Inventors Friend Ltd v Leathes Prior (a firm) [2011] EWHC 711 (QB)

[2011] EWHC 711 (QB)

Case No TLQ/10/0670

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 25/03/2011

Before

MR JUSTICE CRANSTON

Between

Inventors Friend LtdClaimant

Leathes Prior (a firm)Defendant

Graham Cunningham (instructed by Howell Jones) for Claimant

Michael Taylor (instructed by Beale & Co) for Defendant

Hearing Hearing dates: 19-26 January 2011

Judgment

INTRODUCTION

[1]This is a claim for professional negligence. It arises from legal assistance given by the defendant solicitors in 2003, which related to the terms of a distribution agreement by which the claimant proposed to market and sell a newly invented device for applying adhesive. The claimant alleges that the defendant did not act correctly. Specifically, as regards what has been called the “loss of profits” issue, the claimant alleges that the defendant failed to advise that last minute amendments made to the agreement in draft by the inventors’ company rendered impossible its chances of obtaining loss of profits if the claimant lost the distributorship. It is alleged that the defendant also failed to notice that the terms of the draft distribution agreement excluded it from obtaining any loss of profits should damages be found to be at large. As regards the so-called “intellectual property rights” issue, it is said that in working on the draft agreement the defendant did not contemplate the possibility that these rights might be disposed of by licence, rather than sale, and did not recognise that the principal part of the rights was not owned by the inventors’ company, but by one of the inventors. FACTUAL BACKGROUND

[2]The claimant, Inventors Friend Ltd (“Inventors Friend”) is a company involved in bringing new inventions to market. The company was incorporated by Mr Stuart Saunders on 28 March 2003. The first accounts for the company, for year ended 31 March 2004, showed a turnover of £10,845, but losses overall. Mr Saunders’ principal occupation is as an oil and gas engineer. He is the sole director and shareholder of the company. He gave evidence at the hearing. In the judgment Mr Saunders and his company are treated as being equivalent, except when it is necessary to distinguish between them.

[3]The defendant, Leathes Prior (“the firm”), is a long established firm of solicitors in Norwich. Mr Chadd is head of the commercial department at the firm. He has been a solicitor since 1980 and a specialist in intellectual property law since 1986. Most of his intellectual property practice is conducted in the context of franchising and involves the licensing of trade marks. Mr Chadd gave evidence before me.

[4]Six months after starting Inventors Friend, in mid June 2003, Mr Saunders was contacted by two persons who had invented the span applicator, Alan Spencer and Shaun Wainford (“the inventors”). They had an incorporated company, So and So Innovations Ltd (“SSIL”). Neither gave evidence. The span applicator is a plastic device which fits on the end of a cartridge of cement or adhesive and allows the even distribution of that without mess and waste. Large areas can be covered at speed by the amateur DIY enthusiast. Tiling is an obvious example of its use, but so too is the “grab adhesive” market. The intellectual property in the span applicator consisted of four design rights, registered in the name of SSIL. There was also a UK patent application, which was ultimately granted as a European patent. This was registered to Mr Spencer.

[5]Mr Saunders was enthusiastic about the span applicator and saw its potential to revolutionise the tiling market. In June 2003 he decided to relinquish his position in the oil and gas industry to promote it. At the time his annual remuneration was £70,000 per annum, and he knew it would be difficult to re-enter that industry. In the following months he lived off his savings. He made progress in obtaining leads for the potential sale of the span applicator.

[6]At a meeting with the inventors in mid June 2003, Mr Saunders placed before them two proposals. One was a proposal if they wanted to manufacture the span applicator “in house”; the other was to use Inventors Friend in securing a licence agreement with another company, such as a satellite television shopping channel, to distribute it. The first proposal estimated the cost of a worldwide launch of the span applicator as £2million, which in Mr Saunders’ experience was unlikely to be raised from venture capitalists, who wanted a proven track record. Mr Saunders told the inventors that he had 150 venture capitalists subscribed to his website. The licensing proposal contemplated sales of at least £200 million. That, in Mr Saunders’ opinion would double, and possibly treble, with the United States market. Pricing the product on the shelf for £4.00, with Mr Saunders’ guesstimation of a cost at 50p, meant an overall profit of £600 million annually. On a 3% royalty that would be a profit for the inventors of £18 million a year. For the purpose of a license agreement, therefore, he thought the inventors should insist on a one off payment of £18 million, depending on price, with further annual payments. The inventors should retain the patent in their name.

[7]In anticipation of a further meeting, on 25 June 2003, Mr Saunders obtained a copy of a sales licence agreement. On the basis of that precedent he drafted a sales license agreement between Alan Spencer and Inventors Friend. It conferred on his company a distribution agency for the span applicator for a 7 month period, with a view to establishing it as the sole distributing agent worldwide. Clause 10 of the draft provided:

“At the end of the 7 months this contract is to be reviewed and possibly renegotiated so that both parties are happy with the way forward. If for whatever reason Inventors Friend ceases to be a distributor of the product or Alan Spencer decides to enter into new agreements with other third parties or sell the patent rights outright or under license to another person or company while this agreement is in force or at any time in the future when this agreement has lapsed then Alan Spencer agrees to pay Inventors Friend 5% commission of all net profits after tax arising from these circumstances on an annual basis for the whole life span of the product.”

The draft agreement was rejected by the inventors, who did not want to sign anything at that point. The draft agreement was never seen by anyone at Leathes Prior.

[8]In the early stages the inventors verbally agreed to allow Mr Saunders to market the product exclusively for 5 years and worldwide. After further negotiation a 7 month trial period was agreed, under which he would have exclusive rights to market it in the south of England. The 7 month period was so that Mr Saunders could prove himself. In August 2003 Mr Saunders began designing the packaging and part of the sales equipment such as floor stands and counter displays. He also contacted large retail outlets of DIY products. Mr Saunders’ instruction of Leathes Prior

[9]On Tuesday, 9 September 2003, Mr Saunders telephoned Leathes Prior, which he had used 10 years previously. He spoke to Mr Chadd’s secretary. He told her that his company, Inventors Friend, conducted a business in assisting inventors in getting their new products to market. He required a firm of solicitors to act for it generally on a long term basis. In particular he required immediate advice on what he described as a “license agreement” and requested an estimate of costs.

[10]That same day Mr Saunders emailed Mr Chadd. The subject of the email was a “dispensing nozzle”. In the email he recalled the assistance Mr Chadd had given him previously over his invention of the “Frog Ride”. Mr Saunders then explained that there were two agreements he would send. The first was what he described as a license agreement:

“Basically it is intended that I will act as the distributor for the product in south of England (border from the Mersey to The Wash) for a period of 7 months. After this period of 7 months if I hit a sales target of selling 80,000 units (one nozzle) per month then I will be signing a contract to the sole distributor for 5 years in the UK.”

The second was a sub-agreement, which was still being drafted, “… regarding the potential payment from sale of the inventors intellectual property rights, The 2nd sub-agreement will confirm that I would receive 5% of the proceeds of sale of the intellectual property rights and a further 2.5% of the proceeds of sale should I introduce the purchaser (these percentages will be based on the net profit after tax of the payment).” In the email Mr Saunders added that his “own concern”, what has become known as the “loss of profits” issue, which he was not sure was covered in the agreement, was that “I could spend a lot of time and money in 7 months establishing contacts and building up a sales base for the licence to be revoked for any reason after the 7 months and I am left “high and dry” with almost nothing for my efforts other than the 5% as discussed in the sub-agreement to follow.”

[11]After reference to the website for Inventors Friend, and the interest the product was generating, Mr Saunders explained that he had limited funds because of the cost of developing his company. He had a budget of £150 for Mr Chadd to “look over” the 2 contracts and to discuss “certain key areas”. Otherwise he could give Leathes Prior an exclusive banner on the Inventors Friend homepage. He really needed to have the matter dealt with by Monday or Tuesday of the following week if possible, although given the firm’s rates, and his finances, that may not be possible.

[12]The same day, some time after receiving the email, Mr Chadd telephoned Mr Saunders. Mr Saunders explained that the product to be distributed was a span applicator nozzle, to be fitted on to sealant tubes. Mr Chadd explained to Mr Saunders that his budget of £150 was unrealistic given the time that it would take to review two agreements and discuss their provisions with him. Mr Saunders said that he did not want the firm to draft the agreements but simply to comment on their terms. On that basis Mr Chadd said that at the very least the firm would need £500 plus VAT. With a limited budget it could do no more than briefly review and comment on the terms of the agreements but not draft or make detailed background inquiries, for example, as to the ownership of the intellectual property rights. Mr Chadd’s evidence is that given what he had been told he regarded Mr Saunders as experienced in getting newly invented products to market.

