ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
HHJ RAYNOR QC (sitting as a Judge of the High Court)
HC04C0220
Royal Courts of Justice
Strand, London, WC2A 2LL
Before :
LORD JUSTICE WALLER
LORD JUSTICE LAWS
and
LORD JUSTICE JACOB
Between :
Artpower Limited | Claimant |
- and - | |
Bespoke Couture Limited Ozwald Boateng -and- Bespoke Couture Limited Ozwald Boateng -and- Artpower Limited Marchpower Holdings Limited Michael Morris | Defendants First Part 20 Claimants First Part 20 Defendants |
(Transcript of the Handed Down Judgment of
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John Davies QC (instructed by Messrs Field Fisher Waterhouse) for the Appellants
Richard Arnold QC and Brian Nicholson (instructed by Messrs Davenport Lyons) for the Respondents
Judgment
Lord Justice Jacob: (Giving the Judgment of the Court at the invitation of Lord Justice Waller)
This is a judgment to which all members of the court have contributed. We have to deal with an appeal and cross-appeal from a decision of HHJ Raynor sitting as a deputy judge of the High Court. The case is about a Menswear Production and Sales Licence Agreement and a supplemental Side Letter
The basic facts
The claimant, Artpower, is subsidiary of a public company called Marchpole Holdings plc. Its largest shareholder is Mr Michael Morris who gave evidence for Artpower along with Mr Tufnell, its acting chief executive at the relevant time. The Judge described Marchpole’s business in para. 8:
“Marchpole, by its subsidiaries, is a wholesaler of what are termed ‘diffusion ranges’ of fashion wear, holding or having held licences for major fashion houses such as Yves St Laurent and Jasper Conran. A diffusion line is a means whereby a fashion designer can expand the market for garments of his design. Suits in a diffusion range will not have the luxury trimmings of mainline ready to wear suits, and will sell for (typically 30–50 per cent) less.”
“Mainline” business consists of the core, upmarket, business of goods sold under a famous designer’s name. For present purposes the Judge’s description of the defendant’s mainline business is what matters (see the next paragraphs).
The individual defendant is Mr Ozwald Boateng, a famous and successful designer of fashion menswear. His company, Bespoke, is the other defendant. The Judge set out the nature of Bespoke’s business prior to the licence agreement as follows:
“Bespoke was the vehicle by which Mr Boateng exploited his design skills. It had first what it called its Mainline business, comprising:”
(i) Bespoke Tailoring at its Savile Row premises. Bespoke suits typically cost approximately £3,500.
(ii) Made to measure suit tailoring at its Vigo Street, London premises. These suits, which are made on a standard block, now retail for approximately £1,500.
(iii) The sale by retail and wholesale of ready to wear suits and complementary shirts and ties. In October 2002 Bespoke’s only retail premises were at Vigo Street. Today such ready to wear suits retail for between about £750 and £1,000.
5. The men’s fashion trade is seasonal and in 2002 Bespoke had end of season summer sales (from late June to the end of August) and Winter sales (commencing immediately after Christmas and running through January). Unsold stock was disposed of, at a loss, principally through TK Maxx Discount Stores.
6. As well as the mainline business, Bespoke also (by Mr Boateng) designed a much lower priced range of casual and formal wear known as the O-Z Collection at Debenhams under design agreements made with Debenhams Retail plc and BMB Menswear Ltd. Although the terms of the agreements differed to some extent, following an extension of the BMB agreement dated 7 March 2002, their essential terms, for present purposes, as at August and September 2002 can be summarised as follows:
(a) the agreements were to continue until 31 August 2003, subject to provisions for earlier determination, for example on breach.
(b) Bespoke, having produced designs for earlier seasons, remained obliged to produce designs for the Autumn/Winter 2003 and Spring/Summer 2004 Collections. Had the agreements run their terms, the latter designs would have been produced by 31st August 2003, the collection going into the stores early in 2004 and remaining there through to the end of the Summer Season Sale.
(c) Bespoke was remunerated for its services under the agreements by royalty fees, and the agreements made provision for minimum royalty payments. In evidence Mr Boateng told me that his company earned approximately £220,000 per year in royalties under these agreements.
d) Clause 6(d) of each agreement provided that “during this agreement the Company shall have an exclusive licence and thereafter for a period of 18 months after termination, to use the Trade Mark provided that use of the Trade Mark is in relation to goods produced from the designs”.
