Stockton-On-Tees Borough Council v Frost

For the statutory defence under section 92(5) of the Trade Marks Act 1994, the defendant must prove on the balance of probabilities that the belief was honestly held and based on reasonable grounds. Reasonableness is assessed by reference to the facts known to the defendant at the time, including the source and circumstances of supply, the price paid, and any warning signs suggesting counterfeit goods. A defendant’s inquiries of the suppliers will not necessarily suffice, particularly where the goods are sold at exceptionally low prices, receipts are absent, and the outlets appear suspicious. Where the accepted evidence permits only one conclusion, the appellate court may direct conviction rather than order a retrial.

Stockton-on-Tees Borough Council prosecuted Dawn Frost before Teesside Magistrates’ Court for 12 offences under section 92(1)(c) of the Trade Marks Act 1994, alleging possession of counterfeit branded sportswear with a view to sale. She accepted that the goods were counterfeit but relied on the statutory defence under section 92(5), asserting that she honestly believed the goods were genuine and had reasonable grounds for that belief.

The magistrates accepted her evidence and dismissed the summonses. The Council appealed by way of case stated, challenging the finding that her belief had reasonable grounds. The central issue was whether a properly directed bench could reach that conclusion on the accepted evidence.

The appeal was allowed. The court set aside the acquittals on the 12 summonses under the Trade Marks Act 1994 and directed the magistrates to convict, rather than order a retrial.

1. Statutory defence. Section 92(5) imposes a legal burden on the defendant to establish the defence on the balance of probabilities. The relevant question is whether the defendant believed on reasonable grounds that the use of the sign was not an infringement.
2. Assessment of reasonableness. Following R v Johnstone [2003] UKHL 28, the assessment is objective but based on facts within the defendant’s knowledge, including the source of the goods, the circumstances of supply, the prices paid, and the prices known to be charged for comparable goods. The court stressed that each case depends on its own facts. Essex Trading Standards v Singh [2009] EWHC 520 (Admin) and R (on the application of West Sussex County Council) v Kahraman [2006] EWHC 1703 (Admin) illustrated circumstances in which the defence had not been established.
3. Application. Frost had previously been warned that her activities might involve counterfeit goods. The outlets were lock-ups rather than recognisable retail shops, she produced no receipts, and she paid as little as one quarter or one third of approximate retail prices. Her inquiries of the suppliers did not provide reasonable grounds for belief, since the suppliers would naturally deny that the goods were counterfeit. The magistrates’ finding that she was honest was left undisturbed, but no reasonable bench could conclude that her belief had reasonable grounds.
4. Disposition. A retrial would have given Frost a second opportunity to produce evidence or advance a different defence. The proper time to present supporting evidence was the original trial. Since the accepted evidence permitted only one conclusion, the magistrates were directed to convict.

• Teesside Magistrates’ Court: dismissed all 12 summonses under section 92(1)(c) of the Trade Marks Act 1994.
• High Court (Administrative Court): on an appeal by case stated, allowed the Council’s appeal, set aside the acquittals and directed the magistrates to convict. The court also ordered costs, enforceable only with leave of the Divisional Court.