England and Wales High Court (Chancery Division) Decisions

2.                   From late 2015 until late 2018, HOK and ZL had a commercial relationship which was associated with a rapid expansion of ZL. By way of indication of that growth, when their relationship started, ZL did not meet the threshold for VAT registration; by July 2018, HOK’s monthly sales of Zymurgorium products exceeded £1 million and, in the month of November 2018 alone, they exceeded £1·7 million. In a similar vein, ZL turned over £7·3 million in the year ending 31 December 2018, making a pre-tax profit of £2·8 million.

4.                   At the time of that letter, ZL had issued outstanding invoices to HOK for products that it had supplied in the total sum of £682,265. It sues on those invoices. HOK admits its liability on those invoices subject to a small issue about interest and a defence by way of set off of a counterclaim. The counterclaim is for losses caused by the alleged repudiatory breach by ZL of the terms of the MWA and/or SSAs.

5.                   ZL deny the existence either of an overarching agreement in the form of the MWA or the individual SSAs. Further, it alleges that, if such agreements did exist and were relational in nature, HOK was in breach of those agreements by developing a product range called Imaginaria, that was launched in early 2019 and that was intended to (and did) compete with ZL’s products.

6.                   The trial began on 12 May 2021 with a time estimate of nine days. As is explained more fully below, it quickly became apparent during the trial that it was unlikely that there would be sufficient time to deal with all of the evidence and submissions. Accordingly, it was agreed that all of the lay evidence would be heard, followed by closing submissions on issues of liability. Thereafter a further hearing would be convened to deal with the quantification of the counterclaim, if the Defendant succeeded on the liability issues.

8.                   The following witnesses were relied on by the parties:

9.                   It is common ground between the parties that, on 16 November 2015, a meeting took place at HOK’s premises, between JH on behalf of HOK and AD on behalf of ZL. HOK contends at paragraph 17 of the Re-Amended Defence and Counterclaim (“RDCC”) that, during the meeting, it was agreed:

9.1               that HOK would promote ZL’s drink products generally to the marketplace;

9.2               that HOK would act as ZL’s wholesaler purchasing ZL’s products from ZL and reselling them to HOK’s customers;

9.3               that ZL would supply its drink products to HOK to meet the demand for those drink products that HOK generated and received.

This is the agreement which has been called the Master Wholesale Agreement (MWA).

10.               At paragraph 18, it is pleaded that there was to be implied into the MWA that it could be terminated by either party giving reasonable notice. That term is said to be implied either:

10.1           At the time the original MWA was entered into;

10.2           When the MWA was varied in the circumstances set out at paragraphs 19A and 19B of the MWA;

10.3           When the MWA became a relational contract in the circumstances set out at paragraphs 19C and 19D of the MWA.

11.               As to variation, the Re-amended Defence and Counterclaim (“RDCC”) puts the case in considerable detail:

12.               The RDCC goes on to plead that, from early 2018, HOK “secured listings for ZL’s products with target customers” and that HOK and ZL entered into a series of oral contracts, termed Specific Supply Agreements (SSAs) in respect of the sale by ZL of its products to HOK for supply to the following customers of HOK:

12.1           Booths, a retail grocery chain with around 28 stores mostly in Northwest England;

12.2           J D Wetherspoon (JDW), a national chain of pubs;

12.3           Greene King, a large pub chain with over 1,600 outlets;

12.4           Bargain Booze, a discount off-licence chain with around 600 stores throughout England and Wales operated by franchisees;

12.5           Booker, a wholesale cash and carry chain with 200 branches in the UK.

13.               Of each of the SSAs, HOK pleads:

“20A by reason of the facts and matters pleaded at paragraph 19B above, by conduct and/or by necessity (to achieve the obvious intentions of the parties and/or for business efficacy), the following terms were to be implied into each Specific Supply Agreement:-

20A.1     That ZL would not directly supply or attempt to directly supply its products to customers who were the subject of the Specific Supply Agreement while the Specific Supply Agreement remained in place.

20A.2     In order to maintain the listing, that ZL would ensure that it was always able to provide sufficient stock to HOK (at the price agreed in the particular Specific Supply Agreement) to avoid the customer having any shortage of a necessary product.

20A3.     That each party would provide the other with such reasonable cooperation as was necessary to the performance of that other party’s obligations under or by virtue of the Specific Supply Agreement.

20A.3     That ZL would not change the prices or specifications of the relevant products without the agreement of HOK;

20A.4     That the Specific Supply Agreement would continue until the customer no longer listed or required the product or, alternatively, until terminated by either party giving reasonable notice which, in all the circumstances of this matter, HOK alleges would have been at least 12 months’ notice; and

20A.5     That neither party would terminate the Specific Supply Agreement arbitrarily, irrationally or capriciously.

20B. Further or alternatively, each of the Specific Supply Agreements referred to at 20 above (and further particularised below and in Schedule 1) comprised a “relational contract” for the same reasons as pertained to the Master Wholesale Agreement, in respect of which paragraphs 19A and 19C above are repeated. In consequence of each Specific Supply Agreement being a relational contract the following terms were to be implied into it:-

20B.1     Each of the terms pleaded at paragraphs 19D.1 and 19D.2 above, which are repeated; and

20B.2     Each of the terms pleaded at paragraphs 20A.1 to 20A.4 above, which are repeated.”

14.               It is HOK’s case that ZL acted in repudiatory breach of these various obligations by supplying products directly to MCB in late November 2018 and that in consequence HOK was entitled to accept the breach, thereby terminating the contract(s), and sue on the contracts for ZL’s breaches, claiming the profit that it would have made had ZL instead of acting in repudiatory breach of contract, terminated by giving reasonable notice. It is HOK’s case that, in all of the circumstances, the reasonable period of notice as of late 2018 would have been 12 months.

15.               In response to the Defendant’s primary case as to the existence of a MWA, the Claimant in its Reply and Re-Re-Amended Defence to Counterclaim (“RRRADC”) pleads in response to the allegation of the existence of the MWA

“3.2 Insofar as it is able to plead to the allegations but without prejudice to paragraph 3.1 above, the Claimant pleads as follows:

3.2.1. It is admitted that the Defendant agreed to act as a wholesaler of the Claimant’s drink products by purchasing drink products from the Claimant and reselling them to the Defendant’s customers.

3.2.2. It is admitted that the Defendant agreed to promote the Claimant’s drink products generally to its customers. Such promotion would be expected by any wholesaler.

3.2.3. It is admitted that the Claimant agreed to supply its drink products to the Defendant.

3.2.4. It is denied that the Claimant agreed to supply drinks products to meet the demand that the Defendant generated and received…

4.1 It is denied that the agreement between the parties for the sale and purchase of the Claimant’s drinks products constituted a “Master Wholesale Agreement” either as alleged or at all. As set out in the Particulars of Claim, the Claimant’s drinks products were supplied to the Defendant pursuant to various purchase orders whereby the Defendant offered to purchase various cases of gin and vodka at the unit price stated therein and, by its conduct in booking in the delivery of the various cases of gin and vodka with the Defendant, the Claimant accepted the Defendant’s offers. There were therefore numerous agreements between the parties rather than a single “Master Wholesale Agreement”.”

17.               As to the allegation that the contract(s) between ZL and HOK was/were relational, ZL denies this to have been the case. In particular ZL draws attention to the development by HOK of the Imaginaria range of products which were competitor products to those of ZL. This is said to be inconsistent with the existence of a relational contract. Alternatively, if the contract(s) was/were relational, HOK was in repudiatory breach of the agreement(s) in developing Imaginaria, which breach was accepted by ZL in renouncing the contract.

18.               The issues between the parties are clearly expressed in the list of issues which I have slightly amended for convenient cross reference as follows:

19.               At the beginning of the trial, the parties agreed that, since the accountancy evidence was largely agreed in its project, but depended for its detail on findings under issues 1 to 6 above, it would be better to release them from giving evidence during the main trial. When judgment was given on issues 1 to 6, they would be able to respond to the findings and produce further reports which would either substantially narrow the issue between them and or potentially dispose of the need for them to give oral evidence. As the trial proceeded, it became apparent that there was insufficient time to deal with all of the remaining evidence and submissions within the fixture. After hearing submissions, I ruled that the court should proceed to the end of the lay evidence, with oral closing submissions, deferring the evidence of drinks market experts to a second stage of the trial, which could include the accountancy evidence as well.

20.               The result is that issue 7 has not been dealt with at this stage and need not be considered further in this judgment. In the event that a further hearing is required to deal with quantum issues, that will take place before me, with the lay witness evidence on quantum already having been given. It is agreed that the further hearing necessary should have a time estimate of 4 days, the first day being a reading day; the second day to encompass cross-examination of drinks market experts (if necessary) and submissions on issues relating to the probable trading between the Claimant and the Defendant but for the termination of their relationship; the third day spent on preparing and handing down judgment on the issue of the probable trading between the parties; and the fourth day to deal with cross examination and the accountants (if necessary) and closing submissions on accountancy issues. It is quite possible though that the judgment anticipated on the third day will allow the parties to resolve the remaining matters.

21.               The contracts upon which the Defendant seeks to base the counterclaim are in all cases either oral or to be implied from the circumstances. The well known canons of construction relating to written contracts do not apply in the case of oral contracts. Rather:

25.               Vos LJ went on at §36 to say:

26.               The editors of Chitty on Contracts at §37-044 cite G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 in support of the following proposition:

 “Occasionally, where it proves impossible to discern a clear offer or a clear acceptance then, when judged objectively, a contract may still be found to have been made since the canons of offer and acceptance are not the last word and may be incapable of precise application.”

27.               As Steyn LJ put it in G Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25 at p27:

30.               Fraser J summarised the characteristics that determine a relational contract and summarised at §725 of Bates v Post Office:

“…I consider the following characteristics are relevant as to whether a contract is a relational one or not:

1. There must be no specific express terms in the contract that prevents a duty of good faith being implied into the contract.

2. The contract will be a long-term one, with the mutual intention of the parties being that there will be a long-term relationship.

3. The parties must intend that their respective roles be performed with integrity, and with fidelity to their bargain.

4. The parties will be committed to collaborating with one another in the performance of the contract.

5. The spirits and objectives of their venture may not be capable of being expressed exhaustively in a written contract.

6. They will each repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships.

7. The contract in question will involve a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty.

8. There may be a degree of significant investment by one party (or both) in the venture. This significant investment may be, in some cases, more accurately described as substantial financial commitment.

9. Exclusivity of the relationship may also be present.”

32.               Fraser J went on at paragraph 726 in Bates v Post Office:

“I hesitate to describe this as an exhaustive list. No single one of the above list is determinative, with the exception of the first one. This is because if the express terms prevent the implication of a duty of good faith, then that will be the end of the matter. However, many of these characteristics will be found to be present where a contract is a relational one. In other cases on entirely different facts, it may be that there are other features which I have not identified above which are relevant to those cases.”

34.               In assessing what is reasonable, the Court must consider the circumstances as they were at the time that the notice was (or would have been) given:

“… whereas the question whether a term is to be implied must be judged as at the time of the contract, once it is decided that a term as to reasonable notice should be implied, the question what period of notice would be reasonable must be judged as at the time the notice is given. It will be known at the time the contract is made that circumstances may change between the time of the contract and the time of the notice, which may be many years later. It would thus be unsatisfactory and make no commercial or other sense to hold that the period of reasonable notice should be determined long before the notice was to be given.” (Paper Light Ltd v Swinton Group Ltd [1998] CLC 1667, at 1677).

36.               As the Defendant acknowledges, what amounts to reasonable notice depends on the circumstances of the case and previous decisions are unlikely to be of very great assistance. Nonetheless the Defendant has, in its opening submissions, provided a helpful table of cases to show comparisons.

