SERE Holdings Ltd v Volkswagen Group United Kingdom Ltd

Two applications are formally listed before the court: an application by the claimant dated 15 April 2004 for an interim injunction, and an application by the defendant dated 23 April 2004 for an extension of time for service of the defence. But neither application has in fact been argued before me. Instead Mr Khangure QC for the claimant has applied for permission to amend both the particulars of claim and the claimant’s application for an injunction, recognising that if the latter permission is granted there will necessarily have to be an adjournment of that application. Mr Fowler QC for the defendant has not objected to the grant of permission to amend the particulars of claim but has resisted the grant of permission to amend the application for an injunction. In the event the only issue I have to decide is whether to grant that permission.

The claimant is a company incorporated in Northern Ireland and carries on the business, inter alia, of selling cars, including new SEAT cars. These are manufactured by SEAT SA, but the arrangements for their distribution, at any rate in the United Kingdom, are handled by the defendant, which uses the trading name SEAT UK for these purposes. In October 2003 the claimant entered into two contracts called SEAT dealer agreements with the defendant (“the agreements”). One related to a dealership at Lisburn with which I am not directly concerned, and one to a dealership in West Belfast, with which I am.

In 2002 another SERE company (SERE Motors Limited) held the two dealerships at Lisburn and West Belfast, and according to Mr Stanley Edgar, the managing director of the claimant, either that company or he himself as sole trader had done so since 1994. There was also a dealership in East Belfast which was held by a company referred to in the evidence as the Agnew Group. On 31 July 2002, the European Commission adopted Regulation No 1400/2002. This regulation provides block exemption from Article 81(1) of the European Treaty for agreements, inter alia, for the distribution of new motor vehicles which conform to its terms, and is hence commonly referred to as the block exemption regulation (the BER). It replaced Commission Regulation 1475/95 (the old BER) which had also provided block exemption but on rather different terms.

I will have to refer to some of the BER’s terms in more detail in due course, but for present purposes its significance is that it prompted the defendant in September 2002 to notify its dealers across the UK that it was preparing a new form of dealership agreement to conform with the requirements of the new BER. The BER in general came into force on 1 October 2002 (Article 12(1)) but subject to a transitional period under Article 11 under which agreements already in force on 30 September 2002 continued to qualify for exemption for a period of one year to 30 September 2003 if they satisfied the conditions for exemption in the old BER even if they did not satisfy those of the new BER. The defendant therefore needed to replace its dealership agreements by 1 October 2003.

There were various meetings between representatives of the claimant, in particular Mr Edgar, and representatives of the defendant in the period leading up to the new agreements. I need not detail all these at this stage; there is a considerable dispute about precisely what was said to the claimant at them. In essence the claimant’s case is that the defendant told Mr Edgar that it had decided to move to a one operator operation for the Greater Belfast area and that the claimant was the defendant’s preferred choice for that role. The defendant’s case, as set out in the witness statement of Mr Iain Carmichael, the head of operations of SEAT UK, is that the defendant had indeed come to the conclusion in around December 2002 that it would make sense to continue with only one of the two dealers in Belfast who then had appointments but that no promise was made that it would be the claimant: some of the relevant individuals in the defendant’s organisation had a preference for the Agnew Group and some for SERE.

What did eventually become clear is that the new dealerships would have to be in the name of the claimant rather than SERE Motors Ltd (the precise reason for this, although debated in the evidence, is not something I need consider); and at some stage (Mr Edgar says in August 2003) two new agreements in the name of the claimant were signed on its behalf by Mr Edgar and returned to the defendant. Although expressed to take effect from an effective date of 1 October 2003 (as required by the new BER) they were not in fact signed on behalf of the defendant until 23 October 2003.

According to Mr Edgar, he was however told by Mr Carmichael at a meeting as early as 10 October 2003, even before the defendant had signed the agreements, that the Agnew Group was now the defendant’s preferred dealer in the Greater Belfast area and that he (Mr Carmichael) was going to terminate both of them; they would be signed off but a reason would be found to justify their withdrawal with immediate effect. Again according to Mr Edgar, there was a further meeting on 13 November 2003 at the defendant’s offices in Milton Keynes with, among others, Mr Kevin James (described by Mr Edgar as the “number one in SEAT UK”) and Mr Carmichael at which Mr Carmichael indicated that the claimant was in breach of the agreements by not meeting its annual purchase requirement and that the defendant would be terminating them with immediate effect but delaying the implementation date to 1 March 2004.

