SC Johnson & Son Inc v Hillshire Brands Company & Anor

This case came before the court as the trial of a Part 8 claim for specific performance. By order of Master Bragge of 29 November 2012, it was heard without oral evidence on the basis of the witness statements only. However, at the trial the claimant did not seek an order of specific performance and the hearing took a rather different form, as I shall explain.

The claimant in these proceedings (“SCJ”) is a Wisconsin corporation. The first defendant is an Illinois corporation. It was formerly called Sara Lee Corporation and was the parent company of the Sara Lee Group. I shall refer to it as “Sara Lee”. The second defendant (“DEMB”) is a Dutch company and was at the material time a subsidiary of Sara Lee although it is now an independent company. However, for most purposes it is unnecessary to differentiate between the formal obligations and rights of Sara Lee and DEMB and in this judgment I shall not seek to distinguish between them save where necessary.

The case comes before the English court because of an English jurisdiction (and also English law) clause in the governing agreements between the parties.

The Sara Lee Group used to own a very broad range of businesses in consumer products. However, in recent years it has sold off some of those businesses to various third parties. In 2009, it sold to Unilever its body care division, which includes the “Badedas” and “Brylcream” brands and trademarks; and in 2010 it sold to Procter and Gamble its household division, which includes the “AmbiPur” brand of air fresheners. Then by a Sale and Purchase Agreement dated 31 March 2011 (“the SAPA”), it sold its shoe care business, including the well-known “Kiwi” brand, to SCJ for a total price of €245 million. The present claim is based on the SAPA.

Subsequently, in June 2012, Sara Lee divested its international tea and coffee business, including the “Douwe Egberts” brand, to DEMB which at the same time became an independent company.

The SAPA is a long and complex document with 19 schedules and 16 exhibits, some of them voluminous. However, it is only necessary to refer to very few of its provisions. Sara Lee is defined as “the Seller” and SCJ as “the Purchaser”. The business sold effectively encompasses Sara Lee’s shoe care business, including what is referred to as “Owned IP”. Owned IP is defined in Schedule 19 by reference to Exhibit 2, which is not in evidence as it is so extensive but it is common ground that it includes the Kiwi trademarks, comprising both word marks and device marks, as registered around the world. The countries of registration include all Member States in the European Union and countries in the Middle East. However, by Schedule 2 Part A, para (i), the obligation as regards Owned IP is subject to Schedule 11, Part A, para 7. This provides as follows:

“7.

In relation to any Owned IP registered in the name of or otherwise owned by Zetra, the Seller (through the assignor(s) identified in the IP Assignment) shall:

(a)

on Closing, sell to the Purchaser (through the assignee(s) identified in the IP Assignment) such right, title and interest as the Seller Group owns in that Owned IP; and

(b)

not later than the date falling twelve (12) months after the Closing Date, procure the transfer by Zetra of its rights in that Owned IP (which shall include, for the purpose of this paragraph 7(b) of Part A of Schedule 11, any Intellectual Property Rights used exclusively in or that relate exclusively to the Shoe Care Business in each case that are subsisting on, and registered (or applied for) by Zetra prior to, the date of transfer by Zetra of its rights in that Owned IP as contemplated by this paragraph 7(b)) (the Zetra Rights) to the assignee(s) to whom the rights described in paragraph 7(a) of this Part A of Schedule 11 are sold, provided that the Purchaser shall, and shall procure that the relevant assignee(s) shall, take all steps reasonably required by the Seller to assist the Seller and Zetra in relation to the transfer of the Zetra Rights.”

I shall refer to this as “the para 7 obligation”. The Owned IP which is subject to the para 7 obligation is referred to as the “Zetra Rights”.

The para 7 obligation arises because the Kiwi marks in the Arab countries, Malta and the Benelux countries were registered in the name of Zetra. Zetra is defined in Schedule 19 as Zetra BV, a Dutch company, although it may be that it is intended also to refer to and include Zeenni’s Trading Agency (“ZTA”), a Lebanese partnership. No point was taken on that distinction.

