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Cite as: [2013] IEHC 514
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Judgment Title: Esso Ireland Ltd & Ireland Roc Ltd Neutral Citation: [2013] IEHC 514 High Court Record Number: 2013 6119 P & 2013 91 COM Date of Delivery: 14/11/2013 Court: High Court Composition of Court: Judgment by: McGovern J. Status of Judgment: Approved |
Neutral Citation: [2013] IEHC 514 THE HIGH COURT COMMERCIAL [2013 No. 6119 P]
[2013 No. 91 COM] BETWEEN ESSO IRELAND LIMITED AND IRELAND ROC LIMITED PLAINTIFFS AND
NINE ONE ONE RETAIL LIMITED DEFENDANT JUDGMENT of Mr. Justice Brian J. McGovern delivered on the 14th day of November, 2013 1. In these proceedings, the plaintiff seeks injunctive relief against the defendant arising out of the defendant’s occupation of a number of garage premises pursuant to the terms of Operating Agreements and Licences (and in the case of one premises, a Concession Agreement) all of which the plaintiffs claim have now expired. The 32 business premises concerned are owned by the first named plaintiff (hereinafter “Esso”) and operated under Licence by the second named plaintiff (hereinafter “IROC”), both companies incorporated in the State. 2. The defendant is a company, incorporated in the State and engaged in the business of providing food services. 3. The plaintiffs and the defendant agreed, by way of an undated Concession Agreement in 2001, to enter into an arrangement whereby the defendant would provide hot food facilities at the Esso service station at Sandford Road, Ranelagh, Dublin 6 (hereinafter the “Belmont Premises”). Similar arrangements were entered into relating to 31 further service stations owned and operated by the plaintiffs by way of an Operating Agreement dated 21st June, 2002 (hereinafter the “Operating Agreement”), together with 31 licences issued pursuant thereto. 4. The nature of the facilities provided is defined in the Operating Agreement as that of a “food counter and equipment for the preparation and sale of hot and cold foods in Esso premises”. The facilities are operated under the brand name ‘On the Run’, with three different store types, referred to as ‘Big Box’, ‘Medium Box’ and ‘Small Box’ by reference to the size of the licensed areas within the premises. Common to all premises is a counter installed in the main floor of the service station where food is displayed and sold, as well as an area for food preparation, with larger premises also including associated seating. In all of the service stations, save the Belmont Premises, the plaintiffs provided the necessary equipment in the service stations including ovens, the food counter itself, refrigeration units and are responsible for maintenance of same. 5. The Operating Agreement was for a term of ten years, commencing on 21st June, 2002, while the Concession Agreement relating to the Belmont Premises, after an initial three-year term, continued on a rolling basis subject to termination by either party following a one-month notice period. In the absence of further agreement, the Operating Agreement was due to determine on 20th June, 2012. On 4th May, 2012, the parties executed a Supplemental Agreement, extending the term of the Operating Agreement for a further 12 months, which meant that the agreement would end on 20th June, 2013. 6. Under the terms of the Operating Agreement, the defendant pays “Operating Fees” including a Monthly Base Operating Fee and a percentage operating fee based upon the annual gross sales at the particular service station. 7. Between July and October 2012, the parties engaged in negotiations with a view to agreeing a further Operating Agreement. On 25th October, 2012, the plaintiffs issued a letter formally terminating negotiations between the parties. Accordingly, the extended term, pursuant to the Supplemental Agreement, ostensibly expired on 20th June, 2013. On 14th May 2013, the plaintiffs issued notice of termination of the Concession Agreement, also to expire on 20th June, 2013. 8. The defendant claims, for various reasons which will be addressed in depth infra, that the Operating Agreement has not been validly terminated, and has continued to operate the ‘On the Run’ food services as they had during the term of the Operating Agreement, as extended. The defendant also raises two separate counterclaims in damages for breach of contract. 9. These proceedings issued on 17th June, 2013 and were entered into the Commercial List on 18th June, 2013. The plaintiffs claim injunctive relief against the defendant on account of their alleged unlawful occupation of the garage premises which had previously been occupied on foot of the Concession Agreement, Operating Agreements and Licences. A claim for damages which had been pleaded by the plaintiffs was not maintained at trial. While the plaintiffs’ application for an interlocutory injunction was refused by Kelly J. on 4th July, 2013 (on the basis, inter alia, that the inadequacy of damages as a remedy had not been established), he fixed the matter for an expedited hearing, given the nature of the dispute. Legal Issues Arising 11. The plaintiff seeks an order directing that the defendant, its servants or agents vacate the premises, remove its equipment, and a permanent injunction restraining any further encroachment. 12. The facts arising in this case are largely agreed between the parties. The areas of dispute concern the interpretation of the Concession Agreement, the Operation Agreement and Licenses. 13. It seems to me, therefore, that the legal issues falling for consideration in this action are as follows:-
