England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		02/02/2018

Martin Chamberlain QC:

Introduction and summary

1. Edge Tools & Equipment Ltd ("Edge") is a family-owned company. Mr Ian Clarke owns 85% of its shares. The remainder are owned by Mrs Debra Clarke and their sons Henry and Jack. Edge designs, manufactures, develops and sells, amongst other things, professional and DIY grade diamond blades. There are many diamond blades on the market. To the untutored eye, they look similar, but they differ in the precise composition of the diamond grit used in their manufacture and also in the pattern and design of their cooling holes. These features in combination determine a blade's longevity and its suitability for cutting particular materials. Mr Clarke developed a business relationship with a Mr Hua, the owner of the Danyang Huachang factory in Jiangsu, China ("Danyang"). He travelled there often in the early 2000s to develop diamond blades with the right attributes for the UK market. Initially, Edge sold these blades only under its own "Edge Diamond" brand. In 2004, however, while continuing to sell blades under its own brand, it obtained a licence from the construction equipment company JCB to manufacture and sell diamond cutting and drilling products and bonded abrasives under JCB's internationally recognised brand. This licence expired at the end of 2012.
2. In 2011, Edge began working with an Indian company, Master Alloys, with the aim of developing a range of diamond blades for the Indian market. Master Alloys placed a significant order with Edge in about April 2012, but a dispute then developed between Mr Clarke and Mr Pawan Parolia of Master Alloys. It led to a comprehensive breakdown in the relationship between Edge and Master Alloys. During the course of this dispute Mr Atkinson of JCB asked Mr Clarke to introduce a Mr Mark Lane to Master Alloys. Mr Lane was the Managing Director and majority shareholder of Greatstar Europe Ltd ("Greatstar") and G2 Products Ltd ("G2"). Their business was the supply of hand tool and power tool accessories, in particular to major retail multiples, such as B&Q. G2 had acquired a licence to supply JCB-branded hand tools and bench top power accessories. By January 2013, G2 acquired the JCB licence previously held by Edge.
3. As the dispute between Edge and Master Alloys developed, there were discussions between Edge and Greatstar/G2 about a possible joint venture. Mr Clarke had technical expertise in the design and development of diamond blades. Greatstar/G2 had an experienced sales team and a record of success selling to retail multiples. From October 2012, various drafts of an agreement between Edge and Greatstar/G2 were exchanged. On 21 March 2013, Mr Clarke signed and emailed to Mr Lane a four-page document entitled "Exclusive supply and Trading Agreement" ("the Agreement") by which G2 agreed to source its diamond cutting and diamond drilling products, bonded abrasives, petrol saw and power tool accessories exclusively from Edge. The third and fourth pages of this document had the heading "Heads of Terms" and the sub-heading "Outline Points". The first of these provided that the Agreement was to be valid for five years from the date of commencement or for the duration of G2's legal licence with JCB. Point 5 provided that G2 and Greatstar were to be responsible for all sales, marketing and invoicing to customers in category A (largely retail multiples) and Edge was to be responsible for all sales, marketing and invoicing for customers in category B (industrial and construction customers). There were points dealing with profit-sharing and commission. The eighth point provided that a "contract and trading agreement" was to be drawn up by a date that, by the time Mr Clarke signed the Agreement, had already passed. On 20 May 2013, Mr Lane countersigned the document and emailed it to Mr Clarke.
4. Edge and Greatstar/G2 traded for some months after the Agreement was signed. In late 2013 difficulties arose which led to a meeting on 12 December 2013. It was agreed at that meeting that Greatstar/G2 would deal directly with the Chinese factories which Edge had previously used, but would otherwise continue on the same profit-sharing and commission terms. There is a dispute about what else was agreed at that meeting.
5. By late 2014, the relationship between Edge and Greatstar/G2 had deteriorated. This claim was issued on 10 November 2015. Edge alleges that Greatstar/G2 breached the Agreement by failing to pay commission due under it and/or by purporting to terminate it before the end of the five-year term by their solicitors' letter of 13 February 2015. It claims sums due under the Agreement and damages to be assessed following an inquiry and/or the taking of an account.
6. Greatstar/G2 say that the Agreement was not contractually binding: the intention was that the terms would become binding when incorporated into the formal "contract and trading agreement", but not until then. They accept that the parties' subsequent conduct gave rise to a contract incorporating some of the Heads of Terms, but not the five-year term. Their primary case is that Edge was in repudiatory breach and that they accepted the repudiation in a letter of 13 February 2015. Alternatively, they say that the contract was terminable on reasonable notice and that Greatstar/G2 lawfully terminated it by giving notice in their solicitors' letter of 13 February 2015.
7. Edge denies any repudiatory breach and, in the alternative, contends that Greatstar/G2 elected to waive their right to bring the contract to an end and/or affirmed it.
8. Greatstar/G2 counterclaim in respect of sums they say are due from Edge and for damages pursuant to s. 2(1) of the Misrepresentation Act 1967 ("the 1967 Act"). They say that, but for false representations made by Edge, they would not have entered into the Agreement and that, as a result, they have suffered loss and damage.

The issues

9. It is agreed that the claim raises the following issues:

Issue 1: The terms of the contract

a. Was there a contract between the parties on the terms set out in the Heads of Terms, including clause 1 as to the duration of that contract?

Issue 2: Implied term as to reasonable notice

b. Was there an implied term that such contract as did exist could be terminated on reasonable notice and, if so, what period of notice was reasonable?

c. If Greatstar were permitted to terminate the contract on reasonable notice when was such notice given and, accordingly, when did the contract come to an end?

Issue 3: Alleged breaches by Edge

d. Was Edge in repudiatory breach of contract entitling Greatstar to bring the contract to an end? If so, when was termination effected?

Issue 4: Alleged breaches by Greatstar

e. Was Greatstar in repudiatory breach of contract entitling Edge to bring the contract to an end? If so, when was termination effected?

Issue 5: Basis of damages

f. What rate of interest is payable on the admitted invoices?

g. What are the "relevant sales" which attract commission under the Agreement?

h. What is the basis upon which commission should be calculated under the Agreement?

i. If Edge is entitled to damages on sales after termination should those damages be calculated on an ex ante or "ex post" basis?

The following additional issues arise on the counterclaim:

Issue 6: Misrepresentation

In respect of each representation relied upon by Greatstar/G2:

j. Was the representation made?

k. Was is false?

l. Was it relied upon by Greatstar/G2 in entering into the Agreement?

m. Can Edge show that it had reasonable grounds for believing, and did believe, that it was true?

Issue 7: Damages

n. On what basis should damages be assessed?

The evidence

10. The oral evidence of fact was heard over four days. For the Claimant, I heard evidence from Mr Clarke, Mrs Debra Clarke (his wife and assistant), Mr Nick Barber (who initially worked for Greatstar and subsequently for Edge) and Mr Philip Mist (who worked with Mr Clarke developing and testing diamond blades until 2011). I also considered the witness statements of Ms Siobhan Earlam and Mr Jinjun Hua, hearsay notices having been served in respect of those statements under s. 2 of the Civil Evidence Act 1995.
11. For the Defendants, I heard evidence from Mr Adrian O'Nion (Commercial Director of Greatstar), Mr Mark Lane, Mr Scott Harrison (Director of UK Sales for Greatstar) and Mr Norman Tenray (Chief Executive Officer of OBAS UK Ltd, which distributed JCB diamond blades on behalf of Edge). I also considered the witness statements of Messrs Bei Yuhong and Wufeng Jiang, in respect of which hearsay notices were also served.
12. At the start of the trial, there were various applications to admit evidence. Ms Sarah McCann, for the Claimant, applied for permission to adduce written and oral evidence from Ms Linda Parkinson. I gave that permission subject to conditions designed to ensure that Greatstar/G2 would have a proper opportunity to respond to it. In the event, however, Ms Parkinson did not attend to give evidence. Because no explanation was given, I declined to admit a summary of her evidence. Mr Michele de Gregorio, for the Defendants, applied for permission to adduce in evidence certain emails. I admitted those which were in the nature of contemporaneous evidence. But I declined to admit an email from JCB which had been prepared for the purpose of these proceedings. I was told that it was JCB company policy not to give formal evidence in disputes of this kind between a licensee and former licensee. I infer that JCB consider that it would not offend this policy if I were to consider their evidence informally, in the form of an email. JCB's policy may be understandable, but it is not a proper basis for bypassing the court's normal requirements for the reception of evidence. It would be unfair to admit evidence which is not supported by a statement of truth and not subject to cross-examination, simply because of a self-imposed policy of this kind.
13. On the last day of the trial, I began hearing expert evidence directed to the assessment of damages. With the agreement of the parties I did not finish doing so, since it became clear that it would be necessary in any event to revert to the experts once my conclusions on the factual issues was known. It was agreed that I would receive closing submissions in writing only. The Claimant's submissions on the claim were filed on 30 November 2017, the Defendants submissions on the claim and counterclaim on 5 December 2017 and the Claimant's reply on the counterclaim on 11 December 2017. I am grateful to Ms McCann and Mr de Gregorio. Both produced full and clear submissions, which were of great assistance.

My approach to the factual disputes

14. Before turning to the issues, I should record that a significant part of the cross-examination was directed to the circumstances of the dispute between Edge and Master Alloys. Mr de Gregorio sought to rely on it as relevant to Mr Clarke's credibility and also as part of the background to the dispute. As I have said, the relationship between Edge and Master Alloys broke down comprehensively. Mr Parolia's emails make it clear that he considered that Mr Clarke had cheated him. Mr Clarke denied that. At the same time, the correspondence indicates that Greatstar was trying not to take sides in this dispute. Mr Parolia is not a party to these proceedings, nor is he a witness. On the evidence before me, I do not find it possible to draw firm conclusions as to whether (and if so to what extent and in what respects) his accusations were well-founded. In those circumstances, Mr Parolia's accusations do not affect my assessment of Mr Clarke's credibility.
15. More generally, some of the matters in dispute are the subject of conflicting oral evidence as to what was said in meetings and conversations between 2012 and 2015. In assessing this evidence, I have borne in mind the observations of Leggatt J about the fallibility of human memory in Gestmin SGPS SA v Credit Suisse Securities (Europe) Ltd [2013] EWHC 3560 (Comm) at [15]-[21] and summarised at [22] as follows:

"…the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth."

16. These observations have been relied upon by other judges and endorsed in the academic literature: Blue v Ashley [2017] EWHC 1928 (Comm), at [68]. They have particular force in a case such as the present, where the commercial relationship between Edge and Greatstar/G2 is very extensively recorded in documentary materials. The trial bundles ran to 21 lever arch files.
17. Given the voluminous nature of the evidence, I have not referred to every document in evidence before me, nor indeed to every document to which reference was made in the course of the trial (a much narrower category). Nor have I set out in full the evidence given by each witness. I have instead concentrated on what I consider to be the key documents and evidence relevant to each issue.

Issue 1: The terms of the contract

The law

18. The principles applicable to the creation of legal relations are for the most part agreed. In RTS Ltd v Molkerei Alois Muller GmbH and Co. KG [2010] UKSC 14; [2010] 1 WLR 753, Lord Clarke (giving the judgment of the Supreme Court) said this at [45]:

"The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends on what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a pre-condition to a concluded and legally binding agreement."

At [50], Lord Clarke referred with approval to the observation of Steyn LJ that "the governing criterion is the reasonable expectation of honest sensible businessmen". At [54], he noted that the fact that work was performed did not necessarily mean that a binding contract was made, but was "plainly a very relevant factor pointing in that direction". Whether a contract had been made would depend on all the circumstances of the case: ibid, at [56].

19. The party on whom the burden lies depends on whether there was an express agreement, written or oral. If so, the position is as stated in Chitty on Contracts (32^nd ed.) §2-168:

"In the case of ordinary commercial transactions it is not normally necessary to prove that the parties to an express agreement in fact intended to create legal relations. The onus of proving that there was no such intention 'is on the party who asserts that no legal effect is intended, and the onus is a heavy one'. In deciding whether the onus has been discharged, the courts will be influenced by the importance of the agreement to the parties, and by the fact that one of them acted in reliance on it."

By contrast, in the absence of an express agreement, where one party seeks to establish an agreement by implication from conduct, the burden is on that party to prove it: Chitty §2-169.

20. An agreement is not incomplete merely because it calls for some further agreement between the parties. Thus, in Von Hatzfield-Wildenburg v Alexander [1912] 1 Ch 284, Parker J said this at 288-9:

"It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract, contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to, will in fact go through. In the former case, there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract entering into a contract. In the latter case, there is a binding contract and the reference to the more formal document may be ignored."

That passage was cited with approval by the Court of Appeal in Immingham Storage Co. Ltd v Clear plc [2011] EWCA Civ 89, [18].

