The 20 March 2025 decision of the Victorian Supreme Court in Beecham Motors Pty Ltd v General Motors Holden Australia NSC Pty Ltd [2025] VSC 125:

highlights the need for careful and precise drafting of contractual terms; and
emphasises why it is better to draft precisely than to rely on good faith to give effect to the uncertain terms.

Background

Beecham Motors Pty Ltd (Beecham Motors) operated a Holden car dealership north of Brisbane since 1987. To do so, Beecham Motors entered into Dealer Agreements (Agreement) with General Motors Holden Australia (GM Holden) on 1 January 2018 for a five-year term, set to expire on 31 December 2022. GM Holden is a wholly owned subsidiary of the General Motors Company.

The Agreement was for Beecham Motors to sell and service new Holden branded motor vehicles.

Without either Beecham Motors or GM Holden’s influence or approval, in February 2020 the General Motors Company announced that it would be shutting down the Holden brand in Australia and exiting the national market by 2021. This would therefore mean that the Holden brand would exit Australia more than a year before the agreement with Beecham Motors was set to expire.

Beecham Motors initiated a claim, on behalf of a group of franchisees against GM Holden on the basis that, by General Motors Company exiting the Australian market and subsequently failing to supply new Holden vehicles to Beecham Motors, it was in breach of the Agreement.

There was nothing in the Agreement expressly stating that GM Holden was obligated to supply the vehicles for the entire duration of the term.

Instead, Beecham Motors relied on:

a clause to the agreement which stated that ‘Holden agrees to comply with Holden’s Wholesale Standards’ (The Standards). Specifically, the Beecham Motors referred to the following clause in The Standards:
Holden will endeavour to supply dealers with a sufficient quantity of vehicles that will allow achievement of sakes evaluation guide (SEG) or meet reasonably anticipated demand’
Alternatively, Beecham Motors argued that a term should be implied into the contract to the effect that GM Holden would ensure the supply of the vehicles for the entire term of the agreement. For such a term to be implied, Beecham Motors had to establish that it was necessary to give business efficacy to the agreement, meaning that the agreement would be effectively dysfunctional without it.

The final argument made by Beecham Motors was that GM Holden was in breach of the Franchising Code of Conduct’s obligation of parties to act in good faith with respect to the Agreement.

Issues

The primary issues before the Court were:

Whether the Standards obliged GM Holden to ensure supply for the entirety of the Agreement’s term;
Whether there was an implied term that GM Holden would ensure supply for the entirety of the Agreement’s term; and
Whether failing to provide supply was in breach of the good faith obligation under the Franchising Code of Conduct.

Court Findings

Whether The Standards obliged GM Holden to ensure supply for the entirety of the Agreement’s term

For GM Holden to have been obligated to provide supply under The Standards, the clause must have been promissory, in that GM Holden must have, in clear and precise language, committed to provide the vehicles.

Of particular importance to the Court was whether the use of the word ‘endeavour’. It held that, by using such language, the term was not promissory, but instead reflected an intention of GM Holden to do whatever they could do to provide supply throughout the duration of the term.

Given that the decision to exit the Australian market was made by the General Motors Company and not by GM Holden, the Court held that GM Holden had in fact endeavoured to provide supply as required under the Agreement.

Thus, GM Holden was not in breach of any express term in the agreement.

Whether there was an implied term that GM Holden would ensure supply for the entirety of the Agreement’s term

For there to be a term implied into a commercial contract, that term must be necessary for the business efficacy of the contract such that the contract would not be able to function in any meaningful way without such a term. A term will not be implied into a contract where it is contrary to the express terms of the agreement or is imprecise or nebulous.

The Court ultimately held that no such term could be implied.

The primary reasoning for this was that it was contrary to the intention of the Agreement and thus was not necessary to give business efficacy to the contract. It was held that the Agreement sought to give Beecham Motors an opportunity to sell Holden vehicles. It did not create a general right for Beecham Motors to sell Holden vehicles.

Therefore, a term obligating the consistent supply of Holden vehicles was not necessary for the operation or business efficacy of the contract.

Beecham Motors also argued that the term should be implied on the basis that it was customary in the motor vehicle industry to have a clause of a nature such as that alleged. Despite presenting evidence of a range of industry agreements from over eleven major car retailers, the Court held that Beecham Motors ‘did not come close’ to establishing that such a clause was a ‘widespread and notorious’ industry practice as is required.

Therefore, no term obligating GM Holden to provide supply for the duration of the term could be implied.

Whether failing to provide supply was in breach of the good faith obligation under the Franchising Code of Conduct

Section 6(1) of the Franchising Code of Conduct imposes an obligation on parties to a franchising agreement to act in good faith to one another with respect of the agreement.

Beecham Motors alleged that failing to provide supply was in breach of this requirement.

The Court held that a claim of good faith cannot be made on its own; it does not provide an alternative claim to breach of contract. Therefore, given that the conduct alleged to breach the good faith requirements (failure to supply Holden vehicles) was the same as that alleged to breach the contract, the good faith argument could not be accepted.

Despite this, the Court also held that GM Holden never breached the good faith obligations. As previously referred to, GM Holden did not decide to cut supply to Beecham Motors, but rather its international parent company the General Motors Company did.

Considering this, the Court held that Beecham Motors had no claim of breach of good faith under the Franchising Code of Conduct.

Significance

This matter highlights the need for attention when drafting agreements. Where possible precise language should be used to draft an agreement. A term that is intended to be binding must be promissory.

Failing to appropriately draft a term could lead to a similar situation as this case where a party may ask the Court to imply a term or infer good faith obligations between contracting parties. Such a course rendering outcomes highly uncertain and ambiguous often with a considerable amount of money spent to clarify the correct approach.

The Court also provided guidance that although the Franchising Code of Conduct imposes obligations on parties to a franchising agreement, it may be difficult to successfully initiate a stand alone claim for a breach of good faith Code provision.

If you wish to discuss this further, please contact:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Charlie Cooper
Law Clerk
E: ccooper@sladen.com.au