Who: Nichols plc and Gul Bottlers (Pvt) Ltd
Where: High Court
When: 2 July 2014
Law stated as at: 11 August 2014
Family run Pakistani soft drinks manufacturer, Gul Bottlers (Pvt) Ltd (“Gul”), entered into a licensing and distribution agreement with Nichols Plc in 2011 for the manufacture and distribution of Vimto double strength cordial and carbonated drinks.
Vimto is incredibly popular in the middle-east – especially during Ramadan where sales can represent up to 50% of the annual turnover.
Gul’s 5 year distribution agreement (with an option by Gul to extend for a further 5 years if they have complied with the agreement) in Pakistan was set to be a valuable proposition, but in 2012, just before Gul was ready to publicly launch the products, Nichols plc (“Nichols”) withdrew its licence to Gul for the double strength cordial and increased concentrate prices.
These actions were taken by Nichols after contact with its long-standing distributor Aujan Industries Co. Aujan Industries was Nichols’ largest distributor with a 90 year relationship selling throughout the Middle East.
“Breakdown of trust” argues Gul
Gul’s response was to argue that Nichols had repudiated their contract. Nichols offered Gul a new licence agreement, but Gul declined as it said there had been a breakdown of trust.
In Gul’s subsequent action against Nichols for damages for loss of profits, one of Nichols’ defences was that Gul had failed to mitigate its losses by not taking Nichols’ new licence offer.
The response to this of Cooke J. was clear: Nichols’ treatment of Gul had been “disgraceful” and it had not been unreasonable for Gul to turn down Nichols’ offer of a new licence.
Gul claimed damages for loss of profits for being unable to sell the double strength cordial in Pakistan for 10 years. Cooke J assessed that there had been no breach of contract at the date of the renunciation of the contract and therefore Gul would have exercised its option to renew the initial five year term.
The judgement looked in depth at the soft-drinks market in Pakistan, as well as at Gul’s competitors – such as the only other seller of Vimto in Pakistan – Aujan Industries – who formed the grey market by importing Vimto from Saudi Arabia and Dubai.
The judge concluded that there was clearly an opening in Pakistan for the double strength Vimto product initially licensed to Gul by Nichols.
Despite no formal written business plan being submitted in evidence, Cooke J was also happy to accept that Gul would have been able to undercut the prices of Aujan Industries, by being based within the territory, and it had taken ‘effective steps’ to prepare for production and sales of the double strength cordial and carbonated drinks. These steps included recruiting ‘Team Vimto’ a 10 person strong dedicated sales team and retaining advertising agencies as well as strengthening its infrastructure – therefore putting itself in a position to take over the ‘grey market’ from Aujan Industries.
In conclusion, Cooke J awarded Gul the significant sum of c. £8million (1.4 billion Pakistani rupees) in damages plus up to £1.5million in costs.
Why this matters:
Cooke J took account of Gul’s expert witness’s forensic accounting, market research figures and projected sales of the cordial in coming to a decision on damages. This demonstrates the value of such forecasted data.
Notable is the lack of contradicting data from Nichols and Cooke J followed the ‘fair wind’ principle from Yam Seng Pte Ltd v International Trade Corp Ltd. This lays down that where the defendant’s wrongdoing has caused any uncertainties, it is open to the court to err on the side of the claimant when resolving them. The Judge did this particularly as Gul had in his estimation erred on the side of caution with its forecasting.
In an initial public statement Nichols indicated that it was considering its options for appeal on the quantum (they conceded liability on day 5 of the trial) – so watch this space for an appeal based on the expert evidence.