Leofelis SA & Anor v Londsdal Sports Ltd & Ors

There are before the court applications in two related actions which, for present purposes, are between largely the same parties. They arise out of a prolonged dispute regarding the licensing of a series of trade marks of which the registered proprietors are part of the Lonsdale group of companies.

In action number HC05C02842 (“the 2005 Action”), the licensee (“Leofelis”) and its sub-licensee claimed against the licensors a declaration and damages for breaches of an exclusive licence agreement (“the Agreement”). A trial on liability was held in late 2006 and on 8 March 2007 Evans-Lombe J gave judgment predominantly in favour of the claimants. That decision was partly reversed by the Court of Appeal on 1 July 2008. However, the findings of the judge as to some of the breaches of the Agreement were unchallenged and the case is continuing as regards Leofelis’ claim for damages. It has progressed slowly: particulars of claim regarding damages were served only on 2 October 2009 and no trial has yet been fixed.

In action HC09C00370 (“the 2009 Action”), the claimants are the licensors and Leofelis is the defendant. The action arises out of the termination of the Agreement in late 2007. The licensors seek damages against Leofelis for repudiatory breach of the Agreement, whereas Leofelis counterclaims alleging that the licensors were in repudiatory breach. On 6 May 2010, Kitchin J refused the claimants’ application for summary judgment on condition that Leofelis made a payment into court. That action is also subject to an order for a split trial and the trial on liability is due to be heard in March 2013.

The three defendants to the 2005 Action, of which two are claimants in the 2009 Action, are all English companies and part of the Lonsdale group. Lonsdale Sports Ltd is the proprietor of a series of trade marks, registered particularly in connection with clothing and leisure goods. The Trademark Licensing Co Ltd, formerly called Lonsdale Licensing Ltd, is a worldwide licensee of those trade marks. Sports World International Ltd (now called Sportsdirect.com Retail Ltd) is engaged in the sale and distribution of, among other things, sporting and leisure goods bearing the Lonsdale trade marks. Since it is unnecessary to differentiate between them, I shall refer to them simply as “Lonsdale”. Other companies in the Lonsdale group are also engaged in the distribution of sporting and leisure goods.

Leofelis, the first claimant in the 2005 Action (and the sole claimant seeking damages) and the defendant to the 2009 Action is a Swiss company which licenses others to distribute and sell leisure clothing, sportswear and associated products. The second claimant in the 2005 Action (“Leeside”) is an Italian company which traded as a manufacturer and distributor of clothing and associated products. On 10 October 2007, Leeside went into voluntary liquidation and it has taken no further part in the proceedings.

The Agreement which is at the heart of both actions is dated 21 November 2002, and made between two of the Lonsdale companies and Leofelis. Under the Agreement, Leofelis was granted an exclusive licence for a period of six years commencing on 1 January 2003 to use a series of specified trade marks (“the Trade Marks”) in relation to certain items of clothing and other categories of goods in the then member states of the European Union, excluding the United Kingdom and Ireland, together with Hungary, Poland, the Czech Republic and Switzerland (“the Leofelis territories”). The Trade Marks were predominantly marks incorporating the word “Lonsdale” (“the Lonsdale marks”) but included also four other trade marks (“the non-Lonsdale marks”). No distinction is drawn in the substantive provisions of the Agreement as between the Lonsdale marks and the non-Lonsdale marks.

By clause 10.1 of the Agreement, Leofelis was entitled to grant sub-licences of the Trade Marks, subject to written consent of the licensor, such consent not to be unreasonably withheld or delayed.

The provisions in clause 11 concerning termination and renewal include the following:

“11.2

The Licensor may terminate the Agreement by immediate written notice in the event that:

11.2.1

the Licensee commits a breach of this Agreement; PROVIDED THAT if the breach is capable of remedy termination shall only occur if the breach shall not have been remedied within 30 days of the Licensee having been given notice in writing specifying the breach and requiring it to be remedied;

…

11.2[bis] The Licensee may terminate this Agreement by giving not less than three (3) months written notice expiring on 31^st December 2005.

…

11.4

The Licensee may renew this Agreement on the same terms including as to Term as subsist at the end of the Term, by giving not less than twelve (12) months written notice to the Licensor on or before 31^st December 2007, provided the Royalty payable shall be €3,500,000.00 for each agreement year.”

The consideration for the licence was the obligation on Leofelis to pay royalties fixed in an annual sum rising through the six year term and payable each year in advance by four equal quarterly instalments.

