The Federal Court, Sydney, today declared that Daewoo Australia Pty Ltd engaged in unconscionable and misleading conduct in connection with the 1998 appointment of Porter Crane Imports Pty Ltd (in liquidation), then trading as Betta Machinery Sales, as its Queensland dealer of excavators and wheel loaders. Former Manager, Mr Eui Hwan Kang, was found to have been involved in some of the conduct.
The proceedings were initiated by the Australian Competition and Consumer Commission in December 2001 following its investigation of Daewoo Australia and the Korean based manufacturer of Daewoo heavy earthmoving equipment, formerly Daewoo Heavy Industries Limited (now Daewoo Heavy Industries and Machinery Limited following a restructure of the Daewoo companies in 2000).
"In pursuing this case, the ACCC felt that a successful outcome would underscore the importance of playing fair during contract negotiations and highlight the need for full disclosure of all material aspects of an agreement", ACCC Chairman, Professor Allan Fels, said today.
The court found, with the consent of the parties, that Daewoo Australia:
- entered into an agreement with Porter Crane having caused Porter Crane to believe it would be the only Queensland dealer for the term of the agreement, would have an option to renew the initial term of the agreement and that it would be ongoing and long term;
- in fact, did not intend to appoint Porter Crane as its exclusive Queensland dealer but intended to appoint at some later time a national dealer whose territory would include Queensland and did not inform Porter Crane of this prior to entering into the agreement; and
- during the term of Porter Crane’s agreement also appointed Construction Equipment Australia Pty Ltd (‘CEA’) to be its Queensland dealer and gave effect to this appointment to the detriment of Porter Crane by:
- refusing to supply Porter Crane with machines, instead supplying these machines to CEA for on-selling to customers in Queensland;
- supplying machines to CEA at lower prices than it supplied Porter Crane;
- not referring all sales leads in Queensland to Porter Crane and referring sales leads to CEA;
- not assisting Porter Crane to perform warranty work; and
- refusing to extend or renew its agreement with Porter Crane, and in doing so relying upon the wording and strict effect of the agreement.
The court declared that Daewoo Australia, by entering into the agreement with Porter Crane having failed to disclose its actual intentions, engaged in misleading and unconscionable conduct in breach of sections 52 and 51AC of the Trade Practices Act 1974 and that Mr Kang caused Daewoo Australia to engage in this conduct.
The court separately declared that Daewoo Australia also engaged in misleading and unconscionable conduct by appointing CEA and giving effect to its agreement with CEA in the circumstances.
The court granted injunctions, for five years, restraining Daewoo Australia and Daewoo Heavy Industries and Machinery from:
- entering into an agreement with a person to be a dealer or agent for any specified territory in Australia without first disclosing to that person whether it will be appointed as the exclusive or non-exclusive dealer or agent for that territory; and
- where either Daewoo company has entered into an agreement with a person to be their exclusive dealer or agent in a specified territory in Australia:
- entering into an agreement with another person to also be a dealer or agent for the same goods in that territory during the term of the agreement with the first person;
- failing or refusing to honour their contractual obligations for the purpose of causing or inducing that dealer or agent to end or terminate that agreement.
The court also restrained Daewoo Australia, Daewoo Heavy Industries and Machinery and Mr Kang from being involved in such conduct by any corporation.
The court ordered Daewoo Australia, in the event that it recommences trading in Australia, to implement a trade practices compliance program, and Mr Kang to undergo trade practices training in the event that he returns from Korea to work in Australia. Daewoo Heavy Industries and Machinery, in respect of the appointment of dealers or agents in the conduct of its business in Australia, was ordered to implement a written trade practices compliance program for the benefit of its employees and agents who are involved with the appointment of dealers or agents on its behalf.
The Daewoo companies were also ordered to pay the ACCC’s costs in an agreed amount. By separate arrangement, both companies have reached a confidential monetary settlement with the liquidator of Porter Crane.
"The ACCC is pleased with the outcome in this case. The failure on the part of Daewoo Australia to advise Porter Crane of its intentions and ongoing negotiations as regards the appointment of a national dealer seriously affected the ability of Porter Crane to make an informed judgment as to its own best interests and was such that the bargaining position of Porter Crane was weakened", Professor Fels said.
"The ACCC continues to regard as a high priority the prohibitions on unconscionable conduct in Part IVA of the Act. All businesses must be careful not to abuse any power they may have in their dealings with small business".