Mr Carmichael in his witness statement makes it clear that he does not accept Mr Edgar’s account of these meetings but does not give his own account; what is however undisputed is that the defendant sent to the claimant two notices dated 17 November 2003 terminating the agreements, with an effective termination date of 1 March 2004, on grounds of material breach of sales standards and failure to purchase the agreed annual target for vehicles.

That led to the issue of these proceedings on 26 February 2004 (in the Birmingham District Registry) in which the claimant sought a declaration that the purported termination of the agreements was ineffective and an injunction to restrain the defendant from acting on the notices of termination. On the same day the claimant issued an application for an injunction with a return date of 27 February 2004, but by agreement of the parties the issue of the validity of the termination of the agreements was referred to arbitration (pursuant to an arbitration clause in the agreements) and the notices of termination suspended pending the outcome of the arbitration. An order was accordingly made by consent on 27 February 2004 by Miss Sonia Proudman QC adjourning the application for an injunction generally with permission to the claimant to restore on seven days’ notice. The arbitration is still pending, although it has proceeded very slowly due to the parties’ failure to agree on a suitable QC to act as arbitrator, and the court is therefore no longer concerned with any question as to whether the agreements have been validly terminated or not.

The next relevant development was on 11 March 2004 when advertisements appeared in the Belfast Telegraph, a daily newspaper with a large circulation in Belfast, for a number of job vacancies with the Agnew Group. The advertisements stated that the Agnew Group was “now opening a new AGNEW SEAT dealership in Boucher Road” and gave details of nine vacancies including a sales manager and three sales executives. The claimant’s premises are also on Boucher Road, which is described in the evidence as the prime central Belfast area for car dealerships, and are some 80 yards away from the site of the proposed new Agnew premises.

This led the claimant’s solicitors, Rubric Legal, to complain to the defendant’s solicitors, Eversheds, that the defendant was in breach of the agreements. At this stage I should set out the relevant terms of the agreements. I am told they are in identical form but I am only directly concerned with the West Belfast one. This contains the following provisions:

The claimant through Rubric Legal contended that the proposed opening of the new Agnew Group SEAT premises in Boucher Road was a breach by the defendant of clause 2.1 of the agreement as being the appointment of a “new dealer” at a location that was not an “open point”. After some correspondence the claimant issued an application dated 15 April 2004 which sought an interim injunction restraining the defendant from appointing any third party as a SEAT dealer in West Belfast, and also a declaration that West Belfast is not an “open point”. This was due to be heard in the Birmingham District Registry on 30 April 2004 but by consent was adjourned on 29 April 2004 by HHJ Norris QC and transferred to the Royal Courts of Justice in London to be listed together with an application by the defendant dated 23 April 2004 for an extension of time for the service of its defence.

The claimant now accepts however that the application as issued is bound to fail. This is because it accepts that the opening of an Agnew SEAT dealership in Boucher Road would not involve the defendant appointing a “new dealer” within clause 2.1 of the agreement, but would involve the defendant consenting to the Agnew Group (being an existing dealer, with its principal outlet in East Belfast) opening an additional sales outlet. This is the subject of clause 2.2 of the defendant’s standard form of dealer agreement (Mr Fowler confirmed that the defendant’s agreement with the Agnew Group was in the same terms as that with the claimant). Under that clause, the defendant has the right to prevent its dealers from opening additional sales outlets before 1 October 2005, but not thereafter. This mirrors, as one would expect, the position under the BER, Article 5(2)(b) of which will make it impermissible for a supplier such as the defendant to prevent a dealer in a selective distribution system such as the claimant, or the Agnew Group, from opening additional sales outlets anywhere in the market where selective distribution is applied. By Article 12(2), this is due to come into force on 1 October 2005; and clause 2.2 of the agreements provides for extension of the restriction if that date is extended.

The claimant therefore recognises that clause 2.1 is irrelevant and I am not concerned with any question as to what it might mean or whether West Belfast is an open point. Hence the claimant seeks to amend its particulars of claim, and its application, to put the relief sought on a different basis. The application if amended would seek an interim injunction in this form:

“Until after final judgment in this action or further order of this court the respondent must not: (1) consent to any person (other than the applicant) from establishing a motor vehicle dealership or additional sales outlet or outlets in the Greater Belfast area until 1 October 2005; and (2) co-operate with, suffer or assist any person (other than the applicant) in any way whatever from establishing a motor vehicle dealership or additional sales outlet or outlets in the Greater Belfast area until 1 October2005.”

