Lord Justice Lloyd:
Introduction
- These appeals are brought against orders of Evans-Lombe J made at and after the end of the trial of liability on claim and counterclaim in a dispute arising from a trade mark licence agreement. The First Defendant, Lonsdale Sports, owns the relevant trade marks; the Second Defendant, TMLC, is its worldwide licensee; the First Claimant, Leofelis, had a licence from TMLC relating to all of the European Economic Area other than the UK and Ireland; the Second Claimant, Leeside, had a sub-licence from Leofelis for Italy. The appeals give rise to an unusually large number of issues, both substantive and procedural. As a result, this judgment is much longer than I would have wished.
- The Claimants' original claim was for damages for infringement of their exclusive licence by sales in Belgium, and also for misrepresentation and breaches of contractual warranties. The Defendants responded by alleging breaches of the terms of Leofelis' licence, and other matters, which they claimed gave TMLC the right to terminate the licence. They also disputed the validity of an extension of Leeside's territory under its sub-licence beyond Italy to the whole of Leofelis' territory, and the Claimants therefore added a claim for a declaration that Leeside was an authorised sub-licensee for the whole territory. Thus, many different issues arose for the judge to decide. His task was not assisted by a very late application by the Defendants to amend their Defence and Counterclaim. Insofar as this was resisted, the judge decided what amendments to allow in the course of his judgment. With hindsight, it seems that more precision and consistency in the formulation of some of the amendments would have been helpful to the court.
- The judge decided the case in favour of the Claimants on almost all points. He handed down his judgment ([2007] EWHC 451 Ch) on 8 March 2007, and heard submissions first on 19 March and then on 8 May as to the terms of the order to be made. His main order is dated 8 May; two of the appeals before us arise from that order. Later he made orders on 18 and 26 July on a consequential application by the Claimants. The other two appeals arise from those orders. He gave permission to appeal on the findings of liability on breach of contract and misrepresentation in two respects. Jacob LJ later gave permission to appeal on other points arising from the main judgment and from the order made to give it effect. In turn I gave permission to appeal against the two orders made later in 2007.
- Later, the Defendants changed their Counsel. About a month before the appeal was due to come on, the Appellants sought to amend their grounds of appeal on the main appeal, partly by abandoning points but partly by taking new points not argued before the judge. That application was made too late to be dealt with in advance of the appeal hearing. It was opposed in part; to that extent, we heard argument both on the application for permission to amend and on the substantive points, and our decision is given in our judgments. In the course of argument, partly on the question of amending the grounds of appeal but also partly on substantive points already taken, it became clear that the form of the statements of case as they had stood before the judge was not altogether satisfactory, and they required amendment in order that the points argued, and sought to be argued, could be properly addressed. Each party, therefore, submitted draft amended statements of case to us after the hearing of the appeal, with brief written submissions for and against the proposed amendments. Those issues are also the subject of our judgments. The change of tack by the Defendants, and the position adopted by them at trial, has added to the problems in dealing with these appeals, and to the unavoidable length of this judgment.
The trade marks
- Although the agreement which is the subject of the dispute is concerned with trade marks, very little of the case is concerned with trade mark law as such. The common feature of the relevant trade marks is the word Lonsdale, but nothing turns for the purposes of the appeal on any particular feature of any of the relevant marks. Nevertheless, to understand some of the issues that arose, it is necessary to know something of the background and the history of the ownership of, and dealings in relation to, the trade marks.
- The trade mark was created in 1960 when the then Earl of Lonsdale gave permission to a Mr Hart to use the name as a trade mark for sports clothes and equipment. The word came to be used in two forms. In one form, it is presented in what came to be known as the cinemascope format, with the letters in the middle shorter than those at each end. In the other the word is presented in a diamond form, with the middle letters taller than those at either end. The two marks were in different ownership: Lonsdale Sports Equipment Ltd, owned by Mr Hart, owned the cinemascope mark, which was the more valuable, and Lord John (UK) Ltd (Lord John), a company owned by a Mr Javid Alavi, owned the diamond version. Their respective exploitation of the marks gave rise to a good deal of friction, and resulted in litigation in various countries.
- In June 2002 the ownership of the two marks came into one hand, that of Lonsdale Sports, which granted a worldwide licence to TMLC, which was to manage the exploitation of the marks. At that time there were several subsisting agreements relating to one or other of the marks. In particular, the cinemascope marks were the subject of a licence in favour of Leofelis, the First Claimant, in relation to Italy and Switzerland, by an agreement dated 11 June 2001, and the diamond mark was the subject of a licence granted by Lord John to Mr Alavi (who traded personally under the style or trade name Merc) dated 22 February 2001. This licence was non-exclusive but extended to the whole world. I will call it the Alavi Licence.
- One of the agreements made in June 2002 (I will call it, as it was referred to at trial, the Lord John SPA), as part of the transaction by which both forms of mark came to be owned by Lonsdale Sports, conferred in its clause 5A additional rights on Mr Alavi in relation to goods bearing either form of the mark.
- After June 2002, negotiations took place between Leofelis and Lonsdale Sports, between July and November 2002, which resulted in the grant of a new licence by TMLC to Leofelis, with the consent of Lonsdale Sports, in relation to both forms of the mark, which I will call the November 2002 Agreement. This licence was to be exclusive, subject only to certain subsisting rights or licences, and was to extend to the whole of the European Economic Area except for the UK and Ireland. It was to last for 6 years from 1 January 2003, and to be renewable by Leofelis for a further 6 years. The royalty was a fixed amount, increasing year by year during the first 6 years, rather than one which varied according to sales (as the royalty under the 2001 licence had done).
- At the date of that licence, Leofelis had already granted a sub-licence, under its previous licence, to Leeside, the Second Claimant, which was limited to Italy. The November 2002 Agreement referred to that sub-licence, but it imposed limits on the grant of further sub-licences by Leofelis. Later, in December 2002, Leofelis extended the scope of Leeside's sub-licence to all countries then included in the European Union, other than the UK and Ireland.
Exhaustion of rights in trade marks
- One feature of trade mark law which underlies some of the issues in the case is the doctrine of exhaustion of trade mark rights. This derives from the First European Trade Mark Directive, 89/104, which is designed to prevent trade mark rights being used as a barrier to trade within the European Union. It now extends to the whole of the European Economic Area (EEA). Article 7 of that Directive is as follows:
"Exhaustion of the rights conferred by a trade mark
1. The trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent.
2. Paragraph 1 shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market."
- As a result of this doctrine, if a licensee of a trade mark has exclusivity in a territory which forms part, but not the whole, of the EEA, he is exposed to the risk that goods bearing the mark may be placed on the market in another part of the EEA by the proprietor or with his consent, which may then be freely traded anywhere within the EEA. In particular, Leofelis, which had exclusivity for all or most of the EEA apart from the UK and Ireland, was always exposed to the risk of what are commonly called parallel, or grey, imports, of goods bearing the mark being brought into its territory for sale by someone who had acquired the goods in the UK from TMLC or from its licensee.
- That doctrine applied directly in relation to the issue concerning Belgian sales. That is not pursued on these appeals, but the point is relevant because, if Mr Alavi used the Alavi Licence to manufacture goods bearing the mark in the UK, or used his rights under clause 5A of the Lord John SPA to acquire in the UK goods bearing the mark, he could then have supplied those goods to other traders elsewhere in the EEA, who could deal in them in competition with Leofelis and those buying from it.
The nature of a trade mark licence
- The only other point of trade mark law to which it is necessary to refer at this preliminary stage is that, whereas a trade mark, when registered, is a proprietary right, an item of property, the same is not true, under English law, of a trade mark licence. We were shown Northern & Shell plc v Conde Nast [1995] RPC 117, in which Jacob J referred to several earlier cases, relating to trade marks as well as other kinds of intellectual property, for the proposition that a licence gives no proprietary interest, and does no more than make lawful some use of the trade mark (or other right) that would otherwise be unlawful. It is a matter of contract (assuming that, as here, there is consideration for the licence). That was not in dispute. The position is therefore different from that arising under a tenancy of land, where a subtenancy does create a property right.
The disputes between the parties
- In the November 2002 Agreement, three relevant existing licences were disclosed, of which one was the Alavi Licence already mentioned; the others were in favour of Punch GmbH (Punch) and of Maurizio Badii & C srl (Badii) respectively. In each case it was stated that notice to terminate the licence had been given, due to expire at a given time – in the case of Mr Alavi's licence in February 2004. The representatives of Leofelis became aware early in 2003 that Mr Alavi's rights would not, or might not, come to an end at that time. In June 2003 agreements were entered into under which Leeside paid a significant sum to Badii in return for Badii agreeing to stop marketing Lonsdale goods from 1 January 2004, and other arrangements were made as between Leofelis and Punch.
- Leofelis contends that the statements made in the November 2002 Agreement about the termination of the Alavi Licence were false, and that oral representations had been made during the negotiations leading to the November 2002 Agreement, to the same or similar effect, by which Leofelis was induced to enter into the agreement. It also claims that the failure to disclose the rights given to Mr Alavi by clause 5A of the Lord John SPA added to the falsity of the oral representations, and was also inconsistent with contractual promises in the November 2002 Agreement.
- Leofelis and Leeside commenced these proceedings on 14 October 2005 claiming (among other things) damages for misrepresentation and breach of contract, arising from the misrepresentations and breaches of warranty which I have mentioned.
- The Defendants then sought a basis on which they could terminate Leofelis' licence. On 8 December 2005 TMLC wrote, calling on Leofelis to perform several particular obligations under the agreement. On 16 December 2005 the Defendants served their Defence and Counterclaim. They alleged a number of breaches of contract on the part of Leofelis, and gave a 30 day notice, as provided for by the contract in some circumstances, requiring the breaches to be remedied. On 28 February 2006, they wrote again, the letter being expressed to terminate the licence in reliance on the various breaches of contract, and on non-compliance with the 30 day notice served in the Defence and Counterclaim. However, they foresaw, correctly, that the Claimants would not accept the validity of that termination, and in that letter they stated that the Defendants would continue to fulfil their obligations under the agreement, and would allow the Claimants to continue to operate the agreement, pending a decision by the court as to the validity or otherwise of the termination.
- The Claimants did and do contend that the termination was invalid. They continued to pay the royalty due under the agreement, which the Defendants accepted. The Defendants from time to time asserted rights which they would have had if the agreement had not been terminated. They did not appoint other licensees for the relevant territory. However, as the judge held, they continued to make sales into Belgium which the judge found to be breaches of the exclusivity granted to Leofelis in the November 2002 Agreement.
- Early in 2006, as the judge found, TMLC discovered that Leeside had been operating as Leofelis' sub-licensee in territories other than Italy, in particular in Germany. On 22 May 2006 the Defendants' solicitors wrote, objecting to that.
- The case came to trial before Evans-Lombe J, as to liability only, in November and December 2006. Until shortly before the trial the Defendants asserted in their Counterclaim only that they were entitled to terminate the November 2002 Agreement, for breaches not remedied, or because of a change of control of Leofelis. They did not allege that they had in fact terminated it. One of the amendments which they sought to make, barely a week before the trial, was to add to the relief sought by the Counterclaim a declaration that they had terminated the agreement, though they did not in terms assert that they had done so, nor when or how, in the body of the statement of case. This amendment was not objected to as such, but the Claimants did point out in correspondence before trial, and in submissions during the trial, that the basis for the claim for the declaration was missing from the statement of case.
- On 8 March 2007 the judge handed down his judgment. He rejected almost all the Defendants' allegations of breach of contract against Leofelis, but held that in one respect Leofelis was in breach of contract. He held that TMLC would have had another ground for terminating the agreement, because of a change of control of Leofelis, but that it had waived its rights in that respect before 28 February 2006. He also held that it had waived its right to terminate for the one established breach of contract, but in so doing he relied only on matters after 28 February 2006. He dismissed the Defendants' counterclaim.
- As regards the misrepresentations and breaches of warranty, he held in the Claimants' favour on all points, that is to say on the terms of the alleged oral representations made in July 2002, on the construction of the contractual warranties, on a clause in the agreement which the Defendants relied on as excluding liability for the pre-contractual representations, and on points taken under the Misrepresentation Act 1967. He also gave an indication as to the heads of damage which he considered to be recoverable.
- Further, he held that the Defendants were not entitled to allege that Leeside was not Leofelis' authorised sub-licensee in respect of territories beyond Italy, because of waiver.
- He also held, as I have mentioned, that the sales into Belgium of which the Claimants had complained were breaches of the November 2002 Agreement on the part of the Defendants, and he gave judgment for damages to be assessed on that, and granted injunctions to restrain further sales.
- The points which I have described in summary terms above provide the battle ground for the main issues argued on these appeals by the Defendants. They were referred to as the Waiver issue, the Undisclosed Rights issue and the Sub-licensee issue. The Belgian sales point was to have been the subject of the appeal, but one of the proposed amendments of the grounds of appeal, to which objection is not taken, is to abandon that aspect of the appeal. There are also two separate appeals against particular terms of the judge's orders, one being the injunctions in relation to the Belgian sales. These would have been of greater importance but for the fact that it is now common ground that, for one reason or another, the November 2002 Agreement did come to an end in November 2007, even if it had not done so previously. In the circumstances it is unnecessary to say much about those two appeals, and I need not introduce them at this stage.
The November 2002 Agreement
- It will be necessary to refer to provisions of several of the relevant agreements, but the starting point is the licence agreement dated 21 November 2002 between TMLC (then called Lonsdale Licensing Ltd), Leofelis and Lonsdale Sports. The first important provisions are in clause 2:
"2.1 Subject to Clause 2.2 the Licensor hereby grants to the Licensee the exclusive licence in the Territory to use the Trade Marks in relation to the Goods from the date of this Agreement and for the Term (unless terminated earlier in accordance with the provisions of this Agreement) and on the other terms and conditions set out in this Agreement and (in respect only of those of the Trade Marks referred to in and licensed by the Distribution Agreements), subject to the terms and provisions of the Distribution Agreements and to all rights claimed in the Montse Proceedings to the extent that they are currently claimed or in due course adjudged or found to subsist by any Court of competent jurisdiction or Trade Mark Registry.
2.2 2.2.1 The licence granted pursuant to this Agreement is subject to any existing licences or rights, whether written or not, which may have been granted in respect of the Trade Marks. The Proprietor and the Licensor are not aware of any other licences or rights having been granted in respect of any of the Trade Marks.
2.2.2 In the event that during the term of this Licence any of the Parties becomes aware of any other licences or rights having been granted, the Parties shall use all reasonable endeavours to terminate such licences or rights in accordance with the terms of any such licences or rights. The Licensor shall be liable for, indemnify and hold harmless the Licensee against any liability incurred arising out of any such licences or rights that there may be."
- The Territory was defined as all states then in the European Union, excluding the UK and Ireland, plus Hungary, Poland, the Czech Republic and Switzerland. The Goods and the Trade Marks were defined in schedules, as were the Distribution Agreements. It is common ground that, in the second sentence of clause 2.2.1, "any other licences or rights" means other than those granted by the Distribution Agreements.
- Clause 3 imposed the obligation on Leofelis to pay the royalty, by four quarterly payments in advance each year. The royalty started at €1.6 million for the first year and rose each year. In 2006 it was €2,750,000 and by 2007 it was, or would have been, €3,350,000.
- It is unnecessary to do more than mention clauses 4 to 9, dealing with such matters as quality control, use of the trade marks, infringement of the trade marks, indemnities, and maintenance of the trade marks. Clause 10.1, concerning sub-licensing, does need to be set out:
"10.1 The Licensee shall be entitled to grant Sub-Licences of the Trade Marks on the conditions set out below:
10.1.1 such Sub-Licence shall be subject to the prior written consent of the Licensor, such consent not to be unreasonably withheld or delayed (it being recognised by the Parties that the Licensor may withhold consent to any sub-licence to any competitor of the Licensor). The Licensor shall be deemed to have given its consent if it does not give notice to the contrary to the Licensee within 10 working days after the receipt of Licensee's written request for consent;
10.1.2 such Sub-Licence will be on terms which include provisions substantially the same (and in any event no less onerous on the sub-licence) as those contained in Clauses 4, 5, 7, and 9 and such Sub-Licences shall not grant any further rights to the Sub-Licensee.
