IN THE COUNTY COURT OF VICTORIA Revised AT … · He was a commerce graduate and had worked in...
Transcript of IN THE COUNTY COURT OF VICTORIA Revised AT … · He was a commerce graduate and had worked in...
Case No. CI-15-01714
UNITED PETROLEUM FRANCHISE PTY LTD (ACN 127 764 989) Plaintiff V GOLD FUELS PTY LTD AS TRUSTEE OF THE NIJHAWAN FAMILY TRUST (ACN 153 627 484) & ORS (according to the Schedule attached)
Defendants
AND BETWEEN: GOLD FUELS PTY LTD AS TRUSTEE OF THE NIJHAWAN FAMILY TRUST (ACN 153 627 484) & ORS (according to the Schedule attached)
Plaintiffs by Counterclaim
V UNITED PETROLEUM FRANCHISE PTY LTD (ACN 127 764 989) & Anor (according to the Schedule attached)
Defendants by Counterclaim
JUDGE: HER HONOUR JUDGE KENNEDY WHERE HELD: Melbourne DATE OF HEARING: 1, 2, 3, 4, 7, 8, 9, 10, 11 and 15 March 2016 DATE OF JUDGMENT: 29 April 2016 CASE MAY BE CITED AS: United Petroleum Franchise Pty Ltd v Gold Fuels Pty Ltd MEDIUM NEUTRAL CITATION: [2016] VCC 292
REASONS FOR JUDGMENT
--- Catchwords: CONTRACT – Claim for outstanding loan payments in respect of
franchise arrangement against franchisee/guarantors – Counterclaim for damages for wrongful termination where franchise agreement terminated for non-payment of electricity – whether franchisee liable for electricity – whether termination was otherwise wrongful – whether there was a breach of franchise agreement concerning the car wash at the site in terms of failure to maintain car wash equipment and/or car wash revenue entitlements and/or payment of commission – whether there was statutory unconscionability under section 21 Australian Consumer Law – quantum of plaintiff’s claim
APPEARANCES:
Counsel Solicitors
For the Plaintiff/Defendants by Counterclaim
Mr P Bick QC Mr C Truong
Mr D Hopwood
For the Defendants/Plaintiffs by Counterclaim
Mr A Rollnik HWL Ebsworth
IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION GENERAL CASES LIST
Revised Not Restricted
Suitable for Publication
VCC:
1 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
HER HONOUR:
1. United Petroleum Franchise Pty Ltd (“United”) and Gold Fuels Pty Ltd (“Gold Fuels”)
were parties to a Franchise Agreement entered into in relation to a petrol station
business conducted at Narre Warren North between November 2011 and February
2015. The agreement was terminated in February 2015 following service of a breach
notice by United for unpaid electricity payments.
2. United now claims $66,194.91 as outstanding monies pursuant to a loan given in
relation to the franchise fees payable under that agreement.1 This amount is claimed
against Gold Fuels as well as each of the guarantors to that loan (Mr Ram Nijhawan,
Mrs Kirti Nijhawan, and Mr Dinesh Nijhawan (“Dinesh”)).
3. Gold Fuels filed an extensive Counterclaim. It claimed that the termination was
wrongful and that Gold Fuels had no liability to pay for electricity charges. Further,
that United engaged in misleading and deceptive conduct in asserting that Gold
Fuels was so liable.
4. Gold Fuels further makes claims for damages in relation to the treatment of the car
wash operating at the site: alleging that it, not United, was entitled to car wash
revenue; that United failed to maintain the car wash equipment; and that certain car
wash commissions were wrongly withheld.
5. Gold Fuels also claims damages for statutory unconscionable conduct with Mr
Nijhawan and Mrs Nijhawan also claiming compensation for vexation and anxiety.
6. Finally, Gold Fuels claims damages for conversion of chattels.
7. The defendants otherwise make no direct challenge to the loan or guarantee though
some miscellaneous quantum issues were raised, including the appropriate amount
to allow in respect of certain chattels which were allegedly left at the site on the day
of termination.
8. Accordingly, the issues in the case were:
who was to pay for the electricity;
1 This amount corresponds to the “total claimed” in a document entitled “Plaintiffs’ Quantum Claim” handed up
in closing.
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Fuels Pty Ltd
whether the termination was wrongful;
in terms of the car wash: whether there was a failure to maintain car wash
equipment; whether United was entitled to car wash revenue; whether
commission payments had been wrongly withheld;
whether there was statutory unconscionability; and
the appropriate quantum if United was successful. 2
9. Prior to dealing with the issues however some background is necessary.
Background
Parties
10. Mr Nijhawan was a director of Gold Fuels and was primarily responsible for operating
the Franchise Business as the nominated operator. He was a commerce graduate
and had worked in banks in Australia and India.
11. His wife, Mrs Nijhawan, and son, Dinesh, were also directors of Gold Fuels. They
had both worked in Coles Expresses. Mrs Nijhawan had been diagnosed with cancer
in February 2011 and only worked in the business part time. It was unclear precisely
how much Dinesh worked but he stopped after approximately one year to resume
his studies.
12. United operates a retail petroleum business and has approximately 400 sites
throughout Australia. The majority of United stores (some 350) are owned by United
and operate by commission agents who run the business and are paid commission
at rates on fuel and store sales as agreed to. Approximately 50 of them are set up
as franchises.
Pre signing
13. The evidence of Mr Nijhawan was that he decided he wanted to look at a franchise
business after his wife was diagnosed with cancer and it was apparent that she
would never return to full time employment. Mr Nijhawan believed that given that she
and Dinesh had some experience in fuel stations at Coles Express that “everyone
could contribute” and a franchise could be an “easier option.”
2This statement of the issues is based on a document entitled “Defendants’ Statement of Issues dated 2 March
2016” which Counsel for the defendants accepted was exhaustive (TS 152).
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Fuels Pty Ltd
14. Mr Nijhawan then met with Ms Jodie Kiska (National Franchise Manager), at United
who forwarded an email of 26 August 2011 which provided him with a list of sites
“within a total budget of up to $750,000” in the east/south-east area. The list
included the Narre Warren North site which was priced at $415,000.00 plus GST
($270,000.00 for goodwill and $145,000.00 for franchise fees).
15. After a further meeting and some discussion with his family, Mr Nijhawan decided to
put in an offer of $195,000.00.
16. Following some further negotiation, he increased his price to a total of $370,000 plus
GST ($225,000.00 for the goodwill and $145,000.00 for the franchise fee). He
completed “an acceptance of offer” document which included the following
statement:
“I acknowledge that should the purchase of the franchise not proceed, that I will be entitled to a refund of deposit less any reasonable expenses incurred by United Petroleum Franchise Pty Ltd, as well as refund of Training Fee in the instance training has not yet commenced.”
17. Gold Fuels also paid a deposit on the same day of $43,600.00.
18. Mr Nijhawan accepted that he made this decision without undertaking any real
assessment as to what the goodwill of the business was worth, saying it was just a
“hypothetical” figure.
19. During the course of October 2011 – November 2011 Mr Nijhawan visited the Narre
Warren North site on a number of occasions. There was objective evidence that the
Narre Warren North site was relatively old and tired. This included a condition report
(of 23 November 2011) which notes that a number of items are a “bit tired” as well
as evidence that concrete near the carwash was visibly cracking (even as early as
August 2011).
20. Mr Nijhawan agreed that the site looked “old” and that “they” told him it was in need
of refurbishment, but claimed that the need for refurbishment did not influence his
decision.
Post offer
21. By email of 21 October 2011, Ms Joanne Stewart provided Mr Nijhawan with a copy
of the Franchise Agreement. She also provided details of fuel and shop sales from
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4 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
2004 – 2010. The figures showed that, while shop sales were reasonably steady
since 2007 (around $83,000.00), fuel sales had steadily declined each year from that
time (from $535,700.00 in 2007 to $434,100.00 in 2010). She stated that the
commission agent who came in 2010 did not have the same enthusiasm as the
predecessor.
22. Mr Nijhawan did not undertake any investigations in relation to this trend but said
that he relied on the “potential” of the business.
23. On 21 October 2011, Mr Jonathon Walker (then Franchise Development Manager)
also provided Mr Nijhawan with a completed template for income and expenses with
some figures for wages (in yellow) included which are said to be “variable and should
be adjusted.”3 He noted that EBIT was almost “break even” on the basis of these
figures but where you start seeing dividends is when there is growth.
24. In the Deed of Prior Representations (later) executed by Mr Nijhawan he states that
actual “income/profit and expenses” were “not advised” by United; further that only
a “hint of possible expense heads” were advised. It further transpired, as he
accepted, that he made an incorrect assessment of wages and under-estimated the
wages bill.
25. By letter of 15 November 2011, Mr Nijhawan received detailed independent legal
advice from Wisewould Mahoney Lawyers (“Wisewould”) following receipt of the
proposed franchise documents (Franchise Agreement, Disclosure Document,
Licence Agreement, Lease and Car Wash Agreement).
26. By letter of 15 November 2011, Mr Nijhawan then raised a wide variety of concerns
with United, particularly relating to the state of the site. Despite his evidence that the
state of the site did not influence his decision, concerns about the state of site were
repeated often during the course of the relationship.
27. The response from United included the following:
“I have indicated to you quite a few times that you are becoming the franchisee for Narre Warren North on a “as is” basis. While it is our intention to refurbish sites and franchise sites are generally given a priority
3 In fact a figure of $4,237.00 monthly was inserted for a “non- franchisee” worker. The evidence of Mr Walker
was that this figure of $4,237.00 monthly was derived from reviewing expenses together with Mr Nijhawan and
was a rough guideline based on award wages for one nightshift person (TS 852).
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Fuels Pty Ltd
we cannot confirm a timeline if and when refurbishment will occur. I would therefore advise you to print out any in-shop concerns on equipment or fit out that is either not working or needs repairing at the time of the site inspection.”
28. Mr Nijhawan is further told in an email of 18 November 2011 that they seem to be
“going around in circles” and that the contractual documents “should be the basis of
your ultimate decision whether to proceed…”
29. In the result, settlement was pushed back to 22 November 2011 from 16 November
2011.
Settlement
30. On 22 November 2011, the following agreements were entered into by the parties:
Franchise Agreement;
Licence Agreement for Gold Fuels to occupy the premises;
Supplementary Services (Carwash) Agreement;
Loan Agreement (including guarantee); and
Fixed & Floating Charge.
31. The Franchise Agreement provided a commencement date of 29 November 2011
with a term of 6 years and one renewal term of a further 6 years, though there was
also a 7 day cooling off period (clause 32).
32. The Franchise Agreement further provided for the grant of the right to use a retail
sales “System” and “United Image” at the Licensed Area (clause 2.1). Gold Fuels
was to be paid a Motor Fuel Commission at $0.0182 per litre with a Minimum Fuel
Commission of $10,300.00 per month (Schedule Item 13).
33. The initial franchise fee was $370,000.00 (plus GST) constituted by a franchise fee
of $145,000.00 and goodwill of $225,000.00. There was a further initial training fee
of $6,000.00 payable plus GST.
34. The Loan Agreement was entered into in circumstances wherein Mr Nijhawan had
applied for finance with the NAB and ANZ and was rejected by both.
35. The “Deed of Prior Representations” document also records that United “did not
advise” on the likely success or viability of the Franchised Business.
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6 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
Post signing
36. On 29 November 2011, Gold Fuels commenced operating the Franchised Business.
However, the business never operated successfully and, as conceded by Mr
Nijhawan, there was never any “surplus.”
37. Thus, the general trend in sales continued downward in 2012 and 2013. Moreover,
even after refurbishment in 2014 the site performed poorly ($347,123.00 for fuel and
$63,218.00 for the shop; less than the numbers provided in 2010 above in paragraph
21).
38. Although various complaints were made about the franchise model by Mr Nijhawan,
according to Mr Rocco Pratico some 90% of United franchised businesses were
profitable. There was also objective evidence of various Key Performance Indicator
“dashboards” adduced into evidence which compared the performance of the site (in
terms of sales) with the total franchise network. This showed that the Narre Warren
North site consistently performed below that of other franchisees.
39. Mr Pratico suggested that stock levels, customer service and cleanliness were
issues at the Gold Fuels site. Mr Walker suggested that he tried to reinforce what Mr
Nijhawan should focus on i.e. what “he could control directly” and what to leave
alone. In particular, he suggested that he should focus on stock, supplies, people
and cash. However, that these were getting “pushed aside” to focus on
refurbishment, maintenance and the general condition of the site. Moreover, that Mr
Nijhawan did not implement his advice and suggestions.
40. This was consistent with my own general observations of Mr Nijhawan as reinforced
by the objective evidence that, too often, Mr Nijhawan became distracted by issues
of relatively low significance. This is exemplified in his approach in taking time to
send emails asking for “out of order” signs to be prepared by United.
41. In any event, given the issues before this court, I do not consider that it is ultimately
necessary to resolve the precise cause for the failure of the business save to say
that there appear to have been considerable efforts made by United personnel to
assist Gold Fuels.
VCC:
7 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
Refurbishment
42. In about August 2012 the manual car wash was shut down after a leakage incident.
It did not reopen until after refurbishment, though there was a conflict in the evidence
about whether this was at the request of Mr Nijhawan or United. In any event, the
automatic car wash continued to operate.
43. In about 18 June 2013 to 22 August 2013 the premises were refurbished by United
at a cost of approximately $500,000.00 borne by United. During the time of
refurbishment Gold Fuels also continued to receive Minimum Fuel Commission.
