Lessons Learnt – A Review Of 5 English Law Cases From 2017 And What Franchise And Distribution Businesses Can Learn From Them

2017 was a relatively quiet year for franchise disputes in the English courts. Nevertheless, this article discusses five cases which involved franchise and distribution relationships and suggests some lessons which can be learnt from each.

1. Are your recitals fit for purpose?

   J Toomey Motors Ltd and Toomey (Southend) Ltd v Chevrolet UK Ltd

   Background

   Following its decision to pull out of the UK market in December 2013, the defendant (Chevrolet) gave all of its UK dealers two years' notice of termination of their franchises. The claimant (Toomey) was one such dealer. Whilst other UK dealers agreed terms of settlement with Chevrolet to cease their franchises in 2014 rather than keeping them until December 2015, Toomey chose to continue as a dealer throughout the notice period.

   Chevrolet announced in February 2015 that it would shortly be ceasing to supply Chevrolet cars to the UK altogether and any remaining factory orders had to be placed by various dates up to 3 March 2015, with a 3 to 4 month lead time. Toomey argued that through its actions Chevrolet had withdrawn all facilities required to enable Toomey to effect sales of Chevrolet within the notice period and that this amounted to a repudiation of the agreement.

   In the proceedings Toomey alleged that Chevrolet had breached a number of express and implied terms in the agreement. Central to Toomey's case was the assertion that a statement which featured as a 'recital' created a binding obligation on Chevrolet. The Judge referred to this as the 'Purpose Clause'.

   Conclusion

   The Judge commented that as a matter of law, whilst it is possible that a Purpose Clause can contain operative provisions, a Purpose Clause should serve as an 'explanatory preamble' and that its sole function should be to act as an introduction to the detailed terms which come later. The Judge held in this instance that the latter terms of the agreement were sufficiently clear and there could be no reason why the Purpose Clause should be regarded as containing specific operative terms.

   Lesson

   Purpose Clauses or recitals can be easily overlooked and this judgment acts as a reminder that they play an important role in setting the scene for the commercial relationship and that drafting should not overreach into inadvertently creating operative terms which could be used to fill a gap in the express terms of the contract.

2. Don't use a hammer to crack a nut

   F45 Training Pty v Leo Star Ltd

   Background

   The defendant (Leo Star...