Leofelis did not at any time itself manufacture or distribute goods bearing the Trade Marks. The benefit to it from the Agreement derived from royalties which it obtained by sub-licensing others to manufacture, distribute or sell goods bearing the Trade Marks.

Leofelis granted a sub-licence pursuant to clause 10.1 of the Agreement to Leeside for Italy (“the Leeside sub-licence”). Lonsdale consented to that sub-licence and there is no question about its validity. On about 20 December 2002, Leofelis purported to extend the Leeside sub-licence to cover all the Leofelis territories. However, that extension apparently covered only the Lonsdale marks. In late November 2005, Leofelis sought Lonsdale’s consent to extend the Leeside sub-licence as regards also the non-Lonsdale marks.

On about 17 June 2003, Leofelis granted a sub-licence to a German company, Punch GmbH (“Punch”) pursuant to clause 10.1 of the Agreement in respect of Germany, the Benelux countries, Hungary and Poland (“the Punch sub-licence”). The Punch sub-licence was terminated by Leofelis on 18 January 2006 for non-payment of royalties.

By letter from its solicitors dated 28 September 2007, Leofelis purported to terminate the Agreement on the grounds that Lonsdale was in repudiatory breach by reason of an injunction which Lonsdale had obtained in the German court to prevent sales in Germany by Leeside of goods bearing the Trade Marks (or some of them). On the basis of the declaration granted by Evans-Lombe J, Leofelis contended that there was a valid sub-licence to Leeside for Germany and that the injunction therefore breached the terms of the Agreement. The letter dated 28 September 2007 stated:

“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.”

Lonsdale did not accept this repudiation and demanded payment of royalties, including the instalment that became due on 1 October 2007. When Leofelis failed to pay, by letter dated 2 October 2007, Lonsdale gave 30 days’ notice pursuant to clause 11.2.1 of the Agreement and, after no payment was received, by further letter dated 2 November 2007 it terminated the Agreement with immediate effect.

By its judgment, the Court of Appeal reversed the finding of Evans-Lombe J that consent had been given to Leofelis to sub-license Leeside for countries outside Italy. It will be necessary to consider the specific terms of the Court of Appeal’s order on one particular point below. However, as a result of that judgment, Leofelis accepts that the German injunction was not a breach of the Agreement and so could not justify its termination.

Leofelis first accepted that it was therefore itself in repudiatory breach of the Agreement, but on Lonsdale's application for summary judgment Kitchin J held that it was entitled to withdraw that concession. Leofelis seeks to contend that, although not the ground on which it terminated the Agreement in 2007, there were other repudiatory breaches by Lonsdale which justified such termination and on which it can properly rely: see Boston Deep Sea Fishing v Amsell (1888) 39 Ch D 339. Lonsdale acknowledges the Boston Deep Sea Fishing principle, i.e. that a party can retrospectively justify termination of a contract by reference to a ground upon which it did not rely at the time of termination. However, by its summary judgment application in the 2009 Action, Lonsdale contended that Leofelis could not show any such arguable grounds of defence.

Kitchin J carefully considered the various grounds of breach on which Leofelis relied. As regards continuing sales of Lonsdale branded garments in Belgium and the Netherlands, Leofelis accepted that it could not rely as a ground for termination on sales which occurred before the end of July 2007, and Kitchin J concluded that Leofelis had no real prospect of establishing that there were sales thereafter of such nature as could justify the immediate termination of the Agreement on 28 September 2007: para 89 of his judgment.

Leofelis had discovered from the evidence filed on the summary judgment application that on 5 January 2007 one of the Lonsdale companies granted a licence to use the Lonsdale marks in relation to sports clothing as from 1 January 2007 to a Latvian company, Sports and Clothing SIA (“SIA”). This licence (“the SIA Licence”) was for one year from 1 January 2007 (subsequently extended to last to 31 March 2008) and covered territories by that time within the EU but outside the scope of the Agreement: Latvia, Lithuania, Estonia, Slovakia, Slovenia, Romania, and Bulgaria. The Lonsdale companies accepted that there was an arguable case that Lonsdale branded products sourced from SIA were being sold in some of the Leofelis territories, particularly in France and Sweden, in the summer of 2007. In response to the assertion by Lonsdale that it neither consented nor was involved in such sales, Leofelis made two allegations, which were summarised by Kitchin J as follows (at para 57 of his judgment):

“…The first is that the terms of the SIA Licence authorised the sale of relevant products within the Leofelis Territories, and thus derogated from the rights granted to the defendant. This argument depends upon the proper interpretation of the SIA Licence. The second is that the SIA Licence did not reflect a genuine commercial agreement between the parties but was instead a device by which Lonsdale branded products could be sold into the Leofelis Territories and that the claimants consented to such use of the Lonsdale trade marks.”