(b) Should a term be implied into the Operating Agreement and/or the Supplemental Agreement specifying a reasonable notice period? (c) Is Clause 4.1 of the Operating Agreement enforceable on its terms, insofar as it purports to impose a duty upon the plaintiffs to negotiate in good faith? If so, is the defendant entitled to damages and/or specific performance on foot of same? 14. Section 5(1) of the Landlord & Tenant (Amendment) Act, 1980 defines a “tenement” as follows:-
(a) Premises complying with the following conditions: (i) they consist either of land covered wholly or partly by buildings or a defined portion of a building; (ii) if they consist of land covered in part only by buildings, the portion of the land not so covered is subsidiary and ancillary to the buildings; (iii) they are held by the occupier thereof under a lease or other contract of tenancy express or implied or arising by statute; (iv) such contract of tenancy is not a letting which is made and expressed to be made for the temporary convenience of the lessor or lessee and (if made after the passing of the Act of 1931) stating the nature of the temporary convenience; and (v) such contract of tenancy is not a letting made for or dependent on the continuance in any office, employment or appointment of the person taking the letting; or (b) premises to which section 14 or 15 applies.”
18. The Circuit Court has exclusive jurisdiction under the 1980 Act to deal with claims for new tenancies. In the 1980 Act, "the Court" means the Circuit Court (Section 3). In the case of Kenny Homes & Co. Limited v. Leonard, Costello P. (High Court, Unreported, 11th December, 1987) held that the High Court could have jurisdiction where there was particular urgency in a case. The Supreme Court confirmed the reasoning of Costello P. on the preliminary issue. Costello P. had decided "that because of the particular urgency in this case, the Court should not decline jurisdiction”. I am satisfied that in a case such as this, the court has power to decide the issues in dispute without first remitting the matter to the Circuit Court. The jurisdiction of the Circuit Court only arises in the event that I conclude the relationship between the parties is one of landlord and tenant. 19. Under Clause 1 of the Licences it was agreed as follows:-
(a) The premises described in the Schedule A hererto (hereinafter called the Food Service Facility") together with the use of (i) staff facilities which are to be provided by Esso/[IROC] which shall contain a toilet, hand basin and two clothes lockers in compliance with food hygiene regulations and (ii) access to the Food Service Facility 24 hours a day and if access is not possible Esso/[IROC] must provide a secure receptacle constructed to the required specifications of the Operator in order to store the delivery. (b) The equipment and furniture thereon set out in an inventory in Schedule B attached hereto agreed between [IROC] and the Licensee (which equipment and furniture and all additions or substitutions is hereinafter called "the equipment") is identified by the signature on the said inventory on behalf of the Licensee and of a representative of [IROC] both on its own behalf and on behalf of Esso.”
(b) Nothing in this Licence is intended to have the effect of giving exclusive possession of the Food Service Facility to the licensee or of creating any tenancy between Ireland ROC Limited and the Licensee. Accordingly Ireland ROC Limited continue to have a right of possession. Although Ireland Roc Limited's entitlement to possession is a general entitlement it would be its intention to exercise this right, save in exceptional circumstances, for the following stated purposes only:- (i) the inspection of the Food Service Facility and state of repair thereof; (ii) the erection and display of signs notices and advertisements and the removal and replacement thereof; (iii) the carrying out of repairs, maintenance, decoration or other works to the Food Service Facility. (c) This agreement is not intended to create the relationship of Landlord and Tenant and the Licensee acknowledges that the premises remain vested in the possession of Ireland ROC Limited.”
What Notice was required to terminate the Operating Agreement?
