Ireland: Dispute Resolution Update: Damages For Breach Of Contract: Astrology And Economics

Two recent judgments of Mr. Justice Gerard Hogan deal with interesting points arising on how the Court should assess damages for breach of contract. These include the duty on the part of a Plaintiff to mitigate his/her losses, and the ability of the Courts to reduce damages or even refuse them entirely where the Plaintiff has been guilty of fault or contributory negligence.

ADM Londis Plc v Ranzett Limited, Ray Dolan and Annaliese McConnell (No 2) [2014] IEHC 659

This was one of a series of three cases where the High Court dealt with a situation where a franchisor had unlawfully terminated a contractual relationship with a supermarket outlet and had to determine the damages which flowed from this breach.

The Defendants had operated under the Londis franchise for some years. However, by late 2008 they were in a precarious situation where arrears on the trading account with Londis had grown to in excess of €400,000 and their bank was refusing to honour direct debits. The Plaintiff terminated the agreement and sought to have their account discharged. No serious dispute was maintained by the Defendants as to such liabilities and the Court found that the Plaintiff was entitled to judgment in excess of €560,000 in respect of unpaid invoices. However, the Court also found that the Plaintiff had been in breach of contract because of the abrupt termination of the agreement, the closure of the trading account and the de-branding of the premises. The Court found that these breaches had brought about the total cessation of the Defendants' business and the effective destruction of whatever residual value it then had.

Three separate heads of losses arose:

  1. losses resulting directly from the termination of the franchise and the inability of the company to trade during that critical period;
  2. losses flowing from the subsequent forfeiture of the lease of the property; and
  3. losses arising from the exercise of retention of title rights.

While the Court found the Defendant company was heavily undercapitalised and faced a difficult future, nonetheless the effect of the Plaintiff's breach was to deprive it of the opportunity of trading during a critical period and to keep the shop open through securing an alternative source of supply. Notwithstanding the uncertain state of the Irish economy and in particular the retail sector at that time, the Court found that the lease had some residual value and that all things being equal it would have been possible for the Defendants to dispose of it.

Judge Hogan had to decide the value of the company. Evidence was heard that its sale was being contemplated some fifteen months previously for €1.4 million but that this had fallen through. Evidence was also given that 'key money' of €650,000 had been paid for the lease on its acquisition. The Court faced a particular difficulty in that no expert evidence was provided as to the company's value. The Court was of the view that it had very little intrinsic worth over and above the value of the lease, the location of the property and the capacity of the business to generate an income. It felt that economic conditions had changed so radically since the reputed sale that the business should be valued by reference to the lowest multiplier of ten times weekly turnover given in evidence, thereby leading to an award of €420,000 damages under the first two headings.

Insofar as the repossession of stock was concerned, the Court found that because of correspondence from the Plaintiff's solicitors the Defendants could not safely deal with stock until the Plaintiff exercised its reservation of title rights. The effect of this was to leave some €65,000 of stock which the Defendants were unable to sell because of the closure of the store, but the Court also had to consider the conduct of the Second Named Defendant.

Judge Hogan held that in calculating damages he must have regard to the fact that such Defendant was objectively at fault in not immediately permitting the Plaintiff to repossess stock at the first demand from its solicitors. He cited Section 34(1) of the Civil Liability Act, 1961 which allows for damages to be reduced, or even entirely negatived, where a party has been guilty of fault or contributory negligence. He relied on the decision of Kenny J. in Carroll v Clare County Council [1975] IR 221, 227.

He found that the behaviour of the Second Named Defendant was a factor which led to a series of misunderstandings on all sides "and a cascade of events which culminated in the closure of the store, with disastrous consequences for the Defendants".

The issue of damages was considered again by Judge Hogan in the Dundalk Racecourse case below.

