Summary

A car distributor was not liable for any losses sustained by its two remaining franchisee dealerships after it had scaled back its operation following its notice to terminate the franchise agreement. The nature of the franchisees' claim required them to show that the distributor had breached an obligation to offer them the same financial incentives that had helped their profitability before the termination notice, and no such obligation could be implied into the agreement.

Facts

he claimants claimed that the defendant had breached their franchise agreements, causing them losses of around £700,000.

The defendant distributed Chevrolet cars to authorised UK dealers under franchise agreements. The claimants were two such dealers. The agreement began with a purpose clause promoting the parties' co-operation and mutual business success. Numerous detailed clauses followed. One specified a maximum profit margin that in practice was difficult to achieve, but the defendant offered financial incentives that helped the claimants' profitability. Another covered stock availability, and the defendant maintained a large stock in the UK that could be distributed to dealers within a few days. In December 2013 the defendant terminated its franchise agreements with two years' notice following a decision to cease marketing Chevrolets in Europe. All of the UK dealers except the claimants agreed to early termination in exchange for compensation. The claimants considered the compensation inadequate as they had forecast increased profits for 2014 and 2015. Following a national promotion, almost all of the UK stock had been sold by the end of March 2014. The financial incentives offered to the claimants thereafter were much reduced, and purchases of Chevrolets required overseas factory orders that took several weeks to fulfil. Ultimately, the claimants' profits were substantially lower than forecast.

The claimants submitted that the franchise agreement contained terms obliging the defendant to provide financial incentives and maintain a ready supply of UK stock, either expressly under the purpose clause or through implied terms.

Held

(1) The purpose clause appeared before the definitions section and the numerous numbered paragraphs of the agreement. It was an explanatory preamble but its whole function was to introduce the subsequent detailed terms. There was no obvious gap in those detailed provisions that could only be addressed by the purpose clause, Aspdin v Austin 114 E.R. 1402 considered. Moreover, the express terms that the claimants sought to draw from the purpose clause mostly covered subject matter that was already dealt with in numbered terms that contained no ambiguity. The purpose clause was no more than a statement of intent, with that intention being achieved by the detailed provisions. It could not override the clear words to be found later on in the agreement, Mackenzie v Duke of Devonshire [1896] A.C. 400 followed. Also, the express terms sought by the claimants were very specific while the purpose clause was very general. It was impossible to leap from the latter to the former. Accordingly, the purpose clause did not give rise to the alleged express terms (see paras 73, 76-80, 83-84 of judgment).

(2) At its lowest, the claimants' case was that financial incentives would have been required for them to order more cars to sell after the national promotion ended. The alleged term as to incentives was therefore critical to their claim. That term did not specify precisely what financial support the claimants believed the defendant was obliged to provide. If it was a permanent obligation to provide the incentives that were available before the termination notice was given, it was impossible to say objectively that the agreement was incoherent or commercially unworkable without it. The parties had adopted a business model whereby they relied on their own commercial interests generally coinciding to produce terms that were satisfactory to both sides, but the risk that that might not always be the case was borne by the dealer. Also, it was very hard to say that the officious bystander would deem the alleged term obvious when the parties had knowingly entered into a detailed contract that specified only the profit margin. Moreover, any such implied term would conflict with express terms as one of the clauses assumed the possibility of the defendant offering incentives without being obliged to provide them. Therefore, the term did not fall within the principles for the implication of terms, Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72 followed, BP Refinery (Westernport) Pty Ltd v Shire of Hastings 180 C.L.R. 266 considered. Accordingly the claim failed. Had it been necessary to look at the issue of stock availability in the UK, it was possible to imply an obligation on the defendant to supply the claimants reasonably promptly in response to their orders. It would be very odd if the defendant was not obliged to supply dealers with at least the standard specification, popular and in-production models. The agreement expressly provided for factors affecting availability and for the defendant to do its best to allocate stock fairly and equitably among all the dealers. However, the breach of the implied term as to stock availability went nowhere without the term as to financial incentives (paras 65-66, 87-88, 104-106, 109, 114-122).

Claim dismissed