The Trademark Licensing Co Ltd & Anor v Leofelis SA & Ors

This appeal is the latest episode in a long saga of litigation about the use of the Lonsdale trade mark in relation to clothes sold in some countries in Continental Europe. The appeal is from an order made by Roth J on 9 March 2012 giving summary judgment for the Claimants on an issue as to the scope of the potential damages claim arising on a counterclaim by the Defendant Leofelis SA in proceedings brought by the Claimants in 2009. His reserved judgment can be found under the neutral citation number [2012] EWHC 485 (Ch). I will refer to the Claimants as Lonsdale, since no distinction needs to be drawn for present purposes between them, and to the Defendant as Leofelis. As before the judge, Mr Baldwin Q.C. and Mr Lykiardopoulos represented Leofelis, Mr Leggatt Q.C. and Mr Dhillon represented Lonsdale and Mr Hacon represented three of the third parties, though he watched from the sidelines rather than taking part in the argument.

Lonsdale granted Leofelis a licence by an agreement dated 21 November 2002, to use a number of Lonsdale trade marks (and also some trade marks which did not feature the word Lonsdale, but they do not matter for now). I will call this the 2002 licence. The term of the licence was from 1 January 2003 to 31 December 2008. Under clause 11.4 Leofelis had an option to renew for another 6 years by notice given on or before 31 December 2007. The royalty started at €1.6 million for the first year and rose by stages to €3.5 million in the last year. If Leofelis had renewed it for another 6 years, the royalty would have been €3.5 million per year. The royalty was not affected by the quantity of sales (if any) under the licence. It was payable by equal quarterly instalments in advance on the first day of January, April, July and October in each year. The licence extended to a defined Territory, consisting of all Member States of the European Union as at the date of the agreement, except for the United Kingdom and Ireland, plus Hungary, Poland, the Czech Republic and Switzerland. The agreement granted to Leofelis the exclusive right to use the trade marks in the Territory in relation to defined goods (the details of which do not matter). Mr Baldwin submitted, and for present purposes I accept, that there were, in essence, only two continuing obligations in the agreement: on the part of Lonsdale not to derogate from its exclusive grant, and on Leofelis to pay the royalty in accordance with the agreement. Leofelis did not exploit its rights under the agreement itself, but granted sublicences, one of them to a company called Leeside. It was entitled to do this provided that it got Lonsdale’s consent, not to be unreasonably withheld. Lonsdale gave consent to a sublicence to Leeside for Italy in December 2002. Later in December Leofelis seems to have extended the licence in favour of Leeside to Germany and to all other countries within the Territory and then within the European Union. In proceedings between Leofelis and Leeside on the one hand, and Lonsdale on the other, commenced in 2005 and coming to trial in 2006 (which I am going to call the 2005 proceedings) Evans-Lombe J held that this was done with Lonsdale’s consent, but on appeal, in July 2008, the Court of Appeal (Waller and Keene LJJ and myself) disagreed with this and held that consent had not been given, so that the extended sublicence was not valid, though it had been valid for Italy: see [2007] EWHC 451 (Ch), and [2008] EWCA Civ 640. In June 2003 Leofelis granted a new sublicence to Punch GmbH (the first of the third parties in the present proceedings) for Germany, Benelux, Hungary and Poland. That sublicence was terminated by Leofelis in January 2006.

In October 2005 Leofelis and Leeside commenced the 2005 proceedings against Lonsdale which came to trial before Evans-Lombe J. They complained of breach of their exclusivity by Lonsdale, by sales of relevant goods using the Lonsdale trade mark in Belgium. In July 2006 Lonsdale obtained an injunction in Germany restraining Leeside from using the Lonsdale trade marks on goods sold in Germany. On the basis of Evans-Lombe J’s judgment holding that the extended sublicence was valid, Leeside would have been entitled to sell such goods in Germany. Accordingly, Leofelis then took the position that for Lonsdale to have obtained this injunction, and not to have it discharged or withdrawn as they demanded, was itself a breach of the agreement in that it derogated from the grant of exclusive rights in the licence. Of course, once the Court of Appeal had reversed the judge’s decision as to the validity of the extension of the sublicence, that position was no longer maintainable. Without a valid sublicence in its own favour, Leeside had no right to sell goods under the trade marks in Germany.

On 14 September 2007 Leofelis’ solicitors, Dorsey & Whitney (Dorsey), wrote to Reynolds Porter Chamberlain (RPC), for Lonsdale. This letter was a preliminary to another letter which is at the heart of this appeal, but it is important for the context. The letter is headed with a reference to the 2005 proceedings, then subject to appeal but also continuing as regards the assessment of Leofelis’ entitlement to damages. It read as follows:

“We refer to the injunction which remains against our clients Leeside srl selling Lonsdale goods in Germany.

As you are aware, Mr Justice Evans-Lombe found, at trial, that Leeside was a valid sub-licensee of Leofelis SA from at least early 2006. Nevertheless you continue to persist in maintaining the injunction in place.

