COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MRS. JUSTICE ARDEN
|Royal Courts of Justice|
London, WC2A 2LL
B e f o r e :
LORD JUSTICE CHADWICK
LORD JUSTICE RIX
SPICE GIRLS LIMITED
Appellant - and - APRILIA WORLD SERVICE BV Respondent
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr. Andrew Sutcliffe QC(instructed by CMS Cameron McKenna) for the Respondents
Hearing dates : 27th, 28th 29th November 2001
AS APPROVED BY THE COURT
Crown Copyright ©
The Vice-Chancellor :
This is the judgment of the Court
(1) SGL was liable to AWS for £39,699 as the value of scooters delivered by AWS to SGL pursuant to the Agreement;
(2) AWS was not required to give credit against that liability for any benefit derived by AWS from the effect of the Spice Girls sponsorship; and
(3) the sums claimed by SGL would, if paid, be recoverable by AWS under s.2(1) Misrepresentation Act 1967, so that, to avoid circuity of action, the claim of SGL should be dismissed.
SGL disputes the second conclusion. Success in that respect might have a corresponding effect on the third conclusion; to that extent therefore SGL challenges the third conclusion.
(1) whether SGL is liable to AWS under s.2(1) Misrepresentation Act 1967 either on the narrow basis accepted by the judge but challenged by SGL or the wider basis for which AWS contends;
(2) whether AWS is liable to give credit to SGL against the liability of the latter for any and, if so, what amount as representing the benefit derived by AWS from the Agreement;
(3) whether the judge should have ordered AWS to pay 10% of its own and SGL’s costs of the action.
We will deal with those issues in that order.
“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.”
“the Spice Girls were the creators of a new “girl power” concept and were symbolic for...[a] fashionable, fresh and a bit cheeky image”.
At that time the Spice Girls had no manager. Some of the functions of a manager were undertaken by Mr Andrew Thompson (“Mr Thompson”) a solicitor and partner in Lee & Thompson.
“emphasised the distinct and individual image, style and personality of each of the Spice Girls...and each of the individual members of the Group and the character type she represented was given as much prominence as the image which the Group portrayed as a whole.”
The logo supplied by SGL for use on the scooters was the word “SPICE”, with each of the five letters of that word incorporating the likeness of a different Spice Girl. It is obvious that it was essential to have five Spice Girls for such promotional advertising. Though the judge made no finding with regard to the frequency of the use of this material, we infer from the terms of the heads of agreement and from the Agreement itself that some such material was used at every concert or other public event occurring during the tour.
“Again, I accept that the Spice Girls did not take Ms Halliwell seriously on this occasion either. It was a quick reference immediately before going on stage. At this time the Spice Girls were on tour. I do not consider that the Spice Girls or through them SGL appreciated that Ms Halliwell was going to leave the Group as a result of these brief conversations. All that they knew was that she was thinking about it, and that there was a risk that she would leave....On the evidence, they were justified in not taking her seriously at this point. On her return to London Ms Halliwell telephoned Mr Thompson and called a meeting...”
Whether or not the other four girls took Ms Halliwell seriously there is no suggestion that Ms Halliwell was teasing them or was otherwise insincere. As the judge found, there was a risk that Ms Halliwell would leave in September and the other four Spice Girls knew it. In our view it is clear from this finding that as from 9th March 1998 SGL, through five of its six directors, knew of Ms Halliwell’s statement and that there was a risk that Ms Halliwell would leave the Spice Girls in September 1998.
“This is a note to let you know about discussions we have had with the Spice Girls during the weekend and their involvement with Aprilia. We know you were disappointed with the attitude of the band at the press photocalls and we wanted to acknowledge your concerns in this area.
Firstly, we want to confirm that the band are totally committed to their involvement with Aprilia and this was discussed at length this weekend. All involved want to make sure that this arrangement works very well for you.
The band, who are currently undergoing a very hectic touring schedule and are therefore subject to enormous pressure from media attention, are committed to ensuring that all the activities and TV ad production works well and positively for Aprilia.
To conclude, we pride ourselves on being wholly professional in our approach and discussed the needs of the promotional activities with the band and their management again this weekend. This is understood and they are fully committed to make it as powerful as possible for Aprilia. We are confident that over the period of the agreement, Aprilia will achieve maximum value and results from this association with the Spice Girls. We look forward to a very good relationship with Aprilia and a positive association in our dealings.”
