Scottish Court of Session Decisions

Pursuers: Lord Davidson of Glen Clova QC; Dundas & Wilson CS LLP

Defender: J MacKenzie, solicitor advocate; Shepherd & Wedderburn

13 March 2012

[1] In this action the pursuers seek interdict against (a) the infringement of four trade marks, and (b) the defenders passing off their goods or services as connected to those of the pursuers by using the name "Gleneagles" and an eagle symbol. The relevant trade marks concern real estate development and related activities. The pursuers aver that, in addition to their well known hotel, they market a range of products and services under the "Gleneagles" name. Their business activities include providing serviced dwelling plots within the grounds of the hotel. On 30 June 2011 the pursuers became aware that the defenders were using the "Gleneagles" name and an eagle symbol or device similar to that used by the pursuers, all in connection with their conservatory business. The defenders were incorporated in March 2007, but were dormant until at least 5 April 2010. Unsuccessful attempts were made to achieve an amicable resolution of the matter. In September 2011 the pursuers discovered that the defenders had filed applications for trade marks for "Gleneagles Conservatories." It is averred that these activities create the likelihood of confusion in the minds of the public who will associate the Gleneagles name and the eagle device with the pursuers.

[2] In response the defenders state that the name Gleneagles Conservatories was first used in 1993, and was subsequently advertised to the public at large. As a geographical location, "Gleneagles" is commonly used in trade names. It does not distinguish and identify the pursuers as the sole origin of goods and services. The sign adopted by the defenders is "quite distinct" from that of the pursuers. It is made clear that the defenders provide conservatories. "There is no likelihood of confusion in the minds of the public."

[3] The pursuers' claim is based on alleged infringements under sections 10(2) and (3) of the Trade Marks Act 1994. Reference is also made to para 1 of article 9 of Council Regulation EC No. 207/2009. The conduct of the defenders is "calculated to take advantage of the reputation and goodwill of the pursuers." They have no legitimate connection with the pursuers and are taking unfair advantage of the pursuers' marks and reputation. They are passing off their business as being associated with the pursuers. The defenders deny the pursuers' averments and call upon them to say whether anyone has ever asked them to supply a conservatory.

[4] The defenders have lodged a counterclaim seeking revocation of the pursuers' community trade marks so far as they relate to "real estate development, repair, construction and installation services", all in class 37. This is supported by averments that the trade marks have not been put to genuine use in the community in connection with such services. Revocation is also sought under the terms of article 51(1)(a) of the Regulations on the basis that Gleneagles is the name of a place in the UK. The use of the term "Gleneagles" serves to indicate the geographical origin of the goods and services for which the marks are registered, and as such they are invalid in terms of article 51.

The application for caution and the parties' submissions

[5] The pursuers have invited the court to ordain the defenders to lodge caution in the sum of £68,000. The application is aimed solely at the pursuit of the counterclaim. No motion is made in respect of the defence to the principal action. On behalf of the pursuers Lord Davidson of Glen Clova QC acknowledged that the application can be made only at common law. He referred to financial information which demonstrates that the defenders have only recently commenced trading, and that it is unlikely that they would be able to satisfy any substantial award of expenses granted in favour of the pursuers. Counsel stressed that the action is becoming ever more complex. A schedule was provided which indicates that the managing director of the defenders has a history of setting up companies which are then dissolved, often without having filed returns. It was submitted that the counterclaim goes beyond a defence to the principal action. It seeks positive orders of revocation of the pursuers' trade marks. Under reference to Thomas Jackson (Trustee in sequestration of Ferguson, Lamont & Company) v Lamont (1889) 17 R 282, Lord Davidson submitted that, for present purposes, the defenders have converted themselves into pursuers, thus caution should be required. Counsel accepted that whether to order caution is a matter entirely within the discretion of the court.

[6] For the defenders Mr MacKenzie submitted that the defenders are entitled to resist the pursuers' claim for interdict. The company is solvent, albeit it has modest assets and a limited trading history. The counterclaim has not made the company, in substance, the pursuers in the cause. It is intimately connected with the principal action, and is part of the defence to that claim. The whole question of caution and controlling access to justice is a matter at the court's discretion, to be exercised according to the justice of the case. Mr MacKenzie drew attention to the limited nature of the revocations sought in the counterclaim, which was "hardly a large scale attack on the pursuers' trade mark rights." The counterclaim was necessary in order to ensure that he was not met with a plea that he could not resist the main proceedings on the grounds of invalidity without also seeking revocation. The defenders contend that the use of the mark is to identify the geographical location of the development and hence is not a genuine use of a trade mark.

