Garry Rogers Motors (Aust) Pty Ltd v Subaru

REASONS FOR JUDGMENT 1 On 21 May 1991 the applicant was appointed by the first respondent as an authorised dealer of Subaru motor vehicles for a period of three years with effect from 10 May 1991. The terms and conditions of that appointment were set out in a letter from the first respondent. The terms and conditions were comprehensive (they occupied some eighteen pages) and dealt with the rights and obligations of both the applicant (concerning matters as diverse as the nature of the dealership premises, the manner of merchandising, the training of staff, the promotion of the first respondent's products, the volume of stock to be held, and so on) and those of the first respondent. It is unnecessary to set out any of them apart from the provision concerned with termination. That is to be found in clause 11. Clause 11.1 provides: "Notwithstanding anything contained in the Letter of Appointment and the Terms and Conditions, either party may terminate this arrangement by giving to the other notice in writing, forwarded by pre-paid post to the address shown hereon, or in the case of Subaru to such other address as may be notified to the Dealer in writing. Such termination shall be effective thirty-two (32) days after posting as aforesaid, unless otherwise agreed between the parties in writing." 2 Clause 11.2 permitted the first respondent to terminate the appointment with immediate effect upon the happening of any one of a number of specified events. It is also not necessary to describe those events. They range from a change in the management and control of the applicant to its insolvency. 3 Some four months after the expiry of the term of the dealership, the applicant's appointment was renewed for a further three years commencing on 1 October 1994. The terms and conditions of that appointment were substantially the same as those contained in the earlier appointment. In particular, the provision concerning the termination of the appointment was, in all material respects, the same as that contained in the initial appointment save that, in the case of a termination other than for cause, the termination was to be effective sixty days after notice had been given and not thirty-two days after that notice as was the case with the initial appointment. 4 The second term expired on 30 September 1997. No express agreement was reached that the appointment should continue. However, the applicant continued to act as a Subaru dealer and it is common ground, at least for the purposes of the present application, that the terms and conditions that governed the relationship between the applicant and the first respondent under the second appointment continued to apply, save to the extent that any of those provisions were inconsistent with the appointment remaining in force. In particular, it was accepted that the provision dealing with the termination of the dealership (clause 12 of the second agreement) continued to have application. 5 It is possible, of course, that after the termination of the second term the arrangement between the parties was terminable at will or, as seems to be more likely, on reasonable notice: see eg Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] AC 173; Martin-Baker Aircraft Co Ld v Canadian Flight Equipment Ld [1955] 2 QB 556. However, for reasons that will become apparent, whether clause 12 continued to operate (by implication) or whether the right to terminate was at will or on reasonable notice, will not effect the outcome of this application. 6 On 17 June 1998 the first respondent gave written notice of its "intention to terminate [the] relationship" between itself and the applicant. It advised that "the termination date [was] to be effective July 1 1999." 7 This proceeding was commenced on 25 June 1999. The principal relief that is sought is an injunction restraining the first respondent giving effect to the termination. The present application is for an interlocutory injunction to that effect. 8 The two main grounds relied upon to obtain interlocutory relief are: (a) that by terminating the dealership the first respondent is engaging in unconscionable conduct in contravention of s 51AC of the Trade Practices Act 1974 (Cth); and (b) that the termination is in breach of an implied term of the agreement that the first respondent not exercise any power conferred upon it by the agreement, including the power of termination, otherwise than in good faith. The applicant also alleges that the first respondent has waived reliance on its notice of termination or is estopped from relying upon it. Other grounds were relied upon to enjoin the termination, but they were not seriously pressed. 9 Before turning to consider the legal issues that are raised by this application it is necessary to say a little more about the facts. Most of them were not in dispute and, to the extent that they were, I will proceed on the assumption, as I believe I must on an application of this type, that it is seriously arguable that the applicant's version of the disputed facts will be made out at the trial. None of them, that is none of the facts asserted by the applicant and disputed by the first respondent, are fanciful or inherently improbable. That is not to say, however, that I accept all that the applicant says. 10 The applicant's showroom is located in Glen Waverley. After its appointment as a Subaru dealer, the applicant updated its showroom and purchased plant and equipment to the value of approximately $110,000. It spent a further $40,000 approximately for staff training, advertising and the acquisition of stock. Since the introduction of sales targets in about 1995, the applicant has reached or marginally exceeded those targets. Thus it is to be inferred that the Subaru dealership is a successful operation. 