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Cite as: [2000] EWHC Ch 131, [2000] EWHC 131 (Ch), [2000] FSR 679

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British Telecommunications Plc v. Nextcall Telecom Plc [2000] EWHC Ch 131 (29th February, 2000)

Claim No: HC-99-03604

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Before: THE HON. MR. JUSTICE JACOB

B E T W E E N

	British Telecommunications plc	Claimant
	- and -
	Nextcall Telecom plc	Defendant

Malcolm Chapple (instructed by Alan Whitfield in-house British Telecom) for the Claimant

Guy Tritton and Simon Malynicz (instructed by Messrs Field Fisher Waterhouse) for the Defendant

Hearing date: 25th January 2000

JUDGMENT

This is the official judgment of the court and I direct that no
further note or transcript be made.

THE HON MR JUSTICE JACOB

Dated: 29 February 2000

Jacob J

1. When a party breaks an injunction or breaches his undertaking to the court he stands in "contempt of court". This "unfortunate and misleading phrase" (per Salmon LJ in Jennison v Baker [1972] 2 QB 52 at p.61) in the context of this case is a term of art for "breach of a court order." A man can be in contempt of court even though he has shown nothing but respect for the authority of the court. It is enough to establish that he knowingly did the breaching act, even if he honestly did not realise that the act was a breach or even honestly thought it was in compliance with the order, see Heatons Transport (St. Helen's) v Transport & General Workers' Union [1973] AC 15, Mileage Conference Group etc. [1966] 1 WLR 1137, DG of Fair Trading v Pioneer Concrete [1995] AC 245, Spectravest v Aperknit [1988] FSR 161 and my own decision, Adam Phones v Goldschmidt [1999] 4 All ER 486. Moreover, because corporations can only act through natural persons, it is no defence for a corporation to prove that an employee who carried out the offending act was acting contrary to orders and had been properly trained, supervised and monitored. However much effort those concerned with the governance of a body corporate may put in to see that employees do not overstep the mark, if they do, the corporation is liable. Lord Templeman put it this way in Pioneer at p.465:

"... a company, in its capacity as supplier of goods, like any other person in the capacity of taxpayer, landlord or in any other capacity, falls to be judged by its actions and not by its language. An employee who acts for the company within the scope of his employment is the company. Directors may give instructions, top management may exhort, middle management may question and workers may listen attentively. But if a worker makes a defective product or a lower manager accepts or rejects an order, he is the company."

2. So, if the employer subject to an order can show that he took every reasonable precaution but his employee nonetheless caused a breach of the order, the employer's actions go to mitigation not defence. Very likely there would at least be no penalty and possibly no order for costs. Indeed, if the application in respect of contempt is in respect of a trivial breach, the court may even go so far as to make the applicant pay the costs (as Scott J ordered in Bhimji Chatwani [1991] 1 WLR 989 and I ordered in Adam Phones).

3. It is against those legal rules that the problem in this case arises. The claimant is British Telecom ("BT") and the defendants Nextcall Telecom ("Nextcall"). Nextcall is a recently established telephone service provider. As a result of recent deregulation you can now change your land-line provider from BT to one of several new companies but keep your original telephone number and have some use of BT services. BT have to offer its lines to these companies. If you change from BT to Nextcall (say) then your telephone contract is with Nextcall, not BT.

4. To persuade people to change from BT Nextcall have been using door to door salesmen. Originally some of these were employed by an agency but now direct employees are used. Employees are motivated, as such employees generally are, by performance related pay - the more converts they can sign up the better.

5. There is no dispute that when Nextcall started, a number of salespersons told lies to persuade consumers to change. Not surprisingly consumers are conservative so that persuading them to sign up to a new and unknown company is more difficult than persuading them on the basis that the new company is really BT by another name. Some salespersons represented that Nextcall was part of BT or that Nextcall was taking over BT's billing, or even that BT were paying the salespersons to transfer customers to Nextcall. These lies undoubtedly involve a variety of legal wrongs including infringement of a number of BT's registered trade marks and passing off.

6. When BT first learned of these lies they complained to Nextcall by a letter of 13^th July 1999. The letter included the following passages:

"It has come to the attention of BT that sales representatives acting on behalf of Nextcall have been making visiting (sic) members of the public, and have been making statements which grossly and unlawfully misrepresent the relationship between Nextcall and BT. In summary those misrepresentations say that either (1) Nextcall was a part of BT, or (2) Nextcall was in some sort of partnership or joint ventureship with BT - to date we have been informed of at least 20 examples of the first category of misrepresentation, and 14 examples of the second category. Neither of those two statements are true. Indeed it is also clear that your representatives were deliberately lying when making these statements, and thus deliberately intending to deceive members of the public.