44. On 16 August 2013, Mr Nijhawan and Mr Cavan Palmer (Franchise Development
Manager) had a meeting which will be referred to below. Following this meeting, Mr
Nijhawan wrote an email of 16 August 2013 claiming that he had decided to “bring
the curtain down” on his relationship with United and had decided to offer the
business to them for $700,000.00.
45. In the result, however, no sale was ever effected and United did not purchase the
business. Instead, as Mr Nijhawan conceded, sales continued to decline post
refurbishment with Mr Nijhawan also having difficulty in meeting the expenses of the
business including electricity payments (as is detailed further below; although as
indicated already he now denies liability for these expenses).
Breach notices and termination
46. On 5 November 2014, United served Gold Fuels with a breach notice in respect of
outstanding car wash revenue which (it now appears) was based on an audit process
which will be referred to below.
47. On 31 December 2014, United served Gold Fuels with a formal letter of demand
requiring it to pay outstanding electricity bills in the amount of $18,821.84.
48. On 8 January 2015, United served Gold Fuels with a breach notice in respect of the
then outstanding electricity payments in the amount of $17,071.84 requiring Gold
Fuels to pay the outstanding amount within 14 days.
49. In the early hours of 20 February 2015, United retook possession of the premises.
A formal Termination Notice was also served as will be detailed below.
50. From February 2015, United appointed a commission agent to operate the premises.
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8 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
51. On 20 March 2015, United demanded that both Gold Fuels and the guarantors repay
the loan.
52. On 10 April 2015, United issued this proceeding to recover outstanding amounts
from Gold Fuels and the Guarantors.
53. On 11 June 2015, Gold Fuels filed an extensive Counterclaim.
Witnesses
54. Mr Nijhawan was the primary witness for the defendants and he was not an
impressive witness.4
55. Thus, his evidence was dominated by self-serving and unresponsive answers. Even
his Counsel had to (properly) concede that he was argumentative. As will be seen
below, his evidence was also, at times, internally contradictory and implausible.
56. Consistent with the tenor of his extensive emails, he appeared to have an unrealistic
view of the role of a franchisor, describing it as a “godfather,” “parent,” and
“guardian.” He also appeared ready to provide long ranging speeches apparently
designed to assist his cause (against United) rather than providing probative
evidence of any value.
57. Some of his difficulties might be explained by the fact that English was not his first
language. However, his non-responsive and argumentative approach meant that I
am unable to rely on his evidence in the absence of appropriate contemporaneous
objective evidence in support.
58. It is indeed unfortunate that Mrs Nijhawan had suffered a serious illness. However,
her highly emotional presentation also detracted from the inherent reliability of her
account.
59. Mr Yumesh Munjal, on the other hand, gave relatively straightforward evidence about
the events of 20 February 2015.
60. United called a number of witnesses.
4 Given the extensive Counterclaim of Gold Fuels, it was agreed that it should lead evidence first.
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9 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
61. Mr David Rabe and Mr David Walker were former Franchise Development Managers
(who are no longer employed by United). Both provided evidence of the support
extended to Mr Nijhawan. Mr Walker, in particular, was an impressive witness.
62. Ms Stewart was the former Compliance Manager from 2010 – 2012 (who is also no
longer an employee of United). Ms Stewart gave evidence of the training programme
which she organised for Mr Nijhawan and was a straightforward witness.
63. Mr Pratico presented as a senior experienced person of some authority. He is the
National Operations Retail Manager at United. He gave evidence of a particular
meeting with Mr Nijhawan, which will be referred to below, as well as the re-entry
into the site on 20 February 2015.
64. Mr Robert Hopes and Mr Ajith Abeynaike were also called. Mr Abeynaike is currently
employed as the Group Financial Controller for United and is an accountant. Mr
Hopes was a Car Wash Co-ordinator. Both gave evidence, in particular, about a car
wash audit conducted in October 2014 which will be referred to below.
65. Finally, Mr Brian Walsh (the current Audit/Regional Area Manager at United) was
called. However, given no claims were pursued about the refurbishment, his
evidence need not be referred to.
66. As a general matter I found the witnesses called for United to be professional and
straightforward. Gold Fuels made no credit submissions generally about any of these
witnesses.
Was Gold Fuels liable to pay AGL for electricity?
67. Pursuant to clause 6.14(i) of the Franchise Agreement, the Franchisee at its expense
“must pay for all gas and electricity used by the Franchised Business.” This was
consistent with clause 16.11(a) which provided that the Franchisee was responsible
for electricity as denoted in the Repair and Maintenance Matrix.
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10 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
68. However, Gold Fuels alleged that it was not obliged to pay for electricity, citing, in
particular clause 4.1(a) of the Licence Agreement.5 Further, that the inconsistency
between the Lease and the Franchise Agreement should be resolved in its favour.6
69. It further alleges that representations to the contrary by United were false and United
thereby engaged in misleading and deceptive conduct7 (a claim for mistake was no
longer pursued).
70. The Licence Agreement sets out the Franchisee’s obligations in terms of the Lease
(as between itself and United) in clause 4. More particularly, it sets out which of the
tenant’s obligations under the Lease must be complied with by Gold Fuels.
71. Thus, clause 4.2(a) provides that, prima facie, Gold Fuels must “observe and comply
with the provisions of the Lease [except] to the extent that the Franchisee is not
otherwise required to observe or comply with those provisions pursuant to this
Licence.” (The need for the word “except” to be included was self-evident; otherwise
the clause made no sense. It appeared to be read by both Counsel this way).
72. Clause 4.1 then “carved out” the provisions which the Franchisee was “not required
to” comply with as follows:
(a) to pay any Rent and outgoings payable under the Lease.
(b) effect any insurance policy required under the Lease.
(c) comply with the clauses of the Lease specified in Annexure One.
73. Gold Fuels alleges that payments for electricity was an “outgoing under the Lease,”
placing emphasis on the absence of a capitalised “outgoings” and submitting that
“outgoings” therefore include all the usual outgoings under the lease which would
include electricity.
74. However, the concept of “outgoings payable under the Lease” can only be
understood by reference to the terms of the Lease document between United and its
landlord.
5 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 7(b); Closing
Submissions of the defendants, dated 15 March 2016 at paragraph 65. 6 Closing Submissions of the defendants, dated 15 March 2016 at paragraphs 127 - 131. 7 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraphs 48 - 49.
VCC:
11 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
75. Pursuant, then, to clause 1.2 of that Lease, “Outgoings” are defined to mean “all
statutory rates, taxes (excluding land tax) and charges separately assessed in
respect of the Premises.”
76. Although generally headed “Outgoings”, clause 4 then incorporates a distinction
between “Outgoings” as defined and “Utilities.” Thus, clause 4.1 makes provision for
“Payment by the tenant of Outgoings” and provides that the tenant “must pay the
Outgoings” within 14 days “after the landlord provides invoices.” This is to be
contrasted with clause 4.2 which provides a separate liability for “Charges for
Utilities” and provides that the tenant is to also pay directly to the relevant authorities
all charges “for gas, electricity, water, telephone and removal of waste and sewerage
that are separately metred to the Premises.”
77. Consistent with the definition contained in the Lease, the concept of “outgoings
payable under the Lease” under clause 4.1(a) of the Licence (for which the
Franchisee is not liable) is therefore referrable to statutory rates and charges
separately assessed in respect of the Premises and incidental to actual ownership
(rather than use). However, this “carve out” of liability does not extend to liability for
“Utilities” which concern recurrent expenses related to the tenant’s actual use of the
premises (like electricity).
78. Such a construction is also consistent with the contents of Annexure One which
specify lease clauses which the Franchisee does not have to comply with. Thus, if
liability for “Utilities” was to be excluded it would be expected that clause 4.2 would
be included.
79. Such a construction also has the benefit that it complements clause 6.14(i) of the
Franchise Agreement.8 Given the agreements were executed as a “suite” and the
Franchise Agreement is referred to in the Licence (e.g. see recital C, clause 2.1) this
further fortifies my finding.
80. I am therefore satisfied that Gold Fuels was also liable for electricity under clause
4.1(a) of the Licence given it was generally obliged to observe and comply with the
provisions of the Lease including the obligation to pay for electricity contained in
clause 4.2. Further, that clause 4.1(a) of the Licence does not operate to exclude
8 See also clauses 15.4(c), 31.4(l) and Annexure One Part B (Repair and Maintenance Matrix) item “Utility-
electricity” of the Franchise Agreement.
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12 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
liability given payments for electricity (as a “Utilitity”) are not “outgoings payable
under the Lease.”
81. If this construction was wrong, there would in any event be an issue as to what should
be the result given the clear terms of clause 6.14(i) of the Franchise Agreement.
Thus, in my opinion, clause 6.14(i) of the Franchise Agreement is crystal clear in
imposing a liability on the Franchisee to pay for electricity “used by the Franchised
Business.” The better view is that this would therefore impose an independent
obligation on which United might rely regardless of whether the Licence also
imposed such an obligation.
82. However, in the light of my finding above, it is unnecessary to consider this further.
83. I also do not consider this result to be “capricious or unjust” as suggested by Gold
Fuels. To the contrary, a construction that imposes liability on the occupant to pay
for services utilised by that occupant appears perfectly appropriate.
84. I am therefore satisfied that Gold Fuels was liable for electricity such that the claim
for reimbursement of electricity payments fails, as does the claim that United
engaged in misleading conduct by seeking reimbursement for electricity.
Termination
85. A range of complaints were originally made about termination. In the result, however,
the defendants claimed that the repossession by United was unlawful for 5 reasons
only as follows:9
by taking possession prior to delivery of the Termination Notice;
by relying on an invalid breach notice dated 8 January 2015;
by acting in breach of its obligation to act in good faith;
by acting in breach of its obligation to make every effort to resolve the dispute;
and
by failing to take steps to mediate in breach of the Trade Practices (Industry
Codes – Oilcode) Regulations 2006 (Cth) (“Oilcode”).
9 Closing Submissions of the defendants, dated 15 March 2016 at paragraph 41.
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13 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
86. Gold Fuels further claimed the sum of $225,000.00 by reason that it “lost the
opportunity” to sell its Franchise Business.10
87. In order to properly assess this claim some further background is necessary.
Background
88. From, at least, August 2012 Mr Nijhawan advised of difficulties in paying electricity
bills. By February 2014 Mr Nijhawan advised that he was “struggling” to pay
electricity claiming his bills with Power Direct (the then provider) had increased to
$4,000.00 per month ($48,000.00 per annum).
89. On 25 February 2014 United entered into an agreement to change its supplier to
AGL to supply electricity to all Victorian sites. Sites were advised of this changeover
on 18 March 2014 with a statement that “most sites will see a decrease in electricity
bills.”
90. On 18 March 2014 Mr Nijhawan requested advice as to the new rates. Then, by
email of 19 March 2014 he was told that “Currently yearly is about $39,000 without
car wash, this will now be $23,000 yearly.”
91. On 30 May 2014 Gold Fuels raised concerns regarding the invoices, saying that
instead of the bills going down to under $23,000.00 the AGL bills were actually
higher.
92. On 9 July 2014 Mr Nijhawan advises United that he had contacted “and explained
the issue” to the Ombudsman. He states “I am sure with involvement of regulatory
authorities AGL will have to agree to what was offered i.e. $23,000 per annum.”
93. By email of 10 July 2014 United states that the $23,000.00 figure was an estimate
that was given by a broker and not AGL, therefore AGL had no agreement for the
bill to be $23,000.00. However, they were in the process of changing brokers.
94. By email of 14 August 2014 Mr Nijhawan is advised that Power Direct would provide
a credit of $7,600.55. Further, that Mr Nijhawan should “organise immediate payment
for the balance of the account.” The outstanding amount as at that time was
$16,730.06.
10 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 84(ii).
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14 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
95. On 27 August 2014 (11.25 am) United again asks Gold Fuels to start paying AGL
“ASAP” as he had “not paid bills for some months now.” Mr Nijhawan responds
(11.40 am) stating that he was seeking AGL to send “corrected bills” referring to his
“earlier many emails requesting for this correction.” Mr Nijhawan is asked again to
pay the bills (11.45 am): “I need you to start paying AGL bills.” Mr Nijhawan
responded (11.50 am) saying that the “rate have to be as per offer that you conveyed
before signing.”
96. On 2 September 2014 (10.56 am) Mr Nijhawan is asked to start paying AGL and that
United was in legal proceedings with the broker but this would take some time. In
the meantime he was asked to set up a payment plan and start paying.
97. On 2 September 2014 (12.14 pm) Mr Nijhawan advised that he would start paying
the amount that would have been payable “as per the quote” and requests help
arranging a payment plan with AGL or if United could help with an interest free loan.
98. On 2 September 2014 (3.01 pm) and 5 September 2014 United make further
requests for payment.
99. Mr Nijhawan responds on 5 September 2014 (10.36 am) saying “I shall start today”
and in the meantime when charges are “corrected” the exact figure can be assessed
which should be cheaper also because of the carbon tax repeal.
100. Mr Nijhawan thereafter made a $3,000.00 payment on 10 September 2014.
101. No payment was made in October 2014.
102. On 16 October 2014 (10.46 am) United asks if Mr Nijhawan has made any more
payments as “AGL are chasing me as the balance is increasing.”
103. Mr Nijhawan responds (10.52 am) saying that his car wash commission was payable
and appears to suggest that this might be used to pay AGL (this had been withheld
as detailed below). He states he will also be waiting for the final figure after
“corrections.”
104. On 17 October 2014 (11.18 am) he is told that he needs to call AGL and start a
payment plan and stick to it before they switch the power off and that the situation is
“getting out of control” such that he needs to make a large payment. He is further
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advised that the balance owing was some $19,000.00 whilst he was only owed
$3,000.00 in respect of the car wash commissions.
