Plaintiff v Defendant [2025] VSC 125 | Case summary

Plaintiff v Defendant [2025] VSC 125 | Case summary | Zoe

[49]

In relation to the condition that an implied term "must be reasonable and equitable", we note that the High Court has refused to imply a term that would operate in a partisan fashion. The application of the condition will often require consideration of the matrix of facts in which a contract was agreed.

The condition that an implied term 'must be necessary to give business efficacy to the contract' requires consideration of whether the term is necessary for the purposes of "giving to the transaction such efficacy as both parties must have intended that at all events it should have", making the agreement work or avoiding an unworkable situation. Where the express terms of an agreement are sufficient to give it the business efficacy the parties intended it to have, it will not become necessary to imply the additional terms. However, a term may be commercially necessary, in order for the contract to be workable in a business sense, notwithstanding that it can operate without the term. In Commonwealth Bank of Australia v Barker, French CJ, Bell and Keane JJ stated that the requirement that a term implied in fact be necessary "to give business efficacy" to a contract can be regarded as a "specific application" of the criterion of necessity which also supports the implication of a term in law. They also said that "[i]mplications which might be thought reasonable are not, on that account only, necessary"'.

The condition that an implied term 'must be so obvious that "it goes without saying"' requires consideration of whether, at the time that the parties were making their bargain, the suggestion of insertion of the implied term into the agreement by an "officious bystander" would have been met "with a common, "Oh, of course"" from the parties.

In relation to the condition that an implied term "must be capable of clear expression", it is worth noting the observation of Gibbs J in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth that the "width and lack of precision" of a term supplied an argument against implying it. Mason J in Codelfa refused to imply a term into a contract on the basis that, had the parties explored the term at the time that they entered into the contract, negotiation about the term "might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution". It has been observed by this court that it is elementary that a contractual party who is to be subjected to an additional obligation by reason of the implication of a term into a contract should be "left in no doubt of the extent of the obligation" and, accordingly, a term that would leave a party in a "state of speculation" as to the extent of its obligations would not be implied.

Conflation of the "reasonable and equitable" and the "necessity" conditions of the BP Test may lead a court into error. This follows from the statement at [142] above in Barker and also from Mason J's earlier statement in Codelfa that it is not enough that it is reasonable to imply a term, it must also be necessary to do so to give business efficacy to the contract.

However, the authorities acknowledge that the conditions in the BP Test may overlap....Einstein J in New South Wales v Banabelle Electrical Pty Ltd observed that the condition that an implied term 'must be so obvious that "it goes without saying"' involves a consideration degree of overlap with the condition that a term "must be necessary to give "business efficacy" to a contract".[31] (citations omitted and emphasis added)

[119]

93 That construction does not require the unqualified language of clause 9.1(g) to be read as requiring only a wholly discretionary performance on the basis of the indirect effect of clause 26.15, as the defendant proposes. It does not require clause 26.15 to be read down as the plaintiff proposes. It reads the agreement to comply with the relevant parts of the Manual the same way for both parties. Doing so is consistent with the parties' stated joint commercial objectives to establish a mutually beneficial business relationship for the Term that the parties said would include the provision to the dealer with a high quality range of motor vehicles and access to best practice commercial and market plans, and the expectation by Holden that the dealer would do the things stated in relation to the dealership business and the marketing of Holden's vehicles.[63] Those benefits said to accrue to the dealer (the provision of vehicles, and commercial and marketing plans) were the subject of the Wholesale Standards,[64] and those things that Holden expected of the dealer were the subject of the Standards within the Manual applicable to the dealer. Had the parties intended Holden's agreement to comply with the Standards to be discretionary, they could have said so explicitly. In the circumstances it is improbable that they did so indirectly. That a standard (or other undertaking) with which a party has agreed to comply may change from time to time during the term of the relevant agreement, does not mean it is inherently uncertain. It is evident from the prominence of the Manual in the definition of several substantive parts of the Agreement that the parties, objectively, did not regard the obligations imposed by reference to the Manual as uncertain because they could change from time to time. For these reasons, a reasonable businessperson would not conclude that by the conferral on Holden of a power to modify the Manual and thus the Wholesale Standards, the parties agreed that Holden's obligation to comply with the Standards was discretionary or otherwise non‑binding.