“As no agreement had been signed at this point or payment made it was still possible for either party to withdraw from the deal and given Ms Fuzzi’s strong feelings about the Spice Girls lack of commitment I have no doubt that Aprilia would have pulled out at this stage if it had not received this fax.”
This is an important conclusion in two respects. First it recognises the important role played by Ms Fuzzi in any decision likely to be made by Aprilia whether or not to proceed with the association with the Spice Girls for the sponsorship of the air-cooled Sonic Scooter. Second, it shows that Ms Fuzzi relied on the fax not only to make the arrangements for the commercial shoot but also to continue with the sponsorship deal as a whole.
“was written by KLP for the specific purpose of meeting Ms Fuzzi’s concerns about photocalls, and should not in my judgment be construed as having a wide and general effect.”
She accepted that KLP in using the word “we” was adding its own endorsement to the commitment of the Spice Girls given earlier in the fax.
“At the start of the meeting Ms Halliwell told the Spice Girls that she was going to leave the group at the end of the US tour.” (J1 para 50)
“So definite was Ms Halliwell in her announcement that Mr Thompson advised that it would be better for the Group to make an immediate announcement in case the matter leaked out to the press. The Spice Girls rejected this advice.” (J1 para 51)
“I am satisfied that Ms Halliwell had made up her mind to leave the group by 25th April 1998 and that this fact was known to SGL no later than the date of this meeting.” (J1 para 54)
“The words “currently comprising” in the preamble to the agreement do not constitute a statement of belief. Those words were literally true and signal the possibility of future changes in the line-up of the group. There is as I see it no representation in the agreement as to the preservation of the composition of the group. There is therefore no representation in the agreement which is falsified by the failure to disclose the stated intention of Ms Halliwell to leave the group. In those circumstances, the words “currently comprising” cannot in my judgment constitute a misrepresentation...”
We will return to the effect of the representation implicit in the description “currently comprising” in due course. At this stage we merely point out that the description confirmed rather than dispelled the assurances expressed and implied in the fax of 30th March.
“Given that the benefits of the commercial shoot could not be enjoyed by Aprilia if one of the Spice Girls left the group before March 1999, participation in the shoot in my judgment carried with it a representation by conduct that SGL did not know, and had no reasonable ground to believe, that any of the Spice Girls had an existing declared intention to leave the group before that date. Nothing was done to correct that representation which was a continuing representation. It was on the facts found material to Aprilia's decision to enter into the agreement that none of the Spice Girls was intending to leave in the contract period. Accordingly, SGL had a duty to correct its misrepresentation. What I have said about the commercial shoot must equally apply to other promotional material depicting the five Spice Girls which was intended to be used at any time during the period of the agreement.”
“We [AWS] write to confirm our agreement as follows:
1. Throughout this Agreement the following terms shall have the following meanings:
1.1 "the Tour" shall mean all those concerts described in the First Schedule;
1.2 "the Territory" shall mean those countries mentioned in the First Schedule.
1.3 "the Term" shall mean the period commencing 5th March 1998 to 29th May 1998.
2. The Tour shall be known as "The Spiceworld Tour". You and we shall agree on a design for the visual representation of the title of the Tour which design shall incorporate your and our trademark(s) (including the "Aprilia" logo and the associated logo "Sonic"). You shall use your best endeavours to procure that such visual representation shall be used in all printed material hereafter produced used or distributed in connection with the Tour.
3. Neither the Group nor any person on the Group's behalf shall accept or permit in relation to any concerts undertaken by the Group as part of the Tour within the Territory during the Term any sponsorship by any other motorbike/scooter entity. We shall during the Term be described as and acknowledged to be one of the "Official Sponsors" of the Tour. During the Term the Group shall not in any part of the Territory advertise, endorse, publicise or promote any motorbike/scooter manufactured by any entity other than Aprilia.”
“You hereby grant to us the non-exclusive right to use the Group's character names, and their approved likenesses, photographs, biographical materials and the Group's approved logos. designs, emblems, trademarks, and approved artwork, transparencies and other approved visual representations of the Group ("Materials") for the purposes of or sponsorship of the Tour and the "Spice Sonic" scooters (referred to in clause 13 below).”