Clause 7(b) of the BMB agreement provided that notwithstanding termination of the agreement the royalty fees payable should continue in respect of sales of goods by reference to the Trade Mark which had been produced from the designs produced under the agreement. (There was a different provision in the Debenhams agreement.)
7. The normal retail price of a suit in the O-Z Collection was approximately £200–£300.
The Preliminary Issues
The Judge set these out as follows:
1. Whether the side agreement was induced by the representation and/or warranty pleaded in paragraph 7 of the re-amended particulars of claim, which alleges that ‘Artpower and Marchpole were induced to enter into the side agreement by and/or only agreed to enter into the same in consideration of the said representation and/or warranty given by Bespoke and/or Mr Boateng that the Debenhams agreement and the BMB agreement terminated and/or concluded on 31 August 2093 and/or that no O-Z label products remains or would remain available for sale in Debenhams or from or by BMB menswear after 21 August 2003.
2. Whether payment of the sum of £150,000 provided for under the side agreement was conditional on ‘Debenhams and BMB Menswear ceasing to sell the O-Z label products on or before 31 August 2003, which date was of the essence’, as alleged in paragraph 7, or alternatively whether that was a term of the side agreement.
3. Whether, under the side agreement, Mr Boateng and/or Bespoke agreed, as alleged in paragraph 6 of the particulars of claim, to terminate or conclude the Debenhams agreement and the BMB agreement at the earliest possible date (but in any event no later than 31 August 2003) and so that no O-Z label products remained available for sale in Debenhams or from or by BMB menswear after 31 August 2003.
4. Whether the side agreement contained the terms alleged in paragraph 6A of the particulars of claim, whereby it is said that Mr Boateng undertook:
6A.1 to give his full support to the licensed products and brand and to take all reasonable steps to promote and market the same, including without limitation, spending sufficient time and care on the design of the licensed products, personally promoting the licensed products in the press and through personal appearances and making himself available for all reasonable publicity activities which Artpower wished to undertake in order to promote and enhance the licensed products; and
6A.2 to grant additional European territories to Artpower once the Licensed Products and brand were established in the UK.
5. Assuming that the above issues are determined in favour of Bespoke and Mr Boateng, whether Artpower and Marchpole are liable under the side agreement to make the compensation payment as defined in paragraph 6.1 of the particulars of claim. This in turn raises an issue involving the construction of the phrase “on termination or the conclusion of existing agreements” used in the letter dated 28 October 2002 from Marchpole to Mr Boateng and Bespoke (“the side letter”).
6. Whether Bespoke and/or Mr Boateng are in breach of contract as alleged in paragraph 9B of the particulars of claim and, if so, whether an injunction should be granted to the claimant to restrain such breach. The alleged breaches relate to the opening of retail premises at the Bicester Outlet Village in Oxfordshire in April 2004, which Artpower alleges has involved Bespoke in breaches of clauses 2.1(b) and/or 6.1(f) of the licence agreement.
The Judge’s findings
The first three issues, it was common ground, stood or fell together. They turned on a single issue of fact: did Mr Boateng, prior to the agreements, represent to Messrs Morris and Tufnell, that there would be no O-Z Collection products in Debenhams after 31st August 2003? The Judge held he did not. Artpower appeal that finding of fact.
The fourth issue was also determined in Bespoke’s favour. Artpower do not appeal this decision, but as will be seen, the Judge’s findings here have a carry-over effect on the other issues.
The Judge also rejected Artpower’s case on the fifth point. This involves a question of construction and is under appeal.
Finally the Judge found in favour of Artpower in relation to the sixth and last preliminary point, again a question of construction. Bespoke cross appeal in relation to that.
Issues (1)-(3)
Appeal on a question of fact: principles
There was no real dispute as to these. They were recently re-examined by this court in Assicurazioni v Arab Insurance [2003] 1 W.L.R. 577. Where, as here, an assault is made on a finding of primary fact reached after seeing and hearing the witnesses, the appellant must show that the judge was plainly wrong.
The appeal on the Judge’s findings of fact
Mr John Davies QC, for Artpower, with dogged determination and at considerable length, argued that was so. The more he did so, the more we found ourselves persuaded not only that he was miles away from showing that the Judge was wrong, but that the Judge was right. We do not think it a useful task to go into every nuance of the argument. It is sufficient to deal with the main points.
