The motor trade as self-employed commercial agents

 Dealers, or retailers as they are often called or distributors as the Block Exemption refers to them (and as I will do below), could enjoy new legal protection because of the accelerating move towards converting networks into collections of agents. While there's a lot of talk about the form of any future block exemption, more important is the fact that it has no application to the agency model and distributors should be looking elsewhere for legislation that affects their relationship with the manufacturer.

Distribution and agency

The first thing to understand is the nature of the principal-agent relationship. I remember trying to teach Legal Practice Course students about this, over 20 years ago, and the concept seemed be surprisingly difficult for them. The whole idea of an agent is that he, she, they or it acts on the instructions of the principal: within the scope of the agency agreement, the agent has no, or limited, freedom of movement. It's a concept that we encounter in many contexts: for one example, a company lacks the ability to do anything itself - it can only make things by using human agents (employees) to do the work for it.

Agents do enjoy different levels of autonomy, depending on the nature of the agreement. Some employees, for example, are specifically engaged to do creative work and therefore enjoy more freedom to spend their working time as they think appropriate: others are there just to put machines together, and giving them scope to do that however they want would result in chaos. Distributors already act as agents for their suppliers in some respects, and generally the agency agreements they have show that the supplier recognises that dealers have expertise that they need to be free to use.

The key feature of an agency relationship is the allocation of risk. A distributor buys cars and parts and sells them on their own account: there is a lot more to it, inclusing sales targets, bonuses, and consignment and financing arrangements, but in essence the distributor is a retailer (and is often called just that). If the cars don't sell, the distributor makes no profit. If the cars are damaged in the showroom, then in principle the loss is the distributor's (though in practice the cars will usually be on consignment, so still the supplier's property). An agent, on the other hand, finds buyers for the principal's goods, then either makes the contract on behalf of the principal or drops out of the picture and leaves the customer and supplier to make their own deal.

So far so good, or bad as the case may be. The line between distributor is not, however, as clear as it might be. In Case 266/93, Budeskartellamt v VW AG, VAG Leasing GmbH and VW Haendlerbeirat eV, the Court of Justice considered that the risk taken by the dealer/agent when they had to buy the car back at the end of the lease meant that, whatever else the agreement said about the relationship with the leasing company, it was not truly an agency one.

VW's argument in that case was that the brand's German dealers and the leasing company on whose behalf they acted as intermediaries formed a single undertaking. Competition law is not so much concerned with legal form as with economic effect, and an agent who enjoys no autonomy will be considered to be part of a single economic unit: in that situation, Article 85(1) of the Treaty (as it was then - Article 101(1) now) has no application to the relationship. If you only have one undertaking involved, you cannot logically have an agreement or arrangement between undertakings. If Article 101(1) is not engaged, the arrangement is not prima facie prohibited and there is no need for it to be exempted. The current block exemption, found in Regulations 330/2010 and 461/2010, applies to certain vertical agreements, meaning:

... agreement[s] or concerted practice[s] entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services...

Clearly, it does not apply to agency agreements, but it doesn't need to.

Back in the days when the Block Exemption used to give extensive protection to dealers, this would have been significant: staying within the distribution model would have guaranteed a certain amount of protection. However, the 2010 iteration of the block exemption dropped the last vestiges of dealer protection and left it to national law to protect dealers, if countries wanted to (and many continental jurisdictions do). The UK, however, doesn't: traditionally, English law has emphasised freedom of contract, and regarded as unobjectionable business activities that do not cross the line into criminality.

Legal protection for commercial agents

Dealers (or distributors) don't enjoy any special treatment under English law, but crucially some agents do, and that's thanks to the European Union. The Commercial Agents (Council Directive) Regulations 1993 (SI 1993 No. 3053) implemented the directive on self-employed commercial agents, and like tons of other laws survive Brexit under the general heading of "retained EU law". How long the regulations might survive is another matter, but for the time being we still have to consider them.

The Regulations give commercial agents the sort of protection that you might normally associate with employment - but they are not applicable only to individuals. They define a commercial agent as a "self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of their principal or to negotiate and conclude such transactions on behalf of and in the name of that principal". Although "self-employed" suggests an individual, it also includes other legal persons - a limited company can be a commercial agent.

