Leofelis Sa and Anotherl v Lonsdale Sports Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Lord Justice Keene,Lord Justice Waller |
| Judgment Date | 19 February 2009 |
| Neutral Citation | [2009] EWCA Civ 457,[2008] EWCA Civ 640 |
| Docket Number | Case No: A3 2007/0725, 1106, 1851 and 1864,Case Nos: 2007/ 0725, 1106, 1851 and 1864 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 February 2009 |
[2008] EWCA Civ 640
Lord Justice Waller, Vice-president of the Court of Appeal, Civil Division
Lord Justice Keene and
Lord Justice Lloyd
Case Nos: 2007/ 0725, 1106, 1851 and 1864
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE EVANS-LOMBE
George Leggatt Q.C. and Jasbir Dhillon (instructed by Reynolds Porter Chamberlain LLP) for the Appellants
Kenneth Maclean Q.C. Michael Fealy and Conall Patton (instructed by Lawrence Graham LLP) for the Respondents
Hearing dates: 21 to 24 April 2008
Introduction
These appeals are brought against orders of Evans-Lombe J made at and after the end of the trial of liability on claim and counterclaim in a dispute arising from a trade mark licence agreement. The First Defendant, Lonsdale Sports, owns the relevant trade marks; the Second Defendant, TMLC, is its worldwide licensee; the First Claimant, Leofelis, had a licence from TMLC relating to all of the European Economic Area other than the UK and Ireland; the Second Claimant, Leeside, had a sub-licence from Leofelis for Italy. The appeals give rise to an unusually large number of issues, both substantive and procedural. As a result, this judgment is much longer than I would have wished.
The Claimants' original claim was for damages for infringement of their exclusive licence by sales in Belgium, and also for misrepresentation and breaches of contractual warranties. The Defendants responded by alleging breaches of the terms of Leofelis' licence, and other matters, which they claimed gave TMLC the right to terminate the licence. They also disputed the validity of an extension of Leeside's territory under its sub-licence beyond Italy to the whole of Leofelis' territory, and the Claimants therefore added a claim for a declaration that Leeside was an authorised sub-licensee for the whole territory. Thus, many different issues arose for the judge to decide. His task was not assisted by a very late application by the Defendants to amend their Defence and Counterclaim. Insofar as this was resisted, the judge decided what amendments to allow in the course of his judgment. With hindsight, it seems that more precision and consistency in the formulation of some of the amendments would have been helpful to the court.
The judge decided the case in favour of the Claimants on almost all points. He handed down his judgment ( [2007] EWHC 451 Ch) on 8 March 2007, and heard submissions first on 19 March and then on 8 May as to the terms of the order to be made. His main order is dated 8 May; two of the appeals before us arise from that order. Later he made orders on 18 and 26 July on a consequential application by the Claimants. The other two appeals arise from those orders. He gave permission to appeal on the findings of liability on breach of contract and misrepresentation in two respects. Jacob LJ later gave permission to appeal on other points arising from the main judgment and from the order made to give it effect. In turn I gave permission to appeal against the two orders made later in 2007.
Later, the Defendants changed their Counsel. About a month before the appeal was due to come on, the Appellants sought to amend their grounds of appeal on the main appeal, partly by abandoning points but partly by taking new points not argued before the judge. That application was made too late to be dealt with in advance of the appeal hearing. It was opposed in part; to that extent, we heard argument both on the application for permission to amend and on the substantive points, and our decision is given in our judgments. In the course of argument, partly on the question of amending the grounds of appeal but also partly on substantive points already taken, it became clear that the form of the statements of case as they had stood before the judge was not altogether satisfactory, and they required amendment in order that the points argued, and sought to be argued, could be properly addressed. Each party, therefore, submitted draft amended statements of case to us after the hearing of the appeal, with brief written submissions for and against the proposed amendments. Those issues are also the subject of our judgments. The change of tack by the Defendants, and the position adopted by them at trial, has added to the problems in dealing with these appeals, and to the unavoidable length of this judgment.