[13]Mr Saunders sent a fax on 9 September with the draft licence agreement, but only the fax cover sheet was transmitted. On 11 September 2003 Mr Saunders sent an email to Mr R T Semain, copied to Mr Chadd, asking Mr Semain to send the draft agreements to Mr Chadd for his review and comment. Mr Saunders also emailed Mr Chadd to confirm Mr Semain’s contact details. Mr Semain was the inventors’ adviser, not Mr Saunders’ adviser, although at this point Mr Chadd did not know this. Later the same day there was an email from Mr Semain confirming that he had prepared a draft distribution agreement, together with an additional agreement regarding Mr Saunders’ share to be paid on any future sale of the intellectual property rights in the product. Mr Semain confirmed that he had encountered some difficulty sending the longer distribution agreement by email and would, therefore, be sending it by fax. He indicated that his clients had not had sight of the additional agreement (“the sub-agreement”), relating to the sale of the intellectual property rights, but the terms had been discussed and agreed in principle. Attached to his email was a copy of that sub-agreement.

[14]The draft distribution agreement which Mr Semain forwarded was expressed to be between SSIL (“the company”) and Inventors Friend (“the distributor”). Among its main terms the agreement provided for the appointment of Inventors Friend as the distributor; set out the distributor’s duties to promote and sell the span applicator; provided for the distributor’s purchase of products from the company, including an obligation to purchase monthly an aggregate invoice value (to be agreed) (clause 3.7); contained an initial term of 7 months for the agreement, determinable after that on written notice, with no compensation for the distributor (clause 5); and detailed the events of default, under which the company could terminate the agreement. The events of default term provided that the company could terminate the agreement with immediate effect if the distributor was in breach of agreement or failed in any 3 months period to generate firm orders to an aggregate invoice value (to be agreed): clause 6. Clause 10.1 was a limitation of liability clause.

[15]The proposed terms of the sub-agreement related to the intellectual property rights. They were brief. Like the distribution agreement they were proposed to be between SSIL and Inventors Friend. They provided:

“1) If and when the intellectual property rights in the span applicator are sold to a third party, Inventors Friend Ltd will be entitled to 5% of the purchase price paid to So and So Innovations Ltd. 2) If the third party purchaser was introduced to So and So Innovations Ltd by Inventors Friend Ltd a further 2.5% of the purchase price will be deemed as payable.”

[16]Mr Chadd made some manuscript annotations to the draft distribution agreement, which had the effect of inserting greater protection for the distributor. For example, Mr Saunders’ exclusive territory was identified, the south of England from the Mersey to the Wash. The price terms were spelt out at which the distributor was to purchase the product from the company. The agreement was to continue after the initial 7 months period unless the distributor gave 6 months written notice of termination (clause 5.1). The need for a product liability insurance clause was flagged. Some of those initial points, which Mr Chadd had annotated, were mentioned in a telephone conversation which Mr Chadd had with Mr Saunders on 16 September 2003.

[17]Three days later, on 19 September 2003, Mr Saunders emailed Mr Chadd with his thoughts on Mr Chadd’s “key points”. First, he said, he was not too bothered about having the purchase price listed in the contract. He had a verbal agreement as to how the profits were to be split and he trusted “the licensor”. However, he would appreciate Mr Chadd’s views. Secondly, Mr Saunders wanted the minimum monthly order value to be as little as possible, albeit that there was uncertainty as to what the figure would be. Thirdly, what Mr Saunders described as his “biggest area of concern” was to ensure that after 7 months of hard work his services could not be disposed of without adequate compensation. He continued: “The sub-agreement should stipulate that I will be entitled to 5% of all net profits after any one off payments or similar for sale or use of the intellectual property. If I introduce a buyer of the intellectual property rights then I am to receive 7 ½%. I believe it is intended that this is to be calculated on the net profits but of course I would prefer it to be done on the gross to make calculation easier and fairer - again I am keen to hear your thoughts on this. (This will become clearer when you see the document as I haven’t yet)” (my emphasis). In his evidence Mr Saunders accepted that the phrase “or use” in this email was the only occasion where he specifically referred to dealing with the intellectual property rights otherwise than by sale.

[18]In the email Mr Saunders then summarised his point. If after 7 months he signed up on account a certain number of stockists he would expect them to remain his accounts for the life of the product, assuming that the rights were not sold, in which case he would receive the 5% pay off as discussed. If for some reason after 7 months his licence to sell the product was revoked he would expect to be reimbursed for his loss of business, calculated on sales figures up to that date, and bearing in mind that the product was at an early stage. Perhaps also he should be compensated for the loss of earnings on the basis of 3 year forecasts, since once the sales have progressed past the initial launch with major accounts it was fair to say sales would be expected to treble.

[19]Finally, wrote Mr Saunders in this 19 September 2007 email, he had asked that it be written into the contract that if after 7 months he hit a sales target of 80,000 single units (one tool), he would be automatically eligible to sign a five year sole UK distribution contract and also a first refusal opportunity to be sole distributor to the rest of the world. “The 7 month contract is something that we compiled between us and instigated by me. Basically I have said that the 7 month contract is to allow me to be the sole distributor in the south of the UK (territory from the Mersey to the Wash) so I can prove in the 7 months that I can achieve significant sales to prove my ability with a view to maintaining this territory for the life of the product and also with the built in 80,000 sales target opportunity to be the sole distributor in the UK for 5 years.” The agreement is drafted

[20]At some point after Mr Chadd made his manuscript amendments to the draft distribution agreement he gave it to Polly Morgan. She gave evidence at the hearing. She was a trainee who had just days before begun work with the firm. Ms Morgan had been teaching English Legal System and Legal Skills on a CPE course. Her LLM had been in family law and policy. Ms Morgan’s first seat in the firm was in the commercial department with Mr Chadd. She is now a solicitor in the firm in family law.

[21]To carry out Mr Chadd’s instruction to review the agreement, Ms Morgan compared the draft with a precedent. The precedent she took was a distributorship agreement produced by Practical Law Company. Ms Morgan did not realise that intellectual property rights might be an issue. She cut and pasted from the precedent. For example, she inserted a clause in the draft whereby the company granted the distributor the right to use the trademark. There was an attendance note for her work, which Ms Morgan thought might represent 3 hours of work. Although the firm charged her time out at £100 per hour, they would not charge for the full 3 hours for a trainee such as herself. Later Ms Morgan had one or two conversations with Mr Saunders. Her impression was that he used terms inconsistently. He knew what he wanted commercially, but she had no knowledge of his commercial expertise.

[22]After Mr Chadd and Ms Morgan had worked on the draft, a copy was sent to Mr Saunders on 22 September 2003. In an email of 23 September 2003 Mr Saunders focused on the sub-agreement. He explained that the reason that it was a separate agreement was because SSIL intended to use the distribution agreement with other agents but the sub-agreement was specifically for him. As to the agreement, Mr Saunders said that it did not incorporate points agreed verbally with the other side. First, if after a period of 7 months a target of 80,000 units were sold, Inventors Friend would be eligible to be the sole distributor for the UK for a period of 5 years. Secondly, internet sales could be retail only: if a purchaser wanted to buy in large numbers they had to purchase from Inventors Friend or SSIL, based on where they were geographically. Thirdly, “regarding the 5% and the 2% on sale of intellectual property it is not stated whether this is to be calculated on the net profit after tax or the gross profit which of course would be in my benefit.” Mr Saunders accepted in his evidence that he did not raise with Mr Chadd concerns that SSIL might not own the intellectual property rights in the product.

[23]As to the distribution agreement, Mr Saunders informed Mr Chadd in this email that he had told Mr Semain, its drafter, that at present it was unsatisfactory. He could work for 7 months establishing the product and then have his license revoked and sit waiting for the sale of the intellectual property rights, which might be 10 years and more later, if ever, before receiving any money from the project. Mr Saunders said that he thought Mr Semain had agreed that the contract needed to be re-written to cover this. “I would be interested to hear your thoughts to resolving this hazardous area.”

