High Court holds that damages cannot be claimed for the period after termination of agreement where termination is for the wrong reason

15/03/12

Leofelis SA v Lonsdale Sports Ltd; Trademark Licensing Co Ltd v Leofelis SA [2012] EWHC 485 (Ch)

On 9 March 2012 Roth J gave summary judgment in two actions on an issue concerning the scope of damages for breach of contract which has some wider importance.  It is well established that, if A terminates a contract with B for a bad reason but subsequently discovers that there was a good reason (albeit unknown to A at the time), A can rely on the latter reason to justify the termination.  What does not appear previously to have been decided is whether A can also claim damages for losses caused by B's non-performance of the contract after the date of termination.

These two actions concern a trade mark licence agreement by which the Lonsdale Companies granted to Leofelis an exclusive licence to use certain trade marks on goods within certain European territories in return for royalties.  The agreement was due to expire in 2008, but Leofelis had a right to renew it until 2014.  In September 2007, Leofelis purported to terminate the agreement on a ground which (as a result of a decision of the Court of Appeal) Leofelis later conceded was invalid. 

In the first action Leofelis claimed damages of €51 million for loss of royalties caused by sales made by the Lonsdale Companies in Belgium in breach of the exclusivity granted to Leofelis by the licence agreement.  Of the losses claimed, some €42.5 million related to the period after the agreement was terminated in September 2007 until 2014.  In the second action Leofelis claims that it was entitled to terminate the licence agreement when it did by reason of other alleged breaches of the licence agreement by the Lonsdale Companies in the period before termination which Leofelis was unaware of at the time.  The damages claimed by Leofelis in the second action include the loss of the entire benefit of the licence for the period up to 2014.

The Lonsdale Companies applied for summary judgment in both actions on Leofelis' claims for damages after September 2007. The Judge accepted the Lonsdale Companies' arguments and struck out those claims.

In the first action the Judge held, applying the decision of the House of Lords in The Golden Victory [2007] 2 AC 353, that, although damages are generally assessed as at the date of the breach of contract, the Court should not shut its eyes to the known fact that the licence agreement came to an end in September 2007. Accordingly, Leofelis could not recover damages for any later period. In the second action, whilst acknowledging there was no authority on the point, the Judge held, applying first principles, that the alleged repudiatory breach of the agreement could not have caused any loss to Leofelis after the date of termination as the decision to terminate was made without knowledge of the alleged breach.    

The Judge gave Leofelis permission to appeal in the second action.

The judgment is here.