FEDERAL COURT OF AUSTRALIA

Arrowcrest Group Pty Ltd v Ford Motor Company of Australia Ltd

[2002] FCA 1450

UNCONSCIONABLE CONDUCT – contract for supply of components to motor vehicle manufacturer – whether refusal to supply after expiration of contract unless at prices unacceptable to manufacturer amounts to unconscionable conduct – whether manufacturer at special disadvantage

CONTRACT – implied term – contract for supply of components to motor vehicle manufacturer for fixed term not coinciding with life of vehicle model – whether obligation to supply for period between end of term and commencement of new model

PRACTICE AND PROCEDURE – short form judgment

Trade Practices Act 1974 (Cth) ss 47(7), 51AA, 51A, 52, 80, 82 and 87

Walford v Miles [1992] 2 AC 128 at 138 cited

McKay v National Australia Bank Ltd [1998] 4 VR 677 cited

Blomley v Ryan (1956) 99 CLR 362 at 405 applied

Louth v Diprose (1992) 175 CLR 621 cited

CG Berbatis Holdings Pty Ltd v Australian Competition and Consumer Commission (2001) 185 ALR 555 applied

Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 189 ALR 76 applied

Westpac Banking Corporation v Cockerill (1998) 152 ALR 267 cited

Rookes v Barnard [1964] AC 1129 at 1168 cited

Ford Motor Company of Australia Pty Ltd v Arrowcrest Group Pty Ltd [2002] FCA 1156 at [8] cited

Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 at 183 cited

Byrnes v Jokona Pty Ltd [2002] FCA 41 at [110] cited

Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355 cited

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 cited

Mersey Steel and Iron Co v Naylor Benzon & Co (1884) 9 AC 434 at 443-444 cited

Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148 at 157 cited

McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477 cited

Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435 at 475 cited

McKernan v Fraser (1931) 46 CLR 343 at 395-396 cited

Tyrone M Carlin, “The Rise (and Fall?) of Implied Duties of Good Faith in Contractual Performance in Australia” (2002) 25(1) UNSW Law Journal 99 referred to

ARROWCREST GROUP PTY LTD (ACN 007 521 280) AND

TRISTAR STEERING & SUSPENSION LIMITED APPLICANTS

v FORD MOTOR COMPANY OF AUSTRALIA LIMITED

S 208 of 2002

HEEREY J

25 NOVEMBER 2002

ADELAIDE (HEARD IN MELBOURNE)

THE COURT ORDERS THAT:

1.      The parties bring in minutes of proposed orders to give effect to these reasons.

2.      Further hearing is adjourned to a date to be fixed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     The applicants were suppliers of motor vehicle components to the respondent Ford Motor Company of Australia Limited (Ford).  The first applicant Arrowcrest Group Pty Ltd (Arrowcrest) supplied wheels and the second applicant Tristar Steering & Suspension Limited (Tristar) steering gear.  For reasons of chronological coherence the parties found it more convenient to deal with the Tristar dispute first.

2                     The parties desired a very speedy resolution of this complex case.  I proposed, and the parties accepted, that I should deliver a judgment in short form, that is to say I should answer agreed issues raised by the parties, including any relevant issues of primary fact, and give brief reasons for each of these answers.  Therefore, as discussed with the parties, this judgment will not contain a factual narrative or set out the text of relevant documents or legislative provisions.  There will be minimal discussion or analysis of legal authorities.

Tristar Issues

3                     1.         Did the correspondence between the Respondent (“Ford”) and the Secondnamed Applicant (“Tristar”) of October and December, 1995 [ChB1-3] give rise to a binding agreement (“the AU gear agreement”) that:-

(a)        Tristar would supply all AU steering gears to Ford for the production life of the AU model Falcon; and/or

(b)        the price at which Tristar supply AU steering gears to Ford be calculated in accordance with the schedule dated 30 October 1995 [ChB1]?

4                     Answer: No.  The language of the documents is inconsistent with the assumption then of binding contractual obligations.  Ford’s letter of 14 December 1995 is headed “Letter of Intent”.  It can be fairly characterised, as Tristar puts it, as a general congratulatory notification that Tristar has been selected as the source for steering gears.  The term of the contract, the specification of the gears and the price were all left for later agreement.  The schedule of 30 October 1995 is described as something which “illustrates the method by which TRW and Ford will achieve” certain costing.  The various effective dates are described as “(a)nticipated”.  Ford’s policy was to enter into long term supply contracts for 3 years duration: Simpson affdavit of 27 September 2002, par 9, CB164.  For its own commercial reasons, Ford’s practice was not to have supply contracts which coincided with the life of a model.  Even when the question of obligation to supply during the Gap period (the period between the termination of the 1998 Memorandum of Understanding (MOU) and the start of production of the new model Barra Job 1) became critical, it does not seem to have occurred to Ford to claim that such an obligation existed under an agreement made back in 1995.  No steering gears for the AU model were in fact supplied until after the MOU was executed.

5                     2.         If yes to question 1 were any of the obligations arising under the AU gear agreement varied or otherwise affected by the agreement of Ford and Arrowcrest to the terms of the MOU?

