Australia: Proposed legislation likely to cause a review of all motor dealer networks in NSW

The Motor Dealers and Repairers Bill 2013 (NSW) introduced to the NSW Parliament on Friday, 25 October 2013, is likely to cause vehicle manufacturers to seriously evaluate the merits of continuing with their branded dealer networks.  This is particularly the case given the NSW Minister's apparent intentions to champion the introduction of similar legislation in other States.

The Motor Dealers and Repairers Bill 2013 (NSW) ("the Bill") was introduced by the NSW Fair Trading Minister Anthony Roberts as part of a process designed to streamline the operation of existing legislation, and cut red tape.  However the Bill goes much further, introducing without apparent regard for the probable regulatory impact a new Part 6 focusing on unfair contracts and unjust conduct in relation to contracts for the supply of motor vehicles to a motor vehicle dealer by a manufacturer (Supply Contracts).

The Bill introduces in Part 6 a new prohibition on "unfair" provisions in a "supply contract", and also prohibits "unjust conduct" that "occurs in connection with a supply contract and is dishonest or unfair", or is "authorised by an unfair terms of a supply contract".

A term of a supply contract is "unfair" if:-

  1. it would cause a significant imbalance in the parties' rights and obligations under the contract, and
  2. it is not reasonably necessary in order to protect the legitimate interests of the party who would be disadvantaged by the term, and
  3. it would cause detriment (whether financial or otherwise) to a party if it were to be relied upon.

Section 142(2) then includes eight examples of Supply Contracts "that may be unfair", including a term that permits one party, but not the other, to avoid or limit performance of the contract, terminate the contract, penalise a party for breach of the contract, vary the contract, vary the goods to be supplied or the place of supply, limit assignment or limit a right to sue.  It is hard to imagine any dealer sales and service agreement that would not have at least one of those provisions, and many would contain almost all of them.

Not only may dealers take action, but "a motor industry group" may also apply to the NSW Small Business Commissioner on behalf of a small business.  The justification for this most unusual provision is that it protects those not willing to come forward for fear of reprisal from a manufacturer.  It certainly creates a role for and adds relevance to the existence of dealer based industry associations and gives such associations an effective seat at the table in negotiations between manufacturers and dealers.

The legislation purports to soften the impact of the sweeping provisions concerning unfair contracts and unjust conduct by requiring that any application to the newly established Consumer, Trader & Tenancy Tribunal (Tribunal) cannot be made unless the dealer or the motor vehicle group has first made a complaint to the NSW Small Business Commissioner about the matter, and the Commissioner has certified that the matter can proceed to the Tribunal.  The Minister asserts in his Second Reading speech that the Commissioner will be required to proceed through mediation, and the Commissioner will be able to provide "procedural and strategic information to help parties resolve their issues at the earliest possible point", as well as "assistance with negotiation plus informal and formal mediation to parties in dispute."

In reality this is unlikely to prevent a matter proceeding very quickly to the Tribunal. As the Tribunal has sweeping powers to declare a provision or a class of provisions "unfair", or conduct "unjust", the Tribunal can then make an order:-

  1. declaring the contract to be void, in whole or in part
  2. varying any term of the contract
  3. directing a party to take, or not to take, specified action in relation to the contract (whether or not permitted under the contract)
  4. directing a party to pay compensation, and/or
  5. as it thinks fit.

The Tribunal has similar powers in relation to "unjust conduct".

In the Second Reading speech the Minister quotes "stakeholders representing dealers" raising concerns with him "as part of the review", yet it's not clear that a comprehensive review has taken place.  There  are no clear validations of claims, or indications of discussion with the motor vehicle manufacturers or distributors.  There seems to have been only very limited consultation prior to the introduction of a rigid new legal framework, and no apparent assessment of regulatory impact.

There are significant shortcomings in the justifications for the legislation, including that mediation under the Franchising Code of Conduct "does not resolve disputes and cannot be enforced".  Not only is this assertion inaccurate, but the Minister uses the 80% success rate of franchising mediation to justify the new dispute resolution process in the Bill, which itself is mediation based.

The Minister claims that the unfair contract provisions are "understood by the courts and businesses", but does not mention that the unfair contract provisions in the Australian Consumer Law only apply to "standard form contracts", being contracts produced for signing by consumers on a take-it-or-leave-it basis.  The Bill applies to ALL dealer supply contracts, even if they have been assiduously negotiated.

If the Bill is enacted all contractual arrangements will need to be revised, as the legislation is retrospective in its application.  As part of the revision manufacturers are likely to query seriously whether the benefits of having an independent dealer network can be obtained in the context of legislation that restricts the ability of manufacturers to enter into enforceable and commercial contracts with dealers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Greg Hipwell
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