“We acknowledge that the Tour commenced prior to 4th March 1998 and that many elements of the Tour (in particular, advertising and publicity materials) had been put in place prior to our involvement with the Tour and, as such, may impact on your ability to fulfil some or all of the requirements of this Agreement.
You and we agree that those rights granted to us pursuant to clauses 10.8, 10.9 and 10.10 may be exercised both during the Term and thereafter but not beyond 4th March 1999.”
“We shall have the right (both during the Term and thereafter unless and until you terminate such right on not less than two (2) months written notice which notice may not however be given until 31st January 1999 the earliest) to manufacture and sell worldwide a scooter under the brand name "Spice Sonic". For the first ten thousand (10,000) sales of such scooters you shall be entitled to a royalty of fifteen pounds (£15) (net of withholding tax) per sale and for each unit in excess of ten thousand (10,000) sales you shall be entitled to a royalty of ten pounds (£10) (net of withholding tax) per unit....As a non-returnable, non-recoupable guaranteed payment of such royalties we shall on 31st August 1998 pay to you the sum of one hundred and twelve thousand five hundred pounds (£112,500) (net of withholding tax).”
“Given that Aprilia had to sign the agreement to get the right to use the commercial shoot (and that there was no other reason for it to sign the agreement except to get the rights thereunder), it seems to me that the court can infer that indirectly it was induced to enter the contract by the representations made to it when it made the shoot. The same would apply to other promotional material which constituted a representation by conduct. I am satisfied that SGL participated in the commercial shoot and provided logos, images and so on of the Spice Girls in order that Aprilia should sign the agreement. I am also satisfied that the representations by conduct were such as to be likely to induce a person to enter into the agreement. An inducement to enter into a contract need not of course be the sole inducement.”
a) the conduct of the Spice Girls in (i) approving and using promotional material depicting all five of them for use until March 1999 and (ii) participating in the commercial shoot on 4th May 1998 gave rise to a continuing representation by conduct that SGL did not know and had no reasonable ground to believe that any of the Spice Girls had an existing declared intention to leave the group before the end of March 1999. (para 33 above)
b) Any such representation arising from approval or use of promotional material made after 25th April 1998 and from participation in the commercial shoot was false when made. (para 30 above)
c) Such misrepresentations induced AWS to enter into the Agreement with SGL. (para 42 above)
d) Given its knowledge derived from the events of 25th April SGL could not demonstrate that it believed and had reasonable grounds to believe that any such representation made after 25th April was true. (J1 para 116)
In para 40 of her second judgment Arden J decided that the cost of the scooters and moto bikes supplied by AWS to SGL pursuant to the Agreement, namely £39,669, was loss sustained by AWS in consequence of entering into the Agreement. On those grounds Arden J concluded that SGL was liable to AWS under s.2(1) Misrepresentation Act 1967.
“If A with a view to inducing B to enter into a contract makes a representation as to a material fact, then if at a later date and before the contract is actually entered into, owing to a change of circumstances, the representation then made would to the knowledge of A be untrue and B subsequently enters into the contract in ignorance of that change of circumstances and relying upon that representation, A cannot hold B to the bargain. There is ample authority for that statement and, indeed, I doubt myself whether any authority is necessary, it being, it seems to me, so obviously consistent with the plainest principles of equity.”
An alternative formulation, with which Romer LJ agreed, appears in the judgment of Lord Wright MR at page 583. After citing with approval the judgment of Turner LJ in Traill v Baring 4 De G.J.& S 318, 329 he said that “the position is based on a duty to communicate the change of circumstances”. Fourth, the meaning and effect of a statement or of conduct must be ascertained in the light of the circumstances pertaining at the time. Those circumstances will include the course of the negotiations and any earlier representations.
“SGL did not know and had no reasonable grounds to believe at or before the time of entry into the agreement that any of the Spice Girls had an existing declared intention to leave the group during the minimum term of the Agreement”, i.e. before March 1999.
This was accepted by the judge (J1 para 112) but only in respect of the commercial shoot on 4th May 1998 and “other promotional material depicting the five Spice Girls which was intended to be used at any time during the period of the agreement”.
“..if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently..”
It is not disputed that the statute requires the representation to have induced the representee to enter into the contract. In addition SGL submits that the statutory analogy with damages in fraud introduces the additional requirement that the representation as understood was intended by the representor to induce the contract.