11 In 1997 the first respondent engaged a marketing company to conduct research into how the image of Subaru dealers could be improved. Following that research the first respondent introduced what it called its "Six-Star Revitalisation Program". The program called for changes to dealer showrooms, service departments and spare parts departments. It required the adoption of a uniform and distinctive interior and exterior decoration, new signage, improvements in the standard of service and the like. 12 In about December 1997 each Subaru dealer was sent an outline of the program and was asked whether the dealer was willing to participate in it. In February 1998, Mr C Cassar, the network development manager of the first respondent, attended at the applicant's showroom and identified a number of areas where the showroom facilities and the practices adopted by the applicant did not conform to the program. The areas of concern included the size of the showroom, the positioning of certain signs, and the colour of the tiles, paint and carpets. In addition, the applicant did not provide financial information to the first respondent along with lines called for in the program. 13 On 6 May 1998 Mr Cassar met Mr G Rogers, a director of the applicant. According to Mr Cassar, Mr Rogers asked whether it was possible to compromise (that is not comply with) the standards of the program to a level where the first respondent would be happy with it. In particular, Mr Rogers indicated that he did not wish to comply with the program in respect of the showroom size, the signage, the colour of the tiles, paint and carpets and the reporting requirements. Mr Cassar says that he informed Mr Rogers that the first respondent would not compromise the standards of the program and that the applicant should find some way to resolve any difficulties that it had with it. 14 In a letter dated 18 May 1998 sent to Mr Cassar, Mr Rogers wrote that the applicant was willing to increase the size of the showroom by carrying out certain renovations to the existing building. He indicated that plans for this work had already been finalised and the building works were due to commence within four weeks. As to the other matters, Mr Rogers explained why he thought that they should not be carried out. Some he described as "pedantic". Others he described as unappealing. 15 Mr Cassar provided his response eight days later. He wrote: "Would you please hold off your planned extensions to the proposed Subaru showroom. I will be in Melbourne in a couple of weeks and will plan to meet you at that time." 16 A meeting then took place on 12 June 1998. At that meeting Mr Cassar informed Mr Rogers that the first respondent had decided to terminate the dealership with effect from 1 July 1999. The letter of 17 June 1998 constituted formal notice of that decision. 17 Following receipt of this letter the applicant consulted with its solicitors who then wrote to Mr Cassar on 7 July 1998. In their letter the solicitors said: "Our clients deny that Subaru (Aust) Pty Ltd [the first respondent] has any right to terminate the relationship between the parties as alleged in your letter [of 17 June 1998]. Our client reserve all of their rights in respect of your letter and actions consistent with any purported termination of the relationship." 18 On 1 September 1998 Mr Cassar again attended at the showroom and spoke with Mr Rogers. Precisely what was said is in dispute between the parties. According to Mr Rogers, Mr Cassar was told that the whole of the showroom would be devoted to Subaru vehicles. At the time the applicant also held a Daewoo dealership and vehicles from both manufacturers were displayed in the showroom. Mr Rogers said that Mr Cassar acknowledged that the showroom was "nice" and that Subaru would consider the suggestion that the showroom be devoted to its vehicles. Mr Cassar has a different recollection of what was said. He has deposed that Mr Rogers said to him words to the following effect: "Chris, I have had my lawyers review this matter and, frankly, they believe that my chances of success are not strong. But there are other measures I can take. We all make mistakes. I have made two big ones. How I could have built a showroom for Daewoo and not for Subaru, I don't know. I also seriously misjudged Subaru's commitment to its Six-Star Program. I didn't think that you guys were serious. I have been in this position a long time and I understand that things sometimes progress too far to be able to go back. But I am a big boy and I understand and I know that sometime we have to pay for our mistakes." 19 However, Mr Cassar accepts he was told by Mr Rogers that the applicant now wished to adopt the Six-Star Program. Mr Cassar concedes that he told Mr Rogers, after viewing the showroom, that it was "lovely". He went on to say that the state of the showroom was only one of the reasons why the applicant's dealership was being terminated. He says that he outlined those other reasons to Mr Rogers. 20 Each of Mr Cassar and Mr Rogers agree that Mr Cassar made no commitment on behalf of the first respondent that the dealership would continue beyond 1 July 1999. Both of them say that it was agreed that Mr Cassar would take the matter up with the first respondent. 21 Approximately four weeks later Mr Cassar informed Mr Rogers that "Subaru was not prepared to go along with [Mr Rogers'] proposal". I take this to mean that the first respondent was not willing to withdraw its notice of termination. This is certainly how Mr Rogers understood the communication. 22 This advice caused the applicant to approach the Victorian Automobile Chamber of Commerce (VACC) for assistance. In a letter dated 19 October 1998 the VACC requested Subaru to withdraw its notice of termination. In that letter the VACC wrote that: "Mr Rogers is willing to meet the minimum requirements of the [Six-Point] Program under your usual terms and VACC seeks your agreement to recommence discussions.' The letter concluded with a threat of legal action. 23 Mr Rogers and Mr Cassar met again on about 20 October 1998 at the applicant's showroom. Mr Rogers says that during the course of the meeting he told Mr Cassar that he was proposing to construct a new showroom that would be available for the Subaru dealership. He said that he would arrange for plans to be drawn up. He says that Mr Cassar accepted this as "an excellent idea" and that Mr Cassar said that he was very interested to see the plans when they were prepared. Mr Cassar denies saying to Mr Rogers that the proposal was an excellent idea and that he would be interested in viewing the plans. However he does admit that he told Mr Rogers that his proposal had some merit, but asserts that he said that the showroom was only one factor in respect of which there was dissatisfaction. 