21. These principles must be read subject to a number of caveats. A party who did not in fact intend to be bound cannot invoke the objective test so as to bind the other party to the contract: Chitty §2-170; Attrill v Dresdner Kleinwort Ltd [2013] EWCA Civ 394, [2013] IRLR 548, [86] (Elias LJ). In MacInnes v Gross [2017] EWHC 46 (QB), Coulson J said this at [77(c)]:

"One factor which may be relevant to the issue of contractual intention is the degree of precision (or otherwise) with which the alleged agreement is expressed. Vagueness/uncertainty may be a ground for concluding that the parties did not reach any agreement at all: see Chitty on Contracts, 2-147 and 2-194."

At [78], he added this:

"The court may conclude that there is no binding agreement because no definite meaning can be given to what was said: see Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD [2011] 2 Lloyd's Rep 76. In this context I also note that:

(a) The more complicated the subject matter, the more likely the parties are to want to enshrine their contract in a written document, thereby enabling them to review all the terms before being committed to any of them: see Cheverney Consulting Ltd v Whitehead Mann Ltd [2006] EWCA Civ 1303 and Benourad v Compass Group plc [2010] EWHC 1882 (QB) at paragraph 106(a).

(b) The express identification of a 'trigger' event (upon which it is said, for instance, commission becomes payable) is something which the law regards as essential for the formation of a legally binding contract: see Luxor (Eastbourne) Ltd v Cooper [1941] AC 108 and Wells v Devani [2016] EWCA Civ 1106."

22. Finally, Mr de Gregorio draws attention to the principle that, whilst in general the "parol evidence rule" excludes oral evidence to contradict, vary or add to or subtract from the terms of a written contract, extrinsic oral evidence is exceptionally admissible to show that what appears to be a binding contract was in fact no contract at all: Chitty §13-109; Orion Insurance v Sphere Drake Insurance [1990] 1 Lloyd's Rep. 465, 494 (Hirst J). Reliance was also placed on MSC Mediterranean Shipping Co. SA v Owners of the Ship "TYCHY" [2001] EWCA Civ 1189, [2001] 2 Lloyd's Rep 403, [29], where Lord Phillips MR (giving the judgment of the Court of Appeal) said this:

"Before taking extrinsic evidence into account, it is important to consider precisely why it is said to assist in deciding the meaning of what was subsequently agreed and to consider whether its relevance is sufficiently cogent to the determination of the joint intention of the parties to have regard to it. It is also important, though not always easy, to identify what is extrinsic to the agreement and what forms an intrinsic part of it. When a formal contract is drawn up and signed, care must be taken to distinguish between admissible background evidence relating to the nature and object of the contractual venture and inadmissible evidence of the terms for which each party was contending in the course of negotiations. Where, as in the present case, an agreement is alleged to have been reached in the course of dealings which do not culminate in the drawing up of a formal contract, the task is to identify whether, and if so which, terms proposed in the course of negotiations have become the subject of a joint agreement."

The background to the signature of the Agreement

23. The first draft of a suggested agreement was produced in October 2012. It envisaged Mr Lane personally taking a 49% shareholding in Edge. That was not taken forward. Mr O'Nion of Greatstar emailed Mr Clarke on 17 January 2013 in these terms, attaching a second draft agreement:

"Sorry for the delay with this but please find attached as requested. There are three elements highlighted in yellow and these are specific terms/targets etc where we would need to sit down and agree these so that they could be included in the body of any resulting agreement but we can cover these when we next meet.

Have a review and give me a call with any queries."

24. The document attached was a draft agreement between G2 and Edge. Clause 1 committed G2 to "source its Diamond cutting and drilling products, Bonded abrasives exclusively from ('Edge'). Subject to certain terms and conditions." The next page had the heading "Terms and Conditions" and the sub-heading "Purchase Terms and Conditions". There was a series of numbered points including, materially, these:

"1. Agreement will be valid for five years from date of commencement or for the duration of G2's legal licence agreement with JCB. For whatever reason the G2 License [sic] expires this purchase agreement shall cease unless agreed otherwise in writing.

…

3. Edge Diamond agree to sign an exclusive supply contract for its product with Greatstar Europe and G2 Ltd.

…

6. Edge Diamond will maintain existing production and repair facilities in Derby but will transfer on consignment agreed stock levels to Romsey for immediate distribution by Greatstar Europe. These will be reimbursed for on invoice to customers following dispatch and paid for on agreed terms.

7. Edge will recover profit on all sales to Greatstar Europe/G2 in the UK on a 50:50 basis (diamond blades and bonded abrasives) as well as earn an agreed commission rate on JCB blades for international business – both are after operating costs to serve the sale are deducted i.e. transportation, warehousing, labour, rebates and royalties etc. Commission will also be earnt [sic] on any other JCB range placed into new countries not currently served by G2 and with prior agreement. Commission rates will be defined separately.

8. Greatstar Europe and Edge Diamond will agree a 3 year sales plan with the objective of driving significant sales growth. The basis of this contract and the concessions made by Edge Diamond will be these sales targets. Targets to be agreed.

…

11. A contract and trading agreement is to be drawn up and signed by February 1^st to ensure that this arrangement including all stock transfers and account handovers are effective by March 1^st."

The passages underlined in the excerpts above were highlighted in yellow.

25. On 7 February 2013, Mr O'Nion sent Mr Clarke a further version of the agreement attaching a series of numbered points, this time headed "Heads of Terms" and sub-headed "Outline Points". Paragraph 6 retained the words "paid for on agreed terms". Detail was inserted as to commission. The reference to sales targets was omitted.
26. On 1 March 2013, Mr Clarke emailed Mr Lane attaching what he described as a "simplified version of the way forward". On 3 March 2013, Mr Lane wrote to his colleagues at Greatstar indicating that he intended to make Mr Clarke a "final offer". After outlining what he proposed to include in this, he concluded:

"Ian will have by Friday to agree to the following agreement with no exceptions".

27. On 4 March 2013, Mr Lane emailed Mr Clarke in these terms:

"Whilst I believe we are aligned in some areas and have a mutual desire to build a solid and sustainable JCB business, the terms of trading that you have offered cannot be accepted.

…

We have very little time now to form an agreement. John has informed me that your licence expired at the end of December. I need to take control of all activities from the 1^st of Jan 2013. In the event that we are not able to form an agreement we will need to discuss JCB sales activities from the 1^st of Jan and what arrangements can be made to formally bring to a close your JCB licensee activity."

A further version of the terms was enclosed, again headed "Heads of Terms" and sub-headed "Outline Points".

28. On 21 March 2013, after a meeting with Nick Barber (who was then working for Greatstar), Mr Clarke emailed Mr Lane in these terms:

"Been sat with Nick today. Please find agreement to agree attached."

Mr Lane responded on 22 March 2013 as follows:

"Many thanks for this. This is a very good agreement for both companies and one I believe we will all do very well from."

29. The attached document consisted of four pages. The first was a title page headed "Exclusive Supply and Trading Agreement". The second had three sections headed "Parties", "Background" and "Agreement". The latter contained clauses 1 and 2, which provided as follows:

"1. Purchase Agreement

G2 agrees to source its Diamond cutting and drilling products, Bonded abrasives exclusively from ('Edge'). Subject to certain terms and conditions.

2. Law and Jurisdiction

This Agreement will be governed by the law in force from time to time in England and Wales and the parties consent to the exclusive jurisdiction of the Courts of England & Wales."

Under that, there appeared:

"AGREED by the parties through their authorised signatories"

The document provided for signatures "for and on behalf of G2" and "for and on behalf of Edge". Pages 3 and 4 of the document were headed "Heads of Terms" (and sub-headed "Outline Points"). It is necessary to set these out in full:

"1. Agreement will be valid for five years from date of commencement or for the duration of G2's legal license agreement with JCB. For whatever reason the G2 License expires with JCB this purchase agreement shall cease unless agreed mutually otherwise in writing.

2. This trading agreement is valid for all products that have been developed by or sourced by Edge. This can extend to products developed in this category into the future and that could be traded under the JCB brand with their permission and approval.

3. Edge will use its existing relationship and existing terms to source and purchase JCB Branded Diamond Blades, Diamond Core drilling products, Bonded Abrasives and Petrol cut off saw and Power tool accessories. In turn, Edge will exclusively sell these products to G2 or Great Star Europe.

4. Edge will recover profit on all sales to G2 Limited or Great Star Europe at point of invoice. Edge will mark up by 3% on all sales to G2 Limited or Great Star Europe. This would be considered as Edge profit and compensation for this exclusive supply agreement on products purchased for all Global markets.

5. UK responsibility for sales, marketing of JCB Branded products will be defined and split as follows.

A. Retail (independent or multiple) such as B&Q, homebase, National Builders Merchants such as Travis Perkins, Jewsons, catalogue retailers such as Toolstation

B. Industrial and construction customers.

G2 & Great Star Europe will be responsible for all sales marketing and invoicing for customers defined as A & G2 & Great Star Europe will initially share 50% of gross profits after costs and royalties with Edge.

a. £0-500K 50% of gross profit

b. £501 to £750K 35% of gross profit

c. £751K plus 30% of gross profit

Definition of costs is FOB cost of product + delivery + duty + delivery. This is cost price. Same price is invoice value. Difference is profit.

Edge Diamond Ltd will be responsible for all sales marketing and invoicing for customers defined as B. Edge will share 25% of gross profits after costs plus royalties with G2.

Full list of specified accounts would be prepared and agreed.

It is fully understood that Edge will continue to serve industrial and construction. Therefore Edge will be permitted to continue to sell JCB Branded products to Industrial and construction customers

6. Other ranges such as Hand Tools, Compressors, welders, generators etc. (excluding diamond blades or bonded abrasives) sold to a customer introduced by Edge anywhere in the World that does not conflict with existing agreements, Edge will earn an agreed commission of 2.5% of gross sales at invoice value.

7. It is understood and thereby agreed that Great Star Europe will receive an agreed commission for managing Edge sales to Screwfix for its Erbauer range of Diamond blades which has been agreed at 5% of invoice value.

8. A contract and trading agreement is to be drawn up and signed by Friday March 8^th 2013. Account handovers must be effective by Friday 15^th March 2013.

9. To facilitate the final agreement Edge will need to provide G2 Limited with all information necessary to prepare a commercial and trading plan for 2013 and subsequent years. This will include:

a. Current pricing structure to customers.

b. Current JCB manufacturers along with in writing confirmed trading terms from all those manufacturers.

c. Any VBA's and other trading terms (or supplementary agreement) between Edge and the customers that will transfer across to G2 Limited.

d. Any other facts or factors that could materially affect the sales performance post signing, the profitability of the range or the reputation of the JCB brand.

10. On signing of the agreement Edge will agree to transfer across to G2 Limited all JCB marketing material – printed, tangible, digital, concept, launched or otherwise to assist them in developing the marketing activity for the customer base and ensuring continuity of service to the market so that the JCB brand is not damaged or tarnished in any way.

11. Supply chain visibility will be essential to maintaining service levels to key customers and as such it is essential that we work together to uphold and fill rates and service reputation, this should be achieved through monthly meetings."

30. There was no further discussion about the terms of the agreement. On 20 May 2013, Mr Lane countersigned the copy Mr Clarke had signed on 21 March and emailed it to Mr Clarke "for your records".

The Claimant's submissions

31. The Claimant's pleaded case (as appears from paragraph 7 of the Particulars of Claim) was as follows:

"By an exclusive supply arrangement and/or agreement partly evidenced in the May 2013 Contract as between the Claimant and the Second Defendant, and implied, that is, made by conduct as between the claimant the first and the second defendant on the terms set out in the May 2013 contract, it was agreed that:

7.1 The Claimant would source and purchase, amongst other things, JCB Branded Diamond Blades, Diamond Core Drilling Products, Bonded Abrasives, Petrol Cut-off Saw and Power Tool Accessories ('the Products'); and/or

7.2 The Claimant would exclusively sell these products to the Defendants; and/or

7.3 The Claimant would recover profit and agree commission on all sales to the defendants of JCB and other products on terms as set out below ('the Agreement')."