The existing particulars of claim were served on 26 February 2004 with the claim form and are therefore directed solely to the question of the validity of the termination of the agreements. The draft amended particulars of claim seek to add a number of causes of action. I need not set them all out, but should briefly refer to them. Paragraph 6 of the draft statement of case raises the question of the meaning of “open point” in clause 2.1 of the agreements. Paragraphs 7 to 11 plead in various alternative ways an agreement between the parties — either made orally at a meeting on 30 July 2002 or at various meetings between then and 21 August 2003, or by conduct — that the claimant would be the sole SEAT representative in the Greater Belfast area until after 30 September 2005 and that no new dealer would be appointed, and no current dealer permitted to open an additional sales outlet, in Greater Belfast until after that date. Paragraphs 13 and 14 plead implied terms as follows:

“13.

Further and/or alternatively, it was an implied term of the agreements implied therein by reason of business efficacy and/or by reason of law, that the defendant would not prevent the claimant’s performance of the agreements by consenting to the appointment of a new dealer or, alternatively, an additional sales outlet in the Greater Belfast area (other an additional sales outlet of the claimant) until 1 October 2005 such that it would not be economically viable for the claimant to perform its obligations under the agreements.

14.

Further and/or alternatively, it was an implied term of the agreements implied therein by reason of business efficacy and/or by reason of law, that the defendant would co-operate with the claimant to ensure that the claimant could perform its obligations under the agreements and/or to ensure that the agreements became operative.”

Paragraph 16 pleads a duty of care owed by the defendant to the claimant to avoid making misrepresentations. Paragraph 34 pleads a breach of clause 2.1 of the agreements by the defendant in purporting to appoint a new dealer, namely the Agnew Group. Paragraph 35 pleads a breach of clause 2.2 of the agreements by the defendant, or of the agreements made orally or by conduct, in purporting to permit the Agnew Group to establish an additional sales outlet at Boucher Road. Paragraph 36 pleads a breach of the implied terms in permitting this to happen, it being said that the effect of the Agnew Group establishing itself on Boucher Road would make it impossible for the claimant to obtain third party inventory financing which is essential for the claimant’s performance of its purchase obligations. Paragraphs 37 and 38 plead misrepresentations and breaches of the duty of care. Paragraphs 39 to 42 plead an estoppel by convention arising out of a shared assumption of fact or law that the defendant would not appoint a new dealer, or permit an existing dealer to open an additional outlet, in the Greater Belfast area until after 30 September 2005.

As already indicated, the defendant through Mr Fowler does not object to the amendment of the particulars of claim as such. But it does object to the amendment of the application for an injunction. It does so effectively on two grounds: (1) that the amendment comes far too late, puts forward a case that is factually unsustainable and that the necessary adjournment will cause the claimant prejudice which cannot be remedied in costs (the discretionary grounds); and (2) that the proposed application is doomed as a matter of law (the legal grounds).

It is convenient to take the legal grounds first. Although I was not shown any specific provision of the Civil Procedure Rules applying to amendments of an application for an injunction, Mr Khangure accepted that the general principles applicable to the grant of permission to amend should be the same as those which apply to the grant of permission to amend a statement of case. He referred me to the decision of Neuberger J in Coflexip SA v Stolt Offshore MS Ltd [2003] EWHC 2651 (Ch) which concerned an amendment of points in answer in relation to an assessment of damages in a patent infringement case. Neuberger J cited what Peter Gibson LJ had said in Cobbold v London Borough ofGreenwich (9 August 1999, unreported), namely:

“The overriding objective [of the CPR] is that the court should deal with cases justly. That includes, so far as practicable, ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party or parties caused by the amendment can be compensated for in costs, and the public interest in the efficient administration of justice is not significantly harmed.”

Peter Gibson LJ went on to say that there will always be prejudice where a party is not allowed to put forward his real case “provided that it is properly arguable”. Neuberger J commented that argument on the merits should be fairly short and the court should be careful of having mini-trials at the stage of an application to amend, and continued:

“Nonetheless, where it can be shown in short order that the case to be put forward by amendment is bound to fail the amendment should be disallowed.”

In practice it seems to me that there is little or no difference between this test and the test applied for summary judgment under Part 24 of “no real prospect of success”: see CPR 24.2(a). In the present context that means that I should decide whether it is fairly arguable that any of the causes of action sought in the draft amended particulars of claim are capable of providing a legally sound basis for the injunction that is sought.