If the commercial agent's activities as a commercial agent are secondary, the Regulations will not apply to them, and arguably this would mean that they are of no help to distributors whose primary business activity is governed by a traditional dealer agreement but who have side-agreements with their supplier under which they are agents. The driving force in the shift to agency is electric vehicles, of course, and as they become a larger proportion of the distributor's business the likelihood that this exception will apply will diminish.

The Regulations only apply where the agent is negotiating the sale or purchase of goods, so services are outside the scope of the Regulations - important, given that service is an area where carmakers are making the switch, as the needs of electric vehicles demand a different approach to that taken in the past. But with that proviso, it seems that the switch to agency will bring the franchised motor trade firmly within the scope of the Regulations.

Notice periods

What, then, are the legal consequences? For one thing, minimum notice periods apply, but compared with what the Block Exemption used to give they are very unexciting: one month for the first year, two months for the second year and three months for any third or subsequent years. The parties may agree longer notice periods than those specified by the Regulations but, if they do, the notice provisions imposed on the agent must be no longer than those to be given by the principal. Of course, the notice periods will be part of the supplier's "take it or leave it" offer, but the fact that the agent cannot be obliged to give longer notice than the principal should ensure that notice periods remain in line with current practice - the old Block Exemption's minimum two-year notice period, along with the one-year period where a re-organisation is necessary, seems to have been generally adopted by the industry.

Duties of agent and principal

The Regulations set out the parties' duties, which is not something that the Block Exemption ever set out to do.The common law already imposes duties on agents, including to obey the principal's lawful instruction, to act only only within the limits of authority,not to put itself in position where there is a conflict of interest,not to make a secret profit or accept bribes, and not to delegate authority, and carmakers can be expected to include specific duties in their agreements. The Regulations expand a little on the common law duties, stating that the agent must:

• act in the best interests of the principal, and act dutifully and in good faith;
• make proper efforts to negotiate and, where appropriate, conclude transactions;
• communicate to the principal all necessary information available to him;
• comply with the reasonable instructions of the principal.

The Regulations also impose duties on the principal, in addition to common law duties to pay commission or remuneration, to pay the agent's expenses, and to indemnify the agent against losses suffered in the proper performance of the agreement. The principal is required to act dutifully and in good faith when dealing with the agent, for one thing, which is rather general but pretty big. It must provide necessary documentation relating to the goods, obtain for the agent all information necessary to perform the agency contract, and notify the agent of any anticipated drop in volume of transactions or any refusal or non-execution by the principal of a transaction which the agent has procured (which would affect the commission payable to the agent).

Remuneration and commission

The agency agreement should, and surely will, clearly set out what commission is payable to the agent and when. The Regulations contain a fall-back position in case the parties fail to agree, but it is unlikely that this will be something that the agreement omits to deal with in detail.  The agent is entitled to commission on a transaction where the transaction between the principal and third party is concluded as a result of the agent's action, or with a third party whom the agent has previously acquired as a customer for transactions of the same kind, or with a customer belonging to any specific geographical area or group of customers to which the agent has been given an exclusive right under the agency agreement.

Commission is also payable on transactions concluded after the agency agreement is terminated if the transaction is mainly attributable to the agent's efforts during the agreement term and entered into within a reasonable period after the agency contract has terminated, or where the customer's order reaches the agent or the principal before the agreement expires or is terminated, or where the order is only accepted after the agency agreement has terminated. However, we can expect that agency agreements offered by carmakers will contain express provisions dealing with these and other matters relating to commission, so the legislation will not have to be relied on.

Any provisions in the agreement relating to post-termination restraint of trade restriction must be in writing and relate to the geographical area, goods and groups of customers covered by the agency agreement, and may last for no more than two years post-termination.

Termination

When an agency agreement is terminated, the agent will be concerned about any outstanding commission and any 'pipeline' commission (unless this is specifically excluded from the agreement). But probably the best thing about the Regulations (from the agent's point of view) is that it will be entitled to compensation for termination to reflect the value of the goodwill the agent has generated for the principal, unless the agent has been terminated for breach or has terminated the agreement itself.

