Double G Communications Ltd v News Group International Ltd

The claim concerns a licence agreement made on 2 December 2008 between News Group International Plc (“NGN”) and Double G Communications Ltd (“Double G”), whereby NGN licensed Double G to produce and distribute a board game (initially to be priced at about £24.99) which would exploit its brands of “Page 3” and “Page 3 Idol”. The project came to nothing and on 21 May 2009 NGN, without prior warning, notified Double G that the licence agreement was being abandoned, that the game should not go on sale and that it should in fact be “pulped”. In the meantime, Double G had been working hard to present and promote the product to potential purchasers – including to the trade at a Spring Fair in Birmingham at the beginning of February, and to consumers at the Earls Court Vitality Show between 26 and 29 March.

Double G’s presentation included the following brief descriptions of its selling points:

In due course, Double G accepted NGN’s repudiatory breach and brought this claim for damages for breach of contract. It is alleged not only that the licence was wrongfully terminated but also that NGN had failed to fulfil its obligations to market and promote the product. Summary judgment was entered by Master Eyre on 6 January 2010, in favour of Double G, and Simon J dismissed an appeal on 27 April of that year. My task is now to assess the damages flowing from the breach or breaches relied upon. There is no dispute that Double G will have suffered some loss, and in particular by reference to lost profits on such sales as would have been achieved during the three year term of the agreement (the licence having been due to expire on 31 December 2011). The parties are, however, far apart when it comes to assessing the extent of the damage.

The burden clearly lies upon Double G to establish its losses, according to the civil standard of proof, but I am invited by Mr Andrew Hunter on its behalf to bear in mind the principle embodied in the old decision of Armory v Delamirie (1721) 1 Strange 504. This was the well known case of a boy chimney sweep suing a jeweller in conversion in respect of a jewel he had found in a chimney. It was held that, since the defendant had the jewel in his possession and had failed to produce it, it should be presumed against him to be of the greatest value compatible with a jewel of its type. Similarly, in Mortimer v Cradock (1843) 12 LGCP 166, where the plaintiff had lost a diamond necklace and part of it was found in the possession of the defendant, who was unable to account satisfactorily for having it, the jury were directed to presume that the whole necklace had been in his custody and to award damages accordingly. In the light of these old cases Mr Hunter has argued that the court should now approach the present claim for damages liberally and that “there should be a strong presumption in favour of Double G on all matters of doubt”.

The situation here is not exactly on all fours, since it is not suggested that NGN is privy to relevant information, not available to Double G, which would help to quantify its loss. Nevertheless there is no doubt that the principle in Armory v Delamirie is alive and well and counsel are agreed that it remains applicable in the right circumstances. There are to be found restatements of the same doctrine in modern authorities. It was described in Browning v Brachers [2005] EWCA Civ 753, [2005] PNLR 44 at [79] as raising an evidential (i.e. rebuttable) presumption in favour of the claimant which gives him the benefit of any relevant doubt. As Jonathan Parker LJ put it: “The practical effect of that is to give the claimant a fair wind in establishing what he has lost”. Most recently, in Fearns v Anglo-Dutch Paint & Chemical Co Ltd [2010] EWHC 1708 (Ch), it was said that the principle requires the court to resolve uncertainties by making assumptions generous to the claimant where it is the defendant’s wrongdoing which has created those uncertainties.

In the end, I am not sure that reference to this line of authority is of much practical help, since the court has to approach the evidence specific to this particular case and come to a conclusion, in the light of it, as to how successful the product would have been on a balance of probabilities.

There was little divergence between counsel as to the legal principles to be applied. Reference was made to the need for the court to assess the loss of profits “making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation), taking all significant factors into account”: Parabola Investments Ltd v Browallia Cal Ltd [2010] 3 WLR 1266 at [22]-[24].

It is Double G’s case that the game would have been so successful in the market place, through retail and online outlets, that total sales of the order of 184,000 units over three years would have been achieved. This is said to be comparable to a successful board game in the middle range, although from the evidence it would appear to place it among the top selling board games for adults. Double G estimates its losses as being approximately £1.3m. It seems that this would have transformed the company’s fortunes, since over the last three years it has consistently made a loss on a relatively modest turnover. It is a small company founded in February 2000 and devoted to the development and distribution of board games and some other products, such as cards and gifts. It is perhaps fair to say that hitherto it has been best known in the trade for its game “Nookii”. This was a rather different product, which had been very successful and was primarily aimed at couples who want to play an intimate game between themselves. It was launched in October 2000 and has sold at least 112,000 units over the intervening period. It follows that I am being invited to assume that the Page 3 Idol game would have proved much more successful. Whatever assumptions it may be appropriate to make in the light of Armory v Delamirie, they cannot be that generous. Such a substantial claim must be founded on solid evidence.

By contrast, NGN now maintains that, despite developing and licensing it, the game would have been rather a “flop” with sales only of the order of 6,710 over the three year term. I should make it clear, however, that this was not the reason why the licence was terminated. It emerged from the evidence that a strategic decision had been taken towards the end of February 2009, on the advice of a consultant called Accenture, to bring all Page 3 licence agreements to an end with only one exception – that relating to a long established and popular Page 3 calendar. It is curious, or as Mr Hunter put it “disgraceful”, that despite this decision having been taken so soon after its licence agreement was entered into, and while preparations were being made to launch and promote the game, Double G were not informed of the decision to terminate for nearly three months.

