reper ! IN THE FEDERAL COURT OF AUSTRALTA } . } *t NEW SOUTH WALES DISTRICT REGISTRY } No.G258 of 1985 1 1 . GENERAL DIVISTON } [ BETWEEN : | ' - MAGAN-YATES NOMINEES PTY.LTD. : Applicant ; AND: nm a MERCEDES-BENZ (DISTRIBUTION) - Pry.LTD. 7 First Respondent . AND: a MERCEDES-BENZ AUSTRALTA : ETY.LTD. Ps Second Respondent MINUTE OF ORDER i. JUDGE: Fox J. im } DATE OF ORDER: 27 NOVEMBER 1985 i WHERE MADE: MELBOURNE. r. 'a t THE COURT ORDERS THAT: : 1. The application be dismissed. 2. The costs of this application he the respondents' costs . in the proceedings. Note: Settlement and entrv of orders is dealt with in Order 36 of the Federal Court Rules. Se reendernrvoe nian e nalcanas Sanar rnenen mares emer ata' Viet ae aca pemeneA Tram Taney oo cR cetera res aanceeepereaerte SE rn ne cep atari Mica eRe Se Ms oe A ye eT Be a IS IN THE FEDERAL COURT, OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY No.G258 of 1985 GENERAL DIVISTON "~e~rey BETWEEN : MAGAN-YATES NOMINEES PLY.LTD. Applicant AND: MERCEDES-BENZ (DISTRIBUTION) PTY.LTD. First Respondent AND: MERCEDES-BENZ AUSTRALTA PTY.LTD. Second Respondent CORAM: FOX J. DATE: 27 NOVEMBER 1985. REASONS FOR JUDGMENT EX TEMPORE Ex J. These are interlocutorv proceedings for injunctions brought in reliance on sub-para.45(2)(b)(ii), paras.46(1)(a) and (c), and sub-section 52(1) of the Trade Practices Act 1974 ("the a ic re Sarre wor ore woes me | | | Act"), as well as on a common law basis. The applicant is adealer in motor cars carrying on pusiness at Morninaton. So far as relevant, it does so in the name of W. Lindner & Co. which has a long experience in trading in motor cars. including Mercedes-Benz cars. at Mornington. The first and second respondents are respectively the exclusive distributor in Victoria (and some other states) and the exclusive importer into Australia of Mercedes-Benz motor cars. The evidence discloses that other avenues exist for the importation of Mercedes-Benz cars. but the number of cars imported through these channels is small. and may be overlooked for present Surpases. Under an aqreement with the first respondent the applicant (trading as W. Lindner & Co.) is given dealership cirahts in respect of those vehicles. The first respondent has purported to determine the agreement and those rights as from 31 December next. It is common ground that there was no breach of the agreement bv the applicant. The notice of termination tor non-renewal) purported to bring the agreement to anend in accordance with its terms. There has been no challenge to the validity or effect of the notice. The evidence on both sides. by affidavit and orally, has been extensive. and I have had the benefit of detailed written submissions on both sides, augmented by oral arqument. The contest on matters of fact is not great, although there is considerable dispute in a number of instances as to the conclusions to be drawn. In the circumstances, it seems unlikely that there can be much more relevant evidence, or much more to be said in connection with the case. The applicant. while dealing fully with the respondent's evidence, nevertheless relies heavily upon the principles governing the deqree of satisfaction necessary at the interlocutory stage. To this point of time, it may have been at a disadvantage in some respects in not having had discovery or interrogatories before the hearing, a disadvantage it souqght to overcome by the issue of subpoenas and af notices to produce under Order 33 £,.12 which were in large part impermissibly vvide. It is not disputed that the balance of convenience rests with the applicant. who will. before the precceedings can he brought on for hearing, have lost its franchise. This means in substance that it will no longer be able to obtain new vehicles, or new spare parts (the latter come from the second respondent) or to sell used cars with the first respondent's warranty, or to provide authorised Mercedes-Benz service. More particularly, it will not now be able to hold itself out as able to do these things in 1986. As the proceedings are of an interlocutory nature I should forbear as far as possible from expressing views on the evidence which may embarrass the court at a final hearing. which it is still assumed will take place. Reliance is principally placed by the applicant on para.46(1)(c). A primary consideration in the application of that paragraph is the nature and extent of the relevant market. This is a difficult question, and one which would probablv in most cases be left to be determined at the hearing. Here, however, the applicant relies basically on a one-brand market for Mercedes-Benz motor cars. and I have