The Big Four Pty Ltd v DaimlerChrysler Australia/Pacific Pty Ltd
[2002] FCA 783
•20 JUNE 2002
FEDERAL COURT OF AUSTRALIA
The Big Four Pty Ltd v DaimlerChrysler Australia/Pacific Pty Ltd [2002] FCA 783
Federal Court Rules O 20 r 2
Trade Practices Act 1974 ss 51AC, 51ACA, 51AD, 51AE, 80, 82
Trade Practices (Industry Codes – Franchising) Regulations 1998
Franchising Code of ConductReg v Federal Court; Ex parte Pilkington ACI (Operations) Pty Ltd (1978) 142 CLR 113 cited
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 applied
THE BIG FOUR PTY LTD v DAIMLERCHRYSLER AUSTRALIA/PACIFIC PTY LTD and DARRYL TWITT MOTORS PTY LTD
V 1013 OF 2001
SUNDBERG J
20 JUNE 2002
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 1013 OF 2001
BETWEEN:
THE BIG FOUR PTY LTD (ACN 092 706 066)
APPLICANTAND:
DAIMLERCHRYSLER AUSTRALIA/PACIFIC PTY LTD (ACN 004 411 410)
FIRST RESPONDENTDARRYL TWITT MOTORS PTY LTD (ACN 006 120 118)
SECOND RESPONDENT
JUDGE:
SUNDBERG J
DATE OF ORDER:
20 JUNE 2002
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.The motion notice of which was filed on 15 August 2001 be dismissed.
2.The first respondent pay the applicant’s costs of the motion.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 1013 OF 2001
BETWEEN:
THE BIG FOUR PTY LTD (ACN 092 706 066)
APPLICANTAND:
DAIMLERCHRYSLER AUSTRALIA/PACIFIC PTY LTD (ACN 004 411 410)
FIRST RESPONDENTDARRYL TWITT MOTORS PTY LTD (ACN 006 120 118)
SECOND RESPONDENT
JUDGE:
SUNDBERG J
DATE:
20 JUNE 2002
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
The first respondent (“DaimlerChrysler”) applies pursuant to Order 20 rule 2 of the Federal Court Rules to have part of the applicant’s statement of claim struck out. It also seeks an order that part of the Application be dismissed.
The central allegations in the statement of claim are as follows:
·DaimlerChrysler is franchisor of a Mercedes Benz dealership in Shepparton, Victoria and the second respondent (“Darryl Twitt”) is franchisee (“the Franchise”).
·By an agreement in writing dated 17 July 2001 Darryl Twitt agreed to sell and/or assign the Franchise to the applicant.
·The agreement was subject to and conditional upon DaimlerChrysler agreeing to grant the applicant a new franchise agreement for the Franchise on the same terms as those of the Franchise or on terms similar thereto.
·Darryl Twitt requested DaimlerChrysler’s consent to the transfer of the Franchise to the applicant.
·On or about 25 July 2001 DaimlerChrysler refused its consent.
·DaimlerChrysler was subject to the Franchising Code of Conduct (“the Code”) prescribed under s 51AE of the Trade Practices Act 1974 (“the Act”).
·Under clause 20(2) of the Code DaimlerChrysler was required “to not unreasonably withhold its consent” to the transfer of the Franchise.
·DaimlerChrysler’s refusal of consent was unreasonable and thus in breach of s 51AD of the Act.
·The refusal also constituted unconscionable conduct on DaimlerChrysler’s part.
·As a result of the breach the applicant has suffered loss and damage.
On the basis of those allegations the applicant seeks the following relief:
·a declaration that in refusing to consent to a transfer of the Franchise to the applicant, DaimlerChrysler has acted in breach of the Code, and in breach of ss 51AD and 51AC of the Act,
·an order pursuant to s 80 of the Act that DaimlerChrysler take all necessary steps to enter into a new franchise agreement with the applicant on the same terms as those of the Franchise or on terms similar thereto, and.
·damages pursuant to s 82 of the Act “and at law.”
DaimlerChrysler’s motion seeks orders
“1.That paragraph 13 and so much of paragraph 14 and 15 as refer to a claim under Section 51AD, or Section 82 of the Trade Practices Act of the statement of claim be struck out on the grounds that it:
(a)discloses no reasonable cause of action;
(b)has a tendency to cause prejudice, embarrassment or delay in the proceeding; or
(c)is otherwise an abuse of the process of the Court.
