FEDERAL COURT OF AUSTRALIA
SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (No 2) [2012] FCA 1116
Citation: SPAR Licensing Pty Ltd v MIS QLD Pty Ltd (No 2) [2012] FCA 1116 Parties: SPAR LICENSING PTY LTD ACN 002 965 193 and SPAR AUSTRALIA LIMITED ACN 102 281 167 v MIS QLD PTY LTD ACN 132 323 418, CHRISTOPHER MARTIN SICHTER, SHARON LEE WARD and ANTHONY PAUL APLIN; MIS QLD PTY LTD ACN 132 323 418, CHRISTOPHER MARTIN SICHTER, SHARON LEE WARD and ANTHONY PAUL APLIN; SPAR LICENSING PTY LTD ACN 002 965 193 and SPAR AUSTRALIA LIMITED ACN 102 281 167 File number: NSD 1501 of 2011 Judge: GRIFFITHS J Date of judgment: 15 October 2012 Catchwords: CONTRACT – termination of franchise agreement – no express right of termination – whether implied right of termination – whether breach of franchise agreement
COMPETITION – s 45(2) Competition and Consumer Act 2010 (Cth) – whether provision an exclusionary provision – whether provision has substantial purpose and/or effect or likely effect of substantially lessening competition in a market – definition of relevant market –competitors in that market
TRADE PRACTICES – s 51AD Trade Practices Act 1974 (Cth) – Trade Practices (Industry Codes-Franchising) Regulations 1998 – whether breach of clauses 6B and 10 of Franchising Code of Conduct – whether current disclosure document provided to prospective franchisee – whether relief granted under ss 82 or 87
TRADE PRACTICES – s 18 Australian Consumer Law – representations prior to execution of franchise agreement – representations that franchise agreement could be terminated on payment of termination and related fees – whether representations made – whether representations misleading and/or deceptive – whether representations relied upon – whether loss or damage suffered – whether causal link between representation and loss suffered – whether relief granted under ss 82 or 87 Competition and Consumer Act 2010 (Cth)
Legislation: Competition and Consumer Act 2010 (Cth) ss 4D, 4E, 45, 82, 87
Australian Consumer Law s 18
Evidence Act 1995 (Cth) ss 64, 79
Trade Practices Act 1974 (Cth) ss 51AD, 51AE, 52
Trade Practices (Industry Codes-Franchising) Regulations 1998
Trade Practices Amendment (Australian Consumer Law) Act (No. 2) 2010 (Cth)Cases cited: Allstate Life Insurance Co v Australia New Zealand Banking Group Ltd (No 5) (1996) 64 FCR 73
Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112
Australian Competition and Consumer Commission v Cement Australia Pty Ltd (No 3) [2010] FCA 1131
Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297
Australian Competition and Consumer Commission v Metcash Trading Limited (2011) 282 ALR 464
Australian Competition and Consumer Commission v Seal-A-Fridge Pty Ltd (2010) 268 ALR 321
Australian Gas Light Company v Australian Competition and Consumer Commission (2003) 137 FCR 317
Australian Securities and Investments Commission v Rich (2005) 216 ALR 320
Davids Holdings Pty Limited v Attorney-General (Cth) (1994) 49 FCR 211
De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2012] FCAFC 28
De Bortoli…
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Details
- Case
- [2012] FCA 1116
- Decision Date
CaseChat Overview and Summary
SPAR Licensing Pty Ltd and MIS Qld Pty Ltd were involved in a legal dispute concerning the termination of a franchise agreement. The case was heard in the Federal Court of Australia. The primary legal issues were whether the franchise agreement could be terminated without an express right, whether certain provisions in the agreement constituted exclusionary provisions under the Competition and Consumer Act 2010 (Cth), and whether there were breaches of the Franchising Code of Conduct and misleading representations made to the franchisee before the agreement was executed.
The court found that there was no express right of termination in the franchise agreement. However, it determined that there was an implied right of termination due to a fundamental breach by the franchisee. Regarding the exclusionary provisions, the court concluded that the specific provision in question did not have the purpose or effect of substantially lessening competition in any of the markets defined by the parties. The court also ruled that there were breaches of the Franchising Code of Conduct, specifically clauses 6B and 10, and that misleading and deceptive representations were made prior to the execution of the franchise agreement. These representations caused loss to the franchisee, leading to an award of damages.
The final orders included declarations of contraventions of specific sections of the Competition and Consumer Act, variations to the franchise agreement to reflect accurate representations, and an assessment of damages and termination fees. The parties were directed to confer and prepare draft orders, with a re-listing scheduled if they could not agree on the terms.