40.               Similar issues as to the fallibility of memory and its ability to be distorted are addressed in Practice Direction 57AC “Trial Witness Statements in the Business and Property Courts” which, at paragraph 1.3 of the Appendix, headed “Statement of Best Practice in Relation to Trial Witness Statements”, states:

“Witnesses of fact and those assisting them to provide a trial witness statement should understand that when assessing witness evidence the approach of the court is that human memory:

(1) is not a simple mental record of a witnessed event that is fixed at the time of the experience and fades over time, but

(2) is a fluid and malleable state of perception concerning an individual’s past experiences, and therefore

(3) is vulnerable to being altered by a range of influences, such that the individual may or may not be conscious of the alteration.”

42.               This case involves the common commercial situation, anticipated by Leggatt LJ in Gestmin where there is extensive documentary evidence on much of the relationship. That provides a clear basis for determining relevant factual material. However, on one of the central issues in the case, what happened in the meeting on 16 November 2015, there is no clear direct documentary evidence, though there may be inferences to be drawn from such documents as are available. Further, in so far as may be relevant, there are issues about the motivation for the parties’ actions in various respects.

43.               I have also been reminded of the judgement of Robert Goff LJ in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at p. 57:

‘Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.”

This remains good advice to any judge.

44.               In summarising the relevant history, I divide the factual evidence into three main areas: the development of the relationship; the period in which the relationship blossomed and ZL really took off; and the breakdown of the relationship. I summarise the main documentary and witness evidence.

45.               It is helpful to understand three concepts that were mentioned a number of times in the case:

45.1           The first is the meaning of the term “gin liqueur”. In his report at paragraph 2.1, Myles Doran, the drinks market expert instructed by the Defendant, makes the following distinctions:

“• Full Strength Gin - such as Gordons and Bombay Sapphire - is juniper-based, typically dry and served with a low sugar/regular Indian Tonic Water and a simple garnish over ice. This more traditional “serve” is popular with both the Baby Boomer (born between 1946– 1964) and Generation X (born between 1965-1980) consumer classifications.

• Flavoured Gin - such as Gordons Pink Gin - fruity and flavoursome, these are a relatively new introduction to the gin category, with sales volumes only starting to register from 2014 onwards. Typically served with more challenging tonic variations such as Elderflower, Clementine, Mediterranean or Rosemary, with a fresh fruit garnish such as grapefruit or strawberry, over ice. Flavoured Gin appeals to consumers who wish to trade up from the more traditional serve and experiment, have more disposable income and are prepared to spend a little more on their night out or at-home-affordable treat. Flavoured Gins can be further distinguished between “standard” Flavoured Gins such as Gordons Pink Gin and Beefeater Pink Gin, and “premium” Flavoured Gins, such as Tanqueray Sevilla and Malfy.

• Gin Liqueurs - such as Edinburgh Raspberry liqueur - are typically much sweeter in flavour profile. This is intentional, to mask the reduction in ABV%. They first appeared around 2015. They are more colourful in presentation style. While you will see a simple Indian Tonic Water used as a mixer to compliment the taste, you also see gin liqueurs as an ingredient in cocktails. Those appeal to younger Millennials (born between 1981-1996) and Generation Z (born between 1997-2012) who are attracted by lower ABV and a broad range of flavours, and tend to alternate between sweeter tasting cocktails and Gin Liqueurs during their visit to a hospitality environment.”

46.               AD established ZL in the circumstances set out at paragraphs 4 to 20 of his statement of 29 September 2020. It is apparent from the success of ZL that he has a talent in the drinks industry; his witness evidence both oral and written, tends to indicate that this is borne of a passion about the products. He describes in his witness statement how, encouraged by his mother and aunt and assisted by a former head teacher, he had started to craft a variety of drinks. Whilst at university “this became a great way to make new friends, made for great parties and passed the time.” When he left university in 2012, he decided to use the skills he had acquired to develop a business. The business, originally called Darke Craft Spirits, was renamed Zymurgorium in 2013.

47.               In 2015, ZL was relatively small, albeit that it was looking to expand. AD accepted in cross examination that, between 10 December 2014 and 9 November 2015, there were about 42 invoiced sales of ZL products to 8 different customers. His written business plan comprised “a diagram describing where we wish to be within 10 to 15 years” rather than a detailed account of targets, costings, projections, cashflow and the suchlike, which he had accepted had not been prepared.

49.               In contrast to ZL, HOK was a long established company. As a wholesaler it traded both with the on trade (pubs, bars, restaurants and similar) and the off trade (retailers, from small off licences to national chains and supermarkets, as well as online retailers such as Amazon).

51.               AD also referred both in his statement and his oral evidence to KDL. He spoke of ZL’s then premises at an industrial estate in Soapstone Way, Irlam, Manchester and said:

“Next door were Kingsland Drinks Ltd (“KDL”), operating one of Europe’s largest bottling facilities and a supplier of wines and spirits to supermarkets. We made contact with KDL and we learnt a lot about the spirits and wine world and how it functions from them. In collaboration with KDL we got our brand into supermarkets such as Marks and Spencer (“M&S"). KDL were wholesaling and promoting our brand to supermarkets before we started to supply product to HOK.”

52.               AD said in cross examination that he and JH had discussed the fact that Kingsland were wholesaling for ZL. In fact, on closer examination it appears that Kingsland never in fact wholesaled for ZL, either before or after ZL developed a relationship with HOK, albeit that there was discussion about the possibility of such an arrangement. In his evidence, AS, the Executive Chairman of KDL, explained that the company had developed as an offshoot of the Cooperative supermarket and were a manufacturing business who dealt mostly with the off trade. He and AD had conversations about producing and bottling drinks, with the possibility of these being promoted to supermarkets by KDL. AS was aware that ZL were also discussing matters with HOK, and the idea was that the relationship with KDL would run alongside that with HOK but this did not come to fruition. However KDL incurred considerable costs (around £75,000) in pursuing a prospective relationship with ZL.

55.               On behalf of HOK, the meeting is described at paragraphs 30 to 45 of JH’s first witness statement, dated 20 September 2020. He acknowledges that ZL was already supplying a small number of outlets and that HOK was happy for this to continue. However, he wished ZL to become one of HOK’s so-called “agency brands.” Of this concept, JH says at paragraph 40 of his first statement:

“I told Aaron that his products would fit in well as one of our “Agency Brands”. I feel sure I would have told Aaron the names of some, possibly all, of the existing Agency Brands at that time, and showed him samples of them. I will have explained how our Sales Team focused on the Agency Brands, and would present them to every customer. We would create some really nice “lifestyle” images of his products, in house, to include in our Price List, and on our website. And that we planned to attend trade shows to feature the Agency Brands, which would be a great opportunity to showcase the Zymurgorium brand and increase awareness of it with key buyers.”

At paragraph 44 of his first statement, JH continues:

“We agreed that [AD] would continue looking after the small accounts he already had. For us it would have been more trouble than it was worth having to deliver the odd bottle here and there, so he was happy to carry on doing that. But apart from those few accounts, we agreed that all other sales would go through us.”

This evidence is the source of the case advanced by HOK that there is an over-arching agreement, the so-called MWA, pursuant to which ZL owed the duties pleaded at paragraph 17 of the RDCC.

56.               In a Reply to a Request for Further Information dated 8 April 2021 (therefore postdating the first witness statement of JH), HOK states at paragraph 5:

“It was agreed between the Claimant and the Defendant that the Defendant would be the exclusive wholesaler of the Claimant’s Zymurgorium products in the sense that all Zymurgorium products (with the exception of a few small accounts) would go through the Defendant, and the Defendant would then sell on those products, including to other wholesalers.”

The document is verified by a statement of truth signed by JH.

57.               In cross examination, JH maintained that he was “absolutely certain” that, in the meeting on 16 November 2015, he and AD had “expressly” discussed the parties having an exclusive relationship. It was put to JH that, in fact, paragraph 40 of his first witness statement was the first occasion on which there was any suggestion of an express agreement of exclusivity, and that even that was hedged with the qualification in paragraph 44. He was pressed on what he or HOK had said at different times about the original MWA:

57.1           In a letter dated 20 December 2018, the first formal communication between the parties after the alleged repudiation/renunciation of the contract by ZL, the background to the parties’ relationship is set out. It is stated that, since 2015, the parties had “developed a very close relationship, under which HOK became [ZL]’s main UK wholesaler. Indeed, we have since then been your only UK wholesaler and distributor.” There is no mention of an express agreement as to exclusivity at the outset of the relationship, that letter referring instead to the “key terms” as being:

“1. That HOK was [ZL]’s main wholesaler for the UK;

2. That where arrangements for distribution of [ZL]’s products via HOK were agreed between us in relation to specific products and/or specific customers, such as for Wetherspoon/MC, those arrangements would not be materially changed by [ZL] without [HOK’s] consent; and

3. That neither party would terminate the Agreement without first giving the other reasonable notice of termination.”

JH stated that, in hindsight, he wished that he had mentioned the agreement between ZL and HOK in the letter of 20 December 2018.

57.2           Paragraph 19 of the RDCC, dated 31 March 2021, pleads that “there was no express agreement on exclusivity.” The statement of truth to that document is signed by JH. Thus, says Mr Reed for the Claimant, HOK was not putting its case on the basis of an agreement of exclusivity even then.

57.3           In an email dated 17 November 2015, TD spoke of the discussion the previous day. The part of that email relating to the discussion the previous day states:

“Hope you are well and many thanks for your time yesterday. As hopefully you saw Jonathan, myself and the team are really excited about working together with Zymurgorium in becoming partner wholesaler for you across the UK. You have some great products and both Jonathan and I are under the impression that the current range is just the tip of the iceberg as you certainly have some great ideas.” (The email goes on to ask ZL to complete a “new supplier information” form.)

ZL points out that there was no mention of exclusivity, the concept of “agency brand” or any agreement there, which would be improbable if in fact such an arrangement had been agreed on the previous day. On the other hand, HOK says that the phrase “partner wholesaler for you across the UK” can only bear the meaning that it was agreed that HOK would be the exclusive wholesaler for ZL’s products throughout the country.

59.               In support of its case either that the original contract contained terms as to exclusivity or that the contract was subsequently varied to include such a term, HOK points to a series of later communications in which statements were made that are said to support the contention that the parties had agreed that HOK was ZL’s exclusive wholesaler.

59.1           In an email dated 5 February 2016 to AD, JH, at ZL’s request, shared information about the price at which it was purchasing goods from a competitor of ZL, Edinburgh Gin, stating:

“From our perspective, you are one of a few companies we feel we have an extra special relationship with, and are enjoying working closely with. With yourself, you are a new supplier, but we are looking forward to the future, of many years enjoyment in developing our business together, and hoping you have keep having confidence in us to be your Master Wholesaler.”

HOK place reliance on this communication and its aftermath to make various points, First, ZL did not reply to that email either denying that HOK was acting as “Master Wholesaler” or querying what that meant. Second, HOK points to the fact that, when asked about an email dated 1 November 2016 referred to below, AD said “If there was a master wholesaler agreement, I would have expected them to say they were a master wholesaler.” Given that the phrase “master wholesaler” was used in the email of 5 February 2016, written shortly after JH and AD first met in November 2015, this is said to be good evidence that the term as to exclusivity must have been agreed from the outset. Third, HOK relies on the fact that it was sharing confidential information about the prices of one of ZL’s competitors as evidence of the close relationship that existed. While AD accepted that there was a close relationship, ZL denies that this is indicative of some kind of overarching agreement between the parties.

59.2           In an email dated 9 April 2016, AD contacted TD at HOK showing a proposed design for a label for a new product, Nonne Gin, which was to be exclusive to Harvey Nicholls. That labels states, “Distributed by Hammonds of Knutsford.” TD responded saying that HOK were “fine” with having their name on the label. HOK point out that there was no need to put these words on the product if all they were meant to signify was that HOK were the distributors of this particular product, since that would be of no interest either to Harvey Nicholls (who knew who the distributor was) or customers of Harvey Nicholls (who could only buy the product through that store so would gain nothing from knowing who was the distributor of the particular product). Rather, it was suggested that the label was intended as an indication to consumers and retailers that ZL’s products generally were available through HOK.

