Annexed code is watered-down code: law firm

Legal consultancy firm Macpherson Kelley says the automotive code of conduct needs to remain standalone in order to adequately protect franchised dealers

Speaking on Tuesday at the Australian Automotive Dealer Association’s dealer conference in Melbourne, MK national director James Sturgess says it’s imperative the automotive code does not become annexed under the overarching franchise code.

“An annexed code is a watered-down code,” he says to an industry panel.

“The issues we’re talking about you might be able to squeeze into an annex, but it would be watering down the arguments by accepting that,” Sturgess explains.

Sturgess says changing franchisee is one thing, but full-scale closure requires much more serious repercussions.

“You enter into an agreement for the life of the dealership; if for some reason the dealer wants to get out, that’s fine, but if the OEM wants to shut down a dealership for whatever reason, you need to be having a conversation about compensation,” he says.

“The AADA has done an amazing job getting the code to where it is now, but the next battle is going to be even harder – if the (federal) election had gone the other way, it would’ve been easier,” Sturgess continues.

“This (Morrison) government needs to give this real priority, they’re saying the right things… But keep the code separate,” he adds.

HWL Ebsworth Lawyers lead partner Evan Stents says dealers need mandatory buy-back terms, minimum-tenure clauses with minimum notice, and stresses the importance of the code’s design to be handled by the right ministerial department.

“There are eight standalone industry codes already out there already, there’s no reason our industry needs to be sharing a code that doesn’t work,” he begins.

“We need to make sure we future-proof our code so it’s not restricted just to franchising only,” Stents explains.

Stents says the current franchising code of conduct falls under the treasury, but suggests dealers should be working with the department of small business.

“If we have a standalone, it may well come under the auspices of the department of small business which is a much better fit than treasury,” he says.

Stents says the inner workings of the automotive code will be a ‘devil in the detail’ situation going forward for the association.

“The government is saying it doesn’t want to mandate buy-back obligations, but they’re already in place within the dealer agreements, but the only reason dealers have those vehicles in stock is because of the requirements by OEMs in that same agreement,” he explains.

“It’s a bit of a furphy to say a dealer must give reason to terminate the agreement, because the OEMs are under a no-fault arrangement and don’t have to give reasons to dealers when they don’t renew the dealer’s franchise,” Stents says.

“Dealers generally often enter into an agreement with more than one term, as a right of renewal, but it’s an illusory right and off the back of that right investments are made thinking there’s more than one term,” he continues.

“But getting to the end of that term the OEM might say they’re not renewing, because they don’t want to go through the breach scenario where there’s an obligation to remedy or an opportunity for them to be challenged,” Stents highlights.

“When you don’t renew, there’s no basis to challenge – it’s a very difficult environment – but in a building leasing environment, the tenant decides to exercise the right to renew, not the landlord; the landlord can’t do that as a matter of law,” he argues.