The continuing injunction therefore represents a continuing and ongoing breach of Leofelis’ rights under the November 2002 Licence Agreement. In our view this is a repudiatory breach by you.

We hereby give notice that our client reserves the right to terminate immediately and at any time while the injunction remains in place and to claim damages for breach.

We invite you to rectify your breach by taking steps to discharge the injunction.

Our client shall, of course, comply with its obligations under the November 2002 Licence Agreement pending any exercise by it of its right of termination.”

The second letter followed on 28 September 2007. It referred back to the previous letter. It continued as follows:

“Our client considers the continuing injunction in Germany to be a repudiatory breach of the November 2002 Licence Agreement. Notwithstanding the invitation contained in our letter, your clients have not rectified their breach by discharging the injunction. Without prejudice to any other breaches on which our client may be entitled to rely, our client hereby accepts such repudiatory breach and terminates the November 2002 Licence with immediate effect. Our client reserves the right to claim damages for breach.”

The timing of that letter was important for Leofelis. If it was able to terminate the agreement there and then, the next instalment of royalty would not fall due, as it otherwise would do on 1 October. Accordingly, Leofelis did not pay the sum otherwise due on that date. On 2 October 2007 RPC wrote to Dorsey giving Leofelis 30 days in which to remedy their breach of non-payment. On 2 November 2007 they wrote again, no payment having been made in the meantime, giving notice of immediate termination of the licence agreement on the basis of that non-payment. It is common ground that the licence agreement did come to an end, if not on 28 September 2007 then on 2 November 2007. If Leofelis was entitled to accept a repudiatory breach on 28 September, then it was entitled to, and did, bring the agreement to an end by the letter of that date. If it was not so entitled, then the royalty payment fell due, and Lonsdale was entitled to terminate the licence for non-payment when it did.

After the decision of the Court of Appeal on the appeal in the 2005 proceedings, Lonsdale began a new claim against Leofelis in February 2009 (the 2009 proceedings) claiming payment of the amounts of royalty due before termination but not paid, and damages for loss of the later royalty instalments. Lonsdale eventually applied for summary judgment in those proceedings. This came before Kitchin J who refused the application, though requiring Leofelis to make a substantial payment into court as a condition: see [2010] EWHC 969 (Ch).

The sole ground on which Kitchin J allowed the 2009 proceedings to be defended arose from the grant of a licence by Lonsdale in January 2007 (the SIA licence) to a company called SIA Sports & Clothing (SIA) (the second third party in these proceedings). On its face this gave to SIA, a Latvian company, a licence to use the Lonsdale trade marks in relation to certain goods for the calendar year 2007 (later extended to 31 March 2008) in territories which did not overlap with the Leofelis Territory but were within the EU as it by then stood: Latvia, Lithuania, Estonia, Slovakia, Slovenia, Romania and Bulgaria. Leofelis asserts that it was not aware of this licence until well after the termination of the 2002 licence. On its true construction, Kitchin J held, the SIA licence does not extend beyond the specified countries, and therefore it did not conflict in terms with the 2002 licence in favour of Leofelis.

Leofelis also relies on the fact that in April 2008 Lonsdale granted a new licence to Punch for Germany, and points out that Punch and SIA had the same parent company, P.S.F International BV (the fourth third party), and the same single director, Mr Schotsman, the fifth third party. The 2008 Punch licence discharged SIA from the obligations under the SIA licence, which were undertaken by Punch, and Punch was licensed to make and sell clothing under the Lonsdale trade marks in France, Germany, Hungary, the Czech Republic and Slovakia. Eventually in 2009 the Punch licence was extended to the whole of the EU and Switzerland.

Leofelis’ case is that Lonsdale and SIA did not intend that sales by SIA under the SIA licence should be limited to the specified territories, and that, although not covered by the express terms of the SIA licence, Lonsdale and SIA both intended that SIA should make sales into countries which were part of the Leofelis Territory at that time. Kitchin J explained the ground on which he found that Leofelis had a basis for defending the 2009 proceedings at paragraph 83 of his judgment:

“However, I have reached the conclusion that the defendant has shown that it is possible that the claimants licensed SIA or other related companies to make sales of Lonsdale branded products in the Leofelis Territories and therefore granted a licence which was inconsistent with the Licence Agreement. What has caused me most concern is the failure by the claimants to provide any real explanation as to why they were prepared to forego the royalties (of about €400,000) payable on sales into the SIA Territories of about €1.5 million if they truly believed and understood that SIA had an established network in those territories. The suggestion that the 2008 Punch Licence was of limited territorial scope in order to “test the water” with Punch does not, in my judgment, properly address the issue. If the SIA Licence was intended to and did take effect according to its terms, then SIA had established a substantial market in the SIA Territories for Lonsdale branded products which SIA or some other licensee could continue to exploit independently of the activities of Punch under the Punch Licence.”

