forfeiture and penalty clauses stem from a common origin, there is a distinction between a ‘penalty’ and a ‘forfeiture’.  A penalty is in the nature of a punishment for non-observance of a contractual stipulation; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation.  Forfeiture, on the other hand, involves the loss or determination of an estate or interest in property or of a proprietary right in consequence of a failure to perform a covenant: Legione v Hateley (supra).  Relief may be granted against forfeiture whether or not the condition producing the forfeiture is penal in character: Legione v Hateley (supra) at 425.  Risk of forfeiture may be a strong inducement to completion of a contract, but a clause which provides for recision of a contract for fundamental breach and the forfeiture of the purchaser’s interest which it entails is not a penalty or in the nature of a penalty: Legione v Hateley (supra) at 445-446.

99                  Whether a provision is a penalty is to be judged at the time of the making of the contract, and not as at the time of breach.  The issue is a matter of substance rather than of mere form, and depends upon all the surrounding circumstances existing at the time of the making of the contract, as well as on the terms of the contract itself: O’Dea (supra) at 368, 373.  If a provision is a penalty it is unenforceable, or enforceable only to the extent of the loss which the innocent party can prove to have been caused by the breach in question.  That result is not dependent upon the exercise of a judicial discretion.  It flows automatically from the decision that the clause is penal.  The circumstances of the default are irrelevant to the operation of the penalties doctrine.  However, the grant of relief against forfeiture does involve the exercise of a judicial discretion, and the circumstances in which the forfeiture occurred are highly relevant to the exercise of that discretion.

100               A stipulation may be penal in character even where the penalty is not expressed in terms of money.  So much was conceded in Forestry Commission of NSW v Stefanetto (1976) 133 CLR 507 at 519.  Jobson v Johnson [1989] 1 All ER 621 and Wollondilly Shire Council v Picton Power Lines Pty Ltd (1994) 33 NSWLR 551 are each authority for the proposition that the penalty doctrine is not confined to clauses providing for the payment of money, but extends to clauses providing for the transfer of monies worth.  See, generally, Rossiter (supra) at 78 and the following paragraphs.

101               In the present case, a number of agreements were executed in relation to each site, including a contract for sale by BP as vendor, a POSA, and an option agreement.  The option to purchase does not form part of the POSA, although item 20 of the Schedule SC1.2(e) refers to the option agreement.  However, the individual agreements record different facets of an overall arrangement in relation to each service station site, and as the issue of penalty is one of substance rather than form, regard should be had to the overall arrangement in determining whether the option is penal in character.

102               The option granted to BP to purchase each service station site was granted pursuant to special condition 38 of the contract under which the relevant site was originally sold by BP to the relevant applicant.  That special condition described the consideration for the grant of the option as being the agreement on the part of BP to sell the service station site to the purchaser, although the option deed itself described the consideration for it as being the sum of $10.00 paid by BP to the applicant in question.

103               As a matter of substance (and in terms of the contract of sale, also as a matter of form) the grant of the option was part of the consideration given by each applicant for the original sale of the service station site by BP.  The evident purpose of the option was to protect BP’s commercial interests in the site being maintained as a BP service station.  If the option is void as a penalty because one of the events on which it is exercisable is termination of the POSA following breach, then the result will be to deny to BP part of the consideration for which it bargained for the sale of the service station site to the applicant.  That bargain was reached as a result of an arms length transaction entered into between commercial organisations, in circumstances where the applicants had time for reflection, as well as the benefit of legal and accounting advice.  There is no good reason why the law should treat the option deed as being void at its inception as a penalty, particularly as it is not then known whether any valuable goodwill will exist in relation to any of the service station businesses when the options come to be exercised, nor is it then known whether the highest and best use of any of the properties at the point of exercise will be other than for use as a service station.

104               In Wollondilly Shire Council v Picton Power Lines (supra) the purchaser under a contract for the sale of land had an obligation to resell the land to the vendor Council at the same price as it had acquired the land if it failed to erect industrial premises upon the land within a certain time.  The purchaser did so fail and the Council sought to exercise its right to reacquire the land at the original sale price.  The purchaser contended that the relevant clause was penal in character because the land had increased in value in the meantime.  At 556 Handley JA said:

‘If this obligation to re-sell is valid the land will never be worth more to the respondent than the re-sale price unless and until it has substantially commenced the necessary building work.  Until that stage is reached any other increase in value accrues to the Council.  It follows that if the clause is valid its specific enforcement does not confer a windfall on the Council nor penalise the respondent by causing it to lose money’s worth to which it has become entitled.

The Council entered into the original sale to encourage industrial development in the Shire and took contractual promises from the purchaser to ensure that this purpose was carried out.  The failure, in this respect, of the contractual purpose of both parties gave rise, in accordance with the terms of subcl (b), to the obligation to resell the land.  This obligation was restitutionary rather than penal.’

105               By parity of reasoning, in the present case when the applicants first entered into contracts to acquire the service station sites, as a matter of substance the sites were encumbered by both the POSA’s and the option deeds.  Until the term of the POSA has run its course and the option deed has lapsed, the service station site will be worth no more to the dealer than the resale price provided for in the option deed. Until that stage is reached there is no prospect of any ‘windfall’ to BP arising from the exercise of the option, nor does the exercise of the option penalise the applicants by causing them to lose moneys worth to which they had become entitled.

