Case No: A3/2000/3122
Neutral Citation Number:  [2002] EWCA Civ 15 
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MRS. JUSTICE ARDEN
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Thursday 24th January 2002
Before :

 THE VICE-CHANCELLOR
LORD JUSTICE CHADWICK
and 
LORD JUSTICE RIX
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Between :

	SPICE GIRLS LIMITED	Appellant	
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	APRILIA WORLD SERVICE BV	Respondent	

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(Transcript of the Handed Down Judgment of
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)
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Mr. Ian Mill QC and Mr. Vernon Flynn (instructed by Messrs Lee and Thompson) for the Appellants
Mr.  Andrew Sutcliffe QC(instructed by CMS Cameron McKenna) for the Respondents

Hearing dates : 27th, 28th 29th November 2001
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Judgment
As Approved by the Court

Crown Copyright ©
The Vice-Chancellor  : 

This is the judgment of the Court
Introduction
1.	On 24th February 1998 the Spice Girls, a well-known group of girl singers then consisting of five members, embarked on a tour of Europe.   The claimant (“SGL”), a company owned by them and through which their services were exploited, had instructed agents (“KLP”) to obtain sponsors for the tour.  The agents made contact with Aprilia Spa (“Aprilia”), a company incorporated in Italy and a manufacturer of motorcycles.   On 4th March 1998 heads of agreement were reached between SGL and Aprilia for the latter to sponsor the Spice Girls tour of Europe, due to end on 29th May 1998, and, on a more limited basis, the tour of the United States then planned for the period from 15th June to 31st August 1998.   The sponsorship was announced on 8th March 1998.   
2.	The terms of the heads of agreement were substantially performed by all parties until given contractual effect by an agreement in writing dated 6th May 1998 (“the Agreement”) made between SGL and Aprilia World Service BV (“AWS”), a member of the Aprilia Group incorporated in the Netherlands.     In the period between the conclusion of the heads of agreement and the execution of the Agreement two significant events occurred.   The first is a fax sent on 30th March 1998 by KLP to Aprilia in which confirmation was given of the commitment of the Spice Girls to their involvement with Aprilia.   The second is the filming in London on 4th May 1998 of a TV commercial (“the commercial shoot”) in which all five Spice Girls participated which was designed to implant in the minds of the public an association between the products of Aprilia, primarily air-cooled motor scooters, and the Spice Girls.
3.	The Agreement signed on 6th May 1998 described the Spice Girls as “currently consisting” of the five named members.    It provided for AWS to pay £400,000 by three instalments, two of which had already been paid, and £112,500 as a non-returnable advance against royalties payable in respect of motor scooters manufactured and sold by the Aprilia Group bearing the name Sonic Spice.  On 31st May 1998 it was announced that Ms Geri Halliwell, professionally known as Ginger Spice, had left the Spice Girls on 27th May 1998.    
4.	In a letter dated 8th June 1998 AWS informed SGL that it did not consider the departure of Ms Halliwell to constitute a breach of contract.    Nevertheless AWS refused to pay either the third instalment or the advance against royalties.   These proceedings were commenced by SGL on 22nd October 1998.  SGL claimed payment of £212,500 being the balance of the third instalment and the non-returnable advance together with VAT and interest.   The original defence and counterclaim of AWS relied on an express or implied representation and/or implied term or collateral warranty that SGL was unaware of any matter which might give AWS reason to believe that the Spice Girls might cease to consist of all five members during the minimum term of the Agreement.   It was contended that SGL was aware of such matter and that AWS would give particulars thereof after discovery in the action.
5.	In October 1999 Ms Geri Halliwell published her autobiography entitled “If Only”.   She disclosed that on both 3rd and 9th March 1998 she had informed the other four members of the Spice Girls that she intended to leave the Spice Girls at the end of the US tour in September 1998.   She also revealed that at a meeting at Wembley Arena on 25th April 1998 she informed both the other members of the Spice Girls and their solicitor/manager of her intention.   
6.	In the light of these revelations AWS amended its defence and counterclaim so as to extend and particularise its contention that the Agreement had been induced by misrepresentation.    AWS relied on the fax dated 30th March 1998, the description of the group in the Agreement as “currently consisting” of the five members, the participation of all the Spice Girls in the commercial shoot and the revelations in Ms Halliwell’s autobiography with regard to the communication of her intentions to the other members of the group on 3rd and 9th March and 25th April 1998.
7.	The action was tried by Arden J from 7th to 14th February 2000.   She gave judgment on 24th February 2000.   She concluded that any claim for breach of contract was precluded by the letter from AWS of 8th June 1998.   There is no appeal in respect of that conclusion.   The judge also decided that SGL was liable to AWS under s.2(1) Misrepresentation Act 1967 in respect only of misrepresentations by conduct arising from the participation of all five Spice Girls in the commercial shoot on 4th May 1998 and their approval of promotional material depicting the five Spice Girls intended for use in connection with Aprilia’s scooters at any time during the period of the Agreement.   She rejected all the other misrepresentations on which AWS relied.    Both SGL and AWS contend that those decisions are wrong.    The judge adjourned the action for further argument on issues relating to the amount of the liability of SGL to AWS and the effect of that liability on the claim of SGL against AWS.
8.	In circumstances to which we will refer in greater detail later the conclusions of Arden J on those issues are contained in two further judgments given on 12th June and 20th July 2000.   In summary she concluded that:
(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.
9.	Arden J dealt with the costs of the proceedings on 20th July 2000.  Though AWS had been successful she ordered it to pay 10% of its own and SGL’s costs on the ground that AWS had acted unreasonably in pursuing its claim in contract and one form of express representation.   AWS contends that the judge erred in principle and had no good reason for making such an order against a successful party.
10.	Accordingly the issues for our determination are:
(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.
Is SGL liable to AWS under s.2(1) Misrepresentation Act 1967?
The Facts
11.	To explain the submissions of the parties and our conclusions it is necessary to describe the factual background in much greater detail.   Nevertheless it is convenient at the outset to set out the terms of s.2(1) and to make some observations on it at this stage.    S.2(1) provides:
 “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.”
12.	Thus liability depends on four elements: (a) a misrepresentation made by one person to another, (b) a subsequent contract between them, (c) consequential loss and (d) an absence, at the time the contract was made, of a belief or reasonable grounds therefor in the truth of the facts represented.   If all those conditions are satisfied then the representor is liable to the representee for such  damages as would be payable if the misrepresentation had been made fraudulently.    The relevant contract is the Agreement signed on 6th May 1998.   If any  misrepresentation for which AWS contends is made out it is not contended that SGL could or did establish the relevant belief or grounds therefor.  Nor, subject to the second issue, is it disputed that AWS sustained loss.   Thus the liability of SGL depends, largely, on whether at any time before the Agreement was signed a misrepresentation was made by SGL to AWS.
13.	It is convenient to start with a description of those primarily involved.   There were five Spice Girls called Geri Halliwell (Ginger Spice), Emma Bunton (Baby Spice), Victoria Adams (Posh Spice), Melanie Brown (Scary Spice) and Melanie Chisholm (Sporty Spice).   Each had her own service company which was by contract exclusively entitled to her services.  Each of the Spice Girls held 20% of the shares in SGL.   Each service company entered into an agreement with SGL whereby it lent the services of the relevant Spice Girl to SGL.   In addition each Spice Girl assigned her interest in various trademarks to SGL.   The directors of SGL were the five Spice Girls and Ms Nancy Phillips, the administrator.
14.	By early 1998 the Spice Girls had become one of the most successful groups of girl singers.  They had already had two successful albums and enjoyed a worldwide reputation.   Arden J accepted unchallenged evidence that
 “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.   
15.	Mr Thompson engaged the services of KLP (Scotland) Ltd (“KLP”) to obtain sponsors for the tours of Europe, the USA and Canada and possibly Japan to be undertaken by the Spice Girls in 1998.  One of their functions was to procure new and additional corporate sponsors and “official suppliers” for that tour.   The relevant individuals in KLP were Mr Paul Morrison, a director, and Mr Adrian Pettett who, subject to Mr Morrison’s supervision, was responsible for organising the sponsorship requirements of the Spice Girls in relation to the proposed tour.
16.	Aprilia is a substantial company incorporated in Italy.  It or other members of the group of which it is the parent company manufacture a wide range of motorcycles, mopeds and scooters.  Its products are sold in Europe, the United States and elsewhere.    AWS is a company in the Aprilia Group and distributes Aprilia products outside Italy.   At the Bologna Motor Show in December 1997 Aprilia launched a new range of 50cc scooters aimed at the teenage market called “Sonic scooters”.   The product came in two versions, air-cooled and liquid-cooled, of which the former was aimed at girls and the latter at boys in the age range of 14 to 17.   Originally it had been intended to market Sonic scooters in connection with hot spicy chilli peppers.  By January 1998 Aprilia considered that the marketing of the air-cooled version would be assisted by the endorsement of the Spice Girls and an advertising campaign in which both the Spice Girls and the air-cooled Sonic scooter featured.
