Cabo Concepts Ltd v MGA Entertainment (UK) Ltd

This is an application for permission to appeal the order of Bacon J dated 1 July 2025, by which she dismissed the claim of the appellants, Cabo Concepts Limited and The Licence World Limited (“Cabo”) against the respondents, MGA Entertainment (UK) Limited and MGA Entertainment Inc (“MGA”).

Cabo’s claim is for abuse of dominant position by MGA, contrary to Chapter II of Part 1 of the Competition Act 1998 and/or Article 102 of the Treaty on the Functioning of the European Union. The claimed abuse relates to steps taken by MGA to dissuade retailers from stocking a collectible toy called “Worldeez” designed and made by Cabo. MGA claimed that it was similar to a collectable toy they already made called “LOL Surprise”. The judge found that MGA was dominant in the relevant market, that it had abused its position and that it had made unjustified threats of patent infringement proceedings within s.70 of the Patents Act 1977.

The judge held, however, that Cabo’s damages claims all failed, because it had failed to establish that it would have traded profitably in the counterfactual case, i.e. if MGA’s abusive conduct and threats had not taken place.

Cabo seeks permission to appeal that conclusion on three grounds:

For the brief reasons which follow, we have decided to adjourn the application for permission to appeal on grounds 1 and 2 to a rolled-up hearing, but to refuse permission on ground 3.

Grounds 1 and 2 are closely linked, and we take them together. Cabo’s pleaded case is that, but for MGA’s conduct, it would have gone on to be a “successful” toy business. It claimed damages in the form of “lost profits” in respect of lost sales to toy traders, and lost sales and licensing revenues more generally from the foreclosure of Worldeez and its ultimate demise.

The judge’s decision to dismiss Cabo’s claim involves the following inter-related conclusions. First, Cabo’s claim for lost profits was dependent on establishing that, but for MGA’s conduct, Cabo would have been, overall, a profitable business. Second, this is a different head of loss to a claim that Cabo suffered loss and damage because as a result of MGA’s conduct it made a greater loss, in fact, than the loss it would have made in the counterfactual. Third, the case presented on the pleadings and through the evidence at trial, based on the contention that Cabo would have been profitable in the counterfactual, did not encompass the claim that Cabo would have made less of a loss in the counterfactual. Fourth, in the context of the principle that a cause of action in tort is not complete unless the claimant establishes, on the balance of probabilities, that at least some damage was suffered, Cabo’s cause of action was not complete unless it could establish on the balance of probabilities that it would have been profitable in the counterfactual.

Cabo contends that there is a real as opposed to fanciful prospect of demonstrating on appeal that each of these conclusions is wrong in law. We agree that these points are arguable to the requisite standard. Normally, that would be sufficient reason to grant permission to appeal. This case is complicated, however, by the course the case took below, leading to the judge recording various concessions made by Cabo.

At §467 of her judgment, the judge recorded Cabo having accepted in closing submissions that “if a claim was made for lost profits caused by the defendant’s conduct, it would be necessary to prove on the balance of probabilities that there would have been profits in the counterfactual scenario.” We observe that the judge nevertheless went on in the following paragraphs to decide the point, finding that MGA’s approach was “clearly correct”.

At §499, the judge noted that Cabo had, at some points during the trial, advanced a case that it would be sufficient if it could show that it would have been less loss-making in the counterfactual case than it was in fact, but said: “Again, however, no such claim was pleaded or ever particularised during the trial, and [Leading Counsel for Cabo] confirmed in her closing submissions that Cabo’s claim was not brought on this basis.”

Sir James Eadie KC who appeared for Cabo (on the application for permission to appeal, but not at the trial) contended that on a close reading of the transcript of the oral closing submissions before the judge, when seen in the light of the totality of the written and oral submissions presented by Cabo at trial, Cabo had not abandoned its case (1) that it was entitled to damages even if the most that could be said was that it would have made less of a loss in the counterfactual, and (2) that it was sufficient, in order to complete the cause of action, to establish on the balance of probabilities that it would have suffered at least some loss on this basis, at which point the court may embark on the quantification of loss, where it is not required to establish each item of loss on a balance of probabilities, but must do the best it can on the available evidence (see the judge’s judgment at §456 to §457).

