30th Jan 2013
The claimant perfume distributor (X) claimed damages from the defendant perfume manufacturer (C) for breach of contract, and C counterclaimed.
X had distributed luxury perfumes supplied by C under a 2003 oral agreement. Following a loss of trust and confidence between the parties, in July 2010 C gave X 12 months' notice to terminate the agreement. C refused to supply large orders placed by X in July and August 2010, and in September 2010 X accepted that failure to supply as a repudiatory breach of the agreement. Both claim and counterclaim asserted an entitlement to damages for loss of profits between September 2010 and July 2011 when the agreement would have ended. It fell to be determined whether the conduct of either party constituted breaches of the agreement and, if so, whether such breaches were sufficiently serious to amount to a repudiation of the agreement.
(1) C had no discretion to refuse X's orders under the distribution agreement and was obliged to supply them provided that they were reasonable. However, X's orders of July and August 2010 were considerably larger than any other order placed since 2003 and were not placed wholly for a genuine, current business need but as an attempt to protect X's interest for the remaining period of the contract. The orders were therefore unreasonable for X's anticipated sales when made, and C had been entitled to reject them or make their acceptance subject to different terms (see paras 148, 374, 378, 382 of judgment). (2) There was no express or implied term in the agreement prohibiting C from selling its perfume through a website. C's internet sales did not, therefore, breach the agreement (paras 236, 245). (3) There was no express or implied term in the agreement that obliged X to compensate C for any gain it had made as a result of currency fluctuations. Specific agreement relating to certain orders placed by X in 2006, 2007/8 and 2009 arising out of exchange rate fluctuation and the effect that they might have on C's margins had all been satisfied, and there was no breach of contract by X in that respect (paras 168, 179, 181, 276). (4) There was no express term in the agreement requiring X to spend 10 per cent of its profits each year on marketing C's perfume, but there was an implied term that X would spend a reasonable amount on marketing, which was of the order of 10 per cent of its margin. X's failure to provide C with details of marketing spend amounted to a serious breach of the agreement (paras 164, 267, 275). (5) There was no express or implied term in the agreement that X would provide C with information as to stock levels or sales figures, but there was an implied obligation to provide C reasonable information relevant to the running of its brand. X's refusals to provide information as to stock levels so that C could be satisfied that it was properly obliged to supply orders amounted to a breach of the agreement, but since C had gone on to supply orders in any event, it had not treated that breach as repudiatory (paras 197-198, 284). (6) X had paid some invoices late, and in tranches rather than by one single payment, but given C's acceptance of the late payments, that did not amount to repudiatory breaches in the circumstances (paras 206, 291). (7) There was an express agreement between the parties from April 2009 that X's installation of perfume counters in various stores had to have C's approval. X had scheduled the installation of counters before obtaining C's approval. That could lead to the reputation of C's brand being diminished, and amounted to a serious breach of contract (paras 257, 300). (8) X's failure to provide details of marketing spend, the failure to provide reasonable information, and the failure to seek approval for counters were all continuing breaches of duty which, taken cumulatively, would have entitled C to accept repudiation of the contract. It had chosen not to do so but to continue supplying perfume to X. As the breaches were, however, continuing, C was entitled to accept them as repudiation at any time while they still continued. Against that background, the placing of excessive orders in July and August 2010 without any information to support or explain them was clearly regarded by C as the last straw, and was an additional repudiatory breach. The contract was therefore terminated by C as a result of X's conduct. X's claim therefore failed, and C's counterclaim was allowed in part (paras 390-399, 401).
Claim dismissed, counterclaim allowed in part.
A manufacturer of luxury perfumes had been entitled to terminate a distribution agreement and to refuse to supply unreasonable orders where the distributor had committed various repudiatory breaches of contract by failing to provide details of its marketing spend, failing to provide the manufacturer with reasonable information relevant to the running of its brand, failing to seek approval before installing perfume counters in stores, and in placing the unreasonable orders which were not made as part of a genuine, current business need but an attempt to protect the distributor's interest for the remaining period of the contract.