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England and Wales Court of Appeal (Civil Division) Decisions
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Hudson Bay Apparel Brands Llc v Umbro International Ltd [2010] EWCA Civ 949 (11 August 2010)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2010/949.html
Cite as:
[2010] EWCA Civ 949,
[2010] ETMR 62
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Neutral Citation Number: [2010] EWCA Civ 949 |
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Case No: HC 08 C02256 |
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (INTELLECTUAL PROPERTY)
Mr Mark Herbert QC
Case No: HC 08 C02256
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Royal Courts of Justice Strand, London, WC2A 2LL |
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11/08/2010 |
B e f o r e :
THE MASTER OF THE ROLLS
LADY JUSTICE ARDEN D.B.E.
and
LORD JUSTICE TOMLINSON
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Between:
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HUDSON BAY APPAREL BRANDS LLC ( a company organised under the laws of Delaware, USA)
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Appellant
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- and -
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UMBRO INTERNATIONAL LIMITED
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Respondent
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(Transcript of the Handed Down Judgment of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
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Mr Ian Mill QC and Mr Tom Alkin (instructed by Mishcon de Reya) for the Appellant, Hudson Bay Apparel Brands LLC
Mr Guy Morpuss QC (instructed by Macfarlanes LLP) for the Respondent, Umbro International Limited
Hearing dates: 26-27 July 2010
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HTML VERSION OF JUDGMENT
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Crown Copyright ©
Lord Neuberger MR:
- This is an appeal brought by Hudson Bay Apparel Brands LLC ("Hudson Bay") against a decision of Mr Mark Herbert QC, sitting as a Deputy Judge of the Chancery Division, in so far as (i) he granted only limited relief in respect of its claims for damages for breach of contract against Umbro International Limited ("Umbro UK"), and (ii) he gave judgment in favour of Umbro UK on its counterclaim.
Introductory
- Umbro UK is a large English company with an international licensing business based principally on football, or, as it is known in the United States, soccer. It has a subsidiary, Umbro Corp Inc ("Umbro US"), a Delaware company, which handles its business in the United States. Miss Barbara Jackson was appointed president of Umbro US in 2006 with a remit to revive the Umbro brand in the USA and with a view to achieving rapid growth in its market share of soccer branded goods. She reported to Mr Cunningham and Mr Prothero at the headquarters of Umbro UK in England. Hudson Bay is a relatively small US company specialising in manufacturing and marketing branded apparel. Its leading lights are Mr Jock Thompson, who specialises in marketing, and Miss Po Kyong Kang, who works on the design side.
- In 2006 and 2007 Umbro UK entered into two separate licence agreements for selling soccer-based clothes in the USA, one to a large retail company called Dick's Sporting Goods ("Dick's") for on-field wear, the other to Hudson Bay for off-field wear. As the words themselves imply, on-field wear consists of clothes used on the field of play, while off-field wear consists of clothes worn by non-players, sometimes, but by no means exclusively, as spectators at a game. A particular type of on-field wear is known as "teamwear", which consists of soccer kit (not limited to shorts and shirts) provided to competitive teams. Umbro UK conducts the teamwear side of its business itself, without the involvement of licensees, so that neither Hudson Bay nor Dick's were intended to be licensed to supply teamwear.
- In these proceedings, Hudson Bay raised two heads of claim against Umbro UK based on its licensing agreement finally executed in October 2007 ("the Agreement"), and Umbro UK raised one head of counterclaim also based on the Agreement. Hudson Bay's first head of claim was that Umbro UK had wrongly allowed Dick's to market off-field wear in breach of Hudson Bay's exclusive licence under the Agreement; Umbro UK's defence was that Dick's only marketed on-field wear. Hudson Bay's second claim was that Umbro UK wrongly hindered it from exploiting its off-field licence, in breach of an implied duty of co-operation claimed to be owed pursuant to the Agreement; the implied duty and (if it existed) its breach were denied by Umbro UK. By its counterclaim, Umbro UK contended that Hudson Bay had acted in breach of contract by marketing on-field wear; Hudson Bay denied that it marketed on-field wear.
- After an eight day hearing, the Judge concluded, in a full and careful reserved judgment, that Hudson Bay's first claim was "broadly correct", but, save to a very small extent, he rejected its second claim, and he upheld Umbro UK's counterclaim – [2009] EWHC 2861 (Ch). Hudson Bay's appeal is against an aspect of the Judge's rejection of its second claim and his upholding of Umbro UK's counterclaim. There is no cross-appeal in relation to the Judge's upholding of Hudson Bay's first claim.
The Licensing Agreement between Umbro UK and Hudson Bay ("the Agreement")
- Although it expressly took effect from 1 January 2007, the Agreement was signed on behalf of Hudson Bay in June 2007, and on behalf of Umbro UK in October 2007. After defining Umbro UK and Hudson Bay as "the Licensor" and "the Licensee" respectively, it begins with a first unnumbered provision, which is in these terms:
"… the Licensor hereby grants to the Licensee an exclusive licence in the Distribution Channels (as defined below) to use the Licensed Property (as defined below) solely for the purposes of the manufacture, marketing, promotion, distribution or sale of the Products (as defined below) subject to, and in accordance with, the following Commercial Terms and the Standard Terms and Conditions attached hereto."