60.               HOK asserts that there are various other indicators of the closeness of the relationship of the parties that supports its case either on the original terms of the MW or on the variation of that contract:

60.1           I have noted above the fact that, in February 2016, HOK shared the price that it was paying for Edinburgh Gin with ZL. The price of Edinburgh Gin was an issue that was raised again in the parties’ relationship:

61.               During 2017, a gradual growth can be seen in ZL’s production and sales. In 2016, HOK had obtained a central listing for ZL with a pub chain, Amber Taverns. This seems to have been the largest listing of this scale and it is followed by gradual growth in sales into 2017, in particular from SL’s “Sweet Violet” product, which came to be the cause of a huge increase in sales following the LADbible post in 2018.

62.               In around May 2017, ZL began to have contact with Christopher Jones (“CJ”). At this time, CJ and JH incorporated PBL, the purpose of which was to act as an importer and distributor, working with HOK to promote brands. In his witness statement, CJ puts it thus:

“Paragon would be an importer-distributor. It would be given the sole rights to sell products by their brand-owners, mostly based outside the UK. It would sit above wholesalers, and all other trade buyers, and act like the brand-owner in the market, handling all marketing, sales and brand development. Anyone wanting to purchase these brands would source them from Paragon. Paragon would utilise the HOK order and invoicing system, taking its profits from the transaction after processing of payment. Jonathan and I agreed to form Paragon as a company owned 50/50 by the two of us.”

64.               On a date in the week commencing 9 October 2017, a meeting took place between AD, CJ and DA. This meeting, which HOK’s witnesses have called “the whiteboard meeting”, because of the fact that there is a photograph showing a whiteboard with some strategy written on it, is described by CJ in his statement:

“41. At the meeting I used a board on my office wall to illustrate the key points I wanted to get home to Aaron. A photograph taken by me on 24 November 2017 shows a Paragon sales team member, Marcus Baxendale, in my office at HOK’s premises and, on the right-hand wall, the whiteboard in question. The diagrams on the whiteboard, which I had left there since the meeting, illustrate:

(a) my view as to how Aaron/Zymurgorium’s business focus - as a percentage of their time and efforts - should be split between Sweet Violet (Sweet Violet), Turkish Delight (TD) and everything else (EE). I sketched a pie chart to illustrate my view that 80% or more of Aaron/Zymurgorium ’s time and efforts should be devoted to Sweet Violet;

(b) the difference between Zymurgorium’s capacity to produce Sweet Violet and my projection of its potential sales - I sketched a graph on which projected sales were shown with a solid line and Zymurgorium’s current production capacity with a dotted line, to illustrate its significant lack of capacity;

(c) what the division of labour within Zymurgorium should be to hit the required production volumes - distinguishing between skilled and unskilled - Skilled (i.e. Aaron and his Callum) should focus on design, flavour mixing and bottling - Unskilled, e.g. Aaron’s mum - and any others - should deal with wax dipping, applying labels, boxing finished products and so on;

65.               AD’s account, which was not contradicted by HOK’s witnesses, was that this was very much a spontaneous meeting. He was present at HOK’s premises for other purposes and was asked to join DA and CJ to discuss matters. That would appear consistent both with the appearance of the whiteboard (which looks very much like a spontaneous illustration of a few marketing points) and the assertion that the mission statement was “how do we make as much sweet violet as possible.” Given the fact that the sales of the product were taking off, this does not seem to amount to a sophisticated marketing strategy. AD accepted CJ’s account of the meeting that the need for consistency of supply was emphasised, though he denied “embracing” or “accepting” the need for H&A to become involved in production. AD’s line was that ZL would always have done its best to guarantee that demand was met.

66.               An example of the close relationship of AD and JH is another investment opportunity in 2017, when ZL were thinking of buying a farm from which to operate the business. It would appear that the two men contemplated JH investing a significant sum of money in the purchase of the farm, though in the event this did not go ahead. It is AD’s account that JH was not the only person with whom he was discussing possible finance and that the terms proposed by JH were not acceptable to him.

67.               A relatively minor incident said by both parries to be of some significance occurred in the second half of 2017 when JH discovered that ZL was supplying its products direct to a small independent retailer called Kwoff. It is common ground that HOK had sold ZL’s products to Kwoff between October 2016 and June 2017, but from July 2017, ZL sold direct.

68.               In his witness statement, JH said of this:

“I spoke to Aaron about this, and asked him to explain why. He said he had been approached by the customer, who said that if he could not buy direct he would de-list Zymurgorium’s products. He said he believed he had no choice but to supply them or risk losing their listing. I said I was very disappointed (a) that Aaron had fallen for this, and (b) that he had chosen not to discuss it with us, and left us to find out this way. He was embarrassed and apologetic. He knew that I was not pleased and acknowledged that the correct thing to do would have been to call me to discuss this. I put it down to his inexperience and naivety and did not make a fuss about it. Having raised it with him, I was confident that from what he said he would be straight and honest with us in future if this happened again.”

69.               When cross examined about this, AD said that he had met representatives of Kwoff at a gin festival and had started to supply to them direct. He agreed that JH had spoken to him and was not happy about the situation. He agreed that JH may have said that ZL had fallen for something, but he did not accept that he was “embarrassed and apologetic” about what had happened.

70.               Each side seeks to draw inferences from this. ZL say that this shows that it was in fact supplying other than through HOK without demur from them, the irritation of JH being a consequence of a belief that AD had been taken in by an issue about pricing rather than a complaint that the direct supply was taking place. HOK say that, when it found about that ZL was supplying others, AD was embarrassed, this only being consistent with his being caught out doing something that he should not have been doing.

72.               In his second statement, CJ describes his development of the idea, including having a logo designed. He says that he discussed the matter with JH who liked it but had ”reservations about doing anything that would replicate or clash with ZL’s products.” Of this, JH says at paragraph 10 of his second statement that he warned CJ of this idea:

“I told him I was nervous of being involved in anything which could damage the relationship with Zymurgorium, and that it was not something I was interested in pursuing in view of how things were really beginning to take off with Zymurgorium at that time and the huge sales potential I believed there was for Zymurgorium products.”

73.               The sale of ZL products really took off in late 2017/early 2018. This is demonstrated graphically by a table in Mr Edwards’ opening submissions:

74.               The range of ZL’s products in 2018 can be seen in the table at paragraph 5.2 of Mr Geale’s report. The Sweet Violet product represented very nearly 60% of the sales totalling 62,184 bottles listed by Mr Geale for 2017 and almost 70% of the 544,790 bottle sales recorded for 2018. It is common ground that a major cause of this huge expansion was a posting on LADbible, an online social media platform, on 10 February 2018. The posting, apparently in a piece on gin, read:

“If you can’t get enough of fancy cocktails that remind you of retro childhood sweets, then you can also get one that tastes exactly like Parma Violets”, there being an adjacent image of ZL’s Sweet Violet gin liqueur. It continued:

“As you‘d imagine, it’s bloody delicious, and really does provide the hit of nostalgia that it promises. Zymurgorium Manchester Sweet Violet Gin Liqueur can be bought for £24.99 for a 50cl bottle from Selfridges, which makes it the perfect treat. ”

75.               UNILAD, another social media business connected to the creator of LADbible then followed up on the same day with their own video and a piece saying:

“Gin is in right now, and any bar worth its jam jar-glasses has an array of various high quality flavours to peruse. From Cornish Clotted Cream to Yorkshire Tea, there’s a quirky gin to suit every palette. I personally saw a seaweed flavoured gin the other day which certainly appealed to The Little Mermaid fan in me. However, there is one flavour and one flavour alone which unites all gin lovers with it’s luscious, floral, gently nostalgic taste... Yes I’m talking about parma violet gin, and more specifically Zymurgorium Manchester Sweet Violet Gin Liqueur.

76.               This growth in business led to a perceived need on the part of ZL to seek finance for a new bottling line. ZL contacted PMD Business Finance (“PMD”) and, on 19 March 2018, Sam Kaberry, who was a Business Development Director at PMD, sent an email to AD saying that PMD “need to understand the Hammonds contract (how long it’s for etc and the terms).” AD responded, copying in JH:

“Hi Jon,

This is Sam and Jill from pmd finance that are helping us get the bottling line/brewing kit. Ladies this is Jon Hammond owner of Hammonds of Knutsford. They just want to know what you believe you’ll be taking over the next year Jon.”

Mr Hammond replied to this, “I confirm we will be taking a minimum of 6240 cases (1 full load) per month.”

77.               A few months later, in July 2018, Rob Dermody, a Director at PMD, emailed ZL asking whether they had “a formal contract” with HOK, to which AD responded, copying in JH:

“There have been email exchange official promises by Hammonds of Knutsford for a minimum of 12480 cases a month up to December which Sam was included in I believe. Jon could you please repeat this for the benefit of PMD better still a signed note.”

78.               JH then emailed AD saying,

“We have agreed to increase production, in line with below, which hopefully will provide enough stocks for requirements/growth, and buffer for Xmas business. We have also agreed, in the event of growth not meeting expectations, we will ask H&A to reduce production accordingly. I don’t wish PMD business finance to cause any delays, so if there is any issue, you can count on my support in assisting.”

79.               It was put to AD that this exchange implied that ZL, in order to help persuade PMD to provide finance, had told PMD that they had a contract with HOK. AD said that this was just “an assumption made by PMD”. AD also said in cross examination that, when he spoke of “official promises” from HOK, he was referring to “a contract on the actual volume going through Hammonds of Knutsford, not any other wider contracts.” In other words, ZL contend that AD was not talking about this size of order flowing from an agreement as to exclusivity; rather AD was speaking as to what HOK was actually committed to buying. But if HOK was in fact buying products significantly in excess of what it needed for orders that it already had, even if only to stockpile it, HOK contend that this is suggestive of a relationship where HOK is taking everything that ZL can manufacture in consideration for a relationship of exclusivity.

80.               The Defendant argues that this evidence is inconsistent with ZL’s case that there was no overarching agreement, since it would make no sense for HOK to be committing to buying huge quantities of ZL’s products unless there was a long-term exclusive arrangement. The risk would be inconceivable. Thus, says HOK, the fact that ZL was asserting to H&A that HOK was contractually bound to purchase large quantities of the product is consistent with its case that HOK was in fact buying nearly everything that ZL could produce and was selling it under an exclusivity arrangement of some kind.

81.               During 2018, HOK had dealings with a series of customers with a view to their supplying ZL’s products. HOK contend that their dealings with Booths, JDW, Greene King, Bargain Booze and Bookers involved specific contractual arrangements between HOK and ZL, the so-called SSAs Each of these need to be considered in turn.

82.                Booths

82.1           HOK’s case is that a SSA was entered into with Booths in or around January 2018.

82.2           HOK had had contact with Booths in 2016 with a view to securing a national listing for ZL. This was unsuccessful.

82.3           On 2 January 2018, Mr Newton (of Booths) emailed Ms Vickers (of HoK) to arrange a discussion about ZL products.

82.4           It is apparent that they thereafter discussed product prices because, on 9 January 2018, JH emailed Mr Newton saying: “Your correct…..to make 30% margin, we will need to offer you a bespoke price. Would £14.85 be workable for you? I think this should give you the margin you need.”

83.               JDW

83.1           HOK’s case is that a SSA was entered into in or around April 2018.

83.2           At paragraphs 54 and 55 of his witness statement, CJ describes particular features of JDW and its position in the market. He states that listing with JDW would have been likely to stimulate further interest in and demand for ZL’s products.

83.3           In February 2018, CJ started to try to get ZL’s Sweet Violet product listed by JDW. JDW use MCB as its preferred supplier so supply would have to take place through that company.

83.4           In an email of 5 March 2018, Julie Trewren of MCB set out the “commercial and logistical hurdles” to pass in order to get MCB to list a product:

“1. Supplier set up - we would need to set Paragon Brands as a new supplier; our standard payment terms are 45 days end of month following: we would need to conduct our normal AWRS checks etc.

2. Logistics— a minimum order quantity that fits the size and scale of the opportunity with a maximum of 7 days stockholding in each depot.