Kitchin J rejected the first allegation upon proper interpretation of the SIA Licence. However, he found that the second allegation was just arguable. He concluded (at para 95):

“I have found that the defendant may succeed in establishing that the claimants authorised sales by SIA and Punch of Lonsdale branded products into the Leofelis Territories and that some of these products subsequently found their way onto the market in France and Sweden. Nonetheless, it must be recognised that this case carries with it the contention that, contrary to the evidence of the claimants, the SIA Licence did not represent the whole agreement between the parties. This is an extremely serious allegation and, while I consider the defence may succeed, I consider it improbable that it will do so, particularly in the light of the evidence of Ms King.”

As I have mentioned, the 2005 Action is proceeding as a claim for damages by Leofelis, in the light of the judgments of Evans-Lombe J and the Court of Appeal concerning liability. Those damages comprise two discrete categories: (a) the effect of supplies of branded goods made in Belgium with the knowledge or consent of Lonsdale, and thus in breach of the exclusivity in the Agreement (“the Belgian Sales”); and (b) fees incurred by Leofelis in Italy in resisting a challenge to the title to the Trade Marks (“the Italian Fees”). Nothing turns on the Italian Fees for the purpose of the present application.

Since Leofelis was not itself engaged in the distribution of goods, its claim for damages from the Belgian Sales is expressed in terms of the royalty income which it alleges that it lost as a result of the effect of those sales on the sales of branded goods by its sub-licensees.

Leofelis contends that the effect was far reaching and of long duration. The magnitude of the effect essentially derives from the following factors which it alleges in its statement of case. I was shown Leofelis’ draft Amended Particulars of Claim (“APOC”) and although that amendment has not yet formally been made, I understand that it is not objected to and it is convenient to take the allegations from the APOC:

Further, Leofelis contends that it would have exercised its right under clause 11.4 to extend the Agreement for a further term of six years, such that the period over which it would suffer loss runs to 31 December 2014.

Although Lonsdale disputes most or all of these propositions, it accepts that they are not matters capable of summary determination.

On that basis, Leofelis claims damages for loss of the net royalties that it would have earned from sales by Leeside on the Italian market, projected to the end of 2014, of some €28.3 million (before interest and discount).

The claim for lost Italian sales accounts for almost 75% of the damages claimed (excluding the Italian fees). However, Leofelis also claims for losses caused by the Belgian Sales in a number of other Leofelis territories. Following amendment, the other territories can now be divided into two: (i) France; and (ii) Belgium, Netherlands and Germany.

For France, Leeside had appointed Sarl KIU 801 (“Sarl”) as what is described as an “agent” to sell in France in January 2005. The imports into France from the Belgian Sales are alleged to have had a similar effect to that in Italy, but the French sales made and projected by Sarl were always much smaller so that the total claim in that regard to the end of 2014 is quantified at €920,334.

For Belgium, Netherlands and Germany, Leofelis’ sub-licensee was Punch. In the Belgian market, the effect of the Belgian Sales obviously would not involve any exports whereas in the Dutch and German markets the effect is alleged to have been, in effect, the same as in France and Italy. The total claim for these three markets is quantified at over €8.6 million. However, a particular feature of that part of the claim is that Leofelis terminated the Punch sub-licence on 18 January 2006, and on its pleaded case that termination had nothing to do with the Belgian Sales: see para 12 above. Thereafter, Leofelis states that it sought to exploit its licence in those territories through an extension to the Leeside sub-licence, but the Court of Appeal held that no such extension was approved by Lonsdale. The schedule to Leofelis’ APOC indeed shows that Leofelis derived no royalties at all from these territories after the termination of the Punch sub-licence. Nonetheless, it alleges that, in the absence of the Belgian Sales, it would have derived substantial royalties from sales there to the end of 2014.

Although Lonsdale disputes much of Leofelis’ case, it has not sought to contend that Leofelis’ claim is not arguable as regards damages up to 28 September 2007, save in respect of France. However, Lonsdale submits that Leofelis clearly cannot recover any damages by reason of the Belgian Sales for the period thereafter, on the basis that in giving notice of termination of the Agreement, Leofelis treated its licence as at an end. Put simply, it submits that Leofelis cannot recover for projected royalties derived from sub-licences after a time when it regarded itself as no longer having a licence. Lonsdale therefore applies as regards that part of Leofelis’ claim for summary judgment or alternatively to strike it out pursuant to CPR rule 3.4.