At the time of the SAPA, the Zetra Rights, at least as regards the Middle East, were governed by a Licence and Manufacturing Agreement (“the LAMA”) entered into on 30 November 2006 between an associated company of DEMB (then called Sara Lee/DE NV) on the one part and both Zetra and ZTA (together referred to as “Zetra” for purpose of that agreement) on the other. Unlike the agreements between Sara Lee and SCJ, the LAMA is governed by Dutch law and has an ICC arbitration clause (cl 15.7).

The territory to which the LAMA applies comprises virtually all the Arab countries of North East Africa and the Middle East. It therefore includes Iran, Iraq, Libya, Sudan, Syria and Yemen. The products covered by the LAMA include the relevant products bearing the AmbiPur, Kiwi, Brylcream and Badedas marks.

In essence, the LAMA:

Some amendments were made to the scope of the products covered by the LAMA in early 2009 and, more significantly, on 29 January 2009, a personal guarantee was executed by Messrs Joseph and Michel Zeenni, the father and son who it is said owned and ran Zetra/ZTA, as follows:

“We hereby guarantee that Zetra BV shall, upon first request of Sara Lee, assign and transfer the Intellectual Property which it holds from time to time and has registered from time to time in its name on behalf and for the benefit of Sara lee, to Sara Lee without delay.”

Although not covered expressly by the LAMA, at some point Zetra/ZTA became with the consent of Sara Lee the registered proprietor of the Kiwi mark in Malta and the Benelux, and also of the Douwe Egberts mark in several countries in the territory, including some of the Gulf States, Kuwait, Lebanon, Jordan and Saudi Arabia.

The closing of the SAPA took place on 4 April 2011 and on the same day the parties entered into an IP Deed of Assignment. Under clause 2(c) of that Deed, Sara Lee/DEMB agreed to assign to specified companies in the SCJ Group “such right, title and interest as it owns in and to” the trademarks for which Zetra is identified in Schedule 2 to that Deed as the registered proprietor.

Pursuant to the para 7 obligation, the Zetra Rights should have been transferred to SCJ by 4 April 2012. It is common ground that this has not happened and Sara Lee accepts that it is in breach of the SAPA in that regard. The reason for this is that Zetra/ZTA have refused to transfer the Kiwi marks, as also all other Sara Lee marks registered in their name, i.e. AmbiPur, Brylcream, Badedas and Douwe Egberts. DEMB is now in dispute with Zetra/ZTA and Mr Michel Zeenni (Mr Joseph Zeenni died in July 2012).

The present proceedings to date have had a rather unusual, not to say unorthodox, history. They were started on 24 August 2012 as a Part 8 claim seeking specific performance of the para 7 obligation: i.e., an order that the defendants should procure the transfer by Zetra of ownership and rights to the Kiwi marks to the SCJ company identified in the IP Deed of Assignment. Further, SCJ sought an order that:

“the defendants do all things necessary to effect [such performance], including, but not limited to, entering into negotiations and commencing and prosecuting legal or arbitral proceedings in order to achieve [such performance].”

Evidence was filed between August and October 2012 directed to that issue. In particular, Sara Lee addressed the steps taken in discussion with Mr Joseph Zeenni to obtain a transfer of the Kiwi marks, and whether damages were an adequate remedy. As set out in the witness statement of Ms Van Olphen, DEMB’s vice-president, legal affairs, Zetra/ZTA were disputing that they were under any valid obligation to make such a transfer, and it seemed clear from a letter received from Mr M Zeenni dated 30 August 2012 that there was no prospect of a negotiated settlement. She said in her witness statement of 28 September 2012 that Sara Lee/DEMB “intend shortly to file a Request for Arbitration with the ICC Secretariat” and she exhibited a draft of that Request.

On 29 November 2012, on the application of SCJ, this case was set down for trial to take place in a window commencing on 1 February 2013. On 10 January 2013, the parties were informed that the case would be heard in a two-day window from 16 May 2013.