17.	The manager responsible in Aprilia for the advertising and communications side of the Sonic project was Ms Rosanna Fuzzi.   The head of the communications department was Sr Ferro.   The director responsible for Marketing, Product Development and Product Management and head of the Marketing Department was Sr Roberto Brovazzo who was kept informed of the progress of the Sonic project by Ms Fuzzi and Sr Ferro.   
18.	On 11th February 1998 Ms Fuzzi met Mr Morrison and Mr Pettett in London.   There were further meetings both in London and the offices of Aprilia in Noale, Italy.   In consequence of these meetings heads of agreement were reached on 4th March 1998.   It is not suggested that the heads of agreement or the subsequent actions of the parties thereunder gave rise to any legal obligations on either side but they provide the background for what followed.   Aprilia was to pay or provide £450,000 sponsorship fee, £150,000 guaranteed royalty fee, 10% royalty on each Spice Sonic scooter sold, 20 Sonic scooters and 10 moto bikes.  In return Aprilia was to receive publicity as “the Official Sponsor of SpiceWorld”, extensive commercial rights for 12 months in respect of the tour in Europe and more limited rights in the US and, if the tour was extended to that country, in Japan.
19.	Shortly thereafter promotional material featuring the Spice Girls and the  scooters was approved by SGL.   This and later such material produced by SGL comprised logos, images and designs which
 “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.
20.	The Spice Girls European tour opened with a concert in Dublin on 24th February 1998.   On the day after the heads of agreement were reached the Spice Girls moved to Italy and opened with a show in Bologna.   On 8th March 1998 the official sponsorship by Aprilia was publicly proclaimed.
21.	On 9th March 1998 the Spice Girls performed at a concert in Milan.  Shortly before they went on stage Ms Halliwell told the others that she had had enough and definitely wanted to leave in September.   This was a repetition of a similar statement made six days earlier in a coach taking the Spice Girls from Frankfurt Airport to their hotel.   The findings of Arden J in respect of these conversations (J1 para 27) were
 “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.
22.	By 16th March 1998 the tour had arrived in Madrid, having visited Marseilles and Barcelona on the way, where a photocall was scheduled to take place.  It was not a success.   Nor was a subsequent photocall in Munich on 26th March.  Ms Fuzzi expressed her concern to Mr Morrison and Mr Pettett who, in consequence, travelled to Arnhem.   There he spoke to the Spice Girls and the tour manager, Mr Jones.   Ms Halliwell was treated by the other Spice Girls as the one responsible for sponsorships.   In her evidence she accepted that, had there been a problem she would have tried to smooth it over. 
23.	On 30th March 1998 Mr Pettett, in the light of what he had been told by the Spice Girls and by Mr Jones, sent the fax of that date to Ms Fuzzi in these terms:
“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.”
24.	Arden J accepted the evidence of Ms Fuzzi that she relied on the assurances in the fax to make the arrangements for the commercial shoot in London then scheduled to take place on 25th/26th April.    She pointed out that no copy of the fax was sent to SGL but that there was no suggestion that its contents would have surprised any of the Spice Girls.   She found that (J1 para 31)
 “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.
25.	However Arden J also concluded at a later stage of her first judgment (J1 para 94) that the fax
 “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.
26.	This conclusion is challenged by AWS.   It was not raised in its original respondent’s notice.   We gave permission to amend notwithstanding the opposition of SGL.   The issue is one of construction of a single document of some importance, and was raised at the trial.   The fact that it was not raised earlier on the appeal did not appear to us to cause injustice.   Counsel for SGL did not suggest that he was taken by surprise and did not ask for an adjournment so that he might be better prepared to deal with it. 
27.	In our view the judge took too narrow a view of the meaning and effect of the fax.  Of course it was written in response to Ms Fuzzi’s concern arising from the photocalls in Madrid and Munich.  But those photocalls were not an end in themselves.  They were a part, no doubt an important one, in the entire commercial relationship between the Spice Girls and Aprilia.   This is recognised by the fact recorded in the first sentence that the discussions with the Spice Girls over the weekend had concerned “their involvement with Aprilia”.   It is to that involvement that KLP referred, as recorded in the third sentence, when confirming “that the band are totally committed to their involvement with Aprilia....all involved want to make sure that this arrangement works very well for you.”   The point is reiterated in the third paragraph by the statement that “The band....are committed to ensuring that all the activities and TV ad production works well and positively for Aprilia".  Similar statements are made in the fourth paragraph where Mr Pettett wrote “they are fully committed to make it as powerful as possible for Aprilia”.   In our view all these statements are positive assurances of the commitment of each Spice Girl to all the matters referred to in the heads of agreement and then in the process of being incorporated into the Agreement.
28.	That is the context in which to consider the meaning of the penultimate sentence, namely “We are confident that over the period of the agreement, Aprilia will achieve maximum value and results from this association with the Spice Girls”.  It is accepted that it was within the authority of KLP to make all the representations contained in the fax on behalf of SGL.  We see no reason to regard this sentence alone as expressing merely a personal view of KLP.    In any event it demonstrates that when, earlier in the fax, reference is made to the Spice Girls involvement it covers the whole of the period of the intended agreement.
29.	We consider that the fax of 30th March 1998 contained express representations by SGL as to the commitment of each of the Spice Girls to the future implementation of all the terms of the heads of agreement as subsequently incorporated into the formal agreement to be concluded between SGL and Aprilia.   That statement was untrue because SGL knew that the term of the agreement for which provision was made in the heads of agreement was 12 months and that there was a risk that Ms Halliwell would leave after only six of them.   The fact that SGL did not know of the terms of the fax and the fact that KLP did not know of the risk are not material to the question whether the fax contained a misrepresentation.    The unqualified assurance as to the commitment of each Spice Girl to the entire commercial sponsorship described in the heads of agreement contained within it the implied representation that SGL did not know of any matter which might falsify the assurance.    That was a representation of fact and it was false.
30.	The Spice Girls returned to London on 13th April 1998.   Ms Halliwell then arranged for the meeting to which the judge referred in the passage from her judgment we have quoted in paragraph 21 above.   The meeting was arranged for 25th April 1998.   This was the second day of the proposed shoot of the TV advertisement which had been set up by Ms Fuzzi after the availability of the Spice Girls had been confirmed to her by KLP on 16th April.   In the event the commercial shoot did not take place that day because Aprilia failed to pay the first instalment of £150,000 until 21st April 1998.  By the time the payment was received it was too late to reinstate the arrangements.  
31.	The meeting took place in the Spice Girls dressing room at Wembley on 25th April 1998.   It was attended by each of the Spice Girls, the other director of SGL, Ms Phillips, Mr Thompson and the group’s accountant Mr Bradbrook.   No note of the meeting was taken by any of those present.   It is unnecessary to refer to the events of the meeting in any detail.  The findings of Arden J include the following:
“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)
32.	Since the 24th March 1998 there had been circulating a draft of the Agreement.   A further draft was circulated on 30th April 1998.   The Agreement was eventually signed on 6th May 1998.   In each of the drafts and in the Agreement itself, which takes the form of a letter from AWS to SGL, it is stated that “You [SGL] are entitled to the product endorsement rights of the group of individuals performing under the professional name “Spice Girls” (currently comprising...)”
33.	Arden J concluded (J1 para 109) that
“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.
34.	On 4th May 1998 the second instalment of £150,000 was paid by AWS to SGL.    On the same day the commercial shoot, postponed from 25th April, took place in London and was attended by all five Spice Girls.   Arden J concluded (J1 para 112)
 “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.”
35.	The Agreement was signed on 6th May 1998. 	The opening passage to which we have referred in paragraph 32 above set out the real and professional names of the five Spice Girls who jointly and individually were thereafter referred to as the group.  The Agreement continued:
“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.”
36.	The First Schedule contained the dates and venues of the concerts undertaken or to be undertaken between 10th March and 28th May 1998.  By paragraph 6 it was agreed that the tour might vary provided that certain minimum requirements were met.   In summary the minimum requirements necessitated 16 concerts in UK or Eire and 20 concerts elsewhere in Europe at venues with a seating capacity of at least 8000 in which the Spice Girls were the main attraction or headline act.
37.	Paragraph 5 provided that AWS should pay SGL a fee of £400,000 (£50,000 had been deducted for the cancellation costs of the commercial shoot not held on 25th April) by instalments of £150,000 each on 1st April and 4th May and a final instalment of £100,000 by 31st August.   In addition AWS was to deliver 20 Sonic scooters and 10 moto bikes.
38.	Paragraph 8, so far as material, provided that 
“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).”