Mr Khangure accepted that some of them are of no assistance to the claimant for this purpose. Thus Mr Khangure did not suggest that the opening of an Agnew dealership would be the appointment of a new dealer in breach of clause 2.1, and the allegation (in para 35) of a breach of clause 2.2 is equally hopeless: it is plain that clause 2.2 of the claimant’s agreement is only concerned with restricting the claimant from opening an additional sales outlet and says nothing about the defendant permitting other dealers from doing so. Mr Khangure also accepted, as is clearly the case, that the allegations of breach of duty of care and misrepresentation, even if otherwise made out, would not entitle the claimant to an injunction.

That leaves (i) the various agreements alleged to have been made orally or by conduct in the course of negotiations; (ii) the claims based on the implied terms; and (iii) the estoppel claim.

On the first of these, there is of course no difficulty with the general proposition that statements made in the course of negotiations for a contract may, if intended to be binding commitments, themselves amount to a separate or collateral contract and be sued on as such. But the obvious difficulty facing the claimant in this case is the entire agreement clause in clause 14.7 of the agreement. Mr Khangure referred me to the following cases on the question whether an entire agreement clause prevented reliance on a precontractual or collateral agreement:

Although technically not binding on me, I should follow the decision of Lightman J unless satisfied that it is wrong. Far from being so satisfied, I can see no flaw in the reasoning. It is elementary that whether an agreement has legal effect is a matter of the intentions of the parties so that an offer and acceptance duly supported by consideration will nevertheless not be a legally binding contract unless the parties intend to create legal relations. I can see no reason why parties who have in fact reached an agreement in precontractual negotiations that would otherwise constitute a collateral contract should not subsequently agree in their formal contract that any such collateral agreement should have no legal effect, or in other words should be treated as if the parties had not intended to create legal relations; and for the reasons given by Lightman J this is precisely what an entire agreement clause on its face does. In the present case clause 14.7 contains in its first sentence a provision to this effect and that is in my judgment sufficient to prevent the claimant bringing any claim on a pre-contractual or collateral agreement. Mr Khangure suggested that the second sentence might somehow weaken this conclusion, but I do not see how it can. If anything it reinforces it by providing that (save in respect of fraudulent statements) the parties are to have no rights arising out of precontractual statements.

It follows that the agreements alleged in paragraphs 7 to 11 of the draft amended particulars of claim, whether based on oral agreements at meetings or agreements by conduct, cannot be relied on by the claimant to support the injunction now sought.

So far as the claim based on estoppel by convention is concerned, that in my judgment fares no better. The estoppel sought to be pleaded is an estoppel by convention based on the (alleged) common assumption of the claimant and defendant that the defendant would not appoint another dealer, or permit a dealer to open an additional outlet, in the Greater Belfast area until after 30 September 2005. This is not an assumption of existing fact or of law, but an assumption as to the future conduct of the defendant. Even if both parties did assume this in fact (which is heavily disputed but cannot be determined at this stage), this does not assist the claimant in its application for an injunction unless it can establish that the estoppel entitles it to restrain the defendant from acting contrary to the way in which both parties assumed it would. But there are two difficulties with this. The first is that an estoppel is traditionally regarded as not giving rise to a cause of action or, in the well-known phrase, can only be used as a shield and not a sword. Mr Khangure referred me to an extract from Chitty on Contracts (29th edn) §3-113 where there is a discussion of this point. The editors point out that in the leading case of Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84 Lord Denning MR seems to have to expressed the principle of estoppel by convention in such a way as to enable it to give rise to a cause of action, but he was alone in doing so; and conclude:

“No other authority squarely supports the view that estoppel by convention can, of itself, create a new cause of action; and the present position seems to be that it cannot, any more than promissory estoppel or estoppel by representation, produce this effect.”

This is unpromising material from which to fashion an argument that the claimant has by virtue of the estoppel a cause of action sufficient to form the basis for an injunction. But I am conscious that this is to some extent an unsettled area of law and if this were the only difficulty I would regard the argument, although very difficult, as not so hopeless as to merit shutting out the claimant on that ground alone.