106               In PC Developments Pty Ltd v Revell (1991) 22 NSWLR 615 the NSW Court of Appeal was concerned with a case involving a contract for the sale of land in which the purchaser, prior to the completion of the contract, was allowed to enter upon the land, and demolish existing structures and commence building work for his own purpose.  He exercised that right and partially completed the work.  He failed, however, to complete the contract and, as they were entitled to do, the vendors terminated the contract and he forfeited the deposit.  The contract provided that the purchaser should not be entitled to remove the works and that the purchaser should not have compensation for what he had done on the land.  It was contended that the contractual provision which produced that result was a penalty.  At 627, Mahoney JA observed that the provision in question was not added in a real or subjective sense as a threat to induce compliance with the contract.  There was no such suggestion in relation to the clause in negotiations.  Nor, in his Honour’s view, does such appear from the terms of the clause to have been its purpose.  Its purpose was to provide a mechanism for dealing with problems which were apt to arise if there was a default, rather than to provide a price to be paid in terrorem by Mr Revell if he did not complete.  At 628 Mahoney JA said:

‘In some cases, of which in my opinion the present is one, the fact of default in performance of the contract is not the reason why the clause is to operate and the defaulting party have no compensation to what he has done.  The fact of the default is, in the relevant sense, merely the occasion on which the parties have seen it necessary to make the provision in question.  When a default occurs, there ordinarily arise problems for which the parties, and their solicitors, will prudently provide.  The default is, in such a case, the occasion of the provision, but the provision made is not the result of the default or the price to be paid for it.’

107               In the present case, a consideration of the totality of the transaction indicates that the option to repurchase the service station site was restitutionary in nature, given as part of the vendor and purchaser arrangement, rather than as a price to be paid in terrorem in the event of a breach of the POSA: cf Re Moore and Texaco Canada Ltd (1965) 50 DLR (2d) 300.  The termination of the POSA provides an occasion for the exercise by BP of the options, but the options are not themselves ‘the result of the default or the price to be paid for it’.

108               In the negotiations leading up to the execution of the contractual documents, Mr Vasiliou told Mr Nader that if he breaks the POSA, BP has a right under the option deed to buy the sites back.  Of course, the entitlement to exercise the option was dependent upon termination of the POSA rather than upon the commission of a breach of the POSA.  In the applicants’ submission, Mr Vasiliou’s statements to Mr Nader upon this topic amounted to a warning and are part of the circumstances to be taken into account in determining whether the relevant provisions are penal in character.  I do not doubt that surrounding circumstances can legitimately be taken into account in determining whether a stipulation is a penalty, however, Mr Vasiliou’s brief and slightly inaccurate explanation of the operation of the agreements in this respect sheds no light upon this issue.

109               If the option is not penal in character because it was part of the vendor and purchaser arrangement, then the option deed is not a penalty irrespective of the operation of cl 2.1 and cl 2.5, as the price payable on exercise of the option is not determinative of whether or not the option is a penalty.  BICC PLC v Burndy Corporation [1985] 1 Ch 232 and CRA Ltd v NZ Goldfields Investments [1989] VR 873 are cases in which the entitlement of an innocent party to acquire the defaulting party’s interest in property for no consideration, or for less than the market value, was not struck down as a penalty because there was a sensible commercial reason why the provision was included unrelated to any issue of punishment of the defaulting party.  The option deed is not a means of providing BP with any form of compensation in respect of a breach of the POSA: cf Forestry Commission of NSW v Stefanetto (supra) at 515.  The fact that the option deed might nonetheless act as an incentive to performance of the POSA does not make it a penalty, as the High Court recognised in Legione v Hateley (supra) at 445-446.

110               The applicants’ argument in the present case places emphasis on the terms of cl 2.1 and cl 2.5 of the option deed, suggesting that by reason of these provisions, BP will perhaps obtain some kind of windfall, or the applicants will be exposed to a punishment for the breach of the POSA, because the property is to be valued as a service station whatever its highest and best use at the time of exercise of the option, and by reason of the exclusion from the valuation process of any goodwill attaching to the business conducted on the property.  Even if an option to purchase at market value is not penal in nature, the position is submitted to be otherwise when regard is had to the provisions of cl 2.1 and cl 2.5.

111               The first of those arguments fails for the reasons given in Wollondilly Shire Council (supra).  Any enhancement in the value of the property flowing from its capacity for use for a purpose other than a service station does not accrue to the applicants until the lapse of the option.  As to the second argument, cl 2 of the option deeds provides that the price payable for the relevant service station is the market valuation of the service station as an operational service station (as opposed to an operating service station) excluding any value attributable to goodwill attaching to any business conducted on the site.  ‘Operational’ means, according to the Macquarie Dictionary, revised 3^rd ed, ‘ready for use; in working order’.  ‘Operational’ does not mean the same as ‘operating’, which contemplates a site currently operating as a service station.  If a business is not operating on the site, there is by definition no goodwill which is to be valued.  Thus, there is no inconsistency between cl 2.1 and cl 2.5 of the option deed.  Rather, cl 2.5 makes explicit what is already implicit in cl 2.1, namely that the service station is to be valued upon the assumption that it is ready for use as a service station, but is not yet actually trading as such.  Each of the applicants’ experts accepted in cross-examination that a valuation of each site as an operational service station would include any value arising by reason of the location of the site (sometimes loosely called ‘location goodwill’), as well as any value arising from improvements made to the site and would include any value arising from the potential of the site to produce profits when used as a service station.  The approach adopted by the applicants’ valuers in this respect is consistent with the decision of the High Court in The Minister for Home & Territories v Lazarus [1919] 26 CLR 159 at 166 where Isaacs and Rich JJ said:

‘If the goodwill of a business is personal only, it adds nothing to the value of the land.  If it is attributable wholly or partly to the land, it pro tanto enhances its value, and that value is recoverable not as goodwill eo nomine but as part of the value of the land.’

112               At 167 their Honours stated that a prudent buyer of the land would consider how much of the goodwill was local and how much personal, and the value of the land would be enhanced by the value attached to the local goodwill.  This statement was cited with the evident approval by the majority of the High Court in Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 at 623.