6                     Answer:  Unnecessary to answer.

7                     3.         Were Ford and Tristar bound by provisions of the AU gear agreement or the 1998 MOU to the effect that:-

(a)        Tristar and Ford were to negotiate in good faith as to the price of supply by Tristar of AU steering gears between 2 August, 2001 and the commencement of Barra Job 1; 

(b)        Tristar would continue to supply AU model Falcon steering gears between 2^nd August, 2001 and the commencement of Job 1 Barra in September, 2002;  and/or

(c)        Tristar would continue to supply steering gears to Ford until after the expiry of a reasonable period of notice to Ford of Tristar’s intention to cease supply?

(d)        If yes to question 3(c) what was the reasonable period of notice?

8                     Answer:  As to (a), No.  Once the contract came to an end by effluxion of time, neither party was under any obligation to negotiate for a further contract: Walford v Miles [1992] 2 AC 128 at 138.  The implication of any such term would be inconsistent with the express terms of a contract like the present one which provides for a fixed term.

9                     As to (b), No.  This again would be inconsistent with the express terms of the contract, the whole point of which was the limitation of the mutual obligations to a period of three years.  To the extent that the item in schedule 2 is inconsistent, the definition of “Period” must prevail.

10                  As to (c), No, for the same reasons.

11                  As to (d), Unnecessary to answer.

12                  4.         If yes to any of questions 1 and 3, did Tristar breach any of those terms, and if so, to what relief, if any, is Ford entitled by reason of such breach?

17                  6.         During the meeting on 8 November 2000 did Cheng Hong, Anna Smith or Tony Simpson say words to the effect that Tristar was not obliged to continue to supply steering gears after 2 August, 2001 to Ford?

18                  Answer:  Yes.  Hong said this.  Gargano’s positive evidence to this effect in his affidavit of 11 October 2002 pars 6-8 was not the subject of contradiction by any other Ford witness.  Simpson knew at the end of the end of the meeting that there was no agreement between Ford and Tristar for supply after August 2001: T118.38.  Ford’s approach to Delphi the next morning is a corroborating circumstance.  I do not accept it was a coincidence.

19                  7.         In or about:-

(a)        February, 2000;  and/or

(b)        between October, 2000 to June, 2001

did Tristar represent to Ford that:-

(i)         Tristar would continue to supply steering gears to Ford for the AU model Falcon for the life of that production programme;  and/or

(ii)        Tristar would only cease to supply AU model Falcon steering gears to Ford upon the commencement of production of the Barra model Falcon in mid to late 2002?

20                  Answer:  As to (a), No.  I accept the applicants’ contentions: outline pars 4.1-4.12.

21                  As to (b), the terms of the MOU, the conduct of Tristar already referred to and in particular Hong’s letter of 29 September 2000 and what he said at the meeting of 8 November 2000 and Ford’s approach to Delphi were inconsistent with any such representation.

22                  8.         If yes to question 7 did Ford at anytime, and if so when, rely on, take action or refrain from taking action as a result of, any such representation?

23                  Answer:  Unnecessary to answer.

24                  9.         If yes to question 7 and 8:-

(a)        did Tristar engage in misleading and deceptive conduct contrary to Sections 51A and 52 of the Trade Practices Act 1974 (“the TPA”) by representing to Ford that:-

(i)         Tristar would continue to supply steering gears to Ford for the AU model Falcon for the life of that production programme;  and/or

(ii)        Tristar would only cease to supply AU model Falcon steering gears to Ford upon the commencement of production of the Barra model Falcon in mid to late 2002?

(b)        has Ford suffered loss and damage within the meaning of Section 82 of the TPA;  and/or

(c)        is Ford entitled to relief pursuant to Sections 80 and 87 of the TPA?

25                  Answer:  Unnecessary to answer.

26                  10.       In all of the circumstances, is Tristar estopped from contending that it was not obliged to supply steering gears to Ford between 2August, 2001 and the commencement of Barra Job 1 (“the Gap”)?

27                  Answer:  No.  Tristar’s contention that it was not obliged to supply during the Gap was not, as is now alleged by Ford, false.  As a matter of law, Tristar had no such obligation.  Tristar made it clear to Ford from September 2000 onwards that it considered it had no such obligation.  By continuing to supply (as it was obliged to do) for the rest of the term of the MOU, while negotiating on price for further supply thereafter, Tristar did not create any relevant common assumption for the purposes of the law of estoppel.  Because of its deliberate three year supply contract policy, Ford must have known that it was at risk if it could not reach agreement with Tristar.  Ford’s approach to Delphi shows it was well aware of that risk.  The production schedules do not take the matter further.  They showed a commitment on Ford to acquire only the quantities shown for the next month and materials for a further month.

28                  11.       Is Ford precluded from claiming a repayment of the sums paid by it for steering gears since 1 August 2000, which repayment equates with the productivity reduction described in Schedule 2 in the 1998 MOU, because it paid those sums voluntarily?

29                  Answer:  Yes.  Mr Simpson made a commercial decision not to “unilaterally apply the reduction…because I did not want to aggravate the situation any further” (Simpson affidavit 27 September 2002, par 64, CB181).  This was not a case of a person “wrongfully compelled to make a payment demanded of him by an authority which, ex necessitate, he cannot resist”: McKay v National Australia Bank Ltd [1998] 4 VR 677.

30                  12.       What is the sum of money, if any, which Tristar is liable to pay to Ford in respect of:-

(a)        the breach by Tristar of the AU gear warranty as varied; 

(b)        the prices paid by Ford for steering gears from 1 July, 2001 onwards;  and

(c)        the productivity reductions applicable on and after 1 August, 2000 under the 1998 MOU?

