ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
( Mr Justice Etherton )
Royal Courts of Justice
Strand
London, WC2
B E F O R E:
Lord Justice Sedley
Lady Justice Arden
Lord Justice Longmore
Artpower Limited & anr
CLAIMANT/APPELLANT
- v -
Bespoke Couture Limited
DEFENDANT/RESPONDENT
(DAR Transcript of
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400 Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr N Green QC (instructed by Memery Crystal) appeared on behalf of the Appellant.
THE RESPONDENT DID NOT APPEAR AND WAS NOT REPRESENTED.
J U D G M E N T
LADY JUSTICE ARDEN: This is an appeal against the order of Etherton J, dated 6 December 2005. I intend to quote from the judge’s judgment and so I will adopt the definitions in the passage which I am about to quote from his judgment for the purposes of my judgment too. By his order the judge interpreted clause 9 of the agreement (as defined in the judge’s judgement) as providing for automatic termination of the agreement if there was a notice requiring a breach of agreement to be remedied within 30 days, which was not complied with. He also directed that there should be an enquiry as to damages by reason of the undertakings incorporated into the order and he made an order for payment by Artpower of the amount found due.
The background to the dispute is set out in paragraphs 1 to 34 of the judgment of Etherton J:
“1. This is the trial of proceedings under CPR Part 8 for declarations (1) as to the meaning of the termination provisions of Clause 9(3)(a) of a contract between the parties dated 8th October 2002 (‘the Agreement’), (2) that the Agreement terminated on 10th December 2004, and (3) that the Claimant, Bespoke Couture Limited (‘Bespoke’), is entitled to compensation pursuant to a cross-undertaking in damages given by the First Defendant, Artpower Limited (‘Artpower’), and an undertaking by the Second Defendant, Marchpole Holdings Limited (‘Marchpole’), (together ‘the Damages Undertakings’) in an order of Mr Justice Mann dated 9 th December 2004 (‘the Order’) on an application by Artpower for an interim injunction (‘the Injunction Application’), in the proceedings. Artpower Limited v Bespoke Couture Limited and Ozwald Boateng HC04C0220 (‘the First Action’).
“2. There is also before me an application by Bespoke in the First Action for an inquiry as to damages pursuant to the Damages Undertakings.
“3. Artpower and Marchpole oppose all such relief.
“4. Bespoke is the trading company of Mr Ozwald Boateng, a well known Savile Row designer. Its business includes the design and production of bespoke men’s couture and mainline made-to-measure collections. ‘Mainline’ refers to clothing which is below haute couture or bespoke in terms of price, but is usually sold only in exclusive boutiques or fashion stores. By way of example, the retail price of a suit from the mainline range would typically be between £895 and £1,400.
“5. ‘Diffusion’ is clothing above the average range of clothing, but is sold at substantially less than mainline. A suit from the diffusion range would typically have a retail price of between £399 and £520. Diffusion is sold in middle and upmarket clothing shops, chain stores and multi-outlet department stores.
“6. Artpower is a wholly owned subsidiary of Marchpole. Marchpole’s business, operated through subsidiaries, is the design, production and sale of branded menswear and women’s clothing, in particular the exploitation of well-known brands in the clothing market.
“7. During the course of 2002 Artpower and Bespoke negotiated the Agreement, under which Artpower was to produce Bespoke’s diffusion and jeanswear ranges. The Agreement provides for Artpower to design, produce and sell within the United Kingdom diffusion menswear based on sketches provided by Bespoke, and to use exclusively Boateng trademarks for that purpose. In return, Bespoke would receive from Artpower a guaranteed annual sum of £200,000 and a sales-related royalty. Artpower also agreed to spend a percentage of its sales from licensed items on advertising and promotional activities, subject to a minimum of £80,000 per annum, and to contribute at least a £120,000 annually to the cost of fashion shows to promote Mr Boateng’s work. The Agreement also, in essence, granted Artpower an exclusive license to exploit the names ‘Ozwald’ and ‘Boateng’ for menswear and jeanswear diffusion ranges to the exclusion of any other person, including Bespoke and Boateng.
“8. The Agreement contained a guarantee by Marchpole of Artpower’s obligations to Bespoke.
“9. Clause 9.1 of the Agreement provides that, subject to an option to renew the Agreement for a further 5 years, the Agreement will continue for 7 years, that is to say, it will terminate in 2009.
…
“11. Clause 9.4 of the Agreement provides as follows:
‘9.4 Any termination of this Agreement shall be without prejudice to any other rights or remedies a party may be entitled to under this Agreement or at law and shall not affect any accrued rights or liabilities of any of the parties nor the coming into or continuance in force of any provision of this Agreement which is expressly or by implication intended to come into or continue in force on or after such termination.’
“12. Clause 17.1 contains provisions as to the manner of service of notices given under the Agreement.
“13. In the First Action, commenced on 8th of July 2004, Artpower claimed substantial damages from Bespoke and Mr Boateng for alleged breach of a side agreement (‘the Side Agreement’), made partly in letters and partly orally, or for negligent misrepresentations. It also sought an injunction restraining Bespoke, which had threatened to terminate the Agreement for alleged breaches of the Agreement by Artpower, from terminating or purporting to terminate the Agreement. Finally, it sought an injunction restraining Mr Boateng from inducing or procuring Bespoke to terminate the Agreement, and damages against Mr Boateng for inducing or procuring breach of the Agreement.