[24]Mr Saunders returned to the issue in an email the following day, 24 September 2003, linking it with the intellectual property rights issue in the sub-agreement. “I feel strongly that it is fair that from any time after signing the contract that I establish a link with any stockists then that they should become my client to be supplied to solely by me for the shelf life of the product unless the Inventor sells the rights in which case I would be entitled to the 5% (detailed in the sub-agreement) or unless I act incompetently or unprofessional in which case then I would expect the license to be revoked.” However, Mr Saunders explained, Mr Semain had said that the “inventor (licensee)” was concerned that giving Mr Saunders security of territory could inhibit third parties making offers in the future for the intellectual property rights. Mr Saunders added:

“This area needs to be addressed to satisfy the Inventor’s concerns as well as mine.”

[25]Leathes Prior made further amendments to the draft agreement sometime between 25 and 29 September 2003, to carry into effect Mr Saunders’ instructions. By now clause 5.1.2 allowed the company to terminate on notice, but if in the initial term of 7 months the distributor achieved the 80,000 sales target it was entitled to a 5 year agreement. A “lost profits” clause, clause 5.2 read:

“It is agreed that in the event of termination by the Company under the provisions of Clause 5.1.2 above the Distributor shall be entitled to receive compensation, calculated as to the anticipated lost profits of the Distributor for three years following such termination based upon the forecast sales of the Products by the Distributor for the said three year period and payable by the Company within one month following the date of termination.”

[26]In addition Mr Chadd had introduced as clause 5.3 the provisions of the sub-agreement regarding intellectual property rights. He had done this in the terms that if the agreement was terminated by the company under clause 5.1.2 in conjunction with the sale of the intellectual property rights, the distributor would be entitled to 5% of the gross sales price, or 7.5% if the distributor introduced the purchaser. The limitation of liability clause, originally clause 10.1, remained as it had been in the original draft.

[27]On 29 September 2003 Mr Saunders raised six issues with Mr Chadd about the draft agreement: the “purchase price parameters”; clause 5.2 (where previous concerns about lost profits were reiterated); trademarks; product liability (on trade marks and product liability, Mr Saunders questioned the need for the detail provided in the draft); internet sales (there was still nothing on this); and the 5% royalty for intellectual property rights. On 3 October 2003 Mr Saunders sent an email to Mr Chadd recalling a conversation with Ms Morgan. He did not think that he had made clear to Mr Chadd the point about exclusive territory in the south of England.

[28]A little later that day, 3 October 2003, Mr Chadd emailed a letter to Mr Saunders. It related to what he described as “the amended draft agreement incorporating the revisions we have discussed”. The letter referred to some 12 principal points about which Mr Saunders “would need to be concerned and/or which you may need to engage in further negotiations with the company”. At point 7 of the letter, Mr Chadd said that the term of the agreement was initially 7 months, but it would continue until terminated by Mr Saunders or by SSIL giving not less than 6 months notice. “If the company terminates however, you are entitled to receive compensation calculated at three years lost profit (see 5.2)”. At points 8 and 9 of his letter Mr Chadd wrote as follows:

“8. Please note that I have included at clause 5.3 provisions entitling you to 5% of the gross sale price of Intellectual Property Rights in the Products in the event that the company sells them. 9. Please note that I have provided for you to be entitled to such payment whether the sale occurs before, concurrently with or within [??] (sic) months after the termination of the Agreement. You will need to consider how long a period after termination of the Agreement you would want to be entitled to a payment for the sale of the Intellectual Property Rights.”

The letter concluded with Mr Chadd expressing regret that the firm had substantially exceeded the budget agreed at the outset. While Mr Saunders would only be invoiced for the £500 agreed, if he wished the firm to engage in any substantial further work, in refining the agreement and/or negotiating points, an extended budget would be necessary. There was no response to this letter.

[29]SSIL now made amendments to the Leathes Prior draft. With the SSIL amendments, clause 5.1 no longer contained the right of Inventors Friend to have a distribution agreement for the whole of the United Kingdom and the rest of the world should Mr Saunders have success in achieving the monthly sales target of 80,000 units per month in the initial period of 7 months. In his evidence Mr Saunders explained that he reluctantly agreed to the removal of this provision (which he had emphasised in an earlier email to Mr Chadd). In any event, he had been confident he could prove himself. It was always intended that the contract would be renegotiated after the initial 7 month period.

[30]Following the SSIL amendments clauses 5.2 and 5.3 were now expressed in the following manner:

“5.2 Subject to Clause 6.1 it is agreed that in the event of termination by the Company under the provisions of Clause 5.1.2 above the Distributor shall be entitled to receive compensation calculated as to the anticipated lost profits of the Distributor and agreed by the Company for three years following such termination based upon the forecast sales of the Products by the Distributor for the said three year period and payable by the Company within one month following the date of termination [my emphasis]. 5.3 In the event of a sale by the Company of the whole or any part of the intellectual property rights in the Products (whether before, or concurrently with the termination of this agreement) the Company agrees to pay to the Distributor a sum as equals 5% of the gross sale price received or due to the Company together with the additional sum calculated as 2.5% of the said sale price where the Distributor has introduced the purchaser to the Company.”

The clauses remained in this form in the signed agreement. Thus clause 5.2 had been amended so that it now began “Subject to Clause 6.1”. Clause 6.1 was the termination clause, enabling the company to terminate the contract should the distributor be in breach of its obligations under the contract; fail to generate orders to an [unspecified] level; in the event the company breached the agreement; and in the event of the company being unable to pay its debts etc. Moreover, clause 5.2 had been amended so that the distributor’s entitlement to compensation was related to anticipated lost profits as “agreed by the Company”. The limitation of liability clause, now clause 12, remained as it had been throughout. “12.1 Except as expressly provided in the Terms the Company shall not be liable to Distributor or to any other person for any injury damage loss cost or expense relating to the subject matter of this Agreement howsoever arising and in no event shall the Company be liable for any consequential damages or indirect loss suffered by Distributor its customers or any other party.”

[31]On 27 October 2003 Mr Saunders emailed Mr Chadd, asking him to look over the final draft from SSIL “just to check everything is above board”. Referring to clause 5.2 as it now stood, after amendment by SSIL, Mr Saunders commented that:

“Subject to me not being in breach of the contract see 6.1 then they have agreed to compensate me for three years sales etc.”

On clause 5.3, as amended by SSIL, he wrote:

“5.3 In the event of sale of Intellectual Property I will only be entitled to 5% etc and not options – I am ok with this.”

In his evidence Mr Saunders conceded that he knew at the time that if SSIL terminated the agreement because he had not met his sales target, he would not obtain lost profits under clause 5.2.

[32]There was then a conversation of about 45 minutes length on the telephone between Mr Chadd and Mr Saunders late in the day on 28 October. It is common ground that Mr Chadd asked Mr Saunders to have open in front of him the 3 October letter, the final Leathes Prior draft sent with it, and that draft as amended by SSIL. Ms Morgan had highlighted for Mr Chadd how the SSIL amendments changed the Leathes Prior draft sent on 3 October. It is common ground also that Mr Chadd identified all these changes SSIL had made to the Leathes Prior draft. Mr Saunders’ evidence was that he does not recall any concerns being raised and that after the conversation his signing the contract seemed to be a formality. Mr Chadd’s evidence was that he warned Mr Saunders of the import of the SSIL amendments and believed he advised Mr Saunders not to sign the agreement. There is no file note to this effect and Mr Saunders denies it. Mr Chadd said that he expected Mr Saunders to return to the other side for further negotiations, although he recognised that Mr Saunders was anxious to sign the agreement. Mr Saunders’ own evidence was that he was anxious to start, but not so anxious that he was unable to assess the matter rationally. Ms Morgan overheard that conversation, since she sat just outside Mr Chadd’s door. She said that she had her ear cocked. She could not recall Mr Chadd advising Mr Saunders not to sign the agreement. All she could recall was that Mr Chadd went through the clauses and discussed costs. From the evidence it is clear to me that Mr Chadd warned Mr Saunders how the SSIL changes weakened his position – even if he did not warn him specifically not to sign the agreement – and that included how Inventors Friend was disadvantaged by the SSIL changes to clause 5.2. There was no advice on the limitation of liability clause 12.1.

