its product, the Caterham Seven or Super Seven, and alleges that the Birkin 5 Seven, the product of the first respondent (the first
defendant, "Birkin") is
being passed off as that of Caterham's. Both these sports cars are replicas 7 of this particular Lotus model, a car with a classic
and distinctive shape and
appearance. (I use the term "replica" to mean a copy or reproduction made 9 by someone other than the original designer).
Even an expert finds it
difficult to distinguish between these three cars from a relatively short
11
distance.
[2] The essence of Caterham's contention on appeal is that the use
13 of the numeral Seven has become distinctive of a sports car having the
particular shape and external configuration of the Lotus Seven Series III and
3 1 that the use of a Seven in relation to a sports car having this shape and
configuration serves to identify the car as emanating from Caterham or its 3 predecessor. Caterham, at the hearing of the appeal,
abandoned any claim
for damages and limited the relief sought to an interdict restraining the 5 respondents from manufacturing, marketing, selling and
exporting from
South Africa a sports car having the said shape and configuration which 7 uses upon or in relation thereto the numeral Seven in either
alphabetic or
numeric form. There are no registered trade marks, designs or patents that 9 have a bearing on Caterham's rights. It is no longer
argued that Birkin was
guilty of the general delict of unfair competition as set out in Schultz v Butt 11 1986 (3) SA 667 (A). More importantly, the application
of the principles
concerning passing-off in relation to a get-up shorn of a distinctive name 13 do not form part of Caterham's case on appeal (cf Weber-Stephen
Products
Co v Alrite Engineering (Pty)Ltd and Others 1992 (2) SA 489 (A); Reckitt 15 & Colman Products Limited v Borden Inc and Others
[1990] RPC 341
4 1 (HL)). The reasons will become apparent. Initially Caterham's main claims
related to copyright infringement. All the original claims were dismissed 3 by the trial judge, Howard JP, in the Durban and Coast
Local Division. He
refused leave to appeal on copyright but granted leave on passing-off.
5
[3] For the background facts I rely heavily upon the judgment of
Howard JP, and what follows is in part a quotation from it. The Lotus 7 Seven sports car was designed by the late Colin Chapman and
developed,
manufactured, marketed and sold from about 1957 to 1972 by one or more 9 companies in the Lotus group which Chapman founded. Nothing
turns on
the structure of the Lotus group and I shall refer to these companies singly 11 and collectively as "Lotus". The Lotus Seven
was designed as a relatively
cheap sports car which would appeal to motor racing enthusiasts. Four 13 models were designed and built consecutively and they were
identified as
the Series I (1957), Series II (1960), Series III (1968) and Series IV (1970) 15 respectively. There is a suggestion that Chapman
did not have a hand in
5
1 the design of the last model and that it was marketed somewhat against his will, but that is of no consequence. Of importance to
this case is the Series 3 III.
[4] Caterham is a company incorporated and registered in
5 England and it carries on business as a motor dealer and manufacturer of
sports cars at Caterham in Surrey. It became a distributor of Lotus cars in
7 1959 and the sole distributor of Lotus Seven sports cars in the United
Kingdom from about 1965. Lotus ceased manufacturing any car in the
9 Seven series in 1972, by which stage the version then in production was the
IV. In terms of a written agreement dated 28 February 1973 the plaintiff
11 purchased from Lotus, inter alia,
(i) the exclusive right to manufacture, sell and distribute Lotus
13
Seven Series IV cars (and subsequent series thereof) in the
United Kingdom and certain European countries;
15
(ii) the right to manufacture, sell and distribute spare parts for
6
1
Lotus cars of whatever series and the exclusive right to
describe itself as 'Lotus Seven Spares Distributor', and
3
(iii) the right to use the Lotus symbol in connection with the
manufacture, sale and distribution of spare parts but not
5
otherwise.
(My underlining.)
