|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
High Court of Ireland Decisions
You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Dakota Packaging Ltd. v. APH Manufacturing BV t/a Wyeth Medica Ireland  IEHC 66 (10 October 2003)
Cite as:  IEHC 66
[New search] [View without highlighting] [Printable RTF version] [Help]
Dakota Packaging Ltd. v. APH Manufacturing BV t/a Wyeth Medica Ireland  IEHC 66 (10 October 2003)
Record Number: 2003 No. 8739P
Judgment of Mr Justice Michael Peart delivered the 10th day of October 2003:
By Plenary Summons issued on the 23rd July 2003, the plaintiff claims the following reliefs:
1. A Declaration that the defendant's purported notice of termination dated 10th July 2003 purporting to terminate its agreement with the plaintiff with effect from 10th January 2004 is null and void and of no legal force and effect;
2. A Declaration that the plaintiff is entitled to a minimum period of eighteen months notice of termination from the defendant;
3. An injunction, including an interlocutory injunction, restraining the defendant, its servants and agents and those acting in concert with the defendant, and acting howsoever, from terminating the defendant's agreement with the plaintiff otherwise than by giving the plaintiff a period of eighteen months notice of termination, or such other reasonable termination notice of the agreement;
4. An injunction, including an interlocutory injunction, restraining the defendant, its servants and agents and those acting in concert with the defendant, and acting howsoever, from appointing any third party to replace the plaintiff pending lawful determination of the plaintiff's agreement with the defendant;
5. An injunction, including an interlocutory injunction, directing the defendant to fully perform its agreement with the plaintiff pending lawful termination of the agreement by the defendant;
6. Such further and other declaratory and injunctive relief as to this honourable court may seem fit;
7. Damages for breach of agreement;
8. Damages for misrepresentation;
9. Damages for negligence and breach of duty;
10. Interest pursuant to the Courts Act 1981;
On the same date as these proceedings were issued, a Notice of Motion was issued seeking interlocutory injunctive relief in terms of paragraphs of the Indorsement of Claim set out above, that motion being returnable before the Court on 30th July 2003. That motion was grounded upon an affidavit of Mr Brendan Mowles, a Director of the plaintiff company, sworn also on the 23rd July 2003, and its exhibits BM 1 BM 8.
A replying affidavit on behalf of the defendant was sworn by its Chief Financial Officer, William J. Noonan on the 29th July 2003, to which are attached exhibits WJN 1 WJN 5.
The motion came before Mr Justice T.C. Smyth on 30th July 2003, and he made an order on that date in which he put in place certain interlocutory arrangements as to the level of business to be transacted by the defendant with the plaintiff, and adjourned the matter for hearing during the vacation on Monday 15th September 2003. He also gave certain directions as to the delivery of pleadings, which although not contained in the order as drawn, have been complied with. It appears also from what I have been informed by Counsel that Mr Justice Smyth directed that an issue be determined by me as to whether the defendant is obliged to give the plaintiff notice, and if so what that notice should be. There is some difference of opinion between the plaintiff and the defendant as to precisely the terms of the issue directed to be heard, as appears from the transcript for the 30th July 2003, but before me the matter has proceeded on an agreed basis that the issue for determination is firstly whether the defendant is required to give any notice of termination, and if so, what is reasonable notice in all the circumstances.
There was also some disagreement between the parties as to whether the hearing of this issue was confined to the affidavits filed (including any cross-examination of the deponents thereof), or whether other oral evidence could be called. In reality I think Smyth J. had it in mind that the matter would be confined to the affidavits and cross-examination of those deponents, but having heard Counsel for the parties I was uneasy about making a final determination on a critical issue in the proceedings only on the two affidavits which had been filed in some necessary haste for the purpose of the interlocutory injunction application, if the parties were anxious to call other relevant witnesses. I therefore directed that the matter proceed on the basis that each side could call whatever relevant witnesses they wished.
Evidence on behalf of the plaintiff was given by Mr Tony Fox, who has at all material times been the sales director of Dakota, and by Mr Colm Kelleher, Chief Executive Officer of the Dakota. Evidence for Wyeth was given by Mr William J. Noonan, Chief Financial Officer, Ms. Sara Todd, Director of Strategic Sourcing for Europe, and Mr Jamie Levy who is European Commodities Manager at Wyeth.
Outline of background facts:
The plaintiff company ("Dakota") is a large and significant Irish-owned print and packaging company currently operating out of premises at the Airways Industrial Estate, Dublin 17. It was a public company until 1994, but since that date has been a Private Limited Company. In or about March 2002 there was a management buyout by which the current shareholders became the owners of all the company's share capital. Dakota has since about 2001 a workforce of about 160 employees, gradually reaching that figure from 1999 when its workforce numbered about 100 employees, and it currently enjoys a turnover in the region of 18,000,000 per annum. Approximately 40% of that turnover is generated from sales of product to the defendant company ("Wyeth"), with whom it has enjoyed a good and mutually satisfactory and successful business relationship since in or about 1993, which has seen sales values to Wyeth grow from about £100,000 in 1994 to a peak of 8.6 million in the year 2000, dropping from that figure slightly in 2001 to 8 million, and in 2001 still reaching almost 7 million. In 2002, sales to Wyeth came to something in the region of 6.2 million, and in the first six months of 2003 the figure was about 2.8 million. A very rough average of monthly sales to Wyeth for the last eighteen months is 500,000 per month, but showing an average over the last six months of something around 470,000 per month, according to a graph produced by Dakota in evidence.
Mr Fox stated that in 1993, a Mr Slater who was then the purchasing manager at Wyeth's Newbridge plant said to the Dakota people that if they were to move forward as a world class manufacturer to the pharmaceutical industry they would need to relocate their operation, as their premises were quite old. The company in fact moved to their present premises after this.
As far as the development of the business relationship with Wyeth is concerned beginning in October 1993, Mr Fox stated that Dakota supplied cartons for one or two lines which had previously been supplied from Italy. In 1993 the Wyeth plant at Newbridge, he stated, was certainly the largest single dose plant in these islands, if not in Europe. He described it as like dealing with four factories as opposed to one. They were going through major growth, and for the initial period of a few years there would have been a lot of Dakota employees physically in the Wyeth plant discussing technical specifications, quality, design and so on. This was actively encouraged by Mr Slater according to Mr Fox. This close co-operation also involved Dakota people travelling overseas to help with trials on machinery in order to ensure that when the machinery arrived in Ireland, they could as Mr Fox put it "hit the ground running".
In those days the lead time on supply of product could vary from two to three weeks to some months depending on particular launch dates or demand. The arrangements at that time were not as sophisticated as they are now, and Dakota had to be able to react to Wyeth's requirements, if there was a need for a quicker turnaround, or a unforecasted demand for a particular product.
He stated that over these years both companies built up good relationships and both benefited from each other, and worked in close co-operation.
Mr Fox said that this type of process demonstrated the type of openness, collaboration and close co-operation that existed in the relationship between the two companies.
It appears that Mr Slater left Wyeth in 1999, and thereafter Dakota were dealing with a number of different personnel. By 2002 they were dealing with Mr Jamie Levy, who is one of the witnesses who gave evidence before me in relation to events in 2002 and 2003.
In relation to the pricing of product, Mr Fox stated that prices were negotiated with Wyeth, and that in 1999 a representative from Wyeth came to them stating that she had discovered that competitors had come in with prices that were lower than Dakota. Mr Fox stated that because of the relationship which had developed between Wyeth and Dakota, Dakota set about achieving production efficiencies, and it was agreed that they would target price reductions for 1999 and 2000. Those targets were in fact exceeded, and the business continued to grow.
Mr Fox's evidence was that by 1995 the value of the Wyeth business to Dakota had grown from about 100,000 in 1994 to 700,000 in 1995. Towards the end of 1995, Dakota was asked to tender for Wyeth business including for product that they were already supplying, and a decision was at first made that Dakota was unsuccessful. Mr Fox gave evidence that upon receipt of this letter dated 14th February 1996 from Mr Slater, who was then the Chairperson of the European Purchasing Council of Wyeth, some discussions took place, and that Mr Slater indicated that since Wyeth had valued Dakota as a supplier, and in view of the effort Dakota had put in during those early years, Wyeth would agree a mutual period of time over which the business would be transferred to any other supplier.
In fact the decision to take the business away from Dakota was later reversed. It appears that Dakota was able to convince Wyeth that in effect the successful tenderers were not quoting on a correct basis from a specification point of view. Those other companies were asked to re-quote on the correct basis, and following that process, Dakota kept the business, and was awarded Preferred Supplier status. Volumes of business from Wyeth increased dramatically. The sales graph shows that while sales for the year 1996 were just under 1 million, the figure for the year 1997 had increased to about 1.5 million.