As regards France, Lonsdale takes a distinct point. On the basis that no sub-licence for France was ever approved under the Agreement, it submits that Leofelis was not entitled, in any event, to earn any royalties from sales there by Sarl.

The financial impact of Lonsdale’s primary contention is very significant. Taking the split for convenience at the end of 2007, the division of the claimed damages is as follows:

The 2009 Action arises from the termination of the Agreement in late 2007. Lonsdale contends that this was the result of the breach by Leofelis which it accepted by the notice of termination of 2 November 2007. It claims as damages for repudiatory breach the royalties that would have been payable for the unexpired term of the Agreement (i.e. to 31 December 2008), less royalties received under replacement licences entered into with others that fall to be deducted by way of mitigation.

After the Court of Appeal judgment in the 2005 Action, Leofelis accepted that it could not justify its termination notice of 28 September 2007 on the basis of the German injunction, but contended that it could do so on other grounds. Following Kitchin J’s judgment that Leofelis had an arguable case that there was a repudiatory breach of the Agreement by reason of the circumstances concerning the SIA Licence, Leofelis served a defence and counter-claim setting out its case based on the SIA Licence and joining as Part 20 defendants to the counter-claim, SIA, Punch and three related parties. Accordingly, the issue on liability in the 2009 Action is whether there were such repudiatory breaches of the Agreement by Lonsdale that the purported termination of the agreement by Leofelis on 28 September 2007 was valid. It is common ground that if that termination by Leofelis was not valid, then the Agreement was validly terminated by Lonsdale on 2 November 2007.

Leofelis has not yet particularised the damages which are the subject of its counterclaim. However, it is clear that they will include (insofar as not recoverable in the 2005 Action) the royalties that it contends it otherwise would have earned had the Agreement continued until 2014.

Lonsdale submits that as a matter of principle, even if such a repudiatory breach on its part were established, Leofelis cannot recover in respect of any ‘lost’ sales by its licensees after 28 September 2007, since irrespective of any breaches arising from the SIA Agreement, it decided to bring the Agreement to an end and treated itself as no longer having a licence as from that date. Lonsdale therefore applies for summary judgment on those aspects of the counterclaim or alternatively to strike them out.

Again, this issue has substantial financial significance. Without such claims for future loss, Leofelis’ counterclaim is confined to the effect which any imports into the Leofelis territories by SIA and Punch would have had prior to 28 September 2007. Since the SIA Agreement was entered into only on 5 January 2007, on any view that is a much more limited claim.

The governing principles for an application for summary judgment by a defendant are not in dispute. They were summarised by Lewison J in EasyAir Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15], in a formulation approved by Court of Appeal in A.C. Ward Ltd v Catlin (Five) Ltd [2009] EWCA Civ 1098, [2010] Lloyd’s (I & R) Rep 301 at [24]:

“i)

The court must consider whether the claimant has a “realistic” as opposed to a “fanciful” prospect of success: Swain v Hillman [2001] 2 All ER 91;

ii)

A “realistic” claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];

iii)

In reaching its conclusion the court must not conduct a “mini-trial”: Swain v Hillman;

iv)

This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10];

v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;

vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;

vii)

On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.”

Principle vii) effectively echoes what was said by Lord Woolf MR (with whose judgment Judge LJ agreed) in Swain v Hillman at 94a:

“It is important that a judge in appropriate cases should make use of the powers contained in Pt 24. In doing so he or she gives effect to the overriding objectives contained in Pt 1. It saves expense; it achieves expedition; it avoids the court's resources being used up on cases where this serves no purpose, and I would add, generally, that it is in the interests of justice. If a claimant has a case which is bound to fail, then it is in the claimant's interests to know as soon as possible that that is the position. Likewise, if a claim is bound to succeed, a claimant should know that as soon as possible.”

Accordingly, although I at one point wondered if it would not be preferable for the application in the 2009 Action to be adjourned until after the trial on liability, since if Leofelis should fail on its case on repudiatory breach the issue falls away, I consider that it is appropriate to deal with it now. The facts on which Lonsdale relies in support of its application are either undisputed or are to be assumed for the purpose of this application in Leofelis’ favour. If on those facts it is clear as a matter of law that a large part of the damages claim cannot succeed, it is preferable for the parties to know that sooner rather than later. Apart from anything else, it is likely to have considerable practical significance for the commercial realities of the litigation.

