Dowman Imports Ltd v 2 Toobz Ltd
| Jurisdiction | England & Wales |
| Judge | Russen |
| Judgment Date | 28 February 2020 |
| Neutral Citation | [2020] EWHC 291 (Comm) |
| Docket Number | Case No: CC-2017-BRS-000001 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 28 February 2020 |
[2020] EWHC 291 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BRISTOL
CIRCUIT COMMERCIAL COURT (QBD)
Bristol Civil & Family Justice Centre
2 Redcliff Street
Bristol BS1 6GR
HH JUDGE Russen QC
(sitting as a Judge of the High Court)
Case No: CC-2017-BRS-000001
Simon Goldberg (instructed by McDaniel & Co) for the Claimant
James Wibberley (instructed by Ashfords LLP) for the Defendant
Hearing dates: 12 th, 13 th, 14 th and 15 th November 2019
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HH JUDGE Russen QC
HH Judge Russen QC:
Introduction
This is my judgment following a trial between the parties on the Claim and Counterclaim outlined in paragraphs 7 to 12 below.
The Claimant (“ Dowman”) is a company which carries on the business of supplying high quality soft toys. That business extends to procuring the manufacture of such toys by a small factory in Shanghai (“ the Chinese Factory”) run by Shanghai Jin Wei Gifts Co. Ltd (“ SJWG”).
Dowman owns a 30 per cent stake in the Chinese Factory and Dowman's sole director, Mr Dominic Whittle (“ Mr Whittle”), is also a director of SJWG. The manager of SJWG is Mr Li Jian Guo (“ Mr Li”) who Mr Whittle describes as his best friend. Dowman and SJWG have been in business together in producing toys to their own design and order since around 1991. The Chinese Factory was established at that time for the purpose of meeting Dowman's production needs and, although it now has other customers, its primary function is to service Dowman's business. It has an in-house design department, though Mr Whittle told me that two designers had to be laid off because the Defendant had not paid Dowman the monies now claimed from it.
The Defendant (“ Toobz”) carries on business as a designer of soft toys, trading under the name ‘Little Handfuls’ and does so under the direction of Mr Andrew Coates (“ Mr Coates”). Mr Coates is a painter and artist by occupation. From the 1990s he was working on a toy design based on the insertion of one tube into another (whence Toobz derives its name) which would enable the eyes of the toy character to be moved by a finger inserted in the back of the toy. Moving ears and fur came later. Toobz was incorporated in 2008, after Mr Coates' concept had been patented in the UK and US, and it was around that time that Mr Coates hit upon the idea of a range of toy characters known as ‘Bush Babies’ (alongside another related concept for toys known as ‘Wee Boos’).
Toobz has now been successful in exploiting the Bush Babies with another UK company called Golden Bear Products Ltd (“ Golden Bear”) which, also with the assistance of a factory in the Far East, carries on the business of manufacturing and distributing toys (including so-called ‘plush’ toys of which the Bush Baby is a type).
It is the entry by Toobz into merchandising deals with Golden Bear (the first one in September 2016) for the exploitation of the Bush Babies that has prompted Dowman to bring proceedings against Toobz in relation to what Dowman says was its part in the development of the toys during the period between October 2014 and June 2016 and under what it had alleged, prior to trial, to have been an oral agreement with Toobz that they would instead be manufactured by Dowman through the Chinese Factory.
The Claim and Counterclaim
When the Claim was issued in August 2017 in the London Circuit Commercial Court the primary claim advanced by Dowman was that the entry by Toobz into a Licence Agreement with Golden Bear was a breach of an oral agreement that Mr Whittle and Mr Coates had reached on behalf of their respective companies in November 2014. Dowman alleged that it had agreed to assist with the development of Bush Babies (including the provision of design and manufacturing resources at the Chinese Factory) in return for being appointed as the manufacturer of them. Dowman alleged that, through Mr Coates, Toobz had initially agreed to a 2 year appointment but one year later, in November 2015, they had reached further agreement upon a period of 5 years.
Dowman's primary claim was therefore one for the loss of profit that would have been earned on the manufacture and supply of Bush Babies over a 5 year period. Based upon certain assumptions formed by reference to the number of unit sales subsequently achieved by Golden Bear and a predicted sale price per unit, Mr Whittle's third witness statement put that loss as being in excess of $4 million (alternatively, $1.656m under the notional 2 year term previously agreed).
