Fearns (t/a Autopaint International) v Anglo-Dutch Paint & Chemical Company Ltd & Ors

In assessing damages for trade mark infringement, passing off and related contractual breaches, the claimant bears the burden of proving loss, but damages are assessed liberally because the defendants are wrongdoers. The aim remains compensation rather than punishment. Where wrongdoing creates uncertainty about what would have happened, the court may resolve that uncertainty by making assumptions generous to the claimant. A claimant may recover profits lost from the induced loss of a customer network even where the underlying business would have failed independently. Causation may be inferred where unlawful conduct was deliberately intended to induce a particular response and that response followed, although the unlawful conduct need only be one inducing factor.

The judgment concerned an enquiry into damages following the earlier liability judgment, in which the defendants were held liable for trade mark infringement, passing off and breaches of several agreements. The Court of Appeal had set aside the earlier causation findings and required the issue to be decided afresh.

The principal questions were the extent of unauthorised sales, the resulting lost profits and contractual credits, whether the unlawful conduct caused the loss of the claimant’s franchisee network, and whether that loss caused the collapse of the business. The enquiry also addressed royalties under the Australia agreement and credits under the Malta agreement.

1. Causation. The issue of whether the defendants’ unlawful conduct caused the loss of the franchisees had to be decided afresh because the earlier findings had been set aside. The unauthorised use of the claimant’s trade mark at the June 2005 meeting was a factor inducing the franchisees to transfer their business. The offer of continuity of supply under the established brand materially enhanced the defendants’ proposal, and the defendants’ own evidence showed that they regarded the branding as important. Once the franchisees had collectively committed themselves to the defendants, their later choice to continue buying under the new Tempo mark did not eclipse the causal effect of the earlier unlawful conduct.
2. Business failure. By May 2005 the business had negative net worth and was no longer a going concern. Even if the unauthorised sales had instead been made by the claimant, the additional profits would not have materially altered its financial condition. The collapse of the business was therefore not caused by the loss of the franchisees or the defendants’ unlawful acts, although the claimant remained entitled to compensation for profits lost during the period in which the franchisees would otherwise have continued purchasing.
3. Assessment. Applying General Tyre & Rubber Co v Firestone Tyre & Rubber Co Ltd [1975] 1 WLR 819, damages were assessed liberally but compensatorily. Applying Armory v Delamirie (1722) 1 Stra 505, uncertainty created by the defendants’ wrongdoing was resolved on assumptions generous to the claimant. Damages for unauthorised sales were assessed at £162,679. Further credits and royalties were assessed at €101,094, €26,521 and €6,012. The provisional assessment of further franchisee-network losses was left open for consequential submissions, together with interest and currency-conversion issues.

1. Earlier High Court liability judgment: liability was established and an enquiry into damages was ordered.
2. Court of Appeal: the appeal on consent was dismissed, but the causation issue was allowed to be reconsidered. The present court treated the causation issue as requiring a fresh decision.