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*WWF-World Wide Fund for Nature (formerly World Wildlife Fund) and another v World Wrestling Federation Entertainment Inc

[2006] EWHC 184 (Ch)


Chancery Division

Peter Smith J


16 February 2006



Contract - Damages for breach - Breach of settlement agreement - Basis of assessment of damages - Whether claimants entitled to damages in form of reasonable payment as quid pro quo for claimants relaxing their rights under settlement agreement.

The claimants, a Swiss foundation, were a well known charity concerned with a broad range of environmental conservation. The name and initials 'WWF' were extremely well known worldwide and had enormous recognition. The defendant was an American company, which was the successor in business to the World Wrestling Federation. As part of its business operation the defendant had adopted and used a logo being a stylised version of the letters WWF. The defendant began applying for trade marks outside the United States. Proceedings were threatened in a number of countries and the claimants eventually took action and obtained an interim ex parte injunction against the distributor of the defendant's magazine in Switzerland. Settlement negotiations ensued and they led ultimately to an agreement dated 20 January 1994. The agreement did not preserve for the claimants an exclusive right to use the initials WWF but it did contain substantial restrictions. An inquiry was ordered as to whether the claimants had sustained any and if so what damages by reason of the defendant's breaches of the agreement. At the trial of a preliminary issue the court was asked to decide whether the claimants were entitled to claim damages in the form of a reasonable payment as a quid pro quo for the claimants relaxing their rights under the agreement.

The claimants claimed damages on the basis of the principle in Wrotham Park Estate Co Ltd v Parkside Homes Ltd (Wrotham Park) and contended that where there was a breach of contract the innocent party was entitled to claim as damages a reasonable payment in respect of the hypothetical release of the breach of contract. The defendant contended that the claim for Wrotham Park type damages had to satisfy like all other claims for damages the 'but for test; the profits which were sought to be attacked had to be demonstrated to be derived from the actual breach of contract.

The court ruled:

The primary basis of assessment of damages under the Wrotham Park principle was to consider the sum that would have been arrived at in negotiations between the parties had each been making reasonable use of their respective bargaining positions without holding out for unreasonable amounts. The outcome of that hypothetical negotiation had to be determined by reference to the parties' actual knowledge at the time that negotiations would have taken place. That would normally be on the date of the breach. The fact that the innocent party would never have agreed to any such sale or relaxation was irrelevant. The conduct of the wrongdoer was also irrelevant as to the breach of contract. The decision to award damages was discretionary according to the circumstances of the case but the decision should be taken when damages would be an inadequate remedy and without an award the innocent party would obtain no just recompense for the breach by the wrongdoer in doing what he had agreed not to do. The decision whether or not to award damages could take into account factors such as delay in intimating the claim and prosecuting the action, if appropriate. Those factors could also be taken into account at a later stage in quantifying the claim. The assessment of those damages involved a number of possibilities. As the court was assessing the amount by reference to hypothetical negotiations each party was entitled as part of that exercise to adduce evidence that it would have deployed in such hypothetical negotiations. The damages that could be awarded had to reflect the case. It was possible that the damages could reflect a diminishment or tarnishment of the claimant's reputation and a reasonable price representing that, or a reasonable sum for the relaxation of the covenant or a negotiation of a reasonable sum that the parties would have agreed as being payable for the breach of the covenant by reference to the subsequent profits in percentage terms (or a combination of all three). In considering all those the court could take into account the factors relating to the potential for earning profits without committing a breach of contract and the cost of making such profits. The overriding principle was that the damages were compensatory and not to be punitive. That should reflect the nature of the negotiations that took place hypothetically. Ordinarily where a claim was based on subsequent profits the claimants had to show that there was a reasonable prospect of connection between the breach of contract and the subsequent profits.

The claimants were entitled to seek in the inquiry damages in the form of a reasonable payment as a quid pro quo on the basis of their claim as presently formulated.

Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 2 All ER 321, Attorney General v Blake [2000] 4 All ER 385 and Experience Hendrix LLC v PPX Enterprises Inc [2003] 1 All ER Comm 830 considered.

Mark Brealey QC and Sarah Lee (instructed by Edwin Coe) for the claiamants.

Christopher Carr QC and Guy Hollingworth (instructed by Kirkpatrick & Lockhart Nicholson Graham LLP) for the defendant.

Celia Fox   Barrister.

Judgment

[2006] EWHC 184 (Ch)

CHANCERY DIVISION

16 FEBRUARY 2006

MR JUSTICE PETER SMITH

APPROVED JUDGMENT

I DIRECT THAT PURSUANT TO CPR PD 39A PARA 6.1 NO OFFICIAL SHORTHAND NOTE SHALL BE TAKEN OF THIS JUDGMENT AND THAT COPIES OF THIS VERSION AS HANDED DOWN MAY BE TREATED AS AUTHENTIC

PETER SMITH J:

INTRODUCTION

1. This is a hearing of a preliminary issue directed by an order by Patten J on 23rd March 2005 as to the basis of the assessment of damages as a result of the order of Jacob J made on 1st October 2001 when (inter alia) he ordered (paragraph 3) that "there be an inquiry whether the Claimants have sustained any and if so what damages by reason of the Defendant's breaches of the Agreement and the Letter Agreement referred to therein such inquiry to be referred to a Master who shall assess any such damages and the interest (if any) payable thereon (or adjourn such assessment to the judge, as he thinks fit)..."