This may be on an indemnity basis or compensation basis. If the agreement does not specify how compensation will be calculated, the payment will be calculated on a compensation basis which will probably be less valuable to the agent, and could involve a considerable burden of proof. But either way, the possibility of a termination payment is a radical departure compared with what the Block Exemption gives.

Indemnity basis: an agent will be entitled to an indemnity if it has brought in new customers or increased volume from existing customers, and the principal continues to derive substantial benefits from the business. The amount of the indemnity must be equitable, and is subject to a cap based on one year's average gross commission based on the five years before termination or the whole life of the agreement if shorter.

Compensation basis: the agent will be entitled to compensation for the damage it suffers as a result of the termination of the agreement. When the termination takes place in circumstances which deprive the agent of commission which it would have earned had the agreement continued, or have not enabled the agent to recover the costs it has incurred in connection with the performance of the agreement, or both, damage will be deemed to have occurred.

The amount of compensation  depends on the value of the agency that has been lost. This is often hard to quantify, especially if in that sector agencies are not traded as businesses (and how transferrable an agency is, compared to a dealership, is another matter). Importantly, there is no cap on the level of a compensatory payment. The agent may also be entitled to an additional amount in lieu of notice.

Slovenia: Competition Protection Agency adopts commitments for Hyundai Auto Trade

The Slovenian competition authority has accepted undertakings from the local Hyundai concessionaire, which are intended to ensure that warranty terms are no longer used to keep repair and maintenance work within the authorised network, according to a report from law firm Shoenherr. The case was brought under domestic competition legislation (Article 6 of the Prevention of Restriction of Competition Act) but the principles contained in the block exemption were applied.

Germany: court recognises repair and service market is brand-specific

In 2011 the Bundesgerichtshof controversially took the view in the MAN case that the aftermarket is not brand-specific, so quantitative restrictions on authorised repairers are permissible. Now the same court has come to the opposite conclusion, in a case (KZR 41/14) involving Jaguar. 

Court of Justice to consider online sales ban in selective distribution

The whole idea of selective distribution is that the manufacturer is allowed to decide how its goods will reach the market - through a certain type of reseller, which in the motor sector means a dealer who meets a raft of standards imposed by the manufacturer. Luxury goods might be limited to shops with a certain ambience, and in only the best locations. In Case C-439/09, Pierre Fabre, the Court of Justice ruled that absolute bans on online sales were prohibited, in selective distribution agreements and elsewhere. But can selected retailers be prevented just from selling the goods using online platforms like eBay and Amazon?

That's the topic of a reference from the Oberlandesgericht Frankfurt am Main to the Court of Justice (Case C-230/16, Coty Germany). The courts in Germany have taken a different view from that of the competition authorities there, which is a bit of a problem: the competition authorities have struck down online sales bans, while the courts (or at least the OLG Frankfurt am Main, here) have been upholding them. That court applied something very like the traditional justification for selective distribution, that a manufacturer has a legitimate interest in ensuring that its branded products are perceived as high-quality products, and that customers receive the right sales advice, so the manufacturer is free in principle to dictate the conditions under which its products are sold provided that they are necessary to meet its quality standards. Note that the court was there concerned with branded goods: it looks as if the fact that the new reference to Luxembourg concerns luxury products is significant, as the headings of the court documents suggest. The earlier case concerned "The question of the admissibility of the prohibition of Internet sales of brand-name items and their setting in the price search engines" and the new one is headed "Decision on the admissibility of selective distribution systems, which are directed on distribution of luxury and prestige goods" (thanks, Yandex Translate).

The motor industry is still quite a long way from having a big problem with online sales, with new car transactions still being showroom-based - but that isn't going to remain the case for ever. Depending on what the Court of Justice says, it might be a long, long time before online sales become significant. But we'll have to wait a while just to know that - about 15 months, according to one commentator.

[Hat tip to Isabelle Rahman, a partner in Sheppard Mullin's Brussels office, on the firm's Fashion Apparel Law blog - the commentator cited above.]

