England and Wales High Court (Administrative Court) Decisions

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

		Sitting at: Leeds Combined Court 1 Oxford Row Leeds West Yorkshire LS1 3BG
		27th April 2010

Mr Justice Keith:

1. On 14 January 2009 informations were laid by Stockton on Tees Borough Council at Teesside Magistrates Court against Dawn Frost alleging 12 offences of using a trade mark without authorisation contrary to section 92(1)(c) of the Trade Marks Act 1994 ("the 1994 Act"), and two offences of dealing with infringing articles contrary to section 107(1)(d)(ii) of the Copyright, Designs and Patents Act 1988 ("the 1988 Act"). Stockton's case was that Ms Frost had been selling well-known brands of sportswear from her home which were counterfeit. At her trial on 15 June 2009, Ms Frost did not deny that the goods were counterfeit. Her case was that she had thought that they were genuine, and that she had had reasonable grounds for that belief. The magistrates dismissed all 14 summons. Stockton now appeals against the dismissal of the 12 summonses for using a trademark without authorisation by way of an appeal by case stated.
2. The 12 summonses of using a trade mark without authorisation were in identical terms, save for the particulars they gave of the goods and of the particular trade marks. So by way of example, the first of the 12 summonses alleged that

"… on 27 August 2008 … at [an address in] Thornaby, you did, with a view to gain for yourself or another and without the consent of the proprietor, have in your possession, in the course of a business, goods with a view to offering them for sale, namely a pair of 'Reebok' white, orange and black shorts which bore on the said pair of shorts a sign identical to or likely to be mistaken for a registered trademark, namely the word Reebok owned by Reebok International Limited."

This wording reflected the language of section 92(1) of the 1994 Act, which provides:

" (1) A person commits an offence who with a view to gain for himself or another, or with intent to cause loss to another, and without the consent of the proprietor—

(a) applies to goods or their packaging a sign identical to, or likely to be mistaken for, a registered trade mark, or

(b) sells or lets for hire, offers or exposes for sale or hire or distributes goods which bear, or the packaging of which bears, such a sign, or

(c) has in his possession, custody or control in the course of a business any such goods with a view to the doing of anything, by himself or another, which would be an offence under paragraph (b)."

3. The evidence called by Stockton was not disputed. It was accepted that the goods or their packaging bore signs identical to, or likely to be mistaken for, registered trade marks, and that Ms Frost had offered them for sale without the consent of the proprietors of the trade marks. Indeed, it was acknowledged that all the ingredients of the offences had been proved. Ms Frost's defence was the statutory defence contained in section 92(5) of the 1994 Act, which provides:

"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."

The burden of proof was, of course, upon Ms Frost to establish the facts on which the statutory defence was based on the balance of probabilities.

4. In the interests of completeness, I ought to mention the two summonses of dealing with infringing articles. They were also in identical terms to each other, save for the particulars they gave of the goods. Again by way of example, the first of the two summonses alleged that

"… on 27 August 2008 … at [an address in] Thornaby, you did, without the license of the copyright owner and in the course of a business, offer for sale an article, namely a T-shirt incorporating the Nike 'blocked AIR' logo, which was and which you knew or had reason to believe was an infringing copy of a copyright work …"

This wording reflected the language of section 107(1) of the 1988 Act which provides, so far as is material:

"A person commits an offence who, without the licence of the copyright owner--

…

(d) in the course of a business--

…

(ii) offers or exposes for sale or hire

…

an article which is, and which he knows or has reason to believe is, an infringing copy of a copyright work."

Again, the evidence called by Stockton was not disputed. It was accepted that the goods were infringing copies of copyright works, and that Ms Frost had offered them for sale in the course of a business without the license of the copyright owners. Ms Frost's defence was that she had not known and had had no reason to believe that the goods were infringing copies. Unlike the summonses under the 1994 Act, the burden of proving that Ms Frost had no reason to believe that the goods were infringing copies was on the prosecution. There is no challenge to the acquittal of Ms Frost on those two summonses. The prosecution no doubt accepted that the difference between the burden of proof on the two sets of summonses made all the difference.