10.1.3 the Licensee shall, if required to do so by the Licensor, enforce the terms of such Sub-Licence against the Sub-Licensee.
10.1.4 the Licensee shall indemnify and hold harmless the Licensor against any breach of any Sub-Licence and any act or omission of such sub-agent shall for the purposes of this Agreement be deemed to be that of the Licensee."
Schedule 5 listed some approved sub-licences, of which one was that dated 1 June 2001 in favour of Leeside.
- Clause 11 dealt with termination and renewal. Clause 11.4 gave Leofelis the right to renew the agreement on the same terms (but at a royalty of €3.5 million) by notice given by 31 December 2007. The second of two clauses numbered 11.2, conversely, gave Leofelis a right to terminate on 3 months' notice as at 31 December 2005. The first clause numbered 11.2 is more relevant:
"11.2 The Licensor may terminate this Agreement by immediate written notice in the event that:
11.2.1 the Licensee commits a breach of this Agreement; PROVIDED THAT if the breach is capable of remedy termination shall only occur if the breach shall not have been remedied within 30 days of the Licensee having been given notice in writing specifying the breach and requiring it to be remedied;
11.2.2 the Licensee undergoes a change of control within the meaning of the term as set out in section 840 of the Income and Corporation Taxes Act 1988;"
By clause 11.3, termination was to be without prejudice to existing rights or claims, and did not discharge accrued obligations.
- Clause 13 contained some general provisions, of which one is relevant:
"13.3 13.3.1 This Agreement together with the short form licence contained in Schedule 4 constitutes the entire agreement between the parties concerning the subject matter of this Agreement and supersedes any previous agreement between the parties relating to such subject matter.
13.3.2 Each party acknowledges and agrees that in entering into this Agreement and such licence it does not rely on, and shall have no remedy in respect of, any statement, representation, warranty or understanding (whether negligently or innocently made) of any person (whether party to this Agreement or not) other than as expressly set out in this Agreement and such licence as a warranty or representation. The only remedy available to it for breach of such warranties or representations shall be for breach of contract under the terms of this Agreement. Nothing in this clause shall, however, operate to limit or exclude any liability for fraud or fraudulent misrepresentation."
- The Distribution Agreements were listed in Part 5 of Schedule 1. The first was dated 22 January 2002 between Lord John and Punch, for 15 territories within the scope of the November 2002 agreement. It was said that TMLC had given notice of termination in respect of it, due to expire in August 2003. The second was dated 13 September 2001 between Lord John and Badii, for Italy only, and again it was said that TMLC had given notice of termination in respect of it due to expire in August 2003. The third was the Alavi Licence, identified as follows:
"3. A non-exclusive Licence dated 22nd February 2001 and made between (1) Lord John (UK) Limited and (2) Javid Alavi trading as Merc in respect of which the Licensor has given Notice of Termination due to expire in February 2004 and in respect of the following Trade marks registered in the Territory for goods in those classes for which the Proprietor has a registration:"
The list of marks included marks registered in each of 11 countries, including the UK and Ireland. The fourth distribution agreement listed does not matter.
- In relation to the Undisclosed Rights question, the first issue is whether, by previous oral representations or by virtue of the terms of paragraph 3 of Part 5 of Schedule 1 to the agreement, TMLC represented or warranted that Mr Alavi's licence would come to an end in February 2004. The second is whether the rights granted to Mr Alavi by clause 5A of the Lord John SPA were inconsistent with TMLC's oral representations or with clause 2.2.1. So far as misrepresentation is concerned, TMLC relies, among other things, on clause 13.3.2 as excluding liability except for breach of contract. On this, as also on the related misrepresentation issue, the Appellants sought to amend their grounds of appeal. I will discuss that later, in relation to the misrepresentation points.
- In relation to the Sub-licensee issue, it is not suggested that Leofelis asked for consent to grant a sub-licence to Leeside for an extended territory, as it should have done under clause 10.1.1. The question is whether, despite that failure, on the facts TMLC did consent, or is prevented from arguing that Leeside is not an authorised sub-licensee for the additional territories.
- Under the heading of the Waiver issue, the points argued were, first, whether TMLC was entitled to terminate for breach of clause 8.3, secondly, if so, whether an unequivocal notice to terminate was given by TMLC, and thirdly, whether TMLC waived its right to terminate the agreement for breach of contract on the part of Leofelis.
The Alavi Licence
- The licence agreement dated 22 February 2001 between Lord John and Mr Alavi (who owned and controlled Lord John) was not exclusive, but it was free of all royalties and extended to the whole world. It contained three provisions relevant to termination. By clause 9, it was to remain in force for a period of 3 years "and shall thereafter be renewable automatically without need for notification for additional three year periods unless sooner terminated". By clause 10 it was terminable on one months' notice by the licensee. By clause 11 it was terminable by the licensor if the licensee committed any breach of the agreement and failed to rectify the breach within 30 days of notice of the breach.
- The contrast between these provisions led those representing the Defendants to argue at trial that the licence was terminable by the licensor as at the end of the first three year period, that is to say in February 2004. The judge held that this was not correct, and that it was not terminable by the licensor except for breach, or at any rate that it was strongly arguable that it was not terminable by the licensor except for breach (see paragraph 117). The Defendants' appeal originally challenged this, but following the change of Counsel, the basis of the appeal was changed, and it is accepted that the licence was not terminable by the licensor except for breach. The argument then turned on the effect of the oral representations found by the judge and of the contractual warranties. Among other things, the judge found that no notice to terminate the licence had in fact been given, but on this basis any notice would have been ineffective even if it had been given.
The Lord John SPA, clause 5A
- The relevant agreement for this purpose is that dated 11 June 2002 between Lord John, Brands Inc Ltd, Sports Soccer Ltd and Mr Alavi. In the recitals Mr Alavi, referred to under his trading name of MERC, was described as "currently a worldwide licensee of [some of the relevant trade marks] trading from retail premises" in Carnaby Street London W1. The operative provision is clause 5A, as follows:
"5A.1 For the period commencing on the date of Completion and ending upon the completion of any sale by NewCo of all of its interests in the Marks, NewCo shall supply, or procure the supply, to MERC within a reasonable time (being no longer than the shortest delivery period given to any other wholesale purchaser of Goods for delivery in the United Kingdom) such of the Goods for resale as MERC may order (without restriction or limit) at a price to be fixed by NewCo provided that such price (excluding VAT and delivery or other charges) shall not be higher than 15% below the lowest price (determined on the same basis) charged by NewCo (or such other supplier) of the Goods to any other customer (whether wholesale or retail) in the United Kingdom."
Newco is Lonsdale Sports, and MERC is Mr Alavi. By clause 5A.2 he had to pay for any goods supplied on normal commercial terms. Goods were defined as follows:
""Goods" means any goods which are sold, advertised, marketed for sale or offered for sale on a wholesale or retail basis worldwide by reference to any of the Marks including but without limitation by way of a sign, advertisement, label, swing tag or catalogue bearing a mark or sign identical or similar to any of the Marks;"
Marks, in turn, were defined as:
""Marks" means all trademarks, service marks, logo's, trade names, business names, unregistered trade and service marks, copyrights, design labels, database rights, know-how, trade secret rights to or in confidential information and all other commercial monopoly rights, intellectual property rights and other rights and forms protection which may subsist anywhere in the world and whether or not registered or capable of registration in respect of the name "Lonsdale" including without limitation those particulars set out in Parts 1 and 2 of Schedule 1;"
- By virtue of this clause, Mr Alavi was entitled to require Lonsdale Sports to supply to him in the UK unlimited quantities of Goods, on the best delivery terms offered to any customer, wholesale or retail, and at a price 15% below the lowest price charged to any other customer. Moreover, Lonsdale Sports could not bring this obligation to an end, which would last until it sold all of its interest in the Marks. Once he had bought such goods, it would be open to Mr Alavi to supply them to any other purchaser anywhere in the European Economic Area, without infringing any rights in respect of the trade marks, because of the doctrine of exhaustion of rights. The issue under the November 2002 contract is whether the rights conferred by clause 5A amounted to a licence or right in respect of the Marks. It is accepted that Mr Alavi could not commission goods which were not already sold, advertised, marketed or offered for sale, but he could require the supply of unlimited quantities of any product which was or had been so sold or offered for sale by Lonsdale Sports, on the best delivery terms available to any other customer, and with a significant price advantage over all such other customers.
Misrepresentations
- The Claimants contend that, during the negotiations which led up to the November 2002 agreement, representations were made orally on behalf of Lonsdale Sports which were false in respect of the subsisting rights, in particular Mr Alavi's licence and clause 5A. The judge's findings of fact in this respect are not challenged on the appeal. It is therefore possible to take this part of the history from his judgment.
- The representations relied on in the Claimants' Particulars of Claim were made at a meeting at a hotel near Heathrow Airport on 22 July 2002, attended by Mr Buscaini who owned and controlled Leofelis, together with Mr Ghielmini and Mr Melli on behalf of Leofelis, and Mr Moher and Mr Bernstein (respectively a director and an employee of TMLC) on behalf of Lonsdale Sports. Mr Moher gave evidence at the trial. He said that he and Mr Bernstein had spent some considerable time preparing for the meeting, and he accepted that his tactics at the meeting included casting doubt on the validity of the rights already granted to Leofelis by the existing licence. The judge recorded this, and then went on, at paragraphs 134 to 136:
"134. … It was then put to him that subject to four licences and the Montse claims, Leofelis were being offered an exclusive licence in the Territory. He agreed. He also agreed that those four licences were the non-exclusive licences to Punch, Badii, Mr Alavi trading as Merc and Mr President which latter licence had not been operated for many years. When it was put to him that he had said that those four licences could be brought to an end within a relatively short period of time he agreed but subject to the caveat that the licensees might cause trouble in the process and were not likely simply to walk away. He accepted that he told the meeting that he could and would serve notices to terminate those licences.
135. Following these exchanges I intervened to ask Mr Moher whether he expected that the notices would succeed and gave that impression to the meeting to which he answered:-
"I said that, under the terms of the licences, I believe we can serve effective notice but went on to explain that it was unlikely that people would go quietly into the night … I did believe that it would be effective, the notice legally. I did believe that yes."
136. In agreement with the submissions of Mr Maclean I accept that these exchanges were clear evidence that at the meeting on the 22nd July Mr Moher on behalf of Lonsdale Sports and TMLC had represented to Leofelis that Leofelis was being offered an exclusive sublicence in the Territory subject to the rights being exercised in respect of Products within that Territory by Punch, Badii and Mr Alavi and that those rights would be terminated as soon as possible by notices given under the agreements which created them which would have the effect of bringing those rights to an end. Nothing happened between the meeting on the 22nd July and the signing of the November 2002 Agreement so as to qualify those representations."
- This is one of the points on which the Defendants seek to change tack on the appeal. At trial the Defendants' argument was that the Alavi Licence was terminable on notice by the licensor, and that, as a matter of fact, notice had been given. The judge held that no notice had been given, and that it would not have been effective even if it had been given. It was not argued that, even if the judge came to that view, the representation made in relation to the Alavi Licence was not false or that the corresponding warranty not broken. Mr Leggatt Q.C., for the Appellants, accepts the judge's reading of the Alavi Licence, but contends, as regards both the oral representation and the contractual warranty, that the statement amounted, as a matter of construction, to no more than (a) a statement that notice had been given (or would be given, in the pre-contract statement) and (b) implicitly, that it was believed or expected that such notice would be effective; it did not amount to a statement that the notice would be effective. On that basis he argued that, apart from the implications of the judge having held that no notice had been given to terminate the Alavi licence, the statement and warranty were not false, because it was honestly believed and expected that notice would be effective. This was one of the amendments to which Mr MacLean Q.C., for the Respondents, took objection. I will deal with the basis of objection, and the resolution of that issue, later when I come to the substance of this point.
The sub-licensee issue
- I do not need to introduce at this stage any more of the facts or documents relevant to this issue. I can therefore now proceed to the issues which arise on the appeal as regards Leofelis' breach of the November 2002 agreement, and whether TMLC waived its right to terminate the agreement in reliance on that breach.
Was TMLC entitled to terminate the agreement for breach of contract?
- At trial the Defendants relied on many allegations of breach of the November 2002 agreement, and on change of control, as entitling them to terminate the agreement. The judge rejected all but one of the allegations of breach of contract. He accepted that there had been a relevant change of control in June 2003 and found that Lonsdale Sports knew of this by the middle of 2004. On 30 July 2004 a letter on behalf of TMLC asserted that there had been such a change of control and reserved the right to terminate the agreement pending current discussions. In the Defence and Counterclaim as originally served on 16 December 2005 the Defendants referred to the change of control, asserted a right to terminate because of it, and expressed themselves to reserve their rights in that respect. By its letter dated 28 February 2006, already mentioned, TMLC, purportedly at least, exercised its right to terminate the agreement in reliance, among other things, on clause 11.2.2, which refers to change of control. The judge rejected this basis for termination on the ground that the Defendants had waived their rights by accepting royalties between July 2004 and December 2005. That conclusion is not challenged on appeal.
- The one allegation of breach of contract that he found to have been made out arose under clause 8.3, by which Leofelis was obliged to obtain and maintain product liability insurance, to back up its obligation to indemnify TMLC for any liability arising from, among other things, product liability claims arising from Goods provided by Leofelis in the Territory, and to supply TMLC with a copy of the policy if so requested. On 8 December 2005 TMLC asked to be sent a copy of the policy by 14 December. This was not done. The failure was alleged in paragraph 68 of the original Defence and Counterclaim. In paragraph 72 the Defendants gave notice requiring Leofelis to remedy the breach within 30 days. The statement of case was served on 16 December 2005, so that the 30 days had expired by 14 January 2006. I will need to mention further facts on the issue of waiver, but dealing first with the question of TMLC's right to terminate the contract for breach, the next relevant event was TMLC's letter to Leofelis dated 28 February 2006, which is expressed as a termination of the contract on the grounds, among others, of breach of clause 8.3. I will examine that letter in detail later.
- Mr MacLean took a preliminary point that breach of clause 8.3 did not entitle TMLC to terminate the agreement under clause 11.2 at all. He submitted that the clause only applied to a material or substantial breach, in effect to a breach which, apart from the clause, would be regarded as repudiatory. He further submitted that failure to produce a policy under clause 8.3 (even in a case in which it is accepted that no policy existed) could not be regarded as repudiatory. I would reject this argument. In the absence of the proviso in clause 11.2.1, there might be something to be said for it. However, the proviso makes it clear that the clause applies to breaches which can be remedied, and also requires TMLC to give Leofelis the opportunity to remedy the breach. I cannot see that the clause can properly be construed as limited to repudiatory breaches. If it were, the clause would add nothing to the position under the general law.
- The judge held that Leofelis was in breach of clause 8.3 (paragraphs 82 to 85) and that the breach was continuing but that any right to terminate on the basis of prior breaches had been waived by the acceptance of royalties, and that TMLC was not to be treated, as at trial, as wishing to terminate the agreement on the ground of that breach, so that Leofelis would have to be given a further opportunity to comply with their obligation (paragraphs 85-6). Although he did not say so in terms, it seems to me that he regarded the breach as capable of leading to a termination notice under clause 11.2, if not remedied after a 30 day notice. I agree with this. Leofelis can only escape the consequences of that breach by showing either that TMLC did not give an unequivocal notice to terminate the contract, or that it waived its rights in that respect.
