England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice The Rolls Building, Fetter Lane, London, WC4A 1NL
		15/01/2016

HHJ David Cooke:

1. The defendants apply by notice dated 6 October 2015 to amend their defence and counterclaim served on 27 March 2015. The amendments sought are agreed in some cases but opposed in others. The action is set down for trial with a 5 day time estimate in a window commencing 7 June 2016. The present position is that pleadings have closed and witness statements are due to be exchanged by 22 January 2016. The application is characterised by Mr. Graham QC as "late" but not "very late". Plainly if any amendments are allowed that require substantial new evidence, time is tight and an amendment to the present timetable will probably be needed. The claimant submits that the effect will be to require a fresh disclosure exercise and assembly of a considerable amount of further evidence on her part. Mr. Graham submits she would be prejudiced as a result but did not go so far as to say she would not be able to meet the trial window.

Background

2. The background to the claim stems from an agreement ("the SPA") made in 2004 for sale of shares in Karen Millen Holdings Ltd ("KMHL"). KMHL was the holding company of a number of subsidiaries, including the second defendant (then called Karen Millen US Ltd). The subsidiaries carried on business in the design, manufacture and sale of women's fashion clothing and fashion accessories in markets in the UK and overseas, using the trade or brand name "Karen Millen" and numerous variations or derivatives of it that I need not detail. KMHL itself and the subsidiaries owned a considerable number of registered intellectual property rights in different countries based on these names. They would also have been entitled to other unregistered rights in different jurisdictions arising from their business activities, such as the right to restrain passing off or similar rights depending on the relevant local law.
3. The majority selling shareholders were Ms Millen and Mr. Kevin Stanford, with whom she had established the fashion design business, together with certain family trusts of theirs. There were also a number of minority investment shareholders who sold at the same time. The purchasers were two companies, Noel Ltd and Mohave Ltd, which were vehicles for venture capital investors financed, it appears, in Iceland. The price paid was (in round terms) £95m, of which £58m was paid in cash and the balance in shares and loan notes of one of the purchaser companies.
4. The terms of the SPA included a number of restrictive covenants and other obligations on the part of Ms Millen and Mr. Stanford intended to protect the business of KMHL and its subsidiaries and the intellectual property rights that they owned. The effect and extent of those obligations is at the heart of the disputes that have arisen subsequently, including this claim.
5. KMHL itself, the two purchaser companies and a number of their connected companies (but not the second defendant) went into administration in March 2009, apparently as a result of the financial crisis in Iceland. They have since been dissolved. The first defendant was incorporated in 2009 and is now a sister company of the second defendant. The defendants claim to be entitled to enforce the covenants and other obligations referred to on the basis that they are the successors in title of the original purchasers (deriving from sales made by the administrators) and/or that they are third parties for whose benefit those obligations were given. This entitlement is disputed.
6. Since the SPA the business sold, as carried on by the original purchasers, their connected companies and successors leading to the defendants, has expanded and developed. It operates in additional countries and through additional sales outlets, some of which are its own shops and others are concessions operated in larger shops. It now includes sale of items other than women's clothing and fashion accessories and the defendants wish to expand it further, using names and marks that are clearly related to and intended to be perceived as associated with, the Karen Millen fashion brand. These items include perfumes, eyewear, watches, fabrics and home furnishings.
7. Central to the issues between the parties is the claimant's contention that her obligations under the SPA (even if enforceable by the defendants) restrict her only (a) in relation to intellectual property rights in existence at the date of the SPA, and (b) from using her name to compete with the business as it existed at that date. The defendants take the position that the SPA amounted to a sale of the entire right to use the name Karen Millen both in relation to the business as it then existed and in any manner in which it might naturally expand, whether in terms of geographical operation or additional products.
8. In previous proceedings in 2011 the defendants sued Ms Millen alleging trade mark infringement and passing off. That claim was settled with an agreement that she would not trade in the EU under any mark similar to any used by the defendants. The agreement did not extend beyond the EU.
9. In April 2014 Ms Millen made an application in a US court for cancellation of certain US trade marks registered by the defendants (applied for after the SPA) that used her name, on the grounds that her consent was required for regulation of a mark including her personal name and she had not so consented. The defendants assert that her consent is given or to be implied from the SPA. Ms Millen has since made her own applications for various US marks including her name. In August 2014 Ms Millen objected to trade mark applications made by the defendants in China.
10. In these proceedings the claimant seeks declarations to establish her position as to the meaning and effect of the SPA and the defendants' lack of entitlement to enforce it. By their counterclaim (in its present form and so far as relevant for present purposes) the defendants seek findings that they are entitled to enforce the covenants in the SPA and

