AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd - [2023] FCA 1022 - FCA 2023 case summary — Zoe

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AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd

[2023] FCA 1022

Federal Court of Australia|2023-08-30|Before: Beach J

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Source facts

Court

Federal Court of Australia

Decision date

2023-08-30

Before

Beach J

Source

Original judgment source is linked above.

Judgment (57 paragraphs)

[1]

The applicant's contractual points 2820 The applicants' case is that the NRNs issued by MBAuP were in breach of contract on the proper construction of the dealer agreements. That is, they say that the non-renewal power in clause 8 did not extend to permitting MBAuP to use that power to continue the existing relationship between MBAuP and each of the dealers on the basis of an agency relationship, which was contrary to clause 1.2 of the dealer agreements. 2821 On this analysis, they say that questions about the thought processes, motives and intentions of any individual are irrelevant, whether as a matter of contract or in relation to clause 6 of the Franchising Code. They say that these issues only come into play if I was to conclude, as a matter of construction, that it was open to MBAuP to issue an NRN to continue the existing dealership relationship on the opposite basis of agency. 2822 Further, the applicants say that there are four main points, of a general nature, that give expression to the bargain between MBAuP and the dealers. 2823 First, it is said that the basis of the relationship was that of vendor and purchaser, and not agency. 2824 Second, each dealer agreement provided that the dealer had to use its best endeavours to promote the sale of the products in the Territory and to promote and enhance the reputation of the dealer in the products. This is said to be important to understanding the contemplation of the parties in relation to the development of the dealer's goodwill in its business. 2825 Third, the applicants say that the capital investment and entrepreneurial effort required of the dealers under their dealer agreements to sell MB vehicles was significant, and was intended to create an ongoing relationship. There were the following provisions. The dealer had to have appropriate premises to display MB vehicles, as well as appropriate premises to service MB vehicles and store and display parts. The dealer had to comply with quality control procedures and standards set by MBAuP. The dealer had to maintain sufficient working capital. The dealer had to promote and advertise MB vehicles within its PMA, and actively seek out prospective buyers of MB vehicles. The dealer had to enter into various employment relationships and train sales personnel, service personnel and parts personnel. Further, the dealer's relationship with MBAuP also limited other activities that the dealer could undertake in relation to the sale of motor vehicles. 2826 Fourth, the applicants say that there were a number of provisions which clearly delineated the relationship of independence between the dealers and MBAuP, consistent with the "vendor" and "purchaser" relationship. There was an indemnity given by the dealer to MBAuP in relation to all demands, claims, actions, losses, damages and the like "which arise in connection with the dealer's conduct of its business". There was a warranty from MBAuP to the dealer in relation to the "Products" and the "Parts". Further, there were a range of obligations that arose upon expiry or earlier termination of the dealer agreement(s), including service records, lists of customers and lists of prospects "if MBAuP does not offer the dealer a new agreement in succession to this Agreement". 2827 More generally, as I understood their case, the applicants appear to contend that MBAuP could never introduce a direct sales or agency model regardless of its financial terms or how much notice of the change MBAuP provided to dealers, or at least without paying compensation. Now I should be precise about what the applicants mean by such a model. 2828 The term "agency model" has been defined by the applicants as including the following broad characteristics. First, it is a direct sales model in which MBAuP sells direct to customers via an online sales platform. Second, dealers continue to finance and operate their dealerships and continue to take all the investment and operational risks. Third, MBAuP would have a direct relationship with customers, it would receive customer revenue and it would pay agents a commission. Fourth, it has fixed transaction prices. Fifth, MBAuP would not pay any amount of compensation for MBAuP's "acquisition" or any "appropriation" by MBAuP of the goodwill of the dealers, including in respect of future revenue to be earned from or as a consequence of existing customer relationships of the dealers. Sixth, MBAuP would otherwise require the dealers to operate under the dealership model in respect of the provision of MB services and the sale of MB parts. 2829 So, on the applicants' case, "agency model" in summary means any direct sales model with fixed transaction prices, under which agents receive a commission rather than the wholesale profit on the sale of a new vehicle, and under which agents do not receive compensation for any alleged acquisition of their so-called goodwill. 2830 The applicants' case is that unless the dealers agreed to such a change MBAuP could never introduce such a model without paying for it. 2831 The applicants rely on the following textual matters. 2832 First, the non-renewal power sits alongside an automatic renewal provision, and it is not a termination provision. 2833 Second, there are substantial investments which are necessarily required to enable compliance with the contract, including having premises, staff and the ability to comply with operating standards. 2834 Third, there is the express, but limited, reference in clause 10.1 to the ability to change the operating standards from time to time. 2835 Fourth, there is the successor agreement provision in clause 9.5.4. 2836 But as against these matters I would note the following matters. 2837 First, there is the absence of any limitation in the non-renewal term itself. 2838 Second, there is the corresponding power vested in the dealer to terminate the agreement on 60 days' notice without cause. The applicants conveniently appear to ignore this. 2839 Third, there is the lack of any entitlement to a particular margin or particular supply of goods or price in clauses 5.1 and 5.3. But as against this the applicants say that the lack of any entitlement to a particular margin or particular supply of goods or price in clauses 5.1 and 5.3 demonstrates the incomplete nature of the relationship. They say that it assumes an implicit conception of the relationship underlying the written contract that the parties will cooperate to achieve the object of the contract, including that MBAuP will act according to the economic incentive that it needs to sell vehicles and use its pricing and supply powers in a regular and commercial way to achieve that end. I reject the applicants' incompleteness theorem and these poly-filler arguments. 2840 Fourth, there is the power in clause 10.1 to make changes for "market forces and technological and other changes and improvements". But as against this the applicants say that clause 10.1 on a proper analysis supports the argument of the applicants, in that MBAuP specifically addressed issues like technological change but limited its powers to making only operational amendments, not structural amendments to the contract or relationship. 2841 The applicants also make the following submissions which they say are relevant to the power of non-renewal and its purpose. These submissions are all directed to establishing that the commercial bargain between MBAuP and each dealer was one of a long-term relationship. 2842 They say that there were three key features of the commercial bargain between MBAuP and the dealers embodied in the dealer agreements. 2843 First, there was the establishment of a commercial relationship for gain from building a market and meeting the demand from customers for the sale of MB vehicles in Australia. 2844 Second, there was the creation of the opportunity for MBAuP to profit from the relationship by the wholesale margin on the vehicles sold, and for cost-efficiencies in production as the number of cars sold increased over time, without having to pay the investment or operating costs of and associated with conducting dealerships. 2845 Third, there was the creation of the opportunity for dealers, most of whom were already established in the motor vehicle market, to earn retail profits from investing time, money, labour and skill, and taking risks, to establish and conduct their dealerships, and in doing so to create valuable businesses, and goodwill in their dealerships. 2846 The applicants say that these features or consequences of the bargain were facts known to all parties. So, the applicants say that an incident of the bargain is that it is necessarily founded on a long-term relationship. This is because the dealers required time to recoup both the initial investments they made and the ongoing investments they made in the establishment and operation of their dealership businesses. 2847 They say that the return required upon even the initial investment made by a dealer or a major capital upgrade such as a new Autohaus could not be achieved within a short period, and certainly not within one year. They say that this understanding of the bargain explains why automatic renewal provisions exist. 2848 Further, the applicants say that the use of other people's money by MBAuP to create a market and generate sales of its products on a sustained and increasing basis, carries with it obligations to the counter-party, namely the dealers. Those obligations required it to be faithful to the bargain entered into, which include protecting the rights of the dealers to earn profits from their investments and to protect the goodwill in their businesses over the longer term. 2849 Further, the applicants say that the obligation of fidelity to the bargain is relevant not only to the issue of contractual construction, as to the object of the dealer agreement(s), but also in relation to the statutory duty of good faith in relation to the NRNs, the implied contractual duties, the character of the threats made for the purpose of the analysis of economic duress and the issue of unconscionable conduct. 2850 Further, the applicants say that it is an accepted feature of contracts whose primary function is to establish a relationship, that they will not completely provide for every event that may occur. This will generally be true of franchise agreements, which permit a franchisor to have some flexibility in the way its franchise system is conducted, particularly over the longer term period inherent in that franchise contract. The applicants say that such contracts ought be construed to promote the values and purposes expressed or implicit in the contract, as well as through the use of terms implied at law of cooperation and reasonableness. 2851 But I would say now that there was no contractual bargain of a long-term relationship. Whatever the parties' hopes and expectations, what is important to ascertain is the contractual bargain and objects. The non-renewal power must be assessed in that light. 2852 Let me say something more about the applicants' other arguments. 2853 The applicants accept that if used for a proper purpose, the power of non-renewal can be applied to all dealers at once, despite the dealer agreements being individual contracts. 2854 Further, the applicants accept that there were a range of proper purposes in giving a notice of non-renewal which the applicants accept as falling within the range of following risks. First, if MBAuP ceased business or supply in Australia. Second, if there was the need to update the dealer agreement to address regulatory changes or like circumstances, without changing the model. Third, if there was the failure of a dealer to comply with standards, meet targets or a breakdown in the working relationship of the parties. 2855 Further, the applicants contend for an approach to the construction of the non-renewal power that supports the maintenance of the vendor and purchaser relationship. The applicants say that the clause cannot be used as a power to amend that relationship merely because the power is there. To do so would be to remake the bargain. 2856 Let me say something about the applicants' arguments concerning goodwill. 2857 First, there is an express agreement by the dealer in respect of the goodwill in the signs, logos and trademarks of MBAG, which is a necessary incident of permission granted to the dealer to use MBAG's intellectual property in the course of its dealership business. 2858 Second, there is an express recognition by MBAuP that the dealer's reputation will be enhanced by its performance of its obligations under the dealer agreement, and in particular the sale of MB vehicles. 2859 The applicants say that Murry and Placer Dome can be readily applied to the analysis of goodwill in the present case, for the purpose of confirming the bargain entered into by MBAuP and the dealers, either at the economic level or by reference to the terms of the dealer agreement. 2860 In Placer Dome the plurality said (at [91]): Goodwill for legal purposes does not extend to every positive advantage, and whatever adds value, including privileges or advantages that differentiate an established business from a business just starting out. Goodwill for legal purposes does extend to those sources which generate or add value (or earnings) to the business by attracting custom, whether that be from the use of identifiable assets, locations, people, efficiencies, systems, processes, or techniques of the business, or from some other identifiable source. And those sources of goodwill for legal purposes have a unified purpose and result - to generate or add value (or earnings) to the business by attracting custom. (emphasis in original). 2861 The applicants say that relevantly for the determination of the bargain or on the proper construction of the dealer agreement, the object of the dealer agreement was to require and permit the dealer to enhance the goodwill in its dealership business. 2862 The applicants say that it is and was antithetical to that bargain to permit MBAuP to destroy or diminish the dealer's goodwill, which tells against any construction of a provision of the dealer agreement or power within the dealer agreement, such as the non-renewal power in clause 8, that would have that effect. 2863 Now it should be apparent from what I have said at the outset of these reasons that I have rejected the applicants' goodwill arguments in the contractual setting and in relation to the giving of the NRNs. 2864 Let me move to another matter. The applicants say that there is evidence of statements and representations made to each of the exemplars about the long-term nature of the investment in an MB dealership. 2865 Further, the applicants state that the existence of a common understanding can be inferred from the representations made in the information memoranda in evidence for both MB Toorak and MB Melbourne, which extol not only the virtues of the MB franchise systems, but promote the profit opportunities and objectives associated with investment in a dealership. 2866 They say that a reasonable businessman would understand such representations to mean that the opportunity being offered by MBAuP, through its standard form dealer agreement, was a form of participation involving a commitment to invest that was matched by a commensurate opportunity to profit through a vendor and purchaser relationship and not an agency model. 2867 Now the applicants accept that the risks that such a businessperson could reasonably contemplate at that time include the risk of poor performance leading to loss of the right to participate, a risk that MBAuP might leave Australia, and other external risks such as changes to legislation. But they say that the one risk that was taken off the table by MBAuP was the risk that the dealer would invest in a dealership business, only to have MBAuP convert the relationship to one of agency. 2868 But I would note here that the exemplar applicants have not run any specific estoppel case or misrepresentation case. 2869 Further, the applicants say that the power of non-renewal is not at large. 2870 They posit the following example. If a dealer were to enter into a dealer agreement with MBAuP, and spend say $10 million to acquire a dealership, 91 days before the end of the calendar year, it would be an illegitimate exercise of the power of non-renewal to provide an NRN the next day, allowing the dealer only 90 days to trade at the dealership. As a matter of contractual construction, they say that good cause would be needed for the exercise of the power, being a circumstance not covered by the powers of earlier termination. In the example given, they say that good cause is synonymous with there being a proper purpose for the exercise of the power, that is, the power is not at large. And in order to determine what is a proper purpose, they say that this is a matter to be assessed in conformity with the object of the contract or the nature of the bargain. And they say that the object or bargain contemplates a particular form of relationship between MBAuP and the dealer, on the faith of which the dealer has invested in its dealership to make future profits and enhance the goodwill of its dealership. 2871 But I would note here that on any view, by reason of the power of non-renewal in clause 8, the dealer agreement is not a perpetual agreement, and involves an express assumption of risk by the dealer that its ability to earn profits and enhance the goodwill in its dealership will expire if a valid NRN is given. 2872 Let me deal with another matter raised by the applicants concerning risk assessment. 2873 The applicants say that there had to be an assessment of risk by the dealer at the time of entry into the dealer agreement. The risk assessment had to be undertaken objectively from the perspective of the dealer, having regard to known facts and surrounding circumstances and having regard to the object of the agreement. Now the applicants say that in the 15 years that Mr von Sanden was the Managing Director of the MB Cars Division in Australia, and then CEO of MBAuP, the non-renewal power was exercised twice and possibly a third time, prior to the advent of model D/agency. 2874 First, it was exercised in relation to the prior Cairns dealer in 2010, which Mr von Sanden went to considerable lengths to point out to the dealers was a matter relating to performance management of that dealer. 2875 Second, it was exercised in relation to Sandersons in 2014, which, although withdrawn, involved an assertion of a failure by Sandersons to provide a proposal to relocate its business "to achieve our corporate objectives" in relation to a strategy called "Vision 30". 2876 Third, Mr von Sanden gave oral evidence that there may have been another occasion in relation to a dealer at Hervey Bay, which he said was a performance management issue. 2877 Fourth, a statement of the known risks represented by the first two occasions for the issuing of an NRN was provided in a letter from Mr Lührs, then Managing Director of MB Cars in Australia to Mr Baker, on 17 May 2002. 2878 Fifth, Mr von Sanden agreed that dealers would know that there was a pretty low risk of non-renewal, provided they performed in accordance with expectations. Under cross-examination, both Mr Baker and Mr Ryan confirmed such expectations. 2879 Now according to the applicants, such a risk was in the control of the dealers. A reasonable dealer could assess the likelihood of that risk coming to pass at the time of entry into the dealership agreement, based on its own internal capabilities and resources, including its prior experience as a motor vehicle dealer as most of them were. Moreover, it is likely that a dealer would also have fair warning from MBAuP if it was not meeting normal expectations of performance management. 2880 So, the applicants say that in circumstances where an NRN was issued after the dealer failed to respond adequately to specific performance management measures, there would be no conflict between MBAuP's conduct in issuing a non-renewal notice and fidelity to the bargain. It would be the dealer's failure to fulfil its side of the bargain that invited the response by MBAuP. 2881 Further, the applicants say that other possible external risks can be posited external to the dealer which might reasonably be considered to provide a basis for a proper purpose to exercise the power. 2882 So, if MBAG decided in good faith to exit the Australian market, it would likely be a proper purpose for an NRN to be given to wind down its operations in Australia. A reasonable person would know or foresee the possibility and therefore the risk that a car manufacturer might cease selling its cars in Australia. It would not be contrary to the bargain made between the dealer and the manufacturer for an NRN to be given in these circumstances. And a reasonable dealer might well take that risk into account in entering into the dealer agreement, and making substantial investments accordingly, on the basis that the risk of MBAG pulling out of Australia in the foreseeable future was very low. 2883 But in my view, none of this risk assessment analysis goes anywhere. The important question is the proper construction and application of the non-renewal power. You cannot use risk analysis even if reasonable to fetter the operation and purpose of the non-renewal power. 2884 Let me say something about clause 9.5.4 and the words "a new agreement in succession to this Agreement". The applicants say that there are two possibilities to the meaning of this phrase. 2885 The first possibility is that there is an agreement between the parties which embodies the same essential bargain between the parties that has been entered into between MBAuP and the dealer upon the expiry of the current dealer agreement, with the expiry being the result of a prior NRN. So, one would have the same bargain in a new document. 2886 The second possibility is that there is a new document between the same parties which embodies a different bargain between the parties, entered into upon the expiry of the current dealer agreement, again as a result of a prior NRN. 2887 The applicants say that this second possibility is the case here with the agency agreements. 2888 But the applicants say that the first possibility given, of "a new agreement in succession to this Agreement", is the preferred and proper interpretation of that phrase. It avoids doing any violence to the bargain, but provides a practical means by which the dealer agreement can be updated from time to time, whether due to a regulatory change, or a change of ownership, or some other change that renders the current formulation of the dealer agreement in need of updating. They say that such a meaning gives business efficacy to the dealer agreement as a whole, and provides a necessary mechanism by which a long-term contract can be updated from time to time. 2889 They say that the second possibility ought be rejected. They say that specifically, it is inconsistent with the object of the dealer agreement, in terms of the bargain that is embodied in the agreement being one of dealership, for a successor agreement, which is said to justify the purported use of the non-renewal power, to give rise to an agency relationship that is the opposite of a dealership relationship. I will return to this construction question later. 2890 Let me turn to a discrete matter concerning some of the applicants. 2891 There are seven applicants for whom there is no provision for automatic renewal of their dealer agreement, and no provision for the service of an NRN. The position of MB Wollongong under the Wollongong dealer agreement exemplifies the situation of each of these other applicants. 2892 Now notwithstanding the difference in relation to clause 8 for these applicants, they appear to have been treated by MBAuP the same as the rest of the applicants. For example, MB Wollongong was sent an NRN on 29 December 2020, notwithstanding the lack of an automatic renewal provision in clause 8. But for present purposes there are two relevant differences to note. 2893 First, the construction argument concerning clause 8 is not applicable to the other applicants, as the form of their clause 8 does not include provision for automatic renewal and the service of an NRN. But according to the applicants they have the same bargain as the rest of the applicants. 2894 Second, the applicants say that the appropriate underlying legal analysis to assimilate the position of these other applicants to the rest of the applicants can be found in the doctrine of estoppel by convention. 2895 I would say now that this estoppel by convention argument has no proper foundation in the evidence and is otherwise specious. 2896 In summary, the applicants say that the NRNs were specifically issued for the purpose of the parties entering an alternative agreement. And they say that although not expressly stated in the NRNs, that alternative was an agency agreement, which was the opposite of the basis of the relationship expressed in clause 1.2 of each dealer agreement. 2897 In summary, the applicants say that on the proper construction of the dealer agreements, the NRNs did not involve a legitimate exercise of the power of non-renewal under clause 8. Each of the NRNs was therefore ineffective as a matter of contractual power. The applicants say that they ought therefore to be declared void. 2898 And if that is so, the applicants say that as a consequence, each of the dealer agreements was automatically renewed on 1 January 2022. They say that the consequence of declaring the NRNs void, and the consequential relief setting aside the agency agreements, is that the dealers are and have at all times been entitled to operate their dealerships under their dealer agreements. 2899 Further, the applicants say that to the extent that MBAuP's conduct has constituted a repudiation of those dealer agreements, that repudiation has not been accepted by the applicants, and they are entitled to damages for MBAuP's breach of contract, being its failure to comply with the dealer agreements during 2022, through the wrongful assertion of the agency agreements. 2900 But I would say now that I have rejected the applicants' case on this aspect. The NRNs were validly issued. Let me begin my analysis by making some straight-forward points.

[2]

Exercise of power - general points 2901 Before getting into the detail concerning some of the construction questions, let me make some points concerning the exercise of power to give the NRNs. 2902 First it is not pleaded or run by the applicants that MBAuP itself did not exercise that power. 2903 Second, it is not said that the exercise of power was some sham exercise. 2904 Third, the case being put was that the exercise of power by MBAuP was done under the direction of or at least under the influence of MBAG. Now I accept that the exercise was done under the influence of MBAG but not by its direction. 2905 Fourth, I accept that such influence of MBAG also involved approval of the necessary business cases and approval of the elements of the agency model and the terms of the agency agreements. MBAG also approved of the start date for agency. 2906 Fifth, even accepting such influence of MBAG, I do not accept the applicants' case that MBAuP exercised no independent judgment whatsoever in issuing the NRNs. 2907 Sixth, I accept that MBAuP exercised the power to give the NRNs without regard to the individual circumstances of each of the dealers, including their investments, their performance, any custom or reputation built up with customers, and the potential effect of the agency model on the individual dealer. 2908 Let me say something concerning the purpose for which the power was exercised. 2909 First, I accept that the exercise of the power was done solely for the benefit of both MBAuP and MBAG and their strategic interests. 2910 Second, as between MBAuP and MBAG, informing MBAuP's purpose was the desire to act in the interests of MBAG and to act consistently with MBAG's global objectives. But what is also obvious is that MBAuP perceived that what was in MBAG's strategic interest was also in MBAuP's strategic interest. In other words, they were not mutually exclusive interests but rather wholly or predominantly complementary. And that is no surprise when one is considering the position of a subsidiary and its relationship with its ultimate parent company. 2911 Now pausing here, in my view none of these purposes of MBAuP are improper, foreign or collateral to the power to give an NRN. And none of such purposes show an absence of good faith. 2912 Further, there is no broader bargain between a dealer and MBAuP outside the contractual framework of the dealer agreement such that it could be said that the exercise of power to give an NRN was inconsistent with the bargain struck. 2913 Further, the purpose of MBAuP in issuing the NRNs involved pursuing an Australia-wide strategy and, in essence, treating all dealers uniformly. But given the nature of the power being exercised, this was not improper or impermissible. 2914 Now true it is that the power is being exercised literally within the framework of an individual dealer agreement as between MBAuP and an individual dealer. So it might be said that it is foreign or collateral to the purpose for which the power to issue an NRN has been granted to: (a) consider an Australia-wide strategy; (b) principally follow MBAG's strategy; (c) treat all dealers uniformly; (d) not consider the individual circumstances of individual dealers; or (e) use the occasion to change the relationship to a new model, a circumstance that I will discuss in a moment. 2915 But given the nature of the power, it is for the sole benefit of MBAuP. And if that be so, none of points (a) to (e) that I have just listed demonstrate any impermissible purpose let alone a lack of good faith on the part of MBAuP. 2916 Let me address four other points raised by the applicants before I get into the detail. 2917 First, they say that the power to issue the NRNs has been used improperly because the power can only be used for the purpose of terminating a relationship between MBAuP and the dealer rather than changing or creating a new relationship with the dealer, that is, one of agency. 2918 Now I must say that I have difficulty with this argument. The power was exercised to terminate the pre-existing relationship under the dealer agreements, even if MBAuP had it in mind or was offering the possibility of a new relationship. Termination of the pre-existing relationship was a necessary anterior step, and so a proper purpose. The fact that MBAuP also had it in mind that there might be the creation of a new relationship does not impugn the contractual purpose. Moreover, there is a causal break in the facts. The NRNs were given at the end of 2020. There were no conditions attached regarding agency. Offers concerning agency were given in mid-2021. Of course, MBAuP had an expectation when giving the NRNs that the dealers would enter into the agency agreements when later offered. But strictly the two events occurred at different times with the former not being conditioned on the latter. The dealers were always free to accept or reject the latter. 2919 Further, there is a conceptual problem with the applicants' position. The power of non-renewal like a power of termination is a power to end the pre-existing relationship. But it does not say anything about or deny that the parties might have it in mind to enter into a new and different relationship under a new agreement. And it does not foreclose or deny that possibility. As one would expect, the contractual provision is silent on that question. It cannot contemplate let alone deny what the parties may agree to do in the future. 2920 Second, it is said by the applicants that the power is being improperly used to appropriate the dealers' goodwill. But that is flawed for reasons that I have discussed elsewhere. 2921 Third, and relatedly, it is said that the power is being improperly used so that MBAuP could achieve a direct relationship with the end-customers. Now that is the effect of the agency model. But the power to give the NRNs was being used to achieve the direct end of terminating the dealer agreements. The fact that there are other consequential ends does not impugn the exercise of the contractual power. 2922 Fourth, the applicants say that the non-renewal power can only be used for circumstances such as a dealer failing to meet targets or a dealer failing to make mutually agreed improvements or the like. Other examples were also given. But in my view the relevant power has no such limitations. The only relevant limitation is a good faith exercise requirement. 2923 Let me now descend into the detail.

[3]

General principles 2924 Let me start with some uncontroversial general principles. 2925 Now the general principles to be applied to the construction of the dealer agreement, and in particular clause 8, are well known. The statement in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35], which I do not need to set out, provides the necessary guidance. 2926 Now there are different ways of expressing and applying these principles, with different points of emphasis, in different factual situations. But care must be taken not to import as a general rule statements in one case that involve an explanation of the principles in that case, to other cases involving different facts. 2927 The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text and context, which may also include any contract, document or statutory provision referred to in the text of the contract, and purpose. Consideration is to be given to the style, layout, language and structure of the instrument. And preference is given to a construction which gives a congruent operation to the various components of the whole. 2928 Further and generally speaking, anything which the parties said or did after a contract was made cannot be used as an aid in the construction of the contract. That general prohibition is consistent with the objective theory of contract, which provides that the legal obligations of the parties to the contract do not depend upon their subjective beliefs but upon the view of the reasonable bystander informed as to the surrounding context and circumstances. 2929 In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessman would have understood those terms to mean, which requires consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects sought to be secured. 2930 Now recourse to events, circumstances and things external to the contract may sometimes be necessary to identify the commercial purpose or objects of the contract. Such a task may be facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating. 2931 Further, the task of assessing whether a phrase or expression is ambiguous or susceptible of more than one meaning need not be undertaken without regard to evidence of surrounding circumstances. 2932 Further, what may be referred to are circumstances, events and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. 2933 Further, I am entitled to approach the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result. Put another way, a commercial contract should be construed to avoid it making commercial nonsense. 2934 But the utilisation of commercial purpose must not be taken too far. Whilst a court should construe a commercial contract to avoid absurdity, it is no part of its role to construe an agreement that otherwise has an explicable commercial result in a manner that increases the commercial benefits to one party to the agreement. It does not constitute a licence to alter the meaning of a term to achieve a result the court may think to be reasonable. A balanced approach that is neither too literal nor too purposive is to be preferred. 2935 Further, the relevant inquiry is what a reasonable businessman would understand the actual terms to mean, not what a reasonable businessman would consider the most appropriate commercial terms to be. These principles of construction apply to what has been described as relational contracts. 2936 As Finn J described in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 at [224]: …I use the term "relational contract" in what follows and in these reasons generally as signifying no more than that it is "a contract that involves not merely an exchange, but also a relationship, between the contracting parties": Eisenberg, "Relational Contracts", in Beatson and Friedman, Good Faith and Fault in Contract Law, 296 (1995). Likewise, I should not be taken as suggesting that special rules apply to such contracts though I will indicate, as is well accepted, that particular rules of contract law have greater or less ease of application in relational contract settings… 2937 Now characterising an agreement as a relational contract may well be apt in the case of a franchise agreement, insofar as the term is used to refer to a contract that involves not merely an exchange but also a relationship between the contracting parties. The nature of the relationship created by the agreement between parties and the purpose of the agreement are matters which are relevant to its interpretation. But defining a contract as relational does not import any special rules of construction that would otherwise not apply. 2938 Let me at this point say something about the relational nature of franchise agreements insofar as the applicants referred to them. The applicants say that relational contracts are informal agreements that are self-enforcing in the sense that the parties prefer to uphold the terms of the agreement rather than break the agreement and terminate the relationship. It is said that the renewal clauses in the dealership agreements are an example. A party is particularly vulnerable to opportunism where they are highly dependent on another for continued profitability and are unable to design a complete contract to protect their investment, relying instead on a relational contract. 2939 But I would note at this point that the applicants' submission regarding relational contracts is misconceived in two respects. 2940 First, the fact that a contract might be described as relational does not mean that special rules of construction apply to such contracts. 2941 Second, the applicants' position also distorts the import of the evidence of Professor de Roos. The applicants describe relational contracts as informal and incomplete. But Professor de Roos did not describe either the franchise agreements or the contract between the parties in that way. Professor de Roos was not referring to the relational contract in the way in which the applicants deploy that term. Now Professor de Roos said that all aspects of the relationship that are not governed by the formal contract fall into the "relational contract", which is really just an odd term in economics that describes a set of understandings or the expectations of parties within a relationship. He said that it is possible that two parties might have different views of what falls within the "relational contract" and accepted that there is no enforceable breach in a "relational contract" because it is not a formal contract. 2942 But the suggestion that the renewal clauses in the dealership agreements are a clear example of a "relational contract" is contrary to Professor de Roos' evidence. Self-evidently, the non-renewal clauses in the dealer agreement are clauses contained within a formal contract between MBAuP and each franchisee.

[4]

The specific construction questions 2943 Under clause 8 in each of the dealer agreements, MBAuP had the right to issue a non-renewal notice. And the non-renewal notice was the only means by which MBAuP could bring a dealer agreement to an end, absent agreement of the parties or breach by the dealer. 2944 Now like clause 9.2, which served the interest of the dealer and entitled the dealer to terminate the dealer agreement at any time on 60 days' notice, clause 8 served the interest of MBAuP. Clearly, the use of rolling renewals and the NRN procedure is directed to giving MBAuP some flexibility as to the term of the dealer agreement. As MBAuP described it, it is the counterpoint to the dealer's right to terminate the dealer agreement at any time by giving 60 days' notice. 2945 Now in recognition of the differing positions of MBAuP and a dealer on expiration of the agreement, clause 8 entitled a dealer to a longer period of notice, that is, 90 days or six months prior to the end of the current term, than that afforded to MBAuP under clause 9.2. Of course, this was all subject to the prevailing requirements of the Franchising Code. 2946 In my view, and despite the applicants' obfuscation, clause 8 of each dealer agreement is expressed in clear terms. 2947 A dealer agreement has an initial term, the term "expires" and, in the case of the 2002 and 2015 dealer agreements, the agreement renews for a further term unless MBAuP issues a notice of non-renewal. Each such further term "expires" and each such further term is subject to the same contingency, namely, that MBAuP does not issue an NRN. 2948 I agree with MBAuP that it contains no language that limits the circumstances in which MBAuP may issue a non-renewal notice, other than the notice period of 90 days or six months prior to the expiry date, as the case may be, subject to any obligation of good faith whether express or implied in the agreement or under clause 6 of the Franchising Code. 2949 Now the applicants contend that the terms of the dealer agreements give effect to, and reinforce, the nature of the bargain between MBAuP and the dealers. So, their approach is to identify what they contend to be the bargain as an anterior step to analysing the text of the dealer agreements. Yet as MBAuP rightly contends, the commercial bargain is not something that is separate to the dealer agreement itself. The commercial bargain is the very bargain struck by and embodied in the dealer agreement. 2950 Now the applicants urge me to construe clause 8 to reflect what the applicants consider the most appropriate commercial terms to be in order to protect the investments made by dealers under the dealer model. It is said that because dealers invested in their dealerships, it would be appropriate for them to be guaranteed a long-term relationship. But that broad-brush approach cannot be justified as a matter of contractual theory. Further, the applicants have made no case concerning any super-imposed fiduciary relationship. 2951 Further, the applicants say that I should ascertain the proper purpose of clause 8 based on what their economic experts consider economically rational, given their assessment of risk and social welfare considerations. But it is the ascertainment of the contractual object and commercial purpose embodied contractually of the parties that is to be undertaken objectively, not the conduct of a risk assessment. 2952 Now the applicants' pleaded case as to the purpose of the non-renewal power is that its purpose was to allow MBAuP to bring "its relationship" (c.f. the dealer agreement) with a given dealer to an end, in two circumstances, namely, where that dealer had failed to meet its targets or make mutually agreed improvements, or some other good faith purpose consistent with the object of the dealer agreement and the relevant business circumstances. 2953 But I agree with MBAuP that the applicants do not articulate any textual basis for the contention that clause 8 was a power to end "the relationship" as opposed to the dealer agreement. 2954 Now the applicants say that the non-renewal power exists to allow MBAuP to bring a dealer agreement to an end where a dealer does not meet their performance targets or does not carry out mutually agreed improvements. But clearly the non-renewal power on its face was not limited to the circumstance in which a dealer had failed to meet its targets or make mutually agreed improvements. 2955 So, clause 9.3.5 of each dealer agreement dealt specifically with termination of a dealer agreement where the dealer had not met its targets. That clause entitled MBAuP to terminate on notice: If the Dealer fails, without providing any reasonable explanation to [MBAuP], to submit a Plan if required to do so in accordance with clause 2.4.3, or to achieve and maintain its Expected Level of Sales, other than in a minor or insignificant way for a period of not less than 2 successive 3 monthly intervals after submitting the Plan to [MBAuP] (as described in clause 2.4.3.4), or if in the reasonable of [MBAuP], the Dealer fails to promptly and efficiently implement and carry out the Plan 2956 Similarly, a failure by a dealer to make improvements in compliance with a reasonable request of MBAuP was a breach of the agreement, entitling MBAuP to terminate on notice. Clause 1.12 stated "If [MBAuP] considers that the premises have become dilapidated, Inadequate or obsolete or otherwise unsuitable the Dealer agrees to take immediate steps to comply with any and all reasonable written requests to extend, repair or refurbish the premises or otherwise provide alternative premises In the same or another location". More generally, clause 9.3 is the termination on notice provision. 2957 Now the non-renewal power under clause 8 has no work to do in circumstances where the express termination provisions of the dealer agreement are activated. So, the rights and powers of MBAuP of non-renewal under clause 8 on the one hand, and termination under clauses 9.3 and 9.4 on the other hand, are distinct powers. They address different circumstances and take into account different considerations. So, in my view the proper purpose of clause 8 cannot be as the applicants would have it. 2958 Now the applicants contend that I can infer their pleaded purpose based on the way in which MBAuP is said to have acted in practice exercising the non-renewal power in the 15 years that Mr von Sanden was the managing director and based on a letter sent to Baker Motors in 2002. But this is a stretch. 2959 First, the applicants' pleaded purpose is alleged to arise from the terms of the dealer agreements, the object of the dealer agreement, and the relevant business circumstances. None of the business circumstances alleged refer to any practice of MBAuP in issuing non-renewal notices. Moreover, the applicants have not run any relevant estoppel case. 2960 Second, to the extent that the matters relied upon by the applicants post-date the entry into of any particular dealer agreement, they cannot be used as an aid in the construction of that agreement. 2961 Third, there is little evidence of the practice suggested by the applicants. 2962 Further, the applicants' assertion that any exercise of the power of non-renewal must be consistent with the relevant business circumstances is an allegation that because the parties had contracted on one basis, MBAuP could never validly exercise the power of non-renewal if it wished to invite a dealer to contract on a different basis. But there is no basis in the text for such a limitation. 2963 Further, the applicants' construction is further contradicted by the fact that clause 8 of the 2015 dealer agreement and the Wollongong dealer agreement expressly contemplates that the existing contractual relationship may not be renewed and, instead, the dealer may instead be invited to enter into a new agreement. 2964 Moreover, each of the dealer agreements contemplates in clause 9.5.4 that MBAuP "may offer the dealer a new agreement in succession to this Agreement". 2965 The applicants do not engage with the words "enter into a new agreement" contained in clause 8 of the 2015 dealer agreement and the Wollongong agreement. The words mean what they say. 2966 The dealer agreements expressly contemplated that the initial term would expire and, if it did, MBAuP might either "extend the Agreement" (clause 8.3.1 of the 2015 dealer agreement and 8.2.1 of the Wollongong agreement), invite the dealer to "enter into a new agreement" (clause 8.3.2 of the 2015 dealer agreement and 8.2.2 of the Wollongong agreement) or "not offer the Dealer a new agreement in succession to this Agreement" (clause 9.5.4 in each of the 2002 dealer agreement, the 2015 dealer agreement and the Wollongong agreement). 2967 Whilst the applicants do not engage with the words "enter into a new agreement" in clause 8 of the 2015 dealer agreement and the Wollongong agreement, they do attempt to explain away the reference to "a new agreement" in clause 9.5.4 of each of the dealer agreements, that is, as part of the text "if [MBAuP] does not offer the Dealer a new agreement in succession to this Agreement". 2968 They accept that the reference to "a new agreement" might mean "a new document between the same parties which embodies a different bargain between the parties, entered into upon the expiry of the dealer agreement…as a result of a prior NRN - which is the case here with the agency agreement". However, they argue that I should not adopt that obvious interpretation of those words and instead should construe those words to mean an agreement between the parties which embodies the same essential bargain between the parties that is entered into between MBAuP and the dealer upon the expiry of the existing dealer agreement, the expiry being the result of a prior NRN. An example of such an agreement would be a new dealer agreement that included updated provisions to comply with changes to the Franchising Code. 2969 But I agree with MBAuP that the only argument proffered by the applicants for dispensing with the plain meaning of the words "a new agreement" is circular reasoning. They say that one should interpret the words "a new agreement" as being a new agreement which "embodies the same essential bargain" because that "avoids doing any violence to the bargain". But such an argument is unsustainable. 2970 First, the applicants' submissions assume the premise which they are seeking to establish, namely, that the dealer agreement is a "long-term contract". 2971 Second, there is "no conflict" with clause 1.2 of the dealer agreement because it is an orthodox provision that states that the dealer agreement does not empower the dealer to act as the agent of MBAuP. Clause 1.2 refers to the relationship under the dealer agreement and not every conceivable relationship in the future. 2972 Third, the dealer agreement produces an explicable commercial result without the construction for which the applicants contend. 2973 I agree with MBAuP that the applicants offer no cogent explanation as to why, if the parties had intended to establish a permanent relationship, clause 8 then uses the language of "expiry" and "renewal" nor why it implements the NRN procedure. If the parties had intended that a dealer agreement would be a contract of indefinite duration, terminable only in the limited circumstances pleaded, they could have expressed that in simple terms. 2974 Let me deal with another matter. The applicants note that there are seven applicants to whom the Wollongong term provision applied. Despite the fact that the Wollongong version of clause 8 does not refer to rolling renewals, the applicants submit that these seven applicants ought to be treated in the same manner as the other applicants. That is said to flow from two things. 2975 First, it is said that "they appear to have all been treated the same as the rest of the applicants by MBAuP" because each of them received an NRN. Now with respect to WCM, MBAuP accepts that from 31 December 2019 to 7 May 2020, it and the dealer acted as if the MB Wollongong agreement remained on foot. However, the fact that the dealer received an NRN does not convert its holding over on the terms of the MB Wollongong agreement to a holding over on the terms of some other dealer agreement between different parties. 2976 Second, the applicants assert an estoppel by convention. But no estoppel is pleaded in respect of these applicants. And even if such a claim had been pleaded, there is insufficient evidence to establish such a claim. So, if it is necessary to say so, the absence of the language of renewal in the Wollongong term provision provides another reason to reject the applicants' position in respect of these applicants. 2977 Let me at this point say something about the question of good faith concerning the issuing of the NRNs although I will expand on it in a separate section. 2978 MBAuP was required to exercise the non-renewal power in good faith. It was required to do so because, inter alia, clause 6 of the Franchising Code requires that each party, including MBAuP, to a franchise agreement must act towards another party with good faith in respect of any matter arising under or in relation to the agreement and the Franchising Code. Further, the 2015 dealer agreement and Wollongong agreement contain a clause requiring the parties to act in good faith, in similar terms to clause 6 of the Franchising Code. 2979 Now the applicants have failed to establish their pleaded case on several levels. 2980 First, the applicants have not established that the proper purpose of the non-renewal power was the purpose pleaded nor have they established the object of the dealer agreements pleaded. 2981 Second, the applicants have failed to establish that MBAuP issued the NRNs for the improper purpose of continuing or maintaining the "relationship" and to transfer the goodwill in each applicant's dealership to MBAuP. An NRN does not have the effect of continuing a relationship, it has the opposite effect. Further, the claim that MBAuP has appropriated the dealers' goodwill demonstrates a misunderstanding of the meaning of goodwill at law. On the expiry or termination of a franchise agreement, the franchisee has no right to continue operating the business and no right, in the absence of specific provision in the agreement to the contrary, to any goodwill that may have accrued to the business whilst it was operated by the franchisee. 2982 Third, the applicants' approach to the good faith inquiry is misconceived. It fails to grapple with the fact that the very purpose of a non-renewal power is to bring the parties' relationship to an end and, therefore, the existing bargain to an end. I agree with MBAuP that the applicants supplant the proper inquiry, which is to consider whether the non-renewal of the dealer agreements was in good faith, with a broad-ranging inquiry into the perceived advantages and disadvantages of the agency model, as compared to the dealer model. But even if that were the proper inquiry, the claims of good faith would still fail. 2983 Let me further elaborate on some of these points.

