Regent'S Pty Ltd v Subaru (Aust) Pty Ltd [1995] FCA 1796 (29 December 1995)

FEDERAL COURT OF AUSTRALIA

REGENT'S PTY LTD v. SUBARU (AUST) PTY LTD
No. WAG150 of 1995
FED No. 1122/95
Number of pages - 8
Equity

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
NICHOLSON J

CATCHWORDS

Equity - equitable remedies - injunctions - termination of dealer agreement - whether an abuse of market power - whether anti-competitive conduct - whether serious question to be tried - factors to be taken into account in determining where balance of convenience lies - strength of case.

Trade Practices Act 1974, s46(1)(c)

Bullock v Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464
Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499
Hugin v The Commissioner of the European Community (1979) ECR 1869

O'Keeffe Nominees Pty Ltd v BP Australia Limited (1990) ATPR 41-057
Castlemaine Tooheys Ltd v The State of South Australia [1986] HCA 58; (1986) 161 CLR 148
O D Transport Pty Ltd v WA Government Railways Commission (1986) 71 ALR 190
Sabre Corporation Pty Ltd v Laboratories Pharm-a-Care Pty Ltd (1995) ATPR

4378

HEARING

PERTH, 29 December 1995
29:12:1995

Counsel for the Applicant: Mr P Evans and Mr S Standing

Solicitors for the Applicant: Mallesons Stephen Jaques

Counsel for the Respondent: Mr D Stone

Solicitors for the Respondent: Williams and Hughes

ORDER

THE COURT ORDERS THAT:

1. The application for an interlocutory injunction be dismissed.
2. The applicant pay the respondent's costs on the application for
interlocutory relief.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

NICHOLSON J This is an application for interlocutory relief in the form of a mandatory injunction. The order which is sought is that the respondent by it's servants, agents or otherwise:-

"(a) not withdraw its approval of the Applicant as an authorised
dealer in Subaru maintenance, service and spare parts or otherwise
publish, by any means, any notice or advice that the Applicant is not
an authorized dealer in Subaru maintenance, service and spare parts;
(b) do continue to supply to the Applicant spare parts and accessories
for Subaru motor vehicles on the Respondent's usual trading terms and
conditions for supply by it to authorized dealers in spare parts and
accessories to resell those spare parts and accessories;
(c) do otherwise provide to the Applicant (on the Respondent's usual
terms and conditions for authorized dealers in Subaru maintenance,
service and spare parts) all the information, authorizations, training
and materials as the Respondent provides to its other authorised
dealers in Subaru maintenance, service and spare parts."

2. The factual basis upon which the applicant relies appears from the affidavit of Mr van Helvoort, a director of the applicant. As appears from that affidavit, the applicant has carried on business as an authorised dealer in Subaru vehicles, accessories, maintenance, service and spare parts since 1973. It's Subaru dealership is said to comprise a new car sales room, a spare parts outlet, in which spare parts and accessories for Subaru comprises approximately 50% of the applicant's spare parts business and a vehicle maintenance and service department in which approximately 75% of maintenance and service business is for Subarus.

3. On 1 September 1994 the applicant was reappointed by the respondent as an authorised Subaru dealer for a term of 3 years commencing on 1 October 1994. That appointment was subject to terms and conditions stated in a Dealer Agreement. Those conditions included provision for termination and, relevantly in cl12.1, a provision that:

"Notwithstanding anything contained in this Letter of Appointment,
either of us may terminate this arrangement by giving to the other
notice in writing ... The termination will be effective sixty (60)
days after posting or delivery."

4. It is undisputed that by letter from the respondent to the applicant dated 24 August 1995 notice of termination of the dealership was given. In that notice the grounds of termination were spelled out. They were summarised as being:

"a) you have and continue to be dissatisfied with the Subaru part of
your business due to your inability to derive satisfactory profits
from its operation;
b) that due to this lack of profitability, you are unwilling to invest
in the basic elements to enhance the sales performance of the brand;
c) your confirmation that the market is moving and that your close
proximity to another dealer is unacceptable;
d) our total dissatisfaction with your sales performance over an
extended period."

5. The notice of termination was expressed to be effective as at 31 December 1995.

6. On 16 October 1995 the solicitors for the applicant wrote to the respondent through its State Manager rejecting the purported termination of the Dealer Agreement and raising certain other matters. Since that time the issues between the parties which have led to the present application were the subject of discussion.