113               If some valuable goodwill exists in relation to the applicants business at the time of exercise of the option which is not reflected in the valuation of the property as an operational service station, then the applicant will not be compensated for that goodwill, but nor will BP acquire it.  The sale of an asset or assets of a business does not involve any sale of the goodwill attaching to the business unless the sale of the asset is accompanied by or carries with it the right to conduct the business: Murry at 618. 

114               In the present case, what passes to BP in consequence of the exercise of the option deed is the service station site and improvements and not the business being conducted by an applicant on the site.  There is a sale of an asset of the business, but not of the business itself.  This is not a case where the sale of an asset such as an hotel implicitly carries with it the right to conduct the business conducted by the vendor from those premises because the terms of the option deed are inconsistent with any such implication.  The fact that BP is entitled on the exercise of the option to carry on business, for example, under the name of BP Lansvale does not indicate or require any different conclusion.  BP is entitled to carry on business under that name not because it has acquired the goodwill of Ringrow’s business, but because it is BP’s brand name, and because of a reservation of that entitlement in the POSA.  BP would not be entitled to restrain any of the applicants from soliciting custom from the old customers of the businesses formerly conducted by the applicants because what BP has acquired is assets transferred out of the business conducted by each of the applicants rather than the business itself.  There is no obligation on an applicant (as there is under cl 5.11 of the POSA in the case of a right of first refusal) to enter into a covenant not to compete in the trading area of the business for a term of two years after the exercise of the right.

115               As goodwill of a business must emanate from a particular centre or source, sale of a service station site pursuant to the exercise of an option may mean that an applicant’s business conducted at that site ceases to exist, and that the goodwill associated with it comes to an end: Murry (supra) at 613 and 627.  However, the potential use of the site and improvements as a service station business is an attribute of the assets sold to BP in consequence of the exercise of the option which is to be taken into account as part of the valuation process.  The assets may command a premium by reason of their potential use value (Murry at 619) but no part of that premium is payable for goodwill (Murry at 627).

116               Thus, cl 2.5 does not produce any windfall gain in favour of BP, nor is there any unfairness in confining the purchase price payable in consequence of the exercise of the option to the market value of the assets acquired by BP in consequence of its exercise, particularly as the formula for calculation of the purchase price takes account of the potential use of the site as a service station.

117               For these reasons the applicants’ claim that the relevant provisions are void as a penalty fails.  This issue does not arise in the case to BP Meadows.  BP does not seek to exercise any rights under the option deed in respect of this site.  The letter sent by Corrs Chambers Westgarth on 17 December 2002 was not itself a Notice of Intention to Exercise the Option.  The interlocutory regime agreed upon by the parties on 10 January 2003 assumed that the options had not yet been exercised, but that BP intended thereafter to exercise them.  The Notices of Intention to Exercise the Option given on 19 June 2003 were confined to the Silverwater, Lansvale and Auburn sites.

Relief against forfeiture

118               The relief which the applicants seek is an injunction restraining BP from acquiring BP Lansvale, BP Auburn and BP Silverwater pursuant to the option deeds upon the grounds that those deeds provide for an unconscionable forfeiture of property.  The property in relation to which relief is sought is identified in FASC as being the service station sites, the improvements to those sites and the service station businesses including the goodwill attached to those businesses.

119               Whilst counsel for BP contended that the circumstances of this case are outside the scope of the penalties doctrine, he did accept that there is at least the potential for the operation of equitable principles as to relief against forfeiture if the price payable on the exercise of the option is inadequate.  The case was conducted on the basis that if the option deeds operate to effect a forfeiture of a valuable proprietary interest, such as goodwill attaching to a service station business, then equity can provide relief against forfeiture if the applicants otherwise establish an entitlement to that relief.  However, it was BP’s submission that no forfeiture is in fact effected because the option deeds provide for the payment to the applicants of the full value of what is being acquired.  Further, in BP’s submission there is no valuable goodwill attaching to any of the businesses currently operating on the subject sites, and even if there is valuable goodwill, relief against forfeiture should be refused on discretionary grounds.

120               The way in which the case was conducted means that I do not have to determine whether there is any scope for the operation of equitable principles as to relief against forfeiture on the exercise of an option, and as no argument was directed to this question, I have not done so.

121               The same arguments were advanced in support of the proposition that there has been an unconscionable forfeiture as were advanced in support of the contention that the option deeds were penalties, namely that the properties are required to be valued as an operational service station, and the provisions of cl 2.5.

122               There is no substance in the first of these arguments, because there is no evidence that the highest and best use of any of the properties as at the date of exercise of the options was other than that of a service station.

123               A business may have goodwill for legal purposes even though its trading losses are such that its sale value may be no greater than its break-up value.  It is only when the value of a business as a going concern exceeds the fair value of its identifiable assets then an accountant or businessman would recognise the existence of goodwill in relation to that business: Murry at 614.  In Murry, at 625, Gaudron, McHugh, Gummow and Hayne JJ said:

‘Where the goodwill of a business largely derives from using an identifiable asset or assets, the goodwill of the business, as such, when correctly identified, may be of small value.  That is because the earning power of the business will be largely commensurate with the earning power of the asset or assets.’

124               In a business trading at a loss, or with less than average profitability, then for accounting or commercial purposes the business may have no goodwill, or it may be of nominal value only: Murry (supra) at 624-625.

125               Trading statements, or profit and loss statements were prepared by the applicants’ accountant, Mr Hallasso, for BP Lansvale and BP Meadows for the years ended 30 June 2000, 30 June 2001 and 30 June 2002 based on records submitted to him.  They were also prepared for BP Auburn and BP Silverwater for the years ended 30 June 2001 and 30 June 2002.  The purpose of preparing the financial statements was for submission to a business valuer, who was preparing a report for a bank.