“I do not think it is necessary, in order to prove [damage], that the plaintiff should always be called as a witness to swear that he acted upon the inducement. At the time when Pasley v Freeman was decided, and for many years afterwards he could not be so called. I think that if it is proved that the defendants with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, it is a fair inference of fact that he was induced to do so by the statement.”
Lord Blackburn went on to point out that the inference was one of fact not law and that if no evidence is given as to reliance in fact that was ground for not drawing the inference.
“the Spice Sonic scooter was only a second generation Sonic scooter, and the product endorsement by the Spice Girls during the European Tour was in fact of the Sonic scooter because Aprilia had not then started production of the Spice Sonic scooter. Moreover, this is in accordance with the agreement…”
This is also illustrated by a press release made on 8th March 1998 (a few days after the heads of agreement), an excerpt from which reads as follows:
“Spice Girls and Sonic. Without even trying the hot pepper became the symbol which accompanied the recent campaign for the Sonic launch: to emphasise that Sonic is the scooter which triumphs with its vibrant personality. A red hot personality.
This shows that the link between Sonic, the hot scooter, and the Spice Girls is both natural and instant. With the Spice Girls, the Sonic Effect will become the Spice Sonic Effect, when Spice Sonic, a limited edition, will very soon come onto the market.”
“I find it unlikely that young male drivers would have been attracted to the Sonic scooter by the association with the Spice Girls. In any event there was a separate advertising campaign aimed at young men.”
It follows that the liquid-cooled Sonic range is not directly relevant to this litigation, although its sales have an indirect bearing on the question of whether AWS has to give credit for any profit earned by it on enhanced sales of standard Sonic scooters.
a) Item 1, headed “The Fee paid pursuant to clause 5 of the Agreement”, claimed £300,000, the amount of the two instalments paid prior to the execution of the Agreement. The judge rejected that item, and there is no appeal from that decision.
b) Item 2, headed “Value of goods delivered pursuant to clause 5 of the Agreement”, claimed £39,699 in respect of the value of 19 scooters and 8 Aprilia “Moto” bikes delivered under the contract. The judge awarded this item in full to AWS.
c) Item 3, headed “The scooters”, was an item of credit, not of claim, in respect of profits earned on 1,988 Spice Sonic scooters which had been sold either as Spice Sonic or as adapted standard Sonic scooters (£370,197). This was larger than the claims made (a) in respect of 160 Spice Sonic scooters held in stock unsold and (b) in respect of the costs of adapting a further 373 Spice Sonic scooters for sale as Sonic scooters (a total of £134,359).
d) Item 4, headed “Advertising and promotional material”, represented the costs of the marketing campaign associated with the Spice Girls other than the fees actually paid or payable under the Agreement itself. It was common ground that these costs had been paid by Aprilia, not by AWS.
e) The judge dealt with items 3 and 4 together. She held, in her second judgment, that because the production costs and earnings of the Spice Sonic scooters had been for the account of Aprilia, not AWS, and because the marketing costs other than those incurred pursuant to the Agreement itself had also been for the account of Aprilia rather than of AWS, both items fell outside the counterclaim altogether. There is no appeal from that decision, by either party.
f) Item 5, described as “The cancelled New York photo call”, was a small item which the judge had already disallowed in her first judgment. Nothing turns on it; its rejection has given rise to no appeal.
Accordingly the appeal on damages is concerned with the amount of the credit to be given by AWS against the liability for damages of SGL.
“However, it quickly became clear to us that it was not really possible to sustain sales of the “Spice Sonic” Scooter. After only one month we had to stop producing further “Spice Sonic” Scooters due to the unsold stock which we had accumulated by then. Interest from other European markets was scant and in the UK there was no demand whatsoever for “Spice Sonic” Scooters even though scooter sales generally were expanding rapidly throughout Europe. Normally, sales of the limited edition models account for 60% to 80% of the sales of a particular model...However, the “Spice Sonic” Scooter struggled to reach 5% of sales of the otherwise very successful Sonic Scooter.”