39.	Paragraph 10 conferred rights on AWS during the term as defined including the rights to sponsorship identification, in-venue broadcasting, in-venue promotional schemes, VIP lounge advertising, attendance of the Spice Girls at “meet and greets”, attendance of the Spice Girls at four press conferences or photocalls, to mention the sponsorship of AWS in its sales literature for the Sonic scooter (para 10.8), attendance of the Spice Girls in London on 4th May for the filming of a TV commercial for the Sonic scooter for use in 7 specified European countries (para 10.9) and attendance in Stockholm on 19th or 20th May for a similar purpose (para 10.10).   Paragraph 10 concluded
 “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.”
40.	Paragraph 11 conferred on AWS limited rights in respect of the tour of the US which was planned but not guaranteed and yet more limited rights in respect of any concerts in Japan which might take place in 1998.  
41.	So far as material paragraph 13 provided:
 “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).”
42.	It will be noted that though the term of the Agreement is defined as ending on 29th May 1998 some of the rights thereby conferred are exercisable thereafter.   Thus the rights conferred by paragraph 10.8 to 10.10 (to mention the sponsorship of AWS in its sales literature for the Sonic scooter and to use in the 7 specified European countries the TV commercial filmed in London on 4th May and Stockholm on 19th or 20th May) were exercisable for the full period of 12 months provided for in the heads of agreement, namely until 4th March 1999.   Likewise the right to make and sell “Spice Sonic” scooters continued until at least 31st March 1999. 
43.	Arden J concluded (J1 para 114)
 “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.”
44.	In fact Ms Halliwell left before she had said that she would.  She left on 27th May 1998, rather than in September as previously indicated, thereby missing two concerts in Oslo and the whole of the tour of the US.  Her departure was reported in the press on 31st May 1998 and confirmed to AWS by Mr Pettett on 1st June 1998.  He suggested that AWS could and should continue to use the likeness of Ms Halliwell.   Ms Fuzzi considered, and the judge agreed, that it was impractical to restyle both the Spice Sonic scooter and its promotional material.   Accordingly, though ready for manufacture, the Spice Sonic scooter was never marketed in the way intended  or produced in the numbers originally contemplated.
45.	In the subsequent negotiations between the parties, AWS abandoned any suggestion that Ms Halliwell’s departure constituted a breach of contract.   The US tour went ahead with only four Spice Girls but, from the point of view of AWS, was not a success.
46.	In summary, Arden J found that:
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.
47.	SGL contends that the judge was wrong in a number of respects.   In summary it contends that (a) there was no misrepresentation by conduct as found by the judge; (b) even if there was a representation it was only that SGL had no ground to believe that any of the Spice Girls would leave before September 1998 and that was true; in any event (c) AWS did not understand the representation in the sense alleged and (d) was not induced by any alleged misrepresentation to enter into the Agreement.
48.	The primary submission of AWS is that the judge took too narrow a view of the extent of the representations and their falsity.   In that respect AWS relies on the course of the negotiations as a whole including the events, as summarised, of 9th March, 27th March, 25th April and 4th May 1998 as well as the promotional material, the fax of 30th March 1998 and the terms of the Agreement and the earlier drafts.    It is submitted that these events gave rise to a series of continuing representations by SGL which were either false when made or required correction in the light of subsequently acquired knowledge.   It is submitted that such misrepresentations were intended to and did induce AWS to enter into the Agreement and were causative of the loss for which AWS claims.
49.	Counsel for SGL suggested that the case advanced by counsel for AWS on this appeal was not the same as that advanced before the judge and was not foreshadowed in either the respondent’s notice or the written arguments for AWS.   We heard argument on the question whether the submissions made to us by counsel for AWS were open to him.  We concluded that, except for the contention that the fax should be given a wider meaning than that accepted by the judge, for which we gave permission to amend the respondent’s notice (para 26), it was.   We do not propose to take up time on this issue.   We have had regard to the topics dealt with in detail in the judgment of Arden J, the skeleton arguments used at the trial and this appeal and respondent’s notices.   The argument on an appeal is seldom the same as that advanced before the court below.   But we have not discerned any new facts or matters even if in some respects the conclusions to be drawn from the facts have been put differently to us.
50.	In the light of our ruling counsel for SGL replied on both the case he opened on appeal and on the argument in response advanced by counsel for AWS.   In view of the nature of the rival contentions it is convenient to consider first the arguments for AWS in favour of the wider view it submits the judge should have accepted.   If we uphold it then there is no need to consider the narrower view taken by the judge and challenged by counsel for SGL.
The Representation
51.	At the outset it is necessary to reiterate certain well-established principles.   First, though the representation must be one of fact representations as to the future or of opinion frequently contain implied representations with regard to the present or to the knowledge of the representor.  Spencer Bower, Turner and Handley on Actionable Misrepresentation 4th Ed. paras 26 to 28.   Second, a representation once made is likely to have continuing effect.   So if made for the purpose of an intended transaction it will continue until the transaction is completed or abandoned or the representation ceases to be operative on the mind of the representee.  With v O’Flanagan [1936] 1 Ch. 575, 585. Spencer Bower, Turner and Handley 4th Ed. paras 61 and 62.    Third, if at a time when it is continuing the representor discovers that the representation was false when made or has become false since he should correct it.   The principle is most clearly expounded in the judgment of Romer LJ in With v O’Flanagan [1936] 1 Ch. 575, 586 where he said
 “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.
52.	The representation for which AWS has contended ever since it amended its defence and counterclaim in December 1999 is that 
 “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”.
53.	In our view the judge took too limited a view of the effect of the course of the negotiations as a whole and the specific documents and conduct relied on.  We have already described the course of negotiations in some detail.   Accordingly at this stage it is sufficient to highlight the most salient facts and events.   
54.	First, shortly after the conclusion of the heads of agreement on 4th March 1998 SGL supplied the logos, images and designs depicting each of the Spice Girls which were to be used by Aprilia in the promotion of the scooters.   It must have been quite obvious from all such material and the judge’s finding quoted in paragraph 19 above that the same five girls were required for all of them.    AWS was entitled to use them throughout the period of 12 months for which the heads of agreement and, subsequently, paragraphs 10.8 – 10.10 and 13 of the Agreement provided.    As we understand it such material was consistently used thereafter so as to generate a connection in the public eye between the Spice Girls and the scooters.   In our view the representation contended for is necessarily implicit in that conduct from early March 1998 onwards.   In, seemingly, connecting such material only to the commercial shoot on 4th May 1998, in our view, the judge seriously understated its significance.
55.	Second, the events of 9th March 1998 were such as to bring to the attention of four of the other five directors of SGL the fact that Ms Halliwell had declared her intention to leave in September 1998.    It follows that the representation implicit in the approval and use of the promotional material was false when made, or to the extent it was made before 9th March, became false on 9th March 1998.   The fact that the other Spice Girls mistakenly as it turned out did not take Ms Halliwell seriously is immaterial.  
56.	 Third, the subsequent events merely served to affirm, not correct, the initial representation and its falsity.  Thus, the photocalls in Madrid, Munich and Paris held on or between 16th and 26th March may have been unsatisfactory to Ms Fuzzi but they took place and their effect was no different to the other promotional material.   There were five Spice Girls each with her “distinct and individual image, style and personality”.
57.	Fourth, the fax of 30th March 1998 was sent by Mr Pettett in the light of the information given to him by Ms Halliwell and the tour manager at Arnhem on 27th March 1998.   For the reasons we have already explained (paragraph 27 above) we do not agree with the judge’s narrow construction of that document.   In our view it was an express assurance that each Spice Girl was fully committed to all the matters contained in the heads of agreement and in the draft agreement then circulating for the full term of 12 months.   There is implicit in such assurance the representation for which AWS contends.   That representation was false when made because of the declaration of intention made by Ms Halliwell on 9th March 1998 and never qualified or withdrawn.   The fact that Mr Pettett did not consider that he was making such a representation is irrelevant.    Greenwood v Leather Shod Wheel Co. [1900] 1 Ch 421, 434.    Knowledge of the fax is to be attributed to SGL because KLP was its agent.  Krakowski v Eurolink Properties Ltd [1995] 183 CLR 563, 582-4.
58.	Fifth, the events of the meeting held at Wembley on 25th April 1998 demonstrated quite conclusively the falsity of all the representations previously made.   Whichever formulation of the principle enunciated in With v O’Flanagan is adopted and whatever view is taken of the declaration made by Ms Halliwell on 9th March 1998 it is quite clear that SGL could no longer deal with AWS on the previous basis without disclosing Ms Halliwell’s expressed intention.   Certainly this was the view of Mr Morrison.  [Day 2 page 45 lines 12-19] 
59.	Sixth, it is clear that far from correcting the previous misrepresentations SGL continued and affirmed them.   There was the draft agreement originally issued on 24th March and reissued on 30th April.   No doubt the phrase “currently comprising” points primarily to the present (whether at the time of the draft or as of the imminent time when the Agreement was executed) and in that limited sense was true.   But to our minds, in the context of the surrounding circumstances, it was concerned with an agreement which would continue into the future, in much the same sense as the conduct of SGL in approving the promotional material or of the Spice Girls in participating in the commercial shoot, in each case, for future use.    In these two latter senses there was implicit in the representation derived from the conduct of SGL in circulating the draft agreement with the phrase "currently comprising" the representation for which AWS contends.  It follows that, in that context, to say that the Spice Girls currently comprised the five named individuals without going on to say that one of them was going to leave within the period of the Agreement was false when made.  What was omitted rendered that which was actually stated false or misleading in the context in which it was made:  see Chitty on Contracts, 1999 28th Ed, vol 1, para 6-016. 
60.	Seventh, as the judge held, participation in the commercial shoot necessarily carried the same implication and was likewise false.   It did nothing to correct the previous misrepresentations, indeed it gave them additional force.
61.	SGL contended that the conduct relied on by Arden J could not give rise to the misrepresentation she found.  Counsel pointed out that both the approval of the promotional material and participation in the commercial shoot on 4th May were required by the terms of the Agreement.   Reliance was placed on the fact that Ms Halliwell did not appreciate that the deal with AWS could not be terminated before March 1999.   It was also suggested that the description of the group as “currently comprising” showed that there was no representation as to their future composition.
62.	We do not accept those submissions.   The fact that the Spice Girls were doing what the, as yet unsigned, Agreement required appears to us to support, not negate, a conclusion that the representations alleged are to be implied.    The knowledge of Ms Halliwell as to the terms of the prospective Agreement is irrelevant because whether any and if so what representation is to be implied is to be determined objectively in the light of what was said and done.   For the reasons we have already given we consider that the description “currently comprising” supports the conclusions at which we have arrived.
