J Toomey Motors Ltd & Anor v Chevrolet UK Limited

1. The Toomey group of companies maintains a number of car dealerships in South Essex. The First Claimant, J Toomey Motors Ltd (“Toomey Basildon”) and the Second Claimant, Toomey Southend Limited (“Toomey Southend”) (collectively “Toomey”) had sold Chevrolet cars from their respective showroom premises since about 2006. They also serviced such vehicles and in addition, Toomey Basildon had body shop facilities. They also held franchises to sell Vauxhall cars which, as with Chevrolet, were at all material times owned by General Motors. The Defendant, Chevrolet UK Ltd ("Chevrolet”) was the Chevrolet distributor for the UK.

2. Toomey Basildon and Toomey Southend each signed identical written franchise agreements with Chevrolet operative as from 1 June 2013 (“the Agreements”). These replaced earlier similar agreements in broadly the same form.

3. On 9 December 2013, Chevrolet gave to all of its UK dealers, two years’ notice of termination of their franchises. This followed a decision made by General Motors shortly before, that it would no longer market the Chevrolet brand in Europe. By May 2014, the vast majority of such UK dealers had agreed terms of settlement with Chevrolet whereby, in exchange for a monetary payment, they agreed to cease their franchises in the course of 2014 rather than keeping them until the end of 2015 when the notice expired. However, Toomey did not settle with Chevrolet because it felt that the compensation offered for early termination was inadequate. By July 2014 there was only one remaining dealer other than Toomey, and that dealer settled in September 2014.

4. The result was that for most of 2014 and into 2015, Toomey effectively “went it alone” as a Chevrolet dealer. Since the end of 2013 the trading environment for Chevrolet cars, as far as Toomey was concerned, had changed significantly. In particular, following a national sale in early 2014 with very large discounts, Chevrolet, through its dealers, sold off all of its UK stock that is to say the stock which it kept in its compound at Portbury (which at times could amount to some 2,000 – 3,000 cars) and thereafter any purchases by dealers (now in effect only Toomey) would have to be by way of factory orders. The factory was in Korea and the lead time given in mid-2014 was around 3-4 months. In addition, financial incentives offered to dealers were much reduced in scope.

5. On 15 February 2015 Chevrolet announced that it would shortly be ceasing to supply Chevrolet cars into the UK altogether; any remaining factory orders had to be placed by (variously) 21 February and 3 March 2015.

6. As a result of all of these changes, by its solicitor’s letter dated 27 March 2015, Toomey contended that Chevrolet had ,through its actions, withdrawn all facilities necessary to enable Toomey to effect sales of Chevrolet cars within the notice period. It said that this amounted to a repudiation of the Agreements which was accepted. By its solicitor’s letter in reply dated 2 April 2015, Chevrolet denied any repudiation. It said that the two-year notice period was designed to allow a gradual wind-down of each party’s sales operations (a legal point not pursued in these proceedings) and that the Agreements remained operative until 31 December 2015.

7. In these proceedings Toomey alleges, in summary, that by a series of express or implied terms of the Agreements, Chevrolet was obliged (a) to provide a number of financial incentives to Toomey, (b) to maintain its Portbury or similar UK compound containing a sufficient amount of appropriate stock for Toomey to buy, (c) to maintain the existence of at least a sufficient and appropriate network of dealers across the UK and (d) to provide national advertising to support Toomey’s sales operation. Chevrolet’s failure to abide by these obligations in the notice period amounted to a clear breach of all such terms. Toomey further contends that such breach was repudiatory in nature. As a result it has claimed losses in the region of £700,000. This represents the profits which it says would have been made from the sale of new and used cars (and consequent profits from servicing and bodywork) which would have occurred but for these breaches.

8. For its part, Chevrolet denies that there were any such obligations whether express or implied and says that there was no breach, repudiatory or otherwise, and even if there had been, the losses sustained would be of a much reduced order.

9. Most of the key facts in this case are not seriously in dispute; the question is not whether there was a significant change in the trading position between Toomey and Chevrolet or that Chevrolet was seeking to wind down its operations overall, but whether their actions amounted to a breach of contract. Put another way, whether the way in which the parties had dealt with each other since inception of the Agreements and previously, were in fact the subject of contractual obligations on the part of Chevrolet - or not. THE EVIDENCE

10. For Toomey I heard from Paul Plant, the CEO of MJT Securities Limited, the ultimate parent company of Toomey, Barry Ives, the Group Managing Director for Toomey Basildon, Stephen Decelis, Group Managing Director for Toomey Southend, Richard Webster, a Sales Executive at Toomey Basildon and Michael Briar, Toomey’s accountant.