[149]

121 The plaintiff said that is implicit in sub‑clause 10.4(a) that Holden would not be permanently disabled from fulfilling purchase orders. The clause created a mutual obligation, to be drawn from the text of the clause, rather than as an implication for business efficacy purposes. Clause 10.4(a) required that dealers place orders in accordance with the Manual, and clause 5.1 of the Manual required that dealers maintain a base level of stock to achieve their forecasted sales (45 days, 50 days in the case of Colorado). Clause 10.4(a) could only operate then with Holden having new vehicles available for supply; dealers cannot meet the obligation to place orders in accordance with the Manual unless Holden has available vehicles for supply. As the plaintiff put it, the dealership would place purchase orders and there would be new Holden vehicles available for supply in response to those purchase orders. Further, clause 5.2 of the Manual specified 'share of build' procedures which were said to apply 'when Holden's vehicle production is constrained or where special edition vehicles are offered in the market.' From that clause it may be inferred that the parties 'never contemplated that a share of build procedure would ever result in a total and permanent cessation of vehicle supply'. The plaintiff submitted that the purpose of clause 10.4(d) is to enable Holden to refuse orders that don't comply with its requirements; it did not entitle Holden to cease vehicle supply altogether. That follows from clause 5.3.2 of the Manual which applies where an order is not a valid vehicle specification. Note 2 to cl 5.3.2 states, in respect of accepted orders, that 'in some instances material may not be able to be sourced to meet total dealer requirements. In this instance, dealer order may be pushed to the next production month.' Clause 10.4(d) also enables Holden to engage in the alternate colour match process set out at clause 5.3.3.2 of the Manual, or under clause 5.1.5, to cancel an order where a dealership has ordered too few of a given model to meet the minimum requirements or has over‑ordered a particular vehicle. The purpose of clause 10.4(d), read in the context of the Manual, is to ensure that Holden's dealerships orders a sufficient quantity of vehicles that matched the number of vehicles that Holden had sourced from the GMC group.

[150]

122 The defendant submitted that any refusal by Holden to accept or consider purchase orders for new vehicles could not amount to a breach of the clause 10.4(a), which on its plain language, imposes no obligation on Holden. Nor does clause 10.4(c) impose any obligation on Holden. That clause is for the benefit of Holden, and the reference to an order being 'non‑cancellable' means that it is non‑cancellable by the dealer. So much is plain from the words of clause but also when read with clause 5.4.7 of the Manual, which states that 'once a vehicle order has been 'preferenced', this order cannot be cancelled, nor will Holden accept the handback of preferenced vehicles.' Furthermore, the plain words of clause 10.4(d) cannot be read down as the plaintiff contends. It does not mean that, 'Holden does not have to accept every order' and nor is it limited to enabling Holden to reject orders which it is unable to supply because it does not offer the type of vehicle ordered by the dealer (say, 200 pink Colorados). The words are plain and unambiguous and should be accorded their plain meaning. Holden does not have to accept an order and if it does not have to accept an order then it does not have to supply. The Disclosure Document accurately characterises clause 10.4(d) namely there is an obligation to supply once an order has been accepted. The difficulty with the plaintiff's construction is defining the reach of the clause, when it is not founded in the text. To illustrate that point, once clause 10.4(d) allows Holden to say that it cannot supply a particular vehicle (a pink Cadillac or a two seated Colorado) there is no conceptual distinction between that and saying it cannot supply Colorados. If it is correct that an order can be rejected because the particular vehicle is not available, because vehicles with particular characteristics are not available or because Holden does not wish to supply such vehicles, Holden doing so is not qualitatively different from it say, refusing to supply Colorados and therefore rejecting all orders for Colorados. That is not qualitatively different from saying, for example, that no more right hand drive vehicles are available and no orders for them will be accepted.

[159]

(c) Prior to order close‑off dates each dealer is contacted by their district manager to discuss the dealer's ordering of vehicles and once the dealer and manager agree on order volumes by model, the 'commitment' is formally documented in the FAW. Dealers are required to order their committed volumes or 'pick up vehicles in the pipeline.[88]

(d) Holden has share of build (SOB) procedures that 'are used when Holden's vehicle production is constrained or when special edition vehicles are offered in the market.' A dealer's sales history as a percentage of national sales, guides the SOB.[89]

(e) Once orders are submitted by dealers by the order close‑off date Holden analyses its dealer orders (for a particular month) and the forecast order for the month is renegotiated with 'Holden Materials Management' to make revisions, including where material is not available to meet the total dealer requirements, in which case orders may be pushed to the next production month.[90]