7
[5] Pursuant to this agreement Caterham manufactured and sold
about 30 Series IV cars. Thereafter it began manufacturing the earlier 9 Series III, using jigs, tools and drawings which it had received
from Lotus,
presumably for the purpose of manufacturing spare parts for that model. 11 Lotus acquiesced in the manufacture and sale of the Series
III cars and
accepted payment of royalties in respect of them as though they had been 13 manufactured pursuant to the agreement. Since then Caterham
has
continued to manufacture the Series HI, with modifications and 15 improvements from time to time, and to market and sell it as the
Caterham
7 1 Super Seven car. (The evidence is not always consistent and reference is
also made to the car as a Caterham Seven.) Subsequently, during the period 3 1985 to 1988, Lotus and Caterham entered into a number
of agreements in
which copyright and, more importantly for purposes of this case, the alleged 5 rights to goodwill and to the unregistered trade marks
Seven, Super Seven
and Super 7 were assigned to Caterham. There was an initial assignment 7 during 1985 relating to the UK and Europe, but it was superseded
in 1988
by an assignment of all the rights to and in these trade marks together with 9 the goodwill in the business of manufacturing and selling
Lotus Seven cars
in all countries in the world excepting North America.
11
[6] Birkin is a local company which carries on business as a
manufacturer of sports cars at Pinetown. Its replica of the Lotus Seven 13 Series HI is marketed and sold in South Africa under the
name of Birkin
Seven or Super Seven and is also exported to Japan. Watson (the second 15 respondent/defendant) is the managing director of Birkin.
Howard JP
8
1 found no reason to disbelieve his evidence as to how he designed and
developed the Birkin model. He is a mechanical engineer with
3 considerable experience in building and working on sports cars. From
about 1981 when he moved to Durban and started an engineering business
5 he became acquainted with a syndicate of people who were engaged in
building replicas of the Series III. He purchased a chassis from a member
7 and built a replica for himself. He also made parts for other members of the
syndicate and by the end of 1982 he had recognised a commercial
9 opportunity.
[7] Watson knew that Lotus was no longer making the Series III
11 and that Caterham was manufacturing a replica. During January 1983 he
proposed to Caterham's managing director, Mr Neam, that Birkin be
13 licensed to manufacture and distribute Caterham Super Seven cars in South
Africa. The terms upon which the plaintiff was prepared to do business
15 with Birkin were unacceptable to Watson and the proposal was dropped.
9 1 Watson thereafter approached Status Cars (Pry) Ltd in Pietermaritzburg, the
local distributor and service agent for Lotus. This culminated in an
3 agreement of 20 January 1983 in which Status Cars recorded that Lotus had
accepted in principle a proposal that Birkin would manufacture a replica
5 of the Lotus Seven Series III under licence to Lotus but not bearing the
Lotus name, that the vehicle would be marketed through Status Cars and
7 that it would be named the Classic Super Seven. Watson went ahead with
the venture believing that he had the approval of Lotus.
9
[8] Birkin produced a prototype for a launch in Pietermaritzburg
on 12 October 1983. Present were Chapman's widow, Mrs Hazel Chapman,
11 Peter Waugh, the manager of Team Lotus International Ltd, Nigel Mansell
and Elio de Angelis, the Team Lotus Formula 1 drivers, and Mike Bishop
13 who was the export sales manager for Lotus. Team Lotus International Ltd
was involved in Formula 1 motor racing and was not a member of the Lotus
15 group. Mrs Chapman unveiled the prototype and the launch received wide
10
1
press publicity. Birkin produced these cars for Status Cars in accordance
with their arrangement. Twelve were produced during the period from 15 3 December 1983 to 14 January 1985. Thereafter a written contract
was
concluded in terms of which Birkin granted to Lotus Motors (Pty) Ltd, the 5 successor of Status Cars as local agent of Lotus, the
exclusive right to sell
worldwide all Classic Super Seven vehicles manufactured by Birkin. The 7 venture was not a success and was terminated in August 1985.
[9] At about the same time Watson reopened negotiations with 9 Neam for a licence. These foundered, with Neam threatening legal action
for infringement of copyright, knowing full well that he had no such rights.
