On 30 August 2023, the Federal Court of Australia has found against a group of applicant Mercedes-Benz dealers who brought a claim against the manufacturer’s Australian subsidiary (MBAuP) in 2021 alleging, as a result of the imposition of an agency sales model in that market, the appropriation of dealers’ goodwill and customer relationships for no or inadequate compensation.

The applicants’ case was based, in part, on allegations that MBAuP’s conduct (or that of its parent) – both in the manner in which it introduced the agency model and the agency terms involved - was unfair and contrary to the concept of good faith, as enshrined in the Australian Franchising Code (and certain terms implied by local consumer law). According to the applicants, these rules guaranteed, amongst other matters, dealer tenure (subject to certain limitations) under a traditional wholesale/resale model. The applicants’ arguments relied on a relatively narrow interpretation of any right on the part of the manufacturer not to renew a dealer’s agreement. In the circumstances of this case, the Court disagreed with the applicants’ interpretation (as well as with the applicants’ arguments around the concept, and MBAuP’s alleged appropriation, of goodwill), indicating that this was not the bargain that was struck. That said, the Court appears to have had greater sympathy for the applicant’s arguments in respect of alleged unconscionable conduct, although this was not determinative to the outcome.

James Voortman, Chief Executive of Australian Automotive Dealer Association (AADA) said naturally automotive dealers across Australia will be very disappointed with this judgment.

“This will feel like a kick in the guts not only to the Mercedes dealers, but to all franchised new car dealers and for that matter all of Australia’s franchisees.”

“I do note that the judge said that while the dealers were successful on matters of fact, they failed on matters of law."

He also stated that further consideration needs to be given to the terms of the Franchising Code and possible modification.

“The AADA will use the learnings from this case in our input to the Federal Government’s review of franchising to call for stronger protections.”

Sue Robinson, Chief Executive of the National Franchised Dealer Association (NFDA) commented:

"The decision may be appealed, and the NFDA will provide an update in due course; however, the case is, in any event, of limited relevance to the position of dealers or agents in the UK, where, despite certain similarities, the regulatory position is different. For example there is currently no ‘franchising code’ for the automotive sector in the UK, although the NFDA is working towards the development of such an instrument, following guidance issued by the UK’s Competition and Markets Authority.

"The outcome of the Australian case should not be regarded as a universal validation of the agency model, in whatever form; indeed, the Competition and Markets Authority is in no way constrained by this decision were it minded to undertake a more targeted examination of any transition to agency or the terms applied to dealers in the UK."