28. The law is quite clear on this topic. For a term to be implied, it must not just be reasonable but also necessary to give business efficacy to the contract, and be capable of formulation with reasonable precision. 29. Clause 4 of each Licence Agreement provides:-
30. The defendant contends that having regard to the relationship between the parties and the facts of this case that the plaintiff should give twelve months notice of termination of the Operating Agreement and that it has not yet done so. It argues that if there are two possible constructions as to the meaning of the terms of the Agreement on this issue, that the court is entitled to prefer the construction which is most consistent with business commonsense. In this case, I must first decide whether or not the Agreements provided for a period of notice and if that notice period was complied with. If there was no notice period provided, I have to decide whether or not a reasonable period of notice should have been given and, if so, what that period should be. 31. The evidence clearly established that before the initial term of the Operating Agreement and Licence expired on 21st July, 2012, an extension of one year up to 20th June, 2012, was agreed. In my view, the position from that point on was, that unless further agreement could be reached, the Licence Agreement and Operating Agreement would terminate on 20th June, 2013. By letter dated 14th May, 2013, the defendant was notified that the plaintiffs were exercising their right to terminate the Concession Agreement as and from midnight on 20th June, 2013, which brought the termination of that agreement into conformity with the others. On 25th October, 2012, some months prior to such date, the plaintiffs issued a letter formally terminating negotiations between the parties. There can have been no doubt that, from that time on, the plaintiffs did not intend to renew the Operating Agreements, Licences or the Concession Agreement. 32. In those circumstances, it is clear that these agreements would have run their course by 20th June, 2013, and the defendant knew or ought to have known that that was the case. However, the defendant asserts that it was entitled to a further period of notice beyond that date. I do not agree. An extension of one year had been granted and it was clear that in the course of that year, the parties had reached an impasse in their negotiations. The agreements lapsed by effluxion of time. In those circumstances, it was not necessary for the plaintiffs to serve formal notice once they had made it clear to the defendants that they were not going to extend the Agreements further. In any event, they gave notice on 25th October, 2012, concerning the Licence and Operating Agreement which seems to me to be quite sufficient, having regard to the surrounding circumstances, where it was clear that the parties had not reached any agreement for a further extension of the relationship. So far as the Concession Agreement is concerned, the required one month’s notice was given on 14th May, 2013. The letter of 25th October, 2012, terminating negotiations between the parties was sufficient notice to the defendant that the other agreements would not be renewed. If the defendant had been allowed to remain on beyond 20th June, 2013, without objection, then, I think, an arguable case could be made for a period of notice to be implied, although, it seems to me, that that period would be well short of the one year contended for by the defendant. But that is not what happened in this case. Duty to Negotiate in Good Faith
34. The law is well summarised in the case of Triatic Limited v. The County Council of the County of Cork [2007] 3 IR 57, wherein at p. 79 (para. 67) Laffoy J. considered the speech of Lord Ackner in Walford v. Miles [1992] 2 A.C. 128:-
“The reason why an agreement to negotiate, like an agreement to agree, is unenforceable, is simply because it lacks the necessary certainty. The same does not apply to an agreement to use best endeavours. The uncertainty is demonstrated in the instant case by the provision which it is said has to be implied in the agreement for the determination of the negotiations. How can a court be expected to decide whether, subjectively, a proper reason existed for termination of negotiations? The answer suggested depends upon whether the negotiations have been determined ‘in good faith’. However, the concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party to the negotiations is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations. To advance that interest he must be entitled, if he thinks it appropriate, to threaten to withdraw from further negotiations or to withdraw in fact, in the hope that the opposite party may seek to reopen the negotiations by offering improved terms. [Counsel for Walford], of course, accepts that the agreement upon which he relies does not contain a duty to complete the negotiations. But that still leaves the vital question — how is a vendor ever to know that he is entitled to withdraw from negotiations? How is the court to police such an ‘agreement’? A duty to negotiate in good faith is as unworkable in practice as it is inherently inconsistent with the position of a negotiating party. It is here that the uncertainty lies. In my judgment, while negotiations are in existence either party is entitled to withdraw from those negotiations, at any time and for any reason. There can be thus no obligation to continue to negotiate until there is a ‘proper reason’ to withdraw. Accordingly a bare agreement to negotiate has no legal content.”
‘… that when they give reasons for termination these reasons must not be spurious ones, but it also means that if they honestly believe them to be valid, then even if they are subsequently proved to have been wrong the notice is valid. So, if honestly dissatisfied with the plaintiffs as distributors, this would mean that the notice of termination could be given.’”
