John Lobb Ltd v John Lobb SAS: a disconcerting attempt to void a contract for common mistake

John Lobb Ltd v John Lobb SAS

I was always intrigued by the way John Lobb, the superb footwear brand, managed its affairs between Paris, France, and London, United Kingdom. Well, now, I know, thanks to my exhaustive review and analysis of the England and Wales High Court (Chancery division) decision dated 8 September 2022, on whether the agreement bounding the French business, John Lobb SAS, to the British business, John Lobb Limited, was void under the case law of common mistake. Was it a good call for John Lobb Ltd to pull such a claim? Did John Lobb Ltd gain anything out of this public exposure, and this washing of dirty laundry in the public eye? I don’t think so and here is why.

1. John Lobb Ltd v John Lobb SAS: the facts

John Lobb is a men’s luxury footwear brand, worn by many celebrities (Cecil Beaton, Orson Welles and Katharine Hepburn).

It was founded in Sydney, Australia, in 1849 by John Lobb (born in 1826 in Cornwall, United Kingdom (‟UK”), and son of a farm hand).

In 1866, the business moved to London, UK, and began trading from premises located at 296 Regent Street.

In 1946, the business was incorporated by Eric Lobb, a descendant of the founder, into ‟société John Lobb”, after the successful set up of a boutique located rue du vingt-neuf-juillet in Paris, around 1900 (‟John Lobb France” or ‟JLF”).

In September 1972, Eric Lobb incorporated the shoemaking business into ‟John Lobb Limited”, a private company limited by shares (‟JLL”) in London, UK. The share capital of JLL is GBP10,000, divided into 10,000 shares of GBP1 each. Eric Lobb and John Hunter Lobb, master bootmaker, seemed to have been the two shareholders of JLL, upon incorporation in 1972. The five original directors of JLL were:

  • Eric Lobb;
  • John Hunter Lobb;
  • John White (a bootmaker);
  • Alice Marguarite Ellen Lobb, and
  • Edward Eric Lobb.

JLL’s shares are still now held by various members of the Lobb family.

In 1976, the majority of the shares in JLF was sold by Eric Lobb to the French luxury goods business Hermes (‟Hermes”). Hermes acquired control of JLF as well as the rights in a trademark registered in France by Eric Lobb which protected JLF’s products (the ‟Trademark”).

Meanwhile, JLF was transformed into a ‟Société par Actions Simplifiée” or ‟SAS” (‟John Lobb SAS” or ‟JLSAS”) and continued developing and operating its own luxury footwear business under the steady hand of Hermes (Guillaume de Seynes, general manager of Hermes, is also currently the CEO of JLSAS).

From 1976 onwards, there has been collaboration between the businesses of JLL and JLSAS. JLSAS operated, or continued to operate, its business selling footwear under the ‟John Lobb” name. Hermes started registering international trademarks around the work, which were international extensions of the Trademark, in order to protect the ‟John Lobb” brand (together, the ‟TMK portfolio”).

In order to regularise this collaboration, as well as clarify the rights of JLL and JLSAS into the Trademark and the TMK portfolio, JLL and JLSAS, together with Eric Lobb, entered into a written agreement on 9 March 1992 (the ‟Radlett agreement”). Already, signs of poor legal drafting services rendered were identified into the Radlett agreement since:

  • clause 10 of the Radlett agreement set out that it was ‟entered into for a period of 15 (fifteen) years at which time its operation shall be reviewed by (JLL) and (JLSAS)”;
  • such clause 10 did not specify a start date for this 15-year term;
  • clause 9 of the Radlett agreement, which related to financial matters, set out that the agreement was entered into from 9 March 1992.

The recitals to the Radlett agreement set out that:

  • the property rights in the Trademark were ‟ceded” by Eric Lobb to JLSAS pursuant to an agreement between the parties dated 24 May 1976 (the ‟Prior agreement”), in consideration of the payment of a percentage of JLSAS’ turnover for the years between 31 March 1976 and 31 December 1985;
  • the Trademark was registered in other countries (hence creating the TMK portfolio) and recorded the costs incurred by JLSAS in this respect;
  • the parties wished to continue to collaborate and ‟extend existing agreements to the manufacture, promotion and sales of products described in classes and categories of the Trademark already registered throughout the world”.