Waiver
- After the expiry of the 30 day notice given by service of the Defence and Counterclaim, TMLC wrote to Leofelis on 23 January 2006 as follows:
"We write further to our letter of 8 December 2005 concerning your compliance with clauses 3.4, 3.5 and 8.3 of the Agreement, a copy of which we attach for your reference.
We are disappointed that you have not responded to our letter or complied with our requests therein as you are required to by the Agreement. Unless we receive all the information we sought by that letter no later than 30 January 2006, we will consider what appropriate action to take including, amongst other actions, termination of the Agreement for material breach in accordance with clause 11.2.1 thereof or making a court application for an order of specific performance and we shall seek our solicitor's advice accordingly."
- As already mentioned, on 28 February 2006 TMLC wrote to Leofelis following, and referring to, the letter of 8 December 2005 (see paragraph [18] above), the Defence and Counterclaim, and the letter of 23 January 2006, asserting that the breach of clause 8.3 had not been remedied, and continuing as follows:
"We hereby exercise our right to terminate the Agreement for material breach in accordance with clause 11.2.1, or clause 11.2.2, or both clauses, with immediate effect.
However, we confirm that we will continue to allow you to operate the Agreement and fulfil our obligations under the Agreement pending the Court determining at the trial of this matter whether the termination was valid. The ongoing adherence to the terms of the Agreement is made without prejudice to the existence of our right of termination and our assertion that the Agreement is validly terminated by this written notice."
- Leofelis responded by a letter dated 22 March 2006. The material passages are these:
"We write with reference to your letter dated 28 February 2006 purporting to terminate the Agreement. For the reasons set out below, we reject the view that you are entitled to terminate the Agreement.
We note your confirmation that you will fulfil your obligations under the Agreement pending a determination by the court of the validity of your purported termination. We consider that you will be in breach of the Agreement if you appoint any other licensees within the Territory, as defined in the Agreement. If you purport to appoint such further licensees, we reserve our right to apply for such relief as we may be advised, including an injunction against you and your licensee.
…
Finally, you wrongly state that we have not responded to your letters and, that the various alleged breaches have not been remedied or cured where, as our Reply and Defence to Counterclaim dated 12 January 2006 makes plain, in some detail, our response and that we consider that there have been no breaches and that your alleged breaches do not require remedy. We also note that IBML in its letters of 23 and 24 January actively sought performance by Leofelis of its obligations under clause 7.1. In doing so, IBML, as agent for TMLC, affirmed the Agreement and waived any right that you may have had to terminate for breach prior to that date. It follows, that you have no right to terminate the Agreement for material breach and we do not accept that the purported termination in your letter of 28 February is valid."
- Much of the argument about waiver turns on what happened thereafter. In particular the Claimants rely on demand for and acceptance by TMLC of royalties at the rate which would have been payable under the agreement. They accept that the quarter's royalty due on 1 January 2006 was due in any event, and that its payment (in part) on 10 February 2006 is irrelevant. The royalty due on 1 April 2006 was paid as to half on 6 April 2006, and as to the rest on 12 May 2006, and was the subject of an invoice from TMLC on 7 April. Invoices were submitted by TMLC but they required payment to a specified account of another related company, International Brand Management Ltd (IBML). Similarly, the instalment due on 1 July 2006 was claimed in an invoice on 13 July, and was paid as to half on 12 July and for the rest on 11 October. The October quarter's payment was claimed by an invoice on 18 October and was paid on 31 October. As regards that instalment of the royalty, on 19 October the Defendants' solicitors, Reynolds Porter Chamberlain, wrote to those then acting for the Claimants, Dorsey & Whitney, as follows:
"Under clause 3.1 of the 21 November 2002 Trade Mark Licence between (1) Lonsdale Licensing Limited, (2) Leofelis SA and (3) Lonsdale Sports Limited (the "Agreement") the Licensee is obliged to pay to the Licensor the Royalty as set out in Schedule 3.
Under clause 3.3 of the Agreement Royalties are payable in advance in four equal instalments on 1 January, 1 April, 1 July and 1 October. Schedule 3 provides that in the fourth year of the Term the annual Royalty is €2,750,000, and therefore your client must pay our client €687,500 in advance each quarter. Our client was not paid on 1 October 2006.
As you are aware, the Agreement has been previously terminated but as our client confirmed in its initial letter of termination to Leofelis dated 28 February 2006 that it would allow the client to continue to operate the Agreement pending the Court determining at trial whether such terminations are valid. However, in the interim your client cannot pick and choose which clauses of the Agreement it wishes to uphold and which it does not and nor can it seek to rely on its rights under the Agreement but neglect its obligations.
Your client's failure to pay the Royalty is a clear breach of an express term of the Agreement. We consider this to be a remediable breach and without prejudice to previous notices to cure and previous terminations of the Agreement our client hereby gives formal written notice of this breach of clause 3.1 and its requirement that it be remedied within 30 days, in accordance with clause 11.2.1 of the Agreement. Should such breach go unremedied beyond the 30 day period our client reserves its rights to terminate the Agreement by immediate written notice without prejudice to previous terminations."
- From time to time after 28 February 2006 and before the trial TMLC's solicitors wrote complaining of other acts on the part of Leofelis which it was said would constitute breaches of the agreement if it were still subsisting, and occasionally relying on rights under the agreement, for example by serving 30 day notices requiring breaches to be remedied, or serving notice of termination under clause 11.2.1, without prejudice to the previous termination. It does not seem to me that these acts are different in kind from the demands for the payment of royalty instalments.
- Leofelis sought to rely, in addition, on two letters written in January 2006 as constituting a waiver of the right to terminate for breach of clause 8.3. Neither of these was relied on before the judge, and one of them, though disclosed, was not in the trial bundles. The latter is dated 23 January 2006, from IBML (on behalf of TMLC) to Leofelis. The second is also from IBML to Leofelis, and dated 24 January 2006. Both letters were concerned with the protection of the Lonsdale brand.
i) The letter dated 23 January refers to the use by third parties of the trade mark Lonsdrive in Italy and elsewhere. It advised Leofelis, "pursuant to your obligations under" the November 2002 Agreement, to take whatever action it deemed necessary against the entities behind the mark Lonsdrive, so as to protect the Lonsdale mark and Leofelis' own business, and to inform TMLC, as required under the agreement, of the action which it decided to take.
ii) With the letter of 24 January were enclosed socks bearing the Lonsdale mark which were said to be counterfeit, having been found on sale in an Italian shop. Leofelis was recommended, "pursuant to your obligations under" the November agreement, to take direct action against the parties responsible for these counterfeit products. The letter concluded "Please ensure that you take appropriate action to stop such counterfeiting and let us know what steps you are taking or plan on taking immediately" and in any event by 31 January 2006.
- The judge did not see the first of these two letters, and did not consider whether the second letter constituted a waiver of TMLC's right to terminate the agreement under clause 8.3. He held that that right had been waived, but he relied for that conclusion on the demand for and acceptance of royalties after 28 February 2006. On the appeal, Mr Leggatt presented an argument which had not been put before the judge, to the effect that acts after the notice of termination on 28 February 2006 could not amount to a waiver of the election to terminate which had been made by the letter of that date. In the light of that argument, acts before 28 February 2006 would be more important. Mr MacLean therefore sought to rely on these two letters, which had been mentioned in Dorsey & Whitney's letter of 22 March 2006, quoted above. Each of them does, in terms, require Leofelis to perform obligations under the agreement. Thereby, Mr MacLean submitted, TMLC affirmed the agreement, and it could not thereafter act inconsistently by terminating it for a prior breach. A further notice under clause 11.2.1 would be necessary before any notice to terminate.
- We were shown the familiar words of Lord Blackburn in Scarfe v Jardine (1882) 7 App Cas 345 at 360:
"where a man has an option to choose one or other of two inconsistent things, when once he has made his election it cannot be retracted, it is final and cannot be altered."
- Reference was also made to the affirmation of this principle by the House of Lords in The Kanchenjunga [1990] 1 Lloyd's Rep 391, in the speech of Lord Goff at pages 397-9.
- Mr MacLean submitted that TMLC had the right, from about 16 January onwards, and still on 23 January, to terminate the licence for breach of clause 8.3, or to affirm the licence despite that breach and to call for performance of obligations under the licence. It had to choose between those two inconsistent courses of action. What it could not do is to affirm the licence, by requiring the licensee to perform obligations under it, and then go back on that and terminate it relying on prior matters of which it had been aware at the time of the affirmation.
- So, he submitted, when TMLC, by its agent, called on Leofelis to comply with obligations under the agreement as regards protection of the trade mark by letters dated 23 and 24 January 2006, it thereby affirmed the contract, and it could not terminate it thereafter for a prior breach of clause 8.3. It could only have done that if it had served a further 30 day notice under clause 11.2 in respect of the breach.
- It seems to me that there would be force in that argument, on the facts, were it not for TMLC's own letter of 23 January (see paragraph [49] above) by which they gave Leofelis a further opportunity, until 30 January, to remedy the breach of clause 8.3. Mr MacLean submitted that it was not open to TMLC to do this, except by serving a further 30 day notice under clause 11.2.1, but I do not see why that should be so. The letter showed that TMLC was still considering whether to terminate the contract for breach, but was willing to allow Leofelis extra time in which to put matters right. During the period so specified, TMLC could rely on other provisions of the contract without fear of being found to have acted inconsistently with retaining its right to terminate for the existing breach of clause 8.3. Mr MacLean also submitted that the extension provided by the 23 January letter had no contractual force, and TMLC could not be held to it except by reliance on promissory estoppel. That may be true, at least to the extent that, if TMLC had chosen to do so, it might have been able to withdraw the concession within the period of the extension, unless it had already been acted on. Chitty on Contracts, 29th ed, at paragraph 22-042, says this:
"Effect on party forbearing. The party who forbears will be bound by the waiver and cannot set up the original terms of the agreement. If by words or conduct, he has agreed or led the other party to believe that he will accept performance at a later date than or in a different manner from that provided in the contract, he will not be able to refuse that performance when tendered."
- Thus, it seems to me that it was open to TMLC to give a voluntary extension, as it did, which, unless later withdrawn, would have the same effect, during the period specified, as the 30 day period afforded by a notice under clause 11.2.1. Mr MacLean submitted that this could raise the objectionable prospect that a party who had a right to terminate could hold it over the other party indefinitely by offering a succession of non-contractual grace periods. It is unnecessary to consider whether such conduct would or might eventually be held to amount to an affirmation of the contract, so as to preclude later termination for a prior breach. In the present case I can see nothing in TMLC's letter of 23 January that could amount to an affirmation of the contract so as to waive reliance on the prior breach of clause 8.3. I consider that it was a forbearance, effective for the period specified, such that Leofelis had a further chance to obtain and produce a policy, and that, when that did not happen during the period allowed, TMLC was again entitled to serve a termination notice under clause 11.2 by reason of the breach.
- Mr MacLean also submitted that the letter from IBML to Leofelis dated 23 January might have arrived before that from TMLC of the same date, in which case the affirmation of the contract, by calling for performance of obligations under clause 7, would not have occurred during a period when the right to terminate for breach of clause 8.3 was in suspense. If Mr MacLean had relied on the IBML letter of 23 January at trial, it would have been possible to investigate the question which letter arrived first. The onus of proof of facts as regards waiver is on Leofelis. Since Leofelis did not rely on this 23 January letter at trial, it cannot now be heard to say that it may have arrived first.
- He also submitted that the Defendants' reliance on the notice to terminate of 28 February 2006 on the appeal, despite the previous failure to allege that the agreement had been terminated by notice, had prejudiced the Claimants because the facts arising before 28 February had not been fully investigated. I am not persuaded by that argument. It was not suggested that anything other than these letters could be relevant. Moreover they would have been just as relevant as the basis of a waiver argument with or without an allegation tied to the letter dated 28 February 2006. What is more, their relevance had been perceived already by the time of the letter dated 22 March 2006. For those reasons, I do not consider that the right to terminate for breach of clause 8.3, following the expiry of the notice under clause 11.2.1, had been waived by either of these letters.
- Further, Mr MacLean showed us a letter dated 22 February 2006 from Lonsdale Sports to Mr Ingrilli, an Italian lawyer who acted for Leofelis and for Leeside. One purpose of this reference was to show that the Defendants knew by then that Leeside was a sub-licensee for countries other than Italy. The other point made was that the letter asked for assistance and co-operation with others acting in relation to the Lonsdale trade marks. It does not seem to me that this request, which was not made by reference to any particular provision of the November 2002 Agreement, can be taken as an unequivocal affirmation of that agreement, so as to preclude TMLC from terminating the agreement in reliance on the unremedied breach of clause 8.3.
- For those reasons, I reject the argument that anything done before 28 February 2006 operated as an affirmation of the contract so as to preclude TMLC from giving notice to terminate for breach of clause 8.3 on 28 February 2006.
Did TMLC unequivocally terminate the November 2002 Agreement, or later waive its rights?
- Mr MacLean's next points were that the letter was not an unequivocal election to terminate the agreement, or that if it was, the termination was waived by the later conduct of TMLC. As I have said, it was not part of the argument of Mr Gruder Q.C., representing the Defendants at trial, that later conduct could not constitute a waiver, and the judge was not asked to consider whether the letter itself was unequivocal. Mr Leggatt referred us to Lord Blackburn's statement, quoted at paragraph [56] above, and argued that the letter of 28 February 2006 was a clear election to terminate for breach of clause 8.3, and that nothing done thereafter could reverse the effect of that election, absent agreement by both parties to reinstate the prior position.
- The essence of Mr MacLean's argument was that, both in the letter of 28 February and thereafter, the Defendants were trying to eat their cake and have it. They wanted to terminate the agreement, but they also wanted to keep Leofelis to the obligations imposed under the agreement. At trial the Defendants argued that Leofelis had agreed to or acquiesced in an arrangement under which the parties would continue to perform their obligations under the agreement, as if it were still in force, but without prejudice to the validity of the notice of termination already given. Leofelis denied that it had done so, the judge rejected the argument (see paragraphs 47 to 51), and though the Defendants' original grounds of appeal contended that there had been such an arrangement, Mr Leggatt abandoned that by one of the amendments of the grounds of appeal which he sought to make at the outset of the appeal. Accordingly, if the Defendants achieved such a position, they did it unilaterally.
- Given that the parties were already locked into litigation, the Defendants could and did foresee that Leofelis would not accept that the notice of termination was valid, and that its validity would become an issue in the litigation. They would have been concerned that, if the notice of termination was held not to be valid, either the notice itself, or their own later acts in reliance on it, might be held to be a repudiatory breach of the agreement on their part. As regards the notice, the majority decision in the House of Lords in Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 would afford some assurance that this would not be construed as a repudiation in itself, but the transaction considered by the House of Lords in that case did not involve a continuing commercial relationship similar to that arising under the November 2002 Agreement, and the question of the status of conduct after the termination of the November 2002 Agreement would immediately arise for debate. Equally they could have anticipated that Leofelis, arguing that the agreement was still in force, would wish to perform its obligations under the agreement, for fear that, even if the termination in February 2006 was not effective, the contract could be terminated later for a subsequent breach, for example for non-payment of royalties. There would, therefore, be a good reason for TMLC not to try to preclude Leofelis from using the licence, as if it were still in force, in the meantime, just as there would be reasons for Leofelis to tender royalties and otherwise comply with the obligations in the agreement which, on its case, was still in force and binding on it. All of these factors would have made it sensible for the parties to agree on an arrangement, without prejudice to each side's contentions, under which they would proceed as if the agreement were still in force, and payments made by way of royalty on the part of Leofelis would be treated as paid on account either of the royalty obligation, if Leofelis were correct, or of the financial obligation which would otherwise arise from Leofelis' use of the trade marks without authority, if TMLC were correct. No such agreement or arrangement was reached.
