Cleopatra Seafoods Ltd v Khera & Ors

In construing a compromise reached through correspondence, the court must examine the correspondence which may contain or evidence the agreement, including earlier letters forming its contractual and factual framework. The final terms are construed objectively by reference to their language and the commercial context known when agreement was made. A later letter which substantially modifies earlier demands and omits other requirements may supersede them. A reservation of damages or other legal recourse, coupled with a condition referring to subsequent similar activities, may operate as a single conditional reservation. Clearer words are required to preserve an unrestricted damages claim. The majority applied that construction; the dissent would have treated the damages reservation separately.

Cleopatra Seafoods brought a passing-off claim concerning cooking oil sold in drums marked “Lucinda”. Before proceedings, correspondence in July and August 1999 led KTC (Edibles) Ltd, Indus Foods Ltd and related defendants to give undertakings concerning future dealings with the mark.

On a preliminary issue, the Central London County Court held that the claim against the first to third defendants had been settled by the correspondence and dismissed it. Cleopatra appealed. The central issues were whether the letter of 5 July 1999 formed part of the contractual framework and whether the reservation in the letter of 2 August preserved a general claim for damages or only remedies arising from subsequent similar activities.

By a majority, Cresswell J and Peter Gibson LJ dismissed the appeal. Arden LJ dissented and would have allowed it. The order dismissing Cleopatra’s claim was therefore upheld, with an interim payment of £3,500 on account of costs.

1. Relevant correspondence. The majority held that it was wrong to exclude the letter of 5 July merely by describing it as antecedent negotiation. The court had to determine which correspondence contained or evidenced the agreement and therefore had to consider the sequence beginning with that letter. This was consistent with the principle stated in Prenn v Simmonds [1971] 1 WLR 1381, while preserving objective construction.
2. Effect of the later letter. The demands in July had been substantially modified by 2 August. The later letter required only specified undertakings. It omitted earlier requirements for information, production of products, an indemnity and costs, while expressly referring to damages. That combination pointed away from the July demand for damages surviving as an independent term.
3. Construction of the reservation. The words concerning damages, “or any other legal recourse”, and subsequent similar activities were to be read together. The reservation applied only if KTC or Indus later became involved in similar activities prejudicial to Cleopatra. In that event, damages or other relief could be claimed. If a general damages claim had been preserved, clearer language would have been expected. Cleopatra accepted that no qualifying post-August activity was alleged.
4. Dissent. Arden LJ considered that the July letter remained relevant and that the reservation dealt with two separate matters: damages for any passing off already known about, and other remedies for subsequent passing off. She also relied on the objective-construction principles discussed in Investors Compensation Ltd v West Bromwich Building Society [1998] 1 WLR 896. She would have allowed the damages claim to proceed.

• Court of Appeal (Civil Division): On 23 July 2002, the majority dismissed Cleopatra’s appeal and upheld the dismissal of the claim. Arden LJ dissented and would have allowed the appeal. [2002] EWCA Civ 1260
• Central London County Court: His Honour Judge Fysh QC answered the preliminary issue affirmatively, holding that the claim had been settled by the correspondence and undertakings, and dismissed the claim against the first to third defendants on 27 February 2002.