Re Ron Hodgson (Holdings) Pty Limited v Westco Motors (Distributors) Pty Limited; Westco Australia Pty Limited [1980] FCA 3; 29 ALR 307 (5 February 1980)

FEDERAL COURT OF AUSTRALIA

Re: RON HODGSON (HOLDINGS) PTY. LIMITED
And: WESTCO MOTORS (DISTRIBUTORS) PTY. LIMITED; WESTCO AUSTRALIA PTY. LIMITED
No. G 27 of 1979
Trade Practices
29 ALR 307

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Franki J.

CATCHWORDS

Trade Practices - resale price maintenance - withholding the supply of goods for the reason that the applicant sold or had advertised or was likely to sell or advertise such goods at a price less than a price specified by the first respondent as the price below which the goods were not to be sold or advertised for sale - inducing or attempting to induce the applicant not to sell or advertise goods at a price less than the specified price. Proper case for injunctive relief.

Trade Practices Act, 1974 (as amended) sections 4F(b), 48, 80, 96(3)(b), 96(3)(d)(ii), 96(7), 100.

HEARING

SYDNEY
5:2:1980

DECISION

Ron Hodgson (Holdings) Pty. Limited, the applicant, obtained an order to show cause on 21 May 1979 seeking an injunction under s.80 of the Trade Practices Act 1974 ("the Act") against Westco Motors (Distributors) Pty. Limited, the first respondent, upon the ground that the respondent was engaged in resale price maintenance by withholding the supply of Mazda vehicles and parts to the applicant. Upon the return of the order to show cause the respondent, without admissions, offered certain undertakings which were accepted and which, in substance, preserved the continuity of supply of Mazda vehicles and parts to the applicant until final judgment or further order. Points of claim and points of defence were subsequently filed. After the matter had been proceeding before me for three days, by consent, Westco Australia Pty. Limited was added as a second respondent.

The applicant is a dealer in new and second hand cars and, at its Cabramatta premises, prior to 1975 it operated as a dealer in used cars, and caravans and in new vehicles which it obtained from General Motors Holden Limited. In June 1975 negotiations took place between the applicant and the first respondent when the applicant sought to be made a dealer for Mazda vehicles. After some further negotiations the applicant was appointed a dealer at its Cabramatta premises for Mazda vehicles and parts in the latter part of February 1976. In February and September 1977 the first respondent complained about the applicant advertising Mazda vehicles at a discount. On 2 February 1979 the first respondent, over the signature of a Mr. Blair as general manager of Westco Motors (N.S.W.), gave 90 days notice of termination of the Mazda franchise to the applicant. It was an agreed fact that prior to 1 July 1979 the first respondent had carried on business under the name Westco Motors (N.S.W.) but that on 1 July 1979 the second respondent had purchased that business. Senior counsel for the respondents asked me to decide the case without regard to any company structure in the sense that, if I ultimately reached the conclusion that the applicant would have been entitled to relief against the first respondent, I should grant relief against the second respondent.

Relief was claimed by the applicant upon the basis that the Mazda franchise had been terminated under circumstances which resulted in the first respondent engaging in resale price maintenance in contravention of s.48 of the Act. Broadly, it was alleged that the first respondent had terminated the franchise and was withholding the supply of Mazda vehicles and parts for the reason that the applicant sold or had advertised or was likely to sell or advertise such goods at a price less than a price specified by the first respondent as the price below which the goods were not to be sold or advertised for sale. Such action would constitute resale price maintenance within s.96(3)(d)(ii), that the franchise was terminated for good commercial reasons and that the franchise was terminated for good commercial reasons and not for any reason connected with any practice of resale price maintenance. Section 4F(b) of the Act provides in substance that for the purposes of the Act a person shall be deemed to have engaged in conduct (which by s.4(2) includes the doing of an act) for a particular reason if that person engaged in conduct for reasons that included that reason and that reason was a substantial reason.

In addition the applicant alleged that the first respondent had done an act within s.96(3)(b) in that it had induced or had attempted to induce the applicant not to sell or advertise Mazda vehicles at a price less than the specified price. Relevance was also placed on s.96(3)(f) in relation to certain circulars.

I consider it is appropriate first to consider the question of whether or not the first respondent had a good reason to terminate the franchise for proper commercial reasons divorced from a consideration of a question of resale price maintenance.

