Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd

24 FLR 286
5 ALR 465

(Judgment by: Joske J)

Between: Top Performance Motors Pty Ltd
And: Ira Berk (Queensland) Pty Ltd

Court:
Australian Industrial Court

Judges:

Joske J
Smithers J
Evatt 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

Hearing date: 27 February 1975
Judgment date: 3 April 1975


Judgment by:
Joske J

TPM (the applicant) applied for an injunction under s 80 of the Trade Practices Act 1974 (Com) to restrain IB (the respondent) from,  inter alia, terminating the dealership held by TPM to distribute Datsun cars in the Gold Coast/Southport area and appointing another company as IB's sole dealer in the area although the dealership agreement with the third company did not exclude IB appointing other dealers in the area. TPM claimed it was entitled to the injunction because IB had infringed s 45(2)(b) of the Trade Practices Act 1974 (Com) by giving "effect to a contract, arrangement or understanding to the extent that it is in restraint of trade or commerce" by terminating its agreement with TPM and entering into an agreement with another company to sell the cars. TPM also alleged an infringement of s 46 of the Act in that IB had taken advantage of its position as sole distributor to control a market to eliminate a competitor in that market. It was found that because IB engaged in the retail sale of the cars it was a competitor of TPM. TPM argued that there was a market for Datsun cars in the area and that IB had exercised its control of the market by terminating the dealership with TPM. TPM also argued that to establish an infringement of s 46 it was only necessary to show that IB was exercising its power and as a consequence a competitor was eliminated from the market.

IB claimed it had terminated the dealership with TPM to protect its legitimate trade and business interests because it was not satisfied with TPM's performance as a dealer.

Held,  per curiam, the application should be dismissed because:-

(i)
Per Joske J: There was no evidence to show that IB had entered into an arrangement in restraint of trade with the other company.
Per Smithers J: Whilst there was some evidence to indicate that there could be an arrangement not to distribute cars other than through the other company there were additional facts which would indicate that such an arrangement did not exist and TPM had not discharged its onus of showing that such an arrangement could be inferred from the evidence.
Newton v Federal Commissioner of Taxation (1958) 98 CLR 1 ; [1958] ALR 833 ; [1958] 2 All ER 759 ; [1958] AC 450 ; Re British Basic Slag's Application [1963] 2 All ER 807 , considered.
(ii)
Per Joske J: Whilst, on the facts, there was a market for Datsun cars in the Gold Coast/Southport area the construction put on s 46 by TPM was not the proper one. The exercise of a contractual right to terminate a contract for the genuine purpose of protecting legitimate trade and business interests is not taking advantage of a power to control a market within s 46 of the Act.

Observations as to what may constitute a market within the meaning of s 46 of the Act.

Per Smithers J: The power to terminate the dealership depended upon the terms of the dealership, not upon IB's control of the market which, for the purpose in hand, was irrelevant.

Application

This was an application by TPM for an injunction to restrain IB from performing certain acts because of alleged infringements of ss 45 and 46 of the Trade Practices Act 1974 (Com). The facts and arguments of the parties are set out more fully in the judgments of Joske and Smithers JJ.

The court has made an order refusing the application herein with costs and now publishes its reasons.

This is an application for an injunction under s 80 of the Trade Practices Act 1974 to restrain the respondent from engaging in the following conduct:

(a)
terminating the Datsun franchise or dealership held by the applicant in respect of the City of Gold Coast and Southport;
(b)
giving effect to the purported termination of such franchise or dealership by letter from the respondent to the applicant dated 31 January 1975;
(c)
giving effect to a contract, arrangement or understanding between the respondent and one Michael Gore to the effect that the respondent would terminate the franchise or dealership of the applicant and/or that the respondent would not appoint or continue the appointment of any other dealer in the City of Gold Coast and Southport than the said Michael Gore; and
(d)
refusing or failing to deliver to the applicant new Datsun vehicles and spare parts in accordance with its practice prior to 31 January 1975.

The respondent is the sole wholesale distributor of Datsun motor vehicles for Queensland and the Northern Rivers District of New South Wales and also engages substantially in the retail sale of Datsun vehicles. By an agreement in writing dated 27 September 1972, the applicant agreed with the respondent to become its dealer to sell Datsun vehicles for the area comprising the City of Gold Coast and Southport. The agreement was to continue until terminated by 30 days' notice in writing terminating the agreement as from 1 March 1975; and on 7 February 1975 the respondent entered into an agreement with MRG Automotive Services Pty Ltd appointing it as its dealer to sell Datsun motor vehicles for the Shire of Gold Coast. This agreement did not exclude the respondent appointing other dealers for the area.

The applicant claims that it is entitled to the injunction which it seeks by reason of the respondent, as the applicant alleges, having infringed both ss 45 and 46 of the Trade Practices Act 1974. So far as regards s 45, it is alleged that there is an infringement of sub-s (2)(b) which provides that:


"A corporation shall not- ...

(b)
give effect to a contract, arrangement or understanding to the extent that it is in restraint of trade or commerce, ...."