Ms Wakefield KC, who appeared for MGA, countered by submitting that the only permissible reading of the transcripts of the closing submissions is that Cabo had indeed abandoned its case but that, in any event, it is now far too late for it to contend otherwise. She submitted that if Cabo disputed that it made the concessions recorded in the draft judgment, then the time to do so was when the judge provided the judgment in draft. The fact that a judge may have misunderstood a concession made at a hearing can constitute an exceptional circumstance which justifies a party requesting a judge to reconsider their draft judgment beyond merely typographical or similar errors: R (Mohammed) v Foreign Secretary (No2) [2010] EWCA Civ 158; [2011] QB 218, at §4. Cabo accepts that it did not suggest to the judge, on receipt of the draft judgment, that she had wrongly recorded these concessions.

In our judgment, notwithstanding the forceful submissions of Ms Wakefield, we are not satisfied on this permission application that Cabo unarguably made the concessions in the terms recorded by the judge. It seems to us that it is arguable, with a more than fanciful prospect of success, that while Leading Counsel was reiterating that Cabo’s case was that it would have been profitable in the counterfactual, and that Cabo had adduced evidence directed at that case, it was not abandoning the argument (made in writing and orally) that it would be sufficient, in order to compete the cause of action, that it would have been better off in the counterfactual because it would have made less of a loss than it in fact did. Moreover, it is arguable, in circumstances where the judge went on to decide the question whether Cabo was required to establish on the balance of probabilities that it would have been profitable in the counterfactual, that Cabo’s failure to raise these matters with the judge is not a complete bar to its ability to raise them on appeal. Whether or not Cabo can ultimately overcome these difficulties is something which is better determined following a fuller investigation of the issues and the events which occurred at trial than is possible on this application (we envisage a time estimate for the appeal hearing of two days). That includes investigating the extent to which, if at all, Cabo would be able to rely on existing findings of fact to establish that it would have been less loss-making in the counterfactual, and the impact of that (or the opposite conclusion that the case would need to be remitted to the judge) on the question of whether Cabo should be permitted to advance this case on appeal.

We make it clear, therefore, that although we are satisfied that the legal issues raised by grounds 1 and 2 raise arguable points of law on which it would otherwise be appropriate to grant permission, MGA should not be precluded from contending that Cabo did make the concessions recorded by the judge and/or that Cabo should in any event have raised the issue in response to the draft judgment, such that it is as a result precluded from raising these matters on appeal.

In these circumstances, we consider that the appropriate mechanism to permit the various arguments to be raised is to direct that there be a rolled-up hearing of the application for permission to appeal, together with the appeal if permission is granted, on grounds 1 and 2. Although it will be for the court hearing the matter to determine precisely how to proceed, the parties should be prepared to address argument at the hearing on all points which we have identified, and should do so in their skeleton arguments.

So far as ground 3 is concerned, as Sir James Eadie frankly acknowledged, there is a high hurdle to overcome in seeking to interfere with evaluative findings of the judge. Cabo’s complaint is that the judge, in reaching her conclusion that it would not have been profitable in the counterfactual impermissibly relied on what happened in the actual world. That was impermissible, it is said, because what happened in the actual world was tainted by MGA’s abusive conduct.

Relatedly, Cabo contends that where, as here, there is an absence of reliable evidence, the judge should have applied the principle in Armory v Delamirie (1722) 1 Str. 505, recently endorsed by the Supreme Court in Morris-Gardner v One Step [2018] UKSC 20; [2019] AC 649, at §38, namely that presumptions should be made in favour of the claimant. The judge considered this point (at §463 to §464) and rejected it. She said, at §464:

“[T]he court will assess the totality of the material before it, giving such weight as is appropriate to the evidence on each side, depending on the court’s appraisal of the strength of that evidence. Where that analysis requires assumptions or inferences to be made, the court will make those assumptions on the basis of a consideration of what is reasonable and realistic. There is no principle that requires that approach to be overridden by a default presumption in favour of the claimant, simply because the exercise is being carried out is the assessment of a hypothetical counterfactual scenario which did not occur as a result of the defendant’s conduct.”