[33]On 29 October 2003 Mr Saunders travelled north and signed the agreement. By then Mr Saunders’ evidence is that he regarded this as a formality. Both Mr Chadd and Ms Morgan recall that they were surprised when they learnt that Mr Saunders had signed the agreement. Inserted by manuscript in the signed contract, and initialled, is the minimum amount agreed which Investors Friend was obliged to purchase per month, an aggregate invoice value of £15,000: clause 3.7. Also inserted in the same way in clause 6.1.2 was the agreed termination figure, £45,000, the aggregate income value of orders to be generated by Inventors Friend in any 3 month period, failure to achieve which entitled SSIL to terminate the agreement. Later Mr Saunders described the figures as a guess, or an educated guess as he put it in evidence. Clauses 5.1, 5.2, 5.3 and 12 remained as they were in the SSIL draft. Events following the agreement

[34]After the contract was signed, Mr Saunders began marketing the product. He recruited a salesman, Alan Turner, who began to test-sell mock ups of the span applicator. He prepared a business plan. He paid to exhibit at a trade show in the Barbican Centre in London in early November, for which he created a stand and prototypes. At that show, the span applicator was given the award of British Invention of the Year. There was considerable interest in the span applicator by those attending the Barbican Centre.

[35]However, there were problems in the supply of products for distribution. These were attributable to tooling problems at the manufacturers in Pickering, issues of consistency in the quality of plastic, and delays in production. As a result sometime in November Mr Saunders made Mr Turner redundant since he could not make sales on the basis of mock up products. Despite the teething problems, Mr Saunders anticipated that he could begin selling the product in January or February. He recruited John Walker as his sales manager from 1 February 2004, and two other salesmen. He also incurred additional costs such as website design, advertising, and storage.

[36]On 18 January 2004 the first batch of approximately 500 units of the finished product arrived, but mostly loose, without packaging. Mr Saunders was informed that 40,000 additional units had been shipped to UNEX, which was a packaging company based in Cornwall. Mr Saunders booked a stand at a trade show at Earl’s Court, London, from 19 to 21 January 2004. At the show he received approximately £2,000 worth of orders. He had to display the product in mocked up packaging. He mocked up about 10 to display on printed card, showing how the span applicator looked.

[37]The first batch of packaged products arrived on 24 February 2004. Over the next two months Mr Saunders sold to approximately 90 retail outlets. The aggregate sales value was approximately £11,010. He had established numerous contacts and had definite expressions of interest by the large retailers, Travis Perkins, Jewsons, Build Base, Focus and Jacksons. By the end of March 2004, sales were proceeding well although Mr Saunders was concerned that repeat orders were not occurring. Mr Saunders’ focus was in the “grab adhesive” rather than the tiling market. To tap the latter market he promoted the idea of the sale of adhesive, packaged along with the span applicator, but nothing emerged along those lines before the events of April 2004. At that point the average aggregate monthly invoice value of products sold was about £5,500.

[38]On 2 April 2004 the inventors told Mr Saunders that they were in talks with Linbrooke Services Ltd (“Linbrooke”), which had expressed an interest in investing up to £10 million to re-launch the product. Sometime around 10 April Mr Spencer told Mr Saunders to stop selling the product. Then on 14 April Mr Saunders attended a meeting at Linbrooke’s offices in Sheffield, where he was told he could act as a sales agent under a new agreement which would replace the one which Inventors Friend had with SSIL. He was worried about his existing contract. Linbrooke followed this with a written offer under which Mr Saunders would continue to distribute the product, but only to small retailers, unless Linbrooke approved. Mr Saunders would receive an enhanced return until he had received income of £100,000, but he would then revert to the ordinary commission on sales.

[39]The upshot was that Mr Saunders was concerned. He emailed Mr Chadd on 21 April 2004 and forwarded the letter he had received from Linbrooke. He rehearsed to Mr Chadd what he had achieved in promoting the product and expressed the view that he was being bullied to accept a poor offer. He told Mr Chadd that he had not achieved the target figures in clause 6.1, which were guess work at the time the contract was signed. He referred to clause 5.2 of the agreement. On 23 April Mr Chadd discussed the matter at length with Mr Saunders on the telephone and advised him to negotiate a new deal, if necessary, based on the fact that he still had an existing agreement with SSIL.

[40]Mr Chadd referred the matter to his colleague at Leathes Prior, Mr Tom Lawrence. Mr Lawrence considered the matter and emailed Mr Saunders on 26 April 2004. Since SSIL could possibly give Mr Saunders notice to terminate based on clause 6.1.2 of the agreement, Mr Lawrence asked Mr Saunders whether he was likely to hit the target set out in that clause. He also inquired of Mr Saunders whether he had complied with clause 3.7 of the contract, the obligation to purchase each month an aggregate invoice value of £15,000. When Mr Lawrence had answers to these questions he would be in a better position to advise on the bargaining position with Linbrooke. If Mr Saunders was likely to fulfil his contractual obligations, he could simply sit tight for the term of the contract. If on the other hand he had breached or not fulfilled these obligations, SSIL could theoretically give him one month’s notice to terminate the contract.

[41]The following day, 27 April, the inventors offered Mr Saunders £125,000, which he reluctantly agreed to accept, payable not immediately, but in 8 month’s time. The payment was subject to unspecified conditions. On 28 April Mr Saunders accepted the offer. On 29 April Mr Saunders made his salesman, Mr Walker, redundant, and he stopped selling the product. No formal agreement concerning the £125,000 offer was ever received, despite Mr Saunders contacting the inventors. His last email to them was on 11 June, when he wrote that it was nearly 2 months since he had accepted their offer to terminate the agreement which was on the basis of a new contract. Then on 30 June 2004 SSIL sent Mr Saunders a letter terminating the existing agreement with immediate effect. The basis given was that he had not purchased the specified value of product set out in clause 6.1.2.

[42]On 30 June 2004 Mr Saunders had a meeting with Mr Michael Barlow, a Leathes Prior partner in dispute management. As confirmed in an email on 5 July 2004, Mr Barlow explained that clause 5.3 would not entitle Mr Saunders to payment should SSIL license others to use intellectual property rights. “Whilst it is the case that the agreement between you and [SSIL] could have incorporated other provisions in respect of [SSIL’s] or the inventor’s dealing with the intellectual property rights I understand that, for costs reasons, this was not undertaken.” Mr Barlow recommended that Mr Saunders try to reach a settlement.

[43]Meanwhile, unknown to Mr Saunders until the following year, SSIL had licensed the span applicator to Plasplugs Ltd for nil upfront consideration. That was sometime in June, after SSIL terminated the agreement with Inventors Friend. The only agreement SSIL had with Plasplugs was that it would receive 5% of the selling price if Plasplugs was able to sell the product. Plasplugs purchased the special tool to manufacture the span applicator from SSIL at cost price.

[44]Plasplugs had been founded in the 1970s by Mr Stuart Turner, who gave evidence at the hearing, and whose evidence I accept. Mr Turner had made his name when he invented a plastic fitting for use with different screw sizes. Plasplugs supplied the DIY trade with various products. It had 60% of the tiling tool market. In 2009 Plasplugs went into administration as a result of problems with working capital, the exchange rate and general economic conditions. In April 2009 its assets were purchased by Turner International Ltd, a company formed by Mr Turner for the purpose.

[45]According to his evidence, Mr Turner felt that at the time of the licensing agreement with the inventors the span applicator was a splendid product. His view was that Plasplugs would be able to develop a special tile adhesive, which he felt it was necessary to sell packaged with the span applicator. For this purpose Mr Turner worked with Everbuild Building Products Ltd (“Everbuild”), the biggest manufacturer in the country of adhesives, and with other chemical companies, to try and develop an “all in one” grout and adhesive to work with the span applicator. That was successful, and after some 6-9 months of work the package of span applicator and adhesive was test marketed. It was aimed at the DIY market. About 10 or 12 stores were approached, to take it free of charge. Two DVDS were made, to be played in the stores alongside the displays. Different prices were used in the different stores to explore price sensitivity. The product had attractive packaging, something for which Plasplugs was known. They packaged a starter pack, with the span applicators, spacers, and adhesives, all in the one box. My view, having heard Mr Turner’s evidence, is that if anyone was to make this product a success it was Plasplugs. However, the product did not sell, although the evidence is not precisely clear when it was finally abandoned. Plasplugs made a loss of some £150,000 overall on the project. Consequently, Plasplugs did not pay SSIL any further sums under the licence agreement since it made no money from the span applicator.

[46]Mr Saunders’ evidence was that in October 2006 he was contacted by Linbrooke because it had some 16-20 pallet loads and some 5000 span applicators it could not sell. Mr Saunders put Linbrooke in touch with his contacts in the QD shopping chain, and he understood the product was sold in QD stores. But there is no direct evidence of this, indeed no evidence other than Mr Turner’s about sales of the product through retail stores.

