England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
MANCHESTER DISTRICT REGISTRY.
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
INTELLECTUAL PROPERTY LIST (ChD)
INTELLECTUAL PROPERTY

		Manchester Civil Justice Centre 1 Bridge Street West Manchester M60 9DJ
		20th April 2018

HIS HONOUR JUDGE PELLING QC:

Liability of the Second Defendant

1. The issue which I now have to resolve, which arises out of the judgment I circulated and handed down a few moments ago, [2018] EWHC 728 (Ch), concerns the degree to which the second defendant, Sports Direct International PLC, should be held liable in respect of the inducing a breach of contract and the 2014/15 infringement claims.
2. The defendants' pleaded case in relation to the second defendant is that it is a holding company which carries out no day to day activity at all. That was not challenged in the course of the trial and no evidence was adduced to contradict that point. The submission which is made on behalf of the claimants comes to this: The second defendant was the employer of Mr Nevitt. Mr Nevitt was the human agent for those that were responsible for the acts of infringement and for inducing the breach of contract relied on by the claimants and, therefore, the second defendant is vicariously liable for the acts and omissions of Mr Nevitt. The claimants rely on various findings that I made in the judgment, relating to the way in which Mr Nevitt operated across the group as a whole.
3. It is necessary to take a step back and to remind the readers of this judgment of the conclusions that I reached concerning the way in which the Sports Direct group of companies operates. It is an issue which I alluded to at various stages in the judgment, but is summarised towards the second part of paragraph 106 in relation specifically to the inducing a breach of contract claim. In that paragraph, I draw attention to the fact that the commercial executives employed by the Sports Direct Group did not draw any particular distinction between the various legal entities making up the group. Consistently with this approach, Mr Nevitt described his role as being Global Head of Commercial at the second defendant, in fact he used to manage all purchasing across the Sportsdirect group and now runs both sales and purchasing across the group.
4. A little later and towards the end of that paragraph I refer to the fact that Mr Nevitt confirmed that he had direct responsibility for the activities of Republic and WCC, each of which in part were interested in and responsible for the USC brand, and that when he identified Mr Adam Barton as being the head of USC and as such responsible for the buying team for USC on a day to day basis, he added that "Mr Barton reports to me and I have a final say in any decisions". Thus, Mr Nevitt was and is employed by a holding company but carries out a senior managerial role for each of the operating companies within the group.
5. I suggested to counsel for the claimants in the course of his submissions a moment ago and I did not understand him to disagree, that the claimants' case at trial in relation to the claim for inducing a breach of contract, was that it was Republic, as the purchaser of the Administration Goods, that induced WCC to breach the terms of its contract with the claimant. That is the basis upon which the case was advanced. It has not been suggested that the second defendant jointly and severally induced a breach of contract or at any rate such a case was not advanced at trial, even if such a case might have been available on the basis of the pleadings as they were originally drafted. The relevant paragraphs of the Particulars of Claim are paragraphs 30 and 31.
6. Paragraph 30 states:

"When the defendants, or some or any of them, entered into an agreement to purchase WCC goods from WCC and/or when they permitted the offer for sale and/or sale of WCC goods through Sports Direct stores or through Sports Direct internet sites, in each case they each actually knew that in doing so they were inducing a breach of the agreement by WCC. Although very generally pleaded, the only company that falls within this category of activity is Republic."

As I have said, the claimant's case at trial was that It was Republic and only Republic who acted as alleged. In those circumstances, on both the case as pleaded and the case as advanced at trial, liability for inducing a breach of contract comes home to rest as against the first but not the second defendant. It was not alleged that the second defendant performed any of the pleaded acts whether acting by Mr Nevitt or otherwise. In so far as Mr Nevitt was involved at all it was as agent for Republic.