‘That shows the difference from the present case. Clause 12.3 of the Supervision Agreement is not a bare agreement to negotiate. It is not irrelevant that it is an express obligation which is part of a complex agreement drafted by City of London solicitors … It would be a strong thing to declare unenforceable a clause into which the parties have deliberately and expressly entered. I have already observed that it is of comparatively narrow scope. To decide that it has ‘no legal content’ to use Lord Ackner's phrase would be for the law deliberately to defeat the reasonable expectations of honest men . . .’” 37. Laffoy J concluded:-
39. A distinction must be drawn, as Lord Ackner did, between cases where the parties reached an agreement to employ best endeavours, such as Rooney v. Byrne, where the parameters of the contractual duties may be readily discernible to the court, and a duty to negotiate in good faith, which will almost inevitably lack precision and certainty. It should be added, also, that even where the clause falls into the former category, the court must embark upon a “fact specific” examination of its content in adjudicating upon its enforceability. 40. It is not necessary for the determination of the case before me to express a view as to whether an express agreement to negotiate “in good faith” is always “devoid of legal content” in Lord Ackner’s phrase. I would observe, however, that Mance LJ, in holding that Walford v. Miles need not be construed as entailing a “blanket unenforceability” of any such clause, concluded at para 117 that any loss arising from breach of the express duty to negotiate in good faith in that case would be “ascertainable with comparative ease”. That is not the case here. 41. But whether I am right or wrong in my conclusions on the law on this issue, the evidence in this case discloses a serious and purposeful engagement between the parties over an extended period of time, notwithstanding their failure to reach an agreement. In my view, it cannot be said that there was any neglect or want of bona fides on the part of the plaintiffs. It was simply a case that the parties could not reach consensus and thus negotiations terminated. Such engagement as did take place between the plaintiffs and third parties could not constitute a breach of the purported duty to negotiate in good faith, even if it were the case that such duty was deemed to be enforceable and interpreted in the most generous conceivable terms. Does the Defendant have a Right to a New Tenancy? 43. The Operating Agreement provided that it would be for a fixed term and that at the expiration of the term, the defendant would vacate the premises. Neither the Operating Agreement nor the Licence provided for exclusive possession by the defendant of the premises or any part thereof. Furthermore, the defendant did not, in fact, have exclusive possession of the licensed area or any part thereof. The defendant was permitted to use the garage premises to provide a food service for a period of time coinciding with the Operating Agreement, in consideration of which the defendant agreed to pay the second named plaintiff a monthly base operating fee and a percentage operating fee as provided for in the Licence. 44. The Licence Agreement clearly stated that no relationship of landlord and tenant existed or was intended to be created between the parties. While that does not, of itself, establish that there was no landlord and tenant relationship, the evidence in this case does not establish that the attributes of a tenancy agreement existed. The court should be slow to look behind the clear terms negotiated by the parties at arm’s length and in circumstances where each was legally represented. The terms of the Operating Agreement and Licence could not have been clearer. 45. The defendant argues that because it had a food preparation area in each garage which was accessible by a door containing an access code. It thereby had exclusive possession of that part of the premises. However, the evidence established that the reason for the security in that part of the premises was for the purpose of food hygiene and to protect the personal belongings of staff working on the premises. The defendant had access to all areas of the garage including the licensed areas, and in order to enter the licensed areas, the defendant was required to enter through the main store entrance in each garage. Outside the main customer opening hours, the defendant required the plaintiffs’ permission to access the food service facilities. If night-time deliveries were being made to the garages, the defendant would have to make arrangements with the plaintiffs to ensure access for delivery. The area of each garage licensed to the defendant was part of an open-plan shop floor, being part of the premises being operated as a filling station and garage. The facts of this case are quite different to those in Irish Shell and BP Ltd. v. John Costello Ltd. [1981] ILRM 66. 46. There are no facts surrounding the defendant’s occupation of the premises which would entitle the court to say this is a tenancy agreement, in circumstances where they have both agreed that no landlord and tenant relationship shall arise. The facts in this case completely accord with the nature of the relationship as stated by the parties in their written agreement. In the circumstances, I hold that there was no tenancy agreement and it follows that the defendant is not entitled to claim a new tenancy under the Landlord and Tenant (Amendment) Act 1980. Is the Defendant Entitled to Recover for Historic Losses? 48. The entitlement to compensation for monies paid by the defendant to the plaintiffs and which should have been ring-fenced for advertising is not apparent from the terms of the Operating Agreement. There was no requirement in the agreement that the monies paid by way of annual fee be applied to any particular purpose. Clause 5.1 of the Operating Agreement sets out the operating fees to be payable, comprising a “Monthly Base Operating Fee” to be fixed by way of the Licence Agreement relating to the particular premises, together with a “Percentage Operating Fee” amounting to 14.5% of annual gross sales above a specified level. There is no indication of any agreement to apply these fees towards any particular purpose. 49. Further, Clause 16.2 of the Operating Agreement sets out the following:
52. Turning to the question of recovery pursuant to Clause 2.9 of the Operating Agreement referred to by the parties as the “loss-making store clause”, this term provides for the establishment of a Management Committee, consisting of two representatives of the plaintiffs and two representatives of the defendant, with the following stipulations with regard to the eventuality of certain premises being loss-making:
54. The defendant asserts that, in 2010, it raised the question of its purported entitlement to compensation for “historic losses” pursuant to Clause 2.9, and claims to have been asked by representatives of the plaintiffs at this time to waive this claim in return for a 3% reduction to the Operating Fees, which offer was declined. It is admitted by the defendant, however, that no formal claim was lodged in this regard until 11th May, 2012. The first named plaintiff, by way of letter dated 12th October, 2012, stated its position with regard to the losses claimed by the defendant for the period between November 2004 to October 2009, as being that Clause 2.9 does not provide for the settlement of “historic claims”, its purpose being “to manage loss-making sites in real time”. 55. Nevertheless, following this request, the plaintiffs made an initial offer of €200,000 to the defendant in settlement of these claims, which offer was subsequently increased to €250,000, stated to be “on a without prejudice basis and as a gesture of goodwill and to facilitate our ongoing operational relationship”. Although this sum was not accepted on the terms on which it was offered, the parties agreed that evidence of the offer could be canvassed in the course of the trial. 56. The question of the defendant’s entitlement to recover monies pursuant to Clause 2.9 is a matter of contractual interpretation. The question is whether the term is capable of operating retrospectively or is intended only to apply contemporaneously on the assessment by the Management Committee in the broader context of reaching a decision to continue the operation of hot food services in a premises where it is loss-making. 57. The rules of contractual interpretation are well-established, having been recited by the Supreme Court in Analog Devices BV v. Zurich Insurance Company [2005] 1 IR 274, where the court adopted Lord Hoffman’s formulation in I.C.S. v. West Bromwich B.S. [1998] 1 WLR 896. 58. Applying these principles to the matter before the court, it is clear that Clause 2.9 must be interpreted as envisaging a contemporaneous appraisal of the operating situation on an ongoing basis, and the payment of monies to the defendant pursuant that appraisal. The business context in which the Management Committee may authorise a contribution is where it has “decide(d) to continue to operate in an Esso Premises where the operation of the Food Service Facility is loss-making”. This choice of words leads to the unavoidable conclusion that Clause 2.9 was designed as a forward-facing provision rather than one to be applied retrospectively. 59. Indeed, it appears that this clause was operated in this fashion in the period from 2010 to 2013, with the Management Board reviews being held with increasing frequency over this time. It seems to me that the defendant, in furnishing a significant number of claims to the plaintiffs in May 2012, anything up to eight years after the fact, has circumvented the core role of the Management Committee in assessing whether the premises is, in fact, loss-making, and taking appropriate steps to ameliorate further losses. In the absence of such a determination, there is no basis upon which a contribution could be made. Furthermore, the defendant did not appeal the Management Committee’s refusal to pay out, pursuant to the provisions of Clause 2.9 of the Operating Agreement, nor did it seek to invoke the arbitration clause contained therein. Conclusion 61. The duty to negotiate in good faith contained at Clause 4.1 is not enforceable in the manner contended for by the defendant. Furthermore, the defendant has not demonstrated any want of good faith on the part of the plaintiffs. Accordingly, there has been no breach of Clause 4.1 and no relief will be granted, either in damages or by way of specific performance. 62. The defendant is not entitled to damages for breach of contract on the basis of the purported failure of the plaintiffs to apply monies comprising part of the fees paid by it pursuant to the arrangement between the parties towards advertising. Nor is the defendant entitled to damages for breach of Clause 2.9 of the Operating Agreement. I will therefore give the plaintiffs the injunctive relief which they seek and I will dismiss the counterclaim.
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