The court found that there was no express right of termination in the franchise agreement. However, it determined that there was an implied right of termination due to a fundamental breach by the franchisee. Regarding the exclusionary provisions, the court concluded that the specific provision in question did not have the purpose or effect of substantially lessening competition in any of the markets defined by the parties. The court also ruled that there were breaches of the Franchising Code of Conduct, specifically clauses 6B and 10, and that misleading and deceptive representations were made prior to the execution of the franchise agreement. These representations caused loss to the franchisee, leading to an award of damages.
The final orders included declarations of contraventions of specific sections of the Competition and Consumer Act, variations to the franchise agreement to reflect accurate representations, and an assessment of damages and termination fees. The parties were directed to confer and prepare draft orders, with a re-listing scheduled if they could not agree on the terms.
Orders
Orders of the court
1. The parties are to confer and prepare draft declarations and other orders giving effect to these reasons and in accordance with paragraph 275 below.
2. The parties will be notified of the date the matter will be relisted for the making of orders giving effect to these reasons and directions.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Turning now to the functional dimension of SPAR’s pleaded markets, they include a number of alternative retail markets, wholesale markets as well as combined markets. It is now well established that the appropriateness of any particular functional level depends upon the particular facts of a given case. After reviewing the relevant authorities in Metcash Trading, Yates J (with whom Finn J agreed) concluded at [266]:These authorities show that, as a matter of principle, there is no reason why, for competition law purposes, a market cannot be defined by reference to multiple functional levels. They illustrate that it might be appropriate to do so where downstream activities function to constrain upstream behaviour. Whether that is so depends on the facts presented for consideration and the evaluation of those facts by the relevant decision-maker (emphasis added). The importance of the particular evidence which is adduced in support of a contention that a market should be defined by reference to multiple functional levels, e.g. both wholesale and retail levels, is vividly illustrated by the different conclusions arrived at regarding the supermarket industry in cases such as Davids Holdings Pty Limited v Attorney-General (Cth) (1994) 49 FCR 211 and the Metcash Trading litigation. There seemed to be an assumption in part of SPAR’s competition law case that, because of the markets found to exist in the Metcash Trading litigation, the same markets should be found here. Any such assumption must be rejected. SPAR carries the onus of establishing the existence of its pleaded markets by reference to the evidence adduced in these proceedings. Turning now to consider the geographic dimension of market definition, it is to be noted that SPAR’s alternative pleaded markets operate at three different geographic levels, namely a narrow geographic market limited to Macleay Island, a broader regional market relating to Moreton Bay and, finally, a very broad market which is expressed in terms of the state of Queensland as a whole. Putting to one side for the moment SPAR’s pleaded Macleay Island Retail Market (which was partly admitted by the respondents), I consider that SPAR adduced insufficient evidence to support many of its other pleaded markets. As noted above, some evidence was adduced concerning the wholesale activities of both SPAR and Metcash at a state level. It is evident that SPAR’s wholesaling operations are conducted from its warehouse located at Acacia Ridge, at least insofar as its dry grocery products are concerned. SPAR operates “cross-docking” facilities in Sydney and Canberra, whereby major loads are broken down onto smaller trucks. SPAR has a separate warehouse outside Brisbane from which its frozen and dairy products are distributed. That warehouse has some relevance to the proceedings insofar as it relates to frozen goods (which fall within SPAR’s definition of “dry groceries”), but it has no relevance insofar as its operations relate to perishable groceries, such as dairy products. It is significant to note, however, that these two warehouses are located in Queensland and, although they are used to supply wholesale dry groceries to supermarkets in both Queensland and elsewhere, they provide some support for the existence of a Queensland Wholesale Market. The limited evidence also suggests that Metcash/IGA’s wholesaling operations are conducted on a state by state basis, but that Metcash has a broader national presence.
