Hamsard 3147 Ltd Trading as "Mini Mode Childrenswear" and Another v Boots UK Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 31 October 2013 |
| Neutral Citation | [2013] EWHC 3251 (Pat) |
| Docket Number | Case No: HC12C00079 |
| Court | Chancery Division (Patents Court) |
| Date | 31 October 2013 |
[2013] EWHC 3251 (Pat)
Mr Justice Norris
Case No: HC12C00079
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
PATENTS COURT
Royal Courts of Justice
The Rolls Building
Fetter Lane
EC4A 1NL
Ian Mill QC & Joanna Pollard (instructed by Fladgate LLP) for the Claimant
Terry Bergin (instructed by Browne Jacobson LLP) for the Defendant
Approved Judgment
Hearing dates: 3, 10, 11, 12, 24 June, 1 July
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.
This case was originally to a significant degree a "passing off" claim relating to the use by Boots UK Ltd ("Boots") of its "mini club" childrenswear brand. But that claim was abandoned two months before trial. The remaining claim that has gone to trial concerns the termination in November 2009 of an agreement between Boots and its former childrenswear supplier, Hamsard 3147 Ltd ("Hamsard").
Hamsard seeks four heads of relief from Boots. First, it seeks damages for wrongful termination of the supply contract. Here the key issues are:-
a) Given that both parties accept that under the supply contract a reasonable period of notice to terminate should be given, was the 9 months' notice actually given too short? If so, what would have been a reasonable notice period?
b) If the notice period actually given was too short, what profit would Hamsard have earned during the extended notice period which ought to have been given?
Second, if Hamsard is entitled to any damages in respect of any period after September 2010 (when the actual notice expired) how should the following questions of principle be answered:-
a) Should one assume sales growth in the product supplied by Hamsard from and after September 2010 for the balance of any longer notice period? Or should one assume sales to be constant year-on-year?
b) Should one reduce the expenditure (to be offset against any sales for the purposes of calculating profits) to reflect savings that would have been made by Hamsard if a longer notice period had been given, so that the profits in the notional extended period would have been greater?
c) What stock would have been left at the end of that longer trading period, and how would it have been dealt with?
d) In assessing the share of the profit to which Hamsard would have been entitled in respect of sales made in the notional extended period, should one follow the "profit staircase" which applied prior to September 2010? Or should one apply a "blended rate" (representing an average over time) rather than an incrementally stepped profit share?
Thirdly, was it an implied term of the contract between Hamsard and Boots that the parties should at all times act in good faith towards one another in relation to the operation of the contract, and approach one another on an open and collaborative basis, so as to ensure that they maximised the net profits generated under the agreement? If so, did Boots act in breach of that term:-
a) In cancelling what has been called "the transitional Autumn/Winter 2010 range" of childrenswear ("AW10")? If so, what profits would have been earned and what is Hamsard's share?
b) In giving away or destroying the residue of the stock that had not been sold by the time the contract terminated at the end of August 2010? If so, what profit would have been made from such sale? What is Hamsard's share of that profit? And how does this impact upon any "stock loss" claim?
Fourth, when a (final) profit reconciliation is taken as at 31 August 2010
a) Is Boots owed £215,942.00 (as it counterclaims)? or
b) Does that claim wrongly treat certain Advantage Card costs as a deduction against Hamsard's entitlement to profit (because it ignores an agreed cap of 1.3% of sales)?
c) Does that claim ignore an amount due from Boots in respect of fixtures and fittings?
d) Does that claim wrongly treat Hamsard as entitled only to a 20% profit share for July and August 2010? Or should Hamsard receive a "blended rate" for those two months?
e) Does that claim wrongly treat stock losses?
The agreement that was terminated by the notice given by Boots to Hamsard in November 2009 is one that was not recorded in writing and had come into existence only in February 2009. But it arose out of an earlier trading relationship between different parties: and it is that early relationship which provides the context within which the February 2009 agreement must be ascertained. So I must start with the early history.
