File No: CT-2004-009 COMPETITION TRIBUNAL BETWEEN: QUINLAN'S OF HUNTSVILLE INC. Applicant - and -FRED DEELEY IMPORTS LIMITED carrying on business as DEELEY HARLEY-DAVIDSON CANADA
Respondent WRITTEN REPRESENTATIONS OF THE RESPONDENT, FRED DEELEY IMPORTS LTD.
BLAKE, CASSELS & GRAYDON, LLP Box 25, Commerce Court West Toronto, ON M5L 1A9
R. Seumas M. Woods LSUC #301691 Tel: (416) 863-3876 Fax: (416) 863-2653
Christopher Hersh LSUC #43080N Tel: (416) 863-3056 Fax: (416) 863-2653
Matthew Horner LSUC #47163B Tel : ( 416) 863-2356 Fax: (416) 863-2653
Counsel for Fred Deeley Imports Ltd.
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File No: CT-2004-009 COMPETITION TRIBUNAL BETWEEN: QUINLAN'S OF HUNTSVILLE INC. Applicant - and -FRED DEELEY IMPORTS LIMITED carrying on business as DEELEY HARLEY-DAVIDSON CANADA
Respondent WRITTEN REPRESENTATIONS OF THE RESPONDENT, FRED DEELEY IMPORTS LTD.
OVERVIEW 1. The Respondent, Fred Deeley Imports Ltd. ("Deeley") opposes the Applicant's ("Quinlan's") application for interim relief pursuant to section I 04 of the Competition Act, R.S.C. 1985 c. C-34, as amended. Quinlan's seeks an Interim Order requiring Deeley to "accept the Applicant as a customer of Harley-Davidson products on the usual trade terms," presumably pending the Tribunal's dete1111ination of Quinlan's application for relief under section 75 of the Competition Act, which is currently before the Tribunal.
2. Mandatory injunctions requiring a party to carry on business with another party over an extended period of time are difficult for a court or tribunal to supervise, and are accordingly issued in only the rarest of circumstances. Based on the evidence adduced, this is not one of those rare cases.
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- 2 -3. In particular, Quinlan's has failed to raise a serious primafacie case that it will ultimately be successful on the merits of its application, has failed to show that it will suffer irreparable harm that cannot be compensated by the payment of monetary damages and, given Quinlan's delay in bringing its application and the steps already taken by Deeley to implement its business plan, as well as the problems involved in supervising such an order, failed to show that the balance of convenience favours issuing a mandatory order.
4. Although this Tribunal has determined that Quinlan's has put forth sufficient evidence to pass the extremely low threshold for leave to bring its section 75 application, such evidence is inadequate to meet the stringent requirements of a mandatory injunction.
5. Quinlan's application for interim relief should therefore be denied. PART I-THE FACTS A. Fred Deeley Imports Ltd. 6. Deeley is the exclusive distributor of Harley-Davidson-brand motorcycles and related products in Canada. Deeley distributes Harley-Davidson-brand motorcycles and related products in Canada exclusively through a rationalized network of authorized dealers which operate under comprehensive retailer agreements with Deeley.
Affidavit of Bremner Green, sworn July 21, 2004 (the "First Green Affidavit"), at paras. 3-4
B. The Market for Motorcycles and Related Products 7. The motorcycle market in North America, including Canada, comprises many competing brands. Honda, Suzuki, Kawasaki, Yamaha, BMW, Ducati, Polaris, Aprilia and Triumph all compete vigorously with Harley-Davidson for sales of motorcycles and accessories throughout Canada. The existence of these other motorcycle manufacturers was acknowledged by Mr. Quinlan when cross-examined on August 31, 2004.
First Green Affidavit at para. 7. Cross-Examination of James Quinlan, dated August 31, 2004, at 36 ("Quinlan Cross-Examination")
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- .") -8. In Canada, in the category of heavyweight "street" motorcycles (which Harley-Davidson defines as all street-legal motorcycles with an engine displacement of 651 cubic centimetres or greater) Harley-Davidson's share of sales between September 2003 and May 2004 was approximately 30.9%. During the same period, its share of heavyweight street motorcycle sales in Ontario was approximately 35.7%. Since the early !990's, Harley-Davidson's share of Canadian heavyweight street motorcycle sales has declined from 55.6% in 1991 to 30.9% for the current riding season. First Green Affidavit at para. 9. 9. Motorcycle journalists recognize the competition between Harley-Davidson-brand motorcycles and other motorcycles. Specifically, motorcycle magazines routinely publish articles that compare equivalent models of various brands of motorcycles, including Harley-Davidson motorcycles. First Green Affidavit at para. 13. 10. In addition to competing with other motorcycle manufacturers for the sale of motorcycles, Harley-Davidson competes with both other motorcycle manufacturers and third-party manufacturers in the motorcycle parts/accessories and apparel markets. First Green Affidavit at para. 14. 11. With respect to motorcycle parts/accessories, Harley-Davidson's competitors 111 this highly competitive field include: Custom Chrome, Cobra, SuperTrapp, K&N, S&S, STD, Progressive, Corbin, Kuryakyn, Avon, Perfommnce Machine and Drag Specialties, amongst others. Mr. Quinlan acknowledged in his cross-examination that those companies compete with Harley-Davidson pmts and accessories through different stores. First Green Affidavit at para. 15. Quinlan Cross-Examination, at 39.
12. In the similarly highly competitive apparel market, Harley-Davidson-brand rider apparel competes with Bristol, Wolf, Joe Rocket, Gericke, FIRSTGEAR and Indian, amongst several others. Again, Mr. Quinlan acknowledged that apparel produced by these manufacturers competes with Harley-Davidson apparel.
First Green Affidavit at para. 16. Quinlan Cross-Exan1ination, at 40.
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-4-C. Deeley's Dealership Network 13. Deeley's entire business model is based around its relationship with, and the distribution of, Harley-Davidson products through a carefully organized network of independently-owned dealerships. Deeley does not sell Harley-Davidson products directly to customers nor, as was acknowledged by Mr. Quinlan on cross-examination, does it sell or provide Harley-Davidson products to entities with which it has not entered into a retailer agreement.
Affidavit of Bremner J. Green, sworn August 16, 2004 at paras. 4-5 ("Second Green Affidavit").
Quinlan Cross-Examination at p. 43. 14. Deeley has designed its network of Harley-Davidson dealerships in order to effectively supply and service Harley-Davidson customers. This ensures that Harley-Davidson customers are well-served, and that the high-quality Harley-Davidson brand nan1e is preserved. All modifications to Deeley's dealership network are designed to further these objectives.
Second Green Affidavit at para. 6. 15. In light of this rationalized distribution network, Deeley detem1ines the manner in which Harley-Davidson products will be distributed on a long-tem1, and not an ad hoc, basis. This is particularly so given the fact that Harley-Davidson motorcycles are manufactured with long production lead times, and therefore must be allocated throughout Deeley's distribution network, as is discussed in more detail below.
Second Green Affidavit at para. 7. D. Deeley's Retailer Agreements 16. Deeley's relationship with its dealers is not simply one of supplier and consumer. Acting within the terms of its retailer agreements, Deeley's relationships with its dealers are characterized by mutual obligations and covenants defined through various contractual agreements.