“14. Bespoke and Mr Boateng served a Defence and Counterclaim against Artpower, Marchpole and a Mr Michael Moms, whom they alleged was also a party to the Side Agreement, for damages for alleged breach of the Side Agreement.
“15. A Reply and Defence to Counterclaim were served in due course.
“16. A hearing date was fixed for 3 rd May 2005, with a time estimate of 3 to 5 days.
“17. Subject to the matters in issue in the First Action, Artpower would have been liable under clause 7.1 of the Agreement to pay an annual minimum ‘Red Label Guarantee’ of £1 50,000, and the annual minimum ‘Jeanswear Guarantee’ of £50,000, on or before the anniversary date of the signature of the Agreement.
“18. On 4th October 2004 Bespoke rendered an invoice for £200,000 plus VAT payable on 10 th October 2004. That amount would have been paid but for the fact that by this time Artpower had calculated that it had a very substantial claim for damages against Bespoke.
“19. On advice, Artpower withheld payment of the sum of £200,000 as a setoff against Bespoke’s alleged liabilities to Artpower.
“20. Bespoke wrote to Artpower a letter dated 28th October 2004 as follows:
‘Licence Agreement
We refer to the licence agreement between us dated 8 October 2002 (“the Licence”).
In accordance with Clause 7.3 of the Licence we issued a VAT invoice for £200,000 plus VAT on 4th October 2004 for that amount, payment of which was due on l0th October, as stated. That invoice related to payments due under Clause 7.1 of the Licence in respect of the Minimum Red Label Guarantee and the Minimum Jeanswear Guarantee.
Payment of that invoice is now overdue. Your reasons for withholding payment are set out in the letter from your solicitors to our solicitors dated 20 October 2004. Those reasons however do not justify your failure to pay our invoice.
By withholding payment you are in breach of Clause 7.3 of the Licence. We therefore require that you remedy this breach within 30 working days of the date of service of this letter by rendering payment of the invoice in full together with interest at 3% above the base rate of The Royal Bank of Scotland (pursuant to Clause 7.6 of the Licence).’
“21. The Injunction Application was issued on 3d December 2004 for hearing
on 8th December 2004. The Application was for an order that:
‘(1) the First Defendant [Bespoke] be restrained until trial or further order in the meantime from terminating or purporting to terminate the Menswear Product Sales Licence Agreement dated 8th October 2002 made between the Claimant [Artpower] and the First Defendant and Marchpole Holdings plc on the basis of the Claimant’s alleged failure to make payment of f200k plus VAT to the First Defendant in respect of the minimum red label guarantee and the minimum jeanswear guarantee (each as defined in the said Agreement) in October 2004
(2) the First Defendant be restrained until trial or further order in the meantime from selling or attempting to sell or offering for sale in the UK, at wholesale or retail, any product identical in type or identical or similar in price to the Licensed Products (as defined in the said
Agreement) associated with the Second Defendant [Mr Boateng] or bearing the words “Ozwald” and/or “Boateng”
(3) the costs of this application shall be paid by the First Defendant in
any event.’
“22. The Injunction Application was supported by a witness statement of Mr Gregory Tufnell, the Chief Executive Officer of Marchpole.
“23. In a letter from Bespoke’s solicitors to Artpower’s solicitors dated 7th December 2004 Bespoke’s solicitors said that it was inappropriate for the Injunction Application to be made in the First Action, and they proposed that the Injunction Application be dismissed and a new action be commenced, and an application corresponding to the Injunction Application be made in those new proceedings. The letter went on to confirm that, in that event:
‘1. The Application be adjourned to a date convenient to Bespoke and Artpower but in any event not before the end of February 2005 with directions for the filing and service of evidence to be agreed.
2. Pending that return date, Bespoke will undertake (notwithstanding and therefore without prejudice to its contention that the Licence Agreement will terminate on 10 December 2004):
2.1 to continue to act in full compliance with its obligations under
the Licence Agreement; and
2.2 not to sell, attempt to sell, or offer for sale in the UK, at wholesale or retail, any product identical in type or identical or similar in price to the Licensed Products (as defined in the Licence Agreement) associated with Ozwald Boateng or bearing the words “Ozwald” and/or “Boateng”.
3. Artpower’s cross-undertakings (guaranteed by Marchpole Holdings PIC (“Marchpole”) apply so that, if the Court later finds that the undertakings at paragraph 2 above or carrying them out has caused loss to Bespoke and decides that Bespoke should be compensated for that loss, Artpower (guaranteed by Marchpole) will comply with any order the Court may make.’
“24. Artpower’s solicitors replied by a letter dated 8th December 2004, in which they rejected the suggestion that the application for injunctive relief should be made in new proceedings, and then continued:
‘Also, the undertaking at paragraph 2 of your letter is rendered meaningless by the caveat contained in brackets. It is not acceptable to our client and does not negate the need for injunctive relief.
