High Court: Wexford gas distributor obtains interlocutory injunction preventing Flogas from terminating business relationship

About this case:

• Citation:
  [2023] IEHC 214
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Rory Mulcahy

Delivering judgment in the case, Mr Justice Rory Mulcahy applied the well-established principles for the grant of interlocutory injunctions. It was held that there was a serious issue to be tried, that damages were not adequate for the plaintiff and that the balance of convenience favoured the grant of the injunction.

Background

The plaintiff company was a business in Wexford. In 1978, the company entered an agreement with Flogas to distribute propane and liquified petroleum gas in South Wexford and Wexford Town. It was an exclusive agreement. In 2023, the company had two employees, being the son of the founder and his nephew.

The agreement was renewed from time-to-time following negotiations between the parties. Accordingly, the agreements were fixed-term contracts for distribution. In 2018, the parties agreed a three-year contract which expired in September 2021.

As part of the 2018 agreement, it was outlined that Flogas intended to change its business model to a direct distribution model from the cylinder filling distribution model. This change was due to commence in April 2021 but did not in fact occur.

Following the expiry of the 2018 agreement, the parties continued their business relationship. In 2022, the parties entered negotiations for a new agreement. The terms included the plaintiff becoming the authorised distributor for the entire county of Wexford, which involved doubling the volume at higher rates than the previous distributor in North Wexford. It was also outlined that any further deal would be excusive of the filling plant closing and the plaintiff operating a direct model from 2024 onwards.

After these terms had been agreed, the plaintiff outlined that the entire agreement was conditional upon a payment of €250,000 from Flogas as a retirement payment for one of the employees at the end of the agreement in 2024. Flogas categorically rejected this condition.

In August 2022, the defendant wrote to the plaintiff stating that the agreement had been withdrawn in full and put the plaintiff on notice that the business relationship would terminate in nine months, being 30 April 2023. The plaintiff argued that the notice of termination provided for an unreasonable period of notice in a context of 40 years of service.

Proceedings issued in December 2022. Following the exchange of pleadings, the plaintiff sought an undertaking that Flogas would not terminate the agreement prior to the determination of the proceedings. This undertaking was not provided and a motion seeking an interlocutory injunction issued in February 2023.

There was no dispute between the parties regarding the applicable legal principles in the case, which were set out in Merck, Sharp & Dohme Corporation v Clonmel Healthcare Limited [2019] IESC 65. Accordingly, the court had to determine if there was a serious issue to be tried, assess the adequacy of damages and consider the balance of convenience.

Further, the defendant argued that the plaintiff was seeking mandatory relief and, as such, was required to establish the higher threshold that it had a strong case that was likely to succeed at trial.

High Court

Mr Justice Mulcahy began by considering the appropriate threshold for the interlocutory injunction in the case. It was noted that the mandatory or prohibitory nature of an injunction was a matter of substance rather than form (see Charleton v Scriven [2019] IESC 28).

The court considered the long relationship between the parties and held that the injunction was directed at maintaining the status quo rather than directing the defendant to do something new (see Betty Martin Financial Services Limited v EBS DAC [2019] IECA 327). Further, the defendant had out little evidence before the court of steps it was taking to effect change in its business model such as the appointment of an alternative distributor.

It did not appear to the court that the grant of the injunction would require court supervision. Equally, the injunction would not determine the issues between the parties, which related to the adequate notice period for termination. As such, the court concluded that the lower threshold of “a serious issue to be tried” was applicable in this case.

Given the history of the business relationship, the numerous agreements between the parties to operate on the same terms without interruption and the evidence that they continued to engage after the expiry of the 2018 agreement, the court held that there was a serious issue in the case.

While the defendant may succeed in its claim that it was not required to give any notice period, it could also not be said that the relationship was based on more than a “per orders placed” basis was bound to fail, the court said. Certain cogent arguments were made that the plaintiff did not have an indefinite agreement based on the evidence in the case, but this was to be determined at the hearing of the action.

The court held that there was a serious issue as to the adequacy of the notice period and, in light of the 40 year relationship, it was not “beyond argument” that the notice period was adequate.

The court went on to hold that damages were not adequate for the plaintiff. It was noted that the plaintiff claimed it would go into liquidation if the injunction was not granted but that an 18-month notice period gave it a “fair shot” at replacing its supplier.

The court held that the present situation was not just about pure financial loss (see Curust Financial Services Limited v Loewe-Lack-Werk & Anor [1994] 1 IR 450). The court held that the plaintiff was a small family business where there was an emotional connection and the potential liquidation of the company could have an impact which could not be measured in damages.

Further, it was said that damages were an adequate remedy for Flogas. The plaintiff had certain cash reserves and there was no reason to think it would not trade well during the injunction. Similarly, the defendant did not set out any commercial benefit to the direct distribution model to ground its claim that damages were inadequate.

Finally, it was held that the balance of convenience favoured the grant of the injunction. While Flogas claimed to have lawfully terminated the agreement after the last contract expired, it was noted that Flogas did not move to the direct distribution model as it claimed under the 2018 agreement. No evidence was provided which showed alternative arrangements being made for the new system.

It was held that the plaintiff did not unreasonably delay in bringing the injunction application. While it could have moved with greater expedition, any delay did not prejudice the defendant, particularly in a context where pleadings were exchanged.

The court was also influenced by the plaintiff’s commitment to an early hearing of the substantive actions. If serious delays were encountered in, for example, the discovery stage, the defendant could ask for the injunction to be discharged.

Conclusion

The interlocutory injunction was granted. The order would be finalised on 9 May.

Benson Fuels Limited v. Flogas Ireland Limited [2023] IEHC 214