Mastercigars Direct Ltd v Hunters & Frankau Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Jacob,Lord Justice Lloyd,Lord Justice Chadwick
Judgment Date08 Mar 2007
Neutral Citation[2007] EWCA Civ 176
Docket NumberCase No: A3/2006/1003

[2007] EWCA Civ 176





His Honour Judge Fysh QC (sitting as a Judge of the High Court)

HC 04 C035805

Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Chadwick

Lord Justice Jacob and

Lord Justice Lloyd

Case No: A3/2006/1003

Mastercigars Direct Limited
Hunters & Frankau Limited
Corporacion Habanos SA
Part 20 Claimant/Respondent
(1) Mastercigars Direct Limited
Part 20 Defendant/Appellant
(2) Christopher John Du Mello Kenyon
Part 20 Defendant

Geoffrey Hobbs QC and Miss Denise McFarland (instructed by Messrs Crane & Staples) for the Appellant Mastercigars Direct Limited

Mr Richard Arnold QC and Mr Mark Vanhegan (instructed by Messrs Mishcon de Reya) for the Respondent Corporacion Habanos

Hearing dates : 30–31 January and 1 February 2007

Lord Justice Jacob

This is an appeal from a judgment of HHJ Fysh QC sitting as a Judge of the Chancery Division, [2006] EWHC 410 (Ch), [2006] RPC 805.

The Background facts


Prior to the appeal, the parties were asked to agree a statement of background facts. Subject to some minor and irrelevant differences, this they did. They said that it could be used as a working document. Much of it is taken from the Judge's findings. I set it out here as amended by Mr Hobbs QC for the appellants but with some shortening and amendment. I am grateful to him and Mr Richard Arnold QC for the respondents for their co-operation.

The parties

1. Corporacion Habanos SA (“HSA”) is a Cuban joint venture company. 50% is owned by European interests and 50% owned by Empresa Cubana Del Tabaco (“Cubatabaco”, a Cuban subsidiary of Tabacuba, the Cuban state tobacco company). HSA is the owner of the trade marks in suit. They are listed in fn. 26 of the judgment below and include many long-established world famous names, such as H. Upmann and Punch. HSA has been granted by the Cuban government the exclusive rights to buy, sell and market nationally and internationally rolled tobacco of Cuban origin in any form or type. HSA is and was at the material times run on a commercial basis. HSA occupies a central role in the Cuban tobacco industry: it reviews and fixes the price of hand made Cuban cigars (“habanos”) both for export and local sale; it determines the brand positioning for habanos, advertising and general sales structure and all aspects of local marketing strategy; it determines all aspects of the packaging and trade mark use—and more.

2. Hunters & Frankau Ltd (“H&F”) was appointed by Tabacuba in 1990 as the sole and exclusive distributor for, inter alia, the UK to import, sell and distribute habanos. Upon the incorporation of HSA in September 1994, and the acquisition by HSA of the export and distribution rights from Cubatabaco, H&F entered into an exclusive distributorship agreement with HSA in September 1994. On 30 June 2002 HSA and H&F entered into a new 9.5 year exclusive distributorship agreement.

3. Mastercigars Direct Ltd (“MDL”) was incorporated by Mr Kenyon on 14 June 2001. Mr Kenyon is the beneficial owner of the company, and its sole director. The business of MDL is to import cigars, and in particular Cuban cigars, into the United Kingdom for resale here in competition with H&F. Part 20 proceedings for infringement have been stayed as against Mr Kenyon pending the outcome of the claim against MDL.

Cigar production in Cuba

4. The tobacco for Cuban cigars is grown on farms in Cuba, more than 70% of which are privately owned. The cigars are then manufactured in factories, most of which are owned by the Cuban Ministry of Agriculture and managed by Tabacuba. The habanos are made individually in the factories by experienced rollers. Their quality is assessed throughout all stages of their production.

5. The habanos once packaged by the factories are then supplied to HSA's warehouse. HSA then performs further quality control checks on the cigars. HSA's warehouse is split into two main sections, one for cigars for export and the other for cigars to be sold domestically. There is no difference in the quality standards applied to cigars for sale in Cuba as opposed to those for sale abroad. However every box of habanos which is supplied by HSA for sale through outlets in Cuba has, since about April 2003, borne a holographic seal. These seals are applied to the cigar boxes in HSA's warehouse. If the hologram seal is removed from these boxes it leaves a noticeable mark. Habanos which are for sale abroad do not have the holographic seal applied to them.