63.	Whilst it is necessary to give each episode separate consideration it is also necessary to have regard to their cumulative effect.  This is not a case of an isolated representation made at an early stage of ongoing negotiations.    It is the case of a series of continuing representations made throughout two months’ negotiations leading to the Agreement.   Later representations gave added force to the earlier ones;  earlier representations gave focus to the later ones.   It is in this context, not the much more limited one the judge adopted, that the submissions for SGL as to inducement and reliance must be considered.
Inducement and Reliance
64.	S.2(1) Misrepresentation Act 1967 provides that
 “..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.
65.	Arden J relied on Smith v Chadwick (1884) 9 AC 187, 196 for the proposition that inducement and reliance may be inferred from the purpose of the representor, the nature of the statement and the fact that the contract was entered into.   She referred to the evidence of both Ms Fuzzi and Sr Brovazzo to the effect that AWS would not have entered into the Agreement if they had known that Ms Halliwell had declared an existing intention to leave in September 1998.  She pointed out that unless AWS did enter into the Agreement it could not obtain the benefit of the promotional material or the commercial shoot.   We have quoted her conclusion in paragraph 43 above.
66.	These conclusions were challenged by SGL on the grounds that it had not been established that AWS understood the representations in the sense contended for by AWS (E.A.Grimstead & Son Ltd v McGarrigan Court of Appeal 27th October 1999 unreported), or that SGL intended to induce AWS to sign the Agreement in reliance on representations so understood (Nautamix BV v Jenkins of Retford [1975] FSR 385 a case in fraud).    SGL submits that there was no evidence that AWS relied on the representations in that sense;  in particular AWS relied on the commercial success of the Spice Girls to keep them together.   SGL contends that there was no evidence from any individual in AWS to the effect that AWS would have withdrawn from the negotiations had the representation not been made.   It is suggested that AWS was committed too far to justify any implication of withdrawal.
67.	We do not accept these submissions.   The representation bears the meaning in which it would be reasonably understood by the representee, that is to say, the natural and ordinary meaning which would be conveyed to a normal person.   Akerhielm v De Mare [1959] AC 789.   In the circumstances no one at AWS gave any consideration at the time to what representations were to be implied into the statements and conduct of the Spice Girls.    But this is not a case in which the representations were ambiguous, so that the problem exemplified in E.A.Grimstead & Son Ltd v McGarrigan does not arise.    There is no reason to think that AWS did not understand the representations in the sense alleged.   The judge so inferred with regard to approval of promotional material and participation in the commercial shoot.   We would do likewise in relation to the other representations to which we have referred.
68.	It is not disputed that the various misrepresentations to which we have referred were made intentionally in the sense that the express statements and conduct in which they were implicit, if not express, were not accidental.   In addition they were made in the context of a commercial relationship arising from heads of agreement already concluded which both parties hoped would reach fruition in a concluded and fully performed agreement.    The various representations we have found to have been made were all such as to induce a normal person to act as AWS did.   In those circumstances any requisite intention on the part of the representor will be presumed.  Smith v Chadwick (ibid) p.190.    In particular we cannot accept that SGL did not intend AWS to do exactly as it did, namely sign the Agreement, when it, SGL, failed to disclose to AWS immediately after the meeting on 25th April 1998 that Ms Halliwell definitely intended to leave in September 1998.   Accordingly, in our view the conditions to which Oliver J referred in Nautamix BV v Jenkins of Retford were satisfied, whatever may be the relevance of the intention of the representor in a case outside fraud but within S2(1). 
69.	It remains to consider whether the misrepresentations we have found to have been made did induce AWS to sign the Agreement.   SGL contends that no witness for AWS was called to give evidence to that effect.  It is true that both Ms Fuzzi and Sr Brovazzo indicated that AWS would not have entered into the Agreement if they had known that Ms Halliwell would leave in September 1998 but that, counsel contended, is not the same as testifying that AWS entered into the contract in reliance on the representation.  Moreover, SGL contended, the evidence of Ms Fuzzi appeared to be that AWS was so far committed to the sponsorship deal by 4th May 1998 that it would not have withdrawn even if it had known of Ms Halliwell’s intentions.
70.	It is sufficient that the misrepresentation is a material inducement, it does not have to be the only one.   In Smith v Chadwick (ibid.) page 196 Lord Blackburn said:
 “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.
71.	Arden J did draw the inference that if the representations contained in the fax of 30th March 1998 had not been made Aprilia would have pulled out at that stage.  We have already quoted her finding to that effect in paragraph 24 above.   As we have pointed out that finding is significant because it recognises the importance of the views of Ms Fuzzi to any decision AWS was likely to make.  It is true that over the next five weeks AWS paid £300,000 towards the fee due to SGL and took further steps to put the Spice Sonic scooter into production.  Even so the judge concluded that the representation arising from participation in the commercial shoot on 4th May 1998 was a material inducement to AWS to sign the Agreement two days later.
72.	In our view the judge was entitled to conclude that the representations, express or implied, in both the fax of 30th March 1998, which continued, and participation in the commercial shoot on 4th May 1998 were material inducements to AWS to enter into the Agreement on 6th May 1998.   Signature to the Agreement on 6th May 1998 bound AWS to pay to SGL £100,000 as the third instalment of the fee and £112,500 as the non-returnable advance against royalties on the Spice Sonic scooters.  It is inconceivable, and Ms Fuzzi did not say, that AWS would have entered into those commitments had it been told of Ms Halliwell’s declared intention to leave in September 1998.   It might have entered into some other agreement with a view to cutting its losses but that was not alleged by SGL and is inconsistent with the evidence of Ms Fuzzi [Day 2 pages 30 and 31]. 
73.	For all these reasons, while we consider that the judge took too narrow a view as to what representations were made and when, we do not accept the submissions for SGL that s.2(1) Misrepresentation Act 1967 is inapplicable.  Subject to proof of damage, we conclude that SGL is liable to AWS under that provision.   The conclusion of Arden J that AWS sustained consequential damage of £39,669, being the cost of the scooters and moto bikes supplied pursuant to the Agreement, may depend on our conclusion on the issue whether in assessing the damages to which AWS is entitled credit should be given for any benefit derived therefrom and if so how much.  To that issue we now turn.
Should AWS give credit for any and, if so, what benefit?
74.	SGL contends that AWS has failed to prove any loss at all.   It does so on the ground that, although the judge found that AWS had established a loss of £39,699 (in addition to its right on the ground of circuity to defeat SGL’s claim to £100,000 in respect of the third instalment and £112,500 in respect of the guaranteed royalties), it was nevertheless obliged to give credit for profits earned by it as a distributor of Aprilia scooters outside Italy.   SGL’s case is that either it is likely, on the judge’s findings, that AWS’s profits as a distributor on sales of Aprilia’s scooters enhanced by its connection with the Spice Girls would exceed the total damages awarded to it by Arden J, or that because AWS’s disclosure and evidence on this issue were inadequate and the judge said that she was unable to make any finding as to the level of such profits, AWS’s counterclaim should simply have been dismissed for failure to prove its loss. SGL says that the only reason why the judge did not come to that conclusion herself is that she wrongly held that AWS’s profits as a distributor were not to be brought into account. Counsel for SGL therefore submits that even liability cannot be finally established, since under section 2(1) proof of loss is part of the essence of the statutory tort (“and as a result thereof he has suffered loss”).
75.	AWS contends that the judge was right to conclude that it had no obligation to bring into account any profits which it might have earned as a distributor of Aprilia’s scooters outside Italy.   In any event, it denies that it earned any.   Sales of Spice Sonic scooters were a flop; and sales of the basic Sonic scooters were not enhanced by the Spice Girls connection.   As for any failure of disclosure or evidence, which is denied, counsel for AWS submits that the inability of the judge to make the relevant finding was the fault of SGL, not AWS.  
76.	In her second judgment (J2 paras 52 to 55), Arden J found that there had been no marketing strategy for the basic Sonic model distinct from that which involved the Spice Girls sponsorship and that its sales, at any rate in Italy, had been enhanced by the association with the Spice Girls, by as much as 2,500.   In its respondent’s notice, para 2(b), AWS contends that the judge should have held that there was no evidence of such enhanced sales, indeed such evidence as there was is to the contrary.   In its skeleton argument AWS submits that there was indeed a separate marketing strategy for basic Sonic scooters. 
77.	The question of damages is complicated by issues not only of law and fact, but also of practice and procedure and the proper conduct of litigation.   Accordingly it is necessary to set out in considerable detail the material which has formed the subject matter of the argument.	We begin by referring to certain basic facts about the production and marketing of scooters by the Aprilia group which were either proved before Arden J and are not or no longer in dispute or which in any event have been presented to this court on the basis that they are not in dispute.
Aprilia’s scooters
78.	Aprilia, the parent of AWS, is the manufacturer of a range of scooters.   Three kinds of scooters are more or less relevant to the litigation.   First, a basic range of air-cooled Sonic scooters had been designed for marketing to young (14 to 15 year old) “fun loving” teenage girls.   Production of this range (“standard Sonic”) had commenced in September 1997 or at any rate before the heads of agreement were concluded on 4th March 1998.  Secondly, Aprilia planned a limited edition of the standard Sonic scooter to be called the “Spice Sonic”. This range was wholly dependent on the contract with SGL, for it assumed the willingness of SGL to grant to Aprilia or its nominee the sponsorship and endorsement rights for which provision was made in both the heads of agreement and, later, the Agreement.    It was intended that the Spice Sonic scooter would incorporate a Spice sticker next to the Sonic logo.   The range was to be produced in two special fashion colours, light blue and orange, which were associated with the public image of Baby Spice (Ms Bunton) and Ginger Spice (Ms Halliwell).   Production of the Spice Sonic scooter did not commence until June 1998, namely after it was known to all concerned that Ms Halliwell had left the Spice Girls.   It sold for a premium price.   It had been estimated at one time that about 10,000 Spice Sonics would be sold, although in the event the range was a failure. The TV commercial shot on 4th May 1998 and designed to promote it was never used. Production ceased in September (or at latest in November) 1998.    Only some 2,000 (or at most 3,000) Spice Sonic scooters were made, of which 1,004 were sold in Italy, at least 546 outside Italy (mostly in Europe), 373 were converted into standard Sonic form and sold as such, and 160 were held in stock unsold.        
79.	The standard Sonic range was also relevant for the purposes of the Agreement because, although clauses 8 and 13 of the contract were specifically aimed at the Spice Sonic range, clauses 3 and 10.8 to 10.10 extended use of the Spice Girls’ endorsement to the standard Sonic range. As Arden J said (J2 para 46) –
 “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.”
80.	The third range of scooters was a basic liquid-cooled Sonic scooter designed for and marketed to young men, not girls.  It is common ground that sales of this range (“the liquid-cooled Sonic scooter”) were not promoted or advanced by the Spice Girls’ endorsement. The judge said (J2 para 52) –