The real difficulty it seems to me is the second one. In order to succeed in this argument the claimant must establish that the defendant has, by sharing and acquiescing in the claimant’s assumption, precluded itself from appointing another dealer, or allowing a dealer an additional outlet, for the requisite period. But this is on analysis simply another way of saying that the defendant has committed itself to a particular course of future conduct, or in other words that it has agreed or promised to act in a particular way in circumstances which the law regards as making the promise binding. Save that in the one case the ground on which the law does so is that there is offer, acceptance and consideration, while in the other the ground for enforcing the promise is that there is a shared assumption which it is inequitable to allow the defendant to go back on, this differs very little from a promise that is enforceable as a matter of contract. But if the entire agreement clause is effective, as for the reasons I have given in my view it is, to rob an express promise made in precontractual negotiations of any legal effect, it seems to me that it must equally be effective to prevent a promise from having any legal effect where that promise is said to arise out of an assumption shared by the parties when entering into the contract.

In other words I do not see how the claimant can be better off, so far as its claim for an injunction is concerned, by establishing that it and the defendant shared a belief that the defendant would allow the claimant to remain the sole SEAT dealer in West Belfast until 30 September 2005 than it would be by establishing an express promise to that effect by the defendant. The entire agreement clause would prevent the latter from having any legal effect, and in my judgment it must follow that it would prevent the former from doing so as well. I do not see any sustainable argument to the contrary.

That conclusion makes it unnecessary for me to consider the weaknesses in the claimant’s factual case on collateral contract and estoppel which were pointed to by Mr Fowler, although I consider there was a good deal of substance in what he said. He placed particular reliance on a viability study which appears to have been forwarded by Mr Edgar to the defendant in January 2003 which refers, inter alia, to “in the event that SERE is successful in securing representation for SEAT in Greater Belfast” and was aptly described by Mr Fowler as plainly put forward at a time when SERE was pitching to be sole representative, not when it had been agreed that it should be; and on a letter of 29 October 2003 in which Mr Edgar wrote to Mr James of the defendant that he agreed that it would be best to have one single point of representation for SEAT in Belfast and that “we believe that the best choice is New Co [ie the claimant]” which would be a surprising thing for him to write if this had already been agreed, or formed the basis of a shared assumption, well before the agreements were entered into. But I need not consider these factual difficulties in the claimant’s case any further.

That leaves the implied terms as the only possible basis for the injunction. In the light of the decision of Mr Nigel Teare QC in The Helen Knutsen [2003] 2 Ll Rep 686 Mr Fowler did not argue that the entire agreement clause was also a complete answer to the case based on implied terms: see at 690 col 2 (para 27) where Mr Teare held, on an application for summary judgment under Part 24, that it was arguable that an entire agreement clause was ineffective to exclude an implied term based on business efficacy because it could be said that such a term was to be found in the document(s) constituting the contract.

But Mr Fowler did say that there was no possible basis on which the suggested terms could be implied. As pleaded, the implied terms are based on implications that the defendant “would not prevent” the claimant’s performance of the agreements (para 13 of the draft pleading) and that the defendant “would co-operate with the claimant” (para 14). The general principle that a party to a contract impliedly agrees not to prevent the other party from performing, and agrees to co-operate in doing what is required on his part to enable performance, is not in doubt. If I employ a builder to build a conservatory, it is obviously implicit that I will not prevent him having the requisite access to the back of my house: see the statement of Lord Blackburn in Mackay v Dick (1881) 6 App Cas 251, 263:

“I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on circumstances.”

Mr Fowler, however, challenges the use which the claimant seeks to make of these principles. In essence the claimant’s complaint under both paragraphs is the same: that by permitting the Agnew Group to open next door the defendant will in practical terms make it impossible for the claimant to perform its agreements because its business will not be viable.

The main point which Mr Fowler took was that the implied terms would be inconsistent with the BER. It is common ground that under the BER, unlike previous BERs, a manufacturer cannot adopt at the same time and for the same market a system of distribution that is both selective and exclusive. The manufacturer must choose for any particular market between an exclusive distribution system, under which distributors are given defined territories; and a selective distribution system, under which distributors will only be appointed if they meet certain qualitative criteria (and if the manufacturer so requires, subject to a limit on the total number appointed): see the Commission’s explanatory brochure (page 12) which identifies as the first principle applicable to the distribution of new cars the banning of the combination of selective and exclusive distribution permitted by the old BER.

The practical effect of opting for the different systems is that under an exclusive distribution system, dealer A with territory A can be prevented from actively selling into territory B which has been allocated to dealer B (Article 4(1)(b)(i)); whereas under a selective distribution system dealer A cannot be prevented from actively selling to any end-user in the markets where selective distribution is used (Article 4(1)(d)) but can be restricted from selling to an unauthorised reseller (Article 4(l)(b)(iii)).