Sales of habanos by HSA

6. HSA does not sell direct to consumers in Cuba or worldwide, rather it sells the habanos through a number of outlets in the following manner.

7. Foreign sales channel. HSA has the relevant Cuban government authorisations and registrations to export habanos commercially. All commercial exports of cigars from Cuba for sale through foreign sales channels are made by HSA to its various overseas distributors, who are each granted, pursuant to a written distribution agreement, an exclusive territory in which they are authorised to use HSA's trade marks and the trade marks which HSA has been authorised to use. One such distributor is H&F.

8. Domestic (Cuban) sales channel. Within Cuba, habanos are sold through outlets. There are approximately 230 such outlets in Cuba. None of these is owned or operated by HSA or a subsidiary of HSA. Since about 2005 HSA has delivered the habanos to each of these outlets directly. Prior to this date deliveries were made by intermediaries, although the outlet known as “La Casa del Habano” on the Quinta Avenida in Havana had been receiving deliveries directly from the HSA warehouse since about 2003.

9. Every sale of habanos in Cuba must be recorded on a standard form invoice printed for security purposes, with a transverse water mark, HABANOS SA, visible under ultra violet light. HSA sends out blank books of standard form invoices. The invoices bear the title factura de venta de habanos (translation – Havana cigar sales invoice). The facturas are in triplicate. The facturas have spaces for the name, nationality and passport number of the purchaser to be filled in. Upon purchase of the habanos, the salesperson completes the factura, provides the customer with the original and one copy and the outlet keeps the second copy. The outlet does not send that copy or any copy of the factura to HSA although HSA is able, if it wishes, to obtain copies of facturas – the outlet would in practice comply with a request by HSA for these even though it has no strict legal entitlement.

La Casa del Habano.

10. There is a network of outlets in Cuba, and elsewhere in the world, which operate under the name “La Casa del Habano” (literal translation: Havana Cigar House). In Cuba there are approximately 32 such outlets. Outside Cuba these outlets are owned and operated by various entities, none of which are owned, in whole or in part, by HSA. The majority of the Casas del Habano in Cuba are owned and operated by a company called Caracol. Two Casas del Habano are owned and run by Sociedades Clubes y Restaurantes Continental SA (“Continental”), which is a company within the Cubalse group of companies (and hence is referred to by the Judge in the Judgment as “Cubalse”).

11. The operator of each such outlet has entered into a Franchise Agreement with HSA pursuant to which the operator is licensed to use the “La Casa del Habano” name which is owned by HSA. In addition the operators enter into a Rolled Tobacco Supply Agreement (“RTSA”) pursuant to which HSA supplies the cigars to the relevant Casas.

12. Each overseas Casa del Habano is required to purchase the habanos from the relevant exclusive distributor in the territory in which the Casa del Habano is located. In Cuba the outlets must purchase from HSA (as set out above).

13. The Franchise Agreement does not grant the franchisee the right to apply any of HSA's cigar trade marks to habanos (or any cigars) or control in any manner the nature or quality of the habanos sold by them under those trade marks. Clause 11.2 of the Franchise Agreement provides that “Under no circumstances may the Franchisee re-sell the contractual products to another territory or re-sell these as a wholesaler”. Clause 8.2 of the RTSA provides: “[The Franchisee] is not the broker, attorney, agent or representative of [HSA] for any purpose, and whenever [the Franchisee] refers to his relationship with [HSA] he will clearly state his capacity as CUSTOMER independent from SUPPLIER, with no authority or power to commit [HSA] or to enter into agreements on his behalf in any way for any purpose.”

13A. In the case of the RTSA with the outlet at Quinta Avenida operated by Continental: the PRODUCTS covered by the RTSA are identified as rolled cigars made in Cuba and flake: clause 1.1. The TERRITORY covered by the RTSA is identified as specified outlets: clause 1.3. HSA has the right to inspect the outlet at any time to ensure compliance with the obligations set out therein: clause 2.4. Continental undertakes not to manufacture, distribute or favour products competing with the PRODUCTS unless otherwise agreed in writing by the parties: clause 3.6. It is required to report to HSA, when HSA so requests, on sales, market development and any events and situations conducive to enhancing sale of the PRODUCTS: clause 3.10. It is required to pay HSA in US dollars 30 days after delivery of the PRODUCTS for the full price of the PRODUCTS that have been invoiced and delivered by HABANOS plus 2% for distribution: clause 6.2. Continental is...

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