3. £500 per depot per sku set up costs.

4. 6 months minimum sale or return from product live date.

5. Achievement of volume and profit metrics.

6. Outside of government imposed duty changes, adherence to a once per annum cost of goods discussion (that being first Monday of each July.”.

83.5           Discussions between CJ and MCB continued, in particular on the issue of price, including when price increases could occur - MCB insisted that only one price increase per year would be accepted, in July, at point 6 of the email of Julie Trewren of 5 March 2018. CJ states that he kept AD informed on the progress of these discussions. This is consistent with emails from AD about the negotiations, including one of 15 March 2018 when he said to JH and CJ in respect of potential dealing with JDW, “don’t make any rash statements at the moment get as much information as possible. We will make this work just be calm and play it cool.”

83.6           According to paragraph 62 of CJ’s statement that the proposed arrangement between HOK and ZL was that, rather than offering a discount on the usual stock price when selling to JDW through MCB, a retro would be paid to JDW for every bottle purchased by JDW, such retro to be met in part by HOK and in part by ZL.

83.7           It is apparent from emails that, in late March early April 2018, negotiations between HOK and MCB/JDW continued. These included as to what retro would be offered.

a)             On 4 April 2018, Paul Brimmer of JDW asked what retro was to be offered.

b)             On 5 April 2018, CJ emailed AD, attaching a spreadsheet which showed the pricing structure. It permitted ZL to insert a figure for the retro that it was willing to offer, the spreadsheet being set up to show the impact of that figure. The email invited AD to “add the additional support you are happy to contribute.”

c)             AD offered 50p per bottle (see email of 6 April 2018).

d)             Paul Brimmer insisted that the retro needed to be £7 per bottle. It would seem that HOK were willing to contribute £6 of this but insisted that ZL pay the balance of £1. That figure was eventually agreed.

e)             There was further discussion between CJ and AD about the pricing arrangement.

83.8           Thereafter ZL contributed £1 per bottle by way of retro to the products sold to JDW through HOK and MCB.

84.               Greene King

84.1           HOK’s case is that a SSA was in relation to Greene King entered into in or around May 2018.

84.2           On 26 April 2018, CJ emailed Calum Cameron at Greene King, to promote ZL’s Sweet Violet. Mr Cameron replied with enthusiasm and sought “on trade exclusivity.” CJ said this was not available because the product was already listed by Amber Taverns but indicated that he could offer exclusivity on the next best selling flavour, Turkish Delight. Negotiations followed, during which, on 3 May 2018, CJ stated to Mr Cameron in an email:

“I’ve spoken with the brand owners and I’m just awaiting their feedback on the commercial support request …we are very keen to work with you/GK, so I will do my best to get to your aspirational pricing target.”

84.3           In his witness statement, CJ says of this email, “I cannot recall whether I had then actually spoken to Aron about a specific amount of support - I may have done, or may have been making Calum wait a little as a negotiating ploy.”

85.               Bargain Booze

86.               Booker

86.1           HOK’s case is that a SSA was entered into with Booker in or around August 2018. Again negotiations were handled on HOK’s side by DA.

86.2           DA describes the efforts to establish an arrangement between HOK and Booker for the supply of ZL’s products via central listing. In August 2018, Charlotte Sutcliffe, a spirits buyer for Booker, contacted DA with a proposal to include Sweet Violet in a multibuy deal, by which customers who bought 3 bottles of gin from Booker in the deal would receive a free case of tonic. Her proposal was that HOK contribute £1.50 per bottle by way of retro if Sweet Violet was to be included.

86.3           DA says in his statement that he discussed this matter with AD during what he thinks was a phone call:

“137…I explained about the Multibuy promotion, and the volumes of SV I expected Booker would require. I explained the dynamics of the Multibuy to him - i.e. that a customer buying 3 gins in the Multibuy would receive a case of tonic free of charge. I may have told him that a retro was required in order to take part in the Multibuy, but I don’t think I told him the amount of the retro because I was not asking him to contribute to it. I am sure I will have stressed to him that in order for us to be considered for this, which was an ongoing commitment at least until the end of the year, Zymurgorium needed to make a commitment that sufficient stocks would always be available. We agreed that with production of SV by H&A having been further increased, then at the levels then proposed through to the end of the year that should not be a problem…

139. As with Booths and Bargain Booze, there was no need for me to discuss with Aaron the price at which Zymurgorium would supply SV to HOK for the purposes of the Booker deal. £11 per bottle was the current price as previously agreed and I was not proposing anything different.”

86.4           In his evidence, AD states:

“152…I did not have a telephone conversation with DA shortly after 16 August 2018 or at any time regarding the supply of Sweet Violet to Booker nor did I assure DA that ZL could ensure that Sweet Violet would be produced and be available to HOK to maintain continuity of supply to Booker. How could I? Booker is a cash and carry with around 200 branches in the UK. To make such a commitment so that ZL would assume this level of obligation I would need a detailed understanding of levels of supply required.

153. I did have a conversation with JH on 18 August 2018, but this conversation was to inform me that HOK would need ZL to produce more Sweet Violet due to an increase in orders for the product by customers such as Booker. JH did not explain why orders were increasing and I did not assure JH that we would be in a position to supply the quantities HOK needed as a result of Booker’s orders.

154, HOK continued to place orders in the way it had always done and we also invoiced HOK as we had always done. Nothing about how we supplied the products to HOK to Booker changed from how we supplied any other product for any other retailer, as no special agreement was in place.”

88.               In the second half of 2018, problems arose in the relationship between ZL and HOK leading to the final parting of ways. In a short space of time in October 2018, a series of incidents occurred which demonstrate the deterioration in the relationship. It is not entirely straightforward what was cause and what was effect in what happened. Making findings as to the underlying reasons for the breakdown is unnecessary save in so far as they bear directly on the issues identified above. My overall sense is that the parties drifted apart, becoming suspicious of each other and taking steps to protect their own position.

89.               The problems that arose included the following:

89.1           One of the early issues was a request by CJ in an email dated 10 October 2018 for PBL to be paid a commission for the development of the unicorn product. AD replied at length on the same day, explaining that in his view, HOK should have been paying PBL rather ZL. Whilst, in the email to which his reply was attached, AD said to CJ, “Please take this in the kindest way possible as I consider you a friend,” the email from CJ and AD’s reply show sharply differing attitudes to the marketing and sale of ZL’s products.

89.2           One of ZL’s products, Cherry Bakewell gin was supplied to Greene King with a label specific to them, apparently because Greene King were interested in promoting the product on a Christmas menu but did not like the label. However, DA presented the labelled product to Bargain Booze, which is of course an off trader. This annoyed AD and he had an exchange of emails with DA about the issue.

89.3           On 17 October 2018, Greene King placed an order for one pallet of Cherry Bakewell. AD emailed DA: “With 22 years of ‘intimate’ industry knowledge at your side I’m sure all will come to light. Thanks for sending the PO, could you also send us the address so we may make a label to ensure this lonely pallet reaches its destination.” The tone is, as Mr Edwards suggests, somewhat sarcastic and is perhaps evidence of the breakdown of the relationship, though I am less sure that it can be said to evidence an intention specifically on ZL’s part to go its own way.

89.4           At some point in October 2018, AD phoned JH about the payment relating to the still, seeking to repay the investment that JH had made. This excited JH.

a)             At paragraph 277 of this first statement, JH says:

“During week commencing 22 October 2018 I had a call from Aaron, asking which account I wanted the £27,000 I had lent in April 2017 to be paid to. I was extremely surprised by this. I said: “I’ve not made any loans, only an investment”. There was a silence and then Aaron said, “we have decided to keep all the shares in the family” and that he intended to repay the money. He said he had mentioned this to Danny when he visited in August 2018. It was a short conversation. I was so shocked and surprised that I said little more.”

JH says of this conversation that the payment of £27,000 was, at his option, an investment not a loan and that he felt the phone call showed that the relationship had deteriorated. He goes on to say at paragraph 279:

“I had sensed that the relationship between Aaron and myself had deteriorated, and I already had some unease and concerns about what was going on in his mind and what his future plans were. But this changed everything for me. It was a complete betrayal of the trust I had placed in him.”

b)             In his second witness statement, JH states that the date given in the first statement was wrong and that the conversation must have been in the week commencing 15 October 2018. The reason for saying this is that an email had come to light dated 19 October 2021 in which CJ emailed Jason Groves about the proposed Imaginaria project. This is dealt with further below, but JH’s second statement says :

“11. I do not recall seeing that email at the time, but what I do now recall clearly is that immediately after the call from Aaron I called Danny and Chris into my office and told them about it because I felt sure it was very important, and signalled a significant change of attitude on Aaron’s part and I wanted to know their views…

13. Chris was certain it only meant one thing: Aaron was planning to cut HOK out and deal directly with JDW and the other major customers we had obtained for Zymurgorium products. Aaron knew who they were, what products we were selling to them and, in many cases, the prices. He had complained to both Chris and Danny about the margins he believed HOK was making on his products. Chris thought Aaron would switch to direct dealing rather than consider appointing another wholesaler or distributor - by cutting out the “middleman” margin he could offer the customers the same products at lower prices, and still make more for Zymurgorium.

14. Chris had no doubt at all that this was what was going to happen, and that only question was when. He said he thought it would almost certainly be in the New Year….

15 If Chris was right about what was going to happen, HOK was obviously going to have a big hole in its product portfolio when it did. Chris thought that the best response would be to produce our own range to offer as an alternative to Zymurgorium products. Chris said we could get them made by H&A, and make sure they were as good if not better than Zymurgorium’s; we would not have the supply/capacity problems we had had with Zymurgorium. He reminded me of the “Imaginarium” concept that he had explored earlier that year but which had been shelved…

18 At this point in time it was not my intention that HOK would definitely create and market its own range. I saw it a defensive possibility, to give HOK some protection if Aaron did what Chris thought he was planning. If the relationship with Zymurgorium could be got back on an even keel, which I would have much preferred, we would have spent some money on labels and other things but it would not be a big deal in the overall scheme of things.”

In other words, JH’s explanation for the resurrection of the Imaginaria project was that AD’s conduct suggested an intention to sever the links between the ZL and HOK which required HOK to act quickly so as to protect its interests, as evidenced by the email from CJ to Jason Groves dated 19 October 2018. That explanation would not hold water if the conversation with AD had taken place at the time stated in the first witness statement, since that post dated the approach to Jason Groves.

c)             In cross examination, AD said that the document referring to the payment being treated as an investment at JH’s option was only a draft and that in fact the investment proposal was never a concluded agreement.

90.               The deterioration in the relationship is apparent from an email from JH to AD dated 29 October 2018, under the subject line “Moving Forward”:

Our stockholding of Sweet Violet is currently over 120 pallets, which exceeds the volume of stock we envisaged holding in any one period at our cost. Could I ask that the next H&A stocks are held by you until we need to place an order. We are now in a position where we are stock piling and paying for stocks well in advance of needing. To give this some further context our customer exposure of credit for your lines is now in excess of £4m, which is a substantial commitment on our behalf, especially when we are having to make advanced retro payments to Wetherspoon of c.£350k this month to name just one.

At this juncture there are so many unanswered/unresolved issues our relationship is facing, which gives me increased concerns. When I feel we should be getting ever closer as businesses, we are actually becoming more apart. Something I had not dreamt would ever be happening. My greatest worry is that, whilst I believe are unintentional actions, are such that ultimately the integrity and standing of my business is being impacted.

We have always worked together with both our interests aligned. I have forever believed a comment you once shared with me in that “we could and would never fall out”. With this in mind I am reaching out to you so that we never put this to the test. It feels not just by me that you no longer feel the Awesomeness is there in working together, a word I adopted from you. Something you were comfortable even including on your business cards.

I thought an email is better to start with, as I am so emotionally impacted with what started last week. Such that I want to avoid awkward silence on the phone, but know how important it is we move forward.

I seek your guidance on how we move forward, but I think the 30^th is far too long away. I hope you agree I have done the right thing communicating to you in this way.