126               For BP Lansvale and BP Meadows (Ringrow Pty Ltd) those results may be summarised as follows:

127               For BP Auburn (Ultimate Fuel Pty Ltd) these results may be summarised as follows:

128               For BP Silverwater (Nader-One Pty Ltd) those results may be summarised as follows:

129               Mr Hallasso also prepared the applicants’ income tax returns for the years ended 30 June 2001 and 30 June 2002.  The tax returns show different figures from the trading statements referred to above.  Mr Nader and Mr Ayoub each agreed in cross-examination that the best source of information about the financial affairs of the applicants was the tax returns.  It was apparent to Mr Nader that there was no correlation between the two sets of figures.  The tax returns showed a far worse trading performance on the part of the applicants, but on the evidence, the figures in the tax returns are more likely to be accurate.  The tax returns show the net profit (loss) of the applicants as follows (Exhibits 3, 4, 5, 6, 7 and 8):

(Those results are after the inclusion of interest, and would need some upwards readjustment in order to derive a figure for earnings before interest and tax.)

Valuation evidence

130               Mr Carter is a chartered accountant with 25 years experience in share and business valuations over a wide range of large and small businesses.  He has not previously undertaken a valuation of a service station business, but I accept his evidence that there is no difference in principle between valuing a service station business and any other business.  In Mr Carter’s opinion there are two broad circumstances in which one would conclude from an examination of a businesses’ financial performance that the business has no valuable goodwill.  The first is where the business is incurring losses and where there is no indication that those losses will cease, ie past losses look likely to continue.  The second is where the business is deriving profits, but where those profits represent a rate of return which is less than a reasonable rate of return for the capital required to be invested in the business.  The long term government bond rate, currently about 5½ per cent per annum is the absolute minimum rate of return required, as that represents the ‘risk free’ rate. The rate of return which Mr Carter adopted for the purposes of his report was 20 per cent.

131               Mathematically the value of goodwill is calculated by accountants as the difference between the value of the business and the net tangible (and specific identifiable intangible) assets of that business.  It follows from an accounting viewpoint, that where a business will be unprofitable for the foreseeable future, it is likely that no goodwill exists, since the value of the business will likely be calculated as the value of the net tangible assets.

132               Mr Carter is not qualified to conduct valuations of land, and he does not undertake land valuations.  Charles Verheyden is an expert in the field of real estate valuation who was retained by the applicants to establish in relation to each service station site a fair market value for the property and business pursuant to the criteria as set out in the instructions set out in the applicants’ solicitors letter of 26 May 2003.  Mr Verheyden has been a valuer of commercial real estate for about 30 years, and in that time has valued approximately 35 service stations.  The letters of instruction included the following:

‘Clause 2.5 states that the valuer in making the determination (as to market value) shall have regard to all factors the valuer considers relevant but shall not include in the determination of the market valuation of the Property any allowance for any goodwill attaching to any business conducted at the property.

As you will see goodwill is to be excluded however the definition dealing with determination of price requires a market valuation of the property as an operational service station.  It appears that one provision contradicts the other.  However, I ask that you provide a valuation of the site as an operational service station and exclude goodwill.  As I see it the business will need to be valued as part of the operational service station.  Such things as sales of fuel, mechanical workshop, car wash, sales from shop etc will need to be taken into consideration.’

133               Each of the valuations prepared by Mr Verheyden contained the following comment:

‘2.        The fact that the subsequent Clause 2.5 contradicts the primary instruction in sofar as the “operational service station” value for all intents and purposes is a “going concern” – which invariably contains a component of goodwill – as usually included with balance sheet – 2.5 requires the goodwill component to be excluded would be comparable to deliberately excluding a component from the CPI so as to manipulate its effect.’

134               Each of the valuations prepared by Mr Verheyden contained the following observation:

‘Goodwill is normally defined as the benefits which accrue to a business as a result of location, exposure, management, skill, type of product and/or service, potential and any other criteria which may contribute to the retention of existing and the acquisition of new clientele.  It is a well known fact that a ready, willing and capable but prudent entrepreneur gives preference to taking over an existing business with apparent potential rather than to start from scratch and run the risk of becoming a statistic with record of failures which is well in excess of 50% in the first few years of trading.’

In cross-examination Mr Verheyden accepted that the value which one attaches to goodwill is determined by reference to the profits which accrue to the business by reason of the matters identified in the quoted passage.  If a business is generally unprofitable, the value of the business is unlikely to be greater than the value of its tangible assets.

135               It is clear from Mr Verheyden’s reports, and from his evidence, that he construed his instructions as requiring that matters such as improvements, location and the potential of the service station sites to earn profits be treated as contributing towards the goodwill of the businesses conducted at those sites, rather than as matters to be taken into account in the valuation of the real estate.  However, Mr Verheyden agreed in cross-examination that the value of any improvements erected on the sites, the location of the sites and the potential to earn profits from the exploitation of the sites are all factors of which account is to be taken in the valuation of the site as an operational service station.  That is not the approach taken in his reports.

136               In relation to BP Lansvale, Mr Verheyden expressed the following opinions:

-                     the value of the goodwill of the service station business when it was acquired by Ringrow in May 1999 was $550,000.  Alcorn Corbin Nicholson’s valuation of 23 February 1999 valued BP Lansvale on a going concern basis at $850,000 and on a non-petroleum use basis of $650,000.  The difference between these figures ($200,000) represents the value of goodwill.  Ringrow paid $1.2 million to acquire the property which, by implication, indicates a goodwill component of $550,000.

