Amanda Smith issued proceedings against Headline Publishing alleging fraud, breach of contract, misrepresentation and negligence on the grounds that Headline Publishing had deliberately attempted to get a negative report from a barrister that would allow it to refuse to publish the book. She alleged that there had been a breach of contract because the book had not been published.

The High Court ruled that Headline Publishing had not committed any fraud, misrepresentation, breach of contract or negligence by failing to publish the book. Due to the privacy and libel issues the book contained, Headline Publishing was entitled not to publish the book.

So all’s well that ends well – as far as the publisher is concerned anyway.

FP issued proceedings for alleged breach of contract, infringement of copyright and passing off, claiming that the defendants had breached the trading agreement by adopting a logo that was a replica of the ‘Edge’ title logo used on the cover of the gaming magazine. The defendants were also accused of making statements that FP and the defendants were associated.

The High Court has ruled that the use of the obvious replica logo by the defendants had fundamentally breached the agreement, which allowed FP to terminate. In addition, their actions were considered by the High Court to be passing off (as FP had goodwill, there had been a misrepresentation and customers would be confused), as well as copyright in the logo having been infringed.  Furthermore, despite the fact that there had been passing off due to statements being made on the defendants’ website, their trade mark was also held to be revoked for non-use as the US-based defendants did not conduct any genuine business in the UK – despite having infringing statements on their website that were directed at UK customers.

The court said that the Bangladeshi airline’s name was so similar to the US airline name that consumers would ignore any difference between “airline” and “airways” and as the services were the same (despite the routes being different), Section 10(1) was breached. Section 10(1) says that it is an infringement of registered trade mark rights if the same mark is used in respect of same services. Section 10(2) deals with similar names or similar services but with a likelihood of customer confusion. Section 10(3) relates to taking unfair advantage of another strong brand for example use of a name in bad faith. As to passing off, the US’s goodwill was made out, and it was clear that the Bangladeshi company’s use of the name would mislead consumers and cause confusion. There was no realistic prospect of defending any of those four claims, let alone all of them, and so summary judgment was awarded.

The court ruled that the claimant had built up goodwill in the local area through a long period (although under different owners), and that, despite coexisting with the defendant for six years, the defendant was committing a misrepresentation when trading in the same area (although the court admitted that trading in that patch was rare).

The court ruled that an injunction be issued to prevent the defendant trading under the name ‘Redwood Tree Surgeons’ within specific postcodes in order to protect the goodwill of the claimant and to prevent the passing off of the defendant’s business. In other places, the business could carry on trading as normal.

The ruling is an interesting example of how the courts can tailor their response to a passing off action to a specific location and depending on the size, triviality and effect of the passing off. To obtain wider protection rather than have to prove goodwill and the location of that goodwill, businesses should consider obtaining a registered trade mark, which would give them exclusive rights to use a particular name across the whole of the country for particular goods or services.

Yell successfully sued for registered trade mark infringement and passing off in the England and Wales Patents County Court, despite the websites being operated from abroad. The judge said that there was no law that a company situated abroad but using a website to commit acts in this jurisdiction escaped liability for those acts.

The Court of Appeal ruled as follows:

¨          The entire agreement clause excluded collateral warranties, but it did not exclude any liability for misrepresentations. The clause was interpreted narrowly so as only to reference terms, or even “representations” that would have become part of the contract but for the entire agreement clause. It did not stop a party from arguing that it had been induced into entering into the subsequent contract by a misrepresentation. The words “representations” and “supersede” were interpreted as talking about the terms of the contract itself rather than an inducement to enter the contract. Exclusion of liability for misrepresentation had to be clearly stated. Usual ways to do this would be to state that there had been no representations or that there had been no reliance on any representations in entering into the contract.

¨          The entire agreement clause did not stop terms from being implied into the contract to give it business efficacy.

¨          Having an entire agreement clause was reasonable and should not be struck out under the Unfair Contract Terms Act.

The lender – North Shore Ventures Ltd (“North Shore”) agreed to provide Anstead Holdings Inc (“Anstead”) with a loan facility for $50m.  North Shore was owned by Mr Boris Berezovsky and or his daughter Ms Ekaterina Berezovskaya.

 This facility was guaranteed by a Mr Fomichev and a Mr Peganov. Mr Peganov was a business associate of Mr Berezovsky. The guarantee included a term that a certificate signed by the lender North Shore for the amount of the indebtedness would be conclusive evidence for all purposes unless manifestly incorrect.

 North Shore obtained a judgment in default against Anstead for over $35m.  Proceedings were also brought against the guarantors who raised the following defences:

• The guarantee was unenforceable because North Shore, the lender failed to disclose to them that Mr Berezovsky was being investigated by the Swiss authorities for embezzlement of money due to Aereflot and as a consequence money paid to an associate in Switzerland would be frozen.
• North Shore and Anstead had varied the terms of the interest rate and therefore the certificate of indebtedness was incorrect.

