High Court of Ireland Decisions

1. Bob Bushell Limited (hereinafter called "the Plaintiff) has been established for some eighteen years as a supplier to the contract and retail trade of electrical goods for both the commercial and domestic markets. The Plaintiff has specialised particularly in quality goods.

2. LUXEL VARESE SAS is an Italian company with an address at Varese, Italy and supplies the electrical markets, specialising in the less expensive lines.

3. In April 1994 Bob Bushell and Alan Doyle (manager director and sales director respectively of the Plaintiff) attended at the Hanover Fair where they were approached by Mr. George Angelini part owner of the Defendant and the upshot of the encounter was that the Plaintiff agreed in principle to accept domestic and commercial products from the Defendant on an exclusive basis subject to a subsequent visit to the Defendant's factory at Varese which occurred in May of that year.

4. Trade between the parties commenced soon after the May meeting and a schedule of payments made indicates regular monthly transactions between June 1994 and October 1995.

5. A major issue in the case has been the precise scope and meaning of the exclusive arrangement between the parties. The relationship came to an end when the Plaintiff in November 1995 learned that the Defendant had supplied a competitor in Ireland and on the 23rd November, 1995 wrote to the Defendant indicating this, demanding compensation and threatening proceedings. An unsatisfactory response provoked a solicitor's letter of the 29th November repeating the allegations and demands and specifying that payment in respect of unpaid deliveries would be withheld. From that time the Plaintiff discontinued his orders of the Defendant's goods.

6. The Plaintiff's plenary action commenced by plenary summons on the

7. Subsequent application by the Defendant for summary judgment was refused as was a later application to consolidate these proceedings. Accordingly the Plaintiff's plenary action for general damages for breach of a sole distributorship came on before me at the same time as the Defendant's summary summons for payment of the invoices. Pleadings had been directed in the summary matter and the defence therein included a counterclaim arising out of allegedly defective goods supplied by the Defendant and also arising out of the alleged breach of the sole distributorship.

8. On the first day of the hearing before me I permitted the Plaintiff to file a reply and defence to counterclaim in their own plenary action which, for the first time in the pleadings in the plenary case, introduced a counterclaim for damages arising out of allegedly defective goods and a defence claiming a set-off against the value of the invoices in respect of the amount of the award of general damages for breach of the sole distributorship together with any damages awarded for the defective goods.

9. At the meetings in Hanover and Varese Mr. Angelini produced two brochures: a black one with the name "Luxel" printed on it covering a range of domestic fittings variously referred to in this case as downlighters, decorative fittings or domestic fittings. At the time the evidence establishes that these fittings were available in Ireland through a number of other sources apart from the Defendant. This fact was, however, not known to the Plaintiff nor was it clarified to him.

10. The second brochure did not have the Defendant's name and covered commercial lines variously referred to in these proceedings as fluorescent products, modular products and non-decorative products. These products were not available in Ireland at the time and Mr. Angelini accepts that he conferred an exclusive distributorship in respect of the fluorescent items in the white (Artemide) catalogue upon the Plaintiff for sales in the island of Ireland. He strenuously denies, however, that he conferred a similar distributorship in respect of the "Luxel" catalogue items and makes the point that he could not do so since these items were available to other sources in Ireland. In response Mr. Bushell made the case that what he required from Mr. Angelini was that his company would supply in Ireland only through the plaintiff company.

11. It was accepted by the Plaintiff that decorative items not contained in the "Luxel" catalogue were not subject to the sole distributorship: it was contended by the Defendant that fluorescent products not contained in the white "Artemide" catalogue were not the subject of the sole distributorship, but this was not accepted by the Plaintiff.

12. There was also a difference between the parties as to the centrality of the sole distributorship term. The Plaintiff maintains that it was absolutely central, that they were entitled to terminate orders and the agreement and regard it as repudiated once this essential term was breached: the Defendant argued, on the other hand, that any breach was relatively minor, did not amount to a repudiation, same was not accepted even it did, and that the Plaintiff would be entitled at most only to damages amounting to the loss of the profits which would have been made had the goods been supplied through the Plaintiff.