He later said that the activities so alleged by Leofelis would, if made good, arguably amount to a repudiation of the 2002 licence sufficient to justify immediate termination (paragraph 90). The 2009 proceedings are accordingly defended on that basis, with a corresponding counterclaim by Leofelis. That seeks, as against Lonsdale, a declaration that the 2002 licence was terminated on 28 September 2007 and an enquiry as to damages for breach of contract. It also seeks relief against the third parties on the basis of inducement of Lonsdale to breach its contract with Leofelis or unlawful interference with that contract.

The 2005 proceedings are on their leisurely way to an assessment of damages, which is said now to be due in the middle of next year, 2013. In the 2009 proceedings pleadings have been served by all parties, and a trial is due in March 2013, limited to all issues of liability, and with disclosure at this stage also limited to issues of liability. In the Defence and Counterclaim Leofelis accepts that it cannot rely on the German injunction as a repudiatory breach of the 2002 licence, but says that it is entitled to justify its termination of the contract by reference to a ground which it did not rely on at the time, and alleges that Lonsdale was in repudiatory breach of the agreement on 28 September 2007, so that, if Leofelis had been aware of this, it would have been entitled to accept that repudiation and thereby bring the agreement to an end. In support of that contention, Leofelis relies on the SIA licence and the later Punch licence, and asserts that the SIA licence was a vehicle for enabling the third parties and others connected with them to make sales of Lonsdale branded goods in territories outside of those specified in it, and in particular in the Leofelis Territory, and that such sales were made, thereby breaching the exclusivity granted to Leofelis by the 2002 licence.

The liability to damages which remains at issue in the 2005 proceedings arises from sales of Lonsdale branded goods which Leofelis alleged had been made with the consent of Lonsdale in Belgium from 2004 onwards. Evans-Lombe J held that such sales had taken place and granted an injunction to stop them, as well as giving judgment for damages to be assessed. That liability for damages would run in respect of sales from 2004 until whatever is the last date of sales that Leofelis can prove, but not later than 28 September or 2 November 2007. Sales after whichever of those dates is relevant would not infringe Leofelis’ rights. It seems that, in the pleadings relating to the assessment of damages in the 2005 proceedings, Leofelis contends that Lonsdale’s liability arising from the Belgian sales amounts to €42.5 million, most of which is said to result from the termination of the 2002 licence. The case made is that, but for Lonsdale’s repudiatory breach, Leofelis would not have terminated the agreement and would have renewed it, as it was entitled to do, and would have earned substantial profits on a continuing basis until 2014.

Lonsdale contends that this cannot possibly be the right approach to damages in the 2005 proceedings, where the damages are limited to the loss that flows from the Belgian sales. It also contends that it would be equally unjustified in the 2009 proceedings, on the basis that, Leofelis having terminated the agreement (or purported to do so) on 28 September 2007 on quite other grounds, it cannot allege that, but for the repudiatory breach which it now alleges, it would have continued to earn profits from the exploitation of the 2002 licence after that date. On that basis Lonsdale applied to the court for a ruling by way of summary judgment, in both proceedings, to the effect that Leofelis could not claim any damages by reference to profits which it would, in any hypothetical events, have made from sales after 28 September 2007. That application came before Roth J, and it is against his judgment, in respect of the 2009 proceedings, that Leofelis brings this appeal.

Roth J recorded that, as pleaded in the 2005 proceedings on the assessment of damages, Leofelis claims almost €12 million in respect of loss of sales from 2005 to 2007, but over €26.6 million for lost sales from 2008 to 2014 (paragraph 31). He also proceeded on the basis that, although Leofelis had not pleaded its losses in the 2009 proceedings, it would seek damages on the same basis, that is to say by reference to lost profits accruing up to 2014 (paragraph 34). He held that Leofelis could not recover damages on this basis in the 2005 proceedings, because that was not the basis of the claim in those proceedings. The damages claimed in those proceedings cannot be formulated by reference to profits from lost sales after 28 September 2007. Any claim for continuing losses could only be asserted (if at all) in the 2009 proceedings (paragraphs 50 and 51). That part of his judgment is accepted, and is not the subject of this appeal.

So far as the 2009 proceedings are concerned, assuming all facts relied on by Leofelis in its favour, and assuming therefore that Leofelis could establish its case as to the true nature of the dealings between Lonsdale and SIA and those connected with SIA, it was common ground that whereas the stated ground for accepting a repudiation, in the 28 September 2007 letter, was not justified, nevertheless Leofelis could justify its termination of the contract by reference to the repudiatory acts of Lonsdale in respect of the arrangements with SIA, even though not then known to Leofelis. So Leofelis could show that the 2002 licence came to an end on 28 September 2007, and could also claim for loss suffered up to that date by reason of Lonsdale’s repudiatory breach of the 2002 licence, that is to say as regards sales of Lonsdale branded goods within Leofelis’ Territory resulting from the SIA licence up to 28 September 2007, and could resist Lonsdale’s claim for damages on an ongoing basis after termination. None of that was in issue before the judge. The debate was as to whether Leofelis could possibly recover damages from Lonsdale by reference to profits which Leofelis would have made by the exercise of its rights under the 2002 licence after 28 September 2007. As Roth J saw the point, there was no authority that gave the answer either way as to the possibility of recovering damages for continuing losses of this kind.