11. For Chevrolet, I heard from Les Turton, Managing Director of Chevrolet from December 2013 to December 2015.

12. I also heard from forensic accounting experts instructed by both sides: Ms Catherine Rawlin for Toomey and Mr Charles Lazarevic for Chevrolet. Helpfully, both before and during the trial, they were able to narrow considerably the issues between them. THE AGREEMENTS

13. The agreements contained the following material terms to which I shall refer as appropriate below. “ PURPOSE OF Agreement The purpose of this Agreement is to promote a relationship between Chevrolet and Dealer which encourages and facilitates cooperation and mutual effort to satisfy customers, and permits Chevrolet and Dealer to fully realise their opportunities for business success. Chevrolet has established a quantitative selective distribution system network of Chevrolet Dealers operating within approved areas of responsibility to effectively sell Motor Vehicles and a qualitative selective distribution system network to effectively sell Parts and Accessories and to effectively service Motor Vehicles and Other Chevrolet Vehicles, The aim of these networks is to build and maintain customer confidence and satisfaction in Chevrolet Dealers and Chevrolet and to promote the Chevrolet brand. Consequently, each Chevrolet Dealer relies upon Chevrolet to provide sales and aftersales service support and to continually strive to enhance the quality and competitiveness of Motor Vehicles. At the same time, Chevrolet relies upon each Chevrolet Dealer to provide appropriate skill, capital, equipment, staff and facilities in accordance with this Agreement to properly sell Motor Vehicles and Parts and Accessories, service and repair Motor Vehicles and Other Chevrolet Vehicles and protect the reputation and satisfy the customers of Motor Vehicles and Other Motor Vehicles in a manner that demonstrates a caring and professional attitude toward those customers. This mutual dependence requires a spirit of cooperation, trust and confidence between Chevrolet and the Chevrolet Dealers. This Agreement (i) authorises Dealer to sell Motor Vehicles and Parts and Accessories and to service and repair Motor Vehicles and Other Chevrolet Vehicles and to represent itself as a Chevrolet Dealer; (ii) states the terms under which Deafer and Chevrolet agree to do business together; (iii) states the responsibilities of Dealer and Chevrolet to each other and to customers; and (iv) reflects the mutual dependence of the Parties in achieving their business objectives. APPOINTMENT AS DEALER 1.1 Chevrolet grants Dealer the non-exclusive rights to (1) purchase Motor Vehicles and related Parts and Accessories; (2) provide repair services to Motor Vehicles and Other Chevrolet Vehicles; and (3) identify itself as a Chevrolet Dealer in the manner and at the Facilities set out in this Agreement. 1.2. Responsibility to Promote and Sell Products 1.2.1. Dealer has the obligation to promote, advertise, market and sell Motor Vehicles and Parts and Accessories in accordance with this Agreement. 1.3. Dealer's obligation to purchase a minimum value of Motor Vehicles each Year is described in Annex 8 (Motor Vehicle Minimum Purchase Requirement), 1.4. Responsibility to service Motor Vehicles and Other Chevrolet Vehicles 1.4.1. Dealer has the obligation to provide a courteous, convenient, prompt, efficient and quality aftersales service to owners of Motor Vehicles and Other Chevrolet Vehicles, regardless of where Motor Vehicles and Other Chevrolet Vehicles were purchased, in accordance with this Agreement 5.1. Area of Responsibility 5.1.1. Dealer is responsible for effectively promoting, marketing and selling Products, marketing the aftersales support of Motor Vehicles and Other Chevrolet Vehicles, servicing Motor Vehicles and Other Chevrolet Vehicles, and otherwise representing Products as set out in this Agreement in and from the Area of Responsibility.

7. SALE OF MOTOR VEHICLES TO DEALER 7.1. Motor Vehicles 7.1.1. Motor Vehicles which Dealer may order from Chevrolet or its designees are set forth in Annex 6 (Motor Vehicles). Chevrolet may change Annex 6 (Motor Vehicles) at any time by providing Dealer with a superseding Annex 6 (Motor Vehicles). 7.1.2. Chevrolet may discontinue marketing any type or series of Motor Vehicle at any time provided Chevrolet delivers to Dealer accepted orders for such Motor Vehicles. If Chevrolet begins or discontinues marketing any type or series of Motor Vehicle, Chevrolet will provide Dealer with a superseding Annex 6 (Motor Vehicles). Chevrolet may change the design or specifications of any type or series of Motor Vehicle, including any optional equipment, at anytime without incurring any obligation to Dealer not expressly assumed under this Agreement. 7.2. Ordering Procedures 7.2.1, . Dealer shall submit orders for Motor Vehicles in accordance with the written or electronic procedures established by Chevrolet Dealer orders are subject to acceptance by Chevrolet. 7.2.2, There are numerous factors which affect the availability of Motor Vehicles and their distribution to Chevrolet Dealers. Among those factors are market demand, product availability, sold orders, turnover of stock or inventory, sales performance, weather and transportation conditions and government regulations. Chevrolet or its designees will use their best endeavours to allocate Motor Vehicles among Chevrolet Dealers on a fair and equitable basis. 7.2.1. Orders for Motor Vehicles will be binding on Dealer upon receipt by Chevrolet. Chevrolet may cancel orders confirmed by Chevrolet in the following circumstances: i. model year changes; ii. new model launches; iii discontinuation of production; iv. production shortages; and/or v. termination of this Agreement. 7.3, Terms of Sale 7,3,1. Prices, delivery charges, and other terms of sale applicable to purchases of Motor Vehicles by Dealer are set out in Annex 7 (Motor Vehicle Terms of Sale). 7.3.2. Annex 7 (Motor Vehicle Terms of Sale) may be changed by Chevrolet at any time and, except as otherwise provided in writing, such changes will apply to Motor Vehicles not invoiced to Dealer at the time the changes are made. 7.3.3. Chevrolet will provide Dealer with written notice of any price increases to Motor Vehicles before any Motor Vehicle to which such increase applies is invoiced, except for initial prices for a new model year or for any new model or body type which will be notified to Dealer at the appropriate time. 7.3.4. Chevrolet reserves the right to select the production and shipping locations and modes of transportation, carriers and delivery points for delivery of Motor Vehicles to Dealer.