Clause 1 of the Radlett agreement gave JLSAS the right to the manufacture, promotion and sales of ready-to-wear footwear under the Trademark throughout the world. Such right was limited under clause 2, though, since JLSAS agreed not to manufacture made-to-measure hand-made footwear in the UK under the Trademark and assigned to JLL any rights which may have accrued to JLSAS in the UK by its acquisition of the Trademark in made-to-measure hand-made footwear.

Clause 5 of the Radlett agreement provided that JLSAS agreed to make annual payments to JLL which were expressed to be in consideration for extending the Prior agreement in accordance with the terms and conditions of the Radlett agreement. Another example of a poorly drafted clause!

Clauses 6 to 9 of the Radlett agreement contained provisions supplementary to clause 5. For the record, these provisions for payment to JLL were amended further to Hermes’ acquisition of Edward Green and company Limited, another UK footwear manufacturer (i.e. the sums payable to JLL were increased to take into account the increase in turnover resulting from this acquisition).

Clause 11 provided that the Radlett agreement was governed by, and construed in accordance with, the law of England & Wales.

Since the termination of the Radlett agreement was planned to take place in March 2007, negotiations between the parties kicked off in late 2005, concerning the nature and terms of the relationship between the parties which was to follow the Radlett agreement.

On 3 March 2006, JLSAS’ solicitors, DLA Piper UK LLP (‟DLA”), sent a letter to Hermes which contained advice ‟in relation to your rights or ownership and use of the (Trademark)” (the ‟Letter”). The Letter was copied to JLL as part of the negotiations. The Letter set out: ‟As I said at the outset whilst there have, over the years, been a number of agreements and discussions between the parties, (Hermes)’s ownership of the (Trademark) is well documented. (JLL) has received proper consideration for the acquisition by (Hermes) of those exclusive rights and (Hermes) is entitled to continue to use, exploit and protect those rights as any trade mark owner would be”.

On 6 March 2008, JLSAS and JLL, as well as JLL’s shareholders, entered into an agreement organising their future relationship, which was entitled ‟Agreement relating to John Lobb name and trademark” (the ‟2008 agreement”).

The 2008 agreement provides that:

  • the Prior agreement dealt with the sale of the Trademark;
  • the Trademark was registered, for its protection, in various countries by JLSAS;
  • JLL and JLSAS have fully cooperated to maintain and develop a mutual business built on the Trademark and trade name Lobb with a view to ensuring that standards continue into the future;
  • JLSAS is the legal and beneficial owner and registered proprietor of the Trademark throughout the world and has all the rights in the Trademark save in respect of the rights enjoyed by JLL set out in clause 1 of the 2008 agreement;
  • pursuant to clause 1, JLSAS agrees that (i) JLSAS’ Prior agreement to permit JLL’s exclusive right to use the Trademark in relation to its UK business in made-to-measure hand-made products (the ‟JLL products”) continues and (ii) JLL may also continue to use in the UK the Trademark on products ancillary to the JLL products which (for the avoidance of doubt) include solely shoe care trees, shoe care products, belts, cases and riding boot accessories;
  • pursuant to clause 2, JLSAS would make annual financial payments to JLL, over two consecutive periods of five years (the first annual payment fell to be made in respect of the period from March 2007 to March 2008 and the final annual payment of GBP35,000 fell due for payment on or before 10 March 2017);
  • pursuant to clause 3, JLSAS shall (in its absolute discretion) carry out the registration and renewal of the existing future trademarks, and shall remain the sole judge of the measures to be taken and will bear the costs of filing, renewal and defence of the Trademark; JLL shall however be obliged, at its own cost, to give JLSAS any reasonable help and assistance it may request;
  • pursuant to clause 5, the term of the 2008 agreement is from 9 March 2007 and to continue without limit of time, subject to a right of termination vested in JLSAS, in the event of a change of control of JLL to a party or parties outside the Lobb family and further subject to a right of pre-emption which apply in the event of an intended sale of shares in JLL outside the Lobb family and in the event of an intended sales of shares in JLSAS outside Hermes;
  • pursuant to clause 6, the 2008 agreement is governed by, and construed in accordance with, the law of England & Wales, the parties submitting to the exclusive jurisdiction of the English courts, subject to an obligation to use reasonable endeavours to resolve problems through discussion at senior management level.