The proposition advanced by Lonsdale was simple and straightforward. If Leofelis could prove the breach of contract alleged in respect of the SIA licence, they would be entitled to recover damages for whatever loss was caused by that breach. That loss was to be tested by comparing the actual position with that which would have prevailed if Lonsdale had not committed the breach of contract. If it had not acted in breach of the contract in this respect, Leofelis would not have had that reason for terminating the 2002 licence. However, it is known that, in fact, Leofelis did terminate it, or purported to do so. It is therefore not necessary to speculate as to what would have happened if the breach of contact had not occurred: Leofelis would still have done what they did at the end of September 2007, because to assume that the SIA arrangements were not made, in January 2007 (or at all), or not in such a way as to amount to a breach of the 2002 licence, does not involve assuming that Lonsdale did not get the injunction in Germany against Leeside six months previously. That fact remains constant as between the (alleged) real and the (assumed) hypothetical versions of the events. Accordingly, in either case, it was said, Leofelis’ solicitors would have sent the same letters on 14 and 28 September 2007. If Lonsdale had committed a repudiatory breach, though unknown to Leofelis, the letter would have been effective to bring the contract to an end. If it had not done so, the letter would still have been written and would not have been justified, so that the consequent failure to pay the royalty would have justified Lonsdale in terminating the contract, as it in fact did on 2 November 2007. That was the basis of Lonsdale’s application in respect of the 2009 proceedings.

As I have mentioned, it was and is common ground that an acceptance of a repudiation of a contract, even if expressed to be on a basis which turns out not to have been justified, can be found to be valid and effective if there were at the time facts, even though unknown to the accepter of the alleged repudiation, which would have entitled that party to accept a repudiation. The authority generally quoted for that proposition is Boston Deep Sea Fishing and Ice Co v Ansell (1888) 38 Ch D 339, although the proposition was already settled by then and it was common ground in that case as well. There the company had dismissed Mr Ansell, its managing director, on the grounds of specified alleged acts of misconduct. It brought proceedings against him for damages and he counterclaimed for wrongful dismissal. The company was unable to establish the misconduct on which it had relied in dismissing him, but it was able to prove other misconduct on his part of which it had not been aware when it dismissed him. It was held to be able to rely on that misconduct to justify the dismissal, and thus as a defence to his claim for wrongful dismissal. Kekewich J had held that Mr Ansell had committed some breaches of duty, but that they were not serious enough to justify dismissal. The Court of Appeal disagreed on that point. Cotton LJ said, at page 352:

“it was not, I think, at all disputed that if there was any circumstance, though unknown to the company at the time when they dismissed Mr Ansell from his position, which would justify them in so acting, it was immaterial whether that was known at the time, and if it was known and established after the time the action was brought, then they could justify the dismissal by proof of that fact.”

Mr Ansell was dismissed from his post despite having a contract for a fixed term which had not yet expired. Accordingly the dismissal was, in effect, the company’s acceptance of a repudiatory breach by him of the contract of employment. However, there was no question of the company claiming damages from him in respect of anything done or happening after his dismissal. The issue arose only on the question whether the company was liable to him for damages for having wrongfully terminated his contract.

No other relevant authority was cited to the judge that assisted on the question of a liability to damages for continuing loss. The judge stated his conclusion in the last four paragraphs of his judgment, paragraphs 65 to 68, as follows:

“65.

… The measure of damages for breach of contract is to put the innocent party in the position that it would have been in if there had been no such breach. In this situation, if Y had not committed the repudiatory breach, the contract would still have come to an end as X decided to terminate it without knowledge of that breach by Y. X therefore should not be able to rely on Y’s repudiatory breach as the grounds for recovering damages for the contract coming to an end, i.e. for loss caused by Y’s non-performance of its primary obligations thereafter.

66.

Leofelis submits with force that if that is correct, here it enables Lonsdale to benefit from having concealed its breach of contract concerning the SIA Licence. Had Leofelis known about that conduct, it would have relied on it as a ground for terminating the Agreement in September 2007. That may be so in one sense. However, it is only an accepted repudiatory breach that brings a contract to an end. The unknown breach of the Agreement by Lonsdale was not accepted by Leofelis as a repudiation for the obvious reason that it was unknown. Therefore, that alleged breach, although its nature met the test for a repudiatory breach, cannot be the cause of the termination and thus of the loss that flowed from the termination. Put another way, Leofelis is not able to contend that if Lonsdale had not engaged in the impugned conduct regarding SIA, then the Agreement would have remained on foot such that Leofelis was in a position to earn continuing royalties from its sub-licences.

67.

By the same reasoning, I consider that the terms of the letter of 28 September 2007, which states “without prejudice to any other breaches” does not assist Leofelis. This lawyer’s catch-all cannot alter the position in fact, which is that Leofelis terminated the Agreement irrespective of the SIA Licence or any circumstances surrounding it.

