Dakota Packaging Ltd v AGP Manufacturing BV

• Jurisdiction: Ireland
• Judge: FENNELLY J.
• Judgment Date: 15 December 2004
• Neutral Citation: [2004] IESC 102
• Court: Supreme Court
• Docket Number: [2003 No.
• Date: 15 December 2004

DAKOTA PACKAGING LTD v. AHP MANUFACTURING BV T/A WYETH MEDICA IRELAND

BETWEEN

DAKOTA PACKAGING LTD

Plaintiff/Respondent

and

AHP MANUFACTURING BV trading as WYETH MEDICA IRELAND

Defendant/Appellant

[2004] IESC 102

Murray C.J.

Hardiman J.

Fennelly J.

68 & 110/04

THE SUPREME COURT

Abstract:

Contract - Breach - Whether contract existed - Nature of relationship between parties - Implied terms - Whether terms could be implied - Intention of parties - Appropriate remedy

Over an eight year period the defendant/appellant purchased packaging representing 40% of their turnover from the plaintiff/respondent. No formal contract had ever been entered into by the parties but the High Court determined that 12 months notice be given of the termination of the trading relationship and thereby in effect finding that a relationship existed into which a 'reasonable notice' term could be implied. The defendant appealed.

Held by the Supreme Court (Fennelly J; Murray CJ and Hardiman JJ concurring) in allowing the appeal that the High Court, having found that no agreement in contract existed could not then imply a term into the relationship.

Reporter: F. McE

Citations:

SWEENEY V DUGGAN 1997 2 IR 531

MOORCOCK, THE 1889 14 PD 64

LIVERPOOL CITY COUNCIL V IRWIN 1977 AC 239

STATUTE OF FRAUDS 1695

BRITAIN V ROSSITER 1879 11 QBD 123

MADDISON V ALDERSON 1883 8 AC 467

CROWLEY V O'SULLIVAN 1900 2 IR 477

MACKEY V WILDE & LONGIN 1998 2 IR 578 1998 1 ILRM 449

SALE OF GOODS ACT 1893

1 15th day of December, 2004 by FENNELLY J.

FENNELLY J.

2 In a judgment delivered on 10 ^th October 2003, Peart J determined that the Appellant (hereinafter "Wyeth")were bound to give reasonable notice to the Respondent (hereinafter "Dakota") of the termination of a trading relationship, whereby they had been major purchasers of packaging from the latter. He also determined that the period of notice should be twelve months and that, during the period of notice, Wyeth were obliged to continue to purchase whatever goods of that type Wyeth required during that period.

3 Wyeth's main point is that the learned trial judge purported to imply the term with regard to reasonable notice, while finding that there was no long-term purchase agreement between the parties. Dakota concedes that a term cannot be implied where there is no contract, but maintains that the learned trial judge "in effect" and despite some ambiguous language found that there was such a contract.

4 While the parties both in the High Court and in this Court presented extensive submissions on the law regarding implied contract terms, there was no fundamental disagreement as to the relevant principles or cases. It was agreed that there can be no implied term without a contract. Thus, the principal issue to be determined is whether the learned trial judge found that there was a contract (other than individual contracts for the sale of goods).

The Facts

5 Dakota is one of Ireland's major print and packaging companies. It was a public limited company until 1994. It trades from Airways Industrial Estate, Dublin 17. At the commencement of these proceedings, it employed some 160 persons. Employment had peaked at over 200 about the year 2000. The Appellant is a company registered in the Netherlands, but trades in Ireland as Wyeth Medica Ireland. It is part of a major American multi-national company which manufactures pharmaceutical products. Its Irish manufacturing base is at Newbridge, Co Kildare, where it manufactures contraceptive products. Both companies are sophisticated enterprises operating in a competitive business environment and are accustomed to the need for high standards.

6 After initial contacts in 1993, Wyeth commenced purchasing packaging from Dakota. From small beginnings of some IR£100,000 in 1993, the business increased to IR£700,000 in 1995. The greatest increase was from 1999 onwards. About that time, Dakota invested some €10 million in its manufacturing facilities in order to assist the growth of its business with Wyeth. The business increased to just short of €4 million in 1999 and reached a peak value of €8.6 million in 2000, falling slightly to €8 million in 2001 and to €6.2 million in 2002. At the time of the commencement of the proceedings, the Wyeth business represented approximately 40% of the total turnover of Dakota.