31                  Answer:  As to (a), $778,419.38.  This is an agreed amount.

32                  As to (b), nil.

33                  As to (c), nil.

34                  13.       Was Ford under a special disability as claimed in paragraph 54F of its Second Further Amended Defence and Cross claim?

35                  Answer:  No.  Ford relied on the well known statement by Fullagar J in Blomley v Ryan (1956) 99 CLR 362 at 405 to the effect that among the circumstances which may induce a court of equity to assist a party because he or she is at a “serious disadvantage” in a transaction are “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary”.  As Fullagar J made clear, this list of possibly disadvantaging circumstances is not exhaustive.  For example, the court has intervened when a party is at a serious disadvantage by reason of emotional dependence: Louth v Diprose (1992) 175 CLR 621.  And it may not necessarily be fatal to a claim for this equitable relief that the party seeking it is a corporate entity, although one would usually expect that the individuals transacting on behalf of the corporate body seeking such relief would need to show they were disadvantaged by the kind of human frailties or disabilities mentioned by Fullagar J, or something analogous thereto.  It is not suggested that the Ford personnel engaged in dealings with Tristar had any personal weaknesses or inadequacies.  The present case involves a claim of special disadvantage by Ford, a member of a group which for almost a century has been one of the world’s foremost motor vehicle makers.  Ford, it may reasonably be inferred, has substantial financial resources, much accumulated commercial acumen, and access to the very best legal advice (as exemplified by its representation in the present case).  Ford’s position is, to put it mildly, far removed from the kind of serious disadvantage of which Fullagar J spoke.

36                  A telling indicator of Ford’s superiority (and not equality, let alone disadvantage) vis-a-vis Tristar is the provision in the MOU for productivity reductions.  Where goods or services are to be supplied over a substantial period of time, the usual assumption is that inflation over the term of the contract will increase costs and reduce the benefit in real terms for the supplier unless the contract makes some provision for price increases, or at least price reviews.  However in the present case the MOU, apparently pursuant to Ford’s usual policy, makes provision for reductions which are to be automatic.  The rationale for this presumably is that over the term of the contract Tristar will, by experience with the manufacture of the product, achieve efficiencies.  Such productivity gains usually enure to the firm which achieves them, in the form of reduced costs and thus increased profits.  The prospect of such profits is what drives the search for efficiencies in the first place.  However, under the MOU Ford gets the benefits of productivity gains, or at least a substantial part of them.  In stipulating for such a provision, Ford  in no way engaged in conduct that was illegal, immoral, illegitimate or unconscientious.  But obviously it was in a very advantageous bargaining position.

37                  Insofar as reliance is placed on “situational disadvantage”, the inescapable conclusion is that Ford was the author of its own misfortune.  It operated a system whereby supply contracts were for terms which did not coincide with the life of a vehicle model.  This necessarily left it vulnerable to pressure from a discarded supplier who might see little benefit in helping out Ford for the remainder of the model’s life without some substantial price increase.  But presumably Ford made a commercial judgment that this risk was outweighed by the potential rewards.  In the present case, Ford’s difficulties were compounded by its failure to take any step between 8 November 2000 and 8 June 2001 to reach agreement with Tristar or some other supplier for the supply of steering gears during the Gap.  The Full Court decisions in CG Berbatis Holdings Pty Ltd v Australian Competition and Consumer Commission (2001) 185 ALR 555 and Australian Competition and Consumer Commission v Samton Holdings Pty Ltd (2002) 189 ALR 76 are applicable.  Indeed the present case seems a markedly weaker case for equitable intervention.

38                  14.       Was the agreement dated 3 December, 2001 between Ford and Tristar (“the Tristar agreement”) procured as a result of illegitimate and unconscionable conduct by Tristar so as to make the Tristar agreement avoidable by Ford on the grounds of:-

(a)        economic duress;

(b)        unconscionable conduct in equity;

(c)        unconscionable conduct contrary to Section 51AA of the Trade Practices Act 1974 (“the TPA”).

39                  Answer:  As to (a), No.  There was no question of the consent of Ford being vitiated: Westpac Banking Corporation v Cockerill (1998) 152 ALR 267.  Any pressure on Ford was the result of the commercial predicament into which it had got itself.  In reality Ford made a judgment that it was better to enter into the Tristar agreement, with no intention of keeping it, than to go along with the price for which Tristar was asking.  The fact that Tristar was exploiting, ruthlessly no doubt, the advantageous position in which it found itself does not mean that Ford was acting under duress in any legal sense.  It was just a matter of price.  For Ford to say it “had no option but to sign the Tristar agreement” (Ford’s outline par 78) is but a euphemism for a commercial decision that the price Tristar was asking was considered by Ford to be not in its economic interests.

40                  As to (b) and (c), No, for the reasons already discussed.

41                  15.       Did the conduct of Tristar between June, 2001 and December, 2001 referred to in paragraphs 54A to 54CB of Ford’s Further Amended Defence and Cross Claim:-

(a)        constitute the tort of intimidation by Tristar; 

(b)        constitute an unlawful interference by Tristar in the business of Ford;

(c)        constitute misleading and deceptive conduct contrary to Sections 51A and 52 of the TPA;  and/or

(d)        constitute conduct contrary to Section 47(7) of the TPA.

42                  Answer:  As to (a), No.  Tristar was not obliged to supply gears without a contract.  In threatening not to supply gears until it had a contract, Tristar was not threatening to do anything illegal: Rookes v Barnard [1964] AC 1129 at 1168.