- The next section, which is headed "Commercial Terms", was negotiated between Miss Jackson and Mr Thompson. The "Licensed Property" is defined as meaning the Umbro trade marks, consisting of the Umbro and double diamond logos ("the logos"). This is followed by the definition of the "Products", which is stated to "include … only those products as follows":
"Men's off-field apparel (meaning all apparel products that are not specifically intended to be used on the field of play for soccer including, for the avoidance of doubt, performance shorts and soccer jerseys) and shall, for the avoidance of doubt, only include the following : t-shirts, sweatshirts, sports polo shirts, hoodies (zip and non-zip), tank tops, reversible shirts, [shirts], sweatpants, sweat suits, wind suits, warm-up suits, rain suits, pull-over jackets, pullovers, outerwear, shorts."
- As the Judge said, the effect of this is that Hudson Bay may manufacture and market clothes carrying the logos only if those clothes (i) do not fall within the terms "performance shorts and soccer jerseys" or other wear "specifically intended for use on the field of play for soccer", and (ii) do fall within one of the descriptions specified in the second part of the definition.
- The "Licensed Products" are defined as meaning any Products incorporating or using the logos in any form. The "Territory" means the United States and its territories and possessions. Under the sub-heading "Term" it is provided:
"This Agreement shall be deemed to have commenced as of 1st January 2007 ('Commencement Date') and continue until 31st December 2010, unless terminated earlier in accordance with terms of this Agreement ('Term')."
- Clause 6 lays down the rates of royalties and possible discounts, and clause 7 provides for minimum guaranteed royalties amounting in total to $420,000 payable during the period to 31 December 2010 by Hudson Bay to Umbro UK.
- The "Distribution Channels" are defined by clause 9. They are set out under seven sub-headings, namely sporting goods chains, department stores, mid-tier department stores, apparel speciality stores, the ad speciality market (corporate catalogues), soccer speciality retail and close-out stores. Some of these categories contain individually named stores or entities. Sporting goods chains comprise only one, namely Dick's. The ad speciality market includes S&S, which is a company owned by a Mr Adams, who gave evidence before the Judge.
- The ad speciality market, also known as the ASI market, comprises wholesale companies, who normally market their products through catalogues, and sell "promotional products", which are articles used in marketing or promotional programmes. An example is a soccer strip issued by a trading company to its sales representatives at a congratulatory event. Usually the articles will bear the company's own logo, in which case they are called "advertising specialties", and value may be added by the article bearing an additional brand identity such as an Umbro logo. ASI stands for Advertising Specialities Inc, a company which represents the ad speciality industry to which ASI distributors must belong in order to buy from ASI wholesalers.
- Clause 10 requires Hudson Bay to provide three production samples of each licensed product to "the Representative", which is identified by clause 13 as The Licensing Company North America Inc ("TLC"), for approval on behalf of Umbro UK. Clause 14 incorporates the standard terms, which are then set out in the next section of the Agreement.
- Clause 15 contains twelve further provisions. Clause 15(a) is a minimum sales stipulation, giving Umbro UK the right to terminate on Hudson Bay's failure to achieve the targets. Clause 15(h) is a provision for automatic renewal for three years if Hudson Bay complies with the Agreement. Clause 15(l) provides that Umbro UK will, where reasonably and commercially practicable, support Hudson Bay through market opportunities in four stated areas, namely (i) co-branding media, (ii) website support, (iii) viral and event marketing and (iv) licensor-sponsored athletes and teams. By clause 15(m) Hudson Bay agrees that Dick's are entitled to manufacture, market, distribute sell or offer for sale men's t-shirts up to and including 31 December 2007.
- The standard terms, incorporated by clause 14, contain 26 pages of provisions. Clause 5 is concerned with "Approvals, quality control and product recall", and it sets out a detailed programme by which written approval has to be obtained for each licensed product at each stage of production. Clause 5.1 sets out what material Hudson Bay is required to submit to TLC for written approval on behalf of Umbro UK for each licensed product. Clause 5.3 provides :
"If any sample is not approved within 10 (ten) days of receipt by the Representative of such sample from the Licensee, then it shall be deemed disapproved, at which time the Licensee must amend and re-submit the sample. The Licensee shall not continue to the next stage of production without the written approval of the Licensor, to be communicated through the Representative."
Clause 5.4 prohibits Hudson Bay from making or marketing products before obtaining approval, which is to be communicated in writing by TLC.
- Under the heading "waiver", clause 22.1 provides : —
"In no event will any delay, failure or omission (in whole or in part) in enforcing, exercising or pursuing any right, power, privilege, claim or remedy conferred by or arising under this Agreement or by law, be deemed to be or construed as a waiver of that or any other right, power, privilege, claim or remedy in respect of the circumstances in question, or operate so as to bar the enforcement of that, or any other right, power, privilege, claim or remedy, in any other instance at any time or times subsequently."
Clause 27 states that "[n]o modification or variation of this Agreement shall be valid unless it is in writing and signed by or on behalf of each of the parties …".