2. The Agreement is an agreement ("the Agreement") dated 20th January 1994 between WWF-World Wide Fund for Nature (formerly World Wildlife Fund) (a Swiss foundation) ("the Fund") and Titan Sports Inc ("Titan") known at the time as World Wrestling Federation Entertainment Inc ("the Federation").

THE PRELIMINARY ISSUE

3. The preliminary issue to be decided is:-

4. By the same order Patten J granted the Claimants permission to amend the Claim for Damages by adding new clauses 8(a-d) setting out the basis for the claim for a reasonable payment.

5. That amendment was subsequent to correspondence between the parties before the hearing and I accept that the amendment was not opposed on the basis it was without prejudice to any arguments the Federation might raise on this Inquiry which could have been made in opposition to the Application for Amendment.

6. In addition the Inquiry has not been limited to the question posed by Patten J but has extended to an examination of possible defences that might be used to eliminate or reduce the amount of damages which would otherwise be payable.

7. Preliminary issues have to be considered very carefully. Too often they are "treacherous shortcuts" and ought to be confined to cases where the facts are complicated and the legal issue short and easily decided with cases outside this guiding principle being exceptional see Tilling v Whiteman [1980] AC 1 per Lord Scarman (page 25) and Lord Wilberforce (page 18) respectively.

8. That warning is well demonstrated in my view by the present case. First, the preliminary issue was not confined to the identified preliminary issue in the order of Patten J. Second, evidence was led by both parties but both parties in an exchange of correspondence believed they had an understanding which would shorten the preliminary issue and led both sides not to seek to cross examine the other. This led to a difficulty which only really appeared on day 3 of the Preliminary Issue.

9. The Federation by its evidence (of Mr Kaufman in his sixth witness statement and Ms McMahon in her second witness statement) adduced evidence on behalf of the Federation to show the following:-

10 None of these matters of evidence was expressly challenged by the Fund. Nevertheless its case is that it disputes all of these matters. Faced with this I as a trial judge of the Preliminary Issue was faced with a conflict of testimony which neither side sought to resolve by cross examination (which is the traditional way of enabling the court to determine conflicts of testimony). I did not see how I could do that unless the hearing was substantially lengthened and the parties presented their witnesses for cross examination so that I could then evaluate the evidence. That would have meant in my view that the Preliminary Issue would have virtually become the trial to a substantial extent. I therefore indicated at the third day that I would not resolve any factual matters which were in dispute and all of the above were in dispute.

11 I did indicate however that if any of the matters was not sustainable for other reasons (by law or as a result of earlier determinations) I would determine them. Equally if I determined that the Fund ought to have challenged the Federation's evidence (especially in relation to profits and the attribution of the same) I would consider whether or not I would accede to an application by the Fund for an adjournment of the inquiry to consider that further.

FACTUAL BACKGROUND LEADING TO THE DISPUTE

12 The Fund is a well known charity concerned with a broad range of environmental conservation. The name and initials "WWF" were extremely well known worldwide and had enormous recognition. It was founded in 1961 as the World Wildlife Fund. To enhance its image and to raise money it engaged in a number of merchandising activities through gifts, catalogues and licensing. All the goods were consistent it is alleged with the Fund's "image". I should say in that context the Federation disputes that drawing to my attention the fact that the Fund for example is willing to allow its panda logo and the Initials to be associated with the sale of alcohol, Coca Cola and various other matters which "might tarnish" the Fund reputation. These are summarised in paragraphs 73-75 in Mr Kaufman's sixth witness statement.

13 None of these matters is for determination before me for the reasons already given in this judgment.

14 The Federation was originally known as Titan Sports Inc and was an American company which was the successor in business to the World Wrestling Federation. That organisation used the initials WWF in about 1979 and until the late 1980s, its activities were broadly confined to the United States. Its core business was organisation and promotion of live wrestling entertainment events. By the 1990s it was engaged in the sale of magazines, videos and associated merchandising.

15 As part of its business operation the Federation has since at least 1983 adopted and was using a logo being a stylised version of the letters WWF and the use of this logo in connection with title World Wrestling Federation educated a large section of the interested public that it was WWF. It was also using the initials WWF orally and in other ways which involved ordinary type script. By the late 1980s its use had spread to Europe (probably with the expansion of satellite television).

16 The Fund did not object initially to any of this use but when the Federation made a US trade mark application for the initials WWF it objected. The objection was resolved by a Letter of Agreement of 12th September 1989 which placed a minor restriction on the Federation's use of the Initials.