68.

Viewed as a question of causation, therefore, I consider that the counterclaim to damages after 28 September 2007 must fail. Leofelis’ position would not be improved by any findings of fact that may be made at trial. Accordingly, on the established principles governing summary judgment, it is appropriate to determine this matter in Lonsdale’s favour.”

For my part, I find that reasoning compelling, in its own terms. Leofelis attacked the conclusion in its grounds of appeal and skeleton argument on the basis, among other things, that it put a premium on surreptitious conduct by a contract breaker, and that it would put an innocent party in a better position if it gave no reason for terminating the contract by way of accepting a repudiation. It also asserted that the judge’s ruling would exclude a restitutionary claim against Lonsdale in respect of Lonsdale’s breaches for any gain enjoyed by Lonsdale after the date of termination. As to the latter, the judge did not address this point, but this is hardly surprising since it was not a point taken in the course of argument before him.

However, as Mr Baldwin opened Leofelis’ case to us on the appeal, he developed it in a different way. He took us through what he said were the material events in chronological order, and he contended that Leofelis was entitled to show that Lonsdale had pursued a course of conduct, of which the SIA licence formed an integral part, as had the obtaining of the German injunction against Leeside, and that this put the claim for damages in a different light as regards causation.

The course of conduct that he sought to rely on started in January 2006 with Leofelis’ termination (for non-payment of royalties) of the Punch sublicence granted in 2003 covering Germany, Benelux, Hungary and Poland. He said that this had been a valuable asset for Punch, which was said to have made significant yearly profits from its sales. So, Mr Baldwin contended, Punch and those behind it, in particular Mr Schotsman, would have felt disappointed and aggrieved at the loss of this profitable business. He submitted that this could be shown to be the start of a sequence of events which led to the agreement between Lonsdale and SIA (another of Mr Schotsman’s companies) in January 2007 and, in turn, the 2008 replacement licence in favour of Punch. According to his submissions, the German injunction obtained against Leeside in July 2006 was all part of this sequence of events, since it secured the removal of Leeside, which had up to then been operating in the German market, so as to leave the German market free of any direct sales operation for Lonsdale-branded goods, and therefore open for exploitation again by Punch or its associate SIA, at first in breach of the terms of the 2002 licence, as from January 2007, and then in the end lawfully, once the 2002 licence had come to an end, from April 2008.

That is not, at present, Leofelis’ pleaded case, and it is not the case that was advanced before Roth J, nor can it be found in the grounds of appeal or in Leofelis’ skeleton argument on the appeal. If it were pleaded and if it could be made good, it might overcome Leofelis’ problem as regards causation, of showing that the German injunction, which turns out in the end to have been lawfully obtained, was nevertheless part of a connected sequence of events on the part of Lonsdale, so that, on the hypothesis that the SIA licence arrangements, in breach of the 2002 licence, had not occurred, then the German injunction would also not have been obtained, and therefore that Lonsdale’s conduct in breach of the 2002 licence was causative of Leofelis’ termination of the licence in September 2007. If Leofelis could show that, then it might overcome the causation problem because it could controvert Lonsdale’s otherwise powerful argument that, even if Lonsdale had not committed the SIA-related breach of contract in January 2007, Leofelis would still have purported to terminate the 2002 licence in September 2007 because of the German injunction, and therefore its failure to earn profits after that date was not attributable to any breach of contract by Lonsdale, but to its own independent act.

Counsel’s researches led to our having the benefit of some more citation of authority than Roth J had, which was helpful even though not directly in point. In particular we were shown the judgment of Tomlinson LJ in the Court of Appeal in Acre 1127 Ltd (formerly known as Castle Galleries Ltd) v De Montfort Fine Art Ltd [2011] EWCA Civ 87, and some employment cases, most importantly Malik v BCCI [1998] AC 20. In Acre 1127 Ltd, the contract at issue was a rolling supply agreement requiring minimum quarterly purchases of contemporary commercial artwork, to be sold by De Montfort, the Defendant, to Castle Galleries, the Claimant. Each party alleged that the other had repudiated the agreement and that it had accepted that repudiation, claiming damages accordingly. The conclusion reached by the Court of Appeal was that it had been De Montfort that repudiated the agreement, by a solicitors’ letter on 18 April 2006 in which it claimed (but without any justification, as the court held) to be discharged from future performance of the contract by reason of an alleged repudiatory breach by Castle. Castle did not accept the repudiation by De Montfort until service of pleadings in October 2007, but neither party had attempted to perform the contract in the meantime. The court held that De Montfort could make no claim against Castle in respect of non-performance after 18 April 2006. It also held that Castle could recover no damages from De Montfort consequent on De Montfort’s repudiatory breach of the agreement, because Castle was neither ready nor willing to perform the contract itself. Tomlinson LJ drew an analogy with cases which, as he said (at paragraph 51):

“establish the principle that a repudiating party has a defence to a claim in respect of that breach by the innocent party if he can establish that, at the time of the repudiation, the innocent party was already irremediably disabled from performance, provided that that inability to perform on the part of the innocent party is not itself attributable to the repudiatory breach.”