The principal factual witness called by NGN was Ms Caroline Radford. She was described as “head of enterprise” for NGN. Despite the background I have just recounted, her witness statement contained the following paragraph:

“During the course of the strategic review, the Claimant’s proposed game came to the attention of the senior management at NI. They were vehemently opposed to it. They were convinced that the game would be a commercial flop and sell very few copies. This would cause great embarrassment for the Defendant. As a result the decision was taken not to proceed with it and we advised the Claimant accordingly.” (Emphasis added)

It is not easy to understand how these claims could have been included. It is simply not true that the licence was terminated for those specific reasons. The decision was part of the fallout of the overall strategy of abandoning Page 3 licensing in general. I am invited to conclude that Ms Radford was being dishonest. She was certainly a cynical witness, explaining that people at NGN were worried about their own jobs and that the reason why Double G was treated so badly was because “that’s business”. She may perhaps just have been prepared to sign any statement put in front of her. Whatever the explanation, it is clear that the paragraph is untrue. I do not think it can be adequately explained, as Mr Onslow suggests, on the basis that “it unduly condenses the full sequence of events”.

NGN even had a meeting with Double G on 11 May 2009, after the decision had been taken to terminate their licence, during which they were led up the garden path and allowed to continue under the impression that the licence was still ongoing and the project supported by NGN. Mr Hunter suggests, and he may well be right, that the purpose of the meeting was to find out how Double G’s promotional activities were going – purely with a view to assessing the level of compensation NGN would have to pay following termination.

As far as I can judge, there seems to have been a divergence of view between executives at NGN and Golden Goose, an independent brand licensing consultant formerly engaged by NGN and through which Double G had negotiated the agreement. Its Mr Bass had taken a positive view of the game in the period leading up to the licence agreement, and before Golden Goose’s services were dispensed with. Indeed, he had been closely involved in its design and development. At that stage, it also seems that NGN’s own Planning and Insight Division had been positive about the game. By contrast, Ms Radford and her colleagues were not at all impressed as to its prospects. She says that it was not a product that management “wanted to be associated with from a brand or a commercial perspective”. Apart from her own view, she mentioned James Hickman who was then group syndication manager at News International and Dominic Young, director of strategy and product development. Neither of them liked it or thought that it would be successful. Ms Radford also referred to Katie Vanneck, who was then Head of Marketing. She too apparently thought the game was likely to have a negative effect on the Page 3 brand. I do not overlook the evidence of Ms Veronica Graham, however, who said that at the meeting in May 2009 Mr Hickman made a comment to the effect that the game “looked good”. Not much weight can be attached to this, on the other hand, since we now know that NGN were being less than frank with Double G at this stage – having already decided to ditch them some 10 weeks earlier.

Ms Radford even attempted to take the moral high ground in her witness statement, by suggesting that one factor in NGN’s decision to terminate was the fact that Double G had placed an order for the game to be manufactured in China. Ms Radford said:

“China poses particular difficulties due to its poor human rights record, and its tendency to use child labour. With a steady rise in the number of corporate scandals, companies such as News International need to consider the effect their activities and policies can have on their reputation and credibility in the market place.”

I did not find this convincing and the point had already apparently been rejected by the court on Double G’s summary judgment application. Yet however poorly Double G was treated by NGN in its own commercial interests, it does not necessarily mean that Ms Radford and her colleagues were wrong in their assessments of the merits of the Page 3 Idol game. One might have thought, had it actually represented in their view an outstanding commercial opportunity, that advantage would have been taken of it. But, it seems, this would be a wrong assumption. In a significant passage of cross-examination, Ms Radford gave the following answers:

“Mr Hunter: So it wouldn’t have mattered one jot if this was a product that had been selling like hot cakes – if it was one of the most outstanding licensing concepts that had ever come through NGN. That simply wouldn’t have mattered, would it?

Ms Radford: No.

Mr Hunter: Because what NGN was doing here, on the advice of Accenture, was essentially ending any sort of Page 3 licensing, wasn’t it?

Ms Radford: Yes.

Mr Hunter: Irrespective of the consequences, correct?

Ms Radford: Yes.”

Ms Veronica Graham of Double G said in the witness box that they had been thinking in early 2009 in terms of selling between 200,000 and 300,000 units. I find that very hard to accept. Not only is there no contemporaneous confirmation of such estimates in the documents, but it does not seem consistent with the fact that the only order they placed with their Chinese suppliers was for 10,000 units. That corresponds to a sales “guestimate” (sic) given by Michelle Grahame to Adam Bass in an email of 25 March 2008. It proves nothing in itself, of course, but it is at least consistent with their expectations for 2009 sales being at that sort of level at the time. It is of some relevance too that Double G had been persistent in negotiations that their minimum sales obligation should be kept down: they finally agreed on 2,000 only.

The exercise I have to perform is by no means an easy one, since it is important as a matter of principle not to depart from the task of estimating probable loss and cross over into the realm of pure guesswork. Each side relied on expert evidence that was intended to assist in the calculation process on the basis of experience of the retail trade and of the relevant sector of the market. The gulf between the parties on their estimation of loss is, no doubt, to a large extent attributable to the differences of approach between their two experts. NGN called Mr Stefan Knox and Double G relied on Mr Steven Reece. Eventually, they were able to produce a joint report which demonstrated how little was the measure of agreement between them.

Neither expert witness inspired great confidence. Mr Knox found it difficult to answer questions in a straightforward or illuminating way. He tended to ramble off the point and appeared to be more of an advocate than an objective assessor. Mr Reece was determined to stick to his theories through thick and thin. The most obvious example was in relation to his approach towards the very late evidence introduced for NGN from some of the major retailers. I heard evidence from specialist buyers who had worked for Asda, Tesco, W H Smith and Argos, all of whom stated firmly that the game would not have been purchased by their respective employers. This evidence was not consistent with Mr Reece’s earlier assessment in his report of likely sales of the game achievable through those outlets. I am afraid his response lacked credibility. He said on the basis of his experience that these buyers (or former buyers) were simply, in effect, offering a bit of initial sales resistance which could have readily been overcome, in each and every case, by robust persistence on the part of Double G’s representatives. This fundamentally undermined his credibility and meant that little weight could be placed on his judgment or objectivity.

