AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd

This dispute came out of a major change to the way Mercedes-Benz new vehicles were sold in Australia. For years, Mercedes Australia operated through dealers who bought new vehicles from Mercedes Australia and then sold them to customers. That was the dealership model. The dealers said they had built substantial businesses around that model, including premises, fitouts and other investments tied closely to the Mercedes-Benz network.

At the end of 2020, Mercedes Australia issued non-renewal notices to all Mercedes-Benz new vehicle dealers in Australia. Those notices said the existing dealer agreements would end on 31 December 2021. During 2021, Mercedes Australia offered replacement agreements based on an agency model. Under that model, the dealers would act as agents for Mercedes Australia in relation to new vehicle sales, and Mercedes could set the customer sale price. All dealers ultimately entered into the agency agreements, but the Court recorded that they did so under protest. The new agreements started on 1 January 2022.

The dealers’ complaint was not simply that the new commercial deal was worse. Their case was that Mercedes Australia used the contractual non-renewal mechanism as leverage in a coordinated plan to move the whole network to a new model on Mercedes Australia’s preferred terms. They said this exploited their vulnerability because they had already made large, long-term and business-specific investments that would be difficult to redeploy if the Mercedes relationship ended.

The first instance case was large. It was brought by 38 dealers out of 49 in the national network. Four exemplar dealer cases were tried first on liability. After an eight-week trial, the primary judge dismissed all claims. On appeal, the dealers narrowed the case and focused only on statutory unconscionable conduct and breach of the Franchising Code duty of good faith.

The Full Court had to decide whether the primary judge made legal or factual error in rejecting the dealers’ case. The appeal was not a complete rehearing of every issue from the trial. Instead, the dealers argued that the primary judge should have found Mercedes Australia liable for unconscionable conduct under section 21 of the Australian Consumer Law and for breach of the obligation to act in good faith under clause 6 of the Franchising Code.

The Court’s table of contents and introductory sections show the structure of the reasoning. On unconscionability, the Court dealt separately with the applicable principles and with the application of those principles to the facts. The topics identified by the Court included vulnerability, causal break, legitimate interests, the bargain, and a counterfactual and reasonable rate of return. On good faith, the Court considered the applicable provisions, the primary judge’s reasoning, the dealers’ clause 6 case apart from unfair and unreasonable terms, and then the arguments about unfair and unreasonable terms.

The dealers also argued that unconscionability should be assessed by reference to accepted and acceptable social and community standards. The Full Court had to decide whether the primary judge erred in rejecting that approach in the way the dealers contended. That issue mattered because the dealers framed Mercedes Australia’s conduct as opportunistic exploitation of a commercially dependent network.

The dealers’ appeal case was put in strong terms. According to the introduction to the judgment, they said Mercedes Australia opportunistically exploited the individual and collective vulnerability of the dealers to capture the benefits of the dealers’ investments for itself. They pointed to significant, long-term and idiosyncratic investments, including facilities said to be valued by Mercedes Australia at over $400 million.

The dealers argued that Mercedes Australia could not simply require them to accept the new agency model under the existing contracts, but it did have the contractual power to bring all dealer agreements to an end. They said Mercedes Australia used that power to bring about a new agreement on terms of its choosing by taking advantage of the dealers’ vulnerability to their investments being held hostage if the old agreements ended. On that case, Mercedes Australia appropriated to itself the return on investments made by dealers in their new vehicle businesses.

The dealers also said Mercedes Australia adopted a coordinated plan by aligning the dealer agreements and then terminating them as a job lot. They argued that Mercedes Australia had no real intention of ending the relationship when it issued the non-renewal notices. Instead, they said, the notices were used as leverage to secure acceptance of the agency model, with dealers having little meaningful choice other than to accept under protest.

That framing is commercially important because it shows the kind of evidence businesses often rely on in restructure disputes: dependence on the network, sunk costs, timing pressure, lack of realistic alternatives, and the practical effect of a network-wide notice strategy.

The Full Court dismissed the appeal with costs. The formal orders state that the appeal was dismissed with costs on 9 July 2025. The catchwords also record the result: appeal dismissed. That means the primary judge’s dismissal of the exemplar dealers’ claims remained in place, and the dealers did not succeed in overturning the findings they needed on unconscionability or good faith.