The applicant's premises at Cabramatta have a frontage to the Hume Highway and an area of over three acres. In 1975 part of the area was devoted to the sale of caravans but a substantial part was used for the purpose of the display of General Motors vehicles. There was also a showroom for new cars, a workshop and spare parts department and appropriate offices. No written agreement for the franchise existed but it was granted as a result of discussions and several letters, in particular one of 30 December 1975. In that letter the first respondent said, inter alia:

"At this time your Cabramatta site is the only one we would consider as a Mazda outlet, and then only if you were prepared to present and maintain the product equal to your existing franchise. In other words we do not wish Mazda to be a buffer for Holden, and as you know we are currently renovating several of our other outlets to enhance the Mazda image generally. . . . However, I suggest after completion of your property extension you advise me and with your acceptance we hold another discussion at Cabramatta."

By reply of 31 December 1975 Mr. Hodgson, the Managing Director of the applicant, said, inter alia, that he would like to meet Mr. Anderson, the Managing Director of the first respondent, at the site "to discuss your ideas of how you would like the site identified and maintained etc., as we are quite certain we can meet all your requirements and at no time will Mazda be a buffer for Holden products."

There was a meeting at the Cabramatta site between Mr. Hodgson, Mr. Anderson and Mr. Morant, the assistant general manager of the first respondent. Mr. Hodgson and Mr. Anderson gave evidence and Mr. Hodgson said that his recollection of the discussion was hazy. Mr Anderson gave his version of the conversation. In general, he alleged that Mr. Hodgson had agreed to equal display of Mazda and General Motor vehicles in the showroom, which was a small showroom, and to equal display in the front area where new cars were displayed and to signs of the same prominence as those relating to Holden, but that at that time no arrangement was made for a separate service or workshop area or that Mazda and Holden would be located in entirely separate premises. It is appropriate to say at this stage that, in general, I consider the documentary evidence more reliable than much of the oral evidence which has been given. I am satisfied that although the arrangements at the time of the grant of the franchise were of a very imprecise nature, that the franchise was granted upon the basis set out in the letter of 30 December 1975 that the Mazda franchise:
1. Would be presented and maintained in a way equal to the Holden franchise and,
2. Would not be a buffer for the Holden franchise.

By letter of 22 June 1976 Mr. Hodgson wrote to the first respondent enclosing "final plans which have been approved by the Council for extension to our Cabramatta site for the display of Mazda vehicles." In 1976 there was a shortage of Mazda vehicles and a Mr. Dobler, the general manager of the applicant from August 1976 to September 1978, wrote to the first respondent in September 1976 asking for stock and saying, inter alia:

"Current developments are the segregation of Mazda from our G.M.H. dealership and the impending appointment of a high priced, well qualified specialist to attack the market on a volume basis."

On 26 January 1977 a meeting of Mazda dealers was held and what was called a dealer activity plan for 1977 was produced for each dealer. That for the applicant included, inter alia, the following requirements: Implement Mazda Corporate Identification System with signs painting etc. by end 1977, submit registration of ownership cards to Westco Motors on a daily basis, monthly sales and stock returns to be mailed on the last day of each month and build new dealer facility as agreed on appointment by 30 June 1977.

Mr. Hodgson in evidence said that on the day after that meeting he telephoned Mr. Blair, who had returned to the first respondent as general manager in August 1976, and criticised the requirements of the dealer activity plan. Mr. Blair's evidence of the conversation differed from that of Mr. Hodgson. However, by inter office memos of 28 January 1977 it appears that at least certain of the requirements of the dealer activity plan had been accepted by Mr. Hodgson as valid.

About this time, namely on 11 and 18 February 1977, certain advertisements appeared in the daily press of which complaint was made by the first respondent. I will deal with these later. By letter of 24 March 1977 from Mr. Hodgson to Mr. Blair reference was made to a discussion which had taken place the previous Thursday in which Mr. Blair had said that he felt that the applicant was not exercising its best endeavours on behalf of the Mazda product. It appears that the original draft of this letter contained a paragraph which read "You will recall that prior to relocation, Mazda was mixed up in the Holden franchise and simply not firing". At the date of that letter the Mazda sales area had been separated from the Holden sales area and had been moved to a part of the premises previously used for the display of caravans and it was said in the letter that "Since that move, sales have increased by 100%" It was also said that development applications had been lodged with the council for the concreting of 8,000 square feet of display area exclusively for Mazda, that the erection of a suitable sales office had been organised and that it was anticipated that the work would be finalised within 60 days. There was also reference to Claude Neon having been requested to quote for a dealer identification program together with a "metal arc" lighting system thought to cost about $25,000. There was also reference to negotiations for the purchase of a property which adjoined the applicant's premises at the other end to that where the Mazda operations were located on the old caravan site. This property I will refer to as "the Coates' property". Further advertisements referring to discounts was published on 23 and 30 September 1977 and these will be dealt with later.