32. I agree with Mr de Gregorio that it did not appear from this that the Claimant was contending that the Agreement itself was binding, rather that it "evidenced" a contract that could be implied from the parties' conduct. But that is of little moment. Ms McCann made clear at the outset of the trial that it was her primary case that the Agreement constituted an express contract incorporating all the terms in the four-page document signed by Mr Clarke for Edge on 21 March 2013 and countersigned by Mr Lane for Greatstar/G2 on 20 May 2013. Since the parties were fully able to address this contention, both by evidence and in submissions, Mr de Gregorio sensibly did not suggest that it was not open to the Claimant.
33. Ms McCann submits that it is clear from the email correspondence that the Heads of Terms were included as part of the same Word document exchanged electronically by the parties and that the natural inference, looking at the matter objectively, is that the parties intended to be bound by the Heads of Terms as a whole. She refers also to clause 1 of the Agreement which binds the parties "subject to certain terms and conditions". It is clear from the document as a whole that the Heads of Terms are the terms and conditions referred to.
34. Ms McCann relies additionally on the chain of correspondence which led to the signed Agreement. Although in his email of 17 January Mr O'Nion said that the draft document attached was to serve as "a framework for the final agreement", that was a reference to the matters highlighted in yellow on that document as requiring further discussion. The version sent by Mr O'Nion to Mr Clarke on 7 February 2013 was more detailed, reflecting the outcome of this discussion. The email from Mr Lane to his colleagues on 3 March 2013 shows Greatstar's intention to enter into a legally binding agreement on the basis of the Heads of Terms. Particular reliance is placed on Mr Lane's suggestion that Mr Clarke should be given until Friday "to agree the following agreement with no exceptions". That, Ms McCann says, was clearly a reference to the Heads of Terms subsequently sent, which included the 5-year term. Reference was also made to Mr Lane's email to Mr Clarke of 4 March 2013, in which he noted that the parties had "very little time to form an agreement". When on 21 March 2013 Mr Clarke emailed Mr Lane saying "Please find agreement to agree attached", in context this meant simply that, because there had been changes to the agreement, Greatstar would have to agree to those before the document became binding. "Agreement to agree" was not being used in the sense in which lawyers would understand it.
35. In case I do not accept her primary submission that there was an express contract incorporating the Heads of Terms, Ms McCann submits in the alternative that a contract can be implied from the conduct of the parties.

The Defendant's submissions

36. Mr de Gregorio submits that there was, at best, an implied agreement by conduct between the Claimant and both Defendants whereby the parties traded on the terms relating to exclusivity, commission and profit-sharing set out in the Heads of Terms. He invited me to accept Mr Lane's evidence that the parties' common intention in agreeing the Heads of Terms had been for both sides to have common goals written down to set a path through to a final contract. There was no intention that the Outline Points in the Heads of Terms would be legally binding and certainly not that the parties would be bound for a period of 5 years. It would have made no business sense for the parties to be locked into a contract for 5 years with no detailed terms dealing with matters such as sales obligations and termination.
37. Mr de Gregorio makes a number of textual points. He relies on the words "Heads of Terms" and "Outline Points", which were substituted for "Terms and Conditions" and "Purchase Terms and Conditions", the terms used in the initial draft. The rider "Subject to certain terms and conditions" in clause 1 is, he says, properly read as a reference to terms and conditions the parties intended to draw up in detail at a later stage. Had the intention been to refer to the Heads of Terms, the intention would have been made clearer, e.g. by referring to terms and conditions "as attached". Point 8 ("A contract and trading agreement is to be drawn up and signed by Friday 8^th March 2013. Account handovers must be effective by Friday 15^th March 2013") is a clear indication that the Heads of Terms were not intended to be legally binding and that a more detailed agreement was to be drawn up. Reliance is placed on point 9, which sets out the steps necessary to facilitate the "final agreement", and point 10, which provides that, on signing the agreement, the Claimant is to agree to transfer to the Defendants all JCB marketing material.
38. Mr de Gregorio also relies on the contemporaneous correspondence as negating an objectively identifiable common intention to enter into legal relations. He contends that the natural reading of Mr O'Nion's email of 17 January 2013, and point 11 of the Heads of Terms, is that both were referring to a final agreement that was still to be negotiated when the Agreement was signed. The fact that the final version of the Heads of Terms still included commitments on the part of the Claimant to provide "all information necessary to prepare a commercial and trading plan" and that this was "to facilitate the final agreement" also point in this direction. Finally, Mr Clarke's email ("please find agreement to agree attached"), objectively construed, shows that the Agreement was not intended to be legally binding. Mr de Gregorio submits that Mr Clarke's explanation of what he subjectively intended by those words is not admissible.
39. Although he accepts that the parties' conduct after making the agreement permits the implication of an agreement on which the parties traded for a period, Mr de Gregorio denies that it follows that the parties intended to be bound for a fixed period of five years. He relies on correspondence in mid-2014. On 10 July 2014, Mr Lane emailed Mr Clark saying: "You are free to break with our agreement at any point". Mr Clarke responded but did not challenge this proposition. In a text on 3 October 2014, Mr Lane said: "…we should both walk away from the agreement and make alternative arrangements". Again, Mr Clarke did not respond by pointing out that the parties were bound for a five-year period.

Discussion

40. In my judgment, the evidence points overwhelmingly to the existence of a binding express contract on the terms set out in the Agreement, including the Heads of Terms. I reach that conclusion for seven reasons.
41. First, the terms of the Agreement are strongly indicative of an intention by the parties to become legally bound. Indeed, objectively construed, they are inconsistent with any other intention. The document is headed "Exclusive Supply and Trading Agreement". Clause 1 commits G2 to source certain products from Edge, "[s]ubject to certain terms and conditions". Even if I had been unable to consider previous drafts of the Agreement (in which the provisions now headed "Heads of Terms" were headed "Terms and Conditions"), I would still have concluded that the "terms and conditions" referred to in clause 1 must be the Heads of Terms on pages 3 and 4 of the four-page document. There is nothing else to which that phrase could refer. That being so, any suggestion that the parties did not intend the Heads of Terms to be binding is negatived by clause 2, by which the parties agreed which law would govern the Agreement and which courts would have jurisdiction. Such a clause could have no import unless the parties intended the Agreement (and the terms and conditions to which it was subject) to be legally binding. Finally, the fact that the document was to be (and was in fact) "agreed by the parties through their authorised signatories" is a further indication that it was intended to bind them.
42. Second, the terms set out in points 1-7 of the Heads of Terms are not vague or uncertain. There is nothing on the face of those provisions to indicate that any further agreement was required before they became enforceable. They deal with the points about payment terms and commission, which in the earlier drafts were highlighted as remaining to be agreed.
43. Third, terms such as those in point 8 (requiring documents to be drawn up and signed), 9 (requiring one party to do certain things to facilitate this) and 10 (requiring that party to do something on signing the documents) might, in some cases, justify the inference that the parties did not intend to be bound until such time as the documents referred to are executed. Whether they do so or not is, however, a matter of construction: see the passage from Parker J's judgment in Von Hatzfield-Wildenburg v Alexander, at [20] above. Even if those clauses had provided for a contract and trading agreement to be signed within a certain number of days or weeks of the signature of the Exclusive Supply and Trading Agreement, the features of that document set out in paragraphs [41]-[42] above would have caused me to construe those clauses as "a mere expression of the desire of the parties as to the manner in which the transaction already agreed to, will in fact go through". That conclusion is bolstered by the fact that the dates by which the contract and trading agreement had to be signed were, by the time Mr Clarke signed the contract on 21 March 2013, already in the past. By the time Mr Lane countersigned on 20 May 2013, they were several months in the past. If, as the Defendant says, the parties had intended that there would be no contract until the contracting and trading agreement were signed, the parties would have paid much greater attention to those dates.
44. Fourth, Mr Lane's emails before the agreement was signed are also, when viewed as a whole, strongly indicative of an intention to create legal relations. Mr Lane made clear on 4 March 2013 that the need for an agreement was pressing because, since 1 January 2013, G2 had the JCB licence, but Edge was continuing to sell JCB-branded products. If no agreement was forthcoming, he said, "we will need to discuss JCB sales activities from the 1^st of Jan and what arrangements can be made to formally bring to a close your JCB licensee activity". An "honest, sensible businessman" reading that email could only have assumed that what Mr Lane required was a legally binding agreement. Without one, it is difficult to see how his concern that the relationship remained unformalised would be allayed. When on 22 March 2013 Mr Lane emailed Mr Clarke saying that "[t]his a very good agreement for both companies and one I believe we will all do very well from", the objective observer would read Mr Lane as saying that he had obtained a binding agreement.
45. Fifth, the language used by Mr Clarke in his email of 21 March 2013 ("Please find agreement to agree attached") is, read on its own, susceptible of two possible meanings. The noun-phrase "agreement to agree" is a term of art used by lawyers to refer to an agreement not intended to be enforceable until further terms are agreed. But the words Mr Clarke used can also be read as a contraction of "Please find agreement [for you] to agree attached". In context, this second meaning is much more likely. Neither Mr Clarke nor Mr Lane were lawyers. Nothing in their correspondence demonstrates the use of any other similar legal term of art. Mr Lane himself had, when discussing the matter with his colleagues by email on 3 March 2013, talked of the need to "agree to the following agreement". When Mr Clarke emailed Mr Lane on 21 March 2013 with a version of the Agreement containing amendments discussed at a meeting at which Mr Lane was not present, it is natural that Mr Clarke should note that this was something for Mr Lane "to agree".
46. Sixth, if it had been the true intention of the parties that the Heads of Terms should not become binding until further contractual documents had been signed, one would expect to see correspondence from Greatstar/G2 after 22 March 2013 chasing those documents. There was no such correspondence. Instead the parties proceeded to trade on the terms contained in the Heads of Terms. As in the RTS case, that is "plainly a very relevant factor" pointing in the direction of a binding contract. The correspondence in 2014 in which Mr Lane told Mr Clarke that he was "free to break with the agreement at any time" does not unequivocally suggest a belief on Mr Lane's part that the Agreement was not binding. It can also be read as an offer by Greatstar/G2 to release Edge from its obligations under the Agreement in return for a reciprocal release of Greatstar/G2. There is other correspondence at around the same time in which Mr Lane accuses Mr Clarke of reneging on the Agreement, which might be said to rest on the premise that it was binding. In any event, this correspondence was, on both sides, framed with a view to bolstering the respective positions of the parties in what was by this time developing into a dispute. Little can be drawn from it about the intention of the parties, objectively identified, when the Agreement was signed.
47. Seventh, the foregoing analysis proceeds without reference to the written and oral evidence as to the subjective intention of the parties. However, I note that Mr Clarke was clear that the Heads of Terms were understood and intended by him to be binding. I accept that evidence as truthful. It follows that this is not a case of the kind referred to by Elias LJ in Attrill where one party (Edge) is seeking to rely on an objective analysis of what passed between the parties so as to give binding force to a document which it subjectively intended would not be binding.

Conclusion on issue 1

48. It follows that the Agreement, including the Heads of Terms, was binding. By paragraph 1 of the Heads of Terms, the agreement was "valid for 5 years from the date of commencement or for the duration of G2's legal license agreement with JCB".

Issue 2: Implied term as to reasonable notice

49. At paragraph 18.2 of the Amended Defence and Counterclaim, Greatstar/G2 plead as follows:

"It was an implied term of the Exclusivity Agreement… that it could be terminated by either party upon giving reasonable notice"

They agree, however, that "this issue does not arise if (contrary to Ds' position) it is found that there was an express term in the form of point 1 of the Heads of Terms": Defendants Closing Submissions §21.

50. That concession is correct as a matter of law. A term cannot be implied which is inconsistent with the express terms of the contract: see Chitty §14-012. And, as was pointed out by HHJ Coulson QC (sitting as a Judge of the High Court) in Jani-King (GB) Ltd v Pula Enterprises Ltd [2007] EWHC 2433, [2008] 1 All ER (Comm) 451 at [60]:

"the whole point of a commercial contract which will last for a particular period (or until a specified event has happened) is that the contracting parties are committed to both the contract and each other for a known period. It seems to me that it would make a nonsense of such an arrangement if either party could give notice of termination at any time during the term, with minimal consequences, because, say, that party has received a more attractive proposal from someone else."

51. It accordingly follows from my findings on issue 1 that issue 2 does not arise.

Issue 3: Alleged breaches by Edge

The law on repudiation

52. A party to a contract may, by reason of the other's breach, be entitled to treat himself as discharged from his liability further to perform his own unperformed obligations under the contract and from his obligation to accept performance by the other party if made or tendered: Chitty §24-001.
53. In Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB), [2013] 1 Lloyd's Rep 526, Leggatt J summarised the applicable principles as follows:

"87. In the first place, whether an actual or threatened breach of contract is sufficiently serious to justify the other party in treating the contract as at an end depends (in the absence of any other expressed intention) on whether the breach is characterised as repudiatory. A number of expressions have been used to describe what amounts to a repudiatory breach. Two tests commonly applied are whether the breach is such as to 'go to the root of the contract' or to deprive the innocent party of 'substantially the whole benefit which it was the intention of the parties as expressed in the contract that he should obtain' from the obligations then remaining unperformed': see Chitty on Contracts (31st edn), Vol 1, paras. 24-018 and 24–041.

88. Second, a breach which has this repudiatory character does not automatically terminate the contract but gives the injured party a choice whether or not to treat the contract as at an end. If the injured party, with knowledge of the breach, instead elects to treat the contract as continuing, he will be taken to have 'affirmed' the contract and cannot afterwards terminate it on account of that breach."

