Court decision

United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd

By David Nicholls / 28 August 2017
9 min.
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Worthwhile read for: Liquidators, retail and wholesale petroleum businesses

On 21 April 2017, the Victorian Supreme Court awarded United Petroleum $890,238.00 in damages after finding Bonnie View Petroleum Pty Ltd had failed to clean up contamination at one of its 19 retail petrol businesses it sold to United.1
 

Key points 
 

  • A formal agreement for remediation of the site was made between the parties in September 2010. The cost estimate for remediating the site to the standard required under that agreement was between $433,000.00 and $555,000.00.
  • There were two breaches of the formal agreement, Bonnie View did not prepare a remediation action plan and Bonnie View went into voluntary administration and liquidation and became an externally administered body corporate.
  • The Court held that there was a breach of the obligation by Bonnie View “to do all things necessary” to assist United in taking assignment of a lease.
  • The total costs awarded comprised damages for remediation costs, the costs of preparing a new lease with a third party and the costs for the new settlement with the landlords.
  • United were also entitled to an order against a director of Bonnie View for the variance between the total damages awarded and the total of a bank guarantee and retention amount held, amounting to $390,238.00.
  • In a separate related judgment, United Petroleum were not entitled to a costs order against the liquidators, despite Bonnie View’s liquidators failing to do all things necessary to procure an assignment of the lease. The Court was not satisfied that, had the assignment occurred, litigation would have been avoided.

     

The facts
 

Bonnie View Petroleum (BV) operated a retail and wholesale petroleum business, located in Sale, Victoria. The Sale petrol station (Sale site) was leased to BV in 2008 for a term of 15 years, with further options. In 2010, BV sold the Sale site along with 18 other businesses to United Petroleum (United).

During due diligence, contamination at the Sale site was discovered. Subsequently, the parties entered into a “Side Agreement” whereby BV agreed to remediate the site and ultimately transfer the lease to United. The Side Agreement required BV to, amongst other things; appoint a United approved environmental consultant to prepare a remediation action plan within six months of settlement (settlement occurred 1 September 2010), commence “remediation works”2 within 12 months of settlement and complete the remediation within three years after commencement of the works.

A retention amount of $100,000.00 was withheld from the purchase price and BV agreed to issue a Bank Guarantee in the amount of $400,000.00 in regards to its obligations under the agreement. In addition, a Director of BV, agreed to provide a personal guarantee.

BV subsequently went into voluntary administration and later liquidation. United brought a claim against BV alleging various breaches of their agreement. Notably, for failing to remediate the land as specified and for failing to take necessary steps to assign the lease when United required it to do so. 

Failure to remediate the land

Before BV was placed into voluntary administration, it failed to prepare a remediation action plan or remediate the Sale site. United therefore claimed BV breached the terms of their Side Agreement.

United claimed $470,000.00 in damages to remediate the site to the standards required by the Side Agreement.

In 2010, United contracted SMEC Australia Pty Ltd to assess contamination levels at the Sale Site. The results of the Due Diligence Contamination Assessment (DDCA) showed groundwater contamination above allowed standards, including arsenic, copper, zinc, Total Petroleum Hydrocarbon,C6-C9 and benzene. The DDCA also found the site was ‘a source of offsite groundwater contamination’ and that the contaminated site did not comply with the state environmental protection policy. The cost of remediating the site was estimated to be between $666,000.00 and $799,200.00 in a subsequent report by SMEC.

A later report commissioned by Kleinfelder Australia Pty Ltd concluded that groundwater quality had declined significantly since the groundwater was monitored in 2010 and listed various recommendations, one of which was to develop a remediation plan.

In February 2015, United engaged further consultants to provide a strategy and cost estimate for remediation of the Sale site. An estimate of between $433,000.00 and $555,000.00 was provided to remediate the site which was tailored to the standard required under the Side agreement.

In July 2016, following two court ordered mediations, United entered into terms of settlement with the landlords for entry into a new lease. BV claimed that United’s obligations under the new lease were significantly less than that imposed under the Side Agreement (United’s obligations being limited to removing contaminants that precluded the ongoing use of a petrol station). BV argued that the relevant measure of damages was the difference between economic value to United of the leasehold estate, with the site remediated to the standards required under the Side Agreement and the value of the estate without the site being remediated. They further submitted that due to the entry of the new lease, United had suffered no real loss and only nominal damages should be awarded.

