Court Rejects Injunction to Block Dealership Termination

OUTCOME: Dismissed

IN THE FEDERAL COURT OF AUSTRALIA

NORTHERN TERRITORY DISTRICT RECISTRY

GENERAL DIVISION

No. NIG 1 of 1980

BETWEEN : [APPELLANT] Applicant [RESPONDENT]

Respondent a . Pp

REASONS FOR JUDGMENT (delivered 28 March 1980)

FORSTER C.J.

The applicant is and has been since 1967 an agent of the respondent for the sale of [NAME] motor vehicles and spare parts from its premises at Pine Creek. This agency and its terms are established by an undated agreement probably executed in 1967 or 1968 and an amendment to that agreement consequent upon the

coming into effect on 1 February 1975 of the Trade

Practices Act 1974. This amendment is contained in a

letter dated 4 February 1975 from the respondent to the applicant and acknowledged in writing by the applicant The amendments which do not really touch the matter in hand are concerned with deleting from the contract provisions for price maintenance, dealing in defined

territories, and the like. The agreement contains the

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following clause "Tenure" -

"This Agreement shall continue in force from the date hereof and subject to the provisions herein contained thereafter without limitation as to time until it is terminated by either party at any time by giving to the other 60 days' notice in writing to this effect."

?

On 27 December 1979 the respondent sent to the applicant

a letter purporting to give sixty days notice to terminate the agency agreement. On 29 February 1980 the day before the expiry of the sixty days notice the applicants

applied to me as a matter of urgency for an order for an injunction restraining the respondent from -

"(a) terminating the [NAME] held by the applicant;

(b) giving effect to the purported i

termination of such franchise or

dealership by letrer from the

respondent to the applicant dated

December 27, 1979." I made an order for an interim injunction as asked until 4 March 1980 which was subsequently extended until 10 March 1980. The application for a permanent injunction was heard by me on 6 and 7 March 1980. On the latter day I reserved my judgment and accepted an undertaking from counsel for the respondent that until judgment it would take no step to treat the contract between it and the applicant as being at an end.

The application is based in the alternative

upon ss.45 and 46 of the Trade Practices Act 1974-1977.

Evidence was given by Mr. [APPELLANT], the Managing

Director of the applicant, by Mr. [APPELLANT], the Manager

in the Northern Territory of the respondent and by Mr. [RESPONDENT], its [NAME] Manager. Documents and photographs were also tendered.

Section 45(2) of the Trade Practices Act

1974-1977 is as follows - "45.(2) a corporation shall not -

(a) make a contract or arrangement, or arrive at an understanding, if -

(i) the proposed contract, arrangement or understanding contains an exclusionary provision; or

(ii) a provision of the proposed contract, arrangement or under- standing has the purpose, or would ' have or be likely to have the effect, of substantially lessening competition; or

(b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision -

(i) is an exclusionary provision; or

(ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition."

Section 46(1) of the Trade Practices Act 1974-1977 is as follows - _

"46.(1) A corporation that is in a position substantially to control a market for goods

or services shall not take advantage of the power in relation to that market that it has

by virtue of being in that position for the purpose of -

(a) eliminating or substantially damaging a person, being a competitor in that market or in any other market of the corporation

or of a body corporate related to the corporation;

(b) preventing the entry of a person into that market or into any other market; or

(c) deterring or preventing a person from engaging in competitive conduct

in that market or in any other market."

It is said by the applicant that the purported termination of the dealership contract by the respondent is in breach of either s.45(2) or of s.46(1) or both. The respondent denies that its conduct constituted a breach of either section. The respondent's letter of 27 December 1979 listed the following provisions of the agreement as being those of which the applicant was in breach -

Performance Obligation Warranty and Service Responsibilities Spare Parts.

The provisions of the agreement dealing with these matters are as follows -

"Performance Obligation. [NAME] shall be held responsible by the Company for the selling of a reasonable percentage of the commercial vehicle market within his territory. What

constitutes a 'reasonable percentage' shall be™ decided by the Company.

Warranty and Service Responsibilities. The Dealers responsibilities in this regard are as set dowm in the Warranty and Service Policy issued by the Company and which [NAME] agrees to abide. [NAME] will provide adequate and satisfactory repair and maintenance service for products sold or distributed by the Company in respect of which [NAME] is appointed [NAME] and such service and maintenance shall be conducted with equipment and workmen whose efficiency and competence is of standard satisfactory to the Company.

Spare Parts. [NAME] agrees that he will purchase keep and maintain in a neat clean and orderly condition at his business premises such minimum stock of spare parts and accessories as the Company may from time to time determine, based on the [NAME] vehicle population in [NAME]'s assigned territory and normal usage. [NAME] further agrees that he will stock only those parts and accessories designated by the Company as 'genuine' for the servicing of the Company's products sold by [NAME]."