There were no less than three opportunities for the representation to be reduced to writing in the form of a written agreement, namely the main agreement, the Side letter and the inducement agreement. If it was really important to Messrs Morris and Tufnell at the time, why did they not get it put into the agreement? And it may be noted that Artpower were being advised by solicitors, so, if the point had been important, one cannot see how it would readily have been overlooked as a proposed contractual term.
In this connection, the Judge’s consideration of the unappealed fourth issue is of relevance. The Judge said this (para. 48):
“I was wholly unpersuaded by Mr Morris’ attempts to explain the lack of documentation; having seen Mr Morris I am quite satisfied that if contractual commitments had been made, he would have ensured they were properly recorded.”
That of course applies equally to the alleged misrepresentation forming the basis of issues (1)-(3). And it should be borne in mind that the Judge had already found Mr Morris to be generally unreliable, putting it diplomatically thus (para.10):
“He is a forceful personality, generally confident in his own views, who, on occasions, I believe hears what he wants to hear.”
Next, none of Artpower’s internal documents are consistent with the alleged representation having been made. On the contrary when notes of meetings were made (and they were) the allegedly important representation is conspicuous by its absence.
Mr Davies sought to make much of the fact that Bespoke did not call a possible witness, Mr Thapa. The judge fully considered this at paragraph 40. It cannot be said that he was plainly wrong. Moreover, as Mr Arnold QC for Bespoke, pointed out, Artpower also had a potential uncalled witness in the form of a Mr Cuomo, who, Mr Morris said, was present at most of the meetings with Mr Boateng prior to the agreement. Mr Morris also said Mr Cuomo was present at the signing of the Licence agreement and the Inducement letter. Mr Davies sought to suggest that the latter point meant only that Mr Cuomo witnessed the signing and was not otherwise present to hear what was being said. That is unlikely – and not what is implied by Mr Morris’ statement. Mr Davies offered no explanation of the position as regards “most of the meetings.”
Mr Davies further submitted that there was a clear acknowledgement by Mr Boateng that his recollection and that of Mr Thapa varied in relation to another matter (whether Mr Boateng was to receive a Bentley and get £150,000 pa for 7 rather than 1 year). Mr Davies said, inaccurately, that this had been “let slip in cross-examination” whereas in fact it was openly disclosed in Mr Boateng’s witness statement. Again this seems miles away from showing the Judge was wrong.
It is particularly noticeable that the allegation of misrepresentation was made also in respect of Bespoke’s solicitors, Davenport Lyons. The Judge dealt with this at para 36:
“I am satisfied that Mr Tufnell and Mr Morris, in October 2002, simply assumed that the termination of the agreements would mean that the O-Z product would not be in the stores after 31 August and I am equally satisfied that that assumption was not based on any representation by Mr Boateng or indeed anyone else acting for Bespoke. It was their error, in that they failed to direct their minds to the possibility of a sell-off provision being in the agreements, when each knew that such provisions on occasion occurred in those sorts of agreements. A very clear indication of what occurred appears in Mr Tufnell’s Witness Statement at paragraph 24, when he refers to “assurances from Dipak Thapa, Ozwald Boateng and Davenport Lyons that the O-Z product would not be in stores at the time of the launch of the Marchpole Red Label range”. He was obviously questioned about this assertion because (apart from anything else) it was impossible to see how Davenport Lyons could have been said to have given such an assurance. When questioned, he confirmed in an answer to a question from me that he took Davenport Lyons’ letter of 30 August 2002 to be the assurance mentioned in paragraph 24 of his witness statement, when it is no such thing, and although he alleged that Mr Thapa had joined in Mr Boateng’s oral assurances, he also confirmed that he took “runs to” in Mr Thapa’s fax of 7 August 2002 to mean “termination and that was giving us a free market place on O-Z versus our new collection”. Finally, he confirmed specifically “that throughout he had sought to get the confirmation of the contracts terminating because we knew that meant that there would not be O-Z product in the Debenham stores”. As I have said, I do not accept that Mr Boateng was responsible for that assumption.”
In short, Messrs Morris and Tufnell put Davenport Lyons in the same boat as Mr Boateng. Since they did not in fact make the alleged misrepresentation, there is no reason to suppose that Mr Boateng did either.
