Ignite International Brands (UK) Ltd v Inpero Ltd

Hearing dates: 17 July 2023 – 19 July 2023

Approved Judgment

Introduction

This is the Claimants' application to commit the Second Defendant (“Mr Cooper”), for failing to comply with court orders. Mr Cooper does not accept that he is in breach, other than in a technical sense which would not amount to a contempt. The First Claimant (“Ignite”) is incorporated in England and operates internationally. Its business is the production, promotion and sale of high-quality nicotine, alcohol, CBD, energy drinks and apparel products under the brand name “Ignite”. The Second Claimant (“Ignite Lux”) is a company within the Ignite group of companies. There are two applications, the first issued on 30 March 2023 and the second on 02 June 2023.

The First Defendant (“Inpero”) provides warehousing sales and marketing functions in the United Kingdom. Its sole director and shareholder is Mr Cooper. Mr Cooper has substantial business experience. He has been to Business School and had worked as a CFO before establishing his own businesses.

In Absolute Living Developments Ltd v DS7 Limited [2018] EWHC 1717 (Ch), Marcus Smith J considered what had to be established in a committal application. He held: (a) The order must bear a penal notice and (subject to dispensation) have been personally served on the respondent. (b) The order must be capable of being complied with (in the sense that the time for compliance is in the future), and it must be clear and unambiguous. (c) The breach of the order must have been deliberate, which includes acting in a manner calculated to frustrate the purpose of the order. It is not necessary, however, that the respondent intended to breach the order in the sense that he or she knew the terms of the order and knew that his or her relevant conduct was in breach of the order. It is sufficient that the respondent knew of the order and that his or her conduct was intentional as opposed to inadvertent. (d) The standard of proof in relation to each allegation that an order has been breached is the criminal standard. The burden of proof is on the applicant to establish an allegation of breach to the criminal standard.

Background

On the 23rd of October 2020 Ignite Lux entered into a manufacturing and fulfilment agreement (“the manufacturing agreement”) with Wellacy Labs Ltd, a company which the Claimants say, and the Defendants dispute, is controlled by Mr Cooper and is now in liquidation (as of 24 ^th May 2022).

On the 14th of December 2021 Ignite entered into a services agreement (“the services agreement”), otherwise described as a “sales and fulfilment” agreement, with

Inpero, which was appointed as the sales and distribution agent for Ignite products within the United Kingdom. The agreement required Inpero to hold stock on Ignite's behalf in a warehouse. Title to the products remained with Ignite until their onward sale to third party purchasers. Following a sale, Inpero was required to forward the proceeds of sale to Ignite and in turn received a commission, in addition to a standing monthly payment.

Ignite kept track of stock levels at Inpero using SAGE accountancy software. The working practice was that Mr. Cooper would confirm that Ignite products had been delivered to a warehouse. An entry reflecting the delivery was then made in SAGE. The Claimants' case is that the only way in which items could be entered onto Inpero's warehouse inventory tally on SAGE was when Mr. Cooper expressly informed Ignite that the products had been received by Inpero. Inpero was then required to report any sales to Ignite and send the associated payment. Ignite would record the sale and update the Inpero inventory record on SAGE.

On 04 January 2022, Ignite's auditors, Armstrong Watson Limited, conducted a physical count of Ignite stock held by Inpero to check what was held as at 31 December 2021, Ignite's accounting year end, The Claimants contend that there were significant discrepancies between the physical stock held in the Inpero warehouse and the related inventory reports held on the SAGE accounting system.

Mr. Cooper delivered an updated inventory report on the 2nd of February 2022. Ignite were again concerned by, what it regarded as, discrepancies in the information provided. On the 4th of February 2022 Mr. Cooper confirmed that a physical] count of the Ignite stock had been completed under his supervision. The results of that exercise were sent to Ignite on the 9th of February 2022. Ignite then performed an accounting adjustment to “roll back” the inventory to determine the stock levels as of the 31st of December 2021. The resulting figures were sent to Mr. Cooper who confirmed, by e-mail of the 24th of March 2022, that they were correct.