“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.
AWS’s Counterclaim
81.	It is also necessary to consider the structure of the counterclaim advanced by AWS.    The claim for damages is set out in a schedule, described by Arden J as schedule 1, to the defence and counterclaim.    The various items and the conclusions of Arden J in respect of them may be summarised as follows:
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.   
82.	SGL, in seeking permission to appeal from the second judgment, had submitted to the judge that she had overlooked the fact that it was not in dispute that AWS and not Aprilia had been the distributor of sales of both Spice Sonic and standard Sonic scooters outside Italy.   This led to Arden J reconsidering her second judgment and delivering a third judgment after further argument. In her third judgment she concluded that AWS did not have to give any further credit.  That decision is the subject matter of the appeal. Before considering the submissions of the parties, it is necessary to refer to the three judgments of Arden J. so as to ascertain the way the arguments developed in the court below.
The course of the proceedings before trial
83.	SGL’s specially endorsed writ was issued on 22nd October 1998. AWL’s defence and counterclaim followed on 26th November 1998. It pleaded its damages in schedule 1, essentially in the form which survived to trial, save that the numbers of Spice Sonic scooters for the purposes of item 3 changed somewhat during the course of the litigation and during the trial itself. The effect of these changes was to reduce the total counterclaim from an originally pleaded figure of £838,173 to the final figure considered by the judge in the overall sum of £434,564. The schedule showed that the counterclaim of AWS assumed that it was both entitled to bring into account the manufacturing and marketing costs of the Spice Sonic scooters and obliged to give credit for the profits made on their sale. It also demonstrated that both debits and credits in this respect were limited to the Spice Sonic range and did not extend to the standard Sonic range.
84.	SGL served its reply and defence to counterclaim on 9th December 1998. The question of AWS’s pleaded loss and damage was addressed in para 16 of that document. The loss was denied and alleged to be too remote; it was also said that AWS had failed to mitigate its loss. No particulars were given of any of these pleas. The pleading was amended and reamended in October 1999 and January 2000 without any development of para 16. On 9th December 1998 SGL also served a request for further and better particulars of the defence and counterclaim. No request was made concerning AWS’s alleged loss and damage.
85.	Lists of documents were first exchanged on 21st May 1999. Among the documents disclosed by AWS were schedules of Spice Sonic and standard Sonic scooter sales for at any rate 1998, country by country.   In August 1999 there was an exchange of correspondence concerning the mitigation of AWS’s loss.   It resulted in a letter from AWS’s solicitors dated 1st September 1999 explaining a revision of schedule 1, refining the number of Spice Sonic scooters which had been sold from stock or adapted and sold, and also refining the manufacturing costs and profit figures for the Spice Sonic scooters. 
86.	In mid November 1999 witness statements were exchanged. AWS’s witnesses such as Ms Fuzzi and Sr Brovazzo here and there made reference to the fact that it was hoped that the association with the Spice Girls and the specific Spice Sonic campaign would lead to increased sales of standard Sonic scooters. There was of course nothing new in that. More significantly perhaps, Sr Brovazzo gave details of the de facto lack of success of the Spice Sonic range as an argument supporting the significance of the departure of Ms Halliwell. In particular para 41 of his witness statement gave rise to some considerable interest on the part of SGL. He said:
“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.”
87.	The exchange of witness statements led to a request for further information from SGL on 26th November 1999 by reference to such witness statements. SGL’s request was accompanied by a letter from its solicitors, Messrs Lee & Thompson, which raised a number of points. One was that time was getting short, for the trial date of 7th February 2000 had already been set. Another, under the heading of AWS’s witness statements, was 
“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...”
88.	The reference to AWS’s “seven figure counterclaim” was to schedule 2 to AWS’s defence and counterclaim, where AWS pleaded the quantum of its counterclaim in contract as distinct from misrepresentation. We have not been concerned with that aspect of the counterclaim, for the judge held that AWS had no claim in contract and schedule 2, although set out in para 71 of her first judgment, never had to be considered. It is, however, relevant to point out that the schedule 2 counterclaim had originally been pleaded in the sum of £6.1 million, and even by this time still stood at some £1.66 million.    (By the time of the trial it had been reduced still further to just below £1m.)   The largest item in it was a claim for loss of profit on the failure of the Spice Sonic range. As originally pleaded, this was a claim on 7,858 out of an anticipated 10,000 scooters. The difference of 2,142 was the figure at that time given for the number of such scooters which had been produced. The reduction to £1.66 million was essentially because of a revision (said to be necessitated by error in the original figures) as to the profitability of the Spice Sonic scooter. Ultimately this item was premised on 5,343 unmade scooters out of an anticipated 7,500: the difference, 2,157,  was almost identical to the number of 2,158 Spice Sonic scooters which were established to be the number of such scooters produced (see para 109 below). 
89.	The size of the counterclaim in contract, and the importance within that counterclaim of the item in relation to the failure of the Spice Sonic range, help to explain the concentration of the parties on the production and sales of the Spice Sonic, as distinct from the standard Sonic range. In emphasising in their letter their concern with the schedule 2 counterclaim, SGL’s solicitors did nothing to underline any particular concern with any credit to be derived in SGL’s favour as a result of enhanced standard Sonic sales.
90.	On 14th December 1999 there was a case management conference before Master Winegarten.   He gave permission to each party to adduce expert accountancy evidence in relation to the quantum of AWS’s counterclaim.   The consequential directions required disclosure of SGL’s expert’s report on 21st January 2000, 10 days in advance of disclosure of any similar report on AWS’s part. The inference is that SGL were to make the running on any points which might emerge from the employment of such experts.   Although not reflected in the Master’s order, we were told that SGL successfully opposed the application of AWS that the forthcoming trial be limited to liability only.
91.	In answering SGL’s request for further information on 12th January 2000, AWS referred again to the anticipation that association with the Spice Girls would result in increased sales of the standard Sonic range. There was a specific request as to how many Spice Sonic scooters had been manufactured (answer 2142); and another request in these terms:
“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.”
92.	In this revised form the request is plainly concerned with Sr Brovazzo’s point that the Spice Sonic was a failure rather than with any inquiry into damages in general or into the credit to be given in respect of increased sales of standard Sonic scooters in particular. AWS answered the request by reference to a document, among others attached to the Response, called “Preconsuntivo Di Vendita 1998”, “from which it can be seen that out of a total of 12,809 Sonic scooters sold in 1998 only 1004 (or 7.8%) were “Spice Sonic” scooters”. It was clear from the document that the figure of 12,809 included both standard Sonic scooters and liquid-cooled Sonic scooters.   Among other documents annexed to the answer was a similar document for 1999, which showed that there were no sales of Spice Sonic scooters at all in 1999, and only 3,825 standard and liquid-cooled Sonic scoooters.
93.	SGL also requested AWS to provide:
“...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). 
94.	In addition SGL wanted “all documentation” evidencing the marketing costs claimed under item 4 of schedule 1, and information whether any of such costs related to Sonic scooters as distinct from the Spice Sonic range.   AWS replied that they did not
“even though there may have been indirect spin-off benefits for the standard sonic Scooter range leading to increased sales.” [response 31]. 
95.	Both parties commissioned reports from accountancy experts, SGL from Mr Emile Woolf, a chartered accountant and a partner in Kingston Smith, and AWS from Mr Nicholas Whitaker, a chartered accountant and a partner of Pannell Kerr Foster. Mr Woolf’s first report is dated 27th January 2000. However, in advance of disclosure of that report he wrote a letter on 17th January to SGL’s solicitors, Lee & Thompson, which they transmitted on the same day to AWS’s solicitors, CMS Cameron McKenna.   Mr Woolf’s letter began by saying that he had reviewed the entirety of the documents disclosed by AWS and relied on by it for the purpose of its counterclaim, but that he had been frustrated in the task of verification –
“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...”
96.	His first two main headings were (i) production cost of the Spice Sonic scooters, and (ii) determination of profit of the Spice Sonic scooters. His third topic was “(iii) Other Spice connection benefits”. He wrote:
“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.
97.	Earlier in his letter, under the heading of “(i) Production costs of the scooters”, Mr Woolf had made what at trial emerged as a critical point, namely that “Since AWS do not appear to manufacture scooters”, they would not have themselves incurred such production costs. He made the same point at the end of his letter with regard to marketing and promotional costs, indicating that invoices in respect of that item of AWS’s counterclaim were addressed to Aprilia.
98.	The theme of Mr Woolf’s letter was taken up in passages in his first report, see in particular paras 3.29/3.34 headed “Increased sales of ‘Sonic’ scooters”. This passage concluded at para 3.34 as follows:
“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.
99.	Under his “Conclusions” Mr Woolf said that among the information which AWS had not disclosed was –
“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...”
100.	However, in his report Mr Woolf also developed his point that AWS’s disclosure had not shown that it, as distinct from Aprilia, had incurred many of the losses of which complaint was made. In particular, it had not shown that profit on sales of Spice Sonic scooters had been lost to it, as seller of those scooters (see at para 4.4.2).   The schedule 2 claim to the lost profit on all the Spice Sonic scooters which had never been made was far larger than the schedule 1 credit allowed in respect of the Spice Sonic scooters that had been made and sold. 
101.	On 28th January 2000 Cameron McKenna replied to Lee & Thompson’s letter of 17th January 2000. It commented on the suggestion of “connection benefits” on products outside the Spice Sonic range by saying that the point was misguided and added:
“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.
102.	Mr Whitaker’s first report was dated 4th February 2000. He addressed the “connection benefits” point at paras 2.57/62 and commented that it would be perverse to think that sales of standard Sonic scooters would have been materially enhanced, when the Spice Sonic promotion failed so badly against its expectations; that the standard Sonic range had been launched in February 1998, so that its sales could be expected to do well initially by reason of the novelty factor. Seasonal influences (good weather) was also a factor. The sales figures for 1998 and 1999 as a whole did not permit a reliable conclusion to be drawn: “Accordingly the proposition that there is additional profit to be identified and credited is at best unproven.”
103.	In Mr Woolf’s supplementary report of 8th February 2000, he said that he thought that the documentation he had seen indicated that the Spice Girls association had “resulted in increased sales”. He did not say why nor did he seek to put any figure on such enhancement. 
The Trial
104.	The trial began on 7th February 2000. In his opening written submissions, counsel for SGL submitted that the matter of quantum had been left “in a wholly unsatisfactory state”; the burden of establishing its loss was upon AWS; no satisfactory explanation had been given for the alteration of the alleged profit figure per Spice Sonic scooter; SGL had been “compelled to extract the Defendant’s case” by requests for further information and by instructing an expert accountant and no loss had been proved. Mr Woolf’s general conclusions were quoted, but no specific reference was made to enhanced sales of standard Sonic scooters, nor indeed to the point that any losses suffered were those of Aprilia rather than AWS.  Counsel for SGL made no opening oral statement. AWS opened the trial, on the basis that the burden of proof lay on it.
105.	AWS called Aprilia’s financial controller, Sr de Benetti, to prove the documentary basis of AWS’s counterclaim and to state his understanding of them.   He had no personal knowledge of the underlying facts. He was asked by counsel for SGL in cross-examination to confirm that schedule 1 gave no credit for enhanced sales of standard Sonic scooters, which he did. He was asked whether he had given any thought to whether it would be appropriate to give credit “for such further increased sales”.   He said he did not know, which perhaps was the safest answer from a witness giving his evidence through an interpreter to a question which assumed that the Spice Girls association had led to enhanced sales of other products. Counsel for SGL chose to ask no further question on that topic.
106.	Mr Whitaker was cross-examined on the subject-matter of enhanced sales of standard Sonic scooters. He maintained the position expressed in his report that the figures (which by now had been established to be for sales in Italy) for 1998/1999 showed that it would be perverse to think that standard Sonic sales would have been enhanced where Spice Sonic sales had failed. He was prepared to refer to figures before the court for non-Italian sales (Day 4 at page 137/8), but had not taken them into account in his reports. 	In the event there was no examination at trial of the figures for non-Italian sales, even though those figures had been disclosed and were available at any rate for 1998. A schedule of what the disclosed documents show about such sales (but not the documents themselves) has been put before this court by counsel for AWS. 
107.	In his written closing submissions at the trial the primary submission of counsel for SGL was that any loss was suffered by Aprilia, not AWS.   In addition, he submitted that AWS had in any event to give credit for increased sales of scooters due to the public’s association of the brand with the Spice Girls.   In that respect, counsel for SGL submitted that in the light of the drop in sales of Sonic scooters (both standard (air-cooled) and liquid-cooled) from 1998 to 1999 (called a “dramatic disparity”), “the Court cannot assume in the Defendant’s favour that no such credit should be allowed”.    In so submitting counsel for SGL made no distinction between standard Sonic and liquid cooled Sonic scooters, did not suggest that sales outside Italy were in any way relevant but reminded the judge of the purely arithmetical point that, as Mr Whitaker had accepted (para 47(3)), an increase in sales of even 2,000 Sonic scooters would extinguish AWS’s claim.    
The Judgments
108.	In her first judgment given on 24th February 2000, Arden J dealt with damages in paragraphs 69 to 80 and 116. She dismissed item 5.   As to items 3 and 4, she ruled in principle that both the advertising costs under item 4 and the credit offered under item 3 in respect of the profit earned on the sale of Spice Sonic scooters should be taken into account for the purposes of the counterclaim (at para 80).   For the rest, however, she decided that a further hearing on quantum would be necessary, in particular because the figures relating to the sale of Spice Sonic scooters had changed during the course of the hearing (para 76).  
109.	She found that some 3,000 Spice Sonic scooters were manufactured (para 76), but it is not clear where she obtained that figure from. She accepted the figures checked by Sr de Benetti that 1,988 Spice Sonic scooters had been sold or adapted as standard scooters and sold, that 373 had been so adapted, and that in addition 160 Spice Sonic scooters were held in stock unsold (para 79). In general she accepted Sr de Benetti’s evidence as to production costs. She ruled that credit should be given for profit earned on Spice Sonic scooters that had been sold (para 80). She recorded the submission of counsel for SGL that credit should also be given for any increase in the sales of “Sonic scooters” in consequence of the association of Aprilia’s products with the Spice Girls (para 78), but said nothing to suggest any acceptance of that submission. She said nothing specifically relating to sales of standard scooters outside Italy.
110.	The adjourned trial on quantum took place on 17th and 19th April 2000.  The second judgment was handed down on 12th June 2000, albeit in as yet unapproved form (“the unapproved second judgment”).  In the unapproved second judgment the judge said of her first judgment that, although she had dealt with some issues of damages, other issues remained outstanding, “notably the question whether AWS should give credit for any increase in sales of Sonic scooters in consequence of the Spice Girls’ branding of Aprilia’s products”, as to which there had not been full argument (para 11). She recited the basic figures as to Spice Sonic production and sales which she had found in her first judgment (para 5). 
111.	The first substantial issue she posed (at paras 16 to 25) was “AWS or Aprilia – whose loss?”.    She concluded that AWS could only recover its own losses and not those of Aprilia (para 23). It followed that AWS was not obliged to give credit for Aprilia’s profits (para 24(4)).   
112.	As to the remaining issues, she began by recording the parties’ respective submissions.   She noted that counsel for SGL had again submitted that in as much as there were any deficiencies in evidence or disclosure, AWS should be regarded as having failed to prove its loss. There was in particular “no documentation to show sales outside Italy being made by Aprilia”. (So far as we are aware that was the first time that SGL underlined the question of sales outside Italy.) Reference was again made to the “obvious disparity” between sales in 1998 and 1999 and the court was invited to infer that it was due to product endorsement by the Spice Girls.   Counsel for AWS acknowledged that it had been anticipated that one of the benefits of the contract was that sales of the standard Sonic would have been increased.   But, he contended, that had not happened;  not only was there no evidence of any such increase, but the dismal performance of the Spice Sonic range suggested the contrary. 
113.	Arden J concluded that Aprilia alone had incurred the costs and obtained the rewards of the production and sale.   She considered that in those circumstances, the fact that documents or information concerning production costs, or sales outside Italy, had not been disclosed was irrelevant.   In addition, in case she was wrong on that point, she considered the extent to which the association with the Spice Girls might have enhanced sales of Sonic scooters in general.   She said that, despite the views expressed in her first judgment, following further argument she now thought that if AWS had sold scooters, then its profits from doing so would have had to be taken into account as a credit item. She then sought to make findings of fact concerning such sales, based on the figures for 1998/1999 sales within Italy;  but the only firm finding about sales outside Italy was that 545 Spice Sonic scooters were sold in 1998.
114.	In arriving at these conclusions the judge worked essentially from the “Preconsuntivo” documents for Italian sales for 1998/1999, which showed:

		1998			1999		
	ACSS	SSS	LCSS	ACSS	SSS	LCSS	
Jan	0	0	0	4	0	1	
Feb	1440	0	909	5	0	2	
Mar	374	0	846	222	0	140	
Apr	676	0	1907	197	0	157	
May	834	0	881	721	0	310	
Jun	548	570	347	617	0	388	
Jul	454	349	520	111	0	464	
Aug	261	57	147	0	0	34	
Sep	545	12	134	0	0	100	
Oct	331	15	159	242	0	40	
Nov	287	1	54	17	0	46	
Dec	73	0	78	7	0	0	
Sub Total	5823	1004	5982	2143	0	1682	
Total			12809			3825	

Key:	ACSS 	= 	Air cooled Sonic scooters
	SSS	=	Spice Sonic scooters
	LCSS	=	Liquid cooled scooters

115.	The judge made the following findings: 
(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.

116.	At this stage of the proceedings, it appears that Arden J had no reason to make any specific findings as to sales of standard Sonic scooters outside Italy, nor is there any sign that she had been pressed to do so.  It was common ground on the hearing of this appeal that the figure of 2,500 was developed in the context of sales within Italy only.    Counsel for SGL was not so much concerned to prove a specific level of enhancement of standard Sonic sales, and certainly not in such sales outside Italy, but rather to show that there was simply insufficient information to enable the court to determine what the appropriate level of sales was. On that basis his case was that AWS had simply failed to prove its loss.  

117.	After the unapproved second judgment had been handed down, during submissions regarding permission to appeal, it emerged that the judge had overlooked the fact that AWS had conceded that it, rather than Aprilia, had been concerned with distribution outside Italy.   Thus there had been no mention of the “AWS outside Italy” point in SGL’s written opening or closing submissions nor in its additional outline submissions written for the second (quantum) hearing.   In the latter document SGL had reverted (in paras 4/5) to the submissions in para 47(3) of its written closing submissions at the trial.   This omission on the part of SGL may perhaps be viewed as all the more significant given that it was not in dispute, and the judge found, that 545 Spice Sonic scooters had been sold outside Italy.  The furthest that counsel for SGL appears to have gone was to submit that “there was no documentation to show sales outside Italy being made by Aprilia” and that “If in fact those sales had been by AWS, the non-disclosure was even more indefensible”.    

118.	At any rate, on 12th June 2000 counsel for SGL drew the judge’s attention to the fact that AWS had accepted that it had distributed Aprilia products outside Italy both in Cameron McKenna’s letter of 28th January 2000 and in the course of the oral submissions of counsel for AWS on 19th April 2000.    On the latter occasion, albeit incidentally in the course of talking about Spice Sonic scooters and the full credit that AWS had allowed in respect of those sales, counsel for AWS had said – “What I believe I can accept is that AWS distributed outside Italy”.

119.	As a result, Arden J required further assistance from the parties, as to whether she should reconsider her second judgment. On 13th June 2000 she wrote to the parties as follows:
“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.” 

120.	In response both parties produced further written submissions, the effect of which was that neither side wished there to be any further disclosure or evidence, albeit for differing reasons. Counsel for AWS pointed out (in submissions of 13th June) that SGL had not applied to reopen the issue but to deal with it as a matter for the Court of Appeal; that the matter of a credit in respect of increased standard Sonic sales had never been pleaded or explored in cross-examination by SGL; and that AWS’s distribution arrangements had never been the subject of any investigation.   Counsel for SGL agreed (in submissions dated 14th June) that there should be no direction for further disclosure or evidence “in the interests of finality...as a matter of justice to SGL and to its case...as a matter of proportionality.”    He submitted that instead the court should “decide the case on the evidence currently before it”.  Counsel for SGL again submitted that AWS had failed to give proper disclosure on damages, in particular on sales outside Italy of Sonic scooters and that in consequence it could not prove any damage. The point that AWS should in any event give credit for profit on all sales of Spice Sonic scooters (or of adapted Spice Sonic scooters) outside Italy, as well as of standard Sonic scooters, was expressly made. 

121.	The parties’ submissions also considered the position of payments made by AWS or profits earned by AWS prior to the conclusion of the Agreement on 6th May 1998. Counsel for AWS accepted that the payments made by AWS before the Agreement, aggregating £300,000, were irrecoverable.   He also submitted that any enhancement in sales prior to the conclusion of the Agreement was likewise outside the account of loss, and, in any event covered by the pre-Agreement payments of £300,000.   Counsel for SGL accepted “that it would only be sales after the Agreement was entered into that would be relevant” but otherwise disputed AWS’s submissions.

122.	These submissions led Arden J to revisit her second judgment and to write a third judgment. The revised second judgment and the third judgment were both handed down on 20th July 2000.   

123.	It is necessary to consider first the revised second judgment.   There were many revisions of detail or style.   For present purposes, there are only three revisions of substance.   They are:
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.” 

124.	The third judgment was handed down at the same time as the revised second judgment and must be read against that background.   There Arden J set out the submissions of the parties on the issues as they had developed since 12th June 2000, and, in the light of those submissions, her reasons for revisiting both her second judgment and for going on to determine whether her new finding, based on AWS’s concession as to its role outside Italy, should make any difference to the overall result of the litigation.

125.	For those purposes the judge set herself three major questions. The first was whether any profit which AWS might have earned as a distributor of standard Sonic scooters on sales outside Italy should be brought into account. She answered this question in the negative ( paras 11 to 13). Her reasons, although complex, were not subjected by either party to any full analysis.   We think that views might differ as to what they were.   We read them in the following sense:  it was one thing to set profits earned from producing Spice Sonic scooters against the production costs of those scooters (on the assumption that both had been respectively earned and incurred by AWS), but it was quite another thing to impose on AWS the need to give a credit for any profit earned on enhanced sales of standard Sonic scooters.  This was because any such profit was but one element in a composite transaction.  It was not matched by the costs of earning those profits to the extent that such costs fell on Aprilia rather than on AWS.   Further it was derived from a collateral and coincidental distributorship arrangement entered into prior to the Agreement with SGL rather than directly from the promotion of goods manufactured by it.   Thus, AWS had entered into the Agreement in order to derive profit on sales of Spice Sonic and standard Sonic scooters for the manufacturing group as a whole, not for the purpose of creating profit, if any, on sales (outside Italy) which it might have derived from its internal group distributorship arrangements. As the judge said (at para 13):
“...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...”      