(f) The ordering system will not accept an order for a vehicle with an invalid vehicle specification, and will in that case generate an error report. The ordered vehicles 'will not appear on the status report until the errors have been corrected.'[91]

(g) Holden engages in an order matching process whereby it collects dealer orders and matches them to vehicles already in stock or in the production pipeline. Where an 'exact match' is identified the vehicle will be allocated to the dealer's code in fulfillment of the order and Holden will not accept a handback (returning the car to Holden). Where an 'exact match' is not successful Holden will identify a match to the dealer's order with an alternative colour.[92]

(h) On successfully entering an error free order, an event code 20 will be applied to the order indicating an un‑preferenced order, meaning the status is 'order accepted' and can be selected for production_._[93] Once an order is selected for production for a specific build, week it progresses through the production life cycle.

[179]

(a) Recitals: the purpose of the network of authorised dealers included the selling of new vehicles. The expression 'New Vehicles' is defined to mean the lines of Holden vehicles specified in the particular terms displayed for sale and sold. The product addendum identifies the products a dealer may order. This assumes that there are products which Holden is in fact marketing which a dealer may order.

(b) Clause 1 (Objectives): the objectives in clause 1 are consistent with an obligation to have vehicles available for supply. The purpose of the agreement is a mutually beneficially business relationship for the Term that will provide the Dealer with a high quality range of motor vehicles. This identifies the fundamental nature of the bargain embodied in the agreement. In return for the supply the dealer is required to perform the obligations identified in that paragraph. Those things that Holden 'expects' can only be achieved where there is a continuous supply of new Holden branded vehicles for the five year term.

(c) Clause 2 (Appointment and term): Holden appoints the dealer to actively promote and sell the Products, for the Term which was for five years. The nature of the appointment is inconsistent with Holden's ability to permanently cease supplying mid‑term. The appointment is to actively promote and sell the Products. A five year fixed term provides the parties with clarity about how long the central business activity of selling Holden vehicles would continue. The dealer is required to make major investments in securing the agreement. The Term provides the dealer with the period over which they will be supplied with vehicles and knowledge that at the end of the Term there is the risk that they will not be renewed for a further term. For Holden the Term identifies the period within which they will need to have Holden vehicles available for supply.

(d) Clause 3.1 (Management and Ownership): the dealer promises that the principal will personally conduct and actively manage the Holden Dealership Business and without approval the principal is prohibited from performing other functions in connection with another motor vehicle franchise business. Those obligations are only commercially sensible if there was a continuing supply of vehicles. This reflects the common intention of the parties that there would be sufficient work for the dealer principal during the Term to justify a full time management level employee being solely dedicated to the Holden franchise.

(e) Clause 3.3: the dealer is not permitted to make any alternative use of the dealership facilities without Holden's permission for the Term, which is only consistent with there being a supply of new vehicles to enable the dealership premises to be used productively for the Term.

(f) Clause 5 (Area of Primary Responsibility (APR)): the dealer is allocated the APR as the geographical area in which the dealer is to focus on efforts in promoting, selling and servicing the Products. The dealer cannot do so without the availability of new Holden vehicles for the five year term. Changes to the APR are within Holden's discretion but the APR may not be reduced without agreement between Holden and the dealer, but Holden may change the APR without consent upon expiry or termination of the agreement. The fact that the parties did not give Holden an unfettered right to make changes to its distribution model during the Term reflects a mutual intention that the dealership would enjoy certainty and no risk during the Term of its APR, in which it was required to sell and service the vehicles, being reduced.

(g) Clause 7 (Dealership Premises and Display Requirements): the clause envisages that there will be a continuing supply of vehicles to justify the construction and maintenance of the premises and the obligation to only use the premises for the purpose of selling and servicing the Products. Clause 7.1(e) is material because it imposes an obligation on the dealership to upgrade the premises during the Term if Holden requires it. The dealership needs to have an expensive and specialised premises at the start of the Term and is required to make further upgrades if required. It is required to acknowledge, agree and accept that compliance will require capital expenditure on its part. The related obligations in the Manual are burdensome and result in a facility whose sole productive use is the selling and servicing of Holden vehicles. The premises must enable the dealer to meet its forecast sales and service volumes based on Holden's forecasts of population growth and changes in market conditions within the APR over the Term.

