Franchising and Automobile Dealers

Franchising and Automobile Dealers

It is well settled in Canadian case law that automobile dealers are considered franchisees under provincial franchise legislation.  Accordingly, dealers and their automobile manufacturers are subject to all rights and obligations under such legislation, including the right of both parties to invoke normal court procedures to resolve disputes.  

However, there is a special process available for dealers and manufacturers to resolve their disputes outside of the usual court process, whether such disputes involve rights or obligations under franchise legislation or contractual disputes under dealer agreements.

The following information from the Canadian Vehicle Manufacturers Association website ( summarizes the highlights of the special dispute resolution process for resolving disputes under the National Automobile Dealer Arbitration Program (NADAP):

Established in 1997, the National Automobile Dealer Arbitration Program (NADAP) provides a process for resolving disputes between manufacturers and dealers. Roughly 90 percent of Canada’s automobile dealers participate with their manufacturers in NADAP.

When a dispute between a manufacturer and dealer arises, the parties are asked to first try and settle it using the manufacturer’s own dispute resolution process. If no such process exists, or if attempts to resolve the problem are unsuccessful, the process then moves into mediation through NADAP. The only disputes that can go to court are those that do not qualify for NADAP.

Since its inception, NADAP has addressed the concerns of both parties admirably; over 70 percent of disputes have been resolved through mediation, usually within 30 to 60 days and at minimal cost. This compares quite favourably to the adversarial, costly and time-consuming alternative of taking the matter to court. NADAP has handled just over 70 cases since the program began.

NADAP is available to settle disputes between a manufacturer and its dealers involving any of the following matters:

• the interpretation/application of the Dealer Sales and Service Agreement(s) and amendments for that dealer;

• the termination of the Dealer Agreement based on a dealer’s, or dealer employee’s, criminal conviction on the basis that it will hurt the manufacturer’s or dealer’s reputation or interest;

• the reasonableness of the length of a “cure period” provided by the manufacturer in light of the dealer deficiencies to be cured;

• a refusal by the manufacturer to reasonably provide prior approval of a dealer’s request to sell, or transfer by succession, his or her dealership interest, including:

• the reasonableness of the manufacturer’s conditions and written standards and any specific requirements set for the new dealer and, if so, whether the new dealer meets them;

• whether the new dealer is unwilling to be bound by the terms of the existing Dealer Agreement;

• whether the dealer or new dealer has failed to cure an existing dealer default;

• whether the demographic or economic conditions set by the manufacturer (for the continued operation of the dealership by the proposed successor) are reasonable. If so, the dealer can continue to operate the dealership, or the manufacturer can close the “dealer point” (dealer point-of-sale location) until economic or demographic factors support its reopening.

• the failure of the manufacturer to approve the sale or transfer of the dealer’s interest where the dealer can show the manufacturer knew for a considerable time that the sale or transfer had occurred;

• the termination of the Dealer Agreement based on the adequacy of the dealer’s line of credit or working capital;

• whether a dealer owes money to a manufacturer or vice versa, and the length of time for payment. Where a dealer’s failure to pay funds is grounds for terminating the Dealer Agreement, the Dealer Agreement can be terminated. If the termination is set aside, and the arbitrator finds the dealer owes funds to the manufacturer, to be reinstated as a dealer he or she must pay the funds owing;

• the termination of the Dealer Agreement for failure to resume dealership operations within a reasonable time following its closure for more than seven days where the closure was beyond the dealer’s control;

• the proposed appointment of a new abutting dealer point or relocation of an existing dealer; and

• the manufacturer’s termination, or refusal to renew or extend without cause, the Dealer Agreement, including the awarding of damages by the arbitrator for such wrongful termination or refusal.

All NADAP cases are coordinated through the offices of ADR Chambers Canada, a professional, independent arbitration and mediation firm in Toronto (

ADR Chambers receives requests to initiate the NADAP process from automobile dealers, processes the request and maintains a roster of qualified mediators and arbitrators who are available to resolve the dispute through mediation and, if necessary, arbitration in accordance with detailed rules under NADAP.