[47]As to the internet sales, in September 2010 Mr Saunders located nearly 50 internet websites which were advertising a product similar to the span applicator. In November 2010 he purchased two Plasplugs’ starter kits from Bob Richardson Tools and Fasteners Ltd, based in Dudley. In his evidence Mr Turner was at a loss to explain this since it was some years since his company had marketed the product and the adhesive would be out of date. As far as the websites were concerned, his view was that this was no evidence that the product was available from all of them, since in his experience products were not necessarily removed from websites, despite their being no longer available.

[48]Mr Saunders’ expert, Mr M C Berry, had a colleague visit some 7 different, mainly national, DIY stores, and telephone another three independent retailers. None stocked span applicator products. All of the stores visited offered adhesive and tiling products from other manufacturers, but none of these products resembled the span applicator. In all stores there were a number of different types of adhesive and grout for sale in rapid grab cartridges, as well as in tubs. Mr Berry also reviewed all the websites identified by Mr Saunders and found that 15 of these were selling either Plasplugs quik-tile or nail-it starter packs. One further website not listed was selling the quik-tile starter pack. He opined that the fact that these products were available, notwithstanding the insolvency of Plasplugs, seemed to indicate that these products could still be sold. He also searched under “quick-tile” and located 6 websites where the Plasplugs starter kits were available for sale. The searches were not exhaustive.

[49]Leathes Prior’s expert, Mr David Butterworth, also reviewed the websites Mr Saunders found. Only two sites appeared to have the product currently in stock. Many indicated that the product was out of stock or discontinued. Some of these sites referred enquiries to another site at www.toolbank.com. That particular site appeared to be a wholesale operation. Searches on ‘plasplugs’, ‘quick tile’, nail it’, starter kit’ and ‘spanapplicator’ did not produce any results of such items available for sale. The research suggested, in Mr Butterworth’s opinion, that the product was not widely available or necessarily commercially viable. In my view this is the only conclusion open on the evidence, especially when coupled with Mr Turner’s evidence about the adhesive being out of date and the tendency for advertising about products not to be removed from websites, even when no longer available. FINANCIAL LOSSES: EXPERT REPORTS

[50]Both parties obtained reports from experts as to what financial losses accrued to Mr Saunders. Mr Saunders’ expert was Mr Berry, a chartered accountant from Hobsons in Nottingham. The firm’s expert was Mr Butterworth, a chartered accountant with Wheawills in Huddersfield. Mr Berry’s report runs to 81 pages with 91 supporting exhibits, Mr Butterworth’s, to 15 pages with 9 pages of exhibits. There is no question but that both Mr Berry and Mr Butterworth have considerable knowledge and expertise in the field covered by their reports. Both gave evidence.

[51]Both experts agreed a joint statement, dated 14 January 2011. In relation to lost profits, both experts accepted three interpretations of the concept, gross profit, net profit and loss of royalties. Loss of royalties assumed that Inventors Friend negotiated a royalty rate based on sales, a rate which took into account its own loss of net profits and that it had launched the product. Both experts agreed that if a royalty rate of 10% was taken the resulting calculations could be deemed to take into account the set up costs.

[52]In the joint statement both experts accepted that the calculation of any financial losses accruing to Mr Saunders is made difficult by a number of factors such as the short track record of the product in the marketplace at the time the distribution agreement expired; the short period when the product was actually available for sale by Mr Saunders, i.e. only the final 2 months of the 7 months’ initial term; and the value and volume of actual sales achieved by Mr Saunders, in relation to the target levels set out in the distribution agreement. They agreed that any financiallosses would normallybe calculated by reference to future sales of the product, which would encompass sales by Mr Saunders if a loss of profit calculation was appropriate. Alternatively, if the distribution agreement had allowed compensation in the event of the licensing of the product’s intellectual property rights, a calculation of loss of royalty income by reference to sales by the licensee would be appropriate, provided the licensee continued to market the product to independent retailers, as well as via the internet. If a royalty basis was appropriate, the expertsagreed that an average royalty rate, including set-up costs, in the range of 5% to 10% would be reasonable, based on their experience of other similar arrangements.

[53]Mr Saunders’ expert, Mr Berry, took the view that it was not possible to project an actual loss of sales, since there was no financial information regarding sales since the termination of the agreement. The only evidence of invoiced sales available was for the period 25 February to 22 April 2004. Thus his calculations of the projected loss of net profits and royalty income was by the extrapolation of the results of investigative work carried out into the number of visits made by Mr Saunders’ salesman to independent retailers, the number of orders obtained in relation to the number of visits, and the actual sales invoiced in the period 25 February to 22 April 2004. The calculation related to projections of sales in the south of England area.

[54]Thus Mr Saunders’ sales manager, Mr Walker, was successful in gaining, in the grab adhesive market, 70 sales from 552 visits to independent retailers over a period of 63 days, with a value of approximately £11,000. Had Mr Walker been able to continue with his visits to independent retailers, then based on his success rate of one customer in every eighth visit he should have built up a customer base of 469 customers, from a potential customer base of 3,750 independent retailers in the designated area. With the apparent availability of a suitable tile adhesive from around the end of March 2004, the commercial viability of the product should have been enhanced. Furthermore, during that 2 month period, no effort was made to target internet sales. Mr Berry’s calculations were based on the known costs of production and packaging and of the sales force, motoring expenses, and other estimated overheads. He was unable to assess the impact of future internet sales.

[55]On this basis Mr Berry calculated the anticipated loss of profits for Mr Saunders for the three year period 1 May 2004 to 30 April 2007. With one salesperson, and customers re-ordering on a monthly basis, profits would be £686,787. (With re-ordering on a 2 monthly basis the amount would fall to £271,010). With two salespeople, and customers re-ordering on a monthly basis, the figure would be £719,602. (Again that would fall with customers re-ordering only every 2 months to £247,911).

[56]With the same assumptions Mr Berry also calculated loss of royalty income, for a 3 year period ending 30 April 2007, a 5 year period ending 30 April 2009, and a 10 year period ending 30 April 2014. Assuming a ten percent royalty rate, 2 salespeople selling the product, with monthly re-ordering, and a success rate of one order for every 8 visits, the figures for those periods would be £171,538, £327,346 and £842,241 respectively. Assuming 2 salespeople, with bi-monthly re-ordering, the figures would be £86,287, £163,096 and £417,155 respectively.

[57]Leathes Prior’s expert, Mr Butterworth, believed that Mr Berry’s assumptions in relation to future sales levels were unrealistic. Notwithstanding the conflicting evidence about the future viability and prospects of the product, he considered that the assumptions and extrapolations were overly optimistic. He identified a number of points including the unproven track record of the product; the limited experience of Mr Saunders in selling, marketing and developing it; the very short actual selling period involving Mr Saunders; the actual sales values and volumes achieved by Mr Saunders, compared to the distribution agreement sales targets; the apparent difficulties experienced by Plasplugs in selling the product; the existence of significant levels of apparent surplus stock of the product in around April/May 2004; and the recent research indicating that the product was not as widely available via the internet as suggested by Mr Saunders. In short, Mr Butterworth did not consider that there was satisfactory evidence available on which to base realistic sales-related loss calculations. He considered that any lost sales and consequential lost profits or royalties were likely to have been nominal in value terms.

[58]In submissions before me on behalf of Mr Saunders, Mr Butterworth’s report was vigorously criticised. As to his first point it was said that both experts accepted that the product had an unproven track record, yet that did not prevent Mr Berry from undertaking calculations. Mr Butterworth did not seem to agree that a popular product would “fly off the shelves”, whatever the length of its track record. The second point – the criticism of the limited experience of Mr Saunders in selling, marketing and developing the product – was met because Mr Saunders was not himself selling the product, but had a professional salesperson to do so. He was not developing the product and had really done all that he reasonably could have to market the product. The very short actual selling period – the third point – was a reality with which both experts had to grapple, as was the fourth point, the actual sales values and volumes achieved, compared to the distribution agreement sales targets. The apparent difficulties experienced by Plasplugs in selling the product, Mr Butterworth’s fifth point amounted, in his evidence, to difficulties with the adhesive but Mr Turner, also called in fact by Leathes Prior, stated that there were no difficulties with adhesive.

