Toy, J.A.H Pty Ltd v Thiess Toyota Pty Ltd

[1980] FCA 43

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43 I N THE FEDERAL COURT OF AUSTRALIA

NORTHERN TERRITORY DISTRTCT REGISTRY

GENERAL DIVISIOK

No. NTG 1 of 1980

BETI.JEEN :

J. AH TOY PROPRIETORY

LIMITED

Applicant

AND :

THIESS TOYOTA PTY. LTD.

Respondent

L\./ '

NASONS FOR JUDGEIENT

(del ivered 28 March 1980)

FORSTER C . 3 . :

The appl icant i s and has been since 1967 az

agent of the respondent f o r t h e sale of Toyota motor

vehicles and spare parts from i t s premises a t Pine

Creek. This agency and i t s terms a re e s t ab l i shed by

an undated agreement probably executed i n 1967 o r 1968

and an amendment t o t h a t agreement consequent upon the

coming i n t o e f f e c t on 1 February 1975 of t h e Trade

Prac t ices Act 1974. This amendment I s contained in a

l e t t e r d a t e d 4 February 1975 from the respondent t o the

appl icant and acknowledged i n r r i t i n g bp the applL 1 can:

The amendments rrhich do no t r ea l ly touch the na t t e r 111

hand a r e concerned with deleting from the contract

provisions f o r pr ice maintenance, dealmg in def ined

t e r r i t o r i e s , and the l ike. The agreement contains the

2.

fo l lo~r ing c l ause "Tenure" -

"This Agreement sha l l con t inue in fo rce from t h e

date hereof and subjec t to the provis ions here in

conta ined thereaf te r wi thout l imi ta t ion as t o

t ime un t i l it is terminated by e i t h e r p a r t y a t

any time by g iv ing to the o ther 60 days' no t i ce

i n w r i t i n g t o this e f f e c t . "

On 27 December 1979 the respondent sen t to the appl icant !

a l e t t e r p u r p o r t i n g t o g i v e s i x t y days notice to terminate

the agency agreement. On 29 February 1980 the day before

the expiry o€ t h e sixty days no t i ce the app l i can t s

a p p l i e d t o me as a matter of urgency for an order for an

injunct ion restraining the respondent f rom -

"(a) terminating the Toyota franchise or

dea le rsh ip he ld by the appl icant ;

(b) giving effect to the purported

terminat ion of such franchise or dealership by leEEer from the

respondent to the appl icant dated

December 27 , 1979."

I made an order for an in te r im in junc t ion as a sked un t i l

4 March 1980 which was subsequently extended until 10

March 1980. The appl ica t ion f o r a permanent injunction

v7as heard by m e on 6 and 7 March 1980. On t h e l a t t e r

day I reserved my judgment and accepted an undertaking

from counsel for the respondent that unti l judgment it

_ I

would take no s t e p t o t r e a t t h e c o n t r a c t between it and

the appl icant as be ing a t an end .

The appl ica t ion is based in the a l te rna t ive

upon ss.45 and 46 of the Trade Practices Act 1974-1977

Evidence was given by Mr. J i m y Ah Toy, the Managing

Director of the appl icant , by M r . P lot ter , the Manager

n

in the Northern Territory of the respondent and by photographs were also tendered.

Section 45(2) of the Trade Practices Act

1974-1977 is as follows -

" 4 5 . (2) a corporation shall not -

(a)	make a contract or arrangement, or
arrive at an understanding, if -
(i) the proposed contract, arrangement

or understanding contains	an
exclusionary provision; or

(ii)

a provision of the proposed standing has the purpose, or would have or be likely to have the effect, of substantially lessening

competition; or

(b) give effect to 2 provision 3f a contract,

arrangement or understanding, whether

the contract or arrangement was made, or

the understanding was arrived at, before

or after the commencement of this section,

if that provision -

(i) is an exclusionary provision; or

(ii)

has the purpose, or has or is substantially lessening competition."

