Eircom franchisee wins breach of agreement action in High Court

The High Court has awarded £179,143 (€227,466) damages to a Waterford company after finding that Eircom Retail Ltd (ERL) breached a franchise agreement with the company. (The proceedings had been initiated before the euro changeover, but the award will be the euro equivalent.)

But Mr Justice McCracken criticised both ERL and Headline Communications Ltd over the accounting methods used by them and their behaviour. He held that the blame for the collapse of Headline's business must be shared between both.

Headline Communications, formed by Mr Joe O'Connor, of White's Cross, Cork, to operate a retail shop in Waterford under a franchise agreement with ERL, opened its shop at Broad Street, Waterford, in 1999.

It claimed policy changes introduced without notice in April 2000 breached the agreement. ERL wrote to Headline in August 2001 stating it was terminating the agreement and alleged that Headline had breached aspects of that agreement.

In legal proceedings, Headline claimed ERL had breached the deal and sought damages, including exemplary damages. ERL argued Headline had breached the agreement and brought a counterclaim.

In his reserved judgment yesterday, Mr Justice McCracken found ERL had breached the agreement in failing to provide a franchise support office or an equivalent from April 1st, 2000, and failing to provide associated services and that this amounted to a breach of contract.

He noted neither party had complied with the franchise agreement terms and that, after April 1st, 2000, while their relationship continued, it soured and, almost inevitably, the business collapsed.

ERL had put an end to the business with the notice of termination but, the judge held, the business could not have survived and the notice simply brought matters to a head.

He awarded damages of £200,000 to Headline, from which he directed £20,587 be deducted, the amount owed to ERL by Headline, leaving the damages at £179,143.

The judge found no basis for Headline's claim for exemplary damages. While he accepted ERL breached the deal, "and quite possibly did so deliberately", he did not think ERL did so in a manner warranting exemplary damages.

"I think the behaviour of both parties in this dispute left a lot to be desired," he added. He said payments made to Joe O'Connor by Headline had a considerable bearing on Headline's profitability.

Up to December 2000, Mr O'Connor had received some £64,459 from Headline and no PAYE or PRSI was paid on that amount, he said. The judge found there was no consultancy agreement regarding Mr O'Connor, as had been claimed, and held "this scheme" was thought up "long after the event" to ensure Headline did not have to pay PAYE or PRSI in respect of Mr O'Connor.

He was satisfied Mr O'Connor was an employee of Headline and it owed considerable sums to the Revenue regarding that. The blame for the ultimate collapse of the business of Headline Communications Limited must be shared between ERL and Headline, he said.

ERL was in continuing breach of the franchise agreement by not providing back-up services, while Headline, in the absence of such services, operated the business in ways that would not have been permitted under the franchise agreement.

Considerable blame must fall on both parties for the accounting methods they used but the greater blame "must certainly fall" on Headline, which, in the judge's view, failed badly in its obligations to keep proper accounts and to furnish them to ERL or the latter's accountants.

The accounting system set up by ERL was not ideal, with impractical time limits.

Poor accounting systems on both sides meant it was impossible to do anything other than make informed estimates of amounts due on account between the sides, the judge said.

He calculated the amounts due to Headline from ERL as £313,840, while he found £333,697 was due to ERL from Headline. Having subtracted one amount from the other, this left £20,857 owing to ERL from Headline.

In the proceedings, Headline had sought €3.8 million from ERL, while the latter had brought a counterclaim for some €435,000.