5. The facts which the magistrates found, or which were undisputed, were that following a complaint to Stockton's Trading Standards and Licensing Department that Ms Frost may have been involved in the supply of counterfeit clothing, a senior trading standards officer wrote to her on 8 May 2008. The letter informed her that no further action was being taken in respect of the complaint, but she was told that formal action may be considered if the department received evidence that she was involved in activity of this kind. On 27 August 2008, i.e. a little less than four months later, officers from the department went to Ms Frost's home in Thornaby. A quantity of trainers and sports clothes were found there, laid out as if they were in a shop in different styles, colours and sizes. There were 334 pairs of trainers, 44 tracksuits, 123 T-shirts and other sports clothes. They included famous brands like Reebok, Nike and Adidas.
6. Ms Frost had no previous convictions and was found by the magistrates to be honest and believable. Her evidence, which the magistrates accepted, was that she had purchased all the goods from three shops in Manchester. They had not been displayed any differently from the way clothes were displayed in other shops, though in some of the shops some of the clothes had been displayed on rails in front of what the magistrates described as "the shop windows". The clothes were very cheap, which no doubt explained why according to Ms Frost the shops were always busy. Initially she had purchased goods for herself there, but although she had never worked in the retail trade herself, people began to ask her to buy goods for them, and that is what she did. According to the prosecution, though this part of Ms Frost's evidence was not recorded in the case stated, she said that she had sometimes gone to Manchester with a van as often as three times a week to make purchases. She would make a small profit of about £2 to £3 on each item. Most of the profit she made was used to buy more stock, to pay for travelling, and to pay back drug dealers who were owed money by her daughter. She had not been working at the time, and had been in receipt of benefits.
7. Ms Frost's evidence was that when she had received the letter from Stockton's Trading Standards and Licensing Department, she had asked the retailers whether the goods were counterfeit and how they were able to sell them so cheaply. She was told that they represented "end of line stock" which had been returned by sports shops because they were no longer saleable. She was also told that the shops from which she had bought them had themselves purchased them at auction, and had been able to sell them cheaply because they had bought the stock in bulk. She said that she had had no reason to doubt what she had been told, and had had no reason to suppose that the goods were anything other than genuine. She had seen similar goods on sale at similar prices at local markets.
8. Three others points should be made. First, Ms Frost produced a series of photographs which she said showed the three shops from which she had bought the sportswear. Secondly, in the case stated, the magistrates noted the prosecution's point that they only had Ms Frost's word on where she had got the sportswear from. She had produced no documentary evidence of proof of purchase. Thirdly, an employee of her solicitors produced internet searches which showed the availability of well-known brands of sportswear on various websites at relatively inexpensive prices. Indeed, he spoke of having been in touch with one of the three outlets from which Ms Frost had bought sportswear, and said that he had been told that they supplied genuine surplus and end of range stock from various well-known brands. The case stated does not record it, but the prosecution say that although he relied on what he called "trusted traders", he could not be sure that the items which he had found were not counterfeit. In any event, since, as we shall see, the reasonableness of Ms Frost's belief has to be judged by what she was aware of at the time, the fact that subsequent inquiries revealed the availability of sportswear of well-known brands at inexpensive prices at other outlets is relevant only to the extent to which the prices which Ms Frost paid for the goods compared with the prices available elsewhere.
9. There is no challenge to the magistrates' finding that on the balance of probabilities Ms Frost honestly believed that the goods she bought were genuine. The challenge relates to the magistrates' finding that her belief that the goods were genuine was reasonable. The passage in the case stated in which the magistrates expressed their reasons for that finding reads as follows:

"We considered the question of reasonableness with regard to whether Dawn Frost believed that the goods were genuine. We considered as referred to in the case of R v Johnstone, 'facts within her own knowledge, her state of mind and the reason why she held the belief in question.' We found that in all the circumstances the inquiries that she made of the retail outlets of Manchester as to the source of the goods and as to why they were able to be sold at such a low price was reasonable in these trading circumstances. She had also seen the same goods for sale on local markets at similar prices. The lack of documentation in these trading circumstances was also something we found to be reasonable."

The question which the magistrates asked for the opinion of the High Court was:

"Was there evidence on which a bench, properly directed, could conclude that [Ms Frost] believed on reasonable grounds that the use of the sign in the manner, in which it was used, was not an infringement of a registered trade mark?"