43                  As to (b), No.  Insofar as Ford claims Tristar’s actions would have resulted in large losses to itself and others (Ford’s outline pars 72-78), it could not be unlawful interference in Ford’s business for Tristar to refuse to enter into a contract or to refuse to do acts which it was not contractually obliged to do, however serious the economic consequence might be for Ford, or others.  Insofar as Ford relies on its arrangements with Delphi (Ford’s outline pars 87(f) and 92), there was no satisfactory evidence as to what those arrangements were, and in particular no evidence from Delphi.

44                  As to (c), No.  Mr Simpson made it clear that Ford did not rely on any of the representations complained of concerning labour and other costs: T137-138.

45                  As to (d), No.  It was Ford which linked the acquisition of wheels from Arrowcrest to the supply of steering gears by Tristar during the Gap on terms that suited Ford but did not include a long term agreement: see letters from Simpson to Hong dated 21 August 2001 (ChB109) and 3 September 2001 (ChB112).  Tristar simply resisted these threats and held out for a long term agreement.

46                  16.       If yes to any part of question 15, to what relief is Ford entitled:-

(a)        in the nature of damages either at law or pursuant to Section 82 of the TPA;  and/or

(b)        to avoid or mitigate the terms of the Tristar agreement either at law or pursuant to Sections 80 and 87 of the TPA?

47                  Answer:  Unnecessary to answer.

48                  17.       Is Ford disentitled from seeking relief against Tristar by reason of Ford’s:

(a)        conduct in June, August and September 2001,  in respect of either or both of the steel wheels LTA or the alloy wheels LTA between Ford and Arrowcrest?

(b)        conduct in:-

(i)         entering into the Tristar agreement whilst not intending to be bound by it;  and/or

(ii)        undertaking its resource policy whilst concealing that from the Applicants?

49                  Answer:  Unnecessary to answer.

50                 18(a)    Were there any exceptional circumstances existing as at 3 September,

2002 entitling Ford to terminate the Tristar agreement;  and/or

(b)        Was Ford entitled to terminate the Tristar purchase orders in accordance with clause 27(a) of Ford’s standard terms pursuant to the notice dated 3 September, 2002?

51                  Answer:  As to (a), No.  The matters relied on pre-dated the Tristar agreement and were known to Ford when it entered into that agreement.

52                  As to (b): No.  The clause is inconsistent with the Tristar agreement itself: Ford Motor Company of Australia Pty Ltd v Arrowcrest Group Pty Ltd [2002] FCA 1156 at [8].  In any case, there were not “exceptional circumstances”, for the reasons discussed above.  Moreover, Ford’s purported termination has to be seen against the background of its bad faith negotiation of the Tristar agreement.

53                  19.       If yes to either part of question 18, did a termination of the Tristar purchase orders in accordance with clause 27(a) of Ford’s standard terms have the effect of terminating the Tristar agreement?

54                  Answer:  Unnecessary to answer.

55                  20.       If no to each part of question 18:-

(a)        is Tristar entitled to an order for specific performance or mandatory injunctions in connection with the Tristar agreement;

(b)        is any,  and if so what,  part of any loss or damage claimed by Tristar  the product of its own wrongful conduct;  and/or

(c)        did Tristar suffer any,  and if so what,  loss and damage recoverable from Ford.

56                  Answer:  As to (a), No.  Where a buyer has wrongfully repudiated a contract for the sale of goods, damages will usually be an adequate remedy.  That is the case here where Tristar advances a claim for the loss of profits it would have made on the Tristar agreement.  Moreover, an order for specific performance would require supervision by this Court over a substantial period of time of a complex commercial contract between parties who have had a major falling out.  Tristar was not able to point to any authority in which specific performance has been ordered in comparable circumstances.

57                  As to (b), None.  Tristar’s loss and damage flows from Ford’s breach of the Tristar agreement.

58                  As to (c), $12 million.  The parties did not raise discrete issues for determination in relation to damages and my response will be correspondingly general.  There was no dispute as to the appropriate measure of damages, that is to say the profits Tristar would have made over the term of the Tristar agreement had it not been wrongfully terminated by Ford.  Nor did Ford’s expert, Mr Banks, dispute the methodology adopted by Tristar’s expert Mr Edwards.  The main attack by Ford was based on what it said was the inadequacy and unreliability of the information and records supplied by Tristar to Mr Edwards.

59                  It needs to be kept in mind that in assessing damages of this kind a degree of speculation and guesswork is necessarily involved: Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167 at 183.  The court may have to form conclusions on slender material and make allowances for contingencies: Byrnes v Jokona Pty Ltd [2002] FCA 41 at [110].  Moreover the parties in the present case worked, by agreement, to an extremely tight timetable.  Doubtless a more thorough accounting assessment could have been done had more time been available, but I think it only fair to assess matters in the light of the constraints the parties themselves accepted, keeping in mind that this is not an auditing exercise.

60                  I was impressed by Mr Edwards.  His approach was thorough and rational.  In particular, his report in reply of 22 October 2002, made after discussions with Mr Banks, is a persuasive document.  It records the areas of agreement with Mr Banks (which are substantial), notes an issue where he accepts Mr Banks’ contrary view, and then explains why he adheres to his view on other issues raised by Mr Banks.  I think that Mr Edwards’ scenario 2 is the appropriate calculation.  But since this is an inherently uncertain exercise I think his more conservative alternative version, $13 million as against $15.5 million, should be adopted.