(h) Clause 8 (Dealer's Obligations): the Agreement imposes obligations on the dealer including using best endeavours to promote and maximise sales of the Products and to ensure that a representative range of New Vehicles is displayed at the Dealership Premises,[102] and to manage and order stock on a consistent basis in accordance with the Manual. Those obligations are nonsensical without a supply of vehicles throughout the Term. The requirements in the Manual for dealership standards (location, size, display requirements, minimum staffing and so on) reveal that the commercial purpose of the Agreements, their commercial workability and their internal consistency all depended upon and contemplated an ongoing supply of vehicles.

(i) Clause 8.4 requires the dealer to comply with the standards contained in the Manual including the Holden Retail Standards. Clause 7.10.1 of the Retail Standards requires that the 'the dealership carries sufficient number and range of Holden vehicles including demonstrators'. Clause 7.10.1.2 requires that the 'dealership stocks adequate volume of Product as agreed with Holden to sufficiently represent the Holden range within its APR stock'. Those obligations can only operate with an ongoing supply of new Holden vehicles for the Term.

(j) Clause 10.1 (Product Lines): this clause provides that Holden may change the New Vehicles and Demonstrator Vehicles that the Dealer is authorised to sell at any time by reasonable prior notice to the Dealer_._ If Holden introduces a new line of New Vehicles (that is not a substitution for a corresponding continued line) or derivatives of the New Vehicles, Holden has full discretion in determining which Dealers will sell that line, or those derivatives. The limitation in respect of the new lines of vehicles reflect the 'overarching theme of the agreement which was that there was significant limits on what changes Holden could make to its supply of vehicles during the Term'. The same point can be drawn from clause 10.2 which provides that Holden may determine and may change in what it considers a fair and equitable manner the allocation between Dealers of New Vehicles ordered, the relative priority of their allocation, the source plant for New Vehicles ordered and the method of their delivery. It is significant that this clause does not include any reference to Holden's rights to cease the supply of vehicles altogether. A reasonable business person would have expected any right to be addressed or acknowledged in clause 10.2, which would have been the natural location in the agreement given its subject matter.

(k) Clause 10.4 (Purchase Orders): the plaintiff's submissions about the meaning of clause 10.4 are discussed above, in the context of the alleged express terms.

(l) Clause 13 (Dealer Performance and Evaluation): the dealer is required to comply with the Performance Criteria set out in the Manual which include that Holden will establish SEG Objectives for the dealer collectively or by model in relation to the dealer's expected performance. An unrectified failure to meet the performance criteria can constitute a breach of the agreement. In circumstances where Holden failed to supply vehicles, that would not enliven a breach by the dealership and a termination right because it would involve Holden taking advantage of its own wrong by relying on a termination ground caused by its own breach. However, the Performance Criteria emphasise the importance of vehicle supply to the essential relationship created by the Agreement. By clause 13.3 the dealer acknowledged that its compliance with the Performance Criteria was fundamental to the Agreement and 'the viable existence of a first class network of authorised Dealers and the continuance of the mutually beneficial relationship created by this agreement'.

(m) Clause 19 (termination): Holden was entitled to terminate the agreement on 12 months written notice if it intended to change its system of distribution of New Vehicles, subject to a requirement that a replacement agreement would continue for the during of the Term. That provision indicates that the parties placed significant weight on the security and certainty provided by the Term, that there was a mutual intention that there were limits to what changes Holden could make to its distribution of New Vehicles during the Term and that more significant changes such as reducing the number of Australian dealerships or exiting Australia altogether could not occur during the Term. Holden could have inserted a clause in this section that expressly dealt with the circumstances of GMC ceasing vehicle supply to it, but did not do so.

(n) Clause 19.3 addresses 'other measures' that Holden may take where it has a right to terminate the agreement, instead of immediately exercising that right, in its absolute discretion. One measure is to 'suspend the supply of Products, parts and/or supported services to the Dealer'. That clause is significant because it implies that 'there would always be a supply of New Vehicles in relation to which Holden could exercise those rights'. The same point may be made in relation to clause 19.5 which deals with supply of vehicles when an agreement is terminated and provides that 'Holden will not be obliged or expected to supply New Vehicles in numbers that exceed the number invoiced to the Dealer in the three months prior to the date of termination'. It is said to be implicit that the parties understood that absent express words such as these, there was an obligation of supply that otherwise applied to Holden.