-                     Ringrow effected improvements to the property post acquisition at a cost of $764,450, with the result that turnover has increased over 1999 levels by 37 per cent in the case of fuel sales, and 40 per cent in the case of shop sales.  It is therefore reasonable to conclude that goodwill has increased by 40 per cent (or $220,000) to $770,000.

-                     The value of the service station and improvements was assessed as at 13 September 2002 by David Nelson at $2,100,000 based on a 10 per cent capitalisation rates.

-                     The current market value of the service station as a going concern is $2.87 million ($2.1 million + $770,000).

-                     The increase in the value as an operational service station due to the improvement in sales (all categories) made to the site since the date of purchase on this basis the value of the site is the summation of:

Asset value       $2,100,000 - $650,000            =          $1,450,000

Goodwill          $    770,000 - $550,000           =               220,000

Total increase                                                               $1.670,000

137               In relation to BP Auburn, Mr Verheyden expressed the following opinions:

-                     The Alcorn Corbin Nicholson report valued the service station at $1 million both on a going concern basis and as a redevelopment site.  ‘No allowance is made for goodwill’.  Ultimate Fuel paid $1.4 million to acquire the site which, by implication, indicates a goodwill component of $400,000.

-                     Some improvements to the site were made by Ultimate Fuel.  Turnover has increased from 1999 levels by 145 per cent (fuel sales) and shop sales are expected to increase by 300 per cent between 1999 and 2003.  It is therefore reasonable to conclude that goodwill has increased by 2.5 – 3 times the value of goodwill as at the time of acquisition, ie between $1 million and $1.2 million; say $1.1 million.

-                     The balance sheet value of land and buildings at 30 June 2001 was $1,468,090.  Market appreciation between then and 30 June 2003 is 10 per cent per annum, and improvements were effected in that period at a cost of $136,000 giving a value of $1.9 million as an operational service station at 30 June 2003.

-                     The current market value of the service station as a going concern is $3 million, ie the summation of:

Asset value                   $1.9 million

Goodwill                      $1.1 million

Total                            $3.0 million

138               In relation to BP Silverwater, Mr Verheyden expressed the following opinions:

-                     The valuation carried out by Alcorn Corbin Nicholson Pty Ltd as at 1 June 1999 valued the property at $1 million as a redevelopment site, and $800,000 on a going concern basis.  Nader-One paid $780,000 to acquire the site.  No allowance for goodwill is implicit in these figures.

-                     Some improvements were made to the site by Nader-One.  Turnover has increased since 1999 levels.  It is therefore considered reasonable to conclude ‘that goodwill has been generated due to the improvements carried out particularly with an increase of fuel capacity based on a conservative net profit as per David Nelson Pty Ltd analysis a net profit of $196,364 was recorded after add backs.  It is reasonable to expect this performance to be sustained.  A goodwill amount of two years net before tax has been adopted as a direct result of the increased capacity created by the added improvements.  Say $400,000’.

-                     David Nelson assessed the site value as at 31 October 2001 at $1.6 million as a going concern.  The market appreciation in this precinct has been approximately 10 per cent per annum which, compounded indicates a value of $1.9 million on $2,111,000 (if account is taken of improvements) on a going concern basis.  That sum is comprised of:

Asset value                   $1,711,000 ($2,111,000 – 400,000)

Goodwill                           400,000

                                    $2,111,000

139               The following general points should be made in relation to Mr Verheyden’s evidence:

-                     he has not valued any of the service station sites himself.  He has assumed the correctness of valuations by Alcorn Corbin Nicholson Pty Ltd (which are in evidence) and by David Nelson Pty Ltd (which are not in evidence);

-                     in the case of BP Lansvale and BP Auburn, the proposition that valuable goodwill existed in relation to the businesses conducted at these sites at the point of acquisition derived from the assumption that if an applicant was prepared to pay more than a valuation of the site, then the explanation for the difference must be an allowance for goodwill.  There is nothing to suggest that the applicant was aware of BP’s valuation.  In cross-examination Mr Verheyden accepted that ‘it could be the case’ that the fact that somebody may be prepared to pay a particular price for a particular business for one reason or another does not of itself suggest that there is any value attaching to what is properly called goodwill;

-                     ‘lifestyle factors’ are erroneously included by Mr Verheyden in the notion of goodwill.  Mr Carter’s evidence (which I accept) is that the lifestyle benefits referred to by Mr Verheyden are not goodwill because they have no bearing upon the ability of the business to attract custom;

-                     whilst he agreed in cross-examination that the existence of valuable goodwill is related to maintainable profits, except in relation to BP Silverwater, he deduced an increase in the value of goodwill from increases in turnover.  Mr Verheyden accepted in cross-examination that an increase in turnover did not necessarily result in an increase in profit, as for example, where sales volume is increased, but margins are reduced.

140               Mr Carter made an assessment of the value of the service station businesses on the assumption that the trading statements and profit and loss statements earlier referred to are reliable (an assumption which he does not regard as correct) and on the assumption that no further financial information is available.  He made an estimate of the future maintainable earnings for each service station business.  Adopting a multiple of 5 (which is equivalent to a rate of return of 20 per cent), the resulting value of each business is as set out in the following table.  There is also shown the asset value adopted by Mr Verheyden.

                                                High                  Low                Midpoint         Verheyden

                                                $000                  $000               $000                $000

                        Lansvale           1,375               1,125               1,250               2,100

                        Auburn   500                  250                  375               1,900

                        Silverwater          250                      0                  125               1,700

141               The value of each business as determined by Mr Carter is significantly below the asset values adopted by Mr Verheyden.  Since the asset value in each case exceeds the value of the business, then it follows that no valuable goodwill exists for these service stations.