13. In the course of cross-examination Mr. Angelini acknowledged that at the meeting in Hanover Bob Bushell told him that he would be only interested in his goods (it was a departure for the Plaintiff to venture into the cheaper end of the market) on an exclusive arrangement for Ireland. He further acknowledged that he did not say anything when he was asked for this. He accepted that Mr. Bushell left with the impression that he was getting exclusivity in relation to all the goods contained in both brochures which included both decorative and fluorescent goods. Mr. Angelini accepted that Mr. Bushell believed this and that he, Mr. Angelini, knew that he believed it. He further acknowledged that probably he should have told Bob Bushell that the exclusivity arrangement did not include the downlighter section but explained that he did not want to say this to Mr. Bushell because he would be afraid of his reaction. He acknowledged that to be correct he should have said this.

14. Mr. Angelini gave his evidence in English. He speaks good English but it is not perfect. It was clear at some points in his evidence that he was confused and, indeed, on one or two occasions he contradicted himself in a way which demonstrated this. Notwithstanding this, however, I am satisfied that Mr. Angelini left the Plaintiff's representatives following the meetings in Hanover and Varese under the impression that they were getting the exclusive distributorship of the goods contained in both brochures for the island of Ireland. Furthermore I am satisfied that Mr. Angelini was aware that this was the impression which he created and did nothing to correct it.

15. Mr. Angelini in evidence said that his intention was that the exclusivity would relate only to the fluorescent products referred to in the Artemide brochure and not to the decorative products in the "Luxel" catalogue, nor did it refer to fluorescent products which were not contained in the Artemide brochure. He further made the point that an exclusive arrangement in respect of goods available independently in Ireland made no sense at all. Be that as it may in light of my findings already indicated I consider that in deciding the issue of contractual intention I should apply the objective test referred to in the Twenty-Seventh Edition of Chitty on Contracts at paragraph 2-106. On this basis I hold that the parties reached agreement upon the basis that the products contained in the two catalogues furnished by Mr. Angelini to the Plaintiff's representatives were to be distributed in Ireland by the Plaintiff and that the Defendant would not distribute those products in Ireland except through the Plaintiff.

16. Mr. Bushell on behalf of the Plaintiff accepted that decorative items not contained in the "Luxel" brochure were not covered by this exclusivity arrangement and makes no claim in this regard.

17. Mr. Angelini contends that fluorescent items not contained in the "Artemide" fluorescent brochure were not subject to the exclusivity agreement.

18. The evidence shows that in February 1995 Mr. Bushell heard from a consulting engineer that Luxel products were available in Ireland via a source other than the Plaintiff. He telephoned Mr. Angelini who denied he had supplied another Irish supplier and suggested that maybe these goods came through the United Kingdom. They met in April at the 1995 Hanover Fair and Mr. Bushell again expressed his disquiet about other people selling Luxel products in Ireland and on this occasion he asked for the exclusivity agreement to be confirmed in writing and this was done by fax of the 5th May, 1995. This fax reads:

19. It is signed by B. G. Angelini Managing Director of Luxel Varese Sas.

20. Mr. Angelini was asked why he referred to a sole agency rather than a sole distributorship and said he could not remember. It is agreed by both parties that the agreement was actually a sole distributorship. This inaccuracy in the text of the fax notwithstanding, it is noteworthy that there are no limitations or restrictions suggested in the phraseology which would alert an outside observer to the point now made by Mr. Angelini that the reference to "the sale of our products" was intended to refer only to the fluorescent products.

21. I hold that the agreement between the parties was that the Defendant would distribute its fluorescent and decorative ranges in Ireland exclusively through the Plaintiff.

22. I would not be prepared to hold, however, that this arrangement applied to fluorescent products not contained in the Artemide catalogue.

23. The Plaintiff says that this term was central to the agreement. The Plaintiff had to trust the Defendant and in particular would contract with third parties exposing itself to penalties in the event of default. Furthermore the evidence shows that the Plaintiff reacted assertively as soon as any suspicion arose that the Defendant was supplying in Ireland through a third party and in response to its expressed concern the Defendant specifically furnished the fax of the 5th May, 1995.