In Malik v BCCI the position was very different. Former employees of the failed bank claimed damages as against the bank in liquidation based on the proposition that the bank’s conduct of a thoroughly dishonest business (unknown to them at the time) had been a breach of the employer’s contractual obligation of trust and confidence owed to its employees. It was not seen as an insuperable objection that the employees first knew of the breach by the employer after the employment had come to an end. It was seen as possible that the employer’s conduct could have lasting effects which would be felt by the employee even after the termination of the employment. Lord Nicholls said at page 36D that the fact of the employee having discovered the breach for the first time after the end of the employment should not be a bar to recovery. “If it were otherwise, an employer who conceals a breach would be better placed than an employer who does not.” Lord Nicholls went on to consider issues that would arise if the employment had been terminated prematurely. He said this at page 36D to H:

“If the employer commits a breach of the term [i.e. the trust and confidence term], and in consequence the contract comes to an end prematurely, the employee loses the benefits he should have received had the contract run its course until it expired or was duly terminated. In addition to financial benefits such as salary and commission and pension rights, the losses caused by the premature termination of the contract (‘the premature termination losses’) may include other promised benefits … Prima facie, and subject always to established principles of mitigation and so forth, the dismissed employee can recover damages to compensate him for these promised benefits lost to him in consequence of the premature termination of the contract.

It follows that premature termination losses cannot be attributable to a breach of the trust and confidence term if the contract is terminated for other reasons, for instance, for redundancy or if the employee leaves of his own volition. Since the trust destroying conduct did not bring about the premature termination of the contract, ex hypothesi the employee did not sustain any loss of pay and so forth by reason of the breach of the trust and confidence term. That is the position in the present case.”

For Lonsdale, Mr Leggatt submitted that Leofelis could not claim damages by reference to the loss of profits after 28 September 2007 because, whether or not Lonsdale had committed a breach of the 2002 licence in respect of the SIA licence, Leofelis would have done that which it actually did, namely to purport to terminate the 2002 licence on the grounds of the German injunction, and it would therefore not have earned any later profits in any event. He submitted that this was an instance comparable to the employee leaving for other reasons, for example redundancy or of his own choice.

Roth J accepted this argument, which he expressed neatly in the last two sentences of paragraph 66 of his judgment, quoted above. On the basis on which the case was argued before him, it seems to me that his conclusion was fully justified. The question for us is whether it makes any difference that Mr Baldwin seeks to put the German injunction into a particular context as part of a sequence of events, along with the SIA licence and the eventual 2008 Punch licence.

Mr Leggatt submitted that this was altogether implausible, especially in seeking to characterise an act which was fully justified in itself (getting the German injunction, and not having it discharged) as being so closely connected with other events (the SIA arrangements), which occurred six months after the grant of the injunction, that if they had not occurred, it would not have happened either. A critical approach to this new allegation may be justified, but the court has to be cautious before giving summary judgment excluding some part of a party’s case or claim (here, a part of the damages claim); the judge set out the relevant principles at paragraph 37 of his judgment, and the sixth principle there enunciated is of particular relevance here.

It seems to me that Leofelis might be able to make out a case on this basis. I do not say that it can, but I would not exclude it as a realistic possibility at this stage. It might be able to allege and prove that Lonsdale embarked on a course of conduct of which obtaining the German injunction formed an integral part, leading to the SIA licence and the arrangements already alleged in that respect which Kitchin J held could amount to a repudiation of the contract. If so, Leofelis might also be able to allege and prove that the German injunction would not have been sought or obtained, or would later have been discharged, once Evans-Lombe J had held it to be in breach of Leeside’s rights, but for this scheme intended to put Punch, or other interests of Mr Schotsman, back into the German market as the Lonsdale trade mark licensee. If so, then in comparing the actual events with those that would have occurred but for Lonsdale’s repudiatory breach of contract, the German injunction might fall to be ignored (whether because it would not have been obtained at all or because it would have been discharged later) as well as the SIA arrangements. If that were so, then Leofelis would be able to argue that the counterfactual set of events does not include its own termination, or purported termination, of the 2002 licence in September 2007, so that, but for the course of events including the repudiatory conduct, that licence would have continued in force, and Leofelis could have continued to earn profits by the exploitation of the rights under it.

That is not how it is put at present in Leofelis’ Defence and Counterclaim. The present statement of case does not contain the allegations which would be necessary to justify Mr Baldwin’s new line of argument. However, it would not be right to dismiss the appeal on that ground without allowing Leofelis the opportunity to seek to amend its statement of case yet further in order to allege the acts which it would need to allege and prove, in order to make the case in this way. I will come back to that point later.

