Case: Ringrow Pty Ltd v BP Australia Pty Ltd [2003] FCA 1466
Outcome: considered
After delivering the principal judgment, Hely J required the parties to make submissions as to the form of relief. He delivered a further judgment on the form of final orders ( Ringrow Pty Ltd v BP Australia Pty Ltd [2003] FCA 1466). At that time, the only issue was how the quantum of the order for costs should be determined in default of agreement, between the parties. BP had sought orders that the applicant in each proceeding pay its costs (including those incurred in the Supreme Court of New South Wales before the matters were transferred to this Court) either in an amount to be agreed, or in default of an agreement in an amount to be determined by a suitably qualified costs assessor. Alternatively, BP sought a direction under O 62 r 12 of the Federal Court Rules and that the costs be assessed by the taxing officer in accordance with ss 208F and 208G of the Legal Profession Act 1987 (NSW) and alternatively an order pursuant to O 62 r 5 that the costs of the Supreme Court proceedings be determined by the Supreme Court ([2003] FCA 1466 [2]-[3]). 21 Justice Hely rejected BP's applications for the assessment of costs on anything other than the ordinary operation of the rules of this Court in respect of both the Supreme Court part of the proceedings and the balance conducted in this Court. He held that in the interests of efficiency there should be only one quantification exercise and that BP was entitled to receive its taxed costs of the proceedings pursuant to O 62 r 4 ([2003] FCA 1466 at [13]-[14]). Hely J referred to evidence that BP's actual costs of the proceedings were nearly $1 million and that it could expect, if its costs were taxed pursuant to this Court's rules, to recover about $500,000 but would be likely to recover about $750,000 if an assessment were made pursuant to the Legal Profession Act 1987 (NSW) ([2003] FCA 1466 at [11]). 23 The critical issue in the proceedings before Hely J (apart from the issue of the validity of the termination of the POSA which was later conceded before Hely J), and the proceedings on appeal, was whether the dealers and guarantors were correct in their claims that the liquidated damages clause and the rights which BP had under the deed of option amounted to penalties and were therefore unenforceable. 24 In the argument before me, the substantial issue was whether costs involved in proceedings before Hely J and the appeals concerning the legal characteristics of the option could be said to arise out of any default by Ringrow under the POSA (cl A14.2(f)) or to be costs or expenses incurred by BP in exercising or enforcing any of BP's powers, rights or remedies under the POSA or otherwise arising from a breach of the POSA by Ringrow (cl A16.9(a)). 25 Justice Hely had held that while there were separate agreements, including the deed of option, between BP and each dealer and the respective guarantors, there was one overall arrangement between the respective groups of parties for the sale of the relevant service station site and the exclusive supply and sale of BP petroleum products to the dealer on that site. Justice Hely considered the totality of the transaction indicated that each option to repurchase the service station site was restitutionary in nature and was given as part of the vendor and purchaser arrangements: '... rather than as a price to be paid in terrorem in the event of a breach of the POSA .... The determination of a POSA provides an occasion for the exercise by BP of the options, but the options are not themselves "the result of the default or the price to be paid for it". ... Of course, the entitlement to exercise the option was dependent upon termination of the POSA rather than upon commission of a breach of the POSA.' (203 ALR at 304 [107]-[108]) (his Honour's emphasis) 26 He held that the deed of option was not a means of providing BP with any form of compensation in respect of a breach of the POSA (203 ALR at 305 [109]). Hely J went on to find that the dealers' breaches of the POSA relied on by BP to justify the termination, were deliberate, calculated, constant and secretive and such as to disentitle them to any equitable relief (203 ALR at 316 [152]-[156]). 