10. The magistrates' reference to the case of Johnstone was a reference to the speeches of Lord Nicholls and Lord Walker in R v Johnstone [2003] UKHL 28. The case raised a number of issues about prosecutions under section 92(1) of the 1994 Act, including whether the prosecution have to prove a civil infringement of the registered trade mark in question before an offence under section 92 has been established; whether in order to establish the statutory defence in section 92(5) the defendant has to know about the existence of a registered trade mark in question; and whether the burden which section 92(5) imposes on the defence is merely an evidential burden, so that if the defendant raises the issue sufficiently, it is then for the prosecution to disprove the facts raised by that issue. On the latter point, the House of Lords held that the burden was a legal one, imposing on the defendant the burden of proving the relevant facts on the balance of probabilities.
11. The passage from the speech of Lord Nicholls which the magistrates cited in the case stated came from that part of his speech in which Lord Nicholls was considering whether the legal burden on the defendant to establish the statutory defence was inconsistent with the presumption of innocence in Article 6(2) of the European Convention on Human Rights. Lord Nicholls' conclusion on that issue at [53] was this:

"Given the importance and difficulty of combating counterfeiting, and given the comparative ease with which an accused can raise an issue about his honesty, overall it is fair and reasonable to require a trader, should need arise, to prove on the balance of probability that he honestly and reasonably believed the goods were genuine."

In [52] Lord Nicholls had set out the factors which had led him to that conclusion. That paragraph contained the following passage about traders like Ms Frost:

"(4) Those who trade in brand products are aware of the need to be on guard against counterfeit goods. They are aware of the need to deal with reputable suppliers and keep records and of the risks they take if they do not. (5) The section 92(5) defence relates to facts within the accused person's own knowledge: his state of mind, and the reasons why he held the belief in question. His sources of supply are known to him."

The particular passage which the magistrates quoted shows that the reasonableness of Ms Frost's belief that the sportswear had been genuine had to be judged on the basis of the facts known to her, in particular where she got the sportswear from, the circumstances in which the goods were sold to her, the prices which she paid for them, and how that price compared with what she knew at the time of the prices being charged for similar goods by similar outlets.

12. Previously decided cases do not really help, because each case is so dependent on its own facts. But the case which was cited to the magistrates – Essex Trading Standards v Singh [2009] EWHC 520 (Admin) – as well as an additional case cited to us, R (on the application of West Sussex County Council) v Kahraman [2006] EWHC 1703 (Admin), are examples of the Divisional Court concluding that the magistrates erred in law in finding that the statutory defence had been established. In Singh, the magistrates had concluded that the trader had honestly believed that the goods were not counterfeit, but had failed to consider whether that belief had been reasonable. In Kahraman, the defendant was a market stallholder who claimed that he had obtained the stock which was the subject of the summonses from someone he knew only as John, and which he had understood to be clearance stock. He said that he was an inexperienced market trader, and relied on the practice of other traders in the markets. He pointed out that he had not received any warnings from the market inspector or VAT officials when they had visited the stall. At [14] of his judgment, McCombe J – with whom the other judges agreed -- said this:

"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."

13. So was it reasonably open to the magistrates on the evidence which they had accepted to conclude that Ms Frost had reasonable grounds to believe that the goods were not counterfeit? In my opinion, four points tell strongly against such a conclusion. First, Ms Frost had been alerted by the letter of 8 May 2008 to the possibility that the goods she was buying might be counterfeit. The only thing she did to check that they were genuine was to ask people at the outlets where she bought the goods about them. If they were counterfeit, they would hardly have told her that. Secondly, the photographs produced by Ms Frost show that the outlets were not really shops at all. They are lock-ups in what looks like a downmarket industrial estate. All of the lock-ups were closed when the photographs were taken and their shutters were down. They do not look like retail outlets, and indeed one of them was obviously not a retail outlet because it had a large sign saying "Wholesale" outside it. For my part, I do not see how the magistrates could have referred to these outlets as having "shop windows", because the units did not have any windows at all.
14. Thirdly, Ms Frost did not produce any receipts to the magistrates. If that was because the outlets did not give her any, that itself should have suggested to her that there was something dodgy about the goods. If she did not produce them to the magistrates because she had disposed of them, which is what she had said she had done when she was interviewed, that suggests that she realised that they might show that there was something dodgy about them, and the same is true if she did not produce them even though she still had them.
15. Fourthly, and perhaps most importantly of all, the prices she was paying for the goods were, on her own admission, very substantially less than their approximate retail price. Indeed, she paid as much as a third or even a quarter of what their approximate retail price was, and sometimes even less than that, and, when interviewed, she acknowledged that she had known that they were unusually cheap since she actually asked the people who she was buying them from how they could sell the stuff to her so cheaply. The fact that she bought the goods so very cheaply was, in my opinion, hardly consistent with them no longer being saleable at reputable retail outlets just because they were end-of-line stock. As Lord Nicholls pointed out, she would have been aware of the trade in pirated sportswear, and the fact that they were so cheap should have alerted her to the possibility that they might be infringing copies. The additional point here is that she did not ask the people she bought the goods from for anything to show where they had bought the goods from. I do not, of course, go behind the magistrates' somewhat benevolent finding that Ms Frost honestly believed the goods to be genuine, but I do not believe that it was reasonably open to the magistrates to conclude, even on the evidence from her which they accepted, that Ms Frost had reasonable grounds to believe that the goods were not counterfeit.
16. For these reasons, I would answer the question posed by the magistrates "no". I would allow the appeal, and I would set aside the findings of not guilty made by the magistrates on the 12 summonses under the 1994 Act. For my part, I should like to hear from counsel whether we should direct the magistrates to convict Ms Frost on the 12 summonses, or whether we should order that she should be re-tried on those summonses before a differently constituted bench of magistrates, although I have to say that my current inclination is for the former on the basis that, even on Ms Frost's evidence which the magistrates accepted, the conclusion which they reached was not reasonably open to them

