Determining the monetary threshold for unconscionability actions
by
Norton Rose
Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd [2008] FCAFC 60 concerned an allegation that Ford had engaged in unconscionable conduct in breach of s51AC TPA in terminating a dealer agreement (the claim was based on the ways in which Ford embarked upon and conducted an investigation of allegedly counterfeit sales and Ford’s behaviour towards Jefferson and its customers).
The trial judge had held that the dealer was precluded from relying on s51AC because since it entered into the dealer agreement with Ford it had "dealt with Ford for goods worth hundreds of millions of dollars, thereby exceeding the then $3 million limit" imposed by s51AC(9). (The current limit is now $10 million).
The case is the first authoritative decision on the meaning of s51AC(9) which provides that the protection of s51AC does not extend to cases where there is "the supply or possible supply of goods or services at a price in excess of ," currently, $10 million. All three appellate judges, in separate decisions, limited the scope of the monetary threshold to remove unconscionability claims from the scope of s51AC. The judgments limit s51AC(9) in two ways:
Services not goods
Finkelstein J noted:
That there were many agreements for the sale of vehicles and parts to Jefferson Ford, where the price in aggregate exceeded that stipulated in s51AC(9), is irrelevant to the cause of action. That is because the allegedly infringing conduct was not "in connection with" the supply of goods but with the supply of services.
The allegation of unconscionable conduct arose from termination of the dealer agreement not from the separate sale contracts entered into under the umbrella of the dealer agreement. The claim was confined to conduct connected with the supply of services and "cannot be defeated by s51AC(9) in view of the absence of a price for those services".
Aggregation
Finkelstein J also found against Ford on the "aggregation argument":
In a case such as the present where each contract for the sale of goods (vehicles or parts) appears to be unconnected with the others, aggregation is simply not possible. ... the cause of action under s51AC is concerned with particular conduct that relates to a particular supply of goods or services. There is simply no basis for aggregating the price of all contracts for the supply of goods or services (as the case may be) between two parties to defeat a claim brought in respect of only one of them. Unless the contracts are in some way connected such that they should be treated as a single arrangement, claims concerning several unrelated contracts for the supply of goods or services give rise to several causes of action.
Rares J considered in some detail the legislative policy underpinning s51AC and commented that:
It would not be unusual for the value of all trade under the franchise agreement to exceed, when aggregated, $3million. If the franchisor could aggregate all its sales to a franchisee, as Ford contends, a small business person may receive no protection at all. The aggregation of all transactions in a business relationship, such as a franchise arrangement, does not appear to be a construction supported by provisions such as s51AC(11)(b). If the relationship lasted or was to last a year, and the goods and services, when aggregated, totalled less than $3 million, a small business franchisee may be able to benefit from reliance upon s51AC (1) against the franchisor. But, if the relationship lasted, say 18 months, and the aggregated total of transactions exceeded the $3 million, it would not.
In my opinion, such a construction of s51AC would negate the protection which the parliament sought to provide small businesses against corporations engaging in trade or commerce in unconscionable conduct.
Gordon J found "no support" for the aggregation argument:
If the construction contended for by Ford (and accepted by the trial judge) was upheld, it would lead to absurd results. The point may be simply demonstrated by taking a series of say 10 transactions under an ongoing agreement where the aggregation of the price of the 10 transactions would exceed $3,000,000.
On application for judgment under s31A of the Federal Court Act, Ford could contend that the claim had no reasonable prospects of success because the price of the series exceeded $3,000,000. That would, according to Ford, remain the position notwithstanding that the supplies were intermittent and took place over a considerable period of time. That result is absurd.
The absurdity of the contention is further demonstrated by the fact that if the matter had proceeded to trial and the court concluded that the conduct in connection with only some of the supplies was unconscionable in contravention of s51AC, the complainant would have been completely and improperly frustrated in prosecuting a valid claim.
Moreover, on the construction contended for by Ford it would not be possible for the complainant to select even some of the supplies and prosecute those because all of the supplies would be required to be aggregated. Why? Because Ford contends (and the trial judge accepted) that all supplies (past, present and future) are to be aggregated in determining whether the $3,000,000 had been exceeded.
If that contention were accepted as a general proposition, it would permit a supplier to act unconscionably for part of the supply period and yet not be subject to s51AC of the Act notwithstanding that the conduct in relation to a number of particular supplies was, in the circumstances of each supply, unconscionable. In other words, if the construction contended for by Ford were to be accepted, it would permit a supplier to contract out of the operation of s51AC in the manner outlined. Such a result is contrary to human experience and commercial reality and inconsistent with the history and object of the legislation which is the protection of small business.
Deacons is Australia's leading franchise law firm, with offices in Melbourne, Sydney, Perth, Brisbane, Canberra and in 11 locations in Asia. We have assisted over 200 franchise companies, from large international corporations to start up franchisors. We do not handle franchisee matters. 18.06.2008
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