 The Court of Appeal considered a number of previous cases.  The main one dating back to 1845 – Hamilton v Watson, where the House of Lords concluded that if it was necessary for a banker to disclose everything that is material for a surety to know, no banker could ever be satisfied that they had proper security.  Disclosure ought to be made voluntarily where there is anything that might not naturally be expected to take place between the parties, but the lender is not obliged to disclose other matters which might be material for the guarantor to know.  A guarantee is not like an insurance contract which is uberrimae fidei, where the insured is required to disclose all material facts to the risk.

In Royal Bank of Scotland v Etridge [2002], the House of Lords stated that it is well-established principle that a creditor is obliged to disclose to a guarantor any unusual features of the contract which makes it materially different in a potentially disadvantageous respect from what the guarantor might naturally expect.

The Court of Appeal concluded having reviewed all the previous cases that there is no duty of disclosure to disclose facts which are not unusual features.

In this case, it was agreed that the matters on which the guarantors relied were not unusual features and therefore it followed that there was no duty to disclose them. However, the lender had argued that where a lender knows that a guarantor is aware of unusual features, then a duty does not arise.  The Court decided that a lender is not absolved from his duty to disclose merely because he believes the guarantors may know these facts already.   In any event, the Court explained that if a guarantor knows of the relevant unusual facts normally the point would not arise because the failure to disclose the material fact does not constitute a misrepresentation on which the guarantor relied.

The lender also argued that the guarantors could not rely on an agreement to change the interest rates payable because a certificate had been issued which was conclusive evidence of the amount outstanding.  The court at first instance considered there was no consideration for the change and so was not enforceable.  The Court of Appeal disagreed and held that there was a variation, which was enforceable in law, which then meant that has been a manifest error and so the certificate was not conclusive evidence of the amount due.  This meant that the guarantors were obliged to pay sums owing to North Shore, but for a lesser sum.

This case is a useful reminder of the duty of disclosure owed to a guarantor.  The law takes a pragmatic approach to the extent of the duty. It is not sensible to disclose everything to a guarantor, but if a lender knows of unusual features then a lender is obliged to disclose this to the guarantor even if the lender believes the guarantor is aware of these unusual facts already.

North Shore Ventures Ltd v Anstead Holdings Inc and others [2011] EWCA Civ 230

In September 2001, Mrs Chandra gave  a guarantee in favour of Royal Bank of Scotland Plc limited to £700,000 and a legal charge to support company borrowings.  The company was involved in hotel development.  Although Mrs Chandra was a director of the company, her evidence was that at all material times she placed trust and confidence in her husband in relation to business matters.  Despite being a co-director she had no involvement in the business and had only visited the hotel once after the receivership had commenced.  A solicitor had been nominated to advise her on the meaning of executing the guarantee.

The Court of Appeal accepted that it was impossible to classify every type of situation in which improper or undue influence can be said to have been used to persuade a person to enter into the transaction under review.  However, clear examples are where there is a conscious deception, an abuse of confidence or a trusted adviser who prefers his own interest.

Undue influence is concerned with the abuse of relationship of trust and confidence between husband and wife.  At first instance there was no finding of undue pressure and this was not relied on in the appeal.  Mrs Chandra therefore had to rely on what was said by Mr Chandra as being a material misrepresentation which entitled her to have the guarantee set aside.

Mrs Chandra claimed that she had signed the guarantee as a result of her husband’s misrepresentation.  The misrepresentation was that the amount being borrowed would be enough to complete the development of the hotel.  Did this amount to a misrepresentation?  There was a lot of analysis in the judgment of the status of this statement.  However, the Court of Appeal concluded that this was not a misstatement.  It was an over-optimistic assessment of the chances of a future overspend.

As Lord Nicholls explained in the renowned House of Lords’ judgment of Royal Bank of Scotland Plc v Eteridge, which was delivered some 19 days before the execution of the guarantee: “when a husband is forecasting the future of his business and expressing his hopes or fears, a degree of hyperbole may only be natural and the courts should be slow to treat such exaggerations as misleading.”

Having decided that there was no misrepresentation, there was no need to consider the question of whether the bank was fixed with constructive notice of the undue influence or misrepresentation.

This case provides a good example of how a wife may attempt to set aside the guarantee that she has provided.  Mrs Chandra was unsuccessful as she was unable to establish that there had been undue influence nor could she establish a misrepresentation.  Where an allegation of misrepresentation is made, the courts will examine carefully the meaning and the impact of the alleged statement.  Merely because a statement is incorrect it does not automatically amount to a misrepresentation entitling a person to set aside the guarantee.

Royal Bank of Scotland Plc v Mr and Mrs Chandra [2011] EWCA Civ 191

Based on the evidence before the judge, he was satisfied that this would meet the elements of passing off as follows: the claimant had obtained a reputation in the domain name ‘offshorelsm.com’, there had been a misrepresentation by the way the domain names had been used that could lead visitors to the site into thinking that the web sites were Lifestyle Management’s, and there was damage. In addition, it was argued that the actions could amount to reverse passing off as the copy web sites had content that was potentially untrue, which would damage Lifestyle Management’s reputation and credibility.

