#6727 - Ringrow V. Bp Australia - Commercial Remedies BCL

Ringrow v. BP Australia

Facts

On 27 May 1999, Ringrow Pty Ltd ("the appellant") entered a contract with BP Australia Pty Ltd ("the respondent") to buy a service station known as BP Lansvale ("Contract for Sale of Site"). The appellant, or persons connected with it, had conducted a service station business on that site since 1988 as franchisee. On 28 July 1999, the contract to buy BP Lansvale was completed, and certain related transactions were entered, including an Option Deed dated 28 July 1999 and a BP Branded Privately Owned Sites Agreement ("POSA").

At various times in 2002 the appellant purchased fuel from a supplier other than the respondent, and on-sold the fuel to the public. This was a breach of cl A4.2 of the POSA. The respondent gave the appellant Notices of Breach of Condition. These were followed by a Notice of Termination of Contract on 2 December 2002, with effect from 1 January 2003, pursuant to cl A13.2.1(a) of the POSA. On 17 December 2002, the solicitors for the respondent informed the solicitors for the appellant that the respondent intended to exercise its contractual rights under the Option Deed to buy back the BP Lansvale site. Clause 38.1 of the Contract for Sale of Site provided that, in consideration of the respondent agreeing to sell BP Lansvale to the appellant, the appellant "HEREBY GRANTS to the [respondent] an irrevocable option to purchase [BP Lansvale] on the terms set out in the option to purchase", a copy of which was annexed, and which on execution became the Option Deed. Clause 1.2(a) of the Option Deed provided that the option was only exercisable if the POSA "is terminated". Clause 2.1 of the Option Deed provided that the price payable for BP Lansvale by the respondent was its "market valuation ... as an operational service station as determined by an independent valuer".

Clause 2.5 provided:

“The valuer shall be instructed to determine the market valuation of [BP Lansvale] ... and in making the determination shall have regard to all factors the valuer considers relevant but shall not include in the determination of the market valuation of [BP Lansvale] any allowance for any goodwill attaching to any business conducted at [BP Lansvale].”

The question here was whether Clause 2.5 is a penalty clause.

Holding

Methodology in cases where the clause provides for something other than payment of money

The respondent did not contest the appellant's submission, for which there is authority, that Lord Dunedin's statement applies not only to cases where money is payable but also to cases where money's worth (including property) is transferable on a particular event. In that extended application, Lord Dunedin's statement requires a different approach from that employed in typical penalty cases. In typical penalty cases, the court compares what would be recoverable as unliquidated damages with the sum of money stipulated as payable on breach. In cases like the present, on the other hand, assuming (contrary to certain submissions of the respondent) that the doctrine of penalties is capable of application at all, one relevant comparison would be between the price payable by the respondent to the appellant on retransfer of BP Lansvale by the appellant, and the actual value of what is transferred. Applying that approach to this case, assuming (contrary to certain submissions of the respondent, and subject to various disputes between the parties about the meaning of "goodwill") that the appellant paid the respondent for goodwill on buying BP Lansvale in 1999, but was not to be paid for goodwill in retransferring it once the option was exercised in 2003, a suspicion would arise that what was retransferred might be worth more than the price to be paid for it. But a mere difference is not enough, let alone a suspicion of a difference. The comparison calls for something "extravagant and unconscionable" in the value of what is transferred compared to the price to be received, to use Lord Dunedin's words. It calls for a "degree of disproportion" sufficient to point to oppressiveness, to use the words of Mason and Wilson JJ.

Court rejected the argument that the exclusion of goodwill...