It is true that even the evidence given by the various buyers was not entirely satisfactory. In some cases, the reasons given for rejecting the game were not based on any close familiarity with its content or understanding of what it was about. Also, the purported reasons put forward sometimes suggested an aversion on policy grounds towards anything with sexual or “adult” content, whereas other products stocked by the particular retailer did not appear consistent with any such policy. Yet, even if their reasons were not always convincing, it is very difficult to see how Double G could discharge its burden of proof and establish, despite their firm denials, that the buyers in question would in fact have purchased the game in significant quantities. It seemed to me that this evidence rang loud warning bells. It tended to show that Double G’s case, as supported by Mr Reece, was to a large extent optimistic guesswork and speculation.

I decided that I could only safely rely on the experts for purely factual information. Even this, however, depended very much on the reliability of their sources. Neither provided the court with a convincing methodology for estimating the damages. I was left, in effect, to evaluate two competing stabs in the dark.

In any event, evidence as to the available marketplace, based on general experience of sales of board games, or comparable products, had to be approached with caution. This game was not a standard product. It was unique and untested in a number of respects and true comparators were not readily available.

The game was targeted particularly, it seems, at females in the age group of 16 or 18 to 35. Its appeal was said to be its themes of “glamour” and celebrity lifestyles. The brand, and indeed the name of the game, is specifically linked to The Sun newspaper and its Page 3 topless model feature in particular. That is no doubt very popular with The Sun’s male readership, but it is well known to be controversial in the sense that many people, and many women especially, disapprove of it as being “sexist” and demeaning. I accept, of course, as the evidence bears out, that there is a significant female readership of The Sun (something over 40%) and of the order of at least 1.7m over a 12 month period. Also, it seems that a large proportion of women surveyed have expressed the view that Page 3 is just “a bit of harmless fun” and inoffensive. The fact remains, however, that the brand is inevitably going to be controversial. This in itself could have an influence both at the level of retail outlets, possibly rejecting it as potentially offensive to their customers (especially if stocked in toys and games departments), and also at the consumer level – in the sense that a significant proportion of the target market (young women) would be put off by the concept and thus unlikely to purchase or play the game. It is reasonable to suppose that the game would have had the best chance of success among those young women already familiar and at ease with The Sun brand. That tends to narrow the focus considerably.

It is fair to say that the experts were unable to produce much evidence as to the viability of any board games directed at a solely female market. Mention has been made of “hen nights”, but there is no expert or other evidence that has led me to believe that any significant proportion of those who attend such functions would be likely to spend up to two hours playing a board game – even with refreshments. Indeed, it is of some interest to note that a website specialising in hen night products, called lastnightoffreedom.co.uk, was offering the product as “The Ultimate Glamour Girl Game for Hen Parties”. But it was offered at only £3.99 per unit – obviously way below the originally intended retail price. The advertisement contained such discouraging queries as “Why the hell did we buy these?” and “Why on earth did we think these would sell?”. There was also the final cri de coeur, “Please help us make some space on our shelves!”

I turn to consider the evidence of Mr Knox in a little further detail. His background is primarily as a designer and it would appear that he has little direct experience of sales. Following his instructions, it seems that he set about his task of preparing his report with the assistance of a colleague, Mr Alan Ward. The methodology adopted appears to have been to seek out information from various retailers on the Internet. Having identified possible sources of knowledge via Google, Mr Ward sent emails to various people to see what information they could supply. In cross-examination, Mr Hunter explored with Mr Knox the content of one such communication from Mr Ward in particular. It was not calculated to inspire confidence. He seems to have sent an introductory query to three entities with experience in selling board games:

“We are a small UK based specialist product design agency. We are undertaking research on the board game industry and wondered if you would help. What I am trying to confirm is (1), how many units a top game might sell? (2) which genre of games sells the most? and (3) how popular are party games, in particular games for females? (4) what are your top five games in sales terms and the worst five? (5) where would I find games in industry statistics? I am really hoping you could find five minutes to respond to it. It would be really helpful and we are really struggling.”

Mr Knox’s explanation of “we are really struggling” was simply that Mr Ward was not from the toy and games industry.

It seems that one of the firms approached, discovered through a Google search as a possible source of information, was a small Internet retailer called Games Stack. Their suggestion was that Mr Ward should contact Esdevium Games, a wholesaler who would have “a much broader view of the industry as a whole”. This advice was, however, apparently not followed through.

Another entity approached by Mr Ward was Shire Games, a small retailer specialising in “strategy” games. They too responded, somewhat diffidently, suggesting that they were not the “right people to ask”. This was because most of their customers were specialist games players. They were of the view that it would be more appropriate to approach more conventional outlets for the sale of party games, such as W H Smith, Argos and Toys R Us. They did, however, refer to a website in the United States called “boardgamesgeek.com” which might be of use specifically in the context of Shire Games’ own speciality of strategy games. But they did venture the comment that this type of game was “not at all popular” with females. Reference was also made to a top game (i.e. a top strategy game) having a possible print run of 5,000. Unfortunately this information found its way into Mr Knox’s report out of context.

At paragraph 35, the general assertion is made:

“Games which are aimed exclusively at girls/women are difficult to find and, according to Shire Games in August 2010 are ‘not at all popular’.”

Paragraph 25 of the report also included the following information:

“Staff at Shire Games advised me in August 2010 that ‘a top game might get a print run of 5,000. But initial runs, especially from new smaller companies would be foolish to be larger than 1,000’.”

In neither instance was the reader told that this information had been proffered in the context only of their speciality.

There was a response from the website boardgamesgeek.com in these terms:

“Our site is a database of known games with most information provided by our users. We are not directly involved with the production of sales of any games ourselves. As such we don’t have the kind of data available to properly respond to your questions.”

This did not inhibit Mr Knox, however, from including material in his report from its discussion board which was said to represent “a good guide to the expected unit sales of board games based on their appeal and proposition”. (I suspect “proposition” should be “presentation”.) A table deriving from this discussion board was set out in paragraph 26 of his report, together with some suggested examples, which included such information as that the majority of board games would sell less than 10,000 and that it would take a “really good game” to sell between 10,000 and 50,000.