LORD JUSTICE MUNBY:

17. I agree with my Lord.

LORD JUSTICE MUNBY: Now what do you have to say about the question of whether, having allowed the appeal, we remit the matter for a retrial or simply in effect to direct the magistrates to convict?

MISS SMITH : My Lord I would take that the matter be directed to convict. The evidence is all available. The magistrates heard all the evidence. In my submission there would be nothing to gain from a retrial. Quite simply I would agree with the submissions in respect of reasonableness and the conviction should stand.

MR RAINEY : My Lord, I think this remains a matter for trial. Clearly there has been a view formed on what the magistrates should have in mind when they consider this, which is advanced in her defence, but certainly it should be open to her to at least consider this ruling and work from that premise.

LORD JUSTICE MUNBY: (inaudible) Mr Rainey is this that the magistrates accepted the totality of her evidence and found that she was honest.

MR RAINEY : Yes.

LORD JUSTICE MUNBY: We of course are not going to go behind that. We have found in effect that no reasonable bench of magistrates in the light of those findings could have gone on to find that she had made out the defence of reasonable belief. In those circumstances what is it that is left for the magistrates to consider?

MR RAINEY : My Lord, not having had conduct of this case from the start, it is difficult for me to analyse at this stage what more could be done in terms of a trial before the magistrates court. I am sure those instructing me would have their own views on that but unfortunately they are not sitting behind me at the moment. There may be further lines of inquiry. I don't know what further instructions there may be to be obtained from her, whether or not there is anything more than was said at the trial along a different line of defence that would afford her something different. I simply would not at this stage regard it as behoven on me to be able to accept that a conviction should automatically follow from that.

MR JUSTICE KEITH: Could it not be said, Mr Rainey, that the trial before the magistrates was the place where she had to bring all her evidence, and it is too late for you now to say that there should be another trial because there may be more evidence available to you?

MR RAINEY : Well, my Lord, I know the case was presented in a certain way along a certain understanding of the law as to reasonableness. In the light of your Lordship's judgment today there may have to be a reconsideration of that as to what further evidence may have assisted. I appreciate that I am thinking on my feet here and it is extremely difficult but....

MR JUSTICE KEITH: Of course.

MR RAINEY : ... I certainly would ask whether at least some time be granted perhaps even to take instructions on that.

LORD JUSTICE MUNBY: You implicitly accepted that the basis and I rather gained the impression the only basis for an order that the matter be sent back for reconsideration rather than a direction to convict is so that your client can have a second bite of the cherry and have the opportunity of at least considering calling evidence different that which she called at the first trial and may be the opportunity of at least to consider whether she should conduct her defence in the proceedings on a rather different basis from that which she did last time

MR RAINEY : Yes my Lord. Your Lordships observed that she did not produce any documentation by way of receipts that were mentioned in interview at the trial. I understand that is the position and certainly if that were available it would certainly be my advice if there were to be a retrial that documentation would be of the utmost importance. I am not sure whether or not it was available at trial, not having conducted the case myself or whether or not it simply does not exist any more, but I cannot assist the court at this point as to whether or not there is merit in a retrial at all.

MISS SMITH: My Lord sums it up with the second bite of the cherry. Ms Frost had ample opportunity to prepare her trial the first time around. If that evidence was not available, then who knows where it would come from on a second opportunity. I am sure that she had legal advice at trial and what more can one say? It's perhaps more appropriate to convict than a retrial.