[6]

The alleged improper purpose is not established 2989 The applicants have failed to establish that MBAuP issued the NRNs for the improper purpose advanced. 2990 The case advanced is that MBAuP was seeking to recapture that which it gave away when it entered the dealer agreements, namely, the right to make retail profits from the sale of MB vehicles, and MBAuP was seeking to acquire valuable property of the dealers, being the goodwill in their dealerships, by the misuse of a contractual mechanism intended for another purpose, without paying the dealers for the property acquired. 2991 The applicants allege that the non-renewal power in clause 8 did not extend to permitting MBAuP to use that power to continue the existing relationship between MBAuP and each of the dealers on the basis of an agency relationship, which was contrary to clause 1.2 of the dealer agreements. 2992 The applicants argue that the NRNs were not supported by the non-renewal power under clause 8 of the dealer agreements because the NRNs were specifically issued on the basis of maintaining the relationship, but for the purpose of the parties entering an "alternative" agreement. 2993 But an NRN does not amend a dealer agreement nor maintain the relationship between a dealer and MBAuP, nor put that relationship on a different basis. The exercise of the power does not have that effect. Absent another step, an NRN simply means that a dealer agreement is not renewed for a further term and, therefore, comes to an end. Whether a dealer was forced into a change of the relationship by entering into an agency agreement is a separate question, which I will deal with under the economic duress and unconscionable conduct claims. 2994 Further, MBAuP's purpose in issuing the NRNs was not and could not have been to appropriate the goodwill of dealers. That is because a dealer has no goodwill at law on expiry of a dealer agreement and, even if they did, neither an NRN nor the agency agreement would effect an acquisition of goodwill. 2995 The dealers could not generate future profits from the sale of MB vehicles absent a supply of MB vehicles and the rights to use the Mercedes-Benz brand granted to them by MBAuP. Absent that supply and those rights, no MB dealership would exist through which an applicant could derive future profits, nor would there be an MB dealership that an applicant could sell to a third party. 2996 Further, and as I have previously said and as Murry explains, the continued existence of goodwill depended upon a dealer having the legal right or privilege to conduct the business in substantially the same manner and by substantially the same means that have attracted custom to it. Goodwill has no existence independently of the conduct of a business and cannot be severed from the business which created it. 2997 The effect of a non-renewal notice was to extinguish the right or privilege to conduct the business in substantially the same manner and by substantially the same means which in the past had attracted custom to the business. As was said in Murry, once goodwill as property is recognised as the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means which in the past have attracted custom to the business, it follows that a person acquires goodwill when he or she acquires that right or privilege. So in the present case, on expiry, a dealer could not confer upon a purchaser the right or privilege to conduct the business that had generated custom. 2998 So, MBAuP's conduct in issuing the NRNs is the antithesis of an appropriation of goodwill. A non-renewal notice is antithetical to an appropriation of goodwill because it brings a dealer agreement to an end and, thereby, any goodwill the existence of which depends on the rights granted by that agreement. 2999 And it is no answer to that legal reality for the applicants to say that purchasers have, or would, pay an amount of money to a dealer described as "goodwill". That mistakes the accounting definition of goodwill for its definition at law. As I have already explained, going concern value and goodwill for legal purposes are not interchangeable. 3000 Further, without a supply of MB vehicles, and the rights to use the Mercedes-Benz brand, a dealer could use its physical assets, personnel and customer relationships to generate profits by operating another business, for example, a used car business, but that would be a different business with a different goodwill. 3001 Similarly, the businesses that came into operation under the agency agreements are different businesses, with a different goodwill. Whilst from an accounting perspective the value of the goodwill of that business may well be the same, it is a different bundle of rights and a different goodwill for legal purposes. 3002 So in the present case, there was no goodwill for MBAuP to acquire because that goodwill ceased to exist once the NRNs came into effect. The non-renewal of the dealer agreements meant that the licence granted to each dealer to participate in MBAuP's business system for the term of the dealer agreements ceased and, given the absence of any contractual provision providing for compensation in the dealer agreement, the dealer forfeited the goodwill. 3003 Further, the non-renewal of a dealer agreement and entry into of an agency agreement could not, and did not, effect any acquisition. 3004 In JT International SA v Commonwealth (2012) 250 CLR 1, one of the questions was whether the Tobacco Plain Packaging Act 2011 (Cth), which imposed significant restrictions on the colour, shape and finish of retail packaging for tobacco products, effected an acquisition of the intellectual property rights and goodwill of the plaintiff tobacco companies on other than just terms, contrary to section 51(xxxi) of the Constitution. The categories of property rights affected were registered and unregistered trade-marks, copyright, get-up, licensing, goodwill, design, patents, packaging rights, packaging goodwill and intellectual property licensing rights. By a majority, the High Court held that the answer was "No". 3005 Now the term "property" is used sometimes to indicate the tangible or intangible object to which legal rights or privileges relate, and sometimes to denote the legal interest, or aggregate of legal relations, pertaining to that object. The way in which the tobacco companies formulated their arguments, which was by focusing upon what was said to be the "use" or "control" of retail packaging by the Commonwealth to convey its health messages, directed attention to whether the Commonwealth by reason of the Act acquired any legal interest in or legal relation with the packaging that is an interest or relation the law would label as "property". 3006 Gummow J said at [107]: …it should be borne in mind that all these items of "property" [such as goodwill] are, as Higgins J put it, "artificial products of society", not "physical objects" the boundaries of each class of which "are fixed by external nature"; more precisely, as Isaacs J emphasised with respect to trade marks, these are not affirmative rights like the property in goods and are not rights "in gross, or in the abstract". 3007 His Honour observed (at [108]) that: [t]hese considerations direct further attention to the identification of those rights which constitute the property in question in these cases. This is an essential first step in the identification of that of which there has been a deprivation or 'taking'. 3008 French CJ observed in respect of the complaint by one of the plaintiff tobacco companies of the acquisition of its goodwill (at [39]): BAT complained of acquisition of its goodwill. The concept of goodwill as property, and its characterisation as property or a proprietary right, arise in different contexts, discussed at length in the joint judgment in Federal Commissioner of Taxation v Murry. As their Honours pointed out: "Goodwill is correctly identified as property, therefore, because it is the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means that have attracted custom to it." Goodwill is derived from the use of the assets and other elements or attributes of a business. It may have different aspects or components corresponding to its sources… 3009 His Honour held (at [42]) that it could not be said that the Commonwealth had acquired any benefit of a proprietary character by reason of the operation of the Act on the tobacco companies' property rights, stating that acquisition involves receipt of something seen from the perspective of the acquirer, and is not made out by the mere extinguishment of rights. Similarly, Kiefel J stated (at [357]) that: the mere restriction on a right of property or even its extinction does not necessarily mean that a proprietary right has been acquired by another. The loss of trade or business does not spell acquisition. 3010 Further, as I have already endeavoured to explain, it is by acquiring the right or privilege to conduct a business in substantially the same manner and by substantially the same means that in the past have attracted custom to the business that one acquires goodwill. 3011 Extinguishment of goodwill on expiry of a dealer agreement does not spell acquisition. 3012 Moreover, there can be no transfer or acquisition of goodwill without a transfer of the business, or the assets of the business, which generate the goodwill. 3013 In Coles Myer Ltd v Commissioner of State Revenue (Vic) (1998) 147 FLR 191, the question was whether a purported transfer from a shareholder to a company as a result of a share buy-back transaction was a transfer of shares for the purposes of the Stamps Act 1958 (Vic). The majority held that there was no transfer. 3014 Ormiston JA said (at 193): … There are two parties to every transfer, the transferor who disposes of all rights in the transferred property and the transferee who receives or acquires them so as thereafter to have the power to exercise effectively the same rights in the future. For an instrument properly to be characterised as a "transfer" one must be able to find that the property has passed from the transferor to transferee so that the property is vested in a transferee who for all practical purposes is then capable of exercising the same rights as were capable of being exercised by the transferor before the transfer was executed… 3015 His Honour succinctly observed (at 203 and 204): Although the word "transfer" is not a term of art and is a word of wide connotation, to my way of thinking it is the passing of rights to another, so as to vest them in that other person, which is essential to a transfer, properly understood. It is not a mere disposition, a ridding oneself of the right or interest, it is the vesting in the transferee of that right or interest, precisely or substantially, which is necessary to effect a transfer, as ordinarily understood in the law. 3016 Goodwill is an indivisible item of property that is legally distinct from its sources, including the other assets of the business that have generated the goodwill. Given that indivisible nature, MBAuP could not acquire dealers' goodwill without acquiring each dealers' business which generated the goodwill. But MBAuP did not acquire those businesses and nor did it seek to do so. 3017 The applicants have failed to establish that MBAuP issued the NRNs for the improper purpose advanced. 3018 Let me deal with some other matters.

[7]

The applicant's example 3019 Now the applicants state that the proposition that the power of non-renewal is "not at large" can be tested by reference to an example in which a dealer: …enter[s] into a Dealer Agreement with MBAuP, and spend[s] say $10m to acquire a Dealership, 91 days before the end of the calendar year, it would be an illegitimate exercise of the power of non-renewal to provide an NRN the next day, allowing the Dealer only 90 days to trade at the Dealership. At a minimum, as a matter of contractual construction, good cause would needed for the exercise of the power - being a circumstance not covered by the powers of 'earlier termination' addressed above. 3020 A few observations can be made. 3021 First, the example is not the applicants' pleaded case. The applicants do not run a case that the non-renewal power could be exercised by MBAuP only after a dealer had earned a reasonable return on investment. Nor do they plead that the purpose of the non-renewal power was to enable MBAuP to bring a dealer agreement to an end where MBAuP had "good cause" to do so. In short, their case is that MBAuP could only exercise the non-renewal power where a dealer failed to meet their targets, did not make mutually agreed improvements or for some other good faith purpose consistent with the continued existence of the dealer model. The applicants reject the possibility that MBAuP could validly exercise the non-renewal power by giving a dealer a longer period to transition to a direct sales model. They say that because a dealer made investments under the dealer model, a dealer had a permanent right to operate an MB dealership if they met targets, made mutually agreed improvements and did not breach the agreement. The only other circumstance in which the applicants contemplate a non-renewal notice could be issued is if MBAuP exited the Australian market altogether. 3022 Second, the example given does not support the construction of the power of non-renewal alleged. It does not follow from that example that the non-renewal power could be exercised only where a dealer failed to meet their targets, did not make mutually agreed improvements or for some other good faith purpose consistent with the continued existence of the dealer model. 3023 Third, as MBAuP points out, the evidence shows that MBAuP had a straightforward way of dealing with that kind of situation. So for example, in "recognition of the recent facilities upgrade at the dealership", the parties employed point 13 in the Operating Schedule to provide Macarthur Automotive with a longer "initial Term" and the opportunity for a second three-year term. Further, MB Toorak provides an example of the use of a three-year agreement where the dealer had made a significant upfront investment.

[9]

Job lot 3030 Clearly, when MBAuP exercised its power and issued the NRNs it did not consider each dealer's individual circumstances. In essence it dealt with the dealers collectively and gave the NRNs at the same time and without regard to individual investments and positions. Moreover, the agency offer, the agency agreements and associated documents were all in standard form. 3031 Moreover, MBAuP's and MBAG's financial analysis which under-pinned the various versions of the business cases was modelled on the "average dealer". And on any view the dealers in the top 30% were likely to do worse under the agency model than if the dealer model had been left in place. 3032 So and generally speaking, MBAuP adopted a "one size fits all approach". It did not discriminate. And its whole approach was to move from one model (the dealer model) to another model (the agency model) seamlessly and without regard to individual positions of and individual effects on particular dealers. 3033 Now there are two questions that arise. 3034 First, could the power to give an NRN without cause to a particular dealer under an individual dealer agreement be validly exercised in good faith without regard to that dealer's individual circumstances? In my view and given the nature of the power, which was for the sole benefit of MBAuP, it could be so validly exercised. Indeed, the applicants agreed that the power could be exercised for the broader strategic purpose of MBAuP to, say, close its Australian operations for example if thought fit. 3035 Second, of what relevance are these circumstances to the question of statutory unconscionability? Now this is a trickier question. 3036 If it be assumed that the giving of the NRNs was valid contractually so that the dealer agreements came to an end, where does any of this go so far as agency is concerned? Sure, these circumstances concerning "the job lot" approach are relevant to the unconscionable conduct question. But of course the dealers did not need to sign up to the agency agreements. 3037 Is it being said that the giving of the NRNs, albeit contractually valid, amounted to unconscionable conduct because the individual circumstances of the dealers were not taken into account? If so, there are clear difficulties for the applicants including the potential rewriting of the contractual bargain. 3038 And surely it was not unconscionable for MBAuP to give the NRNs to pursue an Australia-wide strategy or indeed a strategy consistent with the global strategy promoted by its parent, MBAG? 3039 The applicants complain that MBAuP did not give any serious consideration to the effect of the agency model or the service of the NRNs on the individual facts and circumstances of the individual dealers, but rather treated all dealers as "job lot". But an alleged failure to give consideration to the effect of the agency model is a further illustration of the applicants' misconceived approach to the good faith inquiry concerning the exercise of the non-renewal power. It is the exercise of the non-renewal power that is under scrutiny, not the effect of the agency model on dealers. The effect of the agency model on dealers is a question that arises on the unconscionable conduct claim.

[11]

Statutory Duty of Good Faith 3044 Let me begin by addressing some legal principles. I will first deal with the Franchising Code requirements and then deal with the contractual position. 3045 The Franchising Code applies to the dealer agreements and the agency agreements with MBAuP, and in particular to the conduct of MBAuP in relation to the NRNs. The Franchising Code is prescribed as a mandatory industry code for the purposes of section 51AE of the CCA, a contravention of which is a contravention of section 51ACB of the CCA. 3046 Clause 6 of the Franchising Code contains a statutory obligation of good faith. On and from 1 July 2021 it included a new clause 6(3A). I will deal with the question of whether the terms of the agency agreements are fair and reasonable within the meaning of clause 6(3A) later in my reasons, although I would say now that they are. 3047 Let me at this point lay out the relevant provisions of the Franchising Code. 3048 Clause 6 as in force at the time the agency agreements were entered into and at all relevant prior times (save for clause 6(3A)) provided: Obligation to act in good faith (1) Each party to a franchise agreement must act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to: (a) the agreement; and (b) this code. This is the obligation to act in good faith (2) The obligation to act in good faith also applies to a person who proposes to become a party to a franchise agreement in respect of: (a) any dealing or dispute relating to the proposed agreement; and (b) the negotiation of the proposed agreement; and (c) this code. Matters to which the court may have regard (3) Without limiting the matters to which a court may have regard for the purpose of determining whether a party to a franchise agreement has contravened subclause (1), the court may have regard to: (a) whether the party acted honestly and not arbitrarily; and (b) whether the party cooperated to achieve the purposes of the agreement. New vehicle dealership agreements (3A) Without limiting the matters to which the court may have regard for the purpose of determining whether a party to a new vehicle dealership agreement has contravened subclause (1), and without limiting subclause (3), the court must have regard to whether the terms of the agreement are fair and reasonable. Franchise agreement cannot limit or exclude the obligation (4) A franchise agreement must not contain a clause that limits or excludes the obligation to act in good faith. (5) A franchise agreement may not limit or exclude the obligation to act in good faith by applying, adopting or incorporating, with or without modification, the words of another document, as in force at a particular time or as in force from time to time, in the agreement. Other actions may be taken consistently with the obligation (6) To avoid doubt, the obligation to act in good faith does not prevent a party to a franchise agreement, or a person who proposes to become such a party, from acting in his, her or its legitimate commercial interests. (7) If a franchise agreement does not: (a) give the franchisee an option to renew the agreement; or (b) allow the franchisee to extend the agreement; this does not mean that the franchisor has not acted in good faith in negotiating or giving effect to the agreement. 3049 The term "new vehicle dealership agreement" as referred to in clause 6(3A) is defined in clause 4(1) to mean: a motor vehicle dealership agreement relating to a motor vehicle dealership that predominantly deals in new passenger vehicles or new light goods vehicles (or both). 3050 The term "motor vehicle dealership" is in turn defined in clause 4(1) so that it: (a) means a business of buying, selling, exchanging or leasing motor vehicles that is conducted by a person other than a person who is only involved as a credit provider, or provider of other financial services, in the purchase, sale, exchange or lease; and (b) includes a business of selling motor vehicles that is conducted by a person (for the purposes of this code, the franchisee) who sells the motor vehicles as an agent for a principal (for the purposes of this code, the franchisor). 3051 Now I note that limb (a) referring to "a business" includes its component aspects. So, the concepts of "motor vehicle dealership" and "new vehicle dealership agreement" should not be construed narrowly. So, the latter concept in my view not only includes the agency agreements but some of the ancillary agreements. I will return to this later. 3052 Clause 5 provides: (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, marketing 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 of the franchisor; and (d) under which, before starting 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; but excluding: (v) payment for goods and services supplied on a genuine wholesale basis; or (vi) repayment by the franchisee of a loan from the franchisor or an associate of the franchisor; or (vii) payment for goods taken on consignment and supplied on a genuine wholesale basis; or (viii) payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement. (2) For subclause (1), each of the following is taken to be a franchise agreement: (a) the transfer or renewal of a franchise agreement; (b) the extension of the term or the scope of a franchise agreement; (c) a motor vehicle dealership agreement. (3) However, none of the following in itself constitutes a franchise agreement: (a) an employer and employee relationship; (b) a partnership relationship; (c) a landlord and tenant relationship; (d) a mortgagor and mortgagee relationship; (e) a lender and borrower relationship. 3053 Clearly, a motor vehicle dealership agreement is a franchise agreement. And with the flexibility of the terms "motor vehicle dealership" and "new vehicle dealership agreement", it seems to me that some of the ancillary agreements to the agency agreements are embraced by the notion "franchise agreement". 3054 Before returning to clause 6, I should set out some other terms. 3055 Clause 18 provides: (1) The franchisor of a franchise agreement must notify the franchisee, in writing, whether the franchisor intends to: (a) extend the agreement; or (b) enter into a new agreement. (2) The franchisor's notice must be given: (a) if the term of the franchise agreement is 6 months or longer - at least 6 months before the end of the term of the agreement; and (b) if the term of the franchise agreement is less than 6 months - at least 1 month before the end of the term of the agreement. (3) Unless the franchisor does not intend to extend the franchise agreement, the franchisor's notice must include a statement to the effect that, subject to subclause 16(2), the franchisee may request a disclosure document under clause 16. 3056 Clause 28 provides: (1) This clause applies if: (a) a franchisor terminates a franchise agreement: (i) in accordance with the agreement; and (ii) before it expires; and (iii) without the consent of the franchisee; and (b) the franchisee has not breached the agreement. (2) For subparagraph (1)(a)(iii), a condition of a franchise agreement that a franchisor can terminate the franchise agreement without the consent of the franchisee is not taken to be consent. (3) Before terminating the franchise agreement, the franchisor must give reasonable written notice of the proposed termination, and reasons for it, to the franchisee. (4) Part 4 (resolving disputes) applies in relation to a dispute arising from termination under this clause. 3057 Clause 30 provides: (1) A franchisor must not require a franchisee to undertake significant capital expenditure in relation to a franchised business during the term of the franchise agreement. (2) For the purposes of subclause (1), significant capital expenditure excludes the following: (a) expenditure that is disclosed to the franchisee in the disclosure document that is given to the franchisee before: (i) entering into or renewing the agreement; or (ii) extending the term or scope of the agreement; (b) if expenditure is to be incurred by all or a majority of franchisees - expenditure approved by a majority of those franchisees; (c) expenditure incurred by the franchisee to comply with legislative obligations; (d) expenditure agreed by the franchisee. 3058 Clauses 46, 46A and 46B now provide: 46 Application of part This Part applies to new vehicle dealership agreements. 46A Franchise agreement must provide for compensation for early termination (1) A franchisor must not enter into a franchise agreement unless the agreement: (a) provides for the franchisee to be compensated if the franchise agreement is terminated before it expires because the franchisor: (i) withdraws from the Australian market; or (ii) rationalises its networks in Australia; or (iii) changes its distribution models in Australia; and (b) specifies how the compensation is to be determined, with specific reference to the following: (i) lost profit from direct and indirect revenue; (ii) unamortised capital expenditure requested by the franchisor; (iii) loss of opportunity in selling established goodwill; (iv) costs of winding up the franchised business. (2) A franchisor must not enter into a franchise agreement unless the agreement contains provision for the franchisor to buy back or compensate the franchisee for new road vehicles, spare parts and special tools if: (a) the franchise agreement is not renewed and a new agreement is not entered into; or (b) the franchise agreement is terminated before it expires because the franchisor: (i) withdraws from the Australian market; or (ii) rationalises its networks in Australia; or (iii) changes its distribution models in Australia. (3) A franchisor must not enter into a franchise agreement that contains a provision that purports to exclude any compensation to which the franchisee may be entitled, other than under the agreement, if the agreement is terminated before it expires other than because the franchisee has breached the agreement. 46B Franchise agreement must provide reasonable opportunity for return on franchisee's investment A franchisor must not enter into a franchise agreement unless the agreement provides the franchisee with a reasonable opportunity to make a return, during the term of the agreement, on any investment required by the franchisor as part of entering into, or under, the agreement. 3059 The agency agreements in my view comply with clauses 46A and 46B. 3060 Clause 47 provides: (1) The franchisor of a franchise agreement must notify the franchisee, in writing, whether the franchisor intends to: (a) extend the agreement; or (b) enter into a new agreement; or (c) neither extend the agreement nor enter into a new agreement. (2) If the term of the agreement is 12 months or longer, the franchisor's notice must be given: (a) at least 12 months before the end of the term of the agreement; or (b) if the parties to the agreement agree on a later time - before that later time. (3) If the term of the agreement is less than 12 months, the franchisor's notice must be given: (a) if the term of the agreement is 6 months or longer - at least 6 months before the end of the term of the agreement; and (b) if the term of the agreement is less than 6 months - at least 1 month before the end of the term of the agreement. (4) If the franchisor intends to enter into a new agreement, the franchisor's notice must include a statement to the effect that, subject to subclause 16(2), the franchisee may request a disclosure document under clause 16. (5) If the franchisor gives a notice that the franchisor intends to neither extend the agreement nor enter into a new agreement, the notice must include the reasons for the franchisor's intention. 3061 Now clause 47(2)(a) was modified from 1 July 2020, which explains why the NRNs were given when they were if the agency model was to commence on 1 January 2022. 3062 Let me say something about the relevant features of the obligation to act in good faith in clause 6 of the Franchising Code. 3063 First, the essence of a duty of good faith at common law where such a duty exists is that of fidelity to the bargain made by the parties. There are three related notions embraced by the duty of good faith. These three notions are an obligation on the parties to cooperate to achieve the contractual objectives, compliance with honest standards of conduct and compliance with standards of conduct that are reasonable having regard to the interests of the parties (Sir Anthony Mason, "Contract and its Relationship with Equitable Standards and the Doctrine of Good Faith", The Cambridge Lectures, 1993 (8 July 1993)). 3064 The effect of clause 6 of the Franchising Code is to ensure the obligations of good faith apply to every franchise contract. This prevents the exclusion of such an obligation as a matter of interpretation of a particular contract where, for example, a power is expressly given to one party to exercise a sole discretion. 3065 Clause 6(3) further contains an express legislative demarcation of honesty, a lack of arbitrariness, and cooperation in pursuance of the parties' agreement as being touchstones of the obligation to act in good faith. 3066 Second, the obligation to act in good faith is an extended duty. It applies not only in relation to a franchisor's conduct vis-à-vis a franchisee in relation to a franchise agreement on foot, but by reason of clause 6(2), to a franchisor's conduct vis-à-vis a prospective franchisee in respect of pre-agreement conduct in relation to any dealing or dispute relating to the proposed agreement and the negotiation of the proposed agreement. That extension is significant. 3067 Accordingly, so far as the present case is concerned, MBAuP were subject to the obligation to act in good faith in relation to their discussions with applicants about the agency model, the issuance of the NRNs by MBAuP to the applicants, their negotiations with the applicants in respect of the proposed form of agency agreements, the disputes arising out of the negotiations in respect of the proposed form of the agency agreements, and the disputes concerning the agency agreements as imposed. 3068 Third, the content of the normative standard concerning the duty of good faith against which MBAuP's conduct is to be assessed has the following dimensions. 3069 It is concerned to protect against the exploitation by franchisors of positions of economic or contractual strength as against franchisees who may be in positions of particular economic or contractual vulnerability. 3070 Further, it is intended to give greater protection than would be afforded by the statutory proscription against unconscionable conduct or implied contractual duties of good faith in and of themselves, and perhaps even in conjunction. The standard of conduct which is proscribed may include conduct that does not meet the threshold for unconscionable conduct. 3071 Further, it aims to provide some protection to parties in respect of those aspects of their bargain which might be considered relational and which may fall outside the four walls of their written "formal" contract, such as powers of non-renewal, unilateral amendments to remuneration entitlements, pre-entry negotiation and disputes. 3072 Now the relevant parts of the explanatory statement in relation to the introduction of the statutory duty of good faith are as follows: This is a broad obligation that aims to strengthen the commercial dealings between the parties, particularly given the unique, interdependent relationship and imbalance in bargaining power that typically exists in franchising. The obligation to act in good faith will apply to all parties to the franchise agreement, as well as prospective franchisees, during all aspects of the franchise agreement. This includes during negotiation, execution of the franchising agreement, renewal or extension of the agreement, dispute resolution and in relation to obligations arising under the Franchising Code. … … Franchisors are usually in a more powerful economic and contractual position than the franchisee, and poor conduct by franchisors can have a disproportionate effect on franchisees… The Franchising Code sets out a number of prescriptive and clear rules to guide parties to a franchising relationship, however it does not provide parties with guidance as to the general standard of conduct required of them in the relationship. This role has largely been left to the unwritten law, and the generic protections in the Australian Consumer Law, such as prohibitions on misleading, deceptive or unconscionable conduct. However, these protections are considered insufficient because poor conduct may not necessarily amount to 'unconscionable conduct', and may not necessarily be misleading or deceptive. It is usually accepted that, under the general, unwritten law, parties to a franchise agreement are under an implied contractual obligation to act in good faith toward one another. However, there is still some uncertainty regarding this. The Review stated that 'In considering the need for an obligation to act in good faith, the review cited a number of "examples of anecdotal concerns or possible problematic conduct". … To address this problem, it was recommended that a broad and explicit statutory obligation to act in good faith be introduced into the Franchising Code. … During consultation, the relational nature of franchising was raised on a number of occasions. This is seen as a main difference between a franchise agreement and other commercial agreements. The nature of franchising dictates that each party's contractual obligations are ongoing and variable, forming a contract that is fundamentally based on an ongoing relationship. These are not discreet (sic), one-off exchanges between parties on clearly defined terms that characterise ordinary contractual agreements. The introduction of an obligation of good faith is in a way recognising the special relational nature of a franchise agreement. 3073 The explanatory statement recognised the special relational nature of a franchise agreement, and the disproportionate economic and contractual bargaining strength of the franchisor and franchisee. 3074 Fourth, the statutory duty is not limited strictly to the terms of the franchise agreement, but applies more broadly to the whole of the dealings between a franchisor and a franchisee; see the words "in respect of any matter arising under or in relation" in the opening words of clause 6(1). 3075 Fifth, clause 6 takes as its starting point the "meaning of the unwritten law from time to time" to describe what is meant by "act towards another party with good faith". This is then explained in clause 6(3) to include whether the party has "acted honestly and not arbitrarily", and "whether the party cooperated to achieve the purpose of the bargain". 3076 Now the usual starting point for analysing a contractual duty or obligation of good faith is that of fidelity to the bargain made by the parties. And as I explained above, there are three related notions embraced by the duty of good faith being, first, an obligation on the parties to cooperate to achieve the contractual objectives, second, compliance with honest standards of conduct and, third, compliance with standards of conduct that are reasonable having regard to the interests of the parties. 3077 As to the unwritten law in relation to the meaning of good faith, Colvin J in Australian Competition and Consumer Commission v Geowash Pty Ltd (No 3) (2019) 368 ALR 441 said at [746] (approved on appeal in Ali v Australian Competition and Consumer Commission (2021) 394 ALR 227 at [194]): (1) the term 'good faith' imports a normative standard to be observed by the parties in dealings as to matters to which the standard is applied; (2) the normative standard embraces an obligation to act honestly and with fidelity to the bargain concluded between the parties; (3) the normative standard also embraces an obligation to act co-operatively in matters related to performance; (4) the standard does not require a party to subordinate its legitimate interests to those of the counterparty, but it does require due regard to the legitimate interests that both parties have in the performance of the contract they have made; (5) conduct which is dishonest, capricious, arbitrary or motivated by a purpose which is antithetical to the evident object of any provision of the franchise agreement or the Code that governs the conduct being scrutinised or conduct which is otherwise motivated by bad faith will not meet the standard; (6) where the scrutinised conduct, viewed in the particular context, is objectively unreasonable then the unreasonableness may form part of the basis for a conclusion that there has been a lack of good faith, but objective unreasonableness is insufficient of itself to amount to a lack of good faith; and (7) the quality of the scrutinised conduct is to be evaluated having regard to the circumstances of the particular parties, particularly their sophistication, commercial power and the relative significance for each party of the subject matter of the conduct. 3078 Now the usual content of an obligation to act in good faith at common law is an obligation to act honestly and with fidelity to the bargain, not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for and to act reasonably and with fair dealing having regard to the interests of the parties, which will at times conflict, and to the provisions, aims and purposes of the contract, objectively ascertained. The content of what may be required to satisfy the good faith obligation is not the same in all cases. It is a standard to be applied having regard to the context. 3079 A duty of good faith requires honest and genuine assessment of rights and obligations and it requires that a party negotiate by reference to such. It carries with it an honest and genuine commitment to the bargain. As Colvin J noted in Geowash (at [719]), "when it comes to honesty in performance, a party has (it may be presumed in good faith) secured contractual rights, powers and discretions". 3080 An objective element of reasonableness in fair dealing is appropriate. The focus is on whether the impugned conduct was capricious or arbitrary or dishonest or for a purpose foreign to the objective of the contractual obligation or power, having regard to acceptable norms of commercial conduct. 3081 In Virk Pty Ltd (in liq) v YUM! Restaurants Australia Pty Ltd [2017] FCAFC 190 (the Pizza Hut case) at [183] it was said: …the question whether the 'conduct' of a contracting party is capricious or arbitrary or dishonest or for a purpose foreign to the objective of the contractual obligation or power and thus exhibiting a lack of good faith will instead be adjudicated upon the evidence in a particular case and in the context of the particular contract, having regard to acceptable norms of commercial conduct. 3082 Further, to say that a power was exercised for a purpose foreign to the objective of the contractual obligation or power may mean no more than that the conduct was capricious or arbitrary. 3083 If the scrutinised conduct, viewed in its context, is objectively unreasonable then the unreasonableness may form part of the basis for a conclusion that there has been a lack of good faith, but objective unreasonableness is insufficient of itself to amount to a lack of good faith. The quality of the scrutinised conduct is evaluated having regard to the circumstances of the parties, including their sophistication, commercial power and the relative significance for each party of the subject matter of the conduct. An example from the unwritten law of an act taken by a franchisor in bad faith is provided by Burger King which I have previously referred to. 3084 Sixth, clause 6 does not require a franchisor to give a franchisee an option to renew the agreement or allow the franchisee to extend the agreement. Clause 6(7) states: If a franchise agreement does not: (a) give the franchisee an option to renew the agreement; or (b) allow the franchisee to extend the agreement; this does not mean that the franchisor has not acted in good faith in negotiating or giving effect to the agreement. 3085 Seventh, the application of clause 6(1) in any particular case requires the identification of the matter arising under or in relation to the franchise agreement or the Franchising Code in respect of which there has been a failure to act in good faith by one party towards the other. It does not enable a general claim to be made that there has been a failure to act in good faith. 3086 Eighth, the obligation of good faith does not place contracting parties in a fiduciary relationship. That is, it does not require a contracting party to prefer the interests of the other contracting party or to subordinate its self-interest. 3087 As Barrett J pointed out in Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17 at [67]: …[T]he implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary: Burger King at para 187. The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms. 3088 Good faith does not require a party to subordinate the party's own interests. This principle is reflected in the Franchising Code, under which a franchisor is entitled to prefer its own commercial interests if there is competition between its interests and those of franchisees. Clause 6(6) provides that: To avoid doubt, the obligation to act in good faith does not prevent a party to a franchise agreement, or a person who proposes to become such a party, from acting in his, her or its legitimate commercial interests. 3089 As Colvin J explained in Geowash at [696]: …cl 6(6) states that a person is not prevented by the obligation to act in good faith from acting in its legitimate commercial interests. The choice of the expression 'does not prevent' in the clause may have significance; as may the fact that the commercial interests are not expressly confined to those associated with the terms or performance of the agreement. Importantly, the language used removes any uncertainty as to whether the good faith obligation is akin to a form of fiduciary obligation requiring a party to be guided or influenced by the interests of the other party. It probably also excludes the possibility of a form of obligation that would require each party to fairly balance or weigh up their own interests and the interests of the other party. Each party may put its own interests ahead of the other party. Also, each party may act in its own interests even though there may be detrimental consequences for the interests of the other party. However, the expression 'legitimate' introduces a limit upon the interests to which a party may have regard and still be acting in good faith. Legitimacy is to be judged by reference to the nature of the agreement and the rights and obligations of the party whose conduct is under scrutiny. 3090 Now the judgment of Barrett J in Overlook provides an illustration of those principles. 3091 Overlook had entered into a contract with Foxtel under which Foxtel was to purchase content from Overlook for its pay television business. Foxtel acted to reduce the price to subscribers for two add-on components. There was no explicit contractual restriction in its contract with Overlook preventing Foxtel from changing the subscriber price. Foxtel's reduction of the price produced a reduction in the returns to Overlook because the reward or return to Overlook was expressed as a percentage of the revenue generated by Foxtel from subscriptions for the add-on channels. 3092 Overlook claimed that Foxtel breached an implied obligation to act in good faith towards Overlook in the performance of the contract. 3093 But Foxtel contended that it made a legitimate business judgment with a view to achieving an increase in market penetration of the non-English language channels and that it did so in the interests of both parties, recognising that there would inevitably be a fall in revenue from those channels for both parties but in the expectation that increased penetration would in time reap suitable rewards. An effective halving of the subscriber price would severely impact Overlook's financial return from Foxtel unless and until offset by a significant increase in subscriber numbers. 3094 His Honour said (at [67] and [68]): Viewed in this way, the implied obligation of good faith underwrites the spirit of the contract and supports the integrity of its character. A party is precluded from cynical resort to the black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary: Burger King at para 187. The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parties in the enjoyment of the fruits of the contract as delineated by its terms. In many ways, the implied obligation of good faith is best regarded as an obligation to eschew bad faith. This is borne out by the following succinct statement by Lord Scott of Foscote in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] 2 WLR 170, a case concerning the duty of good faith in the insurance context: "Unless the assured has acted in bad faith, he cannot, in my opinion, be in a breach of a duty of good faith, utmost or otherwise." 3095 His Honour then said (at [81] and [82]): There can be no doubt that Overlook suffered financially in the short term by reason of the price reduction. There can equally be no doubt that Foxtel decreased the price with a view to increasing market penetration of the non-English language channels. It is true that subscription numbers for one were reasonably close to budget, even though subscriptions for the other were materially below budget. But there is no unwritten rule of reasonable business behaviour which says that efforts to achieve greater market share should be abandoned if trading is in line with or close to budget. Foxtel knew that Overlook would suffer a financial detriment in the short term. It expected, however, that that could and would be made up by increased subscriber numbers. The numbers involved were at the upper end of realistic expectations. But Foxtel remained sanguine about its own marketing abilities. It no doubt expected - indeed, intended - that some of the increased subscriber base would be churn from Optus. It must have been recognised by all that it was a fundamental of Foxtel's business strategy that it make continuous efforts to persuade Optus subscribers to come over to Foxtel. That was normal and expected competitive behaviour. Moreover, Overlook, as a sophisticated commercial player, appreciated that and had in fact taken it into account in agreeing the subscriber numbers for the purposes of the graduated fee structure with Foxtel, albeit on an assumption or expectation that the Foxtel price would remain at $19.95 throughout the whole term of five years. That assumption or expectation on Overlook's part was, to my mind, one which it could have made only by way of business gamble. It had taken no steps to make the assumption part of the bargain. … 3096 Barrett J accepted that Overlook suffered financially in the short term by reason of the price reduction and that Foxtel knew that. But his Honour was also satisfied that Foxtel decreased the price with a view to increasing market penetration of the non-English language channels. 3097 His Honour held that Foxtel's actions did not contravene the obligation of good faith, stating (at [83]): …Foxtel did not act in a capricious way: on the contrary, its action was deliberate and reasoned and had both a rational basis and an objective explanation. Furthermore, the action was not purely selfish and destructive of the position of Overlook or such as to cause Overlook's rights to become nugatory, worthless or seriously undermined. Foxtel acted in a way which it genuinely believed was calculated to enhance market acceptance of RAI and Antenna and to achieve an eventual level of penetration more favourable to both parties than that already pertaining. As things turned out, Foxtel's expectations as to resultant market behaviour were too optimistic and it took significantly longer than Foxtel had expected or foreseen for subscriber numbers to reach a level which caused Overlook's revenue position to be restored to its pre-cut level. But neither that nor any other factor can or should be regarded as having caused Foxtel's action to involve the cynical resort to black letter rights at the expense of the integrity of the contracts' spirit and character with which the implied contractual term imposing an obligation of good faith performance is concerned. Foxtel's actions involved no departure from standards of conduct which are honest, as well as being reasonable having regard to the parties' interests.

[12]

The contractual duties 3098 The applicants also say that there is a further or alternative set of constraints on the non-renewal power, being an express or implied contractual duty, depending upon the form of the dealer agreement, to cooperate to achieve the objects of each dealer agreement and a duty to act reasonably and in good faith, having regard to the terms, purpose and object of each such agreement. I accept that there are such terms. 3099 The first of these duties is that each contracting party agrees to do all such things as are necessary on its part to enable the other party to have the benefit of the contract. The scope of the duty is defined by what has been promised under the contract, and requires a party to a contract to do all things necessary to enable the other party to have the benefit of the contract. It is synonymous with a contract party acting with fidelity to the bargain. To that extent, the scope of the duty is encompassed within the statutory duty of good faith under clause 6 of the Franchising Code. 3100 The second of these duties, to act reasonably and in good faith, is also encompassed within the statutory duty of good faith under clause 6 of the Franchising Code, and also as a matter of contract. 3101 In Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, Priestley JA said (at 268): …people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations. 3102 But I accept that the principle stated by Priestley JA in Renard Constructions should not be treated as a universal implication for all contracts. 3103 Further, various cases have proceeded upon the basis that the duty of good faith, if not implied in all contracts as a universal term, will at least be implied in particular classes of contracts. In Burger King, the New South Wales Court of Appeal had no difficulty in finding such an implied term in the franchise agreement in that case. See also Far Horizons Pty Ltd v McDonald's Australia Ltd [2000] VSC 310 at [120] per Byrne J. 3104 The content of the duty of good faith also overlaps with the duty to cooperate. 3105 The applicants have put a case that having regard to the substantial degree of overlap between these contractual duties and the statutory duty of good faith under clause 6 of the Franchising Code, and having regard to the conduct of MBAuP in relation to the issuing of the NRNs in this case, MBAuP's conduct amounting to a breach of clause 6 of the Franchising Code also establishes the breaches of each of these terms. I would say here that I have rejected both cases. 3106 Now the applicants do not contend that the contractual duties provided any broader basis for relief than the good faith duty. 3107 As to the first duty, being to cooperate to achieve the objects of the contract, there is an accepted general rule of construction that a contract imposes an implied obligation on each party to do all that is necessary to secure performance of the contract and, in particular, to enable the other party to have the benefit of the contract. 3108 In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 it was said by Mason J at 607: It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contacting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract… 3109 It is confined to those acts which are necessary to secure the performance of obligations under the contract, that is, something which the contract requires to happen. There cannot be a duty to cooperate in bringing about something which the contract does not require to happen. 3110 The duty to cooperate, with its positive and negative connotations, is implied because of necessity. The content and operation of an obligation to cooperate must not be at odds with the terms upon which the parties have expressly agreed. 3111 The first duty imposes no broader obligation than the good faith duty. 3112 As to the second duty being to act reasonably and in good faith, there is an open question about whether contract law recognises any duty to act in good faith in all contracts irrespective of their terms. Practically speaking, given the good faith duty applicable under the Franchising Code, the resolution of this issue does not alter the overall analysis. 3113 In the Pizza Hut case, the franchisee parties argued that Pizza Hut's discretionary power to fix maximum prices was subject to an implied obligation that it be exercised honestly and reasonably and with reasonable cause. 3114 The Full Court rejected the franchisees' submission that the notion of reasonableness within the composite phrase is to be viewed distinctly from the obligation of good faith, stating (at [164] and [165]): …The obligation, expressed as one of good faith and reasonableness, is to be considered in a composite and interrelated sense. To the extent that consideration is given to whether a party's conduct is reasonable or not, it is directed to the primary component of the obligation, namely of good faith. Reasonableness is not to be approached in a case such as this as akin to a tortious duty to exercise due care and skill or to produce a reasonable outcome. Rather it goes to the quality of the conduct, here in exercising the price setting power, to discern whether it was capricious, dishonest, unconscionable, arbitrary or the product of a motive which was antithetical to the object of the contractual power… Where, as in this case, there is a finding of good faith (or, specifically, a finding that there was an absence of bad faith: in effect, not having demonstrated that there was a lack of good faith) attaching to the exercise of the contractual power, then that exercise must necessarily also have been reasonable… 3115 At [178], the Court stated: Importantly, and contrary to the [franchisees'] alternative submission, it may also be seen that 'reasonableness' as an adjunct to an obligation of good faith has never been regarded as a duty to exercise due care and skill or to produce a reasonable outcome. 3116 The Court stated that reasonableness refers to the standard of a party's conduct or behaviour in relation to the performance of a contractual obligation or exercise of a contractual power. It may, for example, include consideration of a party's real intention or purpose in exercising a contractual power. It calls into consideration, for example, whether that conduct is or is not honest, capricious, arbitrary or for an extraneous purpose. Clearly, the exercise of power to promote a legitimate interest of a party would not be capricious. 3117 As such, there is considerable overlap between these duties and the extraneous or improper purpose ground. To say that a power was exercised for a purpose foreign to the objective of the contractual obligation or power may mean no more than that the conduct was capricious or arbitrary. 3118 Finally for completeness, I repeat what I said at the outset of these reasons concerning any good faith requirement when the relevant contractual power is for the sole benefit of one party.