- In the absence of such an arrangement, one possibility is that the licensor would apply for an interim injunction to restrain use by the licensee of the trade marks. If the licensee resisted, on the grounds that it had an arguable case for challenging the validity of the termination, one of the factors relevant to the court's discretion to grant or withhold the injunction, and in particular to the balance of convenience, would be an offer by the licensee to make payments on account. A similar dilemma, but of a more intractable kind, arose in the past for a landlord, if it contended that a lease had been terminated by forfeiture or otherwise, and the tenant disputed this and remained in possession. The landlord could not claim payment from the tenant (or former tenant) since if the tenancy had been terminated, the claim for and payment of rent would waive any forfeiture, or might give rise to a new tenancy. Moore v Assignment Courier Ltd [1977] 1 W.L.R. 638 shows the failure of an ingenious attempt by Mr Gavin Lightman, as he then was, to overcome this problem by claiming interim payments in the possession proceedings. Not until Order 29 of the Rules of the Supreme Court was amended to provide for orders for payment in terms now represented by CPR rule 25.7(1)(d) could this be overcome, in a case in which the parties cannot reach agreement. No doubt the existence of the provision in the rules makes it the more likely that, in such a case, well-advised parties will come to a suitable without prejudice agreement. It may very well be that, if TMLC had applied for an interim injunction in this case after its letter of 28 February 2006, such an arrangement might have been reached, though not without a good deal of time, effort and cost having been expended. What the terms of that arrangement would have been can only be a matter of speculation. The issue on this part of the appeal is whether a party who has served notice to terminate which it knows or expects will not be accepted as valid can set up a without prejudice regime by itself, absent agreement to it by the other party.
- An incidental question is what material, other than the letter itself and its immediate contemporary context, can be taken into account in deciding whether the 28 February 2006 letter was an unequivocal election to terminate the agreement. On this, Mr MacLean relied on the decision of the Court of Appeal in Drake Insurance plc v Provident Insurance plc [2003] EWCA Civ 1834, [2004] QB 601. In that case one insurer claimed a contribution from the other on the footing that both were liable to indemnify in respect of the same loss; the other insurer disputed that it was under any such liability, claiming to have avoided the policy for non-disclosure. One question was whether it had given unequivocal notice of avoidance, or had waived its right to avoid the policy. Moore-Bick J held that there had been an unequivocal avoidance, and he did not consider any conduct thereafter as capable of amounting to a waiver. The letter by which the decision to avoid was communicated to the insured was undoubtedly clear and unequivocal in its own terms, but after sending that letter the insurer had continued to collect premiums by direct debit. Moreover, following arrangements made before the letter of avoidance to insure a newly-acquired car (at a higher premium) under the same policy, the insurer acknowledged, after the letter of avoidance, the instructions to amend the cover under the policy and referred to the consequent higher payments which were collected under the direct debit mandate, and it issued a certificate and an amended schedule in respect of the new car. In addition, internal communications of the insurer, and evidence from witnesses on behalf of the insurer, revealed uncertainty, to say the least, as to the position after the letter of avoidance. Even ignoring that, which was not known to the insured, the insurer's conduct after the letter of avoidance was inconsistent with that letter.
- Rix LJ rejected the argument that it was not necessary or relevant to look beyond the unequivocal terms of the avoidance letter. He drew an analogy with cases concerned with deciding whether a contract has been concluded, in particular Hussey v Horne-Payne (1879) 4 App Cas 311, and observed that the issue before the court arose in the context of a continuing relationship. He said this, at paragraphs 102-3:
"102 … I do not think that it is correct to look solely at the letter of 2 August, however important or even determinative it might after all be judged to be, for to do so does not reflect the full range of the objective facts. Of course, just as in the context of making a contract, if on analysis an acceptance is binding but the parties continue negotiating, then it is only if those further negotiations themselves bear fruit (in the present case, if there is reinstatement) that the effect of the binding acceptance is altered. The question is whether the single document is determinative.
103 In my judgment, in this case it was not. On one view the policy was avoided from inception; on another possible view (that of Mr Shaw himself) the matter was unsettled while it was debated; on a third possible view (put forward by Mr Moxon-Browne in submissions) the policy was avoided so far as the Mercedes was concerned, but survived so far as the Volvo was concerned. It seems to me that, as soon as the focus is adjusted more widely so as to permit consideration of anything other than the letter of 2 August, the matter becomes equivocal. It is not possible to rescind a contract in part, just as it is not possible to accept a repudiation, another act of election, in part (unless a contract is divisible). In the present case, Provident put its case exclusively on the letter of 2 August, and yet accepted that a contract of insurance continued after 2 August in respect of the Volvo, even though that car was insured under the same policy, and even though at the time it was insured Provident had not yet been informed about the undisclosed speeding conviction."
- Pill LJ agreed, saying this at paragraph 183:
"I agree with the conclusion of Rix LJ. There was no effective avoidance. Writing a letter purporting to exercise a right to avoid has no effect in present circumstances when accompanied by conduct, described by Rix LJ, wholly inconsistent with avoiding the contract. Mr Shaw himself, in January 1997, believed the policy not to have been avoided. It had not been avoided before the true state of affairs emerged."
- Clarke LJ agreed that there had been no unequivocal avoidance of the policy, for the same reasons (paragraph 146).
- Mr Leggatt submitted that it was wrong and inconsistent with principle to look at later material on a question of this kind, unless it could be said to be relevant to how the letter of avoidance or termination would have been understood in the circumstances. He submitted that what the Court of Appeal said on this point was not part of the ratio of the case, so that it was not binding on us.
- Several points were raised in the case. Rix LJ decided a first point in favour of Drake (whether Provident had validly avoided its policy) and then said this, at paragraph 65:
"That is enough to invalidate Provident's avoidance of the policy and I could proceed directly to the fourth issue of whether Drake's payment was voluntary. However, because of the importance of the points raised, I will state my opinion, but, with the exception of the third issue, not my decision on them."
- The waiver point was the third issue. Rix LJ did state his decision on that point, and concluded his discussion of that point as follows at paragraph 104:
"I would therefore conclude, and decide that for this reason, as well as on the previous ground of inducement, Provident remained bound by Dr Singh's policy."
- He then proceeded to consider the fourth point and to decide that also in favour of Drake. His final conclusion on the appeal was expressed as follows:
"129. In conclusion, I would allow Drake's appeal on the grounds that Provident was not entitled to avoid its policy and Drake was not a volunteer."
- Clarke LJ said, at paragraph 130:
"I agree with [Rix and Pill LJJ] that the appeal should be allowed on the footing that Provident was not entitled to avoid the policy and that Drake was not a volunteer when it paid Mrs Kaur's claim."
- Consistently with those observations, Pill LJ expressed his conclusion, at paragraph 191, in these terms:
"In the result I agree that the appeal should be allowed. Provident were not entitled to avoid their policy and Drake were not volunteers."
- Since the case was expressly decided by each member of the court on the basis that Provident were not entitled to avoid the policy, rather than on the basis that they did not avoid, or that they waived their avoidance, it seems to me that Mr Leggatt is right to submit that what the court said on the issue of waiver is not part of the ratio of the decision. It is, nevertheless, reasoned, and expressed as a matter of decision, and albeit obiter it requires respectful examination.
- I see a good deal of force in Mr Leggatt's submission that, assuming that the notice of termination (or, in that case, avoidance) is clear and unequivocal, then the position is crystallised at that moment, and cannot later be altered by reason of inconsistent conduct. That proposition is strongly supported by what Lord Blackburn said in Scarfe v Jardine. Once a clear notice has been served, each party needs to be able to act on it, and should not be exposed to uncertainty, or to having the basis of its actions subverted, by matters arising later which cast doubt on the status of the notice.
- On the other hand, the sheer confusion caused by the insurer's conduct in the Drake case, right hand asserting that the policy had been avoided, but left hand continuing to collect premium payments by direct debit, and positively asserting that the new car was covered under the policy, exemplifies a situation in which it might seem artificial to stop the clock, so to speak, at the date when the letter of avoidance is received, and to ignore later inconsistent conduct on the part of the insurer. It also seems to me that, albeit that the cause of the inconsistent conduct was different in the present case, there is a legitimate analogy which could be drawn with the position of TMLC, purportedly terminating the contract on 28 February 2006, but proceeding to act as if the contract were still in force, as regards demanding and receiving royalties, calling for the performance of other obligations under the contract and asserting various rights under it.
- If Mr Leggatt is right in his submission that the letter was a valid termination of the contract, then a number of issues would arise from what was done after that date. One is as to the status of the payments made to TMLC by Leofelis, which would not have been due as royalties; another is as to the status and consequences of dealings with the trade marks after 28 February 2006. Although TMLC would be entitled to financial payment in respect of the use made of the trade marks by Leofelis (or by Leeside) after 28 February 2006, it does not follow that this would be at the same rate. Indeed, since the royalty was, each year, at a flat rate, it seems relatively unlikely that the compensation would be at the same rate. Of course if more is due than had been paid, no issue need arise as to what has already been paid, which could be treated as paid on account. But that may not necessarily be the case.
- Moreover, would the use of the trade marks by Leofelis or Leeside during the intervening period fall to be treated as by consent? TMLC would no doubt say not, because they had withdrawn their consent by terminating the contract. However, if a without prejudice agreement had been negotiated and agreed between the parties, it may be that the quid pro quo to TMLC for receiving payment at the royalty rate, on account of what was eventually due, would have included some provision as to how compensation for use of the marks after 28 February 2006 should be calculated.
- Another point, particular to the present case, would be the consequences of a finding that the agreement had been terminated on 28 February 2006 in relation to the Belgian Sales claim. Logically, if the agreement was terminated then, no sales to Belgium after that date could infringe Leofelis' rights. No injunction could be appropriate because by the date of judgment Leofelis would have had no continuing rights which would be infringed, and the compensation for past infringement would be limited to sales before 28 February 2006, with the later period giving rise to the opposite, namely a liability on Leofelis (or Leeside) to compensate TMLC for its sales. The judge's orders in respect of the Belgian sales claim are, however, not challenged, except in minor respects which assume that the claim was valid on the basis of a continuing entitlement.
- All these issues are points which create potential problems, which would, or at any rate could, have been avoided if a without prejudice agreement had been come to by the parties.
- Mr Leggatt pointed out that, for the most part at any rate, TMLC's later demands for performance of contractual obligations were expressed to be without prejudice to the earlier termination of the contract. That appears to be so as regards all demands contained in letters from the Defendants' solicitors (of which there were many). It does not seem to have been true of the invoices sent each quarter for the payment of royalties. Moreover, he submitted that the whole course of events after 28 February 2006 was governed by the terms of the 28 February letter, by which, in effect, TMLC took the position that, by fulfilling the obligations that would be incumbent on it if the agreement had not been terminated, and by allowing Leofelis to proceed as if under the agreement, it was acting under reservation of its right to assert that the agreement had been terminated.
- One of the points on which the judge relied for saying that TMLC's conduct amounted to a waiver of its right to treat the contract as terminated was an analogy with landlord and tenant cases as regards waiver of forfeiture. These cases hold that, if at a time when the landlord has the right to forfeit a lease for breach of covenant he accepts rent due under the lease, that operates as a waiver of the right to forfeit, regardless of any attempt by the landlord to do so under reservation of his rights, and regardless of any other indication in the circumstances which might have shown the tenant that this was not, or not intended as, an unequivocal affirmation of the lease.
- We were shown some landlord and tenant cases. The first was Central Estates (Belgravia) Ltd v Woolgar (No. 2) [1972] 1 WLR 1048, in which Lord Denning MR referred to previous cases as deciding that, as a matter of law, if the landlord accepts rent knowing of a breach of covenant, that waives the right to forfeit irrespective of the landlord's actual contrary intention, even if known to the tenant, and of anything the landlord may have said at the time to prevent it having that effect. In Expert Clothing Service & Sales Ltd v Hillgate House Ltd [1986] Ch 340, which was not concerned with payment or acceptance of rent, Slade LJ differentiated such cases from others. He said at page 360:
"However, I think that Mr Collins is right in submitting that cases where there has been an acceptance of rent fall into a special category. In such cases the established legal effect of such acceptance is so clear that, whatever the particular circumstances of the case, it is probably not open to the landlord to submit that he has not waived the relevant breach."
- In other cases, he held, the court was free to look at all the circumstances of the case to consider whether the acts relied on were so unequivocal that, when considered objectively, they could only be regarded as having been done consistently with the continued existence of the tenancy.
- Mr MacLean also relied on the judgment of Mocatta J in The Libyaville [1975] 1 Lloyd's Rep 537 in which the judge held, by analogy with the landlord and tenant cases, that acceptance of a smaller sum than the hire due, albeit under strong protest, precluded the shipowner from withdrawing the vessel for short payment (see pages 553-4). He therefore submitted that for TMLC to demand and accept payment of the royalty from April 2006 onwards was unavoidably inconsistent with treating the November 2002 Agreement as having been already terminated.
- Going back to the letter of 28 February 2006, it seems to me that, while the penultimate paragraph is clear as a notice of termination, that clarity is at once obscured by the next paragraph. I agree with Mr MacLean's argument that TMLC was trying to have it both ways in that letter, and in my judgment it was not able to do so, except by agreement. What TMLC could have done was to give a notice of termination and then (or even perhaps in the same letter) to have offered to enter into a pragmatic arrangement, without prejudice to either side's contentions about the validity of the notice, to deal with the position in practice pending a decision by the court as to whether the notice was valid. As I see it, TMLC's attempt to achieve that by itself was doomed to failure, because it left too much uncertainty as regards the status and effect of what happened in the meantime, most obviously as regards the financial position and obligations between the parties, but also as regards the status or effect of dealing with the trade marks in the meantime.
- Accordingly, unless the last paragraph of TMLC's letter is to be read as, in effect, an offer to enter into such an arrangement (which was not in the event accepted), it seems to me that it sought to achieve something legally impossible and inconsistent with the previous paragraph. If the paragraph were to be read as such an offer, it would be legitimate to consider the later conduct of the parties to see whether it had led to such an arrangement concluded by agreement. If that had happened, it might have resolved the internal contradiction that I find in the letter of 28 February, so as to leave it as a clear notice of termination. In fact, if one does consider what happened later, it reveals the full potential scope of the confusion which is inherent in the letter.
- The last paragraph is drafted with some care, in its reference to TMLC fulfilling its own obligations, and on Leofelis being allowed to operate the Agreement. In terms it does not contemplate TMLC seeking to insist on, or even to take advantage of, its own rights. However, it must have been obvious that such issues would arise. Leofelis would need to pay, or at least to tender, royalty payments, in order to avoid a further termination notice. By what right, however, could TMLC receive payment of those sums for its own benefit except under an agreed without prejudice arrangement? To take the benefit of those payments would go beyond fulfilling TMLC's own obligations under the agreement. I suppose that TMLC could have paid them into a suspense or escrow account, but it did not do so, and there is no indication that it intended to. No doubt it wanted to have the use of the money.
- We were shown references to the Defendants' position in correspondence. Reynolds Porter Chamberlain, for the Defendants, referred to it several times as a "pragmatic approach" which they said demonstrated their clients' flexibility, and as their "sensible and balanced approach". They described it in a letter dated 17 July 2006 as "a voluntary approach" under which the Defendant "would continue to honour the obligations which would have applied if the Licence Agreement had not been terminated, pending the outcome of the proceedings at trial, and whilst reserving its position". The judge was shown an exchange on 20 July 2006 in the context of the Defendants' request for security for costs. Reynolds Porter Chamberlain wrote:
"For the record, first, can you confirm whether you consider that the approach our clients have taken in reserving their rights but allowing the parties to continue operating as if the licence had remained in place (despite the contested termination) was an appropriate or inappropriate course of action to follow?
Secondly, are you seeking to argue that simply taking that approach meant that your clients have any rights beyond those the licence had granted (until it was terminated)?"
