Whelan Frozen Foods Ltd v Dunnes Stores
|Mr. Justice John MacMenamin
|17 February 2006
| IEHC 171
|[No. 342 P/2006]
|17 February 2006
 IEHC 171
THE HIGH COURT
Adequacy of damages - Difficulty in assessing damages - Whether injunction should be granted where difficult but not impossible to assess damages - Curust Financial Services Ltd v LOEWE-LACK-WERK and Hart v Kelly (Unrep, Laffoy J, 16/7/1997) applied - Interlocutory injunction granted (2006/342P - MacMenamin J - 17/2/2006) IEHC 171 Whelan Frozen Foods Ltd v Dunnes Stores
Facts: The plaintiff’s case was that the defendant had sought to make a unilateral variation of two contracts entered into between the plaintiff and the defendant. The plaintiff applied for an interlocutory injunction restraining the defendant from proceeding with the unilateral variation. The defendant contended that damages were an adequate remedy.
Held by McMenamin J. in granting an interlocutory injunction that there was a fair issue to be tried and real doubt as to the adequacy of damages. The detrimental effect on the plaintiff of the absence of an injunction, on balance, significantly outweighed the effect of the failure to grant such an injunction.
The plaintiff in these proceedings was incorporated some 25 years ago and then operated from rented premises in Cabra. For the duration of its period in operation the plaintiff has engaged in the business of supplying the defendant with a variety of stock. The arrangement entered into was that the defendant agreed to open an account on the basis that the plaintiff would buy the stock and sell it to the defendant at a mutually agreeable margin on credit terms. Until recently there have been agreed terms and margins with the defendant's buyer and these have been adhered to, although on occasion reviewed in a manner later described. The defendant is the only customer of the plaintiff. The advantage of the arrangements from the Defendants point of view is that it dealt with one rather than a multiplicity of suppliers with a substantial reduction in staff overheads and paperwork. The Plaintiff derived its profit from the margin between purchase price from suppliers and resale to the Defendant.
It is now necessary to refer in greater detail to the two elements of the arrangement between the parties.
The case advanced is that in or about May, 2003 the parties entered into a contract for the warehousing and distribution of textile products. The essential term of this agreement was, that the plaintiff would provide warehousing and distribution of a sizeable portion of the defendant's textile business and that, in consideration thereof, a rate of €1.45 per cubic foot would be paid to the plaintiff by the defendant. The relevant credit terms for the payment were to be two weeks after the week of delivery. It is asserted that there was an implied term of this contract, through common understanding between the parties and by reason of the previous dealings between them, that these rates would continue for an indefinite period subject to variation only on mutual agreement between the parties and terminable only on reasonable notice. It is submitted that a reasonable notice period to give the plaintiff, given that the defendant is its only customer, that it has 477 employees, and has invested upwards of €15m in its business, should be a period of twelve months.
Turning to the second element of the arrangement, the plaintiffs say that in or about October, 2005 the parties entered a contract for the warehousing and distribution of all frozen and chilled foods. The essential term of this contract, was that the plaintiff would provide transportation and warehousing for a substantial proportion of the defendant's chilled and frozen foods. The consideration for this service was that a rate of €1.69 per case for frozen food and €1.12 per case for chilled foods would be paid by the defendant. The relevant credit terms were for payment within two weeks of the month end. Similar contentions are made as to this aspect of the agreement regarding duration, review and notice.
Although no longer in issue for these interlocutory proceedings, a director, Mr. Padraig Whelan Snr. has deposed on behalf of the plaintiff that, for the latter half of 2005, the defendant engaged in an effort either to put the plaintiff out of business, or sought as an illegitimate tool to drive down the plaintiff's rates by unilaterally breaking agreements and withholding substantial sums of money owing under the two agreements. At one stage he says the sums in question reached a total of €14.1 m. This matter is no longer part of the matrix of facts relevant in this application for an interlocutory injunction because, on 31st January last, the plaintiff accepts that it received cheques from the defendant totalling a sum of €14.1 m. in respect of monies withheld.
It is the plaintiff's case that the defendant has sought to make a unilateral variation of the two contracts entered into between the plaintiff and defendant.
The issue crystallised on 18th November, 2005, when the plaintiff received an email from a Mr. Eoin McGettigan of the defendant, advising of reductions whereby the defendant proposed to implement, with effect from 1st November, 2005, reductions to the "textile rate" from €1.45 to €1.30; and to the overall Food Rate by some 7%, based on an average of a mix of the frozen and chilled rates. Such deductions, were sought to be backdated to 1st November, 2005. The plaintiff says that Mr. McGettigan advised that he intended "to deduct these new rates from the account rather than complicate the invoicing costing arrangements at this stage". After receiving this email the plaintiff and defendant continued to negotiate. Mr. Whelan Snr. says that he told the defendants representatives on a number of occasions that the rates which they were unilaterally imposing on the plaintiff were not sustainable and would eventually put the plaintiff out of business. He says that, despite their protests and despite an ongoing process of negotiations between the parties, the defendant proceeded to implement the above variations from in or about 20th December, 2005. It is submitted now that this constitutes a unilateral variation of the contract entered into with the plaintiff which variation, is thereby null and void.
The plaintiffs also say that the defendant has unlawfully withheld substantial sums due to the plaintiff pursuant to the two contracts aforesaid, and that the total sum deducted, as of 3rd February, 2006, is €656,777.34.
Additionally, there is a claim for incurred losses in the sum of approximately €1 m. as a result of instructions conveyed to the plaintiff by the defendant under a number of headings since the year 2000.
These claims include:
(a) Inducing the plaintiff to enter into a sub-lease which it contends was commercially illegal and on foot of which it has incurred losses in the sum of €447,319.00;
(b) obtaining and providing extra warehousing on the instruction of the defendant which was not ultimately justified on the basis of the volumes which they were assured they would obtain, giving rise to a loss of €218,107.00; and
(c) a direction that the plaintiff pay a third party warehouse provider a 35% rate increase. As a result of what is contended to be an "enforced arrangement" the plaintiff contends that it has lost the sum of €290,079.00 under this heading.
The plaintiff further complains that, between October, 2005 and January, 2006, the defendant has wrongfully interfered with the internal business affairs of the plaintiff by using "economic duress" as a negotiating tool to obtain information about the plaintiff's accounts in order to direct the plaintiff how to manage its business and how to account therefor. By reason of this conduct the defendant has wrongfully undermined the independence of the plaintiff. An instance of this conduct is alleged to have occurred on Monday, 16th January, 2006, when Mr. Frank Dunne, a substantial shareholder of the defendant, telephoned the plaintiff and said that he had spent the weekend looking at the plaintiff's forecasts and that he needed to take action on the basis that the plaintiff was too inefficient. Mr. Whelan says that Mr. Dunne said that it was not acceptable to have massive amounts of overtime and that this should be dealt with through shift work. As a result, Mr. Whelan contends that Mr. Dunne stated that he was going to "halve" the plaintiffs business and thus it would have to reduce its costs.
A number of other issues are canvassed in the course of Mr. Whelan's affidavit, some going back as far as 1992. While these issues (whether explained or unexplained) may form part of the background, I am satisfied that for the purposes of this application they form no part of the issues to be considered. Similar considerations arise in relation to an issue of undercharging which, it is alleged occurred in January, 2003.
The plaintiff says that the events of November 2005 were not the first time that unilateral action has been taken by the defendant. It is contended that the withholding of a cheque in the year 2003 lengthened the plaintiff's credit terms by one week.
It is also said that in March 2003 the defendant released a tender document to distribution...
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