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The applicants' case 3119 The applicants say that by applying the factors set out by Colvin J to the NRNs in the present case, a breach of the statutory duty of good faith in clause 6 of the Franchising Code is established. It is appropriate to list the applicants' key themes. 3120 First, it is said that the NRNs were not issued with fidelity to the bargain, but were issued contrary to the bargain between MBAuP and the dealers, and was destructive of that bargain, by bringing it to an end. 3121 Second, it is said that the NRNs were not issued honestly, in the context of the bargain between the parties. 3122 It is said that the purpose of the NRNs was to give effect to directions made by MBAG to achieve its global strategy, about the determination of MBAuP, to force the agency model on the dealers with or without the mutual consent of the dealers. 3123 It is said that the NRNs formed part of an intentional "alignment" strategy, the sole purpose of which was to minimise legal risk on the part of MBAuP from the implementation of the agency model, in the context just referred to. 3124 Moreover, the applicants say that MBAuP had a practice of using NRNs for an ulterior purpose of putting pressure on dealers who did not agree to conform with MBAuP's strategic plans and not being performance management issues. 3125 Third, it is said that the issuance of the NRNs, as the first step in introducing the agency model, did not have regard to the legitimate interests of the dealers, being interests defined by their existing bargain and relationship under their dealer agreements, but was antithetical to those interests by reference to the expected financial outcomes, in which the dealers would be worse off in terms of their profitability and suffer a detrimental effect to the goodwill in their businesses. 3126 Fourth, the applicants say that the entire course of conduct in relation to the development and implementation of the agency model was dishonest, capricious, arbitrary and motivated by a purpose which was antithetical to the relationship and dealer agreement. 3127 It is said that MBAuP took the customer relationships and goodwill from the dealers, and in particular the profits to be earned from the unexpired lifetime value of those customers, without paying anything to the dealers for that taking. 3128 Further, it is said that MBAuP engaged in the pretence that the dealers would suffer no loss of enterprise value under the remuneration structure proposed for the agency model, on the basis approved in 2020, because of an alleged equivalence in remuneration outcomes, which MBAG and MBAuP knew was not the case. 3129 Fifth, and as a corollary of the fourth point, it is said that MBAuP's conduct in serving the NRNs was motivated by bad faith, insofar as the purpose of the NRNs was to establish the basis for making a subsequent threat to the dealers either to sign whatever form of agency and other agreements were presented to the dealers to implement the agency model, or have the relationship with the Mercedes-Benz brand "cease", with the consequence that their dealerships would be forced to close and they would have to terminate the employment of their staff. 3130 Sixth, it is said that at no point did MBAuP or MBAG give any or any serious consideration to the effect of the agency model, or the service of the NRNs, on the circumstances of the individual dealers, but rather treated all dealers as a "job lot". 3131 In summary, the applicants say that the entire course of conduct of MBAuP, on its own behalf and acting on the direction or instruction of MBAG, in relation to the giving of the NRNs and the development and implementation of the agency model, was an exercise in bad faith towards each of the dealers, in contravention of clause 6 of the Franchising Code. 3132 Let me deal with some general points raised by the applicants. 3133 The applicants say that the legislative intent apparent from the explanatory statement is that contractual powers in franchising agreements, which are usually contracts of adhesion, are to be exercised in such a way as to support the legitimate expectations and interests inherent in the bargain or relationship under the agreement. Within this framework, the applicants make the following points which in my view are not without merit. 3134 First, if a strictly contractual analysis were all that was required, there would be no role for the duty of good faith to play. 3135 Second, the statutory duty of good faith in the Franchising Code is expressly framed as a broad duty which focuses upon specific "acts", and not general behaviour or intentions. 3136 Third, as a corollary of these two points, a difference may arise between the analysis of a power under a strictly contractual analysis, as compared with an analysis which pays proper regard to the application of the statutory duty of good faith. So, pursuant to the broader approach to the good faith power under clause 6 of the Franchising Code it is permissible to have regard to the substance of what the parties intended, including by reference to evidence that may not be admitted in a conventional process of construction. Those sources of information might be open to consider as being of general application to understanding the bargain made by all dealers, so the applicants say, even where it was not made as an express pre-contractual statement applicable to all of them. 3137 Fourth, another way in which the strict contractual approach may depart from an approach paying due regard to clause 6 of the Franchising Code is the relevance of post-contractual conduct to understanding the nature of the bargain as a matter of substance. This may be relevant where, as in the present case, the contract is one of adhesion, has a long-term operation and otherwise relies on a commercial understanding of how the contract will operate, including how it may end. Although I must say that this last point is pushing the envelope. 3138 Fifth, the applicants refer to Bond Brewing. But as I have indicated earlier in my reasons, Bond Brewing was an estoppel case. In the case before me the applicants do not plead any relevant estoppel applying to all exemplar applicants. 3139 Sixth, clause 6 recognises that franchising is a unique relationship. It is one based on a contract, which sits between a fully articulated contract which represents the whole of the agreement, and a true legal partnership. I note that MBAuP addressed the dealers in letters drafted for Mr Seidler by lawyers in September 2021 as "Business Partners". But of course clause 6 is not a fiduciary duty. 3140 Seventh, clause 6 does not create a duty in negligence, to be solely assessed by reference to an objective reasonableness standard. 3141 Eighth, conduct may be in breach of the clause 6 duty but not unconscionable. The focal point of clause 6 is in one sense purposive, which also distinguishes it from unconscionable conduct under s 21 of the ACL, where "good faith" is one of the circumstances to be taken into account but which may or may not be determinative in a particular case. 3142 In short, the applicants say that the duty of good faith requires parties to a franchise agreement to conduct themselves in a way that upholds the substantive commercial relationship they have entered into. The duty respects and acts on the legitimate commercial interests of both parties, as a matter of substance and not form. 3143 Further, the applicants say that the clause 6 duty may, in an appropriate case, require a financial adjustment by way of compensation to adjust for any changes as part of addressing the legitimate expectations of some or all of the franchisees where the relevant act produces adverse financial consequences for them. In the present case, the absence of compensation on this hypothesis is pleaded as a breach of the duty of good faith. 3144 Finally, the applicants say that the scope of the statutory duty is not limited to powers and actions within the terms of a contract. The words of clause 6(1) make this clear as they concern an act in respect of any matter arising under or in relation to the agreement. So, the duty is equally capable of applying to an act of termination of the contract, whether by NRN or otherwise.

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Analysis 3145 Now the applicants set out various matters on which they rely in support of their allegation that MBAuP breached the good faith duty in issuing the NRNs. Let me deal with each in turn. 3146 First, the applicants say that the NRNs were not issued with fidelity to the bargain but were issued contrary to the bargain between MBAuP and the dealers. But I agree with MBAuP that the good faith duty requires fidelity to the existing bargain, not some comparison between the existing bargain and some future bargain. It does not entail an inquiry into whether the agency model or the agency agreements that dealers were invited to enter into after the NRNs had been issued after the exercise of the contractual power, were consistent or inconsistent with the contractual bargain under the dealer agreements. 3147 What was required of MBAuP, in exercising the non-renewal power, was that it act honestly and with fidelity to the bargain under the dealer agreements, not act dishonestly and not act to undermine the bargain entered, or the substance of the contractual benefit bargained for, under the dealer agreements, and act reasonably and with fair dealing having regard to the interests of the dealers, which may be in conflict with MBAuP's interests, and to the provisions, aims and purposes of the dealer agreements, objectively ascertained. 3148 The object of a dealer agreement was to enable a dealer to participate, during its term, in MBAuP's franchise system using MBAG's intellectual property, thereby providing an opportunity for both a dealer and MBAuP to generate profits. The applicants argue that the commercial bargain was a permanent one and the dealer agreements were evergreen, but they have failed to establish that. 3149 The purpose of the non-renewal power is to bring the existing contractual bargain to an end. So, the applicants' contention that the NRNs were destructive of that bargain, by bringing it to an end is of no assistance. The proper inquiry is directed to MBAuP's non-renewal of the dealer agreements and whether the non-renewal was faithful to that contractual bargain. It plainly was. MBAuP exercised the non-renewal power for the very purpose for which it was created, namely, to bring a dealer agreement to an end. The ostensible purpose of the exercise the power is also its true purpose. 3150 Given that the purpose of the non-renewal power was to bring a dealer agreement and the existing commercial bargain to an end, it cannot be inconsistent with that purpose to invite nor have the purpose of inviting a dealer to enter into a different commercial bargain after the termination of the existing bargain. 3151 Second, the applicants say that the NRNs, as the first step in introducing the agency model in Australia, did not have regard to the legitimate interests of the dealers, being interests defined by their existing bargain and relationship under their dealer agreements, but was antithetical to those interests by reference to the expected financial outcomes, in which the dealers would be worse off in terms of their profitability and suffer a detrimental effect to the goodwill in their businesses. 3152 Now there is a considerable overlap between this factor and that discussed in response to the asserted fidelity to the bargain and that regarding goodwill and the alleged improper purpose. The allegation should be rejected. 3153 But in any event, the contention that the NRNs were the first step in introducing the agency model invites me to compare the bargain under the dealer agreement with that under the agency agreement in determining whether the issuance of the NRNs was in good faith. But that is the wrong inquiry. 3154 Further, the goodwill of a dealer did not survive the expiry of a dealer agreement, that being part of the bargain struck by that franchise agreement. 3155 Third, the applicants say that MBAuP's conduct in issuing the NRNs was motivated by a purpose which was antithetical to the relationship and dealer agreement, in that MBAuP sought to take the customer relationships and goodwill from the dealers, and in particular the profits to be earned from the unexpired lifetime value of those customers, without paying anything to the dealers for that taking. 3156 Further, it was said that MBAuP engaged in the pretence that the dealers would suffer no loss of enterprise value under the remuneration structure proposed for the agency model because of an alleged equivalence in remuneration outcomes, which MBAG and MBAuP knew was not the case. 3157 The first matter is dealt with in my discussion regarding goodwill and the alleged improper purpose. The applicants have failed to establish that the purpose or effect of MBAuP's non-renewal was to appropriate or acquire the goodwill of the dealers. The second matter if relevant at all in any event is more relevant to the unconscionable conduct case. 3158 Fourth, in my view MBAuP had a legitimate interest in exercising the power of non-renewal. 3159 As Colvin J explained in Geowash (at [696]), the expression "legitimate" introduces a limit upon the interests to which a party may have regard and still be acting in good faith and "[l]egitimacy is to be judged by reference to the nature of the agreement and the rights and obligations of the party whose conduct is under scrutiny". 3160 Central to that assessment is the recognition in the present case that the very purpose of the non-renewal power is to bring the existing contractual bargain to an end. 3161 Now as I have explained above, the obligation of good faith requires a party to act honestly and with a fidelity to the bargain, not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for and to act reasonably and with fair dealing having regard to the interests of the parties, which will inevitably at times conflict, and to the provisions, aims and purposes of the contract, objectively ascertained. 3162 If a party in the position of MBAuP observes those requirements, as they apply to the conduct in issue here concerning an exercise of contractual power, then the party has acted in good faith. However, clause 6(6) of the Franchising Code additionally provides that: To avoid doubt, the obligation to act in good faith does not prevent a party to a franchise agreement, or a person who proposes to become such a party, from acting in his, her or its legitimate commercial interests. 3163 Further, there was a legitimate commercial interest in sending the NRNs to bring an end to the dealer agreements upon the expiry of their term and offer retailers the ability to join the agency model. In MBAuP's judgment, the agency model was an appropriate structural solution to the challenges and changing marketplace faced by MBAuP and the dealers. The assessment of MBAuP's legitimate interests concerning the issuing of the NRNs is not an opportunity for the applicants to substitute their own judgment for the business judgment of MBAuP. 3164 Let me elaborate further and begin with some of the market conditions as MBAuP perceived them to be, but of course recognising that MBAuP's and indeed MBAG's strategy was principally focused on profit maximisation including reducing the cost of retail. 3165 From the 2016 calendar year to the 2019 calendar year, dealer profitability on the sale of new vehicles was in decline across the Australian automotive industry. New car selling gross profit fell by 42% from 2016 to 30 June 2018. Average dealership net profit as a percentage of total revenue (RoS or NP%S) fell from 2.2% in the 2015 calendar year to 0.9% in the 2019 calendar year. 3166 During the same period, profitability on the sale of new vehicles was in decline across the Mercedes-Benz dealer network. Average dealership RoS fell from 2.6% in the 2015 calendar year to 1.5% in the 2019 calendar year. Mercedes-Benz dealers returned an average negative RoS in August 2018. From 2015 to 30 June 2018 dealer costs had increased significantly. 3167 Technological advances meant that low-cost entrants had begun to enter and disrupt existing markets. That included Uber in the taxi industry, Airbnb in the accommodation industry, Skype, WeChat and Zoom in the communications industry and Alibaba in the retail industry. Across various industries, businesses including manufacturers and retailers that were slow to adapt to new technology lost their competitive edge and their market share. Some went out of business. 3168 Entrants with lower cost of retail had begun to enter the automotive industry globally. These included third party providers and low-cost greenfield OEMs. 3169 Low cost greenfield OEMs with significant financial backing had begun selling electric vehicles using a direct sales model online or with minimal retail outlets and no dealership footprint. Low cost greenfield OEMs operating by the end of 2018 included Tesla. The low cost bases of these greenfield OEMs enabled them to sell their cars at a lower price or sell cars at a similar price but retain a larger profit to re-invest in future product development, putting pressure on existing brands. Some offered subscription services where the ownership remained with the OEM. 3170 Further, by 2016, 90% of automotive customers were starting their purchase journey online and were not visiting dealerships four to seven times, as was previously the case, before buying a car, but only one to two times. 3171 Further, by the end of 2018, each of www.carsales.com.au in Australia, www.shift.com in the USA and www.mobile.de in Germany facilitated the sale of used cars online. The trend towards the sale of new cars online had begun with businesses such as www.roadster.com in the USA. 3172 By 2018/2019, online marketplaces enabled aggregators to act as middlemen and connect customers to dealers. Different aggregators had different business models. 3173 These types of businesses posed some degree of threat to the Mercedes-Benz network in Australia in several ways, although more over the medium to long-term. First, they could increase intra-brand competition and reduce dealer margins by encouraging dealers to discount aggressively to make a sale, especially where the customer was located outside the dealer's assigned PMA. Second, they could undermine the value of the luxury Mercedes-Benz brand by the scale of discounts being offered by dealers to win a sale. Third, they could increase dealers' costs of sale by charging dealers a fee for any "lead" generated through the aggregator's platform. Fourth, they enabled the aggregator to collect customer data, denying that data to dealers and OEMs. 3174 When MBAuP issued the NRNs, MBAuP believed that something had to change and that an agency model was one solution for the challenges it and its dealers then faced. But I do agree with the applicants that MBAuP exaggerated many of these threats when considered in the short to medium-term time horizon. 3175 Further, key personnel within MBAuP all gave evidence that they believed at the time that the agency model that came into effect on 1 January 2022 was the right business solution to address the decline in profitability experienced in the years pre-COVID, one which dealt with the competitive threat of disruptors, the problem of aggressive intra-brand discounting, facilitated cost savings for dealers, provided greater transparency to customers and enabled the growth of lower-cost online sales. 3176 Further, the final version of the agency model was the product of approximately three years' discussions, feedback and negotiations with the dealers. MBAuP sought and took into account the dealers' views on key strategic items such as the treatment of demonstrators and trade-ins, pricing structure, inspection reimbursement amount and structure, the basis and components for target setting and the calculation of commission. Let me address the features of the agency model that the parties focused on before me. 3177 The model has fixed transaction prices. That feature was included to address the aggressive intra-brand discounting, improve the customer experience at point of sale and neutralise the emerging threat from online disruptors. 3178 Further, for the XXXXXXXX of the agency agreement, agents earn a fixed base commission of X%, a transition commission of X% and a variable commission of X% for X% XXXX achivement, for a total of X%. Agents can earn XXXX if they exceed their targets. The percentage commission payable, the split between fixed base and variable commission, as well as the target achievement requirements were all designed by MBAuP. It designed the commission structure through its analysis of the financial position of the average dealer and through the application of its judgment as to cost savings that it believed agents could realise under the model, under which LLPs are fixed and MBAuP financed, owned, stored and transported all of the stock of vehicles for sale in Australia, and any vehicles leased to agents. 3179 Further, agents earn $X for PDI on each new car sold. The amount and structure of that payment was designed by MBAuP and was increased from an earlier proposal of $X per unit, following feedback from dealer representatives. In percentage terms, the addition of the PDI equates to a total average agent commission of X%, with a maximum available commission of X%. 3180 Further, the model has floating targets, which means that agent volume targets are based on the XXXXXXXXXXXXXX XXXXXXXXXX XXXXXXXXXXXX XXXXXXXXXXXXX XXXXXXXXX XXXXXXXXX. In other words, to earn 100% commission, an agent has to achieve a XXXXXXXXX XXXXXXXXXXXXXX XXXXXXXXXXXXX XXXXXXX, XXXXX XXXXXXXXXXX XXXXXXXXXXX XXXXXXXXXXXX. Floating targets were selected by MBAuP after consultation with dealer representatives. 3181 Further, MBAuP owns all stock of Mercedes-Benz cars offered for sale in Australia and assumes significantly higher business risk on account of being responsible for financing, owning, storing and transporting that inventory. The business risk to agents is correspondingly decreased. 3182 Further, MBAuP owns demonstrator cars. Agents earn a commission of X% of the transaction price, they are reimbursed for the cost of registration and third-party insurance, they earn PDI income of $X per unit and are reimbursed $X per car for a roadworthy certificate and transfer of registration. 3183 Further, it has harmonised commissions. The commission earned on an offline sale is the same as the commission earned on an online sale. The decision to harmonise commissions was made in 2021, following feedback from dealers. 3184 Further, there is a safety net, developed by MBAuP after consultation with dealers. 3185 The specific features of the agency model implemented in Australia were developed in consultation with dealers over a period of years, but in pursuit of MBAuP's legitimate interest. Let me draw out some of the highlights from the more detailed chronology that I have set out earlier in my reasons. 3186 Mr von Sanden invited Deloitte to facilitate a workshop in July 2016, between MBAuP and the dealer network to which all dealers were invited. The later analysis by Deloitte records that a key takeaway was to "strategise" as to "fixed pricing". Indeed, such was the prominence of the suggestion of MBAuP setting the price for new vehicles as a means to combat aggressive discounting in the retail network, that Mr Jennett had a recollection of the suggestion some years later. 3187 Following the 2016 Deloitte workshop, Deloitte produced a debrief presentation. That Deloitte debrief was discussed at an NDC meeting on 12 October 2016. Mr von Sanden also discussed the debrief presentation with the MBAuP ExCom and put follow-up processes in place to work on the individual topics raised at the workshop. 3188 Specifically, on 19 October 2016 the MBAuP ExCom discussed in detail 17 topics recorded in the Deloitte debrief "to decide which topics to take to the next step". The minutes of that MBAuP ExCom meeting record that in relation to the dealers' request for fixed pricing, the MBAuP ExCom resolved to share an example of another market, possibly MBSA which had moved to an agency model, at a later dealer principal meeting in December. 3189 Around this time, Mr von Sanden began considering an agency model as something which might be able to address the decreasing dealer profitability, competitive dealer discounting and the risk of disruptors. 3190 By this time, South Africa and country X were considered pilot markets for ROTF. Australia was not on the list and had not been asked to become a pilot market. South Africa at that time was in the process of implementing model D (an agency model), and country X was pursuing model B. 3191 Mr von Sanden stated that MBAuP had to fight considerably to be accepted as a pilot market. However he was encouraged by the fact that MBAG had allowed one market to pilot the agency model, and he took the opportunity to put Australia forward as a further pilot market, including by volunteering to evaluate a market assessment tool that was being developed by BCG, based on MBAuP's data, as to which business models were appropriate for the Australian market. 3192 I agree with MBAuP that Mr von Sanden's decisions to assign staff to look at what an agency model might look like for Australia and put Australia forward as a pilot market were decisions made by MBAuP and its CEO, who was its guiding mind at the time, to progress an agency model in Australia. 3193 On 17 April 2017, Mr von Sanden received an email from Mr Deuschle attaching a Retail Optimization overseas compendium dated 1 December 2016, a general introduction to the ROTF Project and toolbox information regarding a market assessment tool. The email from Mr Deuschle stated "we are considering changes to the sales model in the sense of building up online platforms or even changing from a dealer to an agent model in some markets". The overseas compendium defined four future business models, being models A, B, C and D and specified that stationary retail will still process the majority of sales. Both documents specified that there is no "one size fits all" solution. 3194 On or around 12 May 2017, Mr Cutter on behalf of MBAuP completed the market assessment tool and returned it to BCG. The outcome of the market assessment tool was sent to Mr von Sanden on 29 May 2017. It recommended that of the four models considered, model C was the appropriate model for the Australian market. 3195 Mr von Sanden reviewed the results of the market assessment tool, and considered that model C was not appropriate in Australia as it would put MBAuP in direct competition with the dealers through direct online sales and would increase intra-brand competition and aggressive discounting. He voiced his concerns around model C to others, including Mr Lührs of MBAG. 3196 On 8 June 2017, a "refined and approved" version of the results for Australia was sent to Mr von Sanden which stated that "[t]he Agent model (config D) is according to MB Australia the best fit for the market, since it combines all advantages like price enforcement (avoidance of intra-brand competition), transparency, best customer experience, less risk for dealers, digitalization and a uniform brand experience in one business model". 3197 This was a decision made by MBAuP through its CEO to progress an agency model in Australia and it was a decision made by Mr von Sanden in contradistinction to the results of the assessment tool provided by MBAG which recommended model C. 3198 Mr von Sanden also did not consider model A or B to be appropriate for the Australian market. In my view his consideration of those options was genuine. Mr von Sanden considered that MBAuP needed a solution to address the "pain points" of customer experience at the point of sale, risk of disruptors and aggressive discounting. Now the applicants complain that MBAuP could have addressed the "pain points" of aggressive discounting and declining retailer profitability by retaining the existing dealership model and reducing or removing sales targets, which the dealers considered to be unrealistic, rather than implementing an agency model. But the causes of action advanced by the applicants do not entail a second-guessing of MBAuP's business judgment as to the appropriate solution for the Australian market, although this question is not completely irrelevant to the unconscionable conduct case. 3199 On 21 November 2017, MBAuP held the 2017 retailer annual business briefing for dealers, during which the ROTF project was discussed. Mr von Sanden reiterated his concerns about the market which necessitated change, including that average customer dealer visits per purchase had decreased, online purchasing had significantly increased and the current purchase experience was destroying trust between the customer and retailer. The presentation set out five defined alternatives of how to proceed, along with the "pros" and "cons" of each. 3200 The first option was to "do nothing". While the "pros" stated there was nothing to do, the "cons" listed included "wait for the disruptors to arrive; watch 3rd parties sell cars online and see profits erode". 3201 The second option was to "digitalise today's model by allowing retailers to sell online", that is, model A. The "pros" included low effort required by MBAuP, however the "cons" included "inconsistent consumer experience; significant intrabrand competition and high IT investment from retailers". The speaking notes to the slide also note that this option was vulnerable to disruptors entering the market. 3202 The third option was that MBAuP would create one marketplace with a "buy now" button to allow retailers to sell online using a common marketplace, that is, model B. The "pros" included a consistent look and feel, and shared IT costs for the marketplace, however the "cons" were "fierce on-line competition in common marketplace" and "still high costs without economies of scale". As the speaking notes to the slide also record, this option is vulnerable to disruptors entering the market. 3203 The fourth option was that MBAuP opens a direct sales on-line store in competition with dealers, which was model C. The "cons" of this model included that MBAuP and retailers would be competing online, it would attract aggregators comparing MBAuP's prices with dealer prices and there would be a duplication of processes. The speaking notes to the slide record "few cost savings with this model, competition between us and our retail network, aggregators will be attracted to this model to offer pricing comparisons and search services". 3204 The fifth option was an agency model. The "pros" of the agency model listed included "seamless model across multiple channels, fixed prices nationally across all sales channels and lean cost base with low duplication". The "cons" were "significant change" and "increased risk and costs for [MBAuP]". 3205 Mr Jennett's evidence was that at the time of receiving this presentation in November 2017, he understood that options were being defined in order to address the digitalisation of commerce, and the need to adapt to the capacity for online sales. Following the meeting, Mr Jennett was aware that the introduction of an agency model was being considered by MBAuP, and that the clear inference he took out of the meeting was that an agency model was considered by MBAuP to be best suited to dealing with the issues presented at the meeting. Mr Jennett also understood by November 2017 that Australia was a priority market to define a future sales model, and that an agency model was "weighted" as the preferred model by those presenting, namely Mr Kelly and Mr von Sanden. 3206 From this time on Mr von Sanden, whilst open to considering other options, was an advocate for an agency model. 3207 In summary, the evidence demonstrates that MBAuP's pursuit of an agency model was rational and in pursuit of its legitimate interest. And the anterior step that needed to be taken was to issue the NRNs, which also was in MBAuP's legitimate interest. 3208 Now whilst the causes of action of the applicants do not generally entail a second-guessing of MBAuP's business judgment in introducing the agency model, the economic experts agreed that better channel integration is relevant and rational as an outcome of the current process of digital disruption. As Mr Ergas said, "given market trends towards greater online retail sales, the switch to the agency model greatly reduces or eliminates the threat that intra-brand competition poses to the longer term viability of the Mercedes-Benz dealer network, which in turn underpins the value of the Mercedes-Benz brand". 3209 Fifth, the applicants identify several matters which they say establish that the NRNs were not issued honestly. And they allege that Mr von Sanden had a track record of using NRNs for an ulterior purpose of putting pressure on dealers who did not agree to conform with MBAuP's strategic plans. But the evidence does not support any finding that Mr von Sanden or MBAuP had such a track record or practice. 3210 Further, it was said that the purpose of the NRNs was to give effect to directions made by MBAG to achieve its global strategy, without the independent determination of MBAuP. But clearly MBAuP did have independent involvement. 3211 Further, it was said that the NRNs formed part of an intentional alignment strategy, the sole purpose of which was to minimise legal risk on the part of MBAuP from the implementation of the agency model in the context of what I have just said. But even if made good on the evidence, none of this establishes a lack of good faith. 3212 Sixth, the applicants allege that in issuing the NRNs, MBAuP was motivated by bad faith insofar as the purpose of the NRNs was to establish the basis for making a subsequent threat to the dealers either to sign whatever form of agency and other agreements were presented to the dealers to implement the agency model, or have the relationship with the Mercedes-Benz brand cease, with the consequence that their dealerships would be forced to close. I reject this. 3213 There is nothing improper in exercising the non-renewal power for the very purpose for which it existed, namely, to bring a dealer agreement to an end. 3214 Further, the Franchising Code itself required MBAuP to provide dealers with 12 months' prior notice of the expiry of the dealer agreements. With effect from 1 June 2020, the Franchising Code required franchisors to give 12 months' notice of their intention to extend the agreement, enter into a new one, or do neither (if the agreement is for 12 months or more); see Competition and Consumer (Industry Codes - Franchising) Amendment (New Vehicle Dealership Agreements) Regulations 2020 (Cth). 3215 Further, whether any such threat was made or any dealer forced to enter into an agency agreement are issues that arise on the economic duress and unconscionable conduct claims. The applicants impermissibly invite me to assume these matters, which arise from alleged conduct after the issue of the NRNs, to impugn the anterior step of issuing the NRNs. 3216 In summary, whether dealing with the giving of the NRNs or MBAuP's conduct in negotiating the agency model generally or the agency agreements and associated agreements specifically, there is no foundation in the applicants' assertion of a want of good faith.

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Unfair and unreasonable terms 3224 The applicants say that various terms of the agency agreements are not fair or reasonable within the meaning of clause 6(3A) of the Franchising Code. It is said that this is a matter to which I must have regard in considering whether there has been a breach of the good faith obligation. And it is said that even apart from the operation of clause 6(3A), the imposition of these agreements which contain terms that are not fair and reasonable constitutes a breach of the good faith obligation in clause 6(1). 3225 Now so far as "new vehicle dealership agreements" are concerned the content of the "obligation to act in good faith" is further extended, and by virtue of that extension, the content of the normative standard embodied in the Franchising Code has further specific content. 3226 It is stated that for "the purpose of determining whether a party to a new vehicle dealership agreement has contravened [the "obligation to act in good faith" at clause 6(1) of the Franchising Code] … the court must have regard to whether the terms of the agreement are fair and reasonable"; see clause 6(3A). 3227 The combined effect of clauses 6(2) and 6(3A) is that, when considering whether the parties to a "new vehicle dealership agreement" have contravened the "obligation to act in good faith", including in respect of "any dealing or dispute relating to the [agreement as earlier proposed]" or the "negotiation of the [agreement as earlier proposed]" the Court must consider whether the terms of the agreement entered into are fair and reasonable. 3228 Now MBAuP has contended that clause 6(3A) applies only to parties to a "new vehicle dealership agreement", and does not apply to pre-entry conduct in relation to that agreement which might otherwise be captured by clause 6(2). I disagree. 3229 The Franchising Code is a legislative instrument given force pursuant to the ACL. It is remedial and protective giving effect to matters of public policy and is thus to be construed so as to give the fullest relief which the fair meaning of the instrument will allow. 3230 Further, clause 6(1) is the subclause within clause 6 which imposes the "obligation to act in good faith", and indeed, the duty set out therein is so defined within the subclause itself. That duty, as defined, attracts a significant civil penalty. 3231 Further, clause 6(2) extends the "obligation to act in good faith". It does not contain any positive duty in and of itself, and does not attract a civil penalty. Thus, if a party failed to act with good faith in respect of "any dealing or dispute relating to [a] proposed agreement", it would be a breach of the obligation as set out and defined at clause 6(1). Indeed, to construe clause 6(2) to impose its own discrete duty would mean that a contravention of clause 6(2) would attract no civil penalty, in contradistinction to a contravention of clause 6(1), a construction which the legislature cannot have intended. 3232 Further, clauses 6(3) and 6(3A) prescribe matters to which the Court may (clause 6(3)) and must (clause 6(3A)) have regard when assessing whether a party to a franchise agreement has contravened clause 6(1). The reference to "has contravened subclause (1)" is clearly to "the obligation of good faith" set out and defined at clause 6(1) and extended at clause 6(2). To construe clause 6(3A) and clause 6(3) as only applying to the unextended duty contained at clause 6(1) would have absurd consequences. 3233 It would mean that for the purposes of determining whether a party to a franchise agreement had breached the obligation "in respect of any matter arising under or in relation to the agreement" (clause 6(1)(a)) the Court may have regard to "whether the party acted honestly and not arbitrarily" (clause 6(3)(a)). But for the purposes of determining whether a party to a proposed franchise agreement had breached the obligation "in respect of any dealing or dispute relating to the proposed agreement" (clause 6(2)(a)) the Court would not be directed to have regard to "whether the party acted honestly and not arbitrarily" (clause 6(3)(a)). 3234 There is no logical reason that the presence of honesty or arbitrariness would be relevant to the content of good faith in the context of a formed agreement, but not in the context of a proposed agreement. Clauses 6(3) and 6(3A) both apply to consideration of the existence of a contravention at clause 6(1) in the same fashion. 3235 Further, it would be an unusual circumstance if the presence of an unfair or unreasonable term in an agreement was relevant to the assessment of contravention, but the presence of such a term in a proposed agreement were not. Given that the Franchising Code and the obligation of good faith at clause 6 are directed at addressing the imbalance in bargaining power in franchising agreements, that would be an unexpected outcome in terms of the regulatory purpose of the Franchising Code and clause 6. 3236 For those reasons, the words "party to a new vehicle dealership agreement" in clause 6(3A) must be read as including parties to a proposed agreement, as contemplated by clause 6(2). 3237 In any case, clause 6(3A) clearly identifies a normative standard recognising that, in at least the franchise motor vehicle dealer industry, the terms of the franchise agreements pursuant to which participants conduct themselves are expected to be "fair and reasonable".

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The relevant terms 3238 Now although I have set out and discussed earlier in my reasons the terms of the agency agreements, it is convenient to identify in a summary fashion the relevant terms of each agency agreement that are said by the applicants not to be fair and reasonable. 3239 Under clause 3.1, MBAuP appoints the dealer as its non-exclusive and disclosed agent to market and facilitate the sale of specified MB vehicles, which at the date of the agency agreement excluded EQ vehicles, and to perform other activities in relation to MB vehicles, MB parts and MB products or services, as directed by MBAuP, at the dealership premises. 3240 Under clauses 12.1 and 12.6, MBAuP agrees to pay the dealer the amounts described as agent remuneration in Sch 2, which MBAuP has the right to vary in relation to the amount or method of calculation on 12 months' notice. 3241 Under clause 5.1, the term of the agency agreement is four years from 1 January 2022 to 31 December 2025, unless it ends sooner in accordance with the agency agreement. 3242 Under clause 5.2, no less than 12 months prior to the expiry of the term of the agency agreement, MBAuP will provide the dealer with written notice of whether or not MBAuP intends to extend the agency agreement or enter into a new agreement. 3243 Under clauses 14.1, 14.4.3 and 14.4.4, the dealer must have the right to occupy the premises during the term of the agency agreement, and is obliged at the dealer's cost to comply with MBAuP's directives in relation to premises fit-out, as well as maintain a dedicated and exclusive sales customer contact area in which it displayed showroom and demonstrator vehicles to customers. 3244 Under clauses 10.1 and 10.2, MBAuP allocates a non-exclusive PMA to the dealer within which to facilitate the sale, marketing and promotion of the MB vehicles, MB parts and MB products or services, and the dealer must not market or promote them or seek customers outside the PMA. 3245 Under clauses 3.2 and 10.5, the dealer acknowledges that the agency agreement does not provide it with any exclusive or protected territory, and that MBAuP may appoint any other authorised agent or itself or another member of the MBAuP Group to market, promote and sell the MB vehicles, MB parts and MB products or services in any manner that MBAuP deems fit, including marketing or promoting the MB vehicles, used MB vehicles and trade-in MB vehicles in the dealer's PMA. 3246 Under clause 4.2, the dealer is responsible for all business, employment, taxation and other payments and expenses incurred by it in the operation of its dealership and fulfilling its obligations under the agency agreement, including all employment related costs. 3247 Under clauses 6.1 and 6.2, the dealer must offer the MB vehicles, MB parts and MB products or services for sale at the prices specified by MBAuP, and the dealer is prohibited from directly or indirectly granting any price reductions, discounts, gifts or rebates of any sort to customers in connection with that sale. 3248 Under clauses 6.3 and 6.4, the dealer must comply with all ordering and delivery procedures including pre-delivery checks, testing and servicing as directed by MBAuP, and must only offer, fit and/or apply MB products or services or any other after-market services approved by MBAuP. 3249 Under clauses 11.2.5 to 11.2.7, the dealer must ensure the dealership is open to customers during business operating times, must employ a sufficient number of employees to properly and efficiently market and facilitate the sales and fulfilment functions under the agency agreement, and maintain a sound financial structure with a working capital level and financing capability that satisfies the current operating and reasonably foreseeable operating requirements of the dealership. 3250 Under clauses 21.1 and 21.4, the dealer must collect all customer information on behalf of MBAuP, as directed by MBAuP, and provide it to MBAuP. 3251 Under clauses 26.1 and 26.2, the dealer must not make, inter alia, any statements disparaging of the MBAuP Group or any matter connected with the agency agreement, and must not make any public statement in relation to the agency agreement, a termination of the agency agreement or its relationship with the MBAuP Group without the prior written consent of MBAuP. 3252 Under clauses 30.5.1 and 30.5.2, MBAuP may bring the agency agreement to a premature end, and terminate the agency agreement by giving the dealer at least 12 months' notice if MBAuP determines to do so to rationalise its network, or to make changes to its distribution model in Australia. 3253 Under clause 31.2, if MBAuP brings the agency agreement to a premature end, or fails to renew the agency agreement or enter into a new agency agreement with the dealer at the end of the term, then within 30 days MBAuP must purchase any point-of-sale assets or equipment MBAuP has directed the dealer to acquire at fair market value excluding any component for goodwill. 3254 Under clauses 32.1 and 32.2, if MBAuP brings the agency agreement to a premature end, the dealer can claim compensation from MBAuP for its reasonable and direct loss having regard, inter alia, to lost profit as an agent under the agency agreement, any unamortised capital expenditure incurred by the dealer at the request of MBAuP during the term of the agency agreement (if any), the loss of opportunity to sell the goodwill of the dealership on the basis that the rights to operate cease at the end of the term, and such compensation is not to exceed the dealer's net profit that it would expect to earn from the premature end to the end of the term. 3255 Under clause 34.1.6, the dealer acknowledges that MBAuP does not guarantee any return on investment or profit to the dealer. 3256 Further, the agency remuneration payable under Sch 2 of the agency agreement at the time of execution of the agency agreement, and for the XXXXXXXX, includes certain elements described as fixed and variable commission paid to the dealer who delivered the MB vehicle to the customer. The rates fixed by MBAuP fixed for each of these amounts are set out in the confidential remuneration particulars schedule. 3257 Further, as set out in Recital D, contemporaneously with the entry into the agency agreement, the dealer will enter into a service and parts agreement with MBAuP. 3258 Now I accept that these terms need to be considered collectively, and in the context of their effect on the existing relationship under the dealer agreements and the investments that the dealers had made in their dealerships. 3259 In this regard, the applicants have drawn out the following points. 3260 First, each of the applicants is obliged to continue to operate their respective dealerships in substantially the same manner under the agency agreement as they did under the dealer agreements, including in relation to the premises, fit-out, employees, the payment of costs and expenses and financial structure, without having the opportunity to conduct its business to generate profits commensurate with the costs and risks involved and to generate the profits that it was making from the operation of the dealership under the dealer agreements. 3261 Second, MBAuP imposed a remuneration structure on the applicants which is detrimental to the applicants and over which the applicants have no or limited control. 3262 The ability to earn a fixed commission depends in certain cases upon whether or not a customer places a direct order nominating the dealer whose effort was responsible for generating the sale. 3263 Further, the ability to earn the variable commission depends upon achieving sales and other targets set by MBAuP, in circumstances where the applicants have been deprived of the ability to offer discounts or variable pricing that would better enable the applicants to meet those targets and/or to compete in the market. 3264 Further, the ability to earn both the fixed commission and the variable commission from sales and promotion activities in the applicants' PMA, including from existing customers, is substantially diminished by MBAuP's right to market or promote MB vehicles, used MB vehicles and trade-in MB vehicles in that PMA, by itself, a related company or another agent, whilst limiting the applicant's promotion and sales ability to its own PMA. 3265 Further, MBAuP has reserved to itself the discretion to alter or vary the remuneration structure, which it could do to the further detriment of the applicants on 12 months' notice, and in respect of which the only rights of the applicants in such a case would be to bring further proceedings, of a similar type to these proceedings, to challenge that exercise of discretion. But I would say now that such a provision is not unusual in agreements of this type. It is not unfair. 3266 Third, further or alternatively, the applicants are deprived of the ability to negotiate a discount on the advertised or list price of a new MB vehicle for the purpose of closing a sale with a prospective customer, contrary to established market practice in Australia and the opportunities available to sales staff at competitor brands, with the likelihood of the loss of sales and the loss of the opportunity to earn agency remuneration from the closing of a sale. 3267 Fourth, MBAuP has interfered and will interfere with the relationship between the applicants and their customers by requiring all sales transactions to be entered into with MBAuP directly, and to collect and provide all customer information to MBAuP, even in the case of existing customers of the applicants. 3268 Fifth, the sale value of the dealership is effectively worthless or minimal when compared with its value under the dealership model. 3269 MBAuP has fixed a term of four years without any contractual expectation of renewal or extension of the agency agreement. 3270 MBAuP has purported to reserve to itself the right to bring the agency agreement of each applicant to a premature end, without regard to the interests of the applicant, including in circumstances where MBAuP unilaterally decides to rationalise its network or change its distribution model in Australia. 3271 And MBAuP has limited the amount of any compensation payable to an applicant where it brings the agency agreement to a premature end to the expected net profit of the applicant for the unexpired portion of the four year term of the agency agreement, without regard to any actual losses incurred by the applicant, or transfer of value to MBAuP or some other dealer arising from the future value of existing customers of the dealership, that would arise from the premature end of that dealership. 3272 Overall, the applicants say that it is apparent that the effect of these terms was the following. 3273 First, the effect is to effectively take the goodwill of the dealerships without paying for it, or alternatively, to appropriate profits from the dealers to MBAuP, where the dealers had made investments and taken risks on the basis that they would earn those future profits. 3274 Second, the effect is to take back the benefits that MBAuP had traded away at the time of attracting the dealers to invest. 3275 Third, the effect is to effectively flip the original bargain, by keeping the dealership structure in place to generate the profits from customers based on the dealers' investments, but placing dealers on a set commission. 3276 Fourth, the effect is to deliver significant reduced returns to the dealers. 3277 Fifth, the effect is to impose terms that enable what is colourfully described as the parasitic transfer of customer data. 3278 Sixth, the effect is to limit the term to a period patently inadequate for any dealer to secure a return on the investments made or to be made in its MB dealership, and allow MBAuP to more easily reduce the number of dealerships in the future, in accordance with its internally stated but otherwise undisclosed intention. 3279 Let me turn to some of the other associated agreements.