142               Mr Carter did not have access to the applicants’ tax returns when he prepared his report.  The report was based upon figures more favourable to the applicants than those contained in the tax returns.  Mr Carter’s evidence is that the opinions which he expressed in his report are reinforced by the material in the tax returns.

143               Mr Carter makes the following general criticisms of Mr Verheyden’s reports:

-                     Mr Verheyden fails to examine the actual relevant financial data of the businesses.

-                     The financial statements provided to Mr Carter (and apparently to Mr Verheyden) contain obvious errors and are not of a standard that could be relied upon for the purpose of a valuation of those businesses.

-                     Mr Verheyden assumes that goodwill increases proportionately to growth in turnover, without consideration of the profitability of the business.  This approach is invalid.  For example, it is reasonable to expect that a service station which offered fuel at an unprofitably low price, below the price of its competitors, would be likely to increase its turnover dramatically in a busy location.  However, this would not improve the value of the goodwill of the business.  It may have the opposite effect.

-                     Mr Verheyden does not consider whether the values he derives for the service stations may be justified by reference to a reasonable rate of return on investment.  In Mr Carter’s opinion, the valuations reached by Mr Verheyden are not consistent with business profitability and reasonably expected rates of return on investment.

-                     Mr Verheyden fails to consider whether the valuations he has prepared are consistent with each other.  BP Auburn recorded the worst result in 2002 (a small loss), but has the highest level of goodwill.  Goodwill in BP Lansvale is assessed at 3.1 times the 2002 profit (excluding interest), but in the valuation of BP Silverwater goodwill is assessed at 2 times the profit.  In valuing BP Auburn, no such comparison is made.

-                     It is unreasonable to assume that the difference between the original purchase price paid by an applicant to acquire a service station, and the value placed on the service station by BP’s valuer, is goodwill.  For example, the difference might be explained by:

·                    an error in the valuation by BP’s valuer;

·                    advantageous negotiating skills on the part of BP’s valuer at the time of sale;

·                    a belief by the purchaser that the property was worth more than BP’s valuer had assessed it to be;

·                    poor bargaining by the purchaser; and

·                    changes in circumstances between the date of the valuation and the time at which the transaction occurred.

144               These criticisms are soundly based.  They demonstrate that it is unsafe to rely upon Mr Verheyden’s conclusions as to the existence of valuable goodwill in relation to BP Lansvale and BP Auburn.  Whilst the methodology adopted for BP Silverwater is different, the figure of $400,000 for goodwill is based upon two years profits.  The tax return for Nader-One for 30 June 2002 records a loss of $24,463, which, when interest is added back, results in a profit of the order of $10,000 which suggests a figure for goodwill in the order of $20,000.

145               Mr Carter’s calculations of the value of the businesses are based on the same flawed financial statements.  However, the conclusions which Mr Carter drew from those statements that no valuable goodwill exists for these service stations is reinforced by the figures contained in the tax returns, which Mr Nader and Mr Ayoub accept are more reliable.  The conclusions are also consistent with the evidence of Mr Nader and Mr Ayoub as to the importance of matching or beating the board prices posted by competitors if volume is to be maintained, and with their evidence that once the retail price of petrol exceeds the competitors’ price from as low as 0.5 cents/litre (Mr Nader) and 0.2 cents per litre (Mr Ayoub), sales of petrol start to decline.

146               For these reasons I prefer the opinion expressed by Mr Carter to that expressed by Mr Verheyden.  It follows that the applicants have failed to establish the existence of valuable goodwill in relation to any of the service station sites of which an applicant will be deprived without adequate compensation by virtue of the exercise of the options.  Mr Carter makes a number of more detailed criticisms of Mr Verheyden’s reports in relation to matters such as double counting etc.  These were not the subject of specific submission by either counsel, and it is unnecessary for me to deal with them.

Discretion

147               Even if it be assumed that valuable goodwill attached to one or more of the businesses conducted on the service station sites which will be lost to an applicant in consequence of the exercise of the option, and for which the applicant will not be compensated by the operation of the formula for the determination of the price payable on exercise, there remains a question as to whether the Court should, in the exercise of its discretion, grant relief.

148               In Legione v Hateley (supra), Mason & Deane JJ said at 449:

‘In the ultimate analysis the result in a given case will depend upon the resolution of subsidiary questions which inevitably arise.  The more important of these are: (1) Did the conduct of the vendor contribute to the purchaser’s breach?  (2) Was the purchaser’s breach (a) trivial or slight, and (b) inadvertent and not wilful?  (3) What damage or other adverse consequences did the vendor suffer by reason of the purchaser’s breach?  (4) What is the magnitude of the purchaser’s loss and the vendor’s gain if the forfeiture is to stand?  (5) Is specific performance with or without compensation an adequate safeguard for the vendor?’

149               The applicants’ submissions in relation to relief against forfeiture did not extend beyond working through these five questions, on the implicit assumption that if enough of them are answered in a manner favourable to an applicant, then relief against forfeiture should be awarded in favour of that applicant.  What is ‘enough’ for this purpose was not the subject of submission.

150               The applicants contended that BP indirectly contributed to the breaches of the POSA through the setting of the TGP price.  It was submitted that BP was ‘well and truly aware of what (Mr Nader) was doing and the reason why he was doing it and that his alternative was to go broke’.  If that submission is intended to convey that BP acquiesced in the purchase of foreign fuel by the applicants of which BP now complains, it has no foundation in the evidence.