[193]

(a) Clause 1: the clause does not in terms impose any obligation on Holden to ensure the supply of new vehicles throughout the Term. The objectives in clause 1 reveal that as between each dealer and Holden they assumed the buying and selling at different levels of the supply chain of Holden branded vehicles would be commercially or economically beneficial. The object of the Dealer Agreement was to enable the dealer to participate during the Term of the agreement in Holden's franchise system using the Holden brand, thereby providing an opportunity for both the dealer and Holden to generate profits. Contextually, when the parties entered into the Dealer Agreements the Holden brand had a long history in Australia. The business relationship contemplated by clause 1 is necessarily predicated on a commercial expectation of a business relationship that will be a profit making exercise for dealers and Holden, including an assumption that consumers will continue to buy the Holden brand. The objectives, as they were expressed contractually, must be understood by reference to the whole agreement.

(b) Clause 2.1(a) provides that Holden 'appoints the dealer to actively promote, sell and service the Products' under the terms of the Agreement. The Products were defined as the vehicles displayed for sale and sold by the dealer from the dealership premises. It was a matter for Holden to determine what products the dealer may order from it. This is reinforced by clause 10.1(a) which allows Holden to change the new vehicles at any time on reasonable prior notice and discontinue lines of product.

(c) Clause 2.3(c) provides that Holden has full discretion as to whether or not the agreement would be renewed at the end of the Term. The inability to recoup any investments made during the Term at the end of the Term upon non‑renewal of the appointment, was a consequence of the commercial allocation of risk.

(d) Clauses 4.1 and 4.3(a): Holden assumed no liability in connection with the dealership business. The risk was borne by the dealer as an independent contractor.

(e) Clause 6: Holden may appoint additional dealers in the dealer's area of primary responsibility (APR), which was the geographical area designated for the particular dealership. Holden was entitled to do so without the dealer's consent. If Holden decided that an additional dealer may be required in the APR, it would tell the dealer and give it an opportunity to make a business case for its representation of the APR. The final decision rested with Holden, based on its business judgment, including as to the impact upon the dealership. The ability to appoint additional dealers was reflective of Holden's ability to affect the financial outcome of the dealership businesses by its own decisions.

(f) Clause 9 (Holden's Obligations): the obligations are expressed in qualified terms including that Holden will provide the dealer with such assistance that it considers necessary to assist the dealer in carrying out its obligations under the agreement.

(g) Clause 10.4: Holden's submissions concerning clause 10.4(d) are discussed above in the context of the express terms. Holden said that it is difficult if not impossible to reconcile with the plaintiff's case that Holden had a contractual obligation to supply Products to its dealers. By reason of clause 10.4(d), Holden did not have to accept purchase orders. That provision is both a constructional aid in deciding whether a term should be implied and, as Holden's counsel put it, a 'silver bullet' which defeats the plaintiff's case. The plaintiff gives clause 10.4(d) an artificially confined meaning, contrary to its plain words.

(h) Clause 10.5 provides in substance that the price payable by a dealer for a new vehicle is set by Holden, who may change the prices for new vehicles at any time on 10 days' notice to the dealer. Holden will consult with the Australian Holden Dealer Council at least 60 days in advance of implementing any change that may adversely affect the nominal dealer's margin on new vehicles. The dealer remains free to set what prices it sees fit for the sale of new vehicles to customers subject only to any maximum price that Holden may determine from time to time. Holden's ability to set prices identifies the frailty of the dealer's entitlements. One can postulate a circumstance where Holden was entitled to lift prices of new vehicles to the point where it was profitable for Holden but not profitable for certain dealers. That is the risk assumed. The ultimate point is the underlying commerce that leads to the limitation on rights.

(i) Clause 19 affords the dealer a right to terminate on 3 months' notice. Holden has much more constrained termination rights. It may terminate on 12 months' notice but only where it intends to change its system to distribution and then, it must on termination, offer the dealer an appointment under the new conditions. It may also terminate immediately in defined circumstances on the usual kind (e.g., conduct by the dealer involving offences under the Franchising Code, bankruptcy, abandonment of the dealership).

[235]

The primary role of wholesalers is to appoint dealers to sell at retail the motor vehicles produced and made available to the wholesaler by its manufacturer. The principal reason that wholesalers require the many obligations that dealer agreements impose on their dealers is to prescribe and control the retail experience. The reason that agreements are needed at all is that wholesalers and their dealers have divergent business priorities.