On 14 October 1977 Mr. Blair wrote to Mr. Hodgson saying that he was ". . . disturbed to learn that your current expansion program does not appear to be in line with commitment given to Bill Anderson in discussions early in 1976." Reference was then made to the letters of 30 and 31 December 1975 in relation to Mazda not being a buffer for Holden and it was alleged that in the meeting between Mr. Anderson and Mr. Hodgson early in 1976 ". . . it was agreed that the Mazda Dealership would be equal to the Holden Dealership in fact at the time it was discussed on Mazda having half the showroom half the open area in front of the showroom, separate workshop and parts facility overall equal in quality and size to the Holden facility." The letter continued "At the moment we are totally confused as to what building extension is taking place for Mazda within your Dealership and our Mr. C. W. Anderson wants you to honour your agreement with him that we be equal with Holden in facility at the Cabramatta site and have frontal display equal to Holden to meet your Franchise commitment." The letter concluded by asking for a detailed plan of the final proposals of the applicant.

This lastmentioned letter brought forth a detailed reply on 25 October 1977 quoting, inter alia, the paragraph omitted from the letter of 24 March 1977 and setting out in great detail what had been done or what would be done. There was a reference to having received quotations for concreting and associated construction of $135,532 and signs and lighting of $50,000. It was also said that the work would commence in January 1978. The letter was supported with quotations from, for example, the builder. The letter from Mr. Dobler to the builder referred to a quotation for development of the "Mazda New Car display area". There can be no doubt that the letter of 25 October 1977, with the accompanying documents, was intended to convey that a large sum of money of the order of $180,000 was to be spent on a new display area for Mazda cars.

The first respondent replied by letter of 2 November 1977 and sought further clarification of certain aspects and said that, subject to receiving satisfactory answers to these further questions, the original agreement would be complied with "subject to Mazda having facility in overall size and appearance equal to the Holden facility at that time." On 16 December 1977 the first respondent wrote to the applicant refering, inter alia, to discount advertising and to the contracts which were referred to in the letter of 25 October 1977 for the new Mazda car display area and also to the possible purchase of the Coates' property.

By letter of 15 May 1978 the applicant, without warning, unilaterally repudiated the proposals set out in the letter of 25 October 1977 and said that now the applicant was proposing to locate Mazda on the Coates' property and that ". . . we now find that we may be able to purchase the Coates' property in the almost immediate future. This being the case, we believe it is in both our interests that Mazda should be located on the site." At the same time there was a reference to the performance of the applicant in selling Mazda vehicles and it was said that the applicant had allowed its stock to build up to 170 units but by the date of the letter this had been reduced to 68. The reference to the purchase of the Coates' property was somewhat unfortunate because in an in house memo of 6 July 1978 to Mr. Hodgson, Mr. Dobler said that he was detailing in the memo "the current action we have initiated to get Mazda on the move." He also referred to the communication to Mr. Anderson about the Coates' property and said "In view of our inability to secure this in the immediate future, it is necessary that we advise him." In evidence, Mr. Hodgson said that he did not think it was necessary to advise Mr. Anderson about the position with the Coates' property because the acquisition of that property was never a condition of the dealership. Mr. Dobler said in evidence that he believed, when he wrote the memo of 6 July 1978, that it was the applicant's responsibility to advise the respondent of the position with the Coates' property. He also said that the proposal for the development of the old caravan site:

". . . appeared to be in accord with what Mazda wanted and what we wanted, to be able to sell volumes of Mazdas, and all that came unstuck when the proposition of Coates came up, which was far more attractive to us . . ."