7. Although the solicitors for the applicant initially rejected the termination of the agreement, that is not the case of the applicant on this application. The position of the applicant is that so far as there was a purported termination in respect of new motor vehicles the termination was effective and is not, for the purposes of this application, disputed. However, the applicant contests the termination in respect of spare parts and service saying that termination and any consequent refusal to supply spare parts and accessories or to act to remove the ability of the applicant to use spare parts and accessories, by removing tools and instruction manuals, constitutes an exercise of market power which is contrary to s46(1)(c) of the Trade Practices Act 1974.

8. The Dealer Agreement is governed by the law of New South Wales and there is in that agreement a submission to the non-exclusive jurisdiction of the courts of New South Wales. However, no point in relation to those provisions has been taken before me. In particular, it is not argued that, if I am applying the law of New South Wales, there is any material difference to the law which has been argued before me.

9. Annexed to the Dealer Agreement is Appendix 1 ("the Appendix") which specifically deals with rights and liabilities upon termination. It is apparent, without detailing the provisions of the Appendix, that the intention of it is to place the party against whom termination has taken place in a position where it no longer holds the means of carrying on the business for which it was previously authorised under the Dealer Agreement. It is the application of the Appendix which the applicant says would deprive it of the tools and associated materials which enable it to use spare parts and carry out servicing.

10. In the affidavit of Mr van Helvoort there is also evidence that while there were difficulties in maintaining levels of sales of new Subaru motor vehicles, the applicant's authorised Subaru Spare Parts, Maintenance and Service Division continued to be highly successful to the extent that the value of service (labour sales) increased from $275,200 in 1992 to $372,000 in 1995. In addition there is evidence of the recognition of the success of the applicant's work in the Service Achievers Awards made to it by Subaru in dealer rankings.

11. Mr van Helvoort testifies in his affidavit that a substantial part of the applicant's service business has been derived from customers of other authorised Subaru franchisees. He states that the applicant's business could not be viable were it not for the turnover and profit derived from the Subaru Parts and Service Division.

12. Mr van Helvoort strongly disputes the validity of the commercial reasons recited in the notice of termination on the part of the respondent, so that before me the validity of those reasons is in issue. Relevantly, it is also stated by Mr van Helvoort that the respondent is the only wholesale source in Australia for Subaru spare parts having the sole distribution rights in Australia and the sole authorisation as an approved warranty repairer/service centre for Subaru. It is contended that, as a consequence, if the applicant is unable to obtain a continuing supply of parts from Subaru (Australia) it will either be unable to continue as a supplier of Subaru spare parts or would need to purchase parts on a retail basis from other authorised Subaru dealers. Mr van Helvoort's evidence is that this would involve a trade price mark-up from wholesale prices for Subaru spare parts in the order of 22%. It is therefore contended on behalf of the applicant that it would be unable to compete in the wholesale market for the sale and supply of Subaru spare parts and that consequently there would be an effect on the service market.

13. There is further evidence in Mr van Helvoort's affidavit that another company has acquired a site in proximity to the present site of the applicant and the contention is made that the purpose of terminating the Dealer Agreement is possibly to enable the respondent to authorise this other company to act in its place. That evidence is also contested on behalf of the respondent but I note that in the oral submissions before me that issue has not played any part.

14. The applicant has apparently been occasioned to bring the application as a consequence of a letter sent on or about 15 December 1995 from the respondent setting out the steps which the respondent required the applicant to undertake in relation to termination of the Dealer Agreement. In effect the letter outlined the steps envisaged by the Appendix. Legal advice was sought on behalf of the applicant on 22 December 1995.

15. Evidence for the respondent appears in an affidavit from the State Manager in which it is asserted and supported by correspondence that the respondent has been dissatisfied with the applicant's performance as a Subaru dealer for at least the last 18 months. The affidavit also refers to meetings between the respondent's State Manager and on occasion other senior Subaru officers and Mr van Helvoort and senior staff of the applicant when the respondent's concerns about the applicant's lack of sales performance had been discussed.

16. In an exhibit to the state manager's affidavit the report and financial statements of the respondent to 31 December 1994 are exhibited and disclose that the total shareholders equity as at that date was $7,659,000.