Mr Fox stated that during 1997 Wyeth were developing new product lines at Newbridge and that growth at the Newbridge plant was expected to be rapid. Naturally, Wyeth was concerned to know that its suppliers could keep up with these developments. In that regard he referred to a letter which Dakota received by fax from Mr Slater dated 5th December 1997 in which Dakota were asked to supply details of their present and future capabilities, supported by figures on machine utilization and efficiency, staffing levels, shift flexibility and union agreements. A full response was made to this request by letter dated 8th December 1997.
Following that response, Mr Fox said that further discussions took place with Wyeth at the end of 1997 and into 1998 about increased volumes. In particular there was discussion about the launch of a new oral contraceptive product in 1999, and that the volumes of business for Dakota from this and other new lines being developed would be very large indeed. Mr Fox stated that Mr Slater urged Dakota to look very seriously at their ability to handle such large volumes, and that if they could do so, the business would come their way. He also stated that it was on foot of these assurances from Mr Slater and in the expectation of the receipt of these additional volumes, which in fact materialised and were exceeded, that Dakota invested additional sums on plant and equipment up to a sum of about 10,000,000, and staffing levels were increased to meet the additional requirements, reaching a peak in 2000 of 205 employees.
The sales graph shows that in 1998 sales were just short of 2 million, 1999 just short of 4,000,000, and in 2000 about 8.6 million. So growth in sales had been truly phenomenal and Mr Fox says that they would not have been able to handle these volumes without that investment being made and that the investment was made on foot of these assurances from Wyeth as to the growth in its demands, and was with their encouragement and support.
The sales figures for 2001 and 2002 are a little lower than the peak of 2000, but Mr Fox stated that this was because the some of the orders relating to some over the counter products such as Anadin and some multi-vitamins was transferred to Italy, and some others to Singapore, and was not because of any problems at Dakota or downturns in business.
Returning for a moment to the letter dated 14th February 1996, Mr Fox in his evidence makes the point that at that time Dakota was doing less than a million euros worth of business with Wyeth, and that Mr Slater, the Chairperson of their European Purchasing Council was nevertheless recognising the need or responsibility, in the event of withdrawing the business, to give a mutually agreed notice period.
In this connection Mr Fox also stated that he was aware from Mr Slater, that in connection with the termination of a supply arrangement with another supplier doing roughly the same level of business as Dakota with Wyeth, namely M.Y. Holdings, Wyeth had given a twelve month notice period. Considerable reliance is now placed by Dakota on this close working relationship, close co-operation, and trust, which Mr Fox says had built up between the two companies and which continued and perhaps even increased over the next six years, in support of their contention that a reasonable notice period of termination must be given, and that a period of eighteen months at present volumes and present prices is reasonable.
Wyeth, the defendant, is part of a very large American multinational company manufacturing and selling a wide range of pharmaceutical products on a world wide basis, and as part of this worldwide operation operates a very substantial manufacturing plant for some of its products at Newbridge, Co. Kildare. Because of the nature of the products which it manufactures, Wyeth has extremely exacting standards which have to be met by all of its suppliers, including by Dakota, and a matter not in dispute in these proceedings to any relevant extent is that Dakota has always met these very exacting standards, and this is confirmed by monthly and quarterly performance review ratings awarded to Dakota and which have been produced to the court. It appears to be the case, and certainly the management at Dakota believed at all times that it was the case, that Dakota perform to a very high standard, and have conducted themselves at all times in a manner which gave Wyeth no serious cause for complaint. The relationship was a growing and successful one and nobody either in Dakota or in Wyeth would have thought that during the year 2003 Wyeth would be terminating their business relationship with Dakota and commencing to place all of its carton and sleeve business elsewhere.
A critical feature of this trading relationship as far as the present dispute is concerned is that at no time was there ever any supply agreement in writing concluded between the parties. The relationship developed over time with orders for product being received from Wyeth and being supplied on an order by order basis by Dakota, although Wyeth would from time to time give Dakota a forecast of anticipated orders so that presumably Dakota could have sufficient raw materials available when the orders were placed to fulfil the orders without delay.
In relation to orders, Mr Tony Fox, Dakota's Sales Director agreed when giving evidence that each order placed represented a separate contract for the supply of the goods so ordered. The standard terms and conditions appearing on the back of each order form were in line with this, but Mr Fox went on to say that if that was to be the sole basis on which business was to be done with Wyeth, its orders could not have been fulfilled to meet their requirements, and that was why annual forecasts of volumes were made, so that the necessary quantities of raw materials (i.e. board) would be in stock at Dakota to meet the orders placed. Those stocks of board had to be bought in from board manufacturers and the lead time for that was about 10-12 weeks. He said that the business relationship with Wyeth could not have developed and matured in the way it did, if Dakota were to operate only on the basis that Wyeth had no obligations over and above what was stated on the order form, but he had to accept that on paper that was the extent of Wyeth's obligation in relation to goods ordered. He said that while there was risk in buying in advance stocks of board, it was something that Wyeth was aware that they did, and that it was in effect a joint risk shared with Wyeth.
Mr Fox also confirmed in his evidence that in early 1997 Wyeth introduced what is described as a "Blanket Order" system of ordering, in order to cut down on paperwork given the number of orders being placed from time to time. A letter from Wyeth dated 29th January 1997 announcing the introduction of this new purchasing system stated that the normal purchasing terms and conditions would continue to apply, and then stated "that the Blanket Order should not be interpreted as a firm commitment by WMI to purchase the authorised quantity stated in the Blanket Order. You may only produce and deliver the stated call-off quantities".
While Mr Fox agreed that he had written back to Wyeth on the 3rd February 1997 confirming that he understood the requirements of the new Blanket Order process, he stated that nevertheless Dakota was expected to and was told to ensure that it had stocks of board in place to ensure that it could manage the requirements of Wyeth going forward, and that the standard procedure in the industry between the customer and the supplier, and the understanding that they had with Wyeth, going back as far as Mr Slater's time, was that if there was board not used up to termination, it would be used up, and that Dakota had to order board based on forecasts, and that they could not simply order board based on actual orders received and confirmed. He could not however say that this understanding had ever been put in writing.
Mr Fox was also referred to a further development in purchasing arrangements which was introduced in January 2000. This is what has been referred to as the "two month firm window". In effect there would be a six month forecast given of anticipated orders going forward, but there would be a two month "firm window", the latter being what Dakota could actually manufacture and that Wyeth guaranteed to take and pay for. The forecast six month period was merely indicative, and Wyeth had no obligation to purchase on foot of it. In April 2000 a document was sent by Wyeth entitled "Standardized procedures for vendors" and this set out the new arrangements relating to "Firm period" and "Forecast" and other matters which would form the basis for the purchasing arrangements with all Wyeth suppliers, and not just Dakota. Under the paragraph headed "Forecast" it states:
"The forecast period is for the following four months of the schedule. Vendors should use the Schedule period to forecast for base material for periods outside of the Firm Period. This period can be used by supplier to produce & hold stock but WMI is not liable for any stock outside the firm period that does not have a purchase order."
While Mr Fox acknowledged that this document existed, he again stated that from a practical point of view it was not possible to operate strictly in accordance with it, because of the lead time needed to buy in raw material from board manufacturers. The two month window would not give sufficient lead time. He said that people in Wyeth such as Justin Hardy and Claire Maybin, who took over from Mr Slater after his departure were aware of this fact, but again he said that this understanding does not appear written down anywhere. He also agreed that this understanding was not something that any third party knew about such as Dakota's auditors and its Banks, who had lent the 10 million for the additional plant and equipment when the company expanded its operation in 1999. Wyeth for their part maintain that their only obligation to Dakota at any time is to take delivery of and pay for the goods specified in the "firm period" for which there is a purchase order.
In his evidence Mr Fox described in the following way the basis of the trading relationship with Wyeth, a marked feature of which was the absence of a written supply agreement:
"At no stage from when we started trading with Wyeth in 1993 through to today have we had what would be formed or termed as a formalised long-term agreement. However, it was recognised by Wyeth and we were encouraged by Wyeth at all stages of our development in relation to investment programme. Mr Slater in relation to the letter that he sent to us as Chairperson of the European Purchasing Council recognised at that stage that in trading at less than one million there was a responsibility on a company such as Wyeth to a company, as Dakota was, in relation to an agreed exit period that would not damage the business that is in 1996, my lord. Going forward then, Wyeth, as I indicated yesterday, sought what our capabilities was (sic), what our capabilities were going forward, and through numerous discussions with Mr Slater, it was indicated to us that there were going to be substantial new product launches and also new products coming in to Newbridge and we were actively encouraged to invest in additional plant and equipment to support that because Wyeth held us as a preferred supplier in a very high light, and as can be evidenced by the revenue which they placed with us, those requests for additional equipment were followed up by the volumes that were, in effect, promised. So we had no reason to believe at any stage that we were dealing with other than someone that basically the figures that were given would be the figures that were honoured, my Lord. So we didn't feel that the necessity was there to have a situation where there were "I"s dotted and "T"s crossed. There was in effect as we do with all our clients, business is done very much on a trust basis."(sic)
In January 2003 plans appear to have been put in place at Wyeth to allow for the possibility that it might have to source from elsewhere the Dakota product. Such alternative sourcing takes some months to achieve since rigourous tests have to be undertaken to ensure that the new suppliers would achieve the required standards, as Dakota had done.