105. Mr Nijhawan responds on 17 October 2014 (11.34 am) saying they need to “correct
the bills” and that monthly costs should be only $1,900.00 (which was apparently
based on the $23,000.00 estimate) and $1,600.00 (following the carbon tax repeal).
106. By email of 17 October 2014 (11.45 am) United advised that “as mentioned earlier
the $23,000 was an estimate which the broker had got wrong.” United was now in
legal action with the broker. United states “However this does not change the fact
the current bills are well due and need to be paid ASAP.”
107. By email of 17 October 2014 (11.59 am), Mr Nijhawan responds as follows:
“Yatish,
I that was not an estimate but the main factor being agreed cost, for United to sign up with AGL. I am liable to pay up to that extent that I shall arrange to pay which is why I said, once the car wash commission is released, that will be paid straight to AGL while balance I shall arrange to pay without delay.
As per information I had on your behalf from Ombudsman, the broker belonged to AGL who have ratify his actions. Well if the United did not match the rates with the quotes, it will still not be my mistake.”
108. By email of 17 October 2014 (1.13 pm) Mr Nijhawan is told “you can’t have an agreed
cost with electricity, please pay bill ASAP.” Mr Nijhawan responds (1.17 pm) “I will
pay but what was agreed/advised by you. You can’t sign up for anything and make
me pay for, any cost.”
109. By email of 17 October 2014 (3.08 pm) AGL requires an “urgent payment” on the
account noting that no payment had been made since 10 September 2014 and there
was currently $19,204.69 outstanding.
110. By further email of 21 October 2014 Mr Nijhawan is told that they needed a payment
“today” as AGL had escalated and have threatened to turn the power off.
111. On 7 November 2014 Mr Nijhawan then made a $1,000 payment.
112. Mr Nijhawan further wrote again on 21 November 2014 (10.29 am) furnishing his
calculation that he was liable to pay “as per the offer that should have been accepted.
We all know an offer made becomes a contract when accepted.” The calculations
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appear to be again based on the $23,000.00 figure ($1,900.00 per month) and to
also encompass a reduced rate (post July) for the carbon tax. He indicated that he
would pay “pending correction of bills as per offer.” He also asked for his car wash
commission to be released immediately.
113. The response of United is that his offer was “a joke.” (11.05 pm). However, he was
invited to calculate months at $2,100.00 per month (with GST) from the time of
transfer.
114. As conceded by Mr Nijhawan, United also invited him to find his own supplier if he
wished.
115. Mr Nijhawan responds on 21 November 2014 (11.26 pm) asking United not to call it
a “joke.” He says “for now” I shall recalculate figures but “ad hoc.” Further that the
carbon tax repeal made a difference of $250.00 – $300.00. He therefore includes
figures of $2,100.00 for 6 months (no GST) and $1,850.00 for 4 months and says he
would pay $5,100.00 in one week. He further says he would need formal confirmation
that his account would be up to date with this and he would “receive corrected bills
thereafter.”
116. On 1 December 2014 Mr Nijhawan made a payment to AGL of $5,100.00.
117. On 30 December 2014 AGL sent a disconnection notice to United in respect of the
overdue electricity account for $18,921.84. The notice advised that if the bill was not
paid consequences may include disconnection and an adverse credit rating. As Mr
Nijhawan accepted in evidence, there were in fact multiple disconnection notices
such that this was not the first one.
118. On 31 December 2014 United sent a letter of demand to Gold Fuels seeking
payment of $18,921.84 outstanding in relation to electricity charges. The letter
includes the following:
“As you are aware, you are required under the Franchise Agreement to ensure that all AGL electricity bills are paid on time. This obligation arises pursuant to clauses 12.2(a) and 15.4(c) of the Franchise Agreement and by operation of clauses 4.2(a) of the Licence (and associated Lease of the Site), both of which form part of the Franchise Agreement.
I am instructed that as at 9 December 2014, you had outstanding electricity bills with AGL totalling $18, 921.84. Further amounts may have accrued since this time.
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The failure to pay outstanding electricity accounts risks electricity being shut off from the Site, causing closure and significant loss to my client.
I demand that you immediately pay in full all outstanding electricity accounts you hold in relation to the Site within seven days from the date of this letter.”
119. In response, on 31 December 2014 Mr Nijhawan writes raising a myriad of matters
but making clear that he had paid “based on the rates offered while now it is for
United to get AGL to honour the offer…I expect that I should not be made to suffer
for that.”
120. On 5 January 2015 Mr Nijhawan pays an amount of $1,850.00 in respect of the letter
of demand. He also writes an email that day saying he is waiting to hear “when the
mistake between yourself and HO is fixed” and noting that the matter concerned the
site’s ability to afford “incorrect payments.”
121. He is told by email of the same day that the matters in the letter of 31 December
2014 are reiterated and that payment should be made before 7 January 2015.
122. He then writes on 6 January 2015 referring again to being “incorrectly charged” and
demanding full information of actions taken by legal department “for this error.” He
finishes, saying:
“In the meantime, I can consider bearing the brunt of this onslaught should United decide to take back their business and pay my monies, then do what they wish. This will help both sides to be at peace. In saying so, I fully understand from the developments over many months that I stand at huge risk of being thrown out without paying any money and circumstances support my fears.” (emphasis added)
123. On about 8 January 2015 United then served a letter entitled “Franchise for Narre
Warren North – Breach notice.” The material parts, read as follows:
“Nature of Dispute
TAKE NOTICE THAT you are in breach of the Agreement in that you have failed to pay to AGL Energy Limited the amount of $17,071.84 for electricity use at the Site.
Specifically, the Agreement provides:
(a) at clause 12.2(a) – you must devote sufficient time and attention to the Franchised Business and perform the administrative, marketing, promotional, compliance and accounting functions required in operating the Franchised Business and in making the Franchised Business profitable;
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(b) at clause 15.4(c) – you must not do anything which may bring the System into disrepute or which may damage the interests of United of the Network (including failure to pay any supplier); and
(c) at clause 4.2(a) of the Licence – you must observe and comply with the provisions of the Lease to the extent that you are not otherwise required to observe or comply with those provisions pursuant to the Licence.
By failing to pay AGL the amount of $17,071.84 for electricity use incurred at the Site, you have breached clauses 12.2(a) and 15.4(c) of the Agreement and clause 4.2(a) of the Licence in that you have:
(a) failed to perform the administrative, compliance and accounting functions required in operating the Franchised Business and in making the Franchised Business profitable;
(b) caused damage to the interests of United and the Network by failing to pay a supplier; and
(c) failed to comply with the provisions of the Lease; specifically, clause 4.2 of the Lease that requires payment to relevant authorities for all charges for (amongst other items) electricity.
Actions Required
To remedy the breaches referred to in this Notice above, you must within 14 days from the date of this Notice and at all times thereafter for the remainder of the term of the Agreement:
(a) pay AGL the outstanding amount of $17,071.84; and
(b) pay all future AGL invoices as when they fall due and payable.
(c) at clause 4.2(a) of the Licence – you must observe and comply with the provisions of the Lease to the extent that you are not otherwise required to observe or comply with those provisions pursuant to the Licence.
United allows you a reasonable time from the date of this Notice, namely the period of 14 days set out above, in order to remedy the breaches in the matter set out above.
Notice to Terminate
Take notice that if you fail to undertake the actions detailed above within the time stipulated above, United reserves its rights under the Agreement to terminate the Agreement, including the right to terminate pursuant to clause 31.1(h) of the Agreement.
This Notice of Breach is without prejudice to United’s rights, and does not constitute a waiver of United’s rights, in respect of any other breaches of the Agreement committed by you.”
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January meeting
124. A meeting thereafter occurred in January 2015 between Mr Nijhawan and Mr Pratico.
125. Mr Nijhawan gave incoherent and contradictory evidence about this meeting. He
stated that Mr Pratico came to his site and offered to cash his bank guarantee. Mr
Nijhawan also alleged Mr Pratico told him “don’t worry about the breach notices,
they’ll be laid to rest anyway. They’re part of protocol or formality.” However, he
then said that Mr Pratico further said (in the same meeting) that they could not cash
the bank guarantee.
126. Mr Nijhawan also stated that this all had to be understood in the context of another
(earlier) meeting earlier wherein Mr Pratico had said “you don’t know how big they
are, your are messing with United, they can achieve what they want to so you’d better
pay….”
127. Mr Nijhawan also claimed to have had a telephone call wherein Mr Pratico said they
could cash the guarantee and further that the directors were willing to pay
$100,000.00 for the business. Mr Nijhawan’s response was: “I can’t sell it for
$100,000. That’s my investment and that’s not actually my money, it’s money I have
to return to family and friends.”
128. Mr Pratico’s account was that Mr Nijhawan asked for a meeting around this time so
he met him at a coffee shop. Mr Nijhawan further said that he was going to go to
India to raise more money. Mr Pratico said “well that’s great” and left it at that. There
were no discussions about the breach notice.
129. Under cross examination Mr Pratico maintained that he had not told Mr Nijhawan not
to worry about the breach notice. Further, he said that the reason he did not respond
to Mr Nijhawan’s many emails at all was because “it just keeps going on, and on,
and on…” Mr Pratico never made an offer to purchase the business for $100,000.00
and did not know of any such offer.
130. I accept and prefer the account of Mr Pratico as to his discussions with Mr Nijhawan.
The account of Mr Nijhawan was inherently implausible and contradictory. Thus at
one point Mr Pratico is agreeing to lay breach notices to rest; at another he is telling
him not to “mess” with United. It was also highly unlikely that Mr Pratico would tell
him “not to worry about the breach notice” for no good reason. Moreover, Mr
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Nijhawan’s own actions were inconsistent with any such representation being made
given he went overseas to obtain funds and given his subsequent emails (which
show that he is aware that he is at risk unless he can get Mr Pratico to commit to
writing to “relax” the breach notice).
Events leading to termination
131. By email of 21 January 2015 Mr Nijhawan raises a range of matters (said to be
raising a “dispute” by Gold Fuels). The email appears to be entitled “Sorry. Too much
pressure, need to talk to release a bit” and covers a range of matters including his
emotional state following a funeral. He alleges that Mr Pratico had “informed me that
Mr Avi Silver has offered $100K & Mr Adrian Gallace valued at $200K - 250K.” Mr
Nijhawan also said he had “kindly advised me that the Breach Notices have been
put to rest but I request you to kindly see if I could have any communications in that
regard to get some relief.” In respect to electricity he states “kindly advise me on the
issue of Electricity and Car Wash Commissions please if I could get that paid as I
am penny tight now with month end arrived again. I need support.”
132. By email of 27 January 2015, Mr Nijhawan writes alleging that “you had kindly asked
me to relax on Breach Notices but I plead to you to please let me have some
communication for withdrawal as I continue to remain fearful.”
133. By email of 30 January 2015 Mr Nijhawan writes to Mr Pratico saying “I request you
to please see if there is a way you can get me help in these terrible circumstances.”
134. On 31 January 2015 he says “I understand you advised me not to worry about
notices and I am sure they will be laid to rest but I shall be thankful for a
communication.”
135. He further writes again on 2 February 2015 asking “if there was an update” and
asking Mr Pratico to “advise and help” him.
136. Finally on 9 February 2015 he writes:
“After talking to you this Friday, I perceive the message that anything extreme could be just around, even though I am not at fault even least for that.
I am writing this just to let you know that I am going to make another desperate attempt to beg for help from my sources, outcome of which is not known for which I will be away from work for a week or ten days. So, please bear with us and help for not letting the situation become worse for me.
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Should I not succeed in borrowing more money, with all due regards to all of you, I will have no option but to put my body organs up for sale to those who might need them as a last resort. At least, this will help me ease my immediate financial pressure. This is the only option because that is the only asset I have that is not encumbered. Not being able to withstand the stress, I am going to perish soon anyway.
In the mean time, should United decide to stand besides me and rehabilitate the business or decide to buy back or make it easy to sell it soon, please do communicate to me as that might inject a new life to my dying hopes.” (emphasis added)
137. In the result, no further payment was made in respect of electricity, although Mr
Nijhawan travelled overseas to try to obtain funds.
138. On 20 February 2015 United repossessed the premises.
139. The evidence of Mr Pratico was that he attended the site with 2 security guards, Mr
Walsh, and Mr Rabe at around 4.30 am in order to terminate the agreement. They
walked in and spoke to the console operator and told him “from this time on its
termination, we’re terminating you out.”
140. The events then unfolded as follows:
Mrs Nijhawan received a call from the night operator at around 4.30 am saying he had been locked out whereupon she was “shocked and just fainted”;
Mrs Nijhawan then called her husband who told her to contact a friend. She and Dinesh went to the friend’s house who suggested they attend the police station. She also called Mr Munjal;
After receiving a call from Mrs Nijhawan around 6.00 am, Mr Munjal said he then attended the site;
Mr Munjal received the Termination Notice at the site at around 6.30 am; and
After calling Mrs Nijhawan, Mr Munjal then met her at the nearby police station and handed the notice to her, which she then handed to her son.
141. The Termination Notice was also served:
by email of 9.23 am on 20 February 2015 addressed to Mr Nijhawan (as director and as guarantor); and
by post dated 20 February 2015 addressed to Gold Fuels.
142. The Termination Notice included a notification that the Franchise Agreement was
terminated on the grounds that the Franchisee had failed to remedy the breach set
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out in the Breach Notice dated 8 January 2015 in accordance with that Breach Notice
(either in part or at all).
Resolution
Taking possession prior to service of Notice
143. The allegation of Gold Fuels is that United breached the Agreement by taking
possession before serving the Termination Notice.11
144. As the findings above make clear, the evidence suggests that United did take
possession prior to service of the Notice. Thus, while the repossession appeared to
take place at around 4.30 am, Mrs Nijhawan (as director of Gold Fuels) did not
receive the Notice until around 6.30 am.