Mr. Dobler also said that he thought the Coates' site would be more attractive to the first respondent. Mr. Dobler also said in evidence that, in 1978, from the time when the Holden and Mazdas were what was referred to as "mixed up" after the extensions were finished, the Mazda franchise was "not firing". In fact, even at the date of the hearing the Coates' property hadnot been acquired and it was conceded by Mr. Tomiczek, the secretary of the applicant, that the acquisition of the Coates' property depended upon a suitable site being found for the vendor and when asked:

"We could be waiting for five, ten or fifteen years before Hodgson acquired the Coates' site, could we not?"

he answered:

"Well, yes, that would be correct."

The inescapable inference in my opinion is that in May 1978, after the building program had been completed, the applicant decided that it would not proceed with any of the arrangements which it had made to locate the Mazda selling operations on the old caravan site but that it would allow matters to remain as they were. This was obviously quite unsatisfactory to the first respondent and indeed, in my opinion, was contrary to the spirit of the original arrangement. Even if that be not so it was certainly contrary to the assurances which had been given to the first respondent by and after the letter of 25 October 1977.

Apart from the question of the construction of buildings it could not be said that the applicant had presented Mazda vehicles in a way equal to the presentation of General Motors vehicles. A number of photographs taken at various times were in evidence and it is clear that the presentation of the General Motors franchise was vastly superior to the presentation of the Mazda franchise when one looked at the premises from any relevant direction. Indeed, Mr. Hodgson when asked:

"Q. Do you not think a person looking at your site at Cabramatta in late 1978 or early 1979 would obtain a rather overwhelming impression of Holden or General Motors?
A. It looks like a Holden dealership, yes."

and further in answer to the question:

"Then you say your site in those times offered equal facility for display to Mazda vis a vis Holden?"

said:

"If you mean on the sign program, no."

and when asked:

"And Mazda and Westco would be quite justified in taking a serious view of that?:

said:

"Yes."

Mr. Dobler also conceded the same thing.

It was common ground that the applicant's sales of Mazda during 1977 were good. In the years 1976, 1977 and 1978 the percentage of total wholesale sales made by the first respondent which were made to the applicant were respectively 2.84, 3.44 and 1.34. These figures are calculated on sales to the applicant. The retail sales figures made by the applicant showed sales of 209, 343, 188, for the years of 1976, 1977, and 1978 respectively.

Mr. Hodgson's only explanation for the unsatisfactory results during 1978 was that he could not get stock. I do not accept this explanation. It was not put forward by Mr. Dobler, or by anybody else as the explanation. Apart from evidence of stock sheets which showed that reasonably substantial stocks were being held during 1978, there was no evidence of any complaint having been made during that year about lack of stock. The letter of 15 May 1978 referred to the success which had been achieved in reducing the stock held by the applicant from 170 units to 68 units.

In addition, although it is somewhat difficult to form a precise view of what is a buffer in the expression "buffer for Holden", Mr. Hodgson seemed to understand the meaning of the term as "probably it is something that we use in the car industry, that it is not just going to be a hang-on piece; it is going to be there and it is going to be serviced correctly. Like a buffer - you know, we are not going to have it and forget about it."

A Mr. Wise visited the applicant's premises at Cabramatta early in February 1979 and he took several photographs. These photographs supported his evidence that the display of Mazda vehicles was of a very limited nature and that only three Mazda cars were included in the front line of cars nearest the highway. Mr. Hodgson sought to explain this by saying those were probably his entire stock. However, a summary tendered on behalf of the applicant showed that at 2 February 1979 37 vehicles were held in stock and that in January 1979 14 vehicles had been sold. In my opinion at least after the letter of 15 May 1978 the attitude of the applicant was that the Mazda franchise was a "buffer".

Mr. Blair said that the decision to terminate the applicant's franchise was his. Toward the end of 1978 he considered that a number of dealers had not performed adequately in 1978 and that they were not commercially worth keeping. At substantially the same time as notice of termination of the applicant's franchise was given to it, the franchise of Leyland Australia was also terminated and notice of termination was given to dealers at Campbelltown, Cootamundra, Parramatta, Hurstville and Kempsey.

Mr. Blair in evidence referred to five factors which he had in mind when he terminated the applicant's franchise. They were the following:
a. That the wholesale performance in 1978 was unsatisfactory, being considerably less than the performance in the previous year;
b. That parts were being ordered on a day to day basis and not on a monthly basis;
c. That the registration of ownership cards were not being returned promptly. This was of significance because the first respondent had to meet any warranty costs out of its own pocket after a certain period instead of the manufacturer meeting the cost;
d. That the commitments of building had not been fulfilled and that the franchise was not being treated in accordance with the original commitments and
e. That in the eyes of the first respondent the continuation of the franchise was not profitable.