151               The following facts are established by the evidence:

-                     the first purchase of foreign fuel occurred in March 2000 (BP Lansvale);

-                     in the period June 1999 – July 2003 the total volume of motor fuel sales at the four service stations, and the volume of non-BP product sold (litres) were as follows (Exhibit 2):

   Total                           Non-BP

                                    BP Lansvale                 27,964,130                  3,460,410

                                    BP Meadows               16,753,868                     162,960

                                    BP Silverwater21,429,362                     808,108

                                    BP Auburn                   25,950,495                  2,695,305

                                                                        92,097,855                  7,126,783

-                     Mr Nader made a deliberate business decision to acquire the non-BP fuel from other sources, because he thought he could get those supplies more cheaply from a source other than BP, in the full knowledge that these supplies were being acquired in direct contravention of the POSA.  He did not seek or obtain BP’s consent to these acquisitions;

-                     Mr Nader knew that the Manildra Park fuel contained between 10-20 per cent ethanol.  He poured the foreign fuel into his tanks, mixed it with BP fuel and sold the mixture from pumps with the BP brand knowing that this was a direct violation of the POSA;

-                     it was not until February 2002 (see [54] above) that Mr Nader complained to Mr Blair that BP’s price did not allow him to match the competition.  In the conversation of 9 May 2002 he told Mr Marsh that he was not buying non-BP fuel (see [56] – [60] above).  It was not until August 2002 that Mr Nader told Mr Main that he was forced to buy foreign fuel to match the market, and have a margin as well (see [61] above).  Mr Nader actively sought to conceal the extent of the breaches from BP;

-                     Mr Nader continued to obtain supplies of foreign fuel at BP Lansvale even after the service of breach notices in relation to that service station;

-                     Mr Ayoub knew that he was prohibited from selling any motor fuels other than BP motor fuels.  He did not tell anyone from BP of his purchases of foreign fuel even though he knew that the POSA required BP’s written consent to such deliveries.  After he received the breach notice, Mr Ayoub ceased buying foreign fuel.

152               I accept BP’s submission that the breaches of the POSA were deliberate, calculated, constant and secretive.  I do not accept that in any meaningful sense BP contributed to the breaches.  It did not authorise them, nor was it guilty of any wrongful conduct which induced them.  If there was a problem for the applicants it arose, as Mr Ayoub accepted from very severe price competition which existed in the immediate neighbourhood, and BP had made it clear at the outset that price support would not be given to counter the effects of localised competition.

153               The breaches were not trivial or slight.  I accept that BP regarded them as serious, and it was entitled to view them in that light.  They strike at the heart of the applicants’ commercial arrangement with BP, which involved the sale of BP product through a BP branded service station.  That arrangement allowed for the sale of foreign fuel in particular and exceptional circumstances, but no attempt was made by the applicants to invoke those provisions, nor were steps designed to protect the public from being misled by the sale of foreign fuel implemented.

154               As a result of the breaches BP lost the opportunity of supplying the fuel which the applicants obtained from Wiskich and Manildra Park.  There was also the potential for damage to BP’s reputation if it became known that ethanol blended fuel was being sold through BP pumps, but there is no evidence that BP in fact suffered any damage in this respect.

155               In the applicants’ submission ‘monetary compensation coupled with the termination of the POSA agreement’ is an adequate safeguard for BP.  I confess that with all due respect, I do not understand this submission.  BP sold the service stations to the applicants on the basis that if a POSA was terminated before it had run its full term, BP could reacquire the site, if it wished, on the terms of the option deeds, but with the consequence that the liquidated damages for which the POSA provides would not be payable.  The suggested ‘adequate safeguard’ for BP involves the denial of a right for which BP bargained when it sold the service stations to the applicant.

156               The submissions for both parties were put on the basis that the award of relief against forfeiture is a discretionary remedy, and that it is legitimate in determining how the discretion should be exercised, to take into account the questions referred to in Legione v Hateley (supra) in the passage quoted above.  Assuming that to be so, and assuming that a forfeiture of valuable goodwill arises in consequence of the exercise of the option, the fact that the breaches of the POSA which led to its termination were deliberate, calculated, constant, serious and secretive is in my view sufficient to disentitle the applicants to any equitable relief.

157               After the conclusion of the argument, the High Court handed down its decisions in Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57 and Romanos v Pentagold Investments Pty Ltd [2003] HCA 58.  I have not received any submissions with respect to those decisions.  However, in the light of those decisions the applicants’ position is rendered even more difficult.  Here there is no question of accident or mistake and the applicants have not established that the conduct of BP had led to, caused or contributed to, the applicants’ breach of contract in some significant respect.  The applicants have not shown that it is against conscience for BP to enforce the option deed.

158               Relief against forfeiture should be refused.

Discretion and specific performance

159               The Further Amended cross claim seeks declarations that the options to purchase the service stations have been validly exercised pursuant to the option deeds.  Orders for specific performance are also sought.  In my view, it is premature for orders for specific performance to be made, because they might have the unintended effect of preventing the applicants from mounting some legitimate challenge to the valuation process, should they have one.

160               The applicants submitted that specific performance should be refused as damages are an adequate remedy and on the ground of hardship.  Damages are not an adequate remedy in the present case because the subject of the option is real property which is, of its very nature, unique: Turner v Bladin (1951) 82 CLR 463.  So far as an argument is put on the basis of hardship: ‘only in extraordinary and persuasive circumstances can hardship supply an excuse for resisting performance of a contract for the sale of immoveable property’: Patel v Ali [1984] 1 Ch 283 at 288.  That is not this case.  See Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4^th Ed) [20.095] and the following paragraphs.

Petroleum Retail Marketing Franchise Act (‘the PRMFA’)

161               Section 16 of the PRMFA regulates the circumstances in which a franchiser may terminate a franchise agreement.  Section 16(2) provides that a franchiser shall not terminate the franchise agreement except on one or more of the grounds specified in s 16(2).  The grounds specified in at least s 16(2)(f) (sale of foreign fuel) and s 16(2)(j) (breach of the terms of the franchise agreements) are enlivened in the present case.

