Passing off
Case Note: Excavation &
Contracting (UK) Ltd. v Excavation & Contracting Ltd. and others
Yatoni Cole Wilson
2 Jan 2003
This case note originally appeared on the NIPCLAW website
This was a passing off case but one
with rather unusual facts. It required the court to consider precisely
what is meant by goodwill, how it may be acquired and indeed
whether it may transfer from a company in liquidation to a new company
formed by the person behind the old company to carry on its trade. These
are issues upon which there was precious little authority. As this
country's economy appears to be heading
towards recession the circumstances that gave rise to this litigation
are quite likely to recur perhaps with depressing frequency.
The Facts
This was a dispute between two demolition and excavation contracting companies, each of which included the words "Excavation & Contracting" in its name. The businesses carried on by those companies had been started by two brothers called Bernard and Gerard O'Sullivan. The brothers had worked together in the building trade since 1962 and had set up a company called "Excavation & Contracting Co. Ltd." ("ECCL") in 1994. ECCL was eventually wound up. Bernard went to live in the USA. Gerard carried on contracting through a company called Excavation & Contracting (Northern) Ltd. ("Northern"). Bernard returned to the UK in the mid-1980s and set up a similar business in the name of Excavation & Contracting (Midlands) Ltd. ("Midlands". In 1988 he formed the claimant, Excavation & Contracting (UK) Ltd. ("UK"), and transferred to it Midlands' undertaking.
For several years Northern and UK
coexisted in the same industry and locality. Occasionally problems arose
and solicitors' letters were sent but neither side took proceedings
against the other. Towards the end of 1997 Northern failed and went into
creditors' voluntary liquidation. At about the same time Gerard became
ill and decided to retire. A few years before Northern failed, Gerard
had set up another company called
Windmill Demolition Co. Ltd. ("Windmill"). Gerard transferred his
shares in Windmill to his nephew, Adrian Kelly ("Adrian"), and
introduced him to his connections. In order to preserve Northern's
goodwill Adrian set up Excavating & Contracting Ltd. ("ECL")
in January 1998. From the beginning of 1998 Adrian was the sole
executive director of Windmill and ECL. Windmill and ECL traded from
premises formerly occupied by Northern and took over Northern's
telephone numbers. Adrian arranged with Northern's liquidator to
forward invitations to tender addressed to Northern. Windmill and ECL
also acquired the bulk of Northern's employees. As a result of those
efforts, some 119 of Northern's customers invited Windmill to tender for
their business.
UK found itself competing with Windmill and ECL for business several
times between 1998 and 2000. On the first occasion Adrian collected
tender documents that were intended for UK. Upon discovering the mistake
he delivered them to UK. Confusion arose on two other occasions but the
mistakes were put right and the employers quickly became aware of the
identity of two separate companies. UK lost work on one
occasion but only because its tender was too high. UK consulted
solicitors who issued a letter before action on 28 June followed by
proceedings on 14 July 2000. By its claim, UK sought injunctions,
damages and other relief not only from ECL but also against Windmill and
Adrian.
The Issues
The issues before the judge were:
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whether the right to trade in the name or style "Excavation & Contracting" perished with Northern or whether Gerard was entitled to pass it on to Adrian; and
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if not, whether Adrian was personally liable in his capacity as a director of Windmill and ECL.
His Honour noted that there was
really no issue as to the likelihood of some instances of confusion
between the two sets of companies both using the name "Excavation &
Contracting". Indeed he thought it was obvious, not least when they
were both called O'Sullivan and had originally been carrying in business
under that name together and thereafter through their respective
companies. He also noted that the parties were dealing with professional
or commercial concerns which were likely to take care as to the identity
of the contractors they engaged. Consequently, the few mistakes that did
occur were quickly cleared up. The judge could find no evidence that the
defendants had tried to misrepresent themselves as the claimant. On the
contrary, they stressed their connection with Gerard and were at least
as concerned as the claimant to avoid
confusion and correct mistakes as soon as they occurred. ECL contended
that any goodwill attached to the trade name "Excavation &
Contracting" belonged to
Northern and not to Gerard. The right to use that name lapsed when
Northern was wound up because the business connected with that name
ceased and was abandoned. The defendants replied that they inherited
Northern's goodwill and no less entitled to use the name than Northern
had been.
Judgment
The
judge found for the defendants. UK's right to use the name "Excavation &
Contracting" had always been a shared name and that did not change when
Northern went into liquidation. In the learned judge's view, it was not
necessary for the transfer of a business or for the transfer of the
goodwill of a business that the whole of the assets be transferred. That
was because some of the assets used in a business or forming part of its
goodwill may not belong to the company at all. Just as ECL and Windmill
were able to use the plant and premises that had been used by Northern
because those assets belonged wholly or in part to Gerard, they also
acquired Northern's goodwill in that they were associated with Gerard
who had originally
generated that goodwill.
His Honour noted that no attempt had been made by the liquidator to carry on Northern's business in order to sell it as a going concern. He simply realized the assets, collected the debts and distributed the proceeds in accordance with the Insolvency Act 1986. 4 Referring to Lord Macnaghter's well known observation in IRC v Mullers Margarine [1901] AC 217 that "goodwill is composed of a variety of elements", the learned judge found the elements of Northern's goodwill to consist of
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first and foremost in the reputation of Gerard in respect of his company; |
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Northern's staff and workforce; |
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the customer connections established by Gerard and his staff; |
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the address and telephone numbers to which business communications and invitations to tender, in particular, could be sent; and |
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the continuing flow of business coming in the form of such invitations. |
The
name "Excavation & Contracting" was the label or badge to which that
goodwill was attached. The defendants acquired that goodwill lawfully
and properly through the persons of Gerard and Adrian bringing their
customer connections and knowledge of the market occupying Northern's
premises and acquiring its telephone numbers. Northern's liquidator did
nothing to prevent the defendants from acquiring Northern's
goodwill and, indeed, insofar as some of those elements (namely the
invitations to transfer) were the property of the company and within his
power to dispose, he transferred them to the defendants. It therefore
followed that the defendants were entitled to represent themselves as
having succeeded to the business of Northern and were therefore entitled
to share the "Excavation & Contracting" name.
Although he preferred to base his judgment on the transfer of goodwill, Judge Maddocks did not exclude as a ground for dismissing the claim the dictum of Lord Simmonds in Office Cleaning Services v Westminster Window and General Cleaners (1946) 63 RPC 39, 43 that where a trader adopts words in common use for his trade name, some risk of confusion is inevitable and in order to prevent unfair monopolization of the words the court will accept comparatively small differences as sufficient to avert confusion.
Although not strictly necessary for his judgment, the judge said that he would have held Adrian liable as a tortfeasor had he found a valid claim because he had arranged for ECL's incorporation for the purpose of using the contested name.
Comment
This is an interesting case on an issue on which there is scant
authority and it is one that might well have been reported had the trial
taken place in London. However, it showed what can be done in the North.
The parties were each represented by patent silks and juniors and two
leading Manchester commercial law firms. The case opened on time,
proceeded without a hitch and finished exactly within the time estimate.
There were several instances of humour. For instance, in the course of
cross-examining Adrian as to whether he had invited one of the
claimant's employees to work for one of his companies, the claimant's
leader put it to him that it would have been quite understandable to ask
a beautiful young lady to work for him. On maintaining his denial
counsel remarked "and you an Irishman" provoking laughter on all sides.
With any luck Crown Square will be the forum for a great deal more
intellectual property work.