Mr Davies also sought to rely on the fact that prior to the licence, Bespoke would not disclose its agreements with Debenhams and BMB Menswear. The inference he suggested should be drawn is that Mr Boateng knew that full disclosure would reveal that there was no obligation on those licensees to remove all stocks of O-Z by 31st August. Mr Davies sought to reinforce this by the fact that later (when the fact that O-Z goods were in Debenhams was known to Artpower) Bespoke provided some detail of the Debenhams agreement but redacted the portion which indicated how long this potentially could go on for.
We see nothing in either of these points. It was not necessary to show the agreements prior to the licence – if Artpower really wanted an assurance, all they had to do was to get it in writing – the roundabout way of seeing a private contract between Bespoke and others was not the way. And the subsequent redaction is not explicable on the basis that what was redacted would reveal that O-Z would still be in Debenhams, for that fact was known and known to be known. What was redacted indicated how long, in theory, that might continue but the expectation was that the goods would be out much earlier. Redaction, one might infer, was for a different purpose, perhaps to try to keep the temperature down. We do not know what the purpose was. We were shown no cross-examination about the reasons for redaction. We see no reason to draw any adverse inference leading to the conclusion that a misrepresentation was made prior to the licence.
Mr Davies also made the point that Messrs Morris and Tufnell were commercial men of the world. He submitted that it was inconceivable that such men, to whom it was important that the field was entirely clear after 31st August, could be wrong. And it was commercial reality that the field should be clear. But we do not see that at all. The more important the point was, the more obviously it ought to have been in the agreements and the notes taken at the time.
The Judge reached his conclusion in this way [41]
“I have also considered Mr Davies’ submissions regarding what he has termed ‘the objective commercial realities’ of the situation, but these do not affect my conclusions. Having seen Mr Tufnell and Mr Morris, I am quite satisfied that notwithstanding their commercial experience, they simply made a wrong assumption for which Mr Boateng was not responsible. I bear in mind the points made regarding Mr Boateng’s false perception that he was obtaining a Bentley and also £150,000 per year for 7 years under the side agreement, but these false perceptions do not affect my conclusions regarding the alleged assurances, nor regarding the agreements alleged in paragraph 6A. As regards these matters, I am satisfied that Mr Boateng is right and that Mr Tufnell and Mr Morris, who clearly would have discussed their perception of the history, are wrong. Nor do I accept that the Debenhams and BMB agreements were deliberately withheld during the negotiations so as to conceal the post-termination provisions. It is true that Mr Boateng, for commercial reasons, did not wish to disclose the agreements, but I am satisfied that any questions relating to post-termination provisions would have been answered and answered correctly.”
We can see no fault in this. Mr Davies submitted that the Judge somehow proceeded on the basis that Mr Boateng’s evidence was being accepted unless it could be shown to be wrong and that this was an error of principle. We reject that. We have quoted the Judge’s view of Mr Morris’ evidence. What he says here has to be read in that context. The Judge was fully justified in reaching the conclusion he did having seen and heard the witnesses over a 4½ day period.
Issue 5
The Judge dealt with this at paragraphs 50-54. The question is whether the Side Letter required Artpower to pay Mr Boateng £150,000. What it says is:
“On termination or the conclusion of Bespoke Couture Ltd’s/Mr Boateng’s existing agreements with Debenhams plc and BMB Menswear, Artpower will pay Bespoke Couture Ltd the total sum of £150,000 (“the Compensation Payment”). The Compensation Payment is to be comprised of twelve consecutively monthly payments by Artpower to Bespoke Couture of £12,500 and commencing on the date that the above-mentioned agreements are concluded or, as the case may be, terminated (“the Monthly Payments”).”
The Judge held that the Debenhams and BMB contracts were concluded when BMB and Debenhams finally stopped selling O-Z goods in February 2004 so that the first payment should have been in March 2004. By the time of his judgment all the payments should have been made.
The question is what “termination or the conclusion” means. The Judge reasoned thus:
“51 In short, I must construe the words ‘termination or conclusion’, reminding myself that the reasonable man (and indeed Marchpole) were not in possession of the terms of the Debenhams and BMB agreements. Mr Acland and Dr Nicholson, counsel for Bespoke, submit that the words must have been intended to have different meanings, and I agree. They further submit that ‘termination’ means the running of the agreement through its natural course until its expiry date, and that “conclusion” means some other method of termination of the agreement.”