“their complete failure adequately to deal, inter alia, with the quantum of your clients’ purported seven figure counterclaim against our clients...We have sought to address our concerns in the enclosed Request for Further Information. Self-evidently we reserve the right to raise further requests depending on the answers to those enclosed. We should also put you on notice that as a consequence of the way your clients have sought to deal with the quantum of their claim, depending on the responses to the requests made, we believe that the Court may need the benefit of expert evidence at trial. There is presently no direction for adducing expert evidence...”
“Please provide a schedule of the total number of Spice Sonic scooters sold broken down by month and by territory and the corresponding sales figures for the standard Sonic scooter with the documentary support for the sales figures.”
However, Master Winegarten, before whom this request for further information appears to have been debated, did not allow that request. Instead he ordered AWS to provide:
“please provide all documentation evidencing the contention that the “Spice Sonic” scooter struggled to reach 5% of the sales of the otherwise very successful Sonic Scooter.”
“...details of the Sonic scooter referred to in the last sentence of paragraph 41 [see para 86 above] including details of sales prior to and after the first involvement of the Spice Girls with the Sonic scooter.”
The answer was given by reference to graphs disclosed in AWS’s supplemental list, also dated 12th January 2000, which showed “the Sonic Scooter sales for 1998 and 1999 on a monthly basis and on a progressive basis”. The answer did not say, but these figures, like the figures in the “Preconsuntivo” documents, were figures for sales in Italy. The detailed figures for 1998 and 1999 disclosed by the Preconsuntivo documents were set out by Arden J in her second judgment at para 48. We set them out below (at para 114).
“even though there may have been indirect spin-off benefits for the standard sonic Scooter range leading to increased sales.” [response 31].
“by the fact that essential elements of the Defendants’ accounting records that I would have expected to be available are in fact missing. I indicate below the nature of the information and documentation that are vital for the purposes of assessing the Counterclaim but which are not included in the Defendants’ disclosure...”
“I also note that in their response to the Claimant’s request 31 concerning the cost of advertising and promotional material, the Defendants state that the costs relate to the ‘Spice Sonic’ scooter ‘even though there may have been indirect benefits for the standard Sonic range leading to increased sales.’ Indeed, it is apparent from the graph entitled ‘Italia Andamento Sell-Out Mensile Sonic 50 1996-1999’ that the sale of the standard ‘Sonic’ scooters peaked during the period in which the Defendants’ name and products were promoted by the Spice Girls. Furthermore, higher sales were achieved during 1998, during the period when the Spice Girls were promoting the scooters, than were achieved in 1999. However, the Defendants have given no credit for the benefit of the additional profit generated by the increased sales of the standard ‘Sonic’ scooter.
Furthermore, I would expect the Defendants’ association with the Spice Girls to have led to increased sales of other products, in addition to the ‘Sonic’ range of scooters, as a result of the increased publicity. In the absence of budgets or sales projections for the Sonic and other Aprilia products any assessment of the effect on sales of the association with the Spice Girls must necessarily be speculative. Nevertheless, the claim should in my view include a reasonable estimate of the profit generated by the additional sales, perhaps by reference to the overall level of sales and profit in earlier years. However, the Defendants have provided no details of the profit generated by sales of the standard ‘Sonic’ scooter, or any other products manufactured by Aprilia, in the relevant and preceding periods.”
This was the first occasion on which SGL had made any point to the effect that the quantum of AWS’s counterclaim was affected by the need to give credit for anything outside the profit earned on sales of Spice Sonic scooters themselves. It was now three weeks before trial.
“However, in the absence of information concerning the profit generated by all the Aprilia products, I have no reliable basis on which to calculate the total amount by which the Counterclaim should properly be reduced to take account of the additional profit generated by the increased sales of Aprilia products, including the ‘Sonic’ range.”
In speaking of “Aprilia products”, Mr Woolf was referring to products beyond the three Sonic ranges. In referring to the “standard ‘Sonic’ range” he was referring to both air-cooled and liquid-cooled scooters.
“4.4.6 Details of the estimated additional sales of ‘Sonic’ scooters and other Aprilia products that were generated as a result of the increased publicity arising from Aprilia’s association with the Spice Girls;
“4.4.7 Estimates of the additional profit derived from the increased sales of ‘Sonic’ scooters and other Aprilia products...”