Evidence was given by Ms. Sarah Todd, Wyeth's Director for Strategic Resourcing for Europe, who stated that when she got back to work in September 2002 after maternity leave, she was immediately involved in budgetary planning issues, and that Wyeth generally was under pressure to review spending for the coming year, that there was pressure to reduce cost. She said that there were salary freezes in place, there was a 10% redundancy programme, and no bonuses were being paid out. So she was, as part of her job, involved in identifying how cost reductions could be achieved in strategic sourcing of supplies.
Ms. Todd also stated that a major U.S. supplier had gone out of business and this had caused problems for Wyeth, and she was undertaking what was described as a vulnerability analysis, which assesses the risk associated with quality, financial stability, and mutual dependency of Wyeth and its suppliers. If an important supplier of product to Wyeth were to go out of business suddenly, there would be an immediate impact on Wyeth's production capability, and this was something they were anxious to guard against. It was, she stated, as part of this on-going task, that Mr Jamie Levy, Wyeth's European Commodities Manager based at Maidenhead, England, was conducting what was called "a purchase and cost analysis", which identifies the major components of a given price of a specific component. This was why he had obtained the Dunn & Bradstreet report on Dakota, and asked for details of cost breakdown from Dakota, as well as seeking the assistance of Mr William Noonan, Chief Finance Officer at Wyeth in relation to its financial strength or otherwise.
It was in the last quarter of 2002 that concerns about the financial stability of Dakota began to exercise minds at Wyeth. Dakota was sent a questionnaire containing forty questions related to its finances. Answers were prepared by Dakota and were presented to Wyeth at a meeting in Newbridge on 17th January 2003. At that meeting, explanations regarding Wyeth's concerns were addressed, and Mr Noonan felt able to give a favourable report to his company on Dakota's finances as of that time, but he says this was based on what he had been told at the meeting, and on some draft accounts and figures he had been given in relation to the period ending September 2002. He asked for the audited accounts to be sent on in due course. Much of the evidence of Mr Noonan on behalf of Wyeth and Mr Kelleher on behalf of Dakota was concerned with the different interpretations put on the figures by each, and whether the interpretation put by Mr Noonan was justified in fact. I do not have to determine who was correct, since the reason behind the termination of the arrangements with Dakota do not really have to concern me. Therefore I have not included that evidence in any detail in my summary.
At any rate, Mr Noonan says that when the accounts arrived in February 2003 he found that what was contained in these accounts did not, as far as he was concerned, tally with the figures he had been shown at the meeting of 17th January 2003 especially with regard to the cash generation capability of Dakota, and consequently its ability to meet its debt obligations which were large.
He says that he asked Dakota whether in the light of the audited accounts they would like to consider resubmitting some of the answers to the questionnaire. This did not happen, and in fact Dakota dispute that they were ever asked to provide any further information. Wyeth on the other hand took a very serious view of the fact that a phone-call by Mr Noonan to Mr Kelleher of Dakota was not returned or acted upon, in which financial information was sought. Mr Kelleher cannot recollect such a call. It is clear from the evidence however that the concerns about Dakota's audited accounts, and possibly what was perceived, rightly or wrongly, by Wyeth as some reticence on Dakota's part to deal with outstanding financial queries, caused Mr Noonan to change his favourable opinion about Dakota's financial stability, and he made his concerns known to Mr Levy on 13th February 2003 in an e-mail, in which he suggested that plans for alternative sourcing should be accelerated. It is unnecessary for me to set out the precise terms of the e-mail in this judgment.
It is also relevant that Mr Levy had during his investigations into alternative sourcing of Wyeth's packaging supplies, discovered that competitors of Dakota were quoting prices up to 40% lower than Dakota. Mr Fox said that this did not surprise him and that he regarded it as in effect predatory pricing on the part of the competitors with the aim of Dakota either losing that business or being forced to supply the product at a cost which would not make commercial sense. Mr Levy requested a meeting at Dakota's factory so that he could go through in minute detail the cost breakdown for that particular product. While Dakota had never been asked to do this by any customer before, they agreed to the meeting. That meeting took place on 13th November 2002, and the business in relation to that product in fact continued thereafter, although Dakota did not receive any direct feedback following that meeting. In fact Mr Noonan in his evidence stated that the concerns over the pricing of Dakota's product began to overtake Wyeth's concerns about Dakota's financial situation, since Wyeth could see significant savings on cost by sourcing the product elsewhere.
Dakota of course were completely unaware that these plans or preparations for alternative sourcing were being made. In fact business with Wyeth was strong during the first half of 2003. With the benefit of hindsight now, Dakota feel that Wyeth were saying nothing about these plans so that when the time came to end the relationship with Dakota, Wyeth would already have their alternative supply source in place and could then terminate with Dakota without giving them any notice, and without placing any risk on Wyeth's business. Wyeth of course deny this and say that these plans were being developed since the back end of 2002 as part of an overall risk assessment programme.
However, on the 17th June 2003 at a meeting at Wyeth's plant in Newbridge, the bombshell was dropped that Wyeth from that date did not intend to place any further orders with Dakota. This news was naturally enough greeted by those at the meeting representing Dakota with shock and incredulity, since they had not according to them been aware of any disquiet on the part of Wyeth in relation to Dakota, although they had been aware in January 2003 that certain financial information was sought by Wyeth. They believed that any information sought from them had been given, that all questions had been answered, and that all concerns of a financial nature had been dealt with, and that business was carrying on as normal. In fact the orders for the first six months of 2003 were very satisfactory, and gave no hint of the approaching storm clouds. Indeed the agenda produced by Wyeth ahead of this meeting contained nothing to suggest that it would be anything other than a routine meeting between the two companies. The Chief Executive Officer, Mr Colm Kelleher was abroad on holidays and was not in attendance.
There was a further meeting on the 2nd July 2003 in Maidenhead, England. That was a stormy meeting at which a lot of things were said in the heat of the moment and for which apologies were later expressed by Dakota. The meeting had broken up for a while to let the atmosphere cool down, and when it resumed, Ms Todd agreed that she would see if anything could be done about using up the accumulated stock of raw material. Ms. Todd recalled that there was a request at this meeting for a managed exit of 18 months but that there was no detail given as to what that managed exit would look like - in other words what the detail of it would be. She said that she was disappointed that the opportunity that Dakota had at that meeting to address their concerns had not been used. Relationships had been damaged. Inspite of this, she says that the meeting ended with a commitment that Wyeth would review the situation and revert to them. She said that following the meeting they reviewed the situation and were of the view that while assertions had been made as to the financial stability of Dakota they had seen no evidence to support them. Nevertheless they decided to see what business they could continue to give to Dakota bearing in mind the alternative sourcing that was by then in place, and their own requirements.
That meeting was followed by a letter dated 10th July 2003 in which Wyeth informed Dakota that they intended to cease their relationship with Dakota with effect from January 10th 2004 and therein gave six months notice of termination to take effect from July 10th 2003, and gave some details of what would form the basis of trading during that notice period. Briefly stated, Wyeth confirmed that they would during that period place orders with Dakota so that stocks of board already purchased by Dakota in anticipation of orders from Wyeth would be used up, but not beyond that. The evidence has been that the value of that board already in stock at Dakota is in the region of 700,000. Dakota say that orders to that value do not amount in reality to six months notice, since it represents only six weeks' volume of orders based on the previous two to three years (i.e 500,000 approx. per month).
Another meeting was arranged for 17th July 2003. This meeting had been requested by Dakota to discuss a managed exit arrangement which would have the least negative impact on Dakota. At the meeting Dakota indicated that they were seeking an 18 month to 2 year exit programme so that they could source alternative customers to fill the gap created by the withdrawal of Wyeth. Wyeth appear to have said that they would look at the situation but could not hold out much hope. No progress on order levels since the 10th July has been made.
Dakota are claiming that reasonable notice must be given, given the relationship which has developed between the parties over a ten year period, the volumes of product ordered and supplied during that period, and certain oral representations, and written representations, and that what is reasonable is an 18 month notice period during which orders for product would be placed at a level of volume calculated by reference to the previous three years' trading, and at current prices.