Although BT accepts that any company can suffer from even a small number of rogue sales persons, the sheer number of these complaints, their consistency, their wide geographic spread, and the fact that many customers have clearly raised them already with Nextcall, indicates that they cannot be explained by one or more rogue sales people.

On the contrary, the evidence seems to indicate not only the systematic use of false and misleading claims, but also dubious sales practices and a failure of training, supervision and management over a significant period.

We consider these activities are not merely unethical but also actionable as an unlawful interference with BT's trade."

BT went on to ask for written undertakings in the following terms:

"(a) Nextcall, whether acting by its directors, officers, employees or agents, or any of them, or otherwise howsoever, will not hold itself out in any way to any third party as being either BT or a part of BT; and

(b) Nextcall, whether acting by its directors, officers, employees or agents, or any of them, or otherwise howsoever, will not hold itself out in any way to any third party as being in any partnership or joint venture with BT; and

(c) Nextcall, whether acting by its directors, officers, employees or agents, or any of them, or otherwise howsoever, will not otherwise pass off or infringe any of the registered trademarks of which BT is the registered proprietor."

7. The immediate reply from Nextcall's solicitors was as follows:

"1. Thank you for your fax and letter dated 13 July. Our client has no intention of representing that it is part of BT or is in some sort of partnership of joint ventureship with BT. It is, therefore, subject to what we say in paragraph 2 below, prepared to give the undertakings requested.

2. You accept that any company can suffer from a small number of rogue sales persons. You will appreciate that however good our client's training, supervision and management is and however much it attempts to comply with your proposed undertakings, mistakes may innocently be made by sales persons. Indeed even if a mistake is not made by sales persons, what they say may be misunderstood by a potential customer. It, therefore, seems to us to be appropriate for the undertaking to be qualified to our client undertaking to use its reasonable endeavours to comply with the terms specified in your proposed undertakings and for no action to be taken by BT for any breach of such undertakings unless a complaint has first been made by BT and our client has failed to take action regarding that complaint within 14 days of being notified of it provided, of course, that such a complaint has been substantiated. Please let us know if that is acceptable to BT. In any event, our client is keen to eradicate any problems of a similar nature and to that end if would assist if, in the future, BT would promptly notify it of any complaints as soon as they are made."

8. BT refused to accept the proposed qualification and by a letter of 16^th July 1999 Nextcall gave unqualified undertakings as sought by BT. There is no dispute but that these undertakings are of contractual effect. Nextcall undertook not to commit the offending acts without any qualification.

9. Unfortunately the salespersons' lies continued, albeit on a lesser scale. When it was apparent that the scale was unacceptable BT commenced these proceedings for passing off, infringement of registered trade mark and breach of the contractual undertaking. They moved for interim relief. Nextcall's position was (indeed always has been) that lying by their salespeople is not merely unauthorised but contrary to instructions. They were concerned at the interim stage (as they still are) about an injunction expressed in unqualified terms because of their fears that a rogue salesman might put them in breach. In the end, pending trial, a qualified injunction was made by consent. After reciting the injunction the qualification took the form of a proviso in the following terms:

"PROVIDED that the Respondent will not be in breach of the above paragraphs:

A. If the Respondent is and has at all material times maintained in force to the reasonable satisfaction of the Court a regulatory procedure designed to prevent breaches of paragraphs (1) and (2) occurring.

AND

B. Where the Applicant has received information which it reasonably believes discloses breaches of paragraphs (1) or (2) of this Order and has communicated in writing such information to the Respondent and the Respondent:

(i) has forthwith taken steps to investigate the matter and where necessary taken appropriate disciplinary action;

(ii) reported back in writing to the Applicant the outcome of the investigations within 21 days of receipt of the said communication including details, if any, of any disciplinary action."

10. There have been, regrettably, a few further incidents, though they seem to be approaching zero. BT now seek final judgment under the provisions of Part 24. There is no dispute about BT's entitlement to an injunction essentially in the form of the original undertaking. The dispute is as to whether there should be a qualification to the permanent injunction. In his skeleton argument for Nextcall, Mr Tritton proposed the following proviso:

"A. If Nextcall is and has at all material times maintained in force to the reasonable satisfaction of the Court an effective regulatory procedure which shall include without prejudice to the generality of the foregoing an effective system of training, supervision, audit and complaint-handling designed to prevent breaches of this Order.

AND [this part of the Order can be dispensed with if BT do not want it]

Where BT has received information which it reasonably believes discloses breaches of this Order and has communicated such information to Nextcall and Nextcall

(i) has forthwith taken steps to investigate the matter and where necessary has taken appropriate disciplinary action

(ii) reported back in writing to the Applicant the outcome of the investigations within 21 days of receipt of the said communication including details if any of any disciplinary action taken."