7. The next issue that arises concerns the infringement claims. The relevant part of the claimants' pleaded case is at paragraph 38 of the particulars of claim, which states:

"In the premises, relying in particular on the matters set out in the letter from RPC dated 5th July 2015 and on the matters set out in paragraphs 27 and 33(b)(ii) above, the first to sixth defendants have acted in a common design to secure the acts complained about under the heading 'The 2015 acts herein' such that they are jointly and severally liable for those acts."

8. The pleaded defence in relation to all allegations against the second defendant was always that it was a holding company which took no part in any of the acts of which complaint is made in these proceedings. Nothing in this summary should be taken as qualifying or detracting from the findings set out in the substantive judgment. However, in broad summary, the allegations which I found proved and in respect of which the claims of infringement depend, all concern exclusively the activities of the first defendant broadly in causing or permitting itself to be substituted as purchaser of the relevant goods in place of WCC. There is no allegation advanced at trial that suggested the second defendant played any part at all in the acts of infringement that were relied upon.
9. Whilst it is perfectly true to say that Mr Nevitt was employed by the second defendant, indeed that's not in dispute, the key point as I have explained is that he acted across all the companies within the group as necessary for the affairs of the group generally. Thus, in relation to any particular activity which is alleged against the Sports Direct Group, it is first necessary to ascertain which of the companies were acting unlawfully and then to ask, to the extent it is necessary, who was the human actor responsible for that activity? In this case, the company which was responsible for unlawful activity, namely infringement, was the first defendant. No allegation was made that the second defendant was guilty of infringement. To the extent that Mr Nevitt caused or permitted this activity he did so in his capacity as the or one of the commanding minds of the first defendant. In those circumstances, the claim against the second defendant fails in relation to both the inducement claim and the infringement claim.

Scope of Final Injunction

10. The issue that I have now got to decide concerns the scope of an injunction, which is common ground should be granted, in relation to the future trading activity of the relevant defendants. The question arises in relation, first, to paragraph 1 of the proposed order which is concerned with the Shower Gel Claims which were not the subject of a contested trial. The proposal from the claimants is that there should be an order that the first to fifth defendants, whether acting through their officers, employees or agents or in any other way, shall not infringe EU trademark number 004033742 by dealing in the gels as defined in the particulars of claim or in any other way.
11. In relation to the Total Goods, the subject of the contest on liability that I disposed of with the substantive judgment handed down a few moments ago, the proposal from the claimant is that there should be an injunction to the effect that the Sports Direct defendants, and each of them whether acting through their officers, employees or agents or in any other way, should not do the following acts or any of them:

(a) In the European Union and in the UK infringe the EUTM.

(b) In the UK infringe the UK mark

12. In relation to paragraph, the claimant wishes to extend the order to all possible infringements that might arise by the inclusion of the words "or in any other way". In relation to the Total Goods infringement claim, the defendants seek a qualification limiting the effect of the injunction to the Administration Goods.
13. The principles that apply in this area the outcome depends fairly critically on the context in which the claim for an injunction arises. In relation to trademark infringement, my attention has been drawn by counsel for the claimant to the decision of the Court of Appeal in Specsavers v Asda [2012] FSR 20 at paragraph 5 to 21 and, in particular, to paragraphs 8 and following within the Court of Appeal judgment. The point which was made in that case by reference to a judgment of Mr Justice Millett, as he then was, in an earlier case called Spectravest Incorporated was the following:

"In intellectual property cases the claimant is concerned not only to stop exact repetition of the defendant's current activity which can be described with particularity, but to prevent fresh invasions of his rights in ways which cannot be foreseen or described exactly. The ingenuity of those who infringe copyright and trademarks and engage in passing off is boundless and the plaintiffs cannot be adequately protected by orders which are caverned or confined. That is the reason for standard forms of injunction in such cases with their inevitable references to 'otherwise infringing' 'a great substantial part' 'to like effect' 'tolerable imitation' and 'otherwise passing off.' Where a defendant faced with such an order acts honestly and reasonably this will mitigate and even excuse a breach of the order, but if a breach is proved it will be for him to mitigate or justify it and his excuse may need to be thoroughly probed if the circumstances are suspicious."