On 21 February 2013, DEMB’s subsidiary (Footnote: ²) lodged its Request for Arbitration with the ICC. The respondents were Zetra, ZTA and Mr M Zeenni. However, on 25 April 2013, the ICC announced that it had granted a motion by Mr Zeenni that the arbitration should not continue against him. Copies of all documents in the arbitration, including the substantive Answer by Zetra/ZTA and the successive submissions by the parties on the motion to dismiss the claim against Mr Zeenni, were provided by Sara Lee’s solicitors to SCJ and are formally exhibited to a further witness statement filed in this action on 13 May.

On 10 May 2013, the Friday before the trial, SCJ issued an application seeking to amend its claim form by adding to the claim for specific performance a claim for an enquiry as to damages, and also to amend the second paragraph of the relief sought as follows:

“The defendants do all things necessary to effect [performance of the para 7 obligation], including, but not limited to, (a) entering into negotiations and commencing and prosecuting legal or arbitral proceedings in order to achieve [such performance] with reasonable expedition; and (b) providing updates to the claimant at monthly intervals as to the progress of such proceedings.”

However, in the skeleton argument of Mr Hollander QC on behalf of SCJ it is stated:

“Plainly, an unconditional order for specific performance would be inappropriate at this stage because there is the logical possibility that Sara Lee/DEMB may lose the ICC arbitration.”

And further it is conceded that there is little point in making any assessment of damages until the result of the arbitration is known. As the skeleton argument states:

“If it becomes possible to recover the Zetra Rights, damages will be limited to loss in the period from 4 April 2012 until their recovery, plus interest. If it does not become possible to recover them, then damages will need to be assessed on the basis of the value of the rights not transferred. The nature of the enquiry as to damages differs according to what happens.”

In response to a query by Sara Lee’s solicitors as to what orders SCJ was therefore asking the court to make, SCJ’s solicitors wrote on 15 May 2013 (ie, the day before the trial) setting out a third iteration of the relief being sought. In that letter, it is stated that the court will be asked to:

“a)

Declare that damages are not an adequate remedy;

.b) Stand over the issue of the grant of specific performance until the conclusion of the arbitration;

c)

Require your clients to use their best endeavours to prosecute the arbitration with expedition;

d)

Require your clients to provide regular updates as to the progress of the arbitration; and

e)

Grant liberty to apply.”

Accordingly, despite the form of draft order served by it less than a week before, SCJ is not now seeking either specific performance or an immediate enquiry as to damages.

In my view, irrespective of whether it proves possible for Sara Lee to recover and transfer to SCJ the Zetra Rights, rather than ordering an enquiry as to damages, which in any event would have to be pleaded and particularised, the more sensible and appropriate way of proceeding is for SCJ simply to pursue its claim for damages once the question of recovery of the Zetra Rights becomes clear. That will be a matter for trial, but by way of a Part 7 not a Part 8 claim.

Mr Hollander submitted that the court could nonetheless now determine the question whether damages were an adequate remedy and make a declaration that they are not. However, I regard that course as wholly inappropriate. If Sara Lee does not recover the Zetra Rights, then SCJ’s only remedy is damages, as Mr Hollander accepted, so such a declaration serves no purpose. If on the other hand, Sara Lee does recover these rights, then Mr Cuddigan on its behalf made clear that it is willing to transfer the rights over to SCJ and offered an undertaking to that effect. But that is not because it accepts that specific performance could be ordered of the para 7 obligation but because it has sold its world-wide shoe care business and, therefore, if it does recover ownership of these Kiwi trademarks it has no desire or interest to retain them. Moreover, SCJ indicated that it would wish to pursue a claim for damages in any event for the period of time between 4 April 2012 (when the rights should have been transferred) and the date of actual transfer; beyond that, the question of adequacy of damages for failure to transfer the rights is irrelevant. In the end, Mr Hollander did not press this request that the court should make a declaration as to the adequacy or otherwise of damages.

The defendants’ offer of an undertaking that if they recovered the Zetra Rights they would assign or transfer them to SCJ, was duly set out in wording agreed with SCJ immediately after the trial.

Therefore, I consider that the appropriate way forward is to grant SCJ permission to amend so as to add a claim for damages (not an enquiry as to damages), make an order pursuant to CPR Rule 8.1(3) that the action should continue as a Part 7 claim, and adjourn the trial with liberty to restore. Sara Lee sensibly did not object to that course.

