ADM Londis Plc v Ranzett Ltd

• Jurisdiction: Ireland
• Judge: the President
• Judgment Date: 19 October 2016
• Neutral Citation: [2016] IECA 290
• Docket Number: [2015 No. 104]
• Court: Court of Appeal (Ireland)
• Date: 19 October 2016

BETWEEN

ADM LONDIS PLC

PLAINTIFF/APPELLANT

AND

RANZETT LTD, RAY DOLAN

AND

ANNALIESE MCCONNELL

DEFENDANTS/RESPONDENTS

[2016] IECA 290

[2015 No. 104]

THE COURT OF APPEAL

Contract – Termination – Whether relationship between parties lawfully terminated – Damages awarded in event termination not lawful

Facts: The appellant had purported to terminate the contract as a supplier to the respondents, who had been carrying on business as a supermarket. A claim was issued for sums outstanding to the respondent, followed by a counter claim by the respondents. Both were successful, with the effect that the sums awarded in damages and costs effectively set off the sums due under the claim. The appellant now sought to challenge inter alia the finding of wrongful termination on its part.

Held by Mr President Ryan, the other Justices concurring, that the appeal would be allowed. Having considered the judgments below and the terms of the agreement between the parties, the Court was persuaded that the agreement did not impose a fiduciary duty on the appellant. As such, there was no overriding of the appellant’s ability to terminate in accordance with the terms of the agreement between the parties. The lack of written notice where there had been clear oral notice did not make the termination unlawful.

JUDGMENT of the President delivered on 19th October 2016

Introduction

1 Ranzett Ltd. opened a local shop outside Drogheda under the Londis name in February 2007. The manager of the business was Mr. Ray Dolan, who, with his wife Ms. Annaliese McConnell, owned the company, Ranzett. An interlinked set of contracts governed the relationship between Ranzett and ADM Londis plc, the franchise owners, and Mr. Dolan and his wife. There was a franchise agreement, a product purchase agreement for the supply of almost all stock and there were standard conditions of trading with a retention of title provision. Mr. Dolan and Ms. McConnell were named as principals in the agreements. Joint and several guarantees by Mr. Dolan and Ms. McConnell covered anything owed by Ranzett to ADM Londis. No issue arises on the guarantees.

2 ADM Londis was entitled to terminate the franchise agreement ‘forthwith’ if Ranzett or Mr. Dolan/Ms. McConnell were in breach of that or any other ADM agreement. A similar provision bound the parties in the product purchase agreement. The standard terms and conditions of trading provided that the relationship between ADM Londis and Ranzett, as the purchaser, was a fiduciary relationship and the purchaser was obliged to keep the goods supplied and the proceeds of sale separate to identify them as the property of ADM Londis and to account to ADM Londis for the proceeds of sale.

3 The business was not a success. It fell into arrears of payments for stock. By August 2008, after about 18 months' trading, the debt was some €300,000 and was continuing to increase. Mr. Dolan promised to put in place a security over property he owned and to make regular payments to reduce the debt.

4 The ADM Londis senior management in Dublin called Mr. Dolan to a crisis meeting on 3rd December 2008 to discuss the debt. He sent a message saying that he could not get anybody to mind the shop and so would not be able to attend. Nobody on his behalf was there. At that point, Ranzett's account with ADM Londis was in debit in an amount of €430,000. Ranzett was defaulting on modest direct debit payments that were agreed in late August. Mr. Dolan was not going to meet the deadline of 5th December to effect the security charge he had promised. The meeting proceeded and a senior manager phoned Mr. Dolan to tell him the outcome.

5 ADM Londis suspended credit facilities to the account immediately. The following day, ADM Londis personnel went to the shop premises and after an initial stand-off, took back a quantity of stock in reliance on the retention of title clause. Mr. Dolan told one of them that he was going to close the shop and put Ranzett into liquidation. The next day, ADM Londis arranged for the signage announcing the franchise to be removed because it was concerned about the impression that might be conveyed by closure that prevented people from getting to the Post Office facility that was located in the store. Subsequently, ADM Londis repossessed further stock but there was a balance of goods of the value of approximately €65,000 that ADM Londis did not collect but for which Ranzett was still held liable in their account.

