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European court case may reduce franchise dealer protection

A European Court of Justice (ECJ) case involving Volvo looks likely to reduce the protection of sacked franchised car dealers recovering indemnity payments from their former suppliers.

Court advocate general Yves Bot formally advised that EU rules on self-employed commercial agents mean car manufacturers can withhold indemnities, even when the grounds for refusing repayment was a different contract infringement than the problem that sparked a dealer’s initial dismissal.

Furthermore, Bot said this right of refusal would apply even when a carmaker was unaware it had grounds to retain the indemnity when sacking the dealer for a different reason.

The case was between Volvo Car Germany and the German dealer Autohof Weidensdorf, which was dismissed over concerns a closely related company was buying discounted cars at prices it would not have secured direct from the manufacturer.

The indemnity was withheld after Volvo later discovered some of these cars were sold after the dismissal had occurred and within six months of purchase, in contravention of Volvo’s resale rules.

The ECJ still must approve this opinion for it to become a legal precedent, but judges usually follow advocate general’s suggestions.

The only good news for dealers is where a carmaker was aware a dealer had broken a contract so seriously that an indemnity could be forfeited before sacking the dealer for a different reason, and did not mention the problem beforehand.

Bot said: “in such a case…it could be argued…the failure of the agent was not sufficiently grave to deprive him of his goodwill indemnity”.

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