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Safety net letter 3280 It is said that the relevant terms of the safety net letter are not fair or reasonable. 3281 The term of the safety net was two years, from 1 January 2022 to 31 December 2023. 3282 The safety net would only apply if MBAuP experienced a decline in its competitive market share in relation to the sale of new MB vehicles of more than a specified percentage on a national basis during the safety net term, as a direct result of the transition to the agency model, and as determined by MBAuP acting reasonably. 3283 The safety net payment would be calculated on the basis of a XXXXXXXX XXXXXXXX X XXXXXXXX XXXXXXXXXXXXXX XXXXXXXXXXXX XXXXXXXXXXX XXX XXXXXXX XXXXXXXXX XXXXXXX XXXXX. 3284 It is said that the safety net was inadequate in the circumstances, and will not compensate the applicants for the losses they sustain by reason of the implementation of the agency model. From that perspective, the safety net was not fair or reasonable. Effectively, MBAuP was only offering a purported safety net to dealers that was limited to a loss of commission on the sale of any new MB vehicles for 2 years, if there was a specified reduction in the historical market share of MBAuP on a national basis that was the direct result of the introduction of the agency model, and not by reference to the actual losses resulting directly or indirectly to individual dealers from the agency model. 3285 Further, it is said that as became apparent through Mr Seidler's cross-examination, the safety net that was offered was designed so that it would never be called on, and furthermore the contingency was taken out of the dealer margin ultimately offered. 3286 Further, the applicants say that on a proper analysis of the history relating to the safety net, it was not a bona fide response by MBAuP to dealers' concerns about the loss of value in their businesses for which they sought compensation. The safety net was inadequate. It will not compensate the applicants for the losses they sustain by reason of the implementation of the agency model. 3287 Generally, it is said that the terms of the safety net were not fair and reasonable.

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Service and parts agreements 3288 Further, it is said that the relevant terms of the service and parts agreement are not fair or reasonable. The applicants have drawn my attention to the following terms and aspects. 3289 MBAuP appoints the dealer, which is referred to in the agreement as the service retailer, to be an authorised MB service retailer to provide service for the MB products and MB parts. 3290 The term of the agreement is four years from 1 January 2022 to 31 December 2025. 3291 The dealer is not and shall not represent itself to be an agent of MBAuP, but is an independent proprietor in relation to the aspects of its dealership business involving the provision of service and parts pursuant to the terms of the agreement. 3292 The dealer is to carry on its business as an authorised Mercedes-Benz service retailer only at the premises designated in the agreement, which will provide dedicated facilities for servicing, maintaining and repairing the MB products if so required by MBAuP. 3293 The agreement does not confer on the dealer any exclusive right to service MB products or sell parts in any specific area. 3294 The dealer is to obtain and maintain all such special and standard tools, plant and equipment as are necessary to ensure compliance with the specification and standards required or specified by MBAuP. 3295 The dealer is to employ at its own cost qualified and trained service personnel that comply with the minimum staffing requirements as directed or prescribed by MBAuP. 3296 The dealer shall use all reasonable endeavours to promote the sale of MB parts and provide adequate space for the storage, display and dispatch of MB parts. 3297 The dealer will ensure that it employs adequately trained staff to deal effectively with the business in MB parts. 3298 If MBAuP does not offer the dealer a new agreement in succession to the agreement, MBAuP will purchase certain new, unused and undamaged MB parts at their cost or order price less 20%, and is not under any obligation to pay any other amount to the dealer for any losses associated with that part of its business involving the provision of service and parts. 3299 Again, I accept that these terms need to be considered collectively and in context. And in this regard, the applicants have drawn out the following points. 3300 First, MBAuP has artificially separated out the sales function of the MB dealership businesses of each of the applicants into an agency model for the sales function and a traditional dealer model for the service and parts function in that MBAuP required the agency agreement and the service and parts agreement to be entered into concurrently to replicate the totality of the functions provided by the MB dealership under the dealer model. 3301 Further, the applicants are obliged to continue to operate the service and parts functions of their respective dealerships in substantially the same manner under the service and parts agreement as they did under the dealer agreements, including in relation to the premises, fit-out, employees, and equipment, without having the opportunity to conduct the totality of its business to generate profits commensurate with the costs and risks involved and/or to generate the profits that it was making from the operation of the dealership under the dealer agreements. 3302 Second, the term of the service and parts agreement is four years to coincide with that of the agency agreement, but there is no provision in the service and parts agreement purporting to allow it to bring it to a premature end, thus giving MBAuP a purported ability to split the businesses of the applicants' MB dealerships by forcing a closure of the sales function of the dealership. This is whilst requiring the applicant to continue to maintain a service and parts function, thus depriving any affected applicant of the ability to deal with its MB dealership business as a whole in such circumstances, and notwithstanding the applicants' objections to the terms relating to a premature end. 3303 Third, the service and parts agreement was otherwise imposed on the applicants as part of a transaction that includes the agency agreement, the service and parts agreement, and the agency related agreements, the terms of which are not fair and reasonable.

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New EQ trial agreement 3304 Further, it is said that the relevant terms of the new EQ trial agreement are not fair or reasonable. 3305 First, MBAuP is requiring the sale of EQ vehicles to occur on a different basis to that of all other MB vehicles sold by the applicants, in circumstances where the applicants with EQ agreements agreed to a limited trial of the agency model with respect to the EQ vehicles when they were introduced to the Australian market in 2019. Further, they have not agreed to any continuation of the sale of EQ vehicles being treated differently to the sale of any other MB vehicles, or to the continuation of the EQ trial. Further, they oppose the agency model. 3306 Second, MBAuP imposed a remuneration structure on the EQ applicants which is detrimental to them, and/or more detrimental to them than the remuneration purportedly available under the agency agreement. 3307 The only guaranteed fixed commission payable to the dealer is the fulfilment partner fee to the dealer who delivers the EQ vehicle to the customer, whether or not that dealer was responsible for initiating the sale to the customer. 3308 Further, there is a limitation on the availability of the order intake commission in certain circumstances described in the remuneration particulars schedule which, if applicable, will further reduce the remuneration of the dealer in respect of a sale of the EQ vehicle. 3309 Further, the variable commission is only payable to the dealer who delivers the EQ vehicle to the customer, without any reference to another dealer who has generated or contributed to the sale, for example where the customer orders the EQ vehicle online and MBAuP arranges for another dealer or MBAuP itself to deliver the vehicle to the customer. 3310 Further, the new EQ trial agreement made no allowance for MBAuP to take account of the costs to the applicants of operating or fulfilling the EQ function within the dealerships in calculating the remuneration payable to the EQ dealers in performing its obligations under the new EQ trial agreement. 3311 Third, the new EQ trial agreement was otherwise imposed on the applicants as part of a transaction that includes the agency agreement, the service and parts agreement, and the agency related agreements, the terms of which are not fair and reasonable.

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Analysis 3313 Now the applicants plead that the relevant terms of each agency agreement are not fair and/or reasonable within the meaning of clause 6(3A) of the Code, and/or were a contravention by MBAuP of the good faith duty. The applicants similarly impugn specified terms of the safety net letter and the service and parts agreement, along with the terms generally of the new EQ trial agreement, the new vans agreement and the new DSA. 3314 Clause 6(3A) was inserted into the Franchising Code by the Competition and Consumer (Industry Codes-Franchising) Amendment (Fairness in Franchising) Regulation 2021 (Cth). It applies in relation to franchise agreements entered into, extended or renewed on or after 1 July 2021; see reg 68, Consumer (Industry Codes-Franchising) Amendment (Fairness in Franchising) Regulation 2021 (Cth). 3315 Unlike other statutory regimes, the Franchising Code does not contain a freestanding prohibition of unfair terms in franchise agreements. Rather, the inquiry with respect to whether a term of a franchise agreement is fair and reasonable is directed toward determining whether the good faith duty has been contravened. 3316 The applicants' claim, namely, that the terms of the agency and related agreements are not fair and reasonable, and for that reason contravene the good faith duty can be readily disposed of. 3317 Now no separate relief is sought in respect of these claims. Instead, the applicants submit that the alleged unfairness and unreasonableness of the terms of the agency agreement and other agreements are an additional factor in support of the claim of economic duress, as well as being relevant circumstances in support of the unconscionable conduct claim and related good faith claim. 3318 Here, the applicants advance general claims that the terms of the given agreements are not fair and/or reasonable. And they fail to identify any particular use of powers and opportunities in respect of which there has been an alleged failure to act in good faith. 3319 Further, the applicants' claim rises no higher than an assertion that there has been a failure to act in good faith by MBAuP because the applicants would have preferred to sign agency and related agreements containing different terms. 3320 The applicants' analysis proceeds on the false premise that the correct approach is to compare the terms of the dealer agreements with the agency agreement and, if the applicants consider that the latter is less beneficial to them, to assert that it is unfair. 3321 The applicants fail to identify any particular use of power and opportunities in respect of which there has been an alleged failure to act in good faith, or indeed any act which might be said to be capricious, dishonest, arbitrary or motivated by a purpose which is antithetical to the evident object of any provision of a franchise agreement. 3322 But before proceeding further, I should make some general observations but noting of course that I am not dealing with s 24 of the ACL. 3323 Now the sanctity of freedom of contract, which usually presupposes individual negotiation, must be respected, particularly between commercial players and even if there is a disparity between their size or negotiating power. But where agreements with standard or uniform terms have been used and abused by one of the parties, closer scrutiny may be required. But any text is not to be glossed over with moralistic sentiment. Further, the term "unfair" is not to be inflated with imprecision or subjectivity. There is no scope to interlard feel good factors or niceties in order to remedy any perceived disparity between the parties. 3324 But in my view, identified terms are not relevantly unfair terms. And in this respect it is important to note that the appropriate point in time to assess unfairness is the time at which the agency agreement was formed. 3325 First, I do not consider that these terms create a significant imbalance in the parties' rights and obligations. Moreover, they were relevantly transparent. Further, they do not operate only in favour of MBAuP. 3326 Second, one has to be precise as to what is meant by whether a term causes a significant imbalance in the parties' rights and obligations. Significant imbalance relates to the substantive unfairness of the agreement, and requires consideration of the relevant term, together with the parties' other rights and obligations arising under the agreement. A significant imbalance may exist if the term is so weighted in favour of one party as to tilt that parties' rights and obligations significantly in its favour. This may be by granting to that party a beneficial option or discretion or power. But a term does not cause a significant imbalance if there is a meaningful relationship between the term and the protection of a party, and that relationship is reasonably foreseeable at the time of contracting. And that is the case with the identified terms here. 3327 Third, the identified terms protect MBAuP's legitimate interests. Now legitimate interests may be of a business or a financial nature. And a party may have interests in contractual performance that are intangible and unquantifiable; they do not need to reflect or be quantifiable in monetary form. The question of legitimate interest will depend on the particular business of the supplier, including the circumstances of the business and the context of the contract as a whole. Further, what is reasonably necessary to protect a legitimate interest involves an analysis of the proportionality of the term against the potential loss sufferable, and other options that might be available to the respondent in terms of protecting its business and which are less restrictive to the other party to the contract. 3328 In my view, none of the identified terms come close to being unfair terms. 3329 I will now consider the applicants' claims with respect to the agency agreement, the safety net letter, the service and parts agreement and the agency related agreements.

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Agency agreement 3330 I reject the applicants' claim that the terms set out are not fair and/or reasonable and/or were a contravention by MBAuP of the duty of good faith under clause 6 of the Franchising Code. 3331 First, the applicants allege that the terms of the agency agreement oblige the applicants to continue to operate their dealerships in substantially the same manner under the agency agreement as they did under the dealer agreements, without having the opportunity to conduct their business to generate profits commensurate with the costs and risks involved, and/or to generate the profits they were making from the dealership under the dealer agreement. They also assert that MBAuP imposed a remuneration structure on the applicants which is detrimental to the applicants, and also can be unilaterally varied on notice. But none of this establishes a lack of fairness or reasonableness. 3332 The operation of the dealership is different under an agency model, with reduced costs and risks. 3333 Further, the dealer agreement provided no entitlement to any particular margin or any particular level of profitability. Under the dealer agreement, MBAuP determined the allocation of products to a dealer and the prices at which they would be supplied. Moreover, the fact that under the agency agreement the remuneration can be unilaterally varied on notice does not contain any unfairness. 3334 Second, the applicants say that depriving the applicants of the ability to negotiate a discount on new vehicles is not fair and reasonable as it will result in the loss of sales and the loss of the opportunity to earn commission under the agency model. But no cogent evidence has been led to make good that proposition, just the self-serving assertions of the applicants that it will be so. 3335 In any event, the imposition of a fixed price model cannot be said to be unfair, unreasonable or otherwise a breach of the good faith duty under the Franchising Code given the following points. 3336 MBAuP had a legitimate commercial interest in introducing a fixed price model so as to prevent discounting that had become prevalent in the market, keep out disruptors and improve the customer experience at the point of purchasing a vehicle. 3337 It is neither unfair nor unreasonable to prefer those legitimate commercial interests to the view of some retailers that they saw negotiating price as a way to build customer relationships. 3338 Further, under the agency model, the agents retained the ability to build customer relationships by discussing and advising on vehicle parts and accessories, providing good customer service, and through the related parts of their businesses offering finance and insurance and parts and servicing departments. 3339 Third, the applicants allege that under the agency model MBAuP interfered and will interfere with the relationship between the agents and their customers. But under the dealer agreement, customer information was provided to MBAuP and dealers were required to return customer information to MBAuP at the expiry or termination of the dealer agreement. But I accept that the position is tighter under the agency model. 3340 Further, under the agency model, retailers retain their key customer-facing role. There is no prohibition on retailers collecting customer information; to the contrary they are required to do so. 3341 Fourth, the applicants say that the sale value of dealerships is effectively worthless under the agency model. That assertion should be rejected for the reasons set out elsewhere. 3342 Further, the applicants' assertion that the premature end provision in the agency agreement diminishes the sale value of dealerships and is, accordingly, neither fair nor reasonable, ignores the fact the term is required by clause 46A of the Franchising Code. Further, I do not consider that any unilateral termination rights are unfair or unreasonable. 3343 Fifth, the applicants allege the agency agreement provides a contractual mechanism that would enable MBAuP to close dealerships without having to pay any or any meaningful compensation to retailers. But the agency agreement affords retailers greater protection in that regard than the dealer agreements, which in most cases had a 12-month term and no entitlement to compensation on non-renewal. 3344 Sixth, the applicants allege that MBAuP has failed to make any provision for the payment to the applicants for the transfer of the future value of the existing customers to the dealerships and/or to compensate them for the loss of goodwill. But the applicants had no such entitlement at law. 3345 Seventh, the applicants' assertions that the terms of the agency agreement were imposed over the opposition of the dealers, in circumstances of economic duress and without any meaningful negotiation are incorrect. 3346 Eighth, the applicants allege that MBAuP requiring them to sign the recitals to the agency agreement constituted an attempt to pre-empt or negate any subsequent complaint about the lack of fairness and reasonableness of the agency agreement and to stifle the freedom of expression by any applicant about MBAuP's conduct. But such a claim is contradicted by these proceedings. 3347 In summary, there is no basis for the applicants to assert that the terms of the agency agreement are not fair and reasonable. But even if they were, that is only one indicia in considering the good faith question. On any view these terms considered separately, cumulatively or with the other circumstances do not show a lack of good faith.

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Safety Net Letter 3348 Let me at this point deal with a preliminary matter. 3349 MBAuP denies that the safety net letter, the service and parts agreements, and the new DSA are franchise agreements. But that contention is unsustainable. Each is a "motor vehicle dealership agreement relating to a motor vehicle dealership that predominantly deals in new passenger vehicles or new light goods vehicles" and is thus a "new vehicle dealership agreement" and thus a "franchise agreement". To hold otherwise would permit a party to a franchise agreement to put certain aspects of its relationship outside the purview of the Franchising Code by hiving those aspects off into a separate agreement. I have touched on this question earlier. A purposive approach is required to be given to the relevant provisions of the Franchising Code including the definitions that I have previously set out. Sclerotic textualism is to be eschewed. 3350 In my view, the applicants have failed to establish any aspect of the safety net letter that could reasonably be said to be unfair or unreasonable. The particular terms of the safety net letter impugned are the two year term, the fact that the safety net is enlivened only when the decline in competitive market share is a direct result of the transition to the agency model and that the safety net payment would be calculated on the basis of a XXXXXXXXXXXX XXXXXXX XXXXXXXXXXXXX. 3351 The fact MBAuP adopted a two year safety net instead of the three years initially proposed by Mr Scott and Mr Jennett is not unfair nor unreasonable. It is a commercial outcome that balances the legitimate commercial interests of MBAuP against those of the dealers. 3352 Further, the fact that the safety net is enlivened only where the drop in volume is a direct result of the transition to agency model was the premise of the safety net proposal put forward by Mr Scott and Mr Jennett on 26 March 2021. So too was the XXXXXXX XXXXXXXXXXXX XXXXXXXXX XXXXXXXXXXXXXXXX XXXXXXXXXXXXX XXXXXXXXXXX XXXXXXX XXXXXXXXXXX XXXXXXXXXX.

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Economic Duress 3362 The applicants assert economic duress and as a consequence seek orders setting aside the agency agreements. 3363 It is said that this claim has two relevant applications in these proceedings. First, it is said that if the NRNs are set aside, then such a claim is a basis for relief from the agency agreements, if necessary. Second, the claim for economic duress is put as an alternative cause of action as part of or in addition to the applicants' claims of unconscionable conduct. 3364 Now the rationale of the doctrine of economic duress is that the law will not give effect to an apparent consent that was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate. But it does not require that the person's will be overborne. It does not require that the pressure be such as to deprive the person of any free agency or ability to decide. 3365 Now people often lack some freedom of choice in commercial situations. But economic duress requires a different assessment. 3366 Now duress focuses upon the effect of pressure. And for economic duress, the proper approach is to ask whether any applied pressure was illegitimate, and whether such pressure induced the victim to enter into the relevant contract. 3367 As to the nature of the pressure, McHugh JA explained in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 that it must be illegitimate and said (at 45-6): … The rationale of the doctrine of economic duress is that the law will not give effect to an apparent consent which was induced by pressure exercised upon one party by another party when the law regards that pressure as illegitimate … … [T]he overbearing of the will theory of duress should be rejected. A person who is the subject of duress usually knows only too well what he is doing. But he chooses to submit to the demand or pressure rather than take an alternative course of action. The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate? Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress. … It is unnecessary, however, for the victim to prove that the illegitimate pressure was the sole reason for him entering into the contract. It is sufficient that the illegitimate pressure was one of the reasons for the person entering into the contract … 3368 I should say here that I would understand McHugh JA to be referring to conduct that amounts to equitable unconscionability and now of course statutory unconscionability, rather than any free floating concept of unconscionability let alone some general idea of unfairness. 3369 Now commercial pressure, even to the point where the party the subject of the pressure is left with little choice but to act as they did, is not of itself sufficient. That is the case even where a party's conduct is commercially harsh and even where, no doubt, there is an inequality of bargaining position. As Kiefel J stated in Westpac Banking Corporation v Cockerill (1998) 152 ALR 267 at 292: …In most instances where duress is established the party coerced has had little choice. It is not, however, that inequality of bargaining position, or the reason for its creation, which is the essence of the action - it is the pressure brought to bear and its wrongfulness... 3370 Further, in Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522, Lander J said (at [163]): … economic duress is more than commercial pressure. In everyday commerce parties are obliged for good and sufficient commercial reasons to enter into transactions which they would otherwise avoid. Whilst they might be unhappy to enter into the transactions, they do so in the end result because they have no commercial alternatives. 3371 Now there needs to be found either an illegitimate threat or illegitimate pressure. 3372 Illegitimacy can be found in the clear case of a threat to do something unlawful such as threatened conduct amounting to a breach of contract, a tort, a breach of fiduciary or other equitable duty, a breach of a statutory duty or prohibition, or something else that can be characterised as unlawful. 3373 But what about where there is a threat to do something lawful, such as to exercise contractual rights for example? This is infelicitously characterised as "lawful act duress" which from one perspective is an oxymoronic label. 3374 But in that scenario, where does the illegitimacy such as to constitute the threat or pressure as economic duress arise? What is it? How is it identified? And let me put to one side for the moment the special case of certain forms of blackmail where there is a threat to do something lawful. 3375 Clearly the illegitimacy could arise from some act which itself was unlawful, such as engaging in statutory or equitable unconscionability or breach of a contractual or statutory duty of good faith. But if the relevant demand or conduct constituting the threat or pressure is not itself unlawful, one gets into problematic areas as to where the illegitimacy could arise. 3376 Now McHugh JA accepted "lawful act duress" and dealt with illegitimacy of pressure in the manner I have described and with which I would agree. 3377 Contrastingly, in Australia and New Zealand Banking Group Ltd v Karam (2005) 64 NSWLR 149, Beazley, Ipp and Basten JJA determined that illegitimate pressure should be restricted to the exertion of pressure by threatened or actual unlawful conduct. Let me linger on Karam for the moment. 3378 The Court said (at [66]): The vagueness inherent in the terms "economic duress" and "illegitimate pressure" can be avoided by treating the concept of "duress" as limited to threatened or actual unlawful conduct. The threat or conduct in question need not be directed to the person or property of the victim, narrowly identified, but can be to the legitimate commercial and financial interests of the party. Secondly, if the conduct or threat is not unlawful, the resulting agreement may nevertheless be set aside where the weaker party establishes undue influence (actual or presumptive) or unconscionable conduct based on an unconscientious taking advantage of his or her special disability or special disadvantage, in the sense identified in Commercial Bank of Australia Ltd v Amadio. Thirdly, where the power to grant relief is engaged because of a contravention of a statutory provision such as s 51AA, s 51AB or s 51AC of the Trade Practices Act (Cth), the Court may be entitled to take into account a broader ranger of circumstances than those considered relevant under the general law. Pursuant to both provisions of the Trade Practices Act (Cth) and the Contracts Review Act, the relative strengths of the bargaining positions of the parties, and their ability to negotiate terms, will be relevant. However, it does not follow that because, for the purposes of s 9(2)(a) of the Contracts Review Act, there was a material inequality of bargaining power, a contract between such parties will necessarily be set aside. Most "contracts of adhesion" will fall into that category, but most will be valid. 3379 This passage is something of a curate's egg. On one interpretation it seems to accept only "unlawful act duress" and to reject "lawful act duress". But the Court's phraseology "by treating the concept of 'duress' as limited to threatened or actual unlawful conduct" is pregnant with imprecision and seems to involve a conflation of several ideas and possibility. You can have a threat to do something unlawful. In and of itself this is taken to be illegitimate pressure. You can have a threat to do something lawful. But in that scenario one has to find something about the context or conduct of the threat per se, as distinct from the content of the threat, that is illegitimate to find economic duress. That illegitimacy could involve separate unlawful conduct. The Court's blended phrase does not rule out the second possibility, which would then countenance "lawful act duress". 3380 In Thorne v Kennedy (2017) 263 CLR 85, Kiefel CJ et al stated in relation to economic duress (at [26] and [27]): The vitiating factor of duress focuses upon the effect of a particular type of pressure on the person seeking to set aside the transaction. It does not require that the person's will be overborne. Nor does it require that the pressure be such as to deprive the person of any free agency or ability to decide. The person subjected to duress is usually able to assess alternatives and to make a choice. The person submits to the demand knowing "only too well" what he or she is doing. As Holmes J said in Union Pacific Railroad Co v Public Service Commission of Missouri: "It always is for the interest of a party under duress to choose the lesser of two evils. But the fact that a choice was made according to interest does not exclude duress. It is the characteristic of duress properly so called." Historically, the primary constraint upon an action based on duress was the threats that were recognised as sufficient for an action. The early common law rule was that the duress which was necessary to set aside an agreement required an unlawful threat or conduct in relation to the person's body, such as loss of life or limb. Even duress in relation to a person's goods was not a basis upon which an agreement could be avoided at common law, although it was a basis for restitution of a payment of money. The abandonment of this common law restriction introduced a difficult question. This question is whether duress should be based on any unlawful threat or conduct or, alternatively, whether other illegitimate or improper, yet lawful, threats or conduct might suffice. In 1947, Dawson described that question as one "which has chiefly arrested the modern development of the law of duress". 3381 The majority left open the issue of whether duress may also be based on lawful conduct. 3382 Nettle J expressed a preference for the view that the test of illegitimate pressure ought be whether the pressure goes beyond what is reasonably necessary for the protection of legitimate interests (at [71]), which has a resonance with the view expressed by Edelman, J and Bant, E in their excellent treatise Unjust Enrichment (2nd ed, 2016, Hart Publishing) at 217 where they said: Even less likely to constitute duress or illegitimate pressure are lawful threats not to enter into contractual relations. Such threats will almost invariably be proportionate to the defendant's legitimate commercial interests. The leading Australian authority is Smith v William Charlick Ltd. In that case, the Australian Wheat Harvest Board threatened not to have any further business with the plaintiff miller unless the miller paid a surcharge with respect to wheat already sold, paid for and delivered to it. Although the Wheat Board had a monopoly on supply and the miller had no choice but to pay the surcharge if it wanted to keep in business, the pressure was not illegitimate. Whilst the decision was given at a time when duress was limited to duress to the person and duress to goods, the decision is consistent with an approach to lawful pressure that requires that the lawful threat be disproportionate to the legitimate concern that the demand seeks to protect. … The leading English case on threats not to continue business can also be understood in this way. In CTN Cash and Carry Ltd v Gallaher Ltd, the plaintiffs ordered a consignment of cigarettes from the defendants. The cigarettes were delivered to the wrong warehouse and then stolen before redelivery was possible. Believing that the risk of loss of the cigarettes had passed to the plaintiffs, the defendants invoiced them for the cost of the cigarettes. The parties disputed the invoice for two years, after which the defendants threatened to withdraw the plaintiffs' credit facilities unless they paid. Although withdrawal of the facilities would have severely jeopardised the plaintiffs' business, the defendants were lawfully entitled, at their complete discretion, to withdraw their credit facilities. Lord Justice Steyn, giving the leading judgment, regarded as 'critically important' the fact that the defendants' demand for the money was made bona fide, and that the lawful pressure exerted on the plaintiffs was made in view of obtaining a sum that they considered due to them. This again emphasises the need for disproportionality between the lawful threat and the legitimate concern that the demand seeks to protect. The general reluctance of courts to recognise lawful economic or commercial threats as disproportionate to commercial goals (and thus illegitimate) is to be applauded. Any other approach would cut across the statutory competition law rules which draw complex distinctions between lawful and unlawful commercial behaviour. An infringement of rules of competition law should be unlawful and illegitimate for the purposes of the unjust factor of duress. Only in the most exceptional circumstances, if at all, should it be illegitimate to threaten to engage in conduct which a plaintiff has a right to engage in and which is not proscribed by competition law. However, where the threatened conduct is non-commercial in nature, such as threats to publish information or threats to foster rumours about a company, a finding that the threat is disproportionate and therefore illegitimate may be more readily made. 3383 Now such a proportionality approach has its merits in that it may be descriptive and explanatory of the results in many cases in the sense that cases where economic duress has succeeded have been cases where the pressure went beyond what was reasonably necessary for the protection of legitimate interests, and cases where economic duress has failed have been cases where the pressure did not go beyond what was reasonably necessary to protect legitimate interests. 3384 But albeit that this approach has descriptive and explanatory power, it is not the current normative test that I must apply. And if it were to be the test it would need to be cleansed of its question begging features implicit in the concept of "reasonably necessary to protect" and the identification of "legitimate interests". 3385 Further, in Times Travel (UK) Ltd v Pakistan International Airlines Corporation [2021] 3 WLR 727, the UK Supreme Court recognised the existence in English law of the concept of lawful act duress. 3386 Lawful act duress was characterised as the use of illegitimate or unconscionable acts to manoeuvre the claimant into a position of weakness or vulnerability with the result that the claimant had no reasonable alternative but to agree to the demands. As Lord Hodge said (at [2]), what is illegitimate conduct is conduct which had been identified by equity as giving rise to an agreement which it was unconscionable for the party who had conducted himself in that way to seek to enforce. 3387 Times Travel had been appointed as an agent for Pakistan International Airlines Corp and authorised to sell its tickets. The contract could be terminated by the airline at any time on a month's notice. As a result of a dispute relating to the rate and payment of commission to Times Travel, the airline gave notice to Times Travel terminating the contract and reducing its fortnightly ticket allocation from 300 to 60. At about the same time, the airline offered Times Travel a new contract with the original ticket allocation on condition that it agreed to waive any claim it had to the disputed commission. At that time, Times Travel's business almost entirely comprised selling tickets for flights to Pakistan on planes owned by the airline and so the loss of the contract would have put it out of business. Faced with this prospect, Times Travel accepted the new contract but later brought a claim for the unpaid commission, arguing that it was entitled to rescind the new contract on the grounds that it had entered into it under economic duress. 3388 It was ultimately found that the airline's behaviour did not amount to economic duress. Lord Hodge said at [58]: In my view the Court of Appeal … was correct to conclude that the claimants had not made out a case of economic duress. The [C]ourt was correct to conclude that it would be rare that in a commercial context the use by A of lawful pressure to induce B to concede to a demand would amount to economic duress. Significantly, there are no findings that PIAC had used any reprehensible means … to manoeuvre Times Travel into a position of increased vulnerability in order to exploit that vulnerability. PIAC gave notice on 14 September 2012 that Times Travel's contract would be terminated at the end of October 2012. On 17 September PIAC cut Times Travel's fortnightly allocation of tickets from 300 to 60, as under its existing contract it was entitled to do. At the meeting on 24 September 2012 PIAC gave Times Travel a "take it or leave it" option: to sign the new agreement with the waiver and thus regain its prior allocation of tickets, or its agency would come to an end on the expiry of the existing contract. While this entailed hard-nosed commercial negotiation that exploited PIAC's position as a monopoly supplier, it did not involve the reprehensible means of applying pressure which gave rise to the findings of lawful act economic duress in Borrelli and The Cenk K. There are also no findings that PIAC acted in bad faith in making the demands which it did. 3389 In summary I have accepted and applied McHugh JA's approach with the injection of some precision concerning the question of illegitimacy in what is described as lawful act duress. 3390 Let me return to the applicants' case. 3391 The applicants say that by at least early 2019, MBAuP had formed the intention to impose an agency model upon the dealers, with or without their mutual consent. It had formed the intention to present an agency agreement, service and parts agreement, and related agreements, to the dealers without any or any meaningful negotiation of the terms. Indeed it had formed the intention to threaten the dealers with closure of their dealership businesses and concomitant losses unless they entered into the new agency agreements. 3392 By December 2020, the dealers had been issued with the NRNs, the purported effect of which was to bring their dealership agreements to an end on 31 December 2021. 3393 Now the applicants say that the NRNs issued by December 2020 were issued for an improper purpose and in bad faith, and were void or are liable to be set aside. But I have rejected that case. 3394 The applicants say that MBAuP's threat to the dealers was that they would enforce the NRNs, such that any relationship between the Mercedes-Benz brand and any non-signing dealer would cease on 31 December 2021. The applicants say that that threat was unlawful, being in contravention of clause 6 of the Franchising Code. But I have rejected that case as well. 3395 Further, the applicants say that MBAuP's conduct was unconscionable. It is said that it went well beyond what was necessary to protect MBAuP's legitimate interests, involved illegitimate pressure, and that the dealers had no reasonable alternative but to enter into the agency agreements and associated agreements. But I have rejected the applicants' unconscionable conduct case as well, as I will later set out in detail. 3396 Now let it be assumed that the law recognises lawful act duress; if it does not, then I do not really need to proceed further on this point. 3397 It is said that MBAuP's conduct in imposing the agency agreements on the applicants comprised an exercise of economic duress such that the agency agreements should be set aside. But I disagree. 3398 The applicants say that when they executed the agency agreements they did not have the opportunity to give their consent freely to enter into any of those agreements, by reason of MBAuP's pressure and/or threat to treat the dealers' relationships with MBAuP and the Mercedes-Benz brand as ceasing on 31 December 2021, if the applicants did not sign and return to MBAuP each of those agreements on dates and in form specified by MBAuP. 3399 They assert that if MBAuP treated the relationship with the applicants as having ceased on 31 December 2021, they would have had to close their respective dealerships, which would have led to the loss of the value of their businesses and their investment in their dealership, the need to terminate all of the employees of their businesses, and would have placed certain owners and/or guarantors of those businesses at risk of personal bankruptcy. 3400 Now the applicants say that the pressure exercised and/or threats made upon each of them to sign the agreements were illegitimate, thereby amounting to economic duress and they seek orders setting aside and/or rescinding the agreements. 3401 As to the issue of illegitimacy, the applicants say that by no later than December 2019, MBAuP had formed the intention, whether at the direction of MBAG and/or for the purpose of implementing a directive, strategy or policy of MBAG, or otherwise to impose an agency model and/or the agency agreements upon the dealers, irrespective of any objection raised by the dealers and/or regardless of or despite any lack of consent from the dealers to the imposition of an agency model and/or the agency agreements, to prepare the terms of the agency agreement, service and parts agreement and agency related agreements without any or any meaningful negotiation with the dealers, and to provide no effective choice to the dealers in relation to entry into the agency agreements. 3402 Further, the applicants say that certain terms of the agency agreements were not fair and reasonable. 3403 In my view the applicants must also fail in their economic duress claim. 3404 Did the illegitimate pressure or threat of MBAuP cause the exemplar applicants to enter into the agency agreements and related agreements? I think not. The NRNs were given in December 2020 and operated according to their terms. 3405 At the time the agency agreements in draft form were provided and later signed after amendment, it was part of the landscape that the NRNs had been given and operated according to their terms such that on any view the dealers agreements were to come to an end on 31 December 2021. 3406 Where then was the illegitimate threat or pressure on the dealers at the time they signed the agency agreements? There was none. Of course, they were under significant commercial pressure at that time to sign the agency agreements, but that is not sufficient. Moreover, such pressure flowed from the circumstances that they found themselves in. 3407 The NRNs validly brought the dealer agreements to an end on 31 December 2021. As such, there was no threat or illegitimate conduct of MBAuP, and nor was it treating the dealers' relationships with MBAuP and the Mercedes-Benz brand as ceasing on 31 December 2021. Instead, it was a matter of fact that they would expire on that date. 3408 The law did not require MBAuP to provide dealers with a choice between whether the dealer would like to enter into an agency agreement or continue to operate under a dealer agreement instead. Further, the claims as to the service and parts agreement and agency related agreements are not made out. Moreover, on 31 March 2022, the applicants were given the opportunity to exit those agreements, without penalty, but elected not to do so. 3409 More generally, to the extent that the applicants felt pressure to enter the agency agreements, as undoubtedly they did, that pressure was not illegitimate but a result of ordinary and acceptable commercial dealings. Let me say something about the exemplar applicants' evidence.

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Baker Motors 3410 I agree with MBAuP that Mr Martin Baker and Mr David Baker, who were the part owners of Baker Motors and the joint dealer principals for the Mercedes-Benz franchise, made a commercial decision to sign the agency agreement. 3411 Ultimately, Mr Baker signed the agency agreement because he made a commercial decision he thought was best for the business. Mr Baker stated that he also signed the agency agreement because he "really valued the customer relationships that we had built and nurtured over 30 years of the dealer agreement, and I would have had a lot of trouble coming to terms with letting those people find other places to get their cars serviced". He stated: And, you know, another factor, it's really personal. We are very entrenched in - in the community and it would have been a huge loss of face and it would have done reputational damage to Baker Motors to have an empty showroom and not to have the Mercedes-Benz sign there. So, yes, while profit was - was - or revenue was one aspect, there were all these other underlying reasons why I felt the only course of action was to continue with the brand, and that meant signing the suite of agreements. 3412 Similarly, Mr Baker signed the DSA because he wanted to provide customers with access to digital technology, and he wanted to stay connected with the Mercedes-Benz brand. 3413 The suggestion that Baker Motors had no choice but to enter the agency agreement, and did so in circumstances of economic duress, is not sustainable. 3414 First, as mentioned, Mr Baker acknowledged that the commercial choice Baker Motors favoured, because the alternative of not signing would have been more harmful to the business, was to sign the agency agreement and provide a full-service luxury brand offering in Albury-Wodonga, offering customers access to the full range of MB passenger vehicles, vans, EQ vehicles and digital services technology. 3415 Second, Mr Baker made a decision to hold off on executing the agency agreement on 24 August 2021 because he wanted to see whether the negotiations developed a better deal prior to signing. So, Mr Baker was weighing up his options and made a considered commercial decision to enter the agency agreement. 3416 Third, Mr Baker accepted that he knew that there was no complete or comprehensive security in the operation of a franchise business. Baker Motors has a long history of substituting franchises within its operations. It currently has a stable of six franchises being Mercedes-Benz, Mitsubishi, Subaru, Peugeot, Hyundai and Honda across three separate sites in Albury-Wodonga. Whilst Mercedes-Benz is currently the "flagship" luxury brand, that position was previously occupied by Jaguar and it has not been established by the applicants that Baker Motors could not have substituted another brand in place of Mercedes-Benz. But I do accept that Mr Baker provided detailed evidence that he considered other options and the difficulties associated with those options. 3417 Fourth, Mr Baker proactively made arrangements to ensure the transition to the agency model was successful for the business. His plan at the commencement of the agency model was to pull forward orders, such that the orders were completed in 2021 with delivery to follow in 2022. 3418 Further, to the extent that a perceived risk of losing investments was felt, the only substantial investment Mr Baker referred to was the Autohaus facility, which was built in 2003 after correspondence with MBAuP confirming that the dealer agreement offered at the time of investing in the Autohaus showroom did not provide security for long term investment. Notwithstanding this, Mr Baker made a commercial decision to invest in the Autohaus showroom on the understanding that he would be granted a dealer agreement for a three year term. 3419 But I do accept that there were other investments made by Baker Motors over the years, including money and time invested in Mercedes-Benz specific staff training and ongoing relationships with customers. 3420 And I also accept that although the Autohaus showroom has been operating for some 20 years, an investment is not made for the purpose of merely recouping the capital invested. It is made to generate profit over the long term from the asset. That profit might be expected to be equivalent to the next best alternative Baker Motors could earn from using those funds to invest in another car dealership. Further, an Autohaus showroom could be considered a type of infrastructure from which Baker Motors is entitled to generate a fair return for its use, which is not time limited.

