Agro Holdings Ltd v Flexi-Coil

Statement of Claim 3 The applicant's amended statement of claim describes the context in which the applicant's claim is brought as follows. 4 It is alleged that by a written agreement (the "Dealer Agreement") dated 20 July 1992 the respondent appointed the applicant as a dealer in its products. The applicant was then a proprietary company. 5 The terms and conditions of the Dealer Agreement are described in the claim as follows: The agreement relates to certain goods being agricultural equipment of which the respondent is a distributor. It expresses an intent that the applicant shall have a non-exclusive right to sell the goods. Pursuant to that, it purports to obligate the applicant to hold and sell the goods to the applicant's individual customers, to purchase various goods direct from the respondent and to actively promote the goods in the applicant's general sales area. The agreement draws a distinction between goods held by the applicant on "consignment" or "regular due", the character in which the goods are held being determined by agreement between the parties in respect of each particular item. There are provisions in clauses 4 and 5 of the Dealership Agreement relating to the conditions on which goods are held on consignment and payment for goods whether on consignment or regular due. Clause 9 provides a method of termination to which it will be necessary to return. 6 The Dealer Agreement was in a standard form. Similar agreements (the Dealer Agreements) were entered into between the respondent and Carson Machinery Nominees Pty Ltd ("Carson Machinery"), Marley White & Co. Pty. Ltd. ("Marley White") (on the same date of 22 June 1992) and Bird Quip Pty Ltd ("Bird Quip") (on 19 October 1994). It is alleged that by Deeds of Assignment dated 21 July 1998 and 24 August 1998 Carson Machinery and Marley White assigned to the applicant with the consent of the respondent all of its interest under their respective agreements. It is further alleged that on 22 March 1999 the respondent consented to the assignment of the Bird Quip interest to the applicant. 7 The statement of claim then alleges certain representations were made on behalf of the respondent. The allegation is they were made in circumstances where the respondent was aware from August or September 1997 that the applicant proposed to acquire the business of Carson Machinery and Marley White with a view to floating the applicant as a public company listed on the Australian Stock Exchange. The source of this information is pleaded as being a conversation between the respondent's Managing Director, Mr Dennis Dorval and the Managing Director of the applicant, Mr. Richard Selwood. 8 During 1997 the respondent's parent company in Canada is said to have advised the applicant that it had entered into an agreement with another manufacturer of agricultural equipment trading under the name of "New Holland". It is said New Holland purchased a part of the shareholding in the respondent's parent company and agreed to acquire control of the respondent's parent company over a period of years with such control being finalised in 2002 ("the Takeover Agreement"). New Holland is a competitor of another manufacturer of agricultural equipment, John Deere, which is the largest supplier of machinery to the applicant. 9 In view of the Takeover Agreement, the applicant was desirous of establishing the degree to which it might affect the Dealer Agreement and the dealerships of Carson, Marley White and Bird Quip. Mr. Selwood sought assurances from the respondent and told Mr. Dorval and another that those assurances were important in determining whether or not the applicant would continue with its prospectus and also in the applicants strategy for trading in the coming years. It is alleged that Mr Dorval replied the respondent was an independent entity to New Holland and the dealerships would not be interfered with before the year 2002 and that the applicant had approximately five years left before the issue would be raised ("the first representation"). 10 Further it is alleged that on 18 March 1998 at a dealer conference held by the respondent at the Trade Winds Hotel in East Fremantle, Western Australia, Mr. Dorval was asked whether the takeover of the parent of the respondent would affect the continuation of existing dealerships. He is alleged to have replied that the dealerships would not be affected for at least five years ("the second representation"). 11 The applicant was listed on the Stock Exchange of Australia subsequent to the representations and, it is alleged, in part reliance thereon. On 23 October 1998 it issued a prospectus ("the first prospectus") and subsequently on 25 March 1999 a second prospectus ("the second prospectus") each of which made express reference to the relationship between the applicant and the respondent. It is alleged these references were consented to by the respondent but that is denied by Mr. Dorval. 12 By letters dated 11 October 1999 the respondent purported to terminate the Dealer Agreements with the applicant ('the termination letters"). These letters all stated that the franchise dealerships would cease with effect from 30 November 1999. 13 It is alleged that the termination letters breached the terms of the Franchise Code. This allegation is founded on an earlier plea that the Dealer Agreements are franchise agreements within the Franchise Code of Conduct prescribed under s 51AE of the Act. 14 It is further alleged in the claim that the representations were false in that the respondent has purported to terminate or has terminated the Dealer Agreements. Additionally it is alleged the representations were misleading in so far as they related to future matters: s 51A of the Act. 15 Finally it is alleged that as a consequence of the respondent's misleading conduct the applicant has suffered and is likely to suffer loss and damage the particulars of which will be subsequently referred to.