It is also common ground that the defendant has opted for a selective rather than exclusive distribution system, and one based on both qualitative and quantitative criteria. This appears from Recital (A) to the agreements set out above. The effect of this is necessarily that its dealers such as the claimant have not been allocated exclusive territories; and, consistently with the BER, the claimant (and other dealers such as the Agnew Group) are given the non-exclusive right to sell throughout the EEA (see clause 2.1) but restricted from selling to unauthorised resellers (see clause 2.4).

Mr Fowler’s point is that the term which the claimant seeks to imply would effectively prevent the defendant from supplying anyone else in Greater Belfast and would thus be an “exclusive supply obligation” within Article 1(e). This would mean that the claimant would have the benefit of an exclusive territory which would be inconsistent with his appointment on a selective basis, and potentially render parts of the agreement void as not being exempted by the BER from Article 8 1(1) of the Treaty.

This argument is a substantial one but, despite its beguiling simplicity, I cannot conclude in short order that it is unanswerable such that the claimant’s case is on this ground “bound to fail”. The BER is not an easy document to get to grips with but as I understand it one of the features of an exclusive distribution system is that it prevents dealer B from actively selling into the territory of dealer A, and prevents the manufacturer supplying anyone other than dealer A for sale into territory A. But the claimant’s implied term does not in terms seek to prevent the Agnew Group (or any of the defendant’s other dealers in the EEA) from selling into West Belfast, or the defendant from supplying the Agnew Group or other existing EEA dealers for sale into West Belfast; it simply seeks to prevent the defendant permitting them to do so from additional outlets and specifically to prevent the defendant permitting the Agnew Group from doing so from an outlet additional to their existing one in East Belfast. The BER permits the defendant, within a selective distribution system, to enforce a ban on dealers opening other outlets until 30 September 2005 (a location clause), and it does not seem to me unarguable that it also permits the defendant to agree expressly with dealer A that it will enforce a location clause against dealer B (and its other dealers) during that period. But if an express term to this effect would be permitted under the BER, this ground for rejecting the implied term disappears.

Mr Fowler’s next point was that it made no sense to imply a term on the ground of business efficacy for a limited time only. The tests for implication of contractual terms are well-known and strict: a term is only to be implied if it is necessary, and in the case of business efficacy, this means only if it is necessary to make the contract work. The agreements here are designed to last beyond 2005, indeed indefinitely until terminated under clause 12. It is a necessary feature of the agreements that after 1 October 2005 the defendant will not only be at liberty to permit other dealers to open additional outlets wherever they like in the EEA, but obliged to do so; as I understand it there would be nothing the defendant could do after that date to prevent every one of its dealers in the EEA opening an outlet in Boucher Road if they wanted to. This does seem to me to make the suggested basis for implying the term a very weak one: the claimant says it cannot perform the contract without the protection of the implied term until October 2005, but accepts that it will have to perform the contract after that date without such protection. I have great difficulty in seeing how a restriction can be said to be implicit in the contract (on the ground that it is needed to make it work) for two years when it is accepted that it could not be implied thereafter even though the contractual obligations of the claimant remain the same. Mr Khangure says that the claimant went into the contract knowing that after October 2005 it might have to face competition but expecting, and planning its financing and business plans on the expectation, that it would have a clear run for two years. But this seems to me based more on what it thought was going to happen than on anything that is necessarily implicit in the contract.

It therefore seems to me that the implied terms are a slender basis on which to seek an injunction. I am however conscious that I should not refuse an amendment on this ground alone unless satisfied that it is unarguable, and I do not think I can go that far at this stage. But the apparent weakness of the argument is material when it comes to the exercise of my discretion.

I turn to the discretionary grounds. Mr Fowler’s first point is that the application to amend comes very late and that there is no good reason for this. In my judgment this is made out. I was taken through the correspondence at length by Mr Khangure in an attempt to persuade me that the claimant’s late change of case was explicable on the basis that the defendant had itself shifted its position. I do not think this is a fair reading of the correspondence. Without setting it all out, the position seems to me to be as follows:

In the circumstances it is in my judgment really beyond doubt that the claimant’s application to amend does come very late, and that the defendant does not share any responsibility for this, at any rate for the period after 30 April 2004 when it had made its position as clear as it could. The claimant could and should have been prompted by that letter (even if not by that of 14 April 2004 which was to my mind clear enough) to consider on what basis it could maintain its application for an injunction; and should have served any draft amended application, particulars of claim and witness statement in sufficient time to give the defendant time to respond. I am of course well aware that applications for injunctions often have to be prepared at great speed and without time for leisurely reflection, but whatever the position at the outset of this litigation, there was at 12 May 2004 when the claimant was notified of the hearing date, a period of some four weeks available, which was ample time for the claimant to put its application in order.