17 Conflict on an international scale began to emerge. The Federation began applying for trade marks outside the United States. In some cases national trade mark offices raised objections based on the Fund's earlier rights; in other countries the Fund opposed or took preliminary steps to oppose. In most cases it was the Fund which was objecting to registrations but in some cases it was the Federation opposing the Fund's application. Proceedings were being threatened by 1993 in a number of countries and the Fund eventually took action and obtained an interim ex parte injunction against the distributor of the Defendant's magazine in Switzerland entitled "WWF-MAGAZIN". Settlement negotiations ensued and they led ultimately to the Agreement.

TERMS OF THE AGREEMENT

18 It is important to emphasise that the Agreement did not preserve for the Fund an exclusive right to use the initials "WWF" ("the Initials"). It did however contain substantial restrictions under clause 2.1.

19 By that clause the Federation undertook forthwith to cease and thereafter to refrain from using or causing to be used the Initials whether in printed or written or other visual form in any country of the world in or for the purpose or in connection with its business. It also agreed immediately to cease and thereafter refrain from using or causing to be used the Initials orally in any language in any country of the world in or for the purpose or in connection with the promotional sale or in any other connection with any goods whatsoever; to cease and thereafter to refrain from the encouragement directly or indirectly of support including donations or otherwise for charitable or similar purposes: and to cease and thereafter to refrain from the promotion or sale of or in any other connection with services other than those permitted. Those permitted were the Federation's logo and any other item permitted under 2.1(6). That latter provision permitted occasional use of the Initials but only in the English language during sports events whether pre recorded or live, the use in printed material which were finally approved for production or distribution prior to 15th November 1993 but not distributed after 31st March 1994, and the visual use of the Initials by the Federation in visual presentations published or recorded prior to 15th November 1993. Finally article 5 provided that the Agreement should not apply to the United States of America as to the oral use of the Initials in relation to goods but it should apply to the United States of America in relation to printed, written, visual or other uses of the Initials.

BREACHES

20 Numerous breaches are identified in paragraph 9 of the original Particulars of Claim. These breaches involve two main categories. First there was a use of what was called the "Scratch" logo which was a different form of logo from that which was authorised. Second there was extensive use of the Initials on the internet. The internet was in a fledgling state at the time of the Agreement.

21 The Federation's stance was that these actions were not breaches of the Agreement. However as the litigation proceeded that stance became indefensible as regards the internet use (see page 541 of the judgment in the Court of Appeal [2002] EWCA Civ 196 [2000] FSR33 referring to the concession of Mr Hobbs QC who then appeared for the Federation).

22 Although it is fairly clear that the Fund became aware of breaches from (at the latest) February 1997 by virtue of the internet usage no complaint was made about the Federation's activities until 1999. No explanation was given at the earlier hearing (nor one now) of such delay. Ultimately correspondence commenced on 2nd March 1999. The proceedings were then issued on 23rd December 1999 but were only served on 17th April 2000.

23 In the Particulars of Claim there is no identification of any special damage whatsoever and an assessment is merely sought. There was no express claim to a share of profits or royalty or reasonable payment.

24 Thereafter the Fund issued two applications. First, by notice dated 24th January 2001 it sought permission to amend its Particulars of Claim to include a new remedy described in the covering letter as "restitutionary damages" following the decision of the House of Lords in AG v Blake [2001] AC268.

25 The second application notice dated 30th January 2001 sought summary judgment for the Fund on its claim.

26 The Federation resisted judgment on a number of bases, (inter alia) on the basis that the Agreement was an unreasonable restraint of trade and was therefore unenforceable.

27 Both applications were heard by Jacob J on 18th and 19th July 2001. He delivered a judgment ([2002] FSR32).

28 Although the Fund's solicitor's covering letter might have referred to a claim for resitutionary damages the application sought was an amendment to claim an account of profits. It was said to be on the basis that the Federation had used the Initials in breach of the Agreement and the Fund contended that an account of profits was an available remedy for breach of contract in circumstance of the present case and identified six reasons why an account was appropriate.

29 Jacob J refused the Fund's application. It in turn never challenged that decision. Accordingly the Fund sought and failed to obtain a claim for account.

30 Jacob J's reasoning is significant for the present case the Federation says. At paragraph 61-63 he said as follows:-

SUMMARY JUDGMENT APPLICATION

31 He acceded to the Fund's application for summary judgment on the basis of the existing Particulars of Claim. In so doing he rejected a number of contentions. First he rejected the well known non defence of "Micawberism" bearing in mind in particular the mass of evidence both factual and expert already put in by the Federation.

32 Second he rejected an argument that the Agreement was in common law restraint of trade. In this context he decided that the Fund had a legitimate interest in enforcing the contractual negative covenant. This is because he thought (page 35) "the Fund was entitled to be concerned by any possible association between it and the Federation. At the time the Federation clearly had a very insalubrious image (serious criminal charges and press allegations) but even more generally than that I can well see how the Fund would not want any possibility of association, conscious or subconscious. Many would find the Federation's activities meretricious. Some would say its glorification of violence is somewhat unsavoury.....".