145. United, however, claims that it was unnecessary for it to serve the Termination Notice
to terminate the Agreement.
146. Clause 31.3 of the agreement provided as follows:
31.3 Subject to notice by Franchisor
If the Franchisee commits an Event of Default, the Franchisor may terminate this Agreement by notice in writing to the Franchisee if:
a. the Franchisor gives written notice to the Franchisee which: i. specifies the breach; ii. states that the Franchisor intends to terminate this Agreement if the
breach is not remedied; iii. states what the Franchisor requires to be done to remedy the breach;
and iv. allows the Franchisee a reasonable time (but not exceeding 30 days)
to remedy the breach; and
b. the Franchisee fails to remedy the breach in accordance with the Notice of Breach.
147. I reject the contention of United that no separate Termination Notice was required.
Rather, as the ordinary terms of clause 31.3 suggest, the Agreement contemplates
that termination will only occur after two notices have been given. The first (referred
to in paragraph a) is to give “written notice” of the breach which allows an opportunity
11 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 82.
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for the breach to be remedied; the second (referred to in the second line) is to give
“notice in writing” of the actual termination.
148. I therefore accept that the taking of possession was unlawful and will also accept,
for present purposes, that it constituted a repudiation.
149. However, as conceded by Gold Fuels, in order to rely on any such repudiation Gold
Fuels needed to accept it. This also needed to occur prior to the service of the actual
Termination Notice which was received by around 6.30 am.12
150. Gold Fuels submitted that there was an acceptance given Gold Fuels “took no steps
to regain possession of the store or its equipment and/or stock” after being advised
by the police that United had taken over operation of the store.
151. However, I am unable to be satisfied that such inaction constitutes a communication
of an unequivocal election to terminate.13 Nor was the “stunned shock” of Mrs
Nijhawan sufficient.
152. It follows that, notwithstanding the dispossession without notice, that the agreement
formally remained on foot after 4.30 am until it was formally terminated by notice
around 6.30 am.
153. Any breach of the Agreement in the meantime is therefore of no consequence.
Whether breach notice invalid
154. There were 2 complaints made about this Notice: first that it did not evince an
intention to terminate for non-compliance; secondly that Gold Fuels was not in
breach of any of the clauses relied upon by United.
155. In summarising the relevant principles in the decision in Aura Enterprises Pty Ltd v
Frontline Retail,14 (“Aura”) Brereton J stated:
…a notice will sufficiently specify a breach if from its terms a reasonable recipient, who has knowledge of the terms of the contract, would, taking into account the surrounding circumstances, be able to identify the obligation and the manner in which it is alleged to have been breached – for which purpose reference to the relevant provision of the franchise agreement may in some
12 When served on a director: see s 109X(1)(b) Corporations Act 2001 (Cth). 13 See Rick Bigwood, Nicholas Seddon and Fred Ellinghaus, Cheshire & Fifoot Law of Contract (LexisNexis
Butterworths Australia, 10th ed, 2012) 1078-1079 at [21.23] including cases cited therein. 14 [2006] 202 FLR 435.
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cases suffice, but reference to facts describing how the breach is said to have occurred may sometimes also be necessary.15
156. Further, in Pan Foods Importers and Distributors Pty Ltd v ANZ Banking Group Ltd,16
Kirby J stated:
In my view, such documents should be construed practically, so as to give effect to their presumed commercial purposes and so as not to defeat the achievement of such purposes by an excessively narrow and artificially restricted construction … It should eschew artificialities and excessive technicalities for these will not be imputed to the ordinary businessperson. Business is entitled to look to the law to keep people to their commercial promises. In a world of global finances and transborder capital markets, those jurisdictions flourish which do so.17
Notice to terminate
157. In relation to the first point, it is true that the Breach Notice stated that if there was a
failure to remedy, “United reserves its rights under the Agreement to terminate the
Agreement…”
158. However:
The “reservation of rights” occurs under a heading entitled in bold “Notice to Terminate;”
The Notice followed on from an earlier letter of demand of 31 December 2014 which was in strong terms and which had already requested “immediate payment;” and
The action taken by United in late 2014 documented above evinced an intention that termination was imminent unless a payment was made. Mr Nijhawan himself obviously read the actions of United in this light.
159. In relation to the last point, the responses of Mr Nijhawan were increasingly
desperate culminating in a trip overseas to obtain funds and a suggestion that he
might sell his organs. There can be no doubt that in these circumstances he
appreciated that United possessed an intention to terminate absent payment and
suffered no prejudice from the way the notice was framed.
160. Eschewing “artificialities and technicalities”, I am therefore satisfied that a
reasonable recipient, with knowledge of the contract and surrounding circumstances
15 Aura Enterprises Pty Ltd v Frontline Retail [2006] 202 FLR 435 [41]. 16 [2000] 170 ALR 579. 17 [2000] 170 ALR 579 [24].
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would appreciate that the Breach Notice was giving notice of an intention to
terminate.
161. I am fortified in this approach by the decision in Aura wherein breach notices in
similar terms were upheld.18
Gold Fuels not in breach of clauses cited
162. It will be recalled that the Breach Notice cited clauses 12.2(a), 15.4(c) and 4.2(a)
rather than clause 6.14(i).
163. Gold Fuels alleges that it was not in breach of any of these clauses.
164. United conceded that clause 12.2(a) was inapplicable but relied on clause 15.4(c)
and clause 4.2(a). It further said that it did not matter whether the clauses were
correct given the substance of the breach (a failure to pay the AGL electricity bill of
$17,071.84) was clearly identified.
165. Turning then to clause 15.4(c) it provides as follows:
The Franchisee must: … (c) not do anything which may bring the System into disrepute or which may damage the interests of the Franchisor or the Network (including the failure to pay any supplier).
166. Gold Fuels submitted that there must be more than the failure to pay a supplier given
the reference to “including.” However, I do not accept this submission. Rather the
explicit reference to a failure to pay a supplier clearly recognises that such an act
might constitute potential damage to the interests of the franchisor.
167. Gold Fuels then highlighted that electricity was never disconnected; that progress
payments were being made; that other Franchisees were not paying; and that the
bank guarantee should have been used.
168. However, at the time of service, there had been a repeated failure to pay with a
number of disconnection notices served. As highlighted above, the possible
disconnection further carried the risk of an adverse credit rating.
18 Aura Enterprises Pty Ltd v Frontline Retail [2006] 202 FLR 435 [86] - [90] (6 December Notice), [94] (30
January Notice).
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169. Although progress payments had been made, there was no payment plan entered
into with the result that a large bill remained unpaid. More significantly, the clear
stance of Mr Nijhawan evidenced in his correspondence was that he was not
prepared to pay AGL bills that were actually owing, but would only pay in accordance
with the $23,000.00 estimate.
170. Even if other franchisees were not paying, this is also of no assistance without an
understanding of the context in which this was occurring in any individual case.
Moreover, the evidence of unpaid accounts appeared to be related to commission
agents rather than Franchisees (as per reference to “CAs” in the email relied upon).
171. In terms of the bank guarantee, as has been seen above, Mr Nijhawan gave
conflicting evidence about this matter. In any event, his evidence (cited below) was
also that he did not want United to use the bank guarantee because he did not want
to be bound to continue to pay the AGL rates.
172. This was not simply a case of a single bill unpaid. Rather, payments made by Mr
Nijhawan had been sporadic and deficient over a long period of time. It was also
apparent that he was not prepared to pay the AGL bills as they became due in the
future as he was obliged to under the agreements. In such circumstances, I accept
that the breach in this case “may” damage the interests of the Franchisor (including
the failure to pay any supplier) such that clause 15.4(c) was properly engaged.
173. In terms of clause 4.2(a), as indicated already, this clause imposed an obligation on
Gold Fuels to comply with the terms of the Lease as between itself and United except
to the extent that such an obligation was excluded. Given there was an obligation to
pay electricity as a “utility” (in clause 4.2 of the Lease) which was not excluded it
follows that clause 4.2(a) is also engaged.
174. Moreover, the fact that an additional clause is referred to (clause 12.2(a)) is
insufficient to vitiate the notice.19
175. I am therefore satisfied that relevant breaches were identified and in existence.20
Further, that a reasonable recipient, with knowledge of the contract and surrounding
19 Aura Enterprises Pty Ltd v Frontline Retail [2006] 202 FLR 435 [84]. 20 This would also satisfy clause 35(1)(a) of the Oilcode which was raised in the Counterclaim but not pursued
in closing submissions in any event.
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circumstances would be able to identify the obligation (to pay electricity) and also
the manner in which the obligation was breached (by failing to pay the electricity).
176. It follows that the Breach Notice is not defective.
Whether termination in breach of obligation to act in good faith
177. Two issues arise in relation to this allegation; whether any such obligation existed;
and if so whether it was breached.
178. In terms of the first issue the defendants properly accepted that the Victorian Court
of Appeal has rejected the notion that a broad duty of good faith ought be implied
into every commercial contract. However, they cited passages from the decision in
Esso Australia Resources v Southern Pacific Petroleum21 (“Esso”) to suggest that
the Court should infer such a duty given the relationship between United and Gold
Fuels was “clearly unbalanced” and that Gold Fuels was “at a substantial
disadvantage and particularly vulnerable.”
179. In Esso, Warren CJ emphasized that the modern law of contract had developed on
the premise of achieving certainty in commerce. She further stated:
Ultimately, the interests of certainty in contractual activity should be interfered with only when the relationship between the parties is unbalanced and one party is at a substantial disadvantage, or is particularly vulnerable in the prevailing context. Where commercial leviathans are contractually engaged, it is difficult to see that a duty of good faith will arise, leaving aside duties that might arise in a fiduciary relationship. If one party to a contract is more shrewd, more cunning and out-manoeuvres the other contracting party who did not suffer a disadvantage and who was not vulnerable, it is difficult to see why the latter should have greater protection than that provided by the law of contract.22 (emphasis added)
180. After also rejecting that commercial contracts should generally carry an implied term
of good faith, Buchanan J further stated that it may be appropriate to import such an
obligation “to protect a vulnerable party from exploitative conduct which subverts the
original purpose for which the contract was made.” This would be done pursuant to
the BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of
Shire of Hastings23 (“BP Refinery”) test rather than implication as a matter of law.24
21 [2005] VSCA 228. 22 Esso Australia Resources v Southern Pacific Petroleum NL [2005] VSCA 228 [4]. 23 (1977) 180 CLR 266. 24 Esso Petroleum Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 [25] (Buchannan J).
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181. I do not consider that Gold Fuels was at a “substantial disadvantage” and/or
“particularly vulnerable” such as to depart from the ordinary position that no general
duty is appropriate.
182. As cited above, Mr Nijhawan had the benefit of fulsome legal advice; had appropriate
qualifications and experience (with a commerce degree) and, although English was
not his first language, he was able to give extensive evidence without an interpreter,
and to also assert his position (in extensive emails) at length.
183. There is no basis in such circumstances to imply a duty of good faith.
184. It is therefore unnecessary to consider this matter further, particularly since it
appeared that Gold Fuels sought to rely on matters not pleaded in final
submissions.25 Thus, there was a suggestion that United turned a “blind eye” to
evidence that Gold Fuels was unable to pay award rates, despite the fact that Mr
Walker had actually forwarded a wages guide about the operation of the Award to
Gold Fuels. It would be of great concern if award rates were not paid but, given the
matter was not properly pleaded, the issue was not fully investigated and I cannot
comment further.
185. Many of the other matters raised are dealt with in relation to the unconscionability
claim, below.
186. Moreover, insofar as the termination itself was concerned, I am satisfied that United
was entitled to terminate the contract based on the failure to comply with the Breach
Notice and following extensive engagement with Gold Fuels. No breach of good
faith is established.
Whether termination in breach of obligation to make every effort to resolve the
dispute
187. Gold Fuels next claimed that the termination was undertaken in breach of the
obligation to “make every effort” to resolve the dispute pursuant to clause 36.3 of the
Franchise Agreement.
188. Clause 36.3 (a) read as follows:
25 Closing Submissions of the defendants, dated 15 March 2016 at paragraph 86.
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36.3 Dispute resolution
a) Where a Dispute occurs the following procedure must be adopted to resolve such Dispute:
i. the complainant must promptly advise the respondent in writing of the nature of the Dispute, the outcome the complainant desires and what action the complainant believes will settle the Dispute;
ii. the parties to the Dispute must make every effort to resolve the Dispute by mutual negotiation; and
iii. should the parties not resolve the Dispute within three (3) weeks from the date of receipt of the Dispute Notice by the respondent, then either or any party to the Dispute may seek the dispute resolution procedures specified in Part 4 of the Oilcode.
189. A “Dispute” was defined under clause 1.1 as follows:
Dispute means any dispute, difference or question arising between the Franchisor and the Franchisee and/or Guarantor concerning the interpretation of this Agreement or the rights and obligations of the Franchisor and the Franchisee and/or Guarantor under this Agreement.
190. There was no evidence that Mr Nijhawan sought to engage these dispute resolution
procedures under the Agreement. In particular, Gold Fuels did not point to any
document said to constitute the initial advice by him as complainant which complied
with clause 36.3(a)(i).
191. In any event, I accept the submission of United that it did make every effort to resolve
the “Dispute” (presuming for present purposes that there was one). Thus, United did
not terminate the instant a breach was apparent, but instead attempted to engage
with Gold Fuels to reach a solution. This included the offer of 21 November 2014 to
calculate months at $2,100.00 per month (with GST) from the time of transfer; the
invitation for him to take up a different supplier; as well as that he organise a payment
plan.