However, our client is prepared to agree to adjourn the application on the following basis:
1. As your paragraph 1. The application will remain in these proceedings.
2. Pending the hearing on that return date Bespoke will undertake:
(a) to continue to act in full compliance with its obligations under the Licence Agreement;
(b) not to sell, attempt to sell, or offer for sale in the UK, at wholesale or retail, any product identical in type or identical or similar in price to the Licensed Products (as defined in the
Licence Agreement) associated with Ozwald Boateng or bearing the words “Ozwald” and / or “Boateng”; and
(c) not to serve or purport to serve notice of termination of the Licence Agreement.
3. As your paragraph 3.
4. The costs of this application be reserved to the date referred to in paragraph 1 above.’
“25. There was no agreement on those terms, and so the Injunction Application came before Mr Justice Mann, as the interim applications judge, on 8th December 2004. On that hearing, Mr J Davies QC appeared for Artpower and Mr R Hacon appeared for Bespoke.
“26. On the basis of undertakings given by Artpower and Bespoke, Mr Justice Mann dismissed the Injunction Application, but he ordered Bespoke to pay Artpower the costs of the Application in any event, summarily assessed in the sum of £9,000. The undertakings given by Bespoke, which were contained in Schedule 2 to the order of Mr Justice Mann (‘the Order’), were as follows:
‘(1) To accept payment of the sum of £238,193.60 to the client account of Messrs Davenport Lyons of 30 Old Burlington Street, London W 15 3NL by 4.30pm on Friday 10 December 2004 upon terms that no payment out of such sum to or to the order of or at the request of the First Defendant is made until judgment in this action or further order of the Court in the meantime, as good payment and discharge of the Minimum Red Label Guarantee and Minimum Jeanswear Guarantee payments due fiom the Claimant in October 2004 pursuant to clauses 7.1 (a) and (c) of the Menswear Production and Sales Licence Agreement dated 8 October 2002 made between Bespoke Couture Limited, Artpower Limited and Marchpole Holdings plc (“the Agreement”).
(2) Until judgment in this action or further order in the meantime and notwithstanding and, therefore, without prejudice to its contention that the Agreement will terminate on 10 December 2004 by virtue of events which have already happened and without any further act or acts by the First Defendant:
(a) to continue to act in full compliance with its obligations under the Agreement; and
(b) not to sell, attempt to sell, or offer for sale in the UK at wholesale or retail, any products identical in type or identical or similar in price to the Licensed Products (as defined in the Agreement) associated with Ozwald Boateng or bearing the words “Ozwald” and/or “Boateng”.’.
“28. The only undertaking given by Artpower, also contained in Schedule 2 to the Order, was the usual cross-undertaking in damages.
“29. Schedule 2 to the Order also contained an undertaking by Marchpole forthwith to pay or procure Artpower to pay any compensation which the Court might order pursuant to Artpower’s cross-undertaking in damages.
“30. On 10th December 2004 the amount claimed by Bespoke was duly paid by Artpower to Bespoke’s solicitors, and was, in accordance with Bespoke’s undertaking in Schedule 2 to the Order, held by those solicitors until judgment in the first action.
“31. On 19 January 2005 Mr Justice Hart ordered that a number of issues in the First Action be tried as preliminary issues (‘the Side Letter Issues’).
“32. The trial of the Side Letter Issues, together with a further preliminary issue added by consent on 23d February 2005, took place at the beginning of March 2005 before His Honour Judge Raynor QC, sitting as a judge of the High Court.
“33. On 8th April 2005 Judge Raynor directed that Bespoke was entitled to payment forthwith of the £238,196.60 referred to in Schedule 2 to the Order. He also directed, as I have already said, that Bespoke’s application for an inquiry as to damages under Artpower’s cross-undertaking as to damages in Schedule 2 to the Order, be adjourned to the hearing of an application (currently before me in the present proceedings) as to the construction of the undertakings and of clause 9.3 of the Agreement.
“34. On 28th July 2005 the Court of Appeal dismissed appeals by Artpower, Marchpole and Mr Morris from the decision of Judge Raynor.”
Paragraph 10 of the judge’s judgment set out, in part, paragraph 9.3 of the agreement and so I will now set out that clause and the two preceding sub-clauses in full:
“9.1 - Subject to earlier termination pursuant to Clause 9.1, this Agreement shall commence on the commencement Date and continue in force for a period of 7 (seven) years from the commencement Date;
“9.2 - In the six months prior to the expiration date, either the Licensor or Artpower may give notice to the other that it wishes to renew this Agreement for a further term of 5 years and the parties agree that they shall negotiate such renewal in good faith.