Wyeth maintain that there is no contract in existence, or which can be implied, or a term of which could be implied, which could possibly justify the imposition of such a term, which they consider would be onerous, on Wyeth, and that if such a term had been sought at the outset of relations in 1993 or indeed at any later date, they would never have agreed to it, and that in any event they do not presently have a requirement to place that level of business with the plaintiff or indeed with any supplier in respect of the product supplied by plaintiff heretofore due to decreased demand.
In fact Ms. Todd stated in her evidence that she never felt that she needed to have a reason to terminate the arrangements with Dakota since there was no long term supply contract in existence. She accepted that there would normally be a reason for a termination, but that she did not consider that she needed one.
Wyeth say that to impose the sort of notice period contended for by Dakota, or indeed to impose any sort of notice period on Wyeth is onerous and in effect would be requiring them to place orders with Dakota for product they do not currently require. Ms. Todd stated in her evidence that since the beginning of 2003 Wyeth had in fact built up inventories of supplies in order to mitigate any risk to Wyeth in the event of a changeover to another supplier. Apparently three to four months lead time would be required in order to source another supplier who would need to go through rigorous testing in order to ensure that quality standards were met. Mr Shipsey put it to Ms. Todd that the build up of inventory during the months prior to June 2003 gave Wyeth a cushion in relation to what would be required from any new supplier. She agreed that it did.
The plaintiff submits that as a matter of law a commercial agreement of indefinite duration, and in the absence of an express provision providing for the lawful termination of the agreement, is subject to an implied term that it can only be terminated upon giving reasonable notice. In aid of this submission, Mr Shipsey has referred to the following passage from the judgment of McNair J. in Martin-Baker Aircraft Company Limited v. Canadian Flight Equipments (1955) 2 All ER 722:
" For example, I have little doubt that the law merchant would regard a contract for the sale of 100 tons of coal monthly at a fixed price, no period being specified, as a contract determinable on reasonable notice. The common law, in applying the law merchant to commercial transactions, has always proceeded more on the basis of reasonableness in filling up the gaps in the contract which the parties have made on the basis of what is reasonable, so far as that does not conflict with the express terms of the contract, rather than on the basis of rigidity It is, of course, true that this kind of consideration can in many cases be excluded by express provision, but where the contract leaves the matter open, I think that the common law approach would be to provide a solution which is reasonable. At the same time, of course, I hope I bear in mind that it is not the function of the court to make a reasonable contract between the parties, and insofar as the matter is one of implying terms, one can only imply terms which are necessary to give business efficacy to the contract."
Mr Shipsey referred to the fact that this dictum was approved by Buckley J. in Spenborough Corporation v. Cooke Sons Company Limited (1968) Ch 1 139. In this case, the defendant was permitted to discharge its trade effluents into a sewer controlled by the plaintiff, on terms regulating same as set forth in an agreement in 1951 which was silent as to termination. An earlier 1947 agreement had a specified notice period in the event of termination, of three months.
It was held that the question whether an agreement making no express provision for termination on notice was so terminable depended on the intention of the parties gathered from all the circumstances and not merely on the interpretation of the document; and that there was no general presumption of law one way for or against permanence and it was for the party relying on an implied term to show that such a term was intended.
In relation to what length of notice would be reasonable notice, Mr Shipsey also referred to a decision of the Court of Appeal in Decro-Wall International S.A. v. Practitioners in Marketing Ltd (1971) 1 WLR 361. That was a case where the plaintiff, a French manufacturing company, made an oral agreement with the defendants who were an English marketing company. That agreement provided, inter alia, that the plaintiff company would not sell their goods in the UK to anyone other than the defendants, and the defendants in turn would not sell any goods which competed with the plaintiff's products. The parties did business under this agreement for about three years, but the defendant company appears to have been slow in paying for the goods supplied, which was a matter of such concern to the plaintiffs that they purported to repudiate the contract and bring it to an end. The defendant claimed that the agreement could be terminated only on reasonable notice. This was eventually accepted by the plaintiff company, and the court found that 12 months was a reasonable notice period. It is relevant to state that the contract involved subsisted for about three years. It also appears that during this period the defendants without any obligation on their part spent some £30,000 on advertising the plaintiff's products. They also increased their sales force and acquired new premises. Sales increased significantly during the three year period and by the date of the purported repudiation the plaintiff's products accounted for about 83% of the defendant's business. The plaintiff's had no criticism of the defendant's business expertise, or of the results which they had achieved. The only problem was about late payments on foot of bills of exchange. There are therefore similarities with the Dakota/Wyeth relationship in this case, although Mr Murray points to the fact that even in a situation where the business accounted for 83% of the defendant's business, and not just 50% as in the present case, a twelve month period was considered reasonable. Another distinction of course is an important one, namely that it was due largely to the defendant's efforts that the sales of the plaintiff's products in the UK had risen so dramatically during the three years since the contract was entered into, whereas that factor is absent in the Dakota/Wyeth relationship which relates solely to the supply of packaging to Wyeth. Lord Justice Salmon in his judgment in Decro-Wall at page 371 the undertaking given by the plaintiff company, in lieu of having an injunction order made against them, was appropriate, and that "if they were released from it, they and the concessionaires they appointed in breach of their contract with the defendants would be left free to take advantage of this breach and enjoy the fruits of the time, effort and money which the defendants have expended during the last three years in creating and building up a thriving market for the plaintiff's goods in the United Kingdom."
In the same case, Lord Justice Sachs stated at page 376 that where there is an implied term in a contract that reasonable notice for its termination must be given and what in that event the length of that notice should be, must always depend on the particular facts of the case.
Mr Shipsey also referred to the judgment of McCracken J. in O & E Telephones Limited v. Alcatel Business Systems Limited and National Telephone Systems Limited, High Court, unreported 17th May 1995. In that case the plaintiff was the distributor in Ireland of the second defendant's telephone systems, and at some point an agreement was reached was to be paid on a commission only basis in relation to sales of the products to Telecom Eireann, a potentially very large customer. The second named defendant was taken over by Alcatel and in due course the plaintiff received three months' notice of termination. Alcatel were going to deal directly with Telecom. They had no complaint about the service provided by the plaintiff. The plaintiff contended that twelve months notice was a reasonable notice period, rather than three months. McCracken J. concluded as follows:
"It is accepted that the December 1986 Agreement could be determined by reasonable notice and the defendants contend that three months notice was reasonable. I think that contention would be correct for many products in relation to this type of agreement. However, in considering what is reasonable, I am, in effect, implying a term into the agreement. I have to consider what reasonable commercial people would, at the time the agreement was entered into, consider as being reasonable notice. To do so, I must take into account the nature of the business being carried on and the nature of the products being dealt in, and it was urged upon me that I must allow a sufficient time for the plaintiff to obtain an alternative distributorship. While I am not sure that the latter is the true test, nevertheless, the products in which the plaintiff dealt were products which had to have the approval of Telecom Eoreann before they could be put onto the market, or at least before they could be connected to any Telecom Eireann system. I have evidence, although not in great specific detail, of the sort of time it in fact took to obtain approval of these products. There appears to have been an agreement in relation to the sales to TEIS in the summer of 1987 but it was not until January of 1987 that approval was obtained. In the light of this, I would consider three months notice to be too short, and I think notice ought to have been at least nine months to allow the plaintiff to contact an alternative distributor and then have the product approved."
Another case referred to by Mr Shipsey is Crawford Fitting Company v. Sydney Valve and Fittings Pty Limited (1988) 14 N.S.W.L.R. 438. It was refereed to in the context of the submission that Dakota moved to larger premises and invested heavily in both equipment and staff, all with the active encouragement and inducement by Wyeth that if it did so order volumes could increase hugely, as in fact was the case, and that Dakota would not have done all of this if they thought that the agreement could be terminated without notice, in view of the letter from Mr Slater in 1996 to which I have referred. Again, the Crawford case involved a distributorship agreement, but the passage of the judgment to which Mr Shipsey referred states as follows:
"the relationship of the parties should continue long enough to enable the distributor to recoup the extraordinary expenditure and effort; particularly when that was incurred with the actual or tacit authority of the principal."
That decision is also referred to in the decision of the New Zealand Court of Appeal in Bobux Marketing Limited v. Raynor Marketing Limited (2001) NZCA 348.
In the light of these authorities, Mr Shipsey concludes his submissions by restating that the plaintiff is entitled to a notice period of 18 months or such other period as the court considers reasonable, based on the following particular considerations:
- The duration of the agreement (i.e. 10 years);
- The fact that the plaintiff was a "preferred supplier" and had adapted its business practices and focus to accommodate and respond to the defendant's specific business needs;
- The plaintiff had made substantial financial investment (i.e. 10 million approx.) to accommodate and meet the defendant's business requirements, although it would also assist with other customers' requirements, but to a large extent it was for the defendants needs and requirements;
- The plaintiff's sales to the defendant developed to a level in excess of 40% of the plaintiff's overall turnover;
- The defendant accepted that the lawful termination of its agreement with the plaintiff in 1996 (had it proceeded) required the plaintiff and the defendant to agree a mutually agreed period of termination, or in the alternative, required the defendant to give a reasonable period of notice in the order of 12 months, by reference to what the defendants did in relation to another company. M.Y. Holdings in 1995/96;
- That the defendant did in fact give a period of notice (albeit inadequate);
- That a reasonable period is required in order to permit the plaintiff to wind down its business with the defendant and thereby avoid irreparable financial loss and damage.