Section 46(1) of the Trade Practices Act 1974-1977 is

as f o l l o w - -,

I

"46.(1) A corporation that is in a position substantially to control a market for goods or services shall not take advantage of the

porler in relation to that market that it has

by virtue of being in that positlon for the

purpose of -

(a) eliminating or substantially

damaging a person, being a

competitor in that market or in

any other market of the corporation

4 .

or of a body corpora te re la ted

to the co rpora t ion ;

(b) preventing the entry of a person

into that market o r i n t o any o ther

market; or

(c) deterring o r preventing a person

from engaging in competitive conduct

i n that market	or i n any o ther
market. "

It is sa id by the appl icant tha t the purpor ted

termination of the dealership contract by the respondent

i s in b reach o f e i the r s . 4 5 ( 2 ) o r of s.46(1) or both.

The respondent denies that i t s conduct consti tuted a

breach of either sec t ion . The respondent 's let ter of

27 December 1979 l i s ted the following provisions of the

agreement as being those	of which the app l i can t was	i n
breach -

Performance Obligation

Warranty and Service Responsibilities

.. Spare Parts .

The provis ions of t h e agreement dealing with

these matters are as follows -

"Performance Obligation. The Dealer s h a l l b e

held responsible by the Comvanv f o r t h e selling I

of a reasonable pe2centage of t h e commercial

I vehicle market within his t e r r i t o r y . I-lhat

cons t i t u t e s a ' reasonable percentage ' shall b e '

decided by the Company.

t7arranty and Service Responsibilities. The

D e a l e r s r e s p o n s i b i l i t i e s i n t h i s r e g a r d a r e a s

s e t dovm in- the Warranty and Service Policy

i ssued by the Company and which the Dealer agrees

t o abide. The Dealer will provide adequate and

s a t i s f a c t o r y r e p a i r and maintenance s e r v i c e f o r

products so ld or d i s t r ibu ted by t h e Company i n

respect of which the Dealer i s appointed the

5 .

Dealer and such service and maintenance shall

be conductcd with equipment and workmen whose

e f f ic iency and competence i s of standard

s a t i s f a c t o r y t o t h e Company.

Spare Parts. The Dealer agrees tha t he will

purchase keep and maintain i n a nea t clean and

order ly condi t ion a t his business premises such

minimum stock of spare par ts and accessories as

the Company may from time t o time determine,

based on the Toyota Commercial vehicle population

i n the Dea le r ' s a s s igned t e r r i t o ry and normal

usage. The Dealer fur ther agrees tha t he will

s tock only those par t s and accessories designated

by t h e Company as 'genuine ' for the servicing of

the Company's products sold by the Dealer. ' '

In points of defence f i l e d on t h e morning of

t h e t r i a l the respondent asser ted that in terminat ing

t h e agreement it was pro tec t ing i t s leg i t imate t rade and

b u s i n e s s i n t e r e s t s o r t h a t it a t l e a s t acted i n the

genuine bel ief that it ~7as so pro tec t ing i t s i n t e r e s t s .

It s a i d t h a t i t s reasons for terminating the agreement

were as f O l l O V 7 S -

The Appl icant ' s sa les in the P ine Creek

.. area were unsa t i s fac tory .

The Applicant 's warranty and serv ice

r e s p o n s i b i l i t i e s were not able to be

properly carr ied out as the Applicant

does not have a s u i t a b l e workshop,

adequate personnel,	o r suitable too ls
and equipment.

The Applicant did not have suitable _I

premises s e t a s i d e f o r spare p a r t s , and

d i d not hold adequate s tocks	of	spare
p a r t s .

The Applicant ' s premises were such t h a t

they were not sui table for a Toyota

dealership because of their poor location,

lack of direct ional s igns from the highway,

poor condition, and lack of advertising

s igns relat ing to Toyota ,	and	lack of	a
showroom.

6.

( e )

The Applicant's failure to do anything to promise the sale of Toyota vehicles."

I can dispose of the s . 4 5 point quite shortly.

It seems to me that the provision in the contract giving

the respondent, and also, be it noted, the applicant,

the right to terminate the oontract on giving sixty days

written notice cannot be a provision which "has the

purpose of substantially reducing competition". I think

it is unlikely that it could be interpreted as being a

provision which "has or is likely to have the effect of

substantially reducing competition". It is simply a

mutual power between two contracting parties to put an

end to the contract. Even if by some twisting of the

language it could be said that the section proscribes

the giving effect to a provision of the contract whatever

its purpose or likely effect, if that giving effect has

the purpose or has o r is likely to have the effect of

substantially lessening competition then the facts in the

present case do not support an assertion that the termination

of the applicant's contract will substantially lessen

competition. The applicant has 0.6% of the passenger car -

market in the Northern Territory and 1% of the market for

what are called commercial vehicles being trucks, utilities,

land rovers and the like. To eliminate such competitlon

can hardly be said to be substantially lessening competition.