I am satisfied that on the evidence, the first respondent had adequate commercial reasons to terminate the applicant's franchise when it did. No attention was directed in argument to the precise tests by which a Court should determine the reason for which a limited company has engaged in particular conduct. On the whole I accept Mr.Blair's evidence that the decision to terminate the applicant's franchise was his in the sense that he actually made it and that he only discussed it with Mr.Anderson later.

It is now necessary to consider whether there was more than one reason for the withholding of goods by the first respondent and I pass now to consider this question.

A reason falls within the reasons enumerated in s.96(3)(d) of the Act if that reason was one of the reasons for the act under consideration and it was a "substantial reason". The particular act complained of was the withholding of supply by the first respondent between 18 May 1979 and the commencement of the proceedings and this was particularised by alleging the refusal to deliver certain vehicles ordered on 21 May 1979 and the receipt of a notice by letter from the first respondent dated 22 May 1979 that it would not accept further orders for Mazda vehicles and parts from the plaintiff. The refusal to supply prior to the undertakings to the Court was not in dispute.

The first complaint about discount advertising arose from an advertisement published by the applicant in a Sydney newspaper on 11 and 18 February 1977. The advertisement of 18 February 1977 included the words:

"We are discounting our stock to reduce numbers - Brand new cars - no hail damage - no gimmicks - straight discount on current factory recommended retail price."

Complaint was made about these advertisements by letter of 21 February 1977 from Mr. Blair to Mr. Hodgson when it was said, inter alia:

". . . offering large discounts on new Mazda vehicles concerns this Distributorship greatly, as it is contrary to our advertising policy . . . At no time have we found it necessary to show advertised discount as your Dealership has done last Friday to cheapen this image. Whilst other Distributors and Manufacturers perhaps engage discount advertising to assist the pressures of stock, I would again point out that in the interests of the image of our product and the general profitability of our Dealer Group, that we do not intend to indulge in discount advertising now or in the near future. Would you please ensure that with your future advertising that our requirements are respected, . . ."

On the same date a circular, No. 73 over the signature of Mr. Blair was sent to dealers. It included the following:

"During the last few weeks it has come to notice a deterioration in the type of Mazda Dealer advertising being produced by some or our Dealers on new Mazda vehicles."

Also included were the sentences:

"Westco Motors as with other Mazda Distributors throughout Australia have spent many hundreds of thousands of Dollars to project an image of quality over the years and do not intend to have this standard lowered with blatant price discount advertising."

and

"Should you have any doubt at any time as to whether your advertising will be acceptable to the Distributor or not, please do not hesitate to contact the writer and discuss the format which you may desire your advertising to take. It is far better to ensure that your advertising is acceptable than to be sorry at a later date."

A further dealer circular, No. 92, dated 14 April 1977, again over the signature of Mr. Blair was marked:

"Attention, Dealer Principal
Subject, Dealer Advertising."

This circular included the following:

"Since issuing our circular No. 73 dated February, 21st 1977, we have had many enquiries from Dealers relative to what Dealers can and can not do re their local advertising.
To clarify the situation the following basics should be observed in developing any advertisement for your Dealership:
1. Discounts should not be offered in advertising.
2. Give aways, bonus offers, introductory offers in lieu of discounts should not be offered.
3. . . .
4. . . .
5. . . .
6. . . .
As previously stated we have built an image around Mazda of quality and value. It is important that we hold the image that the product has . . ."

On 28 September 1977 Mr. Dobler delivered a letter dated 27 September 1977 by hand to Mr. Blair referring to a complaint by Mr. Blair made on the preceding day about advertisements which had been published on the previous Friday in Sydney evening newspapers.

The second paragraph of the letter read:

"Mr. Blair advised that he had been directed to contact Mr. Ron Hodgson and inform him that if last Friday's advertisements were repeated it would be necessary to terminate us as Mazda Dealers."

The letter later proceeded:

"As you know when we were discount advertising back in March and April of this year we were selling approximately 50-60 units per month. After being instructed to desist from this type of advertising, our volume fell to 25-35 units per month . . ."