heard much evidence and arqgument on the issue. T do not think there is a sinale market for Mercedes-Benz motor cars. Undisputed evidence points aqainst such a conclusion. From the point of view of the applicant. which sells new Nissan and Mercedes-Benz cars onlv (it also sells used cars), it may well appear that the Mercedes-Benz car. which is a luxury vehicle, constitutes a market on its own. The market is not however to be determined simply by the way in which the vendor sees it. or how it operates so far as the vendor is concerned. It is necessary to look at the commodily. and see what other vehicles, if any, are to be reqarded as substitutes for it, in the sense that a customer, thinking first of a Mercedes-Benz, may turn to another brand. which has similar user characteristics, and is available, sells at a price within the range of what he or she might be taken to have had in mind to pav for a Mercedes-Benz, and has other substitution features. This can be expressed as the field of rivalry or competition between oy oe eee an, ee we eee traders, actual or potential. ~~ In determining the market, matters of degree, and of judgment are very much involved, but the inquiry is to be based on objective facts. The evidence of Mr Yates (the general manager and director of the applicant, and the "dealer principal" of the Mornington business) to this point, indicates that the market is not confined to Mercedes-Benz cars. but includes other makes of car. such as the Jaquar and some B.M.W. models. I sav this conscious of the emphasis placed bv the applicant on the lovalty of Mercedes-Benz owners to the brand. Some of the evidence of the respondent describes this market as one for upper luxury class cars, or prestige cars. but I do not think these classifications are particularly helpful. There is indeed likely to be some overlapping, largely governed by price. but it is not necessary for me to decide exactly what the market is. The qgeographical extent of the market. I should add. is said by the applicant to comprise the municipalities of Mornington, Flinders and Hastings and the Melbourne metropolitan area. The respondents claim that it is at least as wide as that. If the market had been simply for Mercedes-Benz cars. the first respondent. throudh its dealer agreements and being the sole distributor, could properly be regarded as "in a position substantially to control" the market. The meaning of this phrase is to some extent explained and expanded in sub-secn.46(3). There is not however the one-brand market and neither of the Cine BSB e ein hy worm ey ee tem mcr TT TF i ae a8 ane oe ee = tes may ok ct wr ape a a ee pee a tee - A Cot we a respondents, on the evidence so far, appears to be in a position substantially to control a wider market. Rather is it a highly competitive market with rivals ready and able to accommodate to any changes brought about by the respondents. The elements of "control" have not in fact been qone into to any extent at this hearing. The respondents' evidence is that Mercedes-Benz cars constitute about one quarter of the cars sold in what has been called the upper luxury market, B.M.W. cars constituting slightly smaller part. This, however, includes some makes of vehicle which, on the applicant's view, should not belong to the upper luxury class. It includes some models of Mercedes-Benz which the applicant contends should not be included. According to Mr Yates' evidence, the upper range of Mercedes-Benz vehicies compete only with Jaguar and some B.M.W. models, while the lower range compete ina wider market. Even accepting this limited situation to be the case, the market share of Mercedes-Benz is less than half. It is contended that the percentage of the market is itself sufficient to raise a case of "control" which should go to a hearing and therefore is sufficient to entitle the applicant to an interlocutorv injunction. This mav be so in some cases, but the totality of the evidence (substantially undisputed) is against a conclusion of "control". There are other reasons why the applicant cannot succeed under para.46(1)(c). Tt was submitted for the respondents that the action of terminating the franchise did not involve taking advantage of a power to control the market, even if there was the one-brand market contended for. I believe this submission, as expressed, to be sound. The lanquage of the Act refers to "purpose": "for the purpose of .. (ce) "deterring or preventing a person from engaging in competitive conduct..." The ""purpose" must be looked at subjectivelv, and the present evidence is that there had to be a review bv the first respondent of the number of