24 I digress from a recitation of the facts for a moment to point out what Mr Rogers says was his state of mind at the conclusion of the meeting on 20 October 1998. He says that by that time, he was working on the assumption that the first respondent did not intend to proceed with the termination of the dealership. Mr Rogers says that he based this assumption on the fact that the first respondent was supporting his proposal for a major upgrade of the facilities at the applicant's premises. Needless to say, Mr Cassar had quite a different view of the position. He took Mr Rogers' new proposal to the board of the first respondent, but it was rejected. 25 Notwithstanding that Mr Rogers has deposed that he believed that the first respondent was no longer going to proceed with the termination, I do not accept that he held that view or, if he did, that it was in consequence of any conduct by the first respondent. In the first place, it is clear enough that as at 19 October 1998, the date before his meeting with Mr Cassar, Mr Rogers did not hold the view that the notice of termination had been withdrawn. If he had, then there was no need to cause VACC to write and request that the notice be withdrawn. 26 In the second place, even accepting Mr Rogers' account of what had occurred on 20 October 1998, nothing that Mr Cassar has said could be construed as a promise or representation that the notice would be withdrawn. A statement that the proposed development was an excellent idea and that Mr Cassar would be interested in viewing the plans for the proposed development could not be taken as an indication that the termination would not proceed. The best that could be said of these comments is that Mr Cassar was indicating that there was a possibility that he (or more accurately the first respondent) might consider withdrawing the notice of termination. 27 In any event, presumably before Mr Rogers acted on the assumption that he said he had formed, he was notified that the first respondent had not changed its position with regard to the termination of the dealership. Thus, on 4 November 1998 the first respondent's solicitors wrote to the VACC informing it that the first respondent was not prepared to withdraw the termination notice. I infer that Mr Rogers was shown this letter shortly after its receipt. 28 Further, there is the letter of 24 November 1998, under cover of which Mr Rogers sent Mr Cassar the preliminary drawings that he had prepared for the proposed new showroom. In that letter Mr Rogers makes no mention of the notice of termination. I do not proposed to set out extracts from this letter, as that would unduly burden these reasons. However, I believe that I can fairly describe the letter as a submission to the first respondent to agree to continue the dealership. In my view, the letter was written for the purpose of persuading the first respondent to reconsider its decision to terminate the dealership. 29 Finally, on this aspect of the case, there is a letter dated 4 February 1999 from the solicitors acting on behalf of the VACC to the first respondent's solicitors concerning the applicant's dealership. In that letter the solicitors wrote: "One of our client's members, Mr Gary Rogers, has approached our client for assistance in relation to a dispute over your client's intention to terminate his Subaru dealership. … We are of the view that your client's conduct in respect of our client's member is unconscionable. Our client therefore intends to pursue this matter on behalf of its member and we are currently in the process of preparing documentation in order to take this matter further." It is inconceivable that this letter was written without Mr Rogers' knowledge. Moreover, the letter is fundamentally inconsistent with Mr Rogers' assertion that he was of the opinion that the first respondent was not intending to act on its notice of termination. 30 I should also mention that on 10 May 1999 Mr Cassar wrote to the applicant confirming that "on 30 June 1999 you will cease being a Subaru dealer. As such, after that date, you will not be able to sell or deliver any new Subaru vehicles." 31 I have referred to these last two letters because the applicant says that after Mr Rogers' discussion with Mr Cassar on 20 October 1998 the first respondent conducted its relations with the applicant "as if nothing [would] happen" and that this led Mr Rogers "to understand that the termination would not be proceeding". It is true that the business dealings between the two companies did proceed in a regular manner. This is not surprising given the fact that the first respondent was content to allow the applicant to continue to act as a distributor until 1 July 1999. However, the fact that business dealings between the two organisations did continue could not have induced the view that the termination would not proceed. On the contrary, having regard to the correspondence that I have mentioned, it is clear that this was not the view of Mr Rogers. 32 In virtue of the facts as I have outlined them, there is no serious issue that the first respondent, by its conduct, is estopped from relying on its notice of termination. To found such an estoppel the applicant must show that the first respondent has, by its conduct, led the applicant to suppose that the strict rights under the dealership agreement would not be enforced and that, in the circumstances, an enforcement of those rights would be inequitable having regard to the dealings between the parties. It would be inequitable to enforce those rights if the applicant had acted, or refrained from acting, to its detriment in reliance on the first respondent's conduct. There is no serious issue here because there is no conduct of the first respondent that could have led the applicant to believe that the termination would not proceed in accordance with the notice. There is also no serious issue because no act or