54. Once the innocent party knows of the breach he is permitted a period of time to make up his mind. How long will depend on the facts of the case: Chitty §24-002. But "if he does nothing for too long, there may come a time when the law will treat him as having affirmed": Stocznia Gdanska SA v Latvian Shipping Co (No. 2) [2002] EWCA Civ 889, [2003] 1 CLC 282, [87] (Rix LJ).
55. Acceptance of repudiation requires a conscious intention to bring the contract to an end, or the doing of something that is inconsistent with its continuation. Affirmation may be express or implied. It will be implied if, with knowledge of the breach and of his right to choose, the innocent party does some unequivocal act from which it may be inferred that he will not exercise his right to treat the contract as repudiated. Mere inactivity, however, does not of itself amount to affirmation, nor does the bringing of an action for damages. But if the innocent party unreservedly continues to press for performance or accepts performance by the other party after becoming aware of the breach and of his right to elect, he will be held to have affirmed the contract: Chitty §24-003. Affirmation is irrevocable, though the fact that an innocent party has continued to press for performance will not normally preclude him from treating himself as discharged: Chitty §24-004.
56. Affirmation is a species of waiver by election. A waiver of the right to treat the contract as repudiated may also arise by estoppel. Both species of waiver require the innocent party to make a clear and unequivocal representation, by words or conduct, that he will not exercise his strict legal rights to treat the contract as at an end. Waiver by election requires the electing party to know, or have obvious means to know, the facts giving rise to the right, and possibly also of the existence of the right; it is final and irrevocable; no reliance on the part of the other party is required. For waiver by estoppel, neither knowledge of the circumstances, nor of the right is required; the effect may be suspensory only; and the other party must have relied on the representation so as to make it inequitable for the representor to go back on it: Chitty §§24-007 & 24-008.

The pleaded repudiatory breaches

57. Greatstar/G2 pleads three repudiatory breaches by Edge: first, that Edge failed to pay commission due in respect of a sale of 4,500 Erbauer blades to Screwfix in September 2013; second, that Edge promoted and/or sold Edge-branded products to customers who had ordered JCB blades and/or sold Edge products at lower prices than equivalent or identical JCB products, leading to a significant decline in sales of JCB; third, that Edge failed to provide Greatstar/G2 with all the information necessary to prepare a commercial and trading plan and failed to transfer all marketing material to Greatstar/G2, with the result that a formal contract and trading agreement could not be drawn up. I shall consider these in turn.

Failure to pay commission on sales of Erbauer blades to Screwfix

58. The parties agree that, under point 7 of the Heads of Terms, Edge was to pay Greatstar 5% commission on sales of Erbauer blades to Screwfix. They also agree that, initially, Edge did not pay such commission in respect of an order in September 2013 (which would have amounted to $21,712.50). There was correspondence about this, to which I shall return, and a meeting took place on 12 December 2013. There is a dispute on the evidence about what was agreed at this meeting. Mr Clarke says that he explained to Mr Lane that there had been changes both to the price paid by Screwfix per unit and to the cost of production, which reduced Edge's profit per unit by about half, such that it was no longer fair to expect Edge to pay 5% commission. He says that Mr Lane accordingly agreed to accept £3,000 in full and final settlement of the commission due on the September 2013 order. Mrs Clarke, who was also present at the meeting, supports this account. Mr Lane, however, says that the £3,000 was only ever accepted as a payment on account and that there was never any agreement to forego the remainder of the commission.
59. In the light of what I have said at [15]-[16] above, the most reliable way of resolving this dispute is by reference to the documentary materials.
60. The discussion between the parties about commission on the Screwfix account started before Edge received payment for the September 2013 order. On 11 June 2013, Mr Lane emailed Mr Clarke in these terms:

"Any news regarding the commissions for the Screwfix account? You were going to come back to me making an offer as you explained that the 5% that was originally discussed was too much.

I need to insert the numbers into my monthly accounts. Please come back to me by the weekend."

Mr Clarke replied on the same day that he would do this on Monday. It appears he did not.

61. On 11 December 2013, Mrs Siobhan Earlam (Mr Clarke's administrative assistant) emailed Mr Richard Juett (a member of Greatstar's finance team) attaching a spreadsheet. She explained in the cover email: "KSO profit share is £3000… this is the figure Ian has given me". (KSO is the acronym for the Kingfisher Sourcing Organisation, which sourced products for the Kingfisher companies, including Screwfix and B&Q.)
62. After the meeting on 12 December 2013, there was a further exchange of emails between Mrs Earlam and Mr Juett. Greatstar raised an invoice seeking £3,000 as the KSO profit share. This was part of a larger reconciliation of the amount owed by Edge to Greatstar, which was agreed by 17 December 2013.
63. The next mention of the Screwfix commission is in an email from Mr Lane to Mr Clarke on 9 September 2014. By this time the relationship between the two was beginning to sour and one of the matters raised by Mr Lane was that "you reneged on Point 7 of our agreement". On 7 November 2014, Mr Lane asked Mr Harrison to run an estimate of the actual turnover received on the Screwfix account compared to the commission due at the agreed rate.
64. In my judgment, the documentary materials are consistent with Edge's account of what transpired at the meeting on 12 December 2013 and inconsistent with Greatstar's. The spreadsheet prepared for that meeting by Mrs Earlam for Edge shows the amount owing in respect of the Screwfix commission as £3,000. If at the meeting that had been agreed to be a payment on account, one would expect that, when the paperwork was finalised between Mrs Earlam and Mr Juett, there would have been some reference to the remainder being due. There was no such reference. On the contrary, Greatstar raised an invoice claiming £3,000 for this commission and the subsequent exchange of emails show that this was agreed as part of a reconciliation of the amounts owing between Edge and Greatstar/G2. Likewise, the absence of any mention of the remainder of the Screwfix commission for some nine months thereafter makes it very unlikely that the parties had agreed it would be paid. When the matter was raised again, in September 2014, it was as an example of the relationship between Edge and Greatstar/G2 having become one-sided, not as a debt that remained due.
65. I accordingly find that, at the meeting on 12 December 2013, Greatstar agreed to accept £3,000 in full and final settlement of the commission due on Edge's September 2013 sales of Erbauer blades to Screwfix. In doing so, it elected to waive its right to treat the Agreement as repudiated by Edge's failure to pay commission at 5% on that order. Even if there had been no agreement to accept £3,000 in full and final settlement, Greatstar's inaction between December 2013 and September 2014 amounted in all the circumstances to affirmation of the Agreement by conduct: see [54] above.

Selling/promoting Edge branded products in preference to equivalent JCB branded products

66. The parties agree that each owed the other an implied duty of co-operation. Mr de Gregorio submits that this included a duty on the part of Edge "not to promote or prefer sales of its own Edge branded products in preference to sales of equivalent JCB branded products". He says that such a duty can be implied as a matter of necessity or on the basis that it reflects the parties' obvious common intention. Ms McCann says that no such term can be implied.
67. The test for implication of a contractual term was authoritatively restated by the Supreme Court in Marks & Spencer plc v BNP Paribas Securities Services Trust Co. (Jersey) Ltd [2015] UKSC 72, [2016] AC 742, [14]-[32] (Lord Neuberger). It is summarised in Chitty §14-007 as follows:

"The test which must be applied by the courts when seeking to imply a term into a contract as a matter of fact is whether the term satisfies the test of 'business necessity'. It is not enough to show that the term is a reasonable one for it to be implied into the contract. Reasonableness may be a necessary requirement before a term will be implied but it is not sufficient. Thus a term should not be implied into a detailed commercial contract merely because it appears fair or because the parties might have agreed to it had it been suggested to them. The test remains one of necessity, albeit not 'absolute necessity' but whether, without the term, the contract would lack commercial or practical coherence or whether it is necessary to imply the term 'in order to make the contract work'. In short, in order to imply a term into an ordinary business contract, the term must be necessary to give business efficacy to the contract; it must be so obvious that it goes without saying; it must be capable of clear expression; and it must not contradict any express term of the contract."

68. As to the parties' duty to co-operate, Chitty says this at §14-014:

"The court may be willing to imply a term that the parties shall co-operate to ensure the performance of their bargain. Thus:

'… where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectively be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.'

However, the guidelines mentioned above for the implication of a term must be taken into account. Also the duty to co-operate and the degree of co-operation required is to be determined, not by what is reasonable, but by the obligations imposed—whether expressly or impliedly—upon each party by the agreement itself, and the surrounding circumstances."

69. Ms McCann relies additionally on the decision of the Court of Appeal in Ultraframe (UK) Ltd v Tailored Roofing System Ltd [2004] EWCA Civ 585. In that case, an argument was made that a term should be implied into an exclusive supply contract prohibiting the supplier from approaching the purchaser's clients directly to encourage them to switch their business by undercutting the purchaser on price. Waller LJ (with whom Neuberger LJ and Sir William Aldous agreed) declined to imply such a term. He noted at [19] that the contract contained no obligation on the supplier to supply any minimum quantity and at [20] that the supplier was free to sell to competitors at such prices or discounts as they wished.
70. I agree with Mr de Gregorio that the factors that determined the result in Ultraframe were specific to the contractual framework. By the same token, Leggatt J's decision in Yam Seng (in which, at [157]-[165], he implied a term similar to the one pleaded here) turned on specific contextual factors, as well as the skeletal nature of the express agreement in that case. If anything can be derived from those cases, it is that the application of the general test set out above requires a close analysis of the express contract and of the context in which it was made.
71. Mr de Gregorio seeks to identify the objective of the Agreement from emails exchanged between the parties in the run up to its signature. I prefer to leave aside pre-contractual correspondence and start with the Agreement itself. That makes plain that a principal purpose of the parties was to divide the market for JCB branded products into the two sectors referred to in paragraph 5 of the Heads of Terms: A. Retail (independent or multiple) such as B&Q, homebase, National Builders' Merchants such as Travis Perkins, Jewsons, catalogue retailers such as Toolstation; B. Industrial and Construction customers. Greatstar/G2 were to be responsible for selling to customers in category A, Edge to those in category B. Each would receive a share of the other's profit from sales in its allocated category.
72. Mr de Gregorio submits that, if it is not possible to imply a term along the lines of that pleaded by Greatstar, it must follow that Edge was entitled in principle to replace all its sales of JCB branded blades in the industrial and construction sectors with its own equivalent branded products, thereby avoiding the obligation to pay royalties to JCB or to share profit with Greatstar/G2. That is true, but its significance is much diminished by the fact that the final version of the Agreement contains no minimum sales obligations on either side. The omission of any such obligations would be a notable feature even had it not been for the fact that a previous draft contained them. There was also no express obligation to maximise sales of JCB branded products; and Greatstar/G2 were refused permission to amend their pleadings to plead an implied obligation to that effect. The consequence is that Edge would not be in breach of any term of the Agreement even if it made no sales at all of JCB branded blades to the industrial or construction sectors having made no effort to achieve any. That may have been a bad bargain so far as Greatstar/G2 was concerned, but it is what the parties agreed.
73. Both parties knew that there were many diamond blades on the market; they also knew that some customers were attracted by the internationally recognised JCB brand. Whether or not Greatstar/G2 understood that Edge blades were identical to JCB blades save for the branding (an issue which I shall have to consider in the context of the counterclaim), it certainly knew that Edge had for many years sold its own branded blades and would continue to do so. If, when negotiating the Agreement, Greatstar/G2 had suggested a term limiting Edge's right to "promote or prefer" its own branded products, I find it impossible to conclude that Mr Clarke would have regarded such a term as "so obvious that it goes without saying". On the contrary, I think he would have been deeply suspicious of it. Certainly, if it had been suggested, it would have been necessary to give careful thought to what exactly would count as "promoting or preferring" Edge products. Presumably a deliberate policy of seeking to persuade JCB customers to buy Edge blades with the intention of maximising Edge's margin would count. But what about a policy of suggesting Edge blades to customers ordering JCB only when the latter were out of stock? Or a policy of offering both to customers and allowing the customer to decide? Or of allowing sales staff to recommend whatever they thought would secure the best commission for them? These are the sorts of questions that any experienced businessman would have asked had the issue been raised. In the event, of course, it was not raised at any point during the process of negotiating the Agreement.
74. The test I have to apply requires me to ask whether, without the implied term pleaded, the Agreement "lack[s] commercial or practical coherence". In my judgment, it does not. It requires Edge to share with G2 25% of its gross profits from sales – if any – of JCB branded blades into the industrial and construction sectors (after costs plus royalties), but says nothing at all about the conditions under which Edge could promote, market or sell its own branded products. Such an agreement is both coherent and workable, even if under certain conditions it may enure to Greatstar/G2's disadvantage.
75. I accordingly reject Greatstar/G2's case that a term can be implied that Edge would not promote or prefer sales of its own Edge-branded products over sales of equivalent JCB branded products. If I am wrong about this, the most that could be reasonably implied is a term that Edge would not instruct or incentivise its sales staff to encourage customers who asked for JCB products or expressed no preference for either brand to buy Edge rather than JCB products. I have gone on to consider whether (if, contrary to my finding, such a term is to be implied) the evidence establishes any breach of that term sufficiently serious that it went "to the root of the contract".
76. Both Mr Lane and Mr O'Nion gave evidence that Mr Clarke had, in conversations with them, admitted "switch selling" – i.e. selling Edge branded products to customers who ordered JCB products so as to avoid having to pay royalties to JCB or share profit with Greatstar/G2. They attribute the drop-off in Edge's sales of JCB branded blades to this practice. They point out that Edge's sales of its own branded blades, by contrast, remained buoyant. They rely also on the evidence of Mr Tenray.
77. Mr Clarke denied having had any conversations with Mr Lane between May and September 2014. He explained that he had checked Edge's sales records over the period January 2013 to August 2015 and could find only one case where a customer had ordered JCB blades but was shown as having been provided with Edge blades. The entry may have been an administrative error. In any event, it was a very small order. On subsequent orders by the same customer, JCB blades were provided.
78. The first explicit reference in the documents to "switch selling" is in Mr Lane's email to Mr Clarke on 9 September 2014. Mr Lane said:

"Falling JCB sales on your side can only be put down to the continued Switch selling that you confirmed during our conversation several months ago.