33 By way of counter I should say that there is no credible suggestion that the Federation has ever been motivated out of a desire to benefit from being associated with the Fund. Equally (and this is significant given the evidence brought forward by Mr Kaufman as set out above) I would be very surprised indeed if persons associated with the Fund would think the Federation was associated with it and would doubt whether persons who dealt with the Federation would be the type of people who would be interested in the activities of the Fund. I am not making a decision to that effect however for the reasons already given in this judgment.

34 Ultimately the reason why Jacob J granted the injunction was in my view plainly based upon the well known principle in Doherty v Alman [1878] 3 APP.CAS 719 at page 720 that it is a well settled practice where there has been breach of a negative covenant the courts generally have no discretion but to grant the injunction. Thus at paragraph 53 he said "but I do not propose to examine the legal problem further. This is not a case where there is minor infraction of a minor obligation; the obligation lies at the heart of the Agreement. The Federation has had the benefit of the Agreement. Equity looking to the Federation's conscience will hold it to the bargain it made. There is no case for withholding an injunction here". Pacta sunt servanda.

35 He also granted judgment for damages to be assessed in the form referred to earlier in this judgment.

36 It is plain in my view that at that time the Fund had no intention of seeking to claim damages based upon the principle that they now wish to rely upon. The amendment sought was not to raise this method of claiming damages and in a later hearing in a separate action to which I shall make reference below it is clear that counsel then representing the Fund (Mr Christopher Morcom QC) indicated that no such claim was being contemplated.

37 As I have said the Fund did not appeal Jacob J's judgment but the Federation did.

38 In my view the judgment of the Court of Appeal properly read is once again showing that where there is a negative covenant parties can generally expect the Agreement to be enforced by injunction. They upheld the findings of Jacob J that the Federation ignored the contract and their observations were that "a deliberate decision seems to have been made to develop an internet business, based on a "WWF" brand" (page 541). As already recorded the Federation did not argue that the website establishment was "other than a clear breach of the Agreement". In the case of the Scratch logo there was an argument based on the construction of the Agreement that there was no breach but that was rejected.

39 The commencement of the injunction was suspended until 5 months after in the events which happened, the time of refusal of a petition to the House of Lords, and came into effect in November 2002. The damages case covers the period therefore between 1997 and November 2002. Thereafter the injunction operates. The Federation incurred significant expenditure after the injunction was granted in November 2002, said to be approximately $1,500,000 in re-branding to disentangle itself completely from the dispute. That figure is not accepted by the Fund.

THQ LITIGATION

40 Subsequently in 2002 the Fund came into conflict with one of the Federation's licensees THQ/JAKKS ("THQ") which manufactures video games using the Federation's characters and themes. Having been informed of the effect of the injunction ordered by Jacob J THQ ceased to use the Initials and the Scratch logo in its new games. However it was unable to eliminate the logo within the game play itself since it was embedded in the programming. It applied to the court to seek an assurance by way of declaration that it would not be bound by the order against the Federation and it would not therefore be acting in contempt of court by continuing to sell the games. Alternatively if and so far as it was bound by the order it sought a stay in respect of its activities. It also sought confirmation from the Fund at the same time that no action would be taken against it in this regard. None was forthcoming. The Fund opposed the application contending that THQ was bound by the order. Jacob J held that THQ was bound by the order and that no stay should be granted ([2002] EWHC 2580 (Chancery)). On appeal the Court of Appeal overturned the Judge and unanimously held that THQ was not bound by the order and by majority of 2 to 1 that even if it were a stay would be appropriate ([2003] EWCA Civ 401).

41 The Federation was not a party to the original application before Jacob J but it was by permission of the Court of Appeal allowed to participate before the Court of Appeal. The hearing before the Court of Appeal took place on 27th March 2003 i.e. after the period for which damages are claimed in this action. That in my view is significant as regards the statement of Mr Morcom QC.

42 There was considerable argument before Jacob J as to the meaning of the order (addressed to THQ's position). In the course of argument it was noted that the inquiry was a standard form inquiry and that the Fund had sat about for an awfully long time. The judge noted that the damage claim by the Fund was in effect a passing off type of claim for damages. The question of reasonable royalty was raised by Jacob J in the context of damages that THQ would suffer if it were bound by the injunction versus the compensation the Fund might receive if it were not and there was an observation that the judge noted that huge profits made by THQ were not from the use of the Scratch logo but on the actual games.

43 Nevertheless he refused the declarations and order sought by THQ and in his judgment determined that the damage the Fund would suffer would be as "dilution of the exclusivity of WWF and tarnishment by association".

44 THQ appealed and the Federation was given permission to be represented at the appeal.

45 Mr Morcom QC acting for the Fund on that appeal was specifically asked by Lord Justice Peter Gibson whether or not there was a claim based on a Wrotham Park as is presently claimed before me. He confirmed to Lord Justice Peter Gibson that the damages would be on two principal heads namely the amount spent in policing the trade mark and "a very large aspect is the damage to our exclusivity and dilution of our rights".