24. In my view the exclusivity arrangement was a central and fundamental term in the agreement between the parties and any breach thereof was a fundamental breach liable to terminate the agreement.

25. It follows from the foregoing that any delivery by the Defendant during the currency of the agreement of domestic goods contained in the "Luxel" catalogue or fluorescent goods contained in the "Artemide" catalogue amounted to a fundamental breach of the agreement.

26. It is quite clear on the evidence, and not contested by the Defendant, that at least some £13,500 of domestic goods were delivered by the Defendant to a third party, namely, Lighting and Interiors with an address at Elgin Road, Dublin.

27. The evidence shows that when Mr. Angelini was confronted initially on the telephone and subsequently at the 1995 Hanover Fair with allegations that he was supplying a third party in Ireland with Luxel goods, he strenuously denied these allegations. I am satisfied, however, that during the winter months of 1994/1995 there was active and repeated correspondence between the Defendant and Lighting and Interiors, including invoices from the Defendant to Lighting and Interiors at least as early as March 1995, a request from Lighting and Interiors to furnish a catalogue and price list to a private address (this request is dated 8th November, 1994) and a warning (albeit in December 1995) from Mr. Angelini not to use a transport agent who was working with the Plaintiff. (It is to be noted that the initial complaint, transmitted to Mr. Angelini, arose out of information from a transport agent who informed the Plaintiff that he had Luxel goods for a third party in Ireland).

28. I am not convinced by Mr. Angelini's protestation, in relation to the fluorescent correspondence, that his failure to supply on the basis that his production was submerged with orders, in fact represented a general unwillingness on his part to do business with Lighting and Interiors. Even granted that the two acknowledged fluorescent deliveries were products not contained in the "Artemide" brochure, I consider that the actual deliveries of domestic items constituted a fundamental breach liable to be treated as a repudiation of the contract. I note that by fax of the 10th February, 1995 sent to Lighting and Interiors

29. Mr. Angelini stated:

30. In his evidence Mr. Angelini acknowledged that the Plaintiff would not be happy to know that he was delivering to a competitor but stated that he did not think it was necessary to tell the Plaintiff that he was delivering to their competitor. In relation to the fax of the 5th May, 1995 he said that for him the exclusivity was logical only for the fluorescent line but he did not explain this to the Plaintiff because he did not want to "make polemics" with Mr. Bushell.

31. I hold that the Defendant was in breach of the exclusivity term, that this was a fundamental breach, liable to be accepted by the Plaintiff as a repudiation of the contract. Furthermore it is clear, in my view, from the letters from the Plaintiff itself of the

32. Before dealing with the measure of damages arising in such circumstances, I should say in passing that the Defendant claimed that the Plaintiff had been late in paying his invoices but in fact when the matter was put to Mr. Angelini in cross-examination he accepted that the payment schedule as indicated in a document headed "list of payments made" which I accept, in the absence of serious challenge, as being accurate, showed performance which was "pretty excellent". I do not think there is any substance in this complaint and indeed not very much was made of it during the course of the hearing.

33. The Defendant submitted that the period in respect of which losses can be claimed is limited to the period during which the Defendant could have legitimately served notice. The Plaintiff's evidence is that six months notice would be normal: the Defendant's is that three to six months' notice would be normal.

34. The general rule is that the assessment of damages should have as it purpose the putting back of the injured party in so far as money can do so to the position in which he would have been had the breach not been committed. I was referred to the judgment of the then President (Finlay P.) in Hickey & Company Limited -v- Roches Stores (Dublin) Limited (1980: ILRM: 107) as an example where damages were assessed for a period which extended beyond the notice period (and indeed beyond a subsequent twelve month period referable to an undertaking not to trade). The Defendant submitted, however, that the agreement in that case was special and the judgment did not establish explicitly that damages can in general be calculated by reference to a period beyond the notice period.