Not surprisingly, Mr Murray takes a different view on behalf of his clients, Wyeth.
Mr. Murray has submitted that it is necessary firstly to decide whether there was a single contract entered into in 1993 when the parties first engaged in a business relationship, or was the relationship defined solely by individual orders when they were placed from time to time over the 10 year period 1993 2003. If it is a single contract, then Mr Murray submits that it is necessary to decide if, thereunder, Wyeth was obliged to acquire a particular quantity of product at a particular price. He further submits that if these are the terms, the question must be resolved as to whether they are express terms or implied terms. He submits that there is no evidence that they were ever express terms, and that therefore if they are terms at all they must be implied terms, and he questions whether it is open to the court to imply such terms, in view of the case law dealing with the question of implied terms in this jurisdiction.
Most importantly, Mr Murray submits that it cannot be contended that, even by virtue of an implied term, there is any obligation to give any notice of termination, not to mention that contended for by Dakota, namely 18 months, at levels averaged from the previous three years, and at Dakota's prices. It is submitted that many suppliers have long term relationships with manufacturers with whom they do business, and that often a manufacturer will modify and adapt its working methods and structures to meet the needs of its customer, and that this can involve a cost to the manufacturer, and that there is nothing unusual or special in sofar as Dakota may have invested heavily in upgrading its plant and premises in order to accommodate the needs of a valued customer, such as Wyeth. The point was also made that in any event, since the investment was made, upwards of 30 million of business had been transacted with Dakota, and that the investment which made this possible would have been covered, in addition to the fact that Dakota were able to use this investment to service the needs of its other customers. Mr Murray poses a rhetorical question in his written submission as follows:
"Is there a legal impediment to a purchaser who has been dealing with a supplier for a number of years, who has channelled through that supplier very considerable volumes of business, going elsewhere, or is it obliged to acknowledge the supplier's dependence upon it by waiting for a very substantial period of time?"
He distinguishes this case from the case of a distributorship agreement, where the party is 100% dependent on the continuance of the agreement for his livelihood. In the case of Dakota, by contrast, the dependency is only to the extent of about 40% of annual turnover, and the question is asked as to why this should entitle Dakota to 18 months notice based on the last three years' volumes and at Dakota's prices. It assumes in Mr Murray's submission that whatever contract, if any, existed between the parties, there is an obligation on the part of Wyeth that as long as they are dealing with Dakota they cannot obtain supplies of those particular goods from another source, even if that other source is cheaper. It is submitted that if there was not during the pendency of the contractual relations an obligation to purchase any specified quantity of goods, there cannot be an obligation imposed upon them after the contract has terminated, or during any notice period.
It is submitted that in 1993 when the relationship first commenced between the parties, there was no oral contract containing either express or implied terms of the kind contended for by Dakota, and indeed that if such a term had been sought by Dakota to be included, that neither Wyeth nor any sensible businessman would have agreed to it at the commencement of relations. Mr Murray points to the Statement of Claim and to what is pleaded as to the terms of the agreement in 1993. He also refers to the evidence of Mr Fox who stated that it was in or about 1996 as a result of what Mr Slater had said, that he first knew or realised that there was an obligation on Wyeth to give notice of termination. The Statement of Claim pleads that the oral agreement was concluded in or about October 1993 and that it contains four listed express or implied terms, the last of which is that related to reasonable notice of termination. Mr Murray says that even Mr Fox's own evidence does not support that plea since it was only in 1996 that he knew or realised that reasonable notice was to be given.
It is submitted that the court must be a number of matters in mind when deciding whether an 18 month notice period is a reasonable period of notice, if notice is required at all.
Firstly, that such a period on the plaintiffs' terms would be an onerous obligation, and one which, on the defendant's evidence, they would not have agreed to had it been suggested at the start of relations.
Secondly, the difficulty, that even Mr Fox had, of precisely defining what the obligation would comprise, such as at what volume of product must be ordered, and whether it is at Dakota's prices or at prices available elsewhere and so on. It is submitted in effect that the court would be re-writing the contract for these parties on the basis of what one of them now considers fair, rather than on the basis of what would have been agreed at the time had it been discussed and considered.
Thirdly, it is submitted that such a term would be inconsistent with what is written down, namely that in 2000 it was acknowledged by Mr Fox that Wyeth's obligations to purchase goods extended only to what was in the "Firm Period" window in the forecast, which is a two month period.
Fourthly, the claim to be entitled to this 18 month notice period arose for the first time in the course of these proceedings themselves, when it appeared in an affidavit of Brendan Mowles. It was never mentioned in the meetings between the parties or in correspondence. Neither did the plaintiff's banks or auditors know of it. This it is submitted raises an issue of credibility.
Finally it is submitted that given Mr Slater's position in Wyeth at all material times he had no authority to bind Wyeth to any obligation of the kind contended for, even if he did make the representations which are alleged.
In aid of his submissions Mr Murray referred the court to a number of authorities relating to implied terms, and to what he describes as the high threshold which must be surmounted in seeking to imply terms.
In Sweeney v. Duggan (1997) 2 IR. 531 the Supreme Court held that the courts would imply a term into a contract when such a term could be inferred on the basis of the presumed intention of the parties, and that the presumed intention of the parties differed in different cases. It also held that a contractual term would also be implied if it derived from the nature of the contract itself and was necessary as well as reasonable, but that it could not be implied if it was inconsistent with the express wording of the contract, and also that it would be difficult to imply a term if such a term could not be formulated with reasonable precision.
Delivering the judgment of the court, Mr Justice Murphy stated, commencing at page 538:
"There are at least two situations where the courts will, independently of statutory requirement, imply a term which has not been expressly agreed by the parties to a contract. The first of these situations was identified in the well-known case, The Moorcock (1889) 14 P.D. 64 where a term not expressly agreed upon by the parties was inferred on the basis of the presumed intention of the parties. The basis for such a presumption was explained by McKinnon L.J. in Shirlaw v. Southern Foundries (1926) Ltd. (1939) 2 KB 206 at p. 227 in an expression, equally memorable, in the following terms:-'Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him withy a common "Oh, of course" '
In addition there are a variety of cases in which a contractual term has been implied on the basis, not of the intention of the parties to the contract but deriving from the nature of the contract itself. Indeed in analysing the different types of case in which a term will be implied Lord Wilberforce in Liverpool C.C. v. Irwin (1977) AC 239 preferred to describe the different categories which he identified as no more than shades on a continuous spectrum."
Murphy J. also referred to that judgment in Liverpool C.C. v. Irwin (supra) and to the comment of Salmon L.J that "unless a warranty or term is in all respects reasonable there can be no question of implying it into a contract, but before it is implied much else besides is necessary, for example that without it the contract would be inefficacious, futile and absurd".
That case was of course a very different case to the present one. It involved a question as to whether a term could be inferred in a contract between the plaintiff Council and its tenants to the effect that the Council would maintain and repair the lifts and chutes in an apartment block. Salmon L.J. concluded that such a term could be implied since:
"Unless the law, in circumstances such as these, imposes an obligation upon the Council at least to use reasonable care to keep the lifts working properly and the staircase lit, the whole transaction becomes inefficacious, futile and absurd."
Murphy J. concluded that " whether a term is implied pursuant to the presumed intention of the parties or as a legal incident of a definable category of contract it must be not merely reasonable but also necessary. Clearly it cannot be implied if it is inconsistent with the express wording of the contract and furthermore it may be difficult to infer a term where it cannot be formulated with reasonable precision."
Mr Murray submits that in the present case, the implying of a term of reasonable notice, or that contended for by the plaintiff, is neither necessary nor has it nor can it be formulated with precision. He says that the most that the plaintiff can say is that it would be fair, and in this context refers to the decision of the Supreme Court in Carna Meats Ltd v. Eagle Star Insurance Company (Ireland) Limited (1997) 2 IR 193 in which Lynch J. stated as follows:
"Apart from some cases where the law implies some terms into certain kinds of contract, whether by statute or by common law (for example sale of goods, hire purchase, landlord and tenant, sale of lands etc.) one can imply a term into a contract only when the implied term gives effect to the true intention of all the parties to the contract who might be affected by such implied term".