“9.3 - This Agreement may be terminated: -
(a) by either Licensor or Artpower with immediate effect if the other commits a material breach of any term of this Agreement which in the case of a breach capable of remedy shall not have been remedied within thirty (30) working days of the receipt by the other of a written notice identifying the breach and requiring its remedy. Upon remedy, the party in breach shall provide proof of remedy within this same thirty (30) working days;
(b) by either Licensor or Artpower with immediate effect if the other party shall have a receiver or administrative receiver appointed over it or any part of its undertaking or assets or shall pass a resolution for winding up (otherwise than for the purpose of a bona fide reconstruction); or is the subject of a bankruptcy petition or bankruptcy order or if the other shall enter into any voluntary arrangement with its creditors or shall be subject to an administration order or shall cease 10 carry on business or if a court of competent jurisdiction shall make an order 10 the effect of any of the foregoing or any analogous matter;
(c) by Artpower upon notice with immediate effect if:
(i) the Designer is unable, over a continuous period of 8 months, to provide the Licensor with the Sketches for the Red Label Collection in accordance with the terms of this Agreement; or
(ii) the Designer suffers damage to his image and/or reputation as a result of matters involving moral turpitude which in the reasonable opinion of Artpower is likely to have a material adverse effect on the sale of the Licensed Products.”
There was also another letter written between the parties which has been the subject of argument on this appeal. It is the letter dated 30 November 2004, which is at page 112 of the core bundle.
“Dear Sirs
Bespoke Culture Limited
We refer to your fax of today’s date.
We note that you say that you are preparing an application for an injunction restraining any purported termination of the License Agreement by our client. Please provide authority for the granting of an interim injunction ordering specific performance of a contract.
Clause 9.3 of the Licence Agreement states that either party may terminate in the event of a fundamental breach which, ‘in the case of a breach capable of remedy shall not have been remedied within (30) working days of the receipt by the other of a written notice identifying the breach and requiring its remedy’. Our client’s letter of 28 October 2004 to your client clearly fulfilled the requirements of such a written notice and accordingly constitutes notice of intention to terminate with immediate effecting in the event that the breach is not remedied within the prescribed period. Whether our client elects to terminate or not is a matter for it.
Yours faithfully
Davenport Lyons”
As I have said, the judge held that the agreement terminated automatically. He reached that conclusion in summary by the following steps. He held that the word “may” at the start of clause 9.3 did not introduce a requirement for further steps to be taken. All that Bespoke had to do was to give notice of its intention to terminate the agreement on one of the grounds specified in clause 9.3(a). He held that Bespoke did this by its letter of 28 October and that its election to terminate the agreement was confirmed by its letter of 7 December 2004 (see paragraph 23 of the judge’s judgment set out above). He held that the wording of clause 9.3(c) supported his interpretation because that provided for termination of the agreement “upon notice with immediate effect”. A requirement to serve notice was significant because it required compliance with the formalities in clause 17 of the agreement. The judge held that the submissions of Artpower rendered the words “with immediate effect” in 9.3(a) otiose. If Bespoke had wanted to waive the automatic termination before the notice took effect, it could have done so. The judge distinguished the decision of the House of Lords in Mardorf Peach & Co. Ltd v Attica Sea Carriers Corporation of Liberia [1977] AC 850. The letters of 30 November and 3 December 2004, which indicated that the agreement would not come to an end until Bespoke so elected once the 30-day period had come to an end, did not alter the judge’s interpretation of the agreement.
The judge then turned to the application for enquiry as to damages. He rejected the argument that the undertaking to accept the sum paid to Bespoke’s solicitors was good payment and discharge meant that it had no remedy under the cross-undertaking that the agreement terminated automatically. He reviewed the exchanges by counsel and the judge, Mann J, at the hearing which culminated in the order. I do not intend to set those passages out because these exchanges as the judge recognised, in this case Mann J, were merely negotiations between the parties as to the form of the order. Evidence as to the negotiations leading to a contract they cannot, on the face of it, be referred to on an issue as to the true interpretation of the order. The judge noted there was no application to rectify the order and so the judge held that the agreement to accept the sum in paragraph 1 of the undertaking as a good discharge was subject to the argument on automatic termination of the agreement.
I now turn to this appeal. There are three issues: first, the true interpretation of the order; secondly, the true interpretation of clause 9: did it provide for automatic termination as a result of the steps taken by Bespoke before 10 December 2005? Thirdly, whether Bespoke is entitled to an order for an enquiry as to damages under the cross-undertaking as to damages in the order because it would have served a notice which, because of the undertakings it had given, it was unable to do.
So I turn to the first issue as to the true meaning of the order. The argument here relates to the undertakings in the order. According to Artpower, the effect of paragraph (1) was that the payment was, for all purposes, good payment though made one day late. So the would prevent the termination of the agreement for late payment on whatever ground the right of termination was exercised. Bespoke submits that the order should be read merely as granting relief on an interim basis and not as affecting the position, should it be found that there was no liability in the first action and thus no set off. In that situation Bespoke submits that Artpower had no excuse for withholding payment and that Bespoke would, if it had not been injuncted, have given any necessary notice of termination.
In my judgment the order, including the undertakings, must be read as a whole. A second undertaking clearly on its face preserves the argument that Bespoke were seeking to raise, that it had in fact already taken sufficient steps to terminate the agreement. Accordingly, if it is right on that argument, the payment would not have been a good discharge. However, in all other events, it would be a good discharge. One of the consequences of that was that Bespoke would have to look to its solicitors as the person who is holding the money to account to it for interest. The fact that the payment was late one day late appears to have been treated as too trivial to require compensation for that one day because the payment was accepted as a good discharge.
