THE COMPETITION TRIBUNAL IN THE MATTER OF the Competition Act, R.S.C. 1985, c. C-34, as amended. AND IN THE MATTER OF an Application by Quinlan's of Huntsville Inc. for relief pursuant to sections 75, 103.l and 104 of the Competition Act.
BETWEEN: QUINLAN'S OF HUNTSVILLE INC. - and-Respondent APPLICATION FOR INTERIM RELIEF PURSUANT TO SECTION 104 OF THE COMPETITION ACT
TAKE NOTICE THAT: 1. The Applicant, Quinlan's of Huntsville Inc., hereby applies to the Competition Tribunal pursuant to section 104 of the Competition Act, R.S. 1985, c. C-34, as amended (the "Act"), for an Interim Order that the Respondent, Fred Deeley Imports Ltd. carrying on business as Deeley Harley-Davidson Canada, accept the Applicant as a customer of Harley Davidson products on the usual trade terms, forthwith upon issuance of said Order.
2. The person against whom an Order is sought is the Respondent, Fred Deeley Imports Limited. Its address is: 830 Edgeley Boulevard Concord, Ontario Canada, L4K 4Xl
3. The Applicant requests that this application proceed in English. 4. The Applicant requests that documents be filed in paper form. 5. The Applicant will rely on the Statement of Grounds and Material Facts attached hereto and on the Affidavit of Jim Quinlan, duly sworn on June 26, 2004, and such further and other material as counsel may advise and the Tribunal may permit.
DATED at Toronto, Ontario, this 30th day of June, 2004.
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STATEMENT OF GROUNDS AND MATERIAL FACTS The Parties 1. The Applicant, Quinlan's of Huntsville Inc. ("Quinlans"), is a corporation, incorporated under the laws of the Province of Ontario. Quinlans is engaged in the business of selling inter alia Harley-Davidson ("H-D") products including motorcycles, parts, accessories, apparel, and other H-D merchandise at its H-D dealership store located in Huntsville, Ontario. Quinlans is the only H-D dealer in the area and has been an authorized H-D dealer for 17 years.
2. The Respondent, Fred Deeley Imports Limited, carrying on business as Deeley Harley-Davidson Canada ("FDI") is a corporation incorporated in the Province of British Columbia and is established as Ontario company no. 305708, with its principal Ontario place of business in Concord, Ontario. FDI is the exclusive distributor of H-D products in Canada, which are provided through a national network of H-D dealers, of which Quinlans is one. There are no other suppliers of H-D products in Canada. Accordingly, H-D products cannot be obtained from any supplier other than through FDI.
Developing the Market in Quinlans' Area for H-D Products 3. In 1987, Quinlans became an authorized H-D dealership store selling and promoting H-D products in Huntsville, Ontario. FDI would sell H-D products to
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Quinlans on a wholesale basis and Quinlans would then market and resell H-D products on a retail basis to its customers. Through this arrangement, Quinlans continuously developed the retail market for H-D products throughout its market area for the past 17 years.
4. In 1990, Quinlans acquired a large parcel ofland and built upon it a new dealership store, configured and outfitted at the request of FDI to meet the H-D new store concept and marketing image established by FDI for its H-D dealership stores. This was consistent with the long-term plans of FDI and Quinlans to build large, new dealership premises in order to develop and service a larger market area. Quinlans built this store and its H-D dealership business in reliance upon and consistent with the expectations and representations of FDI that the parties were mutually committed to a long-term H-D dealer/distributor relationship.
5. Quinlans invested its efforts and expenditure of significant amounts for development and maintenance of the dealership store, building its H-D dealership business using FDI recommended store configuration and merchandise displays, and purchasing additional marketing displays and other H-D paraphernalia to comply with the numerous programs, standards, and requirements set out by FDI. As part of the continuing stipulations of FDI, Quinlans displayed the H-D logo on its store front and situated H-D paraphernalia in and around the dealership to maximize customer exposure to H-D products. Quinlans was also required at its expense to attend ongoing training
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seminars and to send staff members annually for training programs to learn the H-D way of business. It did so as part of its ongoing "partnership" with FDI as a H-D dealer.
6. Quinlans has also been an authorized Honda motorcycle dealer over the years. H-D products represent 65% of Quinlans' sales and Honda represents 35%. For Quinlans' market area, Honda customers are a more limited group than H-D customers and Honda products are targeted for an entirely different clientele. The H-D product is in a far higher price bracket with very different appearance and performance features than the Honda product line. Over the years, Quinlans would dedicate from 50% to 90% of its floor space to H-D products in accordance with or in excess of the conditions set by FDI.