The Carna Foods case involved a question as to whether there could be implied into a contract of insurance a term that upon any cancellation thereof by the insurance company, it would be obliged to give its reasons. Lynch J. concluded that based on the evidence, such a term could not be implied since if such a term had been sought to be included at the outset the insurance company would not have contracted with the plaintiff at all. Mr Murray points to the evidence on behalf of the Wyeth in the present case that they would never have agreed to an eighteen month notice period on the basis of the previous three years' volumes and at Dakota's prices, if such a term had been sought to be included in any sales agreement in 1993, quite apart from his other submission that in any event Mr Slater did not have the requisite authority to bind Wyeth to such an agreement, and that accordingly no such term can now be implied.
Mr Murray also submits that such an implied term would be inconsistent with the written terms between the parties and in any event would be so uncertain as to its content and meaning as to not amount to an enforceable contract at all. In this regard he refers to the wording of the letter dated 14th February 1996 which is the only evidence in writing upon which the plaintiffs have been able to rely. This letter stated that "it is our intention to transfer business over a mutually agreed period of time". Mr Murray contends that this is simply an agreement to agree at some future date, and as such is unenforceable, and he relies on May & Butler Ltd v. The King (1934) 2 KB 16, and to G. Scammell & Nephew v. Ouston (1941) A.C. 251 in support of his submission as to vagueness and uncertainty.
The letter to which I have referred is regarded by Mr Murray as no more than a promise or a record of intention as at that date in 1996, and that it must therefore fall short of being a legally binding contract. It is also submitted that there was no consideration for such an agreement, and that the only agreement was that the defendant would buy goods from time to time from the plaintiff, and that if the ability of the plaintiff to supply those goods was dependant upon the plaintiff acquiring larger premises or further equipment and staff, the payment by the defendant for the goods in question was the consideration for this.
It is submitted that there is nothing in the arrangements between the parties and any letters between them that can amount to a representation as alleged as to notice, and that such a representation would have to be clear and unequivocal, and could not relate to an event in the future such as might lead to some form of estoppel. Mr Murray points to the fact that the letter dated 14th February 1996 was simply written in the context that the defendants were terminating their supply arrangement in 1996 and that it was their then intention to transfer the business to another supplier over a mutually agreed period of time. He says that this cannot be taken as any form of binding agreement in relation to any future time.
In 1993 Wyeth was setting up a very large manufacturing facility in Newbridge, and Dakota were very keen to pitch for the business of supplying packaging. Discussions took place, and Dakota was successful in getting at least some of the business. Orders were placed and these were fulfilled. In the first year or so, volumes were small enough compared to levels of business done more recently. Nothing was ever written down, and each order constituted a contract for the delivery of the stipulated goods. Business gradually increased through 1995 to 1998 when just less than two million euro worth of business was transacted, again just on an order by order basis. A close cooperation had developed between the two companies, and there is no doubt that the standard of quality, and reliability of supply as required by Wyeth, and as performed by Dakota, was something that was of significant value to Wyeth during these years, and naturally the developing business relationship was something of great value to Dakota, who put a lot of time and effort into developing that close working relationship with a very major customer.
In 1996 as we know, Dakota had at first failed to win a tender for the Wyeth business at that time. On the 14th February 1996 a letter was received from Mr Slater indicating that the business was to be transferred to a new supplier but he also indicated that the business would be transferred over a mutually agreed period of time, and he then thanked Dakota for its support in the tendering process, whatever that meant, and also expressed appreciation for the long standing association between the two companies. In my view, taking a snapshot of the relationship between the two companies at that time, there was no obligation upon Wyeth to give any notice to Dakota, and anything contained in that letter was a voluntary gesture on the part of Wyeth. Perhaps, indeed, it suited Wyeth to transfer the business gradually to its new suppliers, rather than to have the changeover take place overnight. In any event it was expressed in the way that appears in the letter, but I cannot see how that letter can constitute anything in the way of a binding commitment that at any future time at which the relationship might be terminated the transfer of business to any new supplier would be undertaken in a timeframe to be mutually agreed between the parties. It could not amount to that, and I am satisfied that no form of estoppel can arise therefrom. If there is to be a term of reasonable notice implied into the relations between the plaintiff and the defendant, it cannot in my opinion arise by virtue of that letter.
In fact that decision to terminate was reversed after some discussions, and this resulted in Dakota retaining the business it already enjoyed with Wyeth, as well as gaining new business. In addition Dakota was awarded the status of "Preferred Supplier".
I am satisfied that the level of the relationship as of that time was of a character similar to many a business relationship of 5 years' standing. In any walk of life, business comes and goes. It can go for any number of reasons, or for no reason other than someone's whim or a simple desire for change, and no notice may be required to be given in these circumstances, unless there is an express term to the contrary.
Nevertheless the law has recognised that in some circumstances reasonable notice of termination must be given, even where there is no such term expressed in any written contract between the parties. I have been referred to a number of such cases, each of which is different in terms of the type of relationship existed between the parties, and there is certainly no case to which I have been referred which is on all fours with the present case, though there are some similarities in some of the cases. But the fact that the court will imply terms in certain circumstances is well settled, and there is no need to repeat the well-worn words of MacKinnon L.J. in Shirlaw v. Southern Foundries referring to the "officious bystander". That case has been referred to many times, and was also referred to by Murphy J. in Sweeney v. Duggan where he examined the question of implying terms into a contract. Having referred to the said officious bystander, he went on to say that in addition to the sort of case in which the parties would say "Oh, but of course", there was a variety of cases in which a contractual term would be implied not on the basis of the presumed intention of the parties, but deriving from the nature of the contract itself, and referred to Lord Wilberforce's description of the different categories as no more than shades on a continuous spectrum. I take this to mean that the range of cases, or the variety or kinds of cases in which a term will be implied is not confined in any way, and that there is vested in the court a wide discretion as to when it shall regard it as reasonable to imply a term, such as a reasonable notice term.
I say this because a feature of the present case, and an unusual feature, is that inspite of the very large volume of business transacted by Wyeth with Dakota, and of the very substantial investments both in terms of money, premises, plant and machinery, and personnel, no long-term or even medium term supply agreement was ever entered into between Dakota and Wyeth. Such an agreement would be of more benefit to Dakota than to Wyeth, but one cannot say that it would not have been of some benefit to Wyeth also, since they had a dependence on Dakota, which was recognised, albeit in a somewhat negative way, by Ms. Todd at the backend of 2002 when she embarked upon an examination of the risk to Wyeth of this dependency.
Her perspective was of course from the point of view of Dakota perhaps suddenly going out of business and leaving Wyeth high and dry for supplies of packaging, but the fact is that Dakota could also at any time have made a strategic decision, for example to downsize, involving perhaps a reduction in the amount of packaging it wished to supply, or even a decision to no longer supply Wyeth, so that it could reduce its workforce. The question which the court put to Mr Shipsey during argument would then perhaps have arisen as to whether in those circumstances, Dakota would have felt contractually obliged to give Wyeth the sort of notice of termination for which it is contending in these proceedings. My own view would be that some reasonable notice would need to be given in those circumstances unless the termination was due to a collapse of the business involving a sudden closure, but the length of that notice would depend on the circumstances prevailing at the time as to any lead time needed by Wyeth to source an alternative supplier.
The question now is whether the relationship which developed between Wyeth and Dakota during and after 1998 changed things in such a way as to bring that relationship, which was an evolving one, into that category of relations which the law has recognised as capable of having implied therein a term that it will not be terminated other than on the basis of reasonable notice being given.
A simple example is given in Martin-Baker Aircraft Company Limited v. Canadian Flight Equipments (supra) where McNair J. was of the view that the law merchant would recognise a contract for the sale of 100 tonnes of coal monthly at a fixed price, no period being specified, as a contract determinable on reasonable notice. But he also bore in mind that it is not the function of the court to make a reasonable contract between the parties, and that one can only imply terms to give business efficacy to the contract. What notice would be appropriate and regarded as reasonable for the coal merchant referred to is of course another matter, but I suspect that it would be a relatively short number of months, since the size of the contract is not such as to create the sort of dependency, and involve the sort of investment that is involved in the present case.
In 1997/1998 there was a development in the evolution of the relationship between Wyeth and Dakota. New products were being launched by Wyeth and very substantial quantities were expected. I am satisfied that Wyeth wanted Dakota to supply these anticipated increased volumes if it had the capacity. This accounts for Mr Slater speaking to Dakota at the time about moving its operation to an upgraded and larger premises if it wanted to be a major player in the packaging industry. There is no doubt also that Dakota was an ambitious company anxious to expand its business, and it goes without saying that it would jump at the chance of supplying Wyeth with the sort of quantities which were being talked about. Dakota had other customers which a new premises and upgraded facility would also benefit.