52. In construing the agreement, I have regard to its commercial purpose, namely to compensate Bespoke for its loss of revenue under the Debenhams and BMB agreements. In construing the agreement, I do not have regard to the earlier forms of words in correspondence.
53. In my judgment, “termination” means the ending of the term of the agreement, howsoever that comes about, and “conclusion” has a different and a wider meaning. Given that it would have been known in October 2002 that the agreements were design agreements for O-Z seasonal collections under which royalties were payable, in my judgment the agreements have not concluded for the purposes of the side agreement while the collections are still being sold in Debenhams and royalties are being earned, as was certainly the case with BMB during the autumn of 2003, as conceded by Bespoke in its letter of 29 October 2003. Once the collection has ceased being sold and royalties have ceased being earned, then in my judgment the agreements have concluded within the meaning of the side agreement.”
Mr Davies’ principal argument involved us looking at earlier drafts of the agreement. This the Judge had refused to do, relying on ICS v West Bromwich [1998] 1 WLR at p.912. He was obviously quite right so to do. Moreover, and in any event, we can see nothing in the earlier drafts which would or could have made any difference. The earlier draft said termination only. The fact that it was changed to termination or conclusion is of no assistance in construing those words.
One other factor forming part of Mr Davies’ argument was based on success on the misrepresentation point. Since that failed, the point falls away.
Accordingly we dismiss Artpower’s appeals relating to issues 1-3 and 5.
Bespoke’s cross-appeal
This is about Bespoke’s outlet in what is known as Bicester Village. The Judge describes this at para. 56:
“Bicester Village is about 10 miles from Oxford and contains outlet shops for fashion houses and others (a list is at pp 5/13, 15 and 6). The object of the Village as set out in paragraph 10.7 of the Lease Book, which binds all tenants, is to provide:
‘A number of outlets for the sale of merchandise at prices which reflects a significant discount to prices which would normally be charged. The Tenant must not do anything which might conflict with that intention.
The Tenant must ensure that all merchandise which it sells from the property is sold at a discounted price which is not more than the same product being sold elsewhere by the tenant and which is significantly lower than:
• the actual price at which it normally sells such merchandise in any of its full price retail outlets, or at which it used to sell such merchandise; and
• the actual price at which other trades normally sell such merchandise in their full price retail outlets.
A significantly lower price means that no price is discounted by less than 33.3 per cent and the average discount is at least 40 per cent.’
By clause 10.6 of the Lease Book, the Tenant has the obligation to ensure that the property is fully stocked.”
The list of fashion and designer names at Bicester Village includes what one might call “all the usual suspects” such as Versace, Hugo Boss and many other well-known designer brands. It is a well-known place for discounted fashion items.
Bespoke opened its unit at Bicester Village in April 2004. Marchpole (and Artpower) did not learn of its existence for a further 6 months – a matter of some importance. It shows that that cannot have had a significant impact on Artpower’s business in Red Label products – if it were having such an effect Artpower would be bound to have felt it earlier.
Notwithstanding that, Artpower say that clause 2.1(b) of the licence precludes Bespoke from operating its Bicester outlet. The clause (as corrected for agreed grammatical slips) reads:
“Licensor undertakes that Licensor shall not and nor shall it permit (subject to its existing agreements with Debenhams Retail plc and BMB Menswear Limited) any person (including the Designer), other than (in the case of the word “Boateng”) Artpower, to sell in the Territory at wholesale or retail any products, identical in type or identical or similar in price to the Licensed Products, associated with the Designer or bearing the words ‘Ozwald’ and/or ‘Boateng’.”
Bespoke were selling two kinds of goods at Bicester. They are described thus (without dissent from Mr Davies) in Bespoke’s skeleton argument:
“’Mainline Surplus’ that is to say surplus ready to wear suits, shirts and ties from one of Bespoke’s Mainline outlets in Vigo Street, London and suits, shirts and ties manufactured from surplus fabrics to which Bespoke was financially committed as part of its day to day business as a retailer of high fashion clothing. All such products had either been physically exhibited for sale at Vigo Street or were warehoused for supply to Vigo Street and exhibited for sale there as required. The Mainline Surplus products were offered at discounted prices at Bicester for the purpose of disposing of items and fabrics left-over from previous seasons, to which Bespoke was already financially committed, but could no longer use in its mainline business.