I am thus confronted with an expert who is unable to produce direct evidence himself but, instead, has resort to total strangers via Google – who do not consider themselves qualified to answer his queries.

Further information described as relevant to “the general market for board games” was offered in paragraph 24 of the report:

“The vast majority of best sellers are well targeted and marketed fun, family games that have novelty, good game play, universal and timeless appeal, and that are competitively priced. They also translate well into foreign languages and cultures. The majority of games will sell significantly less than 10,000 copies per annum in the UK (see the NPD data).”

It is unfortunate that Mr Knox did not explain the limitations of NPD data. He accepted, I believe, that those data only represent a proportion of the total market for adult board games. According to Mr Hunter, it would be appropriate, in order to obtain an accurate figure, to multiply NPD data by four or five. Mr Knox would not accept that it was valid “just timesing a figure by four”. He did accept, however, that in order to obtain a representative picture of the total market, it would be necessary to go back to the drawing board:

“You can’t just multiply by four or five. I would have to go in and do the exercise again, I regret to say.”

Elsewhere in his report, at paragraph 12(3), further information is supplied as to the status of NPD data. NPD is described as a market research business based in the United States and it is said that its brand, EuroToys, “delivers the only pan-European point-of-sale and online consumer panel survey data on toys and games”. It is also said that it claims to cover 60% of the United Kingdom game and board game market, collecting data from 22 key retailers (not including Toys R Us). The data largely excludes sales via what Mr Knox calls the “urban retail” channel, by which he is referring to small independent high street shops.

Mr Hunter also explored in cross-examination the background of another of Mr Knox’s supposedly “independent sources for some of the data relied upon in this report”; namely, Mr William Maclean, who is described at paragraph 12(5) as “a designer, manufacturer and retailer of board games”. It emerged that there was little information from which to glean what value, if any, could be attached to this source. He is quoted, for example, at paragraph 29 of the report, as stating that “ … board games tend to be purchased by and ‘appeal more to people who are well educated and family oriented’”. It is said that such consumers are most likely to be aged between 25 and 44. Its value is said to be that this opinion supports Mr Knox’s own view. Although Mr Maclean’s views are relied upon at various points in the report, it seems clear that Mr Knox knew nothing about his background and had made no contact with him. He was described by Mr Hunter as “a one man band based in the United States who invents games and sells them over the Internet” – an assessment from which Mr Knox did not demur, since he was in no position to do so. Material has simply been reproduced from his website without any attempt at verification.

One aspect of Mr Knox’s report which seemed to me to be very relevant to the present exercise was his conclusion (in paragraphs 29 to 33) that this game is difficult to classify. It is not a “family” game, which tends to be the most popular category and can be played by people of both genders and across generations. Nor is it a truly “adult” game which he described as usually having “obvious sexual connotations or [being] loudly interactive”. He gave such niche examples as “Piss Artist” and “Pass Out”. It is this uncertainty of classification that makes it difficult to draw any useful conclusions from the popularity or otherwise of different games.

It appears that the central theme of Mr Reece’s methodology, as outlined in his report, is the technique of “micro-benchmarking” (his own terminology) – said to be a tried and tested method for assessing the likely sales of new games. It is supposed to involve the consideration of specific retailers and the making of an assessment as to the orders they are likely to make. I am invited by Mr Hunter to approach the assessment of loss in this case on the basis of Mr Reece’s methods which, it is said, are widely recognised in the industry and represent the only “tenable methodology”.

There are apparently five stages to this process:

At paragraph 33 of his report Mr Reece sets out the factors which need to be taken into account in making the relevant estimates. These include, not surprisingly, the characteristics and quality of the product, branding, marketing, price, the effectiveness of the publisher’s sales force and its credibility, the timing of the release, wider economic conditions and the extent of retailer support.

Having identified 18 major retailers, and seven categories of smaller retailers, Mr Reece went on in Appendix 4 of his report to make specific predictions in respect of each. Unfortunately, this exercise was fundamentally undermined by the late evidence introduced by the buyers or former buyers to whom I have already referred. It is difficult to see how I can accept Mr Reece’s estimates of orders in cases where the buyers concerned have stated, quite unequivocally, that they would have made no such purchases. Unless they are to be disbelieved, it would be unrealistic to accept Mr Reece’s estimates in preference to this very specific evidence.

It would, however, also be unrealistic to proceed on the basis that the buyers’ evidence has the effect of only undermining Mr Reece’s assessments in relation to those particular retailers. Why should it be assumed that his estimates are any more reliable in the other cases or, to put it another way, why should the misgivings of these particular buyers be relevant only to their own particular employers? Of course, it may be that other retailers would have taken a contrary view of the game and its marketability; on the other hand, it is quite possible that the witnesses’ doubts would have been shared by their opposite numbers in other retailing organisations.

Mr Onslow QC, on behalf of NGN, has pointed to what he describes as a number of “insurmountable problems” about Mr Reece’s evidence. He declined to identify much of the data he relied upon in arriving at his conclusions. He said that he was not at liberty to do so on grounds of confidentiality. In these circumstances, it is hardly surprising that Mr Onslow complains that he is not in a position to test or make an evaluation of the data on behalf of his clients.

Reference was made to The Ikarian Reefer [1993] 2 Lloyd’s Rep 68 and to the seven requirements of expert evidence there identified; not least the need to state the facts or assumptions upon which an opinion has been founded. There was some debate on this between counsel, but it was common ground that an expert may take into account unpublished data, market intelligence and general knowledge within the relevant profession. Nonetheless, in this context nothing is of much assistance unless one is in a position to judge to what extent like is being compared with like. In so far as Mr Reece has placed reliance upon supposedly relevant but confidential data, it would be critical to know to what extent the figures relate to useful comparators. I would not attach any weight to Mr Reece’s assessment unless it were possible to analyse and assess his reasoning processes. He was inflexible in his evidence and I would not accept his views at face value without rigorous testing. It is perhaps unfortunate that an order was not sought earlier to compel disclosure, with which he would certainly have complied, but I am not prepared to proceed on an assumption that his conclusions must be correct.

