Dispute Resolution Update: Damages For Breach Of Contract: Astrology And Economics

Two recent judgments of Mr. Justice Gerard Hogan deal with interesting points arising on how the Court should assess damages for breach of contract. These include the duty on the part of a Plaintiff to mitigate his/her losses, and the ability of the Courts to reduce damages or even refuse them entirely where the Plaintiff has been guilty of fault or contributory negligence.

ADM Londis Plc v Ranzett Limited, Ray Dolan and Annaliese McConnell (No 2) [2014] IEHC 659

This was one of a series of three cases where the High Court dealt with a situation where a franchisor had unlawfully terminated a contractual relationship with a supermarket outlet and had to determine the damages which flowed from this breach.

The Defendants had operated under the Londis franchise for some years. However, by late 2008 they were in a precarious situation where arrears on the trading account with Londis had grown to in excess of €400,000 and their bank was refusing to honour direct debits. The Plaintiff terminated the agreement and sought to have their account discharged. No serious dispute was maintained by the Defendants as to such liabilities and the Court found that the Plaintiff was entitled to judgment in excess of €560,000 in respect of unpaid invoices. However, the Court also found that the Plaintiff had been in breach of contract because of the abrupt termination of the agreement, the closure of the trading account and the de-branding of the premises. The Court found that these breaches had brought about the total cessation of the Defendants' business and the effective destruction of whatever residual value it then had.

Three separate heads of losses arose:

losses resulting directly from the termination of the franchise and the inability of the company to trade during that critical period; losses flowing from the subsequent forfeiture of the lease of the property; and losses arising from the exercise of retention of title rights. While the Court found the Defendant company was heavily undercapitalised and faced a difficult future, nonetheless the effect of the Plaintiff's breach was to deprive it of the opportunity of trading during a critical period and to keep the shop open through securing an alternative source of supply. Notwithstanding the uncertain state of the Irish economy and in particular the retail sector at that time, the Court found that the lease had some residual value and that all things being equal it would have been possible for the...