‘Special Purchases’, that is to say shirts and ties made up specifically for sale at Bicester and which had not previously been exhibited for sale at either of Bespoke’s other Mainline outlets nor warehoused for such purpose”
Bespoke accept that the sale of “Special Purchases” was a breach of the clause. But they deny that the sale of “Mainline Surplus” was.
So what is in issue and still complained of is the sale at Bicester of out-of date suits and other goods which were formerly actually on sale at full price at Vigo Street or were warehoused for such sale. The operation is permanent but the goods themselves keep changing, as out of date stock is replenished with fresher but still out of date stock. Bicester is a permanent rather than end of season sale.
Prior to Bicester, if Bespoke could not sell their goods first at full price and subsequently at a sale (normally an end of season sale) it disposed of them at a loss of about £50 per suit to TK Maxx who have a large chain (177) of shops up and down the country selling what can fairly be called unloaded designer goods. The Judge held that Marchpole did not specifically know that Bespoke unloaded their unsold sale goods via TK Maxx but Mr Arnold invited us to infer that they must have realised that the goods went somewhere cheaply. That is, we think, a fair inference.
Bespoke’s purpose in acquiring and selling through Bicester was and is as an adjunct to its Mainline Business. By having a permanent outlet at which out-of-date items can be sold at a discount, it is possible to effect savings in the production of the goods for the Mainline business (e.g. savings on specially designed cloth, production of enough goods so that there are no stock shortages at Vigo Street and so on). Bespoke were doing no more and nothing different from other famous designer brands.
Mr Davies submitted that it was different because other designer brands had a greater ratio of full-price to Bicester-type outlets. That is a distinction without a difference. The lowest ratio apart from Bespoke’s was Versace with three full price outlets and one at Bicester. Bespoke has two full price outlets (Vigo Street and a concession in Selfridges). But for the burden of this litigation it would have had three, for there were advanced plans for a Sloane Street shop. Both in the case of Bespoke and other brands the purpose is to have an orderly way of disposing of out of date stock, and to avoid having to dump it (probably at below cost) via companies such as TK Maxx.
Mr Arnold emphasised that the goods sold at Bicester were always out of date. He pointed to Mr Boateng’s evidence describing the trade as “cyclical, seasonal.” Mr Davies submitted that there was really not significance in the fact that the goods were out-of-date. In effect he submitted a suit is suit is a suit. But whilst that may be so for many consumers it clearly is not so for those interested in the case of these kinds of goods. Both parties to the licence attached significance to fashion – that is indeed why Mr Boateng had to supply designs for two seasons a year under the terms of the licence. As objects of trade the parties clearly recognised a difference between in season and out of season goods.
The Judge said this of the Bicester operation:
“It has formed a valuable addition to Bespoke’s outlets, and one that it would wish to keep, although I do not accept that if it closed, Bespoke would fail: after all Bespoke managed for a long time before the opening of the Bicester Unit. The Unit had enabled Bespoke to better manage its stocks, to take greater risks in purchasing expensive fabrics, to deal more economically with stock and fabric purchases and generally to run its business in a more profitable manner. In addition, a large number of garments have been sold through Bicester. From April to December 2004 996 suits, 1,053 shirts and 663 ties were sold at Vigo Street, whereas 876 suits, 2,816 shirts and 856 ties were sold at Bicester. These (Bicester) suits were mainline suits of a previous season, and more distinctive garments with more luxurious features were similar Red Label suits.”
Mr Arnold accepted that, save that he asserted Bicester was indeed vital to Bespoke. Whether he is right or not does not affect the question we have to decide. To put the sales figures into a different perspective, only 15% of Bespoke’s turnover is through Bicester. It is not clear whether the Bicester sales in volumes of suits is larger than the volumes sold previously through TK Maxx. The evidence did not explore this fully. There was some evidence suggesting sales to TK Maxx of as many as 700 suits for half a season, but it is not entirely clear that sales were always of that sort of volume. Common sense suggests that sales through Bicester will at least be somewhat larger in volume than the previous dumping through TK Maxx and we will so assume.
What was not shown, is that Bespoke was doing anything more than using Bicester as an adjunct to its Mainline business – that it was really aiming at sales through Bicester and making up far too many goods than could ever be sold as Mainline business. As Mr Arnold submitted, that would be commercial suicide for an upmarket designer brand.