Switch selling is defined as a customer of yours ordering a JCB blade and you then switch selling to an Edge blade for the sole reason that Edge earns more margin on your own product over the JCB branded product. Some what understandable, but nevertheless in breach of our agreement.

…

I think in hindsight our agreement was always going to be difficult for you to meet as selling 2 brands from within your business of effectively the same product. One with less margin than the other left it very difficult for you to drive increased volume down the lesses [sic] margin JCB route. I believed that you would be true to your word that you felt this could be achievable but the declining sales patterns of JCB sales product in Edge have regretfully proved the opposite."

Mr Clarke responded on 15 September 2014 that there was "no switch selling".

79. Pausing there, the sheer volume of documentary evidence in this case shows that the parties were not shy of corresponding by email when an important matter arose concerning the performance of the contract. On Greatstar/G2's case, switch selling was a breach going to the root of the Agreement. If, as Mr Lane said, Mr Clarke had admitted "switch selling" as defined in his email of 9 September 2014 (i.e. selling Edge products to customers ordering JCB blades "for the sole reason that Edge earns more margin" on Edge blades), I would expect him to have raised the matter in writing at the time of the admission and to have insisted that Edge stop the practice immediately, rather than waiting "several months" before doing so. Mr Lane's oral evidence about when exactly the conversation took place (and who was party to it) was vague.
80. Mr de Gregorio suggested that emails exchanged between Mr Lane and Mr Clarke in June and July 2014 (including one in which Mr Lane asked for Edge's average selling prices to check that there was no undercutting) are consistent with a conversation about switch selling at or around that time. To my mind, they are not. The fact that the parties were in email correspondence at this time, yet there was no reference to any admission of switch-selling by Mr Clarke, confirm my view that he is unlikely to have made any such admission.
81. Reliance is also placed on Mr Clarke's email of 3 December 2014, in which he responded in numbered points to issues raised in emails by Mr Lane. His response included this:

"1. Breach of agreement. I cannot find anywhere in our agreement where it states in part or full that our customers cannot choose the blade brand they wish to buy, be it Edge, JCB or own brand label. There are many times that customers historically have brought [sic] Edge and because of out of stocks or other preferences decided by the customer or that of the salesperson that they get sent another. Also the climate of the market currently is very cutthroat and customers want lowcost blades to compete with no brand blades. We obviously understand that these suppliers won't last as we have seen it before and quality reigns. As discussed in detail I have put a lot of emphasis on taking on salesperson to sell to various end user companies etc but they have been unable to do that because of a possible injunction pending on the salesperson and I have taken professional advice from my Solicitor and also Peninsula business services regarding this. However at the end of next week this will be finished. Because of this I now have 6 sales reps and 2 more starting in January and 1 in February to sell dynamically the range of diamond blades. As I base the sales peoples wages on part Basic and mainly Commission they will sell the blade range they get paid the most commission on. This is calculated by the cost of the blade and the margin that comes from that sales in conjunction with the basic necessity of our running costs to keep the family business going and to keep people employed." (Emphasis added.)

82. The first underlined passages constitute an admission that customers who have historically ordered Edge blades have "many times" received another brand where (i) the brand they ordered is out of stock, (ii) the customer has himself/herself decided to switch or (iii) the salesperson encourages the customer to switch. Since this was an answer to Greatstar/G2's allegation of switch selling, it is likely that the reverse also happened. Scenarios (i) and (ii) plainly do not fall within Mr Lane's own definition of switch-selling. Nor, in my view, would they breach the term identified in [75] above. Scenario (iii) would not necessarily fall within Mr Lane's definition of switch-selling. It would depend on whether the margin on which the salesperson's commission was based was calculated after taking account of royalties due to JCB and profit due to Greatstar/G2. Mr Clarke was cross-examined extensively about this. He was adamant that the commission earned by the sales force depended on the blade range being sold, not the brand. The "margin" referred to was the difference between the selling price and the FOB cost price, which would be the same for an Edge branded blade as for the equivalent JCB branded blade. It followed that sales staff would have no incentive to prefer Edge blades over equivalent JCB blades. Although Mr de Gregorio does not accept that explanation, there was no evidence on the basis of which I could properly doubt it. Read against the background of Mr Clarke's oral evidence, his email of 3 December 2014 does not establish that Edge promoted or preferred its own branded products over JCB products.
83. When the allegation of switch selling was first made, in paragraph 28 of the Amended Defence, one of the particulars relied upon was that Edge had sold its own branded products at a lower price than the equivalent JCB branded products. Apart from the evidence of Mr Tenray (to which I shall return), there was no evidence to support this. On the contrary, Edge's brochures and price lists show that equivalent Edge and JCB products were sold at the same price.
84. That leaves the sales figures. Edge's sales of JCB branded products fell from £525,502 in 2012 to £227,310 in 2013 to £101,125 in 2014. Meanwhile, Edge's sales of its own branded products were £664,183 in 2012, £876,478 in 2013 and £728,966 in 2014. A large part (though not all) of the decline in JCB sales from 2012 to 2013 is attributable to Greatstar/G2 taking over the B&Q account, which had previously brought in some £190,000 per annum. But Mr de Gregorio points to the further decline in JCB sales in 2014, especially when compared with buoyant sales of Edge products. He submits that the only plausible explanation is that Edge was switch-selling.
85. In my judgment, that inference cannot safely be drawn. First, when asked in 2014 to account for the drop-off in JCB sales, Mr Clarke explained that sales had been affected by the dispute between Edge and OBAS. In the contemporaneous correspondence, Mr Lane appeared to accept that explanation (or at least indicate that he understood it) and did not repeat his allegation that Mr Clarke had admitted switch-selling. Second, even if the dispute with OBAS does not wholly account for the drop-off in JCB sales, there is no indication of the extent to which customers were asking for JCB branded products. I have no information, for example, about what was being done to advertise these at the time. Third, the comparison between sales of JCB and Edge products may not be like-for-like. Although some blades were available in either JCB or Edge branding, the ranges were not identical. It is possible that the demand for particular ranges varied over the relevant years. In short, the raw figures provide an insufficient basis, whether alone or in conjunction with the other evidence, to infer switch-selling as alleged.
86. Finally, there is Mr Tenray's evidence. He had been alleging since October 2013 that Edge had been selling its own branded products at a lower price than the equivalent JCB products. Mr Clarke says that Mr Tenray intended that his company OBAS should take over the JCB sales for which Edge was responsible under the Agreement. Whether that is true does not matter. It is sufficient to note that Mr Tenray's allegations had been made (repeatedly) to Mr Lane, who forwarded some of them to Mr Clarke. By the time of the trial, Mr Tenray was able to give only one example, of a sale to R&J Builders' Merchants. Even then, the allegation is not supported by any direct evidence or contemporaneous correspondence from the customer. Even if I accepted that Edge had on that occasion offered its own branded products to a customer at a lower price than JCB, I could not on the evidence conclude that this was the result of a deliberate or systematic policy on the part of Edge such as to "go to the root of the contract".
87. I accordingly find that, even if the term identified in [76] is to be implied, Greatstar/G2 have not established that there was any repudiatory breach of it. That makes it unnecessary for me to consider whether, as Edge says, Greatstar/G2's inactivity in the knowledge of Mr Tenray's complaints constituted an implied affirmation of the contract.

Failure to provide the information required under points 9 and/or 10 of the Heads of Terms

88. Greatstar/G2 allege that Edge failed to provide them with the information required under points 9 and 10 of the Heads of Terms. Edge say that all the required information was provided to Mr Barber (who at that stage was working for Greatstar/G2) before the Agreement was signed. There is no need for me to reach a view about this, because, even if Edge was technically in breach of points 9 and/or 10, two things are clear from the documents: first, there was no attempt by Greatstar/G2 to chase this missing information; second, any failure to provide information did not prevent the parties from trading. These two points together make it impossible to suggest that any breach of points 9 or 10 went to the root of the contract. Even if it did, Greatstar/G2's failure to raise the missing information at any stage after the Agreement was signed meant that it waived its right to accept the repudiation.

Issue 4: Were Greatstar/G2 in repudiatory breach entitling Edge to terminate and did it in fact do so?

89. Greatstar/G2 accept that, if (as I have found) the Agreement was binding, and (as I have found) there was no repudiation by Edge, Greatstar/G2's solicitor's letter of 13 February 2015 constituted a repudiation of the Agreement. I therefore make that finding. Edge and Greatstar/G2 remained in dispute from that point onwards and Edge accepted the repudiation by its solicitor's letter of 13 August 2015.
90. In the light of that, it is unnecessary for me to consider whether Greatstar/G2's failure to pay commission and other sums due constituted separate repudiatory breaches.

Issue 5: The basis for assessing the quantum of the claim

91. It follows from my findings that Edge is entitled to claim monies due under the Agreement until the point when it elected to accept Greatstar/G2's repudiatory breach (13 August 2015). This is a claim in debt rather than for damages. Edge is additionally entitled to damages from 14 August 2015 until the end of the five-year term for commission and profits that would have been due had the contract not been repudiated by Greatstar/G2.
92. I am asked to determine a number of matters relevant to these claims that are in dispute.

Interest on unpaid invoices

93. The principal sums claimed by Edge in respect of unpaid invoices (£41,415.18 and $1,986.35) are admitted. But Edge claims interest at 8% above base rate under the Late Payment of Commercial Debts (Interest) Act 1998 ("the 1998 Act"). Greatstar/G2 say it is not entitled to interest at that rate, because the 1998 Act does not apply.
94. Section 1 of the 1998 Act provides that it is an implied term in a contract to which that Act applies that any qualifying debt created by the contract carries simple interest subject to and in accordance with Part 1 of the Act. Section 2 provides in relevant part (subject to exceptions which are not said to apply here) as follows:

"(1) This Act applies to a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business, other than an excepted contract.

(2) In this Act 'contract for the supply of goods or services' means—

(a) a contract of sale of goods; or

(b) a contract (other than a contract of sale of goods) by which a person does any, or any combination, of the things mentioned in subsection (3) for a consideration that is (or includes) a money consideration.

(3) Those things are—

(a) transferring or agreeing to transfer to another the property in goods;

(b) bailing or agreeing to bail goods to another by way of hire or, in Scotland, hiring or agreeing to hire goods to another; and

(c) agreeing to carry out a service."

Section 3 provides, also subject to certain exceptions not said to apply here, that a debt created by virtue of an obligation under a contract to which the 1998 Act applies to pay the whole or any part of the contract price is a "qualifying debt".

95. Applying these provisions, the question is whether the invoices related to a debt created under a contract by which Edge transferred or agreed to transfer the property in goods or agreed to carry out a service.
96. Point 3 of the Heads of Terms provided:

"Edge will use its existing relationship and existing terms to source and purchase JCB Branded Diamond Blades, Diamond Core drilling products, Bonded Abrasives and Petrol cut off saw and Power tool accessories. In turn, Edge will exclusively sell these products to G2 or Great Star Europe."

At its inception, therefore, the Agreement envisaged Edge sourcing and purchasing these products from the factories in China with which it had connections and selling them on to Greatstar/G2. But supply problems soon led to Greatstar/G2, with Edge's permission, dealing with the Chinese factories directly. In those circumstances, the sole basis for Ms McCann's contention that the 1998 Act applies is that Edge was supplying a service within the meaning of s. 2 by "permitting Greatstar to deal with the [Chinese] factories direct".

97. In my judgment, this is wrong. I agree with Mr de Gregorio that it would be a distortion of language to say that the giving of this permission was the carrying out of a "service". If it were, every licence agreement would fall within s. 2. If that had been the intention of Parliament, I would expect it to be much more clearly set out.
98. I therefore conclude that the monies claimed were not "qualifying debts" within the meaning of the 1998 Act. In those circumstances, I have a discretion as to the appropriate rate of interest. I accept Greatstar/G2's submission that the appropriate rate in this case is the commercial rate (1% above base rate): see Civil Procedure (the White Book), §7.0.15(a). I also accept Greatstar/G2's case that, in the light of Mr Clarke's evidence that he had given Greatstar/G2 60-day payment terms, interest ought to run from 60 days after the date of the invoice.