(1) The effectiveness of the Notice of Termination. 19 For the applicant it is contended that there is a short point of construction arising from Clause 9 of the Dealership Agreements which entitles it to immediate interlocutory relief. The contention is that the notice of termination in respect of the applicant was ineffective to terminate the deal or agreement because it failed to comply with clause 9 of the Dealer Agreements. 20 Clause 9 in each agreement reads:- "This agreement shall be binding for a period of one year from its date and will be deemed renewed for each succeeding year thereafter PROVIDED THAT either party may terminate this agreement by 1 months notice in writing given to the other of them at the relevant address detailed herein which notice may be sent by certified mail. Such notice shall be deemed to have been received by the other in the ordinary course of such post and shall be effective thereupon," 21 For the applicant it is submitted that the proper construction of this clause shows that it means the agreement will be binding on the parties for a year from its date and unless a months notice to terminate the agreement should be given before an anniversary of the date of making of the agreement, it will be deemed to have been renewed to the year following that anniversary. It is contended for the applicant this construction is supported by the absence of any reference to the words "at any time" in the clause. It is submitted that had it been intended the clause should have that meaning the obvious way to have framed it would have been to say that after the first year the agreement would continue for an indefinite time until terminated by a months notice on either side. The submission is that the months notice should be construed as a right to avoid the deemed renewal taking place. 22 Clause 9 is to be construed in its context which requires reference to clauses 10 and 11. They read as follows:- "10. Any act of bankruptcy or insolvency by the Dealer (which in the case of a Company shall include circumstances such as the application or petition of any person or Company for the winding up of or the appointment of a provisional liquidator of the Dealer or where any order is made or resolution passed for winding up or dissolution of the Dealer or if a meeting is called to consider or pass such a resolution or if any composition or arrangement with creditors is made or such other circumstance) shall constitute a ground for immediate termination of this Agreement by the Company which termination may be effected by written notice sent by ordinary post to the Dealer at its address as described in the schedule which notice will be deemed to be received by the Dealer in the ordinary course of post and shall be deemed effective thereupon. For the further purpose of this Clause, failure by the Dealer to pay any accounts owing to the Company when due or any breach by the Dealer of its obligations hereunder will constitute a ground sufficient for the Company to forthwith terminate the agreement pursuant to this Clause whereupon all right, title and interest in and to the goods and merchandise then held by the Dealer and for which title has not passed to any third party will automatically and forthwith vest and remain in the Company. 11. Forthwith upon termination of this Agreement by the Company or the occurrence of grounds of termination under clause 10, the Dealer agrees to make available for collection by the Company the goods and merchandise at a place reasonably convenient to both parties. Any parts, equipment or accessories placed upon or attached to any of the goods and merchandise shall become component parts thereof and shall inure to the benefit of the Company and the Company shall without prejudice to any other rights it may have to be entitled to retake immediate possession of the goods and the Company, its servants and agents are hereby irrevocably authorised by the Dealer to enter (forceably if necessary and without being liable for any damage) the premises at which the goods or any part thereof are located for such purpose." 23 The Dealer Agreement is stated in clause 20 to be governed by and construed in accordance with the laws of Queensland. On this application for interlocutory relief there is no evidence concerning the proper law so that it is not disputed the law of this forum applies. 24 I accept the submission for the respondent that it is not necessary to resort to the contra proferentem rule in order to construe the clause because it is not sufficiently ambiguous to require resort to that rule. See K Lewison, The Interpretation of Contracts, Sweet & Maxwell, 1997 p 169, par 6.07. 25 In my opinion, a plain reading of clause 9 shows that the proviso entitling either party to terminate the agreement by one months notice in writing dominates the words which precede it relating to the deemed renewal of the agreement. This view is supported by the absence elsewhere of the right of either party to terminate the agreement - the rights under clause 10 being confined to the respondent. It is further supported by the fact that a notice so given is stated by clause 9 to be "effective thereupon". Reference to the descriptions of the other Dealer Agreements in the prospectus of the applicant and elsewhere in the evidence shows that a 30 day termination by either party is not an inefficacious commercial result in the circumstances. 26 It follows that I do not consider the applicants short point is made out or that it would be entitled to injunctive relief as a consequence of that contention. (2) Franchise Code 27 The pleaded allegation is that the Termination Letters breached the terms of the Code in that they failed to give reasonable notice as required by clause 22(3) of the Code, the applicant not having consented to the terminations and failed to provide reasons for the terminations as required by the same paragraph. 