Seismic ruling from the High Court gives Franchise Finance Providers the green light to terminate critical financing services and contracts on only seven days' notice

In a recent judgment, the High Court has delivered a far-reaching and critically important judgment for automotive dealers across the United Kingdom, finding that a Franchise Finance Provider is entitled to terminate financing services - which dealers depend upon to survive - and contracts on only seven days' notice.

Background to the judgment

Freeths LLP has been instructed by Mackie Motors (Brechin) Limited to pursue a claim against RCI Financial Services (the Franchise Finance Provider for Renault, Nissan and Dacia), in connection with RCI cutting off - without any warning - Mackie Motors' access to critical financing services.

RCI's actions left Mackie Motors' business paralysed and starved of oxygen it was unable to access the manufacturers' systems to propose new or repeat customers for the sale of vehicles, unable to access clearing accounts which left it with no visibility as to amounts that were being paid in and paid out of those accounts and it could not acquire car parts nor provide repair and maintenance services to existing customers. Whilst these services are often undocumented, they are 'part and parcel' of any manufacturer, finance provider and dealer relationship: often existing for many years. Any dealer will be acutely aware of the critical importance of the finance provider's services to the success of a dealership.Shortly after RCI cut off Mackie Motors access to these critical services, it terminated all its contracts with Mackie Motors (with no reason given) and provided just seven days' notice before the contracts were to end. Unsurprisingly, this left Mackie Motors unable to trade and forced the sale of the award-winning and family-run dealerships, which have operated for 45 years in the heart of Scotland. 

The Court's judgment

Mackie Motors decided to pursue Court proceedings against RCI and Freeths LLP were instructed in early 2022 to advise on a claim to recover the losses that Mackie Motors had suffered because of RCI's unlawful decision to cut off the critical services and to terminate all of its contracts at very short notice.

At a hearing in July 2022, RCI argued that the contracts in place with Mackie Motors gave it a right to terminate on seven days' notice - despite this being entirely inconsistent with the Dealership Agreements (being the overarching contract between Mackie Motors and the manufacturers), which required that two years' notice to be given. In response, Mackie Motors argued that this period of notice was untenable and in breach of the obligations that the parties owed to one another, which had been developed and had become heavily intertwined over a long period of time.RCI also made the extraordinary argument that it was not obliged to provide any dealer financing to Mackie Motors and that, in practice, it was entitled to decide whether to advance finance on a case-by-case basis and that Mackie Motors was free to secure separate financing arrangements for its orders of new cars.  As any franchised dealer knows, financing used cars is one thing - but financing new cars is a different matter altogether.  All of this was against a backdrop of Mackie Motors being under a positive obligation, through the Dealership Agreements, to offer RCI financing agreements to its customers: with the incumbent benefits of subsidies and manufacturer offers.

In a surprising judgment, which Mackie Motors has immediately appealed, the High Court found in favour of RCI - effectively giving the green light to franchise finance providers to terminate critical services and contracts with dealers on very short notice, regardless of the devastating impact that this will have on the dealers. 

How does this impact upon your business?

The repercussions of the High Court's judgment will be seismic within the retail automotive industry. The vast majority of dealers throughout the United Kingdom and, indeed, Europe may now be at risk of their franchise finance provider terminating critical services and contracts at very short notice, leaving their businesses in a perilous position.The consequences extend further when investment into dealerships is considered - neither dealers nor investors will wish to sink vast sums of money into their dealerships if there is a clear and obvious risk, in light of the High Court's judgment in favour of RCI, that the franchise finance provider will pull the plug and doom the business almost overnight.Whether your franchise finance provider is RCI or an alternative incumbent manufacturer backed finance house, there are a number of steps that you can take to protect your business. The first and most important will be to review the current contracts that you have in place with your finance house. At Freeths LLP, we have a dedicated automotive team that offer the complete range of services needed for those who operate in the automotive sector.

If you have any queries or would like to discuss how this judgment may affect your dealership please contact Richard Coates.


The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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