For now and until we can resolve I would like to place orders for stocks as we need, like we would other suppliers of ours. I don’t envisage this will cause you any issues.

Whilst it is half term & I am away from the office, I will endeavour to make myself available to meet when you have digested.

I look forward to hearing back from you soon.

Thanks

Johnny”

JH says that he made many efforts to contact AD but these were unsuccessful.

91.               At this time, whatever JH’s intentions about trying to resurrect the relationship with ZL, HOK/PBL were moving apace with developing the Imaginaria concept. CJ had emailed Jason Groves on 19 October 2018 to revive their earlier discussions. A trademark application was made, initially in the name Imaginarium, later changed to Imaginaria because of an existing EU trademark. CJ contacted H&A to arrange a slot for manufacture and Kefla to negotiate bottle pricing. He arranged for the printing of labels and conducted flavour development.

92.               CJ appears to have been acting with some dispatch in developing the Imaginaria project. In an email to Graham Gibson of H&A dated 30 October 2018, he said:

“I just wanted to follow up on our meeting earlier to say thanks to you and your team for seeing me at such short notice, I hope my urgency now makes sense!,

As we discussed, speed is of the essence for us, so we are keen to push forward (under complete confidentiality) to get the 2 flavours we discussed up and running as soon as possible.

We will get all the necessary paperwork across asap and a label design over to you as soon as we have approved a proof, we will also get started on the Box design

It goes without saying that you should not divulge your knowledge of the Zym plans to them at any point.

Let me know when you are available to meet with Jonathan and I will set up the meeting.

Thanks again for your speedy response - looking forward to working with all of you!”

93.               CH stated that this urgency was in part because of the opportunity to develop the Imaginaria product range for sale in Europe (which he did not see as a direct competition to ZL) and partly because of his and JH’s concern that HOK was going to be cut out of ZL’s plans for the future.

95.               In spite of the fact that he spoke of a “switch out” of ZL’s products, that is to say replacing it on HOK’s list with Imaginaria, being “on the horizon”, CJ said in cross examination that this was not an imminent plan, but rather “an insurance policy” in other words an alternative plan to be invoked if ZL chose to cease dealing with HOK. He said that this was the only customer with whom the project was discussed at this stage. However, he acknowledged that the plan was to have the Imaginaria product made by H&A in the week commencing 10 December 2018. That did not come off because not everything could be made ready in time, but production and sales of Imaginaria commenced in January 2019. He also accepted that in December 2018 he showed the intended Imaginaria label to a potential customer, Booths.

96.               Meanwhile, ZL had started to have direct contact with JDW. CD describes at paragraph 35 of his statement how ZL were contacted on 17 October 2018 by Nathan McGovern, the manager of one of JDW’s pubs in Liverpool, asking for assistance with creating “eye-catching window and bar displays using gins that are distilled locally in the North-West of England…”

97.               CD appears to have responded in an email, then contacted Mr McGivern again on 18 October 2018.

“I just wanted to add to my last e-mail if you had a more direct a more direct way of us getting in touch with your head buying team .Because of the response we have had from a number of Wetherspoons we would like to have a more personal relationship with them and potentially talk to your head buying team about getting POS across more of the Wetherspoons chain. My brother has tried to get in touch with them today thanks to your response but has found it a bit of a minefield to get in touch with the right people through all the automatic answering machines.”

98.               On 19 October 2018, a discussion took place between ZL and JDW. The conversation is, according to CD, summarised in a typed note.

“Initial phone call with JDWetherspoons JDW

Date: 16/11/2018

Purpose: Pre-call

Talk about POS (Point of Sale), Many Wetherspoons outlets have contacted us regarding POS, try to set up some POS centrally to be distributed to all Wetherspoons outlets.

Services: Is there anything we can help sales through Wetherspoons such as tastings. Any new tenders we can be notified of first so we have a head start.

Resolving Issues: Problems faced such as corks/wax, any way we can talk more direct to solve issues faster instead of going through the whole chain to get back to us.

Future Plans: A quick chat about our plans for future products and projects and if Wetherspoons seem interested in what we have to offer in the future.

If Wetherspoons are happy with what we have done so far.

During Call

The Conference call opened with JDW asking what our relationship was with Hammonds of Knutsford (HOK) and Paragon Brands (PB) and if there was a way JDW could contact us in a more directly to discuss any issues/future product ideas. Zymurgorium (ZYM) responded with telling JDW that HOK acts as a wholesaler of ZYM products so that we can focus on producing instead of trying to be a manufacturer and distributor and that we were told by HOK any information had to be passed via them as they were supplying our products onwards.

Confused, JDW told us that they always like to have a direct contact with the product manufacturer to discuss issues as data can get passed to us with 24 hours meaning issues are resolved faster and with less misinterpreted information, then JDW asked us where does PB come into the equation as Chris Jones from PB told JDW that he was our 'Sales Agent’. ZYM responded that ZYM has no sales agent and has no direct relationship with PB and that PB works for HOK not ZYM.

JDW retorted that the chain was far too complicated and that they didn't understand why PB was even involved and expressed that they wanted to simplify the chain and purchase our products more directly rather than buy through PB. ZYM emphasised to JDW that they were not buying through PB as PB is partly owned by HOK.

ZYM then asked how that would work and JDW told us that their preferred route would be for us to supply Matthew Clark (MC) direct and for JDW to carry on purchasing through MC. JDW then said that they can buy direct from us if it isn't possible to sell to MC directly.

Zym then told JDW that we didn’t know if JDW was hearing all of the information we were passing back through the chain when issues occurred to which JDW said a direct correspondence relationship would sport that and they can tell us directly if problems occur and then we can reply directly back.

ZYM then asked JDW if any agreement with HOK and JDW existed which JDW told us there was no agreement between them and HOK.”

99.               CD stated that he had created this detailed note in around April 2019, after the dispute with HOK had arisen. It was based on handwritten notes, and had been wrongly dated, there having been a further meeting on 16 November 2019.

100.           HOK contend that this document is inaccurate. It was not contemporaneous and the wrong date suggests that matters were confused in CD’s mind. More importantly, it contends that the note is intended to create a narrative in which JDW were pressing for ZL to cut out the role of HOK, whereas the email of the previous day shows that it was ZL who were pressing to make contact with JDW directly.

102.           The final breakdown of the relationship between the parties came in mid December 2018. On 13 December 2018, Mr A Darke emailed Mr Appleton and Mr Hammond with the subject line “Amazon Unicorn Price”, saying:

“We really need this being lowered tomorrow morning immediately. We’ve had a few customers question why the price is so high and have had to push them elsewhere to get a more reasonable price. It’d be better/more efficient for everyone if people could get the stock through amazon prime. Regardless on views of availability, supply/demand we can produce more than enough and also we have a policy not to over charge our customers. As this is being sold in at the same price it shouldn’t be a different price to the consumer I’m sure you’d agree.”

Mr Appleton replied:

“I am somewhat confused with your email below. I am assuming this is relation to retail price, but not 100% sure Could you give me a call when you are free so I can understand a little more?”

Mr Darke responded:

“It’s quite simple the price is too high on amazon’s website”

After a further email from Mr Appleton, Mr Darke said:

“Danny I’m not being rude the problem is that we’ve been left in a position where we can no longer make contact without it being recorded when concerning business. This isn’t us that has created this situation and pains me to have to conduct business in this manner, but it is due to unprofessionalism from certain individuals that has left us where we are. Bringing up questions about our product when we see something clearly in fault is my prerogative as a brand owner. The over inflated price on Amazon is something that Hammonds should have foreseen would be an issue. It is our prerogative to protect our end customers especially when complaints and remarks are not isolated. You may not be my employee but you are our main wholesaler and always claimed to be a friend, who has always stated that we’d be listened to and our concerns would always be taken on board. This goes against the very issue that has been plaguing this relationship for a while. We’ve been heard and have been blatantly ignored, that is rude no matter how large the person smile may be or how sincere they may feel at the time of making promises. Therefore again promises that have been made have again been broken. We’re meant to be working together and I have given my all to this relationship for years. I may be wrong but I believe your reaction stems from the fact there is an unreasonable reason why the prices are so vastly different. As I’ve said to Jonny, friends should be able to tell each other freely when they are wrong without fear of accusation or lost temper. Unfortunately you have misinterpreted an email and left us now in a very awkward position. Nothing I said was rude unless you were reading it with rudeness in mind, the emails I sent are ‘matter of fact’ emails, facts aren’t rude or polite. Emails like yours are non-productive and are only provocative. Therefore I’ll offer the olive branch and say I’m sorry if my emails offended you, but this has been triggered because we’re having complaints which potentially damage our reputation as on amazon it looks like it is being sold directly by ourselves to people who do not know. I hope you have nice relaxing weekend and have great sales over the next week.”

103.           On 19 December 2018, AD emailed DA saying:

“Hi Danny, Hope you are well. Just to let you know we’ve finished off some of the original Manchester 20cl bottles. Just wondered if you needed any for new year and if there’s anything else you need? Also it’s been 4 days since the 15th for Novembers invoices just wanted to remind you as I know Christmas gets busy. Not rushing you just would like to know if you had a date in mind. I know things have been strained this year and we’ve all frustrated each other, but we still need to arrange time for a meeting how are your dates fixed for the beginning of Jan first 2 weeks? I was hoping for a break over Christmas but everything that is going on it doesn’t seem likely. We’ll be closed after this Friday till new year but I’ll still get back to your emails if you need anything urgent. Over the Christmas period I’m going to consolidate our product files so we can fill out forms for you faster if need be. I sincerely hope you all have a great Christmas and that we can make good plans for the future where everyone benefits next year. Also what are your delivery rates into Manchester city centre and delivery days? Just planning for the bar. I think our manager is getting in a sponsor which is boring, but doesn’t stop us from getting the more quirky and expensive stuff from you guys for the back bar. Are there any ranges Hammonds wants to particularly want to promote in a luxury setting?”

104.           The following day, 20 December 2018, JH on behalf of HOK wrote to AD the letter referred to above, setting out the background, asserting that there was a binding agreement between the parties pursuant to which HOK was Zymurgorium's main wholesaler and continuing:

“I believe and am advised that there was a binding agreement between HOK and Zymurgorium (the Agreement) with the following key terms:

1. that HOK was Zymurgorium's main wholesaler for the UK;

2. that where arrangements for distribution of Zymurgorium’s products via HOK were agreed between us in relation to specific products and/or specific customers, such as for Wetherspoon/MC, those arrangements would not be materially changed by Zymurgorium without our consent; and

3. that neither party would terminate the Agreement without first giving the other reasonable notice of termination.

On or about 14‘" December 2018, puzzled by the absence of orders from MC for Wetherspoon, we made enquiries and discovered that Zymurgorium was now supplying the Wetherspoon products directly to MC. Clearly this could not have come about without your first approaching WetherSpoon and/or MC about it some weeks if not months before that. I am advised that your actions constitute a serious breach of the Agreement and a repudiation of it by Zymurgorium. I hereby give you notice that HOK accepts that repudiation as bringing the Agreement, and the commercial relationship between us, to an end.

I am further advised that HOK is entitled to claim damages from Zymurgorium for breach of the Agreement. We are in the process of quantifying the claim for damages, but it will clearly and significantly exceed the sum of £682,625.88 which is currently owed by HOK for products supplied. We do not, therefore, intend to pay that amount. I will write to you again when I am in a position to quantify HOK's claim for damages.”

105.           This brought the parties’ relationship to an end. At this time, the following invoices were outstanding, a total of £682,625.88:

Each contained the words, “if the invoice is overdue you will incur a compound monthly charge of 8.5% of the total invoice.”

106.           In its RDCC, HOK denies a liability to pay contractual interest. In cross examination, JH said that he was not concerned about a late payment charge. He acknowledged that invoices had been sent to him. He said he would not have read the terms and conditions.

107.           There are relatively few areas of direct conflict of evidence within this case. The most significant is that as to the events in the meeting on 16 November 2015. In addition, each of the leading actors has had to answer questions relating to the ending of their relationship, where each side wishes to portray the other side as wishing to walk away from the relationship.