The judgment below and the issues on this appeal
- The Judge set out in some detail the terms of the Agreement and the history of dealings between the parties, both before and after the Agreement was signed, and to which I have not so far referred. He then went on to explain that both Hudson's Bay first claim and Umbro UK's counterclaim depended in part on the question whether certain products were off-field wear. That issue, he said, turned on the proper construction of the Agreement, and in particular clause 2, and in particular the expression identifying what was excluded from the scope of the Agreement, namely articles which are "specifically intended to be used on the field of play for soccer".
- The Judge discussed the meaning of the expression in paragraphs 73 to 79, saying this:
"75. … [T]he whole phrase 'specifically intended for use on the field of play for soccer' should be should be construed as a whole … . It makes little sense in the context to speak of anything being specifically intended for activities carried out by people training or people watching the game, however purposefully they may be doing so (except in the limited context of teamwear itself). Equally I am inclined to think that 'specifically' has a meaning approaching that of 'exclusively'. … In my view … the field of play means the actual field of play in a game of soccer, including informal and practice games … .
76. Still addressing the words 'specifically intended', they do not in my view refer to the intention of an actual ultimate buyer, the end-user. That would lead to confusion and uncertainty. … I conclude that this is not a subjective question of anyone's actual intention, because that again would lead to even greater uncertainty in the operation of the licence. In my view the intention must instead be determined by objective factors, and the intention must be that of a hypothetical supplier or buyer."
- The Judge then considered Hudson Bay's first claim at paragraphs 80 to 84, which was based on the contention that, contrary to its obligations under the Agreement, Umbro UK had authorised Dick's to market goods which were not "specifically intended for use on the field of play for soccer". He found that, in respect of some such types of clothes, Umbro UK was in breach. However, he considered that the only relief which he could properly grant Hudson Bay was a declaration, as Dick's was not a party to the proceedings, and damages for breach of contract to be assessed.
- The Judge then turned to Umbro UK's counterclaim, which he described in paragraph 85 as being "that [Hudson Bay's] marketing of pocketless soccer basics [i.e shorts and shirts] and associated tracksuits through S&S catalogues was not authorised by the [Agreement], on the ground that those articles are on-field wear." He first had to decide whether these "pocketless soccer basics" were on-field or off-field wear. He considered that issue and decided, in favour of Umbro UK, that they were on-field wear (paragraphs 86 to 89). In the next paragraph, he turned to the tracksuits (or warm-ups as they are also known) and concluded that they too were on-field wear.
- He then considered Hudson Bay's argument that Umbro UK, through the agency of Miss Jackson of Umbro US, had approved the marketing of the soccer basics. He considered and rejected the contention that Miss Jackson had authority to bind Umbro UK in paragraphs 97 to 103. He then dealt with a waiver argument raised by Hudson Bay at paragraphs 104 to 111, and rejected it. At paragraphs 112 to 115, he also rejected a so-called retrospectivity argument raised by Hudson Bay. Accordingly, he found for Umbro UK on its counterclaim, and made appropriate orders against Hudson Bay for damages to be assessed and delivery up.
- At paragraphs 116 to 137, the Judge considered Hudson Bay's second claim, whose essence he described in paragraph 116 as being that "that Umbro have improperly prevented Hudson Bay from exploiting their licence, that they have been obstructive or difficult in the period after Miss Jackson left Umbro". In very summary terms, the Judge held that Umbro UK was in breach of contract, but only to a very limited extent, namely "only by failing to approve the fall 2008 collection until 20 March 2008" – paragraph 140. He was prepared to make an order for damages to be assessed.
- Hudson Bay's appeal has concentrated on overturning the Judge's decision to give Umbro UK judgment on its counterclaim. All the issues raised below on the counterclaim (as summarised above) were raised before us on behalf of Hudson Bay by Mr Ian Mill QC, who did not appear below. His arguments on Hudson Bay's second claim were much more limited in extent. I propose to consider the arguments in substantially the same order as the Judge.
Were the "pocketless soccer basics" and matching tracksuits on-field wear?
- Although it was originally suggested that the Judge's approach to the question whether garments were "specifically intended to be used on the field of play for soccer", as set out in paragraphs 75 and 76 of his judgment (quoted above), was not quite correct, it seemed to me, and it was accepted by Mr Mill, that there was, in reality, nothing between the test put forward on behalf of Hudson Bay and that adopted by the Judge. So the first issue on the counterclaim is whether the answer he gave was correct in relation to the "pocketless soccer basics" and matching tracksuits, discussed in paragraphs 85 to 92 of the judgment.
- The Judge's reasoning so far as the shorts and the shirts were concerned was as follows:
"86. Looking first at the shorts, the shiny fabric, single block colours and streamlined design give these articles the visual features of shorts worn on the field of play. It may be that their performance qualities are not as high as kit used professionally, and that is relevant to the decision, but it is not a decisive criterion. It may be that the fit was different too, but no specific evidence was given on that. The artwork and logos are relatively modest, and the polyester (or polyester-like) fabric, together with the lack of pockets, put them to my mind in the on-field category.
87. Similarly the shirts. The shiny polyester-like fabric, cut and colours of these are different from the garments which I have described as t-shirts … . The logos are all standard in size. They have no pockets, not even small iPod pockets. The colours are mostly primary colours making the shirts closely similar to the teamwear of competitive teams … . In my judgment these characteristics put these garments on-field. The shirts and shorts are available in matching colours, much like official soccer strips.