6 ADM Londis sued for its debt and obtained summary judgment in the amount of €400,000. It then claimed an additional amount of approximately €161,000, as well as Courts Act interest and costs. The trial judge held that ADM Londis were entitled to judgment in the total sum of €561,283.91 together with Courts Act interest against all the defendants in respect of unpaid goods and services supplied to Ranzett and guaranteed by Mr. Dolan and Ms. McConnell.

7 Mr. Dolan and Ms. McConnell set up, by way of counterclaim, a case of breach of contract in respect of Ranzett of which they claimed to be entitled to benefit in their capacity as guarantors of the debts of Ranzett. The High Court held that Mr. Dolan and Ms. McConnell were entitled to rely on any counterclaim available to Ranzett; that ADM Londis wrongfully terminated its contract with Ranzett because it did not give notice in writing or adequate notice; that the relationship was a fiduciary one imposing obligations of utmost good faith, mutuality and a duty to look beyond personal interest on ADM Londis, which obligations it did not respect; that while ADM Londis was entitled in principle to exercise its retention of title powers, a series of misunderstandings and mishaps led to a situation where the premises remained closed for well over a week with disastrous consequences for Ranzett; that ADM Londis's actions in de-branding the premises were unauthorised under the franchise agreement and constituted a breach of duty and a breach of its fiduciary obligations. ADM Londis was required to give notice of at least two weeks to enable both parties to end their arrangements and permitting the retailer to make alternative supply arrangements in the meantime. The court declared that the damage was done by 5th December.

8 The court gave judgment on the counterclaim in favour of the personal defendants in the amount of €464,000, being €420,000 in respect of the destruction of the business and the forfeiture of the lease, plus €44,000 a sum representing two-thirds of the value of the ADM Londis goods that remained on hand uncollected in mid-December 2008. The court set off this award against the judgment on the claim.

9 In subsequent judgments, the court awarded the preponderance of the costs of the hearing to Mr. Dolan and Ms. McConnell and then directed that the costs surplus accruing to them would be set off against the balance standing to the credit of ADM Londis because its judgment exceeded the award on the counterclaim by nearly €100,000.

10 It is apparent from this brief introductory sketch of the background to the appeal that the case represented a remarkable metamorphosis in the fortunes of ADM Londis, Mr. Dolan and Ms. McConnell. ADM Londis went from a situation where it was owed over €500,000 by Ranzett which was guaranteed jointly and severally by the personal defendants to a net zero entitlement. In the result, the two guarantors found themselves liberated from liability for the €500,000 debts that had been incurred by Ranzett in under two years.

11 The conduct by ADM Londis that led to this transformation occurred over a period of 48 hours in respect of which it argued at the trial and in this court on appeal that it was entitled to do so in pursuance of its entitlements at common law and under the contracts with the defendants. Summarising the essence of his findings, when introducing his second judgment, the trial judge recalled that ‘it was the very abrupt termination of the trading relationship which I found to be at the heart of the unlawful termination of the contract’.

12 The High Court delivered no less than four separate written judgments in the course of this remarkable saga of litigation. We are concerned in this appeal by ADM Londis with the first and second judgments dealing, respectively, with the issue of liability on foot of the counterclaim and that of damages. The grounds focus, first, on the standing of Mr. Dolan and Ms. McConnell as guarantors and their capacity to invoke the claims of Ranzett in ease of their burden as sureties, in circumstances where Ranzett was not any longer a party, having been dissolved on 14th January 2011. The second area is the legal interpretation of the contracts that led the trial judge to his critical conclusion that ADM Londis was obliged to give the company at least two weeks notice, whereby he held that ADM Londis was under fiduciary obligations towards Ranzett to protect its interests so as to override the provision for termination forthwith. The final question is the basis for the judge's conclusions as to the demise of Ranzett, the assessment of the value of the company and the award of damages.

Facts as found by the Trial Judge

13 On 19th August 2008, Mr. O'Riordan of ADM Londis contacted Mr. Dolan regarding the deteriorating Ranzett account, which arrears stood at €310,000, resulting in two meetings taking place at ADM Londis headquarters on 22nd of August and 28th of August 2008.

14 On 22nd August 2008, Mr. Dolan agreed to put a direct debit in place to pay €3,800 per week and that he would secure finance of €150,000 by 22nd September 2008 in order to reduce the arrears. Following this meeting, and his agreement to the terms, Mr. Dolan realised that he was not going to be able to raise such a large sum in the time specified. At the meeting on 28th August, Mr. Dolan produced documents outlining his...