Cyril Reaney and Others v Interlink Ireland Ltd t/a DPD
| Jurisdiction | Ireland |
| Judge | Mr. Justice Gilligan |
| Judgment Date | 31 July 2012 |
| Neutral Citation | [2012] IEHC 606 |
| Court | High Court |
| Date | 31 July 2012 |
[2012] IEHC 606
THE HIGH COURT
BETWEEN
AND
High court - Franchise agreement - Termination - Compensation - Valuation - Turnover - Profit - Multiplier - Repayment of purchase price - Interpretation of clause - Intention of parties
Facts: The defendant was a company involved in courier activities that operated a network of franchises throughout Ireland. In December 1995, the plaintiffs purchased the North and East Cork franchise for €10,157 from the defendant. In 1995, the plaintiffs purchased the South and West Cork area franchise for €146,000 from the defendant. The bulk of these two franchise areas were later sold in 2000 and 2005, for €59,360 and €175,000 respectively; this left a franchise area, which related to depot 28, and which was valued at €95,000. On the 23rd September 2009, the defendant gave six months notice of termination of the franchise agreement to the plaintiffs to expire on the 31st March 2010, pursuant to clause 13 of that agreement. These proceedings were brought by the plaintiffs to determine the effect of clause 13 and the appropriate sum of money the plaintiffs were entitled to for the termination of the franchise for the area related to depot 28.
It was undisputed that clause 13 entitled the defendants to terminate the franchise agreement and that clause 13 applied at the time notice was given on the 23 rd September 2009. It was argued by the plaintiffs, however, that the effect of clause 13 entitled them to a compensation payment that was equal to the purchase price plus such further sum based on the turnover of the business carried on by the plaintiffs as at the date of the notice. Using that methodology, it was said that a figure of 47% of increased turnover, in addition to the original purchase price, was correct. On the other hand, the defendant argued that the plaintiffs” compensation entitlement was the sum that they originally paid uplifted to reflect the value of their business having regard to its turnover at the date of termination; therefore, the profitability of the business was said to be of key importance. The defendant argued that the plaintiffs” assertion that the value of the business should be assessed from turnover alone was illogical because a business could have a large turnover but still be making a loss.
Held by Gilligan J that in determining the true meaning of a clause, the intention of the parties should be derived from the plain meaning of the words if possible. If ambiguity arises, a factual matrix approach is taken. In the present case, there was a lack of clarity in the wording of clause 13; therefore, the factual matrix was considered. It was found that it was rare for a franchise agreement, of such a type operated between the plaintiffs and the defendant, to be terminated. It was also found that the plaintiffs, as franchisees, had invested a considerable sum of money in building up the franchise business, but were not entitled to compensation for the material and equipment purchased on termination of the franchise agreement. Bearing that in mind, it was held that the logical interpretation of clause 13 meant that the plaintiffs were entitled to payment of a sum equal to the original purchase price, which in this case was a sum of €95,000.00, and payment of a sum which fairly reflected the turnover and its effect on the value of the business, having regard to the fact that it had not been possible to procure a purchaser of the business. It was also held that the evidence of the background and context to the franchise agreement reinforced this analysis.
In valuing the business, Gilligan J decided that the correct figure would be the turnover of the business as achieved at the date of the termination notice, with a deduction of a fair figure which properly represented the profit of the business at that time. This fair figure was set at 5 times the annual profits, with the appropriate years for the calculation held to be 2008 and 2009. The average profit from those two years was €18,655. As well as that sum, €50,000 was added for add backs. A 15% deduction was then made for the profit element on the plaintiffs” own business "Today Couriers" as conducted alongside that of the franchise and a 12.5% deduction for tax. Applying the multiplier of 5 gave a figure of €255,307 as the value of the plaintiffs franchise at the date of termination.
JUDGMENT of Mr. Justice Gilligan delivered on the 31st day of July, 2012
1. The first and second named plaintiffs are a married couple and the third named plaintiff is a limited liability company, having its registered office at Main Street, Whitegate, Middleton in the County of Cork.
2. The defendants "Interlink" are a subsidiary of La Poste and currently trade as DPD Ireland and they operate a network of franchises throughout Ireland which are involved in courier activities, mainly collection and delivery of parcels and letters.