35. In the present case it is clear that in the absence of the decision of the Plaintiff to terminate all relations upon discovery of proof of the Defendant's supply to Lighting and Interiors Limited, Mr. Angelini's company would have continued to supply the Plaintiff. Mr. Angelini regarded the end of his dealings with the Plaintiff as tragic. On the probabilities, therefore, I must hold that in the absence of termination due to the Defendant's breach, the Defendant would have continued to trade with the Plaintiff. If the assessment of damages has as its purpose the putting back of the Plaintiff in this case into the position in which the Plaintiff would have been had the breach not been committed then, in my view, the Court should assess damages by reference to the period during which there would have been a trading relationship notwithstanding that the Defendant could have, if he had so chosen (which I hold unlikely) served six months notice of termination, thereby legitimately ending all liability to compensate the Plaintiff for a period after such six months.

36. Accordingly, in my view, the Plaintiff is entitled to have the Court assess damages by reference to a period later than the six (or three) month period commencing on the 23rd November, 1995. In fact the Plaintiff has limited itself to claiming damages for a two year period. The evidence established that efforts were made by the Plaintiff to find an alternative supplier. The Plaintiff's personnel attended at the Hanover and Milan fairs in May 1996 and by May of that year had succeeded in finding an alternative supplier for the decorative range. It failed, however, to find an alternative supplier for the fluorescent range and has not done so to date. There was some evidence that in the months immediately following the break up the Plaintiff managed to procure comparable products from the German firm Zumtobel (which makes a superior and more expensive product) at reduced prices but this was only referable to a few specific contracts at the time. I am satisfied that, in principle, the Plaintiff is entitled to claim damages based on an assessment of loss in respect of the decorative range up to May 1996 and in respect of the fluorescent range for the two years actually claimed.

37. Evidence in this regard was given by Raymond Blake-Knox chartered accountant of Thomas Reid. He said he was an accountant and auditor to the Plaintiff company who maintains excellent records. The total sales of Luxel products in the eighteen month period to October 1995 was £327,000; total purchases were £268,576 which (having allowed for closing stocks at cost of £48,021) produced a gross profit of £106,445 (that is 32.5%).

38. At the trial this witness was asked to estimate the turnover for the following year and did so in the sum of £500,000 which would have yielded (at 32%) a gross profit of £160,000.

39. In relation to the first year he suggested that for the first six months there would be a loss of 80% of the estimated gross profit. This figure took into account an allowance to the Defendant in respect of existing stock which would be used. For the second six months the loss would be 50% of the estimated gross profit. For the entire of the second twelve month period he suggested that the loss would also be 50% of the estimated gross profit. In this way three figures are produced, namely, £51,200 for the first six months, £32,000 for the second six months and £80,000 for the following twelve month period making a total for the two years following the termination of the agreement of £163,200.

40. This witness insisted that the additional profits would have been earned by the Plaintiff at very little extra proportionate expense due to the fact that all the systems, plant and staff were already deployed and would have had the capacity to earn the extra profit without additional expenditure save only for promotional expenses.

41. There was, however, in addition to the loss of gross profit a loss of sales costs and related expenses in the sense that the costs and efforts invested by the Plaintiff into establishing the Defendant's goods on the Irish market would have continued to yield benefit in the period following the break-up of the agreement and he estimated that some 70% of the figure which he established at £13,440 would have been lost in this way.

42. Furthermore subsequent to the breach the Plaintiff had expended on his estimate some £4,000 in procuring replacement suppliers. This money was expended on trips, (to the Hanover and Milan fairs), faxes to potential suppliers and so on.

43. In addition a claim was made for £2,500 for accountant's fees.

44. In relation to Mr. Blake-Knox's evidence the Defendant made a number of criticisms which included:

45. In my view the evidence given at the hearing in relation to the likely gross profits for the two year period is reasonable. I acknowledge that it is larger than the figures actually given in the pleadings but I accept Mr. Blake-Knox's evidence that the economy did better than was anticipated at that time.