11. Nextcall have provided evidence showing what they have done to see that their salesmen do not tell lies of the kind complained of. Some salesmen had been sacked, training has been improved and there is some monitoring. In the course of argument some further ideas emerged but it remains the case that there is always the possibility of a rogue salesmen. That is why Nextcall want the qualification.

12. This sort of problem is particularly acute when a company may commit a breaching act by one of very many low level employees. The same sort of problem (perhaps even more acute because bar staff are perhaps the most difficult to train and control) occurred in Showerings v Entam [1975] FSR 45. Showerings made Babycham. They sent teams of trappers to the defendant's pubs. A member of the trapper team would order a round of drinks including "Babycham". A member of the bar staff would provide a rival brand of perry without pointing out first that it was not "Babycham." That constituted passing off. Counsel for the defendants, who happened to be me, proposed a qualification to the injunction. Goff J said:

"... the question comes down to this, as indeed Mr Jacob has really quite frankly said: What is proper relief to be given? He says if you have an unqualified injunction such as the plaintiffs seek then they will be in such great peril of committing a breach and being proceeded against for contempt of court that they will either have to return to selling only the plaintiff's product or give up selling this kind of drink altogether. He therefore offers an undertaking not merely as interim relief but a permanent undertaking. .... The real crux of the matter is that Mr Jacob would have the relief, be it an injunction as sought by the plaintiffs or the undertaking offered by him, qualified by a proviso".

13. Goff J refused to put in any qualification. He referred to an earlier Showerings case where there had been no qualification of the order and said:

"There the undertaking was unqualified and the question was "Was it a breach?" Mr Jacob turns that round and says "Well, we must have some qualification, look at the position we will be in if we do not, and this case shows that the plaintiffs will take action even if the breaches are small." On the other hand, Mr Jacob is unable to refer me to any case in which any such proviso has been imported, and it seems to me that as, on the evidence and on the way in which the defendants have presented their case, the plaintiffs are entitled to relief and there is no reason why I should do other than give them the injunction which they seek. If of course the defendants take the sort of steps they are proposing to take and if there be proper supervision, then it is unlikely that there will be a breach of the injunction, or at all events that there will be other than isolated cases, in which case it is unlikely that the plaintiffs will seek to commit for a breach. If they do and the evidence shows that the defendants have acted entirely reasonably and that the breach really, having regard to the nature and extent of the business, is isolated or de minimis, not only would there be no committal but I would have thought the court, in the exercise of its discretion, would not order the defendants to pay the costs. I can see no sufficient reason for adopting an entirely new course, for which there is no authority, and qualifying the injunction."

14. Mr Tritton submits that things have moved on since the Showerings case and there is now a Court of Appeal authority recognising that a qualification may be appropriate. He relies upon Microsoft v Plato Technology [1999] FSR 834 (Alan Steinfeld QC sitting as a Deputy Judge) upheld in the Court of Appeal (15^th July 1999). In that case the defendant had sold just five counterfeit copies of Microsoft software. He had not known they were counterfeits (they were very good ones). On an application for summary judgment an injunction was granted restraining the defendant from dealing in Microsoft products "which it knows or ought upon reasonable enquiry to know are infringing products".

15. Mr Tritton submits that just as a qualification was appropriate in the Microsoft case so it would be appropriate here. He suggested it would have been appropriate in Showerings too, but unfortunately for the defendants at the time the Microsoft case was still in the future. I do not agree. The qualification in Microsoft covered the case where the defendant was not only acting innocently but had no reasonable means of knowing that he was not so acting. There is a sharp line involved. But here, as in the Showerings case, the extent to which the low level employees can be controlled depends very much on the management and the systems it implements. If the court were to put in the suggested kind of qualification it would find itself descending into all sorts of commercial and management questions to decide whether or not there had been a breach of the order. The line defining what the defendant must not do instead of being clean would have a jagged edge.

16. Therefore in the exercise of my discretion I decline to put in a qualification. I would add that in so doing I am, after all, only enforcing by injunction precisely what the defendants undertook not to do by contract.

17. It does not follow from the absence of a qualification that BT would sensibly bring proceedings for contempt of court for the slightest breach. They have made it plain that they have no intention of so doing (indeed from the outset they have recognised the possibility of a rogue salesman). If BT were nonetheless so to proceed, then, if the defendants had truly taken all reasonable precautions to prevent a breach, it is most unlikely that they would be punished. There may well be no order as to costs (as Goff J indicated in Showerings) or even an order for costs against BT if the court thought the application pointless. All would depend on the circumstances. It would be sensible meanwhile for the defendants to inform BT (and to keep it informed) of what steps it has taken and is taking to comply with the order. If there is any flaw in what is being done BT could then point it out in advance. An omission to do so would clearly be relevant to the court's order in any subsequent contempt proceedings.

18. I understand that the remainder of the order has been agreed between counsel but I will hear them upon it.