i) That a covenant relating to intellectual property rights ("IPR") at clause 5.1.4 that Ms Millen would not "at any time after the date of this agreement use… in any business any KMHL IPR (as defined at Schedule 2)" is not limited to IPR in existence at, and in relation to trading activities carried on at, the date of the SPA but extends (para 33) to marks subsequently registered in the USA (including marks in respect of goods other than women's fashion wear and fashion accessories in which the defendants have subsequently begun to trade) and any unregistered marks to which the defendants have acquired rights by subsequent trading, in particular the right to use the name "Karen Millen" in relation to goods such as footwear, jewellery, watches and glasses;

ii) That Ms Millen's applications for registration of her own US trade marks, and particularly use of those marks in conjunction with her name, constitutes prohibited use of KMHL IPR notwithstanding that the marks relate to goods other than women's fashion clothes and accessories (para 37);

iii) That because of expansion of the business now carried on by them since 2004 a proposed business of Ms Millen in the USA selling "homewares and related items" (not including women's fashion wear and accessories) would be one which "is similar to or competes with the business of the KMHL Group" and accordingly use in connection with it of the Karen Millen name or one confusingly similar would be a breach of clause 5.1.7 of the SPA (paras 42 and 43);

iv) That the same proposed business and Ms Millen's actions in opposing the defendants trade mark applications and making her own are acts that adversely affect the sales concessions operated by the second defendant in the USA, whether or not they were established before the SPA or are limited to the types of goods sold at that date, contrary to clause 5.1.6 of the SPA.