IAAF calls guilty verdict against Kia a 'major victory' for IAM | Professional Motor Mechanic

Professional Motor Mechanic reports an appeal decision in Sweden which IAAF has hailed as a major victory for the independent sector (though using criminal law terms like "guilty" can't be right). In December 2012, the Market Court in Sweden had ruled (MD 2012:13) that exclusivity clauses in Kia's 7-year warranty contracts breached competition rules. If the customer breached the terms, the warranty was not void - it was reduced to three years (although whether the terms remained the same is not clear). The company was ordered to allow its customers to choose independent repairers as well as authorised ones, and was fined SEK 5 million. Three years later the Supreme Court in Stockholm dismissed Kia's application for leave to appeal and for a retrial.

Manufacturers are generally prohibited from refusing to honour a vehicle's warranty on grounds only that it has been serviced by a non-authorised repairer or non-original parts have been fitted. Kia's warranty required servicing to be carried out by an authorised workshop. The Association of Swedish Car Parts Wholesalers (SBF), the Swedish member of FIGIEFA, reported the matter to the Competition Authority, which declined to take action. The SBF then took legal action against the manufacturer in the Market Court, which granted an injunction against Kia under Chapter 3, section 2 of the Competition Act - a provision which enables a party to obtain an injunction to bring an infringement to an end, when the Competition Authority has decided not to proceed. (Of course, that's a different matter from the Competition Authority deciding that no infringement has been committed: it might well decide not to proceed for other reasons, perhaps - I'm guessing here - because there is insufficient public interest, although this shouldn't have been a case where that was a good reason for not devoting resources to it.) In essence, it allows a private interest to take action where the public body hasn't.

Section 2 does not enable the party bringing the action to claim damages, but it does deal directly with the problem - and there remains the possibility of a follow-on action for damages anyway. The Market Court has decided a number of cases - 14, according to the CELEC report, which is now three years old: and the petitioner has been successful in "several" of them.

The Market Court took the view - unsurprisingly, I think - that the relevant market for servicing and repairs was a brand-specific one. It decided that the condition in the warranty had serious foreclosing effects because independents were excluded from competing: one of the objects of the condition was to restrict competition. It would be prohibited under Article 101 TFEU and the equivalent provision in the Swedish competition law.

Prof Henriksson of the Center [sic] for European Law and Economics (CELEC) questions whether it is correct to view the agreement between Kia and its authorised repairers as restricting competition because of the condition imposed on customers. It's an interesting point, although it might be answered by scrutinising the authorised repairer agreement. If Kia have been clever, though, I guess the agreement will be silent on the matter and the restriction will be imposed through the back door, by deterring consumers from going elsewhere. Perhaps the AR agreement says that dealers will not honour warranties in the prescribed circumstances - or in practice they will be prevented from doing so, within the framework of the AR agreement, by the fact that they won't get paid for their work.

Prof Henriksson also asks whether this is indicative of a difference of opinion between the competition authority and the court about what amounts to a breach of the prohibition. That seems unlikely: Christer Liljenberg, Chairman of SBF, is quoted by FIGIEFA as saying that the competition authority had indicated that it did seem to be a breach.

German Court dismisses repair shop action over right to be admitted to a passenger car manufacturer’s authorised repair network

Consumer Welfare in EU Competition Law: What is It (Not) About? by Victoria Daskalova :: SSRN

Consumer Welfare in EU Competition Law: What is It (Not) About? by Victoria Daskalova will be of interest to anyone concerned about the working of the block exemption - like me. The abstract reads:

"More than a decade after the proclamation of consumer welfare as a goal of EU competition law, a fundamental question remains unanswered: namely, what is the content of the EU consumer welfare standard? What types of benefits and harms count respectively as welfare and as harm? Whose harm and whose benefit is included in the definition? Few answers have been available to these crucial, from a legal perspective, questions.

The goal of this article is to explore the meaning of consumer welfare in terms of these questions. In particular, considering the assumption that the notion of consumer welfare in EU competition law is borrowed from economics, the article will attempt to verify to what extent consumer welfare coincides with the notion of consumer surplus in economics. The focus is therefore on 1) whether consumer can be taken to mean the final consumer or the intermediary purchaser and 2) whether the notion of harm refers primarily to price effects. Part I of the paper focuses on the definition of consumer welfare in antitrust law and in economics. Part II considers the definitions of consumer welfare in the Commission’s soft law and argues that a finding of an end user surplus cannot be supported. Part III turns to the jurisprudence of the European Courts and argues that support for end-user surplus cannot be found in the Court’s case law. The paper concludes that although we do not find support for an end-user surplus standard in the Court’s jurisprudence, the change in language in the 2012 Post Danmark ruling leaves us wondering as to whether and in what direction the Court’s approach might change."