17. As part of its retailer agreements, Deeley requires that dealers subscribe to numerous covenants in order to ensure that Harley-Davidson customers are properly served, and that the Harley-Davidson brand name is preserved. In particular, the retailer agreement, which is 21308271.6
- 5 -Exhibit A to Mr. Quinlan's first affidavit sworn June 26, 2004 ("First Quinlan Affidavit"), requires that:
1) Both a specifically named "retailer manager" who manages the dealerships as well as the dealership owners must "possess and maintain the personal qualifications, experience, skill and commitment necessary to ensure that the retailer will perform its obligations" under the retailer agreement in the most effective manner. [Section A(i)]
2) The retailer manager have "full authority for the operating management of the retailer" in the performance of the agreement and be personally involved on a full-time basis. [s. A(ii)]
3) Changes in ownership or operating management be effected only with Deeley' s consent, which consent may be given or withheld in Deeley' s "sole and absolute discretion." [ss. A(iv), H(ii)]
4) Dealers must maintain a minimum level of service, as determined by Deeley in accordance with certain specified performance criteria. [s. B.l, schedule A]
5) Dealers must concentrate their sales efforts primarily on persons, businesses and government agencies, residing, doing business or located in a particular territory. [s. B.2]
6) Dealers must agree to conduct their business exclusively out of a particular location, in order to maintain the integrity ofDeeley's dealership network.[s. B.3]
7) Dealers must devote their "best efforts" to promote the sale of Harley-Davidson products "only to consumers, police agencies (municipal, provincial and federal), fraternal groups and other customers located within the territory" by various enumerated methods. [s . CJ 8) Dealers must keep a specified assortment of new current model Harley-Davidson motorcycles in stock, as well as certain demonstrators specified by Deeley, subject to availability. [s. C.2]
9) Dealers must maintain an inventory of Harley-Davidson parts and accessories and MotorClothes of a quantity and assortment that are in accordance with Deeley guidelines. [s . C.3]
10) Dealers must agree to participate in all of Deeley and Harley-Davidson's corporate programs, including various advertising and sales promotion programs; including, at their own expense, co-operative advertising programs, training programs, store design initiatives and parts and accessories bookings. [s . C.4]
11) Dealers must enter into a license agreement to use Harley-Davidson's trademarks, trade names and service marks. [s . C.5]
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-6-12) Dealers must agree that all of their orders are "subject to acceptance or rejection by Deeley in whole or in part." [s. D.2]
13) Dealers must abstain, under threat of tennination upon reasonable notice, from obtaining new Harley-Davidson products for resale from any entity other than Deeley, a related finance company, or any other authorized Canadian Harley-Davidson retailer, without the prior written consent of Deeley, from being involved with the manufacture or distribution of goods that compete with Harley-Davidson products, or from selling Harley-Davidson products to any customer where the retailer knows or should know that the products are being purchased for the purpose of resale, or whom the retailer knows or should know intends to export or allow the products to be exported. [s. D.3(i), (ii), (iii)]
14) Dealers must "provide and maintain at all times sufficient networking capital and retail and wholesale credit facilities," to properly fulfill their responsibilities. [s. D.5]
15) Dealers must maintain "adequate facilities for repairing and servicing Harley-Davidson products and shall have available a reasonable supply of spare Harley-Davidson parts for such products." [s. F. l]
16) Dealers must send eligible employees to service schools authorized by Deeley on terms and under the rules and regulations from time to time established by Deeley. [s. F.4]
17) Dealers must provide Deeley with complete and accurate financial reports of its business operation on a yearly basis; as well as any other infom1ation required by Deeley to ensure that the dealer has maintained the required minimum level of service required under the retailer agreement. [ s. G. l]
18) Dealers must provide Deeley with inventory reports on a bi-weekly basis. (s. G.2] 19) Dealers must insure, at their own expense, all Harley-Davidson products for loss and damage from the moment that title in such products is transferred to the dealer until the time that such products arrive at their location. Dealers must also maintain comprehensive general liability insurance thereafter, and certificates of insurance evidencing such insurance must be provided to Deeley. [s. G.5]
20) Dealers must maintain and use a computer system that pem1its direct communication between the dealer and Deeley. [s. G.6]
18. The distribution of Harley-Davidson products through authorized Harley-Davidson dealers therefore involves a complex network of contractual rights and obligations between four separate parties: the dealers themselves, Deeley's, the financing company through which the dealers purchase motorcycles and Harley-Davidson U.S., which manufacturers the motorcycles,
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- 7 parts and accessones, and owns the relevant trade marks. This was acknowledged by Mr. Quinlan during his cross-examination:
Q: Mr. Quinlan, this agreement sets out the terms under which you're entitled to purchase the Harley-Davidson products for resale, correct?
A: Yes. Q: And it's all of those tem1S, right? A: Yes, it's quite a document, yes. Q: You can't just take one part of it and say well, those are the terms? You've got to take the whole document, right?
A: I think we did. Q: And you'd agree with me, sir, that it's not necessarily a simple document? A: It's more than what's needed but it's not simple, no. Q: In fact, in terms of your ability to function as a dealership, it's not simply confined to your relationship with Deeley's, right?
A: You'll have to repeat it. Q: Let me back up a bit. You've got this agreement with Deeley's, correct? A: Yes. Q: You have the licence agreement where Deeley's is contracting on behalf of Harley-Davidson U.S., correct?
A: Yes. Q: You have your finance agreement with the finance company, right? A: Yes. [ ... ] Q: So we've got at least four parties that are involved with the sale of the Harley-Davidson products, don't we, Mr. Quinlan?
A: That's quite a complicated process to run a dealership. Quinlan Cross-Examination pp. 82-83.
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- 8 -E. Allocation of Motorcycles 19. As noted above, all Harley-Davidson motorcycles are built with long production lead times. Deeley orders motorcycles on an annual basis and then distributes the motorcycles it receives from Harley-Davidson throughout its network of dealerships on an allocation basis
Second Green Affidavit at para. 21. 20. Deeley's order planning process for a given model year of Harley-Davidson motorcycles commences approximately twelve months before they are produced. Early in each calendar year, based on consultations with regional sales staff and its dealers, Deeley locks-in the number and type of motorcycles that will be required for the upcoming model-year and confirms its order with Harley-Davidson in the United States. Once Deeley's order is placed, its ability to obtain additional motorcycles is very limited.
Second Green Affidavit, para. 22. 21. Over the course of the year, depending on circumstances and customer demand, motorcycles may be transferred from one dealership to another. Such determinations are made on the basis of customer demand.
Second Green Affidavit, para. 23. 22. Deeley has already locked in the number of motorcycles it will be ordering from Harley-Davidson in the United States for the 2005 model year. Deeley has no right to more motorcycles. The only way it can obtain more motorcycles is if the factory agrees to supply it with them. It is not obliged to do so. As Bremner Green testified in his cross-examination:
A: We have agreed on a number with the factory for the '05 model year, which we talked about.
Q: That's the number you gave me earlier? A: That 10,900 I think was the number I gave you. Q: You have agreed with the factory that you will take that number of units? A: Right. Q: Can you take more? 21308271.6
- 9 -A: The factory's annual national production plan is basically put to bed. They have worldwide markets that they need to look after. They are still in a position where they have more demand than they have supply, so we do all of our negotiations up front, we make the best guess we can for our marketplace and that's the number that we have.
Q: Have you ever taken more motorcycles from Harley-Davidson in the United States than the number that you locked in?
A: This year would be a good example. In the 'OS model year, through some late negotiations with the factory, we got another 300 units. It was late in the process. In fact, we just got that about a month and a half ago. And those units - -
Q: So just let me understand. So you got that through negotiations with the factory about a month and a half ago?
A: We finalized, they made the decision about a month and a half ago. Q: Okay. So that would take us to mid-July? A: Yeah, right in around the new model announcement meeting. Q: Okay. A: And the issue there was mix. We have been after the factory for some period of time to give us products that reflect more of what the market demands as opposed to what the factory can produce, and what I mean by that is that we don't always get the I 0,900 motorcycles in the mix that we think our customers want. We're short of some and a little long on others. And as they've been pushing us to increase our share, we've been going back at them and asking for products in a better mix, and so these 300 units that we were recently made aware of made available to us were in the Touring bikes and the Sportsters.
So we got 300 extra motorcycles in those two families only and the intent is to then spread those out to the other retailers. They do not reflect the full depth and breadth of our product line. They are simply kind of, I would call it, a mix enhancer.