Relevant sales

99. There is a dispute between the parties as to which sales attract commission under the Agreement. This depends on the proper interpretation and application of point 2 of the Heads of Terms, which provides that the Agreement applies to "all products that have been developed by or sourced by Edge". Mr Clarke annexed to his first witness statement a spreadsheet identifying all the products that he says were "developed" or "sourced" by him. He explained that these products included ones that he and Mr Barber sourced for the Defendants in 2013 to 2014 at the Asia Pacific Show in March 2013. In particular, he includes JCB grinding discs, JCB bonded abrasives and other products sourced from JinHua Cumet Abrasive Co Ltd; products including saw blades and diamond blades sourced from YouMei Tools; and products including the JCB Multipurpose TCT Blade, sourced from another Chinese company, Ningbo Trio. In the course of cross-examination, Mr Clarke conceded that 16 items under the description "JCB Multipurpose Drill" were included in error. But he stood by the remainder as having been "developed" or "sourced" by him.
100. Greatstar/G2 points to the fact that this concession emerged only under cross-examination as undermining the confidence that can be placed in Mr Clarke's spreadsheet. They had understood that the products developed or sourced by Mr Clarke were diamond blades and bonded abrasives, not other power tool accessories. They say that it is for Edge to prove that it developed or sourced particular products. Insofar as the products were sourced at the Asia Pacific Show in March 2013, they point out that Mr Clarke attended with Mr Barber who at that time was acting as an agent for Greatstar. Any products sourced by Mr Baber were not, therefore, sourced by Edge.
101. The term "sourced" is not defined. The verb "to source" can sometimes mean "to obtain", but it can also mean "to find the source of". In the present context, I consider that it bears the latter meaning. It is an admissible part of the factual matrix against which the Agreement falls to be interpreted that what Mr Clarke was bringing to the relationship between Edge and Greatstar/G2 was his technical expertise. That expertise would be manifested not only in the development of products but also in identifying high quality products, particularly products manufactured in China and the Far East. The use of the disjunctive "developed by or sourced by" indicates an intention that the Agreement would cover cases where the product was already a good one and no development was required. So, I am not surprised by Mr O'Nion's evidence that in some cases Mr Clarke's only input, having identified a product, was to have JCB branding printed on it. On a natural construction of the Agreement as a whole, products "sourced" by Edge included those identified by Edge as suitable, even if the products were after a period bought directly by Greatstar/G2 from the manufacturers.
102. Mr Clarke's concession in cross-examination that some 16 lines of the very substantial spreadsheet related to products not sourced by him enhanced rather than diminished my confidence in the remainder of the spreadsheet. It showed him to be willing to accept errors where these were pointed out to him. Greatstar/G2 had every opportunity to point out any other errors and to adduce evidence of their own showing that particular products had been sourced by them, rather than by Mr Clarke. They did not adduce any such evidence. It is true that Mr Clarke bears the burden of showing that the products in respect of which he claims commission were sourced by him, but he discharged that burden by producing the spreadsheet and explaining in his witness statement where and when some of the products were sourced.
103. As to the products sourced at the Asia Pacific Show in March 2013, it is true that Mr Barber was at this stage working as agent for Greatstar. But Mr Barber's own evidence makes clear that the two worked very closely together. Whilst Mr Barber had some experience in relation to certain products (for example screwdriver bits), Mr Clarke was the expert on diamond products. In his witness statement, Mr Barber said: "I had previously sold diamond blades when I worked for Woolcraft GmbH. However, Mr Clarke's knowledge and passion were on another level". Mr de Gregorio sought at one stage to downplay Mr Clarke's expertise, pointing out that he had no technical qualifications. That may be true, but the documentary evidence makes clear that he was regarded by those with knowledge of the industry as a person with considerable expertise in his field. Indeed, that is a principal reason why Greatstar/G2 were keen to enter into a relationship with him. His ease and enthusiasm in explaining the technical features of the products were obvious from his oral evidence. In those circumstances, I consider that the products sourced by Mr Clarke and Mr Barber together were "sourced by Edge" within the meaning of the Agreement, because Mr Clarke played an important part – and, on the evidence, the greater part – in sourcing them.

Gross profit bandings

104. The next dispute concerns the proper interpretation of the profit bandings in point 5 of the Heads of Terms. The relevant part, dealing with profit sharing from sales of JCB branded products by Greatstar/G2 to customers in category A, provides as follows:

"G2 & Great Star will be responsible for all sales marketing and invoicing for customers defined as A. G2 & Great Star Europe will initially share 50% of gross profits after costs and royalties with Edge.

a. £0-£500K 50% of gross profit.

b. £501K-750K 35% of gross profit.

c. £751K plus 30% of gross profit.

Definition of costs is FOB cost of product + delivery + duty + delivery. This is cost price. Sale price is invoice value. Difference is profit."

105. Ms McCann says that these bandings refer to Edge's earned profit, so that it is entitled to 50% of gross profit until it (Edge) has earned £500,000. Mr de Gregorio says that the bandings refer to the gross profit earned by Greatstar/G2. Edge is entitled to 50% on the first £500,000 of this, 35% on the next £250,000 etc.
106. In my judgment, Mr de Gregorio is correct. The two sentences above the profit bandings must be read together. The "gross profits" referred to in the second sentence refer to the gross profits earned by Greatstar/G2 from sales for which, under the first sentence, they are responsible. On a natural reading, the bandings given in points a, b and c are references to the same "gross profits" – ie Greatstar/G2's gross profits from the relevant sales.

Other deductions

107. There is a further dispute about whether, in calculating the gross profit for the purpose of the profit-sharing provisions, it is permissible to deduct certain costs not envisaged at the time the Agreement was drawn up. Ms McCann says that these costs are not properly deductible because they do not fall within the definition of "costs" in the Agreement. Mr de Gregorio says that they should be deducted, relying on Mr Meacher's reasoning, as set out at paragraph 3.7(d) of the experts' joint statement. Before considering these deductions, it is necessary to say something about the pleadings.
108. As must be clear from the excerpt set out at [104] above, the parties took some trouble to include in the Agreement a precise definition of "cost". At paragraph 15 of the Particulars of Claim, Edge pleaded that, on or around 12 December 2013, the parties agreed to vary the agreement so that Greatstar/G2 could deal directly with supply factories "but commission would still be payable to [Edge] in accordance with the Agreement… as if it was dealing directly with the factories". Greatstar/G2's response, at paragraph 26.3 of the Amended Defence was to admit that "the parties agreed that the terms as to payment of profit and agreed commission on sales would continue to apply to JCB branded products acquired by the Defendants directly from these factories". Greatstar/G2 have not pleaded that Edge was estopped or otherwise precluded from relying on the terms as to profit and commission that were affirmed at the meeting on 12 December 2013.
109. It follows that it is not now open to Greatstar/G2 to rely on correspondence between the parties as evidencing a variation of the profit or commission terms or as supporting a contention that Edge is estopped or precluded from enforcing those terms. The only question, therefore, is whether the items which Greatstar/G2 seek to deduct fall within the contractual definition: "FOB cost of product + delivery + duty + delivery". "FOB" refers to "free on board", which is generally understood to include costs up to and including the placing of the goods on board a ship at the port of departure specified by the buyer.
110. I am conscious that the appropriateness of the various deductions was a matter considered by the experts, from whom I have not heard. It is possible that the difference between them may narrow or disappear in the light of my conclusion that the appropriateness of each deduction turns exclusively on the question whether it falls within the words "FOB cost of product + delivery + duty + delivery" in the Agreement. It appears that the parties' view, however, was that the expert evidence might also assist in applying that definition to the particular deductions in issue. On the other hand, I have no wish to prolong the proceedings by hearing expert evidence on that issue if it is not necessary. In all the circumstances I consider that I should set out below my provisional views on the deductions which Greatstar/G2 say should apply, without hearing expert evidence. If, after considering these views, the parties wish to address me further, they may make further submissions explaining, if appropriate, why expert evidence is relevant and what directions they propose to enable such evidence to be adduced. My provisional views are as follows:

a. The 3% charge imposed by Great Star Asia (an unrelated company) was for extended credit terms, rather than to cover the cost of the product itself or its transportation to and loading on to a ship. It was not, therefore, part of the "FOB cost of the product" as that term was used in the Agreement.

b. A 5% allowance for SG&A (sales, general and administrative expenses) is not part of "FOB cost of product + delivery + duty + delivery".

c. The 3% commission paid to Edge was not incurred until the point when the product was sold to a customer, so does not fall within "FOB cost".

d. However, the 8% charge imposed by Great Star Asia for collating, containerising and shipping does on its face fall within "FOB cost of product + delivery + duty + delivery". Collating and containerising appears to fall within "FOB cost of product". Shipping appears to fall within "delivery".

Assessment ex ante or ex post

111. Ms McCann submits that post-termination damages should be assessed on the basis of the sales Greatstar/G2 could properly have been expected to make at the time of termination. That, she says, is the usual rule; and it should be applied in this case because it would unfair for Edge to be penalised by any fall in actual sales which was or might have been caused by Greatstar/G2's inability to perform the contract without Edge's help.
112. Mr de Gregorio acknowledges that damages are usually assessed ex ante, but submits that the rule is flexible. There is, he submits, particular reason to depart from it in this case because Greatstar/G2 lost their biggest contract, with B&Q, with effect from July 2017. Mr de Gregorio says that there is nothing to suggest that this had anything to do with the loss of the relationship with Edge and it would be unjust to leave it out of account when assessing the profits earned on JCB products.
113. Chitty says this at §26-088:

"The general rule is that damages for breach of contract should be assessed as at the date when the cause of action arose, viz. the date of the breach (which rule usually applies where substitute performance is readily available in the market):

'But this is not an absolute rule: if to follow it would give rise to injustice the court has power to fix such other date as may be appropriate in the circumstances.'"

The quoted passage is from the speech of Lord Wilberforce in Johnson v Agnew [1980] AC 367, at 401. A fuller account of the case law on this topic appears in MacGregor in Damages (20^th ed.), §§10-114 to 10-125.

114. In Golden Straight Corporation v Nippon Yisen Kubishika Kaisha ('The Golden Victory') [2007] UKHL 12, [2007] 2 AC 353, a majority of the Appellate Committee of the House of Lords held that damages for repudiatory breach of a time charter should be assessed taking into account the outbreak of hostilities in Kuwait and Iraq in 2003, which would have entitled the charterers to terminate even had they not repudiated. It did not matter that, at the date on which the repudiation was accepted, the hostilities were no more than a possibility. Lord Bingham and Lord Walker dissented.
115. The conclusion reached by the majority in that case was affirmed by the Supreme Court in Bunge SA v Nidera NV [2015] UKSC 43, [2015] Bus LR 987. There, the contract was for FOB delivery of Russian wheat. The contract conferred a right to cancel in case of a prohibition on export. The sellers repudiated the contract and the buyers accepted the repudiation. Russia then imposed an export ban on wheat. The Supreme Court unanimously held that the buyers were not entitled to more than nominal damages, since the sellers would in fact have had a right to cancel the contract, even though that could not have been known when the repudiation was accepted. Lord Sumption (with whom Lord Neuberger, Lord Mance and Lord Clarke agreed) recalled at [14] that:

"The fundamental principle of the common law of damages is the compensatory principle, which requires that the injured party is 'so far as money can do it to be placed in the same situation with respect to damages as if the contract had been performed': Robinson v Harman (1848) 1 Exch 850, 855, Parke B."

At [23], he explained why he agreed with the majority in The Golden Victory:

"There is no principled reason why, in order to determine the value of the contractual performance which has been lost by the repudiation, one should not consider what would have happened if the repudiation had not occurred. On the contrary, this seems to be fundamental to any assessment of damages designed to compensate the injured party for the consequences of the breach. If the contract had not been repudiated, it would have been lawfully cancellable. If it was lawfully cancellable, the charterer would have been entitled to avail himself of that right regardless of his motive. The only question is whether he would in fact have done so, a question which in practice would probably have been determined by his financial interest."

To similar effect, see Lord Toulson (with whom Lord Neuberger, Lord Mance and Lord Clarke agreed) at [64]-[88].

116. In The Golden Victory and Bunge v Nidera, the question whether to assess damages ex ante or ex post arose in circumstances where an external event (the outbreak of hostilities with Iraq in the first case, the Russian export ban in the second) would have entitled the repudiator to terminate. In both cases, the repudiator could on no view have done anything to prevent this event; and it was significant that the risk of the event was addressed by the contract. See in particular Lord Toulson in Bunge v Nidera at [85]: "The fundamental compensatory principle makes it axiomatic that any method of assessment of damages must reflect the nature of the bargain which the innocent party has lost as a result of the repudiation." In the present case, there is no such external event that would have entitled Greatstar/G2 to terminate. The Agreement provided for a term of five years with no right to terminate. Contrary to Mr de Gregorio's submission it is not possible to say that the loss of the B&Q contract was wholly outside Greatstar/G2's control. Nor is it possible to say that that contract would definitely (or even probably) have been lost even had there been no repudiation. It is possible, as Ms McCann submits, that it would not. Irrespective of the position in relation to the B&Q contract, it is certainly possible that the sales achieved by Greatstar/G2 would have been higher than they actually were had they had the benefit of Edge's continued assistance. That is presumably why Greatstar/G2 entered into the Agreement in the first place.
117. In those circumstances, it cannot be said, as it was in The Golden Victory and Bunge v Nidera, that the application of the usual rule (that damages for breach of contract are assessed at the date of breach) would result in the claimant obtaining more than it would have done if the contract had been performed. On the contrary, in a case such as the present, the usual ex ante basis of assessment appears to me to be more likely to achieve the purpose of contractual damages: to put the injured party as far as possible in the same position as it would have been had the contract been performed. That being so, I would apply the usual rule.