The considerable amount most dealers invest in their dealerships is not always of their own choice and is enforced through dealer agreements.

In my experience, wholesalers expected their dealers to arrange their affairs to be indistinguishable from the manufacturer so far as retail customers were concerned. On the other hand, dealers generally considered that the wholesaler's requirements were largely unnecessary, unrealistic, discriminatory, and too costly. In fact, several dealers held the view that their brand was far stronger in their local area than the wholesaler's brand. They considered that they knew best how to sell at retail in their local area and that the wholesaler should refrain from interfering.

Certain competing business priorities became the subject of robust debate particularly at the time of renegotiation of dealer agreements. For example, wholesalers expected exclusive showrooms exceeding corporate standards with the highest quality finish and fixtures. Dealers preferred minimal showroom area with corporate identity paid by the wholesaler ... Wholesalers expected that dealers maintain at least 30 days' worth of stock of all new models whereas retailers maintained that stock holding requirements did not improve sales but shifted holding cost to dealers. The debates about conflicting views and competing priorities concerned showroom facilities and corporate identification, brand exclusivity, staff exclusivity and training, customer service, prescribed levels of stock and business performance.

Wholesalers resorted to incorporating their requirements as terms of their dealer agreements. These terms were reluctantly agreed to on the basis that dealers accepted the wholesaler's promises that improvement in dealer facilities, customer service, sales training, and stockholding would create increased interest in the brand and thus better opportunities to sell more motor vehicles at a higher gross profit. Wholesalers convinced dealers that, over time, the promised increase in sales and profitability would more than repay dealers' significant upfront investment to comply with the terms of their agreement.

In accepting these terms, dealers placed great trust in their wholesaler to continue to make available over the term of their agreement, motor vehicles at least the equal of, if not better than, competitive offerings in terms of quality, design, and price. Above all they trusted their wholesaler to make available a consistent and reliable supply of these motor vehicles which they could sell to retail customers and thereby earn sufficient to cover their significant investments costs. Additionally, if demand temporarily exceeded supply, then to allocate available product on a fair and equitable basis.

In my view the course of business described above clearly implies that a bargain exists between wholesaler and dealer. The wholesaler needs compliance with its policies. Dealers question the need and relevance of the wholesaler's policies and resent the cost. However, dealers have no alternative because all the brands worth representing offer the same sort of bargain. After robust and lengthy negotiation, dealers reluctantly sign their agreements and commit to the required investment.

But the quid pro quo for dealers is that the wholesaler acknowledges an obligation to ensure the availability for supply of new passenger vehicles for the duration of their agreement so that their dealers can earn sufficient from the retail sale of these vehicles to recover the cost of their investment.

In my view the bargain referred to above is identified, from a dealers' perspective, in the express terms of the agreement relating to dealer obligations and, from the wholesaler's perspective, the implied term that the wholesaler will ensure the availability for supply of new passenger vehicles to its dealers, so they have a real opportunity to recover their investment.

All of the Mazda dealer agreements I can recall incorporated terms that required significant dealer investment. In my experience, if there had been any suggestion, implicit or explicit, that supply to Mazda dealers might be paused or discontinued at Mazda Australia's option, none of the agreements containing the terms outlined in this paper would have been acceptable to Mazda dealers and none of those agreements would have been signed. To sign up to such terms would have left a Mazda dealer exposed to the whim of Mazda Australia and remove any certainty or ability that the dealer might otherwise have to earn profits from sales of Mazda motor vehicle and recover their significant investments. From my experience I have no doubt that dealers for other brands would have the same reservations.

Dealers could not and would not take the risk of investing significant sums in facilities, signage, staff, training, and customer service if there was even the slightest possibility that the wholesaler, at its option, could turn off supply unforced ‑ thus denying dealers the opportunity to profit from the sale of motor vehicles and recover their investments.

It was inconceivable that motor vehicle business could have been conducted as we know if it were acknowledged generally that there was no obligation to supply. It follows that everyone in the industry accepted that such an obligation existed and was so fundamental and well known to the industry that explicit acknowledgement in dealer agreements was not required.