14. In the Specsavers case reference was also made to a decision of the Court of Appeal in Coflexip SA v Stolt Comex Seaway MS Ltd [2001] R.P.C. 9, where Lord Justice Aldous said this:

"The judge seemed to believe that injunctions which restrained infringement of a pattern were broad injunctions, but they equate to the statutory right given, a right which has been held to have been validly granted and infringed. The injunction granted by the judge would allow the defendant to do other acts, even though they may infringe. The defendant in those circumstances would be better off in that a change from that which is described and shown in the process description would allow him to continue in business without having to seek guidance from the court for adopting the change ..."

15. In light of these authorities, the principles which apply in summary are these: Firstly, in all cases where a final injunction is sought whether or not to grant an injunction and in what terms is a matter for the discretion of the court because, as was submitted on behalf of the defendants, the remedy is an equitable one. Secondly, once it has been decided that an injunction is appropriate in principle, the propositions identified in the authorities cited a moment ago will generally apply unless a departure can be justified by reference to the particular circumstances of the case. Although described by counsel for the defendant as being unusual, in my judgment the relevant circumstances of this case are correctly described by the claimants' counsel as having involved at least three separate types of infringement, being an infringement in relation to the 2013 goods, the gel infringement and the total goods infringement. In those circumstances, the claimant is fully entitled to say that it is appropriate that there should be protections imposed by the court that ensure there are no other additional breaches in the future.
16. That being so, it is not appropriate to qualify the injunctions in the manner contended for by the defendants for two reasons. First, as pointed out by Lord Justice Aldous in Coflexip, an injunction in the terms sought by the claimant simply equates to their statutory rights. Secondly, as pointed out in the Spectravest case, if an injunction in general terms is granted then a defendant acting honestly and reasonably will be able to excuse a breach of the order if acting honestly and reasonably. In those circumstances, it seems to me that if the injunction is to have any value at all (and it is common ground that an injunction should be granted on the findings I have made) it needs to be in the broad legal terms identified by the claimant. An order in those terms vindicates the rights, and is no wider than the statutory rights, of the claimant and the defendant's position is protected by the analysis set out in the Spectravest judgment.

