Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd
24 FLR 2865 ALR 465
(Judgment by: Smithers J)
Between: Top Performance Motors Pty Ltd
And: Ira Berk (Queensland) Pty Ltd
Judges:
Joske J
Smithers JEvatt J
Subject References:
Trade practice
Cancellation of dealership by sole distributor
Appointment of another dealer
Whether distributor gave effect to arrangement in restraint of trade
Whether distributor had used its power to control a market to eliminate a competitor in the market
Legislative References:
(CTH) Trade Practices Act 1974 - s 45(2)(b); s 46
Judgment date: 3 April 1975
Judgment by:
Smithers J
I have had the advantage of reading the reasons for judgment of my brother Joske, with which I respectfully agree. I add the following observations.
In its case against the respondent under s 45 of the Trade Practices Act, it was fundamental to the applicant's case to establish a contract, arrangement or understanding between the respondent and its dealer, MRG Automotive Services (Qld) Pty Ltd (hereinafter called "Gore's Company"), pursuant to which the respondent agreed with Gore's Company to restrict its liberty to trade with other persons in such manner as it might choose. What was really alleged in this case was that there was an arrangement or understanding rather than a contract.
As to the nature of an arrangement it was said by the Privy Council in Newton v Federal Commissioner of Taxation (1958) 98 CLR 1 at 7; [1958] ALR 833 at 837:
"Their Lordships are of opinion that the word 'arrangement' is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons - a plan arranged between them which may not be enforceable at law."
It was said by Diplock LJ in Re British Basic Slag Agreements [1963] 2 All ER 807 at 819:
"'Arrangement' is not a term of art; and in s 6(3) of the Act I agree with my lords that it bears the meaning that an ordinary educated man would ascribe to it. It involves a meeting of minds because under s 6(1) it has to be an arrangement 'between two or more persons' and, since it must be an arrangement 'under which restrictions are accepted by two or more parties', it involves mutuality in that each party, assuming he is a reasonable and conscientious man, would regard himself as being in some degree under a duty whether moral or legal to conduct himself in a particular way or not to conduct himself in a particular way as the case may be, at any rate so long as the other party or parties conducted themselves in the way contemplated by the arrangement."
Section 45 is not in the same terms as s 6 of the Restrictive Trade Practices Act 1956 which is the section referred to in these remarks, but by parity of reasoning it would follow that the existence of an arrangement of the kind contemplated in s 45 is conditional upon a meeting of the minds of the parties to the arrangement in which one of them is understood, by the other or others, and intends to be so understood, as undertaking, in the role of a reasonable and conscientious man, to regard himself as being in some degree under a duty, moral or legal, to conduct himself in some particular way, at any rate so long as the other party or parties conducted themselves in the way contemplated by the arrangement.
It seems to me also that an understanding must involve the meeting of two or more minds. Where the minds of the parties are at one that a proposed transaction between them proceeds on the basis of the maintenance of a particular state of affairs, or the adoption of a particular course of conduct, it would seem that there would be an understanding within the meaning of the Act.
And what was alleged in this case was that either by such an arrangement or by such an understanding the respondent undertook to Gore's Company that, during the currency of its dealership agreement, it would not distribute motor cars in the Gold Coast-Southport area otherwise than through Gore's Company.
There was no evidence of any express agreement, arrangement or understanding, but the submission was that an arrangement or understanding as alleged was to be inferred from the circumstances.
It was pointed out that from the month of October 1972 until January 1975, the applicant, as a matter of fact, had enjoyed an exclusive retail dealership in respect of the respondent's Datsun cars in the Gold Coast-Southport territory. In 1974 the respondent having become critical of the performance of the applicant in the marketing of its cars, seriously considered appointing some other dealer in lieu of the applicant. Late in 1974 it entered into negotiations with one Michael Gore representing Gore's Company and invited Gore's Company to apply for appointment as dealer in the territory.
Early in January 1975, the respondent sent its zone sales manager to visit the applicant's premises to make an inspection with a view to making a final report to the respondent's dealership committee in respect of the applicant's performance as dealer. The zone manager made his report shortly after 9 January 1975. On the whole the report was critical of the applicant's organization and performance as the respondent's dealer. On 30 January 1975 the dealership committee decided to terminate the applicant's appointment and to appoint Gore's Company.
On 31 January 1975 Gore was informed of the acceptance of his application for appointment as dealer.
On 31 January 1975 the respondent gave notice in writing to the applicant that its appointment would terminate on 1 March 1975.
On 7 February 1975 the respondent entered into a formal written agreement with Gore's Company whereby that company was appointed its dealer for Gold Coast-Southport territory.
It was said, and the evidence supports the view, that when that agreement was entered into the respondent had at that stage no current intention of appointing any other dealer for the territory.