126.	The second major question Arden J set herself was to ask how any such profit on enhanced sales of standard Sonic scooters outside Italy might be assessed. Her conclusion was that she had no means of making that assessment and was unable to make any finding as to such profits. She pointed out the difficulties of any such assessment. While being unwilling to find that the high (Italian) sales of standard Sonic scooters in February 1998 (1,440) had nothing to do with the Spice Girls, since the February figure might have been projected sales or merely wholesale orders (see para 7(7)), she accepted that not all enhanced sales could have resulted from the Agreement and the effect of the misrepresentation. Moreover once news of Ms Halliwell’s departure became public, the effect of the association with the Spice Girls became uncertain. 

127.	The third major question to which Arden J then immediately turned was whether her inability to assess the extent of any such profit was, as counsel for SGL had submitted, the fault of AWS in discharging its obligations on disclosure. We have already set out the facts relating to the development of this point. The judge’s reaction to this submission was as follows:
“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.”

Were sales in Italy of standard Sonic scooters enhanced by the association with the Spice Girls?

128.	It is convenient to consider first the submissions of AWS.  In its respondent’s notice it contended that the judge should have held that there was no evidence that sales of standard Sonic scooters had increased as a result of the association with the Spice Girls, and that the evidence established the contrary.   In his oral submissions counsel for AWS developed this point further.

129.	It will be recalled that in her second judgment, in both unapproved and revised forms, the judge had found that sales of standard Sonic scooters within Italy during 1998 had increased by some 2,500 by reason of the association with the Spice Girls. We agree with counsel for AWS that this conclusion is unsupported by any evidence and is wrong.   

130.	There are a number of detailed reasons for that conclusion.   In summary they are as follows:
(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. 

Were such sales outside Italy so enhanced?

131.	In any event, whatever the position in terms of sales within Italy, AWS was only concerned with sales outside Italy, as to which Arden J made no similar finding. At critical moments during the trial and subsequent submissions the disclosed material concerning 1998 sales outside Italy appears to have been overlooked. Counsel for AWS put before us a schedule of figures obtained from this material.  He also produced a schedule of 1998 production figures for all three Sonic ranges. Counsel for SGL had little opportunity to consider these schedules, but he did not suggest that they were not accurate. They demonstrate the following:
(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. 

132.	We refer to these figures with some diffidence as there was little, if any, opportunity at the hearing of the appeal for counsel to analyse them.  But we cannot disregard them in the light of the fact that counsel for both AWS and SGL urged us in strong terms not to remit the case for any further assessment of whether AWS had derived a profit from enhanced sales of standard Sonic scooters. Both sides wished us to decide the appeal on the material before us.   They declined to countenance further disclosure or evidence. Even when pressed by us with the possibility that, whatever the views of the parties, justice might demand a remission for such an assessment, they maintained their emphatic submissions that it should not be done. Among their reasons were no doubt tactical considerations as to the consequences of this limitation, for instance that any present lack of available material for a detailed assessment would redound to the advantage or disadvantage of one or other of the parties respectively. Nevertheless, counsel also put the expense of further hearings in the scale. 

133.	In those circumstances we do not consider that it would be fair or just to impose on the parties, against their will, the expense or delay of any further assessment. In the circumstances, we must do as best we can with the material before us. Part of that material are the schedules produced by counsel of AWS.   If there was any support there for a view that sales in Europe were enhanced by the Spice Girls association, then we would have to take that into account. But there is no such support. 

134.	In this connection, it is worth bearing in mind just how refined would be the assessment which would have to be made if it were relevant and necessary to calculate the credit which AWS might have to give in respect of enhanced sales of standard Sonic scooters outside Italy. It is common ground that sales prior to 6th May 1998 are irrelevant. The possibilities that any enhanced sales might be due either to seasonal factors or to novelty (in many European countries the standard Sonic scooter only appears to have been introduced in April 1998) would have to be considered. The question of whether any credit due to profits on enhanced sales would have to be set off first against the £300,000 payments prior to the Agreement would have to be determined. The question of whether AWS had earned any profit by distributing the scooters would have to be examined. There is no evidence about that at all. Presumably, however, AWS bought the scooters from Aprilia and resold them to national distributors or dealers. Whatever margin AWS might have earned on that purchase and resale might be entirely conventional, in the sense that it might be a pure matter of convenience or fiscal advantage whether Aprilia took its profit in Italy, on sale to AWS, or within AWS. 

135.	In our judgment, however, it is unnecessary to go into such questions, since we are unable to find, irrespective of the burden of proof, that there were any enhanced sales in any relevant countries outside Italy. We think that the failure of the Spice Sonic range means that it is improbable that sales of the standard Sonic range were enhanced. We see nothing in the statistics for sales within Italy to suggest otherwise. We see nothing in the more limited statistics for sales outside Italy to cause us to doubt the common sense of our conclusion.   It follows that SGL’s submission that AWS cannot prove its loss without taking into account profit earned on enhanced sales of the standard Sonic range outside Italy cannot succeed.

Should credit be given for the profit on any such enhanced sales?

136.	We have found that there are no enhanced sales of standard Sonic scooters outside Italy, and thus no profit on such sales, to take into account. We should also consider whether, if we had found that AWS had made a profit on such sales, it would have to give credit to SGL for such profit against losses otherwise incurred. 

137.	As stated above, there was very little analysis of this question in the submissions before us. Counsel for SGL asserted that Arden J was wrong to amend in her revised second judgment the view she had expressed in its unapproved version.   In the unapproved second judgment she had said that AWS ought to have given credit for profit earned on enhanced sales “if AWS had itself sold Sonic scooters”. In the revised second judgment that hypothesis became “if AWS had itself both manufactured and sold Sonic scooters”.   Counsel for SGL submitted that the judge had adopted a contractual instead of a tortious approach to the question of damages; but that is simply not correct. In essence, however, his submission was that the judge’s first thoughts on the subject were to be preferred to her final exercise of judgment.   In our view, however, she was entitled to revise her thinking when it became necessary, as it did not seem to be at the time of writing the unapproved second judgment, to focus on the fact that AWS, although not the manufacturer of scooters, might have been the distributor of some of them.   We agree that it would have been artificial to have separated out the costs of producing the scooters from the profits, if any, of selling some of them. The relevant question would have been whether the profit of an injured claimant has to be taken into account as a credit in the circumstances.  Such circumstances are that the profit had been earned by a claimant not because it had been induced to enter into a contract by a defendant’s misrepresentation but rather because it had, for entirely collateral reasons, been assigned by its group parent the role of a distributor in certain countries.  Further that profit cannot be properly or fairly taken into account without regard for the means of earning it, viz for all the costs of manufacture and promotion. 

138.	In our view either of those reasons, but in any event their cumulative effect, would make it wrong to take any such profit into account. The only reason why AWS may have earned any profit on sales of standard Sonic scooters outside Italy is that Aprilia, the leading member and parent of the Aprilia group of companies, chose, for its own reasons, to divert part of the return which it might otherwise have earned for itself, as manufacturer of the scooters, into its subsidiary.   

139.	In this connection we observe that counsel for SGL made no separate submission in this court, although he had done below, to the effect that credit should be allowed to SGL in respect of the profits, if any, earned by AWS on the Spice Sonic scooters sold outside Italy. It may be, however, that he intended such a submission to be embraced in the overall appeal on the point about benefits derived by AWS under the contract. If so, the submission fails for the same reasons.  

Why was the relevant evidence missing?

140.	Finally, we come to the question whether any failure of disclosure or evidence should be laid at AWS’s door so as to justify SGL’s complaint and submission that AWS had simply failed to meet the burden of proving any loss.   It has been in the light of this submission that we have set out the course of this litigation and the conduct of the parties to it in connection with the issue of AWS’s quantum claim. Counsel for SGL accepted, correctly in our view, that a submission of the kind that he has advanced could only justify the interference by this court with the judge’s conclusion if it thought that the trial judge had made some material error either in her assessment of the facts or in principle.  

141.	We have considered the history of this litigation in considerable detail but are not persuaded that in her treatment of this submission at para 16 of her third judgment, cited in full at para 127 above, Arden J made any material error of fact or principle.  Counsel for SGL insisted before us that SGL had sufficiently raised the point concerning enhanced sales of standard Sonic scooters in Mr Woolf’s letter of 17th January 2000 and in his subsequent report.   In our view the judge was entitled to say that prior to counsel’s written closing submissions, at the end of the first trial, “SGL had no alternative case” and that “Not all SGL’s cards were on the table until too late”. 

142.	The most that can be said in SGL’s favour is that when the point about enhanced standard Sonic sales was finally clarified, the judge was willing to deal with it in her second judgment, at any rate so far as enhanced sales within Italy were concerned. Thus, although the point had never been properly pleaded by SGL, the judge did not shut it out of contention, at any rate as far as it was then understood to go. In that we feel that the judge was, if anything, generous to SGL.   We also think that the circumstances in which the point was permitted to go forward were ultimately conducive to the error which the judge made in respect of her finding that the Spice Girls association had enhanced sales within Italy by 2,500 units.  There was no further disclosure or evidence between the first and the second hearings, in the light of the emergence of SGL’s point, to ensure that it was handled with full clarity.     

143.	Counsel for SGL nevertheless submitted that because AWS as claimant (for the purposes of its counterclaim) bore the burden of proof of its loss, any failure of disclosure or of evidence as to the ramifications of its sales outside Italy lay entirely on its shoulders and to its detriment.   He contended that, because it could not show with clarity that it had not received any benefit from such sales, its whole claim must fail as being unproved. 

144.	In our judgment that submission goes too far. AWS had proved the loss which it had taken upon itself to prove. In doing so it volunteered a credit for all sales of Spice Sonic scooters. It was SGL who belatedly sought to say that AWS must give credit not only for Spice Sonic sales, but also for enhanced sales of standard Sonic scooters, and, still later, for sales made by AWS itself outside Italy. 