If you feel an urge to read the 26-page article in full, you can download it from the link above.

'via Blog this'

Another trip down memory lane: Richard Cound v BMW, Clover Leaf Cars v BMW

While I am on the topic of old law which we should not forget (a couple of weeks ago it was the Supply of New Cars Order), I thought it worth mentioning these two important Court of Appeal cases on the block exemption. The first one, that is, but potentially still relevant. The trouble is I don't have complete reports, but on the basis that something is better than nothing and I want to have a readily-accessible note of the cases I thought it worth writing as much as I could here.

Richard Cound Ltd v BMW (GB) Ltd [1997] Eu. L.R. 301 was decided on 10 May 1995. The judges in the Court of Appeal were Balcombe LJ, Pill LJ, and Sir Roger Parker. Clover Leaf Cars Ltd v BMW (GB) Ltd [1997] Eu LR 53 was decided in the Court of Appeal (Staughton LJ and Thorpe J) on 28 December 1995 (and at first instance in the Chancery Division, apparently on 20 December that year, by Rattee J). Given that the termination of the dealer agreement in the second case was to take effect on 31 December, one can see perhaps why the courts dealt with it so urgently. (I don't at present have information about the situation in the Cound case, but as I recall the same facts applied - BMW terminated the agreement from 31 December 1995 - but the case was brought a bit more promptly.) In the Clover Leaf case, and (subject to confirmation) in Cound too I think, the key fact was that the dealer had been taken over by a PLC and BMW did not want too many of them in its network, so it gave (as it was entitled to do) 12 months' notice.

In each case, the important matter was not really whether the restrictions in the agreement on ownership were prohibited by Article 85(1) (as was, and in my mind often still is) and, if so, exempted by Regulation 123/85: the manufacturer's freedom to terminate without having to state a cause (to terminate for convenience) on 12 months' notice was enough to make the termination lawful. What was really interesting was the contention by the plaintiffs that the allegedly prohibited and therefore void provisions of the contract could be severed and the rest of the contract enforced without them. The court held that the issue of severance was governed by English law, following Chemidus Wavin Ltd v Societe pour la Transformation et l'Exploitation des Resines Industrielles SA [1978] 3 C.M.L.R. 514. The judge in Cound had been right to conclude that the effect of severance would have been to alter the character of the agreement and that the agreement did not permit the excision of void terms such as to alter its scope and intention entirely: Hinton & Higgs (UK) Ltd v Murphy 1988 S.C. 353. In Clover Leaf, the court was able to follow the judgment in the earlier Cound case.

Also noteworthy, I think, is the court's holding (in both cases) that the termination was to be viewed as unilateral conduct by the manufacturer, not as something that constituted an agreement.

Brand-retailer relationships strained | Auto Retail Network

Brand-retailer relationships strained | Auto Retail Network:

"Relationships between franchised dealers and car manufacturers have fallen even further since summer 2014, according to the latest NFDA Dealer Attitude Survey. Asked how they rated their manufacturer overall, the average score was 6.5 out of 10, down 0.1 points since the summer 2014 survey and down 0.7 points since last winter."'via Blog this'

Skoda Auto fined CZK 49 million for margin fixing

Reuters reports that Škoda Auto has been fined CZK 49 million (which converts to a much less-impressive-souding £1.3 million) for margin-fixing. The penalty was imposed last December, but only now published after documents had been suitably redacted to remove confidential information. The manufacturer's offence was to fix margins with its Czech dealers in 2011 and 2012.



'via Blog this'

AW: Direct sales approach gaining momentum in US

Automotive World (subscription required) reports that direct sales, cutting out the franchised dealers, are becoming more popular. Perhaps some would argue that the level of legal protection enjoyed by dealers in the US is encouraging manufacturers to find other ways to engage with customers?

