On an application for summary judgment in The Trademark Licensing Company Ltd and Lonsdale Sports Ltd v Leofelis SA [2010] EWHC 969 (Ch), the High Court of England and Wales held that where a defence to a claim might succeed, but probably would not, it was appropriate to make a conditional order requiring that the defendant make a payment into court.

BACKGROUND AND FACTS

The Lonsdale group granted a license allowing Leofilis to use its trade marks in certain European jurisdictions. Leofelis (with consent) sub-licensed this grant to a subsidiary, Leeside Srl, with respect to Italy, but then purported to extend the sublicence to cover all of the territories in the head licence (without consent). Leeside began to use Lonsdale’s trade marks in Germany so Lonsdale obtained an injunction from the Berlin District Court.

Following the injunction, Leofelis and Leeside sued Lonsdale for damages for breach of the licence agreement and misrepresentation and sought a declaration that the sub-licence granted to Leeside was valid. Leofilis/Leeside succeeded at first instance but Lonsdale refused to withdraw the German injunction and so Leofelis purported to terminate for repudiatory breach. When Leofilis didn’t pay their quarterly royalties, Lonsdale also purported to terminate.

On appeal, the Court held that the sub-licence had only been valid for Italy and that Lonsdale’s procurement of the German injunction was legitimate. Lonsdale had not, therefore, been in breach of the licence agreement as relied on by Leofelis as grounds for termination. Once established that Leofelis' grounds for termination were unsustainable, Lonsdale sought payment of outstanding royalties and damages; failing payment of these, Lonsdale sought payment in these most recent proceedings.

In regards to Lonsdale’s application for summary judgment, Leofelis contended that, as a result of “further breaches” by Lonsdale, it had a real prospect of defending the claim successfully and that its termination of the licence agreement had been made lawfully because of these. These putative breaches included derogations of the exclusivity granted to Leofilis by reason of Lonsdale’s alleged sale of garments in Belgium, France, Holland and Sweden and the grant of a license agreement by Lonsdale to a third party in respect of different European jurisdictions. Leofilis also argued that this new license was not a genuine commercial agreement, but a device by which Lonsdale goods could be sold in Leofilis’s territories.

DECISION

Mr. Justice Kitchin refused to grant summary judgment to Lonsdale. He found instead that Leofelis might succeed in establishing at trial that certain (although not all) of the alleged breaches had occurred. However, because of the serious nature of certain allegations, Mr. Justice Kitchin considered it appropriate to make a conditional order and to require Leofelis to pay the total amount of royalties owing into court. Leofelis resisted this, saying that it would stifle its defence by depriving it of funds. Therefore Mr. Justice Kitchin ordered conditionally that Leofelis pay EUROS 1,675,000 into Court, but that, if after seeing the draft judgment, Leofelis considered the order to be one that would stifle its defence, the Court would consider an application with supporting evidence and the order would not be perfected until such application had been heard.

COMMENT

It would seem, therefore, that this matter will proceed to full trial and that there will be a new chapter in the struggle between these parties. The decision reinforces that, when considering an application for summary judgment, a court must hesitate in deciding not to proceed to a full trial where reasonable grounds exist for believing that a fuller investigation of the facts would add to or alter the evidence available to a trial judge and so affect the outcome of the case.