46. In relation to the claim that a figure of 70% should be deducted for overheads, whilst I have to accept the evidence that the capacity of the company to generate these extra profits was already in place and costed and also the evidence that the fluorescent business from the Defendant had not been replaced (this represented the lion's share of the business), nonetheless I think it is somewhat unrealistic to regard the Luxel business as completely "cream off the top" without any allocation of overheads. Because this is an attempt to measure general damages it seems to me that the figure of £163,200 should be reduced, but not by as much as 70% as contended for by the Defendant. The figure of 70% was suggested because this was the percentage of gross profits which Mr. Blake-Knox indicated was an appropriate deduction for overheads by reference to the actual gross profits earned. Because of his view that any extra profits were "cream off the top" he did not suggest any percentage figure appropriate to the gross profits figure produced by adding his suggested loss figure to the actual figure. Having regard to the overall gross profit pattern of the Plaintiff in the years 1995 to 1997, I consider that a figure of £125,000 would be a more just estimate of the loss of gross profits caused by the breach of the Defendant's contract during the two years following November 1995.

47. I agree with the Defendant that it is somewhat ambitious of the Plaintiff to claim that only 30% of the start-up and promotional expenses had been utilised by November 1995: I would have thought 70% would be a fair figure which would produce a figure for wasted expenditure of some £4,000.

48. In relation to the costs of procuring an alternative supplier, on the basis that the £4,000 claimed represented the cost of attending fairs at Hanover and Milan and accepting as I do that the Plaintiff would have been likely to attend at least one in any event I consider a figure of £2,000 more appropriate.

49. Finally I agree with the Defendant that the figure for accountancy and consultancy fees is more a question of costs of the litigation than a head of compensation. On my calculation, therefore, the loss occasioned to the Plaintiff by reason of the Defendant's breach totals £131,000.

50. The nature of the right of set-off is dealt with in the Fourth Edition of Halsbury, Volume 42 at Paragraph 425 which where relevant provides as follows:-

51. The cross-complaint in this case relates to a fundamental breach of the sole distributorship. It amounted, I have held, to a repudiation by the Defendant of the agreement. In those circumstances I consider that it would be unfair that the Plaintiff would be asked to pay the amount of the invoices which relate to an agreement which the Defendant had repudiated. In those circumstances I consider the Plaintiff entitled to raise the defence of set-off . The practical effect of this would appear to be that the Defendant would not be entitled to claim interest on the amount of the invoices due in the event, as I have held, that the amount claimable by the Plaintiff exceeds the amount of the invoices.

52. The awarding of interest on any sum appears to be at the discretion of the Court. After set-off the question arises whether the balance in favour of the Plaintiff should carry interest. In my view it should not. The amount claimable by the Plaintiff is an amount in general damages that must be subject to some degree of estimation. I consider that interest should run from the date of decree only.

53. The Plaintiff supplied a local contractor, Morans Electrical Services Ltd. of Castlebar, with a large order of fluorescent lights which contained ballasts supplied by the Plaintiff which was delivered in the early months of 1995. The end user was a health care company and the lights were provided for a laboratory wing, corridors and a small office area. They began giving trouble and at first fuses were replaced but continued to blow. In October and November of 1995 fittings were sent back from the site and tested by the Plaintiff over an eight day period. These tests isolated the problem to the ballasts and the Plaintiff supplied replacement Tridonic units which were somewhat more expensive than the original ballasts. A number of issues arose as follows.

54. The Defendant's appointed engineer did not himself test the ballasts and made complaint that he could never identify the number of ballasts allegedly replaced which would have given him an indication of the scale of the problem and whether an independent test was worth while. His notes on his first meeting in May 1997 with the Plaintiff's representative, however, indicate that he was informed that the fifteen ballasts actually supplied to him represented a small selection of a much larger number. He accepted that in light of the number of defective ballasts (approximately one hundred and eighty ballasts being one-third of the overall number supplied) the major problem resulting required concerted action and wholesale replacement, which was what the Plaintiffs actually did.

55. He accepted that because the ballasts had to be replaced while the lamps were still in situ this would have taken extra time and the time actually claimed was not in the circumstances unreasonable.