The Judge held that the sale of both Mainline Surplus and Special Purpose goods at Bicester was a breach of the clause. His reasoning was as follows starting with paragraph 60:
“(a) It is accepted that the suits, shirts and ties are selling at Bicester at similar prices to similar (non-sale) items in the Red Label collection.
(b) The items at Bicester are of course permanently discounted in accordance with the requirements of the Lease Book.
(c) It is not just surplus stock and goods manufactured from surplus fabrics which are sold at Bicester. Bicester must be kept stocked, and it is accepted by Bespoke that it manufactures more garments than it would otherwise do in order to stock Bicester. It is also clear that at an early stage there were special purchases of shirts and ties for sale at Bicester.
61. It is apparent that on any straightforward reading of clause 2.1(b) the activities at Bicester have involved Bespoke in breach of its provisions: Mainline products (bearing Mr Boateng’s name) are being sold at Bicester at prices similar to those of the similar [Artpower] Red Label products”.
Mr Arnold challenges that “straightforward reasoning” as being inconsistent with the purpose of the clause and the remainder of the Licence, when construed in the light of the background circumstances. He also submitted that the Judge was inconsistent when he subsequently (when considering the terms of the injunction) ruled that the clause did allow what he called “bona fide sales” of discounted old season goods at Vigo Street or even at Bicester if they had been in a sale at Vigo Street.
Mr Arnold developed his argument by reference to a number of other clauses:
“3.9 In order to avoid any potential confusion between the Licensed Products and products produced by the Licensor for sale at its own retail outlets, Artpower agrees, and where necessary, agrees to use all reasonable endeavours to procure, that the products in the Red Label Collection shall not exceed the retail or wholesale price ranges for a Diffusion Line.”
“6.1 Licensor warrants, represents and undertakes at all times during the Term that:
it will not, and shall procure that the Designer does not, design or market in the Territory products that directly compete with the Licensed Products or which are likely to have, or do have, a material adverse effect on sales of the Licensed products during the Term.”
These clauses use defined terms. It is not necessary to set all of them out in detail, it being sufficient to note that Red Label Collection was to be the twice yearly (Spring/Summer, Autumn/Winter) menswear designed exclusively for Artpower. It was to come out under a different trade mark (Red Label) from those used by Bespoke, although the trademark would nonetheless include a prominent reference to Mr Boateng. The key definition is that of Diffusion Line:
“’Diffusion Line’ means products typically retailing at prices from 30% to 50% below the Licensor’s standard (non-sale) retail price for similar products during the previous Year products typically selling at wholesale from 30% to 50% below the Licensor’s standard (non-sale) wholesale price for similar products during the previous Year as the case may be.”
Mr Arnold invited us to construe clause 2.1(b) restrictively. It is after all in restraint of trade, even though there was no explicit argument that it was in unreasonable restraint of trade (as perhaps there might have been). We accept that invitation. It stands to reason that if one man by contract is to restrict another’s freedom to trade he must do so by clear, unambiguous, language.
Next Mr Arnold invited us to consider the purpose of the clause saying it should be construed purposively. The argument developed by first dealing with that which is not its purpose, namely to prevent direct competition between Bespoke’s goods and those of Artpower. That is covered by clause 6.1(f).
The next stage in the argument is founded on clause 3.9. This requires Artpower to keep its prices for Red Label products below the retail or wholesale price ranges for a Diffusion Line. The definition of this, when read in, means that Artpower is to keep its prices at 30-50% below that of Bespoke’s standard (non sale) price. And the Artpower price concerned must its normal price (or the normal price of its retailers) not a sale price. Taking an example, if Bespoke have a suit at £795 then Artpower cannot have a similar suit for more than £560. But what is compared is like for like.
Mr Arnold submitted that clause 2.1(b) was in effect the mirror of this. It requires Bespoke to keep its prices above those of Red Label products. Otherwise, given clause 3.9, Artpower would find itself having to lower its prices. This can only work if the clauses are each talking about equivalent goods. It is not talking about comparing the prices of discounted, last-season goods, with those of current goods.
So, if one considers goods in an end of season sale at Vigo Street, there is no breach of the clause if the prices there were the same as the current Red Label prices. Mr Arnold emphasised his point by reference to the pleading which indeed compares the Bicester discounted price of last season suits with average Red Label current season stock.
