Leofelis SA and Another v Lonsdale Sports Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Roth |
| Judgment Date | 09 March 2012 |
| Neutral Citation | [2012] EWHC 485 (Ch) |
| Docket Number | Case No: HC05C02842 |
| Court | Chancery Division |
| Date | 09 March 2012 |
[2012] EWHC 485 (Ch)
The Hon Mr Justice Roth
Case No: HC05C02842
Case No: HC09C00370
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
John Baldwin QC and Andrew Lykiardopoulos (instructed by Edwin Coe) for the Claimants in HC05C02842 and the Defendant in HC09C00370
George Leggatt QC and Jasbir Dhillon (instructed by Reynolds Porter Chamberlain LLP) for the Defendants in HC05C02842 and the Claimants in HC09C00370
Richard Hacon (instructed by Druces) for the 1 st, 4 th, & 5 th Third Parties
Hearing dates: 8 and 9 February 2012
Introduction
There are before the court applications in two related actions which, for present purposes, are between largely the same parties. They arise out of a prolonged dispute regarding the licensing of a series of trade marks of which the registered proprietors are part of the Lonsdale group of companies.
In action number HC05C02842 ("the 2005 Action"), the licensee ("Leofelis") and its sub-licensee claimed against the licensors a declaration and damages for breaches of an exclusive licence agreement ("the Agreement"). A trial on liability was held in late 2006 and on 8 March 2007 Evans-Lombe J gave judgment predominantly in favour of the claimants. That decision was partly reversed by the Court of Appeal on 1 July 2008. However, the findings of the judge as to some of the breaches of the Agreement were unchallenged and the case is continuing as regards Leofelis' claim for damages. It has progressed slowly: particulars of claim regarding damages were served only on 2 October 2009 and no trial has yet been fixed.
In action HC09C00370 ("the 2009 Action"), the claimants are the licensors and Leofelis is the defendant. The action arises out of the termination of the Agreement in late 2007. The licensors seek damages against Leofelis for repudiatory breach of the Agreement, whereas Leofelis counterclaims alleging that the licensors were in repudiatory breach. On 6 May 2010, Kitchin J refused the claimants' application for summary judgment on condition that Leofelis made a payment into court. That action is also subject to an order for a split trial and the trial on liability is due to be heard in March 2013.
The parties
The three defendants to the 2005 Action, of which two are claimants in the 2009 Action, are all English companies and part of the Lonsdale group. Lonsdale Sports Ltd is the proprietor of a series of trade marks, registered particularly in connection with clothing and leisure goods. The Trademark Licensing Co Ltd, formerly called Lonsdale Licensing Ltd, is a worldwide licensee of those trade marks. Sports World International Ltd (now called Sportsdirect. com Retail Ltd) is engaged in the sale and distribution of, among other things, sporting and leisure goods bearing the Lonsdale trade marks. Since it is unnecessary to differentiate between them, I shall refer to them simply as "Lonsdale". Other companies in the Lonsdale group are also engaged in the distribution of sporting and leisure goods.
Leofelis, the first claimant in the 2005 Action (and the sole claimant seeking damages) and the defendant to the 2009 Action is a Swiss company which licenses others to distribute and sell leisure clothing, sportswear and associated products. The second claimant in the 2005 Action ("Leeside") is an Italian company which traded as a manufacturer and distributor of clothing and associated products. On 10 October 2007, Leeside went into voluntary liquidation and it has taken no further part in the proceedings.
The licences and sub-licences
The Agreement which is at the heart of both actions is dated 21 November 2002, and made between two of the Lonsdale companies and Leofelis. Under the Agreement, Leofelis was granted an exclusive licence for a period of six years commencing on 1 January 2003 to use a series of specified trade marks ("the Trade Marks") in relation to certain items of clothing and other categories of goods in the then member states of the European Union, excluding the United Kingdom and Ireland, together with Hungary, Poland, the Czech Republic and Switzerland ("the Leofelis territories"). The Trade Marks were predominantly marks incorporating the word "Lonsdale" ("the Lonsdale marks") but included also four other trade marks ("the non-Lonsdale marks"). No distinction is drawn in the substantive provisions of the Agreement as between the Lonsdale marks and the non-Lonsdale marks.