11
Birkin did not have the financial resources to continue with the production
of complete cars and so reverted to manufacturing replacement and
13 conversion parts for existing cars and to suppling kits comprising chassis,
suspension parts and other components which enthusiasts could not obtain
15 elsewhere. With an injection of funds Birkin was eventually able to
11
1 resume the full time manufacture of complete cars marketed as Birkin
Sevens or Super Sevens.
3
[10] I now turn to consider the issues as they emerged during oral
argument. The heads of argument of Caterham tended to conceal counsel's 5 intentions and may largely be discounted.
[11] Howard JP, after referring to some authorities, English and
7 local, accepted as correct a statement by Webster & Page South African
Law of Trade Marks 3rd ed p 420 to the effect that since the ordinary rules
9 relating to jurisdiction apply to an action for passing-off, it is essential for
the plaintiff to prove that the goodwill he seeks to protect extends to the
11 area of jurisdiction of the court in which he sues. That, he held, meant that
Caterham had to prove the existence of goodwill "generated by sales"
13 within the area of jurisdiction of the court below. A similar statement of the
law is to be found in Star Industrial Company Limited v Yap Kwee Kor
15 (trading as New Star Industrial Company [1976] FSR 256 (PC) 269:
12
1
" A passing-off action is a remedy for the invasion of a right of
property not in the mark, name or get-up improperly used, but in the
3
business or goodwill likely to be injured by the misrepresentation
made by passing-off one person's goods as the goods of another.
5
Goodwill, as the subject of proprietary rights, is incapable of
subsisting by itself. It has no independent existence apart from the
7
business to which it is attached. It is local in character and divisible;
if the business is carried on in several countries a separate goodwill
9
attaches to it in each."
11 The proposition fits in with the first essential of a passing-off action as
formulated by Lord Fraser in Erven Warnick B V and Another v J Townend 13 & Sons (Hull) Ltd and Another [1979] AC 731 at 755,
namely that the
business of the plaintiff must consist of or include "selling in England a 15 class of goods to which the particular trade name
applies."
[12] Caterham's case as formulated in the court below was along 17 these lines: Lotus carried on business in South Africa; Lotus had
a goodwill
and reputation in the Lotus Seven Series I to IV; the goodwill and reputation 19 became that of Caterham during 1988 by virtue of
the assignment from
Lotus; since 1988 Birkin made a number of misrepresentations relating to
13
1 its car's provenance and that amounted to a passing-off. The problem is
that, if one applies the law as just stated, Caterham was doomed to fail. 3 Lotus stopped making the III before 1973, either in South
Africa or
elsewhere. There is also no indication that it had any business of any sort 5 in South Africa by 1988. There was thus no residual
goodwill which could
have been assigned in 1988. Following a similar factual route, Howard JP 7 dismissed the claim.
[13] It is necessary to pause and consider whether the statement in 9 Webster & Page does not conflate two different matters,
namely the
elements of the delict of passing-off and the requirements for jurisdiction. 11 The court below had jurisdiction, I would suggest,
because the defendants
reside within its area. Had they not been residents of that court, the 13 question would have been whether the claim in delict had
arisen within its
jurisdiction (cf Thomas v BMW South Africa (Pty)Ltd 1996 (2) SA 106 (C) 15 127G-H). The unrelated, but for this case germane, question
concerns the
14 1 elements of the wrong. They are the "classical trinity" of reputation (or
goodwill), misrepresentation and damage (Consorzio del Prosciutto di 3 Parma v Marks & Spencer PLC and Others [1991] RPC 351 (CA)
368 line
214 - 369 line 51).