46 THQ's appeal was allowed and in so doing various other parts of the judgment noted the lack of financial loss suffered by the Fund. Lord Justice Peter Gibson expressly recording that the Fund had stated that no consideration had been given to seeking compensation on the basis used in the Wrotham Park case. Further both he and Mr Justice Blackburne noted the lack of any connection between the use of the logo and profits made out of the sales of the games under the licence agreement.

47 Now of course this was a judgment as between the Fund and THQ but it has significance because matters that were stated there clearly had an impact on the Federation. Further the Federation was represented and made representations at the hearing.

48 It is important to appreciate why the Federation was there at the hearing. That appears from the judgment of Peter Gibson LJ ([2004] FSR10 at page 181), namely that it might be exposed to contempt of court proceedings by virtue of THQ's sales and second because Jacob J had severely criticised the Federation's evidence and the Federation wished to correct those criticisms. As Peter Gibson LJ went on to point out the view of the Court of Appeal was Jacob J had no basis for the strong views he expressed on the conduct of the Federation and had no basis for it. They also suspected that that poor view may well have affected his approach to the application made by THQ. Further in the judgment (page 184 paragraph 71) Peter Gibson LJ analysed the nature of the losses alleged by the Fund. He noted the Fund did not seek an account of profits as against the Federation and "I add for completeness that Mr Morcom has told us that no consideration has been given by the Fund seeking compensation on the basis used in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1WLR 798, a basis approved by the House of Lords in AG v Blake [2001] 1 A.C. 268.

SUBSEQUENT ACTIONS OF THE FUND

49 The Fund had previously of course obtained judgment for damages to be assessed on 1st October 2001. It took no immediate steps to enforce that inquiry initially stating that there was no point whilst the Federation was pursuing its appeal process. That seems to me to lack credibility as there was never any challenge to the claim for damages for breach of the agreement (that appears from the concessions of Mr Hobbs in the Court of Appeal referred to above). In any event all avenues of appeal were exhausted on 10th June 2002 when the Federation's petition to the House of Lords was rejected. As I have set out above in March 2003 the Fund was not asserting that it had a Wrotham basis for damages. It claimed for the first time in its claim for damages served on 29th October 2004 damages based upon the Wrotham Park principle which it had apparently disclaimed in the THQ application (see above). In its original Particulars of Claim dated 17th April 2002 there is no plea that the Fund suffered any loss or that any of the alleged breaches by the Federation had caused any loss. The only mention of damages is in the prayer for relief which simply says "damages to be assessed together with the interest thereon". No items or types or forms of loss are pleaded and there was no claim to a share of profit or royalty or reasonable payment. The draft amendment in the bundle before me (1/10) is the one which Jacob J refused permission to amend. The account for profits claim is in the draft at paragraph 11. There is clearly no claim expressly made out for reasonable royalty. An account appears to be the legal basis stated for the first time for claiming a reasonable payment.

50 In the pleadings in the inquiry as to damages which have given rise to this Preliminary Issue trial the present legal basis for a reasonable payment by way of damages is alleged for the first time. Patten J subsequently gave permission to amend in respect of paragraph 8a through to 8d. Paragraphs 7 and 8 as I understand it were in the initial claim for damages but not in the original Particulars of Claim that led to the judgment of Jacob J of 1st October 2001.

51 The current basis for a claim is now to be found in paragraphs 8 through to 8d which provide as follows:-

52 The Fund now contends (the Federation say in the light of the fact that there is no evidence showing a dilution and no credible basis for showing a loss) that it can seek damages on the present basis based on the Wrotham Park case and later authorities for "a reasonable payment from [the Federation] in respect of its use of the initials WWF in breach of the settlement agreement".

QUANTUM

53 The Fund's claim for damages appears somewhat opaquely in paragraphs 12 - 13 of the Amended Claim for damages. It is based on a "quid pro quo" "appropriate royalty rate" or "reasonable payment" which the Federation would have had to pay to the Fund for notionally relaxing their rights under the Agreement and granting a notional licence to it.

54 The notional rate is 12% of the Federation's gross selling price from sales of goods, gross receipts from live wrestling events held outside the USA and from broadcasting events for reception outside the USA of wrestling entertainment events wherever staged and 12% of the Federation's gross receipts from the promotion by it for the sale of goods and services by third parties by means of advertising or sponsorship, displayed or broadcast or otherwise publicised by it being written use of the Initials in the USA in relation to goods and written and/oral use of the Initials outside the USA in relation to goods or services.

55 Finally not to be outdone it claims in addition 25% of the Federation's gross royalty income from the sales of goods by its licensees.

56 There are a number of observations to be made on the way in which the Fund makes its claim. First, it provides no elucidation as to how the percentages are justified. It is true in paragraph 13 it lists no less than 25 factors. However there is no linkage in the pleading between the factors and the percentage; it is a long list of matters which I suspect were given widely different levels of contemplation. Second, the claim is for the Federation's gross receipts i.e. it admits of no reduction in respect of the profits. Third it does not in any way limit the claim to profits made as a result of the breach of contract; it claims a percentage of all of the Federation's profits whatsoever wheresoever. Fourth it will be seen that whilst some of the factors represent an alleged dilution of the Fund's reputation (item e) (k) and (l) there is no attempt to identify such prospects in actual diminution terms.