[59]The existence of significant levels of apparent surplus stock of the product around April and May 2004 – the sixth point – was explained by the fact that Mr Saunders had been asked to stop selling it in April 2004. Mr Butterworth accepted that the stock could have been transferred to Linbrooke but seemed to think it was a rather large amount. That was a volte face. On the one hand the complaint was that insufficient products were sold; on the other that there was too much stock available. The seventh point, that the product was not widely available on the internet, had to be seen against a backdrop of conflicting evidence. Mr Berry had found more websites selling the product. In any event the internet searching had been undertaken seven years on from the events of April 2003 and must be set against Mr Berry’s firm view that Mr Saunders had the correct approach in that the product should be sold by direct sales, not through the internet. The fact was that the product was still being sold, albeit that Mr Berry’s investigation had revealed that current sales were through the internet. THE RETAINER AND ITS BREACH

[60]At the outset it is necessary to identify the terms of the retainer between Leathes Prior and Mr Saunders. That sets the extent of the firm’s duties to Mr Saunders. Its duty of care must be related to what he instructed the firm to do. Contrary to the recommendation of the Solicitors Rules of Practice there was no letter from Leathes Prior to Mr Saunders setting out the ambit of the retainer, specifically, what would be covered for the fee agreed. Thus it is necessary to construct the terms of the retainer from the circumstances of Mr Saunder’s dealings with the firm.

[61]Features of the context have some bearing on this exercise: see Carradine Properties v DJ Freeman & Co (1982) [1955-1995] PNLR 219, [12-13], per Donaldson LJ. To my mind the first in this case is that Mr Chadd held himself out as an expert in commercial and intellectual property law issues, the subject matter of the distribution agreement on which he was to assist. Mr Saunders professed to have experience and expertise in assisting inventors get their products into the marketplace. There was no reason for Leathes Prior to doubt that claim, although I cannot see how the firm could attribute to him too great a degree of sophistication, given the initial offer of £150 for legal advice, and what Ms Morgan described as his inconsistent use of terminology. Secondly, Mr Saunders kept the commercial dealings to himself. The only time Mr Chadd came into contact with the other side was when Mr Semain transmitted documents. Negotiations were for Mr Saunders, not the firm.

[62]Directly relevant is what Mr Saunders and Mr Chadd specifically said as to the character of the legal assistance to be provided. Mr Saunders was clear in his initial email of 9 September 2003, that he wanted Mr Chadd to “look over” the agreements and to discuss “certain key issues”. He identified as his “own concern” what has been identified as the loss of profits issue, that he could expend effort and resources in the initial period of 7 months and then be left “high and dry”, apart from the return on the sale of the intellectual property rights. With the fee of £500 eventually agreed, Mr Chadd made clear that the firm could only briefly review and comment on the terms of the agreement but not draft or make detailed inquiries, for example, as to ownership of the intellectual property rights. Then in his email of 19 September 2003 Mr Saunders described his “biggest area of concern”, that after 7 months of hard work he might not obtain adequate compensation. He highlighted for Mr Chadd that the “sub-agreement” dealing with the intellectual property rights should ensure that he receive 5% /7½% of the net/gross profits on their “sale or use”. Moreover, there was the need to ensure that he could extend the 7 months’ initial period if the 80,000 monthly sales target was met.

[63]Given that context, did Leathes Prior fulfil its legal duties? In other words, did its Mr Chadd devote to Mr Saunders’ affairs that reasonable care and skill to be expected from a normally competent and careful practitioner? Specifically, did he ensure that the key areas of concern to Mr Saunders were addressed in the draft distribution agreement? There is no doubt that the firm introduced some important protections for Mr Saunders into the draft which he presented to them in the first part of September 2003. For example, in the final version of the Leathes Prior draft, sent to Mr Saunders with the covering letter of 3 October 2003, clause 5.1 provided that if Mr Saunders reached the 80,000 monthly sales target in the initial 7 months period, he could opt for a 5 year distribution agreement. That was a clear advance in Mr Saunders’ rights from the original draft presented to the firm, and in accordance with his instructions. In fact Mr Saunders abandoned that clause for commercial reasons in the final stage of the negotiations.

[64]However, Mr Saunders’ case that Leathes Prior failed in its duty to him turns primarily on the loss of profits and the intellectual property rights issues. From the outset Mr Saunders identified the loss of profits issue as a major concern, that he should not expend effort and resources for the initial period of 7 months and then receive nothing. It was in the initial email of 9 September his “own concern”, in his 19 September email his “biggest area of concern”, and in his email of 23 September something which was “unsatisfactorily” in the available draft. As Mr Saunders put it, he did not want to be left “high and dry” financially if the distribution agreement was revoked at the end of the seven month term, apart from the payment for the intellectual property rights under the sub-agreement. The essence of Mr Saunders’ concerns was the maximising of the rewards that his company would obtain. On that basis Mr Chadd introduced into the agreement what became clause 5.2, dealing with loss of profits. In the final draft, which the firm sent Mr Saunders under cover of the 3 October letter, that clause gave him anticipated lost profits for 3 years following termination.

[65]That was all well and good. However, when the agreement was sent to SSIL in October 2003 it introduced the modifications described earlier: first, clause 5.2 was made “Subject to clause 6.1”, the termination clause, which turned on Mr Saunders achieving the 3 months, £45,000 figure for orders; and secondly, the entitlement was to anticipated lost profits “agreed by the Company [i.e. SSIL]”. Mr Saunders’ case is that Mr Chadd failed to advise that these last minute amendments rendered impossible his chances of obtaining any loss profits. It is also said that Mr Chadd failed to notice that the terms of the distribution agreement excluded it from obtaining any loss of profits should damages be found to be at large.

[66]As far as the first SSIL amendment is concerned – in effect making the payment of anticipated lost profits turn on Mr Saunders’ meeting the orders target – any allegation that Mr Chadd was negligent for failing to advise Mr Saunders falls by the wayside in the light of Mr Saunders’ own 27 October 2003 email, and his evidence, that he understood its impact. As to the second amendment, that the compensation was to anticipated lost profits “agreed by the Company”, there was some argument before me as to whether this phrase constituted an “agreement to agree” or meant simply that the level of compensation payable was subject to the reasonable agreement of SSIL. In my view the latter is the correct interpretation. However, there is no need for me to decide the issue because of my earlier finding, that Mr Chadd informed Mr Saunders in the 28 October telephone conversation of how his position was weakened by the SSIL amendment. Whether or not Mr Chadd had even thought which of the “agreement to agree” or “reasonable agreement” interpretations was the better view, the evidence is that he told Mr Saunders that it was a retrograde step, since the agreement of the company was essential to reaching the anticipated lost profits figure.

[67]In fact clause 5.2 never had any purchase in the circumstances, since it only operated in the event of termination of the agreement by SSIL under the provisions of clause 5.1.2 or clause 6.1.2. There was no question that clause 5.1.2 could apply, termination by SSIL by one month’s notice after expiry of the initial 7 month’s term. What of termination under clause 6.1.2? On 30 June 2004 SSIL sent the letter purporting to terminate the agreement under that clause. In my judgment, however, the agreement had been terminated before that, under ordinary principles of contract law, as a result of the repudiation by SSIL, and the acceptance by Mr Saunders of that repudiation.

[68]Initially Mr Saunders’ case was that the agreement was terminated by repudiatory breach when Mr Saunders was told to stop selling the product around 14 April 2004. At the hearing I allowed an amendment to Mr Saunders’ case to enable him to refer to a “purported” termination of the contract by the letter of 30 June 2004. In my view the true position is that initially advanced by Mr Saunders: SSIL repudiated the contract when they told Mr Saunders not to sell the product. Mr Saunders did not immediately accept that repudiation because, as he explained, he wished to await what he understood were negotiations with Linbrooke, which proposed to invest £10 million in the business. He could see the advantages of that and so respected the inventors’ wishes. However, Mr Saunders did accept the repudiation before the 30 June 2004 letter from SSIL purporting to terminate the agreement under clause 6.1.2, at the latest when he agreed to accept the £125,000 offer on 28 April 2004.