The second issue was whether Bespoke was right in its interpretation of clause 9. The judge held that Bespoke was right. The appellant contends that the judge’s interpretation was erroneous. Mr Green QC submits on the appellant’s behalf that the crucial words are: “may be terminated” at the start of clause 9. The judge’s interpretation involved rewriting clause 9 and resulted in the agreement terminating automatically upon the service merely on the notice requiring a breach rather than notice of termination.
Mr Green refers to the commercial desirability of an agreement, which provided termination if any of the circumstances in clause 9 arose, terminating only if the other party wished it to terminate. He also points out that clause 9 refers to steps which happen sequentially, such as the presentation of a bankruptcy petition and the making of a bankruptcy order, and those would be indications that clause 9 was intended to be operated only if the party not in breach elected that it should be terminated. Mr Green’s argument is also that the letter dated 28 October 2004 did not constitute notice of the termination of the agreement and that notice of termination had to be interpreted according to its meaning to a reasonable recipient in the circumstances in which the notice was given and he refers to Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749. In any event the effect of the undertakings given by Bespoke were that Bespoke accepted, on Mr Green’s submission, the payment as good payment and discharge, and accordingly he submits the judge was wrong to conclude that paragraph (2) was subject to a reservation that the agreement would terminate automatically on 10 December 2004.
The respondents, for whom Mr Arnold QC appears, contend that the agreement was concerned with material breaches. It provided for a 30-day working period for remedy of a breach which was capable of being remedied. The notice requiring remedy of a breach that was capable of being remedied had to comply with clause 17. It terminated automatically if the remedy did not take place in the 30-day period. Only when notice was required; the word “may”, on Mr Arnold’s submission, merely reflects the possibility that the agreement may be terminated on the grounds of clause 9. Clause 17 as I have said does not on his submission deal with the second notice, exercising the right to termination, but with the service of notice when the breach was committed. So, in this regard, Bespoke adopts the reasoning of the judge. Mr Arnold also submits that the letters dated 30 November 2004 and 3 December 2004 were clear and he also relies on the second letter of 30 November as constituting second notice if required. In addition Mr Arnold relies on the letter of 7 December 2004.
In my judgment clause 9.3 confers a right on the party, if he wishes to do so, to terminate the agreement in the circumstances described in that clause. But he is not bound to take that step. As my Lord, Lord Justice Sedley, pointed out in argument a petition could be presented simply because there was an oversight in the payment of a small debt and it would not be a commercial reading of the agreement in those circumstances for the agreement to be read as providing for automatic termination.
In my judgment, the party who was not in breach had to take some positive step to bring the agreement to an end. He had to communicate his election to the other party if he chose to take that course. I do not think it is necessary to decide whether that party had to do so by a notice which complied with clause 17 or alternatively whether he was able to make his election in the case of a breach which was capable of remedying before the period of 30 days for remedying that breach had expired. I can resolve the issues on this appeal by assuming that Mr Arnold is right on those points. On that basis, the question is whether the letters sent by Bespoke’s solicitors amounted to notice of termination of the agreement.
I take each letter in turn. The letter of 28 October is a letter which merely gives notice requiring the breach to be remedied. As for the letter of 30 November 2004, this merely states in material part as follows:
“Our client’s letter of 28 October 2004 to your client clearly fulfilled the requirements of such a written notice and accordingly constitutes notice of intention to terminate with immediate effect in the event that the breach is not remedied within the prescribed period. Whether our client elects to terminate or not is a matter for it.”
In my judgment, that letter containing that sentence merely gave notice that there was an intention to terminate but that that intention would depend on whether the client chose to terminate the agreement or not at a future point in time. On the basis of that letter, Artpower was entitled to proceed on the basis that, if the breach was remedied or it was claimed that Bespoke for some other reason should not terminate the agreement, the agreement would not be terminated.
The next letter is 3 December but no reliance was placed on this and in my judgment rightly so because it states as follows:
“We refer to your letter of today’s date. We confirm that when we stated in our letter of 30 November that ‘the 30 day period set out in the notice letter will expire on 9 December’, this meant that the last day of the notice period is 9 December and that the first day on which our client can terminate is 10 December 2004.”
This would seem to be saying that the termination would not be effective until on or after 10 December. Reliance was also placed on paragraph 2 of the letter of 7 December 2004. This is a long letter which was set out by the judge. At paragraph 2, the crucial words are:
“Pending that return date, Bespoke will undertake (notwithstanding and therefore without prejudice to its contention that the Licence Agreement will terminate on 10 December 2004)…”
Those are words of futurity in relation to the termination of the agreement and therefore the letter is not saying that the agreement had already terminated by what had been said and done. So those words could not be a reference to a notice exercising the right to terminate the agreement under clause 9 of the agreement. In any event, the material parts of this letter constitute a proposal to Artpower and nothing more.
In all the circumstances I would, for the reasons I have given, disagree with the judge on his interpretation of clause 9 of this agreement. In my judgment, the party who was not in breach had to communicate to the other party that it was terminating the agreement under that clause.
