A European Court of Justice (ECJ) case involving Volvo Car appears to reduce the protection of sacked auto dealers recovering indemnity payments from their former automaker suppliers.

Court advocate general Yves Bot formally advised that, under EU directive 86/653/EEC on self-employed commercial agents, auto manufacturers can withhold indemnities, even when the basis for refusing repayment was a different contract infringement than the problem that sparked a dealer’s initial dismissal.

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This right of refusal would also apply even when a car maker was unaware it had grounds to retain the indemnity when sacking the dealer for a different reason.

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

The only good news in the opinion 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 agent for a different reason, and did not mention the problem beforehand.

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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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The case is between Volvo Car Germany and dealer Autohof Weidensdorf, dismissed over concerns a closely related company was buying discounted cars for sale 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.