The counterclaim

118. Greatstar/G2 counterclaim, first, for breach of contract and, second, for misrepresentation under the 1967 Act. The breach of contract claim relates to commission on the Erbauer blades sold by Edge to Screwfix in September 2013. I have already given reasons for concluding that Greatstar/G2 agreed to accept £3,000 in full and final settlement of this claim. It follows that the counterclaim for $21,712.50 must be dismissed. The claim under the 1967 Act, on the other hand, raises separate issues of fact and law.

Issue 6: Misrepresentation

119. It is common ground that, to succeed in its counterclaim for misrepresentation, Greatstar/G2 must prove, in respect of one or more of the representations pleaded: (1) that the representation was made; (2) that it was false; and (3) that it induced Greatstar/G2 to enter into the Agreement (or was one of the inducing causes operating on Greatstar/G2's mind: Chitty §§7-035 to 7-037). If all these matters are proved, the burden then passes to Edge to establish that it had reasonable grounds to believe, and did believe, that the facts represented were true: Chitty §7-083.
120. Three representations are pleaded at paragraph 10 of the Amended Defence and Counterclaim. I consider these in turn.

The first pleaded representation

121. The first representation, pleaded in paragraph 10.1 of the Amended Defence and Counterclaim, was that:

"The Claimant's diamond cutting and drilling products, bonded abrasives and other power tool accessories were unique products and were based on the Claimant's unique and exclusive formulations and bonds."

Greatstar/G2 pleaded at paragraph 44.1 that this was false in that:

"The Claimant's diamond cutting and drilling products, bonded abrasives and other power tool accessories were not unique and/or exclusive products. They could be purchased from the Claimant's supplying factories by any paying customer."

122. Ms McCann submits that there is a mismatch between the representation and the respect in which it is said to be false. The representation, she says, relates to the characteristics of the products, not the exclusivity of supply. On a literal reading, she may be right about this. But when paragraphs 10.1 and 44.1 are read together, it is tolerably clear what is being alleged: that Edge's products were ones to which others did not have access.
123. Because Edge does not accept that paragraph 10.1 was referring to exclusivity of supply, the admission in paragraph 7 of its Reply that Mr Clarke made a statement in substantially the terms pleaded by Greatstar/G2 cannot be taken as an admission that Mr Clarke made any representation about exclusivity of supply. On the evidence as a whole, however, I find it more likely than not that he did make such a representation. Although there is nothing in writing before the Agreement was signed, he said in an email to Mr O'Nion on 24 November 2014, "I hold a signed contract on the IP of the product"; and he was clear in his evidence that there was an exclusivity agreement in place with Danyang, Edge's main Chinese supplier of diamond blades. Since Mr Clarke was saying this in correspondence at the time and in evidence before me, I consider it likely that he would have referred to it in the discussions leading to the conclusion of the Agreement.
124. The question therefore arises whether this representation was false when it was made, prior to the conclusion of the Agreement. As to that, my findings are as follows.
125. First, although Mr Clarke was unable to locate a copy of the executed agreement, he relied on an exchange of faxes between Edge and Danyang in March 2005. On 18 March 2005, Mr Clarke sent Mr David Guo of Danyang a three-page fax following a visit by the latter to Edge's premises and JCB's headquarters. The first page was a cover note in which Mr Clarke explained that "it is important that we document what is required to successfully launch the JCB range and new Edge products on time". One of the points summarised in the cover note was as follows:

"4. Danyang confirm that these products will not be offered to any other company direct or through agents into the UK. Namely; laser welded core, turbo/segmented laser welded dry core kits, RA blade, mortar raking blade and any other product developed by Edge in the past or future. This protects the Edge/JCB product range which will go into national resale."

The Agreement itself started on page 2. That page did not contain the provision summarised above. Page 3 is missing. There is then a faxed response signed by David Guo, saying "Thank you for your suggested contract and we are happy that we agreed all the items in it. I will pass this to Mr Hua and we will send a signed copy back to you." It is unfortunate that the critical part of this agreement, and the version signed by Mr Hua, are missing. But the cover page of Mr Clarke's fax, taken together with Mr Guo's response, make it more likely than not that there was an agreement between Edge and Danyang in terms which included point 4 of Mr Clarke's summary.

126. Second, the existence of an exclusivity agreement covering the UK is corroborated by the witness statement of Mr Jinjun Hua, who was the son of the factory owner, worked at the factory from 2003 to July 2014 (when it was sold) and was its sales manager from 2007 onwards. He says that there was an exclusivity agreement in place and that, in any event, Danyang's relationship with Edge was such that it would not as a matter of practice offer Edge or JCB branded products to other suppliers. However, he cannot speak to the position after the change of ownership in July 2014.
127. Third, Mr Jinjun Hua also describes the good personal relationship between his father and Mr Clarke: "The relationship proceeded from a business relationship to friendship." Mr Clarke arranged for Mr Jinjun Hua to study at Derby University. Mr Clarke described meeting him every week or so while he was there. In my judgment, this explains why Mr Clarke had not regarded it as important to retain a full copy of the signed agreement: the strength of the personal relationship meant that it was simply not required.
128. Fourth, Greatstar/G2's evidence consists of an email from Ms Sherry Huang to Mr O'Nion on 23 January 2015 and two witness statements from Mr Bei Yuhong and Mr Wufeng Jiang. Ms Huang's email was in these terms: "Pls kindly know the blades for JCB, all three types: the segmented ones, the rim ones, the turbo ones, are normal goods, can sale to anybody, is not just for EDGE, tks. And we now still sale goods to Edge, tks." Although it is true that Ms Huang had been working at Danyang before the factory was sold, her email at best indicates Danyang's position as at January 2015 that it was free to sell "the blades for JCB" to any paying customer. It does not show that this was Danyang's position prior to the sale of the factory in July 2014. Mr Bei Yuhong's evidence depends on what he was told by Ms Huang "during one of our discussions". He does not say when this discussion took place, so his evidence takes the matter no further. In his statement, signed on 22 March 2014, Mr Wufeng Jiang says that he is the Manager of Jiangsu Huachang Tools Manufacturing Co Ltd, the new name for Danyang, and has been so employed "for three years". Later in his statement, he mentions being told that Greatstar would be taking on the management of the B&Q account, so he must have been employed at Danyang then, though it is unclear in what capacity. His evidence was that the specification used for the JCB blades "was and is available to any paying customer subject to volume commitments", but it is unclear from his statement what period he is referring to. If he is referring to the period prior to his taking over as Manager in 2014, he provides no indication of how he knows this. In the circumstances, Mr Jinjun Hua's evidence is, in my judgment, a much more reliable indicator of Danyang's position prior to the sale in July 2014.
129. On the evidence before me, Greatstar/G2 have therefore established that the first pleaded representation was made, but have not established that it was false. Even if, as a matter of law, the exclusivity agreement no longer bound Danyang, Mr Jinjun Hua's evidence shows that Danyang proceeded on the basis of an understanding that it would not offer Edge/JCB products to anyone other than Edge, at least until the factory was bought in July 2014.

The alleged representation that JCB products were different from those sold under the Edge brand

130. At trial, Mr de Gregorio submitted that the first pleaded representation had two elements: (1) that the products could not be purchased from the factories by anyone other than Edge; (2) that the JCB products being offered to Greatstar/G2 were unique in the sense of being different from, and superior to, the blades sold by Edge under its own brand. As I have said, the first of these elements was tolerably clear from the pleading, read as a whole. I agree with Ms McCann, however, that the second was not. Nonetheless, the witnesses were able to address this second element and I am therefore in a position to make findings about it.
131. First, it seems to me inherently implausible that Mr Clarke would have made that representation when it could so easily be shown that the blades were identical, save for their branding. Mr Mist explained in oral evidence that the blades looked identical and performed in an identical manner. Mr O'Nion accepted in cross-examination that this would have been clear simply from comparing the Edge and JCB brochures – something he said he never did. Whilst it is true that Mr Clarke was the technical expert, Mr Barber (who at that time was working for Greatstar/G2) had some technical knowledge, as well as access to Edge's documents. Even if I thought Mr Clarke the kind of person likely to tell a lie of the kind alleged (which I do not), it would make little sense to tell one that could so easily be falsified.
132. Second, Mr Clarke made no attempt to hide from customers or from Greatstar the fact that the Edge and JCB blades were identical. A slide from a presentation to a customer said: "Can be supplied directly from the UK in either Edge or JCB branding". Mr Scott Harrison, Greatstar's Director of UK Sales, attended that presentation. On 4 June 2013, just two weeks after Mr Lane had returned the signed copy of the Agreement, he emailed Carolyn Wu and Feng Zhou of Kingfisher, copying in Mr Clarke, about some poor results from tests performed on the blades. Mr Harrison said:

"Can you please send us a copy of your test report including method of test so we can review as this has come as a great surprise to hear bad results, our continuous rim blades are sold very successfully in the UK to B&Q under the JCB brand and the rest of the world in our Edge brand and we have never had any negative feedback so I am wondering if there has been a problem with the samples." (Emphasis added.)

Mr Harrison went on to explain that feedback was particularly important because it could be used to inform the design of a new range of blades which it was anticipated would be forthcoming soon. Mr Harrison's evidence at trial was that he did not know the JCB and Edge blades were identical. That evidence was not consistent with the documents I have set out above and I reject it.

133. Third, Mr Tenray of OBAS knew that the JCB and Edge blades were identical save for the branding. He said as much in his witness statement, prepared for proceedings against Edge. There is no evidence that he relayed this to Mr Lane or Mr O'Nion, but Mr Tenray's understanding is evidence that the fact that the blades were identical was known to some in the industry. In any event, his understanding was made clear in a witness statement prepared for the purposes of proceedings between Edge and OBAS. That witness statement was emailed by Mr Clarke to Mr Lane. Mr Lane may not have read it, but the fact that Mr Clarke sent it, with no comment or attempt to explain away what Mr Tenray had said, suggests that Mr Clarke was not concerned that it showed that he had lied to obtain the Agreement.
134. Fourth, in Mr Lane's email to Mr Clarke on 9 September 2014 (quoted in [78] above), he observed: "I think in hindsight our agreement was always going to be difficult for you to meet as selling 2 brands from within your business of effectively the same product." There was no complaint that this was contrary to an express representation about the superiority of the JCB branded product. That suggests to me that Mr Lane did not at that stage recall such a representation. Both Mr Lane and Mr O'Nion said in their witness statements that they understood that JCB blades were different from and superior to Edge blades. But neither said in terms that they had been told as much by Mr Clarke. In their oral evidence, they did say that they could recall Mr Clarke saying this, but neither could recall any specific occasion on which he had said it. This is, to my mind, an inauspicious basis on which to advance an undocumented allegation of misrepresentation.
135. Fifth, an email sent on 28 March 2007 by Mr John Atkinson of JCB to Mr Clarke shows the former suggesting undertaking research to discover what consumers would choose when presented with a JCB and an Edge branded blade "of the same quality/spec/price". "Spec" means "specification". I do not see any difference between saying that products are of the same "specification" and saying that they are identical save for the branding. Nor do I find persuasive the suggestion that JCB could not have understood the products to be identical given statements in its marketing material that "JCB is a unique company where unique people produce unique products". No doubt similar statements appear in the marketing material of many companies. Even taken literally, this falls short of a statement that no product sold under the JCB brand is ever sold under another brand. I can draw nothing of substance from it in circumstances where no representative of JCB has been prepared to give evidence for either party. If, as I find, JCB knew that Edge branded blades were not different from JCB branded blades, it is unlikely that Mr Clarke would have made a contrary representation to Greatstar/G2 at a time when he knew the latter were in regular contact with JCB, having just taken over the licence.
136. Sixth, an analysis of the documents passing between Edge and JCB when negotiating the licence agreement in 2008 are consistent with Edge's case that JCB knew that Edge had branded products that were not materially different from products sold under its own brand. This analysis does not involve construing the licence agreement as a contract. It involves drawing inferences from the documents about JCB's understanding in 2008. That being so, I am not constrained by the rules of contractual construction to leave working drafts out of account. In order to understand the provisions relied on, it is necessary to set out the definition of "Licensed Products" as "All writing, grinding, drilling, polishing and sawing tools which are manufactured and impregnated with diamond super-abrasive carbides, including resinous bond, metal bond, vitrified bond, PCD, PCBN and electroplated products". (The word "writing" had "cutting" written next to it in red.) "Licensed Property" included JCB's trade marks, designs and logo. "There is a "track changes" version of the agreement showing changes made to a draft. In the draft, clause 9.5 would have required Edge to undertake "neither to manufacture, advertise, distribute or sell, nor authorise the same, of the Licensed Products or confusingly similar products". That was struck through and does not appear in the final version. This seems to me to show that the parties intended that Edge should be able to sell the Licensed Products or confusingly similar ones. Likewise, Clause 11.1, in the draft version, would have required Edge not to "supply (directly or indirectly) to any third party which JCB considers to be its direct competitor diamond edge tools which resemble or are confusingly similar in respect of shape, design or colour to the Licensed Products". Someone has written on the draft next to this clause the words "Still not sure this works". In the final version, the words "in the field of manufacture of construction and earth moving equipment" have been added in parentheses after "direct competitor". This shows that the parties gave careful thought to the wording of the clause. The upshot was that there was no prohibition on Edge supplying diamond edge tools which resemble or are confusingly similar to the Licensed Products, except to third parties which JCB considered direct competitors in the field of manufacture of construction and earth moving equipment. Clause 13.2(d), in both versions, prohibited Edge from using "any trade marks, trade names, signs, logos or other devices and designs in connection with the Licensed Products other than the Licensed Property (and shall not use any of the same in combination with any of the Licensed Property)". The precise effect of that clause is opaque. If "Licensed Products" is construed literally this would prevent Edge from putting its own logos etc. on (for example) any diamond drilling product. Given the amendments to clauses 9.5 and 11.1 and the matters set out at [135] above, it is unlikely that the parties subjectively intended clause 13.2(d) to have that effect.
137. Seventh, although Mr de Gregorio placed reliance on emails from Mr Hancock (of Edge) to B&Q in which he told B&Q that they were being supplied with exclusive products, Mr Clarke explained that this was true of the three blades referred to there, at the time when the email was sent. Mr Clarke's evidence was that the blades concerned were subsequently sold under the Edge brand and that he had not informed B&Q of this because he thought they would not care. I have no way of knowing whether B&Q would have cared about this or not. But this one piece of correspondence with a third party provides no proper basis for a conclusion that Edge or Mr Clarke ever made a representation to Greatstar/G2 that JCB blades in general were different or superior to Edge blades.
138. On the evidence, therefore, I find that Mr Clarke never represented to Greatstar/G2 that the JCB products being offered to them were superior to, or indeed different from, Edge's equivalent own branded products.