192. Instead, Mr Nijhawan displayed a completely inflexible position that AGL had
somehow bound itself to accept payment at the rate estimated by United (through its
broker) irrespective of the obligations of Gold Fuels under the Agreement and the
entitlements of AGL.
193. I am not satisfied that there was any breach of clause 36.3 by United.
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30 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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Whether termination in breach of the Oilcode
194. Finally, Gold Fuels submitted that the termination was undertaken in breach of the
Oilcode, particularly clause 44.26
195. Part 4 of the Oilcode contains a Dispute Resolution Scheme and applies to a dispute
arising between the parties to a fuel re-selling agreement (clause 40(b)). United did
not challenge the application of this Part which included clause 44.
196. Clause 44(1) (which applied to disputes other than under s 43) provided that “the
parties must attempt to agree about how to resolve the dispute.”
197. Pursuant to clause 44(2) this may involve reference to provide mediation or other
assistance, or if the parties cannot agree on such a reference, the notification of a
dispute resolution advisor who must appoint an appropriate person to provide
mediation or other assistance.
198. Gold Fuels claimed that United had failed to take steps to mediate the dispute
pursuant to clause 44 prior to “jumping” to termination.
199. United however relied on the decision in Trans Petroleum (Australia) Pty Ltd v White
Gum Petroleum Pty Ltd27 (“Trans Petroleum”) and submitted that the obligation in
the Oilcode conferred a joint obligation on the parties and, if neither party invokes
these procedures, there is nothing unconscionable or unlawful in a party exercising
a right to terminate without first exhausting such procedures.
200. It is therefore necessary to consider the decision in Trans Pretroleum which both
parties made reference to.
201. The decision in Trans Petroleum concerned whether written notice of termination of
a fuel re-selling agreement was valid. The appellant submitted that it was invalid on
various grounds. One of the reasons advanced for invalidity was that the notice of
termination had been served without having invoked the dispute resolution
procedure provided for in s 44 of the Oilcode. This was said to constitute
unconscionable conduct.
26 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 81. 27 [2012] WASCA 165.
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31 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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202. The trial judge dismissed the claims that the notice of termination was void and made
a declaration that it was valid. An appeal from this decision was dismissed.
203. In dealing with the allegation concerning s 44 , Buss JA (with whom Murphy JA and
Pullin JA agreed) stated that the respondent did not act unconscionably in serving
the notice of termination in circumstances where:
Section 44(1) of the Oilcode imposed a joint obligation on the parties. After the respondent served the notice, the appellant did not itself seek to invoke or rely upon the dispute resolution procedure in the Oilcode or the agreement. It elected, instead, to commence proceedings immediately in the Supreme Court. In these proceedings, the appellant litigated the validity of the notice. The respondent did not commence any proceedings in the Supreme Court or elsewhere in relation to the notice of termination, but merely counterclaimed in the proceedings commenced and prosecuted by the appellant.28
204. Gold Fuels sought to distinguish this decision submitting that the termination in the
case was not for cause and was unconnected with any dispute. Further, that the
failure to mediate is not just unconscionable but a limitation on the power to
terminate, and finally, that the Oilcode in this case is mandatory.29
205. However, the finding that clause 44 imposed a “joint obligation” did not depend on
any of the factors highlighted by Gold Fuels. Rather, the decision is directly
applicable to the present case wherein Gold Fuels “did not itself seek to invoke or
rely upon the dispute resolution procedure in the Oilcode or the agreement.” Indeed,
it would be wholly unsatisfactory if parties could avoid contractual obligations by later
claiming that dispute resolution procedures should be undertaken in circumstances
where they had taken no steps to invoke such procedures.
206. I am satisfied that United was entitled to serve notice of termination under the
agreement and that it acted in good faith in so doing.
207. In all the circumstances, I am therefore satisfied that the termination was lawful and
that there was no unconscionability by reason of the Oilcode.
208. There may also be an issue as to whether there even was a “dispute” for the
purposes of s 44 (which is not defined) in circumstances where Gold Fuels appeared
28 Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165 [173]. 29 Closing Submissions of the defendants, dated 15 March 2016 at paragraph 104.
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32 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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to be simply refusing to pay. However, it is unnecessary to consider this further in
the light of the above findings.
Loss and Damage
209. I am satisfied that the termination was valid. It follows that it is unnecessary to
consider whether the loss claimed would be sustainable.
210. For the sake of completeness, however, I will express a summary of my views about
this matter, below.
211. As indicated already, in its pleading Gold Fuels claimed the lost opportunity to sell
the business at $225,000.00.30 This was also repeated in the Statement of Issues.31
212. However, in closing submissions Gold Fuels further sought to claim that it would not
be liable for the loan, and further that the bank guarantee should not be deducted
(with associated costs).
213. In terms of the loan, the non-payment of the electricity would constitute an event of
default32 which would justify enforcement of the loan under clause 10.1. The failure
to pay the loan instalments would also have the same result.33
214. In terms of the guarantee, although the Franchisor was obliged to return the
guarantee under clause 30, clause 17.5 provides that the Franchisee consents to
United offsetting against any payments due to the Franchisee any moneys owed to
it.
215. Turning then to the more substantive issue of the alleged loss of a sale opportunity,
Gold Fuels relies on Sellars v Adelaide Petroleum NL34 seeking damages for
deprivation of a commercial opportunity to sell his business.
216. In its Counterclaim it cited:35
an alleged offer from United to buy the business at $100,000.00 (citing an email from Mr Nijhawan of 21 January 2015);
30 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 84(ii). 31 Defendants’ Statement of Issues dated 2 March 2016 at paragraph 3. 32See clause 10.2(2) and see also clause 10.2(8); pleaded in Statement of Claim of the plaintiff, dated 7 April
2015 at paragraph 20. 33 See clause 10.2(1). 34 (1994) 179 CLR 332. 35 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 84.
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33 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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A statement from United in an email of 5 September 2014 that: “if you are willing to sell your business between $250,000 and $300,000 I think you have a good chance of selling it prior to Christmas;” and
An email of 30 October 2014 from United stating “you could realistically sell your business for $200,000 goodwill.”36
217. In terms of the alleged offer of $100,000.00 from United, the oral evidence about this
matter is extracted above. For reasons already given, I reject the evidence of Mr
Nijhawan about this matter which is not the subject of any documentary evidence
from United in support. In fact, the email of 5 September 2014 (also cited by Gold
Fuels above) states “As I have discussed with you many many times, United
Petroleum will not be taking up the option to purchase your site.”
218. In any event, the evidence of Mr Nijhawan in response to this alleged offer was:
“I can’t sell it for $100,000. That’s my investment and that’s not actually my money, it’s money I have to return to family and friends…”
219. In terms of the email of 5 September 2014, it is true that Mr Gallace suggests he
might have a good chance to sell the business at between $250,000.00 –
$300,000.00. However, the amounts suggested by United vary (in an email of 15
October 2013 a range of $100,000.00 – 150,000.00 is suggested; on 30 October
2014 an amount of $200,000.00 is cited).
220. Mr Gallace was not called and his estimates were not provided or admitted as
opinion evidence. Indeed, no expert statement was provided by him or anyone else
as to the value of this business immediately prior to termination.
221. Even if the business was worth something, there was also absolutely no evidence
whatsoever that a purchaser was likely to be found who would pay $225,000.00 or
anything for that matter, nor the precise conditions on which United would consent
to any such arrangement under clause 27 of the Franchise Agreement. Although Mr
Nijhawan made vague reference to the existence of “purchasers” none were
identified or called.
222. Finally, even if all of these hurdles were overcome, there was no evidence that Mr
Nijhawan would sell the business for anything like $225,000.00 (as claimed). Put a
36 Email cited of 23 December 2014 was not in evidence.
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34 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
different way, there was no evidence that Mr Nijhawan could and would have taken
the opportunity to sell the business at a price of $225,000.00 or anything less than
his full investment.37
223. Gold Fuels relied on some vague evidence of Mr Nijhawan to the effect that although
he did not want to sell for less than $370,000.00 it would “depend” on the situation.
224. However, the preponderance of the evidence weighed against him selling for
anything that involved a loss. For example:
The email dated 15 October 2013 wherein Mr Gallace said “This would mean that you would need to be willing to sell your site for approximately $100,000 - $150,000, thus, incur a loss that you have expressed, that you are not willing to do.”
The email dated 15 October 2013 where Mr Nijhawan said “So, selling this business is inevitable. Other thing critical to achieve this without incurring losses.”
The email dated 20 October 2015 wherein Mr Nijhawan said “I am not able to accept your suggestion to sell my business for whatever price as the price that you suggested was almost 50% of my investment.”
On 30 October 2014 Mr Gallace sent an email to Mr Nijhawan stating “the only reason you have not be able to sell you business is because you are seeking $450,000 in goodwill, this is too far over the market value and is completely un-realistic.”
The email of 30 October 2014 wherein Mr Nijhawan says “the business cannot sell, I cannot afford to cop the loss.”
225. Overall, then, I am unable to be satisfied that Mr Nijhawan would have sold the
business for anything less than what he had paid ($370,000.00 plus GST). There
was no evidence that the business was worth anything like this (there was no
evidence the business was worth anything) nor was there any evidence that a
purchaser was available who would pay this.
226. In such circumstances, even if (contrary to the above) the termination, was unlawful,
I am not satisfied that Gold Fuels lost an opportunity (of any value) to sell the
business.
37 See Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 [362] (Brennan J).
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35 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
Summary
227. I am not satisfied that the termination was wrongful.
228. Even if it was, no loss is established.
Car wash
229. There were three aspects to the car wash claim: first who was entitled to the gross
revenue; second whether United was entitled to add $10,452.00 to the outstanding
amount because of carwash revenue not paid; third whether Gold Fuels was entitled
to loss and damage by reason of a breach of the Carwash Licence Agreement given
the breakdown of the manual car wash.
Entitlement to car wash commission
230. It is not in dispute that from the commencement of the Agreements, Gold Fuels paid
Gross Revenue from the carwash to United.
231. However, Gold Fuels now says that it was actually entitled to this revenue and seeks
the return of the payments made claiming it was misled into paying them and/or that
it made the payments under a mistake.
232. More particularly, Gold Fuels alleges that it is entitled to the Gross Revenue pursuant
to an implied term relying in particular on the definition of Gross Revenue in clause
1.1 and clauses 5.1- 5.4 of the Carwash Agreement.38
233. United relies on a term of the Carwash Licence Agreement or alternatively the
Franchise Agreement that:
Gold Fuels was required to make weekly payments to United Petroleum of the Gross Revenue generated by it pursuant to the Carwash Licence Agreement.
234. They say this term was both express and to be implied and rely in particular on clause
1.6 of the Franchise Operations Manual.39
Relevant provisions of Agreements
235. United (the second defendant to Counterclaim) and Gold Fuels entered a
Supplementary Services Agreement (Carwash). Recital C recited that the parties
38 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 56(f). 39 Amended Reply and Defence to Counterclaim of the plaintiff, dated 3 March 2016 at paragraph 39(c)(iv).
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36 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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had requested that United grant Gold Fuels the right to operate a carwash providing
the Supplementary Services to customers from the Designated Area.
236. Pursuant to clause 2.1 United granted to Gold Fuels (as Licensee) the right to
provide the “Supplementary Services” solely from the Designated Area which were
to be provided strictly in the manner specified by United in that Agreement and in the
Franchise Operations Manual as amended from time to time (clause 2.3). The
“Supplementary Services” were defined as the provision of automatic and manual
car wash facilities, services and related assistance to customers in accordance with
the terms of this Agreement (clause 1.1(20)).
237. Pursuant to clause 3.1, United was to make available the Carwash Equipment to the
licensee for use in the operation of the carwash and provision of the Supplementary
Services. Pursuant to clause 3.2 the Licensee must maintain the Carwash
Equipment as specified in writing from time to time by United.
238. The Carwash Equipment was defined as the equipment prescribed and supplied by
United to assist the Licensee to operate a carwash and provide the Supplementary
Services as more particularly described in the Agreement or the Franchise
Operations Manual (clause 1.1(5)).
239. Pursuant to clause 4.1:
The Licensee is entirely responsible for the provision of the Supplementary Services including providing all relevant business systems, staff and other resources. The Licensee acknowledges that the carwash and the Supplementary Services are not part of the System as defined in the Franchise Agreement and United has no obligation to support or assist the Licensee in relation to the establishment or operation of the car wash or the provision of the Supplementary Services.
240. Pursuant to clause 4.2(4) the Licensee was to immediately notify United of any
damage or defect to fixtures, fittings, equipment or fit out in the Designated Area and
allow United full access “to rectify the damage or defect.”
241. Pursuant to clause 5.1 in consideration for the Licensee providing the Supplementary
Services, United was to pay the Licensee the Supplementary Services Commission
specified in item 7(2) of Schedule 1. This amount was specified as 10% of Gross
Revenue payable quarterly.
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37 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
242. “Gross Revenue” is defined in clause 1.1(12) as the aggregate of prices charged or
chargeable by the Licensee and all other income and remuneration received or
receivable by the Licensee in connection with the provision of the Supplementary
Services (including the proceeds of any insurance policy and income from any
suppliers, but excluding sales credits).
243. Clause 9 further contained detailed reporting obligations. Pursuant to clause 9.1, the
Licensee was obliged each day to provide to United details of all sales of
Supplementary Services for the previous day in accordance with the requirements
set out in the Franchise Operations Manual. It was also required to maintain true
accounting records in accordance with the Manual “to enable verification of any detail
or transaction” relating to the Supplementary Services.
244. The Franchise Operations Manual sets out carwash operating procedures that Gold
Fuels was required to follow.