57 Finally the quantum does not address the potentially important issue that the Fund did not have exclusive right and that the Federation did have certain rights (the value of which is debated between the parties) to use the Initials under the Agreement.

58 There is no attempt to quantify the claim in monetary terms. The Federation estimated that the claim was between $100,000,000 to $150,000,000. Mr Brealey QC disputed that and said (day 4 page 49 line 15) that the Fund estimated the claim at about $80,000,000 based on $16,000,000 per year over 5 years. There has of course been no disclosure by the Federation and the Fund has been relying on statutory accounts. Conversely the Fund has not provided any material to justify the way it arrives at its claim. For example it is apparently based on the normal rate obtained for licences from other parties which range between 5 and 25% and on one occasion beyond that. How those percentages are correlated for the purposes of arriving at the figure of the claim is a complete mystery.

59 It is quite clear that the Fund will have a lot to do to present the claim if it is allowed to proceed.

60 The major argument concerns the effect of three cases:-

PRELIMINARY SKIRMISHES OF THE FEDERATION

61 Apart from the substantive issue of principle as to how damages can be claimed on this basis the Federation raised three further matters.

62 First it contended that the Fund was precluded from bringing any claim because of its delay first in intimating a claim before action and second in prosecuting the inquiry as to damages. It also contended that the Fund was precluded because the parties argued the case in the Court of Appeal in THQ on the basis that there was no claim as presently sought.

63 Second the Federation contended that the form of judgment in general form precluded a claim under the present head (bearing in mind in particular the form of the original Particulars of Claim) and that the present claim could not be formulated without permission to amend and the permission should be refused.

64 Third the Federation contended that by virtue of statements by Mr Morcom on the Fund's behalf in the Court of Appeal in the THQ action the Fund was precluded too from bringing a claim on the present basis.

65 A key factor in this analysis in my view is that fact that the Federation does not allege any prejudice sustained that is irretrievable. I approach its stance in that light.

DELAY ON THE PART OF THE FUND

66 In paragraphs 20 - 21 of the Federation's skeleton it is suggested that the unexplained delay (see Jacob J paragraph 40 and the Court of Appeal THQ's application paragraph 57) in effect lead to a submission that it is an abuse for the Fund to be able to present its claim on the present basis.

67 The difficulty facing this argument by the Federation is the fact that those arguments equally were open to it in respect of the injunction. There is a fleeting reference to the unexplained delay by Jacob J in his judgment at paragraph 14. The professed reluctance of the Fund to commence proceedings because of its charitable status is I accept unlikely given its aggressive response to THQ's position. There has been further delay since which is equally unexplained.

68 No prejudice has been identified by the Federation.

69 Equally the Fund argues that having failed to argue that point on the injunction issue it is not now open to the Federation upon the principles of Henderson v Henderson [1843] 3 HARE 100 namely that (especially in the context of interim applications) in the absence of special circumstances parties should bring their whole case before the court so that all aspects of it may be decided (subject to appeal) once and for all (see Woodhouse v Consignia [2002] 2 All ER 737 C.A.

70 Intriguingly this is a point which the Federation wishes to take against the Fund.

71 I do not accept that the Federation is precluded from bringing arguments on the inquiry as to damages which would not have been relevant to the previous interim application. By that I mean that the issue before Jacob J and the Court of Appeal (following the rejection of the Fund's claim for an account) was the substantive remedy of an injunction. It is only in the context of the granting or refusing of that remedy in my view that matters ought not to be capable of re litigation.

72 Delay is a factor which can be taken into account in whether or not to grant an injunction. In Shaw v Applegate [1977] 1 WLR 970 the Court of Appeal drew a distinction between the nature of the remedy claimed and the impact of any acquiescence. Thus Goff LJ said at page 979:-

At page 980 he contrasted that with a claim for damages and expressed the view that for a claim for damages to be barred by acquiescence the test was whether "in the circumstances it has become unconscionable for the Plaintiff to rely upon his legal right" Shaw LJ concurred. Buckley LJ also distinguished between the nature of the remedies (page 978).

73 This decision received some consideration by later Court of Appeal Gafford v Graham [1997] 77 P & CR 73. Nourse LJ (page 80) said this:-

Pill LJ and Thorpe LJ agreed.

74 I am not sure how with respect to the Court of Appeal in Gafford they were able to depart from the binding decision of Shaw v Applegate. I will say no more about that because I do not think it has any impact on the present case.

75 If the lower threshold test for the injunction (as set out in Shaw) is applicable and the Federation have failed to establish that the delay meant that the injunctive relief should be barred it is difficult to see how delay can bar the common law right of damages with its higher threshold requirement "unconscionable conduct". There is as I have said no evidence of any other factor beyond merely the delay which will render it unconscionable to bring the claim by reason of delay see Nelson v Rye [1996] 1 WLR 1378 for example.