That leaves the question of further relief which SCJ now seeks from this court. As developed by Mr Hollander and then set out at the court’s request in a further draft order, that comprises three heads:

All of these are effectively interim orders until trial, which will take place once the outcome of the arbitration was determined. Accordingly, what came before this court as the trial of a Part 8 claim proceeded as effectively an application for interim relief until trial of what will be a Part 7 claim. As Mr Cuddigan pointed out, no application in those terms had ever been issued and the form of order in (iii) was not foreshadowed even in the letter sent by SCJ’s solicitors the day before the trial. However, he did not seek an adjournment and I think that the evidence before the court enables these issues to be addressed.

I consider the three heads of relief, as set out above, in turn.

SCJ’s request for updates was not opposed, subject to the question of the confidentiality of the arbitration proceedings, as to which no order has yet been made in those proceedings. Mr Hollander submitted that it is not unusual for a court to order disclosure of papers in a related on-going arbitration, even if the papers were confidential. However, he recognised that it would be wholly exceptional to order a party to an arbitration to take that course without informing the other party to the arbitration, and that in the present case if Zetra was aware of the pressure on Sara Lee from these proceedings then that could possibly affect Sara Lee’s position in the arbitration, something that would clearly not be in the interest of SCJ. I do not consider that the situation here justifies the court making such a wholly exceptional order. Sara Lee is willing to provide updates so far as possible on a voluntary basis, with the proviso regarding confidentiality, and I record that the parties agreed that bi-monthly updates would be acceptable. I do not think that any formal order is required and I need say no more on that score.

As with any application for interim relief, the first question is whether damages are an adequate remedy.

The arbitration has started. If Sara Lee succeeds and the arbitrators order the return of the Zetra Rights, and if Zetra complies with that order, that will determine the duration of any loss suffered by SCJ by reason of the late performance of the para 7 obligation. Thus the damages will be for loss over a period of time, and the consequence of the arbitration being concluded sooner rather than later will be to reduce the extent of those damages. If, on the other hand, Sara Lee fails in the arbitration or Zetra cannot effectively be made to comply with an award against it, then SCJ will be left with its remedy in damages in any event. Therefore, I consider that the only way in which it could be said that damages resulting from a further delay in the arbitration would be inadequate, such that an injunction in this form is justified, would be if the accumulating loss to SCJ were so significant, and each passing month so serious, that it is very difficult to quantify. SCJ indeed contended that this was the case. It relied on several grounds to support that contention.

First, it was submitted that without the Zetra Rights there is “a large hole” in SCJ’s global portfolio of the rights to the Kiwi brands. However, under the LAMA Zetra was granted the exclusive licence to distribute shoe care products under the Kiwi mark in the territory covered by that agreement until 31 December 2015. Therefore, irrespective of ownership of the registered trademarks, SCJ could expect to make no sales in those countries for that period in any event. SCJ was well aware of this, since the LAMA was disclosed at the time of negotiation of the SAPA.

Furthermore, in 2009 the income which Sara Lee received from Zetra as regards shoe care products (including Zetra’s purchases from Sara Lee of products for distribution and royalties paid to Sara Lee) amounted to only some 0.3% of Sara Lee’s total world-wide revenue for its shoe care business. Thus, even if the continuing uncertainty over the control of the Kiwi marks in the Middle East from 2016 may be said to affect SCJ’s forward planning, this is hardly a significant part of the international market.

Secondly, much is made in the witness statement from Mr Timothy Truel, an in-house counsel at SCJ, of the fact that Zetra’s trademarks include the Kiwi trademark in Malta. That is relied on in two respects. First, the late Mr Joseph Zeenni said to Sara Lee’s representative at a meeting in April 2011 that Zetra had found a Chinese manufacturer that would provide it with the products for low prices and that it could use Malta as a gateway to Europe so as to affect Sara Lee’s position in European markets. However, although Mr Zeenni apparently made that threat, there is no evidence that it has been carried out in the more than two years that have elapsed since that meeting. Secondly, Mr Truel suggests that if Zetra seeks to sell directly into other EU Member States Chinese copies of Kiwi products from Malta “this will be extremely difficult to police and prevent”. This is misconceived. There is no reason to suppose that SCJ cannot get effective interim relief in the courts of the various EU Member States against infringement of the respective national trademarks by importation from Malta.