This point therefore fails and I find it unnecessary to

determine whether or not competition in S .45 (2) (b) means

7 .

competit ion in which the party to the contract whose

ac t ions are impugned i s engaged.

Sect ion 46 i s somewhat d i f f i c u l t t o interpret .

The respondent being the only r7holesaler of Toyota

vehicles and par ts in the Northern Terr i tory is p l a in ly

in the pos i t i on " subs t an t i a l ly to con t ro l a market f o r

goods". Section 46(1) (a) appears to forbid such a

corpora t ion e l imina t ing or subs tan t ia l ly damaging a person

being a competitor of tha t corpora t ion or of a r e l a t e d

corporat ion. The appl icant i s not a competitor of the

respondent nor of any co rpora t ion r e l a t ed to the

respondent so tha t t h i s sub - sec t ion i s not appl icable .

The appel lan t i s already i n the market which the

respondent i s i n t h e p o s i t i o n s u b s t a n t i a l l y t o c o n t r o l

so t h a t S .46(1) (b) cannot be applicable either. The

appl icant p laces most r e l i ance upon the provisions of

I S .46 (1) (c) and argues that the respondent, being in a

pos i t ion of control, used i ts power or sought to use

i t s power t o deter or prevent the appl icant from

engaging in competit ive conduct in the market.

The case of Top Performance Motors Pty. L t d . v .

I r a Berk (Queensland) P t y . L t d . 5 A.L.R. 465 is o f - g r e a t

ass is tance, indeed i t i s the only case more o r l e s s

d i r e c t l y i n p o i n t which counsel o r I have'been able to

discover. It must be observed that the Act there being

considered vas the Trade Practices Act 1974 bu t s . 46 ( l ) ( c )

i s i n very similar terms i n t h a t Act and i n the Trade

8.

P r ' a c t i c e s Act Amendment A c t 1977. Joslce J. h e l d t h a t

- -

t he exe rc i se of a con t r ac tua l r i gh t t o t e rmina te a

contract for the genuine purpose of protect ing legi t imate

bus iness in t e re s t s i s not taking advantage of a power t o

cont ro l a market under 'S. 46. Smithers J . , whi ls t

agreeing with Joske J . , appears to go somewhat fu r the r

when he says a t pp. 472, 473 -

"So far as it i s the terminat ion of the dea lersh ip

agreement which i s attacked under S 46, it is t o

be observed that whether that agreement should be

terminated or cont inued for any period depended

no t	upon	the respondent 's control of the market
bu t	upon	t h e terms of the agreement.

It appears to me t h a t i n terminating the agreement

on 30 days not ice accord ing to i t s terms, the

respondent was taking advantage of those terms. In r e l a t i o n t o that ac t ion i t d id no t r equ i r e to

take advantage of any power t h a t it had by virtue

of i t s cont ro l of the market, and cannot be said

t o have done s o . For the purpose in hand t h a t

cont ro l vas i r r e l evan t . "

Evat t J . expresses agreement with both Joske and

Smithers JJ. I find myself in respectful agreement

with Smithers J . I n case I am wrong t o do s o and should

adopt the somewhat d i f fe ren t in te rpre ta t ion of the sec t ion

of Joslce J . , notwithstanding that I was somewhat t roubled

by the delays of the respondent which almost amounted t o

acceptance of a s t a t e o f f a c t u n s a t i s f a c t o r y t o i t , I say

tha t t he ev idence sa t i s f i e s me tha t the subs tance of the

complaints against the applicant as a d e a l e r i n Toyota

vehicles and p a r t s i s made out and the respondent

terminated the contract in the course	of	p ro tec t ing	i t s
legi t imate t rade and business interests .

9.

The app l i can t ' s app l i ca t ion fo r a permanent

i n junc t ion the re fo re f a i l s and i s dismissed wi th cos ts .

The respondent and i t s counse l a re re l ieved of the i r

ob l iga t ion wi th respec t to the under tak ing g iven .

I