The Primary Claim

Both sides placed strong reliance on the decision of the House of Lords in The Golden Victory [2007] UKHL 12, [2007] 2 AC 353. There, a vessel was subject to a time charter for seven years, that was repudiated by the charterers in the fourth year. The owners accepted the repudiation and claimed damages, calculated on the basis of the balance of the charter. However, some 15 months after the termination of the charter the Second Gulf War broke out. Those hostilities would have entitled the charterers to cancel the charter under its terms, and the arbitrator found that the charterers would have exercised that right. The majority of the House of Lords held that the outbreak of the Second Gulf War therefore had the effect of placing a temporal limit on the loss of hire for which the owners could recover.

All their Lordships referred to the basic compensatory principle governing damages in the law of contract, i.e. that the damages should be such sum as will place the injured party in the same financial position as if the contract had been performed. In the leading opinion for the majority, Lord Scott (with whom Lords Carswell and Brown agreed) referred at [31] to the owners’ contention that because the charterers’ repudiation and its acceptance preceded the outbreak of the Second Gulf War, “the rule requiring damages to be assessed at the date of the breach requires that event to be ignored”. Lord Scott continued:

“That contention, in my opinion, attributes to the assessment of damages at the date of breach rule an inflexibility which is inconsistent both with principle and with the authorities. The underlying principle is that the victim of a breach of contract is entitled to damages representing the value of the contractual benefit to which he was entitled but of which he has been deprived. He is entitled to be put in the same position, so far as money can do it, as if the contract had been performed. The assessment at the date of breach rule can usually achieve that result. But not always.”

After citing various Court of Appeal cases, Lord Scott expressed his opinion as follows:

“34.

The assessment at the date of breach rule is particularly apt to cater for cases where a contract for the sale of goods in respect of which there is a market has been repudiated. The loss caused by the breach to the seller or the buyer, as the case may be, can be measured by the difference between the contract price and the market price at the time of the breach. The seller can re-sell his goods in the market. The buyer can buy substitute goods in the market. Thereby the loss caused by the breach can be fixed. But even here some period must usually be allowed to enable the necessary arrangements for the substitute sale or purchase to be made: see eg Kaines (UK) Ltd v Österreichische Warrenhandelsgesellschaft [1993] 2 Lloyd's Rep 1. The relevant market price for the purpose of assessing the quantum of the recoverable loss will be the market price at the expiration of that period.

35.

In cases, however, where the contract for sale of goods is not simply a contract for a one-off sale, but is a contract for the supply of goods over some specified period, the application of the general rule may not be in the least apt. Take the case of a three year contract for the supply of goods and a repudiatory breach of the contract at the end of the first year. The breach is accepted and damages are claimed but before the assessment of the damages an event occurs that, if it had occurred while the contract was still on foot, would have been a frustrating event terminating the contract, e.g. legislation prohibiting any sale of the goods. The contractual benefit of which the victim of the breach of contract had been deprived by the breach would not have extended beyond the date of the frustrating event. So on what principled basis could the victim claim compensation attributable to a loss of contractual benefit after that date? Any rule that required damages attributable to that period to be paid would be inconsistent with the overriding compensatory principle on which awards of contractual damages ought to be based.

36.

The same would, in my opinion, be true of any anticipatory breach the acceptance of which had terminated an executory contract. The contractual benefit for the loss of which the victim of the breach can seek compensation cannot escape the uncertainties of the future. If, at the time the assessment of damages takes place, there were nothing to suggest that the expected benefit of the executory contract would not, if the contract had remained on foot, have duly accrued, then the quantum of damages would be unaffected by uncertainties that would be no more than conceptual. If there were a real possibility that an event would happen terminating the contract, or in some way reducing the contractual benefit to which the damages claimant would, if the contract had remained on foot, have become entitled, then the quantum of damages might need, in order to reflect the extent of the chance that that possibility might materialize, to be reduced proportionately. The lodestar is that the damages should represent the value of the contractual benefits of which the claimant had been deprived by the breach of contract, no less but also no more. But if a terminating event had happened, speculation would not be needed, an estimate of the extent of the chance of such a happening would no longer be necessary and, in relation to the period during which the contract would have remained executory had it not been for the terminating event, it would be apparent that the earlier anticipatory breach of contract had deprived the victim of the breach of nothing. In Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426, the Earl of Halsbury LC at 429 rejected the proposition that "because you could not arrive at the true sum when the notice was given, you should shut your eyes to the true sum now you do know it, because you could not have guessed it then" and Lord Robertson said at 432, that "estimate and conjecture are superseded by facts as the proper media concludendi" and, at 433, that "as in this instance facts are available, they are not to be shut out". Their Lordships were not dealing with a contractual, or tortious, damages issue but with the quantum of compensation to be paid under the Waterworks Clauses Act 1847. Their approach, however, is to my mind as apt for our purposes on this appeal as to theirs on that appeal.”