The implied term that the wholesaler will ensure the availability for supply of new passenger vehicles to dealers was not without caveat and there were occasions in which a wholesaler simply could not supply vehicles to its dealers. The process from the manufacturer acquiring supplies of bulk raw materials and components through to the delivery of a finished motor vehicle to a retail customer presents many opportunities for disruption resulting in delays, if not complete failure to deliver. Dealers were exposed to the risks of disrupted delivery and to claims by irate customers for inconvenience and loss of income. Every year in my 35 years with Mazda, there was some disruption to the delivery of one or more product lines with causes ranging from fires in minor supplier factories to overwhelming infrastructure destruction consequent to the Japan tsunamis of 2004 and 2011. Disruptions to supply, although rarely over all products or for more than three months, were still of serious concern to dealers. For this reason, dealers (including Mazda) incorporated terms in their retail sale agreements limiting their liability for customer claims resulting from delayed or non‑delivery and wholesalers incorporated similar terms in their agreements to back up their dealers.

Drawing on my 35 years' experience in the Australian motor industry, I formed the view that Mazda dealers accepted that this term was in no way inconsistent with Mazda Australia's implied obligation to supply. They accepted that the words 'many factors influence the supply of Mazda Products' signified that the term related to supply disruptions in the ordinary course of business as outlined above together with liabilities to Mazda dealers and their retail customers resulting from such disruptions. I formed the view that Mazda dealers accepted that the use of the word 'any' and not 'all' in the statement 'has the right to suspend or discontinue supply of any Mazda Products' [in clause 3.7 of the Mazda Agreement] signified that this term only protected Mazda Australia from isolated and temporary supply disruptions as outlined above and that it wasn't a carve out to absolve Mazda Australia from liability as a wholesaler if we simply refused to supply our dealers at all. As Mazda dealers were not dissimilar to dealers in other franchises, similar terms in other dealer agreements would not absolve a wholesaler's liability if that wholesaler refused to supply their dealers at all.

[243]

(a) Mr Dickson's factual observations concerned the kinds of terms that were commonly reached between dealers and wholesalers and the expression of conflicts of view and opposing interests in the course of negotiation over those terms at Mazda. From those observations he drew an inference that commonly, dealers agreed to terms that they did not want and that they regarded as commercially onerous because in return they obtained security of supply of motor vehicles. The evidence was in substance, an opinion about the commerciality of the bargain, as dealers must have assessed it. That opinion was not itself based on any observation about practice, other than as to terms that were commonly agreed. It was an unsupported inference about the commercial assessments that dealers made.

(b) Even discounting the difficulties with the basis for the opinion about the bargain, the opinion itself was undermined by and inconsistent with Mr Dickson's evidence that dealers agreed to the wholesalers' terms because they accepted the wholesalers' promises that improvement in dealer facilities and the like would create increased interest in the brand and thus better opportunities to sell cars at a higher gross profit; that dealers were convinced over time that promised increases in sales and profitability would more than repay dealers' significant upfront investment required to comply with the terms of their agreements. In other words, dealers were prepared to make the required investments because they considered they would deliver sufficient profit.

(c) The proposition that dealers agreed to wholesalers' terms in return for obtaining security of supply, and that they would not otherwise have agreed to those terms even if there was the slightest possibility of supply being cut off, was undermined by the evidence that dealers trusted their wholesalers and lacked bargaining power. As Mr Dickson put it, 'dealers have no alternative because all the brands worth representing offer the same sort of bargain.'

(d) The opinion was inconsistent with express terms of the Mazda agreement. The inconsistency was not explained, other than by saying that the implied term was subject to caveat. Mr Dickson's evidence that dealers considered that clause 3.7 only protected Mazda Australia from isolated and temporary supply disruptions was an argument, not an opinion supported by any evident factual basis. He did not explain why the clause was not the subject of any negotiations and why dealers took no issue with it. He did not explain why, if guaranteed supply was so central to dealers' concerns and to the bargain that was struck, the detailed written agreement did not expressly provide for it.

(e) The opinion as to the wider industry was contradicted by the documentary evidence adduced by Holden, discussed below.