“The reason that sales of scooters peak in the summer months is unconnected with the Spice Girls and simply due to the fact that sales traditionally peak during the warm summer season. This fact is born out not only by the same sales pattern being repeated for Sonic scooter sales in 1999 but also by the sales patterns for other Aprilia models. The fact that sales of Sonic scooters were higher during 1998 than in 1999 is simply due to the fact that the Sonic scooter was launched at the beginning of 1998 and had a novelty factor in the market place which started to wear off in 1999. Indeed, sales figures were at a higher level from the outset of 1998, i.e. before the Spice Girls even became involved with the Spice Sonic Scooter. What real effect the association with the Spice Girls had on Sonic sales can be seen from the absolutely disastrous sales figures which the Spice Sonic scooter has produced in comparison to the otherwise successful Sonic scooter. Indeed, as can be seen from the contemporaneous correspondence between the parties, there were serious concerns that the publicity provided by the Spice Girls created an increasingly poor image for the Sonic scooter and Aprilia generally, which adversely affected sales.”
As for whether Aprilia’s losses were properly recoverable by AWS, Cameron McKenna commented that this point had now been raised for the first time, referred to a disclosed contract regarding the trading relationship between AWS and Aprilia and added:
“In short, the Defendant is responsible for distributing Aprilia products in the international markets outside Italy and is contractually obliged to provide the support services referred to in that agreement.”
That was express notice to SGL, if it thought the matter important, that there was a difference between sales in Italy and outside Italy, and that it was only outside Italy that AWS was involved in the sales of Aprilia products. On the question of the determination of profit (per Spice Sonic scooter), Cameron McKenna said that AWS was “investigating whether further information can be provided”. Contrary to SGL's submission in this court, that remark was not made generally but in relation to the question of the profitability of the Spice Sonic scooter.
Key: ACSS = Air cooled Sonic scooters
SSS = Spice Sonic scooters
LCSS = Liquid cooled scooters
(1) Sales of the liquid cooled scooters were irrelevant, for they were aimed at young men and had the benefit of a separate marketing campaign.
(2) There was no separate marketing campaign for the standard (air-cooled) Sonic range, whose sales were boosted by association with the Spice Girls.
(3) It was unclear whether the high number of standard Sonic scooters sold in February 1998 (1440) had any connection with the Spice Girls.
(4) Higher sales in “summer months (March to July)” were inferred to have been due to seasonal factors.
(5) Sales of standard Sonic scooters in 1998 were 3,680 greater than in 1999 and were enhanced by the Spice Girls marketing strategy.
(6) 2,500 was a reasonable number of scooters to attribute to such product endorsement.
“Meanwhile I provisionally consider that it is relevant for the Court to know:
(1) The number of Spice Sonic or Sonic scooters distributed by AWS outside Italy in 1998 on a monthly basis.
(2) The net profit (if any) which AWS made on such distribution.
I am considering whether I should make a direction for this information to be produced...
I will need to review my judgment delivered yesterday.”
a) Para 43 (as it had become) recorded that
“...However, at the conclusion of the hearing and subsequently in written submissions, AWS made a concession (as it thereafter appeared it had earlier done in correspondence) that it was a distributor of Sonic and Spice Sonic scooters sold outside Italy and/or sold such scooters outside Italy pursuant to standing arrangements between it and Aprilia. There is no evidence as to whether AWS made any profits from these activities. It is common ground that certain documentation, including information as to scooters sold outside Italy and production costs, was not produced. The consequences, however, of AWS being a distributor are outside the issues formulated above. This judgment is limited to the issues as so formulated.”
b) In para 46 (as it had become) the judge amended her previous draft, which had said, obiter, that it would have been appropriate for AWS to give credit for any profit which it might have made from the sale of Sonic scooters “if AWS had itself sold Sonic scooters”, to a revised draft in which the hypothesis was now reformulated as “if AWS had itself both manufactured and sold Sonic scooters” (emphasis added).
c) Having found that 2,500 was the enhanced number of standard Sonic scooters sold (in Italy) properly attributable to the association with the Spice Girls, she added at para 56 (as it had become) that –
“It is a separate question whether the profit on all such sales would have been caused by the wrongful act of SGL. This question has not been separately argued and I need not address it in this judgment. Some of the increase in sales must be attributable to product endorsement before the agreement was signed.”