Be careful with free offers

The BBC News website reported last week (before I became diverted by the election) that a dealer had found itself being taken advantage of: 'Free meal' garage customer's £700 bill at top London restaurant. A customer offered a meal out for two in apology for damage caused to her car on the premises managed to run up a bill of £714, including a surprising amount of alcohol ("four glasses of champagne, two bottles of wine costing £69 each, six cocktails totalling £86 and a sloe gin": is that humanly possible?). The dealer is offering to split it with the customer, which (knowing only what is in the BBC report) seems to me to be highly optimistic: even if there is no legal obligation (and this could be no more than a gift, with no consideration to make it a binding contract, as the actual damage was fixed and a courtesy car provided) it plays very badly in the media.

Of course, the solution is quite simple, and the dealer is no doubt kicking its corporate self for missing the obvious: put a cap on the amount you'll spend. And there is nothing to stop someone in the same position designating the restaurant too, providing an opportunity to give a customer a little business at the same time as making a disgruntled customer a little more gruntled.

On another point, as I have frequently observed the motor trade is in the odd position of manufacturers' goodwill being in the hands of its dealers, a matter which the manufacturers have in fact exacerbated over the past decade by increasing the prominence of their own identity over that of the actual dealer. The result is that the wronged party in this story, which now might be seen to be squirming to try to claw back a sum of money that the public will probably consider paltry by its standards, is not the dealer but Audi. (That makes it even more paltry, of course.) It is sad to see anyone trying to do the right thing being so badly taken advantage of, but it's worse perhaps when that person is wrongly identified.

Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism by Daniel A. Crane

Cross-posted from the Motor Law blog:

Thanks to Public Lawyer's Consumer Law & Policy Blog  I can bring to your attention an interesting article entitled Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism by law professor Daniel Crane. Here's the abstract, to save you following the link back to CL&P:

Tesla Motors is fighting the car dealers' lobby, aided and abetted by the legacy Detroit manufacturers, on a state by state basis for the right to distribute its innovative electrical automobiles directly to consumers. The Tesla wars showcase the important relationship between product innovation and innovation in distribution methods. Incumbent technologies may block competition by new technologies by creating legal barriers to innovative distribution methods necessary to secure market acceptance of the new technologies. While judicial review of such special interest capture is generally weak in the post-Lochner era, the Tesla wars are creating new alliances in the political struggle against crony capitalism that could contribute to a significant re-telling of the conventional public choice story.

I can, I hope, perform a useful service by explaining the significance of Lochner v. New York, 198 U.S. 45, (1905), a case which marked the beginning of what is now called the Lochner era in the Supreme Court, marked by the Court's using its interpretation of substantive due process to strike down laws held to be infringing economic liberty or private contract rights, including state legislation that regulated business. The relevant Wikipedia entry will tell you probably all you need to know, perhaps rather more. The era came to an end with the Court's decision in West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937), where it upheld minimum wage legislation introduced in Washington State and thereafter took an attitude more favourable to the New Deal than had previously been the case. (It is thought that Roosevelt was about to pack the Supreme Court with new appointments who would take a different view of the constitutionality of his policies, but in the end it was not necessary.)

Four former Chrysler dealers could reopen under U.S. appeals court ruling

Four former Chrysler dealers could reopen under U.S. appeals court ruling according to Automotive News. This comes as the result of a decision of the 6th Circuit Court of Appeals, which held earlier in January that the federal law which created the arbitration process in which the dealers won against the manufacturer prevailed over state laws that would on their face allow nearby competitors to challenge the reopenings.

Dealer Protection Code - Dead in the Water

The much-vaunted code of conduct to which the Commission encouraged the two sides of the industry to agree after removing the dealer protection measures from the 2010 block exemption, has finally been knocked on the head by ACEA. Auto Retail Network reports the Association’s Legal Director Marc Greven, stating at CECRA’s European Car Dealer Conference in Brussels in late September that the organisation did not plan to agree to a code.

That is not to say that there will never be a code, just that ACEA does not consider that its job includes agreeing one. Mr Greven said it was a contractual matter between manufacturers and their dealers. But if that is the case, what was the draft code promulgated by ACEA JAMA supposed to be for? CECRA never liked that much, and of course the manufacturers never liked the dealers’ proposals either. Has the ACEA/JAMA code also been dropped?