Dorsey & Whitney replied:
"With regard to the questions you raise: as to the first yes, as to the second no."
In that context, the answer "yes" to the first question must mean that it was taken to be an appropriate course of action to follow.
- In a letter of 25 September 2006 Dorsey & Whitney said this:
"Furthermore as regards your so-called "reasonable and pragmatic approach", our position has always been and remains that you have waived any rights you have had to terminate the Licence Agreement which rights are denied in any event. We reject any suggestion that we have agreed that your conduct can be without prejudice to your case on termination."
- Just before the trial, on 8 November 2006, Reynolds Porter Chamberlain referred to their clients' position again as a pragmatic approach and said that the Claimants had previously accepted it, to which Dorsey & Whitney promptly replied denying having accepted it. That is now common ground. I agree with the judge that all of this takes the matter no further, because there plainly was no agreement between the parties, as is now accepted.
- The judge did not consider whether the letter dated 28 February 2006 was a valid termination of the agreement, because the case was not argued before him by reference to a notice of termination having been given by that letter, nor on the basis that acts thereafter could not amount to a waiver, so as to override an election already made. He did refer to the letter as being an unequivocal notice to terminate (paragraph 38), but since he had not received the submissions which have been addressed to us on the point, I do not regard that comment as being a finding on the point. In any event the issue is one of construction and therefore of law. Mr Leggatt pointed to the letter dated 22 March 2006 as showing no doubt on the part of Leofelis that the previous letter was intended as a termination of the contract. I do not see that this carries the point any further, since it was not referred to as anything other than a purported termination, which is a fair description in any event.
- Mr MacLean objected to the grounds of appeal being allowed to be amended so as to rely on the 28 February letter as a termination. He contended that if this had been made plain as part of the defendants' case before the judge, then the submissions might have been different before him. But I reject Mr MacLean's one submission as to the possibility that there might have been different evidence, namely as to possible acts of waiver before 28 February 2006 (see paragraph [63] above), and it seems to me unrealistic to ignore the terms of the letter, and to require the case to be argued without reference to it.
- For those reasons I would permit the Appellants to amend their grounds of appeal in this respect (paragraph 84) and correspondingly to re-amend their Defence and Counterclaim (paragraph 75), but I would hold that the letter dated 28 February 2006 did not terminate the November 2002 Agreement because it was not an unequivocal notice to terminate. It would have been possible to achieve the objective aimed at by TMLC, but not unilaterally. If TMLC had expressed itself as offering to enter into a suitable without prejudice agreement, that would not have undermined the notice to terminate. But to terminate the agreement and at the same time, effectively, to keep it in place without prejudice to the termination, absent agreement from the other party, seems to me to be legally impossible. The attempt to achieve that resulted in the letter contradicting itself, and not having effect in either of the respects intended. I would therefore dismiss the appeal on this point.
The undisclosed rights
- I turn to the various issues concerning the undisclosed rights. In this instance, again, there is a wide range and variety of points. To summarise, claims arise in misrepresentation and in breach of contract concerning each of the Alavi Licence and clause 5A of the Lord John SPA. In relation to the misrepresentation claim the Appellants rely on clause 13.3.2 of the November 2002 Agreement to limit liability to breach of contract. The Respondents rely in turn on section 3 of the Misrepresentation Act 1967 to defeat that argument. In relation to misrepresentations said to be contained in the contract the Respondents also rely on section 2(1) of the 1967 Act, and there is an issue as to that. There are issues, not as to what was said, but as to what it amounts to in terms of statements and representations. There is an issue as to whether the existence of the rights under clause 5A was inconsistent with the contract or with any representation. There is a question whether the Appellants should be allowed to argue their new case as to the meaning of the representations and the contractual warranties, and there is also an issue as to whether, if they should be allowed to do so, the Respondents should be allowed to amend their Particulars of Claim to rely on other pre-contractual representations which are said to have been asserted and admitted in the witness statements.
The Alavi Licence – misrepresentation
- I start with the questions arising in this respect. I will consider later whether the Appellants should be allowed to amend their grounds of appeal, to argue that the statements made on 22 July 2002 were statements of intention and expectation only, honestly held, and were not representations that the termination would be effective, because that point is also taken in relation to the corresponding contractual warranty.
- I have already quoted what the judge said on this point at paragraphs 134 to 136 of his judgment (see paragraph [42] above). At paragraph 137, discussing the equivalent contractual point, he held that the words of the statement, that notice had been given due to expire at a given time, "amount to a representation that the drafter of the agreement was representing not only that those notices to terminate had been given but also that the notices were expected to succeed in their intention to terminate the rights on those dates". Given that the case was not argued before the judge by reference to any distinction between reading the statement as that the notice would be effective on the one hand, or that it was expected that it would be effective, on the other, (despite the point having been taken in the Defence and Counterclaim) I cannot place any significance on the different ways in which the judge expressed himself in that passage as compared with paragraph 136. He found that both representations were false (paragraphs 120-1 and 138), so it seems to me that he regarded both the pre-contractual statement and the contractual warranty as amounting to a statement that the licence would be terminated, not just that steps would be taken to terminate it.
- Taking together, and paraphrasing, what the judge records Mr Moher as having said on the point during the 22 July 2002 meeting, in his paragraphs 134-5, it amounts to this:
He said that the licences could be brought to an end within a relatively short period of time, but subject to the caveat that the licensees might cause trouble in the process and were not likely simply to walk away. He told the meeting that he could and would serve notices to terminate the licences. He said that, under the terms of the licences, he believed that he could serve effective notices but went on to explain that it was unlikely that people would go quietly into the night.
- Bearing in mind that this meeting was the very start of the negotiations for a proposed new licence, that it was not attended by any lawyer on either side, that it was not confirmed by any subsequent document passing between the parties or recorded by notes or otherwise on either side, and that it occurred before the lawyers had got to work on the documents and the drafting, it seems to me, with respect to the judge's different conclusion, that what I have recorded from the judge's findings as to what Mr Moher said at the meeting cannot properly be read as a statement that notice, when given, would be effective. At most it was a statement (apparently expressly so) that Mr Moher believed that the notices would be effective. That statement was not false; it was not suggested that Mr Moher did not believe what he said he believed.
- Mr MacLean submitted to the contrary, emphasising the importance to Leofelis of knowing the extent of the various sub-licensees' rights, and pointing out that Mr Moher had prepared carefully for the meeting and had received and read copies of the relevant licences, with access to legal advice. For all that, it seems to me that it is not reasonable, in the context of the meeting as described, and of the circumstances then known to both sides, to hold that the meaning which Mr Moher's words, summarised above, would convey to a reasonable person in the position of the Leofelis representatives is that the notices intended to be given to terminate the licences would be effective, rather than that Mr Moher believed that they would be effective. (As to the test, see Kyle Bay Ltd v Underwriters [2007] EWCA Civ 57, Neuberger LJ at paragraphs 30-31.) In terms, it was limited to a statement of his intention and belief. I see no reason why that express statement, made at such a preliminary stage of the discussions, before any lawyer had become involved, should be taken as a statement of the effect of the intended notices, rather than, as expressed, of belief or understanding as to that effect. I would therefore respectfully disagree with the judge as to his finding as to the meaning of the representation made on 22 July 2002 about the Alavi Licence, and would hold that the statement made as to the licence being capable of termination was a statement of Mr Moher's belief, which was not false.
- We heard some argument about whether the representation was one of law or fact, and whether it made any difference. I do not need to take up more time on that issue.
The Alavi Licence – breach of contract
- This aspect of the case turns on whether the Appellants were in breach of contract by virtue of the statement in paragraph 3 of part 5 of the First Schedule of the November 2002 Agreement, that notice had been given in respect of it "due to expire in February 2004", other than by reason of the fact that no such notice had in fact been given. As I have mentioned already, in terms the judge's finding, at paragraph 137, was that this amounted to a warranty that notice had been given and was expected to be effective, but in context it seems to me that he meant to say that it would be effective, not merely that it was expected to be so.
- This is a question of the construction of those words in the agreement, in their proper context. It was not argued for the Appellants at trial that the warranty was limited to a statement of expectation or belief as to the effectiveness of the notice. But that would not preclude the court from holding that this was its effect, so long as the court was satisfied that it had available to it all the material relevant to the question of construction, and subject to any issue of prejudice to the Respondents arising from the point not having been taken below.
- Moreover, the point is put rather oddly in paragraph 21 of the Particulars of Claim, because there it is said that clause 2 of the agreement is broken by reason of the inability to terminate the Alavi Licence. That point seems to me plainly wrong. Clause 2.1 states that the licence granted to Leofelis is exclusive subject to the terms of the Distribution Agreements. Part 5 of the First Schedule identifies the Distribution Agreements, the Alavi Licence being one of them. Clause 2.2.1 states that the licence granted is subject to existing licences or rights, but that none are known other than the Distribution Agreements. Neither clause says anything about the particular terms of the Distribution Agreements. It seems to me that the natural assumption would be that the licensee, being put on notice of these four agreements, would obtain copies of them and do what he wished or was advised to do to satisfy himself as to their terms and implications. Nothing in clause 2.1 or 2.2.1 is falsified if the Alavi Licence cannot be terminated. Nor can I see any basis for the judge's finding at paragraph 121 that the defendants were in breach of clause 2.2.1 of the contract by not disclosing "the full possible ambit" of the Alavi Licence.
- The only relevant provision in the contract is the words quoted above from paragraph 3 of Part 5 of the First Schedule (see paragraph [108]). The Claimants did rely on those words in the particulars under paragraph 21 of the Particulars of Claim, so it would be wrong to ignore them merely because the allegation of a breach referred to the wrong provision in the contract. The statement is that a notice has been given to terminate the licence, that notice being due to expire in February 2004. Those express words would be satisfied if a notice had been given to terminate the Alavi Licence which was expressed to expire in February 2004, regardless of whether it was a valid notice (for example, whether it was served on the right person, if the licence specified on whom it should be served) and whether it could be effective in any event. The Respondents' reading of the statement requires an implication into the words of the contract that the notice had not only been given but that it would be effective. That is said to be the natural reading of the express words. With respect, I cannot agree. I can see the basis for an implication that the server of the notice believed that it would be effective. But it seems to me that a warranty that a notice served in relation to an agreement with a third party will be effective is not something that should readily be found as a matter of implication.
- The Claimants denied having had a copy of the Alavi Licence before they entered into the November 2002 Agreement, whereas Mr Moher gave evidence that he had supplied a copy of it in advance. It is not altogether clear what conclusion the judge came to on this, but I do not read his paragraph 120 as amounting to a finding that Leofelis had received a copy in advance. Nevertheless, a copy would presumably have been made available to them if they had asked for it. They could then have taken their own advice as to its effects, including as to termination. They would have to rely on TMLC for its statement that it had given notice, though they could no doubt have asked for a copy of the notice (which might have revealed that none had been served).
- In my judgment, the words in question in paragraph 3 of Part 5 of the First Schedule do not on their proper reading amount to a statement that the Alavi Licence will come to an end, as a result of the service of notice, in February 2004.
- Mr MacLean objected to Mr Leggatt's change of position as regards the meaning of the pre-contractual representation and of the contractual warranty, in paragraphs 21 to 23 of the Amended Grounds of Appeal. The argument was based on the lateness of the point, and on its inconsistency with an argument run before the judge, which he rejected, and which is not pursued in this court. No prejudice was asserted as a consequence of failure to take the point earlier, except in one respect, involving reliance on an additional pre-contract representation, not currently pleaded.
- In paragraph 61 of his first witness statement, Mr Buscaini of Leofelis said that, during discussions between August and November 2002, Mr Moher told him that Mr Alavi had a licence which would expire in February 2004 and that he had retained no other right in the marks as a result of the sale to Mr Ashley's company, and that after the licence expired in early 2004 Mr Alavi would have no more rights to continue trading in Lonsdale. In a late second witness statement, served on 10 November 2006, Mr Moher said that this account was correct. On this basis Mr Maclean sought to rely on these statements in addition to the other pre-contractual representations, and formulated an amendment to his Particulars of Claim accordingly.
- Notwithstanding Mr Buscaini's evidence to this effect, the Particulars of Claim did not at any stage include any allegation of these misrepresentations, even though they would have been just as relevant in support of the Claimants' case at trial as the misrepresentations which were pleaded. In those circumstances it does not seem to me that the fact that Mr Moher did not dispute them in his late witness statement puts the Claimants in any better position to amend on appeal so as to rely on these points, to which, so far as one can see from the judgment, the judge gave no attention at all. What effect those statements would have had, if relied on at trial, would have depended on what findings of fact the judge made as regards what was said, when and in what circumstances. Nor does it seem to me to be relevant to that point that the Appellants have changed their position as regards the true meaning of the pleaded pre-contract representations (to revive a point already taken in their Defence and Counterclaim) and of the contractual warranties. I would therefore allow the Appellants to amend their grounds of appeal on this point, notwithstanding that it arises at a very late stage, and I would reject the Respondents' application to amend their Particulars of Claim to allege the other pre-contract representations which I have described.
Clause 5A of the Lord John SPA – misrepresentation and breach of contract
- The Respondents complain separately of the Appellants' failure to disclose the rights afforded to Mr Alavi by clause 5A. This is said to have been the subject of a misrepresentation at the July 22 meeting, to the effect that there were no agreements affecting the use of the Lonsdale mark and registrations other than the four licences later identified as the Distribution Agreements in the November 2002 Agreement. The judge did not deal with this aspect of the case in detail, but he did hold that the representation was false, because of Mr Alavi's continuing rights under clause 5A as well as under the Licence (paragraph 138).
- The Particulars of Claim did not in terms allege the falsity of the representation in respect of the rights under clause 5A. By one of the amendments formulated since the hearing of the appeal, the Claimants seek to allege that it was false because under clause 5A Mr Alavi retained a licence or right in respect of the marks that would not expire in February 2004. I would permit that amendment to be made, since it seems to me to bring the pleaded case into line with how it was argued before the judge. It raises the same question as arises on the breach of contract case.
- As regards breach of contract, the position here does turn on clause 2.2.1, namely whether the rights under clause 5A are a "licence or right" in respect of the trade marks. If they are, then, since Lonsdale Sports and TMLC were certainly aware of them, the warranty in clause 2.2.1 was not correct.
- Each of these claims depends on whether the rights granted by clause 5A are such that the statement made is false. For that purpose it is necessary to examine the rights in question, which are undoubtedly remarkable in commercial terms.
- Mr Leggatt's principal contention is that the clause does not confer any rights in relation to the trade marks, both because the right conferred is to buy goods, not to use the marks on goods, and because it is restricted to purchases within the UK which would be of goods carrying marks registered in the UK, as distinct from the marks relevant to the November 2002 Agreement, which are those registered for use in other countries in the EEA. It is worth comparing and contrasting the rights given by clause 5A with the rights given to Merc by the Alavi licence. That allowed Merc to manufacture, or have manufactured, goods in the relevant classes using the diamond mark as registered in a number of countries, including, as I understand it, in each country within the EEA, which would affect directly the exclusivity otherwise promised to Leofelis under the November 2002 Agreement, as well as several outside the EEA. The Licensor had limited control of a normal kind over what goods were produced under this licence. Apart from the fact that the licence was not terminable by the licensor except for breach, and was free of any royalty, it is also noteworthy that Merc could assign it or grant sublicences, subject only to the licensor's consent, not to be unreasonably withheld. Thus, Merc had a great deal of freedom under this licence, including the choice of goods to be manufactured under it. It had to bear the cost of manufacture, distribution and sale, but no additional cost by way of royalty.
- Under clause 5A, by contrast, Merc could acquire in the UK, in principle, unlimited quantities of goods of the relevant classes, bearing either version of the marks, so long as those goods were or had been sold, advertised or offered for sale by Lonsdale Sports. It would have to pay for those goods on normal commercial terms, but at a highly preferential rate, with a discount of 15% below the cheapest price paid by anyone else. Having bought the goods, it could resell them in the UK or anywhere else in the EEA without incurring any liability as regards the use of the marks.