11. BRAND PROMOTION In recognition of Dealer's key role in promoting, advertising and marketing the Chevrolet brand, and selling Products, Dealer shall at all times: 11.1 comply with Chevrolet marketing and sales strategies and brand advertising guidelines and promote the sale of Products according to Chevrolet's marketing calendar; 11.2. maintain the minimum number of demonstrator Motor Vehicles for the purpose of providing test drives to potential customers according to the demonstrator program rules issued by Chevrolet; 11.3. maintain a minimum level of stock of Motor Vehicles according to Annex 10 (Sales Scaling Table);

12. QUALITY MARGIN STANDARDS AND QUALITY MARGIN 12.1 Provided Dealer has met all Dealer's obligations under this Agreement, where, Dealer meets a Quality Margin Standard as defined in Annex 11 (Quality Margin Standards and Quality Margins), Chevrolet shall grant Dealer a Quality Margin in relation to that Quality. Margin Standard. 12.2, Chevrolet may, at its absolute discretion, grant Dealer a Quality Margin in relation to one or more Quality Margin Standards, notwithstanding that Dealer is not complying with one or more of Dealer's obligations under this Agreement, provided that Dealer: 12.2.1 has developed and agreed a remediation plan with Chevrolet to address the noncompliance; and 12,2.2. is implementing the said remediation plan according to its terms and timeline. DEALER AND CHEVROLET EVALUATION 13.1. Dealer and Chevrolet recognise that Chevrolet is responsible for establishing a j network of Chevrolet Dealers and that the performance of each Chevrolet Dealer affects the overall success and image of the entire network of Chevrolet Dealers: / 13.2. To assist Dealer in evaluating its sales of Motor Vehicles and Parts and Accessories and its conduct and performance of Dealership Operations and in order to maintain or enhance the image of Chevrolet and the network of Chevrolet Dealers, Chevrolet will evaluate Dealer in accordance with this Article 13 and with Annex 16 (Dealer Evaluation). Chevrolet will provide Dealer with the results of the evaluation and any action plan that Chevrolet may require. Chevrolet reserves the right to change Annex 16 (Dealer Evaluation) at any time on not less than six (6) months prior written notice to Dealer. - 13.3. Without limiting the foregoing, Chevrolet or its designees may evaluate Dealer on ail or any of the following:…. 21 TERM AND TERMINATION OF AGREEMENT 21.1. Term The term of this Agreement shall begin on the Commencement Date and shall continue for an indefinite term until terminated in accordance with the provisions of this Agreement. 21.2. Termination by agreement This Agreement may be terminated at any time by written agreement between Dealer and Chevrolet. The provisions of Article 23 relating to termination assistance will be applicable to the extent set forth in the written termination agreement. - ' 21.3. Termination of Agreement on Notice Dealer or Chevrolet may terminate this Agreement at any time by written notice to the other Party. Any termination will be effective on the date specified in the notice, which date will be not less than twenty four (24) months after receipt of the notice, provided that if, during the twenty four (24) month notice period, a termination notice of less than twenty four months is served by Chevrolet pursuant to Articles 21.4, 21.5, 21.6, 21,7, 21.9 or 21.10, such shorter notice period shall apply, 21.4. Termination of Agreement for Dealer's failure to comply with its obligations under this Agreement… 21.9. Reorganization of the network of Chevrolet Dealers Chevrolet may terminate this Agreement by notice to Dealer to reorganize the whole or a substantial part of the network of Chevrolet Dealers, Any termination will be effective on the date specified in the notice, which date will not be less than twelve (12) months after receipt of the notice,

24. GENERAL PROVISIONS 24.1. No Agent or Legal Representative Status This Agreement does not make either Party the agent or legal representative of the other for any purpose, nor does it grant either Party authority to assume or create any obligation on behalf of or in the name of the other. No fiduciary obligations are created by this Agreement. 24.2. Responsibility for Operations 24.2.1. Dealer is an independent business and as such is solely responsible for the success and profitability of all Dealer's business activities, Dealer enters into this Agreement based on its market analysis and its knowledge of the market. Any market analyses provided to Dealer by Chevrolet prior to the execution of this Agreement or during the term of this Agreement are for information purposes only and shall not be construed as the basis of Dealer's decision to enter into this Agreement or to continue this Agreement. 24.2.2. Except as provided In this Agreement, Dealer' is solely responsible for all expenditures, liabilities and obligations incurred or assumed by Dealer for the establishment and conduct of Dealership Operations.