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Macarthur Automotive 3421 Mr Radojevic provided evidence as to discussions in which he participated with the executive team at Peter Warren Automotive which relevantly included Mr Warren and Mr Friend. Mr Radojevic specifically referred to discussions with the executive team concerning entry into the agency agreement. 3422 I accept that there were serious concerns which came to bear on Peter Warren Automotive's decision to enter into the agency agreement. 3423 But I do agree with MBAuP that no proper evidence was led by the applicants as to the state of mind of Peter Warren Automotive in entering the agency agreement in respect of Macarthur Automotive, given that Mr Warren and Mr Friend were not called. 3424 Further, to the extent that any inferences can be drawn from the documentary record, the inference is that the controlling minds of Macarthur Automotive, being Paul Warren and Bernard Friend, were aware that there was a need to adapt to a changing market. 3425 On 13 April 2021, PWH issued a prospectus stating that the group had a strategy to create "auto malls" with multiple OEMs which allowed flexibility to adjust brand offerings and floorspace. It stated that where a dealership agreement was not renewed, PWH would typically change the franchise or sublease or use the site for a different purpose. That prospectus was issued after Macarthur Automotive had been issued with an NRN. The prospectus sets out the choice available to Macarthur Automotive. The directors could swap out one franchise for another and sell another brand from the premises. 3426 Now as to an inference that Peter Warren Automotive had various options available to it when its directors were considering whether to enter into the agency agreement, and that they freely elected to enter into the agency agreement, the applicants say that this inference is not open. 3427 First, as the dealer principal, Mr Radojevic gave evidence contrary to the finding urged by MBAuP. Relevantly, Mr Radojevic's evidence was that the only real option available to the Macarthur dealership was to sign the agency agreement or close the dealership, following due consideration by the executive team of converting the dealership into another luxury brand and the difficulties with adopting such a course for the Macarthur dealership. But it seems to me that this was not the only option, but the only palatable option as they saw it. 3428 Second, as to whether the directors could swap out one franchise for another and sell another brand from the premises, I accept that the option of swapping out another luxury brand may not have been available. 3429 But none of this amounts to duress. Given that the NRN was valid, Peter Warren Automotive made a commercial decision to enter into the agency model.

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Wollongong City Motors 3437 Mr Wakeling and Mr Vivian Paul Burgess, the ultimate owners and directors of WCM knew that MBAuP was considering implementing an agency model when on 31 October 2019 they bought MB Wollongong through Wakeling South Coast Pty Ltd, another entity in the Wakeling Automotive Group. 3438 Mr Wakeling agreed that before purchasing MB Wollongong he and Mr Burgess were satisfied that it made good business sense and considered that they could improve the profitability of MB Wollongong. That was in circumstances where Mr Wakeling and Mr Burgess had done extensive due diligence including reviewing MBAuP's Passenger Car Disclosure Document dated 30 April 2019 that had been provided to them on 9 October 2019. 3439 Mr Wakeling understood from reading the disclosure document that MBAuP was considering changing its distribution model but had not yet made a final decision about if or when it would change its distribution model and that it had kept the retail network informed about the new distribution model. He understood that MBAuP did not offer exclusive territories and that other dealers and MBAuP could compete with MB Wollongong in its PMA. He understood that MBAuP might start selling cars online in the future. And he understood that the discretion to renew the dealer agreement rested with MBAuP and that the dealer agreement did not contemplate any form of compensation in the event of non-renewal or expiry. 3440 Mr Wakeling read the dealer agreement as part of his due diligence and understood from reading that document that it did not provide for any compensation on expiry or if WCM sold MB Wollongong at a price below what it expected to be a good price. He also understood that there was no contractual entitlement for MBAuP to pay any particular margin to dealers. 3441 At a meeting on 16 October 2019, Mr von Sanden and Mr Nomikos told Mr Wakeling and Mr Burgess that MBAuP was considering introducing an agency model that involved MBAuP selling cars at fixed prices to customers and dealers becoming agents for MBAuP. Mr von Sanden informed Mr Wakeling that some dealers were against the model and did not see it as being in their interests. Mr Walking did not ask Mr von Sanden or Mr Nomikos any questions about the agency model or why some dealers did not like it and did not take any steps to contact any of the dealers listed in the disclosure document to find out their opinion of the agency model. 3442 On 31 October 2019 WCM and Shellharbour City Motors Pty Ltd proceeded with the purchase, and Mr Wakeling and Mr Burgess signed a dealer agreement on 7 November 2019. 3443 Mr Wakeling attended the Mercedes-Benz annual dealer briefing on 26 and 27 November 2019. At that briefing, he learned that the average margin payout under the dealer model was X% of the LLP and that the future average retained margin then proposed under the agency model was X% (with a top of X%). There was a dealer vote the end of that meeting. Mr Wakeling knew about the forthcoming vote, but he left early. He did not vote or give a proxy to anyone to vote on his behalf. 3444 On 3 May 2021, Mr Wakeling received the indicative draft agency documentation. He understood that the draft documentation reflected the agency model as MBAuP intended to implement it, but with any changes necessary to accommodate the updated franchising code and any refinements. He also understood that MBAuP sought his feedback on the documentation, but chose not to provide any such feedback. 3445 On 23 June 2021, Mr Wakeling and Mr Burgess, through Wakeling Property Investments Pty Ltd, another entity in the Wakeling Automotive Group, entered into a contract to purchase land at Fairy Meadow for $17,800,000. Their intention was to move the Mercedes-Benz Wollongong showroom and service centre, which had been completed only one year before, to the Fairy Meadow site. 3446 Mr Wakeling's evidence was that it made good business sense to purchase the Fairy Meadow site after receiving the indicative draft agency documentation in May 2021, knowing, as a person with significant experience negotiating with OEMs, that he could not predict the outcome of any negotiations with respect to that documentation. 3447 On 23 July 2021, Mr Wakeling received what he understood to be the final set of documentation that MBAuP intended to issue in respect of the agency model including the agency overview dated July 2021, a complete agency agreement and separately a service and parts agreement. 3448 On 13 August 2021, Wakeling Property Investments Pty Ltd settled on the Fairy Meadows site purchase. In mid-August, Mr Wakeling and Mr Burgess signed the agency agreement and the service and parts agreement. 3449 Mr Wakeling chose not to seek any amendments to the agency documentation and had satisfied himself that proceeding with the purchase and signing the agency agreement made good business sense in August 2021. 3450 In addition, Mr Wakeling agreed in cross-examination that there was no legal necessity to buy the Fairy Meadows site and that his decision to do so was voluntary. 3451 Further, Mr Wakeling gave evidence that with the knowledge of what he understood to be the final terms upon which the agency model was going to operate under the documentation provided in July, it made business sense for Wakeling Automotive Group to walk away from the newly completed service centre and construct a new dealership including a new service centre on the Fairy Meadows site because he believed that there were opportunities to gain efficiencies by moving to the new site. Mr Wakeling continues to hold the view that he can make MB Wollongong profitable. 3452 I do not accept that Mr Wakeling and Mr Burgess signed the agency agreement under circumstances of economic duress. They knew that MBAuP was considering implementing an agency model when they purchased MB Wollongong and that some of the dealers did not support the change. 3453 There is no basis for WCM's claim it entered the agreements in circumstances of economic duress.

[34]

Unconscionable Conduct 3454 The applicants' unconscionable conduct claim under s 21 of the ACL is a separate claim to the applicants' contractual claims under clause 6 of the Franchising Code in relation to the NRNs. 3455 In summary, the applicants allege that MBAuP engaged in unconscionable conduct in contravention of s 21 of the ACL in three respects. For present purposes I will not distinguish between the exemplar applicants and the applicants generally unless I need to, although I will refer to the individual circumstances question later. 3456 The first respect is said to be failing to renew each of the applicants' dealer agreements by giving the NRNs. 3457 The second respect is said to be imposing the agency agreement, service and parts agreement, and agency related agreements on the applicants as the basis for continuing to operate their MB dealerships. 3458 The third respect is said to be failing to compensate each of the applicants for the value of their dealerships, including the loss of the value of their goodwill, as a result of the termination of the dealer agreements and the implementation of the agency model under the agency agreement, service and parts agreement and agency related agreements. 3459 Now the central premise of the applicants' unconscionable conduct claim is that the change from the dealer model to the agency model was contrary to the bargain struck by the dealer agreements and involved an appropriation of the goodwill of dealers. The applicants say that the critical feature of MBAuP's conduct which makes it unconscionable is the fact that dealers are worse off under the agency model, both financially and in other practical ways not immediately quantifiable in financial terms. In particular, they say that the dealers have and had a legitimate interest in maintaining the basis upon which they invested in their businesses under the dealership model, which was based at a minimum on the taking of entrepreneurial risks to earn retail profits as a return on their investments in their businesses. 3460 The applicants focus upon the significant detriment that they suffered by reason of the introduction of the agency model which replaced the prior dealer model. The applicants say that this was a change that occurred without their consent, to their financial disadvantage and to the benefit of MBAuP, and that it has resulted in the transfer of the goodwill in their dealership businesses to MBAuP without compensation. 3461 Further, the applicants say that the conduct of MBAuP in giving effect to the directions of MBAG or implementing a strategy of MBAG in Australia was unconscionable conduct under ss 21 and 22 of the ACL. 3462 Now the questions of substance which arise include the following. 3463 First, has there been the taking of an advantage by MBAuP in the sense that the conduct has resulted in a benefit to MBAuP, with a corresponding detriment to the dealers? The applicants say that the answer should be in the affirmative having regard at a minimum to the analysis embodied in Business Case 2.1 and more generally MBAG/MBAuP's intention to reduce the so-called cost of retail. 3464 Second, did that taking occur in circumstances where the dealers were unable to protect themselves? The applicants say that the answer to this question should be in the affirmative having regard to the sunk costs and idiosyncratic investments made by the dealers. They say that the consequence of those investments was that the dealers had no effective choice but to accept the terms offered by MBAuP as the basis on which they could continue to operate their businesses. 3465 Third, was the taking justified as being reasonably necessary to protect the legitimate interests of MBAuP? This raises various interrelated issues, including as to time, proportionality of response, and a scrutiny of the alleged reasons advanced by MBAuP for its conduct. The applicants say that the various claims analysed on the grounds of reasonable necessity fail and can be seen as pretexts for seeking to earn greater profits from the existing investments of the dealers. 3466 Now MBAuP raises two broad factors that it identifies as market conditions in support of its contention that the pursuit of the agency model was rational and legitimate and also the right solution to meet the market challenges faced by it and the dealers. It says that these factors were the catalyst for the introduction of the agency model, and that pursuing such a model was a decision consistent with a legitimate business purpose. 3467 But as to the culture of aggressive intra-brand discounting, the applicants say that discounting and intra-brand competition was driven, at least in large part, by oversupply and volume targets. They say that much of the discounting and profitability issues in the network during the relevant period were caused by MBAuP's failure to adjust targets. 3468 And as to disruptors and other market entrants, they say that there is little evidence that aggregator services had any material negative impact on the business model of MBAuP and dealers in Australia. They say that there is limited evidence of the entrance of aggregator services into the Australian market by 2018. Further, they say that MB dealers were not selling meaningful volumes of cars through these aggregator services. They say that the entrance of disruptors into the Australian market had little meaningful impact on MBAuP's business model or that of its dealers. 3469 Further, the applicants say that MBAuP was equipped to deal with both of those matters in ways that did not require a radical rearrangement of its relationship with dealers. 3470 Fourth, it is said that MBAuP has appropriated the dealers' goodwill. It is said that the dealers are worse off as a result of the imposition of the agency model. Their loss has been to MBAuP's gain, and the imposition of the agency model represents an intentional uncompensated appropriation of the substantial value of the goodwill in the dealers' businesses. Now I should note that the applicants' claim in this particular context is not limited to a particular legal definition of goodwill. Instead, the applicants' claim is concerned more broadly with the economic consequences of the change or transition from the dealer model to the agency model. So, the distinctions that I have previously had to make concerning the legal concept of goodwill on the one hand and the economic, accounting or commercial concept of goodwill on the other hand do not loom as large here. I accept that the applicants' more flexible concept of goodwill can be more easily accommodated within the boundaries and content of statutory unconscionability. 3471 Fifth, it is said that the imposition of the agency model undermines the dealers' original bargain. The dealers were encouraged to and made significant long-term investments in their dealerships predicated on anticipated returns and assumed risks under the dealership model. Those investments conferred significant benefits on MBAuP. The dealers' investments were also idiosyncratic in the sense that they had greater value within the relationship with MBAuP than outside of it, and thus gave rise to a significant power imbalance between the dealers and MBAuP. 3472 They say that the idiosyncratic nature of their investments was compounded by the mature nature of the luxury car market in Australia. It is said that there were very limited, if no, opportunities to economically redeploy the dealers' assets. That circumstance left dealers vulnerable to the imposition of worse terms of trade. 3473 Sixth, the applicants say that MBAuP sought to develop and implement the agency model in Australia but were not honest with dealers in doing so. They say that MBAuP was not frank about its intentions to avoid dealers "prematurely closing the door" on agency. They say that it sought to leverage trusted professionals to promote the agency model through the Deloitte workshops. Those workshops were presented as consultative exercises, but that they were promotional in nature is now evident. Further, they say that the financial models presented to dealers did not compare apples with apples, and disadvantageous modelling was not updated and maintained. 3474 More generally, it is said that MBAuP was dishonest and misrepresented its intentions in its implementation of the agency model. MBAuP was not open and honest, and did not act in good faith in its communications to dealers about the agency model, including as to the financial and practical impacts of the agency model on dealers. 3475 Seventh, it is said that MBAuP exploited its superior bargaining position using unfair tactics. MBAuP sought to exploit its superior bargaining position arising from the dealers' idiosyncratic investments. MBAuP also exploited the dealership agreements by bringing them to an end using NRNs, to force the dealers to sign the agency and related agreements. In doing so MBAuP brought significant pressure to bear on dealers, when a consensual termination or variation could equally have been pursued. MBAuP suppressed the opportunity for negotiation and deployed illegitimate threats and tactics and created arbitrary time pressures. Those tactics were deployed deliberately, and with a lack of good faith. 3476 The applicants say that a hard "go-live" date was set, but it was arbitrary, and not governed by any external factors aside from those emanating from Stuttgart. Further, NRNs were issued well in advance of the date, and at a time when dealers did not have concrete details about what was coming after. It was a tactic to apply pressure. Further, the first draft agency agreement was not issued to dealers until a little more than half a year before the "go-live" date, and the four year term was not disclosed until a little less than two months later. Further, a very short period of time was imposed for execution of the first execution-form agency agreements. The dealers' concerns were substantial. But it is said that MBAuP responded by issuing a notice of dispute to place a deadline on negotiations. A single day's mediation was held to resolve 46 high-level issues raised by over 50 dealers along with issues raised pursuant to the service and parts agreements. Further, less than a month later, MBAuP threatened a complete end to its relationship with any dealers who did not sign within a matter of days. It is said that this was not a legitimate threat. MBAuP could not have continued to operate in Australia without the assistance of the dealer network. 3477 Eighth, it is said that each applicant entered into a commercial relationship with MBAuP as a retailer of MB vehicles, MB parts and other MB products and services, with the legitimate expectation of profiting under a dealer agreement, and created a valuable asset and/or goodwill in its MB dealership business by reason of its investment and the taking of risks. 3478 Ninth, it is said that each of the applicants was at a constitutional and situational disadvantage in respect of MBAuP, and MBAuP had a position of overwhelming strength in its bargaining position. 3479 Tenth, it is said that the conduct of MBAuP in requiring the applicants to enter into the agency agreements, service and parts agreements and agency related agreements in circumstances of economic duress and lack of good faith amounted to undue pressure and unfair tactics by MBAuP. 3480 Eleventh, it is said that the relationship between MBAuP and each of the applicants is subject to the Franchising Code as an applicable industry code within the meaning of s 22(1)(g) of the ACL, that embodies the community standards or values in the franchising and motor vehicle industries. 3481 Twelfth, it is said that each of the dealer agreements was an agreement prepared by MBAuP that was not the subject of any negotiation between MBAuP and the applicants prior to entry into them in relation to any of the respective terms in issue in these proceedings. It is said that the terms and conditions of each of those agreements reflected and embodied an ongoing relationship between MBAuP as the wholesaler and the dealers as retailers under the dealership model, including by inclusion of automatic renewal provisions in the dealer agreements and/or by reason of the encouragement provided by MBAuP to dealers to believe that they would have a long-term relationship with MBAuP and the Mercedes-Benz brand provided they achieved their targets and made any mutually agreed improvements. And it is said that in compliance with their dealer agreements each of the applicants invested time, money, effort, entrepreneurial skill and the taking of financial risks, to acquire, establish and operate their dealerships in the joint interests of MBAuP and themselves under the dealership model, including for the purpose of making ongoing profits and enhancing the value of the dealership. 3482 Thirteenth, it is said that each of the agency agreement, the service and parts agreement and the agency related agreements was a standard form that was not the subject of any meaningful negotiations prior to entry into them, that the terms of those agreements are unfair and unreasonable, that the applicants entered the agreements under protest, that MBAuP has the contractual right under the agency agreement to unilaterally vary the agreement and bring it to a premature end, and that MBAuP has the contractual right under the agency agreement to unilaterally vary the remuneration schedule on 12 months' notice. 3483 Fourteenth, it is said that MBAuP misrepresented to dealers that it would not introduce any new business model without the support and agreement of the dealers, and that MBAuP would engage in genuine consultation with the dealers in relation to any new business model proposed to be introduced in Australia so as to protect dealer profitability and goodwill. Further, it is said that MBAuP misrepresented that it had no plans or intentions to close any or up to XXXXXX XXXXXXXXXXX or at any other time as a consequence of the introduction of the agency model in Australia. 3484 Fifteenth, it is alleged that by reason of these circumstances, MBAuP did not act in good faith in purporting to terminate the dealer agreements and in introducing the agency model in Australia. 3485 Sixteenth, it is alleged that MBAuP implemented terms in the agency agreement to allow MBAuP to rationalise its network and bring a dealership to a premature end for the maximum payment of the expected profits over the unexpired portion of the four-year term of the agency agreement. 3486 Seventeenth, it is alleged that MBAuP implemented a global directive, strategy or policy of MBAG, irrespective of the loss and damage caused to the applicants by that implementation. 3487 Eighteenth, it is said that Mr von Sanden's communications with the dealers were motivated at all times by his attempt to minimise the risk of legal proceedings which might disrupt the implementation of the agency model. 3488 Nineteenth, it is said that MBAuP ExCom did not make any operative decision in relation to the implementation of the agency model in Australia. 3489 Twentieth, the applicants say that even if MBAuP acted in good faith, its conduct could still be unconscionable in the statutory sense. It is said that if MBAuP genuinely considered that the agency model was in its and even the dealers' best interests, that does not mean that it had free reign in the pursuit of that model including as to its terms and the remuneration payable. 3490 Twenty-first, the applicants say that the agency agreements contain conditions that are not reasonably necessary to protect the legitimate interests of MBAuP. Aside from those aspects of the agency model which according to the applicants result in an appropriation of goodwill to MBAuP, the applicants say that MBAuP has the contractual right under the agency agreement to unilaterally vary the term of each agreement by bringing it to a "Premature End" and to vary the Remuneration Schedule on 12 months' notice. Further, the applicants say that the agency agreement contains terms which are not fair and reasonable. Now as I have already noted, that is a matter relevant to whether MBAuP contravened the obligation to act in good faith in clause 6 of the Franchising Code. But that is also a matter which is relevant as reflecting a departure from the normative standard reflected in the Franchising Code (s 22(1)(g) of the ACL). 3491 Generally, it is said that this unconscionable conduct has caused, and will cause, the applicants loss and damage. 3492 I would say at this point that this claim fails for each of the exemplar applicants taking into account both the applicants' arguments and the individual circumstances of each of the exemplar applicants. But before getting into the detail, let me say something on the legal principles.

[35]

Some legal principles 3493 Now the content of ss 21 and 22 of the ACL may have their genesis in the alchemy of equity embodied in the unwritten law relating to unconscionable conduct. But their boundaries ought not to be defined by any undue influence of equity as even equity scholars have had to concede (Bant, E and Paterson, J "Systems of misconduct: Corporate culpability and statutory unconscionability" (2021) 15 Journal of Equity 63 at 66). After all, no one would define modern chemistry by its antecedents in experimental metallurgy. Moreover, the statutory framework requires forensic analysis rather than platitudinous philosophy so as to identify the boundaries and content of the relevant conduct in context before considering the secondary characterisation of unconscionability. And the statutory perspective preferences the objective over the subjective. So, the principal focus is on objective conduct and its effect rather than on the state of mind and personal conscience of the alleged miscreant. One can see this in the structure of s 22(1) where state of mind is expressly dealt with last (s 22(1)(l)). Moreover, it addresses both the states of mind of "the supplier and the customer". And even then this is only one matter. But perhaps s 22(1)(d) also implicitly picks up subjective conscience although its explicit reference is to objective effect. 3494 Sections 21 and 22 provide: 21. (1) A person must not, in trade or commerce, in connection with: (a) the supply or possible supply of goods or services to a person; or (b) the acquisition or possible acquisition of goods or services from a person; engage in conduct that is, in all the circumstances, unconscionable. (2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct: (a) institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or (b) refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition. (3) For the purpose of determining whether a person has contravened subsection (1): (a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and (b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section. (4) It is the intention of the Parliament that: (a) this section is not limited by the unwritten law relating to unconscionable conduct; and (b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and (c) in considering whether conduct to which a contract relates is unconscionable, a court's consideration of the contract may include consideration of: (i) the terms of the contract; and (ii) the manner in which and the extent to which the contract is carried out; and is not limited to consideration of the circumstances relating to formation of the contract. 22. (1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the customer; and (b) whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and (c) whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and (e) the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and (f) the extent to which the supplier's conduct towards the customer was consistent with the supplier's conduct in similar transactions between the supplier and other like customers; and (g) the requirements of any applicable industry code; and (h) the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and (i) the extent to which the supplier unreasonably failed to disclose to the customer: (i) any intended conduct of the supplier that might affect the interests of the customer; and (ii) any risks to the customer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and (j) if there is a contract between the supplier and the customer for the supply of the goods or services: (i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and (ii) the terms and conditions of the contract; and (iii) the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and (iv) any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and (k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and (l) the extent to which the supplier and the customer acted in good faith. (2) … 3495 Section 22(1) sets out a non-exhaustive list of the factors to which the Court may have regard to the extent relevant in the particular case for the purpose of determining whether there has been a contravention of s 21. The matters enumerated assist in understanding the scope of the meaning of unconscionable conduct, though the presence of one or more matters listed or indeed their absence is not necessarily determinative. 3496 In Australian Securities and Investments Commission v AGM Markets Pty Ltd (in liq) (No 3) (2020) 275 FCR 57, I distilled the relevant principles at [357] to [379], and re-stated them in Australian Securities and Investments Commission v Westpac Banking Corporation (Omnibus) (2022) 407 ALR 1 at [21] to [33]. Let me set out a modified distillation. 3497 First, the relevant standard is a statutory standard, and it is not limited by equitable doctrine (s 21(4)(a)). Further, s 20 states: (1) A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time. (2) This section does not apply to conduct that is prohibited by section 21. 3498 One can find statutory unconscionability in the absence of unconscionability in equity and the latter in the absence of the former. So, they may overlap on some aspects, although if you find the former you cannot find the latter (s 20(2)). 3499 Second, the evaluation of the conduct in all the circumstances first requires close consideration and identification of the facts. The evaluation involving synthesis and a weighing of factors that may be in tension first requires a properly articulated factual matrix addressed to at least each of the 12 subject matters where relevant stipulated in s 22(1). And this is all the more so where contraventions are being alleged in a civil penalty proceeding, particularly where a precise articulation of the number of contraventions is required, although that is not the present case. And so the need for a properly detailed pleading except in all but the simplest of cases. Now at the start of this case, the original concise statement was admittedly a useful triaging tool. But it quickly outlasted its usefulness such that pleadings were necessitated. And even with that discipline being imposed, regrettably I was still plagued with pleading points. 3500 Now once the relevant facts have been identified and ascertained, assessing whether conduct in all the circumstances is to be characterised as unconscionable involves an evaluative judgment which has the consequence that ultimately the factors in s 22(1) must be considered and synthesised together. 3501 Third, and as I set out in ASIC v AGM (No 3) at [365]: … [O]ne cannot simply align the statutory concept of unconscionable with something not done in good conscience in the sense in which equity has so treated the matter. It is clear from s 12CB and the factors that may be taken into account under s 12CC(1) that one is dealing with a broader notion. But reference to intellectual ideas of customary morality and societal values without further delineation and ready identification may be at too high a level of abstraction to be an objective touchstone. Further, such general themes may distract attention from the values that need to be considered, namely the values explicitly or implicitly enshrined in the text, context and purpose of the ASIC Act, the Corporations Act and any other relevant statutory framework applicable to the activities in issue. But in identifying and applying those values, and indeed in considering the relevant matters under s 12CC(1) applicable to the particular case, societal or community values may also be implicitly satisfied. For example, in considering conduct affecting a particular sub-group, for example an indigenous community, the application of each relevant matter under s 12CC(1) may take into account and may need to be tailored to the characteristics of that sub-group and the alleged contravener's interaction therewith, consistent implicitly with community standards. But if unconscionable conduct is found, it will not be because of some characterisation of it as being against community values without more. Rather, it will be so characterised as being against the statutory construct informed by the values that I have identified and which I will partly expand upon in a moment, as applied to the characteristics and conduct of the participants involved in the commerce in question. 3502 Fourth, let me say something on the question of conscience. In the context of equity, Kakavas v Crown Melbourne (2013) 250 CLR 392 explained the matter by reference to the appellant's submissions in that case in the following terms (at [15] and [16]): In advancing a claim based on the principle expounded by Mason J in Amadio, the appellant relies upon the standards of personal conduct compendiously described as the conscience of equity. According to Pomeroy's Treatise on Equity Jurisprudence: "the 'conscience' which is an element of the equitable jurisdiction came to be regarded, and has so continued to the present day, as a metaphorical term, designating the common standard of civil right and expediency combined, based upon general principles and limited by established doctrines, to which the court appeals, and by which it tests the conduct and rights of suitors, - a juridical and not a personal conscience." The conscience spoken of here is a construct of values and standards against which the conduct of "suitors" - not only defendants - is to be judged. 3503 As I said in Australian Competition and Consumer Commission v Medibank Private Ltd (2018) 267 FCR 544 at [239], with which Perram and Murphy JJ agreed, in the present context dealing with the element of conscience in statutory unconscionability, the "construct of values and standards" is extended beyond the boundaries and content of what equity would normally embrace. The metaphorical term of "conscience" in the present context has an enhanced dimension. Moreover, it is not just a juridical conscience to use Pomeroy's description. It is a statutorily created or recognised conscience with its construct of values and standards informed by the explicit and implicit values enshrined in the text, context and purpose of the relevant statutory framework and any applicable industry or other codes such as the Franchising Code. It is a "statutory norm of conscience" (Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [47] per Kiefel CJ and Bell J). And if that be the case, the qualifying epithet "good" in the phrase "good conscience" is otiose. The relevant conduct is either against the statutory construct of conscience or it is not; the qualifier of "good" in opposition to "bad" may have made sense when dealing with a moralistic version of conscience that had that implicit duality, but it is misconceived to suggest that the statutory construct so requires. 3504 Further, as Gageler J explained in Kobelt at [87] in relation to a cognate legislative framework: …The correct perspective is that s 12CB operates to prescribe a normative standard of conduct which the section itself marks out and makes applicable in connection with the supply or possible supply of financial services. The function of the court exercising jurisdiction in a matter arising under the section is to recognise and administer that normative standard of conduct. The court needs to administer that standing in the totality of the circumstances taking account of each of the considerations identified in s 12CC if and to the extent that those considerations are applicable in the circumstances. 3505 And as Nettle and Gordon JJ said in Kobelt at [153]: …[At] least in the Australian statutory context, what is involved is an evaluation of business behaviour (conduct in trade or commerce) in light of the values and norms recognised by the statute… 3506 I should also say here that in applying what was said in Medibank and also High Court authority that has decided questions of statutory unconscionability, I would reject the approach of some judges who seem to have infused the statutory text with notions of so-called accepted and acceptable social and community standards, whatever that means and howsoever identified, and then said that the relevant search was for what those norms and values require. Rather, the correct approach is to ask what the statute requires rather than to inject and then engage in intellectualisation on meta-themes. To be frank, the latter is likely to produce only unadulterated waffle. But to be fair, the verbiage manifesting such a vice has understandably only occurred in the varnishing or garnishing of obiter. Indeed, one may ask: what case decided in this area has ever really required more than a synthesis or weighing of the statutory considerations or factors applied to the facts without the need for a super-structure or sub-structure? I would venture to suggest, none. Indeed the accepted and acceptable social and community standards if they be relevant have already been infused into and enshrined in the statutory words used by the legislature considered in the context of the broader statutory framework including the Franchising Code where this would be picked up by ss 22(1)(g). There is no thirteenth subject matter in s 22(1) which licenses a judge to indulge in what is little more than intellectual fairy floss. 3507 Now Gageler J said in Kobelt at [92] that the ultimate question may require considering whether the conduct is "so far outside societal norms of accepted commercial behaviour that it warrants condemnation", but that is no licence to embark on a voyage of discovery of social and community standards. Rather that is the ultimate judgment. 3508 Fifth, in terms of any requirement to demonstrate moral obloquy or a high level of moral obloquy, the use of such characterisations is a gloss on the statutory text. As has been explained in numerous authorities, the statutory language should not simply be restated by substituting words or a phrase that Parliament did not choose. At most, the statutory concept of unconscionable may accommodate a flavour of moral obloquy in the sense that it means more than unjust, unfair or unreasonable (Kobelt at [118] and [119] per Keane J), but it is to divert the relevant normative inquiry to specifically seek to identify its existence or to clothe the relevant conduct with such a conclusory label (Medibank at [232] to [255]). Moreover, "unconscionable" is not synonymous with "unjust", "unreasonable" "unfair" or "harsh" (Medibank at [349] and [353]). 3509 Further, nothing said in Stubbings v Jams 2 Pty Ltd (2022) 399 ALR 409 significantly alters Kobelt, with the plurality in Stubbings having focused on equitable rather than statutory notions of unconscionability. Only one of the five judges, Gordon J, found the need to specifically discuss and decide the case on statutory unconscionability. The plurality avoided the question (at [52]), and so too did Steward J (at [153]). Nevertheless, I have carefully considered her Honour's discussion. 3510 Sixth, as to relevant underpinning or implicit values and conceptions: (a) fairness and equality are values and conceptions underpinning s 22(1)(a), (b), (d) to (f) and (i) to (k); more particularly, s 22(1)(a), (j)(i) and (k) recognise asymmetry of power; (b) a lack of understanding or ignorance of a party is the conception underpinning s 22(1)(c); (c) the risk and worth of the bargain are the conceptions underpinning s 22(1)(e) and (i); a broader and related although not explicit concept is the question of asymmetry of information; and (d) good faith and fair dealing are values and conceptions underpinning s 22(1)(l). 3511 Now I should say that I have synthesised the last paragraph from Allsop CJ's exegesis in Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 at [263] to [299] making the necessary currency conversion. But I should also say that I do not subscribe to the view that "the values and norms that inform the living Equity" (Paciocco at [283]) play much of an additional useful role in the context of statutory unconscionability to the extent that they are not already enshrined in ss 21 and 22. Sections 20 and 21(4)(a) are hardly an endorsement to infuse or inflate statutory unconscionability with whatever is said to "inform the living Equity". Moreover, she may be described as "the living Equity", but she is beyond child-bearing age in the contemporary setting of statutory unconscionability, particularly as applied to commercial conduct. 3512 Seventh, although honesty and fairness are relevant including acting without deception, unfair conduct in and of itself does not amount to unconscionable conduct. Establishing unfair conduct may be a step along the way to showing unconscionable conduct if it ultimately amounts to an illegitimate exploitation of a person's vulnerability and therefore amounts to an unjustifiable pursuit of self-interest. Further, hardship does not in and of itself establish that conduct was unconscionable. But establishing actual or likely hardship may be a step along the way to showing unconscionable conduct. 3513 Eighth, statutory unconscionability does not require only focusing on the alleged wrongdoer's or its officers' or employees' state of mind, whether actual intention or knowledge or what it or they ought to have known. It is a broader objective evaluation of behaviour including the causes and reasons for such behaviour and its effect or likely effect. But the subjective state of mind of the alleged contravener whether actual or constructive is relevant to the broader sense (Medibank at [247]). 3514 Ninth, industry practice is a relevant consideration. To the extent that this is formalised in an industry or other code, express recognition is given thereto in s 22(1)(g) and (h). But acting consistently or otherwise with industry practice has broader relevance to the unconscionability question. 3515 Tenth, the boundaries and content of any other applicable statutory regime exogenous to the ACL but relevant to the conduct in question is also important context within which to assess statutory unconscionability (see Dialogue Consulting Pty Ltd v Instagram, Inc (2020) 291 FCR 155 at [366] to [381]). 3516 Eleventh, it is not necessary to show that a person is under a disadvantage or that any particular person has been disadvantaged by conduct. Statutory unconscionability does not require some form of pre-existing disability, vulnerability or disadvantage of which advantage was taken; there is no need to establish exploitation of disadvantage. In any event, a person is not treated as being in a position of substantial disadvantage merely because there is an inequality of bargaining power. And the mere existence of disparity in bargaining power does not establish that the party which enjoys the superior power acts unconscionably by exercising it. 3517 Now the applicants assert that the absence of effective choice to the recipient of the goods and services is a highly relevant consideration, referring to Edelman J in dissent in Kobelt at [302] and [312]. But the members of the Court in Kobelt expressed differing views on the significance or otherwise of choice in that case. 3518 Twelfth, although it is necessary to consider each of the non-exhaustive list of matters set out in s 22(1) that is potentially relevant to the conduct under consideration, it is inappropriate to focus on one or more of those matters to the exclusion or unjustifiable expense of others. 3519 Thirteenth, unconscionability may be established even where there has been good faith conduct. And conversely, conduct engaged in bad faith may not be sufficient to establish unconscionability. Good faith is only one of twelve factors delineating the content of the normative standard outlined by the factors in s 22(1). 3520 Further, as to the respective role of both honesty and outcome in the assessment of the presence of unconscionable conduct, in Medibank I said at [246]: … although honesty and fairness in dealing with consumers is relevant including acting without deception, it would be wrong to say that unfair conduct in and of itself amounts to unconscionable conduct. But establishing unfair conduct may be a step along the way to showing unconscionable conduct. It would also be wrong to say that because hardship is or may be caused to a consumer by conduct, such an actual or likely consequence in and of itself establishes that the conduct was unconscionable. But again, establishing actual or likely hardship may be a step along the say to showing unconscionable conduct, although it is not necessarily required. 3521 Fourteenth, in evaluating whether business behaviour warrants the characterisation of unconscionable, it is surely to be recognised that the pursuit by those engaged in commerce of their own advantage and in pursuit of their own legitimate interest is an omnipresent feature of legitimate commerce. 3522 Further, as Gleeson CJ said in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 (at [14] and [15]): Unconscientious exploitation of another's inability, or diminished ability, to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position. There may be cases where both elements are involved, but, in such cases, it is the first, not the second, element that is of legal consequence. … In the present case, there was neither a special disadvantage on the part of the lessees, nor unconscientious conduct on the part of the lessors. All the people involved in the transaction were business people, concerned to advance or protect their own financial interests. The critical disadvantage from which the lessees suffered was that they had no legal entitlement to a renewal or extension of their lease; and they depended upon the lessors' willingness to grant such an extension or renewal for their capacity to sell the goodwill of their business for a substantial price. They were thus compelled to approach the lessors, seeking their agreement to such an extension or renewal, against a background of current claims and litigation in which they were involved. They were at a distinct disadvantage, but there was nothing "special" about it. They had two forms of financial interest at stake: their claims, and the sale of their business. The second was large; as things turned out, the first was shown to be relatively small. They had the benefit of legal advice. They made a rational decision, and took the course of preferring the second interest. They suffered from no lack of ability to judge or protect their financial interests. What they lacked was the commercial ability to pursue them both at the same time. 3523 In that case, Gummow and Hayne JJ (at [57]) observed that the lessees "were in a difficult bargaining position because they had no legal right to a renewal, there having been no option bargained for and included in the subsisting lease". 3524 But a party is not unbounded in the pursuit of its self-interest. Whilst it is not required to subordinate its own legitimate interests to that of the counter-party, those interests must be legitimate, the party must have regard to the counter-party's legitimate interests, and one must have regard to the extent to which the relevant conduct is "reasonably necessary for the protection of the [party's] legitimate interests". 3525 So, the imposition of a remuneration structure which appropriated profit to one party at the expense of the other for reasons unrelated to the protection of the first-mentioned party's legitimate interests may be an example of a condition not reasonably necessary to protect the party's legitimate interests. 3526 Further, it is not to the point that a party may have an unfettered contractual discretion to act in a certain way. The broader prohibitions in ss 21 and 22 may restrain parties in the exercise of those rights. 3527 Finally, although I have touched on this, duties expressed in the Franchising Code including the duty of good faith under clause 6 inform the evaluative judgment required for the purposes of statutory unconscionability under ss 21 and 22. 3528 Moreover, notwithstanding that these two provisions address different questions and apply different tests, there is at least the potential for the authorities on good faith to inform that evaluative judgment, whilst recognising that a finding for or against good faith is not determinative of the statutory unconscionability question. 3529 There is no dispute that the dealer agreements and agency agreements are franchise agreements and that, insofar as these agreements were concerned, MBAuP and each of the applicants was subject to the Franchising Code as an applicable industry code within the meaning of s 22(1)(g), embodying the community standards or values in the franchising and motor vehicle industries. 3530 But as the language of the Franchising Code itself provides, MBAuP and the applicants were required to act in good faith in respect of any matter arising under or in relation to the dealer agreements (clause 6(1)(a)), any dealing or dispute relating to a proposed franchise agreement (clause 6(2)(a)) and the negotiation of that proposed agreement (clause 6(2)(b)), as well as any other matter arising under the Franchising Code (clause 6(1)(b) and 6(2)(c)).

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Application of principles 3531 Before proceeding further it is to be recalled that I have already found the following. 3532 First, as a matter of the exercise of contractual power, the NRNs were validly given. 3533 Second, in the giving of the NRNs, there was no breach of any good faith duty, statutory or otherwise. 3534 Stopping there for the moment. There is no substance to the applicants' case concerning unconscionable conduct that could be said to impugn the giving of the NRNs. And even accepting that there was spin or half-truths by MBAuP in communications with dealers prior to the giving of the NRNs, that goes nowhere. The NRNs could always have been given at the time that they were. And any attempts to forestall their giving by taking legal proceedings prior to that time would have been an exercise in futility. 3535 Further, the giving of the NRNs by MBAuP was an exercise by MBAuP of its contractual power. There was no other relevant exploitation of any other power. MBAuP did what it was contractually entitled to do. 3536 So, as at the end of 2020, all dealer agreements were to come to an end by 31 December 2021. 3537 And it is in that setting that one then comes to consider the agency model and the "imposition" on the dealers of the agency and associated agreements. Now as to this, the following points can be made. 3538 First, I have found against the applicants on economic duress. There was no such duress. 3539 Second, I have found against the applicants concerning any breach of clause 6 of the Franchising Code in terms of failing to act in good faith concerning the implementation of the agency model. Moreover, I have not found that any of the terms of the agency and associated agreements involved unfair or unreasonable terms. 3540 Third, the negotiations in 2021 between MBAuP and the dealers all took place in the context where the NRNs had been validly given in December 2020 and the dealer agreements were to terminate on 31 December 2021 come what may. 3541 Now of course the applicants were in a weak position at that time, particularly given the investments that they had made. But that all arose from the form of the dealer agreements and the giving of the NRNs. There was no unconscientious exploitation by MBAuP of its strong position at that time. And every step that it took was in pursuit of its legitimate commercial interest. And as I have indicated, the steps that it took were all in conformance with the contractual matrix and the Franchising Code. 3542 Let me also for convenience re-iterate some other matters. 3543 First, on one view MBAuP cherry-picked the best bits of the dealers' businesses on which the agency model was imposed and left the dealers with less desirable features. So, if they wanted to, dealers had to also enter into services and parts agreements, but as vendors/retailers rather than agents. So risk was left with them. No doubt this was seen by MBAuP to be advantageous to it by leaving the allocation of risk elsewhere. 3544 Second, the agency agreements imposed were standard form contracts. 3545 Third, the dealers ultimately had a lack of real choice concerning the terms of the agency agreements in the sense that they were presented on a take it or leave it basis. I also accept that they were given little time to negotiate the final form of the agency agreements and the associated agreements. 3546 Fourth, and related to the third point, there is no doubt that MBAuP played hard-ball in its negotiations with the dealers. There was no meaningful negotiation that the new model to be imposed would be an agency model. There was, however, some negotiation over the detail of some aspects. But on the financial aspects, MBAuP only made concessions on rats and mice issues. And on the main commission aspects, in my view MBAuP and MBAG ratcheted this down as low as they thought that they could get away with. 3547 Fifth, on one view the dealers had little meaningful choice concerning the agency model. But as I have already said, in a sense that lack of choice was brought about by the issuing of the NRNs, which I have found to be contractually valid. In other words, the lack of choice was a causal function of the terms of the dealer agreements that the dealers had signed up to, including the power to issue the NRNs without cause. I must assume that the dealers entered into the dealer agreements after taking such commercial and legal advice as they thought fit well knowing of the risks, but taking the calculated risk that if they performed then they were unlikely to be given a NRN. In other words they perceived that if they performed then it was to the mutual benefit of both MBAuP and the dealer(s) to continue the relationship. That was no doubt a sensible commercial risk to take. But nevertheless a risk as they must have appreciated. The seeds of their ultimate lack of choice were sown a long time ago. 3548 Sixth, I accept that the dealers were ultimately placed in a position of situational disadvantage and possibly constitutional disadvantage in terms of the agency model. But in a sense this was in part self-induced by the dealers' entry into the dealer agreements and a willingness, it must be inferred, to accept the risks and the risk allocation enshrined in those agreements including the risks inherent in the contractual power of MBAuP to issue the NRNs without cause. They made the relevant capital investments knowing of or when they ought to have known of such risks. And on a broader front, the dealers were well-heeled individuals and corporations that hardly had any socio-economic vulnerability. 3549 Seventh, the dealers say that MBAuP took unconscientious advantage of them in imposing the agency arrangements. But let it be assumed that the NRNs were validly given and the dealer agreements rightly came to an end. Although MBAuP clearly obtained an advantage under the terms of the agency model, it is difficult to see how this was unconscientious. Of course there can be an unconscientious advantage taken even if MBAuP acted honestly and in good faith. But where is the unconscientious element once the dealer agreements terminated? The dealers had a choice, and I have rejected the economic duress argument. 3550 Eighth, the applicants have also run a case that the giving of the NRNs themselves constituted unconscionable conduct. But as I have said that assertion is not sustainable on any view of the matter. 3551 Ninth, I accept that in some respect MBAuP encouraged the dealers to make long term investments in some of the facilities. But where this occurred this was usually reflected in a longer term being negotiated under the dealer agreement. Further, with such terms and the various renewals, there is no evidence that dealers have not earned a reasonable rate of return on their assets and also in many instances also recouped their capital investment over time. And where they have not, they still have the assets. Now perhaps there would have been a drop in value if they had to be repurposed, which perception may have led some of the dealers to think that they had no choice but to enter into the agency agreements. But again, this all stems from the giving of the NRNs that I have found to be valid. 3552 Tenth, I accept that MBAuP did not consider the individual circumstances of dealers. Moreover, it had little regard for the top 30% of dealers who were likely to suffer under the agency model. 3553 In summary then, the applicants' case on unconscionable conduct must fail, and certainly so far as the exemplar applicants' claims are concerned. 3554 Having made these points, let me now address the main themes in the context of the considerations set out in s 22 of the ACL. 3555 Has MBAuP misappropriated the dealers' goodwill? Has the imposition of the agency model undermined the dealers' original bargain? Has MBAuP exploited its superior bargaining position using unfair tactics? Was MBAuP dishonest and did it misrepresent its intentions in its implementation of the agency model? These are the questions that I now turn to.