108.           The Defendant criticises both AD and CD. AD is described as “decidedly unsatisfactory” having regard to a tendency to avoid answering questions and to make speeches. CD is criticised for his account of the contact with JDW.

109.           In respect of AD, I found him to be an engaging witness with a real passion for his product. It is clear from the tone of his emails that for a long time he had a close and warm relationship with JH. I suspect that, with the passage of time, this has substantially cooled. It would appear that this cooling may have dated to the time that CJ became involved with the working relationship between the parties. In any event, the result has been that, at times, the effect of AD’s evidence is to downplay how close he on behalf of ZL and JH on behalf of HOK had become.

110.           On the issue relating to the discussions over the supply to Kwoff, I found AD’s account to be unconvincing. It seems to be unlikely that JH would have been making an issue of this if his only concern was that AD had been taken in by Kwoff in the threat to delist the product. It is far more likely that his irritation arose from ZL’s actions in response to that threat, namely, to supply direct. If his evidence on this is correct (and AD’s correspondingly wrong), as I find to be the case, it is supportive of HOK’s case that the parties had a common understanding about HOK’s role as exclusive distributor, subject to very minor known exceptions. There is, for reasons identified below, a considerable body of evidence that tends to support this conclusion in any event.

111.           The attack by HOK on CD’s credibility relates in particular to the note of the conversation with JDW of 19 October 2018. In fact, I found CD generally to be a consistent witness, although on this particular issue, his account is improbable. Mr Edwards is right to submit on behalf of HOK that it is improbable that CD could have written so detailed a note from memory. That tends to suggest that the note may not be an accurate account of the discussion and that it may have been written so as to support a narrative that JDW approached ZL with a proposal to cut out HOK rather than vice versa. In reality, nothing turns on it - either ZL was able to enter into a contact with MCB to agree an immediate distribution relationship in respect of JDW without breaching its contractual obligations to ZL or it was not. Whether CD has given a fully accurate and honest account of that will in fact not alter the position.

112.           I found JH on the face of it to be a credible witness. With the exception of events in relation to the meeting on 16 November 2015 and to the proposed establishment of Imaginaria, I did not consider that anything that he said was inherently implausible but these aspects of his evidence do cause me to have some conner over his credibility.

113.           For reasons set out below when dealing with issue 2, I reject JH’s evidence that there was express discussion of exclusivity at the meeting on 16 November 2015, but even then I did not think that this was indicative of a generally unreliable witness. Rather, I think that he has probably come to believe in light of the subsequent dealing of the parties that exclusivity must have been mentioned. This appears to me to be a clear example of the types of problem with memory identified by Leggatt LJ in Gestmin, where an understanding that is acquired subsequently has interfered with the recollection of an earlier event.

114.           With regard to JH’s evidence about the establishment of Imaginaria, there is an obvious conflict between his account of the conversation with AD about repayment of £27,000 in his first statement (that it happened in the week commencing 22 October 2018) and his account in the second (that it must have been in the previous week). The first statement asserts that this conversation led JH himself to think that AD was betraying his trust; the second places responsibility for the doubts as to AD’s future intent very much in the mouth of CJ. It is difficult to conclude which version is right. It would seem that JH was, in his first statement, attempting to give an account of his changed thinking that failed to mention Imaginaria at all (presumably because reference to it might cast doubt upon HOK’s motives) whereas in the second statement he was keen to set the timetable so that the reference to Imaginaria followed rather than preceded AD’s “betrayal of trust” over the £27,000 payment. Either way, it suggests that he was slanting his evidence in a manner intended to favour the case that he was seeking to advance.

115.           The evidence of CJ was important on certain of the issues relating to the SSAs. I found his evidence to be somewhat less than satisfactory in respect of the Imaginaria concept, given that, like JH, he had not referred to it at all in his first statement and then when he did refer to it was keen to downplay its importance. I also consider that he overplayed the significance of the so-called whiteboard meeting. But more generally his evidence was credible.

116.           The other witnesses all gave evidence that was on the face of it credible. In particular I should say that AS came over as a neutral observer who did not show any partisanship in his evidence, notwithstanding the fact that, at least on his case, he had reason to harbour negative feelings about how ZL had behaved in his company’s dealings with it.

117.           There is however always a risk that the passage of time and the existence of a dispute cause distortions in the evidence in the manner referred to in Gestmin. In truth, most of the factual issues in this case can be resolved from the large amount of written material, especially emails, within the trial bundle.

Issue 1 – interest on the claim

118.           The only issue that arises on the claim is as to the Claimant’s entitlement to interest. The issue has been formulated thus:

120.           This is compelling evidence that the term as to contractual interest was incorporated into the agreements for supply of the products. The Defendant has not seriously disputed this issue and it does not appear as an issue within the Defendant’s closing submissions.

121.           In my judgment, it is undoubtedly the case that ZL was entitled to interest pursuant to the wording of each of the invoices on which it sues at 8.5% per annum, compounded monthly.

122.           As noted above, the issues relating to the MWA can be broken down as follows.

123.           There is a considerable overlap between the material relevant to the existence of an MWA and that relevant to the alleged SSAs. I adopt the division of these issues in a logical basis, but much that is said in this section is relevant to my discussion of the issue of the alleged SSAs under issue 3.

124.           I deal first with whether there was a MWA between ZL and HOK (Issue 2.1). The case advanced by HOK is that the MWA arose by reason of the express agreement of the parties in the meeting on 16 November 2015. The primary evidence relied on is JH’s account of the meeting. Further, HOK maintain that the subsequent dealings between the parties show that exclusivity was agreed from the outset.

125.           It may have made good commercial sense, at least with the benefit of hindsight, for HOK to have acquired an exclusivity obligation from ZL in respect of their dealings, in particular as the relationship between the parties developed and HOK invested increasing time and money in ZL’s products. But it is little short of inconceivable that such exclusivity would have been agreed, yet not mentioned either in the email of 17 November 2015 following the meeting or, even more pertinently, in the letter of 20 December 2018, given:

125.1        In the email of 17 November 2015 from Mr Tim Dunlop, the phrase “partner wholesaler” appears. That phrase might imply an exclusivity agreement, though if that were meant, one would more naturally expect to see express reference to the concept of exclusivity rather than the far vaguer word “partner” which might connote a variety of relationships.

125.2        Even in the letter of 20 December 2018, there is no hint of a suggestion of any obligation of exclusivity save in so far as that is said to arise from a specific agreement relating to Wetherspoons, and even then the reference is implicit in the criticism that ZL was dealing with JDW through MC rather than through HOK rather than an express assertion.

126.           Further, there is an obvious inconsistency in the way that HOK has put its case on this issue, as can be seen if one compares various of the material referred to above:

126.1        Paragraph 44 of JH’s first witness statement: “…apart from those few accounts, we agreed that all other sales would go through us”;

126.2        Paragraph 84 of JH’s first witness statement: “we had no formal exclusivity agreement”;

126.3        HOK’s Reply to a Request for Further Information: “It was agreed between the Claimant and the Defendant that the Defendant would be the exclusive wholesaler of the Claimant’s Zymurgorium products in the sense that all Zymurgorium products (with the exception of a few small accounts) would go through the Defendant, and the Defendant would then sell on those products, including to other wholesalers.”

126.4        Paragraph 19 of the RDCC: “there was no express agreement on exclusivity.”

127.           Whilst HOK did not put its case this way, one possible explanation is that, in those documents where HOK (and in reality this is JH, since he is the author of the statements as well as having signed the statements of truth in the statements of case) has said that there was no “express” or “formal” agreement on exclusivity, what is really meant is that there was no written agreement on exclusivity. It is indeed the case that there is no such written agreement, but it would be highly surprising if HOK, which after all, has been legally represented throughout these proceedings, worded Statements of Case and/or witness statements in so loose a fashion on what is a central issue.

128.           Of the other documents relied on by HOK, it is true to say that one, the email of 5 February 2016, refers to an exclusive relationship. But that is authored by JH not AD or anyone at ZL and hence its force is limited to the point that ZL did not respond to it to correct the statement made there. In any event, the content of later documents is likely to be of limited assistance in determining what was agreed at the time of the meeting in November 2015, given the Defendant’s inconsistencies noted above as to whether any such agreement was reached.

129.           I bear in mind that JH came over largely as a straightforward witness. What seems to me to be the most probable explanation of his evidence on this issue is that he has come to believe that there was an express agreement as to exclusivity at the outset, albeit that he cannot accurately or consistently give an account of the discussion in which such an agreement was reached because in fact there was no such discussion. This view is fortified in light of the point which was made by Mr Reed in closing submissions that, when one reads the passage at paragraphs 30 to 43 of JH’s statement dealing with the discussion on 16 November 2015, many matters are expressed in fairly general terms such as “I expect that we mentioned that we supplied Booths and Bargain Booze”; “I am sure I would have told Aaron that our success and reputation depended on being the best”; “I feel sure that I would have told him that we never ever let our customers down”; “I feel sure I would have told Aaron the names of some, possibly all, of the existing Agency brands”; and “I will have explained how our Sales Team focused on the Agency Brand”. In contrast, the wording of paragraph 44 is quite clear and the assertion in the witness box that he was “absolutely certain” that exclusivity had been “expressly discussed” is even more so. This has the flavour of a witness who has convinced himself that he recalls a matter when in fact he does not.

130.           I am also not dissuaded by the use of the phrase “master wholesaler” in the email of 5 February 2016. This comment is equally consistent with an assumption by TD, the author of the email, that there was an agreement as to exclusivity. AD’s failure to contradict the suggestion that this phrase implied exclusivity is consistent with his not having a detailed understanding of the nature of wholesaling at that time.

131.           Further, even if I were persuaded that it was more likely than not that JH had used the phrase “agency brand” in his discussions with AD (which I am not), my judgment would not have differed on whether a relationship of exclusivity was agreed at this initial meeting. Mr Edwards said on behalf of HOK in closing submissions that the agency brand concept involved the promotion of ZL‘s products and that “the logical corollary of promotion is exclusivity”. But the concept of the agency brand seems to have been something of the Defendant’s devising rather than an industry term. It is notable, as counsel for ZL points out, that the phrase is not even mentioned in the RRDC. Certainly, there is no evidence that the Claimant knew precisely what was meant by the use of this phrase, and therefore the use of the term without contradiction from the Claimant would not prove that the Claimant was agreeing that this was the state of their relationship. It is perfectly possible to have seen any early offers or promises by the Defendant to promote the Claimant’s products as simply being the corollary of (and consideration for) the profit that it was to make through selling the Claimant’s products. It is only as the relationship became closer and HOK committed greater resources to the promotion of ZL’s products that an inference of a relationship of exclusivity becomes convincing.

132.           Whatever the true explanation for Mr. Hammond’s evidence, I am not persuaded that there was an express agreement as to exclusivity in the meeting on 16 November 2015.

135.           Accordingly I am satisfied that the Defendant has failed to prove the existence of a contract on the terms asserted by it or any terms in November 2015. This resolves issue 2.1.

136.           As to the remainder of the issues under 2, these become hypothetical. However, in the circumstances of this case it seems to me that it is helpful to consider those hypothetical issues insofar as it is possible to do so for reasons that will become obvious when I consider issues 3 (relational contract) and 4 (SSAs).

137.           If I were wrong on issue 2.1 and a contract did come into existence as of November 2015, three possible arguments as to obligations of exclusivity and notice arise.

137.1        That there was an express term of exclusivity with an implied obligation to give reasonable notice in the agreement; or

137.2        That there was an implied term in the agreement as to exclusivity with an implied obligation to give reasonable notice that arose when the agreement was made; or

137.3        That, whatever the terms of the agreement, it was subsequently varied to include a term as to exclusivity.

138.           If there were an express obligation of exclusivity, there would unarguably be a term as to the requirement to give reasonable notice so as to terminate, having regard to the analysis in Reda v Abdul Jali op. cit. Subject to the issues of repudiation/renunciation and the term of such notice, which are dealt with below, this would resolve issue 2 in favour of the Defendant.