The Commission announced last December that if the two sides did not agree, it would impose a solution, and it set the end of this year as a deadline – coinciding with the conclusion of work on the CARS 2020 Project (see Motor Law, volume 13 number 11 and this posting). That looked encouraging, for those who like the idea of a code, but it appears that it failed to take into account that the Commission was up for a replacement in the interim, and as we are seeing now new Commissioners are being appointed as the old ones make their exits. Commissioner Almumia’s parting speech is reported elsewhere in this issue. So along the line, the Commission’s commitment went from a statement of intent to see this through, to reserving the right to introduce legislation on unfair trading practices. Since when, incidentally, did the Commission have to reserve the right to do something within its powers?

Carlo Pettinelli, currently Director of Industrial Innovation and Mobility Industries in DG Enterprise & Industry, did however assure the CECRA Conference that the subject was still firmly in the minds of the people responsible. So action before the year end can still be expected.

Commission rejects Federauto's complaint against VW

The European Commission has rejected a complain lodged by the Italian dealer organisation, Federauto, concerning SEAT dealer agreements. The complaint alleged that competition rules had been broken because teh manufacturer (Volkswagen Group Italia) had unilaterally reduced the dealers' margin from 15.85 per cent to 12.85 per cent, and had converted part of the margin from fixed to variable. The case is number AT.40050: it is not easy to find on the Commission website (a Google search found it for me) and anyway it is 10 pages of Italian, which might be more useful to you than it is to me. It is however helpfully reported by our good friends at Van Bael and Bellis: here is a link to the article on the Mondaq service, for which you might have to register. It is also in that firm's competition law newsletter, the relevant edition of which you can download from here.
Federauto argued that this violated the rationale underlying Art 3 of Regulation 1400 as well as being contrary to the vertical restraints block exemption regulation (Regulation 330/2010). Not a great start to be basing your case on the law's rationale rather than its clear words, and always a bad idea to rely on positive obligations created by a block exemption, because generally there aren't any. If you read the argument as being that because of the failure to comply with the conditions for exemption set out in the Regulation(s) the agreement was in breach of Article 101 of the Treaty, that sounds a bit better: but it still doesn't get you to where you want to be, because you then have to convince the Commission that there is a breach Article 101 somewhere.
The Commission was not convinced. There was no evidence of a restriction of competition, such as would breach Article 101(1). The clauses in the dealership contracts concerning margins were not hardcore restrictions. The new margins did not amount to retail price maintenance because dealers remained free to fund their own discounts on sales to consumers.
The complaint also touched on another, very sensitive, area: Federauto complained that VWGI did not have a code of conduct regulating relationships with dealers. The Commission's Supplemental Guidelines on Vertical Restraints in Agreements for the Sale and Repair of Motor Vehicles tells us, of course, that the existence of such a code is a relevant factor in assessing a supplier's conduct in individual cases concerning pressure on dealers to achieve anti-competitive outcomes. However, there was no evidence that such pressure had been exerted and the Commission stated that mere failure to have a code did not amount to a breach. Nothing very surprising there.
The complaint could be seen as a last-ditch attempt to restore dealer protection principles to the block exemption regime, following their removal in the latest iteration of the Regulation. If that is what it was, the best that can be said is "nice try". Dealer protection is never going to be restored by asking the Commission to read something into the Regulation that clearly isn't there: it is going to come from the Commission imposing a code of conduct on the manufacturers, or adopting legislation like the commercial agents' directive.

USA: Nissan dealer's sales affected by local Chevrolet plant

Ah, if only we had laws like the ones in the USA that protect dealers. What little we had under the block exemption disappeared at the end of May. Sims v Nissan 2013-Ohio-2662 is a case in the Ohio Supreme Court involving a Nissan dealer in Warren, Ohio. There is a GM plant in Lordstown, about six miles away. The Ohio Supreme Court agreed with the dealer's argument that Chevrolet's unusual popularity in his market makes Nissan's sales expectations for him unrealistic.