88. A further factor, which is also relevant to the conclusion, is the way in which these garments were being marketed by S&S. The advertising material in the catalogue (which I have described already) contains indications that the garments were aimed not so much at soccer fans as at soccer players, while they are playing soccer. The models in the catalogue photographs are all, or nearly all, accompanied by a soccer ball, … .
89. The removal (or non-addition) of pockets in that context makes a difference which is in the end decisive. With pockets, the shirts and shorts can, at least arguably, be said not to be specifically intended for on-field use, but without them the other on-field characteristics are decisive. This conclusion should come as no surprise to Mr Thompson (or indeed to Miss Jackson). Mr Thompson dealt directly with S&S, and his initial suspicion was that their request for the pockets to be removed meant that they intended to sell not only into the corporate market but ultimately also to the soccer-playing part of the market, so competing with Umbro's teamwear business. …"
- Mr Mill criticises this analysis. He says that there was no real basis for saying that the material involved, the size of the logos, the marketing approach or the matching colours supported the conclusion that the pocketless soccer basics, i.e. the shirts and shorts in question, were for on-field use, and that the only remaining ground identified by the Judge, namely the absence of pockets in the shirts and shorts, was a quite insufficient basis to justify the conclusion that they were on-field garments. Mr Mill also relies on the evidence of Mr Adams to the effect that the pocketless soccer basics were "suitable for a myriad of athletic and leisure purposes".
- The conclusion that the shirts and shorts at issue in the counterclaim were on-field garments was an inference the Judge drew from the primary facts, and, despite Mr Mill's submissions to the contrary, it seems to me that it was right.
- It is clear that the "decisive" factor in the Judge's view was the absence of pockets, and in this he was supported by the evidence of Mr Thompson of Hudson Bay and Miss Jackson of Umbro US. Thus, Mr Thompson said in his witness statement that he and Miss Jackson "operated … throughout on the [understanding] that products without pockets were 'on-field'". He also stated more than once in cross-examination that adding pockets converted on-field garments into off-field garments, and that removing pockets converted garments the other way. I am quite unimpressed with the argument that, when giving this evidence, Mr Thompson was talking about the reaction of retailers, rather than the more hypothetical approach required by the Judge's test. I do not accept that he had that distinction in mind: it was never raised in evidence or argument as far as I can see, and, in any event, it appears to have been rejected by the Judge, who was in an excellent position to assess that sort of point after hearing five days of evidence. Miss Jackson said in her witness statement that she knew that "it would be difficult to argue with Dick's that the pocketless soccer basics were off-field products".
- Mr Thompson also clearly expected that the garments in question would be sold for on-field use. The attitude of Miss Jackson and Mr Thompson in the negotiations discussed in the next part of this judgment also seems to have been consistent with the Judge's conclusion. To the same effect, Mr Adams, when considering the S&S catalogue, said that he would not be surprised if the pocketless soccer basics were sold for on-field purposes. His evidence, relied on by Mr Mill, to the effect that the basics could be used for a "myriad" of purposes is no doubt true as a general proposition of fact, but it is not an answer to the question which the Judge had to answer, and which he correctly identified in paragraphs 75 and 76 of his judgment as set out above.
- Quite apart from the views expressed by the witnesses, one would expect shirts and shorts used off-field to contain at least one pocket – for money, keys, mobile phone, or an iPod, for example. On the other hand, on-field shirts and shorts do not need pockets; indeed, as I understand it, FIFA, the relevant regulatory body, forbids pockets to be included in clothes worn while playing soccer.
- In addition, there was undoubtedly other evidence to support the Judge's conclusion, as he said. The way in which the pocketless soccer basics were marketed in the S&S catalogue is consistent with the notion that they were for on-field wear: given the different categories of clothing in the catalogue, there is a little room for argument to the contrary, but I agree with the Judge's assessment, supported as it was by Mr Adams's evidence. The "modest", or "standard", size of the logos and artwork was significant as there is a maximum size for on-field wear (stipulated, I think, by FIFA). It is fair to say that we were referred to very little evidence to support the view that the type of fabric and the matching of the colours were of significance, but, even assuming that there was no evidence to support the relevance of these factors (which would be unfair to the Judge), his reliance on these factors could not possibly impeach his conclusion, which ultimately rested on the pocketlessness of the shorts and shirts.
- Mr Mill pointed to the fact that the shorts were available, and purchased by retailers, in very generous sizes – not merely XL, but XXL and XXXL – and contended that this was inconsistent with the Judge's conclusion. This was not a point which was put to the witnesses or raised below. We were not told what size waist would be accommodated by XXXL, and, anyway, people with ample waists are not excluded from playing soccer. Accordingly, I would not accord that point any weight.
- As for the tracksuits, the Judge thought the position, although at first sight more borderline, was "on analysis, no different", not least because "they were marketed together with the shirts and shorts" – paragraph 90. He continued:
"I have already explained my view that tracksuits will generally qualify as off-field wear, but that if they are sold as part of teamwear they may become on-field. These tracksuits are of a sporty design with modest logos, and they are capable of being used on the field of play if that phrase is construed to include practice or training, as in my view it should. It is true that they could also be worn at home or on the street, and that might suggest that they are not exclusively intended for the field of play. But that is not the test. These tracksuits were being marketed and advertised in the same collection and through the same channel as on-field teamwear shirts and shorts, and they thereby became to my mind specifically intended for use on the field of play."