We do not think there is any arguable error with a real prospect of success in that conclusion. The cases relied on by Cabo were concerned with the situation where, as a result of the actions of the defendant, evidence, which should otherwise have been available, was not. This case, in contrast, is one where there would never be any actual evidence of what happened in the counterfactual, because it is a hypothetical construct. The court is always, therefore, in the position of having to infer what would have happened from the totality of the available evidence.

Cabo does not go so far as to say that it is impermissible to rely upon any matters that occurred in the actual world in identifying what would have happened in the counterfactual. Sir James identified three instances which, he submitted, were examples of the judge impermissibly taking account of matters that occurred in the actual world.

The first was the judge’s reliance on the fact that – whereas Cabo would have needed to generate sales of 15,000 to 19,000 per week – the best that was achieved by way of sales actually made, through B&M Retail Limited (where sales were not blocked by MGA) was 4,500 per week.

Cabo contends that this was wrong, because the judge failed to appreciate that B&M Retail Limited is a discount store, whereas success was dependent on sales being achieved in the three main retailers (Toys ‘R’ Us, The Entertainer and Smyths) where sales had been precluded by MGA’s conduct.

The second was the judge’s reliance on the fact that Singleton Trading Limited (who had provided funding to Cabo) were reluctant in August 2017 to fund a US expansion. That is said to be impermissible because this was some months after MGA’s threats had effectively killed off the business in the UK.

The third was that the judge focused on the business achieving profitability by the end of 2017. That, too, was said to have been driven by a focus on the actual.

We do not accept that these points establish a real prospect of successfully interfering with the judge’s evaluative conclusions. We have no doubt that the judge had well in mind the need to take care that to the extent she relied on matters that occurred in the real world, she made due allowance for the risk that those matters were tainted by MGA’s conduct. That is evident, specifically in relation to the B&M sales, by the judge’s conclusion at §579(i) that there was no evidence supporting the suggestion that Cabo could have achieved more than triple the number of sales at B&M had Worldeez been on sale at the three main specialist toy retailers.

At §591, the judge expressed her unequivocal conclusion that in the counterfactual case Cabo would not have traded profitably, based on the numerous factors addressed in §507 to §590. These included matters that cannot, on any view, have been tainted by what happened in fact, including the lack of quality in the product, the lack of a sufficient marketing budget, the lack of a formal business plan and the use of financial projections that were implausible, and fact that Singleton, as funder, were entitled unilaterally to withdraw cash, and expert evidence as to the likelihood of securing sufficient sales.

At §572, the judge had recorded the evidence of MGA’s expert, Mr Harper, who estimated that Cabo’s chances of securing sufficient sales in its first year in the UK to secure year two retailer listings were well below 10% and probably as low as 1-3%, and that this was likely to have resulted in a significant loss. The judge noted that Mr Harper had not been challenged on this evidence. Ms Wakefield pointed out the Cabo’s own expert had not addressed profitability at all.

As regards reliance on sales via B&M, Ms Wakefield made the valid point that it was Cabo that had placed reliance on these, contending for example that they were “really strong”, so that the judge cannot be criticised for making reference to them. More importantly, the particular point about the B&M sales on which the judge relied, in her conclusion paragraph §591, was one that was untainted by MGA’s wrongful conduct. She noted that the pattern of sales, namely that after a promising start, sales quickly dropped off after August 2017, was indicative of a product which did not have enduring consumer appeal. That itself was merely one factor, along with all of the other matters cited in §591, that led to her conclusion.

Specifically in relation to the point raised about Singleton’s lack of willingness to fund a US expansion, the judge had regard to evidence indicating that there had been problems with the relationship from the start of the project, before MGA’s intervention.

Reading the judgment as a whole, we are satisfied that the judge did not impermissibly place reliance on matters that occurred in the actual case.