News & Insights

In what has been dubbed one of the most important legal cases for the automotive industry, the Federal Court handed down their judgment in favour of Mercedes-Benz Australia / Pacific (MBAuP) last week, in a decision that holds the potential to transform the way new cars are sold in Australia.

Dealers call foul on force of hand

The matter involved the majority of Mercedes-Benz Dealers (Dealers) issuing proceedings after Mercedes-Benz Australia / Pacific (MBAuP) served Non-Renewal Notices (NRNs) of their Dealer Agreements and offered Agency Agreements under substantially different terms. The Dealers believed the terms left them much worse off, alleging that the ‘take it or leave it’ approach meant that the Dealers were robbed of any negotiating power as MBAuP used the Non-Renewal Notices for an improper purpose to force the dealers into accepting the Agency Agreements.

Facts on Dealers’ side but law was not

Although Justice Beach commented that the facts may have been on the Dealers’ side – the law was not.

The Court considered the Dealers’ arguments but found in favour of MBAuP, noting eight main factors that contributed to the decision.

• The NRNs were validly issued.
• MBAuP had completed genuine negotiations with the Dealers.
• MBAuP exercised its non-renewal power for its purpose, which was simply to bring the dealer agreements to an end.
• There was no lack of good faith demonstrated on the part of MBAuP.
• MBAuP were not acting as a puppet of their ultimate holding company but rather had complementary interests.
• A subsidiary company can take its holding company’s wishes and interests into consideration.
• Just because a Dealer is financially worse off under the new Agency Agreements, does not mean there has been unconscionable or bad faith behaviour.
• Goodwill disappears upon the expiration of the NRN, so there was no goodwill at that point for MBAuP to have appropriated.

Does the Franchising Code need to be modified?

Justice Beach noted that while there is no current right for a Franchisee to be compensated for goodwill in non-renewal situations, “it may be that further consideration needs to be given to the terms of the Franchising Code and possible modification”. This decision is expected to bring a renewed focus on reform of the Franchising Code, which may have broad-reaching implications in the franchisee space, including the Automotive Industry.

Justice Beach’s comments were very topical as the Government has recently commenced a review of the Franchising Code. One of the key focus areas is “the role of the Code in regulating the automotive sector”. The public consultation phase is open for comment unit 29 September, 2023 through the Treasury website.

Comments in Court at judgment suggest an appeal is anticipated, and costs are yet to be determined.

If you have questions about how this decision will impact your dealership, contact one of our motor dealer experts.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.