It appears to me that this analysis is impossible to fault once one concludes, as I have done, that the Judge was right in his view that the shirts and shorts were on-field wear.
- A connected point it is convenient to deal with at this juncture arises on Hudson Bay's counterclaim, and concerns another type of tracksuit sold by Dick's, which the Judge concluded, wrongly according to Hudson Bay, were on-field wear. Hudson Bay's argument on this point (which its solicitors pointed out that I had not dealt with in my original draft judgment) is that, in paragraph 81(3) of his judgment, the Judge wrongly based this conclusion on, or at least took into account, the fact that Dick's sold this type of tracksuit in its capacity as a retailer "specialising in kit for players", whereas Dick's in fact sold a wide range of leisure and sporting clothes. There is nothing in this point. I am quite unconvinced that the Judge's finding as to the nature of Dick's business was not open to him: Dick's clearly specialised in kit for players, in the sense that their stores had various departments or areas dedicated to the sale of clothing and equipment, for on-field purposes, and it was in those departments or areas that the type of tracksuits in question were displayed for sale.
- I would therefore uphold the Judge's decision that the pocketless soccer basics and the tracksuits the subject of Umbro UK's counterclaim, and the tracksuits the subject of Hudson Bay's claim, were all on-field wear.
- Before turning to the remaining issues on Umbro UK's counterclaim, namely actual authority, ostensible authority, contract variation, retrospectivity, and waiver, it is convenient to consider briefly the facts and circumstances which give rise to Hudson Bay's arguments on these issues.
Miss Jackson's approval of Hudson Bay marketing the clothes
- Before the Agreement was signed by both parties, there were discussions between Miss Jackson of Umbro US and Mr Thompson of Hudson Bay, which culminated in Miss Jackson agreeing that Hudson Bay could market the clothes, that is the "pocketless soccer basics" which the Judge held were on-field wear, and therefore outside, indeed specifically excluded from, the scope of the Agreement. Hudson Bay argues that, as a result, Umbro UK, through Miss Jackson, agreed that the clothes could be marketed by Hudson Bay. For this argument to succeed, it must be established that Umbro UK was in some way bound by Miss Jackson's agreement. The argument that she did is primarily put on the alternative bases of actual authority and ostensible authority, both of which were rejected by the Judge.
- A brief summary of the relevant facts is necessary to put the arguments in their context. As I have mentioned, Miss Jackson was appointed president of Umbro US in 2006, and one of her first actions was to enter into a contract with Dick's ("the Dick's licence") to sell on-field wear through its large, popular network of sporting goods stores. Initially it was to be signed by Mr Hare of Umbro UK, but when she asked her immediate boss in England, Mr Cunningham of Umbro UK whether she could sign the Dick's licence as it would be more convenient, he emailed in reply: "You are the queen and can sign anything you like." Accordingly, she signed the Dick's licence on behalf of Umbro UK.
- So far as the Agreement is concerned, she started negotiating the commercial terms with Mr Thompson in November 2006, and they completed their negotiations four or five months later. As the Judge found in paragraph 28, "Miss Jackson did not have a free hand in this process. I am satisfied that it was clear to her and also to Mr Thompson, through several e-mails sent between them and TLC … that Umbro UK executives in England needed first to be persuaded to authorise negotiations with Hudson Bay in principle and later to approve the commercial terms in detail." Further, Miss Jackson did not sign the Agreement. Indeed, although Mr Thompson signed on behalf of Hudson Bay (and paid $40,000 by way of advance on royalties) in June 2007, it was not until October 2007 that the Agreement was signed on behalf of Umbro UK. This delay was, as Mr Thompson well knew, as he found it very frustrating, attributable to the fact that it was signed in England by a director or other senior employee of Umbro UK.
- Even though the Agreement was not signed, Mr Thompson and Miss Jackson were operating on the basis that it had been. After a number of discussions between Mr Thompson and Miss Jackson, Mr Hudson Bay, through Miss Po Kang, prepared computer assisted designs of garments, known as "the soccer basics collection", and submitted them to TLC for approval in accordance with clauses 10 and 13 of the Agreement, during May 2007. Concern was expressed to Mr Thompson by Miss Jackson about the absence of pockets in the shirts, and eventually, on or about 4 June, approval was given to the soccer basics collection, all of which had pockets.
- Hudson Bay then went ahead with marketing, and taking space in catalogues, such as those of S&S. In early October, S&S wrote to Hudson Bay suggesting changes to the styles, and in particular suggesting removing pockets from the shorts and the shirts. The Judge said, in paragraph 44, that "Mr Thompson realised the problem, and relayed the request to Miss Jackson". In the next paragraph of his judgment the Judge said this:
"Miss Jackson too realised that there was a problem. Her immediate e-mail reply was, 'Damn, Jock, This is quite a pickle!!!'. She admits that she realised that shorts and shirts sold to S&S without pockets might ultimately be sold to soccer teams, and that this would cause a problem with [the] Dick's licence and with Umbro's own teamwear business. Even so, she ultimately formed the same commercial view as Mr Thompson, namely that the nature of S&S's business was sufficiently different from those of Dick's and Umbro itself that the sales to S&S would not harm them. On 4 October 2007 she approved the removal of pockets from these shorts and shirts, but the intention was to limit this approval to the S&S corporate catalogue market. There is no evidence that this approval was given in writing. It was given orally over the telephone."