7. Quinlans' natural geographic market includes towns such as Huntsville, Bracebridge, Gravenhurst, Bala, Parry Sound, North Bay and the many villages and rural communities located in between. Over the course of its 17 years as a H-D dealer, Quinlans developed significant good will and a substantial market for H-D products in and around Muskoka stretching south to Orillia and north to North Bay; east to Algonquin Park and west to Georgian Bay (collectively referred to as the "Area").
8. The volume ofH-D products sold by Quinlans increased year over year and during its most recent fiscal year, Quinlans sold 120 new H-D motorcycles, recording the highest number of sales in its history, and one of the highest of any of FD I's dealers outside the Greater Toronto area. Quinlans' sales of H-D products by dollar value and as a percentage of its overall sales for the past five years are reflective of its successful
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efforts to develop the market and good will for H-D products, as shown in the following chart:
Fiscal Year Total Sales ($) 1999 $3,615,271.00 2000 $4,162,678.00 2001 $5,017,867.00 2002 $5,705,332.00 2003 $5,212,223.00 FDl's Refusal to Deal 9. From time to time FDI presented dealer agreements or renewal or extension agreements for Quinlans to sign, which it did. In June of 1999, FDI submitted a new form of Dealer Agreement to Quinlans for execution, renamed "Retailer Agreement". The substance of the Dealer Agreement remained similar to the previous Dealer Agreements signed over the past 17 years. These agreements were not negotiated between the parties, but were contracts of adhesion, the terms of which were stipulated by FDI. The various dealer agreements stipulated FDI's approval for many material aspects of Quinllans' dealership business. Each Dealer Agreement or renewal contained a stated time duration and FDI's invariable practice was to renew or extend the agreement each time, either by a brief extension agreement or by submitting a new dealer agreement for signature. The June 1999 Dealer Agreement had a stated term to July 31, 2001. Jim
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H-D Product Sales H-D Product ($) Sales/Total Sales (approximate%) $2,349,926.00 65% $2,705,740.00 65% $3,261,613.00 65% $3,708,465.00 65% $3,387,944.00 65%
Quinlan :;igned the Dealer Agreement on June 9, 1999. Consistent with past practice as the end of the term approached, the Dealer Agreement was extended by a written "Retailer Extension Agreement" dated July 17, 2001, which extended the Dealer Agreement to July 31, 2004.
10. Unil recently, Quinlans had enjoyed an excellent relationship with FDI. This changed when FDI learned that the principals of Quinlans, Jim and Lynne Quinlan, participa:ed with other H-D dealers in the establishment of the H-D Dealers' Association for Ontmio (the "Association") in or around the summer of 2001. The purpose of the Associat on was to pursue the collective interests and concerns of H-D dealers across Ontario in order to promote the H-D brand, explore areas of mutual profitability, and to generally function as a channel which would allow H-D dealers to have some voice with FDI in respect of their business issues and in particular, the terms of the standard form Dealer Agreement stipulated by FDI.
11. FD! disapproved of the formation of the Association and in September of2001, it expressed its disapproval to Jim and Lynne Quinlan, stating that: "The fundamentals around c ~eating a legal entity to better represent the interests of Ontario is somewhat disappointing" and that FDI believed "this type of association would not be necessary". FDI did not, however, mention anything about discontinuing its relationship with Quinlans and the parties continued on in reliance on the mutual expectation and understanding of their continuing "partnership" in selling and developing Quinlans' market Area for H-D products.
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12. During the period following FDI's renewal of the Dealer Agreement, Quinlans continm ~d to invest its efforts and resources in the business, marketing H-D products in its Area This required Quinlans' sustained expenditure and reinvestment of profits in continuing to maintain and expand its marketing ofH-D products. FDI encouraged this spendins in order to ensure ongoing development of the market for H-D products in Quinlans' Area.
13. B:r a letter dated December 9, 2003, FDI advised that it would not offer Quinlans an "extens on" of the Dealer Agreement. No reason was given. When pressed for an explanation, FDI's representative stated only that the reason was "because he could". After fl: rther objection and inquiry by Quinlans through counsel, FDI advised through its counsel that FDI' s "market studies have demonstrated that there is no natural market for H-D products in the Huntsville area" and that: "Based upon these market studies, Fred Deeley has determined that there is no longer a need for a Retailer in Huntsville, and as it is entitled to do, has decided not to offer Quinlan's a new Retailer Agreement or renew or extend the existing one on July 31, 2004".