76 I therefore conclude that delay cannot be relied upon by the Federation as an absolute bar to the claim as presently sought to be made by the Fund. Equally however I reject the Fund's submission that the Federation is precluded from raising this argument at all. It seems to me that it is open to the Federation to argue that in some way when the damages come to be assessed those damages might be capable of being reduced by reason of the Fund's conduct. I remind myself that no disclosure had taken place at the hearing before Jacob J and the Court of Appeal. Of course Jacob J rejected this argument on the "Micawberism" basis, as did the Court of Appeal. However as that appertained to the injunction I do not see that that precludes the Federation from seeking to argue from material it will obtain on disclosure that the Fund's conduct may preclude the whole or any part of its present claim at the inquiry stage. Equally it is open to the Fund to counter that if it finds evidence on disclosure which it can utilise against the Federation.

FORM OF JUDGMENT

77 The Federation submits (quite extensively) that the entire action proceeded over the course of almost 4 years solely upon the Fund's contention that it has suffered "injurious association" by its connection with the Federation. This in my view is correct see Jacob J's judgments both in this action and the THQ action and the statement by Mr Morcom QC referred to above. It is submitted that the Particulars of Claim claiming merely damages failed to allege any special damage and entitles the Fund only to general damages and not specific damages, it being contended that the present claim is one of special damage.

78 The categorisation of whether or not a particular head of damage is general or special is not necessarily an easy task see generally McGregor "On Damages" paragraph 43-007 et seq.

79 I would have sympathy with this submission if the hearing before Jacob J was the full trial or if the hearing before me was the full trial. However the Fund had applied for summary judgment. The relief it was seeking before Jacob J was (1) an injunction (2) interlocutory judgment for damages for breach of contract. It pleaded no special damage in the Particulars of Claim because in my view it was not required so to do at that stage. If a breach of contract was established it would be entitled to an interlocutory judgment to represent a claim for a £1 at the very least. All it needed to establish at the hearing before Jacob J was a breach to entitle it to the judgment which it obtained. There was no assessment at the trial before Jacob J of the basis of the claim for damages. That was at large. The position is neatly contrasted with where there is a claim for tort see for example Rankine v Garton Sons and Co Ltd [1979] 2 All ER 1185 C.A. There a judgment could not be obtained in a tortious claim unless the damage was established.

80 The judgment that was entered in this case was the standard form judgment where there was a split trial i.e. a trial as to liability and a subsequent trial as to quantum. The trial as to quantum has not yet taken place. I fully accept that the matters referred to by the Fund will have to be pleaded and alleged in a way so that the Federation knows the nature of its case, that is the case against the Federation in respect of damages. That is not for the present; it is for the subsequent assessment. That is what the pleadings as to damages are for. The pleadings in the present case are in my view not adequate for the reasons I have already indicated.

81 Nevertheless I reject the Federation's submission that it is not open to the Fund to raise on the inquiry as to damages for breach of contract the present claim because it has not raised it before it served its claim as to damages. It is not in my view a case of a party failing to litigate all claims in one go. The Fund has issued one set of proceedings and in those proceedings it claims an injunction (which it obtained summarily) and damages (in respect to which it obtained a judgment to be assessed). The two are entirely different but it is not an abuse within the principle of Henderson for it to proceed to raise a contractual based measure of damages claim in the way in which it does.

THE STATEMENTS IN THE COURT OF APPEAL IN THQ

82 I accept the Federation's submissions that Mr Morcom QC at the time he made the statements in the Court of Appeal (and thus the Fund) did not at that time contemplate a claim for damages in the way in which (in the main) the Fund currently presents its case.

83 However I accept Mr Brealey QC's submission that at the moment the Fund is claiming a mixture of damages based on tarnishment to its reputation and or "guilt" by association and a claim based on the Federation's profits (that appears from paragraph 13 referred to above of its Amended Particulars of Claim in damages). The extent to which the Fund relied upon those two disparate claims for damages is entirely opaque at the moment. Nevertheless that is enough to show that Mr Morcom's stance at that stage is partly vindicated.

84 Even if however I am wrong in that, I can see no basis for objecting to the present claim by reasons solely of Mr Morcom's concession.

85 A concession made in the course of interlocutory proceedings can be withdrawn unless the circumstances give rise to an estoppel: see H Clark (Doncaster) Ltd v Wilkinson [1965] Ch 694 C.A.

86 There is no conceivable prejudice in the present case so far as I can discern. The concession (if it can be properly described as that) was made after the period for which any damages is claimed. It cannot be said therefore (for example) that the Federation continued its operation on the basis that a claim such as the present can not be formulated. No other material has been put forward by the Federation to suggest any estoppel or other basis for preventing the Fund from seeking to bring a claim for damages for breach of contract upon the basis it now does.