dealerships, in the light of changing circumstances which included a decline in the number of Mercedes-Benz which it would be possible to import in coming vears. The decision was said to be made witha view to strengthening the competitive power of remaining outlets. It was also said to be a decision made by the managing director of the first respondent (Mr Marshall) to advance the business interests and long-term marketing requirements of the first respondent. The conclusion reached was that one dealership had to be terminated, and the Mornington franchise of the applicant was the one chosen. Whatever the market and whatever the purpose. it could be said that what the first respondent was doing was to prevent the applicant from engaging in "competitive conduct". This suggests to me that the purpose should be understood in its principal sense, so as not to comprehend subsidiary aspects. or Po epee nm oon roe a _. ; - ~ 8, '. constructive purposes, but that is not a matter upon which I should attempt to elaborate in these proceedings. (see s.4F of the Act). - For the reasons qiven,. I am of the view that a sufficient case is not made out under para.46(1l)(c). . The applicant also relies on para.46(1)(a). It is y, - arqued \that the first respondent is a competitor of the applicant. . Reliance is placed on the sale by the first respondent of some eight vehicles toa car rental firm, as showing that there is competition between the two. I do not think that this araument is tenable. The first respondent agrees that the cars were sold, but claims that each delivery was effected through an authorised dealer, and commission was paid to the dealer on the sale. I do not think that the evidence on this matter is sufficient to show that the applicant was a competitor of the first respondent. The purpose to which the paragraph refers, of "eliminating or substantially damaging a person..." is not sufficiently established. The case relied upon under the paragraph would point to a quite unreal situation. Sub-paragraph 45(2)(b)(ii) is relied upon, but. as TI gather, without enthusiasn. On the evidence before me, the lack of enthusiasm is justified. What is alleged is an understanding between the first respondent and Lanes Motors (Holdings) Ltd. and Lanes Motors Pty. Limited that after 31 December 1985, new TTT we Zot Jie ot wwe i* pei ve: Paes: iiss Hea a code a vehicles. and new spare parts. would not be supplied to the applicant and it would not be allowed to carry out authorised " services. There is not anv evidence of an express agreement to this effect. or anything like it. The applicant relies simply upon the fact that 49% of the capital of the first respondent is Le: b held by Lanes Motors (Holdings) Limited, which also has two directors on the board of the first respondent. The directors thus appointed have a lesser voting power than those appointed by ' the second respondent (which controls 51% of the capital of the ! first respondent). Lanes Motors Pty. Limited also deals in new , Mercedes-Benz cars and has done so ina major way for vears. Those circumstances, alone or together with anv other facts proved in the case do not lead to an inference of the agreement \ alleged. The applicant also relies upon sub-secn.52(1) of the { Act. Part of the evidence in relation to this claim involves a disputed question of fact, but a part particularly relating to deception is the evidence of Mr Marshall, who is said to have been quilty of deception (in trade or commerce), by what he said or did not sav on 4 April 1985 to Mr Yates. Mr Yates contends that on that date Mr Marshall said to him "We have absolutely no intention of terminating vour franchise. I give vou my personal guarantee". Mr Marshall denies that he said those words. but gave evidence that what he i said to Mr Yates was to the effect that he could quarantee that ates a or ote Tae. 22S Eo ei AIEEE RS AI aa ed =e a s+ ness Aifn 'a = Jer ae prey ai isa, GAS 1 wR Ty Sik Ret Boca gown F gains i 5 D wuss 4 PF ay MELT thy aE. Pe SS ee) Ss ee eS eokik there had been no decision made to terminate the franchise. There is I think a serious question to be tried on this matter, The question is however whether any interlocutory relief is appropriate, The only relief sought is an injunction but it | has not been formulated. The claim is stated in the written submissions as follows: | "the applicant is entitled to an iniunction to restrain the conduct which was inconsistent with the representation made." Without resolving the dispute between Mr Yates and Mr Marshall as to what was said on 4 April 1985, the deception to be relied upon would be to the effect