Mr Baldwin also put his case on the basis that it was possible to ignore the stated ground for termination in the 28 September 2007 letter and to treat the acceptance of the repudiation as having been made on more general grounds, namely Lonsdale’s breach of the exclusivity obligation under the 2002 licence, regardless of the particular conduct relied on, and ignoring the incorrect particularisation of the relevant conduct. If that were correct, then it would not be a Boston Deep Sea Fishing case at all. This new proposition is not consistent with how the case was put to Kitchin J nor with how it is pleaded at paragraphs 39 and 40 of the Defence and Counterclaim. It seems to me that this approach cannot overcome the fact that the termination was expressed to be on the basis of the continued subsistence of the German injunction. That is very clear from the terms of the letters dated 14 and 28 September 2007. I agree with the judge that the catch-all phrase “without prejudice to any other breaches” makes no difference. It did not prejudice Leofelis’ right to rely on other breaches, but it did not mean that Leofelis did thereby rely on another breach, of which it was not aware.

The principle underlying the Boston Deep Sea Fishing case has never been put forward as being that the unknown but justified ground for accepting a repudiation is to be read into the letter or other communication by which the unjustified reason is asserted. I do not see that the principle can or should be understood as extending that far. It does not allow the innocent party to assert that it did accept repudiation on the correct (though unknown) ground; rather it allows that party to meet a claim that its conduct in terminating the contract, though apparently unjustified because done on the wrong ground, is to be taken as justified because it could have been done on the right ground, not because it was done on the right ground. It operates as a shield against a claim for damages on the basis of wrongful termination, not as a sword to claim damages (for the future) on the basis of justified termination. For that reason it seems to me that, if Leofelis is to overcome the problem of its reliance on the German injunction in the letters of 14 and 28 September 2007, which is a causation issue, it must do so by showing that the German injunction was so closely connected with the wrongful SIA arrangements that the termination of the contract by the letter of 28 September 2007 cannot be seen as independent of Lonsdale’s breach of contract, but rather that it was part of the chain of causation connecting Lonsdale’s repudiatory breach with Leofelis’ termination of the contract. In effect Leofelis would need to prove that, if Lonsdale had not undertaken its course of action aimed at interfering with Leofelis’ exclusivity under the 2002 licence and favouring Mr Schotsman’s companies, it would not have sought or obtained the German injunction, or at any rate that, once Evans-Lombe J had held it to have been unjustified, Lonsdale would have had it discharged.

Mr Baldwin’s other ground of appeal is also on a point not taken before the judge, but at least this one was identified in the grounds of appeal. It is that the judge’s ruling precludes Leofelis from recovering damages on a gain-based approach in respect of gains made by Lonsdale after termination of the 2002 licence. It is clear that Leofelis’ claim is for damages as against Lonsdale, not for an account of profits. Although in its skeleton argument Leofelis referred to A-G v Blake [2001] 1 AC 268, Mr Baldwin made it clear in his oral submissions that he relied on Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 W.L.R. 798, rather than on A-G v Blake, as the model for his potential gain-based damages claim in this instance. That must be correct, for the relief given in Blake was an account of profits, which Leofelis does not claim. Both of those cases, in their very different ways, were instances where the claimant, whose contract with the defendant had been breached, could not show any loss on ordinary compensatory principles under the normal rules for damages for breach of contract, but where the defendant had benefitted from the breach. In Wrotham Park the contract was a covenant against building except in accordance with the prior consent of the covenantee. The defendant had ignored that requirement and had built houses in breach of the covenant. The claimant had not sought an injunction to restrain building. Although the claimant formally claimed an injunction which would have required the demolition of the houses, the judge ruled out such an order. He therefore had to consider the appropriate approach to damages, and decided in favour of a notional and hypothetical licence fee as what the claimant could reasonably have demanded for giving consent under the covenant. The value of the claimant’s land had not been diminished at all by the wrongful act, but the defendant had obtained a benefit thereby.

So far as this claim is concerned, not only is there no allegation in the Defence and Counterclaim from which it could be deduced that Leofelis makes any such claim, it is very far from clear to me that there could be. The cases in which a gain-based award of damages has been made share the feature that, on normal contractual principles of damages, the claimant would recover nothing. That is not the present case. Leofelis alleges that it has lost money by reason of Lonsdale’s sales in breach of exclusivity, because its sublicensee has made less money and it is therefore entitled to less by way of royalty. If it can make that good it will be able to recover damages accordingly. It can recover damages by reference to lost profits after 28 September 2007 only on the basis which I have already discussed. If it is unable to show that its termination of the contract at that time was for reasons sufficiently connected with Lonsdale’s breach of contract in terms of causation, then the contract would have come to an end in any event, and there would be no justification for it to recover either normal damages or gain-based damages in respect of what might have happened after that date if the 2002 licence had not been brought to an end at that stage. Either way, I cannot see an arguable basis for a gain-based approach to damages at all, and certainly not in respect of gains from things happening after 28 September 2007. Accordingly Leofelis’ second ground of appeal seems to me not to be justified at all.