[69]So Mr Saunders’ claim for damages were at large. The damages would have been decided on ordinary principles. Mr Saunders’ case in this regard is that he is entitled to damages against Leathes Prior because Mr Chadd did not advise him on how clause 12.1 adversely affected any loss of profits claim should damages be at large. It is said that Mr Chadd did not advise that clause 12.1 prevented the operation of both clauses 5.2 and 5.3. In my view no such advice on clause 12.1 was necessary because clause 12.1 did not have the effect contended. That clause did not exclude claims for the payment of sums provided for under clauses 5.2 and 5.3. The opening words of clause 12.1 provide specifically “Except as expressly provided in the Terms”. I do not read “terms” in the narrow way contended for by Mr Saunders, but as a reference to other terms of the contract, including clauses 5.2 and 5.3.

[70]That leaves the intellectual property rights issue. Clause 5.3 provided for the consequences of SSIL “selling” those rights. Mr Saunders makes two primary criticisms of that clause. First, it assumes that the company owned the intellectual property rights to sell and that Mr Chadd failed to make any inquiry as to where the rights lay. If he had done so he would have discovered that although the design rights were in the company, the patent rights were still with Mr Spencer, as the inventor. The latter were the crucial intellectual property rights, a point confirmed in Mr Turner’s evidence, who Mr Saunders accepts has much commercial experience in the area. If Mr Chadd had made enquiry, having discovered Mr Spencer’s ownership of the patent rights, he would then have enquired as to whether there had been an assignment of those rights to the company. Failing that, it would have become necessary to make Mr Spencer a party to any agreement. In failing to do that Mr Chadd substantially reduced the value of any sale or licensing benefits that may have accrued to Mr Saunders.

[71]In my view Mr Chadd did not fall short in failing to make enquiry about the ownership of the intellectual property rights. From the outset the retainer was narrow in ambit, to “look over” the contracts, with an eye to the “certain key areas”. In evidence before me Mr Saunders said that he was just wanting comments. On the other side of the equation was Mr Chadd’s explanation to Mr Saunders that, for £500 as the budget, he could only spend limited time on the matter and could not consider wider issues, including ownership of the intellectual property rights. Secondly, there was Mr Saunders himself, someone whose claim about bringing inventors’ products to market there was no reason to question. A person with that background could be expected to know the importance of where ownership of the intellectual property rights lay. Thirdly, my conclusion on Mr Saunders’ evidence is that he gave no instructions to Mr Chadd to consider whether SSIL owned all the intellectual property rights or to consider whether any others should be made parties to the agreement. Finally, there were a number of occasions when Mr Saunders said or implied to the firm that SSIL was the inventor and owned the intellectual property rights. Mr Chadd never saw Mr Saunders’ June 2003 draft, which named Mr Spencer, the inventor, as the other party, not SSIL, and which would therefore have suggested otherwise.

[72]The second criticism Mr Saunders advances of clause 5.3 is that it was defective because it was confined to the sale of the intellectual property rights and did not encompass their licensing. As described earlier in the judgment, in his communications with the firm Mr Saunders regularly referred to the protection accruing should the intellectual property rights be “sold”. That was 5 % of the price sold, 7½ % should Mr Saunders introduce the purchaser. Initially that protection was in the additional sub-agreement which Mr Saunders had sent to Mr Chadd. Mr Chadd incorporated it into the distribution agreement as clause 5.3. That clause, as drafted by Mr Chadd, was confined to sale and did not extend to the licensing or other disposition of intellectual property rights. In June 2004 the intellectual property rights were licensed, not sold, to Plasplugs, so clause 5.3 had no purchase.

[73]On behalf of Mr Chadd it is said that he was not in breach of duty to Mr Saunders. Mr Saunders never mentioned, and never gave specific instructions, regarding the licensing of the intellectual property rights. The only exception was the reference to the “sale or use” of intellectual property rights in the 19 September 2003 email. Mr Chadd’s evidence was that he understood the use of the phrase “sale or use” in that email in the context of other conversations and discussions and therefore thought it meant sale. Mr Chadd also underlined the nature of the retainer, where he was not negotiating with the other side but, apart from the emails from Mr Semain, was simply receiving information from Mr Saunders about the situation. Moreover, it is submitted on his behalf, that Mr Saunders had various opportunities to raise the sale issue, but chose not to do so: when he was commenting on SSIL’s proposal, which envisaged payment only on a sale of rights; in reacting to Mr Chadd’s letter of 3 October 2003, which stated that the draft agreement provided for a payment to the claimant “in the event that the company sells” the rights; and in commenting on SSIL’s amendments on 27 October 2003, about which Mr Saunders said “in the event of a sale of the intellectual property I will only be entitled to 5% etc and not options. I am ok with this.”

[74]In my view this simply will not do. Any commercial lawyer knows the nature of transferring interests in personal property. Thus goods can not only be sold but can be disposed of by way, for example, hire. To cover the disposition of goods comprehensively commercial lawyers know that the term “supply” is used. Similarly with the disposition of intellectual property rights. In his evidence Mr Chadd acknowledged that intellectual property rights are disposed of by way of assignment. It is but a short step to recognise the disposition of intellectual property rights by means of licensing. That is not a matter on which Mr Chadd needed instructions: the antennae of any commercial lawyer, especially one claiming expertise in the area of intellectual property law, should have been alert to the issue, almost without thought. However narrow the retainer with Mr Saunders, in my view Mr Chadd, in “looking over” the agreements, should have seen the limitations in the use of the word “sale” and should have inserted in the relevant clause language covering licensing. It may have been that Mr Chadd was misled by Mr Saunders’ references to “sale” and by the comment in his 27 October 2003 email, that he was “okay with” the fact that payment was triggered by “sale”. But in the exercise of professional judgment a solicitor will be alert to risks which may elude the intelligent businessperson and must act on that knowledge: County Personnel (Employment Agency) Ltd v Pulver

[1987] 1 WLR 916

, 922D, per Bingham LJ. The fact is that there was a breach of duty in this regard in the incorporation of the sub-agreement as clause 5.3 of the distribution agreement.

[75]Moreover, the drafting of clause 5.3 in the agreement fell short because of the way its coverage was narrowed in the process. (There is no directly pleaded allegation on this point but it was raised at the hearing. In the event, it does not affect the outcome of the case). The original text contemplated the words “if and when” the intellectual property rights were sold. In Mr Chadd’s final version the rights had to be sold by the date of termination of the agreement. The effect was that for Mr Saunders to benefit, SSIL had to sell its rights at or before the termination of the agreement and not after it, a highly unlikely event if the agreement lasted only 7 months. The version of the agreement Mr Chadd submitted to Mr Saunders in late September 2003 referred to Inventors Friends’ rewards being taken “before or concurrently with the termination of the agreement”. However, in his 3 October letter Mr Chadd suggested to Mr Saunders at point 9 that he should determine how many months after termination of the agreement he wanted to obtain the rewards from the sale of the intellectual property rights by SSIL. It would appear that this was not subsequently pursued. Having raised the issue Mr Chadd should not have regarded this as a matter for Mr Saunders in which he had no input. The matter should have been pursued during the telephone conversation which took place on 27 October 2003, since it was flagged up in the 3 October letter.

[76]My assessment of what occurred is that Mr Chadd was boxed in by the budget of £500 agreed by Mr Saunders. He was also on the back foot since Leathes Prior was not involved in negotiating with the other side; Mr Saunders kept that aspect firmly to himself. Unfortunately Mr Chadd set the budget for the review of the two agreements without seeing them. Mr Saunders’ original figure of £150 was fantasy, but Mr Chadd then agreed to a considerable underestimate. The amount of work the firm needed to undertake was patently in excess of the budget, as recognised in Mr Barlow’s email of 5 July 2004. What Mr Chadd should have done was to identify to Mr Saunders, on receipt of the drafts, that this was a complex area and revised his initial budget. A leading commentary on this area of law concludes that, despite suggestions that low priced legal services should attract a lower standard of care, the point remains undecided: M Simpson (ed), Professional Negligence and Liability, London, Informa, para. 9.1.24. In my view where solicitors undertake work at a specific fee they are “generally speaking” obliged to complete the work, to the ordinary standard of care, even if it has become unremunerative. Before me it was not submitted otherwise. Thus Mr Chadd was required to do everything that a solicitor in his position should reasonably have done to ensure that the client’s interests were properly protected. Unfortunately he did not do so when he incorporated the sub-agreement into the distribution agreement as clause 5.3. CONSEQUENCES OF BREACH

[77]Mr Saunders’ case on causation was that, but for the breaches alleged, Inventors Friend would have had a chance of entering into an agreement with SSIL, the wording of which would have enabled it to recover substantial compensation given what occurred in April 2004. Leathes Prior contended that whether or not Mr Chadd had acted in accordance with his duty, the outcome would not have been any different. It is submitted, firstly, that Mr Saunders would not have acted any differently. His evidence was that in October 2003 his financial situation was one of concern. He was anxious to consummate the deal and to start selling the product because he believed that large sums were to be made. That was evident in the targets he accepted when he signed the agreement, targets which he conceded in evidence were essentially guess work. Coupled with that, it is submitted, was Mr Saunders’ willingness to concede major points. For example, there was the amendment of clause 5.1 in the final round of negotiations when he relinquished the right to the proposed 5 year contract following a successful initial 7 month. There was also the amendment to clause 5.2, making the right to loss of profits subject to clause 6.1, which on his evidence he understood and was prepared to accept, albeit reluctantly.