28 A "franchise agreement" is defined by clause 4 of the Code as follows:- (1) A "franchise agreement" is an agreement: (a) that takes the form, in whole or part, of any of the following: (i) a written agreement; (ii) an oral agreement (iii) an implied agreement ; and (b) in which a person ("the franchisor") grants to another person ("the franchisee") the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and (c) under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol: (i) owned, used or licensed by the franchisor or an associate of the franchisor; or (ii) specified by the franchisor or an associate or the franchisor; and (d) under which, before starting business or continuing the business, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount including, for example: (i) an initial capital investment fee; or (ii) a payment for goods or services; or (iii) a fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee; or (iv) a training fee or training school fee; Then follow certain exclusions and inclusions none of which is contended as being relevant. 29 The requirement of clause 4(1)(a) for a written agreement is partly satisfied by the Dealer Agreement. For the applicant it is contended further elements of the Franchise Agreement may be implied. 30 Clause 4(1)(b) requires that there be a grant in the agreement of the right to carry on a business under "a system or marketing plan substantially determined, controlled or suggested by the franchisor ….". Mr. Selwood's evidence is that from the outset at each outlet advertising material was provided including large wall posters and editorial material (for newspapers) written by the respondent's advertising and promotions manager. I place no reliance on his evidence that such was in addition to the marketing plans also provided from the outset, of which no substantiation is provided. The evidence for the respondent is that there is no system or marketing plan stipulated in the Dealer Agreements (as is apparent from those agreements). It is deposed by Mr. Dorval that the usual practice between the respondent and its dealers is that once a year the respondent's representative for a particular territory meets with each dealer and does a forecast of anticipated sales for the next year. This forecast is utilised to enable forward planning in factory production. 31 Mr. Dorval's evidence was that on commencing business each dealer received a kit including parts, manuals, sales manuals, spare parts, a CD Rom, price books and service operator manuals the cost of which was approximately $600. 32 Mr. Selwood referred to documents relating to merchandise and wearables issued by the respondent. Examination of that shows that it speaks of the relationship between the applicant and the respondent as "partners in promotion" and does not in evidence any system or plan of the requisite type. 33 Clause 4(1)(c) is directed to the association with a trade mark, advertising or commercial symbol. Mr. Selwood's evidence was that he was told about the respondent's signage, corporate clothing, brochures and other advertising material. The applicant purchased from the respondent neon signs showing the respondent's name and in its colours at a cost of more than $600 each. Souvenirs and promotional items given away to customers were supplied by the respondent and charged to and paid by the applicant. The applicant was also supplied with and paid for the respondent's corporate clothing and hats with its logo. The evidence of Mr. Dorval in response was that none of the respondent's trade marks, advertising or commercial symbols were owned, used, licensed or specified by the respondent or any of its associates. He said there was no requirement to display any signs, hats or flags nor was the dealer or its staff required to wear any special uniform or endorsed clothing. 34 Clause 4(1)(d) refers to the circumstances pertaining before the commencement of the business. There is evidence of denial by Mr. Dorval of the requirement of any of the payments referred to in sub-clauses 4(1)(d)(i - iii). Mr. Selwood gave evidence of the respondent's training requirements and of his attendance at a training school. However Mr. Dorval denies there was a training fee or training school fee received by dealers. 35 In my opinion the evidence does not show that the applicant has a strong case to make out its claim that the Code applies because the arrangements between the applicant and the respondent were a "franchise agreement". It is more probable than not that the applicant will not be able, on the present state of the evidence, to make out this claim. 36 In reaching that view I take into account that the requirements of clause 4 are cumulative. I also take into account that clause 4(1)(a) permits the franchise agreement to be in part written, oral and implied. My opinion is that there is no basis for implication of the requirements in pars 4(1)(b), (c) or (d). (3) The representations 37 The pleaded first and second representations have previously been set out. 38 In his evidence Mr. Selwood deposed that on Monday 16 March 1998 he had a meeting with the national sales or marketing manager of the respondent, Mr. Cotton and Mr. Dorval at the Trade Winds Hotel, East Fremantle. At that time or just prior to it, the applicant had been advised the respondent was selling their parent company to New Holland on a gradual sell-down over a period of five years. His evidence was that on behalf of the applicant enquiries were made whether this would affect it. He said the applicant was told there would be no immediate effect and as Australia was run as a separate division and was the most profitable division it was unlikely it would affect the applicant at all and certainly not within five years. Mr. Selwood's evidence concerning the first representation on 16 March 1999 is not answered in the evidence of Mr. Dorval. 