It was pointed out also that it was the respondent's policy, normally to appoint only one dealer in any one territory. It was urged that Gore would in all probability have known of this policy. Also, it was said, he may have regarded the existence of that policy as a material factor in applying for a dealership.
It was said also that the probability is that in the discussions between the respondent's representative and Gore concerning the possibility of Gore's Company being appointed as dealer for the territory, the fact that the respondent was considering appointing Gore's Company because it was considering terminating the applicant's appointment, became known to Gore. Lastly, it was pointed out that, for practical purposes, the termination of the applicant's appointment and the granting of the appointment to Gore's Company were carried out simultaneously. It was said, therefore, that the circumstances were favourable to the existence of an arrangement or understanding between the respondent and Gore's Company that, during the term of its dealership, the respondent would not distribute its cars through any other retailer in the territory, and it was urged that an inference should be drawn that such an arrangement or understanding was made or entered into. But there are additional relevant circumstances.
First, Gore informed the respondent's representatives during the course of their negotiations that he would accept a dealership appointment, even if the applicant's appointment were not terminated.
Secondly, the agreement of 7 February 1975 between the respondent and Gore's Company contains an express provision in the following terms, namely: "2(d) The Company may at any time appoint another dealer or other dealers for the territory or any part thereof and may from time to time re-define the boundaries of the territory." And it is to be observed that it is the freedom of trade which this clause preserves for the respondent which is the critical freedom in issue. It was the alleged acceptance of a restriction of this freedom which the applicant contended contravened the provisions of s 45.
It is certainly true that, notwithstanding the presence of such a provision in a formal agreement, there may exist an arrangement or understanding between the parties that rights expressed therein will not be exercised or that some course of conduct inconsistent with it will be observed. But the onus of showing that the parties did make such an arrangement or enter into such an understanding is on the applicant. In the face of a clear express provision in a formal agreement that onus can be satisfied only where there is some feature in evidence which significantly and unambiguously supports the notion that the arrangement or understanding in question was made or entered into.
To my mind there is no such feature in the evidence this court. I see no reason to doubt that in stipulating in the terms of cl 2(b) the respondent was purposely asserting its freedom to alter its policy about single or multiple dealerships at any time at its own will, and to vary territory boundaries as it might think fit. Mr Gore was not called as a witness and there is nothing to suggest that he did not understand cl 2(b) to represent the true agreement between the respondent and his company.
It seems unlikely that the respondent would surrender its freedom to appoint dealers when and where it thought fit. The freedom to do so expressed in cl 2(b) above had been already asserted by the inclusion of a similar clause in the dealership agreement between itself and the applicant in 1972.
The respondent's trading position was so strong that there was no business consideration calling for the surrender of the freedom in question. Finally, its surrender would have been rather pointless from the point of view of either party in relation to a dealership agreement which either was at liberty to terminate on 30 days' notice.
I am satisfied, therefore, that there was no arrangement or understanding as was alleged. The case under s 45 of the Trade Practices Act must therefore fail.
The case made under s 46 depends upon proof that the respondent was in a position substantially to control a market for goods, and that it took advantage of the power in relation to that market that it had, by virtue of being in that position, to eliminate a competitor. The respondent, of course, has total control of the wholesale market for Datsun cars.
Also, the respondent has at all material times marketed Datsun cars by retail in Brisbane, and carried out State wide advertising which has penetrated the Gold Coast area. It may be said, therefore, that there was some degree of competition between the respondent and the applicant while the applicant held its appointment as dealer for the Gold Coast area. Ironic aspects of this case are that, so far as the applicant was a competitor, it was a competitor of the respondent's own creation, and that the respondent terminated the applicant's dealership not to reduce the existing level of competition but because the respondent was not satisfied that the applicant was competing with sufficient vigour.
It is of course true that when the respondent terminated the applicant's dealership the applicant's access to supplies of Datsun motor cars would be cut off. There is, therefore, a sense in which, as a result of the power that the respondent had by being able to control the market, it did eliminate a competitor when it terminated the dealership agreement. But there are two elements involved in this. First, the termination of the applicant's dealership agreement. Secondly, the inability of the applicant to obtain supplies of Datsun cars by wholesale which will follow that termination.
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.
As to the applicant's ultimate inability to obtain supplies, it is clear that, once its dealership agreement was terminated, the applicant ceased to be a competitor in the market in any sense. At that stage his status in respect of Datsun cars was that of a mere member of the public.
I did not understand it to be argued that the corporation having control of a market for goods would contravene s 46 of the Act merely by refusing to supply such goods by wholesale to a member of the public who wished to sell those goods by retail.
Accordingly, the application fails.