Cross-Examination of Bremner J. Green, dated August 30, 2004, at 69-71 ("Green Cross-Examination")
23. In cross-examination on his affidavits, Jim Quinlan recognized the complexity of the allocation process, and that it was detennined over a long-term period:
Q: Mr. Quinlan, you're quite aware of how the allocation process is operated on a year-by-year basis, aren't you?
A: Yes. Let me - no, I don't see the justification in how it's done, but I know how - I !mow how it's done but I don't see the justification in how it's done.
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- 10 -Q: You may not like the results but you know how the process works? A: Yeah, it's pretty one-sided, yeah. Q: In tenns of what you don't know, what you don't know is, you don't know how many bikes the dealership in Barrie or the dealership in Sudbury gets?
A: I do based on verbal information received from both dealerships. Q: You don't know that from Deeley's, right? A:No. Q: If the other dealers tell you, you know. But otherwise, unless they're telling you, you don't have that information, right?
A: Not in writing, no. Q: And Deeley's doesn't publish a list saying okay, we've got 11,000 bikes for the country and here's our 60 or 70 dealers and here's how many each one of those gets, right?
A: That's correct. Q: Okay. Now, just in tem1s of the allocation process over the course ofa year, the process is that Deeley will speak to you about how many bikes you want for the coming year, right?
A: I think they more or less set it. They don't speak to us. They just say this is what you're getting and that's the final - I've never asked. Or they came up once and requested how many bikes you think you'll sell five years down the road, I gave a number so that they could do their forecasting. But we never - we were never asked how many would you like this year, and it was pre-set prior to the new model announcement meeting. It always was.
Q: The new model announcement meeting is the meeting that's held every year to talk about the upcoming model year, correct?
A: Yes. Q: And this year's meeting was in the United States in San Diego? A: Yes. Q: You weren't there at that meeting, correct? A: I wasn't invited. Q: And in tem1s of the meeting the year before, that equivalent meeting was in Las Vegas, correct?
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- 11 -A: Chris [Mr. Quinlan's son, Chris Quinlan] went. Q: And that's typically a meeting that's held in the month of July, right? A: Yes. Q: Because the model year for the new year starts August 1 51 , right? A: Yes. Q: Typically. A: July-August. I mean, it does run into August in some years but-Q: So for the '05 model year for example, that would start in approximately the beginning of August of this year, 2004.
A: Yes. Q: Right? A: Yes. Q: All right. Now, in terms of the allocation that in the past you've had as an authorized Harley-Davidson dealer, you're aware that that number is fixed sometime in advance, aren't you?
A: Yes. Q: It goes back as far as, say, March of the year, so let's look at model year 2004, so that would start being in the stores the beginning of August 2003, right?
A: Yeah, they would start arriving, maybe a couple, the first week of August. Q: I guess I'm putting myself in knots. 2003 and 2004 were not typical model years, were they?
A: No, they had a 14-rnonth production in '03 so it threw everything for a loop. Q: Ten months in '04, right? A: That's right. Q: Let's just say in a typical year the allocation would be fixed for you by about March of the calendar year?
A: I don't know that. We didn't get that information until August, the 1' August.
Q: Okay. In tenns of the order, Deeley has to put an order into the factory? 21308271.6
1 of
- 12 -A: Yes, they put an order in probably prior to that but I'm sure they do. All factories need lead time, six months to a year lead time.
Q: And that's something that you're aware of, right? A: I am aware of that. Q: And in terms of your individual allocation as a dealer, you're allocated so many bikes in the various motorcycle families, right?
A: Yes. Q: And within those families you can choose what particular models of bikes you're going to select?
A: Yes. Q: So it's not a situation, is it, where you can say I want all of one particular family of bikes, so you've got to pick or you've got an allocation that is spread over all five families, correct?
A: All the bikes, yes. Quinlan Cross-Examination, pp. 84-89. F. Terms of Sale 24. In light of the limited allocation process described above, Deeley's retailer agreements provide Deeley with a wide discretion to accept or refuse orders for motorcycles, parts or accessones. This was acknowledged by Mr. Quinlan in his cross examination:
Q: In terms of the ordering process and what Deeley's agreed to do under this agreement, sir, can I take you to section D [of the retailer agreement] which is entitled "Orders and Terms of Sale." I look at paragraph number l, purchase and sale, in it Deeley agrees to sell to you either directly or through a wholesale finance company, is that the wholesale finance company the Transamerica that you referred to earlier?
A: Yes. Q: Okay. And it talks about, if you go to the last line of the page, it says. " ... such Harley-Davidson products as Deeley may have available from time to time."
Do you see that? MR. RUETER: Sorry, you're ahead of me. Where are you? 21308271.6
- 13 -BY MR. WOODS: Q: Page 6, the last line. Just to take a run at it -A: It goes over the next page here. Q: " ... as retailer may order during the terms of this agreement for resale to the public such Harley-Davidson products as Deeley may have available from time to time."
Do you see that? A: Yes. Q: Also paragraph 2: "Execution of Orders: All orders by retailer including orders made through finance company are subject to acceptance or rejection by Deeley in whole or in part."
Do you see that? A: Yes. Q: So you have agreed to a contract where Deeley has the final say in terms of whether it fills any of your orders, correct?
A: That's why I signed it under duress, yes. Q: But that's what the agreement provides. A: It's right here on paper, yes. You must have written this one. Q: The last couple of lines of this pa1ticular paragraph, sir, four lines up- actually why don't I take the full sentence. The last full sentence in the paragraph, paragraph 2 it says:
"Fmthermore, during any period of shortage of any Harley-Davidson products due to any cause whatsoever, Deeley shall have the exclusive right to allocate Harley-Davidson products to retailer and all other retailers and customers based upon such criteria as Deeley may establish in its sole and absolute discretion from time to time notwithstanding anything herein to the contrary."
Do you see that? A: Yes, I do. Q: That was part of the agreement too? 21308171.6
- 14 -A: It's all in there, yes. Q: Also I'm going about this a bit backwards, but the previous sentence to that says that:
"Nothing in this agreement will obligate Deeley to deliver to retailer any pmiicular number, type or assortment ofHarley-Davidson products."
See that? A:No. Q: It's about, if you stmi at the top of the paragraph -A: Yes. Q: -- six lines down from the top of the paragraph it starts with the word "Nothing."
A: Yes, I see that. Q: So in terms of this agreement, it says that Deeley has no obligation to deliver to you any particular number, type or assortment of Harley-Davidson products, correct?
A: Yes. Q: And you agreed to that, didn't you? A: Under duress, yes. Q: The duress was if you wanted to be a dealer you had to sign the agreement for the full package?
A: That's the way it worked. That's why we signed the agreement. MR. RUETER: I think they call it a contract of adhesion. THE DEPONENT: Yeah, it's pretty one-sided. I think there was a meeting on this with the dealer association m1d we all agreed and petitioned Deeley's to maybe change it around a little bit to make it a little more two-sided rather than one-sided. There wasn't much response from the other side. So -
BY MR. WOODS: Q: So as a group you tried to negotiate the tenns of the contract? A; Yeah. 21308271.6
- 15 -Q: All right. A: Yes. Q: And at the end of the day you signed it, right? A: That's correct. Q: And you've operated under the terms of that contract since 200 I, right? A: Yes. Q: Actually, I guess even before 2001, 1999? A: 1999. Q: Right? A: That's correct. Q: So for the last five years, that's the terms under which you've contracted with Deeley, correct?
A: Yes. Q: So when you talk of the usual trade ten11s, this is part and parcel of that, right? A: That's correct. Quinlan Cross-Examinatio11, pp. 52-57. G. Deeley Decides not to Renew Quinlan's Retailer Agreement 25. For valid business reasons, Deeley has decided not to enter into a new retailer agreement with Quinlan's. Deeley's Vice President and General Manager, Bremner Green, described the decision when cross-examined:
Q: Paragraph 16 [of Second Green Affidavit] says: Deeley's business plan no longer contemplates providing Harley-Davidson products to Quinlan's, and you're saying that that was a meeting, not a written document, and tell me when was the first time, the first meeting that Deeley' s had in which you considered a business plan that contemplated no longer providing Harley-Davidson products to Quinlan's?