39 At the conference on the 18 March 1998 Mr. Dorval made a statement which his evidence shows to have been in the following terms:- "The agreement between New Holland and Flexi-Coil is a phase in deal. It will be five years before New Holland will acquire a controlling interest. The people responsible for deciding the dealer network in Australia are all present in the room, that is, myself and my marketing staff. The appointment of any new Flexi-Coil dealers will be a decision made exclusively by Flexi-Coil. If a situation arises where a New Holland dealer comes under consideration then he will be assessed by Flexi-Coil management in exactly the same way as all other prospective dealers. It will be five years before New Holland acquire a controlling interest in Flexi-Coil, maybe longer. In any area where an existing dealer is weak and if there is a better alternative, then regardless of any mainline product connection any dealer changes will occur the same as they did before the New Holland announcement was made. Terry Summach, the head of Flexi-Coil Limited has said that providing dealers are loyal to us we will be loyal to them." Mr. Selwood's evidence in relation to this was that Mr. Dorval has been asked and answered questions during which he held up five fingers and said "that's at least how much you've got". 40 Mr. Dorval's evidence contains a denial that he or any one to his knowledge on behalf of the respondent stated that the dealerships of the applicant would not be interfered with before the year 2002. He also denied indicating by holding up five fingers that he had indicated the period. 41 I reject the submission for the applicant that the alleged representations were such as to give the applicant as a dealer security of tenure for five years. That is not made out on the applicant's own pleading. I do not accept the applicant can run a case on representations said to be founded on the evidence but not supported by the pleadings: cf Federal Court Rules 025 r 1. I accept that whether there is a serious case to be tried concerning the representations arises in the context that the representations were directed to whether or not there would be interference by New Holland in the business of the respondent so as to occasion it to change its dealerships. It made commercial sense for Mr. Dorval to have made his statement at the Conference without limiting the respondent's general right of termination which I consider arises under the proviso to clause 9. 42 On that issue there is a conflict in the evidence, as previously set out. For the applicants a challenge to the credibility of Mr. Dorval's evidence is lead in the following terms. Mr. Dorval deposed that during 1999 he formed the view that the applicant, being a John Deere dealer, no longer intended to adequately be supportive of and loyal to the respondent and in particular no longer intended to adequately promote the respondent's product. Accordingly he decided to issue the termination notices pursuant to the Dealer Agreements and to appoint new dealers. His evidence was that he reached this view because he understood John Deere had secured orders from its dealers in Australia such that it was importing 110 seed cart/tillage units to be delivered in Australia in time to plant the year 2000 crop in April to June. The total retail cost of an air seeder and tillage unit was said by him to be usually in the vicinity of $130,000. Accordingly due to the financial commitment involved on the part of the applicant in purchasing those units he formed the view that it would no longer adequately promote the respondent's product. He deposed that he estimated the respondent's sales would decline by 25% due to John Deere dealers in the 12 month period from mid-1999 to mid-2000. Furthermore he relied on an advertisement by the applicant under the heading "John Deere ….a way of life" published on 2 September 1999 in which it was stated that the applicant rated John Deere air seeders about 12% better than the respondent's seeder in metering efficiency. He further testified he was concerned that the applicant's dealers and representatives would positively harm the reputation of the respondent's products and inhibit the ability of the new dealers to have positive contact with existing users of the respondent's product as well as potential customers for it. His view overall was that the applicant and each of its outlets would have no ongoing genuine commitment to the respondent's products because they now had a ready supply of John Deere equipment. 43 For the applicant it is submitted that this evidence of Mr. Dorval as to the reason for the delivery of the termination notices should not be believed so that his credibility is generally called into question. The foundation of the attack is that other John Deere dealers have had their dealerships terminated. This was supported by evidence referrable to Murchison Machinery of Geraldton. Further evidence of Mr. Selwood that every John Deere dealer in Australia has had its dealership terminated by the respondent is objected to and I place no reliance upon it because of its unsubstantiated character. 