[7] Mr MacKenzie continued by submitting that, in the absence of the counterclaim, the principal action would still be defended, not least in respect of the pleas that there is no infringement and no passing off. The ability of the defenders to put forward a full defence on all available fronts should be restricted only in exceptional circumstances. The defenders are not rich, but equally are not insolvent. It would be unfair to force them to drop part of their defence to the pursuers' action. Given that caution is not sought regarding the principal action, the pursuers will still face a contested proof. If caution is found, the pursuers could not use it to satisfy an expenses award regarding the principal action. Mr MacKenzie questioned the practicability of identifying the expenses incurred solely in respect of the counterclaim, given that it is so intertwined with the defence to the main action. Furthermore, the facts of the case are relatively simple and straightforward, the main question being the consequences in law.

[8] In response Lord Davidson submitted that successful litigants should not be left with unenforceable awards of expenses. This is an exceptional case. A very small company is "taking on" four of the pursuers' trade marks. Everyone knows that Gleneagles builds houses in its grounds. The counterclaim is bound to fail. If it falls away, so would the direct threat to the pursuers' trade marks. The counterclaim has made this a much more serious case for the pursuers. Before the counterclaim, this was "just a little local difficulty." The counterclaim is of a nature which justifies caution. A four day proof has been reserved for late May, but in the meantime the pursuers' brand is being diluted. The defenders are having a "free ride" on the back of the pursuers' name and mark.

Discussion and decision

[9] The present application is brought at common law. (Section 726 of the Companies Act 1985 applies only to pursuing companies). Mr MacKenzie did not challenge the competency of the application, but submitted that there would require to be some special feature before a defending company, even if of modest means, would be required to find caution as a condition precedent for maintaining a counterclaim.

[10] Caution can be ordered when there is a substantial risk that any award of expenses will not be satisfied (insolvency is not a prerequisite), and it would be inequitable that a party should be allowed to proceed without providing security for costs. It was accepted by both parties that the court has a wide discretion, which is to be exercised with regard to all the relevant circumstances of the case. In general it will not be regarded as fair that an impecunious defender be prevented from resisting a claim by virtue of an order for caution. He is not primarily responsible for the litigation, but is responding to an action raised by the pursuer. Absent some special feature, it would not be just to place a perhaps insuperable obstacle in his way.

[11] Counsel for the pursuers submitted that the defenders have "altered the complexion of the case" by counterclaiming and thereby challenging the validity of the pursuers' trade marks in respect of real estate development. For present purposes, the defenders should be treated as if they were pursuers, at least so far as the counterclaim is concerned. On the other hand Mr MacKenzie submitted that the counterclaim is an integral part of the defence. It was served for the technical reason that part of the defence requires, or at least may require, an application for partial revocation of the marks, and that can only be done by way of a counterclaim.

[12] When considering where the equities lie, in my view it is relevant to bear in mind that, whatever the outcome of the present application, the pursuers will still face a proof which is contested on various grounds. Furthermore, even if the counterclaim were to fall, it is entirely possible, perhaps likely, that the argument currently focused in the counterclaim would still be deployed as part of the reasons for inviting the court to refuse interdict and absolve the defenders.

[13] The pursuers insist that the counterclaim is without merit. I appreciate that there are cases which suggest that a party's prospects of success can be taken into account, but I would be cautious about embarking upon a consideration of such a submission, or placing decisive weight upon it, when, necessarily, the argument has concentrated on other matters and the full facts have not been explored. I am more influenced by my understanding that, even leaving aside the counterclaim, the full facts of the case would still be explored at the proof in respect of the principal action and the defences to it. An argument concerning revocation would no doubt lengthen the legal submissions, but I would not expect this to add significantly to the duration or complexity of the proof.

[14] The court is being asked to order caution to provide security for costs in respect of only part of the defenders' reasons for resisting the pursuers' claim. That would be an unusual course to take. In Robb v Dickson (1901) 9 SLT 224 a joiner sued for the balance of work which had been measured by the defender's surveyors. The defender lodged a counterclaim for damages based on delay in the completion of the work. The court concluded that, apart from the counterclaim, there was no defence to the principal action, therefore the defender and counterclaimer was "truly the pursuer" in the cause, and being bankrupt, was ordered to find caution. In my view the same cannot be said in respect of the present case. The defenders state lines of defence which are quite separate from those raised in the counterclaim. Counsel for the pursuers relied heavily upon the case of Jackson v Lamont (cited above). The trustee in sequestration of a firm sought to have the bankrupt interdicted from infringing a patent which formed part of the bankrupt's estate. The defence was that the patent was invalid. The court ordered the defender to find caution, again on the basis that, in substance, he was the pursuer in the action. The action was prompted by the following circular issued by the bankrupt defender under the name of "The Antiseptic Company Universal Food Preservative":

"Dear Sir - Owing to private losses the business of the Antitropic Company, of which I was sole proprietor, has passed into other hands. Having made favourable purchases of material, I am now in a position to supply the trade at a reduced price with the preservative which will be found identical in sample to the first quality of Glacialine I have hitherto sold. By further effecting certain economies in manufacture and expenses, I am enabled to sell direct to the consumer and my late customers at prices 20 per cent to 30 per cent below former quotations. My experience in the manufacture of antiseptics over the past ten years is a guarantee of the purity and efficiency of our goods. Referring you to our quotations attached, and soliciting a continuance of your esteemed orders, - I am, yours truly, C Lamont, late proprietor Antitropic Company."