A: The final decision on that would have been kind of late fall '03 wherein we met with the district manager who is responsible for the market area, we met with the sales director, with Malcolm who is the president. We reviewed the results of the market study that was undertaken.
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- 16 -Q: Can you produce that market study to me, please? A: I don't have it here. Oh, you have one? MR. WOODS: I have my copy. (Handed). BY MR. RUETER: [ ... ] Q: Okay. I'll take a moment to take a look at it in a minute but let's just finish your answer to this question. So you considered this market study. Let's just take a look and see if there's a date on this market study. May 2002, that's the date of it?
A: Obviously. Q: So you considered this market study, and this market study is specifically concerning Quinlan's, is it?
A: The Quinlan's market area. Q: I see. And what did you consider to be the Quinlan's market area? A: I think it's defined in there. Q: Okay. Tell me where it is. A: Okay. It would be - - I have to say this, right? It would be the area defined by this boundary here on the map (indicating).
Q: So it's an area that includes Parry Sound to the west up to Magnetawan on the north-west, correct?
A: Yes. Q: And if you look on Highway 11, it's defined north up to - -A: South River, isn't it? Q: South River, yes. And in the south to the Rama First Nations Reserve and the Severn River just above Orillia?
A: Okay. Q: It goes east into Halliburton/Minden/Stanhope area? A: Yes.
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- 17 -Q: So this document was prepared May 2002, and when did you first meet to consider it?
A: You asked me or I guess when I answered you, I said that our last meeting and the decisioning on this took place in late '03.
Q: I see. A: The sales team had been dealing with it off and on for a period of time. They came in with their recommendations on it later in '03.
Q: Is it possible that that decision was made earlier than late '03? A: I guess to answer that question, we had been discussing for some time whether or not Huntsville was the right market area for Quinlan's to be in and that had been a conversation off and on amongst ourselves and with Jim for some time.
Typically what we do is wait for a market study to get some objective factual based infonnation with which to finally make a decision about what we are or not going to do for a particular market, and how developed that market is.
Q: And you got that study in this report that you've produced to me dated May 2002?
A: Conect. Green Cross-Examination at pp. 58-63. 26. Deeley's decision was communicated to Quinlan's by letter dated December 9, 2003. In its letter, Deeley informed Quinlan's that it would not be offering Quinlan's a new retail contract or an extension of its current retailer agreement, which expired on July 31, 2004, and that all rights granted under the retailer agreement to use the Harley-Davidson trademark and trade names would concurrently end upon expiry of the retailer agreement.
First Green Affidavit at para. 4. First Quinlan Affidavit, Exhibit "D".
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- 18 -27. Although there were discussions after December 9, 2003, at no time did Deeley ever suggest that it was prepared to renew Quinlan's agreement to continue to supply it with new 2005 model year motorcycles beyond July 31, 2004.
28. Deeley had no obligation to enter into a new retailer agreement with Quinlan's or to extend the retailer agreement following the expiry of Quinlan's previous agreement. Mr. Quinlan himself acknowledged this when cross-examined on August 31, 2004:
Q: Can you point me to anything in the agreement where it says that Deeley must renew your contract?
A: No, no, no. I said the agreement is pretty one-sided. Q: So the agreement does not require Deeley to renew? A: It's a pretty one-sided agreement. Q: The agreement does not require Deeley to renew, right? A: Correct. Second Green Affidavit at para. 10. Quinlan Cross-Examination, pp. 117-118. H. Tile Section 75 Application 29. On or about July 5, 2004, nearly seven months after first being notified of Deeley's intentions, Quinlan's commenced an application under section 103.1 of the Competition Act for leave to bring an application under section 75 of the Competition Act for an order requiring Deeley to "accept [Quinlan's] as a customer of Harley-Davidson products on the usual trade terms."
30. Deeley filed responding materials on or about July 22, 2004. In its responding materials, Deeley took the position that the market definition proposed by Quinlan's and the credibility issues raised by Mr. Quinlan's affidavit evidence were such that the facts pleaded by Quinlan's could not support a successful section 75 application, and that leave to bring the application should therefore be dismissed.
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- 19 -31. For its section 75 application to succeed, Quinlan's must demonstrate that: (a) Harley-Davidson is a separate product for the purposes of section 75 because Harley-Davidson articles occupy "such a dominant position" in the market as to "substantially affect the ability of a person to carry on business in that class of articles unless that person has access to the article so differentiated"
(b) Quinlan's is substantially affected in its business or is precluded from carrying on business due to its inability to obtain adequate supplies of Harley-Davidson products anywhere in a market on usual trade tem1s,
(c) Quinlan's is unable to obtain adequate supplies of the product because of insufficient competition among suppliers of Harley-Davidson products in the market,
(d) Quinlan's is willing and able to meet the usual trade terms of Deeley,
(e) the Harley-Davidson products are in ample supply, and (f) the refusal to deal is having or is likely to have an adverse effect on competition in a market,
32. On August 4, 2004, Tribunal Judicial Member, Simpson J. granted Quinlan's application for leave, noting in her order that Quinlan's had established that a section 75 order could issue.
I. The Nature of the Interim Order Sought 33. Quinlan's seeks an order of the Tribunal requiring Deeley to continue to provide Harley-Davidson products to Quinlan's on the "usual trade terms" for an indefinite period of time, pending the Tribunal's decision on the merits of Quinlan's section 75 application. On cross-examination, Mr. Quinlan described the relief sought in the following manner:
Q: Well, you did swear an affidavit, Mr. Quinlan, where you said that you required Deeley's to continue to accept Quinlan's as a customer for the supply of Harley-Davidson products on its usual trade terms. What did you have in mind when you said that? It's paragraph 27 of your first affidavit.
A: No change in the status of our relationship or dealings prior to July 31 ". In other words, carry on business as usual.
Q: In other words, in essence you continue to be an authorized Harley-Davidson dealer under the tem1s of the Retailer Agreement?
21308271.6
- 20-A: Yes. Quinlan Cross-Examination, p. 18. J. Quinlan's Current Operations 34. Notwithstanding the non-renewal of its retailer agreement with Deeley, Quinlan's continues to operate today. It is an authorized Honda dealer and sells Honda motorcycles and accessories. It also sells used motorcycles and other recreational vehicles and has, in the past, sold snowmobiles.
Quinlan Cross-Examination at 23, 35 35. In his first affidavit, Mr. Quinlan swore that, in every year for the past 5 years, Quinlan's sales of Harley-Davidson products constituted exactly 64.9999% of the company's total sales. Quinlan's did not provide any details relating to this proportion of its sales attributable to Harley-Davidson, and on cross examination, Mr. Quinlan admitted that he had little knowledge of how the divide between Harley-Davidson and other sales figures had been calculated. Although not stated to be second hand information in Mr. Quinlan's affidavit, the information actually came from Quinlan's bookkeeper, Sean Martin, and not Mr. Quinlan. Mr. Quinlan was unable to explain how the figures were calculated:
Q: Sure. Taking you back to your affidavit, and if you could just keep out Exhibit number 2 which are those 2003 financials, if I go to page 4 of the financials and paragraph 9 of the affidavit, I think we passed through this a little earlier on today, but on page 4 of the financials, the first line is sales and there's a figure of 5.2 million plus, and that's the same figure in paragraph 9 of the affidavit. Right? For 2003.
A: Um-hmm. Yes. MR. RUETER: Yes, it is. BY MR. WOODS: Q: And then the same thing applies for 2002, correct? A: Yes. Q: And I think your counsel identified that with the 2001 financials that we marked as Exhibit number 3, the figures were close but not quite, 2001 sales is 5.021 million and you've got 5.017 million in the affidavit. Yes?