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Has MBAuP misappropriated the dealers' goodwill? 3556 Now a dealer only holds goodwill constituting property if that dealer holds the right or privilege that satisfies the definition of goodwill at law. As I have earlier discussed, the continued existence of goodwill turned upon the continued existence of a dealer agreement, that being the source of the legal right or privilege to conduct the business in substantially the same manner and by substantially the same means that have attracted custom to it. 3557 Further, goodwill for legal purposes is not interchangeable with going concern value. One should not conflate the accounting definition of goodwill with its definition at law. I have discussed the relevant concepts much earlier in my reasons. There has been no appropriation of goodwill as such. 3558 But the applicants' unconscionable conduct claim does not depend on its legal analysis of goodwill being accepted. Rather, the applicants' unconscionable conduct claim pleads that MBAuP has engaged in the unjustifiable pursuit of its self-interest, by the use of its overwhelming power as the supplier of MB vehicles, MB parts and MB products and services, to appropriate the substantial value of the assets and/or goodwill of the MB dealership businesses, and transfer customer revenue and/or profits that would otherwise have accrued to the applicants from or as a consequence of their customers, to itself, without any or any adequate compensation to the applicants for this appropriation. 3559 Further, the broad prohibition against statutory unconscionable conduct is not dependent upon the appropriation of property. Rather, the statutory indicia of unconscionability indicate a broader concern than just the infringement of proprietary rights. The applicants say that the important feature of MBAuP's conduct which makes it unconscionable is the fact that the dealers are worse off under the agency model, both financially, and in other practical ways not immediately quantifiable in financial terms. 3560 Let me then turn to the question of whether the dealers are worse off.

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Are the dealers financially worse off? 3561 The applicants say that the evidence establishes that dealers are financially worse off under the agency model, that MBAuP is better off as a result, and that MBAuP knew or was recklessly indifferent to the fact that that state of affairs would be the consequence of the agency model. 3562 Now in my view the applicants are financially worse off under the agency model. I have analysed the evidence on this earlier. And I accept in favour of the applicants that both MBAuP and MBAG were aware of this. 3563 The reasons for reduced profitability are multi-faceted. 3564 First, the "Customer Discount" and costs assumptions are based on a single year (2019), being one of the worst trading years since the GFC. This approach had the effect of factoring in a higher assumed cost base including the higher dealer discounts required to achieve sales during that period which was in a state of oversupply. 3565 Second, MBAuP assumed that costs saving efficiencies such as reduction in rent would be achieved immediately and reduced the commission accordingly, in circumstances where those cost saving efficiencies could not be achieved in the first year or possibly at all during the four-year term of the agency model. 3566 Third, the expected outcome of the final FAPS margin was a detrimental RoS for dealers' new vehicle departments. Even to achieve this result, MBAuP assumed various cost efficiencies being realised. 3567 Fourth, the commission approved in the FAPS assumed 100% CTE achievement, whereas most dealers have not achieved 100% CTE under the agency model. 3568 Fifth, MBAuP's assumed margin did not account for the dilution effect arising from demonstrators, meaning the effective margin would be lower. 3569 Sixth, where the price of new vehicles has remained constant between the dealership model and the agency model, and where dealers' profits are lower under the agency model, the effect of the agency model is to siphon off dealers' profitability to MBAuP. That was supported by the analysis as part of Business Case 2.1, showing that the largest contributor to MBAuP's improved DCVA was accounted for by reducing the dealer margins. 3570 Seventh, as MBAuP knew, Deloitte's modelling showed that most dealers would be worse off. Mr Peters accepted this when shown during cross-examination a summary of the RoS outcomes of the Deloitte models in the pre and post-agency periods shown. 3571 Eighth, as MBAuP knew, to the extent there was any projected equivalency between the two models, it was predicated on dealers achieving cost savings. Implicit in the low profitability numbers generated by the Deloitte model absent any change to a dealer's cost structures was the fact that most dealers would be unprofitable unless they sacked staff, reduced the cost of their showrooms including by downsizing those facilities, and otherwise cutting costs from the business. If dealers did not or could not immediately adopt all assumed cost saving measures and without expending additional funds such as redundancy payments, the Deloitte models showed the inevitability of reduced profit. 3572 Ninth, as MBAuP knew, an intended incident of the agency model is an increase in online sales at the cost of dealer effected sales. It was recognised early on, as reflected in the Business Case 0.0 presentation, that increasing online sales and paying dealers less for those sales would result in an increase in MBAuP's profitability. It was recognised that a positive financial effect for MBAuP would mainly be driven by online sales and that MBAuP should "actively push online sales to profit from lower margin". Growing online sales share at a rate faster than the competitive market share was recognised as one of the predefined KPIs indicating "success" of the "pilot" program which would be run in Australia. In 2021, this was formalised by MBAG in its "margin glide path". 3573 Tenth, from July 2020 with Business Case 2.0 onwards, MBAuP's own modelling showed a significant DCVA benefit from the move to the agency model, in circumstances where MBAuP had built in all the costs of the additional risks it would take on, as it did in the case of demonstrator and stock risks. 3574 Eleventh, in my view Mr Potter's analysis, which was to compare the two different outcomes of dealership and the agency model using MBAuP's own data and modelling, was the preferable model. The modelling shows the reallocation to MBAuP of a greater share of the profits. 3575 MBAuP has materially and substantially reduced the return to the dealers under the commission to be paid under the agency agreements compared to the RoS they were earning at the time the agency model was implemented, whether that time be considered with the service of the NRNs in December 2020, or September 2021 when MBAuP required the final form of the agency agreements to be signed. 3576 Further, to say that there has been no relevant detriment to dealers because their goodwill arose under and was limited to the existence of the dealership agreement is based on a legalistic view of the concept of "goodwill". The revenue streams that generate the profits of the businesses have been substantially diminished. The multiple to be applied to the revenue streams is lower, because of the change in the business profile of the dealerships. And the method of valuation has changed to a limited term DCF valuation, due to the agency agreement. 3577 In my view, the dealers are worse off and MBAuP better off by reason of the imposition of the agency model in Australia. 3578 But even if it is established that dealers will be worse off, that does not render MBAuP's conduct unconscionable. The good faith duty much less the prohibition of unconscionable conduct does not prevent MBAuP from acting in its legitimate commercial interests nor did it prevent MBAuP from preferring its own interests to those of the dealers. 3579 Now it is said that MBAuP failed to give any or any proper consideration as to whether the agency model would adversely affect the interests of each of the dealers. 3580 I am sure that MBAuP did so consider this albeit that it treated the dealers as a job lot rather than looking at their individual circumstances. Whatever its rhetoric vis-à-vis the dealers, it knew generally speaking that the agency model was less favourable to the dealers and more favourable to it than the dealer model. And this was particularly so considering the top 30% of dealers. 3581 Now it was said that MBAuP nevertheless so determined to proceed because it was instructed to do so by MBAG and to give effect to MBAG's global policy. But this overstates the matter. Clearly MBAG's global policy was to introduce the agency model wherever it could, subject to modifications to suit or that were required by local jurisdictions. And MBAuP was aware of this policy. But the evidence of MBAuP which I accept demonstrates that it had some input into the process and that both Mr von Sanden and Mr Nomikos considered that it was in the interests of MBAuP and the dealers for the agency model to be implemented in Australia. Indeed, on one view Mr von Sanden volunteered Australia as one of the guinea pigs without too much prompting from MBAG, no doubt to ingratiate himself with Stuttgart and what he knew to be its long-term desires.

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Are there other detriments to the dealers under the agency model? 3582 The applicants say that the dealers are worse off in other ways too. Those other consequences of the agency model are said to include: (a) the loss of entrepreneurial independence / freedom; (b) the breaking apart of their businesses under (inter alia) the agency agreement and the service and parts agreement; and (c) the imposition of terms which are not fair and reasonable for the purposes of clause 6(3A) of the Franchising Code, including granting to MBAuP contractual rights to unilaterally vary the terms of the agency agreement. 3583 Let me deal with the first question. Has there been a loss of entrepreneurial independence or freedom? In my view there has been. 3584 Most dealers had extensive experience with the dealer model, but they do not have extensive experience with the agency model, and the agency model is different to the dealer model in several dimensions that reduce the autonomy of dealers. 3585 Dealers no longer set prices, and will lose several important "touchpoints" for developing and maintaining customer relationships, including the ability to discount, which is an important determinant of MB dealer profitability. The loss of control over determinants of profitability may increase the risk faced by dealers. Moreover, ultimately the value of a business depends on the expected discounted value of the stream of profits generated by the business. 3586 As stated by Professor Bell, to the extent that dealers remain an important part of the value chain in automotive sales, dealers will need to invest in capability to create value in nuanced ways over and above the somewhat limited consideration of facilitating an online sale and delivering an automobile. He said that without this, MBAuP risks hollowing out the value chain in the long run. 3587 The dealers as entrepreneurs also operate their businesses, and did so successfully under the dealership model on the risk and reward principle, taking entrepreneurial risks and having the opportunity to earn their rewards through retail profits. 3588 In the current trading conditions, this meant that during 2020 and 2021 the dealers earned high levels of RoS, as a result of supply shortages, which are ongoing due to the problems associated with the sourcing of micro-chips. The agency model involves a low risk and reward model through volume-based commissions at a level set by MBAuP that will diminish over time pursuant to the "margin glide path". That is a different type of business model. 3589 Let me deal with the second question. Has there been a breaking apart of the dealers' businesses? In my view there has been. 3590 By the dealership agreements, dealers were appointed to sell new MB vehicles, to service MB vehicles, and to sell MB parts. It was upon that basis, and the revenues that that integrated business could generate, that dealers entered into the dealer agreements and invested in their dealerships. The integrated nature of the business model reflected an accepted approach within the industry to generating profits from the sale of new vehicles to customers, as demonstrated in the Deloitte benchmarks concerning the "customer retention funnel". 3591 The effect of the agency agreements was to break apart the dealers' businesses, by requiring dealers to enter into separate service and parts agreements. In relation to new MB vehicles, dealers were agents, and in relation to parts and service, dealers remained retailers. 3592 This action by MBAuP had two additional negative consequences for dealers. 3593 First, MBAuP required the dealers to continue to operate their dealership businesses under the agency agreements exactly as they had been operated under the dealership agreements, but under a remuneration structure that left the dealers worse off in relation to the sale of new MB vehicles as well as in relation to other parts of the dealership business. 3594 Second, by disaggregating the selling function from the servicing function, MBAuP could bring the agency relationship to an end, whilst keeping parts and service agreements on foot. Thus, in order for MBAuP to be able to sell MB vehicles directly to consumers under the agency model using a smaller network of dealers, MBAuP would still have access to the service capability of all dealers to service the approximately 400,000 MB vehicles in Australia. 3595 Now the answers to the first two questions show disadvantage to the dealers. But disadvantage does not demonstrate unconscionable conduct. 3596 As to the third question concerning the imposition of terms which were not fair and reasonable under the agency agreements or related agreements, I have dealt with this in a separate part of my reasons where I have rejected such an argument. Let me turn to another matter.

[41]

Have the dealers made substantial investments under the dealership model? 3598 Now there is no dispute that the dealers, including each of the exemplars, were encouraged to invest significant amounts of time and money into their dealerships in furtherance of their relationships with MBAuP. MBAuP sought to attract investment in the dealer network by presenting such investments as secure and long-term. 3599 In order for those investments to be presented as secure and long-term, that necessarily meant an expectation of renewal, save in cases of non-performance / non-compliance. Mr von Sanden, in cross-examination, described renewal as a "practice … based on mutual trust … If the relationship between the franchisor and franchisee or the agent is healthy, then there's no reason to not renew even a longer agreement." Mr von Sanden accepted that dealers would know that there was a pretty low risk of non-renewal, provided they performed in accordance with expectations. 3600 Now there is little doubt that MBAuP encouraged dealers to make long-term investments in their businesses. 3601 The encouraged investment was an express and integral part of MBAuP's 2020 Growth Strategy, as recorded in its "Network Target Picture 2025/2030" document prepared in July 2020. Pursuant to the 2020 Growth Strategy, MBAuP implemented a substantial Network Development Plan which resulted in the appointment of six new dealers, and the completion of 62 dealership capacity expansion projects, giving MBAuP the largest network footprint in the Australian luxury car market. 3602 Each of the dealers made significant long-term investments of money, being $400 million between 2013 and 2020, as well as time, effort and entrepreneurial efforts with the attendant financial risks. Those investments were made by the dealers on expected long-term returns as retailers of MB vehicles, parts and other products and services under the dealership model. The investments included the following. 3603 First, there was the acquisition and establishment of the MB dealership premises, including through purchase of land and buildings, construction of buildings, directly or by a related party, and/or through entry into leases of land and buildings; the premises include 30 custom built Autohaus showrooms which are specific to the MB brand. 3604 Second, there was the acquisition, maintenance and renewal of fit out of the premises, service equipment and other equipment required for or associated with the revenue generating activities of the MB dealership. 3605 Third, there was the finding, engaging, training, paying and retaining staff members to engage in the activities of the MB dealership. 3606 Fourth, there was the acquiring and maintaining a stock of new MB vehicles, demonstrators, pre-owned vehicles, parts, service materials and other items required for or associated with the revenue generating activities of the MB dealership. 3607 Fifth, there was the provision of management, supervision and coordination of all of the activities of the dealership, including maintaining customer data. 3608 Sixth, there was the building of customer relationships through marketing activities to attract customers and retain their loyalty to the MB dealership, giving discounts to secure customer loyalty, and providing post-sales services such as giving courtesy cars. 3609 Some of the specific long-term investments made by each of the exemplar dealers are set out elsewhere. 3610 Now there is no suggestion that MBAuP was unaware of the extent of dealer investments. Further, it was only through the investments made by dealers in establishing new dealerships, and in expanding the sales and service capacity of their existing dealerships, that MBAuP was able to achieve that growth in sales volume and the expansion of its customer base. The dealers, not MBAuP, put their hands in their pockets to build the dealer network and promote Mercedes-Benz as a luxury vehicle brand in Australia. 3611 Further, dealers assumed the risk of assessing market demand for MB vehicles in their prime marketing area and ordering the requisite number of the right kinds of vehicles. They took the risk of attracting customers and closing sales, and in return retained any margin achieved on the sale. And in consideration of adopting the main burden of entrepreneurial risk, dealers took the benefit of any margin to be achieved on the final sale closed with the customer. That was the trade-off between risk and return to which dealers signed up, and it was on that basis that they made their substantial investments in MBAuP's dealer network. 3612 Moreover, the parties' mutual allocation of risk and return and the basis thereof are relevant contextual matters which I have taken into account in assessing MBAuP's conduct.

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The deployment of capital 3613 There are a number of other points that the applicants have made that it is convenient to dispose of at this point. 3614 First, it was suggested that the agency model has not allowed the dealers a reasonable rate of return on their investment. But I cannot conclude this on the evidence that has been adduced before me. Moreover, the agency agreements do not in any event require new capital investment by the dealers. And as for investments made by the dealers under the dealership model, they were free not to enter into the new agency agreements and to deploy their built up capital elsewhere. The fact is that the dealer agreements were validly not renewed, as I have explained elsewhere. Whether or not the dealers decided to deploy their capital investments under the agency model was a matter for them. Further, in relation to past investments, for all I know the dealers have received both a reasonable rate of return on their capital and also recouped over time the capital invested. Of course, the latter does not entail that they did not have a valuable asset at the end of the dealership model for future deployment. But whether they deployed such a valuable asset under the agency model was a matter for them. They were not compelled to enter into the agency agreements. And as I have found, there was no economic duress. 3615 Now true it is that MBAuP assumed that most if not all dealers would enter into the agency agreements and deploy their pre-existing capital. And indeed that calculated assumption under-pinned the viability of the agency model for the first four years at least. But for MBAuP so to assume provides little comfort to the dealers. The dealers, strictly, were free to make their own choice. 3616 Second, reference was made by the applicants to clauses 46A and 46B of the Franchising Code, which I have set out earlier in my reasons. But I do not see how these assist. Clause 46B required that the agency agreement provide a dealer with a reasonable opportunity to make a return on any investment required under the agreement. But we are dealing in the present context with past investments, not any new investment required. And the fact that a dealer might bring over past investments into the new agency arrangement, as contemplated by MBAuP, did not entail that they fell within the language of clause 46B. The very language of clause 46B is dealing with a new investment rather than a deployment of a pre-existing asset. Now true it is that if a dealer entered into an agency agreement it was anticipated if not required that it would redeploy the pre-existing assets that it had built up so as to use them under the agency model. But that is not what clause 46B was addressing. And even if it did, the applicants have not satisfied me in any event that they would not have a reasonable opportunity to make a return on such assets under the agency model. And as for clause 46A, it seems to me that this is properly addressed in clause 32 of each agency agreement.

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The question of proportionality 3617 MBAuP says that I cannot second-guess MBAuP's choice of the agency model and its terms. It says that I cannot hypothesise on other forms of the agency model that might have been chosen to alleviate the dealers' concerns. 3618 Further, it says that it is no part of my role to consider whether, say, the problems of digital disruptors and intra-brand discounting as between the dealers could have been dealt with in a more measured way rather than the disproportionate response of the agency model. It is said that I should not ask the questions: Could the dealers' agreements have been modified? Or could agency have been implemented differently? 3619 It says that all these questions were matters for commercial judgment by MBAuP, not me. It was also stressed by Mr Craig KC on numerous occasions that I was not presiding over a glorified negligence trial. 3620 Now in one sense what has been put by MBAuP is not without merit. But of course given the flexibility in the circumstances that I can consider for statutory unconscionability, the question of whether MBAuP has acted disproportionately is relevant to whether it acted beyond what was reasonably necessary to protect its legitimate interests or acted otherwise than in good faith. 3621 Now I accept that the agency model could have been implemented in more favourable ways to the dealers. Indeed, there could have also been a staged implementation to suit the interests of particular dealers depending upon their individual circumstances and investments. But ultimately, none of these matters justify me finding that MBAuP acted unreasonably or well beyond its legitimate commercial interests or what was reasonably necessary to protect them. 3622 But of course the fact that MBAuP may have acted in its legitimate commercial interests and in good faith does not entail that statutory unconscionability is not made out. Even if it so acted, looking at the objective circumstances and their effect on the dealers, it is still open for me to find statutory unconscionability. I am not concerned in the context of statutory unconscionability to focus on conscience, which is equity's predilection and her principal gaze. In my context I can consider and focus on objective unreasonableness. Indeed, for example, unconscionable conduct can include the passive acceptance of a benefit in unconscionable circumstances.

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The question of compensation 3623 Let me make some other points in terms of compensation that the applicants say ought to have been payable by MBAuP as a result of "converting" the dealers to the agency model. 3624 First, undoubtedly no compensation has been offered by MBAuP, but then it was not contractually bound to provide compensation under the dealer agreements or the Franchising Code in the manner contended for by the applicants. 3625 Second, there has been no transfer or acquisition of the dealers' goodwill as I have previously discussed. 3626 Third, the applicants say that there has been some transfer of profits or customer revenue away from the dealers or some diminution in the future revenue stream of the dealers that was expected from the customers or some notional transfer of what has been described in the evidence as "customer equity". 3627 I am prepared to accept that under the agency model, the dealers' capacity to make the same profits that they were making under the dealer model has been lessened. But to what extent I cannot say on the present evidence. But an important point needs also to be made here. The relevant comparison ultimately is between the two possible futures. One future is of course under the agency model and the revenues achievable by the dealers thereunder. The other hypothesised future is the dealership model going forward and the revenues achievable under that future counter-factual. It is not a comparison between the agency model going forward and the dealership model as it historically worked and as it delivered past returns. The applicants continually sought to make the wrong distinction by focusing their comparison on how dealership had worked, rather than how it was going to work or might work in the future if it had been left in place. If dealership was left in place, MBAuP had considerable flexibility in volumes, pricing, margins and commissions going forward. Moreover, intra-brand discounting may have reared its head again. Ultimately, I had little cogent evidence to make the forward-looking comparisons, whether under agency or the counterfactual of future dealership. And any such evidence would have only been based upon problematic assumptions in any event. 3628 But as I say, I have generally concluded in favour of the applicants that they are worse off under the agency model than under the dealership model and that no compensation has been offered or provided to deal with this detriment. But by how much I cannot say. Moreover, I cannot conclude on the current evidence that they are not able to make a reasonable rate of return.

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The question of vulnerability 3629 I accept that the dealers were in a vulnerable position. 3630 Clearly they had a weaker bargaining position than MBAuP. Moreover, this position was exacerbated by the investments they had made, involving in some respects sunk costs. Further, MBAuP had encouraged the dealers to make such investments, which were in part for MBAuP's benefit as much as the dealers. Moreover, the expectation which had been engendered over time was that the dealers would have a longer-term relationship with MBAuP. 3631 Further, in some respects MBAuP has sought to exploit that vulnerability. And of course, the voluntariness with which the dealers have acted does not negate their vulnerability or MBAuP's exploitation of it. 3632 And MBAuP has more easily been able to exploit the dealers' vulnerability because of the fact of the dealers' pre-existing investments, partial sunk costs and the fact that the dealers' businesses were not "greenfields". Indeed, MBAuP did not want "greenfields" agents, but dealers with pre-existing businesses being converted into agents. 3633 Of course, and as I have found, MBAuP did not engage in economic duress and did not act with a lack of good faith. But to so find does not entail that MBAuP has not engaged in statutory unconscionable conduct. 3634 Now let it be accepted then that the dealers were vulnerable and that in some respects MBAuP exploited this vulnerability. That is not enough to establish unconscionability when one considers the relevant contractual matrix and the risks inherent therein, which is the foundational source for the dealers' vulnerability. 3635 The fact is that the dealer agreements were subject to non-renewal on adequate notice by either MBAuP or the dealer without cause. And the fact is that the NRNs served by MBAuP were valid and brought the dealer agreements to an end. This is all the foundation for and explains the dealers' vulnerability. But the risks inherent in this contractual structure were what the dealers signed on to. Moreover, the dealers were themselves sophisticated commercial players. They can be taken to have appreciated such risks or had available to them advice which would have informed them of such risks if they had chosen to take such advice. 3636 When one identifies the true source of vulnerability one can see that its exploitation falls short of establishing unconscionability. Now I do not say that the exercise of contractual rights cannot amount to unconscionable conduct. Of course it can. But here, the contractual power to not renew was exercised for a proper purpose, in good faith and without economic duress. There was no unconscientious exercise of such a right. And once it was validly exercised, there was no other conduct thereafter of MBAuP that could be said to be unconscionable. The dealers were free to accept or reject the agency model. Now of course they would have been under strong commercial pressure to enter into the agency agreements. But that pressure flowed from the giving of the NRNs, which did not involve any unconscionable conduct on the part of MBAuP. 3637 Now the dealers have complained about the conduct of MBAuP in 2021 after the NRNs were given concerning the negotiation and terms of the agency agreements. But these complaints were exaggerated, and in any event go nowhere. Once the NRNs were given, which in my view involved no unconscionability, the fact that MBAuP may have played hard-ball does not amount to unconscionability. And ultimately each dealer had to make their own decision as to whether they accepted or rejected the agency agreement proffered. Of course they were under pressure, of course MBAuP knew this and exploited it by playing hard-ball, but in my view this has no legal consequences concerning statutory unconscionability.

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What are the relative differences in bargaining strengths? 3638 Let me say something concerning the relative strengths of the bargaining positions of the supplier and the customer. 3639 As a consequence of the dealers' investments, MBAuP achieved a position of significantly greater bargaining strength vis-à-vis each dealer. The dealers' investments were idiosyncratic, relationship-specific and sunk, in that they had more value in the context of the relationship with Mercedes-Benz than outside the relationship and generated idiosyncratic and relationship-specific value in the dealers' businesses. The idiosyncratic investments included the following. 3640 One type of investment was the dealership premises generally, and each Autohaus in particular. 3641 Further, there was investment in training of staff on MB vehicles and systems. 3642 Further, there was investment in customer relationships with loyal MB-customers. Professor Bell was of the view that, as a general proposition, customer relationship assets, also known as "customer equity", is "… almost without exception the largest component of a firm's goodwill." As to the idiosyncratic nature of the dealers' customer equity, Professor Bell stated: The customer equity is built around prestige car value propositions… [although] customer equity might be retained if the dealer principal switched to a brand from within MB's competitive set (e.g. BMW, Audi), but the choices for the dealer are not … limitless … In short, the customer equity (as a component of goodwill) is an asset that firmly meets the traditional definition of an idiosyncratic or transaction-specific investment. 3643 But even if to some extent it was conceptually or economically open to convert a dealership to selling another brand of vehicle, that was not a course practically open in many cases. For example, as noted by Mr Ryan in relation to the Toorak dealership, all major car brands were already represented in the territory in which the dealership was located. And more generally, it may not be commercially viable to replace the Mercedes-Benz brand with a niche low volume brand or a new brand entering the Australian brand such as an emerging Chinese brand, assuming that any of these brands are even available to purchase or acquire. Self-evidently, repurposing a motor vehicle dealership premises to another market activity altogether, say, selling fruit and vegetables, would entail an enormous opportunity cost. Repurposing dealership premises would also have been constrained by local planning regulations. 3644 Further, where a party has made significant investment in idiosyncratic / relationship-specific assets, the cost of those investments are essentially "sunk" and the party is vulnerable to "hold-up" risks that its returns from investment will be appropriated. So, if the counter-party threatens to end the relationship, the other party may have no choice but to accept worse terms of trade. 3645 Further, the dealers' bargaining power was further eroded by the terms of the dealership agreements. So, for example, the dealership agreements with the 2002 term provision contained an automatically renewing one-year term, and so were subject to being brought to an end on a relatively short time-frame. 3646 More generally, the evidence indicates that MBAuP was aware of its superior bargaining power and sought to exploit it. So, relevant documentary evidence had the following phrases: "because we can"; "with or without mutual consent of the dealers"; "there were two possible scenarios (i) dealers are on board; and (ii) if dealers are not on board, we go ahead regardless". 3647 Let me at this point say something more concerning the exemplar applicants. 3648 First, as to the Albury dealership, Baker Motors had made investments over a decades-long relationship with the MB brand including investments in its Autohaus, staff and customer relationships. 3649 Mr Baker's evidence is that to the extent that Baker Motors had any choice, albeit not a real choice, the only alternative to entry into the agency agreement was to lose the Mercedes-Benz brand with the ensuing loss of profitability and impact on the whole business. 3650 Further, Baker Motors has an Autohaus showroom which was custom built and maintained to MBAuP's standards. This MB brand specific investment made by Baker Motors is not easily transferable for a number of reasons. First, to the extent that the land on which the Autohaus sits could be re-purposed to accommodate another luxury vehicle showroom, that would involve demolition of the building and erection of a new custom built showroom facility. Second, Mr Baker was not aware of any luxury dealerships in the area that could be acquired by Baker Motors and that even if another luxury brand was available, it would cost millions of dollars to acquire it and build a showroom. Third, Baker Motor's Autohaus showroom is difficult to use for any other purpose given that it is landlocked and of limited commercial utility outside of the Albury dealership. 3651 But it must be noted that the only substantial investment that Mr Baker referred to was the Autohaus facility, which was built in 2003 after correspondence with MBAuP confirming that the dealer agreement offered at the time of investing in the Autohaus showroom did not provide security for long term investment. Mr Baker made a commercial decision to invest in the Autohaus showroom on the understanding that he would get a dealer agreement of a three year term. He has since enjoyed 20 years as an MB retailer. 3652 Second, the Macarthur dealership also invested heavily over its decades-long relationship with the MB brand. Most notable amongst the investments at the Macarthur dealership is the construction of an Autohaus completed in 2018 at a total cost of approximately $10 million. The NRN to Macarthur Automotive in December 2020 was issued only two years after the Macarthur dealership opened the Autohaus showroom. 3653 Now Mr von Sanden gave evidence that MBAuP made a conscious decision to cease approval of capital projects in the dealer network from around 2016 so as to prevent any overcapitalisation by dealerships. However that evidence fails to engage with the significant capital investment made at the Macarthur dealership in the period between 2016 and 2018, namely the construction of a custom built Autohaus showroom facility. 3654 Now there was a real risk that dealerships could be overcapitalised. Such a risk came to pass in the case of the Macarthur dealership. And some capital expenditure was not able to be recouped within the short period between 2018 and the issuing of the NRN. 3655 Further, there were large costs associated with repurposing the Autohaus building at Macarthur Automotive to another luxury brand. And there were already luxury vehicle dealerships in the PMA of the dealership such that there was little option for the Macarthur dealership to use another luxury brand. 3656 But I also note as to the Autohaus that its directors did not consider investments in land or improvements on that land to be a sunk cost. Peter Warren Automotive had a strategy to create "auto malls" with multiple OEMs which allowed flexibility to adjust brand offerings and floor space. Where a dealership agreement was not renewed, they would typically change the franchise or sublease or use the site for a different purpose. 3657 Third, the Toorak dealership had been acquired by the NGP Group from MBAuP for more than $15 million in 2015 and substantial amounts had been invested to turn the business around to profitability including hundreds of thousands of dollars each year in staff training and development. Mr Ryan gave consideration to acquiring another luxury vehicle brand but did not consider this to be commercially viable having regard to the other dealerships in Toorak's PMA. 3658 Fourth, as to the Wollongong dealership, Mr Wakeling considered the value of the business would be diminished if the Wollongong dealership did not enter into the agency agreement. 3659 And having committed $17.8 million to purchase the Fairy Meadow site in 2021, Mr Wakeling gave evidence that he was not in a position to walk away from the Wollongong dealership and the investments made by Wakeling Automotive Group in the Wollongong dealership. Coupled with the acquisition of the Wollongong dealership by Wakeling Automotive Group in October 2019, the investment meant that there was no real choice but to enter into the agency agreement and to try to make it work, Mr Wakeling readily accepting that he endeavoured to make the Wollongong dealership profitable despite the concerns he held with regards to the agency agreement. 3660 Now I accept that the exemplar applicants were vulnerable in such circumstances. But as I have indicated earlier, each applicant exercised their own commercial judgment when entering into a dealer agreement, including that MBAuP would not issue a notice of non-renewal if the dealer performed well, because it would be in MBAuP's commercial interest and the dealer's interest for the dealer agreement to continue. 3661 Clearly, that does not convert their finite dealer agreement into a permanent entitlement to operate under the dealer model. 3662 Further, it is that commercial judgment which was exercised by dealers that explains why the applicants do not run any detailed or specific case alleging that MBAuP misrepresented to any particular dealer that their investments were secure and long-term or that their dealer agreements would be renewed if they met their targets and made mutually agreed improvements. 3663 Moreover, the evidence establishes that those dealers who sought a more secure arrangement, including NGP Toorak and Macarthur, negotiated longer initial terms with MBAuP. 3664 Moreover, the position advanced by the applicants is that they had idiosyncratic and sunk investments, in the sense that those investments had more value in the context of the relationship with Mercedes-Benz than outside the relationship. Yet as MBAuP correctly submits, at no stage have the applicants made any attempt to quantify the relative value of such investments in the context of the MB relationship as compared to their value if deployed in, say, a used car operation or as a dealer for another brand. Further, many of the applicants have enjoyed a substantial tenure as an MB dealer and have earnt a significant return on those investments. But despite that, the applicants have made no attempt to advance any forensic analysis of the investment made by the exemplar applicants and the return on those investments. 3665 Further, accepting that an inequality of bargaining power is relevant to determining whether conduct was unconscionable does not entail that using one's bargaining position is necessarily unconscionable.

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Did MBAuP exploit its superior bargaining position using unfair tactics? 3666 Let me turn to the question of whether MBAuP exploited its superior bargaining position to impose the agency model. 3667 The applicants say that the evidence demonstrates that MBAuP was not willing to meaningfully negotiate the terms and conditions of the agency agreements with dealers. They make the following points. 3668 The Deloitte workshops were not, in truth, a consultative exercise, but rather served to promote the agency model to take over the dealers, leveraging the dealers' trust in Mr von Sanden and Deloitte as respected industry advisers, to win over the dealers to model D. The true nature of the Deloitte workshops are revealed by the email sent by Mr Latta of Deloitte to Mr Nomikos on 31 October 2018 in anticipation of the second Deloitte workshop, asking him to change the names of models A, B, C and D in the presentation to "disguise the natural progression we will lead the dealers on to reach model D, and then the subsequent discussions". 3669 Further, the Dealer Walks presented to dealers at the Deloitte workshops did not permit dealers to meaningfully and accurately assess the impact of the agency model on their businesses. 3670 Further, prior to May 2021, MBAuP's engagement with dealers in relation to the agency model had been conceptual, without concrete detail of the remuneration structure or other key features of the proposed model. On 3 May 2021, MBAuP provided the first draft agency agreement to the dealers along with an agency overview setting out operational aspects of the agency model. This was the first draft of the agency agreement received by dealers. The draft agency agreement was not complete, and omitted critical details such as the proposed term. 3671 Further, following MBAuP's provision of the draft agency agreement in May 2021, Mr Jennett collated dealer feedback and provided 69 pages of comments to MBAuP on 11 June 2021. On 18 June 2021, MBAuP held a dealer feedback meeting. MBAuP required Mr Jennett to prioritise the issues to be discussed. Mr Nomikos allocated only two hours to discuss the dealers' 69 pages of comments. 3672 Further, on 21 July 2021 MBAuP provided the first complete form of the agency agreement and the service and parts retailer agreement, together with agency overview 2.0. It contained several significant amendments from the first draft agency agreement, including for the first time the four-year term and a provision for a "Premature End" with limited compensation. Changes responsive to the NDC's response of 11 June 2021 were limited to minor operational matters such as removal of a requirement to store all vehicles indoors or under hail nets unless otherwise approved in writing from MBAuP. 3673 Further, on 23 August 2021 HWLE provided a table setting out dealers' concerns and proposed changes to the complete agency agreement. The table contained 46 topics. Mr Seidler gave evidence that he did not review the table. 3674 Further, MBAuP then issued a notice of dispute under the Franchising Code, notwithstanding that Mr Nomikos was hard-pressed to identify any relevant "dispute" with dealers. Mr Nomikos gave evidence that the notice of dispute was issued to put a specific deadline on negotiations with dealers, although it is clear that whoever was instructing Mr Temby had a clear intention that the mediation take place in a confidential and without prejudice manner. The applicants participated in the mediation under protest. The mediation was set down for only one day at MBAuP's insistence, and again the dealers were asked to prioritise their list of concerns. 3675 Further, the final form of the agency agreement did not undergo significant amendment following the mediation. Mr Seidler conceded that MBAuP made no financial concessions following mediation. One of the amendments made to the final form of the agency agreement was to clause 2.3.5: … prior to entering into this Agreement, the terms of this Agreement and the underlying structure of the agency sales model were the subject of consultation and negotiation between MBAuP, the Agent Parties, the [NDC] and the [DAC]. 3676 Mr Seidler accepted in cross-examination that the deletion of "extensive" reflected that the terms of the agency agreement had not been the subject of extensive consultation with the dealers. 3677 In addition, the applicants say that not only did MBAuP knowingly exploit their position of bargaining strength, they did so by applying pressure and unfair tactics. 3678 They say that MBAuP issued the NRNs for the purposes of introducing the agency model, in the knowledge that most dealers were opposed to the agency model. They were issued for the purpose of exerting pressure. Mr von Sanden conceded that MBAuP had issued non-renewal notices for this purpose before. The applicants say that there were other approaches open. It would have been equally open to concurrently negotiate mutual termination and entry into new agreements, without the looming prospect of non-renewal on a hard deadline, arbitrarily set by Mr Lührs. The circumstances in which the NRNs were issued also reduced the dealers' options to take responsive action. They were issued more than a year before the non-renewal was to take effect, and at a time where dealers were unaware of the ultimate details of the agency model. 3679 The applicants say that ultimately, the time between the date the dealers received the first draft agency agreement (3 May 2021) and the date they were required to execute the final form (16 September 2021, following extensions) was only three months. This was a short period given the nature of the changes. In reality, the timeframe was less than three months as the final version was only issued to dealers on 22 July 2021. Mr Nomikos accepted that the original timeline provided a short period of time between issuing the agency agreements and getting the signed agency agreements returned. 3680 The reason for the time-pressure always came back to the go-live date. But the applicants say that that was an arbitrary deadline. 3681 On 14 September 2021 Mr Seidler then sent the email to the dealers requiring execution of the final form of the agency agreement by no later than 16 September 2021. The applicants say that this was a tactic to exert pressure and exploit MBAuP's relative bargaining strength because MBAuP were aware of dealers' sunk costs, the time-pressure was an artificial construct, and the threat to end the relationship was illegitimate in that the parties were in heated agreement that MBAuP needed the dealers to implement the agency model. 3682 Further, they say that the timing of the provision of the agency agreements and Mr Seidler's 14 September 2021 email was such that dealers would have been unable to repurpose their dealerships in the circa three months available, even if there was an economic and practical use of those assets which would not entail a significant loss of return on capital. Dealers needed time to even identify alternative uses for their facilities and staff. There would be a high cost to a dealer to hold an Autohaus and pay staff wages without having an alternate dealership immediately available. 3683 But in my view the evidence does not establish any impermissible exploitation of an asymmetry of power that offends commercial conscience. 3684 MBAuP did not issue the NRNs for the purpose of exerting pressure on dealers. Those notices were validly issued to terminate the dealer agreements. 3685 Further, by the time the NRNs were issued, MBAuP had been in discussions with the dealer network for a number of years about the proposed introduction of an agency model and the features of that model. The Franchising Code required it to give 12 months' notice of non-renewal. Whilst MBAuP sought to obtain the support of the dealers for that change in business model, over time it became clear that the dealers continued to be opposed to change. MBAuP determined that an absence of unanimous dealer support should not defeat the implementation of a model which it considered to be the right one to address the market challenges. 3686 Further, the evidence demonstrates that the exemplars were not coerced to enter the agency agreements, but rather made a rational commercial decision to do so. To the extent they felt pressure to enter the agency agreements, that pressure was in no way illegitimate but a result of ordinary and acceptable commercial dealings. 3687 Further, it is not an accurate characterisation for the applicants to submit that until May 2021, the engagement with dealers in relation to an agency model was conceptual, without concrete detail of the remuneration structure or other key features of the proposed model. 3688 Further, it is asserted that Mr Nomikos allocated only two hours to discuss the dealers' 69 pages of comments. Whilst it is true that the initial time allocated for that meeting was two hours, the meeting in fact ran for four hours and all of the matters on Mr Jennett's agenda were dealt with. 3689 Further, the lawyers for MBAuP considered a table of proposed changes from HWLE on 23 August 2021. 3690 Further, MBAuP made some changes to the agency agreement as a result of negotiations with dealers. Further, HWLE's table did not include any topics that would have had a material financial impact on either party. 3691 Further, it was not unconscionable for MBAuP to seek that dealers participate in a mediation. 3692 As to the requirement for a "dispute", clause 35 of the Franchising Code states that: A party to a franchise agreement (the complainant) who has a dispute with another party to the franchise agreement (the respondent) may: (a) take action under the agreement's complaint handling procedure; or (b) take action in accordance with the procedure set out in Division 3 of this Part. 3693 The notice of dispute seeking to refer the parties to mediation followed notification from the dealers that they had obtained a collective bargaining exemption notice from the ACCC. Further, the applicants did not participate in the meeting involuntarily. On 27 August 2021, Mr Jennett told Mr Nomikos that the dealers agreed to mediation and that he and Mr Scott were the main people instructing HWLE. Now perhaps they were reluctant to participate, but this really goes nowhere for the applicants. 3694 Further, it cannot seriously be suggested that it was inappropriate or unfair much less unconscionable for MBAuP to provide draft documents to dealers in May 2021 and not require them to return signed documents until, ultimately, September 2021, particularly given HWLE's representations that it was acting on behalf of all dealers and in circumstances where the agency model has been in discussion for a number of years by that point. By that time, the implementation date had already been pushed back once. Further, the dealer network had been on notice of a change in business model for some years. 3695 Further, each of the exemplar applicants were seasoned industry participants.