2. That paragraph 3 of the Application be dismissed.”
Paragraph 13 of the statement of claim alleges that DaimlerChrysler’s unreasonable refusal to consent to the transfer of the Franchise to the applicant contravenes the Code and is in breach of s 51AD. Paragraph 14 alleges that the refusal is unconscionable in contravention of s 51AC(1)(a) because, amongst other things, the unreasonable refusal of consent constitutes a contravention of the Code. Paragraph 15 alleges loss and damage “in the premises referred to in paragraphs 13 and 14”. The allegations in paragraphs 13, 14 and 15 correspond to the content of the last three dot points in par 2. Paragraph 3 of the Application seeks damages under s 82 “and at law”.
Part IVB of the Act, which consists of ss 51ACA, 51AD and 51AE, deals with Industry Codes. Section 51AD provides:
“A corporation must not, in trade and commerce, contravene an applicable industry code.”
Section 51AE provides, amongst other things, that the regulations may prescribe an industry code for the purposes of Part IVB. Various words and expressions are defined in s 51ACA(1). The expression “applicable industry code”, in relation to a corporation that is a participant in an industry, includes the prescribed provisions of any mandatory industry code in relation to the industry. The expression “industry code” means
“a code regulating the conduct of participants in an industry towards other participants in the industry or towards consumers in the industry.”
The word “consumer”, in relation to an industry, means
“a person to whom goods or services are or may be supplied by participants in the industry.”
Section 51ACA(3) provides:
“To avoid doubt, it is declared that:
(a)franchising is an industry for the purposes of this Part; and
(b)franchisors and franchisees are participants in the industry of franchising, whether or not they are also participants in another industry.”
The Code is prescribed by the Trade Practices (Industry Codes – Franchising) Regulations 1998, and is a mandatory industry code. See reg 3. Part 1 of the Code – “Preliminary” – consists of clauses 1 to 5. Clause 2 provides:
“The purpose of this code is to regulate the conduct of participants in franchising towards other participants in franchising.”
Clause 4 defines the expression “franchise agreement”. Part 2 – Disclosure – consists of clauses 6 to 12. Clause 6 provides in part:
“(1) A franchisor must give a disclosure document under Annexure 1 to:
(a)a prospective franchisee; or
(b)a franchisee proposing to renew or extend a franchise.
(2)A person who proposes to transfer a franchise or a franchised business must give a disclosure document under Annexure 2 to the proposed transferee.”
Clause 9 provides that:
“The purpose of a disclosure document under Annexure 1 is to give to a prospective franchisee, or a franchisee proposing to enter into, renew or extend a franchisee agreement, information from the franchisor to help the franchisee or prospective franchisee to make a reasonably informed decision about the franchise.”
Clause 12 requires a person who proposes to transfer a franchised business to give to the proposed transferee a disclosure document under Annexure 2.
Part 3 of the Code – Conditions of franchise agreement – consists of clauses 13 to 23. The matters dealt with by the conditions include a cooling off period, disclosure by the franchisor of materially relevant facts, termination of the franchise on breach by the franchisee, and termination in the absence of such a breach. Clause 20 provides in part as follows:
“(1)a request for a franchisor’s consent to transfer of a franchise must be made in writing.
(2) A franchisor must not unreasonably withhold consent to the transfer.”
Sub‑clause (3) sets out various circumstances in which it is reasonable for a franchisor to withhold consent. I will return to this sub‑section and sub‑s (4) later. Part 4 of the Code deals with the resolution of disputes between parties to a franchise agreement.
Some of the words and expressions in the Code are defined in clause 3(1). The expression “prospective franchisee” means
“a person who deals with a franchisor for the right to be granted a franchise.”
The word “transfer” includes
“an arrangement in which the franchise is granted, transferred or sold.”
DaimlerChrysler’s submissions on the hearing of the motion departed from the relief sought in its notice of motion. The applicant did not object to this departure. At the hearing, counsel did not dispute the applicant’s standing to seek the declarations set out in par 3. Rather the contention was that the applicant was not entitled to an order under s 80 of the Act that DaimlerChrysler take all necessary steps to enter into a new franchise agreement with it on the same terms as those of the Franchise or on terms similar thereto. This, it was said, was because the applicant does not have the benefit of the Code. For the same reason the applicant is not entitled to damages under s 82 flowing from a breach of the Code.