In his opinion, Lord Brown addressed the contrary argument based on certainty and predictability, noting that it was accepted that it was appropriate to take account of the chance that the charter would have terminated early because of a particular event, assessed as at the date of breach. He observed that if it was appropriate to take account of, and therefore assess the likelihood of, a contingency occurring (and when it might occur), then it would be profoundly unsatisfactory if the question were still to be addressed on the basis of a contingency once the event actually had occurred. Endorsing the application of the "Bwllfa principle" to this situation in contract, he said, at [78]:

“Must the judge really shut his eyes to the known facts and speculate how matters might have looked at some earlier date? Again, not without compelling reason and none appears to me.”

For Lonsdale, Mr Leggatt QC and Mr Dhillon submitted that this ruling clearly applies in the present case. The position is very simple. As regards the 2005 Action, although at the time of the breaches, and indeed when the action was commenced, the future duration of the Agreement was uncertain, it is now known that it came to an end in late 2007. In those circumstances, to permit Leofelis to recover damages on the assumption that the Agreement continued thereafter for its full term, including indeed a likely renewal for a further six years beyond 31 December 2008, would be to award damages on a factual basis known to be false. The court should not shut its eyes to what has actually happened.

For Leofelis, Mr Baldwin QC and Mr Lykiardopoulos argued that it is a fundamental principle that damages are quantified as at the date of the breach. It is only in limited circumstances that the court will take into account subsequent events. The Golden Victory is concerned with the circumstances where a contract had been brought to an end by an act independent of the parties. They accepted that the same principle would apply if the contract came to end because of Leofelis’ repudiatory breach: cp. The Mihalis Angelos [1971] QB 164. But here, that issue remains to be resolved at the trial on liability in the 2009 Action. For the purpose of this summary judgment application, it must be assumed that Leofelis’ case on liability will succeed, so that Leofelis’ termination on 28 September 2007 can be justified on the basis of Lonsdale’s repudiatory breach. Where it is the guilty party responsible for the earlier breach that is also the party subsequently responsible for the repudiatory breach that causes the contract to come to an end, then the later termination should not operate to curtail the damages recoverable. To permit the date of breach rule to be displaced in those circumstances would enable the guilty party to benefit from its own further wrong. This situation was not addressed in The Golden Victory, which therefore provides no authority to the contrary.

I broadly accept Mr Leggatt and Mr Dhillon’s arguments. Moreover, I think it is significant that The Golden Victory was a claim for damages for the accepted repudiation of a contract. That was the basis on which the House of Lords was divided, since Lords Bingham and Walker in their dissent emphasised the situation of the innocent party who on the contract coming to an end would be expected to purchase substitute goods (or, there, obtain alternative employment for the vessel) on the terms available in the market, and that this assumption underlies the assessment of damages. Hence Lord Bingham in his opinion distinguished various cases where the date of breach was not applied to the quantification of damages, noting (at [12]):

“None of these cases involved repudiation of a commercial contract where there was an available market.”

The Mihalis Angelos was also a case of a repudiatory breach of contract. It was indeed on the basis that this was an anticipatory breach (or renunciation) that the owners had persuaded the judge at first instance to ignore the fact that the charterers could subsequently have terminated the charterparty; and that then became the focus of the argument on this issue in the Court of Appeal, where the decision was reversed. See generally, Lord Mustill, “The Golden Victory – Some Reflections”, (2008) 124 LQR 569.

Therefore, even without The Golden Victory, it seems to me that in the case of damages for breach of a contract which continued, where those damages fall to be assessed on the basis of lost future benefits, the court would take account of an event occurring after the breach that caused the value of those benefits to decline. To do that is no more than to apply the basic compensatory principle, without creating any potential difficulty for the computation of loss where there is an available market. On the other hand, to ignore such a subsequent event would be to award the injured party more than it had lost. But in any case, I consider that The Golden Victory now puts the position beyond doubt. I see no basis for confining the broad statements of principle by the majority in the manner urged by Counsel for Leofelis.

In my view, there is no question of thereby enabling the guilty party to profit from its own wrong. Since the basis of damages for breach of contract is to put the innocent party in the same position that it would have been in if the breach had not occurred, the question here is a simple one: for how long may Leofelis have suffered a loss of royalties by reason of the Belgian Sales? Since the Agreement came to an end in late 2007 for wholly different reasons, Leofelis clearly could not have earned any royalties after that date. That conclusion is not affected by the question of whether the cause of the Agreement coming to an end was some separate and subsequent breach by Lonsdale. To award Leofelis damages in the 2005 Action for the period after late 2007 would be to provide it with a windfall.