Scope of Damages Inquiry

17. The issue that I am now required to make a ruling on concerns whether or not the scope of any inquiry as to damages, if that is what is ultimately elected for by the claimant, should be confined so as to exclude any inquiry as to any damages to reputation to the mark.
18. The submission which is made on behalf of the defendants is that there was evidence led concerning damage to the reputation of the mark from Mr Ball; that was the only evidence before the Court and his evidence is such as to lead to the conclusion that there was no objective evidence of damage to reputation and, therefore, that issue should be excluded. The claimant argues that this submission is unwarranted in the circumstances of this case because it ignores the context of Mr Ball's evidence.
19. The context in which the issue of damage to reputation was material for the purposes of the present trial is satisfactorily demonstrated by reference to the the structure of the defendant's closing written submissions.
20. In relation to infringement, only very narrow issues were left to me to determine. The first and principal issue which I was required to determine was an issue which was referred to in shorthand terms in the context of this litigation as "exhaustion" which was intimately rolled up with issues concerning consent by the trade mark proprietor. The question of exhaustion was addressed by the defendants in their skeleton submission starting at page 82.
21. Within the section of the defendants' closing submissions concerning exhaustion, there was a separate section concerning consent. That was broken down into further subheadings concerning Indian-based suppliers and a Hong Kong-based supplier called Runway that I deal with at some length in the judgment. This part of the defendants' written submissions conclude at paragraph 112 and following under a sub-heading "Conclusions on consent".
22. At paragraph 139 of the judgment, I reject a defence based on exhaustion and consent and, therefore, found established the claims for breach of section 10.1 and 2 of the Trade Mark Act and/or Articles 9(2)(a) and (b) of the European Trade Mark Regulation. As I said in that paragraph, In light of these conclusions, it is not necessary for me to consider whether the claimants were entitled to rely upon section 12(2) of the Trade Mark Act or Article 15(2) of the European Union Trade Mark Regulation, which was an issue which would be relevant only had I concluded that consent had been established.
23. Returning to the defendants' submissions, starting at paragraph 115, under the heading "Reputation" there were various submissions made concerning reputation. However those submissions were relevant only to the question of whether or not a claim under section 10.3 of the Trademark Act and/or Article 9(2)(c) of the European Union Trade Mark Regulation was established. As I mention at paragraph 140 of the judgment, in light of the conclusions that I had reached already concerning section 10.1 and 2 and Articles 9(2)(a) and (b), my conclusions in relation to section 10.3 and Article 9(2)(c) were, essentially, academic, but I nonetheless made findings in relation to the reputation issue that I was invited to deal with.
24. Returning to the defendants' submissions, there then appears a subheading, "Legitimate Reasons to Oppose Further Commercialisation". That is an issue which could only have been relevant if I had rejected the claimant's case on exhaustion and consent. It is in that section of the submissions that the issue concerning damage to reputation from sales of the SD goods appears. It is true to say that I made no findings in relation to that particular allegation. I did not do so because it related exclusively to the further commercialisation point, which itself did not arise, having regard to the findings I had made in relation to exhaustion and consent. It was only in that context that the issue concerning damage to reputation was ventilated. This is unsurprising since this trial is concerned with all liability issues and not with quantum.
25. The question which now arises is whether the claimants or second claimant should be precluded from arguing, if they opt or it opts for an inquiry as to damages, that there was damage to reputation. In my judgment, that would not be a fair method of proceeding.
26. The issue which had to be resolved on this trial were all issues of liability. I have resolved all the issues of liability. The question which now arises will be what, if any, remedies should be accorded to the claimant in order to make good their success on liability in respect of the infringement claim. That is a subject which should exclusively be dealt with in either an inquiry as to damages or an account of profit. It is not material in the circumstances of this case on the issues of liability, in the light of the findings that I have made.

Costs

27. As will now be apparent, this is a hearing to determine the scope of an order made following a trial as to outstanding issues of liability in relation to a hard-fought claim between the claimants and the defendants in which claims have been made both for trade mark infringement and for inducing a breach of contract. I have resolved all the issues of liability and it is clear that in the light of those findings there will have to be a further hearing, either for an account of profits and/or for an inquiry as to damages. In those circumstances the claimants seek an order that the defendants pay some or all of their costs to date.
28. The difficulty is that there are Part 36 offers in play the terms of which are unknown to me, but which will depend, for their efficacy, on the findings which are made on any inquiry as to damages and/or account of profits. Although it was submitted on behalf of the claimants that I should make some form of hybrid order which dealt with the costs which had been incurred down to the date when the first Part 36 offer was made, leaving over all the costs which arose after the date of any Part 36 offer, in my judgment that is manifestly a disproportionate, inappropriate and unsatisfactory way of proceeding. If there is a Part 36 offer in play, then it is only following the completion of the quantum stages of this case that it would be possible to discern who has been successful and who has not and whether the Part 36 offer has any impact on the costs order that should be made.
29. In any event, it seems to me that to embark upon a methodology which involves imposing an order for costs for part of the trial of liability, then addressing the issues of costs that arise after the date of a Part 36 offer, so far as liability is concerned, and then also to attempt to deal with costs in relation to any quantum inquiries is a recipe for complexity, prolixity and avoidable expense, both in terms of costs for the parties and resources so far as the court is concerned. Where there has been a Part 36 offer made and the parties have either been ordered to or agreed to split the trial between liability and quantum, the appropriate course is to wait until after the quantum issues have been resolved before attempting to address questions of costs.

