Last summer, the High Court handed down its judgment in Mackie Motors (Brechin) Limited v. RCI Financial Services Limited,[1]in a case that had far-reaching consequences – not only for automotive dealers across the UK, but also for any company that considers itself to be operating under the terms of an implied umbrella agreement. Now, the Court of Appeal of England and Wales has examined the decision afresh and has upheld the original findings on all counts, in what will be welcome news for any party seeking to rely on express terms agreed in writing between parties.
The central issue being tried by the Court of Appeal was whether the appellant, Mackie Motors (Brechin) Limited (Mackie), had a real prospect of success in claiming that an umbrella or relational agreement could be inferred as existing between the parties. The alleged umbrella agreement was said to overlay Mackie’s car dealership arrangements with the respondent, RCI Finance Services Limited (RCI), Renault UK Limited (Renault) and Nissan Motors GB Limited (Nissan).
Background
The background is as follows:
- Mackie was the authorised distributor of Renault and Nissan cars in the northeast of Scotland.
- The relationship between the parties was founded on a series of written dealership agreements.
- Under the dealership agreements, Mackie was granted the right to promote, market, supply, sell, repair and maintain Renault and Nissan vehicles within its ‘exclusive territory’.
- RCI is a wholly owned subsidiary of Renault and provided financing and administrative services to Mackie. There were six contracts in place between Mackie and RCI in relation to dealer financing (RCI contracts), which operated on a rolling basis.
- The dealership agreements were capable of termination by either party giving not less than 24 months’ written notice. By contrast, the RCI contracts were terminable on just seven days’ notice.
- RCI had suspicions that Mackie was involved in money laundering, and it made a suspicious activity report to the National Crime Agency, after which RCI served notice of termination in respect of the RCI contracts.
- Mackie sought an interim injunction restraining RCI from ceasing to provide the dealer financing services pursuant to the RCI contracts. The application for an interim injunction was refused on the basis that the claim did not have a real prospect of success.
- Having failed to obtain injunctive relief, Mackie sold its sites to another Renault/Nissan-franchised dealership in what it described as a ‘fire sale’.
- Mackie then produced draft amended particulars of claim in which its claim was recharacterised.
The (reformulated) case advanced by Mackie
In relation to its primary argument regarding the existence of an umbrella agreement, Mackie alleged that:
- Mackie, RCI, Renault and Nissan were parties to an implied umbrella, or ‘relational’, agreement.
- Two specific implied terms of the umbrella agreement were:
- That the parties would act in good faith in their performance.
- That RCI would not withhold any services or terminate the umbrella agreement in the absence of good cause and without a reasonable notice period of 24 months.
The High Court rejected all the arguments advanced by Mackie.
The Court of Appeal judgment
In reviewing the decision, the Court of Appeal considered,[2] amongst other things, the following submissions put forward by Mackie.
The umbrella agreement
- The central argument here was that the parties intended to create legal relations in respect of services that were not the subject of either the RCI contracts or the dealership agreements.
- It was argued that an umbrella agreement could be implied from the parties’ conduct to include services that were not the subject of written agreements.
Implied terms in the written contracts
- Here, it was alleged that, because of the purported existence of an umbrella agreement, it should be implied that the seven-day notice period in the RCI contracts should be overridden.
- In doing so, Mackie relied on an implied term of an obligation of good faith, which it submitted should take priority over the notice period contained in the RCI contracts.
In finding against Mackie on all its grounds, the Court of Appeal confirmed that much of the conduct alleged as having created the implied umbrella agreement post-dated the dealership agreements and the RCI contracts – and therefore, one could not infer from the fact that RCI provided services over time that it had contracted to do so. Similarly, it was held that it did not follow from the provision of services alone that the parties intended to create legal relations in respect of them, and that the mere existence of the services did not call such an intention into being.
It also was held that one cannot rely on a good faith obligation arising from a relational contract to imply terms that are contrary to the express provisions of written agreements.
Takeaways
When parties with a long-standing relationship operate under the terms of various contracts, it can often be assumed that the relationship between them goes beyond the express wording of the contracts themselves. This judgment shows that this is not always the case – and, in fact, that it is a very high hurdle to overcome the express provision of a written agreement.
As always, an analysis of all the circumstances, and – in particular – of the conduct of the parties, is required in matters such as this, and the Court of Appeal here found that the question of intention to create legal relations also was a central point. If it is not clear that a party had intended to become legally bound to provide services, and the provision of such services was not central to the performance of the contract, then any argument in favour of an implied agreement is made all the more difficult.
[1] [2022] EWHC 1942 (Ch).
[2] [2023] EWCA Civ 476.
Contributors
Joanne Elieli