It must be emphasised that this was an interim ruling and not a full hearing, so this does not amount to a final decision on all the facts. However, the award that the court made is of interest. The High Court ordered an interim injunction against continued use of the domain names. For now, they should merely be used to be directed to a blank web page. As to whether or not the claims had substance and the domain names would be transferred to the ex-client, that would all depend on the outcome of the parties’ full arguments at the main trial.

The car was advertised as a “1930 Speed Six Bentley”, and the defendant warranted that the car had a 1930 Speed Six engine. The car was bought by the claimant on hire purchase through three contractual agreements, each of which described the car as a “1930 Speed Six Bentley”. A year after receiving delivery of the car, the claimant discovered that the engine of the car was actually a 1927 reconstructed standard engine. The claimant claimed against the defendants for damages for breach of warranty and damages for breach of contract, the damages amounting to the hire purchase installments paid and the deposit submitted initially.

The court ruled that the value of the reconstructed engine was significantly lower than the original engine that the claimant believed they were purchasing. The pre-contract representations were inaccurate and misleading in relation to the engine, and the contractual agreements merely accentuated this inaccuracy. The claimant received all the hire purchase payments that she had made as damages, as she was entitled to rescind the contract and the payments were recoverable as reliance damages.

In an earlier round, the High Court agreed with Diageo that sellers of vodkat had been passing their drink off as vodka. ‘Vodka’ had a reputation and goodwill relating to a particular class of clear, tasteless, distilled, high-strength alcohol; vodkat had been marketed in such a way as to deceive a substantial number of members of the public; and sufficient numbers were actually confused, resulting in lost sales and erosion of the distinctiveness of the vodka brand. The High Court ruled that, as with certain other defined classes – like Champagne, Sherry, Scotch Whisky, advocaat and Swiss chocolate in previous court cases – vodka was a clearly defined class of goods too, meaning that vodka traders collectively shared the goodwill in the vodka name.

The ruling was appealed and the Court of Appeal has now upheld the High Court’s ruling. IB argued one point: that the rights for collective distinctiveness applicable to a class of product as in this case should only apply to products having a certain cachet – ie that they were perceived by the public to have a superior quality or be a premium product, and vodka did not have that quality. Nonsense, said the Court of Appeal. There was nothing to suggest that that further hurdle had to be overcome. The Court dismissed IB’s argument that this would open the door to other products sold in large quantities such as white paint arguing the same thing. White paint was a purely descriptive term and paint manufacturers could not argue that they had acquired goodwill in the type of product that was white paint (as opposed to the paint manufacturer’s own particular brand of white paint) in the way that vodka manufacturers had to that collective brand. IB was therefore liable under the extended form of passing off.

Since Diageo won in the High Court and now the Court of Appeal, they could make that a double.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This case shows the scale of the damages that can be incurred if something goes wrong, which frequently does happen with IT projects. That is why it is important for a supplier to have a good contract in place at the outset so as to be protected against a catastrophic event that could cause disproportionate losses. In most cases, it is possible to cap liability, although the clause needs to be well-drafted to comply with the law. If the clause does not work legally, courts often refuse to uphold them.‘

The High Court agreed with Diageo that sellers of vodkat had been passing their drink off as vodka. ‘Vodka’ had a reputation and goodwill relating to a particular class of clear, tasteless, distilled, high-strength alcohol; vodkat had been marketed in such a way as to deceive a substantial number of members of the public; and sufficient numbers were actually confused, resulting in lost sales and erosion of the distinctiveness of the vodka brand. The judge ruled that, as with certain other defined classes – like Champagne, Sherry, Scotch Whisky, advocaat and Swiss chocolate in previous court cases – vodka was a clearly defined class of goods too, meaning that vodka traders collectively shared the goodwill in the vodka name.

Sounds like a good result for Smirnoff. I wonder if they had a drink of the stronger stuff to celebrate?

The High Court has sided with Sky and the cap on liability in the contract does not apply. Consequently, the losses claimed by Sky could far exceed the contract price, although a separate hearing will take place to ascertain the amount of losses. In itself, this case is a massive result, even though full details of the judgment are yet to be published.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘This is the biggest IT case for many years. As an indication of how big this case has been, the combined legal fees of the parties so far has exceeded the contract price of £50m! Regardless of the hundreds of millions involved, though, this case has massive implications. Liability clauses need to be very carefully drafted to try to limit a party’s liability. For example, many clauses try to limit liability to x% of the contract price. However, no liability clause can exclude or limit liability for fraudulent misrepresentations.

‘Although we have not yet seen the finer points of the judgment and it may also yet be overturned on appeal, this case will send shock waves through the entire IT industry, and indeed any industry where salespeople operate and stretch the truth. If they promise something which is not true and the other party enters into a contract in reliance on those promises, that other party may be able to claim unlimited damages if the thing promised does not materialise. There will be a lot of businesses that should now be concerned about the legal implications created by their sales staff.’