Another piece of evidence given by Mr Reece was to the effect that the majority of the games purchased would never even be opened. This does not suggest that he had much faith in its appeal to the intended market. It is hardly consistent, either, with his declared optimism for the product overall. It would seem to imply that most of the units sold would be bought as (unwanted) presents for other people.

Mr Reece has had a good deal of experience in the industry, having been involved in development and sales and also having made sales forecasts in respect of more than 100 games. He worked for Hasbro for some five or six years and subsequently for Imagination Games for another four years, both of them large producers of board games. But in this field it is necessary to be sure which games are being assessed, and over which period(s), since so much depends on their similarity, or otherwise, to the particular game with which we are here concerned.

At all events, notwithstanding the clear lack of interest in stocking the product, and very low sales figures generated by 21 May 2009, Mr Reece puts forward as his serious estimate, for the first year alone, 58,900 units sold via “usual channels”.

When it comes to the estimation of potential sales that would have taken place through NGN mail order or online channels, a different method of assessment has to be adopted. I understand that the approach is commonly used for the purpose of estimating website based sales; that is to say, one considers the traffic or readership through the website and then applies what has been described as a conservative “conversion rate”. The object of this is to estimate what proportion of the users would purchase the game. This is described at paragraphs 99-103 of Mr Reece’s report.

What he did was to predict a level of sales for each of four separate channels; namely (a) “off the page” direct mail order reader offers, (b) the Sun and Page 3 websites, (c) targeted electronic mail shots and (d) direct-to-consumer sales at any NGN events that might have been held in 2009.

For the purposes of assessing “off the page” sales, Mr Reece assumed a take up rate of 0.2% among a total readership of 7.68m. I believe that to be over-optimistic because the appropriate cadre would be more realistically assessed by reference to young female readers and a relatively small proportion of male readers interested in buying a present for a young woman.

For online sales, Mr Reece used a “click through and conversion to sales” ratio based on earlier studies of online consumption of consumer products in general. So far as he knew, there were no published studies of online sales of toys and games at all. His conclusion is thus reasonably to be characterised as impressionistic. The same may be said of Mr Reece’s estimated figures in respect of each of the four categories of NGN channel, to be found in Annex 4 of his report.

The total Mr Reece arrived at for “NGN channels” was 28,400 for 2009. I am afraid that I cannot see any evidential basis for this at all. Nor yet for his estimates for 2010 (14,200) or 2011 (7,100). His overall total of virtually 50,000 unit sales from NGN channels bears no relation to any statistics from NGN or other products in the market. His figures do not even provide a rational starting point. It is quite unreal, in the absence of any supporting evidence at all, to take Mr Reece at his word and just make assumptions under Armory v Delamirie.

It is important in making any assessment of Double G’s loss to have in mind the marketing obligations under the licence agreement entered into by NGN. This is, of course, an additional factor to be taken into account in relation to this product: there was nothing comparable contributing to the success of the original game of “Nookii”. That depended largely on the efforts of Double G and its staff. Here, it is necessary to factor into any assessment the contribution that would have been made by NGN’s marketing skills – on the assumption that it had carried out its contractual obligations in good faith. Mr Reece’s assessment took this factor into account and I need to consider carefully to what extent his predictions are reasonable in this respect. It is addressed at paragraphs 63-77 of his report.

One of the attractions presented by Mr Adam Bass of Golden Goose in the original licence negotiations was that NGN would be providing substantial marketing support in respect of the product, which would be understood as including print promotions in newspaper offers, online promotion, road shows and exhibitions. It was specifically represented that all Page 3 products would be backed by the UK’s most powerful newspaper and media group through print, online, PR and exhibition marketing channels.

When the licence agreement was concluded, in December 2008, it was contemplated that the game would be distributed not only by retail channels and direct sales by Double G through retailers, catalogues, websites and distributors, but also through “NGN channels”. It was understood that these would include the website Page3.com and voucher offers. There was a specific term to the following effect:

“NGN will register a suitable domain name that will redirect users to a transactional web page created by the Licensee featuring the Licensed Product and the Trade Marks to which NGN Channels can drive traffic that will be tracked, Licensee will own the content of this transactional web page.”

NGN also undertook the following obligation:

“At its own cost and discretion, NGN will promote the Licensed Product via the Sun and Page3.com throughout the term of this agreement … At its own cost, NGN will also manage, administrate and organise all aspects of the Licensed Product competition prize for a Page 3 style photo shoot.”

Shortly after the agreement was entered into Mr Bass emailed Double G, on 11 December 2008, what was referred to as a marketing template. It set out a breakdown of marketing activities which it was proposed would be undertaken by NGN. This template contained six forms of online/email promotions, six forms of promotions in the newspaper, and six forms of promotions at events. It was intended that the newspaper would contain reader offers, leaflet inserts, advertising, product placement and listing in Deirdre’s Photo Casebook, Love It magazine, Sun Woman, Sun Fashion and Sun Beauty.

There would be various events staged around the country, including by means of the Sun Bus and the Sun Ice Cream Van. There were also going to be promotions online.

It is submitted that the inclusion of the word “discretion” in the licence agreement did not diminish or qualify NGN’s obligation to carry out the various marketing activities, but merely conferred a discretion as to the wording, images, frequency and prominence of such promotions. It is nevertheless NGN’s case that it would have been entitled, had it actually performed its obligations under the agreement, to achieve an apparently perfunctory bare minimum. It is submitted on Double G’s behalf that this is simply not acceptable as a matter of law. Reliance is placed on the principles discussed in the recent Court of Appeal decision in Durham Tees Valley Airport Ltd v Bmibaby Ltd [2010] EWCA Civ 485. Reference was made in particular to the observations of Patten LJ at [79]:

“The court, in my view, has to conduct a factual inquiry as to how the contract would have been performed had it not been repudiated. Its performance is the only counter-factual assumption in the exercise. On the basis of that premise, the court has to look at the relevant economic and other surrounding circumstances to decide on the level of performance which the defendant would have adopted. The judge conducting the assessment must assume that the defendant would not have acted outside the terms of the contract and would have performed it in his own interests having regard to the relevant factors prevailing at the time. But the court is not required to make assumptions that the defaulting party would have acted uncommercially merely in order to spite the claimant. To that extent, the parties are to be assumed to have acted in good faith although with their own commercial interests very much in mind.”

