England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT

		Royal Courts of Justice Strand London WC2
		13th June 2006

Tuesday, 13th June 2006

1. MR JUSTICE McCOMBE: This is an appeal by way of case stated from the decision of the Justices for the local area of Sussex (Western) sitting at Chichester Magistrates' Court on 25th October 2005. The appellant is the West Sussex County Council ("the Council") and the respondent is Mr Habib Kahraman ("Mr Kahraman").
2. By informations dated 17th March 2005 Mr Kahraman was charged within the four offences contrary to sections 92(1)(b) and 92(6) of the Trade Marks Act 1994. The alleged offences were that Mr Kahraman had (in one case) sold and (in three other cases) had offered to sell, with a view to gain for himself or another and without the consent of a proprietor, items of clothing bearing signs which were identical to or likely to mistaken for a registered trade mark. The allegedly offending items were a T-shirt marked "Prada", a pair of jeans marked "Diesel", a T-shirt marked "Ted Baker" and a hooded fleece garment marked "Nike". There is no dispute but that the mark in each case was identical to or likely to be mistaken for a registered mark or as to the absence of the consent of the proprietor of the relevant mark.
3. The defence maintained by Mr Kahraman was under section 92(5) of the 1994 Act, which provides as follows:

"It is a defence for a person charged with an offence under this section to show that he believed on reasonable grounds that the use of the sign in the manner in which it was used, or was to be used, was not an infringement of the registered trade mark".

4. The evidence summarised in the case stated by the Justices was as follows.
5. At the material time Mr Kahraman was a storeholder at a market at Ford near Arundel in West Sussex. He sold clothing. In about November 2004 trading standards officers received information that led to an officer making a test purchase from Mr Kahraman's stall. After examination of the item purchased, the T-shirt marked "Prada", the officer returned on 12th December 2004 and made a further purchase. A number of items of clothing were seized from Mr Kahraman that day. The items bore labels of well-known designer brands but found not to be genuinely the products of the registered proprietors of the marks employed. All had been on prominent display and were clearly intended to be sold. In interview by the officers Mr Kahraman admitted offering the clothing for sale. He told them that he had purchased the clothing described to him as "clearance stock" for an agreed price of £380 from a man known to him only as "John". He paid £200 in cash and John had said he would return later with further stock and to collect the balance of the agreed sum.
6. Mr Kahraman told the court that he had no reason to doubt the honesty of "John". He knew that John had supplied other traders at the market. He assumed that he had paid low prices because he understood that the items were "clearance stock". He was a Turkish national and was inexperienced as a market trader, having previously dealt unsuccessfully in imported women's clothes from Turkey; he was reliant on observing the practices and prices offered by other traders at the market. He had been visited by the Market Inspector and VAT officials and would have expected to be warned by them if anything appeared wrong. He said that he had no reason to know that the goods were counterfeit as he had never seen the original genuine articles.
7. The Justices tell the Court that, after argument, they were advised by their legal adviser that the grounds of defence under Section 92(5) of the Act imposed an objective standard of reasonableness and not a subjective one.
8. The Justices dismissed the information and gave the following reasons:

"Mr Kahraman you are charged with four offences under section 92(1)(b) of the Trade Marks Act 1994. You have accepted that you sold goods that were counterfeit, and the issue we have to decide is whether you have proved, on the balance of probabilities you believed on reasonable grounds that you were not infringing the legislation. We have applied an objective test of reasonableness. We note that you received visits form the Market Manager and a VAT Inspector and from your conversations with them you drew the conclusion that your stall was operating entirely legitimately. We accept that you genuinely believed that you were buying clearance stock that had to be taken out of shops to make way for newer stock, and used the example of TK Maxx. You paid somebody you had seen supply other traders and expected the payee to return to supply more goods and obtain the balance due. We accept that without having seen the original items you would have had no way of knowing if the goods were counterfeit, and to have made the suggested enquiries would not have been a reasonable action. For all the reasons we find you have proved on the balance of probabilities that you believed on objectively reasonable grounds that you were not infringing the legislation and find you not guilty of all charges."

9. On those findings the Justices posed the following question for the opinion of this court:

"Was there sufficient evidence upon which a reasonable Bench could properly find in the case that the Respondent's belief was on reasonable grounds given that there was no evidence that the Respondent took any action to establish whether the goods were counterfeit, and he had purchased the goods from an individual or seller known to him only as 'John'?"

10. On behalf of the Council, in written and oral argument, it is submitted that the defence under section 92(5) cannot be made out where the trader buys brand name goods from a "disreputable" seller at a cheap price and takes no action to ensure that the goods are genuine. It is argued that the defendant has to be judged against the standards of the reasonable trader, without regard to his relative ignorance or inexperience or unfamiliarity with the trade, the law or the English language. It is submitted that the approach adopted by the Justices here gives the ignorant a defence in law, provided that they are honest and that that approach amounts to a general defence of acting in good faith. This, it is submitted, is contrary to the law as decided by the House of Lords in R v Johnstone [2003] UKHL 28 and by the Court of Appeal in R v McCrudden [2005] EWCA Crim. 466.
11. In support of the Justices' decision, Miss Austin has urged upon us the points that essentially swayed with the Justices in the Magistrates' Court. In argument in the two decided cases, consideration was being given to the distinction between cases where, on the one hand, a defendant knew that there was a registered mark and reasonably believed that the particular use is not an infringement and, on the other hand, cases where the defendant reasonably believed that no relevant mark is registered. The House of Lords held in Johnstone's case that the defence would be available in either circumstance. However, in another reported decision, R v Rhodes [2003] 9 FSR 147, Andrew Smith J, giving the judgment of the court, expressed the view that:

"No doubt in many cases the fact that a trader could ascertain whether a trade mark was registered by searching the register will make it extremely difficult to establish a belief involving ignorance of a registered mark is held on 'on reasonable grounds'." (see paragraph 21)

12. It is not suggested here that Mr Kahraman was reasonably ignorant of rights for which the relevant proprietor was entitled to protection in law or that he gave any thought at all to the existence of registered marks. His case was that his actions were in all aspects reasonable. It seems clear, therefore, that Mr Kahraman was aware that it was important to ensure that the goods were "genuine". From such circumstances, it is clear from the decided cases that he must be treated as being aware of the existence of the registered mark.
13. Sub-section 92(5) is not a complicated provision. As Lord Nicholls of Birkenhead said in Johnstone's case, it "is concerned to provide a defence where the person charged has a reasonable belief in the lawfulness of what he did" - see paragraph 43 of speeches. That is a simple concept imposing a clear objective test as to the reasonable grounds. A little later in the speeches, Lord Nicholls said that the offences created by section 92 have rightly been described as offences of "near absolute liability". The burden of proving the defence is, of course, on the defendant in each case. In McCrudden's case, Laws LJ said:

"Section 92(5) affords a positive and specific defence as to the use of the trade mark by the defendant. It does not provide a general defence of good faith ... It seems to us that the provisions contained in section 92 have been devised to constitute a rigorous statutory code, involving offences initially of strict liability, for the plain policy reason that there is a very considerable public importance in preventing the trade in counterfeit goods." (see paragraph 10)

14. In my view, a market trader, like Mr Kahraman here, who purchases goods with well-known designer names on them at very low prices, from a person of unknown identity (even if not positively "disreputable") and with no positive evidence of trade reputation cannot begin to discharge the burden of proof imposed upon him by Section 92(5). It cannot conceivably be sufficient to observe other traders in similar circumstances buying goods or that the defendant is inexperienced in his trade or new to the market. The defence of reasonableness applies in equal manner to the experienced and the inexperienced. That is all that Mr Kahraman could advance here and that is not sufficient to establish that he believed "on reasonable grounds" that the use of the marks in this manner was not an infringement of the registered trade marks. In short, no reasonable person would take the risk of selling these items with these well-known marks in such circumstances.
15. I would answer the question posed by the Justices in the stated case in the negative. I would therefore allow the appeal.
16. MRS JUSTICE DOBBS: I agree with the judgment of McCombe J.
17. LORD JUSTICE LATHAM: I also agree. The consequence is that the appeal will be allowed and the matter will be remitted to be reheard by a differently constituted Magistrates' Court.
18. What else do you want, Miss Bagley?
19. MS BAGLEY: My Lord, I am instructed to apply for costs in the matter. There is a schedule of costs.
20. LORD JUSTICE LATHAM: I have not seen the schedule. Have you seen a schedule, Ms Austin?
21. MS AUSTIN: My Lord, my instructing solicitors have had sight of the schedule, yes.
22. LORD JUSTICE LATHAM: We ought to have a look at the schedule. (Handed). Ms Austin, what submissions have you got? Firstly, as to principle, you should pay the costs. Secondly as to the costs that are in fact applied for.
23. MS AUSTIN: My Lord, as to the principle as to whether the respondent should bear these costs, I would ask you to consider two separate submissions. First, in relation to the hearing at the Magistrates' Court. The Magistrates heard all the facts and they, as you have found, misdirected themselves as to the law. They applied the objective standard and therefore the respondent could be held in no way responsible for this matter reaching this court.
24. In relation to my second submission, my Lord, this is the second hearing of this issue. It was on the previous, very lengthy, hearing which lasted for well over two hours, as my recollection goes, the court was constituting only two and was unable to reach an agreement and that has necessitated this second hearing. It was anticipated by both myself and my learned friend that it would constitute the same court with an additional member and it would really be a rehearing of the argument. On the previous occasion much more weight was given than you and your colleagues have found necessary to the standard of section 92(5) and whether or not he should have been compared to an experienced trader or an inexperienced trader. My Lord, that may explain the tenor of my skeleton.
25. LORD JUSTICE LATHAM: So you say you should only be responsible for the costs of one hearing?
26. MS AUSTIN: My Lord, my first submission is that we should not be responsible for any of the costs, given the fact that this Magistrates' Court correctly addressed --
27. LORD JUSTICE LATHAM: All right, I understand your first argument, but we have moved on to from that to your next argument, that you should only be responsible for one hearing. In other words, not for today, for example.
28. MS AUSTIN: My Lord, yes, on the previous occasion --
29. LORD JUSTICE LATHAM: Have you any submissions in relation to the details of the costs which have been applied for?
30. MS AUSTIN: My Lord, this has been handed to me within the last 30 seconds. I am not in a position to make detailed submissions in relation to costs.
31. LORD JUSTICE LATHAM: In those circumstances, we will not assess costs. We will order them to be taxed, but we will just retire and consider the principle, that is the issue as to whether or not it should be all the costs.
(Brief adjournment)
32. LORD JUSTICE LATHAM: The appeal is allowed with costs, both here and below. As far as here is concerned, to include both hearings but they are to be taxed if not agreed. So in other words, to be the subject of detailed assessment. Thank you both very much indeed.