But I am satisfied that a very close relationship had developed between these two companies by this time, and without going so far as to say that Dakota was induced by Wyeth to invest so heavily in new premises and equipment, it was clear that if that was done the new business would come their way. It was certainly a benefit to Dakota, but it was also a benefit to Wyeth who now had a local supplier who could satisfy its requirements both as to reliability of supply and as to quality of product. Both of these factors are of critical importance to Wyeth given the business it is in. This is borne out by the evidence given by Wyeth.
As we now know the new levels of business did come Dakota's way, and in fact the forecasts were exceeded. But while I am not saying this close cooperation, and encouragement by Wyeth to invest created of itself some sort of contractual relationship, it was a very significant factor in the development of the overall relationship between the parties, and a factor which I must take into account when considering the nature of the relationship between the parties. I prefer to use the phrase "nature of the relationship" between the parties, because the use of the word "contract" is confusing in this case, because, as Mr Murray was at pains to point out, there never was any contract in existence except each individual order of specific goods from time to time, and perhaps the commitment to purchase those goods specified in the "firm window" in the forecasts given by Wyeth. But to confine myself to that "contract" is to ignore essential aspects of the overall relationship, and would fail to recognise what Murphy J. was referring to in Sweeney v. Duggan when he stated that there are a variety of cases in which a contractual term will be implied on the basis not of the intention of the parties, but deriving from the nature of the contract itself. I refine this a little bit further for the purpose of this case by stating that it ought also to be derived from the nature of the relationship of the parties, as in the present case.
I accept that for a term to be implied it must not just be reasonable but must also be necessary. In addition I am satisfied that a term cannot be implied simply because one party considers that in all the circumstances it would be fair to them. It must also be capable of formulation with reasonable precision. That much is clear from the English authorities and from Sweeney v. Duggan.
It is also clear from the judgment of Lynch J. in Carna Meats v. Eagle Star that one can imply a term only if it gives effect to the true intention of the parties. In relation to the latter, I am conscious that in evidence Wyeth have stated that if a term of reasonable notice had been sought in 1993 they would not have agreed to it. I accept that in 1993 that may very well have been the position, but not necessarily so. I take that evidence to mean that they would not have agreed to a period of eighteen months at present volumes and at present prices, because while I have stated that the letter dated 14th February 1996 cannot be regarded as legally binding as such, it does indicate that the concept of reasonable notice in general terms was not a foreign concept to Wyeth, and there is also uncontroverted evidence that a 12 month notice period was given to M.Y. Holdings. I think that in 1993, if it had been discussed, the parties might well have agreed that reasonable notice would be given, for the benefit of both sides and not just Dakota, but I do not think that in the absence of an express term, as I have stated, such a term would be implied, in the sense of being imposed, into the relationship by a court as of 1996 for the reason I have already given.
But in relation to the development of the relationship from 1998, I have absolutely no doubt that both parties would have regarded the giving of reasonable notice as a desirable thing had it been discussed. I do not have to state why Dakota would regard it as desirable, because that is obvious. But as far as Wyeth is concerned they were also putting themselves in a position of some dependency on Dakota. This was not seen as risky at the time, but there was risk. That risk was appreciated by Septemeber 2002 as we know. In fact I find it extraordinary that the matter was not brought up for discussion by Dakota either of their own motion as it were, or on the prompting of their Bank or even their auditors. However that was the situation. Dakota either closed their minds to the possibility of peremptory termination, or worked on the assumption that everybody would be decent about things when and if that situation arose.
While Wyeth have said that they would never agree to enter into any long-term supply agreement with a supplier, and do not in fact do so, that is not the same as saying that they would never agree to reasonable notice of termination. The fact that they do not have long-term supply agreements with their suppliers does not prevent this court from finding that a term of reasonable notice is capable of being implied.
It is also fair in the sense that it is not simply for the benefit of one party. It happens in the present case to be something for the benefit of Dakota, but in other circumstances it could have been to the benefit of Wyeth, since they would need some lead time in order to find another suitable supplier. We know this because as things happened in the early part of this year, Wyeth put alternative plans in place which took a number of months to achieve. They were in the fortunate position of being able to control events as far as termination with Dakota was concerned and were able to put their alternative plans in place during a time when Dakota was unaware that there was a danger that they would lose the business. It follows that Dakota were unable to make their own plans to cover that eventuality or possibility.
I am not suggesting that there was any malice or bad faith on the part of Wyeth in putting into place alternative plans in the early months of 2003 should they be required. I believe Ms Todd when she stated that these plans were being put in place as part of an overall risk reduction exercise. Wyeth was concerned generally about overdependence on any one supplier, and to some extent it was pure chance that when they went about addressing that issue, they happened to discover what they perceived as a weakness in the financial affairs at Dakota. I use the word "perceived" deliberately since I am not making any finding in this case as to whether the perception of weakness by Wyeth was one which was or was not objectively justified. The fact is that it was perceived to be such by Mr Noonan. I accept that the plans which were put in place at the end of 2002 and early months of 2003 were put in place in order to reduce risk of overdependence, and not in some calculated way to ensure that when they ditched Dakota as a supplier they would not be prejudiced. As it turned out it was very helpful to Wyeth that by 17th June 2003 they knew that they could terminate with Dakota without notice, and without risk to the continuity of their packaging supplies. That was all very fortunate, and reflects well on the strategy of risk reduction which had been embarked upon by Wyeth in the final quarter of 2002.
I have said that I am satisfied that the implication of a term of reasonable notice is fair to both parties and is also reasonable. But I must also be satisfied that in the present case it is a necessary term to give efficacy to the business relationship. I am satisfied that it is so necessary, given the development in that relationship after 1998. I appreciate that the investment made by Dakota was of benefit to it, not just in its relationship with Wyeth, but also its other customers. One must not lose sight of this fact. It is a fact which distinguishes the case from that involving an exclusive distributorship where there is one hundred per cent dependence by the franchisee on the franchisor, and where 12 months notice has been held to be reasonable. But there is no doubt that the developments in 1998 and thereafter created a very significant dependence on the Wyeth business. That situation in my opinion can also be seen as a benefit to Wyeth. It goes without saying almost that where a party such as Wyeth is the largest customer by far of Dakota, the latter is going to pay particular attention to the business it gets from Wyeth, and make sure that everything is done to the very highest standards and on time. That is something that I can and do take into account when considering the mutuality of dependence and when considering whether the implication of a term of reasonable notice in fact gives business efficacy to the arrangements between the parties. To my mind it is as much in Wyeth's interests as it is in Dakota's that reasonable notice should be given. That gives efficacy to the arrangements. By way of demonstration, one has only to contemplate what position Wyeth would have been in had it given immediate notice of termination to Dakota without having previously put in place the arrangements for an alternative source of supply, which it would perhaps fortuitously in a position to do in this case in the six months prior to June 2003. It would have been in a very unsatisfactory situation indeed.
Neither do I think that the term ought not to implied because it is inconsistent with any written agreement. The only written agreements are the orders placed, and as I have already stated these cannot be regarded as the sole basis of trading between the parties. The overall relationship must be looked at.
As far as being capable of formulation with some degree of precision is concerned, such a term of reasonable notice does not present a difficulty in practical terms. What is or is not reasonable differs from situation to situation and from case to case. In the present case it is sufficient to decide, as I do, that it is appropriate to imply into the business relationship between the parties from 1998 a term that there would not be a severance of that relationship without reasonable notice being given. In the event that such a period cannot be agreed, it is simple enough for the court to decide the basis of what is reasonable. I do not regard this as an agreement to agree and as such not capable of enforcement.
As far as the length of notice is concerned, the position is very well summarized by Sachs L.J. in Decro-Wall International v. Practitioners in Marketing (supra). Having considered the facts of that case, Sachs LJ concluded as follows:
"Looking at it from the point of view of two reasonable businessmen deciding as between themselves what would be the appropriate length of notice required for determining a relationship of the nature already described and involving the work and expenditure just mentioned, it seems to me that no concessionaire would proceed unless he knew the concession could not be terminated by notice of less than 12 months: he might reasonably have stipulated for even longer notice. Similarly no reasonable producer of the product would have expected his concessionaire to carry on the business in this way except upon the safeguard that he would not receive notice of less than 12 months."
He also stated that what the length of notice must be will depend on the facts of each case, and that the overall situation between the parties must be considered. In Decro the plaintiff was a French manufacturing company and the defendant was an English marketing company. The plaintiff agreed orally that it would sell its products in England only to the defendant, and the defendant agreed that it would not sell any product which competed with that of the plaintiff. By the time the contract was terminated by the plaintiff the dependence of the defendant on the plaintiff's products was of the order of 83%, and it was held that a 12 month period of notice was reasonable. The defendants had expended considerable sums of money promoting the plaintiff's products, and had increased its stock of the plaintiff's product and had increased its sales force, all of which the plaintiff was made aware of. Sachs L.J. expressed the view that any sudden stoppage of supplies by the plaintiffs would produce disastrous results. Equally of course the plaintiff greatly benefited from the increased sales of its product achieved by dint of effort on the part of the defendant. It was on this basis that Sachs L.J. expressed himself as he did in the passage from page 377 of his judgment which I have quoted above.