Mr Hunter put two arguments in the forefront of his submissions on this issue:

Mr Reece there envisaged the Double G marketing efforts, which I am quite sure they would have pursued vigorously, as being complementary to the NGN marketing. He saw this as being an exceptional and attractive prospect from the point of view of retail buyers. He asserted that the sum total of the marketing (i.e. the contribution of Double G combined with that of NGN) was likely to have had “a very considerable and positive effect on sales of the Game”. This was because the “reach” and impact of that activity, especially the NGN promotional activity, would have been “massive”. He concluded that the marketing would have proved “a strong driver of sales of the Game both to retail and to consumers”.

He also suggested that after 2009 it would be possible to take advantage of “a significant consumer and retail appeal for nostalgia and ‘anniversary’ editions”. He thought that the game would benefit at that stage from some fresh marketing in conjunction with The Sun’s celebrations of the fortieth anniversary of the Page 3 concept (“which occurred in the middle of peak board games selling season in 2010”). Mr Reece recognised that by 2011 NGN would have moved on to further opportunities and would have been resistant to undertaking anything more than the bare minimum level of marketing activity in respect of this game. It would only amount to “low visibility, low value online marketing”.

At this point, it is worth considering the limited evidence available as to how effective marketing promotion by The Sun has actually been in relation to other licensed products. It does not appear to have a notably successful track record. An example was given in the evidence of Ms Radford: a Page 3 Diamonds promotion in conjunction with United Jewellery Trading Ltd which generated only £25,500 of revenue. This was promoted prior to Christmas and also St Valentine’s Day and might be thought to have a wider appeal than a board game directed at female readers. It tends to support the view that promotion by The Sun is positive but unlikely to have a dramatic impact.

Ms Radford gave some further examples. She pointed out that the forecast profit from listed promotions for the period July to December 2009 was £72,570 whereas the actual profit was £18,246.80. In particular, there was a “kids activity pack” costing £8.00 promoted in July of that year. Only 622 units were sold as against forecast sales of 10,000. Also, in the lead up to Christmas 2010 an advertisement appeared on 2 November for “gifts for all the family”, at £24.99, but only 56 units were sold (the forecast having been 2,500). She further produced a licensing royalty forecast generated in March 2009 which anticipated, for the 18 month period between June 2008 and December 2009, a profit of just over £31,000.

Finally, on this topic, I refer to two submissions made by Mr Onslow. First, he argued that I should not take into account what Mr Bass may have said during negotiations, nor the contents of the template, since neither was of contractual force. Strictly speaking, no doubt, that is correct. It is, on the other hand, legitimate to be guided by such matters, as Mr Hunter argues, when seeking to determine how NGN would have carried out their contractual obligation – if complied with.

Secondly, Mr Onslow suggested that there had been no finding by the Master that NGN had actually been in breach of its marketing obligations and that accordingly this factor should be ignored in assessing compensation. Mr Hunter disputes this. I will proceed on the assumption that no finding of breach was made in this respect, but it makes very little difference – for the reason I have just given. That is to say, when trying to estimate Double G’s loss of sales, I should proceed on the hypotheses (a) that the licence agreement was not wrongfully terminated and (b) that NGN complied with its marketing obligations in accordance with Double G’s reasonable expectations (on the information provided by NGN and Golden Goose).

Although inevitably the assessment in this case will involve a good deal of conjecture, it is plainly desirable that it should be tied in to evidence so far as possible, in an attempt to avoid an outcome that is purely speculative. There are, as Mr Onslow points out, three main categories of evidence to be borne in mind:

One source of information about sales of board games is to be found in the figures provided by NPD, but these are known to be incomplete to the extent, at least, that they do not cover sales from “urban retailers” (a term that was used to cover small independent retailers). Indeed, Mr Reece regards their figures as unreliable. Since, however, they are really the only statistics available, and are used in the trade as providing at least some guidance, I believe that it would be wrong for me to ignore them altogether. No one is able to state definitively by how much NPD figures understate the true picture. I have had it suggested that they only represent between 20% and 40% of overall sales in the market, whereas Mr Onslow submits that they reflect as much as 80%. I think it will provide a fair working hypothesis for me to take the NPD figures as representing approximately 50% of sales and, in fairness to Double G, I will generally double NPD figures where available in order to approximate to overall sales.

As the available records show, very little hard interest was shown by prospective trade purchasers in the months leading up to termination. In fact, only 56 units were in the event actually ordered. During this period, much of the selling or marketing work was done by Double G’s former employee Mr Blease. He was not called to give evidence, for whatever reason, but a significant number of his brief contemporaneous sales reports are available and they give a reasonable picture as to what was achieved. They were not promising. There were few signs of positive interest.

Double G’s two principal witnesses were the founders of the company, Ms Veronica Graham and Ms Michelle Grahame, but they had only personally attended on two purchasers, Ann Summers on 11 February and W H Smith on 7 April 2009. They say that they came away with positive feelings from the 7 April meeting with Ms Jones (formerly Cooper), but she was one of the witnesses who came to the trial and told the court that W H Smith would simply not be interested. No order was placed and I would not make an assumption in Double G’s favour (whether in the light of Armory or otherwise) that involves my rejecting Ms Jones’ evidence. I cannot see any reason to do so.