The KMHL IPR amendments

11. I deal first with the amendments that were referred to as the "KMHL IPR amendments". These propose an additional para 27A which pleads that the definition of "IPR" (wrongly said to be a definition of "KMHL IPR") in the SPA sets out various specific types of rights and goes on to include "rights or forms of protection having equivalent or similar effect". In consequence it is said that "KMHL IPR" includes applications (whenever made) for marks having "equivalent or similar effect" to the marks listed in schedule 5 of the SPA, and in particular the right to make applications and unregistered rights deriving from a US application made in 2000 or "equivalents" to such marks, or rights resulting from trading in the USA before or after the date of the SPA. These USA rights are not listed but collectively referred to as "the 2004 US Equivalent Marks", which term is then added to the later parts of the pleading so as to allege, for instance, that Ms Millen's proposed new business in the USA would constitute prohibited use of those marks as well as the rights already identified in the existing pleading.
12. This is objected to on the ground that the construction relied on is untenable; that the SPA can only be construed (even allowing for the "factual matrix" contended for by the defendants of a business that was expanding and likely to wish to expand further) as limiting "KMHL IPR" to rights in existence at its date. It is said that the defendants are seeking impermissibly to rely on standard boiler plate wording, intended to ensure that the definition catches types of rights not expressly mentioned but in existence at the date of the SPA (for example unregistered rights recognised by local law in foreign jurisdictions) to argue that it extends to rights later acquired and even in relation to business not carried on at that date. Mr. Graham argues that this is the sort of point of construction that can be determined now without a full trial, that it should be resolved against the defendants and accordingly the proposed amendment should be refused as having no real prospect of success (Fattal and others v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767 (Ch)).
13. Both counsel however accepted that the issue as to whether the covenants extend to registered or unregistered rights arising after the date of the SPA, and to trading in types of goods and/or from locations begun after that date is already raised by the pleading as it stands. No doubt the amendment extends that issue somewhat; in part it puts forward new reasons for the contentions already made but there are no doubt areas in which, if the defendants' contentions are accepted, the rights and activities they seek to protect may arguably be wider than under the existing pleading. However the general issue, which might be labelled as "future effects" of the SPA, is clearly already raised.
14. There was some discussion as to the consequences if I were to make a determination on the point of construction now. Mr. Graham said in his skeleton that it would not exclude the defendants from arguing the future effects points already raised by the existing pleading, but in the course of the hearing he amended this position and made clear that if I disallowed these amendments because I accepted his arguments on construction he would be arguing that those points were res judicata and served to prevent the defendants pursuing their existing pleading.
15. In these circumstances it seems to me that it would be wrong to embark on the construction exercise at this stage. Issues of construction of the proposed amendment clearly at least overlap with, even if they are not exactly on all fours with, those raised by the existing pleading. If I were to determine them in favour of the claimant, it seems to me she would obtain a windfall argument in relation to the existing pleaded case in that she will be able to say it has been determined in her favour in circumstances in which there has been no application for summary judgment on that case. The corresponding position would apply if I found in favour of the defendants. Given the nature of this litigation, it must be likely that there would then ensue a secondary argument of enormous complexity as to the extent to which the pleaded case of one or other party was or was not res judicata, with attempts to distinguish that case or parts of it from the construction determined.
16. To the extent that the proposed amendment goes beyond the existing case it seems to me desirable in the interests of finality that any new aspects be addressed at the same time. It would be undesirable, for instance, for either party to be able to argue that the outcome of the trial was not such as to clarify the position in relation to all the rights claimed by the defendants since there might then be an attempt to reopen matters by relying on rights not already dealt with.
17. Mr. Graham also submitted that the claimant was left unclear as to exactly what rights were covered by the amended pleading, in particular by the term "the 2004 US Equivalent Marks". But that it seems to me is not a good argument against allowing the amendment; the issue whether the SPA has the contended future effect is one of principle, and does not depend for its determination on a definitive list of the future rights said to be engaged. Neither side therefore needs, in my judgment, to expend time and cost in seeking to identify the exact scope of such rights, and accordingly there should be no risk of the trial timetable being derailed by any such exercise. If the principle is determined in favour of the defendants, it will no doubt be for them in due course to identify any particular right they rely on, for instance to restrain subsequent competition by the claimant.
18. I should say also that it seemed to me that the suggestion for the claimant that additional enquiries would have to be made before trial as to what if any unregistered rights the defendants may have acquired if the amendment was allowed was inconsistent with the argument that the issue of construction could be determined now in the claimant's favour without evidence, and also with the submission that such enquiry may prove to be otiose if the claimant's construction is upheld.
19. Mr. Graham is right to say that no very convincing reason has been put forward as to why these amendments are sought relatively late in the trial timetable. But since I have not been persuaded by the arguments made as to prejudice to the claimant in preparing for trial, this point is one which is in my judgment outweighed by the desirability of placing all the relevant issues and arguments before the court and dealing with them together.
20. These amendments should therefore be allowed. Having reached this conclusion I express no opinion at all on the respective arguments as to construction and "future effects" of the SPA, and it is in order to minimise any risk of appearing to do so that I have referred to them only in very general terms.

