Leofelis SA & Anor v Lonsdale Sports Ltd & Ors

A purported contractual termination must be unequivocal. A party cannot unilaterally terminate an agreement while requiring it to continue on a without-prejudice basis pending litigation. That internal inconsistency prevents an effective termination unless the parties agree an interim arrangement.

An unauthorised trade mark sub-licence does not become authorised merely because the licensor waives its right to terminate for the licensee’s breach. A commercially exceptional right to buy branded goods is not, without more, a licence or right in respect of the trade marks. A pre-contract statement expressly confined to intention and belief is not a representation that proposed termination notices will be effective.

The claimants held an exclusive trade mark licence for most of the European Economic Area and a sub-licence for Italy. They alleged misrepresentation and breaches of warranty concerning existing rights held by Mr Alavi, including an earlier licence and a preferential supply right under clause 5A of a share purchase agreement.

The defendants purported to terminate the November 2002 licence for breach, challenged an extension of the Italian sub-licence, and appealed orders concerning Belgian sales and interim payments. Evans-Lombe J had largely found for the claimants: [2007] EWHC 451 (Ch).

The central issues were whether the termination notice was effective, whether the undisclosed rights falsified contractual or pre-contractual statements, whether waiver could validate an unconsented sub-licence, and whether the consequential injunction and interim-payment orders should stand.

1. Appeals allowed in part. The Court dismissed the appeal on termination, but allowed the appeals on the undisclosed-rights and sub-licensee issues and the principal interim-payment appeal. It dismissed the injunction appeals.
2. The clause permitting termination for breach was not confined to repudiatory breaches. Its express cure procedure showed that a remediable breach could found termination after the stipulated notice period. TMLC had not, before 28 February 2006, affirmed the agreement by granting a further voluntary period for compliance.
3. However, the 28 February letter was not an unequivocal termination. It purported both to terminate the agreement and, unilaterally, to preserve performance of it pending the trial. A valid notice could have been accompanied by an offer of a consensual interim arrangement. TMLC could not impose such an arrangement itself. The contradiction made the notice ineffective.
4. The oral statements concerning the Alavi licence conveyed Mr Moher’s intention to serve notices and his belief that they would work. They did not represent that termination would certainly be effective. Likewise, the contractual statement that a notice had been given and was due to expire did not warrant that it would validly terminate the licence. Clause 5A gave a preferential right to buy branded goods, not a licence or right in respect of the trade marks. It therefore did not falsify clause 2.2.1 or the oral statements.
5. Acceptance of royalties with knowledge of an unconsented extension of a sub-licence might waive a right to terminate for that breach. It could not itself supply the prior written consent required to make the sub-licensee authorised. A trade mark licence is contractual and grants no proprietary interest.
6. The ancillary injunctions fell within the wide jurisdiction under the Supreme Court Act 1981 and were a permissible discretionary response to the particular conduct found. Conversely, escrowed interim damages should not have been released against an unsupported personal guarantee. Reasonably equivalent security, such as a bank guarantee, was required; the related costs orders were discharged.

• Court of Appeal (Civil Division): The defendants’ four related appeals were allowed in part. The Court upheld the finding that the February 2006 termination was ineffective and upheld the injunctions, but reversed the findings on undisclosed rights and authorisation of the extended sub-licence. It also allowed the interim-payment appeal: [2008] EWCA Civ 640 .
• High Court, Chancery Division: Evans-Lombe J largely upheld the claimants’ claims for misrepresentation and breach of contract, rejected the defendants’ counterclaim, treated the extended sub-licence as authorised by waiver, and made consequential injunction and interim-payment orders: [2007] EWHC 451 (Ch) .