A: Yes. 21308271.6
- 21 -MR. RUETER: But the number for 2000 is identical. BY MR. WOODS: Q: Right. A: I can't answer what happened there. Scott, I'd have to ask him what happened. Q: Okay. And in looking at your affidavit in that same chart we were looking at, the Harley-Davidson number there -
A: Yes. Q: -- that's nowhere to be found in the financial statements, correct? A: No, it's not. Q: Now, you said that you've got a bookkeeper for the company. That's Scott Martin who is the person?
A: Yes. Q: I take it that the company maintains the nom1al set of accounting records that businesses do?
A: Yes. Q: So you must have a general ledger? A: Yes. Q: And that would actually break out each individual financial transaction for the company, right?
A: Yes. Q: And in terms of its organization, is it organized in a way that all the Harley-Davidson products are in some accounts and all of the Honda products, for example, are in another account?
A: Yes. Q: And in terms of the number on page 6, paragraph 9, for Harley-Davidson product sales, is that number there a number that we would be able to find in the general ledger accounts?
A: We should be able, yes. Q: And which ones would that number consist of then? 21308271.6
- 22 -MR. RUETER: Well, do you know here and now today? THE DEPONENT: I really don't know here and now today MR. RUETER: I think this information was obtained from the bookkeeper. We can provide you, if you like, with the line item entries and the amounts that constitute those numbers.
MR. WOODS: Let me think about that. BY MR. WOODS: Q: So in terms of that number, the number comes from the bookkeeper, correct? A: That number that's on column three -Q: Yes. A: -- is a percentage of column two. Q: Okay. So is it from the bookkeeper or not? A: Well, if you take 65 percent of52, 5.2 MR. RUETER: I may have misunderstood there. I may have wrong information. THE DEPONENT: I would have to check with the bookkeeper to find out exactly what the sales were.
BY MR. WOODS: Q: Where did the number come from that's in your affidavit, sir? A: I got that number from the bookkeeper. Q: Okay. So the bookkeeper gave it to you? A: Yes. Q: That's not your number, that's his number? A: That's c01Tect. Q: And you don't know as you sit here today how he came up with that number? A: He did not show me on hard copy, no. Q: He just gave you the number? A: Yes. 21308271.6
- 23 -Q: And that's true also of the years 1999 through 2002 for that same column, Harley-Davidson product sales?
A: I'd have to go back and ask him to show me the exact copies. Q: Again, that number came from the bookkeeper? A: Yes. Q: And you didn't get the back-up for the number? A: No, I did not. Quinlan Cross-Examination, pp. 75-80. 36. Moreover, the financial statements produced by Quinlan's fail to establish that the company will be put out of business in the event of a temporary halt in its ability to obtain Harley-Davidson products. As Mr. Quinlan admitted on his cross-examination, Quinlan's disclosure on this point was quite limited:
Q: So just in terms of your current financial situation, sir, you haven't produced any further updated financial statements, correct?
A: No. correct. Q: You haven't produced any bank statements that substantiate what you're sitting on by way of money in the bank, right?
A: Correct. Q: You haven't produced any of your accounting records, correct? A: Correct. MR. RUETER: He's produced his accounting records. We provided you with the financial statements and you've also marked a financial statements. He did testify that his 2004 financial statement is still with the auditors and hasn't been completed or it's with the accountants and hasn't been completed.
BY MR. WOODS: Q: You haven't produced the general ledger, correct? A: I wasn't aware we were asked for a general ledger. Q: The question was you haven't produced it. That's right, you haven't? A: Correct. 21]08271.6
- 24 -Q: The only financial records you've produced thus far are the two sets of financial statements that your counsel gave me this morning, right?
A: Yes. Q: And based on those financial statements, you had essentially 246,000, actually less than that, $180,000 worth of debt at that time, correct?
A: Yes. Q: And you had in fact retained earnings in the company of some $234,000, right? A: Yes Quinlan Cross-Examination, pp. 187-188 37. Even with this limited disclosure, however, Quinlan's financial statements indicate that it possesses significant assets upon which it could rely in the event of a temporary loss of sales. For instance, Quinlan's most recent financial statements indicate that as of year end May 31, 2003, the building and land housing Quinlan's store was valued at over $500,000.00 and had a mortgage of only $35,600.00 payable against it, which was budgeted to mature in 2004. On cross-examination, Mr. Quinlan indicated that since the time of the 2003 financial statements, additional financing in the amount of $450,000.00 had been obtained by mortgaging the building and that $330,000.00 of that amount remains in the company today.
Quinlan Cross-Examination, pp. 180-3, 192-3. 38. Finally, on his cross-examination, Mr. Quinlan acknowleged that Quinlan's had been approached by other motorcycle manufacturers expressing an interest in having Quinlan's sell their products and that Quinlan's had not begun to consider the alternative sources of income that could be obtained in order to avoid irreparable harn1:
A: He's [Mr. Blake Clark, Honda's Central Zone Manager] aware of our situation, as is other manufacturers are.
Q: All right. So you've spoken to other manufacturers as well. A: No. I think it's pretty well common knowledge. l haven't spoken to other manufacturers but people speak amongst themselves.
Q: Um-hmm. All right. A: The only reason why I know this is because they come in our store, other people come in our store, other, you know, sales reps.
21308271.6
- 25 -Q: For other products? A: Yes, and ask how it's going. Sure. Q: I take it that they've been approaching you about being dealers for their products as well?
A: Again, I'm not making those decisions right now. We're looking after this issue first.
Q: That's not the question I asked you, sir. What I asked you was they've come to you and asked you about becoming dealers for their products?
A: They come in all the time. Q: Sir, just listen to the question and answer it. Have they approached you about becoming dealers for their products?
A: Date? Q: Pardon me? A: When? Q: Any time within the past year? A: Yes. Q: Who has done that? A: Arctic Cat, Suzuki, Yamaha. We run a fine retail establishment. We are in a good location. We have an excellent reputation. We do a quality job-
Q: So-A: -- with the customer. So -Q: Other manufacturers are interested in adding you to their network? You're nodding your head?
A: Yes. Q: And at this -A: But you have to remember, they're always selling. All companies are always out to sell to grow their market area, so that's not uncommon. This last year has not been any different than previous years.
Q: So if Harley-Davidson is out of your store, you can talk to these manufacturers about putting their product in?
21308271.6
- 26-A: I don't know. I don't lmow whether we would be able to change the business over.
Q: They have approached you about doing that though? A: They have approached me. Quinlan Cross-Examination, pp. 123-125. K. Other Harley-Davidson Dealers Continue to Operate 39. The Harley-Davidson dealers in Barrie, Owen Sound, Lively, Pembroke, Oshawa, Richmond Hill, Peterborough and other areas of Ontario already compete with one another in the area cmTently serviced by Quinlan's. These dealers will continue to provide a full range of sales and service choices to motorcycle customers in the areas previously serviced by Quinlan's. Mr. Quinlan acknowledged when cross-examined that all these dealers continue to operate today.
First Green Affidavit at para. 19. Quinlan Cross-Examination, at 189. 40. In fact, for many of Quinlan's customers one or more of the above dealers are within a comparable distance to that which they already travel to Quinlan's. Quinlan's confirmed this in its application materials, in which it claims that it sells motorcycles to customers in the geographic area that includes Huntsville, Bracebridge, Gravenhurst, Bala, Parry Sound, and North Bay, and that its market extends south to Orillia, north to North Bay, east to Algonquin Park, and west to Georgian Bay. Taking those statements at face value, Quinlan's customers are prepared to travel considerable distances to purchase Harley-Davidson products and have their motorcycles serviced.
First Green Affidavit at paras. 18, 19. 41. In addition to the Harley-Davidson dealers who can service Quinlan's existing customers, the area currently served by Quinlan's is well served by dealers of competing brands of motorcycles. Further, this area is and will continue to be well served by competing vendors of parts/accessories and apparel, and independent service providers.
First Green Affidavit at paras. 20, 23.