5
[14] Our courts of first instance have so far adopted the same
approach as that of the court below (Slenderella Systems Incorporated of 7 America v Hawkins and Another 1959 (1) SA 519 (W) 521A-522B;
9 (Pty)Ltd 1981 (3) SA 1129 (T) 1138H-1140A; Tie Rack plc v Tie Rack Stores (Pty)Ltd and Another 1989 (4) SA 427 (T) 442G-445D). These
11 judgments are the reason for the characterisation of South Africa, with the UK, as the only major "hard line" jurisdictions
left (Wadlow The Law of
13 Passing-off 2nd ed p 98). The matter was recently debated in this Court, but the question was left open (McDonald's Corporation v Joburgers Drive-Inn
15 Restaurant (Pty) Ltd and Another 1997 (1) SA 1 (A) 15-19). It was pointed
15 1 out (at 16A-D) that the origin of the "hard line" is to be found in an oft-quoted dictum of Lord Macnaghten in The
Commissioners of Inland 3 Revenue v Muller & Co's Margerine Limited[1901] AC 217 (HL). Before I consider that case, it is convenient
first to focus on the general principles 5 of passing-off
[15] The essence of an action for passing-off is to protect a
7 business against a misrepresentation of a particular kind, namely that the
business, goods or services of the representor is that of the plaintiff or is
9 associated therewith (Capital Estate and General Agencies (Pty)Ltd and
Others v Holiday Inns Inc and Others 1977 (2) SA 916 (A) 929C-D). In
11 other words, it protects against deception as to a trade source or to a
business connection (Reckitt & Colman SA (Pty) Ltd v S C Johnson & Son
13 SA (Pty) Ltd 1993 (2) SA 307 (A) 315B). Misrepresentations of this kind
can be committed only in relation to a business that has goodwill or a
15 drawing power (Afrikaans: "werfkrag"). Goodwill is the totality of
16 1 attributes that lure or entice clients or potential clients to support a
particular business (cf A Becker and Co (Pty) Ltd v Becker and Others 1981 3 (3) SA 406 (A) 417A). The components of goodwill are
many and diverse
(O'Kennedy v Smit 1948 (2) SA 63 (C) 66; Jacob v Minister of Agriculture 5 1972 (4) SA 608 (W) 624 A- 625F). Well recognised are the
locality and
the personality of the driving force behind the business (ibid), business 7 licences (Receiver of Revenue, Cape v Cavanagh 1912 AD
459),
agreements such as restraints of trade (Botha and Another v Carapax 9 Shadeports (Pty) Ltd 1992 (1) SA 202 (A) 211H-I) and reputation.
These
components are not necessarily all present in the goodwill of any particular 11 business.
[16] The only component of goodwill of a business that can be 13 damaged by means of a passing-off is its reputation and it is for
this reason
that the first requirement for a successful passing-off action is proof of the 15 relevant reputation (Hoechst Pharmaceuticals (Pty)
Ltd v The Beauty Box
17 1 (Pty) Ltd (in liquidation) and Another 1987 (2) SA 600 (A) 613F-G; Brian
3 1985 (4) SA 466 (A)479D; Williams t/a Jenifer Williams & Associates and
Another v Life Line Southern Transvaal 1996 (3) SA 408 (A) 419A-B,
5 420B.) Misrepresentations concerning other components of goodwill are
protected by other causes of action such as claims for mjurious falsehoods.
7 It is thus incorrect to equate goodwill with reputation (or vice versa) or to
suggest that the "need for some reputation or secondary meaning to be
9 shown... is not a principle or rule of law" (Union Wine Ltd v E Snell & Co
Ltd 1990 (2) SA 180 (D) 1831-J). If the protection of the reputation of a
11 business is the only or main concern of the remedy, why is it necessary to
localise goodwill for purposes of passing-off? A similar question has been
13 posed more than once (cf Van Heerden & Neethling Unlawful Competition
(1995) p 178 -183 and NS Page in (1990) 2 SA Merc LJ 29). The answer
15 must be sought in The Commissioners of Inland Revenue v Muller & Co's
18 1 Margarine Ltd, a case which the Federal Court of Australia (General
Division) in ConAgra Inc v McCain Foods (Aust) Pty Ltd 23 IPR 193, 3 [1992] 106 ALR 465 encourages one to read as a whole and in context
and
not to rely on the famous dictum of Lord Macnaghten in isolation.