The letter then stated that the particular advertisement of which complaint had been made had been specifically approved by Mr. Blair and concluded:

"I will telephone you tomorrow with a view to discussing the subject and should your decision remain firm that we must discontinue discount advertising or face termination, then I will inform Mr. Hodgson of that fact tomorrow night."

Mr. Blair in evidence, said in relation to the complaint that he had made to Mr. Dobler, that he "had pressures" and that the major part of the pressures came from dealers. Although I do not accept that the major part of the "pressures" came from dealers it is a reasonable inference that other dealers did not like a competing dealer advertising discounts and discount advertising caused the first respondent concern. When Mr. Dobler delivered the letter to Mr. Blair he said to Mr. Blair:

"This letter explains our feelings to Bill Anderson. I cannot see Ron this morning but I should catch up with him at lunch time. It is necessary that I clearly tell him the seriousness of the situation as Bill sees it."

Mr. Blair replied:

"Bill is adamant".

Mr. Dobler said:

"You're saying if we discount advertise again we're sacked?"

Mr. Blair replied:

"Yes"

Mr. Dobler said that he was very concerned with the situation and after pointing out the difficulties termination would involve said:

"I don't think Hodgson's would get over it if we were terminated. This being the case, I have to tell Ron that if we run discount ads. this weekend that on Monday morning we are finished. Is that the position?"

Mr. Blair said:

"Yes, Anderson will not have it. I personally cannot see much wrong with the ad, after all I approved it, but Anderson says that discount advertising will not increase our penetration in the market, you will just be taking sales off other dealers. Our Mazda business has been built up on repeat business."

Mr. Dobler said he would telephone Mr. Bill Anderson himself after lunch so that he could get Mr. Anderson's attitude clearly and added:

"Right now you are saying that if the discount ads continue we are sacked?"

Mr. Blair nodded his head and Mr. Dobler asked whether Mr. Anderson would compromise or negotiate and Mr. Blair said:

"No".

That afternoon Mr. Dobler telephoned Mr. Anderson and the conversation was recorded and was not denied by Mr. Anderson. During that conversation Mr. Anderson said:

"We cannot terminate you as dealers if you run discount ads. You know, as well as I, that this is contrary to the Trade Practices Act. I regard discount advertising as detrimental to the name of Mazda . . . We believe that discount advertising will not increase our penetration, you will simply be taking sales from other dealers."

Later in the conversation Mr. Dobler said that he would see Mr. Hodgson that night and ask what happens if we run the advertisements again. Mr. Anderson replied:

"I can't stop you but there are more ways than one of skinning a cat than hanging it by its heels."

Later in the conversation Mr. Anderson said:

"Anyhow I think we should organise a meeting and talk the matter out."

On 30 September 1977 the advertisements were repeated by the applicant and Mr. Dobler had a further telephone conversation with Mr. Anderson. During the conversation Mr. Anderson said:

"That is it. It is finished. Do you want us to take the stock back or will you keep it?"

"Neither. Our lawyers are preparing a letter for you which will be delivered to you this afternoon. I suggest we both hold fire until you get that letter."

By letter of 30 September 1977 the solicitors for the applicant wrote to the first respondent refering to the Trade Practices Act in relation to discount advertising and to the need to comply with that legislation. The letter also contained the following paragraphs:

"Our clients are unable to concur with your request that they desist from discount advertising and further advertisements in a similar vein will be placed in today's newspapers . . . It is clear from the legislation that such guidelines must in the best interests of all persons concerned be immediately revised and fresh guidelines adopted that will comply with the spirit and tenor of the legislation and still enable the Mazda image to be maintained and the product sold. . . . We would request that you discuss this matter with your legal advisers as soon as possible . . ."

A Dealers' meeting was held towards the end of October 1977 at which Messrs. Hodgson, Dobler, Blair and Anderson, inter alia, were present for the purpose of discussing discount advertising but Mr. Hodgson and Mr. Dobler left the meeting early saying that they thought the meeting was illegal.

On 15 December 1977 a further discussion took place between Mr. Dobler and Mr. Anderson and Mr. Dobler said that at that meeting Mr. Anderson said:

"You will not discount advertise again." Mr Dobler said he replied:

"I cannot give you that undertaking. However, should we feel that it is in our interests to discount advertise again we will give you 30 days notice."

It is fair to say that in relation to substantially all the relevant conversations dealing with discount advertising, to which I have just referred, Mr. Anderson in evidence did not deny any significant parts but simply said that he could not recall them.