2130827!.6
- 27 -PART II - ISSUES AND THE LAW A. The Test for Injunctive Relief 42. The issue raised by this application is whether an interim mandatory injunction, requiring that Deeley continue to carry on business with Quinlan's under its "usual terms of trade", should be ordered pending this Tribunal's determination of Quinlan's section 75 application.
43. The test for granting interim relief under the Competition Act is set out at section 104 of the Act, which provides that:
104(1) Where an application has been made for an order under this Part, other than an interim order under section 100 or 103.3, the Tribunal, on application by the Commissioner or a person who has made an application under section 75 or 77, may issue such interim order as it considers appropriate, having regard to the principles ordinarily considered by superior courts when granting interlocutory or injunctive relief. [emphasis added]
Competition Act, R.S.C. 1985, c. C-34, as amended, s.104(1). 44. Of particular note in section 104(1) is the reference to interim orders being granted "having regard to the principles ordinarily considered by superior courts when granting interlocutory or injunctive relief." While Quinlan's is correct to identify the "tripartite test" of RJR-ivfacdonald as the governing test for the granting of interlocutory relief, this does not end discussion of the proper test. This is because what Quinlan's is seeking is not a simple negative injunction. Quinlan's is seeking a mandatory injunction, requiring Deeley's to take and carry on, for an indefinite period, a positive action, as opposed to simply restraining a given course of conduct.
45. Because of the drastic and extraordinary nature of mandatory injunctions, the courts have adopted a stricter test. By way of example, in Chatham Centre ivfall Ltd. v. New A1iracle Food ivlart Inc., the Court refused to grant interim relief on the basis that the plaintiff had failed to meet the strict test for granting interlocutory mandatory injunctions:
[O]ne must also recognize what White J. said in Ticketnet C01poration v. Air Canada (1987), 21 C.P.C. (2d) 38 that the test in mandatory injunctions was significantly higher than for negative ones and was to the effect that the judge hearing the interlocutory matter be satisfied to a very high degree that come the trial the resul.t there would be vindication that the order had been rightly granted.
21308271.6
- 28 -See also Bramalea Ltd. v. Canada Safeway Ltd. (1985), 4 C.P.C. (2d) 144 (Ont. H.C.J.) at p. 151.
Chatham Centre Mall ltd. v. New Miracle Food Mart Inc., [1994] O.J. No. 1415 (Gen. Div.) at para 6.
See also: Toronto Brewing and Malting Co. v. Blake (1882), 2 0.R. 175 (H.C.J.) at 183,per Proudfoot J.: "l think there is no doubt of the general proposition that the Court has the right to interfere by mandatory injunction on an interlocutory application, but where that is done the right must be very clear indeed."
Simoni v. Blue Cross ofA tlantic Canada (1999), 184 Nfld. & P.E.LR. 136 (Nfld. S.C. (T.D.)) at 140: applicant must show that the prospect for eventual success at trial is "unusually sharp and clear."
I-Vest Nipissing Eco110111ic Develop1ne11t Corp. v. fVeyerhaeuser Co., [2002] 0.J. No. 4731 (Sup. Ct.) at para. 16: "The test is much more stringent. A mandatory injunction, as is requested in this case, requires a high degree of assurance that the applicant will be successful."
46. In the one repo1ied case which has considered the issue, the Ontario case of Cellular Rental Systems v. Bell lYfobility Cellular Inc., interim relief in the context of a section 75 application was held to be mandatory, and therefore subject to the stricter standard.
47. In that case, the Court granted injunctive relief despite this higher standard, but did so only in light of very particular rulings and findings, all of which are distinguishable from this case, including:
(i) a ruling striking out the defendant's affidavit, leaving only uncontroverted evidence before the Court;
(ii) a finding that it was "clearly apparent" on the evidence that without an injunction, the plaintiff would be out of business before any hearing before the Competition Tribunal;
(iii) a finding that there was a "strong probability" that the plaintiff would succeed at trial; and
(iv) a finding that the "almost monopolistic position" of the defendant in its industry was "sufficient to create a special circumstance."
Cellular Rental Systems v. Bell Mobility Cellular Inc. (1994), 56 C.P.R. (3d) 251 (Ont.Gen.Div.), at 6, 7 (QL); (Note that the decision of Montgomery J. was overturned on appeal on jurisdictional grounds.)
48. Accordingly, in order to meet the test for mandatory injunctive relief, Quinlan's must show that there is a high level of certainty that it will be ultimately successful on its section 75 application, that it is "clearly apparent" that it will be irreparably harmed if no injunction is 21308271.6
- 29 -issued, and that the balance of convenience, taking into account the difficulty in supervising such orders, clearly weighs in its favour. On the evidence before the Tribunal, Quinlan's has failed to do so.
B. Has Quinlan's met the Test for Interim Relief? 49. As noted above, to meet the test for the mandatory injunctive relief sought here, the moving party must provide clear, strong evidence that it will be irreparably banned, that the balance of convenience weighs in its favour, and that it has a strong prima facie case that it will succeed on merits. Quinlan's has established none of those elements.
I. Irreparable Harm 50. Harm is considered "irreparable" when it cannot be quantified in monetary terms or when it cannot be cured by a payment of damages, usually because one party cannot collect damages from another. An interlocutory injunction is not available unless the party seeking the injunction has suffered or clearly will suffer irreparable ham1. Evidence of irreparable harm must be clear and not speculative, with the moving party bearing the onus of establishing that it will suffer actual ham1 that is not compensable in damages.
Syntex Inc. v. Novopharm (1991), 36 C.P.R. (3d) 129 at 135 (F.C.A.). Kanda Tsushin Kogyo Co. v. Coveley, [1997] O.J. No. 56 (Gen.Div.) at 6. Medtronic a/Canada Ltd. 1•. Armstrong, [1999] O.J. No. 4860 (Sup. Ct.) at paras 38-39
51. The fact that damages may be difficult to calculate does not mean that irreparable ham1 or immeasurable damages will result.
Islington Village Inc. v. Citibank Canada, (1992] O.J. No. 1970 (Gen. Div.) Weybum Square Developments Ltd. v. Liggett Drug Ltd., (1988] S.J. No. 461 (Q.8.); affd at [1992] O.J. No. 2953 (C.A.)
52. Here, the harm claimed by Quinlan's could be adequately compensated by monetary damages. The loss of a business is a type of loss which can be quantified by a business valuator relatively easily.
21308271.6
- 30-53. There are, in any case, good reasons to question whether Quinlan's will suffer a total loss of its business. In its materials, Quinlan's claims that "65%" of its total sales are derived from the sale of Harley-Davidson products. However, as was noted above, Mr. Quinlan could not substantiate this claim. Moreover, even if the claim were substantiated, Quinlan's has failed to provide any supporting evidence for its claim that it "cannot survive on its remaining 35% of revenue from the sale of Honda products." Again, as was set out above, the limited financial information provided by Quinlan's suggests that it has substantial assets upon which it could rely if it were temporarily (if ultimately successful) prevented from selling Harley-Davidson products.
54. In addition, Quinlan's has failed to take any steps to mitigate the harm that may be caused to its business by Deeley's decision, within its contractual rights, not to offer Quinlan's a new Retailer Agreement. Potential mitigating steps could include the expansion of its Honda sales, or the addition of other brands of motorcycles to its inventories. Mr. Quinlan himself admitted not only that there were other brands of motorcycles available, but that many of those manufacturers had already approached him about taking on their product. Mr. Quinlan stressed that this was not surprising given what he said was his good reputation and location. Considering this evidence, Quinlan's will not be irreparably harmed if its application for interim relief is denied.
2. Balance of convenience 55. Under the balance of convenience test, Quinlan's must establish that it will be more inconvenienced if no injunction is ordered than Deeley will be inconvenienced by the order. Where, as here, the order sought will be exceedingly difficult for the parties to follow and for the tribunal to supervise, and where Quinlan's, by its delay in commencing these proceedings has allowed Deeley to make decisions that will be difficult to undo, the balance of convenience weighs in favour of dismissing the application.