In points of defence filed on the morning of

the trial the respondent asserted that in terminating

the agreement it was protecting its legitimate trade and

business interests or that it at least acted genuine belief that it was so protecting its It said that its reasons for terminating the

were as follows -

in the interests.

agreement

"(a) The Applicant's [NAME] in the Pine Creek area were unsatisfactory.

(b) The Applicant's warranty and service responsibilities were not able to be properly carried out as the Applicant does not have a suitable workshop, adequate personnel, or suitable tools and equipment.

(c) The Applicant did not have suitable _ premises set aside for spare parts, and did not hold adequate stocks of spare parts.

(d) The Applicant's premises were such that they were not suitable for a [NAME] dealership because of their poor location, lack of directional signs from the highway, poor condition, and lack of advertising signs relating to [NAME], and lack of a showroom.

a

6.

(e) The Applicant's failure to do anything

by way of advertising or anything else

to promise the sale of [NAME] vehicles."

I can dispose of the s.45 point quite shortly. It seems to me that the provision in the contract giving the respondent, and also, be it noted, the applicant, the right to terminate the contract on giving sixty days written notice cannot be a provision which "has the purpose of substantially reducing competition". I think it is unlikely that it could be interpreted as being a provision which "has or is likely to have the effect of substantially reducing competition". It is simply a mutual power between two contracting parties to put an end to the contract. Even if by some twisting of the language it could be said that the section proscribes the giving effect to a provision of the contract whatever its purpose or likely effect, if that giving effect has the purpose or has or is likely to have the effect of substantially lessening competition then the facts in the present case do not support an assertion that the termination of the applicant's contract will substantially lessen competition. The applicant has 0.6% of the passenger car market in the Northern Territory and 1% of the market for what are called commercial vehicles being trucks, utilities, land rovers and the like. To eliminate such competition can hardly be said to be substantially Lessening competition. This point therefore fails and I find it unnecessary to

determine whether or not competition in s.45(2)(b) means

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competition in which the party to the contract whose actions are impugned is engaged.

Section 46 is somewhat difficult to interpret. The respondent being the only wholesaler of [NAME] in the Northern Territory is plainly in the position "substantially to control a market for goods". Section 46(1)(a) appears to forbid such a corporation eliminating or substantially damaging a person being a competitor of that corporation or of a related corporation. The applicant is not a competitor of the respondent nor of any corporation related to the respondent so that this sub-section is not applicable. The appellant is already in the market which the respondent is in the position substantially to control so that s.46(1)(b) cannot be applicable either. The applicant places most reliance upon the provisions of s.46(1)(c) and argues that the respondent, being in a position of control, used its power or sought to use its power to deter or prevent the applicant from engaging in competitive conduct in the market.

The case of [COMPANY]. v.

[NAME] (Queensland) [COMPANY]. 5 A.L.R. 465 is of great

assistance, indeed it is the only case more or less directly in point which counsel or I have been able to discover. It must be observed that the Act there being considered was the Trade Practices Act 1974 but s.46(1)(c)

is in very similar terms in that Act and in the Trade

Practices Act Amendment Act 1977. [NAME[NAME]. held that

the exercise of a contractual right to terminate a contract for the genuine purpose of protecting legitimate business interests is not taking advantage of a power to control a market under''s.46. [NAME[NAME]., whilst agreeing with [NAME[NAME]., appears to go somewhat further when he says at pp. 472, 473 -

"So far as it is the termination of the dealership

agreement which is attacked under s 46, it is to

be observed that whether that agreement should be

terminated or continued for any period depended

not upon the respondent's control of the market

but upon the terms of the agreement.

It appears to me that in terminating the agreement

on 30 days notice according to its terms, the respondent was taking advantage of those terms.

In relation to that action it did not require to

take advantage of any power that it had by virtue

of its control of the market, and cannot be said

to have done so. For the purpose in hand that

control was irrelevant." . Evatt J. expresses agreement with both Joske and Smithers JJ. I find myself in respectful agreement with [NAME[NAME]. In case I am wrong to do so and should adopt the somewhat different interpretation of the section of Joske J., notwithstanding that I was somewhat troubled by the delays of the respondent which almost amounted to acceptance of a state of fact unsatisfactory to it, I say that the evidence satisfies me that the substance of the complaints against the applicant as a [NAME] in [NAME] is made out and the respondent

terminated the contract in the course of protecting its

legitimate trade and business interests.

The applicant's application for a permanent injunction therefore fails and is dismissed with costs. The respondent and its counsel are relieved of their

obligation with respect to the undertaking given.

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