Thus, it seems to me that, on the case as it was put to the judge below, his conclusion was entirely correct. Leofelis may be able to escape from the logic of his conclusion, but only by amending the formulation of its claim so as to allege facts from which it could be found, if they were proved, that Leofelis’ purported termination in September 2007, though expressed to be on an unjustified ground, was caused not only by the German injunction, which did not justify termination, but also by the SIA arrangements, on the basis that the German injunction was part of a plan or sequence of events including the SIA arrangements, without which the German injunction would not have been obtained, or it would later have been discharged. I agree with the judge that, on this aspect of the case, Leofelis’ problem is in proving that the termination of the contract was caused by the breach, so that, but for the breach, it would not have happened and the contract would have remained in force.

As it seems to me the correct course, if Leofelis is to be able to overcome its causation difficulty, is for it to have the opportunity to put forward an amended statement of case, in which it alleges facts upon which, if the material facts are proved, it would at least arguably be able to show the necessary causal link between the alleged repudiatory breach of contract and its own termination of the 2002 licence.

I would therefore, at this stage, neither allow nor dismiss the appeal. Rather I would adjourn it for a time during which Leofelis can formulate a draft Re-re-amended Defence and Counterclaim, to meet the point, and Lonsdale can consider this. If the parties can agree as to the adequacy of the draft statement of case, then I would be minded to allow the statement of case to be amended and on that basis to allow the appeal. If they cannot agree, then there will no doubt need to be further argument as to the adequacy of the draft amended statement of case. At that stage Mr Leggatt would be able to renew his attack on the proposition as being implausible and speculative, but at least the debate will be addressed to an allegation formulated in writing, rather than on a case outlined only in Mr Baldwin’s oral submissions. Since the fate of the appeal would depend on that, it would be necessary for the Court of Appeal to resolve that dispute, rather than to refer it back to the judge at first instance. Given the timing, and the need for an appropriate period for Leofelis to reconsider its statement of case, in practice we will not be able to resolve any dispute, either as to the adequacy of the draft amended statement of case or as to the terms on which the appeal should be allowed, until the autumn. Accordingly the parties can and should be given a reasonable timetable in which to put forward, and to respond to, a draft amended statement of case.

For Leofelis Mr Baldwin submitted that the time had not yet come for his client to plead its claim to damages, since the trial due to take place next year is as to liability only. Nevertheless, it seems to me that, since the judge (against Mr Baldwin’s opposition) heard and determined the summary judgment application, for good reasons which I would endorse, it is right and necessary for Leofelis to plead its case as to causation now, and that it ought also to plead its case as to the general nature, at least, of its damages claim, while not needing to tie itself down to particular figures in detail. In my experience, at any rate in a breach of contract case where there are likely to be serious issues as to the basis on which the damages payable are to be calculated, where a party has been held liable for breach of contract at a liability trial, it is a good idea for the judge who hears the liability trial to determine the basis on which damages should be payable, though not of course the details of amounts, just as it is right for such a trial to cover any live issues as to causation. If the parties are at odds as to the scope of the liability trial in these respects, and if they cannot come to an agreement on the point, it may be appropriate for those issues to be reconsidered at a case management conference at first instance, in order to define more exactly the scope of the forthcoming liability trial.

I agree.

I also agree. In their re-amended defence and counterclaim, Leofelis allege, at paragraph 40, that Lonsdale was in repudiatory breach of the licence agreement dated 21 November 2002. In the following paragraphs of the pleading, Leofelis claims to give the best particulars of “such repudiatory breaches which the defendant is able to give prior to disclosure herein”. Paragraphs 42 and following of the pleading make detailed allegations based on the alleged conduct of Lonsdale. A course of conduct by Lonsdale is alleged.

Clause 2.1 in the November 2002 agreement is in general terms. It grants Leofelis “exclusive licence in the Territory to use the trademarks”. The Territory, as defined in clause 1, consists of all states in the European Union in 2002, with certain exclusions and additions. It is not confined to Germany.

Leofelis claims that the breaches alleged are linked with the injunction in Germany on which they can no longer rely as having been a repudiatory breach in September 2007. Other breaches are related to the issues which led to the German injunction so that the grounds for repudiation which have emerged are not unrelated to those hitherto relied on.

The claim is distinguishable, it is submitted, from that contemplated by Lord Nicholls of Birkenhead at page 36G in Mahmud and relied on by Mr Leggatt. If the premature determination of the contract is for reasons other than those that subsequently emerge, a claim for post-termination loss cannot be sustained. Here, it is submitted, the reasons are sufficiently linked with those relied on at the time to enable a claim for post-termination loss to be brought.

Damages are claimed against Lonsdale on the basis that the November 2002 agreement was validly determined by Leofelis on 28 September 2007 for breach. But for the breach, the November 2002 agreement would have remained in force and would have been profitable to Leofelis.

I see force in the submission of Leofelis that, for the purposes of the trial on liability, a sufficient basis has been laid for a claim for damages to be subsequently heard for the period after 28 September 2007. However, the situation has been fully analysed by Lloyd LJ in terms of finding the best way forward in the interests of justice. I agree with the course he proposes.