162               The termination of a franchise agreement is to be effected by a written notice: s 16(3).  Where such a notice is served the franchisee may apply to a Court for an order declaring the notice to have had, or to have no effect: s 16(4).  In any proceedings under subs (4) the Court shall not declare the notice to have terminated, or terminate the franchise agreement unless the ground specified in the notice is established to the satisfaction of the Court, and the Court is satisfied that the termination of the agreement and any related agreement is just and equitable having regard to the circumstances: s 16(6).

163               Where an application is made under s 16(4), the Court may either:

(a)        declare that the notice is to have no effect; or

(b)        declare that the notice is effective to terminate the agreement

and in either case make such ancillary or consequential orders as it thinks fit.

164               FASC alleges that the letters of offer in relation to each service station site, or alternatively, the interlocking agreements, are a franchise agreement within the meaning of PRMFA.

165               FASC alleges that the purported termination of the POSA is not just and equitable and an order is sought that the notice of termination of the POSA served on about 2 December 2002 has no effect, and seeks such ancillary or consequential orders pursuant to s 16(5) as the Court thinks fit.

166               In opening the applicants’ case, Mr Holmes QC submitted that even if the notice of termination of the POSA is effective in terms of s 16(4)(b), nonetheless the Court can and should make an ancillary or consequential order that the option is not to be enforced because it is just and equitable to allow the termination of the POSA to take effect, but that enforcement of the option should not be permitted in the circumstances.

167               Section 3(1) of PRMFA contains a wide definition of ‘agreement’.  It also defines ‘franchise agreement’.  The issue is whether the agreement between BP and an applicant contains ‘provisions, whether express or implied, under or by virtue of which (BP) grants a right to or otherwise authorises or permits, (an applicant) being another party to the agreement 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’.

168               The contract of sale requires the execution of the option deed and of the POSA.  Special condition 48 of the contract provides that to the extent that the contract includes obligations which continue or arise after completion the contract remains in effect notwithstanding completion.  On completion BP must cause legal title to the property to pass to the purchaser subject to any necessary registration (cl 16.3).  BP must give vacant possession of the property on completion (cl 17.1).  Clause A5.2 of the POSA obliges the dealer to provide and occupy the site, and use it predominantly for operating a BP retail fuel outlet in accordance with the POSA.

169               It is not the contract of sale, either alone or in conjunction with the other agreements, which provides the applicant’s right of occupation of the service station sites.  That right derives from the applicant’s ownership of the freehold of the service stations in question.  That right is a right in rem which is an incident of the freehold estate.  It is not a contractual right conferred by the sale agreement.  The provision of the sale agreement as to ‘giving’ vacant possession does not indicate or require any different conclusion.  That obligation is discharged when the vendor, retaining no vestige of possession, has done all that is necessary for the vendor to do to enable the purchaser to assume actual occupation of the land.  Whether the purchaser chooses to take up this right of occupation is not the vendor’s concern: Butt The Standard Contract for Sale of Land in New South Wales (2^nd Ed) [17.8].

170               Accordingly, I conclude that the provisions of PRMFA have no relevant operation.  In any event, on my findings, there is nothing about BP’s conduct which is other than just and equitable in all the circumstances so as to attract relief under the provisions of PRMFA, assuming the potential for its operation.

171               In the light of those findings, and as no other grounds of opposition have been advanced on behalf of the applicants, in each matter I propose to make declarations in terms of pars 1, 2, 3A and 3B of the amended cross claim, but to reserve for further consideration the claim for specific performance made in terms of order 4.

BP’s financial claims

172               In the case of BP Meadows (N 278 of 2003) BP’s amended cross claim seeks a declaration that Ringrow is entitled to the payment of liquidated damages in accordance with the terms of the POSA.  As I understand it, the amount payable is $84,256.00.

173               There is evidence from Mr Vasiliou as to the manner in which he calculated the liquidated damages amounts referred to in the POSA’s.  No submission has been put on behalf of Ringrow that his assessment was anything other than a genuine attempt by BP to estimate the loss resulting from early termination of the POSA.  Nor did counsel for Ringrow submit that the relevant provisions requiring payment of liquidated damages were void as a penalty.  As nothing else was put to me in opposition to BP’s claim in this respect, I propose to direct the entry of judgment against Ringrow for the liquidated damages payable under the POSA with respect to BP Meadows.

174               In addition to liquidated damages, BP also claims an amount in each case by way of indemnity pursuant to cl A14.2(f) and A16.9 of the POSA in respect of the costs of enforcement of each POSA, including BP’s legal costs prior to the commencement of these proceedings.  That part of BP’s claim is as set out in a schedule attached to a document styled ‘outline of respondents’ submissions’.  The sum claimed (including GST) is $119,619.14.  Mr Holmes QC conceded in his submissions that BP was entitled to judgment in that sum [T 887].

175               In the light of that concession, it has not been necessary for me to examine the details of this claim, but presumably it needs to be broken down so as to show the amount payable by each cross respondent.

176               Whilst the matters have been heard together, separate orders will need to be made in each matter.  I direct that BP should bring in short minutes of order in each matter giving effect to these reasons.

177               No submissions were put on the issue of costs.  Prima facie BP is entitled to its costs of the proceedings, including the costs of the cross claims.  If the applicants wish to contend otherwise, I will afford them the opportunity of doing so, provided a minute of the order which the applicants propose should be made, and an outline of the reasons why the applicants contend that an order in those terms should be made is filed and served prior to the making of the orders in terms of the short minutes which BP is to bring in.

Associate:

Dated:              13 November 2003