Licensee awarded £8m following breach of contract

A drinks company has been ordered to pay damages of £8m to a licensee following a breach of contract.

The case involved a dispute over cordial and carbonated drinks.

The parties had an agreement that the licensee could produce and distribute the products in Pakistan for a period of five years.

The licensee spent a lot of time and money preparing to launch the product, including recruiting staff, renting premises and upgrading machinery.

The drinks company then increased its prices and said it would only supply single strength cordial. It later wrote to the licensee offering to negotiate a new contract.

The licensee refused and took legal action, saying that the company had gone back on the contract because of pressure from a larger distributer which also imported the products into Pakistan.

The company said that as the licensee refused a new contract it had failed to mitigate its loss. It also accused the licensee of breaching the original terms by delaying the launch.

The court held that the licensee had not acted unreasonably in refusing the offer of a new contract. The drinks company had waited six months before offering to renegotiate, by which time the licensee had lost all faith that the matter would be dealt with fairly.

It also emerged that the company had actually agreed to the delay of the launch as it would tie in with other products.

As there had been no sales, the loss to the licensee was calculated by the size of the potential market. Evidence suggested that sales would have been very high.

The licensee was therefore awarded damages of 1.36bn Pakistani rupees, which is around £8.1m.

Please contact Clare Jones if you would like more information about the issues raised in this article or any aspect of contract law.