Furthermore, Ms Jones produced an email of 21 April 2009 (not disclosed by Double G) in which Ms Michelle Grahame had gently prompted her to see if there had been any positive reaction to the game. Ms Jones also said that when Mr Blease rang her she informed him that W H Smith were not interested. This was said by Mr Onslow to be significant, since there was some suggestion that Double G was too embarrassed to go back to W H Smith after the 7 April meeting because of the lack of support from NGN. In the light of Ms Jones’ evidence, however, that is plainly untrue.

A separate factor I need to have in mind is that Double G had no established link to W H Smith and, as Ms Jones put it in the witness box, “setting up a new supplier is costly”. There is no solid reason to suppose that W H Smith would have thought it worth their while to set up Double G as a new supplier so as to be able to stock the “Page 3 Idol” game.

It can thus be seen that Mr Reece’s evidence to the effect that W H Smith would have purchased 7,870 units over the three year term is simply “pie in the sky”. It is unsustainable on any rational basis.

Similarly, with Ann Summers, no order was placed following 11 February 2009 and there is no record of any interest on their part. Shortly beforehand, they had begun doing business with Double G in relation to other games, but the orders placed were very modest.

Mr Onslow has made two points in relation to Ann Summers by way of undermining the case put forward by Double G. First, he suggests that I should attach significance to a claim made in an email to NGN on 15 May 2009, three days before termination, that Ann Summers would be likely to place an order of 2,500 units because of an internal minimum order policy. There is no evidence to support the assertion. Indeed, Ann Summers had placed significantly smaller orders with Double G as recently as February of that year (508 units of Nookii and 508 units of other games). In November 2008 Ann Summers had ordered 108 units of Nookii and 108 units of other games. Secondly, after the 11 February meeting, no interest was shown by Ann Summers in the Page 3 game at all. Once again, therefore, Mr Reece’s bold assertion that Ann Summers would have bought 5,000 units is worthless. In these circumstances, it seems to me that there is no room for an assumption to be made under Armory v Delamirie. The evidence is inconsistent with such an approach.

Some reliance was placed on an email from Laura Swatridge of Ann Summers dated 22 June 2010. It seems that she had been asked to assist with how many units of the game Ann Summers might have purchased. She raised queries with Ms Veronica Graham:

“Do you have a template that you’d like me to follow? If not I can mock something up no worries. We talked about what we would have ordered and it would have been 5k, is that OK?

Nearly there!”

This is hardly satisfactory as it stands. In the absence of any probing, it seems to me better to rely simply on the “proof of the pudding”.

This unhappy picture in relation to the predictions for W H Smith and Ann Summers engenders scepticism for any other claims made by Double G and by Mr Reece. But that is not the end of the matter. Far from it.

Part of Double G’s case is that it was hampered in its sales efforts up to the termination in May 2009 by NGN’s failure to engage with its marketing obligations. It was claimed by Ms Michelle Grahame, for example, that this meant they had both hands tied behind their backs. That could possibly have happened, of course, but there is no evidence that it did. Double G were perfectly entitled to tell prospective customers of the promotional activities that were expected from NGN, in accordance with the contents of the licence agreement signed the previous December, and also in the light of the promises contained in the marketing template shortly afterwards. In so far as that was a selling point, therefore, they could take advantage of it. There is no evidence that any prospective customer queried NGN support or had any reason to doubt that it would be forthcoming. It is true that Ms Veronica Graham asserted that Elizabeth Jones of W H Smith, at the 7 April meeting, had “expressed interest in stocking the Game provided we could assure them that the campaign would be undertaken by the Defendant” (emphasis added). I find this difficult to reconcile with Ms Jones’ evidence, however, and I reject the allegation that she imposed any such proviso.

Very little interest was shown in the product and by the middle of May it was becoming too late to take advantage of the main purchasing period for 2009. Most, if not all, of the bulk purchases for the 2009 selling season (and, in particular, for the lead up to Christmas) would have been made before mid-May. I gather that the busy period is between January and April. Against this background, it is not easy to understand how Mr Reece could have produced such optimistic figures for the year 2009.

I was told in no uncertain terms by Ms Nicola Beet, who was a buyer in Tesco’s toys and games department in 2009, that there was “no way on earth” that Tesco would have stocked the game – not least because of the association with Page 3 in the title. The head buyer was Mr Scarlett and, consistently with Ms Beet’s evidence, he failed to respond to any of Mr Blease’s approaches. In those circumstances, I can attach no weight to Mr Reece’s contention that Tesco would, in 2009 alone, have purchased 3,250 units.

His rigid adherence to the rosy estimates contained in his report of 16 February 2010 is hardly consistent with his general observation in the witness box that “The most negative thing that can happen is [that] there is no correspondence or dialogue with the retailer”. So often, his estimated sales cannot be reconciled with “the proof of the pudding”.

Prior to the termination of the contract, Double G had been informed by other retailers that they did not wish to stock the game, including Debenhams, John Lewis, HMV, House of Fraser, Next and Hawkins Bazaar. Yet Mr Reece has predicted sales to these firms totalling approximately 10,000 units.

I heard evidence from Ms Wendy Munt who is now a consultant and until recently was a buyer with Argos, specialising in games for girls. She had been with Argos for 21 years. (She was paid by NGN to attend court on the basis of her usual hourly rates, but I am not persuaded that this is a reason to reject her evidence.) She said that the game would not have been suitable for the Argos catalogue. This appeared to be mainly by reason of its association with “topless modelling”. By way of comparison, she mentioned that Argos had rejected a “Peek-a-Boo” pole dancing set. Moreover, Double G had no established connection with Argos and Ms Munt pointed out that Argos would be unlikely to have engaged with it as a new supplier in the light of its financial standing. Again, I can find no reason to disbelieve her. (Although Ms Munt did not dispute that Argos has sometimes accepted products via intermediaries with established accounts, one can only speculate as to whether this could have been arranged for Double G.) Mr Reece, however, was predicting sales of 6,500 through Argos.