The trustee in sequestration presented a note of suspension and interdict for the purpose of having Lamont interdicted from infringing the relevant patent; from making or selling any compound made according to the specification; and from infringing the complainer's right in and to the trade mark and the trade name "Glacialine." In answer the respondent explained that the name "Antiseptic" was a descriptive name which had for many years been used to designate the commodities he proposed to sell, which commodities were not protected by the patent; and that the alleged invention had been publicly disclosed, and had been in common use prior to the date of the patent. He explained further:

"First, that the final specification appended to the said letters - patent is not in conformity with the provisional specification; second, that the patentee has not in his said letters - patent sufficiently distinguished what is old and not claimed by him from what is new and claimed by him; and third, that the final specification does not sufficiently disclose the method in which the said alleged invention is to be used and applied."

[15] The Lord Ordinary, Lord Kyllachy, refused a motion that the respondent be ordained to find caution for expenses, stressing the "settled rule" that a bankrupt defender should not be required to find caution unless the sequestration has divested him of all immediate interest in the subject of suit. Here the defender was subject to an interdict which would prejudice his ability to earn a livelihood. It made no difference that the patent said to be infringed formerly belonged to the defender and was now vested in his trustee, nor that the defender was denying the validity of a patent previously exploited by him. That related only to the merits of the case. On a reclaiming motion, Lord President Inglis observed that "This is certainly a very peculiar case." He noted that the patent was a valuable asset in the bankrupt's estate, and continued:

"Now, if the respondent had confined his allegations to merely stating that what he was using in his trade was different from what was contained in the patent, his position would have been different, because he would have been simply defending himself against the allegations of infringement, and the issue would have dealt with the infringement of the patent. That, however, is not the position of the bankrupt here. On the contrary, he converts himself into a pursuer as soon as he attacks the validity of the patent, and upon the record he attacks it on all the well known grounds on which patents are usually assailed...When the object he pursues is to destroy what is prima facie a very valuable asset of the bankrupt estate, he is in a most unfavourable position. I am therefore of the opinion that he must find caution."

Lord Adam stated:

"The respondent is practically the pursuer because the complainer is in possession of an ex facie valuable patent, for which £5,000 was originally paid, and only in June last the complainer paid off a mortgage of £800 affecting it. That it is therefore, in his opinion, a valuable asset of the bankrupt's estate there can be no question. What the bankrupt is doing is to challenge the validity of this patent in the usual and well known grounds, which are set forth in his answer to statement 11. Now, there is no doubt that if the case goes to trial he will have to stand as the pursuer in the issues taken on all these heads. He is therefore de facto pursuer in the action, and I am of opinion that he cannot be allowed to attack the valuable asset of the bankrupt estate without finding caution for the expenses of the action."

Lord McLaren observed:

"When the bankrupt is defender, he is not in general called upon to give security for expenses, but it is a matter of discretionary administration whether the court will compel him to do so; and I think no better reason can be found for exercising that discretion, in the sense of calling upon the defender to find security, than the circumstance or reason that although by the form of the action he is defender, he is in substance pursuer. Your Lordship has pointed out that such is the position of parties in the present case; and just because the question of finding caution is a matter of discretion in the case of a defender, I am of opinion that wherever it can be shewn that the defender is virtually a pursuer, that discretion ought to be regulated according to the rule applied to a person who is in form a pursuer."

[16] It is not difficult to understand why counsel for the pursuers emphasised this decision. However, the Lord President stressed that the only defence to the action was to be found in the attack on the validity of the patent, and Lord Adam pointed out that, in this, the onus would be on the defender. The ground of the decision was that the defender was truly the pursuer in the real dispute between the parties. He was in the unsympathetic position of having profited from a patent while solvent, then seeking to continue to exploit his business after bankruptcy by challenging its validity.

[17] In my opinion the present defenders are not in a similar position to Mr Lamont. They are not the true pursuers in the cause. Even leaving aside the attack on the validity of the trade marks, they have major additional lines of defence; essentially that they carry on a completely different form of business from that of the pursuers and that there is no real risk of confusion in the minds of the public, nor of dilution of the pursuers' brand. The position stated in the defences is akin to the first example given by the Lord President in the passage quoted above. The defences to the claims under the Trade Marks Act do not depend upon revocation. The counterclaim is an additional line of attack, but is not such as to, in effect, make the conservatory business the main protagonist in the issue between the parties.

