IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
(His Honour Judge Fysh)
Tuesday, 23rd July 2002
B e f o r e :
LADY JUSTICE ARDEN
MR JUSTICE CRESSWELL
|CLEOPATRA SEAFOODS LTD|
|- v -|
|(1) MR SUKHJINDER SINGH KHERA|
|(2) KTC (EDIBLES) LIMITED|
|(3)INDUS FOODS LIMITED|
|(4) MR SAJJID ALI trading as AZIM TRADING COMPANY|
|(5) MR AZIM ALI trading as AZIM TRADING COMPANY|
Smith Bernal Reporting Limited, 190 Fleet Street,
London EC4A 2AG
Tel: 0171 421 4040
Official Shorthand Writers to the Court)
appeared on behalf of the Appellant.
MR J ABRAHAMS (Instructed by Messrs Williams & Cole, 38-39 Lichfield Street, Walsall, WS1 1UP)
appeared on behalf of the Respondents.
Crown Copyright ©
Tuesday, 23rd July 2002
"Has the claimant's claim against [the first to third defendants] or any part of it been settled by the exchange of letters and undertakings in August -September 1999 and if so, on what terms?"
"... Lucinda drums are the property of [Cleopatra] and no further delivery of these is to be made to any third party without specific instructions from us. Lucinda is a registered brand of Cleopatra."
The letters of 5th July 1999 and subsequent correspondence.
"We understand that our client's products were being misrepresented leading to confusion and indeed deception. The said products are alleged to have been passed off and our client has sustained a loss as a result and indeed has attributed their loss to this unlawful act ... . We therefore have instructions from our client to issue proceedings against you without further ado. We hereby give you formal notice that we require from you in writing by 5.00 p.m. on the 14th July 1999 an irrevocable undertaking that you will not deal in any product whatsoever of whatever nature marked `Lucinda' or any imitation or similar mark. We further require your undertaking and confirmation that you no longer have in your possession any of the offending products. We also require to hear from you in writing by the same date and time, detailed particulars and copies of the invoices of the names and addresses of the people who you have supplied the said offending products with the mark `Lucinda' on it or any imitation and likewise detailed particulars and copy documents showing if applicable who you purchased and acquired the offending products from.
We must make it abundantly clear that unless we receive the aforesaid written undertakings and the information by 5 p.m. on 14th July 1999, then we shall not only issue proceedings against you forthwith but also apply for an interim injunction to be made against you pending the trial of the action for you to refrain from passing off our clients products and for you to disclose and supply the full detailed particulars of to whom you have supplied the products to and also from whom you acquired the product from. We shall also apply for the substantial cost of such an interim application to be paid by yourself.
We also seek production of any such oil that you have in your possession with the Lucinda brand as well as any design, artwork blades or the like. We shall require an indemnity from you as to our client's losses or any potential claims arising as a result. Our client is not guaranteeing the quality or safety of any such oil being sold or supplied.
In addition, it should be noted that even if you give the irrevocable undertaking and the information requested, which our client is in any event entitled to see, we require payment by you of damages [and] of our client's legal costs by virtue of this serious act of passing off."
"Our clients have no knowledge of the matters you referred to in your fourth paragraph. Our clients first became aware of your client as a result of a visit to our clients by West Midlands Police on the 21st April 1999 when a small quantity of metal barrels containing vegetable oil were taken away. You will be aware that the allegation of theft made against our client was incorrect and we caution you from using language such as `deception'. Our clients were first supplied with empty cans by KTC ... in or about January 1999. They were sold to our clients on the basis that they were surplus end of line stock for a company which had ceased to exist. Our client had no knowledge of Cleopatra Seafoods Ltd nor of the use of the word `Lucinda' in connection with the sale of oil. Your client does not have any reputation nor do we believe acknowledged sales in the West Midlands area. Our clients therefore accepted the word of KTC (Edibles) Ltd and were supplied a quantity of drums. As a result of the visit from the West Midlands Police who found that the drums were not `stolen' as had been alleged to them our clients have ceased to seek to order or to supply any such drums and emptied the contents from the remaining drums and repacked the oil contained therein destroying the balance. KTC have agreed to supply credit notes to our client for this.