56. The reluctance on the part of courts to grant mandatory injunctions has arisen as a result of several factors, the most important of which has been a reluctance on the part of the courts to provide ongoing supervision of a business that is ostensibly being run as a going concern, but
21308271.6
- 31 which in reality must comply with the terms of the order in fear that a charge of contempt may be brought.
Co-operative Insurance Society ltd. v. Argyll Stores (Holdings) ltd., [1997] W.L.R. 898 (H.L.), at 902-3.
Islington 17illage Inc., supra IVeybum, supra at 3-5 (QL). 57. The principles underlying this reluctance to issue mandatory injunctions were enunciated by Lord Upjohn in lYforris v. Red/and Bricks Ltd. (in language that was later adopted by Canadian Courts)
The grant of a mandatory injunction is. of course, entirely discretionary and unlike a negative injunction can never be "as of course". Every case must depend essentially upon its own particular circumstances. Any general principles for its application can only be laid down in the most general tenns:
1) A mandatory injunction can only be granted where the plaintiff shows a very strong probability upon the facts that grave damage will accrue to him in the future ... It is a jurisdiction to be exercised sparingly and with caution but in the proper case unhesitatingly.
2) Damages will not be a sufficient or adequate remedy if such damage does happen. This is only the application of a general principle of equity ...
3) Unlike the case where a negative injunction is granted to prevent the continuance or recurrence of a wrongful act the question of the cost to the defendant to do works to prevent or lessen the likelihood of a future apprehended wrong must be an element to be taken into account. [emphasis added]
Red/and Bricks v. Morris (1970), A.C. 652 (I-LL.), quoted in Islington Village Inc., supra at 5-6 (QL).
58. Quoting Maugham L.J. in Fislzenden v. Higgs & Hill Ltd., also referred to the difficulty in defining the scope of an appropriate order:
I should like to observe, in the first place, that I think a mandatory injunction, except in very exceptional circumstances, ought to be granted in such tem1s that the person against whom it is granted ought to know exactly what he has to do.
Fishenden v. Higgs & Hill ltd. (1935), 135 L.T. 128., quoted in Islington Village, supra at 6 (QL).
21308271.6
- 32 -59. The main reason that courts have a difficult time, and therefore avoid, supervising the ongoing operations of business is that:
The only means available to the court to enforce its order is the quasi-criminal procedure of punishment for contempt. This is a powerful weapon; so powerful, in fact, as often to be suitable as an instrument for adjudicating upon the disputes which may arise over whether a business is being run in accordance with the tenns of the court's order. The heavy-handed nature of the enforcement mechanism is a consideration which may go to the exercise of the court's discretion in other cases as well, but its use to compel the running of a business is perhaps the paradigm case of its disadvantages ...
Argyll Stores. supra at 903-4. 60. The potential effects of such superv1s1on, under the heavy-handed enforcement of contempt proceedings, are readily apparent in the case at bar, where the relationship is a complex one involving numerous ongoing rights and responsibilities, and multiple interested parties. If the mandatory injunction sought by Quinlan's is granted, Deeley will be required to continue supplying Quinlan's, against its business interests, for an indefinite period, and in a manner that must, under threat of sanction for contempt, comply with the tem1s of the order.
61. Accordingly, if it is to ensure that it does not run afoul of the order, the parties will be required to consult with the Tribunal on a wide variety of issues that may arise in the course of running its business, including:
(i) The number and model types of motorcycles that Deeley will be required to allocate to Quinlan's.
(ii) The quantity of parts and accessories that must be provided by Deeley's to Quinlan's, and the speed with which such orders must be filled.
(iii) The extent to which Quinlan's must be invited to, or be permitted to participate in, dealer events sponsored by Deeley or Harley-Davidson.
(iv) The extent to which Quinlan's shall be permitted to make use of Harley-Davidson's licensed trademarks.
(v) The extent to which Deeley may be permitted to grade Quinlan's perfmmance and to enforce the perfonnance standards as contemplated by the tem1s of its usual retailer agreements.
21308271.6
- 33 -(vi) The extent to which Deeley will be required to extend credit to Quinlan's, and the tenns upon which such credit shall be provided.
(vii) The extent to which Deeley will be required to accede to any change in ownership of management of Quinlan's.
62. The potential for conflict has already arisen in the period since the Tribunal granted leave. In his second affidavit, Mr. Quinlan alleged that, contrary to Mr. Green's second affidavit, Deeley had refused to supply Quinlan's with parts and had "substantially" failed to fill Quinlan's orders for Harley-Davidson parts and accessories, citing several examples. However, upon cross-examination, Mr. Green indicated that delays in shipping parts sometimes occur, and on his cross-examination, Mr. Quinlan acknowledged that he had not been aware of some shipments that had, in fact, been received by Quinlan's. The situation is only worsened by Mr. Quinlan's apparent distrust and low regard for Deeley, something evident in the gloss he often put on the answers he gave when cross-examined.
Affidavit of Jim Quinlan, sworn August 20, 2004, at paras. 7-13 ("Second Quinlan Affidavit").
Green Cross-Examination, at pp. 20-21. Quinlan Cross-Examination, at pp. 105, 151-153, 160-165. 63. While delays and misunderstandings in shipping orders may be simply part of doing business, once a mandatory injunction is in place, such issues can potentially rise to the level of contempt of court, making the matter very contentious and potentially leading to court action.
64. These questions will inevitably continue to arise if an interlocutory mandatory injunction is ordered in this case. Compliance with such terms, under threat of contempt proceedings, will be virtually impossible. As Lord Hoffu1ann noted in Argyll Stores:
The fact that the terms of a contractual obligation are sufficiently definite to escape being void for uncertainty, or to found a claim for damages, or to pennit compliance to be made a condition of relief against forfeiture, does not necessarily mean that they will be sufficiently precise to be capable of being specifically performed.
Argyll Stores. supra at 905, per Lord Hoffmann.
21308271.6
- 34-65. The obvious drawbacks of such circumstances were also addressed by Lord Hoffmann, who held that:
the defendant, who ex hypotlzesi did not think that it was in his economic interest to run the business at all, now has to make decisions under a sword of Damocles which may descend if the way the business is run does not confom1 to the tenns of the order. This is, as one might say, no way to nm a business.
Argyll Stores, supra at 904. 66. Moreover, in light of the negative implications of a contempt conviction, Deeley will be required to contest any contempt proceedings in a vigorous manner, increasing costs to all parties, and weighing even more on judicial resources.
Argyll Stores, supra at 904. 67. If the order sought is granted, Deeley's will be further inconvenienced by having to do business with a company with which it has determined it no longer wants to work. The situation is again worsened by Mr. Quinlan's attitude towards Deeley's, which is far from conducive to good business.
68. In addition, the balance of convenience is affected by the fact that Quinlan's, after being infonned categorically by Deeley that it would not be offered a new retailer agreement, waited nearly seven months before commencing legal proceedings and seeking this injunction. During that period, Deeley continued to implement its business plan, which did not provide for allocating motorcycles to Quinlan's.
Quinlan's Cross-Examination at pp. 115-116. 69. Because injunctive relief is an equitable remedy, any delay by the applicants is a matter that the Tribunal can consider in exercising its discretion to grant an injunction. This is particularly so when, as here, the delay in bringing proceedings has led Deeley to organize its affairs in a manner that Quinlan's now seeks to undo, thereby causing prejudice to Deeley.
University of Regina Faculty Association v. University of Regina, [ 1999] S.J. No. 389 (Q.B.) at paras. 61-63.
Matheson v. Truro (Town). [1999] N.S.J. No. 146 (S.C.) at para. 22.
21308271.6
- 35 -70. Accordingly. the balance of convenience weighs in favour of refusing Quinlan's motion for an interlocutory mandatory injunction.