44 Mr. Dorval's evidence was that during September, October and November 1999 the respondent had approached and appointed a number of new distributors at dealership locations previously serviced by the applicant. He referred to four businesses. The applicant points to evidence that some or all of these are New Holland agents. 45 There is also the argument for the applicant that on any viewthe actions by the respondent are premature and so could not have been for the reasons alleged by Mr. Dorval. 46 For the applicant it is contended that therefore the court should infer that the change in its dealerships has come about as a consequence of a request from New Holland to the respondent and not according to the circumstances recounted by Mr. Dorval. In my opinion there is no present evidence to properly support such an inference as a necessary inference. 47 In the end and for the purposes of this interlocutory relief it does not seem to me necessary that the issue of credibility be resolved. There is a conflict in the evidence for the applicant and the respondent as to whether or not the representations as pleaded were made. While there is some variation in the way in which these representations are expressed, they nevertheless raise an issue to be tried. Even if Mr. Dorval on behalf of the respondent occasioned the termination notices to be issued for the commercial reasons which he has recounted, that will not be decisive of whether or not he made the representations. If he is disbelieved, that could only strengthen the prospect of the applicant's contentions succeeding on this point. 48 In my opinion the applicant succeeds in establishing that there is a serious issue to be tried in relation to the representations. 49 However, it is to be borne in mind that even if the applicant succeeds in establishing the making of either of the representations and that they were misleading and deceptive, that is not inconsistent with the right of either party to terminate the Dealer Agreements by giving notice pursuant to clause 9 of the agreement. That is, even if the representations are established they must be understood in the context as defeasible by the exercise of rights under that clause. This position arises because I do not consider that either in the case as pleaded or on the evidence the representations are that the Dealer Agreements between the applicant and the respondent would not be terminated before the year 2002. 50 It follows that while the applicants case raises a serious issue to be tried (namely whether the representations were made) the remedies which may follow from that in relation to the exercise of the right of termination by the respondent arising under clause 9 may be minimal. The case therefore as based on the representations cannot be regarded as strong. (3) Loss and damage 51 In the statement of claim the applicant pleads that it will suffer substantial damage to its business and reputation. The damage is particularised as follows:- "During the year ended 30th June 1999 the applicant sold items of the respondent's machinery to the total wholesale value of $8,970,922.15. The applicant's profit on those sales amounted to 11.5% of the total wholesale value or the sum of $1,031,656.05. The applicant projects that these figures are approximately the figures which it would earn in the coming years. In addition as set out in Clause 3.3.2.2. above the applicant has introduced the respondent's products to its individual customers and has built up the business in the respondent's goods by such introductions. If the termination proceeds in the time set out in the Termination Letters then the applicant will suffer a substantial loss of its good will with the customers to which it has introduced the respondent's products over the past several years. This loss is not capable of quantification in monetary terms at this point in time but it will extend to the applicant's relationships with a substantial number of its customers." 52 For the respondent reference is made to Kizbeau Pty Ltd v. WG & B Pty Ltd (1995) 184 CLR 281. There it was held that proceedings based on s 52 of the Act are analogous to actions for tort so that, in assessing damages under s 82 of the Act, in most cases the rules for assessing damages in tort, and not those assessing damages in contract, are the appropriate guide: Gatsby v. City Mutual Life Assurance Society Ltd. (1986) 160 CLR 1 at 6-7 and 14. There it was also held the damages arising from the purchase of a business as a result of a misleading statement were to be assessed by reference to the difference between the value of the business at the date of purchase and the price paid for the business, the court taking into account relevant events occurring after the purchase of the business in determining its value at the date of purchase. In reliance on this it is submitted for the respondent, correctly I consider, that the particularisation of damages is misconceived in that it seeks a loss of bargain damages in the character of contract. 53 Furthermore the claim for goodwill falls to be considered in the context of the presence of clause 9 which arguably negates or limits the possibility of good will for that item as a component of damages for misrepresentation. 54 Furthermore, in its pleading the applicant does not allege that had the representations not been made it would not have proceeded with the relevant acquisitions of the dealerships or the public float. 55 Both in its terms and in the context of the effect of the exercise of rights under clause 9, the applicants claim for loss and damages, while raising a serious issue for trial, does not raise an issue of great strength.

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Judgment (10 paragraphs)

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Legislation Cited (1)

Cases Cited (6)

Cited By (3)