61                  As to mitigation, the present case is perhaps not concerned with mitigation in the sense of any failure of the duty to mitigate, as where a negligently injured plaintiff fails to take reasonable steps to obtain employment and the court looks backward at the plaintiff’s conduct from injury to trial.  Rather the question is whether, in looking forward and assessing the profitability of a Ford-free future over the term of the Tristar agreement, credit should be given for the profits Tristar might make from other business.  The question is perhaps essentially the same as that which arises when a plaintiff claims damages for deprivation of a commercial opportunity: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355.

62                  As to the Australian market, Tristar currently supplies Mitsubishi and Holden anyway and the Toyota business is not likely to be available for four to five years.  In final submissions Ford tendered a bundle of Tristar documents consisting of communications with overseas customers or possible customers (ex 14).  These documents do show some realistic prospects of utilising the Tristar plant for other productive purposes.  I take into account the fact that Tristar management appear to be enterprising and energetic and likely to pursue business opportunities vigorously.  I think it would be reasonable to make an allowance of $1 million for the prospects of other business.

63                  21.       Between June 2001 and December 2001 did Tristar make the representations alleged in paragraph 54CA of Ford’s Further Amended Defence and Cross Claim?

64                  Answer:  Yes.  Tristar does not dispute this.

65                  22.       If yes to question 21:-

(a)        did Tristar mislead or deceive Ford contrary to the TPA;  and

(b)        is Ford entitled to any,  and if so what,  relief:-

(i)         by way of damages;

(ii)        in equity;  and/or

(iii)       pursuant to sections 80 or 87 of the TPA

as a result of such misrepresentations?

66                  Answer:  As to (a), No.  As already mentioned, there was no reliance by Ford on the representations.  Ford simply did not believe them.  There was no loss caused to Ford “by” the conduct of Tristar within the meaning of s 82 of the TPA.

67                  As to (b), No.

68                  23.       Has Ford entered into any agreement to acquire steering gears for the Barra model from Delphi?

69                  Answer:  Apart from purchase orders in May and July 2001, No.  The letter from Ford to Delphi dated 2 December 1998 (the only other document relied on by Ford) is devoid of contractual effect.  The term of the agreement, the specifications of the gears and the price are all left to be negotiated (presumably as part of the parties’ “working together on these programs”, as the letter says.)  There is also an ambiguity; does the letter refer only to supply in the year 2002, or to all the LHD/Barra programs commencing in that year?  The contract created by the purchase orders could be terminated by Ford at will under cl 10 of Ford’s standard terms and conditions or on 30 days notice pursuant to the purchase order itself.  There was, as far as the evidence discloses, no Delphi equivalent of the MOU.

70                  24.       If yes to 23, is that agreement for a fixed term (and if so what was it) or is it terminable by Ford on 30 days notice (or any other period of notice)?

71                  Answer:  At will, or alternatively 30 days.  It might be noted that Ford did not say to Tristar that it was bound to Delphi in a way that was inconsistent with the terms that it was proposing to Tristar (a three year agreement: Simpson T127.37-.39, or even longer; ChB85, Simpson T128, ChB90).  Ford wanted Tristar to believe that it (Ford) was willing to negotiate a long term agreement.  A party in Tristar’s position would reasonably believe either that the Ford-Delphi arrangements were consistent with the proposed Ford-Tristar agreement or that Ford could reach an accommodation with Delphi.

72                  25.       Did the conduct of Ford between July, 2001 and September, 2002 by which Ford sought to establish alternate sources of supply of steering gears and conceal its intention to terminate the steering gears LTA:-

(a)        breach any express or implied term of the Tristar agreement; 

(b)        mislead or deceive Tristar contrary to the TPA?

73                  Answer:  As to (a), in respect of seeking alternate sources of supply, No.  Seeking such sources before the date of the Tristar agreement (3 December 2001) could not be a breach of that agreement.  On Tristar’s own case it was not obliged to supply in the Gap period.  And after 3 December seeking alternate sources was not, in itself, a breach of the agreement.  As to concealing its intention, again that could not, prior to 3 December, be a breach of a contract which did not yet exist.  After that date, the mere holding of an intention to breach a contract is not in itself a breach.

74                  As to (b), No in respect of seeking alternate sources of supply, but Yes (prior to 3 December) in respect of concealing its intention.  Ford impliedly represented, by the very act of engaging in negotiations, that its intention was to honour any bargain reached.  On Ford’s own case, this was untrue; see for example Ford’s outline par 61 where it is said that Mr Simpson “considered that he had to purport to discuss the possibility of a long term agreement with Tristar”.

75                  26.       If yes to either part of question 25, to what relief is Tristar entitled to any, and if so what, relief:-

(i)         by way of damages;

(ii)        in equity;  and/or

(iii)       pursuant to sections 80 or 87 of the TPA

as a result of such misrepresentations?

76                  Answer:  As to (i), Yes.  However, damages under this head are merged into Tristar’s damages claim for breach of the Tristar agreement.  By its loss of profit claim Tristar will be put back into the same position as if the Tristar agreement had been performed by Ford.