The fallacy in the argument advanced for Leofelis is revealed by its inevitable concession that if Leofelis was itself in repudiatory breach in late 2007, then it could not properly seek to recover in the 2005 Action for loss of royalties thereafter. However, the issue of which party was responsible for the subsequent termination is a question in the 2009 Action, not the 2005 Action. If Leofelis could establish in the 2009 Action that it terminated the Agreement by accepting Lonsdale’s repudiatory breach, then its damages in that action would be for the consequences of that breach. Leofelis would be entitled to be placed in the position it would have been in if there had been no repudiation by Lonsdale. Since on that hypothesis Leofelis would have continued to have a licence and the potential to earn royalties, it could effectively argue that curtailment of its damages resulting from the Belgian Sales formed part of its recoverable loss. On the other hand, if it should be found that Lonsdale was not in repudiatory breach, then, as Leofelis accepts, that basis of claim would properly fail. Thus instead of ignoring in the 2005 Action the fact that Agreement came to an end, the just and principled approach is to reflect that fact in the computation of damages in the 2005 Action, and then take account of this in the 2009 Action which addresses the question of which party is responsible for the financial consequences of the termination.

Accordingly, I consider that the claim for damages after late 2007 in the 2005 Action is bound to fail and that summary judgment should be awarded to Lonsdale on that issue. Probably little turns on the difference between 28 September and 2 November as a cut-off date, but in principle I think the earlier date is appropriate since that is the date on which Leofelis treated itself as no longer party to the Agreement.

France

In the light of my conclusion on the primary issue, Lonsdale’s discrete argument concerning the damages claimed for France is of relatively little significance. However, it does affect the claim for the period prior to late 2007, and of course the subsequent period if I am wrong on my primary conclusion, and I shall therefore address it.

The argument as regards the claim for French sales advanced by Lonsdale was again very simple. The Court of Appeal held that Leofelis had not granted consent to Leeside for sales in any country outside Italy, and on that basis no sales of branded goods could lawfully be made by Leeside (or its agent) in France. Therefore the claim for lost royalties on French sales must fail.

Mr Baldwin submitted that the Court of Appeal had not reversed all of Evans-Lombe J’s findings regarding consent by Lonsdale to Leofelis sub-licensing Leeside in territories outside Italy. This argument was based on the distinction between two paragraphs in Evans-Lombe J’s judgment. In para 217, the judge held that the sub-licensing to Leeside for the four non-Lonsdale marks was approved by reason of the lack of response to a specific request in that regard from Leofelis in a letter dated 28 November 2005. In para 219, he held that Lonsdale had waived the right to object to an extension to the Leeside sub-licence to all Leofelis territories outside Italy and thus was to be treated as having given its approval under the Agreement by early 2006. Although the holding in the latter paragraph had clearly been reversed by the Court of Appeal, Mr Baldwin argued that that paragraph, when read in conjunction with para 217, was clearly concerned only with the Lonsdale marks. The finding in para 217 was undisturbed and Leeside therefore was approved as a sub-licensee for France as regards the non-Lonsdale marks. On that basis, Leofelis can claim damages in that regard.

If correct, this would save only that part of the damages claim which is alleged to reflect the impact of the Belgian Sales on sales in France of goods bearing the non-Lonsdale marks. As I understand it, that quantification exercise has not yet been carried out.

However, I reject this argument. Although the order of Evans-Lombe J clearly covered all the Trade Marks that were the subject of the Agreement (see at paras 1 and 15-18), no distinction is drawn in the declaration that he made as between a sub-licence to Leeside for the Lonsdale marks and the non-Lonsdale marks: see at para 2. That is not surprising, since this order gave Leofelis what it sought. But it is trite to observe that an appeal is against an order of the court and not against a judgment. Lonsdale appealed the order, and the result is set out in the order of the Court of Appeal, which declares, at para 14:

“On the true construction of Clause 10.1 of the Licence Agreement, no valid or effective sub-licence was granted by [Leofelis] to [Leeside] for any country within the Territory (as defined in the Licence Agreement) other than Italy.”

This is unequivocal. If Leofelis had sought to uphold Evans-Lombe J’s order in the alternative as regards the non-Lonsdale marks on the basis of the reasoning in para 217 of his judgment, then Leofelis should have advanced that argument on the appeal. Had it done so successfully, the Court of Appeal’s order would doubtless have been expressed differently. Moreover, there is no indication in the Court of Appeal’s judgment that any such argument was even raised by those then appearing for Leofelis, and Mr Leggatt (who appeared on that appeal for Lonsdale) told me that it was not. It is not open to Leofelis to advance that argument now.

