McCormack Fuels Ltd v Maxol Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Dunne
• Judgment Date: 20 June 2008
• Neutral Citation: [2008] IEHC 197
• Date: 20 June 2008
• Court: High Court
• Docket Number: No. 5801 P/2007

[2008] IEHC 197

THE HIGH COURT

No. 5801 P/2007

McCormack Fuels Ltd v Maxol Ltd

BETWEEN

McCORMACK FUELS LIMITED

PLAINTIFF

AND

MAXOL LIMITED

DEFENDANT

ARBITRATION ACT 1980 S5(1)

DOYLE v IRISH NATIONAL INSURANCE CO PLC 1998 1 IR 89 1998 1 ILRM 502

HEYMAN v DARWINS LTD 1942 AC 356

ARBITRATION ACT 1980 S5

ARBITRATION ACT 1954 S39(2)

GREYRIDGE DEVELOPMENTS LTD v MCGUIGAN UNREP GILLIGAN 28.6.2006 2006/27/5755 2006 IEHC 441

CUNNINGHAM-REID v BUCHANAN-JARDINE 1988 2 AER 438

WINTERTHUR SWISS INSURANCE CO v INSURANCE CORPORATION OF IRELAND 1990 2 IR 246 1990 ILRM 159

ARBITRATION

Stay

Application to stay proceedings pending arbitration - Allegation of fraud raised by plaintiff - Whether arbitration clause surviving voidance of underlying contract - Whether issues in dispute of such complexity that stay should be refused - Whether discretion to order stay should be exercised - Administratia Asigurarilor de Stat v Insurance Corporation of Ireland [1990] 2 IR 246, Doyle v Irish National Insurance Co plc [1998] 1 IR 89 and Greyridge Developments v McGuigan [2006] IEHC 441 (Unrep, Gilligan J, 28/6/2006) considered - Arbitration Act 1980 (No 7), ss 5 and 39(2) -Application for stay granted (2007/5801P - Dunne J - 20/6/2008) [2008] IEHC 197

McCormack Fuels Ltd v Maxol

Ms. Justice Dunne

1 The application herein is for an order pursuant to s. 5(1) of the Arbitration Act1980, to stay the proceedings in the above title. The application is grounded on an affidavit of Gavin Simons, solicitor on behalf of the defendant herein. In his affidavit sworn on the 24^th September, 2007, Mr. Simons referred to an Authorised Distributor Agreement dated the 18^th August, 2004, between the defendant and the plaintiff. That agreement contains an arbitration clause. In the course of his affidavit, Mr. Simons explained that the parties have been involved in discussions of and concerning petrol rebates and the rates to be struck in respect thereof.

2 Given that the application to stay the proceedings pending arbitration has been resisted by the plaintiff, it is somewhat ironic to note that the position of the parties herein to arbitration has changed somewhat over a period of time. In April 2007, it appears that both parties to the proceedings were agreeable to arbitration in respect of their dispute. By June 2007, the plaintiff herein in a letter dated the 5^th June, 2007, referred to a threat of legal action from the defendant herein and as such indicated "in the light of this I have decided not to seek any reference to arbitration and not to consent to your company putting any of the disputes between us before an arbitrator". Ultimately a plenary summons was issued herein and served on the 14^th August, 2007.

3 A replying affidavit was sworn herein by John McCormack on the 23^rd November, 2007. In that affidavit he referred to the petrol distribution and supply agreement entered into by the plaintiff and the defendant. He set out details in relation to what he described as one of the principal clauses and alleged that the defendant was in breach of that clause which provided for a review of the commissions payable by the defendant to the plaintiff. He alleged that that condition was a fundamental term of the agreement and even if not fundamental, that it was an essential term in the agreement. He contended that there was a breach of that term and that this amounted to a "fundamental rupture" of the agreement which had the effect of rescinding the agreement.

4 A similar contention was considered in the decision in the case ofDoyle v. Irish National Insurance Company Plc [1998] 1 I.R. 89. In that case it was held by Kelly J. that the arbitration clause survived the voidance of the contract and that the defendant was entitled to have the dispute referred to arbitration. In the course of his judgment Kelly J. followed the leading case of Heyman v. Darwins Limited [1942] A.C. 356. In the course of the judgment at p. 92, Kelly J. quoted from that decision where it was stated by Macmillan L.J. at pp.373 and 374 as follows:-

"An arbitration clause in a contract … is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other … but the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution … what is commonly called repudiation or total breach of a contract … does not abrogate the contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by the contract undertaken to the repudiating party.

The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract."

5 Having referred to that passage Kelly J. went on to say:-

"Whilst that decision speaks of repudiation or total breach of contract the principle decided by it is equally applicable in circumstances where one party seeks to void or rescind a contract on the ground of misrepresentation or non-disclosure. That is so whether the misrepresentation or non-disclosure is fraudulent, negligent or innocent. Provided that the words of the clause are sufficiently wide, these are matters which can be referred to arbitration."

6 It seems to me to be clear that had matters rested with the first affidavit of Mr. McCormack there could be no issue but that these proceedings should be stayed pursuant to s. 5 of the Arbitration Act1980.

7 A further affidavit was sworn herein by Mr. McCormack on the 21^st December, 2007. In that affidavit, Mr. McCormack sets out more detail by way of background as to the relationship between the plaintiff and the defendant. It is clear from that affidavit that the parties have dealt with one another for a considerable number of years. It would also appear that during the period of their dealing prior to entering into the agreement, the subject matter of these proceedings, on the 18^th August 2004 that there had been issues between the plaintiff and the defendant as to the margins or profit levels being attained by the plaintiff. Critical to the level of margin was the extent of rebates on the products supplied by the defendant to the plaintiff. It was clearly a part of the arrangement between the plaintiff and the defendant that rebates would be reviewed by the defendant over the course of the contract.

8 In the course of his affidavit, Mr. McCormack states that in the course of his discussions with representatives of the defendant prior to entering into this contract that his complaints as to the level of profits he was achieving were met by a comment "Do you boys not talk at all down there?" The clear implication of this is an allegation by Mr. McCormack that the defendant suggested that he and his competitors should meet for the purpose of agreeing a price for the products they sold. Such a course of action would, of course, be in breach of competition law.

9 Mr. McCormack continues in that affidavit, to set out in more detail his complaints in relation to the issue of rebate review. He outlined a number of meetings that occurred subsequent to entering into the agreement at issue in these proceedings and he refers to losses which he states his company has suffered as a result of the failure of the defendant to honour the terms of the agreement.

10 He also dealt at length with an allegation that, as previously stated, the review of the commissions on the terms agreed between the parties is a fundamental term of the agreement. He asserted that the defendant never intended to engage with the plaintiff in a meaningful way in any such review and on the...