There are five annexes to the 2008 agreement, in particular annex B which sets out a list of trademarks registered in various countries, which correspond to the TMK portfolio.

From 2008 to 2017, the parties operated under the terms of the 2008 agreement without issue.

On 19 April 2017, Clintons, JLL’s solicitors, sent a formal letter of claim to DLA, JLSAS’ counsel (the ‟Letter of claim”). The Letter of claim set out the grounds of challenge to the validity of the 2008 agreement, and asserted that it was void on the basis of common mistake.

The above-mentioned last annual payment of GBP35,000, which fell due on or before 10 March 2017, was tendered by JLSAS but returned by JLL.

2. John Lobb Ltd v John Lobb SAS: the procedure

Since ‟reasonable endeavours to resolve problems through discussion at senior management level” apparently failed, JLL started litigation proceedings by claim form issued on 22 May 2020. JLL’s case is that:

  • the 2008 agreement was void from the outset on the basis of common mistake;
  • JLL is the beneficial owner of the TMK portfolio, except for the Trademark;

JLL’s particulars of claim were amended via some amended particulars of claim (the ‟Amended particulars of claim”).

Paragraph 26 of the Amended particulars of claim set out that ‟the 2008 agreement was entered into by both (JLL) and (JLSAS) on the basis of a fundamentally mistaken and commonly held belief as to the ownership rights in the (TMK portfolio)”.

So the alleged common mistake which is relied upon by JLL is ‟a fundamentally mistaken and commonly held belief as to the ownership rights in the (TMK portfolio)”.

To beef up its claims, JLL set out, in the Amended particulars of claim, that the Letter contained the following material assertions of fact:

  • in 1975 Eric Lobb began negotiating with Hermes for the sale to Hermes of a majority of the shares in JLSAS. Part of that agreement was to be the acquisition by Hermes of the rights to the Trademark throughout the world;
  • in March 1976, the agreement for the purchase of the shares was signed and Eric Lobb confirmed that, before he received any payment for the shares, he would transfer the trademark rights to Hermes/JLSAS;
  • consideration for the transfer of the trademark rights was instalment payments calculated as a percentage of turnover payable over a number of years from 1976 to 1985;
  • between 1976 to 1992, JLSAS, exercising its acquired trademark rights, applied for registered protection for the Trademark around the world;
  • in 1992, Eric Lobb, JLL and JLSAS entered into a further agreement, the Radlett agreement, with the aim of confirming JLL’s right to use the Trademark only for the manufacturing and commercialisation of made-to-measure hand-made footwear and confirming JLSAS’ exclusive rights to everything else.

JLL then alleged, in the Amended particulars of claim that the Letter contained fundamental errors of fact, as follows:

  • the Letter asserted that in 1975/1976 Eric Lobb agreed to transfer to Hermes, and did so transfer, the right to protect and exploit the Trademark throughout the world (i.e. to assign to Hermes/JLSAS the entire worldwide goodwill and reputation in the ‟John Lobb” name built up by the predecessors in title to JLL over a period exceeding 125 years);
  • this assertion is manifestly false, having regard in particular to the terms of the Prior agreement pursuant to which all that Eric Lobb was agreeing to transfer in terms of trademark rights was the Trademark, which JLSAS required in order to conduct the French based business which it was (in substance) acquiring;
  • accordingly, it was also incorrect that the consideration (payable under the Prior agreement) was for ‟the trademark rights” as asserted and described in the Letter;
  • it was also incorrect that JLSAS applied for registered protection for the Trademark exercising its acquired trademark rights;
  • accordingly, any agreement subsequently made between the parties to the Radlett agreement, which reflected this wholly inaccurate series of factual assertions and which assumed JLSAS’ ownership of the TMK portfolio would not be one which accorded with the intention of the parties, but would be one which assumed a fundamentally different and false set of factual and legal premises – in particular to the ownership of the ‟John Lobb” marks outside France;
  • the 2008 agreement was just such an agreement.

