Is Your Freedom of Choice Limited?

Every Dealer should be well aware of third line forcing, how it can impact their business and what solutions are available to them.

Third line forcing is prohibited in Australia under section 47 of the Competition and Consumer Act 2010 (the Act), yet many Dealers are unaware of what it means and how to protect themselves in their agreements with suppliers, financiers and manufacturers.

Third line forcing sits under the umbrella of exclusive dealing which encompasses a range of business practices, not all of which are against the law. It’s important to be aware of the distinctions between them and to know how to identify unlawful behaviour.

Generally speaking, exclusive dealing refers to the restrictions placed on a person’s freedom to choose with whom, in what or where they deal as set out by the other trading party.

Some examples of exclusive dealing include service stations that are tied solely to one petrol supplier or department stores which mandate certain brands don’t stock their products with competitors.

These types of exclusive dealings are common and only breach the law when they are deemed to substantially reduce competition in the specific industry. This could occur if consumers are severely restricted in their ability to access the product, or if there has been a serious and/or unfair effect on competition as a result of an agreement.

Unlike general exclusive dealings, third line forcing is completely prohibited under the Act.

Third line forcing occurs when a company supplies goods or services (or provides a discount or bonus) to a buyer on the condition that they purchase other goods or services from a third party that’s not related to the supplier.

For example, unless clear provisions have been otherwise agreed, a vehicle manufacturer cannot force a Dealer to use their preferred finance supplier or insurer as part of a trade agreement. The linking of dealer bonuses to a nominated supplier is sometimes used as an inducement.

In a similar example Dealers cannot offer customers a better price on a new car on the condition that they use the Dealer’s nominated finance provider.

So what motivates third line forcing?

In the first example, manufacturers could have special arrangements in place with a particular finance company where they receive a monetary incentive for referring customers. Forcing Dealers to use this financier however, could jeopardise their own arrangements with finance companies as well as limit competition.

In some cases there are justified commercial reasons to employ third line forcing. In terms of the franchisor/franchisee relationship there may be products or materials needed to operate the franchise that can only be obtained from a specific supplier. In these instances, a notification can be lodged with the ACCC to explain why third line forcing is required.

Generally though, this practise is not permitted and offending businesses can be penalised for ignoring the law.

The AADA recommends that all Dealers become aware of third line forcing and review their existing agreements with suppliers. If you have any doubts about your business transactions, consult your legal advisors.

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