As to what is a contract in restraint of trade or commerce the applicant relies on the following statement of Diplock LJ in Petrofina (Gt Britain) Ltd v Martin [1966] CH 146 at 180; [1966] 1 All ER 126 at 138, viz:


"A contract in restraint of trade is one in which a party (the covenantor) agrees with any other party (the covenantee) to restrict his liberty in the future to carry on trade with other persons not parties to the contract in such manner as he chooses."

The applicant maintains that the evidence shows that prior to terminating the applicant's dealership agreement the respondent had entered into an arrangement or understanding with a representative of MRG Automotive Services Pty Ltd to terminate the said agreement and appoint the MRG company dealer in place of the applicant and contends that this was in restraint of trade, but in my opinion there is no evidence which shows that the respondent has entered into an agreement or understanding or arrangement in restraint of trade.

Section 46 of the Act provides that:


"... 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 - (a) to eliminate or substantially to damage a competitor in that market or in another market; ...."

The applicant maintains that there is a retail market for the sale of Datsun cars in the City of Gold Coast and Southport, that the respondent as the distributor of Datsun vehicles in Queensland is in a position substantially to control this market and has exercised this power by terminating the applicant's dealership agreement, thereby eliminating the applicant as a competitor of the respondent in that market. The respondent contends that there cannot be a market consisting only of goods sold under their brand name; that so far as motor vehicles are concerned sales by retail are based on price, specification and performance, and that as a result of these characteristics, vehicles are classified into the following separate markets: small-light vehicles, light-medium vehicles, medium-large vehicles, and luxury vehicles. Respondent also says that the retail market is also determined on a geographical basis and that the City of Gold Coast is a separate market for the sale by retail of motor vehicles, including Datsun vehicles.

In my opinion whether there is a market and what that market consists of and what area it covers must be a question of fact in any particular case. In determining this question of fact it must be borne in mind that market means trade or traffic, especially as regards a particular commodity (see  Encyclopedic World Dictionary) and that s 46 is aimed at preventing the control of a market for goods as provided by that section. In my opinion the offering for sale of goods under their trade name may constitute trade or traffic in a particular commodity. Motor vehicles differ from each other in many respects and there are numerous differences between the various brands of motor vehicles which are for sale. If a corporation is in a position substantially to control all Datsun vehicles, and is doing so in a manner prohibited by s 46, in my opinion the corporation falls within the very words of the section and any contrary view would fail to carry out the purpose of the section. Accordingly I am satisfied that there is a market for the sale of Datsun cars on the Gold Coast. Whether the market is limited by that geographical area it is not necessary to decide.

There is no question that the respondent advertises Datsun cars for sale by retail in its own name and that its advertisements are spread over the whole of Queensland, including the Gold Coast, and in that sense it appears to have been a competitor of the applicant. I do not consider that the argument that the applicant sold the Datsun vehicles as agent of the respondent and so was not its competitor is valid.

However, the respondent is on stronger ground in submitting that it has not taken advantage of its position substantially to control the market for Datsun motor vehicles. It submits that it was protecting its legitimate trade and business interests in terminating its agreement with the applicant and that in so acting it was doing so in the genuine belief that it was protecting such interests. The applicant replies that it is only necessary to show that the respondent is exercising its power to terminate the agreement and that the consequence of its exercising its powers is to eliminate the applicant as a competitor in the market. This, says the applicant, is taking advantage of its power. The applicant also denies that the respondent terminated the agreement in order to protect its trade or business interests.

On the question of fact involved, in my opinion the evidence shows that the respondent, for various reasons, was dissatisfied with the performance of the applicant as its dealer. Despite what the applicant may say, it has, in my opinion, been clearly established on the evidence that the respondent had substantial reasons for terminating its agreement with the applicant, and I am satisfied on the evidence that the respondent genuinely considered that it should terminate the agreement for the sake of and in order to protect its legitimate trade and business interests.

So far as concerns the construction of s 46, the submission put forward on behalf of the applicant, which is in effect that to exercise a power is to take advantage of a power, is, in my opinion, not the proper construction of the section. In my view, exercise of its contractual right to terminate a contract for the genuine purpose of protecting legitimate trade and business interests is not taking advantage of a power of controlling a market within the meaning of s 46, and providing that there is this genuine purpose, that is enough, though it may be there would always be people who would not regard it as reasonable to exercise the power in the circumstances of any particular case. Unreasonable behaviour may go to show absence of bona fides, but it goes no further than this.

The position, therefore, is that the applicant has failed to show that there has been an infringement of either ss 45 or 46 and the claim for an injunction fails.

On the general principle that a party who fails in the proceedings should pay the costs, the respondent is entitled to an order for costs.

The applicant submitted that until regulations relating to costs were provided pursuant to s 172 of the Trade Practices Act, no costs could be ordered, but jurisdiction has been given to this court by reason of s 169 of that Act and this court's jurisdiction under s 116 of the Conciliation and Arbitration Act enables it to make the order for costs in favour of the respondent.