27 In the Full Court, the dealers and guarantors argued that the provisions of the option requiring a retransfer of the Lansvale and other service station sites amounted to a penalty (see e.g. 209 ALR at 36 [18], 38-43 [21]-[24] where Beaumont J set out the summary of the argument). The joint judgment of the High Court said that the case before Hely J '... turned upon the law concerning penalties' (222 ALR at 308 [9]). The dealers and guarantors had argued that the word ' terminated' in cl 1.2(a) of the option deed referred only to termination for breach (222 ALR at 310 [17]) and that that could occur for trivial matters as well as substantial ones so that, in effect, the option constituted a penalty. The High Court rejected all arguments that the option deed was a penalty (222 ALR at 311 [20]). The High Court did not need to consider whether cl 1.2(a) of the option deed could enable the option to be exercised if the POSA were terminated for breach under cl A13.2.1 or that the option could be exercised and the POSA were terminated on grounds other than breach under cl A13.2.2. And, their Honours said it was not necessary to deal with various contentions of BP to the effect that the doctrine of penalties was incapable of applying to the circumstances of the case, for example, on the basis (which Hely J used as set out above) that the breach was not the cause, but merely the occasion, for the option to be triggered (222 ALR at 315 [36]). 28 Ringrow argued that the word 'default' in cl A14.2(f) was used in the context of a breach which was capable of rectification by the dealer. It said that this followed from a consideration of the right of termination given under cl A13, to which the reasons of the High Court also referred. Thus, in cl A13.1, if either a dealer or BP failed to pay money due to the other under the POSA and that default were not totally rectified within 30 days after written notice of the default were given by the dealer or BP (as the case required), the party giving notice was entitled to terminate the POSA immediately or at any time after that by giving written notice of termination to the party in default. Clause A13.2 which Hely J held BP had validly utilized, provided that if the dealer breached certain provisions of the POSA, including cl A4.16 (which dealt with sale of non BP petroleum products), and the default were capable of rectification but was not totally rectified within 30 days after written notice of both the default and what was needed to remedy it were given to the dealer, BP was entitled to terminate the POSA at any time thereafter by giving a written notice of termination to the dealer. BP also had a right to terminate the POSA if it reasonably believed for any reason, the existence of certain matters, and this was so whether or not the dealer had breached any provision of the POSA (cl A13.2.2). For example, BP could terminate the POSA under cl A13.2.2 by giving not less than 30 days written notice of termination to the dealer if the site were no longer suitable as a retail fuel outlet operated under BP's trademarks. 29 Ringrow argued that these differing provisions for termination affected the construction of the term 'default' in cl A14.2(f). It said that construction which Hely J had arrived at (which the High Court found it not necessary to consider) that the rights to exercise the options were not themselves the result of the default or the price to be paid for it (203 ALR at 304 [107]) showed that the litigation concerning the validity of the deed of option was not capable of being characterized as 'arising out of ... any default by [Ringrow] under [the POSA]' (cl A14.2(f)). Ringrow argued that the same reasoning applied to cl A16.9(a) so that so much of the costs incurred by BP involved in dealing with the validity of the option deed which it now seeks to recover did not arise from a breach of the POSA by Ringrow. 32 Ringrow points to the fact that under its written demand, BP recited that it had incurred legal costs on account of the proceedings before Hely J and the appeals 'and its exercise of the [deed of] Option. Those costs arose out of Ringrow's default under the POSAs'. BP has not segregated the costs it claims into categories so as to identify the discrete costs of enforcing: &#8226; its rights under the option; &#8226; the individual proceedings and appeals (and the costs in each referable to the option) . 33 BP argued that because Ringrow put in issue whether the deed of option constituted a penalty for breach of the POSA and connected that argument to BP's rights under SC 1.2(b) and (e), BP's costs of enforcement of the deed of option or its rights thereunder were caught by either cll A14.2(f) or A16.9(a). Significantly, SC 1.2(e) identifies the deed of option as a separate agreement and provides that if the POSA is terminated and BP has exercised its right to acquire the Lansvale site under the deed of option, then liquidated damages would not be payable to BP under the POSA. 34 BP argued that the breaches of the POSA committed by Ringrow led directly to the termination of the POSA and the triggering of the option. It argued that but for those breaches the POSA would not have been terminated and BP would not have attempted