The Trademark Licensing Co Ltd & Anor v Leofelis SA & Ors

A party may rely on an unknown repudiatory breach to justify its earlier termination and defeat a claim for wrongful termination. That principle does not establish that the unknown breach caused the termination or entitle the party to recover post-termination profits. Such loss is recoverable only if, on the counterfactual comparison, the breach caused the contract to end prematurely.

If the party would have terminated for an independent reason, the later loss does not flow from the breach. However, summary judgment should not exclude a claim where properly pleaded facts could show that the stated reason for termination and the alleged breach formed one connected course of conduct. Gain-based damages were not arguable where ordinary compensatory loss was alleged and the contract would otherwise have ended in any event.

Lonsdale granted Leofelis an exclusive trade-mark licence for specified European territories. Leofelis purported to terminate it on 28 September 2007 because Lonsdale maintained a German injunction against its alleged sublicensee. That reason later proved unjustified.

In later proceedings, Leofelis alleged that undisclosed arrangements involving a licence to SIA had breached Lonsdale’s exclusivity obligation. It contended that those unknown repudiatory breaches nevertheless justified its termination and entitled it to damages for profits it would have earned after 28 September 2007.

Roth J gave summary judgment restricting that potential claim: [2012] EWHC 485 (Ch). The appeal concerned whether the alleged breach could causally support post-termination loss, and whether gain-based damages were available.

Appeal adjourned. Lloyd LJ, with whom Lewison and Pill LJJ agreed, held that the judge’s causation analysis was correct on Leofelis’s pleaded case. The appeal should nevertheless be adjourned to permit Leofelis to formulate an amended case alleging a sufficiently connected course of conduct.

1. Contract damages require comparison between the actual position and the position had the breach not occurred. An alleged repudiatory breach can support loss of future contractual benefits only if it caused the contract to end prematurely. On the case originally advanced, Leofelis would still have purported to terminate because of the German injunction even if the SIA arrangements had not occurred. Its post-termination loss was therefore caused by its own independent act, not by the alleged breach.

2. The rule in Boston Deep Sea Fishing and Ice Co v Ansell (1888) 38 Ch D 339 permits an otherwise unjustified termination to be retrospectively justified by an unknown contemporaneous repudiatory breach. It operates as a defence to a claim for wrongful termination. It does not deem the party to have accepted the repudiation on the unknown ground, nor does it itself found a claim for future loss.

3. Leofelis might avoid that conclusion if it pleaded and proved that the German injunction and the SIA arrangements were integral parts of a plan to interfere with its exclusivity. If, absent that course of conduct, the injunction would not have been obtained or would have been discharged, its purported termination might be causally attributable to Lonsdale’s breach. The court could not finally exclude that realistic possibility on summary judgment.

4. The words reserving rights in the termination letter did not alter the ground actually relied upon. A gain-based award was also unarguable. Unlike the exceptional circumstances considered in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 W.L.R. 798, Leofelis alleged ordinary compensatory loss and could not recover gains accruing after a termination that would in any event have occurred.

The court directed that Leofelis should have an opportunity to advance an amended defence and counterclaim. If the adequacy of that pleading remained disputed, the Court of Appeal would determine it.

• Court of Appeal (Civil Division) — adjourned final determination of the appeal to allow Leofelis to formulate an amended defence and counterclaim: [2012] EWCA Civ 985.
• High Court, Chancery Division (Roth J) — gave summary judgment that Leofelis could not claim damages by reference to profits after 28 September 2007 on its then pleaded case: [2012] EWHC 485 (Ch).
• High Court, Chancery Division (Kitchin J) — earlier refused Lonsdale’s application for summary judgment in the 2009 proceedings, subject to a payment into court: [2010] EWHC 969 (Ch).