56. An issue arose as to whether the entire load of ballasts should have been returned to the Defendants to enable them to claim credit from the manufacturer. In relation to this there was some confusion but the correspondence shows that the Plaintiff's solicitors wrote on the 14th December, 1995 putting the Defendant on notice "that a large quantity of products supplied by your client was proved defective". This letter promised to send on a report. Further reference was made in a later letter of the 14th December. In its reply of the 4th January, 1996 the Defendant's solicitors deny that there was any "basis whatsoever for this contention". Their client was "...in no doubt whatsoever that those allegations are being made only for the purposes of further delaying payment". In a subsequent letter of the

57. Mr. Tennyson himself gave evidence that he called in May, was given fifteen ballasts and told that this represented a small portion of the overall problem. At the hearing there was evidence that the usual practice is that a defective item would be returned to the supplier within the guarantee period so that the supplier could obtain the relevant credit from the manufacturer. Whilst the Defendant's solicitors demanded this in correspondence they also indicated that they were sending an engineer to inspect. Equally the Plaintiff's solicitors undertook to furnish the ballasts.

58. On the evidence I consider that the Plaintiff was justified in replacing the ballasts because the problem was a serious problem for an important and high quality customer. I am not prepared to hold that the Plaintiff was at fault or should be penalised for not handing over all the ballasts to the Defendant in all the circumstances because I think at least part of the problem arose from the general confusion created in the correspondence arising form the somewhat contradictory attitude of the Defendant (after initial denial) to the effect that the ballasts should be returned to the Defendant on the one hand and on the other made available in the jurisdiction for inspection by an appointed engineer.

59. With regard to the invoices two issues arise as to whether the Plaintiff was entitled to replace the supplied ballasts with the more expensive Tridonic ballasts and, secondly, whether the costs charged for labour were excessive. In relation to the first issue I consider the Plaintiff was entitled to supply the Tridonic ballasts in order to ensure that the likelihood of further problems were reduced to a minimum. The profit element on these ballasts is not excessive.

60. In relation to the labour charges the evidence was that the rate charged (£29.30 per hour) was appropriate for technicians. The work could have been carried out however by an electrician. The appropriate rate for an electrician would have been somewhat less and perhaps as low as £19.00. The evidence was that on the particular weekend (St. Patrick's weekend 1996) only technicians were available to the Plaintiff and that this was the weekend which best suited the client. On balance I think the Plaintiff is entitled to charge the technician rates and I cannot hold that these rates are excessive.

61. A second complaint in relation to "defective" goods arose in connection with a supply of Ilesa luminaries (i.e. lamps) to the Tallaght Hospital. These were not precisely as ordered by the consultant and were rejected. A claim for emergency packs arising out of this interruption in supply is made by the Plaintiff. The Defendant does not challenge the entitlement of the consultant to reject goods they supplied and I cannot therefore hold that the loss claimed did not arise out of the failure of the Defendant.

62. Finally in relation to the Cashel Palace Hotel invoice the evidence established that the product supplied by the Defendant was apparently a faulty batch as a number of lights blew and continued to blow in the opening period of this five star hotel and in the circumstances I consider that the wholesale replacement of the lights was justified, and again I must hold that the Plaintiff is entitled to claim in this regard.

63. Accordingly the Plaintiff is entitled the entire of the statement dated 31st January, 1998 being a sum due of £16,079.70.

64. The plenary action commenced in December 1995. The Defendant's summary summons was issued in January 1996. The statement of claim in the plenary action was delivered on the 1st March, 1996 and did not include a claim for defective goods. In July 1996 summary judgment was refused, an order was made directing pleadings in the summary proceedings and accordingly a defence was filed therein bringing in the issue in relation to defective goods. In September 1996 a defence and counterclaim was filed in the plenary proceedings in which the Defendant counterclaimed for the price of the invoices for goods sold and delivered. In January 1997 the Defendant applied to have the proceedings consolidated. This was a logical step because its application for summary judgment had failed. This was resisted by the Plaintiff and the order was not made but the cases were linked. I allowed the Plaintiff in the plenary action to file a reply and defence to counterclaim on the first day of the hearing before me which introduced into the plenary action the issue of the defective goods for the first time.

65. In these circumstances I am not prepared to hold that the Defendant's summary proceedings should be treated as superfluous and unnecessary and I will hear Counsel in relation to costs of both proceedings.

66. The Plaintiff is entitled to:-

67. ITL 159.602.500. I will hear Counsel in relation to the latter amount expressed in Irish punts, the amount of the resulting decree and in relation to costs of both actions.