You do not explain in your letter whether or not the word `Lucinda' is a registered trademark. We assume that it is not. Our client has no intention of purchasing any further drums from KTC ... or anyone else. Nor do they have any intention to offer such items for sale. If you wish this to form the basis for an undertaking then you must draft the words which you seek and we shall take our client's instruction on this.
As to the remainder of your letter we are sure that you are aware that your client has no prospect whatever in the circumstances of obtaining any injunctions against our client. Our clients involvement in this matter is totally innocent and your clients obvious delay throws into question the veracity of some of the comments made in your letter.
You should also be aware that the 20 litre drums which our client purchased from KTC ... retail for £7.99 and have a profit element of between 20p to 30p per can dependant upon the source price of the oil."
"You also refer to criminal investigations, but in actual fact the police have confirmed to our clients the police enquiry carried out at the instance of your client resulted in the police file being closed and the police saying that they had been totally misled by your clients.
Our clients are prepared however to give an undertaking that they will not deal in any edible oil products marked `Lucinda' or any imitation or similar mark, so as to confuse a purchaser.
Our clients are also prepared to undertake that they no longer have in their possession any tin plate or made up edible oil drums bearing the mark `Lucinda'.
Our clients confirm that all tin plate was destroyed at the conclusion of the recent court case between our respective clients and our clients also say they have not sold any drums filled with edible oil marked with the brand name `Lucinda'.
If you would like to let us have a draft undertaking based upon the above we shall take further instructions."
"Thank you for your letter dated the 15th instant of which the contents were duly noted."
"Further to our letter dated the 20th July 1999, we are writing to inform you of the following.
We accept a written undertaking on behalf of KTC/Indus in the following terms;
1.Not to sell or distribute drums marked with the title Lucinda and/or marked with details relating to Cleopatra Seafoods save to Cleopatra Seafoods Ltd;
2.Not to use drums for the sale or distribution of oil marked with the title Lucinda and/or details relating to Cleopatra Seafoods;
3.Not to sell, distribute or to assist or to encourage others to sell or distribute oil products in drums likely to give the impression that the oil is Lucinda and/or manufactured or produced by Cleopatra Seafoods Limited.
It should be noted that the above undertaking is without prejudice to Cleopatra Seafood Limited's right to sue for damages, if so advised, or any other legal recourse, if KTC/Indus is subsequently involved in similar activities to the prejudice of Cleopatra Seafoods Limited, our clients. Kindly take your client's instruction and revert to us as soon as possible."
"Please acknowledge receipt and confirm that the matter is now closed."
"... but [we] cannot at this stage confirm that the matter is now closed. We shall inform you in due course once our investigations are complete."
The issue of proceedings
"3.The First Defendant has been carrying on business supplying drums and/or drums containing oil bearing the name `Lucinda' through Kirby's Refineries Limited and/or the Second Defendant to the Third, Fourth and Fifth Defendants.
3.1The First and/or Second Defendant have passed off and attempted to pass off and caused enabled and assisted others to falsely pass off drums of oil as the Claimant's `Lucinda' oil.
3.2The Third, Fourth and Fifth Defendant have passed off and attempted to pass off and caused enabled and assisted others to falsely pass off drums of oil as the Claimant's `Lucinda' oil."
"(1) Loss of profit to be assessed;
(2)Damages for damage to reputation;
(3) An injunction to restrain each of the defendants ... from passing off ... oil as the Claimant's `Lucinda' oil."
The judgment below
"Mr Abrahams submitted that in view of the undertakings [given by KTC and Indus], the injunctive part of the relief was otiose. Mr Noble accepted this and stated that its inclusion had been inadvertent - though he made no application for appropriate amendment. The present claim, said Mr Noble, was at heart simply for damages, interest thereon and costs -in accordance with what had been stated at the end of the letter before action."
"21. KTC and Indus contend that the sentence in the 2 August 1999 letter meant this: that if they gave the undertakings, Cleopatra could still sue for damages or any other legal recourse, if so advised, but if and only if they the defendants, subsequently became involved in activities similar to those complained of. Mr Abrahams submitted that this was the correct construction both as a matter of syntax and of commercial commonsense.