By letter dated 16 December 1977 Mr. Anderson wrote to Mr. Hodgson. The letter included the following sentences:

"We have at this stage cleared the air relating to our original discussions of late 1975 and early 1976 regarding your original agreement not to advertise discounts then your subsequent insistence during 1977 to advertise discounts. We confirm our acceptance of your advice regarding advertising that at no time shall Ron Hodgson Mazda run advertisements with discounts offered unless the concept of discount advertising is discussed with me or Don Blair 30 days prior to such advertising proposed to appear in the media. From this we understand that we have the right of discussion and perhaps offering alternatives to prevent discount advertising."

There was no evidence that any change in the policy set out in circulars 73 and 92 was ever notified to any dealers, nor indeed do I think that at any time has that policy been abandoned. In an extraordinary way Mr. Anderson in evidence denied that the first respondent had any policy that dealers were not to advertise discounts on Mazda vehicles. For example when asked in cross-examination:

"It was never Westco's policy before or after 21 February 1977 that dealers should not advertise discounts on Mazdas"

answered,

"It has never been a policy".

He also answered "No" when asked:

"So that, so far as you were concerned, on 21 February it was not contrary to Westco's advertising policy for dealers to offer large discounts in advertisements for new Mazda vehicles."

When asked about the letter of 16 December 1977 Mr. Anderson said "Yes" to the question:

"So you had in mind the arrangement would give you an opportunity to prevent Hodgson discount advertising."

I am satisfied that at least from September 1977 and probably well before Mr. Anderson was generally aware of the resale price maintenance provisions of the Act but that he had decided to prevent discount advertising of Mazda products if he could. I am satisfied that Mr.Blair approved of the advertisement of 23 September 1977 of which complaint was ultimately made by Mr. Anderson and in respect of which Mr. Anderson threatened to terminate the applicant's franchise. When asked in cross-examination about this Mr.Anderson said he could not recall having any conversation with Mr. Blair about the advertisement and he also said that he could not recall whether or not he had used the expression that there were more ways of skinning a cat than hanging it by its heels. I reject the evidence of Mr. Anderson that the first respondent had no policy of preventing discount advertising of Mazda vehicles.

In general I prefer the evidence of Mr. Blair to that of Mr. Anderson where there is conflict, as indeed there was, on a number of aspects.

Mr. Blair said "Yes" to the question:

"On 21 February 1977 was it contrary to Westco's advertising policy for dealers to offer large discounts on Mazda vehicles."

There was evidence that in about February 1978 enquiries were made by the Trade Practices Commission from the first respondent and it sought legal advice from solicitors and counsel in March 1978. There is no evidence of any complaint being made to any dealer about discount advertising during 1978 and indeed there was no evidence of any complaint about any such advertising. A great number of advertisements for both Mazdas and General Motors vehicles by the applicant were in evidence and I indicated that I would not have regard to any advertisements which were not drawn to my attention. Subsequently I raised this question again and directed counsel's attention to a number of advertisements and ultimately certain advertisements by the applicant in the year 1978 were referred to, but there was no suggestion that any of them were relevant. Advertisements were also in evidence by a number of other dealers in 1978, some of which might be said to be advertising discounts.

A letter of 15 May 1978 from the applicant to the first respondent contained the following passage:

". . . we will again attack the market within the guidelines of the advertising policies which you recommend. We will then prove to you that we are worthy of the Mazda franchise."

There is no evidence of any further reference to advertising policies prior to a letter from the solicitors for the applicant of 24 April 1979.

After the letter terminating the francise of 2 February 1979 a letter of 8 February 1979 was written on behalf of the applicant saying that Mr. Hodgson ". . . cannot think of any reason why our franchise should be terminated as our sales are in keeping with the general range of sales" and the letter asked for details of what had been "done wrong". A reply of 9 March 1979 referred in general to the failure to establish an equality with the existing Holden franchise. In a letter of 14 March 1979 the applicant made no reference to any question of discount advertising nor indeed was any such reference made in a further letter of 27 March 1979 which set out a number of concrete proposals as a basis for the franchise being continued. The first suggestion that discount advertising had any part in the termination of the franchise was in the letter from the applicant's solicitors of 24 April 1979.