that knowing termination of the applicant's franchise was being actively considered, the first respondent, through Mr Marshall, said that no decision to terminate had been made, or that termination was not intended, or would not occur. Notice of termination was given orally on 7 (or 8) June 1985 and in writing on or about 21 Auqust 1985, The period of notice expired on 31 December 1985. It is not possible to frame an injunction which will. as \ it were, stay or undo the effect of the alleqed deceptive conduct, It is true. on the evidence, that the applicant acted to its detriment as a result of the conduct in question, but this ' provides no basis for setting aside. or postponing for some period, the notice of termination. The applicant can claim relief by way of damages, but cannot obtain interlocutory relief of the nature claimed. agents te ' . 3 en yore ome ll. Accepting Mr Yates' account of what was said on 4 April. the applicant's case would be in no better position. There is also a common law claim which I should also mention. It is based on the terms of the dealership agreement. Clause 10 is the termination clause: "10. This Agreement shall become effective on the dav hereinbefore first written and shall except as hereinafter provided continue in force until December 31st, 1983. Unless written notice of termination is qiven by one party to the other at least three (3) months before the said expiry date this Aqreement shall automatically continue in force for another year and thereafter be renewed in the same manner for the same period." It is clause 12 which is particularly relied on: "12. In the interest of harmonious relations between Dealer Cthe applicant] and Distributor Cthe first respondent] the Dealer should report promptly in writing to the senior management of the Distributor any act or failure by the Distributor which the Dealer deems not to be in "qood faith". "Good faith" shall mean that the Distributor and its representatives act ina fair and impartial manner towards the Dealer quaranteeing that the Dealer is free from coercion, intimidation or threats. The purpose of this requirement of notification is to afford the Distributor opportunity to consider the claim and if found meritorious to undertake such corrective action as to correct the conditions so that the Distributor shall alwavs act in qood faith." Based on the alleged conduct of Mr Marshall, just referred to, it is submitted that there was a breach of clause ere Nt ere enn Toate a ws aey Wt een ra ae eer are enarens ee oes a se preeeann + 12, which negated the right to terminate under clause 10. Alternatively, it is put that clause 12 is also indicative of a wider duty to act in qood faith, a breach of which has the consequence mentioned. All I need say about these submissions is that I do not accept that, statutory provisions apart, there was the wider duty, and that whichever way the matter is put it does not provide the basis for an interlocutory injunction. It is submitted on behalf of the respondents, that even if the applicant's case was otherwise made out, I should dismiss the application in the exercise of my discretion. The principal reason is that to grant an injunction. which must at least continue bevond 31 December. would he to force a close relationship between the parties, contrary to well-known principles. As aqgeneral proposition [I do not think this submission is sound when dealing with applications under the Trade Practices Act. It miaht however have application in a case arising under para.46(1)(c), such as the present. The fact that the parties are ina contractual relationship, and this is the source of the applicant's rights, raises questions central to the operation of the paragraph. The question which arises is whether a licence becomes irrevocable by reason of it. In the present case what would I think be most influential. in relation to the exercise of discretion, would be the fact that the contractual licence is from year to year 'only, so that it can readily be . > ~ oat — be wr or, ret an oo, i ere, athe Ins ce ent ate een sae + i i ! | | meaty Ee et ene . terminated. The fact is that the applicant has had six months notice of the termination of the licence. I do not however come to the question of the exercise of discretion. -The present application should therefore be dismissed. The costs should be the respondents' costs in the proceedings. ae I certify that this and the twelve G a) preceding pages are a true copy of the Reasons for Judgment herein of his Honour Hr. Justice Fox Associate weet 2] November /PES. Dateds A hint SA FESO a Sete SRL 39" soem Pati ye a ee pie ae a ry —