17. In submissions before me there has been some argument as to the tests which should be applied by me on this application. I am satisfied that in determining an application for what in effect would be an interlocutory mandatory injunction a judge:

"must apply exactly the same tests as he would in the case of an
application for an interlocutory prohibitory injunction, not some
different or more exacting test; nor is the fact that the relief
sought is mandatory a ground for refusing relief; but in the
application of the normal tests, often, but not always, the fact that
the relief sought is mandatory would tilt the balance of convenience
in the defendant's favour."

18. See R.P. Meagher, W.M.C. Gummow and J.R.F. Lehane, Equity; Doctrines and Remedies 3rd ed, Butterworths, Sydney, 1992 at 600-601, and Gummow J in Businessworld Computers Pty Ltd v Australian Telecommunications Commission (1988) 82 ALR 499 at 502-3.

19. The result is that the Court must be satisfied that there is a serious question to be tried and to determine where the balance of convenience lies: Castlemaine Tooheys Ltd v The State of South Australia [1986] HCA 58; (1986) 161 CLR 148. These factors are not independent of each other - in considering whether to grant an interlocutory injunction the Court must have regard to the strength of the applicant's claim: Bullock v Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464 at 471 which was applied in O D Transport Pty Ltd v WA Government Railways Commission (1986) 71 ALR 190 at 193. The authorities direct special attention to the strength of the case of an applicant where the practical effect of an interlocutory injunction would be to finally determine the issue and where mandatory interlocutory injunctions are sought; Sabre Corporation Pty Ltd v Laboratories Pharm-a-Care Pty Ltd (1995) ATPR 4378 at 4382-4.

20. Turning to whether there is a serious question to be tried it is necessary to have regard to the requirements of s46(1)(c) of the Trade Practices Act which reads as follows:

"46 (1) A corporation that has a substantial degree of power in a
market shall not take advantage of that power for the purpose of -
(a) ...
(b) ...
(c) deterring or preventing a person from engaging in competitive
conduct in that or any other market."

21. The case which the applicant seeks to make is that the action of the respondent in terminating its dealership arrangements, specifically in relation to spare parts and authorised service work including the availability of tools and the consequent anticipated refusal by the respondent to supply those things, constitutes the exercise by the respondent of a substantial degree of power in a market which is used for the purpose of deterring or preventing the applicant from engaging in competitive conduct in that or any other market.

22. There is authority in O'Keeffe Nominees Pty Ltd v BP Australia Limited (1990) ATPR 41-057 which supports the arguability of a case made in those terms. It is not denied by the applicant and indeed is made apparent by it that this argument may take the court hearing it into new territory for which no precise authority exists and which is best supported by reference to overseas authorities, in particular Hugin v The Commissioner of the European Community (1979) ECR 1869. That and other authorities are referred to in S G Corones Restrictive Trade Practices Law (1994) at 233. There it is stated:

"Until quite recently, there was a widespread view that a court would
be unlikely to accept a market definition as narrow as the market for
spare parts for a particular brand of equipment and that so long as
the original equipment market was competitive, a manufacturer could
not possess substantial market power in the derivative market for
parts. However, in a number of the European Community and United
States cases this view has been challenged."

23. In Hugin (supra) the Commission stated:

"No ... justification has been offered for the refusal to supply spare
parts. There is ... no valid objective reason for depriving companies
such as Liptons, which have the requisite skills and training, from
competing with Hugin AB, its subsidiaries and authorised dealers in
the maintenance and repair of Hugin cash registers nor for depriving
the owners and users of such machines from having access to such
independent sources of maintenance and repair. Such refusal
throughout the Common Market therefore constitutes an abuse of
Hugin ABs dominant position in that it restricts effective
competition."

24. On behalf of the respondent it is pointed out that Corones at 233 states that:

"Liptons tried to obtain Hugin spare parts from other distributors but
failed because Hugin maintained a selective distribution system under
which authorised distributors were provided from selling to
outsiders."

25. On that basis there is a possible distinction between Hugin and the circumstances of the applicant.

26. In my opinion the case for the applicant makes apparent that there is an arguable legal case to be made and a serious legal question to be tried. The possibility of such an argument is referred to in Miller, Australian Trade Practices Legislation (1995) at 53.