Dissemination of Information

30. The application I now have to determine appears in the submissions made on behalf of the claimant under the heading "Dissemination of information concerning the judgment". The claimant seeks an order which makes provision pursuant to paragraph 26(2) of CPR PD 63 which says: "Where the court finds that an intellectual property right has been infringed the court may, at the request of the applicant, order appropriate measures for the dissemination and publication of the judgment to be taken at the expense of the infringer".
31. At the outset of these submissions made on behalf of the claimant, I suggested that such an order was unnecessary and disproportionate in the circumstances of this case. I remain of that view. This is a relatively straight forward trade mark infringement case involving a relatively narrow category of goods with a relatively modest commercial value. In those circumstances, the notion that it is necessary to impose upon the defendants an obligation to publish anything at all seems to me to be in excess of what is reasonable and proportionate.
32. The default position for a successful claimant in litigation of this sort is the same as any other litigant, that is to have a trial in public followed by a judgment delivered in public and to have a judgment posted on the websites where High Court judgments are customarily to be found. It is only if there is some exceptional circumstance that recourse should be had to the practice of which the claimants now seek to take advantage.
33. In the end, the only submission that could be made by the claimant was that it would be necessary for there to be an express reference to this judgment on the defendants' website in order that the visitors to that site could be "re-educated" as to the true position. It seems to me that that is entirely mistaken, not least for the reasons identified by the leading counsel for the defendant, that is to say that the last people who would be visiting the Sports Direct website are those who are in the market of the goods being sold using the claimant's trade mark.
34. Regrettably, this is an element of the way in which this litigation has been hard fought and perhaps over-hard fought. This is not an attempt to obtain legitimate advantage from an exceptional jurisdiction, but is as it was submitted by the defendants' leading counsel by reference to the relevant authorities, an illegitimate attempt to humiliate or, as I think Lord Justice Jacob put it, rub the nose of the defendant in it. In those circumstances, this application fails and is refused.

Claimants' Application for Permission to Appeal

35. The issue which I now have to determine is an application by the claimant for permission to appeal against my dismissal of the claim made by the claimants concerning the 2013 goods. Three points are made, I think.
36. Firstly, that it is submitted that it is realistically arguable that the approach I adopted, applying the Dutch principles of construction, was wrong. I reject that submission. The tests that I applied are those which were agreed between the expert witnesses. There was no dispute between the parties as to what the correct principles were.
37. Secondly, it was submitted that it is realistically arguable that that it was wrong for me to take account of the sequencing by which clause 11.1 came to be included. I reject that as realistically arguable having regard to the principles of construction that apply in Dutch law, which require very close attention to be paid to all the circumstances in the negotiations leading to the contract and requires the court to construe the contract by reference to what the parties might legitimately expect to be the effect of the contract in the light of what subsequently transpired.
38. The final submission is that I am arguably wrong as a matter of construction concerning the effect of clause 11.1. I do not agree. It is not realistically arguable that clause 11.1 should be construed in the way that is different from that which I adopted. The construction that I have given the clause follows not merely from the language used, but from the intention of the parties, which is the hallmark of tests applied by Dutch law as to the construction of agreements. In those circumstances, permission to appeal is refused to the claimant.