77                  As to (ii), No, for the reasons already discussed.

78                  As to (iii), No, apart from damages.

Arrowcrest issues

79                  27.       Were there terms of the agreement dated 19^th July, 1999 between Ford and Arrowcrest (“the ROH agreement”) to the effect that:-

(a)       Arrowcrest would not do anything:-

(i)         to interfere with;

(ii)        frustrate;  or

(iii)       derogate from

the principal commercial objective of the ROH agreement which was to facilitate the production by Ford of Falcon motor vehicles;  and/or

(b)        each of Arrowcrest and Ford would act in a manner consistent with the maintenance of a mutually beneficial long term relationship of component supplier and manufacturing customer?

80                  Answer:  As to (a), No.  The “principal common objective of the ROH agreement” was not to “facilitate the production by Ford of Falcon motor vehicles”.  If there was a common commercial objective, it was the sale of wheels by Arrowcrest to Ford at a specified price over a specified period.  On entering into the agreement Arrowcrest and Ford each had its own commercial objective.  Arrowcrest wanted to make as much profit as it could out of the manufacture and sale of wheels.  Ford wanted to acquire wheels for as little as possible so as to maximise its profit on the sale of motor vehicles.

81                  As to (b), No.  At best this was an aspirational statement.  The suggested term fails a number of the criteria stated in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337.  It is hopelessly vague.  If, for example the parties cannot agree on a price for a further term of the agreement, or the length of that term, how is it to be determined what is “mutually beneficial”?  And “long term relationship” (whatever that means) is inconsistent with the express provision for a fixed term.  Also, the term is not necessary.  If each party does what it is obliged to do under the contract, the other party gets what it is entitled to, no more or no less.

82                  28.       If yes to question 27:-

(a)        did Arrowcrest breach those terms;  and

(b)        if so:-

(i)         was Ford entitled to terminate the ROH agreement as a result of such breach;  and/or

(ii)        did Ford suffer any,  and if so what,  what loss and damage?

83                  Answer:  Unnecessary to answer.

84                  29.       Was it an implied term of the ROH agreement that Ford would not order, and that Arrowcrest was not bound to supply, wheels in quantities which exceeded the production capacity of the dies made available to Arrowcrest by Ford?

85                  Answer:  Yes.  In contrast to the alleged term considered in issue 27, this term relates specifically to the contractual obligations of Arrowcrest and the common assumption that Ford was to supply the dies.  Without the dies from Ford, Arrowcrest could not make the wheels.

86                  30.       If yes to question 29:-

            (a)        did Ford breach that term;  and

            (b)        to what relief,  if any,  is Arrowcrest entitled by reason of such breach?

87                  Answer:   No.  I accept the contentions in Ford’s outline par 197.

88                  31.(a)   In April to July, 2002;  and/or

(b)        in August, 2002

did Arrowcrest fail to supply Ford with any PA, KA, EA, JA, AA and/or NA alloy wheels in accordance with the terms of the ROH agreement?

89                  Answer:  Yes.  This does not seem to be substantially disputed by Arrowcrest.  It is why the recovery plan became necessary.

90                  32.       If yes to any part of question 31:-

(a)        Were all failures to supply wheels during the period 1 April, 2002 to 31 August,  2002 "caused by" or did they "arise out of" any cause or event which was beyond the control and without the fault or negligence of Arrowcrest (clause 12 standard terms and conditions ChB6);

(b)        did Ford suffer any,  and if so what,  loss and damage as a result of such breach; 

(c)        was Ford entitled to terminate the alloy wheels purchase orders as a result of such breach;  and

(d)        did any such termination of the alloy wheels purchase orders terminate the ROH agreement pursuant to the notice dated 3 September, 2002?

91                  Answer:  As to (a), No.  Clause 12 means that the failure would have to be solely “caused by” or solely “arise out of” the exculpatory circumstances, or at least those circumstances would have to be the dominant cause.  I accept the contentions set out in Ford’s outline pars 205, 207, 209, 210, 211, 213, 214, 216.

92                  As to (b), $161,029.

93                  As to (c), No.  Failure of performance by one party will only entitle the other party to treat an instalment contract (as the ROH agreement may properly be characterised) as repudiated if the breach goes “to the root or essence of the contract”: Mersey Steel and Iron Co v Naylor Benzon & Co (1884) 9 AC 434 at 443-444.  Relevant to this question are the ratio quantatively which the breach bears to the contract as a whole and the degree of probability or improbability that such breach will be repeated: Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148 at 157, cf Goods Act 1958 (Vic) s 38(2).  In any event, Ford affirmed the contract, as is discussed hereafter.  The affirmation by Ford’s acceptance of the recovery plans also operates to show that at the time Ford itself did not think that such breaches as these were not capable of remedy or that it believed the contract would not be substantially performed by Arrowcrest in the future.

94                  As to (d), No.

95                  33.       Did Arrowcrest comply with the recovery plans submitted by it to Ford in respect of all PA, KA, EA, JA, AA and/or NA alloy wheels supplied to:-

(a)        Original Equipment;  and/or

(b)        Ford Customer Service Division

for the period of 2 August, 2002 to 30 August, 2002 in terms of:-

            (i)         daily delivery requirements;  and

            (ii)        cumulative requirements as at 30^th August, 2002?

