MMP Gmbh (formerly Antal International Network Gmbh) v Antal International Network Ltd
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Flaux |
| Judgment Date | 06 May 2011 |
| Neutral Citation | [2011] EWHC 1120 (Comm) |
| Date | 06 May 2011 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2009 FOLIO 1273 |
[2011] EWHC 1120 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Flaux
Case No: 2009 FOLIO 1273
Rory Clarke (instructed by Zimmers) for the Claimant
Timothy Walker (instructed by Wragge & Co LLP) for the Defendant
Hearing dates: 14–17 March 2011
Introduction and background
The claimant (to which I will refer as "MMP" to avoid confusion between the parties, although at the relevant time it was usually known as "Antal Kloten") is a company incorporated in Switzerland which carries on business as a recruitment consultancy. The managing director and sole shareholder is Mr Oscar Bosshard. In September 2003, MMP entered a Franchise Agreement with the defendant (to which I will refer as "Antal London") which is an established international recruitment agency. Under the Franchise Agreement, which was for a term of fifteen years, Antal London agreed to license MMP to use its business system, name and format in return for the payment of a one-off franchise fee of £25,000 and a monthly management fee (including a licence fee) of 12% of gross sales.
The Agreement operated for the best part of five years until June 2008, when Antal London received a complaint from a candidate of MMP, Lukas Baumann (who worked for a fund management company in Basel, Gutzwiller Fonds Management AG), about the conduct of Ann-Frances Bosshard, Mr Bosshard's daughter, who was at the time the only other employee (apart from Mr Bosshard himself) of MMP. She and Mr Baumann had had a relationship which had come to an end, but she had then harassed him with text messages and phone calls day and night, to the point where she was telephoned by the Swiss police.
Antal London considered that Miss Bosshard's behaviour amounted to breach by MMP of a "substantial term" of the Franchise Agreement (clause 16.2(l)) which prohibits the franchisee from doing anything "to affect adversely [Antal London's] name, Trade Marks or other Intellectual Property". Clause 22.2(a) of the Franchise Agreement provided that Antal London could terminate the Franchise Agreement forthwith for breach of any substantial term of the Agreement. Accordingly, on 23 June 2008, Antal London gave notice by telephone to terminate the Franchise Agreement with immediate effect.
MMP's case is that Miss Bosshard's behaviour was not a breach by it of clause 16.2(l) of the Agreement or any other term and that the purported termination by Antal London was itself a repudiatory breach of the Franchise Agreement. The present proceedings were commenced in September 2009 claiming damages for repudiation by Antal London of the Franchise Agreement.
It is important to note at the outset of this judgment that it is not alleged by MMP that the termination of the Franchise Agreement caused the company to go into liquidation or to cease to trade permanently. Rather it was alleged by Mr Bosshard in his evidence that, after a hiatus of a few months when the company did not trade, it has since some time in late 2008 continued in business as a recruitment consultancy, albeit not, apparently, on a franchise basis. In those circumstances one would have expected damages to have been put forward as, in effect the loss of profits suffered by MMP as a consequence of the termination, that is the difference between the net profits which it is projected the company would have made as a franchisee for the remainder of the term of the Franchise Agreement and the net profits which the company has made and which it is projected it will make from running its recruitment consultancy during that period, albeit without the franchise.
Indeed, that is how Antal London contends in its Amended Defence that any loss should be measured. However, MMP has not put forward its damages claim on that basis. Rather it has relied upon a Valuation Report of Mr Urs Heller, a forensic accountant instructed by MMP, whose brief was to value the company at 20 June 2008. He has done so by using the Discounted Cash Flow ("DCF") method. MMP maintains in its pleadings that this is the appropriate method of measuring its loss, pleading at paragraph 9a. of the Amended Reply:
"The Claimant maintains that the appropriate measure of loss is the value of the Claimant company with the franchise compared with its value without the franchise. The value of the Claimant company without the franchise was nil."