FDI was clear and categorical that it would not supply Quinlans with any H-D products after July 31, 2004 and that its decision was final.
Substa tltial Detrimental Effect 14. The overall effect of the termination of Quinlans' H-D dealership by FDI will be devastating upon it. If FDI fails to supply Quinlans with H-D products, for all practical
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purposes Quinlans will be precluded from continuing with its business due to its inability to obtai1 H-D products to sell. In particular, Quinlans' loss of 65% of its revenue will put it out of business.
15. Q1inlans has developed much of the good will for H-D products in the Area through its efforts and investment in marketing H-D products. This good will built by Quinlar sis not transferable by Quinlans to another product line because Quinlans invested it in H-D products as part of FDI 's marketing strategy to build strong H-D brand loyalty 1mong its customers, and to build interest and brand awareness.
16. HD products are largely unaffected by possible substitutes in the Area because non-H-D products do not carry the mystique developed as a unique attribute of the H-D image. H-D products are viewed by customers as "entirely different products". Once Quinlar.s has recruited a customer to the H-D product, generally they are not interested in switching. Non-H-D products have been unable to break into the H-D product market becaust: they are significantly different products operating in a significantly different market, appealing to a different clientele. There is no equivalent substitute for the mystique and image of H-D products.
17. The devotion and effort expended by Quinlans to the H-D marketing strategy is also illustrated by the incidence of repeat sales ofH-D products to customers, since many of its existing customers have successively purchased new H-D products from it. This is
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consistrnt with the mission statement in FDl's written and oral dealer training programs that Qunlans should make its H-D customers, "customers for life".
18. The effect ofFDI's failure to supply H-D products to Quinlans in these circumstances will deal a staggering blow to its business. It will also result in FDI appropriating at no cost for its own use and benefit a windfall gain resulting from the substanial investment and development of the market and good will for H-D products establis:1ed by Quinlans in the Area. Quinlans will lose all of its H-D customers as well as 65% of its sales revenue. Quinlans cannot survive on its remaining 35% of revenue from the! sale of Honda products.
19. If Quinlans is unable to obtain adequate supplies of H-D products after July 31, 2004, v.hen the new season of H-D products will be available, its sales for the upcoming season 1vill be significantly prejudicially affected. FDI's refusal to deal will result in Quinlans being unable to fulfill its ongoing business obligations and relationships, which will negatively impact its customers and irreparably harm its customer relationships and its business. Quinlans' business has already been substantially adversely affected since sales re1 renue has fallen 20% over the past two months compared to the same period last year. Quinlans attributes this drop in sales directly to customer uncertainty resulting from FDI' s d sclosure that it will no longer supply Quinlans after July 31, 2004.
20. If H-D products are no longer sold and serviced in Huntsville, Quinlans' customers will be forced to travel to other H-D dealers a great distance away. The effect of FD I's
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refusal lo deal with Quinlans not only will have an adverse effect on competition in the market, since the termination of Quinlans will result in reduced competition; it will also adversely affect Quinlans' customers.
21. FDI is the exclusive supplier of H-D products in the Area and its H-D products occupy a dominant position in the marketplace. Quinlans would be substantially affected due to ii:s inability to obtain adequate or indeed, any supplies of H-D products anywhere in the market since there are no other suppliers of H-D products in Canada.
22. Quinlans has consistently met FDI's usual trade terms over the past 17 years as a H-D dealer, and it is willing and able to continually meet the usual trade terms of FDI.
23. H-D products are in ample supply through FDI. 24. Quinlans has continuously, competently and diligently maintained prominent and professional H-D representation and product promotion with the highest level of dedication and support as was required by FDI for over 17 years. Quinlans' results and efforts have been recognized by FDI on many occasions, as reflected in the positive results zchieved by it with respect to its representation of the H-D product, as well as comments received from customers.