Senior counsel for the applicant also referred to a paragraph in the letter of 7 February 1977 from the applicant to the first respondent in relation to a request for a franchise for Mazda vehicles at Parramatta which stated ". . . we have had no problems with your company whatsoever . . .", to the acceptance by Mr. Blair that the performance of the applicant in 1977 was good, to the build up of stock in 1978 and to the fact that in 1978 Mazda was not competitive. He also pointed out that no letter of warning of termination of the franchise was given to the applicant and that in certain letters, for example that of 31 May 1978, a request had been made for "any criticisms, suggestions or promotional ideas that are successful with other dealers that we could use to improve selling your product."

At or about the same time as the notice of termination of franchise was given to the applicant a notice in precisely similar form, and apparently without any warning letter, was also sent to four other dealers, although there is no doubt that these dealers were much smaller than the applicant.

The applicant also sought to rely on the particular wording of certain circulars setting out recommended or suggested retail prices. Reference was made to s.97 of the Act. This section is applicable to acts contrary to s.96(3)(b) of the Act, namely in this particular case, the allegation that the first respondent induced or attempted to induce the applicant not to sell or advertise goods at a price less than that specified. However I consider that the circulars are of marginal significance. My primary task is not to decide whether s.96(3)(b) has been infringed except in so far as it is desirable to determine that question in relation to the application for relief under s.80. In view of the conclusion to which I have come in relation to the issue under s.96(3)(d) of withholding the supply of goods and the evidence of attempts to prevent the applicant from discount advertising, it is not necessary to examine in detail the question of these circulars as an independent issue.

Although I accept Mr.Blair's evidence that the decision to terminate the applicant's franchise was his, I am satisfied that, as a general manager responsible to Mr. Anderson, Mr.Blair knew of the firm policy which Mr. Anderson had against discount advertising and of the threats which he had made to the respondent in September 1977.

In cross examination Mr. Blair, after saying that he had no recollection in his mind of discount advertising when he made his decision to terminate the applicant's franchise was asked whether discount selling or discount advertising was not a matter that he had in mind. After some hesitation he said:

"I would be untruthful that I had forgotten all about it. It was there and I was aware that there had been discount advertising and misleading advertising in the past; but it was not part of my decision in 1979."

Although Mr. Blair said that discount advertising was not part of his decision in 1979 I am satisfied that he made a decision having in mind the policy of Mr. Anderson and the threats of Mr. Anderson, and I am satisfied that the franchise was terminated for a reason which included, as a substantial and operative reason, the reason that the applicant had sold or was likely to sell or had advertised or was likely to advertise Mazda vehicles at a price less than that specified by the first respondent.

The precise acts of withholding relied upon were all after 18 May 1979. On 18 May 1979 the applicant wrote to the first respondent threatening action under the Act and including the following paragraph:

"There can be no doubt that the Trade Practices Act prevents Distributors like yourself from refusing to supply goods on the basis that they shall not be resold below a stipulated price. We can give you no undertaking that we will not resell at below your stipulated price. Indeed, we must inform you that we are likely to sell Mazda vehicles and parts supplied by you at a price less than the price specified by you for their sale. In all other respects, however, we will display and sell the products in accordance with standards which will not be open to criticism."

The applicant sought to rely on s.100 of the Act and argued that this section raised a presumption that the first respondent was withholding supply after the letter of 18 May 1979 for the reason that in the letter the applicant had, in effect, repudiated the arrangement of December 1977 in relation to giving 30 days notice if it proposed to engage in discount advertising. In my opinion the applicant does not have to rely on s.100, but in any event it cannot be said in any meaningful way that the letter of 18 May 1979 had any effect upon the refusal to supply after that date. In reality this refusal was pursuant to the decision which had been made and of which the applicant had been informed by letter of 2 February 1979 when notice was given of termination of the Mazda franchise to take effect from 3 May 1979.

I have considered whether I should refuse to grant an injunction because of my finding that the first respondent had adequate commercial reasons for terminating the franchise. I make no finding whether the applicant's attitude to the franchise may have been affected to some extent by the first respondent's policy in relation to discount advertising. It is a matter for some comment that two of the more significant letters alleging dissatisfaction were written by the first respondent to the applicant shortly after the discount advertising in February and September 1977.

In my opinion the Act is designed to prevent the conduct in which I have found the first respondent indulged, and so I do not propose to exercise my discretion in favour of the first respondent.