Defendants' Application for Permission to Appeal

39. This is an application for permission to appeal by the defendants. There are seven grounds relied upon.
40. I can deal with Ground 7 first and shortly. Ground 7 is that I erred by failing to determine on the evidence before me the absence of any damage to reputation. So far as that is concerned, I have already given a ruling earlier this afternoon in relation to a closely allied point. I repeat that judgment, to the extent that is necessary. The short point is that there was no necessity for me to make findings as to damage to reputation in the light of the earlier findings that I have made. So far as damage to reputation is concerned, that is a quantum issue which will be dealt with at the quantum hearing.
41. I now turn to each of the other grounds. The first ground is that there was no breach of contract by sale of the administration goods. It was submitted that I was precluded from paying any attention to any clause in the contract other than the clause relied upon by the defendants. That is, in my judgment, not a realistically arguable basis for seeking a different conclusion from the Court of Appeal. The principles that applied to the construction of the contract were those identified in the agreed Dutch law rehearsed in the judgment. The notion that a Dutch court could properly seek to construe this contract by looking at a clause in isolation, as opposed to looking at it in its contractual context, is plainly unarguable and indeed comes close to being totally without merit. It was notably not submitted by the defendants at trial that I should adopt such an approach when construing the Agreement.
42. Ground 2: It was submitted that my conclusions concerning knowledge of the breach was wrong because I concluded that the sixth defendant, by Mr Nevitt, was aware that the sale of the administration goods by WCC in administration constituted a breach. In my judgment, that is not realistically arguable. That was a finding of fact based on the totality of the evidence before me. It was a finding I was entitled to make on the evidence available and there is no realistic prospect of the Court of Appeal seeking to interfere with that.
43. Ground 3: It was submitted that it is realistically arguable that I was wrong to reach a conclusion that there was an intention to breach. This is a proposition which is advanced by reference to my reliance in paragraph 112 of the judgment on reports of evidence given at a parliamentary committee. It is to be noted that this evidence was not objected to when submitted on the ground that it was inadmissible. Paragraph 112 merits reading in its totality. I do not propose to repeat it at twenty-five past four in the afternoon. However, the point is that I inferred that the sale of the Administration Goods and the decision to place WCC in administration were linked decisions. The key points I relied on in support of that inference were (a) the timing and (b) the discussions between Sportsdirect's management and the administrator referred to by Mr Nevitt in his witness statement. The conclusion is one that It is not correct to submit that this was a finding which exclusively depended upon, as it is now put, a violation of parliamentary privilege by reference to newspaper reports of some evidence given in parliamentary proceedings. The conclusions that I reached are conclusions I would have reached even without material contained in the newspaper reports that are the subject of challenge.
44. Ground 4, is a challenge to the conclusion that I reached concerning damage that had been suffered by the claimants as a result of the induced breach of contract. The point that is advanced is that there is a realistic prospect of persuading the Court of Appeal that there was no relevant damage that was suffered and it was not open to me to conclude that the claimant had proven that it had suffered damage.
45. I am not able to accept that as a realistically arguable basis for challenging the judgment. The conclusions I reached were conclusions of fact which I was entitled to reach, again, on the evidence as available. Although the defendants focus on paragraph 118 of the judgment, the whole of paragraphs 115-118 have to be read together. I did not reverse the onus of proof; I simply drew attention to the fact that without knowing how much of the advance royalty was attributable to the Administration Goods, what quality of Administration Goods had been sold and at what price meant that it was impossible to conclude that no damage had been suffered and all that could be concluded in the circumstances was that the relevant test, which is whether the breach was one that must in the ordinary course have caused loss, was a low threshold test that had been passed in the circumstances. Whether and if so what loss was suffered is an issue that can be resolved only at the damages inquiry.
46. Ground 5: In relation to the infringement claim, it is submitted that I was at least realistically arguably wrong to reach the conclusions that I did by reference to the decisions of the Court of Justice of the European Union in Copad and/or by reference to the judgment of Lord Justice Jacob in Mastercigars. It was argued this was a pure point of law and permission should be given on that basis. I do not agree. The point which arises in relation to this ground is not so much whether or not the point is one of law but, rather, whether it is a realistically arguable point of law. In my judgment, the points which were deployed on behalf of the defendants by reference to these authorities is not realistically arguable for the reasons set out in detail in the judgment, which are entirely conventional.
47. The final issue which arises concerns my finding in relation to reputation, where it is said that I materially misdirected myself as to the test to apply. I do not agree. The ultimate question is whether on the facts as I found them I was entitled to reach the conclusion that I reached. On those findings it is not realistically arguable that a different conclusion would be reached by the Court of Appeal.

Stay

48. So far as the financial information is concerned, I will grant a stay until after the earlier of either the expiration of time for lodging an application for permission to appeal to the Court of Appeal, or determination of that application with any further applications to be made to the Court of Appeal.
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