245. Clause 1.6 entitled Carwash Financial Arrangements provides that:
The capital investment required for carwash facilities and equipment is substantial. For this reason, UNITED chose to finance and control these assets. Monies collected from the use of these facilities remain the property of UNITED.
246. Clause 1.7.1 entitled - Carwash Commission provides that:
Franchisees receive a monthly commission payment from UNITED which generally represents a percentage of the total carwash sales for that month. This commission is negotiated at the time of entry to the site and is dependent on current or articulated car wash turnover.
Resolution
247. In resolving this question, a preliminary issue arose because Mr Nijhawan claimed
that he was not provided with a copy of the Franchise Operations Manual until after
execution on 29 November 2011 such that the provisions of this Manual were not
part of the Agreements.
248. The evidence of Mr Nijhawan conflicted with that of Mrs Stewart who said that it was
compulsory that the Manual be provided during training. Although this was evidence
of a practice, there was no reason to believe it was not followed in this case,
particularly where Mr Nijhawan had been put on notice of the existence of the Manual
by his lawyers and would be expected to have sought it. Thus, his own lawyers
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38 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
advised him that he was required to operate the business in compliance with the
provisions of this Manual which had the potential to have “the greatest impact on the
franchisee’s business.” They also suggested that he request a copy of the Manual
prior to entering the Franchise Agreement.
249. In any event, even if there was a delay in provision until 29 November 2011, Mr
Nijhawan executed an Agreement which provided that the Franchisee must operate
the Franchised Business “strictly in accordance with the provisions of the Franchise
Operations Manual (as varied from time to time) which must be treated as part of
this Agreement” (Clause 19.3(a)). The definition of “Agreement” in clause 1.1 also
provides that it means this agreement (including all Annexures, Schedules and the
Franchise Operations Manual).
250. If Mr Nijhawan chose not to obtain, and read, a copy of the Manual prior to 29
November 2011 that appears to be a matter of his own choosing. I consider that the
Franchise Operations Manual was incorporated by reference given Gold Fuels
explicitly agreed that the terms thereof were to be treated as part of the Agreement.
251. If this is correct, then it would appear to be beyond doubt that the Franchisee was to
be paid only the commission and that Gross Revenue remained with United given
the clear terms of clause 1.6 that monies collected remained the property of United.
252. Even however if the Manual is not incorporated, I consider that there was no
entitlement for Gold Fuels to the gross revenue.
253. Thus, although Gold Fuels needed to collect the income, there is nothing in clause
5 nor the definition of “Gross Revenue” (as pleaded by Gold Fuels) which suggests
that Gold Fuels should be actually entitled to retain the Gross Revenue. To the
contrary, clause 5 makes clear that the only payment to be made to Gold Fuels is a
10% proportion of that Revenue.
254. In written submissions Gold Fuels sought to support its implied term by reason that
it provided the services and had provided a high level of overall consideration.
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39 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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255. However, neither of these matters warrant the implication of the term alleged within
the BP Refinery40 test. Indeed the incorporation of the term alleged by Gold Fuels
would appear to be contrary to the 10% provided for (although Gold Fuels allege this
should be provided as well).
256. A natural reading of the Supplementary Car Wash Services Agreement was that
United was making available its own equipment to the Licensee so that it could
provide the Supplementary Services. In exchange the Licensee was to receive a
commission (only) which is specified.
257. Indeed, there would be no point in specifying a commission, nor in requiring the
reporting obligations in clause 9, if Gold Fuels was intended to take the entire
proceeds.
258. In such circumstances, I am satisfied, as a matter of construction, that United
retained an entitlement to the Gross Revenue given it owned the equipment.
Moreover, that the only entitlement of Gold Fuels was to claim commission as is
explicitly provided for in the agreement.
259. I am satisfied that this is an appropriate reading of the arrangement without the need
for an implied term. However, if this is not the case, I accept that such an implied
term would satisfy the BP Refinery tests. More particularly that it would be
reasonable and equitable (given the equipment was that of United); that it would be
“necessary,” “obvious” and “clear”, and would not contradict other clauses
(particularly the commission clause).
260. I therefore reject the claim of Gold Fuels for the Gross Revenue payments.
Alleged breach by breakdown
261. Gold Fuels then alleges that is it entitled to $12,910.00 for the losses incurred whilst
the manual carwash was closed down for 13 months between June 2012 and August
2013.
262. In particular Gold Fuels relies on clause 3.1 and claims that there was a term that:
40 BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1977) 180
CLR 266, page 283, the requirements are (1) it must be reasonable and equitable; (2) it must be necessary to
give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it
must be so obvious that "it goes without saying;" (4) it must be capable of clear expression; (5) it must not
contradict any express term of the contract.
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40 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
“United Petroleum will make available the Carwash Equipment (as defined) for use in the operation of the carwash and the provision of the Supplementary Services, and that equipment shall be provided and maintained such that it is in working order and available for use by customer” (citing clause 3.1).41
263. Alternatively it relies on an implied term:
that the Carwash Equipment will be provided in working order and maintained in working order by United Petroluem for the Term of the Carwash Licence Agreement (citing clauses 1.1, 2.3, 3.1, 4.2(4), 4.4, 4.5, 4.6 and 16.2).42
264. In response, United denies that it owed any obligation to repair the carwash. It further
and in the alternative relies on the burst pipe and resultant breakdown as an event
of “force majeure” (citing clause 41.1 of the Franchise Agreement).
265. I do not consider that the terms of clause 3.1 justify the existence of the term alleged.
In particular, the clause contains no reference to the Carwash Equipment being “in
working order and available for use by customer.”
266. The surrounding context also weighs against the addition of the extra words sought.
Thus, clause 3.2 expressly provides that the onus is on the Licensee (Gold Fuels) to
maintain the Carwash Equipment. Clause 4.1 explicitly states that there was no
obligation on United to assist Gold Fuels in the operation of the carwash. Clause
4.2(4) also imposes no obligation on United to rectify any damage or defect, rather
the clause provides an obligation on Gold Fuels to immediately “notify” United of any
damage or defects.
267. I also reject the suggestion that such a term should be implied. No submission was
advanced to support that such a term met the requirements contained in BP
Refinery. In particular it was not suggested that such a term was either “necessary”
or “so obvious it goes without saying.”43
268. In such circumstances I am not satisfied that there was any term to the effect alleged
such that no breach can be sustained.
41 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 56(c). 42 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 56(d). 43 BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1977) 180
CLR 266 page 283.
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41 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
269. Moreover, even if there was such a term, there was a live issue on the facts as to
whether any loss was really attributable to a breach by United.
270. Thus, although the manual car wash was initially turned off because of a serious
water leak near an electrical socket in August 2012, the evidence of Mr Hopes was
that this was fixed within a matter of hours and then the car wash was running again.
The only reason the car wash was then closed was because Mr Nijhawan asked for
it to be closed because he did not feel safe going into the plant room. After “some
time” Mr Nijhawan then asked if the bays could be re-opened. However, the evidence
of Mr Hopes was that after a carwash manual site is closed for a few months,
chemicals will set in the lines and do damage by solidifying and blocking lines.
Therefore, when the car wash is turned back on, the lines will burst, creating a lot of
issues. Accordingly, United determined that it would better to await until
refurbishment of the site including the carwash.
271. Mr Nijhawan denied making the request for the carwash to be closed. However, I
accept and prefer the evidence of Mr Hopes who was a straightforward and honest
witness. His account was also inherently plausible given the evidence Mr Nijhawan
gave himself was that the car wash was “risky”.
272. Even if there was a term to the effect alleged, any loss sustained was not due to any
act of United, but rather the request of Mr Nijhawan himself.
273. It is unnecessary in such circumstances to consider the “force majeure” defence
raised by United.
Withholding of Car wash commission
274. There are two issues here: first whether United is entitled to deduct $10,452.00 in
respect of car wash revenue “not paid” as a matter of quantum; secondly whether
United acted unconscionably in the treatment of the matter (which involved
withholding carwash commission by way of set off in respect of the unpaid carwash
revenue).
275. Insofar as the unconscionability issue is concerned, this will be dealt with below.
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42 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
276. Turning then to the unpaid revenue, the issue arose in connection with the operation
of the manual car wash and vacuums. These operated on the basis that coins were
inserted (as opposed to the automatic car wash where you had to pay upfront at the
counter).
277. Mr Hope’s evidence was that he became aware of a discrepancy at another site, that
is, a discrepancy between the money banked and the coins collected. He raised
suspicion at United whereupon an investigation was conducted on approximately 20
sites to determine if there were any discrepancies between the amount being banked
and the metre readings at the site.
278. Mr Abeynaike was responsible for overseeing the audit process while Mr Binney was
the person who undertook the audit.
279. Mr Abeynaike was taken to a document admitted as Exhibit C in relation to Narre
Warren North. His evidence was that he reviewed this document and that it showed
the metre readings for the 3 manual car wash bays and vacuums as at 3 October
2014. The “summary” section of the Exhibit showed that while there was $97,568.00
worth of services (shown on the metre), the site banked only $86,865.00.
280. He conceded that the summary document was prepared by Mr Binney but that his
involvement was to go through the process Mr Binney had followed making sure it
was correct.
281. Mr Abeynaike suggested that the metre readings were submitted by the operators
on a weekly basis. However, the direct evidence of Mr Hopes was that he personally
attended each site involved in the audit process and took the metre readings which
he provided to Eugene (an accountant) and Mr Binney. He also gave evidence that
he took the photos of the digital counters on the manual car wash and the analogue
counter relating to the vacuums at the Narre Warren North site on 3 October 2014
which are included in Exhibit C. These metre readings are reflected in the typed
summary at the front of Exhibit C (giving a total of $97,568.00).
282. In relation to the banking side of the process, Mr Abeynaike conceded that he did
not check that each of the amounts in the (blue) “total income” column had been
banked and that it was Mr Binney who checked United’s banking records for the
purposes of the exercise. However, the “total income” column was not ultimately
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43 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
relevant given it included amounts banked in respect of the automatic car wash. His
uncontroverted evidence was that he did himself check United’s banking records and
also checked “what was relevant in this particular instance.”
283. Mr Abeynaike was also taken to a reconciliation completed later as at 3 November
2014 being Exhibit K. He explained that they therefore undertook “the exercise”
twice. The result for 3 November 2014 was a slighter lesser total discrepancy of
$10,452.00 in respect of the total period of 31 July 2013 – 3 October 2014.
284. The evidence of Mr Abeynaike was that after the audit was conducted a claim was
submitted to Mr Nijhawan for the discrepancy. Further that all other sites had repaid
amounts in respect of such discrepancies except for Gold Fuels.
285. Gold Fuels put no submissions to the effect that the reconciliation process set out by
Mr Abeynaike should be rejected; rather its closing submissions focused on the
alleged unconscionable aspects of the reconciliation process.
286. I am not satisfied that the discrepancy which arose was necessarily deliberate.
However, I am satisfied, on the balance of probabilities, on the basis of the evidence
of Mr Abeynaike and Mr Hopes, that the discrepancy arose. Further, that United is
entitled to the sum of $10,452.00 as Gross Revenue received and not paid. The
unconscionability issue will be dealt with below.
Unconscionability
287. As originally pleaded, Gold Fuels relied on a wide ranging number of matters to claim
loss by reason of unconscionable conduct in contravention of s 21 of the Australian
Consumer Law (“ACL”).
288. In closing submissions Gold Fuels identified the specific matters pursued in its claim
of unconscionable conduct. Counsel made clear that no other matters were relied
upon.44
289. The categories relied upon were still extensive as follows:
a) Disparity of bargaining power (Gold Fuels’ pleading at paragraph 101(a); ACL s 22(a));
44 In particular, the defendants conceded that improper handover; grossly inflated goodwill; refurbishment and
no recourse to insurance were abandoned (TS 1061).
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b) United’s conduct was not reasonably necessary for the protection of its legitimate interests by reason of (Gold Fuels’ pleading at paragraph 101(b); ACL s 22(b));
i. removing the minimum fuel commission when Gold Fuels was attempting to sell the Franchised Business;
ii. terminating the Franchise Agreement for failure to pay electricity suppliers when it could have used the bank guarantee or taken a lien over Gold Fuels’ stocks and in circumstances where there was a dispute about the charges;
iii. requiring Gold Fuels to purchase barbeque gas at above market prices;
iv. threatening to fine Gold Fuels without any proper basis to do so;
v. threatening to “breach out” Gold Fuels (i.e. to terminate the Franchise Agreement) without any right to do so;
vi. taking possession of the Premises without issuing a breach notice;
vii. taking possession of Gold Fuels’ chattels and keeping them without any right to do so.
c) Inadequate training (Gold Fuels’ pleading at paragraph 101(c)(ii); ACL s 22(j)(iii));
d) Deliberate undermining of goodwill (Gold Fuels’ pleading at paragraph 101(c)(iv),(v),(vi));
e) Requiring payment of electricity (Gold Fuels’ pleading at paragraph 101(c)(vii); ACL s 22(j)(iii));
f) Requiring payment of car wash gross revenue and withholding commission (Gold Fuels’ pleading at paragraph 101(c)(viii) and (ix); ACL s 22(j)(iii));
g) Third line forcing (Gold Fuels’ pleading at paragraph 101(c)(xiii); ACL s 22(j)(iii));
h) Wrongful termination (Gold Fuels’ pleading at paragraph 101(c)(xv); ACL s 22(j)(iii));
i) Breach of the Oilcode (Gold Fuels’ pleading at paragraph 101(c)(xvi) and 101(e); ACL s 22(j)(iii) and 22(g));
j) Failure to fix defects in time (Gold Fuels’ pleading at paragraph 101(c)(xvii); ACL s 22(j)(iii));
k) Failure to negotiate the terms and conditions of the Franchise Agreement (Gold Fuels’ pleading at paragraph 101(f); ACL s 22(j)(i));
l) That terms were unfair (Gold Fuels’ pleading at paragraph 101(g); ACL s 22(j)(ii));
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45 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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m) Failure to act in good faith (Gold Fuels’ pleading at paragraph 101(h); ACL s 22(1)(l)).