By clause 10.1 of the Agreement, Leofelis was entitled to grant sub-licences of the Trade Marks, subject to written consent of the licensor, such consent not to be unreasonably withheld or delayed.
The provisions in clause 11 concerning termination and renewal include the following:
"11.2 The Licensor may terminate the Agreement by immediate written notice in the event that:
11.2.1 the Licensee commits a breach of this Agreement; PROVIDED THAT if the breach is capable of remedy termination shall only occur if the breach shall not have been remedied within 30 days of the Licensee having been given notice in writing specifying the breach and requiring it to be remedied;
…
11.2[bis] The Licensee may terminate this Agreement by giving not less than three (3) months written notice expiring on 31 st December 2005.
…
11.4 The Licensee may renew this Agreement on the same terms including as to Term as subsist at the end of the Term, by giving not less than twelve (12) months written notice to the Licensor on or before 31 st December 2007, provided the Royalty payable shall be €3,500,000.00 for each agreement year."
The consideration for the licence was the obligation on Leofelis to pay royalties fixed in an annual sum rising through the six year term and payable each year in advance by four equal quarterly instalments.
Leofelis did not at any time itself manufacture or distribute goods bearing the Trade Marks. The benefit to it from the Agreement derived from royalties which it obtained by sub-licensing others to manufacture, distribute or sell goods bearing the Trade Marks.
Leofelis granted a sub-licence pursuant to clause 10.1 of the Agreement to Leeside for Italy ("the Leeside sub-licence"). Lonsdale consented to that sub-licence and there is no question about its validity. On about 20 December 2002, Leofelis purported to extend the Leeside sub-licence to cover all the Leofelis territories. However, that extension apparently covered only the Lonsdale marks. In late November 2005, Leofelis sought Lonsdale's consent to extend the Leeside sub-licence as regards also the non-Lonsdale marks.
On about 17 June 2003, Leofelis granted a sub-licence to a German company, Punch GmbH ("Punch") pursuant to clause 10.1 of the Agreement in respect of Germany, the Benelux countries, Hungary and Poland ("the Punch sub-licence"). The Punch sub-licence was terminated by Leofelis on 18 January 2006 for non-payment of royalties.
Termination of the Agreement
By letter from its solicitors dated 28 September 2007, Leofelis purported to terminate the Agreement on the grounds that Lonsdale was in repudiatory breach by reason of an injunction which Lonsdale had obtained in the German court to prevent sales in Germany by Leeside of goods bearing the Trade Marks (or some of them). On the basis of the declaration granted by Evans-Lombe J, Leofelis contended that there was a valid sub-licence to Leeside for Germany and that the injunction therefore breached the terms of the Agreement. The letter dated 28 September 2007 stated:
"Our client considers the continuing injunction in Germany to be a repudiatory breach of the November 2002 Licence Agreement. Notwithstanding the invitation contained in our letter, your clients have not rectified their breach by discharging the injunction. Without prejudice to any other breaches on which our client may be entitled to rely, our client hereby accepts such repudiatory breach and terminates the November 2002 Licence with immediate effect. Our client reserves the right to claim damages for breach."
Lonsdale did not accept this repudiation and demanded payment of royalties, including the instalment that became due on 1 October 2007. When Leofelis failed to pay, by letter dated 2 October 2007, Lonsdale gave 30 days' notice pursuant to clause 11.2.1 of the Agreement and, after no payment was received, by further letter dated 2 November 2007 it terminated the Agreement with immediate effect.
By its judgment, the Court of Appeal reversed the finding of Evans-Lombe J that consent had been given to Leofelis to sub-license Leeside for countries outside Italy. It will be necessary to consider the specific terms of the Court of Appeal's order on one particular point below. However, as a result of that judgment, Leofelis accepts that the German injunction was not a breach of the Agreement and so could not justify its termination.
Leofelis first accepted that it was therefore itself in repudiatory breach of the Agreement, but on Lonsdale's application for summary judgment Kitchin J held that it was entitled to withdraw that concession. Leofelis seeks to contend that, although not the ground on which it terminated the Agreement in 2007, there were other repudiatory breaches by Lonsdale which justified such termination and on which it can...
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