I mentioned in the course of the hearing that it seemed to me that a similar objection to the claim for lost royalties on the Belgian, Dutch and German markets might be raised for the period after 18 January 2006 when the Punch sub-licence was determined, since it is not suggested in Leofelis’ APOC that any new sub-licence for those territories was ever approved by Lonsdale. However, there was no application by Lonsdale specifically as regards that aspect of Leofelis’ claim and Mr Baldwin therefore did not feel able to address this point. Accordingly, I say no more about it.

The issue of damages in the 2009 Action raises very different considerations. For the purpose of the present application, it must be assumed that Lonsdale was in repudiatory breach by reason of the circumstances surrounding the SIA Licence, or rather the true nature of its arrangements with SIA: see paras 18-19 above.

If that is so, Lonsdale accepts that this would give Leofelis a good defence to Lonsdale’s claim for damages as it would serve to justify Leofelis’ termination of the Agreement although Leofelis was unaware of this fact at the time. But the question is whether it would go further and enable Leofelis to claim against Lonsdale damages for repudiation, i.e. the loss of the benefit of the Agreement continuing and therefore the royalties which Leofelis would have earned. As mentioned above, I think that such a claim could in principle include any further damages that Leofelis otherwise would have recovered by reason of the Belgian Sales.

If X terminates its contract with Y relying on an alleged repudiatory breach by Y that turns out, or is found, not to have been a breach, but subsequently discovers that Y had committed a distinct breach of the contract that would justify termination, that can give rise to several scenarios:

As to (i), it is clear that X can rely on the distinct repudiatory breach by Y albeit that was not the ground on which X acted at the time, and as to (ii) it is clear also that X can maintain this claim. The Boston Deep Sea Fishing case illustrates both propositions. There, the claimant company terminated the employment of the defendant as its managing director on the grounds of alleged misconduct which it was then unable to substantiate. But after his dismissal, it discovered that he had taken secret commissions from some other companies in return for placing contracts with them on behalf of the claimant. In response to the company’s claim for an account of the commissions, the defendant counterclaimed for wrongful dismissal. On those facts, it is unsurprising that the Court of Appeal held that the claimant could succeed on its claim for an account, and that the taking of the commission provided a good defence to the counterclaim. Although that was a case of fraud, it has long been regarded as authority for the broader proposition covering case (i) and it also an illustration of case (ii). See also the observations of Lord Sumner in British & Beningtons Ltd v Foreign Hardwood Co Ltd [1923] AC 48 at 71-72. It is on the basis of this line of authority that Lonsdale accepted that Leofelis could defend the 2009 Action on the basis of the circumstances surrounding the SIA Licence.

However, Boston Deep Sea Fishing says nothing about case (iii). Nor do I find The Mihalis Angelos, on which Lonsdale relied, as of any assistance on this point. There, under the terms of a voyage charterparty the vessel was to proceed to Haiphong and load a cargo of mineral ore for a North European port. The charterparty described the vessel as “expected ready to load under this charter about 1 July 1965” and included a clause giving the charterers the option to cancel if it was not ready to load by 20 July 1965. On 17 July the charterers purported to cancel on the basis of alleged force majeure, which conduct the owners accepted as a repudiation. On the owners’ claim for damages, it was found that the charterers were not entitled to terminate for force majeure but that (a) as at the date of the charterparty the owners could not reasonably have expected that the vessel would have been ready to load in Haiphong by 1 July, and (b) if the vessel had proceeded to Haiphong it would not have been ready to load there by 20 July, such that the charterers would have terminated the charterparty on that ground in any event. On those facts, the Court of Appeal held, first, that the “expected readiness” clause was a condition of which the owners were in breach and that accordingly the charterers were entitled to justify their termination on 17 July on that basis. Further, the owners would be entitled to only nominal damages since even if the charterers were in breach by reason of their termination they would have cancelled the charterparty on 20 July in any event.

The Mihalis Angelos is therefore an illustration of case (i) and as regards the measure of damages is a precursor to The Golden Victory, in which it was fully discussed. But it does not address case (iii) above: there was no claim by the charterers for damages against the owners, and the hypothetical termination of the charterparty that it was found would have occurred on 20 July was pursuant to an option to cancel and not for breach.

The researches of counsel failed to find any authority which deals with case (iii) and I have not found the question altogether easy to resolve. However, it is appropriate to go back to first principles. 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.

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.

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.

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.