145.	In para 16 of her third judgment Arden J drew attention to CPR 1.3 (“The parties are required to help the court to further the overriding objective”).   She derived from that an obligation on the part of SGL to give fair warning of its point on damages and of the implications of that point for the trial and its conduct.  We agree, and in  our judgment, that obligation is more specifically provided for in CPR 16.5(2).  That provides that a defendant who intends to put forward a different version of events from that given by the claimant must state his own version. If, therefore, SGL wished to say that the credit allowed was too narrowly defined and that AWS must give credit for all benefits obtained by it under the contract such as profits earned under enhanced sales, then it should have given proper notice of the point in its pleadings. Without such notice, AWS would not be in a position to know what the width of its obligations in standard disclosure would be. 

146.	Of course, if SGL had not known that AWS had distributed any Aprilia scooters, then it could be forgiven for not taking the point: but it was always in a position to ask what the position was, and it did in fact make full use of the opportunity of asking for further information. Moreover, it was expressly informed on 28th January 2000 that AWS was the distributor outside Italy. It was not therefore the fault of AWS that the possible significance of that fact was overlooked until a later stage of the proceedings.

147.	In the circumstances, even if the judge in any way overstated the matter in finding that “the predominant reasons” why the issue of enhanced sales of standard Sonic scooters could not be fully investigated at trial were, as she subsequently set them out to be, the fault of SGL, and we are not inclined to think that she did, the position was at best, from SGL’s point of view, a muddle. The fault was certainly not predominately on the part of AWS. In our judgment it would not be just to find, as counsel for SGL urged us to do, that AWS had failed to prove its loss because it was unable to disprove by means of disclosure and evidence an alleged item of credit, viz profit on enhanced sales outside Italy, which was never clearly raised until the final run-up to the third judgment. 

148.	On the basis stated by the judge, SGL would neither be entitled to defeat AWS’s otherwise proved claim by reason of this point nor justified in calling for a fresh account of the position outside Italy. On the alternative basis that the situation proceeds from a genuine muddle, this court might, in other circumstances, have considered that justice could only be done by remitting this matter for a further assessment of such sales and any resultant profit. In the event, however, as explained above, both parties urged us not to do so, and we have found it possible to resolve the issue on the information before us.       

149.	It follows that for all these reasons SGL’s appeal, both on damages and on quantum, must be dismissed. 

Should Arden J have ordered the successful party to pay 10% of the costs of the action?

150.	The judge ordered AWS to pay 10% of SGL's costs of the action.  That paragraph of the judge’s order is the subject of a cross-appeal by AWS.

151.	In reaching her decision that 10% of the overall costs of the action should be paid by AWS to SGL the judge adopted an issue based approach. She identified two issues in respect of which, as she held, the costs should be borne by AWS. Those issues were (i) the contract claim and (ii) the express misrepresentation claim. But, rather than make an order which would have required a separate assessment of the costs of those issues, the judge thought it more convenient to attribute to those two issues a proportion of the overall costs of the action. She assessed that proportion at 10% of the whole. 
152.	It is accepted that, if the judge were entitled to order that the costs of the two issues which she had identified should be paid by AWS, she was entitled to attribute to those issues a proportion of the overall costs, rather than requiring a separate assessment. Indeed, the parties had invited her to deal with costs in a manner which would avoid a separate assessment of the costs of particular issues. Nor, if the judge were entitled to order that the costs of those two issues be paid by AWS, is it contended that she was wrong to assess the proportion of the overall costs attributable to those issues at 10%, rather than at some other percentage. The challenge is to her decision that the costs of those two issues should be paid by AWS. 

153.	It is said that that decision was wrong as a matter of law or principle. In particular, it is said (i) that the judge ought not to have held, if she did, that AWS had acted improperly or unreasonably in raising those two issues and (ii) that, without a finding that AWS had acted improperly or unreasonably, there was no justification for an issue based approach. AWS relies on the analysis and reasoning of Rimer J in Gwembe Valley Development v Koshy (unreported, 17th February 2000).

154.	It is clear that the judge did hold that AWS had acted unreasonably in pursuing the two issues which she identified. The relevant passage in her ruling is at page 18A-G of the transcript of “submissions following judgment” on 20th July 2000:
“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].

155.	The distinction which, as it appears to us, AWS seeks to draw is between improper or unreasonable conduct in raising issues – which, on the basis of Rimer J’s decision in the Gwembe Valley case, AWS accepts would justify an order that it pay the costs of those issues – and the unreasonable pursuit of those issues. It is a distinction which the judge, herself, appeared to recognise when she said, at pages 10H–11B of her ruling:
“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). 

156.	We are not persuaded that the distinction which AWS seeks to draw – and which the judge appeared to recognise - is of any materiality. A judge is entitled to make an order that a party, say A, who has acted unreasonably in pursuing issues should pay to the other party the costs of those issues, notwithstanding that A is the successful party in the litigation taken as a whole – see CPR 44.3(4)(a) and (5)(b). In the present case, it was unnecessary for the judge to find (and she did not find) that AWS’s conduct in relation to the issues which she identified had been “improper”. Indeed, it was unnecessary for her to find (as she did find) that AWS had acted unreasonably. It would have been enough for her to find that the issues were discrete issues on which AWS had been unsuccessful – see CPR 44.3(4)(b). 

157.	But the judge did not make the order which she did on the basis that the issues were discrete issues on which AWS had been unsuccessful. The test which she set herself was to ask whether it was reasonable for AWS to pursue the two issues which she identified. The relevant question, in the present case, is not whether the judge was entitled to apply the test which she did apply. The relevant question is whether she was entitled to make the findings of fact which were necessary if that test were to be met. Was she entitled to take the view that AWS had acted unreasonably in pursuing the contract claim and the express misrepresentation claim?    

158.	This Court will be slow to interfere with an order for costs made by a judge who has directed herself correctly in accordance with the provisions of CPR 44.3 and has applied a test which she was entitled to apply. It is not enough that this Court, if exercising its own discretion, would have thought it right to give greater or less weight to particular factors to which the judge has had regard. The judge’s exercise of discretion must be respected unless this Court is persuaded that her decision is plainly wrong. But, where the judge has made it clear that her decision as to costs is based on  her findings that AWS acted unreasonably, this Court can properly be asked to consider whether those findings can be supported. If those findings cannot be supported, this Court must treat her decision as flawed; and it is then entitled to exercise the discretion itself.

159.	The judge described the express misrepresentation claim as a claim based on representations made in oral conversations – see the passages at pages 11F, 12H-13A, 13H-14A, and 16G of the transcript. The judge found that the claim based on oral representations was made in a pleading served in November 1998 and was abandoned when that pleading was amended in December 1999 – see the passage at pages 12G-13A of the transcript. At page 18C-D, in the passage which we have already cited, she said that “AWS should have known whether or not this was a claim it could properly pursue at an earlier stage”. In the circumstances that the judge did not find that AWS had acted improperly in advancing the claim in its pleading in November 1998, she must have accepted that (at that date, at least) AWS was entitled to take the view that the claim could be supported. It is plain that AWS had changed its view by the end of the following year, when the claim was abandoned. But the judge does not explain why a claim which was properly advanced in the November 1998 pleading ought to have been abandoned before the amendment in December 1999; that is to say, why AWS should have known, earlier than December 1999 – and, in particular, in time to save costs incurred by SGL in investigating the claim – that the claim based on oral representations could no longer properly be pursued. 

160.	The judge held against the contract claim for the reasons which she gave in paragraphs 59 to 63 and 84 of her first judgment (delivered on 24th February 2000). Put shortly, she did not decide that the contract claim was ill-founded; rather, she held that there had been an agreement in correspondence to release the claim. She was critical of the contents of a witness statement served in respect of the evidence which Mr Vianello was to be called to give; and critical of AWS’s decision not to call him. But, if an agreement to release the contract claim was made in correspondence (as the judge held), it is difficult to see why Mr Vianello’s subjective intention or his own understanding of the position could have been of relevance; or why the judge’s criticism of his witness statement should have led her to the conclusion that it was not reasonable for AWS to pursue the contract claim to trial. She dismissed the claim – and there is no appeal against that decision – but it does not follow that it was not reasonable for AWS to pursue it.

161.	We are persuaded, therefore, that the judge’s findings that AWS acted unreasonably in pursuing the two issues which she identified cannot be supported. It follows that the ground upon which she based her decision that AWS should pay the costs of those issues is undermined. Her decision as to costs of those issues must be regarded as flawed. It must be set aside. It is no answer that she could have reached the same decision on different grounds which would not have been open to challenge.

162.	In those circumstances this Court is entitled to exercise its own discretion as to the costs which  AWS has been ordered to pay.  We must do so in the light of the matters set out in CPR 44.3.  When the court decides to make an order about costs - and it is not suggested that this is a case in which it could be right to make no order - the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party: see CPR 44.3(2)(a).  The court may make a different order - see sub-rule (2)(b) - but, it should not do so unless there is reason to depart from the general rule.  That, as it seems to us, is a constraint which follows necessarily from the existence of a "general rule".

163.	It is relevant to have in mind in the present case that, although the judge applied the general rule in relation to the costs of those issues other than the two which she thought had been pursued unreasonably, she did not require SGL to pay to AWS the whole of its costs of those other issues.  For the reasons given in her judgment of 20th July 2000, the judge held that SGL should pay only 75% of those other costs up to including 13th December 1999 and only 60% of those costs thereafter.  That decision is reflected in paragraph 4 of her order; and is not the subject of an appeal.  The question, therefore, is whether - in the circumstances that AWS, as the successful party overall, will (in any event) recover part only of its costs of the action - there is reason to make an order in this case which requires AWS to pay part of the costs of SGL, the unsuccessful party overall.

164.	Although we do not doubt that there is jurisdiction to order that a party who has been successful overall should pay his own and the other party's costs of discrete issues on which he has not been successful - see CPR 44.3(4)(b) - we are not persuaded that this is a case in which it is appropriate to do so.  In particular, we do not think that, in this case and in the absence of findings of unreasonable conduct which can be upheld, the costs of the contract claim or the costs of the claim based on express misrepresentations should receive special treatment, distinct from the costs of the other issues in the action.  Special treatment of the costs of issues which have, as is accepted, given rise to only a small proportion of the costs of the action as a whole is not justified.

165.	It follows that we allow the cross-appeal. We set aside the order that AWS pay 10% of SGL’s costs of the action. It is agreed that that will give rise to a consequential change in the percentage of the total costs which SGL was ordered to pay.

Conclusion

166.	For all these reasons we conclude that
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.

Order: Appeal dismissed with costs, cross-appeal allowed with costs.
(Order does not form part of the approved judgment)