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Commercial analysis: The appeal court agreed to strike out a claim seeking to imply an umbrella 'relational' contract between a dealership, a car manufacturer and the manufacturer's finance company. 

The appellant was seeking to argue for a longer notice period as an element of an implied term of good faith.

The appeal court did not agree that there was an implied term to act in good faith in the express or any implied contracts between the parties, nor could one be inferred from the conduct of the parties. The clear terms of the written contracts between the parties precluded the finding of an implied 'relational' contract, an implied term to act in good faith or a longer notice period. 

Mackie Motors (Brechin) Ltd v RCI Financial Services Ltd [2023] EWCA Civ 476

What are the practical implications of this case?

This case shows the difficulties in pleading a case based on implied terms in an implied contract, especially where the language in the written contracts is clear. Those written contracts expressly stated that they could be terminated upon seven‑days' notice. Further, given that those contracts were framework agreements which did not oblige the supplier to provide the services, it was hard to contend that it was necessary to imply a longer notice period.

This judgment is a useful reference point when a party is considering running a case alleging an implied contract. The court looks at all the circumstances and, in particular, the conduct of the parties from which it is said the implied contract can be inferred. Drafting such facts and circumstances in such a manner to plead a substantiable implied contract is challenging as the draftsperson needs to set out the conduct and then from that conduct plead:

  • how the implied terms are essential;
  • the parameters of the implied terms; and
  • when the contract was formed.

While the court has found implied terms of good faith in long term distributorship contracts before (see Yam Seng v International Trade Corp Ltd [2013] EWHC 111 (QB)), it would require very unusual circumstances for the implied terms to override the express terms, such as the unusual circumstances in the postmasters litigation against the Post Office (Bates v Post Office [2019] EWHC 606 (QB)).

The best method for introducing a good faith obligation into a distributorship arrangement (or in any contract) is to expressly provide for it in the written terms.

What was the background?

This is an appeal arising out of a claim by Mackie Motors (Mackie), a car dealership business, against RCI, a provider of car finance to Mackie's customers and a subsidiary of Renault. Mackie had entered into dealership agreements with Renault and Nissan terminable on 24 months' notice.  Framework agreements were also in place between Mackie and RCI (RCI contracts) under which finance might be advanced to customers on a case‑by‑case basis, terminable on seven days' notice.

RCI had concerns that Mackie may have been involved in money laundering (that matter was not before the court) and terminated the RCI contracts by giving seven days' notice.  Mackie sought an injunction to prevent RCI from ceasing to provide dealer financing, relying on the Competition Act 1998 and the Unfair Contract Terms Act 1977. That injunction was refused on the basis that the claims did not have a real prospect of success.

Mackie sought permission to amend its claim to allege that Mackie, RCI, Renault and Nissan were parties to an implied umbrella 'relational' agreement with implied terms including:

  • that the parties would act in good faith in its performance; and
  • that RCI would not withhold provision of its services or terminate without good cause and without giving 24 months' notice.

Alternatively, Mackie relied on a construction argument that the RCI contracts should be read with a 24‑month notice period (in line with the dealership agreements) and an estoppel argument to prevent RCI relying upon the seven‑day notice provision.

The first instance court refused Mackie permission to amend and struck out the whole of Mackie's proposed amended particulars.  Mackie appealed.

What did the court decide?

1. Was there an implied umbrella agreement?

Mackie contended that it was at least arguable that an umbrella agreement could be implied from the parties' conduct. Further, the duty of good faith would apply to the dealer financing services and/or that as a result of an implied term RCI would be obliged to provide such finance during a 24‑month notice period.

The appeal court noted that in Heis v MF (Global) Services Ltd [2016] EWCA Civ 569 that, when considering whether to imply a contract, the court looks at all the circumstances and in particular the conduct of the parties.The court found that the pleading:

  • did not assert that the services to be provided under the umbrella conduct were essential;
  • was vague as to when the umbrella agreement was formed; and
  • was unclear on what conduct formed the umbrella agreement.

In light of this, the amended particulars did not plead a claim with a real prospect of success.

2. Was there an implied term of good faith?

Even if Mackie was able to plead the umbrella contract, it also had to convince the court to imply a term of good faith and/or a longer notice period of 24 months to override the seven‑day notice period in the RCI contracts.The Court of Appeal identified three fatal problems with the amended particulars:

  • first, the amended particulars did not adequately plead the implied terms;
  • second, the scope of the implied terms was unclear; and
  • third, the implied terms were inconsistent with the express terms of the RCI contracts.

3. Construction and estoppel

Neither of these grounds of appeal were sustainable.The termination clauses in the RCI contracts were unqualified and unambiguous and there was no possibility to interpret them differently, even from the factual matrix or implication of terms. Estoppel did not save the appellant, as there was not a clear representation from RCI that the seven‑day notice period would not be enforced.

Case details:

  • Court: Court of Appeal, Civil Division
  • Judge: Sir Geoffrey Vos (Master of the Rolls), Lady Justice Asplin and Lady Justice Andrews
  • Date of judgment: 4 May 2023

This article was first published by Lexis®PSL on 24 May 2023.