Next, it is asserted that SCJ is at risk because the LAMA does not assist it in policing counterfeits in the territory which that licence covers. Enforcement of the trademark rights in those territories depends upon co-operation with Zetra, in whose name the mark was registered, but Zetra is now contending that the LAMA is suspended. In my view, this concern is purely speculative. There is no evidence of any counterfeits being produced in the Middle East and it should be borne in mind that the products here are shoe polish and shoe cleaning materials, not high value goods of a kind that typically attract counterfeiters. Moreover, if Zetra is itself exploiting the Middle East market, then it has every interest itself in preventing counterfeits.

Finally, SCJ contends that if it were to sell the Kiwi shoe care business, it is currently left with a part of the world where it cannot effectively convey the IP rights. That may well be so, but in my view that is a clear case where damages are an adequate remedy as it should be possible to estimate the consequent reduction in the selling price of the business.

Aside from this, Sara Lee objected that such a mandatory order would give rise to serious problems in understanding precisely what is required in order to comply. It is trite to observe that an injunction must be framed with precision so that the party enjoined can clearly understand what steps it needs to take, or must avoid taking, in order to comply. The case of Co-operative Insurance v Argyll Stores Ltd [1998] AC 1 is apposite in that regard. There, the defendant admitted that by closing their Safeway supermarket in a shopping centre in Sheffield it was in breach of its covenant in a lease with the plaintiff that contained a positive obligation to keep the premises open for retail trade during the usual hours of business. The House of Lords set aside the order for specific performance made by the Court of Appeal that required the defendant to trade on the premises during the remainder of the term of the lease (which was to expire in 2014). In his speech, with which the other four Law Lords agreed, Lord Hoffmann said this (at 13-14):

“One such objection, which applies to orders to achieve a result and a fortiori to orders to carry on an activity, is imprecision in the terms of the order. If the terms of the court's order, reflecting the terms of the obligation, cannot be precisely drawn, the possibility of wasteful litigation over compliance is increased. So is the oppression caused by the defendant having to do things under threat of proceedings for contempt. The less precise the order, the fewer the signposts to the forensic minefield which he has to traverse. The fact that the terms of a contractual obligation are sufficiently definite to escape being void for uncertainty, or to found a claim for damages, or to permit compliance to be made a condition of relief against forfeiture, does not necessarily mean that they will be sufficiently precise to be capable of being specifically enforced.”

Lord Hoffmann quoted the statement of general principle regarding the grant of mandatory injunctions by Lord Upjohn in Morris v Redland Bricks Ltd [1970] AC 652, 666:

“The court must be careful to see that the defendant knows exactly in fact what he has to do and this means not as a matter of law but as a matter of fact, …”

And continued:

“Precision is of course a question of degree and the courts have shown themselves willing to cope with a certain degree of imprecision in cases of orders requiring the achievement of a result in which the plaintiffs' merits appeared strong; like all the reasons which I have been discussing, it is, taken alone, merely a discretionary matter to be taken into account: see Spry, Equitable Remedies, 4th ed. (1990), p. 112. It is, however, a very important one.”

Mr Cuddigan further relied on Mean Machines Ltd v Blackheath Leisure (Carousel) Ltd (1999) 78 P&CR D36, where the Court of Appeal upheld the refusal of the judge to make a conditional order of specific performance of a sale of property which the vendor could not complete because it could not give vacant possession. The vendor was in litigation with the company in possession of the property seeking an order for possession against it. Ward LJ (with whose judgment Peter Gibson LJ agreed) stated:

“…one still has to ask what exactly is the form of order which the plaintiff seeks. Specific performance in the event that the defendant does secure possession? But one has to ask for how long is one to wait to see if that event occurs. Is it to the conclusion of the County Court trial; or to the conclusion of any and all appeals; or to 2005 when the defendant's lease expires? I pose those questions to indicate that such an order, the precise terms of which were not made explicit by [counsel for the plaintiff] in his notice of appeal and which he has difficulty formulating in his submissions to us today, is one which is so vague and so uncertain in its effect that the court simply ought not to make it.”