His process of reasoning ably demonstrates the necessity to consider the concept of reasonableness from the point of view both of the plaintiff and the defendant. It can only be by a marriage of the two that a fair concept of reasonableness can be achieved. As with most marriages, compromises on each side are necessary if a reasonable level of mutual happiness is to be achieved, since the wildest expectations of one party can ordinarily be realised only by an unreasonable imposition on the other. So a balance must be struck.
The question of the length of notice has also been helpfully addressed by McCracken J. in O & E Telephones Limited v. Alcatel Business Systems Limited, High Court, unreported 17th May 1995. The court was referred to a passage of that judgment at page 9 thereof where the learned judge states as follows:
"It is accepted that the December 1986 Agreement could be determined by reasonable notice and the defendants contend that three months notice was reasonable. I think that three months would be correct for many products in relation to this type of agreement. However in considering what is reasonable, I am, in effect, implying a term into the agreement. I have to consider what reasonable commercial people would, at the time the agreement was entered into, consider as being reasonable notice. To do so, I must take into account the nature of the business being carried on and the nature of the products being dealt in, and it was urged upon me that I must allow a sufficient time for the plaintiff to obtain an alternative distributorship. While I am not sure that the latter is the only true test, nevertheless, the products in which the plaintiff dealt were products which had to have the approval of Telecom Eireann before they could be put on the market, or at least before they could be connected to any Telecom Eireann system. I have evidence, although not in great specific detail, of the sort of time it in fact took to obtain approval for these products. There appears to have been an agreement in relation to the sales to TEIS in the summer of 1987 but it was not until January 1998 that approval was obtained. In the light of this I would consider three months notice to be too short, and I think notice ought to have been at least nine months to allow the plaintiff to contact an alternative distributor and then to have the product approved."
In the present case Dakota say that they realise that there is no such thing as a contract for life, but that in the circumstances in which they now find themselves it will take them at least eighteen months to obtain a replacement customer for the Wyeth business. They point to the very specialised nature of the printing and packaging that they did for Wyeth, and that if they are to be successful in obtaining a new customer, they are going to have to go through a rigorous process of testing so that the customer can satisfy itself that Dakota come up to the required standards. They highlight the undoubted fact of theor heavy reliance on the Wyeth business which accounts for about 40% of turnover, and that they have a large workforce much of which is devoted to the Wyeth work, and who will have to be laid off if the Wyeth business is not replaced. They also point to their level of debt resulting from their investment undertaken largely, though not exclusively for the Wyeth business. In relation to the latter, of course, Wyeth say first of all that their notice obligations, if any, to Dakota should be dependent on the strength or weakness of the company, and their debt servicing problems cannot be a concern of theirs. I agree with that submission. But the investment made in premises, staff and equipment, as I have stated, is something which I can take into account at least in considering what is reasonable notice. I can also take into account the fact that the product manufactured by Dakota is a specialised product designed exclusively for the products of Wyeth. They cannot simply continue to manufacture the same products and hope to sell them to a new customer, in the same way as if they were manufacturing envelopes or other items of general use. That is an important factor.
Wyeth point out that by virtue of the risk reduction exercise which they undertook for reasons unrelated to Dakota at the end of 2002 and beginning of 2003, they have accumulated a stockpile of inventory which was sourced from another supplier, and their needs over the coming months and perhaps year are less than they would have been had they not been able to do this. This stockpiling was done as a precaution against anything happening to Dakota suddenly whereby Wyeth's business would be interrupted by any breakdown at Dakota. They make this point in relation to any suggestion that during any notice period which may be found to be reasonable they ought to be obliged to place orders with Dakota based, artificially as it were, on volumes ordered over the past three years, as the plaintiffs seek, in a situation where they already have stocks in place, and their need has in fact reduced due to a downturn in business. They also make the point that Dakota's prices are higher than its competitors and that it would be unduly onerous to be forced to purchase product which they do not need and at prices that are higher than the market place.
Firstly I am satisfied that the court can and should in this case imply into the arrangements between the parties a requirement that upon termination of the relationship of supplier and customer, reasonable notice should be given. In my view that period of notice ought to be twelve months, taking into account the period of time that the parties have been doing business, the level of trading during that time, particularly since 1997, the specialised nature of the products supplied, and the level of cooperation and close working relationship that of necessity developed and existed over the years since 1993. I do not think it is appropriate that the court would have regard to any inherent weakness in the supplier company's financial position even if I were to find that there was such. I have first of all deliberately refrained from making any findings as to the strength or weakness of Dakota. It is not necessary that I do so. But it would indeed be onerous and unreasonable if an obligation was more severe towards a weak company than to a strong one, on that ground alone. But that is not to say that some account cannot be taken of the fact that almost half the turnover of Dakota is accounted for by the Wyeth business. That is a different consideration and has more to do with the nature of the relationship generally which has developed, and that is something which is important for the court to have regard to.
It has been suggested to me in the course of argument that all I am required to do in deciding this preliminary issue is to decide whether any notice is required to be given, and if so what that notice should be, and that anything further as to what that notice should consist of is a matter that can be dealt with by another court on another occasion when the question of damages may be considered. I do not agree that it can left in such a fashion. To do so would leave the parties in an unnecessary state of uncertainty, and would have achieved very little for the parties in the immediate future. I believe that I should also express a view of what the notice period should look like.
A period of notice is relatively meaningless unless during that period the party affected is not in the same position he would have been in but for the notice of termination being given. In the simple case of an employee being given two months notice of dismissal, it avails him or her nothing if during that time he or she is put on half pay. In the present case, Wyeth have by letter dated 10th July 2003 given 6 months notice ending on 10th January 2004. However it is clear that during that time they intend only to use up the existing stock of board in the possession of Dakota as of the end of June 2003. It is common case that the value of orders capable of being filled by the use of this stock is of the order of 700,000 which, while it seems to an outsider to be a substantial volume of business, represents only about six weeks of orders based on volumes averaged over the previous three years. In effect the six months notice is only six weeks notice.
Wyeth on the other hand, as I have already stated, say that they have stocks of product already garnered from other suppliers at cheaper prices and they do not need the same volumes in the foreseeable future both for this reason and due to a falling off in business.
The court must try and balance as best it can these competing interests, all of which are understandable when looked at from each party's respective positions.
Since I am of the view that the concept of notice is meaningless in the abstract, it follows that the twelve month period which I am finding to be reasonable, is reasonable provided that Dakota is during that period in the same position as if notice of termination had not been given. That on the other hand does not mean that Wyeth must be compelled by this court to purchase product from Dakota either which it does not need due to a genuine downturn in business. As against that however Wyeth ought not to be permitted to take account of the goods which they were in a position to stockpile ahead of the decision to terminate with Dakota. This would have been product which in other circumstances they would have purchased from Dakota. Therefore it seems to me that during the period of notice from 10th July 2003 to 10th July 2004, Dakota would be entitled to expect that it would receive during that time orders from Wyeth that they would have received were it not for the termination notice being served in other words whatever goods Wyeth in fact needed during that period of the kind normally ordered prior to termination. Those volumes would have to be based on actual, and not in any way artificially reduced, levels of need, and cannot be reduced in my view by referenced to any stockpiling that may have occurred from January 2003. But it would be an unreasonable imposition to have those volumes based on any historical level of orders, since under normal circumstances there would have been no obligation on Wyeth to place orders to any particular level, but only on the basis of their actual requirements for a period going forward.
Lastly I should deal briefly with a number of other points for the sake of completeness. Firstly it was contended that pursuant to section 1 of the Statute of Frauds 1695 any agreement which is to last for more than one year had to be evidenced in writing, and that therefore if the plaintiffs were correct in saying that there was a contract in existence for which they contended, namely in the nature of an oral long term supply arrangement, same was unenforceable. However, having looked at section 1 carefully and having deciphered as best I can its meaning from the arcane verbiage contained in the section , I am satisfied that it can have no application in the present case. I am of the view that it relates to a contract which was intended not to commence for more than one year after it was made. That is different to the present case where the contract, if it be such, was simply to span more than one year.
Another submission made by Mr Murray was in relation to section 4 of the Sale of Goods Act 1893. That Act if it applies at all would in my view be relevant only in relation to each purchase order placed by Wyeth, and not to the totality of relations with which I am dealing in the present preliminary issue.
Insofar as the plaintiff is maintaining a claim in tort arising from what they say is a misrepresentation by Mr Slater as to reasonable notice, Mr Murray submits that there is no suggestion in this case of any misrepresentation having been given by fraud, deceit or even negligence. He says in any event that same could not give rise to injunctive relief. I do not have to consider any question of misrepresentation at this time.