“...I do not see why SGL should have it both ways: ie accept that Aprilia’s profits and losses should be left out of account and contend that AWS’s profits if any should be brought into account without any regard to the value of the agreement as a whole. That result is unreal...”
“16. As I see it, the predominant reasons why the issue of increased sales of other products could not be fully investigated at the trial were as follows. Issues arising on damages were only addressed at a very late stage. For its own tactical reasons, SGL successfully opposed the making by the Master in December 1999 of an order for separate trials of liability and quantum. Furthermore (as described more fully above) the issue whether credit should be given for any increase in sales of other products was formulated as an issue only in correspondence shortly before the trial began. The issue was not identified in SGL’s written opening submissions. There was complaint there about the documentation disclosed by AWS and an extract from Mr Woolf’s report which among other things stated that credit had not been given for certain benefits. The written submissions invited the court to dismiss AWS’s claim in any event. The issues on damages were not further specified or argued in opening. The trial then took place and the relevant witnesses were cross-examined. Neither Ms Fuzzi, nor Mr Brovazzo nor Mr De Benetti were asked about the impact in fact of the association with the Spice Girls on sales of standard Sonic scooters. While I accept Mr De Benetti may have had no relevant evidence to give on this point, I cannot see why Ms Fuzzi and Mr Brovazzo were not thought to do so, given their responsibilities for advertising. From all this I conclude that SGL was content with the position in its opening submissions that the court should dismiss AWS’s claim in any event. At this point SGL had no alternative case. In written closing submissions, the present point was at last summarised. But of course by this time the evidence of the relevant factual witnesses was completed, and they were not recalled by either party, nor was any new witness called to deal with the point. SGL refers to the point again in its written submissions for the hearing on 17th April 2000, where it contends that AWS had failed to show that it suffered a net loss as a result of the agreement. SGL did not squarely raise the question of AWS’s profits as a distributor in submissions until oral submissions on questions of damages. [Counsel for AWS] properly made the concession set out above in his reply but may have been unaware of the potential implications contended for by SGL. I appreciate that under the old Rules of the Supreme Court 1965, it was not essential for SGL to set out its contentions on damages, but in order to give effect to the obligation of co-operation required under CPR Rule 1.3, it ought in my view to have given AWS fair warning of this point and the implications which it drew from it and/or to have reconsidered its position on a split trial and taken the initiative of making a renewed application to me at the start of the trial. At that point, any necessary further directions could have been given, including directions as to an exchange of a list of issues on damages to remove any “surprise”. It is not as I see it a sufficient answer to this to say that the disclosure obligation lay on AWS. Not all SGL’s cards were on the table until too late. It made no application for specific disclosure following the further disclosure on 3 February 2000. Finally, neither party is inviting me to reopen these matters now and in those circumstances, it is not appropriate for the court to force the parties to do so. In conclusion, in my judgment it is too late now for SGL to complain that the issue of benefits to AWS or Aprilia from their association with the Spice Girls has not been fully investigated. The court has not made findings as to the amount (if any) of such benefits, and accordingly they cannot be taken into account.”
(a) First, there is no evidence that the sales of 1440 such scooters in February 1998 had anything to do with the Spice Girls. Their endorsement of the Sonic range did not precede the initial publicity with which the heads of agreement were announced on 8th March 1998. The judge thought that the status of the February sales was unclear: but the “Preconsuntivo” document was provisional only in the sense that the December figures were estimates; the other figures were historic. The Spice Girls association was not announced until 8th March. Thus there is no reason to think that the February sales, which were the best monthly sales in any month in 1998, were in any way connected with the Spice Girls’ endorsement.
(b) Second, it was common ground that in any event there was no relevant enhancement of sales prior to the completion of AWS’s relevant cause of action by the conclusion of the Agreement on 6th May 1998. By that time at least 2,490 of the 1998 sales of 5,823 had been sold. The balance of the total sales within 1998 amounted to only 3,333.
(c) Third, the judge was wrong to say that there had been no separate standard Sonic marketing campaign. Ms Fuzzi gave unchallenged evidence about such a campaign (Day 2 at pages 52/54, 61/2).
(d) Fourth, the judge herself found that higher sales in the “summer months”, by which she said that she referred to March to July, were due to seasonal factors (rather than the Spice Girls).