139.           In the second scenario, if there were no express term of exclusivity, I have pointed out that no implied term to this effect is pleaded. I have further declined to find that an agreement is to be implied from the circumstances. In any event, it would not be possible to determine whether such an implied term might be found to exist in the absence of being able to make clear findings as to the express terms of that agreement. Having found that there was no agreement with contractual effect at all, this issue is not capable of resolution on my findings.

140.           If I were wrong about the creation of a contract but correct that there was no term as to exclusivity, the question of variation of the contract would arise under issue 2.3. This is far less easily answered.

141.           Paragraph 19B of the pleads variation of the alleged MWA by conduct, giving rise to implied terms as to:

141.1        Not directly supplying customers who were the subject of an SSA;

141.2        Providing reasonable cooperation in the performance of the other party’s obligations under the MWA or any SSA;

141.3        Not terminating the MWA or any SSA

142.           The case advanced by HOK as to variation of the contract requires some careful analysis. ZL contend that it is important, if the court is to consider the argument that the alleged MWA was varied, to consider when this variation took place. HOK has been unable to put a date on this. Further, the argument for variation by conduct that leads to the implication of a term is, says the Claimant, a flawed analysis.

143.           At paragraph 19B of the RDCC, it is pleaded by HOK that the variation was by the conduct set out in paragraph 19A, the variation being by the importation of terms to be implied by necessity, in order to give effect to the obvious intention of the parties and/or for business efficacy. However, it is common ground that a variation of the contract has the same requirements as its formation, including that there be offer, acceptance, consideration and an intention to create legal relations. Of course, as I have identified above, the language of offer and acceptance may be somewhat misleading in the case of a contractual variation, just as it is in the case of the formation of a contract ab initio. There is no conceptual problem in a contract being varied by conduct any more than there is a contract being formed in this way. However, what is more difficult is identifying the conduct which is said to amount to (or to be capable as being treated as) an offer and an acceptance with the relevant intent.

144.           The evidence that HOK relies on in respect of the argument that the parties came to a position in which they each assumed that the Defendant was acting as the Claimant’s exclusive distributor is powerful. In particular, the following matters strongly point towards such a common understanding gradually developing:

144.1         The email dated 17 November 2015. The reference to HOK being “excited about working together with Zymurgorium in becoming partner wholesaler for you across the UK” suggests an intention to develop such a relationship.

144.2        The sharing of information about the price of the products of a competition, Edinburgh Gin, in February 2016. This is consistent with a close working relationship between ZL and HOK.

144.3        The description by HOK of itself as “master wholesaler” in the email of 5 February 2016. This is indicative of a belief on HOK’s part that it had such a role. AD agreed that this phrase would be suggestive of a relationship of exclusive distribution, yet did not query the use of the phrase in the email, suggesting that he too thought the parties had such a relationship.

144.4        The creation by ZL of labels for Nonne Gin stating “Distributed by Hammonds of Knutsford” and of labels relating to its products saying, “supplied by Hammonds,” and, “supplied by the awesome ‘Hammonds of Knutsford.” This is indicative of ZL believing that HOK had a special position as it distributor.

144.5        ZL’s statement to Venus plc that it supplied “…wholesale-wholesale through Hammonds…”. This suggests that ZL thought that HOK was an exclusive distributor.

144.6        The use by ZL in general and AD in particular of the phrases “primary wholesaler”, “partner wholesaler” and “primary distributor” as a description of HOK to Beers of Europe, Renaissance Hotels, and Hartley Wines. All of these are supportive of HOK’s case that AD believed ZL to have a special relationship.

144.7        The use by TD of the phrase “partner wholesaler” in the email to Harvey Nicholls dated 1 November 2016. Whilst communication such as this which does not cross the line is of limited relevance, the failure of AD to question this description notwithstanding that ZL were copied into the email is again supportive of a belief on ZL’s part that the parties had a special relationship.

145.           All of these communications pre-dated JH’s email of AD and CD of 5 January 2017 in which he thanked ZL “for having the confidence in us to distribute your product, exclusively in the UK.” I am satisfied that AD’s failure to query that email is because, by this time if not before, he believed that HOK was indeed acting as ZL’s exclusive distributor for all save a small number of so-called legacy arrangements, where it was common ground that ZL could continue to supply direct without breaching the assumed position that HOK was it exclusive distributor.

146.           Four other matters support this conclusion:

146.1        For reasons identified above, I am satisfied that AD’s reaction to the discovery by HOK that he was supplying direct to Kwoff was a consequence of his believing that HOK did have a relationship of exclusivity with ZL.

146.2        In the communications with PMD about the relationship between the parties, AD positively promoted the idea that HOK had a commitment to buy large quantities of ZL’s products, essentially everything that H&A was able to produce. It would appear unlikely that HOK would agree to this without a belief that ZL was committed to a relationship of exclusivity, a fact that would have been apparent to ZL. On ZL’s behalf, Mr Reed submitted that the mere fact that HOK was taking delivery of stock direct from H&A did not mean that the sales of that stock were pursuant to some overarching agreement between the parties, I accept that this is so, but it does point in the direction of an agreement that is broader than simply the sale of ZL’s products from time to time.

146.3        The evidence that HOK was promoting ZL’s products as an “agency brand” does not of itself greatly assist the Defendant as to the original intention of the parties for reasons explored above. On the other hand, the phrase was being used as the relationship developed. AD’s explanation for not querying this was that exclusivity had not been agreed at the outset. If anything, his answer set out at paragraph ‎60.2 above suggests that the concept of exclusivity was considered, albeit later in the relationship. This provides some support for the conclusion that the assumption of a relationship of exclusivity was one that gradually developed.

146.4        Further, the fact that HOK were, for a long period of time the only wholesaler named on ZL’s website is suggestive of the relationship of exclusivity.

147.           I should add that some of the other conduct relied on by HOK is less convincing of the existence of such a relationship.

147.1        Whilst the varied ways in which HOK assisted ZL in practical matters such as sourcing bottles, undertaking the bottling process and storing the products are consistent with a relationship of exclusivity, they are also consistent with two business working to achieve the same end for the benefit of each of them. That does not suppose a relationship of exclusivity had come into existence.

147.2        The willingness of JH/HOK to either invest or at least to consider investing in ZL might support the Claimant’s case but might equally support the finding that JH saw in ZL a potentially profitable business to which he hoped to contribute and from which he hoped to benefit.

147.3        JH’s evidence that he was put off from selling certain competitor products by a fear that AD would see this as disloyalty may indicate that JH considered AD someone whom it might be possible to upset fairly easily. But I am cautious about drawing conclusions about AD’s state of knowledge/belief from JH’s fears on this issue. It may equally well be the case, as AD says, that he was not bothered by what he saw as fair competition.

148.           The corollary of the parties having reached a stage when they assumed that HOK had a right of exclusivity in respect of the distribution of ZL’s products is that the parties equally assumed that HOK had an obligation to promote ZL’s products. That assumption arises in part from the fact that this is what HOK actually did. But more importantly, no manufacturer in the position of ZL would agree to exclusivity without there being a corresponding duty on the distributor to promote. Absent this, it would be open to the distributor to pick and choose which products it promoted, in the sure knowledge that the manufacturer could not act to promote its own interests by selling through other route even if the distributor chose to market products in competition with those of the manufacturer.

149.           I note the Claimant’s argument that the relationship of exclusivity was simply an assumption on the part of the Defendant. I agree that, if it were no more than an assumption, it would not cross the line of communication between the parties that would be sufficient to found an argument that it was or became a term of the contractual relationship of the parties. For reasons that I have identified, it seems to me that there is clear evidence of the assumption crossing the line and becoming the common assumption of both parties.

150.           But notwithstanding my conclusion that, by the beginning of 2017 at the latest, both parties believed that they had a relationship in which HOK was the exclusive distributor for AL does not resolve the issue of contractual variation. The specific problem for HOK here on its argument about contractual variation is in showing any intention to vary the relationship in the manner pleaded in paragraphs 19B.1-19B.3 of RDCC. It would be one thing if it were able to plead and prove some conduct which showed an intention to vary the relationship so that ZL was obliged to market its products exclusively (save for certain defined small parts of the market) through HOK, and associated conduct by which this intention was made known and accepted. But what HOK pleads is evidence that the parties assumed that there was such an obligation in existence already rather than events from which an intention to vary an existing contract could be inferred so as to achieve the obvious intention of the partes and/or to give the agreement business efficacy.

151.           It follows that HOK is not arguing that the parties had that intention and acted accordingly so as to vary the contract; rather it is being said that the parties must be taken to have agreed that so as to give effect to their obvious intention and/or for the contract to have business efficacy. However, in the absence of events from which an intention to vary could be inferred, I do not accept that this underlying common understanding could give rise to the contractual intention contended for by HOK.

152.           In so far as the Defendant acted in reliance on this mutually assumed relationship of exclusivity, this does not leave the Defendant without any remedy for reasons set out below in respect of the SSAs. Indeed, this very language is suggestive that an estoppel might be a more natural way in which to give effect to the mutual understanding of the parties. The Defendant has not put its case this way and there might be formidable problems in such an argument. But I do not think that the law as to the formation of contracts as currently developed goes so far as to give contractual effect by way of variation to an existing contract arising from an assumed state of affairs where there is otherwise no evidence of an intention to vary the contract. Thus I would have resolved issue 2.3 favourably to the Claimant.

153.           I should add that, whilst HOK has not pleaded a case that an overarching agreement came into existence after the original discussion in November 2015, such an argument would have failed for the same reasons that the argument as to variation would have failed, namely the absence of circumstances from which an intention to enter into such a contract can be inferred.

154.           I have summarised the issues on the SSAs as follows:

156.           ZL maintain that there is nothing about the arrangements in respect of each of the SSA customers to take them outside of the usual commercial relationship of arm’s length dealing between ZL and HOK, where ZL sold to HOK and HOK sold on to the customer. It is true that, on one view, the communications between HOK and ZL relating to each of these customers were similar to earlier dealings with other customers in relation to which an SSA is not alleged. But that is not to say, on a true analysis of the dealings that a broader contractual relationship than simply a series of ad hoc agreement for the purchase of ZL’s products should not be inferred for the following reasons:

156.1        By the time of the negotiations with each of the SSA customers leading to a central listing, the assumption was shared by the parties that a relationship of exclusivity existed.

156.2        In each case, there is evidence of extensive discussion between HOK that achieved the listing by the respective customers of ZL’s products. Absent some obligation of exclusivity, HOK would have been investing its time and money in developing relationships that might have to come to an end at any time because of ZL’s freedom to deal directly with the customer.

156.3        ZL was kept informed about pricing arrangements. It must have been aware that price was a sensitive issue for the customer and that therefore HOK would need to know that there was a commitment from ZL that prices would not be changed arbitrarily.

156.4        HOK was purchasing large quantities of ZL’s goods, for a while virtually everything that ZL was able to produce. It was therefore committing large scale funding to the development of ZL’s range of products. It would be natural to think that it would not do this without at least some agreement as to exclusivity.

156.5        Further the relationship between HOK and the SSA customers in each case involved some commitment as to price or discount by HOK, as set out above and as known by ZL save in the cases of Bargain Booze and Booker, and in the second of these, AD was made aware of HOK’s commitment to the multibuy option. It would not be in accordance with business efficacy to expect HOK to enter into such arrangements without some corresponding commitment on price from ZL, at least in so far as price rises would not be applied without reasonable notice being given.

156.6        In the case of JDW, ZL agreed to contribute to the retro to be paid. Were there no overarching agreement in that case, but rather simply one off sales, there would be no basis for an obligation on the part of ZL to meet this payment. At the very least, it must have been a term of the trading relationship between ZL and HOK that any of ZL’s products that were purchased by HOK and sold on by it to MCB and by it on to JDW would be the subject of a payment by ZL to JDW of its contribution to the retro of £1 per bottle. Whilst one could draw the inference that this was a term of every sale by ZL to HOK, it more naturally leads to a conclusion of particular terms of dealings between the two companies in respect of that customer.