- Hudson Bay went ahead on the basis of this approval. In December 2007 Miss Greenberg of TLC appreciated that Miss Jackson's approval of the soccer basics line without pockets might not be valid, as shorts and shirts without pockets were on-field wear and did not fall within Hudson Bay's licence. She proposed a variation of the Agreement ("the variation contract"), and drafted provisions for consideration by Mr Thompson and Miss Jackson. They discussed, amended and eventually approved the terms, and the variation contract was signed by Mr Thompson, on behalf of Hudson Bay, on 2 January 2008 and by Miss Jackson, purportedly on behalf of Umbro UK, soon afterwards.
- The variation contract is headed "revised/amended deal proposal" and, on the next line, are the words "subject to contract". The terms of the amendment included this:
"Special Term: Shorts with no pockets … & Shirts with or without pockets may be sold to the Ad Specialty Corporate Catalogs (ASI) only specifically: Broder Brothers, Bodeck & Rhodes, Heritage Imprints, S & S, [Staton] & Virginia Tees. ASI Products may not be sold to any brick & mortar, catalog or e-commerce retail channels."
- Shortly after this, on 15 January 2008, Miss Jackson was dismissed from her employment with Umbro US pursuant to a decision made by Umbro UK, for reasons unconnected with the operation of the Agreement, about "which Umbro [UK] itself had little detailed knowledge at that stage", as the Judge said at paragraph 50. Within less than two weeks of taking up her post, Miss Jackson's replacement, Ms Hanson, wrote on 24 January questioning in strong terms whether approval could have been given by Miss Jackson to Hudson Bay marketing "teamwear products". From that point, although the parties had further discussions, the relationship between Hudson Bay, on the one hand, and Umbro UK and Umbro US, on the other hand, deteriorated, and eventually led to these proceedings.
- For present purposes, I propose to ignore the point that the Agreement requires any variation to be agreed in writing. The effect of such a provision when there has been what would otherwise be a valid oral variation raises an issue with which it is unnecessary to grapple in the light of the conclusions which I have reached. So I proceed as if the Agreement did not include clause 27.
Did Miss Jackson have actual authority?
- There is no doubt that Miss Jackson approved the pocketless clothes, but the answer raised by Umbro UK is that it was not bound by that approval as she had no authority to contract on Umbro UK's behalf. Given the conclusion that the Agreement did not extend to the pocketless clothes, it must follow (subject to one point) that, in order to succeed in defeating the counterclaim, Hudson Bay must establish a variation of the Agreement or the creation of an entirely fresh contract, permitting it to market such clothes.
- Actual authority depends on the arrangements between alleged agent and alleged principal, although, of course, other evidence may throw light on the question. Miss Jackson was not a director, or even an employee, of Umbro UK, as the Judge pointed out, and he went on to say this:
97. As president of Umbro US Miss Jackson had authority to bind Umbro US, and Umbro US was, I find, authorised to give approvals on behalf of Umbro UK in respect of products covered by the licensing agreement, and otherwise to manage the day-to-day operation of the agreement. …
98. But I find nothing to suggest that Miss Jackson had actual authority to bind Umbro UK in such a matter as the making or modification of formal agreements. Mr Silverleaf [then acting for Hudson Bay] points out that there is nothing explicitly limiting Miss Jackson's authority either, but for a non-director and non-employee that negative proposition is in my view not enough. To my mind it follows that she had no actual authority to bind Umbro UK with approvals of articles not otherwise covered by the licence. If an article lay outside the scope of the licence, then its marketing could be approved only by a modification of the existing licence or by the grant of a further licence, and Miss Jackson had no actual authority to do either of those things."
- Mr Mill attacks this conclusion on two grounds. The first rests on the "you are the queen" email, referred to in paragraph 38 above. That is hopeless: the email was clearly intended to be, and was understood by Ms Jackson to be, jocular. She was authorised to sign the Dick's licence as an administrative act, as the terms had been agreed by Umbro UK, and, more importantly, she needed to get express authority to sign that licence. Even more importantly, the history of its drafting and signing makes it pretty clear that Ms Jackson only had authority to negotiate (if that has any legal significance), and, after the Agreement was signed, to operate it on behalf of Umbro UK. It is true that there was only limited evidence from Umbro UK on the issue of actual authority, but, as Tomlinson LJ said, it would be difficult to prove a negative. Further, as Mr Morpuss QC, for Umbro UK, pointed out, there was some evidence, namely that of Mr Prothero of Umbro UK, the person to whom Miss Jackson was answerable.