(e) Fifth, although the drop between the 1998 sales and the 1999 sales of the standard Sonic impressed the judge to a critical extent, the facts are that such a drop was less than occurred in the case of the liquid-cooled Sonic. The latter range was uninfluenced by the “girl power” of the Spice Girls endorsement. The relevant figures are:-
in 1998, the standard Sonic range sold 5,823, and in 1999 only 2,143, a drop of 3,690 or some 63%; whereas the respective figures for the liquid cooled model were 5,892 (in 1998) and 1,682 (in 1999), a drop of 3,839 or some 71%.
(f) Sixth, in circumstances where the Spice Sonic model itself failed so badly, we agree with counsel for AWS that it is improbable that the standard Sonic range should, on the contrary, have been helped by the association with the Spice Girls. This point, which is a matter of common sense, is supported by the empirical data of the previous points.
(g) Seventh, the source of the judge’s figure of 2,500 enhanced sales of standard Sonic scooters is unclear. It had been suggested merely as an illustration of a figure from the sale of which enough profits could have been derived to eliminate the whole of AWS’s schedule 1 losses. It had no other basis, either in any statistics of sales, or in evidence of any kind.
(a) total production of the standard Sonic range in 1998 was 13,848;
(b) the figure of 13,848 compares with the 1998 sales figure within Italy of 5,823;
(c) accordingly sales of standard Sonic scooters outside Italy in 1998 could not exceed 8,025 (subject to any additional production in 1997 available for sales within 1998);
(d) the Agreement did not confer on AWS rights with respect to the standard Sonic range throughout the world, but only in those countries being visited on the Spice Girls’ European tour as scheduled, viz France, Spain, Switzerland, Germany, Holland, Belgium, UK, Austria, Sweden, Denmark, Finland, and Norway. It is instructive therefore to consider sales within those countries in particular;
(e) the best market for standard Sonic scooters within Europe, outside Italy, was Spain: 2,053 such scooters were sold there in 1998. However, twice as many, 4,161, liquid cooled Sonic scooters were sold in Spain in the same year, and no Spice Sonic scooters. There is no sign there of any particular enhancement of standard Sonic sales;
(f) the greatest number of concerts performed by the Spice Girls during their European tour in any single country was in the UK. But sales of standard Sonic scooters within the UK in 1998 totalled only 283, as against 293 liquid-cooled scooters and no Spice Sonic scooters.
“It seems to me that Mr Mill [counsel for SGL] is correct in part in saying that there were claims which should not have been advanced. It is important to note, however, that in reaching that conclusion I have identified issues not with the wisdom of hindsight but taking into account what was known or ought to have been known at the time. There are two issues which I identify for this purpose. One is the contract claim and the other is the express misrepresentation claim. So far as the express misrepresentation claim is concerned it seems to me that AWS should have known whether or not this was a claim it could properly pursue at an earlier stage. So far as the contract claim is concerned this was not abandoned. It was still extant at the trial. It is a matter on which I had to rule. But Mr Vianello, the key witness, was not called. The contract claim involved, as I have explained, a substantial damages claim if it was well-founded. I held, however, that Aprilia had agreed to release any claim in correspondence between Mr Vianello and Mr Thompson (in paras. 59 to 63, and 84 of my judgment dated 24th February 2000) and in my judgment made observations about Mr Vianello’s evidence in his witness statement. In my judgment, it was not reasonable for AWS to pursue these two claims. [emphasis added].
“I am specifically directed under CPR 44.5 to consider whether or not it was reasonable for a party to raise and pursue a particular allegation. This may in some cases come very close to the test of improper or unreasonable conduct, but it is I think a different test, focussing enquiry on the reasonableness of pursuing issues, and one which I will apply in accordance with the overriding objective.”
The reference, there, to CPR 44.5 is, we think, an obvious mistake. It is clear from the context that the rule to which the judge intended to refer was CPR 44.3(5).
a) SGL is liable to AWS under s.2(1) Misrepresentation Act 1967 on the wider basis for which AWS contended in its respondent’s notice;
b) AWS is entitled to the damages for which Arden J gave judgment and is not bound to give any further credit as representing the benefit derived by AWS from the Agreement;
c) Arden J was wrong to have ordered AWS to pay 10% of its own and SGL’s costs of the action.
In these circumstances we dismiss the appeal of SGL and allow the cross-appeal of AWS.