See also Bower v Bantam Investments Ltd [1972] 1 WLR 1120 (refusal to grant interim injunction to enforce a “best endeavours” obligation on the grounds, inter alia, that it was too uncertain).

Mr Hollander submitted that such an order is no different from the form of undertaking to pursue an appeal that is commonly given as a condition for a stay of enforcement of a judgment pending appeal. However, in that case the sanction in reality is that the court may lift the stay; it is not that the appellant will be punished for contempt. In the context of the present case, Mr Cuddigan gave the example of Sara Lee delaying progress of the arbitration in order to seek a declaration in the Dutch court that Mr Zeenni was under an obligation that was subject to the arbitration clause. He asked rhetorically whether such action by Sara Lee would be permitted under the terms of the injunction sought by SCJ. Mr Hollander responded that it would be. But although on that particular possibility Sara Lee now has the comfort of an answer from SCJ’s leading counsel, it is in my view illustrative of the kind of issues that could arise in the course of a contested international arbitration. It is not appropriate that in such circumstances, whenever SCJ and Sara Lee fail to agree, there would have to be an application to the court to resolve the matter.

Moreover, I see no solid basis to consider that there is a real risk that in the absence of an injunction Sara Lee will not use its best endeavours to progress the arbitration effectively. Mr Hollander relied on the delay in getting the arbitration started. Clearly, Sara Lee had been reluctant to commence arbitral proceedings and there was perhaps some dragging of feet. At the same time, Sara Lee made several attempts to negotiate a settlement with Zetra. But the fact is that the arbitration is now under way and it is clear that there has been considerable activity in the arbitral forum in the three months preceding the hearing of this application. It is in Sara Lee’s interests to pursue the arbitration diligently since the longer those proceedings drag on, the larger will be Sara Lee’s exposure in damages, not just to SCJ but also to Unilever. Further, Sara Lee seeks the return from Zetra also of the Douwe Egberts trademarks for the Middle East which are important for the coffee business of DEMB.

Mr Hollander was eloquent regarding what he claimed was the misleading of SCJ by Sara Lee regarding the Zetra Rights in the due diligence stage of the SAPA. I take that into account, but I regard it as of little relevance to the risk that Sara Lee will not now pursue the arbitration. For the reasons I have given, it has every incentive to do so.

Accordingly, an injunction in those terms is refused.

I expressly make no comment at all on the merit or strength of Sara Lee’s claim in the arbitration. However, from the Answer of the respondents to the arbitration that has been exhibited and includes a counterclaim, it is clear that the arbitration is not straightforward. The court will generally not require a defendant to embark on difficult or uncertain litigation against a third party in order to enable the defendant to perform his contract with the claimant: see Wroth v Tyler [1974] Ch 30 (vendor unable to transfer property with vacant possession). Mr Hollander submitted that the position is different where the defendant had commenced proceedings against a third party. However, I do not think it is any more appropriate for the court to seek to control the way the defendant conducts those proceedings. Although Mr Hollander said that SCJ was not seeking to interfere with the conduct of the arbitration, in my view, that is exactly what an order in these terms would do.

If the para 7 obligation is not, as matters stand, specifically enforceable, for reasons which SCJ accepts, then in my judgment SCJ is not entitled as an alternative to exercise control over the decisions to be made by Sara Lee in determining what course to adopt in the light of not only its para 7 obligation to SCJ but also its rights and obligations towards other parties. That includes, obviously, the strength and practical effectiveness of its rights as against Zetra/ZTA but also its contractual obligation to Unilever, to whom Sara Lee is similarly obliged to transfer trademark rights that were registered in the name of Zetra (as regards Badedas and Brylcream). In short, the circumstances which can lead to a settlement of the arbitration proceedings are manifold and range well beyond consideration of Sara Lee’s contractual obligation to SCJ. As regards that obligation, the sanction on Sara Lee in view of what has occurred is a liability to SCJ in damages.

For these reasons, and upon the undertaking of Sara Lee and DEMB referred to above, there will be no order for interim relief.