- The second point in this connection made by Mr Mill seems to me to raise a much more powerful argument, in principle, if not (sadly for Hudson Bay) on the facts of this case. He contends that it cannot have been intended that Miss Jackson's consent could not be safely acted on by Hudson Bay in relation to garments which both she and Mr Thompson reasonably and honestly believed fell within the scope of the Agreement, but which, it transpired later (e.g. as determined by a court), were not in fact within its scope. In my view, although the contention is not entirely easy to reconcile with the point just made, and it is not without its practical difficulties (e.g. when is a belief in this context reasonable?), it is a telling point, bearing in mind that one has to approach the meaning and effect of the Agreement on the basis that it should produce a practical and fair result.
- In my opinion, there is therefore a powerful argument that, in such a case, Umbro UK would have been bound (whether through an implied term, implied agency, or, possibly, on some other basis) by a consent given by Miss Jackson. However, assuming that the argument is good in principle, I agree with Mr Morpuss that it does not assist Hudson Bay here.
- It is clear from the brief history recited above that this was not a case where there was any real belief, or even doubt, on the part of Miss Jackson or Mr Thompson as to whether pocketless shirts and shorts fell within the scope of the Agreement. They both worked on the basis that pocketless shorts and shirts were on-field wear, as I have explained. Further, Miss Jackson did not deny the proposition put to her in cross-examination that deciding whether to give Hudson Bay the green light on soccer pocketless basics was difficult because she was "permitting Mr Thompson to start selling something which was outside the … Agreement". The way in which Miss Jackson gave her oral consent, "Go for it!" or words to the like effect, was also quite telling, as was the subsequent preparation of the "subject to contract" variation contract.
- Assuming in favour of Hudson Bay the point that an approval by Miss Jackson to apparel which she and Mr Thompson reasonably and honestly believed fell within the scope of the Agreement would be binding on Umbro UK, I do not consider that the point can assist Hudson Bay here. Both parties not merely suspected, but believed, and had talked on the basis, that the clothes in issue, namely the pocketless soccer basics, were on-field wear, and therefore excluded from the scope of the Agreement.
Did Miss Jackson have ostensible authority?
- Unlike actual authority, ostensible authority concentrates on the relation between the principal and the party alleging the authority, although the acts and statements of others, including those of the alleged agent, may be relevant. In this case, the Judge's observations on the issue were as follows:
"99. As for ostensible authority, Hudson Bay would need to show that Umbro UK, not merely Miss Jackson alone, had unambiguously held her out as having authority to bind Umbro UK in regard to the making of a licence or the modification of the agreement. I find no evidence that they did. On the contrary the history of the delayed signature for the licensing agreement itself, leading as it did to considerable frustration for Mr Thompson … showed that it was executives at Umbro UK in England, not Miss Jackson, who were held out as being empowered to execute the contract. …
100. Mr Thompson was indeed aware that Miss Jackson was in this respect answerable to her bosses in England. He and she had negotiated the commercial terms, and they had chosen to proceed on the assumption that the agreement would in due course be executed, with retrospective effect. But he knew that the execution would only follow when executives at Umbro UK had first been persuaded of the scope of the licence in principle and then had agreed the other terms. All of that ultimately happened."
- In my view, there is no answer to this analysis and conclusion. As the Judge said in paragraph 28, when discussing the negotiation and execution of the Agreement:
"[I]t was clear to [Miss Jackson] and also to Mr Thompson, through several e-mails sent between them and TLC … , that Umbro UK executives in England needed first to be persuaded to authorise negotiations with Hudson Bay in principle and later to approve the commercial terms in detail."
Thus, Mr Thompson ought to have realised, at the time that he was waiting for the Agreement to be executed, that Miss Jackson did not have authority to sign it, and that only a senior person at Umbro UK could do so.
- Miss Jackson said in evidence that she had authority to bind Umbro UK, but the Judge took that evidence into account, and rejected it, as he was clearly entitled to do. An agent cannot clothe himself with ostensible authority simply by saying that he has authority – see Armagas Ltd v Mundogas Ltd ("The Ocean Frost") [1986] AC 717. Reference was made to the reasoning of this court in First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] 2 Lloyd's LR 194, but that was a wholly, if subtly, different case, where the alleged principal was bound by the agent saying not that he approved a facility letter on behalf of the principal and that he (impliedly) had authority to bind the principal, but that the principal itself had approved the facility letter. There was no suggestion, in the pleadings, evidence or argument, that Miss Jackson had stated, or even implied, that Umbro UK personnel had approved Hudson Bay marketing pocketless soccer basics. On the contrary: the clear implication from what she said to Mr Thompson was to the opposite effect. Mr Thompson for his part did not understand that Miss Jackson had obtained such approval, still less did he rely upon her having done so. On the contrary, as the Judge found at paragraph 57 of his judgment, he regarded Miss Jackson as having provided the necessary consents for all the S&S products.
Variation, retrospectivity and waiver
- Hudson Bay's variation, retrospectivity and waiver arguments can be relatively quickly dealt with. In short, they each fail because Miss Jackson did not have actual or ostensible authority to bind Umbro UK, and because Umbro UK was unaware of what she had agreed until January 2008. It is, however, appropriate to deal with the arguments in a little more detail.