Evidence
Evidence Before The Court
I shall now say something more about the limitations in SPAR’s market evidence. SPAR’s limited evidence on its competition law case At the commencement of Mr Wylie’s oral closing address, the Court made plain that it was having difficulty understanding how SPAR put and made good its competition law case. Mr Wylie responded by acknowledging several times that SPAR’s evidence was limited. The Court emphasised that SPAR needed to address it on how it said that the evidence supported its competition law claims. As matters transpired, the Court was not taken in any detail to the evidence, even with its limitations. Although SPAR did not abandon any of its pleaded markets, Mr Wylie’s closing address largely focused on SPAR’s pleaded Macleay Island Wholesale Market and Macleay Island Retail Market. The evidentiary gaps in SPAR’s competition law case was particularly stark in respect of SPAR’s pleaded combined wholesale and retail markets, which focus on Macleay Island specifically and the Moreton Bay region more generally. The concept of a combined wholesale and retail market in either of those geographic areas necessarily raised for consideration the nature and extent of the activities of the major vertically integrated supermarket chains in those areas, such as Woolworths, Coles and Aldi. But there was scant evidence about their operations or market shares. It was common ground that none of Woolworths, Coles or Aldi operates a supermarket on Macleay Island but, as noted above, SPAR ultimately accepted that residents of Macleay Island could buy dry groceries (and presumably other products) using the Woolworths Online service. Apart from Mr Aplin’s very basic description of that service (see [77] below), which indicated that it was a competitive retail service to that offered by MIS, there was no detailed evidence providing the foundation for any meaningful assessment of the significance of that service in the context of SPAR’s pleaded retail and combined markets relating specifically to Macleay Island. In those circumstances, while it was ultimately accepted by the SPAR parties that Woolworths Online was a supplier in the Macleay Island Retail Market, in the absence of more detailed evidence about that service, the Court was unable to conduct a meaningful assessment of SPAR’s claims to the effect that the Provision had a purpose or likely effect of substantially lessening competition in the Macleay Island Retail Market (or, indeed, the Moreton Bay Retail Market). Mr Wylie correctly accepted that the SPAR parties carried the onus of establishing these matters. SPAR’s purpose case There was no material contest between the parties as to the relevant legal principles applying to the “purpose” aspect of s 45(2)(a)(ii). Those principles are conveniently set out in the joint judgment of Dowsett and Lander JJ in Seven Network Ltd v News Ltd (2009) 182 FCR 160 at [850]-[901] and may be summarised as follows:·the purpose of a provision is to be ascertained by reference to the subjective purpose of those who sought and caused the inclusion of the provision in the contract, arrangement or understanding ([851]);·purpose is not the same as motive, nor is it the same as knowledge ([852]-[853]);·it is not necessary that the proscribed purpose be the only purpose, but it is necessary that the proscribed purpose be a substantial purpose ([854]);·the notion of “substantial” is used in the sense of considerable or large or real and not imaginary ([855] and [858]);·the purpose of a particular provision is to be ascertained by determining the end sought to be achieved by the parties including, in particular, whether a substantial purpose was to substantially lessen competition ([861]);·merely because a provision is included for a proscribed purpose does not necessarily mean that it will have the likely effect of substantially lessening competition ([867]); and·it is enough that one party in a multi-party contract had the purpose, in including a provision of substantially lessening competition in a relevant market, provided that such a purpose was a substantial purpose for such inclusion ([871]).
Decision
Reasons for decision
In my view, the cross-claimants are entitled to receive some, but not all, the relief they seek in respect of the second limb of their cross-claim. In particular, I consider that this is an appropriate case in which to grant the following relief:(a)a declaratory order as sought by the cross-claimants concerning the cross-respondents’ contravention of s 18 of the Australian Consumer Law;(b)an order under s 87 of the CC Act varying the Franchise Agreement and related Special Offer Agreement ab initio so as to reflect Mr Gale’s representations; (c)an order that SPAR Licensing pay damages in respect of MIS’s loss for the period 1 September 2011 to the date of judgment, plus interest; and(d)an assessment will also need to be made of the quantum of the termination and related fees payable to SPAR upon MIS terminating those agreements. CONCLUSION I consider that the appropriate course is to require the parties to confer and seek to agree terms of orders reflecting my reasons above. The orders should deal with at least the following matters:(a)discharging the interlocutory injunction;(b)dismissing the applicants’ amended originating application filed 10 February 2012; (c)the quantum of damages, together with interest, payable to the cross-claimants;(d)the terms of the declaratory orders concerning the contraventions of s 51AD of the TP Act and s 18 of the Australian Consumer Law and the consequential variations to the terms of the Franchise Agreement and Special Offer Agreement; (e)the quantum of the termination and related fees which MIS is liable to pay upon exiting the Franchise Agreement and Special Offer Agreement; and(f)costs (my tentative view is that the applicants should bear the respondents’ costs of both the amended originating application and the cross-claim). In the event that the parties cannot agree on the formulation of the orders, each should prepare its own draft of the proposed orders and the matter will be re-listed for further argument. Accordingly, if agreement is not achieved on the terms of the proposed orders within 7 days hereof, I direct:(a)the respondents to file and serve its draft orders, together with a brief outline of their written submissions within 14 days hereof;(b)the applicants to file and serve their draft orders, together with a brief outline of their written submissions within 21 days hereof; and(c)any written submissions in reply by the respondents should be filed and served within 28 days hereof. In due course, the parties will be notified of the date for the re-listing of the matter.
Ratio Decidendi
Legal Principle Established
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