- In commercial terms this is very different from any ordinary supply agreement as regards the purchase of branded goods, since the supplier cannot terminate the agreement, cannot limit the quantity of goods supplied, cannot require the customer to take any minimum quantity, and has to accept a lower price than any other customer pays.
- Nevertheless, Mr Leggatt submitted that the rights conferred by clause 5A do not amount, as a matter of legal analysis, to a "licence or right in respect of the Marks", any more than any other agreement for the supply of branded goods would. What right in respect of the Marks, he asked rhetorically, does clause 5A confer, remembering in particular that the Marks, for the purposes of the November 2002 Agreement, are registered for use in countries other than the UK, apart from one Community Trade Mark, and even that is only the subject of the agreement as regards its use outside the UK and Ireland, whereas clause 5A would only extend to its use within the UK? He pointed out that nothing in the November 2002 Agreement gave Leofelis any protection (for example as regards information about licences within the UK and Ireland) in relation to the risk of parallel exports. TMLC had granted a licence within the UK to another supplier, Cavden, which could also export goods produced under that licence to other EEA countries, by way of parallel exports. If the economic terms of the supply under clause 5A were said to make all the difference, did it depend on the discount being 15%, and how small a discount would suffice for this purpose? If the differentiating factor was said to be the absence of any limit on the quantity of goods which could be acquired, how could that affect the correct legal analysis of the agreement?
- The judge rejected the arguments to this effect advanced by Mr Gruder. He considered that the undisclosed existence of the licence in favour of Cavden may have added to the falsity of the representations made before and in the contract. He said this at paragraphs 125-6:
"125 … I accept Mr McLean's submission that Clause 5A.1, although strictly not a licence to manufacture cinemascope branded Products, by having the effect of enabling Mr Alavi to acquire unlimited quantities of such goods for sale anywhere, had an effect so similar to a licence as to constitute it a licence within Clause 2.2 of the November 2002 Agreement. In any event if that be wrong in my judgment the Clause clearly constituted a right "granted in respect of any of the trademarks" within Clause 2.2.1.
126 It was submitted by the Defendants that Clause 5A.1 was simply a supply agreement in respect of Products entered into in favour of a UK retailer which provided for delivery of goods in the United Kingdom. I cannot accept this submission. As I have already found, and as Mr Moher accepted, Mr Alavi was at liberty to sell or dispose of goods acquired under the Clause in anyway which he pleased either wholesale or retail. It is not in issue that part of Mr Alavi's business was a substantial wholesale business including for export. It follows that Lonsdale Sports, in supplying goods under the Clause, must have contemplated that those goods might be exported for sale within the Territory, in particular, through the network of agents associated with Badii and Punch."
- Mr Leggatt's criticisms of the judge's conclusion are logical and powerful. Clause 5A does give Merc the right to order branded goods from a manufacturer, but it does not give Merc any right to apply the marks to any goods, or to use the marks in relation to any goods, or to do anything else in respect of the marks, other than to sell the goods bearing the marks, once they have been supplied to it. Although the exercise of the right to acquire branded goods would enable Merc to sell those goods either in the UK (not competing with Leofelis) or elsewhere in the EEA (where it would or might compete with Leofelis), the same would be true of any other entity acquiring goods in the UK or Ireland from an authorised licensee of TMLC, such as Cavden. The fact that a purchase of branded goods in the UK does give the purchaser that ability cannot of itself make the agreement one under which a licence or right is granted in respect of the non-UK marks (or any marks), even though the marks are in fact identical to those registered for use in other EEA states. The purchase of branded goods does not amount to a licence in respect of the mark: the purchaser cannot do anything with the mark as such, though it can sell the goods which it has acquired, as any purchaser can, and within the EEA it will not thereby infringe trade mark rights.
- Mr Leggatt submitted that the judge was wrongly influenced by a passage from Mr Moher's evidence, inadmissible for this purpose, in which he referred to arrangements which had an effect similar to a licence without being one. He criticised Mr MacLean's submission that clause 5A was so different in commercial effect and nature from any normal agreement for the supply of branded goods that it should be regarded as equivalent to the grant of a licence, or at least of a right, in respect of the marks. He argued that the different commercial terms or effect of the transaction could not alter its true nature as a matter of legal analysis, and if Leofelis was concerned about the risks of parallel trading, it should have sought disclosure of existing licences or agreements in relation to the UK and Ireland, and an agreement to disclose such licences and agreements entered into in future.
- The focus of Mr MacLean's submissions, above all, was the remarkable commercial nature of the rights conferred by clause 5A. He submitted that there was no distinction in substance between a licence to manufacture garments bearing the Lonsdale mark and the right enjoyed under clause 5A, which entitled Merc to compel Lonsdale Sports to exhaust its trade mark rights in the relevant goods by selling them to Merc, which can then sell them anywhere in the EEA.
- It is common ground that, under an ordinary contract for the sale and purchase of branded goods for delivery in the UK, the purchaser acquires not only the goods but, by virtue of the doctrine of exhaustion of rights, also the ability to sell those goods elsewhere in the EEA. I do not accept that such an agreement by itself amounts to the grant of a licence or right in respect of the relevant trade marks, despite the purchaser's freedom to sell the goods, with the benefit of the trade mark, anywhere in the EEA. I would therefore disagree with the judge's observation that failure to disclose the Cavden licence itself made the statements made in July 2002 false, and was a breach of clause 2.2.1 of the agreement.
- The question is whether clause 5A is different in this respect, so as to require disclosure, because it is so different in its commercial and economic effect. I can well understand why the judge thought that these rights should have been disclosed, being very unusual, such that Leofelis would not have suspected their existence (unlike, for example, the Cavden licence), and capable of affecting very substantially the exercise of the rights under the November 2002 Agreement. However, in the end it seems to me that Mr Leggatt is right, and that clause 5A does not create or constitute any licence or any right in respect of the trade marks, as distinct from rights in respect of goods which bear the trade marks.
- I would therefore hold that clause 2.2.1 of the November 2002 Agreement was not breached by reason of the existence of the rights under clause 5A, and that the statements made by Mr Moher at the meeting in July 2002, described by the judge in paragraphs 134 to 136 of his judgment, as quoted at paragraph [42] above, were not false by reason of the existence of those rights. If the Claimants had relied in their statement of case on the later statements referred to in paragraph [115] above, it may be that a pre-contract misrepresentation would have been established at trial, but that would depend on quite what finding of fact the judge made on the basis of the relevant evidence.
Undisclosed Rights – other points
- It follows from what I have said as regards the Alavi licence and clause 5A that I respectfully disagree with the judge's finding of misrepresentation and breach of warranty, and I would allow the appeal on the Undisclosed Rights issue.
- It is not therefore necessary to decide the other related issues that were argued before us, but I will say something about them, first about the Appellants' reliance on the entire agreement clause, and the Respondents' reliance in response on section 3 of the 1967 Act, and then on the separate point taken under section 2(1) of the Act.
- Clause 13.3.2, set out at paragraph [32] above, contains a number of provisions which could be relevant. The first is an acknowledgement of non-reliance on any pre-contract representation. The second is an agreement that neither party shall have any remedy in respect of a representation which is not expressly set out in the agreement itself. Third is an agreement that the only remedy for breach of any warranty or representation which is expressly set out in the agreement is for breach of contract under the terms of the agreement. Last is a provision under which none of that affects liability for fraud. The second and third points are those relied on by the Appellants. They would exclude liability for pre-contract representations, unless repeated in the contract expressly, and would limit liability for any representation which is so repeated to damages for breach of contract. In terms, that would have excluded liability for any of the statements made at the July 2002 meeting, and would have limited liability for breach of any warranty in the agreement to damages for breach, excluding any more extensive liability for misrepresentation that might arise under the 1967 Act. The judge considered that the clause did not apply, but it seems to me that he must have misunderstood the point taken when he said at paragraph 141:
"It follows that Leofelis' claim for damages for misrepresentation is largely not covered by Clause 13.3.2 because the relevant misrepresentations are made in the November 2002 Agreement itself."
- In response to that, the Respondents took the point that the Appellants had to satisfy the reasonableness test in respect of clause 13.3.2, and that (a) they had not alleged or put forward any positive case to that effect and (b) they would not satisfy it in any event. Section 3 is as follows:
"3 If a contract contains a term which would exclude or restrict
(a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or
(b) any remedy available to another party to the contract by reason of such a misrepresentation,
that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does."
- Section 11(1) of the 1977 Act prescribes:
"that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made."
- In Sheffield v Pickfords Ltd, Court of Appeal, 11 February 1997, [1997] EWCA Civ 984, where the defendant relied on its standard terms and the plaintiff sought to argue that they were unreasonable, Lord Woolf MR, giving the leading judgment in the Court of Appeal, held that it was not necessary for the plaintiff to assert expressly that the terms were unreasonable, because there was an implicit assertion by the defendant, relying on the terms, that they satisfied the reasonableness test. The plaintiff had said before trial, though not in any pleading, that she would say that the terms were not reasonable. By the same token, the judge could fairly proceed in this case on the basis that reasonableness was in issue, even though issue had not been taken on it expressly.
- The judge did not set out his reasoning for the conclusion that the reasonableness test had not been shown to be satisfied. While it would not be sensible, in a case in which the point is not necessary for the decision, to attempt to lay down the correct approach to pleading on this type of issue, I agree with Mr MacLean that it is not satisfactory that the Defendants did not identify in their Defence and Counterclaim what facts they relied on to show that the clause was reasonable. The Appellants should not be allowed now to rely on any matter which was or could have been contested on the evidence at trial. They did put forward a draft amended statement of case after the appeal in which they sought to rely on matters set out under four heads. I will set them out, showing by italics the passages which, as it seems to me, would or at least might have raised issues requiring factual investigation at trial, and which therefore should not be allowed to be relied on at this stage. Subject to the exclusion of the words in italics, I would regard it as legitimate for the Court of Appeal to consider the issue of reasonableness by reference to the matters so identified.
i) The November 2002 Agreement was a substantial commercial contract intended to govern the parties' relationship for at least 6 years, which Leofelis could renew for a further 6 years;
ii) The contract contained detailed terms, freely negotiated between the parties over a period of some 4 months, including warranties which specifically governed the extent of the obligations and liability undertaken by Lonsdale Sports and TMLC in relation to other licences or rights in respect of the trade marks;
iii) There was no inequality of bargaining power between the parties in relation to its negotiation, in particular because (a) Leofelis was a substantial commercial entity with an estimated turnover of more than €20 million in Italy alone in 2002, and willing to pay an annual royalty of €1.6 million rising to €3.5 million for the rights acquired under the agreement, and (b) it had access to legal advice;
iv) The clause applied equally to each party and was limited in scope in not applying to fraudulent misrepresentation, and not seeking to exclude liability for breach of contract.
- Even on the basis of the limited material which I have indicated that I would have regarded as legitimate for the Appellants to rely on at this late stage in support of their argument for reasonableness, it seems to me that there is a good deal of force in Mr Leggatt's submission that, in the case of a contract of this kind, which may last for 6 years, even apart from Leofelis' option to renew, and which contains express warranties on the subject matter of the pre-contract misrepresentations, it is reasonable to exclude liability for any pre-contract misrepresentations, and to limit liability to damages for breach of contract arising from any breach of warranty. This would avoid the risk of litigation which might have occurred much later after the relevant negotiations than the present proceedings did, five years on, in which the fate of the contract would turn on the unrecorded oral statements of one person or another at a meeting such as that held on 22 July 2002. Particularly where the eventual contract does contain express provisions on the same topic, it seems to me by no means unreasonable that the parties should be confined to the remedies arising under the contract, fraud apart. For that reason, if the point had had to be decided, I would have been strongly inclined to hold that clause 13.3.2 does satisfy the test of reasonableness.
- A separate point taken was that no claim lies under section 2(1) of the Misrepresentation Act 1967 in respect of representations made in the contract. Section 2(1) is as follows:
"Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the representation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true."
- The point taken is that, insofar as reliance is placed on a statement made in the contract, the person relying on the statement cannot say that he "has entered into a contract after a misrepresentation has been made to him". The representation is made in the contract and therefore is not made until the moment when the contract comes into being. That appears to me to be correct. Mr MacLean argued that representations are made in the draft of the contract, and that the representee enters into the contract in reliance on, and after, those statements made in draft form. It seems to me that the answer to that is that the draft is no more than a statement that, if and when the contract is entered into by all relevant parties, the particular party will make the statements in question, just as it will undertake obligations set out in the draft. Accordingly, though it is unnecessary to decide the point, and I do not, it seems to me that Mr Leggatt is right to submit that damages under section 2(1) of the 1967 Act are not recoverable in respect of a misrepresentation which is made in a contract, as distinct from one which is made before the contract is entered into. If that is right, then clause 13.3.2, in limiting liability for misrepresentations made in the contract to breach of contract liability, does not alter the position which would otherwise subsist. In further unsolicited written submissions after the hearing, to which I refer below at paragraph [187], the Respondent's Counsel drew attention to the decision of the Court of Appeal in Eurovideo Bildprogramm Gmbh v Pulse Entertainment Ltd [2002] EWCA Civ 1235, arguing that Rix LJ there held that language found in negotiations or in a draft contract can, depending on the particular wording involved, amount to a representation of fact. In a case in which the point matters, it would be necessary to consider the details of the negotiations and the terms of any successive drafts, something that was not investigated in this case. Since the Claimants did not rely on pre-contractual representations other than those made at the meeting on 22 July 2002, the point does not arise in any event. Nor can it be said that their failure to rely on any such representation was attributable to the Defendants' concession on the interpretation of the Alavi licence, because that was not made until the trial, or shortly before it, by which time the misrepresentations relied on had long since been formulated in the Claimants' Particulars of Claim.
The undisclosed rights: conclusion
- However that may be, for reasons given earlier in this judgment, my conclusion is that the judge was wrong to find that the Appellants were liable for misrepresentation or for breach of contract on the grounds that the Alavi licence could not be terminated, because they did not represent that it would be, or on the grounds that clause 5A was not disclosed, because it did not create any licence or other right in respect of the trade marks. For those reasons I would allow the appeal on the Undisclosed Rights issue.
Damages
- This is another point which does not arise, on the conclusion that I have reached. I will say as little as is necessary to identify the point and record the position reached during the hearing.
- At paragraph 163 the judge indicated certain heads of damage which he considered would be recoverable for breach of contract and for misrepresentation, not distinguishing between the two. Two of these are in general terms, but the third is said to be:
"The sum of €3.8M paid to Badii by Leeside pursuant to the settlement agreement with Badii of the 17th June 2003."
- Mr Leggatt told us that this sum is payable by Leeside by instalments over 10 years, and that Leeside (which is now in voluntary liquidation) has not paid the latest instalment, so that his clients, who are guarantors, have been called upon to pay it. He wished to be sure that, on an enquiry as to damages, the facts could be investigated, so as to see how much is due on this account by way of damages, rather than finding that the disposal of the enquiry as to damages is limited in this respect to finding that the judge said that €3.8 million was due, and it therefore is due in full. This was another point on which he sought to amend his grounds of appeal.
- It seems that Mr Gruder had applied to the judge for permission to appeal on damages, and the judge rejected this in fairly summary terms. The application was not renewed in the Court of Appeal at the proper time. However, discussion of the point revealed that it was accepted on the part of Mr MacLean that (a) although on the enquiry his clients would rely on what the judge said as giving directions to the later tribunal, it would be open to the Defendants, at least, to show that not all of the €3.8 million could be due, because, for example, they had had to pay some part of it to Badii under their guarantee, and (b) all points on damages, including those identified by the judge, would be open to the defendants on appeal at that stage, subject to their obtaining permission to appeal.