A second reason for the claimant’s lack of action is suggested in Rubric Legal’s letter of 1 June 2004, and Mr Edgar’s third witness statement of 10 June 2004, namely that he assumed, from the fact that the Agnew Group had taken no further steps to open an outlet at Boucher Road, that its plans had been put on hold pending the outcome of the arbitration. Eversheds disabused Rubric Legal of that in their letter of 3 June 2004 in which they said that the plans had been put on hold only pending the injunction. It seems to me that there was no reasonable basis for the assumption. It is completely understandable that the Agnew Group would be reluctant to spend any further money on its new Boucher Road premises so long as an injunction was pending, as the grant of an injunction could obviously cause serious disruption. But I can see no basis for inferring that it would also be willing to hold up the opening pending an arbitration in which, although the parties agreed to act “speedily”, it has so far taken them from the end of February to the beginning of June just to get to the stage of asking the President of the Institute to appoint an arbitrator.

But, as indicated by the passage from the judgment of Peter Gibson LJ in Cobbold which I have already cited, it is not the practice of the court to refuse an amendment simply because it comes very late. A very material question must always be whether the lateness of the amendment causes any prejudice to the other party that cannot be fairly compensated in costs. In the present case Mr Khangure accepted that if the amendment is granted the substantive application would have to be adjourned to enable the defendant to answer the latest witness statement (and the claimant if so advised to reply) — quite apart from the fact that the necessity to make the application for the amendment itself meant that there was insufficient time to proceed on the day allocated for hearing, and that a further delay has been caused by the time necessarily although regrettably taken up in the preparation of this judgment, of which I am acutely aware.

As pointed out by Mr Fowler, any delay in the hearing of the application will cause what he calls the “de facto injunction” to continue. By this he means the fact, which I have already referred to, that the plans for the proposed new Agnew outlet on Boucher Road have been put on hold pending the hearing of the application. I have already said that this is an entirely understandable reaction to the application: if the Agnew Group hurried on with its plans in the face of the application for an injunction, the court would be likely to pay little attention to this, and any expenditure carried out now might be wasted. Thus although it is true that there is no court order currently in place preventing the defendant and the Agnew Group from continuing with the plans for the new outlet, in practical terms the pending application for the injunction has a powerful (and wholly predictable) deterrent effect and I accept that any delay in the hearing of the application will cause this de facto position to continue. It seems to me that this must inevitably cause prejudice to the defendant which has made it clear that it would prefer to see the Agnew Group open on Boucher Road (as indeed to the Agnew Group, which is not however a party to this application).

I am therefore satisfied that the defendant will suffer some prejudice by any adjournment of the application. And the defendant currently does not have the benefit of any cross-undertaking in damages from the claimant. That means that there is as matters stand no possibility of it being compensated for this period if the application for the injunction fails, or indeed if it is granted but at trial is held to have been unjustified. When I asked Mr Khangure how the defendant could be compensated for this he said that the only compensation that it could be given was by way of costs of the proceedings. But it seems to me that costs orders are designed to compensate, and only do compensate, for costs which the other party is obliged to incur — they do not compensate for the kind of prejudice which a delay in the application would cause the defendant. In my judgment therefore the granting of permission to amend would indeed cause the defendant prejudice that cannot be compensated for in costs.

On the other hand I have little hard evidence of the amount of such prejudice. Mr Edgar in his third witness statement says that the proposed annual target sales of new cars for SEAT UK in the West Belfast area is 300. Mr Carmichael says in his witness statement that the Agnew Group sold 103 units in the period January to March 2004 at their existing site and that he believes that their projected figure for Boucher Road would be of a similar level, which would equate to about 35 units a month or 420 for the year as a whole. The direct effect of the de facto injunction is therefore to deprive the defendant of the profit on whatever sales would otherwise be made by the Agnew Group, which would not be likely to exceed 35 cars a month. Mr Edgar puts the profit that the defendant makes on each new car at between £200 to £500, which would equate to between £7,000 and £17,500 per month. This may be an underestimate because of other linked sales and indirect losses, but on the other hand it makes no allowance for any extra sales that the claimant is able to make in the interim period. I accept that this is a real and significant prejudice to the defendant, but in the context of this case where the costs already greatly exceed these sums not an overwhelming one.