- So far as the variation contract is concerned, if Miss Jackson had no authority to agree orally that clothing which was outside the scope of the Agreement, as it was on-field wear, could be marketed by Hudson Bay, then it must follow for the same reason that she had no authority to enter into a written agreement to that effect. In addition, although it is unnecessary to decide the point, I find it difficult to see how the variation contract could have become binding in any event, given that both individuals who signed it did so on the basis that it was expressly stipulated as being "subject to contract". There can be exceptional cases where the stipulation is impliedly lifted, but I do not think that an argument to that effect could have succeeded in this case.
- The retrospectivity argument rests on the fact that Hudson Bay's marketing of the pocketless soccer basics was approved by Miss Jackson at about the time that the Agreement was entered into. It is said that, as a result, the Agreement should be interpreted as extending to, rather than excluding, such clothing. This argument, which rests on the contention that the Agreement must be interpreted by reference to the matrix of facts in which it was entered into, may be better framed on the basis of collateral agreement (see City of Westminster Properties (1934) Ltd v Mudd [1959] Ch 129) or estoppel by convention (see Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84). I accept that, if, before the Agreement was executed, the parties had conducted their affairs on the common understanding that some pocketless soccer basics were within the scope of the Agreement, and Hudson Bay reasonably acted in reliance to its detriment that this was so, then it may be possible to spell out a contract or an estoppel which precludes Umbro UK from arguing otherwise, and I am prepared to assume that it could influence the interpretation of the Agreement.
- However, the problem for Hudson Bay so far as any contract or estoppel is concerned, is that Miss Jackson had no authority to agree that any pocketless soccer basics could be marketed by Hudson Bay, and Umbro UK was unaware that she had done so. In other words, her actions and words cannot, in this connection, be attributed to Umbro UK as at the date it signed the Agreement in October 2007; they were not within the knowledge of Umbro UK until the second half of January 2008, and then it promptly made its position very clear. The matrix of facts which can be relied on to assist in interpreting a contract can rarely extend beyond the facts known to both parties, and, in this case, the relevant facts were not known to Umbro UK, and Hudson Bay should have appreciated that they were not known to Umbro UK, or at least cannot reasonably have believed that they were known to Umbro UK.
- As for Hudson Bay's waiver argument, it seems to be primarily a contention that, because the Agreement is a licence, which is merely a forebearance, it was possible for Umbro UK to have permitted Hudson Bay to sell pocketless soccer basics simply by not enforcing its rights promptly. I do not understand this argument. At least in the absence of very unusual facts, such as a very long period of inaction, an essential ingredient of waiver is knowledge of the essential facts on the part of the person alleged to have waived– see Peyman v Lanjani [1985] Ch 457. In this case, Hudson Bay had reason to suspect that Umbro UK had not approved Miss Jackson's authorisation of the pocketless soccer basics, and only six or seven months elapsed between such authorisation and Umbro UK objecting to Hudson Bay marketing such clothes, and that objection was raised as soon as it became aware of the situation.
- If Hudson Bay's waiver argument relies on the fact that the royalties it paid Umbro UK included sums for the clothes which Umbro UK now contend that it cannot market, namely the pocketless soccer basics, that argument fails for the simple reason that Umbro UK was unaware of the fact that part of the royalties it was receiving was attributable to sales of products which were outside the scope of the Agreement.
- In any event, while waiver might have defeated a claim for damages for past marketing of pocketless soccer basics, I fail to see how it could have assisted Hudson Bay in relation to future marketing of such garments. Otherwise, it would be turning waiver into the granting of a substantive right - see per Diplock J in Enrico Furst & Co v W E Fischer Ltd [1960] 2 Lloyd's Rep 340, 349-350.
- Accordingly, I conclude that the Judge reached the right conclusion for the right reasons when he decided to uphold Umbro UK's counterclaim.
Hudson Bay's second claim
- To the extent that this claim succeeded, there is no appeal by Umbro UK. However, to a substantial extent, this claim failed, and it is being appealed, but the extent of the appeal has been significantly curtailed, and the precise way in which it is put has changed.
- Hudson Bay's point is that Umbro UK cancelled an order placed by Hudson Bay for items from Umbro UK's fall 2008 Football Culture Collection. As Mr Morpuss says, it is not entirely easy to understand this allegation, as the Umbro Football Culture Collection products have nothing to do with the Agreement. The Agreement gave no rights, at any rate expressly, to Hudson Bay to have its orders accepted. At any rate on the face of it, in this connection, Hudson Bay was no different from any other potential purchaser of the products in question.
- However, it is unnecessary to decide the point, which was only briefly examined in argument. Assuming that there is to be implied into the Agreement a term that Umbro UK could not reasonably refuse to accept such an order, the order was refused on reasonable grounds. As the Judge held in paragraph 130:
"Umbro [UK] plead that they have a reasonable policy not to process such orders during a dispute with the licensee. Whether or not there was a formal corporate policy to that effect, as to which no satisfactory evidence was given, I accept that in this context it is not unreasonable for Umbro [UK] to act in this way. With an order for Umbro [UK] to supply the product, Umbro [UK] are themselves at risk for the costs of manufacture, delivery and possible re-delivery if the order is cancelled, and they are entitled to take their own commercial interests into account pending resolution of the dispute."
Conclusion
- In the result, Hudson Bay's appeal must be dismissed.
Lady Justice Arden:
- I agree.
Lord Justice Tomlinson:
- I also agree.