Principles
290. Section 21 of the ACL replicates the provisions of the former section 5l AC of the
Trade Practices Act 1974 (Cth). The section provides that:
A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person… engage in conduct that is, in the circumstances, unconscionable.
291. In considering whether conduct is unconscionable, a court is then aided by the
factors listed in subsection (3) but not controlled by those factors.45
292. The Court of Appeal in Body Bronze International Pty Ltd v Fehcorp Pty Ltd (“Body
Bronze”) adopted the distillation of principles set out by Foster J in Australian
Competition and Consumer Commission v Allphones Pty Ltd (No 2)46 as follows:
(a) The scope of s 51AC is wider than that of s 51AA. The meaning of unconscionable for the purposes of s 51AC is not limited to the meaning of the word according to established principles of common law and equity …
(b) The ordinary dictionary meaning of unconscionable, which involves notions of serious misconduct or something which is clearly unfair or unreasonable, is picked up by the use of the word in s 51AC. When used in that section, the expression requires the actions of the alleged contravenor to show no regard for conscience, and be irreconcilable with what is right or reasonable. Inevitability the expression imports a pejorative moral judgment …
(c) Normally, some moral fault or moral responsibility would be involved. This would not ordinarily be present if the critical actions are merely negligent. There would ordinarily need to be a deliberate (in the sense of intentional) act or at least a reckless act …47
293. The need to show “moral obloquy” has also been emphasized in many cases.48
45 Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536 [88] (Macaulay AJ), with whom Harper
and Hansen JJA agreed. 46 Australian Competition and Consumer Commission v Allphones Pty Ltd (No 2) [2009] FCA 17. 47 Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536 at [89] (Macaulay AJA), with whom
Harper and Hansen JJA agreed. 48 Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536 at [90] and cases cited therein; Tonto
Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 [291], [293].
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Fuels Pty Ltd
Application of principles
Inequality of bargaining power
294. United conceded that it was in a stronger bargaining position than Gold Fuels.
However, this of itself does not necessarily connote unconscionability.49
295. Gold Fuels also did not point to any aspects where this bargaining position was
exploited, particularly as at the formation of the relationship. Moreover, as highlighted
already, Mr Nijhawan sought and obtained detailed legal advice and had a
commerce degree and relevant experience.
Removal of minimum fuel commission
296. The complaint made in closing was that of “removing the Minimum Fuel Commission
when Gold Fuels was attempting to sell the business.”50
297. The evidence in relation to this matter was that Mr Nijhawan sought to ascertain
whether United would agree to the sale of his business to a new owner and, if yes,
on what terms in August 2013.
298. By email of 18 December 2013 he was advised that United would offer any new
incoming Franchisee a new Franchise Agreement which would have no minimum
fuel guarantee though an adjusted CPL rate.
299. However, in May 2014, United indicated that it was prepared to offer any new
purchaser a Minimum Fuel Commission of $8,300.00 and to take over the EFTPOS
terminal provided Gold Fuels stated using the safe provided at $28.57 per day. The
new purchaser was also to be provided with a new 12 year term.
300. Gold Fuels did not challenge the legalities of this approach51 but, rather the
“unconscionability” of it.
301. The initial removal of the Minimum Fuel Commission might be considered somewhat
firm. However, this was considerably ameliorated by the May 2014 position given
49 ACCC v Seal-A-Fridge Pty Ltd [2010] FCA 525 [150]. 50 Closing Submissions of the defendants, dated 15 March 2016 at paragraph 160(b)(i). 51 This appeared appropriate given it was “at the option of the Franchisor” whether a new Franchise Agreement
was to be on the terms of the current agreement (27.2(f)): see also (27.4(f)).
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the new purchaser was to gain the benefit of a full 12 year term with refurbished
premises and a (only slightly reduced) minimum commission.
302. Moreover, the complaint of Mr Nijhawan appeared to be more about the fact that he
did not have answers for his “buyers” given United had failed to give him details of
the new contract. However, as is evident from the above, he was provided with this
information by May 2014.
303. There was also no objective evidence that any so called “buyer” was put off by
reason of the removal of the Minimum Fuel Commission. As indicated already, there
was no objective evidence of the existence of any buyer at all, nor was one called.
304. Although therefore the handling of the Minimum Fuel Commission may have been
initially robust, the ultimate position was fair and reasonable and certainly did not
involve any “serious misconduct.” I am also unable to determine that it had any real
consequence.
Termination
305. The complaint here was that the termination was unconscionable given United “could
have used the bank guarantee or taken a lien over Gold Fuels” stocks and in
circumstances where there was a dispute over the charges.”52
306. The issue of termination has been dealt with above. As found already, United was
entitled to terminate when it did. Moreover, as is apparent from the extensive
chronology above, United did not terminate the instant a breach was apparent but
rather waited until there was effectively no choice but to terminate.
307. There was conflicting evidence about whether United offered to cash the guarantee.
Mr Pratico said it did not. However, although the evidence of Mr Nijhawan about the
bank guarantee cited already was incoherent, his ultimate position appeared to be
that Mr Pratico offered to cash the guarantee but that he did not want this done
because he would have had to top up the bank guarantee and the problem was “the
dispute” with AGL. He therefore asked him to “hold on” until he returned from
overseas.
52 Closing Submissions of the defendants, dated 15 March 2016 at paragraph 160(b)(ii).
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48 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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308. It therefore appeared that Mr Nijhawan did not want the guarantee cashed. Rather,
as is evident from the detailed chronology already set out, he was not prepared to
pay the AGL bills. In his own words Mr Nijhawan says “I didn’t want to pay a higher
amount being asked by AGL because that would be construed as my acceptance
and I couldn’t afford to pay that big money for ten years, the rest of my lease term….”
309. United was entitled to terminate the Agreement for reasons already given. I am
further satisfied that it acted for legitimate commercial purposes in doing so. No
unconscionability was involved.
Third line pricing
310. The complaint here was that United required Gold Fuels “to purchase barbeque gas
at above market prices.”
311. During the period of the Franchise Agreement Gold Fuels was required to, and did,
purchase Direct Gas barbeque gas through United at $25.00 - $28.00 per 8.5 kg
bottle. This despite the fact that Mr Nijhawan obtained a separate quote from Direct
Gas at $18.00 per bottle.
312. In response, United justified its conduct on the basis of a statutory authorisation
under s 93(1) of the Competition and Consumer Act 2010 (Cth). The obligation to
purchase only from “Preferred Suppliers” was also provided for in the Agreement
(clause 23.1(b); 23.3(b)) (and highlighted by his lawyers at page 6 of their advice).
313. However, Gold Fuels claims that when it obtained the s 93 Notice United stated to
the Australian Competition and Consumer Commission (“ACCC”) in a letter dated 8
November 2010, inter alia, that “the proposed conduct will also assist to drive prices
down for franchisees…”
314. Given the result with the barbeque gas (prices were 47% higher), Gold Fuels claimed
that the notice was obtained on a false premise and was liable to be set aside.53
315. However, in obtaining the authorisation, the terms of the letter of 8 November 2010
described the proposed conduct as follows:
The conduct involves United Petroleum Franchise Pty Ltd requiring under its franchise agreements that franchisees agree to purchase a designated
53 Closing Submissions of the defendants, dated 15 March 2016 at paragraph 171.
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49 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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range of goods and services from a list of approved suppliers specified by United Petroleum Franchise Pty Ltd from time to time.
316. This was consistent with, the terms of the authorisation dated 8 December 2010 from
the ACCC which stated that:
“Under the notified arrangements United…. Propose to require current and future franchisees to acquire a designated range of goods and services from a list of approved suppliers specified by United Petroleum from time to time…”
317. It therefore appears that the authorisation was obtained in respect of a range of
products, not just barbeque gas, such that I am unable determine whether there was
or was not a total benefit in the light of the total bundle of supplies (even if it were
otherwise appropriate to do so).
318. There is no evidence of unconscionability in such circumstances.
Threats to fine/breach out
319. The only matter pleaded in this respect was the conversation between Mr Nijhawan
and Mr Palmer of 16 August 2013.54
320. The evidence of Mr Nijhawan in relation to this meeting was that it occurred a day
after refurbishment concluded and a week before re-opening. Mr Nijhawan said he
had been telling managers that they should delay re-opening the store.
321. Mr Palmer requested a meeting which meeting then occurred on site. Mr Nijhawan’s
version of this meeting was as follows:
He [Cavan] told me it was going to be very quick and he said, "I've learnt that - my managers have told me that you've got issues with them all the time and I want to warn you that you need to shut up and listen to the managers otherwise - if you want to continue to work here otherwise you'll be gone, I'll breach you out of business." I said, "Cavan, if I don't commit a breach how you can breach me out of business?" He said, "If we want to do it, we know – if United wants to do it, then we know how to do it." That's what he told me.
322. Mr Palmer was not called to contest this account. Therefore, I will accept that
something to this effect was said. I further accept that it was inappropriate and
54 See Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraphs 101(h)(i)-
(ii).
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50 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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delivered in a context where Mr Palmer appears to have lost patience with Mr
Nijhawan.
323. However, any such statements must also be considered in a particular context
wherein there was extensive evidence that Mr Nijhawan was not listening to helpful
advice and was in fact resistant to advice. In particular, Mr Walker gave evidence
that Mr Nijhawan did not implement his advice, suggestions or strategies and that
this was discussed or raised “quite frequently.” Mr Rabe gave similar direct evidence,
as did Mr Pratico.
324. The reality was also that no Breach Notice was sent until 14 months later
notwithstanding there were clearly earlier opportunities to serve a Breach Notice
given the longstanding failure to pay electricity accounts.
325. I am therefore not satisfied that some one-off gruff remarks amount to
unconscionability, particularly when considered in the context of a long standing
relationship wherein extensive efforts had been made to assist Gold Fuels.
Taking possession without issuing a Breach Notice.
326. I have accepted, above, that the taking of possession occurred in circumstances
where a separate Termination Notice was not delivered. However, given Gold Fuels
were in default and United was entitled to terminate, I am unable to be satisfied that
there was any “moral obloquy” associated with these actions.
327. In terms of chattels, clause 33.4 provided that, upon termination, United was entitled
to take possession and control of the site and to operate the store.55 It has
subsequently accounted for the stock properly belonging to Gold Fuels and it was
not suggested that this stock was required elsewhere in the interim.
328. No unconscionability is demonstrated.
55 The provisions concerning procedures to purchase stock at clause 33.5 only apply where this is an expiration
of the Agreement rather than a termination.
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51 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
Training
329. It was next alleged that there was inadequate training. However, although there were
clauses in the contract dealing with training, no specific allegation was pursued that
there was a breach of these clauses with a consequent loss.56
330. Instead, in submission Gold Fuels complained that “shadowing” the Point Cook
operator was not “training;” that there was no training on night procedures (which
according to Ms Stewart meant training was “inadequate”); and that the training was
not adequately planned in the absence of a training manual.
331. Even if these complaints were established they do not amount to unconscionability
within the authorities above.
332. In any event, the evidence was that Mr Nijhawan and his family received
approximately 3 weeks of organised training. This included one week’s training at
head office in relation to business planning and merchandising, and a period of 2
weeks at a commission agent run site at Point Cook.
333. In this context I am satisfied that “shadowing” a commission agent operator “on the
job” is capable of amounting to training. Moreover, that the training was adequately
planned consistent with the documentation and Ms Stewart’s evidence.
334. In terms of night training, the evidence of Ms Stewart was that “if” someone did not
receive adequate nightshift training their training would be inadequate but that the
standard procedure was that the franchisee would attend all shifts run by the service
station. If the franchisee decided not to attend other shifts then that was their choice.
Gold Fuels also did not point to any evidence in court (oral or documentary) wherein
Mr Nijhawan complained of a lack of opportunity for night time training and/or any
request by him that such an issue be addressed.
335. There was also extensive ongoing training after the Franchise Agreement
commenced. Thus:
Mr Walker visited Gold Fuels a couple of days a week for the first six months to support Mr Nijhawan and provide him with guidance. This included spending time around inventory management, cash management and staff management;
56 A previous allegation was a “total failure of consideration” in respect of training in the Amended Defence and
Counterclaim of the defendants, dated 1 March 2016 at paragraph 96, was not pursued as an issue at trial.
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52 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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Mr Desa also said he had “more discussions with you as compared to any of the other 23 Franchisees and will continue to do so as required to help bring about improvements in the business.”
Mr Hopes provided car wash training and attended the site on a weekly basis; he maintained that he provided “ongoing” training which he carried out himself.
Mr Rabe also gave evidence that he visited the site to impart knowledge to the Franchisee, to assist him in gaining better sales and better profitability within the site.
336. The complaint about training is not substantiated.
Deliberate undermining of goodwill
337. This has been dealt with already in relation to the Minimum Fuel Commission.
Requiring payment of electricity
338. As indicated already, United was entitled to require such payment under the
Agreement.
Requiring payment of car wash Gross Revenue and withholding of commission
339. United was entitled to require payment of gross car wash revenue for reasons
already given.