96                  Answer:  Yes.  I accept the contentions in applicants’ outline pars 15.9 to 15.16.  Alternatively, if there was not strict compliance, then such non-compliance as there was did not amount to a repudiation of the ROH agreement, which had been affirmed (or re-affirmed) by Ford as recently as 28 August 2002.  This is not a case of an innocent party discovering subsequently to termination conduct which it can then treat as repudiation.  To the extent that there was any non-compliance, the facts were known immediately to Ford.  Yet failure to comply strictly with the recovery plan is not mentioned in Ford’s termination letter of 3 September 2002 and is not pleaded in its defence.  In truth Ford’s action in terminating the ROH agreement was something done in the course of the implementing its strategic decision to part company with Arrowcrest/Tristar.  This decision in turn was based on Ford’s fundamental misconception that Tristar was under some legal or moral or conscionable obligation to deliver steering gears (a) during the Gap (b) at a price which suited Ford.  As Ms Keane frankly accepted, by 8 August the decision had been made to terminate the ROH agreement, “come what may”: T185.

97                  34.       Did Ford elect to affirm the alloy wheels LTA:-

(a)        by its letter of 8 August 2002;

(b)        by the email sent by Cameron Richmond to Les McCormick on 21 August 2002 and by the statements made by Richmond in a telephone conversation to McCormick on or about the same day, and/or;

(c)        by the email communication from Cameron Richmond to Les McCormick on 28 August 2002.

98                  Answer:  As to (a), Yes.  This letter is consistent only with Ford wishing the ROH agreement to continue.  The plan was “acceptable to Ford”.  Whatever complaints Ford may have had about deliveries (see Ford outline par 228) the fact remained that if Ford could have treated that conduct as repudiation (which I do not think was the case), it chose not to do so.  It did not merely acquiesce in breaches by Arrowcrest, it positively chose the course of continuing the ROH agreement with the view of “getting back on schedule by Barra Job One”.

99                  As to (b), Yes, for the same reasons

100               As to (c), Yes, for the same reasons.

101               35.       Did the conduct of Ford between July 2001 and September 2002 in:

(a)        requesting Arrowcrest to use its best endeavours to supply PA and KA wheels;

(b)        writing the letters of 30 July 2002 and 8 August 2002 and the emails of 21 August and 28 August 2002;

(c)        failing to disclose its intention to repudiate the alloy wheels LTA from Job 1 Barra;

(d)        making arrangements for wheels for the Barra Model Ford to be supplied by manufacturers other than Arrowcrest;

(i)                 breach any express or implied term of the ROH agreement;

(ii)               constitute unconscionable conduct and/or;

(iii)             give rise to any estoppel preventing Ford from terminating the ROH agreement pursuant to any right that it otherwise would have been entitled to exercise;  and/or

(iv)             constitute misleading and deceptive conduct contrary to section 51A and 52 of the Trade Practices Act 1974?

102               Answer:  No.  Once it is accepted that there was affirmation by Ford of the ROH agreement followed by a wrongful termination, these matters became irrelevant.  In any case, the letters referred to in (b) are not unconscionable, misleading or deceptive etc.  They simply take effect according to their terms.  As to (c) and (d), a party to a contract which it now thinks inconvenient can make plans to terminate it and organise alternative supplies.  If the termination turns out to be lawful, then well and good.  If not, then the other party’s loss flows from the wrongful termination and not from any devious planning by the contract breaker.

103               36.       If yes to any part of question 35:

(a)        Did Arrowcrest suffer any, and if so, what loss and damage;

(b)        Is Arrowcrest entitled to any relief:

(i)         pursuant to the Trade Practices Act 1974; or

(ii)        at Law or Equity?

104               Answer:   Unnecessary to answer.

105               37.       Was Ford’s purported termination of the ROH agreement:

(a)        unconscionable in equity;

(b)        in contravention of section 51AA;  and/or

(c)        in breach of an implied obligation of good faith of the ROH agreement?

106               Answer:  As to (a), No.  It is not in itself unconscionable to breach or repudiate a contract.  Arrowcrest was not subject to any “special disadvantage”.  If a party breaches or repudiates a contract the law gives appropriate contractual remedies to the other party.

107               As to (b), No, for the same reasons.

108               As to (c), No.  It is at least doubtful whether there is any such implied obligation in a contract of this type:  see Tyrone M Carlin, “The Rise (and Fall?) of Implied Duties of Good Faith in Contractual Performance in Australia” (2002) 25(1) UNSW Law Journal 99.  In any case, this adds nothing.

109               38.       Was Ford required to give notice of its intention to terminate the ROH agreement and if so did the letter of 30 July 2002 (ChB 265) constitute proper notice?

110               Answer:  No.  If conduct of Arrowcrest amounted to a repudiation of the ROH agreement, Ford could accept that repudiation without notice and thus terminate the contract.  For the reasons already discussed, this did not happen.

111               39.       If Ford was not entitled to terminate the ROH agreement on 3 September 2000:-

(a)        is Arrowcrest entitled to an order for specific performance or

mandatory injunctions in connection with the ROH agreement; 

(b)        is any,  and if so what part,  of any loss or damage claimed by Arrowcrest  the product of its own wrongful conduct;  and/or

(c)        did Arrowcrest suffer any,  and if so what,  loss and damage recoverable from Ford.

112               Answer:  As to (a), No.  The considerations already discussed in relation to the Tristar agreement apply.

113               As to (b), No.  Arrowcrest is liable to Ford for the amount of $161,029 referred to in issue 32(b): McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 477, but otherwise Arrowcrest’s loss and damage are due to Ford’s wrongful termination of the ROH agreement.