The services agreement and the manufacturing agreement were terminated following e-mail exchanges concluding on the 1st of June 2022. Inpero contends that it brought the relationship to an end as a result of contractual breaches by the Claimants. The Claimants' case is that Inpero was in breach of its own obligations. At the date of termination, stock belonging to Ignite was still in the possession of Inpero. Some of Ignite's products, V600 vape devices on 10 pallets, were recovered on 23 June 2022. The Claimants say that they were unsuccessful in obtaining the return of other stock and resorted to issuing proceedings in the High Court.

Court Proceedings

In the underlying claim the Claimants allege that Mr Cooper has used his companies to perpetrate a substantial fraud which has resulted in a financial loss to the Claimants of over £2,000,000. It is alleged that Mr Cooper invented listing fees with the Booker Group in order to defraud the claimants of £312,000 and fabricated customer orders to generate manufacturing orders for Wellacy Labs Ltd. The Claimants contend that Mr. Cooper also caused over 240,000 units of the Claimants' products to be sold after the agreements had been terminated and that he or Inpero have retained the entire proceeds of sale. It is alleged that these sales were at heavily discounted prices (causing both direct loss and significant damage to the Ignite brand) and that some of the Ignite products have been unlawfully retained and/or moved to other storage facilities. They are perishable and their loss will cause further financial damage to the Claimants unless they can be recovered. The Claimants' case, based upon its records, is that the Defendants have retained stock with a cost value of over £1.7 million.

On 25 October 2022, Mr Healy-Pratt KC, sitting as a Deputy High Court Judge ordered the Defendants, that is both Mr Cooper and Inpero, to:

(a) Deliver-up to the Claimants the entirety of the Ignite product inventory that the Defendants then had on hand; and

(b) Provide the Claimants with information as to the dispositions and/or sales of any Ignite Product inventory (to the extent that the Ignite products delivered-up pursuant to the Order fell short of the closing inventory account provided to the Court by Ignite as part of the Application).

The order also provided at paragraph 2:

“2. Where any of the Claimant's Products are no longer within the Defendants' possession at the date of this Order, the Defendants shall, by no later than 4pm on Friday, 28 October 2022, provide in writing the following information: (a) if the product has been transferred to a third party, full details of the transfer, including the date, the recipient and the terms on which the transfer was made (including, if applicable, any price paid or due for the product); (b) if the product has been otherwise disposed of for any reason, full details of the disposal and the reasons for it; (c) the current location of the product, if known; (d) the Defendants' proposals (if any) for the return of the product. Such information shall be accompanied by such documentary records as are available (in original or true copy).”

In short, the Defendants either had to hand back the Claimants' stock or explain what had become of it.

The Defendants were ordered to pay £25,000 on account of the Claimants' costs. No such payment has been made to date because, according to Mr. Cooper, there are no funds available from which to do so.

Attached to the Order of Mr Healy-Pratt was a Schedule, referred to as “Schedule 3”, setting out the stock which, as at 10 July 2022, ought, according to the SAGE records, to have been in the Inpero warehouse and which was to be returned forthwith or accounted for. This schedule was produced as an exhibit to the first affidavit of Mr Dhadwar who is a Chartered Accountant and works for Ignite International, the Claimants' parent company, as its Corporate Controller.

Although Mr Dhadwar was able to speak to the overall operation of the Claimant's stock control and invoicing he did not have direct involvement with all of the events which led up to and followed the termination of the relationship. He was, for example, unaware of the collection of pallets in June 2022 although he maintained that this would have resulted in an accounting adjustment.

Following the order of 25 ^th October 2022 Future Pro Logistics (“FPL”) carried out collections on behalf of the Claimants from the Defendants' warehouse in late October and November 2022. It is said that, contrary to the usual practice, FPL was not provided, by Inpero, with “packing slips” during these collections. These slips are...