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Quinlans' Need for Interim Relief Pending Hearing of Application 25. Ifleave is granted pursuant to section 103.1 of the Act, there is a serious question to be tried in these proceedings under section 75 of the Act. Quinlans will suffer irreparable harm if interim relief is not granted pending hearing of this Application since its business will no longer be commercially viable and it will lose its H-D customers. Should interim relief be granted, FDI will suffer no harm since it will continue to benefit from Quinlans' efforts selling H-D products during this period. The issuance of an Order against FDI to supply Quinlans will merely preserve the status quo pending the determination of Quinlam;' Application to the Competition Tribunal. On the balance of convenience, the failure to grant interim relief pending hearing of the Application will cause substantially greater harm to Quinlans than it would to FDI, since Quinlans' business and reputation as a H-D retailer will be substantially destroyed with its customers after July 31, 2004, if Quinlam: has no H-D products to sell and it is unable to service its existing customers.
26. In :i~ebruary 2004, FDI offered a temporary extension of the existing agreement to October 31, 2004. The letter, however, was drafted in terms of a contract which Quinlam:' believed would extinguish its right of action against FDI arising from its termination of Quinlans' Dealer Agreement if it was accepted. The letter was not signed back by (>uinlans for this reason. Nevertheless, the proposal by FDI for an extension shows that there is no material prejudice to FDI if an interim order is made requiring FDI to supply Quinlans, pending determination of this Application.
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27. Quinlans undertakes to abide by any order that may be made against it as a result of its interim relief requested, being granted.
BASIS FOR APPLICATION PURSUANT TO S.104 28. In this application, Quinlans seeks an interim order pursuant to section 104 of the Act, which provides: 104. ( 1) Where an application has been made for an order under this Part, other than an interim order under section I 00 or I 03.3, 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.
(2) An interim order issued under subsection (I) shall be on such terms, and shall have effect for such period of time, as the Tribunal considers necessary and sufficient to meet the circumstances of the case.
(3) Where an interim order issued under subsection (I) on application by the Commissioner is in effect, the Commissioner shall proceed as expeditiously as possible to complete proceedings under this Part arising out of the conduct in respect of which the order was issued.
29. In RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 at 334, the Supreme Court of Canada articulated the three-part test in an application for interlocutory relief referred to in Manitoba (Attorney General) v. Metropolitan Stores (MTS) Ltd., [ 1987] 1 S.C.R. 110, which reads as follows: "Metropolitan Stores adopted a three-stage test for courts to apply when considering an application for either a stay or an interlocutory injunction. First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits."
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30. In London (City) v. Talbot Square Ltd. (1978), 22 O.R. (2d) 21, the Ontario Divisional Court determined that interlocutory injunctions are granted with a view to preserving the status quo.
31. The evidence on this Application demonstrates: (a) If leave is granted pursuant to section 103 .1 of the Act, there is a serious question to be tried in these proceedings under section 75 of the Act;
(b) Quinlans will suffer irreparable harm if the application for interim relief were refused in that its sales will be eliminated and the good will developed by it for the past 17 years will be lost;
(c) FDI will suffer no harm as it will continue to benefit from Quinlans' efforts to sell H-D products; and
(d) The issuance of an Order against FDI supply Quinlans will merely preserve the status quo pending the determination of its Application.
32. Quinlans relies upon the Affidavit of Jim Quinlan sworn June 26, 2004. 33. The actions of FDI in refusing to deal with Quinlans, falls within the scope of activity prescribed by Section 75 of the Act and amounts to a practice which is subject to
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an Order under that section in that the Tribunal may issue such order against FDI to accept Quinlans as a customer on the usual trade terms.
DATED at Toronto, Ontario, this 30 1 h day of June, 2004.
Robert Rueter LSUC No.: l 7089A Telephone: (4I6) 869-3363 Fascimile: (416) 869-341 I
Andy Chan LSUC No.: 45906P Telephone: (416) 869-3532 Fascimile: ( 4 I 6) 869-34 I I
TO: The Registrar The Competition Tribunal The Thomas D'Arcy McGee Building 90 Sparks Street, Suite 600 Ottawa, ON KIP 5B4 Telephone number: (613) 957-785I Facsimile number: (613) 952-I I23
AND TO: Sheridan Scott Commissioner of Competition Competition Bureau 50 Victoria Street KIA OC9 Telephone number: (8I9) 997-330I Facsimile number: (8I9) 953-5013
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Rueter Scargall Bennett LLP 200 King Street West Suite I 701 Toronto, Ontario M5H 3T4
AND TO: Fred Deeley Imports Ltd. c.o.b. Deeley Harley-Davidson Canada 830 Edgeley Blvd. Concord, Ontario
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