United countered BV’s arguments by submitting that the remediation obligations under the new lease were irrelevant and that the appropriate consideration for the court was the consequences incurred to United by BV’s breach of their agreement. United submitted that what was required was to restore United to the position it would have been in had BV performed its obligations under their agreement.

In reaching its decision, the Court applied the principles enunciated in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd3 and found that United was entitled to be placed in the same situation with respect to damages as if the contract had been performed, and it did not mean as good a financial or economic position as if the contract has been performed. The Court considered it irrelevant to consider the new rights and obligations of United under the new lease.

As BV had failed to prepare a remediation action plan as obliged under the Side Agreement, United was entitled to seek rectification. Although the site was still “fit for purpose”, United nevertheless had “an interest in the risk associated with the contamination of the groundwater.”4 Notably, as an occupier, United was now liable to a receipt of clean up notices in the event of land or water being polluted under the Environmental Protection Act 1979 (Vic).

The Court ultimately apportioned damages in the amount of $470,000.00 for rectification. 

Assignment of the lease

As to the second specified breach, United claimed loss and damages in the amount of $448,437.00 comprising interest on lost profits resulting from the failure to assign the lease in April 2015. The costs of remedying BV’s breaches of the lease associated with obtaining the new lease as a method of mitigating in July 2016 and the costs of negotiating and documenting the settlement with the landlord.

Award

Ultimately, Justice Kennedy awarded United total damages of $890,238.00 comprising $470,000.00 for the remediation costs; $404,821.00 for the amount paid by United pursuant to the new terms of settlement (including unpaid rent for the property); and $15,416.00 for legal costs incurred when negotiating the settlement and the new lease.

United were unsuccessful in their claim for deferred interest in the amount of $28,199.92 as a result of not having the benefit of the lease assigned to them. It was decided there was an absence of recent objective data to ascertain their loss in this regard.

The Court also made a declaration stating that United was entitled to:

  • demand the payment of the bank guarantee in the sum of $400,000.00 from BankWest;
  • retain the proceeds of the bank guarantee which may be applied towards the damages as found to be owing by BV to United for breach of the Side Agreement; and
  • retain and apply the retention amount of $100,000.00 under the Side Agreement towards the relevant damage.

However, the Court noted there should be an appropriate declaration made that United is not entitled to enforce its judgment against BV without further leave of the court, other than by lodging a proof of debt for its claims in excess of the bank guarantee and the retention amount.

United also successfully obtained an order against the director of BV in the sum of $390,238.00, being the difference between the damages awarded and the total of the bank guarantee provided and the retention amount provided. 

Costs

Following the primary judgment, the Court published subsequent reasonings on 22 July 2017 dismissing United’s application for costs against the liquidators of BV.5 Whilst Justice Kennedy had accepted that BV’s liquidators had failed to do all things necessary to assign the lease of the Sale site, the Court could not be satisfied that the timely assignment of the lease would have avoided litigation of the matter.

This ruling is consistent with the general rule that costs orders against a non-party to a proceeding (for example, a liquidator) are only made in exceptional circumstances.6 Here, Justice Kennedy found that there was no conduct on behalf of the liquidators that would warrant a personal costs order against the liquidators.

For more information or discussion, please contact HopgoodGanim Lawyers’ Planning & Environment team.


1. United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd [2017] VSC 185.

2. The ‘Remediation Works’ were defined to mean “the work and steps set out in the Remediation Action Plan that are determined by the Environmental Consultant and which are approved by the Independent Environmental Auditor that are necessary to be taken to Remediate Contamination or an Environmental Problem at the Sale Site to achieve the Remediation Standards within the Initial Remediation Works Period and “Remediate” and “Remediation” both have a corresponding meaning” (cl 1.1).

3. (2009) 236 CLR 272 (“Tabcorp”).

4. JGM Nominees v Tulip Investments [2013] 46 VR 709.

5. United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (In Liquidation) & Ors (No 2) [2017] VSC 334. 

6. JGM Nominees v Tulip Investments [2013] 46 VR 709.

Key Contacts
David Nicholls
Consultant
David is a Consultant in our Planning and Environment practice and enjoys a reputation as one of Australia’s leading planning and environment lawyers.

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