For reasons given, no step was taken by Bespoke before 10 December amounting to such termination, and therefore I would allow the appeal against the judge’s order on that ground.
That takes me to the third issue, which is whether there should now be an enquiry as to damages under the cross-undertaking in damages. The material part of the order is paragraph 3 of schedule 1 which records that Artpower gave the following undertaking:
“If the court later finds that the order or carrying it out has caused loss to the Defendant and decides that the First Defendant should be compensated for that loss, the Claimant will comply with any order the court may make.”
That paragraph 3 appears in a schedule of undertakings. Artpower contends that the cross-undertaking in that paragraph 3 does not extend to loss incurred by reason of the undertaking as opposed to the operative part of the judge’s order. The operative parts are set out in the first page and provided for dismissal of the undertaking, and for the first defendant to pay the claimant’s costs of the application. Such a limited interpretation of the order would, as I see it, be inconsistent with the practice which is set out in paragraph 5.2.2 of the Chancery undertaking. That states that:
“Often the party against whom an injunction is sought gives to the court an undertaking which avoids the need for the court to grant an injunction. In these cases there is an implied undertaking in damages by the party applying for the injunction in favour of the other.”
I need not read further from that paragraph, which is to be found at page 18, volume 2, of Civil Procedure 2006.
So the normal implication into the order would be a cross-undertaking in damages to protect Bespoke for the undertakings that it had given. But Mr Green submits that that implication cannot be made here because of the express terms of paragraph 3, which I have read. In my judgment, Mr Green is not correct in his interpretation of paragraph 3. It gives protection to Bespoke from any provision of the order which has caused loss to the defendant. The whole of the document is described as an order. The order contains provisions for its interpretation which are clearly intended to extend to the schedule as much as any other part of the order. In addition there is a passage headed “Effect of this Order” on the first page, which refers expressly to undertakings and informs a defendant, if an individual who is ordered to undertake not to do something, that he must not do it himself nor in any other way. So it is clear that the undertakings form part of the order and accordingly, in my judgment, the cross-undertaking in paragraph 3 extends to protect Bespoke from the consequences of giving the undertakings given to the court by it.
So that leaves the question as to whether there should be an enquiry now as to damages. As I have already indicated, the agreement did not come to an end on 10 December and the effect of the undertakings was that the first defendant was not in a position to take any step to terminate it after that date. The question then is whether Bespoke could have taken any step to terminate the agreement after 10 December if it had not given its cross-undertakings to the court. It submits that it would not have suffered the loss if it had been free to bring the agreement to an end, as a result of serving notice on 10 December that the payment due on 9 December had not been made in time, and so accordingly the 30-day period for remedying the breach of the agreement had expired. I should say that the payment which I have expressed as due on 9 December was in fact due some 30 working days before that date and that 9 December was the last date it could be made under the grace period allowed by clause 9.3.
In my judgment, the course which was put by Bespoke is not one which was open to it after it had given the undertakings. The terms of the first undertakings was that it would accept the payment to its solicitors’ account:
“as good payment and discharge of the Minimum Red Label Guarantee and the minimum guarantee payments due from the claimant in October 2004 pursuant to clause 7 of the agreement.”
Once it did this, as I see it, there was no basis on which Bespoke could or needed to serve notice on the basis of non-payment. Accordingly, in my judgment it is not now open to it to complain that it has suffered loss as a result of the undertakings. This may seem harsh but the reality is that this payment did not keep Bespoke out of its money so that it could not use the money until the judgment in the first action. Once it accepted the payment as good discharge, any claim for loss of the use of the money would be at an end. The words “good payment and discharge” can have no meaning unless they have some substantive effect on the parties’ contractual rights and therefore, in my judgment, on the principles applying to the interpretation of documents they have to be given that effect even though these undertakings were given as a result of indications from the judge as to what relief he might give and not as part of a consent order.
For those reasons, in my judgment the respondent’s notice seeking an enquiry as to damages must be dismissed.
LORD JUSTICE LONGMORE: I agree. I would only respectfully add that, although the judge did not find reference to authority helpful, her Ladyship, Lady Justice Arden’s judgment is consistent with the large number of cases which have construed clauses in time charterparties dealing with the right of a ship owner to withdraw his ship in default of a payment of hire. Notice of withdrawal must, on any view, be communicated to the other party to the contract (see Mardorf Peach & Co. Ltd v Attica Sea Carriers Corporation of Liberia , otherwise known as the Laconia [1977] AC 850, in particular at page 872 per Lord Wilberforce) even if a notice under an anti-technicality clause has first to be served (see Afovos Shipping Company v Panyan & Fratelli, [1983] 1 WLR 195, particularly at page 199G per Lord Hailsham of Marylebone, Lord Chancellor).
I have found the arguments set out in the respondent’s notice the most troubling aspect of this case but have come to the conclusion that the presence of the words “as good payment and discharge” of the payments due from the claimant can only have been intended as an agreement that if payment were made by 4.30 on Friday 10 December 2004, the liability for those payments is to be regarded as discharged. If Bespoke had wanted to reserve the argument that nevertheless they were entitled to terminate on notice, they could easily have reserved that right just as they have on any view reserved the right to argue that termination would occur in the events which had already happened.