114               As to (c), $7,870,136.  The applicable principles have already been discussed in relation to Tristar’s damages.  Again, the parties’ statement of issues did not isolate any issues in relation to damages.  In contrast to the Tristar case, Ford’s approach to the Arrowcrest claim was markedly aggressive.  It was put to Arrowcrest’s expert Mr Crase that he had “taken on the role of an advocate in the presentation” (T474.40) and said in final submissions that he showed “demonstrable lack of objectivity” (Ford’s outline par 276).  This criticism does not come too well from Ford, since its own expert Mr Banks showed considerable enthusiasm for his client’s cause, to the extent of interrupting the process of cross-examination: T466 to T477.  Moreover, although Mr Crase was strongly criticised for not obtaining sufficient information or “rigorously” testing such information as he did obtain (Ford’s outline par 274) at least he did personally inspect the Arrowcrest factory three times: T461.5.  Mr Banks, on the other hand, did not inspect the factory or discuss Arrowcrest’s business with its employees at all, despite being given the opportunity to do so: T484.35 to T484.40.

115               An example of Ford’s approach was the contention (Ford’s outline par 260) that there was “no evidence to support the assumption that Ford does not buy at equal or better prices than other customers”.  In other words, there would tend to be less profit on products sold to Ford and thus average profits would be an unreliable guide.  This was put despite Arrowcrest’s outline, which had been filed first, making the point that the uncontradicted evidence was that sales to Ford represented only 16.49 per cent of volume and 15.73 per cent of value:  T463.10, applicants’ outline par 20.23.  As the applicant’s outline submitted, those figures supported “the intuitive fact that profits from Ford sales would be no less than sales to Arrowcrest’s other major customers”.

116               In contrast to the Tristar case, Ford did not put forward an alternative figure based on rational argument.  Its case was that there should be a nil award.  Where a party has wrongfully terminated a substantial commercial contract, this is a bold and not particularly attractive stand.  I reject this, as I reject the attack on Mr Crase, whom I thought to be articulate, honest and competent.

117               As to “mitigation”, there is not, unlike the Tristar case, any material to support an inference that any significant replacement business would be available.  One would expect Ford to have access to information about the state of the market for the supply of wheels and other components in Australia and overseas.  However, it called no evidence on this issue.

118               40.       Did the provision by Arrowcrest to Ford of the price information referred to in paragraph 88C of Ford’s Further Amended Defence and Cross Claim and Exhibit 9 constitute misleading and deceptive conduct contrary to Sections 51A and 52 of the TPA?

119              Answer:  No, I accept Arrowcrest’s contentions (applicants’ outline pars 21.1 to 21.6).

120               41.       If yes to question 40, 

(a)        has Ford suffered as a consequence of any,  and if so what,  loss and damage within the meaning of Section 82 of the TPA;  and/or

(b)        is Ford entitled to relief pursuant to Sections 80 and 87 of the TPA?

121               Answer:  Unnecessary to answer.

122               42.       If yes to question 18[sic]:-

(a)        did Arrowcrest procure or direct Tristar to undertake such conduct;

(b)        did Ford suffer any,  and if so what,  loss and damage as a result of that conduct;  and/or

(c)        is Ford entitled to any other relief?

Answer:  (I assume “18” should be “40”).  Unnecessary to answer.

Tristar and Arrowcrest issues

123               43.       Did the conduct of Tristar and the Firstnamed Applicant (“Arrowcrest”)  between June, 2001 and December, 2001 referred to in paragraphs 54A to 54CB and 74D of Ford’s Further Amended Defence and Cross Claim constitute an:-

(a)        unlawful conspiracy to injure the business of Ford;  and/or

(b)        unlawful interference with the business of Ford?

124               Answer:  As to (a), No.  The conduct of not supplying, or threatening not to supply, in circumstances where there is no obligation to do so, is not unlawful.  In any case, Tristar was acting in its own interests.  It wanted to get as high a price as it could.  It had no purpose, let alone a predominant purpose, of injuring Ford:  Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435 at 475, McKernan v Fraser (1931) 46 CLR 343 at 395-396.

125               As to (b), No.  Again there was no unlawfulness or intent to injure.

126               44.       If yes to question 43:-

(a)        did Ford suffer any,  and if so what,  loss and damage as a result of that conduct;  and/or

(b)        is Ford entitled to any other relief?

127               Answer:  Unnecessary to answer.

128               45.       Was Arrowcrest involved, within the meaning of Section 75B of the TPA,  in any contraventions of the TPA by Tristar between June, 2001 and December, 2001 referred to in paragraphs 54A to 54CB? and 74D of Ford’s Further Amended Defence and Cross Claim?

129               Answer:  No.  Ford’s contention (Ford’s outline par 188) is predicated on the assumption that Tristar’s conduct was unlawful or “illegitimate”.  For the reasons already discussed, this was not the case.  In any case, I accept Arrowcrest’s contentions (applicants’ outline pars 21.7 – 21.10) as to the relationship for the purposes of this issue between Arrowcrest and Tristar.

130               46.       If yes to question 45:-

(a)        has Ford suffered any,  and if so what,  loss and damage within the meaning of Section 82 of the TPA;  and/or

(b)        is Ford entitled to any,  and if so what,  relief pursuant to Sections 80 or 87 of the TPA?

131               Answer:  Unnecessary to answer.

Orders

132               There will be a direction that the parties bring in proposed minutes of orders to give effect to these reasons.  Further hearing is adjourned to a date to be fixed.

Associate:

Dated:              25 November 2002