Have ‘faith’, say car dealers

MOTOR dealer organisations have called for “good faith” clauses in franchise agreements between car companies and dealers to encourage fairer dealings and to minimise disputes.

They say Toyota has led the way with such a clause in its dealer agreements – a move that dealers say should be adopted in a revised federal franchising code of conduct.

The dealer organisations say current dealership agreements are invariably weighed in favour of the car-makers, leaving the dealer in a precarious position.

They say existing dealers, who frequently have millions of dollars invested in their dealerships, have little choice but to renew on whatever terms the manufacturer requires.

The national franchise code is being reviewed by the Parliamentary Joint Committee on Corporations and Financial Services, which sought submissions from interested parties.

Submissions closed on July 10, and a decision on any proposed changes will be announced ‘in due course’, according to a spokesman for competition policy and consumer affairs minister, Dr Craig Emerson.

Left: MTA's James McCall.

The Motor Traders’ Association of NSW (MTA) and Victorian Automobile Chamber of Commerce (VACC) – which between them represent almost 12,000 motor traders – both submitted written comments on proposed amendments to the code, urging the ‘good faith’ clause and other changes.

MTA chief executive officer James McCall said in the MTA’s submission that if such a clause was included in motor trader franchise agreements, dealers and car companies would both alter business practices significantly for the better of each other and the industry.

“We believe that if this test is applied to both parties to a dealer agreement, the level of unacceptable conduct would drop dramatically,” he said.

Mr McCall said the MTA believed such a clause might even lead to reduced costs because the franchise agreements could be simpler and the number of disputes could fall.

“We do not believe that in the vast majority of cases importers or dealers would need to seek legal advice as to what might or might not constitute acting in good faith,” he said.

The MTA argues that several existing laws – such as the Trade Practices Act – already include “fairness” tests, and it dismisses suggestion that a good-faith clause would lead to increased litigation.

Rather, its says, it would force parties to review decisions based on the literal terms of any agreement to ensure that they were defensible not just from a legal point of view but also from a commercial or fairness standpoint.

Mr McCall said the Toyota dealer agreement included a clause saying: “Each party must at all times exercise its rights and perform its obligations under this agreement in good faith.”“Obviously, the (Toyota) Dealer Council and Toyota have concluded that this is an appropriate standard of dealing and that its incorporation should decrease rather than increase disputes between dealer and importer,” he said.

VACC executive director David Purchase said his organisation was seeking a more balanced relationship between the franchisee and franchisor.

“In particular, we recommend that the code of conduct contains an explicit obligation for business relationships to be undertaken ‘in good faith’,” he said.

Mr Purchase has told the parliamentary review that a ‘good faith’ clause would encourage an over-arching obligation for franchisors and franchisees to behave more fairly during all stages of a commercial franchise relationship, including dealing with terminations, renewal and variation of prime marketing areas.

The VACC has also called for the code to include more mandatory disclosures on business costs, as well as timely disclosure of either renewal or non-renewal contractual franchise arrangements so franchisors and franchisees could move toward a future with minimal disruption.

“Conflicts arise when definitions in agreements are unclear,” Mr Purchase said.

“A clear franchising code of conduct will enable franchisors, franchisees and potential franchisees to establish a framework which encourages good business practice for the benefit of all parties, which in turn will benefit the Australian economy.”