340. In relation to the withholding of commission, it is not in dispute that United withheld
car wash commission revenue from Gold Fuels because of the deficit found during
the audit process. Thus, United claimed that the money collected for the carwash
was understated by the amount of $10,452.00 between July 2014 and October 2014
and thereby that the sum of $4,592.59 owing in commissions should be deducted
from this understatement amount.57
341. Gold Fuels alleges that United “wrongfully withheld car wash commission” from Gold
Fuels.58 Further, that United did not put to Mr Nijhawan in cross examination how
57 Letter of 9 December 2014 from Andrew McLean, General Counsel, United Petroleum Pty Ltd to Ram
Nijhawan, Exhibit N.3 (CB 2551-2552). 58 Amended Defence and Counterclaim of the defendants, dated 1 March 2016 at paragraph 101(c)(ix).
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53 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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United determined that car wash revenue was in effect “stolen” by Mr Nijhawan.59
Finally, that Gold Fuels is owed the car wash commission withheld.
342. These points might be dealt with briefly. Firstly, given I have already determined that
there was a deficit in commission paid, United was entitled to offset these monies
under clause 17.5 of the Franchise Agreement. Next, no allegation of theft was
made or sustained. Finally, I accept that the amount of commission should be taken
into account in quantum.60
343. No unconscionability is established.
Wrongful termination/Breach of Oilcode
344. These matters have been dealt with above.
Defects
345. In the result, the only Defects relied upon were the manual carwash; fuel pumps; air
conditioning, concrete, and security cameras
346. However, before turning to particular evidence pertaining to each, as already
outlined, Mr Nijhawan had the opportunity to, and did, inspect the site. He further
claimed to have “no problems” with the site.
347. The reality was that the site was in an average to poor condition as reflected in the
detailed condition report prepared by Mr Walker on 23 November 2011.
348. It is also important to remember that Gold Fuels was advised up front that the site
was to be on an “as is” basis with no guaranteed refurbishment. This was also
highlighted in the legal advice received.61 Moreover, the Franchise Agreement
included a term that commencement of the business under that Agreement was
conclusive evidence that no representation had been made as to the condition or
state of repair of the site which was “accepted” by Gold Fuels (clause 7).
59 Closing Submissions of the defendants, dated 15 March 2016 at paragraph 155. 60 Quantum Claim of the plaintiff provided to Court on 11 March 2016 (“Plaintiff’s Quantum Claim”) credits
$9110.27 in respect of carwash commissions owed to Gold Fuels. 61 Letter dated 15 November 2011 (sent by way of email) from Wisewould Mahony Lawyer to Mr Nijhawan page
10, Exhibit D.13 (CB 1737 – 1759).
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54 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
349. In fact, the only actual contractual obligation which United undertook was to be
responsible for “repair and maintenance “of certain items specified in the “Repair and
Maintenance Matrix” (clause 16.11(b)).
350. Turning then to some of the particular matters, Mr Nijhawan gave evidence of various
issues with the car wash including water leaks; worn brushes; and soap not
dispensing. However he conceded that technicians were called and came “most of
the time.”
351. In reality, the main complaint in closing was that the 3 manual carwash bays were
shut from July 2012 to late August 2013. However, for reasons given already, no
breach of agreement occurred by reason of this shut down.
352. In terms of the other issues, Mr Nijhawan also accepted that in terms of fuel pumps
not working he would ring the contractor who would also come “most of the time.”
353. The under performance of the air-conditioning was consistent with the general state
of the site while the concrete issue should have been obvious from his original
inspection. The complaint about the security cameras appeared to be the positioning
of the cameras (in not capturing registration numbers on “drive-offs”) which should
also have been obvious on initial inspection.
354. Mr Nijhawan’s overall summary was that “something that was extremely urgent that
was done, something that did not interrupt the business was ignored for long, long
time, and some issues were ignored until refurbishment.” Further that “hazards”
were attended to “quickly.”
355. Gold Fuels complained about the frequency of the issues arising. However, this was
consistent with what one might expect given the general state of the site and certainly
falls well short of demonstrating some “moral obloquy” on the part of United.
Failure to negotiate terms
356. Gold Fuels claimed that Mr Nijhawan obtained legal advice and “attempted to
negotiate the terms of the Franchise Agreement.” However, no attempt was made
to identify which particular terms of significance were sought to be varied by Gold
Fuels. The ultimate advice of Wisewould was also that there were more substantive
commercial matters that should be clarified, including that Mr Nijhawan should obtain
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55 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
independent accounting and business advice and prepare cash flow projections to
ensure the business was financially viable (which he did not do).62
357. Moreover, although the standardised franchise agreements were ultimately signed,
United was prepared to, and did, negotiate on the price which was paid by Gold
Fuels (thus the price was initially given as $415,000.00 plus GST in the letter of 26
August 2011).
358. No unconscionabiliy is sustained in terms of the negotiations leading up to signing.
Terms and conditions unfair
359. Gold Fuels made complaint that a number of terms were “unfair” particularly citing
clauses wherein United had unilateral rights to amend or vary (clauses 6.2, 6.12,
17.3(b), 19.2); that there was no right of compensation if there was no renewal of the
lease (clause 6.7); and of United’s rights to receive rebates.
360. However, it was not shown that any unconscionable advantage was taken of these
particular clauses in the context of this case. There was also no suggestion that
United exerted any pressure on Gold Fuels to sign the Agreements in the form he
signed. To the contrary, he was given time after the provision of the initial deposit to
withdraw, and was also provided with a cooling off period even after the signing of
the Agreements.
361. There is no unconscionability on this basis.
Failure to act in good faith
362. This matter was already dealt with above.
Summary
363. Many of the matters pursued appeared to be little more than attempts to impose
obligations beyond and above those provided for in the contracts.
364. Any instance of impatience must be also considered against the course of the
arrangement considered overall. In particular, in the context of the extensive training
62 Letter dated 15 November 2011 (sent by way of email) from Wisewould Mahony Lawyer to Mr Nijhawan pages
22-23, Exhibit D.13 (CB 1737 – 1759).
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Fuels Pty Ltd
and assistance provided; the provision of an expensive refurbishment; and in
circumstances where termination was only chosen as a last resort.
365. Any actions of United must also be considered in the light of the risks Gold Fuels
itself had undertaken in purchasing this business on an old site with unimpressive
sales figures and in circumstances where it had the benefit of extensive legal advice
and appropriately qualified personnel.
366. Considering then the matters above, both individually and cumulatively, I am not
satisfied that United engaged in unconscionable conduct involving “moral obloquy”
or “moral taint.”63 Nor am I satisfied that the conduct of United was clearly “unfair or
unreasonable.”
367. If there was unconscionability there would also be a further issue as to what loss, if
any, would be established. As is apparent from the Statement of Issues,64 a
significant part of the amount claimed in respect of this conduct was the return for
the payments made up front (for franchise fee, goodwill, and purchase of stock).
However, many of the complaints related to conduct which occurred post entry into
the Agreement in circumstances where there is no suggestion of any conduct
vitiating the Agreement itself (which was entered into freely and with legal advice).
368. A court could not properly award the sums paid up front in such circumstances under
s 236 of the ACL. Thus the making of such (initial) payments could not be caused
“because of” conduct which only occurred later (post entry into the contract).
369. There was also no medical evidence adduced to support any vexation and anxiety
damages even if they could be seen to be attributable to acts of United.
370. However, given my findings above it is unnecessary to consider this matter further.
Quantum
371. United provided a detailed quantum claim document in closing which disclosed the
basis for the calculation of $66,194.91 outstanding on the loan and which took into
account various amounts in favour of Gold Fuels.
63 DPN Solutions Pty Ltd v Tridant Pty Ltd [2014] VSC 511 [101]. 64 Defendant’s Statement of Issues dated 2 March 2016 paragraph 4.
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57 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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372. In the event that the plaintiff was successful, there were only 3 matters in dispute:65
the appropriate amount, if any, which should be taken into account in respect of a “conversion of chattels” claim;
whether an amount of $10,452 should be debited in respect of carwash revenue (Exhibit C claim); and
whether an amount of $12,834.03 should be debited in respect of a dishonoured fuel payment.
Conversion claim
373. Gold Fuels ultimately sought an amount of $75,730.27 in respect of its conversion
claim. However, in the result, the only issue between the parties was a question of
quantum since United accepted that it should account for the value of goods which
belonged to Gold Fuels immediately prior to termination.
374. In terms of quantum, the claim falls into 4 categories: for stock valued at $58,828.47;
for cash from safe at $4,706.80; for an alleged amount of cash at office of
$11,500.00; and $695.00 for miscellaneous items (a lamination machine; stationary,
spill kit and first aid kit).
375. In terms of the stock, United had already taken this into account by crediting it from
the loan allegedly owing net of various expenses which came to an agreed amount
of $57,422.60.66
376. The same is true of the cash from the safe at $4,706.80 which was credited from the
outstanding loan.67
377. The evidence in relation to the miscellaneous items was less than satisfactory and
will be disallowed. Thus, Mr Nijhawan claimed to have just put an “approximate
value” for these small items.
378. The main matter in contention remaining was the alleged sum of $11,500.00 said to
be “cash from office.”
65 As reflected in a document entitled “Agreement/disputes on the issue of quantum” provided to Court on 11
March 2016; an earlier dispute regarding the amount of car wash commission payable at $9110.27 was
ultimately agreed (TS 1112). 66 Quantum Claim of the plaintiff provided to Court on 11 March 2016. 67 Quantum Claim of the plaintiff provided to Court on 11 March 2016.
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58 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
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379. The evidence of Mr Nijhawan in relation to this matter was that at the time he was
going overseas to try to source money (immediately prior to termination) his wife
came forward with money she had been collecting for “renovations” saying he should
take it if it would help. He further claimed that he counted it, rounded it off, and put
it in a box and locked it in his office. Further that the money he counted was
$11,500.00: “I remember very well, there is no doubt about it.” He further said he
put it “inside the office, under the microwave, there was a cardboard box and there
was a small box in which I locked the money and taped it-put the money in and taped
it up.” The evidence of Mrs Nijhawan was that a couple of days before her husband
went away she handed him around $11,000.00 which she had collected over a 4
year period for a kitchen renovation. She did not know precisely where he put it but
claimed he said he would keep the money “in the office.”
380. I am unable to accept the evidence of the Nijhawans on this matter which was
inherently implausible. Thus, the suggestion that one would “lock” a cardboard box
was not credible. Given the dire state of the business at the time which Mr Nijhawan
fully appreciated it is also implausible that he would not use any such spare cash
immediately to cover the debts (such as the electricity).
381. There was also no objective evidence to support the existence of this sum of money.
Moreover, the evidence of various United witnesses was that no such sum was
found. Finally, notwithstanding the fact that Mr Nijhawan readily committed
complaints to writing there appeared to be no correspondence from him which
identified that this particular sum of money had been left on the site.
382. Taken with my general reservations as to their credit, I am simply unable to be
satisfied, on the balance of probabilities, that there was a sum of $11,500.00 “cash
from office” as alleged.
383. It follows that no further order is appropriate in relation to the conversion claim; the
value of stock having already been taken into account.
Withholding of carwash revenue
384. The issue of the withholding of the $10,452.00 in carwash revenue has been dealt
with above. It is correctly included in the plaintiff’s claim.
VCC:
59 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
Dishonoured fuel payment
385. In terms of the dishonoured fuel payment, United relied on certain evidence of Mr
Abeynaike who produced a printout from an ANZ account in the name of United
which showed that an amount of $12,834.03 had been “dishonoured” on 24 February
2015. United asserted that this was related to a direct debit for a fuel payment which
had been dishonoured.
386. Gold Fuels challenged this claim on the basis that there was no evidence of the value
of the fuel and no documentary evidence apart from a bank slip. Thus, under cross
examination Mr Abeynaike was asked whether there were systems in place to record
what fuel had actually been sold in relation to this direct debit. He explained that
the site operators had to input how much fuel they had sold on a daily basis and that
this is what would be used by United the following day to take the money out of the
bank accounts (by direct debit). He admitted however that he did not have a copy of
the documents with him nor were they tendered into evidence.
387. In such circumstances I am unable to be satisfied that the simple bank statement
that an amount was “dishonoured” is sufficient absent evidence of the amount of fuel
sold.
388. The amount of $12,834.03 is therefore disallowed.
389. The result is that the plaintiff is entitled to judgment in the amount of $53,360.88
($66,194.91 - $12,834.03).
Conclusion
390. In the light of these reasons, the appropriate orders are:
There be judgment for the plaintiff in the amount of $53,360.88 against the
defendants; and
The Counterclaim is dismissed.
391. I will hear from the parties on the question of costs.
VCC:
60 JUDGMENT United Petroleum Franchise Pty Ltd v Gold
Fuels Pty Ltd
SCHEDULE OF PARTIES
BETWEEN UNITED PETROLEUM FRANCHISE PTY LTD (ACN 127 764 989)
Plaintiff
-and-
GOLD FUELS PTY LTD AS TRUSTEE OF THE NIJHAWAN FAMILY TRUST (ACN 153 627 484)
First Defendant
-and-
DINESH NIJHAWAN Second Defendant -and-
KIRTI NIJHAWAN Third Defendant -and-
RAM NIJHAWAN Fourth Defendant AND BETWEEN
GOLD FUELS PTY LTD AS TRUSTEE OF THE NIJAWAN FAMILY TRUST (ACN 153 627 484)
First Plaintiff by Counterclaim
-and-
KIRTI NIJHAWAN Second Plaintiff by Counterclaim -and-
RAM NIJHAWAN Third Plaintiff by Counterclaim -and-
UNITED PETROLEUM FRANCHISE PTY LTD (ACN 127 764 989)
First Defendant by Counterclaim
-and- UNITED PETROLEUM PTY LTD (ACN 085 779 255)
Second Defendant by Counterclaim