In those circumstances, no loss has arisen from the making of the order or the carrying of it out, and there is no right on the part of Bespoke to have any enquiry as to damages. I therefore agree that the appeal should be allowed and I would also agree that the cross-appeal, if that is what it is, should be dismissed.
LORD JUSTICE SEDLEY: I too agree with the judgment delivered by my Lady, Lady Justice Arden.
Order: Appeal allowed.
P O S T J U D G M E N T D I S C U S S I O N
LORD JUSTICE SEDLEY: Mr Green, then you succeed both in your appeal and in resisting the respondent’s notice because that is how it is accomplished(?).
MR GREEN: My Lord, if I could mention costs? There are two schedules if you Lordships wish to see them.
LORD JUSTICE SEDLEY: No, we have both sides’ bill of costs.
LADY JUSTICE ARDEN: I would just like to say that I have not appreciated that this case was one in which Mr Rands(?) was involved and I should just say that I do know him but not well. I hope that is clear.
LORD JUSTICE SEDLEY: It was only on looking at the bill of costs that even that has become apparent. It was not known before judgment. Mr Green, you apply in the amount shown on your draft bill?
MR GREEN: We do, my Lord. This is a commercial matter and part of a long-running dispute between the parties. Costs over a variety of proceedings have worked both ways. There is no reason why our submission why costs should not be order in favour of my client.
LORD JUSTICE SEDLEY: First of all, on the principle of which way the costs should go Mr Arnold. Do you wish to say anything?
MR ARNOLD: My Lords, I do not think I can resist my learned friend having the costs of the appeal on the basis that –
LORD JUSTICE SEDLEY: What do you say about the amount?
MR ARNOLD: Before I come to the amount can I just mention, so that I do not forget later, I want to mention two things. One is I will have an application for permission to appeal. Secondly, I need to clarify the position in relation to the cross-undertaking. So can I just mark those so that we do not forget to come back them.
LORD JUSTICE SEDLEY: All right.
MR ARNOLD: So far as the amounts are concerned, could you take two schedules side by side …
LORD JUSTICE SEDLEY: Yes, we have begun to do that.
MR ARNOLD: And could I point out first of all my learned friend’s schedule is over double ours and that is despite the fact that we have had two counsel, whereas he is on his own. Now not only that one also needs to …
LORD JUSTICE SEDLEY: Mr Arnold, let us be quite short about this. We have looked at this bill of costs. We think it is outrageous.
MR ARNOLD: I am obliged.
LORD JUSTICE SEDLEY: The only question is whether we are going to engage in major surgery here or whether we should send it off for a costs assessment.
MR ARNOLD: I would invite you to send it on for a costs assessment.
LORD JUSTICE SEDLEY: Well, I do not think unless Mr Green can dissuade us, that you are going to have much trouble about that. Let us see what Mr Green says.
MR GREEN: My instructing solicitor asks that in those circumstances it should be assessed, your honour.
LORD JUSTICE SEDLEY: Yes, well I would like to ask you one or two things about it, if you will take instructions Mr Green before we send it off. It includes at the bottom of the first page attendances on the respondent, that is on the other side, which my arithmetic tells me totals 33.2 hours. Take it from me for the moment. It is not wrong at all by much. The other side by contrast have a bill for attendances upon you, which I assume is holding the other end of the same telephone, totalling 5.2 hours. Are you able to explain this difference?
MR GREEN: Well, it would include work on documents. So it is not just a matter of inter-parties communication.
LORD JUSTICE SEDLEY: Well, attendances upon appellants is different from work on documents. It is distinguishable.
MR GREEN: It is the writing or preparing of letters and maybe that the different –
LORD JUSTICE SEDLEY: So it may be writing letters.
MR GREEN: Yes. And another head of work on documents.
LORD JUSTICE SEDLEY: Well, that you are saying was preparing the files for the court.
MR GREEN: It may just be there is a certain laxity in the headings and they are not sufficiently descriptive.
LORD JUSTICE SEDLEY: Work on documents, turning to that, is 166 hours. Preparing the documents which run to a couple of arch binders. On the question of pure law ,it has taken two hours to hear argument and half an hour to give judgment on. 166 hours. £31,000 worth of work.
MR GREEN: My Lord …
LORD JUSTICE SEDLEY: Well, somebody will have to account for that. The large number of fee earners in the first block starts with well-remunerated partners and includes some trainees billed variously at £125 and £135 per hour. Are you sure that is what the trainees are paid? Per hour?
MR GREEN: I am told only that it is about £30,000 per year is their annual salary.
LORD JUSTICE SEDLEY: But how many hours work a week?
MR GREEN: On average in the region of 40.
LORD JUSTICE SEDLEY: Thank you.
LADY JUSTICE ARDEN: I have to say that it was the figures for counsel’s fees that alarmed me most of all. But it will be a matter after all for the Taxing Master. There is a grave discrepancy on both sides. I appreciate that defendants have much more work in preparing the opening of the appeal but the figures are very different indeed, and I appreciate also of course that there was a change of counsel which leads to extra costs.