87 The Fund has undoubtedly changed its tack quite significantly. That might cause the Federation disappointment and anguish but that is not a basis for not allowing the Fund to bring its case if it can do so in accordance with this basis. Otherwise simply to deny it that right would be a denial of justice to the Fund which might cause it an unfair loss within the proceedings.

88 If I am wrong in this I would have unhesitatingly allowed the Fund permission to amend if this was necessary because I can conceive of no basis for refusing the amendment if required at this stage of the inquiry as to damages. The normal practice with respect to amendment would be applicable as far as I can see, namely that the purpose of the amendments are to allow all parties to be able to fully and fairly present their cases so that the true dispute between the parties can be determined. I can see no factor which could be deployed by the Federation as a justification for refusing the Fund permission to amend if required.

89 This is of course to be contrasted with the position of an account. A claim for an account had already been refused by Jacob J and that aspect of the judgment was never appealed. There was nothing in the original Particulars of Claim which showed that an account was being sought by the Fund; hence the need for an application to amend.

THE MAIN ARGUMENT

90 I now go on to consider the main argument that was deployed before me namely whether or not in law the Fund can bring a claim for damages in the form of a reasonable payment as a quid pro quo for it relaxing its rights under the Agreement as alleged in paragraphs 6-8 in the amended claim for damages.

91 This involved a citation of a significant number of authorities and academic treatises and reference to a Law Commission report.

92 The parties agreed, as I have said earlier that the starting point was an examination of three authorities:-

THE FUND'S SUBMISSIONS

93 The Fund's submissions in writing were commendably brief although it is fair to say they were somewhat stretched in the course of legal argument. Its case is that where there is a breach of contract the innocent party is entitled to claim as damages a reasonable payment in respect of the hypothetical release of the breach of contract. Alternatively it contends that they are entitled to such a payment in the circumstances where a defendant deliberately breached the Agreement and where it would have an interest in preventing the Defendants' wrongful use of the Initials and/or an interest in preventing it making a profit from the use of the Initials.

94 In respect of the latter there is a subsidiary argument again whereby the Fund contends it is not open to the Federation in the light of the judgments of Jacob J and the Court of Appeal (paragraphs 13 and 71 respectively) to deny it acted deliberately in breach of the covenant. I will deal with the question of the relevance (if any) of a "deliberate" breach separately in this judgment.

95 The Fund's case is that in effect AG v Blake made the principles established in the "shining beacon" of Wrotham Park generally applicable in favour of any claimant for damages for breach of contract.

96 The Fund's case is that the method of assessment is by the court determining a hypothetical sale (hypothetical because it is generally imposed in circumstances where the "seller" would never have sold) where a reasonable price for the notional sale can be determined. The Fund submits that the inquiry should determine what ordinarily would have been a reasonable price at the date of breach of contract. In essence the Fund's claim is that the House of Lords in Blake brought a remedy of a "new model" into the world and that decision and the subsequent decision should be the guiding principle. Accordingly none of the various arguments put up by the Federation by reference to earlier cases and principles has any application to this new remedy.

97 I propose in the next part of my judgment to deal with these authorities.

WROTHAM PARK

98 The facts bear no relation to the present case. The Defendants built properties commercially and sold them in breach of a covenant. It sold various of the completed houses on to third parties with indemnities in respect of the covenant. The Plaintiff was concerned to enforce the covenant in the estate and sought a mandatory injunction for the demolition of the buildings. It did not seek an interlocutory injunction. The judge refused to grant the mandatory injunction his reasoning being that it would be an "an unpardonable waste of much needed homes to direct that they now be pulled down and I have never had a moments doubt during the hearing of this case that such an order ought to be refused" (page 811). However he was concerned to ensure (having found that the Plaintiffs had not suffered any damage of a financial nature) that the action did not "spell out a charter entitling others to despoil adjacent areas in breach of valid restrictions imposed by the conveyances".

99 He rejected an argument that he could not grant damages in lieu of an injunction because the Defendants had parted with the plots. He decided to award damages that removed from the Defendants the fruits of their wrongdoing. His analysis is relatively brief as follows:-

Later in the judgment he explained how he arrived at the appropriate award as follows:-

100 That judgment shows the width of factors which he took into account and the particularity of those factors which led him to conclude that the proper level of award was moderate in the circumstances in that decision.

101 That decision was followed in a number of subsequent cases: see Bracewell v Appleby [1975] Ch 408, Tito v Waddell (no2) [1977] 1 Ch 106 at page 335, Surrey County Council v Bredero Homes Ltd [1993] 1 WLR 1361, Jaggard v Sawyer [1995] 1 WLR 269 and Gafford v Graham & Anr [1999] 77 P & CR 73. All of these cases involve real property. In all of them (save the Surrey County Council and Gafford cases) the courts addressed the need to compensate a claimant in a way which afforded it recompense for an infringement of its property rights when refusing nevertheless to grant an injunction to protect those rights.

102 In Surrey County Council the Plaintiffs claim to damages for breach of covenant was based on Wrotham Park. There is criticism of the Wrotham Park decision (see Dillon LJ at page 1366) based on the fact that authorities referred to in t