[78]Further, Leathes Prior contended that SSIL would not have agreed to any different terms in the distribution agreement. They consistently demanded concessions. Even where Mr Saunders says he put up resistance, SSIL prevailed. It is said that that is obvious from the course of the negotiations. Thus clause 10 of Mr Saunders’ June 2003 draft agreement contained a right of Inventors Friend to receive a payment if the intellectual property rights were sold “outright or under license”. When Mr Saunders tabled that agreement, the inventors said that they were unhappy with it. The draft sub-agreement which Mr Semain forwarded to Mr Chadd envisaged payment on sale only. Finally, on Mr Saunders’ own evidence, the inventors might want to exit from the agreement within a short period. That would militate strongly against their agreeing to terms increasing his right to compensation on termination.

[79]In my view whether Mr Saunders would have acted differently has no bearing on the intellectual property rights issue (albeit that it would have been relevant to the loss of profits issue, had I concluded that Mr Chadd had been in breach of his duty in that regard). What should in my judgment have occurred was that when Mr Chadd introduced the terms of the sub-agreement as clause 5.3, he should immediately have identified the limitations of the word “sale”, and added appropriate phraseology to cover disposition by way of licensing (“the licensing point”). Moreover, Mr Chadd should also have retained the coverage of the original sub-agreement, which applied “if and when” the intellectual property rights were sold, when he incorporated it as clause 5.3 of the agreement (“the coverage point”). For some reason the final Leathes Prior drafting of clause 5.3 was confined to sale of those rights before or concurrently with the termination of the agreement. In his 3 October 2003 letter, Mr Chadd highlighted at point 9 that Mr Saunders would need to identify how many months after termination of the agreement clause 5.3 would be triggered, but that would have been unnecessary if he had simply incorporated the coverage in the sub-agreement which Mr Semain had forwarded. So clause 5.3 should have been drafted in acceptable form, without any input from Mr Saunders.

[80]The question then becomes whether SSIL would have agreed to these different terms if Mr Chadd had introduced them in his drafting of clause 5.3 of the distribution agreement. Since this depends on the acts of a third party, SSIL, it has to be assessed on a loss of a chance basis. Allied Maples v Simmons & Simmons

[1995] 1 WLR 1602

CA is the leading decision: under it Inventors Friend must demonstrate that there was a significant chance, which could be less than likely, that SSIL would have agreed to clause 5.3 in these different terms.

[81]In my judgment Inventors Friend has little difficulty in establishing its case in this regard. The licensing point was in one sense a technical legal issue. Intellectual property rights are typically licensed. Had Mr Chadd introduced the licensing of intellectual property rights into the drafting of what became clause 5.3, it would have been difficult for the inventors to resist it, without making a mockery of their pretensions to offer Mr Saunders some protection should they bow out. Essentially this was not a matter for commercial negotiation, by contrast with the entitlement to a 5 year contract should the initial 7 month period be successful. In my view there was a significant chance that SSIL would have agreed, and that chance should be rated at 90 percent. So, too, with coverage. Since Mr Semain’s sub-agreement gave Mr Saunders protection against the disposition of the intellectual property rights “as and when”, there could have been no objection on SSIL’s part if Mr Chadd had retained that coverage in his drafting of clause 5.3. It was Mr Chadd’s drafting which reduced the coverage. In my view there was a 90 percent chance of SSIL agreeing to the coverage which they, after all, had originally proffered. RECOVERABLE LOSS

[82]But for the breach by Leathes Prior in its defective drafting of the distribution agreement, clause 5.3 would have been triggered, not only in the event of the sale of intellectual property rights, but also with their disposition through licensing, and not only if this occurred before, or concurrently with, the termination of the agreement, but also for a period following that termination. Thus clause 5.3, as it should have been drafted by Mr Chadd, would have been triggered on the licensing of the span applicator to Plasplugs in June 2004, even though the contract was terminated before that when Mr Saunders accepted the SSIL repudiation.

[83]The issue then becomes how Inventors Friend’s loss is to be calculated given that clause 5.3 should have been drafted differently. To my mind the question becomes what Inventors Friend would have been entitled to if the clause had been in its proper form. There is no need, as Mr Berry did, to engage in complex calculations about what royalties would have accrued to Inventors Friend by extrapolation from what Mr Saunders had been able to achieve during the February-April 2003 period. The reality is that we know what happened. Mr Berry’s elaborate calculations assuming one and two salespeople, re-order rates monthly or bi-monthly, and a success rate of a sale from one in eight visits are beside the point. The reality is that SSIL licensed the product to Plasplugs. If the clause had been properly drafted Inventors Friend would have been entitled to a payment measurable at 5 percent of what was due from Plasplugs.

[84]But Plasplugs paid SSIL nil consideration to license the product. Further, as Mr Turner explained in his evidence, despite the considerable effort and resources expended by Plasplugs on marketing the product, sales were insignificant, the product was a failure and therefore nothing further was payable to SSIL. This was despite the experience and success which Plasplugs had in the DIY market. Plasplugs attempted sales of the product through major DIY stores. It is simply not the case that Plasplugs sold the product only on the internet. Inventors Friend would therefore have suffered only a nominal loss, given the paucity of sales, even if clause 5.3 had been in the form it should have been had Mr Chadd drafted it properly.

[85]Admittedly, the product is still advertised on the internet. But the survey of internet sites undertaken by both experts gives no indication of its widespread availability. I accept Mr Turner’s evidence that there is a sharp difference between DIY products being advertised on the internet and their actual availability. Mr Saunders’ own expert, Mr Berry, found that despite DIY websites indicating that the product was for sale, when they were approached it tended not to be in stock. Mr Saunders’ one-off purchase of 2 Plasplugs starter kits from an internet store based in Dudley is no evidence of the product’s widespread availability at the present, or the immediate past. There was no evidence before me to suggest that, contrary to Mr Turner’s evidence, the product was a success after it was licensed to Plasplugs.

[86]Also raised on Mr Saunders’ behalf, given my findings on clause 5.2, was a claim for damages for what was said to be the repudiatory breach of contract by SSIL. But if there was repudiatory breach, and Mr Saunders would have had a claim against SSIL for lost profits, it would have been lost profits until the agreement could have been lawfully terminated. In fact that claim can only be advanced against Leathes Prior if there was some breach of duty on its part which thwarted the claim. On Mr Saunders’ case the only relevant failure was that Mr Chadd did not advise him of the shortcomings in clause 12, the limitation of liability clause. I have already rejected that contention.

[87]For completeness I note that Mr Saunders’ claim for start up costs fails. That is because those costs would have been incurred despite the various breaches I have found on the part of the firm in the drafting of the intellectual property rights clause. CONCLUSION

[88]My conclusion is that the firm was in breach of duty in its drafting of the distribution agreement as regards the failure to cover licensing of the intellectual property rights, whenever occurring, but not as regards advising on the so called loss of profits clause. Although at one point the firm suggested that any drawbacks in the distribution agreement were because of the low budget the claimant set for the work, that was quite properly not advanced before me. When solicitors undertake work at a specific fee, they are generally speaking obliged to complete it exercising the ordinary standard of care, even if it has become unremunerative. However, the defects in the intellectual property rights clause did not cause the claimant any loss. Absent the defects, the clause still geared the claimant’s return to 5 percent of the price received or due to the inventors’ company from the licensee. Because of the overall failure of the product in the marketplace, only nominal sums were due from the licensee. Thus amounts payable to the claimant were only ever nominal. That was the position the claimant accepted from the outset and had nothing to do with the defendant’s breach of duty. I dismiss the claim.

Cited in 1 later judgment

Spire Property Development LLP & Anor. v Withers LLP 2022