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LAWYERS acting for Mercedes-Benz dealers, who sued Mercedes-Benz Australia Pacific (MBAuP) for engaging in alleged unconscionable conduct by compelling its dealers to enter into agency agreements, have lodged an appeal in the Federal Court of Australia.

Last August, Justice Beach found in favour of Mercedes-Benz Australia-Pacific in what was a landmark case brought against it by 38 of its dealers. 

They alleged that the car-maker had cost them $680 million in lost goodwill caused by the introduction of the agency retail model to their businesses which they said passed the customers and goodwill from the dealers across to Mercedes-Benz without any offer of compensation.

The dealers claimed they were issued with Non-Renewal Notices (NRN) and then subsequently allegedly forced to sign up for the new agency model or have their Mercedes-Benz businesses taken from them.

In the appeal, HWL Ebsworth acting for the dealers, said that the issuing of the Non-Renewal Notices to the Mercedes dealers and the insistence that dealers sign their agency agreements were critical to their case of showing unconscionable conduct, which Justice Beach said was the dealers’ strongest case.

Justice Beach said they were two separate events but the appeal asks the court to find that the issuing of NRNs and the making of offers concerning agency were part of a deliberate single course of conduct by MBAuP.

Justice Beach said that the purpose of the NRNs was not 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. 

He said the contractual power not to renew was exercised for a proper purpose, in good faith and without economic duress. 

He said MBAuP did not issue the NRNs for the purpose of exerting pressure on the dealers. To the extent that the applicants felt pressure to enter the Agency Agreements, as they undoubtedly did, that pressure was not illegitimate but a result of ordinary and acceptable commercial dealings.

The appeal notice says that “the purpose of the NRNs included the implicit purpose of exerting pressure on the dealers to sign whatever form of agency agreement was presented to them by MBAuP to implement the agency model, having regard to their existing investments in their dealership businesses which MBAuP sought to exploit”. 

“This was part of the course of conduct or well-developed plan by MBAuP to implement the agency model ‘with or without the mutual consent of the dealers’, as MBAuP knew, from 2018, that the dealers consistently opposed the introduction of the agency model. That pressure was undue and formed part of the franchisor opportunism by MBAuP, and was unconscionable.”

The appeal went on: “Having regard to the ‘murky and unreliable’ evidence of Mr von Sanden about the decision-making processes within MBAuP and MBAG on questions concerning the giving of the NRNs and the implementation of the agency model in Australia, and his inability to explain why he authorised the issuing of the NRNs on 29 December 2020, and the absence of evidence from Mr Malzahn, the ‘co-signatory’ to the NRNs, it was not possible for the Court to otherwise determine what MBAuP’s purpose was in issuing the NRNs.”

Justice Beach also found that MBAuP did not acquire the dealers’ businesses and nor did it seek to do so.

But the appeal argues that the effect of the Agency Agreements, as intended by MBAuP, was to permit MBAuP to take control of the dealers’ investment in their new car sales businesses, whilst disaggregating them from the other aspects of those businesses so that the dealers operated the new car businesses for the benefit of MBAuP, where the dealers had previously been operating those businesses under the dealership model independently of MBAuP to maximise their retail profits.

Justice Beach also found that as MBAuP wanted to support dealers through the transition with a safety net, it was not necessary to consider compensation.

The appeal says that MBAuP did not consider that compensation for a change to the agency model was necessary because they believed, erroneously, that the new model would be beneficial to dealers and would not result in any loss in the value of the dealership, and despite knowing that dealers would be worse off. 

“MBAuP’s stated belief was unrelated to the provision of the safety net, which had a limited role, as the primary judge found, to address a loss of competitive market share caused by the transition to the agency model and did not address a loss of profit or volume per se,” the appeal said.

MBAuP made the following comment to GoAutoNews Premium: “As we have stated, Mercedes-Benz welcomed the Federal Court’s decision and the comprehensive judgement of Justice Beach. Our focus continues to be on delivering luxury, high-performance cars for our valued customers around Australia, who have embraced the increased consumer choice and fairer pricing of the agency model. We have no further comment on matters that are now before the courts.”

By John Mellor

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