The published judgment record shows that the Full Court considered and rejected the dealers’ grounds on unconscionable conduct, the legal principles said to govern unconscionability, the Franchising Code good faith duty, and the challenged findings of fact. The Court’s table of contents indicates that it specifically addressed the dealers’ arguments about vulnerability, causal break, legitimate interests, the bargain, and the counterfactual and reasonable rate of return before concluding against them on Ground 1. It then separately considered and rejected the good faith ground.

For a business reader, the key point is not that the Court endorsed every hard-edged restructure. The point is that, on this record, the dealers did not establish appealable error in the primary judge’s rejection of their case. The Full Court’s reasoning structure shows that it treated the issues as fact-sensitive and legally structured, rather than deciding the case on a broad impression that the conduct was simply tough or unfair.

The orders also matter procedurally. At the time of judgment, the Court made a temporary suppression order for seven days preventing disclosure of the reasons except to the parties, and directed the parties to provide any proposed form of suppression order within three business days. There was liberty to apply to vary those orders.

Even from the published record alone, the Full Court’s structure tells business owners a lot about how these disputes are analysed. The Court did not treat vulnerability as a complete answer. It also looked at causal break, legitimate interests and the bargain. That suggests a court will ask not only whether one side was commercially exposed, but also whether the conduct complained of should legally be characterised as exploitation, whether there were intervening choices or events, whether the stronger party was pursuing legitimate commercial interests, and what the parties had actually agreed in the contract.

The reference to the bargain is especially important for franchising and distribution businesses. If an agreement clearly gives each side a right to issue a non-renewal notice without cause, that contractual architecture may strongly shape the analysis. It does not remove the possibility of an unconscionability or good faith claim, but it does mean a court will pay close attention to the rights the parties originally accepted.

The Court’s separate treatment of the good faith ground also matters. Good faith under the Franchising Code is not identical to unconscionability. A business can lose on one and still argue the other. But this case shows that where the same commercial conduct is challenged under both frameworks, success still depends on the detailed facts, the contractual setting and the quality of the evidence. The dealers’ failure on appeal indicates that broad assertions of pressure, unfairness or dependence will not necessarily be enough.

For franchisors and distributors, the practical lesson is to document the commercial rationale for a restructure, understand the contractual rights being exercised, and manage communications carefully. For franchisees and dealers, the practical lesson is to identify model-change risk early, preserve evidence of what was said and offered, and test whether the agreement gives meaningful protection before making large network-specific investments.

If your business is in a franchise, dealership or distribution network, this case is a reminder to review both the documents and the conduct. In disputes like this, the contract wording matters, but so do the surrounding facts. A court may examine the timing of notices, the commercial purpose of the restructure, the alternatives realistically available to the weaker party, and whether the stronger party was pursuing legitimate interests or using pressure in a way that crosses the legal line.

Businesses should also remember that a network-wide strategy can create both commercial efficiency and legal risk. Aligning agreements, issuing notices across the network, and offering replacement agreements on a standard form may be commercially attractive, but those steps can also become the centrepiece of an unconscionability or good faith case if counterparties say they were left with no meaningful choice.

Franchisors, distributors and brand owners should read this case as support for the proposition that a contractually permitted restructure is not automatically unlawful just because it is commercially painful for the network. But they should not read it as a licence to ignore vulnerability, dependence or the Code. The safer approach is to assume that courts will examine both the legal rights and the practical reality of how those rights were used.

Franchisees and dealers should read the case as a warning that courts may not rescue a business from a poor contractual position simply because the business has made large sunk investments or has become heavily dependent on one brand. Those facts matter, but they need to fit into a legally persuasive case on unconscionability, good faith or some other cause of action. The best protection often comes earlier, at the contract review and investment planning stage.

If you are negotiating a new franchise or dealer agreement, ask what happens if the network owner later moves to an agency model or another centralised structure. If you are already in a network and a restructure is proposed, compare the old and new economics in detail, not just the headline commission or margin. If you are the network owner, make sure the commercial rationale, process and communications are consistent with the rights you are relying on and the obligations that still apply.

The Full Court judgment is dated 9 July 2025. The appeal was from the primary judgment delivered in 2023 and a later costs and orders judgment in 2023. The Court’s orders show that the appeal was dismissed with costs. They also show that, for seven days from judgment, there was to be no disclosure of the Court’s reasons except to the parties, and that the parties were to provide any proposed form of suppression order within three business days.

That temporary suppression order is worth noting because it affects how quickly the full reasons may have become publicly usable in practice. The broad result is clear from the orders and catchwords, but anyone relying on the finer doctrinal detail should still read the complete reasons and, where relevant, the primary judgment.