Sailing into Australian waters

Published On 16/11/2016 | By Stephanie Swan | Consumer protection, Litigation

The Courts have continued to clarify the reach of the Australian Consumer Law (ACL) to suppliers based overseas:

  • Earlier this year we had the significant decision in the Valve case, where the Federal Court held that a foreign company based, and predominantly operating, outside Australia could engage in conduct in Australia or be carrying on business in Australia such that the ACL applied to it.
  • Last year Electronic Arts, the world’s third largest publisher and developer of video games that also predominantly operates outside Australia, acknowledged the application of the ACL to its conduct and provided a court enforceable undertaking to the ACCC for a breach of the consumer guarantee provisions.

In a recent decision, Justice Rares of the Federal Court has again considered the reach of the ACL in the context of an exclusive dealer agreement between a foreign manufacturer and an Australian reseller, finding that the facts were sufficient to establish that it did carry on business in Australia.  Given the existence of little meaningful case law on the concept of “carrying on business in Australia”, Vautin v BY Winddown Inc (No 2) [2016] FCA 1235 is a useful development, providing guidance on the types of connecting factors that may result in the ACL applying to certain foreign corporations outside Australian shores.

Who sold what where – how extraterritorial can we be?

Section 5(1)(g) of the Competition and Consumer Act 2010 (Cth) (CCA) extends the application of the ACL to conduct engaged in outside Australia by bodies corporate “carrying on business within Australia”.

Bertram Yacht, Inc (now known as BY Winddown, Inc, the First Respondent) was a US entity in the business of manufacturing yachts. In 2005, Bertram appointed Eagle Yachts Pty Ltd (the Second Respondent) as its exclusive dealer in Australia. Under this arrangement, Bertram would sell yachts manufactured by it in the United States to Eagle Yachts for resale within Australia.

Mr Vautin (the Applicant) purchased a yacht from Eagle Yachts. Mr Vautin instituted a private action against Eagle Yachts as supplier and Bertram as manufacturer under section 54 of the ACL, arguing that his yacht was not of acceptable quality because of a variety of alleged defects. Under the ACL, claims under section 54 may be brought against either the manufacturer or the supplier (who has an indemnity against the manufacturer).  In order to succeed and recover damages for breach of the statutory guarantee, he first had to overcome an application by Bertram that service outside the jurisdiction be set aside, for which it had to establish that Bertram was a body corporate “carrying on business within Australia”.

What did the Exclusive Dealer Agreement provide?

The agreement between Bertram and Eagle Yachts explicitly excluded an agency relationship between the parties.  However it did confer a range of rights and responsibilities on Eagle Yachts, including:

  • the exclusive right to “sell, service and promote” Bertram’s products in Australia;
  • developing sales of Bertram’s products in Australia, and giving effect to Bertram’s promotional material in a way that would preserve Bertram’s goodwill in Australia;
  • identifying itself clearly as a Bertram dealer in a way that Bertram had approved in advance (in fact, once the agreement was entered into, Eagle Yachts branded itself as the “exclusive dealer in Australia for Bertram Yachts, Inc”);
  • providing a service facility within Australia that was equipped to provide servicing to owners of Bertram products;
  • providing high quality and timely warranty service on all Bertram products wherever in the world the goods were purchased from, and making “all claims in accordance with Bertram’s warranty service policies”; and
  • furnishing Bertram’s written limited warranty to its retail consumers.

Connecting factors to Australia

Bertram argued that its conduct was outside the ambit of the ACL as it did not carry on business in Australia because:

  • it had no assets in Australia;
  • it had no links to Australia, other than the dealer agreement; and
  • the limited warranty would only become effective when received by Bertram in the US.

Bertram’s solicitor also gave evidence that:

  • all of Bertram’s personnel were located in the United States and it never had any employees or directors in common with Eagle Yachts;
  • Bertram never had any shares in Eagle Yachts, and Eagle Yachts never had any shares in Bertram;
  • Bertram had no business involving the sale or purchase of used or second hand vessels, although Eagle Yachts’ business did.

Was this enough?

Justice Rares held that there were “a limited number of connecting factors between Bertram and Australia” but that it was sufficient to amount to Bertram carrying on business in Australia. In particular, he noted the importance of the dealer agreement requiring that Eagle Yachts:

  • furnish Bertram’s limited warranty to its retail customers in Australia;
  • provide service facilities under Bertram’s limited warranty to any owner of a Bertram yacht in Australia, wherever in the world it might have been purchased, who presented to Eagle Yachts in Australia with a claim for a warranty service; and
  • promote Bertram’s products in Australia using Bertram’s approved materials.

His Honour held that Bertram’s activities in (1) and (2) above constituted the carrying on of business in Australia:

“a succession of acts designed to advance Bertram’s overall worldwide goodwill, including its goodwill in Australia, and to promote sales of its products by being able to offer persons who purchased those products from whichever dealer, or other source as the original purchaser of a newly manufactured yacht, the ability to obtain service for those yachts throughout the world, including from Eagle Yachts in Australia”.

The marketing activities were also a relevant consideration, although not on its own decisive.

Justices Rares also noted that the way in which Bertram sought to preserve and enhance its goodwill through the other requirements of the dealer agreement bolstered (but were not essential to) this conclusion.

What does this mean for business?

The mere fact that a foreign supplier or manufacturer has appointed a local dealer or distributor with local knowledge and resources to develop or promote a business in Australia does not necessarily amount to the foreign body corporate “carrying on business within Australia”.  It remains important to consider the whole of the relationship and the surrounding facts to determine what, if any, connecting factors exist between the foreign body corporate and Australia and their purpose.

However, in view of the potential broadening of this concept, a review of any dealer agreements will better equip foreign entities to proactively deal with the rigours of the ACL if it is determined that there is some exposure.

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About The Author

is a Solicitor in the Melbourne office of King & Wood Mallesons.

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