[18] The weakness of the pursuers' position is demonstrated by their restriction of the application to caution for expenses in respect of the counterclaim alone. If the defenders are the true pursuers in the dispute between the parties, caution would be appropriate in respect of both the principal action and the counterclaim. As it is, the pursuers are seeking security in respect of only one of the issues between the parties.

[19] It might be different if the counterclaim concerned something separate from or unconnected with the subject matter of the principal action. However there is an obvious connection or link between the principal action and the counterclaim. In William Dow (Potatoes) Limited v Dow 2001 SLT (Sh Ct) 37, Sheriff Principal McInnes discussed whether it is competent to make an order for caution in relation to a counterclaim alone where there is no admission of a pursuer's claim. At page 41 the Sheriff Principal said:

"In principle there would appear to be no reason why caution should not be required to be found in relation to a counterclaim alone, even in cases other than those in which it is no longer necessary for the court to reach a decision on the merits of the principal action. The number of cases in which that will be appropriate will no doubt be small but it is not difficult to envisage a case in which a counterclaim, which is not inextricably linked with the principal action, may appear to amount to an abuse of process. In such a case it may be that the sheriff would consider that the procedure in relation to the counterclaim should be dependent on the party counterclaiming finding caution for the expenses of it....It is apparent from the pleadings in these counterclaims that the defender wishes to pursue a number of matters which appear to arise out of his relationship with his former wife, matters which have little or nothing to do with the merits of the principal actions. If the defender has reasonable prospects of success either in his defence to the principal actions or in relation to the counterclaims it is significant that his trustee has not applied to become a party to either of them. On the basis of the defender's pleadings it is at least possible that he sees his counterclaims as an opportunity to settle scores with his former wife, to secure a financial benefit for himself or to cause her financial detriment, without financial risk to himself. If that is so he should not be assisted to impose that risk on the pursuers. In these circumstances in my opinion this is a case in which it is appropriate to ordain the defender to find caution in connection with the counterclaim."

The Sheriff Principal noted "The defender has not put forward a clear or detailed defence. His defence lacks candour and is almost wholly restricted to making the pursuers prove their case." So far as the counterclaims were concerned the Sheriff Principal continued:

"In relation to them the defender is intent on pursuing claims for very substantial sums. In his counterclaims he appears to wish to raise a number of issues which would require extensive investigation and which would be likely to incur considerable expense for both parties. If he wishes to pursue these matters it is not unreasonable that the pursuers should have some reassurance that, in the event of their success, they would be able to recover at least a substantial proportion of the expense to which they will have been put by the defender by raising these claims. In these circumstances I am of opinion that it is not unreasonable to require the defender to find caution in respect of the counterclaims only."

[20] It is not difficult to identify important points of distinction between the circumstances of that case and the present. Here there is a clear link between the counterclaim and the principal action. The counterclaim is not an abuse of process. There is no suggestion that the defences to the main action lack candour and simply put the pursuers to the proof of their case. In William Dow the pursuers sought payment of under £13,000, while the defender counterclaimed for £325,000. There is no such mismatch in the present case. Furthermore, the counterclaim will not require the investigation of extensive additional issues at considerable expense.

[21] In summary I consider that the defenders cannot properly be described as the true pursuers in the cause. The pursuers run a hotel business and, amongst other things, build houses for sale or let within the hotel grounds. The defenders erect and repair conservatories. The essence of their defence is that they are not passing off their business as that of the pursuers; there is no likelihood of confusion on the part of the public; and there is no unfair advantage being taken of, or detrimental to, the distinctive character or the repute of the pursuers' trade mark. The counterclaim is a separate and additional line of defence. In my opinion it does not predominate in the manner required to justify an order for caution. The defenders have a material interest to defend the pursuers' claim and grounds for that defence which do not depend upon the counterclaim. In my view it would be unfair and oppressive if the defenders' lack of funds precluded them from using all arguments legitimately available to them to resist the claim for interdict. In any event the defenders could transplant the averments in the counterclaim into their defences to the principal action as a further justification for resisting the grant of interdict, albeit without any crave for revocation.

[22] Mr MacKenzie did point to the contrast between the size and wealth of the parties; the pursuers being wholly owned by Diageo, which he described as the largest drinks business in the world. I do not consider that this factor can carry much weight in the overall balance. As to the sum sought, namely £68,000, initially Lord Davidson described this as a rough estimate of 70% of the likely overall costs to be incurred by the pursuers. On any view the costs referable to the counterclaim would be considerably less than this. There was no real attempt to identify an appropriate figure in this regard. If I had been ordering caution, I would have specified a much smaller sum than that sought by the pursuers. As it is, I shall simply refuse the application.