The China amendments

21. The second group of amendments contested were referred to as the "clause 10/China amendments". Although grouped together in the submissions, there are in fact in my view two categories of issue raised.
22. The issues in relation to China arise because the first defendant has relatively recently begun trading in China through a Chinese licensee company, through concessions operated in various stores and by way of online sales through a company in Hong Kong. For these purposes it made applications for two registered trade marks using the "Karen Millen" name. The claimant has filed oppositions to those applications. The defendants infer that Ms Millen intends to establish a business of her own in China, which they say would amount to competition prohibited by clause 5.1.7 of the SPA. By the proposed amendments they seek relief equivalent to that already sought in relation to the corresponding actions in the USA. One proposed amendment (para 61A) was withdrawn at the hearing as it was accepted that on any basis the entities now trading in China cannot be part of "the KHML Group" as defined in the SPA.
23. The claimant again submits that these amendments rely on untenable constructions of the SPA. But it seems to me the issues raised in relation to China are very largely the same as, or similar to, those in relation to trading in the USA. It is already pleaded that the defendant's construction of the SPA is such as to apply to acts and rights in any part of the world, so what is decided in relation to the USA will have knock on effects for other countries, including China.
24. The claimant submits that if the China amendments are allowed she will be required to investigate for the first time the extent of the rights, particularly unregistered rights, the defendants may have acquired through their trading in China. This she says will be difficult and expensive and she will accordingly be prejudiced; she has no direct knowledge of the extent of those trading activities and would need to embark on extensive factual research and then form her own view as to the rights such trading gives rise to under Chinese law.
25. That would indeed be a difficult exercise, but in my view it is one that would be wholly unnecessary. As with the arguments in relation to the USA, the question whether the SPA should be construed so as to extend to future acquired rights or future business in China is one of construction of the agreement in principle, and does not depend on what business has in fact been conducted or the exact nature of the rights that have, in the circumstances that have happened, actually been acquired or exercised. No doubt if the defendants' contentions are upheld in whole or in part it will become relevant to identify what rights exist within any category held by the court to be protected, but that is a matter for the future.
26. It is right to note that part of the relief claimed by the defendants (prayer, para 2) is for various injunctions (for instance against carrying on business in competition). But that pleading is not proposed to be amended and (a) already seeks injunctions effective in any part of the world and so already raises an issue as to whether the various acts complained about should be prevented in China and (b) insofar as it relies on identification of rights or categories of rights, it is on those identified by the unamended terms of the defence and counterclaim and not the new category of "2004 US Equivalent Marks" now introduced.
27. For these reasons it would again be convenient, and in my view in the interests of justice and finality, that the China issues be dealt with at the same time as those already pleaded. I am not persuaded that the claimant's fears of the need for extensive additional evidence or disclosure are justified and accordingly there is in my view no significant prejudice to her and no reason why the trial date would be imperilled. These amendments should be allowed.

The clause 10 amendments

28. Finally there are the "clause 10" amendments. Clause 10 is a standard form further assurance clause requiring all parties to the SPA to do any act which "may reasonably be necessary to give full effect to this Agreement". The defendants seek to plead that this imposes a positive obligation on the claimant to give her consent to registration of the marks the defendants have applied for in the USA and in China. As referred to above, such consent may be required, at least in the USA, in the case of marks using her own name.
29. The objection to these amendments is again based on construction of the SPA. There is no express obligation to give such consent, and it is said that the further assurance clause is only for the purpose of sweeping up matters such as unforeseen formalities that may be required to implement the obligations expressly set out and does not impose additional substantive obligations of its own.
30. Given however that the thrust of the defendants' case is already that the SPA should be read as having a general future effect such that it impliedly extends to protect the business sold as it develops and expands in the future into areas that they contend are related together with the rights that come in to existence and/or are sought to be created from time to time in the course of such business, it seems to me that the clause 10 issue is again not one that can sensibly be separated out and decided now.
31. If the defendants are successful in their general contention, it seems to me they may plausibly argue that the claimant is impliedly also obliged to perform positive acts to assist them in such development and expansion. The points the claimant makes about the unascertainable and variable extent of such future business activities, and consequently of the restrictions on her own ability to trade and (now) of the positive obligations imposed on her if the defendants are correct, are all ones which may be relied on in support of her contention that the defendants' position cannot be right. As before, I express no view either way on those respective positions.
32. The Clause 10 amendments should therefore also be allowed.
33. I invite counsel to agree the order resulting, in which case there need be no attendance at handing down. If there are matters arising parties should agree a time estimate; if it is 30 minutes or less I will deal with them at handing down; if more there should be no attendance at handing down and I will list a further hearing later.