JLL’s case is that it only agreed to enter into the 2008 agreement because it believed to be true and accurate the assertions made in the Letter and the assertions made in the course of discussions by representatives of JLSAS as to the ownership of the TMK portfolio (the ‟Negotiations”). Therefore, according to JLL, JLL and JLSAS entered into the 2008 agreement on the basis of a fundamentally mistaken and commonly held belief that JLSAS owned the TMK portfolio, on the basis and for the reasons set out in the Letter and Negotiations. The true position, JLL contended, was that the beneficial ownership in the TMK portfolio was in fact vested in JLL, with the sole exception of the Trademark.

The principal relief sought by JLL, in its Amended particulars of claim, is:

  • declaratory relief, comprising a declaration that JLL is not bound by the terms of the 2008 agreement on the basis that it is void from the outset for common mistake, and
  • a declaration that JLL is beneficially entitled to the ownership of the TMK portfolio, including their registered protections, with the exception of the Trademark.

JLSAS filed a defence in the action, and made an application by application notice dated 4 August 2020, denying JLL’s right to any of the relief claimed as follows:

  • JLSAS sought, as relief, an order striking out the Amended particulars of claim, pursuant to 3.4.(2) (a) of the Civil Procedural Rules ( ‟CPR”), on the basis that the Amended particulars of claim disclosed no reasonable grounds for bringing the claim, or
  • JLSAS sought, as relief, summary judgment against JLL on the whole of the claim pursuant to 24.2. (a) (i) CPR, on the basis that JLL had no real prospect of succeeding on the claim and that there was no other compelling reason why the case should be disposed of at a trial;
  • consequential on this relief, an order for dismissal of the claim and costs was also sought by JLSAS.

In a judgment dated 24 May 2021, the high court judge, deputy master Marsh, concluded that:

  • JLSAS was unable to show that JLL’s case on limitation was bound to fail because JLL could not establish the second element or the fourth element identified in Great Peace;
  • the first element identified in Great Peace (i.e. the requirement that the parties have entered into a contract under the common assumption as to the existence of the state of affairs) (the ‟First element”) was met;
  • the second element identified in Great Peace (i.e. there must be no warranty by either party that that state of affairs exist) (the ‟Second element”) was met;
  • the third element identified in Great Peace (i.e. the non-existence of the state of affairs must render performance of the contract impossible) (the ‟Third element”) was met;
  • the fourth element identified in Great Peace (i.e. the state of affairs may be the existence, or a vital attribute, of the consideration to be provided) (the ‟Fourth element”) was met;
  • JLSAS had not demonstrated that JLL had no real prospect of success;
  • JLSAS’ application was dismissed, both in relation to the application for summary judgment and the application to strike out.

JLSAS appealed the first-degree judgment on the following grounds:

  • the judge went wrong in his approach to the doctrine of common mistake by failing to apply correctly the elements of the doctrine, specifically the Second element and the Fourth element, as set out by the court of appeal in Great Peace;
  • the judge was wrong to reason that the 2008 agreement could not be construed on an application for summary judgment or strike out, when it gave rise to a short point of law and construction, which was capable of being determined in the absence of any dispute, for the purposes of JLSAS’ application, about the relevant matrix of act and/or on the basis of the facts alleged by JLL;
  • the judge was wrong to regard the doctrine of common mistake as being insufficiently settled;
  • the judge misunderstood the Fourth element as being concerned with something less than impossibility of performance of the contractual adventure, and instead treated this element as asking whether ‟performance is essentially different to that common assumption”;
  • if the judge had correctly applied the law of common mistake, he would have been bound to conclude that there was no reasonable grounds for JLL to bring the claim for rescission of the 2008 agreement and should either have struck out the claim pursuant to CPR 3.4. (2) (a) or should have concluded that JLL’s claim had no realistic prospects of success and was suitable for summary disposal under CPR 24.2.