27. However, there is the further question whether the evidence discloses that there is a serious question whether in this case the respondent acted for the purpose of deterring or preventing the applicant from engaging in competitive conduct either in the wholesale or any other market. In my opinion the evidence does not disclose a strong case in that respect.

28. I have already referred to the case which was made in the notice of termination and the fact that that is in issue between the parties. In addition, in that notice there were the four summary points which I have previously quoted. The first two of those have not been disputed in the case for the applicant before me; that is, there has been no challenge mounted to those matters. They were that the applicant continued to be dissatisfied with the Subaru part of its business due to its inability to derive satisfactory profits from its operation and that, due to this lack of profitability, the applicant was unwilling to invest in the basic elements to enhance the sales performance of the brand.

29. It is a difficult matter to be required to assess the strength of the case of purpose on an application such as this. However, I am not of the view that the evidence before me discloses that there is a strong case to be argued that in delivering the notice of termination the respondent took advantage of power for the purpose of deterring or preventing the applicant from engaging in competitive conduct. In my opinion the evidence leads to an interim finding for the purposes of this application that the respondent acted for the purpose of terminating a dealer agreement with a dealer with whom it had, over a period of 18 months, become dissatisfied both in relation to sales and in relation to its conduct as agent and dealer generally. I therefore am not satisfied that there is a strong case to be made on this aspect.

30. Turning to the balance of convenience it is a fact that the appropriate undertaking for damages is before me.

31. Next, it is said for the respondent that if an interim or interlocutory injunction were granted which required the respondent to continue trading on usual terms and conditions for supply of spare parts and accessories, there is no evidence to enable the Court to know what those usual terms and conditions would be. I am not satisfied that is not a matter capable of remedy. There is evidence that two dealers, albeit in rural situations, deal only in spare parts and accessories. In addition, I have been taken to the letter of appointment which clearly envisages an option of a dealer being appointed either for "vehicles and accessories" and/or "maintenance, service and spare parts." In my opinion, that contention would not be a factor to weigh against the grant of relief.

32. The question was also raised me as to what was the relevant "status quo". In my opinion the relevant status quo is that action has been taken which, on the face of it, terminates the Dealer Agreement and which is accepted on behalf of the applicant as terminating the Dealer Agreement at least so far as the motor vehicles are concerned for the purposes of this application. I therefore understand the status quo to be in those terms and that it would inevitably follow from them that, as at 31 December, the Dealer Agreement would terminate and the supply of all parts and service arrangements under that agreement would cease.

33. It is a significant factor in the balance of convenience that the notice of termination was given on 24 August 1995 and that at least since 16 October 1995 the respondent has had notice that the matter was under contest and following that, that the applicant knew there were issues between the parties. The delay in seeking the remedy is significant in my opinion. What is relied upon is a frontier legal case (Hugin) which, on an interim application made on 29 December 1995 - 2 days prior to the notice of termination becoming effective, leaves the respondent in an unenviable position to answer both as to law and, more importantly, as to the evidentiary implications. The effect of the application if granted would be to continue in effect that portion of the Dealer Agreement as related to spare parts and service. In my opinion, that alone is no reason to weigh the balance against the applicant, but it is significant that delay in bringing the matter to proper and fulsome argument seriously disadvantages the respondent when that is the objective which is sought and where the law is a matter requiring some fine argument in relation to the relevant evidence. In my view the delay in bringing the application weighs against the applicant.

34. I also take into account in the balance of convenience the strength of the case as I apprehend it in relation to the evidence of purpose as to which I have already expressed my opinion.

35. It is a further relevant factor to take into account whether damages would be an adequate remedy. It has troubled me that the refusal of this relief at this date will, in effect, mean that the client base of the applicant will be unable to be serviced as to spare parts and service work and consequently will dissipate. However, I am unpersuaded that damages will not be an adequate remedy for that if the applicant's case is made good. As appears from the assets of the respondent to which I have referred, it is a substantial company. The applicant has the assurance that an award in damages if found to lie will be met. While that is clearly not such as will satisfy it in terms of continuance of its business, it will compensate it for the loss of that business if it has a claim in that respect.

36. In my opinion the applicant's case does not show that there is a serious question to be tried or that the balance of convenience favours the applicant. For those reasons I refuse the relief sought.