Mr Khangure says that the prejudice to the claimant in not being able to pursue an arguable claim would be very much greater, as the effect on the claimant’s business may well be disastrous. In particular, according to Mr Edgar, the claimant is dependent on inventory financing from the Bank of Scotland Ireland in order to purchase cars from the defendant and has been told by a Mr Francis McGrory at the Bank that it would not be prepared to extend its inventory financing facility if the Agnew Group established itself on Boucher Road. I cannot make any definitive findings on the material before me as to the likely effect on the claimant’s business of refusing permission to amend but I accept that the evidence discloses that there is a significant risk that it would suffer substantial damage to its business. Mr Edgar details the expenditure which he incurred in preparation for opening his SEAT dealership on Boucher Road and it is obviously considerable.

In the result there is clearly a potential injustice to both parties. If an amendment is refused, I will have prevented the claimant from applying for an injunction on a basis which, although weak, is not unarguable and this may cause it serious damage. But if an amendment is granted, the defendant will continue to suffer real, although limited, prejudice as a result of the de facto injunction in circumstances where I regard the legal basis for an injunction as weak and where the claimant in my judgment had no good reason for making the application at such a very late stage. Taking all these factors into account it seems to me that the most just solution to these difficulties is to offer the claimant the opportunity to amend only if it is willing to compensate the defendant for that prejudice. For the reasons I have given, I do not regard the payment of costs as adequate compensation. What I have in mind therefore is that I would be prepared to grant permission to amend the application with the consequential adjournment if, but only if, the claimant volunteers a suitable cross-undertaking to compensate the defendant for any loss caused to it by the plans for the Agnew outlet on Boucher Road being put on hold for the period between 11 June 2004, when this application would otherwise have been heard, and the date when it is in fact heard and decided. If a suitable undertaking is offered I consider that the defendant will suffer no uncompensatable loss and I would then in principle be prepared to give permission to amend, subject to the other matters mentioned below. If no such undertaking is offered (and I make it clear that it is entirely a matter for the claimant whether to offer one or not) then I will refuse permission to amend, and the claimant will have to take its chance with any further application it may choose to make. I am conscious that this may be a novel approach but it seems to me that the CPR requires the court to do everything it can to deal with cases in the most just way possible and in the unusual circumstances of this case this way forward seems to me to cause the least risk of injustice to both parties.

What I have in mind by way of undertaking is that the claimant should compensate the defendant for loss caused by the adjournment both if the application for an injunction fails at the substantive hearing of the application, and if the injunction is granted but the court at trial holds that there was no sound legal basis for it. Since the defendant has put in issue the financial standing of the claimant to meet any award of damages under a cross-undertaking, I think it should be fortified by Mr Edgar’s personal guarantee as offered by him in his third witness statement. I will hear counsel if necessary on the precise terms.

I will also hear counsel if necessary on any other conditions. Mr Khangure did not really dispute that any grant of permission would have to be conditional on the claimant paying the costs of the hearing of 11 June 2004. Mr Fowler suggested that it should also be conditional on payment of the costs of the claimant’s original application of 15 April 2004, which is now admitted to be unsustainable, or at least such part of those costs that are thrown away. The difficulty with that is that although the case that is now sought to be made is rather different from that originally run, much of the background is common and many of the costs that have been incurred might have been incurred in any event. I certainly agree that the claimant should bear any part of the costs that have been truly wasted but, subject to any further submissions, do not think it appropriate for me to attempt to assess at this stage what proportion of those costs that might be. My present inclination, therefore, is to reserve the costs of the original application to the judge hearing the amended application (assuming that the undertaking I have referred to is proffered) on the basis that if the application fails the claimant is likely to have to bear all of them and if it succeeds, that judge will be better able to assess what part of them has been wasted.

I have not overlooked the fact that the defendant’s application to extend time for service of its defence is formally before the court. I heard no submissions on it, and do not know whether this is opposed. It is apparent from the correspondence that the defendant took the view that the parties had agreed a general stay of the proceedings at the time that they agreed to refer the question of the validity of the termination of the agreements to arbitration. The claimant thought otherwise. I do not think it is necessary for me to go into that particular controversy. I will hear counsel if necessary on the appropriate way to dispose of the defendant’s application, and any other consequential matters.