Mr Arnold then focussed on the language of clause 2.1(b). What does “similar in price to the Licensed Products” mean? Clearly, he submitted, one cannot read it completely literally. So to do would be absurd – for Artpower sell at wholesale and Bespoke essentially do not. Indeed if one were to be completely literal and non-purposive, Bespoke would win: its Bicester prices at retail will be way above Artpower’s wholesale price. Mr Arnold did not suggest that could be right. But it does entitle him to say a purposive construction is needed to make sense of the clause.
Here it is important to consider the matrix of facts. Part of the matrix is the fact that Bespoke would be holding sales at least during the normal seasonal periods for sales, and possibly at other times. It would also thereafter be selling off products at low prices when it could not dispose of them at sales. Neither party would reasonably be contemplating that such sales would be a breach of clause 2.1(b). How can these activities not be breaches on the true construction of the clause?
Mr Davies felt the force of this last point. He submitted that there really was no problem because as a practical matter “sales” happened more or less simultaneously. So when Bespoke’s goods were on sale at Vigo Street, Red Label would also be on sale. We do not accept that argument. It suffers from the obvious problem that sales do not happen at the same time all over the country. Artpower’s customers are likely to have sales starting and ending at different times and there is no reason why any of those times should exactly coincide with Bespoke’s end of season sale. Moreover both sides would have known that sometimes some retailers conduct mid-season sales, depending on how business is going. Besides the answer does not touch the problem of what happens to goods which are left over after a sale.
So what is the answer to the question based on a purposive construction of the clause? Our starting point is that a distinction is drawn in the definition of Diffusion Line between standard (non-sale) retail prices or standard (non-sale) wholesale prices, and (one must assume therefore) retail “sale prices”, or wholesale “sale prices”. The parties must be taken to have known what they meant by “sale prices” and “non-sale prices”. Before us “sale prices” were taken to be the discounted prices at which goods were sold in order to dispose of stock which had been available at “standard price” during the relevant season.
Now clause 2.1(b) is attempting to place a restriction on selling within the territory at “wholesale or retail prices …similar in price to licensed products”, although the word “prices” does not actually appear in the clause. The question is – to what do the words wholesale or retail price refer? Do they include a “sale price”? We think they do not. The clause is not directed at “sales” at all.
We do not think that in reality we have reached a very different conclusion as to the meaning of the clause from the Judge. Where we differ is in our interpretation by reference to the facts in that the Judge felt that the permanency of Bicester Village and the increase in quantities manufactured pointed to Bicester Village not being a genuine “sale”. We do not think that those matters alone do establish that Bicester Village was not a “sale” i.e. a disposition of out of season goods offered at Vigo Street during the relevant season.
The Judge made another point – that the price at Bicester was indeed a standard price. He said:
“The prices at Bicester in my view are the standard retail prices of goods sold at Bicester.”
But this overlooks the fact that the goods are different – that they are not similar in price to in season goods. Once one appreciates that the Bicester goods are out of date “sale” goods albeit on permanent “sale” the point falls away.
There is no evidence that Bespoke in the past or intended in the future to sell at Bicester Village in a way contrary to the interpretation of the clause for which they were arguing. In the result Artpower did not in our view, and still have not, demonstrated any breach of the clause or entitlement to an injunction.
So, provided the prices at Bicester Village are genuine “sale prices” i.e. prices discounted from the price at which they had been first offered for sale at Vigo Street, the clause does not bite. This in reality is the argument of Mr Arnold when seeking to write in words “standard non-sale” as descriptive of the “retail or wholesale price” but it is not necessary actually to do so.
In the end what Mr Davies could not do, was to point to any rational purpose behind his construction. Essentially, like the Judge, he submitted that the words just covered what was being done at Bicester and that was that. Because this is a clause restrictive of competition we would only accept that submission if the language was so clear that we compelled to do so. We do not think it is.
Accordingly we allow the cross appeal. We would add this, however. If it had been shown that what Bespoke were doing was essentially manufacturing for ultimate sale in Bicester, using the fact that a minor proportion had been offered at Vigo Street as a sham reason for the Bicester operation, then the position would be different. In substance the goods would then really be like the Special Purpose goods whose sale at Bicester, it is accepted, amounted to a breach of the clause. But, as we have said, that was not established on the evidence.