to exercise the option because of the defaults. BP identified the defaults as the effective cause of the sequence of events it put in motion, including its attempt to exercise and enforce the option. It argued that it had no choice but to defend the proceedings at each level of trial and appeal if it wished to exercise and enforce the rights which had accrued to it as a consequence of the breach by Ringrow of the POSA. 38 Ringrow argued that an estoppel arose because Hely J, on BP's application, made orders under cll A14.2(f) and A16.9(a) for the payment of costs and expenses incurred by BP prior to the commencement of the proceedings before him. Ringrow also said an estoppel arose from the making of the costs orders pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) as part of the final orders made by Hely J and in each appeal. 46 The proceedings before Hely J necessarily required his Honour to determine the validity of BP's termination of the POSA. Until his Honour made final orders on 15 December 2003 which declared that the termination of the POSA was valid, BP was entitled to prosecute the proceedings before Hely J in aid of enforcing, by a curial decision, the legal efficacy of its act of termination. Moreover, that termination, on his findings, indisputably arose out of or from a default by Ringrow under the POSA and a breach of the POSA by it within the meaning of both cll A14.2(f) and A16.9(a). 47 But once Hely J made the final orders declaring BP's termination of the POSA valid and effective, Ringrow accepted that position and withdrew it from the controversy which it pursued on appeal to the Full Court and the High Court. That issue was whether the deed of option or its enforcement amounted to a penalty. 48 Leaving aside any unperformed obligations under the POSA, such as the payment by Ringrow and the guarantors of any amounts due to BP, including for costs, once Hely J made the final orders, BP and Ringrow were not contesting issues to do with Ringrow's defaults under or breaches of the POSA. The rights in contest in the two appeals were solely to do with the deed of option and whether BP's exercise of its rights under that option amounted to a penalty imposed on Ringrow for its established defaults under or breaches of the POSA. 49 Critically, however, no order made in either of the appeals was sought or could have affected the provisions of, or powers, rights or remedies of the parties contained in the POSA. The POSA had been terminated and the termination was never the subject of the appellate contests. What was then at issue was whether the objective fact of the termination of the POSA gave BP enforceable rights under the separate and independent deed of option. Ringrow's resistance to BP's exercise of the option was a breach of the deed of option. 50 BP argued the costs of it enforcing the option arose indirectly from, and were caused by, Ringrow's defaults under and breaches of the POSA which led to its termination so that its rights to costs under cll A14.2(f) and or A16.9(a) were enlivened. As I have found, that argument should be accepted in respect of the proceedings before Hely J, where the issue of the validity of BP's termination of the POSA required resolution. Ringrow's case before his Honour combined an attack on the validity of the termination (until the belated and qualified concession) and the enforceability of the option. BP had to establish the validity of the termination which it did by Hely J making of the final orders. Hely J made detailed findings of Ringrow's and the other dealer's defaults under and breaches of the POSAs. He had to do so to dispose of Ringrow's qualification to its concession about the validity of the termination of the POSAs. That qualification referred to the possible operation of s 16 of the Petroleum Retail Marketing Franchise Act 1980 (Cth) (203 ALR at 298 [80]) which Hely J found did not avail Ringrow or the other dealers (203 ALR at 317-318 [161]-[171]. That finding was integral to his Honour's decision to make the final declarations of the validity of the termination of the POSAs (203 ALR at 318 [171]). 51 Ringrow and the other applicants contested the validity and enforceability of the termination of the POSAs throughout the trial before Hely J. Because of that BP must be entitled to recover its costs of those proceedings under cll A14.2(f) and A16.9(a). There was no bright line between the argument on the issue of penalty and the other issues before Hely J which would allow, as a matter of common sense or law, some division of the costs payable under the clauses by reference to issues. A critical reason why Ringrow argued that the option was not enforceable before Hely J was that the POSA had not been terminated.