However, following the transfer of the proceedings to the Bristol Business and Property Courts and before the claim and counterclaim came on for trial, Dowman indicated that it was not pursuing its claim in contract but instead its alternative pleaded claim for what the prayer to the Particulars of Claim summarised as being “restitution of the value of the development services provided to [Toobz] between July 2014 and May 2016.” In fact, Dowman has since confirmed by a CPR Part 18 response that the initial Bush Baby samples produced by it in October 2014 were the result of gratuitous work and so the claim in restitution is advanced in respect of the 20 month period down to June 2016 mentioned above.
Since the indication by Dowman, in mid-June 2019, that it was not pursuing its allegations of loss arising through a breach of contract, the claim against Toobz has been for the considerably more modest sum of £144,450. That VAT inclusive sum was identified in an invoice dated 1 December 2016 which Dowman delivered to Toobz after being told about the deal with Golden Bear (“ the 2016 Invoice”). The 2016 Invoice lists a number of costed items but begins with the words “For works undertaken to take your design for ‘Bush Babies’ from handmade samples to market ready products”. Although the nature and form of it assumes some established indebtedness, the 2016 Invoice really represents the quantification of the suggested claim in restitution. As I explain below, in a case of the present type such a claim is best expressed in terms of quantum meruit.
Paragraph 13 of the Particulars of Claim provides a fuller narrative for the work summarised in the 2016 Invoice and (with a correction made by the Reply to what had been an erroneous reference to “September 2015”) introduces it as the product of the parties having, even in the absence of any binding agreement, “nonetheless dealt with each other between September 2014 and June 2016 upon the common understanding, encouraged by Mr Coates on behalf of [Toobz] that, in return for the provision of its development services, [Dowman] would be appointed as the manufacturer of Bush Babies.”
Toobz has not only denied both the primary claim in contract and the alternative claim for restitution but advanced its own counterclaim. That counterclaim arises out of what Toobz alleges to have been the supply by Dowman in December 2015 of approximately 2000 defective Bush Babies. Dowman had invoiced Toobz £7,244 for the supply of the 2,016 toys under what the parties had come to describe as the “initial order” (which had been quantified by reference to the Chinese Factory's minimum production run of 56 dozen for each of the three Bush Baby styles – Kojo, Kewku and Yaimba – covered by it). That sum formed part of Toobz's counterclaim. In addition, Toobz claimed the sum of £10,800 in respect of the anticipated profit that could have been realised on a sale of those toys had they not been defective, together with a further unliquidated amount of lost profit arising from the company's inability to fully market the product at the February 2016 Toy Fair (Mr Coates confirming that the reference in the Part 20 Claim to the 2014 fair was a mistake).
At the case management conference which took place in August 2018, before the proceedings were transferred to Bristol, the deputy High Court judge, Mr Christopher Hancock QC, had directed that there would be evidence from a single joint expert in toy manufacturing quality control, in the form of a written report, to address Toobz's allegation of defective manufacture in the initial order. As must be obvious, and was confirmed to me at the telephone hearing mentioned in paragraph 16 below, the court was therefore persuaded of the parties' view that such expert evidence was reasonably required to resolve the counterclaim.
However, by a letter dated 11 December 2018 Toobz's solicitors wrote to Dowman's solicitors stating that an inspection of some of the toys supplied under the initial order had clearly revealed them not to be of satisfactory quality. Their letter said:
“ Therefore we write to confirm that our client no longer intends to rely on expert evidence in this matter, not least because the parties can save the costs of instructing an expert. We invite you to confirm your client's position on this.”
In fact, no agreement upon the way forward (in lieu of any expert evidence upon the alleged defects in manufacture) was reached between the parties and the consequence was that 6 months later Toobz made an application to the court which was aimed at ensuring that the Bush Babies supplied under the initial order (and other samples produced by Dowman and others including Golden Bear) were before the Court at trial. By an Application Notice dated 20 June 2019, Toobz sought an order (or perhaps clarification of its primary position) that it did not require permission to rely upon those physical items or alternatively that it should have permission.
That application came before me on a telephone hearing on 2 October 2019. For reasons which I expressed more...
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