158.           I have not found the question of the mechanisms for offer and acceptance to be easy to discern. This was a gradually developing relationship. The court must be careful to guard against a casual finding of a contract coming into existence or indeed being varied simply because the parties’ relationship has developed, lest an undesirable element of uncertainty be introduced into the law of contract. But where the parties traded over a number of months in the belief that they had a contractual relationship and committed resources to their dealings in that belief, the court can safely apply the rather laxer principle set out in Chitty on Contracts at §37-044, citing G Percy Trentham Ltd v Archital Luxfer op cit.

159.           It would not however be safe to reach a concluded view on this issue without first identifying the contractual terms that are said to have bound the parties. Just as a contract should not be implied unless it is necessary to do so, equally the terms to be implied are only those that are necessary. In my judgment, the following terms meet this test:

159.1        That, for the duration of the agreement relating to the particular customer:

a)             HOK would pay the agreed price for ZL’s products, subject to a right on the part of ZL to change the price after giving reasonable notice of its intention to do so;

b)             HOK would seek to promote ZL’s products;

c)             ZL would pay any contribution towards a retro that had been agreed in respect of the product;

160.           I have not heard argument on the issue of any other obligations within the SSAs. It is possible that the court would also imply obligations on the part of HOK either (i) not to sell to the customers any product that directly competed with those of ZL; (ii) not to promote any such products; and/or (iii) not to develop any such products.. However, without fuller argument, I could not reach a concluded view on that issue.

161.           Counsel for ZL made the point in closing submissions that there were supplies made by ZL through HOK to many customers other than the five customers in respect of whom SSAs are identified. He asks rhetorically why these other customers are not said to be the subject of SSAs. To answer that question would involve looking at those relationships in closer detail. It may be that, in respect of those customers, it is not possible for HOK to show that it engaged in the same level of promotion or that ZL was involved in discussion prices for customers. It may be that sales to other customer were not “national listings” in the same way, carrying with it the implication that the product has been sufficiently promoted by HOK to be in demand nationally. It may be that, in fact the existence of SSAs could be argued in those cases as well as the five customers identified by HOK but that it has not been pursued for reasons of proportionality. Either way, it would not be right to reject HOK’s arguments in respect of these five customers just because there may be similar arguments to be advanced in respect of other dealings.

162.           In my judgment, the court can and ought to infer the existence of SSAs, given the relationship that had developed between HOK and ZL and the underlying assumptions upon which they operated. The minimum terms of such agreements can be clearly identified as set out above and, whilst it may be argued that other terms ought properly to be implied, I am satisfied that to do so would not undermine HOK’s central argument that the SSAs were not terminable without reasonable notice being given.

163.           I have considered whether the relationship with Bargain Booze lies in a different category, given that there is no evidence that the price at which HOK was to sell or any discount to which it was to contribute was known in this case. Whilst this makes the case less compelling in the individual case, given that this negotiation took place in the course of a series of negotiations where the creating of a SSA can be inferred, it is in my judgment more apt to infer a corresponding contract in this case as well.

164.           I turn to the question of what was an appropriate notice period in this case. In my judgment there are several important factors:

164.1        The relative informality of the relationship between the parties is a pointer towards a shorter period of notice. If the parties had really intended a long period, it is more likely that they would have formalised the relationship.

164.2        Whilst I accept that HOK invested time and money in developing the SSAs, and indeed the market for ZL’s products more generally, I do not accept that they did this on the kind of scale that was considered for example by the Court of Appeal in Decro-Wall v Practitioners in Marketing Ltd [1971] 1 WLR 361. The Defendant was promoting products which were very much the brainchild of AD and it was as much his skill in product development as HOK’s skill and efforts in marketing which led to the phenomenal success of ZL’s products.

164.3        The Defendant’s obligation to promote the Claimant’s products was a burden that a reasonable distributor would only wish to bear for a limited period.

164.4        Whilst there was no express prohibition on the Defendant selling competitor goods to the Claimant, the Defendant indicated that it considered itself obliged not to do so.

164.5        HOK was in fact able to develop an alternative product and get it on the market within about 3 months. Admittedly it was not profitable to the extent that ZL’s products were, but that was the simple consequence of the fact that it was following the established product from ZL - as JH made clear in evidence, it is rare for an imitator to match the success of an original product.

165.           Bearing in mind these factors, the reasonable notice period in this case has to be a short one. Whilst not even 12 months was sufficient to enable HOK to develop and market an alternative product that was successful to the same degree as those of ZL, this factor is of limited significance where, during the notice period, the distributor would be restricted from (or at least would consider that it should not) taking steps to market competitive products and where in any event it would be duty bound to continue to promote the manufacturer’s products. In my judgment, any notice period in excess of three months would have imposed unreasonable obligations from the point of view of both parties. Their failure to expressly agreed terms of their relationship is consistent with an approach that there was only a small limitation on the parties’ rights to disengage. In my judgment, the appropriate notice period that gives effect to these considerations is three months.

166.           Following distribution of the judgment in draft, I was asked to determine the issue as to the date from which the notice period runs. I have not heard submissions on this issue, but in my judgment, the correct date for the calculation of the notice period is that the 3 months runs from the date of acceptance of the repudiatory breach, namely 20 December 2018. I say so for the following reasons:

166.1        The Defendant, as the innocent party, is entitled to be put in the position that it would have been in, had the contract been properly performed.

166.2        Since notice was not in fact given, it could not run from a date earlier than the date on which the contract was in fact terminated.

166.3        However the Claimant could then have given notice at any time after the Defendant accepted the repudiatory breach.

167.           Having determined the issue of SSAs in favour of the Defendant, the question of whether the contracts were relational in nature becomes academic.

168.           However for the sake of completeness, it is not in my judgment correct to find that either the MWA proposed by the Defendant or the SSAs that I have found to exist were relational in nature. I can summarise my reasons by looking at the list of factors proposed by Fraser J in Bates v Post Office:

168.1        I accept that there would be no express term excluding the existence of such a duty.

168.2         I do not accept that these were or would have been long term relationships. Both the SSAs that I have found to exist and the putative MWA would have been subject to a right to terminate on reasonable notice. I have dealt with what notice is reasonable above. These contracts did not or would not have had the degree of longevity that points towards the relational analysis.

168.3        I see no basis for implying obligations of integrity and fidelity in the performance of the contract. Quite simply, the parties were arm’s length commercial organisations acting in their own best interests.

168.4        The nature of the promotion of ZL’s products meant that there a degree of collaboration was necessary in the performance of the parties’ duties, but in large part, this was simply a question of two commercial persons whose interests were aligned in the direction of one promoting and selling the other’s products.

168.5        I see no difficulty in expressing the nature of the relationship in the terms as set out above, albeit I accept there is some uncertainty as to the extent of HOK’s obligations under the contract.

168.6        Doubtless the particular individuals involved in the dealings, particularly AD and JH, reposed a greater or lesser degree of trust and confidence in the other, but this is not such as to take the relationship out of the usual commercial context.

168.7        The contracts did not/would not have involved “a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty.”

168.8        There has been a measure of investment particularly by HOK in the venture.

168.9        For the reasons I have identified there is a degree of exclusivity in the relationship.

169.           I should add that the SSAs or the putative MWA did not have elements of contractual discretion in their performance.

170.           The balance of this analysis does not position towards the contract being relational in nature. Whilst it may not be correct to say that a relational contract should only be found to exist where it is necessary to do so in order to give effect to the presumed intentions of the parties, the court should be slow to introduce obligations into a contract by the use of the concept of the relational contract where it is unnecessary to do so to give proper effect to those intentions.

171.           This is likely to be particularly problematic where the contract cannot be said to have any of the characteristics of the relational agreement from the outset. For the contract to become relational in character, there would have to be a basis for finding that the contract had been varied. Indeed, the very finding that a contract which was not relational at the outset but became so indicates that there is a variation to the contractual obligations. On the facts of this case, the argument against the variation of any existing contract so that it became relational suffers even more strongly from the lack of evidence to create a relational contract, than does the argument that a MWA is to be inferred from the developing relationship of the parties, given the cautions in the authorities against too readily inferring a relational contract.

172.           Mr Reed for ZL points to the particular danger that one concludes from the relationship of a friendship (as between JH and AD here) the conclusion that the contract is relational. In my judgment, it is not necessary to find such a contractual relationship arose here and I decline to do so.

173.           Issue five relates to the allegation that ZL was in repudiatory breach by negotiating with and agreeing to supply HOK. It is subdivided as follows:

174.           Given the terms of the SSAs that I have found, it was undoubtedly a repudiatory breach of the SSA relating to JDW for ZL to supply direct. Its conduct in doing so equally amounted to a renunciation of each of the other SSAs because it amounted to ZL taking a clear position that it was not bound by any obligation to give notice.

175.           This issue has been broken down as follows:

176.           The Defendant contends that this issue is unarguable. Even if the development of Imaginaria was a repudiatory breach and/or renunciation of the contract, there is no evidence that the Claimant accepted any such breach. Rather the evidence is that the Claimant considered the relationship to be a continuing one after its own repudiate a breach/renunciation. This is clearly evidenced by AD’s email of 19 December 2018, with its reference to a continuing relationship.

177.           I accept that it is arguable that the SSAs contained terms preventing HOK from developing or promoting products that competed with ZL and that, if so, HOK was in breach of the SSAs, capable of being interpreted as renunciation and /or repudiatory breach of contract. However, there is no material from which I conclude that the Claimant accepted any renunciation of the contract or repudiatory breach prior to the Defendant accepting the Claimant’s renunciation and/or repudiatory breaches.

178.           For the sake of completeness, I add that I am not satisfied that the development of the Imaginaria product by the Defendant was in any event either a renunciation of the contract away repudiatory breach. If positive steps had been made to market the product prior to the termination of the SSAs, that may well have amounted to repudiation/renunciation. Merely preparing for the possibility of manufacturing the product does not.

179.           For the reasons set out above, I am satisfied that:

179.1        ZL was entitled to interest pursuant to the wording of each of the invoices on which it sues at 8.5% per annum, compounded monthly;

179.2        There was no overarching agreement governing the parties’ relationship, in the form of the MWA pleaded by the Claimant or similar;

179.3        The parties entered into contracts relating to the sale by the Claimant to the Defendant of products for the purpose of supplying five specific customers, Booths, JDW, Greene King, Bargain Booze and Bookers;

179.4        Those contracts had terms including an obligation on the Claimant only to sell products to those customers through the Defendant;

179.5        The contracts were terminable by either party giving reasonable notice;

179.6        Reasonable notice at the time of events with which we are concerned here would have been three months notice;

179.7        The unilateral actions of the Claimant in supplying its products directly to JDW (through MCB) amounted to a breach of that specific SSA and a renunciation of the SSAs generally;

179.8        The Defendant accepted those breaches, bringing the agreements to an end, by its letter of 20 December 2018;

179.9        It is arguable that the Defendant was itself in repudiatory breach of contract and/or renounced the SSAs but there is no evidence of the Claimant accepting such breach prior to termination under the preceding sub-paragraph;

179.10    The Defendant is therefore entitled to claim damages for the Claimant’s breach of contract in failing to give three months’ notice as at the time of the acceptance of the repudiatory breach, that is to say on 20 December 2018.

180.           The parties have each intimated an intention to seek permission to appeal. This judgment is handed down in private without the parties attending, in order to ensure this happens at the earliest possible date but allowing for a further hearing in due course to deal with consequential matters. The question may well arise in this case as to whether applications for permission to appeal should not be dealt with until after the determination of quantum pursuant to this order and the further procedure referred to above. I express no view on that issue for the moment, but simply adjourn the applications for permission to appeal to a date to be fixed and extend time for the service of Appellants’ notices to 21 days from the further hearing. The question of any further adjournment of the applications and/or extension of time for the service of Appellants’ notices can be dealt with at the consequential hearing.

APPENDIX - TABLE OF INITIALS