[48]

Legitimate interest 3696 The legitimate interest of MBAuP includes the legitimate interest of its ultimate holding company, MBAG. 3697 I do not see any difficulty in a subsidiary company pursuing its interest by acting in a manner consistent with its holding company's global strategy. To do so may well be beneficial to the subsidiary and its over-all business model. And at the least, to do so may be perfectly consistent with its interest even though it does not achieve any additional benefit. 3698 Further, the legitimate interest of MBAuP may also involve the consideration of an Australia wide and uniform model being imposed rather than one which is implemented in a piece-meal or hybrid fashion in terms of individual dealers, locations or time frames. 3699 Now the dealers say that MBAuP does not have a legitimate interest in "effectively taking our profitability or having an economic outcome that makes us worse off" to use the words of senior counsel for the applicants. But this is describing one financial consequence of what is otherwise perfectly legitimate for MBAuP to do, namely, to issue the NRNs and then to offer the opportunity of the agency model to the dealers on the terms that it did so offer. 3700 MBAuP had a legitimate commercial interest to change the model, and to do so in a homogenous way across the dealer network. Moreover, I do not consider that it did so in a way which was disproportionate to furthering or protecting that interest, although undoubtedly it could have been done in different ways and tailored to different dealers in ways which may have found more favour with the dealers. But what was in fact done by MBAuP in my view was not outside the boundaries of the reasonable choices open to it consonant with its legitimate commercial interest. 3701 Now of course the applicants say that if this is correct, then MBAuP had to provide compensation in different amounts to different dealers to reflect individual detriment and outcomes. But in my view, there is no warrant for so concluding particularly where the premise here is that the NRNs have been validly given. It is not unconscionable not to offer compensation. There was no right. There was no appropriation. And there was no duress to sign the agency agreements.

[49]

Was MBAuP dishonest? Did it misrepresent its intentions in its implementation of the agency model? 3702 Let me begin by saying that there were various themes that from time to time MBAuP put to dealers that were either exaggerated or turned out to be incorrect. 3703 First, it was put that the substantial reason justifying the agency model was the problem of disruptors, aggregators and future online transactions. This was exaggerated in terms of the relevant time horizon that I was dealing with, which on one view, at the time the NRNs were given, was only out to 2026. These so-called concerns were also used in an effort to spook the dealers. 3704 Second, a theme was run at one stage to the effect that the "dealers wanted agency". This was also incorrect. 3705 Third, the theme was run from time to time that "no dealers would be worse off" under the agency model. This was clearly not correct in relation to the top 30% of dealers. 3706 Fourth, MBAuP persistently ran the line that a concern was the intra-brand discounting between dealers and that the agency model was designed to avoid this. But the reality was that most of the intra-brand discounting was brought about by MBAuP's and MBAG's conduct in causing over-supply to increase market share and also the incentive to discount that MBAuP itself created flowing from its commission structure with the dealers. 3707 Fifth, MBAuP at one stage represented that it would not implement the agency model without the dealers' consent. But I do accept that it eventually resiled from that position and made this clear to the dealers. 3708 The applicants say that the evidence indicates that MBAuP unreasonably failed to disclose to dealers or misrepresented a number of aspects of its intended conduct that might affect the interests of the customer to such a degree that it did not comply with honest standards of conduct. 3709 The applicants say that MBAuP misrepresented its intentions in its implementation of the agency model because it was concerned that dealers would commence legal action to stop the introduction of the agency model in Australia. But in my view, even if that be so, that litigation would have gone nowhere. 3710 Further, notwithstanding the fact that MBAuP knew that dealers would be worse off under the agency model, MBAuP sought to downplay or obscure the true financial impact of the agency model on dealers. There are many examples in the evidence. 3711 First, after the fourth Deloitte workshop and the adverse comment that the dealer assessment tools prompted, MBAuP abandoned the approach of providing dealers with the dealer assessment tools. 3712 Second, MBAuP did not disclose to dealers that the expected equivalency, even accepting all of MBAuP's assumptions on cost savings, was not expected to be achieved until some years later beyond the period of the agency agreement term. 3713 Third, the Dealer Walks thereafter presented to dealers provided a false impression of equivalence between the RoS under the two models, including MBAuP's failure to reveal in 2021 that the base years used in the remuneration concept presented to dealers was data from 2018 and 2019, when different market conditions applied. 3714 Fourth, MBAuP was far from frank in its dealings with dealers as to its intentions in relation to the agency model when as early as November 2017, Australia was identified as one of the next markets for the roll-out of model D. At that time, MBAuP continued to give dealers the misleading impression that MBAuP had not made up its mind about a move to model D. Let me give the following examples. 3715 Mr von Sanden did not inform dealers of the NDC at the dealer meeting on 21 November 2017 that the RO had already identified Australia as one of the next markets for the roll out of model D. 3716 At a meeting between MBAuP and the NDC on 5 April 2018, MBAuP gave a presentation on "possible sales configurations" under ROTF, including what an agency model would look like. By this time, the RO had already approved the "Target Picture" for Australia, being model D. 3717 On 8 June 2018, Mr von Sanden wrote to all dealers advising that the agency model was "purely a concept discussion" at that stage, and there had been "neither a directive from our head office in Stuttgart nor a conclusive view at MBAuP for an implementation". Mr von Sanden gave evidence that this email was to try to avoid dealers prematurely closing the door on agency. 3718 On 11 December 2018, Mr von Sanden sent an email to Mr Jennett and the DAC stating "and as said many times before we are absolutely open to considering appropriate alternatives to the so-called Model D". 3719 At the third Deloitte workshop on 12 February 2019, Mr von Sanden stated that "we are moving on from the philosophical phase" of discussing agency, to developing the model and looking at the "how and when" of agency. But again, Mr von Sanden sought to reassure dealers that this was not a confirmed commitment. 3720 Further, Mr von Sanden repeatedly sought to assure dealers that MBAuP would not introduce an agency model in Australia without dealers' consent, and that MBAuP would consider alternatives to introducing an agency model. The following examples were identified in the evidence. 3721 On 18 April 2018, Mr von Sanden wrote to the owners of the larger dealer groups, stating that the change to the agency model required "the full buy-in of our business partners" and could only go ahead with "the full support of our retail network". 3722 In a meeting on 18 July 2018, Mr von Sanden stated to Mr Jennett that "I want to keep discussions going in relation to the future model…and I stand by my willingness to shelve agency if dealers don't want it". Mr von Sanden told Mr Jennett that "agency is one option. I am happy to keep the doors open to look at other options as well… We are asking the dealers to trust us. We won't force anything down dealers' throats". 3723 On 14 November 2018, at a dinner meeting between MBAuP and the DAC, Mr von Sanden stated that, "we are not in a position to force a new model on dealers". 3724 In a telephone conversation on 15 November 2018, Mr von Sanden stated to Mr Jennett that "[a]ny change can only be achieved in agreement with MBAuP and the dealer network". 3725 On 4 December 2018, in a Business Briefing with all dealers, Mr von Sanden stated that "[c]hange can only happen with dealer input. Mercedes-Benz can't afford to force dealers to move to agency". 3726 On 26 and 27 November 2019, in the dealer Business Briefing, Mr Nomikos stated, "[w]e want to do this with you not against you", and Mr von Sanden stated, "[i]f the majority of dealers don't support the agency model, it won't necessarily go ahead". 3727 On 14 December 2019, Mr Lührs informed the representatives of the dealers that "Daimler want to roll out the agency model and they want it to work. It needs support from approximately 75% of the dealer network". 3728 Generally speaking, I agree with the applicants that MBAuP adopted a conscious ambiguity in the use of its language and the messages it conveyed to the dealers to misrepresent and cover up its intentions and the intentions of MBAG to impose model D on the Australian market from no later than December 2018. 3729 The applicants say that these misrepresentations or lack of frankness in its communications with dealers also extended to the expected financial impact on dealers' businesses, the non-renewal of the dealership agreements, and the negotiation (to the extent there was negotiation) and imposition of the agency agreements. 3730 Now I would not put the matter as highly as the applicants do. But I do agree that a lack of transparency and spin were the hallmarks of MBAuP's communications with the dealers. But none of this goes anywhere. This conduct does not impugn the NRNs. And the applicants were aware of the true position that they were in at the time they executed the agency agreements.

[54]

Individual dealers 3741 It must be accepted that the case of each exemplar applicant must be viewed individually concerning the statutory unconscionability case. But of course some of the more general themes that I have discussed and reached conclusions on are relevant to the cases of each exemplar applicant. 3742 First, in respect of each NRN given to each exemplar applicant, for the reasons that I have discussed it cannot be said that the exercise of contractual power involved an improper purpose, a lack of good faith or economic duress. 3743 I have discussed the conduct of MBAG and MBAuP in the context of and to the extent that it was directed to all dealers, but what I have said equally applies as if I was dealing with just the context of each individual exemplar applicant. 3744 Moreover, I have rejected the contention that MBAuP's and MBAG's "job lot" approach or their "average dealer" approach and methodology somehow impugns the NRNs, given that the NRNs could be given without cause to each and every dealer. 3745 Second, from time to time in these reasons I have discussed and made findings concerning each exemplar applicant in relation to their circumstances, their investments, their interactions with MBAuP and the lack of choice that they perceived that they had in entering into the agency agreements. I have brought that forward and considered such matters in the context of each of their individual cases in terms of statutory unconscionability. But none of this material demonstrates that for a particular exemplar applicant there is something idiosyncratic about their circumstances that improves their case on unconscionable conduct. Indeed, if I might say so, some of their cases had inherent weaknesses to the extent that they knew of the proposal to change to the agency model at the time they entered into their dealership agreement or made significant investments. 3746 Third, in terms of investments made by dealers, some of the exemplar applicants gave different and individual evidence as to whether, if they had not entered into an agency agreement, they could have redeployed their capital investments by entering into other comparable dealership agreements with another manufacturer. Now of course such an opportunity would vary as between dealers and also as between locations. But accepting that some dealers had less of an opportunity to redeploy their assets than others, which I have taken into consideration, does not significantly change the assessment of the merits of their unconscionable conduct claims. There was no unconscionability involved in giving the NRNs. Moreover, MBAuP had no obligation to consider any individual detriment to any particular dealer in giving an NRN. After all, it could give an NRN without cause and in its own interest. Further, once an NRN had been given, any differential effect on any particular dealer does not go anywhere. 3747 But I should note that if I had otherwise found unconscionable conduct, then of course any differential effect may have been relevant to the question of damages or any other remedy. But I have not so found, and so the question of damages or other remedy does not arise. 3748 Fourth, one also has to be cautious about the evidence of some exemplar applicants concerning potentially stranded assets. Land and/or buildings can be sold, redeployed or converted to other uses if they cannot be used for a luxury brand dealership. Sure, this may not be the desired or optimal outcome or opportunity. But the detriment of being compelled to deploy or convert an asset to its next best use is hardly overwhelming or unpredictable. In any event, the potential detriment that an exemplar applicant would have faced if they had not entered into an agency agreement is only one part of the calculus in the context of statutory unconscionability. And as I have said, this element does not carry the day once it is accepted that MBAuP had the right to give the NRNs in its own interest. 3749 Fifth, none of the exemplar applicants has run an individual case involving any specific representation made to them by MBAuP and relied on by them which in any way was inconsistent with MBAuP's service on them of an NRN at the time it did. There has been no individual misrepresentation, misleading or deceptive conduct, or estoppel case run by any of them. Moreover, none of them flirted with the fluffiness of a fiduciary duty case. And how could they? Each dealer agreement stated that the "sole relationship between [MBAuP] and the dealer [was] that of vendor and purchaser".

[57]

SCHEDULE OF PARTIES VID 604 of 2021 Applicants Fourth Applicant BAKER MOTORS PTY LTD ACN 008 538 672 AS TRUSTEE FOR CONVAIR MOTORS UNIT TRUST (ABN 11174106372) T/A BAKER MOTORS Fifth Applicant BUCKBY MOTORS PTY LTD ACN 077 722 555 AS TRUSTEE FOR RAINBOW MOTORS TRUST ABN: 47 264 305 077 T/A BUCKBY MOTORS Sixth Applicant CALLAGHAN MOTORS PTY LTD ACN 005 912 041, AS TRUSTEE FOR THE B F CALLAGHAN FAMILY TRUST ABN 80 652 667 949 T/A CALLAGHAN MOTORS Seventh Applicant CAPRICORN MOTORS PTY LTD ACN 065 519 244 T/A DC MOTORS (MERCEDES BENZ ROCKHAMPTON) Eighth Applicant CCMG PTY LTD ACN 104 843 192 AS TRUSTEE FOR THE CCMG UNIT TRUST ABN 92 209 345 591 T/A MERCEDES BENZ GOSFORD Ninth Applicant CENTURY AUTO GROUP PTY LTD. ACN 631 370 904 T/A KEN MUSTON AUTOMOTIVE ABN 11 631 370 904 (MERCEDES-BENZ SHEPPARTON) Tenth Applicant CESSNOCK AUTOMOTIVE SALES PTY LIMITED ABN 11 089 268 397 T/A MERCEDES-BENZ NEWCASTLE Eleventh Applicant GARRY CRICK AUTO GROUP PTY. LTD. ACN 080 312 689 T/A MERCEDES-BENZ SUNSHINE COAST Twelfth Applicant GEELONG MOTORS PTY LTD ACN 124 009 141 T/A MERCEDES BENZ GEELONG Thirteenth Applicant GRAND MOTORS GROUP NSW PTY LTD ACN 129 161 888 AS TRUSTEE FOR THE GRAND MOTORS GROUP SYDNEY UNIT TRUST T/A MERCEDES-BENZ PARRAMATTA Fourteenth Applicant GRAND MOTORS PRESTIGE PTY. LTD. ACN 075 414 112 T/A MERCEDES-BENZ GOLD COAST Fifteenth Applicant JLS ENTERPRISES (VIC) PTY LTD ACN 149 345 460 T/A MERCEDES-BENZ BALLARAT Sixteenth Applicant K.A.P. MOTORS PTY. LTD ACN 009 645 845 T/A MERCEDES-BENZ DARWIN Seventeenth Applicant MB VIC PTY LTD ACN 608 791 877 T/A SILVER STAR MOTORS Eighteenth Applicant MCGRATH CANBERRA PTY LTD ACN 093 024 107 T/A MERCEDES-BENZ CANBERRA Nineteenth Applicant MIKE BLEWITT PTY LTD ACN 001 535 780 T/A MERCEDES-BENZ COFFS COAST Twentieth Applicant NGP MELBOURNE PTY LTD ACN 004 074 819 T/A MERCEDES-BENZ BRIGHTON & MERCEDES-BENZ MORNINGTON Twenty First Applicant NGP TOORAK PTY LTD ACN 608 590 361 T/A MERCEDES-BENZ TOORAK Twenty Second Applicant NIPLAG PTY LTD ACN 007 995 619 ATF THE CARLIN & GAZZTRUST T/A CARLIN & GAZZARD (60 134 644 088) Twenty Third Applicant NORTH SHORE AUTOMOTIVE PTY LTD ACN 601 789 708 T/A MERCEDES-BENZ NORTHSHORE Twenty Fourth Applicant NORTHSTAR AUTOMOTIVE GROUP PTY LTD ACN 626 338 412 T/A NORTH STAR MILDURA MOTORS Twenty Fifth Applicant PARIE PTY LTD ACN 009 278 228 T/A MERCEDES-BENZ BUNBURY Twenty Sixth Applicant PATRICK AUTO GROUP PTY LTD ACN 632 997 730 T/A MERCEDES-BENZ TAREE Twenty Seventh Applicant PERFORMANCE AUTOMOBILES PTY LIMITED ACN 120 402 806 T/A MERCEDES-BENZ HOBART Twenty Eighth Applicant PETER WARREN AUTOMOTIVE PTY LTD ABN ACN 000 293 621 T/A MACARTHUR AUTOMOTIVE & MERCEDES-BENZ PETER WARREN Twenty Ninth Applicant PT WESTERN PLAINS PTY LIMITED ACN 164 506 870 T/A MERCEDES-BENZ DUBBO Thirtieth Applicant RON POYSER MOTORS PTY. LTD. ACN 005 959 197 T/A MERCEDES-BENZ BENDIGO Thirty First Applicant SANDERSONS EASTERN SUBURBS PTY LTD ACN 063 611 129 AS TRUSTEE FOR THE SANDERSON FAMILY TRUST ABN 95 436 833 473 TRADING AS SANDERSONS RUSHCUTTERS BAY Thirty Second Applicant TRINITY MOTORS PTY LTD ACN 097 743 578 T/A MERCEDES-BENZ CAIRNS Thirty Third Applicant TYNAN MOTORS PTY LTD ACN 000 663 347 T/A TYNAN MERCEDES MIRANDA Thirty Fourth Applicant WAGGA MOTORS PTY LTD ACN 075 526 957 AS TRUSTEE FOR THE WAGGA MOTORS UNIT TRUST (ABN 33 556 730 405) T/A WAGGA MOTORS Thirty Fifth Applicant WEST ORANGE MOTORS PTY LIMITED ACN 113 542 411 T/A WEST ORANGE MOTORS Thirty Sixth Applicant WOLLONGONG CITY MOTORS PTY LTD ACN 002 019 598 T/A MERCEDES-BENZ WOLLONGONG Thirty Seventh Applicant WOODLEY MOTOR GROUP PTY LTD ACN 090 535 925 T/A MERCEDES-BENZ TAMWORTH Thirty Eighth Applicant WS MOTORS PTY LTD ACN 608 791 804 T/A WEST-STAR MERCEDES-BENZ (MERCEDES BENZ TOOWOOMBA) Interested Person RAGLAN RIDGE ADVISORS PTY LTD Interested Person AUSTRALIAN AUTOMOTIVE DEALERS ASSOCIATES LTD Interested Person FOWLSTONE COMMUNICATIONS PTY LTD Interested Person MERCEDES-BENZ GROUP AG

Parties

Applicant/Plaintiff:

AHG WA (2015) Pty Ltd

Respondent/Defendant:

Mercedes-Benz Australia/Pacific Pty Ltd

Legislation Cited (15)

Competition and Consumer (Industry Codes - Franchising) Regulation 2014(Cth)

Competition and Consumer (Industry Codes-Franchising) Regulation 2014(Cth)

Trade Practices Act 1974(Cth)

Stamps Act 1958(Vic)

Competition and Consumer (Industry Codes - Franchising) Amendment (New Vehicle Dealership Agreements) Regulations 2020(Cth)

Competition and Consumer (Industry Codes-Franchising) Amendment (Fairness in Franchising) Regulation 2021(Cth)

Consumer (Industry Codes-Franchising) Amendment (Fairness in Franchising) Regulation 2021(Cth)

Competition and Consumer Act 2010(Cth)ss 51ACB, 51AE

Evidence Act 1995(Cth)s 140

Income Tax Assessment Act 1936(Cth)

Petroleum Retail Marketing Franchise Act 1980(Cth)

National Consumer Credit Protection Regulations 2010(Cth)

National Consumer Credit Protection Act 2009(Cth)

Airports (Business Concessions) Act 1959(Cth)

Tobacco Plain Packaging Act 2011(Cth)

Cases Cited (51)

ported, Supreme Court of New South Wales, 17 August 1987) Box v Commissioner of Taxation (1952) 86 CLR 387 Brambles Holdings Ltd v Carey (1976) 15 SASR 270 Briginshaw v Briginshaw (1938) 60 CLR 336 at 361 Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; 69 NSWLR 558 Coles Myer Ltd v Commissioner of State Revenue (Vic) (1998) 147 FLR 191 Commissioner of State Revenue (WA) v Placer Dome (2018) 265 CLR 585 Commonwealth v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 Dialogue Consulting Pty Ltd v Instagram, Inc (2020) 291 FCR 155 DPN Solutions Pty Ltd v Tridant Pty Ltd [2014] VSC 511 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 Far Horizons Pty Ltd v McDonald's Australia Ltd [2000] VSC 310 Favotto Family Restaurants Pty Ltd v Chief Commissioner of State Revenue (2020) 111 ATR 283 Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd (2003) 134 FCR 522 Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 Foxeden Pty Ltd v IOOF Building Society Ltd [2003] VSC 356 GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1 Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1901] AC 217 Jones v Dunkel (1959) 101 CLR 298 JT International SA v Commonwealth (2012) 250 CLR 1 Kakavas v Crown Melbourne (2013) 250 CLR 392 Krakowski v Eurolynx Properties Pty Ltd (1995) 183 CLR 563 Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 Legione v Hateley (1983) 152 CLR 406 Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 McDonald's Australia Holdings Ltd v Commissioner of State Revenue (2004) 57 ATR 395 Metropolitan Life Insurance Co v RPR Nabisco Inc, 716 F Supp 1504 (SDNY, 1989) Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) (2011) 216 IR 116 Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17 Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199 Ranoa Pty Ltd v BP Oil Distribution Ltd (1989) 91 ALR 251 Reda v Flag Ltd (Bermuda) [2002] IRLR 747; UKPC 38 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 Spittles v Michael's Appliance Services Pty Ltd (2008) 71 NSWLR 115 Stubbings v Jams 2 Pty Ltd (2022) 399 ALR 409 Symes v Stewart (1920) 28 CLR 386 Thorne v Kennedy (2017) 263 CLR 85 Times Travel (UK) Ltd v Pakistan International Airlines Corporation [2021] 3 WLR 727 TSG Building Services PLC v South Anglia Housing Ltd [2013] EWHC 1151 (TCC) Virk Pty Ltd (in liq) v Yum Restaurants Australia Pty Ltd [2017] FCAFC 190 Westpac Banking Corporation v Cockerill (1998) 152 ALR 267

Cited By (3)

AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd

Lindfield NSW Pty Ltd v Netdeen Pty Ltd t/as G.J. Gardner Homes

Petrovsky v Southern Adelaide Local Health Network Inc

The concept of goodwill - confusion and conflation 86 Another set of themes concerns the nature of goodwill. How does the legal concept of goodwill differ from the accounting concept? What is the particular nature of goodwill under franchise agreements such as the dealer agreements? Has the change from the dealer model to the agency model effected an acquisition or appropriation of goodwill by MBAuP from the dealers generally and the exemplar applicants specifically? 87 The applicants' case is that the change from the dealer agreements to the agency agreements involved a transfer of goodwill from the dealers to MBAuP. Goodwill was defined to mean a valuable asset of and/or goodwill in the business at the dealership as a result of attracting customers, establishing customer relationships and generating customer revenue. The applicants say that MBAuP has transferred that value to itself. 88 Contrastingly, MBAuP takes a narrow view of goodwill, which it says was tethered to the dealer agreements, and was lost when the dealer agreements ended. Consequently, MBAuP says that the applicants had no goodwill that survived termination, and so there was nothing taken or transferred. 89 In summary, I have taken MBAuP's position which has the advantage of according with High Court authority. I will put to one side for the moment more informal concepts that I will discuss later. Let me turn to some of the authorities. 90 As was made plain in Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 265 CLR 585, goodwill at law is not equivalent to a going concern valuation or an accountant's concept of goodwill. So it was said by the plurality (at [97] to [99]): Goodwill for legal purposes is different from, and is not to be confused with, the "going value" or the going concern value of a business. These terms are not separate methods of valuing the same intangible. The distinction between them is clear and, in the context of this appeal, important. As seen earlier, goodwill represents a pre-existing relationship arising from a continuous course of business - to which the "attractive force which brings in custom" is central. Without an established business, there is no goodwill because there is no custom. A collection of assets has no custom. Going concern value, on the other hand, is the ability of a business to generate income without interruption even where there has been a change in ownership. It has been recognised as a property right by the Supreme Court of the United States. In general terms, in a number of US decisions, it has been described as what differentiates an established business from one just starting; and, importantly, is present even when there is no goodwill. For present purposes, the difference is best understood in the terms identified and discussed in Murry. Goodwill is property in the nature of the right or privilege to conduct the business by "means which have attracted custom to the business". The courts will protect that property - those means of attracting custom to the business - irrespective of the profitability or value of the business, so far as it is legally possible to do so. Going concern value is not of that nature: it is not the right or privilege to conduct the business by means which have attracted custom to the business and, thus, going concern value does not comprise the means of attracting custom to the business which the courts will or can protect. (emphasis and footnotes removed) 91 In terms of the legally relevant context with which I am considering, a dealer holds goodwill constituting property only if the dealer holds the right or privilege that satisfies the definition of goodwill at law. As explained in Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 at [23] by the majority: From the viewpoint of the proprietors of a business and subsequent purchasers, goodwill is an asset of the business because it is the valuable right or privilege to use the other assets of the business as a business to produce income. It is the right or privilege to make use of all that constitutes "the attractive force which brings in custom". Goodwill is correctly identified as property, therefore, because it is the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means that have attracted custom to it. It is a right or privilege that is inseparable from the conduct of the business. 92 Further, it was said at [45]: Once goodwill as property is recognised as the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means which in the past have attracted custom to the business, it follows that a person acquires goodwill when he or she acquires that right or privilege. The sources of the goodwill of a business may change and the part that various sources play in maintaining the goodwill may vary during the life of the business. But, as long as the business remains the "same business", the goodwill acquired or created by a taxpayer is the same asset as that which is disposed of when the goodwill of the business is sold or otherwise or transferred. 93 Now in a franchise context, the fact that the legal definition of goodwill is aligned with the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means that have attracted custom to it is of significance. 94 As MBAuP correctly points out, the franchise business cannot be conducted in substantially the same manner and by substantially the same means absent the rights granted to the franchisee by the franchisor. In other words, in the context before me, the continued existence of goodwill as asserted by each of the dealers before me turned upon the continued existence of a dealer agreement, which was the source of the legal right or privilege to conduct the business in substantially the same manner and by substantially the same means that had attracted custom to the particular dealer(s). 95 Now a central pillar of the applicants' case is their allegation that MBAuP has acquired or appropriated their property, being their goodwill. 96 On the NRNs claim, they allege that one purpose of MBAuP in issuing those notices was to appropriate the dealers' goodwill. The unconscionable conduct case alleges that the agency model resulted in the transferral of the goodwill in their dealership businesses to MBAuP without compensation. It proceeds on the footing that dealers' goodwill is property and that the appropriation of one person's property is objectively dishonest. 97 The applicants' case exhibits a misunderstanding of the meaning of goodwill at law. They routinely equate the accounting definition of goodwill with the legal definition of goodwill. The applicants refer to dealers having paid an amount of money described as goodwill as evidence that they have goodwill that meets the legal description of property. But as was stated in Placer Dome at [53], goodwill to accountants clearly means something different than goodwill to lawyers. Goodwill for accounting purposes is essentially subjective, reflecting the excess that a purchaser is willing to pay for a business or the discount a seller is willing to accept for the same. However, as a matter of law, the existence or otherwise of goodwill is objectively ascertained. 98 In Inland Revenue Commissioners v Muller & Co's Margarine Ltd [1901] AC 217 at 235, Lord Lindley stated: Goodwill regarded as property has no meaning except in connection with some trade, business, or calling. In that connection I understand the word to include whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers, and agreed absence from competition, or any of these things, and there may be others which do not occur to me. In this wide sense, goodwill is inseparable from the business to which it adds value, and, in my opinion, exists where the business is carried on. Such business may be carried on in one place or country or in several, and if in several there may be several businesses, each having a goodwill of its own. 99 The plurality in Box v Commissioner of Taxation (1952) 86 CLR 387 at 397 recognised that different businesses derive their value from different considerations such as location or reputation. 100 Moreover, as Placer Dome discussed, goodwill may have different sources depending on the facts of the case. As was said at [63]: …the notion of custom encompassed connections between a business identity and customers, however those connections were made. This expansion of the view of goodwill from being sourced in a place of business to recognising that there were other sources - such as the personality of those that ran the business or the way it was conducted - did not diverge from the idea that custom was central to goodwill. Custom was and remains central. What had occurred was that the law now recognised that custom could be generated by and from different sources. 101 Let me return to Murry. The issue was whether under the Income Tax Assessment Act 1936 (Cth), by reason of an exempting provision, the capital gain from the disposal of a business or an interest in a business was deemed to be reduced by half because the disposal included the goodwill of the business. Goodwill was not defined in the legislation. The factual context was the disposal of a licence to operate a taxi. 102 The majority held that the taxpayer did not dispose of a business within the meaning of the exempting provision, nor did they dispose of an interest in a business which included the goodwill of the business. The majority considered the nature of goodwill, goodwill as property, the sources of goodwill, and then the value of goodwill. 103 First, they stated that the existence of goodwill (at [12]) depends upon proof that the business generates and is likely to continue to generate earnings from the use of the identifiable assets, locations, people, efficiencies, systems, processes and techniques of the business. 104 Second, they endorsed Lord Linley's description of goodwill in Inland Revenue Commissioners v Muller at 235 as: …whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers, and agreed absence from competition, or any of these things, and there may be others… 105 Third, they stated that the attraction of custom still remained central to the legal concept of goodwill. Moreover, they stated that the legal concept of goodwill has three different aspects, namely, property, sources and value, and that what unites those aspects is the conduct of a business. But for each aspect identified in Murry, the attraction of custom remained the focus of and central to the legal conception of goodwill. 106 Now in seeking to identify the sources of goodwill, the starting point was custom. So it was said in Murry at [24] that the goodwill of a business is the product of combining and using the tangible, intangible and human assets of a business for such purposes and in such ways that custom is drawn to it. They went on to say that: Much goodwill, for example, derives from the use of trade marks or a particular site or from selling at competitive prices. But it makes no sense to describe goodwill in such cases as composed of trade marks, land or price, as the case may be. Furthermore, many of the matters that assisted in creating the present goodwill of a business may no longer exist. It is therefore more accurate to refer to goodwill as having sources than it is to refer to it as being composed of elements. In Muller, Lord Lindley referred to goodwill as adding value to a business "by reason of" situation, name and reputation, and other matters and not because goodwill was composed of such elements. 107 Goodwill has sources which are typically those that motivate service or provide competitive prices that attract customers. 108 But patronage in the sense of customers through the door is no longer the sole means of generating or adding value or earnings to a business by attracting custom. 109 Further, the sources of goodwill for a business are not static. The sources of goodwill of a business may change. Indeed, the part that various sources play in maintaining goodwill may vary during the life of a business. 110 Moreover, in some businesses, price and service may have little effect on attracting custom. The goodwill may instead derive from custom being attracted because of location, statutory monopolies including patents and trademarks and expenditure such as advertising. It was said in Murry (at [27]): Goodwill may also be the product of expenditures rather than the use of assets. Thus, money spent on advertising and promotions, although charged against annual earnings rather than capitalised, may generate brand, product or business name recognition that helps to generate revenue... 111 Further, Murry reinforced the idea that goodwill for legal purposes is property and that (at [29]): [t]o the extent that the proprietor of a business has the right or privilege to conduct the business in the manner and by the means which have attracted custom to the business, the courts will protect the sources of the goodwill of the business, so far as it is legally possible to do so… 112 The Court observed that goodwill has no existence independently of the conduct of a business and goodwill cannot be severed from the business which created it. 113 The Court noted that whilst goodwill (at [4]): …may derive from identifiable assets of a business … it is an indivisible item of property, and it is an asset that is legally distinct from the sources - including other assets of the business - that have created the goodwill. Because that is so, goodwill does not inhere in the identifiable assets of a business, and the sale of an asset which is a source of goodwill, separate from the business itself, does not involve any disposition of the goodwill of the business. 114 So, the sale of an asset of a business does not involve any sale of goodwill unless the asset sale is accompanied by or carries with it the right to conduct the business. 115 The Court stated that when viewed from the perspective of the proprietors of a business and subsequent purchasers, goodwill is an asset of the business because it is the valuable right or privilege to use the other assets of the business as a business to produce income. The Court stated (at [23]): From the viewpoint of the proprietors of a business and subsequent purchasers, goodwill is an asset of the business because it is the valuable right or privilege to use the other assets of the business as a business to produce income. It is the right or privilege to make use of all that constitutes "the attractive force which brings in custom." Goodwill is correctly identified as property, therefore, because it is the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means that have attracted custom to it. It is a right or privilege that is inseparable from the conduct of the business. (footnotes omitted) 116 The Court later stated (at [45]): Once goodwill as property is recognised as the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means which in the past have attracted custom to the business, it follows that a person acquires goodwill when he or she acquires that right or privilege. The sources of the goodwill of a business may change and the part that various sources play in maintaining the goodwill may vary during the life of the business. But, as long as the business remains the "same business", the goodwill acquired or created by a taxpayer is the same asset as that which is disposed of when the goodwill of the business is sold or otherwise transferred. 117 As custom is central to the nature and sources of goodwill, the value of the goodwill of a business varies with the earning capacity of the business and the value of the other identifiable assets and liabilities. 118 Let me say something about the nature of goodwill under a franchise agreement. 119 As I have indicated, goodwill constitutes property because it is the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means that have attracted custom to it. It is an asset of a business because it is the valuable right or privilege to use the other assets of the business as a business to produce income. It is only when a person holds that right or privilege that they hold goodwill constituting property. 120 In Murry, it was concluded that the taxi licence was merely an item of property the value of which was not dependent on the present existence of a business, and therefore the majority held that the taxi licence contained no element of goodwill. 121 Now the fact that the legal definition of goodwill is tethered to the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means that have attracted custom to it takes on particular significance in a franchise context, because the franchise business cannot be conducted in substantially the same manner and by substantially the same means absent the rights granted to the franchisee by the franchisor. 122 In the present context there was no Mercedes-Benz dealership business without the rights granted to a dealer under a dealer agreement. So, the question is not, as the applicants would have it, who owns the customer? 123 Without access to supply of Mercedes-Benz vehicles and rights to use the Mercedes-Benz brand, a dealer could not generate any future profits from the sale of Mercedes-Benz vehicles, whether that be through customer relationships or otherwise. Absent that supply and those rights, there would exist no Mercedes-Benz dealership from which they could derive future profits, nor would there be such a dealership that an applicant could transfer to a third party. 124 Without that supply and those rights, a former Mercedes-Benz dealer might deploy its physical assets, personnel and customer relationships to generate profits by operating a business as, say, a used car dealer or a servicing business, or, subject to obtaining a grant of rights from another brand, as a new car dealer for that other brand. But that would be a different business, with a different goodwill. In that circumstance the goodwill would be the right or privilege to conduct that other business. 125 Further, the absence of any right at law for a franchisee to be compensated for goodwill on non-renewal of a franchise agreement has long been recognised. 126 As Ward CJ in Eq said in Favotto Family Restaurants Pty Ltd v Chief Commissioner of State Revenue (2020) 111 ATR 283 at [104]: Second, as to the nature of the rights under a franchise agreement, reference was made to the decision of the Full Court of the Federal Court (Lockhart, Wilcox and Gummow JJ) in Ranoa Pty Ltd v BP Oil Distribution Ltd (1989) 91 ALR 251 (Ranoa), a matter involving a franchise governed by the Petroleum Retail Marketing Franchise Act 1980 (Cth). In Ranoa, it was held that, on the expiry or termination of a franchise agreement, the franchisee has no right to continue operating the business and no right (in the absence of specific provision in the agreement to the contrary) to any goodwill that may have accrued to the business whilst it was operated by the franchisee. Their Honours noted (at 256) that, under the general law, "the benefit of goodwill built up by reason of a tenant carrying on a business from the leased premises enures to the benefit of the landlord at the expiration of the term" (citing Lord Coleridge CJ in Llewellyn v Rutherford (1875) LR 10 CP 456 at 467 ) and that, "in the absence of any special covenant and any other applicable statute, upon the tenancy coming to an end, the benefit of any goodwill of that character would be lost to the tenant and would enure to the benefit of the lessor" (see at 257). 127 Similarly, Habersberger J stated in Foxeden Pty Ltd v IOOF Building Society Ltd [2003] VSC 356 that a franchise merely confers a licence to participate in the franchisor's business system for a specified term. He said at [269]: However, Mr Hayes recognised that, generally, a franchise merely confers a licence to participate in the franchisor's business system for a specified term. During the term of the franchise, the franchisee owns the goodwill of the franchise in the relevant sense and is able to sell the goodwill (by assigning the franchise agreement). In the absence of a contractual provision providing for compensation for goodwill on expiry or termination of the franchise, the franchisee will forfeit the goodwill… 128 Habersberger J subsequently observed at [295], that: Whether or not the relationship between the Taylors and IOOF is correctly described as a franchise is not strictly relevant. What is important is what was actually agreed between the parties, whatever label is given to the relationship… 129 The absence of any right to compensation for goodwill on non-renewal of a franchise agreement is an issue that has long attracted the attention of those seeking to change franchising laws in Australia. 130 The Trade Practices Act Review Committee, which released its report in 1976, considered the issue of compensation to franchisees for the loss of goodwill upon the termination or non-renewal of their franchise agreement by the franchisor. It recommended that franchisees be given the right to just and equitable compensation. 131 In 2013, the issue was also considered in the review of the Franchising Code; see Wein A, Review of the Franchising Code of Conduct: Report to the Hon Gary Gray AO MP, Minister for Small Business, and the Hon Bernie Ripoll MP, Parliamentary Secretary for Small Business, 30 April 2013. The report of that inquiry concluded (at p107): Nonetheless, there should not be a general overarching right to compensation for franchisees at the end of a fixed term franchise agreement. Making such a recommendation would substantially and fundamentally change long established legal principles of property and contract law. There would also be a risk of greater cost and uncertainty in the industry and possible unintended consequences from any such change to contractual rights. While appreciating the contribution made by franchisees to the development of their franchise site or territory, a franchisee should expect that the franchise period should be no longer than the negotiated terms of the contract. Any equitable right to compensation for a franchisee whose franchise is not renewed must lie with the courts and any statutory right that may exist under the ACL. Arguably, adequate remedies already exist if a franchisor fails to renew a franchise agreement in a situation where the franchisee has complied with all the conditions for renewal. Unlawful refusal will amount to a breach of the agreement by repudiation or possibly unconscionable conduct. However, if the agreement does not provide for renewal, the franchisee knows before entering into the agreement that the franchisee's rights under the agreement will terminate on the expiry of the term. In that situation the franchisee should not be entitled to compensation. 132 Following the Wein review, amendments were made to the Franchising Code in relation to the enforceability of restraint of trade provisions where a franchise agreement is not renewed and nominal or no compensation for goodwill is given to a franchisee. But no right to compensation for goodwill, and no right to renewal, has been included in the Franchising Code. Rather, a franchisor is required to disclose "the prospective franchisee's rights relating to any goodwill generated by the franchisee (including, if the franchisee does not have a right to any goodwill, a statement to that effect)" (Franchising Code, Annexure 1 (Disclosure Document for franchisee or prospective franchisee), [18.1(fa)]). 133 Now both Ward CJ in Eq in Favotto and Habersberger J in Foxeden referred to Ranoa Pty Ltd v BP Oil Distribution Ltd (1989) 91 ALR 251. Let me elaborate on Ranoa. 134 The appellant in Ranoa had operated a BP service station franchise at Engadine in New South Wales for 9 years. On 30 March 1988, the second respondent (BP Australia Limited) wrote to the appellant advising that "BP intends to take back control of BP Engadine at the end of your current lease" and "BP is unable to offer renewal at that time". The proceeding concerned the construction of s 23 of the Petroleum Retail Marketing Franchise Act 1980 (Cth). Section 23 provided that: (1) Where, but for this section, the operation of a provision of this Act would result in the acquisition of property from a person by another person otherwise than on just terms, there is payable to the person by that other person such reasonable amount of compensation as is agreed upon between those persons or, failing agreement, as is determined by a court. (2) In sub-section (1), 'acquisition of property' and 'just terms' have the same respective meanings as in paragraph 51(xxxi) of the Constitution" 135 The question as framed on the appeal assumed that the respondents acquired property, namely some species of goodwill from the appellant, and that such property was acquired otherwise than on just terms. The primary judge had answered in the negative a question which had been ordered to be decided separately from and before all other questions in the proceedings. The question was: Upon the true construction of s.23 of the [Petroleum Retail Marketing Franchise Act 1980] in its setting in the Act, is the franchisee, upon the expiration of the period of nine years, provided for in ss.13 and 17B entitled to such reasonable amount of compensation as is determined by a Court upon the basis that the franchisor acquired property from the franchisee otherwise than on just terms by reason of the operation of this Act?. 136 The question before the Full Court was reformulated as: Upon the basis of the following assumptions, namely, that for the purpose only of the determination of this separate question, on 18 September 1989: (a) the respondents acquired property namely some species of goodwill from the Appellant and, (b) such property was acquired otherwise than on just terms, did the operation of some provision of the [Petroleum Retail Marketing Franchise Act 1980] result in the acquisition of this property so as to require the Respondents to pay to the Appellant compensation pursuant to s 23 of the said Act? 137 So, the issue that was posed was whether the operation of s 23 of that Act resulted in the acquisition of goodwill such as to require the respondents to pay compensation to the appellant. In passing, Lockhart, Wilcox and Gummow JJ opined on the position of a franchise under the common law and held that the legislation under consideration in that case did not alter the position at general law. So it was said (at 257): Upon the expiry of the term of a franchise agreement in circumstances such as those in the present case, where the franchisor is not bound to renew the agreement and does not voluntarily do so, does the legislation bring about a result as regards the goodwill which differs from that under the general law?... 138 As to the specific question in that case, their Honours held that the: …acquisition of goodwill upon the end of the term … was not the result of the operation of any provision of the Act so much as a consequence of what the Parliament did not provide, namely an entrenched tenure for a period greater than 9 years. 139 Their Honours noted that under the general law the benefit of goodwill built up by reason of a tenant carrying on a business from the leased premises enures to the benefit of the landlord at the expiration of the term and that in the absence of any special covenant and any other applicable statute, upon the tenancy coming to an end, the benefit of any goodwill of the relevant character would enure to the benefit of the lessor. Their Honours stated (at 257 and 258) that: Where a franchisor elects to grant a new lease the franchisee has the benefit of continued exploitation of the goodwill of the site... But where a franchisor elects not to grant a new lease, the franchisee is turned from the site without compensation for any goodwill which it may have developed during its period of occupancy. A franchisee, such as the appellant, may regard this result as harsh, the harshness being exacerbated if it should be the case - we do not know whether it is so - that franchisors are more likely to decide themselves to operate sites to which substantial goodwill attaches… 140 So, the views expressed in Ranoa are consistent with the principle, recognised in Murry and Placer Dome, that goodwill is the legal right or privilege to conduct a business in substantially the same manner and by substantially the same means which in the past have attracted custom to the business. The continued existence of that goodwill turns on the continued existence of that right or privilege. 141 Now I accept though that Ranoa concerned the "taking back" by the franchisor from a franchisee tenant of a leased service station, by a notice of non-renewal of the lease. It was against that factual background, and a general law principle that goodwill built up by a tenant from leased premises enures to the benefit of the landlord at expiration, that the Court found there was no residual goodwill in the tenant franchisee's business. The present case does not share that common factual and legal substratum. 142 But again, to use the present case as an example, a dealer whose term has expired cannot transfer to a purchaser the essential ingredient required to conduct a Mercedes-Benz franchise, being the rights granted under the dealer agreement, including access to supply of MB vehicles and use of MB intellectual property. 143 As Chesterman J observed in McDonald's Australia Holdings Ltd v Commissioner of State Revenue (2004) 57 ATR 395 in discussing whether there had been a transfer of the goodwill of a McDonald's franchise (at [61]): It follows that the applicants cannot have become the transferee of the licensee's goodwill, or have otherwise acquired the goodwill, unless it acquired those assets which the licensees held prior to 31 January 1994 and which allowed them to carry on the business, which is said to have given rise to the goodwill. In practical terms that means the licences, or rights, to use the McDonald's System's trademarks, trade names and service names. Without these licenses the licensees would not have conducted their businesses which were McDonald's restaurants. They may have needed other things as well, but the licenses were the essential ingredient. Customers are attracted to a McDonald's restaurant because of the reputation of the McDonald's name and the fact that enforced compliance with the detail of the McDonald's System means that on the occasion of every visit and in every McDonald's restaurant the quality and choice of food and the quality of service and standard of fit-out will be the same. There is a uniformity of product, service and milieu in every McDonald's restaurant. This uniformity, which the public confidently expects to experience at a McDonald's restaurant, comes from the adherence by each restaurant proprietor to the McDonald's System including the use of the trademarks, trade names and service names. It is the right to use these items of intangible property which generates goodwill… 144 Similar issues arose in relation to the sale of two McDonald's restaurant businesses in Favotto concerning assessments for duty issued by the Chief Commissioner of State Revenue (NSW) in respect of transactions entered into by Favotto relating to those restaurants. The principal issue was whether there was dutiable property and, specifically, whether the transactions effected a transfer or agreement for the sale or transfer of the goodwill of the existing McDonald's restaurant businesses to Favotto or merely the non-dutiable grant of new franchise rights to enable Favotto to continue the operation of the existing restaurant businesses. 145 Ward CJ in Eq considered that what was revealed on a consideration of the respective transaction documents was that Favotto acquired a limited licence to use the respective premises and the "McDonald's System" for the purpose of running a McDonald's restaurant (for a limited time and on strict conditions) at each of the premises. Her Honour considered it significant that on the termination of the licence arrangement, there was no goodwill that enured to the benefit of Favotto. Favotto had the temporary enjoyment of the goodwill of the businesses but there was no transfer as such to Favotto of the goodwill in the sense that it would be free to deal with or dispose of this at the end of the licence arrangements. As her Honour stated, "in effect, Favotto's right to make use of that goodwill simply comes to an end" (at [170]). On the expiry or termination of a franchise agreement, a "franchisee has no right to continue operating the business and no right (in the absence of specific provision in the agreement to the contrary) to any goodwill that may have accrued to the business whilst it was operated by the franchisee" (at [104], citing Ranoa). Moreover, in the absence of a contractual stipulation to the contrary, no compensation for any so-called loss of goodwill is payable. 146 Let me say something about two other cases that the parties before me lingered on being Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187; 69 NSWLR 558 and Bond Brewing (NSW) Pty Ltd v Refell Party Ice Supplies Pty Ltd (unreported, Supreme Court of NSW, Equity Division, 17 August 1987). 147 Let me deal first with Burger King and the scenario that it was dealing with. 148 Burger King Corp as franchisor and Hungry Jack's as franchisee entered into four agreements, one of which was a development agreement. Those agreements, together with the individual franchises for each store, governed their contractual relationship, including Hungry Jack's development rights in Australia. 149 The development agreement conferred upon Hungry Jack's the non-exclusive right to develop and to be franchised to operate Burger King restaurants in Australia. Under clause 2.1, Hungry Jack's was required either by itself or through a third-party franchisee to develop and open a minimum of four new Burger King restaurants per year in Western Australia, South Australia and Queensland. The agreement also provided for non-exclusive development rights in the other Australian states and territories. Further, there was a provision allowing termination for breach and a requirement that 30 days' notice be given in respect of any breach that was capable of cure. Clause 4.1 required Hungry Jack's to obtain individual franchises for each restaurant developed under the agreement. That required compliance with various procedures, including entering into a further agreement, which provided for conditional approval in respect of nominated sites and to have certain approvals at the time of application for a franchise agreement for a newly developed restaurant. 150 Now from 1993, Burger King Corp took a more active role in Australia with a view to reducing Hungry Jack's role in the market. In 1995, Burger King Corp took three steps that restricted Hungry Jack's ability to develop. First, it advised that it would no longer approve any further recruitment of third party franchisees. Second, it withdrew financial approval. Third, it withdrew operational approval. The effect of these actions was to impede Hungry Jack's development of new outlets. The impact of this was significant as Hungry Jack's was required under the development agreement to develop a minimum of four stores in Western Australia, South Australia and Queensland each year. 151 During 1994, the parties also entered into discussions with Shell about the feasibility of establishing Hungry Jack's outlets in Shell service stations. A test site agreement was initially proposed to assess the viability of a long-term venture. The initial discussions were conducted on the basis that if the test sites were successful, the parties would enter into a long-term tripartite venture. During the course of these discussions, Burger King Corp then commenced dealing with Shell separately. Months after Burger King Corp had decided to proceed with Shell without Hungry Jack's, Burger King Corp informed Hungry Jack's of the position. 152 Now over the relevant period Hungry Jack's was operating 148 Hungry Jack's restaurants and operating another two restaurants controlled by Shell on service station sites. 18 Hungry Jack's restaurants were operated by third party franchisees and Hungry Jack's provided training and other services to those restaurants. From November 1990 to November 1996 Hungry Jack's had paid royalties to Burger King Corp exceeding $20 million. 153 By two separate notices given in November 1996, Burger King Corp purported to terminate the development agreement for breach. The first notice particularised Hungry Jack's failure to develop new restaurants as required by clause 2.1 as the breach giving rise to the right to terminate. The second alleged various breaches relating to a sunglass promotion campaign, advertising without approval and improper trademark use. A third notice was given in September 1997, after the commencement of proceedings, against the possibility that the earlier notices were held to be invalid. 154 Hungry Jack's challenged the notices of termination and was substantially successful before the primary judge. Burger King Corp then pursued an appeal, but unsuccessfully. 155 Now it was common ground that there were implied terms of the development agreement that Burger King Corp would do all that was reasonably necessary to enable Hungry Jack's to enjoy the benefits of that agreement, that Burger King Corp would act reasonably in exercising its powers under the agreement, and that Burger King Corp would act in good faith in the exercise of its contractual powers. 156 Now as to the steps taken by Burger King Corp to reduce Hungry Jack's role in the Australian market, the Court of Appeal observed that Burger King Corp's conduct and its intentions in respect of the Australian market were to be reviewed against the fact that under the development agreement, Hungry Jack's had the prospect of expanding over a 20 year period and that the franchise agreements for each restaurant provided for a term of either 15 or 20 years with an option to renew for the same period. A detailed review of the facts is contained in a schedule to the judgment which has been omitted from the authorised report. 157 On the issue concerning the third party freeze by which Burger King Corp would not approve any further recruitment of third-party franchisees, the Court held that Burger King Corp did not seek to support the freeze on any contractual basis and that the freeze was imposed at a time when Burger King Corp had made a policy decision to, in some way, take back the Australian market. The Court was satisfied that it was clear that Burger King Corp was actively seeking ways to at least reduce Hungry Jack's dominant role if it could not remove it from the market altogether. One of the means available to Hungry Jack's to both satisfy the development schedule and to develop generally was through third party franchisee arrangements. But it was precluded from doing so from mid-May 1995 at a time when there was active interest by prospective franchisee applicants. The Court held that the continued imposition of the freeze was in breach of the implied terms of reasonableness and good faith. 158 On the issue concerning Burger King Corp's financial disapproval of Hungry Jack's which was the second step of a process whereby Hungry Jack's ability to expand was affected, the Court stated (at [276]) that there was considerable force in the trial judge's observation that the "odd thing about BKC's approach, which, in my opinion, is only explicable because of the attitude BKC was taking to HJPL, is that the financial disapproval preceded the receipt of the various information [requested of Hungry Jack's], rather than followed an analysis of it and the exercise of the discretion based on that analysis". 159 The Court held that Burger King Corp's conduct in this regard breached an implied term of good faith, stating (at [310]): …the evidence clearly establishes that BKC's conduct is properly characterised as being directed not to furthering its legitimate rights under the Development Agreement but to preventing HJPL from performing its obligations under the Development Agreement. 160 The Court reached the same view regarding the other issue concerning the withdrawal of operational approval. It accepted that Burger King Corp breached its obligations of good faith and reasonableness by its conduct in imposing the third party freeze, and in financially and operationally preventing Hungry Jack's from further expansion. 161 Now the conduct of Burger King Corp was not in good faith because it was directed not to furthering its own legitimate interests but, rather, to preventing Hungry Jack's from performing its obligations under the development agreement. Its conduct was directed to setting up a basis for terminating the development agreement and denying Hungry Jack's the benefit of the contractual bargain. The long-term nature of the parties' bargain in Burger King was clear on the contractual documents. Hungry Jack's had the prospect of expanding over a 20-year period and the franchise agreements for each restaurant provided for a term of either 15 or 20 years, with an option to renew for the same period. As the Court said (at [185]), Burger King Corp's conduct was wrongful because it sought to "thwart HJPL's rights under the contract". 162 In particular, the Court held (at [187]) that: the discretion conferred in clause 4.1 was one which was required to be exercised reasonably, so that it could not be used for a purpose foreign to that for which it was granted, such as to thwart the respondent's right to develop and ultimately to procure a situation where the Agreement could be terminated. 163 Burger King Corp did not withhold operational and financial approval under clause 4.1 of the development agreement out of any concern regarding the merits of applications for approval submitted by Hungry Jack's under that clause, that being the purpose of the development procedure under that clause. It withheld approval because it wanted to thwart Hungry Jack's right to develop and ultimately to procure a situation where the agreement could be terminated. 164 Let me now deal with Bond Brewing and the scenario that it was dealing with. Bond Brewing is an estoppel case. 165 In Bond Brewing, a notice to quit was served by the plaintiff, a brewery and the owner of the New Brighton Hotel at Manly, NSW, on the defendant, the tenant hotelkeeper, who was holding over as a monthly tenant after expiry of a one-year lease. In 1982, the tenant had, with the consent of the brewery, taken an assignment of an interest in the leasehold and had paid in consideration for the assignment an amount partly attributable to "goodwill". 166 From 1976, the brewery had required incoming tenants to sign a so-called goodwill letter addressed to the brewery, a condition of which was that the brewery would not be obligated to compensate the tenant for loss of goodwill if the brewery decided not to renew the current or any subsequent lease or otherwise retake possession of the premises. During the period 1970 to 1985, which was both before and after the goodwill letter was required of the tenant, the brewery had a practice where on each occasion when it sought to gain possession of a hotel the subject of a brewery lease, it paid the particular tenant substantial compensation for giving up possession even though the tenant was holding over under a weekly or monthly tenancy. The evidence also showed that the person who had authority to state to the tenant in that case what the brewery's policy was in relation to the goodwill letter had told the tenant before its signature was affixed that the letter was a mere formality. 167 The brewery decided not to renew the lease and did not offer to pay any compensation for loss of goodwill to the tenant. The tenant argued that when it took an assignment of the lease, it acted on a representation made by the landlord or relied upon an assumption, which the landlord did not correct, that the landlord would not terminate without paying to the tenant a reasonable sum for the goodwill. The landlord argued that the tenant was precluded from relying upon its understanding of the landlord's practice because of the terms of the goodwill letter. 168 Waddell CJ in Eq upheld the tenant's estoppel in pais argument. 169 Bond Brewing is not authority for the proposition for which the applicants have cited the case before me. In summary, neither Bond Brewing nor Burger King assist the applicants. 170 Now more generally the applicants say that the notion that goodwill as a matter of legal analysis ends when the underlying franchise agreement terminates is inconsistent with the analysis in Murry. But I disagree. Goodwill in terms of the legal concept did not transcend the non-renewal of the dealer agreements. Moreover, there was no acquisition or appropriation by MBAuP of the dealers' goodwill at the time of the service of the NRNs or at any time thereafter. 171 Further, the applicants say that the question on which legal goodwill depends is what attracts custom. This could be the business itself independently of any trademark licence or it could be the business in combination with the trademark. 172 It was said in Murry (at [67] and [68]): A taxi licence is a valuable item of property because it has economic potential. It allows its holder to conduct a profitable business and it may be sold or leased for reward to a third party. But neither inherently nor when used to authorise the conduct of a taxi business does it constitute or contain goodwill. A licence is a pre-requisite to the conduct of many professions, trades, businesses and callings. But it is not a source of the goodwill of a business simply because it is a pre-requisite of a business or calling. Nor is the situation different when only a limited number of licences are issued for a particular industry. For legal purposes, goodwill is the attractive force that brings in custom and adds to the value of the business. It may be site, personality, service, price or habit that obtains custom. But with the possible exception of a licence to conduct a business exclusive of all competition, a licence that authorises the conduct of a business is not a source of goodwill. A taxi licence therefore is simply an item of property whose value is not dependent on the present existence of a business. It is not and does not contain any element of goodwill. 173 The applicants say that it is not in dispute that when the business ceases to exist because the underlying licence ends, at that point the goodwill evaporates as legal property. But the applicants say that it follows that if the business at the dealerships continues, even where the underlying basis of the relationship between MBAuP and the dealer changes, the goodwill in the dealership continues because customers are still attracted to the dealership by the assets deployed by the dealer and the trademarks of Mercedes-Benz. This is because, though not identical, the business is being conducted by substantially the same means and in the same manner both before and after the change of contract. 174 Moreover, they say that even though the attraction of customers is the result of the combined or joint contributions of the business and the MB trademarks, the goodwill is not joint goodwill. Rather, each party benefits depending upon its own business. It is said that this is also recognised in the dealer agreements. 175 But these arguments are problematic. Perhaps commercially they make sense. But in terms of the legal concept of goodwill and any suggested misappropriation by MBAuP of the dealers' goodwill they are contrary to authority and incoherent. 176 Further, the applicants say that the gravamen of their case in relation to statutory unconscionable conduct is that the dealers have operated and continue to operate the same businesses, attracting customers and generating customer revenue, as a result of their investments. But as a result of the agency model, they are not entitled to the same share of the revenue generated as previously and the value of their businesses is now reduced. They say that it is a permissible characterisation of that loss as a diminution in goodwill. But they also say that success on their unconscionable conduct case does not depend upon an acceptance of this legal characterisation. Now this is one point upon which I agree with the applicants. A broader perspective may be taken to these questions in the context of addressing whether there has been unconscionable conduct. 177 Let me turn to some of the other themes.

The exercise of power to give the NRNs 178 I have already said something about the scope and purpose of the contractual power of non-renewal. Let me make some points concerning the exercise of power to give the NRNs. 179 First it is not pleaded or run by the applicants that MBAuP itself did not exercise that power. Rather it is said that this was done under the direction of MBAG. 180 Second, it is not said that the exercise of power was some sham exercise. 181 Third, the case being put was that the exercise of power by MBAuP was done under the direction of or at least under the influence of MBAG. Now I accept that the exercise was done under the influence of MBAG but not by its direction. 182 I accept that such influence of MBAG involved approval of the necessary business cases and approval of the elements of the agency model and the terms of the agency agreements. But even accepting such influence of MBAG, I do not accept the applicants' case that MBAuP exercised no independent judgment whatsoever in issuing the NRNs. 183 Fourth, I accept that MBAuP exercised the power to give the NRNs without regard to the individual circumstances of each of the dealers, including their investments, their performance, any custom or reputation built up with customers, and the potential effect of the agency model on the individual dealer. 184 Fifth, I accept that the exercise of the power was done solely for the benefit of both MBAuP and MBAG and their strategic interests. 185 Sixth, as between MBAuP and MBAG, informing MBAuP's purpose was the desire to act in the interests of MBAG and to act consistently with MBAG's global objectives. But what is also obvious is that MBAuP perceived that what was in MBAG's strategic interest was also in MBAuP's strategic interest. In other words, they were not mutually exclusive interests but rather wholly or predominantly complementary. And that is no surprise when one is considering the position of a subsidiary and its relationship with its ultimate parent company. 186 Now pausing here, in my view none of these purposes of MBAuP are improper, foreign or collateral to the power to give an NRN. And none of such purposes show an absence of good faith. 187 Seventh, there is no broader bargain between a dealer and MBAuP outside the contractual framework of the dealer agreement such that it could be said that the exercise of power to give an NRN was inconsistent with the bargain struck. 188 Eighth, the purpose of MBAuP in issuing the NRNs involved pursuing an Australia-wide strategy and, in essence, treating all dealers uniformly. But given the nature of the power being exercised, this was not improper or impermissible. 189 Now true it is that the power is being exercised literally within the framework of an individual dealer agreement as between MBAuP and an individual dealer. So it might be said that it is foreign or collateral to the purpose for which the power to issue an NRN has been granted to: (a) consider an Australia-wide strategy; (b) principally follow MBAG's strategy; (c) treat all dealers uniformly; (d) not consider the individual circumstances of individual dealers; or (e) use the occasion to change the relationship to a new model, a circumstance that I will discuss in a moment. 190 But given the nature of the power, it is for the sole benefit of MBAuP. And if that be so, none of points (a) to (e) that I have just listed demonstrate any impermissible purpose let alone a lack of good faith on the part of MBAuP. 191 Let me analyse further four points raised by the applicants. 192 First, they say that the power to issue the NRNs can only be used for the purpose of terminating a relationship between MBAuP and the dealer rather than changing or creating a new relationship with the dealer, that is, one of agency. 193 Now I must say that I have difficulty with this argument. The power was exercised to terminate the pre-existing relationship under the dealer agreements, even if MBAuP had it in mind or was offering the possibility of a new relationship. Termination of the pre-existing relationship was a necessary anterior step, and so a proper purpose. The fact that MBAuP also had it in mind that there might be the creation of a new relationship does not impugn the contractual purpose. Moreover, there is a causal break in the facts. The NRNs were given at the end of 2020. There were no conditions attached regarding agency. Offers concerning agency were given in mid-2021. Of course, MBAuP had an expectation when giving the NRNs that the dealers would enter into the agency agreements when later offered. But strictly the two events occurred at different times with the former not being conditioned on the latter. The dealers were always free to accept or reject the latter. 194 Further, there is a conceptual problem with the applicants' position. The power of non-renewal like a power of termination is a power to end the pre-existing relationship. But it does not say anything about or deny that the parties might have it in mind to enter into a new and different relationship under a new agreement. And it does not foreclose or deny that possibility. As one would expect, the contractual provision is silent on that question. It cannot contemplate let alone deny what the parties may agree to do in the future. 195 Second, it is said by the applicants that the power has been improperly used to appropriate the dealers' goodwill. But that argument is flawed for reasons that I have discussed elsewhere. 196 Third, and relatedly, it is said that the power has been improperly used so that MBAuP could achieve a direct relationship with the end-customers. Now that is the effect of the agency model. But the power to give the NRNs was being used to achieve the direct end of terminating the dealer agreements. The fact that there are other consequential ends does not impugn the exercise of the contractual power, even if those ends are favourable to MBAuP and unfavourable to the dealers. 197 Fourth, the applicants say that the non-renewal power can only be used for circumstances such as a dealer failing to meet targets or a dealer failing to make mutually agreed improvements or the like. Other examples were also given. But in my view the relevant power has no such limitations. The only relevant limitation is a good faith exercise requirement, either arising under clause 6 of the Franchising Code or under the express or implied terms of the contractual provisions. 198 But it is convenient to say up front that it is difficult to discern a want of good faith in the exercise of a power which can serve only the interests of the party upon whom the power is conferred; see Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 at [23] per Buchanan JA. The ostensible purpose of the exercise of such a power will almost invariably be its true purpose. 199 If a contractual right or power, which is intended to advance only the interests of the party on whom it is conferred, is fettered by the obligation of good faith, resort to the duty may become an obstacle to the promotion of that party's legitimate interests. Such a power may be contrasted with one that is concerned with co-operation to produce a result beneficial to all the parties to the agreement. 200 In Metropolitan Life Insurance Co v RPR Nabisco Inc 716 F Supp 1504 (SDNY, 1989) Judge Walker said (at 1517): In other words, the implied covenant [of good faith] will only aid and further the explicit terms of the agreement and will never impose an obligation which would be inconsistent with other terms of the contractual relationship ... Viewed another way, the implied covenant of good faith is breached only when one party seeks to prevent the contract's performance or to withhold its benefits ... As a result, it thus ensures that parties to a contract perform the substantive, bargained-for terms of their agreement. 201 He went on to say (at 1519) that it is impermissible to "permit an implied covenant to shoehorn into an indenture additional terms plaintiffs now wish had been included". And he went on to note (at 1520) that assertions made by a plaintiff such as "fundamental basis" or a "fruit of an agreement" are usually in the eye of the beholder seen through hindsight. 202 In DPN Solutions Pty Ltd v Tridant Pty Ltd [2014] VSC 511, one clause of the agreement in issue gave the defendant a right to terminate for cause. Another clause gave both parties the right to terminate without cause by giving the other party one month's notice in writing. The schedule to the agreement described the term of the agreement as ongoing subject to one month's notice in writing from either party. 203 Hargrave J held that although he would not imply an obligation of good faith, had he done so he would have held that there was no want of good faith for the same reasons that he rejected the unconscionability assertion. The termination without cause was done by the defendant in its own legitimate commercial interests. 204 A similar sentiment was expressed by Akenhead J in TSG Building Services PLC v South Anglia Housing Ltd [2013] EWHC 1151 (TCC) at [51] where he said: I do not consider that there was as such an implied term of good faith in the contract. The parties had gone as far as they wanted in expressing terms in Clause 1.1 about how they were to work together in a spirit of "trust, fairness and mutual co-operation" and to act reasonably. Even if there was some implied term of good faith, it would not and could not circumscribe or restrict what the parties had expressly agreed in Clause 13.3, which was in effect that either of them for no good or bad reason could terminate at any time before the term of four years was completed. That is the risk that each voluntarily undertook when it entered into the Contract, even though, doubtless, initially each may have thought, hoped and assumed that the Contract would run its full term. Obviously, if South Anglia (and there is no suggestion of this) misrepresented prior to the Contract that it intended to proceed to the full term in circumstances when it was always planning to terminate early, that could give rise to a separate cause of action for one type of misrepresentation or another. Again, if (and there is similarly no suggestion of this) there was some material fraud or dishonesty on the part of South Anglia in and about the termination that might well give rise to some cause of action. Thus, if there were extreme and unusual facts (none being adumbrated so far), the law may well provide TSG with some other remedy. 205 Further, in Reda v Flag Ltd (Bermuda) [2002] IRLR 747; UKPC 38, the Privy Council dealt with a termination without cause provision. 206 Lord Millett stated (at [42] and [43]): Under the terms of the appellants' contracts, therefore, Flag had an express contractual right, which it exercised, to bring the appellants' contracts of employment to an end at any time during the contract period without cause. Their Lordships agree with Flag that that is an end of the matter. As the Court of Appeal observed, 'the very nature of such a power is that its exercise does not have to be justified.' The principal ground on which this was disputed by the appellants at trial was that the decision of Flag's directors to bring their contracts to an end was vitiated by their 'collateral purpose' in seeking to avoid having to grant the appellants stock options. But in the present context there is no such thing as a 'collateral' or improper purpose; a power to dismiss without cause is a power to dismiss for any cause or none. The directors of Flag were, of course, obliged to exercise their powers as directors in good faith and for the benefit of the company. As the Court of Appeal pointed out, however, this was a duty owed to the company and not to its employees. There is no reason to doubt that, in resolving to exercise Flag's contractual right to terminate the appellants' contracts without cause and before a stock option plan had been established, the directors were loyally seeking to further the interests of Flag as they saw them, and Flag's shareholders implicitly approved the action that they took on its behalf. They could properly form the view, as they undoubtedly did, that it would not be appropriate to grant the appellants stock options or, to put the matter another way, that it would be commercially inappropriate to grant such options to employees whose contracts of employment had only a few more weeks to run. 207 He also said (at [45]): Their Lordships accept that the appellants' contracts of employment contained an implied term that Flag would not without reasonable and proper cause destroy the relationship of trust and confidence which should exist between employer and employee. The existence of such a term is now well established on the authorities: see Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] IRLR 66 at pp. 70-72; Malik v Bank of Credit and Commerce International SA [1997] IRLR 462; Johnson v Unisys [2001] IRLR 279. But in common with other implied terms, it must yield to the express provisions of the contract. As Lord Millett observed in Johnson v Unisys it cannot sensibly be used to extend the relationship beyond its agreed duration; and, their Lordships would add, it cannot sensibly be used to circumscribe an express power of dismissal without cause. This would run counter to the general principle that an express and unrestricted power cannot in the ordinary way be circumscribed by an implied qualification: see Nelson v British Broadcasting Corporation [1977] IRLR 148 (where it was sought to imply a restriction of location into a contract which contained an unqualified mobility clause). Roskill LJ said at p.151: '... it is a basic principle of contract law that if a contract makes express provision ... in almost unrestricted language, it is impossible in the same breath to imply into that contract a restriction of the kind that the industrial tribunal sought to do.' 208 Of course contracts of employment differ from franchise agreements, but these general observations are not inapposite to the present context. 209 Further, Bhasin v Hrynew [2014] 3 SCR 494 dealt with a non-renewal clause. 210 Mr Bhasin had been an enrolment director for Can-Am since 1989. Can-Am marketed education savings plans to investors through retail dealers, known as enrolment directors, like Mr Bhasin. It paid those directors compensation and bonuses for selling such plans. Now the directors were in effect small business owners and the success of their businesses depended on them building a sales force. The term of the contract was three years. Clauses 8.3 and 8.4 allowed termination on short notice for misconduct or other cause. Clause 3.3 provided that the contract would automatically renew at the end of the three-year term unless one of the parties gave six months' written notice to the contrary. The parties' relationship soured. Can-Am decided not to renew the dealership agreement with Mr Bhasin and gave the requisite notice under clause 3.3. 211 Cromwell J considered that such a context did not fit within any of the existing situations or relationships in which duties of good faith had been found to exist. And he stated that "[c]lassifying the decision not to renew the contract as a contractual discretion would constitute a significant expansion of the decided cases under that type of situation" (at [72]). 212 But relevantly to my context, his Honour said about non-renewal powers (at [90] and [91]): It is not necessary in this case to define in general terms the limits of the implications of the organizing principle of good faith. This is because it is unclear to me how any broader duty would assist Mr Bhasin here. After all, the contract was subject to non-renewal. It is a considerable stretch, as I see it, to turn even a broadly conceived duty of good faith exercise of the non-renewal provision into what is, in effect, a contract of indefinite duration. This in my view is the principal difficulty in the trial judge's reasoning because, in the result, her decision turned a three year contract that was subject to an express provision relating to non-renewal into a contract of roughly nine years' duration. As the Court of Appeal pointed out, in my view correctly, "[t]he parties did not intend or presume a perpetual contract, as they contracted that either party could unilaterally cause it to expire on any third anniversary": para 32. Even if there were a breach of a broader duty of good faith by forcing the merger, Can-Am's contractual liability would still have to be measured by reference to the least onerous means of performance, which in this case would have meant simply not renewing the contract. Since no damages flow from this breach, it is unnecessary to decide whether reliance on a discretionary power to achieve a purpose extraneous to the contract and which undermined one of its key objectives might call for further development under the organising principle of good faith contractual performance. I note as well that, even in jurisdictions that embrace a broader role for the duty of good faith, plaintiffs have met with only mixed success in alleging bad faith failure to renew a contract. Some cases have treated non-renewal as equivalent to termination and thus subject to a duty of good faith: Shell Oil Co. v. Marinello, 294 A.2d 253 (N.J. Super. Ct. 1972); aff'd 307 A.2d 598 (N.J. 1973); Atlantic Richfield Co. v Razumic, 390 A.2d 736 (Pa. 1978), at pp. 741-742. Other courts have seen non-renewal as fundamentally different, especially where the express terms of the contract contemplate the expiry of contractual obligations and leave no room for any sort of duty to renew: J.H. Westerbeke Corp. v. Onan Corp., 580 F.Supp. 1173 (D.Mass. 1984), at p. 1184; Pitney-Bowes, Inc v. Mestre, 517 F.Supp. 52 (S.D. Fla. 1981), cert. denied, 464 U.S. 893 (1983). 213 Now as to the content of any good faith duty as it applies to a termination without cause provision or a power of non-renewal, such a power has two features that distinguish it from contractual provisions that are concerned with co-operation to produce a result beneficial to all the parties to the agreement. 214 First, the very purpose of such a power is to bring the existing contractual relationship and implicit bargain to an end. 215 Second, such a power can serve only the interests of the party upon whom it is conferred. The ostensible purpose of the exercise of such a power will almost invariably be its true purpose. 216 So, the exercising party's obligation pursuant to the good faith duty to act honestly and with fidelity to the bargain between the parties is informed by these distinguishing features and must recognise that the nature of the power is to bring that bargain to an end. That approach also gives effect to the principle that the standard of fair dealing or reasonableness that is to be expected in any given case must recognise the nature of the contract or relationship, the different interests of the parties and the lack of necessity for parties to subordinate their own interests to those of the counterparty. 217 In summary, the good faith duty applied to such a power of non-renewal without cause does not convert an agreement into a contract of indefinite duration. But it does require that the exercising party act honestly in matters that are directly and intimately connected to its performance of the contract and its exercise of the non-renewal power. 218 Let me address some other matters that were the subject of evidence and submissions before me and some of which I have already touched on.

State of mind and purpose 2791 A point of difference between the parties concerns the issue of discerning MBAuP's purpose. 2792 MBAuP is the relevant party in respect of the acts relevant to the contract claims including the issue of the NRNs and the acts to be analysed in respect of clause 6 of the Franchising Code, as well as the party who is said to have engaged in the impugned conduct under s 21 of the ACL. 2793 Now a difference arose between the parties as to the identity of the individuals whose states of mind can be attributed to MBAuP. But before getting into the detail I should make some general points. 2794 In terms of attributing the state of mind of an individual(s) to a corporation, Bright J in Brambles Holdings Ltd v Carey (1976) 15 SASR 270 at 279, in a passage approved by the majority in Krakowski v Eurolynx Properties Pty Ltd (1995) 183 CLR 563 at 582 and 583 per Brennan, Deane, Gaudron and McHugh JJ, said: Always, when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind is treated as being the state of mind of the company… 2795 Further, in identifying the relevant state of mind for the purpose of attribution it is necessary to have regard to the specific circumstances of the alleged breach, which in this case arises from the text of clause 6 of the Franchising Code and s 21 of the ACL. 2796 Now in Australian Securities and Investments Commission v Westpac Banking Corporation (No 2) (2018) 127 ACSR 110, I said at [1658] to [1662] as follows: I have accepted ASIC's case that on the four occasions identified (6 April 2010, 20 May 2010, 1 December and 6 December 2010) Westpac traded for the dominant purpose of manipulating the BBSW. And in doing so I have attributed to the corporate entity an individual state of mind, ie that of the traders. Why is that so? Lord Thurlow in 1778 succinctly expressed the point that a corporation has "no soul to damn, no body to kick". Strictly, corporations are mindless. Accordingly an individual state of mind needs to be attributed to the corporate entity, particularly where one is focused upon the motivation or purpose for an action. But whose? I have said elsewhere that the conventional approach has been to identify the individual who was the "directing mind and will" of the corporation in relation to the relevant act or conduct and to attribute that person's state of mind to the corporation. But after the injection of flexibility into that concept by Lord Hoffmann in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 506-11; [1995] 3 All ER 918 at 925; [1995] 2 BCLC 116 at 123 (Meridian), metaphors and metaphysics have had diminished utility. First, there are no longer the rigid categories for identifying the "directing mind and will" that may be perceived to have existed after Viscount Haldane LC's use of the phrase in Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 at 713 and indeed after Tesco Supermarkets Ltd v Nattrass [1972] AC 153; [1971] 2 All ER 127 until Meridian. Second, and relatedly, the appropriate test is more one of the interpretation of the relevant rule of responsibility, liability or proscription to be applied to the corporate entity. One has to consider the context and purpose of that rule. If the relevant rule was intended to apply to a corporation, how was it intended to apply? Assuming that a particular state of mind of the corporation was required to be established by the rule, the question becomes: whose state of mind was for the purpose of the relevant rule of responsibility to count as the knowledge or state of mind of the corporation? (see Bilta (UK) Ltd (in liq) v Nazir (No 2) [2016] AC 1; [2015] 2 All ER 1083; [2015] 2 WLR 1168; [2015] UKSC 23 (Bilta) at [41] per Lord Mance). The question is one of the interpretation of the relevant rule taking into account its context and purpose. Now once you have asked and answered that question and identified the individual in question, you may then apply the title of "directing mind and will". But so to proceed adds little to the analysis. The label "directing mind and will" is nebulous if not question begging. It also follows that if you use such a label, then it will have variable application even within the same corporation depending upon the particular context and function of the relevant rule of responsibility. And as soon as one admits of that variability, the advantages in using the label become illusory, except to distinguish such a person who can be identified with the corporation from a person for whose acts the corporation is merely vicariously liable (Bilta at [70] per Lord Sumption). I agree with Lord Walker of Gestingthorpe who suggested that it might be better if the label "directing mind and will" was allowed to fade away (see Moulin Global Eyecare Trading Ltd (in liq) v Commissioner of Inland Revenue [2014] HKCFA 22 at [106]). In the present context, the relevant rule of proscription that I have to consider is that enshrined, inter-alia, in ss 1041A and 1041B. Now, of course, they do not directly refer to questions of purpose let alone dominant purpose. Moreover no mens rea concepts need to be imported from elsewhere (see generally Australian Securities and Investments Commission v Whitebox Trading Pty Ltd (2017) 251 FCR 448; 345 ALR 424; 122 ACSR 141; [2017] FCAFC 100 (Whitebox)). Nevertheless, given the observations in DPP (Cth) v JM, concepts of dominant purpose loom large at least concerning s 1041A and in the way ASIC has framed its case. It is sufficient to say for present purposes that in terms of s 1041A and given its focus on a transaction(s), the relevant state of mind is that of the individual person who instigated and carried out the particular trade. Given the freedom of choice and discretion given to Westpac's traders, it seems to me that relevantly for present purposes it is the state of mind of each of Mr Roden and Ms Johnston in relation to their respective trading that should be so attributed to Westpac in relation to the trading in the Bank Bill Market on the contravention dates. 2797 The basis upon which MBAuP has presented its case is that the decision-makers for the purpose of implementing the agency model in Australia were the following. 2798 It is said that Mr von Sanden was the decision-maker in respect of the NRNs in December 2020. Mr von Sanden was always a believer in agency as a concept for some years. When Mr von Sanden signed the NRNs in December 2020, he did so on the basis of his belief concerning agency. Further, he was the CEO and his act and state of mind are relevantly that of MBAuP even if there was no formal MBAuP BOM resolution to give the NRNs. I agree with this analysis. 2799 Now the applicants say that Mr von Sanden could not recall the circumstances concerning the issue of the NRNs in December 2020. The applicants say that his lack of recall ought to be considered in the light of Mr von Sanden having sent the "joint determination" email to Mr Lührs in December 2018 and Mr von Sanden having stated at the meeting with Ms Seeger in April 2019 that "the company's position has now been communicated". But in my view it was clearly Mr von Sanden's act. And there is no doubt as to what his purpose was in giving the NRNs. 2800 Now only Mr Nomikos sought to give evidence about the MBAuP ExCom decision being taken in late January 2020 for the introduction of the agency model in 2022. Mr von Sanden did not make any such statement in his affidavit. 2801 In my view, no formal decision was taken by MBAuP ExCom in late January 2020. But I have no doubt that its members and the members of the MBAuP BOM approved of the agency model for Australia and its implementation date. 2802 Now the applicants say that the MBAuP BOM minutes of 24 March 2020 are consistent with MBAuP BOM not taking any decision to approve the draft circular resolution prepared by Ms Maiden on 5 March 2020. But whatever the imperfections in the formalities I am satisfied that its members approved of the implementation. 2803 Further, in my view Mr Seidler was the decision-maker in respect of the decisions taken in 2021 to implement the agency model in Australia upon the terms ultimately proposed. Now so far as Mr Seidler was concerned, he also claimed to have had an independent belief in the benefits of agency, and direct sales through an online store. 2804 Now the applicants say that his evidence was that he gave no instructions to the lawyers, and that he simply signed letters and emails he was asked to sign. But there is little doubt that the steps he took in 2021 for MBAuP were in furtherance of agency with which he agreed. 2805 Now I should also note that the applicants press for an adverse inference against MBAuP of the kind discussed in Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 at [64] in relation to the late production of the relevant MBAuP ExCom and BOM meeting minutes after the end of the evidence and documentary tender. In my view, the circumstances don't permit such an inference, but even if they did the inference would not take the applicants far.