- In those circumstances it would not have been necessary to say anything more about damages in this judgment, even if the Appellants' appeal on the Undisclosed Rights had not succeeded.
The Sub-licensee issue
- The question here is whether Leeside was validly authorised as Leofelis' sub-licensee for territories other than Italy, given that Leofelis did not ask for TMLC's prior written consent to extend the territory for which Leeside had a sublicence.
- As already mentioned, Leeside's sublicence for Italy was approved under the November 2002 Agreement. In December 2002 Leofelis extended the area of the sublicence to other countries within Leofelis' territory, without asking for TMLC's consent, as was required under clause 10 of the November 2002 agreement. The extension does not seem to have been to the whole territory: it did not include Switzerland, Poland, Hungary or the Czech Republic. The judge held, at paragraph 219 that:
"at least by early 2006 the Defendants and, in particular, TMLC were fully aware that Leeside was acting as the sub-licensee of Leofelis for the whole Territory in respect of which Leofelis was licensed under the November 2002 Agreement. No objection was raised by the Defendants to this happening until after the commencement of these proceedings. TMLC demanded and accepted royalties under the November 2002 Agreement long after it had become aware that Leeside was acting as such general sub-licensee to Leofelis. In my judgment the Defendants have waived any right which they may have had under Clause 10 of the November 2002 Agreement to object to the extension of Leeside's sub-licence to include the whole of the territory in respect of which Leofelis is licensee."
- The comment that no objection was raised until after the commencement of the proceedings is odd, given that the proceedings were already in being well before the date on which, according to the judge, TMLC knew of the extension of the territory. The judge did refer at paragraph 218 to Mr Moher being aware by at least 2004 that Leeside was acting as general sub-licensee of Leofelis, but since his finding of the Defendants' knowledge in the following paragraph is specifically dated to early 2006, it seems to me that this is the date which has to be taken as definitive. It fits in with a passing reference in the Defendants' solicitors' letter dated 22 February 2006 referred to at paragraph [64] above. Whether that was a fully informed comment may be open to doubt in the light of what followed in the letter dated 22 May 2006, by which explicit objection was taken to the extension. In that letter complaint was made of letters dated 20 February, 27 March and 7 April 2006, from Leofelis, Leeside or their representatives asserting that Leeside was the only authorised sub-licensee for a number of Continental countries.
- Mr Leggatt's submission was that the judge was wrong to find that demand and acceptance of royalties by TMLC with knowledge could make Leeside an authorised sublicensee. It would, no doubt, waive any right to assert that the unauthorised extension of the sublicence, as a breach of the agreement, entitled TMLC to terminate the contract. However, he submitted that, leaving that aside, nothing in clause 10 could turn an unauthorised sublicensee into an authorised one, other than TMLC's failure to respond within 10 days of receiving a written request for consent. In principle, if the licensor required the licensee to enforce the terms of a sublicence, under clause 10.1.3, it could hardly thereafter contend that the sublicence was not authorised. But short of something of that kind, or something else giving rise to an estoppel, Mr Leggatt argued that a sublicence for which consent has not been requested is of no effect in relation to the licensor. It does not make lawful on the part of the sublicensee acts in respect of the trade marks which would otherwise be unlawful.
- In this respect the position is different in the case of landlord and tenant. If a lease contains a prohibition on subletting, which the tenant breaches, to the landlord's knowledge, the subletting creates a property right, albeit one which can be defeated if the landlord forfeits the lease before having done anything to waive the right to do so. In that case, the landlord's waiver does result in the subletting being effective, albeit a breach of contract for which, if loss can be proved, the landlord might sue the tenant for damages.
- As regards a trade mark licence, which does not create property rights of any kind, the significance of a sublicence is that, if it is authorised, acts of the sublicensee in respect of the trade mark which are within the scope of the licence and the sublicence are to be treated as done with the consent of the trade mark owner.
- The judge had first addressed the consequences of an unauthorised sublicence at paragraphs 88 to 90, in the context of the Appellants' reliance at trial on an allegation of other unauthorised sublicensing as a breach of the agreement which entitled TMLC to terminate the contract. That is not challenged on appeal, and although Mr Leggatt at one point submitted that the granting of an unauthorised sublicence was not a breach of the agreement at all, he later argued that, even if it was, that made no difference to his point.
- Accepting that payment of royalties would preclude later termination of the agreement on the grounds of the unauthorised sublicence as a breach, he submitted that it had no other effect in relation to the point, and it did not constitute the giving of consent, there being no scope for deemed consent except following a request under clause 10.
- It seems to me that Mr Leggatt is right on this point. On the facts it seems to be doubtful whether anything done by TMLC at a time when they had reasonably full knowledge of the facts would have amounted to a waiver in any event. The judge does not say how early in 2006 he considered to be the date when TMLC had the relevant knowledge, but by 22 May they were already taking objection. In any event, regardless of that point, I agree with Mr Leggatt that waiver would only affect the position as between TMLC and Leofelis as regards termination of the agreement for breach. It does not mean that there has not been a breach, and it does not result in Leeside becoming a permitted Sub-licensee (a phrase used in clause 4.1). I would therefore allow the appeal on this point as well.
The injunction appeals
- At this stage I can turn from the appeals on substantive points, arising from the judge's judgment handed down on 19 March 2007, to those on points arising from the terms of his orders, and first to those concerned with three of the injunctions which he granted on 8 May 2007. These gave effect to his findings on the Belgian Sales issue. I must say a little about that, to put the orders in context.
- From April 2004 onwards until after the trial, Lonsdale products were sold in some retail shops in Belgium operated by Sports World Belgium (SWB), which products were obtained from the Third Defendant, Sports World International (SWIL), those supplies having continued until shortly after judgment was handed down. Leofelis complained that this was a breach of its exclusivity under the November 2002 Agreement. The Defendants contended that the sales by SWIL to SWB took place in the UK, and that the products so sold were imported by SWB into Belgium, and its dealings with the goods there were protected by the exhaustion of rights principle. SWB was ultimately owned and controlled by Mr Mike Ashley, as were Lonsdale Sports, the First Defendant, and SWIL, but the three companies were no more than subsidiaries of the same parent, with no control over SWB, although at one stage the Defendants' pleaded case was that SWB was a wholly-owned subsidiary of SWIL. The judge described at paragraphs 178 to 187 the twists and turns in the Defendants' successive formulations of their case on how, and from which entity, the goods were acquired and put on sale in Belgium. He was evidently unimpressed by this, and by the fact that no witness who could give direct evidence was called to give evidence to support any of these cases (see paragraph 188). He refused permission to amend to plead that SWB bought the products from the First Defendant in the UK and took them to Belgium (paragraphs 184, 188 and 189) and rejected the case put forward in the unamended pleading (see paragraphs 176-7). He therefore held that the supply by SWIL to SWB of goods for sale in Belgium was an invasion of the exclusivity which was a term of the November 2002 Agreement; he said that he would grant an injunction to restrain future breaches and direct an enquiry as to damages (paragraph 209). He went on to say this, at paragraph 210:
"210. It is to be assumed that SWIL had, at least, an informal sub-licence from TMLC, worldwide master sub-licensee, to sell Product in Belgium. Such [a licence], by clause 10.11 of Lonsdale Sports master sub-licence to TMLC of the 21st November 2002, required the consent of Lonsdale Sports. It is clear that Mr Ashley, Mr Moher and Mr Mellors, at all material times, were aware of the Belgian sales and Lonsdale Sports or TMLC would also have been so aware, at least as a result of the knowledge of Mr Ashley, Mr Moher and Mr Mellors being imputed to them. It was therefore open to Lonsdale Sports or TMLC or either of them to take steps to stop the Belgian sales. In my judgment it was a plain breach of the November 2002 Agreement for either of Lonsdale Sports or TMLC to compete, or permit competition, in the marketing of Product with their exclusive [sub-licensee], Leofelis, in the Territory. I will therefore grant the same relief against them as I have granted against SWIL."
- The judge handed down his judgment on 8 March, and heard submissions as to the form of the order to be made first on 19 March 2007, and, as regards the injunctions, also at a further hearing on 8 May 2007. The order included a declaration that Leeside was validly appointed by Leofelis as its sublicensee for the whole of its territory, and Lonsdale Sports and TMLC were deemed to have given their consent to that in early 2006 at the latest. He gave judgment for the Claimants on almost every aspect of the claim, and dismissed the counterclaim. He directed an enquiry as to damages on the Belgian sales, and on the misrepresentations and breaches of warranty. He ordered interim payments on account of damages, though except for one part of those he ordered that they be held in escrow. He then granted injunctions. He was told that sales to SWB had come to an end by 19 March 2007, and it was argued that, for that reason, no injunction was necessary. He did not accept that argument. The first injunction is against each Defendant, and prohibits (so far as relevant) (1) using the Marks in relation to Goods within Leofelis' territory, (2) licensing, permitting or giving consent to SWB or any third party to use the Marks or any of them in relation to Goods in Leofelis' territory, and (3) supplying or licensing the supply to SWB or any third party in Leofelis' territory of goods bearing the marks, but each aspect of this was subject to a proviso excluding from the effect of the injunction any case where the rights in the Marks have been exhausted. That injunction, in paragraph 15 of the order, is not objected to.
- Objection is taken to the next three injunctions. Like paragraph 15, all of these are limited to the duration of the November 2002 Agreement.
i) By paragraph 16 of the order, the Defendants were required to give the Claimants 14 days' notice in writing of their intention to do so, if they wished to do any of the things which I have identified at (1) to (3) in the last paragraph in my summary of the first injunction. This is not subject to a proviso excluding cases where the trade mark rights have been exhausted, so the 14 day notice would be required to be given even in relation to dealings which would not infringe Leofelis' exclusivity.
ii) By paragraph 17, the Defendants were ordered forthwith to procure that, during the term of the agreement, SWB ceases forthwith to use the trade marks in relation to goods in the territory, and forthwith ceases to deal with such goods bearing the trade marks in the territory, where the goods were supplied by the Defendants, or their supply was licensed or procured by the Defendants, except where the goods bear any of the trade marks and all rights in that trade mark have previously been exhausted.
iii) Paragraph 18 combined the last two paragraphs, requiring the Defendants to procure that, during the term of the agreement, SWB shall notify the Claimants in writing given 14 days' notice of any intention to sell or offer for sale goods bearing the trade marks within the territory or deal with goods bearing the trade marks in the territory.
- Those injunctions are now spent, since the November 2002 Agreement has come to an end. It seems, therefore, that the only questions that can turn on this point are the incidence of the costs of the hearing on 8 May and of this appeal itself. In those circumstances, I propose to deal more shortly than I otherwise would with this aspect of the appeals.
- The Appellants have two objections. They contend that it is wrong for them to be ordered to procure SWB to do anything, because it is a separate company not under the control of the Defendants, so that they would not be able to procure that it should do, or not do, that which they are required to procure. Secondly, they argue that it is wrong in principle for them to be required to give 14 days' notice to the Claimants of dealings which do not infringe Leofelis' exclusivity, because they are protected by the exhaustion of rights doctrine.
- At one time it was said that there was no jurisdiction to make these injunctions, but the real point is whether it is right to make the orders, not whether the court can or cannot do so. The court's jurisdiction under section 37 of the Supreme Court Act 1981 is very wide indeed.
- The judge did not give a separate judgment explaining his reasons for granting these injunctions. His justification for the order that the Defendants procure SWB to do, or not to do, certain things, can be seen in part from paragraph 210 of his judgment, quoted above, and otherwise from the course of argument as shown by the transcripts of the hearings on 19 March and 8 May. Mr Fealy, for the Claimants in March, explained their reasons for asking for the injunction as being to ensure that the goods supplied to SWB in breach of the 2002 Agreement were taken off the shelves and not sold in Belgium (or elsewhere in the territory). In response to the point that SWB could have been made a party to the action, in which case an injunction could have been made directly against them, he relied on the Defendants' delay in putting forward a case to the effect that SWB was an "innocent third party", at a time when, though they could have been joined, it would have made an adjournment necessary. He also submitted that if Mr Ashley, the owner of the Defendants, and of SWB, decided that the goods should come off the shelves in Belgium, then they would. In May, Mr Fealy returned to the subject, and explained the Claimants' uncertainty, as to whether SWB was offering the goods for sale with the consent of Lonsdale Sports and TMLC, in which case that consent could be immediately withdrawn, or without that consent in which case he said they would be entitled to stop the sales by injunction if necessary. Mr Gruder argued that SWB would be selling the goods (if it were) by virtue of being the owner of the goods, and not by virtue of a trade mark licence, the trade mark rights having been exhausted. The judge had rejected that on the evidence at trial, because he considered that even if there had been true sales by SWIL to SWB, those would not have been transactions under which the trade mark rights would have been exhausted, because they were not "sales to an objectively independent third party whose effect was to realise the economic value of the trade mark in the goods in question": see paragraph 200. The judge made it clear to Mr Gruder that he considered that Lonsdale Sports and TMLC would be able to procure SWB to stop selling goods supplied by SWIL if they wanted to. Mr Gruder's submission was that, even if the trade mark rights were not exhausted, the rights of property in the goods had passed to SWB, and his clients had no legal or practical power to procure that SWB should do, or refrain from doing, that which the order required them to procure. Notwithstanding that, the judge said he would make the order as asked by the Claimants.
- As regards the order requiring 14 days' notice of any proposed dealings, whether with the benefit of exhaustion of rights or not, Mr Fealy explained the reasons in March as being that the Claimants were worried about "some sort of collusive arrangement with a third party that will give the patina of exhaustion and we will be right back to square one". A requirement of 14 days' notice would enable the Claimants to apply for a further injunction if they thought there was something suspicious about the proposed dealings. The judge said two things in the course of argument which show his reasons for granting the injunction. The first is this:
"The court has found your clients to be in breach and wishes to protect the Claimant from further breaches, and is entitled to make orders for the disclosure of information as to whether further breaches either have taken place or may take place in the future. I think in a sense we are away from rights, i.e. contractual or trade mark rights of the Claimants, we are in the sphere of the court reacting to a breach of its order."
Later he said this:
"It seems to me … that this is justified because to do so [i.e. to do the acts which are the subject of the prohibition] would be a breach of Leofelis' sole licence unless the Defendants were able to establish that in respect of the intended export of goods, the trade mark rights of Leofelis under the 2002 agreement have become exhausted."
- It seems to me that the judge was influenced, and understandably so, by the Defendants' conduct which he had found to be a breach of Leofelis' exclusivity, and by the way they had sought to defend that conduct and to explain it as being legitimate, up to and in the course of the trial, including the Defendants' failure to call any witness who could have spoken to the relevant matters of fact.
- It may well be that the injunctions granted are unprecedented in the two respects of which the Appellants complain. They would not be satisfactory precedents to follow in future. As regards the SWB injunctions it might have been better to qualify them slightly by requiring the use of best endeavours, rather than imposing an absolute obligation. However, it seems to me that a number of features of the case, including the unusual course taken by the Defendants in seeking, unsuccessfully, to justify their conduct in the proceedings, and at trial, and the fact that sales had continued even after the handing down of the judgment, provided a sufficient basis for the judge to exercise the court's jurisdiction to grant these ancillary injunctions in aid of other relief. I would dismiss these appeals.
The interim payment appeals
- These two appeals are against orders made by the judge following hearings on 18 and 26 July 2007. The relevant circumstances are these. As already mentioned, the judge ordered interim payments on account of damages and costs in favour of Leofelis: £2,500,000 and €2,500,000 on account of damages and £600,000 on account of costs. However, he accepted that there was doubt, having regard to Leofelis' financial position, as to whether, if those sums were paid over to Leofelis, the Defendants would get them back if their appeal were successful, for which he had given permission to appeal. He therefore ordered that all these payments should be made to the Claimants' solicitors to be held in escrow, apart from the sum of €837,500 which was to be paid, in effect, by being credited against that amount which was due by way of royalty from Leofelis on 1 April 2007.