22. On the other hand Cleopatra contend that on the proper construction of the sentence,
(a) they may still sue for damages in any event, and
(b) If so advised, they could also sue for `any other legal recourse' if the defendants subsequently became involved in similar activities."
"...the words `if so advised' were I think intended to apply to both the `damages' and `any other legal recourse'. The position of the phrase in the sentence may be inappropriate but the intention is clear. In my judgment, the reasonable person in possession of the relevant background information would understand the phrase `if so advised' as applying both to damages and to `any other legal recourse' collectively and would not take the phrase to be a linguistic hiatus between the two. `If so advised' looks forward to a situation which has not yet arisen.
(b) Next, in `or any other legal recourse' one asks: where is the contrast? Obviously with `damages'. In other words, on Cleopatra's construction, should the defendants become involved in `similar activities' in the future, Cleopatra would on such subsequent occasion seek only an injunction, e.g. delivery up as its substantive relief; it would forego any claim to damages, however great the subsequent wrongdoing. This is simply not `business commonsense': seeking damages in respect of this first (and rather modest) passing off, yet not seeking damages on any subsequent occasion whatever the scale of the wrongdoing. The reasonable man, possessed of the background facts, would in my judgment understand the phrase as recording that if KTC or Indus became involved in any `similar activity' in the future, the damages to which Cleopatra might become entitled would encompass not only those arising in respect of the passing off presently under consideration but also those (and other remedies as well) arising on a future occasion.
The reality was that in the light of its past experience, Cleopatra remained suspicious of the defendants (particularly KTC's) future intentions and wished further to safeguard its position. For this reason, I do not believe that Cleopatra's construction is at all realistic.
24.Mr Noble also sought support for his construction on the penultimate paragraph of the letter before action ... . It will be recalled that this seeks to preserve Cleopatra's position with regard to both damages and costs even if the irrevocable undertakings were to be given. I am not impressed by this reference for the following reasons.
(a)This was the `opening shot' of the passing off allegation and as such, is plainly part of the antecedent negotiations which led to the formulation of the mid-1999 undertakings. I should not therefore have regard to it in any event: see paragraph 16(e).
(b)The second point is this: notwithstanding the foregoing, Mr Abrahams suggested that it was odd that if Cleopatra's solicitors were not intending to conclude the matter as a whole by these undertakings, on their construction of the last paragraph of the 2 August 1999 letter, they reserved for the future only the right to claim damages - and not costs. In answer, Mr Noble pointed out that costs are indeed claimed in the relief in this action in the usual way and that that would include the costs involved in extracting the undertakings. I do not believe that either argument much assists me. What I do however consider to be unusual is the fact (previously noted) that no mention of costs (or damages) was raised in the period between the time of giving the undertakings and the commencement of these proceedings.
25.In approaching construction, I have not taken into account either the defendants' solicitors covering letters or Cleopatra's solicitor's letters acknowledging receipt of the undertakings ... . These are all matters which post-date the undertakings.
25.In my judgment, the defendants' contention as to the proper construction and effect of their undertakings best accords not only with the syntax of the reservation contained in the penultimate sentence of the last paragraph of Cleopatra's solicitor's letter of 2 August 1999 but also with the commercial reality of the situation which prevailed at the time the undertakings in their final form [were] given. I have therefore to answer the remaining preliminary question in the affirmative. In my judgment, Cleopatra's claim was settled by the undertakings which the defendants gave in mid-1999."
The appellant's submissions
The respondents' submissions
Analysis and conclusions
"In my opinion, then, evidence of negotiations, or of the parties' intentions, and a fortiori of Dr. Simmonds' intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the `genesis' and objectively the `aim' of the transaction."
(1) In the letter dated 5th July the claimant's solicitors said that, unless they received written undertakings and confirmations and detailed information by 14th July, proceedings would be issued forthwith and an application would be made for an interim injunction. The letter also sought production of any oil with the "Lucinda" brand, as well as any design, artwork, blades or the like. An indemnity was also required as to the claimant's losses or any potential claims arising as a result. The solicitors explained:
"Our client is not guaranteeing the quality or safety of any such oil being sold or supplied."