Ms Rosalynde Kennerley gave evidence as to the likely attitude of Asda, although her own experience in the gifts department was particularly in relation to teddy bears and key rings. Nevertheless, she remembered that Double G had “pitched” the game at her via the telephone and that her reaction was that it was not an appropriate game for Asda “due to its adult nature”. She suggested that they might try the toy department but heard no more about it. Thus there is no evidence of any positive interest. I cannot in these circumstances attach any weight to Mr Reece’s estimate of 2,500.

Other retail outlets were mentioned but the evidence does not enable me to conclude that orders would have been forthcoming. In view of the overall lack of interest and the specific examples of refusals, I do not think it would be right in any individual case to make an assumption in favour of Double G. I shall address individually some of the firms identified.

Beales’ representative (a Ms Alison Winfield) was given a sample game in February 2009 and it was anticipated that they would make a decision before their “sign-off for Christmas” in mid-May. No order materialised. Yet Mr Reece predicts a significant take up. So too, Mr Andy Taylor of Hambleden was given a sample and an internal presentation took place on 26 March 2009. But again nothing. M & G was given the game also and an assessment took place in April as to whether it should be included in its catalogue. Someone called “Jane” had seen it as a “possible” opportunity, but no order resulted.

Other retail groups to which Mr Reece attributed significant orders included Boots, Clinton Cards, Costco, Hamleys, Harrods, J D Williams, Makro, Sainsburys, Shop Direct Littlewoods, Urban Outfitters. On his estimate, these would have accounted for approximately 15,000 units in the first year. Yet this is not borne out in either orders or actual interest expressed.

I will now address the few instances of positive interest shown by retailers in the relevant period.

Fenwicks placed an order in May 2009 for 24 units. An Internet retailer called Flirty or Dirty ordered eight, and another called NeedaPresent.com ordered 16, as did Play.com (although it was already significantly discounting the price in May). The first order was placed by Party Revolution, a specialist party retailer, but it was only for eight units. The same order was placed by Harmony in early April 2009 for its Oxford Street store (at a unit price of £12.15). This had followed a “productive meeting” between Mr Blease and Mr Simon Pope.

Express Gifts said that it would be taking the game online in February 2009 and it was provisionally given a slot in its Christmas book in April 2009. This appeared to be promising as it had a circulation of 2.5m. The buying controller had been due to “sign off” around 18 May (but that, of course, was shortly before the date of termination). The “buy price” contemplated was £12.65.

Following an approach from Mr Blease in March 2009, an order was placed for 720 units in May by TK Maxx, but again this was not to be fulfilled.

Mr Blease’s sales reports also record that in January at the Top Drawer exhibition a representative of Be Cheeky, called Sarah, was “really interested in stocking Page 3 Idol when it becomes available”. That does not appear to have been taken any further.

An Internet retailer called Prezzybox expressed interest in an email of 27 February 2009 from Ms Kat Page. She was still showing interest in a further email of 31 March.

Interest was also shown by a Littlewoods/Shop Direct representative called Michelle who was to meet Double G at the Spring Fair in early February. She was said to be “really interested” – although not in Nookii which was thought “too risqué”.

Mr Blease also recorded that the catalogue retailer JDW confirmed in February 2009 that it would be taking the game online.

The conclusion I have reached is that, however sound “micro-benchmarking” might be as a theoretical way of assessing prospective sales in general terms, it is not useful in the present context – simply because it bears no relation to the evidence of actual market reaction. I believe that the only way to make an assessment is to stand back and look at available sales figures and performances for middle ranking board games and to try and fit this game somewhere in the rankings.

In his closing submissions Mr Onslow listed some positive and negative aspects of the game which, he says, ought to be taken into account in arriving at any such assessment. I regard this as a reasonable list and will set them out as follows.

Positive factors in favour of the game

(i) It is agreed that the game was well constructed with good quality contents.

Negative factors

(i) There was no evidence of any comparable game selling in the large numbers for which Double G contends. According to NGN, the evidence does not indicate that a niche game for women could be expected to sell more that (say) 10,000 units in a three year lifetime.

It does seem that a middle ranking board game would be most unlikely to sell as much as 10,000 units in a year. Moreover, this game like many others was unlikely to prove a hardy perennial: its shelf life would be limited and no one has suggested that I should assess loss of profits beyond 2011 (which should have been its third year). The likely pattern would appear to be an initial flourish of interest in a game, if actively promoted through suitable channels, followed by a tailing off in demand and correspondingly in the price quoted. Indeed, the evidence shows that there had already been price discounting prior to termination of the licence.

Mr Reece said that in his experience board games relying on licensed brands would tend to decline year on year by about one third.

I believe that I can place reliance on the evidence of Mr Knox’s data at least to this extent; namely, that except in the case of high flyers in the top 20 games, including (say) Trivial Pursuit or Monopoly (which sold about 500,000 units between 2007 and 2009), board games are likely to have modest sales. His report suggests that the median number of units sold out of the 50 best-sellers of 2007 was 8,000, for 2008 it was 10,000 and in 2009 it was just under 5,000. I cannot come to a conclusion as to how accurate those specific figures are but they provide some rough guidance.

Another set of statistics provided by Mr Knox is to the effect that the games in the top 20% of the popularity stakes sold an average of 28,600 over three years, whereas the remaining 80% sold an average of only 2,053 over the same period. Those ranked in popularity between no. 21 and no. 40 sold an average of 7,939. Because of Mr Knox’s reliance on NPD, it might be appropriate to double the figures accordingly.

Giving Double G as fair a wind as the evidence permits (in the phrase of Jonathan Parker LJ in Browning v Brachers), I believe that they would be most unlikely to have sold more than 6,500 units in 2009 (at the original asking price of £24.99). In year two, 2010, I think a reasonable figure would have been 3,500 at £19.99. For the last year, I make an assessment of 2,500 at £14.99. That would represent a total of 12,500 units sold over three years, which is consistent with quite a high level of popularity (albeit not reaching the top 20).

I understand that the parties will be content to agree the financial consequences of these assessments, but there will naturally be liberty to apply if any further rulings are required.