Passing off
Case Note: Dawnay, Day & Co
Ltd and Another v Cantor Fitzgerald International
Jane Lambert
24 June 1999
This case note originally appeared on the Lancaster Buildings website
A problem that arises frequently on the sale of part of the business of a well-known company is the extent to which the purchasers can take advantage of the goodwill of their acquisition. Where the sale is voluntary, a vendor should not derogate from his grant but different considerations apply where the purchasers precipitated the sale.
This was an appeal from the judgment
of Lloyd J restraining the defendant from carrying on a Eurobond dealing
business under the name Dawnay, Day Securities. The owners of the
defendant company had been 50% shareholders and directors of a Eurobond
dealing company called Dawnay, Day Securities which they ran as a joint
venture with the plaintiffs. They resigned from the company to carry on
a similar business for the defendant. Their resignation deadlocked the
board of Dawnay, Day Securities with the result that it was put into
administration with an order for its business to be sold. The former
managers paid £2.5 million for the goodwill of the business including
the right to represent the defendant as carrying on the business in
succession "Dawnay, Day Securities" and the right to use that name so
far as it [was] lawfully able to do so...... However, the administrator
gave no warranty whatsoever as to his ability to authorize the defendant
to trade as Dawnay Day Securities. On the day of the sale, the
plaintiffs obtained an ex parte order restraining the defendant
from trading as Dawnay, Day Securities and announced to the press that a
new company called Dawnay, Day Equities Ltd would carry on a bond
dealing business. The defendant counterclaimed for an injunction to
restrain the plaintiff's new subsidiary from carrying on an inter-dealer
broking business under a style that included the name
Dawnay, Day. Lloyd J. found in favour of the plaintiffs on the action
and dismissed the counterclaim.
Defendant's Arguments
On appeal, the defendant argued that:
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the right to trade as "Dawnay, Day Securities" was an important part of the asset that the former managers had bought and that it would be wrong to emasculate it at the point of sale by hiving it off, and |
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the plaintiffs enjoyed no reputation in the name among bond dealers. |
Judgment
The Court rejected both arguments. The first begged the question whether
a purchaser of a business is entitled to use the name of its vendor if
to do so would constitute passing off. The answer to the second point
was that Dawnay Day was generally well known in financial circles.
Anyone who had heard of the group in other contexts would assume a
connection were the defendant to be allowed to trade under the proposed
name. The ignorance of certain bond traders was nothing to the purpose.
The business that the defendant had bought had been licensed impliedly
to carry on business as part of the Dawnay, Day Group so long as the
joint venture subsisted but once that connection came to an end so did
the licence. The position might have been different had Dawnay, Day
Securities developed an independent reputation to the extent that such
reputation outweighed any misrepresentation of a
connection with the plaintiffs, or had the "Dawnay Day" appellation
ceased to distinguish the plaintiffs, but there was no evidence that
either was so. As for the counterclaim, the Court distinguished between
a representation that the new subsidiary was taking the place of Dawnay,
Day Securities as the group's inter-dealer broker which was true, and
one that it was continuing the inter-dealer broking business formerly
carried on by Dawnay Day Securities, which was not. The press release
announcing the formation of the new company came close to a
misrepresentation but it was qualified sufficiently by the mention of
the asset sale.
Drafting Points
There are two drafting lessons in this case, one on press releases and
the other on franchise or indeed other joint venture agreements. The
press release point is short and self-evident. The announcement released
by the plaintiff group achieved its commercial objective of alerting
clients to the continuation of a Dawnay Day inter-dealer broking service
without misrepresentation or derogation from the sale. There
are lessons to be applied here in other contexts such as the appropriate
announcement to be made when a partnership breaks up or the departure of
a well-known fee earner who is headhunted by a rival firm. The second
point is slightly more complex. While noting that there is no right of
property in a name, only rights of property in the goodwill associated
with a name, the Vice-Chancellor observed that the
right to use an unregistered mark can be, and often is, conferred as a
contractual right. That is the basis of a franchising agreement where
the franchisor grants to the franchisee the right to sell the
franchisors goods and to use for that purpose its name as part of its
trading style. The danger for the franchisor is that "contract apart,
the ex-franchisees ability to continue to use the trading style will
depend upon whether to do so would constitute passing-off. The use of
the style while the franchise lasted may
have had the result that the style has ceased to be sufficiently
distinctive of the business of the franchisor. It may, indeed, have
become distinctive of the business of the franchisee."
It is important therefore to ensure that the point is covered in the
agreement so that all that is ever granted is a revocable licence.