The trade marks
Although the agreement which is the subject of the dispute is concerned with trade marks, very little of the case is concerned with trade mark law as such. The common feature of the relevant trade marks is the word Lonsdale, but nothing turns for the purposes of the appeal on any particular feature of any of the relevant marks. Nevertheless, to understand some of the issues that arose, it is necessary to know something of the background and the history of the ownership of, and dealings in relation to, the trade marks.
The trade mark was created in 1960 when the then Earl of Lonsdale gave permission to a Mr Hart to use the name as a trade mark for sports clothes and equipment. The word came to be used in two forms. In one form, it is presented in what came to be known as the cinemascope format, with the letters in the middle shorter than those at each end. In the other the word is presented in a diamond form, with the middle letters taller than those at either end. The two marks were in different ownership: Lonsdale Sports Equipment Ltd, owned by Mr Hart, owned the cinemascope mark, which was the more valuable, and Lord John (UK) Ltd (Lord John), a company owned by a Mr Javid Alavi, owned the diamond version. Their respective exploitation of the marks gave rise to a good deal of friction, and resulted in litigation in various countries.
In June 2002 the ownership of the two marks came into one hand, that of Lonsdale Sports, which granted a worldwide licence to TMLC, which was to manage the exploitation of the marks. At that time there were several subsisting agreements relating to one or other of the marks. In particular, the cinemascope marks were the subject of a licence in favour of Leofelis, the First Claimant, in relation to Italy and Switzerland, by an agreement dated 11 June 2001, and the diamond mark was the subject of a licence granted by Lord John to Mr Alavi (who traded personally under the style or trade name Merc) dated 22 February 2001. This licence was non-exclusive but extended to the whole world. I will call it the Alavi Licence.
One of the agreements made in June 2002 (I will call it, as it was referred to at trial, the Lord John SPA), as part of the transaction by which both forms of mark came to be owned by Lonsdale Sports, conferred in its clause 5A additional rights on Mr Alavi in relation to goods bearing either form of the mark.
After June 2002, negotiations took place between Leofelis and Lonsdale Sports, between July and November 2002, which resulted in the grant of a new licence by TMLC to Leofelis, with the consent of Lonsdale Sports, in relation to both forms of the mark, which I will call the November 2002 Agreement. This licence was to be exclusive, subject only to certain subsisting rights or licences, and was to extend to the whole of the European Economic Area except for the UK and Ireland. It was to last for 6 years from 1 January 2003, and to be renewable by Leofelis for a further 6 years. The royalty was a fixed amount, increasing year by year during the first 6 years, rather than one which varied according to sales (as the royalty under the 2001 licence had done).
At the date of that licence, Leofelis had already granted a sub-licence, under its previous licence, to Leeside, the Second Claimant, which was limited to Italy. The November 2002 Agreement referred to that sub-licence, but it imposed limits on the grant of further sub-licences by Leofelis. Later, in December 2002, Leofelis extended the scope of Leeside's sub-licence to all countries then included in the European Union, other than the UK and Ireland.
Exhaustion of rights in trade marks
One feature of trade mark law which underlies some of the issues in the case is the doctrine of exhaustion of trade mark rights. This derives from the First European Trade Mark Directive, 89/104, which is designed to prevent trade mark rights being used as a barrier to trade within the European Union. It now extends to the whole of the European Economic Area (EEA). Article 7 of that Directive is as follows:
“Exhaustion of the rights conferred by a trade mark
1. The trade mark shall not entitle the proprietor to prohibit its use in relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent.
2. Paragraph 1 shall not apply where there exist legitimate reasons for the proprietor to oppose further commercialization of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market.”
As a result of this doctrine, if a licensee of a trade mark has exclusivity in a territory which forms part, but not the whole, of the EEA, he is exposed to the risk that goods bearing the mark may be placed on the market in another part of the EEA by the proprietor or with his consent, which may then be freely traded anywhere within the EEA. In...
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