3. The Serious Issue Test 71. Finally, when seeking an interlocutory mandatory injunction, an applicant must demonstrate not merely that it has raised a serious issue beyond the frivolous or vexatious, but that it is has raised a prima facie case with a strong, almost certain, chance of success at trial. Given the lack of evidence raised by Quinlan's here, Quinlan's has failed to establish a "serious issue" on this, or any other, standard.
72. To obtain an order under section 75, the applicant must satisfy the Court that all five elements of section 75 have been met. If even one of the five elements is not present, the application must fail, and no section 75 order can issue. Deeley's maintains that Quinlan's cannot satisfy any of the requirements of section 75. For the purposes of this motion, however, it will confine its submissions to two of the five elements.
73. To begin with, Quinlan's has failed to establish reason to believe that it is unable to obtain adequate supply of products in the market. While Quinlan's supporting affidavit asserts that .Harley-Davidson products are "entirely different products", thereby suggesting that the relevant product is ".Harley-Davidson products", it has provided no real evidence to overcome the presumption created by section 75(2) of the Act that an article "is not a separate product in a market only because it is differentiated from other articles in its class by a trade-mark, proprietary name or the like."
Competition Act, s. 75(2). 74. To overcome the presumption created by section 75(2) of the Act, Quinlan's must demonstrate that, to carry on business as a retailer of motorcycles and related products, it is necessary to stock .Harley-Davidson motorcycles and related products.
75. Quinlan's has provided no such evidence. In fact, the evidence is clear that .Harley-Davidson motorcycles and related products compete directly with a wide variety of other brands of motorcycles and motorcycle access01ies. As .Harley-Davidson motorcycles only account for
21308271.6
- 36 approximately 30% of the Canadian sales of heavyweight street motorcycles, they cannot possibly come within the exception to the presumption created by subsection 75(2) of the Act.
First Green Affidavit at para. 8. 76. Even according to its own evidence, Quinlan's sells almost $2 million per year in non-Harley-Davidson products. That in itself makes it clear that it is not necessary for a motorcycle dealership to carry Harley-Davidson motorcycles or products to be successful.
First Quinlan Affidavit at para. 9. 77. Accordingly, Quinlan's has failed to establish that there is any reason to believe that (i) it cannot obtain any motorcycles or motorcycle accessories or, (ii) in the alternative, that Harley-Davidson-brand motorcycles, and Harley-Davidson-brand motorcycle accessories occupy such a dominant place in the motorcycle market as to substantially affect the ability of a retailer of motorcycles and related products to carry on business in the motorcycle market without access to Harley-Davidson products.
78. Furthermore, Quinlan's has adduced no evidence whatsoever that Deeley's non-renewal of its retailer agreement will have an adverse affect on competition. Competing brands of motorcycles such as Suzuki, Honda, Kawasaki and BMW are supplied to motorcycle customers through Quinlan's and other neighbouring retail stores. Harley-Davidson products will continue to be available from authorized Harley-Davidson dealers in Ontario. Accordingly, the non-renewal of the Quinlan's retailer agreement will not likely have any, let alone an adverse effect on competition, as neighbouring retailers will continue to serve customers in the geographic area at issue. Quinlan's itself will presumably continue to supply Honda motorcycles to the market, and possibly other brands of motorcycles.
First Green Affidavit at para 23. 79. As such, there is no reason to believe that a section 75 order could issue on the basis of the facts provided by Quinlan's. If one element of the section 75 test is absent, no order can issue. Here, Quinlan's has failed to provide any evidence that either paragraph 75(l)(a) or paragraph 75(l)(e) could be satisfied.
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- 37 -80. Accordingly, where, as here, the applicant fails to provide any evidence to establish a prima facie case
(i) that the article at issue falls under the exception to the section 75(2) presumption against classifying an article as a separate product solely on the basis of brand differentiation; and
(ii) that competition will be adversely affected in that marketplace, it has failed to establish a basis for issuing an interim mandatory order requiring Deeley to provide Harley-Davidson products on an ongoing and continuous basis believing that the Tribunal could issue a section 75 order. Its application for interim relief therefore fails on this ground.
PART III - ORDER REQUESTED 81. Deeley requests that Quinlan's application for an Interim Order be dismissed with costs. ALL OF WHICH IS RESPECTFULLY SUBMITTED THIS 3rd DAY OF SEPTEMBER, 2004
R. Seumas M. Woods Christopher Hersh Counsel for the Respondent, Fred Deeley Imports Ltd.
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- 38 -SCHEDULE 'A' - LIST OF AUTHORITIES 1. Canada (Director ofI nvestigation and Research) v. Cluysler Canada Ltd. (1989), 27 C.P.R. (3d) 1 (Comp. Trib.)
2. Canada (Director ofI nvestigation and Research) v. Cluysler Canada Ltd. (1991 ), 38 C.P.R. (3d) 25 (F.C.A.)
3. Canada (Director ofI nvestigation and Research, Competition Act) v. Xerox Canada Inc. (1990), 33 C.P.R. (3d) 83 (Comp. Trib.)
4. Cellular Rental Systems v. Bell Nlobility Cellular Inc. (1994), 56 C.P.R. (3d) 251 (Ont. Ct. Gen. Div.)
5. Cellular Rental Systems Inc. v. Bell Nlobility Cellular Inc. (1995), 23 O.R. (3d) 766 (Ont. Ct. (Gen. Div.) Div. Ct.)
6. Chatham Centre AJall Ltd. v. New Niiracle Food AJart Inc., [ 1994] 0.J. No. 1415 (Gen. Div.)
7. Co-operative Insurance Society Ltd. v. Argyll Stores (Holdings) Ltd., [1997] W.L.R. 898 (H.L.)
8. Islington Village Inc. v. Citibank Canada, [1992) OJ. No. 1970 (Gen. Div.) 9. Kanda Tsushin Kogyo Co. v. Coveley, [1997] OJ. No. 56 (Gen. Div.) 10. Laclmer Centre Developments Inc. v. Toronto-Dominion Bank, [1993] O.J. No. 1465 (Gen. Div.)
11. AJatheson v. Truro (Tawil), [1999] N.S.J. No. 146 (S.C.) 12. Medtronic of Canada Ltd. v. Armstrong, [1999] OJ. 4860 (Sup. Ct.) 13. Redland Bricks Ltd. v. Morris and Another (1970), A.C. 652 (H.L.) 14. RJR-NlacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 15. Simoni v. Blue Cross ofA tlantic Canada, [1999] NJ. No. 327 (S.C. (T.D.)) 16. Syntex Inc. v. Novophamz Ltd. (1991), 36 C.P.R. (3d) 129 (F.C.A.) 17. Toronto Brewing and AJalting Company v. Blake (1882), 2 O.R. 175 (H.C.J.) 18. Toulon Development Corp. v. Loblmvs Inc., [1995] N.BJ. No. 219 (Q.B.) 19. University ofR egina Faculty Assn. v. University ofR egina, [1999] S.J. No. 389 (Q.B.)
20. West Nipissing Economic Development Corp. v. Weyerhaeuser Co., [2002] OJ. No. 4731 (Sup. Ct.)
21. Weyburn Square Developments Ltd. v. Liggett Drng Ltd., [1988] SJ. No. 461 (Q.B.) 21308271.6
QUINLAN'S OF HUNTSVILLE INC. And FRED DEELEY IMPORTS LTD. File No: CT-2004-009 Applicant carrying on business as DEELEY HARLEY-DAVIDSON CANADA
Respondent
WRITTEN REPRESENTATIONS OF THE RESPONDENT, FRED DEELEY IMPORTS LTD.
BLAKE, CASSELS & GRAYDON LLP Box 25, Commerce Court West Toronto, Ontario M5L 1A9
R. Seumas M. Woods LSUC #301691 Tel: (416) 863-3876
Christopher Hersh LSUC #43080N Tel: (416) 863-3056
Matthew Horner LSUC #47163B Tel: (416) 863-2356 Fax: (416) 863-2653
Solicitors for the Respondent, Fred Deeley Imports Ltd.
21308271.6
CANADA COMPETITION TRIBUNAL