[280]

232 Holden's endeavours to supply included the steps that it took from 2015 with the support of GMC, trying to re‑build the brand. A considerable amount of effort was made and money spent to make the brand viable. Holden relies on everything that was done before GMC's decision, in order to make the brand viable. Those efforts included Mark Bernhard (Holden's then chairman and managing director) requesting GMC to study the feasibility and economics of moving production of five vehicle models to China in the early 2020. He did that after GMC sold its 'Opel' vehicle manufacturing business in Europe to Peugeot Citroen in about March 2017. Holden's proficiency review of late 2017 proposed that the production of successor vehicles to Arcadia, Equinox, Trax, Commodore and Astra be moved to China in the period 2020 to 2025, which Holden considered would deliver a 'steady state' annual financial advantage to Holden, of USD $50‑75 million. In October and November 2017 GMC gave interim approval for Holden to source the Encore from China and approved a proposal for producing a mid‑cycle upgrade of the Equinox in China from 2023. Holden submitted a proposal for the production of a mid‑cycle upgrade of the Arcadia from China from 2025, rather than from Springhill USA. The plaintiff said in closing submissions that Holden had not pleaded reliance on things done in the four years prior to February 2020 in discharge of its obligations (including its 'endeavours' obligation) and it was accordingly not open to Holden to rely on those matters. That contention should be rejected. The plaintiff itself did not allege that Holden breached its 'endeavours' obligation by 'doing nothing' after the 2019 review or the 2020 announcement, including failing to make representations to GMC. As such, the plaintiff cannot complain (as it did in its closing submissions) that Holden seeks to run an un‑pleaded cased that actions prior to GMC's decision may comprise 'endeavours', and to establish those endeavours by evidence already filed in the proceeding.

[343]

(a) GMC decided to exit its retail operations in Australia. It was the owner of the Holden brand, the parent entity of entities contracted to supply vehicles to Holden. Unsurprisingly, Holden did not seek to challenge in this proceeding, GMC's entitlement to make the decision it made.

(b) According to its briefing materials GMC made that decision after an extensive assessment of the levels of investment required for the Holden brand to be competitive and sustainable for the long term and after reviewing all realistic options. Its assessment was that the investment case for Holden could not generate sufficient returns. What GMC said about its decision was consistent with the evidence about the years‑long decline of Holden's market share and the broad and deep decline in its forecast sales, despite an extensive program, supported by GMC, to reinvigorate the brand and Holden's market position.

(c) GMC said in its briefing materials to the Holden directors, that it had made the exit decision having regard to its global investment priorities and criteria for return on investment. It is not in any way inherently improbable that it did so.

(d) At the same time as deciding to exit the Australian market, GMC sold its Rayong manufacturing plant in Thailand, where Holden's two most important vehicles were manufactured. In the announcement of the Australia‑New Zealand exit decision, GMC said that it had signed a binding terms sheet with Great Wall Motors to purchase the facility. GMC's statement that the Thai facility was unsustainable because of low plant utilisation and forecast volumes was consistent with the evidence given about the Thai plant. It is unnecessary to address the counterfactual question (arising on the plaintiff's damages case) as to whether, if the Holden business continued until the end of 2022, GMC would have decided not to close Rayong because Colorado and Trailblazer models were made there for sale to Australia. The fact was, that in reorganising part of its manufacturing and retail footprint in pursuing its global investment priorities, it suited GMC to retire the Holden brand and close the Rayong facility, at the same time, and that is what it did.

(e) Against those considerations, it was not said that Holden could or should have presented an alternative business case for GMC to consider, to satisfy its requirements for return on investment. There was no evidence that it could do so. Holden's entreaties, had they occurred, would only have concerned the necessity or desirability of maintaining a supply of vehicles for the remainder of the Term of the Australian Dealer Agreements. The representation that the plaintiff implicitly contended that Holden ought to have made to GMC, was that GMC's investment in Holden should continue despite its assessment that Holden could not generate sufficient returns, because if it did not continue, Holden would breach the contractual promises it had made to its dealers. For the reasons given earlier, Holden had not in fact promised to continue to supply its dealers absolutely, for the five year term. It promised only to endeavour to do so. The plaintiff's analysis assumes (again without being explicit) that Holden would have had a real chance at persuading GMC to continue the Australian business despite its conclusion that the business could not deliver sufficient returns, because of the need to perform a supply obligation that it had not made explicitly. In submissions the plaintiff described Holden's failure to make endeavours as a failure to negotiate with GMC. It may be accepted that the significant consequences visited upon those affected by the decision, especially dealers, made the exit decision a difficult one (as GMC said in its public statements and briefing material). However, it was not shown that Holden would have any real power in a negotiation or any compelling commercial case to make, had it attempted to persuade GMC to decide differently or to defer the implementation of its decision. GMC was prepared to make the decision in fact, despite it being, on its own assessment, difficult, and according to its public statements, financially costly to implement.

Plaintiff v Defendant

At a glance

Court

Decision date

Before

Source

Judgment (474 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (34)