7 In late 2002 and early 2003, Wyeth expressed concern about the financial stability of Dakota. These concerns were the subject of much discussion and argument between the parties. Whether these concerns were justified or not - and it is only fair to say that Dakota maintains that they were not - does not need to be decided and it was not decided in the High Court. It appears that the real effect of these events was to cause Wyeth to take a closer look at the prices they were paying to Dakota and to conclude that the goods could be sourced more competitively elsewhere. Again, whether they were correct in this respect is not relevant. Dakota's sole contention is that, while Wyeth were entitled to terminate their trading relationship, they were required to give reasonable notice, or as it was put in evidence on behalf of Dakota, to "agree an exit strategy." Thus, Wyeth did not have to justify the termination or even give a reason, provided they gave proper notice.

8 Unless there was some long-term agreement between the parties for the sale and purchase of packaging, there was no contract into which Peart J was entitled to imply a term that reasonable notice had to be given of its termination. In one sense, this issue can be disposed of simply by looking at the judgment of Peart J. Dakota has not appealed his findings regarding the existence or otherwise of a contract. If, as Wyeth maintains, Peart J found there was no such contract, they are entitled to succeed on the appeal. Therefore, I will refer to the judgment of the learned trial judge as fully as is necessary to deal with this question. I will also, however, refer to the evidence which, according to Dakota, established the existence of such a contract. Principally, this evidence was given by Mr Tony Fox, who was at all material times the sales director of Dakota. In saying this, I would also remark that, as was rightly stated by Mr Paul Gardiner, Senior Counsel, for Dakota, the facts themselves were not in serious dispute.

THE High Court Judgment

9 The following appear to me to be the most material passages from the judgment of Peart J. Firstly, in summarising the facts, he made the following statements:

"A critical feature of this trading relationship as far as the present dispute is concerned is that at no time was there ever any supply agreement in writing concluded between the parties. The relationship developed over time with orders for product being received from Wyeth and being supplied on an order by order basis by Dakota, although Wyeth would from time to time give Dakota a forecast of anticipated orders so that presumably Dakota could have sufficient raw materials available when the orders were placed to fulfil the orders without delay."

10 In relation to orders, Mr Tony Fox, Dakota's Sales Director agreed when giving evidence that each order placed represented a separate contract for the supply of the goods so ordered. The standard terms and conditions appearing on the back of each order form were in line with this, but Mr Fox went on to say that if that was to be the sole basis on which business was to be done with Wyeth, its orders could not have been fulfilled to meet their requirements, and that was why annual forecasts of volumes were made, so that the necessary quantities of raw materials (i.e. board) would be in stock at Dakota to meet the orders placed. Those stocks of board had to be bought in from board manufacturers and the lead time for that was about 10–12 weeks. He said that the business relationship with Wyeth could not have developed and matured in the way it did, if Dakota were to operate only on the basis that Wyeth had no obligations over and above what was stated on the order form, but he had to accept that on paper that was the extent of Wyeth's obligation in relation to goods ordered." (page 9)

"Mr Fox also confirmed in his evidence that in early 1997 Wyeth introduced what is described as a "Blanket Order" system of ordering, in order to cut down on paperwork given the number of orders being placed from time to time. A letter from Wyeth dated 29 ^th January 1997 announcing the introduction of this new purchasing system stated that the normal purchasing terms and conditions would continue to apply, and then stated "that the Blanket Order should not be interpreted as a firm commitment by WMI to purchase the authorised quantity stated in the Blanket Order. You may only produce and deliver the stated call-off quantities". (pages 9/10)

"Mr Fox was also referred to a further development in purchasing arrangements which was introduced in January 2000. This is what has been referred to as the "two month firm window". In effect there would be a six month forecast given of anticipated orders going forward, but there would be a two month "firm window", the latter being what Dakota could actually manufacture and that Wyeth guaranteed to take and pay for. The forecast six month period was merely indicative, and Wyeth had no obligation to purchase on foot of it. In April 2000 a document was sent by Wyeth entitled "Standardized procedures for vendors" and this set out the new arrangements relating to "Firm period" and "Forecast" and other matters which would form the basis for the purchasing arrangements with all Wyeth suppliers, and not just Dakota. Under the paragraph headed "Forecast" it states:

"The forecast period is for the following four months of the schedule. Vendors should use the Schedule period to forecast for base material for periods outside of the Firm...