Counsel for DaimlerChrysler pointed out that the purpose of the Code is to “regulate the conduct of participants in franchising towards other participants in franchising” (clause 2), and contrasted this with the definition of “industry code” in s 51ACA of the Act, which contemplates that a code may regulate the conduct of participants in an industry towards other participants in the industry “or towards consumers in the industry”. It was submitted that the Code does not purport to regulate the conduct of participants towards consumers. It was said there is no provision in the Code that regulates the conduct of a franchisor towards a proposed transferee. What is regulated is the conduct of a franchisor in relation to a franchisee or a prospective franchisee (eg clause 6(1)) and the conduct of a person who proposes to transfer a franchise towards a proposed transferee (eg clause 6(2) and (12)). Clause 20, it was submitted, operates in a contract between a franchisor and a franchisee and is not intended for the benefit of a proposed transferee. It was said that if it had been the intention that a third party could obtain a mandatory injunction of the type sought by the applicant and recover damages, the clause would have said so in express terms. The only entitlement under the Code of a proposed transferee is to be provided with a disclosure statement by the proposed transferor. Counsel accepted, for the purpose of the motion, that the applicant is a participant in the industry.
The applicant pointed out that under s 80 of the Act the Competition and Consumer Commission “ or any other person” may seek an injunction in respect of contravention of a provision of Pt IVB. Similarly, damages can be recovered under s 82 by “a person” who suffers loss or damage as a result of another person’s contravention of Pt IVB. The expression “any other person” has its natural meaning, and is not to be read down so as to confine those entitled to the benefit of s 80 to any particular classes. See Reg v Federal Court; Ex parte Pilkington ACI (Operations) Pty Ltd (1978) 142 CLR 113 at 120‑121, 128, 131. The meaning of “a person” in s 82 is similarly unconfined. It was submitted that clause 20 of the Code does not mean that the only person who can make the request for consent to a transfer is a franchisee.
In order to succeed on its motion DaimlerChrysler must establish that the applicant’s claim to relief under ss 80 and 82 is so clearly untenable that it cannot possibly succeed. See General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130. The construction of clause 20 of the Code was treated by counsel for both sides as central to the resolution of the motion. Sub‑clause (1) does not say that a request for a franchisor’s consent to transfer of a franchise can only be made by a franchisee. However DaimlerChrysler contended that there are indications in sub‑clause (3) that the request contemplated is one made by the franchisee. That sub‑clause provides:
“For subclause (2), the circumstances in which it is reasonable for a franchisor to withhold consent include:
(a)the proposed transferee is unlikely to be able to meet the financial obligations that the proposed transferee would have under the franchise agreement; or
(b)the proposed transferee does not meet a reasonable requirement of the franchise agreement for the transfer of a franchise; or
(c)the proposed transferee has not met the selection criteria of the franchisor; or
(d)agreement to the transfer will have a significantly adverse effect on the franchise system; or
(e)the disclosure obligations under clause 12 have not been met; or
(f)the proposed transferee does not agree in writing to comply with the obligations of the franchisee under the franchise agreement; or
(g)the franchisee has not paid or made reasonable provision to pay an amount owing to the franchisor; or
(h)the franchisee has breached the franchise agreement and has not remedied the breach.”
Particular reliance was placed on circumstances (c) and (g).
DaimlerChrysler also relies on s 20(4). It provides that
“The franchisor is taken to have given consent to the transfer if the franchisor does not, within 42 days after the request was made, give to the franchisee written notice:
(i)that consent is withheld; and
(j)setting out why consent is withheld.”
DaimlerChrysler submitted that by providing that consent is taken to have been given if the franchisor does not, within the stipulated period, tell the franchisee that consent is withheld, the provision unmistakeably clears up the uncertainty as to whether a request under sub‑s (1) can be made by anyone other than the franchisee.
I do not need to decide whether DaimlerChrysler’s construction of clause 20 is sound. Even if I were to accept it, it would not determine the outcome of the motion. The applicant pleads that Darryl Twitt requested DaimlerChrysler’s consent to the transfer of the Franchise to the applicant. So the question raised by the motion is not whether a prospective transferee of a franchise can request the franchisor’s consent to the transfer. It is whether the applicant, which for the purposes of the motion is to be treated as a participant in the industry, can rely on a contravention by DaimlerChrysler of clause 20(2) of the Code. Pt IVB of the Act provides for the creation of codes regulating the conduct of participants in an industry towards other participants in the industry. The purpose of the Code is to regulate the conduct of such participants. In those circumstances it is in my view fairly arguable that where a franchisee has sought the franchisor’s consent to a transfer of the franchise to a prospective transferee, the prospective transferee can rely on a contravention of the franchisor’s obligation not unreasonably to withhold its consent to the transfer. In any event, I do not regard such a contention as so clearly untenable that it cannot possibly succeed.
The motion must be dismissed with costs.
I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg. Associate:
Dated: 20 June 2002
Counsel for the Applicant: D Denton SC and D J Batt Solicitors for the Applicant: Clayton Utz Counsel for the Respondent: E N Magee QC and P T Baker Solicitors for the Respondent: Baker & McKenzie Date of Hearing: 23 May 2002 Date of Judgment: 20 June 2002
2
2
0