- In July 2007 a further instalment of royalty, in the same amount, became due. Leofelis wished to pay it by the use of a further part of the sum held in escrow on account of the interim payments. The Defendants would not agree, so Leofelis applied to the judge for permission for the sum to be released and used in payment of the royalty. The judge made that order, subject to security for its repayment being given by Mr Buscaini, the owner of Leofelis, by way of a personal guarantee. The Defendants argued that this was wholly inadequate, especially given that there was no evidence at all of Mr Buscaini's financial position, and that if the sum was to be released at all, it should be against a bank guarantee.
- At the first hearing on 18 July the judge indicated that he would make the order, but left it to the parties to agree the terms of the guarantee, on the basis that they could apply to him if they could not agree. The Defendants persisted in asking for a bank guarantee, to which Leofelis would not agree. Accordingly on 26 July the judge was asked to resolve that dispute. He did so in favour of Leofelis, and ordered the Defendants to pay the costs of that hearing on an indemnity basis. He refused permission to appeal, but granted a stay pending an application to the Court of Appeal for permission. That application came, as it happens, before me on paper. I granted permission, and took into account the fact that the same or a similar point could arise every three months until the main appeal was resolved. In the meantime, however, unknown to me, events were taking place which led to the conclusion that, one way or another, the agreement has come to an end, without the payment of any further royalty. Again, therefore, as I understand it, the substantive point only affects the costs of the hearings in July 2007. The Defendants have not pursued their appeal against the finding of liability for the Belgian sales, so that part of the damages paid on an interim basis is no longer subject to a risk of having to be repaid on account of that appeal. There might be a question whether the damages as finally assessed might be less than the interim payment.
- On behalf of the Defendants, the application was resisted before the judge because the interim payment might have to be repaid, with an appeal pending, the release of the sum would substantially erode the security available for eventual repayment, and Leofelis had not disclosed any information as to its financial position, relying only on the assertion that the Defendants were entitled to inspect their records relating to the dealings under the agreement. Despite that, the judge said that he would order the release of the sum against a guarantee by Mr Buscaini. He added:
"The case being presented by [Leofelis] is that Leofelis has ample funds with which to repay. Of course I have no confirmation if that is right or not. But we are not talking about a substantial sum and if Mr Buscaini gives his personal guarantee that will be enforceable and it can be made quite uncomfortable for him. I think, considering the sum, I am prepared to do that."
- He was then asked about the form of the guarantee. He left it on the basis that the parties should agree the form of the guarantee, and if they could not, then it could be mentioned to him. There was then an exchange between Miss May for the Defendants and the judge, which appears as follows in the transcript:
Miss May: "It may be easier if it was in the form of a bank guarantee to remove the issue of the -"
Judge: "That can be negotiated between you."
- On 26 July, the judge was faced with the Defendants seeking a bank guarantee, because otherwise there would be no adequate security for possible repayment, whereas Leofelis put forward a personal guarantee of Mr Buscaini. Unfortunately the judge did not recall the exchange quoted in the last paragraph. He took the view that he had already decided that the guarantee was to be no more than a personal guarantee. Miss May pressed her submission for a bank guarantee, and referred to the absence of any evidence of Mr Buscaini's financial position. She said that his failure to provide such evidence and his unwillingness to provide a bank guarantee "both point to the fact that he does not have any positive evidence of his financial worth, because surely he would produce it." I quote the exchange that ensued, from the transcript:
Judge: "Perhaps he is being as secretive about his affairs as your client is."
Miss May: "My Lord, with respect, I do not think there is any evidence that my clients have been secretive about their affairs."
Judge: "Put it this way, I have been reading quite a few articles in the press recently involving Mr Ashley. Perhaps that was an unfair comment, but there it is."
Miss May: "Those articles relate to the flotation of Mr Ashley's company which are actually to happen after the outcome of this case."
- On 19 March the judge had also made reference to having read an article in the press about Mr Ashley's tremendous success "as a virtually undisclosed businessman", with a comment to Mr Gruder: "It does not help you, does it?". Mr Gruder had responded:
"Yes, we all have read those articles. It does not help us on one level, but of course you are a very experienced judge and you can, I am sure, differentiate between what is relevant and what is not."
- Miss May pursued her submissions, but the judge refused to alter his ruling in favour of a personal guarantee. He then went on to order costs on the indemnity basis, essentially on the grounds that it was unreasonable for the Defendants to have pursued the question of a bank guarantee, the judge having ruled in favour of a personal guarantee with sufficient clarity on the previous occasion.
- As to the substantive order, the issue on appeal is whether the judge was justified in allowing the release of the money without more reliable security. Mr Leggatt's submission was that, in the face of the complete absence of any disclosure by Leofelis and by Mr Buscaini of their financial positions, the judge could not properly assume that a personal guarantee by Mr Buscaini gave the Defendants any better prospect, in realistic terms, that they would recover the payments, if they became entitled to do so, than if it had been an unsecured obligation of Leofelis, and that since the judge had considered the latter to be inadequate, and therefore had imposed the escrow payment condition, it was illogical not to do the same for the further proposed release.
- Mr Leggatt also submitted that, even if the judge's decision was not otherwise challengeable, it was vitiated by his comments about Mr Ashley and his secretiveness, a matter which was wholly irrelevant, and which suggested that the judge was being influenced in relation to his decision by material which was not before the court, was not identified in any clear way, and could not be the subject of any submission. He submitted that this showed either actual bias, in that the judge was predisposed against the Defendants for reasons unconnected with the merits of the issue, or at least apparent bias.
- Mr MacLean's submission was that the judge was entitled to make the order he did as a matter of discretion, and that on a fair reading of the entire transcript, there was no basis for a suggestion of actual or apparent bias.
- I can deal with these points shortly. It seems to me that the judge was wrong in principle to allow the release of the further sum of €837,500 without requiring more solid security for its repayment. It was by no means an insubstantial sum, in the overall context. The escrow arrangement was appropriate because of the need for security, and the funds should not have been released without the substitution of reasonably equivalent security. A personal guarantee was not sufficient for that purpose. If Mr Buscaini could obtain a bank guarantee, then that would have been sufficient. If he could not, that would show that the bank was not prepared to take the risk, and there was no reason why the Defendants should have to do so.
- I would therefore allow this appeal, from which it would follow that the costs orders in respect of the hearings on 18 and 26 July must be discharged. In any event I would have held that the award of costs on the indemnity basis on 26 July was wrong. If the judge had said on 18 July, when Miss May raised (for the first time) the question of a bank guarantee, that he was against her on that, then, on the one hand, she would have known that that was the moment when she had to make sure that the judge had her submissions on the point and, on the other, it would have been unreasonable to seek to raise the point again. As it was, the judge had not heard submissions on the point on 18 July, and had indicated, perhaps inadvertently, that the point might remain open for discussion. In those circumstances, even if he had been right to reject the submission that there should be a bank guarantee, there would have been no adequate basis for ordering the Defendants to pay costs on other than the standard basis.
- It also follows that I do not need to decide whether the judge's reference to Mr Ashley in the course of argument would itself justify discharging his order. I say no more about that, except that it seems to me that, especially after the exchange in March, it was a most unfortunate reference to have made.
The Belgian Sales appeal – costs
- Mr MacLean did not object to the abandonment of the appeal against the finding of liability for the Belgian sales, but said that the Appellants should not only pay the costs of that aspect of the appeals, but should do so on the indemnity basis. He submitted that the Appellants' abandonment of this aspect of the appeal was an acknowledgement that the judge was right to find that they had deliberately invaded and undermined Leofelis' exclusive licence by selling Lonsdale-branded goods in Belgium. The judge awarded costs of that aspect of the case on the indemnity basis, and Mr MacLean argued that it should follow that, the appeal having been abandoned, its costs should be awarded on the same basis. Mr Leggatt submitted that it would be wrong to draw from the abandonment of this part of the appeal any inference that it would have failed, still less that it would have failed so thoroughly that the court might conclude that it should never have been brought, so as to justify an award of indemnity costs. He also submitted that it would be a disincentive against the judicious abandonment of points on appeal. It seems to me that those are fair points. I do not consider that the precedent of the judge's order, based to a significant extent on the Defendants' elusive presentation of their case at trial, justifies the award of more than standard basis costs of the appeal. Exactly what order should be made must await agreement or submissions from the parties, but it should not include any element of indemnity costs in respect of the Belgian Sales appeal.
Summary
- For the various reasons given above, the order I would make is as follows.
- On the procedural points:
i) I would grant to the Appellants permission to amend their grounds of appeal as sought, except on the question of damages.
ii) I would refuse permission to amend to the Claimants to allege other oral misrepresentations between August and November 2002 (their proposed paragraph 13A and consequential changes in paragraph 20) though I would permit a minor amendment, the first sentence in paragraph 20(xxii), to allege that the representations already pleaded, made in July 2002, were false by reason of clause 5A of the Lord John SPA, already discussed at paragraph [118] above. I would not permit the second sentence which is tied to the later oral representations.
iii) I would grant permission to amend the Defence and Counterclaim so as to assert the reasonableness of clause 13.3.2 of the November 2002 Agreement, though not in quite the terms put forward: the extent of the amendment I would permit is shown at paragraph [138] above. I would also permit the amendment of paragraph 72, to tidy up the present form of the statement of case, and of paragraph 75 to introduce a formal allegation that the agreement was terminated by the letter dated 28 February 2006.
iv) The amendments for which I would give permission, as indicated above, must be incorporated in fresh copies of the relevant documents, so that, if any point were to arise in future, the exact basis on which the appeals have proceeded, and on which this judgment is based, should be apparent. I dispense with any requirement of formal re-service of the amended versions.
- On the substantive appeals:
i) I would dismiss the appeal on the Waiver issue, holding that the letter dated 28 February 2006 was not unequivocal, and did not effectively terminate the November 2002 Agreement.
ii) I would allow the appeal on the Undisclosed Rights issue, holding that (1) the oral representations made in July 2002 were not representations that the subsisting licences would be validly and effectively terminated, but only that Mr Moher would serve notice of termination and believed that he could do so effectively, and as such were not false, (2) the warranty in the November 2002 Agreement was not broken by reason of the Alavi licence not being capable of being terminated by the licensor, because there was no warranty that it could be terminated or that the notice of termination which it was warranted had been given would be effective to terminate it, and (3) clause 5A of the Lord John SPA was not a licence or right in respect of the Marks, such that its existence falsified clause 2.2.1 of the November 2002 Agreement, or any oral representation.
iii) I would allow the appeal on the Sub-licensee issue, because I do not consider that acceptance of royalties, with knowledge of a sub-licence for which consent had not been sought or given, can make the sub-licence one to which consent has been given, rather than waiving any right to terminate the agreement on the grounds of the breach involved.
iv) I would dismiss the appeal about the injunctions, which were within the court's jurisdiction and, in the particular circumstances of the case, were within the proper exercise of the judge's discretion.
v) I would allow the first appeal about the Interim Payments, on the basis that the judge should not have authorised the release of money from the escrow account without requiring reasonably equivalent security to be put in place instead, and a personal guarantee by Mr Buscaini was not sufficient for this purpose. In the circumstances, the second of those appeals does not arise because the costs order made by the judge in relation to the Interim Payments issue must be discharged in any event.
- I would invite written submissions from Counsel as to the form of order including as to costs, if the terms of the order cannot be agreed. The Appellants' abandonment of the Belgian Sales aspect of the appeal will no doubt have to be reflected in the order for costs, but it will not justify the assessment of any costs on the indemnity basis.
- I must record that this is another in the unsatisfactory sequence of cases in which, upon circulation of the draft judgment, one party has put to the court written submissions inviting the court to make substantive changes to the judgment and to the outcome of the case. As stated in Robinson v Fernsby [2003] EWCA Civ 1820 at paragraphs 95 and 96, and in Egan v Motor Services (Bath) Ltd [2007] EWCA Civ 1002 at paragraphs 49 to 51, and by the House of Lords in R (Edwards) v Environment Agency [2008] UKHL 22 at paragraphs 66 and 73, this is not a proper course to take. Apart from the insertion of one word, of no great significance, in an earlier paragraph of this judgment, and the addition in paragraph 141 of reference to a case mentioned in the submissions, which (to the extent that it is relevant) ought with reasonable diligence to have been made available before or during the hearing of the appeal, the Respondent's submissions have had no effect other than to delay the handing-down of the judgment, and to require both the Appellants and the court to devote time to considering the points taken.
Postscript: appeal documentation
- The state of the documentation for these appeals was not satisfactory, though it is fair to say that some of the difficulties arose from the present requirements of the Practice Direction supplementing Part 52 of the CPR, a point which it is hoped will be addressed before long by amendment of the Practice Direction. Because there were several separate appeals (though two of them were treated as one) the bundles contain several copies of the judge's judgment, for example. The difficulties were enhanced in the present case by the change of position on the part of the Appellants, which meant that amended grounds of appeal and new skeleton arguments (on both sides) had to be added to already rather over-filled bundles. In addition, the correct state of the statements of case was not in all respects discernible because the judge had dealt at trial with the Defendants' application for permission to amend the Defence and Counterclaim, but the amendments for which he gave permission were not incorporated, after the trial, in a definitive document. The late change of stance by the Appellants also made it necessary for the parties to reconsider whether all the necessary documentation was in the appeal bundles, as the parties had been commendably selective in including passages from witness statements and transcripts in the bundles.
- I do not intend by these comments to be critical of the parties in their preparation of the bundles, though this is not the first case in which I have found that individual bundles have become difficult to use because they are overloaded, despite paragraph 15.4(4)(e) of the Practice Direction supplementing Part 52. I do, however, wish to draw particular attention to the need, especially in complex cases such as this, for care and co-operation in the bundling, with a view to economy of documentation. This will be easier if the Practice Direction is amended. In the meanwhile it seems to me that, with cooperation and by seeking directions from the court, some of what might be achieved by a revision of the Practice Direction can be put in place for the convenience of parties and that of the court. In any case where the documentation for the appeal or appeals is likely to be substantial, and especially where several related appeals are to proceed together, it is appropriate for economy of documentation to be agreed, if possible, between the parties, and if necessary for relevant directions to be sought from the court. Parties and their representatives should consider, in cooperation with each other, whether there are ways to make the bundling of documents as convenient as possible for the advocates in the preparation of the appeal as well as for the court hearing the appeal, even in respects which the present Practice Direction may be thought not to allow. If such ways can be agreed, a direction by consent can be sought from the court and dealt with by a deputy Master, or if necessary by a supervising Lord Justice, on paper.
- In particular: (1) where the documents which will be referred by each party are in a number of different files a chronological bundle of the documents numbered consecutively should be agreed, albeit that the documents will need to bear their original file numbering. (2) If collapsing trial files produces sensible numbering and presentation without the addition of further numbering it will be sensible to adopt that process. (3) As the Practice Direction already provides (on a point which it is unlikely would be relaxed) files should not be over-filled. They have to be carried and used. Use involves reaching for them, opening them and reading the contents conveniently. A good working rule is the 300-page maximum for any one file, set out in paragraph 14 of Appendix 6 to the Chancery Guide. (4) Skeleton arguments, when referring to documents, should identify the correct bundle and page number.
- What I have said in paragraphs 188 to 190 about bundles has not only the agreement of Waller LJ, Vice-President of the Civil Division of the Court of Appeal, and of Keene LJ, as shown by their agreement below, but also that of the Master of the Rolls.
Lord Justice Keene
- I agree with Lloyd LJ as to the outcome of these appeals, for the reasons he gives, and with what he says at paragraphs 188 to 190 about bundles.
Lord Justice Waller
- I also agree that the disposition of these appeals should be as Lloyd LJ indicates, for the reasons given by him, and I agree in particular with what he says about appeal documentation.