It is no secret that Australian department stores operate in a tough competitive landscape.  One of the major weapons in their artillery is their ability to provide exclusive access to certain brands. This is secured by exclusivity agreements with designers that restrict designers’ ability to supply their wares to rival department stores.

This exclusive brand strategy recently came under review as a result of the proceedings brought by Myer against Sydney fashion designer, Kimberley Ellery in the Supreme Court of Victoria. The proceedings have now been settled.  However they raised questions about the legality of exclusivity agreements which are commonly used to secure retailers’ exclusive brand strategies.

It’s also a good example of how the act of instituting proceedings is a powerful weapon.  Myer obtained plenty of publicity from this dispute, showing it would stand its ground when enforcing its contracts.  This, no doubt, has provided a suitable warning to all Myer’s other designers that their relationship with Myer is not some sort of ‘friendship’ capable of being exited by a friendly phone call, text message or change of Facebook status.  It’s a binding legal arrangement.

Background

Kimberley Ellery signed an exclusive three-year contract with Myer in August 2011 stipulating she would not supply clothing from her designer label, Ellery Land, to any other Australian retailer with 15 or more stores.

Myer had planned to promote Ellery Land clothes during Melbourne Cup week. Australian identities Lara Bingle and Rebecca Judd had been asked to wear Ellery Land dresses. Ellery was to be a judge for fashions on the field.  According to the evidence heard in court, Ellery’s negotiations with Myer’s rival department store, David Jones, commenced in August 2012 and continued over the course of the Spring Racing Carnival. Myer discovered this, and subsequently dropped Ellery as a judge and found other outfits for the celebrities to wear.

On November 7, Ellery signed an exclusivity letter from David Jones. She agreed to sell clothes to David Jones from both Ellery Land and L’America, a more casual fashion line targeting a younger market.  Ellery then failed to deliver an order for Myer’s 2013 autumn-winter collection.

What were the proceedings about?

Myer sought damages for Ellery’s failure to deliver her order for Myer’s 2013 autumn-winter collection and a final injunction preventing Ellery from supplying David Jones until her three year exclusivity contract with Myer is up.

Restraint of trade argument

Ellery’s legal team argued that the agreement amounted to a restraint of trade which rendered it void and unenforceable since it went beyond what was reasonably necessary to protect Myer’s legitimate interests. This was on the basis that the contract with Myer does not oblige Myer to buy anything from Ellery, but prevents Ellery from selling to other large retailers such as David Jones.  It was argued that a lack of clothing orders from Myer meant that Ellery was facing financial ruin.

Yet Myer’s legal team outlined the promotional benefits gained by Ellery through the agreement. The point was made that similar exclusivity agreements are widespread amongst the retail industry and are fundamental to department stores securing exclusive access to designer labels. Indeed it was said that the exclusivity agreement Ellery entered into with David Jones was on essentially the same terms as the Myer agreement.

The purpose of such exclusivity agreements is to ensure that retailers are able to benefit from the time, energy and expense that they put into promoting the brands – for example, Myer’s intended promotion of Ellery Land during the 2012 Melbourne Cup week – which often takes a significant period of time to produce a return to retailers. Meanwhile, Ellery was not restricted from selling the Ellery Land label through online stores or her retail outlet.

Ellery’s legal team also argued that exclusivity agreements could be voided if a better offer was received.  The basis for this argument was unclear although it appears to have been based upon the alleged restraint of trade.

Settlement of proceedings

Ellery has publicly apologised to Myer for breaching the agreement and has agreed not only to continue to honour the agreement but to extend the supply of clothing from her Ellery Land label to Myer until 2015.  However, she will also continue to supply Ellery Land clothing, as well as clothing from her L’America label to David Jones.  This will make her one of the rare designers who supplies to both Myer and David Jones.