The second pleaded representation

139. The second representation pleaded at paragraph 10.1 of the Particulars of Claim was that:

"[Edge] had developed or were developing a range of new and exclusive products, which would be made available to the Defendants (if the parties entered into a commercial relationship)."

140. This is said to have been false (paragraph 44.2 of the Amended Defence and Counterclaim) because:

"The Claimant did not provide the Defendants with any new and/or exclusive products. The Claimants had not developed any such products at the date that the representations were made and/or the Claimant could not have held any reasonable belief at the time the representations were made that it would be able to provide the Defendants with such products."

141. Mr Clarke's evidence is that he would probably have made a representation in these terms. The question is whether Greatstar/G2 have established that the representation was false.
142. Chitty explains at §7-006 that:

"The traditional rule is that a misrepresentation must be a false statement of fact, past or present, as distinct from a statement of opinion, a statement of intention or a mere commendatory statement."

That is qualified at §7-012 by the following:

"A statement of intention may be looked upon as a misrepresentation of existing fact if, at the time when it was made, the person making the statement did not in fact intend to do what he said or knew that he did not have the ability to put the intention into effect; for the promisor's state of mind was not what he led the other party to believe it to be."

143. In this case, Ms McCann submits that the pleaded representation must be considered in two parts: (1) a representation that Edge was in fact developing new and exclusive products; (2) a statement of its intention, in the future, to make those products available to Greatstar in the future. (1) is clearly a statement of fact. (2) is in the nature of a promise, but Ms McCann concedes, and I accept, that it carried with it implied representations of fact that Edge genuinely intended to offer such products to Greatstar and was not aware of any facts that would make it impossible to give effect to that intention. To establish the falsity of these implied representations, it would be necessary to show either that, prior to entering into the contract, Edge either had no genuine intention of making new products available to Greatstar, or was aware of facts which made it impossible for it to do so. On any view, it would be insufficient to show simply that Edge had not made new products available.
144. In paragraph 94 of his first witness statement, Mr Clarke described the products being developed in late 2012 and early 2013. One was a vacuum brazed drill bit. It was put to Mr Clarke in cross-examination that this was an off-the-shelf product from a manufacturer called Cutsky, which had not been developed by Edge at all or in any meaningful way. Mr Clarke's evidence, however, was that changes had been made to the thickness of the samples and to the grit size. There was nothing to contradict this evidence. I accept it. The nature of the industry and of the products was such that innovation was likely to consist of incremental improvements.
145. There were also other products, which in his witness statement and oral evidence Mr Clarke said he had developed in 2012 and early 2013: (1) a low-cost mortar raking blade, (2) a low-cost GM blade, (3) vacuum brazed tile saws and (4) an ultra-thin turbo viper cutter for porcelain and glass tiles. Mr Clarke said in his oral evidence that he had handed a number of products over to Mr Barber (who was then working for Greatstar), but the latter had been more interested in working on marketing existing JCB blades to B&Q. Again, there was nothing to contradict this evidence. Mr Barber's evidence corroborated it and I accept it.
146. On the basis of this evidence, I find that Edge was in fact developing new products at the time the Agreement was entered into. Mr Mist's evidence confirmed that this was something Mr Clarke had done for many years. There is no reason to doubt that Mr Clarke had the genuine intention of making these products available to Greatstar/G2 and knew of no facts that would make it impossible to do so.
147. So the second pleaded representation was made, but Greatstar/G2 have not established that it was false.

The third pleaded representation

148. The third representation, pleaded at paragraph 10.3 of the Amended Defence and Counterclaim, was that:

"[Edge] had strong relationships with its factories in China, which would be of mutual benefit to the parties."

149. That is said to have been false (paragraph 44.3 of the Amended Defence and Counterclaim) because:

"[Edge] did not have strong relationships with its factories in China, in that [Edge] did not have sufficient cash flow to maintain regular payment to its factories and those factories refused to continue to supply products to [Edge] without letters of credit or other guarantees as to payment, requiring [Greatstar/G2] to set up direct trading relationships with the factories."

150. At the outset, it may be observed that the pleaded representation is framed in very general terms. "Strong relationships" could be manifested in different ways. The particulars of falsity, however, concentrate on one particular aspect of the relationship: payment terms. Ms McCann submits, and I agree, that, in determining whether the pleaded representation was false, it would be wrong to focus exclusively on payment terms.
151. The most authoritative and compelling evidence as to the relationship between Edge and Danyang comes from Mr Jinjun Hua's witness statement. He says this:

"RELATIONSHIP WITH THE CLAIMANT

…

10. The relationship between Mr Clarke and my father started at a professional level. I was a party to that relationship both as my father's son and also later as the Sales Manager for Danyang Huachang.

11. The relationship between Danyang Huachang and the Claimant as well as between Mr Clarke and my father, soon developed and grew. Mr Clarke is very easy to get along with. The relationship proceeded from a business relationship to friendship. The relationship between Danyang Huachang and the Claimant was stronger and closer than the relationship between, for example, Danyang Huachang and its largest customer Bosch Tools.

12. As a result of that good relationship the Claimant enjoyed favourable payment terms with Danyang Huachang. These far exceeded anything that we offered to anybody else. The Claimant had payment terms of 90 days. For the majority of customers were 30 days or less.

13. In short, we supported each other. The Claimant was a loyal customer to Danyang Huachang and also assisted in other ways, for example, building our understanding of the European aggregates… The relationship was such that it was Mr Clarke and a member of his staff Professor Yu, who organised for me to study at the University of Derby.

PRODUCT DEVELOPMENT

14. The Claimant designed the bonding formulation for (amongst others) the 'RA Blade', 'GPT Blade' and the 'Continuous Rim Blade' and 'Dry Core Drills' in or around 2000….

15. The standard bonds that Danyang Huachang made for global markets were not suitable for the UK market. In the UK there are many different types of aggregates such as Flint, Limestone, Granite, Dolomite etc. which our standard product did not cut successfully. Mr Clarke visited Danyang Huachang on tens of occasions to redesign different bonds and formulations for the JCB/Edge Diamond Blades.

16. Professor Yu's and Mr Clarke's input was also crucial to Danyang Huachang generally; helping us to develop our own brand of diamond blades.

17. Mr Clarke has always continued to upgrade the Claimant's products as and when newer diamond grit types and raw materials become available. Prior to the sale of Danyang Huachang, the last time the Claimant upgraded the product was in 2013 when Mr Clarke last visited Danyang Huachang."

152. I recognise, of course, that Mr Jinjun Hua was not cross-examined. But there is nothing to contradict, and no reason to doubt, the evidence he gives about the relationship in general. One obvious benefit of this relationship to Edge was that it offered the ability to upgrade products from time to time as new materials became available. This benefit is likely to have been at the forefront of the parties' mind, given that, on Greatstar/G2's own case, they were induced to enter into the Agreement by representations as to (inter alia) Edge's ability to develop new products. To my mind, this alone makes it impossible for Greatstar/G2 to show that the representation that Edge had "strong relationships" with its factories in China, which would be of benefit to Greatstar, was false.
153. It is necessary, however, to consider Mr de Gregorio's submissions about payment terms. He relies on two emails. The first is from Mr Clarke on 3 July 2013 and seems to show that the payment terms being offered by Danyang at that time for B&Q blades were 60 (not 90) days from shipment and that "if the amount of goods from Danyang is proportionally large then the goods have to be paid for by LC [sc. letter of credit]". The second is from Ms Earlam to Mr Lane on 23 October 2013, informing the latter that, because of late payment on the last two orders, future B&Q orders would have to be paid for with a letter of credit. A subsequent email on the following day from Mr Clarke to Mr Lane shows that what was required was "a 90 day LC".
154. The first of these emails shows that the payment terms being offered by Danyang shortly after the Agreement was signed were somewhat poorer than those referred to by Mr Clarke and Mr Jinjun Hua in their evidence, though still better than the 30 day (or less) payment terms Mr Jinjun Hua says were offered to the majority of customers, and that on some orders a letter of credit was required. The second email shows that by October the payment period had gone up to 90 days, but, because of two late payments in the summer of 2013, the requirement for a letter of credit had been imposed on all future B&Q orders. Neither of these emails provides any basis for concluding that it was untrue that Edge had previously been accorded significantly better payment terms than the majority of customers (as Mr Jinjun Hua says). In any event, neither provides any sound basis to conclude that the much more general representation that Edge had "strong relationships" with its factories, which would be of benefit to Greatstar, was false when made.
155. I accordingly find that the third pleaded representation was made, but that Greatstar/G2 have not established that it was false.

Conclusion on the counterclaim for misrepresentation

156. My conclusions on the foregoing issues are sufficient to dispose of Greatstar/G2's counterclaim. It is not made out because Greatstar/G2 have not established that any of the pleaded representations was false. As to the new representation relied upon at trial, they have not established that it was made.

Issue 7

157. In the light of my conclusions on issue 6, issue 7 does not arise.

Conclusions

158. For these reasons, I have concluded as follows:

(1) The Agreement was binding on both Defendants. Its terms included the Heads of Terms in their entirety.

(2) There was no implied term that the contract could be terminated on reasonable notice before the end of the term set out in point 1 of the Heads of Terms.

(3) Edge did not commit any repudiatory breach of the Agreement.

(4) Greatstar/G2 did commit a repudiatory breach of the Agreement by its solicitors' letter of 13 August 2015. Edge accepted this breach by its solicitors' letter of 13 February 2015.

(5) The remaining issues as to the claims for monies due and for damages should be resolved as follows:

a. The Late Payment of Commercial Debts (Interest) Act 1998 does not apply to the sums claimed in the admitted invoices. The rate of interest payable on those invoices is 1% above base rate running from 60 days after the date of the invoice.

b. Edge is entitled to commission on any products "developed by or sourced by" it. In identifying these, the principles set out in [101]-[103] above should be applied.

c. The gross profit bandings in point 5 of the Heads of Terms refer to Greatstar/G2's gross profits from the "relevant sales", not Edge's share of that profit.

d. The principles governing the permissibility of other deductions applicable when calculating profit are as set out at [108]-[109] above. My provisional views on the permissibility of the deductions in issue are as set out at [110].

e. Edge is entitled to damages in respect of profit-share and commission due on sales after termination, calculated ex ante as at the date of breach.

(6) Greatstar/G2 have not established that any of the pleaded representations was false. As to the new representation relied upon at trial, they have not established that it was made. The counterclaim for misrepresentation under the Misrepresentation Act 1967 therefore fails.

159. I will invite submissions, and if necessary hear counsel, on the form of order appropriate to reflect these conclusions.