Country Haven Stables Ltd

Essay

Country Haven Stables Ltd. was engaged in the business of boarding horses and providing horseback riding facilities and instruction. Lucy, the owner and operator of the stables, had built up her business over a number of years by acquiring horses and building facilities as she was able. The business had become quite successful and had grown to a considerable size. Lucy found her need for equestrian products growing as rapidly as her business. As a result, she contacted Fairbanks Saddlery Co., a manufacturer of saddles, harnesses and other related equipment as well as equestrian health care and grooming products. She inquired about supplying her stable needs and shortly thereafter a business arrangement with Fairbanks was entered into. Many of Lucy's customers expressed an interest in purchasing equestrian products and equipment at her stable for their own needs. As Lucy saw a potential business opportunity developing in the establishment of a retail outlet, she set up and promoted a retail shop on her premises, which she stocked with Fairbanks products. The products were then marked-up and sold to the public. Approximately thirty kilometres away from Lucy's stable was "Horse Habits," a large, well-established equestrian supply store that had been in operation for over 15 years. Horse Habits was also a customer of Fairbanks and, upon discovering Lucy's store, contacted Fairbanks to object to the establishment of another retail outlet selling Fairbanks products at lower prices.
Shortly thereafter two representatives of Fairbanks made a visit to Lucy's shop. During the visit the parties had a friendly social conversation about the equestrian business and products in general. No mention was made of the complaint or of prices or Country Haven's pricing policy, nor did the Fairbanks representatives check any of the prices at which Lucy was selling items in her shop. However, immediately following their visit, the representatives wrote a letter to Country Haven advising that sales would be discontinued because of a Fairbanks company policy which stated that:
"Fairbanks Saddlery does not sell direct to the consumer nor to riding schools, stables or blacksmiths, but only to legitimate retail outlets that carry sufficient inventory to service customers in their area."
Lucy was not aware of this policy and maintained that it had never been brought to her attention previously, nor was it mentioned when the Fairbanks representatives visited Lucy's store.
a. What issues does this fact situation present?
b. What course of action may Lucy take, if any?
C.P.R. (3d) 389.
a. The case is meant to explore the issues of resale price maintenance and refusal to supply goods. If the seller can be shown to be in any way directly or indirectly attempting to influence the price at which its goods are resold it will be in violation of the Act. Here, the supplier is refusing to supply goods to the stable on the stated grounds that it sells only to legitimate retail outlets and not to end users. A close look at the facts, however, suggests that there may be other motives for the refusal to supply. The fact that the stated policy does not appear to have been brought to the attention of the buyer or previously enforced indicates that it may be meant to deflect the true motives.
The supplier, not wishing to jeopardize its long-standing relationship with a large buyer, is responding to the complaint in order to protect its own business interests. Whether Country Haven Stables maintains a policy of selling the goods at lower prices is unclear on the facts. The Country Haven store is a legitimate retail outlet, however, and may set prices as it sees fit. The supplier may not refuse to sell to it to prevent the buyer from reselling at lower prices unless the buyer makes a practice of loss leadering. In this case, the supplier is relying on the unfounded objections of its major customer to cease supplying the stable and, thereby, protect its own interests. If the manufacturer is acting on the information that a low-price policy is maintained at the stable, it may not refuse to sell on that basis. The court in this case decided, however, that if the supplier was refusing to sell on another basis; namely, to protect its relationship with a major customer, there is no prohibition in law of such an action. There was insufficient evidence to prove beyond a reasonable doubt that a low-price policy was the grounds for the refusal. The actions of the supplier, therefore, were not in violation of the Act.
b. The buyer may make a complaint to the Commissioner of Competition under the Competition Act. The Commissioner may then investigate the complaint and gather evidence. If the Commissioner finds satisfactory evidence of a violation, he or she may deliver the evidence to the Attorney-General of Canada to bring criminal charges or may bring the matter to the Competition Tribunal.