5
[17] The issue was whether a particular agreement was subject to
payment of stamp duty under the Stamp Act 1891. The Act imposed stamp 7 duty upon any agreement made in the UK except for the sale
of "any
property locally situate out of the United Kingdom." Simplified the facts 9 were these. One Muller had carried on a wholesale
business as
manufacturer of a margarine in a town in Germany. He sold, inter alia, the 11 goodwill of the business together with a covenant that
he would not be
engaged in a similar trade within fifty miles of that town. The main issue 13 was whether the goodwill of the business fell within
the statutory exception,
the Commissioners arguing that it did not because goodwill is incorporeal 15 and cannot be situate anywhere. The question was "whether
the goodwill
19
1 which is comprised in this contract has a locality for the purpose of the
Stamp Act" (Lord Davey at 226). Lord Macnaghten posed the same 3 question and proceeded to answer it (at 223 - 225) and I quote
his speech on the subject fully with underlining added:
5
"Then comes the question, Can it be said that goodwill has a local
situation within the meaning of the Act? I am disposed to agree with
7
an observation thrown out in the course of the argument, that it is not
easy to form a conception of property having no local situation.
9
What is goodwill? It is a thing very easy to describe, very difficult
to define. It is the benefit and advantage of the good name,
11
reputation, and connection of a business. It is the attractive force
which brings in custom. It is the one thing which distinguishes an
13
old-established business from a new business at its first start. The
goodwill of a business must emanate from a particular centre or
15
source. However widely extended or diffused its influence may be,
goodwill is worth nothing unless it has power of attraction sufficient
17
to bring customers home to the source from which it emanates.
Goodwill is composed of a variety of elements. It differs in its
19
composition in different trades and in different businesses in the
same trade. One element may preponderate here and another
21
element there. To analyze goodwill and split it up into its
component parts, to pare it down as the Commissioners desire to do
23
until nothing is left but a dry residuum ingrained in the actual place
where the business is carried on while everything else is in the air,
25
seems to me to be as useful for practical purposes as it would be to
20
1
resolve the human body into the various substances of which it is
said to be composed. The goodwill of a business is one whole, and
3
in a case like this it must be dealt with as such.
5
For my part, I think that if there is one attribute common to all cases
of goodwill it is the attribute of locality. For goodwill has no
7
independent existence. It cannot subsist by itself. It must be
attached to a business. Destroy the business, and the goodwill
9
perishes with it, though elements remain which may perhaps be
gathered up and be revived again. No doubt, where the reputation
11
of a business is very widely spread or where it is the article produced
rather that the producer of the article that has won popular favour,
13
it may be difficult to localise goodwill. But here. I think, there is no
difficulty. We have it in evidence that the firm of Muller & Co. had
15
no customers out of Germany, and it is a significant fact that the
protected area - the limit within which the vendor is prohibited from
17
setting up in business - is the limit of fifty miles from Gildehaus.
Moreover, under the Stamp Act of 1891 we are not required to
19
define the local situation of the goodwill. We have only to
determine whether it is or is not situate out of the United Kingdom.
21
Surely, if there were an agreement made in England for the sale of
a local German newspaper, the circulation of which did not extend
23
beyond a limited district in Germany, no one would doubt that the
goodwill of that business was locally situate out of the United
25
Kingdom; and so it must be, I think, in the present case."
27
[18] The conclusion arrived at was an inevitable consequence of
the question posed. As the underlined passages illustrate, the answer was
21
1 neither directed at passing-off nor intended to give an all-embracing
definition or analysis of the concept of "goodwill" irrespective of the 3 context in which it appears. The fact that, under
certain circumstances, the
locality of a business might be a component of goodwill, does not mean that 5 goodwill can only exist where the business is located.
This Lord
Macnaghten appreciated. One wonders what the drawing power of the 7 place of business is if the business is conducted solely by post
or over the
Internet. There is therefore merit in the view of Lockhart J, namely that the
9 law of passing-off should not be trammelled by definitions of goodwill
developed in the field of revenue laws (ConAgra Inc at 232 in IPR).
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