Francis Hyland v Dundalk Racing (1999) Limited (No. 2) [2015] IEHC 57

The Plaintiff was a licenced bookmaker and for a long number of years had established seniority to trade from a particular bookmaking pitch at Dundalk Racecourse. The racecourse closed in 2001 and re-opened in 2007 as an all-weather track following huge investment. It then sought a capital contribution of €8,000 from each bookmaker holding a pitch at the racecourse. The Plaintiff and a number of colleagues claimed that this amounted to a breach of the relevant Pitch Rules and therefore a breach of contract.

In an earlier judgment delivered in February 2014, Judge Hogan found in favour of the Plaintiff. This judgment dealt solely with questions of mitigation of loss and quantum of damages. As a starting proposition, Judge Hogan stated that no matter how glaringly bad the breach of contract on the part of the Defendants, the Plaintiff was nonetheless under a clear duty to mitigate his losses. He suggested that the most obvious way would have been to pay the capital contribution sought but on a without prejudice basis, and commencing proceedings seeking the appropriate declarations that no such sum was lawfully due.

The Court dealt with the history of the dispute and it was clear that both parties had become deeply entrenched in their positions which had led to a bitter and prolonged boycott of the racecourse by the established bookmakers. In the meanwhile their pitches had been given to less senior colleagues.

He concluded that while an important point of principle was involved and while initially he was entitled to take the stand he did, nonetheless objectively it became unreasonable after a certain point for the Plaintiff to refuse to take up the pitch offered by the racecourse. Had he done so, he would have mitigated his losses.

In those circumstances Judge Hogan was prepared to allow the Plaintiff to recover 100% of the losses he had sustained in the first 12 months of the dispute but insofar as subsequent years were concerned he abated the damages by a factor reflecting fault for the purposes of Section 34(1) of the 1961 Act. This deduction was 80%. He relied on the decision of Henchy J. in McCord v The Electricity Supply Board [1980] ILRM 153 and Carroll v Clare County Council referred to above.

The Court then considered the damages to which the Plaintiff was entitled. These were:

  1. The value of the pitch involved.
  2. The claim for loss of profits.

The Plaintiff called evidence from a former official of Horse Racing Ireland ("HRI") who had a particular expertise in the sale and valuation of bookmakers' pitches. The Court noted the effect of the economic depression on discretionary spending and betting in the racing industry. Factors were relied on by the Plaintiff such as the number of such pitches, their proximity to the parade ring, the layout of the betting ring and the nature of the racecourse itself. The Defendants relied on a report from a forensic accountant who gave instances of the sale of certain pitches. In all the circumstances the Court preferred the evidence led by the Plaintiff but discounted somewhat the value sought.

As to the claim for loss of profit a reasonable figure was provided by the Plaintiff for the seven year period involved. Evidence was heard from forensic accountants on behalf of both parties and a comparator was provided as to what the Plaintiff had earned from his pitch in Leopardstown Racecourse. The Court noted that the Plaintiff had frankly stated that he was in a modest way of business and this probably influenced its decision to accept the Plaintiff's own assessment as to the level of profits involved, but to discount it again by 80% for the second and successive years. Judge Hogan noted that John Kenneth Galbraith* thought the only function of economic forecasting was to make astrologers look respectable! By the same token he felt similar difficulties probably attended any attempts by the Court to make a fair assessment of what might have been.

Comment

These two very different cases illustrate the difficult, sometimes impossible job facing a Court in assessing damages. Even where there has been a clear breach on the part of a Defendant, the duty on a Plaintiff always remains to mitigate their losses and if they are found to have contributed in any way, the Court will intervene to reduce damages. It is also clear that the Court will respond favourably to a party seeking to advance a claim responsibly. It is noteworthy that in each case there was a certain lack of expert evidence from the successful party, yet the Court went on to make an award of damages broadly in terms of what they were seeking.

The two cases highlight the necessity of seeking sound legal advice from the very commencement of a dispute even where clients may feel themselves to be very much in the right, in order that they may manage their case well and recover all sums properly due to them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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