MR ARNOLD: I think my Lord and my Lady’s comments really indicate that this is a matter for assessment.
LORD JUSTICE SEDLEY: You have two qualified solicitors with you in court, as I anticipate in the adjournment(?)? Is that really necessary?
MR GREEN: This is an important matter involving a long-term relationship between the client and …
LORD JUSTICE SEDLEY: Thank you, Mr Green. We will not pronounce anything definitive on it but we are going to flag up our concerns. You shall have your costs to be assessed.
MR GREEN: To be assessed.
LORD JUSTICE SEDLEY: I am just going to say something on the record about that.
MR GREEN: And of course for the court below.
LORD JUSTICE SEDLEY: Yes, what about the costs below, Mr Arnold?
MR ARNOLD: Again, I do not see how I can resist that your honour.
MR GREEN: While just on the subject of costs could I again put down a marker, my Lords do not need to deal with it, but something my learned friend did not in the event take you to was that a second witness statement of Mr Tufman(?) was put in in support of the appeal which was -- there was never any basis for it to be admitted. We objected to it and it was not in the event relied on but obviously we will be saying that the costs of that should be disallowed, but again that is not a matter which my Lords need deal with.
LORD JUSTICE SEDLEY: Very well.
LADY JUSTICE ARDEN: Raised on assessment.
MR GREEN: Yes. Quite so.
LORD JUSTICE SEDLEY: For assessment. And you then have an application. Two applications, Mr Arnold?
MR ARNOLD: My Lords one is an application and one is a question of clarification. Can I deal with the clarification first?
LORD JUSTICE SEDLEY: Yes.
MR ARNOLD: I pointed out in my supplementary skeleton argument that the judge made an order for an enquiry on the cross-undertaking. There was an application for permission to appeal from that order which was refused by Jonathan Parker LJ and there was no renewal of that application by my learned friend’s clients. So that order stands. What was in dispute before my Lords and what my Lords have decided is whether on that cross-undertaking we could raise the argument -- on that enquiry sorry, we could raise the argument sought to be raised and protected by the respondent’s notice. You have determined that and obviously unless we are successful in another place we cannot reopen that but I just wish it to be clearly understood, because certain of my Lord’s observations in the judgment might have given the impression that there was hereafter to be no enquiry on the cross-undertaking at all. That stands. It is just a question of what exactly(?) it would be. The point we were particularly concerned about on this appeal, this is not open to it.
LORD JUSTICE SEDLEY: As I understand it you are making a statement for the record about your position, Mr Arnold?
MR ARNOLD: Just so there is no misunderstanding, yes.
LORD JUSTICE SEDLEY: Yes.
MR ARNOLD: My Lords, so far as the other matter is concerned I do have an application because in my submission there is a point worthy of their Lordships’ consideration on the respondent’s notice because the effect of my Lords’ decision is that a party that has given an undertaking on a temporary, interim basis, purely on the balance of convenience, has now been held to substantively vary its rights under the contract and in my submission that is a surprising result and it is not a just result, and it is one that your Lordships should be asked to consider whether the statute has a correct legal basis. (pause)
LORD JUSTICE SEDLEY: We propose, as indicated, to remit the assessment of costs to the costs judge. The appeal was listed for four hours at the parties’ request. Counsel helpfully were able prospectively to reduce his estimate to three hours. The argument in the event was concluded comfortably within two hours and judgment has now been delivered later the same day extempore. The appeal has turned, quite predictably, on a handful of documents. The substantial records of argument before the judges below were not only not needed, they will not have been admissible.
Both parties as required have put in their draft bills of costs. The respondents, had they won, would have sought a sum a little short of £55,000; quite enough in all conscience at first blush for such a short case. The appellants, who have in the event won, seek costs in the sum slightly over £120,000. Even if one takes out of that sum the £50,000 claimed as leading counsel’s fee, it is an astonishingly high bill. It includes 33+ hours for the attendances upon respondents, who in their bill have only accumulated 5.2 hours for attendances upon the appellants. That I am sure has an explanation but it will need to be given. Very large accumulations of hours are then shown as attendances upon others and attendances upon the appellants themselves. The client alone received 47.6 hours of attendance. 166 hours allocated to work on documents, 7.5 of those hours on the part of a senior partner. In fact more than that on the part of a senior partner, in a case in which the documents run to a little more than two arch binders. All of this, and indeed the attendance of two fully qualified solicitors in court, requires explanation. I think that the costs judge is the right forum in which that should be done.
I would simply remark in parting with this issue that Artpower, like any other litigant, is of course perfectly entitled if it wishes to come to court in a stretch limo with outriders, but it does not follow that if they win Bespoke have to pay the entire bill. That is something which will now be decided in the proper quarter.
Mr Arnold applies for permission to appeal to the House of Lords. Permission is refused.
MR GREEN: Can I clarify one thing, which I assume is implicit: if the parties agree costs, it is not stated that it has to go to court.
LORD JUSTICE SEDLEY: You can always see the Taxing Master.
Thank you, Mr Green. Thank you both for a very economical submissions in this case. We are much obliged to you both.