3. The North and East Cork franchise area was acquired by the plaintiffs from the defendants for IR£8,000 (€10,157) in December, 1986 and the additional franchise area of South and West Cork was acquired in December, 1995 for a consideration of IR£115,000 (€146,000).
4. In July, 2000 the plaintiffs sold the West Cork franchise business for IR£46,750 (€59,360) and in June, 2005 sold off the North and East Cork area for €175,000. Following these transactions the remaining franchise area related to depot 28 and this represents part of the area acquired in 1995, and the sum of €95,000.00 is appropriately apportioned thereto.
5. The franchise agreement entered into between the plaintiffs provided that the agreement would continue until terminated by not less than six months written notice by either party. On 23 rd September, 2009, Interlink gave six months notice of termination to the plaintiffs to expire on 31 st March, 2010, pursuant to s. 13 of the Franchise Agreement.
6. There is no dispute that the defendant was entitled to terminate the plaintiffs franchise pursuant to clause 13. There is further no dispute that clause 13 applies as at the date of the notice, being 23 rd September, 2009.
7. The principal issue that arises in these proceedings is to determine the effect of clause 13 and further, to determine the appropriate sum of money pursuant to clause 13 to compensate the plaintiffs in respect of the termination of the defendants franchise for franchise area relating to depot 28.
8. Three other aspects of dispute between the plaintiffs and the defendant also need to be determined and these relate solely to the amounts of money to which the plaintiffs may be entitled to in respect of compensation.
9. These are:-
a A. A claim by the plaintiffs in respect of lost commission due to under-weighing of parcels known as "parcel line consignments" and in this regard, a figure has been agreed subject to liability in the sum of €31,900.
b B. The plaintiffs claim a loss in respect of what is described as IL4 account. This aspect arises out of a notification issued by Interlink on 21 st December, 2006, stating that the new rates basis in respect of the IL4 account would apply from 1 st January, 2007, and effectively, this altered the rate of commission to which the plaintiffs were entitled. They contend that this occurred without any negotiation or consultation and that the change in the methodology for computing commission is considered unreasonable and was issued without reasonable notice in breach of the franchise agreement. The reduction in commission paid from the date of the change, being the 1 st January, 2007, until it was changed to a flat on 1 st June, 2008, results in a difference between the commissions that were originally applied and allowing for reasonable notice of eighteen months amount to a sum which is agreed between the parties at €20,954. Mr. Reaney in evidence took the view that six months would have been reasonable notice and accordingly, the maximum amount claimable is €6,984.66. Two issues arise for determination here, the first being as to whether or not the plaintiffs are entitled to any compensation having regard to the provisions of the franchise agreement and if they are so entitled, what in the circumstances would be deemed to have been reasonable notice.
c C. The plaintiffs claim a loss arising out of what is known as the "pulsar account". The plaintiffs contend that when this account was opened in April, 2008 it was agreed that the franchisees would be paid what has been referred to as their normal commission rate of €1.68 up to 25kgs and 0.04 per kilogram thereafter for a trial period. After this trial period ended the franchisees were to receive a royalty of €0.50 per consignment for customer service and the trial period was then extended and the franchisees continued to receive the commission rate of €1.68 up to 25kgs and 0.04 per kg thereafter up to the end of March, 2009. The defendants then proceeded to recover the commission paid to the franchisee at this rate for the trial period and this was done by deducting a trunking charge of €40 per day from the plaintiffs' commission payments. The defendants contend that they were entitled to the return of these monies and the plaintiff disputes this contention.
d D. further, the plaintiffs claim interest on such amount if any as the court finds is properly due and owing to the plaintiffs.
10. Two other issues arise for determination as follows.
(i) Do the plaintiffs satisfy the court on the balance of probabilities in respect of an allegation as made by the plaintiffs against the defendants that they were guilty of fraud in respect of the under-weighing of the parcel line consignments of parcels?
To continue reading
Request your trial
-
Kelly Builders (Rosemount) Ltd v HCC Underwriting Agency Ltd
...correct approach to interpretation in this case is as set out by Gilligan J. in Cyril Reaney & Ors. v. Interlink Ireland Limited t/a DPD [2012] IEHC 606: ‘Interpretation is the ascertainment of the meaning which the documents would convey to a reasonable person having all the background kno......