In a seminal appeal judgment handed down on 8 September 2022, Justice Edwin Johnson found for JLSAS because:

  • the judge’s decision in relation to the Second element identified by Lord Philips in Great Peace was inexact because a warranty on the state of affairs actually existed in the 2008 agreement (i.e. the 2008 agreement sets out that JLSAS is the legal and beneficial owner and registered proprietor of the TMK portfolio throughout the world and has the rights in the TMK portfolio, save for the rights enjoyed by JLL as set out in clause 1 of the 2008 agreement);
  • the 2008 agreement allocated the risk, in the event that the assumption was wrong, to JLL, by the combined operation of recital G and clause 1.3. of the 2008 agreement;
  • the prior judge’s decision in relation to the Fourth element identified by Lord Philips in Great Peace was inexact because the alleged non-existence of the state of affairs did not either render the performance of the 2008 agreement impossible or render the subject matter of the 2008 agreement essentially and radically different from the subject matter which the parties believed to exist;
  • the claim that the 2008 agreement was void from the outset on the basis of common mistake cannot succeed;
  • JLL has no real, or indeed any prospect, of succeeding in its claim to avoid the 2008 agreement on the basis of common mistake;
  • JLSAS is entitled to summary judgment against JLL and there is no reason for JLL’s action to go to trial;
  • although this conclusion is strictly academic, given judge Johnson’s conclusion on the summary judgment application, the first degree judge was right to decline to strike out JLL’s claim pursuant to CPR 3.4.(2) (a).

Consequently, the outcome of the appeal was that:

  • the appeal was allowed on the basis that the judge was wrong to dismiss JLSAS’ application so far as JLSAS sought summary judgment against JLL;
  • judge Johnson made an order for summary judgment against JLL on the whole of its claims in the action, and
  • judge Johnson made an order for the dismissal of JLL’s claims in the action.

3. A lack of self-awareness and impartial analysis which leads to a public relations’ disaster, for John Lobb Limited

What were JLL’s management and its counsel, Clintons, thinking?

Before launching themselves into fully-fledged litigation, they should have assessed, in an impartial, thorough and rigorous manner, whether they had enough ammunitions to put into their ‟common mistake” gun, instead of blindly following the ‟intuition” of family member, qualified solicitor and new JLL’s in-house lawyer Nicholas Lobb, who joined the family business in 2013 and put this whole craziness into motion.

The crux of the issue, here, is that JLL wants out of the 2008 agreement, which is permanent, perpetual and cannot be terminated, except in case of major change of share ownership in either JLL or JLSAS. Probably, like in the Chanel saga, JLL and the Lobb family want to get more money from the TMK portfolio and renegotiate the terms of the 2008 agreement in this respect.

Well, OK, that is understandable, especially after the Covid 19 pandemic and economic recession which have left many fashion and luxury businesses on their knees (or lead them to their grave). But using the ‟common mistake” case law in this case was amateurish and naive, at best.

The parties, and signatories, to the 2008 agreement – among them many members of the Lobb family – were all professionals and capable adults: they cannot seriously claim that they ‟misunderstood” the explicit and clear terms of the 2008 agreement, especially in respect of the subject of which party owns which trademark.

This is a stark warning to commercial practitioners, like DLA and Clintons, of the results that ambiguity in legal drafting can cause but also the significance where allocation of risk is found within a contract and the consequences this can have on the findings of common mistake as the case is here.

It would have been way more astute for JLL’s management and legal team to enter into confidential good faith negotiations with Hermes and JLSAS in order to renegotiate the amount of the final annual payment of GBP35,000 due by 2017, by amending clause 2 of the 2008 agreement. They could have asked for additional annual payments to be made, every five or ten years of execution of the 2008 agreement, since its term is without any limit in time (i.e. it is perpetual).

This litigation case, which splashes out in front of the UK high court, and then the UK appeal court, confidential terms set out both in the Radlett agreement and the 2008 agreement, drawing public attention to the business of John Lobb for all the wrong reasons, is a public relations’ disaster for JLL and – by ricochet – JLSAS.

If good faith negotiations with Hermes and JLSAS, to renegotiate the payments owed to JLL on the grounds of the TMK portfolio, fail, then JLL should bring a court claim to request a renegotiation or termination of the 2008 agreement, which term is perpetual and without limit, in particular claiming that there has been an unforeseeable change in circumstances and/or force majeure (valid reasons to renegotiate a long-term contract in jurisdictions such as China, France, Germany and Japan).

If the court claim fails, then it may be time for the Lobb family to sell out, by triggering clause 5 of the 2008 agreement, and negotiate the highest payment they can get, for all 10,000 shares in JLL, from Hermes – which has a pre-emption right – or any other interested bidder.

Crefovi’s live webinar: John Lobb Ltd v John Lobb SAS – an analysis – 7 February 2023

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