In 2001 Boots Company Plc ("Boots1") decided to sell a range of "own brand" childrenswear in its stores. But it did not wish to produce that range "in house". Nor did it wish to expend management time and effort in identifying designers, manufacturers, suppliers and distributors to get such stock into its stores. Boots1 decided to out-source the entire operation to a specialist company that would itself undertake (or procure that others would undertake) the design, manufacture, supply or importation and distribution to Boots stores of children's clothing, footwear, hats, gloves and scarves for the 0–4 year age range ("the products"). Boots1 selected Adams Childrenswear Limited ("Adams") for this purpose. Adams already had its own established retail operation with its own brands.
The fundamental structure of the agreement reached in March 2002 was that Adams should supply Boots1 with the products, Adams agreeing that it would place all orders for manufacture and shipping of the products in its own name and subject to the terms and conditions that would normally apply. Adams was to pay all invoices raised by the suppliers: but as soon as the supplier requested payment from Adams then Adams was entitled to issue an invoice to Boots1 (which had to be paid within an agreed timescale). In that way Adams' working capital requirements were kept to an absolute minimum. In commercial terms Adams therefore had a guaranteed order book from Boots1 and an assurance that its manufacturing costs (plus all import duties and levies and all delivery costs to Adams' distribution warehouse) would be covered. As to the other operating costs of Adams (for example, staff and management costs of sales staff employed by Adams in the sales areas in Boots' stores and the incremental costs of the buying, merchandising, finance, HR and IT teams within Adams part of whose time would be spent on operating the agreement, and the local distribution costs), Boots1 agreed to pay these as well within 30 days of being invoiced. So all of Adams' costs were covered. Adams was then entitled to a specified share of the profit that was made from the sale of the products.
In November 2003 that original agreement was the subject of a novation by Adams to Mini Mode Childrenswear Limited ("Mini Mode 1"), an associated company of Adams. Following the novation Boots1 and Mini Mode 1 agreed that Mini Mode 1 would be the sole and exclusive supplier of childrenswear and babywear to Boots1. This relationship was embodied in a fresh trading agreement made in February 2006.
Shortly thereafter the Adams group of companies (including Mini Mode 1) entered administration. The business and assets of Mini Mode 1 were acquired from the administrators by a new company also called Mini Mode Childrenswear Limited ("Mini Mode 2") which was backed by an entrepreneur called Mr John Shannon ("Mr Shannon") and managed by Mr David Empson ("Mr Empson"). This led to a new agreement between Mini Mode 2 and Boots1 which took effect on the 1 July 2007 ("the 2007 Agreement").
The 2007 Agreement provided for Mini Mode 2 to continue to supply Boots1 with the products, but on the terms and the conditions set out in the 2007 Agreement. The detailed terms were as follows:-
a) By clause 2.3 Mini Mode 2 agreed that it would place all orders for products in its own name and subject to the terms and conditions that would normally govern the relationship which it had with its suppliers.
b) Mini Mode 2 agreed that it would pay all valid invoices raised by a supplier in respect of the cost price of the product.
c) By clause 2.5 Boots1 agreed that Mini Mode 2 would be entitled to issue an invoice to Boots1 in respect of that cost price immediately upon Mini Mode 2 being able to provide Boots1 with evidence that the supplier had requested payment from Mini Mode 2.
d) By clause 2.6 Boots1 agreed to pay those invoices in full in cleared funds (less a discount of 2.5%) within 10 days of the receipt of the Mini Mode 2 invoice.
e) By clause 12.5 Mini Mode 2 could invoice Boots1 for the operating costs incurred by it on a monthly basis, and Boots1 had to remit payment for that amount by a bank transfer within 30 days of the date of the invoice.
f) By clause 2.7 the distribution costs incurred by Mini Mode in relation to the delivery of products to the stores of Boots1 were to be met as an operating cost.
g) By clause 13 Mini Mode 2 was entitled to a 20% share of the net profits resulting from the operation of the agreement (with Boots1 being entitled to 80%).
h) Clause 13.2 provided for a "profit staircase" so that if in any 12 month period the net profits exceeded £4,000,000 then Mini Mode 2 was entitled to a profit share of 30% on all net profits in excess of £4,000,000: and if the net profit for that 12 month period exceeded £8,000,000 then it was in addition entitled to a 40% share of all net profits in excess of £8,000,000.
i) By clause 12 the net profits were to be calculated by Boots1 by reference to the operating costs claimed by Mini Mode 2 and by Boots1, those operating costs having been the subject of a budget agreed in...
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