There was a time, not so long ago, when a European dealer would have been able to invoke the dispute resolution procedures required by the block exemption to get such a problem sorted, by an arbitrator or expert third party. No longer. The Code of Good Practice issued by ACEA states that dealers will have the right to refer disputes to an independent expert or arbitrator, but what provides the basis for a dispute that can be referred? The dealer would have to argue that the target was set so high that it amounted to an unlawful restriction on competition - perhaps it would prevent the dealer in question taking in additional franchises. But it's pretty nebulous.

And while it might sound like an unfair commercial practice, the Unfair Commercial Practices Directive (Directive 2005/29/EC), which sounds as if it might be the right instrument to look to for redress, only applies to B2C transactions, not B2B which is what dealer agreements are. It is occasionally mentioned as a possible source of dealer protection, but for this simple reason it doesn't look very useful. But there is a green paper under discussion at present in Brussels, on unfair commercial practices, which was originally launched with a view to looking at practices in the food retailing sector. However, 34 per cent of responses (of which there were 746 altogether) came from the motor trade, and the NFDA is now pushing for the Commission to reintroduce some dealer protection measures. The consultation is being carried out by the Commission's Directorate General for Internal market and Services, and as so often happens it is quite possible that you'll get a different answer from them than from DG Competition - whose agenda, of course, is quite different. The UK government's response to the Commission's consultation is here.

USA: Federal Statute Precluding Enforcement of Arbitration Clauses in Motor Vehicle Franchise Contracts Inapplicable to Snowmobile, ATV Dealer Agreements

Mandatory arbitration clauses are common in franchise agreements, including motor vehicle franchise agreements. Whether a manufacturer can enforce such a provision requires an analysis of competing state and federal statutes and a determination of whether the vehicles sold fall within the statutory definition of a “motor vehicle.” In an opinion addressing the various statutory regimes, a federal district court in New York held the Motor Vehicle Franchise Contract Arbitration Fairness Act, 15 U.S.C. 1226 did not limit a franchisor’s effort to arbitrate a dispute concerning dealer agreements for snowmobiles and all-terrain vehicles (ATVs). At the same time, the court held that the Fairness Act did serve to block arbitration of claims regarding the same dealer’s motorcycle franchise.

Champion Auto Sales, LLC v. Polaris Sales Inc., 2013 U.S. Dist. Lexis 65219 (E.D.N.Y. Mar. 27, 2013). 

Full casenote on Day Pinkney LLP's website here. 

USA: No cure opportunity has to be given if dealer's breach cannot be cured

Many state motor vehicle dealer statutes require that dealers have a chance to cure contractual breaches before being terminated. Does a statutorily-mandated cure provision require a motor vehicle franchisor to provide a dealer with an opportunity to cure a breach that, absent the statute, would be incurable? The New York Franchised Motor Vehicle Act requires that a franchisor provide a dealer with a "reasonable time" to cure a material breach of contract that forms the basis for a termination. It does not, however, expressly address the interplay of the statutory cure period with common law principles applicable to incurable breaches. In Giuffre, the court concluded that the Dealer Act does not require a motor vehicle franchisor to provide a dealer with an opportunity to cure breaches that were incurable under New York common law.

Giuffre Hyundai, LTD v. Hyundai Motor America, No. 13-cv-0520, 2013 U.S. Dist. LEXIS 67795 (May 10, 2013)

Read the full casenote on Day Pitney's website, here.

 

New Hampshire Supreme Court Holds Settlement Unenforceable Under Anti-Waiver Provisions of State Motor Vehicle Franchise Law

In the US, where dealers enjoy protection that would cause apoplexy in the European Commission, state motor vehicle franchise laws often proscribe agreements that purport to waive the statutory protection given to dealers. When a new franchise relationship is formed, a manufacturer cannot pressure the new dealer into forgoing legislative safeguards against termination or encroachment, among other things. But what happens when a dealer waives such rights in connection with a settlement of litigation? In New Hampshire, at least, such a settlement agreement will not be enforceable, according to a recent ruling by that state's supreme court.

Sounds not unlike what's going on with Fiat's dealers in Greece ...

Strike Four, LLC v. Nissan North America, Inc., No. 2012-193, 2013 N.H. Lexis 37 (April 12, 2013). 

 

See the full story here from Day Pitney LLP.