On the basis of Mr Heller's valuation report, MMP values the company at CHF 2,491,860 and that is therefore the loss it claims. As I have said, Antal London denies that this is the correct measure of loss but says that, even if it is the correct measure, on the basis of the evidence of its expert Mr Oliver Ambs, even with the franchise, MMP had no value at the date of termination.
At the outset of the trial, Mr Timothy Walker for Antal London drew my attention to the fact that there was this dispute on the pleadings as to the correct measure of loss. He made it clear that any attempt by MMP to put forward an alternative case on the basis of loss of profits would be strenuously resisted by Antal London. It had come prepared to meet MMP's pleaded case and no other and, apart from anything else, there had been little disclosure in relation to the business which the company had been conducting since June 2008 or the profits made, so that it would be fundamentally unfair to allow MMP to "change tack" now and plead or present an alternative claim on the basis of loss of profits. Mr Walker urged me, if I considered the basis upon which quantum was put forward as misconceived, not to adopt some half way house of awarding loss of profits.
In the event, no application was made by Mr Rory Clarke on behalf of MMP to amend its pleadings to plead an alternative claim for damages for loss of profits and, had such an application been made, I would not have allowed it without adjourning the case with an order for further disclosure in relation to the activities of the company since June 2008. Mr Clarke has maintained throughout that his client's claim for damages is on the basis of valuation by the DCF method and that that is the appropriate way of measuring the loss. It follows, as I made clear to Mr Clarke during closing submissions, that MMP's claim will stand or fall on that basis. In other words, if I conclude that valuation by the DCF method is not the appropriate method of measuring loss, the claim will fail and I would not be prepared to consider an alternative unpleaded and speculative claim for loss of profits merely because I concluded that that is how the claim should have been presented and that had it been so presented, MMP might have demonstrated that it had suffered some loss.
The issues
The issues which I have to determine are helpfully set out in the agreed List of Issues:
1 Breach of Contract
a. Whether the subject of the complaint from Lucas Baumann was capable of adversely affecting "the name, Trade Marks or other Intellectual Property" of the Defendant within the meaning of Clause 16.2(1) of the Franchise Agreement
b. Whether the subject of the complaint did have such an adverse effect.
c. Whether the actions of Ann-Frances Bosshard which gave rise to the complaint can be attributed to the Claimant.
d. Whether the Claimant was in repudiatory breach of the Franchise Agreement by reason of the conduct of Ann-Frances Bosshard, due to a breach of Clause 16.2(1) or otherwise.
2. Quantum
a. The appropriate method of assessing the loss arising from the breach.
b. The historical earnings of the Claimant.
c. The likely future earnings of the Claimant if the franchise agreement had continued.
d. Whether those future earnings should include allowance for revenue from the Claimant granting sub-franchises.
For reasons which will become apparent later in the judgment, issue 2d does not really arise and so far as issue 2b is concerned, the historical earnings can be established from MMP's accounts and the monthly royalty reports submitted to Antal London.
The issues of breach of contract are in a narrow factual compass. They involve an examination of Miss Bosshard's behaviour, of what Antal London learned from Mr Baumann and of the steps taken to terminate the contract. In contrast, MMP's quantum claim necessarily involves an examination of some of the history of the company's business and performance during the course of the period of almost five years that it was a franchisee.
The terms of the Franchise Agreement
The Franchise Agreement had a start date of 1 September 2003 and an initial term of 15 years from that date. So far as relevant to the current dispute, the terms and conditions provided as follows:
" Clause 1 Definitions
" Intellectual Property" means any intellectual property belonging to us including, by way of illustration only, all rights in designs, forms, training and marketing materials, copyright in software or the Operations Manual, the Trade Marks and unregistered trade marks we make available to you for use in the Business;
" Premises" means the premises named on the front of this Agreement [the office address of MMP in Kloten] or such other premises within the Territory as we may, from time to time, authorise for use in the operation of the Business;
" Substantial Term" means a term or condition of this Agreement in bold in this Agreement;
Clause 2 The Franchise
2.3 No exclusive territorial rights are granted to you. If we reasonably consider that you are not meeting the demand from Clients in the Territory, then we will notify you of this in writing and you will have the opportunity to make proposals to us as to how you will rectify...
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