(2) The letters from the defendants' solicitors in reply dated 13th and 15th July set out what purported to be substantial answers to the claimant's case. Nonetheless, the defendants said that they were prepared to give undertakings, and invited the claimant's solicitors to formulate draft undertakings.
(3) The claimant's solicitor's letters of 2nd August set out the written undertakings which the claimant was prepared to "accept". On any view, the position set out in the letters of 5th July was substantially modified. An undertaking and confirmation that the defendants no longer had in their possession any offending product was not called for. Detailed particulars and information, production of oil and an indemnity were not pursued. The critical issue is the true construction of the sentence:
"It should be noted that the above undertaking is without prejudice to Cleopatra's Seafood Ltd's right to sue for damages, if so advised, or any other legal recourse, if [KTC/Indus] is subsequently involved in similar activities to the prejudice of Cleopatra Seafoods Limited, our clients."
(a) I draw attention to the word "accept" and to the words "kindly take your client's instructions and revert to us as soon as possible". The word "accept" underlines the fact that the demands in the letters of 5th July had been substantially modified.
(b)The use of the word "or" should be noted. It would make no sense if KTC/Indus were subsequently involved in similar activities to the prejudice of the claimant that the claim would be for "any other legal recourse", i.e. excluding damages.
(c)If the claimant was reserving the right to sue for damages in any event, I would have expected far clearer language to be used.
(d) It should be remembered that the sentence in the letters of 5th July relied on by the claimant referred to damages and costs. The critical sentence in the letters of 2nd August makes no reference to costs.
"It should noted that the above undertaking is without prejudice to Cleopatra Seafood Limited's right to sue for damages, if so advised, or any other legal recourse, if Indus Food Limited is subsequently involved in similar activities to the prejudice of Cleopatra Seafoods Limited, our clients."
"The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them."
"In the light of the foregoing, I have found Cleopatra's stated position difficult to understand from a commonsense, commercial point of view. For one thing, I cannot but feel that the case which Cleopatra is now advancing lacks proportionality. Thus:
(a) Both defendants willingly gave the undertakings sought within about a month of demand; from their point of view, the matter was `water under the bridge'. They, like any litigant in a similar factual situation, wanted the matter concluded as painlessly as possible. At that stage the costs involved were, so one would think, minimal.
(b) By the time this action was commenced, Cleopatra must have had some idea as to both the cause and the relatively modest extent of the passing off.
(c) The present action, a money claim pure and simple, was raised precipitately, over six months after the undertakings had been given and without apparently, any pre-action proposals for possible compromise."
"Though subparagraph (a) may possibly be ignored for present purposes as being too subjective properly to be taken into account, for the reasons to which I refer in the next paragraph, I do not think that is true of what I have set out in paragraph (b)."
"We understand that our client's products were being misrepresented leading to confusion and indeed deception. The said products are alleged to have been passed off and our client has sustained a loss as a result and indeed has attributed their loss to this unlawful act. Our clients have stated that this had been going on for a while and that their suspicions were originally raised at the beginning of 1996. Their turnover had suffered a downturn over a number of years. Our client's suspicions were confirmed of late and it is noted that criminal investigations had been undertaken."
"We will accept these undertakings if you give them to us on these terms",
and to see the reaction of the first to third respondents as a counter-offer. It will be recalled from the judgment of Cresswell J that the way that Indus responded was to say that they gave the undertaking to conclude the matter. A similar response was, as I understand it, sent on behalf of KTC. But that counter offer was not itself accepted because on 22nd September Forbes & Co wrote back saying that they could not confirm the matter was closed; that they would inform the parties in due course once their investigations were completed. That is how matters stood until the proceedings had begun. So it has never been suggested that the undertakings are not binding, and accordingly, looking at that sequence of correspondence, it seems to me that the first to third defendants were under no illusion that Cleopatra was reserving its right to claim damages out of the passing off of which it knew.