MR JUSTICE KEITH: We think the right order to make is to direct the magistrates to convict Ms Frost on the 12 summonses on which she was acquitted. The reason is the one which I expressed, albeit tentatively (because there had not been argument on the topic), towards the end of my judgment when I said that my strong inclination was that the course we should take was to direct the magistrates to convict, on the basis that, on Ms Frost's evidence which the magistrates accepted, there was only one conclusion which the magistrates could have reached on the issue as to whether or not she had reasonable grounds for believing that the goods were counterfeit. It's been argued that if we directed that she be retried she would at least have the opportunity of producing evidence which she may not have thought of producing at the last trial, but that would not be sufficient reason to order a re-trial, because the time for her to have brought forward evidence which supported her defence was at the trial at which she was acquitted.

LORD JUSTICE MUNBY : I agree with my Lord. Accordingly the appeal will be allowed and the order be made within the terms that my Lord has indicated. For my part I should add that Mr Rainey came into the case at very short notice very late in the day, but it was apparent to me as I am sure to my Lord that he said on behalf of Ms Frost everything that could have been said and I am entirely satisfied that Ms Frost has suffered no prejudice of any sort at all as a result of his late instruction in the matter. I should like to go somewhat further in thanking Mr Rainey who, as I understand it, in the highest traditions of the Bar has appeared before us this afternoon albeit seemingly without the support of funding from the Legal Services Commission which his client had sought for. As I understand it there is (inaudible) obtain. I am very grateful as I am sure his client is that he gave her and us that assistance.

MR RAINEY : I am grateful my Lord

MISS SMITH : My Lord there is one issue and that is costs. I'm in your hands. I appreciate that there is no legal funding order in place. It was an important matter for the council to bring this case stated, bearing in mind the overriding principles that fell from this case. The costs would be limited to £3,000. It does not include the judicial review proceedings, but it does include the costs below and costs for today's hearing. I am in your hands.

LORD JUSTICE MUNBY: Now Miss Smith, you will have to help me on this. Ms Frost, according to the evidence accepted by the magistrates, lives on benefits.

MISS SMITH : It was incapacity benefit.

LORD JUSTICE MUNBY: Incapacity benefit. And do I correctly understand that effectively all her stock in trade if I may use that expression and the cash and other materials including cigarettes that were found in her house have all one way or other been removed?

MISS SMITH : They have been removed my Lord and the stock was agreed by way of consent to be forfeited. The cash I anticipate will now be addressed further in the magistrates courts because there may be confiscation proceedings following on from the direction to convict so that's a matter that's outstanding ....

LORD JUSTICE MUNBY: On the face of it she appears to be somebody with no source of income apart from benefit and (Inaudible). Does that itself in this kind of proceeding immunise her from an order for costs?

MISS SMITH : My Lord has discretion to award costs, taking into account the principles of the case. If Ms Frost were legally aided you would be entitled to award costs bearing in mind that they may well come from a public source to a public body but it is a matter for yourself. Costs have been incurred in this case.

LORD JUSTICE MUNBY: In ordinary civil litigation a publicly funded litigant has a certain immunity from costs. Does that apply in the context of cases stated in the divisional court?

MISS SMITH : Well there are a number of arguments in respect of that but I am instructed to seek costs and that you have the discretion to award costs.

MR RAINEY : My Lord, it goes further than a usual judicial review case. In this case in which Ms Frost has had no pardons since she was acquitted. There has been correspondence backwards and forwards, there have been applications for legal aid but until today there have been no-one as it were handling the case and making the argument on her behalf. There has been no skeleton argument filed. In essence it's an argument between the council and the magistrates and Ms Frost falls squarely in the middle of it and suffers the consequences. In my respectful submission an award of costs simply isn't appropriate in this case. This was a case which was an important point of law and her representations today have hopefully assisted to clarify the law in that regard and furthermore the fact that she does not have the means to be able to pay any such costs order at all.

MISS SMITH : I shall not argue the point further my Lord.

LORD JUSTICE MUNBY: Miss Smith we take the view that in principle you are entitled to your costs but although we will make an order giving you your costs that order is not to be enforced without the leave of the Divisional Court. Does that conclude everything?

MISS SMITH : Yes, my Lord.

MR RAINEY : Yes my Lord.

LORD JUSTICE MUNBY: Thank you both very much indeed.